Mustang Resources has blamed its gem-grading system for the failure of its October ruby auction.

Mustang (ASX:MUS) today released details of an internal review into the ruby auction flop, including new details about the business — and some revisionist history.

Mustang — the world’s only listed ruby miner — plunged last month after it sold only eight bid schedules, comprising multiple lots, from a total of 21 offered at its maiden auction in Mauritius. Managing director Christiaan Jordaan last week stepped down for “personal reasons”.

Sold carats represented only 7 per cent of the total 405,000 carats Mustang had on offer at the auction, netting a disappointing $713,456.

“It is clear that the pre-auction grading of lots was too broadly implemented and resulted in overlaps between different qualities when viewed from a buyer’s perspective,” Mustang told investors on Thursday.

“This, in turn, resulted in lower prices being bid by buyers on many of the lots. This factor has been identified as the single largest contributor to the 13 of the 21 schedules failing to meet reserve prices.”

Mustang plans to improve the grading system, regrade its 386,033 carat inventory, and then select some parcels for sale in smaller auction formats in coming months in Asia.

The ruby miner will now suspend all bulk sampling activities (a process where tonnes of rock are processed at once) in favour of less expensive manual testing, suspend all artisanal mining activities, and acquire new tenements in the Montepuez area.

Auction lots not big enough

At the auction buyers said the lots weren’t big enough, in particular the higher quality ones, and told Mustang representatives they wanted more higher quality rubies.

This could prove difficult for Mustang given their 11 large-sized stones, five of which are the so-called ‘special stones’, were found by artisanal miners rather than the company’s bulk sampling method, information that came out in the review.

Mustang has previously said discoveries of high quality stones were being “augmented” by mixed qualities from the local miners.

‘Much-needed market intelligence’

Mustang also told investors that the auction had been was designed to gain “much-needed market intelligence on the company’s ruby inventory” as well as generate cash.

In April, however, then-managing director Christiaan Jordaan said the auction was intended to  maximise sales and avoid cutting and polishing activities.

Mr Jordaan said at the time  research suggested bulk sales through an auction of rough stones “is the most effective way to maximise the average price per carat and avoid the deferral of sales revenues inherent from cutting and polishing activities.

“The evidence suggests that this approach is likely to realise higher returns for our ruby inventory and not involve the company in its formative years in the complexities of cutting and polishing activities. This approach is also much more in tune with the current exploration and development skills sets in the company.”