View from the top: Ortac Resources interview

A year after gold producer Ortac Resources (OTC) saw its shares plummet by 50%, Interactive Investor asked chief executive Vassilios Carellas what lies in store for the company in 2012.

What is the progress on the Slovakian Precious Metals Project?

The current resource target is about 1.2 million ounces of gold equivalent, with a 0.5 gram per tonne (g/t) cut-off. This estimate is based on only 1.1 kilometres of the total 6.5 kilometres of known strike. We believe we can comfortably get up to two million ounces.

A scoping study has already been published. We anticipate completing the bankable feasibility with 18 to 24 months, with production expected in early 2013.

Wasn't production supposed to start in early 2012?

We have suffered setbacks along the way. The timeline above is dependent on getting the relevant permits.

The project will cost about $150 million. How will an approximately $30 million market cap company fund a $150 million model?

As we complete the relevant technical studies such as the bankable feasibility study (BFS) and environmental impact assessment (EIA), we expect to see share price appreciation.

This would increase our market capitalisation and we believe this project will generate a lot of interested parties that would want to partake once the project is permitted.

What is the production estimate on your other assets?

The most advanced asset in the Zlata Bana resource in eastern Slovakia, which we estimate holds 0.5 million ounces of gold equivalent. Assay results are expected in the first quarter of 2012.

Are there plans to expand outside of Slovakia?

The political unrest in North and West Africa has acted as a stern reminder that the more fashionable areas for gold production [are] not without [their] risks.

We have £8 million in cash and cash equivalents, of which between £2.5 million and £3 million will be spent on the Šturec development cost in the next few months. If we find something that complements our business model, then we will expand in Europe.

Slovakia remains our main focus though. Slovakia has a relatively inexpensive labour force, which should serve to keep cash costs low once Kremnica is in production. Low taxes of 20% make it a favourable destination for project development, while dividends paid on profit are tax exempt.

Additionally, the Slovakian government has identified the need to diversify away from the single (car) industry. (Mining accounted for just 0.6% of Slovakia's nominal gross domestic product in 2008).

What are the prospects for shareholder returns?

It is very early to talk about dividend payments or share buybacks. Right now, shareholder returns will come more in terms of capital appreciation that anything else.

Is there any takeover potential?

Over the last two years, five to six companies have had a look. I would like to drive the company through to production. There is no offer at the moment, however, if the offer was worthy enough, then it would be seriously considered.

Does management have any incentive to get the share price to a certain target?

Management currently own about 10% of Ortac's shares, with options amounting to a further 6% of share capital. The options have an exercise price of 1p with an expiry date of 31 December 2020.

For an understanding of what to look for when considering exposure to the sector, read: Analysing... Miners.