Will a buyer will be found for Eurasia Mining?
“…Prospective investors are unlikely to be able to pick up EUA shares at a much lower level than this. The question is whether the company can batten down the hatches through the current crisis…”
Eurasia Mining (AIM:EUA), a platinum group metals (PGMs) explorer and producer, supplies materials much sought after for their use in low emission autocatalysts and emerging fuel cell technologies. With evolving nickel-copper and hydrogen prospects taking shape alongside the company’s core business, EUA has attracted interest from several potential buyers, opening the prospect of an acquisition securing a healthy shareholder dividend.
There is just one problem: EUA is located in Russia. The company’s shares have fallen 80pc since the outbreak of war in Ukraine, tumbling in February and March and still on the floor. Here we consider whether EUA’s fundamentals are strong enough to tide it through the current crisis and out to what would seem a promising future.
West Kytlim and the Kola Peninsula
The company has two headline assets, a producing PGM and gold mine at West Kytlim in the Ural Mountains, and a cluster of prospects on the Kola Peninsula, near Russia’s north-western border with Finland. West Kytlim has 4,477Kg PGM in Russian B, C1 and C2 categories, and its resources have been extended further through the addition of two complementary licences, Typil and Flanks. A 2021 Definitive Feasibility Study (DFS) outlined a strategy for capacity expansion and cost reductions, currently being implemented through the electrification of the mine site.
EUA has ambitions to develop its Kola interests into ‘a new centre for global battery metals and PGM production’. Monchetundra is a fully permitted nickel and palladium driven complex of open pit deposits adjacent to Norilsk Nickel’s Severonickel, the world’s largest nickel-copper-PGM processing plant. Monchetundra’s flagship 1.7Mtpa open pit Nickel-Copper-PGM mine has two deposits at Loipishnune and West Nittis. The Monchetundra Flanks license contains extensions to the ore bodies identified within the Monchetundra license. EUA also has a binding agreement with Russian exploration and development company Rosgeo to gain a 75pc equity stake in nine battery metals and PGM assets in the immediate vicinity of the Severonickel plant.
The company has a further significant prospect adjacent to Monchetundra, the Nittis-Kumuzhya-Travyanaya (NKT) Deposit, a ‘Tier-1’ nickel mine formerly operated by Norilsk Nickel, that could operate as a standalone project or be integrated with Monchetundra. A reserves and resources update published in February broke down Kola’s collective potential – incorporating Monchetundra, NKT and the projects included in the Rosgeo agreement – as follows: copper 292,714 tonnes reserves and 1,807,049 tonnes resources; nickel 388,485 tonnes reserves and 1,858,875 tonnes resources; cobalt 13,947 tonnes reserves and 114,925 tonnes resources; palladium 148 tonnes reserves and 1,080 tonnes resources; platinum 46 tonnes reserves and 276 tonnes resources; silver 68 tonnes reserves and 394 tonnes resources; and gold 8 tonnes reserves and 76 tonnes resources.
EUA’s shares touched heights of 30p and then 40p at points through 2020 and 2021 as the company built out its portfolio and said it was courting interest from potential buyers, culminating in an announcement last May stating it had received ‘a proposal from a credible party for the potential acquisition of substantially all of Company’s assets’ that could allow the payment of ‘a significant dividend to all shareholders’.
Progress through 2021 and 2022
In the meantime production continued at West Kytlim through 2021, the company announcing a 2.3 times increase in raw platinum production for the year of 3,643oz, up from 1,525oz in 2020. Ongoing mine development had increased stripping capacity to a record 300,000m3 per month, and plans to replace diesel power with grid electricity from green hydro sources were underway by late 2021. Exploration had commenced at the Typil site, a dozen samples indicating the presence of platinum and gold. Work continued on defining the prospects at Kola and the NKT Project. By December the company was ready to publish details of its hydrogen and ammonia strategy. An agreement had been signed with specialist H4Energy to hydrogen and ammonia projects in Kola and Sakhalin, supported by the Russian government. A pre-investment feasibility study including financial models and sensitivity analyses had been reviewed by independent technical experts, and an agreement reached with the government’s Far East and Arctic Development Corporation (ERDC) to assist with the procurement of land and energy supplies. Energy supply agreements with regional energy suppliers were being negotiated.
EUA has continued to make solid operations progress this year. The company’s most recent interims, published last month, stated that 167kg of raw platinum had been produced at West Kytlim through H1 2022, as against 113kg for the full year 2021. Electrification was on track, with power line and e-dragline construction projects ‘on course for completion later in this season’. Exploration at Typil had highlighted prospective ore bodies on the eastern bank of the licence’s river, including one 20m wide and 0.8m thick at an average grade of 235 mg/m3 raw platinum, and another 0.8m thick with an inferred width of 80m at an average grade of 192mg/m3 raw platinum. A 2023 work plan has been developed for the mining of the river’s western bank. At Kola the DFS for the Monchetundra open pits ‘is well advanced and on schedule for completion this year’.
The impact of the war
The interims also offered the company’s most detailed comments yet on the ongoing impact of the war. EUA said that to date ‘there has been no significant impact on the Group’s activities as a result of the ongoing updates to the UK and EU sanctions legislation. Sanctions introduced by the Russian Federal government have also not affected the Group.’ The company ‘remains satisfied that neither of its current activities at the West Kytlim Mine or on the Kola Peninsula are prohibited under UK or EU sanctions rules’, and remains committed to the continued development of all of its assets. EUA had noted in a statement issued just after the invasion that the company had no relationship or bank accounts with Russian state-owned banks.
The company’s interims also included a somewhat ambiguous reference to the prospect of the sale of its assets. EUA’s ‘M&A team is focusing on BRICS’ – Brazil, Russia, India, China and South Africa – ‘counterparties, and discussions are ongoing with predominantly Russian, Indian and Chinese non-sanctioned counterparties. Whereas progress has been made with certain parties,’ the statement continued, ‘at present there can be no guarantee that the Company will enter into a legally binding sale and purchase agreement with any of the interested parties … further updates regarding the sale process will be made as appropriate.’
EUA also detailed the steps the company is taking to preserve its financial position. West Kytlim ore has been stockpiled since the beginning of this year’s mining season in ‘anticipation of higher realisable sales revenue in the future.’ None of the 167kg of PGM concentrate produced this year, which EUA estimates has a net realisable value of around £3m, has yet been sold. The company has more than £3m and $6.6m in its sterling and dollar dominated bank accounts respectively, and exchange rate volatility actually helped EUA report a net gain of £6.1m for the period. The company’s cash reserves are held outside Russia and so not exposed to Ruble foreign exchange gains and losses. The company had strengthened its financial position last year through two private placements with institutional investors that raised a total of $35m.
Outlook
Sadly, of course, there is no sign of any resolution to the war. Indeed tensions have escalated even further in recent weeks as Russian setbacks on the field have prompted the Putin administration to call up reserves, appoint a hardline new general, and target Ukrainian cities and infrastructure. Putin may be losing, but he is not giving up. Sanctions against Russia are likely to intensify even further for the foreseeable future rather than ease, cementing the country’s economic isolation. Furthermore, higher energy and food prices caused by the war are contributing to a worldwide economic slowdown choking demand for the kind of commodities produced by EUA. The IMF’s latest growth forecast is the lowest for the year ahead it has published since 2001, aside from the exceptional years of the banking crisis and the pandemic.
All of which makes it impossible to say when and by how much EUA’s prospects will improve. The company’s share price has been bumping along between 4p and 6p since the invasion, though it has occasionally sparked briefly into life, spiking above 7p for a few days last month. That’s still a long way from the 25p to 40p space it occupied prior to the war. Prospective investors are unlikely to be able to pick up EUA shares at a much lower level than this. The question is whether the company can batten down the hatches through the current crisis, allowing its fundamental strength to assert itself thereafter, whenever that might be. Perhaps a buyer will be found sooner or later among those EUA is currently courting. Perhaps. Right now, though, EUA is a tough trade to call.
