Peregrine Diamonds Ltd (PGD-T: $2.00)
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Spec Value Hunter Comment - December 3, 2009: Peregrine reports micro diamond results for last batch of 2009 kimberlites

Peregrine Diamonds Ltd reported on December 3, 2009 that kimberlites CH13-16 from the Chidliak project on south Baffin Island returned mediocre micro diamond results. CH-14 contained no micro diamonds, CH-15 and CH-13 returned 4 and 6 micro diamonds respectively of which the largest sat on a 0.3 mm sieve, and CH-16, which yielded long kimberlite intersections suggesting a decent sized body, returned 66 micro diamonds though none of these were caught by a sieve bigger than 0.1 mm. In short, these last four kimberlites of the 2009 season have zero macro grade potential based on the micro diamond size distribution curves. Hopes for a 100 cpht plus grade now hinge on CH-1, CH-6 and CH-7, with CH-10 and CH-12 offering modest macro grade potential. The micro diamond size distribution chart below depicts the better Chidliak kimberlites along with curves from other pipes for which the macro grade has been established through bulk sampling. Peregrine also reported that processing of the 50 tonne mini bulk sample excavated from the CH-1 kimberlite has finally begun. The sample encountered a six week delay after one of the transport ships broke a drive shaft offshore from Baffin Island during a storm and nearly went under. Peregrine believes it will have concentrates in hand by Christmas, but will not pick them for diamonds until January. By January the market will be focused on the upcoming drill season and the results of the 50 tonne CH-1 mini bulk sample will be of lesser importance than the question of how many more diamondiferous pipes will be found during the 2010 season. BHP Billiton has agreed to let Peregrine be the operator again during the 2010 season. If there has been any disappointment during 2009 it is that no diamondiferous kimberlites with large tonnage implications have been identified (ie 10 million tonnes plus per pipe), which means that unless the known kimberlites are confirmed as very high grade and high carat value pipes, more pipes will be needed to establish the critical mass BHP needs to make a decision to go to 58% by funding all costs to a feasibility study. Although the work plan for 2010 has not been decided, an obvious approach would be to conduct delineation drilling on CH-6, CH-7 and possibly CH10 and CH12 with the goal of collecting mini bulk samples in the order of 10-50 tonnes to establish macro grade, and collection of a mini bulk sample from CH-1 through delineation drilling if this year's mini bulk sample justifies it. But most importantly, Peregrine and BHP must start knocking off geophysical targets with subtle magnetic low or high signatures, because there is generally no positive correlation between diamond content and magnetic signature in a field of kimberlites. One would thus expect an intensive target drilling program in 2010 designed to deliver as many new pipes as possible, on the basis of whose micro diamond results BHP will be in a position to assess if the critical mass justifying a decision to go to 58% is present. It is thus conceivable that the 2010 program will be well in excess of the $11 million spent during 2009, which should blow past the $22.3 million BHP needs to spend to vest for 51%. Peregrine and BHP need to work out a solution to the problem of BHP meeting its 51% spending requirement part way through the season, and having to make a bump-up decision without the benefit of results that will arrive well after the heavy lifting dollars have been spent during 2010.

Peregrine's stock price has been under heavy selling pressure since the middle of November, apparently because a bankrupt fund needed to be liquidated. Once the stock had been pressured below $2, the level at which some brokerage firms allow a TSX listed stock to be margined, further selling pressure was unleashed. A bottom appeared to have been established in the $1.40-$1.50 range during the past week, and on Wednesday December 2 the stock bounced off the bottom, making it past $2 on heavy volume the day before the news release. Because there is nothing new to be joyful about in the latest news release, and some of the recent buying may have been premised on false short term expectations, there is a risk that Peregrine will sell off again during the coming weeks. When the initial CH-6 micro diamond results came out we recommended Peregine as a Good Spec Value Hunter Buy up to $2 based on the results to that point and evidence that CH-6 had a grade potential rivalling that of Diavik's A154 South pipe. Since then the stock has traded as high as $4.65 where we suggested that the valuation was running ahead of the fundamentals based on our rational speculation model. The stock has since retreated in price back to levels that prevailed immediately in the wake of the CH-6 news, even though since then Peregrine has reported additional promising kimberlites. While there is risk of tax loss selling between now and the end of the year, we suspect that the stock will come under strong accumulation from buyers who are looking for the outcome of the 2010 season and a target price in the $5-$10 range, and we hope that our readers will use this opportunity to bottom-fish for Peregrine below the $2 level. We expect the stock to be in an uptrend by the time January arrives and receive upside boosts from various developments before drilling resumes in April. The most obvious news would be the CH-1 mini bulk sample results, but more subtle news will be the result of regional till sampling on the 100% owned Qilaq project to the south of Chidliak where Peregrine collected 600 samples, micro-probe results from apparent indicator minerals plucked from the shores of the lakes covering a pair of large geophysical targets up-ice from an indicator mineral train in the northern part of Chidliak where no drilling has yet been done and whose chemistry is apparently similar to that of the central part of the property, and some sort of evidence that Peregrine and BHP have developed a way to prioritize the couple hundred less prominent geophysical targets. The big picture story remains that the archean craton on the southeastern part of Baffin Island is host to a field of hundreds of kimberlites within which there are several clusters hosting high value diamond pipes. This story remains intact and is the basis for my expectation that Peregrine will achieve the $5-$10 range during the 2010, and higher if Qilaq is demonstrated to also have potential for high grade diamond pipes. Editor's Note: Peregrine did sell off sharply on Friday December 4, opening at $1.70, trading as low as $1.57, and closing at $1.63 to close down $0.37 for the day. With all potentially negative news out of the way for the rest of the year, we expect any further tax loss selling between now and the end of the year to be balanced by buying focused on the 2010 exploration season which will start in April 2010. We confirm our earlier Good Absolute Spec Value Buy below $2.00 recommendation and strongly recommend that Spec Value Hunters use this window of typical seasonal weakness for diamond juniors to establish a position in Peregrine Diamond Corp if one is not already in place. Downside risk below $1.50 is linked mainly to general market conditions, and we would expect a bounceback after any general market related decline eases because Peregrine is a discovery play whose ultimate project value is unrelated to general economic and market factors of a short to medium term nature.