new broker report

I enjoyed reading the analysis from Carmichael Research - available on the DIO website.

I didn't agree with everything as they have, to my mind, continued to adopt a conservative approach. Never the less, it has helped to confirm much of my understanding and previous held presumptions.

For me, the salient points are as follows: -

1.with one operation already in production and another to soon begin, DIO are well placed to take advantage of the high gold price, no hedging and zero debt to drive shareholder growth

2. the diluted target price of $1.74 (undiluted $2.10) does not take account of the rewcent 37% upgrade in M&I resources at the Frog's Legs deposit.

3. Production from the Frog's Legs deposit is forecast in the May Quarter and development ore is already being trucked to the Jubilee Plant.

4. Frog's Legs has more ounces in its resource inventory and further upgrades are anticipated

5. DIO is grossly undervalued both on a DCF basis and on peer comparables.

6. Cash balance of $20M is enough to complete capital investment at Frog's Legs, Ongoing Exploration activities plus $5M for the Jubilee Plant / Tails Dam

7. Ore from Mt Marion will be added to production in May 2008

8. There is an ongoing reduction in strip ratio at the HBJ deposit from 9:1 to 2:1 - a substantial reduction in cash operating costs and increased profitability

9. Resources at South Kal totalled 1.55Moz with reserves of 227Koz

10. Diamond drilling at Shirl U/G deposit is extending the Main Lode and Cross-Lode structures

11. Exploration drilling at Shirl West has intersected 6m @ 3.61 g/t and 8m @ 2.51 g/t

12. Exploration drilling at Shirl East has intersected 3m @ 10.49 g/t and 2m @ 12.78 g/t

13. Construction of infrastructure at Frog's Legs is well advanced e.g. installation of the electrical sub-station, etc

14. Cash costs at Frog's Legs is steadily reducing and forecast at A$667 oz in 2H CY 2008 thus delivering a margin in excess of $330 / oz

15. Resource to reserve conversion at Frog's Legs is high at 86%. Plus, an additional 150Koz could be added from inferred resources with minimal capital expenditure.

16. Total M&I resources (inclusive of reserves) at the Frog's Legs deposit current stands at 4.6Mt @ 6.8 g/t for 990Koz based on a 3.5 g/t cut off.

17. Drilling of the gap zone at Frog's Legs turned up some of the richest mineralisation so far encountered at Frog's Legs including 62m @5.58 g/t including 2 high grade zones. The deposit remains open along strike and at depth.

18. FURTHER DRILLING RESULTS ARE EXPECTED TO BE RELEASED THIS MONTH (APRIL) FROM EXTENSIONAL DRILLING ON THE ROCKET LODE

19. Given the above, Carmichael Research believes "that DIO's production profile will increase rapidly...and the risk is on the upside for feed grade."

20. Carmichael Research believes "that there is potential for further M&A activity or JV activity...now that DIO has a producing plant...we envisage other deals emanating from neighbours...who have small deposits requiring exploitation."

21. On a peer comparison basis, "DIO is cheap on a EV / Resource tonne basis...currently trading at a 42% discount to our [Carmichael] valuation."

22. In the current financial year (to August 2008), Carmichael is forecasting...

Revenue = $46M
EBIT / NPAT = $5.4M
Cash on hand period end = $10.4M
Gold production of 47Koz

Little wonder that they call this an outright BUY with a very conservative valuation of $1.74 to $2.10 !!!