TRX Gold Corporation — FY2019 Form 20-F
Reporting period: Fiscal year ended August 31, 2019, not a standalone 2019 Q4 filing. The company, renamed from Tanzanian Royalty Exploration Corporation in April 2019, is an exploration and development-stage gold company focused principally on its Buckreef Project in Tanzania. Financial statements are audited and prepared under IFRS in Canadian dollars unless otherwise noted.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | Nil | Nil |
| Net loss | CAD 29.32 million | CAD 6.90 million |
| Basic and diluted loss per share | CAD 0.22 | CAD 0.06 |
| Total assets | CAD 38.12 million | CAD 53.24 million |
| Net assets | CAD 19.66 million | CAD 34.33 million |
| Working capital deficiency | CAD 9.10 million | CAD 12.01 million |
- Cash was approximately CAD 3.39 million at August 31, 2019. Current assets were CAD 4.14 million and current liabilities CAD 13.23 million.
- The company reported no operating revenue or operating cash flow. The supplied filing text does not provide clear cash-flow statement totals.
- Outstanding gold bullion and convertible loans totaled approximately CAD 6.93 million at year-end; these instruments generally bear 8% interest, may be renewed, and may be repaid or converted into shares at the lenders’ option. Certain loans are secured by company assets.
- No profit margins are meaningful in the absence of revenue. The filing identifies substantial doubt about the company’s ability to continue as a going concern without additional financing.
Material changes and business developments
- Net loss rose CAD 22.42 million year over year, primarily because the company wrote off CAD 22.23 million of mineral-property and deferred exploration costs, chiefly associated with Kigosi, Itetemia and Luhala. The company said it was concentrating resources on Buckreef and taking a conservative approach while certain property matters were under appeal.
- Exploration and deferred-property expenditures, excluding foreign-exchange effects, increased to CAD 3.14 million from CAD 1.29 million, driven by drilling and exploration at Buckreef.
- Share-based payment expense fell to CAD 0.24 million from CAD 1.60 million. Professional fees rose to CAD 1.67 million from CAD 0.85 million, partly due to litigation and corporate matters; interest accretion increased to CAD 0.99 million from CAD 0.82 million.
- Shares outstanding increased to 150.39 million from 125.16 million, approximately 20%. The company completed several equity offerings during the year and also issued shares to settle loans and pay interest and financing fees.
- No mining or ore processing took place at Buckreef during FY2019. The company advanced infill and deep drilling and reported multiple gold intercepts, including high-grade intervals; these exploration results do not establish economic mineability.
Outlook, risks and unusual items
- Management’s stated priority was advancing Buckreef and securing financing for project development and a mill. The company was negotiating with lenders, but gave no assurance financing would be obtained or on favorable terms. The filing provides no quantified production or earnings guidance.
- A 2018 NI 43-101 pre-feasibility study reported an open-pit reserve estimate of 19.08 million tonnes at 1.54 g/t, containing approximately 943,851 ounces, with estimated initial capital of US$76.5 million, sustaining capital of US$22.95 million, and projected production of 822,000 ounces over the project life. The study also cited an after-tax NPV of 130.96 million and IRR of 74%; the currency for the NPV is not clear in the supplied text. These are study estimates, not actual results. The filing cautions that the company has no reserves as defined under SEC Industry Guide 7.
- Key risks include ongoing financing needs, no producing properties, gold-price volatility, uncertain resource conversion and project economics, Tanzanian permitting and title risks, illegal mining and security issues, and possible dilution from further equity or loan conversions.
- During FY2019 the company received notices affecting the Kigosi mining license and Itetemia license application; it appealed after year-end and could lose rights if unsuccessful. Buckreef access and project advancement also depend on licenses, regulatory processes and negotiations with Tanzanian authorities and joint-venture partner Stamico.
- At September 30, 2019, the company disclosed approximately US$541,000 of active and forfeited license liabilities, including penalties. Separately, year-end disclosures cite differing accrual and penalty figures; investors should confirm the amounts and coverage in the audited notes.
- Crede litigation concerned disputed warrants and potential issuance of additional shares. A post-year-end New York court order required delivery of 1,332,222 shares and a US$200,000 bond; the company appealed aspects of the order. The company’s separate federal market-manipulation and contract claims remained in early stages.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing weaknesses in invoice review and oversight of control development and performance.
Important facts for investors to verify
- Available cash, near-term obligations, loan maturities and the status and terms of any subsequent financing.
- Current Buckreef project economics, capital requirements, mill plans, updated resource and reserve estimates, and the currency and assumptions underlying reported NPV and cost estimates.
- Outcomes of the Kigosi and Itetemia appeals, license renewals, and the final amount of unpaid license fees, penalties and other Tanzanian obligations.
- Current status and potential share or cash exposure from the Crede litigation and secured or convertible loans.
- Progress in remediating the disclosed material weaknesses in internal controls and any changes in liquidity or share count since August 31, 2019.