DHK dismantles Kettle River/Peregrine business arrangement

Kettle River’s main objective is to make a mineral deposit discovery. Due to the current land and mineral tenure holdings and expertise of the management team, efforts are mainly focused on exploration in Canada for diamonds in the Northwest Territories and gold in the Greenwood Mining District.

By attendance and voting at budget meetings, DHK shareholders (Dentonia, Horseshoe & Kettle River) committed to maintain its 20% interest in the WOJV diamond project.  On Oct 5, 2006 DHK management notified Peregrine Diamonds Ltd. of their election to contribute to the budget program, payment of just over $3.million due Dec. 9, 2006.  With large contributions looming, Kettle River explored various avenues to reduce shareholder dilution and still maintain its indirect 6.67% project interest.  The ability for all DHK shareholders to use Flow Through (“FT”) funds was explored by where a direct property interest would be earned therefore meeting CRA requirements. 

The Farm-Out Agreement proposal was rejected on Oct 12^th by Adolf Petancic of Dentonia who stated that  “Kettle River's insistence that  Dentonia should raise flow-through money, at this stage, is ludicrous and not  sustainable in a court of law and cannot be used to reject the Farm-Out.” 

What was proposed was that non-FT dollars would garner a larger interest than FT and unacceptable that Kettle River, if using FT funds would be subject to dilution in DHK.  

Dentonia and Horseshoe rebuffed an invitation to purchase Kettle River’s 1/3 interest in DHK and Peregrine was approached with a proposal to take the Company over on a 5 to one basis.  An arrangement with Peregrine was agreed upon that did not contravene the June 1, 1992 DHK Shareholders’ Agreement.

News Release Oct 26, 2006 announces a business combination

“Peregrine will hold a 54.475% direct and 6.67% indirect interest (for total of 61.14%) in the WO joint venture in addition to 92.65% of the diamond marketing rights and project operatorship.  In addition, Peregrine will inherit (through Kettle River) a first right of refusal on the sale of the remaining 2/3 equity ownership in DHK held equally by Dentonia Resources Ltd. and Horseshoe Gold Mining Inc.”

Also “Under the terms of the acquisition agreement, Peregrine will immediately extend a secured loan to Kettle River in the principal amount of up to Cdn $2.5 million, to be drawn down on an as-needed basis, to be used by Kettle River to make its WO Diamond Project joint venture cash call contributions and for general operating expenses (to a maximum of Cdn $150,000) until the completion of the business combination.”

This was a positive business combination for the shareholders of Kettle River.  At significant expense, Fairness Opinion, financial Review, Information Circular, property reports etc were prepared for shareholder approval. The Kettle River/Peregrine arrangement was successfully destroyed when DHK management, J. McInnes and A. Petancic, sole signing officers of DHK, failed to issue a cheque for the Dec 11^th contribution.  This resulted in a dilution to 10.78% interest. It was a significant decrease to partner Kettle River where interest went from 6.7% to 3.6%.  This necessitated terminating the business arrangement proceedings with Peregrine. The loss of opportunity in this instance is significant and Kettle River is exploring options to regain its loss.  Kettle River did not agree to the disposal of 9.22% interest in the WO JV Project, this may be considered a ‘transaction out of the ordinary course of business,” therefore requiring unanimous DHK shareholder consent.

As at December 19, 2006, a total of $291,811 is due Peregrine payable on March 1, 2007, being $241,811 for budget advances and $50,000 owing for corporate expenses.  The $1,049,762.35 Kettle River contribution payment was returned to Peregrine after DHK failed to honor its contribution election of Oct. 5, 2006 due on Dec. 11, 2006.

A financing is planned to fund the March 1^st amount due Peregrine and meet future contribution requirements of the WO JV.  Steps are being taken to prevent similar action from recurring.
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Refer to News Releases for further information.

Property History
As of  September 1998, five proven diamond bearing kimberlites were located on the DHK properties. Kettle River is 1/3 owner of DHK Diamonds Inc. (DHK) who originally acquired these claims in 1992 (208,000 acres) in the early stages of the Canadian Diamond staking rush.

During the spring of 1998, the drilling of a geophysical anomaly beside a previously drilled kimberlite DO29 discovered a diamondiferous phase with chemistry similar to Tli Kwi Cho. Recall that Tli Kwi Cho was considered extremely significant by chemistry and diamond count.  Sources of other indicator trains throughout the block have not been determined. 

DHK Claim Block: Located on the south shore of Lac de Gras
Exploration drilling prior to 1994 found three diamond bearing kimberlites. Although never bulk sampled nor drilled extensively, they are suspected to contain small reserves. Five new targets were found as a result of last winter's close spaced airborne geophysical program. This claim block, under option to BHP in 2000-2001, was drill tested (by Archon Minerals) 14 Falcon Survey anomalies - was not  successful in finding new kimberlites.  In May 2002, this property was abandoned.  Prior to their final expiry date,  New Nadina Explorations proceeded with a lease application over DHK 16, 17, & 18 claims and has agreed to  pay DHK & Kennecott each a 1% gross overriding royalty (GOR).  

In depth agreement and recent history  Update February 12, 2003