Peregrine tests underground potential of CH-6

Peregrine Diamonds (TSX: PGD) completed an $8.5-million summer work program at its Chidliak project, 120 km northeast of Iqaluit, this year focused on expanding resources at the CH-6 kimberlite.

The work included a 5,288-metre core drilling program at CH-6 to expand resources below 260 metres depth, where the current resource ends, to 500 metres depth. The 15-hole program confirmed that the kimberlite extends beyond 500 metres depth.

An internal concept study completed earlier this year showed that the project’s economics could be improved by considering underground development at CH-6. A preliminary economic assessment (PEA) released last summer projected positive economics for open-pit development of the CH-6 and CH-7 kimberlites.

With a preproduction capex of $434.9 million, the project’s after-tax net present value was calculated at $471.2 million and its IRR at 29.8%. Over a mine life of 10 years, the mine was projected to produce an average of 1.2 million carats per year.

This year’s program was also aimed at refining geotechnical design parameters of the CH-6 open pit (particularly pit slope angles), and advancing permitting at the project in Nunavut.

An updated resource estimate for CH-6 is expected to be released in the fourth quarter. If it proves to be of sufficient size and grade, Peregrine will update the PEA to include an underground mining component at CH-6. The PEA could be completed in the first quarter.

CH-6 currently holds an open-pit inferred resource of 11.4 million carats in 4.7 million tonnes grading 2.45 carats per tonne. CH-7 contains 4.2 million carats in 5 million tonnes grading 0.85 carat per tonne. CH-6 diamonds have been valued at a base model price of US$149 per carat; CH-7 diamonds at US$114 per carat.

In order to focus on advancing Chidliak, Peregrine has transferred all shares in its Botswana-based subsidiary, Diamextrat Botswana to U.K.-based private company Diamond Exploration Strategies (DES UK). In return, it will receive a 1% gross overriding royalty on any production. The deal allows DES UK to buy the licences for $2 million within 60 days of discovery of a diamond-bearing kimberlite; for $5 million within 60 days of delivery of a prefeasibility; or $7.5 million within 60 days of a construction decision.

Peregrine had obtained the licences in 2015 in return for a 1% gross overriding royalty and assuming $450,000 of the private company’s debt.

“We still believe strongly in the diamond discovery potential of Botswana,” said president and CEO Tom Peregoodoff in a release. “This transaction allows us to maintain our focus on our primary asset — Chidliak — while continuing to give us exposure to the 60 plus years of combined diamond exploration experience in Botswana that the principals of DES UK possess, and any exploration success that they have in the future.”

Peregrine raised $10.3 million in a rights offering in August, after starting its summer work program in July with a $1 million loan from chairman Eric Friedland.

–This story originally appeared in the November 2017 issue of Diamonds in Canada.