W

Reaction Comment

Tanzanite One
Tanzanite One shares have fallen significantly since March, and are now trading some 65% below their peak of 275p. The current share price implies that the market is factoring in no increase in price per carat received over the remaining life-of-mine, compared to our forecast of a 5% per annum increase. At the current price, Tanzanite One shares appear very attractive, trading on PERs of 7.7x 2006 and 5.5x 2007 with a 5.1% 2006 forecast dividend yield.
Year end December Sales (US$m) Pre-tax profit (US$m) EBITDA (US$m) EV/EBITDA (x) EPS (US¢) P/E (x) FCFPS (US¢) DPS (US¢) Dividend yield (%) 2004A 16.2 4.6 4.9 n/m 7.2 n/m n/m 1.00 n/m 2005A 41.1 12.9 14.9 7.9 13.6 13.0 3.7 6.00 3.4 2006E 57.4 23.5 25.2 4.1 23.0 7.7 25.2 9.00 5.1 2007E 71.4 32.7 34.3 2.5 31.9 5.5 32.2 12.00 6.8 2008E 77.3 37.4 38.5 1.7 36.4 4.8 35.5 13.50 7.7

20 July 2006

House Stock
Price 95p

Key statistics Reuters: Bloomberg: Free float (%): Market cap (£m): Gearing (%): 12mth range (p): 1mth -16.1% 3mth -38.2% TNZ.L TNZ LN 100 68.0 Net cash 78-275 12mth +34.4%

Perf. rel. to FTSE AIM

Tanzanite One is a corporate client of Williams de Broë. WdB does not make recommendations in respect of companies to which it provides investment banking and other advisory services (IBS) or to which it acts as corporate broker.

Relative to FTSE AIM
300 24 22 250 20 18 16 150 14 12 100 10 8 6 0 4 2004 2005 2006
TANZANITE ONE TNZ/FTSEAIM*100(R.H.SCALE)

Attractive valuation and dividend yield
Tanzanite One shares have fallen significantly since the FY 05 results announcement in March, and are now trading at 95p, some 65% below the peak of 275p in early March. While the FY 05 results were slightly below our forecasts, there has been no subsequent news flow to suggest any deterioration in the operating performance of the company. Tanzanite One may be a victim of its own success, with the shares having performed phenomenally well from July 05 to March 06 when they rose 250% from 78p to a peak of 275p. Consequently, during the market correction, investors were quick to take profits despite Tanzanite One not being exposed to the volatile base and precious metals markets. Although there may be some concern about a lack of improvement in the grade of tanzanite produced, resulting in the price per carat received lagging the increase in tanzanite prices in the traded market, we believe this is purely due to geological variations (which are to be expected) rather than any technical mining issues. We are not making any revisions to our forecasts ahead of the interim results which are expected at the beginning of September. However, we highlight that the current share price implies that the market is factoring in no increase in price per carat received over the remaining life-of-mine. This compares to our forecast of a 5% per annum increase in the price per carat received. At the current price, Tanzanite One shares appear very attractive, trading on PERs of 7.7x 2006 and 5.5x 2007 with a 5.1% 2006 forecast dividend yield.

200

50

Source: DATASTREAM

Natural Resources Gavin Wood  +44 (0)20 7898 2304
gavin.wood@wdebroe.com

Equity Research

+44 (0)20 7588 7511

equity.research@wdebroe.com
Please refer to risk warnings on back page

Important disclosures This report has been prepared by Williams de Broë plc (“WdB”) and approved solely for the purposes of section 21 of the Financial Services and Markets Act 2000. The report is intended for distribution only to investment professionals as defined in Article 19(1) and Article 49(2)(a-d) of the Financial Services and Markets Act (Financial Promotions) Order 2005 and to market counterparties and intermediate customers as defined by FSA who are customers of Williams de Broë. It is not intended for distribution to private customers as defined by FSA or in the US or to US Persons. This research has been published in accordance with our Research Conflicts Management policy, which can be obtained upon request from your WdB business contact and is also available at www.wdebroe.com. No part of the analyst’s compensation is or will be directly or indirectly related to the views and recommendations contained in this report. Ratings definitions BUY: Expected to outperform the relevant index by 10% or more in the next 12 months. HOLD: Fairly valued; total return expected to be less than ±10% vs the relevant index in the next 12 months. SELL: Expected to underperform the relevant index by 10% or more in the next 12 months. The relevant index means the FTSE All-Share, EuroFirst 300 (ex UK), or other index in which the company is traded. Distribution of investment ratings as at 10 May 2006
BUY: 43.0% HOLD: 41.8% SELL: 6.8% N/R*: 8.4%

*Includes corporate clients of Williams de Broë. WdB does not make recommendations in respect of companies to which it provides investment banking and other advisory services (IBS) or to which it acts as corporate broker.

Recommendation changes in the previous 12 months for Tanzanite One – not applicable Prices of securities stated in this report are current prices, not the market close prior to the date of publication. Disclosures From time to time we offer investment banking and other advisory services (IBS) to Tanzanite One. We act as corporate broker to Tanzanite One. We have received compensation for IBS from Tanzanite One within the past 12 months. We make a market or are a liquidity provider in the securities of Tanzanite One. We may have a long or short position in such securities at any time.

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