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

Hot Chili is looking to acquire the Cometa project to provide opportunities for more resource growth at Costa Fuego. Pic: Visoot Uthairam via Getty Images

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.

Hot Chili ASX HCH
Location of the Cometa project. Pic: Supplied (HCH).

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.

By Paydirt Media

Hot Chili has entered a binding letter of intent for 100% of the Cometa project to the south-east of Costa Fuego

Hot Chili Ltd continues to enlarge its footprint at the Costa Fuego copper-gold project in Chile, acquiring the 56sq km Cometa project directly adjacent to its keystone asset in August.

Hot Chili entered a binding letter of intent with Bastion Minerals Ltd for 100% of the Cometa project – 600km north of Santiago – just 25 days after starting a 30,000m expansion drilling program at Costa Fuego.

“We’ve had a long consultation strategy over a decade to build the Costa Fuego project,” Hot Chili managing director Christian Easterday told Paydirt. “The Cometa project is a known large-scale target, more an IOCG target at this stage, akin to Productora-style, but something that sits well within range of our central processing hub strategy.”

Cometa will be incorporated into Hot Chili’s wider plans to upscale Costa Fuego’s resource base and boost proposed copper production towards a 150,000 tpa target, before an expected PFS in 2024.

“Cometa is a greenfield project, which will give us a further exploration pipeline within our reach,” Easterday said.

A first-pass RC drill programme of 16 holes for 4,116m along the western edge of the Cortadera resource earlier in the year confirmed the potential for resource expansion. Easterday said the company was confident the prospect could provide Hot Chili with even more to talk about.

“Some of our drilling programme is dedicated to the last extremes of the PFS, which is largely complete,” Easterday said.

“We’ll be drilling a number of regional targets on top of expansion targets around the Cortadera resource which, in our opinion, is not finished yet. That drilling is related to a large pit assessment that we’ll undertake to determine the optimal path for our final PFS – whether its open pit then underground, or whether we might consider a higher strip ratio and a larger [open pit] operation.”

The company’s investor base had shown a lot of faith in Hot Chili’s Costa Fuego assets and Easterday said the new acquisition reflected a strategy of expansion.

“[The shareholder reaction] was positive but we do have a positive reaction to a lot of news flow,” Easterday said.

“We’ve confirmed the only 100mt-plus copper production project on the ASX outside BHP [Ltd], so I think the company’s taking strong steps towards being one of the premiere names on the ASX in terms of scale in the copper sector.

“Cometa is part of that strategy, to expand the project through the drill bit and to expand the project through acquisitions.”

Hot Chili commenced trading on the TSX in January 2022 and the OTCQX three months later. Easterday said it had been slow going on the North American exchanges, but conservative planning had paid off as the company fielded interest from Canadian institutional investors.

“The limited amount of liquidity we put over there has been largely focused into institutional hands,” Easterday said.

“In the initial TSX placement, interest came largely from about eight or nine Canadian funds and institutions as well as some retail spread. But recently what we’ve been seeing is a real transition in our trading, particularly since the PEA and the transaction.

“The royalty that we put over the project for about 1.1% effectively secured our next 12-18 months of funding. Since that, we’ve seen a change in the investor type and their buying.”

The Costa Fuego roadmap takes in a planned mineral resource upgrade in H1 2025, with development studies and resource growth ongoing throughout the year. A DFS in H1 2026 will precede FID in the second half of the year. Easterday was comfortable with Hot Chili’s scheduled milestones and confident in the company’s timing, coinciding with predicted commodity values.


“Our roadmap outlines a pretty logical pathway for FID in 2026 which we see as a pretty good time to get into [production],” Easterday said.

“We are, of course, using conservative consensus numbers. If we were to run out numbers at the same as other PEAs in the market – at $US8/lb – we’d probably have a project nearly twice the value.

“We have a $US1 billion-plus NPV on the project now and a much larger NPV if we start to see copper prices moving. So, we are pretty focused on expanding Costa Fuego to a 150,000 tpa production base, which exposes us to revenue profiles in the region of $US1.5 billion over the life of mine. That’s very important if you are trying to get into the first quartile of cash costs.”

Chile’s recent change in administration would not prove problematic for Hot Chili’s arrangements, Easterday was full of praise for the country’s robust political framework.

“Chile has gone through a well-publicised, two-year long constitutional debate
on taxation change and has largely emerged with no constitutional change and
a very limited increase in taxation,” Easterday said.

“That’s been very pleasing to see and that’s been a process of initiation from the new president and his side of parliament.

“The people of Chile spoke, and the protection of a two-third majority on constitutional change was very good. It meant that nothing crazy is happening regardless of who is in the President’s seat.”

– Michael Cameron

By STOCKHEAD

Surfs up as Hot Chili signs options to acquire two previously producing copper mine areas near Costa Fuego. Pic: via Getty Images.

Special Report: Flush with the ongoing success of its Costa Fuego development in Chile, Hot Chili is now moving to acquire two nearby copper mine areas that have never been drill tested before, despite previously reaching production.

With an indicated resource of 725Mt grading 0.47% copper equivalent underpinned by an attractive preliminary economic assessment (PEA) (a rough equivalent to a scoping study), Costa Fuego is rapidly emerging as one of the few projects in the world capable of delivering meaningful new copper supply that isn’t controlled by a major.

Under the PEA, Hot Chili (ASX:HCH) estimated the US$1.05bn project would be 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.

Over 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.

While certainly attractive, the company is looking to increase its resource base to support an increase in Costa Fuego’s copper production profile to 150,000tpa ahead of its pre-feasibility study, which is expected to be delivered in the first half of 2024.

One of the first steps to achieve this objective was signing a binding letter of intent to acquire Bastion Minerals’ (ASX:BMO) ~56km2 Cometa project about 15km from Costa Fuego’s planned operating centre.

Historical producers offer “pipeline of opportunities” 

The new project options near Costa Fuego. Pic via Hot Chili

HCH’s latest option agreements to acquire the Marsellesa and Cordillera copper mine areas about 10km from the planned central processing hub at Costa Fuego are part of the company’s strategy to increase resources.

Both mine areas have been privately held and historically exploited for shallow copper oxide and copper sulphide material, but have never previously been drill tested.

Marsellesa measures 400x200m with mine workings exposing multiple zones of shallow-dipping, strata-bound (manto-style) copper mineralisation.

The smaller Cordillera mine workings expose outcropping porphyry copper mineralisation with well-developed stockwork and sheeted A and B style porphyry veining.

Along with Cometa, the new project additions provide the company with a pipeline of opportunities and additional optionality for the discovery of new mineral resources.

HCH will pay Marsellesa vendor Hermanos Pefaur up to US$1.35m and a 1% net smelter royalty (NSR) to acquire the project while Mr Arnaldo Del Campo – the holder of the concessions comprising Cordillera – could receive up to US$4m and a 1% NSR from underground operations and 1.5% NSR from open pit work if the option is exercised.

By STOCKHEAD

The expansion of Costa Fuego’s indicated resource is timely for Hot Chili ahead of the upcoming PFS. Pic via Getty Images

Special Report: Hot Chili’s Costa Fuego copper-gold project in Chile has seen a 6% increase in copper equivalent contained metal and a 9% increase for the higher-grade component of the indicated resource.

Hot Chili’s (ASX:HCH) Costa Fuego project comprises the Cortadera, Productora (including Alice) and San Antonio deposits, all of which have updated resource estimates and lie proximal to one another, around 600km north of Santiago.

Over 85% of Costa Fuego’s resource estimate is now classified as indicated following 24 months of material investment and 24.5km of drilling across the project tenure.

This included a mix of development activities such as metallurgical, geotechnical, resource expansion and exploration drilling – all designed to progress the PFS on Costa Fuego towards completion in H2 2024.

Total indicated resources now sit at 798Mt @ 0.45% copper equivalent for 2.9Mt copper, 2.6Moz gold and 12.9Moz silver as well as 68,000t molybdenum, while inferred resources have now topped 203Mt @ 0.31% copper equivalent for 0.5Mt copper, 0.4Moz gold, 2.4Moz silver and 12,000t molybdenum.

Cortadera resource grows another 13%

At Cortadera, which has again delivered the majority of resource growth for Costa Fuego, Hot Chili completed 43 reverse circulation (RC) and diamond drillhole (DD) tails for 17,000m of additional exploration and resource extension drilling.

Cortadera’s indicated resource tonnage has grown by a further 13%, supporting the June 2023 preliminary economic assessment which outlined Costa Fuego as having the potential to be one of the world’s lowest capital intensity major copper developments.

It now contains an indicated resource of 531Mt @ 0.44% copper equivalent and an inferred resource of 149Mt @ 0.29% copper equivalent.

Meanwhile, the Productora resource has been re-estimated following an additional 16 RC and DD exploration drillholes for 5,000m with an additional 2.8Moz of silver metal at 0.35g/t, which has now been incorporated into the copper equivalent contained metal.

Indicated resources at San Antonio now total 3Mt @ 0.71% copper equivalent, while the inferred resource sits at 2Mt @ 0.41% copper equivalent.

Regional water supply opportunity

In other news, Hot Chili has completed a water supply concept study for the Huasco valley region of Chile, confirming the potential for a large, multi-user desalination water supply network.

While Costa Fuego’s mine development plan considers the use of raw seawater for future processing, the water supply concept study confirms potential to also develop a large, multi-user, desalination water supply business.

It outlines an opportunity to develop a potentially 100% renewable energy driven desalination water business to supply community, agricultural and new mining demand of up to 3,700 litres per second (L/s) over the long-term.

Staged development scenarios were assessed considering the initial development of a 300L/s desalination plant being supported by potential foundation off-take partners.

The company holds the only active granted maritime water concession and most of the necessary permits to provide critical water access to the Huasco valley region following over a decade of permitting for the Costa Fuego project.

‘The perfect marriage’

“One, single, desalination water supplier, with the potential to unlock several significant mining investments, is a blueprint for the future of responsible water supply in the Atacama,” HCH managing director Christian Easterday says.

“This is an exciting opportunity to surface value for Hot Chili, following over 10 years of investment to obtain the necessary water concession and permits.

“It brings together the perfect marriage of economic, environment and social benefits for a wide range of stakeholders.”

By Bulls N’ Bears

An aerial view over Hot Chili’s coastal site for its potential regional desalination water project. Credit: File

Hot Chili has unveiled a six per cent boost to the indicated copper-gold resource at its Costa Fuego project in Chile’s Atacama region, about 600km north of the Santiago capital, giving it an enhanced total of 3.62 million tonnes of copper-equivalent.

The company has also today confirmed that is has completed a concept study confirming the potential for a whopping long-term, regional multi-user desalination water supply network. Management believes such a move could trigger substantial mining investment in the area.

Hot Chili says 85 per cent of its mineral resource estimate now sits in the indicated category, with its proposed open pit development accounting for 93 per cent of the resource and seven per cent comprising the underground mining scenario.

The total Costa Fuego resource in the indicated category is 798 million tonnes grading 0.45 per cent copper-equivalent for 2.9 million tonnes copper, 2.6 million ounces gold, 12.9 million ounces 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 copper, 400,000 ounces gold, 2.4 million ounces silver and 12,000 tonnes molybdenum.

The company says a high-grade component, classified as being more than 0.6 per cent copper-equivalent, has been increased by nine per cent and contains indicated resources of 173 million tonnes at 0.78 per cent copper-equivalent for 1.1 million tonnes copper, 1 million ounces of gold, 4.3 million ounces silver and 25,000 tonnes molybdenum.

High-grade inferred resources total 7 million tonnes grading 0.74 per cent copper-equivalent for 40,000 tonnes copper, 30,000 ounces gold, 100,000 ounces of silver and 1000 tonnes molybdenum.

The Costa Fuego project comprises the Cortadera, Productora, Alice and San Antonio deposits and management says all have updated mineral resource estimates. All deposits are in close proximity and sit at low altitude, about 800m to 1000m.

The company says most of the resource is within the Cortadera deposit, which contains about 64 per cent of total indicated resources and 69 per cent of total inferred estimates.

The Productera deposit has about 33 per cent of the indicated and 30 per cent of the inferred resources. The Alice and San Antonio deposits make up the remaining balance of the resource.

Management says the resources update follows 24,500m of drilling across the project, comprising a mix of resource expansion and exploration drilling, in addition to metallurgical and geotechnical work. Management says it has a strong platform to deliver a maiden mineral reserve in its upcoming prefeasibility study (PFS) that is expected to be completed in the second half of this year.

Meanwhile, the company’s now-completed concept study for a staged water network development is based on an initial 300 litres per second scale and is supported by a group of potential founding offtakers. The study is assessing a potential 100 per cent renewable energy-driven desalination water project with the potential to supply agricultural, community and new mining demand in the Huasco valley region, near the Costa Fuego project, of up to 3700 litres per second.

The opportunity to develop a regional water business for the southern Atacama is exciting. It brings together the perfect marriage of economic, environment and social benefits for a wide range of stakeholders.

Hot Chili managing director and chief executive officer Christian Easterday

Easterday said the company had spent more than 10 years of investment to obtain the necessary water concession and permits. The region contains six major undeveloped copper projects and two new, large-scale copper discoveries, with all projects requiring desalinated water supply.

The company says it holds the only granted maritime water concession and most of the necessary permits 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.

Hot Chili is engaging with several potential infrastructure partners and reviewing the potential for direct government support to assist with driving the project forward.

With its copper resource growing bigger and with an expected high demand for the red metal due to the increased push for renewable energy in the future, Hot Chili could be poised to really heat up the mining sector.

By STOCKHEAD

Pic: via Getty Images.

Special Report: The next phase of Hot Chili’s 30,000m resource growing expedition at its Costa Fuego copper-gold project in Chile has kicked off at seven large-scale targets adjacent to the Cortadera and Productora deposits.

Hot Chili’s return to drilling comes off the back of a landholding expansion of the project and a recent scoping study which estimated the >US$1 billion project can produce ~112,000tpa of copper equivalent (95,000t CU and 49,000oz Au) for an initial 14-year mine life.

Chile is renowned for its high-value copper deposits and is the largest producer of the red metal in the world, with heavy hitters such as BHP, Rio Tinto and JECO running the operations of world-class deposits.

Phased drilling

47 RC drill holes for 11,500m have been completed since Hot Chili (ASX:HCH) kicked off the extensive drill program in late July last year, and this round comprises 10 diamond holes to test four large-scale targets near Cortadera and three large-scale targets near Productora for a total of 10,000m.

Assays have come back from the late-2023 targets of Marsellesa, Cordillera and Correteo – all within 15km of Costa Fuego’s planned central processing hub showing grades of up to 1% copper across 500m of prospective strike length.

Four RC holes for 1,244m were completed and include:

HCH says the higher grade copper intersections are associated with both copper oxide and sulphide mineralisation and further work is being planned to assess mineralisation continuity.

The Marsellesa mine area is laterally extensive, measuring 400x200m, with historical open pit and underground mine workings exposing multiple zones of shallow-dipping, strata-bound (manto-style), copper mineralisation.

Six holes for 1,450m at Cordillera, 1km to the west of Marsellesa, showed up to 0.4% copper below and surrounding the historical small surface mine workings, including:

Eight RC holes for 2,324m were completed at the greenfield Corroteo exploration target, however, no significant intersections were recorded.

HCH is in the final stages of the resource upgrade for Costa Fuego, which is expected to be released this quarter.

By STOCKHEAD

The new El Fuego Option will also increase the company’s ownership from 90% to 100% at the San Antonio, Valentina and Santiago Z privately-owned landholdings. Pic via Getty Images

Special Report: Hot Chili has materially improved the terms of the El Fuego option agreement to acquire landholdings as part of the company’s Costa Fuego copper-gold project in Chile.

Hot Chili’s (ASX:HCH) 725Mt Costa Fuego project is rapidly emerging as one of the few projects in the world capable of delivering meaningful new copper supply that isn’t controlled by a major.

A recent PEA – the equivalent of a scoping study – estimated the US$1.05bn project would be 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.

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

HCH is now looking to increase its resource base to support an increase in Costa Fuego’s copper production profile to 150,000tpa ahead of its pre-feasibility study, which is expected to be delivered in the first half of 2024.

A new deal

HCH has now renegotiated terms over the El Fuego option which covers the San Antonio, Valentina, and Santiago Z privately owned landholdings along the eastern extent of the Costa Fuego project.

The new deal – originally due to exercise next year – will now be exercised in September 2026 with a revitalised agreement which comes with better terms for HCH.

Improvements to the deal include:

Strength of local partnerships in Chile

HCH managing director Christian Easterday says the option re-negotiation is further confirmation of the strength of the company’s local partnerships in Chile.

“Alignment of local partners has been a key element of our consolidation strategy for Costa Fuego,” he says.

“The El Fuego Option allows the company to focus its balance sheet on exploration and growth of our mineral resource as opposed to property payments.

“Our near-term focus on increasing value per share and leverage to future copper price for our shareholders centres around enhancing Costa Fuego’s mineral resource and potential economics in advance of a planned pre-feasibility study.”

Easterday says the company is “actively” evaluating the region for consolidation opportunities and expects to see further success on this front as it looks to up-scale Costa Fuego’s potential study scale towards a 150kt per annum copper development from its current 95kt per annum copper metal production scale.

Updates on growth drilling, resource upgrades and water conceptual studies are also expected shortly.

Acquisition delivers pipeline of opportunities

HCH announced the move to acquire two nearby copper mine areas that have never been drill tested before – despite previously reaching production – around 10km from the planned central processing hub at Costa Fuego.

The latest option agreements to acquire the Marsellesa and Cordillera copper mine areas are part of the company’s strategy to increase resources.

The new project options near Costa Fuego. Pic via Hot Chili

Both mine areas have been privately held and historically exploited for shallow copper oxide and copper sulphide material but have never previously been drill tested.

Marsellesa measures 400x200m with mine workings exposing multiple zones of shallow-dipping, strata-bound (manto-style) copper mineralisation.

The smaller Cordillera mine workings expose new, outcropping porphyry copper mineralisation with well-developed stockwork and sheeted A and B style porphyry veining.

Think and Act Differently: transforming our oldest industry with our newest technology

28 June 2023

We hear the term ‘transformation’ a lot lately – because it is a time of great change in the world. The pace of change, driven and enabled by technology, is increasing. And so it’s appropriate that we’re here talking about transformations in mining. But what is it that we’re transforming to? What are we seeking to become?

The world is starting to wake up to the role of the resources sector to support the global trends that are changing the world.

These trends will feed demand for metals and minerals for decades to come.

But new deposits are harder to come by. 

What remains is deeper, harder to find, more difficult to access, or in more challenging locations.

And we have to produce those commodities in those locations with less – less energy, less water, less waste, less disruption – a fraction of the impacts traditionally caused by intensive mining activity.

I would ask us all to stand in the future for a moment – what do we see? 

I see people removed from the line of fire, reducing both the risk of both safety and health impacts as we automate the work we do.  

I see value chains with automated decision processes that lead to reduced power and water use and improve our productivity, contributing to responsible mining, and enhancing our ability to increase return on capital every day. 

I see the democratisation of data with citizen developers throughout the value chain making processes run more efficiently, and digital twins enabling accurate prediction of problems to allow better maintenance and operational upgrades.  

Under this vision, the processes we will be working on will be fundamentally different – we will have solved for in situ recovery, we will have eliminated energy hungry mill and float to use new and different ways to liberate the minerals we seek.  

In doing so, we will have the ability to produce the commodities we need with a fraction of the waste, and whatever waste we do produce, can be repurposed into useful products. 

Our power will have zero greenhouse gas emissions – and I believe nuclear energy will be a part of the baseload mix in the global elimination of carbon emissions rich energy.  

As more of our systems and decisions are automated, we will become the orchestrators of improvement and innovation – the skills we need for the future must embrace highly digital operational and project management as the way we deliver value and efficiency. 

We will fundamentally change what we consider to be an attractive resource. 

The sub 0.5% copper resources of tomorrow will be just as attractive as the 2% copper resources of yesterday, delivering the critical minerals the world needs to decarbonise at low cost.  

This means the mine waste of the past, will become some of the new resources of the future.

As we stand in the future I see an exciting, safe and automated sector, valued by society for the types of work it provides.

How do we set ourselves up to do this? At BHP we want to Think and Act Differently. But we also need to do it with urgency.  

So how do we build a solution?  What are we doing in BHP?

The solution

It’s been said before that data is the new gold – but we have to know how to use it.

Every mining operator generates reams of data. But it is how this information is captured, distilled, analysed, stored and used that makes the difference. You get out what you put in – quality outputs from quality inputs – or the alternative, garbage in, garbage out.

The opportunity – the prize – is clearly massive. 

But there is no change without innovation.

Building the ecosystem

Firstly, we need to expand the ecosystem of ideas that we are exposed to – we are not in every pool of expertise, but we must be more open to conversations and ideas than ever before.

We know that not every good idea is our own idea. 

I’m sure all the companies, universities, research groups represented here today have some very smart people working for them. We certainly do at BHP. But we know that the world of ideas is broader than our own company or our own industry.

And so we’re looking outwards to build an ecosystem of ideas, with a partnership mindset.  So what have we done…

We are changing the way we work…

BHP Innovation has adopted an open innovation model, we are transparent about the ambitious opportunities and challenges we are working on and invite collaborators from universities, industry peers, adjacent industries and start-ups to join us.

We work with expert scanning and scouting partners, as well as ecosystem collaborators, like Deloitte’s new GreenSpace Tech ecosystem or MIT’s Industrial Liaison Program including their Startup Exchange.

We want to accelerate the technology development roadmaps of our partners and share in their success, not lock up their IP or restrict their growth potential. 

We intend to Think and Act Differently in all our interactions.

We are also willing to invest.  

BHP Ventures, our own Venture Capital arm, has been in action now for about 3 years. It is focused on emerging technologies that can help grow and improve our existing operations, our resource base, and our value chain.

It has screened more than 1,200 opportunities and built a high-quality global portfolio of over 20 holdings and continues to go from strength to strength. 

We are thinking and acting differently about exploration. 

Our exploration accelerator, BHP Xplor, merges concepts from venture capital and early-stage accelerators. We announced BHP Xplor in August 2022 and had many applications from all around the world, focused on the discovery of copper, nickel and other critical minerals. We’ve worked with seven companies, to provide funding and support to accelerate their growth.  Wave 2 is coming soon…and I hope that all those from our first cohort can speak to this as a positive experience.

Operationally we also seek to be different, we have evolved our relationships with many of our vendors – we seek to partner to solve some of our biggest opportunities… this maybe quite tactical such as the partnership between Minerals America Technology, Escondida Operations and Microsoft to improve Escondida Concentrator recoveries… 

A program that uses artificial intelligence and machine learning, to combine real-time plant data from the concentrators and AI-based recommendations from Microsoft’s Azure platform to feed our operations team information so they can adjust variables that affect ore processing and grade recovery.
This is the building of an eco-system, the setting of a foundation of partnerships and ways of working that is different – so what is that making possible.

What it’s delivering

Using these ecosystems, we must use data to drive solutions to make systems run better.

Partnering on tech and innovation is making our sites safer and more sustainable as we think and act differently to deliver real results.

One of the best ways we can reduce safety risks is through removing people from the frontline. 

Where we have implemented truck automation at Jimblebar and Newman in Western Australia, there has been a 90% reduction in near miss events involving vehicles with a fatality potential.  

We have extended automation to our fleets in Western Australia and here in Queensland and we are in implementation at Spence and Escondida in Chile.

Decision automation using real time data feeds from on the board fleet management systems provides a more efficient and productive result, shift in and shift out, delivering more safe tonnes per truck per year.

The advance of autonomous haulage by OEMs like Komatsu, Caterpillar – delivered in partnership with companies such as BHP are the first stage for decarbonisation…

The next stage is zero emission trucks…and at BHP we are investing in electric – even as we watch the hydrogen journey like hawks. We have a great partnership with Caterpillar and have a prototype truck running about in Arizona.  We have advanced plans that consider trolley assists, recharging station distribution and dynamic charging as a part of the mine design of the future.  Anna Wiley has presented BHPs vision of the electrified future here this week.

We can only create future value by through strong partnerships with our OEMs.

The other side of the equation is the need for sensible, innovative solutions to be shared for the collective benefit of the sector.

Our Operation and Technology teams at our Newman operation recently won their category at the Safety Excellence Awards run by the Western Australian government, for a remotely operated thermal lance for removing debris jams in crushers. It connects to a boom, meaning no more handheld thermal lances, removing people from potential harm from uncontrolled energy release.

BHP is licensing the design on a royalty-free basis so it can be used across the industry, worldwide – so please do get in touch with us if you want more information.

Tech and innovation supports better exploration.

Over the last couple of years BHP has re-organised our exploration team to seek out new deposits located across four global regions.  We recognise that the old ways in which we approached exploration will not serve us as well in a new deeper, under-cover type of world.

We have leveraged the systems thinking of the petroleum industry and seek to understand the dynamic system required to emplace a new ore deposit – we aim to look at the earth in a different way.

I have to acknowledge the many BHP Petroleum colleagues who worked with the mineral geologists to develop and mature a minerals systems model using the extensive BHP datasets. 

They have built a new way of thinking of the accumulations and concentrations of metals in given regions to inform our exploration search spaces. Those interested in more deeply understanding this can refer to the paper presented yesterday in this conference by Dr Cam McCuaig.

We also partner with those who bring new eyes, a different way of thinking and challenge to our process – the AI/ML partnerships such as those with DeepIQ/SRK, and Kobold are such examples.  

And as we home in on our new targets we recognise the importance of new ways of using and collecting data.  BHP Innovation, the Resource Centre of Excellence and Olympic Dam geologists and geometallurgists, have applied the first sparse 3D Hardrock Seismic Survey across the Olympic Dam deposit with very interesting results.

This work is an adaption of modern-day hard-rock seismic methodologies (again borrowed from the petroleum industry) and successfully applied across an ore deposit.  This will accelerate resource characterisation and the targeting of drillholes – ultimately reducing cost and time to production.  

If you are interested, check out a series of three papers presented at this year’s Australasian Exploration Geoscience Conference, led by Kathy Ehrig, Heather Schijns, and Jared Townsend, that explore these concepts more deeply. 

And so what is old, or known in one industry, is being refashioned, accelerated and innovated to deliver new and exciting results today.

Collaborating on tech and innovation changes production and reduces waste. 

At BHP, we have organised to have Digital Factories at all our operated assets, seeking to resolve problems through application of digital solutions using agile methodologies and strong asset sponsorship.

Let me give you an example. We all know product variability is a challenge across the industry. When we over or underestimate the quality of ore shipped to customers, it impacts the value we create.

So our digital factories got to work and came up with the Product Variability program, which we’ve been using at West Australian Iron Ore.

The technology used a Grade Adjustment Model that uses data sources to capture movements of ore across the supply chain in real time to map the grade coming from the mine.

We then use an application called StacksOn to maintain a 3D model of material in the stockyard, so we know what to load when.

The program addresses a fundamental issue in an innovative way. It is materially adding value to our operations, and we’re rolling it out across other commodities.

We have a Value Engineering team who work with operations to build dynamic models to answer questions about value chain performance and anticipated improvement options – able to define where capital spend, operational or improvement effort should be applied to maximise value, the team is in high demand across our business. 

From modelling capital spend at NiWest, to defining the improvement activities to maximise throughput in the Escondida Concentrators, to predicting maintenance in train loadout stations in the WAIO, we are using data to define, measure and solve for the production impacts of tomorrow through dynamic modelling and digital twins.

At all stages of production, whether in exploration, in trucking, or extraction, we seek ways to innovate or disrupt… but we can only do this by thinking and acting differently.

How to support it

The evolution of the new mine site – safer, smarter, more automated and less manual – means the capabilities we need to run these operations are changing

We’re moving to a world where we are less hands on. 

We increasingly need more people with digital skills right through our sector from the innovators to the front lines of production and maintenance. We need to bring workers with us on that journey. We simply don’t have enough of them.

The good news is that today’s generations of primary and secondary students are picking up digital skills as they learn coding etc at school; the base language of digital analysis is being engrained early. 

The concept of a ‘citizen developer’ is built on this growing familiarity and comfort with code – and it’s important that the industry recognises the opportunity in these new generations of future resource sector workers.

At BHP, we enable people to register as a citizen developer to work on BHP problems. They are formally onboarded, supported with access to resources like security groups and environment access, and provided with education and training. There are more than 300 registered citizen developers at BHP, working individually and in collaborative communities.

The outcomes are exciting – for example, an app that improves on a complex escalation process for safety and environment events within our integrated remote operating centre has been a game changer for that team. The app was built by a processing specialist with no coding experience – he just saw a process that could be improved and set about doing it. 

The industry needs more citizen developers. We need to train them now, and we need to make sure they see the mining industry as stable, attractive – dare I say exciting and future facing. 

Conclusion

In conclusion, to deliver what the world needs, means identifying, developing and implementing digital and technical innovations – some of it novel and maybe a little scary(!)… and investing now in the people we need to find, build and work the mines of the future.

We all need to be thinking about setting ourselves up to do this now; Build our ecosystems, be open to new partnerships and ways of working, and be organised to move faster – driving ourselves forward with data, with people close to the opportunity finding the solution and then sharing the outcome for us all to use. 

The data this industry can capture is increasing apace with the speed and quality of our capability to analyse it the only limiter. The opportunities to improve will be driven by our use of this data as much as by any other factor.

These mines of the future are vital to help to deliver the world of the future and a surer pathway to net zero. A transformation of mining, to deliver a global transformation by mining.

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.