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Why I think Eurasia Mining shares will become precious

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Eurasia Mining (LSE: EUA) shares surged recently from a little less than 0.5p to 4p before dropping back to 2.75p. Does that mean the opportunity for investors has been and gone? I don’t believe so; indeed, I have a sneaky feeling that the real growth in this company is ahead of us.

Eurasia Mining is currently valued at £73 million. While it made an overall, or comprehensive, loss in its latest six-monthly period, there is a lot going for this company. Factor that in, and the shares appear to be quite cheap.

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The company operates in three regions: there’s the West Kytlim mine situated in Russia’s Ural Mountains, where production has recently commenced; there’s the Monchetundra project in the north west of Russia near the border with Finland; and there’s the Semenovsjy Tailings project situated in The Republic of Bashkiria, at the southern end of the Urals, a few hundred miles to the east of the Caspian Sea.

The company’s focus is the platinum family of precious metals, or PGM, mainly platinum itself, palladium, iridium and rhodium. It also has interests in other metals including gold.

Let’s consider four positives.

Number one, the company says that the total reserve base of raw platinum at its West Kytlim mine is 73,000 ounces and resources of raw platinum is 400,000 ounces. Platinum prices are at $994 an ounce. Palladium is almost double that price. At Monchetundra, where development is at a much earlier stage than at West Kytlim, total reserves and resources seem even greater.

Number two, Eurasia Mining has an impressive track record for extending its operating licences. To begin with, its licence to operate at West Kytlim was restricted to 21.5 kilometres squared. Now it is also exploring the West Kytlim flanks, an area of 71.1 kilometres squared. I expect the total area that it either explores or mines to carry on expanding, unless it sells some of its assets at a handsome profit.  

Thirdly, it has greatly increased its potential profit at the West Kytlim mine by replacing contractors with its in-house resource. Not only does this lead to a very significant increase in margins, but it improves reliability too, making the company less reliant on third parties. I expect both output and profit per unit of output to rise dramatically in the next year.

Impressive though these three factors are, they don’t cover the reason why I am especially positive about the company. I think there is a good chance that the platinum price will increase – after all compared to gold it seems cheap – while I think that palladium could be set to see a big jump in price. Then there is rhodium, which already commands a very high price — almost $6,000 an ounce.

Why am I so confident? Johnson Matthey, the science and chemicals company, publishes a regular and detailed report on platinum minerals — the PGM market report.

The latest report is especially upbeat about palladium, which plays an important role in cutting carbon emissions in catalytic converters — so it is in vogue and likely to remain so for some time.

The value of these metals – not just platinum and palladium but rhodium too – coupled with its proven and improving expertise, means that Eurasia Mining shares could see a much greater lift.

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Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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