Adriatic diversifies zinc-silver concentrate offtake agreements

ASX-listed Adriatic Metals has agreed ‘heads of terms’ with four international commodities trading and smelting companies for the purchase of zinc and silver-lead concentrate from its Vares silver project in Bosnia.

The company says its aim is to maximise revenues whilst reducing the ongoing risk associated with turbulent freight markets and the impact of the evolving European energy crisis amidst the conflict in Ukraine.

According to management, final contract negotiations are underway with the zinc concentrate earmarked for sale to metal trading warehouses Trafigura, Transamine SA and an unnamed European smelter with the silver-lead concentrate destined for Glencore International AG and Transamine SA.

Under the preliminary trading agreements, the offtake companies have been allocated 82 per cent of the total projected concentrate for the first 24 months.

Importantly, with the price of commodities following an upward trajectory, Adriatic says it has retained the remaining 18 per cent to capitalise on high spot market prices or tap into additional favourable long-term offtake agreements.

Adriatic recently released a cracking set of numbers from a definitive feasibility study evaluating the potential of bringing Vares into production.

The study projected an average EBITDA of US$281.1 million per year in the first five years of concentrate production.

A net present value after tax of US$1.06 billion was estimated in the study, with an extraordinary internal rate of return of 134 per cent after tax.

The feasibility study also envisaged capital costs of US$168m to bring the project to life, with a pay-back period of only 0.7 years.

The company reported the terms are broadly in line with the baseline assumptions used in the feasibility study. An exception is the change in treatment charges resulting from many European smelters, struggling with the recent rapid rise in energy prices, being placed on care and maintenance.

As part of the feasibility study, treatment charges for silver-lead concentrate were forecast at US$65 per tonne and are now expected to settle in excess of US$160 per tonne. For the zinc concentrate, the study assumed a treatment charge of US$195 per tonne but that has now been revised to US$230 per tonne.

The steady rise in commodity prices, particularly zinc which has risen above US$4,500 per tonne from the assumed price of US$3000, are said to be enough to offset the negative impact from the increase in the treatment charges.

Adriatic Metals Managing Director and Chief Executive Officer, Paul Cronin said: “We are incredibly pleased with the outcome of the offtake tender process. The high degree of interest received for the Vares Silver Project’s concentrate confirms their marketability and underpins the exceptional financial performance of the Project.”

Development of Adriatic’s Vares high-grade silver project in Bosnia and Herzegovina is also accelerating, with construction well underway as the company firmly eyes production by the second quarter of 2023.

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