Afgem undone by Rex mines failure

[] — BACK in August 2000, a nice little company called African Gem (Afgem) listed on the JSE after a private placing at 50c a share.
It controlled the world’s biggest deposit of tanzanite, a beautiful blue precious stone situated in Tanzania.

For almost four years it proceeded smoothly with the development of the mine and business. Then, in 2004, the directors and controlling shareholders decided that the JSE was not the best place for a listing, sold the assets to themselves, and listed a company called TanzaniteOne on London’s Alternative Investment Market (AIM).

They paid what was probably a fair price: R158m, which made Afgem a shell holding cash equivalent to 121c a share. But instead of doing the decent thing and distributing this to shareholders, they spent R60m on some small diamond mines – fortunately, only R2.5m in cash and the rest in shares.

This, in retrospect, should already have been a red flag, as small diamond miners and developers have an appalling record on the JSE. When Afgem last week published its interim results for the six months to September, it showed the customary loss, as the Rex diamond interests bought so proudly by the old management as their legacy turned out to be a total pig in a poke.

Afgem now has only R4m cash and claims an net asset value (NAV) of 19c but tangible NAV is negligible. At least it has new management, headed by the respected Rodney Yaldwyn, formerly an analyst at HSBC, who was involved in the original listing.

But the share price, which traded in a band between 35c and 40c in the first half of this year, is now within a whisker of its all-time low, at 23c. That’s roughly a rand less than the cash value barely two years ago.

And TanzaniteOne?

And what of TanzaniteOne? It debuted on the AIM in 2004 at 42p. The latest quote is 76.5p. It recently recorded a cash profit of $2.65m for the six months to September, though this was wiped out by a $2.8m provision against a decision to withdraw from the wholesale jewellery business and concentrate on production.

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Even so, it’s quite a contrast. Of course, back in 2004 South African companies weren’t allowed to have secondary listings on the AIM, because of archaic exchange control regulations; and no doubt all the deals were done at arm’s length and independently endorsed fair value valuations.

But you can’t help wondering at the contrast of how well the original promoters, and the minorities they willy-nilly left behind, have done can you?

Michael Coulson is a columnist for