Tapping the Lucrative World of Gemstone Beneficiation: quantumrock's "Rough Gemstone I" Strategy
22. November 2023
In the realm of luxury and opulence, the gemstone industry stands out, especially in its lesser-known aspect: the transformation of rough gemstones into polished marvels. This process, far from being merely aesthetic, significantly elevates the market value of these stones. The innovative investment product, ‘Rough Gemstone I’, is a pioneering venture into this lucrative process. Employing a private equity-like strategy, it aims to capitalize on the value multiples in the industry. This investment strategy involves sourcing rough gemstones, overseeing their expert cutting and polishing, and strategically navigating the intricate gemstone market to realize the high expected value multiples. ‘Rough Gemstone I’ not only presents a unique investment opportunity for professional investors but also grants them access to the enigmatic world of gemstones, typically out of reach for many investors.
This article explores the expected value multiples from the beneficiation of rough gemstones into polished gems.
The Five-Step Process of Valuing Rough Gemstones
1. Identifying the Gemstone
The first critical step in valuing a rough gemstone is to identify its type.
2. Assessing the Physical Properties
Evaluating the gemstone’s physical characteristics, such as size, colour, and clarity, is essential in estimating its worth.
3. Estimating the Recovery Rate
4. Estimating the Value of the Polished Gemstone
Based on the current market trends and the qualities of the polished gemstone, this step predicts its potential market value. The industry standard for this purpose is a pricing guide published bimonthly since the 1980s called GemGuide.
5. Estimating the Discount Factor
The final step involves assessing the discount factor to be applied to estimate a rough gemstone’s value to prudently account for uncertainties, such as actual recovery rate and final quality of the polished gemstones.
Rough Alexandrite under artificial light. Image source: Byron Gems.
Case Study: The Expected Value Multiple of a 3ct Rough Alexandrite
Emeralds, with their lush green hues and rich cultural history, stand as a captivating choice for gemstone investors seeking a combination of aesthetic beauty and potential financial returns.
The first step involves identifying the rough gemstone, which in our example is a 3ct Alexandrite. Alexandrite is known for its unique colour-changing properties and is considered a highly sought-after gemstone, especially in fine quality.
2. Physical Assessment
The rough Alexandrite is assessed as being of upper fine quality. This assessment is crucial as it dictates the potential value of the polished stone. The colour, clarity, and overall quality of the rough stone play a significant role in determining its worth.
3. Recovery Rate
For Alexandrite of good to fine quality, the recovery rate is estimated to be about 35%. This means that only 35% of the rough stone’s weight is likely to be retained in the final polished gemstone. In our example, the expected weight of the polished stone would be approximately 1.05ct (3ct x 35%).
The Expected Value Multiple of a 3ct Rough Alexandrite
4. Value Estimation
5. Discount Factor
The discount factor is estimated to be between 70% and 80% of the polished stone value. Applying the discount factors, the estimated current value of our 3ct rough Alexandrite ranges from $4200 to $6300.
Conclusion: Expected Value Multiple Pre-Cost of 3.3x to 5x
Applying these calculations, the expected value multiple resulting from the beneficiation of the rough Alexandrite into a polished gemstone ranges from approximately 3.3x to 5x, before costs. This significant increase from rough to polished form underpins the investment strategy of ‘Rough Gemstone I’. The product not only taps the immense potential for value creation in the gemstone industry but also serves as a beacon for those seeking promising opportunities in alternative asset classes and niche markets. In essence, quantumrock’s strategy is not just an investment in gemstones but a testament to the intricate blend of art, science, and economics that drives the gemstone industry.
Please note, the intricacies of the gemstone market and other external influences introduce a level of uncertainty, making it crucial for investors to carefully analyse and assess these factors before making investment decisions. All the advantages of the presented opportunity are also offset by considerable risks, especially risk of loss. Please note, that past, backtested or predicted performance are not a reliable indicator of future performance. Please also be aware that the value of a polished gemstone is influenced by several key factors, such as its rarity, colour, clarity, cut, carat weight, origin, and market demand. Consequently, the value multiple estimations shown in this article are based on expert experience, and the actual results may vary significantly.
Dr. Stephan Hauska
Head of Sales
+49 89 215 283 341