• 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.

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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.

Hot Chili has loaded its financial base with a $29.9 million fundraising campaign aimed at supercharging its Costa Fuego copper hub in Chile – at a time when the reddish metal’s price is at a 60-year high.

The $119.45 million market-capped company’s significant raise, which it said drew strong demand from Australian and overseas institutional investors, coincides with a rising copper price sitting at about US$4.57 (A$6.91) per pound.

Management says it expects its private $24.9 million placement to be complemented by a further $5 million share purchase plan (SPP) to reach the $29.9 million in new funding. Shares were offered at $1 for both the placement and the SPP.

Following the completion of the raise, Hot Chili says it will move to finish its Costa Fuego prefeasibility study (PFS) in the second half of the year, further secure its water supply and also create a new water company, plug in 25,000m of drilling, pursue more exploration and land consolidation in the next 18 months and kick off a “bankable” feasibility study.

The boost to its finances follows hot on the heels of its recent half-yearly figures that showed it already had A$13.3 million in cash at the bank after reducing its 2024 commitments by US$10 million (A$15.12 million) through consolidating its option agreements, securing its water supplies and filing its technical report for the Costa Fuego copper-gold project.

We control large-scale assets in two of the most critical commodities of our time – copper and water – with two of the most desirable attributes – low-risk and near-term. In combination with a rising copper price which indicates the initial stages of a new copper price cycle driven by lack of supply, this gives the Company confidence to accelerate its growth and development plans while preserving control of these assets for our shareholders.Hot Chili managing director Christian Easterday

Easterday said the company had received increasing interest from potential strategic funding parties to help Costa Fuego’s copper-gold development and its recently-announced water supply studies. He said the project remains one of a limited number of “globally-significant” copper developments that was not in the hands of a major mining company.

Costa Fuego’s measured and indicated resource sits at 798 million tonnes at 0.45 per cent copper equivalent for 3.62 million tonnes of copper equivalent, containing 2.91 million tonnes of copper, 2.64 million ounces of gold, 12.8 million ounces of silver and 68,100 tonnes of molybdenum.

Hot Chili also recently inked a deal with Osisko Gold Royalties, pocketing US$15 million (A$22.68 million) in exchange for a 1 per cent net smelter return (NSR) royalty on copper and a 3 per cent NSR on gold across the Costa Fuego project. Management says the Osisko investment provided an endorsement of its project and its economics from one of North America’s leading royalty-streaming groups.

In addition, the company consolidated its tenure while expanding its ground footprint and kicked off its exploration and resource expansion drilling programs. It updated its resource numbers and obtained results from its initial drilling of its latest satellite targets at Marsellesa, Cordillera and Corroteo, with some good copper hits including 25m grading 0.4 per cent copper from surface with 10m at 0.8 per cent from just 7m depth at Marsellesa.

Hot Chili’s Costa Fuego is a boomer of a resource that is seems to be emerging at just the right time and the latest funding moves look set to put a solid set of wheels under the venture to get it fully on track.

STOCKHEAD

The nearby Domeyko mountains of the Andes in copper-rich Chile. Pic via Getty Images

• Landholding increased by 25% at flagship Costa Fuego project, which has a current resource of 798Mt at 0.45% copper equivalent
• Domeyko concessions bought as exercisable options to purchase for $4m
• Domeyko mining centre hosts several significant historical copper-gold mines, unexplored at depth

Special Report: Porphyry developer Hot Chili has acquired the ‘Domeyko cluster’ tenements to boost the size of its flagship 798Mt Costa Fuego copper-gold project in Chile by 25%.

Costa Fuego has a current resource of 798Mt at 0.45% copper equivalent for 2.9Mt copper, 2.6Moz gold, 12.9Moz silver and 68,000t molybdenum.

Two years of drilling and studies have the project now pegged as a low-risk, low-cost and long-life copper project in the world’s largest producer of the red metal.

Lately, Hot Chili (ASX:HCH) has been busy building out a network around its project with water supply and transport deals in the region.

It’s executed a five-year MoU deal with the nearby port to evaluate bulk tonnage loading alternatives for copper concentrate from Costa Fuego that would include a ‘take or pay volume’ clause based on at least 80% of the project’s future annual concentrate production.

The explorer has also announced a focus on water infrastructure and desalination in Chile’s Atacama region – one of the driest regions on earth.

A new addition to the south

Domeyko is the largest land consolidation undertaken by Hot Chili since Cortadera was added to Costa Fuego in 2019, adding 141km2 and representing a 25% lift in the company’s total tenure in the region.

The move contains several new tenement applications in addition to an option agreement to acquire 100% interest in several key tenements covering a highly prospective, 10km-long copper-gold mineralisation corridor.

The Domeyko mining centre hosts several significant historical copper-gold mines which were principally exploited for oxide mineralisation yet have had very limited exploration for copper sulphide mineralisation.

Both porphyry and structurally hosted styles of mineralisation are present in the area and historic datasets are currently being looked over across several highly prospective targets that have never been drilled.

The total exercisable option to purchase Domeyko comes to $4m, payable within two years to a private Chilean syndicate.

More drilling, exploration and development study workstreams across Costa Fuego are ongoing and further updates on progress of the company’s regional water supply business case study are expected soon.

STOCKHEAD

• Hot Chili has secured $24.9m through a private placement and is raising up to $5m under a share purchase plan
• Funds will support a Costa Fuego PFS, drilling, exploration and land consolidation
• Proceeds will also be used to set up a new water company

Special Report: Hot Chili is raising up to $29.9m through a private placement and share purchase plan to accelerate development of its meaty 798Mt Costa Fuego copper-gold project in Chile.

Australian, Canadian and overseas institutional investors along with existing shareholders demonstrated their confidence in the company’s assets by quickly snapping up the $24.9 million shares priced at $1 each under the private placement.

The company has good reason to be confident.

In the past two years, Hot Chili (ASX:HCH) has built Costa Fuego into a low-risk, low-cost and long-life copper-gold project with a current indicated resource of 798Mt at 0.45% copper equivalent, or contained resources of 2.9Mt copper, 2.6Moz gold, 12.9Moz silver and 68,000t molybdenum.

Indicated resources grant enough certainty for the company to start mine planning and also serve as a platform for a maiden reserve estimate for the upcoming pre-feasibility study.

HCH has already executed a five-year MoU deal with the nearby port to evaluate bulk tonnage loading alternatives for copper concentrate from Costa Fuego that would include a ‘take or pay volume’ clause based on at least 80% of the project’s future annual concentrate production.

The company is also exploring the potential to develop a water supply network in the Huasco valley region – one of the driest places in the world.

Fully funded to deliver key milestones

The placement is part of a broader capital raising that includes a share purchase plan offering existing shareholders the opportunity to subscribe for up to $30,000 worth of shares to raise up to $5m.

Taken together, the $29.9m capital raising ensures that HCH is fully funded to deliver the following key milestones in the growth and development of Costa Fuego:

• Completion the Costa Fuego PFS, expected in H2 2024
• Advance the water supply study and create a new water company, expected in H2 2024
• Up to 25,000m of drilling, exploration and further land consolidation over next 18 months, and,
• Commencement of a bankable feasibility study over the next 18 months

It will also increase the company’s s trading liquidity on the TSX Venture exchange.

“We control large-scale assets in two of the most critical commodities of our time – copper and water – with two of the most desirable attributes – low-risk and near-term,” Hot Chili managing director Christian Easterday said.

“The company has been receiving increasing interest from potential strategic funding parties in its advanced Costa Fuego copper-gold development and its recently announced water supply studies.

“This interest, in combination with a rising copper price environment, provides confidence to accelerate the Company’s growth and development plans while preserving control of these assets for our shareholders.”

Easterday is bullish the world is currently witnessing the early stages of a new copper price cycle, with a valuation of US$9,910/t on the LME at the time of writing.

Three-month contract prices rose around 18% in April alone, with a $60bn bid by BHP for Anglo American demonstrating the dearth of significant new copper developments in the global pipeline.

“The placement and share purchase plan maintain the company’s strategic funding optionality, while ensuring Costa Fuego remains one of a limited number of globally significant copper developments, not owned by a major mining company, that could deliver meaningful new copper supply this decade,” Easterday said.

“Market conditions are indicative of the initial stages of a new copper price cycle being driven by a lack of new supply. The company is now well funded to take advantage of controlling the right assets at the right time in the right place.”

STOCKHEAD

Hot Chili wants to provide desalinated water to the mining-intensive Huasco Valley. Pic via Getty Image

• Hot Chili is the only company in the Atacama region holding most necessary permits/licences to provide desalinated water supply to Huasco valley
• HCH has now submitted second maritime concession application to support a potential multi-user, water network for the Huasco valley area
• Both raw seawater and desalinated water could be provided by a potential water network
• HCH’s water assets to be transferred to a new, wholly owned water company

Special Report: Tier 1 copper-gold mine developer Hot Chili is expanding its horizons beyond traditional mining ventures with a focus on water infrastructure in Chile’s Atacama region – where water scarcity is a major challenge.

Hot Chili (ASX:HCH) is developing its flagship Costa Fuego copper-gold project, where 24 months of extensive drilling has confirmed the endowment of a 798Mt at 0.45% copper equivalent for 2.9Mt copper, 2.6Moz gold and 12.9Moz silver – with 68,000t of molybdenum to boot.

While the Costa Fuego project plans to utilise raw seawater, HCH sees an opportunity to build a water company focused on desalination operations along the Huasco coastline where major iron ore and copper mining projects exist and water scarcity is the current reality.

Beyond Costa Fuego: HCH is establishing a water company

Aligning with the Chilean Government’s push for multi-user desalination networks in the Atacama, HCH’s proactive approach positions it to address the critical challenge of water scarcity for new mining projects.

A water supply concept study released in February confirmed the potential for a large-scale, multi-user desalinated water network serving the entire Huasco Valley.

It’s now submitted a second maritime concession application to establish a multi-user network there and is preparing to transfer its water assets, including permits and land access, to a new water company under its control.

HCH says the application is crucial for developing this large-scale water supply, which aims to deliver up to 3,700L/s in the long term in the region and is the culmination of over a decade of permitting efforts for HCH’s Costa Fuego project.

Hot Chili executive VP José Ignacio Silva says water scarcity is a critical issue for projects in the Atacama, where Costa Fuego is surrounded by existing and potential mine developments.

“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 decarbonisation,” Silva says.

“Securing these assets has involved over a decade of commitment. Socially and environmentally, multiclient and multipurpose water infrastructure is the new reality.”

A water supply business case study is underway and engagement with potential customers, infrastructure partners, and government regulators is ongoing.

The West Australian

The Las Losas Port facility to be tasked with handling Hot Chili’s copper concentrate. Credit: File.

Hot Chili has made a key step towards securing port access – one of the final in-country advantages for its Costa Fuego copper-gold project in Chile – by securing a crucial memorandum of understanding (MOU) with local port managers.

The Los Losas port at the centre of the negotiations is just 50km west of the company’s project that boasts 3.62 million tonnes of contained copper-equivalent.

As part of the MOU, management says it will fund 20 per cent of a two-year, US$4.6 million (AUD$6.95 million) feasibility study into developing a bulk-tonnage copper concentrate facility at the port. The study will include bulk loading alternatives for copper concentrates from existing facilities, potentially without modifying the existing infrastructure at the port.

The company believes the developed port would be a stimulant for many other projects in the area.

Following the study, Hot Chili says it will have a right of first refusal to ship copper concentrates through Puerto Las Losas facilities for three years. The company says it now has up to five years to negotiate a binding port services agreement, which may include a “Take or Pay Volume” clause, based on at least 80 per cent of Costa Fuego’s projected future annual concentrate production.

Management has confirmed the first item to be addressed will be the formation of a technical committee to progress the feasibility study. The committee will take aim at defining key deliverables and a timetable for management of the completion of the study’s workstreams within the first month.

Leveraging an existing port, located 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. 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.

Hot Chili managing director and chief executive officer Christian Easterday.

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Last month, Hot Chili unveiled a six per cent boost to the indicated copper-gold resource at its Costa Fuego project and management says 85 per cent of its mineral resource estimate now sits in the indicated category. The company’s proposed open pit mine development will dig away at 93 per cent of the resource and the remaining 7 per cent will be accessed via underground mining.

The total Costa Fuego resource in the indicated category is now 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 inferred resource 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 project sits at low altitude, between 800m and 100m above sea level, about 600km north of Chile’s capital of Santiago and is comprised of four deposits – Cortadera, Productora, Alice and San Antonio – which are all in close proximity. The majority of the resource contained within the Cortadera deposit contains about 64 per cent of total indicated resources and 69 per cent of total inferred estimates.

The company says it is engaging with several potential infrastructure partners and reviewing the potential for direct government support to assist with driving the project forward. Management says that drive includes a concept study for a 100 per cent renewable energy-driven desalination water project for the southern Atacama region.

The proposition has the potential to supply agricultural, community and new mining demand in the Huasco valley region, near the Costa Fuego project, of up to a massive 3700 litres per second.

With port talks well and truly underway, Hot Chili is busily converting data from 24.5km of drilling across Costa Fuego into a maiden mineral reserve for its upcoming prefeasibility study (PFS) that is expected to be completed in the second half of this year.

The company’s share price was up on today’s news to hit an intraday high of $1.07 on good volume, up almost 14 per cent from yesterday’s close of 94c.

Barry Fitzgerald | August 2023

Increasing supply challenges and soaring demand means copper price take-off must be close. And RareX eyes DSO fertiliser to help it grow.

BHP’s erudite vice president of market analysis and economics, Huw McKay, lobbed his commodity outlook report during the week alongside the company’s FY2023 profit report.

His report was interesting reading as always. The main findings from a short-term perspective were that there could be a balanced copper market emerging and that iron ore remains broadly balanced.

No surprise in the latter (price support is expected in a $US80-$US100t range) but the call on copper represents an upgrade from the call in February that the market was facing a short-term surplus with its price pressure implications.

The suggestion that the surplus which most were forecasting in the next couple of years could in fact be replaced by a balanced market does not carry the same importance for BHP in isolation as it does for the broader copper and equity markets, where negative sentiment reigns on all things copper and economic.

So it is a nice tonic for ASX-listed copper equities.

McKay made the point that better Chinese end-use demand, particularly for its green energy build-out, electric vehicles and housing completions (as distinct from housing starts where there is some real drama), and likely higher operational shortfalls at the world’s fleet of copper mines than most are forecasting, indicated the potential for a balanced copper market, or maybe just a small surplus.

As it is, the copper price is doing okay anyway at $US3.80/lb, even if it is below the June half year average of US$3.95/lb. But where things get really interesting for the metal is the medium term (FY2025-FY2026) to the long-term, (FY2027 and beyond).

McKay’s call on copper for the long-term remains super bullish, which is just as well as his bosses set out to spend as much $US20 billion expanding copper production in South Australia and Chile in coming years.

In short, McKay is forecasting “pronounced” (supply) deficits in the copper industry’s medium-term future. He did not say so, but that means a take-off in copper prices can’t be that far off, remembering that it is almost Christmas.

Actually, Mckay did reference a take-off from a demand perspective.

“These expected deficits are a joint function of historical under–investment in new primary supply and geological headwinds at existing operations intersecting with the ‘take–off’ of demand from copper–intensive energy transition spending that we expect will be a key feature of global industry dynamics as the final third of the 2020s arrives, if not earlier,” McKay said.

“Our confidence in medium term deficits is underpinned by both the demand and supply side, but if forced to elevate one over the other, supply headwinds would be the #1 motive force.

“Simply put, the supply response to supportive demand and price signals in the 2020s to date has been underwhelming, despite copper’s future-facing halo effect. And time is running very, very short to turn that story around.

“It is quite apparent that there is a very substantial disconnect between what needs to be done at the macro level to support both rising traditional demand and the exponential lift in metal needs implied by the energy transition and what is occurring at a micro level.”

McKay has previously estimated that in a “plausible upside” case for demand, the cumulative industry-wide growth capex bill out to 2030 (which will be here before we know it) could reach one–quarter of a trillion dollars.

Now he is saying that an updated analysis suggests that could be an under–estimate.

McKay added that the capex mountain presumes that there projects ready and waiting.

“The reality is that the industry’s collective set of development options is modest by comparison with prior decades, with the well–known lack of discoveries, the depth and complexity of what has been found, and the lengthening catalogue of above-ground risks and regulatory hurdles that confront project developers all adding to the challenges of bringing additional copper to end–users in a timely fashion,” he said.

“We reiterate our view that the price setting marginal tonne a decade hence will come from either a lower grade brownfield expansion in a mature jurisdiction, or a higher grade greenfield in a higher risk and/or emerging jurisdiction. None of these sources of metal are likely to come cheaply, easily – or, unfortunately, promptly.”

COPPER JUNIORS:

There is a message in all that for the junior copper explorers and would-developers out there – stick to your knitting and resist the temptation to go off on the lithium hunt, a sector BHP does not rate because of a lack of “rent” in coming years as supply grows hand over fist.

It is warming stuff for the copper juniors. They have being doing in tough in recent months as investors fret about the China slowdown.

But by BHP’s road map, their day in the sun will arrive around 2025 when the world wakes up to the profound supply deficits coming in the back third of the decade, something the market will front run by a couple of years by supporting both the copper producers and juniors.

Most of the likely candidates to benefit from that scenario have been mentioned here before and include names like Hot Chili (HCH), Coda (COD), Caravel (CVV) and Hammer (HMX). All have established copper resources with exploration upside.

CHINA:

A final message from McKay which is really a maths lesson. It has particular relevance to the current hysteria about China’s economy falling into a hole in the longer-term because of its ageing population, among other things.

While China has set a GDP growth target of 4.7% for this year, McKay reckons that come the 2030s, it will be a considerable stretch for anything in the 4s because of existing scale of the Chinese economy.

“Our mid case point estimates for growth in 2025, 2030, 2035 and 2050 are (rounded) 5%, 4¾%, 3½% and 1¾% respectively. But such is the underlying scale of the economy – in 2035 China will be roughly the same size as the US, India, Europe, and Japan put together today – 3½% growth in that year would be equivalent to $1¾ trillion of incremental new activity (PPP terms),” McKay said.

“That is roughly double the annual incremental change that China produced in the high–speed growth era of the mid–to–late 2000s.”

He said that it would also big enough to produce the equivalent of a new G20 member annually, being larger than the entire economies (in 2019) of Canada, Saudi Arabia, Australia, Thailand, Egypt, and Spain, just to name a few.

“Knowledge of that arithmetic is part of the reason why we are not perturbed that percentage rates of growth are bound to slow down. China is expected to remain the largest incremental volume contributor to global industrial value–added and fixed investment activity through the 2020s and many decades beyond: not just GDP,” McKay said.

That should mean something to long-term investors in the resources space. A confidence builder perhaps.

RareX:

Talking about the big thematics out there, RareX (REE) has set out to ride two of the biggest – fertiliser to meet the need to feed the world and rare earths for global decarbonisation through electrification.

It has the underpinning phosphate-rare earths project to proceed down the dual carriageway – its large scale Cummins Range deposit some 135km from Halls Creek in Western Australia’s Kimberley region.

Phosphate – one of the three primary macronutrients for plant growth – is a relative late-comer to the Cummins Range story but is now emerging as a low capex/high returning “starter” project, with combined phosphate/rare earths to follow in later years.

Prices for rare earths (RE) have taken a beating in 2023, making it difficult for RE explorers/developers to gain traction in the market. Even so, broad agreement that demand/pricing for the magnet REs will take off in the second half of the decade remains.

RareX was a 3.8c stock on Thursday for a market cap of $26 million. So it is not as if it has the scale to stare down both the RE market and the equities market and get cracking on the RE component of the Cummins Range orebody in the here and now.

Think of a simple direct shipping (DSO) phosphate rock project as a bridge to becoming a RE producer of scale. As the company likes to put it, it is all about phosphate production enabling RE production. It is a neat bit of de-risking not available to most of the RE players on the ASX.

The plan began to take shape this week with the release of a scoping study into a rock phosphate direct shipping project with a 3-year life as the first stage of a three-stage development plan that moves into phosphate-RE concentrate in the second stage, and an upgraded third stage.

The second stage involves big bucks (an estimated $304m) but the strategic nature of RE and the north Australian location suggests grant funding is likely to be available. The forecast surge in RE demand/prices would also no doubt help.

But before then, a rock phosphate costing a doable $45m and producing 63,000t annually of contained phosphorus pentoxide annually could be chugging away earning a solid cashflow and establishing an operational base for the main event of large scale phosphate and RE production.

StockHead | August 2023

• Company moves to acquire Cometa project near flagship 725Mt Costa Fuego asset
• New project provides opportunity to discover more resources, upgrade production to 150,000tpa CuEq
• 30km expansion drilling campaign is continuing

Hot Chili is progressing its strategy of upscaling its already significant 2.8Mt copper, 2.6Moz gold Costa Fuego flagship project in Chile with a move to acquire the nearby Cometa asset. 

Hot Chili says Costa Fuego is already “one of the world’s lowest capital intensity major copper developments” and one of only a handful of projects outside of the control of major miners capable of delivering meaningful new copper supply this decade.

Its indicated resource of 725Mt grading 0.47% copper equivalent powers a punchy Preliminary Economic Assessment (PEA) – essentially a Scoping Study – which showcases attractive returns.

The PEA envisages a US$1.05bn project capable of producing 112,000t of copper equivalent (95,000t of copper and 49,000oz of gold) per annum over 14-years of a 16-year mine life.

Ove this time it would deliver revenue and free cash flow of US$13.52bn and US$3.28bn, respectively.

Post-tax net present value and internal rate of return – both measures of a project’s profitability – are estimated at US$1.1bn and 24% respectively.

Exploration, acquisitions to support production boost to 150,000tpa

Hot Chili (ASX:HCH) is now focused on upscaling Costa Fuego’s resource base to support an increase in the copper production profile to 150,000tpa ahead of its Pre-Feasibility Study, which is expected to be delivered in the first half of 2024.

Its planned acquisition of Bastion Minerals’ (ASX:BMO) Cometa project, 15km from Costa Fuego’s planned operating centre, is aimed at furthering this strategy via the discovery of further mineral deposits which could add supplemental feed or extend mine life.

Acquisition terms

Under the letter of intent, the company has secured a 60-day exclusivity period to carry out due diligence with the intention to enter into a definitive option agreement for the acquisition of Cometa.

Hot Chili will pay Bastion US$100,000 in cash on the grant of the option and will pay a further US$200,000 within 12 months of its grant to keep the option in good standing.

Should the company exercise the option within 18 months of it being granted, it will have to pay Bastion US$2.4m in cash or an equal mix of cash and HCH shares.

This increases to US$3m if the decision is made after the initial 18 months and before the option expires 30 months from its grant.

An emerging copper monster

Hot Chili’s acquisition of the Cortadera project in early 2019 delivered multiple, very thick copper-gold porphyry hits that drastically changed the scale of what became the Costa Fuego project.

Not only does Cortadera account for the majority of resources at Costa Fuego – at 451Mt at 0.46% copper equivalent – but drilling also outside of the resource envelope continues to deliver more thick, copper-gold porphyry hits that strongly indicate there’s plenty of growth to come.

Expansion drilling continuing

The company is continuing a 30,000m expansion drilling campaign at Cortadera with nine reverse circulation holes totalling 2,010m completed so far.

Four of these drillholes have been completed across the western extension of the Cortadera porphyry resource, including one pre-collar in preparation for a deep diamond hole beneath Cuerpo 4.

Once the RC pre-collars are drilling, the RC rig is expected to begin a hydrogeological program at Cortadera from mid-September.

Hot Chili also plans to have one diamond drilling rig starting double shift drilling in September with preparations underway to bring a second rig online as it ramps up drilling across multiple exploration targets.