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Highlights
Besra Gold (ASX:BEZ) has a 2.7-year cash runway with US$20 million cash and a $7.4 million annual burn rate as of March 2024.
Besra Gold increased its cash burn by 108% over the past year, reflecting aggressive spending as an early-stage business.
With a cash burn representing 36% of its market capitalization, Besra Gold faces potential dilution if it needs to raise funds through share issuance.
Just because a business isn't currently making a profit doesn't mean its stock will decline. Biotech and mining exploration companies often operate at a loss for years before achieving success with a new treatment or mineral discovery. While history celebrates these rare triumphs, the failures are often forgotten, like Pets.com.
Given this context, let's examine whether Besra Gold (ASX:BEZ) shareholders should be concerned about its cash burn. Cash burn refers to the annual rate at which an unprofitable company spends cash to fund its growth. We'll start by comparing Besra Gold's cash burn to its cash reserves to determine its cash runway.
Does Besra Gold Have a Sufficient Cash Runway?
A company's cash runway is the length of time it can continue to operate at its current cash burn rate before exhausting its cash reserves. As of March 2024, Besra Gold had US$20 million in cash and no debt. Over the past year, its cash burn was US$7.4 million. Therefore, as of March 2024, it had a cash runway of approximately 2.7 years, giving the company a reasonable amount of time to develop its business.
How is Besra Gold's Cash Burn Changing Over Time?
Since Besra Gold isn't generating revenue yet, it’s considered an early-stage business. We can look at how its cash burn is evolving to understand its spending trends. Over the last year, Besra Gold significantly increased its cash burn by 108%. This rapid increase in spending is unsustainable in the long term without putting pressure on the balance sheet. This concern is heightened by Besra Gold's lack of significant operating revenues.
Can Besra Gold Raise More Cash for Growth?
Given its current cash burn rate, Besra Gold's shareholders might wonder how easily the company could raise additional funds, despite its solid cash runway. Companies can raise capital through debt or equity, and many opt to issue new shares to finance future growth. By comparing a company's annual cash burn to its total market capitalization, we can estimate the potential impact of issuing new shares.
Besra Gold's annual cash burn of US$7.4 million is about 36% of its US$20 million market capitalization. This significant cash burn means that if Besra Gold had to issue shares to fund another year of operations, shareholders could face considerable dilution.
