March 23, 2023
It's the war you have never heard of. But it's here.
We're not talking about the crisis in Ukraine or any of the 110 armed conflicts happening in the world right now.
It's the "silent" war that involves trillions of dollars... some of the most powerful people on the planet...
And potentially one of the biggest investment opportunities of this generation.
The opposing sides look nothing like regular armies.
They wear grey suits and use bureaucratic language.
They look harmless.
But they wield the most potent weapon out there: money.
We are talking about central bankers.
And they are furious at each other.
In a moment, we will walk you through the biggest war of 2023... and point you to one of the best ways to profit from it, regardless of who wins the war.
The US Federal Reserve is doing everything it can to stop inflation while not triggering an economic crisis.
(It can't do too much, though, so prices continue soaring. In February, they rose 6% year-over-year.)
The latest news from the Fed suggests that in 2023, it will continue hiking.
San Francisco Fed President Mary Daly said early in March that "[...] In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary."
And despite the recent banking crisis triggered by the collapse of Silicon Valley Bank, markets are expecting the Fed to raise interest rates by 0.25 percentage points in March.
In other words, prepare for more financial pain.
Why? Because prices continue rising pretty much across the board. From food to housing, consumers are facing higher costs.
And strong hiring data in the US tells us that workers are in a better position to handle this price tornado than they would be if unemployment was high. In February, the unemployment rate in the US was just 3.6%, just slightly higher than the 50-year low of 3.4% recorded in January.
As long as people can afford higher prices, businesses will continue increasing them.
The cycle will continue until something breaks, and the economy enters a recession.
Meanwhile, the Fed will continue hiking.
It's the only thing it can do, and no bank failure such as those of SVB or Signature Bank will stop it.
Yes, it can provide some help to the failing financial institutions through emergency funds, but it isn't likely to stop trying to quash inflation.
It's hard to imagine that just a year ago (as of writing), the fed funds rate was at 0.25%-0.50%.
Right now, it stands at 4.50%-4.75%.
At the midpoint, interest rates have soared by over 12 times!
The Fed is desperate. It hiked the key interest rate 12x, yet high inflation is still here...
But it will continue doing one of the very few things it can do... you guessed it right, it will keep hiking.
The problem is that it doesn't work.
Mainstream economists have slowly started to realize that not only will high prices stay around... they will continue growing at decades-high rates.
Several factors are at play here.
First, globalization is over. The process of globalization made most goods cheaper because their production was outsourced to countries with low labor costs.
The Covid pandemic wreaked havoc on the global supply chains. It turned out that they were too overstretched and vulnerable to disruptions and "black swan" events.
If you tried buying pretty much anything online over the past two years, you noticed long shipping times and products becoming unavailable.
Second, the US-China rivalry has resulted in "onshoring." In other words, the US doesn't want to either rely on China for production or send any of its advanced technology there.
The pandemic and the US-China trade standoff were the turning point for globalization.
"Onshoring," or bringing production closer to its end markets, will make products more expensive.
One study showed that if Apple moved its iPhone production to the US, its price would double to $2,000.
Moving production from China to the US will result in an even higher labor shortage in the United States. And lower unemployment. And higher inflation.
Worst of all, this process will take years, if not decades. Which means that one of the most powerful trends underpinning high inflation will remain in place.
The other massive inflation catalyst is the "green transition." It has the potential to end the world's dependence on fossil fuels and provide abundant and clean energy... but during the adjustment period, inflation could stay high.
First, "new energy" projects require capital investment. Private companies that plan to improve their energy footprint will need to spend billions of dollars to change their business models.
Those costs will be passed on to consumers. This will fuel inflation.
Second, the government has stepped in and passed a variety of laws, including the Inflation Reduction Act, that promise hundreds of billions of dollars in tax breaks and investment capital available to the "new economy" projects.
Now, the IRA won't likely fuel inflation by itself.
But it may not be the last piece of legislation that promises hundreds of billions-if not trillions-of dollars in investment capital and tax breaks...
High government spending can lead to inflation ... and we're talking of potentially trillions of dollars here.
The Fed is trying to fight inflation with a few blunt tools, such as interest rate increases.
It's like trying to do surgery with a hammer. Almost no gain and a lot of collateral damage, such as the likely recession.
The Fed's policies have been unsuccessful so far... and economists have started to agree that high inflation is going to stay around longer than expected.
...which means that investors should turn to the tried-and-tested way of positioning their portfolio against inflation - gold.
(Select gold stocks would provide extra exposure to the price of the yellow metal. They are volatile, but the highest-quality gold stocks provide leverage to the price of the underlying commodity, which can increase returns.)
And we don't mention gold just because it's the traditional inflation hedge... We have noticed that some of the world's best-funded investors are buying it at historically high levels.
This is the other side of the "global banking war."
On one side, you have soaring inflation in most major economies...
On the other side, you have... the rest of the world.
Global investors have noticed the trend that we have just discussed.
Despite their efforts to stabilize the economy, the Fed and the US government keep doing what they are best at: destroying investors' confidence.
As a result, foreign investors are buying gold in record numbers .
In 2022, central banks bought 1,136 tonnes of gold, a more than 150% increase over the previous year.
And this year, this buying spree continues.
In January, central banks purchased 31 tonnes of gold, a 16% month-over-month increase.
World Gold Council reports that China, for example, stepped up its gold purchases aggressively at the end of last year.
This goes back to the point we discussed above... the global economic decoupling.
The US wants to become more independent from China...
Guess what. China is looking to do the same.
And one of its most powerful weapons is... the US dollar.
By buying gold, China is weakening the demand for the US dollar worldwide. In January, it purchased 15 tonnes of gold ... And some analysts say that China may hold more gold than the United States. As a reminder, the United States holds over 8,000 tonnes of gold, or about 458 million ounces.
And China's frantic buying does two things to support gold price... first, it directly increases the demand for gold... second, it somewhat weakens the US dollar, which is another catalyst for the yellow metal.
This is the other side of the "global banking war" that could directly benefit gold and potentially gold mining companies.
Gold as a commodity is a traditional safe haven.
Resource juniors focused on gold are a higher-risk and potentially high-reward alternative to the commodity itself.
But which ones should investors consider putting on their radar?
There are several factors to take into consideration.
First, the team in charge of exploration or production. The human factor is the most important success element for any early-stage venture.
Second, assets. Resource juniors focused on gold should have their properties located in strategically beneficial regions. We will explain which ones would fall into this category in a moment.
Third, the best resource juniors are able to raise funds and make tangible progress at the properties they are focused on.
This combination of expertise, asset quality, and the ability to hit their milestones sets aside the best mining companies from the rest of the pack.
And, we believe, Aztec Minerals (TSXV:AZT, OTCQB:AZZTF) could become a resource junior that will benefit from the "global banking war" and the "long inflation."
As we said above, the globalization era is over.
This means that investors should focus on companies that operate close to home... in other words, in the United States, Canada, and other "friendly" nations, such as Mexico.
Aztec has two projects, and both are strategically located in North America.
The Cervantes project is a large land package that covers about 3,650 hectares in the state of Sonora, Mexico.
(Aztec owns 100% of the Cervantes project.)
The project has access to roads, water, and power.
Critically, it's located on private land. This should potentially help the company avoid any ownership issues in the future.
Cervantes is a gold-copper project. This means that it's focused on two commodities supported by two separate megatrends.
First, gold. The "global banking war" and the lasting inflation worldwide are good news for the yellow metal.
Second, copper. It's one of the metals widely used in clean technology applications and clean energy infrastructure.
Cervantes' location is also strategically beneficial from a geological standpoint.
It's not some patch of land in the middle of nowhere.
It's located within the prolific Laramide porphyry copper belt.
The project contains seven zones of mineralization... and California is the most prominent one.
The company has outlined a 900m by 600m area with rock samples averaging 0.44 g/t gold already.
Initial drilling has outlined some wide and high-grade gold intervals, such as 1.49 g/t gold over 137m and 1 g/t gold over 165m.
The company aims to invest C$1.2 million in its exploration activities at Cervantes in the first half of this year.
A C$250,000 surface exploration program began in the first quarter. It includes road cut, reconnaissance outcrop and soil sampling, as well as data collection and mapping.
A large follow-up campaign will start later this year. The company plans to spend $900,000 on it and drill 26 holes for a total of 4,000 meters.
When the program begins, we will expect the company to start delivering news releases at a fast clip.
Investors may want to put Aztec Minerals (TSXV:AZT, OTCQB:AZZTF) on their radar ahead of that.
But drilling at Cervantes isn't the only catalyst that makes Aztec potentially one of the most interesting resource investing opportunities.
Aztec's other property is called Tombstone. It's located in the Tombstone Silver Mining District in Southeast Arizona.
Aztec controls 75% of the project as part of a joint venture.
The company has just started its core drilling program at Tombstone. It plans to further define and expand the Contention open-pit gold-silver target.
We have received this image from Tombstone where the company's drilling rigs are turning right now.
Image: Drilling commences at Aztec's Tombstone project
The company plans to drill 10 holes or 2,250 meters at Tombstone.
But the current campaign isn't the company's first at the project.
It is a continuation of the 2020-2021 exploration program, which delivered exceptional results.
For example, hole TR21-22 intercepted 3.4 g/t gold equivalent over 65.5 meters, including 22.2 g/t AuEq over 7.6 meters.
The company's CEO Simon Dyakowski said at the time, "[T]hese final results continue to show strong grades over broad widths, confirming and expanding the historic gold and silver mineralized zones both along strike and down dip. Holes 21-19 to 23 confirm the geological continuity between Aztec's 2020 and 2021 drill holes and the historic USMX drill holes, and the mineralization remains wide open in all directions."
Notably, each of the 44 holes drilled intersected gold-silver mineralization located near the surface.
This means that the body of mineralization doesn't lie very deep. Normally this is a great sign that the project could potentially have viable economics.
(We should note that no NI43-101-compliant economic studies have been done for this project yet.)
Aztec has just closed a C$1.1-million private placement, which is a testament to the company's ability to raise money even in the challenging period of rising interest rates.
The reason is simple: investors recognized the company's portfolio of projects located in friendly jurisdictions and their significant potential exploration upside.
Tombstone, for example, was a past-producing mine.
It's not a "greenfield" project with no history and a high risk of failure.
Aztec says that in the past Tombstone produced over 32 million ounces of silver, 240,000 ounces of gold, 65 million pounds of lead, and 1.1 million pounds of zinc.
Most of the production came from oxides, which are relatively cheap to process.
This could bode well for Tombstone's potential future economic studies.
Also, Aztec's Tombstone project lies 65 kilometers west of Taylor, a massive zinc-silver-lead project.
A preliminary feasibility study (or PFS) for the Taylor deposit outlined a potentially "multi-decade operation."
As a reminder, Arizona Mining, which owned Taylor, was acquired by South32 for over $1.3 billion back in 2018.
In addition to the near-surface oxide mineralization, the company also plans to explore the deeper sulfide zinc-lead-copper-silver mineralization (the CRD system) at Tombstone.
Both the Cervantes project and the Tombstone projects focus on precious and critical metals.
This is one of the company's core strengths. It combines strategic locations of its projects in mining-friendly jurisdictions with upside potential coming from multiple megatrends: persistent inflation, the "global banking war," and the clean energy revolution.
But being exposed to these trends isn't enough.
Any resource junior needs a management team capable of raising funds and reaching its milestones.
The President and CEO of Aztec Minerals (TSXV:AZT, OTCQB:AZZTF) is Simon Dyakowski. Mr. Dyakowski is a capital markets professional with experience in financing and marketing exploration-stage companies.
Its' critical for an early-stage resource junior to raise funds and deliver their exploration and development progress to the market. We believe that Mr. Dyakowski has the experience to successfully lead Aztec Minerals through the challenging resource market.
He is assisted by the company's advisor, Mr. Andrew Bowering. Mr. Bowering has 30 years' worth of venture capital experience, as well as involvement in the mineral exploration sector.
Much like early-stage business ventures, Aztec benefits from the experience of professionals like Mr. Bowering, who was involved in capital markets for three decades.
On the technical side, Mr. Allen David V. Heyl is the company's Qualified Person and its VP, Exploration.
Mr. Heyl brings almost 40 years of experience in the mining industry in both South and North America.
During his career, Mr. Heyl played key roles in the discovery of over 30 million ounces of gold and 25 million tonnes of copper in reserves and resources.
Another notable member of the team is Mr. Mark Rebagliati. He was involved in the mining industry from 1966 and played a part in multiple discoveries, including Mt. Milligan copper-gold project and the world-class Pebble gold deposit.
Mr. Rebagliati received multiple awards throughout his career, including PDAC Prospector of the Year and International Discovery awards. He was also inducted into the Academy of Geological and Mining Sciences (MTU) and the Canadian Mining Hall of Fame.
In our view, the company's team has the technical expertise and the capital markets insight to successfully lead Aztec Minerals (TSXV:AZT, OTCQB:AZZTF) and leverage the unique combination of megatrend catalysts that support the gold market as a whole to its shareholders' advantage.
Investors who want to profit from the "banking wars" need to look for projects focused on gold and "clean energy metals" such as copper.
The projects located in the United States, Canada, and Mexico have the "home advantage." The closer, the better. And Aztec's projects fall into the "close to home" category.
The company has just successfully raised funds-which is an achievement in itself-and immediately started deploying its capital toward advancing its multiple goals.
Investors should immediately pay attention to Aztec Minerals (TSXV:AZT, OTCQB:AZZTF).
For more information on the company and its projects: https://aztecminerals.com/
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