Datt Capital
  • About
    • Our Firm
    • Investment Philosophy
    • Our Team
  • Investment Products
    • Absolute Return Fund
    • Fund Reports
    • Invest
  • NEWS & INSIGHTS
    • Blog
    • Media
  • Contact

An Alternative Perspective
Latest insight from the Datt Capital team

ADRIATIC METALS - A MINERAL GROWTH STORY

19/11/2019

0 Comments

 
Adriatic Metals ('ADT') are a base metal developer in Bosnia & Herzegovina (BiH), with a world-class resource in a global scale mineral province.

The breakup of Yugoslavia and the consequent Bosnian war, along with high upfront costs for mining concessions has largely preserved the exploration opportunity in BiH despite a long, proud history of mining. As such, the area has barely been touched by modern exploration techniques which bode well given its geographic and geological locality. The team at ADT recognised the significant opportunity at hand and managed to secure a portfolio of high-quality assets via its first-mover advantage; it is still the only listed resource company globally with operations in the BiH.

The BiH is a stable, democratic nation with a favourable regulatory environment and supportive of mining. Foreign investors possess the same rights as locals, tax and royalty rates are very attractive and the costs of operating are extremely low. Serbia, which borders Bosnia, has attracted significant investment from a multitude of mining majors in a similar geological setting. ADT's founders discovered a warehouse of Yugoslav era technical reports dating back 30 years, providing valuable information on historical brownfield projects and exploration activities that allowed it to grasp the low hanging fruit in terms of prospectivity.

Consequently, the company has made a world-class, poly-metallic greenfield discovery in Rupice (9.4mt @10.1 g/t Au equivalent) along with significantly advancing a brownfield asset in Veovaca, collectively referred to as the Vares project. As a result, ADT was the ASX's best performing IPO in 2018. We believe the potential for further quality discoveries is high given the lack of systematic, modern exploration.

ADT has released a very detailed Scoping Study, highlighting the incredible economic potential of the Vares project. Broadly the project economic outcomes have been modeled by the company as follows:

Process Plant throughput: 800 ktpa
Initial capital expenditure: USD$178 million
FID to first production: 13 months
Payback period: 8 months
Post Tax NPV discounted at 8%: USD$916 million (approx AUD$1.3 billion)
Post Tax IRR: 107%


These are world-class metrics by any measure, with an economic capital intensity (initial CAPEX/NPV8) less than half of comparable projects we have examined.

We examined a couple of acquisitions for comparable projects (albeit with inferior economic returns) and noted that:
S32 acquired Arizona mining at a value approximately 70% of the project's NPV8 - at scoping study stage
Zijin acquired Nevsun at approximately 90% of NPV8 in neighboring Serbia - at pre-feasibility study stage.
ADT is currently trading at approximately 18% of NPV8 - at scoping study stage.

As such we believe any transaction would need to be priced at a minimum of 60% of NPV8 for the management team (who hold ~30% of the company) to even consider. Large miners like Rio Tinto, Lundin, Freeport McMoran and Zijin are active in neighboring countries and would find ADT a very attractive acquisition now that there has been demonstrable progress in terms of feasibility studies. There is a profound lack of quality projects available globally and this has driven up acquisition prices substantially over the last 10 years. We also note that base metals are at a cyclical low and ADT's ground is still very much under-explored, which will provide comfort to any potential acquirer.

Looking ahead we see several catalysts on the horizon:
London stock exchange listing in progress - we expect the LSE listing to cause ADTs value to rise  given the current valuation differential between Vares and similar projects
Further potential exploration upside from current and future drilling programs at Vares (4 rigs onsite) - has the potential to further improve project economics
Exploitation, operating and mining licences - all currently being progressed
Environmental and planning permits - all currently being progressed
Further geotechnical, mining, environmental and metallurgy studies leading to the completion of Definite Feasibility Study within 12 months.

Risks we see are:
Potential delays in permits and licences - this has been a minor issue in the past but appears to be proceeding more smoothly now.
Sovereign risk - we consider this to be in line with neighboring Serbia
Outcomes from further feasibility studies resulting in marginally higher CAPEX

We believe ADT is a very compelling, well-priced opportunity for the resource investor with material potential upside that may be realised via a takeover from a larger miner or by the company bringing the project into production in its own right.



Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should not be construed as advice in any way. The author holds shares in ADT.
0 Comments



Leave a Reply.

    Archives

    February 2021
    January 2021
    December 2020
    November 2020
    September 2020
    July 2020
    May 2020
    April 2020
    March 2020
    February 2020
    November 2019
    October 2019
    January 2019

    RSS Feed

​Copyright © Datt Capital 2018 The Datt capital Absolute Return Fund (Fund) is available to wholesale investors only. Datt Capital Pty Ltd (ABN 37 124 330 865 ) CAR #001264886 of Fundhost Limited AFSL 233045) (Datt Capital) is the Investment Manager of the Fund. Fundhost Limited is the issuer and trustee of the Fund. An investment in the Fund will only be available through a valid application form attached to the Information Memorandum. Before making any decision to make or hold any investment in the Fund you should consider the Information Memorandum in full. The information contained on this website or in any email is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Datt Capital or Fundhost Limited to any registration or other requirement within such jurisdiction or country. Datt Capital may provide general information to help you understand our investment approach. Any financial advice we provide has not considered your personal circumstances and may not be suitable for you. To the extent permitted by law, Datt Capital and Fundhost, their officers, employees, consultants, advisers and authorised representatives, are not liable for any loss or damage arising as a result of any reliance placed on this document. Information has been obtained from sources believed to be reliable, but we do not represent it is accurate or complete, and it should not be relied upon as such. Datt Capital and Fundhost do not guarantee investment performance or distributions, and the value of your investment may rise or fall. Past performance is not an indicator of future performance.
  • About
    • Our Firm
    • Investment Philosophy
    • Our Team
  • Investment Products
    • Absolute Return Fund
    • Fund Reports
    • Invest
  • NEWS & INSIGHTS
    • Blog
    • Media
  • Contact