Discovery Metals (DSV) - Club Company Report Preview

October 15 2020, 01:31 GMT+01:00

Discovery Metals Corporation (“Discovery Metals”) (OTCQX:DSVMF) (TSX:DSV) is a Canadian company incorporated in 1986 which in April 2017 after a number of changes in name and business purpose became Discovery Metals focused on mineral exploration and development.

NOTE: This is only a short excerpt, not the full 40 page report which can be found in the Club.

NOTE: We don't short stock or get paid to write hit pieces. If we are invested, we say so.


The transactions entered into in April 2017 were exploration and option agreements with two private Mexican vendors for the Puerto Rico and Renata properties in Coahuile, Mexico. These were followed in May 2017 by concluding an additional option agreement for four concessions, two of which are referred to as Minerva and Monclova.

During the financial year ending 31 December 2018 Discovery Metals carried out underground sampling at three mines on the Puerto Rico property: the eponymous Puerto Rico mine, the San Jose mine and the Zaragoza mine. At the same time a magnetic geophysical survey was completed at Monclova and mapping and channel sampling of surface outcrops at Minerva.

In August 2019 Levon Resources Limited (“Levon”) was acquired by way of a plan of arrangement for a total consideration of C$26.3 million paid for by exchanging 0.55 Discovery share for every Levon share, option and warrant. With the takeover Discovery controlled the Cordero project, a very large but low-grade silver deposit in the Chihuahua State if Mexico. Soon thereafter Discovery commenced a “Phase 1” diamond drilling programme on the property.

Also during 2019 surface mapping and sampling in addition to underground sampling was carried out at Minerva and Monclova. The company planned to drill at Monclova before the end of 2019. For Puerto Rico Discovery was in the final stages of a land re-designation process in order to be able to apply for drilling permits for the project. The Puerto Rico option agreement was amended to account for delays in obtaining the drill permits. In general the cash component of the option commitments and purchase price dropped.

Throughout the first half of 2019 the company announced results of the Phase 1 drilling at Cordero which varied from wide, low-grade intersections to very short high-grade intersections.

Figure 1_1 shows the share price performance of Discovery Metals over the last 5 years on the Toronto stock exchange (“TSX”). For the purposes of this report the period before April 2017 is immaterial.

CleanShot 2020-10-19 at 17.52.47@2xDiscovery Metals’ Share Price on the Toronto Stock Exchange Over the Last 5 Years

What caused the share price to rise before April 2017 seems to be related to a reorganisation with new management installed, a capital raising and debt forgiveness. The change of business had an immediate positive impact, but for a short period after which there was a long downhill trend until mid-July 2019. The exploration results at Puerto Rico and other properties did not get traction with the market but this all changed with the Levon takeover. From the middle of last year the share price has been on an upward trajectory (complete with a coronavirus dip in March), which accelerated strongly from April of this year.

The price graph clearly indicates that Discovery Metal’s value is all about the Cordero project. And so this report will focus on Cordero and ignore the other, early-stage assets.

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