I have used bone for this example that I bought back in 2003 at a pet food shop that has lasted me years, you can but ready cut bone for nuts and saddles that could be purchased, saving a lot of dusty smelly work. Artificial nut material is available from luthier supplies.
My disk sander was used to rough out the shape along with my files and sandpaper. Needle files were used to start the string grooves, although I have a set of nut slot files I save for the final stages, you may find that the miniature fine-tapered oval bottomed needle file may be able to do all the work.
I had to really edit this episode down to fit it within the 10 minute limit, so please feel free to ask anything. One note, I did also make a wooden nut that I was going to use for this, I used boxwood, but ebony or blackwood could also be used, this might be a great alternative. In the end I think I felt that bone might just give a little more edge to the sound than wood(all my stick dulcimers have had bone nuts, I had only used wood ones on my crwths)
I used a forstner bit of 10mm to drill the holes. Great care is needed here to align the holes and also in drilling. This is a pillar/bench drill job.