Adriatic Metals Could Join Silver In Bearish Ride (ADMLF)

Consider Taking A Profit from Adriatic Metals PLC as Silver Goes into Down Mode

Silver appears to be taking a break from a roughly four-and-a-half-month rally in which the price of the precious metal peaked at $24.44 on January 16, 2023 (a nine-month high) up more than 35% from the end of August 2022.

Since Jan. 16, 2023, silver has declined somewhat, with the price per ounce down 3.75%, trading at $23,630 at the time of writing.

With the current downtrend in the silver price potentially hurting US-listed silver miners, investors should consider selling some stocks and taking some profit on their investment as market valuations appear to have peaked, as illustrated in the below chart.

The chart compares the performance of Silver Futures – March 2023 (SIH2023) with the performance of the iShares Silver Trust ETF (SLV) over the last 12 months. The first security is a benchmark for the price of silver, while the second security is the benchmark for US-listed silver miners and explorers.

Investors may want to initiate the selling strategy from Adriatic Metals PLC (OTCPK:ADMLF) (OTCPK:ADTLF), as this stock could move significantly lower with silver in a bear mode. This European silver operator appears to be very sensitive to changes in the silver price, as shown in the chart below.

This means that as fast as shares of Adriatic Metals PLC rose when silver was trading higher, they could slide down as fast now that silver appears to be on a seemingly bearish run.

Adriatic Metals PLC in the Metals & Mining Industry

Adriatic Metals PLC, headquartered in Cheltenham, Gloucestershire, England, is advancing a mining project for future silver recovery.

This project is located in Bosnia & Herzegovina and has been named the Vares Silver Project. But this project, which the company describes as a world-class metals project, is not the only production target the company has planned.

Adriatic Metals PLC’s portfolio also includes the Raska Project for future silver and zinc production in Serbia.

The Vares Silver Project in Bosnia & Herzegovina

The Vares Silver Project is fully funded, and the company expects production of the first silver to commence no later than the third quarter of this year.

In 2021, Adriatic Metals PLC managed to complete the final version of a feasibility study of the Bosnian project. It contains highly specialized mineralogical and metallurgical information and the precise geolocation of future production. But one, more than any other part of the document, immediately catches a retail investor’s attention.

This section provides some data on the economics of the Vares Silver Project and an estimate of the return that this investment should generate once silver production has commenced.

Economic data points to a solid investment with an internal rate of return [IRR] of 134%, which would then indicate a highly profitable silver production facility in Bosnia, as a precious metals production project from a mine is usually considered robust with an IRR of about 25 -35%.

It is one thing to declare a project viable by estimating its future profitability, it is quite another to implement it and test the initial good intentions in a context that currently presents several challenges. The context is currently being plagued by external factors such as runaway inflation and rising borrowing costs, which the IRR has likely not accounted for since it was determined in August 2021.

Not to mention geopolitical and environmental factors. The first weighs on the company’s momentum, as its portfolio composition includes countries that occasionally face political tensions. As for the second factor, Vares and its surroundings are set in some of the most enchanting landscapes in the Balkans, including the beauty of the Drina River. So the country doesn’t have the friendliest mining legislation for environmental reasons.

Sprott ESG Mining Risk Heat Map 2022 shows that the Balkan region of Bosnia & Herzegovina and Serbia poses a high risk for metal mining and exploration activities.

In addition, the Vares Silver Project has a net present value of future cash flows of approximately $1.06 billion, while capital for site maintenance and improvement is estimated at $173 million. They are estimates and should therefore be viewed with due caution as they do not reflect all of the challenges that have unfolded in financial markets from mid-2021 to date.

The project consists of two high-quality silver deposits that can be exploited using underground and open-pit mining techniques, but the final feasibility study envisages developing and mining the underground deposit only for a minimum of 10 years.

In parallel with the ongoing construction activities, the company continues to explore an approximately 41 km² concession. Probable Mineral Reserves at the Vares Silver Project are as follows: 7.3 million tons of mineral grading 202 grams of silver per ton of mineral [g/t] plus 5.7% zinc, 3.6% lead, 1.9 grams of gold per ton of mineral, 0.6% copper, and 0.23% tin.

The Raska Project for Future Silver and Zinc Production in Serbia

The Raska Project consists of two open pit mines that have historically produced zinc, lead, and silver within exploration licenses in the Raska district totaling 3.28 km².

The company says the mines could reap numerous infrastructural benefits when they come back online, including water, electricity, nearby road and rail links, and the availability of local people who have worked at the mines for many years.

The company notes that there has been no significant exploration activity since mining activities had to stop due to the war in former Yugoslavia more than two decades ago. This gives an indication of the amount of capital that will be required to get the mines back online, which will be quite an effort.

However, there is potential to expand mineralization in various parts of the orebody, according to the company.

The Stock Valuation

Shares of Adriatic Metals PLC traded at $2.28 apiece for a market cap of $640.49 million as of this writing.

Shares are trading 35.5% above the long-term trend of the 200-day simple moving average of $1.67 and are very close to the top of the 52-week range of $1.12 to $2.36.

Adriatic Metals PLC also trades under the symbol and as of this writing has a share price of $2.22 and a market capitalization of $620.38 million. The stock has a 52-week range of $1.14 to $2.26 and a long-term trend of a 75-day simple moving average of $1.69 with very low daily stock exchange volumes.

Shares have rallied sharply in recent months on silver gains. As the chart above shows in conjunction with some technical metrics, the shares are trading very high and are likely overvalued given the quality of the portfolio. It might be time to capitalize on it.

Given the near-term outlook for silver prices, investors face significant downside risk by holding the shares.

The Near-Term Prospects for Silver Prices

According to the Investing.com chart below, as early as January 2, 2023, traders began to feel a drop in silver prices. On that day, the technical indicator of the second candlestick pattern (the white P in the blue circle) showed that it was not possible for the market to maintain its position in silver futures – March 2023 (SIH2023) – and it was therefore preparing for a downward trend move.

This bearish reversal indicator has a high level of reliability, explains Investing.com.

From the perspective of available information and fundamental analysis, this downward trend in the prices of silver can be explained by three factors.

First: the stabilization of the US dollar after a downtrend from mid-August 2022 and early November 2022 when it reached parity with the Euro. The US currency and precious metals are competing to convince investors to seek protection from inflation.

Second: the possibility of a final year-end US Federal Reserve interest rate well above 5% raises the opportunity cost of holding interest-free silver bullion instead of fixed-income securities. As the Fed warned that getting inflation back towards the 2% target would take hard work, investors came back to earth and brushed aside the idea of a paltry rate hike. The annual rate of US inflation had fallen sharply to 6.5% in December 2022, compared to a record high of 9.1% in June 2022, but it is still far from the target rate.

Third: Higher borrowing costs due to tight monetary policy are delaying industrial projects that require the use of silver as a fabrication input in the manufacture of the end product, negatively impacting demand for the precious metal. Trading Economics says that this trend seems to be catching on in the photovoltaic industry, as this technology requires significant amounts of silver to compensate for the high need for electrical conductivity.

On the other hand, the factors that could trigger new positive cycles in silver prices are likely to be the recessionary headwinds, which will enhance silver’s safe-haven characteristics, and any monetary easing by the Federal Reserve, which will materialize sooner or later.

Conclusion

Following the expected downward trend in silver prices, Adriatic Metals PLC shares should also move to lower levels, so investors should try to anticipate the drop and get some profit from their investment.

If silver resumes its uptrend, shares of Adriatic Metals PLC should also rise, using a very pronounced sensitivity to silver price movements. There will be no shortage of macroeconomics to fuel a fresh uptrend, but as of today, this stock is on a sell list.

Investors should consider selling Adriatic Metals PLC and take advantage of this impressive market valuation, which the shares have achieved thanks to their high sensitivity to positive commodity price changes in the market.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.