ASX wants to know why diamond miner Merlin loaned its consultant cash
Minnow Merlin Diamonds has received a grilling from the ASX over its financial affairs after it failed to lodge its FY18 accounts by the local bourse’s deadline.
Since the diamond miner lodged its statements on October 8, it has received two lengthy “please explains” from the local bourse and is still suspended “pending further queries”.
In the latest query, the ASX wanted to know why Mordechai Gutnick, who was chairman and managing director of Merlin at the time, entered into a $13.8 million loan agreement on behalf of Merlin with AXIS Consultants – a company that Mr Gutnick was a director of during FY18.
The ASX’s query was made on October 17 and has been publicly released as part of an ASX announcement containing Merlin’s responses.
Merlin said the loan agreement was approved by the independent directors and that Mordechai Gutnick was in the office and therefore signed the agreement.
Peter Lee, who is also a director of both Merlin and AXIS, also signed the agreement, the ASX noted.
The bourse also flagged that both Merlin and AXIS are registered at the same address and it considers them “related parties”.
The ASX queried why the sum was a loan to AXIS and not treated as “payment for services” given the consultancy provided management services to Merlin for the year.
“It is more beneficial for Merlin to treat the amount as a loan rather than payment for services,” the company said.
“Merlin balances its cash requirements between the need for funds for mining, development, exploration and working capital needs which ensures that the services required from external sources are balanced.
“Merlin sees the services provided by AXIS as critical to its ongoing needs.”
The company said AXIS had been “instrumental” in raising over $60 million for Merlin since 2009 and managing the affairs of the company since that time, including bringing Merlin back into diamond production, and more recently, the ongoing development of a diamond sales arm in Belgium.
The ASX queried whether Merlin planned to continue loaning to AXIS given it “has provided for the loan as a doubtful debt”.
Merlin replied that it “needs to continue to utilise the services of AXIS which has the personnel and equipment to manage the activities of Merlin – Merlin does not have such personnel and equipment”.
The company also pointed out that, according to annual reports of other companies that AXIS has provided services too, the consultancy has provided similar management and geological services to many companies for 30 years, such as Great Central Mines.
Merlin has been suspended from trading since October 1 for failing to lodge its audited accounts on time.
Following responses to two queries since it lodged its financials on October 8, Merlin is still suspended while it responds to additional ASX queries.
Merlin has $546,000 in cash at the end of the June quarter and was expecting a cash burn of $2.4 million in the September quarter.
The company subsequently secured a $2 million loan from Cuart Investments.
Merlin owns a diamond mine of the same name in the Northern Territory, where it recently recovered two large white diamonds of 18.4 carats and 9.5 carats.
The company began processing ore from the Ector pit at the end of August and expects to recover more large white diamonds.
It says the Merlin mine is known for its high-quality super white diamonds.