Friday, June 1, 2018

Capital Event

On the eve of a Capital Event.

Peregrine Diamonds recently released the findings of an updated PEA study.
Link to News Release -- 2018-05-23
The metrics were very robust at CAD$1069 million pre-tax NPV at 7.5% discount.
This includes a pre-production capital investment of CAD$455 million or CAD$400 million if one excludes the contingency.

This is not only a significant increase from the original PEA, but still leaves a lot of value in the ground. All material below 300 mbs (metres below surface) at CH-6 was excluded from the mine design. Material from CH-20 kimberlite was included in the CH-6 pit outline, but was included only as waste material. CH-7 needs a clean parcel to make up for the broken diamonds from the original LDD RC program. This list continues for a while. At this point, one has to acknowledge that this PEA is just another stepping stone as more value is continually added to the project. There is plenty of upside and this upside should be expected in the future, not an exception.

A capital event? What is this?

In this definition, it basically is an opportunity where shareholders have the opportunity to sell their entire position if they choose to or are forced to.

Why is there going to be a capital event?

Tom Peregoodoff (CEO of Peregrine Diamonds) has hinted a few times that 2018 is going to be a huge year for Chidliak. That is a tough task for a junior valued at CAD$60+ million.

In this latest press release, Eric Friedland (Executive chairman of Peregrine Diamonds) alludes to a strategy going forward. Here is the quote:

"We are currently assessing various options to advance the project and hope to be in a position to outline a comprehensive way forward to our shareholders very soon."

What type of capital event could occur?

1 - Takeover of the entire company. If the price is right, the whole company could be taken over in a share for share offer or a share for $$ offer.  Benefit to the suitor would be access to the over CAD$100 million in tax benefits that have accumulated over the years. Another benefit would be access to the BHP sample database that Peregrine Diamonds has in its possession. The suitor would also get access to the DO-27 pipe in Lac De Gras. Being that this would only work as a friendly takeover with both Eric Friedland and Robert Friedland owning about 46%, this basically would be a forced event on existing shareholders at a premium to market price.

2 - Approximately equal Partnership JV with Chidliak. Peregrine Diamonds has had 2 partners or options to partners in the past and both have fizzled out for various reasons. If they can get a JV that has real teeth and possibly contributes to Peregrine's share of the capital cost of the project, there would be a significant rally in the stock price and the volume of traded shares would be significant. This would create a window for anyone who wants to exit the stock.

3 - Minority investment into Chidliak with a significant payment to Peregrine Diamonds. This could be an investment from one of the top jewellers in the world. This again would create an increased liquidity event in the stock for any shareholders who would like to sell their shares.

Alternatives?

If Peregrine Diamonds fails to deliver on a 'comprehensive way forward', there may be another $5+ million summer drill program in store to try and add more value to the project. In this instance, the goal will be to increase value of the project, but would not create a liquid or 'capital' event.

Seeing that a summer drill program would need to kick off in and around July 1st...that leaves a short 4 weeks to get a deal of some sort done. The eve of a capital event!

Here is a key excerpt from the news release:

"The company owns all of the diamond marketing and sales rights and there are no non-government royalties or other encumbrances on diamond production."

There are a few projects (all commodities) in Canada that can say something similar to the above.