Adriatic Metals investment thesis

Adriatic Metals ADT.AX – The jewel of the Adriatic

Introduction to Adriatic Metals 

Adriatic Metals is a precious and base metals explorer and developer that owns the world-class Vares silver project in Bosnia & Herzegovina and the Raska zinc deposit in Serbia. This region is within the Tethyan belt, an area rich in mineral resources that has been mined since ancient times. However, due to the Balkans war, mines were closed and it has not until recently that mining activity has come back to an area unexplored with modern techniques.

Adriatic Metals has done in 6 years what others do in ten to twenty. In 2017 Paul Cronin and the other founders acquired the Vares project (Bosnia). One year later, they listed the company in ASX Australia. In 2020 they acquired Tethyan resources (Serbian assets) and published the PFS (resources of the Vares project). In 2021 they closed the financing required to build the project and published the DFS. This 2022, Adriatic obtained all the required permits, and Vares (Rupice) production will start in 3Q23.

Talking about Adriatic is to talk about Rupice (the mine of the Vares project), its flagship asset. This ultrahigh-grade mine is a zinc-silver-lead-gold-copper-barite deposit. The mine is a brownfield project which has made available some legacy documents to understand better the terrain. Moreover, it had the infrastructure already in place, access to water and skilled labour, which facilitate all the processes.

As a quick summary, Adriatic has 2 assets, Vares (Rupice) in development and Raska in exploration. It trades in both the Australian and London stock markets. Its capitalisation is the equivalent of US$550MM

Adriatic Metals Investment Thesis 

  • One of the highest-margin polymetallic projects in the world: The Vares project is one of the projects with the highest IRR in the world. Its DFS has an AISC of <$8.5 y >9 Moz AgEq /year. It implies (at current prices) an IRR >100% for the Rupice mine. Furthermore, results are expected in the coming weeks that confirm that the useful life of the mine can be extended to 20 years instead of the initial 10 years considered in the DFS.
  • Low corporate taxes and strong local support: The Bosnian government is very supportive of the mining industry and has implemented policies to encourage investment and growth in this sector. Corporate taxes in Bosnia are only 10% and the state does not control any percentage of the project (something very usual in mining in developing countries). Moreover, the Vares project will represent around 1.5% of the GDP in the country, so the project is in the national interest.
  • A pool of skilled people: the Balkans has a well-developed mining industry, and there is a large pool of skilled workers with experience in this field.
  • Precious & base metals exposure: Adriatic Metals can be seen as a natural hedge to the economic cycle. It is expected to produce half of its revenue from precious metals and the other half from base industrial metals
  • Expansion opportunities: The Balkans region is placed within the Tethyan belt, a region that host several Tier-1 deposits and has attracted significant investment from majors such as Rio Tinto, Dundee Precious Metals and Zijin Mining. This region was affected by the war in the 90s and the mining activity was stopped for almost two decades. Now with new mining techniques, there are a lot of opportunities in the area. Furthermore, Adriatic has also expressed interest to acquire some assets across Europa once Vares is already producing.

Date: 11th Dec 2022

Capital Structure 

1Common SharesUS$550
3Convertible DebtUS$20
4Convertible DebenturesUS$9.5

A$ = Australian Dollars; US$ = US Dollars (All $ in the analysis refers to US Dollars)

Main Shareholders

Adriatic Metals shareholders


Stock Information

272.6MMnº shares
280k3mth avg vol
        A$ 1.63-3.3             52 Week Range


Adriatic Metals share price


Vares (Bosnia)

The Vares project is composed of two mines, Rupice & Veovaca. Rupice will enter production in 3Q23 and contribute to 1.5% of Bosnia’s GDP during the mine operations. On the other hand, Veovaca was finally discarded (not included in the DFS) as it is not commercially viable. 

Bosnia is a very attractive jurisdiction as it has a 10% corporate tax, a favourable royalty regime (US$2.23/t ROM) and a publicly supportive government. It is well positioned in central Europe, having access to rail networks (linking smelters and the seaborne market). Moreover, as it has a strong mining history, there is a highly skilled workforce in the population. Adriatic will become the largest Bosnian exporter during the first 5 years of the operation of Rupice.

As explained in the introduction, the Vares project was acquired in 2017, the PFS was published in 2020 and the DFS in 2021. The project is fully financed & permitted and will start production in 3Q23. Vares represents the largest ever mineral concession awarded in Bosnia at 41km2

Main differences between DFS and PFS

In comparison with the PFS, the DFS published in August 2021, removed the barite & pyrite concentrates. The removal of the barites and pyrite concentrate products reduces upfront Capex and eliminates marketing risk for these more niche product streams.

Moreover, the low-grade, Veovaca deposit has been removed from the end of the mine plan, with negligible impact on the NPV.

The PFS accessed the Rupice orebody via two parallel declines developed from the surface. The DFS modified it and project an upper and lower decline which allows for access to the highest grade (highest value) Rupice zone earlier in the mine plan. Furthermore, a third decline dedicated to ventilation replaces the raise bore in the PFS design, which was decided based on geotechnical considerations



Rupice is the cornerstone of the Adriatic project. The DFS indicate an Ore Reserve of 7.3Mt@485g/t AgEq of polymetallic mineral resources of high grade of mineralisation. It would imply an average of 10 years producing 9.2Moz AgEq. Especially, during the first 6 years, it is expected to produce 15 Moz AgEq on average. AISC (All-in sustained costs) of $8.5/oz AgEq. As it is a brownfield project, a significant part of the infrastructure (electricity, water..) is already in place. Consequently, the CAPEX required for the construction of the open pit mine is only $173MM.

Rupice contains massive sulphide Ag, Zn, Pb, BaSO4, Au, Cu and Sb mineralisation hosted primarily in a stratiform brecciated dolomite host unit. The mineralisation goes until 300m deep. Among the 7.3Mt Reserves, it is estimated Ag 202 g/t, AgEq 518 g/t

The ore is obtained from the mine, is taken to a processing plant 25 kilometres away for processing, and the compounds are put in an exclusive train terminal for the mine. They will sell a zinc concentrate and a silver and lead concentrate. Shipped to the port of Ploce (10 hours by train)

There are significant opportunities to expand Rupice. Rupice Northwest is a new mineralisation area where Adriatic is drilling. Recently they drilled 9 holes and intercepted thick high-grade massive sulphide mineralisation similar to the Rupice orebody. An updated resource and reserve for the project, which is expected to be released in the MarQ’23. The resource update may include a maiden resource for Rupice NW as well as a potential conversion of the current 2.5Mt Inferred resource to Indicated material.


Rupice mineralization and economics

The Vares area, as pointed out earlier, is within the Tethyan belt, an area rich in mineralisation. There are several interesting prospects of mineralisation within its limits such as Zakruzje, Kraljeva, and Surjeska… all of them historical Brownfield prospects. However, Jurasevac is in an advanced stage compared with the rest.


As stated, Jurasevac is the most advanced zone regarding the development of another mine. It is located 700m southeast of it. It has a similar sequence of prospective rocks as the Rupice deposit. There was a minor exploration of high-grade, narrow base and precious metal veins in the 1980s and there is data available from 7 historical holes drilled for 1334m (historically, it was explored using surface drilling and underground exploration adits). 

18 drill holes has been drilled for 4,003m since 2018 (deepest 472m) as initially identified intense gravity high data. The drillings validated the gravity anomaly, and additional work is required to help target economic massive sulphide mineralisation.

Jurasevac Brestic Adriatic Metals

Raska (Serbia)

Adriatic bought the Raska project in Serbia when acquired Tethyan Resources in 2020. Serbia is also an area with rich mineralisation but with a lot of political tensions lately. However, it also has an attractive taxes regime for the mining sector. Mining companies in Serbia are required to pay corporate income tax at a rate of 15% and 5% NSR.

Focusing on the Raska project. It is composed of two brownfield Open Pit mines (Kizevak and Sastavci). They used to produce zinc, lead and silver. They were operated by the Yugoslavian government by the activity ceased due to the Balkans’ war. The area of the Raska project covers 3.28 km2. The projects benefit from several infrastructure advantages including water, power, road and rail access all within 5 kilometres, and a local workforce with a long history of mining.

No significant exploration has been conducted in the area recently. Consequently, it gives ground for significant exploration potential due to the characteristics of the prospective 130km2 land package around two historic zinc-silver mines.

Currently, there are three diamond core drill rigs in operation (each targeting the Kizevak, Sastavci & Karadak Prospect). The adjacent Kaznovice license has recently been acquired.

It has open-pit potential and has existing mineralization close to the surface leading to a low-strip ratio. Adriatic is targeting the maiden JORC Mineral Resource Estimate and Scoping Study in 2023

What is the current situation of Adriatic Metals?

The project is fully funded through production, which is expected for 3Q22 with the commissioning taking place in 2Q23. There are only a few milestones to reach before that.

  • Vares Processing Plant: Vares is building a processing plant designed to treat a nominal 800kt/y ore from Rupice. The aim of the plant is to produce silver/lead and zinc concentrates before sending them on train to the port of Ploce. The completion of the VPP is expected in 2Q23
  • Haul road completion expected in 2Q23. As can be seen in the second image below, the work is divided into 5 lots. The contractor of lot 1 is already working on it and 2 out of 5 km are completed. Contractors in lots 2 and 3 ares starting to work now and the rest of the lots are just awarded or in the tendering process. It is on schedule and 2Q23 is the date to finish the Haul road.
  • Rail Head & Port: The lease for the rail head has been awarded. FBiH Railways is who has to commence refurbishment of the 25km from Vares to Podlugovi where it connects with the Bosnian railway network. Moreover, there are engineering studies at Ploce port. 

Moreover, Adriatic is doing active exploration in areas adjacent to the Rupice mine (In the Rupice NE prospect) to try to extend the life of the Rupice mine from 10 to 20 years. Results of the drilling are expected in a few weeks and there is a high probability that the resource will grow materially in the 1Q23 update.

Total project Capex is US$173MM, 76% of the total capital cost committed. The other 24% is mainly related to the award of Lots 2 to 5 (Haul road)

Rupice details Adriatic Metals

Offtake agreement

Adriatic reached an agreement with an off-taker to allocate 82% of the total projected concentrated production over the first 24 months of the project. The rest will be sold at spot prices.

The Zinc concentrate will be sold to Transfigura, Transamine and a major European smelter. The zinc concentrate from Rupice has a consistently low iron content, which makes it particularly attractive for European smelters, and “it is reflected in the purchase terms paid”

Silver lead concentrate will be sold to Glencore and Transamine. The silver-lead concentrate from Vares contains high-silver grades and grades of contained antimony and copper. Those are often payable for Chinese smelters. Silver lead concentrate will be sold both to Europe and China to diversify risks.

Adriatic has not entered into any price hedging.


The company debt is composed of a convertible bond and a project finance package. The bond is convertible at a price of A$ 2.69 (it is in the money currently). Orion project finance package meant an injection of US$142.5MM. This financial package is composed of US$120MM senior secured debt + US$ 22.5MM copper stream. This debt along with the $US102MM of equity that Adriatic rose in October 2021 should be enough to finance the Rupice mine construction.

Corporate & Team

Adriatic management team is composed of several veterans with a lot of experience in the mining industry. Paul Cronin, CEO & Co-Founder of Adriatic Metals worked on investment banking and commodity trading before starting Adriatic in 2016. He is also a major shareholder in the company. Michael Rawlinson (Non-executive chairman) was Global Co-Head of Mining & Metals at Barclays Investment Banking before joining Adriatic and Peter Bilbe (Non-Executive Director) has more than 40 years of experience in gold & base metals being on the board of several companies. 

Apart from their experience, which is evident. The work that they have done in Adriatic so far is amazing. They are going to have Rupice operating in only 6 years since they acquired the land. They have obtained all permits, secured financing, guide the market with a CAPEX for the project and achieve it with minimum inflation cost and delays in the middle of the current macroeconomic environment. And furthermore, they have a considerable stake in the company which aligns their views with the ones of shareholders.

Adriatic Metals Valuation

The valuation of Adriatic relies so much on the price of the commodities and the production profile. We share the assumptions we are using to value the company but we will share the target price once Rupice is operative as we believe that at his stage, we should focus on the magnitude between the market cap and the NPV and not in the exact NPV number (In our case, this range varies between $950MM-$1050MM depending on the assumptions)

  • We are using the forward curve of commodity prices (Silver, Gold, Lead, Copper and Zinc) which is slightly lower than the one used by Adriatic.
  • WACC 10% (they use 8%)
  • Production profile ( as facilitated by the company)
  • Mill throughput 800 ktpa (defined by the plant)
  • Mining cost (Rupice) $30/t,  processing cost $30/t and G&A cost $4.8/t
  • TC Transport charges $36/t
  • Life of mine sustaining capital $35MM
  • Serbian asset at cost ($30MM)


  • Inflation: Affect to cost of materials and labour needed to build the mine. So far, the increment in cost has been minimal to the initially planned. But it is a risk we have to bear in mind.
  • Construction: The project has been delayed 3Qs since the initial timeline because of problems with contractors and supplies. It can be considered within the range expected for a project of these characteristics in the middle of this macro environment. It is something to consider in the 4-5 months of remaining works and future constructions.
  • Operational: There can be accidents, water floodings, landslides… which force the mine to close temporarily
  • Commodity prices: As any company in the commodities sector, Adriatic will be affected by volatility in prices. Nevertheless, as we pointed out before, Adriatic is hedged due to the mineralization of Rupice. It contains around half of the expected revenues coming from industrial metals (very reliant on the economic cycle) and the other half from precious metals (In theory, anti-cyclical)
  • Geological risks: Mining is a complex and unpredictable industry, and Adriatic may face challenges in the future related to the geology of the region
  • Political risks: The political environment in Serbia is volatile, and Adriatic may face challenges related to changes in government policies or regulations. 
  • Social risks: Adriatic may face challenges related to their impact on local communities and the environment in the future in the case of water pollution,… 

Conclusion about Adriatic Metals

We believe that Adriatic Metals offers an interesting value proposition, with a significant safety margin, the management aligned and a lot of positive optionality. Its world-class Vares project is in its last stage before starting production, which eliminates some of the main risks for a junior miner (licenses, permissions,…), and it trades at a considerable discount to NPV for its stage. It offers an interesting safety margin. The management is well aligned with shareholders as they own a significant stake in the company (and they have been adding shares when the share price was weak a few months ago). Furthermore, Adriatic has a lot of optionality as Vares is in a very rich mineralisation area with several brownfield prospects in its area. In addition, Adriatic has also said that it wants to become a European miner. We believe that once Rupice is working, they will look for new targets (Nickel and other materials needed for batteries) in the outskirts of the European Union.

Note: Every week, we publish several articles about the companies in our portfolio (analysis of quarterly results, the impact of events,…),  macroeconomy, new investment thesis and quarterly letters about the evolution of the portfolio. You can subscribe for free to receive these emails on Sunday & Follow us on Twitter. Moreover, we would appreciate it a lot if you help us by sharing the content of Moram

Investment theses similar to Adriatic Metals