NOTES TO THE INTERIM REPORT FOR SIX MONTHS ENDED 30 SEPTEMBER 2016

1.  Basis of preparation

The condensed consolidated interim financial statements has been prepared under the historical cost convention and on a going concern basis and in accordance with International Financial Reporting Standards and IFRIC interpretations adopted for use in the European Union ("IFRS") and those parts of the BVI Business Companies Act applicable to companies reporting under IFRS. 

The condensed consolidated interim financial statements contained in this document do not constitute statutory accounts.  In the opinion of the directors, the condensed consolidated interim financial statements for this period fairly presents the financial position, result of operations and cash flows for this period. 

The Board of Directors approved this Interim Financial Report on 07 December 2016 

Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with the requirements of the AIM Rules for Companies.  As permitted, the Company has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing these interim condensed consolidated interim financial statements.  The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2016, which have been prepared in accordance with IFRS as adopted by the European Union. 

Accounting policies

The condensed consolidated interim financial statements for the period ended 30 September 2016 have not been audited or reviewed in accordance with the International Standard on Review Engagements 2410 issued by the Auditing Practices Board.  The figures were prepared using applicable accounting policies and practices consistent with those adopted in the statutory annual financial statements for the year ended 31 March 2016. 

Associates

Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.  Investments in associates are accounted for using the equity method of accounting.  Under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition.  The Group's investment in associates includes any goodwill identified on acquisition. 

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. 

The Group's share of post-acquisition profit or loss is recognised in the statement of comprehensive income, and its share of post-acquisition movements in other comprehensive income is recognised in the other comprehensive income section of the statement of comprehensive income with a corresponding adjustment to the carrying amount of the investment.  When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. 

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired.   If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amounts of the associate and its carrying value and recognises the amount adjacent to 'share of profit/ (loss) of associates' in the statement of comprehensive income. 

Gains and losses resulting from upstream and downstream transactions between the group and its associates are recognised in the Group's financial statements only to the extent of unrelated investor's interests in the associates.   Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.   Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. 

Dilution gains and losses arising in investments in associates are recognised in the statement of comprehensive income.

2.  Financial risk management and financial instruments

Risks and uncertainties

The Board continually assesses and monitors the key risks of the business.  The key risks that could affect the Group's medium term performance and the factors that mitigate those risks have not substantially changed from those set out in the Group's 2016 Annual Report and Financial Statements, a copy of which is available from the Group's website: www.ortacresources.com.  The key financial risks are market risk (including currency risk), credit risk and liquidity.

3.  Segmental analysis

Segment information has been determined based on the information reviewed by the Board, being the Group's chief operating decision-maker, for the purposes of allocating resources and assessing performance.  No revenue is currently being generated.

There are no transactions occurring during the year, or comparative year, between reportable segments, that affect the Income Statement.  Head office activities are mainly administrative in nature and are located in the UK/BVI, whilst the activities in Slovakia relate to exploration and evaluation work. 

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. 

4.  Loss per share

The calculation of earnings per share is based on the loss attributable to equity holders divided by the weighted average number of share in issue during the period:

As the inclusion of the share options would result in a decrease in the earnings per share, they are considered to be anti-dilutive, and as such, a diluted loss per share is not included.

5.  Share capital

The authorised share capital of the Company and the called up and fully paid amounts at 30 September 2016 were as follows:

6.  Share based payments

Movements on the number of share options and their exercise price during the period ended 30 September 2016 are as follows:

The parameters used to ascertain the fair value of $4,000 of share options issued during the period are:

Volatility -35%

Risk-free Interest Rate - 2%

Expected Exercise Period 3 years

Share Warrants

 No warrants were granted during the period ended 30 September 2016. There are no warrants on issue; the details concerning warrants which have expired can be found in the audited financial statements for the year ended 31 March 2016.

7.  Investment in group companies

At 30 September 2016, the Group held 100% of the share capital of the following wholly owned subsidiary companies:

8.  Intangible assets

9.  Tangible assets

10.  Investment in associates

As previously reported, on the 20 April 2014, Ortac Resources Limited increased its investment in Andiamo Exploration Limited (a private UK- registered company) from 18.47% to 25.37%, which resulted in the investment being reclassified to an associated company from an available for sale financial asset. During the period ended 30 September 2016 the Company increased its interest to 26.99%. In September 2016 Andiamo entered into an agreement with its joint venture partner Environminerals East Africa Ltd ("EEA") to acquire the EEA joint venture interest earned over a part of the Andiamo licence in exchange for 25% of the issued share capital of Andiamo. This transaction has not yet completed as of the date of the approval of these interim accounts but when closed the interest of the Company in Andiamo would be reduced to 20.24%    

The carrying value of Andiamo is £914,000 determined as follows: 

Ortac's share of the results of Andiamo Exploration Limited are shown below:

Nature of investments in associates:

The latest available financial statements for Andiamo Exploration Limited (December 2015) were included with the audited accounts at 31 March 2016. There are no interim statements available since that date. During the year ended 31 December 2015 Andiamo lost approximately US$200,000 and at 31 December 2015 Andiamo had net assets of US$10,888,000. Ortac's interest in the loss and net assets was approximately US$54,000 and US$ 2,940,000 respectively. The Directors believe that at 30 September 2016 the fair value of the Group's interest in Andiamo Exploration Limited is equal to or greater than its carrying value. 

Andiamo Exploration Limited is a private company and there is no quoted market price available for its shares.

11.  Available for sale financial assets

The available for sale financial assets include:

(i)         the Company's investment in Casa Mining Limited of £217,000.  During the period the Company increased its shareholding from 12% to 19.63%.  Subsequent to 30 September 2016 the Company purchased additional shares in Casa which increased its shareholding to 21.25% and in future accounts Casa will be accounted for as an associated company.

      and

(ii)        the Company's Secured Loan to Zamsort Limited of £791,000 described below.

On 30 March 2015, Ortac Resources Limited announced that it had entered into a US $600,000 (£405,405) 8% Secured Convertible Loan Note (the "Convertible Loan") and a one note for one share Call Option Agreement (the "Option") with Zamsort, a private company registered in Zambia that holds a prospective Cu-Co mining and exploration licence in the Zambian Copper Belt. 

As at 31 March 2015, Ortac Resources Limited had advanced US$ 450,000 (£304,000) to Zamsort as a first instalment of this loan, with the balance of US$ 150,000 following due diligence, paid on 9 April 2015. 

On 25 August 2015 the Company exercised its Option to purchase a further US$ 600,000 of the Convertible Loan and now has a total investment of US$ 1,200,000 convertible into 19.35% of Zamsort. The Convertible Loan is carried at its original cost of £791,000. Interest of £ 92,000 (2015 - £ 20,000) is included with Trade and other receivables.

The loan notes are convertible at any time prior to the redemption date.

12.  Loan from Director

In September 2016 a Company associated with a Director made a short term loan of £40,983 (US$51,400) to enable the Company to complete a purchase of Casa shares.

In October upon completion of two share placements the Company repaid the loan together with a service fee of £ 4,098. 

13.  Contingent liability

As part of its acquisition of Kremnica Gold s.r.o. and Kremnica Gold Mining s.r.o., Ortac Resources (UK) Limited (formerly Ortac Resources plc) agreed to pay:

a)   Vendor royalties of up to US$3,750,000 in either shares or cash - being $15 per ounce on the first 250,000 ounces of gold equivalent (gold plus silver) resource defined as proven and probable reserve in the bankable feasibility study.  Said royalty will become payable within 60 days of all required permits being obtained to allow commercial production at the Kremnica property; and

b)   A 2 per cent Net Smelter Royalty ("NSR") on gold and silver production from the Kremnica Gold Project to a limit of the first 1,000,000 ounces produced, reduced to a 1 per cent NSR on the next 1,000,000 ounces and zero per cent thereafter.  At any time prior to the reduction of the NSR percentage to 1 per cent, Ortac may acquire half of the 2 per cent NSR for US$1,000,000.  After the reduction of the NSR to 1 per cent, the Purchaser may acquire all of the Vendor NSR for US$1,000,000. 

On the basis of a third party resource study, updated in 2013, the Directors are confident that proven and probable reserves will significantly exceed 250,000 ounces of gold equivalent (gold) resource.  Notwithstanding this, until such time as it is clear that all the required permits to achieve commercial production will be secured, no provision for such amounts can be included in the Group financial statements. 

14.  Post balance sheet events

(1) In October 2016, the Company increased its interest in Casa Mining Limited to 21.25%. It issued 251,296,486 shares to a Director with a stated value of £ 81,672 (.0325 pence per share) to acquire 124,722 Casa shares and also subscribed for an additional 62,500 shares offered by Casa at a cost of US$ 50,000. Since these transactions have increased its shareholding to 21.25%, in future the Company will account for Casa Mining Limited as an associated company;

(2) In October 2016 the Company announced that it had placed 750,000,000 shares at .04 pence and raised £300,000 before share issue costs. The Company now has 8,213 million shares on issue.

15.  Other matters

The condensed consolidated interim financial statements set out above do not constitute the Group's statutory accounts for the period ended 30 September 2016 or for earlier periods, but is derived from those accounts where applicable.

A copy of this interim statement is available on the Ortac's website: www.ortacresources.com.