Auditors Have Doubts About Vango Mining (ASX:VAN)

By
Simply Wall St
Published
October 05, 2019
ASX:VAN
Source: Shutterstock

The harsh reality for Vango Mining Limited (ASX:VAN) shareholders is that its auditors, Ernst & Young LLP, expressed doubts about its ability to continue as a going concern, in its reported results to June 2019. It is therefore fair to assume that, based on those financials, the company should strengthen its balance sheet in the short term, perhaps by issuing shares.

Since the company probably needs cash fairly quickly, it may be in a position where it has to accept whatever terms it can get. So shareholders should absolutely be taking a close look at how risky the balance sheet is. Debt is always a risk factor in these cases, as creditors could be in a position to wind up the company, in the worst case scenario.

See our latest analysis for Vango Mining

What Is Vango Mining's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2019 Vango Mining had debt of AU$15.6m, up from AU$10.5m in one year. However, it also had AU$1.49m in cash, and so its net debt is AU$14.1m.

ASX:VAN Historical Debt, October 5th 2019
ASX:VAN Historical Debt, October 5th 2019

How Healthy Is Vango Mining's Balance Sheet?

The latest balance sheet data shows that Vango Mining had liabilities of AU$19.1m due within a year, and liabilities of AU$6.49m falling due after that. Offsetting this, it had AU$1.49m in cash and AU$391.3k in receivables that were due within 12 months. So it has liabilities totalling AU$23.7m more than its cash and near-term receivables, combined.

Given Vango Mining has a market capitalization of AU$122.0m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Vango Mining's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Since Vango Mining has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

Caveat Emptor

Over the last twelve months Vango Mining produced an earnings before interest and tax (EBIT) loss. Indeed, it lost AU$6.3m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled AU$15m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. We prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. That's because we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. For riskier companies like Vango Mining I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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