Roth MKM analyst Mike Niehuser, in a research report published on July 19, 2024, provided an update on TRX Gold Corp. (TNX:TSX; TRX:NYSE.American) following the company's announcement of record revenues and the completion of its third successful expansion at the Buckreef Gold Project.
The analyst maintained a Buy rating and a 12-month price target of US$1.00 on the stock.
TRX Gold reported record revenues due to higher gold prices, which enabled the company to complete its expansion project to increase gold production.
"This allowed it to complete its third successful expansion to increase gold production in a de-risked, self-funded, and phased approach," Niehuser noted.
The analyst highlighted the completion of the capacity expansion, stating, "The 1,000 tpd ball mill and crusher upgrades were scheduled for completion in 4Q24 at a cost of ~US$6.0 million. Capacity has been expanded to 2,000 tpd." Niehuser emphasized the importance of the new crushing circuit, which has increased the project's potential total crushing capacity to 3,600-to-4,800 tpd.
Regarding production outlook, Niehuser commented, "As of July 15, 2024, the processing plant achieved average mill throughput of 1,750 tpd, and a maximum of 1,873 tpd, 116% over 3Q24 levels. Currently, it is producing 616 oz per week, which is 60% of 3Q24 production levels."
The analyst praised TRX Gold's staged development approach, stating, "The current approach bypassed a large capital project thought essential to achieve economic gold recoveries from sulfide ore. By processing oxidized gold mineralized material on a modest scale, TRX funded expansion and improvements in crushing and grinding to achieve satisfactory gold recoveries from transitional and sulfide ore."
TRX Gold's strategic focus on phased, self-funded expansion has allowed the company to avoid significant shareholder dilution and debt, potentially derisking both the company and the project while accelerating and enhancing cash flow.
Roth MKM's valuation methodology for TRX Gold is based on a multiple of operating cash flow. "Based on annual gold production of 41,500 ounces and a US$2,000 gold price, a multiple of 15x operating cash flow results in a target price of ~US$1.04 per share," Niehuser explained.
With a Buy rating and a price target of US$1.00, representing a potential return of approximately 144% from the price at the time of the report of US$0.41, Roth MKM sees significant upside potential for TRX Gold.
The analyst concludes, "With the installation of the new ball mill, we anticipate increased throughput resulting in low cost of production. This should result in increased cashflow through the end of fiscal 2024, which should then stabilize in fiscal 2025."
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Disclosures for Roth MKM, TRX Gold Corp., July 19, 2024
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Disclosures: ROTH makes a market in shares of TRX Gold Corporation and as such, buys and sells from customers on a principal basis. Shares of TRX Gold Corporation may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
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