Anglo American (LSE: AAL) is moving closer to spinning off its diamond unit, De Beers, after the government of Botswana confirmed interest in increasing its stake in the world’s leading diamond producer by value.

De Beers has been on the chopping block since May 2024, when Anglo announced plans to either sell the unit or launch an initial public offering (IPO). This decision came as part of a reorganization initiated after Anglo fended off a failed £39 billion (US$49 billion) takeover bid by Australian rival BHP (ASX: BHP).

Botswana currently holds a 15% stake in De Beers, estimated by analysts to be worth US$2.5 billion. While the government has expressed interest in raising its stake, it has not disclosed the extent of its planned increase.

De Beers plays a critical role in Botswana’s economy. The company recently committed US$1 billion to extend the life of its flagship Jwaneng mine by transitioning operations underground.

This project, in the cards since 2010, aims to preserve the mine’s status as the richest in the world by diamond value. 

Earlier this week, De Beers announced it had finalized negotiations with Botswana on a new diamond sales agreement and the extension of mining licences for their joint venture, Debswana, until 2054.

Currently, 75% of Debswana’s diamond output is sold to De Beers. Under a provisional 10-year agreement reached in 2023, Botswana’s share of production is set to gradually increase to 50%. Additionally, Botswana’s state-owned diamond trading company is expected to receive 30% of Debswana’s output.

De Beers CEO Al Cook told the Financial Times this week the agreement would usher in an intense period of discussions to ensure the separation benefits both Anglo American and Botswana, adding that investments in businesses, education and energy are possibilities. 

Bogolo Kenewendo, Botswana’s minister of mines, told the paper it was the right time for the government to discuss raising its stake in De Beers, given Anglo’s plans to offload parts of its business. These include South Africa-based Anglo American Platinum — Amplats as well as its steelmaking coal and nickel assets.

Tough market conditions

The separation of De Beers has been complicated by unfavourable market conditions, including a slump in diamond prices due to the rise of lab-grown stones and weak demand from China. Anglo CEO Duncan Wanblad noted this week it was possible De Beers will remain part of Anglo into next year, depending on market recovery.

Anglo is also expected to write down the value of De Beers, currently listed at US$7.6 billion in its accounts. The company, which already wrote down De Beers’ value by $1.6 billion last year, is due to release its annual results later this month.

As part of its preparations to split from Anglo, De Beers has announced it will stop selling lab-grown diamonds through its Lightbox brand, created in 2018. While the miner will continue selling Lightbox inventory for about a year, the unit will be placed under review once current stock is depleted.

De Beers is targeting annual core profits of US$1.5 billion by 2028. Last year, the business made just US$72 million, though traditionally its profits have ranged between US$500 million and US$1.5 billion, reflecting the diamond industry’s boom to bust cycles.