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Adriatic Metals is on the cusp of financing Vares, and expects first production in spring 2023

Published: 10:55 05 Oct 2021 BST

Adriatic Metals PLC -

Investors in Adriatic Metals PLC (LSE:ADT1, ASX:ADT, FRA:3FNA, OTCQX:ADMLF) better hold onto their hats.

Within the next few weeks the company is likely to be closing off on a financing deal to get the Vares polymetallic project in Bosnia into production. Breaking first ground is likely to come a matter of days after that, and construction will get underway in earnest.

First production is due in the spring of 2023, in around 18 months’ time, at which point Adriatic will be well on the way to delivering the US$220mln in free cashflow per year that it’s modelled for in its definitive feasibility study.

The importance of this project to Bosnia, and to the Bosnian economy cannot be overstated. At various points in the construction, Vares will account for a significant portion of the country’s gross domestic product, and in the first five years of production it will be the country’s largest exporter.

Perhaps, partly because of this, Adriatic has found in Bosnia a country in which it can operate effectively. Such a correlation isn’t a given any investors in Mongolia will testify, but in the case of Adriatic and Bosnia the commitment runs deep.

Chief executive Paul Cronin, a man with significant entrepreneurial drive and market know-how, now lives in Bosnia, just outside of the town of Vares. What’s more, he’s set up and seeded with equity of his own, a charitable trust, control of which has been given over to prominent locals.

Adriatic is going to be giving back to the people of Vares in a big way, but just how that will be done will be decided by the people themselves.

And that’s after all the immediate and tangible benefits of a mine development at Vares have been taken into account, of course. There’ll be the jobs created, the boost to GDP already mentioned, and a general injection of life and activity into a region which has largely stagnated since mining there ceased a few decades ago.

Chief executive Paul Cronin, a man with significant entrepreneurial drive and market know-how, moved to Bosnia over a year ago in order to be closer to the Vares project. What’s more, he’s set up and seeded with his own equity, a charitable trust called the Adriatic Foundation, control of which has been given over to prominent locals in the town of Vares.”

So, in a way it’s quite a responsibility.

But that’s no problem for Adriatic. That’s the way the modern mining industry is supposed to be set up these days, and if Adriatic can make it work for everyone, then so much the better.

The key thing though, of course, is the economic viability of the mine itself. Without that, none of the other benefits flow through.

But here, Adriatic looks to be on pretty solid ground. For a while there was discussion about exactly which products the company was going to produce from the mine, but by the time the definitive feasibility was completed it was clear that the key commodities were going to be silver, zinc, lead,  gold, copper and antimony.

The revenue spread, according to Adriatic’s Tommy Horton, is likely to be around 50:50 between base and precious metals. For simplicity’s sake though, the company tends to talk financials in terms of silver equivalent, and it’s here that the real attractiveness of Vares starts to become apparent.

Because the all-in cost of producing each silver ounce is likely to ring in at US$7.30, according to the definitive study, roughly a quarter of where the current spot selling price is. So plenty of margin on offer at the operating level.

Zoom out to the bigger numbers and the size and scale becomes clearer. There’s that US$220mln free cash flow that’s already been mentioned, and the project’s overall net present value rings in at US$1.1bn.

And crucially for this stage of the game, the capex figure is a remarkably moderate US$168mln. By all accounts that money’s already on the table, so investors shouldn’t expect too much pain as the process gets finalized in the coming weeks.

Instead the market is likely to start waking up to the tangible fact that Adriatic can now present a clear timeline to production, with all the benefits and upside that accrues. The share price has held up pretty well since the company listed in London at the end of 2019, but it seems likely that the real value is only just beginning to become apparent.

Adriatic Metals says 2024 will be a solid year as it provides guidance for...

  Adriatic Metals PLC (LSE:ADT1, ASX:ADT, OTCQX:ADMLF) chief executive Paul Cronin joined Proactive's Stephen Gunnion with details of the first production guidance published for the Vares silver project in Bosnia and Herzegovina. Cronin said the company expects to produce between 240,000...

on 24/1/24