Peregrine exploration kept pace in 2012
Junior discovers kimberlites in two territories; loses, gains major funding partners in advancing diamondiferous Chidliak project
Last updated 10/28/2012 at Noon
For a junior who lost a substantial funding partner, BHP Billiton Canada Inc., at the onset of the recent downturn in the financial markets, Peregrine Diamonds Ltd. hardly broke stride in exploration momentum in 2012.
The aggressive explorer not only forged ahead with a substantial program at its highly prospective Chidliak diamond project on Baffin Island in Nunavut, it also made significant progress in identifying new kimberlites at its Lac De Gras projects in Northwest Territories.
Further icing its cake, Peregrine successfully wooed another potential funding partner in De Beers Canada Inc., a move that will fuel the junior's push to advance exploration at Chidliak and provide flexibility for additional exploration on its other properties.
"De Beers has already completed technical due diligence on Chidliak and the current focus is on developing the strategy to advance the project," Peregrine CEO Eric Friedland said recently. "The agreed material terms of the joint venture provide a clear financial and technical path that could lead to successfully proving up, financing, building and operating a diamond mine in Canada's North. We are pleased to welcome De Beers as our new partner along with their 124 years of unrivaled diamond exploration, development, mining and marketing experience."
De Beers Canada CEO Tony Guthrie said, "We see Chidliak as an exciting prospect and complementary to our existing pipeline of diamond operations and projects, which are the most comprehensive in Canada. With 50 years of experience in Canada, we look forward to bringing to bear our extensive knowledge of diamond exploration and mining as we work with Peregrine's professional and experienced management team."
Billiton pulls out of Chidliak
The opportunity for De Beers arose when BHP Billiton sold its 51 percent interest in the 8,580-square-kilometer (3,312 square miles) Chidliak project to Peregrine in December 2011 in a deal that gave the junior 100 percent ownership of the Nunavut property. Under the terms of the transaction, Peregrine will pay C$9 million in four installments over three years, and grant BHP Billiton a 2 percent royalty on any future mineral production from Chidliak.
BHP Billiton also agreed to extinguish Peregrine's royalty obligations and its own diamond marketing rights on certain Canadian mineral properties including the Nanuq property in Nunavut and the TW, WO and Lac de Gras East and Pellatt Lake properties in the Northwest Territories. The transaction closed in January.
Peregrine then undertook a comprehensive analysis of its 2012 program and decided to put on hold a 2012 bulk sampling program at Chidliak until it determined how best to move forward.
Lac De Gras program
In March, Peregrine commenced a C$1.5 million diamond exploration program in the Lac de Gras region of the Northwest Territories, planning to conduct ground magnetic and electromagnetic geophysical surveys over 15 anomalies and to test additional priority drill targets defined by the surveys.
Lac de Gras is one of the most prolific diamond districts in the world, hosting the Diavik and EKATI diamond mines as well as De Beers and Mountain Province Diamond's Kennady Lake joint venture mine project (Gahcho Kue deposit) that is currently undergoing environmental impact review and could provide as many as 49 million carats in diamonds over its lifetime. De Beers Snap Lake Diamond Mine is also nearby.
The Lac de Gras projects consist of 51,000 hectares (126,021 acres) of claims owned entirely by Peregrine, 36,400 hectares (89,944 acres) of claims held jointly with Thelon Capital Ltd. (66.2 percent Peregrine, 33.8 percent Thelon) and the 15,107-hectare (37,329 acres) WO Joint Venture (Peregrine 71.9 percent, Archon Minerals Ltd. 17.5 percent and DHK Diamonds Inc. 10.6 percent). Peregrine holds 97.92 percent of the diamond marketing rights for the WO Joint Venture. The junior also holds a 71.9 percent interest in the nine-hectare (22.24 acres) DO-27 kimberlite, estimated to host an 18.2-million-carat resource that is open at depth.
Though DO-27 could not support a mining operation in 2007 when its resource was calculated, Peregrine has said there is a reasonable chance that the kimberlite could one day support a mining operation.
Discovery of a new kimberlite with economic potential at the Lac de Gras projects could significantly enhance the value of the DO-27 resource, along with favorable changes in other factors such as diamond prices, Canadian-US currency exchange rates, a processing arrangement with one of the nearby diamond mines, advances in mining and processing technology and regional infrastructure developments.
Of the eight geophysical targets with associated kimberlite indicator minerals that the company prepared for 2012 exploration, drilling at the first three identified new kimberlites.
In April Peregrine reported discovery of the LD-1, LD-2 and LD-3 kimberlites, each measuring about one-hectare (2.47 acres) at the surface. LD-1 is a texturally variable crater-facies volcaniclastic kimberlite that contains chrome diopside, garnet and coarse olivine. LD-2 is a black, re-sedimented volcaniclastic kimberlite with about 5 percent country rock xenoliths and contains coarse olivine and garnet. LD-3 is a dark green to black volcaniclastic kimberlite with abundant coarse olivine, garnet and chrome diopside.
A fourth target was drilled without intersecting kimberlite, and planned drilling of a fifth target was not initiated based on the drilling results from the fourth target, the junior said.
"We drilled four targets and discovered three kimberlites, an excellent success rate for our world-class exploration team," said Peregrine President Brooke Clements. "The close proximity of these kimberlites to the Diavik Diamond Mine and to our DO-27 diamond deposit will be important if they are proven to have economic potential."
At Chidliak, Peregrine completed its 2012 exploration program in August, reportedly spending about C$7 million of its planned C$10.5 million budget on definition core drilling at the CH-1, CH-6, CH-7 and CH-44 kimberlites in preparation for a planned collection of bulk samples from key kimberlites in 2013, prospecting of priority geophysical and indicator mineral anomalies and helicopter-portable reverse circulation drilling of high-priority kimberlite targets.
One new kimberlite, CH-60, was discovered during the season by follow-up prospecting.
It is defined by a magnetic anomaly with an estimated surface expression of 0.3 hectares (0.74 acre).
In addition, four new and separate occurrences of kimberlite pebbles and cobbles or kimberlite float have been found suggesting the presence of yet to be discovered kimberlite bodies nearby.
"We made our first kimberlite discovery at Chidliak in July 2008, and it is gratifying that after four years of intensive exploration, we still continue to find new kimberlites and kimberlite float.
This speaks to the tremendous exploration potential of this exceptional diamond project," Clements said. More than 5,500 line-kilometers of ground geophysical surveys were completed during the 2012 winter exploration program.
More than 40 geophysical anomalies and 20 target areas hosting kimberlite indicator mineral anomalies are scheduled for follow-up by prospecting, mapping and ground magnetic surveying this summer.
Peregrine planned to drill high-priority targets with a helicopter-portable RC drill rig beginning in August.
In July, 20 geophysical anomalies were considered drill-ready. Collection of some 400 indicator mineral samples and continuation of environmental baseline surveys also was scheduled.
New partner in De Beers
In October, De Beers Canada Inc. signed an earn-in and joint venture agreement with Peregrine that gives the major an option to earn a 50.1 percent interest in the Chidliak project. De Beers completed a C$2.5 million private placement unit offering in Peregrine priced at C75 cents per unit, and agreed to make a C$2.5 million payment, due Jan. 31, to BHP Billiton that is required under Peregrine's agreement to purchase that company's 51 percent participating interest in the Chidliak project. Both the private placement and the January payment will be credited towards De Beers' earn-in requirements for Chidliak.
"Within 24 hours of signing the option, De Beers had a five-member team of senior people visiting Chidliak, Iqaluit and Pagnirtung, a sign of their commitment to the project," said Peregrine Executive Vice President, Business Development Tom Peregoodoff. "Our respective technical teams are engaged, and planning for future programs is underway. Under the potential joint venture, we will ensure that the design and execution of all work programs take full advantage of the extensive diamond experience De Beers brings to the partnership and Peregrine's many years of successful diamond exploration in Canada."
If De Beers exercises the option, Peregrine and De Beers will invest C$58.5 million in the project with a minimum work commitment of C$37 million and finance all work at Chidliak from when it enters into the JV until the completion of a bankable feasibility study, inclusive of appropriate environmental impact studies necessary for evaluating the feasibility of commercial diamond production.
Assuming timely delivery of the BFS, Peregrine will reimburse De Beers 49.9 percent of all agreed upon Chidliak costs in excess of C$58.5 million to completion of the BFS.
Should De Beers decide to exit the JV prior to completion of the BFS, the two companies agreed upon terms for Peregrine to buy out De Beers' interest in Chidliak.
"When we began discussions with potential partners for Chidliak last March, our principal objective for any future joint venture transaction was to ensure certainty of finance, in a manner that minimized share dilution to Peregrine's shareholders, for completion of a NI 43-101-compliant, bankable feasibility study," said Friedland.
"We also wanted to ensure that the extensive work leading up to and including the bankable feasibility study would be conducted in a professional, comprehensive and timely fashion.
I'm very confident that these objectives will be met should our new partner, De Beers, the world's most technically proficient, diamond mining and marketing company and a household name in the diamond industry for the past 124 years, decide to enter into the Chidliak Joint Venture."
Peregrine's CEO said the closing of the option with De Beers is an important step on the road to what the company believes will be Baffin Island's first diamond mine. "We are confident that Chidliak is the world's premier advanced-stage diamond exploration project, and De Beers' commitment of C$5-million for their option is a serious expression of their belief in Chidliak and Peregrine's management," he added.
The option agreement was subject to regulatory approval and BHP Billiton's consent.