LONDON () -- TanzaniteOne [AIM:TNZ], which mines the eponymous gemstone in its main country of origin Tanzania, has been a hit with the market since its flotation in the high summer of 2004. However, if the company's highly ambitious marketing strategy for tanzanite is a success, then this could be only the beginning.
Though tanzanite is currently extremely rare, much more so than diamond - the quintessential gemstone - its worth is markedly less. Broadly speaking, there are two reasons for this. One is the profound cult of the diamond; the result of years of intensive marketing that has inculcated the market with powerful notions of the intrinsic worth of the stone. The other is simply derived from diamond's magnificent physical qualities; its hardness and its optical brilliance.
TanzaniteOne however believes that tanzanite, which is an intense blue colour, is significantly undervalued, and intends to try and close the valuation gap to diamond. There is of course little that the company can do about the remarkable physical attractiveness of diamonds, which, particular colour preferences aside, most would judge to exceed that of tanzanite - but marketing zeal is another matter.
How much of the value of diamond is down to astute marketing and how much is down the stone's physical characteristics is of course endlessly debatable, but what is certain is that marketing is an arena in which TanzaniteOne might conceivably make an impact. If the company could create a mystique around tanzanite even approaching that which surrounds primarily diamonds, but also other gemstones such as emeralds, sapphires and rubies, then the value of its business could be transformed.
TanzaniteOne intends to attempt this by portraying tanzanite as the stone of birth in much the same way that diamonds are closely associated with marriage, in part thanks to sustained marketing effort to this end orchestrated to this day by De Beers. In the interests of emulating De Beers' influence on the strength of the diamond market, Tanzanite has inaugurated the Tanzanite Foundation, through which the company and to some extent its sight holders, privileged buyers of its output under a system similar to that cultivated by De Beers for its diamond production, intend to channel part of their marketing expenditures.
In terms of resources of tanzanite on which to draw, TanzaniteOne is in a strong position. The company has delineated a resource of 60-80 million carats (MCts) at its mine in Tanzania, and has constructed a processing plant that is currently operating on an 85% margin at only 20% utilisation, the level of utilisation being increasable according to demand. Though TanzaniteOne's main objective is a narrowing of the valuation gap between tanzanite and diamond, it remains financially viable for the company to mine tanzanite as things stand. For TanzaniteOne to deliver truly exceptional investment returns though, at least moderate success in altering the market for its product will probably be necessary.
TanzaniteOne has already moved forward substantively with its plans to bolster the market for tanzanite, having effectively established a structure for the industry through the Tanzanite Foundation and its attendant grading system, and made some attempts to raise the profile of tanzanite, such as an event at the prestigious London department store Harvey Nichols. Further promotion is a key priority however, and may be undertaken through Hollywood style celebrity endorsements and more targeted advertising. A retail joint venture with an expert partner is also a possibility.
While prima facie, further appreciation in TanzaniteOne's share price might be difficult to envisage after as strong a run as the stock has had since August of last year; it should be borne in mind that the company's business retains a fairly high degree of growth potential. If TanzaniteOne's marketing efforts, which are clearly pivotal to its business outlook, are as influential as it would like, then the payoff for shareholders could be significant.
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