Okay. Thank you, everyone. Sorry for the delay. Good morning. Thank you for joining us today. We are here to discuss in more detail the major milestones for Hot Chili that have been recently announced. The company has published two feasibility studies: first for its large-scale Copper Gold Project, Costa Fuego, and the second for Huasco Water, the strategic water asset controlled by Hot Chili.
Management will give a brief presentation, and then we will open up the call for questions. Before we start today's presentation, it is important to remind everyone that some of these statements on the conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties.
The company's actual results may differ significantly from those projected or suggested, and any forward-looking statements due to a variety of factors, which are discussed. Good morning, everyone. Sorry, I just did that whole spiel, and I was on mute. I apologize. Let's get started. Good morning, everyone, and thank you for joining us today. We are here to discuss in more detail the major milestones for Hot Chili that have recently been announced.
The company has published two pre-feasibility studies, the first for its large-scale project, Costa Fuego, and the second for Huasco Water, the strategic water asset controlled by Hot Chili. Management will give a brief presentation, and then we will open up the call for questions. Before we start today's presentation, it is important to remind everyone that some of the statements on this conference call may be forward-looking statements.
Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. The company's actual results, the actual discussion of this presentation, may differ significantly from projected results going forward, and any forward-looking statements due to a variety of factors, which are discussed in detail in our regulatory filings.
I will now pass the call and the webinar over to Hot Chili Management Team, and we are going to go through a presentation. Christian, you are muted on your side as well. Let's not make the same mistake twice. I will pass it over to you, and I'll bring the slides up.
Graham, can you hear me?
You can. Thanks a lot.
Thank you very much for all joining us today. As Graham introduced, we're very, very excited to be presenting on behalf of two very key catalysts that have just been announced at the end of this quarter. Firstly, on our Costa Fuego Copper Gold Project on the Chilean coastline, and this morning on our additional strategic project, Huasco Water.
If we start on the presentation, and I'm not sure who's controlling the presentation, fantastic. We'll start on slide one and just looking at an overview of the location of the project. As you know, we have been advancing these projects and consolidating the Costa Fuego production hub on the coastline of Chile for some 15 years.
It's fantastic for us to now have put together, at a pre-feasibility level of accuracy, a combined production hub which is ranking within the top quartile of production capacity globally in the copper development space and also in the lowest quartile of capital intensity. The project has delivered some very robust economics around the pre-feasibility.
As you can see on the locational figure, we're very well advanced in all of our permitting for the project's advancement into project financing in the coming years. Moving on to the next slide, which I can't see, we have a series of highlights from the pre-feasibility, which outline the type of production: around 95,000 tons of copper a year, 50,000 ounces of gold, which is over our primary production period of 14 years.
We've achieved a 20-year mine life, some $4 billion in free cash flow over the life of the project, and achieving some very, very competitive cash costs of around $1.38 per pound at strip ratios on our open pits of 1.5. The overall project has delivered a $1.2 billion NPV post-tax at an 8% discount rate and using long-term consensus prices of around $4.30 per pound copper and $22.80 per ounce gold. Pleasingly, the capital intensity on this project is first quartile.
Projects of this scale are rare. We're one of only five projects that sits in this production capacity class outside of the majors. To be achieving an upfront capital of around $1.27 billion puts this in a very elite class of project. On the next slide, we can look at the comparison of our PEA that was undertaken about 21 months ago.
Moving from a PEA level of accuracy from 50% to now 25% puts this project into the final chapter that will be progressing over the next couple of years towards project financing. As you can see, the company achieved very competitive outcomes on our increase in NPV, life of mine increasing from 16 to 20 years, strip ratios dropping from 1.8 to 1.5 following a significant amount of work on open pit design, and more importantly, us being able to achieve a very, very competitive cash cost.
When our PEA was undertaken 20 months ago, long-term copper prices were $3.85 US per pound. My, how that's changed in that timeframe. We're sitting in an environment supporting 25 bank consensus estimates of $4.30 per pound. That revenue margin alone, combined with a very competitive outcome on our cash costs for our pre-feasibility, has meant that this project has been able to secure a margin gain. That margin gain has allowed us to offset the inflationary pressure on our capital costs in particular.
One of the key aspects of our capital costs, as most people would have seen, is that our capital increased; our startup capital increased from around $1 billion to $1.27 billion, well within range of standard inflation seen on projects progressing from PEA to pre-feasibility over the last five years. Importantly, our expansion capital has significantly increased, and that is out of design. Hot Chili has looked at the key risks of this project and has addressed those key risks by bringing in global experts in the fields of underground caving, in particular, and also tailings storage facility management.
That is the key areas where we have applied additional capital, additional design, and additional scope change to mitigate that risk and create a very robust project definition. On the next slide, we'll just take you through some of the key benchmarking figures that were produced in this pre-feasibility to provide context for the industry. We are sitting in the large copper space. This is a space that is not very crowded, particularly outside of the control of the majors.
When we look at some of the key aspects for how does Costa Fuego and how does Hot Chili's single asset development compare, we firstly want to know how it leverages the copper price because we are in an increasing copper price environment where incentivization price to develop any of these large-scale copper assets to meet future demand will require an incentive price.
With that incentive price fast approaching, it is how leveraged these assets are to that copper price. For every $0.10 per pound above $4.30 per pound in our estimates, we see another $100 million US of net profit after tax added to this project. That is particularly important at this point in time, where copper price has just hit record highs of $5.30 as of last week, adding another $1 billion US to post-tax profit on Costa Fuego.
The first benchmark really is an outline of how all of the largest scale developers in the world, above 40,000 tons per annum production capacity, are leveraged to increasing copper price. What we have with Costa Fuego is one of the most leveraged copper developments globally. The second benchmark is, I guess, an outline of the impact of elevation on capital.
This is something that the industry has well known for a long time, but this is something that Hot Chili's benchmarking team has been able to display in one figure. What is unique about Costa Fuego is the project is low elevation. Very few of our peer projects are being developed at this scale in the Americas, where most of these large-scale assets reside, but very few of them reside at low elevation.
They're typically High-Andean projects , mostly above the Chilean snowline, and they relate to very high capital and upfront costs to develop these projects. That is reflected in capital intensity. The higher the elevation, the higher the capital intensity, just as the capital intensity is coming out of some of the majors, such as BHP and Lundin, and Teck Resources, on Quebrada Blanca, are seeing extremely high upfront capital costs that are blowing out on timeframes.
This is really something that Costa Fuego enjoys a significant advantage over its peers. We're down on the coastline with development timeframes of half the time and capital intensities of half the capital intensities of the high-ending peers.
Moving on to the next slide, we're just going to focus now on some of the key areas of risk mitigation that have been put into the project. I'll just pass over to our Chief Operating Officer, Grant King, to outline in particular some of the things that we've done to ensure that our tailings storage facility and underground cave are very robust in our definition.
Yes, certainly. The headline on this slide is really the $442 million that's been allocated to risk mitigation and the two key areas of the tailings storage facility, which is now a multi-decade, multi-generational storage facility to provide that capacity for our Costa Fuego project. It has also drawn in experts and really considered the issues that may develop from the tailings storage facility.
In terms of the underground cave, we've brought in global experts in caving to advise our team and to really look at how ramp-up and production within that cave is managed. It's a very nice-shaped cave. When you look at caves around the world, it has a very large footprint.
Concerns about cave propagation are minimized, but really the focus has really been to look at all of the risks identified and to develop strategies and integrate it with the rest of the operation. A lot of work is being done in that regard. We've also managed to improve our metal recoveries across the process, particularly in molybdenum and in the oxide heap leach.
Closure planning and hydrology have been key focuses with this. We've developed a progressive closure plan strategy as operations wind up in specific deposits, then closure is initiated. We've also demonstrated that the rope conveyor is a very suitable application in this project, given the mountainous terrain, and offering significant cost advantages.
We've also determined that construction of facilities like the Tailings Storage Facility is certainly capable within the waste rock that we have produced from the Productora deposit, and that that facility will be able to be constructed with non-acid generating material. Those are the sort of highlights there around the technical risk mitigations.
Great. Thank you, Grant. Moving on to the next slide, I think that this is really about the project layout. We're obviously benefited from sitting at 740 meters elevation, 50 km from port with the double-lane sealed Pan-American Highway running right through the middle of the project and 17 km outside of a town of 56,000 people in Vallenar and circa 100,000 in the Huasco Valley region.
What we have is a very compact development footprint with large tails facility that will allow for a 20 million ton concentrator and a 4,000 ton per annum cathode SX-EW plant to produce around 95,000 tons of fine copper per annum and 50,000 ounces of gold and quite a lot of molybdenum. That tails facility will take about 500 million tons of capacity.
What we're really doing is leveraging off of the 10 years of permitting advance on the original Productora project location, which is now going to be the center of central processing. Moving on to probably one of the second or the second key growth pillar for the company, which is La Verde.
As you can see there, just before Christmas, the company was able to commence a drilling program following six years of work to secure the La Verde Porphyry discovery some 30 km to the south of central processing location for Costa Fuego. This was really some of the last elements of our consolidation strategy, which we were able to successfully secure at the end of last year.
Most importantly, be able to move in, commence drilling, and then be able to achieve a very stunning result on our second drill hole well outside of the central lease, which was never previously controlled. This is the first time that this asset has been taken under one single ownership. This follows in the footsteps of the company's long period to consolidate Productora, then Cortadera, and now Hot Chili moving into the Domeyko porphyry center to the south.
This is one of a couple of key assets that the company has been progressing discussions on for several years. To achieve a 308-meter drilling intersection from near surface at 0.5% copper and 0.3 grams per ton gold was certainly a very, very encouraging step for the company.
What was very, very pleasing was the higher-grade components that we're starting to see at La Verde in that drilling, which has continued and continues today. Some 100-meter 0.7% copper, 0.3 gram per ton intersections in near-surface areas that can be exploited by open pit. This really represents the next leg of growth for the company. On the next slide, you can see a rapidly expanding discovery footprint.
We have over 15 holes pending for assays to come into the market. We have one RC drill rig on the ground at the moment, very, very carefully moving through an assessment of the lateral extents of this porphyry system. At this point, we have not closed out any dimensions of the porphyry. It is now out to about one kilometer long.
Every hole has been mineralized, and quite a number of those holes are all ending in porphyry mineralization with significant intercepts to the end of hole. This is a very, very exciting leg of growth. I imagine that if this was in a company that had no billion-ton resource base, no pre-feasibility completed, no 10 years of permitting advance, no 15 years of advancement towards a 20-year timeframe to build one of these major copper projects, that probably most of our market cap would be reflected just from an exploration discovery. This is really a hidden pillar of growth for the company.
This is something that is growing quite rapidly, and the company is planning its next phase of drilling, which will start to look at the higher-grade areas that are being drill intercepted and looking to exploit those for additional mine life growth that will be added to the Costa Fuego Copper Gold Project.
At the moment, we're progressing in the EIA to keep the company and the project on track for production at the scale of the pre-feasibility just released by the end of the decade. What La Verde represents is that second stage of growth, which we knew that this area could produce. Our final stages of consolidation are progressing. We have significant growth that is looking to push that 20-year mine life towards 30.
Certainly, this is going to be adding higher-grade front-end open-pit material that will continue to de-risk this project and build on that NPV that we've already put in place. I'll now move on to a discussion of a very exciting announcement for the company, something that we've been working on for over 18 months, and it is our strategic water asset in Huasco Water.
This follows over 10 years for the company to secure a maritime concession on the coastline. I think that some people that are not close to the regulatory environment in Chile may not understand how critical water is in the Atacama and has become.
Because of the foresight of Hot Chili over a decade ago to have outlined that water was going to be an existential threat to new mining developments in the Atacama in the future, we were able to apply for a license well before the Chilean government regulations changed, which restricted the extraction of continental water for the development of new mines and even for the processing of existing mines.
We fast forward now 10 years, and we're in an area where Hot Chili has the only license for industrial-scale water supply to the Huasco region. I think also people think that the Chilean government can just receive a phone call from a larger company and receive a maritime concession. That is not the case. The Chilean government regulatory process is very well known by Hot Chili.
It involves 18 different groups that all have required periods of interaction in a process that still has not changed to this day. Hot Chili has been able to secure an asset which has now become extremely valuable to this entire region, not just for Hot Chili and the development of our copper project, but for the development of all of the neighboring projects.
This is very, very strategic. This area represents some 20% of new global supply in one region where this is the only maritime concession, and there is a 10-year lead time to be able to secure a maritime concession currently within the Chilean regulatory environment.
When you have large neighbors such as BHP and Lundin at 4,500 meters with no access to desalinated water, when you have projects such as Teck and Newmont's Nueva Union project, the neighboring ATEX discovery of Valeriano, and the neighboring deposit that has been discovered by Antofagasta within Encierro, we have a grouping of almost 1 million tons of new copper production supply in the world.
I struggle to find anywhere in the world where we can add another Escondida of supply from one location. What is critical to the world delivering new supply is that enablers are in place. What we see Huasco Water as is a significant regional enabler to new copper supply and meaningful new copper supply.
We are rapidly approaching incentivization prices for copper in the world, and we have six large undeveloped projects that are not able to access desalinated water supply within the next 10 years if they were to apply tomorrow.
Currently, on our system, which you can log on to at your ease and check the registered maritime concessions in Chile in this region, Hot Chili has the only license that is capable of doing that and actually has the only new application in the system that is almost 16 months advanced for us to upgrade our existing license and also the application of a secondary desalinated license for the region. That is progressing well. This morning, we were able to announce, for the first time, the value of those water assets represent to Hot Chili. What was released this morning was a preliminary feasibility study.
It was undertaken by two independent engineering groups: ILF in Chile, one of the leading engineering groups for industrial infrastructure in the country, and secondly, Wood Santiago and Wood Perth, which also completed the pre-feasibility on Costa Fuego. The two pre-feasibilities were done in concert because they relate to the same asset.
Stage one is the supply of seawater to Costa Fuego. That is the enabler for our project. The pre-feasibility determined a $122 million post-tax NPV on the valuation of that asset just for the supply of seawater against a capital expenditure of around $150 million, delivering a 19% return. Water is unlike copper, where we have a global market to determine price. Water is determined locally.
This is from first principles, engineering, to determine what the cost of water is to produce water for Huasco Water, and then what is the price that Hot Chili is willing to pay. What we looked at was the commercial arrangements for rate of return on large water businesses within Chile. They range between 12%-19%.
We were very conservative to choose the higher return for Huasco Water at 19%, and that is what Costa Fuego has been costed on, paying a higher operating cost for its water than we would have if we had those assets as part of the project. What we are looking to do is to outsource that asset, reduce the capital of Costa Fuego. That capital is now in Huasco Water, but Costa Fuego is paying a higher tariff for its water supply on seawater.
That is certainly something that we view as a value enabler for the entire project. What is the bigger opportunity for Huasco Water is what stage two will look like, and that is the supply of desalinated water to this region. We have been advancing in discussions with potential off-takers for over 18 months and also with potential tier one infrastructure and water infrastructure groups, both Chilean and international.
There is a large appetite for investments in these annuity assets that carry very, very low levels of risk in comparison to a mining project, and effectively can be developed and financed by an entirely different sector than the mining companies themselves. This is a growing trend in Chile. We have seen it with a transaction announced on the new Centinela expansion of Antofagasta Minerals on their very large development project to the north.
We see it with one of our junior peers with Los Andes attracting some of the largest industrial organizations in South America to build the desalination solution for Los Andes Vizcachitas project. Actually, we see our own BHP sitting with production from Spence that was outsourced to Mitsui Water, that supplies desalinated water to the Spence mine on around a 1,300 liter per second basis.
Outsourcing of industrial infrastructure from mining projects is one of the ways that the Chilean large-scale copper sector has been employing to reduce this increasing capital intensity trend and to bring in specialized groups that have access to lower costs of capital and have the expertise to build, own, operate, and provide water to mine sites. That is very much a trend which Hot Chili is focusing on and looking to employ.
As you've seen, we have now added a potential $1 billion US post-tax asset to our asset stack. Over the next two years to two and a half years, as we progress towards the financing of this project, we will also be looking to complete the MOUs across all of the outlined parties that have been put into that document that was released this morning.
Already on the desalination, we have 165 liters per second of MOUs with agro-industrial processing groups in the valley. Our Vice President, José Ignacio, has been advancing the discussions with the government and the Huasco Valley communities in particular. Those distribution points in cooperation with the government and the Huasco Valley communities have been inputted into the pre-feasibility. The next step is for the MOUs to be in place.
Following that, we have a number of advanced discussions with most of the parties that are sitting on that list of potential customers, which are the large mining companies. While we have a potential 4,000-liter per second desalination catchment, stage one is quite conservatively looking at just 1,300 liters per second based on the discussions that are going on and that are covered by NDAs with each of those parties.
We have direct interaction with each of those parties in terms of where they would like to see those distribution points. I guess today was a very important point because this is the first point that those parties have now got an understanding as to the cost of water for their projects that could be provided by a multi-user large water network.
This is all about not just enabling Costa Fuego to be developed. This is about enabling significant capital synergies within the region that all of those large undeveloped projects can enjoy, and significant community synergies by the supply of water to the communities. Just to be very clear, the supply of water to the communities is not on a discounted basis.
This is something that's being done in concert with the government and as part of this project. This is actually about having water in the first place. This is a significant benefit to a lot of people within the region which we work and is tied into our ability to secure a social license to operate. Just moving on, I'll just pass through each of the stages to make this very clear.
Stage one, you can see a map there with the basic financial outcomes of the pre-feasibility that has just been completed. Again, a 20-year MOU to negotiate an off-take with Hot Chili based around that IRR tariff range has been executed, and we have anchored and enabled stage one to move forward now into feasibility planning.
This stage is all about the supply of seawater to Costa Fuego. You'll recall that the company is able to achieve higher recoveries using seawater processing, much like about 25% of production coming from Chile. These coastal assets that are at low elevation do not just enjoy lower capital intensities because we don't need to build all of the infrastructure at 4,000 meters. We don't need to bring large water infrastructure solutions into the high Andes, but we have older deposits.
A lot of those older deposits, you'll note, are saltwater processing projects for a reason, and that's because we get better recoveries out of them. Stage one and the economics around that are about the supply of seawater by Huasco Water, which Hot Chili controls an 80% interest in, and looking to supply Costa Fuego by the end of the decade, and have that construction done in parallel with the construction of Costa Fuego.
Following that, stage two which is the growth and commencement of a desalination water business for the entire Huasco region. Again, a $1.4 billion project to construct. These projects are not small, but producing a combined NPV of stage one and two of just under $1 billion, returning a 19% IRR. You can see that that network has been designed in concert with the parties on that sheet.
Most importantly, one of the foundational customers which we are working closely with, the other 20% owner of Huasco Water, CMP CAP Group , and their requirement for desalinated water supply for the expansion of their Los Colorados mine in the early 2030s.
The timing and the customer base is intimately associated with that interaction with each of those parties. What we see as the critical part to this is the growth of that desalination water network up into the high Andes through Nueva Union and providing the solution to unlock what is the third pillar of tier one growth for Teck Resources and Newmont within their portfolio.
From there, stage three, which was stated at conceptual level and only done on the basis of providing capital and operating cost pointers for discussions with those parties, is moving towards a supply line towards the tier one assets being discovered by ATEX and Antofagasta just to the south of La Fortuna. Also, obviously, enabling a discussion with the large developers of BHP and Lundin, and NGEx, with the Josemaria, Filo and Los Helados cluster of undeveloped projects.
I guess this really outlines a significant additional opportunity that is not held within any peer project in our class. We now turn to what all of this means. Delivering pre-feasibilities, as most of our shareholders and most of the market know, are generally not share price accretive moments for any company.
They are a huge body of work, but they are a massive de-risker to a company that has progressed and built a billion-ton resource from nothing through consolidation, secured all of the permits required to be able to be in a position to submit our EIA, and keep this on track for development at the end of the decade.
Most importantly, now to have an asset that provides the ability to shield our shareholders from significant dilution in taking on such a large and ambitious project as Costa Fuego is. We now have several funding optionalities which have become available to the company as of the announcement of these two pre-feasibilities. Firstly, at pre-feasibility level, these assets now sit within a transaction space that allows transactions on assets to be done and considered at valuations of around 0.2-0.3 of NAV, net asset value.
Remembering, this is a $1.2 billion US post-tax NPV on our copper project. With the addition of a first set of numbers on Huasco Water, we've added a potential $1 billion US of post-tax NPV to that equation. What we see now is a final pathway towards project financing, where, at project financing, the market can expect the assets to grow in terms of their transactable value. That means that PNAV ratios of precedent transactions in the market for the last five years, you can expect at bankable study or definitive feasibility study that PNAV ratio grows to between 0.3-0.5 of NAV.
It is the company's job to increase that net asset value as we progress towards the completion of the definitive feasibility, but also to consider now the beginning of partnership and sponsorship opportunities that allow the company to finance going forward against dramatically different valuations in our assets, but also take advantage of the remaining funding optionality, which we've kept on the table.
We have not touched the precious metals components of our ore body, so streaming has been left out. We have Osisko Gold Royalties as a significant investor with the 1.1% payable royalty across our metals on Costa Fuego, but that royalty was limited to just that existing project at the time. When we add an entire leg of growth with La Verde, we are also adding the optionality that further royalty options are open to the company on our growing asset base.
In addition to that, we come back to a very, very important transaction we did with Glencore post their strategic investment, which was to bring them in as an off-take partner at benchmark terms, but to limit that to the component of off-take that we would be looking to sell into the benchmark environment. 60% of our off-take is committed to Glencore at benchmark terms, but only on the first eight years.
That has become a growing area of focus for the company, particularly in light of the extremely tight concentrate market that has developed over the last 12 months to 18 months in the world that has seen treatment charges and refinery charges drop to zero and has seen most of the world's refineries out very aggressively pursuing the next order of production to come into this market.
This market is starved of new supply, particularly new supply that can supply refineries with what looks like an almost 4.5 million-ton refining deficit on concentrate that has developed. Having 160,000 tons of annual concentrate available with low to no arsenic, a very clean concentrate that is very attractive for most of the Asian and global refining market, we have a significant amount of interest in the project just from the concentrate perspective.
These pre-feasibilities have enabled the next step for Hot Chili, our final step towards financing, and it has opened the doors to a universe of funding optionality that the company did not have in the earlier stages of last week. We are very pleased to be in discussions with some 30 parties covered by NDAs on our copper project and some 10 global tier one parties across our water assets.
Over the coming six months, the company will be assessing those discussions and what those options might look like and what that might be able to do to probably providing the final stages of financing to this project, but most importantly and uniquely, allowing us to access valuations at multiples of our market capitalisation. That is what the company has been working to in earnest for a very long time. I'll just get Ryan, our Chief Financial Officer, to discuss what to add some clarity on some of those strategies that we're looking at.
Yeah, thanks, Christian. I think Christian did a pretty good job of summarising those. As you mentioned, Huasco Water is sort of the big ticket item for us as a non-dilutionary measure to raise funding. Stage two is NPV of $977 million. Yeah, we're discussing the off-take agreements there. As Christian mentioned, we've got gold streaming as well up our sleeve and the off-take agreements as well for Costa Fuego. Glencore has only got 60% of the concentrate for the first eight years' life of mine.
I think that the company is in a very, very strong position. I don't know of any other company that has a strategic asset that can be utilised to shield large equity side dilution to its shareholders. When we're looking at a $1.27 billion capital at the pre-feasibility stage to build Costa Fuego, and this is very, very traditional finance strategy that we're embarking upon, 50% debt, 50% equity, it might be a higher debt ratio or leverage ratio when we get there, depending on the interests of some of the exchange credit agency financings that are available on the debt side.
More importantly, how does a little company that's $100 million in valuation furnish $600 million US of equity side financing? That is generally a mission impossible. That is something that provides an overhang to a stock and creates a mismatch between copper prices, which are at record levels, and a market capitalisation which, at the moment, has not moved.
I guess probably comforting to most of our shareholders, neither have the majority of our peers in this space. There is a disconnect between what's happening with the copper price and what's happening with the market. For Hot Chili, the strategy as to how we shield our shareholders from that large equity side dilution is foremost in our mind. It's why we have advanced this business development project with Huasco Water, which is unique.
This is something that no other peer has on its options to shield equity side dilution. It is extremely unique. It has been borne out of foresight from our Executive Vice President, José Ignacio, who has led the charge on Huasco Water.
To be receiving the type of government support for this project, the type of community support for this project, and now starting to see the MOUs starting to be executed, and we will see more, this is something that is gathering momentum. To be able to show what the valuation of this project could look like. Remembering, we are only showing 1,300 litres a second of desal opportunity. What is very attractive to global water industry groups is the scale.
This is a regional scale water opportunity in one of the highest return investment jurisdictions for water investment globally, from an industry subset which is nearly as large as the mining industry itself. This is something that no doubt is going to be a real differentiator for the company.
Just to round out what we focus on here at Hot Chili, we have three assets or pillars of growth, and it is likely that only one of those pillars of growth is being valued by the market, and we would contend that is being misvalued by the market. We have a $1.2 billion NPV on a pre-feasibility level, 15-year advanced copper development, one of five in its class available outside of the majors, at a time where copper has just hit $5.38 per pound.
We have a fantastic new large-scale discovery in La Verde, 30 km to the south, where just 0.1 grams per tonne of gold will cover transport to integrate that into the Costa Fuego hub and provide a pathway for how this becomes a 30-year mine life. Lastly, a very unique strategic asset, which is a key enabler for the entire region, not just for the mining developments, but for the community and for the agricultural areas of the Huasco region.
Again, just to finish, we probably only have a market cap that is representative of one of those assets and probably trading at a discount to that market cap. What Hot Chili is now focused on is what happens next. How do we catalyze value for our shareholders, and how do we bring those asset values into our funding at multiples of our market cap? That is what the focus of the company will be coming over the next six months. I'll hand you back to Graham, and Graham, maybe you would like to commence with some questions.
Yes. Thank you, gentlemen. We do have several questions, so I'll jump right into it. The first question, how does the Costa Fuego project's low strip ratio impact its overall operating margins and mine life?
Strip ratio is very competitive for our open pit component of our mining. There's always a bit of a balancing act with strip ratio in that as your cut-off grade's lower, more of your waste becomes ore, and that can change things. We haven't really fundamentally changed our cut-off grade strategy here. It's really been borne out of converting what was previously considered to be low-grade sulfide leach material into feed for the concentrator.
As you look at different options in that open pit setting, strip ratio is a key indicator of your operating costs driving higher. I guess there's a great example of that where we have considered a very large pit in Cortadera rather than mining that as a combination of large pits and a block cave. We've looked at and studied what that would look like as an open pit-only type option, and the contrast in strip ratios is quite stark.
You go from our overall Costa Fuego strip ratio of 1.5 in the PFS to that PEA level analysis, which looks at just at Cortadera being a single open pit, having a strip ratio around 4. Quite a stark contrast there. If we were to look at strip ratios in terms of an industry standard, 1.5 is approaching first quartile.
Any strip ratio on open pits in the large-scale copper space approaching one is considered to be first quartile. When we began this journey with just one discovery and one development study on Productora back almost 10 years ago now, that strip ratio was up at around 2.7. When we incepted Costa Fuego for the first time, developed the production hub, we were able to bring the PEA strip ratios to 1.8.
Now at pre-feasibility level, we've been able to bring the strip ratio to 1.5. What's really important is what Grant, our Chief Operating Officer, has mentioned. We have not done that by lowering cut-off grade. We've done that through design optimisation, and we've done that through improvements on metallurgy.
We have also, probably one of the other key de-riskers for the project within the PEA, had a large potential low-grade sulfide leaching operation that was allowing our SX-EW production of cathode to be extended over my life of mine. While low-grade sulfide leaching is coming to the industry, it is not yet here. Certainly not on large-scale projects being run every day. That was another important de-risker that we took into this pre-feasibility.
We have dramatically reduced that low-grade sulfide leaching from 100 million tonnes down to sub 30 million tonnes. That has now been able to be put into the concentrator and has been responsible for us pushing that mine life out towards 20 years. Most importantly, again, all of these aspects of de-risking are about producing a low-risk, robust project design that is conventional, and that is what Costa Fuego is rapidly assuming.
Perfect. Thank you. Our next question, and I'm keeping the names anonymous, not to just to keep everyone's identity secret. Could you elaborate on the key factors that contributed to the significant increase in post-tax NPV and free cash flow from the 2024 PEA to the 2025 PFS?
Yeah. Look, if you're looking at the on the recovery side, obviously we've improved the recovery specifically in molybdenum, but also in the oxide heap leach. T hose aren't really the primary drivers of value, but they're certainly ancillary. You take your wins where you can get them. That was really about the investigation that we had been doing with the low-grade sulfide leach and using that same technology into the oxide, thereby increasing our recovery and lowering the consumption of some of our reagents.
The other major sort of change in the economics, obviously we've captured the inflation difference between the PEA and the PFS, which drives up some of the pre-start CapEx. The rest of the costs have really been about building out the stuff that's not really seen in the pre-start CapEx. You are not seeing a big change in that pre-start CapEx, but you are seeing the risk mitigation strategies being deployed into the expansion capital.
I hope that provides some sort of context as to the change in economics between PEA and PFS. Really, the capital plan is very much intact for the startup, and we have added the additional capital required to lower risk during the expansion. That is a characteristic of this project that hasn't changed from the PEA to the PFS.
We have the plan to initiate production at Productora, and then we have the plans to expand our mining base across from Productora to Cortadera , both beginning with an open pit and then proceeding to a block cave. Both of those developments, the connection between the deposits, the establishment of the tunneling to get down to depth in the block cave are all being paid for out of cash flows while we're operating Productora.
Yeah. Look, Graham, just to add further to that, when you're moving between a 50% accuracy study in 2024 to a 25% accuracy, these are night and day studies. This is full design now with 25% level accuracy. All of the capital numbers have inbuilt 16% contingency. If that is not obvious, that's about growth of the numbers when they get to feasibility being estimated and then contingency set on direct costs.
What we have is a very realistic and robust study now where effectively there was a battle between operating and capital cost. We've been the benefactor of rising long-term consensus price. As I think I spoke in the earlier part of this webinar, because we've had margin gain, that margin gain has not just accounted for the additional capital, but has built us additional free cash flow, increased our post-tax
NPV, and so has given us a much more robust foundation for a project which at a minimum we were targeting to get this to a 20-year mine life. Now we have the opportunity to take that towards a 30-year mine life with La Verde.
Thank you, gentlemen. Grant, it looks like another one for you, and you touched on this in the presentation. Can you explain the advantages and any challenges of the rope conveyor system?
This is a particular item of our infrastructure that we measured twice and cut once. We put it into the PEA based on the back of trade-off studies that looked at conventional conveyors versus this rope conveyor technology versus trucking. We cut off all of the major conservative conventional options. Rope conveyor really sort of stood out because it has some elements that are very dear to our heart. It has a very low operating cost because of the low resistance of the entire system.
That was not completely unexpected, but surprising in what it does to our operating costs for all of the needs to be transported across. We then did another study to follow up on that just to make sure and actually costed out conventional conveyors in a couple of different routes.
It really is quite compelling how cost-effective the rope conveyor approach is at handling the topographical issues that we have that lie between Cortadera to the east and Productora to the west. It's actually quite a large expanse of, I call it flat ground in a Chilean context, but it's probably not really flat or considered flat in the rest of the world.
It also has two distinct mountain ranges that it needs to cross. The path for a conventional conveyor is much more circuitous, and that actually drives the CapEx to be higher than a rope conveyor, depending on how much design you put into that. In both cases, rope conveyor turned out to be a superior technology. It's not really certainly a technology that if you see it, you won't forget it.
It is a conveyor that is suspended on a rope way. Think about ski lifts, except the rope is not actually moving. It's creating the foundation for the conveyor to run along. Because the conveyor is running along that rope way, it is very smooth and continuous. It's not running over thousands or tens of thousands of rollers. The ore is not moving up and down.
That all equates to energy savings within the system, as well as the ability to recapture energy by turning the motors into generators on downhill sections. When you combine all of those advantages and the fact that we have two mountain ranges to cross, the rope conveyor has been tested twice and stacked up each time. It also has another benefit.
It not only navigates difficult terrain quite well, it has the ability to navigate other obstacles like power lines and roadways that lie in between. We have the Pan-American sitting between Productora and Cortadera . It's a major highway, four lanes. It is very straightforward for the rope conveyor to traverse that barrier and also to drop in under power lines. I think the topographical advantage is sort of the key one for us. It's what drives down the capital of that option relative to a conventional conveyor. The operating costs just make it quite a compelling option to pursue.
Thank you, Grant. Could you provide more background into the EIA timeline for submission and potential approval?
Sure. Our Executive Vice President, who has just jumped on a plane and got to Santiago, would be sitting with us, José Ignacio, who's overseeing most of our environmental and community work programs with our environmental department. I will make an attempt to give a reasonable answer on that. We have spent 10 years advancing our baselines with community and environmental in this region, probably longer than any company or developer I know of in Chile.
We are very, very well prepared. Our baseline studies and weather monitoring continues to this day, and it will continue all the way up until EIA submission. We have some final programs that relate to the project layout that need to be undertaken by our development group in concert with our environmental team in the back half of this year. We are aiming to submit that once those programs are complete.
That looks likely to keep us on track for an approval to be available at the same time as our definitive feasibility is completed, and we are project finance ready. All things are being dovetailed towards that point. We expect a two-year approval timeframe on the environmental impact assessment. That is the final license application and approval required for this mine to be built.
There is talk in Chile of some companies wanting to just go down the DIA route. We are not one of those companies. We have taken a very conservative and, I guess, stakeholder-based approach from the beginning, which means we are taking the community and all of the stakeholders, from indigenous stakeholders to non-indigenous stakeholders, with us on this journey. What is unique about Huasco Water is that this is an aspect of our story which is unlike any of our peers.
We won't just be providing a workforce of almost 2,000 people on the construction phase, moving to a workforce of employment in the region of 800 during operation. We are also talking about being the provider of water in the Atacama Desert to the entire Huasco region.
That is certainly something that has gotten a lot of community support and a lot of community activism behind the company. It is really central to our strategy to secure our social license to operate, which will support that environmental impact assessment, Graham.
Thank you. Last but not least, what should shareholders expect as far as upcoming catalysts for this company?
Look, immediate catalysts, if we were going to talk about news flow, because some of them will be catalysts within their own right. We have a significant backlog of assays in the laboratories. We're in the summer season, just finishing the summer season in Chile, where all of the high Andean projects and drill rigs are turned on. Like our peers, we are seeing extremely slow return rates on our assays. We'll be getting that out hopefully in the coming week or so, our next set of results on La Verde or when those assays are available.
I imagine that that is going to be very exciting for our shareholders to see this discovery grow from a footprint that was only 400 meters back in February to now well over a kilometer, I believe, in the drilling that's being undertaken and 550 meters wide laterally without any drilling that has commenced on the higher-grade sulfide areas that we're intersecting. I think that La Verde, for us, will be a big growth push going forward.
This will be news flow that will continue for the foreseeable future and probably take center stage while our development group is advancing on our bankable or definitive feasibility study. Outside of that, as most people know, we're implementing board and management changes to upgrade the capability and significantly strengthen our capability to develop this asset.
We're looking at key appointments being made over the coming months ahead, both at our executive, at our management level, and most importantly, at our board level. That is about positioning the company towards production, aligning our large and long-term shareholders that have invested in this company from the beginning to build Hot Chili into a producer and a producer of scale. A lot of people will be concerned at this journey and how long it takes to build a large copper project.
We're 15 years into the average 20-year timeframes it takes to build. We are certainly not a company that is positioning to sell our project for a 30% premium for a handful of silver. That is not what 15 years of investment from our major shareholders has been about. We are focused on the long-term value proposition for Hot Chili as we were from day one in this company. We've taken no shortcuts. Our strategy is to develop.
Our strategy is all about funding and all about building scale and building the mine life that we can support a multi-generational, meaningful-scale copper producer to enter the market at a time of record copper prices and fundamentals between supply and demand, which are just getting more out of whack.
This is the time to bring on something of scale, something very similar in scale to what Australia just lost with OZ Minerals by the takeover for $9 billion by BHP. That is what the value of a company like this looks like in production. Certainly, at the 30-kilometer or 35-kilometer mark of a marathon, we're not looking to take our cup of water and tap out of the race.
Our entire funding strategy forward, our strategy on partnering early and bringing in sponsorship partners is all about that. We want to be sitting as a company that gives our shareholders exposure to this metal market, which we see as providing significant leverage once in production. Yes, it is a painful journey. It means that we have to be very nimble. We have to be very careful with when we finance and how we finance.
It is certainly something that we have seen, this team that has stuck together from the early days, most of our core management that have been in the company for plus 10 years. It is a team that has developed this from nothing to a position where we're entering our final phase of development and investment. That is very exciting.
A lot of people focus on what the Lassonde Trough has in store for them in terms of the negative, but they very much forget that a trough has two sides. We are very focused on what the other side of the Lassonde Trough, this very tough period that all companies have to go through if they're actually real about developing their assets, rather than focused on getting a 30% premium and selling your shareholders out for a handful of silver.
That is what our company is focused on. It's what the long-term value proposition for our shareholders represents because that is many, many multiples above where our share price is today. For the answer to our shareholders that have shorter timeframes, what can we do to catalyze investment into Hot Chili to start re-rating a price within a market which is seeing pretty depressed conditions for junior resource companies as it is?
Not many of our peers showing better performance for share price than Hot Chili. To step out of that crowd and to make ourselves stand out, we now have the ability with assets at pre-feasibility level to contemplate a much wider universe of funding optionality that is within itself probably one of the next key catalysts for Hot Chili and our shareholders and share price appreciation.
Thank you, Christian. I was going to pass it back to you for closing remarks, but I think those could classify as closing remarks. Anything else before we say goodbye?
No, not from me. All right. I'm good. Thank you very much for everybody that has logged in and attended. We very much look forward to this last chapter as we move towards building a very large-scale copper business in South America for our shareholders. What will be very, very exciting for everybody to keep their eyes on are the drill news flow, the board and management appointments, and most importantly, what happens next with Hot Chili's potential partnership strategy. Thank you.