The Canadian miner is expanding its joint venture operation in Tanzania in a way that minimizes shareholder dilution, noted a ROTH Capital Partners report.
TRX Gold Corp. (TNX:TSX; TRX:NYSE.American) doubled gold production capacity at the Buckreef mine in Tanzania, a 55/45 joint venture with the country's State Mining Corp., reported ROTH Capital Partners Managing Director Mike Niehuser in an Oct. 9 research note.
"It accomplished this from cash flow and without shareholder dilution," Niehuser wrote.
TRX Gold is currently trading at about US$0.39 per share, noted the analyst. In comparison, ROTH's 12-month price target on the Canadian miner is US$1 per share, implying a 156% potential return for investors.
The company remains a Buy.
Niehuser explained that TRX Gold's approach to mining at Buckreef, to avoid excessive shareholder dilution, has been to start on a smaller scale, generate some cash flow and use it to expand over time versus building, at the outset, a large operation matching the resource. The resource, as calculated in May 2020, stands at 2,036,280 ounces of gold in the Measured & Indicated category and 635,540 ounces of gold in the Inferred category.
The company began with processing easily recoverable gold oxidized material. It then moved to transitional and sulfide ore, but with these, the recovery rate decreased modestly. So concurrently, TRX Gold had metallurgical testing done to determine if somehow, in mining the sulfide ore, it could achieve a recovery rate high enough to avoid the cost and risks of constructing a larger operation. Through this testing and its operations, the company proved it can sustain a gold recovery rate of about 90%, "with marginal increases in grinding," Niehuser wrote.
The miner added a 1,000 ton per day (1 Ktpd) mill, thereby doubling production capacity to 2 Ktpd, and it accomplished this on time and on budget. TRX Gold also optimized the grinding circuit and the crushing circuit. With the latter, the company reached an average crushing rate of 2 Ktpd and a maximum of 2.47 Ktpd, versus capacity of 4.8 Ktpd.
"TRX is now able to confidently process the approximately 2,000,000 ounces of sulfide ore from the Buckreef Main deposit," Niehuser wrote.
ROTH expects that as TRX Gold works through the Buckreef mine plan, the greater throughput, roughly 90% recovery rate, consistent operations and a higher gold price should lead to increased cash flow and, eventually, a positive rerating, wrote Niehuser.
TRX Gold intends to use some of the cash flow on additional exploration work and resource expansion, noted Niehuser. Potential exists to grow the resource through likely extensions of the Buckreef Main zone to the southwest, to the northeast and at depth, through the Eastern Porphyry and Anfield zones to the east and through the Bingwa and Tembo deposits.
Of these, the company plans next to pursue the subparallel Anfield and Eastern Porphyry zones and the southwest extension of Buckreef Main, noted Niehuser. These areas, he added, may provide a significant amount of oxidized gold mineralized material that TRX could process through its now scaled-up operation. Successful exploration could boost the company's stock price.
"As the current resource plus exploration opportunities suggest a more appropriate larger operation, we believe that TRX has the potential for multiple years of growth while minimizing dilution as it reaches an optimal level of operation," commented Niehuser.
Niehuser highlighted that Tanzania is a favorable mining jurisdiction, perhaps even the best for gold mining in Africa, and this is beneficial to TRX Gold and Buckreef. For one, the local infrastructure is being expanded. A new hydropower project means Buckreef may use grid power instead of diesel generators. The existing rail system is being extended, which should open the area to further economic development.
When it comes to being able to move mining projects along, permits are issued in a timely fashion when work is completed and meets industry standards.
On the flip side, wrote Niehuser, Buckreef benefits the community and the country.
"The government of Tanzania appreciates the project's contribution in taxes, royalties and employment, with 700 local workers and contractors on site," wrote Niehuser.
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Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor/employee. This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.For additional disclosures, please click here.
Disclosures for Roth MKM, TRX Gold Corp., October 9, 2024:
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures: Within the last twelve months, ROTH Capital Partners, or an affiliate to ROTH Capital Partners, has received compensation for investment banking services from TRX Gold Corporation. ROTH makes a market in shares of TRX Gold Corporation and as such, buys and sells from customers on a principal basis. Shares of TRX Gold Corporation may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
Not Covered [NC]: ROTH Capital does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2024. Member: FINRA/SIPC.