The Risk Of Diamond Cutting And Evaluation

Paul Slegers writes:

After graduating in business, Paul Slegers started working in an Antwerp diamond business in 1989. Over the years, he gained experience in different fields of the diamond business, from cutting small diamonds in Asia, through producing tools for diamond cutting, up to cutting medium size H & A (Hearts & Arrows) diamonds. In 2001, he started up his independent company, Infinity Diamonds, cutting super ideal diamonds.

The beginning – assessing the value of rough
We were offered a very nice parcel of Botswana 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 carats.

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

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 color-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 color, we estimated the final color (in our figure-system) at 4.53. We had estimated a color of 4.58. Roughly, we could say that we ended up exactly with the average G-H-color, 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 (American Gem Society)
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 color, instead of the predicted color 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 color-grade than our estimate, and this difference is very surprising to us.

In clarity, we predicted 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 color, we now got a stricter grade on both.

When looking at this dollarwise, 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 colors and clarities, and these should be very easy to sell.