Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TRX Gold Corp (TRX, Financial) successfully commissioned its 2,000 tonne per day plant, currently processing between 1,700 and 1,800 tonnes per day, with plans to reach full capacity soon.
- The company has maintained strong gross profit margins, with a gross profit of about 43% for the quarter and over 40% year-to-date.
- TRX Gold Corp (TRX) has achieved significant growth in operating cash flow, generating over $3 million for the quarter and close to $10 million year-to-date.
- The company has managed to expand its plant on time and on budget using organically generated cash, avoiding shareholder dilution.
- TRX Gold Corp (TRX) has a debt-free balance sheet and strong liquidity, with just under $8 million in cash and positive working capital.
Negative Points
- Operating costs have increased, partly due to higher mining costs and a different mine plan than originally anticipated.
- The company faces challenges in optimizing recovery rates for sulfide ores, which are harder to grind and process compared to oxides.
- TRX Gold Corp (TRX) is still in the process of determining the optimal throughput and recovery rates to maximize profits, indicating ongoing operational adjustments.
- The share price has remained relatively flat despite positive financial metrics and a 20% rise in gold prices, indicating potential market perception issues.
- The company acknowledges that it needs to improve its visibility and investor relations efforts to attract more institutional and retail investors.
Q & A Highlights
Q: Do you view this current quarter as a transition to stability?
A: Yes, we describe it internally as a transition to stability. The fourth quarter won't be the run rate quarter because we're moving from 1,000 tonnes to 2,000 tonnes over time within the quarter. But it's a transition to higher gold production, higher operating cash flow, and a better growth profile for the business.
Q: Are you confident in moving from oxides to transitional ores or sulfides in terms of recoveries?
A: Yes, we are in a phase where we balance throughput and recoveries to maximize revenues and profits. We are looking at operational efficiencies to increase the grind size to improve recoveries cost-effectively. Typically, sulfide operations might require a HIGmill or a SAGD mill, which will be evaluated over time.
Q: With higher throughput, are there any expense items that might be variable or where you might see margin expansion?
A: The largest cost is mining, and we are looking at supplementing the contract mining fleet with our own equipment. We also see efficiencies in processing costs per tonne, which should decrease significantly with the larger plant. Additionally, we are exploring more efficient ways of utilizing power and increasing recovery rates.
Q: Is the money going to be spent on derisking and refining recoveries with capital improvements or exploration?
A: Yes, the focus will be on operational efficiencies and exploration to sustain and potentially expand into sulfides with satisfactory recovery. We will evaluate M&A opportunities but prioritize internal growth and efficiencies.
Q: Are there opportunities for negotiation with the government to improve the current agreement?
A: Yes, we have started a dialogue around a joint venture agreement with the government to increase jobs, royalties, and taxes while ensuring a reasonable economic arrangement for us. Government relations are very good, and we have had significant government delegations visiting our site.
Q: Have you considered share buybacks?
A: We need to see how much cash flow is generated and get through our budgeting process before considering a share buyback program. Currently, we believe there is more benefit in increasing operational efficiencies at Buckreef with the cash.
Q: What are the recovery rates on sulfides versus the test run?
A: The rates in the plant are different from the test run due to grind size. We need to analyze the optimal recovery rates versus throughput levels to maximize profits. This could involve adding a HIGmill or SAGD mill or expanding the plant.
Q: Why is there a difference between the cash cost guidance and actual experience?
A: We experienced more rain than anticipated, leading to higher mining costs and a different mine plan with a lower grade profile. This resulted in higher costs than originally anticipated.
Q: What are you doing to improve visibility and attract analyst coverage?
A: We are focusing on delivering what we promise, which is starting to resonate with analysts and investors. We are increasing participation in trade shows and reaching out to institutional investors and retail conferences. The company is now in a less risky situation, appealing to more investors.
Q: What are the production and cash flow expectations for the next year with the expanded plant?
A: We are currently in the budgeting process and have a sense of the numbers. Throughput will double, and gold production will depend on grade profile and recovery rates. We expect healthy growth in gold production, margins, and cash flow.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
