Gutnicks face showdown with Merlin Diamonds investors

A group of disgruntled investors in Joe Gutnick’s Merlin Diamonds is attempting to wrest control of the company.

A group of disgruntled investors in Joe Gutnick’s Merlin Diamonds is attempting to wrest control of the company from the bankrupt mining magnate’s family, setting the stage for a showdown at a meeting tomorrow.

But the group, led by Melbourne businessman Howard ­Rabinowitz, could be stymied because of a flood of stock, amounting to more than 20 per cent of the company, issued last week, and a further tsunami of shares to be ­issued to the Gutnick family, and a New York fund if approval is granted tomorrow.

At stake is control of Merlin’s key asset, the second-largest ­diamond field in Australia, located in the Northern Territory and was previously mined by Ashton Mining and Rio Tinto. The investors, want to tip out Merlin’s board — Melbourne businessman Henry Herzog, ­geologist David Tyrwhitt and Joe Gutnick’s son, Mordechai Gutnick.

Mr Rabinowitz, Tom Reddicliffe — a minority shareholder and mining engineer long familiar with the Merlin project — Noel Ong, Harold Macnaughtan and Malaysian Wong Koon Wai have put themselves forward as a replacement board.

Mr Reddicliffe said he believed in the project. “There’s diamonds there, they’re very nice,” he said.

However, he added that the project had “languished” and tens of millions of dollars of investment were needed to get it up and running as an underground mine.

He said he could not predict the result of tomorrow’s vote, as it depended on the attitude of investors including Singapore’s Blumont Group, which ended up owning about 5 per cent of the company after a failed takeover bid last year. Cruial too will be the attitude of a group of Singaporean investors who in 2013 bought 35 million Merlin shares — close to 20 per cent of the company at the time — from Legend International, another company associated with Mr Gutnick.

Mr Gutnick declared himself bankrupt in July with total personal debts of $275m after he and Legend lost a bruising legal battle with Indian farmer’s co-op IFFCO over a proposed phosphate mine.

Before declaring bankruptcy, Mr Gutnick controlled about 12 per cent of Merlin through his Mazil Superannuation Fund and another company of which he was a director, Great Central Gold. However, all Merlin shareholders were heavily diluted on Thursday and Friday when the company issued 94 million shares — representing close to 20 per cent of the company — to ­unnamed parties. The share issues were the result of the conversion of notes and in return for “business development services”, Merlin told the ASX.

Tomorrow, Merlin wants shareholders to approve deals that have the capacity to hand over more than half the company to two entities associated with the Gutnick family and a New York hedge fund.

Merlin has told the ASX that if the parties to the proposed share issues exercise all their rights, the Gutnick-associated Chabad Properties will end up with 28.2 per cent of the company and NRMZ, a company controlled by Mordechai Gutnick, will hold 5.53 per cent. An additional 20 per cent would be held by Regals Fund, a New York-based entity that already holds more than 5 per cent of Merlin.

Regals is run by David Slager, a hedge fund operator and philanthropist who in 2010 donated $US5m to Jewish religious charity Machne Israel.

Merlin company secretary Peter Lee could not be reached.