The company’s flagship project is the Merlin Diamond Mine in the Northern Territory, which was set to become Australia’s last operating diamond mine when the Argyle mine in Western Australia ceases operation next year.
Industry analysts had previously noted that Argyle is responsible for 99 per cent of Australia’s total diamond production. If the Merlin site were to close too, the country’s production would drop to zero.
Australia’s largest diamond, a 104.73-carat stone, was discovered at the Merlin Diamond Mine between 1998 and 2003. In 2017, the site yielded a 35.26-carat rough brown diamond – believed to be the fifth largest stone discovered in Australia – as well as a 14.6-carat brown and smaller white diamonds. A 0.124-carat blue diamond was found in December 2016.
In 2016, the company website was quoted as stating the mine has an 11-year lifespan and a mineral resource of 4.3 million carats. The latter figure is still stated on the website. A recent industry report estimated its production at just 137,000 carats per year from 2021.
Audited accounts for the six months to 31 December 2018, due 18 March 2019, were not lodged with ASIC and Merlin Diamonds has not had a company secretary since 8 January this year.
Its shares were suspended from trading on 1 October 2018 after management failed to file a quarterly report with the ASX.
In submissions to the Court, representatives for ASIC presented evidence of irregularities in the company’s business records.
Of particular note in the ASIC investigation were a number of “unreasonable” and “uncommercial” loans to management services company Axis Consultants. The loans totalled $13.7 million and had not been approved by shareholders.
No security or repayment terms were provided for the funds and auditors were unable to obtain evidence that Axis Consultants would be able to repay the loans. ASIC found the loans provided ‘no discernible benefit to Merlin [Diamonds]’.
Three directors of Merlin Diamonds are currently or have previously been directors of Axis Consultants.
In its application to the Court, ASIC requested that Merlin Diamonds be wound up, as there is “a justifiable lack of confidence in the directors’ conduct and their ability to manage Merlin’s affairs in the best interests of its shareholders and creditors”.
The application noted, “ASIC considers that the Merlin board is comprised of directors who have either been knowingly involved in uncommercial related party transactions or failed to exercise their duties to prevent those transactions from occurring.”
Representatives from Deloitte Financial Advisory have been appointed as provisional liquidators of Merlin Diamonds following a decision from Justice O’Bryan.
More reading:
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