Funny man tries a spicy and hot dish from the national cuisine. He’s all red and is trying to cool his mouth with his hand

Copper is fast emerging as the go-to commodity for exposure to the energy transition, but a new wave of mines is needed to bridge the 6.5Mt supply gap experts are forecasting by 2030.

Bank of America warns the shortfall could arrive as early as 2025 following the completion of the current wave of project buildouts, the latest being Ivanhoe Mines’ massive Kamoa-Kakula project in the Democratic Republic of the Congo.

Even economic headwinds such as China’s slower than expected recovery and continued concerns that the US might enter into a recession will not alleviate the need for more copper production.

So it is a good thing that ASX copper developers like Xanadu Mines (ASX:XAM), Rex Minerals (ASX:RXM), Caravel Minerals (ASX:CVV) and Hot Chili (ASX:HCH) are working hard at bringing their near-term monster copper projects into production.

Bright future for copper production at Costa Fuego

Of these, Hot Chili might well have the biggest impact with the much-anticipated Preliminary Economic Assessment (PEA) for its Costa Fuego development packing a hefty punch as befitting such a large copper-gold resource.

Commonly referred to as a scoping study, the PEA looks at the economic factors to determine the potential viability of a mine – in this case Costa Fuego, which Hot Chili believes can be further optimised in the company’s planned PFS, due for completion in the second half of 2024.

From the estimated copper equivalent production rate of 112,000t per annum – consisting of 95,000t of copper and 49,000oz of gold over a 14-year period of a 16-year mine life – to the estimated revenue and free cash flow of US$13.52bn and US$3.28bn down to the post-tax net present value (a measure of profitability) of US$1.1bn, there’s nothing small about Costa Fuego.

That’s the equivalent of bringing another Oz Minerals (ASX:OZL) into production for the Australian market and should come as no surprise given the massive Measured and Indicated resource (high confidence stuff that you can base mine plans off) of 725Mt grading 0.47% copper equivalent.

Armed with an Inferred resource of 202Mt grading 0.36% copper equivalent, there’s still plenty of room to grow Costa Fuego’s mineable resources with Hot Chili targeting a potential increase in study scale towards 150,000tpa copper project for a +20 years mines life.

he largest development-scale project on ASX

In an interview with Stockhead, Hot Chili (ASX:HCH) managing director Christian Easterday says the company has taken a conservative approach, using a standard NPV 8% discount rate, a calculated 20% contingency on all items of capital and long-term US$3.30/lb copper price for optimisations.

“We’ve been working towards a combined project for our advanced resources at Costa Fuego for 10 years and have quadrupled our resource base in that time,” he explained.

“Most importantly, the metal production on the project will make it the largest development project by scale on the ASX.

“The capital to build Costa Fuego has come in at US$1bn and for the 112,000 tonnes of copper production coming out of this thing annually, what that means is that we have the lowest capital intensity project of large-scale undeveloped projects in the world – that’s a very, very important point one that really differentiates us from our counterparts.”

Pathway to production

Hot Chili has a clear pathway to production with plans to kick off a 30,000m drilling program targeting resource expansion and exploration targets ahead of an upcoming Costa Fuego resource upgrade by late 2023.

“We’ll be looking to see if we can pull that mine life out to plus 20 years which will be determined by our next steps on resource growth,” Easterday explained.

“This next resource upgrade will include about two years’ worth of drilling and will likely take us comfortably over 1 billion tonnes.

“Next year, we plan to deliver the pre-feasibility study – which is already 80% complete – by the mid-year mark and most importantly, before the end of 2024 we will deliver our environmental impact assessment for our final approval for mining and aiming for a definitive feasibility following that in the first half of 2026.”

Ample treasury of $26m to fund resource expansion drilling

Alongside the PEA, Hot Chili has executed a binding US$15m investment agreement with Osisko Gold Royalties for a 1.0% net smelter return (NSR) royalty on copper and a 3% NSR royalty on gold across the Costa Fuego copper-gold project, 600km north of Santiago.

While the cash injection is undoubtedly useful for…. it also clearly highlights the value that Osisko attributes to the Costa Fuego project given that Hot Chili has a market capitalisation of just $119m.

The funds provide the company with ample treasury of around $26m to undertake the upcoming 30,000m drilling program fully funded.

“Importantly, Osisko’s involvement alongside Glencore’s strategic shareholding in Hot Chili demonstrates Costa Fuego’s global relevance and the project’s potential to deliver near-term, meaningful, new copper supply,” Easterday said.

Third commodity in the 21^st Century to make a step-change in price

From Hot Chili’s point of view, copper is primed as the third commodity of the 21^st Century to make a step-change in price, with all the ingredients for a 10-fold increase.

“The first commodity to do so was iron ore (the largest metal market in the world) in the early 2000s, moving from $20/tonne to $200/tonne and eventually balancing at around $90 to $120/tonne,” he said.

“The second commodity to do so has been lithium in the past five years.

“Copper is the second largest metal market in the world and has all the hallmarks of a commodity which has very little ability to respond with new supply to a demand shift that will require the market to add at least 50% more annual production in the next 10 years.

“I imagine in the next five to 10 years we will see copper prices driving north of US$8/lb – interestingly this is only double the current price.”

Click here to view Full News

• Hot Chili has entered into an MoU with the existing Las Losas port facility in Chile
• The two parties will work together to undertake a port feasibility study for a bulk tonnage copper concentrate facility to be developed
• Hot Chili plans to fund 20% of the US$4.6m study for two years

Special Report: Hot Chili has executed a five-year MoU deal with Puerto Las Losas SA (PLL) to evaluate bulk tonnage loading alternatives for copper concentrate from the Costa Fuego project in Chile.

The MoU with PLL provides Hot Chili (ASX:HCH) the right (for up to five years) to negotiate a binding port services agreement for Costa Fuego, which would include a ‘take or pay volume’ clause based on at least 80% of the project’s future annual concentrate production.

Under the terms of the agreement, HCH and PLL will undertake a port feasibility study, comprising pre-feasibility engineering (FEL2), feasibility engineering (FEL3) and environmental studies.

HCH will fund 20% of the port feasibility study, which is estimated to have a total cost of ~US$4.6m and will take roughly two years to complete.

Upon completion of the port feasibility study – and provided that a shipping solution for loading copper concentrates is agreed at existing or potential infrastructure in PLL – HCH will have a right of first refusal (ROFR) to ship copper concentrates through PLL’s facilities in Huasco Bay for a three-year period.

PLL may terminate the ROFR by reimbursing HCH’s port feasibility study costs.

Unlocking a significant copper infrastructure corridor

“Leveraging an existing port, 50km away, into a bulk concentrate export facility has the potential to unlock significant capital and operating savings for Costa Fuego and other potential mine developers in the Huasco region of Chile,” HCH managing director Christian Easterday says.

“Hot Chili plans to jointly develop a significant copper infrastructure corridor, enabling our own production and unlocking multiple projects within the region, which would benefit significantly from desalinated water supply and proximal bulk copper concentrate port facilities.”

Port feasibility study to begin shortly

Within the coming months, PPL will be responsible for selecting a suitably qualified, top-tier, independent engineering company to carry out a port feasibility study.

This study will evaluate bulk handling and loading alternatives for copper concentrates using the existing Las Losas port facilities, potentially with or without modifying the existing infrastructure for the port in operation.

Representatives from both PPL and HCH will form a technical committee to progress the studies and within the first month, aim to define key project deliverables, as well as a timetable for management of the completion of the feasibility study workstreams.

Click here to view Full News

Bulls n Bears

Hot Chili has applied for a second maritime concession in Chile as it looks to develop a new company that will have an overflowing stream of water infrastructure assets.

Management says the new company will be aimed at servicing the growing demand for the valued commodity from the community, other mining companies and local farmers within the fast-growing region.

The company today confirmed it had submitted its latest maritime concession application to support the potential for a whopping long-term, regional multi-user seawater and desalination water supply network for the Huasco valley area of the Southern Atacama region of Chile that sits about 600km north of the Santiago capital. The second application includes brine discharge for potential seawater desalination operations as part of a push to deliver both raw seawater and desalinated water from its proposed network.

Hot Chili is now preparing to transfer all of its water assets into the new standalone company that it will still control. It says positive discussions with several potential desalinated water customers in the Huasco Valley region have already taken place, in addition to engaging with potentially suitable infrastructure partners.

It has also held talks with Chilean Government regulators to determine the best approach for its proposed plans and is reviewing the potential for direct government support to assist with driving the project forward. Management believes such a positive development within the region could trigger substantial local mining investment and deliver impressive growth to the company’s market value.

Water scarcity is THE critical issue for new mine developments in the Atacama on both the Chilean and Argentinean side of the Andes. Hot Chili is the only Company holding most of the necessary permits required to provide desalinated water to the Huasco Valley – a prolific region for potential new global copper supply needed to support global electrification and decarbonation. Securing these assets has involved over a decade of commitment.

Hot Chili executive vice-president José Ignacio Silva

The company’s recently-completed concept study for a staged water network development indicated the viability of the project at an initial 300 litres per second scale, with an eventual ramp-up to 3700 litres per second.

The study assessed a potential 100 per cent renewable energy-driven desalination water project with the potential to supply those needing a reliable water supply, such as agricultural, community and new mining companies within the Huasco Valley region near to where the company’s Costa Fuego copper project sits. The region contains six major undeveloped copper projects and two new, large-scale copper discoveries, with all projects requiring desalinated water supply.

Hot Chili says it holds the only granted maritime water concession and most of the necessary permits to be able to provide much-needed critical water to the region. It says the Chilean Government is actively encouraging investment in multi-user water networks in the region, with water scarcity being one of the biggest obstacles facing new global copper supply.

The compelling Costa Fuego project’s total resource sits at 3.62 million tonnes of copper-equivalent, with resources in the indicated category of 798 million tonnes grading 0.45 per cent copper-equivalent for 2.9 million tonnes of copper, 2.6 million ounces of gold, 12.9 million ounces of silver and 68,000 tonnes of molybdenum.

The total resource classified as inferred is 203 million tonnes at 0.31 per cent copper-equivalent for 500,000 tonnes of copper, 400,000 ounces of gold, 2.4 million ounces of silver and 12,000 tonnes of molybdenum.

The Costa Fuego project comprises the Cortadera, Productora, Alice and San Antonio deposits and management says they are all in close proximity and sit at low altitude – about 800m to 1000m.

Hot Chili’s push to build an in-demand water supply network could see it deliver tremendous value to the region and it may well find itself swimming in proposals from potential users.

Bulls n Bears

Hot Chili has nailed down the right to acquire a lucrative 140-square-kilometre patch of the historical Domekyo copper-gold mining centre, a mere 30km from its flagship Costa Fuego copper hub in Chile.

And it is a timely acquisition for the ASX-listed explorer as the price for the red metal hit US$10,000 (AU$15,244) a tonne last week for the first time since 2022. Supply disruptions following the forced closure of one of the world’s biggest copper mines in Panama late last year and ongoing drought conditions in Zambia that have impacted copper production, married up with increasing demand from green industries, have spurred the significant copper rally.

Under the terms of the acquisition agreement, Hot Chili – via its Chilean subsidiary La Frontera – will stump up US$4 million (AU$6.1 million) in staged payments over four years to earn a 100 per cent interest in the 12 exploration and 14 exploitation concessions at Domeyko. Additionally, the vendor will be granted a 1 per cent net smelter royalty (NSR) for the concession package and Frontera will have the first right of refusal to buy it back.

The Domeyko mining centre lays claim to several significant historical copper-gold mines where previous operators exploited the shallow oxide mineralisation, but never ventured deeper to test the potential copper sulphide source. Interestingly, management says the area is prospective for both porphyry and structurally-hosted styles of copper-gold mineralisation.

Hot Chili has been on a land grab of late, picking up the nearby historical Marsellesa and Cordillera copper mines and the Cometa project, all within an easy 30km trucking distance to its developing Costa Fuego project.

However, Domeyko – which boosts its land-holding by a hefty 25 per cent –is its biggest acquisition since 2019 when it stitched up its Cortadera concessions that sit adjacent to its Productora and San Antonio copper assets and collectively make up Hot Chili’s Costa Fuego copper hub.

The three deposits at Costa Fuego have a combined mineral resource estimate of 798 million tonnes of measured and indicated resources grading 0.45 per cent copper-equivalent for 2.9 million tonnes of copper, 2.6 million ounces of gold, 12.9 million ounces of silver and 68,000 tonnes of molybdenum

Hot Chili released a preliminary economic assessment (PEA) in June last year showing the project will spit out a massive $309 million a year on average in free cash across a 16-year mine life. With the impressive set of numbers outlined, the project is emerging as one of the world’s biggest and lowest-cost copper plays, with an estimated post-tax net present value (NPV) of US$1.1 billion (AU$1.66 billion).

Management says it is on track to deliver a prefeasibility study (PFS) on the project in the second half of this year.

Costa Fuego sits in the low coastal range of the Atacama Region, 600km north of the Chilean capital of Santiago in a country famed for its copper resources. With a compelling portfolio of new projects in the pipeline, all within easy trucking distance to Costa Fuego, Hot Chili looks set to strike at a time when the copper price is just starting to heat up.

July 2, 2024 | Capital 10X

Hot Chili (ASX: HCH) (TSXV: HCH) (OTCQX: HHLKF) held an investor webinar recently and laid out current investment priorities and what comes next for Costa Fuego, the company’s low cost, high return Chilean copper project.

Importantly, the company shared a copper price forecast using the Lassonde curve and gave their view on where we are in the current copper commodity cycle.

Below is a summary of all the important information shared on the webinar.

A Successful Recent Private Placement

Hot Chili’s A$25 million private placement was well subscribed and saw strong interest from investor’s across Australia, Europe and North America. The company also had to cap the number of current investors who could buy more shares even after upsizing the buyback option to A$7 million from A$5 million. Management reported that out of 24 participants in the capital raise, 17 were institutional, 13 were from North America and 6 were new to the company.

Glencore was also a participant in the capital raise and owns 7.5% of Hot Chili. Glencore’s desire to maintain its current ownership stake is an important positive mark for the potential of Hot Chili’s Costa Fuego project in Chile, one of the largest copper projects not owned by a major.

Costa Fuego One of the Lowest Cost Projects in Chile

Initiative Ongoing to Bring in More North American Investors

Hot Chili made forays into the North American market over the past two years and now has 8% of the registrar on the TSX coming from North American capital.

Hot Chili is moving towards financing on their large-scale copper asset and the company is expanding relations with investment banks and broker groups in North America with the long term goal of growing a stable group of shareholders.

Costa Fuego is High Return With Strong Leverage to Copper Prices

Hot Chili’s recent PEA for Costa Fuego showed that for every 10 cent move in the copper price above $3.85 /lb., the project value increases by $100 million.

$1.5Bn NPV and 26% IRR at Current Copper Prices ($4.35/lb)

This leverage puts them in line with six other large-scale copper producers on the TSX/ASX, outside of the majors that are +100,000 tons per annum projects.

At current copper prices of $4.35/lb Costa Fuego is worth US$1.5 billion to Hot Chili vs the company’s current market cap of only US$94 million.

Management believes that more capital will move from producers to developers with exposure to the copper price at copper prices above $4.00/lb.

Relative Performance

Looking at the performance of Hot Chili on the ASX over the past 18 months (red) the stock has done well on a relative basis, in line with most of the copper equities up 10% – 20% with the copper price. Xanadu Mines is the outperformer of the group.

Results were similar on the TSX; producers’ stock prices are up 20 to 30% over the past 3 months, with the expectation that the continuing bull market will also lift developers and explorers in time.

Chart shows the performance of several ASX copper equities (December 2022 to June 06, 2024)

Strategy: A Story of the Commodity Cycle

Understanding where we are in the commodity cycle is key for investors to understand how explorers, developers and producers are positioned in the market.

Hot Chili’s Non-Executive Chairman, Dr. Nicole Adshead-Bell gave some insights while highlighting 2 charts; one from Scotiabank quarterly’s commodity cycle chart and another from Investec’s Mining Clock.

The goal for investors is always to get in at the lows and ride the rebound.

A good example to look at is the past 2-year price action of lithium.

We saw the start of a lithium bull run in December 2020 which ultimately took the price up 12x, with almost all equities with exposure to lithium rising spectacularly as well.

Rising prices saw huge inflows of investment in discoveries and production. Due to rising production from the wave of investment, lithium prices have fallen lately, down significantly from the highs though still well above where they were in late 2020.

Lithium Price Performance (Dec 2020-Jun 2024)

Adshead-Bell believes that even after strong copper price performance so far in 2024, we are still at lows in the copper price looking at the cycle overall. She believes supply will continue to decline over the next 18 months supporting higher prices.

Provocatively, Hot Chili management strong believes the copper price needed to incentivize enough supply is between $6.00-$8.00/lb, 30%-70% above peak levels reached in the last cycle. 

Hot Chili’s goal is to manage their business to take advantage of where we are in the cycle. They are aggressively advancing the Costa Fuego project so that production can coincide with rising prices. Costa Fuego will be one of the first medium term projects to start up after a few projects from the majors begin producing in 2024 and 2025.

Hot Chili Production Timeline vs Industry Peers

Themes: Investor & Company Behavior

Hot Chili talked through different parts of the commodities cycle and the behavior of companies and investors depending on where in the cycle we are.

During a bear market, there are bankruptcies, asset sales and dilutive financings in the juniors sector, where capital is spent just to keep going, no investments are made that may move the equity price beyond the commodity price.

Generalist investors tend to buy high and sell low.

As prices stabilize (or in the case of copper, stay resilient) mining companies pinch pennies,; geologists are fired as companies attempt to avoid going under.

This is when savvy investors begin to buy. They understand the cycle and know that prices are at lows demonstrated by companies implement efficiencies on the balance sheet.

Industry Behavior Through the Commodity Cycle

As prices finally begin to rise there is low-risk M&A, producers buy other producers.

In the past year BHP acquired Oz Minerals, and is currently negotiating to buy Anglo American, primarily for its copper assets.

As mid and small caps strengthen their balance sheets, their attractiveness to the majors increases. As the cycle continues and the underlying commodity price improves, capital becomes available for development, not just for mine expansion. We are here today.

Financings for mid and small cap companies are the green shoots of a bull market in the view of Adshead-Bell.

A Bull Market: More Opportunity, More Risk

The next phase of the cycle is development in more higher risk activities (e.g. exploration, development) as companies drill holes and make new discoveries.

At this point investors demand growth, and there are new IPOs, as companies strive to prove their exposure to the commodity.

At the top of the bull market, high risk M&A rules the day, as large caps start acquiring companies down the supply chain – including developers and higher risk explorers.

Generalist investors get involved, as they begin to do their research and invest. In order to maximize shareholder returns, companies should time the cycle.

We are definitely not in this stage according to Hot Chili.

The Lassonde Curve: A Visual of Optimal Investment Timing

So where does the Lassonde Curve fit into the cycle?

Adshead-Bell believes that the best time for alpha generation is in the discovery phase, when investor sentiment is at its highest, which is reflected in the share price.

Hot Chili is focusing on additional discovery drilling and increasing the total copper resource to drive value before making a construction decision in 2025.

Costa Fuego Resource Continues to Grow Driving Value for Shareholders

Hot Chili has 16 years of experience in Chile as a company in the market, and is currently fostering relationships with institutional and strategic investors.

The company believes that the best way to generate market excitement at the next stage of the curve, is material resource growth and success.

The path to exposure to alpha generation for developers is mainly through value in the drill bit; smart exploration with historic mining activity and/or oxide mineralization as evidence of a larger system.

Also managing the company efficiency allows to strike well asset acquisition opportunities take place. So the company is focused and ready to benefit as the copper price continues to rise quarter over quarter.

To learn more about Hot Chili, including upcoming catalysts and who the economics of Costa Fuego are so strong, we recommend browsing the company’s investor presentations found HERE

Hot Chili Limited is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.

July 30, 2024 | Jessica Cummins

It’s the quarterly season again as the ASX market announcements page becomes increasingly flooded with update lodgements.

To save you the trouble of trudging through it all, we’ve wrapped up the highlights from some of the (resources) reports that caught our eye.

Hot Chili (ASX:HCH)

Hot Chili continued to focus on several development studies workstreams during the quarter ahead of the planned delivery of a pre-feasibility study for the Costa Fuego copper hub in late 2024.

In March, the company entered an MOU with the existing Las Losas port facility in Chile to negotiate a binding port services agreement and in May $31.9m was raised by way of a $24.9m private placement and $7m share purchase plan to fund development and exploration activities over the next 18 months.

Development study drilling during the quarter focussed on metallurgical and hydrogeological drill programs at Productora as well as the planned Tailings Storage Facility (TSF) for Costa Fuego while several independent experts were engaged to review and provide assurance reports for all critical areas of the PFS.

On the exploration front, HCH kicked-off several programs at newly acquired concessions covering the Domeyko Cluster, which span an area of 141km2 and represents a 25% increase in the company’s total landholding at Costa Fuego.

Soil geochemistry, geophysics and surface mapping were among the activities with an extensive ground magnetics survey currently underway.

The survey data collection is expected to be finalised early Q3 and will aid in targeting across this most recent addition to HCH’s tenement package. Post quarter, HCH also announced the launch of a water supply business Huasco Water, with Costa Fuego as a foundation offtake partner.

But its assessments to date have shown there will be external demand sources, with access to critical water rights in the dry Atacama region a do or die proposition for many projects.

HCH finished the quarter with $33.8m in the bank, funding the company says will facilitate “completion of the Costa Fuego Pre-Feasibility Study, completion of the Water Supply Business Case Study, completion of the Costa Fuego Environmental Impact Assessment, commencement of a bankable feasibility study and further exploration activities over the next 18 months.”

Sunshine Metals (ASX:SHN)

SHN delivered thick gold and copper results from step-out drilling in the under-drilled Liontown Gap Zone at the 1,700km2 Ravenswood Consolidated project near Charters Towers in QLD.

Stand-out hits include 16.2m at 4.54 g/t gold, 1.11% copper from 319m including 5m at 2.96 g/t gold from 310m and 6.2m at 9g/t gold as well as 2.52% copper from 329m.

SHN believes the Gap Zone presents an opportunity for resource extension, with the first of seven diamond holes (~2,500m) kicking off in mid-July.

A resource update is scheduled for December.

Sunshine finished the quarter well stocked to chase extensions and new discoveries at Ravenswood, with $3.4m in the bank after spending $982,000 on exploration and evaluation in the June term.

Antipa Minerals (ASX:AZY)

Completing Phase 1 RC and diamond drilling at the Minyari Dome gold-copper project in WA was AZY’s main goal for the quarter.

Results identified new zones of near-surface gold mineralisation along the northern edge of the GEO-01 discovery, at the GP01 target, and at the Minyari Southeastern Extension target.

Mineralisation at multiple GEO-01 lodes and the Minyari Southeastern Extension target remains open in most directions, adding to the existing maiden mineral resource opportunities.

Antipa already controls 1.8Moz at Minyari Dome, one of the largest resources in a region known for the legendary but ageing Telfer gold mine where consolidation is a live possibility, while it also boasts JVs with majors Rio, Newmont and IGO.

Including expenditure by those farm-in partners, AZY spent $3.27m on exploration in the June quarter, and held a total $8m in cash as of June 30. It also saw Lion Selection Group come in as a key institutional backer via a $2m investment, while Newmont topped up its 8.6% stake in the firm.

AZY additionally holds a $1m drill for equity deal with Topdrill, meaning it can stretch its cash balance further in pursuit of additional gold and copper resources.

Everest Metals Corporation (ASX:EMC)

EMC made significant headway on its portfolio of projects during the quarter beginning with the commencement of bulk sampling at the Revere gold project, which sets the company on the pathway for a maiden resource.

A process plant is due to be mobilised this quarter to the site, where 8000t of stockpiled high-grade near surface material has been prepared, with some samples grading up to 33g/t. Gold grades up to almost 100g/t in parts have also been identified in drilling at the site.

Over at Mt Edon, Phase 1 resource drilling continued to find multiple pegmatites including results up to 0.54% rubidium oxide and up to 1% lithium oxide.The extraction process in collaboration with Edith Cowan University (ECU) recovered ~75% rubidium, demonstration the project is developing into a standalone rubidium deposit. A maiden resource is due in August, with phase 2 drilling pegged for the December quarter.

EMC divested its uranium projects to Cobold Metals and looks forward to working with the team towards completing the IPO over the coming quarters.

It held $3.1m in cash at the end of June, with another $500,000 tranche from a recent $2.2m placement landing in July.

October 8, 2024 | Crux Investor

• Hot Chili is developing the Costa Fuego copper project in Chile, aiming to be one of the top five large-scale copper developers outside of major mining companies.
• The project has an estimated annual production of 95,000 tons of copper and 50,000 ounces of gold, with a 16-year mine life based on current estimates.
• Hot Chili has a strategic partnership with Glencore for 60% of offtake for the first 8 years, leaving 40% uncommitted for potential future deals.
• The company is developing a water supply business, Huasco Water, which could potentially be monetized to help fund the main copper project.
• Hot Chili is targeting completion of prefeasibility studies for both the copper project and water business by late 2023/early 2024, with the goal of securing project financing by late 2026/early 2027.

In an era where the global demand for copper is steadily rising, driven by the green energy transition and infrastructure development, Hot Chili Limited stands out as a compelling investment opportunity in the copper mining sector. As one of the preeminent large-scale copper developers outside of major mining companies, Hot Chili is advancing its flagship Costa Fuego project on the Chilean coastline. With a combination of strategic advantages, including a favorable location, significant resource base, and innovative approaches to infrastructure development, Hot Chili is positioning itself to become a major player in the copper market.

Project Overview: Costa Fuego

Hot Chili’s Costa Fuego copper project is located on the Chilean coastline. The project benefits from several natural advantages that set it apart from many of its peers in the copper development space.

Costa Fuego is projected to produce approximately 95,000 tons of copper and 50,000 ounces of gold annually. This substantial output places Hot Chili among the top five large-scale copper developers globally, outside of major mining companies. The current mine life is estimated at 16 years, based on a resource base of one billion tons, with potential for extension as further studies are completed.

Christian Easterday, CEO and Managing Director of Hot Chili, emphasizes the project’s significance:

“There are only five projects that are scaled at 100,000 tons per annum of fine copper production globally outside of the control of majors. For the independent projects, there are not many of those that are near term.”

Cost Advantages

One of the most compelling aspects of Costa Fuego is its relatively low capital intensity. Easterday notes:

“It’s a billion dollars to build. If we were in the high Andes and we required fresh water or desalinated water to process with, which we don’t, then we would be talking about a $2 billion project to put out that kind of metal production.”

This cost advantage is primarily due to the project’s coastal location, which eliminates the need for expensive water infrastructure and reduces overall development costs. The lower elevation also simplifies operations and reduces associated risks compared to high-altitude projects in the Andes.

Development Timeline & Permitting Progress

Hot Chili is making steady progress towards project development. The company is preparing to submit its environmental impact assessment in mid-2024, which will be the last major permit required before obtaining the mining permit for Costa Fuego. This puts Hot Chili ahead of many of its peers in terms of permitting progress. Easterday outlines the timeline:

“Conceivably, with our best timelines at the moment, early production no earlier than late 2028 is what we foresee in the schedule.”

This timeline includes a two-year construction phase and a six-month ramp-up period to reach nameplate capacity.

Glencore Partnership

Hot Chili has secured a strategic partnership with Glencore, one of the world’s largest commodity traders. This partnership includes an offtake agreement for 60% of Costa Fuego’s production for the first eight years. This arrangement provides Hot Chili with a guaranteed market for a significant portion of its future production while leaving room for additional partnerships or spot market sales.

Importantly, Hot Chili has retained 40% of its offtake uncommitted, providing flexibility and potential upside. Easterday explains the strategy:

“We very prudently kept 40% of our offtake uncommitted outside of the Glencore arrangement, and that’s getting a significant amount of interest.”

This uncommitted portion could be particularly valuable given the tight copper concentrate market and growing interest from Asian investors in securing supply from new copper projects.

Interview with Managing Director & CEO, Christian Easterday

Huasco Water: A Strategic Asset

In addition to its core copper project, Hot Chili has developed a potentially valuable water supply business, Huasco Water. This subsidiary holds rights to supply both saltwater and desalinated water to the region, including to Hot Chili’s own project and potentially to other mining and industrial operations in the area.

The water business represents a significant potential source of value for Hot Chili. Easterday draws a parallel to a recent transaction in the sector, “Antofagasta took their water rights, they sold them for 600 million to a consortium and is now also building their water expansion of 380 million – Antofagasta has supplied them a 20-year offtake agreement to supply water.”

While the situations are not directly comparable, this example illustrates the potential value that could be unlocked from Hot Chili’s water assets. The company is considering various options for monetizing this asset, including potentially selling a majority stake to a strategic investor in the water industry.

Infrastructure Cost Savings

The development of Huasco Water also provides direct benefits to the Costa Fuego project. As Easterday explains:

“Our water infrastructure is around $140 million of capital, and that is what we can now outsource out of our build cost.”

By potentially selling the water business while retaining the necessary supply for Costa Fuego, Hot Chili could significantly reduce its capital requirements for the copper project while also generating funds to contribute to overall project development.

Financial Position & Funding Strategy

Hot Chili is well-funded for its current phase of development. Easterday notes:

“Hot Chili’s been able to fund itself very well this year in a really well-timed capital raising, which means we’re sitting here with $30 million and doing what we need to do to get the project pushed forward.”

This funding allows the company to advance its prefeasibility studies for both the copper project and the water business, as well as prepare for the environmental impact assessment submission.

Looking ahead to project construction, Hot Chili is developing a multi-faceted strategy to fund the estimated $1 billion capital cost. This strategy could potentially include:

• Monetization of the Huasco Water business
• Streaming agreements on precious metals production
• Additional offtake agreements
• Strategic partnerships or investments, particularly from Asian investors
• Traditional project finance from banking syndicates

Easterday is confident in the company’s ability to attract funding.

“We have a copper asset that’s going to have a prefeasibility at the end of the year, a water asset that’s going to have a prefeasibility not far after, and you know, both of those project values are significantly large.”

Market Outlook & Timing

Hot Chili’s development timeline aligns well with projected supply-demand dynamics in the copper market. Many analysts anticipate a significant supply deficit in the coming years, driven by growing demand from electrification and renewable energy sectors, coupled with a lack of new large-scale projects coming online.

Easterday notes the industry’s chronic underestimation of challenges in bringing new supply to market:

“Since 2014, so the last 10 years, they’ve overestimated the progression of supply forecast. There is a huge gap between what has been forecast every year to come and what has actually come.”

This dynamic could create a favorable pricing environment for new producers like Hot Chili as they enter the market.

Hot Chili’s goal is to be “first in line to finance a 100,000 ton per annum project,” as Easterday puts it. By advancing its studies and permitting processes now, the company aims to be ready for a final investment decision and financing in late 2026 or early 2027, potentially ahead of many competing projects.

This timing could allow Hot Chili to secure favorable terms for project financing and offtake agreements, as well as potentially benefit from strong copper prices as it enters production.

The Investment Thesis for Hot Chili

• Large-scale copper project with significant production potential (95,000 tons copper, 50,000 oz gold annually)
• Low capital intensity due to favorable coastal location ($1 billion vs. $2 billion for comparable high-altitude projects)
• Advanced permitting status with environmental impact assessment submission planned for mid-2024
• Strategic partnership with Glencore, with potential for additional offtake agreements
• Unique water business (Huasco Water) that could be monetized to fund a significant portion of project development
• Well-funded for current development phase with $30 million on hand
• Aligns with projected copper supply deficit, potentially benefiting from favorable pricing environment
• Management team with clear strategy and timeline for project development and financing

Hot Chili presents a compelling investment opportunity in the copper development sector. With its large-scale Costa Fuego project, strategic coastal location, cost advantages, and innovative approach to water infrastructure, the company is well-positioned to become a significant player in the copper market.

The company’s progress on permitting, strategic partnerships, and funding strategies demonstrate a clear path towards project development. Moreover, the potential monetization of the Huasco Water business could provide a unique source of funding, setting Hot Chili apart from many of its peers.

As the global demand for copper continues to grow, driven by the green energy transition and infrastructure development, well-positioned projects like Costa Fuego are likely to attract significant interest from investors, offtakers, and strategic partners. For investors seeking exposure to the copper market, Hot Chili offers a combination of scale, advanced development status, and potential for value creation that merits serious consideration.

Macro Thematic Analysis

The global transition to clean energy and electric vehicles is driving unprecedented demand for copper, creating a compelling macro environment for copper developers like Hot Chili. As countries worldwide commit to decarbonization targets, the need for copper in renewable energy infrastructure, electric vehicles, and energy storage systems is set to surge.

Concurrently, the supply side of the copper market is facing significant challenges. Years of underinvestment in exploration and development, coupled with declining ore grades at existing mines, have created a looming supply deficit. Many analysts predict this supply-demand imbalance will persist and potentially worsen in the coming years.

This situation is further complicated by the increasing difficulty in developing new large-scale copper projects. Environmental concerns, water scarcity, and geopolitical tensions in key mining jurisdictions are making it harder to bring new supply online. Projects like Hot Chili’s Costa Fuego, with its favorable location and lower environmental impact, are therefore particularly valuable.

Moreover, the growing focus on responsible sourcing and ESG (Environmental, Social, and Governance) factors in the mining industry adds another layer of complexity. Copper projects that can demonstrate strong ESG credentials, including efficient water use and community support, are likely to be preferred by both investors and offtakers. Christian Easterday succinctly captures the opportunity this creates:

“We’re starting to approach this inflection point where a lot of the greenfield projects are starting to become lower capital intensity options for new supply.”

This dynamic positions well-advanced, economically robust projects like Costa Fuego to potentially command premium valuations as the copper supply crunch intensifies.

February 11, 2025 | Stockhead

• Hot Chili drilling intersects more broad zones of copper-gold mineralisation at La Verde
• Results highlight potential to be the company’s next major copper-gold discovery
• Assays pending for a further seven holes while step-out drilling is underway

Special Report: Hot Chili now has multiple new significant drill intersections from a further 10 holes to prove that its La Verde project in low elevation coastal Chile is a major copper-gold porphyry discovery.

The company first received a taste of the project’s potential back in mid-December 2024 after announcing very thick copper-gold intersections from its first two drill holes.

Hole DKP001 got the show on the road with a 174m intersection grading 0.4% copper and 0.1g/t gold from a down-hole depth of just 36m before DKP002 quickly blew Hot Chili’s (ASX:HCH) expectations out of the water with a stunning 308m interval at 0.5% copper and 0.3g/t gold from 46m to end of hole.

DPK002 also hosts a higher grade zone of 202m at 0.6% copper and 0.3g/t gold from 70m, which is encouraging from a development standpoint as its places the richest resources closer to surface.

A fantastic start no matter how you look at it and one that just got a whole lot better.

Assays from another 10 holes have now returned broad, consistently mineralised intersections extending over 300m vertically that start from shallow depths.

Notable intersections from the rapidly growing oxide and sulphide find are:

• 320m at 0.3% copper and 0.1g/t gold from 34m to EOH including 134m at 0.4% copper and 0.2g/t gold from 180m and 56m at 0.5% copper and 0.2g/t gold from 258m (DKP009)
• 200m at 0.4% copper and 0.1g/t gold from 48m to EOH including 38m at 0.5% copper and 0.2g/t gold from 68m (DKP005); and
• 172m at 0.4% copper and 0.2g/t gold from 48m including 20m at 0.5% copper and 0.2g/t gold from 62m with a separate intersection of 78m at 0.5% copper and 0.1g/t gold from 228m to EOH including 32m at 0.6% copper and 0.2g/t gold from 232m (DKP012).

Major discovery

The new drill results outline La Verde’s potential scale with managing director Christian Easterday saying the project is shaping up to be the company’s next major copper-gold discovery that could lift the scale of its Costa Fuego project.

“With primary copper supply declining, copper and gold prices rallying, and a PFS on each of our planned businesses (copper-gold and water) nearing completion – momentum is building fast,” Easterday said.

“Following in the footsteps of our successes at Cortadera and Productora, we’ve secured full control of La Verde after years of strategic consolidation, finally allowing us unrestricted access to test this historically overlooked porphyry system.

“Drill results have exceeded expectations, revealing a much larger porphyry system than first recognised, with broad, consistent copper-gold mineralisation extending from shallow depths and largely hidden below shallow gravel cover.

“This discovery has all the signs of becoming our third bulk-tonnage, copper-gold deposit, and is open in all directions and growing fast. We’re also preparing to deploy AI-powered exploration to fast-track our nearby exploration growth pipeline, leveraging 16 years of expertise in Chile.

“With La Verde’s scale potential and the Costa Fuego copper-gold hub expanding, we’re at a major inflection point in Hot Chili’s growth story.”

The project, which hosts the historical La Verde copper mine, is at the core of the historical Domeyko mining district and in the centre of the company’s recently consolidated and larger Domeyko landholding.

La Verde drilling

To date, HCH has drilled 19 holes totalling 5700m at La Verde and received assays from 12 holes.

This has defined a discovery footprint measuring 550m by 400m that remains open in all directions.

Mineralisation starts from shallow depths and extends to more than 300m below surface with indications that its deeper potential remains untapped as eight of the holes reported to date ended in mineralisation.

Adding further interest, the gravel cover at La Verde could mask a much larger porphyry system with the company noting that step-out drilling is now underway.

Drill testing of the historical oxide copper open pit at the project is also pending.

HCH is now awaiting assays from seven additional reverse circulation holes.

It is also planning to carry out diamond drilling to test potential for deeper, higher-grade zones at depth and to test potential for +1km vertical depth extent, typical of other recent major porphyry discoveries, such as the company’s Cortadera discovery and BHP/Lundin Mining’s Filo del Sol find.

December 18, 2024 | Stockhead

• Hot Chili’s thick copper-gold intersections validate historical drilling at its La Verde project
• Second hole’s 308m intersection at 0.5% copper and 0.3g/t gold exceeds expectations
• It also highlights La Verde’s potential to host a higher-grade copper-gold zone

Special Report: Hot Chili’s initial drilling at La Verde has validated its decision to acquire the historical copper mine in Chile after returning thick copper-gold intersections.

While the first hole – DKP001 – provided a good show with a 174m intersection grading 0.4% copper and 0.1g/t gold from 36m, the second hole about 120m to the southeast really upped the ante after recording a 308m interval at 0.5% copper and 0.3g/t gold from a down-hole depth of 46m to the end of hole.

Not only did DKP002 exceed the company’s expectations and end in mineralisation, it also intersected a higher grade zone of 202m at 0.6% copper and 0.3g/t gold from 70m.

The results are hugely encouraging for Hot Chili (ASX:HCH) as the La Verde porphyry footprint measures about 850m by 700m, which is roughly comparable to its higher-grade Cortadera Cuerpo 3 copper-gold porphyry about 30km to the north.

Cuerpo 3 is also the largest porphyry at Cortadera with a higher confidence indicated resource of 798Mt grading 0.45% copper equivalent, or contained metal of 3.6Mt copper and 3Moz gold, and inferred resources of 203Mt at 0.31% CuEq.

What this means is that further drilling successes could unlock another resource of similar size, which will in turn provide a substantial boost to the company’s Costa Fuego copper hub.

La Verde mine

The historical La Verde open pit mine in the Domeyko mining district, which the company acquired in November 2024, was previously exploited by private interests for shallow porphyry copper-style oxide mineralisation with limited drill testing outside the central lease or at depth.

Importantly, it sits in the centre of the company’s recently consolidated and larger Domeyko landholding, secured in an option agreement back in April 2024.

This marks the first time the area has been consolidated, and provides the company with access to a much larger potential porphyry copper deposit footprint measuring around 1.4km by 1.2km.

HCH promptly launched and completed a 12-hole reverse circulation drill program totalling ~3150m with the first two holes designed to validate historical drill intercepts and test the interpreted northern extension of the porphyry from the open pit.

While DKP001 was successful in validating the most notable copper intercept from historical drilling, the assays from DPK002 really demonstrated the value of La Verde by highlighting its potential to host a higher-grade copper-gold zone.

The consistent higher-grade results confirm the extension of the porphyry system almost 400m to the northeast of the open pit, a significant step out considering the existing pit measures about 200m by 400m.

It is also located immediately beneath a gravel cover sequence which obscures the ultimate extent of the porphyry system.

Assays are pending for the remaining 10 holes though the success of the first holes has prompted HCH to expand the RC program by another 2000m of drilling, expected to be completed in late January 2025.

September 23, 2024 | Kristie Batten

One of Australia’s top mining journalists, Kristie Batten writes for Stockhead every week in her regular column placing a watchful eye on the movers and shakers of the small cap resources scene.

When BHP (ASX:BHP) and Lundin Mining Corporation announced a joint bid for Toronto-listed copper explorer Filo Corp in late July, it set pulses racing.

The C$4.1 billion cash and scrip bid represents a premium of 32.2% and will give the pair ownership of the Filo del Sol copper project.

BHP will also buy 50% of Lundin’s Josemaria project for US$690 million.

Both projects sit on the border of Chile and Argentina.

Goldman Sachs forecasts the two projects have the potential to produce a combined 400,000t of copper per annum, but could cost US$12-16 billion due to the infrastructure, which would include a desalination plant and concentrate pipeline.

Hot Chili (ASX:HCH) managing director Christian Easterday was quick to highlight the lack of large-scale copper projects outside the majors in his presentation to the Precious Metals Summit in Colorado this month.

“There’s not many of us out there and there’s not many that are meaningful and near-term,” he said.

“With Filo being taken over by BHP, the list just got shorter.”

In fact, according to Hot Chili, there are only a handful of projects with the potential to produce around 100,000tpa of copper sitting in companies outside the majors.

Hot Chili’s Costa Fuego in Chile is one. The others are SolGold’s Cascabel project in Ecuador, Los Andes Copper’s Vizcachitas project in Chile and McEwen Mining’s Loz Azules project in Argentina.

All are in South America, reaffirming the region’s position as a global hot spot for copper.

“The region hosts almost 20% of new copper supply,” Easterday said.

Capstone Copper is ramping up its Mantoverde copper project in Chile to the north of Costa Fuego, which Easterday says is similar to what Hot Chili is aiming to build.

Costa Fuego

Hot Chili, which has spent $220 million at Costa Fuego, completed a preliminary economic assessment for the project in 2023, outlining capital costs of US$1.05 billion.

Costs are low compared to the company’s copper peers due to Costa Fuego’s low elevation and proximity to the coast.

“It’s half the cost to build because we’re not up in the Andes,” Easterday said.

The project is projected to produce 112,000t of copper equivalent in the first 14 years at a C1 cash cost of US$1.33 per pound, net of by-product credits.

Using a US$3.85/lb copper price and US$1750 an ounce gold price, the project has a post-tax net present value of US$1.1 billion and internal rate of return of 21%.

“We are not special by grade, but we’re special by the location and that has directly led to these financial outcomes,” Easterday said.

A pre-feasibility study is underway and due for completion by the end of the year.

Copper is now trading at around US$4.26/lb, while gold is at a record of above US$2600/oz.

“Every US10c above US$3.85 (copper), we add about another US$100 million NPV after tax to the bottom line,” Easterday said.

Hot Chili’s “secret weapon” for funding the project is its new 80%-owned subsidiary, Huasco Water, a joint venture with Compañía Minera del Pacífico.

Huasco holds a maritime water permit and will aim to develop a multi-user seawater and desalinated water supply network for communities, agriculture and new mining developments in the Huasco Valley region of Chile.

The company will release a study on the water business in the coming months.

“The project is positioned for major catalysts at the end of this year,” Easterday said.

ASX unmoved

Despite owning the largest copper development project on the ASX outside the majors in the world’s hot spot for copper development and M&A, Hot Chili shares have fallen by 37% over the past year.

The company listed on the TSX in 2021, but it still underperforms against its Toronto-listed peers.

Of the four firms that issue research coverage on Hot Chili, three are based in Canada, further highlighting the disinterest in the Australian market.

That’s despite counting Glencore as its major shareholder.

“We’re in the early stages of a copper cycle,” Easterday said.

“It’s a very, very different cycle we’re moving into. It’s about lack of supply.”

Earlier this year, S&P Global Commodity Insights found that the average time from discovery to production was now 16.3 years.

“The timeframes of 17-20 years to develop these assets are very real,” Easterday said.

“We’re sitting at probably the precipice of an electrification future, where copper is the key ingredient, and we simply don’t have an answer about where the supply is going to come from.”

Easterday said the incentive price still needed to be higher for new large-scale copper mines.

“We’re like a large-scale iron ore producer when iron ore is sitting at US$20/t,” he said.