Adriatic Metals PLC has provided an update on recent operational developments at the company’s flagship Vares Silver Project in Bosnia & Herzegovina. Since the commencement of construction activities in November 2021, operations have been focused on site preparation and civil earth works at the Rupice Surface Infrastructure site, including the construction of access roads. Construction activities started on time and the project remains on track for first production in 2Q23.
Highlights
- Construction activities commenced in November, with road access being made to the upper and lower portal pads at Rupice.
- Letter of intent signed with underground mining contractor. It is expected the company will complete contract negotiations in the coming weeks.
- Engineering contractors appointed.
- Promising backfill test work likely to reduce environment impact of tailings and reducing mining costs.
- Purchase orders for long lead order mechanical equipment packages issued.
- A number of key hires made in building out the project delivery team.
- New exploration drilling company appointed – currently mobilising.
- Final stages of negotiation for offtake agreements.
- Project remains on track for first production in 2Q23.
Paul Cronin, Adriatic’s Managing Director and CEO, commented: “The company is edging closer to becoming Europe’s next operating mine. Project development is accelerating, having recently commenced construction activities. We are also busy bulking out the owners team with excellent new hires, further improving designs and rationalising costs where possible to lower capital costs and improve operational flexibility.
“As always, our commitment to our stakeholders guides us in everything we do and we are proud to be the only non-government owned company in Bosnia & Herzegovina to have issued an EBRD-compliant ESIA. Beyond the ESIA, we have conducted numerous activities to engage with the local communities and support the sustainable economic and social development of those communities.
“Despite turbulent metal markets, we are in final negotiations with off-takers for the sale of our silver-lead and zinc concentrates and are confident of reaching agreement in the coming weeks.”
Recent developments
Appointment of engineering contractors
In December 2021, Ausenco Pty Ltd was appointed as the engineering and procurement (EP) contractor for the Project. Ausenco was first engaged by the company in 4Q19 as the engineering consultant for the delivery of the project pre-feasibility study (2020 PFS). They were subsequently retained for the project definitive feasibility study (2021 DFS) the following year. The preservation of knowledge and experience from the 2021 DFS and 2020 PFS is a major advantage in the swift transition of the project to the detailed engineering phase.
In February 2022, Paterson & Cooke (UK) Ltd (P&C) was appointed for the detailed design of the backfill plant and shotcrete plant at the Rupice Surface Infrastructure site. P&C is also the same consulting engineering firm that was used in the 2021 DFS.
Initial results from backfill engineering testwork
Further refinement and test work on the backfill engineering has been ongoing since the completion of the 2021 DFS, with recent test results suggesting there will be a significant increase in tailings content used in the backfill. If the final test work results are successful, this will reduce mining costs and the quantity of tailings deposited on the dry stack tailings storage facility, further minimising the environmental impact of the project.
Backfill is used throughout the life of mine of Rupice to fill in the mined out stopes. In the 2021 DFS, the backfill consists of two types; paste aggregate fill (PAF) and cemented aggregate fill (CAF), with the CAF used for areas that required greater structural support. CAF previously made up over 60% of the total backfill requirement over the first five years of production.
The application of CAF is more expensive than PAF, as it has a much higher materials handing cost on surface and underground. CAF utilises 100% crushed rock (including a binder), whereas the PAF incorporates only 35% rock, with the remainder made up of a binder and tailings from the Vares Processing Plant (VPP). CAF is trucked and placed by a loader into the mine voids underground, whereas PAF is simply pumped and distributed via a piping network.
Recent results from the testwork show that the PAF has greatly improved structural properties, which are now greater than that of the CAF. Ongoing testwork is focused on assessing the strength of 100% tailings (including a circa 7% binder) within the backfill, with the aim of removing the requirement for CAF altogether once tailings start to be produced from the VPP. Therefore, potentially increasing the PAF requirement by over 2.5 times during the first five years of production.
Construction activities
Access road construction at the Rupice Surface Infrastructure site commenced in November 2021. To date, access roads have been cleared and constructed from the northern access road to Rupice (from Kakanj) to the site of the upper and lower portal pads. The pad locations are where portal development will start for each of declines into the Rupice Underground mine. Site preparations have also been made for the laydown area (laager).
To further improve the flexibility of ore haulage truck movements at Rupice, the gradient of the lower decline has been reduced from 6:1 to 7:1. The lower portal was originally intended to be exclusively used for empty haul trucks entering the underground mine. However, reducing the gradient of the decline allows it to be used as an exit from Rupice underground mine for fully ladened ore haulage trucks, as the previous gradient of 6:1 would have been too steep. This will not only improve the cycle time of the ore haulage trucks, but also greatly improve operational flexibility underground.
Upcoming developments
Appointment of mining contractor
The company has signed a letter of intent (LOI) with Çiftay Insaat Taahhu¨t ve Ticaret A.S. for the appointment as the project’s sole underground mining contractor. Following completion of commercial and legal negotiations, the Company expects to formerly appoint Ciftay within the coming weeks.
Ciftay are a Turkish mining operations and underground construction contractor. The Ciftay operates a number of opencast and underground sites across operations in Turkey and Central Asia. They have an impressive health and safety record and are working with Adriatic’s Occupational Health & Safety (OH&S) team to install world class OH&S models including procedures, data capture and reporting, and training. This cooperative approach is intended to ensure that the Vares Silver mine remains one of the safest in the world.
Once formerly engaged, Ciftay expect initial mobilisation will take 45 days. Portal and decline development is expected to commence following the mobilisation of the mining contractor to site in early 2Q22.
VPP site
In line with the 2021 DFS project plan, construction activities are expected to start at the VPP in late 2Q22. Ahead of the commencement of construction, detailed engineering design activities for the VPP has generated opportunities to reduce the overall use of steel across the site. The processing plant structures are being redesigned to be fabricated in concrete and the plant layouts have been modified to reduce overall building footprint. This has been done to minimise the impact of increased steel prices on the overall project budget.
Exploration activities
The company has confirmed its plans for exploration activities during the coming year, with a phase 1 budget of €5 million covering approximately 22 000 m of drilling. Drilling will be primarily focused around Rupice, but also testing step-out opportunities across the Vares concession area along strike. Such as: 4000 m of drilling at the Droskovac target, 1000 m of drilling at the SP1 and SP2 targets in the Semizova Ponikva concession, and first-pass scout drilling in the Vares East concession, focussed around the Barice and Brgule targets. There is the availability of future budget to be allocated to exploration activities should success be demonstrated within the results.
In the coming weeks, the company is expected to receive land-access permission from the Forestry Commission to commence drilling activities at the Droskovac target. The Droskovac target is situated between the historic Smreka and Brezik open pits, less than 4 km by road from the VPP site. The target contains almost 900 000 t of historically defined, non-JORC compliant polymetallic mineralisation. It is situated within a formerly operated underground mine, the portal for which is located at the end of the Vares railhead, adjacent to the haul-road. The underground mine ceased production in in the late 1980s. The company intends to confirm the known mineralisation and test its extents from west to east. The Droskovac target has been an area of interest, first highlighted by the company in the April 2021 Geology Presentation. The drilling of the Droskovac target will be undertaken in two phases, the first is a 4000 m programme that is expected to commence early 2Q22.
A new drilling contractor has been appointed at the Project. Drillex International will be supplying a total of three rigs, with the first two currently being transported to site. Following the required federal inspections, drilling will commence shortly thereafter.
The company has developed a close working relationship with Drillex, who have operated three diamond core drilling rigs at the company’s Raska Project in Serbia for the past 18 months. Drillex have been assigned with a 20 000 m diamond core drilling programme that will be primarily focused on the areas northwest and southeast of the defined Rupice deposit.
Offtake contract
Following the third round of bids from a number of leading international traders and smelter groups, the company is in final negotiations with counterparties for the offtake of its silver, lead and zinc concentrates. Despite the terms having not yet been formally agreed, the company expects them to be in line with the 2021 DFS assumptions. This is subject to no further metal price fluctuations or further deterioration in global shipping rates.
Despite showing weakness in the past six months, the zinc concentrate market has recently shown signs of tightening, with spot treatment charges at US$130 – US$140/t for CIF China delivery. This has occurred despite the multiple shutdowns of European zinc smelters due to high energy prices. It is expected that long-term bench-mark contracts for 2022 will be lower than the 10-year average settlement terms. This paves the way for an even tighter zinc concentrate market, when many of the idled European zinc smelters resume production. Silver-lead concentrates also remain in high demand and the market is expected to maintain its current undersupplied status.
It was agreed with Orion Resource Partners that the prerequisite to secure offtake contracts ahead of executing the project finance facility, as announced on 10 January 2022, was not required. The company had demonstrated during the tendering process in 2021 that both concentrate streams were readily marketable, but felt market conditions would become more favourable. However, a minimum offtake agreement will be required to be in place ahead of the first draw-down of the debt funding package that is expected to occur late 2Q22. The company is expecting to agree definitive offtake terms with selected counterparties in the coming month, as negotiations come to a close.
Completion of ESIA public review
The Vares Project Environmental and Social Impact Assessment (ESIA) was published on the 27 December 2021, following the completion of the 60 day public disclosure period as announced on 27 October 2021. A disclosure report was compiled containing all the questions received during the public review period, as well as the company’s responses. This report will be published on the company’s Eastern Mining website within the coming weeks.
During the disclosure period, the company met with all of the project’s local and national stakeholders. This included communicating directly with the community representatives of the villages surrounding the town of Vares, non-governmental organisations, associations including the beekeepers, hunting, fishing associations, leaders of the local religious communities, municipal council, as well as an open public presentations made in municipality hall. In addition, the ESIA was presented in Sarajevo to various government institutions.