Estimated Inventory Valuation @ 8 October

DYOR. Not advice.
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This is my own estimate of inventory value for the October auction based on a set of conservative assumptions. Do not interpret as a formal valuation of Mustang's inventory.

In the absence of inventory updates I've reworked my estimate of inventory value.

The resulting estimate is an average of USD $114/ct of rough stone for 330,000 carats assumed to be tendered for the inaugural auction commencing 27 October:



I'm of the opinion USD $150 to USD $200/ct is still realistic if a number of large stones are recovered from the 8245L area that is Mustang's current focus.

Assumptions

The following are the core assumptions:

1. 330,000 carats will be tendered ( this has been chosen as a conservative figure, it is quite possible Mustang could auction a larger inventory ).
2. The inventory is comprised of:
   • 120,000 carats collected from the Alpha deposit up to June 2017
   • 220,000 carats collected from the 8245L deposit from July 2017
     • This is the key part of this revised valuation and I've detailed the assumptions for 8245L under the Inventory Segment 2 heading below.
3. Cut yields are 35% for the largest stones ( >= 20 carats ) and on a sliding scale from 30% down to 25% as size reduces down to 1 carat.
4. The following reserve prices are assumed ( these are my own assumptions based on research of the industry ):
   1. 25% reserve for the smallest stones
   2. 32.5% for mid-sized stones
   3. 40% for the largest stones

The assumed composition of the inventory is explained below.

Inventory Segment 1 - Material from Alpha Deposit

When Mustang commenced bulk sampling in 2016 they were mainly working a primary deposit known as the "Alpha Deposit". They concluded operations within the 4143L area with 120,000 carats in inventory as at July 2017

I've assumed 10% of the material is High Quality and biased the material towards the bottom-ends of the High Quality grades. I've assumed the remaining 90% is commercial grade and biased this to low-commercial. These assumptions are deliberately conservative.






Inventory Segment 2 - Material from 8245L

Mustang acquired the highly prospective 8245L from Regius Exploration during this year and commenced operations there in July.

We have the following production figures tallied by @captamazing in this post:



Based on this data I've assumed the focus of operations in 8245L has been Artisanal workers conducting exploratory pitting with the support of Mustang's Gemologists in order to locate the lucrative secondary deposits. When gravel horizons are intersected, the gravel beds are dug out and the material is collected and processed through bushman jigs. As this work is exploratory an assumption is that this material is mixed grade and yields a mix of high-quality and commercial-quality material. From my analysis this process produces 83.2% of the collected material from 8245L.

With the information from the exploratory pitting I'm assuming targeted bulk-sampling/mining occurs to recover material to be processed through the plant. My estimate is that this process produces 16.8% of the material from 8245L.

I've biased material collected for and then processed by the plant as 90% high quality with the remainder being commercial quality.

For material collected by Artisanals, I've assumed 28% is high quality and the remainder is biased to commercial to achieve a conservative assumption. This allocation aligns with information from last week's Melbourne investor session that the Artisanals are recovering a mix of High, Low and Commercial-quality rubies. This information was conveyed through Q&A with some of the attendees. @Lutin and @country bumpkin were in attendance and may be able to provide further comment.

The outcome of my analysis is that I'm estimating 38% of the material from 8245L as currently pitted / sampled is High Quality. The current methods being a combination of Artisanal Pitting / Processing through Bushman Jigs and target Sampling / Processing via the plant.







Results

Putting it all together, my results for an inventory valuation for Auction 1 are below.

This is broken down as follows:

• 120,000 carats from the Alpha ( 4143L ) deposit @ USD $73/ct rough ruby
• 210,000 carats from 8245L @ USD $138/ct rough ruby

The overall inventory value when revenue is averaged across the two deposits is USD $114/ct rough ruby.


Detailed Calculations

Detailed calculations supporting the valuations above are contained in the following PDFs.



Observations

Large amounts of Artisanal activity up to the last inventory update on 12 September will provide a large number of exploration pits. By targeting the pits yielding the highest-quality material with guidance from Mustang's gemologists follow-up sampling / mining will allow plant-based processing of the highest quality gravel beds. This may provide Mustang with the opportunity to improve mining rates and recoveries for the Highest Quality material in the remaining month of mining after the last inventory update on 12 September. It's a possibility we'll be surprised once the inventory ins finalised and an update is published.

Recoveries of a number of large stones may still provide for a boost to revenue that compensates for lower-values of smaller and/or lower-quality material. I'm still of the opinion that an average inventory value in USD $150/ct USD $200/ct is realistic given the high-quality 8245L deposit Mustang is currently focused on.