Wednesday, April 19, 2017

Synthetic Diamonds

The irony of synthetic diamonds

Producing mines or developing projects in the diamond industry are always having a close eye on the synthetic diamond market and where it is headed. This does include projects like Chidliak when determining what value the diamonds being extracted from Chidliak could be valued and sold at.

A single rough diamond carat produced at a mine site will have quite a variable range of costs across the many producing mines. A single rough synthetic diamond produced in a lab will have a cost based on the amount of energy and time and materials that are needed to produce that single stone. From that point on, the costs of polishing, marketing, selling are relatively all the same.

A single rough diamond carat will be extracted from a very old volcano emplaced in a kimberlite pipe. A single rough synthetic diamond carat will be produced in a lab. The question that needs to be asked is where that lab get its energy from to create the stone.

The answer to the energy question is basically where is energy is the cheapest. Synthetic diamonds are small and very portable, there is virtually no cost to transporting these stones...so they can basically be produced anywhere in the world. So, to answer the energy question, one only needs to look at digital currency with the likes of bitcoin and other players. Digital currencies are produced via computer algorithms and these computers need cheap electricity to get the most profit out of producing a digital coin. They also generate a lot of heat....so dispersal of heat is also a direct input to the cost.  A simple google search will reveal that iceland has bit currency farms for very good reasons.

Iceland - A very geothermal friendly, active volcanoes, and a very young (geologically) country. A mere 18 million years old. This geothermal energy generates consistent and renewable energy that is very environmental sound. Sounds like a perfect home for a synthetic diamond manufacturer.

Synthetic diamonds are still mostly in the research phase. A lot of the companies that are producing synthetic diamonds for the jewellery market are not actually making money...especially when one takes into account the capital cost. These labs are in different parts of the world where the scientists are...not necessarily where it is the cheapest to produce.

One day, there may be a shift to move these into full production in a place like iceland.

The true irony of synthetic diamonds is that they will one day be made by  current volcanoes (the energy from) versus real diamonds that are made by ancient volcanoes (kimberlite pipes).

Monday, April 3, 2017

Video - Drilling and PEA

Video blog discussing drilling and PEA.

Here is a short video (~17 minutes) that discusses the proposed drilling program for the summer of 2017 and takes a quick analysis as to what may be expected with an updated PEA as the end result of the drilling.




Here are the calculations mentioned in the video:




 The end result is a discounted NPV that could reach CAD$1.2 billion depending on the results of the drilling. An increase in close to CAD$500 million in value add from the original PEA.

Thursday, March 30, 2017

Proposed Summer Drilling

Summer Drill Program - 2017

The timeline is set to start the summer program in about 2 to 3 months from now once the spring melt occurs in and around June.

There is more detail on the planned program. The proposed drillholes are listed in the recent AGM presentation -- AGM Update PDF

On Page 17, the planned drillholes are shown on the image.

This program will try and use the benefits of horizontal drilling to gain more information for less $$'s. On the diagram on page 17, one can see the 'parent' drillhole and the associated wedging off that hole to enter kimberlite pipe at various depths.

The final quantity of drilling footage is still a work in progress and there is a possibility of utilizing 2 core drill rigs instead of just the one already onsite. The equipment listed in the permit to work at Chidliak does list and allow for 2 core drill rigs, so it is just a question of procuring and mobilizing a second rig to site.

All work from the summer program will feed into a second or updated PEA that should include a new underground portion of the CH-6 kimberlite pipe on the assumption the resource continues to a depth of around 500 metres. They will know if it does in a few months from now when the drilling occurs.

Monday, March 13, 2017

2017 summer program

The focus for the development of the Chidliak resource will be carefully selected work to be done during the summer season.

It will be three fold.

1 - Deep core drilling to extend the resource to a target of 500 metres below surface.
2 - Drilling through the adjacent country rock to core log geotechnical data.
3 - Continued environmental/permitting studies (baseline and others) for both the project area and the all weather road corridor.

Starting with #3 - environmental studies are necessary in the permitting process.
Here is a history and some information on permitting -- Permitting details

One of the snippets of information from that link is this:

"The emphasis of a lengthy environmental baseline is very important in the permitting process. Ranging from 6 years to 9 years in a couple of the projects above. Chidliak started independent environmental baseline studies in 2009 and continue each and every year. 2016 will be year 7."

Chidliak did have a baseline study in 2016 and will have another one in 2017. That would put it in the 8 years of studies category that can be included in any advanced permitting applications. The key is the continual studies and it just takes time to collect that information. Meadowbank mine had 9 years of studies going into its final environmental impact assesssment. Chidliak is well on its way in this part of the requirement.

#1 and #2 will be obtained from the same core drilling by utilizing slightly angled holes in the country rock that will pierce the lower part of the kimberlite pipe (300 to 500 metres below surface).

More geotechnical drilling means a more realistic approach as opposed to very conservative approach when deciding what pit wall angles to use. This effects the strip ratio and how much waste one needs to extract or leave in the ground. Geotechnical core drilling will also be used within the kimberlite pipe to help define the size of the stopes that can be extracted underground safely. Bigger stopes means bigger cost savings. Bigger stopes also can lead to more risk to failures.

Deeper kimberlite expansion means expansion of the inferred resource at CH-6 and the concept of bringing in an underground portion to an updated PEA.

In the latest presentation -- 2017-03-01 Presentation
On page 19, there is a big drop off in positive cash flow starting in year 6 and beyond.
The goal will be to prevent that drop off from happening and keep the strong cash flow going for a few more years. The rock value of CH-6 is very lucrative and an underground concept can add substantially to the cash flow in the years 6 to 10. The drilling needs to be done to confirm this and this is a huge part of why the program was selected.

Ch-7 tonnage will be still be included in the PEA. It will be pushed back as far as possible until further work on CH-7 can increase the rock value in light of the diamond breakage issue. If the mine life extends to 15 years, the size of the mill will be put in question and may be increased. This will help bring higher value material further into the present.

Tuesday, November 29, 2016

2017 Field Program

2017 field program (winter/spring - early 2017)

A lot of details have been coming out for the upcoming field program.

The two questions that need to be asked are:

1 - What are the details?

2 - What will this accomplish?

The answer to question 2 is the most important..but that cannot be answered without delving into question 1.

So, what are the details?

CH-6 will be the focus for this program.

Tasks?

1 - Bulk trench sample x 500 tonnes (1000 to 2000 carat parcel). Small number of limited blasts and hauling of material into 1 tonne bags to send down to the SRC for processing and recovery of rough diamonds.

2 - LDD - RC - The Large Diameter Drill will drill deep into CH-6. Probably a few holes. Maybe up to 500 tonnes of material that will be screened to above 1.13 mm. Minor adjustments will be made to hopefully reduce the expected breakage to occur. This should create another 1000 to 2000 carats of rough diamonds that will be shipped in 1 tonne bags down to the SRC for processing.

3 - Geotechnical drilling - Core drilling in the country rock to establish conservative, yet reasonable pit slopes for an open pit mine.

4 - Core drilling at depth. The geotechnical holes in #3 will be aimed toward the kimberlite at 300 metres or lower to establish an extension of the known resource.

5 - Core drilling in kimberlite -- Twin the LDD holes for validation, drill deep to extend depth, drilling around the high grade zone (4cpt+) to better define the zone.

6 - Related surface tasks - 2 airstrips on frozen lakes - 1 long strip (10+ km's away) and 1 small strip (5+ km's away) to bring in people, equipment, etc. Establish winter trail to bring in equipment and supplies and to be used to ship out the bulk sample material to Iqaluit.

This an estimated list of tasks (above) and may differ when a final and detailed program is released. Some of the items above have been taken from permit applications and news articles.

So, what will this accomplish?

Increase the economics and continual de-risk of the project.

In the PEA (preliminary economic assessment), the majority of the NPV was front end loaded with CH-6 and CH-7 provided an extension to the life of mine with positive cash flow.
Heading toward the next step is the PFS (Prelminary Feasibility study). With the focus of CH-6, the indicated resources that can be used in the PFS will only come from CH-6.

Not all carats in the PEA were used in the PEA. Why?  The biggest reason was the strip ratio used in the study due to lack of geotechnical information.
Here is a link that talks about strip ratio -- Strip Ratio
The end result for CH-6 in the PEA was an average of 10 to 1 (waste to ore) and that is just the average. Reality is the upper tonnage is a lot smaller than 10 to 1 and the tonnage near the bottom of the pit is much higher than 10 to 1. Once further geotechnical information is obtained, the pit wall angle can be steepened up to something more reasonable based on real data instead of just defaulting to the most conservative angle. Will this decrease the strip ratio from 10 to 1 to something lower?
Not necessarily. With steeper pit walls, you can go deeper into the ground, so those tonnages even lower will still have larger strip ratios. The aim of the project is also to deepen the existing resource even further as well.

On a resource side, the main goal will be to convert inferred and add even more tonnage to the indicated category to be used in a PFS study.

End result? With the significant rock value of CH-6, adding more tonnage has a very significant effect to the project and NPV. The valuation timeframe for the PEA (february 2016) was done at a dip in the rough diamond price market. The valuation is up over 10% since then and there is a reasonable chance to say that the PFS will be done at a time where rough diamond prices are higher then the PEA timeframe.

What is the end result?

Coming up with a PFS that has a pre-tax NPV (@7.5%) of CAD$1 billion is probably a very reasonable goal. It would be a great accomplishment and outcome from this upcoming winter/spring program.

Other possible tasks?

1 - There is a sub-domain that doesn't have a valuation assigned to it and is considered waste with 0 value now. Possibility of putting an LDD RC drillhole into this to obtain more data.
2- There is a string of pearl (kimberlite pipe) north of CH-6 that the open pit will break into. If they can deepen CH-6, it will grab even more tonnage from this pipe. Possibility of putting an LDD RC drillhole into this to obtain more data.

Monday, November 14, 2016

2017 Trench

Trench sample - 2017 - CH-6

Some detail from the trench bulk sample for early 2017 has slowly trickled out.
There has been some mention of a plan in the 2016 technical report, but only a figure of 400 tonnes and a budget of $2.5 million was mentioned.

As part of the water permit Peregrine Diamonds has in hand, it requires them to get approval for any trench bulk sample program and have at least 90 days before asking for approval and executing the bulk sample.

The target date for the program is March 1st, 2017 during the winter cold when the ground is frozen including all water in the vicinity.

Details: 30m x 15 m trench at depths from 3 metres to 8 metres.
Tonnage expected - 500 tonnes.

What can be expected of those 500 tonnes? How many carats?

The material will be extracted from the wKim-L phase. This basically means the kimberlite 'L' that makes up the majority of CH-6 and the 'w' means weathered. This usually is the material near surface that has had some exposure to the environment over the millions and millions of years.

The question is whether the material will be from the HG or the LG version of Kim-L. HG means the higher grade area whereas LG is the normal grade. It isn't really low grade as the deposit is very high grade for any diamond deposit.  What difference does this make?

LG - 2.12 cpt (carat per tonne) and the wLG has a density of 2.19 m^3 per tonne
vs.
HG - 4.16 cpt (carat per tonne) and the wHG has a density of 2.29 m^3 per tonne

HG, being more dense, means that you can blast a bit less (5% less) of material to get the same 500 tonnes of kimberlite.

HG, being much higher grade, means that you can get a lot more carats out of that same area.

At 500 tonnes - LG would produce 1060 carats and the HG would produce 2080 carats.

There is an obvious benefit to targeting the HG zone...if it is accessible.

Is Peregrine Diamonds targeting the HG zone?

Here is an image of the bulk sample area in plan view:

The bulk sample is near the dark blue circle. It is near the far West and toward the south part of the surface expression.

Here is an image showing the HG versus LG zone:

There is no specific co-ordinates on this image, other then the 'looking East', so an estimate of where that same bulk sample area for 2017 has been highlighted in dark blue.

One can see that hitting some tonnage from the HG zone is a possibility and it would make sense for Peregrine Diamonds to target this area to get as many carats as cheaply as possible.
More carats, means the resulting valuation model will be more robust.

Looks like the journey of 500 tonnes for 2017 has started its first chapter. This may be joined by LDD (larger diameter drill) tonnage as well along the way. (TBD)

Thursday, September 8, 2016

post PEA

It has been a couple of months since the PEA (preliminary economic assessment) results have been out.

A lot has changed over the last 2 months....but in reality, a lot has changed over the last 6 months.
Why 6 months? If you read the PEA in detail, you will find out what point in time they used for the valuation of the diamond parcels. That valuation was obtained in late February or early March.

The front cover of the technical report states:

EFFECTIVE DATE: JULY 7, 2016
REPORT DATE: AUGUST 19, 2016

NI-43101 guidelines create the obligation to put an effective date and a report date.
The effective date is a bit like a snapshot in time of what values and assumptions are used.

If a mining truck on July 7th was worth this amount and then 6 months later, the price of that truck goes up 1000%, a person reading this report in 12 months can understand in what context the PEA was created and whether the PEA is still valid based on the events over the last 12 months.

Diamonds are a bit peculiar in the pricing side of the equation. They are very specific to the parcel of diamonds and studies tend to use a point in time of the latest valuation...unless there is a material difference and then maybe the parcel gets a valuation update. Because the valuation is a key input in designing the optimum pit, it does need to be firmed up early on in the PEA process and not changed.

This scenario clearly is laid out with Chidliak's PEA.

With the knowledge that the valuation was obtained in early March, the reader can now go out to the market and see what the current conditions are. Looking at the various sources of information, one can find that the average rough diamond price since early March to end of August has changed roughly 10 to 11% to the upside.

With the PEA in hand and that knowledge, one can now adjust the numbers (if they want) to see what it really means for the economics.

Here is a pre-tax cash flow analysis  that shows the original PEA results, an 11% adjustment in revenue and a third section where the 15% contingency is taken out.


Anyone can and should look at the numbers in the PEA and adjust as they see fit. The equations to calculate NPV or IRR in any spreadsheet software are quite easy to use.

In this analysis, one can clearly see a significant improvement in pre-tax IRR (40 to 46%) and a change in pre-tax NPV (7.5%) of an additional CAD$160 million (to CAD$870 million).

Peregrine Diamonds sits at roughly CAD$75 million. Since the PEA was released, the company has done no field work, nothing material and yet the pre-tax valuation of Chidliak has gone up more then 2 x Market cap of the company.

Taking out the contingency just to see what the raw economics would be and you see the NPV goes up to CAD$922 million and the IRR hits 51%.

These are two obvious area's (revenue and contingency) that are easy to adjust and see what the picture looks like). These do not include the significant area's of improvement that could occur on the revenue side because of more parcels and more refined modelling. These do not include the significant area's of improvement on the operating cost side that could occur because of more realistic pit stope angles and possible annual production increase (reduction in most costs) as more resources get brought into the plan.


Thursday, July 21, 2016

Go it Alone

Could Peregrine Diamonds (PGD) actually go it alone and make the Chidliak mine a reality?

Looks like a tough task for a junior miner to raise over CAD$400 million and than some. Closer to CAD$500 million when you add the next couple of years into the mix.

Does Peregrine Diamonds have tools at their disposal that not necessarily everyone has?

To answer these questions, one needs to look at the capital costs, look at the assets of Peregrine Diamonds and look at the resources that it may have at its disposal.

Pre-Construction Capital costs:

$3.2m - Pre-stripping (2020)
$28.4m - Mining Equipment (2020)
$21.0m - Infrastructure/ancillary (2019/2020)
$95.0m - All Weather Road (2018/2019)
$12.3m - Other roadwork and site development (2020)
$65.0m - Process Facilities (2020)
$25.9m - Utilities (2019/2020)
$27.2m - Ancillary facilities (2019/2020)
$51.7m - Indirect costs (2018/2019/2020/2021)
$27.3m - EPCM (2018/2019)
$21.1m - Owners Cost (2018/2019/2020/2021)
$56.7m - Contingency (2021)

Total - CAD$434.9 million

Seems overwhelming?? Split it apart and do items one by one...do the easy ones first.

$28.4 million - Mining Equipment (2020)

How to fund this?

Simple - Equipment manufacturers want your business and they are very, very competitive with other manufacturers. They will finance the equipment that they sell most companies as an option. 
PGD - Get's financing for the equipment and will pay it back with future cash flow. 
Manufacturer - Get's to sell its equipment to Chidliak and associated service contracts, etc.
As a bonus, the manufacturer doing the financing might also be able to get dibs on the All weather road contracted out equipment.
When can this arranged? Now - PGD should get on the phone with Caterpillar and all other manufacturers of equipment and line up a financing loan. The loan starts basically when the equipment is needed and delivered. There can be price protection as well, so an index between now and the estimated time of start can be limited to inflation or 2 or 3%.  This loan can have milestone requirements as one being financing for the rest of the mine must be in place to activate the loan agreement. 
There is sustaining capital required for mining equipment..so possibility this agreement could be for CAD $40 million.

Sign a deal, let the press and shareholders know and that part of the capital is a done deal!
Remember what Caterpillar says on their website -- "We're at your side" Time to prove it with paper and pen. Heck, the manufacturers are so competitive...they might be able to finance beyond your equipment needs and part of your financing is just that...a financing and a cash contribution to the project.

What is left to finance or raise money for? --  CAD$406.5 million

$56.7 million - Contingency (2021)

How to fund this?

This is a contingency if needed. May or may not be used.
This deserves a credit facility at x % and can be secured by the property if drawn or unsecured.
The interest rate can be quite lucarative as it is a just in case funding mechanism.
It should be place, no doubt about it.
A CAD$60 million Credit facility at 10% annual interest rate to be available starting in mid-2020 through to the final construction phase.
Again, this can be tied to other milestones (other financing's confirmed). But, again, this could be signed today. If other financing/milestones do not occur...then there is no risk to the provider as the credit facility will no longer be an option. If the milestones are met, then there is a good chance they will get a nice 10% interest rate if used. 

Sign a deal  now, let the press know and that part of the capital is a done deal!

What is left to finance or raise money for? -- CAD$346.5 million


95.0 million - All Weather Road (2018, 2019)


How to fund this?

There are couple of  options mentioned recently -- Government Funding -- and these are legitimate possibilities.

The first one is a straight up grant/contribution/tax sponsored funding out of the federal government infrastructure fund. The federal government could easily look at the future tax revenue and determine if it just makes sense to help build a road. The Deep water port was an easier decision as it wasn't just dedicated to a future mine, but had been required for decades from the city of Iqaluit.
Could easily see the federal government chipping in for a 1/3rd of the capital cost in the form of an actual grant or, maybe more likely, an infrastructure loan to Peregrine Diamonds that will be paid by future earnings.
A CAD$35 million infrastructure loan to the Chidliak project payable at 5% interest rate and to be paid back during production years.
The government doesn't just get 5% back annually on this project, but also gets tax revenue out of that $35 million spent to various companies and also gets access to an all weather road for the next 5 decades.

A firm commitment probably is not attainable right now..but an intent of interest to be firmed up later is possible. Talk to the government and get a verbal acknowledgement that Chidliak could be eligible for a infrastructure loan of up to CAD$35 million.

What is left to finance or raise money for? -- CAD$311.5 million

 95.0 million - All Weather Road (2018, 2019)

The other option mentioned with respect to the all weather road is a share cost between Peregrine Diamonds and the QEC (Qulliq Energy Corporation). QEC is a crown corporation of the Nunavut territory.

In theory, the QEC is looking to place a hydro project somewhere near Iqaluit. One of those locations is close to Chidliak (15 km's away). If the project went ahead and a location east of Iqaluit was selected, the use of that all weather road would be ideal.

This is a long horizon project and the QEC is far from any firm decisions. There could be a letter of intent or a preliminary agreement indicating that if the QEC selects a site close to the all weather road, than it will contribute part of the capital for that road. Could be anywhere between CAD$5 million and $30 million.
I would say a preliminary agreement of CAD$10 million that has no real weight in the court of law could be hacked out and released to the press. It would show a potential point of capital infusion for Chidliak...but may fall through the cracks...one good reason to have a contingency.

What is left to finance ? -- CAD$301.5 million

CAD$301.5 million - remaining items (2019/2020/2021)

This will be the core of the pre-construction capital that needs to be obtained by Peregrine Diamonds and will set the stage for many of the milestones in the above items mentioned.

At this point, going to a bank and asking for CAD$300 million loan is probably not attainable, no matter how hard you try.
Asking Robert Friedland for CAD$300 million in debentures? Again, probably not attainable.
This is where creativity must come in. Stornoway Diamonds used creativity all the way to the pre-construction and construction of Renard. It is not unheard of to be creative.

Where can Peregrine Diamonds be creative?
Assets can be  looked at right away.

DO-27 - Lac De Gras

Peregrine Diamonds owns 72.1% of the property that DO-27 is on.
The Technical Report concludes that there are reasonable prospects for eventual economic extraction of the DO-27 kimberlite pipe.
Who would benefit from the pipe? Companies that already have mills and mills that are running out of material in the future. Those two would be the Diavik mine (Rio Tinto/DDC) and Ekati mine (DDC/others)
So, it would either be DDC or Rio Tinto that might be interested in DO-27.
Both Rio Tinto and DDC have big pockets and may be interested in acquiring DO-27.

Could PGD sell it's share of DO-27 to either DDC or Rio Tinto for $10 million, $20 million, $30 million or $40 million?? Negotiations would be tough on both sides and it may end up being no deal at all. Are there other options? Both Rio Tinto and DDC would have a very large treasury at their disposal. They could easily obtain the DO-27 from Peregrine Diamonds in exchange for a Loan with a reasonable interest rate and a royalty on DO-27 on the assumption that they might take it into production. Talk to both companies and see what agreements can be made. Get a loan for CAD$40 million at 5 or 6% (much better then bank interest) and also a 3% royalty that can be reduced in the future with a reduction in loan payment required (eg. $10 million reduction in the loan for a 1% reduction in the royalty).

Total - CAD$40 million @ 5% available and will be paid back by Chidliak cashflow.

Marketing rights - CH-6

CH-6 has an interesting population of yellow stones and a potential for fancy stones.
An agreement with Tiffany's on the CH-6 pipe only could yield a good cash contribution and/or cash/loan contribution. Tiffany's have previous agreements like this in previous projects, so this is not abnormal. Tiffany could contribute a direct contribution to the project of $10 million in exchange for marketing rights of CH-6 (yellows and whites). CH-6 will produce a lot of nice quality stones. PGD can also ask for a financing loan from Tiffany as well in the order $10 to $20 million at a reasonable interest rate (5%)
Let's say $20 million @ 5% and $10 million in exchange for the rights.
This leaves the huge potential of other pipes and other populations still in PGD's hands. That itself has huge upside.

Total - CAD$20 million @5% and CAD$10 million straight up

A lot of the items mentioned above can be acted on or agreed in principal to, etc.
But some of the bigger loans (CAD$100+ variety) will probably need the study to move to a PFS or FS level before finally committing...but it is a far cry from the $1 billion that Renard (Stornoway) needed for it to move to construction.

Other creative financing

Stornoway came up with some creative financing before it headed to the big financing.
This was back in 2012:

May 4th, 2012 - $20 million
The loan will bear interest at a rate of 12% per annum, payable 100% in cash or 50% in cash and 50% in Stornoway shares prior to commencement of commercial production, and 100% in cash thereafter. Principal is to be repaid in equal monthly instalments commencing approximately one month following the date of commercial production at Renard, but not before May 3, 2016 and not later than May 3, 2017. The final maturity is May 3, 2021. In connection with the loan, Stornoway’s subsidiary has granted the Lenders a 1% contingent secured royalty interest in the Renard Project which is only triggered upon the occurrence of certain specified events, such as a payment default or a default following a change of control of Stornoway, in each case capped at an amount equal to the aggregate value of the principal and interest then outstanding on the loan. The loan agreement contains additional representations, covenants and commitments customary for a facility of this nature.

It was quite an interesting set up, steep interest rate...but it wasn't expected to be paid back until commercial production occurred...but it was a quick infusion of $20 million for SWY that it probably needed.

Could look at this steep financing and raise a CAD$20 million in the near term to pay for the next big step toward PFS or FS. This could be an option.

Another option is a debentures. A lot of debentures are assigned to convertible shares...which adds dilution to current shareholders. This may be an option at higher share prices when the convertible rate is much higher and less dilutive.

Where do we sit:

Sign agreements or intents (based on milestones):
CAD$40 million - Equipment manufacturer
CAD$60 million - Credit facility for contingency if needed. Tied to milestones
CAD$35 million - Federal infrastructure loan @ 5%
CAD$10 million - preliminary agreement with QEC. May fall through...but show it as potential.
CAD$40 million - Ratio of Loan/payment from DDC or Rio Tinto for rights to DO-27 pipe.
CAD$30 million - Combination payment/loan from Tiffany's for CH-6 marketing rights.

Total --  CAD$215 million that can be signed now.

Available in the short term when needed - CAD$70 million from DDC/Rio Tinto and Tiffany's.
Available later -- CAD$145.

What is actually needed?

2017 (1st half) - CAD$15 million
2018 (1st half) - CAD$15 million
2018 (early summer and beyond) - Road construction starts (CAD$35 million Loan infrastructure)
2019 - Finish Road construction (CAD$60 million)
2020 - Bring big materials on port to site - Significant capital - (CAD$255 million)
2021 - Equipment and contingency (CAD$85 million)

So, the immediate funding and the infrastructure loan  and the QEC pays for all money required through to the end of 2019. Approximate.
2021 is also set up (debt facility and equipment financing)...so that leaves the bulk of the CAD$255 million for financing in 2020.

CAD$255 million could be raised by a partial equity financing and 2 or 3 loans from various banking and financial institutions.

If some of these agreements highlighted above (Equipment financing, Government infrastructure loan, Tiffany's deal, DDC/Rio Tinto deal) all come into play in the next 12 months, the stock price should react quite favourably and then raising money by equity will be much less dilutive and a reasonable option.

Sometimes you have to get the simple agreements out of the way (no matter if they don't pay for years) to help make an equity financing reasonable.

Robert Friedland could also commit to a debentures agreement for 2019/2020 for 10's of millions of dollar as well.

This is one vision of how PGD could go it alone and adding significant value to the existing shareholders.

First step for PGD - Do the easiest one first -- Talk to the equipment manufacturers who absolutely want to talk to you. Negotiate a future deal now and let the press know. Then move onto the next item. Negotiations with Government/Rio Tinto/DDC, jewellery's like Tiffany's or Chow Tai Fook. Work them all over. They want your business/assets/opportunities. Chidliak wants money to fund a mine.

Seems over-simplified and it is to a point...but if one can start unraveling each step, one by one, the shareholders investors confidence in PGD will grow and grow.

Monday, July 18, 2016

Metal anomalies

Chidliak is all about Diamonds...but what about other minerals?

Now that the recent PEA (Preliminary Economic Assessment) is robust enough to migrate all of Chidliak from a Greenfield exploration site to a brownfield exploration site, a lot of previous work done at Chidliak needs to be revisited.

Beyond the 2 kimberlite pipes (CH6 and CH7), there are 72 other known kimberlites and several more kimberlite type anomalies that have yet to be drilled off.

But, what about other minerals? Has there been any indication at Chidliak for other minerals?
With the transition of greenfield exploration to brownfield exploration, the value potential of any other anomaly will have gone up. Sure, they probably will not be able to use the same mill (diamond processing), but the infrastructure and roadwork will be in place and paid for by the diamond mining.

One needs to go back to 2007/2008 when a lot of till sampling was done throughout the property and not completely restricted to KIMs (kimberlite indicator minerals).

Here is the press release with other mineral potential -- News release 2008-02-28_nr

Key Quotes from press release (see more detail in excerpts below)

"The Chidliak Sperrylite Anomaly is the strongest we have seen from an exploration survey and is similar to an anomaly obtained from an orientation test at Sudbury"

"Mr. Averill stated “This is one of the strongest gahnite anomalies we have seen.”"

"One sample contained 320 chalcopyrite grains which is considered to be highly anomalous. "

Excerpts from that news release:

Sperrylite Anomaly

"The Sperrylite Anomaly occurs over a broad area measuring approximately 10 km by 10 km. Of the 44 samples collected in this area, 17 contiguous samples contained anomalous sperrylite grain counts. Several samples outside of the Sperrylite Anomaly area also contain sperrylite including one sample with 60 sperrylite grains and 10% by weight of the mineral goethite. Goethite is present in gossans, which consist of iron-bearing weathered material that can overlie sulphide-associated deposits. Additionally, adjacent samples contained the minerals pyroxene and olivine. Pyroxene and olivine are associated with ultramafic rocks, the dominant source rocks for platinum/palladium and nickel mineralization. "

"Sperrylite is a platinum-bearing mineral that is often associated with rocks that contain platinum, palladium and nickel. Stuart Averill, President of ODM stated “Similar sperrylite grains recovered from till elsewhere in Canada were invariably found within a few hundred metres of their bedrock sources. The Chidliak Sperrylite Anomaly is the strongest we have seen from an exploration survey and is similar to an anomaly obtained from an orientation test at Sudbury”. Sudbury, Ontario is Canada’s most prolific nickel producing region."

Gahnite Anomaly

The Gahnite Anomaly is approximately 2 km by 2.5 km in size and nine of ten samples collected within the area contained highly anomalous concentrations of gahnite ranging from 47 to approximately 1,600 grains. Gahnite is a primary indicator mineral for metamorphosed massive sulphide lead-zinc-silver-copper deposits like the famous Broken Hill deposit in Australia. Mr. Averill stated “This is one of the strongest gahnite anomalies we have seen.”

Chalcopyrite Anomaly

The Chalcopyrite Anomaly measures approximately 15 km by 20 km in size and eight of the 15 samples collected within the area contained chalcopyrite grains. One sample contained 320 chalcopyrite grains which is considered to be highly anomalous. Chalcopyrite is a very common mineral in copper deposits but usually only a small proportion of the grains survive in weathered glacial till.

Peregrine diamonds has many diamond related anomalies to explore...but also have potential non-diamond mineral anomalies that have only had the surface scratched with a few samples taken. Now that there is an economic plan for infrastructure and all weather roads, these anomalies should be taken up a notch.

Sunday, July 17, 2016

Numbers don't lie

Chidliak has all been about numbers and data sets and a string of events (some unfortunate, some fortunate).

Some might think the development of Chidliak has been based on the movie --

Lemony Snicket's A Series of Unfortunate Events

..maybe a very boring version of that...but unfortunate events have been endowed to the project over the years.

First off...numbers don't lie. The PEA results are preliminary in nature, but are based on very conservative numbers (some assumed, some inherited) and subsequent work has significant probability of increasing the numbers to even better then what is currently stated.

Here are those numbers:

pre-construction capital costs
 - CAD $95 million (all-weather road to site from Iqaluit)
 - CAD $283.2 million (site specific costs)
 - CAD $56.7 million (contingency)

pre-tax (@7.5% discount)
 - NPV - CAD$743.7 million
 - IRR - 38.1%

after-tax (@7.5% discount)
 - NPV - CAD$471.2 million
 - IRR - 29.8%
 - Payback - 2 years

Those numbers are extremely positive for a Phase 1 development that has plenty of upside in the tank.
But...what did it take to get to those numbers and what has happened since and what will happen in the future? History, past and present. Starting to sound like an excerpt from A Christmas Carol.

History:

Company was created and was a majority owner of DO-27 in Lac De Gras.
Money was spent and there were some positive results out of DO-27 work, but not enough to progress it any further. The story of DO-27 is not complete...now it sounds like The Neverending Story.

Initially money was raised at $5 per share and the market did a nice gradual downdraft.
At $2 or more per share...the thought of a better market ahead was suspected and a share buyback occurred.
Didn't happen and subsequent to that, the company raised money at a lower price (unfortunate event).

Signed up with BHP and a special airplane based system to try and locate a new diamond field. This was very successful and managed to find a few potential projects. One of these being Chidliak. (fortunate event).

Some preliminary work was done on Chidliak and at the same time, a merger was being looked at between Peregrine Diamonds and its sister company Peregrine Metals.

Once CH-1 kimberlite was found and a nice 2.01 carat was found, the merger was off as a pure diamond company going forward in a new diamond field seemed to be the answer.

A discounted rights offering was completed at around 30 to 35 cents with attached warrants @ $1 and further extended for a $1.50 if not exercised.

Then CH-6 results hit the press and BHP signed up for the first option to spend x $$'s for about half the project. Many of the $1 warrants were exercised and the stock went up. A financing at higher prices took place as well. (fortunate event).  Salman Partners and Raymond Goldie become a key institutional player in the marketplace for PGD. Dundee and Ned Goodman also were getting interested.

The next summer, several new kimberlites were discovered in a program that used 2 core drill rigs and an heli RC rig and was paid for by BHP as part of the option agreement. Part of that money went to PGD mgmt as they were still in charge of operations and execution of the program (fortunate event).

Some very promising kimberlite pipes were found, but nothing that replicated the CH-6 pipe. The price of PGD drifted down to a $1 and the company executed another rights offering at around 80 cents. Expectation was to have this fully exercised as things were still positive and the 30 cent rights offering made a lot of shareholders very, very happy.

Before the rights offering concluded, BHP came out to the press and announced they were NOT continuing with diamond mines/projects and all assets in that field were officially for sale. (very unfortunate event).
This was a double whammy for Peregrine Diamonds as they just lost a partner, had to figure out where the half ownership was going to go, and the rights offering was in question as the stock price dipped much below 60 cents.

The market rebounded a bit and a good chunk of the rights offering was completed..but not all.
There was some money in the bank, but an uncertain future.

Peregrine metals (sister company) was sold out to Stillwater mining at a steep premium. Fortunate for those shareholders...but unfortunate for Peregrine Diamonds. PGD now had to pay for full rent on their office premises and some of the shared salaries with its sister company was no longer an option. (unfortunate event).

Peregrine Diamonds was able to buy back the other half of Chidliak at a cost of  a  2% royalty and a few annual $2.5 million payments to BHP. (fortunate to get Chidliak back...unfortunate that an overhang of $2.5 million was to last for a few years)

Company was getting close to running out of money and they had to do something. They portrayed having three options (Plan A, B, and C). Plan A was an option agreement with De Beers Canada and the other 2 options have never been disclosed. De Beers did a private placement with PGD at a premium and also paid for one of the BHP payments as well as paying for some work on site, including a desktop study. (fortunate event). Gravity surveys become new to Chidliak and helped add a tool (expensive tool) that could be used for future exploration.

Subsequent to the De Beers initial option commitment, Robert Friedland entered the picture via a private placement at around 40 cents. (fortunate event)

There was a steep commitment to get the next phase of the option with De Beers and the timing of it was such that the first significant stones coming out of a CH-6 bulk sample would not be available for viewing until after the option expired. That option was for about $50 million over a few years.
As that option was coming due...Anglo managed to purchase a big chunk of De Beers from the original family and immediately started closing the purse strings with De Beers and also its other entities.
With that big brother mentally of Anglo, De Beers Canada was speculated to not have the permission to exercise that option (unfortunate event). It has been mentioned in the press that De Beers Canada technical staff saw this move as a big missed opportunity.

De Beers has left, but gave some reprieve to PGD by way of an at-cost expense to process the remaining CH-6 bulk sample material at its sudbury lab before heading to the SRC (Saskatchewan Research Centre) for final recovery.

What was next? A bulk sample of CH-7 was required. Dundee was still in the game and Salman Partners hadn't said a peep for a couple of years. Money needed to be raised.
A very large discounted offering at 21 cents per share was completed and backed by Robert Friedland, Eric Friedland and Ned Goodman. This bulk sample program was needed and money was going to be raised. All shareholders had an option to participate with the three backstops.

The offering was completed and the bulk sample program was well on its way.

CH-7 bulk sample deserves its own movie of unfortunate events.
Here is a whole blog on the journey of that bulk sample -- Journey of 558 tonnes
Mother nature was not going to give up that data set easily at all.

Pausing here and acknowledging that all these unfortunate events have had nothing to do with the quantity, quality and finally, economics of the Chidliak kimberlite pipes themselves.

Subsequent to the offering and may be a continuation before that, but Dundee continually sold off their positions. Dundee had problems and later on sold half (liquidated) of their assets to a new entry into the market. Selling off those PGD shares were probably more of a symptom of the business model of Dundee and the market itself as opposed to the fundamentals of Chidliak.

Salman Partners also came to the press recently and announced they were closing their business.
Both Ned Goodman and Ray Goldie have now had the business they work for or built part of...go into serious downsizing. These guys have both been around for a long time and are not the future of the institutional market anymore. That is the last big institutional influence that PGD has had and it has now been put to rest. (unfortunate).

The 2% royalty that BHP still had was tried to be transferred to the South32 entity that was being spun off of BHP. PGD did catch sight of this and tried to enact the first right of refusal. It ended up in the courts for many months and the final result was a settlement that BHP sells that royalty to PGD for a small sum and PGD was able to cancel the royalty. (turned out to be a very fortunate event that may not have occurred if the spin off of South32 didn't happen).

Another rights offering was completed at a discounted 10 cents to get the results of the CH-7 bulk sample, together with CH-6 through to PEA level and have some money still left in the bank.

PEA results get released to the market in summertime and the numbers don't lie. They are robust and have significant upside to grow. A lot of fortunate and unfortunate events were taken to get here..but they weren't over yet.

Conference call on the PEA results were scheduled and with the lacking of institutional following, this was one opportunity to get together with analysts and shareholders for a debrief of the PEA and a subsequent Q&A. The presentation was strong and at the end, the operator opened up the questions and stated verbally to the Tom Peregoodoff that there were no Questions in the queue. This was factually wrong as there were a lot of questions in the queue, but the operator missed something. A lot of times, the operator can be contracted out by the teleconference company and be set at a home office with a headset, and a computer application that links into all the features to host the call. Human error or computer problems could easily be blamed here. Tom Peregoodoff ended up closing the call, not knowing the queue did exist...but emphasized that questions could be submitted to Peregrine or Tom or Eric and they will be answered.  The market took the lack of Q&A as a bad sign and gave it as a signal to sell the stock.

Pausing here and acknowledging that all these unfortunate events have had nothing to do with the quantity, quality and finally, economics of the Chidliak kimberlite pipes themselves.

If past is any sign of the future, how does one actually contemplate an investment in Chidliak?
The background noise with PGD is off the charts and shareholders alike have lost any sort of context between the true fundamentals and what could possibly hit Chidliak next.

Those PEA numbers do not lie and if all those fortunate and unfortunate events were needed to get to this point, so be it. Now it is up to the investment community to decipher the numbers and try to look past the noise. Acknowledging the true fact that most of those unfortunate vents were completely external and out of the control to PGD itself.

Without these unfortunate events, there may not have been a way for a junior explorer to own 100% of all rights to a project that has a PEA of close to half billion CAD $$'s and at the same time own all the claims in the vicinity of the PEA kimberlites and the associated 74 kimberlites and undisclosed number of drilling targets. A junior company owning just 20% of this might have the same market capitalization that PGD has today...but in that case, the other 80% would be the one bearing the fortunate/unfortunate event stigma and not PGD.