Post tax NPV8 – USD 1040 million. This is AUD 1457 million at current conversion rate. Scoping study NPV8 was USD 916.6 million. So we get an improvement from scoping study and importantly at much higher level of certainty.
IRR – 113% (scoping study – 107.4%)
Upfront capex - USD 173 million
Payback from first production– 1.2 years (Scoping study was 21 months from project start and 8 months from processing start)
Annual annual EBITDA years 1-5 – USD 251 million
Profitability index – Post tax NPV8/capex = 6.
2/ Financing
Exceptional metrics on every ground. Should ideally be much easier to obtain financing compared to many other companies. Mentioned in PFS that to achieve the range of outcomes indicated in the PFS, funding of in the range of US$180 million will likely be required in capital expenditure to construct the mine, process plant and project infrastructure. It is anticipated that the finance will be sourced through a combination of equity and debt instruments from existing shareholders, new equity investment and debt providers.
So at price of AUD 2.2, diluted market cap is around AUD 484 million which is around 33% of NPV8 figure. Keep in mind, that this NPV8 is only Vares and does not take into account recent expansion of land package, further exploration, and Teth assets
4/ Precious metals exposure
45.3% of revenues from silver and gold – Precious metals exposure further confirmed
IMO, the precious metals prices assumed are fair considering potential long term bull market in gold and silver
8/ Mining life stage -
I’ve always mentioned from very early (I think the first time I mentioned it was June 2018) that mining life cycle is very important consideration all along
Nordesmic and JID raise some great points that the pullback in many companies in this stage is mainly due to financing which should not ideally be an issue for ADT. Also other points like M&A, exploration upside, precious metals bull market, general gold M&A etc. could all act as positive for ADT
ADT has been very focused on continuous growth opportunities – land package expansion, more exploration, Teth acquisitions, etc. and hence determining mining life stage accurately is very difficult compared to other companies
Very important for each investor to decide their own risk appetite at this stage, as IMO mining life cycle consideration is one of the most important factors to analyse.
9/ Resource to reserve
88.5% conversion of Indicated Resources to Ore Reserves at Rupice
10/ Revenue stream – first 10 years (USD millions)
Silver – 917
Zinc – 725
Gold – 463
Lead – 422
Good exposure to multiple metals
11/ Barite
The Vares Silver Project is expected to become the largest barite producer in Europe at up to 250,000 tons per year at peak capacity. This scale offers Adriatic the opportunity to drive costs down through economies of scale as well as invest in best in class logistics for getting product to various markets. The scale of the operation also ensures that Adriatic Metals should be able to be a more reliable supplier than some of the other, smaller operators in the region.
Wood Mackenzie’s report considered that the barite concentrate will likely produce products that
can be sold in the $100-200/tonne range.
Adriatic Metals will be investing into barite marketing expertise to get maximum value from the barite concentrate in the future.
Barite could be one of the big wild cards in future
12/ Permitting
The water permit is currently progressing through the cantonal approvals process and the necessary Public Hearing for the Environmental Permit successfully took place on 31 August 2020 in open-air COVID-19 secure conditions. On receipt of the Environmental Permit, the Urban Planning Permit will be immediately submitted for approval. After which the Exploitation Permit will be applied for in 2021.
a/ Company did not overpromise but many shareholders perhaps had higher expectations which might explain some of the fall today. Keep in mind that with PFS, we have higher certaintythan scoping study. So, even if figures are similar, that is actually pretty good.
b/ Otherwise PFS is actually pretty good and confirms the world class nature of the project
c/ Financing should ideally not be an issue considering the world class nature of project
d/ Diluted market cap (after Teth shares) only around 33% of NPV8 – still pretty undervalued. Also higher certainty gives better M&A prospects.
e/ Mining life cycle is one of the most important and difficult considerations as explained above and important for each shareholder to conduct their own DD.
f/ IMO Permitting needs to be be given priority by ADT as some shareholders might be apprehensive about the new jurisdiction.
g/ Barite could be the most underestimated and under researched part of the average ADT investor’s analysis
h/ Next focus now probably on Tethyan - Kizevak and Sastavci drill results. Reminder again that this PFS is only for Rupice and Veovaca, and does not consider anything about Tethyan, expanded land package, M&A etc.
i/ Long term precious metals bull market still very much intact as explained some months back
Please DYOR and especially cross check all figures mentioned above as some could have mistakes
Cheers
ADT Price at posting:
$2.22 Sentiment: None Disclosure: Held
(20min delay)