What I'm Watching With TRX Gold to See if It Beats the Market

Shares of TRX Gold (NYSEMKT: TRX) are up nearly 42% so far this year, but the big question is whether the junior mining company can continue to outpace the S&P 500 or its competitors in the GDXJ Junior Gold Miners ETF.

The answer to that question will depend on how matters fare at the company's sole asset, the Buckreef Gold Project in Tanzania. In its fiscal 2025, in the company's first full year of operations at the project using its new processing plant, its revenue rose 40% to $57.6 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 44% to $22 million.

The Buckreef project is on the upswing

While the price of gold has slumped in the past week, it's still historically high after a multiyear climb, and that's improving profitability for nearly all mining companies. TRX shares' ability to generate better than average returns rests on the expansion of the Buckreef project. In its preliminary report for its fiscal 2026 second quarter (which ended Feb. 28), the company said it had record production of 7,453 ounces of gold, up 13% from the prior quarter, and record sales of 7,400 ounces. Based on the period's average market price for gold of roughly $4,682, that would amount to potential revenue of $34.6 million in the quarter, compared to $9.1 million in the same period a year ago.

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The company's financial status is clearer

The company also announced that it had either expired or retired all of its outstanding warrants. This means investors no longer have to worry about a flood of new TRX shares hitting the market and diluting the stock. It also means the company's ownership picture is more straightforward.

That transition should make TRX stock more attractive to big institutional investors (such as pension funds or mutual funds) because the math for calculating the company's true value has become more predictable.

Concerns remain

TRX, with only one operating mine, has all of its eggs in one basket. That lack of revenue diversification could be disastrous. If, for example, a mine accident impacted its operations at Buckreef, all of the company's revenue could be at risk.

Similarly, regulatory challenges from officials in Tanzania could leave it in a tenuous position. Tanzania has been aggressive in regulating mining operations, even revoking some operations' permits.

As TRX grows and improves its financial position, it will be crucial for it to broaden its footprint with operating mines in other regions. In the meantime, the company will need to be careful to maintain good relations with the Tanzanian State Mining Corporation (STAMICO). The Buckreef project is 55% owned by TRX and 45% owned by STAMICO.

Good reasons to still buy the stock

Currently, the processing operation at Buckreef is handling 2,000 metric tons of ore a day, but TRX has long-term plans to increase that to 3,000 metric tons per day, which it anticipates would yield 62,000 ounces of gold a year.

If it can ramp up mining and processing to those levels without significant technical downtime or capital expenditure overruns, it would demonstrate the type of management competency that the market often rewards with a valuation rerating.

The second critical factor for the company will be the gap between its realized gold price and its all-in sustaining cost (AISC). While high gold prices lift all boats in the sector, TRX Gold's potential to beat the market lies in its ability to maintain a low-cost profile in Tanzania, a jurisdiction with relatively competitive labor and operational costs.

James Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.