ASX-listed North Australian Diamonds is studying a 1.5-million-ton-a-year, 300 000 carat a year diamond mining operation, at its Merlin project, in the Northern Territory.

North Australian has appointed project house Consulment to undertake a definitive feasibility study (DFS), which would also consider a potential larger scale operation.

The DFS would consider a number of key variables for the Merlin project, some of which were already well advanced or completed, and would include a resource and reserve assessment, an optimisation and pit design, openpit and underground mine schedules, process plant design, as well as operating and capital cost estimates.

An interim feasibility study would be delivered during the fourth quarter of this year, with the final DFS due for completion in the first quarter of 2012.

The prefeasibility study into the Merlin project, which was completed in late 2010, resulted in the recovery of around 10 600 ct of diamonds, of which 2 590 ct were greater than one carat, representing 24.4% of production.

North Australian said that of the plus-one carat diamonds, in excess of 75% were assessed as gem or near-gem quality. An initial assessment of the run-of-mine rough diamond parcel value was between $180/ct and $220/ct.

Independent valuations completed on the rough diamond parcel assessed the price at around $330/ct.

The miner said that the strength in the price reflected the continuing strength of the international diamond market and the premium quality of the Merlin diamonds.

Northern Australia bought the Merlin project from a Rio Tinto subsidiary in 2004.

The largest diamond ever found in Australia, a 104.73 ct white gem stone, was unearthed at Merlin.