- Metals and Mining
Companies Like Laurion Mineral Exploration (CVE:LME) Are In A Position To Invest In Growth
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 Laurion Mineral Exploration (CVE:LME) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
Check out our latest analysis for Laurion Mineral Exploration
How Long Is Laurion Mineral Exploration's Cash Runway?
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. When Laurion Mineral Exploration last reported its balance sheet in September 2022, it had zero debt and cash worth CA$7.6m. Looking at the last year, the company burnt through CA$4.6m. So it had a cash runway of approximately 20 months from September 2022. 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. Depicted below, you can see how its cash holdings have changed over time.
How Is Laurion Mineral Exploration's Cash Burn Changing Over Time?
Because Laurion Mineral Exploration isn't currently generating revenue, we consider it an early-stage 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. Over the last year its cash burn actually increased by 30%, which suggests that management are increasing investment in future growth, but not too quickly. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. Admittedly, we're a bit cautious of Laurion Mineral Exploration due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How Easily Can Laurion Mineral Exploration Raise Cash?
While Laurion Mineral Exploration 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Laurion Mineral Exploration's cash burn of CA$4.6m is about 4.3% of its CA$109m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
Is Laurion Mineral Exploration's Cash Burn A Worry?
On this analysis of Laurion Mineral Exploration'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. 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 4 warning signs for Laurion Mineral Exploration (of which 2 are a bit unpleasant!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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Laurion Mineral Exploration
Laurion Mineral Exploration Inc. engages in the acquisition, exploration, and development of gold properties in Canada.
Flawless balance sheet with weak fundamentals.