• Cerro de Pasco Resources (CDPR) owns a massive above-ground stockpile of mineral tailings in Peru estimated to contain 430 million ounces of silver equivalent.
• The Quiulacocha Tailings Storage Facility (TSF) can be reprocessed using simple flotation to extract silver, zinc, lead, copper and gold at an estimated profit of $50/ton or $3.1B over the life of mine.
• Recent drilling discovered significant gallium in the stockpile, which could increase annual profits from $145M to $700M.
• CDPR plans to complete a $9.3M feasibility study by Q1 2026 to optimize recovery and economics before beginning production.
• The project will create jobs, fund education, and remediate environmental issues for the local community of 67,000 people.

Cerro de Pasco Resources (CSE:CDPR) presents a compelling investment opportunity for those looking to gain exposure to silver, base metals and critical minerals like gallium. With Excelsior Stockpile and Quiulacocha TSF at hand, the company owns the mineral rights to the enormous above-ground stockpile in Peru that is estimated to contain 430 million ounces of silver equivalent. With a clear path to production, strong economics, and significant exploration upside, CDPR offers investors an attractive risk-reward proposition.

Asset Overview

CDPR's flagship asset is a massive above-ground mineral stockpile located in the city of Cerro de Pasco, Peru. The stockpile is the result of nearly 400 years of mining, with the Spanish first discovering silver, gold and base metal ores at the site in 1630. In the early 20th century, the mine was famously developed by American industrialists including J.P. Morgan, who invested tens of millions of dollars to turn it into one of the largest and most important copper-silver-gold mines in the world.

Over the mine's long history, an estimated 300 million tonnes of material was extracted, with lower-grade ore processed sub-optimally and the tailings simply stockpiled at surface. CDPR now controls this immense stockpile which measures 75 million tonnes. As CEO Guy Goulet explains:

"We own what we estimate to be the largest above-ground mineral resource on the planet. We estimate there's 430 million oun of silver equivalent in the tailings... The tailings contain 75 million tons of material that have been processed with the recovery of 60%."

Huge Silver Resource

Recent drilling of the stockpile has confirmed CDPR's internal estimates, with assays received from 30 out of 40 holes drilled so far. Modeling based on these results and historical processing data points to the stockpile containing 430 million silver-equivalent ounces. This represents one of the largest silver resources held by any junior mining company. Importantly, the resource is already at surface and fully permitted, dramatically reducing both costs and timeline to production.

Interview with CEO Guy Goulet

Strong Project Economics

Based on the drill-confirmed resource and using conservative recovery and metals price assumptions, CDPR estimates the stockpile has an in-situ value of $168 per tonne. At the company's projected processing rate of 10,000 tonnes per day and with metallurgical recovery of 41.5% (achievable using simple flotation), the stockpile could generate $3.1 billion in total cash flow. This equates to annual profits of $145 million over a 20-year mine life.

Operating costs are estimated at just $10/tonne thanks to having no mining or transport costs. Even after accounting for a 28% treatment/refining charge, the project still delivers $50/tonne of profit at current metals prices.

Gallium Upside Potential

A significant new opportunity has emerged from CDPR's drilling in the form of high gallium grades, a critical metal used in semiconductors, LEDs, and other advanced technologies. Initial results show consistent gallium grades around 80 g/t, which is multiples higher than any other known primary gallium deposits worldwide.

As Goulet commented:

"We got those assays of gallium for the past two months...Trump and Ukraine and China and US, gallium has become such a strategic mineral."

No value from gallium or other tech metals like indium has been factored into the current project economics, but this could be a major value driver. Preliminary estimates are that gallium could boost annual profits from $145 million to $700 million while only adding incrementally to operating costs via some additional processing. Samples are currently being analyzed to determine recoveries.

Fast Track to Production

While CDPR's stockpile is large enough to support a stand-alone processing facility, the fastest path to production and cash flow is to leverage existing infrastructure. This includes two processing facilities with functional flotation circuits that are located adjacent to the stockpile.

CDPR is currently negotiating an arrangement to utilize this spare capacity to begin generating cash flow as early as 2025. Longer-term, the company plans to construct its own larger-scale flotation plant to maximize recoveries and economics. A feasibility study is underway to optimize the flow sheet and engineering, with a modest budget of $9.3 million and expected completion in Q1 2026.

Benefiting Local Stakeholders

In addition to offering a strong investment return, the Cerro de Pasco project will also have tremendous social and environmental benefits for local communities. The city has a population of 67,000 people who once depended on the now-closed mine for employment. Reprocessing the stockpile will create 2000+ jobs and generate revenues for education and social programs.

The project also has a large environmental remediation component. The high pyrite content of the stockpile generates acid mine drainage which must be managed. By reprocessing the stockpile, CDPR will progressively eliminate this source of pollution over the mine life until the environmental hazard is completely removed. The remaining benign material can then potentially be re-deposited back into the original open pit.  This environmental aspect makes permitting relatively straightforward.

World-Class Mining Jurisdiction

Peru is one of the world's top mining countries, ranking #2 globally in copper, silver and zinc production. Mining accounts for over 10% of Peru's GDP and 60% of its exports. The country hosts numerous large-scale mines owned by major companies like BHP, Glencore, Freeport and Newmont.

CDPR has a clear permitting path, with good support from national and regional governments who see the economic and social benefits of the project. The company has mining and surface rights secured over the stockpile area to enable reprocessing. Expanding the permits to the surrounding area is a formality that simply requires additional validation drilling, which is now complete.

First-Class Management Team

CDPR is led by a highly experienced management team with deep roots in the Latin American mining industry. Chairman Steven Zadka has over 15 years of experience in mining finance and investment banking, while CEO Guy Goulet is a professional geologist who has discovered and financed several major deposits.

The company's strategic advisors and shareholders include well-known resource investors like Eric Sprott and Rick Rule. Sprott is CDPR's largest shareholder with a 19.9% stake and has consistently supported the company via his participation in the last three financings.

Investment Thesis for Cerro de Pasco

In summary, Cerro de Pasco Resources offers investors a unique opportunity to gain exposure to silver, base metals and tech metals like gallium via one of the world's largest above-ground resources. The key investment highlights include:

• 430 million silver-equivalent ounce stockpile at surface and fully permitted
• $3.1 billion LOM revenue from silver, zinc, lead and copper production
• Potential 5x profit increase from the gallium by-product
• High margin of $50/t driving $145-700M annual cash flow over 20-year mine life
• Rapid production by toll-milling achieves payback in less than 1 year
• Huge exploration upside from nearby unexploited stockpiles and tailings
• Clear path to production via off-take agreement or construction of own plant
• Proven mining jurisdiction and permitting path with government support
• Experienced and invested management team with strong institutional backing

With a post-money valuation under $50 million and multiple near-term catalysts on the horizon, CDPR presents a very attractive risk-reward proposition at its current price. Investors have the opportunity to invest alongside mining titans like Eric Sprott in a world-class silver asset being fast-tracked to production by a first-class management team. CDPR is a rare investment opportunity that could deliver 5-10x returns from current levels.

Key Takeaways

Cerro de Pasco Resources offers investors exceptional leverage to silver and base metals prices via its massive, fully-permitted above-ground resource in Peru. The asset has been drilled and modeled to confirm a resource containing 430 million silver-equivalent ounces that can be extracted using simple flotation methods. The project will generate strong cash flows at current metals prices, with significant additional upside potential from the recent discovery of high-grade gallium.

Benefitting from a first-class management team and strategic backers like Eric Sprott, CDPR has a clear and rapid path to production that will deliver returns for shareholders while creating value for all local stakeholders.

Macro Thematic Analysis

The strong fundamentals for silver and critical metals like gallium bode very well for the prospects of Cerro de Pasco Resources. Silver demand is expected to hit a record high in 2023 due to increased industrial use and investment demand. The shift towards clean energy is a major demand driver, with record amounts of silver forecast to be used in solar panels. At the same time, silver mine supply remains constrained with limited capital investment in recent years.

This widening supply-demand gap points to structurally higher silver prices in the coming years, which would translate directly to CDPR's bottom line. As one of the world's largest silver resources not yet in production, Cerro de Pasco offers investors torque to rising prices as it moves rapidly towards first pour before the end of 2024.

The discovery of high-grade gallium at Cerro de Pasco introduces an entirely new layer of value and demand exposure. Gallium is an essential component in semiconductors, LEDs, 5G communications and other critical technologies, but supply is scarce and unreliable. China currently controls 80% of the world's gallium supply and with geopolitical tensions on the rise, Western countries are urgently seeking alternative supply sources. As CDPR de-risks the gallium opportunity, it has the potential be a globally significant supplier of this highly strategic metal.

The bottom line for investors is that projects like Cerro de Pasco which can supply critical metals from stable jurisdictions will command a significant premium in the market. CDPR's ability to fast-track production and meet this surging demand presents a potentially decade-defining investment opportunity.