The Eurasia Mining (LSE: EUA) share price has jumped in early deals this morning. It seems investors are buying the stock after the company published an update on its sale process last night.
Eurasia has been up for sale for the best part of a year. Unfortunately, the coronavirus crisis has delayed any transaction, but it now looks as if the company is finally nearing a formal deal.
Offer received
According to its press release, issued after the market closed on Wednesday, Eurasia has received “several proposals including a proposal from a credible party for the potential acquisition of substantially all of company’s assets.“
Following this development, management has decided to exit the formal sale process and focus on this one deal. However, the transaction isn’t a done deal just yet. Indeed, as Eurasia warned in its update, “until a transaction is finally concluded there can be no certainty that a transaction will occur or on what terms.“
Commenting on this development, CEO Christian Schaffalitzky said management was “delighted to have received a proposal from a credible party that could allow us to pay a significant dividend to all shareholders.“
But, of course, as the deal is still in its early stages, there’s no guarantee Eurasia Mining will pay a dividend.
And as well as the potential offer, the company is also pushing ahead with the development of its flagship West Kytlim asset. It’s received approval to increase production volumes by opening another two processing facilities. This will also diversify the firm’s revenue stream, which was previously dependent on one facility.
So, even though management has received an offer for the business, it’s still focused on becoming a globally-significant producer of platinum group and battery metals.
I think this is a good strategy, and it de-risks the investment to a certain extent. For example, if no offer emerges, the company will still have its mining business to concentrate on. Considering the outlook for battery and rare-earth metals, both outcomes seem favourable.
Eurasia Mining share price outlook
After considering the recent developments, it’s clear to me why the Eurasia Mining share price has reacted so positively this morning. However, there are still plenty of risks surrounding the business.
For a start, there’s no guarantee an offer will emerge for the enterprise. Furthermore, even if an offer does appear, there’s no guarantee it’ll be above the current share price. This is probably one of the most significant risks facing the stock right now. Buyers may not be willing to pay the market price for the assets. In this situation, management may reject the deal.
In this situation, Eurasia would fall back on its production assets. These assets are world-class. Still, I can’t tell how much the production could be worth at this stage. Commodity prices can be highly volatile. While demand for battery-group metals is growing, other producers are also rushing to ramp up output. Higher output could push prices down.
As such, I wouldn’t buy Eurasia today as I think the stock already looks expensive. That said, if I already owned the stock, I’d hang on and assess the final offer for the Eurasia Mining share price. If, or when, it emerges.
