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NEW CHIDLIAK PRELIMINARY ECONOMIC ASSESSMENT INCREASES PHASE ONE LIFE OF MINE DIAMOND PRODUCTION BY 44% TO 16.7 MILLION CARATS
Peregrine Diamonds Ltd. has released the positive outcome of an updated independent preliminary economic assessment (PEA) for the Chidliak phase 1 diamond development (CP1D) incorporating the 2018 expanded diamond resource at the CH-6 and CH-7 kimberlite pipes on the company's 100-per-cent-owned Chidliak diamond project on Baffin Island, Nunavut, Canada. The updated PEA highlights that the CP1D represents a robust, high margin, open-pit mining project with very attractive economics.
At Chidliak, the Company has discovered 74 kimberlites to date, with eight having been identified as potentially economic through drilling and microdiamond analysis, while other kimberlite pipes require additional work to determine their economic potential. The Company owns all of the diamond marketing and sales rights and there are no non-government royalties or other encumbrances on diamond production.
The updated PEA the Company is announcing today utilizes the expanded Chidliak Inferred Mineral Resource that was announced on February 15, 2018. Highlights of this expanded resource include:
CH-6 Inferred Mineral Resource of 17.96 million carats in 7.46 million tonnes to 525 metres below surface ("mbs") at an average grade of 2.41 carats per tonne ("cpt") or 241 carats per hundred tonnes ("cpht");
Inferred Mineral Resource tonnage at CH-6 increased 61% from 4.64 million to 7.46 million tonnes;
CH-6 contained carats increased by 58% from 11.39 million to 17.96 million carats;
High-grade KIM-L domain with a grade of 4.49 cpt (449 cpht) now comprises 17% by volume of the updated CH-6 resource; and
Total Phase One Diamond Development Inferred Mineral Resource at CH-6 and CH-7 now exceeds 22 million carats.
The updated PEA envisages a mine life of approximately 13 years, producing from an open pit at the CH-6 kimberlite pipe for nine years, followed by production via an open pit at the CH-7 kimberlite. The resources at both CH-6 and CH-7 remain open at depth, representing significant expansion opportunities which have not been included in this current economic study.
The PEA was prepared by JDS Energy & Mining Inc. ("JDS"), independent consulting engineers based in Vancouver, Canada. The JDS team has a long history of northern Canadian diamond project experience, including the construction of the Gahcho Kue diamond mine, in the Northwest Territories, Canada.
The Base Case Net Present Value ("NPV") reported above uses a discount rate of 7.5% and an annual diamond price escalation of 1.75%, down from the 2.5% used in the Company's 2016 PEA, also prepared by JDS,reflecting current softer rough diamond markets which are currently showing signs of strengthening. With a 2.5% escalation rate consistent with the 2016 PEA base case, the After-tax NPV is $770 million. Table 5 below shows the sensitivity of NPV to the annual diamond price escalation assumption.
Highlights of the 2018 updated Chidliak Phase One Diamond Development PEA base case include:
Pre-tax NPV(7.5) of $1069 million and a pre-tax Internal Rate of Return ("IRR") of 38.6%; After-tax NPV(7.5) of $679 million and an after-tax IRR of 31.1%; Total Life of Mine ("LOM") pre-tax Free Cash Flow of $2,043 million; After-tax payback period of 2.2 years; LOM of 13 years; Pre-production capital requirement of approximately $455 million, including $95 million for the access road from Iqaluit and $55 million in contingency; Average LOM strip ratio of 6.6:1 (average across the combined CH-6 and CH-7 open pits); Mining to a depth of 300 mbs at CH-6; and All dollar amounts are in Canadian dollars unless otherwise stated.
A comparison of the 2018 updated PEA and the 2016 PEA base cases is shown in Table 1 below:
Table 1. PEA Outcomes Comparison {A –} 2018 and 2016 Item Unit 2018 Outcome2016 OutcomeVariation Pre-Tax NPV(7.5) $ Million 1,069 744 +43.7% Pre-Tax IRR Percentage 38.6 38.1 +1.3% After Tax NPV(7.5) $ Million 679 471 +44.0% After Tax IRR Percentage 31.1 29.8 +4.4% LOM Pre-Tax Cash Flow $ Billion 2.04 1.31 +55.7% Total Recovered carats Million Carats 16.7 11.6 +44.0% Initial Capital Expenditure $ Million 455 435 +4.6% LOM Years 13 10 +30.0% Average Mill Throughput Tonnes/day 2,000 2,000 -- Strip Ratio 6.6 7.2 (8.3%) CH-6 Diamond Valuation1 US$/carat 1511 149 +1.3% CH-7 Diamond Valuation1 US$/carat 1141 114 -- Annual Diamond Price Escalation Percent per annum Compound Annual Growth Rate 1.75% 2.50% (30.0%) 1 Base diamond valuations provided by WWW International Diamond Consultants using the April, 2018 price book.
The Chidliak 2018 PEA is preliminary in nature and includes Inferred Mineral resources that are currently considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that the PEA will be realized.
Eric Friedland, Peregrine's founder and Executive Chairman, commented: "Since the grass roots discovery of the prolific Chidliak diamond field by Peregrine ten years ago, a dedicated and talented team of mineral exploration professionals have worked tirelessly to bring the project to this point, the completion of a very robust, updated PEA. I personally thank them on behalf of all the stakeholders in Peregrine and have confidence that the diamond resource at Chidliak will continue to grow. We are currently assessing various options to advance the project and hope to be in a position to outline a comprehensive way forward to our shareholders very soon."
Tom Peregoodoff, Peregrine's President and Chief Executive Officer, added: "The updated PEA clearly establishes Chidliak as Canada's next economic diamond development opportunity. This latest assessment validates the decision we took in 2016 when we recognized the resource expansion opportunities at the high grade CH-6 kimberlite. For a marginal increase in capital, we have materially increased the total carats in the resource and significantly enhanced the economic potential of this robust project.
"There remains significant Phase One resource expansion opportunities below 300 mbs, the current bottom of the CH-6 open pit, with 2.64 million carats in Inferred Resource and between 1.09 million tonnes and 2.35 million tonnes of kimberlite classified as a Target for Further Exploration down to 525 mbs. This opens up the possibility for underground development as we further define the CH-6 resource beneath the current bottom of the expanded open pit during the future Pre-Feasibility program. Looking forward, we will continue to build the Phase Two resource, which will include evaluating the remaining six pipes that may have economic potential and further sampling additional pipes in the cluster that could be economic."
Updated Phase One Diamond Development Inferred Resource
Summary resource data for CH-6 and CH-7 are shown in Table 2 below.
Table 2. Updated Phase One Inferred Mineral Resource Estimate Domain Tonnes Grade Carats Tonnage Increase Carat Increase (millions) (1) (cpt) (millions) (2) (3) (%) (3) (%) KIM-L.NG 5.18 2.07 10.73 33 30 KIM-L.HG 1.29 4.49 5.80 72 86 KIM-C 0.99 1.45 1.43 -- -- CH-64 Total 7.46 2.41 17.96 61 58 CH-75 Total 4.99 0.85 4.23 -- -- Updated Phase 1 Inferred Resource Total 12.45 1.86 22.2 29 42 1 Number may not add due to rounding. 2 Stated at +1.18 mm square-mesh sieve bottom cut-off and diamond recoveries as experienced in the 2010 and 2013 CH-6 bulk sampling programs. 3 Relative to April 7, 2016 CH-6 Inferred Resource of 11.39 million carats in 4.64 million tonnes. 4 The updated CH-6 Inferred Resource extends from surface to a depth of 525 metres below surface. 5 The CH-7 Inferred Resource extends from surface to a depth of 240 metres below surface. 6 Represents the LOM grade
Economic Analysis
Inputs and assumptions used in the study are shown in Table 3. Inputs and assumptions are consistent across the 2018 and 2016 economic analyses with the exception of the Annual Diamond Price Escalation which is 1.75% in the current study and was 2.5% in the 2016 PEA. In addition to the parameters shown in Table 3, the following were incorporated into the economic analysis:
Diamond prices for both CH-6 and CH-7 used in the study were based on pricing received from WWW International Diamond Consultants using their April 2018 price book, which showed a nominal 1% increase in price of CH-6 diamonds and no increase in the price of CH-7 diamonds, both over the period from March 2016 to March 2018. For the base case, this starting price was then escalated annually from 2018 at a rate of 1.75%. Sensitivities to this annual price escalation are shown in Table 5 below; Owner-operated; Peregrine's eligible Canadian Exploration Expense and Canadian Development Expense tax pools were utilized in the post-tax calculations; and The analysis does not include financing costs or management fees.
Table 3. Inputs {A –} Economic Analysis Assumptions and Inputs Unit Value CH-6 Diamond Valuation* US$/carat 151* (149 in 2016 base case) CH-7 Diamond Valuation* US$/carat 114* (114 in 2016 base case) Annual Diamond Price Escalation (from 2018)Percentage per annum1.75 Foreign Exchange Rate US$:C$ 0.78 Discount Rate Percentage 7.5 Operating Days/Year Days/year 365 Royalties Percentage 0 Diamond Recovery Percentage 98 Selling/Marketing Costs Percentage of price 4 US$/carat 6.86
* Base model diamond valuations provided by WWW International Diamond Consultants using the April 2018 price book were escalated at 1.75% per annum over the LOM. US$:C$ exchange rate of 0.78 was then applied.
Base case, pre-tax and post-tax financial outcomes are summarized in Table 4.
Table 4. Base Case Financial Outcomes Parameter Unit Value LOM Years 13 Average Mill Throughput Tonnes/day 2,000 Pre-Tax NPV / IRR $Millions ($M)/% $1,069 / 38.6% After-Tax NPV / IRR $M/% $679 / 31.1% Total Pre-Tax LOM Free Cash Flow $M $2,043 Average Annual Pre-Tax Free Cash Flow $M/a $157 Total After-Tax LOM Free Cash Flow $M $1,357 Average Annual After Tax LOM Free Cash Flow$M $104 Average Head Grade Carats/tonne 1.8 CH-6 Average Production Carats/year 1.6M Total Recovered Carats Carats 16.7M LOM CH-6 Average Price* US$/carat:C$/carat$176 / $225 LOM CH-7 Average Price* US$/carat:C$/carat$148 / $190 Pre-Production Capital Expenditure (CapEx) $M $455 LOM Operating Expenditure (OpEx) $/tonne processed $101 LOM Operating Expenditure $/ct recovered $57
Sensitivity Analysis
Sensitivity analyses to key inputs are shown in Table 5 through to Table 7.
Table 5. Sensitivity Analysis {A –} Diamond Price Escalation Annual Diamond Price EscalationPre-Tax NPV(7.5) ($M)Post-Tax NPV(7.5) (%) 0% $772 $469 0.5% $852 $539 1.0% $936 $593 1.75% (2018 Base Case) $ 1069 $ 679 2.5% (2016 Base Case) $1211 $770
Mr. Peregoodoff further commented, "All diamond development projects are sensitive to the assumption regarding the annual diamond price escalation. Even at a conservative 0% annual diamond price escalation, the CP1D project remains very robust. Prior to the softening of the diamond market in late 2016, which was driven primarily by the demonetization of the Indian economy, economic studies assumed diamond prices increased at a rate of 2.5% per annum. Starting in early 2018, there were signs that the diamond market is improving; however, we made the decision to use a more conservative annual price escalation of 1.75%. Should the actual escalation realized be 2.5%, the comparison with the 2016 Base Case above clearly shows the value we have added to the Chidliak project."
Table 6. Sensitivity Analysis {A –} US$/C$ Exchange Rate Exchange Rate US$:C$Pre-Tax NPV(7.5) ($M)Post-Tax NPV(7.5) ($M) 0.70 $1,306 $831 0.75 $1,152 $732 0.78 (Base Case) $ 1,069 $ 679 0.80 $1,017 $646 0.90 $792 $501 1.00 $613 $384
Table 7. Sensitivity Analysis - Discount Rate Discount Rate Pre-Tax NPV ($M)After-Tax NPV ($M) 0% $2,043 $1,356 5% $1,323 $856 7.5% (Base Case)$ 1,069 $ 679 10% $864 $536 12% $728 $442
Capital and Operating Costs
Rigorous capital and operating cost estimates were prepared on a site-specific, owner operated scenario and use JDS's extensive experience working on Arctic projects. All costs incorporated factors specific to northern Canadian and Baffin Island locations. The LOM capital costs are $526 million (including contingency of $64 million) and are detailed in Table 8.
Table 8. Capital Costs Capital Costs Pre-Production ($M)Sustaining or Closure ($M)Total ($M) Pre-Stripping 21 0 21 Mining Equipment 15 17 32 Mining Infrastructure/Ancillary24 3 27 Site Development and Roadworks 113 0 113 Process Facilities 68 26 94 Utilities 27 0 27 Ancillary Facilities 28 0 28 Indirect Costs 54 0 54 EPCM 28 0 28 Owners Costs 22 0 22 Closure Costs 0 16 16 Subtotal Capital Costs 400 62 462 Contingency 15 % 55 9 64 Total Capital Costs 455 71 526.0 * 30% contingency applied to closure costs.
The average LOM operating expense is estimated at $101 per tonne processed, or $57 per carat recovered. Operating cost breakdown is shown in Table 9 below.
Table 9. Operating Costs Operating Cost $/t Processed $/carat LOM ($M) Mining 38.90 22.11 369.0 Processing 17.95 10.19 170.1 Freight 14.86 8.44 140.9 Site Services 10.23 5.81 97.0 General and Administrative 18.92 10.75 179.3 Total Operating Expenses 100.88 57.30 956.4 * Average LOM mining cost is based on a LOM strip ratio of 6.6:1.
Qualified Persons
The Chidliak 2018 PEA was prepared by JDS and is based on a Mineral Resource estimate for the Chidliak Project published as a NI 43-101 Technical Report with an effective date of February 15, 2018. JDS has a long and successful track record of delivering high-quality technical engineering and economic studies for a wide range of mineral resource companies, both in Canada and internationally. JDS is a specialized, private mineral engineering, consulting and construction company focused on adding value to mineral projects with fit-for-purpose designs and exceptional execution. The JDS team has a long history of northern Canadian and diamond experience including the current construction of the Gahcho Kue diamond mine and the Silvertip silver and base-metals mine.
The following Qualified Persons have participated in the development of the PEA, or are responsible for specific inputs into the PEA. They have reviewed the scientific and technical information contained in this news release and have approved of its contents.
Table 10. Qualified Persons Qualified Person Company Responsibility Richard Goodwin, P.Eng JDS Energy & Mining Inc.Project Management, Economic Analysis, Costs, Infrastructure, Logistics Dino Pilotto, P.Eng JDS Energy & Mining Inc.Mine Plan, Production Schedule, Mine Costs Ken Embree, P.Eng Knight & Piesold Ltd. Fine Taillings Waste and Water Management Catherine Fitzgerald, P.GeoPeregrine Diamonds Ltd Resource Estimation and Reporting Dr. Hermanus Grutter, P.GeoPeregrine Diamonds Ltd. Resource Estimation and Reporting Dr. Jennifer Pell, P.Geo Peregrine Diamonds Ltd. Diamond Sampling and Valuations
About Peregrine Diamonds
Peregrine Diamonds is a TSX-listed diamond exploration and development company with its primary assets located in northern Canada.
Peregrine's core asset is its 100%-owned, 317,213-hectare Chidliak Project, located 120 kilometres from Iqaluit, the capital of Nunavut, where 74 kimberlites have been discovered to date, with eight being potentially economic.
An Inferred Mineral Resource of 17.96 million carats in 7.46 million tonnes of kimberlite at an average grade of 2.41 carats per tonne has been defined for a portion of the CH-6 kimberlite. In addition, a Target for Further Exploration ("TFFE") of 1.09 to 2.35 million tonnes of kimberlite to a depth of 590 metres below surface has been identified at CH-6. In February 2016, WWW International Diamond Consultants provided model prices for a 1,013 carat parcel of diamonds from CH-6 at US$128 per carat minimum, a high of US$189 per carat, and a base model price of US$149 per carat. Re-pricing of the parcel in April 2018 provided model prices of US$131 per carat minimum, a high of US$191 per carat, and a base model price of US$151 per carat. An Inferred Mineral Resource of 4.23 million carats in 4.99 million tonnes of kimberlite at an average grade of 0.85 carats per tonne has been defined for a portion of the CH-7 kimberlite. In addition, TFFE of 0.90 to 2.36 million tonnes for a depth range of 240 to 320 metres has been estimated for the CH-7 kimberlite. In February 2016, WWW International Diamond Consultants provided model values for a 735.75 carat parcel of diamonds from CH-7 at US$94 per carat minimum, a high of US$155 per carat, and a base model price of US$114 per carat; these prices were unaffected by a re-pricing of the parcel completed in April 2018. A TFFE of 1.27 to 3.19 million tonnes to 250 metres depth has been estimated for the CH-44 kimberlite pipe.
We seek Safe Harbor.