Australia’s once buoyant diamond industry has felt a little bare lately, with Rio Tinto calling time on 37 years of history at its Argyle diamond mine in the Kimberley last year.

Now Lucapa Diamond Company (ASX: LOM) is making a bid to bring the space back to life after announcing an $8.5 million deal this week to buy the Merlin diamond mine in the NT off administrators.

Once owned by Rio Tinto (ASX: RIO) and Ashton Mining, Merlin boasts a 4.4 million carat resource and holds the distinction of producing Australia’s largest ever rough diamond.

The acquisition was timed well, coming the same week as Lucapa put two rare stones from its African operations on display for investors in Perth.

That included a 213 carat top colour white diamond and a 15 carat heart-shaped pink diamond – a fancy colour believed to make up just 0.01 per cent of the world’s diamonds.

It comes with both major and niche diamond miners reporting signs of recovery in the aftermath of the pandemic, even as the Beyond Meat of gems – lab-grown diamonds – target a growing market share.

Lucapa MD Stephen Wetherall spoke with Stockhead this week about their plans to add Merlin to its stable of rare stone producing mines along with the Lulo (40 per cent owned) and Mothae (70 per cent) mines in Angola and Lesotho.


Stephen, you worked as an accountant in South Africa before you entered the mining industry. What drew you into the world of diamonds?

There is a saying once you get into diamonds you never get out. I don’t mean that in a bad way that really is a common saying in the industry. I put my CV out and this little company called De Beers contacted me and set me up for an interview.

I worked for De Beers for six years, predominantly in the group finance team. When I left De Beers and went to Gem Diamonds, that’s when I really learnt about the business of mining.

What really grabbed me was when I got involved in the marketing side of it. When you look at the marketing and how they extract value, beautify the product, then take it to the consumer.


What made you shift your focus from Africa into Australia’s dormant diamond industry?

I don’t think this has drawn us back to the Australian market per se. Given our massive production focus and our growth strategy we look at a massive number of projects globally that would fit into our portfolio.

When the Merlin process was instituted by the liquidators last year, we knew a lot about it and certainly like it from a resource or content perspective. We know it was a large-scale producer in Australia, and it was home to Australia’s largest diamond on record.

Through the process we had a look at the resource and we believed it would fit into our focus of being in near term production and a growth story.

Being in Australia is certainly a massive positive. It’s a well-known jurisdiction and it’s in our back yard. Obviously with the closure of Argyle, Australia goes from a top 5-6 producer to way down the list with no real commercial production. We would like to bring Australian diamonds back to the world.


Everyone was familiar with its fancy pink diamonds. Why was the closure of Rio’s Argyle mine in the Kimberley last year so significant?

Taking the quality and the content in terms of pinks aside, the Argyle mine was a massive volume producer in its own right. I think in its last few years of its life it averaged close to 14m carats per annum. So if you take the Argyle mine out of world production you’re taking approximately 12-13 per cent of worldwide production out.

Then if you take the pinks that Argyle was extremely famous for, it was rumoured to have produced up to 90 per cent of the world’s fancy pinks. The Argyle closure leaves a massive dent in world supply, let alone pink supply.

At Merlin we look at what Ashton Mining and Rio Tinto produced from 1999 to 2003 we certainly see extremely good value coming from the special-sized diamonds there so we are very keen to have it as part of our portfolio because it will complement the large stone production we already have from Lulo and Mothae.


Lucapa Diamond Company share price today:



How important is the exploration picture going to be to build a case to bring Merlin into production?

We looked at Merlin purely from a resource perspective and the 4.4 million carats it has currently in the ground. From the work that we’ve done we believe we’ve got a strong chance it can be economically extracted and that’s why we made a claim to acquire it for $8.5m.

Then when you add to that the number of geophysical anomalies that are on that ground as well – approximately 70 in total – we believe there is a strong chance of discovering additional kimberlites. Every single kimberlite on the tenements we’re acquiring has been diamondiferous, that adds to the excitement as well.

The primary objective with Merlin was to get another asset we could look to get into production within the next two years.


We’ve recently seen both Merlin and the Ellendale mine in the Kimberley pass into new hands recently. Why haven’t we seen new projects emerge in Australia recently?

I think the easiest and honest answer is that exploration for diamond resources is one of the hardest kinds of exploration you can do. It is unlikely that when you put a drill hole in the ground then you are going to find a diamond in the drill core – we are looking for 0.2 parts per million.

In gold, you can literally put a drill hole down and then visually see the gold or copper, but that is not the case for diamond exploration. One has to be a little bit more patient, one has to understand what it is you’re looking for in terms of indicators, and with that kind of patience required I think money has flowed to minerals that are a lot easier to explore for, that is certainly one aspect.


The diamond market took a big hit at the start of the pandemic, but both majors and niche miners like yourselves seem to be reporting higher per carat prices at auction in recent months. What is the current outlook for the market?

From late 2018 to middle 2019 the diamond space started to look very shaky and that was on the back of a large amount of supply from the majors and new mines coming into the market. It showed signs of improving in late 2019 but unfortunately with the pandemic hitting us, our world all but fell off a cliff and it was very, very dark times. We had to put both our mines in suspension and on care and maintenance as we looked at where the diamond market could come out.

In terms of coming through the pandemic to where we are now, at the lows of the pandemic you were selling your product at some 30 per cent discount to the diamond prices just before the pandemic.

Where we are today, they’ve not only come back up to that level, but they’re some 13 per cent up on that level just this year alone, so you’ve seen a strong demand and return for diamond buying as we’ve come out the pandemic.

Australia's diamond industry
Pic: Lucapa


What impact is the expansion of lab-grown diamonds having on the mined diamond sector?

I think differently when it comes to lab-grown diamonds. I certainly believe it is a good thing for the industry as a whole. Lab-grown diamonds coming in and providing a much lower price point for consumers I think is an extremely positive thing for the industry going forward.

I think it puts the eyes of younger consumers on the diamond sector and that can only be a good thing for the diamond sector. I know that lab-grown diamonds are trying to throw hand grenades at the natural sector in order to grab market share.

They will have a growing market share and it doesn’t take a rocket scientist to understand that’s because the natural diamond supply is reducing.


Budget jeweller Pandora recently caused a stir when it said it would shift to only using lab-grown diamonds for its products due to ESG concerns. It seems to be a claim miners have not taken kindly to.

I do believe what Pandora did was a slap in the face to market what they are doing. Every single listed diamond miner that I know, even the ones that aren’t listed, we operate with social conscience.

If you unpack what Pandora is, it’s cut glass. In their jewellery they put different colour cut glass and sell it. Diamond is an expensive input into that product. If they get a cheaper lab-grown diamond of course they’re going to do that because their margins swell.

To try launch it on the back of sustainability I think is not really being above board with why they’re doing it. From our perspective ESG is very important to our industry.


There are other uses for diamonds in the industrial and technology sectors. Will there be a divergence in the end user market for lab-grown and mined diamonds going forward?

I think it’s probably not well understood, but there’s always been that split. If you look at De Beers they own Element Six, the old De Beers industrial diamonds. They’ve been producing lab grown diamonds, since the 1940s, 1950s for industry. So it’s not new in our environment.

What is new is that technology has been taken further by some technology companies and started to produce gem quality diamonds for the market.

Industrial diamonds and their manufacturing has been around for many, many years.