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Eurasia Mining plc: THE INVESTMENT CASE

Eurasia Mining well-positioned in what will potentially be a major new PGM producing area

Eurasia Mining is making significant progress with its Russian platinum projects
Eurasia Mining well-positioned in what will potentially be a major new PGM producing area
INVESTMENT OVERVIEW: EUA The Big Picture
Eurasia could be at the forefront in opening up a new platinum and palladium province

“Kola is a company maker,” says Christian Schaffalitzky, managing director of Eurasia Mining plc (LON:EUA). “Certainly Kola is a company maker.”

He’s speaking in the wake of a decision by the Russian State Subsoil Agency Rosnedra to give its official seal of approval to the 1.9 mln ounces of palladium and platinum booked by Eurasia at its Montechundra project.

Situated at the western end of the Kola Peninsula, Montechundra is the only platinum and palladium project left standing in the region after the clear-out engendered by the long mining bear market. There are rumours that Barrick might reactivate a moth-balled project to the north, but that’s another story.

WATCH: Eurasia Mining ticks off key steps at Monchetundra

“I do think Kola will become a producing region in the future,” says Schaffalitzky, “simply because of the costs of mining PGMs in South Africa.”

South Africa is the world’s foremost producer of PGMs by some way, but operations there have been bedevilled by low prices, deep mines, union battles and a general air of political uncertainty.

A major new platinum district remains one of the holy grails of the mining industry, and if Kola isn’t quite set to challenge South Africa yet, Schaffalitzky remain optimistic about the future.

“The exploration potential remains excellent at Kola,” he says.

If the Russian bureaucratic environment can manage to be more benign than the South African one then, it may stand a chance.

A favourable sign was certainly in evidence at the end of May when Rosnedra gave the official government nod to Montechundra. Eurasia is embarking on the next phase, as Schaffalitzky explains.

“We are now filing a discovery certificate,” he says. “That’s the first step to getting title in Russia.”

In the interim there’ll be something of a hiatus on the ground at Montechundra, but behind the scenes the company will be working on a detailed development plan, that may yet include adding to the existing resource.

“The two open pits that comprise the project are pretty well defined, open at depth and along strike,” says Schaffalitzky.

“We’re optimistic they’re going to end up being even bigger than they are at the moment. But in the meantime, there won’t be much spend over the next 12 months. Instead we’ll be preparing the project for financing.”

To that end, Eurasia has already lined up Sinosteel as the major contractor. Sinosteel has agreed in principle to provide 85% of the US$176 mln development capital in the form of a LIBOR+3.5% loan which they will hold on their own balance sheet until they hand over the plant.

That leaves Eurasia with 15% to find, but on that score the company has a trick up its sleeve.

“We have to find the balance of US$25 mln,” says Schaffalitzky. “But there is, within the Sinosteel proposal a direct subcontract back to us to do the pre-strip, prepare road networks, do geotechnical work, conduct logistics and so forth. We do all that for a US$50 mln subcontract, so although we have to borrow US$25 mln we’re getting US$50 mln back.”

But will there be enough margin on that work to cover Eurasia’s end?

“We reckon we should be more than able to pay for the works we’re expected to carry out, plus the balance should be nearly enough to pay for the US$25 mln.

As for the remainder, Schaffalitzky says Eurasia did speak to a streaming company last year, but that actually at that point it was too early to enter into anything tangible.

The time for that will come again, but meanwhile Eurasia has also been making progress at the West Kytlim alluvial platinum mine in the Ural Mountains. The timetable here had been thrown off due to adverse weather, but nevertheless, says Schaffalitzky, 2017 is the year that the company expects to have full production from one washplant.

In time, two more washplants will come on stream, such that a back of the envelope calculation shows that by 2019 the project ought to be able to produce 300 kilos of PGMs per year.

That’s a nice little cash generator, made all the more useful by Eurasia’s arrangement with its contractor that its take comes as a percentage of revenues rather than profits.

But it’s still relatively small. For the company maker, it’s back to the Kola Peninsula and the methodical work that will be involved in pioneering a whole new platinum and palladium mining area.

 

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