Tanzanite is among the most precious gemstones and is among the least valued in relation to its importance. Due to its rarity it’s reasonable to think that it will be sold at an extremely high price. But, with the cost per carat ranging from $300 and $600 and it is sold for lower than diamonds. However, unlike diamonds, it does not have any industrial application. However, that alone is not enough to explain the stone’s small value. This article examines the structural issues that prevented tanzanite from reaching its potential. It begins with a historical and historical overview of this amazing stone. The article then focuses on the economics of the market for tanzanite and outlines the stone’s enormous potential to aid in the growth of Tanzania’s economy.
‘Gemstone of a Generation’
Tanzanite is known as a trichoic gemstone that has a variety of colors in a range of light blues or Lilacs, to deep violets and indigos. It was discovered in 1960s, and named in honor of Tanzania from Tiffany & Co. The famous jewelry company claimed it was the most beautiful stone to be discovered over the past two thousand years. Tanzanite is so scarce because it is mined and found in a tiny area of 4 km wide and 2 kilometers long near the base of Mount Kilimanjaro in the Manyara Region of Northern Tanzania. According to an Tanzanian geoscientist, the conditions which led to its formation at 585 million years old were such that the chance of finding it elsewhere on the planet is one in a million. This makes it a thousand times more scarce than diamonds. With what is currently the rate at which mining takes place, the expert estimates that the current supply of tanzanite will deplete in about 25 years. This is why Tanzanite is referred to for being”the “gemstone of a generation” since this generation will be the last generation that can purchase stones from the market prior to the supply becoming exhaustible.
Tanzanite is a huge resource for Tanzania however, the time is dwindling and the industry is in desperate need of radical modifications and structural changes. The current trade in rough tanzanite for wholesale is valued to be USD 50 million. To put this in perspective an industry report from 2010 published by Bain & Company estimated the global trade in rough diamonds at approximately 12 billion dollars. With Tanzania’s GDP of US$28 billion and growing, an increase in market value or quantity of tanzanite could have substantial impact upon the economy of the country. However, the window of opportunity is rapidly closing since the probability of recouping the cost of investments in the near term and reaping the benefits of this precious resource will be limited due to the life span of mines. Although the Tanzanian government’s involvement is essential for the success of reforms across the industry, its performance is not exactly impressive.
The first time the government was involved in the year 1971, when it nationalized all the tanzanite mining operations. A period of almost non-existent mining activity was followed. While the government exercised the legal authority, it was lacking the expertise and resources to manage effectively in the mining industry. In the end, it transferred ownership to private firms. In 2003, however it reacted with a ban on rough stones greater in size than 1 carat. According to an industry veteran, the law served to foster a local cutting-and-polishing industry and to retain more added value within the country. However, it was not well enforced and the authorities were unable to stop the smuggling. This meant that large amounts of gems and stones were exported out of the country at the expense of established and larger companies. In addition, the country was not equipped with the knowledge and expertise needed to build the industry up to the point of TanzaniteOne.
According the official website of TanzaniteOne, TanzaniteOne is the largest and most technologically advanced supplier and miner of Tanzanite. It is owned 100% by Richland Resources Ltd., which is listed on the AIM sub-market of the London Stock Exchange as RLD. Despite its status however, the company is not large and its annual revenues rarely over 24 million dollars. It has made a profit only few times since its incorporation in 2004. Although it’s difficult to figure out why a massive mining firm that is mining the rare and gorgeous stone is unable to create a profitable marketplace for it, the solution is found in a variety of aspects that include that of the Tanzanian administration’s participation in development and the exploitation of tanzanite, as in the overall structure of the market.
Although the government exercised legal power, it was not equipped with the necessary knowledge and human resources to manage the mines effectively.
In 2010, the Tanzanian parliament passed a brand new mining law, which required the government to take an ownership stake of any newly developed mining ventures. In the end, when TanzaniteOne’s mining permit came to expire at the end of 2012 TanzaniteOne had to sell 50 percent from its stake. The firm’s top executives believe that there is some silver linings to this situation, since the government is now in a position to enforce laws designed to safeguard the mining industry. For instance it is possible for the government to decide to stop the illegal trade in smuggled goods as it is a major issue that has a negative impact on the entire business.
TanzaniteOne is the only company to benefit from a modification due to its investment in an polishing facility. One of the skilled gem cutters in the facility said that being the biggest miner of tanzanite TanzaniteOne has the size to make a business profitable. It has also been extremely savvy in its choice to purchase gemstones of other mines to use for grinding and polishing. TanzaniteOne is the first company to make its choice to expand the distribution and production chain and to the point where more value is located. While the cutting-and-polishing side of the business is not included in the stake ceded to the government, TanzaniteOne will, by virtue of its partnership with the state, have more leverage when asking for stricter enforcement of the export ban.
A Detriment to the Market
The area of tanzanite mining where it is mined can be divided in four parts known as blocks. These are identified as A B, C, as well as C, and. TananiteOne has the concession Block C, which is one of the most expansive of these four. Other blocks are occupied and exploited by a variety of small and medium independently-owned and artisans who mine. With very little in the way of capital investment, or general expenses mining companies can overflow the market with low-cost stones and lower the price of tanzanite overall. Hayley Henning who is chief executive officer of the Tanzanite Foundation, agrees that the availability of stones with questionable origins at huge discounts are damaging to the whole market. When its stones are on their market price, TanzaniteOne has no way to distinguish its product from the other miners, placing it at a disadvantage when it comes to price negotiations.
Furthermore, the stone’s rarity has actually worked against it because the stone is undiscovered. Tanzanite Foundation Tanzanite Foundation, a nonprofit created by TanzaniteOne has been working tirelessly to promote awareness by issuing authentic certificates that prove the stone’s source and quality. As with diamonds, tanzanite gemstones are also evaluated for their clarity colour, carat, and cut. In contrast to diamonds, they are certified as non-conflict-free. Furthermore to that, the TanzaniteOne mine abides by strict the laws of labor and employs technology to reduce the environmental impact.
By way of the Tanzanite Foundation, TanzaniteOne has been involved in many social initiatives that help the local community. Most notable, the mine has supplied clean water to the surrounding regions. Additionally, it has provided financial assistance local schools as well as a medical clinic and an auxiliary center for the community. Henning also outlines a different project that helps local Maasai women by assisting them to create artisanal jewelry which can then be sold worldwide. Yet, these initiatives don’t market TanzaniteOne’s products directly. With regards to pricing, it’s impossible to differentiate TanzaniteOne stones from stones mined by other companies. Therefore, a lot of the Foundation’s initiatives will benefit all industries.
TanzaniteOne is trying to imitate the business models used in the diamond sector by selling its diamonds through sightholders, those companies that are licensed to purchase bulk quantities of diamonds. Based on the words of a sales executive for TanzaniteOne the companyas the biggest producer of Tanzanite — believed that it was able to shape its market and affect its price by partnering closely with a select group of specially selected wholesalers of international gemstones. However, despite its size, TanzaniteOne does not have the resources to establish a price for the stone. In reality the sightholders enjoy more power in their relationship because they are able to get stones from other miners.
TanzaniteOne has tried to replicate the business models used in the diamond sector by selling its diamonds through sightholders, organizations that are authorized to act as bulk purchasers of rough diamonds.
In 2012, TanzaniteOne’s circumstances got very dire. In its annual report by its parent company illegal miners from other blocks invaded Block C and focused on the areas with higher quality of TanzaniteOne’s mining activities. The attacks were brutal and violent, with the use of guns and explosive devices. A number of employees were injured and one security guard was beaten. TanzaniteOne was not well-supported by authorities, and it was challenging to assert its rights as a property owner.
With no full support from authorities, any enforcement actions could turn into a publicity catastrophe. TanzaniteOne was also cognizant of the potential for violence that a response can trigger and was concerned about protection of workers. The company decided to withdraw from the mining zones at a significant cost to the financial. When the mining license of the company came up for renewal at the end of 2012, it took an extremely risky but costly decision. Instead of engaging in a lengthy and tense dispute, it accepted to transfer 50percent of the licence to the Tanzanian government, in line of the new mining law. Henning pointed out that as a co-owner that the government would be able to intervene and assist protect the property rights of TanzaniteOne. It was nevertheless the case the Richland Resources took a significant write-off in order to reflect the new arrangement. The result was that trading in its shares was temporarily suspended.
On the 18th of July, 2013 on July 18, 2013 Tanzanian police launched an operation to remove illegal miners from the area which belonged to TanzaniteOne. It appeared that the gamble of the company paid dividends. In the following day, it had reclaimed the area it previously fled. On the 21st of July an TanzaniteOne employee was fatally wounded by illegal miners in the midst of police officers — an illustration of how complicated and difficult the situation for the company.
TanzaniteOne is at its core an operator of mines. But it has also realized that there are greater rewards for those who are higher up in the value chain. As it saw the opportunity to enter cutting and polishing of gems when an export restriction was put in place It also saw the benefits of being retail and opened stores under the name Tanzanite Experience. This new business model has helped offset negative impacts of mining activities. Today, approximately 20% of the company’s revenue comes from the sale of rough stones, but selling them retail is more profitable.
In into the future stakeholders recognize the necessity of leveraging the existing supply of tanzanite in order to create an industry that is sustainable and durable.
Retailing has also enabled TanzaniteOne to form relationships with the designers of exquisite jewelry. This market is more secure than mining and has more long-term advantages. In in the near future, all stakeholders agree that it is essential to harness the existing supply of tanzanite in order to create a sustainable, durable industry. This is possible by advancing into strategic areas such as polishing, cutting and selling, where the margins for profit are greater.
The channels for selling Tanzanite are currently dominated by sightholders, who leverage their purchasing power by having access to many miners. In a way the business model of the sightholder is the main reason for underground trading in rough stones. If TanzaniteOne continues to expand its retail presence it will gain more market dominance.
The tanzanite market is poised for massive growth because of the untapped global markets, with a particular focus on China as well as India. According to a research conducted by Bain & Company, both of these jewelry markets are expanding at a rapid rate. Contrary to U.S. and Europe, where diamonds are the most sought-after and sought-after, the consumers of these regions like colored stones and buy these at prices four times higher than diamonds. The trichroic quality and uniqueness of tanzanite give the gemstone an edge when it comes to these marketplaces. In India it’s used as a substitute for sapphires that Astrologers believe has negative characteristics. Since the jewelry retail network in emerging markets isn’t as established as it is in the developed market it is more practical to make use of the strength of relationships currently in place with sight holders to maximize the interest in tanzanite.
An Opportunity to Turn the Industry Around
Tanzanite seems to possess all the components of a popular productit has a rare supply, distinctive trichroic characteristics and a foundation devoted to social change. But, fifty years since its discovery, a commercial breakthrough is still elusive for the stone. The reason for this is the Tanzanian government’s role as shown by the story of the sector and the example of TanzaniteOne who owns the largest tanzanite deposits around the globe. The company is an excellent illustration of the importance of good governance, and also how ineffective enforcement could cause a business to fail, producing erratic pricing as well as disruptive competition as well as an unbalanced distribution the power between actors.
While TanzaniteOne has managed to keep its position as the leader in the market despite the challenges in the past, it currently is facing a further obstacle with the formation of a new partnership, which has caused the company to lose half of its equity. But, with the right developments, this new partnership could provide the chance to change the direction of the industry. Since the government holds 50 percent of the company’s success, TanzaniteOne has the leverage to demand that it enforces laws against the illegal trade. It’s not enough, since TanzaniteOne also has to increase its presence in current U.S. and European markets to improve its relationships with sightholders. Contrastingly the emerging markets, like China and India working with sightholders is crucial to developing the market and growing demand.
Future prospects for both Tanzanite as well as the existence of the people who work in the mining industry or reside in the surrounding areas of the mine is contingent on the performance of TanzaniteOne’s and the ability to alter the perception of its customers while revealing the real value of the stone.
Leave a Reply