REDAURUM: BARGAIN MINING AT KELSEY LAKE

In the increasingly competitive world of diamond mining, Redaurum, developer of the Kelsey Lake deposit in Colorado, gets the job done for a fraction of what the big guys spend.

De Beers spends upward of half a billion dollars to develop its mines; BHP expects to spend almost the same bringing the Lac de Gras deposit in Northern Canada on line. But Redaurum’s tab for developing Kelsey Lake is only $2 million. “We like to characterize ourselves as a small, low-cost producer,” says Tony Hamilton, Redaurum’s London-based managing director. “We use reconditioned equipment, manage our own operations instead of bringing in outside contractors and keep costs under tight control.”

Of course, Redaurum isn’t developing million-carat-yearly diamond mines in remote, hostile environments like some other mining companies. (“We target smaller deposits that De Beers and others don’t want to be bothered with,” Hamilton says.) Nor will it join the rush to mine off-coast ocean beds. (“Those ships cost $25 million or more,” he says.)

A case in point is the River Ranch deposit in Zimbabwe. De Beers walked away from the deposit several years ago, saying it couldn’t reach an agreement with the government to develop it profitably. Redaurum came in with a 50-50 proposition and an economical $14 million development plan for which it put up half the money. “At those prices, the venture was very profitable,” Hamilton says.

River Ranch will produce an estimated 500,000 carats this year, 65% of it gem quality, though relatively small stones. Recent prices at tender offers in Antwerp have been disappointing, says Hamilton, though the venture is profitable. “There’s an overabundance of very small diamonds on the market,” he says. “We’ve recommended increasing the screen size [in the sifters] so we won’t recover the very smallest goods — 0.5mm to 2mm. This comprises 15% of our production, but there are too many such goods on the market today. The $1.50 per carat we get for them isn’t worth the cost of recovering them.”

In the U.S.: Kelsey Lake, near the Colorado-Wyoming border, is the first U.S. source of commercially produced diamonds. The first 3,000-ct. parcel of rough awaits sale, though Redaurum hasn’t settled its marketing arrangements. “We’re still talking with U.S. retailers and diamond dealers,” Hamilton says.

The Kelsey Lake plant, which went on-line this spring, is designed to treat up to 200 metric tons of kimberlite material per hour and should yield some 25,000 carats of diamonds by year’s end. That should rise to 100,000 carats next year.

Hamilton expects Kelsey Lake to be very profitable because operating costs are projected to be reasonably low while production is fairly high quality. A quarter of the diamonds weigh more than a carat. Hamilton won’t disclose the benchmark average price its sample parcels have achieved, but says it’s more than $150 per carat.

And there may be more where these came from. The deposit comprises a cluster of eight kimberlite pipes. Only the two largest (KL1 and KL2) have been developed so far.The other six are being tested, though at least two have been found too small to be economical to develop, says Hamilton.

Redaurum recently acquired two small, high-value diamond operations in South Africa. Avontuur now produces about 1,000 carats per month and Quaggas Kop roughly double that; about 90% is gem quality, he says. Redaurum sells the output by tender offer in South Africa.

In total, Redaurum expects to produce and sell some 750,000 carats of diamonds next year. None will go through De Beers Central Selling Organisation, which markets 75% to 80% of the world’s rough diamonds. Hamilton says smaller producers such as Redaurum can do better riding the CSO’s coattails than selling through the organization; they avoid the markup, advertising and other expenses the CSO factors into its pricing.

“When you look at other commodities,” he says, “it’s easy to see the CSO has done an excellent job keeping the diamond market stable and strong. We can benefit from that stability.”

UTE KLEIN BERNHARDT AND THE PAPAL CAMEO

For U.S. gem carver Ute Klein Bernhardt, the journey to the Vatican to carve a likeness of Pope John Paul II on a pristine slice of two-toned agate was a voyage filled with wonder, learning and serendipity.

This marks the first time a papal cameo was carved on-site in the Vatican and the first time an American undertook the assignment.

Bernhardt is no stranger to carving famous figures: she has carved likenesses of dancer Mikhail Baryshnikov in slices of Maine tourmaline and of Conrad Wild, a legendary gem carver inIdar-Oberstein, Germany. (She herself is the third generation of carvers once based in Idar-Oberstein.)

Slow path to the Vatican: In one sense, her trip to the Vatican began in 1993 when Bishop Paul of the Diocese of La Crosse visited an exhibition of her work in the New Visions Gallery in Marshfield, Wis. He suggested she contact Monsignor Raymond Burke in Rome to inquire about carved gems in the papal collection. Sister Lauretta G. McCusker, a friend of Bernhardt’s, was able to arrange for her to visit the Vatican Library in fall 1993.

Before her trip to the Vatican, Bernhardt exhibited 15 pieces of her work at the Museum Idar-Oberstein and viewed carved gems in various collections in Paris. Finally, she felt she was ready to study the Vatican’s cameos and other carvings. She met with Monsignor Burke in the Vatican and even showed him four of her carvings and her slide portfolio.

His opinion must have been positive. “The visit led to my being commissioned to carve a new papal cameo of Pope John Paul II,” says Bernhardt. “I agreed immediately to this honor and offered my work up as a gift to the Holy Father.” The monsignor visited Bernhardt in her home in summer 1994 and took back with him the 46.5mm translucent white-on-red agate cameo blank on which the image was to be carved.

“I really wanted to get to know the man before I started the carving,” Bernhardt remembers. “I wanted to control the intangibles, the things you do not see in pictures. To do this, I needed insights into His Holiness, a chance to really observe the simple yet very complex man that he is: his humor, his warmth and humbleness.” So on the first day of 1995, Bernhardt journeyed to the Vatican with a serious assemblage of tools to make up her portable carving studio: a special spindle handed down from her father, gravers, diamond sintered tools, dental laboratory engine, stool and table.

She pored over pictures of the pope. She attended the ordination of 10 bishops. (“From where I sat behind the clergy, I had a clear view to the pope as he came in with his shepherd’s staff and walked up the entire length of St. Peter’s Basilica. It was a truly incredible, overpowering sight.”) On Jan. 4, she had her first audience with the pope. She started to carve the very next day. “The first move was to prepare my mind for the task at hand,”she recalls. “I had to calm my emotions, trust in God — and just start.”

Bernhardt saw the pope several more times, each time picking up more nuances that make up the man. “I read part of his doctoral thesis and a series of his lovely poems and plays,” she says. “I tried to capture the spirit of a man who had endured great hardships in life, but who had not been broken. I saw an image that was athletic and vital.”

Every day, Bernhardt worked from 9 a.m. to 6:30 p.m. Every night, the carving was tucked safely into the Vatican vaults. On Jan. 26, Prefect Father Leonard Boyle of the Vatican Library peered over her shoulder and remarked:”Don’t give him so much as a razor-nick.” The cameo was completed.

“I just knew it was finished because the piece was no longer mine,” Bernhardt says. “I was drained and exhausted and there was nothing left to do. I had just become a vessel to the cameo’s completion.”

The carving was presented to Pope John Paul II Feb. 15, 1995, in the Vatican audience hall. Bernhardt was joined by her daughter, Julia, and Monsignor Boyle. Bernhardt remembers the pope as being “very surprised.” He must have been pleased as well, because he keeps the cameo in his apartment.

While working at the Vatican, Bernhardt also had a chance to study its treasures, including the Giuseppe Girometti collection of carvings dating to the late 1700s. Girometti was once employed at the Papal Mint as a carver of medals. She also viewed and researched collections of carved gems dating back to carnelian pre-Christian works. In addition, Bernhardt furnished technical data on carving techniques to Dr. Christine Graefinger, a scholar who is drafting a research paper on the papal collection of engraved gems.

LARGE ROUGH SCARCE DESPITE ANGOLA CHAOS

Better and medium quality rough diamonds have been in short supply on the markets, and De Beers’ Central Selling Organisation hasn’t been very generous with such goods at its sight allocations this year. But there’s no scarcity at the source.

Angola’s illicit miners and ex-guerrilla troops have dug up and sold some $600 million worth of diamonds in the past six months, though the flood has slowed in recent weeks. Market sources say virtually all of these stones have gone into De Beers’ London stockpile. The CSO says only that it “continues to support the market by buying Angolan rough.”

“De Beers has buttoned things up very well, judging by the shortages in the market today,” says Martyn Marriott, a consultant in London who works with the Angolan government.

The diamonds have come through a variety of channels, says Marriott. De Beers bought $50 million worth from its office in Luanda (Angola’s capital) and “much, much more” from its office in Antwerp. Many operators smuggle Angola’s diamonds north into Zaire, where they are exported from that country’s capital, Kinshasa.

The rebel group UNITA has earned millions for its war effort by mining diamonds in some areas, particularly Luzamba, and has established its own distribution channels. Indeed, UNITA is so well ensconced that few analysts believe it will ever fully surrender its illicit mining activities in northeastern Angola.

War & diamonds: Angola’s official diamond production averaged 1 million carats yearly through the late 1980s, with 90% of it gem quality. The government controlled most diamond-producing areas then, but today almost all diamonds come from illegal diggers and UNITA.

UNITA and the ruling MPLA party have been at war since Angola became independent in 1973. Late in 1991, the two sides called a cease fire pending elections to decide the country’s future. During the cease fire, former soldiers, deserters and farmers moved onto the diamond fields and extracted some $650 million worth before rains and renewed fighting drove them away.

The two parties signed another peace accord in late 1994 and the United Nations sent in peacekeepers. But UNITA already controlled much of the Lunda Norte region where most of the diamond deposits lie. When UNITA pulled out of some areas, diamond diggers and their heavily armed “protectors” moved in.

The government began a major push to take control of these areas last fall. But since then, more than 100 government soldiers have been killed monthly in confrontations with diamond diggers and UNITA miners, according to U.N. reports. The impasse could threaten the entire peace process, because Angola desperately needs diamond revenue. The government estimates it could earn $500 million to $600 million yearly if it could restore orderly mining operations; it now receives less than 10% of that.

The government has decided to divide the area into concessions and offer them to small mining companies that would pay taxes and royalties on diamonds they export. UNITA reportedly has formed several companies to file claims on certain concessions and another company to market the diamonds.

De Beers’ involvement: In 1992, the need to mop up the flood of Angolan diamonds led the CSO to reduce purchases from other producers by 25%. This was later reduced to 15%. But before the reduction could be eliminated, the markets were flooded again as Russia began to sell from its stockpile.

Will the CSO raise that quota reduction again? CSO executives won’t comment, but analysts don’t believe it will happen. The reduction rankled some producers by cutting into their bottom lines and was the chief reason Australia’s Argyle Diamonds said it wanted to go independent when its sales contract expired in June (see JCK, May 1996, p. 98).

In addition, the flood from Angola has caused little concern this time, for several reasons:

• The two major markets, the U.S. and Japan, aren’t in recession as they were in 1992, so there’s no worry about consumer offtake for the stones over the medium and long term.

• The diamond world has been so preoccupied with Russia’s sales outside the CSO and whether it would reach a new marketing agreement with theCSO that diamonds from Angola have slipped by nearly unnoticed.

• The Angolan situation can change by the minute so everyone, including De Beers, is prepared to expect the unexpected.

De Beers has sufficient faith in Angola’s future to sign an agreement with the government to spend $75 million over three years exploring for diamonds in several areas. De Beers says prospecting operations will begin this year and a base camp will be established “as soon as the security situation permits.”

INVENTOR SEEKS BACKING FOR GRADER

An engineer who is developing a machine designed to grade diamonds for color, cut and clarity and to detect fracture-fillings and synthetics in the same process has teamed with Michael Roman, who retired as chairman of Jewelers of America last year.

Roman is spearheading an effort to raise $600,000 from investors to build a prototype from which production models of the diamond grader could be created at a much lower cost. Roman is serving without pay “because I believe such a machine will help bolster consumer confidence in diamonds.” The device would determine the quality of a diamond quickly and accurately, says Roman. And consumers could use it even to assure that a diamond hadn’t been switched.

The engineer involved in the project is Clyde Engert, vice president of Kansas Technology Enterprises. KTE, located in Topeka, Kan., is a not-for-profit agency affiliated with the state. Engert says his project uses different technology than other grading devices. “We will be able to measure differences in a diamond’s color far beyond the ability of a human eye to detect them,” he says. For example, fluorescence and black inclusions often “fool” existing color grading machines, but he says they can be factored into the device he’s creating.

A computer-generated three-dimensional model of the stone being examined will show the exact size and location of every inclusion to establish a clarity grade. The same function will be used to detect fracture fillings.

Engert has the hardware working and says the main thrust of the project now is to develop software that can convert all of the math and physics data into a readable format. That’s where the money comes in. Once the prototype is completed, the next step, which is expected to cost about $4.5 million, is to develop a production model that’s easy to use and affordable. “There will be some new inventions involved, but the good news is that most of the development will be in software, so the machine will be easy to miniaturize once we get moving,” he explains.

Anyone interested in investing in the project should contact Roman at 105 Woodside Dr., Greenwich, CT 06830.

DIAMOND TRADE UNITES TO TACKLE ISSUES

The U.S. diamond trade can confront hard issues with a more unified face than ever before because the largest centers — New York, Los Angeles and Miami — are now joined in the Diamond Industry Steering Committee.

“The U.S. is the world’s largest diamond-consuming nation,” says Tibor Stern, president of the Diamond Dealers Club of Florida. “It’s imperative that we speak with one voice, so we believe it’s essential to be part of DISC.”

Members of all three clubs will now be represented in visits to other diamond centers and in meetings with representatives of De Beers’ Central Selling Organisation. “This will further communications and help us all make a better living,” says Stern.

Adds Walter Feinblum, president of the Diamond Dealers Club West Coast, “Better communication will also help us work better within our own communities. Credit and market information can flow much more quickly.”

Eli Izhakoff, president of the New York Diamond Dealers Club and chairman of DISC, says the unification will enable DISC to better represent the U.S. diamond industry and to disseminate information to consumers. It’s imperative that the U.S. diamond industry have better communications with the American consumer to help counter negative news reports, he says. “The two new member clubs can help greatly with that process,” he says. “We all deal in the same markets and share the same issues.”

The primary focus of DISC will remain promotion of the U.S. diamond market to the world, Izhakoff stresses. Plans call for a business-building trip to the Far East, with stops in South Korea, Indonesia and Malaysia. Future trips may include the Middle East. “The message we bring to these markets is that we offer the unique blend of service, the best selection of larger goods and a very good selection of smaller diamonds as well,” says Izhakoff.

DISC also plans to set up trading and information exchanges on the Internet, says Stern.