Tahera seeks $40M to stay afloat

As 2007 comes to a close, Tahera Diamond (TAH-T, TAHEF-O) will go down as one of the more dire mining stories of the year.

The company that built the Jericho diamond mine, in Nunavut, without help from any of the majors is now faced with the threat of insolvency unless it comes up with more than $40 million — and quickly.

Tahera needs the money to take advantage of the winter road season and get the supplies it needs to the site so it can make much needed production upgrades.

Even if the funds come in time and the supplies make their way down the icy road, it will be no small task to make Jericho economic.

The project has been under water financially since it opened in 2006. In the first nine months of this year, the company lost roughly $143 million with the cost of mining diamonds more than double their worth.

Accordingly, Tahera’s share price has fallen from $1.34 at the beginning of February, to a paltry 8 at presstime.

To generate the funds it so desperately needs, Tahera arranged a rights offering that would see units selling for 14 apiece. If the offering raised a minimum of $30 million, Tiffany & Co. (TIF-N) agreed it would convert the $12.5 million owed to it by Tahera into common shares, giving Tiffany a 19% stake in the diamond miner.

A similar arrangement was made with Nuna Logistics, which Tahera owes $3.15 million.

But on Dec. 18, the hard luck company announced more bad news. The TSX had rejected that rights offering because it was conditional on $30 million being raised — a breach of TSX rules.

The rule requires rights offerings to be unconditional to protect people from buying rights that could become useless if a company fails to raise the minimum amount required. Also, TSX spokesperson Steve Kee says the structure could result in common shareholders selling their shares for less than they otherwise would.

The situation means Tahera had to draft another prospectus outlining a best-efforts offering aimed at raising $40 million — without such conditions.

While specifics of the new offering aren’t yet known, the company says it will still be structured with the aim of Tiffany and Luna converting money owed into shares.

Notably, Teck Cominco (TCK.B-T, TCK-N), which owns roughly 16% of Tahera’s shares, was not interested in taking part in the rights offering.

But Tahera says Teck will keep providing operational and technical support on an “as needed” basis.

Tahera concedes that its financial position has “deteriorated,” and that if it can’t raise the needed funds, things will go from bad to worse.

“Failing to find an alternative source of financing, Tahera would be forced to consider various alternatives such as interrupting activities at the Jericho mine, mine closure, sale of the company or seek creditor protection under Canadian insolvency legislation,” the company said in a statement.