Mr. Christian Easterday reports

HOT CHILI ANNOUNCES PEA FOR COSTA FUEGO

Hot Chili Ltd. has released the preliminary economic assessment for its Costa Fuego project.

• Strong economics: Costa Fuego PEA delivers using an 8-per-cent discount rate and long-term metal price assumptions of $3.85 (U.S.) per pound copper (Cu) and $1,750 (U.S.) per ounce gold (Au):
  • Base case posttax net present value (NPV 8 per cent) of $1.10-billion (U.S.) (approximately, within a range of $733-million (U.S.) to $1.46-billion (U.S.)) and internal rate of return (IRR) of 21 per cent (approximately, within a range of 17 per cent to 25 per cent).
  • Base case pretax net present value (NPV 8 per cent) of $1.54-billion (U.S.) (approximately, within a range of $1.05-billion (U.S.) to $2.03-billion (U.S.)) and internal rate of return (IRR) of 24 per cent (approximately, within a range of 19 per cent to 29 per cent).
• Low start-up capital: $1.05-billion (U.S.) estimated, resulting in fast 3.5-year payback. Initial phases of open-pit mining fully finance development of a bulk underground operation;
• Low capital intensity: one of the lowest capital intensities of global copper development projects;
• Approximately 112,000-tonne-per-annum average copper equivalent (CuEq) (2) production rate: including 95,000 t Cu and 49,000 oz Au during primary production (first 14 years) at C1 cash cost of $1.33 (U.S.)/lb (estimated net of byproduct credits);
• Initial mine life: 16 years with 1.41 million t Cu and 718,000 oz Au produced for total revenue of approximately $13.52-billion (U.S.) and total free cash flow of approximately $3.28-billion (U.S.) (posttax, after operating costs, capital costs and royalties);
• Conservative approach: 20-per-cent contingency on capital and $3.30 (U.S.)/lb copper price for optimizations;
• Low elevation with advanced permitting: one of only a few global copper development projects at low elevation with a water permit and power connection;
• Highly leveraged to copper price: for every 10-U.S.-cent-per-pound increase above $3.85 (U.S.)/lb Cu price, $100-million (U.S.) (approximately) is added in posttax NPV 8 per cent;
• Resource growth potential: 30,000 metres of drilling program set to commence across multiple targets;
• Prefeasibility study (PFS) planned for release by second half of 2024: 80 per cent of workstreams to support a PFS are completed, with minimal study costs remaining;
• Single, large pit scenario for Cortadera: being studied in the second half of 2023, with potential to materially increase mine life and scale.

(1) The PEA is preliminary in nature and includes 3 per cent of production feed from inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves (National Instrument 43-101) or ore reserves (JORC 2012), and there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves or ore reserves do not have demonstrated economic viability. References to mineral reserves in this announcement include ore reserves (JORC 2012).

(2) The copper-equivalent (CuEq) annual production rate was based on the combined processing feed (across all sources) and used long-term commodity prices of: copper $3.85 (U.S.)/lb, gold $1,750 (U.S.)/oz, molybdenum $17 (U.S.)/lb and silver $21 (U.S.)/oz; and estimated metallurgical recoveries for the production feed to the following processes: concentrator (87 per cent Cu, 56 per cent Au, 37 per cent Ag and 58 per cent Mo), oxide leach (55 per cent Cu only) and low-grade sulphide leach (40 per cent Cu only).

The preliminary economic assessment referred to in this release is equivalent to a scoping study under JORC Code (2012) reporting guidelines. It has been undertaken for the purpose of initial evaluation of a potential development of the Costa Fuego copper project in Chile. It is a preliminary technical and economic study of the potential viability of the Costa Fuego copper project. The PEA outcomes, production target and forecast financial information referred to in the release are based on low level technical and economic assessments that are insufficient to support estimation of ore reserves. The PEA is presented in U.S. dollars to an accuracy level of plus or minus 35 per cent. While each of the modifying factors was considered and applied, there is no certainty of eventual conversion to ore reserves or that the production target itself will be realized. Further exploration and evaluation and appropriate studies are required before Hot Chili will be in a position to estimate any ore reserves or to provide any assurance of any economic development case. Given the uncertainties involved, investors should not make any investment decisions based solely on the results of the PEA. Of the mineral resources scheduled for extraction in the PEA production plan, approximately 97 per cent are classified as indicated and 3 per cent as inferred during the 18-year evaluation period. The company has concluded that it has reasonable grounds for disclosing a production target which includes a small amount of inferred mineral resources. There is a low level of geological confidence associated with inferred mineral resources and there is no certainty that further exploration work will result in the determination of indicated mineral resources or that the production target itself will be realized. Inferred mineral resources comprise 2.5 per cent of the production schedule in the first four years of operation. The viability of the development scenario envisaged in the PEA does not depend on the inclusion of inferred mineral resources. The mineral resources underpinning the production target in the PEA have been prepared by a competent person in accordance with the requirements of the JORC 2012. For full details on the mineral resource estimate, please refer to the Australian Securities Exchange announcement of March 31, 2022. Hot Chili confirms that it is not aware of any new information or data that materially affects the information included in that release and that all material assumptions and technical parameters underpinning the estimate continue to apply and have not been changed. While Hot Chili considers that all the material assumptions are based on reasonable grounds, there is no certainty that they will prove to be correct or that the range of outcomes indicated by the PEA will be achieved. To achieve the outcomes indicated in the PEA, including reaching definitive feasibility study (DFS) stage, financing in the order of $1.10-billion (U.S.) will be required, including preproduction and working capital, and assumed financing charges. Investors should note that there is no certainty that Hot Chili will be able to raise that amount of financing when needed. One of the key assumptions is that the financing for the project will be available when required. It is also possible that such financing may only be available on terms that may be dilutive to or otherwise affect the value of Hot Chili's existing shares. It is also possible that Hot Chili could pursue other value realization strategies such as debt financing, a sale or partial sale of its interest in the Costa Fuego copper project, sale of further royalties and/or streaming rights, sale of non-committed offtake rights, and sale of non-core assets.

Hot Chili's managing director Christian Easterday commented: "The Costa Fuego PEA cements Hot Chili's position as the largest copper developer listed on the ASX by both resource size and potential scale of copper production.

"Costa Fuego ranks highly amongst global peer projects (1) and stands out as one of the world's lowest capital intensity, major copper developments. The PEA indicates a strong investment case for advancing Costa Fuego to a PFS for what would be a low-cost, low-risk, long-life, large-scale copper project, which is extremely leveraged to both resource growth and copper price appreciation.

"I am very pleased with our entire teams' effort to deliver the PEA on time and within guidance and look forward to delivering on our objective to transform Hot Chili into the only 100,000-tonne copper producer listed on the ASX outside of the control of major miners.

"We are focused on our next steps in resource growth and the delivery of an optimized and potentially larger project definition for our prefeasibility study next year.

"The recently announced $15-million (U.S.) investment agreement with Osisko Gold Royalties positions the company to be fully funded for the next 12 to 18 months to deliver on our growth and development timetable."

Chairman Nicole Adshead-Bell affirmed: "Hot Chili is now one of a select group of companies with a copper development project of this scale of production that is not controlled by a major. The company is also advantaged by its coastal, low elevation location and abundant existing infrastructure, reducing its economic hurdle and resulting in the lowest capital intensity of its global peer projects.

"Our decade-long efforts on decreasing development risk, including acquiring water rights, surface rights and securing connection to the electrical grid, will materially reduce development timelines when we make the decision to advance the project through final permitting.

"Hot Chili is very well positioned to benefit from the looming structural shortfall in copper production (1) due to the size and scale of the project. Combined with the ability to more quickly advance to production when compared to some of our development peers, due to our 10-year-long commitment to reducing exogenous risk combined with the strong ESG credentials of Costa Fuego."

Chief operating officer Grant King further added: "The PEA outlines for the first time -- a combined production hub approach for Costa Fuego, utilizing centralized processing for open pit and underground production sources.

"We have taken a conservative approach in the PEA -- 20-per-cent contingency has been applied to all capital costs, Mineral Resources are reported at $3 (U.S.)/lb copper price, mining optimizations were undertaken at $3.30 (U.S.)/lb copper price and financial modelling at $3.85 (U.S.)/lb copper price, with closure costs included.

"Our PFS is well advanced and awaiting the outcome of further resource growth activities before finalizing study scale. We will also investigate a large single open-pit scenario for Cortadera (no underground block cave) with the potential to materially increase processing feed and mine life."

(1) Source: Published company reports on studies undertaken on projects that were not in production at the time of the studies. Information from projects has been sourced from publicly available data that have been provided under differing economic assumptions. Public information for projects has been adjusted to provide a standardized data set under a $3.85 (U.S.)/lb copper price. The global developer peer group of project studies was selected on the following basis: global primary copper projects (not controlled by a major miner), with byproduct revenues where applicable, reporting studies of average annual life-of-mine copper production of greater than 40,000 t, which have been published within the last four years. Projects with older studies were considered to be on hold. Significant projects such as Pebble and King-king were excluded by Hot Chili due to high perceived geopolitical risk, limiting the probability of development. Projects controlled by mid-tier mining companies near Costa Fuego were also included (Josemaria, Santa Domingo, Mantos Blanco and Mantoverde).

The company will be hosting webinars on June 29 at 9:30 a.m. AEST/7:30 a.m. AWST (for Australian audience) and at 10 a.m. EST (for North American audience) to brief shareholders and investors on the outcomes of the Costa Fuego PEA.

Hot Chili's chief executive officer Christian Easterday and chief operating officer Grant King will be hosting the call, which will also include a Q&A (question-and-answer) session.

We seek Safe Harbor.