Determining the value of your rough.
As I have said in a prior article, I use the Adtec price guide for my basic valuation of price for rough diamond purchasing, but this is not an absolute way to value as there are other ways to value rough depending on many factors. In this article, I will discuss one such factor,final cut valuation and how it was represented in a recent article on a popular diamond website.
I just read an article from a website that I will name that uses the final cutting price to determine value, this is a fine way of determining value, especially if you are selling directly to a cutter (you need to realize that there are expenses in the cutting process so he will have to margin those into the final price.) or cutting yourself. This method takes the final price per carat of the cut diamond, for example 1,300, multiplied by the total carat weight of the rough, for example 8 carats, finally multiplied by the cut yield of the rough diamond, for example 35%. Using this method and the examples, we would take 1,300 * 8 * .35 for 3,640 total value. The problem with this is determining the cut yield. The website made the the assumption that a 5 carat rough VS1 D color, for example, will provide 50 percent yield on average. This assumption could not be further from the truth. There are many outside factors that go into determining final yield that make this method complicated.
First off, only a perfect octahedron shaped (there are always exceptions but this is a general rule of thumb that can be used) rough diamond will yield a 50% cut, rough diamonds come in many other shapes normally called flats and macles that are worth less than the octahedron shaped rough. This is because these other shapes do not yield as high a percentage for the final cut and sometimes, they can not be cut into the most popular cuts like round brilliant, princess or cushion. Some of these flats and macle are only good for the more fancy cuts or even figurine type cuts such as a heart or other special cut. The second thing to understand is that the larger a rough diamond gets, the higher your chance that it will have cracks or imperfections that will have to be avoided by the cutter thus making it impossible to cut it into one diamond. Meaning that if you buy a 25 carat perfect octahedron rough diamond, there is still a good chance that this stone will be cut into one 6 carat, and 3 two carat diamonds. Only an experienced cutter will be able to ascertain how the diamond will be cut. This is why I encourage all rough buyers or prospected rough buyers to higher a gemologist that has a cutting background over one that does not. When you take into account all of these variations, using the basic 50% cut value method without an experienced cutter on your team is business suicide and will only end up in blown margins, lost money and another buyer out of the business.