Goldman Sachs Investor Research - Discovery Metals Limited

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7 October 2010 Discovery Metals Limited Prospecting licence • A single prospecting licence is restricted to a maximum area of 1,000km 2 and confers exclusive rights on the holder over the mineral applied for as specified in the licence. If further minerals are discovered during prospecting, the prospecting licence may be amended accordingly to include the mineral concerned. • A prospecting licence is granted for a term of up to three years, renewable for two further periods of two years each. A reduction by 50% of the licence area is required at each renewal. Prospecting licences are transferable with the consent of the Minister. Among the obligations under the licence are scheduled exploration expenditures, reporting requirements and scheduled payments per square kilometre for exploration right (i.e. rentals). Retention licence • Retention licences are granted where minerals have been found during prospecting, but are not economically viable to mine in the short term. A retention licence must be applied for not less than three months prior to the expiry of the prospecting licence concerned. The applicant must show that it has carried out a feasibility study on the deposit and demonstrate that it cannot be mined on a profitable basis at the time of the application. A retention licence is granted for a three-year period and may be renewed only once for a further three-year period. The retention licence must be maintained in a safe condition and, within two months of expiry of the licence, all equipment and infrastructure must be removed. Quarterly reports of any prospecting activities on the retention licence must be filed to the Minister. • A person or company holding a retention licence is entitled to apply for a mining lease over that retention area. The retention licence is transferable, subject to the approval of the Minister. Mining lease • A mining lease is only issued to a prospecting licence or retention licence holder over the ore deposit in question. An application for a mining lease may only be made by a company incorporated in Botswana. A mining lease is granted subject to specified conditions, and the proposed financing plan submitted as part of the feasibility study must provide for a debt to equity ratio of no more than 3:1. The lease is valid for a 25- year term and may be renewed for another period not exceeding 25 years. Mining leases are transferable with the approval of the Minister. The proposed mining area should only cover that area reasonably required for surface mining and treatment facilities and also to cover the Measured, Indicated and Inferred Mineral Resources. • The holder of a mining lease has the right to conduct operations in accordance within the area and time limit specified in the licence, including acquiring the necessary land use rights, constructing facilities and carrying out work on the lease area and selling the mineral products resulting from its work. Among other requirements, the applicant for a mining lease must present and have approved a plan for developing and utilising the mineral resources and an environmental impact assessment. • The environmental impact assessment must consider the following issues: − − − − − − − − − an overview of the project and motivation; description of the pre-mining environment (geology, climate, topography, soil, land use); ecology, animal life, former and current mining operations, surface water, ground water, air; quality, noise and vibration, archaeological and cultural aspects, sensitive landscapes; protected areas, visual aspects, regional and socio-economic infrastructure); detailed project description; environmental impact assessment (separated by phase – construction, operational, decommissioning, residual impacts); environmental management programme; and consultation process. Goldman Sachs & Partners Australia Investment Research All figures in A$ unless otherwise advised 4
7 October 2010 Discovery Metals Limited DML has an approved EIA for a 2mtpa process plant and has applied to increase the annual throughput rate to 3mtpa. This approval is expected in CY10. Minerals permit • A person wishing to conduct small-scale mining operations (over an area not exceeding 0.5km 2 ) may apply for a minerals permit, subject to the written permission of the land owner, land board or the holder of any other mineral concession over the land applied for. Permits for industrial minerals shall only be granted to citizens of Botswana or companies incorporated therein. A minerals permit is valid for 5 years, renewable for further periods of 5 years. A minerals permit is transferable subject to the approval of the Minister. Botswana Royalty and Taxation Royalty The royalty is 3% ad valorem for copper and 5% ad valorem for silver. Taxation Botswana allows 100% write-off of capital expenditure and pre-production capital before tax becomes payable. The minimum tax rate is 25% and there is in addition a sliding-scale tax rate that is based on the profitability of the operation according to the formula: Y = 70 – (1500/X) Y is the tax rate (minimum 25%); X is the profitability ratio. On our estimates, in the period to 2015 in an elevated copper price environment, we calculate a total tax rate of ~27.5%, ie. A 2.5% variable tax in addition to the 25% base tax rate. Botswana Government Option The Government has a one-off statutory option to acquire at market price (bankable feasibility study (BFS) valuation) up to 15% of the project at the time of granting the mining licence. Should this option be exercised, the Botswana Government becomes a direct shareholder in the company (project) with a requirement to contribute a share of capital and in return receive a share of dividends and distributions, etc. However, since the introduction of this legislation in 1999, the Government has not exercised this option in any mining development. Botswana Infrastructure Botswana is well-serviced by road, rail and power reticulation and has international air links to neighbouring countries. However, the net power demand exceeds in-country power generation and thus Botswana is an importer of power, mainly from South Africa. Currently Botswana Power Corporation (BPC) generates ~80% of required power with the balance of power imported from the Southern African Power Grid. There are plans for additional coal-fired power generation plants in Botswana which should result in Botswana becoming power self-sufficient by 2013. Specifically, expansion of the Morupule Power Plant, Mmamabula and the potential Independent Power Plant – Mookane – may see Botswana becoming a net exporter of power to the grid. With respect to water, Botswana is an arid country with limited water resources. However, there are a number of known aquifers which can be tapped into and provide sufficient water for all DML’s needs. Discovery Minerals DML currently has two assets in Botswana. The primary focus of its activities is the Boseto Copper Project, for which DML has recently concluded a BFS. This project contains several lenses of mineralisation, with the first, Zeta, due to commence production in Q4CY11. The second project, Dikoloti Nickel, is less advanced and currently undergoing further exploration in order to increase the resource base. We have included a map of DML's properties below. Goldman Sachs & Partners Australia Investment Research All figures in A$ unless otherwise advised 5
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Goldman Sachs Investor Research - Discovery Metals Limited

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