Australian and US investment research firm Independent Investment Research (IIR) has completed a valuation for ASX-listed junior miner Mustang Resources, resulting in a base case 12-month price target of $89-million, or $0.169 a share.

IRR says that 80% of this is based on a risk-discounted cash flow valuation for a hypotheti- cal operation, including bulk sampling, at the company’s Montepuez ruby project, in Mozambique, with its target predicated on certain milestones being met, including successful results from the planned ruby auction later this year and positive bulk sampling results leading to a “meaningful” initial mineral resource estimation at Montepuez.

IRR comments that the Montepuez ruby field looks as though it will become a consistent, stable source of rubies, which is something that the ruby market has been lacking and that has hindered the development of reliable markets.

“[This] will enable participants to develop a stable and solid market strategy for the product, possibly akin to the setup of diamond company De Beers’ diamond markets, with the diamond market now being valued at about $70-billion a year, in contrast to rubies, with a current estimated market size of $2-billion,” states the firm.

IRR notes that encouraging results from Montepuez include the early-stage work by Mustang to date, which has resulted in the recovery of about 73 000 ct of reportedly high-quality rubies from bulk sampling and prospecting, thought to be of similar quality to coloured gemstone mining and marketing company Gemfields’ high- quality stones that have received average prices of about $500/ct at auction.

The firm further points out that the geology of Mustang’s holding is also the same as that for Gemfields, with secondary mineralisation gravel beds being delineated, as well as significant areas of artisanal workings.

Additionally, IRR notes that recent upgrades to Montepuez’s treatment plant should lead to increased recoveries and significantly higher throughput.

“The company expects first revenue from rubies in October from a planned auction of 200 000 ct and, as mentioned previously, Gemfields has received $225-million for sales of rubies from auctions over the past three years.”

Moreover, the firm points out that Mustang’s personnel have extensive experience in Africa, particularly in Mozambique, where directors have operated for about 13 years. In addition, Paul Allan, the company’s senior geologist, previously worked with Gemfields at Montepuez. “Insiders hold 5.75% of Mustang, thus aligning their interests with those of other shareholders,” IRR adds.

The firm also notes that the increasing demand for rubies over recent years has resulted in the price index rising by about 60%, with this possibly partly attributable 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 prices with increasing supply,” IRR highlights.