November 2008

If at first you don`t succeed...

By D. Zlotnikov

Peregrine geologist Sonya Neilson till sampling on Chidliak

They say that good things come in threes. Peregrine Diamonds Ltd., a Vancouver-based junior exploration company working in the Northwest Territories and Nunavut, certainly hopes that this will be the case for the trio of kimberlite pipes discovered at its Chidliak property on Baffin Island, 150 kilometres northeast Iqaluit. Diamonds have already been found in one of these pipes. This news is especially welcome in light of recent developments at Peregrine’s DO-27 deposit — a well-delineated, mid-sized kimberlite pipe 27 kilometres from the Diavik mine in the Northwest Territories. The DO-27 project had the company setting its sights on the development of a small-sized diamond mine. This June, Peregrine announced that the DO-27 kimberlite had a diamond resource of 18.2 million carats, but they concluded that development of the project is currently not economically justifiable. Peregrine was then forced to shift attention  elsewhere.

This was quite fortunate, it turns out, because Peregrine is once again in the mining headlines with its Chidliak property. Peregrine’s president, Brooke Clements, said that although the project is still in the early stages of exploration, right now they see nothing that rules it out as being a world-class deposit.

Chidliak and the company’s earlier stage Nanuq project, located 300 kilometres north of Rankin Inlet in Nunavut, are both textbook cases of grassroots or greenfields exploration low-budget programs that were taking place while attention was focused primarily on DO-27.

The Chidliak program began in 2005 when BHP Billiton approached Peregrine with an offer to jointly explore southern Baffin Island, Clements explained. “The agreement was that, together, we would undertake a reconnaissance program that covered roughly the southern third of Baffin Island. We would fund it equally and then Peregrine would take the data and run with it.” After the programs’ first year, during which the most promising properties were acquired, Clements said the funding responsibility fell to Peregrine alone, but BHP retained back-in rights.

Despite being discovered a year earlier than Chidliak, Nanuq is currently at about the same stage for two reasons. Three kimberlite pipes have been found on each site, but those at Nanuq, while encouraging, do not offer the promising diamond counts seen in the first kimberlite tested at Chidliak. Future exploration work at Nanuq will be focusing on finding new pipes. Meanwhile, the work at Chidliak will be split between searching out new pipes and continuing to evaluate the value of the one already known to hold diamonds.

The second factor favouring Chidliak was plain luck. “Usually, kimberlites are covered by soil and aren’t visible from the surface,” explained Clements. “But in the case of Chidliak, the sampling crew went to three promising sites and found not just indications of kimberlites, but outcroppings of the pipes themselves exposed on the surface. We were fortunate because we kind of jumped a year ahead of the normal sequence. Without drilling a single hole, we know we have diamonds and kimberlites with significant tonnage potential on the property,” he said of the significance of the outcroppings. The two other pipes have also been sampled and the company is currently waiting on the lab results.

Clements explained that finding diamonds is challenging not only because kimberlites are rare, but also because only a small portion contain any diamonds at all, and an even smaller portion — about one per cent — have enough to be worth mining. Furthermore, even once discovered, identifying those with the most potential presents a further challenge.

“If you get 50 to100 anomalies from an airborne survey, the majority will not be kimberlites,” he said. “There are a lot of things that can look like kimberlites in a geophysical survey. Usually, your first-priority anomalies will have a high success rate; you can get eight out of the first ten. But then you have 90 anomalies left, and maybe only ten of those will be kimberlites. It becomes a war of attrition.”

Clements admitted that finding the right targets is especially important for a junior company raising money on the markets. A drilling program can cost anywhere from $50,000 to $300,000 per hole (smaller programs cost more per hole because of the fixed, onetime startup costs). A junior company like Peregrine simply can’t afford to have a failed drill program. “You have to do everything you can to be successful, including making use the gifts nature hands you, in the form of visible outcroppings,” Clements said.

Under the agreement with BHP, the major firm can exercise its back-in rights from the time Peregrine has spent $3 million on exploration at Chidliak until it has spent $10 million. “We exceeded $3 million a month ago,” said Clements, “and BHP is watching our progress very closely right now.” If BHP elects to back in, it will have to spend five times what Peregrine has to date, to fund further exploration activities. In exchange for that, BHP would receive 51 per cent of the stake, and have the option to get a further seven per cent stake by funding a feasibility study. But until BHP announces that it is exercising this right, Clements said, Peregrine must work under the assumption that it is the sole owner.

“If all goes well and we’re extremely successful, we’re hoping to be collecting bulk samples from a few kimberlites in 2010-2011,” said Clements of the company’s future plans. “This work would form the foundation for a feasibility study.” For the moment, the company is continuing exploration and delineation activities at both Nanuq and Chidliak, and exploration at a number of other properties, including uranium anomalies at two more Baffin Island sites — Kimmirut and Flint Lake. Despite these finds, Clements said, Peregrine is, first and foremost, a diamond company. And if, as Clements hopes, Peregrine proves extremely successful (and a bit lucky), it may well find itself beginning production in a few years, just in time to offer its diamonds to a very hungry market.

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