Title:
Tanzanite transformed: tanzanite one introduces quality grading, pricing
changes, and a sight system; The company that owns the rights to mine the
lion's share of tanzanite rough is taking a page from the De Beers
playbook.(TANZANITE TRANSFORMATION)
Date:
5/1/2005; Publication: Jewelers Circular Keystone; Author:
Roskin, Gary
Although tanzanite is both rare
and popular, its proliferation on TV shopping channels, wide availability in
Tucson, and relatively low price per carat seem to contradict the laws of
supply and demand.
TanzaniteOne, the company that
owns the rights to mine the world's prime tanzanite location, says tanzanite
has become "commoditized due to the lack of a ubiquitous grading system and
... this commoditization has caused a price distortion in which fine-quality
goods are significantly underpriced and in the same instance lesser-quality
goods are overpriced."
TanzaniteOne has plans to
remedy that "price distortion." The company, formerly called Afgem, has
established the nonprofit Tanzanite Foundation, which has developed a
quality-grading system that justifies a wider range of prices.
COLOR. The new system's
color-grading scales divide tanzanite colors into two different hues, blue
violet and violet blue.
Each has 10 saturation levels:
Cutting will be analyzed, also
in five basic categories: Excellent, Fine, Good, Fair, and Poor.
An international laboratory
(yet to be finalized) will grade cut stones, which will get laser
inscriptions on the table. The inscription, the Tanzanite Foundation's Mark
of Rarity, assures the consumer that the stone has followed an ethical route
to market and has been graded in accordance with an internationally accepted
standard.
The Tanzanite Foundation will
provide an inscription reader to make it easier for consumers to see the
mark. "You would be able to see the Mark of Rarity using a good microscope,"
says Nunn, "but the viewer is really great to have in store for the
consumer."
Stones that are recut can be
inscribed again if necessary. The laboratory would perform a verification
service and then reinscribe the stone.
Nunn recognizes that raising
the price of rough could lead to poor cutting if cutters try to maximize
weight retention to help reduce the final cost, but assigning a professional
laboratory to grade cut and including Fair and Poor on the cut-grade scale
should limit the practice.
$1,000/CT. TANZANITE. To change
market pricing will mean pricing the rough according to estimated weight and
the new quality grade recovered after cutting. While most rough is purchased
based on estimates of weight and quality recovered, the new system closely
resembles De Beers' method of selling diamond rough. De Beers can price out
potential D/Flawless rough, all the way down to near gem. Now TanzaniteOne
can price out potential blue-violet Vivid Exceptional/Internally Flawless
rough down through blue-violet Pale/Heavily Included. TanzaniteOne will
follow this and other successful De Beers models for market control, which
it calls Preferred Supply Strategy.
The classic De Beers strategy
is to control supply. TanzaniteOne, which already gathers the majority of
tanzanite rough and polished goods through its own mine production as well
as purchases from other local sources, apparently has achieved this portion
of the model. To accomplish another key element of the De Beers
model--controlling the flow of tanzanite into the industry--it will hold
tanzanite sights six times per year, for six to eight handpicked businesses.
Sightholders will be chosen
based on eight criteria: having a focused tanzanite business, proven
financial strength, the ability to make long-term commitments, distribution
capabilities, understanding the need for vertical integration, commitment to
and financial support of the Tanzanite Foundation, operational standards of
the highest integrity, and ensuring an ethical route to market. This follows
De Beers' Supplier of Choice model.
TanzaniteOne will package and
present individual sight parcels to the sightholders, who are invited to buy
a particular parcel. In keeping with the De Beers model, there will be no
haggling. For companies that want to acquire a sizable amount of product,
there is no serious alternative.
THE OLD SYSTEM. In the past,
TanzaniteOne, or Afgem, held auctions about once every three months. "The
companies that we invited were large firms that would cut the majority of
the material," says Nunn. "We accepted the highest bid, as long as it was
above our reserve price." If the companies bought a large amount of unwanted
smaller goods, they sold the material in the Jaipur, India, market.
Typically, only four or five
parcels were available and were sold separately. Although companies couldn't
make an offer on the entire production, it was possible for a single company
to be the highest bidder for each individual parcel. "This sometimes caused
a bit of unhappiness among the other companies," notes Nunn. "And even if
all four parcels were sold to separate companies, we still had eight or so
unhappy companies leaving us the next day."
Nunn says the old auction
system benefited the company, but she recognized that the process was unfair
and very expensive for those who went home empty-handed. It also was
difficult for those companies to promote tanzanite, since they never knew
when they'd have goods.
"Our sightholder system is
really better for the industry," says Nunn. "Companies know where they stand
and can develop their factories, jewelry lines, advertising, and marketing
accordingly."
Stuart Robertson of The Guide
doesn't anticipate any immediate price increases for tanzanite. It will take
some months before new goods enter the marketplace.
"Tanzanite prices have
fluctuated during the past several years," Robertson says. "However, they
remain below their highs posted in the 1970s and 1980s."
Robertson agrees that the price
range for tanzanite could be broadened. "The current plan to reorganize the
distribution channels will eventually lead to higher prices in the
finer-quality materials and may lead to a price reduction for
commercial-quality stones," he says. "During the past few years, prices have
been on a gradual increase. However, tanzanite is present in the market in
sufficient quantity to suggest that any significant price jump can only
occur slowly, if at all."
Tanzanite Single-Stone Memo
Prices:
RELATED ARTICLE: From Afgem to
TanzaniteOne: A Brief History
1999 Afgem acquires mining
lease from Tanzanian Government.
2000 Afgem begins constructing
modern mining facilities and lists on the Johannesburg Stock Exchange.
2001 Afgem wins skirmishes with
independent miners unhappy with the new mining arrangements.
2002 Afgem and small-scale
miners see tanzanite's popularity and prices plummet after reports allege
that al Qaeda is using tanzanite for money laundering. AGTA and others help
Tanzania establish protocols to track goods from mine to retail counter.
2003 Afgem's tanzanite business
and assets are acquired by the TanzaniteOne Group, a Bermuda-based business
formed by Afgem officers, with the intention of listing the company on the
Alternative Investment Market of the London Stock Exchange (AIM).
2004 TanzaniteOne is listed on
the London Stock Exchange.
2005 TanzaniteOne holds first
sight, March 16. Seven sightholders participate.
The Merelani Hills of Tanzania
is the world's only known commercial source for gem-quality zoisite that can
be heated to create tanzanite. The site is divided into four blocks, A
through D. Block A has never produced much, and production from B and D is
said to be dwindling.
Block C, which, according to
most accounts, is where the majority of tanzanite rough will be unearthed,
is leased to TanzaniteOne, formerly Afgem. Block C's life expectancy is 12
to 15 years, which means it will be mined only until the year 2020.
BY GARY ROSKIN, G.G., FGA,
SENIOR EDITOR
