- Metals and Mining
We're Hopeful That Black Rock Mining (ASX:BKT) Will Use Its Cash Wisely
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Black Rock Mining (ASX:BKT) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
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How Long Is Black Rock Mining's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2021, Black Rock Mining had AU$8.5m in cash, and was debt-free. Looking at the last year, the company burnt through AU$5.8m. Therefore, from December 2021 it had roughly 18 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.
How Is Black Rock Mining's Cash Burn Changing Over Time?
Black Rock Mining didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. During the last twelve months, its cash burn actually ramped up 94%. While this spending increase is no doubt intended to drive growth, if the trend continues the company's cash runway will shrink very quickly. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can Black Rock Mining Raise More Cash Easily?
While Black Rock Mining does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Black Rock Mining's cash burn of AU$5.8m is about 2.5% of its AU$236m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
So, Should We Worry About Black Rock Mining's Cash Burn?
On this analysis of Black Rock Mining's cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Black Rock Mining's situation. Taking a deeper dive, we've spotted 4 warning signs for Black Rock Mining you should be aware of, and 1 of them is significant.
Of course Black Rock Mining may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Black Rock Mining
Black Rock Mining Limited engages in the exploration and development of graphite projects in Tanzania.
Adequate balance sheet and overvalued.