Quarter Reports to Dec 31 2009
(Thomson Reuters ONE) - Quarterly Report - 1 October to 31 December 2009 Discovery Metals Limited (AIM: DME) (ASX/BSE: DML) ('Discovery Metals' or the 'Company')HIGHLIGHTSBoseto Copper Project Bankable Feasibility Study * The Bankable Feasibility Study ('BFS') for current open pit deposits is 80% complete and remains on track for completion in March 2010. * BosetoEnvironmental and Social Impact Assessment ('ESIA') has been submitted to the Government of Botswana for approval. From the findings of the ESIA, the Company sees no mitigated impacts or risks that will preclude the development of the Boseto Copper Project. * The Boseto Copper Project'sBFS Progress Economics Update, released 6 October, shows: * Operating costs - 10 year average Net Cash Costs US$1.04/lb * Capital costs - US$150 million * Project economics improved with 10% rate of return being achieved at less than US$1.53/lb * Net Present Value range from US$116 million (US$2.00/lb) to US$426 million (US$4.00/lb copper price) * Internal Rates of Return range from 18% (US$2.00/lb) to 57% (US$4.00/lb copper price) * Payback is expected within 2 years of production commencing (at the base case copper price) * Targeted initial project life of 10 years.Exploration & Infill Drilling * Five deep holes were drilled at depth at the Zeta prospect. Two holes were drilled in the area within the existing resource envelope thought to be high grade and three holes drilled between 600 & 650 metres below surface. All holes intersected mineralisation and assays are pending. * Regional soil sampling concentrated on the new Nyx target area. * Work has commenced on the JOGMEC funded Dikoloti nickel/copper joint exploration programme.Corporate * In October 2009, the Company secured additional funding by the placement of 29,100,000 shares at 45 cents per share (GBP 25.5p) to raise AUD $13.1 million, to fund completion of the BFS, continued exploration and for deposits on long lead items in the future. * In addition, the Company completed the AUD$2.7 million Share Purchase Plan for shareholders with addresses in Australia and New Zealand, for up to AUD$15,000 worth of shares at 45 cents per share. * At the end of December 2009, Discovery Metals held AUD $17.6 million in cash.1. Boseto Copper Project Bankable Feasibility StudyThe Boseto Copper Project (the 'Project') Bankable Feasibility Study ('BFS')progressed during the quarter and was approximately 80% complete by the end of2009. Finalisation of the BFS remains on schedule for the end of the Marchquarter 2010. The major items outstanding are the completion of the capitalcost estimate by GRD Minproc (now called AMEC-Minproc) and the final mineralresource and mine plans from Snowden Mining Industry Consultants ('Snowden') forPlutus and Petra mineral resources after these resources are upgraded with allof the assay results since the previous calculation cut- off date in May 2009.The infill drilling programme was completed in September 2009 and final assayresults have been received. The programme was designed to upgrade portions ofthe Zeta, Plutus and Petra Inferred mineral resources to Indicated and Measuredmineral resource categories. The final BFS updating of the Zeta Resourceestimate was completed and announced in October. All deposits remain open alongstrike and at depth.A major milestone for the Project was achieved with the completion of theEnvironmental Impact Assessment study ('ESIA') and submission to the BotswanaAuthorities (Department of Environmental Affairs).Work on the copper concentrator design has been completed and is expected toculminate in a detailed capital expenditure estimate to BFS standard in February2010.The selection process for the Engineering, Procurement and Construction (EPC)contractor for the next phase of the Project (Implementation) has commenced withthe short listing of suitably qualified internationally accredited consultancycompanies in the areas of engineering and construction and a site visit of thesecompanies to the Boseto project area in Botswana. The development of the EPCcontract documentation based on recognised international standards has beencompleted. The award of the EPC contract is expected as soon as the BFS resultsare finalised.(a) Update of BFS Progress Inputs/OutputsAn extensive update of the Boseto Copper Project economics was released on 6October 2009 showing: * Cash operating costs continue to be in the middle of the copper producer cost curve with the updated 10 year estimated average cost of US$1.04/lb (January 2009 - US$1.06/lb); * Capital costs have increased to US$150 million (January 2009 - US$131 million) based on an increased contingency for capital component price changes; * Overall project economics have improved despite including additional capital contingency and exploration expenditure, with the break even copper price at which the project provides a 10% discounted cash flow rate of return now being less than US$1.53/lb; * Net Present Values ranging from US$116 million at a US$2.00/lb copper price to US$426 million at a US$4.00/lb copper price; * Internal Rates of Return ranging from 18% at a US$2.00/lb copper price to 57% at a US$4.00/lb copper price; * Paybackis expected within 2 years of production commencing (at the base case copper price); and * Targeted initial project life of 10 years.Annual production from the Boseto copper concentrator is planned to averageapproximately 25,600 tonnes of copper and nearly 700,000 ounces of silvercontained in a high grade concentrate grading 44% Cu.(b) BFS TeamDiscovery Metals continues to use a small team of experienced executives tomanage a number of specialist consulting teams who are completing theirrespective areas of responsibility of the BFS for the Boseto Copper Project.Key aspects of the planned project development are subjected to further reviewby external specialists.Completed work and reports on critical areas (resource geology and mineplanning, ground water supply, metallurgy & process plant design andenvironmental compliance) have been forwarded to consultants performing theindependent engineering review. The process has been designed to ensure thatthe quality of information contained in the BFS is verified and externallyreviewed. This will provide improved confidence in the study outcomes and tocontribute towards a BFS that meets the requirements of all stakeholdersincluding existing and prospective investors, the Botswana Government and localauthorities and debt financiers.The principal consultancy groups working on the BFS are: * Snowden has undertaken mineral resource estimation, geotechnical assessment, open pit design, production schedule optimisation, grade control assessment and underground mining conceptual studies; * AMEC-Minproc are progressing the engineering package including process engineering, plant design and associated infrastructure; * SRK Consulting ('SRK') was assigned the ESIA; together with the skills assessment study related to the area surrounding the proposed mine/processing site, as well as undertaking the tailings dam study. SRK has also completed the hydro-geological work required to define a water resource for the Project; * Metallicon, a South African based metallurgical consulting group, with extensive copper and platinum experience, is assisting with understanding the metallurgy, coordinating the test work and advising on the process design; and * SRK has supplied a team from Australia supplemented by outside specialists to form the independent review team for the BFS.The BFS team has been complemented with highly experienced consultants in thefields of geology, mining equipment evaluation, human resources strategy andproject execution as required.During the quarter, several peer reviews were carried out by internationallyaccredited consultancy companies in the areas of resource classification andresource modelling, metallurgy, mineral processing, hydro-geology and theESIA.The results of the peer review confirm the BFS work performed to date, withminimal additional follow up required.(c) Mineral Resource EvaluationThe infill drilling programme required to upgrade significant portions of theZeta, Plutus and Petra Inferred mineral resources to Measured and Indicatedresource status was completed and all assay results were received during thequarter. An updated Zeta mineral resource estimation was completed andannounced on 19 October 2009. The final Plutus/Petra resource estimate for theBFS is planned for completion by February 2010.The total Mineral Resource at the Boseto Copper Project, reported in accordancewith the Australasian Code for Reporting of Exploration Results, MineralResources and Ore Reserves (The JORC Code, "2004 Edition") at a cut off grade of0.6% Cu is:60.4 Mt (at) 1.4% Cu and 19.5g/t Ag containing 846kt copper metal and 38 Moz ofsilver comprising:Measured Resources of 3.9 Mt (at) 1.6% Cu and 23.0g/t Ag;Indicated Resources of 7.8 Mt (at) 1.5% Cu and 22.8g/t Ag; andInferred Resources of 48.7 Mt (at) 1.4% Cu and 18.7g/t Ag.(d) Open Pit Mining StudyAn open pit design and mining engineering study was undertaken by Snowden. Thestudy included detailed pit design and production scheduling to optimise cashflows and the project NPV. These formed the basis of the BFS Project Updateannounced on 6 October 2009.Production scenarios using the different options of stockpiling low gradematerial and oxide mineralisation were also evaluated.(e) Underground Mining StudySnowden is completing a Scoping Study to determine the potential to developunderground mining operations for the Zeta mineral resource and the outcomesfrom this project are presently under review. It is intended to include thepotential upside from an underground development at Zeta in the BFS document andcommission Snowden to undertake a Pre-Feasibility Study ('PFS') level assessmentand prepare an underground mine design for the Zeta mineral resource. It isplanned to drill a number of deeper holes beneath the Plutus Prospect to explorefor a continuation of high grade zones which may also present potential for anunderground mine.(f) Grade Control StudySnowden has also completed a grade control study for the BFS and the review ofthe first draft report has commenced. The study has addressed grade controlphilosophy, resource model confidence, control of mining (dilution), control ofmetal flows to plant, mass balance and metal accounting and control of productquality.Grade control is critical to the operations at Boseto and management isconfident that the mining of mineralised zones can be tightly controlled.(g) Geotechnical AssessmentSnowden has completed a geotechnical assessment of the pit slope parameters tobe used in the BFS. This included development of geotechnical and structuralmodels for each deposit, assessment of the potential pit slope failuremechanisms and a suite of kinematic and limit equilibrium analyses to assessslope stability and determine slope design parameters to the requiredprobability of failure. The geo-mechanical laboratory testing programmeincluded compressive strength tests, slake durability tests on the weatheredmaterials as well as direct shear tests on core containing structural features.The results confirmed the pit slope angles from the Pre-Feasibility Study.(h) Processing StudyProcess Engineering has been completed for the concentrator design with thegeneration of Block Flow Diagrams, Process Flow Diagrams, Process DesignCriteria, Mass Balance and Mechanical Equipment Lists. The results from thiswork have undergone an extensive peer review and been scrutinised by an externalindependent review team.Detailed plant design was completed with the development of Piping &Instrumentation Diagrams, General Arrangement and detailed plant designdrawings.Vendor packages for the main equipment have been issued and the technical andfinancial adjudication process has been completed. This work will lead to adetailed and up to date capital expenditure estimate to BFS standard by February2010.The processing plant throughput is currently planned at 2Mtpa, although thedesign will encompass the capability of expanding to 3Mtpa at incrementalcapital cost.The comminution circuit comprises single stage crushing, SAGmilling with pebble crusher and then ball milling. The flotation circuitincorporates a conventional rougher-cleaner-re-cleaner circuit for sulphide andoxide material.The final metallurgical variability test work programme for comminution andflotation work encompassing Plutus, Zeta and Petra samples has been completed.The results, analyses and interpretation of test work findings confirm presentmetallurgical understanding of the Boseto mineralisation. High copperconcentrate grades of 44% have been predicted from the processing of Boseto ore.(i) Infrastructure StudiesOngoing discussions continued with the Botswana Power Corporation ('BPC')requesting grid power supply by the first quarter of 2012. BPC confirmed thatthe contracts for Botswana's new power plant projects have been awarded andtheir plans remain on track to significantly increase the country's power gridcapacity. The present Botswana power supply deficit is expected to declinegradually over the next few years until 2012, after which a small power surplusis anticipated.The probable power supply route to the Project would be via Maun by extension ofthe Francistown-Maun power line or via Orapa. Alternate power generationmethods available to the Project for self generation on site at Boseto includediesel, heavy fuel oil (HFO) generator sets and small coal fired powerstations. The capital cost estimate for the Project includes an allowance forfull self generation of all the power needs of the operation.(j) Environmental and Social Impact AssessmentThe final version of the ESIA report has been completed. All specialist studiesincluding archaeology, ecology, groundwater supply and impact, noise, airquality, soil and land use capability and socio-economic considerations havebeen completed. The ESIA report has been submitted to the Botswana Authoritiesfor approval. The review meeting with the Botswana Government has beenscheduled for late February 2010.No impacts that would be considered to constitute an unacceptable level of riskin developing the Boseto Copper Project have been identified in the ESIAstudies.Archaeological clearance for the development of the Project has been granted bythe National Museum. The archaeological clearance covers the proposed minefootprint area as well as for the linear infrastructure (power line, road andwater pipeline).The baseline monitoring programme has been established in line with the EquatorPrinciples and Performance Standards of the International Finance Corporation('IFC'). This is consistent with Discovery Metals' commitment to progressProject development to comply with the Equator Principles.(k) Hydro-Geological StudyDiscovery Metals previously announced the successful delineation of groundwaterresources which are more than sufficient to meet the processing and otheroperational needs of the Project. Well fields to develop these ground waterresources will be situated within approximately 15 kilometres of the proposedplant site and design and capital cost estimates are currently being finalised.(l) Tailings Disposal StudyThe PFS design recommended conventional wet tailings deposition using a ringmain with spigots. With the water resource now confirmed, conventional wettailings deposition will form part of the BFS design. Field work regardinggeotechnical investigations and soil analyses has been completed together withthe final design work and the final report is expected by February 2010.2. Boseto Execution PhaseDiscovery Metals has secured the services of Alan Smyth, an experienced civilengineer with extensive international experience in construction projects. Alanwill lead the Discovery Metals owner's team in the selection and monitoring ofthe EPC contractor and form a team to oversee many of the smaller design andconstruct contracts required for the site. Alan will be with Discovery Metalsthrough the construction and commissioning phases.As stated in Section 1, the selection process for the EPC contractor for thenext phase of the Project (Implementation) has commenced with the short listingof suitably qualified internationally accredited consultancy companies in theareas of engineering and construction. EPC contract documentation based onrecognised international standards has been completed, with the award of the EPCcontract expected once the BFS results are finalised.3. Exploration & Infill DrillingBotswana Copper Project (Discovery Metals 100%)The Botswana copper tenements comprise 14 prospecting licences covering 10,100square kilometres in north-west Botswana. The tenements extend from 60kilometres south-west of Maun to the Namibian border, a distance of over 300kilometres. These tenements contain approximately 1,300 strike kilometres ofrocks potentially hosting copper-silver mineralisation across the KalahariCopper Belt.To date, less than 220 kilometres of the 1300 kilometre prospective horizon havebeen explored by Discovery Metals' soil sampling programme. In addition to thereported Mineral Resources, Zeta and Plutus/Petra remain open at depth and alongstrike. Mineralised prospects not yet included in the Mineral Resource includeQuirinus, South-West Petra, Nexus and north east extensions of Plutus, Nexus andZeta. Only 67 kilometres of the 220 kilometre prospective horizon has beendrilled to date with various grades of mineralisation intersected across thatentire strike.Field activity in the December quarter focussed on deep drilling at Zeta toevaluate the underground resource.Regional soil sampling programmes continued ina number of areas within 10 kilometres of the proposed Boseto plant site. Atotal of 4 diamond drill holes for 2,357m were completed.Zeta Infill Drilling ProgrammeFollowing a final round of infill drilling, the Zeta mineral resource wasupdated in October 2009 to:35.4 Mt (at) 1.4% Cu and 22.3 g/t Ag at a cut-off grade of 0.6% Cuconsisting of Measured resources of 3.9 Mt (at) 1.6% Cu and 23.0g/t Ag, Indicatedresources of 7.0 Mt (at) 1.5% Cu and 23.8g/t Ag and Inferred Resources of 24.5 Mt (at)1.4% Cu and 21.8g/t Ag.Although the Zeta deposit remains open along strike and at depth, this updatedresource will together with the updated Plutus/Petra resources form the basis ofthe Bankable Feasibility Study. No further drilling for open pit resources willbe undertaken at Zeta prior to the completion of the Bankable Feasibility Study.Zeta Underground Drilling programA program is underway to evaluate the potential for an underground miningoperation at Zeta. This program includes drilling deep holes to test themineralisation at depth. A further four more holes (2,357m) were completedduring the quarter to complete the first phase of the drilling program. Assayresults are still pending.Petra Prospect Drilling ProgrammeThe Petra mineral resource was last updated in April 2009 to:9.1Mt (at) 1.2% copper (Cu) and 14.1g/t silver (Ag) using a cut-off grade of 0.6%Cuconsisting of Indicated resources of 0.8 Mt (at) 1.4% Cu and 14.0g/t Ag andInferred resources of 8.3 Mt (at) 1.2% Cu and 14.1g/t Ag.The Petra resource now connects directly to the Plutus resource creating acontinuous strike length of more than 10 kilometres, open at depth and to thenorth east. To the south west, Petra is cut off by a younger, barren KarooGraben.Plutus Prospect Drilling ProgrammeThe Inferred Mineral Resource for the Plutus Prospect was last updated inOctober 2008 to:15.9Mt (at) 1.6% copper (Cu) and 16.4g/t silver (Ag) at a cut-off grade of 0.6% Cu.Infill drilling at Plutus was completed in September 2009 and will improve thequality of the Plutus resource (from Inferred to Indicated status) and wasfocused on the portion of the resource being considered for open pit mining.The current round of drilling results will generate assay information from anumber of shallow holes specifically drilled to improve the Company'sunderstanding of the near surface mineralisation where previous drilling andmetallurgical testing has demonstrated the presence of oxide copper mineralsincluding chrysocolla and malachite.These results will assist in defining the boundaries of higher grade mineralisedzones within the Plutus mineral resource where the grades exceed 2% copper.These +2% copper zones are anticipated to enable development of shallowhigher?grade starter pits which will contribute to improved project economics aswell as provide potential for future underground resources. The potential forunderground resources will be further tested with a deep drilling program duringthe first half of 2010.An updated mineral resource estimate is expected to be completed late inFebruary 2010 using all drill hole results since the determination of thecurrent resource.Quirinus Prospect Drilling ProgrammeThe Quirinus Prospect is located 15 kilometres from the current identifiedmineral resources at Zeta, Plutus and Petra and is located within truckingdistance of the proposed concentrator site.Three discrete anomalous copper zones (greater than 100ppm Cu) were delineatedby soil geochemistry at Quirinus, with the total anomalous copper signature of13.4 kilometres in strike length. Four diamond drill holes and three reversecirculation holes were drilled at Quirinus, confirming copper-silvermineralisation identified by the Niton soil geochemical programme.There has been no further work on the Quirinus Prospect this year as effortswere focused on the mineral resources currently designated for the BFS. Furtherexploration and delineation programmes at Quirinus are expected to be carriedout in 2010 as part of the regional exploration programme.Regional Exploration ProgrammeThe regional soil geochemical programme (using a hand held 'Niton' XRF Analyser)expanded into areas outside the Boseto project. The main area sampled duringthe December quarter is the Nyx area which is located approximately 10kilometres south of Zeta on a different geological structure to that hosting theZeta deposit. A total of 2,075 samples were analysed. Results are undergoingquality control checks.With sufficient "near-Boseto" drilling targets now generated, the Niton crewsare gearing up for a programme of targeted regional soil sampling in 2010 overprospective areas on the rest of the Discovery Metals' tenements.4. Dikoloti Nickel Project, North-East Botswana (Discovery Metals 85% owned)Exploration consisted of a helicopter borne VTEM (Versatile Time DomainElectro-Magnetics) survey over all four prosecting licences at Dikoloti, soilsampling over various geophysical, geochemical and geological targets generatedfrom compilation of previous exploration results and re-logging of drill corefrom Dikoloti North.The Dikoloti nickel project comprises four prospecting licences covering an areaof 600 square kilometres surrounding the nickel deposits of BCL Limited in theSelebi-Phikwe region of north-east Botswana. Discovery Metals has earned an85% interest from Xstrata, which is currently diluting its interest in thisproject. An Inferred mineral resource of 4.1Mt (at) 0.7% Ni, 0.5% Cu and 1.2 ppmPGE's (Pt + Pd) at a cut-off of 0.5% Ni for 28,700 tonnes of contained nickelhas been reported in accordance with the guidelines of the JORC (2004) code.Discovery Metals announced on 8 October 2009 that it has entered into a JointExploration Agreement with The Japan Oil, Gas and Metals National Corporation(JOGMEC) to fund an AUD$3 million exploration programme for Dikoloti. Thehighlights of the agreement are: * Discovery Metals will remain operator of the joint venture during the farm-in exploration period and for any future projects or operating phases; * The joint venture will be controlled by a joint operating committee, with representation of both JOGMEC and Discovery Metals; * A number of highly prospective exploration targets have been identified adjacent to the existing Inferred Resource; * JOGMEC has the right to earn a joint venture interest of up to 60%; and * Should the exploration programme prove successful, it would be expected that JOGMEC would assign its interest to another Japanese entity for the development and operating phases.In detail, the VTEM survey completed 3,461 line kilometres and the preliminarydata has been received. Discovery Metals is encouraged by the results generatedand is planning to carry out ground based EM follow up over several VTEM targetsin order to establish if drill testing is warranted. Such drilling could becarried out later in 2010.A total of 790 soil samples were collected but the results have not yet beenreceived and compiled.Re-logging of the drill core at Dikoloti North indicates that previous drillingof a significant UTEM anomaly had not extended deep enough to intersect theplunging copper/nickel massive sulphide mineralisation. Estimates of the plungesuggest the mineralisation occurs at least 200m vertically below surface andtherefore remains open to the north.5. Australian Projectsa) Musgrave Project, Western Australia (Discovery Metals 100%)A joint venture agreement is in place with Redstone Resources Limited('Redstone'). The Company is in the process of evaluating the standing of thesetenements.b) Litchfield Project, Northern Territory (Discovery Metals 100%)The Litchfield tenements are in the process of being relinquished.6. Corporate ActivitiesOn 23 October 2009, the Company announced it had successfully placed 29,100,000shares at AUD 45 cents per share (GBP 25.5p) to raise AUD $13.1 million (net ofexpenses) with institutional and retail investors in both the United Kingdom andAustralia. In anticipation of a successful BFS outcome, this funding willenable the assembly of the Company's project team responsible for theconstruction of the Boseto Copper Project facilities commencing in 2010. Thefunding will also allow the Company to pay early cash deposits on long leaditems of plant and equipment with the aim of shortening the developmenttime-frame to the production of copper concentrate and for ongoing explorationprogrammes.In addition, the Company completed an AUD$2.7 million Share Purchase Plan (SPP)for shareholders with addresses in Australia and New Zealand, for purchases ofup to AUD$15,000 worth of shares at 45 cents per share.At the end of the December quarter 2009, Discovery Metals held AUD $17.6 millionin cash.-------------------------------------------------------------------------------- For further information on this release and Discovery Metals Limited generally, please contact: Brad Sampson Managing Director Ph: +61 7 3218 0200 or Mob: +61 4 3877 1037 brad(at)discoverymetals.com.au
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