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Eurasia Mining plc: THE INVESTMENT CASE

Eurasia Mining has two million PGM ounces in the ground, and a finance deal to get them out

Eurasia Mining has an enviable position in Russia platinum and platinum group metals
 Eurasia Mining has two million PGM ounces in the ground, and a finance deal to get them out
INVESTMENT OVERVIEW: EUA The Big Picture
Eurasia's platinum and palladium resource base is highly attractive

Eurasia Mining plc (LON:EUA) has now established a resource of over two million ounces of platinum group metals at the Monchetundra project on the Kola Peninsula in European Russia.

In the world of platinum juniors that’s a significant sum, and in Eurasia’s case it’s particularly useful since much of the metal is in fact palladium, the price of which has recently been bumping along at multi-year highs.

READ: Eurasia Mining amends US$2mln loan agreement so more cash can be directed to mining preparation

Why then is Eurasia only capitalised at a modest £3.9mln?

The answers to that are threefold. One, it’s a quiet period, following the end of exploration at Monchetundra in last year. Two, the company’s other project, the West Kytlim alluvial mine in the Urals, has had a few teething issues. And three, it’s Russia, and the discount for that is hard to shake.

Still, Eurasia’s chief executive Christian Schaffalitzky is clear that in his own experience the discount is undeserved.

“Kinross Gold (TSE:K) has been producing in Russia since 1994, uninterrupted,” he points out.

“Silver Bear (TSE:SBR) is there, and so is Amur Minerals (LON:AMC). But the best example is probably Petropavlovsk (LON:POG).”

Regular readers will know that Petropavlovsk, acquired, financed and built a mine in Russia all without significant hindrance more than 15 years ago, and it’s been producing and expanding ever since.

Russia, in Schaffalitzky’s mind, is not problematic. Indeed, although the timing remains uncertain, Monchetundra is now well into the licensing process there, and will have to pass under the gaze of several ministries and statutory bodies before full permitting is granted.

But so be it. Other companies have done it. And other companies weren’t backed by SinoSteel, as Eurasia is at Monchetundra.

“Sinosteel is a one-stop development shop for the mine,” says Schaffalitzky.

Indeed, Sinosteel is standing behind 85% of the capital required for the construction of Monchetundra, or US$150mln.

That leaves Eurasia with just US$25mln of its own to find, either through debt, equity or another source. But, as Schaffalitzky notes, within the US$150mln Sinosteel component is a US$50mln sub-contracting fee to Eurasia for the development, to cover engineering and geotechnical works at the outset, and it’s quite conceivable, even likely, that Eurasia will see a surplus on expenditure from this phase of work.

READ: Eurasia Mining lodges mine permit for Monchetundra

So here we have a two million ounces platinum group metals project moving through permitting, with construction finance lined up and the possibility that further equity dilution may be kept to an absolute minimum.

It’s an enticing prospect that will certainly be the making of Eurasia once the project gets up and running.

In the meantime though, the company is beginning to get to grips with issues that have set back early production plans from alluvial mining in the Urals. It turned out that the contractor Eurasia was using at the West Kytlim project was seriously undercapitalised and had to be replaced.

But that process is now underway after the contractor was pulled off site in October and a new investor was brought in to help with funding. As announced this week, Mr Churakov has brought a cash injection of US$350,000 directly to the project level, with these funds to contribute to the 2018 mining budget.

Mr Churakov now owns 7% of the West Kytlim project, and the transaction therefore values the asset at circa US$5mln, or at roughly US$1mln for every ton of approved eserve or resource in ground.

The plan is to install a second wash plant and perhaps to install a powerline, which will make a big difference to the operating costs. West Kytlim can then become the project it was always meant to be – a smaller operation that provides useful cashflow to the company as it works up its bigger opportunities.

It’s pretty clear from the above valuation of West Kytlim that the market has yet to price in any value whatsoever for the Monchetundra project and for its part Eurasia has yet to publish an independent NPV.

Monchetundra is quite different to West Kytlim in terms of deposit style, but with some caveats the price per tonne in ground paid by Mr Churakov could be extended to the 56 tonnes of reserve and resource at Monchetundra.

The company has previously stated an in-situ value of US$2bn for the project. These two valuations US$56mln and US$2bn offer some broad, guidance on the lower and upper estimates of a fair valuation.

In addition, the company also has  the Semenovsky gold project, which has more than 3,000 kilograms of gold contained in old tailings.

Semenovsky is a minnow compared to Monchetundra, but given that its internal rate of return rings in at well over 60%, it’s highly attractive.

And these projects aren’t all that Schaffalitzky has on his mind.

“Opportunities like Semenovsky and West Kytlim are able to throw off cash quickly,” he says.

“But we are still keen to try to create a platform to do other mineral ventures. There are very few people operating in Russia and the opportunities are immense.”

 

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