2007-02-22 14:14 ET - Street Wire

by Will Purcell

Cold winter weather in the La de Gras region is allowing Eric Friedland's Peregrine Diamonds Ltd. to get a good start on its bulk sample of the core region of the DO-27 pipe. The company is still shying away form tonnage predictions, but the work is going much better than last year and Peregrine should have a large parcel of diamonds for valuation later this year.

The drilling

Peregrine started drilling at DO-27 late last year, but its first holes probed the northeastern part of the kimberlite from land. Late last month, the company had over 300 tonnes of rock and at the current drilling rate, it has likely doubled that figure. If so, Peregrine would now have more kimberlite than it recovered through its full 2006 program.

Peregrine had two drills operating on the ice of a lake that covers much of the pipe and it expects to have a third, larger drill running imminently. The big drill can handle casings one metre in diameter, and it screws them into the ground, rather than pounding them into place like the smaller drills. That is important, because many of Peregrine's problems last year centred on getting its drill bits and casings through the soft layers of overburden atop the kimberlite.

Peregrine's drillers are back for a second year. Mr. Friedland said drilling was a science and the company has learned from the challenges of last year, when it often spent a day or two trying to get through a difficult zone that later proved impossible to traverse. "We now know when to push a hole and when to not." Peregrine's president added that the company is having better luck so far at setting its casings.

Mr. Friedland does not have a formal tonnage target for the bulk sample, but barring catastrophe, Peregrine should be able to amass a cumulative parcel of 2,500 carats, and possibly more. The company recovered 136 carats in 2005 and 426 last year, giving it a 550-carat running start. Based on the current grades, Peregrine would need about 2,150 tonnes of kimberlite to provide another 1,950 carats.

Peregrine drilled one of its recent holes to a depth of 280 metres, which is sufficient to provide at least 100 tonnes of kimberlite. With many of the new tests going into the core of DO-27, the company will have ample opportunity to drill several more deep holes, boosting its tonnage tally significantly.

The company should be able to drill well into April, barring an unusually mild spring, giving it another two prime months for the program. The third rig will boost the tonnage recovery substantially, and it seems reasonable to expect Peregrine can extract another 1,500 tonnes of rock before it is forced off the ice by spring.

Peregrine plans to truck the kimberlite to the Ekati mine for processing, as it did last year. The northern portion of the winter road system normally remains capable of handling traffic for a few weeks after the southern portions become unsafe, so the company should get all its rock off to the processing plant with little trouble.

Meanwhile, the opening of the winter road is allowing Peregrine to ship in fuel and supplies by truck, rather than relying exclusively on its airstrip. The company has been flying in fuel and supplies by Hercules aircraft to get an early start to the program.

The bulk sample should settle the value question at DO-27. Peregrine's first two mini-bulk tests adequately proved the core of the pipe has the grade potential originally contemplated by Kennecott Canada Exploration Inc., but it has yet to prove the diamond value is markedly better than a 1994 bulk sample disappointment. The rosiest current projection suggests a diamond value of just over $70 (U.S.) per carat.

Peregrine closed down 12 cents to $2.18 Wednesday on 108,200 shares.