Tanzanian Gold Corp

TSX:TNX

Earnings Call Analysis

Company Progresses with Strong Quarter, Mill Expansion

The company's quarter showed financial strength, selling nearly 4,900 ounces of gold, resulting in over $9 million in revenues and a high operating margin with gross profit just under $4 million. While the reported cash cost of over $1,000 an ounce exceeded the annual guidance range of $800 to $900, the balance sheet remained robust with over $8 million in cash. The new crushing circuit, crucial for milling process efficiency and set to increase recovery rates, is 65% complete. Looking ahead, they reiterate production guidance of 25,000-30,000 ounces with the mill expansion and cash cost guidance of $800 to $900 per ounce. The company is now self-funded and maintains a stock price that holds well against peers.

Company Performance and Sales

The company sold approximately 4,900 ounces of gold in the quarter, effectively liquidating all production, resulting in revenues surpassing $9 million. Acknowledging a gold price environment that remains strong, they achieved an impressive realized price of $1,942 per ounce. The robust operations have yielded a gross profit just under $4 million, translating to a notable 40% margin, and an EBITDA near $3 million, reflecting healthy cash flow.

Operational Challenges and Strategies

Despite higher-than-normal cash costs of just over $1,000 per ounce for the quarter due to elevated fuel demands from the use of generators, the company remains within the bounds of expectations. The guidance range for the full year is $800 to $900 per ounce. Connection to a nearby substation has been made to stabilize power supply and reduce reliance on generators.

Financial Management and Capital Allocation

The company reported strong financial prudence, having generated more than $5 million in operating cash flow. Investment back into the operation accounted for almost $4 million as the company funded its own expansion without external financing. A strong balance sheet was reinforced with over $8 million in cash and positive working capital, exemplifying the company's low debt-to-asset leverage.

Efficiency Gains from Expansion

The ongoing plant expansion, doubling the processing capacity from 1,000 to 2,000 tonnes per day, is expected to bring significant economies of scale. Operational efficiencies should result in processing costs being halved upon expansion completion, leading to reduced costs and an improved growth profile.

Reiteration of Production Guidance

The company reaffirms its business plan with a production guidance of 25,000 to 30,000 ounces at the current 1,000 tonnes per day capacity and anticipates greater output with the expanded plant. They maintain the cash cost guidance of $800 to $900 per ounce. The increased cash flow from the new plant is designated for further capital programs, corporate social responsibility, and exploration initiatives.

ESG Commitments and Local Involvement

The company emphasizes its commitment to environmental, social, and governance (ESG) principles. By hiring locally both directly and through contractors, they contribute positively to the community by supporting the local workforce and essential services such as schools and medical facilities. This approach is integral to their operations and reputation among local stakeholders.

Outlook and Market Perception

Forecasting a positive outlook, the company describes itself as a rapidly growing, self-funded enterprise. With the upcoming plant expansion, they are well-positioned to capitalize on increased production and cost efficiencies. The stock price has been consistent relative to peers, and management plans to actively engage in investor relations to propel the company forward.

Earnings Call Transcript 2024-Q1

[Operator]

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

[Christina Lalli, executive]

Thank you, Gavin. Welcome, everyone, to TRX Gold Corporation First Quarter 2024 Results Presentation. [Operator Instructions] And meeting is being recorded. [Operator Instructions].

Stephen, I'll hand the conference over to you.

[Stephen Mullowney, executive]

Thank you, Christina. We've got a little bit of technical difficulties this morning. So you're hearing us from actually Mike's iPhone. So you'll see me move the iPhone across the table as different people speak, and I hope everybody can hear us just fine this morning.

So thank you for joining us for our first quarter 2024 results webcast. We're at a very interesting point because right now, we can -- both Andrew and Mike are on line with me. We start to smell the new plant and when it's going to come online. So we're really getting through the crushing circuit. That is now, I think, around 60% to 65% build or so are. So they're having a lot of rain. So we're hopeful that it will come online between the end of January, early to mid-February. It was all dependent on the weather. It's rained a lot more than anticipated this year in East Africa, particularly in Tanzania. So that is exciting.

And then at the same time, the ball mill components and stuff like that are underway are starting to get installed as well. So we're really excited for that because that enables us to really put on the drill bit towards the back half of the calendar year, given at the increase in the cash flow should be coming through as that plant gets online. So we're really, really excited. Because it's a really exciting period.

So without further ado, obviously, as a Public company, I have to refer people to the cautionary note and reference the fact that there will be forward-looking statements in this presentation. And so I would ask investors and any other people to go to our website to view the cautionary note.

So on the line today, we have myself, the Chief Executive Officer. Andrew is joining us from Tanzania. You can see he's in an orange shirt. We like to keep him in Tanzania as much as possible. And then we have Mike here, who's next to me; and Christina, who is next to me as well.

So just starting off with some similar points that we make in all presentations, particularly for anybody, who's new on this call, we are TRX Gold. We're a team of experienced leaders developing and rapidly developing a gold project in Tanzania. We have an operating plant that's been achieving high margin positive cash flow. We'll get into that in a few minutes. And we have a special mining license that has significantly -- significant blue sky potential for new gold discoveries.

An overview of our property. The 2020 resource statement had 2 million ounces in the measured and indicated category. The deposit comes to surface, which enables us to do all of this, it's 20 meters wide. We have straightforward metallurgy, and grind crush CIL. We're fully permitted under a special mining license. Our current license cost 2032 and is completely renewable until the end of the life of the deposit. We've had a processing plant that's been online for just over a year at 1,000 tonnes per day, that is consistently meeting production guidance. We have a minimal environmental footprint. We recycle water. We have good tailings management connected to the national power grid.

And as I mentioned before, and it always brings a great smile to my face is the exploration potential around this property, our business plan that has been communicated is the gold production to increase cash flow to eventually increase exploration. So one of the things that we've been very proud of and is starting to really show in the numbers. And it was starting to really grow as -- we haven't done a capital raise and I believe, in over 2 years now, Mike?

[Michael Leonard, executive]

Correct.

[Stephen Mullowney, executive]

Yes. So when we originally got into the business as a lot of historical investors are aware, we had to recapitalize the business to do all the things that we're doing. So in that, when we look at the net equity cash that was raised over 2 years ago in around $23.5 million and when we look at what we've invested into the property since then, both by, from those raises as well as the free cash flow that's been generated by the asset. The multiplier on equity now that was raised is around 1.7x and growing. So this is starting to prove out that the business model is much different than we're going to build as we go and increase that investment to increase cash flow.

And you're seeing that in both the production numbers as well as the adjusted EBITDA and cash flow from operation numbers. So in fiscal 2023, which was August, we had sales of almost $38 million, over $38 million with cash flow from operations of over [ $17 million ] and adjusted EBITDA of around $14 million. So we're starting to really see it in the financial results of the company's business plan working. We've done this while controlling G&A expense at the same time, which is a -- which is great. So we've grown from -- in that period of time from around including Buckreef's 30, 35 employees to now including contractors at Buckreef to well over 500 people while keeping our G&A in check.

Q1 2024 highlights, and Mike will get into this in a second. So I'm going to phrase this at a very high level. We have positive operating cash flow again in this quarter, which has been reinvested in the growth project. So I think we reinvested almost $4 million.

As I mentioned earlier, we continue to have prudent capital management. We are on a third consecutive mill expansion. As of today, we have approximately $3 million to $3.5 million of spend on that, which we generated in cash flow from operations and other sources. We continue to have strong gross profit margins. We expect those to rise as new plant comes online, if gold prices stay at the same level. And we expect the new plant to come online towards the back half of the fiscal year. And just prior to the end of the second quarter calendar year. And then thereafter, as that cash flow comes online, we will commence a much more in-depth drilling program, and we're starting to plan that out now. We got to use part of the cash there for drilling, but it would slow down the plant expansion. And it makes much more sense given the economies of scale that we should achieve from the new plant to really spend our capital on that plant. So we have a much more robust exploration program at the end of that plan.

So that's really why we're doing the things on the sequential orders that we're doing it. And we continue to have a great safety record at Buckreef. We've again, for the second time, achieved a 1 million work hours LTI free. So Kudos to everybody at Buckreef for working safely.

So now I'd like to hand the presentation over to Mike. As I said, I'm going to push the phone over. So you won't hear too much from me on this, and Mike will go through what the financial results were.

[Michael Leonard, executive]

Thank you, Stephen, and good morning, everybody. Thank you for joining us for our Q1 call today. Q1 was a fairly steady state quarter relative to what you would have seen over the last 3 quarters. Production was just under 5,000 ounces. If you look at Q2, 3 and 4 of last year, that's consistent with the outlook we've been achieving from our 1,000 tonne per day plant operating at or near capacity.

Year-over-year production was down slightly as Q1 of last year was the first quarter where we were commercially operating. And to get it up and running, what we have done was we prioritized a high-grade oxide or 3 gram plus material and put through that mill to get it up and running for the first quarter.

With that said, what you will have seen for Q1 of this year, we put through a head grade of almost 2.6 grams a tonne, which is still well above the average grade of the deposit and very robust for our open pit operations. We would have also noted operationally, as recoveries were partly impacted and had an impact on year-over-year production. We realized recovery rates of on average about 81%, which is at the lower end of what we're seeing from our MET studies based on our current rock composition, which is roughly 50-50 sulphide oxide, ore material that we've been putting through the mill as well as grind size and retention times that we've been realizing that through the plant. But as Stephen touched on, we're very, very excited about the expanded and enhanced crushing circuit that we expect to come online and -- that's really expected to improve grindability of the rock and the material and consequently expected to improve recoveries as we head into the latter part of this year.

[Stephen Mullowney, executive]

Yes. So Mike, I'm just going to pause you for a second and explain that. So in any mining operation, there's a balance between your recovery rate and your throughput rate. So what you do is you try to maximize cash flow from operations by balancing that. So we know if our ore sits in the tanks longer or has a higher retention time, we're in a higher recovery rate. We also know if we grind it a lot finer, we'll get a much higher recovery rate. And so that's lining up into the MET studies that we have. Right now, given the plant is a bottleneck versus the order we have available, we balance recovery rate and throughput rates in an attempt to maximize cash flow from operations given that we're in a build out base.

So we have a good handle on recovery rates and how to improve them. When the new crushing circuit comes online, this is one of the reasons why we decided to go with the crushing circuit first versus the milling circuit of the ball mill because crushing service is the bottleneck in the current system. And in order to free up to be able to mill more even in the current system, we need to have the crushing circuit up and running first, which provides in a much more consistent product to the mill to obtain a much more consistent grind size to increase those recovery rates through the milling process.

[Michael Leonard, executive]

Thanks Stephen. On the financial side, we sold just under 4,900 ounces for the quarter. So effectively, all of what we produced. And that gave rise to revenues of over $9 million. So again, you see the realized price on the screen. Gold prices are still at lofty and robust levels. We realized $1,942 for the quarter. We've been selling well north of $2,000 million an ounce this quarter. So lots of upside potential on gold price. Our gross profit is just under $4 million or 40% as Stephen alluded to. So this continues to be a high-margin operation. And just the EBITDA that we talk there as well is almost $3 million. So a good proxy for cash flow.

In terms of cash costs, we recorded cash cost of just over $1,000 an ounce for the quarter. That's above the full year guided range of between $800 and $900 an ounce. So this is largely in line with expectations as we talked about on our year-end call. As we touched on in our year-end results, our year-end and Q1 cash cost has been impacted in part by higher fuel costs associated with us having to run generators to keep the mill operating at capacity to be unstable in any consistent grid power. As we talked right on the year-end call and since then we connected to a substation far close to the site in November that we expect to benefit things like processing costs as you head into the latter part of this year. We're now operating at roughly 80% grid power versus 20% generated power. So we expect that as cash costs to improve over Q2, 3 and 4 and get back to that full year guidance number between $800 and $900 an ounce.

And I guess, finally, Stephen touched on it, but we've effectively done what we said we would like to do is the prudent capital managers who organically generated cash flow to invest in value-accretive opportunities like -- so we generated operating cash flow over $5 million.

We put almost $4 million of it back in the operation in part to that expansion that Stephen touched on as well as tailings storage facility to accommodate much larger growth as well as put pieces of capital equipment in place to allow for that growth profile. We've got a strong, robust balance sheet with cash of over [ $8 million ] positive working capital and [indiscernible] low for fixability the asset compare.

[Stephen Mullowney, executive]

Yes. So Mike, I'd like to touch on what you mentioned around cash cost for a second. Now on the mining costs, we're very comfortable where they are, and we think we can put that down a little bit lower. But where those cash costs will start to come down is on the processing cost per tonne. And the expanded plant doesn't incur any more fixed cost or not a lot very little extra fixed cost. So you're going to have to get a lot more fixed cost absorption due to higher throughput rates. And really, we still have a relatively small plant for the skies and scale of what Buckreef can be. And in order to get those costs out, we need to continually expand and have that overhead absorption and other cost absorption in the processing plant. And that's really what's driving the higher cash costs. It's both on the [indiscernible] plant versus mine.

[Michael Leonard, executive]

No, it's a good point, Stephen. I mean the plant will have significant economies of scale, exactly to your point. You're doubling your throughput from 1,000 tonnes a day to 2,000 tonnes a day without any additional overhead. So in principal, your processing cost of, say, $26 a ton that we reported in Q1 should roughly be halved as we get that plant expansion online. So lots of efficiency in the current new scale.

[Stephen Mullowney, executive]

Yes, exactly. So as we move on, the 2,000 tonnes a day plant, as I said out smiling, given the progress that we're making here. And you will see some pictures here, the new crushing equipment has arrived outside. I think you see our General Manager by a cone crusher. And then you see our truck -- new jaw crusher, you'll see the expanded tailings facility just a matter less to go on to that.

And then you'll start to see the conveyors being put in place and the concrete works and things like that. You all know the soil is pretty moist still. As I mentioned earlier, there's been lots of rain in Tanzania, a lot more than normal, but we're managing through it, and the team is continually constructing on site. They're going both on day shifts and night shifts at this point of time constructing our new plant.

So there's only so much labor capital available and that's one of the reasons we got the need to do the crushing circuit first and then we'll move on to the grinding or ball mill circuit in order to put it all together, but we're pretty excited with what's going on. Our suppliers on the crushers has put in place a -- we will be putting in place a critical spares and critical parts warehouse and we want them pretty close to us in order to reduce a lot of the potential and breakdowns and things of that nature. So that looks to be turning out to be a very, very good relationship. And this is expected to drive a lot of cost savings and increased production and increased cash flow, which will hopefully end up bringing the value of this project with exploration drill bit as well as an increased production profile over time. Anything to add, Andrew?

[Andrew Cheatle, executive]

I'm just sitting here, marveling at how both of you are doing an amazing technical description and thank you very, very much. As the move here is very, very positive. I am back at site happening here since the 2nd of January. The progress is, I think you mentioned, it's about 65% now on that crusher. The key thing there is we're going to be crushing down with sulphide, [indiscernible] but I need to call popcorn size and that will then greatly enhance what we're getting in terms of our mills and so grindability. So I think it's [indiscernible] all on core out like to add. The [ geologists ] are keen to see the [indiscernible]. We're keeping them busy in terms of functioning the targets and they're still having them get out and about and continue to explore the SML around us.

[Stephen Mullowney, executive]

So I'm just going to move the slide forward and just continue on, Andrew, about what you should start to see in the second half of the year.

[Andrew Cheatle, executive]

Yes, much more at the end of the year. What's as I could remind people of is obviously the SML itself is in the red outline, it's 16 square kilometers. We see the main zone itself there. We all sort of red and pink and magenta spots, that's what we're currently mining. We're currently in the process of sourcing pumps to dewater the South pit. That will be dewatered in short order, we'll start mining there.

Then in terms of the exploration, the key thing for us now will be to drill that piece of ground between what we call Eastern Porphyry southern boundary, where he's an adjacent Chinese run operation. We have over 3 kilometers to go and test. But I'll just take a moment, Stephen, to just remind our listeners that we had some great results right at the end of our last drilling campaign.

And the Eastern Porphyry obviously saw the better results, 14 meters at 3.5 grams a tonne. And I really do have to point out, these are very shallow 27 meters from surface or 25 meters [indiscernible] 1.6 from 27 from surface. And then about 1.5 kilometers southwest of that, we had 3 meters running at 13 grams a tonne in the Anfield and again really shallow 43 meters. So overall drilling, it's going to take us a number of quarters to get through that. But it's a great story. Gold deposits hasn't changed. It was sourced to the Northeast and mines in the Southwest, a clear evidence with all those white dots of smart scale, operational [indiscernible] miner, which is none of that is active that's going to pick up by geology team. So it's a good thesis. It hasn't changed, we like drilling.

[Stephen Mullowney, executive]

Excellent. Well, thank you, Andrew, for that. So as I get on to the next slide. Basically, what we're doing on this slide is reiterating our business plan and reiterating production guidance around when that mill expansion should come online. The production guidance of 25,000 to 30,000 ounces. I remind that's at the run rate, that's what we expect for the full year with the 1,000 tonnes and then the expanded 2,000 tonne per day plan. Obviously, they are [indiscernible] put us greater than that, and we'll give the market guidance at the appropriate time for that. The cash costs, we're reiterating our cash cost guide to $800 to $900 an ounce and what the increase in cash from the new plant will be used for there'll be additional capital programs, CSR, ESG programs. Obviously, we are operating, will have more employees and an increase in the exploration and drilling focus are around the property.

So I always say we have mindful ESG. We work with communities, we integrate our ESG into our operating cost profile. We hire a lot of local people, a lot of local people on contractors and they have to build other assets. Starting to pay significant amounts of royalties and taxes as a result. And we always keep a good eye on making sure that people are happy as well as that the schools, medical facilities and such forth in the local communities around us are continuing to be prudent.

With regards to what to expect over the next 3 to 4 months. Our MET study and our Geotech studies are coming to an end. Currently, we see lot of surprises there. So we'll be coming -- with regards to, we are consistently and that will integrate into a, what I'll call, a mine plan update. We are looking at long-term tailing solutions, thickeners and things of that nature. And we'll come out with an updated study at some point in time. That will detail a little bit more on what's known today and as well as what the exploration program for tomorrow is in order to give the market and investors a much more guided business plan around how Buckreef is going to roll over time.

With regards to how markets have performed. I don't think anybody in this call likes the current market. We are in a higher interest rate environment than we have been in the last 10 plus years or so. That is expected to continue, which means capital is much more expensive. Also the alternatives that people have for investing are also different. So we need to get out there -- certainly to get out there and tell our story. We are now self-funded growth story, which is good. And our stock price, although we'd like to have it higher, we always like to have it higher. I think relative to peers it's actually held in okay.

But certainly, this is something that we are consistently on and expect to see ramp up in the investor relations format. And on that note, there are some new pictures. Again, we're rapidly expanding self-funded growth story, and we are excited for what the future is about to bring to Buckreef, particularly as this plant expansion comes online. So Gavin, I'd like to hand it over to any questions.

[Operator]

[Operator Instructions] Our first question is from Jake Sekelsky with Alliance Global Partners.

[Jacob Sekelsky, analyst]

So just starting with recoveries, and I think Mike touched a bit on them. They're in the low 80s this quarter and some of the work that you're doing to improve on them through network and the upgraded equipment and the like. Are those improvements something we should expect this quarter? Or is that more of a second half of calendar '24 type thing?

[Stephen Mullowney, executive]

Yes. So I think it's more second half. Well actually, should be not second quarter, but third quarter as the grinding circuit -- crushing circuit comes online to get the much more consistent product going to the ball mills. So it is a balance with sulphide ore between throughput and cash flow and recoveries. And so we're not seeing anything that gives us concerns relative to the studies that have been done at Buckreef. We do know that an increase in grind size, making the grind size and longer retention times does increase recovery rates quite significantly, when we put out the press release in August, that had doubled their retention times and what we are currently experiencing to get the throughput through, and that had a much higher recovery rate.

There's also this complete balance. I'm not seeing anything that's concerning at this point in time that recoveries.

[Jacob Sekelsky, analyst]

That's helpful.

[Stephen Mullowney, executive]

The ore actually -- the ore is acting the way we thought it would. So that's real positive.

[Andrew Cheatle, executive]

Yes. It's very similar to the very initial metallurgical studies, Stephen just to remind our investors that these are the very final days of the old crushing circuit was here for the test plant. And, we are now mining into the sulphides as expected. And we're just weeks away quite literally from having that new crushing circuit up and running. And as I mentioned earlier, we will have a very good product going into the ball mills.

Just to draw your attention also to the Jake, just to the bottom right-hand photographs there, we've got Paschal, Senior Manager, standing on top of the high-grade zone this now into the sulphides, just for your visual appearance.

[Jacob Sekelsky, analyst]

Okay. And do you think you might get it back up to the 90s range or high 80s? Is that something that we should be expecting? Any color there would be helpful.

[Stephen Mullowney, executive]

Yes. I think, Jacob, yes, I would say we'll get into the high 80s range. There's ways to get it into the mid-90s, but we'd require capital to do that, and we'll be evaluating that and trade-off studies at a further date. We've just grown so quickly. We can't commit to that at this point in time. But certainly, mid- to high 80s is achievable.

[Jacob Sekelsky, analyst]

Makes sense. Okay. And then sort of in that vein on growth, with the completion of the most recent expansion coming to an end here. You've obviously got some options as far as how you tackle growth going forward. Can you just touch on sort of how you're viewing that in a couple of the routes that you're considering here, whether additional staged expansions or a single large expansion? And I guess what that decision ultimately hinges on.

[Stephen Mullowney, executive]

Yes. So as you rightfully said, what are your options or thought processes there. So that's not something that's determined at this point in time. I would fully expect it will be a either going to be a larger expansion, which say another doubling, because I think we can do that. But the focus will be to step back at this point in time, with that increase in cash flow and make those capital allocation decisions, what's best for the business between the exploration program as well as an expansion.

Ultimately, this project needs to get to 100,000 ounces plus for well over 10-plus years or even greater than that with an exploration drill bit. And that's our ultimate goal. There's various ways to get there, and we will evaluate them after this expansion.

[Operator]

The next question is from Heiko Ihle with H.C. Wainwright.

[Heiko Ihle, analyst]

What are you seeing with that 2,000 tonne per day expansion with labor? I really assume it's not really any outside employees working on the expansion, right? It's really just your staff?

[Stephen Mullowney, executive]

Yes, it's some of our staff and it's from outside companies as well. So like electrical, for instance. You bring in an outside contract for that and some of the welding and things like that, you'll bring some outside contractors in. So it's a combination of both our staff and outside contractors that we manage.

[Heiko Ihle, analyst]

Can you maybe give a bit of a breakdown of that?

[Stephen Mullowney, executive]

Andrew? Well, what's that roughly 50-50?

[Andrew Cheatle, executive]

During the construction phase. Yes. Because we're bringing in contractors in terms of the civils. We bring in CSI Energy for the electricals as you mentioned. But we then provide a lot of the, if you like, the nuts and bolts, the operators that are then sort of putting it together Heiko.

[Michael Leonard, executive]

Sorry to interrupt you, Andrew, is it fair to say the methodology, the approach we're taking to the expansion is similar to the first one, which is it's not sort of an EPC manage project. We're managing it in-house. Sort of outsourcing trades as need be.

[Andrew Cheatle, executive]

Yes, that's right. What we've done is we've brought [indiscernible] the capital projects. We've hired a Capital Project's Manager at site, who's actually in one of those photographs, Gaston Mujwahuzi. So, but also Heiko, the idea behind it is if you keep that core team in the plant involved in the construction as well and then the specialized contractors then fall away, but then you end up with a team at site that can carry on with the project.

[Heiko Ihle, analyst]

We're watching smart people do the work, right?

[Andrew Cheatle, executive]

Well, yes. So the one of the things that's really crucial is to have, as you frankly say, smart people, when it comes to heavy electrical engineering, you want to have smart people. We actually do use one of the best contractors in East Africa, some of the best people I've ever worked with in the name of CSI. You've got to get that right.

[Heiko Ihle, analyst]

Fair enough. Speaking of staffing, what do you think we'll see with labor costs for the remainder of the year? I mean, anything that you can maybe share with us in regards to negotiations or just what you're seeing with turnover, that kind of stuff?

[Stephen Mullowney, executive]

I think Heiko, question comes from more of a North American and European perspective of labor rate increases that we're seeing in our economies here. We're not seeing the same type of increases there as you would have seen here in North America.

[Andrew Cheatle, executive]

Yes. So currently, the cost of inflation or inflation in terms is approximately 5%. And yes, we're not in negotiations.

[Stephen Mullowney, executive]

No. And you're getting into, not unlike other emerging jurisdictions, you are getting some currency depreciation of the sharing, but not to the same extent as other jurisdictions.

[Andrew Cheatle, executive]

That's correct.

[Operator]

The next question is from [ Robert Paulson ] with Paulson Strategy Group.

[Unknown Analyst]

Hello, everybody. I'd like to say congratulations to Stephen, Andrew, Michael, Christina and the TRX team for transforming TRX, been around a while, and doing a lot of things that really needs to be done to grow and be more successful. I appreciate the questions earlier about improvements, growth expansion, right, all great questions, great answers.

And my curiosity, probably similar to many, is with gold steady, basically holding all-time high as $2,000-plus. Volatility is really strong as far as being minimal, companies profitable, cash flow positive, strong profit margins, solid team, communities looking great. Central banks just keep increasing their exposure and de-dollarization is under the way. My question really is, is like it's more of like a personal question, like what do you believe needs to happen for TRX to reflect all these great things that are going on, like is that an internal event something going on for us with exploration or an external event or just wondering if you could elaborate a little bit?

[Stephen Mullowney, executive]

Yes, that's a very broad question, and I'll try to get to down to a little bit more granularity, but thank you for your comments at the outset on the turnaround of the company.

Obviously, as you mentioned, the company has been around a long time. I've been here just over 3 years, and I would say, in another way, we'd like to phrase it here internally. We're probably in the sixth or seventh inning of what we're trying to do here. The original part was to stabilize, recapitalize, reestablish relationships and things like that. And get the company pointed into the right direction. And then thereafter, we started to expand it.

So with regards to when will someone actually stand up and take notice of what we're doing. I think it's a sense of your question. We're on the road of marketing. What I like to say is and what I'm seeing in current markets, and I don't think you're going to disagree with this, is a lot of companies will be out there doing a lot, even more marketing than we are, but you can't out-market your financial results. So if you don't have good financial results, it doesn't matter how much market you're doing your stock price declines. And a lot more than what we've experienced over the last couple of years.

And so our focus has been really on turning around the operations and we're increasing that cash flow. And then taking that cash flow and putting it into the drill bit to expand the resource profile to make this a very attractive mining project that creates cash flow and has blue-sky upside. It's taking time to do that. I think, as in my former role, things happened very quickly. In a mining project, it happens slower than you would like, but you got to keep an eye on it and keep your eye on the long-term price. I think what's necessary here is we continually execute, continually do, as we say, continually increase those financial profile, those financial metrics, while at the same time, growing the resource base.

I think the slow and steady approach that I just mentioned is what you have to do if you come along and you hit 100 grams a tonne in a drill bit. We're going to be drilling more, then great. That's always a catalyst in any mining project, but you can't bank on it. You've got to get out there and continually do what you do then that's [indiscernible] of the business. And then make sure that you have that optionality in your business plan to bring it, if you can hit those drill holes. Does that make sense?

[Unknown Analyst]

Yes, it does make sense. And then thank you for respecting the question. You guys are doing a wonderful job. I think everybody can agree that the company now versus where it was a short time ago is a much different company, more grounded, more opportunity, clean financials, like a lot of the things people are really looking for in a marketplace that's looking quite attractive.

And my question really is, as you guys have your fingers on the pulse and see things that other people may not see. It's -- is intuition saying like we're just doing all the right things and it's a patience thing? Or are there things that we should be considering doing that we're not doing?

[Stephen Mullowney, executive]

Yes. Look, we have these discussions every day around, okay, what's in our control, what's outside of our control? Because that's one of the things you have to take into consideration when answering the question that you just answered. I just asked that we believe that consistently increasing that financial profile, doing, as you say, being extremely prudent with capital. A lot of these things you can speed up, but it is adding the best interest of shareholders.

So for instance, in making the decision, we could have just went and raised equity last year and had the [indiscernible] come online 9 months ago or 6 months. But is that in the best interest in the long-term value of shareholders? And so you have to keep that into consideration, and we decided just to do it internally generated cash flow. Yes, that takes a little bit more time, but the denominator now is not as great in share count. So, those are the sort of things that we try to get through and make capital allocation decisions on in getting the best value for shareholders over the medium to long term.

[Unknown Analyst]

Fair enough. If you allow me to ask one more question kind of in line with what we're just discussing. Is there something that we could see in the future or something that's kind of close that like when we talk about obstacle wise, is there anything that we can see that's in the way right now that would hold us back from doing or being the things that we want to be doing?

[Stephen Mullowney, executive]

Right now, I don't think so. We've built in a lot of redundancy on purpose into this business model. For instance, in the, at year-end, we described motors going down in August, but we had 3 mills, ball mills. So production didn't go down and we were able to get through it without any shutdowns and things of that nature. The crushing circuit is very important, and there's going to be redundancy built into that crushing circuit as well because I go through with a team, give me every piece of equipment that could shut down the whole thing at 100% and make sure that, that piece of equipment is on site.

And so we go around and infill that. In the medium term, I would say we need to get a much better handle on tailings. We got to go to handle on it, but we need to build it out. We need to come up with a longer-term strategy of that. That's the only thing that I could see that can really slow us down and we got to handle on it right now in order to enter. We'll have a study to undergo at some point in time year soon on...

[Andrew Cheatle, executive]

Yes, that's already kicked off first Stephen.

[Stephen Mullowney, executive]

Yes, that's already kicked off. [indiscernible] to get to a dry stack. So we're out ahead of the stuff that we can see. I think what you're really asking is it's hard to predict is what can't you see that can trip you up? That one's the most hardest questions there. That's right. I'm trying to figure out what [indiscernible], the unknowns, right? And you get them and then they happen time to time, but we take a philosophy that you're building up redundancy and you should be okay.

[Andrew Cheatle, executive]

Yes. Stephen, we've often commented that it's a lot better. Whilst we were prepared, having the El Niño effect has really come hard, but the pumps are keeping the pit dry. It's money. But it's rest of mining. We're not flooding, yes.

[Stephen Mullowney, executive]

Yes. So it's just one thing that I always look at is, okay, say if something we're to happen. We have a large stockpile on site. I think there's 12,000 ounces there now in stockpile. We need to get a much larger crush stockpile, which we'll work on when we get the new crushing system up and running. So I'd like to kind of think about, okay, how do I build all those, what I'll call, internal insurance policies into the company.

[Unknown Analyst]

Thank you for your -- for answering those questions. I know they're very [indiscernible] kind of questions. There are some who've been around a while and our fans of what you and Andrew and Michael and the rest of the team are doing, we've been at it a while and we're certainly looking forward to what seems to be coming down the road. So maybe where we started was congratulations, and maybe that would be a great place for me to end. Congratulations and thank you.

[Operator]

I'd like to hand the meeting back over to Stephen Mullowney, who will take us through questions submitted in writing.

[Stephen Mullowney, executive]

So the question submitted in writing. So we have one question here on -- I think it's 2005, 2006 comment slides for M&A opportunities and time lines. So let's talk about that on the M&A for a second. I think it's just more along the lines of what M&A opportunities are out there.

So we're always consistently looking at M&A opportunities that would make sense for our shareholders. And as you're getting the sense is, we don't really mind situations where you got to get in there, roll up your sleeves, maybe a little bit messy and create value from it. That would be similar to when I came into this opportunity as well as a team. So we'll evaluate things that make sense. What I would say is we're very prudent on making sure we do not cannibalize the growth opportunities at Buckreef, cannibalize the clean balance sheet and bring on stuff that may upset that.

When we look at companies that typically are in trouble from an equity price perspective, from a market cap perspective, usually they have securities that rank ahead of equity on their balance sheets that are very problematic. And that's very difficult to get out of because what ends up happening is your business becomes undercapitalized over time. And mining is a very capital-intensive business. So we will prudently evaluate opportunities. But given it has to make sense for shareholders. It also, it also has to increase growth potential vis-a-vis Buckreef, because Buckreef has a lot of growth potential.

And so it has to have better growth potential for shareholders than Buckreef does in order to make sense, and that's difficult to find. And so that's how we evaluate the M&A opportunities.

[Michael Leonard, executive]

Yes. And I might just add to that briefly, Stephen, the comment on the ground 2025, 2026. So obviously, you've heard our focus for this upcoming year is getting Buckreef to the point where it's operating at 2,000 tonnes a day consistently and predictably and effectively running itself before we start entering too deep into strategic waters elsewhere.

[Stephen Mullowney, executive]

Yes. We have people approach us all the time seeing what we're doing at Buckreef, say can you come and help us. But then you start talking to equity holders of that and they're saying, oh its worth this, is worth that, we're there. Thank you, but no thank you on a lot of those opportunities.

So the next question here is, there any plans that get very long growth again acquire additional mining mines cooperation, small-cap miners in the next 2 or 3 years.

I think I just answered that question. Yes, we will evaluate that. We've also -- look as we continue to evaluate growth profile for our group. [ Tanzania ] is an interesting landscape. And there are quite a few high-grade smaller deposits around. And there are other companies out there that do have hub-and-spoke models. And I think that will be something that will be evaluated further over time. So we have in Buckreef we had to build roads. We have learned how to build plans, very cost effectively. So there are growth profile opportunities that will start to, as we get through this expansion, which is where our focus needs to be today, to really look at for longer-term strategy.

I think there are certain people on our board that are very happy with the questions that's been asked by investors today.

[Andrew Cheatle, executive]

Yes. And Stephen, maybe just to give a little bit of more what comes that as you'd expect from our geological team, we do like to know who's around us and what they're doing. At a very high level. We don't spend a large percentage of time on it, but so we just give a very high-level inventory.

[Stephen Mullowney, executive]

So I think that's really -- that's all the questions that are in the queue today.

[Operator]

That's right. Would you like to give any concluding remarks before we conclude?

[Stephen Mullowney, executive]

Yes. There's just one final remark. I think we said it. We're very excited for the future. We are moving through the business plan as anticipated, looking forward to the increase in cash flow from this expanded plant. And I can tell you, Andrew and geologist team are no pun intended, chopping at the pit.

[Andrew Cheatle, executive]

Actually yes, that's true. Thank you.

[Stephen Mullowney, executive]

Thank you, Gavin.

[Operator]

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