Eurasia Mining (EUA) – An AIM explorer that’s done it!

Eurasia Mining (EUA) – An AIM explorer that’s done it!

Eurasia Mining is an AIM listed platinum group metals (PGMs) mining company based in Russia. The company’s West Kytlim project (Eurasia owns 68%), based in the Ural Mountains, is the second largest alluvial PGM project in production in the world. The project produced over 4,500 oz’s of raw platinum in 2018.

Eurasia also owns 80% of Monchetundra, a ~2Moz PGM project based which was recently awarded a mining licence by the Russian government. This article will focus on Monchetundra and why I view Eurasia as materially undervalued (latest share price: 0.62p, market cap £14.7 million).

For more information on West Kytlim, see Eurasia’s website.

(Source: Google)

Monchetundra – primarily a palladium resource!

The following slide summarises the investment case:

(Source: Eurasia)

The Monchetundra project is fully permitted with an EPCF contract and financing in place with Sinosteel – a state owned Chinese enterprise.

EPCF stands for engineering, procurement, construction and financing. The company has received the official licence certificate and will pay 20% of the £50k licence fee within 30 days. The balance is due within 5 years (source).

Eurasia’s 15% equity contribution is being provided via generous loan terms to Eurasia subsidiary TGK – “Within the contract, a subcontract for $50,000,000* is assigned to TGK to cover all preparatory engineering and pre-strip works on the two open pit deposits. TGK expects that this subcontract will be sufficient to meet the 15% equity contribution required for the project.” (source) (*typo from the RNS removed by Cube Investments).

Possibly as a result of Diesel cars going out fashion, the palladium price has been hitting all-time highs recently (one use for palladium is in petrol catalytic converters):

(Source: IG Group)

Eurasia has not released key financial metrics like NPV, IRR or EBITDA for the project. Having spoken to the company, this is because the project reserves use the Russian system.

The project should be profitable as it has everything one would look for: high grade, low cost (open pit) and is near infrastructure:

(Source Eurasia)

Lazy boy revenue/EBITDA modelling – my speculative numbers!

Eurasia anticipates a 16-year life of mine producing 125,000 oz’s palladium equivalent per annum. Eurasia will produce a concentrate and likely send it to a nearby refinery (3km away).

Assuming a 20% discount (for the smelter) and a long-term palladium price of $1,000 oz:

  • 125,000 ounces * ($1,000/oz * 80%) = $100 million revenue per annum.

Assuming cash costs of $400/oz (I actually expect costs to be lower), the project should generate $50 million EBITDA, of which Eurasia’s share would be $40 million (£31 million). This is about twice Eurasia’s market cap.

On the other hand, if palladium prices remain elevated, the results could be even better than this.

Why Eurasia is materially undervalued – market mechanics

Like many AIM exploration companies, Eurasia has relied on discounted placings, convertible loan notes (or death spirals) and director loans.

The most recent placing was at 0.34p for £500k back in May. It had warrants at 0.6p attached. Those who took part in the placing may have been tempted to sell their placing shares into the market and only hold on to the warrants for potential upside (posing a dilution risk for other shareholders).

But I think market participants sometimes worry too much about these dynamics. It doesn’t matter if warrants are exercised and sold, if the company is materially undervalued. Warrants outstanding have an average exercise price of 0.66p: if all warrants were exercised, the market cap at 0.62p would be £16 million, which would hardly be a demanding valuation for a 100,000+ oz producer.

As a shareholder in Eurasia I look forward to updates from the company – in particular paying the licence and unlocking of financing from Sinosteel.

I haven’t touched on West Kytlim  but the company has stated in presentation I link to below: “Mining at West Kytlim providing cashflow for the company. Company now debt free; mine revenue sustains the PLC in pursuit of company’s goals.” This means there shouldn’t be any more keep-the-lights-on placings.

Further Reading
  • Eurasia’s most recent presentation (link).
  • Broker note by Optiva, available on the Eurasia website, which I recommend (better than the average broker note!) (link).

 

Disclosure: at the time of publication, the author holds a long position in EUA.

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COMMENTS

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    “Eurasia has not released key financial metrics like NPV, IRR or EBITDA for the project. Having spoken to the company, this is because the project reserves use the Russian system.”

    In common with most readers (I suspect} I am not familiar with the “Russian system” . Could you elaborate?

    The equity required to finance this project based on Eurasia’s 15% (=$50m) is $330m or over three year’s revenue from a 16 year project. This is just an observation.

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