Eurasia Mining (LON: EUA) shares should not, in one reading, be subject to the political risk concerning Russia and Ukraine. In another reading they are and as the 30% share price fall, this morning shows it’s that second reading which is true.
We’ve noted Eurasia Mining’s exposure to political risk before now. Eurasia’s mining claims aren’t anywhere near Ukraine of course. Nor are the markets it would sell any likely future production into. Ukraine isn’t even a major – or even really minor – consumer of the metals to be produced, meaning there wouldn’t even be displacement in those markets.
As we’ve also noted before Eurasia seems to be doing the right things about Russian domestic political risk. So it’s entirely possible to think that whatever Putin is doing or will do to Ukraine is just an irrelevance. But as today’s 30% fall in the Eurasia share price is telling us this isn’t quite true – real market prices always beat any thoughts we might have about what they should be.
It’s also true that Eurasia Mining tells us that sanctions have no effect on the company. In today’s announcement to the stock market: “the Company has reviewed the UK, EU and US sanctions (the “Sanctions”) as of this morning UK time. There is no impact on Eurasia's operations or activities. No individual or entity identified in the Sanctions is associated with the Company in any way.” That should be it, right?
But that’s not the way it works. For the worry is not about what sanctions have been announced (that “as of this morning”) at all. It’s all about what might be announced in the future.
What is Putin going to go on to do? Further, what are Europe and the US going to do about whatever Putin does do in Ukraine? What, that is, are the next set of sanctions going to be? If there are any at all?
To give an example of the potential costs of this, Gazprom shares in Moscow are down 50% today. Europe simply cannot stop buying Gaxprom’s gas, it’s impossible, but worries about sanctions that might be applied causes that. At one point Sberbank – which has no current sanctions against it – was down 90% (again, the Moscow quote) before recovering somewhat. This is all about what actions might be taken, not about what has already been announced.
This is the problem that Eurasia Mining faces now. No one – at all – has any idea what the next stages of the war are going to be. It’s not even 100% certain that Ukraine will lose. Then no one knows what the reaction is going to be from the West. It’s not even calculable.
Eurasia Mining, therefore, faces uncertainty, not just risk or probability, Which is why the share price drop. It’s only resolution of that uncertainty which is likely to boost the price.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.