A strong balance sheet

Shares in Eurasia Mining (LSE:EUA) have been extremely volatile. At the time of writing, they’re trading at 7.5p, down 21% in the past three months.

Much of the recent share price movement has been due to the firm’s exposure to, and operation in, Russia. Given the ongoing conflict, this has complicated its ability to conduct business in Europe and the US. 

The company – a precious metals and platinum group metals (PGMs) miner – hasn’t been profitable recently, registering a pre-tax loss of £3.14m in 2021.

However, there could be rising demand for PGMs in the coming years. These metals, including platinum and palladium, have important uses in efforts to decarbonise, like electric vehicles and solar panels.

Furthermore, the business is still in the process of striking a deal to potentially sell nearly all its assets. An unnamed buyer has completed due diligence and the market awaits an update. A successful deal could be great news for the shares. This deal may involve the sale of much of the firm’s PGM and base metal holdings.

Eurasia Mining also has a total cash balance of £19.15m and debt of just over £400,000. This strongly indicates to me that it’s in a financially healthy state.

Rapid earnings growth

Second, I’m attracted to Keywords Studios (LSE:KWS). In the last month, the shares are down 11.3% and currently trade at 2,376p.

Over a five-year period, the video games firm has produced improving earnings results. Between 2017 and 2021, earnings per share (EPS) grew from ¢31.18 to ¢89.24. By my calculation, this results in a compound annual EPS growth rate of 23.4%. 

In a report for the six months to 30 June, the business expects interim revenue to hit €320m, up 34% year on year.

Additionally, it expects pre-tax profit to climb to €54m, up 35%. This is a strong indication that the company is performing even in the midst of a challenging operating environment. However, the business may begin to feel the impact of inflation in the near future. Despite this, the firm announced the acquisition of Mighty Games and Forgotten Empires, both of which could allow Keywords Studios to tap into new markets. This could ultimately be good news for the share price.

Overall, both of these companies have exciting growth potential, especially during a market dip. With their share prices down recently, I think now could be a good time for me to stock up on shares at low levels. As such, I’ll be adding the shares of both firms to my portfolio soon.

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.

Trading suspended

Shares in the company were suspended before the market opened this morning. 

In the news release, the firm only stated that the suspension was in place “pending an announcement”. Although I never invest based on speculation, there are a few potential reasons for this.

One reason could be a future dual listing on the Moscow Stock Exchange. The firm has been mulling this issue since November and may have now made a decision.

Another possibility is that the suspension is related to a potential purchase. The company announced in October that a potential buyer had completed its due diligence for the purchase of almost all of Eurasia Mining’s assets.

It could also relate to sanctions. While the business has avoided sanctions so far, it is not inconceivable that it may be affected in some way, given that it operates in Russia.

Although I don’t know for sure what the suspension relates to, these three issues have all been ongoing for some time and are factors that could impact a future investment decision.

Financial and reserves update

As it is listed on the AIM 100 index, Eurasia Mining is able to publish financial results with less regularity than bigger companies in the FTSE 100 or FTSE 250.

For the six months to 30 June 2021, sales amounted to £425,000. This was a major increase, year on year, from just £48,000.

Furthermore, cash at the end of this period stood at £16m, having grown from £50,000 the previous year. This improved cash balance is the product of a successful capital raise, demonstrating the confidence many investors have in the prospects of this company.   

On the other hand, the loss before tax was £1.4m, about £100,000 greater year on year. I always note, however, that past performance is not necessarily indicative of future performance.

In a February reserves update, the firm stated that it had around 292,000 tonnes of copper and 388,000 tonnes of nickel. Additionally, it had 8 tonnes of gold. In the current climate, where metals are trading a historically high prices, Eurasia Mining could benefit from the sale of parts of these reserves.

Overall, there is still too much uncertainty surrounding the Eurasia Mining share price for me to invest. Until I know the reason for the suspension, I won’t be buying shares in the company. Despite this, I won’t rule out a purchase at a future date. The firm’s improvement in sales and cash balance could send the share price higher over the long term.   

Penny stock #1: EnQuest

As an oil and gas producer, EnQuest (LSE:ENQ) operates primarily in the North Sea and Malaysia. Currently trading at 36.05p, it is in prime penny stock territory.

Looking at recent results, the company managed to turn a $565m pre-tax loss into a $352m pre-tax profit between 2020 and 2021.

In addition, the firm’s free cash flow over the same period grew from $210m to around $400m. 

Despite this, production fell from 59,000 barrels of oil per day (bopd) to 44,000 bopd. This is something I would like to see improve in the near future as the oil price continues to be strong.

However, the firm is making efforts to increase output, having recently purchased the Golden Eagle and Bentley fields off the coast of Aberdeen and Shetland, respectively. 

Penny stock #2: dotDigital

A digital marketing and software services business, dotDigital (LSE:DOTD) has a strong financial record. It currently trades at 86.6p.  

For the year ended June, between 2017 and 2021, earnings-per-share (EPS) increased from 2.47p to 4.12p. By my calculation, this means the company has a compound annual EPS growth rate of around 10.88%. This is strong and consistent.

What’s more, it recently signed a two-year deal with software security giant Adobe, that will improve the visibility of dotDigital’s products around the world.

For the six months to 31 December 2021, organic growth in revenue increased by 10%. Its leadership, however, lowered growth expectations for 2022 as it forecast a decline in demand after the pandemic. 

Penny stock #3: Eurasia Mining

My final pick is Eurasia Mining (LSE:EUA), a firm specialising in platinum group metals (PGMs), gold, cobalt, nickel and copper. At the present time, it operates solely in Russia. It currently trades at 9.5p. 

It is currently benefiting from higher metal prices as the world recovers from the pandemic and deals with the war in Ukraine.

In addition, there has been significant interest in its metal assets. In February, the business announced that an unnamed buyer was in advanced stages of a deal to purchase “substantially all” of Eurasia Mining’s assets.

The firm has also so far avoided Western sanctions on Russian companies and individuals. Given the uncertainty of the situation, however, I would always factor this big potential risk into my investment decision.

Overall, these are three strong penny stocks. Although they constitute greater investment risk, I think their track records justify adding them to my long-term portfolio. I will be buying shares in all three during May.

• No individual or entity associated with the company has been targeted by Western sanctions
• For the six months to 30 June 2021, sales increased from £48,000 to £425,000 year on year
• An unnamed buyer has completed due diligence to purchase most of the firm’s assets

Working within the mining industry, Eurasia Mining (LSE:EUA) is a UK-based mineral exploration company. Specifically, it mines platinum, gold, copper, nickel, and cobalt. Operating exclusively in Russia, the EUA share price has not been immune to the conflict in Ukraine. While the firm has stated that it should avoid Western sanctions, the share price has been volatile. It currently trades at 9p, down 45% in the past month and down 69% in the past year. With recent results showing improvement, however, I think now might be a good time to buy shares in this company. Let’s take a closer look. 

Recent events and the EUA share price

As a business operating in Russia, investors aggressively sold Eurasia Mining shares when when hostilities broke out in Ukraine. The stock was part of a wider stock market sell-off, with other firms like Polymetal International and Evraz suffering similar fates.

On 2 March 2022 however, the business stated that “no individual or entity” associated with Eurasia Mining had been subject to Western sanctions. I see this as good news, because pressure on the share price should ease if parties to the conflict reach a ceasefire. On a human level, this would be most welcome news for civilians in the area.

In the short term, at least, the conflict will inevitably affect the EUA share price. Despite this, the company is still able to function normally. But a prolonged conflict will inevitably be bad news for the stock.  

Recent results 

In its interim report for the six months to 30 June 2021, the firm had some positive news to report. Total sales for the period were £425,000, an increase from £48,000 for the same period in 2020. On the other hand, losses widened slightly year on year to £1.4m from £1.3m.

The cash balance stood at £16m at the end of this period, a substantial increase from £50,000 one year previous. This was largely the result of a private placement in September 2021, that raised around £11m. It should be noted, however, that past performance is not necessarily indicative of future performance. 

In other news, the company reported in October 2021 that an unnamed buyer had completed due diligence for the purchase of most of the company’s assets. The first proposal to buy was lodged in May 2021. If a deal is reached with this party, I think the EUA share price could take off, because it would provide the business with working capital with which to grow the operations further, particularly with open-pit mines.

Although the EUA share price has been volatile lately, I think recent results show improvement, particularly in sales. While an end to the conflict and a deal to sell assets would both be very positive news, I think consistent sales and the cash balance could be the key to progress for this company and an eventual share price surge. I will be purchasing shares today as a speculative buy.  

• The company has vast reserves of gold, silver and copper
• It is pursuing further platinum ventures in western Russia
• Recent tensions in eastern Europe could have an impact on the firm’s operations 

Primarily engaged in the exploration and production of gold and platinum, Eurasia Mining (LSE: EUA) operates mines in Russia. Five years ago, the Eurasia Mining share price was trading at only 0.55p. At the time of writing, it is 10.5p. Over this time therefore, the share price has increased around 1,800%. Over the past year, however, it has declined 61.8%. I want to know if I should add this mining company to my portfolio on a long-term basis. Let’s take a closer look. 

The Eurasia Mining share price and metals exposure

Investing in any commodity stocks generally means some degree of exposure to the underlying raw material. In this case, it is a number of precious metals. These include gold, silver, copper and platinum. Indeed, a recent reserves update from the 8 February stated that the firm had 292,714 tonnes of copper reserves. Furthermore, it had 68 and 8 tonnes of silver and gold reserves, respectively.

As a potential shareholder, I view this update quite positively. Silver and copper are critical as more industries move to greener alternatives. Silver is widely used in solar panels and copper is an important component of electric vehicles. Furthermore, any market volatility may be tackled by holding gold, because this is generally seen as a safe haven. Indeed, it may be a good investment in the event of a market crash. It is quite possible that the Eurasia Mining share price will benefit in the future from increased demand for these metals.

The impact of recent news

The business has been engaged in a number of recent ventures. In September 2021, the company raised about $15m. This was primarily to fund a joint venture for an open-pit platinum mine. Furthermore, the firm was granted an additional licence for its mining operation at West Kytlim in western Russia. Indeed, this mine has been lucrative for the business over the past 15 years. Despite this, the firm posted a £1.46m loss for the six months to 30 June 2021.

Since Monday, the Eurasia Mining share price has fallen over 50%. Much of this is down to the rapidly unfolding military situation between Russia and Ukraine. As a company operating in Russia, it is fair to speculate that Eurasia Mining will be caught up in sanctions. So far, this has not been the case. Nonetheless, I would be concerned about the ability of the firm to operate if tensions escalate. I will be watching the situation very closely in the coming days and weeks.

This is a business that could provide me with precious metals exposure. While this can be helpful, the rising tensions in the region are concerning. I will not be adding any shares to my holdings just yet for that reason. But I will be looking for some consistently profitable results in the future and would not rule out a purchase further down the line.

Still, despite this lacklustre performance, since the beginning of January 2020, shares in the company have risen in value by more than 700%. So long-term investors have been well rewarded over the past two years. 

The question is, what happens next? As with most early-stage metal and mining companies, Eurasia’s outlook is linked to its development progress.

On this front, the group received a piece of good news today in the form of a mining exploration licence at its flagship West Kytlim project.

Eurasia Mining share price catalyst 

The West Kytlim project is in the Urals and producers palladium, platinum, rhodium, iridium and gold. The enterprise first applied for this new mining licence in 2019. 

Called the Flanks Licence, the prospect is adjacent to the company’s current mining licence. It’s linked with an exploration licence Eurasia owned via its former joint venture with Anglo American Platinum. As such, the organisation has some understanding of what’s underneath the ground in the region. 

The Flanks Licence will help the company increase its resource base and could potentially extend the life of its flagship West Kytlim project. 

Eurasia has already opened two new processing facilities at its flagship project this year.

Unfortunately, the group is still loss-making, with a gross loss of £240k reported for the first six months of 2021. After including financing and administrative costs, the overall loss for the period was around £1.5m.

Still, mine revenue increased nine times over the same period in 2020, and the company is pushing ahead with further output growth. 

Sale progress

All in all, Eurasia’s fundamentals are improving, and the group is also moving ahead with its sale process. This sales process has had a far more significant impact on the Eurasia Mining share price than the company’s fundamental performance over the past two years.

As such, while the mining company’s underlying performance will impact the stock, I think the market is focusing far more on management’s progress in selling the business.

The company says it has received interest from at least one buyer on this front, which has already completed its due diligence. However, management says it’s discussing potential offers with other buyers, which may produce a better outcome. The granting of the Flanks Licence may even push buyers to make a higher offer. 

There is no guarantee any offer for the corporation will emerge as a result of these discussions, of course. There has also been no comment from the company on how much any potential offer could be worth. Therefore, it’s pretty challenging for me to value the business based on this lack of information. 

As a result, I think the Eurasia Mining share price will continue to trend sideways until further information is announced. And considering the level of uncertainty surrounding the enterprise, I wouldn’t buy the stock for my portfolio today. 

The details

On Monday, the early-stage mining business announced that 41.5 million new shares had been sold to institutional investors at 26p per share. In addition, Eurasia mining also sold new equity warrants that grant these institutions the right to buy another 41.5 million shares at a price of 26p within the next three years. 

The raised capital has enabled the company to boost its cash position from $20m to $35m. The plan is to deploy the newly acquired funds to further finance its joint venture with Rosgeo in developing a collection of open-pit mines. These mines contain various battery-essential metals, including palladium, and platinum, among others.

What’s next for the EUA share price?

Management has decided to limit further private equity placements to mitigate the effects of shareholder dilution. In total, an additional 83.1 million shares have been created. By comparison to the 2.9 billion already in circulation, this places the dilution effect to be around 2.9%. However, as the warrants currently remain unexercised, the full extent of this dilution effect has yet to take place.

The recent upward momentum was triggered by an encouraging progress update for the mining company’s Monchetundra project. However, more information has come to light since then, and it could make the entire venture far more lucrative. Let’s take a closer look.

EUA share price potential is rising

Last week, management released its previously announced five-year mining plan for two (West Nittis and Loipishnune) of the nine sites within the Monchetundra project. While having a plan of action is undoubtedly a good step forward, the firm has also made some additional discoveries that could lead to a rapid rise in the EUA share price, in my opinion.

Eurasia has completed a more detailed block-modelling analysis of the two sites, in addition to implementing further open-pit optimisations. As a result, the company now estimates that annual ore production in the first phase of development will actually be 70% higher than what was initially anticipated in the 2017 feasibility study.

What’s more, it has also revised the production profiles of both mines, increasing the ore grades. West Nittis is now predicted to contain 2.6 g/t (grams per tonne) of palladium, while Loipishnune stands at 1.8g/t. These are both significantly ahead of the original average estimate of 1.3g/t. And the updated figures only get larger when including the platinum and gold also detected at both sites.

Combining all this information, Eurasia is on track to produce 128 Koz of palladium and equivalents each year throughout phase one of development. Based on today’s prices, that’s roughly equal to £182m, or £136.1m when adjusting for the firm’s 75% equity stake. Needless to say, these are excellent results. So why didn’t the EUA share price react more positively to the news?

The road ahead

Despite the encouraging progress being made at Monchetundra, it seems many investors are holding their breath. Production at these sites is still a couple of years out. And during that time, other mining businesses are flooding the market with palladium and other battery metals to meet the current demand. It’s entirely possible that the market becomes saturated, resulting in lower metal prices. So, by the time Eurasia Mining enters the picture, the £136.1m prospect could be worth considerably less.

With that in mind, seeing a lacklustre response from investors and is not that surprising.

The bottom line

A lot of speculation and expectations have built up over the last 18 months surrounding the EUA share price. Over the long term, if the company can deliver, the stock might be in for some explosive growth. But currently, it seems investor patience is starting to wear thin, which could explain why some decided to close their positions after the steep rise earlier this month.

Personally, my opinion remains unchanged. Eurasia Mining looks like it has great potential. But it’s simply too soon for me to invest.

The exploding EUA share price

The recent upward momentum in the EUA share price appears to have been triggered by a progress update for its Monchetundra project. I’ve previously explored Monchetundra. But as a quick reminder, the site consists of nine battery metal mines containing palladium, platinum, copper, nickel and cobalt. Four of these sites have already passed a pre-feasibility study, and given that Eurasia currently owns a 75% equity stake, investor expectations have been mounting.

The latest progress update confirmed that preparatory drilling has continued with the costs being covered by Rosgeo, which currently retains a 25% stake in the project. Meanwhile, Eurasia Mining has hired Wardell Armstrong, an engineering and mining consultancy firm, to help audit and review quality control measures and regulatory-compliant competent persons reports for this project.

This encouraging progress is undoubtedly good news. So, seeing the EUA share price rise isn’t too surprising. But the upward momentum was quickly accelerated by a second progress update a few days later. For a long time, its West Kytlim mine had been the only producing asset in the firm’s portfolio. However, an additional three washing plants just launched into production, significantly lowering the firm’s single asset risk.

Meanwhile, the definitive feasibility study for the entire Monchetundra project is getting close to completion. And a detailed mining plan for the next five years is set to be released in a few weeks. All of this is to say Eurasia Mining’s currently limited revenue stream might be about to explode, taking the EUA share price with it.

Taking a step back

As exciting as this latest progress is, Monchetundra is still a long way away from reaching the production stage. In fact, based on the current timeline, it could be another two years before any form of extraction takes place. Even if everything goes according to plan, there’s no guarantee that battery metal prices will remain elevated as they are today.

I don’t see demand for metals like palladium and cobalt disappearing any time soon. However, Eurasia Mining is not the only business looking to dig these materials from the ground. As the supply begins to grow, I think it’s more than likely that the price of battery metals will start to fall. As a consequence, current revenue expectations from shareholders may be unrealistic. And with such a high price tag being placed on this business, the first sign of trouble could send the EUA share price plummeting.

The bottom line

These latest progress updates are undoubtedly promising. And I can understand why investors are getting excited by the growth prospects of this business. But personally, I think it’s too soon to invest. The EUA share price is currently being elevated by expectations that may not come to pass. So, I’m keeping this mining business on my watchlist for now.