Rubies are the most expensive gems after diamonds. That’s because they are exceptionally durable and have a unique color.
In the past few years, strong demand has seen ruby prices increase by 63 percent. In fact, the global market for rubies is currently estimated at $2 billion per annum. But for investors interested in getting a piece of the pie, there’s only one publicly traded ruby-focused company: Mustang Resources (ASX:MUS).
To find out more about the company and what’s happening in the ruby market, the Investing News Network reached out to Christiaan Jordaan, CEO of Mustang. Here’s what he had to say.
Mustang’s first auction coming soon
Australia-listed Mustang is developing the Montepuez ruby project in Mozambique. Montepuez is located near the world’s largest ruby deposit, which was discovered by Gemfields. Gemfields delisted earlier this year after accepting a deal from South African fund Pallinghurst (JSE:PGL).
It has been a busy year so far for Mustang. In May, the company upgraded its processing plant, bringing it up to full capacity, and at the end of June it discovered an additional ruby deposit near the plant.
“[That discovery] has led to a significant uptick in … our inventory of high-quality rubies,” said Jordaan. “We are now in a position where we have been able to schedule an auction and receive strong support from the major buyers in the colored gemstone market.”
Mustang has scheduled its first closed-bid tender of 200,000 carats for October 27 to 30 in Port Louis in the Republic of Mauritius. The company is on track to reach that inventory level, as in August its inventory rose to 176,522 carats.
At the auction, the company will replicate the process used to auction diamonds in South Africa.
“We are implementing our own rough ruby grading system, which categorizes and splits the different ruby qualities into homogenous parcels,” Jordaan explained. The rubies will be separated based on color, size and other characteristics, making it much easier for buyers to confidently acquire a parcel.
“We looked at the success Gemfields had in its last 10 auctions, and the engagement from the buyers as they adopted that strategy and sales methodology, similar to the diamond market,” Jordaan added.
Gemfields’ results are the only ruby price reference, as the market doesn’t have a price index. However, its results have been encouraging for Mustang. Jordaan commented, “earlier this year, in Singapore, Gemfields sold a record $54.5 million from 900,000 carats at an average of $61 per carat.”
Jordaan also emphasized that Mustang’s focus on secondary deposits should be beneficial for pricing. “The vast majority of the stones mined [in secondary deposits] are high-quality rubies, which is where we believe there is more value in terms of dollar per carat,” he said.
Secondary deposits host a concentration of fine stones. According to the Gemological Institute of America, they are fairly easy to sample because most of the fractured and included stones have been ground into sand by weathering. It is believed that at Montepuez, an initial deposition occurred within one or more major flooding events, after which rubies were redistributed by alluvial processes.
The ruby market moving forward
Moving forward, Jordaan sees ruby prices rising even higher. “We see prices continuing to increase because the market is desperate for consistency of supply,” Jordaan explained.
Jordaan anticipates that ruby demand will increase in Asia, especially in China, “where they are absolutely hungry for high-quality rubies.” India is driving demand for the colored stones as well, as are markets in the west, such as Europe and the US. Younger generations in these areas are adopting colored stones as an alternative to diamonds.
“Rubies have a lot of upside if we are able to solve the consistency in supply,” he added. “It’s a unique opportunity to get involved in a market that is at its birth almost. I see a lot of similarities with what happened with diamonds, where De Beers consolidated the right assets in South Africa. And rubies are yet to have that opportunity.”
He also explained that in Asian cultures, rubies have been entrenched with culture, religion and traditions for thousands of years, much more so than diamonds. “It is early days for the market, but in that sense it can provide investors with a lot of upside, getting involved in this industry at its early stages and sharing in the growth,” Jordaan added.
In addition to Montepuez, the company is developing the Caula graphite project in Mozambique, located near Syrah Resources’ (ASX:SYR) operations, among others. To date, field assessments have shown potential for large-flake sizes and high-grade intersections at the project.
“We are currently working to complete the JORC on the Caula project to be released in September,” Jordaan said. After that, the company will do a scoping study and look into the most strategic way to develop the asset.
“I see a unique opportunity for the use of graphite, in particular large flake,” Jordaan said. Graphite is a key component of lithium-ion batteries, which are used to power electric cars. As the electric car revolution continues to unfold, demand for graphite is expected to soar.
On Thursday (September 7), Mustang’s share price closed up 1.19 percent in Sydney, trading at AU$0.08. The company’s share price has increased 330 percent since January.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.