CORRECTION: This article originally stated that Eurasia discovered bonanza grade ore pockets in October this year, whereas the discovery was in fact made in October 2018.
The Eurasia Mining (LSE: EUA) share price has surged recently, jumping from around 0.5p at the end of October, to 2.9p at the time of writing. Investors have rushed to buy the stock following the publication of a trading update issued on October 25, in which management informed investors the company is “not planning any new share placings in the foreseeable future” because the firm now has enough resources to push ahead with mining at its West Kytlim prospect next year.
Plenty of cash
Eurasia has been able to raise additional funds through the sale of metal from the operating West Kytlim mine. According to its update, the latest payment will include “a final payment for other metals, namely palladium, iridium, rhodium and gold.” It seems management believes this final payment will unlock enough cash to keep the lights on without further shareholder support for some time.
The company is now preparing for a “significant increase in production” at the West Kytlim mine in 2020. Cash generated from metal sales will be used to upgrade mining equipment, which, as management is keen to point out, is now “wholly owned.” Eurasia is no longer using a subcontractor to do its dirty work, which could cost more in the long run, but allows the firm to operate with larger profit margins.
The fact the company has enough cash in the bank to continue development without further fundraising is great news for investors. Since May 2017, the number of shares in issue has ballooned (from 1.5bn to around 2.6bn today) as Eurasia has leaned heavily on shareholders to keep going.
An even more significant development is the engagement by the company of investment banks CITIC and VTB Capital to explore the sale of its two primary assets, the Kola and Urals mining projects (that includes the West Kytlim mine).
If a buyer is found for these assets, it could then unlock significant value for Eurasia and its shareholders. But at the time of writing, no deal has been agreed in there’s no guarantee any offer will materialise.
It is also quite challenging to place a value on these assets because they’ll be worth more to big mining groups rather than smaller operators. On that basis, I don’t think it’s sensible to invest in Eurasia based on the prospect of a deal alone. Instead, I think it’s better to concentrate on the company’s long-term earnings potential from its West Kytlim mine.
Unfortunately, we don’t have much to go on in the way of figures here. West Kytlim has been operational since May but, in the six months to the end of June, the firm reported a gross loss of £3,000 on sales of £13,316. That suggests the mine is currently costing more to run than it’s earning from sales.
Still, as West Kytlim ramps up next year, we should get a better idea of its potential. Although, in the meantime, it’s going to be challenging to try and place a value on Eurasia’s shares.
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Rupert Hargreaves owns no share 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.