The Eurasia Mining (LSE:EUA) share price surged as much as 20% last Thursday. The stock has since come down a little but is still trading higher than before the initial spike. And since June 2020, the company is up by around 117%. But what caused this sudden surge in value? And is it too late to buy?
The surging Eurasia Mining (EUA) share price
I’ve previously explored Eurasia. But as a quick reminder, the business is a young mining operation that extracts a wide range of metals from the Earth’s surface. These include gold, silver, copper, nickel, platinum, palladium, iridium, and rhodium. Generally, these materials are quite rare and are essential ingredients in the construction of electric vehicles and renewable energy technology.
The company has been actively looking to sell itself. And on Wednesday evening last week, it announced that multiple acquisition offers have been made, one of which the management team is going to pursue. Information about this deal is currently quite scarce. But the acquiring firm has been described by Eurasia as a credible party interested in buying virtually all of the company’s assets.
Seeing the EUA share price surge on this news is not entirely surprising to me. After all, it has billions of pounds’ worth of resources waiting to be dug up at its existing mining operations. By comparison, the current market capitalisation of the business sits around £770m. Therefore, the potential for a lofty payday does exist. But it’s far from confirmed.
The deal is still in its infancy. And by the management team’s own admission, it may not even happen. Given that the EUA share price is currently being elevated by the prospect of a buyout, if this deal fails to materialise, there would likely be a considerable level of volatility ahead.
How is the business progressing?
Ignoring the potential for being acquired, Eurasia seems to be performing relatively well. Russian authorities approved the firm’s Technical Project for its flagship West Kytlim asset. As a result, a total of three production plants will begin operating this year, with one already on-line. Naturally, this increases the firm’s total production volume. And simultaneously, it eliminates the single-asset risk that Eurasia has been exposed to for several years.
Needless to say, this is excellent news. And it also helps mitigate some of the risk built in to the buyout-inflated EUA share price. Suppose the business is unable to sell itself as planned? In that case, the management team has a strengthening mining operation to run.
Having said that, I still believe a considerable level of risk is attached to this stock. The value of Eurasia’s assets is mainly driven by fluctuating commodity prices. So, there is no discernible way of accurately predicting what the acquisition value might be. And it may even be lower than the current share price.
After all, the metals at West Kytlim could be worth less in future. Why? Because other precious metal producers are also ramping up operations to meet rising demand. But this may lead to a surplus in supply that could send commodity prices back down relatively quickly.
I won’t be adding Eurasia Mining to my portfolio for now. But if I were an existing shareholder, I would personally hold onto my shares and see how things develop over the next few months.
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Zaven Boyrazian does not own shares in Eurasia Mining. 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.