Three days after Mustang Resources’ (ASX: MUS) managing director Christiaan Jordaan resigned, the company has announced a strategic update revealing several new actions including overhauling its ruby grading system, following the company’s disastrous maiden tender.
Prior to the botched auction, Mustang had developed its own grading system in conjunction with ruby expert consultants. The system involved sorting the rubies into parcel sizes called lots which were then combined into schedules for the auction. The company also employs its own in-house gemologists.
According to Mustang, the global ruby market does not possess a standardised grading system, with buyers remaining secretive, fragmented and mostly unregulated. The company claims each buyer has unique requirements.
After committing to the end of October auction with input from industry experts, Mustang offered a mix of schedules including 109 different lots of differing qualities.
The average realised price for the auction was A$24.21 per carat for A$713,456 in gross sales. After seeking feedback from the 40 different buyers, Mustang was told its grading categories were too broad. Buyers said the range of gems within each ruby lots was too wide.
Additionally, buyers told the company its offering did not include enough volumes of homogenous parcels, particularly within the higher quality lots.
Mustang claims this broader grading system was the primary reason for its failed tender.
The company’s gemmology team is currently correcting its grading system and Mustang believes once the process is enhanced, its future tenders will be more successful.
Other actions under the new strategy include re-grading its remaining 386,033 ruby inventory and offering select parcels for sale in Asia through smaller tenders.
Additional modifications include the cessation of bulk sampling activity as the wet season advances, with preference given to processing the 96,000 tonnes in stockpile. Exploration will comprise lower cost manual test pitting to establish targets.
The artisanal miner development program has also been suspended until the company has assessed its revenue situation.
Mustang is currently reviewing prospective tenements surrounding its Montepuez ruby project in Mozambique.
Lead up to Mustang’s inaugural ruby tender
In the lead up to the disastrous tender, investor excitement in Mustang had been fierce, with the company’s stock surging a whopping 400% from A$0.05 in early August to A$0.20 in mid-October.
Mustang put out several announcements revealing its inventory had swelled beyond its initially planned 200,000 carats, with the company finally taking 405,000 ruby carats to the inaugural auction on 27 October 2017.
However, due to the above mentioned issues, less than 8% of the inventory was sold, causing Mustang’s stock to nose dive and investors to label the tender outcome as a huge disappointment.
Since the fateful auction the company’s share price has continued to slide.
By early afternoon trade today, Mustang’s share price was down 8.11% hovering at A$0.034.