Company Overview: Hot Chili Limited (ASX: HCH) is engaged in copper exploration and production. It is advancing the development of the Costa Fuego - a copper super hub including the Cortadera, Productora, and San Antonio deposits in Chile. The project benefits from the strategic advantages of low elevation location and proximity to infrastructure. HCH is undertaking exploration on the Cortadera copper-gold porphyry discovery and has updated MRE (Mineral Resource Estimates) on all the aforesaid deposits in March 2022.

CVN Details

This report is an updated version of the report published on the 13th of April 2022 at 3:55 PM (GMT+10).

Growth Catalysts Snapshot:

Source: Analysis by Kalkine Group

Attractive Investments & International Visibility:

HCH shares have been listed on the US-OTCQX® Best Market platform under the ticker ‘HHLKF’ from 7^th April 2022. With this listing, HCH has upgraded from the OTCQB® Venture Market to OTCQX ® and re-positioned itself to improve visibility and access to a broader US investor base. 

Upgraded Resource Estimates:  

• On 31 March 2022, HCH reported a ~67% increase in the total Indicated Resource and ~53% rise in the high grade Indicated Resource at the Costa Fuego copper-gold project. This development strengthens the project's positioning amongst the top-ten undeveloped copper projects and offers the near-term production potential.
• The high-grade Indicated resources (~+0.6% copper equivalent) now attribute almost one- third of contained copper and gold versus ~20% stated previously.
  

Copper Forecast: Copper prices are expected to be well driven by robust demand and weak supply fundamentals. The copper stockpiles are estimated to be at a record low level, whereas copper is expected to be a critical component of the global electrification movement.

Source: Analysis by Kalkine Group

Key Financials Overview:

Source: Analysis by Kalkine Group

Key Metrics: HCH maintained its debt-to-equity ratio at ~0.04x from FY20 – FY21 and consistently reduced it from ~0.17x in FY15 to ~0.04x in FY21.

Top 10 Shareholders:

The top 10 shareholders together form ~19.52% of the total shareholding. Glencore PLC and Blue Spec Sondajes Chile SpA hold a maximum stake in the company at ~­­­7.90% and ~3.68%, respectively.

Source: Analysis by Kalkine Group

Key Risks:

• Copper Price Volatility: The firm’s financial performance is exposed to the changes in the copper prices which can be further affected by the interplay of supply and demand factors.
• Exploration Risk: HCH faces the risk of discovering material copper mineralisation on the targets and deposits identified.

Milestones Ahead:

• The company has started the exploration drilling on the Productora Central porphyry deposit and plans to drill test several targets in 2022.
• HCH is drilling for resource upgrades on the Cortadera deposit and advancing to complete the PFS on the Costa Fuego project in Q3FY22.

Stock Recommendation: The stock of HCH gave a positive return of ~12.50% in the past month and a negative return of ~19.73% in the past six months. The stock is trading slightly lower than the 52-weeks’ average price level band of $1.250 - $2.600. On a TTM basis, the stock is trading at a price to book value multiple of ~0.8x, lower than the industry (Metals & Mining) median of ~2.3x, and thus seems undervalued. Considering the robust demand for copper and price outlook, the technical analysis mentioned below, strategic investments and long-term contract from Glencore, valuation on a TTM basis, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.440, as of 13 April 2022, 10:35 AM AEST (GMT+10), Sydney, Eastern Australia.

Technical Analysis:

On the daily chart, HCH stock prices are sustaining above the horizontal trend line level and taking the support of the same. Moreover, the momentum oscillator RSI (14-period) is trading at (~51.70 level), indicating bullish momentum. Further, the prices are trading above the trend-following indicator 21-period SMA, which may act as a support level. An important support level for the stock, is placed at AUD 1.08 while the key resistance level is placed at AUD 1.83.

HCH Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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