Hot Chili goes from cold to warm in hunt for an economic copper-gold deposit

Plus, the bulls are running on Highfields’ Spanish potash project after receipt of environmental permit
21st June 2019
Barry FitzGerald

Persistence in the Chilean coastal range is about to pay off handsomely for ASX-listed Hot Chili (ASX:HCH).

It has just reported a top-40 porphyry copper-gold hit at its recently optioned Cortadera project, near the iron ore mining town of Vallenar and 700km north of Santiago. It’s a game-changer, but first some history.

Hot Chili was brought to the market in 2010 with Chile’s low-altitude copper (and iron ore, uranium and some other things) as its focus by Kalgoorlie drilling company owner Murray Black as non-executive chairman and geologist Christian Easterday as managing director.

The Kalgoorlie gang has been patient and still owns 17%. Mid-tier and junior specialist Taurus Funds Management is on board with 14% and Chilean iron ore group CAP SA holds 9%. Sprott and Exploration Capital Partners have 14% between them.

That sort of register reflects the situation where, after knocking about in Chile for the best part of 10 years, Hot Chili had become one of the top-rated ASX-listed copper developers on the strength of its resource base of 1.5Mt copper and 1Moz gold at its Productora project, 700km north of Santiago.

But Productora has no been no game-changer by itself. Once valued by the market at $250m on Productora alone, Hot Chili sank as low as 1c a share in January ahead of wriggling up to the current 3.5c for a market cap of $35 million.

The wriggle upwards was triggered by the February option with the family company of a Chilean billionaire to acquire Cortadera, which sits 14km from Productora on the other side of the Pan American Highway.

Some $US15m had been spent on the property (MIM was there in the early days) by private interests outlining a swarm of copper-gold porphyries. But until Hot Chili came along, results like 864m grading 0.4% copper and 0.1 g/t gold had never seen the light day.

Following some confirming work after the $US30m (staged payments) option deal was struck, Hot Chili punched in its first two diamond holes.

One extended the extent of the targeted Cuerpo 3 porphyry to the north while the second confirmed a high-grade zone which returned a super impressive 188m grading 0.9% copper and 0.4g/t gold.

It was Easterday who noted that the hit was similar in combined average grade and depth to London-listed SolGold’s high-grade zone at its world-class Cascabel discovery in Ecuador – the one that Newcrest and BHP have got all excited about, taking up 15% and 11% equity positions in SolGold respectively.

It stands to reason then that Easterday said the hit was the best result ever for the company and that Cortadera had the potential to become a company-maker “in its own right, and looks to take centre stage ahead of our Productora project”.

As it was, Cortadera was originally added to the portfolio in an effort to achieve the critical mass needed for a potential Tier 1 copper development from a “super copper hub” combination with Productora.

The latest hits at Cortadera suggest the potential for Hot Chili to get there on it alone. There is lots more work to do before getting too excited and there is the need to secure the funding to exercise the staged option payments.

But after near 10 years working away in Chile, it could well be that Hot Chili’s transformation from dogged explorer to big-time copper player is within its grasp. It’s certainly worth a celebratory pisco sour or piscola you would think.

Highfield Resources (ASX:HFR):

Talk about being rewarding for doggedness, Highfield Resources’ long-held ambition to become a potash producer from its project near the bull-running town of Pamplona in Spain is finally taking shape.

Back in 2012, it looked as if Highfield (HFR) would be off and running after the then new private equity fund headed by Owen Hegarty and Jason Chang, EMR Capital, tipped in $10m in a two-tranche share placement at 21.6c and 30c a share to fire things up.

Being the patient investor that it is, EMR is still on the register with about 30%. But its patience must have been well and truly tested by the delay in Highfield receiving its all-important environmental licence.

It finally came through earlier this month, giving new meaning to mañana. Still, it is in now in the bag, prompting a bounce in Highfield’s share price from the pre-permit 68c to the current 90c.

Highfield can now set about securing the mining concession (3-6 months) and the construction permits (6-12months) required to take the project into development. There is more certainty on the timing of those given the overlap of key considerations required to get the environmental permit.

Unlike BHP, which has to worry about disturbing the market for the key fertiliser when it gets around to its big bang Jansen project beneath the Saskatchewan prairie, Highfield has no such concerns with its more modest Muga project.

Modest perhaps, but telling nevertheless for a company with a current market cap of about $300m.

Canaccord Genuity reckons Muga is good for a 20%-plus internal rate of return and is capable of $200m in annual free cash flow. It has a $1.45 price target on the stock.

RBC has a $2 price target on the stock post the environmental permit being issued.

“Our base case assumes a construction timeline of 2 years, with the project reaching nameplate capacity 2.5 years thereafter. We retain our constructive view on the Muga project given its relatively modest capex, long-life and proximity to the key European and South American markets,” RBC said.

Those price targets go to the fact that while the potash price has not exactly been shining, it is well and truly plugged in to the need-to-feed the world thematic.

Fertilisation for better crop yields stands as the answer, underpinning 2.5% growth in annual demand for potash.

There is latent capacity in the global system currently but come mid 2020s when Muga should be hitting its straps, the price incentive for new production capacity will have kicked in.

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