Hot Chili Looks Set to Take Advantage of Impending Copper Supply Crunch

• Hot Chili is aiming to be one of the next major copper producers globally by the end of the decade with a large-scale project producing 100,000-150,000 tonnes per annum.
• The company has secured key permits like a maritime concession for seawater, which gives it a strategic advantage over peers who face water access issues. This also opens opportunities like creating a water utility business.
• Hot Chili has an advanced project with solid economics based on conservative long-term copper pricing, putting it in a good position to benefit from an expected supply shortfall driving prices higher.
• The company is well-positioned on the permitting front with baseline studies underway for years, allowing it to submit an EIS in 2023 and potentially start production by 2028-2030.
• Hot Chili has funding optionality through a Glencore offtake agreement, ability to stream precious metals credits, and potential project financing supported by the water utility business idea.

About Hot Chili Ltd

Hot Chili Ltd is an Australian copper developer focused on bringing its large-scale Productora copper project in Chile into production by the end of the decade. The company was founded over 15 years ago and has consolidated a dominant landholding in Chile's coastal range, securing water rights and key infrastructure. Productora has the potential to produce over 100,000 tonnes of copper per year, along with by-product gold and molybdenum. With copper demand set to surge amidst constrained supply, Hot Chili is positioning itself to capitalize on an impending copper price boom.

Interview with Christian Ervin Easterday, Managing Director & CEO of Hot Chili Ltd

Major Copper Shortage on the Horizon

During the conference, Hot Chili's Managing Director Christian Easterday emphasized that we are headed towards a major copper supply crunch over the next 5-10 years. With demand for copper surging from electrification and decarbonization, most estimates indicate a supply deficit of 7-9 million tonnes by 2030 on a 22 million tonne per annum market.

However, there are very few new major copper projects in development pipeline capable of bringing meaningful production online. Outside of the major mining companies, there are only 5-6 projects globally that can realistically produce over 100,000 tonnes per annum this decade.

Hot Chili's Productora is one of these select few potential major new sources of supply. With copper demand forecast to dramatically outstrip new supply sources, prices are likely to increase substantially. Hot Chili is positioning itself to benefit enormously from this impending copper price boom.

Recently Updated PEA Outlines Robust Economics

In August 2022, Hot Chili released a Preliminary Economic Assessment for Productora based on an initial 20,000 tonne per day operation producing 95,000 tonnes of copper equivalent per annum. With an initial capex estimate of US$1.025 billion and operating costs of US$1.36/lb copper, the PEA outlined exceptional economics:

• Post-tax NPV8 of US$1.8 billion
• IRR of 23%
• Payback period under 3 years
• LOM average EBITDA of US$530M p.a

The PEA economics were based on conservative long-term copper price assumption of US$3.85/lb. However, the project is highly leveraged to the copper price, with each US$0.10/lb increase boosting the NPV by over US$100 million.

Focus on Scaling Production Higher

While Productora is economically robust on its own, Hot Chili has its sights set on substantially increasing production capacity to capitalize on the copper market opportunity.

The company is actively exploring regional consolidation opportunities to grow resources and feed higher production rates. A 50% increase to 150,000 tonnes per annum could push costs into the first quartile and lift NPV8 towards US$3 billion.

Hot Chili is one of the only copper developers that can realistically scale up production so substantially in the timeframe required. Growing production will provide greater leverage to the copper price during the period of severe market tightness anticipated this decade.

Permitting and Infrastructure Critical to Timing

In order to achieve first production before 2030, Hot Chili has meticulously advanced permitting and locked down key infrastructure over the past 10+ years.

Unlike other projects, Hot Chili has secured the water approvals needed for a coastal operation, avoiding the need for expensive desalination. The company also has access to grid power, port storage and concentrate logistics.

An Environmental Impact Assessment is on track for submission in 2023, with target approval in 2025. This would support construction from 2026 to 2028, achieving first production ideally before 2030.

Hot Chili's long head start on permitting and infrastructure provides confidence in achieving production within the timeframe required to benefit from the impending copper supply crunch.

Additional Value from Regional Water Business

Beyond its copper operations, Hot Chili has an additional potential value driver from a proposed regional water business. Having secured access to 5,000 litres per second of desalinated water, Hot Chili could supply a substantial market deficit in its region of Chile.

With few other viable water sources, a desalination and supply operation could provide water security to multiple copper projects and communities. According to management, a self-funding water business could eliminate Hot Chili's need to raise equity financing for its copper projects.

While early stage, a water utility arm adds further upside optionality to Hot Chili's copper development strategy in a strengthening ESG environment.

Conclusion

With its advanced large-scale Productora copper project, Hot Chili Ltd is uniquely positioned amongst its development peers to deliver major production growth before 2030. As copper markets move into a prolonged period of deep supply deficit, Hot Chili's expanding production profile will provide enormous leverage to higher copper prices.

The company's long head start on permitting, infrastructure and water security sets Productora apart from competing projects. This provides crucial de-risking of the timeline to production. Beyond copper, optionality exists for Hot Chili to capitalize on regional water demand in Chile.

For investors seeking leveraged exposure to the coming copper price boom, few ASX-listed developers can offer Hot Chili's combination of scale, timing and upside growth potential. As the supply shock unfolds in coming years, Hot Chili has the ingredients to generate outstanding investor returns.