Secret Rocks: The $10 billion jewels industry is shrouded in beauty—and mystery. Is change about to come?

Updated May 17, 2013, 12:47 a.m. ET

Secret Rocks

The $10 billion jewels industry is shrouded in beauty—and mystery. Is change about to come?



TO HEAR RICHARD HUGHES tell it, the journey was like something straight out of “Indiana Jones and the Temple of Doom.” One of the world’s leading modern-day gem hunters, he was hell-bent on reaching the fabled jade mines of upper Myanmar—a jungle redoubt so remote and closely guarded that few living Westerners have ever laid eyes on it. Before he could get close, he had to spend months ahead of his trip convincing Myanmar’s secretive military, which controlled access to the country’s mines, to let him in. Then he had to navigate some of the most punishing, malaria-ridden terrain east of the Congo, capped by a grueling climb along a dirt road his handlers said would only take seven hours to ascend. The trail quickly turned into a river of sludge under Myanmar’s brutal monsoons, trapping vehicles in mud to their doors until teams of elephants showed up to haul them out. Days passed by as Hughes and his companions fought their way through the muck. In ramshackle villages along the way, residents smoked opium and told wild tales of the mining world beyond the ridges above.But none of it could have prepared Hughes for what he found when he reached his destination three days later: a Wild West boomtown unlike anything he had ever seen. Stores were stocked with imported cognac and French perfume, while locals frittered away cash on roulette wheels, drugs and prostitutes. Fortune hunters tried just about anything to find jade—including diving into rivers with tubes hooked up to bicycle pumps onshore so they could breathe underwater. When people found dirty brown rocks they thought might contain jade, they thwacked them with hammers to see what kind of sound they made: If they rang like a bell, that was a good sign. In the main mines, meanwhile, armies of men marched along tracks hauling baskets filled with earth—more dirt, and perhaps more jade, from the depths below.

To Hughes, it was like stepping into the age of the pharaohs. “I thought, ‘Wow, this is like building the pyramids,'” he recalls.

Hughes’s inaugural journey to the Hpakant jade mines took place more than a decade and a half ago. But to a surprisingly large degree, Myanmar’s famed gem mines have remained untamed, according to more recent visitors. The same, it turns out, could be said of the entire $10 billion “colored” jewels industry, the storied but murky business centered around 50 or so colored gemstones, such as jade, rubies, emeralds and sapphires, which have entranced the world’s wealthy since the days of the Mughal dynasty and Catherine the Great.

Unlike the global diamond business, which is largely controlled by big companies like De Beers and painstakingly tracked by investors and Wall Street bankers, the colored gems world is still dominated by small miners and adventurers who wander some of the globe’s most dangerous or underdeveloped places in search of treasure. The best stones tend to come from countries like Madagascar, Tajikistan, Colombia and Myanmar, where smuggling often is rampant, record-keeping is poor, and mine owners are sometimes reluctant to let outsiders visit for fear they might cut their own deals with the locals.


In some cases, experts like Hughes buy up stones from miners or middlemen and resell them to rich clients. Other gems find their way to the public via wholesalers who pick them up at auctions or markets in Thailand, India and other processing centers. One auction in Myanmar in 2011 alone netted $2.8 billion in sales. Either way, gem buyers—from newlyweds to collectors to fashionistas, who gobble up stones in New York, London or just about anywhere else—rarely have any idea where their gems came from and might not be able to find out for sure if they wanted to. When it comes to tracking basic data about which countries are producing the most stones, the industry is “very vague,” says Jean Claude Michelou, a vice president at the International Colored Gemstone Association, a trade group.

Indeed, if you want to find the chief executive or major shareholders behind the best ruby or sapphire mines, good luck. In Myanmar, long considered the world’s most important source of rubies and jade, many mines are controlled by the military or its close associates, including some who are targeted by U.S. sanctions established years ago to punish the country’s harsh military regime. (Although many of those rules have been loosened over the past two years, since a new reformist government in Myanmar began rolling back decades of harsh military rule, some restrictions on new Myanmar stones remain.) But the stones can also come from private fortune seekers whose identities are largely unknown outside of their home bases. One of the gem tycoons Hughes met during his time in Hpakant was a former taxi driver who started out with a $23 boulder he bought from a passenger and then resold it for $5,000 to a jade trader. (When Hughes met the man in 1996, he posed for a photograph standing atop a pile of jade rocks that filled an entire room in his home.)

Gem mines are in such unruly places that it’s tough to bring them into the modern era.”

Still, while it’s hard to track the industry’s growth, experts say prices have climbed significantly in recent years, largely because supplies are erratic. Robert Genis, a Tucson-based gem hunter and dealer who got his start in the 1970s, says high-grade Myanmar rubies have quadrupled in retail value to more than $40,000 a carat since the mid-1990s, while Colombian emeralds have roughly doubled since a low in the early 2000s. Hughes, who has trekked across 30 or more countries for stones and now lives in Bangkok, says jade prices shot up 10-fold over the past five years, due largely to surging demand in China, though prices have eased recently.

And for people willing to hold on to their stones for a long time—or generations—the returns can be enormous. Consider the 62-carat Rockefeller Sapphire once owned by John D. Rockefeller Jr., who bought it from an Indian maharajah in 1934 and had it redesigned as a brooch for his wife. The family sold the stone in 1971 to a famous gem dealer for $170,000. Nine years later, it went on the block again and was sold for $1.5 million, and then resold for more than $3 million in 2001. Another famous sapphire, bought by 19th-century industrialist James J. Hill in the 1880s for his wife for $2,200, sold for just over $3 million at auction in 2007. And of course, there’s the so-called Elizabeth Taylor Ruby, an 8-carat stone from Myanmar that was given to the late Hollywood star by Richard Burton in 1968 as a Christmas gift. In 2011, it was auctioned off for $4.2 million.

DIAMONDS ARE OF COURSE a lady’s best friend, but colored gems continue to have a mystical allure that even the king of jewelry can’t claim. Part of the romance is tied to the stones’ luminous beauty and scarcity. For many wealthy people, especially in Asia, there’s nothing quite like having a bag of shiny stones they can carry around or stash away—and sell—in case of emergency. That has become even truer since the global financial crisis, which left many affluent people hungry for alternative ways of storing wealth.

It doesn’t hurt that colored stones come with such atmospheric histories, making them all the more addictive. The Mughal dynasty, whose emperors included Shah Jahan, builder of the Taj Mahal, had its famous Peacock Throne inlaid with rubies and other precious stones. Chinese leaders were known to favor jade as far back as 3000 B.C., while Russians placed a roughly 400-carat red spinel, believed to date back to the 1400s, in their imperial crown. More recently, Prince William gave Kate Middleton a sapphire engagement ring that had belonged to his mother, Princess Diana.

Finding big new stones to quench the world’s demand, though, isn’t easy. That’s where gem hunters come in. Genis, the Tucson-based dealer, says he got started in college, when he pulled out maps to see where the world’s most coveted natural resources, including tin, gold and copper, were located. It was a tiny green symbol on Colombia, depicting emerald deposits, that captivated him the most. He sold his stereo and a secondhand car to scrape together $1,000 for his journey. “I knew I did not want to come back broke,” Genis says.

After a bus ride to California’s border with Mexico, some trains and some hitchhiking, Genis landed in Bogota’s emerald district and spent his remaining cash on gems. Back in the U.S., he doubled his money selling the stones. “Suddenly I had $1,000 more, and I thought, ‘Hey, this is much better than going to school,'” he recalls. After repeat visits, he was making enough to fly to Colombia instead of taking the bus, with stops for fun in the Caribbean on the way home.

He sold his stereo and secondhand car to pay for his first gem-hunting journey.”

These days, Genis trusts other people to find many of the stones he sells, including a New York-based associate he met at a gem conference who is from Myanmar and has connections at its famous Mogok ruby deposits. Although not as wild as Hpakant, Mogok’s mines are also closely guarded by Myanmar’s military—and revered worldwide. People who have seen them describe a place trapped in a time warp in a remote mountain valley with glittering gold pagodas where practically everyone dabbles in the gem trade, even the local bakeries, which show visitors gems and the day’s baked goods.

The enduring appeal is obvious when one considers what people can land. Genis’s latest find: a 39-carat sapphire, sourced through his Myanmar associate that now is waiting to be auctioned at Sotheby’s BID +0.47% . Genis says he estimates the stone could fetch up to $1 million, with bidding wars common at the prestigious auction houses where they are sold. “For many of these collectors, the habit is almost like heroin—when you start, you can’t stop,” he says.

Eager buyers are even lining up in Yangon, Myanmar’s biggest city and a place that is opening rapidly to tourists, as Myanmar’s government eases restrictions on foreigners. At the Bogyoke Aung San Market downtown, in a crumbling colonial building, middle-aged tourists shuffle through cobbled streets while shopkeepers spit betel nut on the floor, staining their teeth and lips red. The gems on offer are hardly like the 39-carat stone Genis recently uncovered, but they offer visitors a chance to buy a token of the industry’s glamour and romance.

“Before I came here, everyone would go on and on about how beautiful Burmese rubies were,” said Pamela Bowen, a 54-year-old from Florida who was in Yangon for the first time, referring to the country’s colonial name of Burma. With so much talk about Myanmar stones, she said, she figured they were a “must buy,” and paid about $550 for ruby earrings and a ruby ring for herself and her sister back home.

AS DEMAND FOR COLORED gems keeps growing, though, the question remains: Can the industry get a handle on itself? One part of the answer may be half a world away from Myanmar, in London, in the city’s prestigious Mayfair area. There, a group of mining-industry veterans are making their own plans to get more colored stones.

Their company, Gemfields, is trying to become an industry powerhouse, something like the De Beers of colored gems. Backed by a former chief executive of BHP Billiton,BLT.LN +0.34% the world’s biggest mining company, and listed on the London Stock ExchangeLSE.LN -1.42% Gemfields says it is aiming to secure rights to a large enough percentage of the world’s production of major gems and introduce modern mining processes so it can ensure a more predictable supply, while investing heavily in marketing to make the stones better known.

Only people, not machines, can separate valuable specimens from worthless ones.”

Ian Harebottle, the company’s South African chief executive, says colored stones used to be as popular as diamonds—until the 1940s, when De Beers began cranking up its marketing budget, with slogans like “a diamond is forever.” Now, colored-gems sales are only a fraction of the $70 billion international diamond trade, and the small-time miners who dominate the business don’t have the money or scale to do much about it, he says. “Colored stones were going backwards,” Harebottle says.

Gemfields already produces 20 percent of the world’s emeralds, from a large mine it co-owns in Zambia. The company says it has as much as 40 percent of the global amethyst supply, and it is starting to produce rubies from a major deposit in Mozambique. Gemfields wants to expand elsewhere—including in Myanmar, if its government keeps reforming and the human-rights situation there improves, Harebottle says.

Gemfields also just bought Fabergé, the storied jewelry brand from the days of the Russian czars. The idea is to use Fabergé, which has boutiques worldwide, to market some of its gemstones in the ultraluxury space as it creates one of the first “mine to market” supply chains for colored gems. It also has signed up Hollywood actress Mila Kunis to lead a fresh marketing campaign, featuring images of the starlet wearing a Romanov-style necklace—inspired by an 1880s design—with 79 emeralds from Gemfields’s Zambian mines.

Gemfields’s efforts come amid other attempts by investors to bring more modern practices to the industry, including making pricing data more widely available and improving grading and tracking practices so that consumers can get a better idea of what their stones are worth and where they came from. Officials at the International Colored Gemstone Association, for instance, are pushing to create a system to trace the origins of colored gems. The association’s Michelou says countries including Colombia, Tanzania and Sri Lanka have expressed interest.

Other companies, meanwhile, are touting mine-to-market supply chains and otherwise updating production. They include TanzaniteOne RLD.LN 0.00% Mining and its parent, London-listed Richland Resources Ltd., which have helped transform the tanzanite market by investing in formerly artisanal mines near Mount Kilimanjaro, which are the world’s only known deposits of the rare blue stone. Meanwhile, even the mines in Hpakant in Myanmar have seen more mechanization in recent years, with earth-moving machines replacing many human workers, though the site overall remains unruly. All this could one day make colored stones more valuable if it helps make supplies more reliable and increases demand.

“The colored-stone industry will probably go in that direction, [toward] more rational, more formal mining,” says Russell Shor, an analyst at the Gemological Institute of America, one of the world’s leading authorities on gems. “It’ll be a slow process, but I think that’s the future.”

Yet plenty of people, including many gem hunters, remain skeptical. The world’s main gem deposits, they contend, are often too small to justify major investments, and sometimes may be better exploited with primitive hand tools. The mines are scattered so widely and in such unruly places that it could be too complicated—not to mention, expensive—to bring them into the modern era. “How many trillions do you have?” asks Genis. “With the exception of diamonds, most gem sources are ancient, and the best gems are long gone.” Trying to integrate the mines, he says, “would be practically impossible.”

Hughes, the gem hunter in Bangkok, agrees. People have always been interested in bringing more order to the colored-gems trade, he says. But Mother Nature protects her treasures well, hiding them in hard-to-reach places, he says, and the people that look after them have little incentive to surrender control to London, Wall Street or anywhere else for that matter.

“Gemstones are different from other kinds of mining,” Hughes says, because there’s a high concentration of value in very small areas and relatively few stones. Plus, only people, not machines, can separate valuable specimens from worthless ones—and that includes the artisanal miners who now have much of the action. If big companies try to impose more order, he says, “there’s always going to be people who can get around it.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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