During the height of the financial crisis in November 2008, BHP Billiton elected to exercise its earn-in rights for the Chidliak diamond project. The price? $22.3-million in exploration over a two year period entitled the mining giant to a 51% interest in Peregrine Diamond’s biggest project. This marked a significant milestone in the company’s history and set the stage for a huge rally in the company’s share price from the $0.75 range to over $4.50. Since then, shares of Peregrine Diamonds have, over a three year period, trended back to the $1.00 mark.
Raymond Goldie, a senior mining analyst at Salman Partners, states in a report, “We note that BHP rarely enters into joint ventures with juniors, especially joint ventures in which the junior is, as is the case with Peregrine, the operator. BHP’s decision should not only increase the market’s confidence in the prospects of the Chidliak project, it should also increase the market’s confidence that the project can obtain financing through to production.”
A stable funding partner is a key part of the equation for a junior exploration and development diamond company since the average time frame from discovery to production is around 10 years and the costs are significant.
Is it time to revisit Peregrine Diamonds as an investor? We connected with Eric Friedland, younger brother to well-known mining venture capitalist Robert Friedland and CEO of Peregrine Diamonds, to find out what’s in store for the company.
Peregrine Diamonds was part of a bigger picture in 2005. Please talk about the genesis of the company and some of your major accomplishments to date.
In 2005, we bought the Altar copper and gold porphyry project in Argentina from Rio Tinto. Recognition of the significant potential value represented by Altar led to the spin-out of Peregrine Metals from Peregrine Diamonds, just prior to the Peregrine Diamonds IPO. Peregrine Metals conducted exploration throughout South America and advanced the Altar project as a private company until it went public in March, 2010. Peregrine Metals was subsequently sold in October, 2011 to Stillwater Mining.
Our diamond company went public in 2006. The exploration focus of Peregrine Diamonds started in the Northwest Territories and gradually shifted east to the Chidliak project on Baffin Island, Nunavut. Now, with the discovery in just four years of 59 kimberlites, seven of those with economic potential, and significant exploration upside, Chidliak is one of the most important diamond discoveries in the past two decades. A preliminary assessment of diamond value through bulk sampling next year and another year of exploration will help us gauge where it sits on a scale relative to the existing Canadian diamond mines.
You mention your sister company was recently purchased by Stillwater Mining in a transaction valued at US$487 million. Please tell our readers about the acquisition and what ancillary benefits, if any, have resulted from the sale.
In the spring, Stillwater conducted extensive legal and technical due diligence on the Altar project. They understood the value of the large copper-gold resource that had been identified and the significant upside offered by both the copper and gold exploration potential. Altar is a very big porphyry system that was only first drilled in 2003. There are very few large porphyry copper-gold systems in the world that are 100% controlled by junior exploration companies, especially at the Preliminary Economic Assessment stage. In May, Stillwater approached Peregrine Metals with a friendly acquisition proposal and a deal was finalized in June. The transaction was based on a value for the copper in the ground at Altar that was in-line with other recent transactions in the copper industry.
Peregrine Metals shareholders were supportive of the transaction. Many of those shareholders are also shareholders of Peregrine Diamonds. A number of directors, officers and employees of Peregrine Metals also hold positions with Peregrine Diamonds and are now fully focussed on adding significant value to Peregrine Diamonds.
Diamonds are generally considered to be a luxury item but, at the same time, they are very much a part of everyday life. What is your take on the diamond markets over the near term and what factors are expected to drive demand?
The long term fundamentals for diamonds are excellent, with demand rising while supply is diminishing. Of particular impact is the increase in demand in China and India as those countries continue their economic expansion. Diamonds are luxury items, but they are also working their way into the fabric of day to day living in the emerging economies. About 50% of weddings in China now feature diamond engagement rings, and it is as high as 80% in the major cities. In comparison, in 1989 it was difficult to buy diamond jewelry in China. When the economy falters, people may choose to delay large purchases and commitments, such as weddings, but life still goes on and this pent-up demand eventually gets satisfied. This is why the price of diamonds ran up so rapidly in the years following the global economic crisis.
We do not see any major mines the size of EKATI or Diavik (+ 100 million carats) coming onstream in the near future. Several of the world’s largest diamond mines are moving to underground operations in the coming year, in order to extend their mine life. All these factors point to supply constraint and higher prices in the coming years. Chidliak is very important because it comes at a time when there are very few diamond projects in the world ready for development. Since the discovery of Chidliak in 2008, there have been no new discoveries of diamond districts anywhere in the world that we know of.
Peregrine’s properties are located in the Canadian Arctic. What are some of the benefits and drawbacks associated with doing business in the deep north?
There are definitely challenges that need to be considered when you mine in the Arctic. This is where the experience of our joint venture partner, BHP Billiton, will be invaluable. BHP Billiton owns 80% and operates the EKATI Diamond Mine in the Northwest Territories, in a similar Arctic environment to Chidliak. We believe the setting at Chidliak on south Baffin Island would be quite complimentary to a diamond mining operation. The land where most of our kimberlites with economic potential have been discovered is relatively flat with far fewer lakes than in the Lac de Gras region of the NWT. Chidliak is located only 100 km from Iqaluit, Nunavut’s capital. A year-round or seasonal road from the capital to the project is a real possibility. Supplies can be shipped to Iqaluit by sea, a cost-effective form of transportation.
I believe it is recognized in the far north that mining offers great opportunities for significant economic gains in the region. The economic data from the three diamond mines in the Northwest Territories makes that clear. The local population and political leadership in Nunavut are keen to see economic benefits similar to those experienced by their neighbours to the west.
What is the nature of your relationship with BHP Billiton and do you plan on expanding or developing additional industry relationships going forward?
We have an excellent relationship with BHP Billiton, and our project will continue to benefit from their technical, Arctic mining and diamond marketing expertise which was derived from exploring, developing and operating one of the world’s most important diamond mines, EKATI. BHP has a 51% participating interest in the Chidliak joint venture with Peregrine owning the remaining 49%. The fact that BHP Billiton has allowed Peregrine to continue to be the operator at Chidliak speaks volumes about the strength of this relationship and the quality of our operational personnel. Peregrine has full marketing rights to its share of diamond production which would allow us to establish a fully integrated diamond company, taking diamonds from the mine to the consumer.
Overall, we are very satisfied with our relationship with BHP Billiton and with five joint venture partners we have on other exploration projects. Joint venture and business relationships can be very beneficial, especially with the inherent risks of diamond exploration, and as we grow and evolve, we are always open to establishing new relationships that we think could benefit our shareholders.
What major milestones are on the horizon for Peregrine as we head into 2012?
The 2011 drilling of over 5,500 metres on six kimberlites with economic potential, and extensive logistical planning and arrangements, have set the stage for bulk sampling of select kimberlites by way of large diameter reverse circulation drilling, which is scheduled to commence in the first quarter of 2012. Equipment, supplies and fuel are have been shipped to Iqaluit by sealift and bulk sample site layouts and access trails have been mapped, The bulk sampling program aims to extract roughly 200-carat diamond parcels from at least three kimberlites to allow the first diamond valuations at Chidliak, a crucial step towards confirming the economic viability of the project.
The 2012 bulk sampling program is an important step along the development path at Chidliak and it will allow Peregrine to continue to unlock the value at this exciting diamond project. Our goal is to deliver the first diamond mine on Baffin Island. We will work to achieve this goal by rapidly advancing the known kimberlites with economic potential as well as continuing to explore for additional diamondiferous pipes. Unresolved kimberlite indicator mineral trains and the presence of kimberlite float at multiple localities not currently linked to sources give us confidence that more kimberlites will be discovered next season.
Concurrent with advancing Chidliak, Peregrine will continue to explore its other properties in the north. These include Cumberland and Qilaq, near Chidliak on south Baffin Island, Nanuq and Nanuq North, 850 kilometres west of Chidliak in Nunavut, and our highly prospective Lac de Gras region land package in the Northwest Territories, near the Diavik and EKATI diamond mines, which includes our 73% owned, nine hectare DO-27 kimberlite pipe that has a diamond resource of 18.2 million carats plus a potential mineral deposit of 6.5 to 8.5 million tonnes of kimberlite. We are looking forward to a very busy and fruitful 2012.
This interview was featured in the article 5 Diamond Stocks to Watch – Part 1 – CLICK HERE to read more.