Auditors Have Doubts About Mako Mining (CVE:MKO)

The harsh reality for Mako Mining Corp. (CVE:MKO) shareholders is that its auditors, PricewaterhouseCoopers LLP, expressed doubts about its ability to continue as a going concern, in its reported results to December 2020. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible.

Since the company probably needs cash fairly quickly, it may be in a position where it has to accept whatever terms it can get. So current risks on the balance sheet could have a big impact on how shareholders fare from here. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.

Check out our latest analysis for Mako Mining

What Is Mako Mining's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Mako Mining had US$15.2m of debt, an increase on none, over one year. However, it does have US$2.63m in cash offsetting this, leading to net debt of about US$12.5m.

How Healthy Is Mako Mining's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Mako Mining had liabilities of US$16.5m due within 12 months and liabilities of US$16.0m due beyond that. On the other hand, it had cash of US$2.63m and US$149.0k worth of receivables due within a year. So its liabilities total US$29.7m more than the combination of its cash and short-term receivables.

Since publicly traded Mako Mining shares are worth a total of US$192.6m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Mako Mining's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Mako Mining had a loss before interest and tax, and actually shrunk its revenue by 89%, to US$1.4m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Mako Mining's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost US$11m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$39m of cash over the last year. So suffice it to say we consider the stock very risky. We're too cautious to want to invest in a company after an auditor has expressed doubts about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 5 warning signs we've spotted with Mako Mining (including 3 which are potentially serious) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

If you're looking for stocks to buy, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.