Lucapa Diamond (ASX: LOM) has announced a phased plan to restart production at the Merlin diamond mine in Australia’s Northern Territory, which has been on hold for years.
The first phase, spanning 18 months, involves excavating and dredging five existing pits. This phase will require an investment of A$15 million (US$10 million) and is projected to recover approximately 67,000 carats, generating an estimated revenue of A$42 million (US$27 million).
The second phase, lasting 27 months, will focus on vertical pit mining at the Gawain pit, targeting 247,000 carats.
This stage is expected to generate A$246 million (US$160 million) in revenue. Together, the project is forecast to deliver operating cash flow of US$110 million, with a pre-tax net present value of A$40 million (US$26 million) and an internal rate of return of 75%.
Lucapa expects to recover high-quality gem and near-gem diamonds, historically accounting for 75% of Merlin’s production.
Lucapa began the quarter with only US$1.3 million in cash, raising concerns about funding the project. The company has secured a A$1 million short-term loan and is exploring additional financing options, including offtake agreements, project-level debt, equity issuance, and potential government support.
Lucapa acquired the Merlin mine in 2021 for A$8.5 million. This new restart plan is a scaled-back version of a 2022 proposal, which was halted due to soaring costs and declining diamond prices.
The revised plan includes constructing a 355,000-ton-per-year processing plant using existing equipment, with a proposed five-year mine life.
Lucapa aims to extend operations into the 2030s by growing the mine’s current resource of 4.4 million carats and exploring nearby areas for base metals, leveraging its proximity to the McArthur River lead-zinc-silver mine.
The phased approach reflects Lucapa’s strategy to restart Merlin with more manageable targets while positioning itself for long-term growth in diamond production and regional exploration.
