Hot Chili has dropped a bombshell prefeasibility study for its Costa Fuego copper-gold project in Chile, cementing its place among the world’s top copper developments with a 20-year mine life, top-tier production scale and economics that scream upside in today’s red-hot metals market.

At a conservative copper price of US$4.30 (A$6.79) per pound and gold at US$2280 per ounce, Costa Fuego has a post-tax net present value (NPV) of US$1.2 billion (A$1.9b) assuming an 8 per cent discount rate. The figure quickly blows out to a massive US$2.2b (A$3.5b) at current spot prices, allowing for a much quicker return on investment in the process.

The company’s latest milestone reveals Costa Fuego is poised to pump out an average of 116,000 tonnes per annum of copper-equivalent metal, which includes 95,000t of copper and 48,000 ounces of gold in its first 14 years.

Across its full 20-year life span the project is set to deliver a staggering 1.5 million tonnes of copper and 780,000 ounces of gold before any by-products are factored in. Hot Chili says the haul will put it firmly in the top quartile of global producing copper projects.

The project is set for a five-year payback period on capital expenditure clocking in an internal rate of return of 19 per cent on an upfront US$1.27b (A$2b) to get the mine running.

Hot Chili reports a total life-of-mine free cash flow of some US$3.86b after tax, with revenue pegged at a whopping US$17.3b.

The eye-popping numbers still have plenty of room for improvement, thanks to a surging gold and copper price. Copper is flying thanks to United States President Donald Trump’s tariff war. The gold price is too, as it continues to push new all-time highs above US$3000 per ounce. At current prices, Hot Chili’s forecast NPV rockets up to US$2.2b (A$3.5b) and the internal rate of return jumps to 30 per cent.

In fact, every US$0.10 per pound bump in the copper price adds another US$100 million to the NPV, making Costa Fuego a highly leveraged play in a market screaming for more copper amid electrification and renewable energy booms.

The company will now kick off its definitive feasibility study (DFS) and submission for stage one environmental approvals to keep the project on-track for first production before the end of the decade.

With cash of approximately A$19 million as at the end of last year and both of our key assets (Costa Fuego and Huasco Water) at PFS level study, we are well positioned to pursue potential strategic partnership and sponsorship funding discussions.Hot Chili managing director Christian Easterday

Costa Fuego is widely regarded as one of the better undeveloped copper resources globally. It has a mammoth combined resource of 798mt grading 0.45 per cent copper equivalent for 2.9mt of copper, 2.6m ounces of gold, 12.9m ounces of silver and 68,000t of molybdenum.

The company has tabled a maiden ore reserve of 502 million tonnes grading 0.37 per cent copper, 0.10 grams per tonne (g/t) gold from blending an open pit and underground mining strategy across its Cortadera, Productora, Alice and San Antonio deposits.

Nestled at a low 740 metres above sea level on Chile’s coastal range, Costa Fuego leverages a strategic edge few jurisdictions can match. It is just 60 kilometres from the Las Losas port and a stone’s throw from Vallenar’s skilled workforce.

The projected mining costs are calculated to be below the benchmark of undeveloped competitors, with the project’s C1 cash cost sits at a lean US$1.38 per pound of copper, including by-product credits, with an all-in sustaining cost of US$1.85 per pound – placing it among the lowest-cost producers globally.

Hot Chili has outlined a hybrid mining approach for its considerable undertaking. Open pits will cornerstone the low-cost operation, accompanied by a massive block cave mining operation down to 1000m at its flagship Cortadera deposit. The operation will kick off in year three and add 146mt of higher-grade feed.

The company’s processing will be undertaken by a massive 20.7mt-21.7mt per annum sulphide concentrator, a 4mtpa oxide heap leach and a 3.6mtpa low-grade sulphide leach that will churn out concentrate and cathode copper.

Hot Chili isn’t quite done yet with exploration at its Chile operation, saying its recent La Verde copper-gold porphyry discovery, 35km south of Costa Fuego, is shaping up as a game-changing second porphyry project.

La Verde’s wide, shallow intercepts, including 320m at 0.3 per cent copper and 0.1g/t gold, hint at a massive system still open in all directions. Step-out drilling is underway, and the company believes it can one day fold La Verde into Costa Fuego’s production hub, potentially juicing front-end mine life and economics ahead of a DFS.

With copper prices soaring and gold continuously at all-time highs, Costa Fuego’s timing is impeccable. The company’s $19m cash pile positions it well to rapidly expand La Verde while simultaneously courting strategic partners for production, as it charges toward the all-important DFS milestone.

In partnership with BULLS N’ BEARS

Hot Chili says it can solve Chile’s water problem for large industrial projects in the Huasco Valley region and bank US$447m over 20 years in free cash by getting into the water supply business using its giant Costa Fuego copper play as a foundation off-taker.

The company recently tabled a pre-feasibility study on its 80 per cent owned Huasco Water project in Chile that makes use of its hard won permit to supply sea water to Chile’s Huasco Valley region. According to management, the Huasco joint venture holds the only active maritime license in the Huasco region – a feat that it says took 10 years of regulatory burden to achieve.

The JV is aiming to develop a long-term, regional multi-user seawater and desalination water supply network for the Huasco valley area of the Southern Atacama region of Chile, which sits about 600km north of the Santiago capital.

Hot Chili says the project will initially cost US$151m in start up capital which it says can be paid back in 4.5 years from the operation.

Total expected revenues have been modelled over 20 years and come in at US$880M and the project shows a pre-tax net present value using an 8 per cent discount rate of US$179m and a 22 per cent internal rate of return.

‘The company views the potential to outsourcing of its seawater supply infrastructure as a key value enabler…’Hot Chili managing director Christian Easterday

Stage 1 for the business will target the potential supply of seawater at 500 litres per second (L/s) to Hot Chili’s Costa Feugo copper-gold project which will be the foundation off-taker for the project via a 62km over-land pipeline.

A memorandum of understanding (MOU) has been executed with its own Costa Feugo project that will see the supply of seawater for the duration of the 20-year project life.

In addition to its sought after concessions to extract sea water, Huasco Water has permits for coastal land access, stage 1 pipeline easements and has secured connection to the electricity grid. The company plans to supply seawater by the end of the decade.

Stage 2 will see a desalination plant, estimated to cost US$1.4 billion, supply water at a rate of 1300L/s to a range of potential businesses within the Huasco Valley region.

The numbers really begin to ramp up during the second stage, with post-tax-free cash flows jumping to an estimated $4 billion from revenue of US$9.35B modelled over 22 years.

The post-tax NPV for stage 2 comes in at $977M with a 4 year payback.

The company’s staged approach enables scaling up for long term supply to mining, community and agricultural firms in the Huasco Valley region, with the potential to stretch beyond initial project estimates.

Hot Chili managing director Christian Easterday said: “The outcomes of the water supply preliminary feasibility study provide an opportunity for Hot Chili to fully consider the strategic value of its 80 per cent owned subsidiary company Huasco Water, which controls all our critical water assets. The company views the potential to outsourcing of its seawater supply infrastructure as a key value enabler and has anchored Huasco Water by executing a memorandum of understanding to negotiate a foundational seawater offtake agreement for Costa Fuego.”

Huasco Water has identified possible demand of at least up to 4000L/s across six undeveloped mining projects, all requiring access to a desalinated water supply.

Desalination water supply is projected to occur shortly after the seawater supply, due to begin at the end of the decade, is piped to Costa Feugo.

The permitting process to upgrade its maritime concessions to enable desalinated water to be provided is advancing.

The Huasco Valley region contains one of the largest groupings of major undeveloped copper projects in the world, all of which are in need of a reliable water supply. If an improving copper price warrants a move towards production for Hot Chili’s Costa Fuego, Huasco Water will be dragged along with it.

Management says just three potential clients in the region who may tap into their water business are Teck Resources, Atex Resources and Agrosuper.

Agrosuper is a food production company and also produces animal feed. An MOU for desalinated water has been executed with the group.

The HW Aguas para El Huasco SpA (Huasco Water) is a joint venture between Hot Chili (80 per cent interest) and Compañia Minera Del Pacifico – CMP (20 per cent interest).

Huasco Water is the only company with permitted access to supply seawater in the Huasco Valley region following a ten-year regulatory approval process.

The permitting process for desalination water has advanced over the past year with regulatory applications made to enable the supply from the existing maritime concession. A second maritime concession application by Huasco Water has been lodged. The second application includes brine discharge for the potential seawater desalination operations.

Hot Chili’s first mover advantage in the water sector in Chile cannot be overstated. The demand in the area appears to be real and the barriers to entry for others that have not suffered the ten year ordeal to get permitted just might give Huasco and Hot Chili a potentially decades long free run at supplying water to both its own project and the other mega projects that are littered around the area with no current water options.

With copper prices recently on the move, Hot Chili stands to derive a double benefit. Not only will the economics at its Costa Feugo project improve, but the company stands to reap the rewards from other copper groups in the region who may develop a thirst for some Huasco water.

After a decade in the Chilean copper space, Hot Chili is closer than ever to delivering a developable Costa Fuego project it now believes can deliver some 3.3 billion pounds of the red metal over two decades.

Two years after delivering a preliminary economic assessment, today’s prefeasibility study has outlined a more expensive, but larger and more robust development option that could generate US$3.9 billion in free cash over 20 years.

The PFS outlines a project that could produce around 116,000 tonnes per annum of copper equivalent over the mine life at all-in sustaining costs of $1.85/lb after credits for the gold, silver, and molybdenum.

The first 14 years should support the production of 95,000tpa copper and 48,000 ounces per annum gold from reserves now re-stated as 502Mt grading 0.37% copper, 0.10 grams per tonne gold, 0.49gpt silver, and 97 parts per million molybdenum.

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Total resources are 798 Mt grading 0.45% CuEq, making it one of the largest undeveloped copper projects globally.

Early mining is concentrated at the Productora and Alice open pits before the focus shifts to the Cortadera underground.

Processing comes from a circa 21Mtpa sulphide concentrator and leaching facilities.

Initial capex is now $1.27 billion, almost $220 million more than originally outlined, while an expansion will cost almost double the prior estimate at $1.3 billion. 

Assuming a copper price of $4.30/lb, post-tax net present value is put at $1.2 billion with an internal rate of return of 19%.

Payback should be around 4.5 years.

At the prevailing near-record spot price of $5.30/lb, NPV jumps to $2.2 billion with an IRR of 30%.

Credits: Hot Chili

Hot Chili says its work has reduced development risks, and it estimates it will offer some of the lowest capital intensities of any project along Chile’s coastal belt at $14,079/t CuEq.

The company expects to have a better leverage to the copper price than its peers, such as Capstone Copper’s Mantoverde mine or Santo Domingo development, BHP’s new Filo del Sol investment, or Solgold’s Cascabel.

Further, its location on the coastal belt offers easier access to water and power than its peers at higher elevations.

Hot Chili also claims to have a head start in permitting on its rivals. Its stage one environmental impact assessment is due to be submitted soon. 

Growth targets

Work on a second EIA that supports the integration of the La Verde porphyry, which was excluded from the PFS, could enhance project economics in the planned definitive feasibility study.

Managing director Christian Easterday said Hot Chili was now “within an elite grouping of copper developments globally” that could offer a meaningful source of near-term copper into a market set to struggle to meet demand.

The company will advance its DFS and drill out La Verde over the next year.

It aims to deliver its first red metal by the end of the decade. 

Glencore looming in background

The question remains: how will it pay for it? Hot Chili has around A$19 million in cash to fund its DFS and studies for a complementary Huasco water supply and desalination business. 

With Glencore still on the register as a 7.5% shareholder, it is an obvious development partner. As long as the Swiss-based trader maintains that equity level, it can purchase up to 60% of concentrate for the first eight years of its life.

A PFS for the Huasco Water project is also imminent.

Hot Chili shares were up 2% in early trade to 72c, capitalising the company at $108 million.

The stock has traded between 60c and $1.31 over the past year, having peaked at $2.60 in 2020.