Grow your own Diamonds
Manufactured diamonds will be a disruptive technology in the areas of precious gems, semiconductors, high temperature electronics and thin-film coatings for industrial apps. Diamonds have unique properties. Diamonds are the hardest know substance, thanks to each carbon atom having four covalent bonds (…although cubic carbon nitride (C3N4) is theoretically harder). Diamonds are resistant to radiation damage, are chemically inert, and with a melting point of about 3550C (well over 2x that of steel), can sustain high temperatures.
In 1880, the Scottish chemist James Ballantyne Hannay claimed (since verified) that he had made diamonds by heating a mixture of paraffin, bone, oil and lithium to red heat in sealed wrought-iron tubes. General Electric was growing small, industrial-grade synthetic diamonds in the 1950’s. Last year Wired Magazine published an article that featured gem-quality synthetic diamond growers Apollo Diamond Inc and Gemesis. These companies produce near-flawless multi-carat diamonds in high-pressure chambers (devices that are about the size of washing machines) through a process know as chemical vapor deposition (CVD). . They polish them, mount them and then sell them for less than one-half the price of natural diamonds. The quality of the artificial diamonds is outstanding, in fact, one comment was “It’s too perfect to be natural”. An ABCNews article last year tagged manmade diamonds with the phrase “All the sparkle at half the price”“. There is an interesting discussion on Pricescope regarding the merits of man-mades versus naturals.
And then last month, scientists at Carnegie Institution’s Geophysical Laboratory in Washington, D.C. announced an improvement to the CVD process that allows synthetic diamonds to be grown directly from a gas mixture at a rate that is “up to 100 times faster than other methods used to date”(!)
Upon reading the above announcement, my thoughts turned to the laws of economics. Based on the economics of supply and demand, as supply goes up, then price should go down. However, so far this year, shares of Anglo American PLC, with about 60% share of the world diamond supply, are up about 25%. And in fact, some companies, such as Merrill Lynch and UBS have recently issued “Buy” recommendations for AAUKF. Not only that, but it has been reported that the Diamond Trading Company (DTC is the rough diamond sales and marketing arm of De Beers, which is in turn a sub of AA), has announced that the price of rough diamonds will increase 5 percent from 22 March 2004. This is the second price increase this year. The first increase of 3% went into effect in January when DTC warned that prices could continue to climb due to the market’s underlying dynamics of supply and demand.
The fact that Anglo-American shares are not off is certainly a reflection of the fact that AA is a large diversified company with only about 12% of it’s revenue based on the diamond trade. A bigger factor is that this alternate source of diamonds has not come on stream yet . Imponderables include such things as the public’s acceptance of cultured diamonds, and the reaction and possible counter-offensive (DiamondSure) by the gem industry, as well as the effectiveness of the Kimberley Process in outlawing ?conflict diamonds? .
It certainly seems that these $50,000 gadgets at Apollo & Gemesis should have an impact on this market, and that there should be some way to profit from the pending increase in the diamond supply! Perhaps by shorting Rio Tinto PLC, which has a 60% ownership of Diavik Diamond Mines in Canada and thereby a 10% share of the world diamond supply. Diavik together with other Canadian diamond mines are slated to add about 14 million carats annually to the world supply of diamonds by 2007. Or perhaps by taking the opposite tack, and going long Diamonex Products or some other CVD diamond coating manufacturer.
But, more on this at a later date. 
The Atlantic published an interesting article Feb 2002 entitled “Have You Ever Tried to Sell a Diamond?” detailing the creation of the diamond market in the 1930’s and 40’s, and the difficulty the public has in re-selling their diamonds.
Happy birthday Adam.
