Location of the Mining Lease and Exploration Licence in the Northern Territory. Image courtesy of Lucapa Diamond Company Limited.
On Monday, Lucapa Diamond Company Limited (Lucapa) announced that it had entered into a binding Asset Sale Agreement (ASA) for the acquisition of a 24 square kilometre mining lease (Mining Lease or MLN 1154), a 283 square kilometre exploration tenement (Orbit Tenement or EL 26944) and associated equipment and assets (together, the Merlin Assets) from Merlin Operations Pty Ltd (Merlin Operations).
The Merlin Tenements are located approximately 720 kilometres south-east of Darwin in the Northern Territory.
The Mining Lease contains 11 previously discovered kimberlite pipes in three general kimberlite clusters – Northern, Central and Southern. Two kimberlites have also been discovered on the Orbit Tenement. All kimberlite discoveries to date on the tenements are diamondiferous.
Of the 11 known kimberlites, eight of the kimberlite pipes were mined by Ashton Diamonds and Rio Tinto between 1999 and 2003, producing over 500,000 carats from 2.2 million tonnes (Mt) of kimberlite treated, including the largest diamond ever recovered in Australia, a 104 carat, high-value Type IIa white diamond .
The Mining Lease and Orbit Tenement were sold to Merlin Operations in 2004. Merlin Operations is a wholly-owned subsidiary of Merlin Diamonds Limited.
According to Lucapa, the Mining Lease contains an existing kimberlite diamond resource containing 27.8Mt at an average grade of approximately 16 carats per hundred tonnes (cpht) for 4.4m contained carats.
Just under half of the Resource (13.4Mt and 2.3m carats) is classified as indicated resource, based on recovered grades and achieved diamond value data from the 1999 – 2003 Ashton/ Rio mining campaign.
The Mining Lease contains a several pre-existing assets including a 2.4-kilometre airstrip, peripheral other logistics and mine infrastructure, a Tomra XRT sorter and various other used items of equipment.
The Mining Lease and Orbit Tenement also contain more than 70 reported, but as yet unresolved geophysical and geochemical anomalies, giving significant potential for further kimberlite discoveries.
Lucapa Managing Director, Stephen Wetherall, said that this is a strategic acquisition for Lucapa which represents a value-accretive and logical step in their production strategy.
“The project is well known for being Australia’s large stone producer and is a strong complementary fit with the company’s two existing niche productions in Africa that are set to produce solid returns for Lucapa in 2021,” Mr Wetherall said.
Key terms to the acquisition of the Merlin Assets
Under the ASA, Lucapa has agreed, subject to the satisfaction of a number of conditions precedent, to acquire the Merlin Assets from Merlin Operations.
At completion under the ASA, Lucapa is required to pay the purchase price to Merlin Operations in respect of the Merlin Assets of approximately A$7.4 million in cash (Purchase Price) and will also replace roughly $1.1 million financial security relating to the Merlin Tenements with the Department of Industry, Tourism and Trade in the Northern Territory.
Lucapa is acquiring the Merlin Assets through a wholly-owned subsidiary, Australian Natural Diamonds Pty Ltd.
Lucapa states that the cash outlay of approximately A$8.5 million in aggregate represents an attractive roughly A$2/ carat multiple on Merlin Operations’ existing 4.4m carat Resource.
The Acquisition is subject to the fulfilment of usual and transaction-specific conditions precedent. These conditions precedent need to be either satisfied or waived by the parties prior to the date that is, unless otherwise agreed:
- Three months after the date of the ASA; or
- 31 December 2021, if before termination, either Lucapa or Merlin Operations extends the deadline.
The conditions precedent include:
- Lucapa receiving binding commitments in respect of a portion of the capital raising;
- The receipt of indicative approval to the transfer of the Merlin Tenements by the Northern Territory Minister for Mining and Industry;
- Release of various security interests over the Merlin Assets including a mining mortgage over the Mining Lease;
- Execution of deeds of assumption/ assignment in respect of existing obligations owed by Merlin Operations to third parties in respect of the Merlin Tenements relating to access rights, native title rights, royalties, back-in rights and milestone payments in respect of the Merlin Tenements; and
- Other customary closing conditions precedent
 As per Merlin Diamonds Limited Information Memorandum distributed in August 2020.