RESOURCEStocks: Firstly, to the Montepuez ruby project, where your inventory hit 147,000 carats in mid-August ahead of your inaugural rough ruby auction in Mauritius in October. You’ve overcome a plant bottleneck, how is it running now and how many carats do you hope to offer at the auction?

Christiaan Jordaan: We are very pleased that the plant is now running at our targeted rate of 1,500tpd and that we have a very substantial stockpile of ruby-bearing stockpile (70,000 tonnes at last count) to draw from over the next months. We are therefore still confident in achieving our guidance of 200,000cts for the auction on the 27th-30th of October.

RS: What interest are you seeing from potential buyers ahead of the auction and what is giving you confidence on pricing?

CJ: The interest from major rough ruby buyers we have been talking to has been very encouraging and they are highly supportive of our entry into the market as a ruby supplier. I am spending some time in the next two weeks in Bangkok and Hong Kong at major gem tradeshows there to meet with buyers and to cultivate our relationships with them. On the pricing side, we have been buoyed by the strong outcome of the last Gemfields auction in June this year which was a record for them and for Mozambique, netting US$54.5 million for about 900,000cts at US$61/ct. However importantly the number of participants and bidders (54 according to their last release before being delisted) seems to be higher than previous auctions and feedback from the buyers has been that total ruby demand from all the buyers was far from being satisfied, indicating that a lot of groups were not able to secure parcels and many successful ones didn’t secure all those they bid on.

Furthermore, in support of our confidence on pricing, Mustang has identified our niche to be focusing on the higher quality rubies from secondary ruby deposits, foregoing the sheer volume of the Gemfields auctions that mostly exceed 1 million cts and contain a lot of commercial rubies from primary deposits.  

RS: Can you outline your reasoning for opting to sell rough rubies rather than cut gems?

CJ: During our rapid evolution this year, it became very clear to us that the sale of rough and cut stones do no match our profile as a mining company. The main reasons for this are the monthly cashflow requirements for a miner to keep operations going that don’t match with the 6-12 months payment terms for cut coloured gemstones and secondly the fact that the sale of cut stones are in direct conflict with the main business of our rough ruby customers — especially problematic when you are a new entrant looking to build trust with your buyers. We therefore chose the tried and tested route of selling our rubies in the closed-bid tender format similar to the way in which diamond tenders in South Africa (and elsewhere) are being conducted and also in line with the format successfully established by Gemfields in emeralds and rubies.

RS: What is the range of quality in rubies being offered and is how is this composition expected to change as mining at Montepuez progresses?

CJ: As mentioned earlier, our focus is on the secondary deposits which in the Montepeuz field yield mostly high-quality rubies given that nature has already done the initial sorting and concentration of high quality stones in the down-slope weathering process when forming these colluvial style deposits. Within the high-quality rubies recovered from secondary deposits one gets a good range of stones that vary in their individual colours, sizes and inclusions/fractures. Offering about 200,000cts of this genus of rubies means that we will have the ability to be provide a very good mix at the auction suitable for all buyers’ needs.

In future, we intend to continue focusing on mining and processing secondary deposits (thus high quality stones) and to further refine our grading system after processing more material and getting feedback from our buyers at the October sale.

RS: You recently said Mustang had not yet discovered the source of secondary rubies at Montepuez – what exploration upside do you believe the project holds and which area is your priority?

CJ: That is correct. In terms of the broader exploration program it is still very early days and we continue to make regular discoveries as we go into new prospective areas of our 193sq.km land package. Our current priority is on the extensive, near surface secondary deposit 3-7km south east of our processing plant where fieldwork in the last month has already increased the strike length from 2.2km to more than 3km with work ongoing to determine the full lateral extensions as well as the width and average thickness of the ruby-bearing unit. So I think it’s quite clear that substantial exploration upside still remains in the project which we intend to purse aggressively over the next 12 months.

RS: Turning to your 80%-owned Caula graphite project, also in northern Mozambique and along strike from Syrah Resources’ Balama graphite project – how is work progressing on the upcoming maiden JORC resource?

CJ: We are on track to release our maiden JORC Resource for Caula in September after which we will complete a scoping study to get an idea of high level economics of Caula.

RS: You’ve described Caula as a Tier 1 graphite project, how does it differ from other graphite deposits?

CJ: Caula is quite unique in balancing between high grade and favourable metallurgy (TGCs of up to 26% with averages of thick, shallow intersections of 13% to 15%). Typically graphite deposits seem to be skewed either to the grade side to the detriment of the flake size distribution (eg, Syrah with >16% TGC but only circa 22% large and jumbo flakes) OR the other way around such seems to be the case in a lot of Tanzanian and Canadian projects (e.g. very low grades of between 4% to 5% but with more than 40% large and jumbo flakes).

Caula is therefore ticking all the boxes to become a low-cost producer but with a very favourable product basket of more than 45% large and jumbo flakes driving higher expected revenues resulting in higher margins & profits with less sensitivity to commodity price fluctuations.

RS: Finally, Mustang is fully funded until the ruby auction thanks to an A$8.5 million funding package from Arena Investors announced in July. How does Mustang intend to direct the expected cashflow from the auction?

CJ: Our intention is to firstly direct cashflow from the auction to working capital to keep our plant running at full capacity with the view of another auction in early Q2-2018; and secondly to apply excess cash to expansion of our processing capacity given the very large stockpiles and the extensive size of the deposits we have. Thereafter we will look at other deposits and opportunities in the Montepuez field for possible separate mining camps/processing centres with a view of taking Mustang to much higher levels of production over the next 24 months and generating strong, repeatable cashflows for our shareholders.