I'm not him, but I'm a tech writer (and I teach writing to grad students), so I'll give some advice.

With customer emails (actually, all emails), three things are most important:

1. Bad news should go first, without a bunch of softening. You did a pretty good job of that.

2. If an apology is needed, or acceptance of guilt, then give it. You did a good job of that, too.

3. Clarity. They should be able to skim the email and understand it without having to read every word carefully. You could use some help there.

One hard part is tone. You started out with "Thanks," which implies a nice, friendly tone. But then you didn't use a single contraction, which implies a more formal tone. I went with friendly, but you might want to tweak it, if you think it should be more formal.

Hi Mark,
Thanks for getting in touch.

I'm sorry for the delay in getting back to you. We've been closed for Christmas the last couple of weeks, and I didn't see your email until now. {OR GET YOUR VOICEMAIL OR WHATEVER}

Unfortunately, the emerald that you selected has suffered minor damage during setting. (Sadly, this is not unheard of with coloured gems, particularly emeralds.)

I know that this is disappointing, so as a way of making it up to you, I'd like to offer you one of the following options:

• A 0.75 carat replacement of your choice from the selection we have available. This upgrade equates to about a 30% increase in value.
  

OR

• A direct replacement of your emerald, like for like, along with a £300 refund.
  

Of course, if neither of these options are suitable then I'm happy to grant you a full refund.

Please let me know how best to proceed and I'll do my best to help. I appreciate your business and I'm sorry about this inconvenience.

Kind regards
mrflib