Thu, 27 Apr 2006

The intricacies and risks of diamond-cutting

The beginning – assessing the value of rough
This
February, we were offered a very nice parcel of Botswanan rough. The
size of the stones ranged from 2.60 up to 4.60 Carats, 42 stones in
total. With most of the stones being makeables, thus returning only one
polished stone, we were looking at the possibility of cutting about 42
stones with a finished weight between 0.70 and 1.75 Cts.

The
colour of the stones was very hard to estimate, since the rough seemed
to have a lot of colour in the surface. Talking to other cutters, we
learned that this is normal with rough from Botswana. However, we tried
to estimate the exact colour of the stones. If we would give a D colour
the value of 1, E the value of 2, and so on, up to J the value of 7, we
estimated an average colour of this parcel of 4.58, or an average of
G-H in colour.

These stones also contained a lot of naat, and
inclusions, which were difficult to judge, and we estimated the average
clarity of the parcel as SI1. Figure-wise, with IF being 1, VVS1 being
2, and so on, we thus estimated this parcel at an average clarity of 6.

Quickly
estimating the weight of each finished stone gave us a final estimated
weight of 47.90 Carats, thus a yield of 34.65% from the rough.

 

The decision – to buy or not to buy
On
the basis of the above estimation of the outcome, we calculated the
final value of the polished, and compared it to our cost. Seeing that
we would end up with a lot of stones with a highly desirable
colour-clarity-combination, and that we foresaw a profit of 15% on this
parcel, we gladly bought the parcel.

The decision was quickly made: we had to buy this parcel.

 

The result of cutting
After cutting the stones, we always estimate the stones ourselves before shipping them to AGS. These were the results.

In
weight, we ended up with a total finished weight of 48.94 Carats, thus
a yield of 35.40% , which was a tad higher than the expected 34.65%.

In
colour, we estimated the final colour (in our figure-system) at 4.53.
We had estimated a colour of 4.58. Roughly, we could say that we ended
up exactly with the average G-H-colour, which we had predicted.

In
clarity, we had predicted a clarity of 6, which stood for SI1 in our
system. After cutting, we estimated the final clarity at 6.21, thus a
little lower than SI1.

All in all, we were very happy with the
outcome, although the slightly lower clarity already lowered the
$-outcome of our parcel by 6%. Still, we did consider this a good buy,
especially since we are very comfortable with our estimates before
sending to AGS, and we generally get the same results on our grading
reports.

 

The final grading of AGS
To
our astonishment, the grading of AGS seemed to have become a tad
stricter than we were used to in the past. These were our results.

In
colour, in stead of the predicted colour of 4.53, we received an
average grade of 5.12, thus an average of H in stead of G-H. Generally,
we have the experience that AGS gives a slightly better colour-grade
than our estimate, and this difference is very surprising to us.

In
clarity, we predicted a clarity of 6.21, and AGS graded the parcel at
an average grade of 6.58. Normally, we are used to AGS grading clarity
slightly stricter than our prediction, thus this does not surprise us
at all.

However, where we generally get a somewhat stricter grade
on clarity, and a slightly better grade on colour, we now got a
stricter grade on both.

When looking at this dollar-wise, the
picture becomes problematic. Before sending the stones to AGS, we
estimated our return to be 94% of our original prediction. With the
resulting AGS-grades, our return now is only 83% of our original
prediction.

We had estimated to turn a profit of 15% on this parcel. Now, it turns out to be a loss of 5%.

 

Conclusion
It is frightening to see how a slight error in the estimation of rough can make such a big difference in dollars.

Now,
this is not something to mourn too much about, since sometimes
estimates can be incorrect in the other direction too, and this would
lead to unexpected profits.

And, the good thing is, that we now
do have a number of very interesting stones available, in highly
desirable colours and clarities, and these should be very easy to sell.