Adriatic Metals has the assets, the know-how and the political will to make a difference in Bosnia
Investors in (,,,) had better save their hats.
In the coming weeks, the company is expected to enter into a financing agreement to bring the polymetallic Vares project in Bosnia into production. The inauguration of the first land is likely to come a few days after that, and construction will begin in earnest.
First production is slated for Spring 2023, roughly 18 months away, by which time Adriatic will be on track to deliver the US $ 220 million free cash flow per year for which it is modeled in its final feasibility study.
The importance of this project for Bosnia and for the Bosnian economy cannot be overstated. At various stages of 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, in part because of this, the Adriatic has found in Bosnia a country in which it can operate effectively. Such a correlation is not obvious, no investor in Mongolia will testify, but in the case of the Adriatic and Bosnia, the commitment is deep.
Managing Director Paul Cronin, a man with significant entrepreneurial spirit and commercial know-how, now lives in Bosnia, just outside the town of Vares. In addition, he created and set up his own equity, a charitable trust, the control of which has been entrusted to prominent local figures.
Adriatic is going to give back to the people of Vares in a big way, but how it is done will be decided by the people themselves.
And that’s after all the immediate and tangible benefits of a mining development in Vares have been factored in, of course. There will be the jobs created, the already mentioned increase in GDP and a general injection of life and activity in a region that has largely stagnated since the end of mining operations a few decades ago.
Managing Director Paul Cronin, a man with an entrepreneurial spirit and significant market expertise, moved to Bosnia over a year ago to get closer to the Vares project. In addition, he created and set up with his own funds, a charitable trust called the Adriatic Foundation, the control of which was given to prominent residents of the town of Vares.
So in a way that’s quite a responsibility.
But this is not a problem for the Adriatic. This is how the modern mining industry is supposed to be built these days, and if Adriatic can make it work for everyone, then so much the better.
The key element, of course, is the economic viability of the mine itself. Without it, none of the other benefits pass.
But here the Adriatic seems to be on pretty solid ground. For a while there were discussions about the exact products the company was going to produce from the mine, but by the time the definitive feasibility was completed it was clear that the main commodities were going to be the silver, zinc, lead, gold, copper and antimony.
The income gap, according to Adriatic’s Tommy Horton, is expected to be around 50:50 between base metals and precious metals. For the sake of simplicity though, society tends to talk about financial in terms of money equivalent, and here is where the real appeal of Vares begins to become apparent.
Because the overall cost of producing each ounce of silver is likely to ring in at US $ 7.30, according to the definitive study, about a quarter of the current spot selling price. So a lot of margin offered at the operating level.
Zoom out on larger numbers and the size and scale become clearer. There’s that $ 220 million free cash flow that has already been mentioned, and the overall net present value of the project is $ 1.1 billion.
And especially for this stage of the game, the investment figure is a remarkably moderate US $ 168 million. By all accounts, this money is already on the table, so investors shouldn’t expect too much pain as the process comes to a close in the coming weeks.
Instead, the market will likely start to realize the tangible fact that Adriatic can now present a clear production schedule, with all the advantages and benefits that come with it. The share price has held up rather well since the company was listed in London in late 2019, but it seems likely that real value is only just starting to become apparent.