De Beers and Peregrine Diamonds to partner up for Chidliak

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.

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 that the extensive work leading up to and including the bankable feasibility study would be conducted in a professional, comprehensive and timely fashion. I’m very confident that these objectives will be met should our new partner, De Beers, the world’s most technically proficient, diamond mining and marketing company and a household name in the diamond industry for the past 124 years, decide to enter into the Chidliak Joint Venture.”

Mr. Tony Guthrie, De Beers Canada Inc.’s CEO, said, ”We see Chidliak as an exciting prospect and complementary to our existing pipeline of diamond operations and projects, which are the most comprehensive in Canada. With 50 years of experience in Canada, we look forward to bringing to bear our extensive knowledge of diamond exploration and mining as we work with Peregrine’s professional and experienced management team.”

The Option is subject to regulatory approval and BHP Billiton’s consent as required under the Purchase, Royalty and Security Agreements between Peregrine and BHP Billiton, which Peregrine and De Beers expect to receive in due course.