Goldman Sachs Investor Research - Discovery Metals Limited

7 October 2010 Discovery Metals Limited
Financial Summary | DML
Discovery Metals Limited
Current Price A$: $1.29 Mkt Cap. :
$355m
GS&PA DCF: $0.91 ASX Code:
DML
Industry: Materials T/O (mth):
$43m
Free Float 95%
Recommendation:
Price Target:
Analyst:
Data as at:
HOLD
$1.50
Ian Preston
7-Oct-10
Investments Statistics Profit & Loss (A$m)
Year end June 2010a 2011e 2012e 2013e 2014e Year end June 2010a 2011e 2012e 2013e 2014e
Net Profit (Reported) (A$m) -5 -10 19 136 148 Sales Revenue 0 0 63 420 445
- EPS (Reported) 1 (¢) -2.0 -3.6 6.9 50.4 54.7 Operating costs 5 11 39 175 181
- PER (Reported) 1 (X) -63.1 -35.9 18.6 2.5 2.3 Operating EBITDA -5 -11 24 245 264
NET PROFIT (Adj.) 2 (A$m) -5 -10 19 136 148 D&A 0 0 4 27 29
- EPS (Adj.) 2 (¢) -2.0 -3.6 6.9 50.4 54.7 Operating EBIT -5 -11 19 218 236
- EPS Growth (%) -62 77 -293 629 8
- PER (Adj.) 2 (X) n.a n.a 18.6 2.5 2.3 EBIT -5 -11 19 218 236
Dividend (¢) 0.0 0.0 0.0 0.0 8.0 Boseto 0 0 27 221 237
- Yield (%) 0.0% 0.0% 0.0% 0.0% 6.2% Other -5 -11 -8 -3 -2
- Franking (%) 0% 0% 0% 0% 0% Net Interest Exp./(Rev) -1 -1 -12 -24 -31
Free Cash Flow (A$m) -16 -13 11 199 135 PreTax Profit (pre ab's) -5 -10 32 242 267
- P/FCF 4 (X) -18.8 -26.2 31.7 1.7 2.6 Tax Expense (pre abs) 0 0 13 106 119
EV(Adj.)/EBITDA 3 (X) -48.7 -33.0 20.8 1.1 0.5 OEI 0 0 0 0 0
Avg. Shares (diluted) (mill) 229 270 270 270 270 NET PROFIT (Pre NRI's)1 -5 -10 19 136 148
Abnormal Items (after Tax) 0 0 0 0 0
EV Analysis / DCF Valuation Reported NPAT (post ab's) -5 -10 19 136 148
A$ DCF Valuation: 0.91 Upside: 1.20 Sales Growth (%) -100% 567% 6%
Price / DCF: 1.41 Op. EBITDA Growth (%) N/A N/A N/A 933% 8%
Ke: 14.3% WACC: 11.7% NPAT (Adj.) Growth (%) N/A N/A N/A 629% 8%
Kd: 5.1% RF : 6.5% EPS (Adj.) Growth (%) 629 8
BETA: 1.30 MRP: 6.0% Op.EBITDA Margin (%) 37.7% 58.4% 59.4%
Interest Cover - EBI (X) 7.8 8.4 -1.9 -10.0 -8.4
Year end June 2010a 2011e 2012e 2013e 2014e Return on Equity 5 (%) -6% -15% 23% 62% 39%
EV (Adj.) 3 (A$m) 255 363 494 271 136 Cash Flow Analysis (A$m)
EV (Adj.) / EBITDA (X) -48.7 -33.0 20.8 1.1 0.5 Year end June 2010a 2011e 2012e 2013e 2014e
EV (Adj.) / Sales (X) 7.8 0.6 0.3 Operating EBITDA -5 -11 24 245 264
EV (Adj.) / Gross C F (X) -49.9 -40.3 19.2 1.1 0.5 change in working cap. 0 2 2 2 2
Gross Cashflow -5 -9 26 247 266
Balance Sheet (A$m) Net Interest Paid 1 0 -11 -12 -5
Year end June 2010a 2011e 2012e 2013e 2014e Tax Paid (inc. abs) 0 0 0 -27 -116
C ash 39 14 14 237 372 Exploration -11 -5 -2 -2 -2
Property, Plant, Equip 35 38 38 38 38 Operating Cash Flow -15 -13 12 207 143
Other Assets 0 0 0 0 0 Maintenance C apex 0 0 -1 -8 -8
Debt 0 30 161 161 161 FREE CASH FLOW -16 -13 11 199 135
Shareholders Equity 74 64 83 220 378 Dividends Paid 0 0 0 0 -11
NET Debt/EBITDA (%) 751% -141% 617% -31% -80% Expansionary C apex -1 -43 -166 -12 -26
Net Debt / Equity (%) -53% 24% 176% -35% -56% Acquisitions 0 0 0 0 0
Net Debt / (D+E) (%) -113% 19% 64% -53% -127% Asset Sales 1 0 0 0 0
Dividends Received/Other. 2 0 0 0 0
Annual Production Share Issues/Repurchases 44 0 0 0 0
Year end June 2010a 2011e 2012e 2013e 2014e Increase in Net Cash/(Debt 30 -56 -155 187 98
C opper kt 0.0 0.0 6.0 37.5 37.8 Gross CF / Op. EBITDA (X) 0.97 0.82 1.08 1.01 1.01
Silver mozs 0.0 0.0 0.2 1.3 1.3 Maint. C apex / Sales (%) 2.3% 1.8% 1.9%
Total C apex / Sales (%) 2.3% 1.8% 1.9%
Maint. C apex / D&A (X) 1.93 0.34 0.28 0.29
Total C apex / D&A (X) 11.58 39.14 0.72 1.19
Maint. C apex / GC F (%) -3.5% 0.0% 5.7% 3.1% 3.1%
Cash Costs
ROE Analy sis
Year end June 2010a 2011e 2012e 2013e 2014e Year end June 2010a 2011e 2012e 2013e 2014e
Boseto US¢/lb 0 0 171 139 139
EBIT/Sales (X) n.a n.a n.a 0.52 0.53
Pretax Profit/EBIT (X) 0.87 0.88 1.64 1.11 1.13
Sales/Assets (X) 0.00 0.00 1.21 1.53 1.09
Assets/Equity (X) 1.01 0.81 0.63 1.25 1.08
Return on Equity (RO (%) -6% -15% 23% 62% 39%
Commodity Prices
Year Average to June 2010a 2011e 2012e 2013e 2014e
C urrency A$/US$ 0.89 0.86 0.83 0.80 0.77 ROCE WACC Analysis
C opper (LME) US$/lb 304 342 380 400 405 Year end June 2010a 2011e 2012e 2013e 2014e
Silver Price US$/oz 16.88 18.42 18.56 18.94 19.32 Adjusted NOPAT (A$m) -5 -10 19 136 148
Adj C ap employed (A$m) 28 57 155 186 155
ROC E (%) NM NM 12.1% 73.2% 95.4%
WAC C (%) 10.5% 10.5% 10.5% 10.5% 10.5%
ROCE Spread (abs) 1.6% 62.7% 85.0%
Sensitiity Analysis C hange in ROC E (abs) 61.1% 22.3%
Year End Dec 2010a 2011e 2012e 2013e 2014e
C urrency +1¢ n.a n.a n.a -2.1 -2.4
C opper US5¢/lb n.a n.a n.a 2.5 2.4
(1) Net Profit - Adjusted is after share based
(2) Net Profit (Adj.) is before goodwill amortisation, abnormals
(3) EV Includes 100% of Mkt. Value of minorities
(4) Includes 100% of Mkt. Value of minorities and excludes Invest./Assoc.
(5) ROE excludes Source: Company data, IRESS, GS&PA Research estimates
Goldman Sachs & Partners Australia Base/Precious Metals Team:
Analyst: Ian Preston Base/Precious Metals ian.preston@gs.com.au +61 3 9679 1453
Analyst: Paul Hissey Base/Precious Metals paul.hissey@gs.com.au +61 3 9679 1779
Associate Analyst: Brett Cottrell Base/Precious Metals brett.cottrell@gs.com.au +61 3 9679 1565
Goldman Sachs & Partners Australia
Investment Research
All figures in A$ unless otherwise advised 24