De Beers Completes An Option To Joint Venture The Chidliak Diamond Project And Commits To A Financing With Peregrine

September 5, 2012 PDF version
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 above.
  • 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.
The 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