The week has not started at all well for Eurasia Mining (LSE: EUA). The share price is down 44% in early trading, as I write on Monday morning.
What is going on – and could this sudden price collapse offer a buying opportunity for my portfolio?
Ongoing focus on exiting Russia
The company issued an announcement today (10 June) regarding a recent leap in the Eurasia Mining share price. Indeed, even after the fall today, the shares are well above where they stood at the end of May (and almost quadruple where they were five years ago!)
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The statement said the company notes the recent sharp share price increase, along with online speculation regarding a key feasibility study for its Monchetundra project in Russia. But, as Eurasia points out, that study was completed last summer. Since then, the site has been maintained but there have been no “material developments” concerning the study.
The statement concludes: “The primary focus of the Company remains the possible sale of its Russian assets although, as ever, there can be no guarantee that Eurasia will enter into binding agreements regarding the sale”.
Unusual price action a potential sign of frothiness
The sort of apparently unfounded surge followed by sudden crash we have seen in the Eurasia Mining share price over the past 10 days is a red flag to me as an investor.
At some point, many share prices become somewhat decoupled from their business fundamentals. But when a price swings by this much, essentially due to rumour, it can be a sign that speculators not investors have charged in – sometimes only to then charge out pretty fast.
That risk is usually elevated in smaller companies with fewer available shares available in the market. Eurasia Mining is a penny share and its current market capitalisation is just a little over £50m.
Focus on the business prospects
On its own though, that does not necessarily bother me. As a long-term investor, I focus on the investment case for a given business. Sudden swings like that seen in the Eurasia Mining share price could even give me a buying opportunity for a share I like.
In the case oF Eurasia though, I had no plans to buy in May or during the price surge earlier this month – and I have not changed my view.
The consistently lossmaking company has seen its formerly modest revenue tumble, to just £0.1m last year. Against those financials, the market capitalisation looks high to me.
As with many small mining companies, the valuation reflects how investors perceive the business’s potential, not its current performance.
Its Russian assets could yet turn out to generate a lot of cash when sold. But, for now, when it comes to western companies offloading assets, Russia looks like a buyer’s not a seller’s market. As the company reiterated today, there is no guarantee a deal will be struck to sell its assets there.
