Hot Chili to strike ore processing deal with government

By Trevor Hoey. Published at Mar 26, 2020, in Mining

Hot Chili Limited (ASX:HCH) has accepted (on a non-binding basis) an offer from the Chilean government agency Empresa Nacional de Mineria (ENAMI) for lease mining and processing of high grade ore from the company's Productora copper-gold project in Chile.

Formal agreement will be a win-win for Hot Chili and its key local and government stakeholders, and is expected to see the company announce first production and revenue from its assets in Chile this year while safeguarding 400 jobs at ENAMI's Vallenar plant.

ENAMI's offer is supported by Hot Chili's joint venture partner at Productora - Compania Minera del Pacifico (CMP) and the formal agreement is expected to be ready for review and execution within the coming weeks subject to acceptance of appropriate terms and conditions.

Royalties and bonuses applicable

The execution of a formal agreement with Sociedad Minera El Aguila Limitada (SMEAL - 80% HCH, 20% CMP) will be subject to a number of terms outlined by ENAMI.

These include an intention to lease, for a period of two years the mining concession "La Productora 1-16" (referred to as the "Concession") under terms and conditions to be agreed by both parties.

Under the terms of the agreement, ENAMI may sublet sectors of the Concession to third parties, who will exploit the site and deliver their production to the ENAMI plant in Vallenar.

A royalty of 10% will be applicable for the sale value of the minerals extracted from the Concession in addition to the payment of an additional bonus of US$2 per tonne of copper ore purchased at the Vallenar Plant.

Estimated production of 10,000 tonnes per month

Considering existing underground mine developments and the average grade of historical production by ENAMI from Productora, ENAMI estimates production of 10,000 tonnes per month could be achieved quickly with grades of 1% copper.

Agreement to the ENAMI offer will reinforce Hot Chili's commitment to social responsibility for the government and local community of Vallenar, while also providing cash flow and additional bulk mining reconciliation data for high grade resources at Productora.

Applying the current copper price of US$2.15/lb, the potential mining and processing agreement is estimated to represent approximate annual payments to Hot Chili ranging between US$400,000 and US$500,000 relative to its 80% interest in SMEAL.

The royalty component of the ENAMI offer provides further payment upside in the event of higher copper prices or higher copper ore grades.

Potential share price catalysts in the coming weeks relate to outstanding drill results from Cortadera that have been flagged by management, as well as discussions with other key stakeholders.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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