Earnings Transcript for ADTLF - Q2 Fiscal Year 2024

Operator: Good morning, ladies and gentlemen, and welcome to the Adriatic Metals PLC Presentation. Throughout this recorded presentation, attendees online will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself, however, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the management team from Adriatic Metals. Laura, Michael, good morning.

Laura Tyler: Good morning, good afternoon, good evening. Thank you to everybody who is joining us today and has made the time to make this call. I'm Laura Tyler. I'm the Interim CEO of Adriatic Metals, and I'm joined today on the call by, Mike Horner, who is our CFO. Our purpose today is to provide you all with an update on the progress that has been made at the Vares Silver project over the past few months. This will be followed by a question-and-answer session that will include questions lodged ahead of this call, as well as those asked during the course of this presentation. You've just been given a heads up on how to do that. This webinar is being recorded, as we noted, and we'll post the recording on our website after we are finished today. There is a disclaimer. As you would expect, I'm not going to go through this line by line, but I would urge you to all read it at your leisure once you have finished this meeting. Despite the obvious newness of myself as CEO -- Interim CEO and Mike as CFO, we're part of an established team that will take Vares through to commercial production and beyond. The team in front of you today combines my technical and asset leadership expertise in polymetallic and underground operations, as well as Michael's financial and capital markets experience, having joined Adriatic in 2022 as Head of Business Development. The information in this pack is presented based on the significant amount of work I and the team at Adriatic have completed over the last two months. We've assessed the many bottlenecks or the challenges between the Vares project as it stands today and those that need to -- and we'll have what we need to complete in order to be able to deliver the significant returns, which you as patient shareholders expect. In my short time at Adriatic, the quality of the people I've met, the understanding I now have of the Rupice ore body, the mine design and extraction sequences, including dealing with ground conditions, the Vares processing plant, its commissioning, and all of the other elements of this extraordinary project have been reviewed. I've spent the time working through all of this, and I see no fatal flaws. Quite the opposite, in fact. Vares is built, and we're working to simplify the value chain, improve safety, and deliver operating discipline that will see delivery of quality product to market routinely and consistently. Adriatic Metals will soon be a leading mining operation in Europe producing critical metals, and based on what I've seen to-date, we'll be doing so for a long time, potentially in excess of the 18-year mine life we currently have. Those who've been following Adriatic will be well aware of our simple strategy to maximize significant cash flows from Vares, which when in commercial production, will remain firmly in the first quarter of cost curve globally for the silver mining industry. Our capital allocation policy will be formally presented to the market soon after we have reached commercial production; yet, we will clearly aim to maximize shareholder returns through a consistent deleveraging strategy, balanced with the requirement to continue to invest in our assets to further grow Vares' life of mine, as well as generate returns to the benefit of all of Adriatic's stakeholders. The longer-term strategy is to go beyond our existing asset portfolio, but the short-term mission remains to complete the exceptional progress made at Vares, deleverage the balance sheet, and generate sustainable cash flows from the Vares operation. This is our transition stage. We move from project spend to revenue income. It's exciting, and we feel very positive about the future. We have a couple of slides to take you through a few key points. Let me expand on the work -- of some of the work completed, underway, or planned and its impact on guidance and what I've seen for the next -- over the last couple of months. So, we'll start with mine production. The Vares project has built a modern operation utilizing technology to minimize people exposure and maximize production. It is a fully mechanized mine with a small footprint. It's technically very similar, if not almost identical, to many underground stoping operations in advanced mining jurisdictions just as such as Australia, Canada, the US, et cetera. Development rates for the shift to owner operator and an increase in available headings after we've accessed through the poor ground conditions have dramatically improved. We're now consistently meeting forecast rates of 300 meters per month. Last month, achieving 318 meters, which was a record for the team. However, the below budget performance in half one has impacted significantly on the schedule to bring stope ore into production. More on that later. With the first stope blast in August and second stope commencing in September, including the use of electronic [indiscernible] just last week, which is a first for Bosnia and Herzegovina mining industry. We're ramping up production and improving material fragmentation for the crushing and haulage teams. The first stope had a few issues pulling through the slot against the fault boundary of the ore body, but a tweak to the design has eliminated that issue for the second stope. The grade control drilling is underway at pace and continues to more closely define the ore body shape and grade for design and scheduling. While we've seen the expected variations within the geostatistical variation, the geological model remains strong and only increases confidence in future years production and forecasts. There are good reconciliation processes being implemented and used routinely to manage blending and mill feed grades. We did encounter poor ground conditions in the first half of the year, and these have been resolved with the innovative use of [Weber] (ph) injection foam that stabilize the ground to allow development to recommence on the 950 level. This opened up a whole sway of other development areas and allowed us to start to push the rates up. The technical team have developed the necessary predictive ground support criteria now to maximize development rates while ensuring safe mining can progress. I'm really pleased to have seen the interactive relationship between both technical and operational experts because this is necessary to underpin the strong performance we've seen to-date. The team are working well together to learn, to challenge, to implement changes quickly and safely. It's really, really good to see that interaction happening and making a difference on the ground. But today, I have to reset the mine tonnage guidance for 2024. Based on our half one development performance and the delayed access to the production sequence, we're going to reset the guidance to 180,000 tonnes for the year. I do, however, want to restate the 2025 guidance of 750,000 to 800,000 tonnes as the fundamental quality of the ore body and grade profile remains strong. The timing of extraction has changed with material previously expected in Q4 now to be mined in Q1 2025. So, the mission for the mine is to safely ramp up production to commercial rates by the end of 2024 and put in place the development needed for stable production in 2025 and beyond. The assumptions and schedules supporting these guidance figures have been reviewed compared with actuals or benchmarks, and actions put in place to improve where needed. This is an achievable plan, and I'm confident in the team to deliver the stated outcomes. Of course, the performance of the process plant is key to delivering the value from the ore to market. You can see on the slide the biggest we've achieved with some excellent results over a relatively short time. With good head grades continuing the feed for September, we're improving recoveries as we head towards exceeding 70% towards the end of the month and into the start of Q4. The process plant continues to campaign throughput and debottleneck the processes, but as the tonnage increases from the mine, especially with the addition of stoping ore, we are better able to manage the feed grade stability and achieve improved recoveries. This will continue as we ramp up to 24/7 operations as the ore feed volumes increase. This run time is what we need to iron out the final bumps and continue to improve recoveries. I will remind that we didn't actually run a pilot plant, so a lot of the work that we're doing now is sort of work you would do through a pilot plant. And we're actually seeing some amazing results compared to what could have been possible. Current work underway in the plant includes recruitment and training to run the 24/7 operations, increasing water resilience through additional storage and development of an on-site well, and implementation of DCS improvements, all of which will be in place through well -- apart from the development well, but all the rest will be -- we'll be working on through quarter four. The haulage team are the glue that holds the value chain together. They deliver the ore to the plant and they deliver the concentrate to the railhead. They too are ramping up with transfers of ore and concentrate occurring safely and on time. It's exciting to see that last week we had our first full train of 36 containers of concentrate head out of our railhead to the port for export. So, we're now putting in place the routines for production, daily coordination meetings, stockpile control for blending excellence, feedback loops to generate improvement, and cross department support to enable smooth running of product from mine to market. These are important routines, and we'll be continuing to build strong operational management over the next six months. As you all know, we have had some recent headaches. You'll all be aware of the constitutional court decision that was handed down in July and had an impact on the original permitted designs. Areas of impact include long-term waste rock storage, location of the paste plant, which was due for -- which is due for completion in 2025. But the most fundamental was the impact on the planned tailing storage facility where the location and design had to be revisited. The project team were on this quickly and identified the old Veovaca pit as an option. Over the last couple of months, we have completed the design through -- from preliminary through to final, discussed the law with the local communities and regulators, and progressed the different permits such as [Technical Difficulty] here in Bosnia. Preliminary works are underway, including ground preparation, access construction, and contract award with the project team mobilized to lead this work through to completion. It's about a 2 kilometer trip from the from the plant up to where the Veovaca tailings facility will be. And although it's difficult to see, in the picture, you can actually see the plant sits just in the background. So, it's visible from the far end of the Veovaca pit. Current tailings are being stored in the temporary TSF, which is close to the plant. And the capacity here is expected to last until Q1 2025, and the construction schedule for the Veovaca with -- and with the construction schedule for Veovaca tailings facility, I don't expect for there to be any gap in tailings storage capacity. So, it will not have an impact on our production profile. So, finally and importantly, I'd like to make a short comment on liquidity. We've not included a slide here, but it's in the accompanying release. This is a time of transition for Adriatic Metals as we switch from project spend to product revenue as our primary funding model. At the end of August, we had approximately $35.6 million cash on hand, we have a $25 million undrawn facility from Orion with -- obviously, with some conditions, and we have a stockpile value of about $20 million in WIP, plus remaining revenue generation through Q4 before we have our first debt repayment in December of $18 million. So, I believe we are in a good position both operationally and financially as we transition to operations and enter our first full year of production in 2025. It's an exciting time for all the people of Adriatic and they should all be really proud of what they've achieved. There's been some outstanding work completed over the last seven years and I think we're in great stead for 2025 and beyond. And now, I think it's good if we go to questions so we can see what you're interested in hearing more about. And I'm going to hand over to Klara who will share the questions between myself and Mike.

Operator: Perfect. Laura and Michael, if I may just jump back in there. And thank you very much, indeed, for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the top right-hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would just like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can all be accessed through the platform. Laura and Michael, as you can see, we have received a number of questions throughout your presentation this morning, and thank you to all of those on the call for taking the time to submit their questions. But Klara, at this point, if I may hand over to you just to chair the Q&A with the team, and if I pick up from you at the end, that'd be great. Thank you.

Klara Kaczmarek: Thank you, Jake. The first question that's come in is in regards to mine scheduling and whether the possibility is there to target the high-grade material and whether modeling has been done to determine those stress changes and whether the ground stability is good enough to hold up such a change.

Laura Tyler: So, thanks, Klara. So, in a previous set of information, we actually stated that we would be looking to how did we manage the grade that was flowing through to the mill in order to manage the amount of tailings that were being produced. So, we referenced that we would be tackling -- we would be kind of focusing on high grade. The high grade, the way that we've been managing that is through stockpile management. So, it's around how do we manage the grade itself that goes through the plant. So, focusing on the high-grade material rather than the lower-grade material coming out of the mine. What we have not done is reschedule the mine production in order to high grade the ore body. So, we haven't needed to carry out that, modeling that would have been required should we have taken that route. So, a great question, and something that obviously any mine that looks to high grade its ore body should be doing, but we haven't seen the need to do that at this time, mostly because it's stockpile management that we've been using to produce the high -- push higher grade through the mill. Thanks, Klara.

Klara Kaczmarek: Thanks. The next question is, whether we have enough support underground for the mining and whether we need to spend money and upgrade the support?

Laura Tyler: So, the support is designed as we have a detailed ground support management plan that's been put in place that identifies four different categories of ground, but also identifies the different types of development that we're putting in place. So, where development is required for the long term, so that's major kind of infrastructure access ways. We have the long-term ground support that is required to make sure we have the stability that we need for the long term. Obviously, where we have development that goes into stoping is only required for a six- to 12-month period, then we have a different ground support regime. However, all of those things are continually being monitored and make sure that we've got the right ground support for the right length of -- kind of like the length of time that we're going to need the development and make sure that we are not going to have instability in the short term. So, what that means is, long term, there will always be a requirement for rehab in certain areas, but we don't see a requirement to go through and do -- we shouldn't see a requirement to go through in the near term to do a wholesale upgrade of support.

Klara Kaczmarek: Thanks. Next question is compared to the DFS, development meters were 600 meters per month. Currently, rates are half that number. How will this impact future oil production beyond 2025? And what measures are being done to increase development rates?

Laura Tyler: Yeah. Great question. So, the -- so, with the development originally scheduled for development to bring production in required a much higher rate than was achieved, like a significantly higher rate than was being achieved. So, that development has been now basically achieved over a longer time period. What it does mean though is we need to be at 300-plus going forwards the rest of '24 and then into '25 and beyond. In some instances where we're opening up brand new kind of access through the decline, we might have slight variability from one month to the next. But that 600 meters is no longer required. That was the initial requirement that we needed in order to start the stoping up. We've now got stoping in place, and we're looking at the schedule. We believe a 300, 300-plus, is going to be what we require going forward to '24 -- versus '24 and into '25. I don't have the fine detail in front of me right now on kind of like the monthly rates as we go forward, but looking at an average of 300 to 350 to '25 is what we are expecting to see and to require to maintain production.

Klara Kaczmarek: Thanks, Laura. The next question is, what payability is being received on the current low-grade concentrate? And when do we expect to reach the targeted grades as per the DFS?

Michael Horner: Yeah. So, I can jump in on that one if you want, Laura. So, actually, some of the good news, and we do reference it in the press release, is that, basically, we've gotten DFS-level payability. So, there hasn't been any additional kind of discount or penalties related to the early stage. You would have seen in the Q2, we were kind of talking about 30% to 40% Pb and Zn. Those grades have come up. We're now actually pretty close to DFS. So, if you go back to the DFS grades, they were 50% to 55% zinc, 45% lead, life of mine average about 1,800 gram per tonne of silver. We're basically a little bit lower on the zinc right now, rated line on the lead, and actually higher on the silver. So, even with these initial kind of trickier concentrates that we've produced as the mill is just kind of getting ramped up, we've actually been getting, like, a 100% normal payability, so no real difference from the DFS. And I think that's quite encouraging because, again, it's quite common for polymetallic processing plants to take a little bit of time to get going, and concentrate quality is not always exactly there, but, basically, we're getting what we did expect, good quality concentrates, full payability. We've actually been selling a little bit more into China than we expected because the grades have been actually quite positive, and the concentrate market is incredibly tight right now. So that's one area that I think has really been a bright spot for us in the early days.

Klara Kaczmarek: Thanks, Michael. Another one on costs. Questions are, how are cost tracking relative to the DFS? And there's some assumptions that operating costs will be approximately 20% higher. What are your thoughts on those assumptions?

Michael Horner: Yeah. So, we, obviously, haven't guided on OpEx yet, and we only plan to do that after we reach commercial production, which is pretty typical for sort of a single asset ramp up. But I think people can infer from the fact that the CapEx came in about 15%-ish higher than the 2021 DFS. Inflation in Bosnia also peaked. I think it was about 15% to 17% as well in late 2022. So, I think, yeah, if people want to guess at 20%-plus, that's probably the right sort of order of magnitude for now. Again, we will give proper sort of cost guidance after we reach commercial production, but I think one of the things to step back and keep in mind is that the DFS show that this is going to be a first quartile cost producer even if our OpEx does come in a little bit higher than the DFS. If you look across the mining industry, the past four or five years, everybody has had quite a lot of OpEx inflation, so we would expect to still be in the first quartile, which at the end of the day is all that kind of really matters. And that's really the advantage of operating in a place like Bosnia. Like, I've worked in the past in Canada. Laura has worked in Australia, a lot higher cost jurisdictions, but the beauty of Bosnia and the Balkans is you've got very low labor costs, very cheap power $0.07. $0.08 a kilowatt hour, which we're connected to on the grid, not raising -- not reading on diesel gensets, good infrastructure, paved roads, rail. We're in the middle of Europe and lower tax rate at 10%. So, yeah, we're not -- we're going to be higher than DFS OpEx, but it's still going to be quite a high-margin operation.

Klara Kaczmarek: Thanks, Mike. Another question is, what's your monthly burn rate currently?

Michael Horner: Yeah. So, yeah, I mean, you'd kind of be able to calculate that from the quarterlies, and we've just given this cash figure of $35.6 million at the end of August. So, roughly speaking from January, the average is $10 million to $11 million a month, and that includes everything. So, that's site cost, that's CapEx, that's G&A, corporate, even expiration. So, we've spent circa $7 million, $8 million year-to-date on expiration, so call it $1 million a month. CapEx is winding down in a big way, but then, obviously, your variable operating costs like processing and haulage are starting to come up a little bit, so they're kind of evening out. And I'd say that, yeah, like $10 million a month is basically a steady state burn rate for us at the moment. We do think that by '25, that will go down even a little bit lower just in terms of probably a little bit less expiration spend and less CapEx as well, but that's something to kind of use for now until we give that formal cost guidance after we reach commercial production.

Klara Kaczmarek: Do you believe you will need to draw down the Orion facility?

Michael Horner: Yeah. Look, I think, at this point in time, given the cash balance, it really depends on how the next couple of weeks and months go. It's always a tricky one with sort of projects like this where working capital is always a bit of a lag. So, we've had some extremely good months on the mining side, record in August, 25,000 tonnes. We've already exceeded that already in September, so there's quite a lot of material that's going to be processed and going to be sold, and that's great, but people can see and we've put the figure for a stockpile in there, about 36,000 tonnes. If you do the rough math, we haven't included a figure, but that's basically $20 million of revenue sitting on the ore stockpile. That takes a little bit of time to work its way through. So, it really depends on how quickly we kind of get that revenue in, but generally speaking, with the cash we have on hand, that stockpile, the revenue for the rest of the year, we feel quite confident, well, we feel more confident to make the main debt repayment at the end of this year. So that's the US$18 million roughly to Orion. We've got more than enough headroom for that. So, if we are drawing on the '25, it's purely just like a timing sequencing thing to get through your pretty typical kind of working capital inflection point. But keep in mind that's only a six-month facility. So, obviously, if we're taking it, it means that we feel good that we only really need it for a very short period of time. So...

Klara Kaczmarek: Thank you. We have, obviously, referenced changes to production guidance in 2024. However, there's been no reference to grades. What should we expect on that side to what was previously published in January?

Michael Horner: You want to take that one, Laura?

Laura Tyler: Yeah. So, I think the -- what we've -- I mean, obviously, the guidance was based on the tonnage, and that's the change that we've made. The grades that we're seeing at the moment coming through are the grades we're kind of really expecting to see as we go forward. They will kind of, like, level out towards the average grade that we're expecting for '24 and '25, which has been previously provided. So, don't see any drastic shift in what we've indicated. The grade control drilling that we're doing as a routine is confirming the geological model. Obviously, there's a little bit of kind of give and take around the edges of the ore body that you expect to see just based on the kind of the accuracy of the geostatistical model. And when you put those additional grade control holes in, you start to get that kind of fine nuance seeing if the -- of where the ore body is and isn't, but we're seeing it basically overall confirming the quality of the ore body and its distribution. So, we haven't guided on grades specifically, but they will continue within the vein that we're seeing -- that we're currently seeing. So, yeah, it's probably broadly aligned with what we were expecting in Q1 from a grade perspective -- sorry, in Q4 on a grade perspective anyway.

Klara Kaczmarek: We've had another question regarding the term commercial production. And when will this be met? And does this have an impact on the project and financing?

Laura Tyler: Well, I'll take the first bit, and then Mike can take the second half of that one. So, the -- as we're ramping up in Q4, we are expecting to be able to basically get to the rates that we require for commercial production, which is at a percentage of the total of kind of the full 800,000 tonnes per year rate, but we're expecting to put to see quarter one as being the first time when we will actually be able to run at that rate for long periods of time, i.e., months at a time. So, we are continuing to ramp up through quarter four. So, we won't see quarter four as a full production rate or the full kind of commercial production rate, but we will intending to aim to bring that rate through in quarter one. And then, quarter two, three and four will be then running -- the intent is they will then be running at 800,000 tonnes per annum rate through those -- the second half of '25. Mike, anything to add?

Michael Horner: Yeah. On the other points, commercial production is kind of a key point for a few things as for us as a company. One, with our debt financing with Orion and also just other things like insurance. I mean, it's, obviously, a pretty typical thing that counterparties look for you to ramp up. We do expect to hit those metrics that we need specifically for those kind of items by the end of the year. So, let's say, in December or the end of Q4, because it's over sort of a shorter timeframe that we need to be able to reach those levels to tick those boxes compared to what Laura was talking about is really like a whole quarter. We don't need that to reach what you would almost call statutory commercial production. So, we do expect that to happen by the end of this year.

Klara Kaczmarek: Thank you both. We've had a number of questions on the Veovaca tailing storage facility. What are the kind of -- what's the critical path? And what are the sort of key engineering milestones for that completion? And, also, regarding the roads from the VPP to the Veovaca tailings facility, will this require these to public roads, and will that have to go through neighboring villages?

Laura Tyler: Thanks. Good questions on the on the Veovaca tailings facility. So, the key milestones have always been permitting. We have the -- we put in place all of the contracts, and so that has always been the key milestone that we've needed to deal with. That is in progress, as I said, in the kind of like the overview. We've got -- we've been talking with the very relative regulators. We have all the paperwork in front of the ministers for environment and water regulators that need to provide paperwork, their sign off before it goes to the Ministry of Mining for a formal construction approval. And we expect that construction approval in October, and that's for the main construction piece. However, we own the land. We have to own the surface rights to the -- to Veovaca tailings facility area. So, we are able to start to do some of the clearance and preparation work ahead of that. That includes preparation of the access road. The access road will go from the plant, go up the bottom of the valley. So, if when you look at that picture that's on the piece, you'll see there's a valley kind of down the bottom. That's where the access road will come up. So, we won't be going through the villages around the outside of all the kind of like that are access on the road around the outside of the old pit. And we'll be moved -- we'll be coming through the main -- through the bottom of the valley. The work that we have to do there is we are looking to improve the road through there. It's an old access road, so that needs to be improved. So, there's some work going on there. We've had approvals to start that cleanup and construction work, and so that is underway even as we speak. All of the land access ownership is resolved and is in Adriatic's ownership. So, that means then that we have full access to that road and to the pit. So, it's looking good. The main milestone, I guess, to -- is getting that final stamp in October after the elections. And then, the main engineering milestones are kind of basically getting the ground prepped. The line is put in, and then we can start placing material, and that is envisaged to be completed by the end of November.

Klara Kaczmarek: Another question on the Veovaca tailing storage facility. What life -- how long is that facility available and how long for? And will this be dry stack? And then, on the original tailing storage facility, do you believe that that will potentially be viable in the future?

Laura Tyler: So, the Veovaca tailings facility that we're constructing will be done like any other tailings facility is done in phases of work. So, we will complete the first phase of work, which will take us through for a number of years and then the second phase. So, the total amount of capacity we have in there will give us enough tailing storage for about 10 years of production, so give or take a few months kind of thing depending on the grades and that we have coming through. So, we're expecting this to be a long-term solution for us. It will be in operation for a significant period of time, and will become a part of our kind of usual operations. The previous tailings facility location, we continue to have that. We'll continue to work through, book that for potentially for down the track for longer-term solution for tailings because obviously we've got a kind of a multi -- like, multiple decades of production coming through. So, that would be something that we would consider for the future. But this is very typical for any operation. No operation has its tailings, but very few have their tailings facilities all designed and planned out through to the end of final operation. And so, this is fairly normal that we will exhaust the current tailings, Veovaca tailings facility that we're constructing now over the next 10 to 12 years. And at the end of that, we will have put in place the options for the next phase of tailings deposition, whether that is the existing or the old or the previously permitted or planned site or whether it is an alternative one. And we'll work with regulators to make sure that we have everything in place to have that in place in time to replace the new Veovaca tailing facility that we're constructing.

Klara Kaczmarek: Can you provide some guidance on the expected cost of the Veovaca tailings facility?

Michael Horner: So, a bit early there, and, again, it's something that we'll probably give a bit of update on in terms of once we reach commercial production, so both OpEx and CapEx life of mine. But roughly speaking, if you look -- well, I guess we haven't published details what we spent on the first one, but it's not material. So, kind of moving from right beside the plant to two kilometers away, it's not going to be an order of magnitude much higher. So it's -- again, it's something that we can give a proper update on kind of for the life of mine. But to get us to initial deposition by the end of this year and supporting 2025 production, you're talking single-digit millions, like a couple. It's really not something that's going to affect the balance sheet or really change what we do moving forward compared to the original site. So, I think that's the best way to think about this. We're not going to have any major uptick because of this change.

Laura Tyler: And just to add to that, the team on site have done some excellent negotiations with the contractors that would be managing this. So, we are seeing some good long-term rates, better than they were before getting locked into to some of this contract work, so which is a real positive. And I did miss the question asked if we were still dry stacking, and, yes, we are. We will continue to dry stack. It is the way forward, as we make sure that all of our tailings facilities will meet the GISTM or global market tailings management standard that is now in place.

Klara Kaczmarek: Thank you. Could you provide an update on the paste plant?

Laura Tyler: Sure. So, the paste plant was due to be -- was due for construction to be completed in early 2025. At this point, the work based on the -- based on the constitutional court's decision, the work on the paste plant has been paused while we work through kind of legal options, but at the same time, we're looking at alternative locations. We do have alternative locations that we can access to put the paste plant in instead, which won't be a huge kind of move to an alternate location. So, we're working through those two options. We always had plans to use CAF, or cemented aggregate fill, in our stopes. So, the processes are in place to do that. We'll use, obviously, some of our own -- some of our waste rock as aggregate, as well as import some quality aggregate. We've got all those contracts in place. That work is already commencing for the first stope. This was always in the plan. We just now have to extend the CAF placement for an additional few months, but we don't see it as being a long-term solution. We will move to having a paste plant as the long-term solution fulfilling all of the stopes.

Klara Kaczmarek: There's another question regarding local elections, and these are happening in October. Does this impact your ability on receiving permits that are required?

Laura Tyler: Not really. Other than there's just a little bit of people waiting for elections to complete, and obviously, people who are up for election or parts of the departments that are up for election being a wee bit distracted by having to go out and attend the various rallies and whatever, but overall, we are getting very positive commentary. And a lot of stuff is still progressing ahead of the election, and then we just expect to see the final stamp on the construction to occur just post the election in mid-October. So, no real big impact on that.

Klara Kaczmarek: What have been the learnings from the recent fatality on site and what measures have been taken to avoid such occurrences again?

Laura Tyler: Yeah. Look, the fatality was something that should never have happened. It was -- it had a huge impact on our -- the people of our operations. It was a local subcontractor who left behind a wife and three young children. So, we've made sure that we were -- that we've looked after -- that the family has been looked after by the contractor and ourselves. It was a big learning for the company. We've prided ourselves on having some really good kind of total recordable injury frequency figures and how we manage and think about critical controls. But, obviously, things weren't as -- going as well as we thought they were. And with all these things, you can never rest with safety. And this fatality has really brought it home how we need to improve our contractor management, including site access requirements for everybody that accesses off-site, clarity of safety messaging as we move through the transition from project work into BAU and regular kind of operational work and how we improve our critical control management, and those verifications of processes. So, we have three work streams underway that are tackling those pieces, implementation of improved contractor management, improved safety messaging as we transition, so that everyone has real clarity on what is the requirements to enter our site, and then that critical control management, which flows through from senior management right the way through to the shop floor. So, working on those. I -- there should never -- we should never accept any fatality in any operation globally, and we are incredibly saddened by this, and we will get better.

Klara Kaczmarek: Can you please advise the sort of status and expected timings for permanent CEO and CFO appointments? And do you feel that at the operational level, you have all the team in place that's required?

Laura Tyler: So, I'll start on the operational level team. First of all, I've been really, really impressed with the team that is in place. The -- when I look at the quality from a technical and operational skill set, right, the way through from the mind through to the tech services, through to the operations superintendents, the process plant, manager is because significant experience in polymetallics, particularly in lead zinc, which has its own peculiarities. And so, you see that experience flowing through in the way that we are pushing and challenging the different issues that we have. The haulage and fleet, I've got some excellent depth of expertise. So, not only when the kind of like the manager for haulage and fleet stepped out for a vacation, his two IC, you could have almost -- you wouldn't even notice there was someone had gone on leave. So, there's some real depth that we're seeing, not only using expats, but also some real depth that we see with some of the national recruits that we also have. And that, making sure that we're bringing through and gaining the experience in the mining and the processing areas so that we have some long-term opportunities to bring through some real talent. It's really good to see the people that have been employed here, the passion that they have for wanting to make a difference, and the real focus on being prepared to be challenged on kind of, like, the status quo that we see throughout the operation. So, very excited by that. On the long-term CEO position, so Adriatic has commenced a search for a long-term permanent CEO through an independent search firm. So, we, as a Board, which I was sitting on at the time, we recommended that the way we made sure that was a transparent process that looked for the right CEO for the long term. And at that time as well, that CEO will then search for the permanent CFO going forward. We'll see if Mike wants to put his hand up for it when we start the search. And in the same vein, the Board has asked me if I would like to put my hand up for it. I'm just working through at the moment, making sure that we've got the ramp up sorted, and I will work out whether I'm going to make myself available to be included in the selection process. But at the moment, a 100% of my time is spent on focus on making sure we get the Vares operation into commercial production before the end of 2024.

Klara Kaczmarek: Right.

Laura Tyler: In progress, basically -- in process, basically, with external search firms, but feel free to put your hand up if you know of somebody, put them forward.

Klara Kaczmarek: Question on, obviously, with having tight concentrate markets. So, what is the outlook for spot TCs? And can you lock these in longer periods? And would you consider hedging metal prices?

Michael Horner: Yeah, sure. So, the good news on that front is that basically, this is the best time to be selling lead and zinc concentrates in the history of lead and zinc concentrates, so it's pretty good. Some people who are keen watchers of the metal markets may have seen some recent headlines around copper concentrates that had negative treatment charges, so people have been selling cargoes into China and globally for negative, whereas normally they're $80 a tonne of concentrate. Similarly for zinc, if we think back for the last couple of years, when we did the DFS, I think we were talking about $200 to $230 a tonne zinc treatment charge, which is actually quite a lot. It does affect, like, a big part of your bottom-line. It's one of the main kind of costs for a concentrate operation. But currently, instead of $230, they're minus $40. So, smelters are actually paying miners like us to sell them product, so that's a really good sign, and that does help us in some of these things in terms of -- the question earlier about the low-grade initial concentrates, have we been getting the full payability, and, yes, we have. I think a big part of that is that not only do we have good quality even if it's not perfect grade, we also are selling into a really tight market. So, we expect that to remain for the next couple of years. We are selling primarily on fixed contracts, which are instead of the benchmark rates, which are a little bit higher, but we can sell, and we will be selling into the spot market and taking advantage of that. So that's mostly on the -- well, it's entirely on the lead side. And, hopefully, let's see how the next kind of -- well, LME Week is coming up. So, we're kind of negotiating longer-term deals with offtakers. We may be able to lock in some of those low rates, and you do see that in some of these, let's say, similar projects to us. So, develop on the ASX. They've just secured some pretty good offtake agreements with Trafigura, which is one of our offtakers. So, yes, we do hope for the next sort of, let's call it, three- to five-year period, we can take advantage of that. So, very good time for us to be selling, and it probably will just given the tightness of smelter plus, basically, no new mines are coming online, that's an inherent kind of tightness in the market and also bullish for those metal prices, right? So, it's a good time to be producing and selling zinc, lead, and silver. And gold, of course, all-time highs. So, it's a good time to be selling metal, I guess.

Klara Kaczmarek: Thanks. What is the planned timeline for the study to increase the mill production to 1.3 million tonnes per annum?

Laura Tyler: So, we are looking at -- so that study itself will be completed in the near future. That could be within the next sort of a few weeks, month or so. That will be incorporated into a -- basically, a long-term view of how we will seek to increase, basically, [EV] (ph) for the business. What we're thinking around from a strategy perspective for the longer-term increase in value, that is one of the components that we will feed into. I see another question on M&A, all that sort of those pieces of work are things that we'll be putting together over the next couple of months, and we'll bring back to the market for future conversations on where we're thinking in quarter one 2025, which will kind of tie in with results and quarter four, completion of quarter four work. So, I've been focused on the short- to medium-term over the last, six weeks, five weeks. So, going forward, we'll start to make sure we build out that longer-term option and that project, and those longer-term options and that project will feed into that as one of the data points that we have.

Klara Kaczmarek: Great. We've also had a couple of questions on exploration. Can we provide an update on regional exploration both in Bosnia and in Serbia, the Serbian projects?

Laura Tyler: Yeah. We've continued with exploration both in Serbia, Raska, and then obviously continued drilling around the Rupice orebody, including over kind of in Vares east, doing some initial sampling work on some potential ore bodies in that area. It's all been going well. It's been completed safely, with a real kind of mind system of the some of the slightly different safety criteria we have to meet over here, including, unexploded ordinance and the like. So, we've been working through making sure we have safe processes that allows us to access the ground that we want to sample. Sergei and the team are basically reviewing the geological models with the new data that's being collected, and we'll provide a more fulsome update, kind of basically at the end of Q4 into Q1 when we come back to the markets. So, it has been progressing. It's been progressing well, and, Sergei remains his usual enthusiasm for the ore bodies that he is doing, exploration over, seeing some good results, but nothing that we want to put onto the market today, but watch this space for the future. Particularly excited around the potential extensions local to the Vares project, which is looking pretty positive.

Klara Kaczmarek: Thank you. There's also been a couple of questions on environment related issues, increase in activism, for example. Could you provide an update on that front?

Laura Tyler: Yeah. Look, I think, this environmental activism is just -- is a part of mining. Globally, we see -- we've seen over the last, what, 15 years particularly steady increase in the -- in people's awareness of their environment, and NGOs are a part of that. And they won't be going away anytime soon. So, as an industry, we have to make sure we're thinking around how are we managing all of our environmental commitments and recognizing that we are -- many of the mistakes that we made in the past, we need to either rectify or make sure that we don't repeat into the future. Local to Europe, mining is occurring alongside highly populated areas. So, the visibility of what we do and how we operate is always going to be at the forefront of people's minds, and we need to continue to work with all of our stakeholders, employees, local communties, governments to make sure that we make the environmental constraints that are put on us or environmental conditions that are put on us. And that includes NGOs and working where we can working with them, but otherwise responding to them. We have seen -- Serbia is seeing an increased kind of push on environmental activism, particularly around the Rio Tinto lithium operation or lithium project. Here, we just need to continue to make sure we stay focused on minimizing our environmental impact, operating in the right way and continuing to communicate with communities, regulators and what we do. I think each area, each mine, each operation is different, and needs to -- we need to accept that each community has different needs and requirements and expectations of any operation that is located near it. So, we continue to stay aware. We continue to work with people, and I don't expect any of the challenges from NGOs to disappear anytime soon.

Klara Kaczmarek: Thank you, Laura. I'm conscious of time as well. Maybe, apologies, we haven't been able to answer all the questions. One to wrap up on is, how are you thinking about M&A in the future? What's Adriatic strategy on that front?

Laura Tyler: I'm going to hand this one to Mike since his previous role was business development.

Michael Horner: Yeah. I think the easy way to think about it is that, the core focus of the company now is ramping this asset up, right, that the highest sort of IRR/ROI that exists for us is really getting this thing into full throughput, full production. I think at the same time, we have always remained a pretty flexible kind of party. We do look at a lot of stuff. So, people will have seen -- in the media, there's been some sales processes for some assets in Europe. That's something that we kind of took a look at and there's a number of development opportunities, expiration opportunities that we keep an eye on, kind of a watch and brief so that when we are sort of ramped up and next year, we can take a look at that with the view that if there's the right deal to be done, that might make sense for us, we've got a great team here in terms of construction, permitting, operations, finance, everything. We've got, I think, a lot of value to bring, especially in this region, which is not sort of as heavily invested in as some of your more traditional mining jurisdictions. So, it's something that we still think a lot about. Again, priority 1A is definitely the ramp up first, and we're not going to do anything to kind of jeopardize or distract that in the near term. But, I think as Laura said around expiration, it's not something that we talk about in every update, but watch this space. And at the same time, yeah, we will look to be a pretty active party. We're not here to just sort of do one thing and then rest on our laurels for the next 20 years, that there's probably some pretty interesting opportunities out there for a team like ours.

Klara Kaczmarek: Great. I mean, I did want to take one last question. Someone was asking about antimony. Do we think we might be able to get some quality -- quantity payable?

Michael Horner: That's a fun one. Yeah, the price has absolutely skyrocketed, and we do actually produce it as a byproduct primarily in our lead concentrate. It is something that we can get paid more for as we sell into China, which again is something that we've been doing a little bit more than we expected earlier on for a few reasons. One, the feed grade has been a lot higher than we thought. So that's giving us a high-grade [indiscernible] we can sell into the Chinese market as well as, yeah, just the general tightness. So, it's something -- it's hard to put a number on it today, but we will see a little bit of a lift, call it, I don't know, 5% or something like that. It's not material just for the lead stream, but it's something that -- yeah, if antimony remains elevated for a number of years due to China versus the US kind of dynamic, we are potentially able to flow a slightly different concentrate, and it is something that the processing team is kind of looking at to increase that payability. So, yeah, I guess similar to these other things, watch this space, but nothing right now.

Klara Kaczmarek: Great. Thank you.

Operator: Laura, Michael, Klara, if I may just jump back in there. Thank you very much indeed for being so generous of your time then addressing all of those questions that came in this morning. But, Laura, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with, that'd be great.

Laura Tyler: Yeah. No, great. Thank you everybody for asking some great questions. So, we'll just -- I just wanted to take a moment, I guess, just to reflect on the opportunity that kind of that sits here. I mean, Adriatic has had bumps in the road, but, fundamentally, the project has been delivered. We're in transition. We're moving from project spend to revenue generation. And on an accrual basis, we were cash flow positive in August. Yet, we're trading at consensus of 0.4x to 0.5x NAV, 30% to 40% free cash flow yield for next year depending on your price deck, which is a deep discount to silver peers, base metal peers, or probably just about any operating producing mining company that's out there today. We will finish the job in terms of ramp up. We will build the routines of production and revenue generation. And we believe, as management, that Adriatic Metals remains a compelling opportunity in the market today. I do want to thank you all for your time for giving us some great questions. And to those of you heading out to visit the operation on Wednesday, we're really looking forward to seeing you and to be able to show you around and that you can see that what we've been saying is, in actuality, something that exists on the ground. So, we're looking forward to seeing those of you who can make it on Wednesday. Otherwise, thank you for your time today and really appreciate the effort that you put into dial in. Thank you very much.

Operator: Perfect, Laura. That's great. And thank you once again for updating attendees online this morning. Could I please ask attendees online not to close this session? You'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Adriatic Metals PLC, we would like to thank you for attending today's presentation. That now concludes today's session, so good morning to you.

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