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When BHP (ASX:BHP) and Lundin Mining Corporation jointly announced their bid for Toronto-listed copper explorer Filo Corp in late July, excitement surged in the mining sector. The C$4.1 billion cash and stock offer, reflecting a premium of 32.2%, is set to secure ownership of the Filo del Sol copper project for the two companies. Additionally, BHP will acquire a 50% stake in Lundin’s Josemaria project for US$690 million, with both projects located on the Chile-Argentina border.
Goldman Sachs anticipates that the combined potential output from these projects could reach 400,000 tons of copper annually. However, it is projected that the necessary infrastructure development could incur costs between US$12 billion and US$16 billion, which would include building a desalination plant and a concentrate pipeline.
Christian Easterday, managing director of Hot Chili (ASX:HCH), emphasized the dwindling number of large-scale copper projects outside major mining companies during a presentation at the Precious Metals Summit in Colorado. He noted, "There are not many of us out there, and those that exist are not only limited but also significant and near-term." With BHP’s acquisition of Filo Corp, the pool of major copper development projects has shrunk even further.
According to Hot Chili, only a handful of projects outside the major companies have the capacity to produce around 100,000 tons per annum of copper. These include Hot Chili’s Costa Fuego in Chile, SolGold’s Cascabel project in Ecuador, Los Andes Copper’s Vizcachitas project in Chile, and McEwen Mining’s Loz Azules project in Argentina. This situation underscores South America's critical role as a hub for copper production.
Easterday highlighted the Mantoverde copper project by Capstone Copper in Chile, which is situated north of Costa Fuego and shares similarities with Hot Chili's ambitions.
Costa Fuego, for which Hot Chili has allocated substantial investment, completed a preliminary economic assessment in 2023 that outlined capital costs of US$1.05 billion. The project benefits from its low elevation and proximity to the coast, which helps keep costs down compared to competitors located in the Andes. The anticipated production of 112,000 tons of copper equivalent over the initial 14 years comes with a projected C1 cash cost of US$1.33 per pound, factoring in by-product credits.
As the copper market continues to fluctuate, Hot Chili is keen to leverage its new subsidiary, Huasco Water, which holds a maritime water permit in a joint venture with Compañía Minera del Pacífico. This subsidiary aims to develop a multi-user seawater and desalinated water supply network for communities, agriculture, and mining projects in the Huasco Valley region of Chile. A detailed study on the water business is expected to be released in the coming months.
Despite the promising outlook and position within the lucrative copper sector, Hot Chili's stock has faced a 37% decline over the past year, raising concerns about market interest, particularly compared to its Toronto-listed peers. The company, although backed by major shareholder Glencore, has not attracted sufficient attention in the Australian market, where three of the four research firms covering it are based in Canada.
Easterday emphasized the need for higher incentive prices to encourage the development of new large-scale copper mines. The industry's shift toward electrification underscores copper's essential role, yet the supply outlook remains uncertain. With the timeframes for developing new assets extending beyond 17 years, the current dynamics present both challenges and opportunities for stakeholders in the copper market.
