Peregrine Diamonds Ltd. ("Peregrine" or "the Company") is very pleased to announce the positive findings of an independent Preliminary Economic Assessment (PEA) for the Chidliak Phase One Diamond Development ("CP1D") of the CH-6 and CH-7 kimberlite pipes on the Company's 100%-owned, Chidliak Diamond Project on Baffin Island, Nunavut, Canada. The PEA highlights that the CP1D represents a robust, high margin, ten-year, open-pit mining project with very attractive economics. Peregrine owns 100% of the 564,396 hectare Chidliak Project, where 74 kimberlites have been discovered to date, with eight currently being identified as potentially economic. The Company also owns all of the diamond marketing and sales rights and there are no non-government royalties or other encumbrances on diamond production.
The CP1D envisages an open-pit diamond mine with a mining life of approximately ten years, producing initially from an open pit at the CH-6 kimberlite pipe with production from an open pit at the CH-7 kimberlite pipe to follow. The PEA utilizes the Chidliak resource estimate prepared by Mineral Services Canada Inc. with an effective date of June 3, 2016, that includes the 11.39 million carat Inferred Resource to a depth of 260 metres at CH-6 that was announced in an April 7, 2016 news release, plus the maiden 4.23 million carat Inferred Resource at CH-7 to a depth of 240 metres that was announced in a May 5, 2016 news release. The resources at both CH-6 and CH-7 remain open at depth and represent significant expansion opportunities which have not been included in the current economic study.
The PEA was prepared by JDS Energy & Mining Inc. ("JDS"), independent consulting engineers based in Vancouver, Canada. The JDS team has a long history of northern Canadian and diamond project experience, including the current construction of the Gahcho Kué diamond mine, in the Northwest Territories, Canada.
Highlights of the 2016 Chidliak Phase One Diamond Development PEA base case are:
- Pre-tax Net Present Value (NPV) of C$ 743.7 million, at a 7.5% discount rate and a pre-tax Internal Rate of Return (IRR) of 38.1%.
- After-tax NPV of C$ 471.2 million, at a 7.5% discount rate and an after-tax IRR of 29.8%.
- Total Life of Mine (LOM) pre-tax Free Cash Flow of C$ 1.31 billion.
- Pre-tax average annual Free Cash Flow of C$ 131 million per annum.
- After-tax payback period of two years, LOM of ten years.
- Operating margin of 72%.
- LOM average production rate of 1.2 million carats per annum, peaking at 1.8 million carats per year.
- LOM average mining head grade of 1.67 carats per tonne.
- Estimated pre-production capital requirement of approximately C$ 434.9 million, including C$ 56.7 million in contingency.
- Pre-production capital includes the construction of a 160 kilometre, all-weather road to connect to Iqaluit, the capital of Nunavut.
The Chidliak 2016 PEA is preliminary in nature and includes Inferred Mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that the PEA will be realized.
Eric Friedland, Peregrine's founder and Executive Chairman, commented: "We are very pleased with the results of this Preliminary Economic Assessment, which clearly establishes Chidliak as one of the premier undeveloped diamond resources, located in one of the world's safest, and most supportive jurisdictions for responsible mining development. With the support of all our stakeholders, including our shareholders, employees, local entrepreneurs, Nunavummiut, and the Nunavut and Federal governments, we are looking forward to advancing this outstanding diamond project to the next stage of development."
Tom Peregoodoff, Peregrine's President and Chief Executive Officer, added: "The PEA marks another significant milestone for Peregrine as we continue to advance Chidliak towards a production decision. The base case shows that a Phase One Diamond Development at Chidliak could generate more than C$ 1.3 billion in pre-tax net cash flows, deliver life-of-mine, after-tax net present value of C$ 471 million, and has a capital payback period of only two years. This economic study illustrates robust economics for the Phase One development at Chidliak, which compares very favourably with other mineral development projects currently under review or construction in Nunavut. As we develop Chidliak further, we expect to identify further upside to the economics of the project through optimization studies of the Phase One mine, including the expansion of the CH-6 resource to depth and through the development of a potential, Phase Two resource expansion from the numerous other kimberlites on the property of which six currently show economic potential."
Phase One Diamond Development Inferred Resource
Summary resource data for CH-6 and CH-7 are shown in Table 1 below.
Table 1 Phase One Inferred Mineral Resource Estimate*
Inputs and assumptions used in the study are shown in Table 2. In addition to the parameters shown in Table 2, the following was incorporated into the economic analysis.
- Diamond prices for both CH-6 and CH-7 used in the study were based on March, 2016 pricing received from WWW International Diamond Consultants and escalated annually from 2016 at a rate of 2.5%.
- Commercial production achieved in 2021 using a three year construction schedule.
- Owner - operated.
- Peregrine's eligible Canadian Exploration Expense and Canadian Development Expense tax pools were utilized in the post-tax calculations.
- The analysis does not include financing costs or management fees.
Table 2. Inputs - Economic Analysis
*Base diamond valuations provided by WWW International Diamond Consultants using the March, 2016 price book and were escalated annually from 2016 at a rate of 2.5%
Base case, pre-tax and post-tax financial outcomes are summarized in Table 3. The results are presented for the all weather road option. (see Infrastructure Trade-Off Study below)
Table 3. Base-case Financial Outcomes
Sensitivity analyses to key inputs are shown in Tables 4 through to Table 6.
Table 4. Sensitivity Analysis - Diamond Price Escalation
Table 5. Sensitivity Analysis - US$/C$ Exchange Rate
Table 6. Sensitivity Analysis - Discount Rate
Mr. Peregoodoff added: "We were intentionally very careful in our selection of base case input parameters. The positive base case economics are based on conservative, industry standard assumptions for all key inputs. We wanted to account for all reasonable, potential and future outcomes. To that end, the sensitivity analysis demonstrates very robust project economics. For example, if the Canadian dollar were to reach par with the US dollar, or if no annual diamond price escalation were to occur, the project still has pre-tax Internal Rates of Return of 26% and 29.7% respectively."
Infrastructure Trade-off Study
As part of the PEA, JDS completed a rigorous cost-benefit and risk analysis of constructing an all-weather road (AWR) to connect the Chidliak Project to Iqaluit on a year-round basis, compared to using an enhanced-winter road (EWR), which would generally be open for approximately six weeks during late winter. As Table 7 illustrates, the economic trade-offs of the two options are minimal. While the pre-production capital for the AWR is somewhat higher, the NPV is higher for an AWR as the annual transportation and operating costs are significantly reduced. In addition, the AWR option eliminates the risks associated with loss of capacity on the EWR as a result of weather-related shut downs and eliminates the inherent cost implications of using aircraft to support the enhanced winter road.
Table 7. Economic Comparison - AWR / EWR trade-off study
Capital and Operating Costs
Rigorous capital and operating cost estimates were prepared on a site-specific, owner operated scenario and use JDS's extensive experience working on Arctic projects. All costs incorporated factors specific to northern Canadian and Baffin Island locations. The LOM capital costs, including contingency of C$ 56.7 million, is C$ 483.6 million and is detailed in Table 8.
Table 8. Capital Costs
The average LOM operating expense is estimated at C$ 94 per tonne processed, or C$ 58 per carat recovered. Operating cost breakdown is shown in Table 9 below.
Table 9. Operating Costs
*Average LOM mining cost is based on a LOM strip ratio of 7.2:1.