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Over the past year, being a shareholder in Eurasia Mining (LSE: EUA) would indeed have exposed me to a pit – a money pit! Eurasia Mining shares have fallen by 67% in the past year.
But do the company’s prospects now mean there’s an attractive buying opportunity?
After all, it has been handsomely rewarding over the past few years. Could the recent tumble be a blip, or a sign of more woes ahead?
In fact, ‘handsomely rewarding’ may be an understatement!
Over the past five years, Eurasia Mining shares have risen by 528%. It does not pay a dividend, but that share price performance alone means that if I had invested £1,000 five years ago, my stake would now be worth almost £6,300.
That is even after the past year’s fall in the price of this penny stock. In fact, if I had bought five years ago today and sold my Eurasia Mining shares in December 2020, I could have turned £1,000 into £89,000. Wow!
A return like that is not just the stuff of penny stock investor dreams. It is the type of performance most investors would love!
The immediate cause of the steep fall in Eurasia Mining shares over the past year has been its focus on operations in Russia.
The business environment for overseas companies doing business in Russia has changed dramatically since the start of last year.
In its interim results last autumn, the miner said sanctions had not significantly affected its operations. Its cash balance meant it could stockpile what it mined, with an eye on a future change in the political environment.
Eurasia has also looked at selling its Russian assets.
But I see the current environment as a buyers’ market, which might not be good for sellers. The company said yesterday that it continues to evaluate sale options and said it “acknowledges shareholder frustration regarding the duration of the sale process”. It added there is no guarantee that any sale will materialise.
Eurasia ended March with a cash position of around £3m and stockpiles of mining output it is holding for future refinement.
Risk and reward
I think Eurasia will continue to struggle to find a suitable buyer for its Russian assets at an attractive price. Meanwhile, its ability to generate revenue is hurt by limits on its ability to refine and export products.
Eurasia Mining shares have been hugely rewarding for shareholders over the past five years. But its short- to medium-term business trajectory will be shaped by geopolitical events totally outside its control.
In the long term, if sanctions persist, that could make its previous business model unworkable. Conversely, if sanctions ease, Eurasia’s mining output could help the shares soar once more.
But I doubt sanctions will ease any time soon. The political risks that are affecting the price of Eurasia Mining shares are far too high for my tolerance. I will therefore not be investing.