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The week has not began in any respect nicely for Eurasia Mining (LSE: EUA). The share value is down 44% in early buying and selling, as I write on Monday morning.
What’s going on – and will this sudden value collapse provide a shopping for alternative for my portfolio?
Ongoing concentrate on exiting Russia
The corporate issued an announcement in the present day (10 June) concerning a latest leap within the Eurasia Mining share value. Certainly, even after the autumn in the present day, the shares are nicely above the place they stood on the finish of Could (and nearly quadruple the place they had been 5 years in the past!)
The assertion mentioned the corporate notes the latest sharp share value enhance, together with on-line hypothesis concerning a key feasibility examine for its Monchetundra challenge in Russia. However, as Eurasia factors out, that examine was accomplished final summer season. Since then, the positioning has been maintained however there have been no “material developments” in regards to the examine.
The assertion 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”.
Uncommon value motion a possible signal of frothiness
The type of apparently unfounded surge adopted by sudden crash now we have seen within the Eurasia Mining share value over the previous 10 days is a pink flag to me as an investor.
In some unspecified time in the future, many share costs develop into considerably decoupled from their enterprise fundamentals. However when a value swings by this a lot, basically because of hearsay, it may be an indication that speculators not buyers have charged in – typically solely to then cost out fairly quick.
That threat is often elevated in smaller firms with fewer accessible shares accessible available in the market. Eurasia Mining is a penny share and its present market capitalisation is just a bit over £50m.
Deal with the enterprise prospects
By itself although, that doesn’t essentially hassle me. As a long-term investor, I concentrate on the funding case for a given enterprise. Sudden swings like that seen within the Eurasia Mining share value might even give me a shopping for alternative for a share I like.
Within the case oF Eurasia although, I had no plans to purchase in Could or through the value surge earlier this month – and I’ve not modified my view.
The persistently lossmaking firm has seen its previously modest income tumble, to only £0.1m final yr. Towards these financials, the market capitalisation seems to be excessive to me.
As with many small mining firms, the valuation displays how buyers understand the enterprise’s potential, not its present efficiency.
Its Russian property might but prove to generate loads of money when bought. However, for now, with regards to western firms offloading property, Russia seems to be like a purchaser’s not a vendor’s market. As the corporate reiterated in the present day, there isn’t a assure a deal might be struck to promote its property there.
