Adriatic Metals: Low cost polymetallic development company; Bargain Price (ADMLF)

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Investment thesis

I wrote an article on Adriatic Metals (OTCPK: ADMLF) just over a year ago and have since added it to the portfolio. Adriatic Metals is a low cost polymetallic development company in Bosnia and Herzegovina, in the construction phase, with the aim of starting production in less than a year from today. The company is listed in Australia, UK and has an OTC listing in the US.

The stock price has fallen significantly over the past year due to poor sentiment from miners and development companies in particular, much more than you would expect due to the decline in underpinned metals. assets of the Vares key project. The valuation is therefore very attractive.

Figure 1 - Source: Koyfin

Figure 1 – Source: Koyfin

Adriatic Metals is primarily focused on the Vares project in Bosnia and Herzegovina, currently under construction, which I will focus on in this article. The company also owns the Raska exploration project in Serbia, with some long-term potential.

Vares Project Update

Adriatic Metals announced financing for the $244.5 million project late last year, which included $120 million of senior secured debt, a $22.5 million copper stream and 102 million in equity at a price of £1.52, which is well above the share price. is currently trading.

The project is therefore fully funded and the construction phase is progressing well. The company provided its third quarter update on October 7, where the initial capital cost is now estimated at $173 million. That’s $5 million or 3% more than last year’s feasibility study, which is pretty good in my opinion considering the inflation we’ve been experiencing lately. It should also be noted that 72% of capital expenditure excluding contingencies is allocated, awaiting allocation or recently quoted, as shown in the graph below. Thus, any substantial cost overrun is highly unlikely at this stage.

Figure 2 - Source: Vares project Q3 update

Figure 2 – Source: Vares project Q3 update

The project was until recently expected to have its first concentrate production at the end of Q2-23, but this has now been pushed back to Q3-22. While the majority of long-lead items and equipment orders are expected on schedule, global supply chain disruptions have resulted in some minor delays.

Although the profitability of the Vares project is already extremely good today, it should be noted that the company is currently carrying out exploration and definition drilling, and a resource update is expected in Q1-23 for the Vares project. . Where drill highlights showed 20-30 meters with an equivalent silver grade of 800-900 g/t, which of course is excellent. This has the potential to extend the life of the mine and increase the net present value of the project.

Figure 3 - Source: Adriatic Metals July 2022 presentation

Figure 3 – Source: Adriatic Metals July 2022 presentation


Vares is a low-cost polymetallic project with superb economics, where the after-tax IRR is over 100% even though metal prices have fallen slightly from the feasibility study and the initial cost of capital has increased by 3%. The AISC was estimated at $7.3/Ounce AgEq.

Figure 4 - Source: Adriatic Metals July 2022 presentation

Figure 4 – Source: Adriatic Metals July 2022 presentation

To estimate the value of the project, I will use the following raw material price assumptions: gold $1,700/oz, silver $20/oz, zinc $3,050/t and lead $2,050/t. Based on the feasibility study sensitivity table and revenue contribution by product, we are now looking at an NPV of approximately $900 million.

In the first half of 2022, the company had 266 million shares outstanding, which with the latest exchange rate and a share price of £1.24 gives us a market capitalization of $366 million. Now the company also has debt, but the total value of copper stream, senior secured debt and convertibles of $20 million roughly offsets the initial capital cost of the project. We can also expect the cash position to be relatively weak in the third quarter of next year, although there is a contingency to manage cost overruns or more minor delays. Thus, the market capitalization relative to the NAV is an appropriate measure for the valuation of the stock, which currently stands at 0.41.


A market cap at NPV of 0.41 is in my view very attractive for a low cost project where I am using relatively conservative commodity price assumptions. We are less than a year away from initial production, the project is fully funded, slightly behind schedule and over budget.

As mentioned earlier, Adriatic Metals will also provide a resource update in early 2023 which is expected to increase the NPV, and there is no indication that this will be the last time the project will develop as it is open in two directions.

There have been some concerns about the political stability of Bosnia and Herzegovina, which does not contain much substance according to the CEO. Given the current global geopolitical situation, there is likely a fair amount of political uncertainty in most countries right now. I don’t think Bosnia and Herzegovina and the region of the country where Adriatic Metals operates are much worse in this regard.

There is little operating history for international mining companies in the country, but the government has been very supportive. In South and Central America, by comparison, we have a great history of exploitation, but we currently see much less supportive governments in my opinion.

On the positive side, the country is not feeling the pain of the energy crisis to the same degree as much of Europe, where energy prices have so far remained low and relatively stable. Indeed, the country depends mainly on coal and hydroelectricity for its electricity production. Lower electricity prices will be good for Adriatic Metals and at least it won’t be a source of political tension for households across the country.

Chart 5 - Source:

Chart 5 – Source:

Eleanor C. William