THE CRITICAL INVESTOR

At a time where sentiment seems to be turning into risk-off, with the markets contemplating whether the Fed options for a 50 basis points rate hike instead of the earlier telegraphed 25p raise as the latest inflation figures came in higher than expected despite solid market fundamentals, Aztec Minerals (AZT: TSX-V, OTCQB: AZZTF) doesn’t seem to bother too much, as it raised C$1.1M, outlined drill programs for their Cervantes and Tombstone projects, and very recently commenced drilling at Tombstone in Arizona. As I view Tombstone as a realistic opportunity for Aztec to delineate a second 1Moz heap leachable gold deposit (according to my estimates Cervantes could have a resource just over 1Moz Au now), the current valuation of just C$23M seems to represent lots of future valuation upside.

All presented tables are my own material, unless stated otherwise.

All pictures are company material, unless stated otherwise.

All currencies are in US Dollars, unless stated otherwise.

Please note: the views, opinions, estimates, forecasts or predictions regarding Aztec’s resource potential are those of the author alone and do not represent views, opinions, estimates, forecasts or predictions of Aztec or Aztec’s management. Aztec has not in any way endorsed the views, opinions, estimates, forecasts or predictions provided by the author.

Aztec Minerals wasted no time, as it commenced drilling at its Tombstone project in Arizona on February 28, 2023, after closing a non-brokered C$1.1M financing on February 23, 2023. The financing was done at C$0.25 per share, for 4.378M shares, no warrants and no finders fees. As Aztec was trading at C$0.25-0.26 at the time, it was basically done at market prices without discount, so together with no warrants this shows strength. It was good to see Alamos Gold, a 15.86% (partially diluted) holder, putting in another C$100k in this round, and CEO Simon Dyakowski also bought a few shares to raise his total to 1.8M shares. This fresh cash enables Aztec Minerals to conduct the Tombstone drill program, and will cover preparation and part of the follow-up drill program at Cervantes later this year as well. Let’s have a quick recap of Tombstone before we delve into the current program.

The 434 hectare Tombstone project is located in the middle of a world class copper porphyry district, but also close to the massive Taylor/Hermosa CRD deposit in Arizona.

Aztec is the operator of a 75/25 JV with private Tombstone Partners. Tombstone hosts a historical mine from the old days, called the Contention Mine, producing 32Moz of silver and 240koz of gold, mostly from CRD deposits and oxide ores between 1878 and 1939. Historic mining was terminated because of lack of technology to counter the water table related inflows at the time.

RC drill programs completed in 2020 and 2021 at the Contention pit indicated substantial mineralization, as all but one of the 44 drill holes intercepted gold and silver. Intercepts were often long, and also predominantly longer than the thickness of overburden at each hole, indicating a potentially favourable stripping ratio which could bode extremely well for future economics. Highlights from 2020 are: TR20-002: 67m @ 1.07g/t Au (1.6g/t AuEq) from 19.8m, TR20-003: 93m @ 0.77g/t Au (1.07g/t AuEq) from 6.1m, TR20-009: 30.48m @ 3.31g/t Au (3.78g/t AuEq) from 32m, TR20-017: 140.21m @ 0.38g/t Au (0.62g/t AuEq) from 1.5m, and TR20-018:  32m @ 1.4g/t Au (2.09g/t AuEq) from 80.8m.

Highlights from 2021 are: TR21-03: 32m @5.7g/t Au (6.3g/t AuEq) from 80.7m, TR21-06: 74.7m @ 0.22g/t Au (0.47g/t AuEq) from 83.3m, TR21-10: 96m @1.39g/t (2.2g/t AuEq) from 25.9m, TR21-11: 24.4m @ 1.2g/t Au (2.22g/t AuEq) from 82.3m, TR21-16: 64m @0.8g/t Au (1.03g/t AuEq) from 48.8m, TR21-017: 64m @ 1.73g/t Au (2.53g/t AuEq) from 27.4m, and highlight among the highlights hole TR21-22: 65.5m @ 2.44g/t Au (3.4g/t AuEq). These are all potentially very economic results, and begged to be followed up by more holes more to the north. Aztec had to wait until now for this, due to more competent rock in that area, which needed diamond drilling.

The water table is located at about 200m depth, but poses no problem whatsoever with current dewatering equipment. Standard open pit depths are about -200m, so there is more exploration potential at depth, but also laterally. The total drilled area now measures 900m long x 230m wide, and to maximum depths of 200m. When doing a back-of-the-envelope guesstimate, this could result in a 900m x 150m x 50m x 2.75t/m3 = 18.5Mt mineralized envelope, at an average grade of 1g/t AuEq this could already result in an estimated 600koz AuEq resource. As the area is open laterally and at depth, I’m curious how far Aztec can take this.

Besides this open pit potential, management firmly believes there could be large CRD type mineralized potential at depth (150-1000m depth), based on several meaningful deeper drill results which already had results like 7.16m @ 6.5%Pb and 2.6%Zn, indicating high grade CRD mantos, the presence of nearby manganese-silver rich mines, and other polymetallic mines located in the same type of host rock, in this case Paleozoic limestone.

The current 10 hole, 2,250m diamond drill hole program is now underway, and holes will be drilled to 225m depth, a solid 75m deeper than previous drilling accomplished. This is the drilling plan:

The drill program underway is testing an expansion of mineralization at depth and laterally in the Contention open pit, and was designed after doing lots of surveys, sampling, 3D modelling and interpretation. There are 4 different types of targets:

• Shallow, bulk tonnage, “heap leachable”-type mineralization typical of Tombstone
• Sub-water table (below 150-200m depth) extensions of the typical Tombstone Au-Ag mineralization
• Deeper, high grade, “Taylor”- style carbonate replacement silver-lead-zinc-copper-gold deposits (CRD) in the extensive carbonate section (~ 2 kms estimated thickness) below the Bisbee formation.
• The potential for a mineralized porphyry-type deposit as a source of the Tombstone mineralization.

This last subject was mentioned as porphyry intrusions are thought to be the typical source of all mineralization in the belt. As can be seen in the following section, there are a lot of underground workings, and I wondered if the workings above the water table contained water, as Arizona has a pretty dry climate, and if these workings couldn’t be used for underground, lateral drilling. CEO Dyakowski told me this: “The historic workings have not yet been investigated for the safe possibility of exploring, either with mapping, sampling or drilling from underground”

It will be interesting to see if the drills intercepting the limestone can get clues about the potential CRD massive sulfide at depth, as conductivity indicate just this:

It seems the strong conductor to the left and the moderate conductor at depth aren’t targeted in this round of drilling, so I asked CEO Dyakowski when this could happen. He answered that he wanted to prioritize his targets as ranked in the list of four target types, so a strong focus first on the heap leachable oxide potential, and a few deep holes at the end of the program. The ongoing 10 holes will be completed in March, and results are expected in April or early May, probably several batches.

For Cervantes, Aztec completed 37 drill holes for 7,836.6m on four targets (California, California Norte, Purisima East and Jasper), and the program was successful as 28 out of 29 holes at California hit near surface oxidized gold mineralization. After all drill results came in, it seems Cervantes goes just past the 1Moz Au threshold for now according to my back-of-the-envelope estimate. With an estimated 75koz Au per annum production scenario as calculated in an earlier article based on the hypothetical 930-950koz envelope, generating an equally hypothetical NPV 5 of US$150M, the latest added ounces could get this number up to US$175M. A 100koz Au per annum threshold might be achieved for Cervantes by reaching a 1.3-1.4Moz Au resource figure, so there is still work to do.

As the dry season has started, Aztec is carrying out channel sampling and geologic mapping of the new drill roads at California, California Norte and Jasper at the moment, as well as expanding surface sampling and mapping on the property in general, in order to generate new drill targets for a follow-up of the 2021 – 2022 drill program. A new drill program consisting of 26 holes and 4,000m of RC drilling, is planned to commence in April. With a current cash position of over C$2M, with C$1.0M going to Tombstone and about C$400k to G&A in H1, 2023, the company has sufficient cash to complete Tombstone drilling, and do the stage 1 sampling and mapping program for Cervantes. Aztec will need to raise more cash in order to complete the already budgeted C$900k RC drill program for Cervantes, to complete the maiden resource estimate for Cervantes, somewhere in H2, 2023.

Conclusion

This could be a very interesting and validating year for Aztec Minerals. After raising C$1.1M, the company has just commenced drilling at Tombstone, a project which already stands at an estimated 600koz Au at the moment, and could very well prove up an estimated 1Moz heap leachable gold in my view, and this is without the deeper CRD/porphyry potential. There is no reason it couldn’t follow in the footsteps of Cervantes, and when a maiden resource estimate will come out in H2 2023 for Cervantes as projected by management, there is a good case to make for serious undervaluation of this active junior. Stay tuned!

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter at www.criticalinvestor.eu, in order to get an email notice of my new articles soon after they are published.

Disclaimer:

The author is not a registered investment advisor, and currently has a position in this stock. Aztec Minerals is a sponsoring company. All facts are to be checked by the reader. For more information go to www.aztecminerals.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.