Hot Chili (ASX:HCH) - Advancing a Tier-1 Copper Development in Chile with Unique Water Advantage

• Hot Chili is advancing the large-scale Costa Fuego copper-gold project in Chile, aiming for production towards the end of the decade
• Recently updated resource to 1 billion tonnes, including 0.8 billion tonnes in measured & indicated category grading 0.45% CuEq for 3.6Mt contained copper and 3Moz gold
• PFS expected in 2024 on a long-life, low-cost operation producing +100ktpa Cu
• Hot Chili owns key infrastructure including maritime concession for seawater supply, eliminating need for expensive desalination
• Investigating multi-user water infrastructure to facilitate development of other major copper mines in the region

Advancing Tier-1 Copper Development with Unique Water Advantage

In a world starved for new copper supply, Hot Chili Ltd is advancing one of the few large-scale, advanced-stage projects in the world. The Costa Fuego copper-gold development, located in Chile's prolific coastal copper belt, boasts a recently updated resource of over 3.6 million tonnes of contained copper and 3 million ounces of gold. With a pre-feasibility study (PFS) expected in H2 2024, Hot Chili is positioning Costa Fuego for development by the late 2020s, aiming to help fill an impending supply gap in the copper market.

The company's unique coastal location and ownership of critical water infrastructure provide significant cost and permitting advantages over high-altitude competitors. These factors, combined with near-term resource growth potential and a strengthening copper price outlook, make Hot Chili a compelling investment opportunity.

World-Class Resource Base

In February 2024, Hot Chili announced an updated Costa Fuego resource totalling 1.0 billion tonnes grading 0.45% copper equivalent (CuEq). Importantly, over 80% of this resource now sits in the higher-confidence measured and indicated (M&I) categories at similar grades, including 0.8 billion tonnes at 0.45% CuEq. This positions Costa Fuego as one of the largest undeveloped copper resources globally.

Speaking to the significance of this milestone, Managing Director Christian Easterday noted:

"We've ticked over that magic billion-ton number, but this is a huge bank of metal. This is some 3.6 million tons of contained copper and over 3 million ounces of gold now." The high-quality resource base provides a solid foundation for a long-life, tier-1 scale mining operation.

Interview with Managing Director & CEO Christian Easterday

Positioned for Low-Cost, Long-Life Production

Hot Chili is advancing Costa Fuego through pre-feasibility in 2024, building on the strength of the 2023 preliminary economic assessment (PEA). That study outlined a first-phase development producing over 100,000 tonnes per annum of copper at an extremely competitive C1 operating cost of just $1.33/lb net of by-product credits.

Several factors contribute to Costa Fuego's attractive economics. First, the deposit starts at surface, lending itself to low-cost open pit mining with a low strip ratio. Second, the ore is amenable to conventional flotation processing, achieving high recoveries at a coarse grind size. Finally, and perhaps most importantly, Costa Fuego is located just 20 km from the Pacific Ocean at low elevations. This means the operation can leverage low-cost seawater for processing rather than expensive desalinated water.

"It's a low-risk project...It's extremely cheap on capital. It's half price to develop," explained Easterday. "A low operating cost at $1.33 per pound - because of the low strip ratios on our open pit and the low elevation and no necessity to use desalinated water, using raw seawater - we enjoy competitive operational and capital costs down on the coastline."

The PFS is expected to reinforce Costa Fuego's status as one of the lowest capital-intensity copper projects globally. Hot Chili believes the study will pave the way for a quick transition to a feasibility study and then into permitting and financing.

Unique Water Advantage in Arid Region

Northern Chile is facing an existential crisis when it comes to water. Severe restrictions have been placed on mining companies' ability to draw water from aquifers for environmental reasons. At the same time, many of the major undeveloped copper deposits in Chile are located at high altitudes in the Andes, far from the ocean. These factors have forced developers to include expensive seawater desalination plants and long pump distances in their project plans. The capital costs associated with desalination and pumping are prohibitively high in most cases, not to mention the lengthy and uncertain permitting timelines.

Costa Fuego, in contrast, is located just 20 km from the coast and at low elevations. Hot Chili has secured maritime concessions allowing for the use of raw seawater in the process plant - eliminating the need for capital-intensive desalination. It is a unique and significant competitive advantage.

Looking beyond Costa Fuego, Hot Chili has also recognized an opportunity to leverage its excess water capacity to facilitate regional copper mine development. The company's maritime concession provides sufficient water to support not just Costa Fuego, but up to 5 other major deposits located within 50 km. By allowing other mines to "piggyback" on its infrastructure, Hot Chili can help bring much-needed supply online sooner.

While still early-stage, the potential to create a regional water utility serving the mining industry represents an interesting "blue sky" opportunity for Hot Chili shareholders. Importantly, it would not detract from or delay the development of Costa Fuego itself.

Strength of Management

Hot Chili is led by an experienced management team with a track record of developing and operating major resource projects in South America. Chairman Murray Black and Managing Director Christian Easterday have been involved with the company since its inception and have overseen its growth from a grassroots explorer into an emerging producer.

The company has attracted support from major industry players, including Glencore which owns a 9.9% stake. Hot Chili has also built strong relationships with the Chilean government and local stakeholders, aligning the project with the country's strategic objectives around copper production growth and infrastructure development.

Attractive Valuation and Re-Rating Potential

Based on its current market capitalization of A$130 million, Hot Chili trades at a significant discount to the net present value (NPV) outlined in the 2023 PEA. As the company delivers the PFS and demonstrates continued de-risking, there is strong potential for market re-rating.

Upcoming catalysts include:

• Completion of the PFS in 2H 2023
• Maiden ore reserve declaration for Costa Fuego
• Commencement of feasibility study
• Drilling results from ongoing resource expansion and high-grade definition program
• Updates on a potential seawater infrastructure partnership

With a world-class resource, robust economics, and unique infrastructure advantages in a top mining jurisdiction, Hot Chili presents a compelling investment opportunity. The company is well-positioned to help fill a looming copper supply deficit, while also offering significant exposure to strengthening copper and gold prices. As the Costa Fuego story continues to de-risk and gain momentum, investors would be wise to take a closer look at this emerging copper developer.

The Investment Thesis for Hot Chili

• Costa Fuego is one of the largest and most advanced copper developments globally, with a resource of 3.6Mt Cu and 3Moz Au
• Low operating and capital intensity Project based on low strip ratio, use of seawater (vs expensive desalinated water), and conventional processing
• Unique ownership of water infrastructure provides significant cost and development timeline advantages over peers
• Potential for Hot Chili to leverage excess water capacity to create value regional water utility serving the mining industry
• Experienced management team with strong Chilean stakeholder relationships
• Attractive valuation with strong re-rating potential as the project achieves development milestones

Hot Chili represents a rare investment opportunity in the copper development space. By securing ownership of water infrastructure in an arid region, the company has positioned itself to develop a tier-1 scale copper mine quicker and at lower costs than many of its peers. With a PFS on the horizon and ample opportunities for resource growth and regional consolidation, Hot Chili is well-placed to generate significant value for shareholders as the copper supply deficit grows.