Stock market

As Eurasia Mining’s share price crashes, is it now a bargain?

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The week did not start well. Eurasia Mining (LSE: EUA). Shares are down 44% in early trading, as I write Monday morning.

What’s going on – and could this sudden price drop be a buying opportunity for my portfolio?

Focus on withdrawal from Russia continues.

The company released an announcement today (June 10) regarding the recent jump in Eurasia Mining’s share price. In fact, today even after the fall, shares are well above where they stood at the end of May (and nearly four times where they were five years ago!).

The company notes the recent sharp rise in share prices, as well as online speculation regarding a key feasibility study for its Moncatandra project in Russia, the statement said. But, as Eurasia points out, the study was completed last summer. Since then, the site has been maintained but no one has been there.Material developments“About the study.

The statement concludes: “The Company’s primary focus is on the potential sale of its Russian assets although, as always, there can be no assurance that Eurasia will enter into binding agreements with respect to the sale.

Abnormal price action is a possible sign of a bubble.

The seemingly groundless rise in Eurasia Mining’s share price over the past 10 days following its sudden crash is a red flag for me as an investor.

At some point, many share prices diverge somewhat from their business fundamentals. But when the price rises so much primarily because of rumours, it can be a sign that speculation, not investors, has been received – sometimes only to be charged very quickly. Is.

This risk is generally higher in smaller companies where there are fewer shares available in the market. Eurasia Mining is a penny stock and has a current market capitalization of just over £50m.

Focus on business opportunities.

On its own, this doesn’t necessarily bother me. As a long-term investor, I focus on the investment case for a business. Such sudden swings in Eurasia Mining’s share price may also give me an opportunity to buy shares of my choice.

In the case of Eurasia though, I had no plans to buy in May or during the bull run earlier this month – and I haven’t changed my view.

The persistently loss-making company has seen its previously modest revenues fall, to just £0.1m last year. Against these financials, the market capitalization looks high to me.

As with many smaller mining companies, the valuation reflects how investors perceive the potential of the business, not its current performance.

Its Russian assets could generate huge cash flows if sold. But, for now, when it comes to offloading assets to Western companies, Russia appears to be a market for sellers, not buyers. As the company reiterated today, there is no guarantee that a deal will be struck to sell its assets there.

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