Teck puts $30M into Tahera

Vancouver — Teck Cominco (TCK.B-T, TCK-N) plans to invest $30 million in Tahera Diamond (TAH-T, TAHEF-O) through a private-placement that would give the major a 16% stake in Canada’s newest diamond miner.

The agreement sees Tahera selling 30 million units to Teck at $1.00 apiece. Units will consist of a total of 30 million common shares and 22.1 million warrants (consisting of three separate series, with one-third exercisable at $1.20 per share for one year, another third at $1.35 per share for two years, and the rest at $1.50 per share for three years).

Tahera terms the deal a “strategic alliance,” looking to draw on the major’s technical and financial strengths. Funds from the financing will be allocated to working capital requirements and may be used for capital improvements to optimize production from the company’s recently opened Jericho diamond mine, in Nunavut.

With a treasury of about $3.8 billion, Teck Cominco has been reviewing a number of opportunities.

“Our investment in Tahera is consistent with our goal of further diversifying our portfolio, especially into non-exchange traded commodities,” said Teck Cominco president and CEO Don Lindsay. “As we continue to actively explore for diamonds, we view this alliance with Tahera and its existing partners as an attractive opportunity to expand our knowledge of all phases of the diamond business from mining through marketing, while helping to add value to the Jericho project.”

Under the agreement, and as long as it holds at least a 10% interest, Teck Cominco will be entitled to nominate a director to Tahera’s board and to participate in future financings to maintain its ownership level.

Tahera recently disclosed that lower than anticipated cash flow from Jericho had it looking at financing options. It had also approached its partner Tiffany & Co. (TIF-N) to defer scheduled repayments of the loan provided by the high-end jeweller. With the Teck Cominco financing expected to close by the end of November, Tiffany has agreed to defer scheduled repayments until Sept. 30, 2007, in consideration for marketing rights to any future production from the Muskox kimberlite.

The Muskox pipe is part of Tahera’s Polar project, a joint venture with De Beers Canada, and has undergone a large-scale evaluation program. A more than 900-tonne mini-bulk sample was extracted earlier this year and is currently being processed. The project is located just west of Jericho and is within trucking distance of the processing facility.

If Teck Cominco exercises all its proposed warrants under the agreement, it would hold about 24.9% of the company. Although that may exceed the maximum amount of securities that can be issued without seeking shareholder approval allowed under TSX rules, Tahera says it will rely on an exemption on the basis of “serious financial difficulty.”

With commercial production at Jericho having begun on July 1, the company recently reported third-quarter output of 96,500 carats with an average value of $107 per carat. An average grade of 0.62 carat per tonne was also reported, lower than anticipated as the company works through lower-grade kimberlite in the upper portions of the open-pit operation. Cash operating costs were tabled at $85 per tonne of ore processed.

Shares of Tahera rallied about 30% on the announcement, closing up 30 at $1.31 apiece on trading volume of almost 5.9 million. The stock has a 52-week price range of 89-$4.15.