Tanzanite One rejects Gemfields US$63.3m offer

Advisor says Tanzanite One’s expansion into tsavorite could result in huge margins and substantial profit.

LONDON (Reuters) - 

Gemstone producer Tanzanite One Ltd outlined expansion plans on Wednesday and vowed to fight a takeover offer by bigger rival Gemfields Resources Plc.

Gemfields, which has the rights to the Faberge luxury goods brand, announced a 33 million pound (US$61.31 million) takeover proposal on Sept. 12 to expand its range of products from emeralds.

However, Tanzanite One said the offer "extremely undervalues" the company. "It is opportunistically timed and there is also some significant uncertainty surrounding some elements of the proposal," Company Secretary Willi Boehm told a conference call.

The proposed offer, in which shareholders would be able to choose 45 pence in cash or 1.4 Gemfields shares for each Tanzanite One share held, would create the world's leading miner of coloured gemstones, Gemfields said.

Tanzanite One is the biggest miner of the blue-violet gemstone, which is found only in the east African nation of Tanzania.

The offer is at a 19 percent discount to Tanzanite One's average share price during the 12 months up to Aug. 29, when Gemfields started buying Tanzanite One shares on the market.

Tanzanite One shares closed at 45.5 pence on Tuesday and Gemfields ended at 26 pence, valuing the firms at $62 million and $835 million respectively. Neither of the shares had yet traded by 1128 GMT on Wednesday.

Gemfields is majority owned by Pallinghurst Resources, which is led by former BHP Billiton CEO Brian Gilbertson and is reviving the Faberge brand it bought from consumer goods group Unilever.

EXPANSION

Tanzanite One said it planned to increase production to 3.1 million carats by 2011, up from 1.7 million in 2007, and saw good prospects for the company by expanding into another gemstone, tsavorite.

Last October the firm announced it was buying 12 prospecting licences in Tanzania to expand into tsavorite, a vivid green gemstone.

Since three Tanzanite One directors had interests in the firm holding tsavorite licences, Tanzanite One commissioned a report by its advisor that determined the transaction was fair and reasonable to shareholders.

On Sept. 15, Tanzanite One said conditions of the all-share deal had been met and it would be finalised.

The expansion into tsavorite was expected to be more profitable than tanzanite, which achieved gross margins of 49 percent in the first half of 2008.

"The potential margins of the mining of tsavorite could be huge. Your running costs would be lower than, for instance, that of tanzanite yet the price could be double, if not more," External Advisor Bernard Olivier told the conference call.

Tanzanite One officials declined to say if they expected competing bids for the company.

Gemfields and Pallinghurst together have bought 13.7 percent of Tanzanite One shares on the market, and have a conditional irrevocable undertaking to buy an additional 19 percent.

Tanzanite One founder and former CEO Michael Nunn has a 19 percent stake, but Gemfields declined to say who agreed to sell them the major holding.

The issue of 7.45 million Tanzanite One shares to pay for the tsavorite acquisition would account for around 10 percent of Tanzanite One's currently issued share capital, and would prove dilutive to Gemfields' current stake in the company.

Gemfields said a condition of its proposed offer would be that it received more than 50 percent of Tanzanite One shares. (Reporting by Eric Onstad; editing by Simon Jessop)

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