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Natural vs. lab-grown diamonds – Where does the true value lie?

While there are several arguments that can be made in the natural versus lab-grown diamond debate, finding out where the true value lies is an important starting point. While the choice may simply be based on the personal preference of the buyer, a critical factor in the decision-making process is increasingly being made on the grounds of whether the diamond has been produced sustainability, ethically and in an environment-friendly manner, writes CHANTELLE KOTZE.

As with most mined commodities, and even some consumer goods, environment, social and governance (ESG) compliance is a must, not only as a requirement by investors, but increasingly by the consumers of the final products, who demand sustainability, transparency and ethical sourcing throughout the value chain.

The Africa Mining Forum and Mining Review Africa-hosted Webinar, titled ‘Lab-grown vs natural diamonds – what’s your preference?’ looked at whether natural diamond producers would be able to sustain their operations or uncover new kimberlite resources and effectively compete with the growing lab-grown diamond market.

The panel comprised diamond industry stalwart James Campbell, who is also the MD of AIM and BSE-listed diamond explorer Botswana Diamonds and independent diamond industry analyst and consultant Paul Zimnisky. David Kellie, CEO of the Natural Diamond Council also shared his insights on the topic in a pre-recorded video interview, which was played during the Webinar.

Providing context on the global natural diamond market and his outlook for the sector, Zimnisky noted that natural diamond prices are the strongest they have been since 2011, when the diamond price was at an all-time high, recovering from a relatively week diamond pricing environment experienced over most of the past decade.

Major diamond miners have seen their excess inventory levels fall and are at historic lows on the back on increased consumer demand. Retailers are aggressively placing orders while jewellery manufacturers and cutters and polishers are unable to secure rough diamonds to meet retailer’s demands.

In general, diamond jewellery demand is strong, which the US and China driving current demand, says Zimnisky, who expects this to continue for the remainder of the year, driven by pent up demand.

According to Campbell, even though natural diamond prices had fallen by between 20% and 30% during the COVID-19 pandemic in 2020, he said that his almost four decades in the diamond industry and avid interest in the history of the diamond sector have taught him that although diamond prices always fall hard and fast amid a global catastrophe, they also always rebound thereafter.

“The diamond business goes up and down,” Campbell reiterated, noting that Botswana Diamonds, which has exploration assets in South Africa, Botswana and Zimbabwe, used the downturn caused by the COVID-19 pandemic as a time of opportunity and undertook three deals in Botswana since the beginning of the pandemic.

While the lab-grown diamond industry has been steadily growing over the past decade as the technology improves and more companies have become involved in their manufacture, David Kellie, CEO of the Natural Diamond Council says lab-grown diamonds occupy a space in the diamond market that natural diamonds do not – and that is price point.

According to Kellie, as lab-grown diamond production continues to accelerate, the price spread between lab-grown and natural diamonds across all sizes and qualities will continue to widen. “As this take place, consumers will increasingly understand the difference between the two products from an emotional and sentimental point of view,” he says.

Does a diamond’s value lie its sustainability?

Kellie believes that the topic of sustainability accelerated during the pandemic as people became more connected with the impact that they have on the planet. This led consumers to make decisions based on sustainable value rather than on prices of goods. This is great, not only on for the diamond industry, but every industry that values sustainability, he says.

“Within the natural diamond industry, from mine to market, each value chain participant plays a role in ensuring that the entire diamond value chain is upholding the highest standards, from the people whose lives we touch to the environment in which we operate,” says Kellie.

He admits that the natural diamond industry suffers from a legacy narrative that dates back over a decade but points out that ethical natural diamond companies operate with a high level of transparency, have good business practices, and take responsibility for their societal and environmental impact.

Campbell, who prefers to refer to the topic of ESG or sustainability as the social license to operate, points out that having a social license to operate means that miners must conduct themselves correctly and undertake work in a specific manner. “It is not just a tick box exercise,” he points out.

Importantly, Campbell also notes that the strong focus on ESG is not only the right thing to do from a moral and ethical point of view, but is also a business imperative, as many funders want proof of one’s ESG credentials before investing.

Campbell says that diamond mining has the potential to have a negative carbon footprint. “By using new technologies, combined with the use of renewable energy and the efficient use of water, you can end up with a negative carbon footprint mine,” he says.

In playing close attention to the diamond industry, Zimnisky says that most corporate diamond mining companies are taking various initiatives to minimise their environmental impact while maximising the social benefit within the communities in which they operate – something that is accelerating quite rapidly now.

This is also taking place across the value chain too, he says, but the key to all these diamond industry initiatives is to provide a reliable diamond tracking and traceability solution so the consumer can reward the companies that are doing the right things and to also allow consumers to know where their diamonds are coming from.

On the topic of preference for natural or lab-grown diamonds, Zimnisky believes there will be a general bifurcation between the applications of these diamonds between fine and fashion jewellery, with fashion jewellery adopting lab-grown diamonds, and high-end jewellers not planning to change their offering for the moment.

Kellie remainsvery optimistic about the long-term future of natural diamonds as consumers still purchase diamonds based on what they stand for and the fact they maintain value over their lifetime and become family heirlooms, he says.

“I believe the natural diamond industry could grow by as much as 50% in the next five years, based on the upside potential of natural diamonds,” he concludes.