Eric Friedland's Peregrine Diamonds Ltd. thinks it can succeed at Tli Kwi Cho where Rio Tinto PLC failed. The junior and its DO-27 partners think a new bulk sample will deliver a promotable combination of grade and value. The pipe failed miserably on both counts when Rio Tinto tried an underground sample in 1994. The project seemed dead until Peregrine decided to take a new look last year. A 150-tonne mini-bulk test and some new diamond counts provide renewed promise, and the partners think another big test can meet the market's expectations. There are promising signs.

The main vent

Peregrine produced diamond counts from three new drill holes, and the numbers seem comparable with what Rio Tinto's Kennecott Canada Exploration Inc. delivered in the early 1990s. Those early tallies used now obsolete microdiamond and macrodiamond classifications, but the results were healthy enough to suggest Tli Kwi Cho had a favourable diamond size distribution curve. The only question was whether the big pipe would have a good grade, or a great one.

The test barely topped one-quarter of carat per tonne, but rosy speculation is back in vogue, based on the details of Peregrine's new counts. One hole tested the central region of the main vent in the southwestern half of DO-27. The drill was still in kimberlite when Peregrine ended the hole, at a depth of 460 metres.

The upper two-thirds of the hole produced 391 kilograms of layered pyroclastic kimberlite, which yielded 1,125 diamonds. Of those, 758 stones were large enough to remain on a 0.106-millimetre sieve. That smaller parcel suggests a rate of nearly 2,000 stones per tonne.

The size distribution of the parcel was promising. Peregrine recovered 204 diamonds on a 0.30-millimetre sieve, which account for 27.0 per cent of the parcel. The 101 gems large enough to sit on a 0.425-millimetre mesh provided 13.3 per cent of the parcel.

The coarse diamond size distribution allowed Peregrine to come up with 17 diamonds larger than a 0.85-millimetre mesh, which is a typical cut-off for a mini-bulk test. Those stones weighed 0.314 carat, suggesting a diamond content of 0.92 carat per tonne.

The deeper phase of kimberlite was also encouraging. Peregrine processed 248 kilograms of another phase of pyroclastic material, coming up with 697 stones. That included 413 stones that remained on a 0.106-millimetre cut-off, or about 1,670 diamonds per tonne.

The 85 diamonds larger than a 0.30-millimetre sieve account for 20.6 per cent of the 413-stone parcel, while the 44 gems sitting on a 0.425-millimetre mesh produced 10.7 per cent of the haul. The slightly lower diamond counts and size proportions suggest a lower grade than the upper phase, but the numbers are still promising on their own.

Five of the diamonds remained on a 0.85-millimetre mesh, and they weighed a total of 0.089 carat. That suggests a diamond content of 0.36 carat per tonne, although the absence of any larger diamonds undoubtedly deflated the value. Grades based on tiny samples are often meaningless, but the results do show the material to be significantly diamondiferous.

Peregrine drilled the hole about 10 metres northeast of one its reverse circulation holes in the 2005 program. The company recovered 27.66 carats from about 29 tonnes of kimberlite, down to a depth of about 125 metres. That worked out to a grade of 0.96 carat per tonne.

The core hole is also about 40 metres south-southwest of Peregrine's first reverse circulation hole. That test managed 47.32 carats from 45.74 tonnes of kimberlite, down to a depth of just over 200 metres. That test yielded the best individual grade, at 1.03 carats per tonne.

The numbers may not be far off what Kennecott found in its microdiamond tests during the early 1990s. The original Tli Kwi Cho partners recovered 1,385 diamonds from 1.3 tonnes of pyroclastic kimberlite, and the haul included some larger stones. The entire parcel weighed 2.82 carats, suggesting a microdiamond content above two carats per tonne. Several larger diamonds helped inflate the total and buoyed hopes for a commercial grade.

A welcome surprise

Peregrine also drilled a core hole about 10 metres southwest of its third reverse circulation hole. That mini-bulk sample produced the lowest grade of the five tests, with 29.93 carats coming from 42.8 tonnes of kimberlite. That worked out to a grade of 0.70 carat per tonne.

At the time, Peregrine said the lower grade came from a different phase of kimberlite than what turned up in the other five holes. That assessment may be premature, as Peregrine's new core hole produced some larger diamonds that the company thinks could point to markedly better grades.

Peregrine recovered 537 kilograms of pyroclastic kimberlite from the hole, and the rock produced 1,569 diamonds, including 1,114 that sat on a 0.106-millimetre sieve. That latter number worked out to 2,075 stones per tonne, a bit better than the layered pyroclastic rock in the first core hole.

The size distribution of the southwestern core hole was also comparable with the results of the hole in the core of the main vent. Peregrine recovered 272 diamonds on a 0.30-millimetre sieve, or 24.4 per cent of the parcel, while the 149 stones that clung to a 0.425-millimetre mesh provided 13.4 per cent of the haul.

The larger diamonds were the real story. Peregrine recovered a 0.42-carat gem and another that weighed 0.22 carat, with a third that topped 0.10 carat. The 24 stones large enough to sit on a 0.85-millimetre mesh provided 1.25 carats, which points to a grade of 2.34 carats per tonne. The far larger mini-bulk sample is a more meaningful result, but the new core hole suggests the real grade could be significantly higher in a large bulk test.

The northeastern lobe

Peregrine also has microdiamond promise from the northeastern lobe, although the angled hole drifts westward into the main vent at depth. The test delivered 430 diamonds from 148 kilograms of pyroclastic kimberlite, including the 311 stones large enough to meet the 0.106-millimetre cut-off. That latter number points to a rate of 2,100 stones per tonne.

Peregrine found 77 diamonds on a 0.30-millimetre sieve, or about 24.8 per cent of the parcel. The 41 gems clinging to a 0.425-millimetre mesh account for 13.2 per cent of the haul. The partners found nine diamonds larger than a 0.85-millimetre screen, and those stones weighed 0.182 carat. That suggests a diamond content of 1.23 carat per tonne.

The deepest parts of the hole penetrated the area close to where Peregrine drilled two reverse circulation holes last year. Those tests delivered 19.06 carats from 21.74 tonnes of kimberlite, or an average of about 0.88 carat per tonne. Both holes ended at a depth of less than 100 metres, so the new diamond counts are not directly comparable with the mini-bulk tests. Still, the diamond counts would appear to expand the area with significant grades to the rock well below the two most northerly reverse circulation holes, and potentially well to the east.

Implications

Peregrine's four new drill holes produced 2,596 diamonds larger than a 0.106-millimetre screen, from 1.27 tonnes of kimberlite. That worked out to 2,040 stones per tonne, or nearly 50 per cent higher than Stornoway Diamond Corp. found in its AV-1 pipe.

Peregrine recovered 638 stones on a 0.30-millimetre mesh, and those gems account for about one-quarter of the stones in the latest samples. The company retrieved 335 stones from a 0.425-millimetre sieve, or about one-eighth of the new DO-27 haul.

Those proportions are a match for AV-1, which had a grade of over 0.8 carat per tonne in a mini-bulk test. That comparison offers hope that the grade of DO-27 will top one carat per tonne in the new bulk sample. Adding fuel to that expectation are the 1.84 carats of diamonds larger than a 0.85-millimetre screen. Those stones offered a grade of 1.44 carats per tone for the latest core tests.

Peregrine's chief operating officer, Alan Carter, said the new diamond counts provided some reason for optimism that "the grade can be a little bit higher" than the company's mini-bulk test delivered. It might seem overly hopeful to expect the diamonds from 1.3 tonnes of new kimberlite to trump the results of a 150-tonne sample, but that could well be the case. Small mini-bulk tests often fail to hit the richer zones that would steadily inflate the grades in a large test. Speculators will have a lengthy wait for the results of the new bulk sample, but Peregrine will have more diamond counts to add promotability to the revived play.

Peregrine added a dime Friday, closing at $4.50 on 373,000 shares.