Mustang shares tipped for strong run ahead of first ruby sales 26th May 2017
The first in-depth research report on emerging ruby miner Mustang Resources (ASX: MUS) has just been published – and it predicts some juicy returns for shareholders.
Written by Independent Investment Research senior analyst Mark Gordon, the report sets a 12-month share price target of 17c – almost four times the current price.
Mustang is in the throes of building a ruby inventory of 200,000 carats at its Montepuez project in Mozambique ahead of its first auction in October.
The project is next to the ruby mine of London-listed Gemfields, which has generated revenue of US$225 million from the sale of its rubies and now has a market capitalisation of ~A$400 million.
"Sampling by Mustang to date has recovered stones that are potentially of similar quality to those of Gemfields and it expects first sales in October 2017," Gordon says in his report.
"The Montepuez ruby field looks as though it will become a consistent, stable source of rubies (something that the ruby market has been lacking and that has hindered development of reliable markets), and thus will enable participants to develop a stable and solid market strategy for product, possibly akin to the setup of the original De Beers diamond markets, with the diamond market now being valued at around US$70 billion annually, in contrast with rubies, with a current estimated market size of US$2 billion."
The report notes that Mustang has already recovered around 73,000 carats of reportedly high-quality rubies from bulk sampling and prospecting and that these are thought to be of similar quality to Gemfields' high-quality stones, which have received average prices of ~US$500/ct at auction.
Gordon says recent upgrades to the treatment plant should lead to increased recoveries and significantly higher throughput.
"The Company expects first revenue from rubies in October 2017 from a planned auction of 200,000cts," he says. "Increasing demand for rubies over recent years has caused the price index to rise by ~60%, with this possibly partly due to the marketing efforts of Gemfields.
"Should a viable resource be delineated, Mustang will be in a prime position to take advantage of the market, which has also seen increasing price with increasing supply."
The report says Mustang is set to enjoy strong newsflow over the rest of this year as it ramps up production, builds its inventory and starts registering cashflow.
"We have completed a valuation for Mustang, with this resulting in a base-case 12-month price target of $89 million, or 16.9c a share," Gordon says.
