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.
RBS Morgans bullish on Discovery Metals profit potential
In a research report on Discovery Metals (AIM: DME; ASX/BSE: DML), stockbroker RBS Morgans says, "How profitable, and when about DML?"
The A$19m investment by Transamine at A$0.76/DML share and the binding five year offtake agreement are further steps in the development of Boseto, with the definitive feasibility study due for completion by end March 2010."
The Boseto copper project, Botswana (DML 100%), hosts resources of 60.4Mt at 1.4% Cu and 19.8g/t Ag. Higher-grade shoots within the resource may support initial production above the average head grade, and there is extensive exploration upside to add tonnage and mine life, or expand production above the proposed 23,200tpa of copper in concentrate.
The primary copper sulphide minerals are bornite and chalcocite, with good projected metallurgical recoveries to a 44% copper concentrate. The revised capital cost is estimated at US$150m and life-of-mine cash operating costs are estimated at US$1.04/lb of copper.
Transamine investment and offtake – A$35m in cash
DML reported cash of A$17.6m at 31 December 2009, and average quarterly expenditure below A$4.0m. Subsequent to the end of the December quarter, Transamine subscribed A$19m taking 25m DML shares (10.8% of the issued capital) at A$0.7623ps.
Transamine’s business is trading non-ferrous base metals and concentrates, and it has equity interests and offtake agreements with ASX-listed Kagara Zinc (ASX:KGL) (11.5%), Terramin (ASX:TMN) (10.4%) and Citadel Resources (ASX: CGG) (5%).
The five-year concentrate sales contract will minimise Discovery’s risk exposure and enhance DML’s working capital position. Discovery now looks well placed to complete the DFS due in March 2010, and to fund ongoing financing and development work at Boseto.
Valuation
Given the production parameters of the study, the value of Boseto will be determined largely by the realised copper price. We anticipate DML’s share price will move as the Boseto development advances and with the copper price.
The structure of the funding package for Boseto will determine how much of the value DML can retain, and the equity component and pricing will determine the value per share. Given the current issued capital and our projected copper prices (long term US$2.25/lb) our 50% debt/50% equity model of after-tax cash flow generates a target price of A$0.89/DML share (was A$0.70). We see potential nickel upside at the Dikoloti project.
