Here's Why We're Not Too Worried About King Copper Discovery's (CVE:KCP) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. For example, King Copper Discovery (CVE:KCP) shareholders have done very well over the last year, with the share price soaring by 133%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given its strong share price performance, we think it's worthwhile for King Copper Discovery shareholders to consider whether its cash burn is concerning. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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When Might King Copper Discovery Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at March 2025, King Copper Discovery had cash of CA$2.9m and no debt. Looking at the last year, the company burnt through CA$2.5m. That means it had a cash runway of around 14 months as of March 2025. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

View our latest analysis for King Copper Discovery

How Is King Copper Discovery's Cash Burn Changing Over Time?

King Copper Discovery 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. Even though it doesn't get us excited, the 44% reduction in cash burn year on year does suggest the company can continue operating for quite some time. Admittedly, we're a bit cautious of King Copper Discovery 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 King Copper Discovery Raise More Cash Easily?

While King Copper Discovery 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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of CA$46m, King Copper Discovery's CA$2.5m in cash burn equates to about 5.5% of its 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.

Is King Copper Discovery's Cash Burn A Worry?

The good news is that in our view King Copper Discovery's cash burn situation gives shareholders real reason for optimism. One the one hand we have its solid cash burn reduction, while on the other it can also boast very strong cash burn relative to its market cap. 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. Taking a deeper dive, we've spotted 5 warning signs for King Copper Discovery you should be aware of, and 3 of them make us uncomfortable.

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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.