Risk Reward Part IV

Oct 28th.

A rally incurred in the stock of Peregrine Diamonds (owner of Chidliak) a week or two ago that drove the market cap up to CAD$70 million before Anonymous started selling more stock to have the rally break and retreat.

There was also an update on Botswana...but no real results yet.

The stock is now trading at 17 Canadian pennies for a market cap of CAD$48 million
or $US36 million.

There is a significant amount of news in the pipeline.
The most significant being the CH-7 bulk sample from the 4 domains (2,3,4,5)

Macro Results to date:
Domain 1 -  1.04 cpt (representing a small portion of the body) from a 50 carat sample
(including a 6.53 carat stone - second largest stone at Chidliak)

Expectations:
Domain 2*- 0.5 to 1.0 cpt
Domain 3 - 1+ cpt
Domain 4* - 1 to 2 cpt
Domain 5 - 3 to 4 cpt

* Both Domain 2 and 4 represent significant tonnage at lower depths.

If multiple larger stones (>5 carat) are found, this will not only increase the grade, but also have profound influence in the valuation model.

There is also a chance that a mantle nodule is intersected. These are known to contain high amounts of diamonds in a very small area. CH-7 is confirmed to have mantle nodules throughout. Whether they contain a significant amount of diamonds or not is to be determined.

A kimberlite deposit (eg. Renard in Quebec) could go down and still be accessible up to 1 km's in depth.

At Chidliak, the focus has been on the top 1/4 of that (250 metres to surface) and strictly focused on open pit.

The insitu value of this top 25% is in the billions of $$'s for both CH-6 and CH-7.
Including material that still needs some deep drilling to confirm could be in the order of $10+ billion and could hit the target of 50 million carats.

These are just 2 pipes out of 71 confirmed kimberlite finds on the property and hundreds of undrilled anomalies.

This is an image of a 2.01 very high quality diamond from CH-1:

Here is another one, a 1.15 carat from CH-31:

So, it is by no means just CH-6 and CH-7 as the ultimate goal.

When you have billions of dollars in value in CH-6 and CH-7 and all these other opportunities, one must question the US$36 million value for this entire project.

The rewards here are phenomenal and the downside risk is minimal.

Chidliak Royalty Part IV

It has been a bit of time since the last Royalty post.

For those who have missed the previous post:

--> Chidliak Royalty Post I

--> Chidliak Royalty Post II

-- Chidliak Royalty Post III

Since that, there have been 2 further documents submitted to the courts.

The first one on July 9th from Peregrine to the courts.

BHP has indicated that have reversed the royalty, but Peregrine indicated it hasn't seen any reversal literature.

Peregrine mentions that any such reversal doesn't preclude that the first right of refusal had been triggered.

Talks about the Novation deed clearly indicating that regardless if Peregrine signs it or not, it will happen and the BHP royalty Ltd.

Peregrine specifically mentions that BHP has acknowledge in previous legal speak that it admitted to transferring the royalty to BHP Royalty Ltd. As in, the transaction did officially happen. The reversal is a separate point.

It took Peregrine 7 days to respond to the July 2nd BHP response.

Sept. 8th - an amendment to the July 2nd document from BHP was submitted by BHP.
Talks about facts being admitted by BHP and facts being denied and facts being outside the defendants' knowledge. I guess the key points are the denied ones.
Comparing the changes from the July 2nd and sept 8th documents.

Additional comment on the March 16th shareholder circular being issued and the rationale behind the S32 demerger.

Confirms that BHP royalty and south32 were affiliates...but not after May 25th, 2015

Removed a comment that originally said the Chidliak royalty was not material to the S32 demerger.
Interesting as that comment possibly implies a low value for the Chidliak royalty.

Talks about an April 27th novation deed was enclosed whereas before it talked about a draft novation deed was prepared.

Talks about BHP royalty and South32 not being affiliates from 25 May, 2015.

Removes a whole line from the document that talked about 'good faith that the first right of refusal would not be triggered under the inclusion of the Chidliak Royalty'
Sounds to me like that 'good faith' implies that there was some doubt and they want that removed from the record.

Removed a whole line talking about when Peregrine took it's first position, to avoid doubt, it agree to reverse the first transfer.
Again, this casts doubt and sounds like it admitted the transfer did occur. Removing that and can assume the reverse was independent of Peregrine's cause?

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At the end of these last 2 documents, it talks about:

Within 35 days of the end of the pleading period,  each party must provide...list of documents....all documents...all the relevant legal items that each group has basically.

There hasn't been an update since Sept 8th...so one would assume that the 'pleading period' is still on, but at some point, we should see this list of items submitted to the website relatively at the same time for both parties. I think this is unless a settlement is made out of courts.

It looks to me like BHP has tried to remove any reference that they made earlier that a transfer actually occurred and Peregrine is indicating that previous documents confirm that BHP said that a transfer did occur.

Peregrine's front is a transfer did occur and the courts have to decide if a transfer to BHP royalty that was destined for South 32 did trigger a first right of refusal.

The first part of that seems fairly concrete, the second part has to be a judgement decision and I don't think it is clear either way.

Outcome?

If the judge agrees with BHP on both issues...that a transfer didn't 'really occur' and no right of refusal, Peregrine will be ponying up for the courts costs for BHP and lawyer fees.

If the judge agrees with Peregrine on both the transfer did officially happen and it triggered the first right of refusal...then Peregrine may get it's lawyer fees covered plus potentially get the 2% royalty back as well...I guess the court would have to put a nominal value on it (another tough decision).

If the judge agrees with peregrine that the transfer did occur, but did not really trigger a first right of refusal...then I suspect that each party would have to cover their own lawyer's costs and the royalty stays with BHP Canada and the court is dismissed.

More to come. Maybe soon.

Quotes

Here is a list of CH-6, CH-7, and other Chidliak quotes
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Rick Rule -- BNN interview - August 2017 - Commodities
Rick Rule is participating in a standby agreement for the 2017 July to August Rights offering.
"So, while this is a high risk endeavour, this is also one that if it ends happily, will be a high reward endeavour. This is not for the faint of heart. This is exploring in very difficult terrain for a notoriously difficult commodity..but you are doing so in partnership with... the greatest exploration team of this generation."
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Robert Friedland - Insider +10% holder and brother of Eric Friedland
At the Sprott investment conference in Vancouver in 2017, Robert had this to say about CH-6:
"I am extremely bullish on depths of the kimberlite. This deposit will be wildly profitable in Canada. For your kids or your pet dog or cat, buy a few shares."*
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CH-6 - Quote #1: (Independent)
Mr. Richard Wake-Walker, co-founder of WWW stated "The shape, colour and size distribution profiles of this parcel compare very well with current Canadian diamond production. It is very encouraging to see such high quality goods from a relatively small parcel and at such an early stage in the project."
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CH-6 - Quote #2: (Independent)
Mr. Neil Buxton, responsible for geostatistical modelling at WWW stated "Based on our analysis of the parcel, WWW believes that if CH-6 were in production in the current diamond market, it is highly unlikely that the average price would be lower than the minimum modelled price. It is also important to understand that the high modelled price does not represent a maximum price and that the ultimate average diamond price in a mine production scenario could be higher than US$236 per carat. Given the number of large stones in this parcel, and their relatively high value, even the high modelled price may be considered conservative."
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CH-6 - Quote #3: (Independent)
Mr. Howard Coopersmith, Peregrine's Independent Qualified Person for dense media separation ("DMS") processing and diamond recovery stated, "These latest bulk sample results from the CH-6 kimberlite, along with the results from the first 222 tonne portion of the sample, confirm a trend towards high quality diamonds in the larger size classes and an overall consistency in the diamond population, size distribution and grade.
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CH-6 - Quote #4: (Peregrine Diamonds)
Mr. Eric Friedland, CEO of Peregrine stated "The results of the first diamond valuation from Chidliak are spectacular. The average price per carat and grade of this bulk sample clearly show that CH-6 could have rock value that is comparable with the richest kimberlites currently being mined.
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CH-7 Quotes
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CH-7 - Quote #1: (Independent)
Mr. Neil Buxton, responsible for geostatistical modelling at WWW stated "based on our analysis of the parcel, WWW believes that if CH-7 were in production in the current diamond market, it is unlikely that the average price would be lower than the low average modelled price. It is equally important to understand that the high average modelled price does not represent a maximum price and that the ultimate diamond price could be higher than US$155 per carat. These results need to be confirmed with a larger sample."
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CH-7 - Quote #2: (Independent)
Mr. Howard Coopersmith, Peregrine's Independent Qualified Person for dense media separation ("DMS") processing and diamond recovery stated, "A mix of diamonds are seen in the current CH-7 diamond assortment, from pristine gems to industrial qualities. White/colourless to off-white clean octahedra are common, often somewhat distorted or modified. Resorption is minor, giving the parcel a significant proportion of high value sawables extending into the largest sizes. A small population of clean gem yellow octahedra may prove important."
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CH-7 - Quote #3: (Independent)
Dr. Tom McCandless stated, "While a certain amount of diamond breakage is to be expected in any large-diameter RC drilling program, the level of breakage observed in this bulk sample is abnormally high. Through the work completed I can conclude that the reported grade of 0.88 carats per tonne is conservative, and a higher grade is to be expected in a mining scenario. Further, it is my belief that a number of gem quality diamonds two carats or larger have been shattered, which will have a negative impact on the valuation of this parcel. However, diamond price modelling that takes this into account should result in an increased model price valuation that would be more realistic in a mining scenario."
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CH-7 - Quote #4: (Independent)
Mr. Howard Coopersmith, further stated "It is not unusual to see diamond breakage due to sample collection by reverse-circulation drilling. In this bulk sample many freshly broken diamonds are present; this issue should be eliminated in a mining scenario."
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CH-7 - Quote #5: (Peregrine Diamonds)
Dr. Herman Grütter, Peregrine's Vice President Technical Services said, "I am delighted that CH-7 displays reasonably consistent diamond grades close to 1 carat per tonne that would make for predicable resource extraction scenarios. The superb correlation between previously reported microdiamond results and bulk sample grades reported for KIM-2, KIM-3 and KIM-4 is especially significant because these three units occupy approximately 90%-94% by volume of the known 3.72 to 6.01 million tonne Target for Further Exploration ("TFFE") for the CH-7 kimberlite pipe."
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CH-7 - Quote #6: (Peregrine Diamonds)
Mr. Tom Peregoodoff, Peregrine's President and CEO said "Once again the Peregrine team has delivered an excellent outcome. We are very excited with the results of the 2015 bulk sample from CH-7. These results continue to confirm the outstanding diamond resource potential of the Chidliak project. Transportation of the parcel to Antwerp is underway, and we look forward to the receipt of the diamond valuations, expected later this quarter. Preparation of the maiden CH-7 resource statement and revised CH-6 resource statement has commenced and we expect to complete this work in late March."
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Chidliak - Other quotes
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 John Kaiser - March 6th, 2017 - BNN Video -- MarketCall
 John Kaiser mentions -- "One of the best diamond discoveries in the last 6 years"
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Peregrine press release - underground inclusion - March 6th, 2017 -- 2017-03-06 News
"The results of this study are excellent and have significantly changed the specifics for the 2017 work program. The study clearly demonstrates the benefit of focusing the 2017 program on proving the resource potential at CH-6 below 260 metres, the current bottom of the inferred resource in the preliminary economic assessment. "
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* Quote was obtained from an attendee and placed on a public social chat site.