AFGEM to Dispose of Tanzanite Mine?

African Gem Resources Limited (AFGEM), a gem-mining company based in the Republic of South Africa, announced to its stockholders that it's selling off all assets of the tanzanite mine in the Merelani Hills of Tanzania and refocusing efforts to purchase shares in diamond-mining operations.

In a "cautionary announcement" made Jan. 21, shareholders were advised that "the disposal of AFGEM's tanzanite business is ongoing." On April 21, Mark Summers, group financial director for AFGEM, said it's "still in the process of finalizing the sale documentation and circular to shareholders and will hopefully be in a position to make an announcement on the disposal soon."

"Disposal is merely a technical word," says Ian Harebottle, operations and managing director of Merelani Mining Limited and director of AFGEM's Tanzanian operations. "We're actually cloning the business."

According to Leanne Goott, corporate communications and investor relations manager for AFGEM, "a company by the name of TanzaniteOne (South Africa Propriety Limited TanzaniteOne) has made a proposal to acquire the assets, people, and operating business divisions of AFGEM." The offer is for 158 million rands, which translates to approximately a little over US$23.5 million. According to reports from AFGEM, T-One already owns approximately 22.8% interest in AFGEM, which values its total assets at just over US$30 million. According to the AFGEM cautionary news release of December 2003, T-One SA is a wholly owned subsidiary of "Bermudan-registered TanzaniteOne Limited and funded by a British and Australian-led group of investors specializing in mining projects."

"These investors saw an opportunity to expand the business, so they opted to take over the entire company, the whole structure," says Harebottle. "Everything is being relisted. It's exactly the same structure."

"What this means is that the company as you know it will continue to operate, but under a different name and jurisdiction," says Goott. "The intention is for TanzaniteOne to be dual listed on AIM (Alternative Investment Market) of the LSE (London Stock Exchange) and the DSE (Dar es Salaam stock exchange). This move can only be seen as a huge step forward and should provide the means for rapid growth and market expansion."

Why move from one exchange to another? According to AFGEM, being on the South African Exchange has made it difficult to raise future capital. AFGEM has been primarily a U.S. dollar-based business. "Being in a rand-based reporting environment, we were operating at a profit but showing losses because the rand is greater against the dollar," says Harebottle. "The reporting is quite ludicrous."

According to AFGEM's press release in early December, if the transaction proceeds, T-One's dual listing would place the company with other AIM "junior mining companies," and, with the stock also on the DES, as AFGEM states, would "allow Tanzanians the opportunity to invest."

"The management and stakeholders remain the same; effectively it is just a change in domicile and name," says Goott. But "AFGEM," in the meantime, has entered into a "memo of understanding" relating to the potential acquisition of a diamond business.

Tanzanite in the United States and at AFGEM. AFGEM made its big push into the market right after Sept. 11, 2001. Taking advantage of bad press regarding al Qaeda connections to tanzanite and money laundering, AFGEM promoted itself as the only supplier of untainted tanzanite.

AFGEM made two major claims: that it could guarantee quality and origin, ensuring that the gem had gone from mine to market with complete integrity and was legally exported.

The evidence linking tanzanite to terrorism was weak at best, and with the Tanzanian government supporting the tanzanite protocols (procedures for attaching official paperwork to all mined tanzanite rough, which can then be tracked through exportation), any advantage that AFGEM may have hoped to acquire was lost.

AFGEM, which has watched tanzanite prices drop since establishing itself as a tanzanite mining company, may simply have been a victim of bad timing. "Tanzanite prices have been on the decline for much of the time AFGEM has controlled production at Block C," notes Stuart Robertson, research director for The Guide, Northbrook, Ill. Robertson points to the late 1990s discoveries of vast sapphire deposits in Madagascar that "brought sapphire prices down to a level that competed with top tanzanite. Dealers also suggest that the strong popularity of tanzanite during the previous decade also contributed to price softening as supply simply overtook demand."

According to The Guide, "In late 2001 the U.S. market, the largest consumer of tanzanite, saw prices drop to levels below what many experts considered necessary minimums for AFGEM's deep mining efforts to operate profitably. To counter this, AFGEM reportedly began purchasing large quantities of rough from their small-scale competitors in an effort to gain some control of the market. But with demand down in a depressed post-9/11 U.S. market and large quantities of rough being traded at low profit but high volume by Indian firms, AFGEM was unable to generate a sustainable upward price trend during its watch."

For a look at AFGEM on the Internet, log onto its Web site at www.africangem.com.