Hot Chili - Evolving Large Scale Copper Resource

• Hot Chili, chaired by Nicole Adshead-Bell, is an Australian-listed company with a secondary listing in the TSXV. It boasts one of the largest undeveloped resources among junior mining companies.
• Their primary project is the Costa Fuego Hub located in a low-elevation region of Chile, which is significantly large in terms of assets.
• Despite its potential, Hot Chili remains undervalued. This undervaluation is attributed to a lack of awareness and some skepticism in the market.
• The company has a strong in-country team comprised mainly of Chilean nationals, which provides a significant de-risking factor, especially in understanding the regulatory and cultural environment.
• Moving forward, Hot Chili plans to increase awareness, focus on the value of its assets, and strategically allocate capital based on market valuations.

Why Hot Chili Could be a Hot Investment Opportunity

Hot Chili Limited (ASX:HCH, TSXV:HCH) offers investors a potential value opportunity in the copper sector. With copper demand forecast to significantly outstrip supply in the coming years, Hot Chili's large-scale copper-gold projects in Chile have the potential to generate strong returns.

Hot Chili is advancing a district-scale copper-gold project portfolio in Chile's coastal range, one of the world's most prolific yet underexplored copper belts. The company's flagship is the Costa Fuego copper project, located in a very low-altitude area with established infrastructure. Costa Fuego contains a cluster of deposits including the company's main Cortadera deposit.

In total, Costa Fuego currently hosts 2.9Mt of contained copper and 2.7Moz of contained gold in reported resources, making it one of the largest undeveloped copper-gold projects held by a junior company globally. Exploration upside remains strong across the wider project area.

Interview with Non-Executive Chairman, Nicole Adshead-Bell

Why Chile?

Chile is the world's leading copper-producing nation, renowned for its stable mining jurisdiction and pro-development stance. Major miners including BHP, Rio Tinto, Anglo American, Teck and others operate successfully in Chile. The country offers a clear and established permitting pathway for mine development.

While Chile's new government has signalled higher royalties and taxes ahead, Hot Chili's directors believe Chile will remain an attractive and viable jurisdiction for mining investment. Ongoing strong demand for Chile's copper production from major trading partners including China, the USA, Japan and the EU also helps underpin confidence in Chile's stable mining outlook.

Large Asset Base with Exploration Upside

A key attraction of Hot Chili is the scale of its copper-gold resources, which place the company near the top amongst global junior copper developers. The recent acquisition of Cortadera helped transform Hot Chili into a potential mid-tier producer. Cortadera added 2Mt of contained copper, taking Costa Fuego to 2.9Mt contained – a globally significant copper inventory for a junior company to control.

Furthermore, Hot Chili has substantial exploration upside remaining across its district-scale concessions, much of which remains untested by modern exploration techniques. Near mine and regional targets offer the potential to further expand resources. Recent drilling has continued to deliver high-grade hits outside the core deposits, illustrating this upside potential.

De-Risked Development Profile

An important aspect of Hot Chili’s investment case is the extent to which Costa Fuego has been de-risked over the past decade. A key highlight is the company’s early move to secure water rights, providing the project with a sustainable long-term water supply. Given Chile’s arid climate, this was an essential step to de-risk Costa Fuego.

Other studies completed, such as geotechnical drilling and social baseline assessments, also help provide a clearer pathway towards development. With much of the heavy lifting on baseline studies already done, Costa Fuego is primed to advance towards a construction decision when market conditions allow.

Major Backing

A vote of confidence in Costa Fuego’s potential came in 2019 when global mining major Glencore invested US$130M for a cornerstone 30% stake in Hot Chili. Glencore’s investment was struck at a significant premium to Hot Chili's then share price. As a substantial shareholder and project partner, Glencore’s financial clout and technical expertise are seen as a big plus for Hot Chili in helping develop Costa Fuego.

Productive PartnershipsIn addition to Glencore, Hot Chili has formed partnerships with several other major companies to help unlock value at Costa Fuego. In late 2022, Hot Chili executed an agreement with Chilean state mining company Codelco's El Teniente division to consolidate ownership of the Cortadera deposit. Hot Chili also recently partnered with Chilean steel producer CAP to explore concessions adjacent to Cortadera, in a deal that can provide Hot Chili access to more resource upside.

These corporate partnerships validate Costa Fuego's potential and provide Hot Chili with platforms to efficiently pursue resource growth around its core project area.

Rising Copper Price Fundamentals

Demand for copper is expected to surge in coming years driven by electrification and decarbonization trends globally. Supply meanwhile faces headwinds as ore grades decline and few new mines get built. This supply-demand imbalance foreshadows a structural copper deficit emerging, which should drive prices higher.

Leading forecasters see copper heading towards $4.00-$4.50/lb over the next few years, up from current levels around $3.50/lb. Some bulls argue $8.00/lb copper could even be possible this decade if supply falters. Such pricing would be hugely beneficial for Hot Chili's Costa Fuego project, enhancing its economics.

Flexible Development Strategy

Given challenging equity market conditions, Hot Chili has adopted a flexible, pragmatic development strategy for Costa Fuego. Rather than rushing studies and permits, the focus is on targeted exploration and resource drilling to maximize value. Subject to results, this creates options for a range of development pathways, avoiding being locked into one set plan.

This adaptable strategy aims to position Hot Chili to advance development works aggressively when the copper price signals the timing is right. Until then, prudent cost control preserves cash while continued drilling aims to grow resources. Various financing options including debt, streaming and joint ventures also remain open.

Investor Takeaways

For investors seeking leveraged copper exposure, Hot Chili offers an intriguing opportunity. The company's huge copper-gold resource base, exploration upside potential, de-risked project fundamentals and strategic partnerships help position it as a standout amongst global junior copper developers.

As project economics strengthen amid rising copper prices, Hot Chili could undergo a substantial valuation upside. Its current market capitalization of around A$150M appears modest given Costa Fuego's advanced status and expanding resource inventory. Hot Chili therefore offers investors a compelling copper investment play with re-rating potential.

• Large and Growing Resource Base - Hot Chili has a very large copper-gold resource base (2.9Mt contained copper and 2.7Moz contained gold) that continues to grow through exploration and acquisition. The scale of this resource is impressive for a junior mining company and provides leverage to increased copper prices.
• Exploration Upside - There is strong exploration potential across Hot Chili's concession areas to further expand resources. Recent drilling has delivered high-grade results outside the core deposits, illustrating the upside.
• De-Risked Profile - The Costa Fuego project is advanced and has been significantly de-risked over the past decade through baseline studies, water rights securing, geotechnical drilling, etc. This reduces development uncertainty.
• Strategic Partners - Major miners Glencore and Codelco have invested in the project, providing technical expertise and confidence in the asset quality. Additional partnerships provide platforms for efficient growth.
• Copper Market Fundamentals - Copper demand is forecast to strongly outpace supply in coming years as electrification accelerates, pointing to higher prices. This would enhance project economics.
• Flexible Development Approach - The company is taking a prudent, adaptable development approach focused on adding value through exploration until market conditions improve.
• Valuation Upside - The current market valuation appears relatively modest considering the advanced project status and large resource base. Substantial re-rating potential exists.

In summary, Hot Chili offers excellent leveraged exposure to copper through its de-risked world-class project with huge expansion potential in a top mining jurisdiction. As copper prices rise, the shares could see significant upside revaluation.