Ann: Results of Meeting, page-18

Sorry! Took a while to go through it.

Here are the key points.

All 4 resolutions carried. Allows operations to proceed in earnest in the new license area.

Note - under resolution 3, an existing investor is contractually committed to buy at 7.7c. They are invested for the long term and are one of the biggest participants in the placement. Andium Pty Ltd. They like the long-term growth story.

Then for CJ, the video and the Q&A ...

CJ started by showing drone footage of the plant.

• Video will be uploaded to website later this week. Will also add more photos and videos of what is on site.
• Video from drone:
  • front-end loader feeding a feed bin
  • one conveyer (at the moment) leads to a 250 tonne per hour scrubber ( old scrubber was not sufficiently sized and would not break up all the clay)
  • new scrubber has been custom-built
    • very pleased with it
    • key upgrades now in, including new slurry pumps
    • new 250 tonne per hour equipment is on par with recently upgraded Gemfields equipment ( 300 tonne per hour )
    • MUS equipment is more robust than Gemfields ( pulsating jigs instead of Gemfields DMS )
    • project delivered on time and on budget
      • about AUD $1M invested into upgrades including the scrubber
      • relatively low cost compared to USD $10M to $12M for Gemfields upgrades
      • key is to keep cost low without sacrificing quality

The newly acquired license:

• is now approved by shareholders
• plant is 3km NW of the new area
• there are artisanal workings in the new license area
  • one of the key target areas we will be going into in the next few weeks
  • the area is highly, highly prospective and the reason for acquiring the asset
  • actively being mined and processed by artisanal miners
  • very shallow ruby mineralisation, very excited to be able to feed this material into the newly upgraded plant
  • timing couldn’t be better to formally conclude the acquisition
  • environmental permitting is in place, that was done in quick time as well
  • at the end of this week we will have local protocols in place to go into this area and start processing that high quality material
  • this is a focus in the coming months leading up to the planned bulk auction to be scheduled for October

Rough ruby buyers

• • there are 40 groups in the world that are rough ruby buyers
    • from discussions with one of these groups in Thailand last week, 10 of these groups account for 80% of the buyers at the rough ruby auctions
    • a small handful of groups with strong balance sheets that buy rough, pay cash on delivery so ideal for cashflow
    • through the tender process get very good price competition from buyers
  • supply in the market is currently severely constrained
    • Gemfields, Artisinals and now Mustang coming into the market
    • Artisinals are not a sustainable source - illegal mining has been curbed by the Mozambique government and this is driving demand towards suppliers like Gemfields and Mustang
    • Rough buyers are encouraging Mustang into and will be pleased to see Mustang in the market

Tender/Auction sales:

• Mustang working towards two tender sales per year ( March and October )
• Scheduled to not clash with Gemfields sales held in June and December
• Rough ruby buyers currently have problem of only have two buying windows, which can create a supply gap for them for product they need to feed their customers
• Rough ruby buyers keen for improved availability and consistency of supply to meet growing demand
• Big brands are pushing coloured gemstones more and more and this demand is driving into the rough ruby supply chain

Shifts:

• At the moment 250 tonnes per hour for 7 hour shift
• Constraint is not on the plant, there is a great deal of potential to ramp up
• Immediate focus is prioritising the deposits to mine, guided by artisanal workings. With confidence established in deposits will then ramp up mining / processing.

How soon into new license:

• The access road has already been built.
• Environmental permitting has been done.
• Getting community engaged, so from next week will be able to start “trucking in materials” (CJs words).
• By starting with the high-grade area and with the upgraded plant, will really be able to get strong growth in inventory ahead of the bulk auction in October. This is the key milestone in the coming months.

Gemfields grading system has 157 categories ( do not have splits yet since grading system has not been completed yet )

What about the existing lease?

• Further drilling and fieldwork has been done in the existing lease
• Good potential throughout lease 4143, a number of targets
• Now have about 10 or 11 deposits for ranking and testing of mineralisation
• Many other areas available to explore with more to be done in the next few months

CJ is confident they are on track for 200,000 carats by October but will confirm in coming months.

Forward sales?

• focus is on the Auction, will consider a forward sales as an option on the table ( but this would be at a discount so risk is impacting the prices at auction )

Enough cash to run to October? Would you do it as a rights issue ?

• we do not intend to do a capital raise as this would dilute existing shareholders
• may look at mezzanine financing
• another option they are looking at is a share placement plan to support existing shareholders
• may ask existing sophisticated investors to convert their existing options, this would be non-dilutive
• (in response to a suggestion) board could also consider offering options to existing shareholders to raise capital, this would be non-dilutive

Takeover risk?

• keeps CJ awake at night, does not want to see a corporate raider
• with the resolution approved today there is a 10% holding that can be used towards blocking such a move
• will continue to drive operations on the ground to get things going and get results for shareholders to lift share price

Communications? Postive Communications?

• it’s an education process and CJ takes full responsibility as MD
• company has realised they need to communicate more frequently and in more detail
• videos like this and better explanations of processes since the industry is not well understood
• will ask the team on the ground to take more photos of inventory
• will work to improve communications to regain investor and shareholder trust
• intend to educated shareholders and customers on grading system works

What will make the markets suddenly realise it’s not worth 4c but 40c?

• continuous results, continuous operational results
• highly successful auction ( emphasised  important of proper grading system, importance of engaging with and marketing to customers )

Price for commercial rubies?

• gemfields are getting $2 to $4 a carat for commercial rubies
• gemfields gem quality rubies varied from $50 / carat to $680 / carat ( from a gemfields report july 2015 )

Buyers

• Thai buyers prefer to do the buying outside of Thailand ( for tax reasons ). Hence consideration of locations such as Dubai, Singapore, Hong Kong, etc
• Another big buying group are North Indians from Jaipur

Security

• a safe / a room for storage of inventory, limited to access by expatriate managers, electric fence with access control
• will minimise amount of stock kept in Mozambique

Insurance

• will be looked at as part of setup of final storage facility, can’t insure in Mozambique

Artisanal miners

• get a base salary as employees of company, with a bonus for production / recovery
• government are very supportive to prevent tax loss from smuggling ( has been a big problem until recently )
• government has cracked down on illegal miners and smugglers, stopped giving visas to buyers
• focus is on feeding their families
• provide training opportunities and some have moved “through the ranks”
• looking for more to employ

Weather

• rainy season mid-december to mid-march
• will build stockpiles for processing in the rainy season ( allows processing to continue in the rainy season )
• normal mining operations suspended in the rainy season to focus on processing from stockpiles

Very small board

• looking at growing board, very cognisant of cost
• envisage two additional non-executive directors with experience in mining engineering / geology

Graphite

• market is undervaluing the graphite
• intend to rectify by not spending much capital
• metallurgy shows it to be a very high grade deposit
• results expected from SGS Perth in weeks and then a JORC will follow shortly after and then an initial scoping study ( all within the next 2-3 months )
• strategy is to get a partner in, determine the appropriate niche, start small scale and modular