Miner Adriatic Metals (ADT1) is set to commence production from its Vares silver-zinc-lead-copper-gold-antinomy project in the fourth quarter of 2023 and has exciting exploration potential.

It is a good time to invest in the stock and we see scope for significant gains in both the short and medium-term. The relatively small footprint of the project means costs are low and based on Berenberg’s sums Adriatic trades at a little less than two thirds of its net asset value and on a 2024 free cash flow yield of 24.3%.

There are hazards attached to this investment – Adriatic will be generating revenue from a single jurisdiction (Bosnia and Herzegovina) and as a small to medium-sized mining company the shares could be prone to volatility, particularly given the current uncertainty around China – a key consumer of global commodities and a major influence on sentiment towards mining shares.

Once fully up and running by 2025, Cronin believes Vares will deliver $250 million to $300 million of cash flow per year, money which can be reinvested in the company’s existing portfolio, used to acquire assets to diversify the asset base and/or returned to shareholders.

Chief executive Paul Cronin tells Shares the company wants to ‘build a commodity mix that supports a natural hedge in our revenues between economic cycles, but also recognises as Europe continues to transition its economy to a green economy it’s going to require a lot more things like copper, nickel and silver, in particular, to facilitate that.

‘Silver is primarily used in solar panels, but because it’s very malleable and highly conductive it’s also the metal of choice for high velocity electric vehicle charging.’ In 2021, industrial demand for silver outstripped jewellery, photography, silverware and investment demand, according to the Silver Institute.

Cronin says Europe must buy the metals central to the energy transition from within its own borders thanks to the European Union’s Critical Raw Materials Act.

Drilling at the Rupice deposit, which forms the main orebody for the Vares project, and at the Rupice Northwest extension recently drove a 93% increase in its overall resource estimate and is set to be followed by a reserve update in October which could see the 10-year mine life double to 20 years. Exploration work continues, with the company recently raising $30 million to help fund activities.

While Cronin acknowledges Bosnia can be bureaucratic, he says it is a good place to do business, helped by the fact Adriatic is the biggest overseas investor in the country. It has good infrastructure and the fiscal regime is attractive with a 10% tax rate and a ‘favourable’ royalty regime.

‹ Previous2023-09-07Next ›