Another day another junior miner. At the time of writing Eurasia trade between the 7 and 8p a share mark. They have only one active mine despite being formed back in 1995. Eurasia has diluted shareholders, are unprofitable and just in case you weren’t running in the opposite direction yet, they operate in Russia.
So why bother continuing? Well, whilst there is lots to be fearful of in Eurasia Mining, there’s some pretty incredible upside too…So:
Palladium, global supply and why you should care
Palladium (PD) is a silver-like white metal. It belongs to the PGM group of metals (Palladium, Platinum, Rhodium, Ruthenium, Iridium and Osmium).
85% of global Palladium is supplied into the automobile industry. Its primary use is in catalytic converters which take harmful emissions such as carbon monoxide and turn them into less harmful like carbon dioxide, nitrogen and water. Even if you think purebred diesel and petrol-engined cars are finished, catalytic converters will still be needed in hybrids and their plug-in variants.
Interestingly, it’s also a key component in fuel cells, which (simply speaking!) use Palladium to react hydrogen and oxygen to produce heat and electricity. Palladium has a few more uses including, oddly, dentistry. Check them out under the applications section of the wiki:
Pricewise, there’s no question, Palladium has been on a tear. Driven by poor quality and often inconsistent supply over long periods the price of palladium has skyrocketed, almost tripling in value over the last year alone. Before this most recent rally, Palladium had never been more than $1100.
The roughly 10-million-ounce a year market has been in deficit for most of the last decade. Standard Chartered analyst Suki Cooper said she expects
A 700,000-ounce shortfall this year and 2021, leading to further price rises.
This year China has introduced new legislation that could only further inflate the price. As China cracks down on emissions caused by ice vehicles, leading to further refinements and improvements to catalytic converters.
This means China will require 30% more palladium per vehicle, more than offsetting recent falls in numbers of vehicles sold*,
Said Standard Chartered’s Cooper.
*(Due to the trade war with the US).
The price is undeniably a bubble, it just isn’t sustainable in the long term. However, Nornickel, one of the worlds largest PGM producers expect demand to continue to outstrip supply until 2025.
“To me, it looks like a bubble,” said Fritsch (Commerzbank Analyst), predicting prices would return to around $1,500 by the end of the year.
However, some are still betting on further gains, at least in the next year or two.
“Palladium is just going to go up and up and up,” said Frederic Panizzutti at Swiss dealers MKS.
So as is the case with all miners it’s a question of who can produce the most, for the cheapest whilst the price is high and demand follows suit.
Eurasia could be “coming good” at just the right time.
Lastly, it’s always interesting to take a look at reserves in the ETFs. Years of deficits have pushed down visible palladium stockpiles, with holdings in ETFs at just over 600,000 ounces, down from 2.5 million ounces in mid-2015, removing a potential supply source.
So to Eurasia, what do they have?
Eurasia has one fully functioning mine in West Kytlim, south-east of Moscow. It’s 100% operator owned meaning all revenues are paid to Eurasia. The mine has currently found a reasonable amount of Platinum. You can read more about operations here:
Seriously, to further emphasise how slow mining is, check out this timeline for the West Kytlim mine!
The full timeline is here: https://www.eurasiamining.co.uk/about/history
But that’s not the most interesting site. Eurasia has recently expanded its operations into the flanks of their Montechundra site on the outskirts of their main project.
In the table below displays what they’ve reportedly found on their recent strikes. Please note miners often undersell findings until they are confirmed, as overselling can hit the share price drastically later down the line!
It will only take the most cursory amount of calculation to discover that should these findings be accurate, Eurasia is grossly undervalued.
(Worth pointing out that both of these will be open-pit mines, which are less riskier and much less costly than, say the tunnel project at Sirius Minerals, which needs a lot more permitting and construction.)
Montechundra will be supported by cash flow from the West Kytlim project, meaning barring an existential need to speed up operations, there’s a reduced risk of an increase in debt levels - this is key to producing materials at low prices. At the sort of figures Eurasia are throwing around - I can’t find anyone that can get PGM out of the ground cheaper.
Dmitry Suschov and the team
Dmitry knows mining. A brief look at his career can prove that:
Dmitry started his career in PwC and Ernst & Young, where he was mining and metals leader covering M&A and capital markets in Russia and CIS. Dmitry also served as a managing director of Capital IG, multibillion USD asset management company. He was a director of Deloan Investments Limited, East Capital Partners (Hong Kong) and Asia Finance Strategies (Hong Kong). Dmitry was one of the founders of a leading PCI producer, where Dmitry achieved 2.5% global market share selling PCI to world’s largest steelmakers including Arcelor Mittal, Hebei Iron and Steel Group, Baosteel, Jianlong Steel, Xilin Iron and Steel Group, Achen Iron and Steel Group, Posco, Tata Steel, China Steel, ThyssenKrupp, CSA, SSAB, EVRAZ, NLMK and US Steel. Dmitry is a member of the board of directors of Terskaya Mining Company, palladium, platinum and base metals company (signed EPC with Sinosteel MECC that provides $150 mln financing) and KK, the second-largest global alluvial platinum, palladium, iridium and rhodium producer (initially a joint venture with Anglo American, world’s largest platinum producer), that Dmitry helped put to production in 2016. Dmitry also serves as non-executive director of Eurasia Mining Plc listed on London Stock Exchange.
Dmitry is an author of a number of articles and was a speaker at C5 Central and Eastern Europe Private Equity Forum (London), London Stock Exchange IPO Conference, GS1 EPC Seminar, C5 Oil and Gas Conference, London Stock Exchange UK-Russia Forum (London), Metal Bulletin Steel Summit, Coaltrans Anthracite & Coking Coal 2016 (Hong Kong), BIG NASDAQ Nordic Investment Conference 2017 (Stockholm), Mining Investment Asia 2017 (Singapore), Mining Investment China 2017 (Shanghai), Mining Investment London 2017, Fintech Event 2018 (Shenzhen), DLA Piper Technology Event 2018 (Hong Kong).
Here’s a recent interview with Dmitry:
I think you’ll agree, that’s a hell of a background. But it’s not just limited to Dmitry, the team at Eurasia Mining is super impressive:
The Bears Case
The Geopolitical risk.
Investing in Russia offers significant risk and Putin runs a somewhat protectionist economy. Here’s a great episode of Unfiltered with James O’Brien and Bill Browder discussing a Hollywood-esque story of the rise and fall of Hermitage Capital if you’d like to know more about the potential pitfalls of operating in Russia.
But there’s plenty of other things to be wary of:
- Macro political factors such as trade sanctions on Russian exports could affect the aisc of Eurasia making the mine much more expensive to run.
- China could outright ban the ice, meaning demand and prices would drop unsustainably.
- A global recession could kill off car demand.
- Carmakers could replace Palladium with Platinum, which at $1000oz looks a cheaper more viable long-term option.
- Palladium and Rhodium are primarily used in catalytic converters - not needed in an EV!
- The chance that Eurasia has committed the cardinal mining sin and overstated reserves.
If Montechundra comes off and has anywhere near the amounts of PGM speculated than this share is grossly underpriced. If Eurasia can keep their aisc (all-in sustainable cost - the price in full a miner must pay per unit of product extracted) as low as it currently is, you could even see a special dividend as thanks for long term holders of the stock, or even better a huge sale of the Flanks project - which analysts are arbitrarily valuing at between £1bn to £1.5bn around 8-10 times Eurasia’s current market cap on that mine alone.
However, whilst Eurasia is an interesting case with a lot of potential upsides. For my tastes, there’s just too much going on in the world that could hamper their grand plans. If Eurasia can get the West Kytlim mine operational and profitable, in my opinion, it significantly de-risks the project as a whole.
Personally, I’d be wary of investing any more than a cursory amount of my money into the project and be prepared to lose it all.
Obviously, dyor! (and report back your thoughts!)
Please don’t make decisions solely on the above information, make sure you do your own research and always fully understand the implications of investing in such a small, speculative business.