A pound does not buy that much these days. But it could get me 20 shares in Eurasia Mining (LSE: EUA). With Eurasia Mining shares changing hands for slightly less than 5p each, should I snap some up for my portfolio?
Why do Eurasia Mining shares sell for pennies?
First, I think it may be helpful to understand why the shares are changing hands at their current price.
They have lost 85% of their value in the past year. Partly that reflects cooling investor enthusiasm for some mining projects. Prices for certain metals have been falling, which affects the long-term business prospects for Eurasia. Then again, metal markets are cyclical. Some of Eurasia’s projects could have significant long-term value when metal prices start to climb again in future.
The company recorded a loss again last year, although at £3.1m it represented a slight improvement on the larger loss of the previous year.
Eurasia has also been raising funds, with the consequence that it has diluted shareholders, driving down their percentage stake in the company.
On top of that, the company’s exposure to Russia is a major political risk. The company has been trying to sell select Russian assets but whether it will get a competitive price – or manage to unload them at all – remains to be seen. Moreover, its strategy this far has been to focus on Russia. That cannot easily be changed in a short time, I reckon.
Overall, that is quite a lot for one company to be dealing with. I think it explains why Eurasia Mining shares have collapsed in price over the past year.
Investing on first principles
So, let us go back to the question: is the current share price a bargain for my portfolio? My answer is: maybe.
Will I therefore be investing in Eurasia Mining shares? My answer is: definitely not. That is because of the basic principles I adopt when considering a potential investment for my portfolio and deciding how to value it.
I look for a business I think is operating in an area likely to see strong customer demand in future. I think Eurasia Mining meets that criteria, especially with the growing demand for battery metals. I also look for a company with a competitive advantage. Here I think Eurasia does less well. If anything, its heavy exposure to Russia looks like a big disadvantage right now. That exposure cuts to the heart of Eurasia’s business strategy and means that the company’s prospects now look very different to the start of the year.
In other words, right now I do not see Eurasia Mining as a great business. A lot of factors for its success or failure are outside the firm’s control. So no matter what the share price is, I am not interested in owning Eurasia Mining shares, based on the first principles of my investment strategy.