Short 6.5Mt of copper by 2030? Hot Chili’s spicy 112,000tpa project could ease that when it comes online by 2028
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Copper is fast emerging as the go-to commodity for exposure to the energy transition, but a new wave of mines is needed to bridge the 6.5Mt supply gap experts are forecasting by 2030.
Bank of America warns the shortfall could arrive as early as 2025 following the completion of the current wave of project buildouts, the latest being Ivanhoe Mines’ massive Kamoa-Kakula project in the Democratic Republic of the Congo.
Even economic headwinds such as China’s slower than expected recovery and continued concerns that the US might enter into a recession will not alleviate the need for more copper production.
So it is a good thing that ASX copper developers like Xanadu Mines (ASX:XAM), Rex Minerals (ASX:RXM), Caravel Minerals (ASX:CVV) and Hot Chili (ASX:HCH) are working hard at bringing their near-term monster copper projects into production.
Of these, Hot Chili might well have the biggest impact with the much-anticipated Preliminary Economic Assessment (PEA) for its Costa Fuego development packing a hefty punch as befitting such a large copper-gold resource.
Commonly referred to as a scoping study, the PEA looks at the economic factors to determine the potential viability of a mine – in this case Costa Fuego, which Hot Chili believes can be further optimised in the company’s planned PFS, due for completion in the second half of 2024.
From the estimated copper equivalent production rate of 112,000t per annum – consisting of 95,000t of copper and 49,000oz of gold over a 14-year period of a 16-year mine life – to the estimated revenue and free cash flow of US$13.52bn and US$3.28bn down to the post-tax net present value (a measure of profitability) of US$1.1bn, there’s nothing small about Costa Fuego.
That’s the equivalent of bringing another Oz Minerals (ASX:OZL) into production for the Australian market and should come as no surprise given the massive Measured and Indicated resource (high confidence stuff that you can base mine plans off) of 725Mt grading 0.47% copper equivalent.
Armed with an Inferred resource of 202Mt grading 0.36% copper equivalent, there’s still plenty of room to grow Costa Fuego’s mineable resources with Hot Chili targeting a potential increase in study scale towards 150,000tpa copper project for a +20 years mines life.
In an interview with Stockhead, Hot Chili (ASX:HCH) managing director Christian Easterday says the company has taken a conservative approach, using a standard NPV 8% discount rate, a calculated 20% contingency on all items of capital and long-term US$3.30/lb copper price for optimisations.
“We’ve been working towards a combined project for our advanced resources at Costa Fuego for 10 years and have quadrupled our resource base in that time,” he explained.
“Most importantly, the metal production on the project will make it the largest development project by scale on the ASX.
“The capital to build Costa Fuego has come in at US$1bn and for the 112,000 tonnes of copper production coming out of this thing annually, what that means is that we have the lowest capital intensity project of large-scale undeveloped projects in the world – that’s a very, very important point one that really differentiates us from our counterparts.”
Hot Chili has a clear pathway to production with plans to kick off a 30,000m drilling program targeting resource expansion and exploration targets ahead of an upcoming Costa Fuego resource upgrade by late 2023.
“We’ll be looking to see if we can pull that mine life out to plus 20 years which will be determined by our next steps on resource growth,” Easterday explained.
“This next resource upgrade will include about two years’ worth of drilling and will likely take us comfortably over 1 billion tonnes.
“Next year, we plan to deliver the pre-feasibility study – which is already 80% complete – by the mid-year mark and most importantly, before the end of 2024 we will deliver our environmental impact assessment for our final approval for mining and aiming for a definitive feasibility following that in the first half of 2026.”
Alongside the PEA, Hot Chili has executed a binding US$15m investment agreement with Osisko Gold Royalties for a 1.0% net smelter return (NSR) royalty on copper and a 3% NSR royalty on gold across the Costa Fuego copper-gold project, 600km north of Santiago.
While the cash injection ups the company’s treasury to an ample $26m, which suffices to fully fund the upcoming 30,000m drill program, it also clearly highlights the value that Osisko attributes to the Costa Fuego project given that Hot Chili has a market capitalisation of just $119m.
“Importantly, Osisko’s involvement alongside Glencore’s strategic shareholding in Hot Chili demonstrates Costa Fuego’s global relevance and the project’s potential to deliver near-term, meaningful, new copper supply,” Easterday said.
From Hot Chili’s point of view, copper is primed as the third commodity of the 21st Century to make a step-change in price, with all the ingredients for a 10-fold increase.
“The first commodity to do so was iron ore (the largest metal market in the world) in the early 2000s, moving from $20/tonne to $200/tonne and eventually balancing at around $90 to $120/tonne,” he said.
“The second commodity to do so has been lithium in the past five years.
“Copper is the second largest metal market in the world and has all the hallmarks of a commodity which has very little ability to respond with new supply to a demand shift that will require the market to add at least 50% more annual production in the next 10 years.
“I imagine in the next five to 10 years we will see copper prices driving north of US$8/lb – interestingly this is only double the current price.”
At Stockhead we tell it like it is. While Hot Chili is a Stockhead advertiser, it did not sponsor this article.