Discovery Metals : Boseto project capacity upgraded to 3Mt pa
Date: 31 May 2010 Contributed by Fox-Davies Capital
By Fox-Davies Capital
Event
Discovery Metals has announced that the Boseto Project has been upgraded from a proposed 2Mt pa operation to a 3Mt pa project. The delivery of the Bankable Feasibility Study has been delayed until July 2010, but the project schedule is unchanged with first production being targeted for December 2011.
Comment
It comes as no surprise that the project has been upgraded from 2 to 3Mt pa. The recent announcements relating to the underground potential at Zeta and the recently increased open pit resources at Plutus/Petra being the main drivers.
We have amended the model, as per the release. This involved increasing the capital expenditure, both initially for the larger mill and inserting a further $10M for the underground. We have then scheduled in underground production starting early in 2014. At the same time we have reduced the milling costs a little to reflect economies of scale associated with the increase in mill capacity and extended the mine life to 15 years.
The delay in the Bankable Feasibility Study is due to the increase in capacity which requires further optimization of the mine plans and changes to the current engineering design of the concentrator, but it will remain focused only on the open pit. At the end of March the company had cash of $34M and with recent inflows from the conversion of optionsit is well funded to progress the project and place deposits on long lead time items.
Work on the Zeta underground mine will be accelerated and a drill out programme of the underground resource is due to commence within the current June quarter. This will form part of a definitive feasibility study for the Zeta underground which is expected to be completed by mid 2011. Discovery also intends to undertake a limited exploration programme for underground targets in the Plutus area over the next 6 months, with the results to be included in the long term planning. This does not surprise Fox-Davies as we mentioned in a note earlier in 2010 that we thought that there was potential for underground mines at both Plutus and Petra.
Recommendation
We retain the Buy recommendation with an increased target price of 0.78/share., previously 0.65/share. The increase I the target price would have been higher but we changed the A$: exchange rate used to determine the target price from 1.65 to 1.74 to relect the current exchange rate.
DML Price at posting:
74.1¢ Sentiment: None Disclosure: Held
