AAL Anglo American Plc

By Alexandra Wexler 

ORANJEMUND, Namibia -- A dozen miles off the southwestern edge of Africa's Atlantic coast, a 285-ton vacuum machine operating 400 feet below sea level is sucking some of the world's most valuable diamonds from the ocean floor.

The $10 million crawler is part of a one-of-a-kind marine-diamond mining operation dubbed Debmarine Namibia. A joint venture between De Beers, a unit of Anglo American PLC, and the government of this sparsely populated desert nation, the marine mine has emerged as a rare revenue driver in today's languishing commodities markets.

Remote and secretive, the operation is only reachable by a 30-minute helicopter ride from sleepy Oranjemund, a town built by the diamond-mining industry to house workers and their families in the Sperrgebiet, or Forbidden Area, where diamonds were once mined from the sand dunes by the shovel-full.

Parent Anglo American is cutting costs, unloading most of its assets and more than half of its employees. But De Beers -- which accounted for 42% of Anglo's earnings before interest and taxes in the first half of 2016 -- is pouring money into its increasingly lucrative marine-mining operation that is yielding some of the world's highest-quality diamonds.Operations such as Debmarine highlight how the impending closure of older mines and a looming global diamond shortage are forcing miners to explore new technologies and reserves.

"We've not taken the foot off the gas on any [Debmarine] investment," says Bruce Cleaver, De Beers's chief executive.

Exhibit A in Debmarine's submarine expansion is the SS Nujoma, a 2.3 billion Namibian dollar ($166 million) custom-built exploration and sampling ship, which arrived in Cape Town from Norway in August. De Beers says the ship will almost double the number of seafloor samples unearthed daily.

The company has a total of five production vessels: the Mafuta, which mines with the crawler, and four ships that mine by drill. The drills only go down about a foot and a half, as the diamonds are scattered on the seabed just below the top layer of gravel rather than embedded in it.

Because there is little disturbance, the company says the environmental impact is small compared with land-based mining.

"We don't turn up kilometers and kilometers and kilometers of area in the sea. Our seabeds do recover -- it's not total destruction," said Jan Nel, operations manager for Debmarine. "We don't use any chemicals and put all the materials back, except the diamonds."

Others have more questions about the practice and its effects on a relatively unexplored ecosystem. "There's not much known about the impact of these techniques," said Emily Jeffers, a staff attorney for the Center for Biological Diversity. "We know more about the surface of the moon than we do about the bottom of the ocean."

The Debmarine vessels borrow technology from many different industries -- from oil drilling to fruit canning -- to create a unique system of marine-diamond mining. Aboard the vessels are diamond-recovery plants almost identical to those on land, which mill the seabed rock with steel balls. For each 180 tons milled, almost a handful of diamonds are recovered.

That happens in the high-security recovery room, where diamonds and other stones fall into X-ray machines, sounding much like coins dropping into the tray of a Las Vegas slot machine. Cameras are ubiquitous and vetted employees must pass through card and fingerprint readers to gain entry and are rigorously searched on the way out.

The diamonds are finally poured into what is a soup can-like container and sealed, then placed in a vault. A helicopter comes a few times a week to fly the diamonds to Windhoek, Namibia's capital, for sorting.

Although the seabed diamonds account for just 4% of De Beers's annual production, they account for 13% of total value, fetching the highest price a carat of any of the company's mines -- an average of about $600 a carat versus about $250 a carat from the flagship Jwaneng mine in Botswana. Their value stems from their purity, averaging around 95% gem quality versus about 20% in Botswana, De Beers's No. 1 source of diamonds.

The marine diamonds are a lucrative revenue stream for De Beers in Namibia, a country with no known diamond-bearing Kimberlite, the pipes of lava rock where the stones are usually mined. It also has been a boon to the local government in terms of tax revenue.

So far De Beers's Namibian operations have mined some 16 million carats at sea and about 62 million carats on land. Debmarine believes there is at least the same amount of diamonds at sea.

Debmarine has an exclusive mining license for a nearly 2,300 square-mile offshore area and has mined less than 3% of that area to date. The group believes that at least a quarter of that area has diamonds, which should take about 50 years to mine out, Mr. Nel said.

Write to Alexandra Wexler at alexandra.wexler@wsj.com

(END) Dow Jones Newswires

October 20, 2016 10:41 ET (14:41 GMT)

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