TRX Gold Corp (TRX) 2024 Q2 法說會逐字稿

For a moment as participants make their way in from the lobby. It's now my pleasure to introduce Christina Lalli, Vice President, Investor Relations with TRX Gold. Christina, the floor is yours

Thank you, [Caitlyn] and welcome, everyone, to the TRX Gold Corporation second quarter 2024 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 or questions, please click the Q&A icon on the left-hand side of the screen.

You will see the options, raise your hand and be able to join the queue and ask your question verbally or write a question to submit your question in writing. Analysts who have dialed into the conference call may press star, then one on your telephone keypad to join the question queue. I would like to now turn the meeting over to Stephen Mullowney, CEO of TRX Gold. Stephen, please go ahead.

Yeah. Thank you, Christina, and welcome, everybody, to our Q2 conference call. I am -- hopefully we'll have a good connection here for the remainder of this call. I am in Dar es Salaam. I just landed this morning, so I may be a little bit tired and hand over a large portion of this to Mike. And Andrew Cheatle, our COO. He's unable to join us today. I believe he may be stuck in the rainstorm in Dubai on his way back to Toronto. And we also have Mike Leonard, our CFO, joining myself and Christina here this morning for this conference call.

So Q2, 2024, really, as I've mentioned before in the past, this is about the growth phase of the company and getting our expansion online. We've accomplished that in Q2. The new crushing circuit, which I'll get to see tomorrow is up and running. The tertiary crusher is the final piece of that, have arrived on site, are being installed, and will come online mid to late next week. The plant is being built and will report starting tomorrow. All the steel works are done and rings for our new tanks are being constructed and welded as we speak. So a lot of action going on at site. And so we'll be very excited to get there tomorrow to see a lot of this.

So without further ado, Christina, can you move into the presentation? First and foremost, I've always have a disclaimer. I mean go to our website to view this. There may be forward-looking statements. Well, go back to the pictures, Christina, we got a little surprise for you. We have actually updated our photos. And the reason for the updated photos is there will be a new website coming. It's currently in the queue and being put in place. And obviously, we -- for the new website, we have new photos. And I must say, look how nice Mike is looking in that photo. You can tell where he came from before I joined TRX, Barrick. He's got the blue suit, a nice blue tie-on with the white shirt. He's looking very good, aren't you Mike?

Always.

Always. All right. A little bit of kidding around there. So with regards to TRX, the investment thesis really hasn't changed. We are producing gold at a high margin, reinvesting that capital into the business. The capital is currently being reinvested into the third plant expansion. We're forecast to get between 25,000 to 30,000 ounces for fiscal 2024. Will probably be a little tight getting there depending on the grade profile that goes through the mill. We are on time and on budget on the plant expansion. We do have a significant gold deposit, 2 million ounces measured indicated category at our 2020 resource statement that was done under 2003 rules. We have significant blue-sky potential in high priority targets. That will start to come online in the second half of this calendar year. As we get through, the expansion start allocating capital more to the drill bit, and we have sustained cash flows from operations.

As you can tell, we did have a dip in Q2, given that we have an undersized crusher for the -- for sulfide portion of the plant, which has now been rectified by the larger crusher. But we certainly maintained our liquidity and capital profiles. We continue to build out the asset. We have around $2 million to spend remaining on the plant expansion. Obviously, a large part of that will go into working capital and then get paid off as the expansion comes online. You have things such as first fill with steel balls, those sort of things that will be in that number that will be put into the working capital numbers. Mike anything to add to that?

No, I think that's pretty clear, Stephen. Thanks.

Yeah. Excellent. So next slide, please, Christina. And so in Q2, like I said it was a softer quarter relative to the other quarters, which was expected. But even in that environment, we had strong operating cash flow that continue to fund our operations. The gross margins were still very healthy. Robust project economics, we've maintained our liquidity profile. With cash on hand, we are continually debt-free and funding the business on an ongoing basis, continue to expand. Our plant expansion again, is on time and on budget. We're starting to see the benefits of the larger crushing circuit in higher throughput levels, and we did release that in our press release as well as higher gold production as a result of that.

What I can say is the plant still isn't getting, or crushing circuit isn't getting to its final product size. So we've gone from around 2 inches to less than 1.5-inch consistent product, that will get down to 6-millimeter product that will go into the ball mills. That will then be able to run it at a more consistent rate with consistent feed, which means a more consistent grind size, more consistent recovery rates. So it's all moving in the right direction.

As I said, the tertiary crushers, they're on site, they're on their platforms, the electrical works is getting hooked up. That's the final phase to get it down to 6 millimeters and the contractors coming in mid to late next week from the manufacturer to put it online. So that's going extremely well.

The -- as I mentioned that circuit, even being, what I'll say, two thirds complete from a crushing perspective, not on a construction basis, but from a crushing perspective, has already shown some dividends. And then as we get through 2,000 tonne per day plant expansion, it's to draw our high priority targets there in the Northeast, Southwest of the main deposits as well as the Eastern Porphyry and Anfield Zones, which sit adjacent to the Main Zone, and we look forward to get that underway. We've -- as always operated very safe site. We've had achieved zero lost time injuries.

Again, we've reached another phase of 1 million hours for that, which is very good and continues to -- our work has continued to work safely. Our CSR programs and ESG programs are always ongoing in the local community. So we're very pleased with the results of that. Right now, I think it's almost -- with everything going out, 600 employees and contractors at Buckreef. So when I started this company, there was less than 30. So it is a very good story economically. We do this in hiring a lot of local people who -- still have a very high margin business.

Next slide, please, Christina. So with regards to the expansion, I talked a lot about this, you'll see the new crushing circuit here. With the old circuit, we'll be able to crush up to -- we're estimating 4,800 tonnes per day of availability. So obviously, if you're crushing hard rock through metal, it's going to break down. It needs to be fixed. So you want to have a much higher overall capacity or throughput capacity in order to develop a stockpile for when it does break down. So right now, even with the product that we're getting, we have a stockpile of, I believe, six or seven days that we've built up and that will build up fairly quick.

Our plant manager, [Miphesto] believes he can crush the ROM pad in 20 days, but I don't think he could do that, but anyways, he's eager to get that stockpile built up, which then enables us to run the business much more on a efficient basis as opposed to having or go to the mill on a just-in-time basis, it will be stockpiled and go through. So you can have hiccups in mining, you're going to have hiccups in crushing, and you can even put in place a lot more preventative maintenance program around your milling operation.

So we're looking very forward to getting all of this straighten up. And when we went and, what I'll say, move the pieces around for this expansion, the crushing circuit was really the bottleneck in the whole system, that's why it was done first. Then the milling circuit will come online secondly.

So with regards to the milling circuit, you see down in the corner. The steel works have been done. That takes a long time. We want to make sure that the plant -- that the ball mill goes on top of its -- it has a lot of vibration in those sort of things. We do not want that cracking. So it takes a lot of time in the steelworks before we get to the concrete.

There are no cracks in the prior three. So when the concrete work guys start to for this one, we don't expect any cracks in the future. It will take around a 30-day cure period, but the plants will be put on -- the ball mill will be put on a lot sooner than that before we start to roll it.

With regards to the tanks, we don't see them in these pictures, but the rings are starting to be put up in the concrete works. For those where they're going sit is also underway there as well. So with the improved grind size, we're anticipating to have higher throughput and a lot more efficient operation. And with that, increases in margin as well as a decrease in cash costs. And those sort of things are all anticipated. Mike? Next slide, Christina, please.

So Mike -- I'm going to hand it over to Mike to go through some of the points that I just made in a little bit more detail. Thank you, Mike.

Yeah, thanks, Stephen, and good morning, everyone. And just back to that last slide is probably worth pointing out from a finance and a cash flow perspective. While we're sort of undergoing wet commissioning of the expanded crushing circuit and ramping up throughput, the rest of the plant build remains ongoing to Stephen's point. We've incurred about $4 million of the $6 million total capital cost that we guided the market to. So substantially through most of the heavy expenditures. All the long lead items have been procured and are on site and expect to fund that remaining $2 million-odd with either cash on hand or cash flow from operations. So certainly, well underway.

With respect to the quarterly highlights, I'll start maybe on the operations side in a little bit more detail. As Stephen touched on, it was a bit of a lighter quarter relative to what we had been seeing. We produced and sold approximately 4,000 ounces being down a little bit relative to what we've been seeing in the last few quarters.

And we touched on the reasons why. The lower throughput and the lower recoveries as a result of us pushing through that harder sulfide rock. We processed about 66% sulfide rock this quarter relative to prior quarters, which were primarily oxide and softer and easier on the equipment. What was really happening with that existing crusher, and Stephen touched on this, it was really at its limit for what it could do in terms of this hard rock, and you were seeing material and crushed product that was too large and too inconsistent for what the mill could process, which led to things like mill downtime, longer milling period and as a consequence, lower throughput.

Stephen again touched on this, fortunately, the new circuit is online. It is wet commissioning, so it's ramping up slowly, but we're doing up over 2,000 tonnes a day with a new crusher already. You heard about the capacity of 4,800 tonnes a day, so it's certainly sized for a much larger operation. But we're seeing the benefits already. We've to date, post Q2, already produced almost 2,700 ounces. So we're seeing both improvement, things like throughput and recoveries and are well on our way to expanded production in the second half of the year.

On the financial side of things, the good news for the quarter was that we saw and continue to see record gold prices. We achieved a realized gold price of over $2,000 an ounce -- $2,026 an ounce. And I sold gold as recently as yesterday at almost $2,400 an ounce. So as a company continuing to benefit from these lofty gold prices. Year to date, we've done almost 9,000 ounces, and that generated operating cash flow of over $6 million. Again, I touched on what we're doing with the plant build, but we continue to reinvest this cash flow and value accretive activities at Buckreef. And this plant expansion is one that we certainly expect to benefit from in the second half of the year.

We -- Buckreef continued to be a low-cost, high-margin operation. We had revenues of $8 million during the quarter. And again, gross profit very, strong at over $3 million or 41%. So lots and lots of leverage to these rising gold prices that we're seeing. We recorded positive net income of $2 million, EBITDA, $2.5 million. So again, despite this being a comparatively low production quarter, it demonstrates the profitability of Buckreef.

Liquidity continues to be a key area of focus for us at TRX. Despite currently being in a build phase, we did maintain a very, very strong liquidity profile. We preserved a cash balance of $8 million. That's consistent with what we reported at both year end and Q1. We maintained a positive working capital balance of almost $3 million. We have no debt on our balance sheet. And again, despite this being a relatively capital heavy plant build phase during Q2, we manage things like accounts payable very closely and actually saw a decrease in a peak quarter-on-quarter. So liquidity, key area of focus, and as we move into a higher production profile in the second half of the year and into next year, expect liquidity to improve from here.

Finally, you can see the last bullet, and we touched on it at the outset of the call. With respect to full year guidance, we continue to expect production to be in the range of 25,000 to 30,000 ounces during the year. And while -- as you can see in the middle of the table, cash costs for the first half of the year we're just over $1,000 an ounce. We expect that to improve in the second half of the year as we benefit from economies of scale from the larger plants and expect the full year cash cost number to land somewhere between $800 and $900 an ounce.

Next slide, please, Christina. We've shown this slide in the past. Now, I'll point our listeners and viewers to the tables on the right to start production sales, EBITDA, and cash flow from operations. What we've tried to demonstrate here with our third successful expansion coming online here shortly is three years of consecutive growth, year over year over year growth in all categories. And if you look to the bottom left, we've done that successfully while maintaining if not reducing G&A and corporate overhead.

So again, continue to be very prudent in our capital management and investment decisions. And the top left box demonstrates how we've taken money that's been raised and reinvested it in the business, and you're effectively seeing 1.8 times multiplier on investment. So it's a very shareholder-friendly. And the approach we've taken, as we've talked about many times is to use cash flow from operations to fund value accretive activities and do that in a shareholder-friendly way, which minimizes, of course, dilution. And again, I think this is just the beginning. We expect to see significant growth heading into next year. So watch this space. Next slide, please. Stephen, back to you.

Yeah. So drilling, my favorite subject. Well, I like the production of gold as well. And I also like people finding gold. Like both of them. So with regards to what you should expect to see in the second half of the year, as I mentioned, you'll see the stars on this slide, that's where the drill bit programs will be focused on. We saw a good program in the Northeast or when we did the extension there. We did an extension and holes under the South pit as well. We've release those. It looks good down there. And then we also see that as a trend on Anfield. Put some holes in there, it looked really good. And we know there's lots of gold up in the Eastern Porphyry as well.

So as I said, the focus on the exploration program will be where are the near-term ounces to go into a mine plant? And what that will mean is doing sections that are fairly close together and more shallow than deep. We think that there's a lot of gold here even at the shallow parts of the deposit, and obviously, these shares almost go down quite a ways. The Main Zone has add the intercepts of 750 meters, and we don't expect that to be any different overhead Anfield either.

So this will be a long-life mining asset. We don't got a lot of drilling to prove it out and show everybody exactly what it is. So very excited for that. You'll always see me smile on exploration. And I know the North American investors don't understand football or sorry, soccer as well as others. You know, the last zone was named Anfield Zone. I'll make sure that is named -- the next zone to arrival of the Liverpool Football Club, which will be a little bit testy on site, but we'll get it through. Anyways. So that's on exploration. Do we have the next slide, please?

And so with regards to share ownership and coverage, obviously, with the increase in gold price, our share price has reacted to that as well. And I think it's also reacted to the fact that we continually reinvest in cash flow as well as continually have a strong liquidity profile. I think in this market, both Mike and I collectively the management team, Christina, Andrew, Khalaf, believe that liquidity is King -- maintaining that liquidity is paramount while at the same time expanding our operations. So we've successfully done that. I don't think we've been as volatile as other stocks from our tracking as a result. And continually, hopefully, we'll create that shareholder value to increase this in the future, not just on the back of gold prices, that certainly provides a lot of wind in the sales but also based on operating results.

So if you create a business that creates a lot of cash flow that you should be rewarded for. And that's the mantra. We are out marketing all the time. We have started to see more and more institutional type of interest in taking meetings and really looking at what we're doing versus what we've seen a couple of years ago. We're still predominantly a retail base to stock in the United States, but I think you'll start to see that turn a little bit over time as we continue to grow out and continue to de-risk this business.

Next slide, Christina. And still just a lot of pictures. A lot of you have seen these pictures over time. Just a lot going on all the time. As I mentioned, there's 600 people, employees and contractors at Buckreef at this point in time. So there is quite a bit of activity. When I'm there tomorrow, I'm sure I'm going to see more vehicles and motorcycles in the parking lot and more activity. Every time I come here, there's a lot more activity that goes on at that site.

And I think that is it, and we're going to turn it over to questions. It's pretty straightforward quarter growth. Plants on time. Continue to reinvest that cash flow into the business to grow production as well as resources. It's getting to be a pretty simple story, which I like.

All right. If you're ready to take some questions Stephen. (Operator Instructions)

Stephen, there appear to be no questions from the phone line, if you want to [give us your comments]

Yeah, I will. Just a couple of questions on text. So I'll answer those questions. One comes from Heiko Ihle at H.C. Wainwright. Unfortunately, he's boarding a plane. So he just said that we spent some money on expanding our site and would you be resuming additional and -- are you going to be resuming additional exploration? Could we provide dollar and time breakdown of these targets?

Heiko, that's exactly why I'm here. I'll be going through that with the team over the next couple of days as we start to firm this out over the next couple of weeks and months in order to provide more guidance on what we're doing there. We do know the direction that we're going, but we're going to -- I'll be sitting down with the team to go through exactly what the time period and budgets will be for that.

A little bit of that goes into our year end planning that's upcoming. And what type of cash flow will be available for exploration as well as other development activities such as tailings and stripping. Obviously, it's an open pit mine. So we're balancing all of those factors, but it will be a decently significant program coming up because that's where we believe we can unlock the most potential from a shareholder perspective.

The next question comes from an individual. Will all the gold sold in the future or will building up a gold holding position as part of the corporate treasury be considered?

As everyone is aware, we do have a joint venture with the State Mining Company. Right now, there is needs for cash to expand the business and to spend on exploration. And so obviously, the gold sold is being used to fund that which is paid for in TZS or USD. In the future, if there is excess cash position, it might be one of the -- it could be very much be -- depending on the period of time, be one of the options that would be considered. But in the short to medium term, I think there's so much potential on continuing to expand the operations as well as exploration. That it won't be something that would be considered in the short to medium term, but in the long term, yeah, it would be something that may be considered.

Yeah, Stephen, you may want to just touch on what we're doing as far as insurance with respect to things like ROM pad inventory and crushed ore inventory. We have 11,000 ounces on the ROM pad stockpile and 400 ounces in crushed ore, which certainly, in a rising gold price environment becomes more valuable.

And I guess, Mike, that's a great -- in a theoretical way, we kind of do it anyway in insurance on the business. So there is a level of stockpile that I and Mike and the management team like to have around as a rainy-day fund. So to a certain degree, we're kind of doing it. It's just in the ore as opposed to actual and physical bars. So it's sitting underground there. It can go to the plant any day.

Have we sold any forward production? If so, how much and at what price?

So as people have seen in our in our financial statements, a collar. So when we put it at zero cost collar, gold I think was trading at around $1,950 or something of that nature and it had dipped down to $1,750. So we wanted to lock in some cash flow to pay for the plant. So we have 600 ounces a month until the end of May that has a band between $1,850 and $2,150. So floor and the ceiling, but it's only for 600 ounces for -- and it ends, I believe, May 21st, somewhere around there, is the last strike date.

So that's all the forward production that's been sold. There is some gold forward sales that we also did through an enterprise called OCIM, and we have about 12 months remaining on that. I believe, Mike, that's around 150 ounces a month, right now.

Yeah, it's less than 1,000 remaining over the next year. So very little impact on our quarter-over-quarter revenues.

Yeah, so it has minimal impact on short term revenues and certainly no impact on medium to long-term parts of our business. So anything that we do on forward production is always going to be short term in nature. It won't be long-term in nature. So it will be used. We prefer to do that than to come to the shareholders for capital as we have dips and ups and downs in capital spending. So it is a financing mechanism, but we don't get too heavy on it. We wouldn't do that.

So -- and the next question is congratulations on the -- all the great things you and the team are doing to build and grow TRX. Please explain more about your plan to de-risk. What are the top few things, please?

So to de-risk, a large part of the business has been de-risked. So we know we can process gold at Buckreef at a very high margin and then get decent recovery rates. That's a large part of the derisking of any mining project. Just proving out that you can actually do that. A lot of companies run into trouble in that regard. They will go and spend $200 million and all of a sudden now the plant doesn't work. So that large part of the de-risk has been done. We've also de-risked our geological models, and I'm very comfortable with them at this point in time in order to solidify that future production.

Other parts of de-risking is, we have strong government relations. So we continually engage with the government and our joint venture partner. We will enter into negotiations with them on a revised joint venture at probably in the short to medium term. That is necessary as we move forward. Given the growth profile of the business, it doesn't work as well as it once did also. Also, I would say, a tailings and other infrastructure assets at Buckreef, we're constantly on top of those. So I think a large part of the de-risk has happened and continually happens over time. So still very comfortable of where we are.

Stephen, maybe one comment to touch on. I think could be interesting to our listeners here is, we are looking to add equipment to our fleet that we can manage for [example] to improve things like mining costs, what we can mine, and wherein without having to rely solely on contractors. So I think if I was to point out, that presents a lot of opportunities for us, it's in doing that.

Yeah. Well, that lowers the costs significantly as well, Mike. So that's one thing that we're certainly looking at that that's top of mind right now. So those are the few areas.

The next question we have are we still looking to acquire other opportunities nearby?

Look, I think we're getting to a point where the business is maturing and starting to stabilize. There's still a lot of work to do. As opportunities pop up, that have a similar type of profile to when Mike, I, Christina and others join TRX, which is get in there, get your -- roll up your sleeves, get your hands a little dirty and put an asset into production very quickly and utilize that cash flow to expand that asset. Those opportunities are around, and I think we will start to look at those more and more as we move forward here because there's a lot of value creation from doing it this way.

So yes, we will still -- we'll look at opportunities in our area of Tanzania, but there's also opportunities up and down the East African quarters, what I call it. Into Ethiopia, Kenya and down through. So we will look at those in the future. And if they make sense and they have just as good or better opportunities for [general value in] Buckreef, we will be looking at those.

Stephen, Heiko has a follow-up question. He's texted in here and asked how much impact that we've seen on costs from recent spot prices and how sticky do you think our cost base will be if gold prices were to go down from current levels, which I can maybe touch on. But you know, really the only sort of true variable cost that we have is royalty with the government, a 7.3% royalty that varies with revenue of course. But we're not playing with things like cut-off grade in the short term as and when gold prices increase. So we truly expect to see a significant economies of scale from our operation and it will benefit from higher gold prices, all things being equal.

Yeah. So what I would say is -- also, Mike, there's always a positive correlation between oil price and gold price. There always seems to be that correlation there. And it's been -- one of the things is we hate to rain in Tanzania to certain degree, but we love the rate in Tanzania to a certain degree. And that helps us get off diesel when it rains because the grid is knocked out. And with Julius Nyerere, power facility coming online too, we fully expect to see the benefits of that as well. So I would expect to -- it is fairly sticky. And also the Tanzanian shilling has been under a little bit of pressure as well. So that helps on the cost side.

All right. So another thing is please explain more in your plan to de-risk. What are the top few things. What are institutions waiting to see before jumping in?

Institutions are waiting for a couple of things. So one is they need to have more capital in their institutions, for one -- for first and foremost. A lot of their capital in to this spaces has been allocated and they relook at names, and in order to get into new names, they need to exit a position to get into another position, so -- which it can be difficult. So I think the largest part is, there needs to be more money going into the space. Hopefully, coal prices are catalysts for institutional money getting more money as opposed to getting redemptions. So a large part of what has happened is there's been a lot of redemptions in institutions. So that's a large factor.

We haven't heard anything really negative about our story from an institutional perspective. I think we've moved along. We said what we -- we did, what we said we were going to do from day number one. We continue to do that. We've de-risked this business significantly. I think the real catalyst is more money needs to enter its space, and people need to be comfortable with smaller cap versus larger cap investments.

So when will the 2020 measured indicated inferred resources be updated to what current resources are as of 2024?

Very good question. What I would say there is look, we will go through a drill program and then we'll reassess. Where we're very comfortable is in the economic ounces of the deposit. So really what 2024 rules are or I think the rules is 2019. Rules are around what are your economic ounces, so measured and indicated now more like proven and probable. And we're very comfortable with the -- in the analysis that we did on the 2020 statements around the economic resources that are at Buckreef. I think that's it for questions.

I think there's a follow-up question that just popped up on the deck.

So I not quite understand the question. Since this is a powerful breakout in gold, would you consider even cutting back more forward production or hopefully none at all?

So with regards to -- if your gold price is higher, certainly the need to forward sell gold is less in order to do your capital projects, because, you obviously have more revenue from what we're doing. With regards to scaling back production, look, I think in the value of the weight of markets currently value companies.

They're still enough valuing you for your gold in the ground. Unfortunately, we did go through that phase, but it hasn't gone back there. And in order to get -- but I fully expect it may get back there at some point in time, who knows. So you want to expand that resource base. So utilizing the gold production right now to put it into drill bit to expand that economic resource I think is more important because you want to have a bigger base for when the market comes back that values you that way.

Also, the benefit of having more production today versus in the future is markets are still looking at net asset value, which says move up production, EBIT, EBITDA, which says move up production. Price to cash flow, which says move up production. And have it for a very long time. So I don't see us trying to decrease production to put it into the future. To further find more gold

Sorry to cut you off there. I think it's really what they're asking is cutting back on forward production, which in our case we're trying to preserve as much upside optionality to gold price as we can. We're not looking to hedge. It's been very sort of selective and prudent and around near-term cash flow requirements where and when we've done it. So I think the idea would be to try and maintain as much upside to gold as we can going forward.

Yeah, that's right. All right. That's a good level of questions.

Caitlyn, any questions on the line?

There are no questions in the phone line.

Okay. Very good.

Okay. Well, thanks, everyone.

This concludes the meeting. You may disconnect. Thank you for participating and have a pleasant day.