Mustang confirms secondary ruby deposit at Montepuez

Published at Aug 15, 2016, in Juniors

Mustang Resources (ASX:MUS) has recovered a further 19 rubies from the ongoing reconnaissance pitting program at its flagship Montepuez Ruby project in Mozambique.

While the company is a unique dual gemstone and graphite play, its immediate focus is on identifying and recovering rubies from the Montepuez project in order to generate cash and gain an understanding of the potential size of the resource.

A total of 29 rubies totalling 5.79 carats have now been recovered from small reconnaissance pits to date, an outstanding effort given the company has only just commenced exploration activity.

On July 27, 10 rubies totalling 2.6 carats were recovered from a trenching program designed to delineate targets for a proposed bulk sampling program.

At that stage management highlighted that rubies recovered from early stage excavation and trenching further validated the prospectivity of the project. The company also noted that phase 2 exploration activities were progressing as planned with pitting, sampling and small-scale processing works underway prior to the scheduled start up of the bulk sampling program in the third quarter of 2016.

This most recent news has buoyed management’s confidence in the project. Managing Director, Christiaan Jordaan said, “That our exploration team has recovered 29 high-quality rubies to date is very encouraging and further highlights the potential underlying value to be extracted from the Montepuez Project”.

As Jordaan highlighted, this early success could be the start of bigger things to come given that the group is now proceeding to initiate bulk sample mining using 16 foot rotary pans processing ore at a rate of 800 tonnes per day with a head feed of approximately 1300 tonnes per day.

It should be noted that the results of the sampling done over the identified secondary deposit are not sufficient to provide any estimation of the grade and gemstone size distribution. A bulk sample of at least 150,000 tonnes should provide a better understanding of the overall deposit.

Results to date cannot be relied upon to estimate the likely outcome of the resource definition and as such shouldn’t form the basis of an investment decision.

However, management said, “It is very clear that the recovery of rubies from such small samples of approximately one tonne per pit is an extremely positive indicator of the grade potential of the deposit”.

As a backdrop, it is worth noting that Mustang’s tenements are adjacent to those of Gemfields plc, a company that has established itself as a highly profitable player in the ruby industry. Baker Young analysts Dirk Van Dissel and Alastair Murray are of the view that Gemfields’ ruby mineralisation is part of the same system that runs through Mustang’s tenements.

Should Mustang be able to prove that this is the case it would add further promise to an already upbeat story. The fact that former Gemfields geologist, Paul Allen, is heading up Mustang’s on ground geological team should give the company every chance of optimising the project.

In terms of arriving at a value for Mustang Resources it is extremely difficult given the early stage nature of the project and the highly speculative characteristics of the company’s operations. However, when Baker Young initiated research on the company in June the broker placed a price target of 19 cents on the stock.

Broker projections and price targets may not be achieved and should not be used as a basis for investment

It is important to note that Baker Young’s valuation which is in accordance with its price target is based purely on the group’s Ruby project, attributing zero value to what could be considered a highly prospective Balama North graphite deposit also located in Mozambique.

The following is an outline of progress made to date at Balama North and the anticipated timelines for completion of further exploration and resource definition. The company’s expectation of establishing a maiden JORC indicated and inferred resource in 2016 would be a significant development for the group and a potential share price catalyst.

Mustang’s shares have trailed off in the last month after spiking circa 70% in the first two weeks of July. However, the rally of approximately 10% that has occurred since management announced the confirmation of a secondary ruby deposit could see a recovery of some of that lost ground.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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