aim: dme half year financial report bse: dml …qualifications: bsc (mining engineering), msc...

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Liebherr 9350 Excavator and Caterpillar dump truck Discovery Metals Limited

HALF YEAR FINANCIAL REPORT Highlights

The Company’s half year financial results reflect the continuing development

and progress of the Boseto copper project in north-west Botswana, including:

o Raising the debt component of the project finance;

o Placing the hedging protection for project revenue;

o Continued Boseto zone exploration success at Mango, Zeta North-East,

Selene and Plutus underground targets;

o Commencement of open pit mining at Boseto in September 2011.

The Company reports in US Dollars to better reflect the Company’s activities

and cost and revenue exposure.

The Company held US$98.9 million in cash at 31 December 2011.

The Boseto copper project remains on track for production in the second

quarter of 2012.

Financial Results

The Discovery Metals consolidated group reported a loss of US$6.966 million for

the December 2011 half year, up from the US$4.908 million loss for the

corresponding period in 2010. This result is consistent with the ramp up in activity,

manning and costs by the Company as it moves through project development at

Boseto and prepares for copper-silver concentrate production in the second

quarter of 2012. These results exclude the US$51 million unrealised mark-to-

market gain (after tax) reported on the Boseto hedge book.

Discovery Metals’ Managing Director, Brad Sampson, commented, “The half year

financial results of the Company reflect the continued progression of Discovery

Metals towards becoming an operating copper and silver producer in the second

quarter of 2012. We also continue to invest in the development of the Boseto

copper project and exploration to find our next project in Botswana.”

22 February 2012

ASX: DML

ASX ANNOUNCEMENT

MARKET CAPITALISATION Shares on Issue 442m Share Price A$1.59 Market Cap A$703m Cash (31 Dec) US$99m Cash (22 Feb) US$102m Debt (31 Dec) US$150m Debt (22 Feb) US$180m

ABN 29 104 924 423

AIM: DME BSE: DML

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Detailed Commentary on Financial Results

Items of note in the Half Year Financials and Directors Report are:

Assets:

o The cash and cash equivalents balance at 31 December 2011 of US$98.9 million results from

funds remaining from the 2010 equity raising and drawings on the Boseto project finance

syndicated debt;

o Trade and other receivables reflect the usual 3 month processing time for VAT refunds in

Botswana;

o The appearance of the derivative financial assets reflects the mark-to-market positive

valuation of the Boseto hedging protection placed in July 2011. The current portion of

US$13.2 million reflects the positive value of the hedges to be closed out in the 2012 calendar

year;

o Plant and equipment increased to US$220.5 million as a result of Boseto construction activity;

o The appearance of Inventory of US$2.9 million reflects the purchase of initial spares and

supplies for the Boseto operations;

o The US$45.8 million exploration asset comprises continued investment in the exploration and

feasibility work at Boseto and other parts of the Kalahari Copperbelt.

Liabilities:

o The increase in trade and other payables to US$22.1 million is the accrued construction

charges for Sedgman and other contractors at Boseto for the month of December 2011.

Income:

o The non-cash gain of US$51.0 million in Other Comprehensive Income is the result of the

mark-to-market unrealised gain on the Boseto project hedging protection placed in July 2011.

Costs:

o Salaries increased to US$3.9 million with a ramp up in project, exploration and corporate

personnel to support the development and operation of the Boseto copper project;

o A non-cash cost of US$0.7 million for unrealised foreign exchange loss on funds held in other

than US dollars to be applied largely to Australian corporate costs in 2012 (the Australian

Dollar devalued in relation to the US Dollar in the last six months of 2011, but has since

rebounded);

o A non-cash cost of US$1.4 million for employee benefits relates to the expensing of share

based payments.

The Interim Financial Statements have been reviewed by the Company’s auditor, Ernst and Young in Australia

and Botswana.

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Screen Plant & Fine Ore Bin

Mining at Zeta pit

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Competent Persons Statement The information in this report that relates to Exploration Results is based on information compiled by Mr Wallace Mackay who is a Member of the Australian Institute of Geoscientists (AIG). Mr Mackay is a full-time employees of Discovery Metals Limited. Mr Mackay has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (JORC Code). Mr Mackay consents to the inclusion in this report of the matters based on information provided by him and in the form and context in which it appears. Forward Looking Statements This release includes certain statements that may be deemed “forward-looking statements”. All statements in this discussion, other than statements of historical facts, that address future activities and events or developments that Discovery Metals expects, are forward-looking statements. Although Discovery Metals believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, continued availability of capital and financing, and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in forward-looking statements.

Discovery Metals Background

Discovery Metals is an ASX/AIM/BSE listed copper exploration and development company focused on the emerging Kalahari Copperbelt in north-west Botswana. The Company is a near-term copper producer currently developing its 100% owned Boseto Copper Project towards production in the first half of 2012. The Company is in the process of de-listing from the AIM market.

The Kalahari Copperbelt sediment-hosted mineralisation of the Boseto Copper Project is similar in style to the well-known and large deposits of the Central African Copperbelt of Zambia and the Democratic Republic of the Congo.

Discovery Metals has prospecting licences covering 11,872 km2 along the Kalahari Copperbelt.

Further information on the Company including Mineral Resources and Ore Reserves is available on our website:

www.discoverymetals.com

For further information on this release and Discovery Metals Limited, please contact:

Brad Sampson Managing Director Ph: +61 7 3218 0222 [email protected]

AIM Nominated Advisor – Fairfax I.S. PLC, Contact Ewan Leggat/Laura Littley Ph: +44 20 7460 4389 or 7460 4387

UK PR – Tavistock PR, Contact Jos Simson/Emily Fenton Ph +44 207 920 3150 or +44 778 855 4035

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http://www.discoverymetals.com/

1

DISCOVERY METALS LIMITED

ABN 29 104 924 423

HALF YEAR

FINANCIAL REPORT

For the six months ended

31 December 2011

(Expressed in thousands, of United States dollars, except as otherwise stated)

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CONTENTS

2

Page

Directors’ Report 3 Review of Operations 5 Statement of Comprehensive Income 8 Statement of Financial Position 9 Statement of Changes in Equity 10 Statement of Cash Flows 11 Notes to the Interim Financial Statements 12 Directors’ Declaration 17 Audit Independence Declaration 18 Independent Review Statement 19

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DIRECTORS’ REPORT

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Your directors present their report on Discovery Metals Limited and its subsidiaries (“the Consolidated Group”) for the half year ended 31 December 2011.

1. Board of Directors The names of the directors of Discovery Metals Limited (“Discovery Metals” or “Company”) in office at any time during or since the end of the half year are:

Gordon Galt – Independent Non-Executive Chairman

Qualifications: B.Eng (Hons), B Comm, Grad Dip Applied Finance, MAusIMM, MAICD

Experience and expertise:

Gordon is a mining engineer with post-graduate qualifications in business and finance. His career began in the coal industry where he specialised in operations, project development then general management. He became Managing Director of Cumnock Coal in 1996 before moving to the gold/base metals industry as Managing Director of Newcrest Mining Ltd, where he oversaw the development of Cadia Hill, Gosowong, Ridgeway and early work on the Telfer redevelopment. Gordon spent a period as Managing Director responsible for global Mining/Metals for ABN AMRO bank before entering the funds management industry, where he is currently a Principal of Taurus Funds Management based in Sydney.

Other current directorships:

Non-Executive Director of Aquila Resources Ltd (since August 2007)

Non-Executive Chairman of Nucoal Resources Ltd (since February 2010)

Non-Executive Chairman of US Masters Holdings Ltd (since July 2010)

Non-Executive Chairman of Delta SB Ltd (since December 2010)

Former directorships in last three years:

Non-Executive Director of Navigator Resources Ltd (from August 2008 to December 2010)

Stuart Bradley Sampson – Managing Director

Qualifications: B.Eng (Mining) (Hons) Qld, MBA Deakin, AMP Oxf, MAusIMM, GAICD


Brad has more than 25 years experience as a mining engineer. He has worked extensively in both open cut and underground mine operations and developments in Australia, Southern Africa and the Pacific. He previously held an executive role at Thiess Ltd and has been in general management roles with Gold Fields Limited at its St Ives gold mine in Western Australia, at the Kloof operation in South Africa, and was General Manager (Papua New Guinea) for Emperor Mines Limited. Brad is a director of all Discovery Metals’ subsidiaries.

Morrice Cordiner – Non-Executive Director

Qualifications: LLB, ASIA


Morrice is a corporate lawyer by training and has over 20 years experience in the finance and resource industries. Morrice was a founding director of Discovery Metals and was instrumental in identifying the original projects and strategic alliance with Falconbridge Inc which brought in the original exploration properties in 2003. Over the past decade, Morrice has been involved in the successful development and financing of a number of listed resource companies with projects in gold, nickel, copper and zinc. He has been actively involved in raising funds for these ventures on the Australian Securities Exchange, the London AIM market and the Toronto Stock Exchange.


Non-Executive Director of Deseado Resources Limited (since 2011)

Non-Executive Director of Mining Investors Australia Pty Ltd (since 2000)

Non-Executive Director of Oresearch Limited (since 2011)


Executive Director of Andean Resources Limited (December 2003 to November 2009)

Non-Executive Director of Meridian Minerals Limited (July 2008 to November 2009)

Committees: Chairperson of the Audit and Financial Risk Committee

Chairperson of the Remuneration and Nomination Committee

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DIRECTORS’ REPORT

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Ribson Gabonowe – Non-Executive Director

Qualifications: BSc (Mining Engineering), MSc (Mineral Economics), MBA


Ribson is a Mining Engineer with over 30 years experience in the mining industry. For twelve years to December 2006, Ribson was the Director of Mines of Botswana, responsible for administering the legal and fiscal framework governing mineral exploitation. In this role, Ribson was involved in negotiations of mineral agreements for copper, nickel, diamonds, coal and soda ash.

Ribson is a director of all Discovery Metals subsidiaries registered in Botswana.


Executive Director of Boteti Mining (Pty) Ltd (since December 2010)

Non-Executive Director of Gabor Consulting (Pty) Ltd (since August 2007)


Non-Executive Director of Atlas Minerals (Pty) Ltd (April 2009 to February 2011)

Non-Executive Director of Kukama Mining and Explorations (Pty) Ltd ( November 2007 to February 2011)

Non-Executive Director of Coal Wealth Botswana Pty Ltd (November 2010 to April 2011)

Committees: Member of the Non-Financial Risk Management Committee

Jeremy Read – Non-Executive Director

Qualifications: BSc (Hons), MAusIMM


Jeremy Read has 23 years domestic and international minerals exploration experience and was previously the Manager of BHP’s Australian Exploration Team. He has extensive exploration experience for nickel and copper sulphides and played a critical role in the discovery of Kabanga North Nickel Deposit in Tanzania.

Jeremy was the founding managing director of Discovery Metals from its incorporation in May 2003, until his appointment as a non-executive director on 1 February 2008. Mr Read secured the Boseto Copper Project for the Company and was responsible for all Discovery Metals’ fund raising activities and for listing Discovery Metals on the Australian Securities Exchange, Botswana Stock Exchange and the Alternative Investment Market in London. He is also the founding managing director of Meridian Minerals Limited.


Managing Director of Avalon Minerals Limited (since February 2012)

Non-Executive Director of Harmattan Gold Limited


Managing Director of Meridian Minerals Limited (September 2008 to December 2011)

Committees: Chairperson of the Non-Financial Risk Management Committee

Member of the Remuneration and Nomination Committee

John Shaw – Non-Executive Director

Qualifications: BSc (Geological Engineering), FAusIMM, MCIM, FAICD, SME


John has over 40 years experience in exploration, development and operations of open cut and underground mines in Asia, Australia, Africa and Canada. John previously was Vice President of the Australian Operations of Placer Dome Asia Pacific Limited and managing director of Kidston Gold Mines.


Non-Executive Director of IAMGOLD Corporation (since March 2006)

Non-Executive Director of Quadra Australia Pty Ltd (since May 2006)

Non-Executive Director of Indochine Mining Limited (since December 2011)


Chairperson and Non-Executive Director of Albidon Limited (February 2008 to April 2009)

Committees: Member of the Audit and Financial Risk Committee

Member of the Non-Financial Risk Management Committee

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DIRECTORS’ REPORT

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Gregory Seeto – Company Secretary (Appointed on 1 September 2011)

Qualifications: LLB (Hons), BJ, GradDipLP, GradDipACG, ACIS


Greg is a corporate lawyer with post-graduate qualifications in governance. Greg is an associate member of Chartered Secretaries Australia and is a legal practitioner of the Supreme Court of Queensland and the High Court of Australia. Greg has experience as a senior lawyer at a top-tier law firm and as a listings adviser at the Australian Securities Exchange.

Roslynn Shand – Company Secretary (Ceased 31 August 2011)

2. Principal Activity The principal activity of the Company during the half year was the continued development of its Boseto Copper Project in Botswana. The Company retains 100% ownership of the Boseto Copper Project and the project remains on track for commissioning in the first half of 2012. The Company continued its mineral exploration in the vicinity of the Boseto Copper Project and at other exploration zones on the Kalahari Copperbelt.

No significant change in the nature of the consolidated entity’s principal activity occurred during the half year.

3. Dividends Paid or Recommended The directors do not recommend the payment of a dividend for this financial year. No dividend has been declared or paid by Discovery Metals since the end of the previous financial year.

4. Operating Results The result of the Consolidated Group for the half year amounted to a loss of US$6.966 million. (2010: loss US$4.908 million).

5. Number of Employees There are 299 full-time employees employed by the Consolidated Group in Australia and Botswana. (2010: 49)

6. After Balance Date Events No other matters or circumstances have arisen since the end of the half year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial years other than those noted in Note 7 in the Notes to the Interim Financial Statements.

7. Future Developments Other than as referred to in this report, further information as to likely developments in the operations of the Consolidated Group and the expected results of future operations would, in the opinion of the directors, be speculative.

8. Financial Position The net asset position of the Consolidated Group at 31 December 2011 was US$253.122 million. (30 June 2011: US$204,362 million).

9. Review of Operations

(a) Exploration

In preparation for the completion of the Zeta underground Definitive Feasibility Study, an upgraded Mineral Resource was published.

The Company’s seven original prospecting licences in the Ghanzi district of Botswana, were renewed for a further two years. The Consolidated Group holds a significant area of prospecting licences in the Kalahari Copperbelt (currently 8,877 square kilometres).

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The newly discovered Mango Prospect was explored and drilled and confirmed mineralisation along at least 20 kilometres of the strike horizon of 36 kilometres.

Assay results from diamond drill holes at the Plutus Deposit confirmed high grade copper‐silver mineralisation at depths of approximately 200 metres below surface. Potential for underground mining was identified along a 1,400 metre strike length from the three kilometre zone drill tested.

Higher grade copper‐silver mineralisation confirmed at the Zeta North East Prospect, seven kilometres north‐east of the Zeta deposit. Mineralised strike length of three kilometres remains open at depth.

A new Inferred Mineral Resource was announced in early January for the Selene resource.

(b) Boseto Project Construction

Boseto construction continues on schedule for commissioning and commencement of copper-silver concentrate production in the June half of 2012.

Construction of the process plant is nearing completion and the majority of mining mobile equipment was delivered to site to allow mining to commence in September 2011.

(c) Dikoloti Nickel Project (Discovery Metals 40% and diluting)

Following successful application for a 2 year prospecting licence renewal of a reduced area, the Dikoloti Nickel Project now comprises three prospecting licences covering an area of 273 square kilometres surrounding the nickel operations of BCL Limited in the Selebi-Phikwe region of north-east Botswana. The Company manages the Joint Exploration Agreement with The Japan Oil, Gas and Metals National Corporation (JOGMEC) and JOGMEC have earned a right to a 60% interest in the project. JOGMEC will also provide funding for the future two year exploration programme and therefore Discovery Metals’ share of the project is expected to continue to dilute as it continues to focus on the development and potential expansion of the Boseto Copper Project.

(d) Financial

The Boseto debt syndicate project finance documents were executed with the first draw down of project debt in July 2011. The Company completed expenditure of the US$80 million equity portion of the Boseto project financing in June 2011. The remaining project costs are being debt financed. The Project budget is US$175 million for the Boseto processing plant and other infrastructure and US$75 million for the Boseto mine mobile fleet with Caterpillar being the largest supplier.

In addition to debt funding of US$180 million, the banking syndicate provides a US$25 million overrun and working capital facility plus hedging lines for both copper and silver production.

At the end of December 2011, Discovery Metals held US$98.9 million in cash and had drawn down Boseto project debt of US$150 million.

(e) Boseto Hedging

In July 2011, Discovery Metals entered into a commodity price protection strategy by hedging approximately 40% of forecast copper and 65% of forecast silver production (for the scheduled period of the loan repayment through to March 2015). The hedge contracts provide downside price protection for a portion of the Boseto production. Approximately 60% of the copper production will be sold at spot market prices. The total hedged quantities are 40,000 tonnes of copper and 1,850,000 ounces of silver.

The average future strike prices attained for these hedge contracts are US$4.01 per pound (/lb) for copper and US$36.07 per ounce (/oz) for silver. These compare very favourably to the Bankable Feasibility Study (BFS) prices of US$3.00/lb for copper and US$17/oz for silver. The hedge book value was US$65 million in excess of commodity market prices at 31 December 2011.

On a monthly basis from 1 July 2012, the Company will cash settle or receive payment from the hedging banks based on the difference between the average monthly London Metal Exchange (LME) copper price and the contracted hedge prices.

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DIRECTORS’ REPORT

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10. State of Affairs The Company’s future financial results are dependent on the successful commissioning of the Boseto project in the first half of 2012. At the date of this report the project is expected to be delivered into production and within the capital budget in the current half year. Further information is provided at Note 2 to the Financial Statements.

11. Further Information Further details are reported in the latest Quarterly Activity Report released to the ASX, BSE and AIM exchanges and available on the Company’s website.

www.discoverymetals.com

12. Proceedings on behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.

The Company was not a party to any such proceedings during the half year.

13. Non-audit Services The Board of Directors, in accordance with advice from the Audit and Financial Risk Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

• all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and

• the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

There were payments totalling US$95 thousand for non-audit services paid to the external auditors during the half year ended 31 December 2011.

14. Auditor’s Independence Declaration The lead auditor’s independence declaration for the half year ended 31 December 2011 has been received and can be found on page 18 of this combined report.

Signed in accordance with a resolution of the Board of Directors.

Brad Sampson Gordon Galt Managing Director Chairman Brisbane, dated this 22nd day of February, 2012

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STATEMENT OF COMPREHENSIVE INCOME For the Half Year Ended 31 December 2011

The accompanying notes form part of these financial statements.

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31 Dec 2011 US$’000

31 Dec 2010 US$’000

Revenues 309 1,422

Compliance expenses (446) (168)

Depreciation and amortisation (186) (96)

Legal support (413) (254)

Rent (124) (106)

Salaries and consultants (3,296) (1,399)

Travel expenses (540) (384)

Employee benefits expense (1,434) (2,894)

Foreign exchange loss (703) (759)

Other expenses (1,178) (420)

Loss before income tax expense (8,011) (5,058)

Income tax benefit 1,045 150

Loss after income tax expense (6,966) (4,908)

Other Comprehensive Income

Fair value of cash flow hedges (net of tax) 51,013 -

Exchange translation difference - 11,864

Total Comprehensive (Loss) / income for the period 44,047 6,956

Basic loss per share (cents per share) (1.59) (1.51)

Diluted loss per share (cents per share) (1.59) (1.51)

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STATEMENT OF FINANCIAL POSITION For the Half Year Ended 31 December 2011


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31 Dec 2011 US$’000

30 June 2011 US$’000

ASSETS

CURRENT ASSETS

Cash & cash equivalents 98,898 88,807

Trade & other receivables 7,141 3,876

Derivative financial assets 13,214 -

Inventory 2,886 -

Prepaid expenses and deposits 771 1,981

TOTAL CURRENT ASSETS 122,910 94,664

NON-CURRENT ASSETS

Property, plant and equipment 220,523 94,591

Exploration, evaluation and development expenditure 45,804 37,771

Intangible assets 1,087 568

Derivative financial assets 52,186 -

TOTAL NON-CURRENT ASSETS 319,600 132,930

TOTAL ASSETS 442,510 227,594

CURRENT LIABILITIES

Trade & other payables 22,148 19,425

Current portion of finance leases 69 73

Current portion of Boseto project finance 17,136 -

Provisions 466 427

TOTAL CURRENT LIABILITIES 39,819 19,925

NON-CURRENT LIABILITIES

Non-current portion of Finance lease 109 159

Non-current portion of Boseto project finance 132,864 -

Deferred tax liability 13,679 336

Provisions 2,917 2,812

TOTAL NON-CURRENT LIABILITIES 149,569 3,307

TOTAL LIABILITIES 189,388 23,232

NET ASSETS 253,122 204,362

EQUITY

Issued capital 215,382 213,017

Reserves 75,844 22,483

Accumulated losses (38,104) (31,138)

TOTAL EQUITY 253,122 204,362

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STATEMENT OF CHANGES IN EQUITY For the Half Year Ended 31 December 2011


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Issued

Share Capital

Accumulated (Losses)

Shares & Option

Reserve

Hedging Reserve

Foreign Currency

Translation Reserve

Total

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

2010

Balance at 1 July 2010 75,480 (16,592) 3,138 - 1,116 63,142

Currency translation differences - - - - 8,354 8,354

(Loss) for the half year - (4,908) - - - (4,908)

Shares issued during the half year 142,181 - - - - 142,181

Transaction costs for shares issued (4,714) - - - - (4,714)

Cost of share based payments - - 3,012 - - 3,012

Balance as at 31 December 2010 212,947 (21,500) 6,150 - 9,470 207,067

2011

Balance at 1 July 2011 213,017 (31,138) 9,293 - 13,190 204,362

Currency translation differences - - - - - -

(Loss) for the half year - (6,966) - - - (6,966)

Shares issued during the half year 2,365 - - - - 2,365

Fair value of cash flow hedges (net of tax)

- - - 51,013 - 51,013

Cost of share based payments - - 2,348 - - 2,348

Balance as at 31 December 2011 215,382 (38,104) 11,641 51,013 13,190 253,122

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STATEMENT OF CASH FLOWS For the Half Year Ended 31 December 2011


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31 Dec 2011

US$’000 31 Dec 2010

US$’000

CASH FLOWS FROM OPERATING ACTIVITIES

Payments to suppliers and employees (4,436) (1,737)

Interest received 309 1,421

Refunds received - -

Net cash used in operating activities (4,127) (316)

CASH FLOWS FROM INVESTING ACTIVITIES

Payments for exploration (7,854) (7,405)

Purchase of plant and equipment and spares (127,331) (13,629)

Purchase of intangibles (519) (25)

Proceeds from joint venture partner - 1,025

Net cash used in investing activities (135,704) (20,034)

CASH FLOWS FROM FINANCING ACTIVITIES

Drawdown of Boseto project finance 150,000 -

Proceeds from issue of shares 2,365 142,181

Share issue costs - (4,714)

Net cash provided by financing activities 152,365 137,468

Net increase in cash & cash equivalents held 12,534 117,118

Cash & cash equivalents at the beginning of the period 88,807 33,534

Effect of exchange rates (2,443) 11,074

Cash & cash equivalents at the end of the period 98,898 161,726

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NOTES TO THE INTERIM FINANCIAL STATEMENTS For the Half Year Ended 31 December 2011

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NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

The half year consolidated financial statements are a general purpose financial report prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards including AASB 134: Interim Financial Reporting. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards.

It is recommended that this financial report be read in conjunction with the annual financial report for the year ended 30 June 2011 and any public announcements made by the Company and its controlled entities during the half year in accordance with continuous disclosure requirements arising under the Corporations Act 2001 and ASX listing rules.

Reporting Basis and Conventions

These financial statements have been prepared on an historical cost basis.

(a) Principles of Consolidation

The consolidated financial statements incorporate the assets, liabilities and results of all entities in which the Company holds a controlling interest. Control is established by the Company’s ability to determine strategic, operating, investing and financing policies without the co-operation of others. The effects of all transactions between entities in the Consolidated Group are eliminated in full. Where control of an entity is obtained during a financial year, its results are included in the consolidated statements of income from the date on which control commences. Where control of an entity ceases during a financial year its results are included for that part of the year during which control exists. The Consolidated Group’s interests in joint venture entities are brought to account using the equity method of accounting in the consolidated financial statements.

(b) Functional and presentation currency

The functional currency of each of the Consolidated Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in United States Dollars. Following a review, the Comapny decided that the functional currency of the Consolidated Group and its subsidiaries be changed to US dollars, effective 1st July 2011. This change means that the financial information in the Company’s quarterly ASX reports, as well as its half-year and full-year accounts is presented in US dollars. Dividends will be declared in US dollars, but shareholders will continue to receive dividends in Australian dollars unless they elect otherwise. Given that the majority of Consolidated Group’s revenue, its debt are denominated in US dollars, this change will provide shareholders with a more accurate reflection of the Company’s underlying performance. The group effected this change at 1 July 2011 by translating local currency balances to USD balances in the financial information management system. Effective 1 July 2011, the USD functional currency has been applied prospectively to all transactions.

(c) Exploration and evaluation Expenditure

Exploration and evaluation expenditure related to areas of interest is capitalised and carried forward to the extent that:

(i) Rights to tenure of the area of interest are current; and

(ii) (a) Costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively by sale; or

(b) Where activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, active and significant operations in, or in relation to, the areas are continuing.

Such expenditure consists of an accumulation of acquisition costs and direct net exploration and evaluation costs incurred by or on behalf of the Consolidated Group, together with an appropriate portion of directly related overhead expenditure, but does not include general overheads or administrative expenditure not having a specific connection with a particular area of interest, which is expensed in the year it is incurred.

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Property acquisition costs relating to exploration properties and expenditures incurred on properties identified as having development potential are deferred as mine development costs on a project basis until the viability of the project is determined.

If, after management review, it is determined that the carrying amount of an exploration property is impaired, that property is written down to its estimated fair value. An exploration property is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

When an area of interest is abandoned, any expenditure carried forward in respect of that area is written off in the year in which the decision to abandon the area is made.

(d) Hedge Accounting

The Group uses derivative financial instruments, such as forward commodity contracts, to hedge its commodity price risks, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

The fair value of commodity purchase contracts that meet the definition of a derivative under AASB 139 are recognised in the income statement in cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the group’s expected purchase, sale or usage requirements are held at cost. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the income statement, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income.

The effective portion of the gain or loss on the hedging instrument is recognised directly in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the income statement in other operating expenses.

Amounts recognised as other comprehensive income are transferred to the income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognised as other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.

e) Changes in Accounting Policy

From 1 July 2011 the Consolidated Group adopted the following Standards and Interpretations. Adoption of these Standards and Interpretations did not have any significant effect on the financial position or performance of the Group for the half year ended 31 December 2011.

Reference Title

AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues [AASB 132]

AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 3, AASB 7, AASB 121, AASB 128, ASB 131, AASB 132 & AASB 139]

Interpretation 19 Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments

AASB 124 (Revised)

The revised ASCB 124 Related Party Disclosures (December 2009) simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition.

AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052]

AASB 2009-14 Amendments to Australian Interpretation – Prepayments of a Minimum Funding

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Requirement

AASB 2010-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]

AASB 2010-5 Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042]

NOTE 2: PROFIT/ (LOSS) FOR THE PERIOD

Profit/(loss) from ordinary activities before income tax has been determined after:

2011 US$’000

2010 US$’000

Interest received 309 1,421

Employee benefits expense(1) 1,434 2,894

Depreciation of fixed assets & intangibles 186 96

Interest expense(2) - - (1) Employee benefits expense includes the cost of the Director and Employee Share plan approved by shareholders in February 2010, along with the former

option plan. During the six months ended 31 December 2010, Tranche 2 of the share rights became fully vested, which resulted in acceleration of the expense relating to the same. Share based compensation expense capitalised during six months ended 31 December 2011 is USD 0.9 million.

(2) Borrowing costs capitalised during the six months ended 31 December 2011 is USD 10.5 million. At 31 December 2011 the Consolidated Group reported a loss after tax of $6.966 million and a surplus of current assets to current liabilities of $83.091 million. The Company is currently progressing construction and development of its Boseto Copper Project. First copper production is expected to be produced from the operation in the first half of 2012. During this construction and development phase the group project entity (100% subsidiary) holding the project assets has drawn against the project financing facilities and entered into a number of significant forward hedging contracts. The settlement of these obligations will be dependent on the successful operation of the Boseto Copper Project. At 31 December 2011 and at the date of this report, the Directors have assessed the ability of the Consolidated Group to complete the project and commence operations and are satisfied that cash flows from the project in future periods are projected to be sufficient to allow the Group to meet its debts as and when they fall due, and realise its assets and settle liabilities in the normal course of business. The directors are further satisfied that, based on latest available management forecasts, the project entity is projected to remain in compliance with the covenants that form part of the Boseto financing facility.

Derivative financial instruments and hedge accounting

In July 2011, Discovery Metals entered into a commodity price protection strategy by hedging approximately 40% of forecast copper and 65% of forecast silver production (for the scheduled period of the loan repayment through to March 2015). The hedge contracts provide downside price protection for a portion of the Boseto production. Approximately 60% of the copper production will be sold at spot market prices. The total hedged quantities are 40,000 tonnes of copper and 1,850,000 ounces of silver. This is explained in more detail in the Directors Report and in public announcements made by the Company. At 31 December 2011, the fair value of these hedges totalled US$65.4 million and rescognised as assets by the Group with the net of 22% tax gain during the period of US$51 million recognised as other comprehensive income. F

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NOTE 3: SEGMENT REPORTING

The consolidated entity operates in one business segment being the mining industry, in two geographical locations, being Australia and Botswana.

For the half year ended 31 December 2011

Boseto Copper Project

Dikoloti Nickel Project

Corporate Consolidated

Group

US$’000 US$’000 US$’000 US$’000

Revenue from external customers - - - -

Inter-segment revenue - - 4,027 4,027

Interest & Refunds 30 5 274 309

Expenses (793) (1) (7,526) (8,320)

(Loss) / income before elimination (763) 4 (3,225) (3,984)

Less: Elimination – property, plant & equipment - - (3,759) (3,759)

Less: Elimination – Exploration asset - - (268) (268)

Add: income tax benefit - - 1,045 1,045

(Loss)/ income after income tax (763) 4 (6,207) (6,966)

Reportable segment assets 381,042 609 61,026 442,677

For the half year ended 31 December 2010

Boseto Copper Project

Dikoloti Nickel Project

Corporate Consolidated

Group

US$’000 US$’000 US$’000 US$’000

Revenue from external customers

Inter-segment revenue - - 566 566

Interest & Refunds 101 10 1,311 1,422

Expenses (845) (2) (6,199) (7,046)

(Loss) / income before elimination (744) 8 (4,322) (5,058)

Less: Elimination 566 - (566) -

Less: Elimination – Exploration asset - - - -

Add: income tax benefit 150 - - 150

(Loss)/ income after income tax (27) 8 (4,888) (4,908)

Reportable segment assets 53,454 2,331 162,387 218,172

There are no customers for the period under review since the Company is still in development stage.

NOTE 4: CONTINGENT LIABILITIES

There are no known contingent liabilities. There has been no change in contingent liabilities and assets since the last annual reporting date.

NOTE 5: CAPITAL COMMITMENTS

Capital expenditure commitments As at 31 December 2011 As at 30 June 2011

US$’000 US$’000

Payable – not later than one year 53,427 125,211

The major items of capital commitment as at 31 December 2011 are: Process plant ($12.0 million), Diesel Power Station ($3 million), Blast Hole Drills ($3 million), mine infrastructure ($11.4 million), housing ($12 million), excavators ($10 million) and truck and support fleet contracts ($2 million).

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NOTE 6: ISSUED CAPITAL

31 Dec 2011 US$’000

30 Jun 2011 US$’000

31 Dec 2011 Shares

30 Jun 2011 Shares

Fully paid ordinary shares at reporting date

215,382 213,017 442,128,231 437,114,481

(a) Ordinary Shares

At beginning of reporting period 213,017 75,480 437,114,481 300,987,060

Shares issued during the period: Issued at A$0.26 each 222 968,188 Issued at A$0.32 each 80 250,000 Issued at A$0.35 each 346 - 1,000,000 - Issued at A$0.36 each 239 747,337 Issued at A$0.37 each 185 500,000 Issued at A$0.375 each 199 - 500,000 - Issued at A$0.43 each 228 - 500,000 - Issued at A$0.44 each 436 1,000,000 Issued at A$0.50 each 766 247 1,513,750 486,250 Issued at A$0.54 each 286 - 500,000 - Issued at A$0.55 each 540 - 1,000,000 - Issued at A$1.05 each 90,091 86,875,646 Issued at A$1.12 each 50,929 45,300,000

Transaction costs relating to share issues (4,892)

At reporting date 215,382 213,017 442,128,231 437,114,481

* Shares on issue to parties external to Consolidated Group 427,196,880 427,424,310

NOTE 7: EVENTS SUBSEQUENT TO REPORTING DATE

No other matters or circumstances have arisen since the end of the financial half year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial years other than the following:

• On 12 January 2012, the Company announced the initial Selene copper mineral resource;

• On 18 January 2012, the Company announced the Higher Grade Copper Zone at Zeta NE confirmed by drilling;

• On 27 January 2012, the Company released its quarterly activities report containing updates to both the Boseto Copper Project and its drilling and exploration activities;

• On 30 January 2012, the Company announced the proposed cancellation of admission to trading on AIM;

• On 20 February 2012, the Company announced that it had been granted 4 new areas in the Kalahari Copperbelt referred to by the Company as the D’Kar prospecting licenses.

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DIRECTORS’ DECLARATION

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The directors of Discovery Metals Limited declare that:

1. The financial statements and notes, as set out on pages 8 to 17 hereof:

(a) comply with Accounting Standards AASB 134 Interim Financial Reporting and the Corporations Regulations; and

(b) give a true and fair view of the economic entity’s financial position as at 31 December 2011 and of the performance for the half year ended on that date.

2. In the directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

Brad Sampson Gordon Galt Managing Director Chairman Brisbane, dated this 22nd day of February, 2012

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Liability limited by a scheme approved under Professional Standards Legislation

Auditor’s Independence Declaration to the Directors of Discovery Metals Limited In relation to our review of the financial report of Discovery Metals Limited for the half-year ended 31 December 2011, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Ernst & Young

Brad Tozer Partner 22 February 2012

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Liability limited by a scheme approved under Professional Standards Legislation

Independent review report to members of Discovery Metals Limited

Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Discovery Metals Limited, which comprises the statement of financial position as at 31 December 2011, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, other selected explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year.

Directors’ Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of Interim and Other Financial Reports Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2011 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Discovery Metals Limited and the entities it controlled during the half-year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the Directors’ Report.

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Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Discovery Metals Limited is not in accordance with the Corporations Act 2001, including:

i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2011 and of its performance for the half-year ended on that date; and

ii) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Ernst & Young Brad Tozer Partner Brisbane 22 February 2012

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20120222-PF-ASX announcement 31 Dec 2011 half year accounts.pdf20120222-PF-ASX 31 Dec 2011 Accounts Cover v8.pdf20120221-BG-Half Year Financials 31 Dec 2011 Signed v15

aim: dme half year financial report bse: dml …qualifications: bsc (mining engineering), msc...

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