Costa Fuego Copper- Gold Project Preliminary Economic Assessment (PEA)1 Outlines One of World’s Lowest Capital Intensity, Major Copper Developments
Quarterly Report Period Ending 30th June 2023
Highlights Costa Fuego Copper-Gold Project Preliminary Economic Assessment (PEA)1 Outlines One of World’s Lowest Capital Intensity, Major Copper Developments
- Strong Economics: Costa Fuego PEA delivers using an 8% discount rate and long-term metal price assumptions of US$3.85/lb copper (Cu) and US$1,750/oz gold (Au)
- Base-case post-tax Net Present Value (NPV8%) of US$1.10 Billion (approximately, within a range of US$733 Million to US$1.46 Billion) and Internal Rate of Return (IRR) of 21% (approximately, within a range of 17% to 25%)
- Low Start-up Capital: US$1.05 Billion estimated, resulting in fast 3.5-year payback. Initial phases of open pit mining fully fund development of a bulk underground operation
- Low Capital Intensity: One of the lowest capital intensities of global copper development projects
- Approximately 112 ktpa Average CuEq2 Production Rate: Including 95 kt Cu and 49 koz Au during primary production (first 14 years) at C1 Cash Cost3 of US$1.33/lb (estimated, net of byproduct credits)
- Initial Mine Life: 16-years with 1.41 Mt Cu and 718 koz Au produced for total revenue of approximately US$13.52 Billion and total free cash flow of approximately US$3.28 Billion (posttax, after operating costs, capital costs, and royalties)
US$15 Million Investment Agreement with Osisko Gold Royalties
- Strong endorsement from a leading North American royalty-streaming group with funds to be used to advance the Costa Fuego Pre-feasibility Studies (PFS), resource growth drilling programmes and general project advancement.
30,000 m drilling program across multiple targets to commence shortly
Single, Large Pit Scenario for Cortadera being studied in H2 2023
Strong Cash balance of $26 million
1 The PEA is preliminary in nature and includes 3% of production feed from Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as Mineral Reserves (NI 43-101) or Ore Reserves (JORC 2012), and there is no certainty that the PEA will be realised. Mineral Resources that are not Mineral Reserves or Ore Reserves do not have demonstrated economic viability. References to “Mineral Reserves” in this announcement include Ore Reserves (JORC 2012). See page 39 for additional cautionary language.
2 The copper-equivalent (CuEq) annual production rate was based on the combined processing feed (across all sources) and used longterm commodity prices of: Copper US$3.85/lb, Gold US$1,750/oz, Molybdenum US$17/lb, and Silver US$21/oz; and estimated metallurgical recoveries for the production feed to the following processes: Concentrator (87% Cu, 56% Au, 37% Ag, 58% Mo), Oxide Leach (55% Cu only), & Low-grade Sulphide Leach (40% Cu only).
3 See page 16 for full non-IFRS measures disclaimer.
ASX: HCH Hot Chili Limited ACN 130 955 725 TSXV: HCH First Floor, 768 Canning Highway, Applecross, Western Australia 6153 PO Box 1725, Applecross, Western Australia 6953
OTCQX: HHLKF
P: +61 8 9315 9009 F: +61 8 9315 5004. www.hotchili.net.au
Hot Chili’s Managing Director and Chief Executive Officer Mr Christian Easterday is responsible for this announcement and has provided sign-off for release to the ASX and TSXV.
For more information please contact:
Christian Easterday
Tel: +61 8 9315 9009
Managing Director – Hot Chili Email: [email protected]
Penelope Beattie
Tel: +61 8 9315 9009
Company Secretary – Hot Chili Email: [email protected]
Harbor Access Email: [email protected]
Investor & Public Relations (Canada) Email: [email protected]
or visit Hot Chili’s website at www.hotchili.net.au
Cautionary Statement – JORC Code (2012)
The Preliminary Economic Assessment referred to in this report is equivalent to a Scoping Study under JORC Code (2012) reporting guidelines. It has been undertaken for the purpose of initial evaluation of a potential development of the Costa Fuego Copper Project in Chile. It is a preliminary technical and economic study of the potential viability of the Costa Fuego Copper Project. The PEA outcomes, production target and forecast financial information referred to in the report are based on low level technical and economic assessments that are insufficient to support estimation of Ore Reserves. The PEA is presented in US dollars to an accuracy level of +/- 35%. While each of the modifying factors was considered and applied, there is no certainty of eventual conversion to Ore Reserves or that the production target itself will be realised. Further exploration and evaluation and appropriate studies are required before Hot Chili will be in a position to estimate any Ore Reserves or to provide any assurance of any economic development case. Given the uncertainties involved, investors should not make any investment decisions based solely on the results of the PEA.
Of the Mineral Resources scheduled for extraction in the PEA production plan, approximately 97% are classified as Indicated and 3% as Inferred during the 18-year evaluation period. The Company has concluded that it has reasonable grounds for disclosing a production target which includes a small amount of Inferred Mineral Resources. There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target itself will be realised. Inferred Mineral Resources comprise 2.5% of the production schedule in the first four years of operation. The viability of the development scenario envisaged in the PEA does not depend on the inclusion of Inferred Mineral Resources.
The Mineral Resources underpinning the production target in the PEA have been prepared by a competent person in accordance with the requirements of the JORC 2012. For full details on the Mineral Resource estimate, please refer to the ASX announcement of 31 March 2022. Hot Chili confirms that it is not aware of any new information or data that materially affects the information included in that release and that all material assumptions and technical parameters underpinning the estimate continue to apply and have not been changed.
To achieve the outcomes indicated in the PEA, including reaching Definitive Feasibility Study (“DFS”) stage, funding in the order of US$1.10 Billion will be required, including pre-production and working capital and assumed financing charges. Investors should note that that there is no certainty that Hot Chili will be able to raise that amount of funding when needed. One of the key assumptions is that the funding for the Project will be available when required. It is also possible that such funding may only be available on terms that may be dilutive to or otherwise affect the value of Hot Chili’s existing shares. It is also possible that Hot Chili could pursue other value realisation strategies such as debt financing, a sale or partial sale of its interest in the Costa Fuego Copper Project, sale of further royalties and/or streaming rights, sale of noncommitted offtake rights, and sale of non-core assets.
This report contains forward-looking statements. Hot Chili has concluded that it has a reasonable basis for providing these forward-looking statements and believes it has a reasonable basis to expect it will be able to fund development of the Costa Fuego Copper Project. However, a number of factors could cause actual results or expectations to differ materially from the results expressed or implied in the forward-looking statements. Given the uncertainties involved, investors should not make any investment decisions based solely of the results of the PEA.
SUMMARY OF OPERATIONAL ACTIVITIES Costa Fuego Copper-Gold Project Preliminary Economic Assessment (PEA)1 Outlines One of World’s Lowest Capital Intensity, Major Copper Developments
The Costa Fuego PEA has been prepared by Wood Australia Pty. Ltd. as an update to the historical Productora 2016 Pre-Feasibility Study (the “2016 PFS”). It follows significant regional consolidation and a near quadrupling of the Company’s resource inventory with the addition of the Cortadera porphyry resource, and the San Antonio high-grade satellite resource. The expanded resource base provided the opportunity to lift the scale of development for a combined development hub (Costa Fuego) and optimise infrastructure required to transport these resources to a proposed centralised processing plant at Productora. The PEA therefore presents a materially different project to that contemplated in the 2016 PFS.
The Costa Fuego PEA presents the largest copper development project listed on the Australian Securities Exchange (ASX). Already the ASX’s largest copper development resource, the PEA confirms Costa Fuego as having the largest potential copper production in the exchange’s development pipeline, (refer to ASX Announcement “Costa Feugo PEA Presentation”, released 28th June 2023, slide 51 “New Material Copper Supply”) at a time when the ASX is losing its significant copper-players, with Oz Minerals taken over by diversified-miner BHP and Newcrest under takeover by US-based Newmont.
The strong economics of Costa Fuego are described below in Table 1, using financial assumptions of an 8% discount rate and long-term metal price assumptions for the base case of US$3.85/lb copper (Cu) and US$1,750/oz gold (Au).
1 The PEA is preliminary in nature and includes 3% of production feed from Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as Mineral Reserves (NI 43-101) or Ore Reserves (JORC 2012), and there is no certainty that the PEA will be realised. Mineral Resources that are not Mineral Reserves or Ore Reserves do not have demonstrated economic viability. References to “Mineral Reserves” in this announcement include Ore Reserves (JORC 2012). See page 19 for additional cautionary language.
Table 1. Copper Price Ranges: Lower-, Base-, and Upper-Case Scenarios1,2
| Project Metric | ||||||
|---|---|---|---|---|---|---|
| Copper Price | ||||||
| Project Metric | Units | Lower | Base | Upper | ||
| (US$3.50/lb) | (US$3.85/lb) | (US$4.20/lb) | ||||
| Pre-Tax | NPV 8% | US$M | 1,046 | 1,540 | 2,029 | |
| IRR | % | 19% | 24% | 29% | ||
| Post-Tax | NPV 8% | US$M | 733 | 1,100 | 1,463 | |
| IRR | % | 17% | 21% | 25% | ||
| Annual Average Revenue | US$M | 779 | 845 | 911 | ||
| Annual Average EBITDA | US$M | 384 | 445 | 506 | ||
| Annual Average Free Cash Flow | US$M | 226 | 271 | 315 | ||
| Payback period (From First Production) | years | 4.25 | 3.50 | 3.25 | ||
| Post-Tax NPV /Start-up Capital 8% | 0.7 | 1.1 | 1.4 |
Within the base-case scenario of the PEA, the positive economics shown in Table 2 outline a project that leverages its low-elevation advantage to achieve low start-up capital costs and consequently one of the lowest capital intensities of global copper development projects at this scale. Annual average revenue of around US$845 Million allow the project to achieve a fast 3.5-year payback on the back of initial open pit mining that fully funds the project expansion and development of underground bulk mining.
1 Certain terms of measurement used in this news release are not performance measures reported in accordance with International Financial Reporting Standards (“IFRS”). Non-IFRS terms measures used such as “Cash Cost”, “All-in Sustaining Costs”, “C1”, “Expansion Costs”, “Free Cashflow” and “All-in costs” are included because these statistics are measures that management uses internally to evaluate performance, to assess how the Project ranks against its peer projects and to assess the overall effectiveness and efficiency of the contemplated mining operations. These performance measures do not have a meaning within IFRS and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. These performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS.
2 The PEA is preliminary in nature and includes 3% of production feed from Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as Mineral Reserves, and there is no certainty that the PEA will be realised. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. See page 19 for additional cautionary language.
Table 2: Costa Fuego PEA1 Economic Highlights2- Base Case
| Project Metric | Units | Estimated | ||||
|---|---|---|---|---|---|---|
| Value | ||||||
| Financial Measures | ||||||
| Pre-tax | Cu US$3.85/lb | NPV 8% | US$M | 1,540 | ||
| IRR | % | 24 | ||||
| Post-tax | Cu US$3.85/lb | NPV 8% | US$M | 1,100 | ||
| IRR | % | 21 | ||||
| Payback period (from start of operations) | years | 3.5 | ||||
| Open Pit Strip Ratio | W/P | 1.8 | ||||
| Post-tax NPV/Start-up Capex | Ratio | 1.1 | ||||
| Capital Costs Costs2 | ||||||
| Total Pre-production Capital Expenditure | US$M | 1,046 | ||||
| Expansion | US$M | 708 | ||||
| Sustaining | US$M | 1,014 | ||||
| Total | US$M | 2,768 | ||||
| Operating Costs2 | ||||||
| C1 | $/lb Cu | 1.33 | ||||
| Total Cash Cost (net by-products and including royalties) | $/lb Cu | 1.43 | ||||
| All-in-Sustaining Cost | $/lb Cu | 1.74 | ||||
| All-In Cost LOM | $/lb Cu | 2.31 | ||||
| Mine Life & Metal Production | ||||||
| Primary Mine Production Including Ramp-up | years | 14 | ||||
| Mine Life (Life of Mine Processing) | years | 16 | ||||
| Primary Mine Production – Average Annual Copper Equivalent Metal3 | kt | 112 | ||||
| Primary Mine Production – Average Annual Copper Metal | kt | 95 | ||||
| Primary Mine Production – Average Annual Gold Metal | koz | 49 |
Following the pre-production Capital Cost of around US$1.05 Billion, operations are expanded to access the remaining deposits at an estimated Capital Cost of US$708 Million, with Sustaining Capital Costs bringing the total project Capital Cost to around US$2.77 Billion. Capital Costs incorporated a 20% contingency, with further contingency applied to the mining pit shells, which were developed using a copper price of US$3.30/lb to hedge against downside price risk impacting the production feed inventory.
Operating costs for Costa Fuego average (estimated net of by-products) a C1 Cash Cost of US$1.33/lb of copper, with an approximate average production rate of 112 ktpa CuEq4 that includes 95 kt Cu and 49 koz Au during primary production (first 14 years).
1 The PEA is preliminary in nature and includes 3% of production feed from Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as Mineral Reserves, and there is no certainty that the PEA will be realised. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. See page 39 for additional cautionary language.
2 Certain terms of measurement used in this news release are not performance measures reported in accordance with International Financial Reporting Standards (“IFRS”). See page 40 for full non-IFRS measures disclaimer.
3 Includes Payability 4 The copper-equivalent (CuEq) annual production rate was based on the combined processing feed (across all sources) and used longterm commodity prices of: Copper US$3.85/lb, Gold US$1,750/oz, Molybdenum US$17/lb, and Silver US$21/oz; and estimated The Costa Fuego life-of-mine processing runs for 16-years, producing an estimated 1.41 Mt of copper and 718 koz of gold (plus 22 kt of molybdenum and 1.7 Moz of silver) for total revenue of approximately US$13.52 Billion and total free cash flow of approximately US$3.28 Billion (post-tax, after operating costs, capital costs, and royalties)
Revenues from the PEA metal payload are described in Table 3 below, with 85% of revenue deriving from copper. Costa Fuego is highly leveraged to the copper price, with analysis identifying that for every US$0.10/lb increase above US$ 3.85/lb Cu price, US$100 Million (approximately) is added in post-tax NPV8%
Table 3: Costa Fuego Revenue Breakdown1
| LOM Revenue Contribution | Revenue (US$M) | % of Total | |||
|---|---|---|---|---|---|
| Copper in Concentrate | 10,342 | 76% | |||
| Copper Cathode | 1,218 | 9% | |||
| Gold | 1,132 | 8% | |||
| Molybdenum | 799 | 6% | |||
| Silver | 32 | 0.2% | |||
| Total | 13,523 | 100% |
Hot Chili has been systematic in its approach to de-risking the project with over a decade of work in consolidating the deposits and securing infrastructure easements and surface rights. Costa Fuego is one of the very few projects globally that holds a granted water permit, approval for power connection to the national grid and the necessary easement corridors for water and power infrastructure that would support the advancement of the project to construction.
30,000 m drilling program across multiple targets to commence shortly
The Company plans to rapidly begin drilling high priority growth targets proximal to the current resource. Drilling will also test promising greenfield targets as shown in Figure 1. Further strategic regional consolidation options are concurrently being pursued, with mineral resource estimate upgrades expected in Q4 2023 and H1 2025.
metallurgical recoveries for the production feed to the following processes: Concentrator (87% Cu, 56% Au, 37% Ag, 58% Mo), Oxide Leach (55% Cu only), & Low-grade Sulphide Leach (40% Cu only).
1 Includes Payability
Figure 1. Exploration Growth Targets Across the Costa Fuego Project
Figure 2. Cortadera Porphyry Expansion Targets1
1 Refer to announcement dated 28th August 2019 for further information regarding Induced Polarisation (IP/MT– MIMDAS) Survey.
- Resource Copper Equivalent (CuEq) considers assumed commodity prices and average metallurgical recoveries for the
Mineral Resource from testwork. See Page 43 for complete Mineral Resource disclosure of Costa Fuego.
Single, Large Pit Scenario for Cortadera being studied in H2 2023
The Company is investigating a large single open pit scenario for Cortadera (no underground block cave) with the potential to materially increase processing feed inventory and mine-life.
This scenario would necessitate a second PEA, studied while refining of the model inputs for metallurgy, geotechnical engineering and hydrogeology, to be incorporated into the Pre-feasibility. Once both PEA scenarios are assessed, the Company would select a single scenario to complete the final stages of its PFS for Costa Fuego, which is expected to be completed by H2 2024.
SUMMARY OF CORPORATE ACTIVITIES US$15 Million Investment Agreement with Osisko Gold Royalties
The significant investment by Osisko provides strong endorsement from one of North America’s leading royalty-streaming groups. The key elements of the royalty agreement, which closed in late July, are:
- US$15 million in funds for growth and development with the investment (Royalty Consideration) to be used to advance the Costa Fuego Pre-Feasibility Studies (PFS), resource growth drilling programmes and for the general advancement of the Project
- Clear “look-through” value given the Osisko NSR is equivalent to a 1.12% CuEq1 NSR royalty across payable metals for US$15 million and Hot Chili’s market capitalisation at the time of announcing the royalty was US$80 million
- Buyback rights if a change of control event occurs prior to the fourth anniversary of Closing. The Osisko NSR can be reduced to 0.5% NSR royalty on copper and 2.5% NSR royalty on gold
- Osisko to have a Right of First Offer (ROFO) with respect to the sale of any future royalty, stream, or similar interests by Hot Chili
Development and Growth Funding
The Investment by Osisko has strengthened the Company’s cash position to approximately A$26 million and the project is now fully funded for the next 12 to 18 months to deliver the next steps in its growth and development plan, (refer Figure 3) including:
- Commencement of 30,000 m drill program – preparations well-advanced, drilling operations set to commence in the coming weeks.
- Completion of Costa Fuego resource upgrade by late 2023.
- Delivery of Costa Fuego PFS by H2 2024 - The Company has already considerably advanced its PFS (approximately 80% complete) with minimal expenditure required for completion.
1 CuEq considers assumed commodity prices and average metallurgical recoveries from test work. See qualifying statements on page 19.
Figure 3. Costa Fuego Project Roadmap1
Figure 4. Location of the Costa Fuego Project Regionally in Relation to Key Infrastructure
1 The Mining Project delivery schedule mentioned herein is subject to various risks inherent to the mining industry, and external factors beyond the control of the project stakeholders, including but not limited to, geological and processing challenges, government policies, permits, or regulations, fluctuations in commodity prices, or market conditions. These external factors can impact the Project timeline and potentially result in delays. The delivery schedule provided is based on the best estimates and assumptions available at the time of its creation, and the Project team is committed to minimising disruptions and implementing mitigation measures to the best of their abilities. However, the effectiveness of these measures in avoiding delays cannot be guaranteed.
Drill Results Reported for Costa Fuego in Quarter 2 2023
No further drilling has been completed in Q2, subsequently there are no details to report.
Additional ASX Disclosure Information
ASX Listing Rule 5.3.2: There was no substantive mining production and development activities during the quarter.
ASX Listing Rule 5.3.3 - Schedule of Mineral Tenements as at 30 June 2023
The schedule of Mineral Tenements and changes in interests is appended at the end of this activities report.
ASX Listing Rule 5.3.4: Reporting under a use of funds statement in a Prospectus does not apply to the Company currently.
ASX Listing Rule 5.3.5: Payments to related parties of the Company and their associates during the quarter per Section 6.1 of the Appendix 5B totaled $151,667. This is comprised of directors’ salaries and superannuation of $151,667.
Health, Safety, Environment and Quality
Field operations during the period included geological reconnaissance activities, core-testing and logging, field mapping, and sampling exercises across the Cortadera, El Fuego and Productora landholdings. El Fuego field activities are run from the Cortadera operations centre and safety statistics are combined for reporting.
No safety incidents were recorded during the quarter. The Company’s HSEQ quarterly performance is summarised in Table 3 below.
Hot Chili's sustainability framework ensures an emphasis on business processes that target long-term economic, environmental and social value. The Company is dedicated to continual monitoring and improvement of health, safety and the environmental systems. There is no greater importance than ensuring the safety of our people and their families.