Good day, and welcome to the proposed acquisition of Adriatic Metals Webcast and Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question, instructions will be given at that time. As a reminder, this call may be recorded. I will now turn the call over to Jennifer Cameron, Director of Investor Relations. Please go ahead.
Thank you, and thank you all for joining us. With us today, we have David Rae, President and CEO, along with members of Dundee Precious Metals' executive team, including John DeCooman, Executive Vice President, Corporate Development, and Navin Dyal, Chief Financial Officer. We are also pleased to have Laura Tyler, CEO and Managing Director, and Michael Horn, Chief Financial Officer of Adriatic, joining the call. Before we begin, I'd like to bring to your attention the fact that this call and the accompanying presentation slides include forward-looking statements and make reference to non-GAAP measures. Please review the cautionary statement on slide three, as well as the non-GAAP information contained in the news release dated June 13, 2025. I now turn the call over to Dave.
Good morning, everyone, and thank you for joining us. We're excited to discuss our agreement to acquire Adriatic Metals, the owner of the high-grade Vares Silver Operation in Bosnia and Herzegovina, for a total consideration of $1.3 billion, creating a high-quality precious metals producer with peer-leading growth. We've been very selective in our approach to M&A in recent years and have looked at a number of opportunities. In this case, we are capitalizing on a unique opportunity to add a high-quality and long-life producing asset to our portfolio. This transaction delivers immediate production growth and shifts our valuation to a cash flow dominant NAV. It increases DPM's mineral reserve life as Vares has an initial 15-year operating life and significant upside. It builds on decades of regional experience and relationships with the communities where we have operated for over two decades.
It maintains a strong balance sheet for organic growth and a continuation of our commitment to delivering returns to our investors. The combination of Vares with our operating expertise, financial strength, and growth pipeline of high-margin assets creates a premier mining business offering peer-leading growth. Overall, this is a strong natural fit for DPM, one that offers a clear and compelling value proposition for both DPM and Adriatic shareholders. This morning, we will walk you through the strategic rationale for this transaction, highlighting the terms of the agreement and outline some of the key attributes of this highly attractive asset before taking your questions about what we see as an exciting acquisition for DPM. The terms of the transaction are outlined in detail on slide five of the webcast.
To summarize, Adriatic shareholders will be entitled to receive 0.159 of a common share of DPM and GBP 0.93 in cash for each share. Adriatic shareholders can elect to receive their consideration in all shares, all cash, or a combination of both, subject to proration. This values each Adriatic share at AUD 5.56 or GBP 2.38, based on the closing price of DPM's common shares on June the 11th. The total equity value of the acquisition at the offer price is approximately $1.3 billion. Adriatic shareholders will own approximately 25% of the pro forma shares outstanding upon completion of the transaction. As an endorsement to the transaction, it is important to note that we will have received irrevocable undertakings from the Adriatic directors, as well as Helicon and L1 Capital, which totals approximately 37.2% of Adriatic's total issued share capital.
Looking at our operating portfolio, it's clear that Vares is a logical fit. We operate two high-grade, low-cost, and very efficient mines in Bulgaria, and we're rapidly advancing Coka Rakita towards first production targeted for mid-year 2028. Coka Rakita not only offers an additional 170,000 ounces of gold production growth within our portfolio, but we also have made several discoveries within one kilometer of its planned infrastructure, highlighting its significant potential. Vares is an underground mine with an offsite processing facility and highly prospective 4,400-hectare land package located approximately 50 kilometers north of Sarajevo, the capital of Bosnia and Herzegovina. Since achieving first production in 2024, first concentrate production in 2024, Vares has been rapidly ramping up to full capacity, producing a saleable silver-zinc concentrate and a lead-silver-gold concentrate, which is well within our strengths and capabilities. Overall, it is a logical fit with our portfolio.
It is an underground precious metals mine located in our region with a scale and final products that are in line with our expertise and a 10-year track record of operational delivery and maximizing returns on assets of this nature. As part of our evaluation of Vares, we commissioned an independent 43-101 technical report, which reflects our more measured, better capitalized approach to mining and operating Vares for more optionality and long-term value. This leverages DPM's financial strength to reposition Vares and our combined shareholders for long-term success and sustainable growth. Our approach includes an initial grade control and geotechnical drilling program to better define the geological and geotechnical understanding of the ore body. This facilitates accelerated access to higher-grade ore tonnage with reduced dilution. We therefore forecast achieving sustainable production of 850,000 tons per year by the end of 2026.
The results from our technical report are outlined on slide eight, which highlight Vares's significant 15-year operating life and scale with lower unit costs, with average annual production of 160,000 ounces of gold equivalent at an all-in sustaining cost of $893 per ounce. While we see some heavy lifting near term to get Vares ramped for predictable performance at nameplate capacity, we have also identified several near and long-term opportunities to further optimize Vares. This includes initiating ore sorting, following ramp-up to full capacity, targeting a reduction in mine waste transported to the processing facilities, which will increase grade, reduce transportation costs, and optimize tailings storage capacity. There is also significant near-mine exploration potential at the Rupice Northwest Deposit, which remains open.
The ability to extend mineralization in the area of already known mineralization with wider, higher-grade zones is a priority in our stakeholder engagements and exploration plans. More broadly, the Rupice deposit sits within the prospective Dinaric deformation belt, hosting several Vares and mass sulfide occurrences over a 22 km corridor within close proximity to Vares infrastructure and operating facilities. Following closing, we expect to complete additional studies to fully evaluate potential growth and optimization opportunities for Vares. Overall, we're well positioned to leverage our expertise in underground mining and our strong financial position to further optimize the operations and realize Vares's full potential sooner and with less risk. I'd now like to turn the call over to Laura Tyler to describe the benefits for the Adriatic shareholders. Please, Laura, go ahead.
Thank you, Dave. Sorry, I forgot the mute button. Thank you, Dave. This transaction accelerates our growth plans at Adriatic and is a compelling combination with DPM that provides our shareholders with a multi-asset and jurisdictional growth opportunity. The Vares Operation remains on track to become a low-cost precious metals producer and is underpinned by a high-grade ore body, long mine life, and significant exploration potential. What makes Vares so exciting is that it is at the beginning of its journey. This transaction means Vares will be part of a dynamic mining company with scale and diversification in our region and with the capabilities to pursue further value-additive growth opportunities.
We believe the clear synergies between the respective asset portfolios, combined with the financial firepower and the operational track record of DPM, will realize significant additional value for all shareholders, both immediately and, more importantly, for the long term. We firmly believe that being a part of a larger mining group will deliver significant advantages to our shareholders compared to being a standalone company. Importantly, through the development of a diversified portfolio of operating and development assets in this region, the employees of Adriatic and local communities, as well as regional and national stakeholders, will benefit from the increased scale of this peer-leading precious metals producer. During the due diligence process, I was really fortunate to be able to visit DPM's Chelopech operation, and I was really impressed by the quality of the site, the technologies being applied, and the people I met.
I was also really pleased to see a similar energy and commitment to responsible mining practices that we see at Adriatic today. This is a clear opportunity; I see it as to be a real clear opportunity to be a part of something really special. It's a compelling and attractive transaction and one that we will recommend to all of our stakeholders. I'll now turn the call back to David. Thanks, David.
Thank you, Laura. We were equally impressed when we visited Vares, particularly with the excellent community programs and stakeholder relationships the Adriatic team has built. This provides a strong foundation for DPM to further build and carry forward. This transaction presents a compelling opportunity for investors, and we're excited to carry on the work of Laura and her team to build another leg of value in this business. This transaction generates near-term production and margin growth and increased scale and liquidity for DPM, which we believe creates significant potential for a re-rate. On slide 12, you can clearly see the growth Vares adds to our near-term growth profile, driving our production to approximately 425,000 gold equivalent ounces in 2027.
When you add in Coka Rakita, our low-cost, high-margin gold project in Serbia, which is expected to start production in 2028, this presents a peer-leading growth profile underpinned by high-grade, low-cost assets. To close, adding Adriatic's Vares operation to our strong asset portfolio creates a premier mining business. Our shareholders will benefit from a pro forma company offering a peer-leading growth profile from a high-margin asset and long-life portfolio, cash flow diversification, a strong balance sheet to fund growth, and prospective land positions explored by a proven team. For DPM and our shareholders, this represents a key next step in our growth strategy and consolidates our position as an intermediate precious metals producer. In closing, I'd like to acknowledge Laura and her entire Adriatic team for advancing Vares to this point.
We believe DPM has the people, the expertise, and the financial resources to build on their efforts and work with the successful team in country to realize Vares's full value potential. I'd now like to open the call to questions.
Thank you. If you'd like to ask a question, please press star 11. If your question hasn't been answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Wayne Lamb with TD Securities. Your line is open.
Hey, thanks. Morning, guys. Congratulations on the transaction. Maybe just wondering, when looking at the ramp-up at Vares to date, there's been a few challenges. Can you walk through where you see the greatest need for investment and where that $76 million in upfront CapEx will be deployed?
Laura, did you want to talk to what we've seen so far with Vares, and then I'll build on that?
Sure. Thanks for your question, Wayne. I recognize you're looking for a little bit of how we're going to solve some of the issues that we've seen. If you've followed the history at Adriatic, you'll know that we had some issues quite early on on some of the development levels, which meant that when we had the plant ready to go, we didn't have the size of stockpile ahead of the plant that we had intended. Really, what that meant was that we were dealing with material that was variable in grade and quality. It was a lot of development, also. Some of it was very fine. We had some issues initially in having enough material to fully kind of bring the plant online. We've resolved that, obviously.
The mine is now into full stoping, and we have the right material arriving at the plant, and we were able to bring it through into commissioning and have continued to ramp up over the last, obviously, the last six to eight months. That was an initial issue that kind of slowed us down a little bit. If we look at a couple of the other issues that we've had, we did have some pretty severe snowfalls and wet weather through the winter this year, a bit more than we've had in previous years, according to the locals. That caused us some issues with the crusher, which slowed down some of the material because the crusher is based up at the mine, and we have about a 26 km haul to bring the material into the process plant area.
We had some issues with the crusher, very wet, sticky material. There is quite a lot of clay in the mineralogy, and that actually was basically kind of sticking on its way through the crushing place. There were quite one-off, almost mechanical issues that we saw, and a lot of those have been resolved, whether it be through additional screening, whether it is through actually getting the stopping up and running, and those sorts of issues. Most recently, you'll have seen we've had a few months where we've been a little bit behind where we wanted to be, and that has been driven through access to our new tailings facility. We had to move that due to some changes in permitting, and we put in a new facility, but we had to build an additional road.
That road took us a bit longer to get the access to than we had originally planned, and it slowed down tailings removal from the plant. We had to manage the plant throughput based on that. There, again, we have now got the road in place, and we are ramping up. We are running kind of like 80,000-90,000 tons a day at the moment, and that is close, not far off of where we need to run to get towards those maximum rates that we need. We are solving a lot of those, but I am sure Dave and his team did a great due diligence, including the report that they put together.
I'm sure they have some good ideas and can really point quite clearly to where the $76 million, I can tell you where I'd like to spend it on, a bit of extra water treatment and these sorts of things, but I'm sure Dave has that fully identified.
Thanks, Laura. If I can just carry on with that, Wayne. Basically, what you see is a situation where you capitalize, and then you need to perform with what money you've invested and what resources you've developed. We've come in and looked at it and said, "What would we do, given the fact that we have the opportunity to look at how to maximize the asset as opposed to what do we need to do to sort of keep running through to maximize the daily production when you realize there may be other things that you might do if you had a little more capital to deploy?" This is the nature of what happens with these assets when good people do what they can with an asset that's being developed and when you come in with the opportunity to deploy additional capital and resources.
The biggest change is going to be if you look at the technical report, we're going to come in and we're going to use some of the early time to look at geotech, and this will, so basically, we'll be able to assess the conditions. At the same time, we'll be driving the ramp. Instead of mining top-down, we're going to get to the bottom of the asset and give ourselves three mining fronts. Now, that's one of the reasons why the tonnage will drop a little bit, and then what you're going to see is it's going to come back up, but in coming back up, there'll be reduced dilution, higher grades, better utilization of the tailings facilities and the metallurgical plants and so on. At the same time, it reduces the risk profile.
This is why by investments of a little more capital and a refocus, you end up with a situation where there is greater value. That is what we can bring as a company with multiple assets, with the capacity financially and also with our operational resources to really maximize this asset.
Okay, perfect. Thank you. Maybe just one on the exploration front. There seems to be quite a bit of near-mine exploration potential sitting just off the currently permitted license. How did you consider that within the valuation, and what would be the plan to maybe advance that into inclusion in the future?
I'll start, and Laura, feel free to jump in if there's something that I miss in this. We do see lots of opportunity for exploration both in and around the existing asset and also regionally. If you look around the existing asset, absolutely, it looks strange that the resource gets cut off at a specific point. There's not an immediate need to do something to bring that in, and it really involves working with that community in order to get the stakeholder engagement to the point where we can constructively go ahead and get access to that area. We don't see that as an issue. We just see that as normal course in terms of how we go about building a future with Vares. I don't know if you wanted to add anything to that, Laura.
No, and I think you're referencing some of the really exciting-looking kind of opportunities. When you look at that ore body, it cannot just stop at a municipality boundary. What we're seeing is that the ore body looks like it's actually thickening in that area. It looks pretty interesting. As Dave said, we're working with the community, and DPM will kind of take over that work and continue it to make sure we get the exploration concessions that we need to be able to put some holes in the ground and also to be able to mine underground and put in some exploration drifts as well.
Okay, great. Thanks. Maybe just last one. I guess given the focus on the grade control and the geotech, as you guys were kind of doing your due diligence, can you kind of speak to the confidence in the current resource? Yes, do you view challenges with ground conditions in terms of how the operations are currently being mined that's driving that work that you're doing on the geotech front?
Yeah, Wayne, there's a few things that are linked here. Laura talked initially about some of the issues around weather and how that impacted things. Part of that is down to fragmentation. It's more than just the weather. What's happened is that the learning curve with the operations to date has informed what we did. We started from the ground up, from the resource, developed our own resource and reserve statements and insight, did a lot of work looking at geotech directly from core to come to the assessment that we're in. In answer to your question, we're very confident in the reserves and resources. We're also very confident in terms of what needs to be done.
We believe that there's opportunities to improve fragmentation and balance ground support costs and also optimize some of the supply chain where at the moment there's a need to bring in aggregate from outside. We believe there's opportunities to reduce costs, improve ground support overall. Like I said, we're very confident in that based on the work we did on the reserves and resources.
I'll just add, so the resources sit as an indicated resource, and then we do the additional, we've been doing the additional grade control drilling. The ore body, as we've done that additional, more detailed grade control drilling, has really stood up really well. It's really robust. We're not seeing huge swings and variations both in grade or in kind of extent of the ore body. It's not kind of like disappearing on us when we put some extra holes in. It's really quite a robust ore body outline that we're working to. We've actually started to see some areas where we think the ground is folded, and it actually almost has a bit of an almost like a nugget effect within those folds, and we're seeing slightly higher grades in those. I think there's some really exciting opportunities.
As David says, when you do that, can get ahead of the production and get some of that additional geological and geotechnical drilling in place, I think it'll plow the road for some really exciting mine design opportunities going forward.
Okay, perfect. Thanks for taking my questions, and congratulations on the transaction.
Thanks, Wayne.
Thank you. Our next question comes from Eric Winmill with Scotiabank. Your line is open.
Hi, good morning, good afternoon, everyone. Thanks for taking my question, and congrats on the deal. Just a follow-up question maybe on the exploration side, if you don't mind. You mentioned getting the exploration concessions that you need. Any additional detail there in terms of timing, in terms of what you need to fully embark on the area exploration?
It's not imminent in terms of its need. It's at the back end of the life of mine, potentially, so it's not really driving anything in terms of value. The way I would look at it, this is a normal course of building relationships and permits and then doing the drilling and bringing that in and this type of thing. It is an attractive opportunity, but at the end of the day, it's not very material to what we're doing in the near term. That's sort of what I would say. I don't know if, Laura, you wanted to add anything to that.
No, that's perfect. I mean, we've started applying for the exploration just because it takes time to do those things. There's also some, it's quite an extensive exploration kind of package that's there. As kind of Dave referenced, it's quite prospective. We've also been doing some drilling over in Vares East, which is on the other side of the exploration concessions that we hold, and seeing some nice results there as well. I think we focus on the very near mine stuff, but there's also those opportunities that are close by but not necessarily going to be mined from the mine at the Rupice.
I mean, of course, Eric, we've also got a team that's been hugely successful in Serbia and really motivated to try and bring some of that expertise elsewhere. We are looking forward to working with the team in Bosnia and Herzegovina at the Vares asset to really look at how we can make the most of these assets.
Yeah, fantastic. Yeah, I really appreciate the color. Maybe just one more from me, if you don't mind. Bosnia as a jurisdiction or for mining specifically, any comments there you can talk about or maybe synergies with some of the operations? I know they're not exactly next door, but still sort of in the region. Thank you.
We do see a lot of value from having what are going to be three assets essentially within, sorry, five hours' drive from each other, if you take Serbia and Cukaru Peki as the center of those assets. That's really powerful. When you talk about Bosnia, we would see the Balkans as somewhere where we have a great deal of experience. While we recognize there are differences in each country, which are important in terms of recognizing the culture, I believe we've found a level of success with all of the places so far that we've been working in. Once again, this is not something that's starting from scratch. There's already a relationship, a lot of expertise that we can build on. We don't see that as a hindrance at all. We see that as an opportunity to continue to apply what we've done historically.
Just a few details. Clear and concise mining code. Vares has advanced from discovery to first concentrate within seven years. It is very similar in terms of the way things are for the rest of the Balkans in terms of tax rates and other items. We are really happy to have the opportunity to pull together these three assets. When we start to get to 2028 and 2029, you will really see the power of these things in terms of the production, the continuity, and the margins that they create.
All right, fantastic. Thank you very much for that. I really appreciate it. I'm sure it's been a long night, a long day. Thanks for hosting the call. I'll jump back to you. Cheers.
Thanks, Eric.
Thank you. As a reminder, to ask a question, please press star 11. Our next question comes from Richard Hatch with Berenberg. Your line is open.
Thanks very much, and thank you very much for the call. I just wonder whether you may be able just to give us your thoughts on receiving competition commission approval from the Bosnian authorities.
Yeah, thanks for asking. So it's obviously one of the conditions. And what we'll be doing is we'll be making application. I believe that that's typically a 30-day process, and there's opportunities to ask questions and get clarification. So we've taken that into account in our long date. Clearly, we don't have any other assets in-country, so we would hope that would be an expeditious approval. But we have thought about that in terms of the long date for completion of the transaction.
Okay, and confident that you'll get the approvals in the timeframe that you've laid out.
Yes.
I might.
Thank you very much.
Happy to add just a wee bit in there. One of the conditions they're looking at is whether we're in a monopoly. Because we are over 40% of kind of lead and zinc concentrate, then it has to go through the process. We don't see any, we don't expect any issues with that. It's not like we're selling it within the country, and we're bringing it all together into one place. We just see this, it's the 40% figure that we've just triggered. It should be a fairly, we think it'll be a fairly routine process.
Great. Thanks, Laura. Thanks very much, Dave.
Thanks, Richard.
Thank you. This does conclude the question-and-answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day.