When exploration and development company Peregrine Diamonds (TSX:PGD) confirmed at the beginning of the month that the CH-6 kimberlite pipe on its Nunavut-based Chidliak project is one of the highest-grade kimberlites in the world, Diamond Investing News (DIN) got in touch with Brooke Clements, president of Peregrine, to discuss the news.
In the interview below, Clements explains what the news means for his company, what Peregrine has planned for Chidliak and where he sees diamond prices heading in 2014.
DIN: Peregrine recently confirmed that the CH-6 kimberlite pipe on the Chidliak diamond project is one of the highest-grade kimberlites in the world. Can you go over the results from the CH-6 bulk sample?
BC: This winter, Peregrine collected a bulk sample weighing approximately 400 tonnes from the CH-6 kimberlite by trenching. Processing and diamond recovery from the first sample batch of approximately 220 tonnes produced 600 carats of commercial-size diamonds for a grade of 2.7 carats per tonne, a very high grade for a kimberlite. These results confirm the positive results from a 14-tonne sample collected in 2010, 2.9 carats per tonne.
Of equal significance to the confirmation of the high grade at CH-6 is that as we move to larger samples, we are seeing larger gem-quality diamonds. Prior to establishing economic viability for a kimberlite, you need to establish “rock value,” or dollars per tonne. For a diamond deposit, you need the grade of the deposit (carats per tonne) and the average value of the diamonds (dollars per carat) to establish rock value.
In January, we expect to receive the diamond grade results from the remaining 180 tonnes of kimberlite from the CH-6 bulk sample. After that, we will commission an independent diamond valuation to determine the average diamond value for the diamond parcel.
DIN: Why is this discovery significant for the company?
BC: Confirming that CH-6 is a high-grade kimberlite with a significant gem diamond population removes some risk from the project. We now have more confidence in mounting the programs required to establish economic viability for the project and advance towards a feasibility study.
DIN: To help put the news in context, could you give some examples of other high-grade kimberlites? Which companies do they belong to?
BC: There are five kimberlite pipes in Canada with published grades higher than CH-6. The published grade of the Misery kimberlite at the Ekati diamond mine in the Northwest Territories is over 4 carats per tonne. The Ekati diamond mine is operated by Dominion Diamond (TSX:DDC,NYSE:DDC). The average published grade for the four kimberlites that constitute the Diavik diamond mine in the Northwest Territories is over 3 carats per tonne. The Diavik diamond mine is jointly owned by Dominion Diamond and Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO).
DIN: My understanding is that ultimately Peregrine’s goal is to show that a mine at Chidliak would be economically viable. What does the company have to do to get to that point? Will De Beers’ decision not to exercise its option on the project influence Peregrine’s next steps?
BC: Over the next two years, we will work towards confirming resources in as many kimberlites as we can. In addition to CH-6, we have identified six other kimberlites that are potentially economic and require further testing. There is still potential to discover additional kimberlites of interest on the project as well through exploration. We expect to be able to confirm a resource at the CH-6 kimberlite in 2014 using information from the bulk sample combined with data from previous work programs. In 2015, we plan to collect bulk samples from other kimberlites in an effort to prove up resources for those deposits. After that, we would hope to be in a position to establish economic viability for a group of kimberlites. Typically the first study to evaluate the economic viability of a potential mining operation would be a preliminary economic assessment (PEA). If the PEA is positive, a company can proceed to a prefeasibility or feasibility study.
The only influence the De Beers decision has on activities at Chidliak is that Peregrine is now responsible for operating and funding the work programs, not De Beers.
DIN: In addition to Chidliak, Peregrine has a number of other projects. Are you currently focusing solely on Chidliak, or should investors expect activity at your other projects?
BC: Given the project’s advanced stage and the positive results we are getting, advancing Chidliak to the next stage is clearly our main focus. That being said, we have several other quality exploration projects that have the potential to add value to the Company, and we will continue to explore all options to advance them. In Nunavut, we have the Nanuq and Qilaq projects, where we have discovered diamondiferous kimberlites. The WO project in the Northwest Territories, 27 kilometres from the Diavik diamond mine, hosts the DO-27 kimberlite, which has an indicated resource of 18 million carats of diamonds.
Peregrine’s highly experienced diamond exploration team is also working through its proprietary North American diamond exploration database in an effort to identify a new diamond district. We believe there are still new diamond discoveries to be made in Canada, and we would love to discover the next “diamond district.”
DIN: All of Peregrine’s properties are in Northern Canada. Can you tell me how you’ve found the operating environment there? Has the company faced any particular challenges?
BC: As you know, most exploration projects in the north are remote and lack significant infrastructure. In addition, short days and severe weather in the winter can be a challenge. However, the Canadian exploration and mining industry has developed technology and methodology to work safely and efficiently in these conditions. Even though access to our Chidliak project is relatively good for the Arctic, being 120 kilometers from Iqaluit, Nunavut’s capital, the establishment of the required infrastructure to build and operate a mine would be a significant challenge. At present, all access to the project is by aircraft or over land by winter “CAT trains.” An all-weather road from Iqaluilt to the project site and deepwater port in Iqaluit would help facilitate construction and operation of a mine. In addition, this infrastructure would help improve other parts of the local economy.
DIN: This is a tough environment to raise money in, but back in June Peregrine closed a $3.5-million private placement. What has allowed the company to succeed in today’s market?
BC: First, we believe our Chidliak project is unique, being one of few advanced diamond exploration projects in the world, and we are at a stage where we have the potential to add significant value to the project in upcoming work programs. Second, we have a group of loyal shareholders, including Eric and Robert Friedland.
DIN: We’re now nearly into 2014. Can you give me your outlook for diamond prices next year?
BC: For 2014 most experts predict relative stability in diamond prices. Longer term, however, there is consensus that we are moving towards a time where demand will clearly exceed supply, and this could lead to higher prices. Contributing factors to this potential supply-demand imbalance include increasing consumer demand in Asia (principally China and India), an improving US economy, the maturing of many of the world’s prolific mines and the fact that there are not many diamond projects throughout the world going into development.
DIN: Is there anything else you’d like to add?
BC: One of the things that we’re really pleased with is the support we’ve received from the communities, the government authorities and also the regulatory authorities in relation to our Chidliak project in Nunavut. It’s been a pleasure working with all of them and we look forward to working with them in the future. If we are successful in achieving our goal of developing Baffin Island’s first diamond mine, we believe that significant socioeconomic benefits will accrue to the territory of Nunavut and local residents.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.