Merlin waves the magic wand at diamond mine

Published at Jul 31, 2018, in Small Caps

Australian diamond mining company Merlin Diamonds Ltd (ASX:MED) recently informed the market that the installation of a new scrubber would assist in doubling processing capacity at the Merlin Diamond Mine.

Processing will increase from the 50 tonnes per hour to 100 tonnes per hour, thus doubling the production of diamonds. The new scrubber, screen and conveyor belts are being prepared for shipping and are expected to arrive at Merlin in late August.

The scrubber will also significantly reduce the recirculation of oversize material and give Merlin the ability to feed damp ore directly from the pit.

Providing further efficiencies, Merlin has purchased a jaw crusher which will be introduced into the processing circuit to treat the trommel oversize material.

A Dense Medium Separation (DMS) circuit has also been ordered from South Africa, and once installed, capacity will increase upwards of 150 tonnes per hour.

However it is an early stage of this company’s development and if considering this stock for your portfolio you should take all public information into account and seek professional financial advice.

Good news on all fronts at Merlin

Not only is the processing plant upgrade a substantial step in terms of the company’s long-term production profile, but there have also been other recent developments that are material in the company’s transition to a major producer.

Current events haven’t been lost on the market with the company’s shares doubling in the last three months.

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

A green light from the Northern Territory Government Department of Primary Industry and Resources in reviewing Merlin’s amended Mine Management Plan (“MMP”) was a significant development, allowing the company to commence mining at all five pits being, Excalibur, Gwain, Ywain, Ector and Kaye.

There has also been promising news on the production front with the company recovering 32 pink diamonds totalling 6.6 carats.

Management is encouraged by the discovery of the highly valued pink diamonds at Merlin as it is a good indicator that more significant discoveries will be made as mining commences in the aforementioned five pits.

Broker sees substantial upside

Although the company’s shares have performed strongly in the last three months, analysts at Empire Capital Partners believe the share price momentum can be sustained as production increases and the company delivers underlying earnings of $61.4 million in fiscal 2019. Analyst, Peter Bird said, “Merlin presents as a speculative buy to investors.

“With a market cap of just $25.8M, early investors could be buying into an overlooked resource that has significant potential to return and potentially surpass its previous performance.

“The recent commencement of full-scale mining activities for Merlin will be a major catalyst for a share price increase, along with a steady news flow concerning diamond production and major finds.”

He has a speculative buy recommendation on the stock with a 12 month price target of 6.7 cents, implying circa 700 per cent upside.

It should be noted that broker projections and price targets are only estimates and may not be met. Those considering this stock should seek independent financial advice.

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S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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