TRX Gold Corporation (TRX) Earnings Call Transcript & Summary

It's now my pleasure to introduce Christina Lalli, Vice President, Investor Relations with TRX Gold. Christina, the floor is yours.

Thank you, [ Cindy ]. Welcome, everyone, to the TRX Gold Corporation Third Quarter 2023 Financial Results Presentation. As a reminder, all participants are in listen-only mode and the meeting is being recorded. After the presentation, there will be an opportunity to ask questions. If you wish to ask a question, please click the Q&A icon on the left-hand side of the screen. You will see the options. -- raise your hand to join queue and ask your question verbally, or write a question to submit your question in writing. When you are introduced, your line will automatically be unmuted. Analysts who have dialed into the conference call may press then one on your telephone keypad to join the question queue. I would like to turn the meeting over to Steve Mullowney, CEO of TRX Gold.

Yes. Thank you, Christina for the introduction. My name is Steve Mullowney. I'm the CEO of TRX Gold, as mentioned by Christina, and we're pleased to give you the Q3 2023 financial results as well as an update on operations at the Buckreef Gold project. Q3 was, I believe, our third quarter with the 1,000 tonne per day plant started in Q1 halfway through. And so we've been learning a lot throughout our operations throughout the year. And one of the biggest things in Q3 to come forward is the fact that we process sulfide ore, which was 6,500 tonnes of hard, fresh rock, went through the plant at a good recovery rate, which opens up to a much broader deposit to mining, and that will be now incorporated into our mine plants. We've also upgraded the plant from our livening from that. And recently, a cone crusher was installed as well as the conveyors and other parts of the crushing system got upgraded in order to accommodate that harder rock. So that's a very, very exciting and extremely value important value creation piece that occurred in Q3, and we'll get into that in much more broader detail in the presentation. So I'm going to flip the slides here to the next slide. Obviously, I've got to say the cautionary note and forward-looking statements. You can find this note on our website, and we'll just leave it at that and move forward. Today's speakers will be myself, Andrew our COO, who is next to me, across for the table, Mike, who is also across the table. Christina, who is sitting next to me. For new people to the TRX, I know there's a lot of shareholders on this call as well as analysts spoke for new people. What is TRX. We are a team of experienced leaders who have been executing on the Buckreef Gold project very rapidly. We've gone from 0 ounces of production to an annual round of 25,000 ounces and growing very quickly. It's a high-margin operation that has positive cash flow. And as we'll get into further in to presentation, the exploration upside is still here. There it is an under explored property. There is still a lot of opportunity to increase minimum resources and mineable ounces here at uprise. Again, just at a very high level, around Buckreef Gold property, the last resource statement had 2-plus million ounces and measured and indicated. The resources come to surface. That's where you see us mining in the oxides because it's wide at 20 years of with or consistent with mineralization over 2 kilometers. We say easy metallurgy because it's grind crush CIL and that is both in the oxides and has proven out in the sulfides for the bulk sample. There's a MET study be done for the broader deposit, particularly deeper parts of the deposit with SGS in South Africa. We're fully permitted to 2032, and that special mining license is renewable for the life of the mine of deposit. -- the processing plant and mine have consistently been meeting the production guidance that we've provided. We have a minimal environmental footprint. We recycle all water. We have good tailings management connected to National Power Grid, which is predominantly hydro power, particularly, July is newer facility to come online. And we have exploration potential and a lot of blue sky potential in this property over time. So with regards to the Q3 2023 highlights, the 1,000 tonne per day a plant continues to run very efficiently. As a lot of the audience knows, there's 3 main mall mills there, 15 tonnes per hour ball mills, it equals 1,000 tonnes per day, which gives us flexibility in our operations. We've poured over 15,000 ounces and sold over 16,000 ounces of gold, respectively, in the 9-month ended May 2023. We recorded positive operating cash flow that will continue to fund growth at both the operation and exploration levels. I believe, Mike, to Q3 2023 is almost $15 million of investment.

That's right. even...

Correct again. And so we have strong profit margins of 42% and 49%, respectively. And in Q3, it was down a little bit given that the ounces weren't as high given the wet season. So we expect that to pick up, particularly with gold prices being higher now as well. We continue to reinvest the cash flow as we mentioned. There is a new ball mill that will be coming to basically double the production rate, 75% to 100% of the production processing capacity. That mill is now shipped. So on pictures of it on a truck last week, Andrew? Believe in China?

On the way to the post.

On the way to the port. So that -- that's the longest lead item and it's well underway. We're getting on top of other long lead items here now. We've successfully processed the sulfide bulk sample, which I mentioned at the beginning of this call is a game changer really from a planning and operational perspective. We continue to achieve positive surface drone results and the landfill needs to be offered. We are now evaluating where best to go next. in order to bring in mine once and to increase the overall resources of the property. So in any exploration program, you have, what I'll call, fits of starts and stops to reevaluate. We're in that reevaluation phase now before we ramp it up again. We reported an all environmental or community related incidents during the 9 months ended May 31 and continue to have a very strong social license in Tanzania. So with that, I'm now going to hand it over to Mike, our CFO, who will go through our Q3 financial highlights.

Well, thank you, Stephen, and good morning, everybody. Thanks for joining us today. TRX continued to report strong financial results during the quarter, and this was off the back of again, lofty gold prices as well as production from the 1,000 tonne per day plant that Stephen touched on that continues to produce very, very efficiently and very, very effectively. During the quarter, we produced and sold approximately 4,800 ounces at a realized price of almost $1,960 an ounce. That's up from Q2, where gold prices were trending around $1,850 an ounce. So we did benefit from an uptick this quarter, and we continue to see gold prices maintaining. In fact, this morning, it was somewhere around $1,975. So we continue to benefit from top line net revenues on gold price and production. We recorded revenues of over $9 million for the quarter. And on a year-to-date basis, as you can see, almost $30 million of revenue. That generated operating cash flow of over $3 million for the quarter or almost $15 million year-to-date, as Stephen touched on. And again, we've substantially reinvested that operating cash flow right back into the business. Stephen touched on one example with the new ball mill that we've recently purchased. But we've also expanded our tailings storage facility, for example, quite significantly, which will accommodate much, much, much larger production. We relocated a road, which will allow us life a mine to a truck made zone unlock high-grade blocks. And we've also purchased other pieces of capital equipment. For example, new generators this quarter...

The shape...

Yes, those over placed units that we had previously rented that we're quite costly about a rental basis to impact our cash cost. So our purchasing piece is a fetal equipment like that in benefiting longer term and the payback on those pieces of equipment is very, very, very short. So fair value increase. So the key takeaway, I would say, again, this is our philosophy and our model. We're using organically generated cash flow to help grow the business by reinvesting right back in a race. On the cash cost side, just a previous slide, Steve 1 or 2 more comments for the benefit of the audience. Cash costs for the quarter were just over $1,000 an ounce. I think at the mine sequence during the quarter had us undertake a stripping campaign, which we touched on in Q1 and Q2. That stripping campaign involves sort of going wider and deeper in the pit as well as undertaking blasting activities, which unlock high-grade ore blocks, which we really expect to see benefit Q4's production and certainly, production into early next year. And Stephen touched on this, but Q3 is the traditional rainy season in Tanzania, which was extraordinarily wet this year compared to prior years. So have been of a new back on head grade quarter-on-quarter. But again, on a cash cost basis, we still expect to fall within that $750 to $850 full year guidance range that we put in at the start of the fiscal year, albeit towards the higher end of that. Importantly, being a low-cost operation, gross profit margins continue to be very high. You can see on a year-to-date basis, gross profit's on 50% and was 42% for the quarter. What that shows is that the plant and the ore that we're bringing out of the ground, again, it's really, really efficient and effective and important -- importantly, from a financial perspective, profitable. On a year-to-date basis, we produced over 16,000 ounces. Stephen touched on that. Again, revenues of almost $30 million. So year-on-year, quite a significant achievement as we continue to grow this business. And again, importantly, operating cash flow of around $15 million we put right back into tier. Again, we've used cash flow from operations to make value-accretive investments back into the business. And you touched on a big one that even with the new ball mill that we expect to be on the ground in the coming weeks. The balance sheet continues to be strong. We had a cash balance of over $7 million on our at quarter end as well as lots of other pieces of liquidity that we can access working capital was positive at over $3 million EBITDA, over $3 million as well, again, all demonstrating strong liquidity, which helps fund organic growth. We do expect Q4 to be our strongest production quarter of the year, and we'll touch on guidance here shortly, but we're certainly on track to meeting our full year numbers and Steven touched down between 20,000 and 25,000 ounces. I think I'll leave it there for now on the financial highlights. Back to you, Steve.

Yes. Thank you, Mike. So on the next slide, I'm going to hand it over to Andrew to go through the preliminary bulk sample that was done on sulfides, and I'll supplement your comments, Andrew, around this. As I said, this is a game changer. What we found in that bulk sample is what we anticipated to find, which is the Buckreef ore is really about in size at the end of the day. So to find and you grind at the higher the recovery rate of the goal that you'll get. So when we grind it to 75% passing 80%, which we did in this bulk sample, we got what we expected, which was around 89% recovery rates. This lined up very well to what was achieved in the SGS preliminary MET study. When you really go through that study, we presented a number that was over 90%. That was with a slightly different flow sheet of a flotation followed by a regrind and CIL. But if you just do a straight grinding and CIL, it came out to what we anticipated it to come out to if we grind to find and we get higher recovery rates. So it's a trade-off between how much energy you use and the CapEx you put in to get a finer grid to get the higher driving size. So that will be trade-off studies that will be done in the future and Andrew, go ahead.

Well, Stephen, you said also very well. But maybe I could just talk a little bit about that. We could take advantage of operational sequencing in the wet season to take that 6,000 tonne sulfur sample. But obviously delighted with the results, as you see, we've got recoveries here. which is pretty much in line with the testers have done in prior year. But what is also very important in that work is what we learned. What we learned is that we do have to particularly crush finer and has been processed gain, the current crusher, which is on-site commissioned and is ratable for me to a fresh margin. And the whole goal of cloud, as you said, to get the better grind and throughput. And what I'd like to see is you can sort of see the oxide ore going up the converts there, but it's fresh, we want to see popcorn going up into the ball wells. The hard work of grinding it down is then a lot easier for the all melts if they're getting a finer feet. So we've learned that, and then we do the absolute upgrades to 2,000 tonnes a day, we again focus on making sure we get a like to a popcorn going into the boils. I think that's really great...

Yes. So what does it read me at the end of the day? What this really means is the sulfide ore will go through the existing plans.

That's correct. And we've recovered at a good rate. So that means that there's no need to come up with a new circuit at this point in time for sulfide ore, which means we can continue to expand Buckreef the way being expanding, which is expanding existing plants and equipment over time or maybe faster, but it doesn't mean a whole new processing facility for sulfide ore. -- industry-related CapEx is a much more complicated system.

Yes. And it ties very nicely but I think touch on that ties in with the more detailed metrological studies we're doing now with SGS in South Africa.

So on that point, what are we doing? So obviously, there's a 2018 PFS that the company did prior to the management team around table coming in, and we've talked about this at year-end. A lot of work has gone into the infill drill program. That's been completed. We're doing the MET study, as we mentioned a couple of times. That's across the deposit to make sure what we found in the bulk sample and in the preliminary study that there's no changes in the ore across the deposit, both along strike and at depth. So that's what that MET study will do. The Geotech study is ongoing that determines the pit stops but briefly, we have hard rock there. So we're optimistic that we'll get some good pit stops in our planning. Currently, a pit stops or around 45 about 40 degrees, and that's in the soft rock. So I want to get to the harder rock, we expect that to be higher. There's long-term TSF planning ongoing, obviously. It's easier to take it out of the ground in the store. It's got to be stored somewhere afterwards after close to the processing plant. So that is continuing on ongoing, identifying lands to purchase for that, also giving a really good look and relook at dry stack tailings that will be done over the next couple of months. We're updating the mineral resource model to make sure that we have all our ducks in the always we put in place an updated mine plan. And now we all wrap into what a life of mine plan looks like today. Obviously, we anticipate that to improve over time as more and more drilling is done around bucket given the dose got potential around the Anfield, the Eastern porphyry and those parts of the deposit as well as what's at depth and along strike in the main zone. It's our anticipation that this will be a deposit given the width and the grade of the deposit that will go underground over time. There will be eventually to trade off between do you do more stripping, you go wider, to get deeper or do you just do your underground development. And there will be a point in time in any mine plan where that trade-off will cross and you will go underground. And so that is something that will be looked at as we due to my modeling of the broader deposit over time. So anything to add to that, Andrew, did I forget any?

I think the other thing we'd like to do, Stephen, is we see this on the exploration side is to get a couple of satellite pits up and running Yes, and it builds optionality for the mine plan.

So for instance in Q3, we had that optionality because we had crushed stockpile. We had stockpiles. We had a main pit. Now we're going to supplement that as everybody knows my mindset is they have redundancies and you're doing operation of a huge risk. So that's essentially what you're doing in opening up other areas. You may not mind it right away, but if something happens over here in the main pit for instance, you can pivot over to the satellite pits. It's the same concept that had a 3-valve operate. If one goes down, you already got to replace liners on one, the whole operation doesn't shut down when you're a single-mine company. So we're very positive on putting in place those redundancies over time Okay. So on the exploration side, Andrew, tell everybody what they have here where you're going.

Yes. I think those have been with us on previous presentations, we'll remember the map on the right here, for those that are new, just very quickly. Each of the black squares is 2 x 2 kilometers. You're looking at the special mining lessons in the red boundary, the existing mains over all the color dockside, -- you can see where the plant is. And then highlighted in the dash lines are exploration areas. So we continue to be very excited, I think, is right in the geology team that's now at site is getting very, very familiar with the geological models and controls on our organization. So just in summary, we did 239 meters in Q3. We've done over 11,000 meters so far in this fiscal year. So in terms of results for the quarter that came out, we did get some drawing on the Eastern porphyry and the Anfield is both wider a few meters to the east of the main zone. As you'd expect, I think the best results up here for you to see. So but it was very, very encouraging to look at this 14 meters at 3.5 grams a tonne, between 3 meters at 10 in the Eastern Porphyry. We also had another intersection there in the same hole of that 25 meters of 1.6. So you now that can contain some very, very significant intersections, a lot more drilling to do. Another intersection again showing good width and a good grade for bit 1.22. And then from the Anfield, we had some gross previously from the artisanal mine shaft. -- we redraw that can be back at 2.94 meters at 13.7 grams a tonne. For me, as geologists exploration, that's very significant for a first drill hole to go into that target. And again, some of these good rest and grades the same all from the 6.1 bases, creating 1.41 grams a tonne. I do draw your attention also to the fact that these intersections are shallow. And obviously, that's very encouraging for getting some initial open pits going. Back to you Stephen.

Yes. Thank you, Andrew. So with regards to the year-end sort of guidance, as we've mentioned, we're a low cost, low-risk approach to drug in the gold space. The 1000 tonne per day plant has been operating at [indiscernible] capacity since the end of October. We're going to reiterate our production forecast 20,000 to 25,000 ounces. I think we're on a 20,000 ounces now.

Yes, we did 16,000 as of Q3. And again, we've obviously been producing since then. So well on track. Yes.

Yes. So we're almost there anyway. So as of today.

And mentioned, we expect Q4 to be the highest production quarter. So well on track towards getting that goal, yes.

Yes. So the cash cost guidance, we reiterate that as well. We're advancing the terminal expansion in less than 18 months. Now we'll put 2,000 tonnes per day, which is roughly around 750,000 tonnes per annum and that's not a small operation to decent size. So -- and that will obviously increase the production levels at a brief. We don't expect it to double instantaneously because we've got a great profile as well to deal with and putting it through the mill.

So I think also just we're not expecting to substantially increase our fixed costs see some benefits on our cash cost as a result.

Yes, we're going to see yes, exactly. So all in all, things are going as expected. And -- and any time we run into an extra range, for instance, and things of that nature at pivot and new value-creating opportunities.

Just again for our audience. the rest season this year was about 3x as well as the prior year.

Yes, exactly. Yes.

We are so say it builds a lot of bench strength....

Yes. So with regards to ESG is something as a public company in the mine is basically need to talk to and be in participants already in. Our last on ESG is that it's mindful, it benefits and is integrated with the business. If you hire more local people, you don't have to have them on site. It helps to money in the community, it reduces social risk. And it also increases your productivity and government's procedures by hiring of people. So our mindset is the big beneficiary of a mining operation is always a local community because if the worker is covering the local community, they're the biggest beneficiaries of the spend at the mining site. That helps reduce cost, the corporate, the social risk of the project. And then you want to reinvest in that community if your employees are from that community in schools, and in our medical facilities because that's where your employees are going on our children are going. So that's really the philosophy that we have with regards to ESG, and we'll continue to do so.

Stephen, if I could just have 1 more quick comment again for new shareholders and I think there was -- You might have heard this story before. It's worth hearing it again, is we also take a real clear approach to local procurement -- so for example, the CIL tanks were procured 3 or 4 hours away and still the work is coming from the shipbuilding industry and ones that are substantially reducing cost at cost, substantially reducing our risk in terms of supply chain and giving us a lot of credit with the local government and people. So shareholders, communities, governments and everybody is just winning all around. They're not -- have to say from, say, Asia or Turkey or South Africa. -- was benefiting.

So with regards to milestones that are upcoming, we continue to deliver on the milestones that we've put into the market. The third mill expansion, we'll have that online hopefully early next year. we'll have planning and execution on a much larger mine that we currently have in the next 12, 18 months, and that continues to progress. Met studies, Geotech studies, resource modeling, mine plan updates, all that is continuing as well as continuation in drilling. So more of the same by just continuing to continue to execute at the Buckreef Gold project. On that front, this is a stock chart over the last year. So as you can see, we've been in a range from a trading perspective. we've had peaks and valleys and relative to the market, I would say we've held up really well relative to a lot of single-asset producers as well as the preproduction comps that we look at from a trading perspective, we've held up decently well against that concept. On that front, I'd invite anybody for any questions.

We'll now begin the question-answer session. [Operator Instructions]. Our first question is from Jake Sekelsky with Alliance Global Partners.

First on the rainy season, and you guys touched on it a bit with it being a bit more severe this year than in the past. I'm just curious, was the duration the same the typical March to May time frame? Or did it extend into June or even July?

So Jacob, it started a little bit earlier and went on a little bit later as well. It was quite consistent. That said, is the team obviously knocked it down and got on with the job, but there's obviously some something a bit tougher for us, but we got through it. And to be prepared better for next year.

And Andrew, I think it didn't trickle too far into June, though, for memory. I said largely sort of side towards the back end of May. So I think we're going with that, Jake, in terms of Q4. Don't expect it have a significant impact..

Yes. So on that point in Tanzania at either range or it doesn't -- there's really no in between. So it's quite dry at site at this point in time.

As you can see where the guys on the bottom right there in the lineup.

Yes, That would have been a couple of weeks ago. So Yes. I'm going to take 1 question from the Q&A from the queue. Right now, the question is ,what do you foresee as being the biggest threat to overall cost. IRR, gross net margins are great, with anticipated rising cost in gold price, the multiple expansion could look stunning. However, controlling cost is a premium. So yes, having control on cost is always #1. The operation has grown quite rapidly. So there's a lot more controls going in place even as we speak around cost involving those costs. So that is 1 area where we're managing costs. We continue to procure local, which is reducing cost. And it also reduces supply chain risk. We're also, what I would say is our next expansion. It isn't proceeding as quickly as the other 2 expansions. Prior to that is to control the cost to make sure that the operations are currently cash flow positive, so we could control the cost of that build a lot better than if we were to rush it Obviously, we've got a doll mining rates as well in that equation. Fuel prices have stabilized. So fuel is always a large component of cost in any mining operation. So we're good there. I don't see any overly bearing inflation pressures, Mike?

No, no. And Andrew, you touched on this earlier in the plant is scalable as well. So you don't expect to see a lot of additional fixed costs as we grow and expand our plants. -- on expect head count to expand dramatically again a big benefit of this sulfide bulk sample is that we expand this facility as you touched on a few times and again expect costs to come down as a result.

Yes, exactly. So as Mike mentioned, there's a lot of -- what I call infill CapEx. -- tailings has been expanded. We look at things like generators. It cost us a lot of money, so we bought them. And that IRR payback is quite good on that. So that reduces cost. -- lower and lower this morning, right? So we currently rent a lot of orders. So we're now purchasing those, and that's got to pay back for 3 months or something that, right? So we're looking at that across the entire operation. So -- that's the answer to that question.