Things in the mining and minerals sector are still looking repressed in the cycle, however value can still be found in the microcaps. Ortac Resources (LSE:OTC) could well be one of these that provide upside potential in the near term based against recent market risers. At 3.6p and a £5.4million market cap, it’s well worth a look.
Ortac’s potential is not only from its exploration efforts across their diversified portfolio of assets, but also from actually producing from their own currently 100% owned asset. Ortac’s projects are all at different stages and most are due news in the short to medium term but firstly lets have a look at why the Market Cap is at the £5m level.
When looking at the business news during the last few years they have tried to bring their asset online at the bottom of the cycle, although this would have been profitable the government had other ideas. With the world turning into a greener market area the government put in changes in the processes of the mining sector and as such production had to stop using a cyanide leaching process and a different process to extract an economic rate of minerals found.
This process has taken its time and with the drop in the overall sector the market capitalisation has as well. With several businesses during the cycle shutting down, Ortac were very prudent and cutting costs during this period of time, and at the same time adding to their investment portfolio and this remarkable story is further enhanced when looking at the balance sheet. After cost saving measures, cash burn is a very svelte £40k a month which is as an average very low based against their assets in place at their individual stages of development. They have no debt or the market dreaded Convertible loan notes in place and recently they announced a placing of £2mn and used this to fund CLNs issued by CASA mining, directly increasing Ortacs stake to an impressive 44%.
Recently Ortac had a share consolidation so as to make it more attractive and in line with others in the market and with the hopes of attracting institutional investors there is now currently 149 Million shares in issue. The cash position currently seems to be okay based against the board of directors dealings with their representative assets and the news flow triggers that are expected.
Talking about their assets lets have a look at them now.
Ortac’s website is full of useful information and they bill their Sturec asset in Slovakia as their ‘Flagship’ asset. This gold project, in which Ortac has a 100% working interest in, has a Jorc compliant resource of 1.32 million ounces of Gold equivalent with a NPV of $200m or £157m in place. With the data known they have a SRK Pre-Feasibility Study in place. This estimates an annualised production rate of over 70,000oz of gold equivalent.
With cash costs of less than $600 per ounce, that equates to just under $100m turnover at current low gold prices at the bottom of the cycle. After costs that equates to a potential profit of around $40mn per annum. They are currently under going discussions in relation to this asset and future share price drivers are based around a joint venture partner being sought to bring the project to fruition, the partner is being sought to carry the costs, we believe this will be in the near term as the company has announced that it wishes to bring the operations into commercialisation by mid July with the view to step up production over a short time frame. The terms of the Joint Venture will be interesting to see and will decide how the market will react to this future news item.This is what I think is the jewel in the crown and news has been coming thick and fast.
Ortac has recently using a fund raising to purchase a 44% working interest in Casa Mining Limited. Casa is a private company with gold assets that are based in the Democratic Republic of Congo. Geopolitically this isn’t everyone’s cup of tea ,with the recent history of the country having been one of civil war. However there are changes in place, the United Nations has since the spring been in country and the change is being bought about with hopes of peace and there will also be at year end an election taking place.
With these changes there will hopefully be a more politically stable country that will attract external funding and help with their vast minerals sector. Some militia fight on in the far east, where the biggest United Nations force is in place to keep the peace. The project although having good infrastructure in place, is away from the main areas of where the civil unrest is taking place and off the beaten track. The asset is worth the risk and this is reflected by the known figures as well as the potential upgrade in resource.
Ortac have stated figures in place showing a NPV in place of $174m but that is only based on 926000 ounces of Gold this last week the current program in place has shown an initial upgrade in resource early doors. To sum it up Ortac’s CEO Vassilios Carellas commented:
“This is an extremely positive development for Ortac, as a major shareholder in CASA. This latest Mineral Resource Estimate firmly demonstrates the clear potential to increase the gold mineral resources at the Akyanga Deposit. One of the findings of the independent AMC report that is particularly encouraging is that the average gold grade for the million ounce core at Akyanga has now increased to over 2.20 g/t Au.
With the overall resource now reporting at over 1.5 million ounces, and the extensions to the open-ended mineralisation about to be tested by the upcoming drill program, the geology is very much pointing positively towards the view that a commercially viable and recoverable gold asset is about to be proven in what is a free milling ore body.”
With the current known geological structure in place there could be a conservative potential resource of 3mn ounces plus to be announced by the autumn.
Ortac has a 14% ownership in Zamsort Limited, this again is a private company but with copper licences in the more geopolitically stable Zambia region. They also have an agreement in place, which is an option to bring this up to just under 20%. They are hoping to bring the plant construction to a conclusion in the near term and then the plant commissioning will take them into long-term production. Although they have deemed this as a copper licence they have in place an extremely valuable resource in Cobalt.
Almost unseen and missed by the wider market this is an extremely rare commodity and Ortac exposes you to this mineral which has recently seen a lack of supply and an increase of demand which has seen prices rise at extreme rates recently. This may be one of the only near term producers of this resource on the AIM market. The company has given figures in place and all should be easily achievable. They have an expectation to produce an average of 300 tonnes of copper and 50 tonnes of cobalt every month. They have a stockpile of 33,000 tons of ore ready to processed at 3.5% copper equivalent and a ready made market to sell to via agreements they have in place via the usual off take agreements, this will equate to around $5million income in the short term. With the current market spot prices in place for copper at around $5000 per ton and cobalt at $58000 per tonne, this equates to a potential $10 million per year to Ortac if they choose the option to increase their interest to 20%.
In Andiamo Exploration Limited, Ortac owns 18% of this private company and with a high-grade gold-copper exploration project based in Eritrea. A recent drill program has been conducted on site and has completed 16 holes. They drilled a total of 1,266m, with six holes drilled in their old Joint Venture area, which tested three known anomalies. And a further 7 holes drilled at Yacob Dewar and 3 holes drilled at Bergebey have been completed. There could very well be an increase of grades and a resource upgrade. The samples from the drill program were reported as being in Asmara and undergoing preparation prior to being shipped off for external assay in early June. Thus the assay results from this drill program are expected to be received mid July. The mine is looking towards going into production to start processing the Jorc compliant resource of 940000 tonnes at a grade of 2.8g per tonne which is an exceptional grade in place with surface gold showing at 5g/t. This seems to be a very economical little project which will produce several million dollars every month.
When looking at the projects it has all of the hallmarks of a neatly packaged minerals and mining company, although there are risks involved these are known and have been in operation in there individual regions for an extended period of time without issue.
When looking at comparisons in the market place there are several projects that have similar stories but those to note are Casa’s similarities to that of Kefi minerals assets, notably its 95%-owned Tulu Kapi project in Ethiopia with a ‘Probable’ Ore Reserve of 1.0 million ounces and Mineral Resources totalling 1.7 million ounces; and they also have their 40%-owned Jibal Qutman project in Saudi Arabia with Mineral Resources totalling 0.7 million ounces.
As a comparison this shows that there could be an attributable value towards that of Kefi minerals market cap of around £15mn however there could be a significant resource upgrade over the quantities known in the up and coming drilling program. At present there are no known near term producers of Cobalt on the AIM market and this is just a small proportion of the potential in place with Ortac Resources.
The author of this article owns shares in Ortac