There is nothing new, but investors have renewed hope that a takeover offer could be in the offing.
That enthusiasm was sparked by news from Eric Friedland and Tom Peregoodoff's Peregrine Diamonds Ltd. (PGD). Peregrine soared 7.5 cents to 23.5 cents on 37.26 million shares on word of a friendly takeover offer by De Beers Canada. The move caught many investors by surprise, but certainly not all: The company's stock had been holding up well despite Peregrine making no sign of carrying out its usual multimillion-dollar exploration program at its Chidliak diamond project this year. Further, the company was open about the fact it was looking for a deal of some kind, saying for the past few years that it has "been in discussions with a number of groups" about Chidliak.
Those talks have now borne fruit. De Beers Canada, at one time a Peregrine partner at Chidliak, is offering 24 cents per share for Peregrine's 445 million shares, or $107-million. The offer represents a premium of 50 per cent to Peregrine's 16-cent close on Wednesday. Indeed, the last time Peregrine traded above 24 cents for an extended period was three years ago, when it briefly got to 38.5 cents. At that time there were just 280 million shares outstanding and at that high, Peregrine's stock coincidentally carried a market value of $107-million.
In 2012, De Beers Canada acquired an option to earn a 50.1-per-cent interest in the project in exchange for investing $2.5-million into Peregrine at 75 cents, paying BHP Billiton $2.5-million for its interest in the project, and spending up to $58.5-million to complete a feasibility study. A year later, De Beers decided not to continue with the arrangement, apparently as part of a decision to cut its exploration expenses. (The company was still smarting from the effects of spending $1.5-billion to acquire the Snap Lake project and build a big underground mine.)
While many of Peregrine's retail shareholders are grousing about what they consider a lowball offer, it is worthy of note to consider that all the key kimberlites at Chidliak were known to De Beers when it abandoned the option deal. In fact, a bulk sample of the primary pipe, CH-6, was under way and the diamond recoveries by De Beers were nearly complete. Had De Beers proceeded with the option, it would have acquired a half interest in Chidliak for about $60-million.
While that implied a value of about $120-million for the entire project, it would have been a project that had cleared full feasibility, a stage that Peregrine has not yet achieved. Peregrine has spent $40-million derisking Chidliak since then, work that De Beers will get the benefit of, but rough diamond prices are significantly lower now than they were in 2012. Therefore, Mr. Peregoodoff and his crew appear to have gotten a good deal.
Chidliak received a preliminary economic assessment earlier this year, based on an inferred resource of 7.46 million tonnes at 2.44 carats per tonne at CH-6 and 4.99 million tonnes at 0.85 carats per tonne at CH-7, for a total of 22.2 million carats. The 18 million carats at CH-6 are worth $151 (U.S.) per carat and the 4.2 million carats at CH-7 are worth $114 (U.S.) per carat, enough that a proposed $455-million, 2,000-tonne-per-day plan yielded a discounted net present value of $679-million after taxes. There are a few other significantly diamondiferous pipes at Chidliak, CH-44 and CH-1 among them, that could add further value to the project, but proving the point will now fall to De Beers.