Hot Chili Building Towards Re-Rating

This story features HOT CHILI LIMITED. For more info SHARE ANALYSIS: HCH

 – Hot Chili is a copper explorer in Chili and exploration results are positive to date
 – DJ Carmichael expects a re-rating on continued exploration success
– The stock is rated Speculative Buy, with a price target of $0.98

By Chris Shaw

Chile is a major copper production region and a number of Australian listed plays have operations in the area, one being junior explorer Hot Chili ((HCH)). Perth-based stockbroker DJ Carmichael rates Hot Chili as a Speculative Buy, seeing upside from recent positive exploration results.

As DJ Carmichael notes, the latest drilling undertaken by Hot Chili has indicated the existence of a previously unknown extension to the Productora IOCG-U project. This extension is at a low depth, meaning a lower strip ratio and an open pit operation and better economics of accessing deeper zones.

Mineralisation is also known to extend at least an additional kilometre beyond the central lease, DJ Carmichael expecting further drilling should extend the zone of known mineralisation down dip to between 300-400 metres.

The discovery means an increase in tonnage estimates to a range of 70-80 million tonnes, up from 40-60 million tonnes previously. Taking a mid point of the new range of 75 million tonnes and assuming 1.0% copper equivalent, DJ Carmichael suggests mineralisation discovered to date translates into 750,000 tonnes of contained copper.

This has a projected enterprise value of $146.7 million. Further drilling is to be undertaken, so DJ Carmichael expects more results in coming months. This should include some results from the Los Mantos project, where initial results are expected either late in April or early in May. Hot Chili is expected to deliver a preliminary resource estimate by around the middle of this year.

DJ Carmicheal expects a continuation of successful drilling results will see Hot Chili get re-rated by the market. This supports the broker's positive view on the stock. To reflect the latest update, the stockbroker's price target has been lifted to $0.98 from $0.81 previously.

With a market capitalisation of just under $100 million Hot Chili currently receives no coverage from brokers in the FNArena database. Shares in Hot Chili are trading slightly higher today and at 11.30am the stock was up 1c at $0.69.

Over the past year Hot Chili has traded in a range of $0.17 to $0.75.

Click to view our Glossary of Financial Terms