Hot Chili (HCH) - Copper-Gold Player To Spice Up Your Portfolio?

Interview with Christian Easterday, Managing Director of Hot Chili (ASX: HCH)

Hot Chili is an ASX-listed copper explorer and developer with copper projects in (you guessed it) Chile! More specifically, the company has a portfolio of projects in 'Region III,' and it aims to establish them as a central copper hub called 'Costa Fuego.' This is a combination of all 3 of the company's projects: Cortadera, Productora and San Antonio.

This story is 12 years in the making, and some investors have become frustrated with the lack of pace and share price growth. So, what is there here for investors to get excited about? Well, Hot Chili claims to have delivered 6 of the world's best copper-gold porphyry drill results, cementing its flagship Cortadera project as one of the most significant copper-gold discoveries of the past decade in Chile.' Let's start with the basics. What exactly does the company have here?

Cortadera is a 'major copper-gold porphyry discovery.' It is positioned along the Chilean coastal range. The company released a set of historical drill results in February 2019 that it regards at 'world class.' These results included 972m grading 0.5% copper & 0.2g/t gold from surface, including the widest zone of high-grade mineralisation recorded to date: 412m grading 0.7% copper & 0.3g/t gold from 436m depth with supplementary silver and molybdenum credits. These are good results, and the co-product credits sweeten the value proposition further and diversify risk. Hot Chili claims these numbers rival drill intersection data from 'some of the world’s most recent and significant copper-gold discoveries including Cascabel in Ecuador and Timok in Serbia.'

Hot Chili also has another couple of copper-gold properties: a necessary component of its ambitions to consolidate a district 'hub' of a position. The company has executed agreements to secure majority interest in 2 of the regions’ largest and 'highest-grade' underground mines: San Antonio and Valentina. These mines conglomerate to form a copper project known as El Fuego. It is at an earlier stage of development than Cortadera, and most of the first-pass 5,000m drilling programme was directed towards San Antonio. Historically, San Antonio exhibits great promise, having 'reportedly' (I am unsure what exactly this refers to) produced c. 2Mt grading 2% copper, 0.3g/t gold and 17g/t silver at a 'shallow depth' since mining began at the property in 1964.

Then, 20km west of El Fuego, lies the Productora copper project, which is regarded by Hot Chili as one of the best located, large-scale copper assets globally. Current mineral resources stand at 1.5Mt copper and 1Moz gold, and there is an ore reserve of 167Mt that has been established. This all equates to a long mine life (10 years) in a bulk-tonnage, open-pit production. In the first 8 years, production should average 66kt copper and 25koz gold annually. Hot Chili's 80%-owned subsidiary/JV, Sociedad Minera El Aguila SpA (SMEA), holds 100% of Productora.

On paper, this all looks great. In fact, it appears to give Hot Chili one of the largest copper-gold inventories held by a junior globally. Of the top 50 copper projects in the world, only 4 of them are not held by majors. This is a "tier-1 copper gold asset" (+5Mt copper), and this is definitely a rarity on the ASX. This could come in handy right now. Whilst copper still remains significantly down on 2018 prices, the Chinese reflation package is likely to drive demand up, considering the heavily-industrial nation consumed c. 51% of copper last year. Moreover, the gold bull run is guaranteed to have people looking at Hot Chili as a more viable investment proposition.

However, some investors may well be skeptical. The share price is still static, and there are plenty of concerns. I hope Easterday is not trying to be cute with statistics to paint a different picture to the one that presently exists. He was more candid in places than others and is keen to talk about the company's multiple false starts and failings over the years, which is always a good sign. COVID-19 had thrown a spanner in the works for most juniors, but now he claims that an extension to the mine life of Cortadera, combined with more favourable copper prices in recent months, has put the company on the growth trail, even if it isn't being fully reflected in the share price just yet. There has been a small degree of share price movement in the last few months, but investors will be hoping for more sooner rather than later.

Chile is a solid mining mining jurisdiction, but it is not an absolutely premier one in my opinion. Whilst there is an abundance of capital and it is cheap to mine with good infrastructure, there are sometimes question marks surrounding permitting timescales for mining, environmental purposes and water access.

After a little bit of dithering, moving forward, Easterday stated that he wants to bring out a Maiden Resource in the next few weeks for Cortadera. This will be "the first chunk of meat on the bone." Back in June ($5M) and May ($8.9M), Hot Chili raised some capital. It has been used for a very simple purpose: drilling. Whilst this drilling has not yet added any measurable value for investors yet, Easterday reminds us that the company has managed to extend the purchase agreement out on the project by a year. He now feels the company has a fuller knowledge regarding its projects in Region III. COVID-19 has halved the speed of drilling, but it has also slashed the cash-burn rate. Moreover, Hot Chili is about to see its first revenue from production on a monthly basis. With cash in the treasury, Hot Chili shouldn't need to raise capital until the start of 2021. He feels he has a good track record of raising capital for the company and expects this to continue. Having spent $100M already with nothing given back to investors we hope to see the company spend capital in a smarter and more effective manner.

If it really does intend to become a +$1Bn copper play, it's time to step things up a gear or two. Maybe a JV or merger with another ASX miner in Chile with a track record of building mines would make sense for both parties? Any ideas? I have a couple.

Easterday doesn't have a lot of shares. He claims that his shareholding has been "whittled down over the years," but he states that he has put "quite a lot of money" into the company. He certainly doesn't have as many shares as Murray Black, but he claims to be in the top 20.

To find out more, go to the Hot Chili website.