Interview with Christian Easterday, Managing Director & CEO of Hot Chili Ltd.

Our previous interview: https://www.cruxinvestor.com/posts/hot-chili-asxhch-chiles-next-major-copper-mine-advancing-a-tier-1-copper-asset-with-a-twist-5056

Recording date: 10th June 2024

Investors should take a serious look at copper as the world faces a looming supply crunch just as demand for the critical metal is set to surge. Copper's unique properties make it essential for electrification and the transition to renewable energy - two of the most powerful trends set to drive the global economy in the coming decades. However, a lack of new mine supply and declining grades at existing operations means the copper industry will likely struggle to keep pace with this demand.

The numbers paint a compelling picture. Copper demand is forecast to grow nearly 3% per year through 2030, doubling the market's size. Electric vehicles, which use 3-4 times more copper than internal combustion engines, could add over 4 million tonnes per year of demand by 2030 - equivalent to 20% of the current market size. Renewable energy is even more copper intensive, with wind and solar power using 2-6 times more copper per megawatt than conventional sources.

On the supply side, the world's copper mines are aging and their grades declining. Average copper grades have fallen from 1.2% in 2000 to 0.8% today and could decline to 0.5% by 2030 - meaning twice as much ore would need to be mined and processed to produce the same amount of copper. Reserves are also not being replaced - over the last decade the industry has consumed over 80 million tonnes of copper but found less than 30 million tonnes of new reserves.

The project pipeline to meet these challenges looks thin. S&P Global estimates the industry needs to invest $100 billion to build 8 million tonnes per year of new mine capacity by 2030 to meet demand. Currently less than half that amount is being invested, and most advanced-stage projects face major obstacles. Over 80% of projects are in high-risk jurisdictions and the average lead time from discovery to production now exceeds 20 years.

This creates opportunities for investors to position in high-quality copper assets as supply tightens and prices rise. One company that stands out is Hot Chili (ASX:HCH). Hot Chili controls Costa Fuego, one of the few major copper projects ready to break ground this cycle. Located in Chile at low elevations near the coast, Costa Fuego hosts 2.9 million tonnes of copper resources and is on track for a construction decision by 2026. Crucially, the project has already secured key permits and infrastructure access, substantially de-risking its path forward.

Hot Chili also controls strategic maritime concessions that position it to supply seawater and desalinated water to mines across the region. In the dry Atacama desert, water access is a key bottleneck for new mine development. Hot Chili's water rights thus not only secure supply for Costa Fuego but provide an additional source of value and a potential funding avenue for the project's development.

CEO Christian Easterday sums it up: "When we look at that pool of new developers, we look at a crowd that is in high altitude, and then we look at the crowd that sits at low elevation. And the experiences down at low elevation next to infrastructure, next to the coast, have been very different from the last cycle and in and coming into this cycle. You've got to think about very successful developments."

As the copper market's structural deficit grows in the coming years, investors should look to position in the few high-quality projects capable of helping fill the supply gap. With its large, advanced project in a top jurisdiction, strategic Chilean water rights, and an experienced team, Hot Chili offers investors compelling exposure to copper's attractive long-term fundamentals. As Costa Fuego advances towards production, the company appears well positioned to benefit from the expected strength in the copper price and re-rate towards the valuations of its producing peers.

—

View Hot Chili's company profile: https://www.cruxinvestor.com/companies/hot-chili-limited

Sign up for Crux Investor: https://cruxinvestor.com