this weeks speculator column

The Speculator: It's a fair copper
18/7/2006






"No, it's not a new geological cable channel: Discovery Nickel is our new punt with a handy South Australian resource of copper and gold." David Haselhurst swoops.

"Echoes of the Poseidon mineral boom days reverberated through the market last week as Australian Mining Investments (ASX code: AUM) sensationally announced a 30-fold boost to the size of its copper resources in Queensland.

BOUGHT: 20,000 Discovery Nickel @ 21¢; $4253

The company, which sold only seven months ago at a low of 13¢, soared to $10 a share ahead of a trading halt. At that price it was carrying a market capitalisation of $365m.

A bit more than two months ago, on May 3, AUM announced a maiden inferred resource for its Rocklands project, near Cloncurry, of 5.2 million tonnes at 0.77% copper. Last week, following a series of wide and rich drill hole results, the company announced an inferred resource of 59 million tonnes averaging 2.04% copper equivalent. The grade has been boosted to a copper equivalent by the addition of cobalt and gold credits occurring with the copper mineralisation. Among the richest holes announced last week was a 40m intersection averaging 5.05% copper from 44m deep to 84m, including 26m of 6.59% copper.

Too bad we’ve missed the boat, but here’s an opportunity to compare some of the other copper prospectors listed on the ASX.

The table shows that Discovery Nickel carries a value of about one-third that attributed to comparable companies such as Hillgrove Resources. Hillgrove is one of our portfolio stocks. Now with a market value of $46m, it claims a resource of 25.4 million tonnes of 1% copper and 0.2g/t gold at Kanmantoo, 55km south-east of Adelaide. Part of the value, of course, is due to Hillgrove’s 31% holding in listed uranium explorer InterMet Resources plus a 32.5% interest in a Gunnedah Basin coal-gas joint venture. Perhaps a major reinforcer of Hillgrove’s share price, however, is the presence on the share register of Sempra Metals of the US, which came aboard after an $8m equity and debt package to help develop Kanmantoo.

I expect that Discovery is likely to pick up a significant backer in the months ahead and that will deliver strength to the share price. Discovery, with 72 million shares on issue, has traded between 27¢ and 14¢ in the past year and last week, at 21¢, the company was valued at $15.1m. Discovery has confirmed a JORC--compliant resource of 20 million tonnes of 1.2% copper on its Maun project contained within nearly 7000sq km of tenements in Botswana, southern Africa.

Discovery picked up the ground last year for little more than a work program commitment, after another small company walked off when the copper price was less than half its level today. The company has since acquired what amounts to millions of dollars in past field results that will now be reassessed. Snowden Consultants expect to deliver a mineability study within a month. The resource sits within a 3.5km length of strike that extends for more than 25km. Target potential is 70m tonnes of 1.2% to 2% copper plus gold and silver credits.

Discovery has $1.4m cash at bank and is likely to seek up to $5m in a placement at an expected higher share price."