Less than a month after mining giant BHP Billiton (BLT-L, BHP-A) announced it was reviewing its 80% ownership of the Ekati diamond mine in the Northwest Territories and its 51% interest in the Chidliak diamond project in Nunavut, it has reached a deal to sell one of the assets.
Peregrine Diamonds (PGD-T), the 49% owner of Chidliak, has agreed to pay BHP $9 million over three years for its stake in the project, giving the junior a 100% interest. BHP will retain a 2% royalty on any future production from the project.
BHP only completed its earn-in of 51% of Chidliak at the end of last year, after spending a total of $22.3 million on the exploration project, located on Baffin Island, 120 km from Iqaluit. But the company declined to exercise its right to earn a further 7% in the project by funding the project to feasibility.
As part of the deal, BHP has given Peregrine its regional exploration database and has also given up royalties of between 0.7 and 2% and some diamond marketing rights held on other properties owned by Peregrine.
"BHP Billiton's decision to review its diamonds business has presented Peregrine with an excellent growth opportunity," said Peregrine CEO Eric Friedland in a press release. "A 100 percent stake in Chidliak, one of the world's leading diamond exploration projects, at a time when diamond supply shortfalls are on the horizon and world-wide demand for diamonds continues to grow, offers us complete flexibility on how this project will be developed in order to maximize shareholder value."
The partners have agreed to complete the deal by the end of January 2012. As a result, Peregrine has suspended preparations for its 2012 bulk-sampling program at Chidliak in order to determine the most efficient way to advance the 86,000-sq.-km project under its sole ownership. Peregrine had previously outlined plans for bulk sampling of three to five kimberlites at Chidliak next year, including the 0.9-hectare CH-6 kimberlite and the 1-hectare CH-7 kimberlite. The company will announce its revised plans for 2012 in January.
Although BHP became the majority owner of Chidliak in 2010, Peregrine has remained operator.
Peregrine shares traded near their 52-week low of 58¢ in afternoon trading. The company, which traded as high as $2.77 in January, has 104.3 million shares outstanding.
There has been no word on a sale of Ekati - which was Canada's first diamond mine, opening in 1998. But Alrosa, Rio Tinto (RTP-N, RIO-L), Harry Winston Diamond (HW-T, HWD-N) and Anglo American (AAL-L) have all been pointed to as possible buyers.
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