North Australian Diamonds Limited

Merlin Diamond Mine

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Ashton Mining Limited began open pit trial mining of ore in late 1998 with the first diamonds produced in February 1999. During its operation, the mine produced approximately 500,000 carats from the processing of 2.4 million tonnes of ore, sourced from 9 of the kimberlite pipes. In March 2004, North Australian Diamonds Ltd acquired the Merlin mineral lease from Ashton Mining Ltd. Reprocessing of sort house tailings commenced shortly after, with trial production of primary kimberlite ore beginning in 2006.

Prefeasibility studies completed by AMC Consultants Pty Ltd and Consulmet Pty Ltd reported robust capital and operating metrics for the Merlin Project. Consulmet were awarded the contract to deliver a feasibility study to refine the existing mining and material processing parameters and produce a detailed assessment of the technical and commercial parameters of the Merlin Diamond Mine. The study will produce detailed capital and operating costs; reviews of the Mineral Resources and Ore Reserves; geotechnical and hydrogeological studies; environmental management plans; underground and open pit mining plans; detailed design and methodology for diamond treatment and recovery plant; project execution plan; and site infrastructure including accommodation and all auxiliary facilities.

Completion of this study, due in 2012, will be a final step before the decision to mine and begin plant construction.

The solid progress in developing a sustainable and profitable diamond mine at Merlin is underpinned by 2.9 million carats of the Company's resource assets being classified as JORC compliant Probable Ore Reserves, indicating a higher level of certainty of economic potential.

The Merlin Diamond Mine is now the second largest diamond Mineral Resource and Reserve in Australia.

Pre-Feasibility Production Trials

The pre-feasibility production trials commenced early 2009 and were successfully completed in September 2010. During the trials a variety of processing and recovery components were tested in the processing circuit aimed at increasing plant throughput and improving diamond liberation and recovery. These included;

- Test new liberation and recovery technologies in the process circuit

- Optimise process flow-sheet in order to reduce labour required in future full scale operation

- Confirm recoverable grades and diamond size distribution

A number of diamond liberation recovery methodologies, including a high pressure grinding roll (HPGR) and optical sorting, were tested for their suitability to be incorporated into future commercial plant design. These methodologies resulted in a process design flow-sheet that improved the commercially viable diamond liberation and recovery by 20%. Thus further confirming a grade of 41cpht (carats per hundred tonne) for Gawain pipe, compared to 34cpht achieved during the mining operations in 1999-2003.

The combined resource for the pipes included in the pre-feasibility production trials is in excess of 29 million tonnes. This resource is compliant with JORC reporting standards, and is sufficient to potentially underpin a long term mining operation.

Production Trials

The pre-feasibility production trials have focused on the pipes Gawain, Ywain, Kaye, PalSac and Launfal as well as utilising stockpiled material from previous operations. Mining and economic models were refined by AMC Consultants as part of the pre-feasibility study aimed at moving Merlin towards a long term sustainable mining operation. Approximately 40,000 tonnes have been processed for the recovery of 10,600 carats of diamonds. The largest diamond to be recovered was a 24.12 carat gem quality diamond which was recovered in March 2010. This diamond is the largest that the Company has recovered since acquiring the Merlin project in 2004.  

JORC Increase    

The combined Probable Ore Reserve for all diamond pipes at Merlin is 11.1 million tonnes for an average grade of 26 carats per hundred tonnes ("cpht") representing a total contained 2.89 million carats (Table 1). 

The combined Indicated and Inferred Mineral Resource for all diamond pipes at Merlin is 19.02 million tonnes for an average grade of 24 carats per hundred tonnes ("cpht") representing a total contained 4.31 million carats (Table 2).

Prior to commencement of the northern 'wet season', NADL mobilised a diamond core drilling rig to the Merlin project site. The drill rig was tasked to further define and explore the deeper portions of the PalSac pipe. As a result of the drilling, the combined resource for PalSac was increased by 52% to 14.6 million tonnes. The PalSac resource is important for the future development of a sustainable long term mining operation because of the high proportion of project tonnes.

Diamond Parcel

With the build up of a large diamond parcel, currently well in excess of 10,000 carats, the Company is investigating downstream value adding strategies including the branding of Merlin diamonds. The Company believes that the good quality and large diamonds produced by Merlin will enable ‘branding' and boutique marketing opportunities that will be important in redeveloping Merlin and successfully establishing North Australian Diamonds as an integrated long term diamond producer.

Previous trial mining conducted by Rio Tinto provided statistically significant numbers of ‘run of mine' diamonds, to enable price points for the diamonds recovered from pipes Ywain and Gawain to be established. Based on these sales, Merlin diamonds achieved average prices ranging from US$150 to US$180 per carat for the ‘run of mine' production. A reassessment of rough diamond prices in 2011 indicated that Merlin ‘run of mine' production would achieve in excess of US$330 per carat.

The strength in price reflects the continuing strength of the international diamond market and premium quality of the Merlin diamonds. Independent Diamond Valuers Pty Ltd state in their recent valuation, "The Merlin production was sold to the Antwerp market for a number of years by its previous owners Rio Tinto and Ashton Mining, during that period the Merlin production was a sought after item and which to this day is recognised by Diamantaires for its exceptional white content in the higher quality goods. Reintroducing the Merlin production to the market would be a relatively straight forward task and would certainly be well received by Diamantaires." 

Merlin Feasibility Study

Preliminary technical studies based on pre-feasibility level studies, for a 1.5Mtpa (approximately 300,000 carats per year) diamond mining and processing operation, conducted by both AMC Consultants Pty Ltd ("AMC") and Consulmet Pty Ltd ("Consulmet") are complete and have demonstrated that the project warrants moving to a full feasibility study (Table 3).

Consulmet completed a stage 1 study at a pre-feasibility level for the Merlin project assessing previous testwork and the likely design of a diamond treatment and recovery plant including all associated infrastructure. Further to this, having begun the feasibilty study for the Merlin project, Consulmet have proposed a number of technical and economic options for the development of the Merlin Diamond Mine. Hydraulic mining using electric dredging equipment is presented as a suitable mining method. Hydraulic mining has a lower capital and operating expenditure compared with open cut or underground mining, whilst allowing for production rates of up to 320 tonnes of kimberlite ore per hour.

Company management are currently reviewing the options to ensure future work on the feasibility study provides the most economically sensible options. 

Early indications for the Merlin Diamond Project, estimate cash operating costs of approximately US$160 per carat, and an operating margin over US$170 per carat. The work completed to date by both AMC and Consulmet, in conjunction with the current strong price and positive outlook for the diamond price, indicates that the current definitive feasibility study will define a long term profitable new diamond mine for the Northern Territory and Australia.

Table 1. Merlin Probable Ore Reserves


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Table 2. Inferred and Indicated Resources

Table 3. Project Update and DFS Key Topics

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Discovery and Development Timeline:

*Source Intierra July 28, 2011

• 1 May 2012 Quarterly Activities Report for the period ended 31 March 2012 > Read more

• 27 April 2012 Sale of Diamonds > Read more

• 15 March 2012 Report for the Half-Year ended 31 December 2011 > Read more

• 7 February 2012 Appendix 3B - Issue of Shares > Read more

• 31 January 2012 Quarterly Activities Report for the period ended 31 December 2011 > Read more

• 25 January 2012 Appendix 3B - Issue of Shares > Read more

• 16 December 2011 Appendix 3X - Dr D S Tyrwhitt > Read more

• 16 December 2011 Appointment of Dr David Tyrwhitt as a Director > Read more

• 25 November 2011 Annual General Meeting November 2011 > Read more

• 25 November 2011 Results of Annual General Meeting 2011 > Read more