Share Price: $0.90
6mth Price Target: $1.10
RBS Morgans has updated a research report on Discovery Metals (ASX: DML) as it reported its resource base at Boseto of 102.8mt at 1.4% Cu and 17.3g/t Ag.
The resource base would support a 3mtpy operation producing over 30ktpy of copper in concentrate. Drilling is testing other prospects, looking for "another Boseto" in the same stratigraphy.
The reported resource at the Boseto copper project (DML 100%) has increased 70% to 102.8mt at 1.4% Cu and 17.3g/t Ag, with 22.5mt of this in the Measured and Indicated category.
The definitive feasibility study into an open pit operation is due for public release by end-May 2010. A scoping study into underground mining at Zeta, based on a mineral resource of 25mt at 1.4% Cu and 23.1g/t Ag, has confirmed the commerciality of the project, and will assist in determining the optimum open pit depth.
Given the increased resource, RBS Morgans expects the Boseto plant could operate at 3mtpy (2mtpy pre resource upgrade).
DML reports that “less than 328 km of the 1,300 km prospective horizon has been explored” by DML’s first-pass soil sampling programme. In the past quarter, DML tested 108km of this prospective strike, and defined the Nyx anomaly 10km from Zeta, with the initial drilling campaign intersecting comparable stratigraphy, with analytical results pending.
The Notus, Maia and Gaia prospects were also defined, but are yet to be drilled. The Boseto project resource (Plutus and Zeta), together with the Quirinus and Nexus prospects, occupy a third of the 328km of prospective strike tested. Quirinus and Nexus are yet to be fully evaluated.
The realised copper price is critical to Boseto’s value.
RBS Morgans anticipates that the DML share price will move as the Boseto development advances, and with movement in the copper price.
The structure of the funding package for Boseto will determine how much of the value DML can retain, and the equity component and pricing will determine the value per share.
Given the current issued capital and RBS Morgans' projected copper prices (long term US$2.25/lb), RBS Morgan's 50% debt/50% equity model of after-tax cashflow generates A$1.28/DML share after a 1-for-2 issue, which they have further discounted to A$1.10 as their valuation and target price.
RBS Morgans have ascribed only minimal value to highly prospective exploration acreage outside of Boseto.
Disclosure: The author holds no positions in the company
Share Price: $0.90