Avoiding red faces from pink diamonds

With the amount of interest, money, and investment in Argyle pink diamonds, the industry is rife with hazards, and it can be an absolute minefield…

With the amount of interest, money, and investment in Argyle pink diamonds, the industry is rife with hazards, and it can be an absolute minefield for the modern investor, supplier and jeweller when buying an investment stone. No one knows this better than John Chapman – a scientist and optical engineer who formerly specialised in the characteristics of colour in diamonds at Rio Tinto. During a wide-ranging discussion he covered Argyle pink diamond authenticity and certification, pricing and investment, and possible future Australian coloured diamond deposits.

When it comes to purchasing Argyle pink diamonds, John said it’s buyer beware, because the industry is ripe for unscrupulous behaviour around the way the diamonds are produced, finished, certified, advertised and sold. Some pitfalls included treated pink diamonds being sold as natural, non-Argyle pink diamonds being sold as Argyle pink diamonds, false Argyle inscriptions, and all the murkiness around diamond pricing. One major issue which is at the root of all this, is that many pink diamonds, especially the smaller ones, mined in the earlier years of the mine’s operation were not certified by Argyle.

Argyle pinks are rare, certified Argyle pinks rarer still

John suspects tens of thousands of stray uncertified Argyle Pink Diamonds are flowing around the Australian market alone, due to the criteria for certification during the life of the Argyle mine. He said that the mine initially only certified the diamonds if they were above 20 points, before lowering it to 15 and then 8.

“So in these periods, the vast majority of them were not being certified. Even today all pinks under 8 points: none of them are certified, and now even these can be worth several thousand dollars.”

When an Argyle pink diamond isn’t

Given the amount of money that’s in the business, it’s no surprise the Argyle pink diamond industry attracts deceptive techniques by some sellers though, usually out of innocence, they might sell inauthentic Argyle pink diamonds to unsuspecting buyers. John has seen this on numerous occasions through his work as founder and principal at Delta Diamond Laboratory: an independent Perth-based lab which provides the most advanced service for certifying the origin of pink, blue and violet diamonds from the Argyle mine. John has spent much of his working life working for Argyle Diamonds and has designed and built most of his lab’s optical equipment.

John’s lab has often been placed in the uncomfortable position of having to reveal to a customer that their Argyle pink diamond isn’t quite the stone they thought it was. In some cases, John has to tell them their stone didn’t originate from the Argyle mine. 

“There have been a few instances where they (the diamond owner) believed it was Argyle, the label would say ‘Argyle’ on it, and I’d have to tell them the bad news that actually it isn’t.”

He said that in almost all these instances, the owner has relied on their supplier. John said it’s common for the supplier not to know that a diamond may not be from Argyle, “as there can be quite a few operators in the pipeline from rough to retailer.”

Then there are instances in which customers who’ve bought a pink diamond with a certificate that says it’s natural come to Delta Diamond Lab to ask whether it’s Argyle, and John has to break it to them, “The diamond is not even natural!”

How the scam works

Smaller auction houses are where John thinks it can be particularly hazardous for buyers because he said certificates can be supplied that look quite genuine. The winning bidders don’t have any recourse when they discover the pink diamond is not what the certificate says.

“If you’re a layman and don’t know any better, and if you look at the website of one of the outfits issuing such fraudulent certificates, it shows wonderful pictures of Argyle pink diamonds with comforting words such as ‘We work to the highest standard of ethics with the most advanced equipment, etc’.

“These buyers will be stung badly because presumably they’ll be paying tens of thousands for something that’s worth $1,000 or so.”

John also said there are occasions when treated pink diamonds are sold as natural pink diamonds. 

He detailed an embarrassing personal example when he saw a “Natural Argyle 0.10ct Vivid Pink Diamond” advertised on eBay with a starting bid of $50. John bid $70 for it “just for a laugh”, won it, and when he received it, his tests revealed that it was a natural brown diamond which may have actually been from Argyle, but had been treated so it appeared pink. However, he assured readers that not many natural diamonds are treated like this because the starting material for each stone is different. “Nature is like that – the end result is uncertain. Whereas with lab-grown diamonds you can make the starting material much more consistent.”

A similar scam involves applying a coating to the back of a diamond. John said the processors usually start with a pale brown diamond because they’re cheap. They then apply a coating to the underside of the stone. The coating is similar to the coating that’s on a camera lens that blocks reflections, but instead has a colour.

“So face-up the diamonds looks blue or green or (especially) pink, which is what they’ll target because, to obtain maximum bang for your buck, they will aim for pink or red.

“I know a person who performs this service and he claims to have been treating thousands of carats a month, but strangely I have only been aware of a few on the market.”

John said one of the more insidious examples of this is when someone has a pale pink diamond which is certified by the GIA as being natural, but then has a coating applied to make it a more intense pink.

Finally, John said there are people fraudulently laser engraving ‘Argyle’ onto pink diamonds.

“There are lots of services offering laser engraving of diamonds so it’s not too hard to arrange an inscription with the Argyle logo or the word ‘Argyle’, and to the unsuspecting person, it appears genuine. In most cases, I find the diamond is of Argyle origin, but that cannot be presumed.

“So, I suppose these are all simply warnings of why it’s necessary to go to a reputable lab.”

The pricing problem

Another area John found to be perilous is in assessing an Argyle pink diamond’s true value. He said the first problem is that there’s no price guide, no Rapaport Report for coloured diamonds to get an idea of value.

“Take the example of someone who has a pink diamond that’s over a carat, so it’s a nice size, but it’s badly included, so it doesn’t necessarily look very good.

“So, what price should a buyer pay for it? In at least one instance the owner of such a diamond has been trying to sell it for years – and it’s still on the market. I suppose at some price it will be an attractive purchase, but what price?”

He said the other difficulty is the factor that a diamond’s aesthetic appearance plays on price: where two pink diamonds are described exactly the same on their grading certificates, but may look quite different.

“It’s not unusual. I’ve seen examples where a trader had two diamonds with very similar weight, colour, shape and clarity, but one’s half the price of the other simply because one of them is ‘dead’ and the other is ‘alive’ by virtue of the faceting and the natural inclusions.”

“Appearance is a strong factor and that factor isn’t quantised on a certificate. In that respect, even a price guide would be of limited use”.

Another issue that confuses the market is the issue of smaller labs being pressured to grade diamonds as being better than they actually are through the threat of losing business. John used the U.S. as an example, which he estimates has 20 or more diamond grading labs.

“If you’re a jeweller or someone with quite a bit of business, you might go to one lab and they’ll say, ‘This is not such a good colour or clarity or level of fluorescence.’ [The diamond owner] will tell them ‘I want this colour/clarity, and if you don’t give it to me, I’m going to go to another lab.’”

In this way, he said the lab is forced to move their standards in order to keep their business. A similar problem occurs with valuers being beholden to customers wanting a particular valuation, John added.

John stressed that these shady practices of labs and valuers he has seen applied to overseas labs and are not the norm by any means. The issues remain important pitfalls in the trade that people need to be aware of.

Currently Delta Diamond Lab doesn’t issue grading certificates, though it is “on the radar”, John said.

Australia’s coloured diamond mining future

John wasn’t optimistic of another significant coloured diamond deposit being discovered in the near future. In his opinion, even the Ellendale mines will only produce yellow diamonds during their productive years, and not in any great volume.

“Because the miners are no longer accessing the pipe, they’re now relying on alluvials. That’s a different kettle of fish, and you’re not going to extract the volumes out of that.”

He said the only prospect of more coloured diamonds coming out of Australia is with undiscovered mines. Explorers have already been quite active in that field, and John explained that the difficulty is that lots of kimberlites and lamproites can be found, but to process a sample to determine if they’re firstly diamondiferous and secondly economically viable takes a long time.

“If you’ve got 100 targets, which ones do you pick? It’s a bit of a lottery.”

He said there are a few prospects in the Northern Territory whose viability is still unknown, and the Merlin mine which was producing for a while, but which he described as marginally economical.

“But we have a big country, and we find other minerals by surprise, so I wouldn’t rule out the prospect of another big diamond discovery.”

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