TRX Gold Corporation

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

Thank you, Gaylene, 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, 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 the star then one on your telephone keypad to join the question queue. I would like to now turn the meeting over to Stephen Maloney, CEO of TRX Gold. Stephen, please go ahead.

Yeah, thank you, Christina, and welcome, everybody, to our Q2 conference call. 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. Andrew Chidor, COO. is 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 crushers, the final piece of that, have arrived on site, are being installed, and will come online mid to late next week. The plant has been being built. and will be poured starting tomorrow. All the steel works are done and rings for 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 always have a disclaimer. You can go to our website to view this. There may be forward-looking statements. And 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, 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 he joined TRX and Barrick. He's got the blue suit, the nice blue tie on with the white shirt. He's looking very, 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 that could The capital is currently being reinvested into the third plant expansion. We're forecast to get between 25,000 and 30,000 ounces for fiscal 2024. We'll 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 goal deposit of 2 million ounces measured in the indicated category in our 2020 resource statement that was done under 2020. 2003 rules. We have significant blue sky potential and 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 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 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. um so in q2 uh like i said it was a softer quarter relative to the other quarters um which was expected but even in that environment we had strong operating cash flow that continued to fund our operations the Gross margins were still very, very healthy. Robust project economics. We maintained our liquidity profile with cash in hand and continually debt-free and funding the business on an ongoing basis continued 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 goal 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 two inches to less than an inch and a half consistent product. that will get down to six millimeter product that will go into the ball mills, that will then be able to run it at a more consistent rate with a 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 are on site, they are on their platforms. The electrical works is getting hooked up. That's the final phase to get it down to six millimeters. And the contractors coming in mid to late next week from the manufacturer to put it online. So that's going extremely well. And as I mentioned, that circuit, even, you know, 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 the 2,000 ton per day plant expansion, it's the draw our high priority targets. They're 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 to getting that underway. We've, as always, operate a very safe site. We've had achieved zero loss time injuries. And again, we've reached another phase of a million hours for that, which is very, very good and continues to. Our workers continue 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 there's almost, with everything going on, 600 employees and contractors at Buck Reef. So when I started with 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. and still have a very, very high margin business. Next slide, please, Christina. So with regards to the expansion, I've talked a lot about this. You'll see the new crushing circuit here with the old circuit will be able to crush up to, we're estimating 4,800 tons per day of availability. So obviously 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 build up a stock file 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 are built up and that will build up fairly quickly um our plant manager festo believes he can crush the rom pad in in 20 days but i don't know if he could do that but but anyways he's uh 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 ore 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 can have hiccups in crushing and you can even you know put in place a lot more preventative maintenance program around your milling operation so we're looking very forward to getting all of this straightened up 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 steelworks have been done. That takes a long time. We want to make sure that the plinth that the ball mill goes on top of, it has a lot of vibration and those sort of things. We do not want that cracking. So it takes a lot of time in the milling. 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 pour this one, we don't expect any cracks in the future. It will take around a 30-day cure period, but the plinth will be put on, sorry, the ball mill will be put on it 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 and the concrete works for those where they're going to sit is also underway there as well. So with the improved brine size, we're anticipating to have higher throughput and a lot more efficient operation. And with that, increases in margin as well as 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, you know, just back to that last slide, it's probably worth pointing out from a finance and a cash flow perspective, you know, while we're sort of undergoing wet commissioning of the expanded crushing circuit and ramping up throughput, you know, the rest of the plant build remains ongoing to Stephen's point. we've incurred about $4 million of the $6 million total capital costs 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 odd million with either cash on hand or cash flow from operations. So certainly well on our way. With respect to the quarterly highlights, I'll start maybe on the operations side in a little bit more detail. Stephen touched on it. It was a bit of a lighter quarter relative to what we had been seeing. We produced and sold approximately 4,000 ounces, again, 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. You know, 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, you know, material and crushed product that was too large and too inconsistent for what the mill could process, which led to things like mill downtime, you know, a longer milling period, and as a consequence, lower throughput. You know, Stephen again touched on this. Fortunately, the new circuit is online. It is wet commissioning, so it's ramping up slowly, but, you know, we're doing up over 2,000 tons a day with the new crusher already. You know, you heard about the capacity of 4,800 tons a day, so it's certainly sized for a much, much larger operation. But, you know, we're seeing the benefits already. We've, to date, post Q2, already produced almost 2,700 ounces. So we're seeing both an improvement in 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. Here today, 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 into value of creative activities at Buck Reef, and this plant expansion is one that we certainly expect to benefit from in the second half of the year. We at Buck Reef continue to be a low-cost, high-margin operation. We had revenues of $8 million during the quarter, And again, gross profit, very, 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 of $2.5 million. So again, despite this being a comparatively low production quarter, it demonstrates the profitability of Buck Reef. 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 managed things like accounts payable very, very closely and actually saw a decrease in AP quarter on quarter. So liquidity, key area of focus. And, you know, 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 in 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 were 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 plant 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, and 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, you know, 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, you know, the top left box demonstrates, you know, how we've taken money that's been raised and reinvested it in the business. And you're effectively seeing, you know, 1.8 time multiplier on investments. So it's a very, very shareholder friendly. And the approach we've taken, as we've talked about many times, is to use cash flow from operations, you know, 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, but I also like people finding gold. I like both of them. So with regards to what you should expect to see in the second half of the year, as I mentioned earlier, 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 when we did the extension there. We did an extension in Holzen under South Pit as well. We've released those. It looks good down there. And then we also see that other trend on Amfield. Put some holes in there. It looked really good. And we know there's lots of gold up in the eastern porphyry as well. You know, as I said, the focus on the exploration program will be where are the near-term ounces to go into a mine plan. 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 shallow depths. parts of the deposit and obviously these shares almost go down quite a ways um the main zone has had the intercepts at 750 meters and we don't expect that to be any different over at anfield either so this will be a long life mining asset i've got a lot of drilling to prove it out and and to show everybody exactly what it is so very excited for that um you'll always see me smile on expiration and You know, I know in North America, the investors don't understand football or, sorry, soccer as well as others. You know, the last zone was named the Anfield Zone. I'll make sure that it's named the next zone to arrival of the Liverpool Football Club, which will be, you know, a little bit testy on site, but we'll get it through. Anyways, so that's on expiration. 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, and Kalaf believe that maintaining that liquidity is paramount while at the same time expanding your 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 could will create that shareholder value to increase this in the in the future not just on the back of gold prices that certainly provides a lot of wind in the sales but also um based on operating results so if you create a business that creates a lot of cash flow that you should get rewarded for and that and that's the 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 years ago. We're still predominantly a retail-based 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. It's just a lot going on all the time. As I mentioned, there's 600 people, employees and contractors at Buck Reef 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 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.

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Yeah, I will just comment. on tech, so I'll answer those questions. One comes from a high-core analyst at HG Wayne, right? 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 we're going to be resuming additional exploration. Could we provide dollar and time breakdown of these targets? HICO, 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, you know, 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 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 goal sold is being used to fund that which is paid for in tanzanian shillings or u.s dollars 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 in continuing to expand the operations as well as expiration, 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 RomPad inventory and crushed ore inventory. You know, we've got 11,000 ounces on the RomPad stockpile and 400 ounces in crushed ore, which certainly in a rising gold price environment becomes more valuable.

I guess, Mike, that's a great, you know, in a theoretical way, we kind of do it anyway in insurance in 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, yeah, we're kind of doing it. It's just in the ore as opposed to actual and physical barriers. So it's sitting on the ground there. It can go through the plant any day. Have you sold any forward production? If so, how much and at what price? So as people have seen in our financial statements, there is a collar. So when we put in a zero cost collar, gold, I think, was trading. at around 1950 or something of that nature and had dipped down to 1750. So we want to lock in some cash flow to pay for the plant. So we have 600 ounces a month till the end of May that has a band between 1850 and 2150. So a floor and a ceiling. um but it's only for 600 ounces for and it ends i believe may 21st somewhere around there is the last uh strike date so that's all the forward production that's been sold there is some gold uh forward sales that we also did through an enterprise called Oseum, and we have about 12 months remaining on that. I believe, Mike, that's around 150 ounces a month right now.

Yeah, and 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. then 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. And the next question. Oh. The next question is, congratulations on 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 Buck Reef at a very high margin and get decent recovery rates. That's a large part of the de-risking of any mining project, just proving out that you can actually do that. A lot of companies run into trouble in that regard. They'll go and spend $200 million and all of a sudden, no, 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 are 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, 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, I would say tailings and other infrastructure assets at Buck Reef are constantly on top of those. So, you know, I think a large part of the de-risk has happened and continually happens over time.

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

Yeah, well, that lowers the cost significantly as well, Mike. So that's one thing that we're certainly looking at that's top of mind right now. those are a few areas um the next question we have are we still looking to acquire other opportunities nearby look i think we're getting to a point where we're the business is maturing and starting to stabilize there's still a lot of work to do um as opportunities pop up that have a similar type of profile to when my guy christina and others join trx um which is you know get in there get your roll up your sleeves get your hands a little dirty and um and put an asset into production very quickly and utilize that cashflow 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 quarter is what I call it, in through Ethiopia, Kenya, and down through. So, uh we'll we will look at those in the future and if they make you know sense and they have just as good or better opportunities for gerald or valiant and buck grief we will be looking at those even heiko had a follow-up uh a question uh he's texted texted in here and asked how much impact have we seen on on costs from recent spot prices and how sticky

Do we think our cost base will be if gold prices were to go down from current levels? Which I can maybe touch on, but really the only sort of true variable cost that we have is a royalty with the government, a 7.3% royalty that varies with revenue, of course. But we're not playing with things like cutoff grade in the short term, you know, as and when gold prices increase. So, you know, truly expect to see 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... is also, Mike, there's always a positive correlation between oil price and gold price. There always seems to be that correlation there. And, you know, it's been one of the things is we hate the rain in Tanzania to a certain degree, but we love the rain in Tanzania to a certain degree. that helps us get off diesel when it rains because the grid is not down. And with Julius near your power facility coming online too, we fully expect to see the benefits of that as well. So, you know, I would expect to, you know, 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 on 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. One is they need to have more capital in their institutions. For one, first and foremost, a lot of their capital to this space has been allocated, and they re-look at names, and in order to get into new names, they need to... They need to exit a position and get into another position, which can be difficult. So I think the largest part is there needs to be more money going into the space. Hopefully, gold prices are catalysts for institutional money getting more money as opposed to getting redemption. So a large part of what has happened is there have 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 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 entrance space, and people need to be comfortable with smaller cap versus larger cap investments. So when will the 2020 measure and indicated for 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 of 2019 rules are around what are your economic ounces? So measure and indicate it now look more like proven and probable. And we're very comfortable with any analysis that we did on the 2020 statements around the economic resources that are at Buck Reef. I think that's it for questions.

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

So I do 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 obviously you have more revenue from what we're doing. With regards to scaling back production, look, I think in the value of the way the markets currently value companies, they're still not 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 in a drill, but to expand that economic resource, I think is more important because you want to have a bigger base for when the market comes back and values in that way. Also the benefit of having more production today versus in the future is you markets are still looking at, you know, net asset value, which says move up production, EV, which says move up production, price to cash flow, which says move up production and have it for a very long time. So, you know, I don't see us trying to decrease production to put it into the future.

I prefer to buy more gold. Sorry to cut you off there. I think it's really what they're asking is cutting back on forward production, which, you know, in our case, you know, we're trying to preserve as much, you know, upside optionality to gold prices as we can. We're not looking to hedge. You know, it's been very, very sort of selective and prudent and, you know, 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.

Eileen, any questions on the line?

There are no questions on 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.