Also Street Wire (C-DTA) Dentonia Resources Ltd
Also Street Wire (C-HSX) Horseshoe Gold Mining Inc
Also Street Wire (C-KRR) Kettle River Resources Ltd
by Will Purcell

Eric Friedland's Peregrine Diamonds Ltd. expects to boost its share of the DO-27 kimberlite pipe through new deals with its partners. The company gained an important advantage with a friendly takeover bid for the shares of Ellen Clements's Kettle River Resources Ltd. The company now has a right of first refusal on the interests held by Kettle's original two partners. As well, Peregrine thinks it can pick up small shares held by Aber Diamond Corp. and SouthernEra Diamonds Inc.

The Kettle deal
Kettle River shareholders will get a single Peregrine share for each five Kettle River shares they hold. That is well below the 3.8-to-1 value suggested by the average prices over the past two months. Mr. Friedland said the deal credits Peregrine for being operator and having control of most of the diamond marketing rights. As a result, he said a 4-to-1 ratio would not fly on Peregrine's end, while a 6-to-1 conversion was unlikely to gain acceptance from Kettle River's shareholders.

The deal is good for Peregrine's existing shareholders. The company boosts its share of DO-27 to 61.14 per cent, representing an increase of 12.2 per cent. Peregrine will issue 2.26 million shares to Kettle's shareholders, giving them only 4.5 per cent of Peregrine's expanded share total.

The alternative for Kettle River was a large equity sale to cover a DO-27 cash call. The company needed about $2.5-million, which would result in heavy dilution. The company would be facing new and larger cash calls for more energetic work programs next year.

The remaining interests
Mr. Friedland touts the 60-per-cent threshold as a key reason for the deal, but that pales in comparison with Peregrine gaining the right of first refusal on the 6.67-per-cent shares held by Dentonia Resources Ltd. and Horseshoe Gold Mining Inc. Peregrine simultaneously offered the deal to those companies, but Mr. Friedland said the terms were applicable to the first taker only and Ms. Clements jumped first.

Dentonia and Horseshoe will apparently answer Peregrine's current cash call, but the companies will have increasing difficulty in meeting progressively larger demands as the project moves to bigger samples and feasibility studies. As a result, Mr. Friedland thinks Peregrine will eventually get to exercise its right of first refusal.

Dentonia does have the advantage of having the well-heeled Stu Blusson and Ross Blusson as shareholders, but the company will face its own dilution dilemma unless its 12-cent shares manage a big rally. The Blusson brothers also hold a 13.275-per-cent share of DO-27 through their own company, Archon Minerals Ltd. "Stu Blusson likes the pipe and has too much money, so I do not see Archon exiting," Mr. Friedland said.

Peregrine hopes that SouthernEra will decide its 4.9-per-cent interest is too small to keep. The company is reviewing its options and it may opt for a deal now, rather than face the annoyance of continued cash calls for DO-27 while it works on its key plays.

That expectation also applies to Aber Diamond Corp. and its 7.35-per-cent share of the project. Peregrine and Aber were rumoured to be close to a deal a few years ago, but Aber decided to hang on to its interest. Aber's sliver of DO-27 also comes with the marketing rights, and that could account for its continued interest. Mr. Friedland said Aber had met all the earlier cash calls.

Peregrine gained 15 cents on 109,900 shares Thursday, closing at $1.80. Kettle River slid three cents to 36 cents on 91,000 shares. Dentonia gained 2.5 cents to 13.5 cents on 135,500 shares. Horseshoe Gold also jumped 2.5 cents to 20 cents on 31,500 shares.