Hot Chili has kicked off its latest wave of exploration with a reverse-circulation rig as part of a 30,000m expansion drilling campaign at its Costa Fuego copper-gold project, 600km north of Santiago in Chile.
Management says the work is focused on a 3000m drilling commitment that will see it acquire key leases along the western extension of its resource upon completion. And the cavalry is still coming, with further diamond drill rigs expected to arrive soon as the company ramps up its program.
Hot Chili also says it is more than 80 per cent of the way through its prefeasibility study (PFS) for Costa Fuego. With 82 per cent of the current mineral resource sitting in the indicated category, it has the luxury of chasing resource growth through its latest work.
Costa Fuego holds 725 million tonnes of measured and indicated resources grading 0.47 per cent copper equivalent for 2.8 million tonnes of copper and 2.6 million ounces of gold, with molybdenum credits.
The company recently revealed a preliminary economic assessment (PEA) showing the project will spit out a whopping $309 million a year on average in free cash across a 16-year mine life. With the impressive set of numbers outlined, the project is emerging as one of the world’s biggest and lowest-cost copper plays, with an estimated post-tax net present value (NPV) of US$1.1 billion (AU$1.66 billion).
Despite the eye-watering US$1.05 billion (AU$1.57 billion) Hot Chili says it will cost to build its project, it says its payback period will be just three and a half years. Average annual operating costs clocked in at US$1.33 (AU$2) per pound of copper in the study, positioning the company at the low end of the cost curve among its industry peers.
Keys to the lower-cost estimates include the fact that at its relatively low altitude, it does not face the extraordinary costs of having to pump water up into the mountains, in addition to the fact it has proven better recoveries using salt water and does not need an expensive desalination plant. It is believed those factors alone save Hot Chili about US$1 billion (AU$1.51 billion).
The economic evaluation pegged a long-term average selling price at US$3.85 (AU$5.76) per pound of copper and US$1750 (AU$2620) per ounce of gold. But the company says that for every extra 10 cents added to that copper selling estimate – and at a time when global predictions of a significant price hike are growing by the day – it will add another US$100 million (AU$150.1 million) to its post-tax NPV.
An pre-tax internal rate of return of 24 per cent and a pre-tax NPV of US$1.54 billion (A$2.30 billion) were also predicted in the study.
A PEA study is similar in nature to an Australian JORC scoping study. Hot Chili believes its cursory assessment at its Costa Fuego project suggests it could churn out about 112,000 tonnes of copper equivalent each year for the first 14 years of an initial 16-year mine life.
Last month, the company shored up its financial position with a $22 million strategic deal with leading United States royalty streaming group, Osisko Gold Royalties. Management says money from the deal – from which Osisko will get a 1 per cent net smelter return royalty on copper and a 3 per cent royalty on gold – will be used to fund the next steps in its project’s development, including its 30,000m drilling program.
The cash will also go towards funding the completion of the project’s resource upgrade and the delivery of its PFS. The company has pencilled in late this year for its resource upgrade and the second half of 2024 for unveiling its PFS.
Chile’s copper has been in the headlines this week after Santiago-based Codelco said it would partner with Rio Tinto to explore a deposit in the north part of the country. As part of the agreement, Rio Tinto will buy Pan American Silver’s 58 per cent stake in the Agua de la Falda project, located in the Diego de Almagro commune. Codelco holds the remaining 42 per cent.
Rio Tinto already partners with BHP at Chile’s Escondida mine that has the world’s biggest copper deposit.
Last month, American multinational investment bank Citigroup predicted copper was set for a period of strong price growth because of rising demand for electric vehicles (EVs) and renewable energy. It tipped the copper price could rise up to 46.5 per cent by 2025.
With the outlook on copper remaining bullish, it easy to see why Hot Chili is so keen to boost its numbers on a project that already appears to be have plenty of clout.
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