Shares in Eurasia Mining (LSE: EUA) were among the best performing investments on the London market last year. Over the past 12 months, the stock has added around 430%.
Following this performance, I’ve been watching the business carefully. I tend to avoid early-stage mining companies due to the risks of investing in these types of businesses. Many struggle to earn a profit and a large number collapse after running out of money.
As such, investing in the sector isn’t for the faint-hearted. However, firms that manage to get it right can produce large returns for investors. That’s why Eurasia has attracted my attention.
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Eurasia Mining’s growth potential
As I’ve covered before, shares in this mid-cap company jumped last year when management put the business up for sale. Estimates pegged the value of the firm’s assets at around £1.5bn, which gave us some idea as to how much a buyer might have to pay for the enterprise. This is only an estimate and shouldn’t be relied upon for investment decisions. At the time of writing, the stock is trading with a market capitalisation of around £780m.
Eurasia Mining announced its intention to find a buyer on 1 July 2020. No deal has emerged yet, but the company has informed investors it’s working with some potential suitors.
In a press release dated 14 January, the organisation revealed that it had “engaged with a wide range of parties” and had “received non-binding offers in respect of both a possible acquisition of the company as well as other transaction structures.“
However, the statement went on to add that the sale process has been slower than expected. The complexity of the process and external factors, including Covid-19-related travel restrictions, have bogged down talks.
But this is a positive development, and I think it shows progress is being made. Nevertheless, there’s no guarantee any transaction will occur. What’s more, as the press release stated, the transaction may only be related to parts of the business. That could severely limit the outcome for Eurasia Mining’s shareholders.
Risks ahead
The way I see it, there are two outcomes here. In the best-case scenario, if the company manages to negotiate a takeover, it could receive an offer of around £1.5bn. That would produce an attractive outcome for shoulders.
Unfortunately, this is by no means guaranteed. No takeover has been agreed yet, and there’s no guarantee one will ever emerge. Eurasia Mining may fail to agree on a deal in the worst case, and the company may run out of money. That would result in a terrible outcome for investors.
Still, the recent updates from the business are positive. On that basis, I’d buy a limited position in the company for my ISA. Due to the risks involved, I’m not interested in acquiring a large position, because there’s a chance the stock could fall substantially if talks collapse.
However, I’m comfortable with that level of risk with a small position.
