EXPLORATION & DEVELOPMENT

Adriatic simplifies and improves Vares plan

Definitive feasibility study drops pit, trims costs, boosts returns, but bumps up sustaining costs

Vares would redevelop an existing mine

Vares would redevelop an existing mine

Compared with last year's prefeasibility study, the company has dropped immediately plans to develop the nearby Veovaca open pit, and halved its number of concentrate products to two, streamlining its processes and derisking project execution.
 
The operation will now only produce silver-lead and zinc concentrates.
 
Net present value has increased slightly from US$1.04 million to $1.06 billion, and costs have been trimmed from $173 million to $168 million, however internal rate of return has improved 21% to 134% and payback has been almost halved, to just over six months.
 
Average EBITDA for the first five years has increased $30 million to $281 million as a result, even after a substantial rise in sustaining capital from $19 million for the original 14 year life to $32 million for the current 10 year mine plan - which doesn't consider promising extensional drilling.
 
All-in sustaining costs have also been improved, from $9.70 per silver equivalent ounce to $7.30/oz, with the mine plan revised to target consistent high-grade feed for as long as possible.
 
Two redesigned declines will access reserves that have decreased 1.1 million tonnes as a result to 7.3Mt, however the grade has increased some 20 grams per tonne to 485gpt of silver equivalent due to the application of updated net smelter return cut-offs and increased dilution.
 
That increases contained metal from 114Moz to 125Moz silver equivalent.
 
Almost half the revenue now comes from payable silver and gold.
 
The plant and mine are designed to run at a nameplate 800,000tpa.  
 
A planned raisebore for ventilation has been replaced by a ventilation decline to remove geotechnical risks and provide additional access for ore haulage later in the mine life.
 
The company decided to shelve the marginal Veovaca pit, in favour of spending more time testing the ore to improve returns.
 
That has the benefit of reducing the size of the dry tailings storage over the life of mine.
 
Canaccord Genuity analysists Paul Howard and Sam Catalano were initially positive on the simplified plan, saying it appeared to offer "considerable improvements on the PFS".
 
They maintain a speculative buy recommendation, with a price target that is unchanged at A$3.55 per share.
 
Adriatic is now focusing on finalising its environmental and social impact assessment, and offtake and finance discussions.  
 
Adriatic shares, which have traded between $1.83-3.17 over the past year, opened $2.75 yesterday, valuing it at $561 million.

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