The Eurasia Mining (LSE:EUA) share price exploded over the last couple of weeks. In fact, since 27 August, the stock has surged by over 130%, pushing its market capitalisation to almost £1bn! That’s quite a lofty valuation versus the mere £940,000 of revenue generated in 2020. So, have investors lost the plot? Or is there something else going on? Let’s take a look.
The exploding EUA share price
The recent upward momentum in the EUA share price appears to have been triggered by a progress update for its Monchetundra project. I’ve previously explored Monchetundra. But as a quick reminder, the site consists of nine battery metal mines containing palladium, platinum, copper, nickel and cobalt. Four of these sites have already passed a pre-feasibility study, and given that Eurasia currently owns a 75% equity stake, investor expectations have been mounting.
The latest progress update confirmed that preparatory drilling has continued with the costs being covered by Rosgeo, which currently retains a 25% stake in the project. Meanwhile, Eurasia Mining has hired Wardell Armstrong, an engineering and mining consultancy firm, to help audit and review quality control measures and regulatory-compliant competent persons reports for this project.
This encouraging progress is undoubtedly good news. So, seeing the EUA share price rise isn’t too surprising. But the upward momentum was quickly accelerated by a second progress update a few days later. For a long time, its West Kytlim mine had been the only producing asset in the firm’s portfolio. However, an additional three washing plants just launched into production, significantly lowering the firm’s single asset risk.
Meanwhile, the definitive feasibility study for the entire Monchetundra project is getting close to completion. And a detailed mining plan for the next five years is set to be released in a few weeks. All of this is to say Eurasia Mining’s currently limited revenue stream might be about to explode, taking the EUA share price with it.
Taking a step back
As exciting as this latest progress is, Monchetundra is still a long way away from reaching the production stage. In fact, based on the current timeline, it could be another two years before any form of extraction takes place. Even if everything goes according to plan, there’s no guarantee that battery metal prices will remain elevated as they are today.
I don’t see demand for metals like palladium and cobalt disappearing any time soon. However, Eurasia Mining is not the only business looking to dig these materials from the ground. As the supply begins to grow, I think it’s more than likely that the price of battery metals will start to fall. As a consequence, current revenue expectations from shareholders may be unrealistic. And with such a high price tag being placed on this business, the first sign of trouble could send the EUA share price plummeting.
The bottom line
These latest progress updates are undoubtedly promising. And I can understand why investors are getting excited by the growth prospects of this business. But personally, I think it’s too soon to invest. The EUA share price is currently being elevated by expectations that may not come to pass. So, I’m keeping this mining business on my watchlist for now.
