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Discovery Metals

Discovery Metals buoyed by pre-feasibility study for the Boseto Copper Project

For Discovery Metals, it’s a case of “so far, so good” in Botswana. Since turning the company’s focus to the Boseto Copper Project (formerly called ‘Maun’), shares in the company have performed ahead of the junior mining sector. Today, shares in Discovery Metals climbed higher following the release of the results from a pre-feasibility study (PFS) on the project.

The study was based on the assumption of building an open-cut mine, which would process 2 million tonnes of ore per annum from 2011, producing 23,500 tonnes of copper and 780,000 ounces of silver, annually, for 10 years. Project development is estimated to be $185 million, including all infrastructure and a 20% contingency fund. The plant would source ore from pits at Zeta, Plutus and Petra, where Discovery already has already outlined an inferred and indicated resource of 49 million tonnes grading 1.2% copper , including an inferred resource of 8.9 million tonnes grading 1.4% copper  at Zeta. Assuming a long-term copper price of US$2.38/pound for copper suggests an internal rate of return (IRR) of 23%, with a post-tax net present value (NPV) of US$115 million and pay back of 3.5 years; move the copper price up to US$3.50 and those numbers change to an IRR of 35%, an NPV of $220 million and payback of 2.25 years.

"The results of the PFS show that mining and processing will be relatively simple, infrastructure is obtainable at reasonable cost and the project economics look encouraging based on conservative assumptions for costs and selling prices” summarised Discovery Metals' Chairman, Gordon Galt.

Discovery Metals has made impressive progress in Botswana in the last four years. Since first acquiring a large land package of some 6,400 square kilometres on the Botswana portion of the Kalahari Copper Belt, the company has moved its initial targets through to pre-feasibility stage, and has expanded its footprint to a whopping 12,100 square kilometres. To date, Discovery Metals has only explored 3% of this position, yet already the project will be the largest copper mine in the country, assuming it moves into production.

The PFS study did note a few bottlenecks that will have to be addressed if Discovery Metals wishes to expand beyond the 2 million tonnes per annum (mtpa) benchmark. Not surprisingly, the main issue is likely to be access to sufficient quantities of water, which the study confirmed as a “critical pre-condition”.

The proposed plant site is located centrally to the three existing mineral resources (Zeta, Plutus and Petra) and approximately 15 kilometres from the Quirinus prospect. The current mine plan will involve blasting rock and hauling it to a central concentrator, using a conventional floatation circuit to produce a high-grade copper-silver concentrate (40% copper or better). The concentrate would then be supplied to third party smelters, via road and rail, to produce metal. This would require connection to the grid, including building an 80 kilometre transmission line - but not until the end of 2011, which means Discovery would have to “self generate” power for the first year, and this would involve leasing diesel generators. Water is expected to be sourced from aquifers some 200 metres deep, to be supplemented later by capturing rainfall in the pits. The current feasibility study, however, only considers water requirements for a 2mpta plant, so investors will, no doubt, be keen to see the results of further studies. Though Botswana, Namibia and South Africa have some of the best working environments for mining companies, power and water are regularly an issue, so this is not a subject unique to Discovery Metals, but more an issue of ensuring maximum efficiency of the plant and operations in general.

Discovery also reminded investors that the current mine plan is solely based on open pittable material, though drilling at Zeta has confirmed mineralised ore to at least 350 metres below surface, which suggests the mine could go underground at a later stage if economics permit.

So while the PFS does give plenty for investors to chew over during the summer, a lot of Discovery Metals’ real potential still lies with the drill bit; even with 49 million tonnes of inferred and indicated resource, there is still scope to increase that total. The drilling at Zeta is the most advanced, and is likely to be the subject of initial mining, as the grade is slightly above average. Yet other deposits, including Plutus, Petra and Quirinus, offer plenty of additional upside on the mine life or annual rate of production. Even the current PFS doesn’t include all the drill data collected, thanks to a global backlog at assay labs.

It comes as no surprise that Discovery has already given the green light to commence a full bankable feasibility study on Boseto. The BFS is expected to be completed by the third quarter of 2009, and along the way investors can expect plenty of additional updates on the key components of the studies, combined with resource and infill drilling.