The acquisition of Filo Mining by BHP and partner Lundin Mining has kicked off a likely merger wave in the copper industry.
In our view, the majors are looking for high grade assets with the potential for significant production within the next six years, a period when copper is very likely to remain undersupplied, based on most industry forecasts.
Industry estimates see 7-8mtpa of new copper demand by 2030 compared to visible supply of only 2-3mtpa. A supply shortage is looming.
Looking across the junior landscape for the next buyout target, there are a half dozen companies that tick most of the boxes for a major, but none more than Chile based explorer and developer Hot Chili (Ticker: HCH).
- A neighbor to Filo in the Atacama region with similar exploration potential.
- A project with the same economics and potential production & resource increases on the horizon.
- Special water rights, driving industry leading low costs and optionality from a standalone water company spinoff.
- Dirt cheap public valuation, 97% below Filo’s buyout multiple.
- Backed by Glencore, a 7.5% shareholder.
- Well funded for the next 18 months including the release of a PFS study by year end.
Hot Chili A Neighbor and Potential Water Supplier to Filo
Filo was taken out for 2.3x NAV while Hot Chili trades at a frankly ridiculous 0.07x NAV with a project of similar value and size.
Costa Fuego Project Compared to Filo’s Filo Del Sol
| Project Comparison | Hot Chili | Filo Mining |
| After Tax NPV (8%) ($USD) | $1,100 | $1,300 |
| IRR % | 20% | 21% |
| Annual Production (kt Cu) | 95 | 66 |
| Annual Production (koz Au) | 49 | 168 |
| Upfront Capital (Billion $USD) | 1.05 | 1.81 |
| Cash Costs ($/lb Cu) | $1.33 | $1.54 |
Source: Company Filings
Hot Chili’s Costa Fuego is valued at a fraction of Filo’s project even while on schedule to be one of only three large copper projects to begin producing between 2024 and 2029. Years ahead of Filo.
Hot Chili Trades for 3% of Filo’s Acquisition Price
Hot Chili is one of the best positioned copper juniors in the world. Costa Fuego has copper grades in line with other projects moving forward, attractive economics, even excluding additional exploration success, and unique water access that will both generate non-copper revenue and make Hot Chili a low cost producer in the region.
A preliminary feasibility study (PFS) and bankable feasibility study (BFS) will be out within 3 and 21 months respectively on top of exploration drilling that could really move the needle. Hot Chili is in the sweet spot to see a rerating of its 70% NPV discount to peers regardless of what happens with copper prices now hovering near $4.00/lb.
Hot Chili is likely already on the radar of many producers in Argentina and is only one resource upgrade or feasibility study away from a takeout offer it may not be able to refuse.
A Deep Discount to NPV
Q2 Quarterly Milestones
- Hot Chili Secures A$31.9 Million Funding to Accelerate Costa Fuego Copper Hub
- Funding facilitates completion of:
- Costa Fuego Pre-Feasibility Study,
- Completion of the Water Supply Business Case Study,
- Completion of the Costa Fuego Environmental Impact Assessment
- Commencement of a bankable feasibility study
- Further exploration activities over the next 18 months
Costa Fuego Has Industry Leading Cost Structure
Hot Chili Creates New Water Company – Huasco Water
• Hot Chili and its partner, Chilean iron ore company Compania Minera del Pacifico (CMP), have established a new water company called “HW Aguas para El Huasco SpA” (Huasco Water)
• Hot Chili holds an 80% interest in Huasco Water and CMP holds a 20% interest
• Transfer of all critical water assets (maritime water extraction licence, water easements, costal land accesses and second maritime application) to Huasco Water has commenced
• Business Case Study underway for a potential multi-user water business, supplying sea water and desalinated water to the Huasco Valley region of Chile, where Huasco Water has a first-mover advantage
• Hot Chili set to be a foundation water off-taker for Huasco Water, and discussions with other potential water off-takers and potential infrastructure partners are progressing well
Location of a conceptual multi-user, desalination water network in relation to infrastructure and potential customers in the Huasco valley region of the southern Atacama, Chile
Existing water assets, in relation to potential future water off-takers
Costa Fuego Pre-Feasibility Study On-Track
• Advancement of multiple development study workstreams, including drilling operations in support of metallurgical and hydrogeological studies
• Pre-Feasibility Study (PFS) for Costa Fuego copper-gold project planned for completion in late 2024
Exploration Activities Underway in Advance of Growth Drilling
• Deep penetrating, high resolution MIMDAS and Ground Magnetics geophysical surveys completed at Productora and Cortadera
• Ground Magnetics geophysical survey, surface soil sampling and geological mapping underway across the recently consolidated Domeyko landholding (Domeyko), located 30km south of Costa Fuego
Table 1 – Drill Holes Completed for Costa Fuego in Quarter 2 2024
Mineral Resource and within close proximity (twinned holes) to existing drill holes previously reported.
Exploration Activities Underway in Advance of Growth Drilling
• Deep penetrating, high resolution MIMDAS and Ground Magnetics geophysical surveys completed at Productora and Cortadera
• Ground Magnetics geophysical survey, surface soil sampling and geological mapping underway across the recently consolidated Domeyko landholding (Domeyko), located 30km south of Costa Fuego
Location of the Domeyko landholding in relation to initial exploration targets
Geophysical Surveys Completed at Productora and Cortadera
Twenty-nine Line-kilometres (Lkm) of MIMDAS1 was completed from May to June across the Productora (12Lkm) and Cortadera (17Lkm) projects. This deep penetrating electrical geophysical technique detects the chargeability, resistivity, and conductivity properties of underlying rocks. The results of the surveys are currently under review, in combination with geological mapping, drillhole logging and existing geochemical datasets.
3D inversion of the MIMDAS lines will also be completed, at Productora and Cortadera.
The new geophysical datasets will provide additional resolution for assessing several high priority growth targets located proximal to both of Hot Chili’s bulk tonnage copper-gold resources.
Aerial photo of Productora indicating the location of completed seismic survey and collars of hydrological drillholes relative to the planned mine infrastructure. Location of metallurgical drillholes completed in Q2 are displayed as blue traces
Hot Chili Limited is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.
