Adriatic Metals PLC

LSE:ADT1

Q4-2024 Earnings Call

[Jake Downes]

Good morning, ladies and gentlemen, and welcome to the Adriatic Metals PLC investor presentation. [Operator Instructions]

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.

I would now like to hand you over to the team from Adriatic Metals PLC. Klara, good morning.

[Klara Kaczmarek, executive]

Good morning, and welcome, everybody, and thank you for taking the time to dial in to the Adriatic Q4 Quarterly Activity Report Webinar.

Just going to draw your attention briefly to the disclaimer that you can read at your leisure. We are going to start the presentation today with a short presentation from Laura Tyler, Managing Director and CEO; and Michael Horner, CFO.

The presentation will be followed by a question-and-answer session, and those questions that will be pre-submitted and also questions that will be submitted throughout the presentation. You can see -- show you on the right-hand side, there's a tab where you can pre-submit your questions. This presentation is being recorded today and will be available on the Adriatic Metals website and on the IMC platform.

And I'll now hand over to Laura.

[Laura Tyler, executive]

Thank you, Klara, and good morning to everybody who's joining us from the U.K. and good evening to those from Australia and further apart. Thank you for taking the time to join us for this webinar today. The last time I hosted such a call was back in September for the trading and operations update. And a lot has happened since then. And today's call will be focused on the announcement we made earlier today regarding the performance of Adriatic in the last quarter of 2024 and providing guidance for 2025.

The transition from exploration to development and now to production at the Vares silver operation has seen a number of successes as well as challenges along the way. Over the past quarter, we've doubled down on safe working practices, increased the focus on hazard reporting and started to really start to look at how we shift that safety culture.

The number of hazard reports is climbing and the lost time injury frequency rate has steadily decreased. It's going to take time as these things always do, but our safety metrics are moving in the right direction, and we'll not let up on making sure that every person gets home safely every day.

On production, I'm pleased to report that the fourth quarter saw a significant increase in production and concentrate sales as we continued to ramp up. Our Q4 silver equivalent output was almost 2.5x higher than Q3 at 934,000 ounces and resulted in sales receipts worth approximately $27 million.

The quarter also saw us deal with extraordinary weather conditions: first, in October with the severe floods and rainfall that, as we previously reported, caused significant damage to the rail network; and then in late December, we had a 1.5 meter snowfall in 36 hours that basically impeded us mining at full capacity as we had to pause or transfer while we reopened access and haul roads and reestablished power and communications.

Though the tough conditions continued into early January, we now have overcome those issues. The weather has warmed slightly, which is a bonus. And I'm pleased to report that we're back on track with the ramp-up process and with commercial production that requires a 21-day run to be reached -- will be reached in Q1.

In the quarter, we strengthened our balance sheet by executing a concentrate prepayment with Trafigura, one of our offtake partners, and we deferred the first debt payment with Orion. And Mike will take you through the detail of those shortly.

So just to start, we'll focus on the operational performance of Vares during the quarter. So we mined 73,000 tonnes of ore in quarter 4 with almost 48,000 tonnes of ore milled. The head grades were great. As you can see on the table, and next slide, Klara, thanks, the head grades were great and recovery steadily increased month-on-month. The concentrate grades met our customer requirements that were all payable and demonstrated our ability to produce a quality product. And that's reflected by the fact that Trafigura were prepared to go into a prepayment agreement with us.

Guidance for 2024 was based around mined tonnes and the weather impacts in October and December impacted material moved, resulting in 146,000 tonnes of ore mined. And with the slowdown in milled rates in December due to weather and higher fines in the crusher feed, which we'll get into later, the stockpile at the end of the year ended up sitting at about 61,000 tonnes.

On the mine development side, a total of 675 meters of underground development was achieved in Q4, which was a decrease compared to Q3 as the development rates fell below the 300 meters per month that we set as a run rate target in October and December with the weather disruptions that I've noted previously plus a temporary shortage of some development consumables in October.

So it was a disappointing finish to the year in December. In total -- but in total, there was 3 kilometers of underground development completed at the Rupice mine in 2024, which is basically double the rate that we achieved in 2023, where we managed 1.5 kilometers. And we've kept the priority development headings moving forward.

Stoping production is now operating on two levels with two stopes active. That's been in place since early December. And we're now ready to start development of our first secondary stope, which is scheduled to go into production in February.

Ground condition understanding continues to improve, and we've commissioned the underground mono pumps and primary vent fans and CAF placement techniques are improving with an additional loader arriving soon to speed this up further. We expect to have paste available in quarter 4 2025.

The process plant is now operating 24/7. The DCS installation has come along and now all dosing is controlled through the necessary feedback routes rather than by hand. Recoveries have steadily improved. And without the break in ore supply caused by the extreme conditions, the plant will have achieved the 21-day run time we needed for commercial production.

At the crusher, we experienced higher percentage of wet fine material in the feed that exceeded the design parameters, resulting in a stickier ore than we were expecting. This has been resolved by the installation of a mobile screen at the ROM, ahead of the crusher. And since installing the new screen over the holiday period, the crusher is operating at a rate of about 40,000 tonnes per month and we'll install a permanent solution in quarter 2. As noted earlier, we continue to have a really healthy ore stockpile buildup to support a ramp-up with around 60,000 tonnes at good grades sitting on the ROM part at year-end.

So just to touch on a couple of the infrastructure pieces that we've talked about previously. The rehabilitation of the railway line linking Vares to the port, was damaged by the storms in October, will be completed imminently. You see a nice little picture there of the bridge that I took on the way down to Mostar the other day. And that helped to fast track the -- we'd like to take the Federation of Bosnia and Herzegovina Railway, who've helped to fast track the repair of the line. And we're expecting to head back to the rail, which will lower transport costs in quarter 1.

As previously reported, Adriatic received all permits for Phase 1 of the Veovaca tailings facility from the Federal Ministry of Energy, Mining and Industry in late October. And I'm pleased to confirm construction is now well advanced with completion scheduled for the coming weeks and first tailings disposals still expected to be delivered in Q1 2025. The snowy weather slowed down some of the installation, but we do not expect tailings storage facility capacity to limit any production rates. I'm sure we'll get into that in the questions.

I'm going to hand over to Mike, who will provide some color on the financials for the quarter. Mike?

[Michael Horner, executive]

Yes, great. Thanks, Laura. Good morning, probably good afternoon, and good evening to everyone who's joined us.

And yes, turning to the financials, the key story here is really that we hit a major milestone in the quarter, our first real material sort of couple of months of sales, capping off a really big year for Adriatic as we successfully made the transition from developer to producer and made about $30 million of revenue. So that was really great. We even generated a small profit at the operating level. And if you kind of look quarter-over-quarter, we were pretty close to breakeven, despite our production only being at 25% of capacity in Q4.

As Laura mentioned, we also closed the $25 million concentrate prepay agreement with Trafigura. This deal is great, really sort of bolsters our cash position and also includes some really competitive offtake terms. So we are taking advantage of the really tight concentrate market, which is another good tailwind as we ramp up to full production.

Ended the quarter in 2024 with $21 million of cash and about $3 million in finished concentrate. If you compare that to the end of Q3, we were basically at $24 million cash. So really quarter-over-quarter, we were basically breakeven. So again, that's sort of great news.

Current cash balance is $46 million, which again, you can kind of do the simple math. After closing the $25 million of Trafigura, we've again been cash flow neutral through January, even despite sort of some of these delays that we had at the end of Q4. So that's really positive.

Strong cash balance and being really cash flow neutral for 4 months now does put us in a good position going forward. And we've got our first debt repayment to Orion of about $19 million due at the end of Q1, and we have sort of ample headroom to hit that.

And with that, I'll just hand things right back to Laura to go through the production guidance for 2025.

[Laura Tyler, executive]

Thanks, Mike. So as Mike says, look, just pop through the production guidance for 2025 that we've provided today. We've also included an outlook for 2026 and the current life of mine average, which is approximately an 18-year mine life that we're currently scheduling to.

So we're targeting in 2025, 625,000 to 675,000 tonnes of ore milled, which will give us between 12 million to 13 million ounces of silver equivalent for the 2025 year. We expect to hit commercial production. As previously stated, this is 75% of nominal plant throughput sustained over a 21-day continuous period during this first quarter of 2025. We've provided numbers for each half. Given this is a plant ramp-up here, we -- production is obviously heavily weighted towards the second half and we get to nameplate in quarter 4 -- no, nameplate capacity in quarter 4.

As you can see from the forecast shown on this slide, we're also expecting a good set of grades coming through in half 2 '25 and into 2026 compared to the life of mine average. And that's looking at the silver equivalent figures. So FY '25 will effectively be a full production year based on metal produced.

For 2026, our forecast is to reach full nameplate for the year, 800,000 to 850,000 of ore milled. As we work through the details of the 2025 and 2026 production profiles, the need to ramp up the mill and get to that steady state, we've chosen to balance the production of the mine and the mill, given the size of the stockpile at the start of the year, the size of the stockpile if we did mine at 800,000 tonnes and management of the balance sheet and how we make sure we don't carry too much WIP on the balance sheet.

So those have all kind of fed into. I'm sure there'll be plenty of questions, and we're happy to deal with those. But I'm going to hand over to Mike, who will just take you through the cost guidance.

[Michael Horner, executive]

Yes. So we've also given cost guidance, which is really the first time for Adriatic. And to summarize in this table here, basically, the easy way to think about it is it aligns pretty well with our 2024 spend. So it's that same typical kind of run rate of $10 million to $11 million to $12 million a month sort of all-in, obviously, the big difference being 2024 was still a big CapEx year, whereas now all of that has transitioned to sort of OpEx.

Probably the only one I want to spend a bit of time on is the project capital of $20 million. That's very much sort of a one-off figure for 2025. These are mainly projects that we had from the original CapEx that we still need to kind of finish off, some examples being the paste backfill plant. So that was obviously a little bit delayed during the original project construction. That's about USD 7 million, and we can kind of give probably details in the Q&A.

Tarmacking the haul road, some winterization work that we want to invest in, obviously, given some of the issues that we faced in December, and really just making the operation more resilient for the long term. So all of these are really sort of high ROI investments that we do need to finish. But the good thing is they'll be sort of done.

And for 2026, that number will kind of roll off. And really, the figure to focus on is that sustaining capital of $5 million, which is -- that's really what we need to keep the operation going each year and that figure is much lower. So if you sort of add some of those buckets together, you're looking at an all-in sustaining cost of $120 million.

And then if you go back to the production guidance, and we're looking at somewhere between 12 million to 13 million ounces of silver equivalent, you're in that sort of $9 to $10 an ounce silver equivalent all-in sustaining cost, which is really competitive, well within the first quartile of the cost curve. And that's without us even being at full run rate for the year, which you can obviously see in the guidance.

I mean, I think that's pretty impressive, given there's been some pretty rampant cost inflation across the mining industry over the last 4 to 5 years, especially since we put our feasibility study and started construction. And obviously, while costs have definitely come up a bit, metal prices are also -- they've come up as well. So they're up kind of an average of 10% versus the DFS. And so we are still looking at 70% EBITDA margins at full run rate, which is pretty much bang on what we saw in the feasibility study. So I think that's quite positive.

2025 is our first real year of production. And sort of the main story for us is really generating positive free cash flow, deleveraging the balance sheet. We will be paying about $100 million of debt back this year. And if metal prices stay basically where they are today on a spot basis, we should be close to a net cash position on the balance sheet by the end of the year.

And that was always one of the sort of main highlights of this project, a very quick payback to initial capital and a really high IRR. So now that we're actually in mining, we are seeing that continues to be true. And obviously, it's a really exciting story.

And then just a small note on the bottom there, we kind of brought you through Q4, what does 2025 look like. And expansion is really looking at the future even beyond 2025. We are looking at organic growth opportunities and expansion scenario at Vares. So the study was completed in the quarter by Ausenco, basically looking at increasing plant capacity. And just to remind the audience, Ausenco were the engineers for our original plant design in DFS, which as you can see from the recoveries has actually gone pretty well. So they're definitely the right people to be helping us look at expansions.

And really, the two key highlights, we've shown that you could go from the current nameplate, which is about 800,000 tonne per annum to 1 million tonne per annum. So that's a 25% increase. We don't need any additional CapEx in order to do that. It's really just debottlenecking and some standard improvements that you kind of make in the back end of the plant. So we can do that relatively quickly and at no additional cost, which is great news.

Ausenco also looked at a scenario of increasing to 1.3 million tonnes per annum. So this is obviously a much more material increase. It's about a 60% lift from current nameplate. And that CapEx is coming at about $25 million, which is relatively quite low and that's going to drive some really high IRR. So now that we know that we can increase the plant throughput quite materially, we'll start doing some studies around increasing the mine output to match the mill. We'll complete that work in 2025 and kind of keep the market updated. So that's sort of an exciting story for the future.

So I think overall, I mean, to sort of bring those three things together, it's a quarter of good progress; obviously, some challenges which are not ideal, but we're sort of back on track; solid-looking 2025 in terms of contained metal guidance; and a pretty bright future beyond that, looking at sort of expansions, increased throughput and driving good value.

And yes, I think with that, I'll hand things back to Klara and we can get to the Q&A.

[Klara Kaczmarek, executive]

Thanks, Mike. Thanks, Laura. So first question is, obviously, we have the severe snowfall in December. But the question is what are the other contributing factors to sort of poor development in production rates?

[Laura Tyler, executive]

So in December, yes, we had the snowfall that came through. It really hit hard. It knocked out the mine for -- probably for about 5 or 6 days. So that was the predominant -- in order to be able to dig everything back in, get the crews back in and working, pump out the mine, we've had to slow down some of the mine pumping as we dealt with some of the water flow on surface. So that was the predominant impact on the development rates in December.

Overall, from a production perspective, we saw the slowdown in material going through to the mill. As we noted, we had the issues with sticky ore in the crusher. So that caused a slowdown in some of that ore transfer. So that's kind of knocked the actual production or kind of like the output figures that we were expecting for December. So it was those two things really, that wet weather that we saw at the -- or the wet ore or the sticky ore that we saw at sort of mid-December. And as we were solving that, we were hit by the snowfall. So it was those combinations basically of the two pieces.

The snowfall in December, we had about 250,000 people in the region without power. Our comms went down. So there was a lot of issues that we dealt with in those 5 days, which impacted on us getting back up to speed as quickly as we wanted to. Well, we've learned from that. And this is where we've just got to work through the -- we've done a whole bunch of winterization and we weren't expecting to get 1.5 meters in 36 hours and we have to get better. And so we're looking at what's the lessons from that. We've got the lessons learned back, and we've got a kind of unassigned portion of capital that is for winterization work that we know that we're going to have to do through this 2025 year, so we don't have the same issues in 2026.

[Klara Kaczmarek, executive]

Great. And another question is considering Veovaca, the tailings storage facility, has suffered a slight delay, how likely will there be an impact on tailings disposal?

[Laura Tyler, executive]

So as I said, it's something obviously that we monitor, like what's the capacity that we have ahead of us based on comparing with production rates and what we're seeing of tailings production. And we're not expecting to see an impact as we transfer from the temporary tailings facility, which we're still depositing material into, into the Veovaca tailings facility. So we are keeping an eye on it. But at this point, we don't see any cause for alarm or expectation that we wouldn't be able to maintain production rates.

[Klara Kaczmarek, executive]

Great. Next question is at the plant, do we expect there to be any bottlenecks at the plant that can impact on forthcoming production?

[Laura Tyler, executive]

Well, so the crusher is part of the plant throughput, which is where we've seen the bottleneck that slowed us down in December as we were kind of pushing for ramp-up out through the mills. As we look forward, we haven't fully stress-tested at like the full production rate. That's what we'll be doing in -- we'll be kind of starting to stress-test the mill. We haven't seen -- or the processing plant. We haven't seen yet any major issues.

We've had a few -- we've done a few repairs at the kind of the tailings -- production of tailings out of the plant. They've all been resolved as we've kind of worked through, making sure we've got the right materials and the filters. So we're kind of -- we've worked most of the things that we think could be a major kind of bottleneck actually within the plant. But the one that we're keeping a tight eye on is the crusher and then how that is working with the new screen that we've put in because that is the area where we did see kind of within the value chain, the bottleneck appear in early -- well, mid-December.

[Michael Horner, executive]

Well, and maybe just to add to that, so if you kind of think about -- we haven't broken out sort of things on crusher, tonnage rates and whatnot. But in December, when the snow started, we started having these issues with kind of fine wet material. We were only getting 500 tonnes per day through the crusher. And that's obviously what led to basically the mill running out of feed. But if you fast-forward to January, we've been doing about 1,500 tonnes per day on average through the new screen and the crusher circuit for 3 weeks now. So that's pretty good, consistent production.

They've hit about 2,000 tonne per day a couple of times in that period. And the plant is now running at -- I mean, just yesterday, it was at 80% capacity. So I think in terms of bottlenecks, it's like we've kind of hit them. And I guess that's kind of the story of Q4, bring in the screen, react to it and that kind of shows the resiliency of sort of bringing a solution. And now the stats have been looking pretty good through January. So I think that sets us up well for Q1.

[Klara Kaczmarek, executive]

And we were asking again, is there any -- can we provide any color on how production is going in January so far?

[Laura Tyler, executive]

So as we said, we had a few -- the kind of the initial issues that we've had around power, they've kind of continued to give us a few bumps in early January. But now we're back on track. So the mining rate -- so development rate is where we need it to be. We're pushing ahead now to put in our first secondary stope that will come into production in February, which will be a test of our CAF placement. And so basically, we're on track back up to the rates that we need.

We did have a difficult kind of first week or so, 10 days in January with some of the power issues, but we've bounced back from that now. And as Mike said, the plant has been going well. We do have a stockpile, 60,000 tonne stockpile, that we started the year with. So we're using some of that material and putting that through. And the mine is ramping up to -- or re-ramping up, should I say, back into full production. So ore material is coming to surface at the required rate.

[Klara Kaczmarek, executive]

Our next question is compared to the previous guidance, which only included mined ore and grade, should we expect the mining and throughput rate to be at the same level? And does this imply a lower grade than the previously mined -- previous mining guidance?

[Laura Tyler, executive]

So I'm going to kind of answer yes and no to that. So yes, we are going to balance the mine production with the mill production. So we ran all the schedules to work through what is the right -- how can we achieve 800,000, we had all of the schedules out in front of us. And then we looked at the line that said stockpile size and we actually don't have enough ground to put the amount of stockpile that we were going to have on the ground.

So what's the right rate that we should be running at? We look at what the mill can actually take and get some balance in there, then that means that we don't have material sitting on stockpiles potentially for up to 2 years before it would be -- could be fed. And we manage our balance sheet better because we actually -- some of the variable costs of mining don't get spent because we don't have to move that material to surface. So it actually gives us a more robust plan going forward. And so we will be balancing mine and mill. The mine is a little bit ahead of mill but within that forecast range that we have provided.

On the grades, you can see that 2025, it looks to produce 12 million to 13 million silver equivalent ounces, which is ahead of 2026 -- which is balance for 2026, but ahead of the life of mine average. So the grades have not actually -- we're not seeing that the grades are reducing. And we are continuing to do the grade control drilling, which is giving us a really good kind of view on the grades, particularly through 2025. And as we build that into our reserve models, then that will then flow through into '26 and beyond. It's a robust orebody and the grades are holding up quite nicely. So we're not expecting to see lower grades and 2025 should be a good year.

[Klara Kaczmarek, executive]

Can you break down the $8 million investment spend in the quarter? And is this expected to fall or be maintained in subsequent quarters in 2025?

[Michael Horner, executive]

Well, yes. So again, there is kind of ongoing sort of CapEx that we've been doing really for the past almost 3 years now, which is incredible. So that kind of continues. And that sort of value, again we've broken out the costs for next year, so about $20 million -- rather this year, sorry, $20 million of project capital and $5 million of sort of sustaining capital.

So if you think about that, it's sort of, yes, less than $8 million a quarter. It's sort of in the $6 million to $7 million-ish range. So I guess, again, that is kind of a similar amount that we'll kind of see as a pretty typical run rate. So a lot of our costs, it really is -- if you look at 2024, we spent about $145 million to $150 million, it's sort of the same sort of run rate in 2025.

[Klara Kaczmarek, executive]

And on recoveries, how are the recoveries to the relevant concentrates going? And what do you see the remaining challenges are there?

[Laura Tyler, executive]

So the recoveries, as we've shown for quarter 4 or the recoveries that are going to the other salable recoveries basically, so what's going to the necessary con, we are still continuing to see some lead reporting to the zinc concentrate and some zinc reporting to the lead concentrate in higher percentages than we would like. We've only really put 73,000 tonnes through the processing plant. This will get resolved through 2025. We're continuing to work on what is causing that. And so we've had some additional met testing completed, seen a little bit of oxidization of material that might be impacting that. So there is ongoing work.

But the grade -- the recoveries that you can see on those production metrics for quarter 4 are all great recoveries. I think all of the precious metals are coming through ahead of where we expected them to be at this stage, ahead of some of the DFS final figures. And then lead and zinc, they're a little bit lower than we would like, but the actual total recoveries are sort of 10% to 15% higher. And so we're just going to manage those recoveries going forward. Mike, I don't know if there was anything you wanted to add on that?

[Michael Horner, executive]

Yes, exactly. I mean, you made the point. So in that table, we're only talking about recoveries to payable concentrates. If you look at lead and zinc, the total recovery to both is actually in the mid-80s for both. So it's not as though we're losing those metals to tailings. They're just not quite yet in the right concentrate, which is good. Like usually, a lot of these start-up operations, the metallurgy is sort of a huge challenge, whereas we're really in the 80% to 90% range for all of our core metals. So I think that's really encouraging.

And again, silver, gold, copper and antimony, they're actually ahead of where we would think. So that's positive. And honestly, all those metals are worth more than lead and zinc. So I'll kind of take it. Like on balance, this is almost -- we're quite happy where we are. And I'll also note that if you look at that table, every quarter, we've had improvement in recoveries. So sequentially quarter-over-quarter, even though the lead and zinc are still a little bit lower than where we want them to be, they are getting better. And in Q4, both the zinc and lead recoveries are higher than the full year 2024. So clearly, we're making progress.

As Laura mentioned, we've only milled 76,000 tonnes. It's basically only 1 month's worth of production. So as we have another couple of good quarters from here, we do think that those will just naturally get better, debottlenecking, learning a bit more about the system. But actually, I think this is definitely a bright spot for the assets so far. And it's always challenging to know exactly how it's going to work and to kind of build a new greenfield plant from scratch. But I think it's a huge credit to the team and also to the orebody that it is actually pretty decent to recover and we're getting good values in concentrates.

[Klara Kaczmarek, executive]

What is the capital allocation of $20 million for 2025?

[Michael Horner, executive]

Yes, so I touched on one. So the paste backfill plant, that again was part of the original design but kind of was pushed back and delayed by various things. And that is now part of our 2025 plan and it really is critical to the operation. So it is part of our long-term sort of assumptions. Doing paste backfill, there's all sorts of benefits, way faster backfilling time. Sort of from a health and safety perspective, really everything is just a lot more efficient. It's going to be lower OpEx. It's going to be a really high ROI project. So $7 million is going to that.

Finishing, paving or tarmacking or sealing, it depends what country come from, the haul road, so that's not fully complete yet, but we do want to do that. So again, from an OpEx perspective, from a dust control perspective, from a health and safety perspective, we're going to put about $4 million to $5 million into finishing the haul road project this year. And then there's just a bunch of other things like some critical spares that we didn't kind of get in the original project CapEx that we -- now that we're in cash flow and we do have the ability to kind of pay for some of these things, those are in there.

And then again, Laura touched on it, but winterization. So obviously, we had issues with the crusher. We brought in a temporary mobile screen. We want to make that part of the fixed plant kind of permanently because obviously, going from 500 tonne per day with wet material to 1,500 tonne per day is pretty great. So we are going to spend some money on that as well. So it's a mix of things, but all of them are basically pretty key and critical to the project. And they're really going to help us kind of get to that full throughput.

[Klara Kaczmarek, executive]

Regarding exploration, how challenging do you think it will be to obtain the permits to the northwest of Rupice?

[Laura Tyler, executive]

So we've got a working group set up to -- which is basically kind of a multidisciplinary team, to look at how we work through getting that concession that we need across on the Kakanj side of the border. It's a different municipality to where we kind of are currently mining. And with the elections that have just gone through, there's a new city council that they were all formed in December. So now as we kind of come out of all of the various religious celebrations through December and January, we are -- they're basically now opening up for work and for consultation. So we're working our way through that.

We've carried out additional -- during the time, we carried out additional surveys within the municipality to understand their concerns, what they're seeing, what they're hearing and so that we make sure that we can kind of -- we're providing the counselors, who make the decision on providing the concession, we can provide them with the right information and provide additional clarity on what we're working on. There has always been a challenge around the different watersheds that we work within.

And as many of you will have seen, there's been bits and pieces that hit the news around our exploitation license. 2021, there was a challenge from the -- from Vodokom Kakanj, which is the water authority that supplies water to the people of Kakanj and that region, challenging whether FMERI, the Federal Ministry for Mining, Environment and Industry, had fully considered all of the potential impacts on water. And that was between -- basically between the federal government and Vodokom. We were kind of like bystanders in that because they were challenging whether the Federal Ministry have made the right decision in giving us the license.

So our license was never annulled, but it did sort of demonstrate how we continue to need to engage around kind of water. And we've taken all of that onboard. We worked with the FMERI, who asked for some additional information from us on the kind of like from the baselining and all the measurements we've been doing, we could clearly demonstrate that the Rupice mine does not have any influence on the water in the Kakanj watershed. And so the license was basically just reaffirmed. It was never an annulled or canceled or any of those various pieces out there.

But it does talk to how we need to continue to engage with the different services suppliers, the communities and the municipality of Kakanj in order to be able to get that concession license. It's quite -- it's a little bit complex. But at the end of the day, we just need to make sure that we are engaging with the right people in the right way and there is a strong process that we go through. So we're just working our way through that, and we fully expect to be able to get that concession in 2025.

[Klara Kaczmarek, executive]

Sort of on that as well, is there any further problems with NGOs or environmental groups in regards to the water issues or just mining in general?

[Laura Tyler, executive]

So less so on mining in general, water is probably where the NGOs are focused on most. And I had a conversation on this with the Federal Minister for Environment this week just to -- she was interested to understand how we are managing our environmental output. And we've just had two large-scale reviews from the environment department, neither of which find any issues with any of our environmental impact.

So we'll continue to engage with the communities with the right information, but I do expect to see continued NGO activity. We continue to work to counter some of the claims that they're making, some of which are probably more extreme than I would have expected. But it's part of the landscape globally. This isn't special to the Balkan region. It is part of the wider landscape. And as we go forward this year renewing environmental licenses, I fully expect for people to give us the valid questions that we will seek to respond to and engage with over the course of the year.

[Klara Kaczmarek, executive]

Great. Can you say anything about the rare or critical minerals found, germanium, antimony, and what work metallurgically may need to be done to process them?

[Michael Horner, executive]

Yes, that's a fun one. Germanium, no, sort of not in a high concentration for us, but antimony, yes, which is a critical sort of raw material in the EU. We don't actually break out sort of individual grades of recoveries on that. But the feed rate has been about 2% -- sorry, 0.2%. Recoveries have been actually, yes, pretty positive, sort of in the 85% to 90% range, mostly into the lead concentrate. And actually, it's not something we've kind of given a disclosure on, but we're now getting paid for it on some of our contracts. So in particular, on the Trafigura, like the new lead and zinc offtake agreements that we signed, we are getting pretty decent payability to spot price on antimony.

And obviously, yes, it's a critical raw material in the EU. I was looking at some stats, the EU imports, 1,000 tonnes of antimony a year, which is obviously very small, but Adriatic, we produce 1,000 tonnes of antimony a year. So I guess, a nice headline is we now produce enough to cover off the entire European Union's imports, which, yes, they all get from outside of the EU. So I think that's positive. But yes, I guess, it's kind of early days for us. So we haven't been looking at maybe increasing that, increasing recoveries or recovering other kind of critical metals. But it is part of what we'll look to once we're in kind of steady state, some of those more nice-to-have sort of things. But yes, good question.

[Klara Kaczmarek, executive]

Again, on the offtakes, what can you say about your TC/RC rates and payables, especially under the new contracts versus previous ones?

[Michael Horner, executive]

Yes, there's a fire alarm. So basically, obviously, people will see in the market that treatment charges have gone basically negative on a spot basis sort of globally for both lead and zinc concentrate. We are on benchmark for those that we've signed offtake agreements for, so that's 100% of the zinc and it was 75% of the lead. With the new Trafigura offtakes, we are basically getting $0 per tonne treatment charges, so not quite as good as spot but a huge improvement compared to where benchmark was.

So zinc benchmark was $165 last year and in the mid-200s the year before that. And then the lead was in the $50 to $70 range and now we're kind of getting $0 for a pretty material bit of our production. So that is a big part of the bottom line and that does help with those costs that we've gone into in terms of offsite costs. So yes, not kind of getting like a 100% spot, but we're 80% of the way there, which is really encouraging. And that's a really great tailwind for the company for this year.

[Klara Kaczmarek, executive]

Any comment on the level of mercury in your sellable concentrates?

[Michael Horner, executive]

Yes, sure. So that's one of our -- sadly, not a critical raw material, or maybe it is somewhere, but they are penalties for us and they are elevated. So that's the kind of main penalty element that we have as a company. Obviously, with these super high-grade polymetallics, you get a lot of the good stuff, but you usually get a lot of the bad stuff as well. Mercury is elevated, and it's a key reason why we are primarily selling, for example, zinc into the European market. So luckily for us, the orebodies in Europe and, luckily for us, the European smelters are really good in dealing with elevated mercury, mostly because of regional geology. So the Balkans and the Iberian Pyrite Belt in Spain and Portugal, they're kind of always quite high in mercury. So it's nothing unusual.

We are continuing to sell our concentrates into the market, and there's kind of no issue there. We just pay like -- I don't know, it's like 4% or 5% of the total value sort of as a penalty. But it's something that's totally manageable. And actually, I guess, a nice positive thing is that in the initial lead concentrate, the mercury has been coming in a little bit lower than we would have expected. So that's a boost to us. But it's too early to say whether that's a long-term trend or what we can do. But I guess, the summary is, yes, we have high mercury. It's above sort of penalty limits. But it's not impacting our ability to place the concentrate or generate revenue.

[Klara Kaczmarek, executive]

And just to reiterate, regarding production, are the reported numbers on guidance for 2025 and beyond in terms of payable metals?

[Michael Horner, executive]

Yes. So yes, sorry, so the contained metals, so each of those kind of four rows, silver, gold, zinc and lead, those are into payable concentrates. So that's on a recovery basis in a concentrate that you will get paid for. So if you've got 25,000 to 30,000 tonnes of zinc, that's only in the zinc concentrate and that's post recovery.

[Klara Kaczmarek, executive]

Great. Can you provide an update on Serbia, please?

[Laura Tyler, executive]

So Serbia is an area that, obviously, we've had exploration interest in. We're currently just completing a review on the deposits in Serbia and how we should be thinking about those. So at this point, I'm not going to provide any external comment until we've gone and taken it through the growth committee at our Board and then we'll work through how we provide that information to the market. But Serbia has some interesting geology and has some interesting options over there. So we're continuing to look at what those options are and how it feeds into the future of Adriatic.

[Klara Kaczmarek, executive]

And then finally, on liquidity, do you believe that you will have enough cash to get through 2025? Or will you need to look at other options in terms of capital raises?

[Michael Horner, executive]

Yes. So I actually feel pretty decent, and to circle back to some of the slides, $46 million of cash today now that we've closed the Trafigura prepayment. And we have been basically cash flow neutral for 4 months now. So I think that's kind of a good sort of track record, even though the plant has only been again running at kind of like 25% capacity and we had our sort of challenges in October and December due to weather, which obviously came in with a bit of a lighter quarter.

So if you think about that and you say, okay, but now we're doing 75% to 80% capacity in the plant, the crusher is back up to running 1,500-plus tonnes per day, that's about a 40,000 tonne a month sort of run rate, so kind of 2/3 to 70% of production. On that basis, we should be well ahead of just cash flow neutral or breakeven, we should be positive free cash flow. So if you think of $46 million today, we've got to pay back about $18 million to $20 million a quarter for the next 4 quarters, but really it will be cash flow positive.

So from here, everything we're paying for should be out of cash flow and we don't see the need for additional liquidity. So I think that Trafigura deal, that's kind of a big help to us. It's on really good terms. It's a lot cheaper than the Orion debt that was kind of on offer to us. So we obviously didn't draw that down and we don't see the need to. So we actually feel pretty good, almost $50 million of cash, it's not too bad.

[Klara Kaczmarek, executive]

Great. Thank you. And I'll hand back to Jake. Thank you very much.

[Laura Tyler, executive]

Thanks, Klara. Just before we go, we might just cover up on Matthew's question just on the grade piece. It's just quite a good story when we talk about the geology of the orebody. So Matthew's question was really looking at how do we -- kind of like a bit more explanation on the additional grades that we're seeing earlier on in the orebody.

So just to touch on that, the -- we've got some good grade sitting on our stockpile that have come through. We've started looking on a routine basis between F1, F2 and F3 breakdowns. F3, we can't do it and we don't have enough data yet through the mill to be able to put that into a clear -- to truly understand. But F1, which looks at basically recovery -- or basically looks at model to grade control model, we're seeing a really good correlation. So we're seeing that the grades are holding up when we go from -- when we do the additional drilling.

What we are also seeing when we look at the F2 figures, we're seeing that there is -- it looks like a little bit of an uplift. We don't know if this is consistent or this is just kind of like turning up in this particular part of the orebody. So we need to do more data collection on that. But what we're seeing is some good grades that are coming out, in some cases, are slightly higher than we had expected or we had scheduled from the resource and reserve models. Where we've seen that shift in geology from faulted to a fold, we've seen a thickening and an increasing in grade in that kind of the fold area.

So that's where we are -- believe that's where we're getting a little of the extra grades coming through and that's feeding through into kind of the upfront or first few years for sort of 12 months' worth of material going through the plant. So just that's why we are looking at higher production in 2025 because we're seeing those grades flowing through. But until we've run and can run enough data through the full model to F3 and then that will allow us to basically reconcile the whole model again. That's going to take a year or 18 months to work through that. Klara, close off. Hopefully, that's enough for Matthew.

[Klara Kaczmarek, executive]

Thank you, Laura. Jake, we'll hand back over to you. Thank you.

[Jake Downes]

Perfect. Klara, Laura, Michael, thank you very indeed for being so generous of your time then, addressing all of those questions that came in from investors. 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 to wrap up with, that would be great.

[Laura Tyler, executive]

Yes, I want to thank everybody for their time and some great questions. As we noted earlier, in Q4, we've had a -- Q4 threw a few challenges at us, but the team continued to demonstrate resilience and the right attitude to solve and to improve and to build on where we are. We've got a great base from '24 to deliver into '25. Our guidance has been developed from first principles with an eye to the commitments we made in DFS and managing our balance sheet. So there's been a lot of work that's gone into that in the background.

As I kind of just emphasized in the last answer there that I gave, the basis of every mine, a very great mine, is its orebody. The Rupice orebody is world-class. And as we continue to collect the data, it remains a robust model that underpins everything that we're doing. I'm really proud of the team and where we are today. And I want to thank you all for coming along and listening to us as we talk to you through Q4 and our future plans for 2025 and beyond. Thank you, and have a great day.

[Jake Downes]

Laura, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will 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 will 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 all.