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Investing in Lab-Grown Diamonds

Written by Jason Stutman
Posted May 28, 2016

At ~$65,000 per gram, diamond ranks as the third-most expensive material in the world.

It is the best known and the most heavily marketed gemstone by far, largely thanks to its unique optical properties including a high index of refraction, high dispersion, and high luster (shine).

On an annual basis, consumers in the United States spend around $19 billion on gemstones. Of that amount, $18 billion is spent on diamonds and less than $1 billion on other stones. This makes diamond the most popular gemstone with U.S. consumers by an incredibly wide margin.

But diamond, of course, is more than just a pretty stone to admire. It is an incredibly unique super-material, with industrial applications unmatched by any other mineral on earth.

For one, diamond is highly chemically resistant and the hardest natural substance known to man — making it ideal for cutting, abrasion, and many other purposes. All said and done, 70% of the world's diamonds (by volume, not by revenue) are used for industrial applications.

The secret behind the many remarkable properties of diamond is its unique molecular structure. A diamond is composed of many carbon atoms, each covalently bonded to four other carbon atoms in a lattice pattern. These covalent bonds are incredibly strong, and diamonds have a lot of them...

Diamond Bonds

This unique molecular structure of diamond allows for the following properties:

  • Optical: broadband spectral transparency
  • Thermal: highest thermal conductivity (of any known material)
  • Mechanical: hardest natural material
  • Electrical: high charge carrier mobility (it's a world-class semiconductor)
  • Chemical: highest durability

Together, these properties make diamonds suitable not only for jewelry and industrial machinery but also a wide range of other current and future applications. Diamonds can be used for transparent electrical contact, as electrodes for batteries, as lenses for laser systems, for water purification, and as a wear-resistant coating.

The Diamond Age of Electronics

Recent research even suggests that diamonds will have a unique place in advanced computing applications in the future...

In fact, Wired recently gushed over the potential uses of diamond in technology, calling it the "holy grail of electronics."

It even went so far as to proclaim today as the "Dawn of a Diamond Age of Electronics."

According to the Department of Energy, diamonds could be used to enhance the performance of electronic devices by overcoming current heat limitations on semiconductor circuits:

The unusually attractive thermal properties of diamond thin films have led scientists to suggest using this material as a heat sink that could be integrated with a number of different semiconducting materials.

Additionally, diamonds could very well become a necessity in building practical quantum computers...

While commercial applications are still many years away, in separate experiments, researchers at MIT and the University of Southern California have already successfully built quantum computers inside a diamond.

Without getting into too much detail, the structure of diamond serves to protect against “decoherence,” or noise that prevents a quantum computer from functioning properly. Again, this particular application is years away, but the point is that diamonds are poised to be essential to the consumer electronics industry in more ways than one.

According to Semiconductor Today, revenue from diamond materials for semiconductors is expected to grow to $43 million by 2020. Quantum applications or not, the near-term growth in computing for diamonds remains surprisingly strong.

Diamond Industry Growth

Can't Find It? Then Make It.

Aside from the incredibly unique properties and applications of diamonds, the material is notoriously difficult to find. Natural diamonds form 100 miles below the Earth's surface under extreme pressure and heat over billions of years.

All told, diamonds are said to be 1,000 times rarer than gold... It's not like we can just grow them out of thin air, right?

Well, it might surprise you to learn that we can, in fact, grow diamonds in labs through a process known as chemical vapor deposition (CVD). In fact, CVD is ideal for industrial and electronic applications, because it ultimately gives more control over the shape and size of the diamond.

Over the last several years, CVD has begun to penetrate the highly valuable gemstone market in addition to industrials. Improved growing methods have made for better stone quality and lowered operational costs. Many consumers are already seeking them out too because a) the reduced cost and b) lab-grown diamonds are guaranteed to be conflict free and sustainable.

Now, just to be clear, these are real diamonds — not imitation diamonds. They are structurally, chemically, and visually identical to naturally mined diamonds.

As The National reports, "Grown diamonds are as real — optically, physically and chemically — as the crystallized carbon creations found inside the Earth."

Scio CVD Diamonds

David and Goliath

The company responsible for growing the diamonds in the photo above is the only publicly traded company growing diamonds for industrial and gemstone applications.

As of today, this firm produces three- to five-carat rough gems (grown in just three to four weeks) that are finished into one- to two-carat stones. These stones are either polished for jewelry or sliced and shaped for industrial applications.

The firm has strong intellectual protection, holding a total of 36 U.S. and international patents. It grows diamond crystals in a range of colors.

Its colorless stones are used for jewelry and industrial applications (optical windows, laser scalpels, and electronics). Its pink stones are used for jewelry and precision milling and grinding.

In May of last year, this particular company doubled its production capacity at its East Coast facility and began marketing its pink gemstones for the first time. Together, these two developments have allowed it to more than double its quarterly revenue year-over-year.

In addition to producing more diamonds, quality has improved as well. During the year, average crystal size more than doubled, and according to management, the company is still “intensifying efforts to increase [its] growth velocity.”

Of course, it will take many years before this small startup reaches the status of a gemstone giant like De Beers, but there is no doubt diamond growers like it are the future of the gemstone industry.

In fact, De Beers CEO Philippe Mellier has even admitted that the peak of diamond mining output will come as early as 2017.

As the Financial Times reports, "The peak diamonds story is credible. The depletion of the world’s big diamond mines could be exacerbated by the rise in demand from markets like China."

And while mining costs have nowhere to go but up, the cost of growing diamonds in a lab can only go down as technology continues to advance. It should go without saying that this sets up diamond-growers incredibly well for the years ahead.

Until next time,

  JS Sig

Jason Stutman

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