Hot Chili Issues Quarterly Report for Q3 2024

 PERTH, Australia, Oct. 31, 2024 /PRNewswire/ -

Highlights

Costa Fuego Copper-Gold Project Pre-Feasibility Study Progresses

• All Costa Fuego Pre-feasibility Study (PFS) workstreams planned for completion in late 2024
• Completion of hydrogeological drilling at the planned Tailings Storage Facility (TSF), as well as additional seawater and freshwater flotation trade-off test work has re-confirmed that optimal processing for Costa Fuego will be achieved using raw seawater
• Metallurgical workstreams indicate potential improvements for both molybdenum flotation and copper oxide leach recoveries when compared to the 2023 Preliminary Economic Assessment (PEA)
• Concentrate market studies confirm a reduction of long-term treatment costs (TC) and refining charges (RC) assumptions, when compared to the 2023 PEA
• Improvement in long-term consensus commodity price forecasts for all potentially payable metals (copper, gold, molybdenum and silver), when compared to the 2023 PEA

Costa Fuego Environmental Impact Assessment Advancing

• Completion of an additional winter-season environmental survey and commencement of a formal community engagement programme with local stakeholders and some indigenous groups
• EIA document preparation underway in advance of planned submission in mid-2025

Huasco Water – A Growing Strategic Asset for Hot Chili

• Hot Chili (80% ownership) and its partner, Chilean iron ore company Compania Minera del Pacifico (CMP, 20% ownership), continue to advance plans for a regional, multi-user, seawater and desalinated water supply business through its newly established company "HW Aguas para El Huasco SpA" (Huasco Water)
• International engineering firm, ILF Group, appointed to complete regional Water Supply Business Case Study (PFS equivalent) for Huasco Water, due for completion in 1H 2025
• Hot Chili's approach to potentially outsourcing its water infrastructure aims to provide capital cost savings and project finance optionality for the development of Costa Fuego

Exploration Activities Underway in Advance of Growth Drilling

• Ground magnetic geophysical survey, surface soil sampling and surface mapping completed across the recently secured, 18,000-hectare Domeyko landholding, with results pending
• Further regional consolidation opportunities being assessed, discussions advancing well

Cash Position of A$25.7 Million

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 99% are classified as Indicated and 1% as Inferred. The Company has concluded that it has reasonable grounds for disclosing a production target which includes a small amount of Inferred Mineral Resources, as permitted under the JORC Code. 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. The viability of the development scenario envisaged in the PEA does not depend on the inclusion of Inferred Mineral Resources. However, it is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Measured or Indicated Mineral Resource with continued drilling.

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. The Mineral Resource Estimate update released in February 2024 does not materially change the Mineral Resource inventory that formed the basis of the 2023 PEA, and no new scientific or technical information has been developed that would materially affect the outcome of the 2023 PEA and, therefore, the results and conclusions of the 2023 PEA are considered current and have been restated for this Report.

To achieve the outcomes indicated in the PEA, including reaching Definitive Feasibility Study ("DFS"), mine construction and production stages, 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 and on acceptable terms. 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 and/or Huasco Water, sale of further royalties and/or streaming rights, sale of non-committed 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 Pre-Feasibility Study Update

During the quarter ending September 2024, the Company continued to focus on several development study workstreams for Costa Fuego's Pre-Feasibility Study (PFS) and Environmental Impact Assessment (EIA).

Metallurgy

Potential for improved molybdenum flotation recovery has been determined as part of final PFS metallurgy work programme, following review and analysis of previous flotation testwork. This higher recovery is expected to upgrade the value of molybdenum as a by-product credit in the PFS, when compared to reported values in the Company's 2023 Preliminary Economic Assessment (PEA) and increase the annual quantity of molybdenum concentrate projected to be produced.

Additional geometallurgical testwork was completed for acid-consumption analysis, to support predictive relationships between geological and alteration units at Productora and Cortadera for the planned heap and run-of-mine leach processing.  Analysis is nearing completion and will enable optimisation of the throughput of the concentrator, as well as acid cost and recovery within the leaching circuit.  Early outcomes indicate significant improvements in copper oxide leach recoveries can be achieved through increased acid addition, when compared to the 2023 PEA.

A final round of Locked-Cycle Tests further confirmed the quality of the Costa Fuego concentrates, with low levels of arsenic and other deleterious elements.  Additional seawater and freshwater flotation trade-off tests were also completed and re-confirmed the planned concentrator would see optimal recovery using seawater.

Mining

Mine design for the four Costa Fuego mining locations (Productora, Cortadera, Alice and San Antonio) is in the final stages of review, incorporating all geological, geotechnical and mining information to confirm open pit stability and flow within the proposed block cave at Cortadera.  Mine designs are currently being scheduled using MineMax and Panel Caving Block Caving (PCBC) software to optimise the mining and stockpiling sequence, utiliizing Costa Fuego's capital and operating cost framework.

Infrastructure

Infrastructure analysis and design continued during the quarter, with optimisation focussed on key infrastructure items including concentrator and the Solvent Extraction Electrowinning (SX-EW) plants, heap and dump leach pads, tailings dam storage facilities, and utility and access corridors between proposed mine sites and port facilities.  Costa Fuego's utility and access corridor is planned to include access road works, seawater pipeline, power lines, concentrate transport route, port and rope conveyor.

Market Analysis

Assessment of the long-term copper concentrate market has indicated overcapacity in the smelter market, resulting in reduced global treatment costs (TC) and refining charges (RC) versus the assumptions used in the 2023 PEA.  Current long-term TC/RC forecasts are materially lower than the USD $90/t concentrate TC and USD $0.09/lb Cu RC applied in the 2023 PEA for Costa Fuego.  These conditions are expected to continue for an extended period given the relatively new smelter additions and few net additions to the supply of copper concentrate.

Long-term commodity price forecasts of all potentially saleable products used in the 2023 PEA for Costa Fuego have increased over the past 15 months reflecting continuing strong demand.  When compared to the 2023 PEA, current long-term commodity price forecasts for copper (+9%), gold (+14%), molybdenum (+25%) and silver (+14%) all sit below spot prices and are likely to benefit the financial metrics for the forthcoming PFS.

Environment

Advancement of environmental workstreams during the quarter focused on developing Costa Fuego's Tailings Storage Facility (TSF) operational plan and design, including hydrogeological and environmental studies of the planned TSF footprint.  An additional four groundwater monitoring boreholes for 228m were completed during the quarter in association with infiltration tests as well as surface litho-structural mapping of the TSF area (Figure 1).

This work was supported through engagement with Chilean regulators to discuss the planned TSF approach, with the work being presented to the regulator for initial feedback.

A site visit at Costa Fuego was held in July 2024, attended by several of the Company's Qualified Persons, key technical consultants, and the Hot Chili development team.  Attendees reviewed processing, mining and infrastructure designs on location, having regard for environmental and social considerations identified through Hot Chili's baseline surveys and community engagement processes. Infrastructure designs will continue to be refined to optimise the Project footprint whilst minimising potential environmental risks and impacts, while endeavouring to ensure that the Project delivers net benefits to the surrounding communities and population.

In September 2024, the Company executed several small-scale, lease mining agreements with a number of local miners, continuing Hot Chili's ongoing support for local mining employment. Hot Chili is dedicated to supporting the community and advancing sustainable mining in the region.

Costa Fuego Environmental Impact Assessment Advancing

Hot Chili is in the advanced stages of preparing its EIA for Costa Fuego ahead of planned submission in mid-2025.  During the quarter, the Company's environmental team completed another winter period environmental baseline study and Company's community engagement team held several meetings with indigenous and non-indigenous stakeholders as part of Hot Chili's formal community engagement programme.  The Company has also commenced documentation of over a decade of work undertaken in the Huasco region in support of its planned EIA submission.

Exploration Drilling at Productora – Sterilisation for Mine Infrastructure

During the quarter, Hot Chili's exploration team completed two drill holes for 873m to test a high-sulphidation epithermal (HSE) target identified within the mine development footprint, adjacent to the planned Productora open pit.  Drill targeting utilised recently acquired geophysical datasets (MIMDAS) to refine a mineralisation style which had not previously been explored at Productora (Figure 2).

No significant drilling intersections were recorded, with the target now sterilised for planned site infrastructure, allowing the Company to finalise the mine infrastructure layout for the planned PFS and associated EIA.

Alteration zonation identified in drill hole PRD0020 have indicated potential for future HSE targets at depth towards the main Productora mineralisation system. These targets will be reviewed and incorporated into the Company's regional exploration target pipeline.

Regional Exploration Programmes Advancing - Domeyko landholding

An extensive ground magnetics survey comprising of 1,755-line km's (100m spaced, north-south oriented survey lines) was completed in August 2024 at the recently acquired Domeyko landholding (Figure 2), to assist with targeting across this large 18,000-hectare landholding.

In addition, the Company's exploration team continued to complete a major regional soil sampling and surface litho-structural mapping campaign at Domeyko (Figure 3 - 6).  Approximately 1,181 soil samples and 76 rock chip samples have been collected across the Domeyko landholding to date, with assays returned for approximately 70% of the soil survey and 80% or rock chip samples collected to date.

Several encouraging results up to 3.5% copper, +10g/t gold and +100g/t silver have been returned from individual rock chip samples collected to date (Table 1). Of the 60 results returned so far, 10 samples recorded copper grade above 1.0%, 8 samples recorded gold grades above 0.5g/t and 4 samples recorded silver grades above 10g/t.  Further rock chip results are pending.

Table 1. Domeyko rock chip samples returned in Quarter 3 2024, sorted by Cu%

The Company is well advanced in its regional exploration assessment of Domeyko ahead of prioritising targets for initial drill testing.

Table 2 - Drill Holes Completed for Costa Fuego in Quarter 3 2024

Note: NSR – no significant intersection recorded. Only minor mineralisation encountered in sterilisation drill hole PRD0021

SUMMARY OF CORPORATE ACTIVITIES

Huasco Water – A Growing Strategic Asset for Hot Chili

Hot Chili announced on 8th July 2024, the establishment of a new subsidiary water company - Huasco Water - and commenced transfer of water assets previously held by Hot Chili's subsidiary Sociedad Minera El Águila SpA (80% Hot Chili, 20% CMP).  The launch of Huasco Water (80% Hot Chili, 20% CMP) leverages Hot Chili's first-mover advantage to potentially supply future water demand for communities, agriculture and new mining developments in the Huasco Valley region of Chile.

In August 2024, Huasco Water appointed international engineering firm ILF Group to manage Huasco Water's regional Water Supply Business Case Study, which is well underway and due for completion in H1 2025 at a level of detail and confidence similar to a PFS. 

The pre-feasibility level Water Supply Business Case Study is focussed on the initial stages of potential water supply to the Huasco region, being:

1. Establishing sea water supply for Costa Fuego at a minimum scale of 600 Litres per second (l/s) by 2028.  Hot Chili is positioned as a potential foundation customer and negotiation for a water off-take agreement is planned to commence in late 2024; and
2. Establishing scalable, desalinated water supply for third parties in the Huasco Valley region at an initial scale of up to 1,300 l/s from 2030 onwards.  Potential customers include projects like CMP's Las Colorados as well as other community, industrial and non-mining projects.

Huasco Water controls the only active granted maritime water concession and most of the necessary permits to provide non-continental water supply to the Huasco Valley, following over a decade of permitting advance for Hot Chili's coastal range Costa Fuego copper-gold project.

A conceptual study completed by Hot Chili in February 2024 (see announcement dated 26 February 2024) outlined potential for significant economic, environmental and social benefits for a variety of potential customers in the Huasco Valley, especially given growing community and regulatory opposition to continental water extraction in the Atacama, and the long lead times involved in securing maritime concessions and associated permitting in Chile.

Hot Chili is in discussion with potential water off-takers in the Huasco Valley and is also engaging with potential infrastructure partners in relation to the potential financing and development of Huasco Water's future industrial water infrastructure. 

Hot Chili's approach to potentially outsourcing its water infrastructure aims to provide capital cost savings and project finance optionality for the development of Costa Fuego.

Cash Position and Capital Structure Changes

As of 30 September 2024, the Company had cash of A$25.7 million and no debt.

The operating expenditure for period ended 30 September 2024 included payments for exploration and evaluation of $4.1M. Included in this amount was $3m related to the advancement of the Pre-Feasibility Study and the Environmental Impact Assessment. $1.1M was spent on exploration activities on the Domeyko landholding.

The investing expenditure for period ended 30 September 2024 included payments for tenements of $1.9M, relating to landholding Option Agreement payments (including US$1 million Option payment for El Fuego).  

The following summarises the Company's securities on issue:

• 151,420,450 ordinary fully paid shares
• 1,850,001 AUD$2.25 options expiring 30 September 2024
• 1,259,789 options at CAD$1.85 expiring 31 January 2025
• 1,914,000 options at AUD $1.50 expiring 24 July 2026
• 5,429,240 service and performance rights.

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 of 30 September 2024

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 totalled $163,000. This is comprised of directors' salaries and superannuation of $163,000

Health, Safety, Environment and Quality

Field operations during the period included geological reconnaissance activities, reverse-circulation drilling, diamond drilling, core-testing and logging, field mapping, and sampling exercises across the major Cortadera and Productora landholdings, as well as new tenements at Domeyko. Activities on new tenements are run from the Productora or Cortadera operations centres and their safety statistics are included under the figures for all projects.

There were no Lost Time Injuries (LTI) during the quarter.

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. 

Table 2. HSEQ Quarter 3 2024 Performance and Statistics

Tenement Changes During the Quarter

During the quarter, Sociedad Minera La Frontera SpA ("La Frontera") claimed two mining exploration concessions ("CF 10" and "CF 11"), which are in the process of being constituted. Also, some mining right names were standardised with a (-) symbol and six mining rights (Santiago A 1-26; Porfiada XII 1-60; Porfiada A 1-40; Porfiada F 1-50; Cortadera 6 1-60; and Chilis 10 1-38) were reduced in size due to mining right conversion into exploitation leases.

The Company's existing tenements are detailed in the table below.

Table 3. Current Tenement ('Patente') Holdings in Chile as at 30 September 2024

Qualifying Statements

Qualified Persons – NI 43-101

The information pertaining to the Mineral Resource Estimates included in this Report has been reviewed and approved by Ms. Elizabeth Haren (FAUSIMM (CP) & MAIG) of Haren Consulting Pty Ltd. All other scientific and technical information in this Report has been reviewed and approved by Mr Christian Easterday, MAIG, Hot Chili's Managing Director and Chief Executive Officer. Each of Ms. Haren and Mr. Easterday are a qualified person within the meaning of NI 43-101.

Competent Persons – JORC

The information in this Report that relates to Mineral Resources for Cortadera, Productora (including Alice) and San Antonio which constitute the combined Costa Fuego Project is based on information compiled by Ms Elizabeth Haren, a Competent Person who is a Fellow and Chartered Professional of The Australasian Institute of Mining and Metallurgy and a Member of the Australian Institute of Geoscientists. Ms Haren is a full-time employee of Haren Consulting Pty Ltd and an independent consultant to Hot Chili.  Ms Haren has sufficient experience, which is relevant to the style of mineralisation and types of deposits under consideration and to the activities undertaken, to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code of Reporting of Exploration Results, Mineral Resources and Ore Reserves'.  Ms Haren consents to the inclusion in the Report of the matters based on her information in the form and context in which it appears.

The information in this announcement that relates to Exploration Results for the Domeyko project is based upon information compiled by Mr Christian Easterday, the Managing Director and a full-time employee of Hot Chili Limited, whom is a Member of the Australasian Institute of Geoscientists (AIG). Mr Easterday has sufficient experience that is relevant to the style of mineralisation and type of deposits under consideration and to the activity which he is undertaking to qualify as a 'Competent Person' as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves' (JORC Code). Mr Easterday consents to the inclusion in the report of the matters based on their information in the form and context in which it appears.

Disclaimer

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this Report.

Cautionary Note for U.S. Investors Concerning Mineral Resources

NI 43-101 is a rule of the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Technical disclosure contained in this report has been prepared in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum Classification System. These standards differ from the requirements of the U.S. Securities and Exchange Commission ("SEC") and resource information contained in this report may not be comparable to similar information disclosed by domestic United States companies subject to the SEC's reporting and disclosure requirements.

All amounts in this report are in U.S. dollars unless otherwise noted.

Forward Looking Statements

This report contains certain statements that are "forward-looking information" within the meaning of Canadian securities legislation and Australian securities legislation (each, a "forward-looking statement"). Forward-looking statements reflect the Company's current expectations, forecasts, and projections with respect to future events, many of which are beyond the Company's control, and are based on certain assumptions. No assurance can be given that these expectations, forecasts, or projections will prove to be correct, and such forward-looking statements included in this report should not be unduly relied upon. Forward-looking information is by its nature prospective and requires the Company to make certain assumptions and is subject to inherent risks and uncertainties. All statements other than statements of historical fact are forward-looking statements. The use of any of the words "could", "estimate", "expect", "may", "plan", "potential", "project", "should", "toward", "will", "would" and similar expressions are intended to identify forward-looking statements.

The forward-looking statements within this Report are based on information currently available and what management believes are reasonable assumptions. Forward-looking statements speak only as of the date of this report. In addition, this report may contain forward-looking statements attributed to third-party industry sources, the accuracy of which has not been verified by the Company.

In this Report, forward-looking statements relate, among other things, to: prospects, projections and success of the Company and its projects; the ability of the Company to expand mineral resources beyond current mineral resource estimates; the results of current and planned geophysical programs; the results and impacts of planned drilling to extend mineral resources and to identify new deposits; the Company's ability to convert mineral resources to mineral reserves; the timing and outcomes of current and future planned economic studies including the planned PFS and DFS; the potential to develop a water business in the Huasco valley and the future economics thereof; the timing and results of the Water Supply Business Case Study; whether or not a second maritime water extraction permit will be granted; whether or not water offtake agreements and/or infrastructure partner agreements will be entered into and, if so, on what terms; the timing and outcomes of regulatory processes required to obtain permits for the development and operation of the Costa Fuego Project, including the EIA; whether or not the Company will make a development decision and the timing thereof; and estimates of planned exploration costs and the results thereof.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking statements in this Report, including, but not limited to, the following material factors: operational risks; risks related to the cost estimates of exploration; sovereign risks associated with the Company's operations in Chile; changes in estimates of mineral resources of properties where the Company holds interests; recruiting qualified personnel and retaining key personnel; future financial needs and availability of adequate financing; fluctuations in mineral prices; market volatility; exchange rate fluctuations; ability to exploit successful discoveries; the production at or performance of properties where the Company holds interests; ability to retain title to mining concessions; environmental risks; financial failure or default of joint venture partners, contractors or service providers; competition risks; economic and market conditions; and other risks and uncertainties described elsewhere in this report and elsewhere in the Company's public disclosure record.

Although the forward-looking statements contained in this Report are based upon assumptions which the Company believes to be reasonable, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. With respect to forward-looking statements contained in this Report, the Company has made assumptions regarding: future commodity prices and demand; availability of skilled labour; timing and amount of capital expenditures; future currency exchange and interest rates; the impact of increasing competition; general conditions in economic and financial markets; availability of drilling and related equipment; effects of regulation by governmental agencies; future tax rates; future operating costs; availability of future sources of funding; ability to obtain financing; and assumptions underlying estimates related to adjusted funds from operations. The Company has included the above summary of assumptions and risks related to forward-looking information provided in this Report to provide investors with a more complete perspective on the Company's future operations, and such information may not be appropriate for other purposes. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom.

For additional information with respect to these and other factors and assumptions underlying the forward-looking statements made herein, please refer to the public disclosure record of the Company, including the Company's most recent Annual Report, which is available on SEDAR+ (www.sedarplus.ca) under the Company's issuer profile. New factors emerge from time to time, and it is not possible for management to predict all those factors or to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

The forward-looking statements contained in this Report are expressly qualified by the foregoing cautionary statements and are made as of the date of this Report. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking statement to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise. Investors should read this entire report and consult their own professional advisors to ascertain and assess the income tax and legal risks and other aspects of an investment in the Company.

Mineral Resource Statement

Costa Fuego Combined Mineral Resource (Effective Date 26th February 2024)

Appendix 5B

Mining exploration entity or oil and gas exploration entity
quarterly cash flow report