AMN - MOZAMBIQUE: Cash injection from forward ruby sales

Mustang Resources may secure a substantial early cash injection by forward-selling some of its rubies from the Montepuez project in Mozambique ahead of the company’s planned maiden auction in October, according to managing director Christiaan Jordaan.

He told a Resources Rising Stars investor lunch that the forward sales option was now under consideration to ensure Mustang had sufficient cash to see it through to the auction.

Mustang said recently that it had abandoned plans to sell cut and polished rubies, and would instead auction all gems from Montepuez as rough stones.

Montepuez is next to the world-leading ruby project of London-listed Gemfields, which has market capitalisation of $400 million, compared with just $22 million for Mustang.

The revised strategy, which is the same as that used by Gemfields to generate US$225 million in sales over the past three-and-a-half years, means the company will not be competing with its customers for rough stones.

Christiaan Jordaan said the process of selling rough rubies was also much simpler than that for cut and polished stones and payment for rough stones was immediate compared with delays of up to six months for cut and polished gems.

Under its new strategy, Mustang will grow its ruby inventory from its current level of around 73,000 carats to 200,000 carats and then send them to auction in October.

Recent auctions of gem-quality rubies have taken place at prices ranging from US$150 a carat to as much as US$700 a carat.

Mustang revealed in its March quarterly report that it had cash of $3.1 million and expected to spend $1.8 million this quarter. Production is forecast to increase sharply with the plant expansion now completed.

Christiaan Jordaan said the five stones sent to the US for cutting and polishing would be sent on to Thailand and sold as part of the October auction.

He said these five stones, which represented just 0.1 per cent of Mustang’s current inventory, were only ever intended to be part of a market-testing exercise and were not earmarked as a material cashflow generator.

With the company no longer intending to sell cut and polished stones, there was no point in pushing ahead with this process.

He said while the revised sales strategy meant there would be a short delay in the company booking its first revenue, it would be much better off in the medium term.

An inventory of 200,000 carats would enable Mustang to present commercial parcels of rubies, which would in turn maximise the prices it received. “There is a lot of room for growth in the ruby market,” he said. “The challenge has been inconsistent supply. That is being resolved by Gemfields and now us.”

www.mustangresources.com.au