TORONTO (miningweekly.com) – It has been more than two years since Tiomin Resources started the hunt for a company-transforming deal, but CEO Robert Jackson is confident that he has put together a winner in a plan to buy diamond junior Vaaldiam Resources.

Vaaldiam put its two diamond mines in Brazil into care-and-maintenance when the financial crisis hit and the bottom fell out of the rough diamond market in late 2008.

The company has struggled to find the cash it needs to get things moving again, and that is where Tiomin and its healthy balance sheet come into the picture.

Tiomin will offer 0,8 of its own shares for each Vaaldiam share, and plans to get to work restarting the company's Duas Barras mine as soon as the acquisition closes.

If all goes to plan, the merged company, which will have about C$11,3-million in cash, could be producing diamonds by June, Jackson told Mining Weekly Online.

The firm is forecasting production of 20 000 ct this year, ramping up to 40 000 ct in 2011, when it also expects to restart Vaaldiam's second operation, the Chapada mine.

By the time the Vaaldium deal came along in the fourth quarter of 2009, Tiomin had been looking for a merger partner for well over two years.

“I've lost track, but we've probably looked at 40 different deals. And usually they were either just a little bit too big for us, or there was some fatal flaw,” Jackson recounted.

About a year ago, the firm agreed to merge with fellow Canadian Cadiscor Resources, but the transaction, which Jackson still considers to have been an “outstanding” opportunity, was derailed by opposition and legal action from activist shareholder Jaguar Financial. Cadiscor was acquired a few months later by North American Palladium.

Tiomin was approached around late October or early November by Vaaldiam management with a proposal.

After completing a due diligence process and spending time getting to understand the diamond market, Jackson said the value in the deal became clear.

“It's really got the makings of something that will be very good for the shareholders, because it cleans up their balance sheet, it deploys our cash into producing assets and it gets both companies going again."

The demand for rough diamonds has recovered substantially from the lows of late 2008 and early 2009, and the fact that there are no big new mines in the pipeline will help the fundamentals going forward, he said.

“Our goal is to reposition our company as South America's largest diamond producer marketing high-quality diamonds with a combined average sales value of over $275/ct in addition to measured and sustainable production growth,” Vaaldiam CEO Ken Johnson commented in a statement.

The deal has the backing of both boards, and shareholders holding about 16% of Vaaldiam's shares have agreed to vote in favour of the transaction.

After the acquisition, which requires Vaaldiam shareholder and regulatory approval, closes, work will begin immediately on restarting the Duas Barras mine.

In the meantime, Tiomin has bought 20-million Vaaldiam shares in a private placement for C$600 000, which will provide the firm with working capital.

MINERAL SANDS MISADVENTURE

Tiomin has spent the last 12 years or so bringing its Kenyan mineral sands project, Kwale, to the point of being 'shovel ready'.

By 2006, the project was permitted, financed and engineering and construction contracts had been signed, but at the last minute Tiomin found itself in court in a local dispute over land access, and the delay eventually cost the company its debt package.

By the time the dispute had been sorted out, the company decided it would not build the mine itself and started looking for a partner or buyer.

The firm eventually negotiated a deal to sell 70% in the project to China's Jinchuan group, which is also its biggest shareholder.

But more than 18 months after the initial memorandum of understanding, and just two days before the deal was to have closed, Jinchuan announced in October last year it was walking away from the project.

Jackson said he is still in talks with prospective buyers, and plans to see the process through as long as there is interest.

“We've been through a fairly lengthy round of discussions with a variety of players, some of whom have dropped out, some of whom have stayed in the game.

“But I'll put it this way, we are not going to invest any more time and money on it.”

Once in production, the Kwale mine is expected to produce an average of 330 000 t/y of titanium-bearing ilmenite, 77 000 t/y of rutile and 37 000 t/y of zircon.

BRAZILIAN DIAMONDS

Besides the two mines that will be restarted, the combined company will also have interests in three advanced kimberlite projects in Brazil and Canada, as well as Tiomin's 49% holding in the Pukaka copper/gold project in Peru.

The focus for both organic and acquisitive growth in the medium term will clearly be on diamond assets in Brazil, Jackson said.

“But we have our eyes open and we will actively consider anything that makes sense,” he said.

Anything, that is, “other than mineral sands.”

Shares in Tiomin rose 33,33% on Monday, to C$0,04 apiece by 15:26 in Toronto. TSX Venture Exchange-listed Vaaldiam rose 14,3%, to C$0,04.

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