Peregrine gets a Chidliak assist
2008-11-24 16:06 ET - Street Wire
by Will Purcell
Eric Friedland's Peregrine Diamonds Ltd. will be busier than expected next year on its Chidliak project on southeastern Baffin Island, now that BHP Billiton Diamonds Inc. is exercising its earn-in right on the promising play. Peregrine impressed investors with gaudy diamond counts this summer, then more with a large gems in a tiny mini-bulk test this fall. Peregrine and BHP are just starting their planning, but the gem hauls prove the need for a mini-bulk test and a big drill program next year on what appears so far to be the best new diamond project in Canada.
The plan
As announced by Peregrine, BHP can earn a 51-per-cent interest in Chidliak by spending $22.3-million over five years and can boost its share to 58 per cent by paying for a bankable feasibility study. From there, Peregrine would pay its 42-per-cent share of the costs. Mr. Friedland says the deal is good for his company, especially so today, as most of his rivals are deciding whether to mothball their projects, incur massive dilution, or quit the field entirely.
The agreement with BHP requires the mining giant to spend a minimum of $5-million per year, but a final Chidliak budget is certain to be much larger. Canada's North is an expensive place to explore and larger programs are more efficient. It seems likely that BHP will want to get a good picture of the potential of Chidliak to host an Ekati-sized diamond mine as quickly as it can.
Mining majors like to explore methodically, completing extensive geophysical and geochemical programs before letting drill contracts. From there, they typically prefer to test all the targets and process samples for diamonds before picking one or two pipes for mini-bulk testing.
As a junior explorer, Peregrine's priorities are different. The company would love to complete a mini-bulk test of the CH-1 pipe and do a considerable amount of drilling next year on the three existing kimberlite finds, as well as some of the other targets on the 980,000-hectare property.
Although Peregrine will remain the operator at Chidliak, BHP can replace it at any time. The most likely compromise would have BHP getting the geophysical and geochemical data it desires, while Peregrine would get a significant part of the budget to spend on a mini-bulk test of CH-1 and a busy drill program.
Peregrine was already preparing for a busy summer on Chidliak prior to the BHP decision, adding to the likelihood there will be plenty of work on CH-1 and the existing targets. A month ago, the company's president, Brooke Clements, said it was preparing to run two drills next summer, possibly out of two separate camps on the big project. As well, the company had started planning for collecting a larger surface sample from the CH-1 pipe.
The likely cost of Peregrine's desired program was easily $5-million and it seems likely that BHP will agree to much of the original plan, while getting its own geologists started on their own agenda. As a result, the new partners could easily spend $10-million next year alone on Chidliak, followed by an equally busy year in 2010.
The encouragement
In August, Peregrine said it recovered 112 diamonds larger than a 0.106-millimetre sieve in 95 kilograms of CH-1 kimberlite, including six that were larger than a 0.85-millimetre mesh. The numbers and the coarse size distribution suggested the potential for a grade topping one carat per tonne.
A recent 2.28-tonne test backs that up. Peregrine recovered 34 diamonds larger than a 0.85-millimetre sieve and their 3.55-carat weight yields a grade of 1.56 carats per tonne. The haul included a two-carat gem that could have even BHP wanting to get cracking on a larger test.
Peregrine climbed nine cents to close at 42 cents Monday on 210,000 shares.
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