Australian Sapphire Industry 2005 Report

It's been an interesting trading year for those in the Australian sapphire industry, difficult to say the least. It's puzzling that coloured gemstones seem one of the only commodities not caught up in the resource boom with gold reaching new record prices as we speak and diamond sales strong at good prices to mention just a couple. There have been some talk overseas of an impending shortage of coloured gems causing price rises in the near future but we are yet to see this.

On a knife edge is how I would describe the Australian Sapphire industry. After 5 years of depressed and decreasing demand for our production, some really serious decisions will be made running up to Christmas. The decision for some to reopen as normal or have some time closed after the Christmas break will be in the minds of most of us. The market shows little sign of returning to pre Sep 11 2001 levels. It has been some time since parcels of rough sapphire were able to be sold on a regular basis at a price which gave both us, the miner and the buyer enough profit to operate effectively. As I write we have not had a Thai buyer here for 4 months and no sign that any will buy before mid January at the earliest. Over 5 months to wait for your pay check is Darn Hard!

ON A POSITIVE NOTE
We have found ourselves in the office much more in the last 12 months having ventured into online direct sales in January 2005. This has been very challenging but rewarding as we are now able to market our fine sapphire to the world in the way it deserves. I believe there is a future for this type of selling but dont be fooled, it is a hell of a lot of work. Selling individual stones, of course, can never replace the need to sell bigger parcels of mine run sapphire from time to time. Hence we have been working hard to find new markets and working alongside Wilson Gems to this end. So far, we have been working in India, China and with specialty stone into the USA – the first two leads have been disappointing so far as price always seems to rule us out no matter how hard we try and cut our margins. However, feedback from our US customers has been great with demand for guaranteed natural or basic heated sapphire direct from the mine being very good – people are becoming more interested in knowing more about where their gems come from.

THE NATURAL FACTOR
One of the causes of a downturn in demand for coloured gemstones seems obvious to us – the rampant increase in the use of treatments to significantly alter the stone along with the widespread use of synthetics. We recently had a agent in China showing our stone to cutting factories there – he has reported being shown synthetic and treated rough in mine run parcels from other countries. This practice has also been reported by Vincent Pardieu of the AIGS in Thailand for mines in a number of ruby/sapphire mines in Asia and Africa. This is terrible to hear as it does the whole industry damage.

I have great difficulty with the word "natural" being used by the jewellery industry to describe non-synthetic gems regardless of treatment status. We must push in Australia for clear and accurate disclosure at all levels of the industry. We are in a great position as probably one of the few countries where gemstones of truly natural condition can be sourced with surety. These new treatments are here to stay but we must be able to market our fully natural or good old fashioned basic heat treated gems to their best advantage – this will be difficult until we get some assistance from the jewellery trade and large gemstone dealers.

I am frustrated by the supposed support from the larger wholesale gemstone dealers who claim that they support the Australian sapphire industry but choose to bypass Australian miners and travel to Thailand to buy sapphire of mostly unknown origin at the lowest price possible. We know of several larger operators who would bend over backwards to supply cut gems to the trade but these offers have not been taken up in the past. We hope that some wholesale dealers might reconsider their position on this in the near future.

INVESTMENT GEMS
There still seems to be some money out there for these special gems suitable for investment purposes. These are always hard to find but some still seem to be getting pulled out of the back of the safe by old miners as their pockets get emptier. We have sold several in the last couple of months to all corners of the globe (Germany, Malaysia, etc). It is a pity to see these very rare and irreplaceable gems leave our shores but it takes a certain type of collector to appreciate the value of these items.

THE JEWELLERY GAME
We have found ourselves in the jewellery game. This started out as just a way of showcasing our gems so that customers could see the quality in a finished piece but we now find that we really enjoy being involved in the designing and manufacturing process. We now have a large catalogue of fine handmade pieces of all types. Most of these we have supplied to retail jewellers in the local region. We are certainly happy to talk to any jewellers who see the advantage in being able to stock an exclusive, limited edition range – something very different to the usual mass-produced products normally available.

INDUSTRY DEVELOPMENTS
At this moment, our colleague Jack Wilson is in Bangkok checking market trends. His initial report back to us after only one day there was that there did not appear to be any shortage of good blue sapphire on the market. Prices for some of this Madagascan sapphire appeared below our production cost – while this is good for the buyer in the short term, you must question how sustainable the prices and resource can be. There still seems to be a lot of very small Chinese dark sapphire (almost black and likely to be sold as Australian sapphire overseas) being sold at very cheap rates. We will have more news when Jack returns home – hopefully some of it will be good.

A new find in the Inverell area proves that there is still plenty of excellent sapphire to be found in Australia if market conditions encourage exploration and resource development. The sapphire I have seen from this exploration testing looks very exciting – good colour and large size should make it easily saleable. Of course, because of government red tape, it will take some time and considerable investment before this stone becomes available. See an example in the photo below.

There is talk of a buyer for a larger mine at Kings Plains that has been closed for a good while. I hope they have done careful research on the viability of this operation – it is a difficult business to be in at the moment.

To further illustrate this point, the large Queensland sapphire mining company Australis has just appointed an administrator – ASIC had taken action to appoint a receiver in October. The company has chosen to appoint the administrator and continue operating although a trading halt in shares is still in place. Hopefully this will work out ok for all concerned as there has been a large investment of capital into this operation.

THE FUTURE FOR aussiesapphire.com.au
With continued support from our local and overseas clients, we plan to keep operating in the New Year although not at full production. Costs are just too high to run the plant at full capacity until prices and demand improve, however we plan to keep our workers in a job as long as possible. What can you do to help ? Buy Australian wherever you can and keep asking your retail jeweller for all the facts – insist on knowing what you buy so you can make an informed decision. If they are unsure of the facts, find someone who knows their product.

Cheers from Andrew and Leah Lane and have a great holiday season. www.aussiesapphire.com.au

Remember that this report has been written from our point of view as an Australian sapphire miner and does not represent any official position from within the industry. It is presented for your interest only.

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2 Responses to Australian Sapphire Industry 2005 Report

  1. Martin Read - gemologyonline.com says:

    Great update Andrew – and good luck to you and your family for the coming year.

  2. Aloysius says:

    Thanks for the sapphire update Andrew! We all know how badly hit the sapphire market is hit after Madagascar appeared full force in the market.

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