Hot Chili Limited (TSXV:HCH) (ASX:HCH) (OTCQX:HHLKF) filed financial reports for the quarter ended 31 December 2023 and guided to significant catalysts ahead in 2024.
- Reduced cash payments by $10 million in 2024 which can now be used for expanded exploration drilling.
- Costa Fuego resource upgrade planned for Q1 2024
- Prep-Feasibility Study in 2H 2024
- 5,000 meter drill program will test new targets that could drive improvements in the pre-feasibility economics of the Costa Fuego project.
- Acquiring additional land around Costa Fuego to help expand the output potential and life of the mine longer term.
- Initiating a study of how the company can best monetize its water assets. Hot Chili’s license covers extraction of 2,000 litres per second of water, while only 600 litres per second will be needed at Costa Fuego. The license is expandable and transferrable opening up the potential for Hot Chili to become a large water supplier in the Huasco Valley of Chile. The company sees a path to potentially funding a large portion of the startup capital needed for Costa Fuego, estimated at a modest $1.05 billion, by monetizing unused water rights.
Bottom Line: 2024 will be an important year for Hot Chili and for investors. The ongoing 30,000 meter exploration program will likely drive a resource upgrade supporting top tier economics at the Costa Fuego project.
2024 Exploration Targets in Purple
Management also plans to release a resource upgrade in Q1 and the pre-feasibility study later in the year, an important milestone in the journey of a mine from imagination to reality.
Given Costa Fuego has strong enough economics to move forward as is, a resource upgrade that merely offsets inflation and maintains the forecast NPV of $1.1 billion would be a win for investors.
Costa Fuego PEA Highlights
Hot Chili trades at such a significant discount to Costa Fuego’s value (93% discount), large cap copper (95% discount) and even small cap copper peers (88% discount), that large stock upside remains regardless of if we see a significant resource upgrade in 2024 or not.
Price/NPV of Copper Industry by Market Cap
As seasoned mining investors know, mining stocks often follow the ups and downs of the “Lassonde Curve”, a visual representation of the psychology of investors.
Hot Chili is currently in the most favorable part of the curve to establish a position, prior to first construction, but largely past the point of proving the project is economic.
With copper mine supply falling well short of forecasts to start 2024, inventories declining and prices expected to rise, Hot Chili is one of the best positioned copper developers to take advantage of the world’s insatiable need for copper to satisfy emission reduction commitments.
Tracking Expected Copper Mine Supply Growth in 2024
SUMMARY OF OPERATIONAL ACTIVITIESS
First-Pass Exploration Drill Results Returned
Assay results have been received for first-pass drilling undertaken in late 2023 across three new satellite targets within the Costa Fuego landholding: Marsellesa, Cordillera and Corroteo. Both Marsellesa and Cordillera are located approximately 10km southwest of Costa Fuego’s planned central processing hub at Productora, and Corroteo is located approximately 5km southeast of Cortadera (refer to Figure 1 and Figure 2).
A total of 4 Reverse Circulation (RC) drill holes for 1,244m were completed across the historical Marsellesa open pit copper mine footprint (refer to Figure 1). The Marsellesa mine area is laterally extensive, measuring 400m in length and 200m in width, with historical open pit and underground mine workings exposing multiple zones of shallowly-dipping, strata-bound (manto-style), copper mineralisation.
Significant intersections were recorded in each of the four drill holes:
• 25m grading 0.4% Copper (Cu) from surface including 10m grading 0.8% Cu from 7m depth
• 16m grading 0.5% Cu from 197m depth downhole including 6m grading 1.1% Cu from 198m depth
• 19m grading 0.5% Cu from 195m depth downhole including 2m grading 2.2% Cu from 195m depth
• 8m grading 0.8% Cu from 1m depth downhole including 4m grading 1.0% Cu from 4m depth
Higher grade copper drilling intercepts are associated with both copper oxide (copper bearing limonite, brochantite and chrysocolla) and copper sulphide (chalcopyrite) mineralization localized within moderately east-dipping manto horizons (refer to Figure 1). Follow-up work is being planned to further assess mineralization continuity across the 500m of prospective strike length.
A total of 6 RC drill holes for 1,450m were completed across the historical Cordillera copper mine footprint, located approximately 1km west of Marsellesa (refer to Figure 2). Porphyry copper mineralisation, with well-developed stockwork and sheeted A and B style porphyry veining, is exposed in the Cordillera open pit mine workings, and porphyry outcrop has been mapped across an area measuring 300m in length and 200m in width.
Significant intersections recorded, include:
• 93m grading 0.3% Cu from surface including 14m grading 0.4% Cu from surface
• 53m grading 0.3% Cu from 19m depth including 10m grading 0.4% Cu from 44m depth
• 184m grading 0.2% Cu from surface including 14m grading 0.3% Cu from 42m depth
Wide RC drilling intersections returned at Cordillera relate to broad zones of oxide (Cu bearing limonite with very minor cuprite) and sulphide (chalcopyrite, molybdenite) porphyry copper mineralization confirmed below and surrounding the small surface mine workings.
A total of eight RC drill holes for 2,324m were completed across the greenfield Corroteo exploration target located 5km southeast of Cortadera (refer to Figure 3). No significant intersections were recorded. Wide spaced RC drilling has tested approximately 1.8km strike extent of the large-scale Corroteo alteration footprint. Significant pyrite mineralization was encountered in drilling toward the northern extent of the target area, extending under a wide alluvial gravel plain. Final drilling directed under this alluvial cover the presence of tonalitic porphyry.
Hot Chili’s exploration team is currently assessing the new drill results on each of these satellite exploration targets in preparation for potential follow-up drilling and exploration work programs.
Next Phase of Resource Expansion Drilling at Costa Fuego Commences
Hot Chili’s second phase of resource expansion drilling aims to test multiple resource growth opportunities, which may allow an up-lift in the Pre-feasibility study scale for Costa Fuego.
The first phase of drilling in H2 2023 involved 47 RC drill holes for 11,500m, focusing on resource extension potential at Cortadera and first-pass drilling across new satellite targets. In addition, several RC pre-collars were drilled in preparation for the second phase of diamond drill testing in 2024 adjacent to the Company’s two principal mineral resources: Cortadera and Productora.
The second phase of drilling commenced on 12th January with one diamond drill rig operating on a 24-hour basis (double-shift). A program of 10 diamond (DD) drill holes for approximately 5,000m is initially planned. The initial diamond drill program comprises:
• Five DD holes are planned to test four large-scale targets at Cortadera (refer to Figure 4).
• A further five DD holes are planned to test three large-scale targets adjacent to Productora (refer to Figure 5).
The Company looks forward to providing further updates as drilling advances across these targets over the coming months.
Resource Upgrade Expected in Q1 2024
The Company is in the final stages of completing an update of its mineral resource for Costa Fuego based on all drilling completed since February 2022. The resource update is expected to be released in Q1 2024.
Development and Water Supply Concept Studies On-Track
The Company made several advances with its long-lead time Pre-Feasiblity Study (PFS) workstreams during the quarter, including the completion of a hydrogeological drilling program and continuation of low-grade sulphide leach metallurgical test work program.
In addition, the Company has continued to advance a water supply concept study for the Huasco valley of the Southern Atacama region. Hot Chili’s existing water assets have provided an opportunity to investigate potential economic, social and environmental synergies associated with a single large water supplier for the Huasco valley.
Hot Chili holds the only granted maritime water concession and necessary permits to provide critical water access to the Huasco valley, where multiple large-scale new mining projects are located and stranded without water access.
The Company commenced preliminary engagement with potential customers and stakeholders during the quarter.
Updates on both PFS and the Water Supply Concept Study advances are expected in the coming months.
SUMMARY OF CORPORATE ACTIVITIES
Update on Due Diligence Period for Cometa Project in Chile
During the previous quarter, the Company announced that it had entered into a binding letter of intent (“LOI”) with Bastion Minerals Limited (ASX: BMO) (“Bastion”) for the grant to Hot Chili of an option to acquire 100% of Bastion’s Cometa Project in Chile (“Cometa”), located near to the Costa Fuego CopperGold Project (“Costa Fuego” or “the Project”) in the coastal range of the Atacama Region, Chile.
The exclusivity period for Hot Chili to conduct due diligence has been extended from the initial 60 days until 19 February 2024. Please refer to the announcement dated 28 August 2023 “HCH Signs Binding LOI for Option to acquire Cometa Project” for further details.
Further Regional Consolidation Expands Costa Fuego
In November 2023, the Company executed Option Agreements to acquire a 100% interest in two historical copper mine areas; Marsellesa and Cordillera. Marsellesa and Cordillera are located approximately 10km southwest of Costa Fuego’s planned central processing hub (refer accompanying Figure 6).
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.
The historical Marsellesa mine area is laterally extensive, measuring 400m in length and 200m in width, with mine workings exposing multiple zones of shallowly-dipping, strata-bound (manto-style), copper mineralization.
Lying approximately 1km west of Marsellesa, the smaller historical Cordillera mine workings expose outcropping porphyry copper mineralization with well-developed stockwork and sheeted A and B style porphyry veining.
These latest project additions, including the Cometa project, provide a pipeline of opportunities and additional optionality for the discovery of new mineral resources for the Company’s Costa Fuego copper hub.
Hot Chili continues to pursue further regional consolidation as the Company advances its growth strategy for Costa Fuego.
The material terms of the executed Marsellesa Option Agreement are as follows:
• Hot Chili’s subsidiary Sociedad Minera La Frontera SpA (“Frontera”) has executed a definitive option agreement with Hermanos Pefaur SpA, the holder of a 100% interest in the concession comprising Marsellesa, for the grant to Frontera of an option to acquire a 100% interest in the Marsellesa concession (“Marsellesa Option”).
• Non-refundable cash payment of US$100,000 to Pefaur upon grant of the Marsellesa Option.
• Non-refundable cash payment of US$100,000 within 12 months from the grant of the Marsellesa Option.
• Non-refundable cash payment of US$150,000 within 24 months from the grant of the Marsellesa Option.
• Option may be exercised within 36 months of the date of grant of the Marsellesa Option for a final nonrefundable cash payment of US$1,000,000.
• Pefaur will also be granted a 1% NSR royalty over the Marsellesa concession on exercise of the
Marsellesa Option. Frontera will have a right of first refusal to buy-back the NSR royalty.
The material terms of the executed Cordillera Option Agreement are as follows:
• Hot Chili’s subsidiary Sociedad Minera La Frontera SpA (“Frontera”) has executed a definitive option agreement with Mr Arnaldo Del Campo (“ADC”) the holder of a 100% interest in the concessions comprising Cordillera, for the grant to Frontera of an option to acquire a 100% interest in the Cordillera concessions (“Cordillera Option”).
• Non-refundable cash payment of US$100,000 to ADC upon grant of the Cordillera Option.
• Non-refundable cash payment of US$200,000 within 24 months from the grant of the Cordillera Option.
• Option may be exercised within 48 months of the date of grant of the Cordillera Option for a final nonrefundable cash payment of US$3,700,000.
• Within the Cordillera concessions, ADC will also be granted a 1% NSR royalty over any material extracted from underground operations, and a 1.5% NSR royalty over any material extracted from open pit operations, on exercise of the Cordillera Option. Frontera will have a right of first refusal to buy-back the NSR royalties.
Material Reduction in Option Payments of US$10 Million for 2024
During the quarter, the Company announced that it had materially improved the terms of several option agreements (“Options”) to acquire privately-owned landholdings located along the eastern extent of the Costa Fuego Project. (refer Figure 7)
• Three Options due for exercise in 2024 over the San Antonio, Valentina and Santiago Z landholdings, have been terminated and replaced with one new option agreement (the “El Fuego Option”) now exercisable in September 2026 that comprises all the mining rights included in the former “San Antonio”, “Valentina” and “Santago Z” option agreements.
• 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 as due for payment in 2024
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:
• Santiago Z – US$400,000 would have been payable in January 2024
• Valentina – US$4,000,000 would have been payable in June 2024
• San Antonio – US$6,600,000 would have been payable in September 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 equivalent (CuEq) for open pit and +0.3% CuEq for underground).
- The additional payment(s) is to be made by March 2027, if the condition(s) is met before 30th September 2026, or from 1st October 2026 payment is to be made within 70 days after the relevant condition(s) 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.
Maritime Concession Update
The Company has advanced local community engagement near its Maritime Concession to extract seawater on the coast of Chile, awarding the tender to construct a perimeter fence to a local company. The fence around the land, granted to Hot Chili in 2023 by the Chilean Navy, is required to safeguard the site and eventual planned works to construct the seawater intake.
In addition, the Company has initiated a second maritime concession application near Hot Chili’s existing granted maritime concession. The new application relates to the provision of desalination water supply.
Cash Position and Capital Structure Changes
As of 31 December 2023, the Company had cash of A$13.3 million and no debt. The operating expenditure for period ending 31st December 2023 included expenses incurred during period ending 30th September 2023, including approximately A$2 million of additional expenses recorded during the quarter that were related primarily to delayed invoices for drilling and assays.
The following securities on issue:
• 119,445,206 ordinary fully paid shares
• 1,850,001 AUD$2.25 options expiring 30 September 2024
• 1,259,789 options at CAD$1.85 expiring 31 January 2025
• 5,996,728 unvested services and performance rights. Conditions have been met for the vesting of 94,491 Class A Performance Rights and 236,233 Class B Performance Rights. Vesting of these performance rights is subject to final approval by the Board.
• 10,900,000 warrants at CAD$2.50 expiring 31 January 2024
Table 1 – Significant Drill Results for Costa Fuego in Quarter 4 2023
Table 2 – Drill Holes Completed for Costa Fuego in Quarter 4 2023
Additional ASX Disclosure Information
ASX Listing Rule 5.3.2: There was no substantive mining production and development activities during the quarter.
ASX Listing Rule 5.3.3 – Schedule of Mineral Tenements as of 31 December 2023
The schedule of Mineral Tenements and changes in interests is appended at the end of this activities report.
ASX Listing Rule 5.3.4: Reporting under a use of funds statement in a Prospectus does not apply to the Company currently.
ASX Listing Rule 5.3.5: Payments to related parties of the Company and their associates during the quarter per Section 6.1 of the Appendix 5B totaled $162,875. This is comprised of directors’ salaries and superannuation of $162,875
Health, Safety, Environment and Quality
Field operations during the period included geological reconnaissance activities, reverse-circulation drilling, hydrogeological well-drilling and installation, core-testing and logging, field mapping, and sampling exercises across the major Cortadera and Productora landholdings, as well as new tenements at Corroteo, Marsellesa and Mina Cordillera. Activities on new tenements are run from the Productora or Cortadera
operations centres and their safety statistics are included under the figures for all projects.
No safety incidents were recorded during the quarter. The Company’s HSEQ quarterly performance is summarized in Table 3 below.
Hot Chili’s sustainability framework ensures an emphasis on business processes that target long-term economic, environmental and social value. The Company is dedicated to continual monitoring and improvement of health, safety and the environmental systems. There is no greater importance than ensuring the safety of our people and their families.
Table 3 HSEQ Quarter 4 2023 Performance and Statistics
Tenement Changes During the Quarter
During the Quarter, the option purchase agreements “San Antonio”, “Valentina” and “Santiago Z”, from Hot Chili’s 100% owned subsidiary Sociedad Minera La Frontera SpA (“Frontera”) have been terminated and replaced with one new option agreement “El Fuego Option” exercisable in September 2026.
Under the El Fuego Option, Frontera has been granted the right to purchase 100% interest (previously 90%) 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). The agreement comprises all the mining rights included in the former “San Antonio”, “Valentina” and “Santiago Z” option agreements.
The Cordillera Option executed with Arnaldo del Campo (“ADC”) during the quarter comprises the following mining rights:
i. “Cordillera uno al cinco”,
ii. “Quebrada uno al diez”,
iii. “Alborada III uno al treinta y cinco”, “Alborada IV uno al veinte”, “Alborada VII uno al veinticinco”,
iv. “Cat IX uno al treinta”, “Catita IX uno al veinte”, “Catita XII uno al trece”,
v. “Mina Herreros III uno al seis”, “Mina Herreros IV uno al diez”, “Herreros uno al
vi. “Veta uno al veintiocho”, and
vii. “Porsiaca uno al treinta”.
The Marsellesa Option executed with Hermanos Pefaur SpA during the quarter comprises one exploitation concession: “Marsellesa uno al cinco”.
Table 4 Current Tenement (Patente) Holdings in Chile as of 31 December 2023 Cortadera Project Tenements
Cortadera Project Tenements
Productora Project Tenements
El Fuego Project Tenements
El Fuego Project
El Fuego Project
El Fuego Project
Qualified Persons – NI 43-101
The scientific and technical information in this new release, has been reviewed and approved by Mr Christian Easterday, MAIG, Hot Chili’s Managing Director and Chief Executive Officer, and a qualified person within the meaning of NI 43-101.
Competent Persons – JORC
The information in this announcement that relates to Exploration Results for the Marsellesa and Cordillera projects is based upon information compiled by Mr Christian Easterday, the Managing Director and a full-time employee of Hot Chili Limited whom is a Member of the Australasian Institute of Geoscientists (AIG). Mr Easterday has sufficient experience that is
relevant to the style of mineralization and type of deposits under consideration and to the activity which he is undertaking to qualify as a ‘Competent Person’ as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (JORC Code). Mr Easterday consents to the inclusion in the report of the
matters based on their information in the form and context in which it appears.
Mineral Resource Statement
Costa Fuego Combined Mineral Resource (Effective Date 31st March 2022)
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