The Mining Journal | Paul Harris | 23 January 2023
The drive north along Ruta 5 from La Serena towards Vallenar is to drive through more than a century of mining history. From the silver mines of the 1800s, to the iron ore mines of the late twentieth century, and the almost continual small-scale production of high-grade copper oxide. The four-lane highway passes through a wide valley with desert scrub and cacti, in parts reminiscent of Nevada or Arizona in the US, particularly with the cobalt blue sky and beating sun.
The drive passes a wind farm funded by Barrick Gold and various solar generation facilities but tucked away to the east of the Coastal Range and the Pacific Ocean, it also runs along part of the 2,000km-long north-south Atacama Fault in central Chile, which hosts iron, copper-iron and copper-gold deposits including IOCG, porphyry and vein deposits.
It also holds promise for Chile’s future copper developments, such as with companies like Hot Chili and Tribeca Resources, and further north, Capstone Copper’s Santo Domingo project, looking at bringing forward affordable projects which benefit from the rich regional infrastructure endowment, which includes access, high-tension power lines, local mining culture and port facilities. This should be music to the ears of mining investors who are still beating the capital discipline drum and nervous about development cost blowouts, which has made the greenlighting of new mine developments noticeable by their absence despite the copper price being notionally above the US$4 per pound incentive price. No wonder diversified miner Glencore and royalty company Osisko Royalties are interested.
Within this context, the long-overlooked coastal range in Chile is drawing increasing attention from copper explorers and developers who believe viable and economic deposits can be found, which, while smaller than the mega porphyries in the high cordillera which have powered the country’s copper production, can potentially be brought to market with less permitting, development and financing risk.
Hot Chili and its Costa Fuego project is growing into a strong development candidate south of Vallenar, with exploration bringing the project ever closer to the magical threshold of 1 billion tonnes of resources. While its Productora deposit has been around for a number of years, the more recent definition and integration of the Cortadera deposit 14km away into Costa Fuego via a 2022 resource update has increased the scale and attractiveness of the project. The continual fall in the average production grade in Chile adds shine to the project, which with each passing year, sees it get closer to and equalling production grade.
Diversified miner Glencore certainly sees the possibilities, having invested in the company and provided an offtake agreement in 2022. Glencore invested as Hot Chili debuted on the TSXV in 2022, participating in the C$30 million capital raise to take a 9.99% stake. “The Glencore investment gives us a solid endorsement and provides a good rubber stamp on what we’re doing and the asset we have,” Hot Chili chief executive Christian Easterday told Mining Journal at the time.
Glencore’s influence can be seen in the current drill programme at the Las Cañas target (body #1, Cortadera), to rapidly add further tonnes to its overall resource, with a prefeasibility study postponed until this drilling and the next resource update has been completed.
The consolidated March 2022 Costa Fuego resource featured an indicated resource of 725Mt grading 0.47% copper equivalent for 2.8Mt of copper, 2.6Moz of gold, 10.5Moz of silver and 67,000t of molybdenum, and inferred resources of 202Mt grading 0.36% copper equivalent. It also featured a high-grade indicated component of 156Mt grading 0.79% copper equivalent for 1Mt of copper, 850,000oz of gold, 2.9Moz of silver and 24,000 of molybdenum.
Hot Chili and Productora were widely dismissed by the market as being too small and too low-grade. That is no longer the case with the company looking at 100,000tpa of copper production for 20 years, and possibly more, although the market view perhaps still languishes in its past perception judging by the slow uptick of its share price. However, Costa Fuego is rapidly taking its position on the relatively short list of development stage projects that can be developed.
While Hot Chili’s star is starting to rise, the years spent in the investor doldrums saw the company use the time to advance low-cost but equally important work to derisk the project and make it a more robust and viable development proposition. “During the downturn in the market, we held onto Productora but stopped drilling and instead focused on the infrastructure we would need, such as obtaining the surface rights and easements we will need for access, power, a water pipeline and the maritime concession,” country manager Jose Ignacio Silver told Mining Journal during a site visit.
Cortadera has been a game-changer for the company, bringing high-grade outcropping material into the picture and almost quadrupling the resource base. The area has seen small-scale mining from local miners targeting high-grade copper oxide exposures on the mountain tops, with material containing 3% copper or more sent to the processing plants of state mineral company Enami. Their workings with the outcropping bluish-green chrysocolla mineral provide an obvious visual clue for explorers like Hot Chili to start their exploration efforts.
At Cortadera, which the company obtained in 2019, it has defined three ore bodies and an indicated resource of 471Mt grading 0.46% copper equivalent and an inferred resource of 108Mt grading 0.36% CuEq. The mineralisation outcrops at body #1, with mineralisation getting deeper and larger volumes moving to the southeast for body #2 and then again for body #3. Body #3 is the biggest and deepest, and where the company completed an 1185m hole which showed high-grade at depth in hole 13D (750m grading 0.6% Cu and 0.2g/t Au from 204m depth down-hole, including 188m grading 0.9% copper and 0.4g/t gold).
The area has been picked over by larger companies in the past, but seemingly in a half-hearted manner and never consolidated, perhaps using exploration results as a reason to move on rather than as a reason to stay and grow a resource. “Explorers didn’t want the Coastal Range as they were looking for the mega porphyries in the high Andes. There was also the issue of consolidating the concessions and the surface rights, which not everyone wants to take on,” geology manager Andrea Aravena told Mining Journal.
Piecing the project together is a task that the relatively young and ambitious Hot Chili team relished, particularly Silva, a lawyer who studied international trade law in the UK and spent some time working with the UK Serious Fraud Squad. There is a palpable enthusiasm for the exploration opportunities this now provides, with various new drill targets being worked up and permitted around both deposits. Silva has a similar enthusiasm for obtaining the infrastructure easements and entering the permitting process in the future. “I love this because we are building a long-term company and something that will have real value,” he said.
The next piece of the puzzle, and the one which may push the company over the 1Bt of resources threshold (already 927Mt), is an earn-in agreement with Antofagasta Minerals (AMSA) on the ground between Productora and Cortadera called Las Cañas for $1.5 million and 6,000m of drilling in two phases. The first phase is underway and will see 3,000m drilled as part of Hot Chili’s 10,000m initial exploration drill plan for 2023. Following a joint review of the results with AMSA, the second 3,000m will be drilled. AMSA previously drilled five holes at Las Cañas, and so the first Hot Chili holes are twinning some of those holes seeking to confirm the high-grade results previously obtained.
The evolution of Productora and Cortadera into Costa Fuego, with a central processing plant planned to be located at Productora, has energised the exploration team to find more ore bodies nearby in the Huasco Valley which could potentially feed into this. This is a task helped by growing confidence in the geological model they have developed and refined. Zones carrying mineralisation are characterized by the presence of tightly packed parallel quartz veinlets, which carry the copper sulphide mineral chalcopyrite, gold, silver and molybdenum credits.
Consulting geologist Dr Steve Garwin, a key member of the SolGold team which discovered the Alpala deposit in Ecuador, is also the lead technical advisor to Hot Chili and has trained the exploration team on the key things to record in core logging, such as the alteration, the number of veinlets and the presence of a molybdenum halo. With accurate core logging of crucial importance, one or both of the principal project geologists Miguel Tapia and Cristian Vasquez, are always on-site to ensure this is done correctly and consistently. “What we see at the #1 ore body at Cortadera we see at Las Cañas, which means we can advance quicker because we have a good idea of what is happening,” Tapia told Mining Journal.
“We always start by looking at the regional context as we think about the potential of having a cluster of deposits. Most deposits are structurally controlled by the north-south Atacama Fault structure and NW trending faults. The intersection of these can be zones of interest,” said Aravena.
Productora is a different beast as it is a structurally-controlled tourmaline breccia hosted in volcanic rocks, although exploration has also been guided by where small miners previously worked.
While undertaking a PFS on Costa Fuego has been postponed pending the Las Cañas drilling, the company has a general idea of how it wants to develop the project, having previously completed a PFS on Productora, as well as the majority of a PFS for the combined project. Mining would start with open pits at Productora and high-grade material from body #1 at Cortadera, with the company targeting a multi-decade project to produce approximately 100,000tpa of copper and up to 70,000ozpa of gold.
Material from Cortadera is planned to be transported to Productora via a rope conveyor, one of three key elements to reduce the environmental footprint and lower operating costs for future operation. The tailings storage facility has been relocated down the valley to a site that will have greater storage capacity and be cheaper to build and operate. “This is not upstream of any river, so there should be no opposition from the Huasco Valley Agricultural Association. The rope conveyor towers have minimal surface disturbance, and the Project is being designed with all stakeholders in mind,” said Silva.
The company reported a key development in December about the award of a maritime concession from the government where it will build its seawater capture infrastructure, the culmination of eight years of work. Processing will use seawater, and not needing to build a desalination plant will save considerable capital and operating cost. “It also improves the copper recovery,” said Silva. Marimaca Copper, which is advancing its Marimaca project in the coastal range near Antofagasta, is also looking to use seawater for processing and also says this will improve recoveries.
With the wind in its sails, the coming milestones for Hot Chili are to complete a preliminary economic assessment during the first semester, a resource upgrade in the second semester, and then the PFS in the first half of 2024.
“Growth from the drill bit is very much Hot Chili’s focus in 2023, with the company confident of continued resource growth. This is underpinning the company and our shareholder Glencore’s view that Costa Fuego and our regional consolidation may support a long-life mine producing 150,000tpa of copper. This would put Costa Fuego toward the top-end of scale for new copper developments being advanced in the world,” said Easterday.
Silva also noticed a clear change in the government’s attitude towards mining following the rejection of a new draft constitution on September 4 last year. While the country will continue creating a new constitution, it will likely be a less radical and more centrist document than the rejected draft.
“After 4 September, everything felt more stable in Chile. The rejection of the new draft constitution was a defeat for the extreme Left and moved politics in Chile back into the centre. The new constitution will have limits as there are 12 basic aspects of the political structure which have been agreed upon and will not be changed,” said Silva. These include that Chile is one united nation with a separation of powers and the existence of an independent Central Bank, as well as an independent Prosecutor and Electoral Office.
Hot Chili is not alone in this new development thrust. Some 500km north near Antofagasta, Marrimaca Copper plans a feasibility study this year for its Marimaca coastal range deposit for a 50,000-60,000tpa operation from a measured and indicated resource of 140Mt grading 0.48% copper for 665,500t of contained copper. Capstone Copper’s permitted and shovel-ready Santo Domingo copper-iron-gold project near regional mining hub Copiapo is due to see a feasibility study update later this year, which will include additional processing circuits for cobalt and iron ore, and may see a lower capex than the $1.5 billion in the current feasibility through integration with its nearby Manto Verde mine.
Exploration spending in Chile has been increasing in recent years, amounting to US$713.2 million in 2022, according to state copper agency Cochilco, a 24.6% rebound from the low of $450 million in 2020, the lowest amount since before 2010. The majority of spending at $345 million is by miners around their mines, with large mining companies spending most on exploration at 74.6% of the total. Early-stage exploration accounted for $197.3 million in 2022, with the amount spent by junior explorers almost doubling from 2021 to 2022, increasing its share from 9% to 18%. Copper is the most sought mineral, accounting for 74% of spend, followed by gold at 21%.
A new crop of junior copper explorers in Chile includes Culpeo Minerals, Torq Resources, Atacama Copper, Pampa Metals, ATEX Resources, Solis Minerals, Rugby Resources, Alto Verde Copper, Great Southern Copper and Nobel Resources. The newest of all is Tribeca Resources, one of a new generation of copper exploration juniors in Chile’s IOCG belt whose La Higuera project, some 100km south of Costa Fuego echoes many of the attractions Hot Chili sees in the region.
Tribeca is also drawn by the fact the coastal region has been overlooked and under-appreciated in the past, even though it is possible to find a sizeable deposit. Lundin Mining’s Candelaria near Copiapo is the exemplar in this context. With infrastructure development being a key factor in development time and cost blowouts, the coastal zone and its proximity to existing infrastructure are very attractive.
I drove to the site, a few hundred metres off the Pan-American highway, with chief executive Paul Gow in a VW Gol. Having a four-wheel drive truck was unnecessary, which also attests to Gow’s frugal and parsimonious financial management, a habit carried over from when he and partner Thomas Schmidt funded the early days of the company from their own pockets. Both Gow and Schmidt worked for Xstrata Copper in their previous lives. The company doesn’t have a corporate office and has a monthly burn rate of just $40,000, excluding drilling, while its drilling costs are just $130/m before assays and geological team.
Tribeca was also attracted by the presence of high-grade small-scale operations in the district and is leveraging the experience of Gow exploring for IOCG deposits around the Olympic Dam mine in Australia. Olympic Dam has several hundred metres of barren sedimentary cover above its mineralisation. “We are looking for a sulphide copper-gold system containing hundreds of millions of tonnes of resources. We see opportunity under the gravel cover in areas where there have been high-grade oxides exploited from the mountain tops. Copper is present in outcrops, and we follow them under the gravel,” Gow told Mining Journal during the visit.
Like Hot Chili, the Atacama Fault is the main regional controlling structure, and the northwest cross faulting is also relevant. With up to 60m of gravel cover, soil geochemistry is not such a useful exploration tool, but the presence of magnetite and hematite in IOCG deposits means geophysical methods like magnetics and gravity are.
Gow says good targets are near high magnetic anomalies, although the highest copper grade is not necessarily where the highest magnetic anomaly is. “My experience in the Olympic Dam province, particularly with the Prominent Hill discovery by Minotaur Resources, is that the mineralisation is related to hematite and is commonly offset from the magnetic anomaly. The magnetic anomaly tells you there is a hydrothermal system present, but then you have to identify where the mineralisation is located within that system.”
The company is also picking up where a previous explorer called Peregrine Metals left off. Peregrine drilled some 4000m in 12 holes at Gaby, which is Tribeca’s main target and where drilling began in November 2022. “We are drilling step-out holes to the north of the Peregrine drilling and have drilled up to 600m to the north,” Gow said.
Tribeca expects to release its first drill results in the coming weeks and show whether or not it has been successful in its initial aim of expanding the mineralisation footprint. “What got me into exploration was the excitement of waiting by the fax machine for the drilling results to come in,” said Gow. With the company’s concessions extending for another kilometre to the north, there is potential to continue expanding the footprint further.
For its first programme, Tribeca uses reverse circulation drilling to pre-collar the holes and penetrate the gravels and weathered zone before switching to diamond drilling for the tail to a total depth of about 400m. It plans some 2200m at Gaby and will then look to drill 600m at its Chirsposo target, 3km to the south.
Luck plays a role in exploration, and Tribeca appears to have had some already. It is perhaps the youngest copper explorer in Chile, having completed a reverse takeover transaction in October 2022 to list on the Toronto Stock Exchange Junior board when at least two other Chile copper exploration hopefuls delayed their listing efforts. “We raised US$2.1 million in January 2022 from mainly experienced mining people, so we didn’t look to raise any money when we listed, so we didn’t encounter any adverse market reaction,” said Gow.
Shares in Hot Chili are trading at C95c, valuing the company at C$114 million.
Shares in Tribeca Resources are trading at C36c, valuing the company at C$19 million.