Shareholder coup clouds Jericho start-up

IQALUIT — An abrupt change of leadership at the top of Tahera Corporation could delay development of Nunavut’s eagerly-awaited first diamond mine.

Tahera’s proposed mine, located south of Bathurst Inlet in the Contwoyto Lake area of the Kitikmeot region, is expected to start up by 2003.

But in the wake of a shareholder’s meeting June 19, when a group led by Australian mining magnate Joseph Gutnick ousted company CEO Howard Miller from Tahera’s board, that target date may change.

“I don’t know whether they will meet the target by 2003, or at all. I simply don’t know. For Nunavut’s sake I sincerely hope that they do,” Miller said in an interview from his office in England this week.

Miller, who has been involved in diamond exploration in northern Canada since 1992, said his June 19 ouster was “a complete surprise” to him.

Gutnick, who replaced Miller as Tahera’s new president and CEO, is a newcomer to the Canadian business community and is relatively unknown here.

Business collapses

But in Australia, Gutnick is a colourful, controversial and high-profile figure who has received much unwelcome notoriety in the Australian press.

An article published June 9 in the Australian Financial Review bears this headline: “Bad debts and strange deals: the fall of Joseph Gutnick.”

The article is one of many in the Australian press that describes the spectacular collapse of Centaur Mining and Exploration, a Gutnick-controlled company that operated two nickel mines in Western Australia.

The auditing firm KPMG, which now administers Centaur on behalf of creditors, reported last May that Centaur owed $653.9 million, while its assets were worth only $78.4 million.

Those creditors include the Chase Manhattan Bank in the U.S., which is owed $134.8 million.

Ironically, Gutnick, who now controls about 40 per cent of Tahera’s shares, once apparently believed that Chase Manhattan might back the Jericho diamond project.

“When I first met Mr. Gutnick, he told me that he had a very good association with Chase Manhattan, and because of that association, he could procure project financing for Jericho,” Miller said.

“And he highlighted to me that he had been successful in getting Chase Manhattan to finance the Centaur project. I think it would be worth your while to have a look at what the fate of Centaur was.”

In August of 2000, Edensor, a private company set up under Gutnick’s family trust, bought about 104 million common shares of Tahera for $13 million, giving Gutnick control of about 40 per cent of the company.

The deal gave Gutnick’s company the right to nominate three people to Tahera’ s board, and resulted in Gutnick being appointed “non-executive chairman” of the corporation.

“I don’t know whether they will meet the target by 2003, or at all.
I simply don’t know.”
– Howard Miller,
Tahera’s ousted CEO

Raising cash

A company news release says Tahera used the cash to continue its exploration activities at Jericho and other sites, and for “general corporate purposes.”

In the end, however, it was the issue of how to find more money to develop the mine that led to the sudden power struggle between Gutnick and Miller.

While Miller believes Tahera has the capacity to develop Jericho on its own, Gutnick says the company must enter into a joint-venture deal with a major mining company.

Grant Ewing, Tahera’s vice-president of corporate relations, said Tahera’s feasibility study for the Jericho project estimates the company will need about $50 million to put the mine into production.

Compared with the Ekati and Diavik projects in the NWT, the Jericho project is small, with a projected lifespan of eight years.

But it’s highly promising. Jericho’s one kimberlite pipe holds more than three million carats of diamonds, and the surrounding area, largely unexplored, is believed to hold more.

Right now, the company is waiting for its project to undergo environmental assessment by the Nunavut Impact Review Board.

The review board, Ewing said, is looking at a draft environmental-impact statement that Tahera submitted to them. After receiving comments from the review board and nearly two dozen other organizations, Tahera will refine that document and submit a final EIS by the end of this year.

Ewing warned that the company faces a “tight schedule” if it is to get the mine into production. He said it will be difficult for Tahera to get project financing and the required permits in time for the construction of winter roads that are needed to transport building supplies to the Jericho site.

In a letter to shareholders in 1999, Miller said the company faces two challenges: difficulties faced by a junior exploration company in developing a diamond mine in a “remote and harsh Arctic environment,” and financing the construction of the Jericho project without overly diluting the company’s shares.

Too small for a major mine?

Miller’s successor, Joseph Gutnick, appears to believe the way to do that is for Tahera to hook up with a joint-venture partner. But Miller says he was surprised to discover that this is Gutnick’s view.

“The opening up of the philosophical difference here was a surprise to me, because in all my dealings with Mr. Gutnick, he had emphasized to me his ability to raise financing and skills in putting projects into production,” Miller said.

Unlike Gutnick, Miller believes that a major mining company would be reluctant to develop a small project like Jericho, which is roughly one-twentieth the size of Ekati.
“One of the majors, such as BHP or Kennecot, would, I think, be loathe to put Jericho into production,” Miller said.

But Miller is reluctant to criticize Gutnick and said at the beginning of the interview that he must chose his words carefully because of the possibility of “litigation.”
That’s likely because of Gutnick’s readiness to use the courts to defend his reputation.

Australian libel suit

Gutnick has launched a libel suit in an Australian court against the U.S. business publication Barron’s over an article that the magazine ran in October of 2000.
The article, entitled “Unholy Gains,” made numerous allegations about the nature of Gutnick’s dealings with U.S. investors.

In a writ filed with a court in Victoria, Australia, Gutnick complained the article contains a defamatory statement alleging he was connected to another Australian man who was convicted of money laundering.

Although the article was published in the U.S., Gutnick launched his suit in an Australian court because readers there were able to download the article on the Internet.

Observers in Australia believe that if Gutnick wins the case, it could have an international impact on freedom of speech on the World Wide Web.

Meanwhile, the development of Nunavut’s first diamond mine is still an uncertain proposition.

“I think we don’t know the inner thinking of Tahera today,” Miller said. “I would say I certainly hope they maintain that target (of 2003). I think it’s an important first diamond mine for Nunavut.”