De Beers, Peregrine strike deal for Nunavut’s Chidliak diamond project
De Beers Canada could earn controlling interest in diamond property near Iqaluit
Peregrine Diamonds Ltd., owner of the Chidliak diamond project near Iqaluit, struck a deal Sept. 5 with De Beers Canada Ltd. that, in time, will give De Beers majority ownership of the property.
Under the deal, which is subject to approval by regulators, De Beers will purchase $2.5 million worth of shares in Peregrine and make a $2.5 million payment that Peregrine owes BHP Billiton Canada Inc., its former partner.
This deal gives them the exclusive right to enter a joint-venture agreement with Peregrine before Dec. 31, 2013.
BHP pulled out of the Chidliak project in December 2011 after the global mining giant took a second-look at its diamond investments.
Global diamond prices took a nose-dive in 2011 because of declining demand in response to the European sovereign debt crisis. This year, diamond sellers still struggle with falling demand and growing inventories of unsold product.
So, Peregrine bought BHP’s interest in Chidliak and committed itself to developing the site on its own.
But the company postponed a bulk sampling program it hoped to start in 2012 until 2013. And this past Aug. 14, the company announced its 2013 bulk sampling program would also be postponed.
Under its deal with Peregrine, if De Beers decides to exercise its right to enter the joint-venture, they must spend $58.5 million on the Chidliak project to earn a 50.1 per cent interest in it.
De Beers agrees to finance all work at Chidliak from the time they enter the joint venture until the completion of a bankable feasibility study.
That includes paying the cost of all “appropriate” environmental impact studies.
If De Beers spends more than $58.5 million, Peregrine agrees to reimburse 49.9 per cent of the extra costs.
Peregrine’s share price stood at around $3.25 near the end of 2010, but has fallen steadily since then, to about 30 cents this past August.
However, news of the De Beers deal appears to have sparked some investor interest, with the price rising to 56 cents on Sept. 6.
Since 2005, Peregrine has found 61 kimberlites, occurrences of the mineral in which diamonds are found, at Chidliak and says that at least four of them, CH-1, CH7, CH44, and CH-6, may be commercially viable.
De Beers Canada Ltd. operates the Snap Lake mine in the Northwest Territories and the Victor Mine in northern Ontario.
The company, part of the De Beers family of companies, has dominated the global production and sale of diamonds since the late 19th century.
On a message board at Stockhouse.com frequented by many retail investors, some retail investors seemed happy with the deal.
“Shareholders will all do well. This thing is on its way,” one poster said.
At the height of exploration of activity, about 30 to 35 workers from Iqaluit and Pangnirtung worked at Peregrine’s exploration camp, located about 120 kilometres northeast of Iqaluit.
Right now it’s not clear how quickly Peregrine will be developed, and other diamond producers are slowing their production rates.
This past week, Shear Diamonds Ltd. announced the company has suspended production at the Jericho Mine in the Kitikmeot region.