A worthwhile post from stockwatch-
Author: WillP -- Date:1999-02-08 08:50:10
Subject: Diamond Analysis
OK, all...chew on this for awhile.
We know the sizes of the four largest stones: Just under 11 carats, 8.4 carats, 6 carats and 5 carats. There are 21 other stones larger than 1.0 carats...weighing 37.44 carats. A total of 1387 diamonds were recovered that didn't fall through a 1x9 millimetre screen. Recovery of stones below 2 millimetres seemed to be very sloppy.
So...it's fairly easy to construct a diamond distribution curve...and here is one. The weight categories were selected to match the raw diamond value chart I sent earlier. The value is the average value of a gem of equivalent quality to the three largest diamonds, based on the value chart.
The four largest stones sizes are known...they don't appear in the table. The purpose of this exercise is to determine the valuation of the remaining stones.
This isn't rocket science.
Number .. Size Range . Avg.Wt. Value Total Value
... 2 ..... 3.00-3.99 .. 3.30 ... 1552 .. $10,243
... 4 ..... 2.00-2.99 .. 2.30 ... 1328 ... 12,218
... 6 ..... 1.50-1.99 .. 1.65 .... 930 .... 9,207
... 9 ..... 1.00-1.49 .. 1.15 .... 830 .... 8,591
... 4 ..... 0.90-0.99 .. 0.93 .... 556 .... 2,068
.. 13 ..... 0.68-0.89 .. 0.75 .... 423 .... 4,124
.. 29 ..... 0.46-0.67 .. 0.53 .... 340 .... 5,226
.. 21 ..... 0.38-0.45 .. 0.41 .... 249 .... 2,144
.. 66 ..... 0.25-0.37 .. 0.29 .... 183 .... 3,503
.. 82 ..... 0.18-0.24 .. 0.20 .... 141 .... 2,312
. 257 ..... 0.10-0.17 .. 0.12 .... 108 .... 3,331
. 652 ..... 0.05-0.09 .. 0.06 ..... 83 .... 3,247
. 238 ..... 0.02-0.04 .. 0.03 ..... 43 ...... 307
The total value of all of these stones...assuming they were all of the exact same quality as the three largest...would be $66,521. Now, we know that the value of all of these stones, totaling about 196 carats, was approximately $16,750, or one quarter the value of the total parcel.
So...if you deal with just one value class...average, each diamond was worth $85 US per carat. However...if you use two quality classes...crap and equivalent to the top three stones...you easily compute that fully 25% of the stones had to be in this category. That is, 49 carats were so classified. Now if you add in the 25 carats from the top three stones...74 carats out of 226 or just under 33% would account for all of the value.
Now some of you are going to whine...but there are 5000 different classes of diamond valuation. So what...mathematically? If the sample is large enough...you get the same result. I can simulate as large a bulk sample as you want. It yields the same result mathematically. Go ahead, try it with three classes...with five...with seventy-four.
So now, as I have alluded...it is an easy exercise to generate a bulk sample...either with statistics or by iteration on a computer.
Using the lowest, most conservative values throughout...diamond distribution curve based on 1.14 carats per tonne, gem quality at 25% not 33%...I consistently generate a value per carat of between $145-$175 US with the median at $160 for a 6,000 tonne sample. The median largest gem contained in these parcels was 31.7 carats.
Now remember...these numbers were generated with many conservative assumptions: #1. There is a real and high probability that the average grade will be 20-50% higher than 1.14 carats per tonne. #2. In assessing gem quality...the entire contribution of the three largest stones was ignored. That's not realistic. #3. I artificially deflated the distribution curve at larger sizes. This is my own personal safety hedge.
A simple way to consider it all is...there were 4 large stones...three of gem quality. These 3 contributed on average 25% each to the value of the parcel. There should have been only one...statistically. So the value per carat should be halved...to $150 per carat. This is a good conservative number to play with...not the 85 US per carat that totally ignores the fact that the stones existed.
And a final thought...remembering all the theory of diamond formation...transportation...and destruction...
Do you really wish to base your investment decisions on the principle of ignoring something that was duly found and assessed by at least 4 independant diamentaires?
I think 3 of four stones over 4 carats being fine gems was a bit of a fluke. But quite possibly it's not. I don't know enough about diamonds.
But the more astute of you out there will realize...I know a little bit!
What I do know alot about is life...and one lesson I've learned is it never pays to ignore reality...and the fact that three stones weighing 25 carats were worth over $50,000 US...is reality.
:-)
Cheers!
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