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Adriatic Metals: A Polymetallic Explorer With Significant Potential

ID: 1544307
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(PresseBox) - Introduction

This time Kees Dekker

With the corporate tax in Bosnia Herzegovina standing at a very cheap 10%, and a potential operation dealing with very small tonnage and thus low capex, there is no doubt in my mind that this could be a very profitable mine somedays. If I would take a 2Mt resource for the entire mineralized envelope (Kees takes 1.58Mt for the deeper part only), a decente in at US$45.6M. Let''s use some margin of error and take US$50M and add 50% of capex as sustaining capital to opex as underground development seems relatively limited. Usingoration ongoing there is a lot of upside. This could be a small gem.

Next up is the analysis itself by Kees Dekker.

1. Executive Summary

Adriatic Metals ("Adriatic") (ASX.ADT, FSE:3FN) is a recently listed Australian company with two complex base metal - precious metal deposits in Bosnia Herzegovina.

This study concludes that the company is still vary good value based on the cash operating margin one can expect from mining the resources of one deposit (called Veovaca) and the volume of the deeper portions of an ore shoot at another deposit (Rupice), derived from published drill results.

The deeper, very high-grade portion of the shoot at Rupice, defined over an estimated 200ing would increase the cash margin by US$90 million (incl. BaSO4 sales), or US$70 million (without BaSO4 sales).

This study arrives at prospective at-mine revenue from Indicated Resources at Veovaca of at least US$260 million based on at-mine revenue of US$56/t in-situ, which as an open pit mine could well generate cash from operations of at least US$130 million.

There are a number of upsides to Adriatic apart from adding to the deposits dimensions, being the value of the shallower portion of the Rupice shoot, exploring targets in the vicinity and at the same stratigraphic level, and upgrading the BaSO4 concentrate to a higher grade product for which the sales price is a multiple higher than the drill mud additive product.



The main risks are related to testwork showing poor metallurgical performance for the mineralisation and the difficult and ambiguous legislative environment in the jurisdiction, which complicates obtaining the necessary rights and permits to advance projects and securing the rights to new discoveries.

This share being an exploration play is definitely not for widows and orphans, but, for the less risk adverse, constitutes an attractive opportunity on a risk/return basis

2. Introduction

Adriatic Metals ("Adriatic") (ASX.ADT) is an Australian company with a number of complex base metal - precious metal deposits in Bosnia Herzegovina.

According to an announcement dated 23 May 2018 the company has 82.95 million shares currently quoted and another 47.85 million shares in escrow for 18 months.

The following sections will show that this valuation is very low for what the company has already proven by drilling and the prospects for additional discoveries.

3. Review of the Mineral Prospects

3.1

The information, wording and illustrations presented in this section are derived from:

A prospectus dated 27 April 2018.

Press releases with drill results dated 12 June, 22 June, 16 July, 17 July, 29 August, 28 September and 19 October 2018.

A press release dated 22 June 2018 with drill results.

The Adriatic key asset is the Vares Polymetallic Project, comprising the Veovaca and Rupice deposits, which is situated in Bosnia and Herzegovina.

The above map also identifies the mineral rights areas secured by Adriatic, which cover the two deposits proper, and the numerous other targets, their names identified in green.

Geologically the deposits are situated in a block of ground that has been thrust on top of much younger rocks.

The technical report postulates that the mineral field is of the Besshi-style type, which implies that the metals are of sedimentary exhalative origin.

Getting a handle on what specific type of deposits Adriatic is dealing with has implications for regional prospecting.

3.2

The Rupice deposit is known from exploration activities, which commenced in 1952 and continued intermittently until 1990, initially focusing on barite (= the mineral with chemical formula BaSO4) mineralisation and later on the polymetallic mineralisation.

Interpretation of drill results Rupice concluded that the mineralisation appears to be dominantly strata-bound and hosted within brecciated sediments in a shoot dipping approximately 50 degrees to the east.

The red traces show the direction of the dip and the arrows the direction of the plunge, which is due north.

Whereas drill results from June 2018 onwards have successfully tracked the plunge over considerable vertical extent all the way up to the northern concession border, successive cross section interpretations show a considerable reduction in the dimensions perpendicular to the plunge direction. As one example, figure 3.2_3 illustrates the progressive reduction in interpreted horizontal dimension of the high-grade shoot oblique to the plunge as extracted from the various press releases.

The development over time of the cross sections would have been cause for concern about the continuity of the mineralisation, but on the other hand consistent intersections along plunge of the deposit, where it is developed widest, give much comfort.

According to this interpretation the shoot plunges at 60 degrees from surface for approx. 150 m after which it abruptly levels off to 30 degrees and shows a considerable increase in dimension vertically.

This illustration also clearly shows the dramatically improving base and precious metals grades with depth whereas the BaSO4 grade remains high, but with a declining trend.

According to the 22 June news release, mineralisation in holes BR-2-18 and BR-3-18 is very visible and consists of galena (PbS), sphalerite (ZnS), chalcopyrite (CuFeS2) and barite.

Table 3.2_1 summarises the drill results for this deeper, higher-grade portion of the shoot with the holes listed in the order from shallower to deeper down plunge.

Hole BR76-89 was drilled before Adriatic?s involvement and was not assayed for copper and precious metals.

With the high specific gravity of 4.5 for barite and at a content of BaSO4 in the middle forties an average density of at least 3.6 can be expected, especially considering the density contribution of the sulphide minerals.

3.3

Similar to Rupice, Veovaca is a sediment-hosted deposit with mineralisation present in a brecciated zone within a folded sediment package.

Figure 3.3_1 shows a geological map of the immediate surroundings of the deposit and indicating interpreted potential down plunge, extracted from the prospectus.

According to the technical report in the prospectus 19 holes at the Orti prospect over an area of 500 m x 150 m indicated potential for resources there grading 1.2%-1.4% Pb, 1.7%-2.1% Zn and 21%-26% BaSO4.

Figure 3.3_2, also extracted from the prospectus, shows a longitudinal section along trace X-X? on Figure 3.3_1 to illustrate the deposit outline and potential at depth and down plunge.

On the longitudinal section are also indicated due diligence boreholes drilled by Adriatic in 2017.

The results are attractive for an open pittable deposit with low strip ratio, but the holes were clearly sited along a favourable drill fence in the centre of the deposit as the grades for many of the other 11 holes are clearly lower.

According to CSA Global, the combined drillhole density of approximately 30 m x 30 m closing in places to 20 m x 20 m, provided sufficient data points to model the polymetallic (lead, zinc, silver, gold and barite) lenses over a strike length of approximately 550 m, and the silver and gold over 250 m of the 550 m strike.

Mineral Resources were reported using cut-off grade of 0.5% ZnEq, and separately for the deposit area where gold and silver assays were taken and used, and outside of the area where there are no assays for gold and silver (see Figure 3.3_3, extracted from the prospectus, for relative location of the two resources).

Table 3.3_2 gives the resources reported as of Indicated category confidence level, ignoring 2.6

4. Economic Potential

4.1

The projects are still at a very early stage and no economical value can be ?calculated?, but at best estimated using broad-brush assumptions.

The assumptions have been purposefully kept conservative.

The spot price for BaSO4 is not generally available and reference was made to press release of Mountain Boy Minerals Ltd dated 18 April 2018, which states ?barite is currently selling from US$120 to US$180 per ton depending on the location?.

4.2

The approach to gauge the potential of the Rupice Deposit is to calculate the at-mine value of the material that has until now been delineated.

The calculation above indicates that the value of the deeper higher-grade portion of Rupice is US$332/t, assuming that the barite can be concentrated to a marketable product.

Even without barite the calculated value amounts to US$283/t.

Based on the minimum amount of 1.58 million tonnes in the deeper, higher-grade portion of the shoot, as derived at the end of Section 3.2, prospective at-mine revenue is US$525

The above values are for the dimensions 200 m plunge direction, 40 m width and 55 m height. .

In conclusion, only little exploration success from what is currently known will have a dramatic impact on the value of Rupice.

4.3

The approach to gauge the potential of the Veovaca Deposit is similar to that for the Rupice Deposit.

To also arrive at a more realistic value for the Indicated Resources that were reported without precious metal grades the average silver grade was estimated based on the relative lead grades, as the silver is most probably included in the mineral galena (PbS).

The table shows that the at-mine value per tonne of Veovaca resources is US$56 assuming that barite concentrates can be sold.profit margin will be 50% or more, assuming mining cost of US$3/t, processing cost of US$15/t and G&A cost of US$5/t treated.

Given the illustrations in Section 3.2.3 it seems highly likely that the strip ratio is moderate.

Should it not be possible to sell barite the Veovaca deposit has no to little value.

5. Upsides and Risks

5.1

In addition to adding to the delineated Rupice and Veovaca deposits there are a number of other upsides, being:

-2018 corporate presentation, shows the proposed new concession area.

-

- assaying high base metal and precious metal values.

->78% BaSO4), and selling at prices that are a multiple of the product price assumed in the above estimations.

5.2

The main risk associated to the value of Adriatic are:

-

- The high-grade plunge may well be off-set by a major fault just north of the current concession border.

- The project area falls in the Zenica-Doboj Canton.

This ends the full analysis of Adriatic Metals by Kees Dekker. If you have an interest in contacting Kees Dekker, this is possible through using the contact form on my website www.criticalinvestor.eu. Stay tuned for more analysis by Kees coming soon.

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter on my website www.criticalinvestor.eu, in order to get an email notice of my new articles soon after they are published.

Disclaimer:

The author is not a registered investment advisor, and currently has a long position in Adriatic Metals. Kees Dekker is also not a registered investment advisor, and currently has a long position in Adriatic Metals as well. All facts are to be checked by the reader. For more information go to the websites of the mentioned companies and read the available company information and




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Date: 11/21/2018 - 07:20
Language: English
News-ID 1544307
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