ADTLF - Old West - Adriatic Metals: Extraordinary Economics Projecting An IRR Above 100%

2023-10-21 23:50:00 ET

Summary

• Adriatic Metals is developing a polymetallic deposit in Europe, producing zinc, lead, silver, copper, gold, and antimony.
• The mine is located in Bosnia and has a long history of mining, with the project estimated to add 2% to the country's GDP.
• The company's valuation is low compared to its potential cash flow, with projected IRR above 100% and the mine set to start production soon.

The following segment was excerpted from this fund letter.

Adriatic Metals ( OTCPK:ADMLF )

Adriatic Metals is developing a polymetallic deposit in Europe that will produce two primary products: a zinc concentrate and a concentrate of lead and silver. In addition to those metals, it will generate revenue from contained copper, gold and antimony. The silver is of particular interest to us. Often thought of as the poor man’s gold, silver mainly sees interest from precious metals investors. Less discussed is the large and growing demand for silver from the industrial sector, especially in advanced technologies, where it is critical to a wide range of applications. The deposit’s unique characteristics lend it to being one of the lowest cost silver projects in the world.

The mine is located in Bosnia, and while the country may not be the first to come to mind when people think of mining, it actually has a long history of it going all the way back to the Bronze Age. The project is in an old mining town that had only recently been revisited with modern exploration techniques. Development will greatly benefit the surrounding community, revitalizing the area with new jobs and infrastructure. It is estimated that the project will add 2% to the entire country’s GDP. A friendly permitting environment has also contributed to an extremely fast development timeline, with the company going from discovery to production in only six years.

The company is led by founder Paul Cronin, a successful natural resource investor who took an interest in the project with an eye toward Europeans needing to rebuild domestic supplies of metals. Europe may seem like an unlikely place to develop a new mine, but the continent is making a push to become less dependent on foreign countries for access to raw materials. The EU has deeply committed to a green transition and achieving climate neutrality by 2050, and earlier this year released a critical raw materials act recognizing the importance of mining in achieving those goals.

The valuation of the company is among the lowest in our resource portfolio. At current commodity prices we estimate the mine can generate over $200 million in annual free cash flow versus a market cap of only $600 million. The combination of small footprint, high grade, and low capex lead to extraordinary economics with the company projecting an IRR above 100% for the project.

This investment shares similarities to others in our portfolio in that the fundamentals are strong, but investor awareness is lacking. As an example, the company released an update earlier this year that nearly doubled the estimated mineral resource and there was hardly any reaction from the market. With the company only weeks away from starting up the mine, we believe the onset of cash flow will finally get the attention of investors.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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