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Over time, some stocks do better than others, sometimes much better. There aren't many penny stocks that increase in value 380% in five years. one who has is Mining in Eurasia (LSE: UEA). But while US share price growth has been incredible in five years, in the last 12 months the share has fallen by more than a fifth.
The company announced in the summer that it had “a limited cash track in the uk”, with enough working capital only for the next few months. The shares were suspended from trading.
However, they are now operating normally again. Could this offer me an opportunity as an investor?
More clarity on the medium term
Shares returned to trading status this month following the late release of last year's Eurasia results.
Revenue increased tenfold to £2m, while the company's total comprehensive loss fell but still reached £4.8m. The company continued to explore possible sales of its Russian assets, but so far to no avail. The possible sale of these assets is the company's main strategic focus for now.
This month, EUA announced that it had agreed to a convertible trade finance loan to meet its working capital requirements. The initial utilization of that loan, about 40% of what might ultimately be available, is expected to allow the company to survive another year. In addition to the loan, a tax refund could help Eurasia's liquidity situation.
On the horns of a dilemma
Thus, at least in the short and medium term, Eurasia's financial position appears to have strengthened. That was not a painless process. All of its directors have agreed to defer payment of accrued fees and expenses for the past 12 months, as well as any future compensation due, until the loan is repaid in full.
But while the loan buys much-needed time, what about the underlying health of the business?
Eurasia is attempting to sell Russian assets, as it has been doing for some time, in what is effectively a buyers' market. That may not bode well for the price it can fetch. But the longer you wait to sell, the more working capital you'll end up needing. That could lead to more borrowings, if available, or potentially to share dilution.
In contrast is the company's £62m market capitalisation. I think this presupposes a significant value of Russian assets. That seems reasonable to me, and if those assets are successfully sold at a good price, I think the current US stock price could come to be seen as a bargain in retrospect.
The problem, as I see it, is that there is no guarantee that a sale will occur. Even if it were, the price might not be good given the limited pool of potential buyers.
On that basis, this is too speculative an investment story for me right now. From here, I think the US stock price could still soar if it reaches a big deal to sell its Russian assets, but it could still tank if it doesn't. I have no plans to invest.