VANCOUVER, British Columbia, Oct 7 (Reuters) - Tahera Diamond Corp. (TAH.TO: Quote, Profile, Research) and Tiffany & Co Inc. (TIF.N: Quote, Profile, Research) tentatively agreed to a deal on Thursday that will see the upmarket jeweler buy a "significant portion" of the diamond output of Canada's next gem producer.
As part of the transaction, which got market applause, Tiffany will lend Tahera C$35 million ($28 million) that the small Toronto-based firm will put toward starting to build a mine next year at its Jericho diamond project in Canada's northern Nunavut territory.
Canada already has two diamond mines that have propelled the country from a non-producer six years ago to the world's third biggest -- measured by the value of stones produced -- at a time when world diamond prices are going up.
Tahera's stock rose 2.5 Canadian cents, or 7.2 percent, to 37 Canadian cents on the Toronto Stock Exchange in busy trade on Thursday.
Tiffany with its famous shopfront in New York's well-heeled upper East Side, will take up all of Tahera's production. What it doesn't buy for fashioning into its own jewelry, it will market on behalf of the small Canadian firm on the international diamond market.
Tahera chairman and chief executive Peter Gillan, who said Tiffany was selected from among several interested parties, would not detail the percentage of stones the U.S. firm will purchase for itself over the mine's 8-1/2 year life. Even so, analysts gave the deal the thumbs up.
"The agreement with Tiffany more than meets expectations," Dundee Securities' analyst Meghan Lewis said.
"Tahera will not pay any marketing or selling fees to Tiffany, and will retain full price participation in a rising diamond market," she said in a note to clients.
For Tiffany, the deal gives it direct access to a mine source that will help it secure better quality stones than what it might be able to purchase on the world market.
The transaction marks the second tie-up this year between a Canadian diamond miner and a U.S. retailer after Aber Diamond Corp. (ABZ.TO: Quote, Profile, Research) , part owner of the rich Diavik mine in the Northwest Territories, bought a stake in Harry Winston, a jeweler to the rich and famous.
Tahera is finalizing permits for the Jericho project, which it expects will start commercial production early in 2006.
The mine is much smaller than the Ekati and Diavik operations but sees Tahera beat the world's No. 1 gem producer, De Beers, into production in one of the world's fastest-growing and highest-quality diamond regions.
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