Countdown to PEA

T minus 1 day until PEA?
Could be today, could be tomorrow. Might sneak into next week.
Either way, the PEA is officially out any day now.
Results and reaction could and will have a significant impact on share price and more importantly, where the project will go from here.

The countdown has started to the first Maiden PEA (preliminary economic assessment) for Chidliak.
The information in this study will not only give a huge indication for a green light with PGD mgmt team, but also give that same indication to the market and all stakeholders involved.

Just released - 2016-06-16 - Full Technical report on CH6 and CH7 inferred resource.
Released -- 2016-05-05 - Maiden resource issued for CH-7. 

From the latest press release:

"Work on the preliminary economic assessment by JDS Energy and Mining Inc. continues on schedule. Peregrine expects to receive the initial results in late June as previously announced."

The official press release should be out end of June or early July.

~7 to 10 to go for the PEA press release
~7 to 8 weeks - NI43-101 full Technical report

(How to invest in Chidliak.)

Taking a step back, let's see what potential trade off could be in the upcoming PEA.
One of the obvious ones is whether an all-season road is built or just an ice road for seasonal supply shipments to site. The all-season road will make the capital costs higher, but will also decrease the operating cost per tonne onsite and have a lot of synergies to make the operation run smoother. The all-season road works a lot better with the new deep water port (available in ~2020) than the more seasonal current sea-lift option. Beyond the economics, one needs to look whether an all season road is technically feasible? The Lac De Gras diamond mines operate on an ice road only. Why haven't they looked at an all season road. The answer is quite clear when you look at the following pictures:

The first one is a picture of Lac De Gras. It is clearly obvious that the NWT and that area is full of lake after lake after water body. To create an all season road in that would require a huge abundance of culverts, bridges, etc. This may be the sole reason why there is no all season road at Lac De Gras.

The second one is a picture East of Iqaluit. There are some water bodies, but mostly a few key streams mixed in with some very small lakes that probably freeze completely during the winter. There looks to be plenty of opportunity to route an all season road from Iqaluit to Chidliak with a few key bridges or culverts along the way. So, it does look like it is very feasible to construct an all season road. This clearly shows why a lot of the pipes in Lac De Gras are under water features as well and those require very expensive dykes to hold the water back. Chidliak doesn't have this problem with its key pipes.

 

A good question going into the PEA is what value or revenue potential is their in the current inferred resource?

To analyze that, one needs to use a combination of Tonnage, Grade and the third and very important parameter of Carat Value. A valuation of carats is completed in a snapshot of time. One must further adjust that value in time to the current date (in this case May, 2016) using both a rough diamond index and a point in time for the Canadian dollar versus US dollar. The index is a rough use/estimate, in reality, you can get the parcel/model re-appraised.

Below is a chart indicating what the Insitu-Value might look like. Assuming the base case of the diamond valuation model, you end up with about CAD$2.8 billion worth of stones to extract in the mine plan. It is broken down by CH6 and CH7. You can extract a huge amount of value out of the first few years of mining if one was to focus on CH6 and mine out CH7 later on. That has a significant impact on NPV when it comes to the discount rate used

Here is a table that just highlights all the adjustment and valuation ranges and CAD$ conversions that one has to perform to get to as current as possible.

The above chart also highlights (207 vs 157) that CH6 is roughly 25 to 30% higher in value of stones as compared to CH7. If you don't adjust for time and current market conditions, it does look CH6 is 60%+ higher in valuation...but that is not the case.

News release - 2016-04-07 - Resource update for CH6. Then another 45 days for the full technical report.

It has taken about 10 years to get here from the original onsite sampling, but the timeline has gotten ever shorter and the green light for a mine is ever closer.

Key items completed to date:
1 - Bulk sample macro valuation for CH-6 kimberlite (2 years ago).
2 - Bulk sample macro valuation for CH-7 kimberlite. (very recently).
3 - Maiden resource and a first and (now) second update on CH-6 resource.

Items to come:
1 - a maiden resource announcement for CH-7.
2 - Cost estimation, pit design, trade off studies, NPV/IRR - The PEA.

What to look for?

CH-6 - Current inferred resource estimate sits at 3.323 million tonnes for KIM-L material
Estimates range for an additional 1 million to 1.2 million tonnes for KIM-L material.
Here is a chart depicting the area where the current inferred resource exists.

What can be learned from this chart?
For one, you will notice a carving out on the left side of the blue material. This is actually where the KIM-C material exists. This will not be included an inferred tonnage yet because it has no confirmed valuation ($/carat) associated with it. The PEA will assume this material will have $0 value to it..although reality is actually quite different. So, the 1 million to 1.2 million tonnes of material for conversion is below 120 metres and above 250 metres, in the area where the blue shape is flat (not carved) That whole area will be expanded outwards and be very similar to the top 120 metres.
Of note, the 2015 drill programme consisted of 2 holes to 260 metres depth and they both ended in kimberlite. There may be a chance they extended the inferred material target from 250 metres to 260 metres depth.

CH7 - This kimberlite has no inferred material as of yet, but has some high knowledge TFFE down to 160 metres and some further TFFE (Tonnage for future exploration) down to 290 metres. They had a few of the LDD RC drillholes go down to 240 metres in addition to some core drilling in 2015 down to 220 metres deep.
TFFE ranges from 3.7 to 6 million tonnes, but that is mostly a vertical interpretation instead of an expansive interpretation.
One might say that CH-7 has not had a maiden inferred resource, so it is two steps behind CH-6. This is clearly wrong as both CH-6 and CH-7 were discovered at the same time and have had regular core drilling each year to further define each kimberlite. CH-7 has not had an inferred resource yet because it was missing the key valuation piece that is now available.

Here is an image of what CH-7 currently looks like:

The image above, you can clearly see how the drilling above 160 metres is quite significant compared to the area below. The area in the cyan represents 3.7 million tonnes of material and it is quite possible this will all get converted to inferred material. The area below 160  is questionable. With the core drilling down to 220 metres, that material may all be converted as well. The material all the way down to 290 metres is estimated at around 6 million tonnes. The plan is to convert material above 250 metres. It probably is reasonable to estimate between 4.5 to 5 million tonnes will be converted in the initial inferred resource.
CH-7 also has 5 domains. The majority of the material is KIM-2 and KIM-4. This initial inferred resource will also figure out how many tonnes are in each domain.

The conversion of material is critical for the upcoming PEA and it will have a bottom line effect direct to the revenue part of the PEA. The two kimberlite pipes will both have pits down to 250 metres..so it is a question of how much material has been converted to inferred as that is what resource class needed to be included in a PEA.

This resource update could add upwards of US$600 million from CH-6 and another US$600 million from CH-7 in addition to the existing inferred resource of US$1.5 to 1.7 billion.

This resource update is clearly a Billion $$ resource update. Very material to the project.

This translates into a PEA that has CAD$3.5 to CAD$4 billion in total available material as a revenue input into the economic model with future conversions available to add even more.

Infrastructure Part III

3 - Road

Here is a review of key infrastructure items:

1 - Port - Deep Water Port

2 - Power - Power required for project

3 - Road - this article

4 - People - future article

This article will talk specifically about the road.

It is absolutely a key infrastructure point to Chidliak and there are a few options that are available.
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Update (August 2016)
The recent PEA (preliminary economic assessment) completed a trade off versus a seasonal ice road and an all weather road. The outcome was the selection of an all weather road. The synergies from using an all weather road will be more enhanced as more studies and added tonnages get brought into the project.

Here is a recent video of the topography 200 km's north of Chidliak.
The topography in and around Chidliak should be relatively similar.

The video clearly shows potholes of water scattered within the land and relatively flat, yet bumpy land. As you move to the fjords closer to the coast, the bumps get bigger and rockier and the potholes get a bit bigger and deeper.

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In the two bulk samples leading up to today, there has been a need to ship in some heavy equipment and ship out bulk sample tonnage. In the winter of 2012/13 and 2014/15 there was a groomed track put in between Iqaluit and Chidliak. The last part of 2014/15 did not work out so well as the snowfall was abysmal and the transportation of the bulk sample tonnage was not able to utilize that track any more. It was all sent by very expensive plane/helicopter trips.

The main concept here is to determine if a seasonal road (ie.- Ice road) is the best for the project or an all-season road  with bridges/culverts is the better of the two options. The latter will be more expensive and flexible and the former will have an annual cost to it and also be very inflexible for timeline to transport items and also be weather dependent (no guarantees on any given year).

First question is whether there is a road from Iqaluit toward Chidliak to begin with.
The answer to that is a very small road called the 'road to nowhere'.

This road to no where may very well have a destination of Chidliak.
The length of the current road is about 7.5 km's and does have one bridge near the end of the road.
Here is a nice view of the bridge. You will notice how they built up the embankment on each side of the river and basically laid out a flat structure across it.

Here is great blog with photos along this road -- Road to no where trip
One of those photos has very relevant information.
This is the photo here:

Of relevance is the sign that indicates the maximum load of 11 tonnes that can go over this specific bridge.

What is the distance between Iqaluit and Chidliak?
As the crow flies, the distance is about 120 km's.
With the groomed trails for the bulk samples, they took around 160 km's on a best path basis.
Looking at the CH-6 path (PDF - PAGE 9) you can clearly see that they actually went over a large body of water. This might be the case of being a lot easier to groom over the water/ice than land.
So, the actual ice road or all season road for the mine will probably be between these 2 figures. 150 km's might be a good approximation.

The land is rolling (sea level to 760 metres above sea level) and there are few water features throughout, so the final design will have to look at the detailed topography and water features to determine the best path.

One huge benefit to make an all season road is the ease of transport of your workforce to and from Iqaluit.
It would be a lot cheaper to send the labour in and out every 2 weeks via ground transportation versus costly airplane trips.

Bridges? If you want to use this road to for transporting heavy equimpment to and from site, oil and fuel supplies, etc...then you want a certain load and a 11 tonne bridge probably is not going to cut it.

The two options that are clearly defined are:

1 - Ice road - Works only during winter. Needs grooming and maintenance to start it up. It can take very large loads.

2 - All Season road - Built a 1 way all season road with several of expensive bridges and not so expensive culverts. This will need to include a few passing areas as a minimum.

There is a third option that is basically a combination of the two.

3 - All season road that is built with light weight and cost friendly bridges (11 tonne maximum). This can be used all year round to transport light loads - eg. Labour, small equipment, etc.  During the winter, at each bridge, the road has a diversion path to the river/stream and an ice access way can be created for heavy loads. This way you get light loads year round and heavy loads during the winter months.

The question on the third option is whether the cost difference between a light load bridge and a heavy load bridge is that different. I suspect there is a difference in cost/steel/structure and this hybrid option might be a capital friendly way to access a year round option.  Is this a viable option or just a concept only. That 11 tonne sign is what brought this concept into the picture.

Looking further into the project....a DMS (dense media separation unit) that produces a concentrate that is 1/100th the size of the original material may give an option to send this concentrate out of Chidliak on a regular basis over this light load bridge concept and onto an existing x-ray diamond recovery set up (SRC or even Renard).

Here is a great website talking about the ice road to the existing NWT diamond mines -- iceroad

CH7 valuation news

Big news today (March 8th, 2016)

CH-7 valuation results were just released.

You can find an update here -- CH7-kimberlite - BLOG

Suffice is to say, the valuations point to at least a CAD$150/carat to CAD$200/carat with potential for even higher. That bolds extremely well for CH-7 making it in the mine plan and contribution to the profit of the mine.

Here is a nice photo from Kim-2 of CH-7