Discovery Metals (ASX: DML) combines a portfolio of mineral assets in Africa and joint ventures in Australia. Discovery Metals is focused on developing the Boseto Copper Project in north west Botswana and to create shareholder wealth through discovery and development of economic mineral deposits.
The Company’s major asset and current focus is its Boseto Copper Project in north west Botswana. The company also controls the Dikoloti Nickel Project in north east Botswana. There are two smaller Australian projects which are joint ventured with the JV partners potentially earning into 51 percent equity.
Westhouse places 63 cent target on Discovery Metals, sees plenty of upside at Boseto Copper Project
Broker Westhouse initiated coverage of Discovery Metals (AIM: DME, ASX: DML), giving the Botswana operating nickel and copper miner a “buy” rating and setting a target price of 35.25 pence (A$0.63), calling its core asset Boseto “an excellent copper project with plenty of upside.”
The target price compares favorably with the stock’s current value of 24.75p (A$0.45) pence per share.
The valuation was based on a modeled copper price of US$2.5/lb, while the Boseto project’s break even price stands at US$1.64/lb. in the model, an increase in the copper price by 26% to the current level of US$3.15/lb would provide a 76% uplift in EPS (earnings per share) from 33 pence to 58 pence (A$0.59 to A$1.03). The project was valued fully funded on the current proposed 10 mine life at 2 Mt (million tonnes) and accounted for a value of 33 pence per share, while the rest was derived from Dikoloti JV (joint venture), valued at US$3 million.
The Boseto copper project has a total resource of 60.4 Mt (million tones) grading at 1.4% copper and 19.5 g/t (grammes per tonne) silver and is located on the Kalahari copper belt where DME has another 14 prospecting licenses. The project consists of several targets and the current resource comprises only the Zeta, Plutus and Petra deposits. The total mineral resource estimates for Zeta were upped by 40% to 35.4 Mt grading 1.4% copper and 22.3 g/t silver, representing a 33% increase in contained copper and a 56% increase in silver.
The resource at the Dikoloti project is estimated at 4.1 Mt in the inferred category grading 0.7% nickel, 0.5% copper and 1.2 g/t PGE (platinum group of elements). The company secured an agreement with Japan Oil, Gas and Metals National Corporation (JOGMEC) in October to fund the ongoing development of the project.
The currently ongoing bankable feasibility for Boseto is set to be wrapped up by March 2010, while production is expected in 2011 at an annual level of 25.6 kt (kilotonnes) of copper and 0.69 Moz (million ounces) of silver per year. A scoping study on the underground potential is due Q1 2010 with just 5% of total 1,300 km (kilometres) of suspected mineralisation having been explored up to date.
Target at the current copper price would thus be 60 pence (A$1.07), excluding any upside for the Boseto project, which it said stemmed from the underground potential as well as increases to the existing resource, as well as the exploration potential of DME tenements.
The bear points included the financing risk for the US$150 capex (capital expenditure), no guarantee of grid power which could increase operating costs as well as the fact that the project was not yet in production and that capex and operating costs would not be fixed until the bankable feasibility study is complete.
