Upside

The only real negative for TRY at the moment is a small reserve base.

It is clear that the LOM work was rushed and did not fully capture the potential UG (or open cut) reserve base. Troy are working on this and have flagged that they expect this revised LOMP to be released to market by Q1 2017 - so we have a wait until the market can bank this upside.

With the current outperformance, and good UG resources, it seems that they will extend the LOM by 2-3 years though.

The explosive upside will happen if they find near mine resources from their exploration program. This really is only in its early stages though and it would be fair to wait 12-24 months before this really pays off.

To give you a view on what the valuation upside could be - just take a look at Guyana Gold (TSX listed). They are expecting to produce 130k-150k oz in 2016 at an AISC of US$587-637 per oz. Reserve life is 16 years. Current EV is A$1.29 bn

Troy expects 100-120k oz at $US520-550 per oz in 2016 and has an EV of A$266m.

So Guyana Gold is worth nearly 5x as much even though the 2016 cash flow of the companies will be similar. Some of this is production upside, but most is due to the longer mine life.

You can see how TRY could explode higher if the exploration program is successful. Potentially $3.00 a share if they can get reserve life to +10 years, but +$1.50 a share seems achievable over a 12-18 month timeframe.

With richly priced scrip, one other scenario would be for Guyana Gold to launch a scrip takeover of Troy Resources. They consolidate their Guyana position, quickly realise value from Troy's very conservative reserve/resource position and get operational diversification.