Goldman Sachs Investor Research - Discovery Metals Limited

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7 October 2010 Discovery Metals Limited Mine Plan • The BFS released in late August 2010 outlines a mine plan for BCP, which will see it commence production as an open pit in late 2011. In conjunction with this, DML also released a development plan, which incorporates additional mineralised material which is not of sufficient confidence to be promoted to reserves. We have, where applicable, assumed some material outlined in the development plan as part of our base case. In effect, we have modelled both open pit and underground mining in our base estimate. • Our current base case for DML assumes the construction and operation of Boseto open pit for the initial 3 years followed by the addition of an underground mine from 2015. Combined production would remain at 3mtpa, increasing to 3.5mtpa (GS&PA estimates) as operations are optimised with ore being sourced initially equally from the two operations, but at the expanded rate 2mtpa (open pit) and 1.5mtpa (underground). • Our key production assumptions compared to the BFS are shown below: GS&PA DML Production Metrics Annual Production mtpa 3.0 3.0 Strip Ratio waste:ore 15 15 Cu feed grade % 1.5 1.5 Cu recovery % 84.0 84.0 Cu production kt Cu 36.4 36.4 Ag feed grade g/t 20.2 20.2 Ag recovery % 61.0 61.0 Ag production moz 1.1 1.1 Source: Company data, GS&PA Research estimates Capital Cost DML's pre-feasibility study capital estimate for a 2mtpa plant was US$185m which was updated in September 2009 to US$150m. More recently, DML has increased the planned throughput rate from 2mtpa to 3mtpa and advised that the contracted capital cost for the plant to be ~US$91m and that the total capital cost of construction of the operation at Boseto will be in the order of US$175m (including contingencies). A breakdown of these capital costs is included below. Capital Items US$m Process plant - fixed price EPCM 91.2 First fills and spares 10.3 Tailings storage facility 2.7 Diesel power generators 10.7 Roads, offices, workshope, land compensation 13.1 Process and mine control systems 8.0 Village infrastructure 15.5 Temp. Infrastructure 8.7 Owners Team 3.6 Subtotal 163.8 Contigency & escalation 11.2 Total 175.0 Source: Company data Operating Cost DML has provided guidance as to its expected operating cost of BCP during the initial start-up when the project will still have a debt repayment requirement. We have adjusted these as we see fit. A summary of the operating costs we have used in our estimates versus the BFS is included below. The key difference that we have allowed for is a higher unit cost for moving material. Goldman Sachs & Partners Australia Investment Research All figures in A$ unless otherwise advised 8
7 October 2010 Discovery Metals Limited GS&PA DML Production Costs Mining cost - Open Pit US$/t ore 21.0 21.6 Mining cost - Underground US$/t ore 37.5 37.5 Processing cost US$/t 10.35 10.34 G&A cost US$/t 2.75 2.74 Average Site Cost US$/t 43.3 34.68 TC/RC^ $t, ¢/lb $53, 5.3¢ $45, 4.5¢ Transport US$/t 180.0 180.0 Source: Company data, GS&PA Research estimates ^average FY12-FY15 Mining Costs DML has provided a breakdown of the major costs. In our view, the US$1.35/tonne of material mined is low in comparison with other operations that we cover. We have used a more conservative US$1.50/t. In the early stages we have assumed a strip ratio of 13:1 and a cost of material movement of US$1.50/t. This translates to a unit cost for the period FY12 - FY14 of US$1.50/lb including the ramp-up stage. Once both the underground and open pit operations are operational we assume a 15:1 strip ratio with 2mtpa of open pit and 1.5mtpa from underground with an overall cash cost of US$1.74/lb (and assumes the LT TC/RC of US$90/t and US 9c/lb). Underground An addition to the BFS is the anticipation of the commencement of underground mining from ~FY15. The need for this method has arisen due to the increasing strip ratio required to extract the relatively thin seam of ore in each of the lenses at greater depths. To date, the underground component has only been assessed as a development plan, given there is currently insufficient indicated and measured resources available for conversion to ore reserves (as a result of economic feasibility). We have, however, assumed some of this material is mined in our base case. The large resource base (>100mt) has led to the increase in the proposed capacity of the processing plant (along with an ever-expanding resource base) from 2mtpa to 3mtpa (we assume that the plant will operate above nameplate capacity at 3.5mtpa once limited debottlenecking is carried out). The underground development plan (scoping study) is focussed only on the Zeta zone on the higher grade copper zone (Cu >1.5% Cu) over 2,000 metres on strike and to a depth which varies between 100m and 650m depth. The scoping study evaluated the 25mt @ 1.4% Cu and 23.1g/t Ag to a maximum depth of 360m. DML estimated a low capital cost of US$10m. DML evaluated some 2,000m of strike broken into two operating sections each serviced by a separate decline. The design is based on a total of 13 strike drives situated some 20m vertically apart to a depth of ~360m although the deposit remains open below this depth. DML envisage a conventional uphole retreat mining method using a top-down mining system which limits the ongoing development requirements. DML does not envisage using any backfill in order to lower the costs, with the geotechnical stability thus dependent upon rib and sill pillars. DML reports that the H/W is competent but does contain mineralisation and thus any dilution does carry some grade. Bogging will be with remote or tele-remote loaders. We note that the oxide ore goes to a depth of 10m to 25m, transition ore from 25m to ~35m before moving into sulphide ore. The underground operation will thus increase the percentage of sulphide ore reporting to the plant. DML anticipates unit costs ~US$37/t off ore with decline costs of US$3,200/metre and US$2,900/metre for the strike development. Capital costs were estimated at US$5m at each decline and sustaining capital of US$3.5m/annum. We believe that these costs are realistic Goldman Sachs & Partners Australia Investment Research All figures in A$ unless otherwise advised 9
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Goldman Sachs Investor Research - Discovery Metals Limited

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