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Discovery Metals continuing progress on Boseto copper project

Discovery Metals (ASX: DML; AIM: DME)said it saw no mitigated impacts or risks that could preclude the development of the Boseto copper project based on the findings of the environment and social impact assessment, which has been submitted to the government of Botswana.

The bankable feasibility study (NYSE:BFS) for current open pit deposits is 80% complete and remains on track for completion in March this year. The BFS economics update released back in October showed ten year average net cash costs of US$1.04/lb and capital costs of US$150 million and a net present value (NYSE:NPV) ranging from US$116 million to US$426 million, while internal rates of return would range from 18% to 57% with an expected payback within 2 years of the commencement of production.

The BFS is expected to be funded through to completion with the proceeds of a recent placement that raised A$13.1 million, which will also be used to cover exploration expenses and for deposits on long lead items in the future. After the placement and the completion of the A$2.7 million share purchase plan, the company held A$17.6 million in cash at the end of December 2009.

Discovery also updated investors on its drilling operations, saying that five deep holes were drilled at depth at the Zeta prospect at Boseto with all holes intersecting mineralisation, and assays were pending. The Zeta mineral resource was updated in October to 35.4 Mt (million tonnes) grading 1.4% copper and 22.3 g/t (grammes per tonne) silver at a cut-off grade of 0.6% copper consisting of measured resources of 3.9 Mt at 1.6% copper and 23.0 g/t silver, indicated resources of 7.0 Mt at 1.5% copper and 23.8 g/t silver and inferred resources of 24.5 Mt at1.4% copper and 21.8 g/t silver.

Meanwhile, work has commenced on the JOGMEC founded Dikoloti nickel/copper joint exploration programme. Back in October the company entered into a joint exploration agreement with JOGMEC  (Japan Oil, Gas and Metals National Corp) to fund an A$3 million exploration programme for its 85% owned and operated Dikoloti. JOGMEC has the right to earn a joint venture interest of up to 60% and is the exploration programme proves successful, it will likely assign its interest to another Japanese entity for the development and operating expenses.

The resource at the Dikoloti project is estimated at 4.1 Mt in the inferred category grading 0.7% nickel, 0.5% copper and 1.2 g/t PGE (platinum group of elements).

Back in December, broker Westhouse initiated coverage of Discovery Metals giving the Botswana operating nickel and copper miner a 'buy' rating and setting a target price of 35.25 pence, calling its core asset Boseto “an excellent copper project with plenty of upside".

The valuation was based on a modeled copper price of US$2.5/lb, while the Boseto project’s break even price stands at US$1.64/lb. The project was valued fully funded on the current proposed 10 mine life at 2 Mt (million tonnes) and accounted for a value of 33 pence per share, while the rest was derived from Dikoloti JV (joint venture), valued at US$3 million.

Disclosure: The author holds no positions in the company