Tahera losses suggest Jericho should never have gone into production, analyst says

TheTahera Diamond Corp. may have made a mistake in opening its Jericho mine in Nunavut, said a diamond analyst, following thecompany's announcementthis week that it continues to lose money.

In its third quarter report, the Toronto-based mining company reported that it lost $143 million over the first nine months of this year, and has also written off $73 million it had spent on the Jericho mine that it now does not expect to recover.

"The writeoff that they have taken pretty much confirms that Jericho should never have been put into production," diamond analyst John Kaiser told CBC News in an interview.

Tahera's Jericho mine, Nunavut's first and only diamond mine, is located about 360 kilometres southwest of Cambridge Bay. It opened in August 2006 to much fanfare, but Tahera has had problems with it ever since.

Company officials said the high Canadian dollar — diamonds are sold in U.S. dollars — and soaring oil prices are two reasons it had to write off the $73 million. Tahera has also struggled with ongoing operation and production issues, the company said.

At a teleconference Tuesday, Tahera chairman and CEO Peter Gillin said diamond prices are also having an impact.

"We do have an expectation in the future that diamond prices will improve," Gillin said.

"Obviously, they have not done so to the extent the other commodities have, particularly the metals, and, you know, we have obviously suffered from that."

Tahera said it will continue looking for diamonds at two kimberlites near the Jericho mine, as it had the highest diamond output last month. The company will also focus on improving production and operation at the mine.

Kaiser said he expects Tahera to focus on getting the most out of the Jericho mine, then leaving it.

"In a sense it's a reset of the company," he said.

"They will try and get what value is left, get out of the Jericho mine, then it will likely be shut down and Teck Cominco — or whomever else ends up as the dominant shareholder — will then seek to create new value from the other diamond land holdings the company has."

Tahera officials said they have a diamond purchase and marketing agreement with Tiffany and Co., and the company has agreed to defer debt repayments to the end of December, as will Tahera's contractor, Nuna Logistics. The company will then go back into the stock market to try and raise more money.