Billion-Dollar Water Strategy to Fund Major Chilean Copper Project

• Hot Chili Limited has released a prefeasibility study (PFS) for their strategic water project, Huasco Water, which could generate significant value (NPV of $120M for seawater supply and potential $1B for desalination) and reduce capital requirements for their copper project.
• Their Costa Fuego copper project PFS shows a $1.2B post-tax NPV with a 19% IRR, requiring $1.27B in initial capital, producing ~95,000 tons of copper and 50,000 ounces of gold annually over 20 years.
• The company has secured rare maritime concessions for seawater extraction in Chile's water-scarce Atacama region, creating a potential water supply business that could serve multiple mining operations.
• Hot Chili is pursuing a financing strategy that leverages the water asset, potential precious metals streaming, and strategic partnerships to minimize shareholder dilution for their copper project.
• The company has good metallurgical recoveries (86% for copper sulfides, ~70% for molybdenum and copper oxides) and is advancing promising exploration at their Leva discovery that could enhance the project's grade profile.

Hot Chili Limited, an advanced copper developer with projects on the Chilean coastline, has released significant updates on two fronts - a strategic water supply business called Wasco Water and its flagship Costa Fuego copper project. In an interview, Managing Director and CEO Christian Easterday discussed the recently completed prefeasibility studies (PFS) for both assets, detailing how the water business could potentially reduce capital requirements and provide funding optionality for the copper project. The developments come at a time when copper prices have reached record highs, creating a favorable market environment for advancing copper projects toward production.

Strategic Water Business: An Uncommon Asset

Hot Chili has unveiled plans for a regional water supply business in Chile's Huasco region, leveraging maritime concessions secured after a decade-long application process. The company holds a unique position as one of only two companies in the past 18 years to secure maritime concessions for seawater extraction in Chile, a country where continental water extraction is restricted in the Atacama region.

"Some 20 months in the making to finally put out our first numbers on this strategic asset that we've been developing in Hot Chili to assist with reducing the capital on our copper project and providing a significant amount of funding optionality that would normally not exist in many projects." 

The water business consists of two stages. Stage one involves seawater supply to Costa Fuego by the end of the decade, with an estimated net present value (NPV) of $120 million and a 19% internal rate of return (IRR) over a 20-year supply period of 5,500 liters per second. The second stage encompasses a scalable desalination water business with a post-tax NPV of approximately $1 billion and a 19% IRR, potentially providing 1,300 liters per second to a 4,000-liter-per-second water catchment opportunity for the entire region.

Financing the Water Project

One of the key advantages of the water business is its potential to be outsourced and developed by specialized partners, thereby reducing Hot Chili's capital requirements. Easterday explained that this approach is common in Chile, where mining projects often outsource water infrastructure to minimize capital needs.

"Huasco Water for us is about moving $150 million of capital from our copper project and putting it into that water project and so outsourcing the capital is one of the advantages of this approach."

The company is exploring partnerships with major global water investors who would finance, build, own, operate, and supply water to Costa Fuego. Hot Chili has already secured a memorandum of understanding for negotiating a full offtake agreement over the coming year for stage one. For stage two, they have established NDAs with potential customers and have preliminary agreements for 165 liters per second of desalinated water with two entities in the Huasco region.

Costa Fuego Copper Project: PFS Results

Hot Chili released its prefeasibility study for the Costa Fuego copper project on March 27, 2025. The study revealed an after-tax NPV of $1.2 billion using an 8% discount rate and conservative long-term bank consensus pricing of $4.30 per pound for copper and $2,280 per ounce for gold. The project has a capital requirement of $1.27 billion and an IRR of 19%.

Easterday emphasized the project's competitive positioning: 

"We've just delivered a top quartile production capacity project outside of the hands of a major and we've just delivered the lowest quartile capital intensity of a developer outside of the majors."

The project is designed to produce approximately 95,000 tonnes of copper and 50,000 ounces of gold per annum over a 20-year mine life. The study incorporated improvements in molybdenum recovery, copper oxide recovery, and a reduction in strip ratio from 1.8 to 1.5 on open pits, helping maintain competitive cash costs at $1.38 per pound.

Interview with Managing Director & CEO, Christian Easterday

Project Design & Risk Management

The PFS reflects significant derisking efforts across the project. Hot Chili invested in upgrading two key areas: the backend underground component (which represents about 30% of feed at the end of mine life) and the tailings storage facility. Additional capital was allocated to these areas to enhance safety and design.

The project is conventional in design, featuring front-end flotation for sulfide ore to produce a 25% grade concentrate with virtually no arsenic, containing payable gold and molybdenum. The process also includes conventional SX/EW heap leaching for oxide materials. Recoveries stand at 86% for copper in sulfides, around 70% for molybdenum (up from 56% previously), and approximately 70% for copper oxides.

"We've had a huge amount of derisking on this project," Easterday explained, noting that global experts across 14 areas of risk and opportunity were brought in to ensure a robust definition, followed by an independent technical review.

Financing Strategy for Costa Fuego

The $1.3 billion capital requirement for Costa Fuego represents a significant challenge for Hot Chili, but Easterday emphasized that the company has several financing options. He noted that with one of the lowest capital intensity projects in the pipeline, Hot Chili's project remains attractive to financiers despite its scale.

The company's financing strategy includes:

• Traditional debt financing (conservatively assumed at 50% of capital)
• Precious metal streaming (10-15% of gold production could generate approximately $200 million)
• Offtake agreements (40% of offtake is available and uncommitted for the first eight years)
• Strategic asset monetization through the water business

"We'll be using all of the usual levers but we'll be using a very big lever that we've been gifted in only because of foresight in applying for those licenses over a decade ago."

The project economics show a 4.5-year payback period, with projected revenues of $17 billion and free cash flow of $4 billion over the 20-year period, equating to approximately $200 million in annual free cash flow after accounting for all expansion capital.

Strategic Partnerships & Company Transformation

Hot Chili is actively engaged in discussions with potential strategic partners who could help fund the project's final development stages. Easterday noted that the competitive environment for high-quality copper assets works in Hot Chili's favor, as there are relatively few projects of this scale available in the market.

"When there's only five of you, I guess you see a deal that happens with Filo and BHP join Josemaria and Filo together in a joint venture with Lundin, you cross that one off the list and the list gets smaller." 

The company is also transforming its management team and board to align with its transition from exploration to project financing and development. Easterday indicated that further changes to the board, executive, and management group are forthcoming, including the addition of executives with experience leading the construction of major copper projects in Chile and globally.

The Investment Thesis for Hot Chili

• Strategic Water Asset: Hot Chili controls a unique water supply business with potential NPV of $1 billion, providing significant funding optionality and reducing dilution for copper project financing.
• Top-Tier Copper Project: Costa Fuego ranks in the top quartile for production capacity and the lowest quartile for capital intensity among copper developers outside major mining companies.
• Strong Economics: $1.2 billion post-tax NPV with 19% IRR at conservative copper prices, with significant upside potential at current record copper prices above $5/lb.
• Financing Flexibility: Multiple paths to financing including debt, streaming, offtake agreements, and partial monetization of the water business.
• Scarcity Value: One of only a handful of large-scale, advanced copper projects globally available for development or partnership.
• Experienced Management: Transitioning board and management to include executives with major copper project construction experience in Chile.
• Favorable Copper Market: Project advancing amid record copper prices and growing supply deficits, with TCRC charges dropping to zero in some cases.

Copper Market Dynamics

The global copper market is experiencing significant tightening, with prices recently hitting record highs of $5.38 per pound. This price environment creates a favorable backdrop for Hot Chili's advancement of the Costa Fuego project. The current market is characterized by a 4.5 million ton deficit, causing treatment and refining charges (TCRCs) to drop dramatically, in some cases to zero. This situation has created intense competition among refiners seeking to secure equity tons and feed for their facilities.

The demand outlook remains robust, driven by global electrification trends, renewable energy expansion, and the broader energy transition. In Chile specifically, Hot Chili's Costa Fuego project is positioned within what Easterday describes as:

"One of the largest clusters of undeveloped copper projects in the world in one location, probably going to be responsible for the next Escondida scale supply edition over the coming decade."

The scarcity of large-scale, advanced copper projects ready for development has intensified competition among major mining companies seeking to secure future production. With fewer than five comparable projects globally, Hot Chili's Costa Fuego represents a rare opportunity in a market facing structural supply constraints against growing demand.

As Easterday succinctly puts it: 

"Rising copper price and rising competition for these assets gives you that free kick." 

This environment potentially provides Hot Chili with leverage in partnership discussions that might otherwise be challenging for a junior company facing a large capital requirement.