El Fuego deal cuts Hot Chili 2024 option by $10m

ASX-listed Hot Chili has reduced its 2024 option payments by US$10 million (AU$15.3 million) after renegotiating a previous agreement for its El Fuego landholdings adjacent to its Costa Fuego copper-gold project in Chile.

Once exercised, the new deal will increase the company’s ownership of the tenements from 90 per cent up to 100 per cent and will extend the option expiry date to 2026, in exchange for aggregate payments of US$4.3 million (AU$6.58 million) over three years.

The company had three options due to be exercised next year for El Fuego, which would have cost the explorer US$11 million (AU$16.8 million). However, the latest agreement gives its subsidiary Sociedad Minera La Frontera a 100 per cent interest in EL Fuego through a US$300,000 (AU$459,000) payment that has already been made, two payments of US$1 million (AU$1.53 million) due in September next year and then again in 2025 and US$2 million (AU$3.06 million) set for September 2026.

According to the new deal – and if the option is not abandoned – Hot Chili will make an additional payment of US$2 million if the copper price averages US$5 (AU$7.65) per pound for a consecutive 12-month period before the start of 2030.

An additional payment of US$2 million will be made if Hot Chili or its subsidiaries report an independently-estimated, JORC-compliant mineral resource of 200 million tonnes or greater within the El Fuego tenements by 2030. The new deal has been dubbed the El Fuego option and covers the previously privately-owned San Antonio, Valentina and Santiago Z landholdings.

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, 2.6 million ounces of gold and almost 10.5 million ounces of silver, in addition to molybdenum credits.

We are actively evaluating the region for consolidation opportunities and we expect to see further success on this front as we look to up-scale Costa Fuego’s potential study scale toward 150kt per annum copper development, from its current 95kt per annum copper metal production scale as outlined in our recent Preliminary Economic Assessment (PEA).

The company revealed the PEA in June, showing the project will spit out a massive $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).

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.

The renegotiation of the El Fuego deal significantly reduces the amount of cash Hot Chili will need to spend in the coming year, while also potentially increasing to full ownership of the area. The company is now looking at holding a solid chunk of Chilean real estate in a country renowned for its copper-gold mineralisation.

Is your ASX-listed company doing something interesting? Contact: matt.birney@wanews.com.au