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The week has not began in any respect effectively for Eurasia Mining (LSE: EUA). The share worth is down 44% in early buying and selling, as I write on Monday morning.
What’s going on – and will this sudden worth collapse provide a shopping for alternative for my portfolio?
Ongoing give attention to exiting Russia
The corporate issued an announcement immediately (10 June) concerning a current leap within the Eurasia Mining share worth. Certainly, even after the autumn immediately, the shares are effectively above the place they stood on the finish of Could (and virtually quadruple the place they had been 5 years in the past!)
The assertion stated the corporate notes the current sharp share worth enhance, together with on-line hypothesis concerning a key feasibility examine for its Monchetundra mission in Russia. However, as Eurasia factors out, that examine was accomplished final summer season. Since then, the location has been maintained however there have been no “materials developments” regarding the examine.
The assertion concludes: “The first focus of the Firm stays the potential sale of its Russian belongings though, as ever, there may be no assure that Eurasia will enter into binding agreements concerning the sale”.
Uncommon worth motion a possible signal of frothiness
The kind of apparently unfounded surge adopted by sudden crash now we have seen within the Eurasia Mining share worth over the previous 10 days is a crimson flag to me as an investor.
Sooner or later, many share costs change into considerably decoupled from their enterprise fundamentals. However when a worth swings by this a lot, basically resulting from hearsay, it may be an indication that speculators not traders have charged in – generally solely to then cost out fairly quick.
That threat is normally elevated in smaller corporations with fewer accessible shares accessible out there. 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 give attention to the funding case for a given enterprise. Sudden swings like that seen within the Eurasia Mining share worth may 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 throughout the worth surge earlier this month – and I’ve not modified my view.
The persistently lossmaking firm has seen its previously modest income tumble, to simply £0.1m final 12 months. In opposition to these financials, the market capitalisation appears excessive to me.
As with many small mining corporations, the valuation displays how traders understand the enterprise’s potential, not its present efficiency.
Its Russian belongings may but end up to generate quite a lot of money when bought. However, for now, in the case of western corporations offloading belongings, Russia appears like a purchaser’s not a vendor’s market. As the corporate reiterated immediately, there isn’t any assure a deal will likely be struck to promote its belongings there.
