Apollo – the World’s Only Everlasting Diamond Mine
April 12, 07While most diamond merchants are wondering why we don’t see the long-awaited avalanche of Apollo synthetic (cultured) gem quality rough or polished on the market, the scientists and the marketing people at the company’s Boston-area headquarters couldn’t be more elated about their progress. They are celebrating a technological breakthrough which, in journalistic jargon, has made Apollo a perpetual diamond mine – with a mining life that lasts forever, something no natural diamond mine can claim.
The new technological developments will dramatically impact the volume and type of diamonds the company will produce. Dr. Robert (Bob) and
What triggers the excitement? The CVD synthetic growth process starts with a “seed” (as substrate) of pure diamond that is placed on a pedestal in a depressurized chamber which is then injected with methane and hydrogen gas. The chamber is then heated with a microwave beam, forming plasma. In the next phase, carbon atoms are deposited on the diamond “seeds” (substrates) which then spur growth of the synthetic diamond on the seed.
New “mini-bricks” (wafers) of diamonds are created. So, what is the cause of the enthusiasm? In the past, the “seeds”, essentially the raw material needed to synthesize diamonds, consisted of natural diamonds or certain synthetic materials (HPHT) produced by other companies. It was very hard to find the natural rough diamonds (generally over one carat in the highest gem qualities) that were needed to serve as “seeds”. Whatever the seed material used, Apollo depended on outside rough suppliers to secure their needs and they found themselves totally dependent on a few third parties.
Whether by coincidence or design, after Apollo commenced its commercial production, it seemed as if rough producers were withholding the seed-appropriate diamonds from the market. In order to grow large rough synthetic diamonds, the natural diamond that would provide the “seed” also needed to be quite large, often in the 3 to 5 carat range.
One of the major technological challenges facing Apollo in 2004 was to secure sufficient quantities of natural diamonds needed as “seeds”. Not any more.
It has become truly “independent”. No other player in the diamond market can deny them raw diamond materials. As some suppliers were also potential competitors, the importance of this independence cannot be stressed enough – it makes the company master of its destiny.
Engaging the Industry in Dialogue
Generally, when a science-based product is in development stage, companies are careful not to launch their creation prematurely. Apollo consciously went another route. In order to commence a dialogue with the diamond industry, Apollo decided to publicly announce the planned commencement of commercial production when it allowed the publication of the Wired article in 2003, followed by a Sixty Minutes television documentary in 2004, and a Newsweek cover story in 2005, alongside articles in the diamond trade press and other media. It offered samples for gemological research.
The company sought the publicity to demonstrate to the industry that they’d become part of it without upsetting the market. That publicity, with the benefit of hindsight, may have been too early and may have caused both exaggerated fears on the one hand, and expedited the efforts of potential competitors – mostly De Beers – to accelerate their own research and development programs on the other. The company’s openness toward the industry has largely failed to reach the objective – and, with a clean conscious, the company considers itself “free” to set its own marketing strategy.
The diamond industry may have failed to appreciate that the establishment of a new industry requires the interaction of various different actors. Also, product development has a lengthy timeline, which is not always predictable. One must develop processes and engineering capabilities to manufacture the diamond product; then there is the development of marketing programs regarding volume and nature of output; then there is intellectual property, its protection, as well as operational issues. Finally, there are financing considerations. Naturally, the company didn’t publish a list of problems it was facing when it initially disclosed its plans. Instead, attaining “independency” of seeds – to become totally self-sustainable - was one of the highest priorities.
And this has now been achieved.
Capability to Produce Rough by Order
“Diamond manufacturers will have to rethink their uses of rough, their attitude to rough, and their expectations from their suppliers,” explains
There is still more to it. Studying the intensive research done on the product’s “value proposition”, it is expected, for example, that in the small melees ranges, many manufacturers will prefer the synthetic rough. They will have access to rough with higher yields, with a tremendous degree of consistency, and with custom-made sizes and shapes of rough. In these ranges, the price differential is expected to be minimal (about 10-15 percent below the natural counterparts, provided that there are natural diamonds available.)
We were shown a detailed model of Apollo’s value projections throughout the range of goods, and the supporting evidence for the assumptions, but this was presented as confidential background information. It seems that the company has thoroughly studied the future supply and demand scenarios facing world diamond jewelry markets over the next ten years, and has targets as to what share they believe they’ll be able to supply.
Pricing is an intriguing subject. In 2006 and 2007, the company commenced sales of cultured diamond-set jewelry. The primary sales channels are through the Internet (directly to consumers) and through retail outlets, mostly through
Detection Becoming More Difficult
Apollo was reluctant to discuss the ability of GIA, De Beers or other organizations to detect whether a diamond is Apollo or natural. Apollo’s engineers are continuously improving the technology. I was shown pink, orange, and -brown polished diamonds which were said to have escaped detection by available gemological equipment. Like any other diamond mine, Apollo’s output is far from uniform. There are also inferior qualities which are presently stockpiled or earmarked for non-gem market uses.
In the total range of goods, there are certain categories where the cultured origins are easier to detect, while in others, it is virtually impossible.
To Apollo, this is not an issue. They will disclose that their diamonds are “cultured”, and, for the time being, they are only selling polished. No efforts are made to “add” a substance to ease detection, while it is also not a policy to try to make the synthetic origins of the goods undetectable. “This is not an issue on which we are spending resources,” said the company. “To us there is no relevancy to that question.”
Could, theoretically, the product be made fully undistinguishable from the natural counterpart? The indirect answer was that these are purely scientific and engineering questions to which one could put one’s mind, if one wanted to. There is, however, no such intention. It is clear, however, that irrespective of statements to the contrary, today some of Apollo’s cultured polished diamonds cannot be detected as such.
Selling Rough to Manufacturers
The company is now subcontracting the rough to manufacturers in North America,
In terms of volume, which is another proprietary piece of information, the company confirmed that rough production was in the tens of thousands of carats in 2006. But it didn’t have the “own seed” capacity and a large part of the production was not suitable for cutting. This is exactly the area where product development comes in. “Today, a far larger part of our output is suitable for polishing – and this part is only increasing over time. Compared to natural mining production, we are moving from a product distribution of a regular mine, to that of a mostly a high quality larger size producer,” says the company. Current sales are only in the better qualities.
“We have definite marketing plans which are tied to our levels of production. It is fair to say that we expect that five years from now, some 80 percent of our production will be sold as rough diamonds to overseas manufacturers.”
Apollo’s management seems acutely aware of forecasts of rough diamond supply shortages. The expected gap between supply and demand for diamond jewelry by the end of the decade may be in the range of $7 billion. There is no reason why cultured diamonds will not provide at least $2 billion of that gap.
The reliability of supplies in precise sizes, colors, quality, and shapes will ease the entry of synthetics into the market, providing an alternative in times of shortage.
A recent presentation by Apollo management in Mumbai caused an avalanche of applications by local dealers to become Apollo dealers or contractors. “In the manufacturing of products in which the technology is still being improved every day, we are hesitating to go for mass volume prematurely. But we are very close to that moment.”
Financial Investors have Comfort Levels
I queried about their financial situation, recalling that in 2004 the company was in the capital markets looking for investors to finance the development of a large number of diamond producing machines. “A few years ago, many of the technological challenges had yet to be proven. The money we were looking for was considered risk-money as we were unable to show that we were having a sustainable long-term business proposition.
“This has dramatically changed. Not only that we have solved the outstanding technological issues, but we also have been able to test the markets. We have now absolutely certainty that there is considerable demand for our products, at a price level which is fairly aligned to the curves of natural demand. Today, access to capital is the least of our problems.”
Apollo Diamond Inc. is a Delaware-incorporated private company. Though declining a question about future plans, I received the distinct impression that management sees the company as a suitable candidate for eventually going public. “We have reached proven long-term sustainability for our product and thus long-term survivability of our company. That makes Apollo attractive,” said the spokesman, in a non-committal manner. It was my sense that the emphasis, however is on the word “eventually”.
General Market Developments in Apollo’s Favor
Management is closely following the shift of manufacturing natural diamonds to the source countries in Africa, where processing costs are higher than in
The name De Beers hardly came up in two separate meetings I spoke this week with various members of management. The company shares the expectation that De Beers will at some point become a serious – and certainly the dominant – player in the synthetic gem quality markets. When isn’t clear.
My expectation is that De Beers will recognize that there will be a gap between rough supply and demand and that it will want to become the Supplier of Choice for synthetics as well. If I had to make a guess, I would expect the launch of De Beers gem synthetics to be in early 2011, just after termination of the next Supplier of Choice supply contract with DTC Sightholders.
After 2010, there will no longer be a DTC in
Jonathan Oppenheimer has always been fond of synthetics. The Element Six subsidiary, which he chairs, will provide De Beers with far greater growth opportunities than the natural diamond business. But that is still some time away.
I asked whether the company wasn’t concerned about other players, especially as their patents may run out. “We have been investing many years in research and development – and it is a continuing process. It takes enormous intellectual and financial resources. Though theoretically others could join the field, we are not overly concerned – because we know exactly the problems others will face. At the same time, we appreciate that De Beers has a similar technology – and they obviously have spent a fortune on synthetic research for well over half a century. These are all factors we naturally have taken into consideration, and we feel very comfortable about our niche in this growing market,” said
In any event, while being independent, Apollo won’t be alone in this business.