Stock: Hot Chili Limited
Stock code: HCH
Share Price: $0.665 (as at 4pm 06/05/11)
Broker Buy Recommendations:
RBS Morgans (2nd May 2011, share price was $0.705 that day)
DJ Carmichael (18th April 2011, share price was $0.71 that day)
State One Stockbroking (22nd November 2010, share price was $0.28 that day)
Broker Report (DJ Carmichael) 28th March 2011: Hot Chili Limited – Productora tonnage re-think on latest results
Broker Report (RBS Morgans) 23rd March 2011: Hot Chili Limited – Some like it hot
Investor Centre: Hot Chili Limited
Chart: Share price over the year to 06/05/2011
Hot Chili Limited (HCH) is junior exploration mining company that may provide the opportunity for aggressive investors to gain exposure in uranium, copper and gold all in one shot. While early investors have been well rewarded, it’s not a stock for the faint-hearted and has already seen strong volatility during its meteoric rise from $0.25 in Dec to $0.85 last month, only to drop back to $0.665 as at close of trade on Friday. Still, three analysts have BUYs on this junior miner, making it one to investigate further.
Hot Chili Limited is a Perth based exploration company with three copper-gold-uranium exploration projects in Chile, South America. HCH projects focus on Iron-Oxide-Copper-Gold-Uranium (IOCGU) style deposits with additional potential major mining activities of molybdenum, cobalt and rare earth minerals (REE). HCH’s growth strategy is to undertake significant advanced exploration projects such as Productora, Los Mantos, and Chile Norte. Hot Chili commenced with the start of the drilling programmes over Productora and Los Mantos in the later part of 2010.
Chile is one of the world’s premier mining countries due to its stable political system and an established regulatory framework for uranium exploration and exploitation. Uranium is regulated under a well-established mining code in Chile with no current regulatory encumbrances to exploring or exploiting uranium. The government has the right to purchase a proportion of production at commercial market rate and Chile is looking to become a uranium exporting country by the end of this year.
Hot Chili Ltd. has established relationships with the Chilean government organisations CCHEN and ENAMI (Empresa Nacional de Minería), as well as forming strong local partnerships with two of Chile’s largest local mining companies, CODELCO and CMP. CODELCO (which is Corporación Nacional del Cobre de Chile) is the world’s largest copper producer and CMP (which is Compañía Minera del Pacífico) is Chile’s largest iron ore producer. CMP’s support of HCH is highlighted by it being a 5% shareholder in Hot Chili.
HCH’s business acitvites are broken up into three main mining projects.
Productora has been identified by CCHEN as the largest uranium project in Chile. The project is at an advanced stage, with an operating underground mine. The Productora project is located in a low altitude coastal range south of the regional mining centre of Vallenar. Productora is HCH’s premier project.
Early work recognised two zones of intense uranium. Exploration work carried out by historical exploration activities and verified by the Company has defined the presence of a 6.1km N-S by 2km E-W zone of geophysical and geochemical anomalism over the Productora area.
Copper focused exploration drilling occurred in the 1990’s and it was reported that several significant intersections.
2. Los Mantos
Los Mantos is at a moderately advanced stage and operating a small-scale mine,with extensive historical underground and surface development. No drilling has been undertaken during the project. The company has recognised a zoned IOCG system with uranium potential increasing at depth.
Copper, uranium and gold are the focus minerals for the Los Mantos multi-commodity project, although significant concentrations of molybdenum and rare earth minerals have been identified.
3. Chile Norte
Chile Norte is at an early stage of advancement with historical work including uranium exploration investigations, minor drilling activity, trenching and surface geochemical assaying. A uranium anomalism has been identified in addition to significant copper-gold potential within the project.
Chile Norte is located in the northern region of Chile, south of the coastal city of Iquique. In addition to HCH’s own land position, it has executed a formal agreement with CODELCO to gain access to a large contiguous tenement holding at Chile Norte. This arrangement with CODELCO provides Hot Chili with a major local partner in Chile.
Chart text: Technical analysts may believe that HCH is trading in a nice upward sloping channel since breaking out above 0.30 in December. Support at bottom channel appears to be next area tested.
Technical analysts can see that HCH shares have enjoyed a nice run since breaking out of a base in mid December of 2009, trading from 0.30 to .83 high made in early April. HCH is currently trading in well defined upward sloping channel. HCH’s share price is currently moving lower in sympathy with major metals as commodity investors look to lock in some profits from rising commodity prices. Near term support may be seen in lower 0.60 area. HCH bulls will look to add shares at the lower lone of the channel, while HCH bears will look to sell at the break of the lower channel line.
John Rawicki of State One Stockbroking has a buy recommendation on Hot Chili. “The company holds the largest and most advanced uranium project (Productora) in Chile under a very pro-mining government,’ says Rawicki. ‘The copper and gold deposits on its land will help cover costs, and with $9.9 million in cash, the company’s current market capitalisation appears undervalued. Chile has no regulatory issues for uranium mining.’
DJ Carmichael Analyst Paul Adams also has a buy recommendation on HCH, and commented in a recent report that “HCH have released the latest batch of drilling results from their Productora IOCG-U project in Chile, which indicates a previously unknown thick brecciated mantos horizon exists on the western side of the vertical breccia zone. This alters the interpretation and has resulted in an increase in our tonnage estimates. HCH are still on target for their first resource estimate by mid-year 2011. We re-iterate our Speculative Buy recommendation but have increased our price target to $0.98 from $0.81 to reflect the results of the new drilling and assumptions on depth extensions through continued diamond drilling.’
Nicholas Brooks of RBS Morgans is a third analyst who has Buy recommendation on Hot Chili Ltd., stating that HCH is showing strong drilling results early. ‘It’s certainly not a stock without risk, but Hot Chili has a string of value drivers in coming months,’ says Brooks. ‘Some of these include producing its maiden resource by mid-2011, which is expected to range between 50-to-80 million tonnes of copper at a grading of 0.9 per cent.’
HCH offers an opportunity for aggressive investors to add exposure to several commodities plays via one emerging explorer – HCH provides the opportunity for investors and traders to invest in copper, gold and uranium in the pro-mining environment of Chile. Short term traders may look to take advantage of current HCH price pressure to pick up shares at lower levels. It must be noted that HCH is still in the developmental stage and while this stock appears to have potential, it certainly won’t fit the risk profile of many investors.
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