Got commodities?

Investors who are generally focused on declining asset prices should probably be a lot more focused on asset allocation.

Overvalued paper assets are collapsing in price and possibly going to zero. Undervalued commodities will be one of the prime beneficiaries of an asset allocation shift, as a natural hedge against inflation.

The new commodity super cycle bull

For investors looking for broad commodities exposure, Avrupa Minerals Ltd. (TSXV:AVU / OTC:AVPMF) offers investors an amazing value proposition. More on this later.

The paper asset implosion

Skeptical about the demise of paper assets?

The derivatives ‘market’ is a $2 quadrillion paper bubble. There is ~$20 of leveraged gambling on these paper derivatives for every $1 of global GDP. Insane.

In fact, the Bank of England just engaged in a £65 billion “emergency financial operation” to bail out derivatives-holders facing major margin calls who, if not rescued, threatened to collapse the entire UK pension system.

This was immediately after the Bank of England was forced into another emergency financial operation to “halt a bond market collapse”.

Across the Pond, as U.S. Treasuries prices head straight down, bond issuance by the U.S. government is going straight up because the U.S. budget deficit is spiralling out of control. Collapsing Treasuries prices, with near-infinite supply. Where’s the bottom?

“Go to cash,” advise many so-called financial experts as inflation rages around us. “High inflation” means that these unbacked paper currencies (fiat currencies) are rapidly losing value.

In fact, in the 1,000 years that governments have experimented with the monetary Ponzi scheme known as “fiat currency,” these paper assets(?) have a perfect record. Fiat currencies always go to zero.

Got gold?

In times of economic uncertainty, investors add gold. In times of high geopolitical tensions, investors add gold. In times of high inflation, investors add gold. All those conditions exist today.

In 1971, the price of gold was $35 per ounce. In 2000, the price was $275 per ounce. Today, despite a major pullback, gold sits at roughly $1,650 per ounce.

It’s always a good idea to hold gold. But never a better strategy than today.

For investors with more risk tolerance, the companies that mine commodities provide natural leverage in an environment of rising commodity prices.

The math here is simple. Profits from mining a commodity will always rise at a faster rate than the increase in the commodity price. Profits drive share prices, so commodity producers tend to significantly outperform the commodity itself.

Avrupa Minerals is a junior exploration company that offers investors unique exposure to gold in Kosovo. This is a mining jurisdiction that will almost certainly be new to investors.

There is a reason for this. This emerging country is seeking to launch its own mining industry.

When The Market Herald sat down for a chat with Paul Kuhn, President and CEO of Avrupa, we had the opportunity to learn about the new mining industry of this young nation.

As one of the first international mining companies to enter Kosovo, Paul Kuhn and Avrupa have worked closely with this mining-friendly government. This extends to even offering advice and assistance in helping Kosovo draft its own mining code.

New JV for gold project in Kosovo

Avrupa’s primary gold asset is its Slivova Gold Project in Kosovo. But Avrupa Minerals is a project generator. The Company has already optioned out Slivova in a new joint venture announced by Avrupa on September 7, 2022.

The project generator business model is deceptively simple. Locate prospective mining prospects faster and/or cheaper than your mining peers. Find larger partners with the interest and the resources to develop the property, and then farm out the property via a joint venture.

To make it work, you need a management team with a keen eye for top mining prospects and enough localized knowledge of mining jurisdictions to get there ahead of the competition. Avrupa’s management team has shown they know how to execute this model.

With the Slivova JV, there is a 4-stage earn-in agreement. This includes cash payments of up to €100,000 (~CAD$135,000) to Avrupa.

The Company’s JV partners are (local company) Western Tethyan Resources and its UK parent, Ariana Resources Plc. Ariana is an established gold producer with a focus on Turkey, the Eastern Mediterranean, and Australia.

Western Tethyan/Ariana can earn up to an 85% interest in the Slivova Gold Project with exploration expenditures of €1.9 million (~CAD$2.5 million), plus additional expenditures sufficient to advance the project through to a Feasibility Study, EIS, and Mining License application. If the Project advances to production, Avrupa would at least maintain a 1% NSR.

Those may not seem like huge amounts of dollars. But keep in mind that (after the recent carnage in markets) Avrupa sits with a highly compressed market cap of only CAD$1 million.

Avrupa’s interest in Slivova is carried through to production. The cash payments are already funding additional exploration activities and may eventually help with the acquisition of new exploration properties. And with gold, any discovery means an instant multi-bagger return.

Meanwhile, Avrupa is actively seeking new gold and copper exploration licenses for development in this under-explored jurisdiction.

Once upon a time, if mining investors were looking at a “junior exploration company” with a market cap of $1 million, it meant some fly-by-night promoter offering investors nothing more than proverbial “moose pasture”.

Today, with the mindless trading algorithms running wild in markets and actual fundamentals totally out the window, there have never been so many legitimate, mispriced small-cap companies. And never have these companies been so undervalued.

Avrupa might look attractive to investors on the basis of its gold interest in Kosovo alone. However, the most near-term upside for this project generator may lie in its larger joint venture.

Strong JV partner in the Alvalade Copper-Zinc Project

Avrupa has also optioned out its Alvalade Copper-Zinc Project in Portugal. While Kosovo is a new jurisdiction for mining, Portugal is an old mining jurisdiction with a long/rich history of (in particular) copper, silver, and gold mining since pre-Roman times.

This is an even more robust joint venture agreement in every respect. Under the terms of this two-stage earn-in agreement, the JV partner can earn up to an 85% interest in the Alvalade Project through:

  1. Making cash payments of €400,000 (~CAD$530,000) to Avrupa
  2. Exploration expenditures of up to €2.4 million (~CAD$3.2 million)
  3. Additional expenditures sufficient to take the Project through to a Bankable Feasibility Study
  4. Covering additional disbursements to the previous property holder

Here, the joint venture partner is Minas de Aguas Teñidas, S.A.U. (Sandfire MATSA or MATSA). MATSA is a private Spanish mining company, now owned by Sandfire Resources of Australia, and already operating three copper/zinc mines in the Spanish portion of the Iberian Pyrite Belt.

Kuhn indicated to The Market Herald that the two JV partners have forged a very strong and positive working relationship.

Of note, despite MATSA’s mining experience in the Iberian Peninsula, Avrupa remains the Project operator, at least until mid-June 2023. Furthermore, MATSA continues to pay Avrupa an additional €100,000 (~CAD$135,000) per year as an operator’s fee.

This speaks to Avrupa’s expertise as a project generator in not only finding and acquiring prospective mining properties but also having the in-house expertise to develop these properties through advanced exploration stages.

As with Slivova, Avrupa’s interest in the Project is carried right through to the Construction Phase. Should the Alvalade Project advance to construction, Avrupa can elect to carry its 15% interest to production by contributing its share of construction costs. Or, Avrupa can elect to take a 10 million (~CAD$13.5 million) buyout, staged across three payments.

That would be a very lucrative exit in this Project for a junior mining company with (as noted) a current market cap of CAD$1 million.

Grades to date have been on the low side. However, drilling in the Sesmarias Project (part of the Alvalade license) has also uncovered gold, silver and lead mineralization to accompany the copper and zinc.  And, to date, only 25% of the known ~2,000-meter strike length of the mineralization has been tested at Sesmarias. Plenty of opportunity for exploration success.

Any significant drilling breakthrough at Alvalade would likely quickly take Avrupa back to previous highs. As a reminder, as recently as April, the Company was trading at CAD$0.10, a 5-bagger from the current, depressed price level.

Why copper and zinc?

Like many mining executives, Paul Kuhn is a keen student of commodity markets. He’s very bullish on the future demand profiles for both copper and zinc.

This includes traditional uses/markets for these major base metals. But Kuhn also sees a bright future for both of these metals in applications for the New Economy.

Copper, in particular, will be facing serious supply pressures going forward.

A coming copper shortage could derail the energy transition, report finds

Among the eye-popping forecasts from S&P Global:

  • Copper demand to roughly double by 2035 to 50 million tonnes per year
  • An annual copper supply deficit of as much as 10 million tonnes per year by 2035

By 2050, copper demand is forecast to reach 53 million tonnes per year. S&P Global notes that 53 million tonnes of copper are “more than all the copper consumed in the world between 1900 and 2021.”

A world where we consume more copper in a single year than in the previous century combined. Got commodities?

Blue-sky exploration opportunities in Finland

Investors looking at Avrupa will likely focus on the upside potential of the Company’s two JVs. However, in speaking with The Market Herald, CEO Kuhn indicated that he saw the most upside for Avrupa in new exploration initiatives in Finland.

This may be a junior mining microcap, but Avrupa has its fingers on the pulse of a number of mining jurisdictions. Paul Kuhn explained what attracted the Company to Finland.

“We see Finland as an attractive, unevenly-explored jurisdiction for base and precious metals.  It has a recent mining history, along with presently-active operations and a vibrant, successful exploration community.  Mining law is transparent and evenly regulated, so while there is environmental and social opposition to exploration and mining, there is also a clear path to successful permitting, which is something you don’t see everywhere. 

…and the CEO also offered his insights on news just released by Avrupa on the Company’s latest exploration license application.

We just announced our third copper-zinc exploration license application in the historic Pyhäsalmi Mining District, where we think there is a significant opportunity to discover more copper-zinc mineralization.  We have already completed first-pass exploration in these three areas, including historic drilling data compilation, core re-logging and sampling, airborne geophysical surveys, and general targeting.  If all goes well, we hope to be drilling in Q1/Q2 2023.  And finally, we expect to submit a gold application in another active district in central Finland in the coming months.”

Strong upside from two active joint ventures. Substantial additional blue sky as Avrupa advances its operations into a new jurisdiction.

CEO Paul Kuhn also hinted to The Market Herald that Avrupa has enough money in its coffers to look at additional acquisitions. That’s a lot of potential for a $1 million market cap junior mining company.

Just as important, Avrupa provides investors with exposure to three key commodity markets. The Company has an attractive share structure, and it operates with very low overhead.

For investors looking to diversify into more commodities exposure, Avrupa Minerals Ltd. offers big value at a cheap entry point.

Avrupa corporate presentation (October 2022)

FULL DISCLOSURE: This is a paid article by The Market Herald.

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