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Good morning All,
I had the fortune of attending the RRS Conference yesterday. I was happy to find Christiaan manning the Booth and fortunate that he gave me a fair amount of time to chat through some of the questions I had.
One of the accusations many here on HC often share on various projects that they are skeptical of is that the Management in Charge are “Mining the Market”, for me, personally I am happy to dispel this myth, I got a sense through our discussion that Christiaan is working hard to our (and his) medium to long term advantage. He says that focus now is very much on operations and customers and he is not to worried about the short term movements of the SP even though he feels the company is undervalued. He is focused on the next major goal which is a successful auction. I really think that it is important to understand the context in which Christiaan has moved to Australia as this comes at great personal risk, I think it would be fair to say that Christiaans’ potentially prosperous future is tied to directly to Mustangs success.
Further to the above, It was clear to me that Christiaan feels that market has taken for granted the achievements made by management that have been made on a Very limited budget, and the processing capacity we now have almost comparable to our neighbours but developed with significantly less capital. This too him is very important as he feels that by allocating funds wisely they have leveraged Shareholder funds for maximum value.
Christiaan mentioned that he will be the first to admit he made some mistakes regarding social media and perceptions that may have been created and that it has been a humbling experience and that from now on we won’t find him on these channels.
I raised a question regarding Financing options for Mustang, and I quote.
“This is something that is being actively worked on. The principal that we are leaning towards, Without giving away any market sensitive information is to attempt for Mezzanine financing that will be non dilutive to Shareholders. Effectively Bridging Finance between now and October.”
I asked about Lanstead, Christiaan mentioned that they generally like Equity and feels they have enough at this stage, he mentioned the possibility of other large shareholders being able to assist.
A question that has been on my mind, even though I know it’s not hugely material to the Mustang success going forward is, where did the larger specials that we sent to the US come from?
“These were from Artisanal Miners on MUS land.”
Related to the large Stones, again, not very Material to Mustangs future, but a questions I wanted to know, Did the Specials ever get Graded? Christiaan has confirmed that none of these stones were ever graded by GIA. He also confirmed that the cutting Yields are on the specials are inline with expected recovery on Mozambique rubies 40 - 60% but more than this he could not say.
I also posed the question to Christiaan about the Gemfields Rhino Rubies and the affect they may have had on Skewing the Data on their high value $ auctions
and it was interesting to note the he says from the discussion on the ground, word is that these stones sold for around $3mil. Obviously large stones in the Rough do not attract anywhere near the same valuations as Cut Stones do, as this is where all the risk lies. Again Great to note that it is the Higher Grade Stones in this instance achieving very decent $ returns.
The point above addresses one of the threads here on the HC forum, Specials not so Special, in that when we pivoted to a Rough Ruby Sales Strategy, these stones Immediately became less valuable in that they now need to go through the correct supply chain process and will never fetch as much as they could say for example at a Christies Auction. In any case the Term “specials” really fits a grading category more than management were saying that these particular stones are very special. Specials by nature are over 3cts in size and meet other grading criteria.
We proceeded to have a very interesting discussion about GemFields strategy of focusing on mining the major Primary Sources against Multiple warnings from the likes of Vincent pardieu and other GIA Gemologists. Speculating it seems as though this decision ties in with Historical company management being tied to India and the marketing strategy being based on the Demand for lower quality stones and the uses for specific Jewellery in that region, as mentioned in some of Gemfields latest updates they are now pivoting away from a Focus on Primary deposits and will be looking to Increase their Secondary deposit mining activity.
This raised yet another very pertinent point in that from discussion that Christiaan has had with the market, Rough Ruby buyers are not currently receiving as much High value Material as they would like from Gemfields, so much so it seems as though some of the larger clients who are regular attendees at Gemfields auctions have sought out Christaan to discuss future auctions and are very pleased that they will have the ability to access Stock on a more regular basis as it seems they are currently constrained by the markets production. These buyers want choice and are very happy to have another player who is able to provide extra purchasing opportunities throughout the year. On this point, it seems we won’t have any issues gathering a group of well heeled buyers who are Hungry for higher quality product.
In another point relating to future MUS customers as well the change in Strategy, Christiaan confirmed that the change in strategy had to do with industry strong arming and a little dirty play by our esteemed Neighbours.
With regards to Gemfields, Christiaan is very aware about the corporate action taking place and says that he is in contact with some very large Insto holders who are not very happy with what is taking place and that there is potential that some of these players would be looking over the fence to Mustang in the proceeding months. Mentioned that interest from London has also piqued lately.
With regards to the Latest Ann, and the Plant Commissioning everything is on track, what they have discovered since running the plant is that they need to have extra water holding facilities in place to complete a full Shift, current capacity only allows for the plant to Run for limited hours before needing to be topped up again, this is a fairly simple fix, the Engineer who Custom Built this plant is the same Engineer who built Petra diamonds plant and is highly Skilled in his Craft is on a flight either today or tomorrow to assess and make necessary adjustments. Great thing is that the Aquifer has ample capacity, its just a matter of having the water ready in the pools for processing.
Grading System is underway and the team is making good progress on this. The end result is that we will have a similar system to what Gemfields has but different enough not to infringe on any IP. Another benefit of our dealing with most of the same customers that Gemfields do is that their customers already understand the grading system and this will work to our advantage come auction time. Christiaan has mentioned that he was at one of Gemfields previous auctions as he was invited by Ian Harbottle, this was invaluable exposure for him. 1 point I mentioned Earlier but that Christiaan reiterated was just how little high quality stones Gem has generally had available at these Auctions and that this has had a material impact on the average sale values that we have come to know from them.
With regards to Questions on Dividend Policy.
Christaan mentioned Management have a very strong “Philosophy” that any excess cash flow should be returned to shareholders when feasible to do so. This is not a Company Policy as yet, but rather Management view as Conveyed to an analyst who then subsequently wrote an article about it.
I asked Christian about Redstone and the potential conflict of interest, he mentioned that he is well aware of how this looks and that he understands that it could look like there is a potential conflict of interest he said that that this is something that will be addressed within 6 - 12 months and that and that more than likely would be merged into 1 entity, removing all related party issues.
Regarding Peter Spiers,
Christiaan says that he has already contributed quite significantly and that he is a very hands on guy, Peter is scheduled to be visiting the site on the 12th June and is ready to take the bull by the horns. Along with this we are close to having another Non Exec Director appointed soon, again, another well experienced player.
With the board then established with 3 Independent Directors and the above amalgamation taking place, removing any perceived conflicts, going forward MUS looks to be established as the largest land holder in the region having removed all the complications around company structure etc.
Overall, I am very pleased to have met with Christiaan and think he did a great job at promoting the company to the Crowd. I am very happy with my Investment and look forward to the coming months.
As usual, please don't take my advice to make your financial decisions.
EQ
