Mining veteran Peter McNally couldn't believe his eyes when his company unearthed an extremely rare 'double diamond' in the Kimberley's famous Ellendale province, famous for its exquisite fancy yellow diamonds.

The 0.85 carat gem which contains a second smaller diamond within a cavity inside, is thought to have formed up to 1400 million years ago, some 200 kilometres below the earth's surface.  

India Bore Diamond Holdings managing director Peter McNally said the stone is thought to be one of only a handful of 'double diamonds' worldwide, which are highly sought after by collectors.

"At first we thought that it was a in stone or something inside of the diamond but it was clear," he said.

"So we thought, it's a diamond trapped inside a diamond. It was very exciting."

In 2019, Russian miner Alrosa found a similar diamond, with a 0.62-carat outer shell and a free-moving 0.02-carat rough inside, which they dubbed the Matryoshka diamond after the traditional Russian nesting dolls.

The signature yellow colour

Mr McNally said what made his company's discovery even more extraordinary was that both diamonds exhibit a rare purple hue under ultraviolet light.

Further independent studies by Perth-based Delta Diamond Laboratory, has also revealed some of the alluvial diamonds they recovered from an ancient buried river system known as the L-Channel, glow an orangey-yellow colour after all UV light sources have been removed.

The phenomenon known as phosphorescence, occurs in less than 0.01% of natural diamonds, including the world-famous blue Hope Diamond.

A new chapter for Ellendale

Mr McNally said research into the relationship between fluorescence and the origins of the Ellendale signature yellow colour was crucial, as they get closer to starting commercial production in the New Year.

"Buyers want to know where diamonds come from; they want to know about the behaviour of the miner, its environmental, social and community credentials.

"We're very close to that now…we believe that we will have our government approval to commence small scale commercial mining in January."

Ellendale's previous operator Kimberley Diamond Company went into administration in 2015, relinquished its lease and environmental liabilities — reportedly up to $40 million — back to the State Government. 

Six years later, India Bore Diamond Holdings are one of two miners working towards restarting production at the mothballed mine, approximately 160 kilometres south east of Derby, which once produced half the world's supply of fancy yellows made famous by New York jewellers Tiffany and Co.

Meanwhile their neighbour Burgundy Diamond Mines, who struck a multi-million-dollar deal with Gibb River Diamonds to take over leases on Ellendale and the adjacent Blina project this year, are also targeting production by the fourth quarter of 2022.

Argyle closure leaves a gap

The race to kick start the Kimberley's diamond industry heated up last year, following the closure of Australia's only operational diamond mine at Argyle, one of the few known sources of pink diamonds in the world.

Another emerging player is Lucapa Diamond Company, which has identified three new prospective targets at the Brooking project, only 50km east of Ellendale.

The global miner recovered more than a thousand diamonds from a single drill hole on site in 2018 but later paused exploration to focus on their two African mines, which attract some of the highest prices per carat for rough diamonds globally.

Chairman Miles Kennedy said the recommencement of the Brooking exploration program had yielded some promising results.

"We've got all the ingredients coming along to bake a very spectacular cake [and] we'll be doing some more airborne work over this field before the end of the year.

"Then subject to heritage care and surveys next year, we'll be drilling as soon as the wet season is over."

Coloured diamonds in high demand

Mr Kennedy has a long history of searching for diamonds in the Kimberley, having set up the Ellendale diamond mine more than 25 years ago.

He said this time around coloured diamonds are in much higher demand, with prices of high-quality yellow stones increasing as much as 30 per cent in recent years.

"The major companies, both DeBeers and the Russian company Alrosa, have both notified buyers they are unable to meet the buying demand for natural diamonds.

"As a consequence of this you'll see the highest prices for gem quality diamonds seen for probably over 10 years."

But the Kimberley could have some competition on the global stage, as Lucapa also works towards restarting the Merlin Mine in the Northern Territory, where it's estimated there is more than four million carats left in the ground.

The mothballed mine hasn't been operational since 2003 but still holds the record for producing Australia's largest rough diamond, weighing in at 104.73 carats.

The company is in the final stages of fully acquiring the project, 700 kilometres south-east of Darwin, where it hopes to start production in 2023, conditional on final approvals and native title agreements.