Gallium: A Strategic Element for Cerro de Pasco’s Valuation

• Gallium upside lifts Net Smelter Return (NSR) per tonne from $52 to $105, enhancing margins and diversifying revenue beyond silver and base metals.
• Low-cost, processing-dominated tailings model with $1-$2 per tonne extraction makes recovery improvements the primary profit lever.
• Large, uniform 75 million tonne above-ground resource with consistent 1.5-2.5 oz/t silver supports a 20-year mine life.
• Capital structure with $9 million potential capital in warrants provides funding flexibility for feasibility work.
• Gallium's strategic supply chain profile and the United States' 100% import dependence on gallium position the project as a potential critical-metal asset with policy relevance.

Investment Context: Strategic Metals & Valuation Frameworks

Tailings reprocessing presents a structurally lower-cost model than conventional mining, eliminating drilling, blasting, and haulage and reducing extraction costs to roughly $1 per tonne at Quiulacocha versus $2-$15 per tonne for open pit and $30-$200 per tonne underground, resulting in a processing-dominated cost base and distinct capital intensity. Valuation therefore hinges on EV per silver-equivalent ounce, EV per tonne, and most critically, margin per tonne as a function of demonstrated recoveries, while the addition of gallium introduces a strategic metal premium not typically captured in legacy tailings models by lifting Net Smelter Return (NSR) per tonne, diversifying revenue, and drawing policy interest due to concentrated supply chains. 

Underscoring how critical-metal exposure can influence market perception alongside unit economics, Chief Executive Officer of Cerro de Pasco Resources, Guy Goulet, states:

“Gallium is essential for defense, aerospace, satellite, semiconductor lead products. The United States defense needs gallium, and 98% of the gallium is produced in China.” 

Asset Overview: Above-Ground Resource Configuration & Grade Profile

Grade Consistency & Processing Configuration

The Quiulacocha asset comprises approximately 75 million tonne of tailings and an estimated 104 million tonne of stockpiles containing an estimated 423 million oz of Silver Equivalent (AgEq), with drill data indicating consistent silver grades of 1.5-2.5 oz per tonne (5.5 oz/t AgEq) from surface to depth, reflecting reduced geological variability and supported by historical flotation recoveries of approximately 60% that left significant residual metals. Gallium assays average 53.2 grams per tonne (41.5 g/t used in internal economics) and contribute $23 per tonne to NSR at a $550/kg price with assumed 40-70% recoveries, while the processing concept; floating slurry pumps, screening, conditioning, and central treatment, eliminates drilling, blasting, and haulage and underpins the low extraction cost profile.

As Goulet stated:

“The thing we didn't know we had is gallium, and we have a lot of gallium. We've got 50-53 grams per tonne of gallium so far, and the more we go to the south, the higher the grade goes. The two more southern holes have returned 86 grams per tonne of gallium.”

Market Valuation Snapshot & Dilution Framework

The company’s market capitalisation is approximately $400 million on 607.6 million basic shares (758.9 million fully diluted), with 125.8 million warrants at $0.35 and 25.5 million options at $0.41 while also providing a pathway to treasury funding upon exercise; absence of disclosed cash and debt limits enterprise value precision, leaving equity market cap as the primary observable metric, and ownership is concentrated with Eric Sprott at 16.0% basic (21.5% FD) and management and directors at 12.0%, indicating material insider alignment within the current capital structure.

Current Valuation Metrics & Unit Economics

Project economics are driven by margin per tonne and recovery performance, with a planned throughput of 3.6 million tonne per annum supporting a 20-year mine life from the 75 million tonne of tailings resource and creating high valuation elasticity as metallurgical results flow through a largely fixed, processing-dominated cost base. The base case assumes a total in-situ value of $180 per tonne, from which 40% average metal recovery and treatment and refining charges of approximately 28% yield the $52 per tonne NSR; the upside case assumes an in-situ value of $208 per tonne, with 70% recovery yielding the $105 per tonne NSR.

Internal (non-NI 43-101) base case assumptions of $52 per tonne NSR against $10 per tonne OPEX ($42 per tonne margin) imply $151 million annual profit and $3.2 billion life-of-mine profit, while the upside case at 70% recovery and 20,000 tonnes per day (7.2 Mtpa) throughput assumes $15 per tonne OPEX against $105 per tonne NSR ($90 per tonne margin), $650 million annual profit, and $6.8 billion life-of-mine profit. The upside scenario incorporates indium alongside gallium, with indium assumed at a grade of 15.5 grams per tonne and a price of $350 per kilogram, contributing approximately $5 per tonne to in-situ value alongside gallium's $23 per tonne contribution.

As Goulet noted:

“We just have to go step-by-step and not rush like every 1% we recover. We're doing metallurgical tests that represent tens of millions of dollars in profit for our shareholders.”

Capital Structure & Strategic Funding Optionality

Funding Runway & Dilution Profile

The company completed a $15 million financing, now funding feasibility work at $250,000 every two weeks, but the absence of disclosed project capex limits Net Present Value (NPV) and Internal Rate of Return (IRR) modelling. The warrant structure provides a fixed-price, non-market treasury funding mechanism representing $9 million of potential capital, contingent on exercise by anchor investors, including Eric Sprott. Discussions with the US Department of Defense on gallium recovery remain unconfirmed optionality rather than a base-case funding source, and without a compliant economic study, demonstrated metallurgical recoveries, and validated processing flowsheet, the market is likely to maintain a technical risk discount despite structurally low $1-$2 per tonne tailings extraction costs versus $2-$15 per tonne open pit and $30-$200 per tonne underground benchmarks.

Gallium Exposure & Re-Rating Conditions

China's 98% control of global gallium supply and the United States' 100% import dependence on gallium frame the project as a potential strategic waste-stream source, which could shift valuation from a conventional precious-metal tailings multiple toward a critical-metal narrative if recoveries are proven, environmental liabilities quantified, and processing performance validated. A Pentagon assessment cited in the company's corporate presentation states that recovery of gallium from existing waste streams is among the fastest available pathways to increase material availability, with specific reference to efforts that reprocess mine tailings. This positions the Quiulacocha asset within an active policy conversation, though no confirmed funding arrangement between the company and any government body has been disclosed. Gallium’s incremental NSR contribution and policy relevance are the primary mechanisms for multiple expansion, though neither strategic funding nor re-rating is assured at this stage. 

As Goulet stated:

“If we can recover the gallium that we have, we will have four times what China has reported in 2024, which means our tailings can support the planet for the next four years.”

Catalysts & Constraints for Valuation Re-Rating

Metallurgical test results from frozen core samples are the most immediate valuation drivers, determining whether internal NSR assumptions for both base metals and gallium are achievable. Phase 2 drilling targeting high-grade historical zones, with copper grades expected to increase from 0.09% to 0.42%, represents an additional resource expansion catalyst. Progression of the feasibility study toward an NI 43-101-compliant economic assessment and flow sheet optimisation would materially reduce the technical risk premium and provide a basis for NPV and IRR modelling.

Strategic and funding milestones also influence potential re-rating, including warrant exercises from anchor investors and any confirmed government or strategic partnerships linked to gallium supply chain positioning. Constraints include unproven metallurgical recoveries, lack of disclosed capex, incomplete gallium flow sheet details, and a fully diluted share count of 758.9 million versus 607.6 million basic, which collectively maintain a technical risk discount in the current $400 million market capitalisation until these milestones are delivered.

The Investment Thesis for Cerro de Pasco Resources

• The gallium discovery increases NSR per tonne from approximately $52 to as high as $105 in the upside scenario, expanding margins and diversifying revenue beyond silver and base metals.
• The low-cost tailings structure, with extraction estimated at $1-$2 per tonne, creates a processing-dominated cost base, making each incremental percentage point of recovery directly translate into measurable profitability.
• The 75 million tonne, above-ground tailings resource has consistent silver grades of 1.5-2.5 oz per tonne, reducing geological risk relative to conventional deposits with variable grades and supporting a 20-year mine life at 3.6 million tonnes per annum.
• Capital structure provides funding optionality supporting feasibility work without reliance on market-priced equity.
• Gallium’s strategic supply chain relevance, with China controlling 98% of global production and the United States' 100% import dependence on gallium, positions the asset as a potential critical-metal source that could attract policy-level interest.
• Brownfield configuration, environmental remediation, and strong community support reduce permitting and development timeline risks compared with greenfield critical minerals projects in similar jurisdictions.

Cerro de Pasco’s value proposition is therefore rooted in structurally low-cost extraction, a uniform and sizable above-ground resource, strategic metal optionality, and a capital structure that supports near-term de-risking, providing a framework for investors to monitor catalysts and potential re-rating.

TL;DR Summary

Cerro de Pasco Resources’ Quiulacocha tailings project combines a low-cost, processing-dominated model with a 75-million-tonne uniform resource, supporting a 20-year mine life. Gallium discovery enhances NSR per tonne from $52 to $105, diversifying revenue and creating strategic metal optionality amid US import dependence. Funding optionality through warrants and insider alignment de-risks near-term feasibility work, while metallurgical testing, Phase 2 drilling, and a compliant study are key catalysts for potential valuation re-rating.

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