Author: gmf78

As I write this on 5th July, anticipation is clearly building for the coming weeks and months ahead.

So where are we at, what might happen next?

Potential Bidders – reasons to buy

Without naming names, any major PGM mining operation will have taken a look at Monchetundra. With a low AISC of $325/Oz and production cost in roubles, but sales in dollars, it is a very attractive addition to your weaponry compared with equivalent resources in South Africa that have AISC of $700/Oz or more, or North America with AISC $400-$500/Oz. When operational, it will be one of the most profitable mines globally, with soft rock open pit mining offering many advantages over deep pit mining, especially when it comes to Covid19 with segregation of operatives, less power needed and a processing facility already operated by Norilsk a few miles up the road.

It has longevity too, expected local authority approval will see 15Moz available to mine, potential for another 4Moz and then up to 21Moz in the surrounding area. This could sustain a 1000Koz operation for 40 years or so. Enough time to justify a multi billion dollar takeout in 2020.

Two types of Bidder

1. Those who don’t care about the share price – they just want to make an offer for the asset(s) – happy days!

2. Those who care about the share price – the Board will not sanction a large offer for more than 2-3x current share price. The argument being why offer $bn’s when the company is valued at $210m or so.

I’ve seen a lot of discussion about this recently, especially since UBS came on board, presumably on a success fee basis like CITIC and VTB were appointed to examine options. Many people feel we won’t come back to the market, as an offer has already been made. Whilst this is attractive, it could only have come from somebody in the (1) camp – they didn’t care about share price.

Why I want trading to resume

To increase the number of potential bidders! For UBS to work their magic alongside our Board, they need as many companies as possible to be able to bid. If the share price heads to 20p and above, it will enable everyone to justify to themselves why they are bidding. Those interested in buying an asset and those using Market Cap to guide their bids.

Triggers to help Share Price rise

Just appointing UBS will help the share price, it was a clear sign of where things are headed.

Flank Approval – although said to be a formality after MOD and FSB approval, it will remove another doubt and enhance things

Institutional Buying – whether Special Situation funds, wealthy PI’s or Event Driven Global Merger Arbitrage funds, many different entities have now got reasons to invest. With a timeline measured in weeks, the chance of a great return on their investment is looking increasingly likely

Shorts closing – should EUA have been targeted at 4p or 7p, there are many whispers about a few million shares being borrowed. Will need repaying! A small amount in the grand scheme of things but an expensive lesson for anyone caught on the wrong side of the investing fence.

Against this, we will see some selling of shares. I mention this in acknowledgment of the fact some will need to gain access to their cash as a result of circumstances changing since Covid19 came onto the horizon and smashed up 2020. I wish everyone well who has been affected financially, not a nice situation and I hope EUA has made you something along the way.

1-2-3-4 I declare a bidding war

Deserves a mention to close the post, for anyone who hasn’t been involved in a share with a bidding war, just grab some popcorn and enjoy the show. Assumption is that Norilsk Nickel will not allow Monchetundra to fall into a rival’s clutches, but they don’t want to pay more than they need to.

Should we have 5,6, 7 seriously interested parties, they might not have an option. Back in 2007 when LionOre was up for sale, they outbid Xstrata twice. That was a two horse race, yet share price increased significantly for shareholders. More bidders will mean more rounds of bidding. The kind of thing best handled by a global bank with experience in such matters, exactly why UBS was brought on board…

They don’t buy often, but when they do, they make sure they get the asset they want. Hence I will stick by my predictions below, good luck to all invested.

As entertaining as it is seeing the bot flies neutralised on certain websites, thoughts should be more to the positive, ie the next RNS and events ahead.

I’ve got a few contenders I’d like to see, in no particular order :

1. Fuller Explanation of reasons for suspension, CITIC engagement letter signed off and a date for trading to resume (could be amazing – ie bidding process starting)

2. Licence approval at WK – Tipil (seems to be done deal judging by website updates as per screenshot below)

3. Flanks approval at MT (the game changer for reserves)

I don’t think we will see more board appointments, but always open for a pleasant surprise. Some of the theories I’ve seen and heard :

a) 2 stage bidding round with 8-9 firms interested
b) special situation funds x2 taking a min 3% stake and TR1 announcements soon after relisting
c) PGM hedge funds interested in purchasing a stake
d) other banks trying to outdo CITIC and VTB to get involved as not so many M&A deals this year

The only real ‘facts’ as people talk about so often are the actual prices of Palladium and platinum.

With regard to EUA, it is a fact that the RNS state a certain level of resource. It seems to be opinion whether to believe it or not!
It is also opinion that 15Moz of Pd will fetch at least $100/Oz for a company sale – but it is opinion based on looking at the facts of every other sale of a PGM company in the last 4 years. This gives $1.5bn.

It is optimistic opinion that it could go for max $300/Oz given the price of Pd. This gives $4.5bn.
It is more opinion that several buyers would want this resource, based on the low AISC $325/Oz.

It is a fact that South African miners are struggling with reduced output due to coronavirus and ongoing power cuts.

It is opinion whether Pd demand and pricing will be higher or lower in future, but fact that there is a structural deficit currently.

It was further opinion that EUA won’t get a nomad and will have to delist. It is fact that they appointed a new Nomad – SP Angel. It is fact that they represent more mining firms than any other nomad, leading to the opinion that this was a substantial upgrade for Eurasia Mining.

It is more opinion whether people will sell their shares should we relist. It is a fact I will be looking for a lot more, another million or so. It is also fact several funds want to buy more than me, but you have to treat this as my opinion!

And so we go on. When there are facts you can rely on, they can inform your opinions or you can disregard everything factual. Your choice.

Going to be a good week would be my strong opinion

Unlike some special people who claim to know the ins and outs to within a few minutes, I prefer to consider what is likely in the coming weeks and months. Our Board of Directors are professionals, the notion of a leak is not worth considering.

Nomad RNS – Whilst it would have been better to stick to original timings, this didn’t happen. Not the end of the world. Now we are in a period without a Nomad, it makes some sense to wait until w/c 25th May to announce the Nomad appointment, gives the company longer to add extra information about flank approvals or opening bids.

When trading resumes – some people will want to sell, many investors and funds will wish to buy, share price will react accordingly. Rose 100% in the couple of weeks before suspension so no reason to doubt this will stop. Could see 15-20p by end of June if buying pressure continues.

Sale of Monchetundra – main asset to be sold, expect to see some bids this summer that recognise what 15Moz of Palladium are worth over the next 20 years (over $25bn after AISC of $325/oz taken into account). Norilsk Nickel in pole position with proximity (as recent RNS kindly reiterated). Max price once flanks approved $2-2.5bn

Sale of West Kytlim – keep producing until it is sold to maximise revenue. No need to sell on the cheap, expect minor producers to be interested. Makes sense to sell at similar time to Monchetundra if suitable bid received. If recent plans to increase production are feasible, expect Max price $500m

So as many others have said before, Eurasia could be worth up to $3bn when sold in full. So much room to grow from current 7.2p, look beyond the Nomad ‘issue’, once it is sorted it will be full steam ahead…

So we know from RNS that West Kytlim is planned for eventual scale up to 2tons a year, probably to show what it is worth to a new owner.

We know there is a ready to go plan for Monchetundra involving SinoSteel for around 4tons (approx 125Koz) a year. Alexei Churakov gave a Kommersant interview in January stating likely EBITDA of $250m from this.

What would happen to share price upon resumption if a similar scale up plan has been devised for Monchetundra to take advantage of the 15Moz resource with flank approval granted?

No point digging out 150kz a year, you’d be there 100 years!

It would make more sense to see them aim higher, maybe a plan for 780Koz so life of mine is around 18-20years. This will take a few years to achieve, but the low cost nature of extraction via open pit will mean new owners can start production by 2021, maybe 2022 at the latest.

Higher potential EBITDA – $1.5bn to $2bn a year means much higher company valuation.

Allow a hefty discount for building the bigger facility, probably around $1bn, you’d still be looking at $4-5bn to ensure you secured the asset that will generate $15-$20bn over less than 20 years.

(This is conservative as well – 15MOz at Pd price each year, less $325/Oz costs)

This may mean some investors need to be a little patient whilst the plans are drawn up. It doesn’t mean Eurasia will be activating the plans, think of it as a feasibility study.

It is very hard not to be optimistic about the future when you work out what this vast resource will yield.

Key Summary

Recommendation BUY
Target price – 70p GBP (+870% vs current share price of 7.20p GBP)

This is very worthwhile reading if considering an investment into EUA. Concise summary of events, detailed risk analysis and considered opinion.

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Disclaimer

Please remember, the value of any investment can go up or down and this article should not be taken as investment advice.

With 15 million ounce reserves, it could sort the deficit out for 15 years or so.

Extra potential in wider area for 40 million ounce

Financial Argument

1Moz a year would need a plan to mine 32 tons PGM a year…

Once built, it would yield EBITDA approx $2bn a year net profit assuming AISC of $325/Oz and Pd price around $2325/Oz

Using 5x average as mine life is 15 years, the mine would be worth about $10bn or £2.75 a share for Eurasia Mining when you take into account the 80% ownership