Troy Resources : June 2021 Annual Report to Shareholders

CORPORATE PROFILE

CORPORATE PROFILE

Troy Resources Limited (ASX: TRY) (Troy or the Company) is a gold producer and explorer with a history of developing and operating mines in both Australia and South America.

The Company acquired the undeveloped Karouni Project in Guyana in July 2013 from Azimuth Resources. Since then, the Company has successfully developed the Karouni mine with first gold produced in November 2015. The Company has recently undertaken a Pre-feasibility Study in relation to Smarts Underground.

Troy is committed to implementing international best practice in health and safety, environmental stewardship and social responsibility.

WHAT WE ACHIEVED THIS FINANCIAL YEAR

Karouni Gold Mine produced 22,781 ounces (2020: 23,580) at an All-in Sustaining Cost of US$2,290/oz (2020: US$1,725/oz).

Smarts Underground maiden ore reserve announced 26 July 2021.

Company secured the Potaro tenements which see the Company's landholding at Karouni increase to approximately 89,000 hectares.

Joint venture entered into with Barrick Gold Corporation in July 2021.

The Karouni Gold Mine has entered a period of care and maintenance from August 2021.

Partial recapitalisation of the Company announced in January 2022.

CHAIRMAN'S REVIEW

Dear Shareholders

I am pleased to present to you Troy's Annual Report for 2021.

The Company was deeply saddened by the passing on 20 September 2021 of Chief Executive Officer and Managing Director, Mr Ken Nilsson.

Ken's contribution to Troy over the years was immense. He joined the company in 1997 and was appointed as Managing Director in 1998. He stepped aside from that role in 2006 to become Executive Director, Operations, but was reappointed as Managing Director in 2017 following the resignation of the then incumbent.

Ken developed and managed many mining operations for Troy including Bulchina, Lord Nelson and Lord Henry near Sandstone, Western Australia, Sertao and Andorinhas in Brazil, and Casposo in Argentina, as well as Karouni. Much business success was enjoyed, due in no small part to Ken's efforts.

Ken's attributes for leading a mining company were second to none. He was extremely competent in his profession and a great leader of people, amongst many other great attributes. More than that, Ken was a fine man.

He will be sorely missed by us all.

The Company was also deeply saddened by the death of an employee on 20 August 2021 at the Potaro target, approximately 25 kilometres to the south of the Karouni Mill in Guyana.

The incident occurred when the person hit their head on the underside of a large log overhanging a stream which he was crossing during a routine security patrol. Walking back to the vehicle unaided but accompanied, the guard collapsed, losing consciousness. When the medical team arrived at the scene, he was pronounced deceased.

The performance of the company for the financial year was very disappointing.

During the year, Troy produced 22,781 ounces of gold, with 24,227 ounces sold for the year for revenue of approximately $59.6 million at an All-in Sustaining Cost (AISC) of US$2,290 per ounce.

These metrics fell considerably short of the guidance provided on 21 September 2020, of 35,000 to 40,000 ounces of production at an AISC of US$1,450 to US$1,550 per ounce.

Operations during the year were negatively impacted by the COVID pandemic, which significantly restricted personnel movement over a prolonged period, and a fire in the Karouni store which saw the loss of spare parts along with other equipment and supplies.

During the year, the main source of ore was the Hicks 4 open cut pit.

At the time guidance was provided, ore from this pit, together with a contribution from the Spearpoint open pit, had been expected to sustain the Karouni mill until around September 2021. Unfortunately, for a number of reasons, that did not occur.

The Hicks deposit has generally reconciled very well over its five-year mine life. Since the commencement of mining in Hicks 4 Phase 3 in late July / early August, it became apparent that this phase produced approximately 40% less gold than predicted by the grade control model. As a result, by November 2020, it was decided to abandon this part of the pit and, instead, return to mining at Hicks 4 Phases 1 and 2, which historically produced more gold than the grade control model would indicate, suggesting quite different controls on the occurrence of mineralisation even though the two areas are immediately adjacent.

On 28 January 2021, Troy announced that production levels seemed to be returning to normal, with actual production then reconciling well with forecast.

Unfortunately, the remaining volume of ore at Hicks 4 Phases 1 and 2 was somewhat lesser than had previously been expected with an internal review of the calculation of model versus actual grade control identifying a relatively modest unfavourable discrepancy.

The consequence of the abandonment of Hicks 4 Phase 3 and the unfavourable discrepancy at Hicks 4 Phases 1 and 2 was that, on 17 May 2021, the Company announced that ore at both Hicks and Spearpoint, the latter suffering a minor pit-wall failure, would be exhausted by mid-June or early July 2021. This duly occurred.

Whilst ore depletion from Hicks 4 and Spearpoint had been expected, albeit not quite as early as actually occurred, it had always been considered likely that new ore sources would become available in good time, potentially from each of Ohio Creek, Goldstar and Smarts Underground.

As at 30 June 2020, Ohio Creek was interpreted to have an Inferred Mineral Resource of more than 133,000 ounces. Unfortunately, two separate trial mining exercises produced disappointing results, a consequence of a very high nugget effect, spotty gold distribution and with gold-bearing veins being narrow, discontinuous and present with low predictability. The company subsequently relinquished the tenure.

At Goldstar, where a deposit of 25,500 had previously been mapped, reverse circulation and diamond drilling in late 2020 / early 2021 achieved reasonable results. Unfortunately, with the deposit being of low grade, subsequent optimisation work returned an Ore Reserve of negligible size at the prevailing gold price.

At Smarts Underground, with a Mineral Resource of 287,600 ounces previously interpreted, significant resource and geotechnical diamond drilling took place throughout the year, delivering excellent results.

On 26 July 2021, just after the end of the financial year, the company announced a maiden Ore Reserve at Smarts Underground of 1,082,000 tonnes @ 2.6 g/t Au for 89,400 ounces.

With further drilling, bearing in mind the deposit is open both at depth and along strike to the north-west, and the incorporation of additional geotechnical data, additional Ore Reserves are expected.

A preliminary economic assessment of Smarts Underground, for an initial 2.5 year mine life, has a LOM revenue of US$137 million and net cashflow of US$47 million.

Approval from the Guyana Geology and Mines Commission has been received subject to the ongoing submission and review of plans and reports for each phase of mine development.

Whilst the economics of the Smarts Underground are favourable, and whilst the deposit is likely to be more than capable of sustaining profitable operations at Karouni for a number of years, unfortunately, it was not possible for development to occur prior to the cessation of mining at Hicks.

Accordingly, in August 2021, the decision was made to put the Karouni operation on Care and Maintenance.

During the year, the Company secured various exploration tenements that form the Potaro target, which is situated in the area of a major "jog" in the interpreted position of a regionally-significant crustal shear zone that hosts a number of multi-million ounce deposits.

On 1 July 2021, the company announced that Barrick Gold Corporation had entered into an earn-in agreement with Troy in respect of a number of exploration interests, including the Potaro target, noting that Troy retains a material interest.

Troy also retains 100% ownership of a substantial suite of highly prospective exploration interests, including the Gem Creek prospect where encouraging assay results have been received from reverse circulation drilling with mineralisation already identified over a strike length of approximately 500 metres.

On 26 October 2020, the Company announced that it had received commitments from investors for a placement of 125 million new shares to raise $15 million through a two-tranche placement supported by both existing and new shareholders.

During the year, the Company announced that it had reached agreement with its gold loan provider, Asian Investment Management Services Ltd (AIMS) such that the final repayment date for the 5,200 ounces of gold outstanding has now been extended until 16 June 2023.

At the 2020 Annual General Meeting, Mr John Jones retired as a director. Immediately thereafter, Mr Andrew Barclay was appointed as a director.

As I write, the Company's financial position is precarious.

In the face of this uncertainty, the Company's securities were suspended from quotation on the Australian Securities Exchange on 30 August 2021.

The company is currently exploring various options for raising capital which, hopefully, will lead to the commitment to proceed with the Smarts Underground development.

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