PEREGRINE DIAMONDS LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Three Months Ended December 31,2008

OVERVIEW

Peregrine Diamonds Ltd. ("Peregrine") (which, together with its subsidiaries, is collectively referred to as the "Company") is a mineral exploration company with interests presently consisting of diamond exploration properties located in the Nunavut, the Northwest Tenitones and Manitoba in Canada.

The Company's primary exploration properties are the Chidliak diamond property on Baffin Island and the Nanuq diamond project in Nunavut.

Other mineral exploration properties include the WO diamond project in the Northwest Territories, diamond and metals exploration properties on Baffin Island known as Kimmirut and Flint Lake ,diamond exploration properties known as the Lac de Gras East, Lac de Gras West and TW in the Northwest Territories and the Nanuq North diamond exploration property in Nunavut.

The Company holds a 71 35% interest in the WO Property, located in the Northwest Territories, which contains the DO-27 kimberlite pipe which has an indicated resource of 18.2 million carats of diamonds.

HIGHLIGHTS

$3.5 Million Rights Offering Announced

On January 19,2009, Peregrine announced that it will offer rights to holders of its common shares of record at the close of business on January 27,2009 (the "Record Date"), expiring February 19,2009 ("Expiry Date"). The offering was made in all of the provinces of Canada (except in Qdbec) and in such other jurisdictions where the Company is eligible to make such offering.

Shareholders of record on January 27,2009 received one right for each common share held. Seven (7) rights will entitle the holder to purchase one unit at a price of $0.35 per unit. Each unit is comprised of one common share and one-half of a common share purchase warrant ("Warrant").

Each whole Warrant entitles the holder to purchase one common share for a term of two years following the Expiry Date of the rights offering at a price of $1 .OO during the first year and $1.50 during the second year of the term. Exercise of the rights and purchase of the units must be completed by 5:00 p.m. (Toronto time) on the Expiry Date.

Shareholders who fully exercise their rights are entitled to subscribe pro rata for additional Units, if available, that were not subscribed for initially on or before the Expiry Date. A fully subscribed rights offering will raise gross proceeds of $3.5 million, which will be used for exploration expenses on the Company's mineral properties and general working capital.

Peregrine to conduct $9.2-million Chidliak program

Peregrine Diamonds Ltd. has approved a 2009 diamond exploration program with a budget of $9.2-million for the 9,800-square-kilometre Chidliak property, Baffin Island, Nunavut, Canada.

Peregrine will be the operator of the exploration program, which will be fully financed by BHP Billiton.

As announced in the company's news release in Stockwatch on Nov. 24, 2008, BHP Billiton has elected to exercise its earn-in rights for Chidliak and, under the terms of the earn-in agreement, must incur a total of $22.3-million in exploration expenditures in order to earn a 51-per-cent interest in the property, with a minimum commitment of $8.9-million in exploration expenditures or cash payments in lieu to Peregrine.

Upon successful completion of the earn-in, BHP Billiton will have a one-time election to earn an additional 7-per-cent interest by delivering a fully engineered, bankable feasibility study on the property.

Three diamondiferous kimberlites, designated CH-1, CH-2 and CH-3, were discovered at surface by Peregrine at Chidliak in 2008. On Nov. 18, 2008, the company announced in Stockwatch that a 2.28-tonne sample collected from CH-1 returned a diamond content of 1.56 carats per tonne for diamonds larger than a 0.85-millimetre sieve size and that a 2.01-carat, gem-quality, octahedral diamond was recovered from the sample. Based on its geophysical signature, the estimated surface expression of CH-1 is six hectares.

Approximately 170 kimberlite-type geophysical anomalies have been identified from an airborne geophysical survey completed in 2008, over less than 15 per cent of the property. Many of the geophysical anomalies are associated with kimberlite indicator mineral (KIM) trains.

The 2009 Chidliak exploration program was carefully designed to further evaluate the known kimberlites, to drill test high-priority kimberlite-type targets, and to prepare for a substantial 2010 exploration program by expanding the till sample coverage, and by prospecting and geochemical sampling of at least 100 of the known geophysical anomalies.

The following are the key components of the 2009 exploration program:

• Drilling:
  • High-priority kimberlite-type geophysical targets will be drill tested and approximately 500 metres of core drilling is planned for each new kimberlite discovery. The CH-1 kimberlite will be evaluated by core drilling and consideration will be given to drilling the CH-2 and CH-3 kimberlites this season.
• Mini-bulk sample:
  • A mini-bulk sample of approximately 50 tonnes will be collected by trenching from the CH-1 kimberlite, shipped to an appropriate Canadian laboratory and processed to recover commercial-sized diamonds. The sample will be collected using a Caterpillar Skid Steer.
• Heavy mineral sampling:
  • Approximately 1,200 till samples will be collected and processed to extract KIMs. The data will be used to prioritize exploration activities in 2010, including future drill targets.
• Ground geophysics:
  • Ground magnetic and ground electromagnetic surveys will be completed on approximately 20 geophysical anomalies.
• Ground checking of anomalies:
  • Over 100 geophysical anomalies will be evaluated on the ground by prospecting and geochemical sampling.
• Camp construction:
  • A second exploration camp capable of supporting 25 people will be constructed.
• Environmental baseline studies:
  • Baseline environmental and archaeological data will be collected, and future access and infrastructure needs will be assessed.

BHP Billiton has the right to modify the approved budget.

The Chidliak boundary is located only 60 kilometres from Iqaluit, capital of Nunavut. Multiple access points to tidewater that connects to the Atlantic Ocean are present within the property. Fuel, other consumables, construction materials and equipment were purchased and shipped to Iqaluit in 2008, in preparation for the 2009 exploration program. As a result, mobilization to Chidliak is scheduled to begin in April, 2009, two months ahead of previous programs.

Brooke Clements, president of Peregrine, stated: "We have planned an efficient diamond exploration program that will involve up to 50 people, two helicopters, a core drill and excavation equipment. We are confident that additional diamondiferous kimberlites will be discovered, and the process of evaluating the economic potential of the three diamondiferous kimberlites already identified will begin with the drilling and sampling of CH-1.

All of this year's work is intended to set the stage for a 2010 exploration program that will likely include the testing of multiple new targets with at least two drills, the evaluation of additional kimberlites by a second phase of drilling and the collection of additional mini-bulk samples.

The highest safety standards, and respect for the environment and local communities, will continue to be top priorities at Chidliak."

Peter Holmes, PGeo, Peregrine's vice-president, exploration, is a qualified person under NI 43-101, and is responsible for the design and conduct of the programs carried out by the company on the Chidliak property. Mr. Holmes has reviewed this release and approves of its contents.

OUT STANDING SHARE DATA;

95,332,906 on a fully diluted basis as at Feb. 12 2009

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2008, the Company had a working capital balance of $307,000 and cash resources of $13 1,000. Accounts receivable at September 30, 2008 consist primarily of refundable GST, an amount receivable from BHP Billiton in respect of expenditures on the Chidliak property and amounts receivable from Peregrine Metals Ltd. for shared office facilities and personnel. All amounts are current and either have been or are expected to be received during the forthcoming quarterly period.

During the three months ended December 31, 2008, the Company spent $2.0 million on operations. Cash inflows during the period consisted of $1 6,000 from the sale of capital assets.

At February 10, 2009, the Company had a working capital balance of approximately $300,000. Budgeted expenses for 2009 are estimated to be $12.7 million, consisting of exploration expenditures of $1 1.2 million and general and administrative and capital expenditures of $1.5 million. On November 24, 2008, the Company announced that BHP Billiton had elected to exercise their back-in rights on the Chidliak property on Baffin Island. Under the terms of this back-in BHP Billiton will be responsible for approximately $8.6 million of these budgeted exploration expenditures for 2009. In addition, as the operator of the project for 2009, the Company will receive a management fee which will partially offset administrative costs during 2009. It is estimated that net expenditures incurred by the Company during 2009 will be approximately $3.5 million.

On January 19, 2009, Peregrine announced that it will be offering rights to holders of its common shares of record at the close of business on January 27, 2009, expiring February 19, 2009. This rights offering will be completed on February 20, 2009 and, if fully subscribed, will raise gross proceeds of $3.5 million.

MINERAL PROPERTIES

Baffin Island, Nunavut

The Company is undertaking exploration activity on Baffin Island and has been issued prospecting permits covering an area of over 2.8 million hectares which encompasses four properties: Chidliak, Kimmirut, Flint Lake and a new permit area acquired on February 2, 2009, subsequent to the reporting period.

Chidliak Property

During 2008, the Company completed an 1 1,700 line kilometre heli-borne magnetic/electromagnetic survey with 100 metre line spacing over priority areas of the property. To date over 170 kimberlite- type anomalies have been identified from the preliminary survey data, and interpretation of final survey data is undenvay.

Three diamondiferous kimberlites, CH-l, CH-2 and CH-3, estimated from geophysics at being six, three and two hectares in size respectively, were discovered at surface while field checking priority targets selected from the airborne geophysical data. Ground magnetometer surveys were completed over four priority anomalies including the CH-l kimberlite. A total of 221 till samples was collected. These samples were analysed by Overburden Drilling Management in Nepean, Ontario for kimberlite indicator mineral and metamorphic and magmatic massive sulphide indicator mineral analyses.

SUMMARY OF CH-1 MINI-BULK SAMPLE DIAMOND RESULTS

The diamond content of the mini-bulk samples collected to date may not be fully representative of the overall diamond grade of the CH-l kimberlite due to a number of factors including the limited area of the surface of the kimberlite from which the samples were collected and the relatively small size of the samples.

The two largest diamonds in the 1.17 tonne sample of CH-1A were a 2.01 carat gem quality white/colourless octahedron measuring 7.50 X 5.50 X 3.60 mm and a 0.22 carat off-white fragment measuring 5.20 X 4.00 X 0.88 mm. The two largest diamonds in the l. l l tonne sample of CH-1B were a 0.33 carat off-white aggregate measuring 4.30 X 3.30 X 2.00 mm and a 0.14 carat white/colourless octahedron measuring 3.12 X 2 -24 X 1.80 mm.

The diamond results from the 2.28 tonne mini-bulk sample provide support to the initial caustic fusion diamond results for the 288.9 kilogram sample that indicated a coarse diamond size distribution within the CH-1 kimberlite. A coarse diamond size distribution is often a favourable indicator for the ultimate average diamond value of a kimberlite.

On November 24, 2008, the Company announced that BHP Billiton has elected to exercise its eam- in rights for the Chidliak property. The agreement calls for BHP Billiton to incur a total of $22.3 million in future exploration expenditures on the Chidliak property in order to earn a 51 percent interest, with a minimum commitment of $8.9 million.

Once BHP Billiton has earned its initial 51 percent interest, it will then have a one-time option to earn an additional seven percent (7%) interest in the Chidliak property by sole-funding the complete costs of a bankable feasibility study. If this option is exercised, the resulting ownership interests in any potential mine would be BHP Billiton 58 percent and the Company 42 percent. If BHP Billiton does not elect to exercise the second option, BHP Billiton and the Company will advance the project maintaining their respective 51 percent and 49 percent interests. If BHP Billiton elects to exercise this second option but fails to complete it as required by the agreement, the Company, under certain conditions, will have the right to complete the bankable feasibility study to earn a 58 percent interest in the Chidliak property. The Company can market its share of any diamond production after the first three years of commercial production where BHP Billiton owns a 58 percent interest in the Chidliak property as a result of sole-funding a bankable feasibility study. The Company has the marketing rights to its share of diamonds at the commencement of production where the Company has funded either its pro-rata share or the full costs of completing the feasibility study.

The Company and BHP Billiton have finalized the details of a planned $9.2 million 2009 Chidliak exploration program that will be focused on further evaluation of the three known kimberlites, exploration to discover additional diamondiferous kimberlites, and validation of over 170 known kimberlite-type geophysical anomalies. The Company will continue to act as operator of the Chidliak exploration program; however, BHP Billiton is entitled to become the operator at any time while it is sole-funding operations. The 2009 exploration program will include the following elements: the drilling of new kimberlite targets and definition drilling of the CH-l and CH-2 kimberlites, a mini-bulk sample of approximately 50 tonnes from the CH-l kimberlite, heavy mineral sampling, ground geophysics, ground checking of anomalies, camp construction and an environmental baseline study. BHP Billiton has the right to modify the approved budget.

OtherBa ffin Island Properties

Reconnaissance-scale heavy mineral sampling programs conducted in 2007 by the Company in select areas with previously identified heavy mineral anomalies confirmed the anomalies and aided in defining several areas of interest that were selected for permitting. On February 2, 2009, the Nunavut Mining Recorder notified the Company that its application for 86 prospecting permits totalling over 1.2 million hectares adjacent to the Chidliak property was accepted. In addition, other existing permits held by the Company are situated in two property areas, Kimmirut and Flint Lake where uranium anomalies have been identified. Highly anomalous concentrations of the uranium- bearing mineral uraninite-thorianite were recovered from till samples collected in 2007. Uraninite is the principal ore mineral in most uranium mines in the world.

Exploration activities for the other Baffin Island properties in 2008 included heavy mineral and geochemical sampling, prospecting, geological mapping and ground scintolometer surveys. Planned expenditures on the other Baffin Island properties for 2009 are currently estimated to be approximately $680,000.

Nanuq Property, Nunavut

The Nanuq property ("Nanuq") consists of 320 mineral claims covering 313,859 hectares in Nunavut, Canada.

In 2007 the Company discovered three kimberlites at Nanuq. All three of these kimberlites returned encouraging diamond results, and two of them, Kayuu and Natuarlik, have estimated surface areas of five and six hectares respectively. The best diamond counts were from the Tudlik kimberlite where an 89 kilogram sample yielded 112 diamonds larger than the 0.075 mm sieve size, including two diamonds larger than the 0.6 mm sieve size. Microdiamond analyses were canied out at SRC.

Exploration activities conducted at Nanuq in 2008 included ground geophysical surveying over selected priority airborne anomalies and the staking of additional claims. During 2008, expenditures on the Nanuq property totalled $1.6 million.

Peregrine management is confident that additional kimberlites will be discovered at Nanuq, as numerous geophysical anomalies have been identified, many with associated kimberlite indicator mineral trains. The Company is currently planning a 2009 exploration program with a budget of $1.5 million that will include heavy mineral sampling and field checking of geophysical anomalies.

Mr. Peter Holmes, P. Geo., Peregrine's Vice President, is a Qualzjied Person under NI 43-101 and

is responsible for the design and conduct of the programs carried out by the Company on the Nanuq property.

Nanuq North Property, Nunavut

Exploration activities for 2008 at Nanuq North included an airborne geophysical survey, ground geophysical surveying and limited drilling. The Company's share of expenditures at the Nanuq North property for 2008 were approximately $478,000.

In June an airborne geophysical survey was completed over a portion of Nanuq North. On September 3,2008, the Company and Indicator announced the discovery of a new kimberlite, NQN- 001, estimated at 4.5 hectares in size.

On February 10,2009, the Company and Indicator announced initial diamond results from the NQN- 001 kimberlite. A total of 206 diamonds larger than the .075 mm sieve size was recovered by caustic fbsion from a 152.75 kilogram sample of the NQN-001 kimberlite.

A 125.75 kilogram sample collected from the top 64.0 metres of the drill hole yielded 0.89 diamonds per kilogram while a 27.00 kilogram sample collected over a 13.7 metre interval at the bottom of the hole yielded 3.48 diamonds per kilogram.

The largest stone measured 0.98 mm X 0.72 mm X 0.70 mm and is described by SRC as a whitelcolourless, transparent tetrahexahedron. Seven of the eight diamonds larger than the 0.300 mm sieve size are described as white/colourless and the remaining diamond is described as off- white.

W0 Propertv, Northwest Territories

The WO Property, which hosts the DO-27 diamond deposit, the diamondiferous DO-1 8 kimberlite pipe and a number of other kimberlites, is located approximately 300 kilometres north-northeast of the city of Yellowknife in the Northwest Territories, Canada. It comprises 14 mineral claims and 3 mineral leases covering an area of 15,107 hectares. The WO property is held by the Company and its joint venture partners and the Company's current interest in this joint venture is 71 35%.

The Company is currently assessing potential future development activity at the DO-27 kimberlite. No additional bulk sampling campaigns are currently planned at DO-27. Planned expenditures for 2009 to keep the WO property in good standing are estimated to be $150,000.

Although the Company's management has concluded that the development of the DO-27 project is currently not economically justifiable, both the Company and AMEC believe that there is a reasonable chance that DO-27 could support a mining operation in the future. Factors that could enhance the economics of a mining operation at DO-27 include:

Higher rough diamond prices. Possible underestimation of the average DO-27 diamond value because the current estimate is based on a parcel of only 2,075 carats. Favourable Canadian-US currency exchange rates. A diamond processing arrangement with one of the nearby diamond mines. Increased revenue potential from downstream cutting and polishing of DO-27 diamonds. Mining and processing technology advances. Regional infrastructure developments. An ultimate run of mine grade greater than the current grade estimated by RC drill samples.

Lac de Gras East and Lac de Gras West, Northwest Territories

The Lac de Gras East property consists of 81 mineral claims covering 78,153 hectares located 300 kilometres northeast of Yellowknife. The Company has earned a 65% joint venture interest in 24 of these 81 claims by making share payments to Thelon Ventures Ltd. and spending an aggregate of $4.1 million on exploration on Lac de Gras East and West. The remaining 57 claims are owned by the Company.

The Lac de Gras West property consists of 40 mineral claims covering 34,234 hectares, located 275 kilometres northeast of Yellowknife. The Company has earned a 65% joint venture interest in 22 of these 40 claims, by making share payments to Thelon Ventures Ltd. and spending an aggregate of $4.1 million on exploration on Lac de Gras East and West. The remaining 18 claims are owned by the Company.

The Company has agreed to pay a discovery bonus to a prospecting syndicate in the amount of 2,500 common shares of the Company for the first kimberlite discovery and a discovery bonus of 1,250 common shares of the Company for each subsequent kimberlite discovery up to a maximum of 50,000 common shares for the entire Lac de Gras West property and 70 of the 81 claims constituting the Lac de Gras East property. To date, no discovery bonuses have been paid. These properties are subject to a gross ovemding royalty of 2% of all diamond production; 50% of this royalty can be purchased by the Company for $1 million.

In March and April 2008, a winter ground geophysical survey was completed on the Lac de Gras East and Lac de Gras West properties at a cost of approximately $450,000. Complete data evaluation is ongoing. The Company anticipates only minimal expenditures at Lac de Gras East and Lac de Gras West properties during 2009.

PelIatt Lake Property, Northwest Territories

The Pellatt Lake property is located 42 kilometres northeast of BHP Diamonds' ~kati~~

Diamond Mine at Lac de Gras, encompassing areas around the southern part of Pellatt Lake, Windy Lake and the northern part of Hardy Lake. The property covers an area of 29,263 hectares and consists of two packages of claims, the main block and the JPL and RESA claims. The main block consists of three claims that were acquired by DHK Diamonds Inc. ("DHK") from Kennecott Canada Exploration Inc. which maintains a 1% gross overriding royalty on these claims. These three claims have been taken to lease. Three other claims were staked in 2000 by DHK, with an additional seven claims staked in 2003 by Dentonia Resources ("Dentonia").

By way of an amending agreement entered into in March 2007, the Company has a right to earn a 5 1 % interest in these claims by completing drill testing of certain defined target areas by December 3 1, 2008 (which has been done). The Company has until March 3 1, 2009 to declare its intention to acquire the 5 1 % interest under the First Option.

The remaining 15 claims were staked in 2004 for the Company and are 100% owned by the Company.

The Company has no current plans to conduct further exploration work on the Pellatt Lake property. Carrying costs in the amount of $34,000 have been written down to Nil at December 3 1,2008.

TW Property and IM Properties, Northwest Territories

The Company acquired a 100% interest in certain mineral exploration claims with an aggregate area of approximately 206,400 hectares located in the Northwest Territories, Canada known as the TW and IM properties. Based on the results of geophysical surveys and other work undertaken in 2005 and 2006, the Company has determined that no further diamond exploration work is warranted and, with the exception of the claims discussed below, all claims will be allowed to lapse.

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. Under the terms of this agreement, Viking must complete an airborne geophysical survey over the property by December 31, 2006 (which has been completed), incur aggregate exploration expenditures of $1 million on the property (of which $1 95,000 has been spent) within a period of 4 years from the date of the agreement and maintain all permits on the property in good standing for the duration of the agreement.

FalconTM System and BHP Diamonds Rights

On July 6, 2007, the Company entered into a new ~alcon~~

system deployment agreement with a number of affiliated companies in the BHP Billiton group (collectively "BHP DiamondsW)(the "BHP Framework Agreement") which governs the Company's use airborne gravity

of the ~alcon~~ gradiometer system as well as BHP Diamonds' rights to earn into certain mineral discoveries made by that system. In addition, the BHP Framework Agreement rationalizes the numerous joint venture, back-in, and ~alcon~~

data usage and deployment agreements that existed between Peregrine and BHP Diamonds on various diamond, copper and IOCG properties located in Canada, United States, Mexico, and Peru.

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