Tanzanian Royalty Exploration (AMEX: TRX) is still trying to figure out what happened last Thursday when shares plummeted to a 52-week low of 1.56 before closing the day at disappointing 2.29, all of this after opening the day at 3.41. As perplexing as the volatile nature of the company’s share price was TRX’s trading volume, surpassing a staggering 17 million, that coming after a Wednesday session that saw trading volume of 445,500 and Tuesday’s session of 215,000.
Responding to a request from the Investment Industry Regulatory Organization of Canada regarding the abnormal trading volume a press release was issued by TRX in which company President and CEO, James E. Sinclair, stated “that there is no particular event other than a technical market situation that can explain the recent trading action in the Company’s shares.” Essentially investors, en masse, found Thursday the opportune time to dump their shares in TRX; perhaps shareholders had simply lost their confidence in the gold exploration company after seeing shares surrender more than half their value since reaching a 52-week high of 7.82 in June.
Oddly enough the large-scale selloff came almost two weeks after TRX announced they had entered into a Definitive Joint Venture Agreement with the State Mining Corporation of Tanzania (STAMICO) for the development of the Buckreef Gold Project in Tanzania, establishing a joint venture company, Buckreef Gold Company Limited, with TRX holding a 55% interest while STAMICO will hold the remaining 45%.
Of course the joint venture is just the first step in a long process before TRX ever sees revenue generated from the gold mining project and they would be considered fortunate if they realize Sinclair’s own vision of commercial production at Buckreef within a 30 month period.
It could be that the length of time it will take to reach the commercial stage drove shareholders to last Thursday’s selloff but was that selloff short-sighted? Yes there are plenty of hurdles that need to be cleared by TRX but the company appears to have won the favor of the Tanzanian government with the country’s Energy and Minerals Minister, William Ngeleja, stating “This project is a role model, which must receive our utmost cooperation and attention.”
To those shareholders of TRX who believe in the company’s ultimate success the Tanzanian government will almost certainly play a major influence. Just how big of an influence the government is could be seen relatively soon as TRX still awaits news concerning their application to increase the size of the Buckreef mining area “build a full-fledged mine.” That application was made in July but following October’s announcement of the joint venture agreement the company was assured the mining application would be given priority and that the minister had “instructed the Acting Commissioner for Minerals to expeditiously process the application for the enlargement.”
This could be a significant development for TRX as Buckreef is located in the Lake Victoria Goldfields of northern Tanzania, a region that is home to the country’s largest gold producing mine. It should be noted that Buckreef was previously a producing underground gold mine but was closed in 1994 due to “poor management” according to Minerals Commissioner Ally Samaje.
That being said it may strike some investors as odd that a gold producing mine would sit for more than 16 years and that could be a red flag that shareholders acted on last Thursday. If the project was capable of producing significant amounts of gold it would stand to reason that there would have been a greater sense of urgency in getting operations going.
Really TRX may not be banking on Buckreef and the real value of that project may simply be their growing relationship with STAMICO and the Tanzanian government. TRX has won favor in this area and their joint venture is considered a model of how the government wants to do business, meaning it could open doors for other gold exploration projects with TRX.
Of particular interest regarding these possible opportunities is TRX’s efforts at Kigosi in the northwestern Tanzanian region of Shinyanga, considered a major gold exploration project for the company. Up to this point TRX’s operations have been slowed due to delays in obtaining the proper permits for mining but with the new joint venture at Buckreef in place they may find that they have a more favorable status when it comes to gaining permits. While nothing has been said about those permits for Kigosi the company has offered STAMICO a 15% stake, something that could get the project back on track.
Right now TRX is on stable financial ground with about $30 million in working capital and shouldn’t have any problem securing additional funds from lenders or institutions to bring their projects to commercial production. The fact that they have established a strong relationship with the Tanzanian government shouldn’t be undervalued and while shares are currently trading around the 2.65 – 2.81 range, well below their 50-day moving average of 4.14 and their 200-day moving average of 5.91, the company appears to have laid a strong foundation for growth. In all likelihood shares will continue to dip before settling but TRX may eventually work their way back up and reward those shareholders who took advantage of this recent fall.