Loss of diamond licence could cost Anglo American $500m

The upcoming expiry of a key diamond licence in Botswana could wipe more than $500m (£285m) from Anglo American's profits, according to City analysts.

The upcoming expiry of a key diamond licence in Botswana could wipe more than $500m (£285m) from Anglo American's profits, according to City analysts.

De Beers, the diamond giant that is 45 per cent-owned by Anglo American, will see its 25-year licence for the Jwaneng mine in Botswana expire at the end of July. The diamonds from the mine last year produced 70 per cent of De Beers' operating profits and 17 per cent of operating profits at Anglo American, or $525m.

Negotiations between De Beers and the government of Botswana have not so far produced an agreement for the renewal of the licence. Nick Hatch, at Investec Securities, said: "The loss of Jwaneng or a major change to the terms of the mine's licence could have a material impact on Anglo's earnings.... We'll be watching for news flow from Botswana very closely."

Mr Hatch said the possibility that the licence would not be renewed was a worst case scenario. However, he said the new licence was likely to be on less favourable terms for De Beers and therefore for Anglo American. The government of Botswana is believed to want be paid more for the diamonds taken from Jwaneng, which would mean a cut in the profit margin enjoyed by De Beers at the mine. "At the end of the day, some sort of accommodation will be reached... but it is hard to see that the terms will be as good for De Beers," Mr Hatch said.

Jwaneng is one of the key mines in the Debswana joint venture between the government of Botswana and De Beers, the largest producer of rough diamonds in the world. The Jwaneng mine contributed about 29 per cent of De Beers' production last year, worth $1.3bn. By output, Jwaneng is De Beers' second-biggest diamond mine in the group, but by providing the company's highest grade diamonds, the mine has one of the biggest profit margins.

A spokeswoman for De Beers said: "Informal discussions are underway. De Beers and the government of Botswana have one of the most enduring partnerships in the history of mining."