Yahoo Finance International Tower Hill Mines (TSE:ITH) Is In A Good Position To Deliver On Growth Plans
We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether International Tower Hill Mines (TSE:ITH) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for International Tower Hill Mines
How Long Is International Tower Hill Mines' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2022, International Tower Hill Mines had cash of US$5.5m and no debt. Looking at the last year, the company burnt through US$3.7m. Therefore, from September 2022 it had roughly 18 months of cash runway. 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. Depicted below, you can see how its cash holdings have changed over time.
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. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 38% over the last year suggests some degree of prudence. 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 is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).
International Tower Hill Mines' cash burn of US$3.7m is about 3.5% of its US$105m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
Is International Tower Hill Mines' Cash Burn A Worry?
International Tower Hill Mines appears to be in pretty good health when it comes to its cash burn situation. One the one hand we have its solid cash burn reduction, while on the other it can also boast very strong cash burn relative to its market cap. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking a deeper dive, we've spotted 2 warning signs for International Tower Hill Mines you should be aware of, and 1 of them is significant.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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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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