Macquarie Equities Research - Discovery Metals Limited

AUSTRALIA
DML AU
Price 2 Jun 10
Outperform
A$0.76
Relative to ex 100
Volatility index
12-month target A$ 1.00
12-month TSR % +31.6
Valuation A$
- DCF (WACC 12.0%, beta 2.0, ERP 5.5%, RFR 6.0%)
0.99
GICS sector
Materials
Market cap A$m 227
30-day avg turnover A$m 0.8
Number shares on issue m 298.6
Investment fundamentals
Year end 30 Jun
2009A 2010E 2011E 2012E
Sales revenue m 0.0 0.0 0.0 88.7
EBIT m -5.0 -7.5 -11.0 18.4
Reported profit m -4.4 -5.4 -9.5 8.3
Adjusted profit m -4.4 -5.4 -9.5 8.3
Gross cashflow m -3.7 -2.9 -4.5 24.7
CFPS ¢ -1.9 -1.0 -1.0 5.8
CFPS growth % 28.5 48.2 -6.8 nmf
PGCFPS x nmf nmf nmf 13.2
PGCFPS rel x nmf nmf nmf nmf
EPS adj ¢ -2.3 -1.7 -2.2 1.9
EPS adj growth % 14.5 27.9 -31.7 nmf
PER adj x nmf nmf nmf 39.1
PER rel x nmf nmf nmf nmf
Total DPS ¢ 0.0 0.0 0.0 0.0
Total div yield % 0.0 0.0 0.0 0.0
Franking % nmf nmf nmf nmf
ROA % -20.8 -15.4 -6.8 7.0
ROE % -19.7 -11.6 -8.7 5.4
EV/EBITDA x -34.1 -52.7 -51.4 8.9
Net debt/equity % -28.2 -45.9 53.1 54.0
P/BV x 5.2 4.4 2.1 2.2
Source: FactSet, Macquarie Research, June 2010
(all figures in AUD unless noted)
Len Eldridge
61 8 9224 0838 Len.Eldridge@macquarie.com
Martin Stulpner, CFA
61 8 9224 0866 Martin.Stulpner@macquarie.com
Discovery Metals Ltd.
A copper producer in the making
Discovery Metals (DML) is an emerging copper producer focused on developing
the Boseto copper project in Botswana. DML acquired its tenement package in
Botswana in 2005 and has delineated an aggregate resource of 102mt at 1.4%
copper for 1.42mt contained copper.
Boseto to generate early cashflow. DML is due to deliver the Boseto BFS in
July 2010, based on a 3mpta plant. The parameters for the Boseto project have
evolved from the initial 2mtpa plant study following significant exploration
success in the drilling campaign over the past 12 months. We have assumed
project capex of US$185m for construction of the Boseto project and we forecast
average production of 36ktpa copper at cash costs of US$1.56/lb (real $2010,
including royalties) over a 13 year LOM. We have modelled 3mtpa mine
production exclusively from an open pit in years 1-4 with 1mtpa of underground
ore to supplement 2mtpa open pit material from year five.
Our base case 13 year LOM assumption appears to be conservative as we have
modelled the open pit on M&I resources only and not included the ~50mt of open
pit material in the inferred category. Subject to the prevailing copper price
environment (given the grade and high strip ratio of deposits at Boseto) we see
significant upside to our LOM forecast.
A significant exploration footprint. DML has an extensive tenement package
in Northern Botswana, which runs ~300km to the Botswana and Namibian
border targeting the Kalahari copper belt. The Kalahari copper belt is interpreted
to be part of the Pan African mobile belt, which contains well known and prolific
copper belts in Zambia and the DRC. DML has indicated it has indentified
1,300km of potential strike length, with Boseto resources covering only 30km of
the prospective strike length. The focus of exploration over the past 12 months
has been infill drilling at Boseto; now the resources are in place to underpin the
BFS we expect the focus to begin to shift to regional targets.
Risks. Taking a project from the exploration phase through funding, construction
and ultimately production is inherently challenging. DML is set to complete the
Boseto BFS in July, which will then see DML move to secure project funding (we
have assumed 50:50 debt to equity mix). The construction phase of the project
does not appear to present many technical challenges with major sealed
highways providing site access; however, the risk of equipment delivery delays
and capex over-runs is ever present. Once operational, project specific risks
include the floating of oxide copper which is prevalent in the upper parts of the
ore body (though makes up only 5% of mined material over LOM) and a narrow
ore body leading to a high strip ratio.
Action and recommendation. We initiate coverage with an Outperform
recommendation and A$1.00ps price target. DML is well positioned to progress
Boseto from an exploration project to production over the coming 18 months.
Given the extensive tenement package and first mover advantage in the Kalahari
Copper Belt, we view the Boseto project as a starter project and believe there is
potential for a significant increase in the resource base and a material increase
to our base case 13 year LOM assumption.
3 June 2010
Please refer to the important disclosures and analyst certification on page 2 and the inside back cover of this
document, or on our website www.macquarie.com.au/research/disclosures.

Macquarie Research
Discovery Metals Ltd.
Inside
A copper producer in the making 3
Financials 10
Risks 12
Boseto overview 13
Mining in Botswana 26
Botswana country profile 30
Copper 31
Board & Management 34
Discovery Metals
Company profile
• Discovery Metals (DML) is an emerging copper producer focused on
developing the Boseto copper project in Botswana. DML acquired its
tenement package in Botswana in 2005 and has delineated an aggregate
resource of 102mt at 1.4% copper for 1.42mt contained copper.
• The Boseto Copper project is located in the northwest corner of Botswana,
~80km from the town of Maun. DML acquired a seven tenement package from
the Government of Botswana in 2005, and the tenement package was
renewed in 2008. DML secured a further seven tenements to the southwest of
the original package in 2008. DML‟s tenement package covers 10,100km 2 ,
starting ~60km southeast of Maun and stretching ~300km to the Namibian
boarder.
• DML is due to deliver the Boseto BFS in July 2010, based on a 3mpta plant
footprint. The parameters for the Boseto project have evolved from the initial
2mtpa plant study following significant exploration success in the drilling
campaign over the past 12 months. We have assumed project capex of
US$185m for construction of the Boseto project and we forecast average
production of 36ktpa copper at cash costs of US$1.56/lb (real $2010,
including royalties) over a 13 year LOM. We have modelled 3mtpa mine
production exclusively from an open pit in years 1- 4 with 1mtpa of
underground ore to supplement 2mtpa open pit material from year five.
• Now that the initial Boseto project has sufficient resources to underpin a 13
year LOM, DML will begin to refocus its exploration efforts on regional
exploration targets in an attempt to define a “Boseto 2” project, now that
sufficient resources have been indentified to underpin at least a 13 year LOM
at Boseto. At present only 328km of the prospective 1,300km of indentified
strike length has been explored by a soil sampling program, with only 67km of
the 1,300km drilled to date. DML collected soil samples covering 108km of
prospective strike in the March quarter with the results undergoing quality
control checks prior to release.
Fig 1
DML AU vs Small Ordinaries
Source: FactSet, Macquarie Research, June 2010
(all figures in AUD unless noted)
3 June 2010 2

Macquarie Research
Discovery Metals Ltd.
A copper producer in the making
We have assumed a
50:50 debt:equity
funding package
We initiate coverage of Discovery Metals (DML) with an Outperform recommendation and
A$1.00ps price target. Our price target is based on our funded DCF valuation, assuming
50:50 debt/equity funding, with equity raised at the current share price of A$0.77ps; however,
we have considered a number of ranges (-20% to +30%) for the pricing of an equity raising.
Fig 2 Unfunded Discovery Metals NPV valuation
Segment A$m A$ps
Boseto 233 0.78
Exploration 60 0.17
G&A -32 -0.11
Net cash/(debt) 34 0.12
DML NPV 295 0.99
Shares on issue ($m) 299
Source: Macquarie Research, June 2010
Our Boseto project valuation is based on a 3mtpa plant as guided by the BFS update
released in May 2010. The Boseto project has been upgraded from the initial scope of the
BFS which was based on a 2mtpa plant. The BFS for the 3mtpa project is due to be released
in July. DML has not provided formal production, capex or cost guidance for the 3mtpa
project, which is understandable as work is ongoing to determine appropriate mine schedules
and fleet configuration for the accelerated open pit mining rate.
Boseto modelling
based on 3mtpa
plant over an initial
13 year LOM
We have based our project modelling on the open pit M&I resource base as of April 2010 and
the underground mining inventory used in the underground scoping study released in March
2010. Based on the key mine parameters set out in Fig 3 we are forecasting average copper
production of 36ktpa and silver of 1,054moz at US$1.56/lb (real $2010) over a 13 year LOM.
Fig 3 Key Boseto mine assumptions
Parameter Year 1-4 Years 4-13
Open pit mined tonnes mt 3.0 2.0
Strip ratio X 10 10
Underground mined tonnes mt 0.0 1.0
Milled tonnes mt 3.0 3.0
Copper grade % 1.4 1.5
Copper recoveries % 81.0 86.0
Copper production kt 27.1 35.7
Silver grade g/t 18.7 18.7
Silver recoveries % 60 60
Silver production koz 945.6 1097
Copper/silver revenue % 93 94
Concentrate grade Cu % 40 40
Concentrate produced kt 67 82
Cash costs (real $2010) US$/lb 1.35 1.68
Source: Macquarie Research, June 2010
Our base case 13 year LOM assumption appears to be conservative as we have modelled
the open pit on M&I resources only and not included the ~50mt of open pitable material in the
inferred resource category. Subject to the prevailing copper price environment (given the
grade and high strip ratio of deposits at Boseto), we see significant upside to our LOM
forecast and subsequent asset valuation.
3 June 2010 3

Macquarie Research
Discovery Metals Ltd.
Fig 4
Boseto base case production profile (FY’s)
Copper (kt)
40
35
30
25
20
15
10
5
(US$/lb)
2.50
2.00
1.50
1.00
0.50
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Copper Total costs (inc credits real 2010$)
0.00
Source: Macquarie Research, June 2010
Copper is our
preferred base
metals exposure
We are bullish on the outlook for the copper market and foresee a deficit in 2011. We find it
difficult, even in a poorer than expected European and Chinese growth scenario, to model
copper in anything other than deficit in 2011. Currently our forecast is for a 570kt deficit next
year (downside with poor Europe scenario and slow Chinese growth is balance / very small
deficit). All of the main end use markets in China still look set to grow in line with our forecasts
in 2010 and 2011 and our ex-China numbers still look moderate.
Fig 5 Our price deck
Spot 2010 2011 2012 2013 2014 2015
LT
(real
2010$)
Copper (US$/lb) 3.13 3.40 3.50 3.00 2.70 2.70 2.60 2.20
Silver (US$/oz) 18.53 17.30 16.90 15.40 14.60 13.80 14.20 14.00
AUD/USD 0.85 0.91 0.86 0.80 0.80 0.80 0.80 0.80
Source: Macquarie Research, June 2010
Valuation is highly
leveraged to our
copper price
assumption
With copper accounting for ~94% of our forecast DML revenue, our DCF valuation is
particularly sensitive to our copper price assumption. Operating costs also have the potential
to have a material impact on project economics, as with cash costs of US$1.56/lb, we expect
Boseto to be in the top half of the cost curve. Given the relatively low capital intensity of the
Boseto project (~US$5,000/t) our valuation is not overly sensitive to capex.
Fig 6 DML unfunded valuation sensitivity
$ps
2.50
2.00
1.50
1.00
0.50
0.00
-0.50
-30% -20% -10% 0% 10% 20% 30%
Copper price Opex Capex Discount rate Share price
Source: Macquarie Research, June 2010
3 June 2010 4

C1 Cash Cost (c/lb Cu)
C1 Cash Cost (c/lb Cu)
Macquarie Research
Discovery Metals Ltd.
Boseto will not be a
low cost producer…
Average LOM cash costs of US$1.56/lb have DML straddling the boundary between the 3rd
and 4th quartile of the 2010 copper cost curve. However, we note that Boseto costs in the
first four years will be below the LOM average as ore will be sourced solely from the open pit.
Fig 7 2010 Brook Hunt copper cost curve
250
2010 C1 Composite Cost Curve For Copper Mines - By Minesite
225
200
175
Boseto LOM
average position
150
125
100
75
50
25
0
0 4000 8000 12000 16000 20000 24000 28000 32000
Cumulative Production (Paid Mlbs Cu)
Source Brook Hunt - A Wood M ackenzie Company
Source: Brook Hunt, Macquarie Research, June 2010
However, Boseto is
likely to become
more competitive
as the cost curve
shifts upwards
Looking forward, we expect the Boseto project to increase in competitiveness, as the cost
curve shifts upwards over the next 3-5 years. The upwards shift in the copper cost curve
reflects our (and many in the market‟s) bullish view on copper, with costs to be driven higher
by declining grade profiles, the start-up of lower grade mines with large capex requirements
and the increasing percentage of greenfield projects in countries with a higher level of
geopolitical risk which will a higher returns on capital to justify investment.
Fig 8 2015 Brook Hunt copper cost curve
250
2015 C1 Composite Cost Curve For Copper Mines - By Minesite
225
200
175
150
125
Boseto LOM
average position
100
75
50
25
0
0 4000 8000 12000 16000 20000 24000 28000 32000 36000 40000
Cumulative Production (Paid Mlbs Cu)
Source Brook Hunt - A Wood M ackenzie Company
Source: Brook Hunt, Macquarie Research, June 2010
3 June 2010 5

Macquarie Research
Discovery Metals Ltd.
The peer group comparisons
Potential for a re
rating as DML
becomes a producer
First mover
exploration upside
in Northern
Botswana
DML is the fifth pure copper play under our coverage; of the five, three are producers and two
are developers.
Fig 9 ASX copper producers and near term developers
Company Code
Price
(A$ps)
Market
cap
(A$ps)
Net
cash/(debt)
(A$m)
EV
(A$m) Status Project Location
Discovery DML 0.77 229 34 195 E&D Boseto Botswana
OZ
Minerals OZL 1.06 3,308 971 2,337 Producer
Prominent
Hill Australia
Equinox EQN 4.13 2,920 -430 3,350 Producer Lumwana Zambia
PanAust PNA 0.48 1,418 -38 1,456 Producer Phu Kham Laos
Indophil IRN 1.14 480 27 453 E&D Tampakan Philippines
Citadel* CGG 0.32 468 26 442 E&D
Jabal
Sayid Saudi Arabia
Sandfire* SFR 3.26 421 52 369 E&D Degrussa Australia
*CGG & SFR not under research coverage
Price as at 1 June 2010
Source: IRESS, Company Data, Macquarie Research, June 2010
On the current Boseto project resource, DML lacks the scale of the three pure copper
producers on the ASX. However, DML has an exciting exploration program which appears to
be at least the equal of the three producers‟. Given the potential for near mine resource
conversion (to add material tonnes to our base case Boseto LOM assumption) and the
regional potential of the largely unexplored tenement package, we believe DML has the
potential to add significant value through the drill as well as the potential for a re-rating as it
progresses from explorer to producer.
Fig 10 Relative investment metrics for our ASX pure copper universe
Share price
(A$ps)
NPV
($ps)
PER
EV/EBITDA
P/NPV 2010 2011 2012 2013 2010 2011 2012 2013
Discovery* 0.77 0.98 0.79 nmf nmf 39.50 6.00 nmf nmf 13.8 2.9
OZ
Minerals** 1.06 1.32 0.80 8.54 7.85 8.69 12.21 2.72 1.87 1.71 1.73
Equinox 4.13 4.37 0.95 6.97 6.04 7.78 10.34 6.35 3.29 3.25 3.51
PanAust 0.48 0.47 1.02 5.98 6.43 7.33 9.99 3.49 2.50 2.16 2.19
Indophil 1.14 0.94 1.21 nmf nmf nmf nmf nmf nmf nmf nmf
*DML has a June year end, **OZL valuation is not adjusted for potential Australian RSPT impact
Price as at 1 June 2010
Source: IRESS, Macquarie Research, June 2010
With the exception of EQN, our pure play copper universe is largely at steady state
production rates and we do not forecast material increases in mine production between now
and 2014. In addition to DML, we see the potential for two other ASX explorers to join the
ranks of pure copper producers over the next 18-24 months - Citadel Resource Group and
Sandfire Resources.
3 June 2010 6

Equniox
Indophil
PacMag
Ivanhoe
OZ Minerals
Marengo
Pan Aust
Aditya Birla
Discovery
Anvil Mining
Universal
Blackthorn
Citadel
Tiger
Cudeco
Avalon
Exco
Sandfire
Havilah
Hillgrove
Finders
Macquarie Research
Discovery Metals Ltd.
Fig 11 Macquarie’s ASX copper universe production profile
kt copper
180
160
140
120
100
80
60
40
20
0
Equinox OZ Minerals PanAust Discovery Kagara Straits
2010 2011 2012 2013 2014
Source: Macquarie Research, June 2010
Citadel Resource Group (CGG.AU)
CGG is focused on the Jabal Sayid project in Saudi Arabia, in which it currently has a 70%
interest. Jabal Sayid is an underground project with a reserve of 24.4mt at 2.2% copper and
0.25g/t gold to support production of ~57ktpa copper at cash costs of US$0.97/lb over an
initial ten year LOM. CGG has recently received the mining licence for the Jabal Sayid and
expects to commence construction of the US$280m project immediately with a target of
project commissioning in 3Q11.
Sandfire Resources (SFR.AU)
SFR is focused on the Doolgunna project in Western Australia. The Degrussa deposit (7.13mt
at 5.2% copper & 1.9g/t gold) is arguably the most exciting discovery by an ASX listed copper
producer in recent times. Degrussa is a VMS style system and SFR is understandably excited
by the potential for further discoveries at the broader Doolgunna project. SFR is currently
completing a pre-feasibility study with a target of first production in mid 2012. SFR‟s major
shareholder is POSCO which has a 17% interest.
Fig 12 ASX copper resource bases
kt copper
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Source: Company data, Macquarie Research, June 2010
3 June 2010 7

Sandfire
OZ Minerals
Cudeco
Pan Aust
Equinox
Citadel
Straits
Anvil
Ivanhoe
Finders
Discovery
Aditya Birla
Tiger
Hillgrove
Exco
Blackthorn
Indophil
Havilah
Redbank
Avalon
PacMag
Universal
Marengo
Macquarie Research
Discovery Metals Ltd.
Fig 13 EV/Resource metrics
A$/t copper
1200
1000
800
600
400
200
0
Source: IRESS, Company data, Macquarie Research, June 2010
3 June 2010 8

Macquarie Research
Discovery Metals Ltd.
Share register
The DML share register is relatively concentrated with the six largest shareholders accounting
for ~47% of register.
Fig 14 DML share register
Shareholder %
Macquarie Bank 11.5
Taurus Fund 11.1
Transamine 8.3
Citi Group Global Markets 7.1
Investec (Botswana) 5.2
BIFM (Botswana) 3.6
Source: DML, Macquarie Research, June 2010
Macquarie Bank. The Macquarie Bank holding is held by the Metals and Energy Capital
division which specialises in early stage resource project funding. Macquarie‟s initial
investment was a placement of 5m shares at A$0.23ps in August 2006.
Taurus Fund. Taurus is an Australian based investment fund manager which
specialises in investment products based on the natural resources industry.
Transamine. In March 2010, DML entered into an offtake agreement with metals trader
Transamine for 100% of Boseto concentrate for a minimum of five years. As part of the
offtake agreement DML placed 25m shares (9.8% of DML shares) to Transamine at A$0.76ps
(to raise A$19m) which was an 11% premium to the four week VWAP at the time of
placement.
Investec Asset Management & Fleming Asset Management Botswana. DML placed
8.89m shares to Investec and Fleming in March 2007
Citi Group Global Markets. This holding represents the shareholding sold by Resource
Capital Funds to Soros in April 2010.
3 June 2010 9

Macquarie Research
Discovery Metals Ltd.
Financials
The historical DML financial statements are reflective of a metals exploration company in the
feasibility study phase of its initial project. The last reported cash balance was A$34m as at
31 March with ~A$10m of cash inflows expected during the June quarter due to option
exercises.
Exploration budget
of A$10m over the
coming 8 months
The current cash balance will see DML through to completion of the BFS in July and is likely
to allow DML to place orders for long lead time items prior to the completion of debt/equity
finance. The exploration budget for the coming eight months is A$10m.
Capital raising history
DML listed on the ASX in December 2003 with an A$8m IPO. The most recent capital raising
was the placement to Transamine as part of the offtake agreement for the first five years of
Boseto production.
Fig 15 DML capital raising history
Placement month Price (A$ps) Shares issued (m) Net proceeds (A$m)
Jun-07 $0.26 3.5 $0.90
Aug-07 $0.36 34.3 $11.30
Aug-08 $0.42 20.0 $8.00
Feb-09 $0.18 12.8 $2.30
Apr-09 $0.18 9.0 $1.50
Jun-09 $0.18 22.2 $4.00
Oct-09 $0.45 29.1 $13.10
Nov-09 $0.45 5.9 $2.68
Mar-10 $0.76 25.0 $19.00
Source: DML, Macquarie Research, June 2010
Project funding scenarios
We have assumed
capex of US$185m
with 50:50
debt:equity funding
A formal capex forecast for the 3mtpa project is yet to be released. The capex forecast for the
2mtpa was US$150m, which was last updated in October 2009. With the release of the
decision to upgrade the project scope to 3mtpa, DML awarded the EPC contract for plant
construction to Sedgman Limited for a „maximum price‟ of US$85m. The plant capex for a
2mtpa plant was estimated at A$70m, meaning the US$19m contingency estimate for plant
capex in the US$150m for the 2mtpa project has essentially been consumed by the increase
in plant capacity.
The final structure of a finance package is yet to be determined; however, with the first five
years production sold to Transamine the project appears to lend itself to traditional project
debt and equity financing.
To get a feel for how a funded and operational DML valuation looks we have assumed a
target debt to equity funding ratio of 50:50. We have included a number of equity raising
scenarios in order to provide a conceptual per share valuation once Boseto is developed. The
table below is broken out into our project valuation at 1 July 2011, a net debt balance equal to
a project finance facility and number of shares dependent on a range of equity raising
scenarios. We have then discounted this valuation back to today at a rate of 10% pa to reflect
the opportunity cost of capital. We have not taken into account any potential hedging
requirements as part of a project debt facility.
Fig 16
DML funded valuation scenarios under various equity raising pricing
$m -20% -10% 0.77 10% 20% 30%
Shares on issue 297 297 297 297 297 297
Shares issued for equity fudning 152 135 121 110 101 93
Shares on issue post funding 449 432 419 408 398 391
Boseto at 1 July 2011 517 1.15 1.20 1.24 1.27 1.30 1.32
G&A -32 -0.07 -0.07 -0.08 -0.08 -0.08 -0.08
Exploration 60 0.13 0.14 0.14 0.15 0.15 0.15
Net Debt -78 -0.17 -0.18 -0.19 -0.19 -0.19 -0.20
NPV at 1 July 2011 1.04 1.08 1.12 1.15 1.17 1.20
Discount factor 1.10 1.10 1.10 1.10 1.10 1.10
NPV discount back to today 0.95 0.98 1.02 1.04 1.07 1.09
Source: Macquarie Research, June 2010
3 June 2010 10

Macquarie Research
Discovery Metals Ltd.
Fig 17 Discovery financial summary
Discovery Metals (DML) Share price 0.77
Y/E 30 June
Profit & Loss 2010 2011 2012 2013 2014 2015 Production and price assumptions
Total revenue A$m 0 0 89 250 276 271 Production 2010 2011 2012 2013 2014 2015
Mine costs A$m 0 0 -48 -131 -150 -177 Copper (kt) 0.0 0.0 10.2 30.7 35.7 35.7
Corporate cost A$m -5 -6 -6 -6 -6 -6 Silver (koz)
Exploration A$m -3 -5 -5 -10 -8 -5 Costs 2010 2011 2012 2013 2014 2015
EBITDA A$m -7 -11 30 102 112 83 Cash costs (US$/lb) 0.00 0.00 1.45 1.27 1.22 1.44
Depreciation A$m 0 0 -11 -29 -29 -29
Underlying EBIT A$m -7 -11 18 73 83 54 Prices 2010 2011 2012 2013 2014 2015
Non recurring EBIT A$m 0 0 0 0 0 0 Copper (US$/lb) 3.13 3.55 3.15 2.85 2.70 2.65
Total EBIT A$m -7 -11 18 73 83 54 Silver (US/oz) 0.17 0.17 0.16 0.15 0.14 0.14
Net interest A$m 0 -3 -7 -5 -3 0 AUD:USD 0.89 0.92 0.82 0.80 0.80 0.80
Pre-tax profit A$m -7 -14 12 68 81 54
Underlying tax expense A$m 2 4 -4 -20 -24 -16
Non recurring tax expense A$m 0 0 0 0 0 0
Minority Interest A$m 0 0 0 0 0 0 Net Present Value @ 12% A$m A$ps
Reported profit A$m -5 -9 8 47 56 38 Boseto 233 0.78
Adjusted profit A$m -5 -9 8 47 56 38 G & A -32 -0.11
EPS adjusted Acps -2.2 -2.4 1.9 11.0 13.2 8.8 Net cash/(debt) 34 0.11
EPS growth % nmf 10% -181% 468% 19% -33% Exploration 60 0.17
DPS Acps 0 0 0 0 0 0 Shares on issue 299
Payout ratio % 0% 0% 0% 0% 0% 0% Ungeared NPV 295 0.99
Weighted average diluted shares m 238 396 429 429 429 429
Cashflow 2010 2011 2012 2013 2014 2015
Net cash inflow from operating activities A$m -8 -11 30 102 112 83 Key investment ratios 2010 2011 2012 2013 2014 2015
Net interest A$m 0 -3 -7 -5 -3 0 Adjusted PER -35.5 -32.2 39.6 7.0 5.8 8.7
Tax paid A$m 0 0 0 0 0 -25 EV/EBITA -21.6 -35.2 13.8 3.4 2.9 4.0
Other A$m 0 0 0 0 0 0 P/FCF -10.45 -1.43 24.69 4.03 3.39 9.85
Net operating cashflow A$m -8 -14 23 97 110 58
Capital expenditure A$m 0 -195 -5 -5 -5 -20 Balance sheet 2010 2011 2012 2013 2014
Exploration A$m -10 -5 -5 -10 -8 -5 Cash A$m 29 17 31 98 173
Proceeds from sale of PP&E A$m 0 0 0 0 0 0 Other current assets A$m 1 1 1 1 1
Net cashflow from investing A$m -10 -200 -10 -15 -13 -25 P,P & E A$m 1 196 189 165 141
Debt drawdown/(repayment) A$m 0 98 0 0 0 0 Other non-current assets A$m 34 43 50 60 67
Dividends paid A$m 0 0 0 0 0 0 Total assets A$m 64 257 271 324 382
Share capital A$m 34 104 0 0 0 0 Current liabilities A$m 2 2 2 2 2
Net financing cashflow A$m 34 202 0 0 0 0 Total liabilities A$m 2 102 119 125 127
Net cashflow A$m 17 -11 13 82 97 33 Shareholder equity A$m 62 155 151 199 255
Free cashflow A$m -18 -214 13 82 97 33 Total debt A$m 0 100 113 113 113
FCFPS Acps -7.4 -54.0 3.1 19.1 22.7 7.8 Net debt A$m 29 -83 -82 -15 60
Source: Macquarie Research, June 2010
3 June 2010 11

Macquarie Research
Discovery Metals Ltd.
Taking a project
from exploration to
production carries
inherent risks
Risks
Permitting. DML is in the process of applying for a mining licence for Boseto. DML has
submitted the Environmental Impact Assessment and the public consultation period has been
completed. Other than the approval of the EIA, the completion of the BFS is the major
outstanding item required prior to the granting of a mining licence. We note that in 2008 DML
renewed its initial tenement package and was granted a further seven tenements.
Capital & timing. As with all greenfield mining projects DML is exposed to the challenges
associated with progressing a project from the exploration to development phase. Risks to
project timing include availability of capital items and skilled labour. Feasibility studies
typically are based on an accuracy of +/-10%.
Funding. DML is yet to complete a BFS into the Boseto project and subsequently yet to
secure project funding. The BFS is due to be completed in July. While recent BFS updates
point to a bankable project, there is no guarantee or a commitment to provide debt funding;
such an agreement will be dependent on a number of factors, including the results of the BFS
and the prevailing state of capital markets.
Commodity forecasts. The forecasting of commodity prices carries inherent risk, material
changes to our view on industry structure and price drivers have the potential to materially
alter our commodity forecasts.
Single asset risk. Boseto will be DML‟s sole operating asset under its control once in
production. Any disruptions to the mine plan have the potential to materially affect DML‟s
financial position and its ability to meet any potential project funding obligations.
Operational risk. The ramp-up and operation of any mining project carries an inherent level
of risk, including building sufficient ROM stocks in both grade and ore types to maintain a
consistent feed to mill. Major operational risks to Boseto are recoveries, particularly in the
upper sections of the deposit where oxidised ore is prevalent and the narrow nature of the ore
body results in a high strip ratio. Looking to the potential underground development at Zeta,
the grade is relatively low for underground mining outside of bulk underground mining
operations.
Exploration risk. By nature, exploration is inherently uncertain and while the current project
resource appears to confirm economic mineralisation to support a ~35kt pa copper operation
for 10-15 year LOM there is no guarantee DML will discover further economic resources in its
tenement package.
Regulatory risk. Mining in all jurisdictions in both developing and developed economies is
subject to regulatory risks. Typical regulatory risks include: changes to tax and royalty
regimes, tenure of assets and environment issues such as the implementation of a carbon
tax/emission trading scheme.
Power. Botswana is a net importer of power and has traditionally relied on Eskom as a main
source of power supply. To mitigate the risk of a potentially unreliable power supply from the
grid, DML will use heavy fuel oil generators during the construction phase and will construct
an onsite coal fired power station. DML had initially considered putting in place an 80km
transmission line to link the site to Maun and link into the grid.
3 June 2010 12

Macquarie Research
Discovery Metals Ltd.
An extensive
tenement package
in Northern
Botswana
Boseto overview
The Boseto Copper project is located in the northwest corner of Botswana, ~80km from the
town of Maun. DML acquired a seven tenement package from the Government of Botswana
in 2005, the tenement package was renewed in 2008. DML secured a further seven
tenements to the southwest of the original package in 2008. DML‟s tenement package
covers 10,100km 2 , starting ~60km southeast of Maun and stretching ~300km to the Namibian
border.
Fig 18 Boseto project location
Source: DML, June 2010
Geology and resources
The Boseto project is hosted in the Kalahari Copper Belt. The Kalahari Copper Belt forms part
of the late Proterozic Pan African Mobile Belt which contains well-known and prolific copper
belts in Zambia and the DRC. The Kalahari copper belt extends south-westwards into
Namibia and north-eastwards into Zambia, with known deposits sediment hosted.
The Kalahari Copper
Belt is interpreted
as an extension of
the Pan African
Mobile Belt
Mineralisation at Boseto typically outcrops or is covered by a thin layer of sand, which
extends to 10m below surface at the deepest point. The majority of the Boseto copper occurs
in sulphide mineralisation (90%); the dominant sulphide is chalcoite with minor amounts of
bornite. Oxide ore is dominant in the top 20m of the ore body with copper hosted in malachite
and chrysocolla; smaller amounts of oxide material are found along fractures of the ore body.
3 June 2010 13

Macquarie Research
Discovery Metals Ltd.
Fig 19
The Pan African Mobile Belt
Source: GeoLogix, Hana Mining, September 2007
Boseto project has
1.42mt of contained
copper in resources
DML published an updated resource estimate for Boseto in April 2010. The drilling program
between the previous resource estimate published in October 2009 and April 2010 resulted in
a 68% increase in contained copper to 1.42mt.
Fig 20 Boseto resource as at April 2010
M&I Inferred M&I + I
tonnes
(mt)
Copper
(%)
Silver
(g/t)
tonnes
(mt)
Copper
(%)
Silver
(g/t)
tonnes
(mt)
Copper
(%)
Silver
(g/t)
Petra 3.6 1.3 14.2 9.1 1.3 15.4 12.7 1.3 15.1
Southwest
Petra 17.2 1.4 15.4 17.2 1.4 15.4
Northeast
Plutus 14.9 1.2 12.5 14.9 1.2 12.5
Plutus 8 1.4 14 14.6 1.5 16.1 22.6 1.5 15.4
Zeta 10.9 1.6 23.5 24.5 1.4 21.8 35.4 1.5 22.3
Total 22.5 1.5 18.6 80.3 1.4 16.9 102.8 1.4 17.3
Source: DML, Macquarie Research, June 2010
The initial open pit operation will focus on mining on the Zeta and Plutus areas. The
measured and indicated portion of the resource represents open pitable material under a
2mtpa mining rate at a 10:1 strip ratio. DML has engaged Snowden to remodel the mine
schedule to allow for accelerated open pit mining to support the 3mtpa. The combined Plutus
and Petra resource (inc Northeast Plutus and Southwest Petra extensions) now stretches
over a continuous 25km strike length and remains open to the North East.
The inferred resources at Southwest Petra and Northeast Plutus are only drilled to a depth of
160m at wide spacing of 1,000m. DML has conducted infill drilling at 500m spacing. As DML
completes further infill drilling it should provide confidence in the ability of Southwest Petra
and Northeast Plutus to extend the open pit LOM.
The inferred portion of the Zeta resource (24.5mt @ 1.4% copper) is below 160m, extending
to 360mbs, and formed the basis of the underground scoping study released in April 2010.
The resource remains open below 360m and DML continues to progress exploration to
confirm the continuation of mineralisation to a depth of 650m.
3 June 2010 14

Macquarie Research
Discovery Metals Ltd.
Near mine exploration
Near mine
exploration target
has potential for a
material LOM
extension
The focus of the near mine exploration program will be on upgrading the Zeta underground
resource and delineating an initial underground resource at Plutus. DML will also begin to drill
targets (Nexus, Nyx, Quirinus and Plutus extensions) that have the potential to provide open
pitable resources within trucking distance of the concentrator
Plutus and Petra
The combined Plutus and Petra resource covers a continuous strike length of 25km and is
open to the northeast and at depth over the entire strike length. At Northeast Plutus a series
of diamond drill holes were completed in April to infill the existing data which underpins the
current 14.9mt @ 1.2% copper inferred resource. The results of these holes are yet to be
released.
The Southwest Petra resource appears to join up with the Nexus prospect at a fold nose.
There is 3m of strike between the boundary of the Southwest Petra resource and the
indentified fold nose, where a fault zone has vertically displaced mineralisation.
Zeta underground
At Zeta DML has completed a series of five drill holes to test the down dip extension of the
Zeta deposit. The current Zeta inferred resource includes mineralisation to a depth of
360mbs, the five hole program was designed to test for mineralisation to a depth of 650mbs.
While these holes were completed in late 2009 the data has not been released and is being
reviewed and quality assured.
Nexus
The Nexus prospect is an 11km copper anomaly running parallel to (~2km west of) the Zeta
deposit. Drilling at Nexus has not been a priority of the drilling to sure up the initial resource
base to underpin the BFS. Looking forward DML will carry out drilling on the Nexus target to
examine the potential for economic mineralisation at Nexus. We note initial drill results point
to relatively thin copper mineralisation at Nexus. We understand this is not a high priority
target and is likely to be followed up once the initial project is up and running as the current
M&I resource supports at least a ten year LOM.
Nyx
Nyx is a geochemical anomaly located ~10km south-southeast of the Zeta deposit. The
prospect is positioned on the northwest dipping limb of a synclinal structure trending in the
same direction as Zeta and Plutus. Initial recognisance work using a Niton XRF machine
confirmed the presence of the anomaly and nine holes (550m) were completed in March
2010, with six holes spaced on a 1km line spacing. Assay results are expected in the June
quarter with DML indicating that the holes intersected similar stratigraphy.
Quirinus
The Quirinus prospect is located 15km from the proposed Boseto concentrator site. Three
anomalous copper zones were initially defined by soil geochemistry, with the anomalies
stretching over a 13.4km strike length. Seven drill holes have been completed which have
confirmed the presence of copper mineralisation. No drilling was conducted as part of Boseto
BFS, with further drilling to be carried out in 2Q10 as part of a broader regional exploration
program.
3 June 2010 15

Macquarie Research
Discovery Metals Ltd.
Fig 21 Boseto resource areas
Source: DML, June 2010
Regional exploration
With sufficient
resources in place
to underpin 13 years
of production, the
focus will shift to
regional targets to
find a Boseto 2 style
project
DML will begin to refocus its exploration efforts on regional exploration targets in an attempt
to define a “Boseto 2” project, now that sufficient resources have been indentified to underpin
at least a 13 year LOM at Boseto. At present only 328km of the prospective 1,300km of
indentified strike length has been explored by a soil sampling program, with only 67km of the
1,300km drilled to date. DML collected soil samples covering a108km of prospective strike in
the March quarter with the results undergoing quality control checks prior to release.
The initial regional soil sampling work will utilise a Niton XRF machine to indentify soil
geochemical anomalies. Work during 1Q10 focused on the Gaia and Notus targets which are
located southwest of the Boseto plant site along the same structures which host the Zeta and
Plutus deposits. Notus is the closest of the two targets located 48km from Boseto with Gaia
located 100km away. DML has also begun sampling at Maia, an area located 44km north of
the plant site.
3 June 2010 16

Macquarie Research
Discovery Metals Ltd.
Fig 22 Regional targets
Source: DML, June 2010
Permitting
Mining licence
expected post BFS
DML has submitted the Environmental Impact Assessment and the public consultation period
has been completed. Other than the approval of the EIA, the completion of the BFS is the
major outstanding item required prior to the granting of a mining licence.
Mining
The initial focus of the feasibility study was for a 2mtpa open pit mining operation; however,
the large increase in the resource base and the definition of significant resources below the
160m open pit floor (depth of pit floor at a 10:1 strip) has led to DML pursuing an increased
mining rate of 3mtpa. The mining schedules are being revised as part of the BFS due in July.
Conceptually the first three years of mining will see the open pit mining rates accelerated with
ore exclusively from open, underground mining expected to commence in 2014 and we have
modelled 1mtpa from the Zeta underground commencing 2014 to 2025.
Our mine model assumes 27mt of open pit ore mined over a 13 year period, which is
moderately above the 22.5mt measured and indicated resource for Zeta, Plutus and Petra. In
our view this is relatively conservative as it does not include any ore from Southwest Petra
and Northeast Plutus (32mt at 1.31% copper), which has the potential to materially increase
the LOM.
In terms of underground ore production we have assumed ore production of 1mpta over a
nine year LOM for total ore production of 9mt. Our underground ore mined assumptions are
marginally below the 9.5mtpa mining inventory used in the underground scoping study
released in April 2010. As the deposit is open at depth once the underground infrastructure is
in place our LOM may prove to be conservative (albeit subject to the prevailing copper price
environment)
3 June 2010 17

Macquarie Research
Discovery Metals Ltd.
Fig 23 Macquarie’s ore source assumptions (FY’s)
kt
3500
3000
2500
2000
1500
1000
500
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Open pit
Underground
Source: Macquarie Research, June 2010
Open pit
Mining at Boseto will be by traditional open pit drill and blast methods. The sand cover to a
depth of up to 10m will be free dig. The relatively narrow widths (average 6m) and steeply
dipping geometry of the ore body results in a strip ratio of around 10:1. DML has indicated
that the current economics of the pit under an US$2.00/lb copper price want to push the pit to
higher strip ratios.
Owner operator
mining at Boseto
Total material movements are not of the scale we would consider to be a large earth moving
operation, with average LOM material movements of 30 to 33mtpa. Under the initial 2mtpa
mine schedule the 10:1 strip ratio included 1.8mt of low grade ore, which is classed as waste
and will be expensed through the P&L, however, will be separately stockpiled and maybe
treated subject to the prevailing copper price environment. DML has engaged Snowden to
review the mine schedule to allow for accelerated open pit mining to support the 3mtpa.
The 3mtpa feasibility study will be based on owner operator mining fleet. The initial 2mtpa
feasibility study assumed a fleet of 2 * 250t excavator s and 12*100t trucks for waste
movement movements and 1*120 excavator and 9*100t trucks for ore mining. We have
assumed mining costs of US$2.20/t material in our modelling (including an equipment finance
charge).
3 June 2010 18

Macquarie Research
Discovery Metals Ltd.
Fig 24 Zeta and Plutus cross sections
Source: DML, June 2010
Underground
In April, DML released the results of a scoping study carried out by Snowden into an
underground operation below the Zeta open pit. The study was based on the inferred
resource below the Zeta open pit from a depth of 160mbs to 360mbs and allowed for a 10m
crown pillar. The Zeta resource below 160m is 25mt @ 1.4% copper and the scoping study
assumed a recoverable mining inventory of 9.5mt @ 1.4% copper. The mining inventory is
based on an uphole retreat stoping mining method. The study considered a backfill stoping
mining method however; the costs outweighed the increase in recoverable ore.
Shallow
underground mining
potential at Zeta
The mining inventory is defined over 2km and was divided into two separate areas accessed
by separate declines, with a maximum rate of 0.8mtpa. Development capex for the
underground was estimated at US$10m or US$5m per area, based on decline development
capex of US$3,200/m (a quick back of envelope calculation assuming a 7:1 decline leads to
decline development of capex of US$3.5m per area to reach the top of the underground
mining area, leaving ~US$1.5m per area for ventilation). Mining costs used in the study were
US$37/t ore (we have assumed US$46/t for underground mining costs).
3 June 2010 19

Macquarie Research
Discovery Metals Ltd.
Fig 25 Zeta open pit and underground
Source: DML, June 2010
Processing
The 3mtpa Boseto process plant will be based on a conventional copper flotation circuit. The
initial project study was focused on a 2mtpa process plant, and the study was formally
upgraded to 3mtpa in May 2010 following material exploration success in 1H10.
Recoveries to be
lower in early stage
of the pit due to
higher levels of
oxide ore
While the majority of the Boseto resource (90%) is sulphide ore, recoveries in the early parts
of the ore body will be impacted by the presence of oxide ore from surface to around 35mbs.
Once below 35 metres the ore body is predominantly chalcoite with minor amount of bornite.
While the presence of oxide ore will impact recoveries (oxide ore is typically recovered via a
leaching process), a number of operations with small amounts of oxide in proportion to
sulphides use flotation to recover copper from oxide ore. DML has indicated targeted average
recoveries of 82.5% over the open pit LOM.
Initial work on a standalone underground ore has indicated recoveries of 92% based on the
assumption that all material is sulphide with no oxide material. Under a blended open
pit/underground ore feed post year four, we would expect recoveries to be above the 82.5%
open pit average and closer to the 92% underground target as DML will be through the
heavily oxidised zones.
The front-end of the Boseto plant ore will incorporate a three stage crushing and ball mill
circuit. The plant will have two flotation circuits. Sulphide mineralisation will be separated first
with tailings from the sulphide roughers sent to an oxide circuit. Concentrates are filtered to
recover excess process water, as are tailings.
Tailings will be dry stacked. Water recovered in the dewatering stages will be recycled to the
various parts of the plant as process water.
3 June 2010 20

Macquarie Research
Discovery Metals Ltd.
Fig 26 Boseto flowsheet
Source: DML, June 2010
Production and cost targets
Formal targets due
with the release of
the BFS in July
The increase in the mineral resources at Boseto has led to DML announcing an increase in
the scope of the BFS to support a 3mtpa plant throughput rate in May. No formal production
and cost targets for the 3mtpa project have been released. We have based our underlying
mine and plant assumptions from the 2mtpa study and have set out our physical parameters
in Fig 27.
3 June 2010 21

Macquarie Research
Discovery Metals Ltd.
Fig 27 Boseto mine and plant physical assumptions
Operational parameters 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Open pit ore mined - 950 2,700 3,000 2,500 2,000 2,000 2,000 2,000 2,000
Strip ratio N/A 10 10 10 10 10 10 10 10 10
Waste mined 0 10,450 29,700 33,000 27,500 22,000 22,000 22,000 22,000 22,000
Total open pit material movements 0 11,400 32,400 36,000 30,000 24,000 24,000 24,000 24,000 24,000
Underground ore mined 0 - - - 500 1,000 1,000 1,000 1,000 1,000
Ore milled - 950 2,700 3,000 3,000 3,000 3,000 3,000 3,000 3,000
Copper grade 0.0% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
Copper recovery 0.0% 74.0% 81.0% 85.0% 85.0% 85.0% 86.0% 87.0% 87.0% 87.0%
Silver grade 0.0 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7
Silver recovery 0% 65% 65% 65% 65% 65% 65% 65% 65% 65%
Copper production 0 10 31 36 36 36 36 37 37 37
Silver production 0 372 1058 1176 1176 1176 1176 1176 1176 1176
Copper concentrate grade 0% 40% 40% 40% 40% 40% 40% 40% 40% 40%
Concentrate produced 0 25 74 86 86 86 87 88 88 88
Copper payability 0% 97% 97% 97% 97% 97% 97% 97% 97% 97%
Pricing
Copper price (US$/lb) 3.55 3.15 2.85 2.70 2.65 2.61 2.69 2.81 2.85 2.94
Silver price (US$/oz) 17.12 16.15 15.00 14.23 14.02 14.27 14.66 15.33 15.55 16.02
AUD/USD 0.92 0.82 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80
Cost base
Open pit mining (US$/t) 2.3 2.7 2.3 2.4 2.5 2.6 2.6 2.8 2.8 2.9
Underground mining (US$/t) 46.0 47.4 48.8 50.2 51.7 53.3 54.9 57.4 58.2 60.0
Processing (US$/t) 6.5 8.4 6.9 7.2 7.4 7.6 7.8 8.2 8.3 8.5
Administration costs 1.1 2.1 1.2 1.3 3.4 5.6 5.8 6.1 6.1 6.3
Cash cost (US$/lb) 0 1.69 1.51 1.49 1.77 2.07 2.11 2.17 2.20 2.27
Silver credits (US$/lb) 0 0.25 0.23 0.20 0.20 0.21 0.21 0.21 0.22 0.23
Royalities (US$/lb) 0 0.10 0.10 0.09 0.09 0.09 0.09 0.09 0.10 0.10
Cash costs inc royalties (US$/lb, real 2010$) 0 1.45 1.27 1.22 1.44 1.64 1.62 1.63 1.60 1.60
Capex (US$m)
Plant capex 85 0 0 0 0 0 0 0 0 0
Site capex 100 0 0 0 0 0 0 0 0 0
Underground development capex 0 0 0 0 12 4 4 4 4 4
Sustaining plant capex 0 4 4 4 4 4 4 4 4 4
Mining fleet 45 0 0 0 20 0 0 0 0 0
*material movements exclude pre production stripping
Source: Macquarie Research, June 2010
We have assumed
capex of US$185m
Metals trader
Transamine will take
100% of production
for the first five
years
A formal capex forecast for the 3mtpa project is yet to be released. The capex forecast for the
2mtpa was US$150m, which was last updated in October 2009. With the release of the
decision to upgrade the project scope to 3mtpa, DML awarded the EPC contract for plant
construction to Sedgman Limited for a „maximum price‟ of US$85m. The plant capex for a
2mtpa plant was estimated at US$70m, meaning the US$19m contingency estimate in the
US$150m for the 2mtpa project has essentially been exhausted. Other areas of movement in
capex estimate are likely to be the mine fleet (not included in the US$185m capex and is
likely to be part of equipment lease), which was previously estimated in the range of US$35-
US$40m and the construction of an onsite coal fired power station (the initial study included
US$10m for a transmission line to Maun compared to the preliminary cost estimate of
~US$25m for an onsite plant).
Offtake
In March 2010, DML entered into an offtake agreement with metals trader Transamine for
100% of Boseto concentrate for a minimum of five years. As part of the offtake agreement
DML placed 25m shares (9.8% of DML shares) to Transamine at A$0.76ps (to raise A$19m)
which was an 11% premium to the four week VWAP at the time of placement.
3 June 2010 22

Macquarie Research
Discovery Metals Ltd.
The terms of the off take agreement have not been released. DML has guided to a shorter
quotational period than the industry standard (which appears reasonable given the customer
is a trader not an end user), with product to be sold on a landed basis. The export route for
Boseto concentrate will be a truck haul to Gobabis (520km) then railed to Walvis Bay
(650km).
Transamine has been an active player in the ASX base metals universe and has equity
investments and offtake agreements with Kagara and Citadel.
Transamine has
been an active
investor in the
Australian resource
sector
In August 2009, Transamine subscribed for A$25m in Citadel equity (5% of CCG
equity) with an offtake agreement to purchase 50ktpa concentrate (~20% of forecast
production) for the first five years of production from the Jabal Sayid project in Saudi
Arabia.
Transamine subscribed for A$10m of Kagara equity in February 2009; the placement
represented 11.5% of Kagara shares at the time of placement. Transamine‟s current
holding in KZL is 3.5%.
Fig 28 Boseto to Walvis Bay route (presentation dated 6 October 2009)
Source: DML, June 2010
Botswana tax structure
Botswana mining
tax is based on ad
valorem royalty with
a sliding tax rate
The principals of the Botswana mining tax system are based on ad valorem royalty with a
sliding tax rate. For royalty purposes, gross revenue is defined as the „sale value receivable
at the mine gate in an arm‟s length transaction without discounts, commissions or deductions
for the mineral or mineral product on disposal‟.
Under our production, costs and copper price assumptions, we expect DML‟s tax rate to vary
between 30-35% and we expect the capital shield to give DML a tax holiday of two years
Key features of the tax regime are listed below
100% deductibility of capex & pre-production spend before tax is payable
200% employee training cost deduction
3% ad valorem copper royalty
5% ad valorem silver royalty
Mining companies are taxed in accordance with the provisions of the Twelfth Schedule
to the Income Tax Act. The tax rate is determined by the formula
Annual tax rate = 70 – (1,500/X)
Where “X” is the profitability ratio defined as taxable income as a percentage of gross
income, provided that the tax rate is not less than the company tax rate of 25%.
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Macquarie Research
Discovery Metals Ltd.
Botswana is a net
importer of power
Infrastructure
Power
Botswana is a net importer of power. Internal power generation comes from the Morupule
coal fired power station, which generates 120MW. Electricity is imported from Eskom; 350MW
was imported in 2009, with this figure expected to decline to ~150MW by 2012.
Fig 29 Botswana Power Corporation forecast supply/demand balance
Source: Botswana Power Corporation, June 2009
DML is planning to
construct an onsite
coal fired power
plant
DML is planning to use diesel power for the construction phase and first year of operation,
through a mixture of purchased and rented gen sets. The longer term power solution at
Boseto is the construction of an onsite coal fired power station. A full feasibility study into the
cost of the onsite power station is yet to be completed, with preliminary work indicating capex
of US$25m. The alternative to an onsite power station is the installation of a transmission line
to Maun, which would cost ~ US$12m and provide access to the national gird.
Fig 30 Botswana Power consumption
Source: Botswana Power Corporation, June 2009
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Macquarie Research
Discovery Metals Ltd.
Water
DML has defined
sufficient water
resources to
support the Boseto
project
DML intends to tap into ground water resources, through the Ecca Aquifer located ~15km
from Boseto. Five ground water resource areas within the Ecca Aquifer have been identified,
with two areas “GRA 5” and “GRA 1” to be tapped for the initial project. The water from the
aquifer has a relatively high saline content and is currently not being utilised. DML has
indicated that it expects the “GRA 5” and “GRA 1” areas can provide 12ml pa of water over a
15 year period. This is well in excess of the expected 2.5ml pa requirement for a 2mtpa
flotation plant. DML has used water from the Ecca Aquifer in its metallurgical test work.
Fig 31 Boseto site layout
Source: DML, June 2010
Project timeline
DML is targeting
first production in
4Q11
The next project milestone for DML at Boseto is the delivery of the BFS in July 2010. The
delivery of the BFS is a key milestone as it is a requirement for the granting of a mining
licence and will also be required for the securing of project finance. The construction timeline
is expected to be 12-15 months with first production targeted in 4Q CY11.
Fig 32 Boseto project timeline
Source: DML, June 2010
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Macquarie Research
Discovery Metals Ltd.
Diamond mining is
the mainstay of the
Botswana economy
Mining in Botswana
Mining activities in Botswana are governed by the Ministry of Minerals, Energy and Water
Resources (MMEWR), with the Department of Mines the responsible department. A
presentation given by MMEWR in June 2009 commented that “mining contributes more than
a third of GDP and about half of government revenues”.
Fig 33 Breakup of Botswana mineral revenue 2008/2009
Source: Botswana Department of Mines, 2008
Debswana is a 50:50
JV between
DeBeers and the
Government of
Botswana
The mining sector employed 18,830 people in 2008 which represents ~2.7% of the estimated
labour force (based on CIA World Factbook estimates). Expatriate employment in the mining
sector represented ~4.77% of mining employees at the end of 2008.
Fig 34 Employment trends in the Botswana mining industry
Source: Botswana Department of Mines, 2008
Mining in Botswana is dominated by diamond mining with Debswana the dominant player.
Debswana was founded in 1969 as a 50:50 JV between DeBeers and the Government of
Botswana. Debswana operates four mines in Botswana (Jwaneng, Orapa, Letlhakane and
Damtshaa).
3 June 2010 26

Macquarie Research
Discovery Metals Ltd.
Fig 35
Global rough diamond supply
Source: Allan Hochreiter, Capital Resources Botswana, June 2009
Tati Nickel is the
main nickel
producer
Base metal mining in Botswana has been relatively consistent with Tati Nickel the mainstay.
Norilsk Nickel acquired an 85% interest in Tati Nickel as a result of the takeover of LionOre in
2007, and the Botswana Government owns the remaining 15% interest in Tati Nickel. Tati
Nickel owns the Phoenix open pit sulphide mine in northeast Botswana, which has a 5mtpa
onsite concentrator.
Fig 36 Historical Botswana nickel/copper production
kt metal
35
30
25
20
15
10
5
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Nickel Copper
Source: Botswana Department of Mines, 2008
Traditionally mining and exploration hve focused on the eastern parts of Bostwana and not
the northwest part of the country. This has provided DML and Hana Mining with a first mover
advantage in the Kalahari copper belt.
3 June 2010 27

Macquarie Research
Discovery Metals Ltd.
Fig 37 Botswana mines and infrastructure
Source: Hana Mining, May 2010
Hana Mining
Hana Mining has
ground adjacent to
the south of DML
Hana Mining is
targeting a resource
increase before
progressing project
studies
Hana Mining (HMG) is a TSX-V listed explorer focused on the Ghanzi Copper-Silver project in
Botswana. The Ghanzi project is located to the south of DML‟s tenement package. HMG
currently owns 70% of the Ghanzi project and can acquire a further 20% for US$9m following
the completion of a BFS, the final 10% (for a 100% interest) may be acquired through the
issue of 4m warrants exercisable at C$2.00ps (share price at 1 June: C$1.40ps).
HMG has indicated the project has 600km of potential strike length, and the current focus is
the Banana Zone which covers 64km of strike. The Ghanzi copper project (100%) has a
resource of 93mt grading 1.51% copper and 17.5g/t silver for 1.4mt and 52.5moz contained
copper and silver respectively (under a 0.75% copper cut-off and excluding the low grade
zone).
HMG is around 18-24 months behind DML in terms of bringing their respective projects into
production. HMG‟s strategy appears to differ from DML, in that DML is targeting an initial
3mpta project in order to generate cashflow, while it continues to drill out Boseto and its
broader tenement holding. HMG on the other hand is pursing an aggressive drilling program
over 2010 to increase the resource base, with a follow-up program in 2011 to increase the
confidence in the resource base and a BFS to be completed by 2012 for targeted first
production in 2H 2014.
3 June 2010 28

Macquarie Research
Discovery Metals Ltd.
Fig 38 Ghanzi project location relative to Boseto
Source: Hana Mining, June 2010
African Copper
African Copper (ACU) is an AIM listed copper play focused on restarting Mowana. The
Mowana mine was commissioned in 2008; however, was placed on care and maintenance in
February 2009 and restarted in January 2010.
Mining and
exploration activity
in Botswana
increasing
ACU‟s major shareholder is JSE listed Zambia Copper Investments (ZCI), which owns ~82%
of ACU, following the recapitalisation of ACU in 2009. The ACU shareholding is ZCI‟s sole
material asset. KCI was suspended from trading on the JSE following the sale of its remaining
interest (28.4%) in Konkola Copper mines to Vedanta for US$213m in May 2009. ZCI relisted
on the JSE in January 2010 following shareholder approval for the acquisition of the interest
in ACU which ended ZCI‟s classification as a listed cash shell.
The Mowana operation was negatively impacted by low availability of the tertiary crushing
plant in 1Q10.
A Cap Resources
A Cap Resources (ACB) is an ASX listed uranium explorer focusing on the Letlhakane
Uranium project in west Botswana. The project has a resource of 463mt grading 154ppm
uranium for 158m contained pounds of uranium. A scoping study in 2009 (conducted by SRK)
indicated potential for production of 2.2mlbs pa of uranium over a 7-11 year LOM with cash
costs of US$33/lb and capex of US$170m. ACB is currently completing a feasibility study into
the Letlhakane project.
Aviva Corporation
ASX listed Aviva Corporation (AVA) announced an 895 thermal coal reserve at its
Mmamantswe Coal project, located on the Botswana and South African border. A scoping
study completed by SRK indicated the reserve has the potential to support 2000MW of power
generation for 40 years. AVA plans to submit an application to register the Mmamantswe
project as a sub project of the Botswana Power Corporation - this is required for access to the
Southern African Power Pool.
3 June 2010 29

Macquarie Research
Discovery Metals Ltd.
Botswana is
regarded by many
as the most stable
country in Africa
Botswana country profile
Botswana is a landlocked country in southern Africa. Botswana was granted independence in
1966 (prior to independence Botswana was a British protectorate called Bechuanaland) and
the government today operates in three parts: the executive, legislature and judiciary. The
head of state is the president, who is appointed by the National Assembly and can serve a
maximum of two five-year terms. The last election was held in October 2009 and was classed
as free and fair, with the Botswana Democratic Party (which has held government for 43
years) winning 45 of the 57 seats.
Fig 39 Botswana GDP per capita growth
Source: DeBeers, June 2010
Diamond mining has
driven GDP growth
Botswana has maintained one of the world's highest economic growth rates since
independence in 1966, though growth fell below 5% in 2007-08, and turned sharply
negative in 2009, with industry falling nearly 30%. Through fiscal discipline and sound
management, Botswana transformed itself from one of the poorest countries in the world
to a middle-income country with a per capita GDP of $14,100 in 2008.
Two major investment services rank Botswana as the best credit risk in Africa. Diamond
mining has fuelled much of the economic expansion and currently accounts for more
than one-third of GDP, 70-80% of export earnings, and about half of the government's
revenues. Botswana's heavy reliance on a single luxury export was a critical factor in the
sharp economic contraction of 2009. Tourism, financial services, subsistence farming,
and cattle raising are other key sectors. Although unemployment was 7.5% in 2007
according to official reports, unofficial estimates place it closer to 40%.
Fig 40 Botswana at a glance
Population m 2.00 Unemployment % 7.5
GDP (PPP) US$bn 26 Inflation % 7.3
GDP growth
% -5.2 (2009) Interest Rate % 15
2.9% (2008) Urban population % 60
GDP per capita US$m 13,100
GDP sectors
Language English (official), Setswana Industry % 52.6
Capital city Gaborone Services % 45.8
Currency Pula Agriculture % 1.6
Source: CIA World Fact Book, June 2010
3 June 2010 30

1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
Copper price, c/lb
Copper price, c/lb
Copper stocks - weeks global consumption
Macquarie Research
Discovery Metals Ltd.
Copper Large view deficit – very
bullish expected medium in 2011 term
outlook
Price Copper outlook trading for
ahead 2012/13 of today’s in the
fundamentals balance
Copper
Fundamentals to drive prices to new record highs by 2011
We see the copper market tightening sharply over the next two to three years. We are
forecasting that copper will average US$7,522/t (US$3.40/lb) in 2010 and US$7,716/t
(US$3.50/lb) in 2011, peaking at an average of US$8,378/t (US$3.80/lb). We recommend
clients own a core position of copper, and look to add into any dips over the coming year. We
forecast that the copper market will move into a small deficit of ~100,000t in 2010 and then
register a sizeable deficit of 560,000t in 2011. These deficits would take copper stocks down
to less than 3.5 weeks of global consumption by end 2011. This could easily result in copper
revisiting its previous peak of over US$4/lb (we anticipate this is more likely to occur in 1H11).
While we are bullish on the outlook over the next two to three years, there is no debating that,
by historical standards at least, copper is overvalued based on today‟s level of stock in terms
of weeks of consumption (fig 41). Copper has recently been trading up around US$3.50/lb
relative to costs of US$1.70-US$2/lb for the highest cost producers, indicating that the market
is very tight. However, physical premiums are not as high as they were in the previous boom
period and stocks are almost double in terms of weeks of global consumption. The chart
below left illustrates the uncharted territory that copper is in at present.
Fig 41
Fundamentals set to catch up, but right now the copper price is ‘out there’
450
400
Real Copper Price & Global Stocks
450
400
Real Copper Price and Global Stocks
Real Cu Price (LHS)
Global Stocks (RHS)
(f)
14
12
350
300
250
All
2010
2009
2008
2007
350
300
250
10
8
200
200
6
150
100
150
100
4
50
50
2
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Global stocks in weeks of demand
0
0
Source: ICSG, CRU, Macquarie Research, May 2010
We have lowered
our mine disruption
allowance for 2010,
and across the
forecast period
Copper is trading here because the market is taking the view that the copper fundamentals
will tighten up on the back of improving demand and limited supply growth, but the view that
supply growth will not be able to respond is key – and is something that has been cemented
following five years of underperformance relative to plan (owing to a myriad of supply
„disruptions‟). Over the past three years, copper mine supply disruptions have represented
around 6-8% of (pre-disruption) copper mine supply forecasts. Disruptions over this period
have come from technical issues (~23% on average), slower than expected ramp-ups (21%),
strikes (16%), pit problems (12%), weather related issues (7%), and other problems (21%). In
the short and medium term production growth looks limited.
3 June 2010 31

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
YoY chg %pt
% YoY Chg, 3MMA
'000 tonnes
Macquarie Research
Discovery Metals Ltd.
Medium-term supply
growth has issues
Fig 42
Global copper supply and demand balance
Over the medium term, 85% of copper mine supply growth is projected to come from Latin
America and Africa, specifically, Chile, Peru, Mexico, the DRC and Zambia. However, each of
these countries faces its own challenges in bringing on new copper supply. In Chile, water
availability and ageing mines are potential constraints to supply growth, meaning desalination
plants are needed for new mines and head grade declines, longer hauls and lower availability
of secondary ores are features of older mines. In Peru energy availability is set to be an issue
while in the DRC there are well publicised infrastructure and political issues and in Zambia
there are infrastructure constraints.
Our long-term copper price forecast is US$2.20/lb in $2010 terms and US$2.63/lb in $2016
terms.
'000 tonnes 2008 2009f 2010f 2011f 2012f 2013f 2014f 2015f
World Consumption 18163 17722 18720 19908 20710 21385 22087 22820
% Change Y-o-Y -0.7 -2.4 5.6 6.3 4.0 3.3 3.3 3.3
World Production 18382 18540 18633 19347 20471 21350 22103 22847
% Change Y-o-Y 2.4 0.9 0.5 3.8 5.8 4.3 3.5 3.4
Balance 219 818 -87 -561 -240 -35 16 27
World stocks (all) 1192 1975 1888 1327 1087 1052 1068 1095
Stocks (Weeks global) 3.4 5.8 5.2 3.5 2.7 2.6 2.5 2.5
LME Cash Price (c/lb) 316 234 341 350 300 270 270 260
LME Cash Price ($/t) 6968 5152 7522 7716 6614 5952 5952 5732
Source: Macquarie Research, May 2010
Fig 43
Copper mine supply has underperformed
Fig 44 Even solid forecast output growth is not
enough
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
Margin (12mths fwd, lhs)
Mine supply (rhs)
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
Copper Mine Supply Changes
1000
900
800
700
600
500
400
300
200
100
0
-100
-200
1985 1990 1995 2000 2005 2010f 2015f
Source: Macquarie Research, May 2010 Source: Macquarie Research, May 2010
3 June 2010 32

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
'000 tonnes
Macquarie Research
Discovery Metals Ltd.
Fig 45 Ex-Chinese demand is recovering Fig 46 Our refined copper demand forecasts
1250
1200
1150
1100
2004 2005
2006 2007
2008 2009
'000 tonnes 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f
USA 1952 1650 1700 1784 1820 1838 1857 1875
Europe 4623 3567 3745 4045 4126 4167 4209 4251
Japan 1199 838 872 924 942 952 961 971
China 5180 6669 7269 7778 8245 8657 9090 9544
Other Asia 3672 3628 3737 3923 4080 4244 4413 4590
Other 1537 1370 1397 1453 1497 1527 1557 1589
World 18163 17722 18720 19908 20710 21385 22087 22820
World ex China 12983 11053 11450 12130 12466 12728 12997 13275
1050
1000
950
900
850
% Change Y-o-Y 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f
USA -8.8 -15.5 3.0 5.0 2.0 1.0 1.0 1.0
Europe -5.8 -22.9 5.0 8.0 2.0 1.0 1.0 1.0
Japan -4.1 -30.1 4.0 6.0 2.0 1.0 1.0 1.0
China 7.9 28.7 9.0 7.0 6.0 5.0 5.0 5.0
Other Asia -1.3 -1.2 3.0 5.0 4.0 4.0 4.0 4.0
Other 4.4 -10.8 2.0 4.0 3.0 2.0 2.0 2.0
World -0.7 -2.4 5.6 6.3 4.0 3.3 3.3 3.3
World ex China -3.8 -14.9 3.6 5.9 2.8 2.1 2.1 2.1
800
Source: Macquarie Research, May 2010 Source: Macquarie Research, May 2010
3 June 2010 33

Macquarie Research
Discovery Metals Ltd.
Board & Management
Gordon Galt – Chairman
Gordon Galt is a senior mineral resources executive and an experienced director with
international mineral industry experience. During his career, Mr Galt has worked in senior
management, technical and operational roles across a wide range of commodities, primarily
in gold, coal, magnesium and copper/lead/zinc. Mr Galt is by training, a mining engineer, with
post-graduate qualifications in finance. Both degrees are from the University of Queensland.
Brad Sampson – Managing Director
Brad Sampson has over 20 years‟ Australian and International experience as a mining
engineer. He has worked extensively in open cut and underground mine operations and
developments in Southern Africa, Australia and the Pacific. He previously held an executive
role in Thiess Ltd and has been in General Management roles with Gold Fields Limited at St
Ives gold mine in Western Australia and at the Kloof operation in South Africa. He has also
held the position of General Manager-PNG for Emperor Mines Limited. He has also held
positions with Anglo American, Ross Mining NL and Comalco. Mr Sampson is also the
managing director of all Discovery Metals subsidiaries registered in Botswana.
Morrice Cordiner – Non Executive Director
Mr Cordiner is a corporate lawyer by training and has in excess of 15 years‟ experience in the
finance and resources industries. He is a founding Director of Discovery Metals, and was
instrumental in identifying the original projects and strategic alliance with Falconbridge Inc
that formed the original assets of the Company in 2003. Over the last six years Mr Cordiner
has been involved in the successful development and financing of a number of junior listed
resource companies with projects in gold, nickel, copper and zinc.
John Shaw - Non Executive Director
John Shaw has over 40 years‟ experience in exploration, development and operations of
open cut and underground mines. He previously was Vice President of the Australian
Operations of Placer Dome Asia Pacific Limited and Managing Director of Kidston Gold
Mines. Mr Shaw is a former Chairman of Gallery Gold Limited, Zimbabwe Platinum Mines
Limited, Tri Origin Minerals Limited, Albidon Limited and Lodestone Exploration Limited. He
was also involved with the development of the Mupane Gold Mine in NE Botswana.
Jeremy Read - Non Executive Director
Jeremy Read has 22 years‟ domestic and international minerals exploration experience and
was previously the Manager of BHP Minerals Australian Exploration Team. He has extensive
exploration experience for gold, nickel sulphides and base metals. Mr. Read played a critical
role in the discovery of the Kabanga North Nickel deposit, in Tanzania which is currently
undergoing feasibility studies. He is skilled in developing new technical teams, management
of technical/specialist service groups, project generation activities, risk management, multicommodity
mineral exploration, company listings and capital raisings. During his employment
with BHP Mr Read participated in the development of several significant strategic exploration
alliances. Mr Read was the founding managing director of Discovery Metals from its
incorporation in May 2003 until his appointment as a non-executive director on 1 February
2008. He is also the founding managing director of Meridian Minerals Limited.
Ribson Gabonowe
Ribson Gabonowe is a well-known Mining Engineer with over 25 years of experience in the
mining industry. For twelve years to Dec 2006, Ribson was the Director of Mines of
Botswana, responsible for administering the legal and fiscal framework governing mineral
exploitation. In this role Ribson was involved in negotiations of mineral agreements for
copper, nickel, diamonds, coal and soda ash. Ribson is currently a director of Kukama Mining
and Exploration, African Coal (Pty) Ltd, Atlas Minerals (Pty) Ltd and Gabor Consulting (Pty)
Ltd. Mr Gabonowe is also the director of all Discovery Metals‟ subsidiaries registered in
Botswana.
3 June 2010 34

Macquarie Research
Discovery Metals Ltd.
Notes
3 June 2010 35

Macquarie Research
Discovery Metals Ltd.
Notes
3 June 2010 36

Macquarie Research
Discovery Metals Ltd.
Notes
3 June 2010 37

Macquarie Research
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand
Outperform – return >5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return +10%
Neutral – expected return from -10% to +10%
Underperform – expected return 5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Macquarie - USA
Outperform (Buy) – return >5% in excess of Russell
3000 index return
Neutral (Hold) – return within 5% of Russell 3000 index
return
Underperform (Sell)– return >5% below Russell 3000
index return
Recommendations – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Volatility index definition*
This is calculated from the volatility of historical
price movements.
Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year
– investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
down at least 40–60% in a year – investors should
be aware this stock could be speculative.
Medium – stock should be expected to move up
or down at least 30–40% in a year.
Low–medium – stock should be expected to
move up or down at least 25–30% in a year.
Low – stock should be expected to move up or
down at least 15–25% in a year.
* Applicable to Australian/NZ/Canada stocks only
Financial definitions
Discovery Metals Ltd.
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging,
IFRS impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
EPS = adjusted net profit / efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average
number of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).
Recommendation proportions – For quarter ending 31 March 2010
AU/NZ Asia RSA USA CA EUR
Outperform 50.55% 62.20% 42.25% 42.39% 62.16% 46.74% (for US coverage by MCUSA, 6.53% of stocks covered are investment banking clients)
Neutral 36.63% 19.02% 47.89% 50.35% 31.89% 34.78% (for US coverage by MCUSA, 9.62% of stocks covered are investment banking clients)
Underperform 12.82% 18.78% 9.86% 7.27% 5.95% 18.48% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)
Company Specific Disclosures:
The Macquarie Group is a substantial securities holder in Discovery Metal Limited (DML:ASX).
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
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3 June 2010 38

Macquarie Research
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3 June 2010 39

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