I'd be a little more diplomatic about the exact phrasing, but if that's how you feel, then Jim can seriously benefit from time with you. If the project has merit then a serious discussion with him about it will convince you, and then you can help him frame his approach to your mentor.
If it doesn't have merit, and you're right to be concerned, then you should be able to convince him of that. If you can't, then at least you can honestly say that you've got serious reservations about his project, and you're worried that introducing him to your mentor would reflect badly on you.
In effect, if that's how you feel then you should be the first phase mentor/advisor. If you really don't know much about his project and industry then you need either to (a) learn about it through him, allowing him to coach you, or (b) say that you don't know enough to know if Jim is a good fit with your mentor.
And if you really don't have time, then say all the above, and then say that your lack of time is the block to understanding his position well enough to make the introduction in all faith.
Is Jim really a friend? How can you best help him? Is that your aim, or are you just looking to brush him off as a bit of a distraction? If he is a friend, and you want to help him, and you really don't have time, look for a quid pro quo - see if there's something he can do for you to help you make the time to do something for him.