Mustang Resources (ASX:MUS) is expecting a major cash injection after setting an October date for its maiden auction and sale for its growing gem and ruby inventory.
The inventory, which currently stands at ~73,500 carats, is expected to reach ~200,000 carats by the time of the auction thanks largely to recently completed plant upgrades.
Mustang’s decision reflects a significant strategic shift from selling its rubies in both the cut and polished and rough forms to selling them all as rough stones.
The move will accelerate the generation of substantial cash flow for Mustang from its flagship Montepuez Ruby Project in Mozambique.
Christiaan Jordaan, managing director, commented:
"Mustang’s recently completed comprehensive market study showed that selling its rubies in bulk through an auction/tender process in their rough state is the most effective way to maximise the average price per carat and avoid the deferral of sales revenues inherent from cutting and polishing activities."
Background
Mustang’s flagship project is the Montepuez Ruby Project, where it is currently conducting extensive bulk sampling and exploration.
Montepuez neighbours the Gemfields’ PLC (LON:GEM) ruby concessions, the largest ruby mine globally.
Mustang’s initial bulk sampling has been successful, confirming gem quality rubies, including a number of significantly high carat stones.
An aggressive auger drilling program is underway aimed at delineating a JORC ruby resource in the second half of 2017.
Mustang also holds interests in the Save River Diamond and Balama Graphite projects, where a high-grade discovery was recently made.
Revised strategy
Mustang will now replicate the strategy of ruby market-leader and neighbour Gemfields by selling all its gems as rough stones.
Gemfields’ Mozambique rough ruby auctions have yielded total sales of US$225 million from seven auctions over three years with its first auction held 18 months after the commencement of bulk sampling.
The move will accelerate the generation of substantial cash flow for Mustang from the Montepuez Ruby Project and will also ensure that the company does not compete with its customers in the sale of cut and polished rubies, an essential pre-requisite for establishing a sustainable sales channel.
Ramping up processing plant
Following key upgrades to the bulk sample processing plant at Montepuez, Mustang’s processing rates will be able to rise sharply when the plant is re-started on 8 May 2017.
Recoveries are forecast to increase as processing volumes grow, with plant throughput capacity henceforth at ~1,500 tonnes per day.
Analysis
An October sale date provides Mustang with a clear path to cash generation through a simplified sales process that no longer will involve the cutting and polishing steps.
Generating early stage cash flow from the sale of these rough rubies will transform Mustang into a cash generating miner.
The evidence suggests that the revised approach is likely to realise higher returns for Mustang’s ruby inventory and not involve Mustang in the complexities of cutting and polishing activities.
This approach is also much more in tune with the current exploration and development skills sets in the company.
Plenty of opportunities exist in the interim as Mustang looks to accelerate and expand its prospecting program through continued bulk sampling, auger drilling and fieldwork across its soon to be expanded licence areas.
Shares in Mustang are trading up 220% in 2017 to date, currently priced at $0.064.