Romancing a New Stone

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In 1997, a South African entrepreneur named Mike Nunn, who was buying tanzanite from local miners, spotted an opportunity. He recalls drinking a beer on the hood of his Land Cruiser—the snow on "Kili" pink in the sun's glow—and studying the mining operations below. He had come from the Block D zone reserved for small-scale miners and was headed to Block B, a second area for locals, studded like D with a jumble of corrugated-iron roofs, holes and ladders marking each small claim. But between them was a large dirt stretch with no activity. He made inquiries, put together a group of private investors in South Africa, and with them eventually took over the mining rights for Block C. The company they created was ultimately baptized TanzaniteOne and listed in 2004 on the Alternative Investment Market of the London Stock Exchange.

The company's initial geology studies suggested that tanzanite could be mined more efficiently to increase supplies, but market conditions were challenging. Tanzanite prices fluctuated wildly, and small exporters regularly undervalued their rough stones and smuggled them across the border to Kenya to dodge export taxes. Safety was lacking—more than 100 miners were killed when tunnels flooded in 1998—and the locals were hostile to the arrival of a well-financed competitor. Finally, although Americans made 70% of all tanzanite purchases, it turned out to be a niche business, heavy on souvenir trinkets offered on Caribbean cruises. Most Americans had never heard of tanzanite.

Nunn and his teams decided a comprehensive mine-to-magazine approach was needed, and they found a blueprint in their own backyard in South Africa at the De Beers diamond company. Several current best-selling books look at how trends are spawned and spread, and debate continues over whether one could completely engineer the next Big Thing. The answer is yes: De Beers did it.

Faced with a glut of diamonds in South Africa that risked destroying prices, De Beers in 1890 organized a cartel to control supply, which was further tightened in 1925. Beginning in 1938, the company commissioned a series of clever promotions in the U.S. to convince consumers that diamonds were rare (they were not), that they symbolized romantic love (a copywriter's concoction) and that they should never be sold, further limiting the number in circulation. The pinnacle of this campaign was the advertising tagline introduced in 1948: "A diamond is forever." It was used to cement the role of the diamond solitaire as the de rigueur choice for a wedding-engagement gift. In 2005, U.S. sales of diamond engagement rings totaled $4.84 billion.

TanzaniteOne invested in new technology for the mine and backed marketing and education initiatives. Clear guidelines on qualities, especially color, were established to eliminate price confusion. Nearly all tanzanite is heated to 450°C to develop its blue color, and the finest quality tanzanite is predominantly blue with violet accents. Quality tanzanite costs between $500 and $1,200 per carat at retail. Greig, the South African jeweler, says $1,000 per carat is a good benchmark. Buyers should demand certification from an independent laboratory. Top-grade flawless sells for $1,500 and up per carat and represents only 0.13% of TanzaniteOne's annual production, executives say. "Tanzanite is an amazing deep purply blue, and personally I find it more appealing than sapphire," says London jewelry designer Stephen Webster, who first worked with it in the early 1980s in Los Angeles. (But he warns that it is more fragile than some stones: 6.5 on the hardness scale, compared with 10 for diamond and 9 for sapphire.) "I'm looking at a piece right now, and it's flashing red. It is very exotic. In top-end jewelry now, the client is way over branded luxury goods. They are looking for limited availability or one of a kind," he says.

Rarity is an effective selling point, but dominating a category is better. The Tanzanite Foundation's new ad campaign, "Be Born to Tanzanite," is an attempt to position tanzanite as the stone one gives for a birth. And the De Beers parallels continue. In 2005, in a controversial move, TanzaniteOne switched to a "sightholder" selling system in which all the better production is reserved for six preselected clients who buy at a price fixed by TanzaniteOne. The move appears to have helped stabilize prices, which is reassuring for retailers and final consumers, but it smacks of the diamond cartel. However, there are important differences, argues Ian Harebottle, who replaced Nunn, still the largest shareholder, as chief executive at TanzaniteOne last May. TanzaniteOne controls only 35% of tanzanite, compared with De Beers' historic 70% market share. In 2005, TanzaniteOne's sales totaled $41.1 million. "We don't want to be a monopoly, and we don't want to dictate," Harebottle says. "We want to be part of a successful industry where miners but also cutters and retailers make margin."

Harebottle, a former management consultant whose father was a diamond cutter, says he signed on at TanzaniteOne because he "felt he would play a part in history." He boasts about running "the world's most sophisticated colored-gemstone-mining operation" and pioneering new technology like an optical sorter adapted from the recycling industry that is used to scan the shaft debris for overlooked tanzanite. Never mind that some systems underground—such as having workers hand-tie sacks of debris onto a pulley rope at 9-sec. intervals—seem straight out of The Flintstones. He's enthusiastic about the potential for mining companies to have a positive impact in Tanzania.

And he and his team are hoping fashion will embrace tanzanite too, but in a lasting way. "When Ben Affleck gave Jennifer Lopez a pink-diamond ring, pink-diamond sales—and even pink-sapphire sales—shot up. It was phenomenal," notes Adrian Banks, managing director of TanzaniteOne Trading. "Then it was over. It was a fashion thing. Tanzanite is not a fashion stone; tanzanite is better than that."