I've written about Eurasian Minerals (EMXX) about four months prior -- see my previous coverage. In light of the recent sell-off in mining stocks, I think it is worth re-visiting the story behind Eurasian, which I feel has only gotten better. Here's the basic story on why I'm so bullish, and why it's been one of the stocks I've spent more of my capital on in this recent decline:
1. Management. We can spend all day discussing financials, business models, geology, and other such stuff, but at the end of the day, one factor trumps all: management. Eurasian has one of the most impressive teams I've found, doubly so if we limit our focus to stocks with a market capitalization below $500 million (EMXX is currently coming in at around 106 million, making this a small opportunity with very high growth potential). The company is thoroughly stacked with geologists; even its investor relations staff brings education and experience in geology. For a firm whose business model centers on prospect generation -- finding and purchasing the rights to the most lucrative properties, and getting them all set for big miners to come in and get the most out of their resources -- this type of geological talent is extremely valuable. Eurasian's CEO, David Cole, and much of the staff come from Newmont Mining (NEM), a huge player with a market capitalization in excess of $25 billion. The connection to Newmont is especially valuable, as it has enabled the firm to work with Newmont as a joint venture partner on a number of its initiatives.
2. Properties. One would expect a team with significant geological talent focused on the prospect generation business model to have lucrative properties -- and I believe Eurasian lives up to these expectations. Its portfolio consists of a number of properties that have not been thoroughly mined in years past; as a result, the "low hanging fruit" -- meaning easy to extract minerals -- are still available. This seems to be particularly true of its operations in Turkey, Haiti, and its Koonenberry project in Australia, all of which have had promising drill results or, as is the case with Koonenberry, have significant gold nuggets formed in place that should make mining especially economically viable. Out of the 61 projects in Eurasian's portfolio, 23 (38%) still need a JV partner while the remaining 62% have found a partner to work with. I think the odds here of Eurasian having a one mine that ends up being an especially lucrative bonanza type find are higher than for most other companies out there. For this reason, if you're playing the mining sector in anticipation of a significantly higher gold price and a corresponding mania in select mining stocks, I think Eurasian is worthy of inclusion in such a portfolio.
3. Balance Sheet. In terms of its financials, things are looking good. Q1 2012 financials show the company has over 38 million in working capital and reported losses of just over $4 million for the quarter; annualized, we see the company has more than enough cash to last for two years -- and that's ignoring the royalty payments that are due to kick in. The firm's model allows it to have a very efficient burn rate; its JV partners are expected to spend $20 million on projects in Eurasian's portfolio, and the firm funded just 6% the drilling costs on its projects in 2011.
The balance sheet, management, and properties make Eurasian a very favorable risk/reward opportunity, and I think now is an especially favorable time to buy. Support appears to be strong at the $2 level. It's also worth noting that Eurasian was trading much higher at the start of 2011 when gold was $1400/oz; now we have a price above $1,600, yet Eurasian is further along in its projects and trading at a lower price. This strikes me as a mispricing on the part of that will correct itself via a much higher share price for Eurasian in due time.