When Vassilios Carellas resigned his position as managing director of Kryso Resources (LON:KYS) in May 2009, he jetted off to enjoy his first summer holiday for 15 years. However, shortly before he left, David Paxton, the chief executive of Vatukoula Gold Mines (LON:VGM) had a word in his ear about a potential new project. On his return, Carellas had barely unpacked his suitcase before finding himself back on a flight, this time to the historically rich volcanic gold fields of central Slovakia. When he got there, he liked what he saw.
By September 2010 the stage was set for a series of deals that involved private company Ortac Resources acquiring the Slovakian gold assets of TSX-listed Tournigan Energy (TSX:TVC). The company then completed a reverse takeover of AIM cash shell Templar Minerals. Ortac Resources (LON:OTC) , which kept its name, took on Templar’s modest iron ore assets in Brazil but, more importantly, secured the highly prospective Kremnica gold deposit in Slovakia.
Within days, Carellas brought in Snowden Mining Industry Consultants to re-work all the old data and launch a scoping study at Kremnica, where a resource of around 760,000 ounces of gold was already in place. In January, that assessment confirmed a JORC Code compliant resource of 1.1 million ounces of gold equivalent but Carellas remains keen to boost the resource even further. With £8.4m raised from investors in February, further drilling is planned this year and the company is looking closer at how production from the project will eventually work. In the mean time, Carellas has his eye on building out Ortac’s presence in Slovakia, perhaps with acquisitions, and taking the company’s resource base towards 2 million ounces.
Vassilios, how did events unfold in the lead up to bringing Ortac to AIM?
Ortac had been in Slovakia for six years prior to the reverse takeover. It had a number of exploration properties in the east of the country and it was basically in the right place at the right time in terms of Kremnica. Tournigan were seeking to cut back on the number of projects they had and sold off a uranium exploration project in the States, a gold project in Ireland and the Kremnica gold project. They have renamed themselves from Tournigan Gold to Tournigan Energy and are now focused purely on their uranium assets in the east of Slovakia. Ortac then made the move from a private company to a PLC through the reversal into Templar Minerals. Templar still has iron ore rights in Brazil and we have done a bit of work on that now. But we are looking to farm that out and we have got someone who is quite willing to run with it, so probably within the next three to six months that should be a separate entity with Ortac retaining a holding.
What is the attraction of Slovakia and the Kremnica project?
This region of Slovakia has been mining gold for 2000 years. Back in the 14th and 15th centuries the central Slovakian volcanic field was considered to be one of the leading gold producing areas in the world. Mining at Kremnica dates back 1000 years. You had old timers there chipping away at the high grade veins but what you have is a huge vein system which is up to 100 metres in width. Obviously some of the high grade bits have been taken out in places but the drill holes have shown there are a lot of sweet spots in the ore body. You are sitting with a 1.5 to 2 gram resource, outcropping on surface that is amenable to open pit mining. There are not many deposits like that these days and a lot of them are underground, so from that point of view we are quite fortunate. The infrastructure is very good, the main road between Poland and Hungary runs through the project area, there are power lines running overhead, there is water and there is an aluminium processing plant 13km to the south of us. So all the infrastructure is there, all the engineering workshops and fabrication and services, all the services that you need to run and operate a mine are there.
What has been happening at the project in recent years?
Historically there was a small processing plant there but after the split of Czechoslovakia there was a privatisation programme and a local businessman privatised the asset and stripped the plant and sold everything. The last mining activity took place on surface in 1991 and that was very small scale. Between 1991 and 2007 there were two companies before us and between them they spent about €17m exploring the project. Prior to that the Czechoslovakian State probably spent easily $10m on exploration, so you can say quite comfortably that $25m-$30m has been spent on this project to date getting it to where it is today.
What are you immediate plans for the project?
Well we’ve got the money now. We came out of with a resource update in January and what it has shown is that there are areas in the resource that have been estimated, so in other words you have blocks with grades in it, but for whatever reasons Snowden felt that there wasn’t enough data so they haven’t classified it. So the programme is now to drill about 5000 metres, which is basically an in-fill and exploration drill programme. What we anticipate ending up with is a resource of about 1.5 million ounces, which is what Tournigan had in the past and it is what we are seeing in the model, it is just that the model hasn’t been classified. We hope to have that drilling completed by the end of this year and then come out with another update and then we should have further ounces in the higher confidence categories as well as a larger resource. So that’s the immediate plan for this year.
We are also in the process of completing a scoping study on the back of the current resource that we have just completed. We are looking at all the various options from a small pit to a big pit to using various processing locations and using conventional tailings, paste tailings and just seeing what we can do. Obviously being in Europe, the cleaner we can be the better but obviously the cleaner you are the more expense there is, so we’ll just have to see how clean we can be as a company. Obviously there is EU regulation but we would like to go one step further. Those are the sorts of things we are looking at, seeing how we can do something that’s going to have very little impact in terms of a footprint, but a huge effect in terms of the economics in the region.
Is this a project that Ortac is fully prepared to take into production?
Ideally but obviously along the way if an Eldorado Gold (NYSE:EGO) or a European Goldfields (LON:EGU) likes what we are doing and thinks that there is value in it for them and they can make an offer to shareholders that we can’t refuse, then we’ll do it. But we have got a project director who has brought mines into production before and he is driving the scoping study. If it does get to the point where we need to raise finance and get into production ourselves, we can certainly do it. It’s not complicated; you don’t have any infrastructure challenges.
Are there other mining operators close to where you are in Slovakia?
There is a little underground mine about 15-20km to the south-west of us. Emed Mining (LON:EMED) have their Biely Vrch project about 30km to the south of us. In the east of the country you have got metal works, U.S. Steel (NYSE:X) are in there, Tournigan have got their uranium projects. There is a Canadian company called Global Minerals (TSXV: CTG), and they have got quite an interesting antimony project there as well. There is also quite a big coal industry. So there is activity but not a huge amount of activity in terms of real mining in the precious metals sector, the reason being that prices were so deflated. When Czechoslovakia split back in the 1990s metal prices were quite low. The State was continually funding these operations but some of them were just not making ends meet and then they started privatising them just to reduce the burden. So now other companies have come and picked them up and developed them and are moving them forward.
What sort of response did you get from the market when you raised funds in February? Was it a challenging deal?
No, we were over subscribed, there was a lot of interest. I think the market is looking for the next European Goldfields, looking for a company that is picking up assets and that is the sort of story that we would like to emulate. We want to use this asset to grow within the region, use it as a stepping stone to other assets, bolt on another one or two advanced stage projects and then have various projects moving up that curve towards production. Hopefully then you’ll get the attraction in the market.
Have you seen many potential targets or future opportunities?
There are a couple out there that are quite interesting. Generally speaking, certainly in Europe there is a lot and not just in gold or precious metals. There are areas in Europe now that are only just opening up that have been closed to exploration companies because the governments didn’t see it as something that was necessary. Now the EU has got a minerals directive to encourage countries to actually start using their own resources. They are obviously realising that the Chinese are squeezing the market in terms of likes of rare earths and antimony. It is going to take a while for some of these countries, particularly the likes of France and Germany and countries where they have gone through that cycle already and have populations that are very comfortable with the environment. Countries like that will find it quite challenging to actually go back and start drilling holes. It is going to take time but we are seeing a much more positive sentiment towards the resource sector in Europe.
In the mean time, Ortac does have other exploration licences to keep it busy. Among those licences, which are the most significant?
Yes, we have got projects in eastern Slovakia. The most advanced is a project called Zlatá Baňa which again lies in volcanic fields and that has a historic resource of somewhere between 300,000 to 500,000 ounces, depending which cut off you use. I suppose 5-10 years ago that would have been considered a marginal project but today, with prices the way they are, it is potentially of value. Once we’ve got our Kremnica project under way we will start focusing on this. The data is there, it is just a matter of putting the data into a computer database and generating a model on that. We might drill a few holes just to verify the interpretations and on the back of that we could then have a potential resource of 500,000 ounces equivalent for that project. All things going well, by the end of this year, early next year potentially we could have 2 million ounces under our belt, 1.5 million ounces at Kremnica and another 500,000 ounces here, so we could potentially double our resource base.
Finally, how costly is this going to be for Ortac to develop and what factors will ease the transition towards production?
It will be no different to anywhere else in the world. In terms of shipping it will probably be cheaper and in terms of speed it will probably be quicker because you don’t have to set up huge workshops, everything is outsourced. So it is just a matter of building the plant, you don’t have to worry about building power lines and roads and water. Plus, a major asset is the skilled workforce. You’ve got skilled labour, good infrastructure, the services are there, there is no exploration risk and the deposits are explored. It is not a matter of if, it is just a matter of when.
Vassilios, thank you for your time.
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