Operations Review - 2011

2011 Chidliak

For 2011, exploration expenditures of $8.8 million were spent at Chidliak, $2.1 million at Nanuq and Nanuq North, $2.2 million at Qilaq and Cumberland, the balance was incurred on Lac de Gras and other exploration initiatives.

Chidliak expenditures increased in 2011 as the Company was required to contribute its 49% share of expenditures for the full fiscal period following BHP Billiton’s earn-in on this project and formation of a joint venture in September 2010.

At December 21, 2011, the Company had a working capital balance of approximately $12.7 million. As a result of the increase in ownership of the Chidliak property to 100% and the resultant increase in funding obligations for this property, exploration activities and budgeted expenditures for 2012 are currently under review.

OUTSTANDING SHARE DATA

The Company is authorized to issue an unlimited number of common shares without par value. As at December 21, 2011: 104,323,639 common shares were issued and outstanding; 15,673,833 share purchase options were outstanding; and 3,578,331 share purchase warrants were outstanding.

On a fully diluted basis, 123,575,803 common shares would be outstanding. As at December 21, 2011, there were no common shares or share purchase options subject to escrow restrictions.

The Company successfully concluded the 2011 field program at Chidliak in mid-September. One major objective of the 2011 program was to continue the detailed exploration of kimberlites with economic potential, in preparation for bulk sampling.

The drilling of over 5,500 metres on six high-potential kimberlites, and extensive logistical planning and arrangements, have set the stage for bulk sampling of select kimberlites by way of large diameter reverse circulation drilling. A bulk sampling program would aim to extract roughly 200-carat diamond parcels per kimberlite to support independent diamond valuations, considered a crucial step towards determining economic viability.

Another objective this past season was to find new kimberlites and nine kimberlites were discovered bringing the current number of known kimberlites at Chidliak to 59.

In 2011, core drilling was completed on six of the seven kimberlites with economic potential

identified to date at Chidliak, CH-6, CH-7, CH-28, CH-31, CH-44 and CH-45, and a 33.5 tonne

mini-bulk sample was collected from surface at CH-28.

Six of the kimberlites with economic potential are located within an area with an eight kilometre radius, “the Southern Focus Area”, whereas one, CH-28, is located 45 kilometres north of the Southern Focus Area. New microdiamond results from CH-7, CH-28, CH-44 and CH-45 confirm previously reported coarse diamond size distributions. Microdiamond results from the CH-17, CH-51 CH-52, CH-55 CH-58 and CH-59 kimberlites all yielded commercial-size diamonds. All diamond analyses are being performed at the Saskatchewan Research Council Laboratories (“the SRC”) in Saskatoon.

The 2011 exploration season commenced in March and was completed in September. The primary work activities for the 2011 programme included 8,468 metres of core and 1,530 metres of reverse circulation drilling, collection of a mini-bulk sample of approximately 3.9 tonnes by core drilling from the CH-31 kimberlite, collection of a 32.5 tonne mini-bulk sample from the surface of the CH-28 kimberlite, completion of a 11,105 line-kilometre heli-borne magnetic-electromagnetic geophysical survey, ground geophysical surveys, collection of 443 heavy mineral samples, prospecting, initiation of preparations for a multi-kimberlite bulk sampling program, and continuation of environmental baseline studies and archeological surveys.

The Company has discovered nine kimberlites since the beginning of the 2011 field programme, bringing to 59 the total number of kimberlites discovered at Chidliak since August, 2008.

The Company was the operator of the 2011 exploration programme and its anticipated share of the 2011 programme costs will be approximately $10.3 million of which $8.3 million has been spent to September 30, 2011.

As a result of its ownership increase in Chidliak to 100 percent, the Company will now undertake a comprehensive analysis of the 2012 program to determine how to most efficiently advance the project considering the best interests of the Company’s shareholders. At this time, continuing preparations for a 2012 bulk sampling program will be put on hold until a final decision on the path forward is made in January, 2012.

Qilaq Project

The Qilaq project consists of 33 prospecting permits covering approximately 449,000 hectares (4,490 square kilometres) which were acquired bordering Chidliak to the north, east and south.

In 2009 and 2010, the Company conducted exploration programmes at Qilaq in order to evaluate diamond and base or precious metal potential.

The analysis of soil and rock samples which were collected during these programmes revealed seven samples with at least one probe-confirmed KIM, 213 samples containing at least one gold grain and 31 samples containing one or more grains of sperrylite. Sperrylite is a platinum-bearing mineral that is often associated with rocks that contain significant amounts of platinum, palladium and nickel. A 670 line-kilometre helicopter-borne magnetic/electromagnetic geophysical survey was also completed in 2010.

In 2010, the Company announced the discovery of two kimberlites, named Q1 and Q2, and reported caustic fusion micro diamond results for a 62.7 kilogram surface sample from the Q1 kimberlite and a 241.5 kilogram surface sample from the Q2 kimberlite. These results can be found in the Company’s news releases which are available on the Company’s website (www.peregrinediamonds.com) and SEDAR.

The Company has completed the 2011 exploration programme at Qilaq which included a 3,700 line-kilometre airborne electromagnetic/magnetic survey in June and, during June and July, a ground magnetic geophysical survey was completed over 10 anomalies that were selected from this airborne survey.

Additionally, 122 till samples were collected and several metals prospects were evaluated. In August, 2011, the Company announced the discovery of Q3, the third kimberlite on the Qilaq project which was discovered by RC drilling within the 100%-owned area of Qilaq. In addition, one RC hole was drilled into the Q1 kimberlite.

Kimberlite chip samples collected from both Q1 and Q3 kimberlites were sent to the SRC for diamond analysis by caustic fusion. A 179.5 kilogram sample from Q3 yielded two diamonds larger than the 0.106 mm sieve size and results are pending for the Q1 sample. Total 2011 programme costs at Qilaq are approximately $1.4 million.

Kimberlite-type geophysical anomalies selected from the airborne and ground geophysical surveys will be prioritized for evaluation in 2012 upon receipt and interpretation of the till sampling results. The scope of a 2012 metals exploration programme at Qilaq will be determined upon interpretation of all results from the 2011 metals programme. The preliminary estimated budget for the 2012 programme at Qilaq is $500,000.

Cumberland Property

The Cumberland property is held 100% by the Company and consists of 40 prospecting permits covering approximately 527,000 hectares (5,270 square kilometres) on the Cumberland Peninsula, Baffin Island.

The Cumberland permit group has geologic characteristics that are considered by the Company to be similar to those at Qilaq and Chidliak. The centre of Cumberland is located approximately 200 kilometres north of Chidliak and east of the community of Pangnirtung.

In February, 2010, Peregrine acquired 119 Prospecting Permits on the Cumberland Peninsula totalling approximately 1,500,000 hectares (15,000 square kilometres). During July and August, 2010, the Company conducted a reconnaissance sediment sampling programme to evaluate Cumberland’s diamond and metals potential.

A total of 341 heavy mineral samples was collected during the programme. No kimberlite indicator minerals were recovered from any of these samples, but samples from 35 sites returned anomalous concentrations of magmatic or sulphide indicator minerals and/or anomalous geochemical signatures.

In early 2011, the Cumberland project was reduced to 40 prospecting permits totalling approximately 527,000 hectares. Follow-up work was completed in 18 target areas that selected after interpretation of the 2010 sample data indicated metals potential. Totals of 281 rock and 597 sediment samples were collected during July and August. Total 2011 programme costs at Cumberland were approximately $725,000.

The scope of a 2012 metals exploration programme at Cumberland will be determined upon the final interpretation of all results from the 2011 programme. The preliminary estimated budget for the 2012 programme at Cumberland is $500,000.

Nanuq Project

In 2011, field work on the Nanuq Project was conducted in the months of June, July and August. A total of 49 heavy mineral samples was collected to further define unresolved indicator mineral dispersion trains. Six ground magnetic surveys totalling 111 line-kilometres and five ground resistivity surveys totalling seven line kilometres were conducted over geophysical targets selected from existing airborne data sets. Four of these anomalies were subsequently drilled for a combined length of 585 meters.

No kimberlite was intersected by drilling.

Total 2011 programme costs at Nanuq were approximately $1.9 million. In September 2011, the Company adjusted the carrying value of the Nanuq property to reflect the reduction in the size of the property through the net relinquishment of a number of mineral property claims. This adjustment was calculated on a pro-rata claims basis and resulted in a decrease in the carrying value of Nanuq from $1.4 million to $561,000.

In 2011, field exploration consisted of one 17 line-kilometre ground magnetic survey completed over an airborne magnetic anomaly. One magnetic anomaly was diamond drill tested to a depth of 214 meters, no kimberlite was intersected.

Nanuq North

Total 2011 programme costs at were approximately $63,000, of which the Company’s share is $33,000. The Company has downgraded the priority of the Nanuq North property due to exploration results and has limited plans for further exploration activities. Accordingly, in September 2011 the Company wrote-off the carrying cost of Nanuq North in the amount of $275,000.

The Company is currently evaluating all exploration data from Nanuq. Work being contemplated for 2012 could include ground and airborne geophysics, target drilling and heavy mineral sampling. Preliminary budget estimates for 2012 are approximately $100,000.

A field exploration programme was undertaken in 2011 on the WO property in order to review and fully evaluate kimberlite exploration potential. Activities in 2011 included ground geophysics, a legal survey of mineral claims in order to bring them to lease and a site reclamation assessment and other ongoing care and maintenance work at DO-27. Costs for the 2011 programme were approximately $180,000 of which the Company’s share is $129,000.

WO property

The Company is currently planning a winter ground geophysics and drilling program in 2012 in an effort to evaluate new targets on the WO property. The estimated budget for work contemplated in 2012 is $450,000, of which approximately 72% is the Company’s share.

Lac de Gras Property, Northwest Territories

The Lac de Gras property consists of 95 mineral claims covering approximately 87,000 hectares (870 square kilometres) located 300 kilometres northeast of Yellowknife. The Company owns a 65% joint venture interest in 41 of these claims; the remaining 54 claims are wholly-owned by the Company. In addition, these properties are subject to certain gross overriding royalties of between 2% and 4%. 50% of each of these royalties can be purchased by the Company for amounts ranging from $2.0 to $4.0 million.

Due to prioritization of the Company’s exploration programmes during 2009 and 2010, only minimal expenditures were incurred at the Lac de Gras property in these years. Activities in 2011 included ground geophysics and a legal survey of certain mineral claims in order to bring them to lease. Costs for the 2011 field programme were approximately $355,000 of which the Company’s share is $292,000.

The Company is currently planning a winter ground geophysics and drilling program in 2012 in an effort to evaluate new targets on the Lac de Gras property. The estimated budget for anticipated work programmes on the Lac de Gras property in 2012 is $1.1 million of which approximately $840,000 is the Company’s share.

TW property.

The Company acquired a 100% interest in five mineral exploration claims with an aggregate area of approximately 4,772 hectares located in the Northwest Territories known as the TW property. In April 2006, the Company granted Viking Exploration Inc. (‘Viking’) an option to acquire a 60% interest in the Company’s right in the TW property with respect to gold exploration by undertaking certain work and expenditure commitments. In July, 2010, Viking gave notice to the Company that these work and expenditure commitments had been completed. The Company is currently awaiting a project update and analysis from Viking.

The Company Increases Ownership in Chidliak to 100%

On December 20, 2011 the Company entered into a binding agreement with BHP Billiton to purchase BHP Billiton’s 51 percent participating interest in the Chidliak property.

The purchase gives the Company a 100 percent ownership of Chidliak. Under the terms of the agreement, the Company will pay a total of $9.0 million over a period of three years, and grant BHP Billiton a two percent royalty on any future mineral production from Chidliak.

The Company has the right to match any offer by a third party to purchase any of the royalty, should BHP Billiton decide to sell. In addition, as part of the transaction, the Company has acquired BHP Billiton’s Canadian regional diamond exploration database and BHP Billiton has agreed to extinguish the Company’s royalty obligations and BHP Billiton’s diamond marketing rights on certain properties.

Terms of the Chidliak property purchase agreement include:

• 100 Percent Ownership. BHP Billiton will transfer its entire 51 percent participating interest in Chidliak to the Company, giving the Company 100 percent ownership of the project complete with 100 percent of the diamond marketing rights.
• Closing. The Company and BHP Billiton agree to close the transaction on or before January 31, 2012.
• Payments. $9.0 million as follows: $1.5 million at closing and $2.5 million on each of January 31, 2013, January 31, 2014 and January 31, 2015.
• Royalty. The Company will grant BHP Billiton a two percent royalty on mineral production from Chidliak. The Company has the right to match any offer by a third party to purchase any of the royalty, should BHP Billiton decide to sell.
• Regional diamond exploration database. The Company will acquire exploration data and archived heavy mineral concentrates for sediment samples that were collected by BHP Billiton during regional diamond exploration programs in Canada.
• Termination of Royalties and Diamond Marketing Rights. The following obligations of the Company to BHP Billiton will be terminated: o 2 percent royalty and certain diamond marketing rights on 57% of claims on the Nanuq property

• 2 percent royalty on the TW property
• 0.7 percent royalty on certain portions of the WO and Lac de Gras properties
• 1 percent royalty and certain diamond marketing rights on the Pellatt Lake property

Regards

Hg

Dec 21 2011