Discov. Met Share Discussion Threads

[chipperfrd] 06/4/2010 15:18

blue - forgot to say - if you find any glaring errors with my summary numbers (or those I posted on post#1) please let me know.
Chip

[chipperfrd] 06/4/2010 15:16

blue,

JF has already high-lighted FND (although volume on both exchanges is virtually nil - and therefore very frustrating) but can I suggest you also have a look at RMM. I am still building a position there and still need to answer a few more questions to my satisfaction, but IMO it does look very interesting.
Chip

[blue85] 06/4/2010 15:04

chip - this looks all reasonable to me, excellent work!! i think i'll try to do some more valuation work on this

[chipperfrd] 06/4/2010 14:12

blue,

I accept that I may need to make changes once we know the outcome of the BFS and hence the way forward - but here is a summary of what I am using:

I am assuming first full year of production will occur in 2012 and that they will up throughput to 3mtpa by 2014.

I am applying a 5% compound increase in copper/silver pa to factor-in depreciating currency (namely USD).

I have calculated estimated post-tax cash-flow pa from 2012 to 2021 for input to the NPV and used initial CAPEX of -$150m.

As an example of how this breaks down: if we take 2015 as an example year I get the following:

Throughput ~ 3mt
Cu recovered ~ 38.3kt
Ag recovered ~ 1.035moz
Revenue ~ $380m (Ag revenue would be $23m but is credited against costs)
OP Costs ~ -$87.7m (@ $1.04/lb after Ag credit)
OP margin ~ $292.5m
G&A ~ -$1.9m
Sustaining capex ~ -$3m
EBITDA ~ $287.6m
D&A ~ -$29.7m
EBT ~ $267m
Tax ~ -$66.7m
NPAT ~ $200m
EPS ~ 35.2p (at FOREX of 1.52)

By 2015 initial debt/interest/etc should be zero but there may well be a positive input from interest on cash deposits (which I have made some allowance for) and there is almost certainly going to be significant outlays on exploration drilling (which I have not included yet).

All this is almost certainly going to change but I like to at least create an early 'straw man' model to provide the basis for valuation. Please excuse any inadvertent errors or omissions.
Chip

[johnrxx99] 06/4/2010 12:18

Got a few more but showing as a sell.

[blue85] 06/4/2010 12:01

thanks chip. can i ask what your assumps are for opex/capex and pricing plus LOM? i'm really searching hard for some undervalued copper plays

[hectorp] 06/4/2010 11:37

Fine chip many thanks, just around what I was hoping you might come up with.
On close watch as I have RMLA and ENK again already and am getting a little stretched.
H.

[chipperfrd] 05/4/2010 14:45

H,

I guess I am asking for trouble trying to answer your questions when the BFS is imminent and may well show adjustments (or delays) to encompass the underground - but as you know, that has never troubled me in the past ;-)

IF the BFS follows the PFS guidance of c. $150m capex then new equity will probably be c. 80m shares IMO (assuming 60:40 debt/equity split).

I am currently factoring-in 76m new shares and that should (IMO) allow the share price to exceed my NPV target by EoY 2012.
Chip

[hectorp] 05/4/2010 12:38

chip, can I ask: when would you consider the share price could reach 187p /share, and also, is there a considerable dilutione expected at fund raising
after the BFS?
cheers
H.

[chipperfrd] 05/4/2010 12:32

blue85,

As always, it depends on who is doing the NPV calculations and what assumptions they are factoring-in!

My own NPV10 works out at $1.06b for an estimated 187p/share.

But in any case, the current Boseto project is purely predicated on the initial open-pit and (unless they alter the BFS to factor in the new underground study) ignores the latest U/G results.

Plus, with 1300km of strike length to play with, it would appear highly probable that Boseto cash-flow will enable further mining operations and treatment plants along strike.

All a bit long-term perhaps - but that is the way I like it!

[blue85] 05/4/2010 12:06

thanks JF - much appreciated!!! i see metminco listed on aim last week.

the upside here looks a bit limited given the npv's being run on the project. am i missing something?

[jonny flame] 04/4/2010 09:55

Hi Blue, think I remember you from either the MARL or GDP bbs, have a look at FND in regards a cheap copper stock.







A few others to have a look at BZT, WTI, EMED, etc. But my favourites are FND & DME.

Regards, JF

[blue85] 03/4/2010 22:10

anyone know any cheap copper stocks, aim/tsx or asx???
TIA
blue

[andrbea] 29/3/2010 14:22

from link in post 93
aBout Boseto:

The completion and start of the progressive release of the results of this BFS were imminent.

[chipperfrd] 29/3/2010 14:17

Also picked up by Mining Weekly:

[chipperfrd] 29/3/2010 11:04

JB,

- Just confirmation of the numbers from rolling PFS updates.
- Clarification on CAPEX - ie $150m or go straight for larger 3mtpa treatment plant (c. $200m).
- Possible announcement of pre-arranged financing plan/schedule.
- Further info on mains power/timing/cost/co-operation with adjacent company.

Chip

[jack brent] 29/3/2010 10:56

I bought a few of these last week. Pleased with the news this morning, although surprised they didn't roll it in with the BFS RNS which should hopefully be with us over the next couple of days.

Disappointed to see the bid dropped on no sells. The spread was unattractive to begin with?

Chip, are you looking for anything specific in the BFS?

Thanks, JB

[contrarian2investor] 29/3/2010 10:19

johnrxx99,

Well done shrewdie.

During my research in early 2009 I chose EML over DME. That continues to be proved to be a mistake. I now intend to await clarification of EML's strategy following which I might reinvest my EML funds into DME.

c2i

[johnrxx99] 29/3/2010 05:28

Chip, indeed as far as I can see all the leading pundits are backing commodities rather then fiat. Because of the dollars status things will move slowly but like the earths crust, when the tension builds up it will go with a bang.

China is playing a very shrewd game, converting dollars to resources. I'm sure the US knows this but can do little about it. However, being increasingly backed into a corner will make the coming years increasingly volatile.

In the meantime, I value this little gem as more than money in the bank.

[chipperfrd] 29/3/2010 01:15

29th March. Positive scoping study for Zeta underground mine:



As expected, it looks good with Cu @ $3/lb and only requires $10m capex.

PFS targeted for September 2010.

[chipperfrd] 28/3/2010 15:57

Interesting as these brokers forecasts may be (and I understand that they will always take a conservative view on forward commodity prices) I still find that they present a totally unrealistic investment case vis-a-vis US$/Cu!

By assuming US$2/lb Cu in future years they are suggesting that the US$ will be in far more demand than the underlying commodity (in this case Copper) which is totally at odds with a macro view of the world financial system and the growing industrial might of the Asian economies.

In other words, they are assuming that a purely paper-based currency which can be replicated at the whim of a central bank and multiplied by a banking fractional reserve system is likely to rise relative to a hard-won metal which is proving harder and harder to find at significant grades and that is essential to the growing needs of 2 billion-odd new consumers.

If I really thought this scenario was likely (or even slightly probable) then I suppose I would be an avid owner of purely financial assets. As it is, I believe the opposite is the case (ie the US$ will sink relative to all hard assets) and I will continue to factor-in monetary inflation into my forward estimates - which make the above NPVs look way too conservative!
Chip

[sagem] 27/3/2010 22:13

I would think that he needs the money like I do but I have only got a few if I wanted to sell which I dont

LOOKING GOOD

Monday, March 08, 2010

Libertas and Westhouse Securities bullish on Discovery Metals ahead of Boseto copper project BFS

Both Libertas and Westhouse Securities issues a note on Discovery Metals (AIM&ASX: DME) in anticipation of the upcoming release of the bankable feasibility study (BFS) for its flagship Boseto copper and silver project in Botswana that will follow a positive pre-feasibility study completed in 2008. Both firms have given the miner a 'buy' rating with Westhouse upping its price target, expecting the BFS along with rising copper prices to boost the share price in the near term.

Discovery's flagship Boseto project in Botswana has a JORC compliant resource of 60.4 Mt (million tonnes) at 1.4% copper and 19.5 g/t (grammes per tonne) silver, containing approximately 846 kt (kilotonnes) of copper and 38 Moz (million ounces) silver at a cut-off grade of 0.60% copper.

A 2008 Pre-Feasibility Study derived an NPV (net present value) of US$115 million at US$2.38/lb copper, and US$220 million at US$3.50/lb copper, with Internal Rates of Return (IRR) of 23% and 35% respectively, achieved at a 10% real discount rate with annual throughput of 2.0 Mtpa (million tonnes per annum).

Libertas initiated coverage of Discovery with a 'buy' rating and said the BFS will significantly de-risk the project as it passes through the final stages of project finance, construction and ultimate commissioning.

The broker offered valuation scenarios based on a ten year discounted FCF (free cash flow) valuation model, assuming a start-up date of late 2011 with a two year ramp-up period to plateau production of 2 Mtpa and 3 Mtpa in 2013. The report estimated the total throughput over the ten year period at 22 Mt and 33 Mt with Libertas' scoping model annual production output amounting to 25,333 tonnes of copper in concentrate and 0.691 Moz of silver in concentrate at 2 Mtpa and 38,000 tonnes of copper in concentrate along with 1.04 Moz of silver in concentrate at 3 Mtpa.

Assuming a primary throughput of 2 Mtpa and a base case NSR (net smelter return) copper price of US$2/lb, unit costs of US$28.0/tonne and capex (capital expenditure) of US$150 million, the report put the NPV (net present value) for 100% of the Boseto project of US$33.4 million, which goes up to US$157.4 million at a copper price of US$3/lb.

A tonnage of 3 Mtpa would bring the NPV up to US$90.8 million at a copper price of US$2/lb for unit costs of US$24.0/tonne and a capital spend of US$200 million, and to US$272.8 million at the optimal NSR of US$3/lb.

With Discovery's current working capital position of US$14.4 million, the sum of the parts (SOTP) valuation stands at US$47.89 and US$171.8 million for the base case scenario and US$105.3 and US$287.2 million for the optimal scenario.

The SOTP per share amounted to US$0.21 and US$0.74 for the base case and US$0.46 and US$1.24 for the optimal scenario, which Libertas converted into SOTP per share to share price ratio of between 0.32 and 1.89 respectively.

The target price for the company currently stands at 62 pence compared to the market value of 44 pence.

Research firm Westhouse Securities also kept its bullish stance on the company, retaining its 'buy' recommendation for the stock and upping its target price from 35.25 pence to 55.50 pence, expecting the current market valuation to appreciate with the release of the BFS and the upcoming scoping study on the underground potential at Boseto, which are both expected in the next few weeks and will likely be followed by offtake and financing decision as the company aims to enter production in mid 2011.

Westhouse noted that Discovery has benefited from rising copper prices and a stronger US dollar and revised its own copper forecasts with an increased upside, projecting a price of 7,800/tonne in 2010, which would then fall to US$5,000/tonne by 2015. The valuation assumed an operation of 2 Mt per year producing 25.6 kt (kilotonnes) of copper and 690,000 oz of silver over a ten year mine life. The research report said that the production rate and mine life could increase when Discovery enters production, noting that the company already has a plant footprint of 3 Mtpa to accommodate further expansion.

Shares in Discovery have soared 79% since Westhouse's last report on the company in mid-December.

Back in February, Blackswan Equities and Fox-Davies Capital both rated the mine developer as a 'buy', targeting 90 pence and 72 pence respectively. Investment bank Fairfax said Discovery offered a "rare opportunity", giving it a net present value (NPV) of US$256 million or 44 pence per share, which did not include further expansion and discoveries within the company's tenements.

[euclid5] 27/3/2010 21:41

any views / opinions as to why the non exec director has sold his entire holding of 390k shs at this time - i.e. a few weeks away from the BFS, unless he knows something we don'y - this is dfinately not a good sign imho