Edison Investment research published a report on Botswana operating nickel and copper miner Discovery Metals (AIM: DME, ASX: DML), following the upgrade of the resource at its Zeta prospect at the Boseto project in northwest Botswana last month, putting its potential value at as much as 48.5 pence per share and Discovery’s potential share price at 220 pence.
The resource update for Discovery’s Zeta prospect at the Boseto project put its total mineral resource at 35.4Mt (million tones) graded at 1.4% Cu (copper) and 22.3 g/t (grammes per tonne) Ag (silver at a cut off grade of 0.6% Cu. The measured and indicated resource stood at 10.9Mt at 1.6% Cu and 23.5 g/t Ag and inferred mineral resource was at 24.5Mt at 1.4% Cu and 21.8 g/t Ag all at a cut off grade of 0.6% Cu.
This was the first estimate to include the measured category.
The updated resource led Edison to raise its valuation of the Boseto project by 22% to US$157 million, or 43 pence per share, at what the research firm said was a conservative long-term copper price of US$2.37/lb, a roughly 20% discount from the current price of US$2.98/lb.
The completion of the bankable feasibility study for the Boseto project is currently slated for March next year. Its total mineral resources are currently estimated at 60.4Mt at 1.4% Cu and 19.5 g/t Ag at a cut off grade of 0.6% Cu.
The company needs funding for the development of its Boseto project , and Edison said the funds would more likely come through an equity issue, estimating the company could raise A$82 million over the next seven months via a share issue at an approximately 15% discount to the current market price of 25 pence. This would result in the dilution of the current shareholders, however, even with that taken into account, the reduced value of the project could represent a 25% discount to the current share price, amounting to 34.2 pence.
On top of that, Edison said that should the copper price stay at the current level, the diluted value of the project to shareholders could reach 48.5 pence, roughly double the current share price.
Discovery has so far explored less than 3% of its tenements’ surface area and has delineated its current resource base and mining plan. Edison said that the successful execution of its estimate of the company’s mining plan would allow it to pay a dividend of 5.7 pence per share for eight years of its 10 year life, which could be extended in the event of further exploration success to put Discovery’s share price as high as 114 pence, or 220 pence if copper stays at its current price.
Edison added that on the basis of the current mining plan, positive cash flows would commence in full year 2012.