Peter gillin was working hard on his golf swing when a call came through from Jonathan Goodman, president of Dundee Precious Metals Inc. of Toronto.

Goodman was looking for someone to take the helm of Toronto-based Tahera Corp., a tired junior exploration company with a small but advanced diamond project in Nunavut, not much money left in the bank and a float of almost half-a-billion shares.

It was the autumn of 2003, and Tahera had just lost its Australian chairman to more pressing business interests in Melbourne. Shareholders were growing weary of successive financings that had that diluted their stock but never moved them closer to production.

As a Tahera director, Goodman wanted someone who could do what no one else had accomplished in the eight years since diamonds were discovered at the Jericho project in the frozen North — build Canada’s third diamond mine.

Gillin, 56, a career investment banker with ScotiaMcLeod Inc. and later Rothschild, had just negotiated his way out a job with the sale of Zemex Corp., an industrial minerals producer he was hired to rescue. Although enjoying the opportunity to play endless rounds of “bad golf,” he felt ready for a challenge.

“I looked at the feasibility [study] and I thought to myself: ‘This is an interesting little project. It’s viable, and by all rights it should happen. What it needs is financing and the proper staff to build its credibility’,” says Gillin.

If his instincts are correct, Tahera Diamond
Corp.’s new chairman and CEO will discredit the prevailing notion that only large companies are capable of running profitable diamond mines in Canada’s North and give hope to other juniors.

“Jericho is crucial to the industry,” says Mark Kolebaba, president of Diamonds North Resources Ltd., a Vancouver-based junior exploring for diamonds in the Arctic. “It (will) show that you can make small deposits work.”

Jericho is expected to process about 700,000 tonnes of kimberlite per annum at an average grade of 0.85 carats per tonne, vs two million tonnes grading four carats per tonne at the giant Diavik mine in the Northwest Territories. Diavik Diamond Mines Inc. is owned 60% by Rio Tinto plc of London 40% by and Aber Diamond Corp. of Toronto. Annual revenue for Jericho will be a modest of $70 million-$80 million, vs $500 million-$600 million for Diavik.

When Jericho was discovered in 1995, 420 kilometres northeast of Yellowknife, there were high hopes that it would be Canada’s second diamond mine after
Vancouver-based BHP Billiton Diamonds Inc.’s Ekati mine in the N.W.T. Previous operators assumed that a major company would head a joint venture in the prospect or buy it outright.

But for various reasons — not least of which was the small size of the deposit — Jericho never made it past the advanced exploration stage. Instead, Diavik, discovered at roughly the same time, was put into production first.

“For the big players to design, build and develop a project with revenue expectations of $600 million-$700 million over eight to 10 years — that’s a small project by their standards,” says Gillin. But not too small for a junior company, provided it had enough capital.

That’s where Gillin’s expertise as an investment banker came in handy. His first priority was to hire top-notch technical staff that could attract financing. Despite a dearth of available mining talent, Gillin managed to snag Daniel Johnson, former project manager for Ekati, as executive vice president of operations for the newly renamed Tahera. Johnson, in turn, rehired many of the team he had worked with at Ekati.

The next step was to finance the $94.4-million capital cost. “I knew the story was good enough that we could raise equity, but I always thought the debt part would be hard,” says Gillin.

The only solution would be to negotiate a marketing arrangement that would reduce Tahera’s financing risk and put the specialized job of selling Jericho’s diamonds into more experienced hands.

“The banks weren’t exactly lined up out on Richmond Street [where the company is headquartered in Toronto] to lend us money,” says Gillin. “As a banker, I completely understand that mentality:
without a track record, its tough for them to put up the money.”

Instead, Gillin considered Aber’s agreement with Tiffany & Co., the New York-based jeweller, a model for alternative financing.
Under the Aber/Tiffany arrangement, Tiffany agreed to buy least $50 million worth of rough stones from Aber’s share of the Diavik production, leaving Aber to market the rest.
Tiffany also took a 14% equity stake in Aber to help finance the junior’s share of mine construction costs.

@page_break@With a much smaller operation than Diavik, Tahera couldn’t afford to take on marketing responsibilities. The company also had to be sensitive about diluting its already watery stock. So Gillin structured the Tahera deal with Tiffany a bit differently. In this case, Tiffany takes care of all of Jericho’s production by purchasing stones that meet its quality threshold and marketing the rest for a fee. Help with construction costs comes not in the form of equity but as a $35-million loan facility from Tiffany.

With a diamond marketing arrangement, debt financing and good management in place, Tahera was able to turn to the equity market for the remaining funding. Late last year, a syndicate of underwriters led by GMP Securities Ltd., and including TD Securities Inc., National Bank Financial Ltd., Dundee Securities Corp., Westwind Partners Inc.
and Paradigm Capital Inc., stepped in to sell 147.8 million shares of Tahera for total gross proceeds of $50.3 million.

“I don’t expect to issue any more stock, with the exception of flow-through shares from time to time because that’s a very economic way to fund our exploration,” says Gillin. “We are fully funded for development.”

Tahera is aiming for commercial production in early 2006, with an internal rate of return — depending on diamond prices — of up to 47%. With all environmental and other regulatory approvals in place, the company last winter transported the 550-some truckloads of equipment, materials and supplies needed to build the mine to the site. A staff of more than 100 is constructing the mine.

Exploration is also continuing on nearby diamond pipes that would probably be uneconomic on a stand-alone basis but are potentially profitable, given access to the Jericho processing plant.

“If we can demonstrate that we can build an economic facility in these remoter locations on a compact basis with a small operation, and make money at that, then that’s the business model we’d like to pursue,” says Gillin.

Still, dilution remains a concern — the company has more 700 million shares outstanding, compared with about 160 million in 1999 — because it prevents the stock from moving higher than the 30¢-60¢ range in which it has drifted over the past year. Consolidation is the only solution to that problem, but Gillin is in no hurry to put the squeeze on existing shareholders.

“It’s always been in the back of our minds to do a share consolidation at the appropriate moment, but the experience with share consolidation is grim and people don’t like it,” says Gillin. “Consolidations make the most sense when you’re doing them in context of big developments.”

Developments such as the successful opening of Canada’s third diamond mine, perhaps. IE