Tahera Diamond Corporation announces that it has entered into a memorandum of understanding with Tiffany & Co. with respect to diamond purchases, marketing and project financing for its Jericho Diamond Project. Tiffany will purchase or market all of the diamond production from Tahera’s Jericho Diamond Project, and provide Tahera with a Cdn.$35 million loan facility to assist in financing construction of the project.

HIGHLIGHTS OF THE DIAMOND PURCHASE AND MARKETING TERMS:

• Tiffany will purchase a significant portion of the diamond production from Tahera’s Jericho Diamond Project for its own manufacturing requirements, and will sell the balance of the production on behalf of Tahera into the international market. The agreement extends over the entire life of the project, which is estimated to be nine years.
• Valuation and price discovery mechanisms are in place to ensure Tahera will achieve competitive market prices for its diamonds for the life of the Jericho Diamond Mine.
• Tahera will pay no selling or other fees on the diamonds purchased by Tiffany, and will share in the diamond manufacturing profits on a formula basis dependent on diamond size.
• Tiffany will act as agent and will market for a fee the portion of the Jericho diamond production that it does not purchase.
• Tahera mitigates many of the costs associated with marketing diamonds independently, including those associated with developing a large marketing staff, and shipping, insurance, and security.

Tiffany has agreed to provide Tahera with a Cdn.$35 million credit facility to be used to finance development and construction of the Jericho Diamond Mine at Tahera’s Jericho property, which is located in Nunavut approximately 420 kilometres northeast of Yellowknife, Northwest Territories. Draw down of the credit facility will be conditional on Tahera completing an acceptable equity financing and on receipt of all necessary permits. The 5-year credit facility carries a LIBOR plus 3% interest rate and is repayable at any time without penalty. The loan will be secured by a first priority security interest over Tahera’s Jericho Diamond Project. Tahera plans to finance the balance of the Jericho diamond mine development and construction costs through the sale of equity.

Tahera received expressions of interest from several parties with regard to a diamond marketing and purchase agreement for its Jericho Diamond Project, and after careful consideration, has selected Tiffany. Tahera believes that the association with one of the world’s premier diamond jewelers will be highly beneficial for the Company.

Mr. R. Peter Gillin, Chairman and Chief Executive Officer of Tahera stated: “Obtaining the support and commitment from Tiffany is a major milestone in Tahera’s history and reflects very favorably on the quality of the diamonds which will be mined from the Jericho Diamond Project. Entering into a diamond purchase and marketing agreement with Tiffany will provide Tahera with the opportunity to realize superior values for its diamond output and enables the Company to focus on exploration and mine development. Tiffany is a pre-eminent retail diamond jeweler and we are very pleased to be a supplier of high-quality diamonds to this world class organization.”

Mr. James N. Fernandez, Executive Vice President and Chief Financial Officer of Tiffany & Co., said. “To support our growing sales of diamond jewelry, Tiffany’s strategy is to align with direct-from-mine sources that can help us to secure increased availability at our quality levels. We are excited to enter into this agreement with Tahera, which meets those criteria. Tiffany benefits in terms of expanded access to rough diamonds and favorable costs, as compared with typical polished diamond sourcing arrangements, and will be able to leverage its established diamond infrastructure and organization.”

Tiffany & Co. is an internationally renowned jeweler and specialty retailer, and operates two diamond processing facilities. Tiffany’s operations are managed to the highest standards of internal control and corporate governance. Tiffany recorded net worldwide sales in excess of US$2 billion in 2003 and its shares are traded on the NYSE (TIF).

Completion of the transactions contemplated in the memorandum of understanding are subject to entering into formal agreements, the approval of the board of directors of Tahera, and receipt of all requisite regulatory approvals by Tahera. Definitive documents are being prepared and are expected to be signed on or about October 22, 2004. All due diligence has been completed by both parties. In the event that Tahera completes a superior transaction with another party prior to the execution of definitive agreements, Tahera will pay Tiffany a breakup fee of Cdn.$5 million.

CONFERENCE CALL DETAILS:

Tahera has scheduled a conference call to discuss the transaction with Tiffany at 2:00 p.m. Eastern Standard Time on Thursday October 7, 2004. You may participate in the call by dialing 416-640-4127 or toll-free 1-800-814-4860. To access a conference replay dial 416-640-1917 or toll-free 1-877-289-8525 and enter pass code 21097107, followed by the number sign.

Update: Jericho Diamond Project

Tahera announces that its application for a Type A water license has been accepted, and the Nunavut Water Board has set December 6 and 7, 2004 as the dates for the final water permit hearing for the Jericho Diamond Project. This schedule meets the Company’s timetable, which contemplates commencement of construction in early 2005, and attainment of commercial production in early 2006.

Tahera has conducted a review of the Jericho Diamond Project and decided to expand the processing plant capacity in order to provide operating flexibility to process, rather than stockpile, lower grade kimberlite during the early years of production.

In addition, Tahera has examined the potential of mining the Jericho Diamond Project with an expanded open pit operation (the “Tahera Evaluation”), and without the underground mining component that was included in the updated 2003 feasibility study prepared by SRK Consulting (Canada) Inc. (SRK). The updated 2003 feasibility study was summarized in a Technical Report dated May 21, 2004 which was also prepared by SRK and filed on SEDAR. The Tahera Evaluation assesses the scenario of processing the Inferred Mineral Resources and additional Indicated Mineral Resources of the project. In the Tahera Evaluation, 38% of potential kimberlite processed and 18% of potential diamond carats produced are derived from Inferred Mineral Resources.

Tahera commissioned SRK to complete a Preliminary Assessment report based on the Tahera Evaluation. SRK’s report is a Preliminary Assessment as defined by National Instrument 43-101 since Inferred Mineral Resources are included in the economic analysis. As a result of the inclusion of the Inferred Mineral Resources and the preliminary nature of the analysis, the potential kimberlite quantities included within the expanded open pit cannot be referred to as “ore” or as “mineral reserves”. Due to the uncertainty which may attach to Inferred Mineral Resources, there is no assurance that Inferred Mineral Resources will be upgraded to Measured and Indicated Mineral Resources or Proven and Probable Mineral Reserves, as a result of continued exploration. The economic analysis contained herein is an assessment which is preliminary in nature and is based partly upon Inferred Mineral Resources that are too speculative geologically to have economic considerations applied to them to enable them to be categorized as Mineral Reserves.

The Tahera Evaluation was prepared by Tahera with input from several consulting firms specializing in the disciplines of open pit and diamond plant design, construction in Canada’s Arctic, and international diamond markets.

The Company will complete further engineering work over the coming months in order to refine this assessment. Tahera believes that the expanded plant capacity provides an opportunity to potentially capitalize on both the robust diamond markets, and on the possible conversion of a considerable quantity of Inferred Mineral Resources and Indicated Mineral Resources to Mineral Reserves. The final decision with respect to utilizing an underground component in the development plan will be made at a later date.

The Tahera Evaluation draws extensively from information in the 2003 updated feasibility study however, it incorporates a processing plant with increased capacity, an open pit mining only scenario with the new pit incorporating steeper pit walls, year-round mining and processing, and includes Inferred Mineral Resources and additional Indicated Mineral Resources in the production schedule and economic model. The kimberlite processing rate was increased to 680,000 tonnes per annum (versus 330,000 tonnes per annum in the 2003 updated feasibility study) using conventional diamond processing techniques.

The Mineral Resources and Mineral Reserves reported in the 2003 updated feasibility study have not changed as a result of the Tahera Evaluation or the Preliminary Assessment prepared by SRK. A comparison of the tonnes processed in each scenario (the 2003 updated feasibility study versus the Tahera Evaluation) is listed in the table below:

Comparison of Tonnages Processed (‘000)


In the Tahera Evaluation, 82% of the recovered carats are attributable to Indicated Mineral Resources. Waste stripping requirements are estimated at 33.6 million tonnes including an allowance for the additional waste associated with reduced pit slopes, discussed below. The strip ratio including this allowance is 6:1.

The production schedule in the Tahera Evaluation has the following attributes:

• Project life is approximately 9 years from 2005 to 2014.
• Pre-production mining occurs in year 2005.
• Plans include 6-8 months of pre-production mining, 6.2 years of open pit production, and 1.7 years of processing from stockpile after pit production ceases.
• Open-pit production has been scheduled to meet the objective of processing the higher value Center lobe kimberlite as a priority at a rate of 340,000 tonnes per annum (which is approximately the same as the 2003 updated feasibility plan), and available North lobe kimberlite is supplemented by the highest value Inferred Mineral Resource kimberlite at a combined rate of 340,000 tonnes per annum.
• Total processed kimberlite is 5.53 million tonnes at a nominal rate of 680,000 tonnes per annum.
• Average recovered diluted grade mined is 0.85 carat per tonne.

The diamond prices used in the Tahera Evaluation economic analysis rely on both a WWW International Diamond Consultants Ltd. (WWW) 2003 valuation model and a recent report titled “A Review of the Diamond Market, January 2003 to August 2004” that was prepared for Tahera by WWW.

The recent WWW report provides a basis for making adjustments to the 2003 diamond prices in the 2003 updated feasibility study in order to reflect the current and forecast rough diamond market conditions. The price trends and forecasts discussed in the recent WWW report are based on an industry-wide market review and are not specific to the Jericho diamonds.

In the 2003 updated feasibility study, SRK recommended using a diamond valuation model that was the average of the WWW 2003 valuation model and the model of another diamond industry expert. Unlike the updated 2003 feasibility study, the Tahera Evaluation relies only on the WWW valuation model. This change is equivalent to an increase of approximately 13% in diamond values.

The Tahera Evaluation base case diamond values are US$103.40/ct for the Center and JDF2S lobes, and US$82.50/ct for the North, South and JDF1 lobes in 2006, and thereafter increase 3% per year, in real terms. Increases beyond 2003 are consistent with the forecast discussed in the recent WWW report. In the Tahera Evaluation, the average diamond values over the life of the mine are approximately 35% higher than the corresponding values used in SRK’s 2003 updated feasibility study.

For the purposes of the Tahera Evaluation, revised capital cost estimates for the Jericho Diamond Project were prepared by Tahera and its consultants. It is estimated that Cdn.$72.5 million in capital expenditures are required in years 2004, 2005 and the first half of 2006 to obtain commercial production. Approximately Cdn.$4 million in power plant lease costs are estimated from years 2006 through 2011 bringing the total capital expenditures to Cdn.$76.5 million. Total capital cost (open-pit and underground) in the updated 2003 feasibility study was Cdn.$65 million. The majority of the capital cost increase is as a result of the expanded capacity of the diamond processing plant and related infrastructure.

The pre-tax, pre-royalty indicative economic results of the Tahera Evaluation are stated in the table below:



The results presented in the Tahera Evaluation are preliminary in nature since the assessment of potential economics includes inferred mineral resources that have not been converted to mineral reserves. Mineral resources are not mineral reserves and do not have demonstrated economic viability. Due to the uncertainty which may attach to inferred mineral resources, there is no assurance that inferred mineral resources will be upgraded to measured and indicated mineral resources or proven and probable mineral reserves, as a result of continued exploration. The economic analysis contained herein is an assessment which is preliminary in nature and is based upon inferred mineral resources that are too speculative geologically to have economic considerations applied to them to enable them to be categorized as mineral reserves. There is no certainty that the preliminary assessment will be realized.

Tahera believes that the base case analysis above indicates the potential for an improvement in project economics compared to the economics contained in the 2003 updated feasibility study.

It is SRK’s opinion that the Tahera Evaluation indicative economic results are optimistic. SRK considers the most significant risks to achieving the projected economic results of the Tahera Evaluation are related to:

• Inferred Mineral Resources included in the economic analysis.
• Diamond values, resulting from a combination of a less conservative diamond valuation model and a projected trend in future prices.
• The aggressive pit design, in terms of slope angles and other mine planning parameters. The planned redesign of the preliminary revised pit will likely impact economic results beyond the stripping cost allowance included in mining costs.
• Geotechnical issues, since the pit slopes of a larger and deeper pit may be located in a rock mass with minimal geotechnical information.
• Reclamation and closure costs which, as a result of potential regulatory requirements, may be higher than currently estimated.

Tahera plans to conduct further geotechnical assessment and re-engineering of the open-pit during the detailed engineering phase as the open-pit walls in the Tahera Evaluation are too steep, and the ramps and intermediate pit pushbacks require modification. Pending this redesign the Tahera Evaluation incorporates an 11.5% allowance in direct mining and explosives costs as an approximation of the additional waste stripping costs associated with reduced pit slope angles. Tahera plans to undertake this final open-pit design and update the project economics over the coming months, replacing the 11.5% mining and explosives cost allowance included in the preliminary economic analysis.

A reduction in wall angles of the open-pit, combined with other mine planning modifications, is expected to reduce kimberlite quantities processed since a pit with shallower walls will likely not extend as deep as the currently projected pit. An updated pit optimisation model will determine the most economical mining depth for the final mine design.

The Tahera Evaluation was completed in order to assess the significant changes to diamond prices and some of the project operating and capital cost estimates which have occurred since the date of the updated 2003 feasibility study. In response to these changes the Tahera Evaluation incorporates revised project development concepts as follows:

• WWW valuation modelling results and forecast diamond prices were used in the economic model.
• Inferred Mineral Resources were included in the project revenue estimate.
• Underground mining was excluded from the mine plan.
• Steeper pit slopes, increased ramp gradients, and additional pit pushbacks were incorporated.
• The diamond plant nominal processing rate was doubled.
• Open pit operating costs were updated to reflect estimated increases and a separate allowance was added for anticipated additional stripping.

The economic analysis contained herein is an assessment which is preliminary in nature and is based upon Inferred Mineral Resources that are too speculative geologically to have economic considerations applied to them to enable them to be categorized as Mineral Reserves. There is no certainty that the Preliminary Assessment will be realized.

The Preliminary Assessment Report will be filed on sedar (www.sedar.com). The Preliminary Assessment Report was prepared by SRK Consulting under the supervision of Jarek Jakubec, C.Eng. MIMMM, Principal Consultant. Mr. Jakubec is a qualified person within the meaning of NI 43-101 and is independent of Tahera. The contents of this press release relating to the Preliminary Assessment Report has been reviewed and verified by Mr. Jakubec.

About Tahera Diamond Corporation
Tahera Diamond Corporation (www.tahera.com) is a unique Canadian diamond Company focused on developing its wholly-owned Jericho Diamond Project as CANADA'S NEXT and NUNAVUT'S FIRST DIAMOND MINE. Tahera has several other very prospective diamond projects in Canada's prolific Slave Craton. Tahera is well financed with over $11 million cash on hand. The common shares of the Company trade on the TSX under the symbol 'TAH'.

Tahera Diamond Corporation
R. Peter Gillin – Chairman and CEO
Grant Ewing – Executive Vice President, Corporate Development

Investor Relations:
Tel: (416) 777-1998 Fax: (416) 777-1898 Toll free: (877) 777-2004
Email: investor_relations@tahera.com  
Website: www.tahera.com