Eureka Mining Plc EKA AIM

Part of Investers Chronicle buy tip for EKA (www.investorschronicle.co.uk)

30 December 2005
EUREKA MINING (EKA)
This year, Eureka has made great strides with its two projects in the former Soviet Union. Chief executive David Bartley swung a peach of a deal with a local uranium company, KazAtomProm,
in Kazakhstan earlier in the year: Eureka has divested 50 per cent of its Shorskoye molybdenum project in return for access to production facilities. And resources estimates at its Chelyabinsk project are looking good.
The key to the Shorskoye deal is the molybdenum price, which has been hovering above $30 a pound for most of 2005, but is likely to weaken. Eureka has used a $20 short-term molybdenum price in its modelling, but if full-scale production gets under way in the early
months of 2006 it should be able to secure sales at the current sky-high prices.
Even using a $20 molybdenum price, broker Ambrian estimates that Shorskoye should generate cash flow of $21.8m (£12.4m) in 2006. At the current price, Eureka is looking at cash flow of $3m a month. So the company won't be saddled with large debt finance costs, and will therefore be able to use its $14m cash pile to leverage the Chelyabinsk copper-gold project in Russia, acquired in January 2005.
Chelyabinsk is at an earlier stage than Shorskoye, but with a new resource estimate of 1.66m tonnes of copper and 2.8m ounces of gold verified by independent industry consultant Snowden, it's showing real potential. A scoping study is to start in the next few weeks.
But the shares haven't performed well this year as Mr Bartley has spent most of his time abroad, unable to reassure markets spooked by Eureka's association with Celtic Resources. There have also been stories circulating in the press - vehemently denied by Eureka - that the
Chelyabinsk licence isn't secure. That sort of story is all in the nature of doing business in Russia, though, and with big-hitters such as Gerard Holden of Barclays and Joe Nally of Cenkos behind it, Eureka stands as good a chance as any of weathering the storm. Ambrian sets a target price of 175p. BUY

Net cash: $14m
Market makers: 6
Normal market size: 2,000

BULL POINTS
Full-scale molybdenum production is imminent
Attractive assets
Well-funded and backed