Ortac Resources says Šturec scoping study confirms a robust and profitable gold-silver project

Ortac Resources (LON:OTC) told investors that a scoping study on the Šturec gold and silver deposit has confirmed it as a robust and profitable project.

Additionally it says that the project would provide excellent leverage to the gold price.

The Šturec deposit is part of the group’s flagship Kremnica project which is located in central Slovakia. It currently hosts around 1.1 million ounces of gold equivalent.

The study examined the potential mining, processing and infrastructure requirements of Šturec in detail through four separate scenarios. The project would be developed as an open pit mine.

Ortac revealed that in an ‘optimal’ scenario the project would be worth an estimated US$309 million and it would have a 36 per cent internal rate of return (IRR).

This scenario assumes annual production of 85,990 ounces gold equivalent over an eleven year mine life, with a gold price of US$1,586 an ounce and cash operating costs of US$508 per ounce. The ‘optimal’ case has an estimated capex of US$155 million and over the eleven year mine life it would provide revenues of around US$1.5 billion.

The ‘base case’ scenario in the study estimated the project’s worth at US$180 million and the IRR would be 25 per cent.

It was also based on an eleven year mine life although annual production would be lower at 78,000 ounces. The base case operating cash costs are estimated at US$482 an ounce. The project capex is estimated at US$149 million and over the eleven years the mine would generate revenues of around US$1 billion.

The scoping study was completed by the firm’s consultants SRK. The consultants said that the Slovakian project appears viable and that the open pit scenarios examined are economic at gold prices below the current spot price.

SRK has now recommended that the firm’s planned programme of staged technical work continues so that Ortac can progress the project to prefeasibility then feasibility study level during 2012. 

“Following the completion of the Scoping Study, we can progress additional elements of our sustainable development plan, including the initiation of a baseline Environmental Impact Assessment at Šturec and the surrounding area,” said Ortac chief executive Vassilios Carellas.

“This is an essential component in our overall investment mandate as we look to maximise the value of this significant asset for the benefit of shareholders and local partners alike."  

He added: “We now look forward to working together with the local communities, authorities and Kremnica Gold s.r.o to evaluate the optimum path toward monetising this asset and how best this project can complement and benefit the local and regional development.”

Broker Optiva Securities said that the year ahead is likely to be very active following the scoping study.

In the year ahead analyst Jason Robertson expects Ortac will provide key updates such as potential drilling results, resource upgrades and other project milestones.

After adjusting his valuation to incorporate the findings of the scoping study Robertson says Ortac shares are worth just over £77 million, or 3.3p a share. With the shares current priced at 1p a share the broker recommends a ‘buy’.

Meanwhile Seymour Pierce has increased its target price to 4p a share. Although analyst Asa Bridle says there is significant further upside to the share price if today's gold and silver prices are maintained.

“In our view the study's conclusions give Ortac a strong platform from which to further evaluate the project and with £9 million in cash and investments available the company has sufficient funding to carry on the assessment programme,” Bridle said in a note to clients.