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Heating up: Montreal company overcoming obstacles to build a lab-grown diamond market

A worker evaluates diamonds under subdued lighting at Alrosa's sorting center in Mirny, Russia.
A worker evaluates diamonds under subdued lighting at Alrosa's sorting center in Mirny, Russia.

Philipe Henriques has always had reservations about the diamond industry. “I’m pretty sure a lot of us have seen the movie Blood Diamond,” the high school social studies teacher said. The 2006 film stars Leonardo DiCaprio as a diamond smuggler in civil war-era Sierra Leone, where warlords force captive men to sift for the precious stones through muddy water at gunpoint.

“I don’t think it’s always like that,” he said. “But I still think there are a lot of injustices.”

Even so, Henriques knew he’d need to give his girlfriend, Marjorie Gonzalez, a diamond engagement ring when he proposed. In June, he designed a lab-grown stone at Philippe and Co., a jeweler in Montreal, and presented it to Gonzalez, who called it the “ring of her dreams.”

He was satisfied, too. His conscience was clear, like the pear-shaped diamond he bought, which was set in a gold band with a tapered finish, smaller diamonds working their way up to the main stone.

It turns out, millennials such as Henriques are a key demographic driving the growth of the lab-grown diamond industry, but there wasn’t a homegrown source until Montreal-based Groupe RSL Inc. in September became the first company in Canada to create one.

Making lab diamonds requires a combination of knowledge and expertise that wasn’t previously present here, Luke Sinclair, co-founder and chief financial officer of Groupe RSL, said. It’s knowledge the company has had to build from scratch, but the potential payoff could be high because lab-grown diamonds’ market share is steadily growing, and is expected to make up 10 per cent of the global diamond industry by 2030.

“It’s also creating a whole new market segment or consumer group that didn’t exist before,” Sinclair said. “We are looking for consumers who are of the view that maybe diamonds don’t need to be mined … and appreciate that they’re getting something local. They know where it comes from, from A to B, and that it’s going to be a high-quality product because it’s made in Canada.”

 Philipe Henriques with his fiancée.
Philipe Henriques with his fiancée.

Lab-grown diamonds were first produced by General Electric Co. 50 years ago, but have become more widespread as technology enables them to be grown faster, cheaper and more efficiently. The market for them is expected to grow to $49.9 billion in 2030 from $19.3 billion in 2020, and China is the world’s top producer.

Henriques wishes his stone had been produced locally instead of in China. Since the stone was sourced from afar, he has lingering doubts about whether it was certifiably lab-grown. But there were no lab-grown diamond companies based in Canada when he purchased the ring.

Sinclair plans to capitalize on consumers such as Henriques looking for a “local touch.” This, he said, will make Groupe RSL diamonds more competitive than those sourced from China and elsewhere.

The idea to create a diamond-growing business in the first place came when Sinclair was planning to propose to his girlfriend, but couldn’t find a diamond that was socially responsible, locally produced and environmentally friendly.

“Part of the reason we wanted to get started is because most of the lab diamonds are coming from overseas, which we believe didn’t make much sense, since most of the diamonds are purchased in North America,” he said.

The local touch, however, comes with a bigger price tag.

“Canadian mined diamonds are traditionally sold at a premium,” Sinclair said. “We believe that being the first and only producer in Canada … and being powered by renewable electricity and whatnot will position our product in the premium range.”

‘A new industry’

Building a first-in-Canada lab-grown diamond business hasn’t been without its challenges.

“We have had difficulty finding expertise, but that mainly relates to the fact that we are creating a new industry here,” Sinclair said.

Groupe RSL must also contend with a deeply entrenched mined diamond industry. Canada ranks third in the world in the production of rough mined diamonds — those that have yet to be cut or processed. It has five active diamond mines, most in the Northwest Territories, and they produced 18.6 million carats of rough diamonds valued at C$2.25 billion in 2019.

But Canada’s diamond history is relatively young, hardly older than Henriques. It dates back to 1991 when diamond hunters Chuck Fipke and Stuart Blusson found the kimberlite that would become Ekati, Canada’s first diamond mine. (Ekati is now owned by Vancouver-based miner Lucara Diamond Corp.)

Around the same time, the term “blood diamond,” or “conflict diamond,” emerged, as rebel groups in Central and West Africa waged wars financed by the sale of diamonds to western buyers.

The industry took a public relations hit with the release of the Blood Diamond movie, which depicts the informal, diamond-centred economy financing the 1991-2002 Sierra Leone civil war, involving child soldiers, warlords and smugglers.

Though it was just a movie, it had a profound cultural impact. Some credit the film with helping to bolster The Kimberley Process Certification Scheme, which has 85 countries trying to prevent conflict diamonds from entering the market.

 Canada ranks third in the world in the production of rough mined diamonds.
Canada ranks third in the world in the production of rough mined diamonds.

In nature, diamonds form in carbon veins 100 to 200 kilometres underground, over a span of one to 3.3 billion years, under 900 to 1,200 C of intense heat and 725,000 pounds of pressure per square inch — roughly equivalent to 150 elephants sitting on a scrabble tile.

But Groupe RSL grows its diamonds in a vacuum, which means it doesn’t need such pressure or time, just heat. Sinclair said the vacuum is inside a microwave, and inside the vacuum is a plasma reactor, which holds a plasma chamber. Here, diamond seeds just three to 10 millimetres wide and 0.3 millimetres thick are placed.

The scientists suck the air out of the vacuum and replace it with a gas mixture of hydrogen and methane. Then they turn on the microwave and heat the seeds to a high temperature, which separates the methane from the carbon atoms, which fall onto the diamond seeds.

The process is called chemical vapour deposition (CVD), though it sounds a bit like science fiction when described.

But Eira Thomas, chief executive of Lucara, said CVD is not as environmentally friendly as consumers may think.

“Lab-grown diamonds are not necessarily greener diamonds,” she told Kitco News. “The creation of a diamond in a lab requires tremendous base-load power. Yes, if you’re plugged into a green grid, then maybe that’s possible. But you’re certainly not doing that with solar power.”

CVD requires quite a bit of electricity, Sinclair said, but “being based in Quebec, we’re lucky enough to pull hydroelectricity from the grid at the lowest energy prices in North America. The process is very, very sustainable. We produce our diamonds with a very small footprint, and we have renewable energy, next-to-zero emissions.”

Even so, an environmentally friendly product is not enough to sway consumer opinion, he said.

“As our society becomes more environmentally conscious, we’ve seen that a consumer is generally not willing to change their behaviour based solely on sustainability,” he said. “Tesla’s kind of shown us that when a consumer is presented with two viable options, it will choose the more sustainable option.”

Cheaper, but not cheap

The cost of producing lab-grown diamonds has significantly decreased over the past few years, Sinclair said, but it’s still expensive, especially when you add in shipping costs.

“You have to take special care to ensure they are shipped in a secure manner, which is very unique to our product. They’re small, but insecure,” he said. “It’s very different than the whole mining industry. It’s much more predictable in the sense that what we put in, we know what we’ll get out after a certain amount of time, but that doesn’t make it inexpensive; it just makes it different.”

Henriques paid $6,000 for his 1.72-carat diamond and band from Philippe and Co. He estimates he would have paid $10,000 for the stone alone had he purchased a mined diamond.

“I ended up getting a much larger diamond than I would have if it had been mined,” he said. “Considerably larger, especially with today’s prices.”

But Laferriere & Brixi Diamantaires Inc., a jewelry buyer with locations in Quebec and New York, said in a blog post that the price of a lab-grown diamond is its fatal flaw. Lab-grown diamonds are cheaper, but retail prices will continue to fall as they become more popular, so the value of the diamond will depreciate over time.

Henriques, however, is unconcerned about the resale value, because he doesn’t plan to resell it. Even if mined diamonds were comparably priced, he said he still wouldn’t have bought one.

A $6,000 fake?

Prior to the Kimberley Process, a mined diamond benefited from a level of anonymity. A blood diamond looked identical to an ethically sourced diamond.

The supply chain of lab-grown diamonds is shorter and more transparent, for better or for worse. You can detect if a diamond is lab-grown using specialized equipment. Some people, such as Henriques’ parents, believe this is the mark of an inferior product.

“They thought it was synthetic,” Henriques said, “like the ones you get for a high school graduation ring.”

Patrick Godin, former chief executive of the now defunct Stornoway Diamond Corp., based in Longueuil, Que., told The Diamond Loupe, “There is nothing wrong with lab-grown diamonds as a product, but it can also be dangerous, because the day you have a mix of synthetic and natural diamonds, it can kill the market. If consumers do not know what they are buying, their confidence will tank.”

That’s partly because a diamond’s value is determined by public perception. In the 1930s, few Americans proposed with a diamond, but De Beers Group’s A Diamond is Forever advertising campaign succeeded in equating the precious stone with everlasting love, essentially “inventing” the diamond engagement ring.

But millennials such as Henriques believe the whole industry is fictitious. The diamond market does not regulate itself, he alleged, but is instead controlled by a not-so-invisible hand: the diamond companies themselves. And for decades, 90 per cent of the diamond industry was controlled by a single company, London-based De Beers, which regulated the available stock.

Nevertheless, some people think diamonds should be worth nothing. For one thing, scientists at the Massachusetts Institute of Technology in 2018 found that diamonds are more common than previously believed, since there are likely one quadrillion tonnes of rough diamonds below the earth’s surface.

Sapphires are much rarer than diamonds and cost US$25 to $11,000 per carat on average, compared to US$1,300 to $16,500 per carat for diamonds, according to Diamond Pro, an online diamond-buying guide.

“I’m exaggerating a little bit, but you can make a diamond out of a burnt banana if you really wanted to,” Henriques said.

But even if the intrinsic value of mined and lab-grown diamonds may be a question mark, when he looks at the ring on Gonzalez’s finger, “It makes me think about the money I spent on it,” he said, “but also how much I love my wonderful wife-to-be.”

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