Is Norsemont Mining (CSE:NOM) In A Good Position To Deliver On Growth Plans?

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Norsemont Mining (CSE:NOM) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Norsemont Mining

How Long Is Norsemont Mining's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In September 2021, Norsemont Mining had CA$3.6m in cash, and was debt-free. In the last year, its cash burn was CA$5.2m. Therefore, from September 2021 it had roughly 8 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.

How Is Norsemont Mining's Cash Burn Changing Over Time?

Because Norsemont Mining isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. As it happens, the company's cash burn reduced by 29% over the last year, which suggests that management are mindful of the possibility of running out of cash. Admittedly, we're a bit cautious of Norsemont Mining due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Norsemont Mining Raise More Cash Easily?

While Norsemont Mining is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Norsemont Mining has a market capitalisation of CA$42m and burnt through CA$5.2m last year, which is 13% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Norsemont Mining's Cash Burn?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Norsemont Mining's cash burn relative to its market cap was relatively promising. Summing up, we think the Norsemont Mining's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 6 warning signs for Norsemont Mining you should be aware of, and 3 of them shouldn't be ignored.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.