Adriatic Metals PLC (ASX: ADT) - Exciting Zinc Project

Adriatic Metals PLC (ASX: ADT) - Exciting Zinc Project

Adriatic Metals PLC has an exciting polymetallic project in Bosnia, but I am excited about the Zinc mineralisation.  To me, this is an exciting zinc project, and it is not in some corner of Africa, South Americal Alps of in the middle of the Australian desert. The Balkan area is home to several of these kinds of projects.

Several years ago,  I looked at several projects in Europe and was very impressed with what was available. I tried to get my pool of investors interested.  I could not convince them that the properties were one of the best regarding the sovereign, technical and infrastructure parameters.  They could not see that these projects had the market within striking distance of the European market, unlike Australia, Africa and South America.

The Company

Adriatic Metals plc is a UK based Exploration and Development Company, and owner of the Vares Mining Concession in Bosnia and Herzegovina, via its 100% owned subsidiary company, Eastern Mining d.o.o.

The Vares Project contains two advanced exploration deposits, Veovaca and Rupice, which were previously mined for Lead, Zinc and Barite. Operations ceased before the commencement of hostilities in the Balkans in the early 1990s. The deposits have been subject to extensive exploration, and contain significant quantities of Lead, Zinc, Silver, Gold, Copper and Barite. The precious metals were irregularly assayed during exploration but were present in produced concentrates.

Adriatic Metals Project Geological Map. (source: Adriatic Metals PLC)

The company listed on the ASX by issuing out Chess Depositary interests, or commonly known as CDIs.

Chess Depositary Interests ( CDI )

A CDI is a financial product which is a unit of beneficial ownership in an underlying financial product which is quoted on the ASX market. A CDI confers a beneficial interest in the underlying financial product to which it relates.  CDIs can be settled electronically through CHESS and are used when the underlying financial products are not able to be settled through CHESS.

 

Corporate Information

Market Capital:  67M

Outstanding Shares:  130.8M (06/2018)

Adriatic Metals PLC Share Price Chart. (source: Commsec)

I don’t think that there is anything to fault the business concept with Adriatic Metals.  The directors of the company have done similar things before and appear to be well credentialed.  It looks like the company is also well funded.  A rise from 20c to a high of 77c is a lot of value adding, and sadly, this chart is a rare sight on the ASX these days.

Project Location

Bosnia and Herzegovina is a virtually landlocked country with a 20km coast.  Today, it is an EU potential candidate country and is now gaining world interest as an investment destination.

Adriatic Metals PLC project location. (source: Adriatic Metals PLC)

Bosnia and Herzegovina is a small European country that historically has a small mining industry.  However, the export of base metals made up of 12% of the country’s total exports. (USGS 2014).  The mining sector was the most significant contributor to the country’s exports.  In the former Yugoslavia, Bosnia and Herzegovina was a major metallurgical centre for asbestos, barite, construction aggregates, gypsum and salt.

What do I like?

  • Management

First of all, during the IPO they got 2M from Sandfire, and that says a lot for its confidence.  I take this as an endorsement of the project and the operators of Adriatic Metals.  The association also indicate that in the progression of the project, the company will be able to source technical advice easily and this will make the transition to a miner more effectively and with a lot fewer hurdles.

The people within the management group appear to be credible.  There may be skeletons in their closet but who do not, especially in this business. Now, in the age of social media,  who knows what to believe these days.  However, I don’t know these guys intimately, but from my research, there does not seem to be any black marks.  The management of Adriatic Metals appears to be able to carry this project and the fact that they were able to raise funds for the IPO and the recent raising of 10M as announced on the 20 November 2018, would be the current proof., I am guessing.

  • Market conditions

Zinc as a commodity is one of my favourites.  I have recently written two blogs on zinc, and for those who have read it, they would know that I hold a cautiously optimistic view of this market.  There has been a long believe that there was going to be a shortage of supply, but to date, this has not happened.  Parallel to that is the more than apparent slowdown of the Chinese economy.  The Chinese slowdown will also be a slow down in the world economy as it deals with the decreasing demand from the Chinese juggernaut of the last 20 years.

However, even in the light of a slowing world economy, there is a possible gap happening in supply which would make a high-grade proposition like this within reach of the European market very attractive.  Another positive is that the project is within the path of the One Belt One Road strategy.

There are lots of talks recently about how zinc could be used more in the EV story.  If this has enough traction, then being in Europe will be another advantage.  The European market is bustling and doing the whole EV pathway and investing in facilities all over the place to help it become competitive.

  • Drilling

The intercepts that were released recently are good.  To say good would be not giving it justice.  As you can see in the image below showing the highlights of the recent announcement.

  • 72m @18.3% Zn, 10.7% Pb, 211g/t Ag, 2.5g/t Au, 2.5% Cu and 25% BaSO4.

That alone will get most people excited.  The “other” hole only had numbers slightly lower.

  • 46m @ 12.7% Zn, 9.6% Pb, 309 g/t Ag, 4.1 g/t Au, 1.0% Cu, and 40% BaSO4.

In the second half od 2018, I came across the first announcement the company released on Rupice, and I was impressed.  The latest results by the company prove that they are onto something that will become a mine.  The length of intercept with those grades indicate that you have a massive stew of minerals deep below. At 200m plus below the surface will make no difference to the equation.

Adriatic Metals PLC announcement dated 21 January 2019. (source: Adriatic Metals)

From the information and the size of the intercepts, I am pretty confident that the mineralisation is present within the project. The fact that historically it was a producing mine is supportive of this thought.  The recent drilling indicating a broad zone of high-grade mineralisation is very encouraging.

  • Location

It’s not in Africa, Asia, South America or in the middle of Australia.  As I have mentioned earlier, being in Europe is a good thing.  I have always said to people that my wish as a geologist was to work in a project that is within driving distance from Perth.  It would be good to have a project that is within a 30-minute drive from home.  The nearest I got to something like that was working on a project at Reefton, New Zealand. We were 10min helicopter ride to the drill site.  I could I have my coffee in a cafe in the morning and then take a helicopter to the place.

When a company is trying to deliver an advanced project you need a location where you can get economical labour, good infrastructure (exploration level) to keep the costs down.  When you get to the mining stage, the comforts can come then as you will have the ability to raise funds to achieve all that.

 

Negative Issues.

I cannot see too many obvious negative issues.  In saying that, I am aware of how what seems like a fantastic bullet-proof project have a history of going downhill for the reasons that were supposed to be its strength.  We have already discussed the market conditions, and I think that will have to be the main stumbling block.  Apart from that, the project seems to be very robust.

If I were to pick on some negative issues,  the steep and highly vegetated nature of the topology coupled with the winter weather would be on the list.  Drilling in these kinds of terrain will be more costly than flat grounds. I am not sure if they are using helicopter rigs, but if that is the case, that will be costly.  The logistics issue in winter may not be obvious, but it will be apparent for simple things like water freezing in pipes used during drilling.

Some of my experience looking at projects in the Balkans highlighted something that may be local, but it will be an issue here.  That is the issue of local organised criminal groups.  I am not saying that this is present, but it is reported to have some problems.  I know that the Balkans get a bad wrap from Holywood, but if we are digging for issues, this would be one.

In some of these areas, the legacy of the war may cause some issues. However, people that have worked in these parts have told me that it is in the past.  The people are looking to go forward, and in most places, there have not been any sustaining issues.  Remember that areas such as Indochina have these issues too.

Forgotten building in the industrial areas of Vares, Bosnia and Herzegovina. (source: Mining Cities)

Although we spoke about how the infrastructure was good in Europe, sometimes when you are trying to renovate, it creates more work and cost.

 

Conclusions

Adriatic Metals has a unique project.  One of the few companies that have an excellent project is well funded, have done the drilling and in a place that does not involve the army.  As I mentioned before, this project is destined for mining.  I don’t think that this will not end well.  The main negative will be the unknown issues that people like me, the general public, do not know as we are not in the “purple circle’.

What I like is that Adriatic Metals is currently at a market capitalisation of 67M and it has a stellar project.  The company has cash and is doing all the right things to develop the project.  How high can the share price go will be very interesting as it has a reasonably low market capitalisation.  I do think that it has potential to be in the $ mark.  Whether it is a number 1 or number 2 in front or a zero with a decimal is unknown.  Personally, a number 1 is realistic if all the ducks get lined up accordingly.

 

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