Tender Offer Update

RNS Number:

Gemfields Resources Plc

28 October 2008

Open Letter to T1 Shareholders

Update on Gemfields' Tender Offer

On 21 October 2008, Gemfields Resources Plc ("Gemfields") announced a tender
offer to all Tanzanite One Limited ("T1") shareholders to purchase up to
30,754,970 T1 common shares of US$0.0003 each ("T1 Shares") at 42.75 pence per
share (the "Tender Offer").

As at 6.59 a.m. on 27 October 2008, the Tender Offer was oversubscribed by
5,448,249 T1 Shares with 36,203,219 T1 Shares having been tendered in
aggregate. Notwithstanding the overwhelming positive response to the Tender
Offer, as a result of the T1 Directors actions referred to below, the Tender
Offer remains open as the Tender Offer is conditional upon receipt of tenders
totalling not less than 50.1 per cent. of the fully diluted T1 share capital.

The B Share Scheme announced by Tanzanite One

As leaked to the press on 25 October 2008 (and officially announced by the
board of T1 at 7 a.m. on 27 October 2008), the directors of T1 (the "T1
Directors") have sought to frustrate the Tender Offer through the issue of
83,739,976 nil paid issued and unlisted B shares in T1 to TanzaniteOne Mining
Ltd, a wholly owned subsidiary of TanzaniteOne (SA) Limited, which is in turn a
wholly owned subsidiary of T1 (the "B Share Scheme"). The new B shares
represent 50.2 per cent. of the enlarged issued voting share capital of T1.

The B Share Scheme has the following implications:

  * T1 Shareholders have been disenfranchised in respect of approximately one
    half of their respective shareholdings through the loss of over 50 per
    cent. of their voting rights in T1;
   
  * the T1 Directors now control more than 50 per cent. of the issued voting
    share capital of T1, and have therefore awarded themselves effective
    control of T1;
   
  * given this level of control, T1 Shareholders can no longer appoint or
    remove T1 Directors (this power now rests solely with the T1 Directors
    themselves).
   
Gemfields regards the B Share Scheme as a gross violation of the principles of
good corporate governance.

Critically, these steps have been implemented without consulting T1
Shareholders. The T1 Directors have unilaterally decided that handing voting
control to themselves (and disenfranchising T1 Shareholders as outlined above)
is in the best interests of T1 Shareholders.

Gemfields notes that, pursuant to AIM Rule 13, the T1 Directors and T1's
nominated advisor, Evolution Securities Limited, have described the B Share
Scheme as "fair and reasonable insofar as TanzaniteOne's shareholders are
concerned." Given that T1 Shareholders have been disenfranchised without prior
consultation, Gemfields questions the basis on which this conclusion was
reached.

Gemfields believes it would have been appropriate for the T1 Directors to
consult with T1 Shareholders as to whether they are in favour of or oppose
Gemfields acquiring control of T1 at the tender price of 42.75 pence per T1
Share representing a premium of 68 per cent. over the middle-market
quotation of 25.5 pence at the close of business on 29 August 2008, being the
last dealing day before Gemfields began its acquisition of T1 Shares. Moreover,
Gemfields believes the T1 Directors should have consulted with T1 Shareholders
as to whether they thought the B Share Scheme was in the best interests of T1
Shareholders.

Gemfields, as an existing T1 Shareholder and as offeror under the Tender Offer,
reserves the right to challenge the legality and implementation of the B Share
Scheme.

T1 Directors' rationale for the B Share Scheme

The T1 Directors have explained that the B Share Scheme is aimed at ensuring
that offers to T1 Shareholders are "extended to all shareholders" and "treat
all shareholders equally". Gemfields believes the T1 Directors' sentiments to
be ironic given that the B Share Scheme hands control to them.

In addition, Gemfields questions why the T1 Directors did not implement
protections previously, and are instead doing so only when a particular set of
circumstances (as described below) has arisen.

Gemfields notes that the Tender Offer was extended to all T1 Shareholders, who
have been able to tender their shares under the terms of the Tender Offer.
However, Gemfields notes that the Tender Offer may have disadvantaged T1
Directors owning T1 Shares as a result of the T1 Directors' own actions. As at
23 October 2008, the T1 Directors controlled in excess of 20% of the then
issued voting share capital of T1 (including the tsavorite related T1 Shares
referred to below).

The T1 Directors have been restricted in their ability to tender their shares
pursuant to the Tender Offer because of the negative statements they have made
to date about the Tender Offer (for example, "the Board of T1 strongly
recommends shareholders do not accept the Gemfields tender offer").

The T1 Directors therefore have a vested interest in soliciting a cash offer to
all T1 Shareholders, including in respect of their own shares. Gemfields
therefore concludes that the B Share Scheme is certainly in the best interests
of T1 Directors owning T1 Shares.

By way of illustration, Gemfields notes that T1 has not explained the sudden
and unexpected resignation of the T1 Chairman, Mr Michael Adams, on Friday, 24
October 2008. Gemfields believes he may have resigned expressly so that he
might tender his T1 Shares pursuant to the Tender Offer.

The impact of the B Share Scheme on Gemfields' Tender Offer

The response to the Tender Offer demonstrates plainly that many T1 Shareholders
are in favour of it. This said, the T1 Directors have unilaterally elected to
seek to derail the Tender Offer. The action of the T1 Directors puts at risk
the ability of T1 Shareholders who have tendered their T1 Shares to realise
42.75p in cash for their T1 Shares.

Gemfields notes that, prior to its acquisition of T1 Shares in early September
and the announcement on 11 September 2008 of its proposed offer, T1 Shares were
trading at 25.5 pence per share. Gemfields also notes that, on the trading day
preceding the announcement of the Tender Offer on 21 October 2008, T1 Shares
closed at 28 pence per share.

If the Tender Offer fails as a result of the actions of the T1 Directors, it
seems reasonable to assume that the T1 Share price will come under significant
pressure, especially given the recent de-rating of the wider mining sector.

Gemfields finds it unusual that the T1 Directors would knowingly implement a
scheme seeking to derail the Tender Offer given that this would deprive many T1
Shareholders from realising a significant premium for their T1 Shares and would
also likely reduce the value of T1 Shares.

Prior to the implementation of the B Share Scheme, Gemfields had advised T1's
financial advisors that Gemfields was not willing (for a variety of reasons
including the recent economic turmoil) to make a cash offer for all of the
issued share capital of T1. Gemfields assumes that T1's financial advisors
would have passed this information to the T1 Directors. Despite this, the T1
Directors designed the B Share Scheme to frustrate the Gemfields Tender Offer.

The Tsavorite Transaction

Gemfields noted its concerns regarding this transaction in its open letter
dated 25 September 2008 to the T1 Board. These concerns included:

  * the failure to remind the market that three then directors (Michael Adams,
    Edward Nealon and Nicholas Sibley) were to receive T1 Shares in relation to
    the transaction;
   
  * whether the conditions precedent to the transaction had in fact been met;
    and
   
  * whether the Commissioner for Minerals in Tanzania had granted written
    consent in respect of the transfer of all 12 tsavorite prospecting
    licences.
   
It appears from the T1 announcement on 25 October 2008 that T1 has issued the
7.45 million T1 Shares in relation to the tsavorite exploration licences. This
is implied by the number of shares involved in the B Share Scheme.

We note that T1 has not made an official announcement about the T1 Shares
having been issued pursuant to the completion of the tsavorite transaction and
has failed to disclose how many of the 7.45 million T1 Shares have been issued
to relevant T1 Directors. Such a disclosure is required by AIM Rules 13 and 17.

Furthermore, Gemfields believes it would be appropriate for T1 to confirm that
the Independent Committee (as described in T1's October 2007 announcement
relating to the tsavorite transaction) has confirmed in writing that the
transaction has been implemented in accordance with the relevant agreements and
that all conditions precedent have been met.

AIM Rule 26

Gemfields notes that T1 is in breach of AIM Rule 26 given that a copy of T1's
latest bye-laws are not available for download from the T1 website.

Establishing the Views of T1 Shareholders

In contrast to the apparent intentions of T1 Directors, Gemfields is interested
in establishing the views of T1 Shareholders. Accordingly, Gemfields invites T1
Shareholders to express their views by writing to [e-mail]
addressing two issues specifically:

  * Whether they are in favour of Gemfields acquiring control of T1 at the
    tender price of 42.75 pence per T1 Share representing a premium of 68 per
    cent. over the middle-market quotation of 25.5 pence at the close of
    business on 29 August 2008, being the last dealing day before Gemfields
    began its acquisition of T1 Shares; and
   
  * Whether they oppose or are in favour of the B Share Scheme.
   
Yours faithfully

Sean Gilbertson

Chief Executive Officer

Gemfields Resources Plc



END