Stock Analysis

We're Hopeful That Barsele Minerals (CVE:BME) Will Use Its Cash Wisely

Published
TSXV:BME
Source: Shutterstock

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 Barsele Minerals (CVE:BME) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Barsele Minerals

How Long Is Barsele Minerals' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2022, Barsele Minerals had CA$1.7m in cash, and was debt-free. Importantly, its cash burn was CA$1.7m over the trailing twelve months. So it had a cash runway of approximately 12 months from September 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
TSXV:BME Debt to Equity History March 14th 2023

How Is Barsele Minerals' Cash Burn Changing Over Time?

Barsele Minerals didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. It's possible that the 2.7% reduction in cash burn over the last year is evidence of management tightening their belts as cash reserves deplete. Admittedly, we're a bit cautious of Barsele Minerals 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 Barsele Minerals Raise More Cash Easily?

While Barsele Minerals 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.

Barsele Minerals has a market capitalisation of CA$52m and burnt through CA$1.7m last year, which is 3.2% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

How Risky Is Barsele Minerals' Cash Burn Situation?

On this analysis of Barsele Minerals' cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Barsele Minerals (of which 2 can't be ignored!) you should know about.

Of course Barsele Minerals 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.

Valuation is complex, but we're helping make it simple.

Find out whether Barsele Minerals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis