Duomo Capital Research (Otc.l) 09.03.14

ORTAC RESOURCES (OTC:L)
09 MARCH 2014 COMPANY INFORMATION

Ticker Market Sector Share Price 09/03/2014 52 Week High 52 Week Low Market Cap Dividend Dividend Yield 12 Month Profit/Loss Duomo Capital Rating OTC:L FTSE AIM UK Oil & Mining 0.231 GBX 0.465 GBX 0.192 GBX 6.29mn N/A N/A 39.22% BUY
PAGE 1 OPERATIONS AND PROJECTS 1A. Kremnica Mining Licence- Sturec Project
The Struec project is Ortac Resources biggest and most important project, started in 2011. 1.32 Au Mill/oz of JORC compliant resources confirmed in 2012 (1 mill of which verified). Ortac Resources have a mining license for Kremnica area in Slovakia (11.8m) until Late 2014. Although, the Slovak Mining authorities have confirmed (in writing) that Ortacs commercially focused surface and underground mining rights within the Kremnica area are still in place for extension past this date.
Q1 2013 SRK Consulting Pre-Feasibility Study Findings (Assets):
ORTAC (OTC.L) 1Y
13,965 tonnes of mineable ore containing Gold and Silver deposits, through Surface mining. 22% is Proven at 1.62 Au (g/t) grade (1.80 Au (g/t) Gold Equivalent) 1.32 Au (g/t) was predicted in the prior 2012 JORC scoping study suggesting that as more tests are completed the grade is increasing (as shown in the higher probable figure), despite the quantity of mineable rock decreasing from previous estimates. The proven resources command a lesser premium as they are below 3.0 Au (g/t). This is counteracted with estimated production volumes of 71,500oz Au per annum. 78% is Probable at 1.73 Au (g/t) grade (1.93 Au (g/t) Gold Equivalent) The Historical Gold grade average for the area is 1.54 Au/oz and 50,028 tonnes was excavated by a state owned company from 1986-1992. Silver deposits are also present Proven at 13.50 Ag (g/t) and Probable at 15.20 Ag (g/t). Initial focus is on the gold deposits with Silver diversification to be discussed later. A further 41 tonnes of ore is located in underground deposits, although Au/Ag grade cannot be verified at present without an underground mining licence Consulting Pre-Feasibility Study Findings (Economic
Q1 2013 SRK Feasibility):
Scenario analysis based on Gold price (solely):
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enquiries@duomocapital.com duomo_capital facebook.com/DuomoCapital twitter.com/DuomoManOpt
Au $1,201oz = $110mill NPV (post tax), 24% IRR (Pre Tax), payback Au $1,343oz = $145mill NPV (post tax), 26% IRR (Pre Tax), payback Au $1,443oz = $182mill NPV (post tax), 30% IRR (Pre Tax), payback Au $1,582oz = $202mill NPV (post tax), 36% IRR (Pre Tax), payback Other key findings of the study based upon scenario 2 above : Total Life of Mine: 11 years @ 8% discount rate.
This research article does not constitute investment advice.
3.8 year 3.5 year 3.2 year 3.0 year

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Project Timeline Average Gold production (Annual/Total Life of Mine) = 71,500oz / 786,500oz Total Life of Mine Revenue- Surface pit only (A/TLM) = $95.09mill / $1,046mill Total life of mine- cash cost (A/TLM) = $46.25mill / $555mill Surface pit capital costs (A/TLM) = $123mill Gross Profit/Margin: $48.84mill / 46.94%
The Sturec project is still a few years from actual mining (which is to be conducted in-house or through a joint venture) the objectives for near-term (2014/2015) are:
CSR Acceptance
ORTAC (OTC.L) 1Y
This aspect rather than operational or asset quality provides the greatest source of risk and delay for the project. The local community have safety concerns over cyanide contamination and blast disruption. A signal of the commitment to completing the project sustainably is the initiatives that Ortac are employing to encourage stakeholder engagement. Notably basing the headquarters in Slovakia, forming (through an alliance with Astoneco) a proposal (Sturecland) to increase tourism, infrastructure and economic activity of the local area and provide a forum to give local stakeholders a voice in the project. The initiative has not only improved the relations with the local community but clarifies the long term intentions for a sustainable project. Local barriers to project progression should reduce within the near-term. As a result of the presence of previous mining projects in the area and requests for more open dialogue over the Sturecland project.
Biodiversity Baseline Study (BBS) Completion
Establishes environmental benchmarks against which the impact of any potential project activity may be assessed, results are due soon.
Environmental Impact Assessment (EIA) Submittal
Co-development with all stakeholders of a finalised master project plan for Sturec consisting of the above, in addition to: Trial underground and surface applications to satisfy terms of current mining licence. Underground is in final stage of approval (Slovakian Mining Bureau), whereas surface is at the stage before (Slovakian Environmental Office). Approvals are also due soon. To be formally submitted to the Slovak Authorities to allow the statutory permit application process for mining to start.
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Lutila Exploration Licence
8 separate Exploration activities in Eastern Slovakia dropped to focus on Kremnica area. Lutila (64.83m) Exploration licence renewed until 2016. Not core focus but may lead to the next Kremnica based project.

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1B. 26.7% Ownership of Andiamo Exploration
ORTAC (OTC.L) 1Y
Gold, Copper and Volcanogenic massive sulphide (VMS) explorer based solely in Eritrea where they have a track record of discoveries led by an experienced management team. Andiamo is due to be floated through IPO in the near future, founded in 2010. Like Ortac Resources they are focusing on one core project Haykota, this project has licences in place and in February they completed the final tranche of private investor funding. Recent option agreement with another producer to develop 35% of licence area, with options that transfer 75% ownership to that company on successful exploration funding by 2016. Drill programmes through joint ventures commencing with news of the first drill in March and the second in late Q1. This allows Ortac to have some hedged exposure to production and discoveries whilst the core project is being developed. Ortac have 3 tranches of payment totalling $1.5millon ending Q1 2014 (based on due diligence and commencement of drilling), with an option to purchase an additional 21% (Total 42.2%) for $2.0mill on December 31st 2015. Ortac will provide technical, board level and regulatory assistance to Andiamo.
FINANCIAL CONSIDERATIONS
Cash and Funding
Last placement was in January 2014 for 500,000 at 0.25p. Total Cash Holdings of 3mill.
This has shored up the capital position of the firm and allows it to invest more into operations and investments (still a tranche of the Andiamo left to pay. Current Cash covers the average operating losses and liabilities for the past year (1.7X) but will require topping up to reach the end of 2015 (objective period) with a sufficient margin, likely through a good another placement, barring significant breakthroughs in Eritrea/Slovakia. Cash Holdings have roughly halved since Q1 2012 ($6.7mill) owing to the investment into Andiamo. If substantial further placements are avoided and Andiamo can provide some ROI in conjunction with the diversification offered, this investment is justified over a greater cash buffer.
Ownership
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Directors own 11.38% of the shares outstanding. Henderson Global Investors now own below 5% from 12.05% equity in May 2012 reducing their holding so that they do not even feature on the Institutional Investor list below. The biggest shareholder is TD Direct Investing but this is likely to be through multiple retail accounts rather than a specific holding from an investment house.

PAGE 4
ORTAC (OTC.L) 1Y
Options account for 12.55% of the shares in issue (this figure being split 63/37 between institutions and directors.
These options have recently been reorganised down from 10 year options from the IPO date to 5 year options and re-priced accordingly This has brought the options in line with current market price and company development This highlights that price movement may come sooner than originally anticipated or may not be sustainable to the levels predicted for 2020.
Share Price
The share price has fluctuated greatly since the IPO with initial gains with the first stages of the project eventually being diluted by market crashes and gold price devaluation. The current 52 week range is between 0.47p and 0.19p with the current level of the mid 0.20 level seemingly a base for the price to rise from.
This is resultant of continued good news, risk of volatility has been increased by investment into a company that is active in exploration drilling, in contrast to a company that is solely focused on project development.
The Andiamo news showed the risk present in small mining stocks with the price rising 41% on the good news before being dumped back to the previous level a few days later. The two chosen brokers for Ortac Resources are Cantor Fitzgerald Europe and RFC Ambraian Limited, both of these brokers give Ortac a 5.5p rating for the company as a long term target. With the recent strategic acquisition activity there has been increased promotion about the company by other brokers this can be good for building awareness but may be the cause of increased pump and dumps as highlighted above.
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PAGE 5
Income Statement and Balance Sheet
Negative gross profit is to be expected for a speculative stock, until production is apparent; this should bolster the share price as feasibility studies are submitted and drilling in whatever form can commence. This gross profit is volatile as it is dependent on staff and admin costs which have been increasing in recent reporting periods, due to increased CSR and investment activities to support the project. The company does not hold any debt and has an increasing asset base in terms of verified quality and quantity. Share price movement will be dependent on progress on getting these assets fully realised through the mining and production stage. Company valuation will be dependent on any changes to the NPV of the project.
MANAGEMENT TEAM
Management has a strong mix of financial knowledge entwined with engineering knowledge, which could create division but is more likely to create strong projects and problem solving. The CEO (Vassilios Carellas) has experience within the AIM mining industry with Kryso Resources (Managing Director) who oversaw growth up until his departure in 2008, he has been at Ortac for 4 years (good for an AIM company) and has a strong geology based background. Anthony Balme owns 6.85% of the company and has a considerable investment background (current and historical). Resignation of director Charles Wood in January 2014 , although there has been no announcement as to why this is- this aspect could be concerning or be due to the Andiamo stakeholding decision. Charles Wood has a financial background, primarily concerning gaining funding for small cap mining companies; his presence may be missed if extra placements/funding are required.
ORTAC (OTC.L) 1Y
ORTAC RESOURCES PROS AND CONS

PROS
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A key positive aspect of Ortac Resources is that they have proven resources, this is not purely a speculative share, the project is past the risky stage of identifying resources and now relies on the correct licences being sought and the stage based progression to production. The Sturec project is thoroughly thought out with many extra considerations such as the Struecland proposal, realistic deadlines and the wealth of information available. The Sturec project is fully funded until the end of 2015, which is positive as a share price base. Future funding is dependent on project development. Although final drilling may be undertaken through a joint venture, the project and all of the relevant cash flows are assigned solely to Ortac Resources.

PAGE 6
The share within its current range could be considered undervalued compared to other companies at the same stage of production. Although the project is small and the grades are low which ensures targets of 5.5p may not be met, upon successful progression there is more upside than downside and this could be catalysed further with broker interest and promotion. The Slovakian geo-political climate is also a positive aspect, although there is local resistance this should subside with the CSR plans, domiciled presence and good regulatory relationships. The area is not only lucrative for Gold mining but is in a favourable location for Gold exporting in addition to raising the quotas for EU and Slovakian Gold estimates. Slovakia is also sufficiently developed to not warrant any considerable risks to the project. The management team are also a positive aspect of the project, as they feature considerable expertise in the field both from a geology point of view and a financial standpoint. There is also a mix of UK and Slovak nationals which will help with the finer cultural details of the project.
CONS
ORTAC (OTC.L) 1Y
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Although Ortac have an experienced management team, one of the biggest risks for the future will be the change from an explorer (with an asset) to a developer and producer. There are many risks present with this, especially as plans have not been laid out to address this, even in simplest form. This risk is especially high as Sturec is the only current mining project, with Lutilla many years from the same maturity. There have been many placements of stock since Ortacs IPO. Although this ability to raise funds for considered use is not an issue and also commonplace within the industry, it should be noted that this is not a sustainable model of share price development if no production is available past the near term. The amount of time and effort that Ortac have put into the Sturecland project (which is not a core competence) and related CSR, has impacted cash inflows. If the end goal is successful this will be well advised, however it must not be at a considerable cost or distraction from the core mining focus- for example even in promotional literature CSR is stated as the largest risk. The investment into Andiamo could be considered a good use of cash and in many ways it provides a differentiated source of income. However, the risk of this income source is higher than it would be as cash holding for the core project. Especially when considering that there are options to increase the holding to 42%. The lead time of the project as a mining proposition is long term and this could lead to investors moving funds elsewhere especially if this is a bottom in terms of share price. Furthermore, recent positive news of the Andiamo share purchase was met positively as it was completion of pre mentioned plans. Yet, this was a pump and dump to previous share price levels showing that the investor base is not yet matured enough to support a sustained rise. The director resignation in January is also a point of concern, although the circumstances are not known. The director in question has financial competences regarding AIM miner funding which may be missed in the future especially if a cash shortage becomes apparent.

Duomo Capital Research (Otc.l) 09.03.14

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ORTAC RESOURCES (OTC:L)

09 MARCH 2014 COMPANY INFORMATION

Q1 2013 SRK Consulting Pre-Feasibility Study Findings (Assets):

Q1 2013 SRK Feasibility):

Scenario analysis based on Gold price (solely):

3.8 year 3.5 year 3.2 year 3.0 year

ORTAC RESOURCES (OTC:L)

Biodiversity Baseline Study (BBS) Completion

Environmental Impact Assessment (EIA) Submittal

Lutila Exploration Licence

This research article does not constitute investment advice.

ORTAC RESOURCES (OTC:L)

This research article does not constitute investment advice.

ORTAC RESOURCES (OTC:L)

This research article does not constitute investment advice.

ORTAC RESOURCES (OTC:L)

ORTAC RESOURCES PROS AND CONS

This research article does not constitute investment advice.

ORTAC RESOURCES (OTC:L)

This research article does not constitute investment advice.

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