Tanzanian Royalty hit by fund sell-off

A fund’s liquidation of its holdings in Tanzanian Royalty Exploration (TNX-T, TRX-X) has sent the stock price plunging on Nov. 10

Tanzanian’s share price ended down $1.14, or 33%, on the day at $2.31 with 3.5 million shares traded, after trading at as low as $1.59 during the day. The drop-off comes a month and a half after the company’s stock price dropped 65¢ in a day on elevated volume in an apparently related matter, while the company traded at a 52-week high of $7.55 in early June.

Reached by phone at his Connecticut office, president and CEO Jim Sinclair said the drop resulted from the liquidation of a fund, but that the company itself was not experiencing difficulties.

 “We have no problems,” Sinclair said. “We have the highest cash position we’ve had, the contract we signed a week and a half ago with Tanzania was characterized by the ministry as the most important mineral contract that Tanzania has signed, our projects are going ahead. We don’t have a country problem, we don’t have a people problem, we don’t have an accounting problem.”

The fund in question is Geier International Strategies Fund, which Tanzanian Royalty disclosed in early May as holding 10.3%, or 9.7 million shares. At the time Sinclair said that “we are confident of a long and mutually rewarding relationship with Geier and its investment team.”

“Our understanding is that the fund itself has got into trouble in some sort of fashion,” says David Duval, who serves as an investor relations liaison for Tanzanian Royalty, “It’s my understanding that the selling, at least from them, is probably over, so we’re quite confident we’re going to see a recovery in the stock because the fundamentals for the company are really good.”

The company’s flagship project is the Buckreef gold project in Tanzania, which the company acquired through an auction in December 2010. Tanzanian Royalty outbid more than 30 others by offering the Tanzanian government a 45% carried interest and $3 million in cash for the project. 

“We put our cash on the table, and that’s one of the primary reasons why we received it,” Duval says. 

He adds that the deal addresses frequent complaints by governments in developing countries of not receiving a big enough share of mining revenues, and that by working with the government, Tanzanian Royalty puts itself in a position to do other deals with the government.

“I can see us as almost being the public face of government participation in the nation’s mining industry,” Duval says.

If the Buckreef project goes to production, Tanzanian Royalty would  receive 80% of revenue until the government pays off its 45% share. 

The project has already seen extensive work by Iamgold (IMG-T, JAG-N), which established a measured and indicated resource of 700,000 oz. gold, plus 826,000 inferred oz. gold at the project.

But after pouring some $15 million into the project, Iamgold pulled out of the country entirely in mid-2009 as costs escalated and the project did not meet its criteria.

It could not find a buyer for the project, so Buckreef reverted to the government joint-venture partner.

Since acquiring the project, Tanzanian Royalty recalculated the resource after dropping the cut-off grade in half to 0.5 gram gold thanks to a higher gold price, and found another 400,000 oz. gold. The project is now estimated to contain 30.15 million measured and indicated tonnes grading 1.34 grams gold for 1.3 million oz., plus 17.17 million inferred tonnes grading 1.51 grams gold for 825,000 oz. gold spread over four zones.

The company signed a definitive joint-venture agreement with the Stamico State Mining Corporation of Tanzania to develop Buckreef, and has two reverse-circulation rigs on site conducting a 58-hole, 7,000-metre infill drill program. 

The company has also commissioned a preliminary economic assessment, which Duval says will be out by the end of the year.

The company expects a NI-43-101 compliant initial resource out on its Kigosi project in Tanzania by year-end as well. Tanzanian Royalty has already spent $10 million on the project, which was the company’s focus until it secured Buckreef, and it has several other Tanzanian projects at earlier stages. The company still has several royalties in the country, but does not expect to receive payments for at least a year.

The company has over $30 million in cash after completing a US$30-million offering at US$5.70 per unit, which included a price of US$6.25 per warrant share in August. Following the financing the company had 100 million shares outstanding.