The Eurasia Mining (LSE: EUA) share price has exploded higher in the past few weeks. Since the end of September, shares in the mining group have increased by 84%. This has made the stock one of the best-performing investments on the London market in October.
Following this performance, some investors might be wondering if it’s worth continuing to hold on to the stock, or if it’s time to take profits. Today I’m going to try and answer that question.
Eurasia Mining share price growth
Investor sentiment towards Eurasia Mining has dramatically improved this year as the company has put itself up for sale. Despite owning some potentially lucrative mining prospects, particularly its West Kytlim project, management has decided the best course of action is to sell the business and realise value for shoulders that way.
This makes plenty of sense. Many mining companies struggle in their early days. Especially small-cap mining stocks, which lack the size and scale to compete effectively in the market. More often than not, these corporations collapse or are taken over by a larger competitor.
With that being the case, a sale of the business may produce the best return for Eurasia Mining’s investors. A larger competitor would be able to push down prices and use economies of scale to increase output and profit margins at the firm’s mining prospects.
So, a lot rests on Eurasia’s ability to find a buyer. Luckily, the business is not in a rush. While a sale is the preferred outcome, its latest trading update showed that the firm’s balance sheet is considerably stronger than at any point in the past. In August, it raised $10m through an institutional share placing.
As well as the additional institutional capital, West Kytlim is now fully operational. This is producing much-needed cash flow to help support the group through the sale process.
Buy, sell or hold?
It looks as if the mining group is on the up and up. The big question is, what’s the Eurasia Mining share price really worth? How much would a buyer be willing to pay for the business in the best-case scenario?
Estimates suggest that the total value of resources at the firm’s mining operations could exceed $2bn (£1.5bn). The eventual figure may be significantly more or less than this initial projection, but it gives us a rough idea.
After its recent share price performance, the company has a market capitalisation of around £900m. That looks cheap compared to the estimated value of the resources it owns.
As such, I think there could be further upside for the stock from current levels in the best-case scenario. That said, I should note that these are only estimated figures. Therefore, it may be sensible for investors to take some profits after the recent share price performance while leaving some money on the table to profit if a buyer emerges.
The post The Eurasia Mining share price has shot higher. This is what I’d do about the stock now appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020