Promising results from Tli Kwi Cho

Despite falling well short of recovering 3,000 tonnes of bulk sample from the DO-27 kimberlite pipe this past year, Peregrine Diamonds (PGD-T) is encouraged by the results from the 548 dry tonnes it did manage to collect during a season that was hampered and cut short by unseasonably warm winter weather.

The portion of the 2006 bulk sample that was collected from the main lobe of the DO-27 pipe yielded an average grade of 0.88 carat per tonne, a grade that corroborates Peregrine’s 2005 bulk-sample results. The 2006 sample was extracted from 11 large-diameter reverse-circulation (RC) holes drilled in an area of the pipe three times larger laterally than that tested in 2005.

DO-27 is one of two pipes and intervening kimberlite dykes or sills that comprise the infamous Tli Kwi Cho kimberlite complex, which occupies the WO claims at the southern end of the Lac de Gras camp in the Northwest Territories, 300 km northeast of Yellowknife and 23 km southeast of the Diavik diamond mine. DO-18 is the other pipe.

Peregrine is the operator of the project, with a 54.47% ownership. Of the remaining interest, 20% is held by DHK Diamonds, 13.27% by Archon Minerals (ACS-V, AHNMF-O), 7.35% by Aber Diamond (ABZ-T, ABER-Q), and 4.9% by SouthernEra Diamonds (SDM-T, SDMFF-O). DHK Diamonds, in turn, is a consortium owned equally by Dentonia Resources (DTA-V, DRSEF-O), Horseshoe Gold Mining (HSX-V, HSSHF-O) and Kettle River Resources (KRR-V, KRRSF-O).

Peregrine holds 92.65% of the diamond marketing rights for the first five years of commercial production on any mine on the WO property, while Aber has the exclusive right to market its proportionate share of production. In addition,

Kennecott Canada, a division of Rio Tinto (RTP-N), retains a 1% gross overriding royalty on any future diamond production, while Aber owns a 0.3% gross overriding royalty. Kennecott discovered the Tli Kwi Cho kimberlite complex in the early days of the Lac de Gras diamond rush while drilling a twin magnetic high geophysical anomaly on ground optioned from DHK Diamonds. The original WO claims were staked by DHK in 1992 on the heels of the Point Lake diamond discovery by BHP and Dia Met Minerals.

Tli Kwi Cho history

The ground was quickly optioned to Kennecott, which flew airborne geophysics, and in March 1993 the discovery holes were put into DO-27 and DO-18. Additional drilling and ground geophysics were completed that spring and summer.

“They got some very interesting, very encouraging microdiamond results,” said Jennifer Pell, Peregrine’s chief geoscientist, during a presentation earlier this year at the Prospectors and Developers Association of Canada conference in Toronto. “It was the very early and exciting days in the Lac de Gras region. Rio Tinto/Kennecott decided to try and fast-track the project, possibly to jump ahead of BHP, and by October of 1993, essentially seven months after the discovery of the pipe, they began work on a decline to go underground and take a 5,000-tonne bulk test.”

Likely feeling pressure to keep up the furious exploration pace set by the Dia Met-BHP camp next door, Rio Tinto chose to bypass a crucial mini-bulk sampling stage — which would normally provide a rough estimate of grade and quality and guide future exploration — and proceeded directly to a major underground bulk-sampling program on DO-27. At the time, only 38 holes had been completed, with microdiamond counts released to the public from only nine. Kennecott would eventually drill 43 core holes into DO-27, extending to an average depth of 150 metres, with the deepest intercept being 236 metres.

The DO-27 pipe covers a surface area of roughly 9 hectares under a small lake and is comprised of a main lobe or vent and a smaller contiguous northeast lobe that extends onto land. The lake partially covering DO-27 is about 1 sq. km in size and averages 4 metres deep.

The main lobe shows an infilling of well-bedded pyroclastic kimberlite, with lesser olivine microcrystal kimberlite of likely pyroclastic origin. Kennecott’s drilling shows a higher-grade core in the main lobe, with lower grades along the periphery. Caustic fusion microdiamond analyses on subsequent core drilling by Peregrine suggest that all the pyroclastic kimberlite (PK) units encountered in the main vent are strongly diamondiferous.

The geology of the northeast lobe is much more complex, containing a thin, discontinuous upper volcaniclastic (VK) unit, a pyroclastic unit similar to the main vent, and a lower, highly variable volcaniclastic unit underlain by a variety of volcaniclastic microbreccias and hypabyssal kimberlite rocks — “very different kimberlite than what’s found in the main vent,” Pell explained. “Part of the northeastern lobe is filled in with material from the main vent, but it’s underlain by some very complicated volcaniclastic kimberlite.”

By April 1994, Kennecott had extracted some 5,000 tonnes of kimberlite material, which was trucked out to Yellowknife.

The $10-million underground gamble proved costly for Kennecott and its partners. The market was left reeling when disappointing bulk-sample results were announced in August 1994; hundreds of millions of dollars were lost in the stocks of Lac de Gras diamond players. Kennecott would later relinquish its interest in the WO claim block. Rio Tinto had come to the conclusion that Tli Kwi Cho did not have the grade or value to make it in the Far North.

Dentonia Resources, which currently holds its 6.7% stake in the project through its one-third ownership of DHK Diamonds, has long argued that Kennecott failed to properly test the potential of the large, multi-phase DO-27 pipe. Dentonia believes that the bulk sample was limited in scope and restricted almost entirely to the smaller northeastern subsidiary lobe.

Missed target

The bulk sample, collected from a Y-shaped drift starting from the eastern outer edge of the lower-grade lobe at about 95 metres below the surface of the lake, failed to sample the core of the main vent of DO-27, which alone measures roughly 400 by 200 metres.

“When they got under the lake and out of the permafrost area, there were some really horrible ground conditions and they were literally not able to advance into the zone they wanted to test,” Pell explained. “For a variety of reasons, mainly geotechnical, they were not able to obtain the zone that they wanted to. They had to cut back the decline.”

A 3,003-tonne sample of pyroclastic and volcaniclastic kimberlite material extracted from the northeast lobe returned 1,079 carats of rough diamonds grading just 0.36 carat per tonne. Worse than the lower-than-expected grade, the diamonds were valued at only US$22 per carat and described as one-third gem, one-third “cheap gem” and one-third industrial. The size distribution was described as very fine, meaning fewer diamonds of larger size than might be expected. The largest gem-quality stone recovered weighed 3.6 carats, while the biggest industrial-grade diamond came in at 9.8 carats.

The remaining portion of the bulk sample comprised diatreme or hypabyssal kimberlite facies, represented by some 1,258 tonnes of material that held just 16.4 carats, for an implied grade of 0.01 carat per tonne.

“A study of Kennecott’s work shows that the majority of their bulk sample was in the hypabyssal and from pyroclastic kimberlite in the peripheral northeastern lobe, and only peripherally into pyroclastic rock that might be part of the main southern crator,” says a recent independently prepared technical report. “Indeed, Kennecott bulk samples became significantly higher-grade at the ends of their sample drifts.”

In 2004, Peregrine acquired BHP Billiton’s (BHP-N) 38.5% interest in the WO claims, with the objective of further assessing the potential of the DO-27 kimberlite pipe, in particular, the main vent. Peregrine increased its interest to just shy of 54.5% after spending $4 million to take a mini-bulk drill sample from the interpreted main core of DO-27 during the first quarter of 2005.

One
question

“In 2005, we went in with one question; did that high-grade core zone in the main pipe exist and, if so, was it high enough for it to be of interest?” said Pell. “We also put in twelve core holes to try and get a better idea on the geology of this pipe and to get geotechnical information.”

Peregrine extracted a 151-tonne sample from the heart of the DO-27 pipe by drilling six large-diameter RC holes to varying depths of up to 191 metres. In total, 136 carats of rough diamonds were recovered, for an overall grade of 0.9 carat per tonne based on a cutoff of 1 mm. The grade of each hole ranged from 0.7 to 1.03 carats per tonne.

Five of the holes sampled a layered sequence of green lapilli pyroclastic tuff in the centre core; these were rich in chrome diopsides and pyrope garnets, with lesser amounts of fresh olivine. The implied grade of these five holes averaged 0.98 carat per tonne. The sixth or southernmost hole intersected a slightly different pyroclastic facies containing high concentrations of fresh olivine. This hole showed the lowest grade: 0.7 carat per tonne.

Of the recovered diamonds, 21 weighed greater than half a carat, the largest stone being a light brown 2.9-carat, flattened octahedron.

Separate valuations were carried out on this small parcel of diamonds in summer 2005 by BHP Billiton Diamonds, Rio Tinto Diamonds and Aber Diamond. The average value of the 136-carat parcel, based on what the diamonds would actually command on the market without any adjustments or modelling, ranged between US$53 and US$67 per carat.

Peregrine’s results contrast sharply with those obtained from Kennecott’s bulk sampling in 1994. The results suggest Peregrine has sampled a much richer phase of DO-27.

As part of the valuation process, Peregrine had Kennecott’s original 1994 parcel of diamonds revalued. The same valuators were used as for the Peregrine 2005 sample. The Kennecott goods were split into two parcels: KC-1 represented 724 carats of diamonds recovered from higher-grade pyroclastic kimberlite grading better than 0.3 carat per tonne; and KC-2, consisting of 249 carats recovered from lower-grade pyroclastics grading less than 0.3 carat.

The higher-grade parcel was valued by BHP and Aber at between US$38 and US$43 per carat, while the lower-grade parcel averaged between US$33 and US$42 per carat. The price difference compared to the original US$22-per-carat valuation can be attributed to a significant increase in diamond prices since 1994.

The two parcels were then revalued in Antwerp after the diamonds were cleaned by deep acid boiling, making them easier to grade. They were valued at about US$54 per carat, more in line with Peregrine’s 2005 parcel.

Second sample

This past winter, Peregrine went back to take a much larger, second bulk sample from DO-27. Using two RC rigs perched atop the ice- covered lake, the company collected 548 tonnes of kimberlite from 11 vertically drilled holes before drilling was shut down due to unsafe ice conditions caused by the spring thaw.

The 2006 program sampled the DO-27 pipe to a depth ranging from 53 to 404 metres, twice as deep as the 2005 sample.

In total, 8,855 diamonds weighing 427 carats were recovered using a 1-mm sieve size-fraction cutoff; 49 are greater than half a carat each, including 13 stones larger than 1 carat.

“We were able to recover some very large stones in this bulk sample, including a 7.1-carat stone, a 3.91, a 2.34 and others, which gives us further assurance that this pipe has the ability to produce large stones,” explained Eric Friedland, president of Peregrine.

The largest diamond is described as a 7.1-carat, light brown coloured, slightly distorted octahedral. Some of the bigger stones that exhibit gem-quality features include a 1.83-carat, near-white, complex octahedral and an irregular white, 1.55-carat diamond.

Eight of the holes tested the main lobe or vent, with the grade of each hole ranging from 0.81 to 1.08 carats per tonne. In total, 340.3 tonnes of pyroclastic kimberlite held 300.8 carats of rough diamonds, for an implied grade of 0.88 carat per tonne, which compares favourably to last year’s mini-bulk sample grade of 0.9 carat per tonne.

“We tested an area quite a bit larger and the grades are holding at that same kind of grade,” Friedland said. “This pipe seems to have good consistency.”

Peregrine has also encountered the higher-grade pyroclastic unit of DO-27 in the three large-diameter RC holes that tested the northeast lobe. These holes intersected anywhere from 45- to 108-metre sections of pyroclastic kimberlite that averaged from 0.64 to 0.92 carat per tonne in each of the holes. In total, 104.4 tonnes of pyroclastic kimberlite was recovered from the three holes, yielding 89.07 carats for an implied grade of 0.85 carat per tonne. Two of the biggest stones (7.1 and 3.9 carats) were recovered from the pyroclastic material in the northeast lobe.

“Now we have established through drilling that the pyroclastic continues through the main vent into the northeast lobe, and a portion of that northeast lobe is land-based, which is important because we are planning to take another additional bulk-sample of that land-based portion, starting this November,” said Friedland.

Other kimberlite material, including hypabyssal phase and intersections of mixed lithologies, were encountered in the northeast lobe below the pyroclastic kimberlite. This material was sampled separately for an additional 103.6 tonnes, which held 37.36 carats of diamonds giving a grade 0.36 carat per tonne.

The parcels of diamonds have been sent to WWW International Diamond Consultants in Antwerp for valuation and size-distribution modelling work. Results are expected in October.

Peregrine continued to drill at the WO property over the summer months using two core rigs, with the objective of further defining the outer limits of the DO-27 pipe and completing pilot drill holes into the land-based portion of the northeast lobe and DO-18 pipe, 700 metres north of DO-27, in preparation for taking large-diameter RC mini-bulk drill samples later this year. The company is also poking some holes into the area between DO-27 and DO-18, where historic drilling intersected narrow dyke or sill-like features at depth in a number of holes. A Falcon survey flown over the area in 2001 detected a number of gravity lows between the two pipes.

Friedland hopes to be in a position to start talking about tonnes later this year. A revised technical assessment report or scoping-level study is due by the first quarter of next year. Kennecott originally estimated DO-27 contained 22.7 million tonnes of pyroclastic kimberlite to a 300-metre depth, supplemented by 8.8 million tonnes of diatreme or hypabyssal material.

“We’re plugging in all our drill data, as well as previous drill data, and we are coming up with a geologic model for the different phases of kimberlite, both in the main vent and in the northeast lobe,” Friedland said.