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And this is how the team down at Fat Prophets see the situation....


2Q14; Boseto still a challenge

Discovery Metals has reported its December quarter 2013 activities. Activities for the reported quarter show that operations at its Boseto copper and silver mine in Botswana remains challenging. While operating costs also remain challenging.

For the December quarter 2013, production of copper in concentrate was 4,352 tonnes, which represents a rise of 59.5% on the ramp-up September quarter 012. The following chart shows quarterly copper production from the commencement of production at Boseto:


Silver in concentrate production fell by 16.1% on the same figure in the September quarter 2012, to 196,816 ounces. The following chart shows quarterly silver production from the commissioning of operations at Boseto:

The company still finds the operating conditions at Boseto as highly challenging. Due to the challenges the company has faced, it has commenced a restructure of the Boseto mine site.

The Boseto restructure is designed to improve the cost competiveness of the operations and further enhance production efficiencies. Both we consider are key factors to be addressed to ensure the future profitability of the operation.

Cash costs continue to deteriorate with a further 4.1% rise in the December quarter over the corresponding quarter in 2012, to US$3.77 per pound. Lower copper metal production was the key driver in the outcome, despite falling mining, plant and overhead costs. We will be looking to the restructure to deliver additional costs and operational efficiency gains that Boseto is in need of.

The company’s debt providers have granted a grace period regarding the debts of the company, which at 31 December 2013 stood at US$153.9 million. The waiver of principal repayments has been granted to end February 2014 and interest until mid February. We will monitor further announcement from the company on its debt position very closely.

At 31 December 2013, the company had cash of US$11.6 million. As the company is now classed as a producer and not an explorer by the Australian Stock Exchange, it is no longer required to lodge a cash flow statement for the quarter. Information contained in the quarterly cash flow statement will now appear in the company’s half year and full year statements. The current cash amount and the company’s quarterly cash flows from commodity sales will generate sufficient resources to enable the company to meet its current operational commitments. The company will release its half year financials by end February 2014. We will be monitoring the numbers closely.

We note that US$6 million is held in cash in a debt service reserve account.

Regarding the change of control event, the Blumont recapitalisation transaction has been withdrawn. The company has indicated that it remains in talks with various third parties, with these parties now in the company’s data room.

Given the current low pricing environment for both copper and silver, we consider the total recapitalisation package as a necessity. We are of the opinion the resolution of the company’s current debt position, is not overtly detrimental to shareholders.


An improving production profile and the promise of good news flow on the exploration front, continues to give us cause to be optimistic about the future for this company. We consider output expansion and cost mitigation will both serve to boost profitability for the company and prove to be a positive price catalyst. Achieving both has however been a real challenge for the company. The recapitalisation when completed will also provide a much needed stable balance sheet.

Consequently, Discovery Metals will remain held in the Fat Prophets portfolio. We warn Members that although the company is operational its position is not stable.