Peregrine Metals is on the move

With the war for talent heating up in the mining industry, it was something of a coup for junior Peregrine Metals (PGM-T) to snag as its new president Richard Leclerc – a seasoned mining veteran who, over his 29-year career, has been a key figure behind three companies, all of which were subsequently the subject of takeovers: Andean Resources by Goldcorp (G-T, GG-N); Centenario by Quadra Mining; and Aur by Teck Resources (TCK.B-T, TCK-N).

“He had very significant offers from other companies, but he decided to go with us because he sees the value of our Altar project and getting involved with a company at this stage,” explains Eric Friedland, Peregrine Metal’s CEO.

Peregrine Metals has a 100% interest in the large Altar porphyry copper-gold deposit in Argentina’s San Juan province and Leclerc appears well-suited to develop the project.

Leclerc, who joined Peregrine Metals in early April, is a fluent Spanish speaker and a mining engineer. He has held senior operating and development positions with large gold mines in South America, and worked as vice-president of operations for Andean Resources, where he helped  prepare a feasibility study for the Cerro Negro gold project in Argentina. Goldcorp snapped up Andean for $3.6 billion in December 2010.

Prior to that, Leclerc served as chief operating officer for Centenario where he was responsible for building and operating the Franke copper project in Chile, which churns out about 30,000 tonnes of copper per year.

And as vice-president of mining operations at Aur, Leclerc presided over the engineering, construction and operation of the Andacollo and the Quebrada Blanca copper mines. Both of the mines produce roughly 80,000 tonnes of copper a year, and Teck acquired Aur in August 2007 for about US$4.1 billion.

While at Falconbridge, Leclerc was responsible for a prefeasibility study of the El Pachon copper project, now owned by Xstrata (XTA-L, XSRAF-O), which is 23 km south of Peregrine Metals’ flagship Altar project. El Pachon is currently undergoing a final feasibility study on a large-scale copper mining operation.

To say Leclerc understands copper and is familiar with Argentina and Chile would be an understatement. The appointment “marks a pivotal point in Peregrine Metals’ transition from an exploration company to a developer as it continues to advance and de-risk its flagship project,” Rodney Cooper, an analyst at Dundee Securities, wrote in an April 11 research note to clients. Cooper holds a buy on the stock with a 12-month target price of $2.20 per share. At presstime, Peregrine Metals was trading at $1.18 per share and has 117.8 million shares outstanding.

In a March 3 research note, Cooper noted Altar’s proximity to Xstrata’s El Pachon project (the two projects are also connected by a roadway) is significant. “Merger and acquisition activity in the copper space has been intense and it is our view this will persist in 2011,” he wrote. “With Xstrata’s El Pachon project 23 km to the south, well-funded this year, we anticipate the major will take renewed interest in the Altar project.”

While Altar is relatively low grade, Cooper notes that “there is every indication the resource is large enough to support an economically viable operation at a long-term copper price of US$2.50 per lb., and the drilling is pointing us to a larger resource estimate in the preliminary economic assessment.”

Altar also benefits from being in a very mining friendly jurisdiction. The governor of San Juan comes from a mining family and mining companies have a large presence there. The province is home to two of Barrick Gold‘s (ABX-T, ABX-N) major projects: Veladero, a producing gold mine; and Pascua-Lama, an advanced-stage gold development project under construction. Yamana Gold (YRI-T, AUY-N, YAU-L) is also in the area with its Gualcamayo producing gold mine. And Minera Andes‘ (MAI-T) Los Azules copper project is about 50 km north of Altar.

Over the last year, Peregrine has increased its resource by about 74% and the deposit remains open ended. Measured and indicated resources currently stand at 802 million tonnes grading 0.44% copper equivalent containing 7.41 billion lbs. copper and 1.53 million oz. gold, both at a 0.3% cutoff grade.

Inferred resources add 465.6 million tonnes of 0.44% copper equivalent, including 4.32 billion lbs. copper and 880,000 oz. gold, both at a 0.3% copper-equivalent cutoff grade.

Since 2003 Peregrine has drilled a total of 149 core holes (58,642 metres) at Altar. The alteration zone covers an area measuring more than 3 by 2 km with a strong, coincident induced-polarization geophysical anomaly of about the same size.

In March Peregrine Metals announced newly discovered near-surface mineralization at Altar (hole 148) that extended the deposit 300 metres to the southeast with the bottom 16 metres of the hole returning 0.728% copper and 0.22 gram gold per tonne.

“The mineralization occurs outside the eastern extents of prior resource drilling at the transition between the porphyry copper system and the overlying epithermal gold system that is exposed on the ridge tops to the east of Altar’s east zone,” the company states in a press release.

Earlier this year, Peregrine Metals announced that it had discovered a second mineralized porphyry at Quebrada de la Mina, about 2 km to the northwest of Altar. The company has completed four drill holes at the Quebrada de la Mina gold-copper discovery (1,005 metres). An intersection in one hole returned 164 metres averaging 1.15 grams gold, while another intersection from a different hole cut 141 metres of 0.69 gram gold.

This discovery could have a major impact on Altar because if tonnage is proven, Friedland says, it could help justify a gold circuit that could then be used to recover gold from the stripping at Altar.

The orebody remains open to further step-out drilling in three directions. The mineralization lies beneath varying thicknesses of leached capping but sometimes is present at surface. The average thickness of the leached capping overlying the mineralization is about 80 metres. The vertical limits of the deposit are still unknown and the mineralization extends below the depth of the deepest hole completed to date (1,010 metres). All holes drilled so far have ended in copper mineralization.

In one deep drill hole, for instance, a kilometre into the deposit, the bottom 408 metres averaged 0.83% copper, he notes.

“Altar’s depth potential is interesting and it’s kind of similar to Oyu Tolgoi,” Friedland adds, referring to the sizable copper-gold discovery in Mongolia that his older brother Robert of Ivanhoe Mines (IVN-T, IVN-N), along with Rio Tinto (RIO-N, RIO-L) are developing into a mine.

“When my brother bought it there were about 51 holes in it but they saw the potential at depth and did a lot of deep geophysical work on it… I’m not saying we have the next Oyu Tolgoi, but I am saying there is a lot of mineralization there. Where is the copper coming from…We’re now getting to depths where we are going to find the beginning of the system.”

There is also potential to develop a bulk-mining operation at depth, Friedland says, because the material at Altar could be accessed by a ramp or decline rather than a shaft, given its topography and how it sits in a large valley, which would cut costs. In November Peregrine Metals will start a deep drilling program, as opposed to spending time trying to add resources.

“It’s such a big resource, it doesn’t make sense to add more to the resource at this stage,” Friedland says. “If 12 billion lbs. of copper aren’t economic an additional 2-3 billion lbs. aren’t going to make any difference. But to have a second mine at depth that could be accessed by a decline or ramp – that potential is real.

“Deep drilling at Altar could add value really fast becau
se we see ways of accessing the material relatively easily from a ramp,” he explains. If Peregrine gets grades of about 1% copper, the cost of block caving would be attractive.

Altar, the most recent discovery in South America, is a sulphide deposit with a 50-metre to 150-metre thick high-grade (up to more than 1.0% copper) chalcocite enrichment zone within the upper part of a large body of chalcopyrite-dominant mineralization.

About 10 million years old, dating from the Miocene age, Altar sits at elevations of 3,100 metres to 3,300 metres, and is accessible seasonally by roads.

Water sources exist on the property and potential future line-power sources would be located 23 km away at El Pachon should Xstrata decide to build a mine, a decision expected early next year.

Power in Argentina is also among the cheapest in the region. “We’re looking at creating as much of an electric mine as possible with electric shovels and conveyors,” Friedland says, noting that electricity is as low as 3¢ per kilowatt hour.

The local topography is amenable to the building of a concentrator and large leach pads.

Altar is 8 km from the Chilean border, within 16 km of the Chilean roadway system, and about 90 km from the Chilean coast. For that reason, Friedland says, Peregrine Metals is contemplating getting access to Altar from the Chilean side of the border. It would be an easy drive from Santiago. The company is also considering the option of piping concentrate to the Chilean coast.

Rio Tinto was the first to drill Altar in 2003, punching seven holes into the property. Two years later, Peregrine Metals optioned 100% of the property and started an exploration and drill program.

Peregrine Metals now holds a 100% interest in Altar subject to a 1% net smelter return (NSR) royalty granted to Rio Tinto and another 1% NSR royalty granted to the underlying concession owners that may be bought by Peregrine at any time for US$1 million. A preliminary economic assessment (PEA) on a combined concentrator and leach operation will be completed by year-end. Instead of going to a consulting firm to conduct their PEA, they cherry picked some of the best talent in the business to do it themselves – guided by Rod Davey, the man who took the Diavik mine through feasibility. “Rio Tinto selected him to figure out how to build Diavik and he came up with the idea of dykes and he convinced them that that was the way to do it,” Friedland says.

Friedland adds that it’s the people Peregrine Metals has chosen to work on its PEA that makes it unique. “The people behind it really are the best in their individual fields,” he says. “We’re doing so much work: 62 flotation tests, eight SAG (semi-autogenous grinding) and ball mill tests. We’re doing a hell of a lot more than what a PEA has to have because that’s the kind of prep you need to have.

“If you don’t know your deposit… how to recover those mineral types, what the best processes are to do it, you’re in a boat without an oar. The PEA is going to be focused on metallurgy. It’s going to be a very high-quality PEA and given current copper prices it’s going to look good and I think it’s going to look good at US$2.50 or US$2.80 per lb. copper too.”

When asked if he is worried about being taken out by a larger company, Friedland says deals are now happening as early as at the conclusion of the PEA and that having one of the largest copper deposits makes Peregrine a potential takeover target.

Recent M&A deals have valued copper deposits at between US4¢ and US10¢ per lb. in the ground, he adds, and Peregrine Metals is trading at about US1¢ per lb. in the ground.

“We have a lot of interest from mid-tier and major companies and they are signing confidentiality agreements and kicking the project’s tires,” he says.

But at the same time, he says the company is lucky to have a group of long-term players in the stock, including himself, some large New York-based hedge funds that have been invested since the beginning, other institutional investors like the Dundee group, now under the Scotia umbrella, which together control about half of the shares.

“It doesn’t make us takeover proof,” he says, “but it does suggest that any move that comes against us will have to be a friendly transaction.”