|Loose Gemstones -- From the Mine to the Market
How do loose gemstones get from the mine to the market? Are there a few big buyers who get get first crack at the best stones, leaving the second rate stuff for the rest of us? If you went directly to the mine could you get the best deal on loose rubies or sapphires?
We get asked these sorts of questions on a regular basis. The supply chain for loose colored gemstones is a mystery to many, including many gem dealers who don't buy or sell rough gemstones. By the time colored gems arrive in America or Europe they may have passed through dozens of hands since the miner dug the material out of the ground, and each pair of hands that touches the gems adds another 20-50% to the final selling price. If you could only cut out some of the middlemen, what a deal you could get!
One reason the supply chain for colored gems is a bit of a mystery is that colored stones, unlike diamonds, are mostly mined by independent, small-scale miners, working in remote locations in far away places such as Sri Lanka, Madagascar, Tanzania, Kenya, Pakistan, Burma, Afghanistan, Columbia and Bolivia. Mining is carried out with pick and shovel, and only rarely with heavy equipment.
In Sri Lanka, for example, there are more than 5,000 registered colored gemstone mining locations on the island. The majority of these pits measure no more than three by three meters, and go down to a maximum depth of 25 meters. Colored gemstone mining is so labor intensive that it is estimated that more than 500,000 people in Madagascar are involved in the gemstone sector, despite the fact that Madagascar became an important gemstone source only in the 1990's.
Independent miners typically want to turn their hard work into cash as soon as possible. Usually this means taking the rough stone to a local market in the nearest town, or selling the rough to someone who has transportation to the local market.
The miner will very rarely sell to a foreign buyer at the mine. For one thing, the foreign buyer has to find the mine, often a difficult and dangerous task; for another, the miner is really not interested in disclosing his mining location!
The local market may or may not be open to foreign buyers. Local businessmen see an opportunity to play middleman between the miner and the foreign buyers, and there may in fact be several levels of middlemen, each taking their share. These middlemen know the prices that the rough stone will fetch in the international market and if the prices are too low in the local market they will arrange to take the goods abroad to maximize their profits. So the idea that you can take a trip to the mining source and buy loose gemstones at a tremendous bargain is really a myth.
The middlemen in the local market are not the only route to the international market. Many miners realize that selling to local businessman is not a good economic strategy. Why let the middleman take most of the profit when the miner has done all the hard work? Thus many miners develop business relationships with relatives or trusted friends who will take the rough stone to the foreign market and obtain a much better price.
Many of the African traders we see here in Chanthaburi, Thailand have direct relationships with miners in their home country. These traders come to Chanthaburi because there are a large number of gem dealers here who know how to process the rough stone and will pay a fair market price for it. Most importantly, there is a constant demand here so traders are assured of being able to move their goods quickly.
A gem processing center like Chanthaburi plays an important role in the international supply chain. Because gem cutting is still largely a cottage industry here, traders can sell small lots that wouldn't be of interest to a huge factory. Chanthaburi dealers reach the market for their finished loose gemstones via Bangkok or, in the case of GemSelect, through the internet. A loose sapphire from the GemSelect website may actually have passed through only a few hands since the miner brought the stone out of the mine. This sort of efficiency in the supply chain can lead to huge disparities in price. Check the price per carat of loose sapphire, tourmaline and spinel in your local jewelry store and you'll get a clear sense of what happens when there are dozens of steps in the supply chain.