Expanded Rupice Resource to underpin PFSLarger tonnes but lower...

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Expanded Rupice Resource to underpin PFS Larger tonnes but lower grades yield a net gain in terms of contained metal. Adriatic Metals (ADT-ASX) has increased the total volume of its Rupice polymetallic deposit, which is part of the Vareš Project in Bosnia-Herzegovina. Total tonnes have increased ~29% from the maiden July 2019 Resource over the deposit (a 32% increase of Indicated material compared to the mine plan in the Scoping Study). The Total Resource grade has fallen by ~18%, but there is a net gain in terms of contained metal, which has increased by ~5% compared to the resource and ~10% when comparing the Indicated component against the current mine plan. This latest Resource for Rupice stands at: •12Mt @ 149g/t Ag, 1.4g/t Au, 4.1% Zn, 2.6% Pb, 25% BaSO4, 0.5% Cu & 0.2% Sb. In metals-equivalent terms, the silver dominant deposit stands at 135Moz AgEq, 1.94Moz AuEq or 1.53Mt ZnEq. Metal equivalents have been calculated by CGe using spot prices. Recoveries and payabilities are as per the ADT Scoping Study and subsequent metallurgical test results. When combined with the low-grade Veovaca deposit, ADT's total Resource base stands at 19.4Mt @ 250g/t AgEq (3.6g/t AuEq or 9.1% ZnEq) for 156Moz AgEq (2.2Moz AuEq or 1.77Mt ZnEq). ADT is readying a PFS, which could be delivered in the coming weeks and will be underpinned by the new Resource.We expect this Resource to flow into the upcoming PFS and note that future exploration upside remains. Recent drilling has demonstrated that Rupice remains open to the north and south. ADT has also commented on recent drilling nearby that failed to uncover economic mineralisation coincident with the Jurasevac- Brestic gravity anomaly. This latest Resource has implications for an update to LOM plan in the PFS.A lowering of grade will impact costs and could be seen as a negative; however, assuming ADT maintains its 800ktpa throughput rate as per the November 2019 Scoping Study, additional Rupice ore now has the potential to offset the much lower-grade Veovaca open pit ore that is set to come into the mine plan from year 9 of the 15-year plan. This is a positive as FCF from Veovaca is much lower than Rupice. The Rupice deposit is located on a hillside and plunges parallel to the slope. Importantly, this allows for mine sequencing to target high-grade portions of the orebody from year 1, enabling early payback of capital. This is a unique benefit as a typical decline will not have to develop excessive distances to reach the highest value ore. While the overall Rupice grade has decreased, we anticipate ADT will optimise its mine plan in the forthcoming PFS to ensure capital payback is maximised. Rupice is now a silver deposit. Given the rally in the silver price of late, the deposit can now be classified as silver dominant with ~33% of in-situ value (at spot) attributable to silver (24% zinc, 21% gold). Valuation and recommendation:Our updated price target of A$3.05/sh. (previously A $2.45/sh.) (NPV10%) is on a fully diluted basis and now risked 70% to account for the pre- DFS status of the project. Since our last research report, we have updated our commodity price assumptions, which has had a positive impact on our valuation. Given our model is fully funded and assumes future equity dilution, the post-COVID rally in the share price has also impacted our assumptions to the upside. With today's decrease in Resource grade, we have reduced our modeled mine inventory grade accordingly and await further updates in the upcoming PFS catalyst. We view the Rupice deposit as a world-class offering that will be developed by ADT or a suitor. We maintain our SPECULATIVE BUY recommendation.

From Canaccord Report