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.
Latest results add to Discovery Metals’ prospects
As the bankable feasibility study (BFS) for Discovery Metals’ (AIM:DME, ASX:DML, BSE:DML) key Boseto Copper Project nears completion this month, the latest exploration results for the North East Plutus, South West Petra and Nexus Prospects, all show strong potential to add a significant amount of mineral resources to the project.
The drilling results highlight continuation of Plutus‐Petra mineralisation for 15km beyond the current 11km strike length boundary of the existing mineral resources, with mineralisation found over all 15km of the Plutus targeted north east strike extension. All the seven diamond holes drilled of the Petra south west strike extension also intersected copper-silver mineralisation.
These drilling exploration results form part of the Mineral Resource base for the BFS and as such, offer at least tentative preliminary indications that the study has the potential for some strong numbers. Coupled with Discovery’s regular progress updates, price risk to the BFS at this stage seems predominantly to the upside.
Further to this, the BFS is likely to ‘de-risk’ the project as it passes through the final development stages, allowing the company to move forward quickly with production starting in 2011, evolving from exploration and feasibility to a development company, with the goal of commissioning Botswana’s largest copper mine in late 2011.Taken with this week’s off-take agreement with Swiss based metals trader Transamine, the A$19mln share placement with the group, the inherent capacity for growth for Discovery seems abundant.
The deal with Transamine allowed Discovery to secure a five year concentrated sales contract for 100% of Boseto’s copper production, allowing them to finalise negotiations regarding project financing and minimise a portion of the company’s risk exposure. Given the robust performance of the high quality copper produced at Boseto in recent months, it bodes well for some competitive terms for Discovery in the agreement, although it should be noted the official terms are confidential.
Transamine also backed up their commitment to the project by buying 25 million DME shares at A$0.76 per share, raising an additional A$19 million in cash for Discovery which, following internal and external approvals, will be used towards the construction of the Boseto Copper Project.
Transamine is seen as a highly credible counterparty for Discovery, with the off-take agreement enhancing the bankability of the Boseto Copper Project. Transamine is a well established independent and privately held trading house specializing in non-ferrous raw materials. The group source and supply non-ferrous materials globally, priding themselves on knowing the specificity and complexity of each concentrate from any given mine, as well as its attributes, mineral composition, and ore mineralogy.
Transamine has responded to the global financial crisis and lack of liquidity by providing financial support to producing mines, as well direct investments for start‐ups and junior companies. In 2009, they undertook similar arrangements to that of Discovery, with Citadel Resource Group Limited’s Jabal Said copper project in Saudi Arabia, Terramin Australia Limited’s Tala Hamza lead and zinc project and Kagara Zinc Limited.
Discovery’s earnings results released this week, for the six months ending December 31, 2009, show a stable financial backdrop for Discovery to springboard from when it does begin to undertake production and mining operations on the Boseto project. Notably, the company has continued to remain debt free, with a healthy A$17.6mln available in cash at the end of last year (now with the additional A$19mln raised, a total of A$36.6mln) and showed total assets during the six months increasing by 51% to A$49.1mln.
Discovery was also able to recommence activity on the Dikoloti nickel project in eastern Botswana, following the signing of a Joint Exploration Agreement with the Japanese government agency, Japan Oil Gas and Metals National Corporation (JOGMEC). This can be taken as a good sign that the management is keeping an eye on broader operations for the company, while at the same time focusing on the more immediate prospect at Boseto.
This is also mirrored in a statement by Discovery Metals’ Managing director, Brad Sampson this week, who said “As the Bankable Feasibility Study for the Boseto Copper Project nears completion, we are now refocusing our exploration efforts on both near mine opportunities such as have been announced today and on the opportunities elsewhere within our prospecting licences to discover the next Boseto project”.
Looking forward for Discovery, one must also consider the broader outlook and environment it operates in. The Boseto project is located in the Kalahari Copper Belt in northwest Botswana, an unexplored extension of the Zambian Copper Belt. The project comprises of fourteen prospecting licenses covering an area of 10,100 square kilometres, of which Discovery has found mineralisation over a strike of 1,300km, only 5% of which has currently been drilled. This leads to noteworthy potential in future production capacity for the company in the Boseto area alone.
In addition to this, the outlook for end prices in both high grade copper and silver, look set for some strong performance over the next few years. With both metals already outperforming in recent months, and with both investor and physical demand likely to increase as the global economy recovers, the broader environment for Discovery’s future production at this stage, seems bullish.
China has been a key driver behind the rebound in copper prices during 2009, with the country looking to increase its copper holdings and diversify away from the US dollar (a move mirrored with its gold and silver reserves).
Coupled with a fairly supportive backdrop in the mining currencies, particularly the AUS/USD rate, this also bodes well for Discovery’s potential operating environment. That said, there is some currency risk surrounding the US dollar, particularly with any short-term shocks associated with the Fed raising interest rates, although over the longer-term the effect of this will ease.
This robust price environment is also likely to be the case, although to a lesser degree, with Nickel, highlighting the potential from Discovery’s 85% owned (remaining 15% held by Xstrata), Dikoloti Nickel Project. The Dikoloti project comprises of four prospecting licences covering an area of 612 square kilometres, surrounding the three nickel deposits of BCL Limited in the Selebi-Phikwe region of NE Botswana.
Discovery renewed its leases for the project in July 2009 for an additional two years, expecting to complete a supplementary exploration programme to add to the mineral resource to enable a project life of ten years, in turn likely to lead to further development of the Dikoloti project. Xstrata will dilute to a net smelter return payment when the project is brought into production, effectively receiving royalties.
2010 will be a busy year for Discovery Metals.
