Three Theories for the Great Silence

While I have not been losing any sleep over the money I have lost on MUS (I am back to breakeven), I have been thinking a lot about why the Great Silence. So far I have come up with what I think are three plausible theories for why the Board has let the share price fall by 70% over the last month – some better than others, but all worth discussing.

1. The “We don’t care what happens to the share price” theory.
For
(i) Regius (CJ and CVW) are not selling anytime soon and so it does not matter to them personally what happens to the SP in the short term. By the time they get the chance to sell the October auction will be ancient history.

(ii) If the quality of the stones are good, then the Board knows they won’t need to do a CR as they will be able to borrow against the inventory.

(iii) Only the retailers have been panicked into selling. It looks like the big SI’s are holding. This is reflected in not much trading in MUSOA (it’s price has held up very well) and the fact we have received no changes in substantial holder announcements. For example, the biggest shareholder Andium (Phillip Towzell) seems to be sitting put. (iv) The low SP makes Resolution 1 both fair and reasonable.

Against
(i) It is hard to believe that CJ and CVW with their significant holdings would want to take the risk of a massive dilution if they did needed to do a CR. Why take this risk if it could be easily avoid by releasing some data to the market? (ii) It is also hard to believe that on a personal level the SP fall is not getting to CJ. To have most of the shareholders baying for your blood can’t be fun. Why subject yourself to this if you can avoid it?

2. The “We don’t have high quality stones right now, but we will by October” theory.
For
(i) All the stones found to date have come from the Alpha deposit and the “exploration” teams. The Alpha deposit was just the first place MUS found rubies and there is no reason to think a priori that it should to be yielding high quality rubies. If the Alpha deposit stone quality is poor this would explain the absence of any GIA report for the “specials” as well as CJ’s recent statement at the RRS lunches that the “MUS alpha deposit may not actually be the best one.”

(ii) We have the following statement from the company back in February
"Mustang Resources (ASX: MUS) is pleased to announce that it has agreed to acquire a 65 per cent interest in a new highly strategic ruby license (License 8245L) which borders its existing Montepuez Ruby Project in Mozambique. A site visit undertaken by Mustang consultant, Mr Paul Allan, has confirmed that artisanal miners are recovering large, high-quality rubies from this license area, which also borders one of the key ruby deposits being mined by London-listed Gemfields."


If MUS has been looking around the area for where the high quality rubies are they may have only recently found them. This would certainly explain the urgency in acquiring the new lease and why so much effort (and money) has been spent looking for new ruby deposits rather than just getting on with mining.

(iii) What do CJ and CVW have to lose by this approach? If they do find a source of high quality rubies they will be heroes and if they fail then that is just life at the spec end of the market. It is effective a one way bet for them especially since the market has already priced in the rubies as being worth $4 carat anyway.

Against
(i) They sent the rubies off to the USA and showed them around to lots of buyers. It would be a risky move if they were all garbage and this was to leak.

3. The “Let’s collapse the SP to allow a friendly takeover on the cheap” theory.
For
(i) Lots of important and rich people in the industry have seen MUS’s rough stones and know the quality mix. All the people they have shopped the stones around to in the USA know the quality mix and hence the true value of MUS.

(ii) CJ and CVW know the registry is full of day traders and retailers who can be easily panicked into selling.

(iii) CJ & CVW could have been approached by one of these knowledgeable rich people with an offer along these lines – “if the SP gets to 2.5c I will take the company private and make you a very good offer on the remaining leases Regius owns”. Compared to all the hassles of dealing with the small shareholders this might be very tempting. If only a fraction of the money the buyer saved went to CJ & CVW they would do very well.

Against
(i) This would be completely immoral and a total betrayal of the SI’s who have supported MUS to get this far. CJ doesn’t strike me as someone who would do this.

(ii) CJ seems to be highly motivated to make MUS a success. I think he really wants the glory as much as the money.

(iii) Why bother with all the promotion (like the RRS lunches) when the aim is to tank the SP?


I am personally leaning towards Theory 2 right now. It fits the data we have much better and is more in keeping with CJs actions and temperament. It is not inherently a bad outcome (provided they actually now have a source of high quality rubies to mine) – at the very least this outcome is more than fully priced into the SP.