analyst: dirk van dissel & alastair murray +618 8236 8896 ......rubies are the most expensive...

QUARTERLYUPDATE

9 June 2016

MUSTANG RESOURCES LTD(MUS.ASX)

DISCLAIMER Issued by Baker Young Stockbrokers Limited ABN 92 006 690 320 – Australian Financial Services Licence 246735 and should be read in conjunction with the disclosure/disclaimer in this report. PAGE 1

Mustang Resources Limited Rubies: An Investor’s Best FriendMustang Resources Limited (MUS) is an ASX listed junior resource company focussed on mineral exploration in Mozambique. Mustang’s main project is the Montepuez Ruby Project, where the Company is currently conducting drilling and field work prior to extensive bulk sampling over the coming months. The Montepuez Ruby Project neighbours Gemfields PLC (GEM:LSE) ruby concessions and is considered highly prospective. Successful bulk sampling, which confirms economic amounts of rubies on Mustang’s projects will have a significant positive impact on MUS’s share price, given its geographic location and the low market capitalisation of the company, meaning MUS is highly leveraged to any positive newsflow on this front. We view Mustang as a high risk, high reward resource play and on the basis the current ruby bulk sampling program yields the results we expect, we value MUS at $0.19 per share, which is derived from a weighted discounted cash flow analysis of revenue derived from bulk sampling and its expected future ruby operations.We believe Mustang has been oversold, a side effect of selling from legacy shell shareholders, a tough market for resource exploration companies and at the time the balance sheet was under pressure. The recent capital raise of $3.85m and ongoing SPP (potential of up to $1.8m) have addressed the balance sheet issue and now it is simply a question of whether there are rubies in the ground in economic quantities and if so, we believe there should be a significant normalisation of Mustang’s valuation in the positive direction.Mustang moving from explorer to gemstone producer Through the fast-tracked development of the Montepuez Ruby Project, Mustang is aiming to move from a mineral exploration company to producer over the coming months. Mustang has the potential to generate sizeable revenues from just the upcoming bulk sampling program.The Montepuez Ruby Project is located in a world-class ruby province, adjacent to the world’s largest ruby deposit, held by Gemfields PLCLocation and grade are everything in minerals exploration and Mustang’s project sits adjacent to Gemfield’s mining concessions and a few km away from their current bulk sampling operations. Gemfields’ Montepuez operations produce high quality rubies at an exceptionally high rate per ton. Gemfields realised a total of US$150.8 million in 5 auctions for 5.98 million carats of the 18.8m carats recovered during their bulk sampling phase (2012 – 2015) over which period its market capitalisation has grown to over A$450m.Mustang’s February 2016 fieldwork confirmed the presence of highly prospective geologyThe company has completed field work during 1H2016, which has delineated a 5.3km structural lineament associated with ruby mineralisation that transects the Montepuez Ruby Project. It is believed that Gemfield’s ruby mineralisation is part of the same system that runs through Mustang’s tenements. Local artisanal ruby miners are present on Mustang’s ground as they are likewise present on Gemfield’s ground. Furthermore, renowned geologist Paul Allen is heading up the on-ground geological team for Mustang. From 2012 to 2014 Paul was the Gemfields Project geologist responsible for the geology of their Montepuez Ruby Project.Bulk Sampling planned for June to December 2016 to confirm presence of ruby mineralisation at the Montepuez Ruby ProjectThe recent successful capital raising has provided the Company with the necessary resources to conduct their drilling and trenching program for the Montepuez project and to follow this up with bulk sampling over 2H Calendar Year 2016. It is this bulk sampling that will confirm the presence of ruby mineralisation and its grade/quality.The ruby market has experienced very strong growth over recent yearsConsumer demand for rubies has caused the price of rubies to increase 63% over the past 8 years. Mozambique alluvial rubies have sold for over US$6801 per carat with quality that matches Burmese ‘Pigeon-Blood’ rubies. Assuming bulk sampling success Mustang is perfectly positioned to become a major ruby supplier.Anticipated Robust Economics – The Montepuez ruby project is expected to generate high revenues off a low Capex Mustang’s Montepuez bulk sampling project has a low capital requirement and is aimed at generating cashflow to fund commercial scale mine development. Gemfields capital expenditure was estimated to be US$64 million over the first two years of their commercial scale operation and a total of US$305m for LoM. Since commencement of exploration in 2012, Gemfields has sold >US$150m, which is expected to grow exponentially once they commence full scale operations. SRK Consulting has estimated the Gemfields Montepuez project to have a post-tax NPV of US$996m (based on 10% base case discount rate).2

1. Gemfields Company Information and MUS Company information2. Montepuez Ruby Update – analyst presentation – 22 July 2015

12 MONTH SHARE PRICE

Baker Young Stockbrokers LimitedLevel 6, 121 King William St, Adelaide, South Australia 5000 T +61 8 8236 8888; 1800 061 765 (Toll free) F +61 8 8232 3877 E [email protected] W bakeryoung.com.au

9 June 2016

DISCLAIMER Issued by Baker Young Stockbrokers Limited ABN 92 006 690 320 – Australian Financial Services Licence 246735 and should be read in conjunction with the disclosure/disclaimer in this report.

Mustang Resources Limited (“Mustang” or “the Company”) is an emerging gemstone developer focused on the near-term development of the highly prospective Montepuez Ruby Project in Northern Mozambique. Neighbouring the world’s largest ruby deposit discovered by Gemfields PLC (GEM:LN), the Montepuez Ruby Project poses an opportunity for Mustang to become a reliable, consistent supplier of high-grade rubies. Mustang has two additional interests in Mozambique, the Save River Diamond Project and the Balama Graphite Project. All three projects present a significant unlocked value for which Mustang intends to realise.


RECOMMENDATION Buy – Initiation of CoveragePRICE $0.043TARGET PRICE $0.19RISK High (Speculative)

BRIEF COMPANY DESCRIPTION

PAGE 1

RESEARCH NOTE

COMPANY DATA (08.06.2016)

ASX Code MUS.ASXMarket Capitalisation (fully diluted) ~$15.1mEnterprise Value ~$12.1mShares on Issue (fully diluted) ~352m12 Month High/Low $0.33/0.036Ave Monthly Turnover ~29.5m

Cash – Post Placement+ SPP + Lanstead Facility

~A$3.0m$0.5-$1.5m

A$0.85m

(All dollars referred to in this report are in Australian dollars unless otherwise stated)

Analyst: Dirk van Dissel & Alastair Murray +618 8236 8896Authorisation: Alan Young +618 8236 8888

QUARTERLYUPDATE

9 June 2016



Operating in MozambiqueMozambique is located in south eastern Africa, bordering Tanzania to the north, South Africa to the south and Zimbabwe, Malawi, and Zambia to the west. Whilst Mozambique has struggled with poverty, its economy has grown at an annual rate of 6-8% for the past decade, throughout one of Africa’s strongest growth periods. It has abundant resources of natural gas, coal, titanium, graphite and recently discovered precious gemstones, which has attracted substantial foreign investment, enabling the progression toward economic independence.

The Mozambican Government is firmly committed to facilitating foreign investment in order to develop the prospective mining industry. A new mining and geological policy has been implemented alongside existing legislation to enhance the competitive position in the region. This internal development has attracted a number of ASX listed resource companies to undertake exploration activities in Mozambique.3

Mustang management have extensive experience operating in Mozambique with its vendor Regius Exploration having explored & invested in the country for over 10 years. Managing Director Christiaan Jordaan and Non-Executive Director Cobus van Wyk have a broad network of connections that have fast-tracked Mustang’s projects in the country to date.

The Ruby MarketThe Global ruby market size was estimated at US$2billion p.a in 2014. Rubies are the most expensive gemstone after diamonds, with fine rubies +5cts, extremely rare and attracting premium prices, for example the 25.59cts “Sunrise” ruby ring sold for US$30million in June 2015 Sotheby’s Geneva auction. Before Montepuez, the supply of rubies was fractured and unreliable largely coming from countries such as Burma (Myanmar), Tanzania, Afghanistan & Madagascar. Consumer demand has caused prices of rubies to increase 63% over past 8 years. This strong demand has typically come from the US, Europe, India, Thailand and China and we would expect that with China’s growing wealth that demand for rubies would continue to increase.

Since the discovery in 2009 of world-class ruby deposits in Mozambique, their subsequent exploration and exploitation by Montepuez Ruby Mining Lda (local Mozambican entity 75% held by Gemfields PLC), and the active marketing campaigns for coloured gemstones, largely conducted by Gemfields PLC, the price of rubies has risen and stabilised. Furthermore the success of Gemfields ruby auctions has resulted in considerable interest in the ruby market and in particular the exploration potential for ruby deposits in Mozambique.

The evaluation of ruby deposits is broadly similar to that of diamond deposits in terms of the extreme ranges in ruby values as well as the occurrence of both primary and secondary (within the alluvial, eluvial, and colluvial environments) sources showing large variations in grade.

More recently and in a large part due to Gemfields new approach to marketing, Mozambique alluvial rubies have sold for over US$680 per carat with quality that matches Burmese ‘Pigeon-Blood’ rubies.

Gemfields’ CEO Ian Harebottle believes that rubies’ share of luxury goods sales could increase greatly around the world to a point of potentially rivaling diamonds. He maintains this could become a reality if jewelry manufacturers and retailers could count on regular supplies, stable pricing, consistent grading, and increased marketing support.4 Mr Harebottle has aligned Gemfield’s goals on achieving this, and the potential inclusion of Mustang to the market in a constructive manner, will only assist his vision.

3. https://www.mbendi.com/indy/ming/af/mz/p0005.htm 4. http://www.gia.edu/gia-news-research-gemfields-bets-gemstone-markets-growth

Mozambique has grown at an annual rate of 6-8% for the past decade.

The Mozambican Government is firmly committed to facilitating foreign investment in order to develop the prospective mining industry.

The Global ruby market size is estimated to be in excess of US$2billion p.a.

Mozambique alluvial rubies have sold for over US$680 per carat with quality that matches Burmese ‘Pigeon-Blood’ rubies.

Figure 1 – Ruby Value Index – Gemval.com

QUARTERLYUPDATE

9 June 2016



Geology of the Mozambican Ruby OccurrencesRuby deposits form in a wide variety of geological environments, and include primary igneous or metamorphic deposits and anatectic-related deposits as well as in secondary alluvial or eluvial deposits.5 Historically, most rubies were recovered from marble-hosted deposits (Burma) or secondary basalt-related deposits (Thailand).

However, the recently discovered primary amphibolite-hosted deposits within the Mozambican Belt in East and Southern Africa (see Figure 2), together with their related secondary deposits, are now considered to account for the largest portion of the worldwide ruby trade. In particular, the primary amphibolite-hosted and secondary ruby deposits currently being exploited by Montepuez Ruby Mining Lda (MRM) are estimated to account for 40% of the ruby trade.6

Figure 2: Mozambican Ruby and Sapphire Deposits

5. Simonet et al., 20086. Application of the SAMREC code to the evaluation of ruby deposits – P G Allen

Rubies sourced from the Montepuez region are estimated to account for 40% of the global ruby trade.

QUARTERLYUPDATE

9 June 2016



Paleochannels and Ruby Traps Primary & Secondary Sources

Primary rubies are formed when fluid derived from the parental magma interacted with the host rocks under a silica unsaturated environment (primary source). After hundreds of millions years of erosion, rubies are liberated from the host rock and were transported and concentrated by water and eventually settled in the alluvial, colluvial, and eluvial deposits (secondary source).

In Montepuez, rubies have been freed from their host rocks by weathering and as a result of their high specific gravity and hardness have been trapped in concentrated locations throughout current or former riverbeds (Figure 3), on top of the weathered basement rocks. The old river channels, known as paleochannels host the highest quality of alluvial rubies.

Figure 3 – Paleochannel vs. Current Channel7

Ruby Traps The ancient Montepuez paleochannels are known to host ‘ruby traps’, which can be simply defined as catchment areas of high grades of alluvial rubies (Figure 4). The ruby traps are identified by a clear increase in gravel size. Formed as a result of gravity, the heavier gravels have settled and accumulated at the bottom of specific depressions. Due to the relatively high gravity of rubies, they are inclined to also settle with the other heavy materials. The accumulation of larger gravels also impedes water flow, resulting in a greater mineral accumulation, favouring the deposit of larger high quality rubies. It is the focus of the Mustang geologists to identify the paleochannels and define the distribution of this ruby-bearing gravel layer (Figure 5).

Figure 4 – Ruby Traps8

Figure 5 – River Channel Cross Section showing the gravel horizon9

7. http://www.gia.edu/gems-gemology/spring-2015-mozambique-ruby-discovery-21st-century 8. http://www.gia.edu/gems-gemology/spring-2015-mozambique-ruby-discovery-21st-century 9. Mustang

Paleochannels host the highest quality rubies.

Ruby Traps – Catchment areas of high quality alluvial rubies.

It is the focus of the Mustang geologists to identify the paleochannels and define the distribution of this ruby-bearing gravel layer.

QUARTERLYUPDATE

9 June 2016



Mustang’s Montepuez Ruby Project Due to the Company’s extensive in-country network and operational focus in Mozambique, Mustang was able to acquire rights to earn majority interests in three prospective ruby licences earlier this year. The acquisition was completed on 26 February 2016, following which, they have decided to focus the majority of their resources on unlocking value from Montepuez in the near-term whilst allocating minimal spend to maintaining their Balama Graphite project and Save River Diamonds project.

Mustang will effectively own between 52.5-60% of the three prosecting and exploration licences 4143L, 5030L and 4258L via its acquisition of a net 75% of Montepuez Minerals Pty Ltd, which holds the rights to earn majority interests of 70-80% of the abovementioned tenements. The remainder of Montepuez Minerals Pty Ltd is owned by Regius Exploration (20% and major shareholder) and Lanstead Capital LP (5% and major shareholder). The remaining interest in the tenements is held by local land owners, who have indicated an interest to take scrip and/or cash at the appropriate time between bulk sampling and mining.

These three prospective ruby licences covering 158 km2 in the Montepuez ruby province, Northern Mozambique. Geological interpretation shows the ruby mineralisation (both primary and secondary) may extend through large parts of the licences. The Company has identified ruby targets with geological features similar to the nearby world-class Gemfields deposit to the east, as per figure 6 below. The map below also shows the artisanal activity has a strong correlation to both structural trends and granitoidal lines as seen on the dotted lines.

Renowned geologist Paul Allen is in charge of the on-ground geological team for Mustang. From 2012 to 2014 Paul was the Gemfields Project Geologist responsible for the geology of their Montepuez Ruby Project. Paul Allan (BSc Hons., Dip. Bus. M.) has over 25 years’ experience in multi commodity geology, predominantly precious stones exploration and evaluation. His experience spans Anglo American, Debeers, SouthernEra, Firestone Diamonds and more recently Gemfields. His experience and deep knowledge of this area will be invaluable for Mustangs current drilling and trenching program and their upcoming bulk sampling program.

Figure 6: Geological map showing the similar geological features and rock types on Mustang Licenses 4143L, 4258L and 5030L to that of Gemfields.

Mustang will effectively own between 52.5-60% of the three prosecting and exploration licences.

Paul Allen, renowned geologist from Gemfields is in charge of the on-ground geological team for Mustang.

QUARTERLYUPDATE

9 June 2016



Work done thus far on the Ruby ProjectMustang has successfully completed a close-spacing helicopter survey over the project area as well as detailed analysis of the data gathered which has resulted in a significantly improved geological understanding of the area. The Company is further encouraged by the fact that all three licenses sit in favourable geology along strike from not only Gemfields licenses but also that of designated artisanal licenses 5281 AD 5284 AD shown as “areas designadas” in Figure 4 below. The artisanal miners have recovered rubies from these areas (not Mustang) but during the helicopter surveys completed by the Company and Paul Allen there were numerous artisanal diggings indentified on & around Mustang’s project area. Mustang could not explore these diggings or conduct further fieldwork at this time due to intensive rain and flooding as it was the wet season.

Whilst we cannot say there will be rubies on Mustangs ground, it is very encouraging to see similar geology and artisanal workings as there has been on both the Area Designadas and Gemfields ground as this possible indicates there could be.

Figure 7: Mustang’s Exploration Target based on fieldwork with known artisanal workings shown in black border to the east.

High Priority Targets IdentifiedMustang have identified high priority targets with geological features similar to Gemfields’ deposit 8km SE. As the map below (Figure 8) shows, there are NW-SE ruby mineralisation trend & structural lineaments linking to Gemfields and known artisanal diggings. This has been further confirmed by high resolution Aeromagnetic Studies. The ruby mineralisation in the Montepuez Complex is found along structural lineaments & contacts (primary & secondary) and the 5.3km lineament that transects 4143L is naturally a strong target for trenching & bulk sampling. Mustang intends to focus on the alluvials as a source of higher quality rubies. Figure 8: Mustangs primary and secondary targets for bulk sampling

The Geological interpretation for the ruby mineralising eventRuby mineralisation in the amphibolite has been demonstrated to be associated with crosscutting feldspar / carbonate veining within the amphibolite. This metasomic veining is considered by the Company to be the aluminium-rich source of the corundum / ruby crystallisation while the amphibolite is considered by the Company to have supplied the source of the chromium responsible for the rubies red colourisation. Whilst the origin of the aluminium-rich metasomatic fluids responsible for the ruby mineralisation within the amphibolite is yet to be ascertained, it is likely to be associated with pegmatitic activity following igneous intrusion. In particular, the contacts between the igneous intrusive and the country rock metasediments may be targets for the pegmatite-related fluids. Mustang has noted additional artisanal workings along the contact between granodiorite and the quartzitic gneisses both within 4143 and to the SE which further indicate that this younger material is essentially an intruding the older horizons which adds to the mineralising event.

All three licenses sit in favourable geology along strike from not only Gemfields licenses but also that of designated artisanal licenses.

Mustang intends to focus on the alluvials as a source of higher quality rubies.

QUARTERLYUPDATE

9 June 2016



Replicating Gemfield’s Success Gemfields plc (GEM:LN) is a leading supplier of responsibly sourced coloured gemstones. Currently capitalised at ~A$444m, Gemfields is the operator and 75% owner of both the the Kagem emerald mine in Zambia (believed to be the world’s single largest producing emerald mine) and the Montepuez ruby deposit in Mozambique (neighbouring Mustang - one of the most significant recently discovered ruby deposits in the world). In addition Gemfields also holds a 50% interest in the Kariba amethyst mine in Zambia.

Gemfields established a proprietary grading system and a pioneering auction and trading platform, which provides a reliable supply of quality coloured gemstones to the global downstream markets. The establishment of such platforms under their ‘mine to market’ vision has contributed to the resurgence of the of the global coloured gemstone sector. If Mustang’s Montepuez Ruby Project proves to be viable, they would also sell their rubies in the same fashion.

Gemfields Progression

February 2012 • Acquired 75% interest in their main Montepuez ruby license for ~US$2.5 million cash• Initiated bulk sampling and exploration, which identified primary and secondary ruby deposits• Gemfields capitalised at ~£197 million ($A385m)

June 2014• From initiation, invested US$55 million for bulk sampling & exploration• Significant revenues were realised at first ruby auction, which netted US$33.5 million

December 2014• Second ruby auction netted US$43.3 million from 62,936 carats• Achieved an average sale price per carat of US$688.64 (premium rubies)

July 2015• Established a JORC Complaint Resource of 467mcts @ 62.3cts/ton average grade; 312% IRR &

US$996million NPV (post tax)• The project has a 21 year mine life, which attracts a US$304 million life of mine capital expenditure

with a processing capacity of 300ton/hour• Start-up CAPEX for 300ton/hour Commercial Mine – US$64 million • Gemfields capitalised at ~£360 million (A$708m)

December 2015: • December ruby auction netted $US28.8 million from 90,642cts• Achieved an average sales price per carat of US$317.92 for med-high quality alluvial rubies• Successfully produced ~2.1 million carats at an average cash cost per carat of US$6.19

Gemfields plc (GEM:LN) is a leading supplier of responsibly sourced coloured gemstones.

Gemfields has pioneered a ‘mine to market’ strategy.

Significant revenues were realised at first ruby auction, which netted US$33.5 million.

QUARTERLYUPDATE

9 June 2016



Trenching Program Mustang is currently in the drilling and trenching phase of their program, which set out a grid for sample pits, trenches and auger drill hole collars. The specific targets were identified utilising the extensive analysis conducted in Phase I of the program, including, geological research, artisanal diggings, geological similarities with known ruby mineralisation and regional drainages/paleochannels.

The valuable data from the trenching program will enable Mustang geologists to formulate a comprehensive map of the geology and structures throughout the primary target zones, which will be used to establish the initial bulk sampling sites for alluvials and primary deposits.

Bulk Sampling ProgramThe bulk sampling program (Figure 9), due to commence in H2 2016, will assess the viability of the primary and secondary target sites, which were identified in the trenching program. The program will be structured in a block formation with a 45-ton excavator with a stripping depth of 1-9 metres depending on the sidewall overburden with a 3x3 metre step formation. The overburden is to be stripped and placed aside for later rehabilitation back into the pit once all gravel and/or amphibotlite material has been excavated. The ruby enriched gravel and/or amphibolite material will be relocated to the plant via articulated dump trucks.

Mustang will have one 16ft rotary pan operating for eight hours per day, resulting in a 600 ton per day processing capacity. Rubies have a high specific gravity of 3.9 to 4.1 and are thus recoverable by traditional heavy-mineral extraction processes. Once confirmation of adequate ruby mineralisation has been established, the Company intends to significantly enhance the processing capacity to approximately 2,400 tons per day by introducing an additional 16ft rotary pan, and doubling the shifts.

The final ruby recoveries will be fed through a hand sorting facility in enclosed glove-boxes under high security. All recovered rubies will be cleaned, sorted, then classed and graded by an onsite gemmologist in preparation for auction.

Figure 9 – Bulk Sampling Strategy

The specific targets were identified utilising the extensive analysis conducted in Phase I of the program.

The bulk sampling program, due to commence in H2 2016, will assess the viability of the primary and secondary target sites

Initial bulk sampling capacity will be 600 ton per day with capacity to increase to 2,400 tons per day.

QUARTERLYUPDATE

9 June 2016



Investment View We view Mustang’s Montepuez ruby project as being a real company making project. This follows Mustang’s vision to develop a portfolio of world-class mining projects in the Republic of Mozambique that have the potential to generate significant cash flows with relatively limited capital outlay. Whilst we view the Balama graphite project as representing value in a recovering graphite market and the Save River Diamonds project as being promising we have not attributed any value to them in this report.

The Montepuez ruby project’s geology and location near work currently being completed by Gemfields, indicate the licences form part of a much larger geologically unique occurrence, which to date remains largely unexplored and under-developed.

Importantly, Mustang has the in-country experience with MD Christiaan Jordaan and Non-Exec Director Cobus van Wyk having invested & operated through their private company, Regius Exploration, within the resource industry of Southern Africa, with a particular focus on Mozambique. Furthermore, both Mr Jordaan and Mr van Wyk are very much aligned to the success of Mustang through not only their large shareholding in MUS shares but also as a minor JV partner. We feel their knowledge of the political system and the way that business occurs in Mozambique will prove invaluable, especially as the Montepuez project matures and their presence on the board and as major shareholders substantially reduces the geo-political risk for the Company.

We are impressed that the company has secured the services of the geologist Mr. Paul Allan, an experienced ruby and diamond geologist who managed Gemfields PLC’s exploration activities from 2012 to 2014. In September 2015 Mr Allen concluded in his Independent Geologists Report that the potential for significant ruby mineralisation across licences 4143L, 4258L and 5030L was high. Furthermore that the lithology found at these licences is the same as that of the nearby world-class Gemfields deposit.

Mr. Allan noted that the source of the higher quality secondary rubies over the Gemfields licences remains to be discovered and that encouragingly the MUS licences occur along the same geological strike as the Gemfields ruby occurrence.10

The presence of active artisanal ruby mining activity on Mustang’s licences in our view reinforces this hypothesis.

From a capex until first substantial revenues position there are not many mining projects in the world with the same short timeline, low upfront capex and low ongoing opex that can yield the potentially high revenues that Management are confident the Montepuez project can achieve. This means that there is scope for some seriously strong revenues to be achieved off a very small capex base if everything ‘pans out’ the way Management hope.

Should Mustang be able to prove the existence of economic rubies they are well positioned to ramp up ruby production in a similar fashion to Gemfields over 2012-2015. We believe Mustang will be able to piggy back on the extensive global ruby marketing that Gemfields has done and sell their rubies through similar auctions that occur generally every six months; however we naturally feel Gemfields stones will attract a premium price due to their dominant market position. For Mustang to offer a parcel of medium-high quality rubies they will need to accumulate a quantity of at least 50,000 gem quality carats which would probably take them several months. It is entirely foreseeable that by the end of the year Mustang could have mined enough ruby bearing dirt to assemble a 50,000-100,000 carat parcel that could receive at auction 10’s of millions of dollars. On the view that Mustang will achieve exploration and bulk sampling success we value Mustang at $0.19 per share using a weighted DCF of bulk sampling/future mining operations.

10. Allan P.2015. An Independent Geological Report, Licence 4143L, 4258L & 5030L, Montepuez Area Northern Mozambique

Mustang has the potential to generate significant cash flows with relatively limited capital outlay.

Mr. Paul Allan concluded that there is a high probability for significant ruby mineralisation across the three licences.

Mustang to ‘piggy back’ on Gemfields successful marketing.

We value Mustang at $0.19 per share.

QUARTERLYUPDATE

9 June 2016



Valuation MethodologyThe estimation of ruby (alluvial & primary) resources and reserves can be problematic due to the variable distribution of the rubies within not only their primary source but also the gravel host. Mustang does not have a JORC complaint resource estimation, so we look to Gemfields to determine the basic parameters that could exist assuming Mustang tenements are of a similar nature but we naturally discount these parameters due to the early stage of Mustang’s project.

Primary mineralisation in the Gemfields area grades up to 300ct/ton11. The average gem quality of the secondary rubies is typically much higher than those contained within the primary amphibolites with secondary mineralisation grades: 7- 22ct/ton12, however we have assumed a discounted grade of 3ct/ ton.

According to Gemfields’ recent sales the actual average price received is A$19/ct (ranging from A$6/ct for primary zone, low quality rubies&corundum and up to A$600/ct for high quality alluvials). However Mustang have focussed on the alluvial and therefore we have looked at three different prices of $100/ct, $200/ct & $350/ct and for illustrative purposes we have included the price Gemfields received for its high value ruby auction being $600/ct however we doubt whether Mustang will receive this price as it does not have the market presence Gemfields has built.

Despite the fact that Mustang will be targeting alluvials we have assumed that only 15% of their total gathered stones will be auctioned in the expected December 2016 Med-high quality ruby Auction that Gemfields usually conducts.

The table below shows our preliminary modelling with assumptions also detailed in the table.

Table 1: Simple Revenue Model for 1st year of bulk sampling

11. Gemfields concession area/project. Source: SRK Report, June 201512. Gemfields concession area/project. Source: SRK Report, June 2015

Simple Revenue Model Breakdown for Bulk Sampling Only - MUS targetting higher value alluvial rubiesItem 2 Rotary Pans 2 pans - 2 shifts Commentstonnes per day 1,000 2,000 days per month (inc maintainence) 25 25 shut down etccarats/tonne 3 3 alluvials per GEMTotal tonnes mined pa 300,000 600,000 tpaAve Opex per tonne 13.7 8.5 per GEMEstimated mining costs pa $4,110,000.00 $5,110,000.00 MUS 100%Gemstones Recoveredcarats per day 3,000 6,000 carats per month 75,000 150,000 carats per 6 months 450,000 900,000 carats per year 900,000 1,800,000

Six monthly Ruby Auction Bi-annually Bi-annuallyOnly the top percentile are auctioned 15% 15% Med-High QualityActual amount of rubies auctioned - carats 67,500 135,000 Low Value per ct $100 $100Med value per ct $200 $200High value per ct $350 $350low value $6,750,000 $13,500,000Med value $13,500,000 $27,000,000High value $23,625,000 $47,250,000Assume GEM high value auction prices of $600/ct $40,500,000 $81,000,000

Annual Cashflow - 100% of operations Per Annum Per AnnumActual amount of rubies auctioned 135,000 270,000 low value of $100/ct $13,500,000 $27,000,000Med value $200/ct $27,000,000 $54,000,000High value of $350/ct $47,250,000 $94,500,000Assume GEM high value auction prices of $600/ct $81,000,000 $162,000,000Other AssumptionsTax 32% 32%Royalties 6% 6%percentage ownership to MUS 56% 56%MUS Estimated NPAT p.a. Mining Operations Only Per Annum Per Annum Potential Net EPS - Fully Dilutedlow value of $100/ct $732,352 $4,554,704 $0.002 $0.013Med value $200/ct $5,564,704 $14,219,408 $0.016 $0.040High value of $350/ct $12,813,232 $28,716,464 $0.036 $0.081Assume GEM high value auction prices of $600/ct $24,894,112 $52,878,224 $0.071 $0.150

Shares on Issue Fully Diluted* 352,787,778 assume $750,000 SPP take up

QUARTERLYUPDATE

9 June 2016



Using the above low value ($100/ct) revenue input, estimated expenses and a 15% WACC we constructed several DCF scenarios for MUS’s net (56%) holding in the Montepuez Project assuming progression to full mining after successful bulk sampling. We arrive at an average weighted DCF valuation – our $0.19 per MUS share target price.

Table 2: BYS Weighted Target Share Price

Valuation Methodology Continued

MUS DCF Scenarios NPV / Share Market Cap at Implied NPV/Share Weighting Ave Weighted DCF Target Price

3 Years Operations ($100/ct low case est - see above) $0.098 $34,662,648 20% $0.02



MUS High Case Projections for combined primary/secondary mine $0.524 $184,750,466 10% $0.05

Average Weighted Target Price $0.19

QUARTERLYUPDATE

9 June 2016



Balama Graphite ProjectThe Graphite Project is located in Balama in Mozambique consist of 8 licenses and covers 100,000ha (1000Sqkm) all underlain by locally graphite bearing schists (figure 10). Mustang’s tenements surround the world leading graphite discoveries of Syrah Resources, Triton Resources and Metals of Africa and are thought to be the extensions of these strikes.

An airborne electromagnetic (EM) survey was completed over the licenses, throughout 2015 yielding well-defined EM anomalies. These anomalies were prioritised and warranted follow-up exploration. The Company undertook an RC drilling program throughout three of their licenses (license 6678L, 5873L & 4662L) to determine the existence of the potential Syrah strike extension. The program returned exceptional laboratory results, confirming wide, high grade intervals of up to 22% Total Graphitic Carbon (TGC).

Highlights from 1m composite RC Samples

• MORC-004: 67m wide high grade graphite zone with 23 samples above 15% TGC, including intervals at:

- 22% TGC and 20.7% TGC

• MORC-006: 64m high grade graphite zone, including an interval of up to: - 11% TGC

• MORC-008: 74m high grade graphite zone, including intervals at: - 16.5% TGC and 18.8% TGC

Field assessment has highlighted the potential of large flake sizes, with 2015 sample analysis showing >50% Super Jumbo flakes larger than +1180μm on licence 5873L, 57.9% Super Jumbo larger than+1180μm on licence 4662L.

Figure 10 – Mustang’s Graphite Licenses

Source – Mustang Press Release – 8 March 2016

Mustang’s tenements surround the world leading graphite discoveries.

Confirmed wide, high grade intervals of up to 22% Total Graphitic Carbon (TGC).

QUARTERLYUPDATE

9 June 2016



Save River Diamond ProjectThe Diamond Project is located in Southern Mozambique on the Zimbabwean border. The project covers two licenses, 4969L and 4525L (22,000 ha total). The Company acquired majority interests in two diamond prospecting and exploration licences in Mozambique which host alluvial diamond deposits.

The Save River Diamond project lies downstream from the Marange diamond deposit (one of the largest diamond discoveries) and the Rio Tinto-owned Muroaw deposit. Due to historical river systems and a highly favourable gradient there is potential that economic quantities of alluvial diamonds have flowed downstream and have been deposited in the substantial gravels throughout the Mustang tenement.

As of 19 December 2015, approximately 26,000 m3 of gravels had been treated from nine pits across the project. This bulk sampling program has yielded 43.30 carats from 70 diamonds with an average stone size of 0.62 carats. The largest individual diamond recovered to date is 2.58 carats.

Although the presence of alluvial diamonds had been established the Board made the decision to place the Save River Diamond project on temporary care and maintenance as the Company focuses its capital and resources on the Montepuez Ruby Project. Management intends to re-evaluate the project in Q4 2016 and assess a number of options including the introduction of a potential joint venture partner and the possible expansion of activities.

Figure 11 – Diamond Recoveries from the Save River Diamond Project

Source – Mustang Press release – 15 June 2015

QUARTERLYUPDATE

9 June 2016



Top 20 ShareholdersNo Shareholder %

1 CITICORP NOMINEES PTY LIMITED 12.63%

2 REGIUS RESOURCES GROUP LTD 12.03%

3 ELBA INVESTMENTS PTY LTD 11.28%

4 ALIMOLD PTY LTD 7.83%

5 KERAS CAPITAL PTY LTD 1.48%

6 ALIMOLD PTY LTD 1.45%

7 R W ASSOCIATES PTY LIMITED 1.13%

8 ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD 1.06%

9 MR SIMON WILLIAM TRITTON 0.98%

10 PEGARI PTY LIMITED 0.78%

11 CS FOURTH NOMINEES PTY LIMITED 0.76%

12 MR ROBERT GEORGE MAKARA 0.72%

13 HIGHLAND TIMBERS PTY LTD 0.69%

14 KINGS PARK SUPERANNUATION FUND PTY LTD 0.63%

15 J W DOUGLASS SUPERANNUATION PTY LTD 0.55%

16 EDENBRIDGE INVESTMENTS PTY LTD 0.53%

17 BUCKINGHAM INVESTMENT FINANCIAL SERVICES PTY LTD 0.53%

18 MR ZEWEI WU 0.52%

19 GORANN PTY LTD 0.52%

20 WILLOW BEND STATION PTY LTD 0.49%

QUARTERLYUPDATE

9 June 2016



Christiaan Jordaan, Managing DirectorMr. Jordaan is the former Chief Executive Officer and Co-Founder of Regius Resources Group Ltd (“Regius”), the Mozambican-focused mining and exploration company that has been operating in Mozambique since 2004. Regius currently holds 12.03% of the issued capital of Mustang. Christiaan has extensive experience in managing mining and energy projects in Mozambique, an intimate knowledge of the Mustang projects from their inception, as well as the local operational environment. He is a Member of the Australian Institute of Company Directors, holds a Commercial Law Degree, and prior to co-founding Regius, he was a director of a financial services group in South Africa where he was responsible for risk management. He is based in Mustang’s Sydney head office.

Ian Daymond BA LL.B, Non-Executive Director, ChairmanMr Daymond is a solicitor and consultant with more than 35 years as an external or in-house lawyer in the mining and resources area. He was General Counsel and Company Secretary of Delta Gold Ltd for over 11 years which saw the company grow from a small gold explorer into one of the largest gold producers in Australia with significant platinum and gold mining interests in southern Africa. Mr Daymond has significant independent director experience, having served as a non-executive director of the International Base Metals Ltd with substantial copper interests in Namibia and is the former chairman of ElDore Mining Corporation Ltd (ASX:EDM), ActiveEX Ltd (ASX:AIV) and Copper Range Ltd (ASX: CRJ) and a former non-executive director of Hill End Gold Ltd. Mr Daymond was the national chairman of the Australia-Southern Africa Business Council for 3 years and has substantial business, legal and corporate government precious, base metals and diamond projects, not only in Australia but also in southern Africa over the past 25 years. He is currently the Honorary Consol in NSW for the Republic of Botswana and a member of the Australia Africa Mining Industry Group which promotes corporate social responsibility principles amongst Australian mining companies with activities in Africa.

Cobus van Wyk, Non-Executive DirectorMr van Wyk is the current Chief Executive Officer and co-founder of the Regius group of companies, obtained his Bachelor of Marketing at the Tshwane University of Technology and his MBA at the University of Wales. Mr van Wyk started his career in the financial industry and capital markets in the Bankcorp Group in South Africa. He commenced work on the Johannesburg Stock Exchange (“JSE”) in 1994 and is a qualified portfolio manager and Stockbroker. Mr van Wyk was accepted as a member of the JSE in January 1996, became a member of Safex in 1996 in the derivatives market. Since 1999 Mr van Wyk has been involved in corporate finance as part of his duties as a member of the JSE. Mr van Wyk has more than 23 years’ experience in the financial services industry which he is applying to the mining sector. Mr van Wyk has more than 10 years’ experience in mining and exploration ventures in Mozambique (tantalite & coal) as well as South Africa (platinum group metals).

Frank Petruzzelli B.Bus (Acc), Non-Executive DirectorMr Petruzzelli is a principal of MDB Taxation & Business Services Pty Ltd, an Australian accounting firm. He is an accounting and management services specialist and advises ASX listed companies and large private organisations. Mr Petruzzelli holds a Bachelor of Business (Accounting) and is a Fellow of the National Institute of Australia and a Fellow of the Institute of Public Accountants.Mr Petruzzelli was a founding director of the Company and served through to November 2012 and re-joined the board in July 2015.

Rob Marusco, CFO & Company SecretaryMr. Marusco is a Certified Practicing Accountant in Australia, and has nearly 30 years of experience specialising in financial reporting, taxation law, corporate law and financial strategy. Furthermore, Mr. Marusco has experience in corporate management including company secretarial, governance and compliance dealing with the ASX, ASIC and other authorities for both ASX listed and private corporations. Accounting, financial and taxation services in the CFO role will be provided through Mr. Marusco’s consulting company MVP Accountants & Advisors Pty Ltd.

Board and Directors

QUARTERLYUPDATE

9 June 2016



RisksExplorationThe tenements are at various stages of exploration, and it should be understood that mineral exploration and development are high-risk undertakings. There can be no assurance that exploration of the tenements, will result in the discovery of an economic ore deposit. Even if an apparently viable deposit is identified, there is no guarantee that it can be economically exploited.

OperationsThe operations of the Company may be affected by various factors, including failure to locate or identify mineral deposits, failure to achieve predicted grades in exploration and mining, operational and technical difficulties encountered in mining, difficulties in commissioning and operating plant and equipment, mechanical failure or plant breakdown, unanticipated metallurgical problems which may affect extraction costs, adverse weather conditions, industrial and environmental accidents, industrial disputes and unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment.

Joint Venture RiskThe Company is subject to the risk that changes in the status of any of the company’s joint ventures (including changes caused by financial failure or default by a participant in the joint venture) may adversely affect the operations and performance of the Company.

EnvironmentalThe operations and proposed activities of the Company are subject to applicable laws and regulation of the countries in which the Company’s projects are located concerning the environment. As with most exploration projects and mining operations, the Company’s activities are expected to have an impact on the environment, particularly if advanced exploration or mine development proceeds. It is the Company’s intention to conduct its activities to the highest standard of environmental obligation, including compliance with all environmental laws.

Title and accessTitle to the Tenements and the Company’s interest in them will be subject to renewal or grant at the discretion of the relevant regulatory authorities. Furthermore, mining tenements and operations are generally subject to specific legislative conditions and governmental edicts from time to time. If for any reason such conditions are unable to be met for whatever reason with respect to the Tenements, this could affect the good standing of the Tenements or restrict their ability to be renewed. Loss of any interest in the Tenements in this way could result in a loss to the Company through the loss of opportunity to discover or develop mineral resources on the Tenements.

Commodity price volatility and exchange rateIf the Company achieves success leading to mineral production, the revenue it will derive through the sale of commodities exposes the potential income of the Company to commodity price and exchange rate risks. Commodity prices fluctuate and are affected by many factors beyond the control of the Company. Such factors include supply and demand fluctuations for precious and base metals, technological advancements, forward selling activities and other macro-economic factors.

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DISCLOSURE: Baker Young Stockbrokers has participated in all previous capital raisings for MUS and received a fee for its participation. Baker Young is retained to provide Capital Market and Investor Relations advisory services to MUS on a non-exclusive basis.

ANALYST CERTIFICATION: Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner.

analyst: dirk van dissel & alastair murray +618 8236 8896 ......rubies are the most expensive...

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