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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.

20 July 2006

House Stock

Price

95p

Year end December

2004A

2005A

2006E

2007E

2008E

Key statistics

 

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 (%)

16.2

41.1

57.4

71.4

77.3

Reuters:

TNZ.L

4.6

12.9

23.5

32.7

37.4

Bloomberg:

TNZ LN

4.9

14.9

25.2

34.3

38.5

Free float (%):

100

n/m

7.9

4.1

2.5

1.7

Market cap (£m):

68.0

7.2

13.6

23.0

31.9

36.4

Gearing (%):

Net cash

n/m

13.0

7.7

5.5

4.8

12mth range (p):

78-275

n/m

3.7

25.2

32.2

35.5

Perf. rel. to FTSE AIM

1.00

6.00

9.00

12.00

13.50

1mth

3mth

12mth

n/m

3.4

5.1

6.8

7.7

-16.1%

-38.2%

+34.4%

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.

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.

Relative to FTSE AIM

300 24 22 250 20 18 200 16 150 14 12 100 10 8 50
300
24
22
250
20
18
200
16
150
14
12
100
10
8
50
6
0
4
2004
2005
2006
TANZANITE ONE
TNZ/FTSEAIM*100(R.H.SCALE)
Source: DATASTREAM

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.

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:

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.

Expected to outperform the relevant index by 10% or more in the next 12 months.

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.

Disclaimer

This report has been prepared for information purposes only and is not a solicitation or an offer to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the report. It is based on information and sources that we believe to be reliable but we have not independently verified such information and we do not guarantee that it is accurate or complete. The report is intended only for the Williams de Broë client to whom it is addressed and may not be forwarded, reproduced and copied in part or in full to any other person without permission. It represents the personal and independent views of the analyst responsible for producing the report as of the date published. The views and opinions expressed are subject to change without notice and must not be relied upon. Investors should note that the price, value or income from securities referred to in this report my rise and fall and be impacted by foreign currency and exchange rate risk. Past performance is not a guide to future performance. In addition, investments in securities that are not readily realisable may be difficult to price and value and therefore may be difficult to purchase or sell. Any references in this document to the impact of taxation are made in the context of current legislation and are subject to change. Williams de Broë does not provide tax advice and clients are responsible for taking independent professional advice in this regard. Further information on companies and securities mentioned in this report is available on request.

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