Shares in Peregrine Diamonds (PGD-T) tanked by 46% this morning on news that diamond giant De Beers has decided not to exercise an option to earn 50.1% of the Chidliak diamond project, in Nunavut.
De Beers has already spent $5 million in exchange for the exclusive option, which it acquired last September, plus $2 million on a work program at Chidliak this summer. The option would have seen it invest $58.5 million in Chidliak.
In a press release, Peregrine did not give any details about De Beers decision, except that it had been notified by De Beers verbally. Peregrine lost its initial 51% partner at Chidliak, BHP Billiton (BHP-N, BLT-L), when the major decided to exit the diamond business in late 2011.
But all is not necessarily lost for Peregrine.
As a hedge in case De Beers decided to walk away from the project, the junior funded and conducted a bulk sample of the CH-6 kimberlite this summer that will give it crucial information about the pipe’s grade and quality of diamonds. The 508-tonne sample, which is currently being processed, will give it a large enough parcel of diamonds to assess diamond value and calculate an initial resource for CH-6.
Peregrine expects to have results from the bulk sample, including independent diamond valuations, in the first quarter of 2014.
The bulk of the sample was shipped from Iqualuit to De Beers’ facility in Sudbury, Ont., where it is being processed. (Peregrine will not have to reimburse De Beers for processing costs.) Diamonds will be recovered from the resulting heavy mineral concentrate at the Saskatchewan Research Council (SRC).
In 2010, a 14.11-tonne sample of drill core from CH-6 returned a grade of 2.84 carats per tonne.
The junior also has new information about Chidliak garnered from De Beers’ $2-million, 8-week summer work program at Chidliak. Work included the generation of new targets, ground geophysics, geologic mapping and prospecting.
After conducting ground geophysical orientation surveys over 12 previously discovered kimberlites at Childiak using multiple methods (gravity, electromagnetics, ground penetrating radar and magnetics), De Beers found that most of the kimberlites had a strong gravity response. In a press release, Peregrine noted that no gravity surveys have been conducted at Chidliak until this year, and that it expects gravity could play a key role in future discoveries at the project.
The De Beers program uncovered two new kimberlites, while a separate survey by the Canada Nunavut Geoscience Office turned up a new kimberlite dyke. With the three new kimberlites discovered this year, Chidliak now hosts a total of 64 kimberlites.
More details from the program will be forthcoming, as will details on De Beers’ decision.
Peregrine shares traded down 30¢ this morning, at 35¢. The stock has a 52-week trading range of 31¢-83¢, with 139.2 million shares outstanding.
Peregrine last raised money in June, with a $3.5-million private placement of 10 million common shares priced at 35¢ apiece. More than 70% of the new shares were issued to related parties of the company.
As of Aug. 13, Peregrine had $6.7 million in working capital and $9.7 million in cash. It has budgeted $2.7 million in spending for the remainder of the year.