Peregrine's gem value needs smart mine plan
2007-12-18 19:24 ET - Street Wire
by Will Purcell
Eric Friedland's Peregrine Diamonds Ltd. must show it can keep operating and capital costs low enough to make its DO-27 pipe near Lac de Gras worth mining. The company now has the modelled diamond valuations for its 2007 bulk sample and the numbers suggest it will have to be considerably more efficient at mining and processing the kimberlite from the big body. As luck would have it, Peregrine has a few intriguing ideas that appear to help the story.
The valuation
In a Dec. 17 press release, Peregrine revealed that WWW International Diamond Consultants Ltd. has assessed the value of a 2,075-carat parcel of diamonds taken from the pyroclastic kimberlite contained within the main and northeastern lobes of DO-27. The resulting best-case value prediction of $51 (U.S.) per carat suggests a rock value of approximately $45 (U.S.) per tonne, based on a potential grade of about 0.87 carat per tonne.
The parcel of gems used in WWW's estimate remains small, at barely 2,000 carats when even the gems recovered in earlier programs are included. The forecasts therefore are subject to considerable margins of error, although Peregrine's consultant suggests there is more room for optimism than pessimism. As a result, the company thinks the DO-27 diamonds could ultimately lead to the rosiest prediction of $70 (U.S.) per carat, which would translate to a rock value of just over $60 (U.S.) per tonne.
The challenge
Although BHP Billiton Inc. is managing to mine a pipe at Ekati with a comparable rock value, most diamond mines in Canada's North are running with operating costs of about $100 (U.S.) per tonne, or more. Diavik's operating costs are close to that number, but it faces some significant additional expenses that its rich rock can easily absorb. Tahera Diamond Corp. hopes to reduce its operating costs to $85 (U.S.) per carat, or less, but its Jericho mine is still running with costs well above that target.
Nevertheless, Mr. Friedland and Peregrine's new president, Brooke Clements, think that Peregrine will have a few surprises when the company completes its preliminary technical assessment next spring. The study will include preliminary cost estimates, which will suggest what rock values Peregrine would need to make a mine. As well, the study will contain a resource model that will also reveal the potential scale of the project.
A key part of the possible mine plan would have Peregrine wash the mined kimberlite, which is very soft. That quality made for difficult underground mining during a 1994 bulk test and it also posed problems for Peregrine's drillers over the past few years. The company now thinks the soft material will be a distinct advantage.
Peregrine's initial attempts to wash the kimberlite yielded encouragement. The company removed about 90 per cent of the kimberlite recovered from the top part of the pipe through washing and the lower zones saw well over one-half of the kimberlite washed away. Since then, Peregrine has been conducting further experiments and some of the new approaches are removing even more of the kimberlite.
The result is a concentrate that has a much higher grade, which would allow Peregrine to process just a fraction of the mined kimberlite. Although the company would face the same mining costs and the washing circuit would be an added expense, the processing costs would drop dramatically.
As well, Mr. Friedland thinks an optimized DO-27 open pit mine will have better stripping ratios and a more efficient mine plan that will lower costs further. Getting those costs below the projected rock value will be a challenge, but Mr. Friedland said DO-27 would ultimately be mined by smart people.
Investors are not so sure. Peregrine closed down 17 cents to 67 cents Monday on 224,500 shares.
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Myview (JMHO)
Anyone that cannot understand that this will be a mine, given some time,will probably never believe
in it. Will's article is a very balanced assesmet.