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What you have there is called Rocklath, it was used instead of the wood lath. I can tell you from personal experiance that it is very strong and a real pain to get off the walls. I recently had to remove a couple of bathroom walls for someone and had to use a sledge hammer to breake it up off the walls, along with a sawzall. It also has a metal chicken wire attached beneath at all wall/wall and wall/ceiling seams, so this needs to be cut away as well. Then if 1/2" drywall is installed to take its place, there are large gaps at the intersecting walls due to the difference in thickness.
If you decided to cover with 1/4" drywall then you'd need to remove all your basemoulding so the drywall runs behind it, and you'd need extenders installed on all electrical boxs.
You could also just skim coat the entire wall or have it done to smooth it out.
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