Newly listed Adriatic Metals (ASX:ADT) is a base metal company with advanced exploration projects in Bosnia and Herzegovina, offering auspicious exposure to Zinc and Lead. In our view, the company’s 100% owned assets are on the cusp of being able to underpin a base-case production scenario. High grades, historic production, excellent infrastructure and experienced management significantly mitigate construction, operating and permitting risks, while we see further in-mine and near mine exploration upside as a key attraction
of the stock.
At a modest EV of ~A$16m, there is considerable scope for the company to deliver upside. Near term, we see exploration results from the company’s recently commenced 15,000m drill program (page 9), particularly from the high grade Rupice deposit as a potential key catalyst. Long term, progressing Feasibility Studies and permitting, pursuing regional consolidation and advancing exploration targets should further enhance Adriatic’s appeal. Given the scarcity of ASX listed, quality base metal developers, we believe the company can gain rapid market traction as it advances the projects. Our positive view on the technical merits and upside appears to be affirmed by corporate interest in the stock, with Sandfire Resources (ASX:SFR) emerging as a substantial shareholder following ADT’s IPO.
Rupice - High grade exploration upside
Drilling results in 2017 highlighted Rupice’s exceptional grades, including (downhole widths):
• 64m @ 8.4% Zn, 5.1% Pb, 2.2g/t Au, 373g/t Ag, 43.5% BaSO4• 30m @ 5.8% Zn, 4.1% Pb, 3.5g/t Au, 382g/t Ag, 70.9% BaSO4• 40m @ 8.2% Zn, 5.5% Pb, 3.5g/t Au, 479g/t Ag, 57.3% BaSO4 A drilling program is underway, which we expect would result in the delineation of a JORC Resource.
Veovaca - Development opportunity
CSA global recently completed a JORC Resource Estimate for Veovaca based on validated historic drilling results and drilling completed by Adriatic in 2017, comprising 4.4Mt @ 2.0% Zn, 1.1% Pb, 20% BaSO4. The Resource is estimated using a 2.0% Zn Eq cut-off. We note the lack of sampling of precious metals in a significant portion of historic drill holes. Further drilling should result in ~50-60g/t Ag credits, based on our estimate.
Potential development scenario
We envisage the company to commence a Scoping Study on Veovaca and Rupice following further drilling. Given the historic production, existing Resource and infrastructure, Veovaca is expected to comprise the bulk of the ore feed under a base-case production scenario, while Rupice would supplement higher grade ‘sweetener’ feed. Potentially, the future operation would utilise a new processing facility producing separate zinc, lead and barite concentrates with precious metals credit.
First mover advantage
Despite prospective geology, Bosnia has lagged neighbouring Serbia in terms of attracting foreign mining companies (Rio Tinto, Freeport-McMoRan, First Quantum, Dundee, Nevsun). ADT is one of the very few listed mining companies in Bosnia with a local management team that has significant legal expertise in the domestic mining industry, led by Milos Bosnjacovic who was formally a lawyer in the Ministry of Energy, Mining & Industry.
We see the current complex regulatory environment as a key barrier to entry for foreign mining companies and Adriatic’s demonstrated ability to navigate this environment is crucial to capitalise on its first mover advantage.
Overview
Adriatic’s key asset is the Vares Polymetallic Project, comprising the Veovaca and Rupice Deposits, which is situated in Bosnia and Herzegovina and within a well-endowed base metal metallogenic belt. The projects were acquired from Balkan Mining Pty Ltd in 2017 while Adriatic was a private company. The project is located near the town of Vareš, which was a historic mining and industrial centre with infrastructure including sealed roads, grid (coal / hydro) power, heavy duty rail and blast furnaces. Exploration is considered advanced with a Mineral Resource estimated on Veovaca recently and Rupice Mineral Resource Estimate anticipated following additional drilling post IPO. The deposits are located ~17km apart and fortuitously located near key infrastructure including roads, rail, hydro power and labour. In our view, the Vares Project has the potential to underpin a base case production scenario supporting a ~500ktpa operation.
Project Overview - Rupice
Background
Historic exploration at the project include ~6,000m of drilling and ~700m of underground development by Energoinvest. There has been no recent exploitation but the area was understood to be exploited by small scale mining (mainly for barite) in late 1980s.
Geology
The geology appears similar to that of Veovaca, with high grade mineralisation hosted in a brecciated zone within a predominantly clastic sediment package. Key mineralogical differences when compared to Veovaca are: • Generally higher Zn/Pb grades
• Elevated precious (gold and silver) grades
• Elevated copper
• Lower amount of stibnite and cinnabar
The deposit could potentially be bound by structures with vertical movements, and remains open down plunge.
In addition, given the mineralisation is limited by drilling at depth, we believe targeting this extension could demonstrate immediate upside. The deposit outcrops and drilling to date has been relatively shallow, with the deepest hole down to ~270m below surface.
Near mine upside
Based on exploration data compiled, including old workings, sampling, drilling and geophysical data, ADT has identified several promising near mine targets, located both within and outside its current tenement areas. The targets lie within a well-defined prospective stratigraphy. In total, exploration potential is estimated at 16-20Mt, likely with additional barite and precious credits. Initially we expect exploration to focus on the Rupice Corridor which largely lies within the existing concession. Based on our understanding, limited, non-ground disturbing exploration activities can be conducted outside ADT’s concession areas when approvals from state authority / private land owners have been granted.
Upcoming exploration program
Post IPO, ~60% of funds raised are expected to be directed to drilling and evaluation activities at Rupice. The company has commenced the first phase of a 15,000m diamond core drill program, initially comprising:
~3,500m – Rupice north zone, testing down dip and down plunge extensions of previously identified high grade mineralisation
~4,000m – Testing targets near the historical Brestic-Jurasevac (JB) underground workings
~3,000m – Targeting ~400m strike length in the corridor between Rupice and Jurasevac where several chargeable anomalies and zinc/lead soil anomalies occur
In addition to this and subject to results, in-fill drilling is likely to be included to increase geological understanding and confidence. This could, for instance, lead to the declaration of a maiden Resource at Rupice.
Infrastructure and logistics
Our site visit highlighted significant infrastructure at and near the project, including:
Historic processing site (mill removed) and associated administration building
Hydroelectric power on site. An additional substation is required to support a ~500ktpa mining and milling operation
Sealed roads from the capital Sarajevo (~50km)
Rail connection from the town of Vareš to Port of Ploče in Croatia
Town of Vareš, population ~10k, which was a historic mining / steel hub comprising iron ore / limestone mining and steel blast furnaces.
Veovaca and Rupice Study
ADT is commencing the long lead items for an initial technical study (Scoping Study) on the projects. This work is likely to incorporate:
• Further drilling and assaying of precious metals
• Maiden Resource from Rupice and collection of a representative metallurgical sample• Mining optimisation studies
• Metallurgical work / processing flow sheet designs for a mixed feed from several deposits• Ground water studies
• Geotechnical drilling and studies
• Environmental impact studies
• Concentrate logistics studies
• Infrastructure studies (TSF, Lidar survey, power, water, etc)
Potential development / production scenario
Given the current inventory and existing infrastructure on site, the Veovaca and Rupice projects could underpin a production scenario as early as 2019/2020. The Veovaca and Rupice deposits complements each other – while Veovaca would provide the base load open pit tonnage, Rupice would supply higher grade feed in smaller quantities. We envisage ore from Veovaca to be mined via conventional open pit methods while Rupice could be an underground operation. Based on our initial assessment, the deposits could deliver ~500ktpa ore to the mill.
Any existing environmental liability (e.g. historic tailings dam) is understood to be the responsibility of the government.
Flow sheet
Historically, the Veovaca open pit and associated milling operation initially produced
a Zn/Pb bulk concentrate. Subsequently and following modification of the processing circuit, the operation produced split Zn, Pb and Barite concentrates, which were sold to European customers. Historical processing utilised off-the-shelf grinding and flotation circuits to separate the metals and achieved recoveries of up to 92% Zn and up to 85% Pb. Concentrate grades were approximate 50% Zn, 50% Pb and 92% BaSO4. Historically, the concentrates were saleable to smelters with acceptable amount of deleterious elements. We anticipate optimised and improved processing circuits to deliver superior metallurgical performance compared to historic results.
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