Troubles of Discovery Metals Limited (DML) are taking a different twist, with the mining outfit failing to secure finances to fund operations, defaulting payment to financiers and uncertain on Boseto Copper Project, with losses exceeding $200 million (about P1, 6 billion).
This week, the Australian listed mining outfit, headed by Managing Director Brad Sampson, revealed that there is a risk that the actual mineralisation may be different to the expected results from exploration and Ore Reserve and Mineral Resource development. “Adverse movements may impact the financial viability of the project going forward,” Sampson said. This comes at a time when DML has been accumulating hundreds of millions in losses casting doubt on the profitability of the copper producer. Latest financial statements show that the consolidated group recorded a loss of US$224.3 million(about P1,9 billion) for the year ended 30 June 2013, (an equivalent of P2.2 billion) which was an overwhelming rise from the US$21.1 million loss (an equivalent of P190 million) made during the same period last year.
DML attributes the huge losses to a total impairment charge of $205.7 million (P1.8 billion) taken after the company performed its annual impairment test on 30 June 2013. According to the statements the company considered the relationship between its market capitalisation and its book value, among other factors including the fall in the copper price in the last six months, when reviewing indicators of impairment. “As at 30 June 2013, the market capitalisation of the Consolidated Group was below the book value of its equity, indicating a potential impairment of the assets of the Boseto operations,” Sampson said in a statement. Further DML has been having a hard time raising money to fund its operations especially Boseto, the company’s most valuable project. “The Group will require additional and/or renegotiated funding to continue the operation and development of operations in Botswana.
There is no certainty that the group will have access to available financial resources sufficient to fund its obligations and operations going forward,” Sampson said. Failure to secure funding by DML could be linked to the group’s failure to honour repayments of the loans it took from financiers to fund ongoing projects. There are numerous factors involved with early stage development and its operations, including variance in commodity price, foreign exchange and labour costs, which can result in projects being uneconomical. DML is primarily exposed to commodity price risk arising from revenue derived from future copper sales. As at 30 June 2013, the company had 8,291 tonnes of copper hedged at an average price of US$4.03/lb with a market value of approximately $17.6 million (about P140 million).
This represents approximately 55 percent of forecast copper production until December 2013. Given that it operates internationally, DML is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Botswana Pula, the Australian Dollar and the South African Rand (which moves closely with the Botswana Pula as the Rand comprises 75 percent weighting of the Botswana Pula basket of currencies for foreign exchange adjustments). “DML was in default of its loan facilities comprising a Project Finance Facility Agreement (PFA) of 128.86million (P1.1 billion) and a Corporate Revolving Facility (RCF) of $25m (P225million),” DML announced this week. Several payment arrangements have been mad and defaulted by DML such that a number of parties are now completing due diligence on DML.
The value of DML’s asset base has also taken a deep nosedive, with the net asset position of the consolidated group at 30 June 2013 falling to US$67.7 million (P609 million) from US$238.2 million (P2.1 billion) seen in the same period in 2012. By close of trading hours this Tuesday, DML traded at 183thebe per share.