Hot Chili to upscale Costa Fuego

The Mining Journal | Paul Harris | 27 July 2023

Hot Chili’s technical team at Costa Fuego in Chile

Australian copper developer Hot Chili is looking to increase the scale of its Costa Fuego project in Chile as it advances towards a prefeasibility study (PFS), MD Christian Easterday told Mining Journal at the Rule Symposium in Boca Raton, Florida, US.

With the PFS 80% complete and due early in 2024, the company is looking to add to the mine life and production scale, with a 30,000m drilling programme to commence soon.

“Hopefully, we can take advantage of an upscale opportunity to scale this project up from around 100,000tpa of copper production for a 16-year life with 50,000oz of gold production towards a 22 or 23-year mine life and upscaling this towards 150,000tpa.

“This would make it not only one of the largest projects in the development pipeline outside of a major but would allow the cash costs to be reduced and sit within the first quartile for the industry,” Easterday said.

Easterday said the project has a lower-than-average capital intensity of $10,000/t of annual copper production capacity, compared with a $17,000-18,000/t average.

“The last cycle for copper was unfortunately littered with a number of projects which saw significant overruns on capital. It is about being able to build these with the correct economics that produces quick paybacks and, ultimately strong returns. [The project in Chile’s Coastal Belt] is about half the cost it would be if it were in the high Andes alongside our global peers,” said Easterday.

Last man standing

Hot Chili is listed on the ASX and uniquely positioned as the last copper developer standing following M&A transactions. Barrick Gold acquired Equinox Minerals for C$7.3 billion in 2011 at a 30% premium, Oz Minerals was acquired by BHP for US$6.4 billion in March and Newcrest is being taken over by Newmont.

“We are the largest resource on the ASX in copper outside of BHP, and now we are the largest project in the entire market for Australia by producer, developer or explorer class that is holding a project capable of 100,000tpa of copper production. We find ourselves in the very weird situation that one of the world’s leading venture capital markets for mining does not have a mid-tier copper space and Hot Chili being the only player in that space,” said Easterday.

Easterday is keen to emulate the success of some of those takeovers. With a market capitalisation of about US$130 million, he sees the development of Costa Fuego as the path the company needs to tread to derisk the project and potentially elicit a bid fully.

“From here to a financing decision in 2026 and potential production, to be one of the first of the 100,000 tonners to come to market this decade is not a long period of time to wait after building this company for 15 years. There is tremendous upside if by the end of the decade copper is around $8/lb, and that’s a pretty exciting equation on our share price,” said Easterday.

A US$15 million investment from Osisko Gold Royalties in early July appears to have added more than funding to the company, as its share price increased more than 50% to about C$1.30.

“The Osisko transaction has allowed us to put the asset value to work rather than the market capitalisation of Hot Chili. The addition of NPV (net present value) we add with these funds is extraordinary. It leverages the value equation but removes any overhang of a fundraising anytime in the future.”

“The significant endorsement from Osisko, one of the leading North American streaming-royalty groups, has an amplification effect, particularly following our dual listing into the North American market through the TSXV and the OTCQX,” said Easterday.

Rename rejected

The North American listings saw the company work on a rebrand and a new name, Costa Copper, but while the new brand image is being used, the name change was rejected at the company’s May shareholder meeting.

“We were getting negative feedback on the name, and we thought that was something the shareholders should vote on. I didn’t have an opinion either way as I believe that a company makes the name; the name doesn’t make the company,” said Easterday.