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Troy Resources battles negative perception as it restarts Karouni after fatality

Troy Resources Ltd.'s ASX stock fell over 12% by Dec. 23 trading close upon the company emerging from a lengthy voluntary suspension to announce the restart of operations at its Karouni gold mine in Guyana, where authorities ordered a halt in October after a worker died, and securing about A$15 million in funding.

In a same-day announcement, Troy said it had made a placement of 40 million fully paid ordinary shares at 10 Australian cents per share to its two largest shareholders, M&G PLC and Ruffer LLP, which took 20 million shares each to raise A$4 million before costs.

Troy also signed a term sheet for a gold loan from Malaysia-based investment fund Asian Management Investment Services Ltd. for 5,200 ounces of gold at about US$1,450 per ounce, which equates to about US$7.54 million in funding, or roughly A$11 million.

The facility has a term of 12 months with a bullet repayment, though early repayment is permitted, and will be secured by a general security interest over Troy's assets. It still requires final documentation and the security deed before being completed by mid-January 2020.

All of that gives Troy about A$15 million to restart Karouni, having received all the Guyana government agency approvals needed, including the mining tenements and licenses for the Ohio Creek deposit, which Troy considers integral to the restart.

Ohio Creek is one of two new and relatively high-grade sources of ore — along with the Hicks extension, which had the embankment collapse that led to the fatality — which CEO Ken Nilsson said could sustain the Karouni operation for "quite some time to come."

James Wilson, metals and mining research analyst with Australian broker Argonaut Securities, who formerly covered Troy, said in an interview that it was undoubtedly a positive that two such large and "highly credible" funds should back Troy and that production is restarting in a high gold price environment.

However, Wilson cautioned that Guyana is a risky jurisdiction, with August to November being the driest months for on-ground activity.

Troy said Nov. 29 that it had encountered further wall stability issues at the Smarts 3 cutback since Oct. 15, with the issues in part related to the high rainfall during the last wet season.

The mining halt means Troy is unlikely to finish the cutback and complete ore mining before the next wet season to minimize potential loss of access from further slippages, so it may not do anything more on the Smarts 3 pit until after the wet season.

Troy retrenched just over 200 workers Nov. 18, allowing it to pay the terminated workers a month's salary in lieu of notice plus all accrued benefits and provisions under local laws, but would also be able to streamline Karouni's workforce by preferentially offering employment to former employees once the decision is made to restart.

While it is not uncommon for mining stocks to fall upon returning from suspension, Wilson said investors could be capitulating, "unwilling to wear the restart risk, and any potential additional issues [Troy] may encounter," be they other seasonal or mine-related issues.

Troy said Dec. 23 that it would restart Karouni progressively, initially by employing mining personnel then after about two weeks, workers for the processing area.

The company attributed the lag to all available ore having been processed before the mill was put on care and maintenance, so the ore stockpile needs to be rebuilt before milling can restart, with processing plant maintenance to continue in the meantime.

Thus, first gold sales revenue from the restart of operations will likely not be received for about six to eight weeks.

Misinformation spreading

Troy also detailed its environmental, social and governance credentials Nov. 29 due to "a significant amount of misinformation circulating within the Guyana press and on local social media ... many of which are entirely without basis."

While Troy conceded it enjoys some tax concessions covering capital equipment and some production-related spend, these practices are not unusual for countries trying to draw investment.

The company also detailed its workforce accommodation and recreation facilities and fly-in, fly-out roster, along with the fact its roughly 400 employees received an 18.5% salary increase over the last three years, though most expats it employs received a far smaller increment.

About US$3 million of Troy's monthly US$4.2 million operational expenditure goes into Guyana's economy through salaries and wages, taxes and royalties, consumables and other goods and services, with salaries accounting for about US$1.2 million a month to a direct workforce of roughly 400 employees.

It also employs a further 100 or so people directly and indirectly, with its workforce made up of 95% local Guyanese in all categories as workers and managers, of which about 40 are of Amerindian decent, with most expat employees being from Brazil and Argentina.

Meanwhile, Karouni's medical facility, open to the wider community, is the only one for tens of kilometers of jungle around the mine.