Thursday, July 7, 2016

PEA Results out

PEA (preliminary economic assessment) results are just out.

Shows a a very healthy Half billion Canadian after tax NPV at a conservative discount rate of 7.5%.

Here is a link to the news -- PEA results

This is a base case and there is significant upside to be had as the resource is developed.
For now, this confirms the capital of the project can be paid and a healthy return can be generated.

This is great news for Chidliak and will help shape its next steps.

Here are some key highlights from the PEA and a quick interpretation. 

Key Excerpts:

1 - "Chidliak Phase One Diamond Development (“CP1D”)"

 Meaning --> By defining a phase one, implies the significant potential of a phase two that is not reflected in this PEA.

2 - "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."

Meaning --> Every bit of Chidliak and all its diamonds is solely and fully owned by Peregrine Diamonds.

3 -  "...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."

Meaning --> CH-6 has the biggest bang for the buck at this time and should be depleted first for highest NPV and highest IRR

4 - "Pre-production capital includes the construction of a 160 kilometre, all-weather road to connect to Iqaluit, the capital of Nunavut. "

Meaning --> An all-weather road justified at this phase 1 level is going to look all the better in future studies. It will be a fixed capital cost and won't go up in cost as more resources are added to the mine plan. Significant infrastructure for future phases.

5 - "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.”

Meaning - The margin at CH-6 is so great that deepening the resource will have instant benefit to the NPV of the next study. Six other kimberlites can be looked at seriously now that the initial mill is paid for and the all weather road is paid for by the resources in this maiden PEA.

6 - "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"

Meaning - stamps a time frame on the valuation. Since March, 2016, the price book should be up 2 to 4% higher. This gain is not reflected in this PEA.

7 - "Peregrine’s eligible Canadian Exploration Expense and Canadian Development Expense tax pools were utilized in the post-tax calculations. "

Meaning - Peregrine has significant exploration expenses to date. (over $100 million). This creates a bit of a tax vacation for the first part of the mine plan. The effect between IRR pre-tax and post-tax is probably less than other projects that do not have these same pools.

8  - "Sensitivity Analysis - 3 tables -- Diamond price escalation, US$/C$ exchange rate, Discount Rate"

Meaning - Peregrine wants to give the reader the most tools they have to interpret the results as they see fit. This makes it easier to compare to other PEA's when those PEA's might be at different currency rates or different discount rates...the reader can look up the line item and compare it as direct as possible.

9 - "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."

Meaning - This emphasizes the conservative nature of a PEA where as a PEA is supposed to try and be very optimistic, Peregrine chose to demonstrate to the public that even with conservative parameters, the result is extremely robust. This study also doesn't include some other conservative values, for example, the grade of CH-7 does not include the known missing volume of carats that were created by significant breakage during LDD RC drilling. There has been no adjustment factor as peregrine has no ability to pinpoint that adjustment factor.

10 - "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.  "

Meaning - An all-weather road makes logistics so much easier. The stakeholders involved would really, really want the all-weather road to be put in for logistics and technical reasons. Now the PEA has confirmed there is no economic benefit to going with a winter road. This is why they needed do a rigorous analysis at this point as they really, really wanted to go with the all weather road from the get go.

11 - "The Chidliak 2016 PEA recommends that the Chidliak Project be advanced to a pre-feasibility study level in order to increase confidence in the estimates."

Meaning - the next work on the site needs to focus on converting inferred resource to indicated resource. Based on the planned work programme, the focus will be on converting and deepening the CH-6 resource. The PFS may only include CH-6 material in the next iteration, but an expanded PEA can be completed in parallel at the same time to educate the reader on what the difference is when including the CH-7 inferred resource.

12 - "Peregrine to host conference call for investors and analysts on July 12, 2016 to discuss details of the PEA"

Meaning - Peregrine will be hosting a conference call for investors and analysts. The latter is important as currently zero analysts officially follow Peregrine Diamonds and therefore there are zero buy ratings and zero price targets out in the market place. The retail investor is basically on their own at this point...but that might change after this PEA and after the conference call.

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