The Eurasia Mining (LSE: EUA) share price has risen by 60% so far this week. Eurasia shares have now risen by nearly 10% over the last 12 months, despite a slump that’s seen the stock drop 40% since December.
On Wednesday morning, the Russian PGM (palladium, platinum, rhodium, and iridium) miner issued an update on progress with its portfolio of projects. These focus on palladium and battery metals — two areas seeing rising demand. I’ve been wondering whether I should consider opening a small position in this stock.
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Eurasia Mining has several PGM assets, but only one of these is in production. West Kytlim produced a very modest 1,525 ounces of raw platinum last year, generating just under £1m in revenue.
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Infrastructure at this site has been expanded this year, with new wash plants and additional open pit mining areas. Management guidance is for an unspecified increase in production. But my feeling is that this is a pretty small operation. I certainly don’t think it justifies Eurasia Mining’s 24p share price.
I’m much more excited by the potential of the Monchetundra project and the related joint venture with Russian miner Rosgeo. Eurasia has a 75% interest in nine PGM and battery metal assets located in the area around Monchetundra. Four of these already have approved reserves totalling nearly 105m ounces of platinum equivalent.
Why I’m interested
Unlike gold, PGM metals are in heavy demand industrially. Increasingly, palladium is replacing platinum as the main metal in catalytic converters. The price of palladium has doubled since June 2018. Demand for battery metals is also growing as the electric car market expands.
Much of the world’s current palladium production comes from ageing deep mines in South Africa. Modelling published by Eurasia Mining suggests that current palladium supply will be too low to satisfy demand over the next few years.
This could create a profitable opportunity for miners who can bring new production onstream.
There’s another reason why I’m interested, too. After putting itself up for sale in January, Eurasia said in May that it had received a credible proposal from a buyer for “substantially all of the company’s assets”. There’s been no update since May, but this could potentially lead to a cash payday for shareholders.
Eurasia Mining share price: too high for me
Eurasia has a market cap of £520m, even though it generated revenue of less than £1m in 2020. Investors appear to be pricing in strong production growth over the next few years.
I can see this picture too, but I can also see some potential risks.
None of the firm’s planned Monchetundra mines are under construction yet. There’s no guarantee they will go ahead. If they do, they may require further funding, diluting existing shareholders.
Another concern is that metal prices can be volatile. Even if the mines are built, by the time production ramps up, prices may fall.
On balance, this situation is far too risky for me. I don’t find the Eurasia Mining share price is attractive at current levels.
