Hot Chili - How Glencore Partnership Changes Everything

• Hot Chili Limited, the largest copper development on the ASX, is developing a significant copper hub on the coastline of Chile. Recently, copper prices have surged to over $4 a pound.
• Hot Chili secured a partnership with Glencore, a major mining company, which is expected to advance the Costa Fuego copper-gold asset in Chile towards production. This collaboration aims to capitalize on Glencore's technical capability and mining experience.
• The company recently raised $40 million in capital, with Glencore as a cornerstone investor. This fund was primarily used to finalize the purchase of Cordadera, a world-class discovery, and to address other financial overhangs.
• Glencore's investment is seen as a strategic move in building their copper business, with projections indicating a rising demand for copper in the future.
• Concerns regarding potential tax changes in Chile were addressed. Both center-left and center-right political candidates have opposed the proposed communist tax bill, suggesting a future tax regime more aligned with Australia or Canada.

Hot Chili Looks to Become a Major Copper Player with Help from Glencore

Hot Chili Limited (ASX:HCH, OTCQB:HHLKF) is aiming to become a top-tier copper producer in Chile with the help of its new strategic partner, commodities giant Glencore. Hot Chili's main assets are its Cortadera and Productora projects located on the coastal range in Chile, which the company plans to develop into a major copper hub.

With copper prices hovering near record highs on supply deficits, Hot Chili raised A$65 million recently to advance its projects. This included Glencore taking a 9.99% stake in the company and agreeing to an offtake deal for the first 8 years of production. Hot Chili also plans to up-list to the TSX Venture Exchange later this year to attract more North American investment.

Major Endorsement from Glencore Validates Assets

In February 2022, Hot Chili announced Glencore would invest A$12 million to take a 9.99% stake in the company as part of Hot Chili's A$40 million capital raising. This deal brings major credibility to Hot Chili's assets and plans. As one of the world's largest commodity traders and miners, Glencore has the technical expertise and balance sheet to help develop large-scale mining projects. Glencore will also have the right to appoint one nominee to Hot Chili's Board of Directors. This should provide Hot Chili with invaluable guidance from Glencore's technical team during the development process.

In addition, Glencore has agreed to an off take deal for 60% of the concentrates from Hot Chili's projects for the first 8 years of production. This will give Hot Chili crucial off take certainty for the early years of its planned 25-30-year mine life. As the world's largest copper concentrate trader, handling over 50% of global volume, Glencore is an ideal partner for this agreement.

Low-Risk Jurisdiction with Favorable Logistics

What makes Hot Chili stand out among major copper developers is its projects are located at low altitudes near the coast of Chile. This provides easy access to water and power infrastructure as well as port facilities.

In comparison, many copper projects are situated in the Andes mountains at elevations above 3,000 meters. This presents challenges related to construction costs, power access and concentrate logistics. Chile is also one of the world's most mining-friendly jurisdictions with a long history of copper production. The country has become the number one global copper producer supplying over 25% of the world's copper.

While Chile is holding elections in late 2021, concerns over more stringent taxation policies have faded recently. The two leading presidential candidates have both rejected plans for sharply higher mining taxes. This removes much of the political uncertainty related to mining that Chile has faced in the last few years.

Advancing Major Copper Hub in One of the World's Best Locations

Hot Chili's main projects are Productora, located 35km from the coast, and Cortadera, located 5km from the coast and 15km from Productora. Infrastructure is excellent with access to water, power, rail, roads and port facilities.

The company is aiming to develop both deposits into a major copper production hub feeding a central processing plant at Productora. This is expected to produce 91,000 - 117,000 tonnes per year of copper equivalent over a 23-year mine life. Resource drilling and studies have been focused on delivering a new Mineral Resource estimate by late 2022 for the combined project. This is projected to increase the current 730 million tonne resource base.

Metallurgical test work has indicated Cortadera ore could be processed through Productora's facilities. A Pre-Feasibility Study is also slated to be finalized in 2022 for the integrated projects.

Set to Join the Big Leagues in North America

A key part of Hot Chili's strategy is to graduate to Canada's TSX Venture Exchange later this year. The company believes this will give it access to a wider pool of institutional investors that are more accustomed to financing large-scale copper mines.

Many of Hot Chili's peer group of copper developers in the Americas are listed in Canada and have achieved substantial valuations. These include companies like Solaris Resources, Josemaria Resources, Filo Mining and Arena Minerals.

Hot Chili thinks its world-class copper assets have been undervalued trading on the Australian Stock Exchange. The Glencore investment provides third-party validation which should raise the company's profile as it enters the Canadian market.

Massive Exploration Upside Could Unlock District-Scale Potential

In addition to advancing its two main copper projects, Hot Chili has an extensive exploration portfolio covering almost 1,900 square kilometers along Chile's coastal mountains. This includes 14 exploration targets that have big potential for new discoveries.

Some analysts think Hot Chili's assets could host over 1 billion tonnes of mineralization. Significant exploration success could turn its ground into an entire copper district hosting multiple deposits.

Earlier this year, Hot Chili expanded its land position by acquiring two option agreements covering projects with historical drilling. The company is now looking to accelerate exploration activities to fully assess its regional upside.

Tight Capital Structure Leaves Upside if Execution Delivers

With approximately 3.3 billion shares outstanding and a current market valuation of A$150 million, Hot Chili offers substantial upside if it can continue advancing the project pipeline successfully. The company appears to have sufficient capital following the recent raise to make meaningful progress.

Hot Chili's share price has lagged peer copper developers to date despite high-grade drill results from Cortadera. However, the Glencore deal and pending up-list seem to have reignited interest in the stock. This has become apparent with strong demand for a share placement plan offered to existing shareholders.

Investors with a positive view of the copper market and Chile should keep Hot Chili on their watch list. As project studies advance and exploration results start rolling in, the market could re-rate the stock to more appropriately reflect the scale of Hot Chili's copper assets.

The next few months will be pivotal as the company works to upgrade resources, make progress on feasibility studies and increase its profile in North America. If Hot Chili can continue meeting key milestones, its stock seems poised to attract significant investor attention given the bullish outlook for copper.

The Investment Thesis for Hot Chilli

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Here are a few reasons why Hot Chili could be a good investment opportunity for investors:

• Strong copper market fundamentals - With copper prices near all-time highs and demand projected to greatly outpace new mine supply, the outlook for copper prices is very positive. Hot Chili's low-cost production profile would allow substantial profit margins.
• World-class assets in a top mining jurisdiction - Chile is one of the most desirable countries for copper investment with a lengthy track record of stable mining policies. Hot Chili's deposits are situated in ideal locations with excellent infrastructure.
• Major endorsement from Glencore - A strategic investment and off take deal from one of the world's largest commodity miners validates the quality and potential of Hot Chili's projects.
• Significant exploration upside - The large land package provides substantial opportunities for new discoveries that could greatly expand resources. Additional finds could turn the region into a premier copper district.
• Room for substantial valuation upside - Trading at a fraction of comparable copper developers, Hot Chili offers excellent leverage to higher copper prices and positive project developments.
• Near-term catalysts ahead - Resource upgrade, feasibility study progress and TSX-V listing over the coming 6-12 months provide share price catalysts.
• Strong leadership team to steer development - The management has decades of Chilean mining experience including building and operating major projects.
• Tight capital structure limits potential dilution - The latest raise leaves Hot Chili financed to reach several key milestones and minimize immediate share issuance needs.

For investors bullish on copper and willing to take on development stage mining risk, Hot Chili checks many boxes as an attractive speculation play in a top-ranked copper jurisdiction. The company looks poised to attract significant investor attention as it aims to join the big leagues of global copper producers.