The company's share in Argyle's production of rough diamonds increased to 16.4 million carats from 16.2 million carats in the previous year, while its diamond sales revenue rose by 23.42 per cent to A$216.6 million from A$175.6 million registered in 1997.

The impressive rise in gross margins was partly due the rise in sales revenue and exchange fluctuations but largely due to better price realisations obtained by the company because of the strong demand for Argyle type roughs.

This made an upward revision in prices for such roughs possible. The earning per share in 1998 was 3.7 cents per share, against a loss of 21.8 cents in the earlier year. A total dividend of3 cents per share has been proposed for the year against 4 cents per share in the previous year.

The company increased its equity capital during the year by A$69 million to A$342 million while its total assets rose to A$603 million from A$568 million in 1997.

Diamond inventories (at cost) during the year fell to A$79.2 million from A$115.1 million due to buoyant market for Argyle roughs. Inventories represented just 36 per cent of its annual sales revenue.

The company's foreign exchange risk management programme is restructured to provide protection against volatility in Australian dollar, as diamond income is denominated and all contracts are denominated in US dollars. In 1998 the Australian dollar fell very materially against US dollar. The average spot rate for 1998 was 0.6295 versus 0.7438 in 1997. As most of the country's contracts were established in the higher rate period, the average delivered rate achieved in 1998 was 0.7018 (1997: 0.7290).

Meanwhile Ashton has already commenced commercialproduction of rough diamonds at its 100 per cent owned Merlin project in Northern Territory, Australia. The process plant at Merlin was commissioned in January 1999 and the first rough diamonds were produced there in the following month. A total quantity of 3,306 carats was recovered as the first batch, with a large selection of stones greater than one carat including a 14.76 carat stone.

Diamond production from Merlin, which represents Australia's second hard-rock mine, is expected to reach 2,00,000 carats in the first 12 months, rising to 3,00,000 carats in the subsequent year.

Interim pits have been developed on four of the southern cluster of pipes. These are expected to provide the initial plant feed and will be expanded to final limits once diamond grade and values have been confirmed. The internal resource base of the four kimberlites subject to interim pitting activity, is estimated at 2.3 million tonnes at a grade of 0.4 carats per tonne. This resource is down to a depth of 120 metres asestimated by bulk sampling from each of the four pipes.

Evidence for geological continuity below the current resource base can be expected during the current programme which will include bulk sampling of other Merlin kimberlites.

The two-and-a-half year Stage One programme will process some 1.5 million tonnes of ore from mining of seven of the 12 Merlin pipes and also from bulk sampling of the two other pipes in the cluser.

Ashton has already decided to sell its Merlin roughs through the Antwerp office of Argyle Diamonds. The first actual sale of these roughs is expected to take place in the current month. Subsequent sales are expected regularly every month.