Hot Chili Improves Option Terms for Costa Fuego Coastal Copper Hub in Chile

Bottom Line:

  • Hot Chili has reduced options payments by US$10 Million for 2024, freeing up more cash for exploration and development of Costa Fuego.
  • Retains purchase option while limiting near term cash payments.

Hot Chili Limited (ASX: HCH) (TSXV: HCH) (OTCQX: HHLKF) announced that the company has materially improved the terms of several option agreements (“Options”) to acquire landholdings as part of the Company’s Costa Fuego Copper-Gold Project (“Costa Fuego” or “the Project”) in the coastal range of the Atacama Region, Chile.

Figure 1: Costa Fuego Copper Project and New Options

Highlights

  • Three Options due for exercise in 2024, have been terminated and replaced with one new option agreement (the “El Fuego Option”) now exercisable in September 2026
  • The El Fuego Option covers the San Antonio, Valentina and Santiago Z privately-owned landholdings located along the eastern extent of Costa Fuego (refer to Figures 1 to 3)
  • The new El Fuego Option:
    • Materially reduces the Company’s option payments due in 2024 from US$11 million to US$1 million
    • Increases Hot Chili’s ownership from 90% to 100%, subject to exercise of the option
    • Extends the option expiry from 2024 to 2026 in exchange for aggregate payments of US$4.3 million over the next three years, including the US$1 million noted above
Alignment of local partners has been a key element of our consolidation strategy for Costa Fuego. The El Fuego Option allows the Company to focus its balance sheet toward 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.Christian Easterday, Managing Director, Hot Chili Ltd.
We are actively evaluating the region for consolidation opportunities, and we expect to see further success on this front as we look to up-scale Costa Fuego’s potential study scale toward 150kt per annum copper development, from its current 95kt per annum copper metal production scale as outlined in our recent Preliminary Economic Assessment1 (see news release dated 28th June, 2023). Updates on growth drilling, resource up-grades and water conceptual studies are also expected.Christian Easterday, Managing Director, Hot Chili Ltd.

1 The PEA is preliminary in nature and includes 3% inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability. See Page 7 for additional cautionary language.

The remaining payments for the three terminated Options covering the El Fuego landholdings were:

  • Hot Chili’s subsidiary Sociedad Minera La Frontera SpA (“Frontera”) had the right to earn a 90% interest, subject to final exercise payments, in the following privately owned landholdings:
    • Valentina – US$4,000,000 payable June 2024
    • San Antonio – US$6,600,000 payable September 2024
    • Santiago Z – US$400,000 payable January 2024
    • Total Option payments previously due in 2024 – US$11, 000, 000

The material terms of the El Fuego Option covering the El Fuego landholdings now:

  • Frontera has been granted the right to purchase 100% interest in the El Fuego landholding, privately owned by Arnaldo and Alfredo del Campo Arias (Arnaldo in his own capacity and also through several vehicles with Alfredo), by making the following payments:
    • US$300,000 paid September 30th 2023 (already satisfied)
    • US$1,000,000 payable September 30th 2024
    • US$1,000,000 payable September 30th 2025
    • US$2,000,000 payable at Frontera’s election by September 30th 2026 to exercise the El Fuego Option.
  • The total purchase price for the El Fuego landholdings, if the El Fuego Option is exercised in 2026, is now US$4,300,000.
  • If the option is not abandoned, additional payments of up to US$4,000,000 in total are conditional on the following matters:
    • Additional payment of US$2,000,000, if the copper price average US$ 5.00/lb or above for a period of 12 consecutive months, within a period that expires January 1st 2030.
    • Additional payment US$2,000,000, if an independently estimated JORC compliant Mineral Resource is reported by Hot Chili or its subsidiaries containing 200 million tonnes or greater within the El Fuego landholdings, within a period that expires January 1st 2030. Such Mineral Resource shall be reported at or above Hot Chili’s current mineral resource reporting cut-off grade (+0.21% copper equivalent1 (CuEq) for open pit and +0.3% CuEq for underground).
    • An additional payment is to be made by March 2027, if compliance of the condition that justifies payment is verified until September 30th, 2026. From October 2026, payment is to be paid within 70 days after the relevant condition is satisfied.
  • Continuation of existing lease mining agreements to third parties in respect to the San Antonio copper mine (limited to the mining rights San Antonio 1 al 5; Santiago 15 al 19; Santiago 1 al 14/20; San Juan Sur 1 al and San Juan Sur 6 al 23. The lease mining agreements are limited to 50,000 tonnes of material extracted per year and will expire 31st December 2025.

1 CuEq considers assumed commodity prices and average metallurgical recoveries from testwork. See page 10 for complete mineral resource disclosure of Costa Fuego.

For more information visit Hot Chili’s website at www.hotchili.net.au

Figure 2: Location of the Valentina, San Antonio and Santiago Z Options, which make up the El Fuego landholdings of the Costa Fuego copper project

Figure 3: Location of the rationalised and re-negotiated El Fuego Option for Costa Fuego

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Duane Hope is a Partner at Capital 10X, he brings over 15 years of communications and research experience to the firm. His research and writing have appeared in publications for North American, European and Asian audiences.

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