Hot Chili and CMP Ratify Joint Infrastructure

ASX ANNOUNCEMENT
Thursday 29th January 2015
Hot Chili and CMP ratify Productora
joint infrastructure Memorandum of
Understanding
Hot Chili (ASX: HCH) is pleased to announce that the Memorandum
of Understanding (MOU) with Compañía Minera del Pacífico S.A.
(CMP), that establishes the basis for the negotiations of the legal
documentation for the key infrastructure and option agreement for
the Productora copper project in Chile, has been ratified by both
companies.
Under the MOU, CMP will emerge with a 17.5 per cent stake in
Productora in return for contributing surface rights, easements and
its mining rights related to Productora.
The deal is pivotal to Productora because the CMP assets will help
save time and reduce costs associated with the infrastructure
needed to underpin the project.
The MOU also establishes that Hot Chili will grant CMP an option to
acquire an additional 32.6 per cent interest in Productora for a
minimum cost of US$80 million and maximum of US$110 million
(see details of the agreement as outlined below).
The transaction is subject to the approval of Hot Chili shareholders,
the Productora project due diligence and the negotiations of the
corresponding legal documentation. A Notice of Meeting to consider
resolutions concerning the transaction is expected to be issued in
the coming weeks.
Productora’s current Mineral Resource base contains over 1Mt of
copper and 675,000 ounces of gold.1 This is set to grow ahead of
the delivery of a Pre-feasibility Study (PFS).
Refer to ASX announcement dated 31 March 2014 and
Qualifying Statements attached to this announcement.
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Hot Chili chairman Murray Black said ratification of the MOU marked a major milestone in the
development of Productora.
“We are excited at the prospect of working in co-operation with one of Chile’s most respected
resource majors to develop a new copper business along the Chilean coastal range”,
“The proposed joint venture is a blueprint to deliver Productora at a lower cost and in a shortened
timeframe by capturing substantial synergies for both Companies”,
“The Company now looks forward to progressing towards shareholder approval of the deal” Black
said.
Joint Infrastructure Agreement for CMP to Move to 17.5% Interest in Productora
Productora is Hot Chili’s flagship project, and lies in the centre of CMP’s Huasco and Vallenar iron
operations at low altitude, approximately 600km north of Santiago.
Since announcing the intention to form a joint venture to develop the Productora copper project in
Chile, Hot Chili and CMP have spent considerable effort negotiating the basis of the deal that has
now been ratified by the Boards of both companies.
The initial joint infrastructure component of the transaction remains as announced on the 6th
August 2014.
CMP will exchange its assets at Productora for 17.5% of the total shares in Sociedad Minera El
Águila SpA (SMEA SpA) - Hot Chili’s Chilean subsidiary company which holds the Productora
Project. These assets include:
1. CMP controlled easements related to the proposed water pipeline route from Productora to
the coast near Huasco (figure 1),
2. Certain surface rights over the proposed mining development area of Productora (figure 2),
and
3. CMP mining rights related to the Productora project (figure 3)
SMEA SpA will become a special purpose joint venture vehicle for the purpose of conducting the
Productora project.
2
In addition, CMP shall be free-carried to completion of a PFS - (within the meaning of the JORC
Code). Following completion of a PFS, CMP will be responsible for funding its share of
expenditure in accordance with its ownership in the shares of SMEA SpA.
Additional Purchase Option Agreement for CMP to Move to 50.1% Interest in Productora
The second component of the deal involves the grant to CMP of an option (Additional Purchase
Option) to acquire further shares in SMEA SpA such that upon exercise of the Additional Purchase
Option CMP will be entitled to acquire a further 32.6% interest, taking its total holding up to 50.1%
shareholding interest in SMEA SpA.
The issue price for the Additional Purchase Option is US$1.5 million.
A number of revisions to this component of the deal have been accepted by both parties. The
revisions have been made to include certain commercial requirements of both parties.
Revisions to the Additional Purchase Option component of the deal, since it was announced to the
ASX on the 6th of August 2014, include:
1. The valuation of the additional 32.6% interest in SMEA Spa shall be a minimum value of
US$80 million and a maximum value of US$110 million.
2. The Option will now be exercisable by CMP in two tranches, as follows:
First Tranche – exercisable within 90 days of the delivery of: the results of a
completed PFS, an independent valuation report of SMEA SpA undertaken by a
jointly appointed expert and Hot Chili making a preliminary decision to mine at the
Productora Project.
Second Tranche – exercisable within 90 days of the delivery of: the results of a
completed definitive feasibility study (DFS), project financing terms being finalised
and Hot Chili taking a definitive decision to mine at the Productora Project.
3. First Tranche exercise payment shall be US$26 million. CMP shall be issued additional
shares in SMEA SpA equating to between 10.6% (based on the minimum valuation of
32.6% interest for US$80 million) and 7.71% (based on the maximum valuation of 32.6%
interest for US$110 million). The actual number of shares will be determined by reference
to an independent valuation of SMEA SpA, subject to these ranges.
4. Use of funds for the First Tranche exercise payment shall be wholly directed towards
repayment of Hot Chili’s existing loan with Sprott Resource Lending Partnership (Sprott)
and funding of Hot Chili’s interest of a DFS for Productora.
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5. Following receipt of the First Tranche exercise payment, CMP shall provide a US$13
million secured loan facility (Facility) to Hot Chili.
6. The Second Tranche exercise payment shall be the balance of the amount of the
independent valuation. CMP will acquire the remaining interest in SMEA SpA that is
required to take it to a fully diluted interest to 50.1%. At a minimum valuation, this would
equate to CMP acquiring a further 22% interest for US$54 million. At a maximum valuation,
this would equate to CMP acquiring a further 24.89% for US$84 million.
7. The Second Tranche payment shall also deduct any loan amount outstanding under the
terms of the Facility and also the US$1.5 million paid to Hot Chili by CMP as the option
issue price.
Hot Chili is focused on delivering a PFS along with a revised Mineral Resource estimate and Ore
Reserve statement for Productora during 2015. CMP’s option to acquire an increasing interest in
Productora aligns the interests of both parties to ensuring Productora has a clear funding path
through its final stages of growth and development studies.
Next Steps in Completing the Infrastructure and Option Agreement for Productora
Both companies are working in negotiating the final agreements of the transaction including a
master agreement, shareholders agreement, option agreement, subscription and merger
agreement, and a loan facility agreement.
A Notice of Meeting is also currently being finalised in association with an Independent Experts
Report. The transactions contemplated will be subject to shareholder approval at a General
Meeting of Hot Chili following notification to shareholders.
For more information please contact:
Christian Easterday
Tel: +61 8 9315 9009
Managing Director
Email: christian@hotchili.net.au
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Figure 1. Location and existing infrastructure surrounding the Productora copper project, Region III
Chile. Note the proposed water pipeline corridor from Productora to the coast near Huasco. CMP
control several areas of easement required to facilitate this proposed pipeline route under the
definition of the Joint Infrastructure agreement.
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Figure 2. Defined surface rights to be transferred to SMEA SpA as a term of the Joint
Infrastructure agreement
6
Figure 3. The location of the original CMP mining rights at Productora which will be
transferred to SMEA SpA as a term of the Joint Infrastructure agreement
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Qualifying Statements
JORC Compliant Ore Reserve Statement
st
Productora Open Pit Probable Ore Reserve Statement – Reported 31 March 2014
Ore Type
Category
Tonnage
(Mt)
Grade
Contained Metal
Payable Metal
Copper
Gold
Molybdenum
Copper
Gold
Molybdenum
Copper
Gold
Molybdenum
(%)
(g/t)
(ppm)
(tonnes)
(ounces)
(tonnes)
(tonnes)
(ounces)
(tonnes)
Transitional
Probable
10.2
0.54
0.10
128
55,000
34,000
1,300
27,000
13,000
1,000
Fresh
Probable
80.3
0.47
0.11
177
378,000
274,000
14,200
323,000
139,000
8,000
Total
Probable
90.5
0.48
0.11
172
433,000
308,000
15,500
350,000
152,000
9,000
Note 1: Figures in the above table are rounded, reported to two significant figures, and classified in accordance with the Australian JORC Code 2012
guidance on Mineral Resource and Ore Reserve reporting.
Note 2: Average recoveries applied to Probable Ore Reserve estimate are: Fresh Cu– 88.8%; Fresh Au - 65%; Fresh Mo - 60%, Transitional Cu- 50%,
Transitional Au- 50% and Transitional Molybdenum- 50%. Payability factors applied for Cu- 96.5%, Au- 78% and Mo- 98%. The Probable Ore
Reserve was estimated using price assumptions of US$3.00/lb copper, US$1,250/oz gold and US$10/lb molybdenum and an exchange rate
(AUD:USD) of 0.88.
JORC Compliant Mineral Resource Statements
st
Productora Mineral Resource Statement – Reported 31 March 2014
Classification
Tonnage
(+0.25% Cu)
(Mt)
Indicated
Grade
Contained Metal
Copper
(%)
Gold
(g/t)
Molybdenum
(ppm)
Copper
(tonnes)
Gold
(ounces)
Molybdenum
(tonnes)
158.6
0.50
0.11
152
799,000
540,000
24,000
Inferred
55.6
0.41
0.08
97
229,000
133,000
5,000
Total
214.3
0.48
0.10
138
1,029,000
675,000
29,000
Note 1: Figures in the above table are rounded, reported to two significant figures, and classified in accordance with the Australian
JORC Code 2012 guidance on Mineral Resource and Ore Reserve reporting.
Mineral Resource and Ore Reserve Confirmation
The information in this report that relates to Mineral Resources and Ore Reserve estimates on the Productora copper projects were
originally reported in the ASX announcements “Maiden Ore Reserve at Productora Set for Strong Growth in 2014”, dated 31st
March 2014. The company confirms that it is not aware of any new information or data that materially affects the information
included in the original market announcement and that all material assumptions and technical parameters underpinning the
estimates in that announcement continue to apply and have not materially changed. The company confirms that the form and
context in which the Competent Person’s findings are presented have not been materially modified from the original market
announcement.
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Forward Looking Statements
This announcement contains “forward-looking statements”. All statements other than those of historical facts included in this
announcement are forward-looking statements including estimates of Mineral Resources. However, forward-looking statements
are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results
expressed, projected or implied by such forward-looking statements. Such risks include, but are not limited to, copper and other
metals price volatility, currency fluctuations, increased production costs and variances in ore grade ore recovery rates from those
assumed in mining plans, as well as political and operational risks and governmental regulation and judicial outcomes. The
Company does not undertake any obligation to release publicly any revisions to any “forward-looking statement” to reflect events
or circumstances after the date of this announcement, or to reflect the occurrence of unanticipated events, except as may be
required under applicable securities laws. All persons should consider seeking appropriate professional advice in reviewing this
announcement and all other information with respect to the Company and evaluating the business, financial performance and
operations of the Company. Neither the provision of this announcement nor any information contained in this announcement or
subsequently communicated to any person in connection with this announcement is, or should be taken as, constituting the giving
of investment advice to any person.
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