TRX GOLD Corp 6-K, filed Jul 14, 2023
TRX GOLD Corp (TRX)
About this 6-K
TRX GOLD Corp filed this 6-K on July 14, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July
Commission File No.
(Translation of registrant’s name into English)
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under the cover Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Explanatory Note
TRX Gold Corp. (the “Company”) is furnishing this Form 6-K to provide its financial information for the nine months ended May 31, 2023, and to incorporate such financial information into the Company’s registration statements referenced below.
Exhibits 99.1 and 99.2 attached hereto are hereby incorporated by reference into the Company’s Registration Statements on Form F-3 (Registration Statement File numbers 333-248210; 333-250146; and 333-255526) and on Form S-8 (Registration Statement File number 333-234078) to be a part thereof from the date on which this report is submitted, to the extent not superseded by documents or reports subsequently filed.
Exhibits
The following exhibits are filed as part of this Form 6-K.
| Exhibit No. | Document |
| 99.1 | Unaudited financial statements for the nine months ended May 31, 2023 |
| 99.2 | Management’s Discussion & Analysis for the nine months ended May 31, 2023 |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104. | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 6-K report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TRX Gold Corporation | |||
| (Registrant) | |||
| By: | /s/ Michael Leonard | ||
| Michael Leonard, Chief Financial Officer | |||
Date: July 14, 2023
Exhibit 99.1
TRX Gold Corporation
Interim Condensed Consolidated
Financial Statements
(Unaudited)
For the three and nine months ended
TRX Gold Corporation
Interim Condensed Consolidated Statements of Financial Position
(Unaudited)
(Expressed in Thousands of US Dollars)
| Note | May 31, 2023 | August 31, 2022 (Note 2) | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash | $ | $ | ||||||||||
| Amounts receivable | 5 | |||||||||||
| Prepayments and other assets | 6 | |||||||||||
| Inventories | 7 | |||||||||||
| Total current assets | ||||||||||||
| Other long-term assets | 5 | |||||||||||
| Mineral property, plant and equipment | 8 | |||||||||||
| Total assets | $ | $ | ||||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Amounts payable and accrued liabilities | $ | $ | ||||||||||
| Withholding tax payable | ||||||||||||
| Income tax payable | ||||||||||||
| Current portion of deferred revenue | 9 | |||||||||||
| Current portion of lease liabilities | ||||||||||||
| Derivative financial instrument liabilities | 10 | |||||||||||
| Total current liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Deferred revenue | 9 | |||||||||||
| Deferred income tax liability | ||||||||||||
| Provision for reclamation | ||||||||||||
| Total liabilities | ||||||||||||
| Equity | ||||||||||||
| Share capital | ||||||||||||
| Share-based payments reserve | 12 | |||||||||||
| Warrants reserve | 13 | |||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Equity attributable to shareholders | ||||||||||||
| Non-controlling interest | 14 | |||||||||||
| Total equity | ||||||||||||
| Total equity and liabilities | $ | $ |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
2
TRX Gold Corporation
Interim Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(Expressed in Thousands of US Dollars, except per share amounts)
Three months ended May 31, | Nine months ended May 31, | |||||||||||||||||||
| Note | 2023 | 2022 (Note 2) | 2023 | 2022 (Note 2) | ||||||||||||||||
| Revenue | 19 | $ | $ | $ | $ | |||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Production costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Royalty | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Total cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Gross profit | ||||||||||||||||||||
| General and administrative expenses | 16 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| Change in fair value of derivative financial instruments | 10 | ( | ) | |||||||||||||||||
| Foreign exchange gains | ||||||||||||||||||||
| Interest and other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Income before tax | ||||||||||||||||||||
| Income tax expense | 17 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| Net (loss) income and comprehensive (loss) income | $ | ( | ) | $ | $ | $ | ||||||||||||||
| Net (loss) income and comprehensive (loss) income attributable to: | ||||||||||||||||||||
| Shareholders | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||
| Non-controlling interest | ||||||||||||||||||||
| Net (loss) income and comprehensive (loss) income | $ | ( | ) | $ | $ | $ | ||||||||||||||
| (Loss) earnings per share attributable to shareholders | ||||||||||||||||||||
| Basic and diluted (loss) earnings per share | 11 | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
3
TRX Gold Corporation
Interim Condensed Consolidated Statements of Changes in Equity
(Unaudited)
(Expressed in Thousands of US Dollars, except share amounts)
| Share Capital | Reserves | |||||||||||||||||||||||||||||||
| Number of Shares | Amount | Share-based payments | Warrants | Accumulated deficit | Owner's equity | Non-controlling interests | Total equity | |||||||||||||||||||||||||
| Balance at August 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for settlement of debts | ||||||||||||||||||||||||||||||||
| Shares issued for financing | ||||||||||||||||||||||||||||||||
| Shares issued for cash, net of share issuance costs | ||||||||||||||||||||||||||||||||
| Stock options exercised | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued for share-based payments | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Warrants issued | - | |||||||||||||||||||||||||||||||
| Share-based compensation expense (Note 12) | - | |||||||||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at May 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Shares issued for share-based payments | ||||||||||||||||||||||||||||||||
| Withholding tax impact on share-based compensation payments | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Share-based compensation expense (Note 12) | - | |||||||||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at August 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Shares issued for share-based payments | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation expense (Note 12) | - | |||||||||||||||||||||||||||||||
| Withholding tax impact on restricted share units ("RSUs") | - | |||||||||||||||||||||||||||||||
| Shares issued for cash, net of share issuance costs | ||||||||||||||||||||||||||||||||
| Shares issued for cashless exercise of options | ( | ) | ||||||||||||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||||||||||
| Balance at May 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
TRX Gold Corporation
Interim Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in Thousands of US Dollars)
| Nine months ended May 31, | ||||||||||||
| Note | 2023 | 2022 | ||||||||||
| Operating | ||||||||||||
| Net income | $ | $ | ||||||||||
| Adjustments for items not involving cash: | ||||||||||||
| Non-cash items | 21 | |||||||||||
| Changes in non-cash working capital: | ||||||||||||
| Decrease (increase) in amounts receivable | ( | ) | ||||||||||
| Increase in inventories | ( | ) | ( | ) | ||||||||
| Increase in prepaid and other assets | ( | ) | ( | ) | ||||||||
| Increase in amounts payable and accrued liabilities | ||||||||||||
| Increase in income tax payable | ||||||||||||
| Cash provided by operating activities | $ | $ | ||||||||||
| Investing | ||||||||||||
| Exploration and evaluation assets and expenditures | $ | $ | ( | ) | ||||||||
| Proceeds from gold sales | ||||||||||||
| Purchase of mineral property, plant and equipment | ( | ) | ( | ) | ||||||||
| Increase in other long-term assets | ( | ) | ||||||||||
| Cash used in investing activities | $ | ( | ) | $ | ( | ) | ||||||
| Financing | ||||||||||||
| Proceeds from issuance of shares and warrants | $ | $ | ||||||||||
| Issuance costs paid | ( | ) | ( | ) | ||||||||
| Withholding taxes on settlement of RSUs | ( | ) | ||||||||||
| Lease payments | ( | ) | ||||||||||
| Cash (used in) provided by financing activities | $ | ( | ) | $ | ||||||||
| Net decrease in cash | $ | ( | ) | $ | ( | ) | ||||||
| Cash at beginning of the period | ||||||||||||
| Cash at end of the period | $ | $ | ||||||||||
| Taxes paid in cash | $ | $ | ||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 1. | Nature of operations |
TRX Gold Corporation (“TRX Gold” or the “Company”) was incorporated in the Province of Alberta on July 5, 1990 under the Business Corporations Act (Alberta). The Company’s principal business activity is the exploration, development and production of mineral property interests in the United Republic of Tanzania (“Tanzania”). On November 1, 2022, the Company declared commercial production on the 1,000+ tonne per day (“tpd”) process plant at its Buckreef Gold Project (“Buckreef”) in Tanzania.
The Company’s registered office is 400 3rd Avenue SW, Suite 3700, Calgary, Alberta, T2P 4H2, Canada and the Company’s principal place of business is 277 Lakeshore Road E, Suite 403, Oakville, Ontario, L6J 6J3, Canada.
The Company’s common shares are listed on the Toronto Stock Exchange in Canada (TSX: TNX) and NYSE American in the United States of America (NYSE American: TRX).
The Company is primarily focused on development and mining operations, exploring, and evaluating its mineral properties. The business of exploring and mining for minerals involves a high degree of risk. The underlying value of the mineral properties is dependent upon the existence and economic recovery of mineral resources and reserves, the ability to raise long-term financing to complete the development of the properties, government policies and regulations, and upon future profitable production or, alternatively, upon the Company’s ability to dispose of its interest on an advantageous basis; all of which are uncertain.
| 2. | Basis of preparation |
| a) | Statement of compliance |
The Company’s interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board. The interim condensed consolidated financial statements do not include all disclosures required by International Financial Reporting Standards (“IFRS”) for annual financial statements and should be read in conjunction with the Company consolidated financial statements for the year ended August 31, 2022.
These interim condensed consolidated financial statements were approved by the Board of Directors of the Company on July 14, 2023.
| b) | Comparative figures |
Certain comparative amounts have been restated to conform to current period’s presentation.
6
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
The reclassification in presentation resulted in the following impact on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended May 31, 2022:
Three months ended May 31, 2022:
| Schedule of statement of income | ||||||||||||
Reported at May 31, 2022 | Reclassification | Restated at May 31, 2022 | ||||||||||
| General and administrative expenses | $ | ( | ) | $ | $ | ( | ) | |||||
| Financial instrument related cost and other | ( | ) | ||||||||||
| Gain on derivative financial instruments | ||||||||||||
| Accretion of provision for reclamation | ( | ) | ||||||||||
| Loss on disposal of assets | ( | ) | ||||||||||
| Foreign exchange gains | ||||||||||||
| Interest and other expenses | ( | ) | ( | ) | ( | ) | ||||||
| Income tax expense | ( | ) | ( | ) | ||||||||
| Net income and comprehensive income | $ | $ | $ |
Nine months ended May 31, 2022:
Reported at May 31, 2022 | Reclassification | Restated at May 31, 2022 | ||||||||||
| General and administrative expenses | $ | ( | ) | $ | $ | ( | ) | |||||
| Financial instrument related costs and other | ( | ) | ||||||||||
| Gain on derivative financial instruments | ||||||||||||
| Accretion of provision for reclamation | ( | ) | ||||||||||
| Loss on disposal of assets | ( | ) | ||||||||||
| Foreign exchange gains | ||||||||||||
| Interest and other expenses | ( | ) | ( | ) | ( | ) | ||||||
| Income tax expense | ( | ) | ( | ) | ||||||||
| Net income and comprehensive income | $ | $ | $ |
7
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
The reclassification in presentation resulted in the following impact on the Consolidated Statements Financial Position as at August 31, 2022:
| Schedule of financial position | ||||||||||||
Reported at August 31, 2022 | Reclassification | Restated at August 31, 2022 | ||||||||||
| Amounts receivable | $ | $ | $ | |||||||||
| Other receivables | ( | ) |
| c) | Basis of presentation and measurement |
These interim condensed consolidated financial statements have been prepared on a going concern basis under the historical cost basis, except for certain financial assets and liabilities which are measured at fair value as disclosed in Note 18. All amounts in these interim condensed consolidated financial statements are presented in U.S. dollars with all amounts rounded to the nearest thousand, except for share and per share data, or as otherwise noted. Reference herein of $ or USD is to US dollars and C$ or CAD is to Canadian dollars.
| 3. | Significant accounting policies |
The accounting policies applied in these interim condensed consolidated financial statements are consistent with those applied in the preparation of the Company’s annual consolidated financial statements for the year ended August 31, 2022.
| 4. | Significant accounting judgments, estimates and assumptions |
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the carrying amount of assets and liabilities and the reported amount of revenues and expenses. The following discusses the most significant accounting policy judgments and accounting estimates that the Company has made in the preparation of these interim condensed consolidated financial statements.
| a) | Production Start Date |
Management assesses the stage of each mine development project to determine when a mine moves into the production stage. The criteria used to assess the start date of a mine are determined based on the unique nature of each mine development project. The Company considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and moves into the production phase. Some of the criteria include, but are not limited to, the following:
| · | A significant level of capital expenditures compared to construction cost estimates are complete, | |
| · | Ability to produce gold in saleable form within specifications has been achieved, | |
| · | Reasonable period for testing has been completed, and | |
| · | Reasonable level of ongoing production based on mill throughput, recovery rates and mill availability. |
8
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
On November 1, 2022, the Company declared commercial production for the 1,000+ tpd processing plant at Buckreef after successful construction, commissioning and ramp-up of processing to a steady state throughput of 1,000+ tpd. The processing plant was running consistently at or above nameplate capacity since October 2022 with gold recoveries exceeding 90%. All major construction activities were completed and Buckreef demonstrated its ability to sustain ongoing production levels.
| b) | Units-of-Production |
Management estimates recoverable proven and probable mineral reserves in determining the depreciation and amortization of certain mineral property, plant and equipment that is expected to be used for the duration of the mine life. This results in a depreciation charge proportional to the recovery of the anticipated ounces of gold. The life of the asset is assessed annually and considers its physical life limitations and present assessment of economically recoverable reserves of the mine property at which the asset is located. The calculations require the use of estimates and assumptions, including the amount of recoverable proven and probable mineral reserves. The Company’s units of production calculations are based on recovered ounces of gold poured.
| c) | Stripping Costs in the Production Phase of a Surface Mine |
Significant judgement is required to distinguish between development stripping and production stripping and to distinguish between the production stripping that relates to the extraction of inventory and that which relates to the creation of a stripping activity asset.
The Company identifies the separate components of the ore bodies for its mining operations. An identifiable component is a specific volume of the ore body that is made more accessible by the stripping activity. Significant judgement is required to identify and define these components, and also to determine the expected volumes of waste to be stripped and ore to be mined in each of these components. The assessment is based on the information available in the mine plan. The mine plans and, therefore, the identification of components, may change for a number of reasons as new information becomes available. These include, but are not limited to, the geographic location and geological characteristics of the ore body, and/or financial considerations.
Judgement is also required to identify a suitable production measure to be used to allocate production stripping costs between inventory and any stripping activity asset. Management estimates the cost of deferred stripping activities as the excess waste material moved above the average strip ratio to provide access to further quantities of ore that is expected to be mined in future periods.
Furthermore, judgements and estimates are also used to apply the units-of-production method in determining the depreciable lives of stripping activity assets.
9
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 5. | Amounts receivable |
| Schedule of Summary of Receivables | ||||||||
May 31, 2023 | August 31, 2022 | |||||||
| Receivable from precious metal sales | $ | $ | ||||||
| Sales tax receivable(1) | ||||||||
| Prepaid gold purchase receivable (Note 9) | ||||||||
| Other | ||||||||
| Less: Long-term portion | ( | ) | ( | ) | ||||
| Total amounts receivable | $ | $ |
| (1) |
As at May 31, 2023, $
| 6. | Prepayments and other assets |
| Prepayments and other assets | ||||||||
May 31, 2023 | August 31, 2022 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Deferred financing costs(1) | ||||||||
| Total prepayments and other assets | $ | $ |
| (1) |
| 7. | Inventories |
| Schedule of Inventory | ||||||||
May 31, 2023 | August 31, 2022 | |||||||
| Ore stockpile | $ | $ | ||||||
| Gold in circuit | ||||||||
| Gold doré | ||||||||
| Total precious metals inventories | ||||||||
| Supplies | ||||||||
| Total inventories | $ | $ |
10
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 8. | Mineral property, plant and equipment |
| Schedule of continuity of expenditures on mineral properties | ||||||||||||||||||||||||
| Construction in progress | Mineral properties | Processing plant and related infrastructure | Machinery and equipment | Other | Total | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| As at August 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Transfers(1) | ( | ) | ( | ) | ||||||||||||||||||||
| As at May 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||
| As at August 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||
| Transfers(1) | ( | ) | ||||||||||||||||||||||
| As at May 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Net book value | ||||||||||||||||||||||||
| As at August 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As at May 31, 2023 | $ | $ | $ | $ | $ | $ |
| (1) |
| 9. | Deferred revenue |
On August 11, 2022, the Company entered into a $
The Agreement has been accounted for as a contract in accordance with IFRS 15, Revenue from Contracts with Customers. As the total amount paid up-front by OCIM for the future deliveries of gold differs from the stand-alone selling price of the gold, the Company concluded the Agreement contains a significant financing component (“SFC”). Gold deliveries due in connection with the up-front payment are recorded in revenue based on the gold spot price originally established at the time of each advance, being the estimated stand-alone selling price of gold deliveries as determined at inception (after separating the SFC). The outstanding deferred revenue liability will accrue interest reflecting the cost of financing.
11
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| Schedule of deferred revenue | ||||
| Amount | ||||
| As at August 31, 2022 | $ | |||
| Accretion of deferred revenue | ||||
| Transaction costs expensed | ||||
| Revenue recognized | ( | ) | ||
| As at May 31, 2023 | $ |
| 10. | Derivative financial instrument liabilities |
| Schedule of derivative financial instrument liabilities | ||||||||
May 31, 2023 | August 31, 2022 | |||||||
| Derivative warrant liabilities | $ | $ | ||||||
| Gold zero-cost collars | ||||||||
| Total derivative financial instrument liabilities | $ | $ |
| a) | Derivative warrant liabilities |
| Schedule of derivative warrant liabilities | ||||
| Amount | ||||
| As at August 31, 2022 | $ | |||
| Change in fair value | ( | ) | ||
| As at May 31, 2023 | $ |
Derivative warrant liabilities of $
Fair values of derivative warrant liabilities were calculated using the Black-Scholes option pricing model with the following assumptions:
| Schedule of assumptions fair value of derivative warrant liabilities | ||||||||
May 31, 2023 | August 31, 2022 | |||||||
| Share price | $ | $ | ||||||
| Risk-free interest rate | ||||||||
| Dividend yield | ||||||||
| Expected volatility | ||||||||
| Remaining term (in years) |
The fair value is classified as level 3 as expected volatilities is determined using adjusted historical volatilities and were therefore not an observable input.
12
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
Sensitivity analysis
If expected volatility, the significant unobservable input, had been higher or lower by 10% and all other variables were held constant, net income and net assets for the three and nine months ended May 31, 2023 would increase or decrease by:
| Schedule of net income and net assets | ||||||||
| May 31, 2023 | ||||||||
| 10% change in expected volatilities | Increase | Decrease | ||||||
| (Loss) income | $ | ( | ) | $ | ||||
| b) | Gold zero-cost collars |
| Schedule of derivative warrant liabilities | ||||
| Amount | ||||
| As at August 31, 2022 | $ | |||
| Change in fair value | ||||
| As at May 31, 2023 | $ |
In March 2023, the Company entered into a series of gold zero-cost collar
contracts for
During the three and nine months ended May 31, 2023, gold zero-costs collar contracts for a
total of
As at May 31, 2023, the following gold zero-cost collar contracts were outstanding:
| Schedule of contracts outstanding | ||||||||||||||
| Quantity (ounces) | Floor Price | Ceiling Price | Expiry Date | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
For the three and nine months ended May 31, 2023, fair value losses
amounted to $
13
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 11. | (Loss) earnings per share |
| Schedule of earning per share | ||||||||||||||||
Three months ended May 31, | Nine months ended May 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (loss) income attributable to shareholders | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares for basic EPS(1) | ||||||||||||||||
| Effect of dilutive stock options, warrants, RSUs and share awards | ||||||||||||||||
| Weighted average number of common shares for diluted EPS(1) | ||||||||||||||||
| (1) |
For the nine months ended May 31, 2023, the weighted average number of common shares for diluted EPS excluded million stock options and million warrants that were anti-dilutive for the period (2022: nil share options and million share warrants).
| 12. | Share-based payments reserve |
Share-based compensation expense for the three and nine months ended May 31, 2023 totalled $ million and $ million, respectively (2022: $ million and $ million, respectively).
As at May 31, 2023, the Company had (August 31, 2022 – ) share awards available for issuance under the Omnibus Equity Incentive Plan.
| a) | Stock options |
Canadian Dollars denominated stock options
| Schedule of continuity of outstanding stock options | ||||||||
Number of stock options | Weighted average exercise price per share | |||||||
| Balance – August 31, 2022 | CAD $ | |||||||
| Options exercised(1) | ( | ) | CAD $ | |||||
| Balance – May 31, 2023 | CAD $ | |||||||
| (1) |
14
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
Options to purchase common shares carry exercise prices and terms to maturity as follows:
| Schedule of Options to purchase common shares carry exercise prices and terms to maturity | ||||||||||||||||||
| Remaining | ||||||||||||||||||
| Number of options | Expiry | contractual | ||||||||||||||||
| Exercise price | Outstanding | Exercisable | Date | life (years) | ||||||||||||||
| C$ | ||||||||||||||||||
| C$ | ||||||||||||||||||
| C$ | | | ||||||||||||||||
| C$(1) | | | (1) | |||||||||||||||
| (1) |
US Dollars denominated stock options
| Schedule of continuity of outstanding stock options | ||||||||
|
Number of stock options |
|
|
Weighted average exercise price per share |
| |||
| Balance – May 31, 2023 and August 31, 2022 | $ | |||||||
Options to purchase common shares carry exercise prices and terms to maturity as follows:
| Schedule of Options to purchase common shares carry exercise prices and terms to maturity | ||||||||||||||||||
| Remaining | ||||||||||||||||||
| Exercise price | Number of options | Expiry | contractual | |||||||||||||||
| Outstanding $ | Outstanding | Exercisable | Date | life (years) | ||||||||||||||
| USD $ | ||||||||||||||||||
For the three and nine months ended May 31, 2023, share-based payment expenses related to stock options totalled $ million and $ million, respectively (2022 – $nil and $nil, respectively).
| b) | Restricted Share Units: |
The following table sets out activity with respect to outstanding RSUs:
| Schedule of restricted stock outstanding | ||||
| Number of RSUs | ||||
| Balance – August 31, 2022 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Forfeited | ( | ) | ||
| Balance – May 31, 2023 |
For the three and nine months ended May 31, 2023, share-based payment expenses related to RSUs totalled $ million and $ million, respectively (2022 - $nil and $nil, respectively).
15
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 13. | Warrants reserve |
| Schedule of Reserve for warrants | ||||||||||||
|
Number of warrants |
|
|
Weighted average exercise price per share |
|
|
Weighted average remaining contractual life (years) |
| ||||
| Balance – August 31, 2022 | $ | |||||||||||
| Balance – May 31, 2023 | $ |
As at May 31, 2023, the following warrants were outstanding:
| Schedule of warrants and compensation warrants | ||||||||||||
| Number of Warrants |
Exercise price | Expiry date | ||||||||||
| Convertible debenture warrants - July 27, 2020 | $ | |||||||||||
| Private placement financing warrants - December 23, 2020 | $ | |||||||||||
| Private placement financing warrants - February 11, 2021 |
$ | |||||||||||
| Private placement financing broker warrants - February 11, 2021 | $ | |||||||||||
| Private placement financing warrants – January 26, 2022 | $ | |||||||||||
| Private placement financing placement agent warrants – January 26, 2022 | $ | |||||||||||
| Balance – May 31, 2023 |
| 14. | Non-controlling interest |
Summarized financial information for Buckreef is disclosed below:
| Schedule of summarized financial information | ||||||||||||||||
|
Three months ended May 31, |
|
|
Nine months ended May 31, |
| |||||||||||
| Income Statement | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Comprehensive income for the period | ||||||||||||||||
| Statement of Financial Position | May 31, 2023 | August 31, 2022 | ||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Current liabilities | ( | ) | ( | ) | ||||
| Non-current liabilities | ( | ) | ( | ) | ||||
| Advances from parent, net | ( | ) | ( | ) |
16
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 15. | Related party transactions |
Related parties include the Board of Directors and officers, extended relatives and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.
Remuneration of Directors and key management personnel of the Company was as follows:
| Schedule of Related Parties Compensation | |||||||||||||||||
|
Three months ended May 31, |
|
|
Nine months ended May 31, |
| ||||||||||||
| Directors and key management personnel | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Remuneration (1) | $ | $ | $ | $ | |||||||||||||
| Share-based compensation expense | |||||||||||||||||
| Total directors and key management personnel | $ | $ | $ | $ | |||||||||||||
| (1) |
As at May 31, 2023, included in amounts payable is $
During the three and nine months ended May 31, 2023, $ million and $ million for stock options granted to key management personnel was expensed, respectively (2022 - $nil and $nil, respectively) and $nil and $ million for RSUs granted to directors was expensed, respectively (2022 - $nil and $nil, respectively).
During the year ended August 31, 2021, the Company granted common shares upon hiring key management personnel in the aggregate of:
| a) | million common shares having a fair market value of $ |
| b) | Common shares on the first, second and third anniversary dates of the greater of up to million, million and million common shares; or common shares having a fair market value of to $ million, $ million and $ million provided that 80% of such issuance shall be guaranteed and 20% shall be subject to certain financial milestones to be determined by the Board of Directors respectively. |
The common shares had a value of $ million at grant date that is amortized over the service period.
During the three and nine months ended May 31, 2023, $ million and $ million related to common share awards granted to key management personnel was expensed, respectively (2022 - $ million and $ million, respectively).
17
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 16. | General and administrative expenses |
| Schedule of General and Administrative expense | ||||||||||||||||
|
Three months ended May 31, |
|
|
Nine months ended May 31, |
| |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Directors’ fees (Note 15) | $ | $ | $ | $ | ||||||||||||
| Insurance | ||||||||||||||||
| Office and general | ||||||||||||||||
| Shareholder information | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salaries and benefits(1) (Note 15) | ||||||||||||||||
| Consulting | ||||||||||||||||
| Severance | ||||||||||||||||
| Share-based compensation expense(1) (Note 15) | ||||||||||||||||
| Travel and accommodation | ||||||||||||||||
| Depreciation(1) | ||||||||||||||||
| Other | ||||||||||||||||
| Total general and administrative expenses | $ | $ | $ | $ | ||||||||||||
| (1) |
| 17. | Income tax |
Income tax expense is recognized based on management’s estimate of the weighted average annual income tax rate expected for the full financial year. The maximum amount of tax losses that a business can utilize in Tanzania is 70% of its taxable profit for the current year. The remaining 30% of taxable profit is subject to a statutory tax rate of 30%. As a result, Buckreef’s current income tax is calculated at an effective tax rate of 9% until Buckreef’s tax loss carryforwards are fully utilized. Tax losses in Tanzania can only be utilized by the entity to which the tax losses relate to.
The carrying value of Buckreef’s Mineral Property, Plant and Equipment is higher than their tax written down values due to historical mining incentives in Tanzania and accelerated depreciation for tax purposes. The taxable temporary difference between the carrying value of Mineral Property, Plant and Equipment and its tax basis in excess of available tax loss carryforwards resulted in a deferred tax liability.
For the three months ended May 31, 2023, the Company recorded income
tax expense of $
18
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 18. | Financial instruments |
Fair value of financial instruments
Cash, derivative warrant liabilities and gold zero-cost collars are classified as measured at fair value through profit and loss. Amounts receivable and amounts payable are classified as measured at amortized cost. The carrying value of the Company’s cash, amounts receivable, amounts payable approximate their fair value due to the relatively short-term nature of these instruments.
Fair value estimates are made at a specific point in time based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Company classifies its financial instruments carried at fair value according to a three-level hierarchy that reflects the significance of the inputs used in making the fair value measurements. The three levels of fair value hierarchy, giving the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs, are as follows:
| · | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; |
| · | Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly; and |
| · | Level 3 – Inputs for assets or liabilities that are not based on observable market data. |
As at May 31, 2023 and August 31, 2022, cash was classified as Level 1, gold zero-cost collars (Note 10) were classified as Level 2, and derivative financial instruments (Note 10) were classified as Level 3 under the fair value hierarchy.
| 19. | Segmented information |
Operating segments
The Company’s Chief Operating Decision Maker, its Chief Executive Officer, reviews the operating results, assesses the performance and makes capital allocation decisions of the Company viewed as a single operating segment engaged in mineral exploration and development in Tanzania. All amounts disclosed in the interim condensed consolidated financial statements represent this single reporting segment. The Company’s corporate division only earns interest revenue that is considered incidental to the activities of the Company and does not meet the definition of an operating segment as defined in IFRS 8, Operating Segments.
Geographic segments
The Company is in the business of mineral exploration and production in Tanzania. Information regarding the Company’s geographic locations are as follows:
| Schedule of operating segments | ||||||||||||||||
|
Three months ended May 31, |
|
|
Nine months ended May 31, |
| |||||||||||
| Revenue | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Tanzania | $ | $ | $ | $ | ||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Non-current assets | May 31, 2023 | August 31, 2022 | ||||||
| Canada | $ | $ | ||||||
| Tanzania | ||||||||
| Total non-current assets | $ | $ |
19
TRX Gold Corporation
Notes to the Interim Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2023 and 2022
(Unaudited)
(Expressed in Thousands of US dollars, except for share and per share amounts)
| 20. | Commitments and contingencies |
Commitments:
In order to maintain its existing mining and exploration licenses, the Company is required to pay annual license fees. As at May 31, 2023 and August 31, 2022, these licenses remained in good standing and the Company is up to date on its license payments.
Contingencies:
The Company is involved in litigation and disputes arising in the normal course of operations. Management is of the opinion that the outcome of any potential litigation will not have a material adverse impact on the Company’s financial position or results of operations. Accordingly, no provisions for the settlement of outstanding litigation and potential claims have been accrued as at May 31, 2023 and August 31, 2022.
| 21. | Non-cash items |
| Schedule of Non-cash items | ||||||||
|
Nine months ended May 31, |
| ||||||
| 2023 | 2022 | |||||||
| Depreciation | $ | $ | ||||||
| Change in fair value of derivative financial instrument liabilities (Note 10) | ( | ) | ( | |||||
| Share-based compensation expense (Note 12) | ||||||||
| Accretion of provision for reclamation | ||||||||
| Deferred income tax expense (Note 17) | ||||||||
| Accretion of lease liabilities | ||||||||
| Settlement of deferred revenue (Note 9) | ( | ) | ||||||
| Accretion of deferred revenue (Note 9) | ||||||||
| Foreign exchange gains | ||||||||
| VAT written-off (Note 5) | ||||||||
| Loss on assets disposal | ||||||||
| Other expenses | ||||||||
| Total non-cash items | $ | $ | ||||||
20
Exhibit 99.2
TRX GOLD CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and nine month periods ended May 31, 2023
 | Management’s Discussion and Analysis May 31, 2023 |
The following Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations for TRX Gold Corporation (“TRX Gold” or the “Company”) should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements for the three and nine months ended May 31, 2023, as well as the Company’s audited consolidated financial statements included in the Company's Annual Report on Form 40-F and Annual Information Form for the year ended August 31, 2022. The financial statements and related notes of TRX Gold have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Additional information, including our press releases, has been filed electronically on SEDAR and is available online under the Company’s profile at www.sedar.com and on our website at www.TRXGold.com.
This MD&A reports our activities through July 14, 2023 unless otherwise indicated. References to the 3rd quarter of 2023 or Q3 2023, and references to the 3rd quarter of 2022 or Q3 2022 mean the three months ended May 31, 2023 and 2022, respectively. Unless otherwise noted, all references to currency in this MD&A refer to US dollars. Unless clearly otherwise referenced to a specific table, numbers referenced refer to numbered Endnotes on page 39.
Mr. Andrew Mark Cheatle, P.Geo., MBA, ARSM, is the Company’s in-house Qualified Person under National Instrument 43-101 “Standards of Disclosure for Mineral Projects” (“NI 43-101”) and has reviewed and approved the scientific and technical information in this MD&A. Mr. Cheatle is the Chief Operating Officer, a Director of TRX Gold and a Director of the Company’s subsidiaries, including Buckreef Gold Company Limited (“Buckreef Gold”) and TRX Gold Tanzania Limited (“TRX Gold Tanzania”). Therefore, he is not considered to be independent under NI 43-101. Mr. Cheatle has over 30 years of relevant industry experience, a Master of Business Administration (MBA) from Capella University, USA (2005), and an Honours Degree in Geology from the Royal School of Mines, Imperial College, London, UK (1985). He is a registered professional geoscientist with Professional Geoscientists of Ontario, Canada (Reg. No. 0166).
Disclosure and Cautionary Statement Regarding Forward Looking Information
This MD&A contains certain forward-looking statements and forward-looking information, including without limitation statements about TRX Gold’s future business, operations and production capabilities. All statements, other than statements of historical fact, included herein are forward-looking statements and forward-looking information that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Although TRX Gold believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance. The actual achievements of TRX Gold or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors. These risks, uncertainties and factors include general business, legal, economic, competitive, political, regulatory and social uncertainties; actual results of exploration activities and economic evaluations; fluctuations in currency exchange rates; changes in costs; future prices of gold and other minerals; mining method, production profile and mine plan; delays in exploration, development and construction activities; changes in government legislation and regulation; the ability to obtain financing on acceptable terms and in a timely manner or at all; contests over title to properties; employee relations and shortages of skilled personnel and contractors; and the speculative nature of, and the risks involved in, the exploration, development and mining business.
| 1 |
| | Management’s Discussion and Analysis May 31, 2023 |
Certain information presented in this MD&A may constitute “forward-looking statements” and “forward looking information” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and under securities legislation applicable in Canada, respectively. Such forward-looking statements and information are based on numerous assumptions, and involve known and unknown risks, uncertainties, and other factors, including risks inherent in mineral exploration and development, which may cause the actual results, performance, or achievements of the Company to be materially different from any projected future results, performance, or achievements expressed or implied by such forward-looking statements and information. Investors are referred to our description of the risk factors affecting the Company, as contained in our U.S. Securities and Exchange Commission (“SEC”) filings, including our Annual Report on Form 40-F and Report of Foreign Private Issuer on Form 6-K, and our Annual Information Form also posted on SEDAR, for more information concerning these risks, uncertainties, and other factors.
TRX Gold Corporation
TRX Gold is rapidly advancing the Buckreef Gold Project. Anchored by a Mineral Resource published in May 2020, the project currently hosts an NI 43-101 Measured and Indicated Mineral Resource (“M&I Resource”) of 35.88 million tonnes (“MT”) at 1.77 grams per tonne (“g/t”) gold containing 2,036,280 ounces (“oz”) of gold and an Inferred Mineral Resource of 17.8 MT at 1.11 g/t gold for 635,540 oz of gold. The leadership team is focused on creating both near-term and long-term shareholder value by increasing gold production to generate positive cash flow. The positive cash flow will be utilized for exploratory drilling with the goal of increasing the current mineral resource base and advancing the larger project development which represents 90% of current mineral resources. TRX Gold’s actions are led by the highest environmental, social and corporate governance (“ESG”) standards, evidenced by the relationships and programs that the Company has developed during its nearly two decades of presence in the Geita Region, Tanzania. Please refer to the Company’s Updated Mineral Resources Estimate for Buckreef Gold Project, dated May 15, 2020 and filed under the Company’s profile on SEDAR and with the SEC on June 23, 2020 (the “Technical Report”) for more information.
| 2 |
| | Management’s Discussion and Analysis May 31, 2023 |
Highlights – Third Quarter and Year to Date 2023
During Q3 2023 the Company recorded production of 4,764 ounces of gold and sales of 4,810 ounces of gold generating quarterly revenue of $9.3 million, gross profit of $3.9 million (42% margin), Adjusted EBITDA1 of $3.3 million and operating cash flow of $3.2 million. During Q3 2023 the Company pivoted its mining plan to include a test bulk sample of sulphide ore which was subsequently processed through Buckreef Gold’s existing processing plant. Over 6,500 tonnes of sulphide ore was successfully processed, achieving an indicative gold recovery of 88.7%. This is a significant achievement as approximately 90% of Buckreef Gold’s gold mineral resource is held in sulphide material, thus unlocking the significant economic potential of the project. This bulk sample test indicates that the Company can likely process sulphide ore through its existing processing plant, thus potentially minimizing capex for future plant expansions. During the quarter the Company also used cash flow from operations to invest in the further growth of Buckreef Gold, including procurement of an additional 1,000 tonne per day (“tpd”) ball mill to increase annual throughput by 75-100%, and advanced construction of a significantly expanded tailings storage facility (“TSF”) to accommodate higher production volumes. These positive results continue to demonstrate the immense opportunity at Buckreef Gold and reflect successful execution of the Company’s sustainable business plan where cash flow from operations funds value creating activities.
Key highlights for Q3 2023 and Year to Date May 31, 2023 include:
| · | In September 2022, Buckreef Gold announced successful commissioning of the expanded 1,000+ tpd processing plant. The plant reached nameplate capacity in October 2022 and commercial production was declared effective in November 2022. Q2 2023 was the first full quarter operating the 1,000+ tpd processing plant at full design capacity. |
| · | In Q3 2023, the Company used cash flow from operations to order an additional 1,000 tpd ball mill to advance the short-term objective of increasing Buckreef Gold’s current average annual throughput by 75-100% through the addition of this new mill. |
| · | In Q3 2023, poured 4,764 ounces of gold and sold 4,810 ounces of gold, resulting in positive operating cash flow for the Company of $3.2 million. |
| · | In Q3 2023, recognized revenue of $9.3 million, cost of sales of $5.4 million, generating gross profit of $3.9 million, gross profit margin of 42% and Adjusted EBITDA1 of $3.3 million. |
| · | Year to date, poured and sold 15,794 and 16,068 ounces of gold respectively; both nine-month production records at Buckreef Gold, resulting in positive operating cash flow for the Company of $14.6 million. |
| · | Year to date, recognized revenue of $29.1 million, cost of sales of $15.0 million, generating gross profit of $14.1 million, gross profit margin of 48% and Adjusted EBITDA1 of $11.6 million. |
| · | In Q3 2023, successfully processed 6,500 tonnes of sulphide ore through the existing milling facility, achieving an indicative gold recovery of 88.7%. This bulk sample test indicates that the Company can likely process sulphide ore through its existing processing plant, thus potentially minimizing capex for future plant expansions. |
| · | During Q3 2023, the Company drilled 839 meters at Buckreef Gold and announced near surface drill results at the Anfield and Eastern Porphyry Zones, with highlights of 14 meters @ 3.5 g/t including 3.0 meters @ 10.9 g/t from a downhole depth of 47 meters from the Eastern Porphyry, and 2.94 meters grading at 13.74 g/t, from a downhole depth 43.00 meters in the Anfield Zone. Year to date, the Company drilled 11,171 meters of exploration, infill and sterilization drilling, excluding grade control drilling. |
| · | Continue to expect gold production for fiscal 2023 (“F2023”) to be between 20,000 – 25,000 ounces at a total average cash cost1 at the high end of the range of between $750 - $850 per ounce. |
| 3 |
| | Management’s Discussion and Analysis May 31, 2023 |
2023 Outlook
| · | F2023 production and cost guidance ranges are unchanged from when they were originally estimated and released in November 2022. |
| · | The Company continues to expect gold production from the 1,000+ tpd processing plant for F2023 to be between 20,000 - 25,000 ounces and expects total average cash costs1 to be at the upper end of the originally estimated range of between $750 - $850 per ounce. |
| · | Mining, crushing, processing and gold production are all operating at full capacity following initial ramp-up and commissioning of the 1,000+ tpd processing plant during Q1 2023. Q4 2023 production is expected to be the strongest production quarter of the year following a waste stripping campaign during the first nine months of the year which enabled the Company to access a greater extent of ore, including higher grade blocks which is expected to benefit production in Q4 2023. |
| · | The Company continues to advance a project aimed at increasing the average annual throughput by 75-100% with an expansion of the existing carbon-in-leach (“CIL”) plant. As demonstrated with the first plant upgrade, construction will seamlessly integrate into the existing operating plant. This includes an expansion of the crushing circuit, installation of a 1,000 tpd ball mill (ordered from CSI Energy Group (Tanzania) Limited in partnership with Solo Resources Pty Ltd in South Africa), and construction of an extended foundation and bund wall to support the additional leach tanks. Construction will also include ancillary work including enlarging the structural steel deck and platforms, installing new agitators and interstage pumping screens and upgrading the electrical supply at the new transformer and connection to the TANESCO national power grid. The capital cost of the expanded plant is expected to be approximately $6 million and will be funded using operating cash flow from Buckreef Gold. Construction of the expanded milling circuit is expected to start in Q4 2023 and potentially benefit production in early calendar 2024. |
| · | The larger development project, in which the ‘sulphide ore’ encompasses approximately 90% of the Buckreef Main Zone’s Measured and Indicated Mineral Resources, is a key mid-to-long term value driver. Unlocking this value is an important business objective for the Company. The larger development project will evaluate the options for a high return large scale project. It is the goal of the Company to exceed the metrics outlined in the 2018 Technical Report, including annual production, strip ratios and key financial metrics. The Company continues to work with our principal consultants on advancing the larger development project, including advanced metallurgical testing across the deposit and geotechnical studies for a deeper pit. Concurrent with this work, the Company has started assessing the construction and operation of a significantly larger processing facility. |
| 4 |
| | Management’s Discussion and Analysis May 31, 2023 |
Operational and Financial Details – Third Quarter and Year to Date 2023
Mining and Processing
| · | Buckreef Gold regretfully reported one lost time injury (“LTI”) at site during the three and nine months ended May 31, 2023. The accident occurred in May 2023, and the employee has since been discharged from the Mwanza hospital. He is expected to make a full recovery. For the three and nine months ended May 31, 2023, including contractors, Buckreef Gold recorded a safety incident frequency rate of 1 (per million hours). The company had previously reported 1.5 million hours of LTI free work until this incident. The Company’s two main contractors, FEMA Builders Limited (“FEMA”) and STAMICO, recorded a safety incident frequency rate of 0 (per million hours). |
| · | During Q3 2023, Buckreef Gold poured 4,764 ounces of gold and sold 4,810 ounces of gold. The 74% increase in gold production in Q3 2023 compared to the prior year period is mainly attributable to an increase in ore tonnes milled following commissioning of the expanded 1,000+ tpd processing plant in Q1 2023. Production during Q3 2023 was lower than Q2 2023 (5,636 ounces) as mining activities were heavily impacted by the rainy season in Tanzania (March – May). Buckreef Gold experienced an inordinate level of precipitation in 2023, averaging 150 millimeters of rainfall during this period (2022: 66 millimeters). The excessive rainfall limited tonnes mined and plant throughput affecting production for Q3 2023. For the nine months ended May 31, 2023, the Company produced 15,794 ounces of gold and sold 16,068 ounces of gold, both year-to-date records for the Company. |
| · | Due to the excessive rain experienced during Q3 2023, the Company strategically pivoted its mining plan to include a test bulk sample of sulphide ore which was subsequently processed through Buckreef Gold’s existing processing plant. Over 6,500 tonnes of sulphide ore was successfully processed, achieving an indicative gold recovery of 88.7%. This is a significant achievement, (approximately 90% of Buckreef Gold’s gold mineral resource is held in sulphide / ‘fresh' material), thus unlocking significant economic potential for the project. This bulk sample test indicates that the Company can likely process sulphide ore through its existing processing plant, thus potentially minimizing capex for future plant expansions. |
| · | During Q3 2023 plant throughput levels were heavily affected by the impact of the rainy season (with twice the rainfall of the prior year). The 1,000+ tpd processing plant achieved the following statistics during the quarter: (i) average throughput of 740 tpd; (ii) plant availability of 89%; and (iii) an average recovery rate of 90%. The rainy season concluded at the end of May and average processing plant throughput levels of 1,000+ tpd resumed in early June. For the nine months ended May 31, 2023, the processing plant achieved the following statistics: (i) average throughput of 870 tpd; (ii) plant availability of 93%; and (iii) an average recovery rate of 90%. The year to date processing plant statistics reflect the successful ramp-up and commissioning of the expanded 1,000+ tpd processing plant in November 2022. |
| · | During Q3 2023 mining activity was limited due to excessive precipitation during the rainy season. Total ore mined in Q3 2023 was 99 thousand tonnes (“kt”) and total waste mined was 875 kt contributing to a strip ratio of 8.8 (waste:ore tonnes). During the first nine months of F2023, the Company expedited waste stripping to access a greater extent of ore, including higher grade blocks which is expected to benefit production in Q4 F2023. The 226% increase in total tonnes mined compared to the prior year period is mainly related to a higher mining rate to feed the expanded 1,000+ tpd processing plant commissioned in Q1 2023. For the nine months ended May 31, 2023, total ore mined was 299 kt and total waste mined was 2,026 kt contributing to a strip ratio of 6.8 (waste:ore tonnes). Mining activity in Q4 2023 is expected to access higher grade ore blocks which, combined with lower waste tonnes, is expected to contribute to an improved strip ratio. The mine’s recent experience in operating in adverse weather conditions will be factored into future planning and execution. |
| 5 |
| | Management’s Discussion and Analysis May 31, 2023 |
| · | As at May 31, 2023, the run-of-mine (“ROM”) pad stockpile contained 186,249 tonnes at an average grade of 1.04 g/t with an estimated 6,257 ounces of gold. A further stockpile of crushed mill feed of 3,115 tonnes at 3.30 g/t containing an estimated 330 ounces of gold has been accumulated between the crusher and mill. Since year-end August 31, 2022, the Company added to the ROM pad stockpile (959 ounces) but drew down on the crushed ore stockpile (887 ounces) to support mill feed during the wet season. These fluctuations in ROM pad inventory are anticipated throughout the course of the year and are designed to ensure steady state processing. During Q1 2023, the Company processed stockpiled and mined material to commission the expanded 1,000+ tpd processing plant (which included 7 new large CIL tanks) and consequently reported an increase of gold in circuit, reflecting a buildup of metal inventory in the CIL tanks during plant commissioning. The Company reported 788 ounces of gold in circuit at May 31, 2023, which reflected a decrease of 850 ounces from February 28, 2023 following gold elution and smelting activity during the quarter. The remaining stockpile and gold in circuit balance continues to provide support for the Company to meet its production guidance in Q4 2023. |
| · | Development of tailings storage facilities (TSF 2, pond 1 and pond 2) have both continued to significantly advance. TSF 2, pond 1 (TSF 2.1) was completed in Q2 2023, and TSF 2, pond 2 (TSF 2.2) is on track for completion of its first raise and use by late July 2023. Together, these TSFs will provide an additional two years of (tailings) storage capacity. Concurrently, the Company has identified two sites for a long-term tailings storage solution. The two sites have been field examined and more detailed engineering design is expected to continue in Q4 2023. |
Exploration
| · | In Q3 2023, the Company drilled 3 additional holes representing 839 meters at Buckreef Gold including exploration drilling at Eastern Porphyry and geotechnical drilling at Buckreef Gold’s Main Zone. For the nine months ended May 31, 2023, the Company drilled 37 holes representing 6,916 meters including infill drilling at Buckreef Main, exploration drilling at Anfield and Eastern Porphyry zones, and sterilization drilling. |
| · | In Q3 2023 the Company announced near surface drilling results from the Anfield and Eastern Porphyry Zones, with highlights of 14 meters @ 3.5 g/t including 3.0 meters @ 10.9 g/t from 47 m from the Eastern Porphyry, and 2.94 m grading at 13.74 g/t, from 43.00 m in the Anfield zone. The zones are located at the northern end of a 3-kilometer-long zone of identified gold mineralization that is subparallel to the east of Buckreef Main Zone. The intercepts confirm multiple zones of strong mineralisation towards the south-west of the known Eastern Porphyry deposit and the first diamond drill hole intersections on the Anfield Zone. Both mineralized zones are in close proximity to the Buckreef Main Zone and present an opportunity (assuming exploration success) to host future mineral resources outside of the Buckreef Main Zone. |
| · | For the nine months ended May 31, 2023, the Company has also drilled to the southwest (“SW”) of the Main Zone, beyond and under the historical South Pit (24 drill holes representing 4,255 meters). Assay results from both wide spaced drill programs are encouraging with wide zones of mineralization encountered in some holes that are comparable to present mining areas. Importantly, the deposit now remains open on strike to the SW, NE and at depth. Since drilling recommenced in 2021, an additional 500 meters of gold mineralization (along strike and representing approximately 30% increase in the strike length of known gold mineralization) have been identified. The identification of the additional 500 meters of strike length to the deposit provides future opportunity for the Company to potentially add additional mineral resources. |
| 6 |
| | Management’s Discussion and Analysis May 31, 2023 |
Larger Development Project
| · | Buckreef Gold has commenced the long-lead items for de-risking the larger development project, including: (i) geotechnical characterization to determine the ultimate pit slopes of the 2-kilometre-long open pit. The field work completed in early Q3 2023 with consultants SGS Canada Inc (“SGSC”) and Terrane Geoscience Inc; and (ii) the variability metallurgical study for the first 5 - 7 years of potential production of the larger development project. To date a total of 19 metallurgical holes (2,367 meters) have been completed along the entire strike of the Buckreef Main deposit. These holes have now been shipped to SGS South Africa for metallurgical testing at the successful bidding laboratory. |
| · | The Company, in conjunction with Ausenco Engineering Canada Inc. (“Ausenco”), has identified potential locations for the larger processing plant, tailing storage facilities, potential dry stack tailings facility, waste rock piles and other associated infrastructure. All locations are subject to successful ‘sterilization drilling’, which commenced in Q2 2023. |
| · | The exploration drilling program will also focus on infill and expansion drilling at Eastern Porphyry, Buckreef West, inferred mineral resources and strike extensions, both to the NE and SW of the Main Zone - which if successful, has the potential to increase tonnes to higher mineral resource categories. |
| · | During the nine months ended May 31, 2023, the Company received significant assay results for the metallurgical testing program, the results of which demonstrate: (i) continuity of mineralization down dip and along strike of the deposit; and (ii) excellent width and grade of mineralization. As part of the upcoming metallurgical variability study, using core from this program, the Company plans to assess the amenability of the sulphide material to be processed through the existing processing plant, using its relatively simple flowsheet. This study, in conjunction with the reported 6,500 tonne bulk sample results, is expected to have positive implications for potential plant expansions and a straightforward flow sheet similar to the existing processing plant. |
Environmental, Social and Corporate Governance
| · | The Company is committed to working to high ESG standards and is implementing several community programs, while continuing to develop a broader framework and policies. There were no reportable environmental or community related incidents during the three and nine months ended May 31, 2023. Buckreef Gold continued to develop its ESG program during the quarter, after successfully partnering with the Geita District and District Commissioners on school, water and health projects. |
| · | Buckreef Gold worked with Geita District Council and local wards to collaboratively identify programs that focus on short to long term educational needs, which in turn is aligned with Buckreef Gold’s local hiring practices and includes Science, Technology, Engineering and Mathematics and gender goals. |
| · | A Memorandum of Understanding was signed in Q2 2022 between Buckreef Gold and the Geita District Council to provide support around education in the wards of Lwamgasa, Kaseme, Busanda and Bugulula, being the host wards for the mine site. A total of 420 million Tanzania Shillings (approximately $180,000) was budgeted by Buckreef Gold for F2023, commencing July 2022 – August 2023, to support priority areas in agreement with the Geita District Council. During Q3 2023, the Company continued construction activities on a new health center and primary school classrooms in the Busanda district, and a new health center and primary school upgrades in the Geita district and has incurred approximately 267 million Tanzania Shillings (approximately $120,000) year to date. |
| · | Buckreef Gold’s operations: (i) are connected to the Tanzanian national electricity grid and utilize grid power which is significantly and increasingly sourced from hydroelectric facilities in Tanzania; (ii) recycle all water used in its operations; (iii) do not discharge water from its operations; (iv) employ a workforce that comprises 100% Tanzanian citizens (120 full-time employees, 259 contract miners and project contractors); (v) include development and building activities that are focused on maximizing local content; and (vi) exhibit a ‘100 mile diet’ by procuring all food locally. In addition, the Company’s sulphide development operations are expected to utilize dry stack tailings. |
| 7 |
| | Management’s Discussion and Analysis May 31, 2023 |
| · | The Company supports local procurement in its activities by first sourcing within the immediate wards, then out to district, region and nation. Only those items or services not available in Tanzania are purchased externally, first prioritizing East Africa, Africa, then globally. |
| · | The Company will continue to develop a broader ESG program, including reporting aligned with definitions from the World Economic Forum, and identifying its contributions to the United Nations Sustainable Development Goals over the remainder of F2023. |
Financial
| · | During Q3 2023, Buckreef Gold poured 4,764 ounces of gold and sold 4,810 ounces of gold at an average realized price1 of $1,959 per ounce excluding the revenue and gold ounces sold related to the prepaid gold purchase agreement with OCIM Metals & Mining SA (“OCIM”) (“average realized price (net)1”). |
| · | For the nine months ended May 31, 2023, gold ounces poured and sold were 15,794 and 16,068 respectively, at an average realized price (net)1 of $1,819 per ounce. |
| · | During Q3 2023, the Company recognized revenue of $9.3 million, cost of sales of $5.4 million and cash cost1 of $1,052 per ounce. Cash cost1 per ounce were higher than Q2 2023 ($888 per ounce) and the prior year comparative period ($493 per ounce) predominantly due to higher mining costs in Q3 2023, where the Company incurred additional waste stripping to access a greater extent of ore, including higher grade blocks, which is expected to benefit production in Q4 2023. Additionally, the impact of higher blasting activity to access higher grade blocks, combined with lower head grade, unfavorable inventory movements, higher maintenance costs related to an overhaul of the crushing circuit, higher power costs following installation of new gensets which restricted the use of grid power and lower gold ounces sold contributed to an increase in cash cost in Q3 2023. The Company strategically completed the early plant maintenance, overhaul of the crushing circuit and installation of new gensets during the rainy season in Q3 2023 in order to accommodate longer-term processing of sulphide ore and to de-risk the longer-term production profile. The Company expects full year total average cash cost1 to be at the high end of the range of $750 - $850 per ounce. The Company generated gross profit of $3.9 million (42% gross profit margin), a quarterly net loss of $0.4 million, operating cash flow of $3.2 million and Adjusted EBITDA1 of $3.3 million. The increase in revenue, gross profit, operating cashflow and Adjusted EBITDA1 compared to the prior comparative period follows successful ramp-up and commissioning of the 1,000+ tpd processing plant in November 2022. |
| · | For the nine months ended May 31, 2023, the Company recognized revenue of $29.1 million, cost of sales of $15.0 million and cash cost1 of $881 per ounce, generating gross profit of $14.1 million (48% gross profit margin), net income of $4.7 million, operating cash flow of $14.6 million and Adjusted EBITDA1 of $11.6 million. |
| · | As at May 31, 2023, the Company had cash of $7.2 million and working capital of $3.2 million after adjusting for derivative liabilities which will only be settled by issuing equity of the Company and for the current portion of deferred revenue related to the OCIM prepaid gold purchase agreement (non-cash). |
| · | During Q3 2023, the Company entered into a series of gold zero-cost collar contracts for 1,800 gold ounces per month totaling 9,000 gold ounces to be settled from April 2023 to August 2023, at a maximum and minimum gold price of $2,030 and $1,825 per gold ounces respectively. During the three and nine months ended May 31, 2023, gold zero-cost collar contracts for a total of 3,600 gold ounces expired unexercised. |
| 8 |
| | Management’s Discussion and Analysis May 31, 2023 |
| · | During Q3 2023, the Company announced that it entered into an At The Market Offering Agreement (“ATM”) with H.C. Wainwright & Co., LLC as Lead Agent and Roth Capital Partners, LLC as Co-Agent, pursuant to which the Company, at its discretion, may offer and sell, from time to time, common shares having an aggregate offering price of up to $10 million. If the Company chooses to sell shares under the ATM Offering, the Company intends to use the net proceeds of this offering for working capital and for other general corporate purposes. To date, no shares have been sold under the ATM agreement. |
| · | During Q4 2022, the Company announced that its operating subsidiary, Buckreef Gold, entered into a pre-paid gold purchase agreement with a contract price totaling US$5.0 million with OCIM. The total contract price can be made available to Buckreef Gold in tranches with a $2.5 million upfront tranche and further tranches to be drawn over the next 18 months at Buckreef Gold’s option. During Q1 2023, the Company drew down the first tranche of $2.5 million in exchange for delivering 434 ounces of gold per quarter, commencing February 2023, for a total of 1,735 ounces of gold over four quarters. Subsequent to May 31, 2023, the Company drew $1.0 million from the second tranche of the Agreement. |
| · | As at May 31, 2023, the Company recognized $6.8 million of sales tax receivable on the Interim Condensed Consolidated Statements of Financial Position. Sales tax receivables consist of harmonized services services tax and value added tax (“VAT”) due from Canadian and Tanzanian tax authorities, respectively. Tanzanian tax regulations allow for VAT receivable to be refunded or set-off against other taxes due to the Tanzania Revenue Authority ("TRA"). Subsequent to May 31, 2023, the Company received $2.1 million of VAT refunds from the TRA. |
| 9 |
| | Management’s Discussion and Analysis May 31, 2023 |
Operational Overview
The Buckreef Gold Project
The Company is focused on the Buckreef Gold Project located in the Geita District of the Geita Region south of Lake Victoria, approximately 110 km southwest of the City of Mwanza, Tanzania (Figure 1). The Buckreef Gold Project area can be accessed by ferry across Smiths Sound, via a paved national road and, thereafter, via well maintained unpaved regional roads. The Buckreef Gold Project comprises five prospects, namely Buckreef (encompassing three prospects), Eastern Porphyry and Anfield. The Buckreef Gold Project itself encompasses three main mineralized zones: Buckreef South, Buckreef Main and Buckreef North. The Buckreef Gold Project is fully licensed for mining and the extraction of gold.
The Buckreef Gold Project Mineral Resources as of May 15, 2020, are as follows:
| Measured | Indicated | Inferred | Total (Measured + Indicated) | |||||||||||||||||||||||||||||||||||||||||||||
| Tonnes | Grade | Au | Tonnes | Grade | Au | Tonnes | Grade | Au | Tonnes | Grade | Au | |||||||||||||||||||||||||||||||||||||
| Area | MT | g/t | Oz | MT | g/t | Oz | MT | g/t | Oz | MT | g/t | Oz | ||||||||||||||||||||||||||||||||||||
| Buckreef | 19.98 | 1.99 | 1,281,160 | 15.89 | 1.48 | 755,120 | 17.82 | 1.11 | 635,540 | 35.88 | 1.77 | 2,036,280 | ||||||||||||||||||||||||||||||||||||
| Eastern Porphyry | 0.09 | 1.20 | 3,366 | 1.02 | 1.17 | 38,339 | 1.24 | 1.39 | 55,380 | 1.10 | 1.18 | 41,705 | ||||||||||||||||||||||||||||||||||||
| Tembo | 0.02 | 0.99 | 531 | 0.19 | 1.77 | 10,518 | 0.27 | 1.92 | 16,461 | 0.20 | 1.70 | 11,048 | ||||||||||||||||||||||||||||||||||||
| Bingwa | 0.90 | 2.84 | 82,145 | 0.49 | 1.48 | 23,331 | 0.22 | 1.49 | 10,541 | 1.39 | 2.36 | 105,477 | ||||||||||||||||||||||||||||||||||||
| Total | 20.99 | 2.03 | 1,367,202 | 17.59 | 1.46 | 827,308 | 19.55 | 1.14 | 717,922 | 38.57 | 1.77 | 2,194,510 | ||||||||||||||||||||||||||||||||||||
Note: Main Zone at 0.4 g/t cut-off, and Eastern Porphyry, Bingwa and Tembo at 0.5 g/t cut-off
Mineral Resources inclusive of Mineral Reserves
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability
All resources below 540 mRL are classified as inferred
Estimates over variable widths of 2 to 40 meters
Bulk Density ranges 2.0 g/cm3 to 2.8 g/cm3
55% attributable to the Company
Effective Date: May 15, 2020
The Buckreef Gold Project Mineral Reserves remained as of the May 15, 2020 Technical Report and are tabulated below.
| Buckreef Reserves | Tonnes | Grade | In Situ Gold Content | |||||||||||||
| (Mt) | Au (g/t) | Kg | oz | |||||||||||||
| Proven-Stockpile | 119,726 | 1.86 | 223 | 7,160 | ||||||||||||
| Proven | 9,352,183 | 1.72 | 16,092 | 517,358 | ||||||||||||
| Probable | 9,730,764 | 1.36 | 13,265 | 426,492 | ||||||||||||
| Mineral Reserves | 19,202,673 | 1.54 | 29,580 | 951,010 | ||||||||||||
(1) Mineral Reserves is inclusive of Mineral Reserve shapes, mining recovery, mining dilution and open pit preproduction development costs. Mineral Reserve estimate includes dilution.
(2) Mineral Reserve was estimated using NI 43-101F compliant Standards on Mineral Resources and Reserves, Definitions.
(3) Contained metal may differ due to rounding.
Mineral Resource and Reserve Statements
The Company did not complete any new work that would warrant reporting
material changes in the previously reported Mineral Resource (“MRE”) and Mineral Reserve statements during this reporting
period. The Company has engaged two globally recognised and respected mining consulting groups to undertake a comprehensive review of
the MRE. This in turn follows significant infill and exploration drilling, plus other required technical work undertaken over the prior
18 months. This work is currently being undertaken to be compliant with the November 2019 CIM Code for the Valuation of Mineral Properties,
which are different with respect to the 2003 guidelines.
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| | Management’s Discussion and Analysis May 31, 2023 |
Figure 1: Location of Buckreef Gold Project Licences on Lake Victoria Greenstone Belt
| 11 |
| | Management’s Discussion and Analysis May 31, 2023 |
Processing Plant and Operations
In September 2022, Buckreef Gold announced that the 1,000+ tpd oxide mill circuit was commissioned and was ramping up production from its original 360 tpd capacity. First ore was introduced to the expanded processing plant in September 2022 and the team ramped up throughput reaching nameplate capacity of 1,000+ tpd at the end of October 2022. Commercial production of the 1,000+ tpd processing plant was declared in November 2022. Q2 2023 was the first full quarter of the 1,000+ tpd operating at capacity.
Production during Q3 2023 (4,764 ounces) was lower than Q2 2023 (5,636 ounces) as mining activities were heavily impacted by the rainy season in Tanzania (March – May). Buckreef Gold experienced an inordinate level of precipitation in 2023, averaging 150 millimeters of rainfall during this period (2022: 66 millimeters). The excessive rainfall limited tonnes mined and processing plant throughput affecting production for Q3 2023.
Select operating, financial and stockpile information from the expanded operation for the three and nine months ended May 31, 2023 follows below:
Select Operating and Financial Data
| Unit | Three months ended May 31, 2023 | Three months ended May 31, 2022 | Nine months ended May 31, 2023 | Nine months ended May 31, 2022 | ||||||||||||||||
| Operating Data | ||||||||||||||||||||
| Ore Mined | k tonnes | 99 | 55 | 299 | 130 | |||||||||||||||
| Waste Mined | k tonnes | 875 | 244 | 2,026 | 437 | |||||||||||||||
| Total Mined | k tonnes | 974 | 299 | 2,325 | 567 | |||||||||||||||
| Strip Ratio | w:o | 8.8 | 4.4 | 6.8 | 3.4 | |||||||||||||||
| Mining Rate | tpd | 10,592 | 3,250 | 8,516 | 2,077 | |||||||||||||||
| Mining Cost (Variable) | US$/t | $ | 3.48 | $ | 2.84 | $ | 3.26 | $ | 2.90 | |||||||||||
| Plant Ore Milled | k tonnes | 68 | 35 | 237 | 69 | |||||||||||||||
| Head Grade | g/t | 2.00 | 2.67 | 2.37 | 2.76 | |||||||||||||||
| Plant Utilization | % | 89 | 93 | 93 | 89 | |||||||||||||||
| Plant Recovery Rate | % | 90 | 91 | 90 | 89 | |||||||||||||||
| Processing Cost (Variable) | US$/t | $ | 23.19 | $ | 14.15 | $ | 20.59 | $ | 15.10 | |||||||||||
| Plant Mill Throughput | tpd | 740 | 378 | 870 | 253 | |||||||||||||||
| Gold Ounces Poured | oz | 4,764 | 2,733 | 15,794 | 5,255 | |||||||||||||||
| Gold Ounces Sold | oz | 4,810 | 3,033 | 16,068 | 5,235 | |||||||||||||||
| Financial Data1 | ||||||||||||||||||||
| Revenue2 | $ ('000s | 9,317 | 5,732 | 29,133 | 9,066 | |||||||||||||||
| Gross Profit | $ ('000s | 3,883 | 4,190 | 14,112 | 6,081 | |||||||||||||||
| Net income (loss) | $ ('000s | (374 | ) | 3,188 | 4,736 | 28 | ||||||||||||||
| Adjusted EBITDA3 | $ ('000s | 3,319 | 2,664 | 11,619 | 1,610 | |||||||||||||||
| Operating Cash Flow | $ ('000s | 3,154 | 2,011 | 14,580 | 600 | |||||||||||||||
| Average Realized Price (gross)3 | $/oz | 1,937 | 1,890 | 1,813 | 1,871 | |||||||||||||||
| Average Realized Price (net)3,4 | $/oz | 1,959 | 1,890 | 1,819 | 1,871 | |||||||||||||||
| Cash Costs3 | $/oz | 1,052 | 493 | 881 | 581 |
1 Note that the table above does not present comparative statistics for revenue, costs of good sold and related sales and cost metrics for the nine month comparable period as Buckreef Gold early adopted the IAS 16 amendment as disclosed in the three and six months ended February 28, 2022 financial statements. Gold sales and related costs prior to that date were capitalized to exploration and evaluation assets and expenditures.
2 Revenue includes immaterial amounts from the sale of by-product silver and copper.
3 Refer to the "Non-IFRS Performance Measure" section.
4 Net of revenue and ounces of gold sold related to OCIM gold prepaid purchase agreement.
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| | Management’s Discussion and Analysis May 31, 2023 |
Operations Discussion
Gold Production and Sales
During Q3 2023, Buckreef Gold poured 4,764 ounces of gold and sold 4,810 ounces of gold at an average realized price (net)1 of $1,959 per ounce. For the nine months ended May 31, 2023, Buckreef Gold poured 15,794 ounces of gold and sold 16,068 ounces of gold at an average realized price (net)1 of $1,819 per ounce. Gold ounces produced and sold reflected an increase relative to the prior year comparative periods mainly due to an increase in plant throughput following commissioning of the expanded 1,000+ tpd processing plant in Q1 2023.
Mining
Total ore mined in Q3 2023 increased to 99 kt from 55 kt in the prior year period due to a higher mining rate following the successful commissioning of the expanded 1,000+ tpd processing plant during Q1 2023. In Q3 2023 total waste mined was 875 kt contributing to a strip ratio of 8.8 (waste:ore tonnes) and a total of 974 kt of material mined. Mining activity in Q4 2023 is expected to access a higher proportion of ore tonnes combined with lower waste tonnes, contributing to an improved strip ratio in Q4 2023. During the nine months ended May 31, 2023 the Company expedited waste stripping to access a greater extent of ore, including higher grade blocks, which is expected to benefit production in Q4 2023.
Mining costs per tonne (variable) primarily reflect contractor mining costs following the hiring of FEMA in Q1 2022 on a two-year contract to mine ore, waste, and to construct the TSF at Buckreef Gold. Mining costs per tonne (variable) of $3.48 in Q3 2023 was higher than the prior year comparative period ($2.84) primarily due to an increase in blasting costs as the Company scheduled additional blasting activity in Q3 2023 to access higher grade ore blocks in order to benefit Q4 2023 production. On a year to date basis, mining costs per tonne (variable) of $3.26 were higher than the prior year comparative period ($2.90) primarily due to an expedited waste stripping campaign during the nine months ended May 31, 2023, combined with an increase in blasting activities to access a greater extent of high grade ore, which is expected to benefit production in Q4 2023.
Processing
During Q3 2023 plant throughput levels were heavily affected by the impact of the stronger than usual rainy season. The 1,000+ tpd processing plant achieved the following statistics during the quarter: (i) average throughput of 740 tpd; (ii) plant availability of 89%; and (iii) an average recovery rate of 90%. The rainy season concluded at the end of May and average processing plant throughput levels of 1,000+ tpd resumed in early June. For the nine months ended May 31, 2023, the processing plant achieved the following statistics: (i) average throughput of 870 tpd; (ii) plant availability of 93%; and (iii) an average recovery rate of 90%. The year to date processing plant statistics reflect the successful ramp-up and commissioning of the expanded 1,000+ tpd processing plant in November 2022.
For the three months ended May 31, 2023, processing costs per tonne (variable) of $23.19 were higher than the prior year comparative period ($14.15) primarily due to the impact of lower processing plant throughput resulting from excessive precipitation (740 tpd vs 1,000 tpd plant capacity) on overhead plant cost absorption. This combined with higher maintenance costs related to an overhaul of the crushing circuit and higher power costs following installation of new gensets which restricted the use of grid power contributed to the increase in processing costs per tonne compared to the prior year period. The Company strategically completed the early plant maintenance, overhaul of the crushing circuit and installation of new gensets during the rainy season in Q3 2023 in order to accommodate longer-term processing of sulphide ore and to de-risk the longer-term production profile. On a year to date basis, processing cost per tonne (variable) of $20.59 were higher than the prior year period ($15.10) mainly due to lower throughput levels in Q3 2023 as a result of the impact of the rainy season, higher maintenance and power costs in Q3 2023, and an increase in power utilization, fuel consumption, reagents and consumables associated with the first-fill of the expanded 1,000+ tpd processing facility which was commissioned during Q1 2023.
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| | Management’s Discussion and Analysis May 31, 2023 |
Stockpile, Gold in Circuit (GIC) and Finished Goods Inventory
As at May 31, 2023, Buckreef Gold reported the following stockpile statistics: (i) the ROM pad stockpile contained 186,249 tonnes at an average grade of 1.04 g/t with an estimated 6,257 ounces of gold; and (ii) crushed mill feed of 3,115 tonnes at 3.30 g/t containing an estimated 330 ounces of gold. Since year-end August 31, 2022, the Company added to the ROM pad stockpile (959 ounces) but drew down on the crushed ore stockpile (887 ounces) mainly to support mill feed during the wet season. These fluctuations in ROM pad and crushed ore inventory are anticipated throughout the course of the year and are designed to ensure steady state processing. During Q1 2023, the Company processed stockpiled and mined material to commission the expanded 1,000+ tpd processing plant (which included 7 new large CIL tanks) and consequently reported an increase of gold in circuit, reflecting a buildup of metal inventory in the CIL tanks during plant commissioning. The Company reported 788 ounces of gold in circuit at May 31, 2023, which reflected a decrease of 850 ounces from February 28, 2023 following gold elution and smelting activity during the quarter. The remaining stockpile and gold in circuit balance continues to provide support for the Company to meet its production guidance in the Q4 2023.
A summary of the ROM pad and crushed ore stockpile statistics are contained in Table 1 below:
| Table: RoM Stockpile Summary (as at 31 May 2023) | ||||||||||||||||
| Summary RoM Stockpile | Volume (m3) | Tonnes | Grade (g/t Au) | Metal (oz) | ||||||||||||
| High Grade | 5,390 | 7,509 | 3.71 | 895 | ||||||||||||
| Medium Grade | 31,019 | 54,388 | 1.31 | 2,294 | ||||||||||||
| Low Grade | 74,284 | 124,352 | 0.77 | 3,068 | ||||||||||||
| Total (RoM) | 110,693 | 186,249 | 1.04 | 6,257 | ||||||||||||
| Crushed Ore (COS) | 2,163 | 3,115 | 3.30 | 330 | ||||||||||||
| Total | 112,856 | 189,364 | 1.08 | 6,588 | ||||||||||||
| 14 |
| | Management’s Discussion and Analysis May 31, 2023 |
Figure 2: Buckreef Gold Mine Oxide Mineral Reserve Starter Pit (Q3 2023)
Figure 3: 1,000+ tpd Processing Plant at Buckreef Gold Mine, showing new CIL tanks and conveyor feed to the new ball mills (Q3 2023)
| 15 |
| | Management’s Discussion and Analysis May 31, 2023 |
Figure 4: Buckeef Gold Expanded 1,000+ tpd Processing Plant, showing installation of two new 360 tpd ball mills (Q1 2023)
| 16 |
| | Management’s Discussion and Analysis May 31, 2023 |
Figure 5: Buckreef Gold Tailings Storage Facility Expansion at TSF 2.2 (Q3 2023)
Figure 6: Buckreef Gold Tailings Storage Facility Expansion liner installation at TSF 2.2 (Q3 2023)
| 17 |
| | Management’s Discussion and Analysis May 31, 2023 |
Exploration & Mineral Resources
TRX Gold and Buckreef Gold continue to evaluate the full potential of the Buckreef Gold property and identify opportunities for the discovery of additional mineral resources and their conversion to mineral reserves. Successful exploration will also provide greater production flexibility and growth. To achieve this goal the Company, in conjunction with Buckreef Gold, has:
| · | Announced in Q3 2023 near surface drilling results from the Anfield and Eastern Porphyry Zones, with highlights of 14 meters @ 3.5 g/t including 3.0 meters @ 10.9 g/t from 47 meters from the Eastern Porphyry, and 2.94 meters grading at 13.74 g/t, from 43.00 meters in the Anfield zone (full results provided in Table 3). The zones are located at the northern end of a 3-kilometer-long zone of identified gold mineralization that is subparallel to the east of Buckreef Main Zone (Figure 7). The intercepts confirm multiple zones of strong mineralisation towards the south-west of the known Eastern Porphyry deposit and the first diamond drill hole intersections on the Anfield Zone. Both mineralized zones are in close proximity to the Buckreef Main Zone and present an opportunity (assuming exploration success) to host future mineral resources outside of the Buckreef Main Zone. |
| · | Re-evaluated the Buckreef Main Zone for strike extensions, off-shoot splays, and at depth potential. The deposit is open in all directions (See Figure 7). To date, the Company has tested the NE Extension and successfully identified gold mineralization over an additional 300 meters. The deposit remains open along strike to the NE and future infill drilling is warranted. The SW extension has also been tested with wide-spaced drilling and the exploration program has returned encouraging results. The deposit now remains open along strike to the SW. |
| · | Collectively, between the NE extension and SW drilling the known strike extent of gold mineralization on the deposit structure has been expanded approximately 500 meters, or by nearly 30% since exploration recommenced. The Company will continue to identify areas offering the best opportunity to add gold ounces to the mineral resource inventory and commence an infill drilling program. |
Buckreef Gold Exploration – Third Quarter and Year to Date 2023
During Q3 2023, the Company drilled 839 meters at Buckreef Gold including exploration, infill drilling and step-out drilling, and geotechnical drilling. Year to date 11,171 meters of exploration, infill, step-out and sterilization drilling have been completed, excluding grade control drilling.
Buckreef Gold Main Zone Drilling Results and Interpretation
The significant mineralized intercepts of the Buckreef Main Zone are as shown in Figure 7. It is evident that the deposit remains open on trend to the NE and SW. As previously noted, the Company had initiated a drill program, specifically to explore potential mineralization extensions to the NE and SW.
During the nine months ended May 31, 2023, the Company received assay results from its exploration program which has provided another extension of known mineralization on the Buckreef Gold Main Zone to the south.
The results are positive and significant for the Company as they continue to demonstrate: (i) continuity of gold mineralization along strike to the southwest of the Main Zone deposit; and (ii) continued gold mineralization under the (historical) South Pit. The deposit, therefore, remains ‘open at depth and on strike,’ and in combination with the 300 meter extension of the NE (announced previously) represents approximately a 30% increase in the Main Zone deposit strike length to over 2.0 kms.
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| | Management’s Discussion and Analysis May 31, 2023 |
Highlights include:
| · | Hole BMDD250 intersected 34.8 m grading @ 1.26 g/t Au from 87.2 m, including 10.0 m grading @ 3.08 g/t from 89.9 m; and |
| · | Hole BMDD275 intersected 16.5 m grading @ 2.01 g/t Au from 53.7 m, including 7.0 m grading @ 3.28 g/t from 56.0 m. |
Notes: Sample Protocol QA/QC – see endnotes. Sampled widths are not true widths.
| · | Extension of Buckreef Main Zone South by a further 200 meters: Expansion of the gold deposit mineralization by 300 meters in the NE and 200 meters in the southwest (increases in the strike length of the Buckreef Main Zone deposit, or known gold mineralization, to over 2.0 kms) on the Buckreef Gold deposit which contains over 2.0 million ounces of gold in the Measured and Indicated Mineral Resources in the Buckreef Main Zone. The Company has drilled a total of 24 drill holes representing 4,255 meters in the southwest area, with full results provided in Table 2. The Buckreef Main Zone continues to be open further to the NE and extending to the Buckreef Special Mining License boundary and to the SW (see Figure 8). In the latter the trend is aligned to several historical artisanal scale miner pits. |
| 19 |
| | Management’s Discussion and Analysis May 31, 2023 |
Table 2: Buckreef Main Zone South Drill Hole Sample Results Summary
| Buckreef Main Zone South Drill Hole Assay Results | ||||||||||||
| Hole ID | Hole Type | Drill Holes Location | Sample Depth | Width (m) | Assay Grade (gpt) | Lithology | Comment | |||||
| Easting (m) | Northing (m) | RL (m) | Azimuth | Dip | From (m) | To (m) | ||||||
| BMDD248 | DD | 391,071.5 | 9,657,427.0 | 1,214.5 | 306 | -58 | 143.0 | 148.0 | 5.0 | 0.45 | Msz | Shear zone with Mild alteration |
| 192.5 | 198.0 | 5.5 | 0.38 | Msz | Shear zone with mild alteration | |||||||
| BMDD249 | DD | 391,042.0 | 9,657,447.3 | 1,215.5 | 306 | -54 | 120.4 | 128.0 | 7.6 | 0.41 | Msz | Shear zone with mild alteration |
| BMDD250 | DD | 391,114.5 | 9,658,259.0 | 1,227.8 | 306 | -60 | 30.0 | 33.0 | 3.0 | 0.42 | Msz | Shear zone with mild alteration |
| 87.2 | 122.0 | 34.8 | 1.26 | Msz | Mineralised shear zone with mild to strong alteration | |||||||
| 89.0 | 99.0 | 10.0 | 3.08 | Msz | Shear zone with strong alteration | |||||||
| BMDD252 | DD | 391,061.7 | 9,657,528.7 | 1,216.3 | 306 | -48 | 34.0 | 38.7 | 4.7 | 0.32 | Msz | Shear zone with mild alteration |
| 79.5 | 99.0 | 19.5 | 0.74 | Msz | Mineralised Shear zone with mild alteration | |||||||
| BMDD253 | DD | 390,927.6 | 9,657,500.0 | 1,218.1 | 126 | -51 | 82.1 | 85.5 | 3.4 | 0.96 | Msz | Mineralised shear zone with mild alteration |
| BMDD254 | DD | 391,137.4 | 9,657,821.0 | 1,220.2 | 306 | -57 | 56.0 | 59.8 | 3.8 | 1.3 | Msz | Mineralised shear zone with mild alteration |
| BMDD256 | DD | 391,122.7 | 9,657,787.0 | 1,219.6 | 306 | -57 | 27.9 | 30.0 | 2.1 | 1.21 | Msz | Mineralised shear zone with mild to strong alteration |
| 43.3 | 45.0 | 1.7 | 0.56 | |||||||||
| 54.0 | 57.7 | 3.7 | 1.73 | |||||||||
| 77.0 | 81.0 | 4.0 | 0.5 | |||||||||
| BMDD258 | DD | 391,078.9 | 9,657,620.0 | 1,217.3 | 306 | -50 | 23.0 | 25.0 | 2.0 | 1.76 | Msz | Mineralised shear zone with mild alteration |
| 41.0 | 44.0 | 3.0 | 0.47 | |||||||||
| BMDD259 | DD | 391,156.0 | 9,657,714.0 | 1,217.7 | 306 | -53 | 82.0 | 83.5 | 1.5 | 0.82 | ||
| 108.0 | 110.0 | 2.0 | 0.71 | Msz | Mineralised shear zone with mild alteration | |||||||
| 131.0 | 136.0 | 5.0 | 0.52 | |||||||||
| BMDD267 | DD | 390,966.4 | 9,657,379.9 | 1,213.7 | 305 | -62 | 165.0 | 167.0 | 2.0 | 1.41 | Msz | Shear zone with mild alteration |
| BMDD273 | DD | 390,969.4 | 9,657,256.9 | 1,210.3 | 306 | -57 | 36.1 | 37.7 | 1.6 | 0.49 | Msz | Shear zone with mild alteration |
| BMDD274 | DD | 390,918.3 | 9,657,289.7 | 1,212.0 | 306 | -57 | 39.4 | 41.0 | 1.7 | 0.78 | Msz | Shear zone with mild alteration |
| BMDD275 | DD | 390,940.4 | 9,657,216.0 | 1,210.0 | 306 | -57 | 27.5 | 29.2 | 1.8 | 0.51 | ||
| 43.0 | 52.1 | 9.1 | 0.58 | |||||||||
| 53.7 | 70.2 | 16.5 | 2.01 | Msz | Mineralised shear zone with mild to strong alteration | |||||||
| 56.0 | 63.0 | 7.0 | 3.27 | |||||||||
| 80.3 | 84.6 | 4.3 | 0.96 | |||||||||
| BMDD278 | DD | 390,967.1 | 9,657,195.1 | 1,209.2 | 306 | -57 | 63.6 | 71.6 | 8.1 | 0.65 | ||
| 83.0 | 89.3 | 6.3 | 1.00 | Msz | Mineralised shear zone with mild alteration | |||||||
| 128.0 | 131.0 | 3.0 | 0.74 | |||||||||
| BMDD279 | DD | 390,996.1 | 9,657,175.3 | 1,208.9 | 306 | -57 | 41.0 | 46.0 | 5.0 | 1.13 | ||
| 48.0 | 51.0 | 3.0 | 0.63 | |||||||||
| 140.6 | 142.0 | 1.4 | 2.72 | Msz | Mineralised shear zone with mild to strong alteration | |||||||
| 148.9 | 159.4 | 10.5 | 0.96 | |||||||||
Notes: Sample Protocol QA/QC – see endnotes. Sampled widths are not true widths.
| 20 |
| | Management’s Discussion and Analysis May 31, 2023 |
Table 3: Buckreef Eastern Porphyry and Anfield Zone Sample Results Summary
Eastern Porphyry Significant Assay Results
| Hole ID | Hole Type | Drill Holes Location | Sample Depth | Width (m) | Assay Grade (gpt) | Lithology | Comment | |||||
| Easting (m) | Northing (m) | RL (m) | Azimuth | Dip | From (m) | To (m) | ||||||
| BMDD297 | DD | 391955 | 9657841 | 1223 | 126 | 55 | 12.90 | 19.0 | 6.10 | 1.41 | FP | Oxidised Felsic pophyry with preserved shear fabric hosting quartz veins |
| 61.40 | 64.00 | 2.60 | 2.08 | FP | ||||||||
| 70.00 | 73.82 | 3.82 | 3.10 | FP | Slightly sheared felsic porphyry with Quartz, Carbonate pyrite alterations. | |||||||
| 98.80 | 113.50 | 14.70 | 1.22 | FP | Sheared unit of Felsic intrussive interfingering with mafic volanics. Quartz carbonate and pyrite altered. | |||||||
| BMDD298 | DD | 391997 | 9657844 | 1223 | 124 | 60 | 27.00 | 41.00 | 14.00 | 3.48 | FP | |
| Including | 27.00 | 30.00 | 3.00 | 10.96 | Oxidised Felsic porphyry with preserved shear fabric hosting quartz veins | |||||||
| 47.00 | 72.23 | 25.23 | 1.62 | FP | Weakly sheared felsic porphyry with moderate to strong Quatrz, | |||||||
| 84.00 | 89.00 | 5.00 | 1.07 | FP | Carbonate pyrite alterations. | |||||||
| BMDD299 | DD | 391901 | 9657813 | 1223 | 126 | 60 | 21.61 | 28.00 | 6.39 | 1.04 | FP | Moderate to weakly oxidised Felsic pophyry with preserved shear fabric |
| BMDD300 | DD | 391989 | 9657821 | 1191 | 126 | 55 | 33.65 | 37.26 | 3.61 | 6.80 | FP | Moderately oxidised Felsic pophyry with preserved shear fabric and hosting quartz vein |
| Anfield Prospect Significant Intercept Assay Results | ||||||||||||
| Hole ID | Hole Type | Drill Holes Location | Sample Depth | Width (m) | Assay Grade (gpt) | Lithology | Comment | |||||
| Easting (m) | Northing (m) | RL (m) | Azimuth | Dip | From (m) | To (m) | ||||||
| AFDD001 | DD | 391180.90 | 9657185.00 | 1210.275 | 135 | -60 | 43 | 45.94 | 2.94 | 13.74 | MB | Sheared mafic volcanic rock hosting quartz vein |
| AFDD002 | DD | 391164.50 | 9657169.00 | 1210.136 | 135 | -60 | 42.71 | 44.54 | 1.83 | 1.17 | MB | Sheared mafic volcanic rock |
| 83.42 | 88.34 | 4.92 | 0.9 | |||||||||
| AFDD004 | DD | 391209.40 | 9657173.00 | 1209.381 | 315 | -60 | 32.45 | 38.54 | 6.09 | 1.41 | MB | Sheared mafic volcanic rock |
| AFDD005 | DD | 391191.90 | 9657155.00 | 1209.368 | 315 | -60 | 17.09 | 21.35 | 4.26 | 1.01 | MB | Sheared mafic volcanic rock hosting quartz vein |
| 42.8 | 44.8 | 2.00 | 2.53 | Sheared mafic volcanic rock | ||||||||
| 47.09 | 51.15 | 4.06 | 1.27 | |||||||||
| AFDD007 | DD | 391108.36 | 9657186.36 | 1210.026 | 126 | -55 | 137.5 | 138.5 | 1.00 | 5.71 | MB | Sheared mafic volcanic rock with strong quartz carbonate pyrite alteration |
Notes: Sample Protocol QA/QC – see endnotes. Sampled widths are not true widths.
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| | Management’s Discussion and Analysis May 31, 2023 |
Figure 7: NE Buckreef Main Zone and location of the Eastern Porphyry - Anfield Zone trend.
| 22 |
| | Management’s Discussion and Analysis May 31, 2023 |
Figure 8: Map Showing Mineralization Extension and Location of Drill Results at Buckreef Main Zone Southwest Extension
| 23 |
| | Management’s Discussion and Analysis May 31, 2023 |
Larger Development Project – Preliminary Metallurgical Results, Ongoing Test Work and Preliminary Results of a Bulk Sample
The Company continues to work on its mid-to-long-term larger development project and has received assay results from its 19-hole metallurgical variability sampling program on the Buckreef Main Zone. The samples have now been dispatched to SGS South Africa for the metallurgical test work.
The results are positive and significant for the Company because they continue to demonstrate: (i) continuity of mineralization down dip and along strike of the deposit; and (ii) excellent width and grade of mineralization.
Highlights include:
| · | Hole BMMT015 intersected 28.0 m grading @ 10.68 g/t Au from 0 m; |
| · | Hole BMMT020 intersected 123.0 m grading @ 2.69 g/t Au from 3 m; |
| · | Hole BMMT009 intersected 121.0 m grading @ 2.96 g/t Au from 3 m; |
| · | Hole BMMT022 intersected 106.0 m grading @ 4.19 g/t Au from 85 m, 77 m grading @ 3.09 g/t from 241 m; and |
| · | Hole BMMT021 intersected 90.0 m grading @ 1.56 g/t Au from 139 m. |
Detailed results are shown in Table 4 and locations are shown in Figure 9.
Figure 9: Map Showing Location of Metallurgical Drill Holes and Their Result Highlights
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| | Management’s Discussion and Analysis May 31, 2023 |
Table 4: Metallurgy Drill Hole Sample Results Summary
| Metallurgy Samples Assay Results | ||||||||||||
| Hole ID | Hole Type | Drill Holes Location | Sample Depth | Width (m) | Assay Grade (gpt) | Lithology | Comment | |||||
| Easting (m) | Northing (m) | RL (m) | Azimuth | Dip | From (m) | To (m) | ||||||
| BMMT004 | DD | 391,096.8 | 9,657,894.8 | 1,217.7 | 127 | -72 | 4.0 | 22.0 | 17.0 | 2.17 | Msz | Oxidised and Mineralised shear zone |
| BMMT005 | DD | 391,134.7 | 9,657,947.9 | 1,217.6 | 119 | -88 | 0.0 | 21.0 | 21.0 | 0.52 | Msz | Oxidised and Mineralised Shear zone |
| BMMT006 | DD | 391,184.0 | 9,658,008.0 | 1,217.7 | 303 | -77 | 4.0 | 15.6 | 11.6 | 0.68 | Msz | Oxidised and Mineralised Shear zone |
| BMMT007 | DD | 391,223.8 | 9,658,080.1 | 1,214.7 | 304 | -81 | 0.0 | 8.0 | 8.0 | 0.39 | Msz | Oxidised and Mineralised Shear zone |
| BMMT008 | DD | 391,292.3 | 9,658,148.7 | 1,220.1 | 306 | -77 | 2.0 | 94.0 | 89.0 | 1.72 | Msz | Mineralised shear zone with Quartz Veining |
| BMMT009 | DD | 391,337.4 | 9,658,225.5 | 1,222.1 | 303 | -82 | 3.0 | 124.0 | 121.0 | 2.96 | Msz | Oxidised and Mineralised shear zone |
| 127.0 | 148.0 | 21.0 | 0.79 | Msz | Shear zone with mild alteration | |||||||
| 152.0 | 157.0 | 5.0 | 0.2 | Msz | Shear zone with mild alteration | |||||||
| BMMT010 | DD | 391,194.4 | 9,658,008.3 | 1,217.5 | 329 | -87 | 69.0 | 86.0 | 17.0 | 3.82 | Msz | Mineralised shear zone with strong alteration |
| 87.0 | 97.0 | 10.0 | 0.82 | Msz | Shear zone with mild alteration | |||||||
| 100.0 | 129.0 | 29.0 | 3.28 | Msz | Mineralised shear zone with strong alteration | |||||||
| 144.0 | 170.0 | 26.0 | 3.59 | Msz | Mineralised shear zone with strong alteration | |||||||
| BMMT011 | DD | 391,112.2 | 9,657,940.2 | 1,217.5 | 136 | -67 | 20.0 | 84.0 | 64.0 | 1.17 | Msz | Mineralised shear zone with strong alteration |
| 85.0 | 114.0 | 29.0 | 0.37 | Msz | Shear zone with mild alteration | |||||||
| 127.0 | 137.0 | 10.0 | 2.08 | Msz | Mineralised shear zone with strong alteration | |||||||
| BMMT012 | DD | 391,253.7 | 9,658,097.7 | 1,215.1 | 242 | -75 | 4.0 | 28.0 | 24.0 | 2.28 | Msz | Mineralised shear zone with Quartz Veining |
| BMMT014 | DD | 391,055.0 | 9,657,666.9 | 1,218.3 | 90 | -78 | 27.0 | 42.0 | 15.0 | 0.59 | Msz | Mineralised shear zone with mild alteration |
| BMMT015 | DD | 391,231.1 | 9,658,072.9 | 1,215.3 | 310 | -80 | 0.0 | 28.0 | 28.0 | 10.68 | Msz | Mineralised shear zone with Quartz Veining |
| BMMT016 | DD | 391,353.7 | 9,658,331.9 | 1,223.4 | 306 | -81 | 7.0 | 41.0 | 34.0 | 2.03 | Msz | Mineralised shear zone with strong alteration |
| 49.0 | 76.0 | 27.0 | 1.45 | Mineralised shear zone with strong alteration | ||||||||
| 96.0 | 101.0 | 5.0 | 0.37 | Msz | Shear zone with mild alteration | |||||||
| BMMT017 | DD | 391,469.3 | 9,658,387.0 | 1,219.9 | 142 | -80 | 4.0 | 26.0 | 22.0 | 3.30 | Msz | Oxidised and Mineralised shear zone |
| BMMT018 | DD | 391,521.8 | 9,658,681.8 | 1,218.6 | 126 | -82 | 4.0 | 33.0 | 29.0 | 2.97 | Msz | Mineralised shear zone with Quartz Veining |
| 43.0 | 53.0 | 10.0 | 0.34 | Msz | Mineralised shear zone with mild alteration | |||||||
| 57.0 | 141.8 | 84.8 | 0.64 | Msz | Mineralised shear zone with mild alteration | |||||||
| 143.0 | 169.0 | 26.0 | 0.63 | Msz | Mineralised shear zone with mild alteration | |||||||
| BMMT019 | DD | 391,464.1 | 9,658,771.4 | 1,220.0 | 130 | -67 | 50.0 | 78.0 | 28.0 | 2.33 | Msz | Mineralised shear zone with strong alteration |
| 86.0 | 91.0 | 5.0 | 0.43 | Msz | Mineralised shear zone with mild alteration | |||||||
| 100.0 | 111.0 | 11.0 | 0.55 | Msz | Mineralised shear zone with mild alteration | |||||||
| 135.0 | 142.0 | 7.0 | 0.77 | Msz | Mineralised shear zone with mild alteration | |||||||
| 161.0 | 167.0 | 6.0 | 0.55 | Msz | Mineralised shear zone with mild alteration | |||||||
| 200.0 | 212.0 | 12.0 | 0.75 | Msz | Mineralised shear zone with mild alteration | |||||||
| 214.0 | 218.0 | 4.0 | 0.32 | Msz | Mineralised shear zone with mild alteration | |||||||
| 222.0 | 229.8 | 7.8 | 0.55 | Msz | Mineralised shear zone with mild alteration | |||||||
| BMMT020 | DD | 391,519.4 | 9,658,607.6 | 1,219.9 | 126 | -80 | 3.0 | 126.0 | 123.0 | 2.69 | Msz | Mineralised shear zone with strong alteration |
| 128.0 | 130.0 | 2.0 | 1.55 | Msz | Mineralised shear zone with strong alteration | |||||||
| 152.0 | 154.0 | 2.0 | 2.00 | Msz | Mineralised shear zone with strong alteration | |||||||
| 202.0 | 208.0 | 6.0 | 2.82 | Msz | Mineralised shear zone with strong alteration | |||||||
| BMMT021 | DD | 391,493.7 | 9,658,549.5 | 1,220.9 | 134 | -85 | 2.0 | 80.0 | 78.0 | 0.58 | Msz | Mineralised shear zone with quartz veining |
| 88.0 | 91.0 | 3.0 | 0.33 | Msz | Mineralised shear zone with quartz veining | |||||||
| 118.0 | 126.0 | 8.0 | 0.54 | Msz | Mineralised shear zone with mild alteration | |||||||
| 139.0 | 229.0 | 90.0 | 1.56 | Msz | Mineralised shear zone with strong alteration | |||||||
| 238.0 | 245.0 | 7.0 | 0.95 | Msz | Mineralised shear zone with mild alteration | |||||||
| BMMT022 | DD | 391,467.7 | 9,658,451.6 | 1,221.0 | 127 | -82 | 42.0 | 54.0 | 12.0 | 0.3 | Msz | Mineralised shear zone with mild alteration |
| 58.0 | 72.0 | 14.0 | 0.76 | Msz | Mineralised shear zone with mild alteration | |||||||
| 85.0 | 191.0 | 106.0 | 4.19 | Msz | Mineralised shear zone with strong alteration | |||||||
| 194.0 | 211.0 | 17.0 | 1.16 | Msz | ||||||||
| 213.0 | 240.0 | 27.0 | 1.78 | Msz | Mineralised shear zone with strong alteration | |||||||
| 241.0 | 318.0 | 77.0 | 3.09 | Msz | Mineralised shear zone with strong alteration | |||||||
| 321.0 | 338.0 | 17.0 | 2.95 | Msz | Mineralised shear zone with strong alteration | |||||||
Notes: Sample Protocol QA/QC – see footnote below. Sampled widths are not true widths. Of 19 holes drilled, 18 are reported, with the remaining hole unreported due to an incomplete intersection of the Main Zone.
| 25 |
| | Management’s Discussion and Analysis May 31, 2023 |
As part of the metallurgical variability study, using core from the 19 hole drill program (18 sampled), the Company plans to assess the amenability of the sulphide material to be processed through the existing processing plant, using its relatively simple flowsheet. In turn, this may have positive implications for potential plant expansions. During Q2 2023, the Company, working with Ausenco, has identified a metallurgical laboratory of good renown to complete this work which will encompass the first 5-7 years of production from the sulphide mine and processing operations at Buckreef Gold. This study will build on the prior work of SGSC on deeper parts of the mineral resource and data gathered during processing of the oxide, transitional mineral reserve. All samples have been prepared and are ready for shipment.
The samples will be analyzed for:
| · | Overall gold recoveries; |
| · | Process design to achieve those recoveries (grindability, retention times, straight CIL or flotation/regrind); |
| · | Any pregnant solution robbing or refractory mineralogy; |
| · | Acid Mine Drainage (if any) characteristics; and |
| · | Dry stack tailings characteristics. |
Preliminary Bulk Sample Results
During the period May 3rd to May 13th the Company’s operation at the Buckreef Gold Mine took advantage of adverse wet weather conditions impacting the mine schedule to pivot and process over 6,615 tonnes of fresh (sulphide) ore through the existing processing circuit. The fresh (sulphide) ore performed as expected per the SGS metallurgical study reported previously on December 12, 2023. The results are preliminary, and indicative that the mine can successfully process both oxide and sulphide ore through its existing processing plant circuit.
Highlights include:
| · | 88.7% gold recovery on fresh (sulphide) mill feed. Early indications are that fresh (sulphide) ore can successfully be processed through existing processing circuit. This is consistent with results from the SGS preliminary study which indicated an 88% gold recovery on a crush – grind – CIL circuit; |
| · | At a throughput rate of 33.4 tonnes per hour the grinding circuit achieved 80.4% passing 75 microns |
| · | Approximately 6,615 tonnes of fresh ore processed during the 11-day test period of 3rd May to 13th May 2023; |
| · | Encouraged by these results to date, the Company will continue to refine the processing circuit in the belief that higher gold recoveries can be achieved. |
Geotechnical Analysis Field Work
SGSC – Terrane Geoscience have been awarded the geotechnical analysis work for the deeper pit design. Field work includes a drilling program that constitutes 5 holes for 1,571 meters. Associated detailed field work involving packer tests, downhole televiewer, co-axial rock strength testing and standard geotechnical logging of the footwall and hanging wall lithologies has been completed and analysis of results continues. Selected samples have been sent to a geomechanical laboratory in Canada for further analysis. The results of this work will be instrumental in determining pit slope angles for the ultimate pit.
| 26 |
| | Management’s Discussion and Analysis May 31, 2023 |
Financial Highlights – Third Quarter and Year to Date 2023
For the three months ended May 31, 2023, Buckreef Gold poured 4,764 ounces of gold and sold 4,810 ounces of gold at an average realized price (net)1 of $1,959 per ounce.
The Company recognized revenue of $9.3 million for the three months ended May 31, 2023.
Cost of sales, which includes production costs, royalties and depreciation, was $5.4 million generating a gross profit of $3.9 million or 42% during Q3 2023. After general and administrative expenses, revaluation of derivative financial instruments, foreign exchange, interest and other expenses, and income taxes, the Company recorded a net loss of $0.4 million for Q3 2023.
Q3 2023 ounces sold (4,810 ounces) generated positive operating cash flow of $3.2 million in Q3 2023. Positive operating cash flow is being used to fund value creating activities, including plant expansions, exploration, and advancing the larger development project.
At May 31, 2023, the Company had a cash balance of $7.2 million and working capital of $3.2 million after adjusting for derivative liabilities which will only be settled by issuing equity of the Company and for the current portion of deferred revenue related to the OCIM prepaid gold purchase agreement (non-cash).
For the nine months ended May 31, 2023, Buckreef Gold produced and sold 15,794 and 16,068 ounces of gold, respectively. The Company recognized revenue of $29.1 million and cost of sales was $15.0 million generating a gross profit of $14.1 million or 48%. For the nine months ended May 31, 2023, the Company recorded net income of $4.7 million and generated positive operating cash flow of $14.6 million which enabled further investment in the development and growth of Buckreef Gold.
Capital Expenditures
During the three months ended May 31, 2023, the Company incurred a total of $5.5 million in cash capital expenditures (including value added tax). Net additions increased as the Company continued to invest in infrastructure and development for the Buckreef Gold property during the quarter, including construction of a significantly expanded TSF, one-time expenditures related to final road realignment around the Special Mining License which is expected to enable full life of mine access to the Main Zone, four new gensets with cabling and synchronization panel to replace existing rental units, down payment on a new 1,000 tpd ball mill related to the processing plant expansion to 2,000 tpd, and capitalized pre-stripping mine development activity with FEMA to access a greater extent of ore, including higher grade blocks, which is expected to benefit production in Q4 2023.
For the nine months ended May 31, 2023, the Company incurred a total of $15.8 million in cash capital expenditures, mainly related to the list of items above combined with expenditures related to final commissioning of the 1,000+ tpd processing plant in November 2022.
| 27 |
| | Management’s Discussion and Analysis May 31, 2023 |
Selected Financial Information
The following information has been extracted from the Company’s unaudited interim condensed consolidated financial statements for the three and nine months ended May 31, 2023 prepared in accordance with IFRS.
| $(000's) | As at and for the three months ended May 31, 2023 | As at and for the nine months ended May 31, 2023 | As at and for the three months ended May 31, 2022 | As at and for the nine months ended May 31, 2022 | ||||||||||||
| Net income (loss) and comprehensive income (loss) attributable to shareholders | (1,264 | ) | 849 | 1,971 | (2,009 | ) | ||||||||||
| Basic income (loss) per share | (0.00 | ) | 0.00 | 0.01 | (0.01 | ) | ||||||||||
| Diluted income (loss) per share | (0.00 | ) | 0.00 | 0.01 | (0.01 | ) | ||||||||||
| Total assets | 84,173 | 84,173 | 65,639 | 65,639 | ||||||||||||
| Total long term financial liabilities | 6,517 | 6,517 | 2,781 | 2,781 |
Financial Results
Three months ended May 31, 2023
| Three months ended | ||||||||
| May 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 9,317 | $ | 5,732 | ||||
| Cost of sales | (5,434 | ) | (1,542 | ) | ||||
| Gross profit | 3,883 | 4,190 | ||||||
| General and administrative expense | (1,634 | ) | (2,518 | ) | ||||
| Change in fair value of derivative financial instruments | (730 | ) | 1,345 | |||||
| Foreign exchange | 153 | 333 | ||||||
| Interest, net and other expense | (327 | ) | (54 | ) | ||||
| Income tax expense | (1,719 | ) | (108 | ) | ||||
| Net income (loss) and comprehensive income (loss) | $ | (374 | ) | $ | 3,188 | |||
| Net income and comprehensive income | ||||||||
| attributable to non-controlling interests | 890 | 1,217 | ||||||
| Net income (loss) and comprehensive income (loss) | ||||||||
| attributable to shareholders | (1,264 | ) | 1,971 | |||||
Revenue
For the three months ended May 31, 2023, the Company recognized revenue of $9.3 million (Q3 2022: $5.7 million). The increase in revenue compared to the prior year comparative period is primarily related to higher gold production and ounces of gold sold following final commissioning of the 1,000+ tpd processing plant in November 2022. During the period, the Company sold 4,810 ounces of gold (Q3 2022: 3,033 ounces) at an average realized price (net)1 of $1,959 per ounce (Q3 2022: $1,890 per ounce).
Cost of sales
Cost of sales for the three months ended May 31, 2023 was $5.4 million (Q3 2022: $1.5 million) and is comprised of production costs, (including mining, processing and site general and administrative costs), royalties and depreciation. Assets are depreciated on a straight-line basis over their useful life or depleted on a units-of-production basis over the reserves to which they relate.
| 28 |
| | Management’s Discussion and Analysis May 31, 2023 |
In connection with the successful processing plant expansion which resulted in higher plant throughput and gold production, the Company changed the method of estimating the cost of its ore stockpiles effective September 1, 2022. The updated methodology estimates the cost of ore stockpiles based on estimated recoverable ounces of gold in ore stockpiles whereby the previous methodology was based on tonnes of ore in stockpiles. The net result is that higher costs are attached to higher grade ore and consequently, higher costs are charged to the statements of comprehensive income/(loss) during periods that higher grade ore is processed and sold (and vice versa). The Company believes this methodology better matches revenue and expenses and has been applied prospectively from September 1, 2022.
For the three months ended May 31, 2023, the Company recorded production costs of $4.4 million (Q3 2022: $1.1 million) and royalties of $0.7 million (Q3 2022: $0.4 million) based on a 7.3% statutory royalty rate in Tanzania. Cash cost1 which include production costs and royalties were $1,052 per ounce (Q3 2022: $493 per ounce). Cash cost1 per ounce were higher than the prior year comparative period predominantly due to higher mining costs in Q3 2023, where the Company incurred waste stripping to access a greater extent of ore, including higher grade blocks, which is expected to benefit production in Q4 2023. Additionally, the impact of higher blasting activity to access higher grade blocks, combined with lower head grade, unfavorable inventory movements, higher maintenance costs related to an overhaul of the crushing circuit, higher power costs following installation of new gensets which restricted the use of grid power, and lower ounces sold contributed to an increase in cash cost1 in Q3 2023. The Company expects full year total average cash cost1 to be at the high end of the range of between $750 - $850 per ounce.
On November 1, 2022, the Company declared commercial production for the 1,000+ tpd processing plant at Buckreef after successful construction, commissioning and ramp-up of processing to a steady state throughput of 1,000+ tpd. Upon declaration of commercial production, capitalization of mine development costs ceases, and depreciation of capitalized mine development costs commences. For the three months ended May 31, 2023, the Company recorded depreciation of $0.4 million (Q3 2022: $0.1 million).
General and administrative expense
During the three months ended May 31, 2023, the Company recorded general and administrative expense of $1.6 million compared to $2.5 million for the prior year period. The variance compared to the prior year period was mainly due to classification of certain costs incurred related to Buckreef Gold’s operating costs. Following adoption of amendments to IAS 16, Property, Plant and Equipment, during the year ended August 31, 2022, certain costs that were historically recorded in general and administration expense, were recorded in cost of sales.
Change in fair value of derivative financial instruments
During the three months ended May 31, 2023, the Company had a loss on change in fair value of derivative financial instruments of $0.7 million compared to a gain of $1.3 million in the prior year period. The loss on revaluation of derivative warrant liabilities, which are valued using the Black Scholes option pricing model, was principally due to the quarterly increase in the Company’s share price (Q3 2023: $0.46, Q2 2023: $0.40).
Interest and other expense
During the three months ended May 31, 2023, the Company recorded interest and other expense of $0.3 million compared to $0.1 million in the prior year period. The increase is primarily related to tax related fees and advisory services in Tanzania that was recorded during Q3 2023.
| 29 |
| | Management’s Discussion and Analysis May 31, 2023 |
Income tax expense
Income tax expense is recognized based on management’s estimate of the weighted average annual income tax rate expected for the full financial year. During the three months ended May 31, 2023, the Company recorded net income at Buckreef Gold and recognized income tax expense of $1.7 million (Q3 2022: $0.1 million), comprised of a current income tax expense of $0.3 million (Q3 2022: $0.1 million) and deferred income tax expense of $1.4 million (Q3 2022: $nil) based on current Tanzanian statutory tax rates.
Net loss and comprehensive loss
The Company reported a net loss for the three month period ended May 31, 2023 of $0.4 million ($1.3 million net loss attributable to shareholders, basic and diluted loss per share of $0.00) compared to net income of $3.2 million in the prior year period ($2.0 million net income attributable to shareholders, basic and diluted earnings per share of $0.01).The increase in the net loss compared to the prior year comparative period is primarily the result of a loss on derivative warrant liabilities of $0.7 million (Q3 2022: $1.3 million gain) due to an increase in the Company’s share price and an increase in income tax expense of $1.7 million (Q3 2022: $0.1 million) following recognition of net income at Buckreef Gold. This was partially offset by a decrease in general and administrative expense of $1.6 million (Q3 2022: $2.5 million) following adoption of amendments to IAS 16, Property, Plant and Equipment, during the year ended August 31, 2022, where certain costs that were historically recorded in general and administration expense, were recorded in cost of sales. On a net basis, after adjusting for the impact of IAS 16, gross profit (net of general and administrative expense) has improved compared to the prior year comparative period mainly due to an increase in ounces sold of 4,810 (Q3 2022 3,033) following final commissioning of the 1,000+ tpd processing plant in November 2022.
Nine months ended May 31, 2023
| Nine months ended | ||||||||
| May 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 29,133 | $ | 9,066 | ||||
| Cost of sales | (15,021 | ) | (2,985 | ) | ||||
| Gross profit | 14,112 | 6,081 | ||||||
| General and administrative expense | (5,506 | ) | (7,015 | ) | ||||
| Change in fair value of derivative financial instruments | 1,670 | 1,408 | ||||||
| Foreign exchange | 211 | 247 | ||||||
| Interest and other expense | (1,368 | ) | (434 | ) | ||||
| Income tax expense | (4,383 | ) | (259 | ) | ||||
| Net income and comprehensive income | $ | 4,736 | $ | 28 | ||||
| Net income and comprehensive income | ||||||||
| attributable to non-controlling interests | 3,887 | 2,037 | ||||||
| Net income (loss) and comprehensive income (loss) | ||||||||
| attributable to shareholders | 849 | (2,009 | ) | |||||
| 30 |
| | Management’s Discussion and Analysis May 31, 2023 |
Revenue
For the nine months ended May 31, 2023, the Company recognized revenue of $29.1 million (2022: $9.1 million). The financial statements for the comparable period only present revenue, cost of sales and gross profit for the six months ended May 31, 2022 as Buckreef Gold early adopted amendments to International Accounting Standards (“IAS”) 16, Property, Plant and Equipment, as disclosed in the three and nine months ended May 31, 2022 financial statements. Gold sales and related costs prior to that date were capitalized to exploration and evaluation assets and expenditures. The increase in revenue compared to the prior year comparative period is primarily related to higher gold production and ounces of gold sold following final commissioning of the 1,000+ tpd processing plant in November 2022. During the period, the Company sold 16,068 ounces of gold (2022: 5,235 ounces) at an average realized price (net)1 of $1,819 per ounce (2022: $1,871 per ounce).
Cost of sales
Cost of sales for the nine months ended May 31, 2023 was $15.0 million (2022: $3.0 million) and is comprised of production costs, (including mining, processing and site general and administrative costs), royalties and depreciation. The increase in cost of sales compared to the prior year comparative period is primarily related to commencement of the 1,000+ tpd processing plant which was commissioned in November 2022.
For the nine months ended May 31, 2023, the Company recorded production costs of $12.0 million (2022: $2.1 million) and royalties of $2.1 million (2022: $0.7 million) based on a 7.3% statutory royalty rate in Tanzania. Cash cost1 which include production costs and royalties were $881 per ounce (2022: $581 per ounce), and the Company expects full year cash cost to be at the high end of the originally expected annual guidance range of between $750 - $850 per ounce.
Following commercial production declaration of the 1,000+ tpd plant in November 2022, the Company ceased capitalization of mine development costs and commenced depreciation of capitalized mine development costs. For the nine months ended May 31, 2023, the Company recorded depreciation of $0.9 million (2022: $0.2 million).
As noted above, the prior year comparable period only presents cost of sales for the six months ended May 31, 2022 as Buckreef Gold early adopted amendments to IAS 16 as disclosed in the three and nine months ended May 31, 2022 financial statements. Prior to that date, costs were capitalized to exploration and evaluation assets and expenditures.
General and administrative expense
During the nine months ended May 31, 2023, the Company recorded general and administrative expense of $5.5 million compared to $7.0 million for the previous year comparable period, mainly due to a decrease in insurance premiums, severance related expenses following personnel changes made during Q2 2022 and due to classification of certain costs incurred related to Buckreef Gold’s operating costs. Following adoption of amendments to IAS 16, Property, Plant and Equipment, during the year ended August 31, 2022, certain costs that were historically recorded in general and administration expense, were recorded in cost of sales.
Gain on derivative warrant liabilities
During the nine months ended May 31, 2023, the Company recorded a gain on derivative warrant liabilities of $1.7 million compared to a gain of $1.4 million in the prior year period. The gain on revaluation of derivative warrant liabilities, valued using the Black Scholes option pricing model, was principally due to a decrease in the Company’s share price (Q3 2023 - $0.46, Q4 2022 - $0.48).
| 31 |
| | Management’s Discussion and Analysis May 31, 2023 |
Interest and other expense
During the nine months ended May 31, 2023, the Company recorded interest and other expense of $1.4 million compared to $0.4 million in the prior year comparative period. The increase is primarily related to tax adjustments related to a 2012 – 2020 tax assessment in Tanzania that was issued during Q2 2023 and due to tax related fees and advisory services in Tanzania that was recorded during Q3 2023.
Income tax expense
Income tax expense is recognized based on management’s estimate of the weighted average annual income tax rate expected for the full financial year. During the nine months ended May 31, 2023, the Company recorded net income at Buckreef Gold and recognized income tax expense of $4.4 million (2022: $0.3 million), comprised of a current income tax expense of $0.8 million (2022: $0.3 million) and deferred income tax expense of $3.6 million (2022: $nil) based on current Tanzanian statutory tax rates.
Net income (loss) and comprehensive income (loss)
The Company reported net income for the nine month period ended May 31, 2023 of $4.7 million ($0.8 million net income attributable to shareholders, basic and diluted earnings per share of $0.00), compared to net income of $nil in the prior year period ($2.0 million net loss attributable to shareholders, basic and diluted loss per share of $0.01). The increase in net income is primarily the result of an increase in gross profit of $14.1 million (2022: $6.1 million) following an increase in revenue of $29.1 million (2022: $9.1 million) and cost of sales of $15.0 million (2022: $3.0 million) during the nine months ended May 31, 2023. This, combined with an increased gain on derivative warrant liabilities of $1.7 million (2022: $1.4 million) due to a decrease in the Company’s share price and a decrease in general and administrative expense due to lower insurance premiums and severance related expense was partially offset by an increase in interest and other expenses of $1.4 million (2022:$0.4 million) and an increase in income tax expense of $4.4 million (2022: $0.3 million) following recognition of net income at Buckreef Gold.
Summary of Quarterly Results
| ($(000's), except per share amounts) | ||||||||||||||||||||||||||||||||
| US$ unless otherwise stated | 2023 Q3 | 2023 Q2 | 2023 Q1 | 2022 Q4 | 2022 Q3 | 2022 Q2 | 2022 Q1 | 2021 Q4 | ||||||||||||||||||||||||
| Net income (loss) and comprehensive income (loss) | (374 | ) | (50 | ) | 5,160 | (2,350 | ) | 3,188 | (1,002 | ) | (2,158 | ) | (3,517 | ) | ||||||||||||||||||
| Net income (loss) and comprehensive (income) loss attributable to: | ||||||||||||||||||||||||||||||||
| Non-controlling interests | 890 | 1,349 | 1,648 | 1,857 | 1,217 | 956 | (136 | ) | (79 | ) | ||||||||||||||||||||||
| Common shareholders | (1,264 | ) | (1,399 | ) | 3,512 | (4,207 | ) | 1,971 | (1,958 | ) | (2,022 | ) | (3,438 | ) | ||||||||||||||||||
| Net income (loss) and comprehensive income (loss) | (374 | ) | (50 | ) | 5,160 | (2,350 | ) | 3,188 | (1,002 | ) | (2,158 | ) | (3,517 | ) | ||||||||||||||||||
During the three months ended May 31, 2023, the Company reported a net loss of $0.4 million ($1.3 million net loss attributable to shareholders), compared to a net loss of $0.1 million ($1.4 million net loss attributable to shareholders) in the prior quarter (Q2 2023). The increase in the net loss compared to the prior quarter is primarily due to lower revenue and gross profit following lower gold ounces sold in Q3 2023 of 4,810 (Q2 2023: 5,504) due to the impact of the rainy season in Tanzania which limited processing plant throughput (740 tpd vs. capacity of 1,000 tpd).
Liquidity and Capital Resources
At May 31, 2023 the Company had $7.2 million of cash (August 31, 2022 -
$8.5 million) and working capital of $3.2 million after adjusting for derivative liabilities which will only be settled by issuing equity
of the Company and for the current portion of deferred revenue related to the OCIM prepaid gold purchase agreement (non-cash) (August
31, 2022 - $5.5 million).
| 32 |
| | Management’s Discussion and Analysis May 31, 2023 |
The decrease in cash of $1.3 million over August 31, 2022 was primarily due to an increase in capital investment in infrastructure and development for Buckreef Gold (Q3 2023 YTD: $15.8 million), predominantly offset by an increase in operating cash flow (Q3 2023 YTD: $14.6 million). During Q3 2023, the Company poured 4,764 ounces of gold (Q3 2022: 2,733) and sold 4,810 ounces of gold (Q3 2022: 3,033), which contributed to positive operating cash flow of $3.2 million during Q3 2023 (Q3 2022: $2.0 million). For the nine months ended May 31, 2023, the Company produced and sold 15,794 and 16,068 ounces of gold, respectively (Q3 2022 YTD: 5,255 and 5,235 ounces, respectively) generating operating cash flow of $14.6 million (Q3 2022 YTD: $0.6 million). The increase in operating cash flow was partially offset by an increase in capital expenditures related to the final commissioning of the expanded 1,000+ tpd processing plant, capitalized pre-stripping mine development, expenditures related to final road realignment around the Special Mining License, construction of a significantly expanded TSF, development drilling related to the diamond drill program with STAMICO, and the purchase of four new gensets to replace rental units.
To help supplement the Company’s liquidity and to fund productivity enhancing purchases, during Q4 2022 the Company announced that its operating subsidiary, Buckreef Gold, entered into a pre-paid gold purchase agreement with a contract price totaling $5.0 million with OCIM. The total contract price was made available to Buckreef Gold in tranches with a $2.5 million upfront tranche and further tranches to be drawn over the next 18 months at Buckreef Gold’s option. Tranche 1 in this non-dilutive financing includes a 6-month grace period and a repayment period over the following 12 months as quarterly deliveries of a pre-determined quantity of gold. During Q1 2023, the Company drew down the first tranche of $2.5 million in exchange for delivering 434 ounces of gold per quarter, commencing February 2023, for a total of 1,735 ounces of gold over four quarters. The Company intends to use these proceeds on an opportunistic basis and provides the flexibility to make value accretive equipment purchases, and to expedite exploration and sulphide development programs at Buckreef Gold. Subsequent to May 31, 2023, the Company drew $1.0 million from the second tranche of the Agreement.
During Q3 2023, the Company entered into a series of gold zero-cost collar contracts for 1,800 gold ounces per month totaling 9,000 gold ounces to be settled from April 2023 to August 2023, at a maximum and minimum gold price of $2,030 and $1,825 per gold ounces respectively. During the three and nine months ended May 31, 2023, gold zero-cost collar contracts for a total of 3,600 gold ounces expired unexercised.
During Q3 2023, the Company announced that it entered into an At The Market Offering Agreement (“ATM”) with H.C. Wainwright & Co., LLC as Lead Agent and Roth Capital Partners, LLC as Co-Agent, pursuant to which the Company, at its discretion, may offer and sell, from time to time, common shares having an aggregate offering price of up to $10 million. If the Company chooses to sell shares under the ATM Offering, the Company intends to use the net proceeds of this offering for working capital and for other general corporate purposes. To date, no shares have been sold under the ATM Offering agreement.
In addition, to provide the Company with access to supplementary liquidity, during Q2 2022, TRX Gold entered into a purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”). This agreement provides TRX Gold with the right to sell up to $10 million of its shares to Lincoln Park over a 36-month period at its sole discretion. TRX Gold will control the timing and amount of any sales to Lincoln Park and will use the proceeds as needed to develop the Buckreef Gold asset. During Q3 2023, the Company made one sale totaling 200,000 of its common shares to Lincoln Park for total proceeds of $110,000.
As of May 31, 2023, the Company has accumulated losses of $122.8 million since inception (August 31, 2022: $123.7 million).
Commitments
In order to maintain existing site mining and exploration licenses, the Company is required to pay annual license fees. As at May 31, 2023 these licenses remained in good standing and the Company is up to date on license payments.
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| | Management’s Discussion and Analysis May 31, 2023 |
Contingencies
The Company is involved in litigation and disputes arising in the normal course of operations. Management is of the opinion that the outcome of any potential litigation will not have a material adverse impact on the Company’s financial position or results of operations. Accordingly, no provisions for the settlement of outstanding litigation and potential claims have been accrued.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Transactions with Related Parties
The Company may enter into related party transactions that are in the normal course of business. Transactions with Related Parties disclosure can be found in Note 15 of the Unaudited Interim Condensed Consolidated Financial Statements for the three and nine months ended May 31, 2023.
Omnibus Equity Incentive Plan
Effective June 26, 2019, the Company adopted the Omnibus Equity Incentive Plan dated June 26, 2019 (the “Omnibus Plan”), which Omnibus Plan was approved by the shareholders on August 16, 2019, subsequently updated and approved by the shareholders on February 25, 2022.
The purposes of the Omnibus Plan are: (a) to advance the interests of the Company by enhancing the ability of the Company and its subsidiaries to attract, motivate and retain employees, officers, directors, and consultants, which either of directors or officers may be consultants or employees; (b) to reward such persons for their sustained contributions; and (c) to encourage such persons to consider the long-term corporate performance of the Company.
The Omnibus Plan provides for the grant of options, restricted share units (“RSUs”), deferred share units (“DSUs”) and performance share units (“PSUs”) (collectively, the “Omnibus Plan Awards”), all of which are described in detail in the Form 40-F Annual Report for the year ended August 31, 2022, and the Information Circular dated January 21, 2022, filed on SEDAR on January 27, 2022.
The Omnibus Plan provides for the grant of other share-based awards to participants (“Other Share-Based Awards”), which awards would include the grant of common shares. All Other Share-Based Awards will be granted by an agreement evidencing the Other Share-Based Awards granted under the Omnibus Plan.
Subject to adjustments as provided for under the Omnibus Plan, the maximum number of shares issuable pursuant to Omnibus Plan Awards outstanding at any time under the Omnibus Plan shall not exceed 10% of the aggregate number of common shares outstanding from time to time on a non-diluted basis; provided that the acquisition of common shares by the Company for cancellation shall not constitute non-compliance with the Omnibus Plan for any Omnibus Plan Awards outstanding prior to such purchase of common shares for cancellation.
For more particulars about the Omnibus Plan, we refer you to the copy of the Omnibus Plan previously filed as an exhibit with the SEC and on SEDAR. The Omnibus Plan replaces all previous equity compensation plans of the Company, including the Restricted Stock Unit Plan and Stock Option Plan.
Changes in Accounting Polices and Critical Accounting Estimates and Judgements
Significant accounting policies as well as any changes in accounting policies are discussed in Note 3 “Significant Accounting Policies” and Note 4 “Significant Accounting Judgments, Estimates and Assumptions” of the Company’s Unaudited Interim Condensed Consolidated Financial Statements for the three and nine months ended May 31, 2023.
| 34 |
| | Management’s Discussion and Analysis May 31, 2023 |
Non-IFRS Performance Measures
Average realized price per ounce of gold sold
Average realized price per ounce of gold sold is a non-IFRS measure and does not constitute a measure recognized by IFRS and does not have a standardized meaning defined by IFRS. Average realized price per ounce of gold sold is calculated by dividing revenue by ounces of gold sold. It may not be comparable to information in other gold producers’ reports and filings.
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| May 31, 2023 | May 31, 2022 | May 31, 2023 | May 31, 2022 | |||||||||||||
| Revenue per financial statements | $ | 9,317 | $ | 5,732 | $ | 29,133 | $ | 9,066 | ||||||||
| Revenue recognized from OCIM prepaid gold purchase agreement | (743 | ) | — | (1,485 | ) | — | ||||||||||
| Revenue from gold spot sales | 8,574 | 5,732 | 27,648 | 9,066 | ||||||||||||
| Ounces of gold sold1 | 4,810 | 3,033 | 16,068 | 4,845 | ||||||||||||
| Ounces of gold sold from OCIM prepaid gold purchase agreement | (434 | ) | — | (867 | ) | — | ||||||||||
| Ounces from gold spot sales1 | 4,376 | 3,033 | 15,201 | 4,845 | ||||||||||||
| Average realized price (gross) | $ | 1,937 | $ | 1,890 | $ | 1,813 | $ | 1,871 | ||||||||
| Average realized price net OCIM prepaid gold purchase agreement | $ | 1,959 | $ | 1,890 | $ | 1,819 | $ | 1,871 | ||||||||
1 Note that the ounces of gold sold for the Nine Months Ended May 31, 2022 does not include 390 ounces as Buckreef Gold early adopted the IAS 16 amendment as disclosed in the three and nine months ended May 31, 2022 financial statements. Gold sales and related costs prior to that date were capitalized to exploration and evaluation assets and expenditures.
Cash cost per ounce of gold sold
Cash cost per ounce of gold sold is a non-IFRS performance measure and does not constitute a measure recognized by IFRS and does not have a standardized meaning defined by IFRS. Cash cost per ounce may not be comparable to information in other gold producers’ reports and filings. Upon declaration of commercial production of the 1,000+ tpd processing plant in Q1 2023, capitalization of mine development costs ceased, and depreciation of capitalized mine development costs commenced. As the Company uses this measure to monitor the performance of our gold mining operations and its ability to generate positive cash flow, beginning in Q1 2023, total cash cost per ounce of gold sold starts with cost of sales related to gold production and removes depreciation. The following table provides a reconciliation of total cash cost per ounce of gold sold to cost of goods sold per the financial statements for the three and nine months ended May 31, 2023.
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| May 31, 2023 | May 31, 2022 | May 31, 2023 | May 31, 2022 | |||||||||||||
| Cost of sales per financial statements | $ | 5,434 | $ | 1,542 | $ | 15,021 | $ | 2,985 | ||||||||
| Less: Depreciation | $ | (376 | ) | $ | (47 | ) | $ | (863 | ) | $ | (172 | ) | ||||
| Total cash cost | $ | 5,058 | $ | 1,495 | $ | 14,158 | $ | 2,813 | ||||||||
| Ounces of gold sold1 | 4,810 | 3,033 | 16,068 | 4,845 | ||||||||||||
| Cash cost per ounce of gold sold | $ | 1,052 | $ | 493 | $ | 881 | $ | 581 | ||||||||
1 Note that the ounces of gold sold for the Nine Months Ended May 31, 2022 does not include 390 ounces as Buckreef Gold early adopted the IAS 16 amendment as disclosed in the three and nine months ended May 31, 2022 financial statements. Gold sales and related costs prior to that date were capitalized to exploration and evaluation assets and expenditures.
Adjusted EBITDA
Adjusted EBITDA is a non-IFRS performance measure and does not constitute a measure recognized by IFRS and does not have a standardized meaning defined by IFRS. Adjusted EBITDA may not be comparable to information in other gold producers’ reports and filings. Adjusted EBITDA is presented as a supplemental measure of the Company’s performance and ability to service its obligations. Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, many of which present Adjusted EBITDA when reporting their results. Issuers present Adjusted EBITDA because investors, analysts and rating agencies consider it useful in measuring the ability of those issuers to meet their obligations. Adjusted EBITDA represents net income (loss) before interest, income taxes, and depreciation and also eliminates the impact of a number of items that are not considered indicative of ongoing operating performance.
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| | Management’s Discussion and Analysis May 31, 2023 |
Certain items of expense are added, and certain items of income are deducted from net income that are not likely to recur or are not indicative of the Company’s underlying operating results for the reporting periods presented or for future operating performance and consist of:
| · | Change in fair value of derivative financial instruments; |
| · | Accretion related to the provision for reclamation; |
| · | Share-based compensation expense; and |
| · | Tax adjustments related to a prior period tax assessment (2012-2020). |
The following table provides a reconciliation of net income (loss) and comprehensive income (loss) to Adjusted EBITDA per the financial statements for the three and nine months ended May 31, 2023.
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| May 31, 2023 | May 31, 2022 | May 31, 2023 | May 31, 2022 | |||||||||||||
| Net (loss) income and comprehensive (loss) income per financial statements | (374 | ) | 3,188 | 4,736 | 28 | |||||||||||
| Add: | ||||||||||||||||
| Depreciation | 376 | 47 | 863 | 172 | ||||||||||||
| Interest and other expenses | 327 | 54 | 1,368 | 434 | ||||||||||||
| Income tax expense | 1,719 | 108 | 4,383 | 259 | ||||||||||||
| Change in fair value of derivative financial instruments | 730 | (1,345 | ) | (1,670 | ) | (1,408 | ) | |||||||||
| Share-based payment expense | 541 | 612 | 1,939 | 2,125 | ||||||||||||
| Adjusted EBITDA | 3,319 | 2,664 | 11,619 | 1,610 | ||||||||||||
The Company has included “average realized price per ounce of gold sold”, “cash cost per ounce of gold sold” and “Adjusted EBITDA” as non-IFRS performance measures throughout this MD&A as TRX Gold believes that these generally accepted industry performance measures provide a useful indication of the Company’s operational performance. The Company believes that certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Disclosure of Outstanding Share Data
As at the date of this MD&A, there were 277,312,272 common shares outstanding, 41,970,074 share purchase warrants outstanding, 1,255,276 RSUs outstanding, nil PSUs/DSUs outstanding, and 12,361,000 stock options outstanding.
Risks Factors
The Company is subject to a number of extraneous risk factors over which it has no control. These factors are common to most mineral exploration and development companies and include, among others: project ownership, exploration and development risk, depressed equity markets and related financing risk, commodity price risk, fluctuating exchange rates, environmental risk, insurance risk, sovereign risk. For further details on the risk factors affecting the Company, please see the Company’s Form 40-F Annual Report for the year ended August 31, 2022 filed with the SEC on November 29, 2022 and on SEDAR as the Company’s Annual Information Form on November 29, 2022.
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| | Management’s Discussion and Analysis May 31, 2023 |
Internal Control Over Financial Reporting (“ICFR”)
Management of the Company is responsible for establishing and maintaining adequate internal controls over financial reporting (“ICFR”) for the Company as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934. The Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have conducted an evaluation of the design and effectiveness of the Company’s ICFR as of August 31, 2022. In making this assessment, the Company’s management used the criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013”). This evaluation included review of the documentation of controls, evaluation of the design and operating effectiveness of controls, and a conclusion on this evaluation. Based on this evaluation, Management concluded that ICFR was not effective for the year ended August 31, 2022 due to the following material weaknesses: (i) the Company had not implemented and tested all of the Company’s key controls, including information technology general controls, internal control over financial reporting and disclosure controls and procedures as per the criteria established in the COSO 2013 Framework and (ii) lack of timely review and approval of certain journal entries and reconciliations.
Remediation of Material Weaknesses
The control deficiencies described above were concluded on by management during the year ended August 31, 2022. The Company has prioritized the remediation of the material weaknesses and is working under the oversight of the Audit Committee to resolve the issue.
During the year ended August 31, 2022, the Company continued to strengthen its internal controls and are committed to ensuring that such controls are designed and operating effectively. The Company is implementing process and control improvements and management made the following changes during the year to improve the internal control framework, including the following:
| · | Engaged a third-party service provider to design and implement an enhanced internal control environment framework. During the year, the Company developed a set of key risk control matrices by business cycle and by entity, including key controls, business processes and policies to enhance the maturity level of the Company’s internal control environment. The Company also developed narratives and process maps for each key business cycle as conducted through walkthroughs with management, staff and its third-party IT services provider within all key business cycles. Management has been proactive in implementing the newly designed internal control framework and is remediating any identified control gaps. |
| · | Built an experienced finance team at Buckreef Gold with several internal personnel changes, including a new site Finance Manager and site Finance Superintendent, to enhance review and approval of invoices, journal entries and reconciliations, improve segregation of duties and to optimize the Company’s financial reporting close process. |
| · | Hired a new Corporate Controller with extensive IFRS experience to further supplement review and approval of journal entries and reconciliations, and to improve the Company’s financial reporting close process and reporting of the Company’s financial results and disclosures. This also includes preparation of formal accounting memorandums to support our conclusions on technical accounting matters, and the development and use of checklists and research tools to assist in compliance with IFRS with regard to complex accounting issues. |
| · | The Company implemented a new enterprise resource planning system subsequent to August 31, 2022 to help automate certain reconciliations and manual processes and to increase the efficiency of the financial statement review process. It is also expected to eliminate risk of manual spreadsheet errors and formalize procedures around validation of completeness and accuracy of spreadsheets related to account reconciliations. The Company will continue to expand on the use of the software tool to help manage month-end and quarter-end activities. |
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| | Management’s Discussion and Analysis May 31, 2023 |
During the year ended August 31, 2022, the Company worked with a third-party service provider to design and document a new and improved system of internal controls and is currently in the process of implementing and testing the operating effectiveness of these newly designed key controls with the goal of remediating the material weakness identified above. However, as at August 31, 2022, the Company has been unable to complete this implementation by the required reporting date due to limited time and resources. Proposed changes to address the material weaknesses will take time to implement due to, amongst other things, a limited number of staff at the Company.
It is the Company’s intention to remediate the material weakness and has engaged a third-party service provider to assist in the review, evaluation and testing of the Company’s controls and procedures in a timely manner over the course of F2023.
Additional Information
The Company is a Canadian public company listed on the Toronto Stock Exchange trading under the symbol “TNX” and also listed on the NYSE American trading under the symbol “TRX”. Additional information about the Company and its business activities is available on SEDAR at www.sedar.com; with the SEC at sec.gov; and the Company’s website at www.TRXgold.com.
Approval
The Board of Directors of TRX Gold Corporation has approved the disclosure contained in this Q3 2023 MD&A. A copy of this Q3 2023 MD&A will be provided to anyone who requests it. It is also available on the SEDAR website at www.sedar.com.
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| | Management’s Discussion and Analysis May 31, 2023 |
Endnotes
1 Refer to “Non-IFRS Performance Measures” section.
2 Notes Regarding Sample Protocol QA/QC: The sample chain of custody is managed by the Buckreef Gold geology team on site. Reported results are from diamond drilled core samples. Intervals of core to be analyzed are split into half using a mechanized core cutter, with one half sent to the Laboratory for geochemical analysis and the remaining half kept in storage for future reference and uses. Diamond drilled core has been a HQ size and recoveries are consistently 100% across all drill holes intercept reported.
Sampling and analytical procedures are subject to a comprehensive quality assurance and quality control program. The QA/QC program involves insertion of duplicate samples, blanks and certified reference materials in the sample stream. Gold analyses are performed by standard fire assaying protocols using a 50-gram charge with atomic absorption (AAS) finish and a gravimetric finish performed for assays greater than 10 grams per tonne.
Sample Preparation and analysis are performed by independent SGS Laboratory in Mwanza, Tanzania. SGS Laboratory is ISO17025 accredited and employs a Laboratory Information Management System for sample tracking, quality control and reporting.
The results summarized in this MD&A are from Buckreef Main Zone NEE prospect. The prospect is an extension of the known Buckreef Main Zone. The intercepts confirm a continuity of over 200 m of known Buckreef main deposit to the North east. The intersections reported here are a down-hole length and may not represent true width, however the true width is estimated to be between 50% - 60% of the length.
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