Peregrine Diamonds, a private company founded by Eric Friedland, is going public through a proposed merger with
The new company, to be called Peregrine Diamonds, will have an extensive portfolio of diamond properties in Canada’s Far North, as well as a developing package of copper-gold projects in Latin America. Formed in 2002, Peregrine has exclusive use of
Dunsmuir shareholders will receive one new Peregrine share in exchange for every five shares held. As a condition precedent to the closing of the merger, Peregrine is required to raise at least $3 million by way of a private placement priced at $2 per share. Peregrine has engaged Dundee Securities to assist in the placement of both flow-through and non-flow-through financings. Endeavour Flow-Through Limited Partnership has agreed to buy $325,000 of flow-through special warrants directly from the junior. In addition, BHP Billiton, which currently owns 12.3% of the issued shares of Peregrine, is committed to buying an amount equal to 20% over and above the total raised.
Details of the merger were first announced in mid-July, but Dunsmuir has yet to see a pop in its share value. The issue is currently trading at around 25 and is undervalued by about 15 based on the proposed $2-per-share Peregrine financing.
Dunsmuir President Art Ettlinger tells The Northern Miner that the market is discounting Dunsmuir because of uncertainty about when the deal will close. “As we reach different milestones, the first one being completion of the private placement, and then shareholder and regulatory approval, the stock should move up to forty cents,” Ettlinger predicts.
Formed in the summer of 2002 by Frank Guistra and the principals of Endeavour Financial, Dunsmuir explores for diamonds both in Canada and the U.S. through various joint ventures, including one with BHP Billiton. Its flagship property has been the Nanuq project in the Western Churchill geological province of Nunavut, where, this past spring, Dunsmuir unsuccessfully tested five promising geophysical targets at the head of a prominent indicator mineral train. The interpreted head of the dispersion train, which extends across the northeastern part of the property for a distance of some 36 km, is near the property boundary with the proposed Ukkusiksalik (Wager Bay) National Park.
Ettlinger says he is merging Dunsmuir with Peregrine because it is getting tougher and tougher to keep financing work at Nanuq at 25 to 40. “Nanuq needs a lot more work and a lot more money,” explains Ettlinger. “We went for the early home run and didn’t get it. This is the best thing to do to move Nanuq forward.”
The Nanuq project has evolved through an agreement with BHP Billiton, in which Dunsmuir was given access to the major’s extensive indicator mineral sampling database over select areas of the country. Under terms of the agreement, Dunsmuir is required to spend at least $1 million annually over five years exploring areas it chooses to explore, based on BHP Billiton’s database. Should Dunsmuir make a discovery of any sort and complete a mini-bulk sample of at least 25 tonnes, BHP would have the right to back-in for a 60% interest by reimbursing Dunsmuir an amount equal to 300% of its project expenditures to that point. If BHP Billiton elects to fund the project through to production, it can increase its interest to 70%.
Dunsmuir recently closed a $1-million, non-brokered, flow-through financing priced at 20 with Endeavour Flow-Through Limited Partnership, a flow-through fund managed by Endeavour Financial. The merged company is expected to have a combined treasury of $15 million, assuming Peregrine completes $4 million in financing, with 38.4 million shares outstanding or 49.8 million on a fully diluted basis post-merger.
Management of the new Peregrine Diamonds will consist of Eric Friedland, president; Alan Carter, chief operating officer; Art Ettlinger, executive vice-president corporate development; Jeff Toohey, vice-president exploration (metals); and Jennifer Pell, vice-president exploration (diamonds).
To take advantage of the current field season, Peregrine and Dunsmuir have signed an option agreement pertaining to the Nanuq project. Peregrine has the right to earn a 51% interest by completing a 7,000-line-km Falcon survey and spending $1 million on exploration before the end of 2005. This arrangement will expire on completion of a successful merger of the two companies.
Peregrine was founded in late 2002 specifically to use the Falcon airborne gravity system. BHP Billiton not only provides its proprietary Falcon system and data processing, as well as technical assistance at cost to Peregrine; the mining giant has optioned prospective ground in the Northwest Territories and Peru to Peregrine.
BHP Billiton retains a back-in right on any discovery, which kicks in once an inferred resource containing greater than $3 billion has been independently defined. The major may then elect to acquire an initial 51% interest by reimbursing Peregrine 500% of its incurred costs to that point. By completing a bankable feasibility study, BHP Billiton can earn a further 7%. Should BHP Billiton elect to fund the project to production, it can increase its interest to 65%.
Peregrine acquired from BHP Billiton the mineral rights to two large property blocks in the Northwest Territories. The first block, known as Indian Mountain, is 200 km east of Yellowknife and covers 1,214 sq. km. The second area, 80 km north-northeast of Yellowknife, is called Twistlewaite Lake and covers 850 sq. km. A Falcon survey over these properties in 2003, consisting of 24,959 line km, generated 90 geophysical anomalies, reports Peregrine. Gravity gradiometer measurements made using the Falcon system are supplemented by aeromagnetic and radiometric data sets, which are collected simultaneously. These complementary data sets are used to determine exploration targets.
Density contrasts
BHP Billiton subjected its Ekati mine property to the Falcon survey in 2000, resulting in the discovery of several new kimberlite pipes exhibiting only weak magnetic responses. The airborne gravity survey is designed to detect density contrasts in the underlying rock. Kimberlites of sufficient size, with their relatively low density, especially pyroclastic or crater facies, can be detected with this technology. Likewise, density contrasts can be explained by other geological formations of low density, such as meta-sediments, lake-bottom sediments and deep depressions in bedrock covered with overburden, as well as sulphide mineralization.
Using its Falcon airborne gravity system to pinpoint potential kimberlite targets on the Royce group of claims, BHP Billiton failed to intersect kimberlite in a 2002 spring drilling program that tested four high-priority targets 120 km north of Yellowknife.
BHP Billiton has had recent success discovering a new camp of nine weakly-to-moderately diamondiferous kimberlites on its Qilalugaq property at the southern end of Melville Peninsula in eastern Nunavut.
Earlier this year, Peregrine acquired BHP Billiton’s 38.47% interest in the WO claim block, 30 km southeast of the Diavik diamond mine, with a view to further bulk-sample the DO27 kimberlite pipe. “We believe it hasn’t been adequately tested,” says Ettlinger. “I am guessing this thing needs about four or five million dollars to do a bulk sample. We are going to try to tackle this through large-diameter drilling.”
Diamondiferous pipes DO
27 and DO18 are known as Tli Kwi Cho complex. In the fall of 1992, in a rush to advance the project, Kennecott Canada Exploration elected to bypass a crucial mini-bulk sampling stage and proceeded directly to an underground, 5,000-tonne bulk-sampling program on DO27. The $10-million gamble proved costly for Kennecott and its partners. When disappointing bulk-sample results were released to an unsuspecting market in August 1994, millions of dollars were wiped off the stocks of the Lac de Gras diamond players.
Limited scope
The bulk sample, collected from a Y-shaped drift starting from the outer edge of the northwest lobe at 100 metres below the lake surface, failed to sample the southern lobe or the main body of D027 containing green pyroclastic facies kimberlite. The southern lobe is an oval-shaped area of about 250 by 200 metres.
A 3,003-tonne sample from the main drifts returned 1,079 carats, for a diamond content of 0.36 carat per tonne. The diamonds were valued at US$22 per carat. The largest gem quality diamond recovered weighed 3.6 carats and was valued at US$450-800 per carat. The largest industrial stone was 9.8 carats and valued at US$10 per carat.
Some 1,258 tonnes of diatreme facies material yielded just 16.4 carats, for an implied grade of 0.01 carat per tonne.
The WO claims are currently held 28.8% by DHK Diamonds, 16.47% by Archon, 6.5% by
In and around Peregrine’s Tli Kwi Cho holdings, Dunsmuir controls more than 899 sq. km in the Lac de Gras district. Airborne geophysics and further sampling are planned for this summer.
A 14,000-line-km Falcon survey was completed over a 50,000-sq.-km area of a prospective coastal belt of rocks in Peru during 2003, targeting potential iron oxide-copper-gold deposits. The Peru survey produced 48 significant anomalies, of which 12 were selected for immediate ground evaluation. Preliminary reverse-circulation drilling has so far tested four of the targets.
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