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 | $ | 7,206 | $ | 8,476 | ||||||||
| Amounts receivable | 5 | 3,014 | 2,540 | |||||||||
| Prepayments and other assets | 6 | 1,330 | 1,206 | |||||||||
| Inventories | 7 | 4,479 | 3,630 | |||||||||
| Total current assets | 16,029 | 15,852 | ||||||||||
| Other long-term assets | 5 | 4,687 | 4,359 | |||||||||
| Mineral property, plant and equipment | 8 | 63,457 | 51,634 | |||||||||
| Total assets | $ | 84,173 | $ | 71,845 | ||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Amounts payable and accrued liabilities | $ | 11,606 | $ | 7,920 | ||||||||
| Withholding tax payable | - | 181 | ||||||||||
| Income tax payable | 1,206 | 436 | ||||||||||
| Current portion of deferred revenue | 9 | 1,379 | 1,864 | |||||||||
| Current portion of lease liabilities | 66 | - | ||||||||||
| Derivative financial instrument liabilities | 10 | 5,179 | 6,849 | |||||||||
| Total current liabilities | 19,436 | 17,250 | ||||||||||
| Lease liabilities | 45 | - | ||||||||||
| Deferred revenue | 9 | - | 621 | |||||||||
| Deferred income tax liability | 3,552 | - | ||||||||||
| Provision for reclamation | 2,920 | 2,815 | ||||||||||
| Total liabilities | 25,953 | 20,686 | ||||||||||
| Equity | ||||||||||||
| Share capital | 164,650 | 163,946 | ||||||||||
| Share-based payments reserve | 12 | 8,446 | 6,825 | |||||||||
| Warrants reserve | 13 | 1,700 | 1,700 | |||||||||
| Accumulated deficit | (122,824 | ) | (123,673 | ) | ||||||||
| Equity attributable to shareholders | 51,972 | 48,798 | ||||||||||
| Non-controlling interest | 14 | 6,248 | 2,361 | |||||||||
| Total equity | 58,220 | 51,159 | ||||||||||
| Total equity and liabilities | $ | 84,173 | $ | 71,845 |
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 | $ | 9,317 | $ | 5,732 | $ | 29,133 | $ | 9,066 | |||||||||||
| Cost of sales | ||||||||||||||||||||
| Production costs | (4,384 | ) | (1,076 | ) | (12,030 | ) | (2,126 | ) | ||||||||||||
| Royalty | (674 | ) | (419 | ) | (2,128 | ) | (687 | ) | ||||||||||||
| Depreciation | (376 | ) | (47 | ) | (863 | ) | (172 | ) | ||||||||||||
| Total cost of sales | (5,434 | ) | (1,542 | ) | (15,021 | ) | (2,985 | ) | ||||||||||||
| Gross profit | 3,883 | 4,190 | 14,112 | 6,081 | ||||||||||||||||
| General and administrative expenses | 16 | (1,634 | ) | (2,518 | ) | (5,506 | ) | (7,015 | ) | |||||||||||
| Change in fair value of derivative financial instruments | 10 | (730 | ) | 1,345 | 1,670 | 1,408 | ||||||||||||||
| Foreign exchange gains | 153 | 333 | 211 | 247 | ||||||||||||||||
| Interest and other expenses | (327 | ) | (54 | ) | (1,368 | ) | (434 | ) | ||||||||||||
| Income before tax | 1,345 | 3,296 | 9,119 | 287 | ||||||||||||||||
| Income tax expense | 17 | (1,719 | ) | (108 | ) | (4,383 | ) | (259 | ) | |||||||||||
| Net (loss) income and comprehensive (loss) income | $ | (374 | ) | $ | 3,188 | $ | 4,736 | $ | 28 | |||||||||||
| Net (loss) income and comprehensive (loss) income attributable to: | ||||||||||||||||||||
| Shareholders | $ | (1,264 | ) | $ | 1,971 | $ | 849 | $ | (2,009 | ) | ||||||||||
| Non-controlling interest | 890 | 1,217 | 3,887 | 2,037 | ||||||||||||||||
| Net (loss) income and comprehensive (loss) income | $ | (374 | ) | $ | 3,188 | $ | 4,736 | $ | 28 | |||||||||||
| (Loss) earnings per share attributable to shareholders | ||||||||||||||||||||
| Basic and diluted (loss) earnings per share | 11 | $ | (0.00 | ) | $ | 0.01 | $ | 0.00 | $ | (0.01 | ) |
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 | 254,870,556 | $ | 158,129 | $ | 5,680 | $ | 1,606 | $ | (117,457 | ) | $ | 47,958 | $ | (1,533 | ) | $ | 46,425 | |||||||||||||||
| Shares issued for settlement of debts | 165,889 | 98 | - | - | - | 98 | - | 98 | ||||||||||||||||||||||||
| Shares issued for financing | 909,901 | 373 | - | - | - | 373 | - | 373 | ||||||||||||||||||||||||
| Shares issued for cash, net of share issuance costs | 17,948,718 | 3,867 | - | - | - | 3,867 | - | 3,867 | ||||||||||||||||||||||||
| Stock options exercised | 450,000 | 258 | (111 | ) | - | - | 147 | - | 147 | |||||||||||||||||||||||
| Shares issued for share-based payments | 1,723,620 | 1,196 | (1,651 | ) | - | - | (455 | ) | - | (455 | ) | |||||||||||||||||||||
| Warrants issued | - | - | - | 94 | - | 94 | - | 94 | ||||||||||||||||||||||||
| Share-based compensation expense (Note 12) | - | - | 2,104 | - | - | 2,104 | - | 2,104 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | (2,009 | ) | (2,009 | ) | 2,037 | 28 | ||||||||||||||||||||||
| Balance at May 31, 2022 | 276,068,684 | $ | 163,921 | $ | 6,022 | $ | 1,700 | $ | (119,466 | ) | $ | 52,177 | $ | 504 | 52,681 | |||||||||||||||||
| Shares issued for share-based payments | 77,500 | 25 | 430 | - | - | 455 | - | 455 | ||||||||||||||||||||||||
| Withholding tax impact on share-based compensation payments | - | - | (636 | ) | - | - | (636 | ) | - | (636 | ) | |||||||||||||||||||||
| Share-based compensation expense (Note 12) | - | - | 1,009 | - | - | 1,009 | - | 1,009 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | (4,207 | ) | (4,207 | ) | 1,857 | (2,350 | ) | |||||||||||||||||||||
| Balance at August 31, 2022 | 276,146,184 | $ | 163,946 | $ | 6,825 | $ | 1,700 | $ | (123,673 | ) | $ | 48,798 | $ | 2,361 | $ | 51,159 | ||||||||||||||||
| Shares issued for share-based payments | 810,469 | 509 | (514 | ) | - | - | (5 | ) | - | (5 | ) | |||||||||||||||||||||
| Share-based compensation expense (Note 12) | - | - | 2,138 | - | - | 2,138 | - | 2,138 | ||||||||||||||||||||||||
| Withholding tax impact on restricted share units ("RSUs") | - | - | 87 | - | - | 87 | - | 87 | ||||||||||||||||||||||||
| Shares issued for cash, net of share issuance costs | 200,000 | 105 | - | - | - | 105 | - | 105 | ||||||||||||||||||||||||
| Shares issued for cashless exercise of options | 155,619 | 90 | (90 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Net income for the period | - | - | - | - | 849 | 849 | 3,887 | 4,736 | ||||||||||||||||||||||||
| Balance at May 31, 2023 | 277,312,272 | $ | 164,650 | $ | 8,446 | $ | 1,700 | $ | (122,824 | ) | $ | 51,972 | $ | 6,248 | $ | 58,220 |
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 | $ | 4,736 | $ | 28 | ||||||||
| Adjustments for items not involving cash: | ||||||||||||
| Non-cash items | 21 | 4,218 | 1,245 | |||||||||
| Changes in non-cash working capital: | ||||||||||||
| Decrease (increase) in amounts receivable | 1,628 | (821 | ) | |||||||||
| Increase in inventories | (544 | ) | (968 | ) | ||||||||
| Increase in prepaid and other assets | (1,567 | ) | (392 | ) | ||||||||
| Increase in amounts payable and accrued liabilities | 5,321 | 1,249 | ||||||||||
| Increase in income tax payable | 788 | 259 | ||||||||||
| Cash provided by operating activities | $ | 14,580 | $ | 600 | ||||||||
| Investing | ||||||||||||
| Exploration and evaluation assets and expenditures | $ | - | $ | (2,192 | ) | |||||||
| Proceeds from gold sales | - | 535 | ||||||||||
| Purchase of mineral property, plant and equipment | (14,650 | ) | (8,483 | ) | ||||||||
| Increase in other long-term assets | (1,114 | ) | - | |||||||||
| Cash used in investing activities | $ | (15,764 | ) | $ | (10,140 | ) | ||||||
| Financing | ||||||||||||
| Proceeds from issuance of shares and warrants | $ | 110 | $ | 7,147 | ||||||||
| Issuance costs paid | (5 | ) | (589 | ) | ||||||||
| Withholding taxes on settlement of RSUs | (94 | ) | - | |||||||||
| Lease payments | (97 | ) | - | |||||||||
| Cash (used in) provided by financing activities | $ | (86 | ) | $ | 6,558 | |||||||
| Net decrease in cash | $ | (1,270 | ) | $ | (2,982 | ) | ||||||
| Cash at beginning of the period | 8,476 | 13,447 | ||||||||||
| Cash at end of the period | $ | 7,206 | $ | 10,465 | ||||||||
| Taxes paid in cash | $ | 43 | $ | - |
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:
Reported at May 31, 2022 | Reclassification | Restated at May 31, 2022 | ||||||||||
| General and administrative expenses | $ | (2,518 | ) | $ | - | $ | (2,518 | ) | ||||
| Financial instrument related cost and other | 1,334 | (1,334 | ) | - | ||||||||
| Gain on derivative financial instruments | - | 1,345 | 1,345 | |||||||||
| Accretion of provision for reclamation | (12 | ) | 12 | - | ||||||||
| Loss on disposal of assets | (26 | ) | 26 | - | ||||||||
| Foreign exchange gains | 333 | - | 333 | |||||||||
| Interest and other expenses | (5 | ) | (49 | ) | (54 | ) | ||||||
| Income tax expense | (108 | ) | - | (108 | ) | |||||||
| Net income and comprehensive income | $ | 3,188 | $ | - | $ | 3,188 |
Nine months ended May 31, 2022:
Reported at May 31, 2022 | Reclassification | Restated at May 31, 2022 | ||||||||||
| General and administrative expenses | $ | (7,015 | ) | $ | - | $ | (7,015 | ) | ||||
| Financial instrument related costs and other | 1,115 | (1,115 | ) | - | ||||||||
| Gain on derivative financial instruments | - | 1,408 | 1,408 | |||||||||
| Accretion of provision for reclamation | (100 | ) | 100 | - | ||||||||
| Loss on disposal of assets | (26 | ) | 26 | - | ||||||||
| Foreign exchange gains | 247 | - | 247 | |||||||||
| Interest and other expenses | (15 | ) | (419 | ) | (434 | ) | ||||||
| Income tax expense | (259 | ) | - | (259 | ) | |||||||
| Net income and comprehensive income | $ | 28 | $ | - | $ | 28 |
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:
Reported at August 31, 2022 | Reclassification | Restated at August 31, 2022 | ||||||||||
| Amounts receivable | $ | 40 | $ | 2,500 | $ | 2,540 | ||||||
| Other receivables | 2,500 | (2,500 | ) | - |
| 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 |
May 31, 2023 | August 31, 2022 | |||||||
| Receivable from precious metal sales | $ | 808 | $ | - | ||||
| Sales tax receivable(1) | 6,844 | 4,359 | ||||||
| Prepaid gold purchase receivable (Note 9) | - | 2,500 | ||||||
| Other | 49 | 40 | ||||||
| 7,701 | 6,899 | |||||||
| Less: Long-term portion | (4,687 | ) | (4,359 | ) | ||||
| Total amounts receivable | $ | 3,014 | $ | 2,540 |
| (1) | Sales tax receivables consist of harmonized 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"). VAT which the Company does not expect to recover within the next 12 months has been classified as long-term assets. |
As at May 31, 2023, $0.2million (August 31, 2022 - $nil ) of time-barred VAT has been expensed. The Company held no collateral for any receivables. Subsequent to May 31, 2023, the Company received $2.1million of VAT refunds from the TRA.
| 6. | Prepayments and other assets |
May 31, 2023 | August 31, 2022 | |||||||
| Prepaid expenses | $ | 663 | $ | 699 | ||||
| Deferred financing costs(1) | 667 | 507 | ||||||
| Total prepayments and other assets | $ | 1,330 | $ | 1,206 |
| (1) | Consists of $0.5 million in commitment fees paid with respect to a share purchase agreement whereby the Company, at its sole discretion, has the right to sell up to $10 million of its common shares over a 36-month period and $0.2 million in deferred financing costs related to an At-the-Market Offering Agreement entered on May 12, 2023. |
| 7. | Inventories |
May 31, 2023 | August 31, 2022 | |||||||
| Ore stockpile | $ | 2,353 | $ | 2,643 | ||||
| Gold in circuit | 528 | 210 | ||||||
| Gold doré | 21 | 253 | ||||||
| Total precious metals inventories | 2,902 | 3,106 | ||||||
| Supplies | 1,577 | 524 | ||||||
| Total inventories | $ | 4,479 | $ | 3,630 |
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 |
| Construction in progress | Mineral properties | Processing plant and related infrastructure | Machinery and equipment | Other | Total | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| As at August 31, 2022 | $ | 45,239 | $ | - | $ | 7,076 | $ | 1,396 | $ | 143 | $ | 53,854 | ||||||||||||
| Additions | - | 4,132 | 8,509 | 115 | 213 | 12,969 | ||||||||||||||||||
| Transfers(1) | (45,239 | ) | 38,485 | 6,754 | 5 | (5 | ) | - | ||||||||||||||||
| As at May 31, 2023 | $ | - | $ | 42,617 | $ | 22,339 | $ | 1,516 | $ | 351 | $ | 66,823 | ||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||
| As at August 31, 2022 | $ | - | $ | - | $ | 1,566 | $ | 619 | $ | 35 | $ | 2,220 | ||||||||||||
| Depreciation | - | 752 | 156 | 130 | 108 | 1,146 | ||||||||||||||||||
| Transfers(1) | - | (362 | ) | 362 | - | - | - | |||||||||||||||||
| As at May 31, 2023 | $ | - | $ | 390 | $ | 2,084 | $ | 749 | $ | 143 | $ | 3,366 | ||||||||||||
| Net book value | ||||||||||||||||||||||||
| As at August 31, 2022 | $ | 45,239 | $ | - | $ | 5,510 | $ | 777 | $ | 108 | $ | 51,634 | ||||||||||||
| As at May 31, 2023 | $ | - | $ | 42,227 | $ | 20,255 | $ | 767 | $ | 208 | $ | 63,457 |
| (1) | On November 1, 2022, Buckreef achieved commercial production at which point development expenditures were subject to depreciation. |
| 9. | Deferred revenue |
On August 11, 2022, the Company entered into a $5million prepaid Gold Doré Purchase Agreement ("Agreement") with OCIM Metals and Mining S.A. ("OCIM"). The Agreement requires funds to be made available to the Company in two tranches. 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 $1.0million from the second tranche of the Agreement.
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)
| Amount | ||||
| As at August 31, 2022 | $ | 2,485 | ||
| Accretion of deferred revenue | 364 | |||
| Transaction costs expensed | 15 | |||
| Revenue recognized | (1,485 | ) | ||
| As at May 31, 2023 | $ | 1,379 |
| 10. | Derivative financial instrument liabilities |
May 31, 2023 | August 31, 2022 | |||||||
| Derivative warrant liabilities | $ | 5,127 | $ | 6,849 | ||||
| Gold zero-cost collars | 52 | - | ||||||
| Total derivative financial instrument liabilities | $ | 5,179 | $ | 6,849 |
| a) | Derivative warrant liabilities |
| Amount | ||||
| As at August 31, 2022 | $ | 6,849 | ||
| Change in fair value | (1,722 | ) | ||
| As at May 31, 2023 | $ | 5,127 |
Derivative warrant liabilities of $5.1million will only be settled by issuing equity of the Company. For the three and nine months ended May 31, 2023, fair value changes amounted to a loss of $0.7million and a gain of $1.7million, respectively (2022 - gains of $1.3million and $1.4million, respectively).
Fair values of derivative warrant liabilities were calculated using the Black-Scholes option pricing model with the following assumptions:
May 31, 2023 | August 31, 2022 | |||||||
| Share price | $0.46 | $0.48 | ||||||
| Risk-free interest rate | 3.90% - 5.31% | 3.32% - 3.44% | ||||||
| Dividend yield | 0% | 0% | ||||||
| Expected volatility | 53% - 58% | 55% - 60% | ||||||
| Remaining term (in years) | 0.2- 3.7 | 0.9- 4.4 |
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:
| May 31, 2023 | ||||||||
| 10% change in expected volatilities | Increase | Decrease | ||||||
| (Loss) income | $ | (974 | ) | $ | 989 |
| b) | Gold zero-cost collars |
| Amount | ||||
| As at August 31, 2022 | $ | - | ||
| Change in fair value | 52 | |||
| As at May 31, 2023 | $ | 52 |
In March 2023, the Company entered into a series of gold zero-cost collar contracts for 1,800 gold ounces per month totalling 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 ounce, respectively.
During the three and nine months ended May 31, 2023, gold zero-costs collar contracts for a total of 3,600gold ounces expired unexercised.
As at May 31, 2023, the following gold zero-cost collar contracts were outstanding:
| Quantity (ounces) | Floor Price | Ceiling Price | Expiry Date | |||||||||||
| 1,800 | $1,825 | $2,030 | June 28, 2023 | |||||||||||
| 1,800 | $1,825 | $2,030 | July 27, 2023 | |||||||||||
| 1,800 | $1,825 | $2,030 | August 29, 2023 |
For the three and nine months ended May 31, 2023, fair value losses amounted to $0.1million and $0.1million, respectively (2022 - $nil and $nil, respectively).
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 |
Three months ended May 31, | Nine months ended May 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (loss) income attributable to shareholders | $ | (1,264 | ) | $ | 1,971 | $ | 849 | $ | (2,009 | ) | ||||||
| Weighted average number of common shares for basic EPS(1) | 284,205,392 | 274,363,799 | 281,536,777 | 263,927,318 | ||||||||||||
| Effect of dilutive stock options, warrants, RSUs and share awards | - | 78,701 | 4,056,778 | - | ||||||||||||
| Weighted average number of common shares for diluted EPS(1) | 284,205,392 | 274,442,500 | 285,593,555 | 263,927,318 |
| (1) | The weighted average number of common shares for basic and diluted EPS include vested, but unissued, common shares relating to common share awards. |
For the nine months ended May 31, 2023, the weighted average number of common shares for diluted EPS excluded 7.4million stock options and 42.0million warrants that were anti-dilutive for the period (2022: nil share options and 42.0million share warrants).
| 12. | Share-based payments reserve |
Share-based compensation expense for the three and nine months ended May 31, 2023 totalled $0.5million and $2.1million, respectively (2022: $0.6million and $2.1million, respectively).
As at May 31, 2023, the Company had 3,173,284(August 31, 2022 - 2,106,675) share awards available for issuance under the Omnibus Equity Incentive Plan.
| a) | Stock options |
Canadian Dollars denominated stock options
Number of stock options | Weighted average exercise price per share | |||||||
| Balance - August 31, 2022 | 5,336,000 | CAD $0.41 | ||||||
| Options exercised(1) | (350,000 | ) | CAD $0.42 | |||||
| Balance - May 31, 2023 | 4,986,000 | CAD $0.41 |
| (1) | The weighted average share price at the time of the option exercise was C$0.75. |
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:
| Remaining | ||||||||||||||||||
| Number of options | Expiry | contractual | ||||||||||||||||
| Exercise price | Outstanding | Exercisable | Date | life (years) | ||||||||||||||
| C$0.40 | 2,354,000 | 2,354,000 | October 11, 2026 | 3.4 | ||||||||||||||
| C$0.43 | 2,532,000 | 2,532,000 | September 29, 2026 | 3.3 | ||||||||||||||
| C$0.35 | 100,000 | 100,000 | January 2, 2027 | 3.6 | ||||||||||||||
| C$0.41(1) | 4,986,000 | 4,986,000 | 3.4(1) |
| (1) | Total represents weighted average. |
US Dollars denominated stock options
Number of stock options | Weighted average exercise price per share | ||||||
| Balance - May 31, 2023 and August 31, 2022 | 7,375,000 | $0.50 |
Options to purchase common shares carry exercise prices and terms to maturity as follows:
| Remaining | ||||||||||||||||||
| Exercise price | Number of options | Expiry | contractual | |||||||||||||||
| Outstanding $ | Outstanding | Exercisable | Date | life (years) | ||||||||||||||
| USD $0.50 | 7,375,000 | 1,475,000 | August 17, 2027 | 4.2 |
For the three and nine months ended May 31, 2023, share-based payment expenses related to stock options totalled $0.2million and $0.4million, respectively (2022 - $nil and $nil, respectively).
| b) | Restricted Share Units: |
The following table sets out activity with respect to outstanding RSUs:
| Number of RSUs | ||||
| Balance - August 31, 2022 | 1,855,276 | |||
| Granted | 160,000 | |||
| Vested | (600,000 | ) | ||
| Forfeited | (160,000 | ) | ||
| Balance - May 31, 2023 | 1,255,276 |
For the three and nine months ended May 31, 2023, share-based payment expenses related to RSUs totalled $0.1million and $0.4million, 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 |
Number of warrants | Weighted average exercise price per share | Weighted average remaining contractual life (years) | |||||||||
| Balance - August 31, 2022 | 41,970,074 | $0.72 | 3.6 | ||||||||
| Balance - May 31, 2023 | 41,970,074 | $0.72 | 2.8 |
As at May 31, 2023, the following warrants were outstanding:
|
Number of Warrants | Exercise price | Expiry date | ||||||||||
| Convertible debenture warrants - July 27, 2020 | 3,002,037 | $1.21 | July 27, 2023 | |||||||||
| Private placement financing warrants - December 23, 2020 | 2,777,268 | $1.50 | December 23, 2023 | |||||||||
| Private placement financing warrants - February 11, 2021 | 16,461,539 | $0.80 | February 11, 2026 | |||||||||
| Private placement financing broker warrants - February 11, 2021 | 1,152,307 | $0.80 | February 11, 2026 | |||||||||
| Private placement financing warrants - January 26, 2022 | 17,948,718 | $0.44 | January 26, 2027 | |||||||||
| Private placement financing placement agent warrants - January 26, 2022 | 628,205 | $0.44 | January 26, 2027 | |||||||||
| Balance - May 31, 2023 | 41,970,074 |
| 14. | Non-controlling interest |
Summarized financial information for Buckreef is disclosed below:
Three months ended May 31, | Nine months ended May 31, | |||||||||||||||
| Income Statement | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Revenue | $ | 9,317 | $ | 5,732 | $ | 29,133 | $ | 9,066 | ||||||||
| Comprehensive income for the period | 1,979 | 2,793 | 8,638 | 4,528 |
| Statement of Financial Position | May 31, 2023 | August 31, 2022 | ||||||
| Current assets | $ | 9,945 | $ | 7,253 | ||||
| Non-current assets | 65,875 | 53,789 | ||||||
| Current liabilities | (11,966 | ) | (8,602 | ) | ||||
| Non-current liabilities | (6,475 | ) | (2,815 | ) | ||||
| Advances from parent, net | (36,840 | ) | (37,725 | ) |
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:
Three months ended May 31, | Nine months ended May 31, | |||||||||||||||
| Directors and key management personnel | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Remuneration (1) | $ | 438 | $ | 463 | $ | 1,414 | $ | 1,291 | ||||||||
| Share-based compensation expense | 410 | 612 | 1,682 | 2,125 | ||||||||||||
| Total directors and key management personnel | $ | 848 | $ | 1,075 | $ | 3,096 | $ | 3,416 |
| (1) | Remuneration includes salaries and benefits for certain key management personnel and director fees. Certain members of the board of directors have employment or service contracts with the Company. Directors are entitled to director fees and share based payments for their services and officers are entitled to cash remuneration and share based payments for their employment services. |
As at May 31, 2023, included in amounts payable is $0.1million of board fees (August 31, 2022 - $0.2million) due to related parties with no specific terms of repayment.
During the three and nine months ended May 31, 2023, $0.2million and $0.4million for stock options granted to key management personnel was expensed, respectively (2022 - $nil and $nil, respectively) and $nil and $0.2million 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) | 1.56million common shares having a fair market value of $1.1million on the respective start dates of the key management (December 1, 2020 to May 18, 2021). |
| b) | Common shares on the first, second and third anniversary dates of the greater of up to 2.0million, 3.6million and 2.8million common shares; or common shares having a fair market value of to $1.4million, $2.5million and $2.0million 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 $7.0million at grant date that is amortized over the service period.
During the three and nine months ended May 31, 2023, $0.2million and $1.1million related to common share awards granted to key management personnel was expensed, respectively (2022 - $0.6million and $2.1million, 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 |
Three months ended May 31, | Nine months ended May 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Directors' fees (Note 15) | $ | 92 | $ | 144 | $ | 306 | $ | 331 | ||||||||
| Insurance | 69 | 113 | 268 | 346 | ||||||||||||
| Office and general | 47 | 291 | 107 | 562 | ||||||||||||
| Shareholder information | 61 | 81 | 375 | 378 | ||||||||||||
| Professional fees | 94 | 183 | 331 | 497 | ||||||||||||
| Salaries and benefits(1) (Note 15) | 540 | 690 | 1,638 | 1,844 | ||||||||||||
| Consulting | 115 | 101 | 292 | 268 | ||||||||||||
| Severance | - | 17 | - | 259 | ||||||||||||
| Share-based compensation expense(1) (Note 15) | 541 | 612 | 1,939 | 2,125 | ||||||||||||
| Travel and accommodation | 47 | 72 | 150 | 176 | ||||||||||||
| Depreciation(1) | 21 | 11 | 79 | 21 | ||||||||||||
| Other | 7 | 203 | 21 | 208 | ||||||||||||
| Total general and administrative expenses | $ | 1,634 | $ | 2,518 | $ | 5,506 | $ | 7,015 |
| (1) | As a result of adoption to amendments to IAS 16, Property, Plant and Equipment, during the year ended August 31, 2022, certain costs incurred related to Buckreef's operating costs, post adoption, were recorded in cost of sales. |
| 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 $1.7million, comprised of current income tax expense of $0.3million and deferred income tax expense of $1.4million (2022 - $0.1million income tax expense comprised of current income tax expense of $0.1million and deferred income tax expense of $nil). For the nine months ended May 31, 2023, the Company recorded income tax expense of $4.4million, comprised of current income tax expense of $0.8million and deferred income tax expense of $3.6million (2022 - $0.3million income tax expense comprised of current income tax expense of $0.3million and deferred income tax expense of $nil).
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:
Three months ended May 31, | Nine months ended May 31, | |||||||||||||||
| Revenue | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Tanzania | $ | 9,317 | $ | 5,732 | $ | 29,133 | $ | 9,066 | ||||||||
| Total revenue | $ | 9,317 | $ | 5,732 | $ | 29,133 | $ | 9,066 |
| Non-current assets | May 31, 2023 | August 31, 2022 | ||||||
| Canada | $ | 61 | $ | - | ||||
| Tanzania | 68,083 | 55,993 | ||||||
| Total non-current assets | $ | 68,144 | $ | 55,993 |
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 |
Nine months ended May 31, | ||||||||
| 2023 | 2022 | |||||||
| Depreciation | $ | 942 | $ | 193 | ||||
| Change in fair value of derivative financial instrument liabilities (Note 10) | (1,670 | ) | (1,408) | |||||
| Share-based compensation expense (Note 12) | 2,113 | 2,334 | ||||||
| Accretion of provision for reclamation | 105 | 100 | ||||||
| Deferred income tax expense (Note 17) | 3,552 | - | ||||||
| Accretion of lease liabilities | 8 | - | ||||||
| Settlement of deferred revenue (Note 9) | (1,485 | ) | - | |||||
| Accretion of deferred revenue (Note 9) | 364 | - | ||||||
| Foreign exchange gains | 41 | - | ||||||
| VAT written-off (Note 5) | 233 | - | ||||||
| Loss on assets disposal | - | 26 | ||||||
| Other expenses | 15 | - | ||||||
| Total non-cash items | $ | 4,218 | $ | 1,245 |
20
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TRX Gold Corporation published this content on 14 July 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 July 2023 21:06:20 UTC.
