AMN - MOZAMBIQUE: Mustang shines ahead of first ruby sales

Emerging ruby producer Mustang Resources has started the new year with a bang as its share price surges ahead of the first sales from its Montepuez project in Mozambique. Mustang has confirmed that it is on track to receive its first sales revenue next quarter following the shipment of its first commercial parcel of gems to the US in early January.

The shipment is a pivotal event for Mustang because it will help establish the value of its stones and therefore the revenue and profit potential of Montepuez.

Mustang shares have shot from 2.1c to as high as 7c already this year, but the company still has a market capitalisation of just $25 million (at 5.6c).

Mustang is in the throes of tripling production rates following the successful relocation of its processing plant. The combination of these increased production rates and the prices realised from its first US shipment will help the market value the stock based on conventional cashflow and earnings benchmarks.

The rapid emergence from explorer to producer caught the attention of the media which reported that Mustang’s neighbour at Montepuez, London-listed Gemfields, has a market capitalisation of well over A$400 million.

“Having built and now commissioned a similar-sized process plant to Gemfields at its own Montepuez property (at a fraction of the cost), and dispatched this month its first rubies to the estimated US$400 million-a-year US market for grading and possible sale, Mustang Resources is starting to get the traction among key investors for the emerging story that managing director Christiaan Jordaan and his team have worked hard for over the past 12 months,” according to the media.

“The investors include US and Australian institutions that backed its December, 2016, equity raising.

“Mustang’s share price has not been overly responsive during the year just gone, but that corner may also now have been turned with the stock gaining ground in the wake of its announcement of a 6,221-carat parcel of rubies and corundum being sent to US gemstone cutters and jewellers. The shipment included a parcel of five special stones weighing a total of 76.65 carats to be cut by renowned stone faceter Meg Berry.”

The article noted that the batch has two rare 24-carat high-quality rubies that could help shape future Mustang branding and pricing.

Christiaan Jordaan was reported saying: “This is a key milestone for Mustang – the first commercial shipment of rubies recovered through bulk sampling and via our highly successful prospecting teams that form part of our local community engagement and employment programme.”

He said Mustang was on track to record its first sales revenues in the current half.

“The shipment will play a vital part in helping us to place market values on our rubies as well as growing awareness and understanding of our world-class stones among customers,” Christiaan Jordaan said.

“So we will be better placed to estimate the revenue we can generate from our rapidly growing production profile.”

The relocation of its plant closer to its key Alpha ruby deposit and important water sources is allowing Mustang to ramp up throughput to a targeted 525 tonnes per day – three times levels achieved previously. Meanwhile, bulk sampling had yielded nearly 16,000 cubic metres of ruby-bearing gravel from Alpha and Mustang was also accelerating efforts to open up new sources on its 160sqkm of ground.

Christiaan Jordaan says an auger drilling program will help map ruby-bearing zones in the project area, and outline a maiden JORC resource.

The media report said, “ Mustang’s exploration program is guided by former Gemfields head consulting geologist Paul Allan, who knows more about the field that has reshaped the global ruby supply landscape than just about anyone.”

Even though he’s currently head of a sub-$20 million enterprise, Christiaan Jordaan sees a very big picture emerging at Montepuez.

“We are all just scratching the surface here. Montepuez is proven now to be the single largest current ruby deposit in the world. The difference between this and other deposits that have been flash-in-the-pans is this will be going for 50 years at least.”

Christiaan Jordaan says untreated 4-to-4.99 carat Mozambique rubies were fetching US$18,000-$42,000/ct in the US at a wholesale level, with wholesale reference prices for cut gems larger than 5ct typically negotiated between buyers and sellers due to their rarity. Prices can rise exponentially as rubies get bigger.

“Gemfields has really shown the way, recording upwards of $220 million of sales during exploration.

“They’re only going into commercial production now. They’ve really been the beacon that we’re following.

“But I think there are opportunities for us to carve our own niche, initially at least by focussing on the sources of material that produce about 70% of the value of Gemfields’ output.

“Our first ruby sales will be transformational for us.

“Gemfields’ first ruby auction netted US$34 million. I’m not saying we’re going to do that. Even half of that number is still larger than our market cap.

“Even if we do $2 million of sales, it’s a good chunk of our market cap.

www.mustangresources.com.au