possible double or triple? PGDPeregrine expects preliminary study shortly
2008-04-30 14:09 ET - Street Wire
by Will Purcell
Eric Friedland's Peregrine Diamonds Ltd. expects the results of its preliminary technical assessment of the DO-27 project in the Northwest Territories in a week or two. A key part of the study will be a resource estimate on a portion of the big kimberlite complex once called Tli Kwi Cho. The numbers are likely to show a potentially economic deposit, although Peregrine thinks it will have to wait for higher diamond prices and a more favourable exchange rate. Nevertheless, the company's work proved the old project is worth far more than a 1994 assessment inferred.
The resource
Kennecott Canada Exploration Inc. decided after a $15-million bulk sample bust in 1994 that DO-27 contained about 22.67 million tonnes of pyroclastic kimberlite. Its 3,000-tonne test of that material averaged about 0.36 carat per tonne and the gems received an appraisal of a paltry $21.70 (U.S.) per carat.
Combined, that suggested the pipe contained about 8.1 million carats, worth barely $175-million (U.S.). Even the rosiest estimates of the capital cost of building a mine in the area were about double that figure. As a result, the market quickly pronounced Tli Kwi Cho dead, and administered last rites to Kennecott's more junior partners.
Some of those juniors believed the test missed the richest part of the pipe. Still, it took them a decade to find another partner willing to bet over $30-million on a series of new tests. Peregrine may not yet have proved DO-27 can support a profitable mine, but the company boosted the gross rock value to over $1-billion. That should help making a mine an easier task.
Peregrine's tests targeted the area south of where Kennecott cut short its underground dig. Its new tests successfully hit the higher-grade rock predicted by microdiamond results in 1993. The higher-grade zones would logically be smaller than Kennecott estimated, but Peregrine's drilling over the past few years delivered some pleasant surprises, if not to the stock. More kimberlite turned up, and expected lower-grade areas yielded bigger diamond parcels than expected. As a result, a 1999 prediction by Dr. Felix Kaminsky of about 26 million tonnes for the main zones appears realistic.
Peregrine's mini-bulk tests yielded grades markedly higher than the one-third of a carat per tonne obtained by Kennecott. The company averaged 0.9 carat per tonne in the main zone and just less than 0.8 carat per tonne in the northeast lobe, for an average of 0.87 carat per tonne. Those values likely understate the real grade. The key reasons are the small sample size and the potential diamond breakage and loss caused by the reverse circulation drills used to collect the kimberlite.
The diamond value also increased, partly because of inflation, but also because Peregrine found more of the large, quality stones that yield most of the value in a mine. The latest assessment pegged the diamond value at $51 (U.S.) per carat, although rosier estimates ranged up to $70 (U.S.) per carat.
Based on the potential numbers, DO-27 likely contains well over 20 million carats, and perhaps more than 25 million, three times the amount estimated by Kennecott. At $51 (U.S.) per carat, the gross rock value within the main zones at DO-27 would reach about $1.25-billion (U.S.), about seven times greater than suggested by Kennecott's numbers.
Peregrine's study will likely flesh out ways of mining the kimberlite profitably, including the company's proposal to give the rock a good bath before sending it to a processing plant. Lowering costs and waiting for higher prices are key to Mr. Friedland's belief there are too many diamonds in DO-27 for the deposit not to be mined eventually