Yahoo Finance Here's Why We're Not Too Worried About International Tower Hill Mines' (TSE:ITH) Cash Burn Situation
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. 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.
So should International Tower Hill Mines (TSE:ITH) 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.
Check out our latest analysis for International Tower Hill Mines
Does International Tower Hill Mines Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, International Tower Hill Mines had cash of US$3.6m and no debt. In the last year, its cash burn was US$3.0m. So it had a cash runway of approximately 14 months from March 2024. 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. You can see how its cash balance has changed over time in the image below.
How Is International Tower Hill Mines' Cash Burn Changing Over Time?
International Tower Hill Mines 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. Over the last year its cash burn actually increased by 18%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. International Tower Hill Mines makes us a little nervous due to its lack of substantial operating revenue. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.
How Hard Would It Be For International Tower Hill Mines To Raise More Cash For Growth?
While International Tower Hill Mines 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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).
Since it has a market capitalisation of US$104m, International Tower Hill Mines' US$3.0m in cash burn equates to about 2.9% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.
Is International Tower Hill Mines' Cash Burn A Worry?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought International Tower Hill Mines' cash burn relative to its market cap 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 International Tower Hill Mines' situation. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for International Tower Hill Mines (1 shouldn't be ignored!) that you should be aware of before investing here.
Of course International Tower Hill Mines may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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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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