Potential Acquirers

There is no mistaken that many junior exploration companies will end in the hand of a much larger company before any mine becomes a reality.

Chidliak and Peregrine Diamonds may be the exception to the rule, but more likely than not the end result will be a takeover of the company. A partnership is also a strong possibility once the clear fundamentals come out of the project and are too good to pass up. Peregrine Metals (a sister company) was taken over by Stillwater quite a few years and that is a clear sign that management and the Board of Directors of Peregrine Diamonds are open for an offer they can't refuse.

It makes sense to list the possible entities that could acquire Peregrine Diamonds at some point in the future. So here it is.

Possible Suitors and why:

Diamond Miners:

Dominion Diamonds Corp - A Canadian Diamond miner in peak years of revenue. They are internally trying to extend use of their existing mill(s) beyond the original LOM. They will be feeding these with lower rock value material that will be profitable, but not at peak margin for the company. A look at Chidliak would push up operating margins and they also have the extensive experience of operating in the north. Many synergies to be had. They also indirectly would get access to DO27 material that is currently being valued at next to nothing...but would be valuable for Dominion. Chidliak also has a vast claim area that is full of potential for future exploration and expansion. Dominion Diamonds was also key in trying to consolidate the Lac De Gras area and becoming a strong and significant rough diamond producer (sold off Harry Winston and bought BHP's position in Lac De Gras area).  Like Peregrine Diamonds continually searching for financing alternatives/partnerships/etc., Dominion Diamonds is continually on the hunt for additional sources of rough diamonds where it makes sense and the price being reasonable.

Petra Diamonds - Strong balance sheet and a very large company. They've acquired several existing old mines and rejuvenated them over the last 10 years. This aggressive company may consider a project like Chidliak. It might be a out of their comfort zone, however if the money is to made, Petra Diamonds could up to bat.

De Beers Canada - A subsidiary of Anglo America that has had tight controls on capital expenditures over the last few years. De Beers has had a very close look at Chidliak data and as new data comes in, they would be in the best position to know what they would be getting in a takeover of Chidliak.

Lucara Diamonds - Has developed a significant market cap since mining large stones regularly at it's mine in Africa. This market cap strength does give it the ability to expand if they chose to. They haven't shown signs that they are willing to go that route. Chidliak would be an option if they did.

Rio Tinto - A very large mining company. A bit of a wildcard in the diamond industry as they at one point were going to exit all diamond ventures, but decided to stay the route. They have also recently approved new kimberlite development as co-owners with Dominion Diamonds. As compared to their other commodities, the profitability of their diamond business may make expansion more appealing.  They would have significant funds to fast-track Chidliak.
*NEW* - Quote from the new CEO (Dec 6th, 2016) - "“I would like to have more diamonds, to be very explicit. That’s a priority area,” CEO Jean-Sebastien Jacques said in an interview with Bloomberg Television on Tuesday."

Alrosa - Tough sell that a large Russian company could come in and buy up Chidliak. Alrosa is a listed company now and there have been several Chinese government sponsored companies invest in Canada. There might be some political reasons that Russia wouldn't be allowed for this to go through, but there is no business reason. Alrosa has invested in Africa, so it is not just a Russian operating company. Extensive experience in cold climates would be a significant synergy.

Gem Diamonds Ltd. - A british based company with 2 operating mines. The market capitalization is about $300 million, so it is still big enough to go out and acquire a junior. Gem Diamonds produces some of the world's most prized clear white diamonds. Chidliak for colour and quality would fit nicely with Gem Diamonds. The upward size for Chidliak diamonds is TBD.

Firestone Diamonds - A london listed company worth about $140 million with a couple of mining operations similar to Gem Diamonds. Probably not a realistic candidate, but this industry can have an occasional surprise.

Lucapa Diamonds - An australian based diamond that an operation in Angola (Africa). They recently uncovered a 404 carat stone worth close to AUS$20 million. The current market capitalization of Lucapa is about AUS$100 million. With successful news like this, there is potential to expand into other exploration companies if they so choose. It looks like they have plenty of opportunities to expand within their current properties, so acquiring another company would probably need to be strategically sound or just too appetizing to pass up.

Stornoway Diamonds -- A quebec based diamond miner with it's flagship project (Renard) approaching commercial production. The value of this company has gone up over CAD$300 million in value over a short 2 month period. This gives the company significant leverage to make key acquisitions in the diamond space.

Mountain Province Diamonds Inc. -- This is an NWT based diamond miner with it's partnered flagship (Gahcho Kue) project under construction. They are not really a miner in that they own 49% of the project and are not the main operator (De Beers is the main operator). They struggled to get financing, but have succeeded in that. Once they get a steady cash flow from the mine and start to pay down some debt, the executive/mgmt team must look elsewhere or just become a dividend paying entity. Acquiring Chidliak would be an option, but since they have successfully partnered to construction of a mine with  Gahcho Kue, they might replicate that with another partnership. A commitment of CAD$50 million + to Chidliak might be a more amenable to shareholders than a full CAD$100 to CAD$150 million it may take to buy the whole company. If they have a dramatic rise in stock value as Stornoway Diamonds has had recently, it would become even more plausible that a buy out with shares as a possible path.

Jewellers:

Chai Tai Fook - Clearly stated that they are looking at direct supply of diamonds and cutting out the middle man. This company has a lot of cash flow and is one of the largest jewellery company in the world.

Tiffany & Co.  - Main supply of yellow diamonds from Ellendale has closed down. They also have an existing relationship with a Canadian company - Diamcor. They previously had an interest in the Jericho Diamond mine that went bankrupt. CH-6 may produce fancy yellow diamonds that could be of strong interest to Tiffany & Co. There could be significant opportunity for a Tiffany investment in Chidliak in exchange for marketing of Chidliak diamonds.

Conglomerate Miners:

Teck Resources - This is a multi-commodity company and at one time was called Teck Cominco. Cominco was a northern Gold mining company, so there may be some synergies left in developing a northern project. Teck also had invested in Jericho diamond mine at one time with the assumption of diversifying even further. They may want to revisit that theory and Chidliak has significantly more margin built in to the project then Jericho every did.

Ivanhoe Mines -  A Robert Friedland run company that has it's hands into a couple of very large, international deposits. Nothing related to Diamonds. There is always a chance that Peregrine Diamonds could fold into the Ivanhoe empire to help with costs and ability to move the project forward.

Agnico Eagle Mines - This is a Gold company with a successful operation in Nunavut and is planning on setting up shop in the region for decades. They regularly attend and sponsor the Nunavut Mining Symposium that is hosted in Iqaluit. Iqaluit is not too far from Chidliak and Agnico will know all about Chidliak. They are currently focused on gold, but are an operating in the North and know how to permit, develop, construct and operate a northern mine. These are reasons why they might be interested in Chidliak. 

Investment houses:

Orion mine finance group - An American investment group that has been involved in at least 2 recent mine financings and streaming agreements in Canada. They haven't shown signs to take over companies, but do invest in projects that will become mines and have very reasonable margins. Chidliak has very high margins.

Nunavut Iron Ore Acquisition Inc. -  This is the american led investment group that bought a 30% in Mary River (other end of Baffin Island) and is a partner with Arcelor Mittal in the development and construction and now in production Mary River Iron mine. This entity was created specifically for this purchase, but is backed by Energy and Minerals Group out of Houston (a $2 billion private equity firm). This group is not Iron ore specific, so a venture into diamond mining is not out of the question.

The Washington Companies - Based in Montana (USA), a group of privately held North American mining, industrial and transportation business supported by its founder Dennis R. Washington. This company has just proposed a US$13.50 to purchase all the shares in Dominion Diamonds -- 2017_03_20_news -- Operates a  current mining operation in the US and is interested in taking over the reins at Dominion Diamonds for a price tag of US$1.1 billion. There is a good chance that this company has previewed the entire diamond industry including Chidliak. There may be an opportunity here for this company to become a major player in the diamond industry.

Privatize:

Robert and Eric Friedland - This is the concept where Robert and/or Eric Friedland put an offer in to existing shareholders to purchase the retail portion of the ownership. Then once they have 90% of the shares, they can force the remaining shareholders to sell their shares at the going price. Robert and Eric can then negotiate privately with private wealth firms to develop Chidliak with more flexibility. They are already close to 50% of shares. The key milestones for ownership are usually 50%, 65% and 90%.

Additional cost to acquire the company:

Assuming someone wanted to acquire Peregrine Diamonds (100% owner of Chidliak), there would be a change of control cost to certain individuals.

Eric Friedland-  CAD$618,405
Tom Peregoodoff - CAD$619,695
Gregory Shenton - CAD$350,842
Herman Grutter - CAD$308,735

So, in addition to paying the shareholders of Peregrine Diamonds, there may also be CAD$1.9 million in expected payments to key personnel.
What are the rules for this payment to proceed?
Fine print - Payable in the event of termination within 6 months of a change in control or resignation within 3 months of a change of control before accepting any renewed terms of employment following the change of control.




2 comments:

  1. MPV is an interesting story. I excluded both SWY and MPV originally as they were building there financing and constructing their own mines or parts of mines. I just included SWY recently as the market cap has gone up by hundreds of millions of dollars and that gives them more paper power. I also figured that Chidliak..if they were to DMS to concentrate..Renard would actually be the closest place to process the concentrate. MPV would be a legitimate option..but I would think they would be more of an option for a partnership. They've partnered with Gahcho...why not with Chidliak. I agree with your question and will add it to this article.

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