All That Glitters Definitely Not Gold
by Norman Duncan
Well, spring is over and summer is finally here. The markets seem to be reflecting this of late as they are
beginning to get that old summer slowdown look. The good news is that the worst of both the bear market and
economic slowdown looks to have run its course. The bad news is that the markets seem to have priced a
good deal of this recovery in already. Any bumps in the road could cause a significant pullback. While
I believe that such a drop would be a buying opportunity, the future remains as cloudy as ever. The
mining markets have been great if you are a trader, and disheartening if you are a longer-term investor.
Oil and gas have been more robust but prices seem to be a bit ahead of themselves. We are taking profits
early in these markets and trading aggressively. Long-term investors are, I believe, going to be rewarded,
but they must be patient. Wait for pullbacks in the market and accumulate your positions. I continue to
be a long-term bull on gold and the continued outpouring of money by the American government makes me
even more convinced of gold's long-term prospects. It is my belief we are seeing the root cause of a
longer-term inflation cycle, much like the period from the 1950s to its culmination in 1980. If this
is the case then gold and other hard assets should help to protect us from some of inflation's ravages.
One should be cautious and look at the time frame involved. The last upward inflation trend lasted
about 30 years and had many bumps along the way. I look at the long-term picture as a theme behind
one's investments. In that vein, accumulation of assets like precious metals appears to be a prudent
long term bet. One asset that acts similarly to gold is precious gems. Diamonds in particular have
been good holdings during inflationary times. Of late, the diamond industry in Canada has been somewhat
neglected by the investment world. That is usually an opportunity to buy low and it is that thought
that leads me to look at Peregrine Diamonds (PGD:TSX-V) in this issue of The Prospector.
Peregrine is a Canadian junior mining company with assets primarily focused on diamonds and holdings mainly in northern Canada. The company has two principal ongoing programs, Nanuq in the eastern Arctic region and Chidliak on southern Baffin Island. On the Chidliak project the company has defined three diamond-bearing kimberlites at surface. The property is 9,800 km2 in size and the three pipes are six, three and two hectares in size. A 2.28-tonne sample collected from one of these kimberlites, CH-1, in 2008 returned a diamond content of 1.56 carats per tonne for diamonds larger than the 0.85 mm sieve size. A 2.01 carat, gem-quality diamond was recovered from the sample. In the fall of last year BHP Billiton exercised its right to earn in to the property, with a stake of up to 51 percent, by spending five times the exploration expenses incurred to date by Peregrine. The minimum annual expenditures over the next five years are $5 million. The 2009 program will be operated by Peregrine and has a $9.2 million budget funded by BHP. Drilling is slated to begin at the time of writing (late June).
Also in Nunavut, reconnaissance-scale exploration programs conducted on Baffin Island have led to the acquisition of prospecting permits covering close to 828,000 hectares in two property areas, Kimmirut and Flint Lake. Metals anomalies have been identified on these permits and deposit targets include uranium, copper-lead-zinc and gold. The Nanuq property has three known diamond-bearing kimberlites discovered in 2007. The project is at a relatively early stage with a $1.5 million budget for this year's exploration, which will involve further sampling and follow-ups on geophysical anomalies. Successful results will result in a drill program on the property in 2010. The company is also planning to follow up on early stage discoveries on the Nanuq North property, which lies 17.0 km north of the three pipes mentioned here.
Peregrine Diamonds stock has a one year high:low of $0.87:$0.165 and is currently trading in the $0.60 range. There are approximately 81 million shares outstanding and the stock has a recent trading average of about 50,000 shares per day. The company has a very experienced management team and the president, Mr. Brooke Clements, has over 25 years of experience in the diamond exploration business. This company interests me for two main reasons: Firstly, the sector is somewhat neglected. Diamonds have fallen off of most investor's radar screens of late and I always like to look at such situations. Secondly, the involvement of BHP, my old friend and former employer, is significant. This is a major player in the mining industry and doesn't spend its money lightly. The size of the program this year – over $9 million – indicates that BHP is seriously interested in this project. The great thing about this for Peregrine is that it allows the company to truly explore the property in a big way at no cost and frees up resources for its other projects. I look at this company as a legitimate longer-term speculative play on the diamond sector with near term potential based on this summer's exploration season. Those of you who like diamonds and/or are of a somewhat contrarian nature should take a look at Peregrine Diamonds but, as always, caveat emptor.
This article is solely the work of its author, Norm Duncan, a registered investment advisor at Canaccord Capital Corporation. The views (including any recommendations) expressed in it are those of the author alone, and are not necessarily those of Canaccord Capital. The information contained herein is drawn from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Capital assume any liability. The holdings of the author, Canaccord Capital, its affiliated companies and holdings of their respective directors, officers and employees and companies with which they are associated may, from time to time, include the security mentioned in this article.
