Mustang Resources’ inaugural ruby tender leaves a bad taste for investors

Inspecting rubies Mustang Resources inaugural rough ruby tender

Market darling Mustang Resources (ASX: MUS) announced this morning it had sold less than 8% of its ruby inventory, worth A$713,456 at its inaugural tender, which was only a sliver of what the company initially anticipated.

Out of 21 schedules on offer, only eight were sold, with the company accepting bids ranging from $6 per carat to A$1,944. The remaining inventory did not reach reserve prices and will be held until the next tender scheduled for mid-2018.

In recent weeks, the excitement surrounding Mustang’s inaugural tender thickened as the company reported multiple increases to its inventory until its final amount of 405,000 ruby carats was announced last week – more than double the originally planned 200,000 carats.

However, less than 8% of that inventory – 29,463 carats – was actually sold.

Buyer inspecting rubies Mustang Resources inaugural rough ruby tender
A buyer inspecting rubies at Mustang’s inaugural rough ruby tender.

As the only ASX-listed ruby miner in the world, investors have watched keenly as the company built up its ruby inventory, before taking its 405,000 carats to the three-day closed tender, which started last Friday 27 October.

Continuing through to Monday 30 October, 42 potential buyers were registered to attend the ruby sale.

As the tender date drew closer, Mustang’s stock price rocked from A$0.05 in early August to hit the A$0.20 mark in mid-October – a whopping 400% increase.

However, images purportedly taken of the tender over the week showed a smaller attendance than anticipated, and Mustang’s stock took a hammering when trade opened on Monday plunging almost 40%, causing the company to announce an immediate suspension from the ASX – keeping the company’s share price at A$0.105.

Inaugural rough ruby tender Port Louis Mauritius Mustang Resources
Mustang Resources’ inaugural rough ruby tender in Port Louis, Mauritius.

Investors on stock market forum Hot Copper have been labelling the tender outcome a “disaster”, “huge disappointment” and a “very sorry day for holders”, with one investor stating she’d anticipated up to A$10 million in sales from the auction.

Commenting on the situation, Mustang’s managing director Christiaan Jordaan said the tender results “were clearly disappointing but the company had gathered valuable market intelligence for future tenders.”

“The feedback from buyers and results make it very clear that we need to offer increased quantities of rubies in each category,” Mr Jordaan said. “This is because buyers and their jewellery customers need to be certain that there are enough similar rubies available to enable them to produce the required number of any particular jewellery item.”

Although disappointing, Mr Jordaan added the tender had given Mustang necessary market intelligence to identify the ruby categories in higher demand.

He said the company was now focussing on building its inventory to match demand, which has led to a change in the company’s mine growth strategy.

“As part of this, we have decided to delay the planned plant upgrade at Montepuez, which will reduce our expenditure and allow us to focus on preparations for our second tender,” Mr Jordaan added.