Neoterra PLC TERA.L - the Gallium Ride is ON

In my July 28th article on Neoterra PLC I described the challenges the company was facing in its quest to develop Monte Muambe into a commercial mine.

In short, it needed to navigate complex metallurgy to scale a development plan via a Fluorspar ‘starter motor’ before progressing to the Magnet Rare Earths ‘V8 Engine’.

Then there are the Heavy Rare Earths & Gallium By-Products contained in the rock- what I called the Turbo Charger element of the project. I sounded a note of caution about the company’s ability to extract the Gallium:

Suppressing calcite and silicates during this process is inherently difficult. That’s what Neoterra will need to prove they can do. This is by no means easy and most likely will lead to significantly compressed margins.

Today’s RNS

Today Neoterra announced that hydrometallurgical testing has successfully delivered an 85% gallium extraction rate into leachate using an acid leach route. Furthermore, the company has validated a pre-concentration pathway utilizing X-Ray Transmission (XRT) ore sorting technology. They have shown they can isolate the Gallium, thereby transitioning the 'Turbo Charger' from a geological concept into a viable commercial flowsheet.

What this means for Investors

1. Valuation Recalibration

In my previous modeling, a severe $75m expected value deduction was applied to the $125m unrisked intrinsic value of the Heavy Rare Earths and Gallium by-product stream. This was a necessary haircut to account for the 90% modelled probability of either a severe margin squeeze or total metallurgical failure.

Well, today’s RNS has just taken those scissors away. The 85% extraction result and the successful confirmation of XRT pre-concentration effectively dismantle that core risk assumption. Because the gallium and heavy rare earths are processed alongside the primary fluorspar ore, the incremental operating costs are negligible. Consequently, the revenue generated from this by-product stream will drop cleanly through to pre-tax Free Cash Flow (FCF). The valuation model will now be updated to unwind the bulk of that operational friction discount, driving a higher risk-adjusted base case.

2. Justification for Resource Expansion

Geological tonnage represents a sunk cost until commercial extraction is proven. With a viable flowsheet now taking shape, the company has the technical justification to deploy exploration capital. Management has therefore said it intends to initiate a drilling campaign aimed at scaling the current 11.73 million tonne gallium resource to a target of 50 million tonnes or more. This expansion target is well supported by the documented extent of existing gallium soil anomalies at the site.

3. Unlocking Strategic Funding and Partnerships

Capital markets for junior developers remain tight, making non-dilutive funding essential. NeoTerra is already executing its rare earths Pre-Feasibility Study backed by a $1.875m grant from the US Trade and Development Agency (USTDA).

As previously noted, Gallium is a highly strategic metal, and the US government is actively working to secure non-Chinese supply chains following recent export controls. By demonstrating a viable extraction pathway for gallium from the exact same Monte Muambe carbonatite complex, NeoTerra can now present an integrated, multi-commodity processing solution to US funding agencies. This is literally gold dust for the company - a one stop shop for all things REE for the US - and other potential partners.

Change to our valuation: The unlocking of the Gallium Flowsheet has necessitated a removal of the severe haircut we I applied in my previous valuation.

The Risk-Adjusted Base Case is now moved back up to 15.45p, from 12p previously as the probabilistic penalty is unwound.

Investors here have been on a bit of a Valium ride. Today the company changed that, and fired the starter gun on its turbo-charged Gallium ride.