Approximately 720km south-east of Darwin sits what is set to be Australia’s only operational diamond mine. First opened more than two decades ago, the Merlin mine has lain quiet for years following a tumultuous period of ownership.

However, with a resource estimate of four million carats, and the prestige of producing Australia’s largest diamond, it has remained an attractive investment proposition. Last May, it passed into new hands, with Lucapa Diamonds buying the project for $6.08m (A$8.5m), and set to breathe new life into the site, raising the potential for more domestic diamond production. 

We take a look back at how the mine site has been developed, and moved between owners, since the 1990s. 

1999 – The first diamonds are produced 

Following trial mining of the ore in 1998, the first diamonds were produced from the Merlin Mine in February 1999 by Ashton Mining, which subsequently became part of mining giant Rio Tinto after it bought a controlling share of the company in 2000 following a bidding war with De Beers. 

At the time, it was forecast to produce 200,000 carats in its first year, which was then to increase to 300,000 by the second year. However, it never fully met predictions, producing 500,000 carats from the mining of eight of the kimberlite pipes at the site between 1999 and 2003, when operations ceased, at an average value of $108 (A$151.07) per carat.

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2002 – Australia’s biggest diamond 

In March 2002, the Merlin Mine produced what remains Australia’s biggest diamond at 104.73 carats. Valued at over $700,000 (A$1m) at the time, the uncut diamond was named the Gungulinya-Bunagina diamond in 2003, after the Garrawa and Garandji clans which owned the land on which the mine sits traditionally. 

It was the first of a number of notable discoveries at the site, including a rare 0.124 carat blue diamond in December 2016, a 35.26-carat brown rough diamond the following month — the fifth-largest diamond discovered in Australia — and five rare green diamonds — the largest of which came in at ​​1.4 carats — in April 2017.

2004 – Acquisition by North Australian Diamonds Limited 

Following a year of inactivity, in 2004 North Australian Diamonds Limited acquired 100% of the Merlin mine. It began work initially recovering diamonds from the sorthouse tailings left by the previous company’s operations in July 2005, before recommencing production in April 2006. 

The company, owned by mining magnate ‘Diamond’ Joseph Gutnick, was later renamed Merlin Mining, and held the rights to the mine for over 16 years. During that time production was sporadic, however, with the mine under care and maintenance for much of it. Scoping studies did take place between 2007 and 2011, along with some operations from 2016, which allowed for the discovery of rare stones. 

2016 – Liquidation of Merlin Diamonds

The fate of the Merlin Mine was thrown into question in 2016, when  Gutnick declared bankruptcy, claiming $275 million worth of debts at the time, following a legal battle with an Indian fertilizer company.  

Following the high profile case, Merlin Diamonds was suspended from the Australian Stock Exchange in 2018, liquidators were appointed to the company in 2019 and in April 2020 the Federal Court declared the company insolvent. Reports at the time suggested it had just $1,331 (A$1,862) in the bank, as well as liabilities of $13m (A$18m).

Federal Court Justice O’Bryan stated in 2020 that “Merlin does not have available to it any realistic prospect of raising a sufficient amount of cash or readily realisable assets to meet its current outstanding liabilities.”

2021 – A new lease of life

At the end of 2020, it was revealed that the Australia-headquartered Lucapa Diamond Company was in advanced talks to acquire the Merlin Mine with Deloitte, which was appointed to liquidate Merlin Diamonds assets. The company struck a deal to acquire the mine in 2021 for $6.08m (A$8.5m), becoming the owner of what is now Australia’s only diamond mine as Rio Tinto’s Argyle diamond mine closed in 2020. 

The acquisition of the lease includes some pre-existing assets, including a 2.4km airstrip, peripheral other logistics and mine infrastructure, a Tomra XRT sorter, as well as other used equipment items.

Lucapa has two diamond mines in operation, one in Angola, the Lulo alluvial mine, and one in Lesotho, the Mothae kimberlite mine. 

December 2021 – The scoping study 

Throughout 2021, Lucapa undertook an extensive scoping study to assess the potential of the site, which covers two tenements, a 24km2 mineral lease and a 283km2 exploration licence. 

The mineral lease includes 11 known diamondiferous kimberlite pipes, grouped in three clusters. These have a mineral resource of 27.8 million tonnes of diamonds, at an average grade of around 16 carats per one hundred tonnes for 4.4 million contained carats, according to the scoping study. 

Lucapa managing director Stephen Wetherall said the scoping study confirmed the site’s “great potential”, with the company planning to use an “innovative hybrid open pit and vertical pit mining methodology to establish a mining operation at Merlin.”

“The scoping study sets out strong economics for a long-life mine with a production target of 2.1 million carats, $1.1bn (A$1.6bn)in revenues and substantial earnings and cashflows to Lucapa over a 14-year life. There is potential to deliver further significant value through the operational opportunities and from mineral resource extensions, underground development and exploration as the kimberlites continue at depth and there are a significant number of anomalies that have the potential to deliver new source discoveries.”

An initial capital expenditure of US68m (A$96m) is expected to be needed for the proposed development of the Merlin mine, but once up and running Lucapa expects it to generate an average EBITDA of around $35.8m (A$50m) per annum. 

One of the attractive elements of the site is the low acquisition cost, which averages out at around $1.4 (A$2) per resource carat. The average life-of-mine diamond price is expected to be $511 (A$715) per carat. 

2023 – Mining planned to recommence 

Given the existing infrastructure at the site, Lucapa is expecting production to be able to begin in 2023. Over the coming months, it is looking to complete the acquisition and begin geotechnical drilling and exploration programs on both its mining lease and exploration tenement. Additionally, it will work to commence investigations to allow it to complete a mining feasibility study. 

“Lucapa’s existing mining assets are delivering for shareholders in 2021, and with the transformative strategic acquisition of Merlin showing strong potential, we look forward to delivering the feasibility study, commencing exploration and putting our third producing asset into operation,” added Wetherall.