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Another colossal mining mishap.

Tahera loses more, looks for alternate plan

http://www.tahera.com/

2007-11-06 12:12 ET - Street Wire

by Will Purcell

Tahera Diamond Corp had another bleak quarter and the company is now considering a new mine plan that would have it high-grade the remaining kimberlite in its Jericho deposit in southwestern Nunavut. That would improve the economics, but profitability still seems a far reach given the large gap between revenues and operating costs.

The latest numbers

Tahera processed 127,500 tonnes of Jericho kimberlite during the third quarter. That works out to an average of 1,385 tonnes per day, or less than 70 per cent of the company's original target of 2,000 tonnes per day. The 99,300-carat haul translates to a grade of 0.78 carat per tonne, which is higher than Tahera achieved in its earliest quarters, but below the calculated mean grade for the pipe of 0.85 carat per tonne.

The diamond value is also below expectations. Tahera's third quarter production carried a value of $85 (U.S.) per carat, well below the values projected in a preliminary feasibility study four years ago. Far worse, the continued weakness of the United States dollar devalued Jericho's diamonds further in terms of Canadian currency, in which the mine pays most of its bills. Based on the average grade and diamond value, Jericho's kimberlite achieved a value of just over $66 (U.S.) per tonne during the third quarter. That is down slightly from the $67 (U.S.) per carat achieved during the second quarter.

Meanwhile, Tahera's operating costs outran revenues by a wide margin. Tahera's cash operating cost during the quarter was $17.8-million, which works out to an average of $138 (U.S.) per tonne. During the second quarter, Tahera's costs averaged about $157 (U.S.) per tonne. The operating cost improvement stems primarily from the increased rate of production.

Based on the revenues and costs, Tahera paid about $72 (U.S.) more per tonne to recover its Jericho diamonds during the third quarter than it managed to fetch from the sale of the gems. That is clearly a disappointment, but it is better than the $90 (U.S.) per tonne difference in the second quarter.

A change of plan

Closing that gap will be a formidable challenge, and Tahera is considering a move that would have it mine and process just the richer rock in the central and northern lobes of Jericho to maximize its revenues. That would have the company abandon about 2.8 million of the seven million tonnes of kimberlite in the total resource, leaving it with about 4.2 million tonnes grading a more pleasing 1.09 carats per tonne. That grade and the current diamond value would produce a rock value of about $93 (U.S.) per tonne, still a long way from the current operating costs at Jericho.

Increasing the rate of production to the planned 2,000 tonnes per day would help close the gap considerably, as much of Jericho's costs are fixed charges. Spreading the third quarter operating costs over the 180,000-tonne quarterly target would reduce the operating cost to $95 (U.S.) per tonne.

The company's costs would logically be higher than that, as it would face additional expenses to mine and process the extra 62,500 tonnes of kimberlite, but it does leave some reason to hope Jericho could break even on a cash flow basis with additional cost-efficiencies in place.

Reducing the mine plan to the central and northern lobes would reduce the life of Jericho considerably. Tahera's original mine plan called for the company to process 5.52 million tonnes of kimberlite over eight years, but the life would shrink to five more years, assuming all the resource makes it to a revised mine plan. Based on the numbers so far, Tahera is unlikely to recoup much of its capital investment in Nunavut's first diamond mine.

Tahera closed down 1.5 cents to 28 cents Monday on 869,270 shares.