Adriatic Metals acquire Tethyan Resources

Adriatic Metals announced on the 11/5/2020 that they had reached an agreement to acquire Tethyan Resources, a Serbia focused explorer, in an all-stock deal in exchange for 6.9% of the company. Adriatic appears to be focused primarily on the brownfield Serbian assets, Kizevak and Sastavci.

There are very similar historical parallels between the Raska district and Vares as a locality where Adriatic have their present operations. The Raska district has a long history as a mining region. The Kizevak and Sastavci mines were discovered in the mid-1970s and operated by the Yugoslav geological survey between 1984 and 2000 when mining ceased due to the Balkans conflict.
The projects benefit from numerous 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 work has been conducted on either licence since mining ceased, and the projects offer significant exploration potential for the expansion of existing mineralisation along strike and down dip from the open pits at Kizevak and Sastavci. The historical deposits have been untouched by modern exploration techniques.

Interestingly, Tethyan has historically only been able to explore the areas surrounding the historical mines as it did not hold the ground containing the historical mines. However, this ground has now been acquired as part of the Adriatic transaction and only a relatively small amount of drilling needs to be done to confirm continuity between the historical mineralisation and the mineralisation encountered by Tethyan. We note that the deposit appears to be very shallow, with very little exploration at depth with historical cores that have not been tested for precious metals.

Adriatic have proven they can add value via interpretation of historical cores and follow up exploration drilling on the brownfield assets given their experience at Veovaca and Rupice. They have also demonstrated their ability to progress projects at extraordinarily fast pace delivering a Scoping study/PEA for the Vares Project within 2 years of their ASX listing and are on track to deliver a DFS within the next 7 months.

We believe that Adriatic's management team can add significant value to the Serbian assets being acquired by the end of the calendar year. The acquisition firmly positions Adriatic as the pre-eminent Balkan polymetallic developer, whilst providing a longer-term development pipeline over and above the existing Vares Project. The acquisition provides an existing in-country team and relationships, whilst also providing the advantage of jurisdictional diversity to both sets of shareholders.

Adriatic have stated that they intend on delivering a Maiden JORC resource estimate for Kizevak and Sastavci before the end of the calendar year 2020. Assuming a small uplift on the existing non-JORC deposits, we anticipate that between 8-10 million tonnes of ore could be delineated at grades between 6-9% Zn equivalent. Adriatic aim to deliver a PFS for the acquired assets by the end of the calendar year 2021, with permitting likely to occur in conjunction with feasibility studies.

Overall, we consider this an acquisition that may prove to be extremely value accretive for Adriatic shareholders. We think the timing of the transaction at a cyclical and covid-affected low was strategically sound and well-executed. Our thesis is that the seeds of a base metal boom are being sown in the current market duress with many marginal, higher-cost mines being shut down; however, this dynamic will take time to play out. We believe that it's quite likely within the next 2-3 years, base metal prices will be considerably higher; leaving Adriatic well-positioned and strongly leveraged to a recovery in base metal spot prices.



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 Adriatic Metals (ADT).