Hot Chili (ASX: HCH) has revealed a 6 per cent uplift in the gold and copper inventory of its Costa Fuego project in Chile, with the indicated resource now sitting at 2.9 million tonnes of copper and 2.6 million ounces of gold.
The company says the vast project, which includes the Cortadera, Productora, Alice and San Antonio deposits, also now contains an additional 12.8 million ounces of silver and 68,000 tonnes of molybdenum. With a further 500,000 tonnes of copper, 400,000 ounces of gold, 2.3 million ounces of silver and 12,000 tonnes of molybdenum in the inferred category, the increase has launched the project into tier-one territory.
The lift in total contained metals follows two years of intensive work, culminating in Hot Chili notching up another milestone as it moves Costa Fuego toward a prefeasibility study (PFS) and a maiden ore reserve by the end of the year. The updated resource now boasts more than 85 per cent of its inventory in the indicated category – a factor seen by the company as a critical step toward proving economic viability.
The project’s deposits sit strategically at low altitudes, about 600km north of Santiago in Chile, providing advantageous conditions for potential mining operations.
The company has already conducted 24,500m of development, geotechnical, metallurgical and exploration drilling. However, additional drilling may be needed to further refine the resource models, especially in the area of inferred resources to upgrade them to indicated or measured categories in order to boost the validity of the PFS.
A year ago and after a period of subdued metal prices, Hot Chili dusted off its plans to assess the economics of Costa Fuego. The trigger for the renewed interest stemmed from the release of a preliminary economic assessment (PEA), from which the project emerged as one of the world’s biggest plays with an estimated post-tax net profit value (NPV) of US$1.1 billion (AU$1.6 billion).
The PEA also provided the incentive for leading United States royalty streaming group Osisko Gold Royalties to stump up with US$15 million (AU$21.9 million) into Hot Chili’s till in exchange for down-the-track royalty payments.
Despite the eye-watering US$1.05 billion (AU$1.53 billion) management said it would cost to build its project, the payback period cited then was only three and a half years. The average annual operating costs in the study were estimated to be US$1.33 (AU$1.94) per pound of copper, positioning the company at the low end of the cost curve among its industry peers.
But before the PFS can be handed down, Hot Chili will need also to update the economic model with detailed capital and operational expenditure to be brought into line with inflation and key commodities prices for copper and gold. Given both metals have enjoyed a resurgence in price in the past year, the repayment period is likely to now be shorter than previously forecast.
In particular, gold prices have surged by 50 per cent and are now sitting at US$2656 per ounce (AU$3830), while copper is trading 20 per cent higher at US$4.60 per pound (AU$6.70/lb). It marks a significant increase from the company’s earlier assumptions a year ago of US$1750 (AU$2554) per ounce for gold and US$3.85/lb (AU$5.60/lb) for copper.
To address ongoing water availability issues in the region, Hot Chili has also become active in the development of new desalinated supplies in the Huasco Valley, in collaboration with Chilean iron ore company Compania Minera del Pacifico (CMP), which also owns 20 per cent of the Productora deposit.
A recent US$600 million (AU$875 million) agreement for Antofagasta Minerals’ water rights and assets in the Atacama Desert region has also highlighted a growing movement towards cooperative efforts in water infrastructure development. Hot Chili’s new water initiative is, therefore, part of the broader trend of collaboration in addressing water needs in the area.
With Glencore as a major shareholder and guiding hand, the PFS at the end of the year is set to become a pivotal milestone for Hot Chili – and one that will then pave the way toward a definitive feasibility study (DFS) and ultimately, production.
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