Undervalued

There is a strong case that the market may beunderestimating Hot Chili Limited (ASX: HCH), particularly regarding itsflagship Costa Fuego copper-gold project in Chile. Despite significantadvancements and favorable project economics, Hot Chili’s current marketvaluation appears low compared to its peers and the intrinsic value of itsassets.

Key Indicatorsof Potential Undervaluation

RobustProject Economics

• Annual Production: Costa Fuego is projected to produce approximately 95,000 tonnes of copper and 50,000 ounces of gold annually over a 20-year mine life.
• Financial Metrics: The project boasts a post-tax Net Present Value (NPV) of approximately US$1.1 billion and an Internal Rate of Return (IRR) of 20%.
• Cost Efficiency: With an all-in sustaining cost (AISC) of around US$1.85 per pound of copper, Costa Fuego ranks in the lower quartile of global copper producers.

StrategicPartnerships and Infrastructure Advantages

• Glencore Offtake Agreement: Hot Chili has secured a partnership with Glencore, covering 60% of Costa Fuego’s production for the first eight years, providing financial stability and market access.
• Water Infrastructure: The development of the Huasco Water project not only supports Costa Fuego’s operations but also presents an opportunity for additional revenue through water sales to other regional projects.

MarketValuation Discrepancy

• Comparative Analysis: Analyses suggest that Hot Chili trades at approximately 0.07 times its NPV, significantly lower than comparable projects like Filo Mining’s Filo del Sol, which was valued at 2.3 times its NPV.
• Market Capitalization: Hot Chili’s market cap stands at around US$71 million, which seems modest given the scale and potential profitability of Costa Fuego.

AdvancementTowards Production

• Permitting Progress: The company is on track to submit its Environmental Impact Assessment (EIA)
• Feasibility Studies: Completion of the Pre-Feasibility Study (PFS) and initiation of the Bankable Feasibility Study aligning with a potential production start in late 2028.

Considering thestrong project fundamentals, strategic partnerships, and progress towardsproduction, Hot Chili appears to be undervalued in the current market. Thecompany’s proactive approach to infrastructure development and its positioningwithin a tightening global copper supply context further enhance its investmentappeal. As the project advances and more milestones are achieved, there ispotential for market revaluation to more accurately reflect the intrinsic valueof Hot Chili’s assets.