Categories: Base Metals / Precious Metals / Mining Stocks
Topics: General Base Metals / General Precious Metals / Gold Stocks / Copper Stocks

Hot Chili Ltd. (TSX-V: HCH)(OTC: HHLKF) Non-Executive Chairman Dr. Nicole Adshead-Bell on Advancing Billion-Dollar Copper-Gold Project & New Discovery in Low-Elevation Chile

 

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is one of the smartest and one of my favorite people in the resource space. I'm talking about the non-executive chairman of Hot Chili Ltd. (TSX-V: HCH)(OTC: HHLKF) — Dr. Nicole Adshead-Bell. 

Nikki, it’s great to have you back on. How have you been?

Dr. Nicole Adshead-Bell: It’s great to be on. I've been very, very well. And how have you been?

Gerardo Del Real: I've been well… nursing a bit of a cold but we're at the tail end of it. But life is good… the sun is out. And look, we have ourselves a very healthy and robust copper market, and we have ourselves a heck of a gold market near all-time highs. 

So when I look out into the landscape, one, I'm a big copper bull. And I think over the next several years, we're going to have structural deficits in the space that are going to be very, very advantageous for companies that have large-scale resources in good jurisdictions that can make the economics work.

I'm also a huge fan of gold, obviously. And with it being at all-time highs, it's rare to find assets that have scale, that have a healthy endowment of copper, that have a healthy endowment of gold, and that also simultaneously are onto brand new discoveries. Hot Chili Ltd. has a one-two punch right now that I think is beautiful for this market. 

So I wanted to have you on to talk about Hot Chili because I think there's a lot of value to unlock, especially in the market that we're going into.

Dr. Nicole Adshead-Bell: I absolutely agree with you. And I love the analogy of a one-two punch. I do Muay Thai kickboxing, and that's an excellent analogy as to what Hot Chili brings to the table. 

We benefit from a very, very sizable copper resource. We have an advanced project, the Costa Fuego Copper-Gold Project in low-elevation Chile. And I say low elevation Chile because elevation is very, very important. 

In terms of our peers, there have been some amazing and spectacular discoveries in the sector, and pretty close to us. And believe me, we'd love to have some of their valuations. But there are certain challenges that come with working at 4,000 to 4,500 meters versus the sub-1000 meters that we're at.

We have 6.4 billion pounds of copper Indicated and 2.6 million ounces of gold also Indicated so the majority of resources Indicated in our Costa Fuego Copper-Gold Project, which we're rapidly advancing through the development stages. In fact, we're due to release a PFS on Costa Fuego in the next couple of months.

And then, to add fire to the engine, I suppose, possibly not a correct analogy, is we've just recently had another discovery called La Verde, which has all of the hallmarks of being a sizable copper-gold porphyry discovery. It's essentially mineralized from surface; mineralization starts at 46 meters. 

And it seems to be the gift that keeps on giving at the moment with our initial drill results showing intersections somewhere along the lines of 308 meters at half a percent copper and three grams per tonne of gold, including some fairly sizable intersections of higher grade; for example, 202 meters at 0.6% copper and 0.3 g/t gold.

And this is all from near-surface, of which we’ve drilled nineteen RC holes, and we've reported twelve. We’re waiting on assays for an additional seven holes. But so far, it looks like we have defined consistent mineralization over significant depth; 300 meters vertical depth. 

Now, to put this into context, why are we only drilling to 300 meters? That's essentially as deep as the RC rig can go in these types of ground conditions. And it's ending in mineralization. And so we plan in the future to follow up the RC holes with some diamond holes to see how big the system actually extends vertically. 

And we've also extended mineralization laterally. So we now have 540 meters from a 400-meter extent, which remains open in all directions. So it's the geological gift that one likes to see.

Gerardo Del Real: Talk to me about the infrastructure because, I'll be honest, Nikki, when I look at the market cap — and let's assume you don't have the advanced asset with the great numbers and large copper and gold endowment — if I'm just looking at La Verde, I can make a pretty compelling case that your market cap is justified just by this new discovery, right; 308 meters of 0.5% copper and 0.3 g/t gold from 46 meters to the end of the hole, which is a pretty significant hit. 

And again, you mentioned having assays pending, and you mentioned it being open in all directions. Do you feel the market is missing something? And then, let's get into the details and the infrastructure and some of the plans moving forward and some of the catalysts because 2025 is going to be catalyst-rich for the company.

Dr. Nicole Adshead-Bell: Yes, that's correct. I think what we've been suffering from is being in the development trough of the Lassonde Curve. So when you have a development project, ironically, you are less well-valued than if you have an exciting exploration discovery. 

And so we’ve been advancing Costa Fuego. And I think the lack of alpha news in the form of dual results has resulted in a valuation where the market just doesn't seem to care about developers right now. They will care at some point in time. 

I, like you, am a very, very big believer in copper and in a copper bull market, and I think that the incentive price has to rise materially over the next couple of years to incentivize the new copper production that the world needs. There's no escaping that. Everybody agrees that primary copper production is starting to decline and that copper demand is not going away.

So we’ve been within that development, I would say, that development-valuation trap. And I would agree with you that, if we were just La Verde, if we were just the copper discovery without the distraction, if you will, of having a development project and also a water business, which I'll touch on in a second, we would probably have a valuation that is where we are today, which is around 117 million Australian dollars or pesos. 

And if we put that into US dollar terms, that's around $75 million. And we have a balance sheet where we reported 19 million Australian dollars in cash at the end of the year. So absolutely, of course, we're always going to say that we're undervalued, as do most of our peers. 

But I think perhaps a relevant peer to point to is ATEX Resources, which is up elevation from us at 4,500 meters and drilling multi-kilometer holes before they intercept mineralization at around a kilometer depth. Absolutely fantastic discovery. 

The management team and the technical team at ATEX have done a superb job of driving shareholder value, and they have a value of C$600 million. And so I think that shows just what the market is willing to give with exciting drill play stories. And, of course, Filo Mining is another one that was just recently acquired. And NGEx Minerals is another one. Again, absolutely spectacular discoveries. 

And so we think we have the beginnings of a very sizable discovery and, really, it's our job to ensure that the investing universe out there understands what we have and what it is that we are doing.

Just on to your point about infrastructure, we are average grade; Costa Fuego is 0.47% CuEq. And some of the criticisms that the company gets is, ‘Well, you are not the highest-grade deposit out there.’ And that is absolutely true. But what we are blessed with is, number one, being at low elevation. And so, if you are a low elevation play, that just has a very positive impact on everything from costs to your ability to attract labor. 

I don't know if you or anyone that will be listening to this has been up in high elevation but my first experience going up to 4,000 meters, I rather embarrassingly fainted and had to be carted off the mine project because I didn't handle the elevation very well. 

And so we are 50 km from the coast on the Pan-American Highway. We are within 20 km of some sizable cities so we can draw our labor force from cities. We don't have to build camps, we don't have to build roads. It's easier to attract people because they want to work at lower elevations.

We have power sorted, we have water sorted. And water is the most critical ingredient. Without water, no project in the world goes forward. And in Chile, it's particularly important. 

And what this management team at Hot Chili did is, ten years ago, we realized that water was very high-risk. You would not be able to permit extraction of continental water. So we started the permitting process, which took 10 years. And not because we're bad at permitting but because it just is a very, very lengthy timeframe to permit a marine concession, which is essentially the right to extract seawater. 

And fortunately for us, our deposit type means that we can use seawater for processing. So we do not have to build a high-cost desalination plant to use fresh water for processing.

And there are a couple of examples as to, well, what does this mean? What's the value of it? Well, number one, we have a water license, which takes 10 years to get. And all of our development peers in the region do not have a water license nor have they applied for one. And so if they were to start that process today, they're looking at 10 years.

Then, we have Antofagasta, the fifth-largest copper producer in the world; a Chilean company 600 km north of us with their Centinela Copper Mine, which, to put this into context, is an operating copper mine that also uses seawater for its processing. They just recently sold their water assets. And their water assets were their marine concession, which is exactly what we have, and their piping infrastructure. 

We do not have that [piping infrastructure]. Obviously, we are not yet an operating mine. But they sold those two key elements of their water business to a consortium of investors for US$600 million. And that consortium has also agreed to fund up to US$350 million investment of building additional piping infrastructure as the mine is going through its expansion. So that is just a leading indicator of how important water is, number one. 

And two, there’s the value that water can bring to an operation. And the reason it is so valuable is that, essentially, it’s an infinite and perpetual annuity when you think about it. It's an infinite resource, and you have a very, very long permitting timeline in the order of 50 years. 

And so there's a certain class of investors. And so the investors that were backing the Centinela water business acquisition, for example, included Canada Pension Plan and included the British Columbia Investment Corp. So that would include groups that are looking for very, very long-term annuity-like assets.

And so for us, how we view the water is we aren't going to build a water business. We want to build our copper business. But we do see our water business as having the potential to help us fund the copper business. And that's why we think it's very strategic and important to the company. 

Gerardo Del Real: I do want to emphasize that you have a new joint venture water company established. This isn't a ‘pie in the sky’ … ‘in a hundred years’ … type of scenario. You've formalized this recently, correct?

Dr. Nicole Adshead-Bell: Yes, we did because we realized that there was some interest in our water assets. And so we have spun the water business. And what that includes is our marine concession, and it includes all of our permitting. There has been a lot of effort that, again, has taken a material amount of time. 

It's essentially a five-year permitting process. We have permitted the right-of-ways for our proposed water infrastructure, which is piping, and also for our electrical infrastructure. Those permits have gone into a subsidiary that we control. It is 80% owned by us and 20% owned by our Chilean partner, CMP, which owns 20% of our Productora deposit. 

So that's the first step to creating a separate business that we aim to monetize in some fashion or another, and we would be the first client. And what you're seeing in Chile is the government wanting to see companies work together, and they're wanting to see multi-user water networks. 

So what we see in this area is we see potential users in the form of local communities. It's a very, very water-poor area. We see potential users in the form of agro-industrial. There are also a number of development projects within a 150 km radius of us that are also potential users. 

So on a longer, multi-decade basis, we see this as being a very, very crucial business that will have a materially positive impact to local communities and to economic investment within the region.

Gerardo Del Real: So you are like a one-two punch with a follow-up kick… to go back to the initial analogy!

Dr. Nicole Adshead-Bell: That's right… a follow-up round-kick!

Gerardo Del Real: I love that! Listen, you touched on the market cap earlier. And I want to go back to you being penalized for having a development project. That development project has an after-tax NPV of US$1.1 billion. That's a lot of leverage in an environment where I think the copper and the gold price continues higher. 

And again, there are opportunities to optimize that. But I want to be absolutely clear that, judging by the scale and the footprint and the initial results from the new La Verde discovery, that, in itself, looks like it may end up being a more exciting part of the story. It's great to have them both and to have the water kicker at the end of that. 

But you have yourself a great, great setup and are positioned well, obviously, for this next leg up in the space.

Dr. Nicole Adshead-Bell: Yes, and I think a good point to reference is our PEA, which we completed in 2023. And we are now in the final stages of completing our next more advanced study, which is a Pre-feasibility Study that's due out in the next few months. 

But to put that into context, that US$1.1 billion NPV was done at an 8% discount rate. Some of our peers are using more aggressive discount rates. It was done at US$3.85 per pound copper and US$1,750 per ounce gold. Now, obviously, we're at materially higher copper and gold prices than when that study was done. 

And to point to the leverage aspect, for every 10-cent increase in the copper price, based on the economics of the study at that time, results in an increase in the NPV by US$100 million. And so, yes, Costa Fuego, based on what we know today, has incredible leverage to the copper price.

And I absolutely agree with you about La Verde. It’s early days. But the fact is… it’s mineralized from surface, and it has a shallow gravel cover that has likely masked a lot of the mineralization signatures from previous operators. 

Also, we've been looking at this project for six years. And this is something else that the Hot Chili team is exceptionally good at doing, which is standing back using geological maps and going, ‘Where are the areas that we want to be?’ 

And we are going to have patience and build long-term relationships with local business partners and local owners, and we're going to consolidate those projects. The company spent six years trying to get this piece of ground. Arguably, it's an overnight success that  has taken six years.

But La Verde has the hallmarks of what you want to see, which is grade with a gold kicker. It’s within 30 km of our proposed infrastructure and within haulage distance. And it's mineralized from surface and looks sizable. And so we will be aggressively continuing to find out what it is that we have at La Verde. 

The geological gods have been smiling on us with respect to La Verde, and everyone's feeling pretty pleased about it. Again, the one thing we're trying to do is to get the market to understand that not only are we a developer… a ‘boring’ developer… but we’re also an exciting exploration play at this point in time.

Gerardo Del Real: Excellent, excellent overview. I have to ask… and you touched on it a bit already but… what comes next? That's the question everyone always has. You can have a billion-dollar asset and a hot new discovery but it’s always, ‘What comes next?’ I know there are assays pending. I know there's drilling. It should be an exciting 2025. 

Dr. Nicole Adshead-Bell: It absolutely should be an exciting 2025. We are due to release the Costa Fuego Pre-feasibility Study by the end of Q1 of this year, and, at the same time, releasing our Huasco Water Pre-feasibility Study. 

That's a point in time where we can start to pin some value on something that I think actually probably confuses the average person with respect to what is Huasco Water and what it can ultimately mean for us and for the owners of Hot Chili Ltd.; obviously, our shareholders. So those are both due before the end of this current quarter.

In the meantime, we have assays pending on seven RC holes from La Verde. We aim to continue drilling La Verde with the longer-term goal of putting some deeper holes in so that we can understand how big this mineralized copper-gold porphyry we’ve discovered can ultimately get. 

So lots of news flow to come in the backdrop of a very, very exciting gold price environment. Obviously, there's a lot of love for gold, and, hopefully, we're going to start seeing that trickle down to some of the gold developers out there.

Also, we’re seeing a very strong copper price environment. And I would say, in the context of this perfect storm, where is new supply going to come from? Copper is THE critical metal, and there’s very little commitment to new supply… and primary supply starts to drop off a cliff in 2025. 

And so what we are seeing, I think, and you mentioned this at the start, is this perfect setup for the developers to start receiving some equity and share price performance love. And we, like many of our copper peers, are trading, I would say, at historically low valuations. And at some point that will change as the cycle advances. It always does.

Gerardo Del Real: Absolutely. I see a cycle of M&A coming that’s going to rerate a lot of the developers, and I think you're going to be right at the forefront of a lot of chatter here in 2025. Nikki, always a pleasure. Thank you so much. Is there anything else you’d like to add?

Dr. Nicole Adshead-Bell: No, just watch this space!

Gerardo Del Real: Excellent! Thank you so much. Let's do this more often, please.

Dr. Nicole Adshead-Bell: Yes. Thank you very much for having me, Gerardo. Much appreciated.

Gerardo Del Real: Chat soon, cheers.

Dr. Nicole Adshead-Bell: Thank you.

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