Peregrine and Dominion weigh their optimism carat by carat
by Greg Klein
Maybe this time this Friedland will get it right. His older brother Robert’s first foray into diamond exploration was, from the gemstone perspective, a monumental flop. Sure, the company stumbled on enough nickel, cobalt and copper to get a nice little $4.3-billion consolation prize for Voisey’s Bay. But as for finding and building a diamond mine, that might be up to younger brother Eric. He evidently sees an optimistic, fast-paced scenario for Peregrine Diamonds’ (TSX:PGD) Chidliak project in Nunavut.
Ironically, given the outcome of Friedland the elder’s search for Labrador diamonds, mineral exploration in the Chidliak area seems to have started with another company’s 1996-to-1997 search for a Voisey’s Bay-type deposit. But little else happened until 2005, when Peregrine and BHP Billiton Canada began regional reconnaissance.
Now 100% owner Peregrine continues to advance, announcing on March 8 a diamond valuation for Chidliak’s CH-7 kimberlite, which has a maiden resource slated for later this month. The project’s more advanced CH-6 pipe has an update underway for a resource that currently shows an inferred 3.32 million tonnes averaging 2.58 carats per tonne for 8.57 million carats.
By June Peregrine expects to release a PEA looking at Phase I mining.
The evaluation for CH-7’s 735.75-carat parcel came to a current average price of $100 per carat but a base modelled average of $114 per carat. The Antwerp firm takes into consideration diamonds lost by breakage, using proprietary techniques to forecast average prices that could be achieved through actual production.
The sample’s top eight diamonds ranged from 1.35 to 5.33 carats, with current average prices ranging from $713 to $3,106 per carat. Last month analyst Paul Zimnisky forecast a 2016 global average of $92 per carat.
Most of the parcel came from a bulk sample of four CH-7 geological units that returned 0.88 carats per tonne, along with a mini-bulk sample previously taken from a surface trench.
Meanwhile Peregrine expresses expansive optimism in its “targets for further exploration,” the potential size of the CH-6 resource update and the June PEA. Of course the climate- and infrastructure-challenged Baffin Island location presents challenges. A roughly 150-kilometre flight connects Chidliak with the Nunavut capital of Iqaluit.
Other companies have passed up Chidliak. BHP sold Peregrine its 51% interest in 2011 for $9 million. De Beers dropped a JV option in 2013 after buying $2.5 million in shares, paying another $2.5 million and conducting its own summer exploration program. Even so, Peregrine’s largest shareholders include Ned Goodman’s Goodman Merchant Capital as well as Eric and Robert Friedland.
Peregrine holds three other projects in Nunavut, another in the Northwest Territories’ Lac de Gras region and four more in Botswana.
The same day Peregrine announced the CH-7 valuation, the world’s third-largest diamond producer by value released updated reserve and resource numbers for the NWT’s Diavik mine.
Dominion Diamond TSX:DDC reported 2015 output of 6.41 million carats from Diavik. Yet as of December 31, proven and probable reserves dipped only 500,000 carats to 52.8 million from the previous year. Indicated resources stayed even at one million carats, while the inferred category dropped from 8.3 million to five million.
Ten million of the proven carats come from Diavik’s A-21 pipe, which remains on schedule for open pit production in late 2018. Dominion holds 40% of Diavik and operates the mine, with Rio Tinto NYE:RIO holding the remainder.
At Dominion’s majority-held Ekati operation, the Sable pipe reached pre-feas last month and could begin open pit production in 2019.
The two NWT mines totalled over a billion dollars in sales last year. As of January 31, Ekati’s sales came to 2.38 million carats for $464.8 million, while Diavik sales reached 4.35 million carats for $639.25 million.