Eurasia Mining (EUA.L) is an AiM-quoted Russian asset PGM producer. The West Kytlim project is revenue-generating with production expected to ramp up in 2020 resulting in EUA becoming a de-risked prospect compared to its peers.
However, the key asset is the M&A triggering EUA flagship palladium driven project, Monchetundra, near to production. Could a Monchetundra sale turn a 100m MCAP AiM company into a £1.5bn exit for investors, equating to an approximate 15x rerating on the current price? There are many risks reflected in our conservative 30% risk-adjusted WACC for the Monchetundra flanks project (only), lower and delayed production and Pd/Pt ratio. Risk-adjusted WACC for Monchetundra Lo + WN is 12%.
Flanks extension success would raise resources to 15Moz;
Flanks licence application approved by the Russian Defence Ministry;
Additional licence potential of 25Moz in 5km perimeter for acquiror;
Open-pit mine potential with far lower costs vs. Bushveld complex;
Proven M&A management team at EUA
Platinum Group Metal (PGM) focused company – EUA is a PGM mining company based in Russia and listed on the London Stock Exchange AIM market. Its two core projects include – 1) West Kytlim – an operating PGM mine in the Ural Mountains; and 2) Monchetundra – a palladium open pit deposit in the Kola peninsula. Eurasia also maintains an interest in the Semonovsky Gold in Mine Tailings Project.
West Kytlim already in production – West Kytlim, the second-largest alluvial PGM mine in production globally, has been in full-scale production since 2018 (~165 Kg of platinum produced). Contractor related issues saw production declining in 2019 which EUA has since overcome and is now aiming to ramp up production to 709kg or 25,000oz of platinum per annum over the next couple of years. EUA now operates the mine on a 100% revenue basis compared to the previous arrangement of 30-35% revenue.
Palladium rich Monchetundra moving towards production– Eurasia has made considerable progress in the advancement of its second key asset – the Monchetundra project – towards production. It is a low-cost open-pit palladium-driven project. Located in the Kola peninsula it boasts of excelling mining infrastructure ensuring low costs and capital intensity. Monchetundra (80%-owned) has approved reserves of 1.9 Moz of palladium equivalent (2 PGM+Au) in addition to significant copper and nickel deposits. The deposit is palladium-rich with a Pd to Pt ratio of 3:1 based on grade, making it one of only few new palladium-dominant development projects globally. The project has received a mining permit and is fully funded via a $176 million Engineering Procurement, Construction and Commissioning (EPC) contract with Sinosteel.
Monchetundra sale could raise in excess of $1.5bn on Pd valuation alone – Given its attractive characteristics, Monchetundra is a very likely M&A play for major mining companies looking for Pd rich quality assets. Recognizing this, management has indicated the option of a strategic sale of the asset. EUA management states that it has started to work with two banks; CITIC, one of China’s largest investment banks and VTB Capital, one of Russia’s largest investment banks to help with the sale.
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