Companies Like Laurion Mineral Exploration (CVE:LME) Can Afford To Invest In Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Laurion Mineral Exploration

How Long Is Laurion Mineral Exploration's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In June 2023, Laurion Mineral Exploration had CA$7.3m in cash, and was debt-free. In the last year, its cash burn was CA$2.1m. So it had a cash runway of about 3.5 years from June 2023. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.

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. Notably, its cash burn was actually down by 56% in the last year, which is a real positive in terms of resilience, but uninspiring when it comes to investment for growth. Laurion Mineral Exploration makes us a little nervous due to its lack of substantial operating revenue. 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 we're comforted by the recent reduction evident from our analysis of Laurion Mineral Exploration's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Laurion Mineral Exploration's cash burn of CA$2.1m is about 1.8% of its CA$114m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Laurion Mineral Exploration's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Laurion Mineral Exploration is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. But it's fair to say that its cash burn reduction was also very reassuring. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Laurion Mineral Exploration (of which 2 are a bit concerning!) you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.