Chasing the carat: The Friedlands go diamond-hunting

A World of Mining special – Part 2 of 2

Part 1: Chasing the carat: Canada’s Queen of Diamonds comes full-circle | World of Mining

by James Kwantes

Stornoway Diamonds’ hostile takeover of Ashton Mining and Quebec’s Renard diamond project in January 2007 was followed by an exodus of Ashton executives and managers. Several departed for Peregrine Diamonds, which is advancing its flagship Chidliak project on Baffin Island.

Robert Boyd, Ashton’s president and CEO who had characterized the Stornoway offer as “stingy,” is now lead director at Peregrine. Brooke Clements, Ashton’s vice-president of exploration who led the team that discovered Renard, is now president of Peregrine. Other key employees also departed for Peregrine (some after staying on with Stornoway for a period of time).

THE FRIEDLAND CONNECTION

For those who moved from Ashton/Stornoway to Peregrine, the new boss was Eric Friedland, younger brother to legendary mining financier Robert Friedland.

Eric Friedland

Eric has a decidedly lower profile than his famous bro: Google “Eric Friedland” and you’re as likely to get swimming as mining hits. But his track record of value creation for shareholders is impressive.

Most recently, in 2011, Friedland sold Peregrine Metals – a spinout from Peregrine Diamonds – to Stillwater Mining for $487 million in cash and stock. The deal turned heads because Stillwater paid a staggering 280% premium (at the time of the deal) for Peregrine Metals and its main asset: the Altar copper-gold deposit in San Juan, Argentina.

The younger Friedland caught the mining bug from his brother Robert, who is 13 years older. An Oregon property where the brothers spent time as teenagers had an abandoned gold mine on it, and the brothers used to crawl around underground. One day, they found a quartz vein with visible gold. Eric was hooked.

Robert Friedland

The brothers teamed up on Fairbanks Gold, of which Eric was president, and sold its Fort Knox – how’s that for marketing? – deposit in Alaska to Amax Gold for $152 million in 1992 (Kinross merged with Amax in 1998).

With Robert’s participation in an October 2012 $10-million financing that gave him a 13% stake in Peregrine Diamonds, the brothers are back in business together.

Fun Friedland fact: During his hippie days, Robert set up a commune on the Oregon property called the All One Commune. The commune also had an apple farm – the same farm that inspired a young Steve Jobs, then a friend of Robert’s, to name his company Apple, according to the Jobs biography by Walter Isaacson. The charismatic Friedland was a strong influence on a young Jobs, with one early Apple employee saying Friedland inspired the Apple co-founder’s legendary “reality distortion field.”

DANCING WITH DE BEERS

Robert Friedland has scored big with nickel (Voisey’s Bay) and gold-copper (Oyu Tolgoi) but diamonds have proven to be a more illusive target. When Friedland’s Diamond Fields Resources hit paydirt, it contained nickel, not diamonds – and was sold to Inco for $4.3 billion (now owned by Vale). The older Friedland made his Peregrine investment just after listing Africa-focused precious/base metals explorer Ivanplats on the TSX.

It’s true that Robert’s Peregrine investment represents pocket change for the billionaire mining tycoon. Yet I suspect his diamond-hunting days are not yet done – and I don’t believe that his mention of ethical diamonds during a PDAC speech in early March was an accident. It’s buried near the end of this Reuters story.

The full quote, according to a CEO.ca accountof the speech, is this: “… you already have the concept of ethical diamonds; there is no young lady that wants a symbol of love in her engagement ring that comes from someone who was shot in the head after mining it.”

Marilyn Monroe shows some sparkle

It was a laugh line at the annual mining convention. But the Friedlands will get the last laugh if the bulk sample that Peregrine just collected from its CH-6 kimberlite yields the kind of treasures that a smaller mini-bulk sample did. That 14-tonne sample returned 2.84 carats per tonne, a grade that if confirmed by further testing would make CH-6 “one of the highest grade kimberlite pipes in the world,” according to the company’s website.

De Beers has until the end of 2013 to enter into an earn-in joint venture that would give it 51% of the Chidliak diamond project. But Peregrine is playing hard to get – Eric Friedland’s company is not processing the bulk sample until De Beers either commits or their right to earn-in expires.

Peregrine signed the deal with De Beers last fall after buying out previous partner BHP Billiton, which bailed on Chidliak in December 2011 and has since taken further steps to exit the diamond business altogether, including selling its 80% stake in the Ekati diamond mine.

Peregrine paid BHP $9 million for 51% of Chidliak and picked up an information gem in the process: BHP’s Canadian diamond exploration database. The exhaustive database was assembled over a 10-year period, contains data from 38,000 kimberlite indicator mineral samples covering 3 million square kilometres, and was acquired for a song. It’s a nice call option on future mineral discoveries, diamond or otherwise.

ERIC FRIEDLAND IS BUYING

Peregrine has been a horror show for long-term shareholders who have watched the stock ride from above $3 in late 2010 to 30-cent territory in recent weeks. But the man running the company continues to up his stake by purchasing shares in the public market.

Most recently, on April 17, Eric Friedland bought 38,500 shares at 32 cents. The day before, he bought 50,000 shares at 37 cents, according to Canadian Insider.

Insider trading records show that Eric has spent $450,000 in the past year on Peregrine stock and more than $2.2 million in the past two years. Virtually all of those purchases have been at higher prices than the current share price.

While the stock has been in the doldrums along with the entire junior mining sector, it’s starting to get some attention. Ray Gouldie, senior mining analyst at Salman Partners, included Peregrine among his top three picks in this BNN segment with Mark Bunting.

And John Kaiser of bottom-fishing fame also likes the story, as outlined in reports here and here. In the latter report, Kaiser describes PGD as a “good relative spec value buy” at 52 cents – almost 30% above the current price.

As of Feb. 12, Peregrine had $9.7 million in cash, according to the latest MD&A. Budgeted expenditures for 2013 are $7 million. The grim stock chart notwithstanding, I don’t believe PGD will join the ranks of juniors that run out of cash during this bear market, and the upside looks appealing.

Disclosure: I have recently taken a speculative position in Peregrine Diamonds. A look at PGD’s 5-year chart reveals that such an investment is not for the faint of heart. This is not advice; please read my disclaimer.

Related links:

The Global Diamond Industry: Portrait of Growth | Bain and Company

Robert Friedland and Steve Jobs: How one billionaire influenced another | World of Mining

Thanks bro: One Friedland helps another | World of Mining

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  • NayssMark

    It’s always amazed me that Ivanhoe spent time with US Cobalt in Missouri but completely missed neighboring processing plant with over 100 year old cobalt residuals and never mined property.