Hannam and Partners: Hot Chili is deeply discounted despite quality project

Hot Chili and its exciting Costa Fuego hub with multiple coppery porphyries are undervalued by the market, according to Hannam and Partners.

The independent investment bank has initiated coverage of the company with a price target of $8 per share, which is almost 400% higher than the current price of $1.61.

H&P noted that the addition of the Cortadera project several years ago to the existing Productora project, which already had a pre-feasibility study, significantly transformed Hot Chili’s (ASX:HCH) Chilean portfolio.

Cortadera has proven to be a true winner with many thick copper-gold porphyry drill intersections leading to the definition of a 725 million tonne Indicated resource grading 0.47% copper equivalent that has plenty of room to grow.

Small wonder then that H&P believes the company is deeply discounted despite its exposure to what it considers to be a high-quality, sizeable project that could play a crucial role in filling the looming global copper supply deficit over the coming decade.

“With a new blockbuster resource and TSX-V cross-listing, an updated PFS due in Q3 2022 will merge several deposits for the first time and leverage HCH’s significant permitting and site design work already completed,” H&P explained.

“Combined with its relative low altitude and existing infrastructure advantages, we expect this to offer a fast-track to production and act as a significant catalyst for the stock.”

1 billion tonnes makes for attractive comparisons

The combined Costa Fuego development has a current resource of 927Mt at 0.45% copper equivalent, three times higher than the Productora resource back in 2016.

Much of this is due to the addition of Cortadera and over 52km of drilling carried out since then.

It also makes for an attractive enterprise value to measured and indicated resource (EV/M&I) of US$0.01 per pound of copper equivalent, which H&P said is the lowest of its direct peers and significantly discounted to the US$0.03/lb copper equivalent median of late-stage copper porphyry projects.

The upcoming Costa Fuego PFS is also expected to really highlight the project’s scale and attractiveness.

H&P modelled a 25-year mine life at 23.3Mt throughput to generate net present value of US$1.7 billion and internal rate of return of 27%.

Capital intensity and cash costs are also expected to be low at US$11,490 per tonne and US$1.47/lb respectively.

“We believe Hot Chili is well poised to deliver significant catalysts this year and remains funded for the next 18 months following a strategic investment from Glencore as well as a TSX-V cross-listing in January this year,” H&P added.

This article was developed in collaboration with Hot Chili, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.