Hot Chili Limited (ASX: HCH) (TSXV: HCH) has unveiled the results of the Preliminary Economic Assessment (PEA) for its Costa Fuego Copper-Gold Project in Chile.
The PEA provides positive economic outcomes for Costa Fuego, which Hot Chili believes can be further optimized in the company’s planned PFS, due for completion by H2 2024.
Highlights
• Strong Economics: Costa Fuego PEA delivers using an 8% discount rate and long-term metal price assumptions of US$3.85/lb copper (Cu) and US$1,750/oz gold (Au):
o Base-case post-tax Net Present Value (NPV8%) of US$1.10B (approximately, within a range of US$733M to US$1.46B) and Internal Rate of Return (IRR) of 21% (approximately, within a range of 17% to 25%)
o Base-case pre-tax Net Present Value (NPV8%) of US$1.54B (approximately, within a range of US$1.05B to US$2.03B) and Internal Rate of Return (IRR) of 24% (approximately, within a range of 19% to 29%)
• Low Start-up Capital: US$1.05B estimated, resulting in fast 3.5-year payback. Initial phases of open pit mining fully fund development of a bulk underground operation
• Low Capital Intensity: One of the lowest capital intensities of global copper development projects
• Approximately 112ktpa Average CuEq2 Production Rate: Including 95kt Cu and 49koz Au during primary production (first 14 years) at C1 Cash Cost3 of US$ 1.33/lb (estimated net of by-product credits)
• Initial Mine Life: 16-years with 1.41Mt Cu and 718koz Au produced for total revenue of approximately US$13.52B and total free cash flow of approximately US$3.28B (post-tax, after operating costs, capital costs, and royalties)
“The Costa Fuego PEA cements Hot Chili’s position as the largest copper developer listed on the ASX by both resource size and potential scale of copper production,” Managing Director Christian Easterday said.
“Costa Fuego ranks highly amongst global peer projects and stands out as one of the world’s lowest capital intensity, major copper developments. The PEA indicates a strong investment case for advancing Costa Fuego to a PFS for what would be a low-cost, low-risk, long-life, large-scale copper project, which is extremely leveraged to both resource growth and copper price appreciation.
“I am very pleased with our entire teams’ effort to deliver the PEA on-time and within guidance and look forward to delivering on our objective to transform Hot Chili into the only 100 thousand tonne copper producer listed on the ASX outside of the control of major miners.
“We are focused on our next steps in resource growth and the delivery of an optimized and potentially larger project definition for our pre-feasibility study next year.
“The recently announced US$15M investment agreement with Osisko Gold Royalties positions the company to be fully funded for the next 12 to 18 months to deliver on our growth and development timetable.”
Big funding agreement
In a big news day for Hot Chili the company has executed a binding US$15M Investment Agreement with Osisko Gold Royalties Ltd for a 1.0% Net Smelter Return (NSR) royalty on copper and a 3% NSR royalty on gold across the company’s Costa Fuego Copper-Gold Project.
Completion of the Investment is expected within coming weeks, subject to satisfaction of customary conditions, with Hot Chili to receive US$15M at Closing.
Highlights
• Significant investment by Osisko provides strong endorsement from one of North America’s leading royalty-streaming groups, and will boost Hot Chili’s cash position to approximately A$26M upon Closing
• US$15M in funds for growth and development with the investment (Royalty Consideration) to be used to advance the Costa Fuego Pre-Feasibility Studies (PFS), resource growth drilling programmes and for the general advancement of the Project
• Clear “look-through” value given the Osisko NSR is equivalent to a 1.12% CuEq1 NSR royalty across payable metals for US$15M and Hot Chili’s current market capitalization is US$80M
• Buyback rights if a change of control event occurs prior to the fourth anniversary of Closing. The Osisko NSR can be reduced to 0.5% NSR royalty on copper and 2.5% NSR royalty on gold
• Osisko to have a Right of First Offer (ROFO) with respect to the sale of any future royalty, stream, or similar interests by Hot Chili
• Preliminary Economic Assessment (PEA) for Costa Fuego confirms strong economics2
• 30,000m drill programme set to commence, following Closing
“The investment agreement is yet another strong endorsement and follows extensive due diligence of the Company and its Costa Fuego copper-gold project by Osisko, renowned for their technical rigour and capabilities,” Mr Easterday said.
“We consider that the Osisko investment will deliver a strong outcome for our shareholders by significantly strengthening our treasury without the dilution of a share issuance, while only adding a minor incremental royalty burden to Costa Fuego.”
For further information please visit: https://www.hotchili.net.au/
