Shine bright like a diamond ????

Shine bright like a diamond ????

Welcome to Alternate Universe, a newsletter written by me, Owen, where I go down rabbit holes on the the latest investable trends, asset classes & technologies.

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I recently visited the lovely city of Antwerp in Belgium. Apart from the delicious chocolate and fries (sorry Dutch people??), I noticed loads of diamond shops.

After a quick search, I realized I was in the Diamantkwartier, the biggest diamond district in the world.

One search led to another, and here we are again.

Rabbit hole time.

??????

Chemistry ??

In high school chemistry, we learned that diamonds are just another form of carbon.

Diamonds are an allotrope of carbon, meaning they are a structurally different form of the same element. Carbon itself has other allotropes such as graphite, graphene, and buckminsterfullerene.

Yep - that’s a real allotrope, named after Buckminster Fuller.

Very creative there, Buck. ??

So, why are diamonds prized while graphite is not?

Source - ResearchGate

Diamonds have a unique crystal structure that gives them exceptional hardness, brilliance, and optical qualities. These properties make them highly sought after for both jewelry and industrial applications like cutting and drilling.

Interestingly, only about 20% of mined diamonds are suitable for jewelry-grade use. Investment diamonds represent a small segment of this 20%—large gemstones with specific characteristics, purchased for long-term holding rather than for wearing.

Not all diamonds are created equal.

The 4C framework determines gem quality and price:

  1. Clarity: Measures the stone's purity. Fewer blemishes mean higher value.
  2. Carat: Measures weight. One carat equals 200 mg. The price per carat increases with carat weight since larger diamonds are rarer and more desirable. This increase is not linear; for example, a 0.99-carat diamond is much cheaper than a 1.01-carat diamond.
  3. Cut: Refers to how well the diamond has been shaped and faceted, one of the most important factors in determining its beauty and brilliance.
  4. Color: Natural diamonds can have a light yellow tint. White diamonds receive the highest grading and are the most valuable in jewelry.


Market ??

Source: Statista

Russia and Botswana are the major diamond mining countries.

However, mining is merely the beginning of a complex value chain with multiple players and varied profit margins.

  1. Exploration & Mining: After identifying kimberlite-rich areas through mapping, the mining process begins. This can involve various techniques, including open-pit, underground, or marine mining. Significant capital expenditures are required to finance these operations.
  2. Cutting & Polishing: Transforming a rough stone into a gem involves artisanal tools and techniques. Traditionally, the main diamond-cutting centers have been New York, Antwerp, and Tel Aviv. India, Thailand, and China have recently experienced a boom in this industry.
  3. Distribution & Retail: Once diamonds are polished, they are distributed to wholesalers, manufacturers, and retailers. These entities sell the diamonds to consumers through various channels such as jewelry stores, online platforms, and auctions.

Modified from source: Bain Diamond Report 21-22

A crucial part of the value chain is served by diamond exchanges (or bourses). They act as marketplaces where rough and polished diamonds are traded between buyers and sellers, facilitating transactions and ensuring liquidity. Over 80% of the world’s diamond supply is traded in Antwerp exchanges. ??

Issues??

Diamonds are synonymous with one name - DeBeers.

The story of how one company cornered the market is fascinating.

Cecil Rhodes was a businessman who grew up in the English countryside. In 1871, he was sent to South Africa to assist his brother, Herbert on the family’s cotton farm. After that business failed, he quickly became captivated by the diamond rush in Kimberley.

Rhodes soon realized that the diamond industry was highly fragmented and competitive. Numerous small operators meant that the market was chaotic and diamond prices were volatile.

Rhodes's keen business acumen led him to see the potential for consolidating these scattered mining claims. He strategically acquired claims, often using loans and reinvesting profits to purchase even more land. His ambition extended beyond mere ownership; he envisioned a monopoly that could stabilize the market and control diamond prices.

In 1888, Rhodes achieved a significant milestone by merging his claims with those of Barney Barnato, another prominent figure in the diamond industry. This merger formed the De Beers Consolidated Mines, named after the De Beers brothers, who had originally owned a farm where diamonds were discovered.

Cecil Rhodes (left) and Kimberley, South Africa (right)


At its peak, the company controlled over 80% of the world's diamond supply and tightly regulated diamond prices.

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