2020 was an interesting year for the Eurasia Mining (LSE:EUA) share price. Over the 12-month period, the share price surged by nearly 600%, increasing from 3.45p to 24p!
Needless to say, that’s a fairly extraordinary level of growth, especially since the stock was suspended from being publicly traded for nearly six months. What happened? And should I be considering this stock for my portfolio?
The rise of the EUA share price
EUA is a mining company that focuses on extracting various metals, including palladium, platinum and iridium. While it has multiple sites in its portfolio, the company is still very much in its infancy. And so the total revenue generation is quite limited. For example, in 2019, it only generated £1.13m in revenue. And that was before the pandemic began disrupting the industry.
So why has the share price started surging? Following a request for more information regarding its relationship with the Chinese investment bank CITIC, the shares of EUA were suspended at 7.2p. After a few months, this relationship was clarified. And in July, the shares began trading again at a price of 12.8p that continued to climb throughout the rest of 2020.
It turns out the company is looking to sell itself. And CITIC and UBS are helping to make that a reality. Since the total value of the resources at its existing mining operations is estimated to be around £1.5bn, the prospect of a sale sent the EUA share price flying.
Taking a step back
The idea of receiving a £1.5bn payday certainly sounds enticing, especially since the current market capitalisation is around £760m. However, there is limited information currently available surrounding this deal. What’s more, it may never happen.
In January 2021, the management team provided an update on the progress (or lack thereof) being made regarding the potential sale of the business’s assets. Despite being approached by “a wide range of parties”, no binding deals have been signed. And given the industry is still in the process of recovering from the disruptions of the pandemic, it could be some time before any formal offer is made.
The bottom line
To me, it looks like the EUA share price is being propped up by the prospect of a future sale, the value of which remains unknown. Should this fail to materialise, the share price could begin to decline rapidly over the short term.
However, the company’s lead asset — the West Kytlim platinum mine — is now fully operational. In addition, its new flagship project — Monchetundra — is set to become a world-class open-pit palladium mine. In my eyes, it looks like the underlying business is performing well. Combining this excellent progress with the rising demand for these metals for use in electric vehicles and renewable energy infrastructure, EUA does sound like a promising mining company.
However, the valuation of the stock is simply too high for my tastes. And so, the firm is staying on my watch list for now.
