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Lucapa’s Merlin could be next top diamond mine in Australia

Processing plant at the Merlin diamond mine. (Image: Lucapa Diamond.)

Australia’s Lucapa Diamond (ASX: LOM) released on Friday a preliminary scoping study for its recently acquired, but mothballed Merlin mine, which predicts the asset has the potential to become the country’s biggest commercial diamond mine.

The company, which has already started a feasibility study that is due for completion in mid-2022, believes Merlin can yield 2.1 million carats over its 14-year mine life, or about 153,000 carats a year.

The study contemplates an open pit and vertical pit development, which will require an initial capital estimate of A$96-million ($69m) to develop. The pre-tax net present value is A$343 million ($245m) and the internal rate of return of 59%.

Lucapa’s managing director Stephen Wetherall said that study confirms the “great potential” of an innovative hybrid methodology to reopen Merlin, which will be the company’s third diamond mine.

Merlin is located in Australia’s Northern Territory, about 720 km south-east of Darwin. It will be the country’s only producing diamond mine , following the closure of Rio Tinto’s iconic Argyle mine in 2020, after 37 years in production.

It was operated by Rio Tinto until it was bought by North Australian Diamonds, later renamed Merlin Diamonds, in 2004. But the company did very little commercial processing and was wound up last May.

Lucapa currently has two operating diamond mines in Africa — Lulo, in Angola, and Mothae, in Lesotho.