2006-09-05 09:00 ET - Compliments of Stockwatch - Street Wire

by Will Purcell

Eric Friedland's Peregrine Diamonds Ltd. has more grade encouragement from the old Tli Kwi Cho kimberlite complex in the Northwest Territories, but the diamond value is a remaining concern. The new samples expand the promotable grades to a much larger zone within the pipe, providing added tonnage promise. The size and quality of the new diamonds do not suggest a hefty appraisal is likely, but comparisons with at least one rival play nevertheless point to a potentially economic value. That has Peregrine planning a major new push on the project in the coming months.

The new parcel

Peregrine processed 340 tonnes from the main lobe of DO-27, coming up with 300.82 carats. That worked out to an average of 0.88 carat per tonne. A year earlier, the partners pulled 135.96 carats from 151.26 tonnes of kimberlite, for a grade of 0.90 carat per tonne. That near match is promising, as the new samples strayed farther afield. In 2005, Peregrine drilled six holes, probing just the area most likely to deliver the best grades.

Those six holes ran in a rough line about 150 metres long, and at best barely 50 metres wide. The new drilling expands the tested area to a zone about 250 metres long and at least 100 metres wide. A few of the new holes went to greater depths and provided good grades in three dimensions. That has Mr. Friedland thinking of the main lobe of DO-27 as more of a cylinder than a cone, which would have promising tonnage implications.

The biggest surprise came from the once condemned northeastern lobe. Peregrine drilled up 104.39 tonnes of pyroclastic kimberlite and recovered 89.07 carats, good for a grade of 0.85 carat per tonne. That value was a near match for what the main lobe is producing.

Tli Kwi Cho managed a grade of just 0.36 carat per tonne in a 3,000-tonne test of the northeastern lobe in 1994, nearly killing the project. Although Mr. Friedland put his first effort into the more promising main lobe, he still thought the pyroclastic rock in the northeastern lobe could at least pay for itself. With the new results, Peregrine is now musing about having a starter pit in the area, as the overburden covering the kimberlite is thinner.

Two of Peregrine's holes in the northeastern lobe also hit lower-grade kimberlite. About 104 tonnes of kimberlite yielded 37.36 carats, and the resulting grade of 0.36 carat per tonne matched the failed bulk test. The recent drilling would therefore appear to prove the old bulk sample missed the richer phase of kimberlite, just as Adolf Petancic and the late George Stewart suggested for many years.

Peregrine is not talking tonnage, preferring to wait until it drills more holes into the periphery of the complex. If Mr. Friedland is right about the geometry of DO-27, the main body could contain more than 30 million tonnes of potentially economic kimberlite, with added potential elsewhere.

The tonnage possibilities could grow further if Peregrine can also bring the DO-18 pipe back from the dead. A large diameter core hole into the throat of the pipe in 1996 yielded a grade of 0.1 carat per tonne. Mr. Friedland said large amounts of country rock diluted the kimberlite. Peregrine recently drilled into thicker zones of promising kimberlite around the perimeter of the body. That suggests DO-18 resembles a donut, with large blocks of granite collapsed into a core surrounded by much more promising material.

Value concern
The 136-carat parcel recovered in 2005 produced an average appraised diamond value of about $60 (U.S.) per carat, and the small size of the parcel sparked hope that a larger test would produce a better result. Peregrine expected to have a few thousand carats this year, but drilling problems limited the scope of the latest test. Nevertheless, the company still thinks a modelled diamond value will prove promotable.

Peregrine recovered some larger diamonds in its latest parcel, but the proportion of one-half-carat diamonds in the core of the pipe fell short of what the earlier test delivered. Peregrine did not reveal the total weight of those diamonds, but the 21 stones recovered in 2005 likely accounted for a bit more than 15 per cent of the haul. The 32 one-half-carat gems found in the core zone probably delivered just 10 per cent of the diamond weight in the latest sample.

The recoveries were better in the northeastern lobe. Peregrine's 17 one-half-carat diamonds provided about 20 per cent of the total diamond weight. That variation could be a function of the small sample sizes, and the weight of one-half carat diamonds in the entire 2006 sample likely tops 12 per cent, not far off the 2005 result. As well, with one-carat stones providing nearly 6 per cent of the total weight, the size distribution of DO-27 seems comparable with the Gahcho Kue pipes that De Beers plans to mine.

Peregrine did recover more diamonds larger than one carat in the new sample, but the colour and quality attributes of the largest stones were not quite a match for what the 2005 test produced, according to Mr. Friedland. The situation with diamonds smaller than one-third of a carat was reversed, as the latest sample produced a better proportion of quality diamonds.

The market for rough diamonds softened a bit over the past six months, but Peregrine also plans to quote its prices using the same price book that it used for the 2005 program, to provide a basis for direct comparison. As well, the company will have WWW International Diamond Consultants Ltd. prepare a modelled diamond value. That could yield a more promotable number. Mr. Friedland said a modelled diamond value might eventually reach $100 (U.S.) per carat.

The plan
Peregrine originally touted its 2006 mini-bulk sample as a 3,000-tonne bulk test and Mr. Friedland is still smarting over the drilling woes that limited its effort to less than 600 tonnes. As a result, the company is making no predictions for next year. Still, the company will have two rigs busy through the spring on the main lobe of DO-27, and it plans to extract as much kimberlite as it can. A return to normal spring weather and the experience gained last year should allow the company to come close to its original carat goal.

Drilling will start this fall on the thicker pyroclastic zone on the northeastern lobe and Peregrine will put its donut theory to the test on DO-18. Both areas will provide added kimberlite for testing, expanding the company's carat parcel further. That will help nail down the diamond values and grade variations across the entire complex and could expand the tonnage further.