Steady Growth Through Cash Flow - An Overview of TRX Gold

• TRX Gold is listed on the NYSE American and TSX, currently producing 25,000 ounces of gold per year at its Buckreef mine in Tanzania.
• The company is undergoing an expansion to ramp up production capacity to 2,000 tons per day, which will double gold output to 40-50k ounces per year.
• The goal is steady, accretive growth over time to eventually reach over 100k ounces of annual production at low costs below $1,100 per ounce.
• TRX is focused on self-funding growth through cash flow rather than dilution, having raised only one round of capital in January 2021.
• Management aims to be opportunistic but disciplined on M&A, seeking quality assets that can create shareholder value and fit capabilities, rather than growth for its own sake.

About TRX Gold

TRX Gold Corporation is a junior gold producer focused on the development and expansion of its Buckreef Gold Project located in north-central Tanzania. The company is listed on the NYSE American under TRX and on the TSX under TNX. TRX Gold currently produces between 20,000-25,000 ounces of gold per year from its processing plant with a capacity of 1,000 tons per day. The company is in the process of expanding to 2,000 tons per day which will double gold production. TRX Gold has a market capitalization of around $110 million.

Interview with Stephen Mullowney, Director & CEO of TRX Gold Corp.

New Leadership Focused on Profitability

In late 2020, TRX Gold brought on a new management team led by CEO Steve Maloney, a former managing partner at PwC. The focus of the new team was to transition Buckreef from a money-losing exploration project into a profitable gold producer. Significant investments were made into plant expansions, local infrastructure, community relations, and growing production. The company has successfully turned around the economics of Buckreef, now operating profitably and funding expansions through operating cash flow.

According to Maloney, "The first part was to restructure and rebuild relationships. In that we had to put in place brand new teams, look at a business plan that could come from a money losing half million dollars a month operation into a profit." The new team took a staged approach - starting small to derisk the project and operations, proving the concept, then re-investing cash flows to scale up production.

Near-Term Expansion Focused on Economies of Scale

TRX Gold's current focus is on expanding the processing plant at Buckreef from 1,000 tpd to 2,000 tpd. This expansion is expected to double annual gold production to 40,000-50,000 oz. The larger-scale operation will drive economies of scale, especially around power costs and plant efficiencies. The expansion is being funded through operating cash flow, with new equipment and infrastructure being added in stages to minimize dilution.

According to Maloney, "We currently have 3 small ball mills on site. We'll be adding a larger ball mill with the same capacity as those 3 combined. The additional infrastructure to support the larger throughput will be added in phases as we ramp up." This staged approach derisks the expansion while generating cash flow throughout.

The company is guiding towards all-in sustaining costs of $1000-$1100/oz at the expanded production rate. While capital investments eat into cash flow in the near-term, TRX sees strong long-term economics from maximizing throughput at Buckreef.

Significant Exploration Potential

While the current operations and near-term expansion focus on the Main Zone deposit, TRX Gold believes there is substantial exploration upside across its 200 km2 land package. Recent drilling has extended mineralization along strike and identified new parallel zones nearby. However, only the Main Zone is included in the current resource.

According to Maloney, "Both trends are over 2 kilometers in length. When we're talking about the resources we're still only talking about the main Zone. We'll have other zones on this property that are hopefully just as big or larger than those but they got to be drilled out over time."

While exploration spending is constrained in the current capital environment, mining cash flows will allow TRX to steadily drill out known targets. The company's vision is to delineate a 10+ year mine life producing over 100,000 oz/year. Ongoing exploration and resource expansion are key to achieving this goal.

Financial Position and Capital Allocation

TRX Gold has taken a conservative approach to balance sheet management and avoids unnecessary dilution. The company has successfully funded its turnaround and initial expansions largely through a single US$25 million equity raise in January 2021. Remaining free cash supports further expansions and exploration.

According to Maloney, "Right now the business plan is steady as she goes and continue to grow it. The ore's there, income's there, they got this ML mixture between I guess it’s greenstone typical greenstone, some high grade veins and some homogenous areas. You felt that there's enough case studies around and enough experience to say I think we can do this without mucking it up."

This incremental approach may frustrate investors looking for hyper-growth, but TRX offers attractive leverage to the gold price while minimizing dilution risk. The company expects to release an updated preliminary economic assessment in 2023 to outline the long-term growth vision.

Conclusion

TRX Gold offers investors near-term cash flowing gold production combined with significant long-term growth potential, a stable jurisdiction, and disciplined capital management. While the current $110 million valuation limits institutional interest, TRX offers attractive upside for risk-tolerant retail investors as the company continues on its path to +100koz/year production. However, investors should expect a measured ramp-up driven by operating cash flows rather than reliance on external capital. Those with longer time horizons and belief in management's vision could be well rewarded.