simple appeal

Simple appeal
Michael Quinn, 26 January 2010

KISS, one of the better acronyms in a world creaking under the weight of dodgy ones, sums up the great appeal of Discovery Metals and its near-development Boseto copper project in Botswana. And a simple copper project in this day and age would seem a very, very valuable commodity indeed.

Discovery Metals managing director Brad Sampson points out the projects scale (completely manageable), metallurgy (good), country (safe as houses), and open pit mining style (doesnt get any easier) all lean heavily towards the simple side of the mining development and operation scale.

There is nothing novel, nothing unusual about Boseto, Sampson told HighGrade in Brisbane last week. Which ironically enough, seems far from the norm these days in the world of new mines.

Perhaps one of the better illustrations of the confidence Discovery Minerals has in its ability to develop Boseto and deliver shareholder value is the executive share plan shareholders are being asked to vote on to ensure retention of key directors and management. Shares will be issued in four equal tranches with shareholders and would-be investors no doubt particularly noting the trigger points after the initial tranche is awarded when the Boseto plant is built and reaches a rate of 10,000 tonnes per annum.

The second tranche is due when the Discovery Metals share price exceeds $A1 per share for 10 non-consecutive days, the third tranche when it exceeds $1.50/share for 10 non-consecutive trading days, and the fourth when it beats $2/share for 10 non-consecutive days.

Discovery Metals share price this week was around the A60c mark, up from 13c last March.

At 60c Discovery is capitalised at about $A145 million, with Boseto evidently set to throw off bucketloads of cash given initial anticipated annual production (for 10 years) of more than 56 million pounds of copper and net cash costs of about $US1/lb. Boseto will cost in the order of $US150 million to develop the feasibility is due in March and an offtake partner is expected is to be unveiled at about the same time. Sampson indicated the likelihood of the offtake party also subscribing for equity in Discovery Minerals.

He also said the project had attracted a huge amount of interest from banks and other potential financers. It is probably noteworthy to point out that Discovery Minerals biggest shareholder is the ubiquitous Macquarie Bank.

In terms of project risk, Sampson said a large amount of work, both internally and externally/independently had been carried out to ensure the ore metallurgy was well understood and not liable to throw up any surprises when operations began. Indeed some 6-7 different parties had been engaged at various times on this type of key de-risking initiative.

Power and water, plus government and local support are all considered in hand.

Sampson said one of the biggest challenges was getting the right team together, and to ensure this was achieved, the company was not rushing the process. Still, key personnel, such as the Boseto construction manager, have already been appointed. Quality people add value straight away, Sampson said.

Regarding upside, Sampson pointed to a potential underground mining operation results of a scoping study on this is another part of the news flow due in March as well as a major position in the Kalahari Copper Belt over the prospective sedimentary style ground containing Bosetos copper.

The Kalahari Copper Belt is the south west extension of the world class Zambian Copper Belt, and exploration drilling is said to have had a success rate approaching 100%.

While Discovery Minerals has been primarily focusing on the requirements for developing Boseto, a neighbouring explorer, the Canadian-listed, Hana Mining, has recently been talking up the exploration potential of the belt. Earlier this month Hanas founder and chief executive Marek Kreczmer was reported as being convinced the region would become the worlds next significant copper mining camp. Hana has a global inferred resource of 60 million tonnes grading 1.51% copper and 17.98gpt silver (compared to Discovery Minerals total 60Mt at 1.4% copper and 19.5gpt silver, including a measured and indicated 11.7Mt at 1.5% copper and 22.9gpt silver), and is confident of soon doubling the inferred resources of its main Banana zone from 40Mt to 80Mt.

In essence, Discovery Minerals holds many thousands of square kilometres of ground prospective for sedimentary exhalative (SEDEX) style copper mineralisation, and would seem set to spend many years successfully exploring the region given the speed of success to date.

Thats assuming the company is still around in its current guise.

Because perhaps the most challenging thing for Sampson in the months and years ahead will be maintaining Discovery Minerals independence. Still, with a strong institutional presence on its share register, plenty of cash (about $A25 million this coming May after $A8 million of in-the-money options are presumably exercised), and a project thats flagged to be in production in the second half of next year, any bidder expecting success will have to pay a good price.

So even on the corporate front, it would seem a pretty simple equation.

There could surely be some interested eyes on Sampson at next weeks Indaba mining conference in Cape Town, the show piece event for the miners and explorers of Africa.