We're Hopeful That NorthIsle Copper and Gold (CVE:NCX) Will Use Its Cash Wisely

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, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether NorthIsle Copper and Gold (CVE:NCX) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for NorthIsle Copper and Gold

Does NorthIsle Copper and Gold Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2021, NorthIsle Copper and Gold had CA$7.2m in cash, and was debt-free. Looking at the last year, the company burnt through CA$3.0m. So it had a cash runway of about 2.4 years from June 2021. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.

How Is NorthIsle Copper and Gold's Cash Burn Changing Over Time?

Whilst it's great to see that NorthIsle Copper and Gold has already begun generating revenue from operations, last year it only produced CA$13k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Remarkably, it actually increased its cash burn by 1,021% in the last year. With that kind of spending growth its cash runway will shorten quickly, as it simultaneously uses its cash while increasing the burn rate. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For NorthIsle Copper and Gold To Raise More Cash For Growth?

Given its cash burn trajectory, NorthIsle Copper and Gold shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

NorthIsle Copper and Gold's cash burn of CA$3.0m is about 10% of its CA$30m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

How Risky Is NorthIsle Copper and Gold's Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought NorthIsle Copper and Gold's cash runway was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about NorthIsle Copper and Gold's situation. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for NorthIsle Copper and Gold (2 are a bit concerning!) that you should be aware of before investing here.

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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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.
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