OP-ED SYNTHETIC - Diamond Prices, Rapaport News And .

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OP-EDSYNTHETICDIAMOND SCAMDiCaprio's synthetic diamonds threaten the lives of millions of artisanal diggers.By Martin RapaportSome people think that synthetic diamonds arean important new addition to the jewelry trade.They believe that Millennial consumers willbe attracted to more ethical diamonds createdwith advanced technology. Many dealers andretailers are embracing synthetics in a desperate attemptto maintain profit margins and survive in a difficulteconomic environment. While traditional diamonddealers and jewelers are still unsure whether or not tosell synthetics, some forward-thinking firms believe thatsynthetic diamond jewelry is the wave of the future andthat Millennials will prefer synthetics to the real thing.As one who creates and supports fair, transparent,competitive, efficient markets, it would be wrong tocriticize synthetic diamonds because they are not naturaldiamonds. Markets and consumers should be offered thebroadest basket of products and services. New sustainableproducts should be encouraged and rewarded. After all,aren’t synthetic diamonds good if they breathe new lifeinto an old, staid, traditional, declining diamond market?Shouldn’t diamond demand be encouraged, natural,synthetic or otherwise?Also, aren’t synthetic diamonds a good thing if they forceDe Beers and other mining companies to significantlyincrease their marketing and promotion spend? Isn’tcompetition good for business? Finally, who says jewelryindustry profits should be limited by what comes out ofthe ground? Why can’t cutters, dealers and retailers beable to make money from synthetic diamonds?If there are good reasons to support synthetic diamonds,then what’s the problem? What’s wrong with syntheticdiamonds?Unfortunately, in spite of the positive commentsdetailed above, the way synthetic diamonds are currently34 Rapaport April 2016marketed and sold is fundamentally unethical, dishonestand misleading. Essentially, the current market for syntheticdiamonds is evil and consumers that buy them are suckers.MARKETING SYNTHETIC ETHICSThose that market synthetic diamonds, claiming thatthey are a more ethical alternative to natural diamonds, aremaking false claims that threaten the lives and livelihoodof millions of artisanal diggers.One and a half million diamond diggers and theseven million people they support rely on the sale oftheir natural diamonds to sustain their lives. Those thatmarket synthetic diamonds as an alternative to fair tradeand development diamonds are taking bread out of themouths of the poorest people in the world. The right,ethical thing to do is to support the diamond diggersby creating fair trade natural diamonds and jewelry thatprovide life and sustenance to millions of diggers.While new products and innovation should besupported, we cannot support products that makedishonest ethical claims that harm people. It is highlyunethical to claim that synthetic diamonds are moreethical than natural diamonds so that you can makemore money, while destroying the lives of the poorestand neediest people in the world. Synthetic diamondsare definitely not more ethical than natural fair tradeor development diamonds. Those that issue blanketstatements and marketing initiatives that claim syntheticdiamonds are more ethical than natural diamonds are liars.Instead of helping diggers become socially responsibleand supporting fair trade diamonds, they are tellingpeople not to buy from diggers.That is evil. (See “Letterto Leonardo DiCaprio and Statement by IanSmillie,” at end of article.)

technology and competition will rapidly lower theircost. Martin Roscheisen, CEO of Diamond Foundry,Synthetic diamonds are man-made, which means man the company supported by Leonardo DiCaprio, hascan make unlimited amounts of them. It is important to reportedly raised 100 million to invest in syntheticnote that synthetic diamond technology is driven by U.S., diamonds. He claims that his “company can createChinese and other government defense departments pure diamond material at about 150 times the rate atseeking to create strategic military innovations. These which the industry now produces it.” With Alibaba’sinnovations include Qbit diamond computers that infinite competitive lower cost supply propositionmultidimensionally store information at the atomic and Moore’s law of exponential technologicallevel and sophisticated lenses for laser warfare. Synthetic growth, it is likely that synthetic diamond pricesgem diamonds are an offshoot of defense department will fall by at least 50 percent every 18 to 24 months.synthetic diamond research, which is strategically driven, Prices for less expensive synthetics will likely plummethighly budgeted and rapidly advancing.faster as they are much easier to create and competeGiven global competition and unconfirmed reports with. Given the unlimited supply scenario, I see noof some 10,000 machines already operating in China, reason why synthetic diamonds should not settle downit is likely that supplies of synthetic diamonds will to price levels slightly higher than cubic zirconia orskyrocket. Furthermore, rapidly developing defense very fine-cut Swarovski crystals.SELLING A PRODUCT WITH CONTINUOUSLYFALLING PRICESArtisanal miners pan for diamonds in the town of Koidu in eastern Sierra Leone. Photo: REUTERS/Finbarr O'Reilly.36 Rapaport April 2016

Synthetic sellers make a big point about disclosingthat their synthetic diamond is exactly the same as anatural diamond. That is not true. Natural diamondshave natural scarcity, which enables them to be a storeof value. Synthetic diamonds have no scarcity andare not a store of value. Consumers think they arebuying a diamond with all of its attributes. They donot realize that they are buying something that doesnot hold value.The fact that sellers try to sell synthetics at adiscount to natural prices, instead of on a cost-plusbasis, enforces the lie that synthetic diamond values arejust like diamond values — only cheaper. If Millennialconsumers are tricked into replacing natural diamondswith synthetic diamonds that do not hold value, theymay be turned off to all diamonds forever when theyfind out the resale value of their synthetics.A price analysis of all the round 1-carat syntheticdiamonds offered on Diamond Foundry’s websiteindicates consistent pricing at about -35 percent belowthe Rapaport Price list. A similar selection of naturaldiamonds on Blue Nile came in at -28 percent below Rap,indicating an 8.4 percent discount for synthetics.The fact that consumers are not fully and fairlyinformed about the fact that synthetic diamonds haveunlimited supply and therefore cannot serve as a storeof value is dishonest. Providing consumers with partialinformation under the guise of being totally transparentis a scam. Natural diamonds have consistently served asa store of value for hundreds of years and consumersmistakenly believe the same of synthetics.Consumers have a right to know what they arebuying. Do they know that the value of syntheticsis unsustainable and that the price they paid will fallsharply in the years ahead? Would they buy syntheticdiamonds at anywhere near natural diamond pricesif they knew the facts? Consumers are being unfairlymisled by synthetic companies that don’t tell the wholetruth. When they find out they have been ripped offthere will be hell to pay.WHAT’S A JEWELER TO DO?Consider the retailer’s dilemma. Should retailers sellsynthetic diamonds? If they don’t, they might lose acustomer. If they do, what will they tell the consumerlooking to resell the diamond in a few years? Whateveryou do, you must be totally honest with consumers. Letthem know that synthetics are not more ethical thansocially responsible natural diamonds. And let themknow that synthetics are not a store of value. If youtell the whole truth and nothing but the truth, thenit’s hard to go wrong. On the other hand, while youmay not be going wrong, you might not be doing theright thing either.Love and engagement rings are the foundation ofdiamond demand. In my view the whole point of theengagement ring is that the man is giving the woman— or partner to partner — something of great valuethat will retain value. Sure they will go to dinner andhe may buy flowers when he pops the question.Thosethings are nice, but they will be gone the next day.Theyare not the same as the ring that she will look at everyday to remind her of his love.The woman expects theman to give her something valuable that retains valuejust like their relationship. Snapchat Millennials or not,getting engaged to be married is not about creating asnap-relationship with a snap-synthetic diamond thatdoes not retain value.In my view, once Millennials find out the truthabout synthetic diamonds, they are less likely to buythem for engagement rings or as symbolic tokens oflove.When Millennials get married — assuming theydo get married — and give their loved ones plasticwedding rings from Cracker Jack boxes, then it will beappropriate to market synthetic diamond engagementrings to them.THE MINING COMPANIESSynthetic diamonds are a fundamental threat to thenatural diamond industry. False claims and misleadingmarketing surrounding the sale of synthetics is havingan impact; the diamond and jewelry trade is embracingsynthetics in a desperate attempt to maintain profitmargins. If the mining companies do not move forwardquickly and decisively to promote and protect thesocietal role and market for generic natural diamonds,their assets will consist of nothing more than bigworthless holes in the ground.Make no mistake about it, Diamond Foundry is notsome innocent synthetic company just trying to get afree ride on natural diamonds. Consider their blog witharticle headlines like “Scientific American: Surroundedby Diamonds,Villagers Go Hungry in Drought–HitZimbabwe” and “Leonardo DiCaprio Has DiamondsforYou” and “Billionaires Back Lab-Grown Diamondsto Disrupt Industry.”Rapaport April 2016 37

The waysyntheticdiamondsare currentlymarketedand sold isfundamentallyunethical,dishonest andmisleading.— Martin Rapaport38 Rapaport April 2016Why do you think synthetic diamond producers are raising the issue ofdiamonds from Zimbabwe? Make no mistake about it, the issue of dirtydiamonds is on the front line in the battle for diamond consumers. Legitimatemining companies, dealers and retailers must separate themselves and theproducts they sell from Kimberley Process approved and greenwashed dirtydiamonds that are promoted by misguided trade organizations. If the naturaldiamond trade is to survive the attacks by the synthetic trade, it is vital thatwe honestly and transparently communicate the origins of our legitimatesocially responsible diamond sources.The ethical basis of the natural diamondbusiness is on the table — front and center.We must do everything we can to document socially responsible diamondsand exclude dirty diamonds from our distribution channels. We mustproactively push dirty diamonds into the gutter where they belong. Wemust name, shame and blame those that deal in them.The challenge to our natural diamond trade is real and dangerous. It’s hightime for the mining companies to get real and aggressive and honestly marketand promote natural diamonds.Anything and everything that is good aboutnatural diamonds needs to be communicated. But that is not enough. Wemust trump the synthetic competition and get into a real battle. We mustattack the dishonest way synthetic companies are communicating aboutethics and diamond value. Consumers need to be warned that syntheticdiamonds do not store value and that their prices will collapse in the yearsahead. Ads showing brides-to-be rejecting synthetic diamonds need to beaired. It’s time to stop being politically correct and fight for the legitimacyof natural diamonds.The mining companies are moving much too slowly.While it is nice forDe Beers to be spending money promoting their brand, Forevermark ismuch too small to carry the market and is dwarfed by the huge supply ofnatural rough diamonds. The Russians, De Beers and others are foolishlyworrying who will get a free ride, while the synthetic marketers are stealingour customers.The 6 million budget for the Diamond Producers Association (DPA) istoo little, too late. Perhaps, just enough to develop a strategy, but not enoughto do anything.We need at least 200 million for generic diamond marketingand promotion. Stephen — let me make it clear: If you do not move forwardquickly and decisively, DiCaprio will decapitate you. There is no time orroom for politics.You know what needs to be done — so do it.The idea that the mining companies should fund generic advertising andpromotional campaigns with money from the trade is absurd. The tradehas been milked dry by reckless rough diamond pricing and believes thatthe mining companies will continue to claw back any profits made fromtheir advertising spend by increasing rough prices.While co-op advertisingsupporting diamond brands is a good idea and should be implemented, it isnowhere near enough.We need a full-blown campaign for generic diamondsand the diamond dream. And we need to attack synthetics.The message to the mining companies is clear. Without aggressive andtimely marketing and promotion of generic natural diamonds, your sales andrevenue will drop to the point where your mines will no longer be profitable.You will go out of business.In the year 2000 De Beers demanded that sightholders show how theywere adding value to the diamonds they sell. Now it’s time for De Beers andthe other mining companies to show the diamond trade how they can addvalue to natural diamonds through the effective marketing and promotionof generic natural diamonds.

March 25, 2016Dear Mr. DiCaprio,Your efforts to sell synthetic diamonds as an ethical substitute for natural diamonds threatens thelives and livelihood of millions of artisanal diggers in Africa. One and a half million diggers support anadditional seven million people by digging for diamonds. These diggers are among the poorest peoplein the world, earning as little as one dollar per day. Their primary daily concern is getting food to feedtheir children. Things are so bad that in places like Sierra Leone, the child mortality rate is the fourthhighest in the world; 12 percent of children die before the age of five.Instead of using your fame and fortune to help these diamond diggers and their families, you andyour company are falsely claiming that it is more ethical to buy your synthetic diamonds than theirnatural diamonds. You are literally taking bread out of the mouths of the poorest people on earth.And you are calling it ethical. That is super wrong.Mr. DiCaprio — what will happen to the millions of poor diggers and their families if you succeedin convincing a new generation of Millennial diamond consumers that it is more ethical to buy yoursynthetic diamonds than their natural diamonds? Will you feed these people? Will you provide themwith an alternate livelihood? Are you willing to take personal ethical responsibility for the suffering youwill cause?Dear Mr. DiCaprio, I plead with you to take two urgent actions. 1) Stop promoting your syntheticdiamonds as a more ethical product than legitimate natural diamonds. 2) Use your fame and fortuneto help us and others promote fair trade diamonds and jewelry that will ensure good living andenvironmental conditions while paying artisanal diggers fair prices that lift them out of poverty.You can and should play an important role in promoting ethical consumerism and an ethical diamondtrade. The real issue before us is not diamonds, it’s people like the diggers in Sierra Leone and how wecan use diamonds to help them. I urge you to contact me and follow up with a discussion about how weand others can create a more ethical diamond and jewelry trade that will significantly improve the livesof millions of artisanal diggers.Yours truly,Martin RapaportChairman, RAPAPORTmartin@diamonds.netA Message From Ian SmillieChairman, Diamond Development Initiative (DDI)Leonardo DiCaprio’s investment in synthetic diamonds won’t do anything at all to end the problemsthat he is concerned about: child labor in the artisanal diamond fields of Africa, bad working conditions,poor prices and environmental degradation.Synthetic diamonds may have their own logic, but as long as natural alluvial diamonds exist, aslong as people where they are found are poor and as long as nobody tackles the problem head on,bad conditions will persist. The Diamond Development Initiative is tackling the problem head on. Itis organizing Sierra Leonean diggers around standards that will improve their conditions and theirincome, and which deal with environmental remediation and child labor. We have independentthird-party monitoring of mine sites and we are creating chains of custody that guarantee theorigin of these diamonds for retailers and consumers.In the Democratic Republic of Congo, we are organizing legal status for miners, reducing theirvulnerability to predators, and we are taking mobile schools to mining communities as an alternativefor mining parents who don’t want their kids walking five miles through the forest every day.All of this is a work in progress, but the progress is good. As a man who is passionate about theenvironment and who helped wake the world up to conflict diamonds, it would be terrific if LeonardoDiCaprio could generate attention and support for the development needs of the people who sufferedmost from that trauma.Ian SmillieChairman, Board of DirectorsDiamond Development Initiative

34 Rapaport April 2016 OP-ED S . While traditional diamond dealers and jewelers are still unsure whether or not to sell synthetics, some forward-thinking firms believe that . socially responsible diamond sources.The ethical basis of the natural diamond business is on the table — front and center.

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