From Will tonight - anyone know how he know severance change Eric Friedland and Tom Peregoodoff's Peregrine Diamonds Ltd. (PGD) lost one cent to 19 cents on 176,000 shares. Retail investors are impatiently awaiting word that Peregrine has arranged for a new co-venturer -- or perhaps a buy-in deal -- that would allow it to advance its promising Chidliak diamond project on Baffin Island without another dilutionary equity sale. There has been nary a peep from the company in months about the proposed $15-million exploration program planned for this year, and to bring it about on its own the company needs to raise a substantial amount of cash.
Despite the official silence, there is a recent change behind the scenes that has investors thinking a suitor could be poised to make a bid for control of Peregrine. This week, Peregrine tweaked the contracts of several key officers, including those of Mr. Friedland, executive chairman, and Mr. Peregoodoff, president and chief executive officer. For Mr. Friedland, the biggest change is an increase in his severance pay to 18 months of salary from 12 months, if he is terminated without cause, and to 24 months of salary from 18 months if he leaves following a change of control. Mr. Peregoodoff would now get 24 months of salary in the event he leaves the company through a change of control, an increase from the previously negotiated 18 months of salary. Gregory Shenton, chief financial officer, and Herman Grutter, vice-president of technical services, also have sweetened termination clauses.
At last report, Mr. Peregoodoff was saying that the company is "continuing discussions with various entities" regarding options to finance future work programs and push the project toward production. It is unclear, of course, who those entities might be, although the list of potential participants in the diamond sector is small. De Beers Canada, which would normally be one of those few, already had a shot at Chidliak. A few years ago, it backed out of a deal to earn a 50.1-per-cent interest in the project for a $58-million investment before the big spending was to kick in.
That leaves Dominion Diamond Corp. (DDC: $13.08) and Stornoway Diamond Corp. (SWY: $0.83) as the only two Canadian companies that have been acquirers of diamond projects over the past decade and the latter company remains preoccupied with ramping up its Renard mine in Quebec. Rio Tinto PLC is another potential candidate often rumoured to be interested in acquiring diamond projects, but Chidliak may be too small for its tastes. (When Stornoway acquired Renard 10 years ago, its majority owner, Rio Tinto, deemed it to be too small to be of interest.)
Chidliak is small, as was Renard at the time, but it has plenty of upside potential. A preliminary economic assessment, completed last year on two of several potentially economic pipes, resulted in a discounted net present value of $471.2-million for a mine that would cost $435-million to build. The dream sheet considered 11.4 million carats inferred at CH-6, valued at about $150 (U.S.) per carat, and another 4.23 million inferred carats at CH-7, valued at about $115 (U.S.) per carat. Peregrine wants to upgrade substantial tonnages of additional rock in the two pipes, deemed worthy of further exploration, so they can be included in the resource and the mining plan but doing so will be a costly undertaking.