AIM RELEASE 31 October 2007 Discovery Metals Limited ("DME") Quarterly Report - 1 July to 30 September 2007 Maun Copper Project * A report prepared by Snowden Mining Industry Consultants ("Snowden") in July 2007 indicates that due to an increase in the average grade of the Inferred mineral resources, the Maun Copper Project has the potential to be economically viable at copper prices of US$1.50/lb and above; * Snowden has completed an updated assessment of the potential for the development of an open pit mining operation which has showed that for copper prices varying between US$2.00/lb and US$2.50/lb, and based upon the currently defined Inferred mineral resources at the Zeta and Petra Prospects only, the potential Net Present Value (NPV) of an open cut mine ranges from US$80 million to US$210 million. This assessment does not allow for the ongoing exploration success that the Company has experienced over the past 6 months; * Two strike kilometres of potentially open pittable copper-silver mineralisation has been identified at the North East Zeta Prospect; * Drilling completed at the Plutus Prospect has confirmed historical drill results with copper-silver mineralisation grading 1 - 2.5% Cu being intersected over 5km of strike and this mineralisation is potentially amenable to open pit extraction; * Initial results from the new metallurgical test work on the Maun copper-silver mineralisation have confirmed historical metallurgical results and indicate a premium quality copper concentrate grading in the range of 35-42% Cu is capable of being produced; * Copper recoveries on copper-silver mineralisation from the main Zeta Prospect at Maun are excellent at 95% and previous work has shown that silver recoveries are 80%. Dikoloti Nickel Project * Initial tests on the Dikoloti nickel sulphide mineralisation indicated that high nickel extractions could potentially be achieved using a bacterial leaching process; * A column test, simulating the heap-leach bacterial process, achieved 50% nickel extraction at the end of the quarter and with the nickel extraction rate continuing to accelerating rapidly, a high nickel extraction value should be obtained at the conclusion of the test. Corporate Activities * Discovery completed an institutional fundraising in Australia, Botswana and the United Kingdom raising AUD$11.4 million in order to progress the Maun Copper project through its feasibility stages. 1.) EXPLORATION ACTIVITIES Maun Copper Project, North West Botswana, (Discovery Metals 100%) The Maun Copper Project comprises seven prospecting licences covering an area of 6,333 square kilometres in north-western Botswana. Located within the project area is the Zeta Inferred Copper Resource (the "Zeta Resource" - 27.1Mt @ 1.3% Cu and 21 g/t Ag at a cut-off of 0.6% Cu) and the Petra Inferred Copper Resource (the "Petra Resource" - 4.5 Mt @ 1.1% Cu at a cut-off of 0.6% Cu). Other occurrences of copper mineralisation occur at the Plutus and North East Zeta prospects (Figure One). Open Pit Potential of the Zeta and Petra Mineral Resources During last Quarter following infill drilling at the Zeta Prospect and initial drilling at the Petra Prospect an upgraded Inferred mineral resource was reported for the Zeta prospect and an initial Inferred mineral resource was reported for the Petra resource. Following the definition of the Petra Resource and the significant increase to the Inferred mineral resource at the Zeta Prospect, Discovery retained the services of Snowden Mining Industry Consultants ("Snowden") to undertake an assessment of the open pit potential of the new Zeta and Petra resources. The open pit assessment comprised a Whittle optimisation study of the Zeta and Petra resources using the following parameters: * Pit slope angle - 45o, 50o, 55o * Production rate - 2 Mtpa and 3 Mtpa * Mining Base Cost - US$2/tonne * Processing cost for flotation - US$8 per tonne of ore for 3 Mtpa, US$10 per tonne for 2 Mtpa * Copper recovery for flotation - 95% * Silver recovery for flotation - 83% * Copper price - US$1.50/lb, US$2.00/lb and US$2.50/lb * Silver price - US$8/oz * Treatment Charges / Refining Charges and transport - 22.6% of copper metal * Treatment Charges / Refining Charges and transport - 10% of silver metal * Government Royalty - 3% of gross revenue * Discount 10% The base case scenario for the Zeta Resource of 45o pit slopes, $1.50/lb Cu and 2 Mtpa processing rate produces an open pit with a potential mining inventory of 4.5Mt @ 1.34% Cu and 22 g/t Ag with an undiscounted cash flow of US$52 million and average discounted cash flow of US$44 million. Steepening the pit walls to 50o, increasing the processing rate to 3 Mtpa and using US$2.00/lb for the copper price increases the undiscounted cash flow to US$151 million and the average discounted cash flow to US$127 million. A further increase in the copper price to US$2.50/lb increases the undiscounted cash flow to US$240 million and increases the average discounted cash flow to US$197 million. The base case scenario for Petra of 45o pit slopes, $1.50/lb Cu and 2 Mtpa processing rate produces an open pit with a potential mining inventory of 0.82Mt @ 1.13% Cu and 18 g/t Ag with an undiscounted cash flow of US$7.4 million and average discounted cash flow of US$7.13 million. Steepening the pit walls to 50o, increasing the processing rate to 3 Mtpa and using US$2.00/lb for the copper price increases the undiscounted cash flow to US$24 million and the average discounted cash flow to US$21 million. A further increase in the copper price to US$2.50/lb increases the undiscounted cash flow to US$38 million and increases the average discounted cash flow to US$35 million. The Petra open pit optimisations include the value of silver which currently is not classified a part of the Inferred resource. Discounted Cash Flow Analysis A discounted cash flow analysis was completed for the Zeta and Petra Resources by combining the outcomes from the Whittle optimisation studies for each resource. In order to calculate Net Present Values ("NPV's") for the combined resources the capital cost of a flotation processing plant was estimated at US$55 million for a 2 Mtpa plant and US$62 million for a 3 Mtpa plant. A discount rate of 10% was applied. The results from the economic analysis of the combined Inferred mineral resources for the Zeta and Petra resources are shown in Table One. Based upon these results Snowden concluded that there is potential to establish a cash flow positive operation based upon the current Zeta and Petra resources at copper prices of US$1.50/lb and above. Using a copper price of US$2.00/lb, 2 Mtpa processing rate and 50o pit walls the combined Inferred mineral resources of Zeta and Petra have the potential to deliver a project NPV of US$80M with an Internal Rate of Return ("IRR") of 180%. If the processing rate is increased to 3 Mtpa and a copper price of US$2.50/lb is used the project NPV increases to US$180M. The most optimistic scenario considered during the modelling was assuming 55o pit walls, 3 Mtpa processing rate and US$2.50/lb copper price and this produced a project NPV of US$210M. Adding additional open pittable copper resources to the existing resources at Zeta and Petra has the potential to significantly increase the overall Project NPV. It should be possible to bring a third open pit resource in to production in addition to Zeta and Petra for only an incremental increase in capital expenditure. The Company estimates that a further 10 million tonnes of 1.3% open pittable copper mineralisation could increase the project discounted cash flow by US$150 million at US$2.00/lb copper. Table One - Results of Economic Analysis of the Zeta and Petra Mineral Resources +-------------------------------------------------------------------+ | Pit Wall | Assumed Copper | Mining | Ore | | Ag | NPV | | Slope | Price | Rate | (Mt) | Cu % | g/t | (US$M) | | | (US$/lb) | (Mtpa) | | | | | |----------+------------------+--------+------+------+-----+--------| | 50o | 1.50 | 2 | 6.6 | 1.3 | 22 | 17 | |----------+------------------+--------+------+------+-----+--------| | 50o | 2.00 | 2 | 9.3 | 1.3 | 21 | 80 | |----------+------------------+--------+------+------+-----+--------| | 50o | 2.50 | 2 | 11.7 | 1.3 | 21 | 154 | |----------+------------------+--------+------+------+-----+--------| | 50o | 1.50 | 3 | 7.3 | 1.3 | 22 | 25 | |----------+------------------+--------+------+------+-----+--------| | 50o | 2.00 | 3 | 9.8 | 1.3 | 21 | 97 | |----------+------------------+--------+------+------+-----+--------| | 50o | 2.50 | 3 | 12.2 | 1.3 | 21 | 183 | |----------+------------------+--------+------+------+-----+--------| | 45o | 1.5 | 2 | 5.3 | 1.3 | 22 | 2.5 | |----------+------------------+--------+------+------+-----+--------| | 45o | 1.5 | 3 | 6.0 | 1.3 | 21 | 8.7 | |----------+------------------+--------+------+------+-----+--------| | 55o | 2.50 | 2 | 13 | 1.3 | 21 | 176 | |----------+------------------+--------+------+------+-----+--------| | 55o | 2.50 | 3 | 14.5 | 1.3 | 21 | 210 | +-------------------------------------------------------------------+ North East Zeta Prospect The North East Zeta prospect occurs four kilometres immediately along strike to the northeast of the Zeta Resource (Figure One). Northeast of the Zeta Resource the closest historical drill hole was hole GD21, four kilometres north-east of the northern termination of the Zeta Resource. No other historical drilling had been completed in the four kilometre section of strike between Zeta and GD21. Hole GD21 had intersected encouraging copper-silver mineralisation of 3.5m @ 3.3% Cu from 105m down hole depth. The historical drill results of all historical holes completed at the North East Zeta Prospect are given in Table Two. In order to determine if the shallow copper-silver mineralisation intersected in hole GD21 was the immediate northern extension of the Zeta Resource 11 diamond drill holes were drilled on 500m sections extending from hole GD21 back south-west towards the Zeta Resource. One section was drilled 500m to the north-east of hole GD21. Table Two - North East Zeta Prospect Historical Drill Results Easting Northing Total From To Assay Hole WGS84 WGS84 Dip/Azi Depth (m) (m) Results SUTM34 SUTM34 (m) (0.3% Cu cut-off) -60° to 163.22 172.5 9.3m @ 0.8% Cu ZG020 714563 7725074 140°' 176 including 168.5 171.97 3.5m @ 1.6% Cu -60° to 134.21 3.7m @ 1.7% Cu ZG9 715335 7725714 140°' 142 137.87 -60° to 104 108.65 4.7m @ 2% Cu & 7g/t Ag GD021 713784 7724313 140°' 112 including 105.5 108.44 2.9m @ 3% Cu & 10g/t Ag The best result was returned in hole GD093-07 which intersected 6m @ 1.3% Cu and 33g/t Ag from 193m. Hole GD087-07 returned 6m @ 1.2% Cu and 13g/t Ag from 70m. Both holes GD093-07 and GD087-07 were drilled on the same section as GD021. The results from all North East Zeta drill holes, completed by Discovery, are given in Table Three. The results from the drilling at the North East Zeta prospect indicate that the copper-silver mineralisation does not extend at shallow open pittable depth from the current northern boundary of the Zeta Resource to hole GD021. However, there is the potential to define a modest open pittable resource within the 1100m of strike length from hole GD021, northeast to holes GD095-07, GD096-07 and further northeast to historical hole ZG20 (intersected 3.2m @ 1.4% Cu from 168.5m). Infill drilling on 250m spaced sections will be required in order to determine if an Inferred resource can be defined. Plutus Prospect Five kilometres to the northeast of the Petra Inferred mineral resource (4.5 Mt @ 1.1% Cu at a 0.6% Cu cut-off) a series of historical diamond drill holes intersected >1.5% Cu over a strike length of 5km. The historical copper intersections include ZP021 which intersected 12.8m @ 1.6% Cu from 158m. This area of historical copper-silver intersections has been named the Plutus Prospect. During the quarter in order to determine the extent of the shallow copper-silver mineralisation intersected in the historical drill holes, Discovery completed 18 RC/diamond drill holes on 500m spaced sections covering 5km of strike. A further three holes have been completed following the end of the quarter and the Plutus copper-silver mineralisation is now defined by twenty seven diamond drill holes, which includes six historical drill holes. Table Three - North East Zeta Drill Results Northing Easting Total Min. Min. Geochemical Hole (m) (m) Dip/Azi Depth Results WGS84 WGS84 (m) From To (m) (0.3% Cu cut-off) SUTM34 SUTM34 (m) 70 76 6m @ 1.2% Cu, 13 g/t Ag & 63g/t -58° to Mo GD087-07 713801 7724297 140°' 85.89 including 3m @ 1.5% Cu, 19g/t Ag & 120g/t 73 76 Mo GD088-07 -58° to 115.47 48 50 713173 7723798 140°' 2m @ 1.2% Cu, 7g/t Ag & 17g/t Mo GD089-07 -58° to 150.47 144 145.71 1.71m @ 0.8% Cu, 14g/t Ag & 713126 7723854 140°' 15g/t Mo GD090-07 -58° to 80.54 65 68 712532 7723325 140°' 3m @ 1% Cu, 5g/t Ag & 70g/t Mo GD091-07 -58° to 169.02 155 156 1m @ 1.2% Cu, 6g/t Ag & 6g/t Mo 712487 7723361 140°' GD092-07 -58° to 171.27 2m @ 1.4% Cu, 33g/t Ag & 135g/t 711877 7722859 140°' 162 164 Mo 6m @ 1.3% Cu, 33g/t Ag & 112g/t -58° to 193 199 Mo GD093-07 713732 7724344 140°' 199.47 including 3.09m @ 1.7% Cu, 43g/t Ag & 194.91 198 130g/t Mo GD094-07 713088 7723909 -58° to 241.17 1.94m @ 1.5% Cu, 52g/t Ag & 140°' 237 238.94 26g/t Mo 5m @ 0.75% Cu, 9g/t Ag & 28g/t 248 253 Mo including GD095-07 711821 7722907 -58° to 285.22 2m @ 1.2% Cu, 18g/t Ag & 15g/t 140°' 249 251 Mo 2.18m @ 1.13% Cu, 20g/t Ag & 270 272.18 108g/t Mo 7m @ 0.5% Cu, 33g/t Ag & 135g/t 124 131 Mo including 124 126 2m @ 1% Cu, 3g/t Ag & 17g/t Mo GD096-07 714140 7724659 -58° to 154.07 140°' 8.32m @ 0.6% Cu, 7g/t Ag & 11g/t 142 150.32 Mo including 3m @ 1.1% Cu, 14g/t Ag & 14g/t 146 149 Mo GD098-07 714168 7724623 -58° to 100.17 Awaiting Assays 140°' Discovery completed two RC/diamond holes per section with the drilling focussed on shallow mineralisation. The maximum intersection depth of the mineralised horizon was approximately 120m vertically below the surface. Indications from all sections drilled during the quarter, was that the copper-silver mineralisation extends to the surface and below the depth of maximum drilling. Copper-silver mineralisation was intersected in seventeen of the initial eighteen drill holes, completed by Discovery, confirming that at the Plutus Prospect the mineralisation extends over at least 5km of strike (Figure Two). The Plutus mineralisation is still open to the northeast and southwest. During the quarter the results from six drill holes were received and are given in Table Four. Currently the best sections drilled are Sections 42,650N and 42,150N with the mineralisation defined by both historical and Discovery drilling. Section 42,650N On Section 42,650N, historical drill hole ZP021 intersected 12.8M @ 1.6% Cu from 158m down hole including 4m @ 2.5% Cu. Discovery drill hole PD018-07 was drilled above ZP021 and intersected 5m @ 1.2% Cu and 15g/t Ag from 100m down hole depth including 4m @ 1.4% Cu and 18g/t Ag on the footwall - hangingwall contact (Figure Three). Section 42,150N On Section 41,150N historical drill hole ZP032 intersected 11m @ 1% Cu from 165m down hole including 2.1m @ 2% Cu. Discovery drill hole PD019-07 was drilled up dip of ZP032 and intersected 7m @ 1.2% Cu and 17g/t from 92m down hole including 4m @ 1.7% Cu and 24g/t Ag from 95m. The results from sections 42,650N and 42,150N suggest the copper-silver mineralisation significantly thickens at depth in the northeast of the Plutus prospect and the higher grade mineralisation gently plunges to the northeast. A northeast plunge to the higher grade mineralisation also occurs at both the Zeta and Petra Prospects. The drilling completed at Plutus is on relatively wide spaced 500m sections. The results returned from the drilling to date are similar to those returned from the Zeta Prospect at a similarly early and wide spaced stage of drilling. Infill drilling on 250m spaced sections will be required to gain a better understanding of the plunge and extent of the higher grade and thicker mineralisation (intersected in holes ZP021 and PD019-07 for example). Following receipt of all results from the drilling completed at Plutus, a consultant will be engaged to assess the data and if possible, define an Inferred mineral resource. If it is possible to define an Inferred mineral resource, it is expected that this resource will be able to be announced in early December 2007. A mineral resource defined at Plutus could significantly increase the overall resource base of the Maun Copper Project, particularly the proportion of the mineral resource which is potentially open pittable. Infill drilling at Plutus will be conducted before the end of 2007. Table Four - Drill Holes Results from the Plutus Prospect Northing Easting Total Min. Min. Assay Results Down Drill (m) (m) Section Dip/Azi Depth Hole Hole WGS84 WGS84 Number (m) From To (0.3% Cu cut-off) SUTM34 SUTM34 (m) (m) PD017-07 7728599 706348 43150mN -58 to 112.21 104 108 4.0m @ 1.5% Cu, 3g/t Ag & 140' 128g/t Mo ZP033* 7728659 706302 43150mN -60 to 174.85 170.9 174.1 3.2m @ 1% Cu 140' 100 105 5.0m @ 1.2% Cu, 15g/t Ag & 11 -58 to g/t Mo PD018-07 7728311 705945 42650mN 140' 120.07 including 101 105 4.0m @ 1.4% Cu, 18g/t Ag & 11g/t Mo 158 170.8 12.8m @ 1.6% Cu ZP021* 7728363 705908 42650mN -60 to 171.32 including 140' 164 168 4m @ 2.5% Cu 92 99 7.0m @ 1.2% Cu, 17g/t Ag & -60 to 14g/t Mo PD019-07 7727998 705533 42150mN 140' 106.33 including 95 99 4.0m @ 1.7% Cu, 24g/t Ag & 7g/t Mo 165 176 11.0m @ 1% ZP032* 7728052 705503 42150mN -60 to 177.00 including 140' 170.8 176.2 4m @ 1.4% Cu -60 to 29 33 4m @ 1.4% Cu & 17g/t Ag PD020-07 7727698 705160 41650mN 140' 45.00 including 30 33 3m @ 1.7% Cu & 19g/t Ag 111 118 7.0m @ 1.3% Cu, 14g/t Ag & -60 to 65g/t Mo PD021-07 7727756 705117 41650mN 140' 124.15 including 115 118 3.0m @ 1.75% Cu, 21g/t Ag & 134g/t Mo 29 33 4.0m @ 1.4% Cu & 17g/t Ag ZP006* 7727477 704617 41150mN -60 to 147.32 including 140' 30 33 3.0m @ 1.7% Cu & 19g/t Ag 63 72 9m @ 0.8% Cu, 5g/t Ag & 32g/t -60 to Mo PD022-07 7727465 704732 41150mN 140' 78.54 including 67 70 3m @ 1.2% Cu, 7g/t Ag & 80g/t Mo * Indicates historical drill hole Maun Copper Project Metallurgical Test Work Discovery contracted Brisbane-based HRL Testing Pty Ltd ("HRL") to undertake metallurgical flotation test work on samples of copper-silver mineralisation from the Zeta and Petra Inferred mineral resources on the Maun Copper Project. Of the total resource base on the Maun Copper Project, Zeta comprises 86% of the total resource base and Petra 14%. The goal of the test work was to confirm the results from historical metallurgical test work completed on the Maun Project in 1978 by Outokumpu. The metallurgical test work being completed by HRL forms a part of the Maun Copper Project pre-feasibility study which commenced at the start of August. Drill core samples from the Zeta and Petra Inferred Resources were selected to provide a degree of spatial coverage of the two mineralized zones, and were combined for testing purposes into a composite grade sample, similar to that anticipated from the mineable resource. Preliminary flotation work was undertaken over a range of grind sizes at the HRL laboratory. In rougher flotation testing copper-silver mineralisation from the Zeta Prospect gave near identical performance to the results achieved in the previous work conducted by Outokumpu. The recovery of copper was 95% to a 12% copper rougher concentrate grade, which is excellent for a preliminary test. Cleaner flotation work is being completed on the Zeta samples to define the final recovery and product grade. In the 1978 Outokumpu test the final concentrate contained 35-42% Cu, at 92-94% recovery and 450g/t silver at 80% recovery. The Outokumpu test was completed on a composite sample of mineralisation from the Zeta Prospect grading 1.6% Cu and 23g/t Ag. The preliminary test results received during the quarter indicated that it is probable the HRL test work will produce a final concentrate with similar copper and silver grades to that produced by the earlier Outokumpu testing. Furthermore, the Zeta copper-silver mineralisation may be amenable to processing via a simple flow sheet with a two stage cleaning process. Copper-silver mineralisation from the Petra Inferred Mineral Resource ore returned lower copper recoveries of 78%. This appears to be attributable to partial oxidation of the samples, as the samples were taken from 40m down-hole depth. The Petra Resource contributes only 14% to the total copper-silver resource base on the Maun Project. Due to the excellent metal recoveries and high copper grades attained in the rougher concentrates, it is probable that the Zeta and Petra copper-silver mineralisation will produce a high quality, premium quality copper-silver concentrate. If the final metallurgical test results are consistent with the historical test results then the copper-silver concentrate should be well sought after by metal trading companies and copper smelters due to its significantly higher than average copper content and its silver credits. Maun Copper Project Prefeasibility Study At the start of August Discovery commenced a pre-feasibility study of the Zeta and Petra Inferred mineral resources on the Maun Copper Project. The main components of the pre-feasibility study are as follows: i. Resource Upgrade to Indicated Status ii. Hydro-geological Study iii. Geotechnical Study iv. Depth of Weathering Study v. Environmental Impact Study vi. Infrastructure Study vii. Processing Study viii. Metallurgical Test Work ix. Labour Study x. Marketing Study xi. Project Development Study xii. Capacity Optimisation Study xiii. Underground potential The main component of the pre-feasibility study is a 5000m infill drill program on the Zeta Inferred mineral resource. This infill drill program will drill out the Zeta resource to a maximum section spacing of 200m. A part of the higher grade centre section of the Zeta resource will be drilled out to 100m spaced sections. By combining a section of the Zeta resource drilled to 100m sections and the remainder of the resource at 200m spaced sections it is anticipated that the Zeta resource will be able to be classified in the Indicated category. Water Resource Consultants (Botswana) have been engaged to undertake a study of the water resources available from aquifers in close proximity to the Zeta and Petra resources. It has been estimated that a 2Mtpa flotation processing plant will require approximately 2Mtpa of water for processing the copper-silver mineralisation. Water Resource Consultants will complete a two phase study in order to define the required water resource. The first stage of the study will be a desktop study in order to provide recommendations for the drilling of water bores. The second phase of the study will comprise the drilling of 10-15 water bores in order to define the required water resources for the processing plant. Rockland Geoscience has been engaged to assist with the collection of geo-technical data from the Zeta infill drill program and to assist in the assessment of the data. Modifications were made to the Zeta infill drill program in order to collect additional geotechnical data on the footwall rocks to the mineralisation such that a more accurate assessment of the ability of the footwall to sustain a steep slope to the open pit wall can be made. The ability to maintain steep pit walls is critical to decreasing the strip ratio, and hence lowering costs, for an open pit operation at Zeta. Snowden Mining Industry Consultants ("Snowden") have been engaged to undertake a mine plan and mining schedule for the first two years of production from the proposed Zeta open pit. The goal of this study is to have a mine design which maximises copper production and minimises the strip ratio in order to reduce the capital payback period and maximize cash flow. Snowden have also been engaged to further assess the ability of the Zeta resource to be mined economically underground. Discussions are currently in progress with several Johannesburg based consultants regarding the environmental, social, infrastructure, processing and marketing aspects of the project. It is anticipated that the pre-feasibility study will be concluded during the first quarter in calendar 2008. Exploration Targets A hand held portable Niton XRF machine has been purchased for the Maun Project. This will allow soil geochemical data to be collected quickly and accurately without the need to send soil samples to an assay laboratory. A number of regional geological targets have been selected for covering with soil geochemical data in order to define new targets for drill testing. It is anticipated that a number of new regional targets areas will be defined before the end of the year. Dikoloti Nickel Project, North East Botswana, (Discovery Metals 85%, XStrata 15%) The Dikoloti Nickel Project comprises four prospecting licences covering an area of 612km2 surrounding the three nickel deposits of BCL Limited in the Selebi-Phikwe region of NE Botswana. Through the expenditure of $2.5 million DML has earned an 85% interest in the project from Xstrata, who are currently diluting. An inferred mineral resource of 4.7Mt @ 0.7% Ni, 0.5% Cu and 1.5 g/t PGE's at a cut-off of 0.5% Ni for 32,900 tonnes of contained nickel has been defined at the Dikoloti Prospect. Dikoloti Bio-Oxidation Metallurgical Test Previous testing by Discovery on the Dikoloti nickel mineralisation, indicated that a fine grind would be required in order to liberate the nickel at acceptable recoveries using traditional flotation processing techniques. Consequently, Discovery has been evaluating alternative methods for processing the nickel mineralisation which would allow Dikoloti to be developed as a standalone operation. The alternative processing technique which has shown most promise to date is an oxidation heap leach approach using bacteria to break down the sulphide mineralisation and release the nickel into solution. Discovery engaged the services Geobiotics LLC in order to test the ability of the GeoLeachTM bio-oxidation process to liberate the nickel and copper from the Dikoloti mineralization. Preliminary stirred reactor testing demonstrated that the Dikoloti ore was readily oxidised by bacterially regenerated ferric sulphate chemistry, and that high nickel extractions (97%) could be achieved. Following this successful initial test, a 2m column test was initiated in order to simulate the processes which would occur in a heap leach environment. The early column testing indicated that due to large amounts of pyrrhotite in the Dikoloti mineralisation, acid consumption was high and breakdown of the pyrrhotite released a significant amount of iron into solution. The release of the iron affected the ability of the bacteria to break down the sulphides and release the nickel. As a result of iron high concentrations in the column, nickel extraction in the first 40 days of the test was low. During the next 49 days of the test, a range of techniques was trialled in order to control the iron release into the column such that the bacteria would not be seriously affected. As a result of these techniques nickel extraction has improved markedly from day 99. At the end of the quarter nickel extraction was in excess of 50% and was increasing steadily. The GeoLeachTM bio-oxidation test has now been concluded. Once a final report on the test program has been received Discovery will make a decision on how to further progress the Dikoloti nickel project. Litchfield Project, Northern Territory, (Discovery Metals 100%, Trajan Minerals earning in to 51%) The Litchfield Project comprises exploration tenements EL22959, EL 23619 and EL22961 and tenement applications ELA23623 and ELA22960 within the Litchfield Province south-west of Darwin in the Northern Territory. The mafic and ultramafic rocks ("Wangi Basics") which intrude the Litchfield metamorphic rocks are thought to have potential for nickel-copper-platinum mineralisation similar to that occurring within the Halls Creek Mobile Belt in Western Australia. The Litchfield Project has been joint ventured to Trajan Minerals who are managing the exploration program. Trajan Minerals have commenced their initial exploration of the project area and results will be reported next quarter. Musgrave Project, Western Australia, (Discovery Metals 100%, Redstone Resources earning in to 51%) The Musgrave Project comprises granted tenements E69/1640, E69/1641, E69/1642, E69/1663 and E69/1662 within the Musgrave Province of Western Australia. The project covers an area of 976 km2. The project tenements cover the target Giles Complex mafic and ultramafic intrusions which are prospective for Voisey's Bay style nickel deposits. The Musgrave Project is currently being managed by Redstone Resources Limited who are farming in to the Project. Redstone have obtained access to a number of selected targets from the Traditional Owners and clearance of the target areas is an ongoing process. Cat Camp Project, Western Australia, (Discovery Metals 100%) The Cat Camp Project comprises tenement E15/818 covering 34 km2 of the Lake Johnston Greenstone Belt which further south hosts the Maggie Hays and Emily Ann nickel deposits. A review of all previous work on the project has been completed and a number of ground EM and magnetic anomalies have been selected for ground follow up. These targets have the potential to be due to nickel sulphide mineralisation. 2.) CORPORATE ACTIVITIES On 18th September Discovery announced the completion of a placement to institutional and sophisticated investors in Australia, Botswana and the United Kingdom, placing a total of 31.6 million shares at A$0.36 (£0.145) to raise a total of AUD$11.38 million (£4.58 million) (before expenses). The placement, which was handled by Capital Corporate Finance in Botswana and stockbrokers Fox-Davies Capital in London, was made pursuant to DML's 15% placement facility under section 7.1 of the ASX listing rules and a pre-placement approval granted at the Company's recent General Meeting of Shareholders held on 30th August 2007. Funds raised from the placement secure the funding required to complete the pre-feasibility and bankable feasibility studies on the Maun Copper Project. A proportion of the placement will be for on-going corporate costs. The placement was not discounted and was completed at the prevailing market price for Discovery shares at the time. Through the placement Discovery gained the support of a number of high quality Botswana and UK investors, as well as a number of Australian investor groups, and this is allowing Discovery to gear up the Maun Copper Project feasibility studies and exploration program. On 20th September Discovery appointed Mr Christian Heili as Manager for the Pre-Feasibility and Feasibility Studies into the development of the Maun Copper Project. Mr Heili is a mining engineer and project manager with more than 20 years experience in the development and operation of base and precious mines in Africa. His extensive experience includes his recent involvement with a major US$430 million brownfield copper/cobalt project in the Congo, which has both underground and open cut features. Mr. Heili took up his appointment on 1st of October and will be based at the Discovery office in Gaborone where the Maun Project team has been assembled. The information in this report as it relates to Mineral Resources was compiled by Mr. Jason Hosken and Mr. Stefan Mujdrica, who are Members of The Australasian Institute of Mining and Metallurgy. Mr Hosken and Mr Mujdrica are full time employees of Snowden Mining Industry Consultants. Mr Mujdrica and Mr Hosken have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is 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". The information in this report that relates to Exploration Results is based on information compiled by Mr. Jeremy Read who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Read is a full-time employee of the Company. Mr. Read has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is 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". Mr. Read, Mr Hosken and Mr Mujdrica consent to the inclusion in the report of the matters based on information provided by them and in the form and context in which it appears. Appendix 5B Mining exploration entity quarterly report Rule 5.3 Appendix 5B Mining exploration entity quarterly report Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001. Name of entity Discovery Metals Ltd ABN Quarter ended ("current quarter") 29 104 924 423 30 September 2007 Consolidated statement of cash flows Current quarter Year to date Cash flows related to operating $A'000 (3 months) activities $A'000 1.1 Receipts from product sales and - - related debtors 1.2 Payments for (a) exploration and evaluation (745) (745) (b) development - - (c) joint venture Botswana - - (d) administration (760) (760) 1.3 Dividends received - - 1.4 Interest and other items of a 46 46 similar nature received 1.5 Interest and other costs of finance - - paid 1.6 Income taxes paid - - 1.7 Other (provide details if material) GST/VAT Refund 47 47 Net Operating Cash Flows (1,412) (1,412) Cash flows related to investing activities 1.8 Payment for purchases of: (a)prospects - - (b)equity investments - - (c) other fixed assets (2) (2) 1.9 Proceeds from sale of: (a)prospects - - (b)equity investments 250 250 (c)other fixed assets - - 1.10 Loans to other entities - - 1.11 Loans repaid by other entities - - 1.12 Other (provide details if material) - - Net investing cash flows 248 248 1.13 Total operating and investing cash flows (carried forward) (1,164) (1,164) 1.13 Total operating and investing cash flows (1,164) (1,164) (brought forward) Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 7,219 7,219 1.15 Proceeds from sale of forfeited shares - - 1.16 Proceeds from borrowings - - 1.17 Repayment of borrowings - - 1.18 Dividends paid - - 1.19 Other (provide details if material) - - Net financing cash flows 7,219 7,219 Net increase (decrease) in cash held 6,055 6,055 1.20 Cash at beginning of quarter/year to date 2,867 2,867 1.21 Exchange rate adjustments to item 1.20 - - 1.22 Cash at end of quarter 8,922 8,922 Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities Current quarter $A'000 1.23 Aggregate amount of payments to the parties 60 included in item 1.2 1.24 Aggregate amount of loans to the parties - included in item 1.10 1.25 Explanation necessary for an understanding of the transactions - Non-cash financing and investing activities 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows - 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest - Financing facilities available Add notes as necessary for an understanding of the position. Amount available Amount used $A'000 $A'000 3.1 Loan facilities - - 3.2 Credit standby arrangements - - Estimated cash outflows for next quarter $A'000 4.1 Exploration and evaluation 750 4.2 Development - Total 750 Reconciliation of cash Reconciliation of cash at the end of the quarter (as Current Previous shown in the consolidated statement of cash flows) quarter quarter to the related items in the accounts is as follows. $A'000 $A'000 5.1 Cash on hand and at bank 8,922 - 5.2 Deposits at call - - 5.3 Bank overdraft - - 5.4 Other (provide details) - - Total: cash at end of quarter (item 1.22) 8,922 - Changes in interests in mining tenements Tenement Nature of Interest at Interest reference interest beginning at end of (note (2)) of quarter quarter 6.1 Interests in mining tenements - relinquished, reduced or lapsed 6.2 Interests in mining - tenements acquired or increased Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates. Total number Number quoted Issue Amount price per paid up security per (see note security 3) (see note (cents) 3) (cents) 7.1 Preference +securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs, redemptions 7.3 +Ordinary securities 127,852,195 127,852,195 7.4 Changes during quarter (a) Increases 31,643,765 31,643,765 36 cents 36 cents through issues 250,000 250,000 30 cents 30 cents 200,000 200,000 35 cents 35 cents (b) Decreases through returns of capital, buy-backs 7.5 +Convertible debt securities (description) 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted 7.7 Options Exercise Expiry (description and 750,000 price date conversion 750,000 30 cents 1 February factor) 1,500,000 35 cents 2008 1,550,000 30 cents 1 February 2,000,000 35 cents 2008 1,500,000 30 cents 1 February 718,188 35 cents 2009 1,000,000 26 cents 1 February 30 cents 2009 1 May 2010 1 May 2010 1 September 2010 1 September 2010 7.8 Issued during 500,000 - 30 cents 1 April quarter 1,000,000 - 30 cents 2010 1,000,000 - 35 cents 1 May 2010 718,188 - 26 cents 1 May 2010 1,000,000 - 30 cents 1 September 2010 1 September 2010 7.9 Exercised during 250,000 250,000 30 cents 1 February quarter 2009 200,000 200,000 35 cents 1 February 2009 7.10 Expired during quarter 7.11 Debentures (totals only) 7.12 Unsecured notes (totals only) Compliance statement 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4). 2 This statement does give a true and fair view of the matters disclosed. Sign here: (Company Secretary) Print name: Ros Shand Date: 31 October 2007 Notes 1 The quarterly report provides a basis for informing the market how the entity's activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report. 2 The "Nature of interest" (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2. 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report. 5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with. A formatted file of the Quarterly Activities and Cashflow Reports for the period ended 30 September 2007 is available on the Company's website. Further information on the Company is available on the Company's website at www.discoverymetals.com.au NOTE: For further information contact Jeremy Read Managing Director Tel: +617 3218 0202 Mobile: 0409 484322 Email: jeremy@discoverymetals.com.au Jamie Wright RFC Corporate Finance Ltd (Nomad) Tel: +618 9480 2508 Email: Jamie.Wright@rfc.com.au Richard Hail Fox-Davies Capital Ltd (AIM Broker) Telephone: +44(0) 20 7936 5200 Email: Richard.Hail@fdcap.com ---END OF MESSAGE---