September 5, 2012
Peregrine Diamonds Ltd. (“Peregrine” or “the Company”) (TSX:PGD) is
pleased to announce that it has completed an option and subscription
agreement (“the Option”) with De Beers Canada Inc. (“De Beers”) whereby
De Beers has the exclusive right, until December 31, 2013, to enter into
an earn-in and joint venture agreement (“the Joint Venture”) with
Peregrine on a 50.1% De Beers / 49.9% Peregrine ownership basis for the
Chidliak diamond project (“Chidliak” or “the Project”) located on Baffin
Island, Nunavut, Canada. Under the Joint Venture, De Beers will be the
project operator and will undertake mineral exploration and development
work potentially leading to the completion of a National Instrument
(“NI”) 43-101 compliant, Bankable Feasibility Study (“BFS”) and, if
warranted, the construction of a diamond mine.
As consideration for the Option, De Beers will complete a $2.5 million
private placement unit offering in Peregrine priced at $0.75 per unit.
Each unit consists of one common share and one-half share purchase
warrant with each whole warrant entitling De Beers to buy a common share
in Peregine for $2.00 per share for a period of 24 months.
In addition, De Beers will make the January 31, 2013, $2.5 million
payment due to BHP Billiton Canada Inc. (“BHP Billiton”) that is
required under Peregrine’s agreement to purchase BHP Billiton’s 51%
interest in Chidliak as first announced on December 20, 2011. Both the
private placement and this payment will be credited towards De Beers’
earn-in requirements described below.
Should De Beers decide to exercise the Option, Peregrine and De Beers
have agreed on the material terms of the Joint Venture which will
include the following:
- De Beers is required to invest $58.5
million into Chidliak to earn a 50.1% interest in the Project, with a
minimum work commitment of $37 million.
- De Beers is to finance all work at Chidliak from when they
enter into the Joint Venture until the completion of the BFS, inclusive
of appropriate environmental impact studies necessary for evaluating the
feasibility of commercial diamond production. De Beers will use
commercially reasonable efforts to deliver the BFS in a timely manner,
subject to force majeure provisions.
- Peregrine is to reimburse De Beers 49.9% of all Chidliak costs
in excess of $58.5 million, the point at which De Beers has earned its
50.1% interest, to completion of the BFS. Reimbursement will consist of
an aggregate of $25 million payable in four escalating staged payments
at certain milestones beginning with the approval by the participants of
the completed BFS and ending with the completion of mine construction,
with the balance payable from 66% of Peregrine’s attributable after tax
cash flow from a diamond mine at Chidliak.
- Should De Beers decide to exit the Joint Venture prior to
completion of the BFS, Peregrine can purchase De Beers’ unencumbered
earned interest in Chidliak for De Beers’ expenditures on the Project,
less $20 million, under a payment schedule similar to that outlined
- Both De Beers and Peregrine hold mutual pre-emptive rights over the sale of any interest in Chidliak.
- Following De Beers’ earn-in, annual work programs and budgets will require unanimous approval of the participants.
- Each participant is to retain diamond marketing rights for their respective share of production.
Joint Venture will be governed by a management committee comprised of
equal representation from each of De Beers and Peregrine, with De Beers
having the right to appoint a chairman. Each party’s voting rights will
be in proportion to their respective ownership in the Project. From
commencement of the Joint Venture until completing their earn-in, De
Beers will have 50.1% of the voting rights.
If either Peregrine or De Beers does not wish to proceed with a work
program to construct a mine at Chidliak in accordance with the BFS,
either participant may propose a plan and budget in respect thereof and
the other party has the opportunity to participate, exit or dilute.
Mr. Eric Friedland, Peregrine’s CEO, said, “When we began discussions
with potential partners for Chidliak last March, our principal objective
for any future joint venture transaction was to ensure certainty of
finance, in a manner that minimized share dilution to Peregrine’s
shareholders, for completion of a NI 43-101 compliant, bankable
feasibility study. We also wanted to ensure t