2007-06-21 15:21 ET - Street Wire  by Will Purcell

Eric Friedland's Peregrine Diamonds Ltd. is busy processing a few thousand tonnes of kimberlite that it dug up from its DO-27 pipe during the winter and early spring. The diamond hunter expects to nail down the grade with the latest test, and the resulting carat haul should be enough to provide an accurate assessment of the diamond value. The grade is unlikely to yield a surprise either way, but getting a good valuation will be vital to the project. Meanwhile, Peregrine continues to look for ways to lower its expected costs sufficiently to help make a mine.

The sample

Peregrine sent about 2,650 wet tonnes of kimberlite off to the Ekati mine for processing. Mr. Friedland said the work was progressing well and stone picking was now in progress. Approximately one-third of the batches have been run through the plant despite the usual array of minor problems. As a result, Peregrine expects to wrap up the processing and have the results by late in August or early in September.

Peregrine is not expecting a change in grade. Mr. Friedland said he expected the new test would yield slightly less than one carat per tonne, just as the earlier samples had. In 2005, the company produced 136 carats from 151 tonnes of dry kimberlite, or about 0.90 carat per tonne.

The following year, the company gleaned 427 carats from 548 tonnes of kimberlite, or 0.78 carat per tonne, but that lower figure included about 100 tonnes of lower-grade rock from parts of the northeastern lobe of DO-27. The remaining 444 tonnes of pyroclastic rock produced a grade of 0.88 carat per tonne.

As a result, Peregrine's expectation for the dominant phase of higher-grade kimberlite within DO-27 is about 0.90 carat per tonne. Based on that expectation, the company should recover at least 2,000 carats in the current test, as most of the rock appears to have come from pyroclastic material.

Peregrine's drillers struggled to collect the kimberlite samples in 2005 and 2006, but had better success this year, thanks to a longer winter and some new techniques. One of those techniques involved allowing kimberlite to slough off the walls of the holes, which increased the effective diameter of the holes, occasionally to a considerable degree.

Although the sloughing provided Peregrine with additional material, it now has less confidence about how much rock it actually recovered. The reverse-circulation drills turn the kimberlite into chips, and a significant amount of rock is too small to be retained.

As a result, the company must use calipers to measure the changing diameter of the holes, and calculate a theoretical tonnage based on the volume of the hole and the density of the kimberlite. Mr. Friedland said there were void areas within the pipe that complicated matters, so the grade projections from the current test would be approximate.

The economics

None of those approximations will impact the diamond valuation, which is the purpose of the larger test. Peregrine produced modelled diamond values last year that varied from $41 (U.S.) per carat to $73 (U.S.) per carat, depending on which price book it used and how much optimism it incorporated, but those predicted values were higher than the actual appraised values.

Proving a worthwhile value closer to the higher projection will be vital to the project, but Peregrine is looking at a number of ways to enhance the economics. Mr. Friedland believes that washing fine material out of the kimberlite will allow it to process considerably less rock and lower its costs. The company is also looking at ways to upgrade its light brown diamonds, which account for a good portion of the DO-27 gems.