This article is about Tanzanian Royalty Exploration (NYSEMKT:TRX). In April 2002, shareholders of Tanzanian Royalty Exploration (formerly Tan Range Exploration) approved the acquisition of Tanzania American International, a company managed by the Sinclair family. Following this transaction, Mr. Sinclair became Chairman of Tanzanian Royalty and now leads its efforts to become a gold producer and royalty company.
Tanzanian Royalty is a gold company focused on the Lake Victoria Goldfields of Tanzania. The company's business strategy is to enter into partnerships with exploration and mining companies in order to receive royalty income prior to production, as well as throughout commercial production, from exploration projects owned by Tanzanian Royalty.
Tanzanian Royalty could be entering commercial production next year. Tanzanian Royalty has developed a conceptual five-year production plan. The conceptual management plan envisages a build-up of annual production from an initial modest level of about 40,000 ounces per year, then aims to reach an annual production level of approximately 150,000 ounces per year, and by the end of the five-year period management targets a production rate of approximately 200,000 ounces of gold per year.
The Buckreef gold mine re-development project was acquired from the Tanzanian State Mining Company (Stamico) in December 2010. Under a heads of agreement concluded with the stated-owned company, Tanzanian Royalty has the right to earn a 55% interest in Buckreef with Stamico holding the remainder. Buckreef is Tanzanian Royalty's most advanced project currently.
The Buckreef project is located in north-central Tanzania immediately to the south of Lake Victoria and 110km southwest of Mwanza. Access to the Buckreef project is by ferry across Smiths Sound and then via unpaved roads and an onsite airstrip. The project area comprises the dormant Buckreef Gold Mine and four prospects with known mineralization: Buckreef, Buziba, Tembo and Bingwa.
An NI 43-101 Technical Report was completed in August 2012 that includes a positive Preliminary Economic Assessment (PEA) for the Buckreef Project. A major follow-up drill campaign has also been completed that will lead to a new Resource Model as the basis for initiating a Pre-Feasibility/Feasibility Study of this project.
The PEA mine plan is based on an assumed minimum annual production of between 100,000 to 120,000 ounces of gold. Initial plant feed is assumed to be 1.8 million tons per year projected to produce about 110,000 ounces of gold annually, rising in year 6 to 3.6 million tons per year projected to produce over 120,000 ounces of gold annually. The mine plan is based on two open pits, one centered on Buckreef and a second open pit centered on Buziba. The largest open pit is 1.8 km long and 210 meters deep. Total ore projected to be mined over the 12-year life of mine is 33.5 million tons. Total production over the life of mine is projected to be approximately 1.4 million ounces of gold.
The weighted average operating cost over the life of mine is approximately $750 per ounce of gold produced. Initial capital cost is approximately $133.9 million and total capital cost is approximately $238.3 million. The net present value [NPV] at a discount rate of 5% and using a gold price of $1,600 per ounce is $392 million, with an internal rate of return [IRR] of 54% on a pre-tax basis; and an NPV of $288 million with an IRR of 48% on an after-tax basis. Here is a table of the project's sensitivity to different gold prices.
|Post tax project NPV (at 5% discount rate)/million||$287.98||$220.41||$149.58||$81.17|
|Post tax project NPV (at 10% discount rate)/million||$196.25||$143.44||$87.88||$33.69|
The project is profitable at the current gold price.
Tanzanian Royalty reported the third-quarter, which ended May 31, financial results on July 15 with the following highlights:
|Net loss||$1.5 million|
Tanzanian Royalty believes that the current level of funds is sufficient to achieve its business objectives and milestones over the next 12 months. Tanzanian Royalty continues to explore alternative financing sources in the form of equity, debt or a combination thereof.
On June 25, 2013 Tanzanian Royalty announced that it had concluded the selection process and Consulmet was awarded the contracts for the Kigosi and Bingwa/Tembo projects located on the Buckreef property, for plant construction and management on an a turnkey basis. Tanzanian Royalty is adequately financed to begin construction on the properties and there will be no equity or debt offering, and no forward sale of gold, in order to launch these projects.
Tanzanian Royalty is further looking forward to finalizing a new resource upgrade model relating to the recent successful drilling program on the Buckreef prospects as early as possible this summer.
The mining industry in which Tanzanian Royalty is engaged is in general, highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of Tanzanian Royalty. Tanzanian Royalty competes with other mining companies in connection with the acquisition of gold and other precious metal properties. In general, properties with a higher grade of recoverable mineral and/or which are more readily mineable afford the owners a competitive advantage in that the cost of production of the final mineral product is lower. Thus, a degree of competition exists between those engaged in the mining industries to acquire the most valuable properties.
The two biggest risks for the stock are the price of gold and the country risk:
- The average operating cost for the Buckreef project is approximately $750 per ounce of gold produced.
- The government of Tanzania may institute regulatory policies that adversely affect the exploration and development of the company's properties.
Tanzanian Royalty's cumulative Measured and Indicated resources amount to 59.8 million tons at 1.26 grams per ton gold that contain approximately 2.4 million ounces of gold and Inferred resources amount to 33.7 million tons at 1.22 grams per ton gold that contain approximately 1.3 million ounces of gold.
The next milestone for the stock will be the new resource upgrade model for the Buckreef project, which is anticipated this summer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.