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Ortac Resources' Šturec gold project could support 2 Mtpa operation, says broker

Published: 13:02 08 May 2012 BST

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Ortac Resources' (LON:OTC) significant resource upgrade today to its wholly owned Šturec project in Slovakia means it could support a larger mining operation than previously thought.

That's the view of broker Optiva Securities, which also says the market is undervaluing the company.

This morning's update improved geological confidence in the Šturec resource and saw the JORC compliant number increase to 1.36 million ounces of gold equivalent from 1.1 million.

More significant, however, was the 75 per cent increase in the resource at the project - part of the firm's flagship Kremnica project - into the higher confidence measured and indicated level to 1.01 million, from 579,000 eqivalent ounces previously.

Now that the majority of the deposit is in these higher confidence categories, the firm can move ahead to its next stage of technical studies, Optiva analyst Jason Robertson said in a note to clients.

The analyst also said he had re-assessed the company's valuation in the light of today's news.

Previously, that valuation had been based on the scoping study reported in January this year, which outlined a base case of a 1.5 million tonne per year operation to extract  867,000 ounces of gold equivalent.

This gave an estimated net present value of US$106 million using a 10 per cent discount rate and a flat gold price of US$1,188 over a mine life of 11 years.

"We now believe a 2.0Mtpa (million tonnes per annum) operation is the most likely, producing 947,000 ounces of gold Eq, which works out at an estimated NPV of $119mln," said Robertson.

This along with Ortac's estimated cash reserves of £7.4 million and £0.36 mln investment in Vatukoula Gold Mines (LON:VGM), which owns a producing gold mine, gives a valuation for the firm of £81.5 million (or US$132 million), added the analyst.

On a price per share basis, this works out at 3.5 pence and ignores the remaining value for the 414,000 ounces of gold equivalent left in the ground and any exploration upside at the Šturec and the firm's other exploration licences in Slovakia.

To put this into context, the company's shares are today trading up 1.32 per cent, at just 0.77 pence each.

"With progress being made in Slovakia and the gold price continuing to trade at around US$1,600 per ounce, far ahead of the estimated cash cost for an open pit mine at Šturec of around US$443 per ounce, we recommend Ortac Resources as a BUY, with a 3.5p price target, representing a potential 360 per cent upside from today’s share price," said Robertson.

Alongside today's update, Ortac highlighted the potential for a further resource upgrade for the  Šturec project, saying that the high-grade Schramen vein structure remained open at depth and along strike.

Ortac chief executive Vassilios Carellas told investors: "This is a further key development in the advancement of the Šturec Project.  

“Following the completion of our scoping study earlier this year, which confirmed highly positive economic fundamentals for the Šturec Project, this updated mineral resource estimate further increases the scope and potential of this valuable asset.” 

Šturec is close to the town of Kremica, where the mining industry dates back to the 9th century, and 17 km west of the central Slovakia's largest city, Banská Bystrica.

As well as that project, Ortac owns nine exploration licences across the country. Two of these are adjacent and to the south of the Kremnica licence.

The remaining seven are found in central and eastern Slovakia.

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