Goldman Sachs Investor Research - Discovery Metals Limited

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7 October 2010 Discovery Metals Limited FY13 EV/Resource Comparison (C/lb) GS&PA Investment Research 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 OZL EQN ABY Source: GS&PA Research Estimates, Company Data PNA 45.9 CGG 55.2 SFR DML 97.9 KZL Copper Average Valuation • On an NPV basis, DML is trading well above its base valuation at 1.42x as opposed to the average of 0.99x. • The upside for DML appears to be slightly higher than the average of this peer group at 1.08 but, given the method of calculation (DCF), does not fully encapsulate the value of the 100mt+ resource base. P/NPV - Base Comparison GS&PA Investment Research 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 OZL EQN ABY PNA CGG SFR DML MRE WSA IGO KZL ILU Average Source: GS&PA Research Estimates, Company Data. * not rated P/NPV (x) Price P / Base NPV P/ Upside NPV OZL 1.54 0.94 0.90 EQN 5.75 1.45 1.01 ABY 1.24 0.80 0.47 PNA 0.71 1.13 0.64 CGG 0.42 0.95 0.90 SFR 6.92 0.96 0.85 DML 1.30 1.42 1.08 MRE 0.82 0.57 0.34 WSA 6.29 1.07 0.61 IGO 6.33 1.10 0.73 KZL 0.68 0.58 0.41 ILU 6.48 0.85 0.79 Average 0.99 0.73 Source: GS&PA Research estimates Goldman Sachs & Partners Australia Investment Research All figures in A$ unless otherwise advised 20
7 October 2010 Discovery Metals Limited Risks Country Risk We consider the country risk of Botswana to be somewhat lower in comparison to other Sub- Saharan African peers. We have reproduced a subsection of the recent survey of mining company executives which places Botswana 5th overall in terms of low-risk mining destinations. We do note, in the table below, that we have not reproduced all factors. With this in mind, we see very low risk in mining investment, with the country being known for having a favourable attitude towards mining activities. The primary area of risk appears to be infrastructure. Country Risk Overall Country Financial Risk Sovereign Risk Land Access Social Risk Infrastructure Labour Relations 1 Canada 0 0 2 1 1 1 2 Sweden 1 1 1 2 1 2 3 Chile 1 1 1.5 1.5 1 2 4 Greenland 1 1 2 2 4 1 5 Botswana 2 1 1 2 4 1 6 United States 2 2 2 2 2 2 7 Laos 2.5 3.5 1 2 3.5 0.5 8 Kazakhstan 3 2 2 1 2 1 9 China 3 3 1 0 2 2 10 Ivory Coast 2 2 2 2 2 2 26 Australia 3 4 3 2 2 1 Source: Resourcestocks World Risk Survey 2010. (this list does not include all survey categories) Product Risk We see limited risk for DML on the product side, as the copper fundamentals are the strongest of the base metals with the market forecast to be in deficit from 2011 onwards. Whilst copper is not geologically scarce worldwide, future projects are of lower quality than the best current producers and, when coupled with the falling grades of current global producers, suggest new large-scale producers will take some years to be brought into production and require significant capital investment - all in all, not the outlook for easy supply additions. We further note that many of the easier opportunities for substitution have already been taken. As a result, there is a high degree of demand inelasticity, which is also favourable for the metal price. Land Owners It is our understanding that DML is still required to negotiate with local land holders, who run subsistence farming ventures over the potential mining area. Anecdotally this should not be a problem, with compensation available to claimants. Given DML is domiciled in Australia, it will be bound by acceptable stakeholder practices to our country (as shareholders become more interested in companies adopting best practice globally). As mentioned previously, the government is also proactive in this area to ensure that developments do take place and it is therefore our opinion that this should not present a significant issue. Government Legislation DML has submitted the Environmental Impact Assessment for public comment and has applied for the mining licence but this has not yet been approved. However, given the strong pro-mining focus of the authorities we do not believe that this is a major risk. Clearly there are some regulatory risks from changes to royalty rates, taxation, etc. However, the current royalty rates are globally competitive and the taxation includes a profit share based on individual mine level profitability. We thus view any increases in either of these parameters as relatively low risk. Botswana does have the right to an equity participation in any mining development. However, this right is for a direct equity contribution by the Government, it is funded by Goldman Sachs & Partners Australia Investment Research All figures in A$ unless otherwise advised 21
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