TRX Gold Corporation (AMEX:TRX) Q4 2022 Earnings Call Transcript

TRX Gold Corporation (AMEX:TRX) Q4 2022 Earnings Call Transcript December 5, 2022

Operator: Thank you for standing by. This is the conference operator. Welcome to the TRX Gold Corporation 2022 Year-End Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Stephen Mullowney, CEO. Please go ahead.

Stephen Mullowney: Yes. Thank you and welcome everyone to our fourth quarter and year-end 2022 results call. Thank you for joining this morning. Joining me this morning is Andrew Cheatle, our COO; Mike Leonard, our CFO and Christina Lalli, our VP, Investor Relations. We always started all our presentations with the front slide showing our pit. Now this picture is a little bit out of date, if we were to look at this today and we’ll get a more recent image as we get our drones up in the air. The road would be beyond this pit and the pit would be a little bit more extended. We’re going to get into a few things of why we like this pit and the mining asset foundation that is here at Buckreef. But before we do, let’s move our slide deck to the next slide.

Obviously, this is a public call, so there is a cautionary note in a forward-looking statement. We are going to be talking about forward-looking information, and we must do this from a legal perspective. Thank you. And as I mentioned, joining me today is Andrew, Mike and Christina. In the presentation today, we’re going to talk about a couple of things. We’re going to talk about the foundational assets that is Buckreef what we’ve experienced particularly over the last year and why we think it’s a great asset and has a lot of growth. We’re going to give you an overview of what our accomplishments have been last year. Anybody following our story will realize that a lot of things have been accomplished and things are moving very, very rapidly around the Buckreef asset.

Mike will give an overview of the financial results that were achieved in 2022, which have been great particularly around cash cost and the production profile from our plant. We are then going to give a 2023 outlook of where we see things going over next year. And then Andrew is going to give us a really good view of the Blue Sky and exploration potential around the asset. This is always my favorite part and everybody always sees me smile around this part. And then we’re going to have Q&A at the end and as well as closing remarks from myself. So TRX, so with regards to our company, we have a team of experienced leaders that continue to deliver a milestones I think people follow the story or starting to get a really good sense that we are going to deliver on what we say we’re going to deliver upon.

We’ve made a focus of doing that over the last two years, since I joined and that will be continuing to be the case. You’ve had seen a rapid production growth from Buckreef over that year, particularly over the last year and the plant has been doing really well and achieving high gross margins, positive operating cash flow. The expiration upside, we knew that it was a lot of exploration upside when joining. But I think we’re just really starting to scratch the surface and understand really the potential around this asset. We’re finding it more and more every day. And that’s to the positive side, not the negative side. So I’m really excited to get through that with Andrew and we’re really going to be focused in the next year continually growing the business both from a production profile and a resource profile through the exploration drill bit.

So when I mentioned that Buckreef is a foundational asset, we’re still really getting to know the deposit in the region, and we’re liking what we’re seeing. So with regards to being a foundational asset, there’s 2 million ounces here in the measured indicated category another 600,000 in the inferred category from the last resource study. What’s good about this is the grade profile is good at around 1.88 grams a tonne in the measured and indicated category. This resource comes to surface, and that is great. That enables us to get into mining very quickly. It’s a flat surface. So it’s easy to move around and to put in place mine plans. Also, the resource is very wide at around 20 meters and it’s consistent, so what that means is there is a good continuity of mineral resource along strike.

And the strike in the Buckreef main zone is right now around two kilometers with the Northeast extension. So that means it’s a very mineable asset. And then when you have an asset that’s mineable, you want to make sure that you’re able to process that ore as well on a very, hopefully, easy flow sheet, which is the case here at Buckreef. We have a straight grind crush CIL and we’ve consistently achieved over 90% recoveries over the last 18-months. From a licensing and permitting perspective, we’re also lucky. So we’re able to do all this sort of stuff with the overarching permit in place and we got an extension this year to 2032, this special mining license is good till the end of the mine life. The renewal period comes up every 10-years. Our processing plant, which we were able to put up very cheaply over the last year for around $6.5 million between Phase 1 and Phase 2 to get to 1,000 tonnes per day has been consistently beating the production guidance and our expectations.

And it’s operating extremely well. We also have a minimal environmental footprint. We are responsible citizens. We recycle water. We have good payments management or connected to the power grid that are predominantly hydro facilities. And we take care of the local communities. And what I just discussed relates to the main zone. The main zone is only one zone here. So the expiration potential of this property, we’re believing is getting larger and larger. We’ve released results to the Northeast to extend that main zone. We’ve drilled in the South. We have pending assays on that. We announced Buckreef West last year as well, which is adjacent main zone. We’ve indicated that this deposit is well open at depth. But then we also announced Anfield.

And we started to drill out Anfield, as well as looking at the Eastern Porphyry, and there’s other target areas around the property as well, which Andrew will get into. But we believe we may be just scratching the surface with regards to exploration, but you got to do the work. You got to put a drill bits in the ground and hopefully you get the assays that you come to expect, but it’s a very, very prospective property. With regards to some of our 2022 full-year highlights. So first and foremost to start-off, we completed two mill expansions on-time and on-budget and our operating grade. So we did this for approximately $6.5 million on the processing plant for 1,000 tonnes per hour. I would challenge anybody to find anywhere that has been done this quickly and for this cost effectively.

We’re aware of other sized plants that are take well over years to construct, as well as costing upwards of $50 million to $60 million. We did this for $6.5 million and just in under 18-months between Phase 1 and Phase 2. Those plans have operated and exceeded expectations. Mike will get into the numbers in a few minutes. But we’ve had great gross profit margins, low cash cost, operating cash flow and positive adjusted EBITDA as well. So now with the foundation these plants put into operation, we get to focus the growth on expanding those plants again, which we’re evaluating, as well as expanding drill bit program, which will ultimately lead to a much larger asset hopefully through the drill bit. So in 2022, this is an underreported number from us and I’d like to focus on it.

We did do 22,000 meters in 2022, that’s not a small program, it’s not as large as some of the ones you can see in Canada, but this by no means a small program either. And let’s just focus on discovery expansion definition. And Andrew will get into what the results of those are and what’s pending as well in a few minutes. We did do an infill drill program in those 22,000 meters in the main zone. We did do the Northeast extension as mentioned. We did go South of the South pit into a South zone, and we do have that drill bit in Anfield. We also did grade control programs and a (ph) program. And so the drill bit in 2022 extended the main zone by 30% or 300 meters to two kilometers. And we’ve done everything, plant build, operations, as well as exploration very safely with over a million hours reported last month with no lost time incident.

So I’m very, very pleased and proud of the management team, as well as particularly the Buckreef team and everybody on-site for all the achievements in the last year. So now I’d like to hand over to Mike and he’ll go through our financial highlights for 2022.

Photo by Shane McLendon on Unsplash

Michael Leonard: Well, thank you, Stephen, and good morning, everyone. On the financial side, 2022 was really a banner year for the company. Stephen touched on some of it, but it was really a year where the company achieved a number of record results, record revenues, gross profit that Stephen touched on, operating cash flow, adjusted EBITDA. That was all off the back of record production and ounces sold. As Stephen mentioned, we successfully expanded our mill to 360 tonnes per day during the year. And on the production side produced almost 8,900 ounces and had record quarterly production in Q4 of over 3,600 ounces. And importantly the 360 tonne per day mill only came online at the back end of Q2 and hit steady state throughput in Q3 at nameplate capacity.

So really, the numbers that you’re seeing here today really only reflect the two quarters operating at 360 tonnes per day. The 1,000 tonne per day plant expansion that Stephen touched on came online after our year-end, which was August 31, and I’ll speak a little bit about our 2023 outlook in a moment to some of the numbers that we expect for next year. On the sales side, we sold most of what we produced during the year with the exception of some in-circuit material and finished goods that built up and was sold in early September, so we’ll benefit 2023. And that was really just due to the timing of our gold sales program. But during the year, we did recognize revenues of over $15 million and generated a realized price of $1,756 an ounce or in Q4 almost $1,800 an ounce.

Now cash costs, which include direct mining costs, processing costs, site administration, royalties and depreciation came in at a very, very low $665 an ounce or in Q4 less than $600 an ounce. That was well below our published guidance ranges. And given the robust revenues and strong cash cost figures we reported, we achieved a very, very healthy gross profit margin of over 60% and consequently, the company was operating cash flow positive during the year and that was the first in company history, so a major, major milestone for us in that regard. Now the balance sheet continues to be very, very strong. We had a cash balance, reported cash balance at year-end of $8.5 million. We reported working capital of $5.5 million and that’s after adjusting for certain liabilities, which will only be settled with equity of the company.

And Stephen touched on adjusted EBITDA of $3.5 million, which is really a proxy for cash flow. But all these statistics demonstrate very strong liquidity to help us fund that organic growth that Stephen touched on a little bit earlier. And very importantly, we’re endeavoring to improve on all of these metrics in 2023. Now that 1,000 tonne per day processing plant is running at full capacity. Next slide, please, Stephen. So in terms of our fiscal 2023 outlook now that the 1,000 tonne per day plant is running at capacity, we expect production to be in the range of between 20,000 and 25,000 ounces and that’s 3 times the production levels that we achieved in 2022. Now the 1,000 tonne per day mill ramped up in early Q1 and has been operating at nameplate capacity, since the end of October when we declared commercial production.

And consequently, we expect production in the second half of the year to be slightly higher than the first half following that ramp up period. Now cash costs are expected to be between $750 and $850 an ounce not slightly higher than what we realized in 2022, that’s mainly due to an increase in depreciation following the commercial production declaration in November. In terms of CapEx, sustaining capital includes certain expenditures related to road realignment that will enable full life of mine access to the main zone. We’re also spending money on construction of a significantly expanded tailing storage facility that will accommodate future growth, as well as purchase of certain pieces of capital equipment, things like loaders and gensets and cranes and grizzly is all really to support the expanded production.

We’re currently renting much of this equipment. So expected benefits in the future on depreciation of some of this equipment following purchase rather than what we’re currently expensing, following rental. In terms of growth capital, we’ve initiated a project aimed at increasing throughput over and above levels that we’ve just spoken about by up to 75% to 100% through the addition of a new ball mill. Detailed engineering in this project is underway. We’re advancing on it and we aim to further benefit production in the second half of the year, we’ll update the market accordingly as we continue to update and progress on this initiative. But importantly, any incremental production from this expansion has not been considered in the production guidance figures above.

So as part of exploration, Stephen touched on it, and Andrew will get into it in a bit more detail, but we are continuing the program that we started this past year with brownfield drilling to the Northeast and Southwest at the Buckreef main zone. We’ll continue to drill at Buckreef West. We’ll drill at the Eastern Porphry. We’re doing Greenfield work at Anfield, as well as sterilization drilling at site expansion facilities. And finally, in terms of outlook, we continue to advance the sulfide development portion of the project with metallurgical testing we’re looking at geotechnical studies for a deeper pit over time and continue to assess what a much larger sulfide processing facility would look like. And again, we’ll update the market accordingly as we continue progress on that initiative.

So with that, I’ll hand it over to Andrew to take us through exploration.

Stephen Mullowney: Yes, just before Andrew jumps in, Mike. It’s important to realize that our fiscal 2023 outlook is really focused on growth, so it’s focused on how do we get the asset to produce more. It’s also focused on how do we get the asset to have more resources. So basically, we want growth in cash flow and we want growth in resources at the same time. I know it’s a very aggressive objective in a junior mining asset, but we believe that we’re able to achieve this in the asset that we have here at Buck Reef. So on the growth profile around the resources, Andrew, I’ll hand it over to you. And the first slide that we have is the map of all your lines of where you are going to put drill bit.

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Andrew Cheatle: Well, thank you very much, Stephen and Mike, for that introduction. And for our listeners today, greetings from Tanzania, I arrived at the Buckreef site this afternoon. So things are progressing very, very well and very fast. And as Mike has pointed out, we are reinvesting some of our profits back into Buckreef and this specifically through the drill base. Maybe we’ll create value this way. Now please bear with me as I just get a little technical on these slides. But what we’re seeing is an immense opportunity to generate and drill significant exploration targets to expand both the scale and scope of the Buckreef gold projects. Where we’re focusing is close to the main zones. We’ve got the Anfield zone between 200 meters, 300 meters, 400 meters to the East, and we’re also focusing down towards the South towards Tembo and on the Buckreef West.

Let me just take you through a little bit of what we’re beginning to understand. And by that, what I’m saying is we — one of the keys to success is to begin to understand the DNA of your gold deposit. And we’ve been spending the best part of the last year, really looking at the rocks and become incredibly excited by what we’re finding. Probably the most exciting part was the Anfield zone itself where we were able to retrieve fresh rock samples from artisanal scale mining shaft in fresh rock of over 28 and another one at 36 grams a tonne. But those are — when you look at the slide, what you’ll notice is that these main target zones are all oriented from the Northeast to the Southwest. And there’s a particular pattern all the way from Bingwa, all the way through to the main zone on that.

We’ve extended the main zone to the Northeast to 300 meters. We’ve had the drill rig over 200 kilometers to the South, we’ve done some infill drilling and we’ve recently had the drill rig on Anfield and it’s currently on the Eastern Porphyry, where some historical drilling to find a mineral resource of over 100,000 ounces. And we’re specifically focusing in on an area in the historical drill hole that was at 30 grams a tonne over three meters. But what you’ll notice with the Anfield zone is — it lies between that historical resource and the Chinese operated mine immediately on our Southern borders, so we’re anchored to the North and South by known gold mineralization. Each of the white dots, you see on the screen, locations of artisanal scale minor shops, none of them are active at the moment, it is all historical.

And this has all come about because we’ve insisted on having our geologists go out, put their boots on the ground and to identify these things. You’ll see again towards the lower left or the Southwest on this image, there are two red arrows, those are on top of again some new discoveries of artisanal workings, both of those showings also being very, very strong. So you see now how we’re beginning to build up inventory of drill targets. And similarly we’ve also discovered some new artisanal scale working further to the East at the halfway between the Anfield zone and the Bingwa deposit. So please take away from this slide. We’ve started our exploration programs. We have indeed made some very early and some very, very compelling discoveries and we’re currently drilling them and have reported on some of those results.

So let’s go to the next slide then please, Stephen.

Stephen Mullowney: It’s been switched Andrew.

Andrew Cheatle: Okay. Thank you very much. Just taking a little bit of time to reach me here in Tanzania, but I have it on the side here. So the true results we have put to market so far are those on the Northeast extension. We’ve successfully demonstrated continuity of the zone itself, we’ve had a number of very, very good hits in there, but we’ve also discovered some new zones and some newest place. Compared to the main zone, you can see the main zone just to the South of it there with the pits. We don’t have that density of drilling at the moment that will come as we continue to build our interpretation of the results to-date. So, so far, these results are very significant. They’ve extended mineralization by about 30% of the strike length.

We’re seeing good width and greater mineralization that is consistent with Buckreef main zone. We’ve continued the steps out, extending the strike length. The gold mineralization is remaining still open to the Northeast and to the Southwest and the depth. So we see an immense opportunity to continue to generate significant exploration targets, both in the main zone and on those zones around it. So for financial 2023, the exploration will include and you’ll start to see results coming back from the Buckreef main zone and the Buckreef West will be later in the year. The drill rig, as I mentioned, is currently on the Eastern Porphyry, and we’ve got some holes in — at the Anfield zone already. And over and above this will continue to do some sterilization drilling at site expansion facilities, for example, the tailings storage facilities expansions.

So a lot’s going on. It’s a bit of a cliche, but as a geologist, by background I feel like there’s gold everywhere and we just simply got to keep putting those boots on the ground and the drill rigs turning, we’ll find the new deposits. There’s new deposits in turn with success will obviously flow through to mineral resources and in turn to mineral reserves. Ultimately, we would hope that then drives our mine plants that gives us flexibility and additional pits to work from. So with that exciting news Stephen back to you.

Stephen Mullowney: Yes. Thank you, Andrew. Truly, we’re just starting to scratch the surface, I believe, here at Buckreef. We know the main zone has always been there, but it appears that there’s a lot more zones potentially around the property. But we got to go explore it.

Andrew Cheatle: Absolutely, Stephen. Thank you very much.

Stephen Mullowney: Okay. Thank you. So with regards to being responsible citizens a couple of things I would ask the investors take this slide. We completed the land compensation process. And what does that mean? It means that we’ve now purchased the land in and around the Buckreef special mining license to be able to go and do all the things that we’re just mentioning, both from a mining perspective, as well as from an exploration perspective. So the company spent $2.6 million plus over the last year completing that program. We’ve also entered into programs with the local districts with regards around a CSR program and we reported that an ongoing basis around things that we’re doing with schools and labs and things like that.

This is necessary from being a corporate citizen in this area. And I believe one of the biggest things is we do put a big focus on hiring locally, both for our contractors and for ourselves. And you start to see the benefits of that through your social license in the area. And it’s interesting when I’m there and Andrew is probably seeing it against , you know, there is a sub-economy developing around the mine with regards to taxi services and other services in the area, so it’s very nice to see. Right now, we’re probably on-site, including contractors, over 400 staff earning and living from the Buckreef Mining operations. And that’s up from around 30 or 40 from when I joined. The next slide, what you see here is guess a lot of the accomplishments over the last year, so you’ll see a nice organized core shack, because you see schools, you see our nice plant up and running, government visits, first class, that was fun.

Bal mills arriving on-site in and Gold dore is obviously being produced and we expect all of this to continue. So without further ado, I’ll hand it over to the question-and-answer session.

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. First question comes from Jake Sekelsky with Alliance Global Partners. Please go ahead.

Jake Sekelsky: Hey, guys. Thanks for taking my questions.

Stephen Mullowney: Yes. Thank you, Jake.

Jake Sekelsky: Just looking at the additional ball mill that you guys are contemplating. Are you able to share any color with respect to capital here? I mean, I know you guys are working on numbers now, but are we looking at a, you know, is it fair to say we’re looking at a sub-$5 million investment? And maybe on the back of that, are you able to share any thoughts on potential impacts from an operating cost standpoint assuming that additional ball mill is added?

Stephen Mullowney: Yes, I can provide some color on that. So yes, we’re aware of where to get the additional ball mill. We’re just figuring out the exact size that we’ll put in place. So the tanks on the capital cost estimate the tanks are oversized currently for the existing processing plant. So your capital cost figure of being sub-$5 million would be in the range, yes. I can say that with regards to expansion. So from an operating cost perspective, it will obviously cover on a per tonne basis more operating cost. We need to get through and we’re putting this together now is finalizing another five year mine plan and looking at grade profile. And so grade profile obviously has an impact on cash cost per ounce. But I think our guidance is still good between $750 to $850 per ounce and I don’t expect that to change anytime soon. Did that answer your question?

Jake Sekelsky: Yes, that’s helpful. And then I guess building on that a little bit, assuming throughput increases yet again in 2023, do you expect to funnel some of your exploration dollars towards additional oxide resources just to, kind of, extend that mine life a bit?

Stephen Mullowney: Yes. So if you’re looking at the potential around Buckreef as Andrew noted on his slide in the white pits, they’re obviously all surface resources, right? So there is a lot more potential oxide resources here even in Buckreef West over in the Eastern Porphyry potentially long Anfield and long strike in Buckreef main and we just need to put in place the drill program to expand those oxide resources.

Jake Sekelsky: Got it, okay. And then just lastly, on the sulfide development study, obviously, the sulfides are a big piece of a longer term mine plan. Should we expect news there in the first half of next year? Or any update on the status of that?

Stephen Mullowney: Yes, you should expect some news on that in the first half of next year, we’re going through finalizing where the PQ holes will be sent. We’ll also evaluate the ability to put sulfide through the existing plants and any modifications required for that as well. Remember, we do have that test plant, so we just need to get some sulfide material for that. And we’ll also evaluate the flow sheet that we currently have, as well as other flow sheets as well. And so do expect some news out on that. We do know what the PQ holes look like and we’ll probably have a releasing on those PQ holes shortly.

Jake Sekelsky: That’s all on my end. Thanks again and congrats on a strong year.

Stephen Mullowney: Yes. No, thank you, Jake.

Operator: And the next question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Heiko Ihle: Hi, everyone. Thanks for taking my questions.

Stephen Mullowney: Yes, thank you, Heiko.

Heiko Ihle: Hey, I saw several of your exploration areas when touring the site earlier this year and the outlook you focus on drilling at Buckreef main, Buckreef West, you support free on the greenfield, you only get Anfield as per your release. But can you break out the approximate drilling between these targets? And also would you expect to do exploration business in February?