Premier African Minerals reported no revenue compared to the previous year, indicating that it is an early stage company that is still developing its business.
Of course, we remain a little cautious with Premier African Minerals due to the lack of significant operating revenue. That’s why we’ll generally prioritize stocks from a list of stocks whose analysts have predicted growth.
Can Premier African Minerals Raise More Cash Easily?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Premier African Minerals to raise more cash in the future. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.
There is no doubt that owning shares of unprofitable businesses can make money. For example, Premier African Minerals (LON: PREM) has seen its share price increase by 184% over the past year, to the delight of many shareholders. However, only a fool would ignore the risk that a loss-making company burns through its cash very quickly.
So despite the stock’s buoyant price, we think it’s worth asking whether Premier African Minerals’ cash burn is too risky. 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. Let’s start with an examination of the business’s cash, relative to its cash burn.
See our latest analysis for Premier African Minerals
When can Premier African Minerals run out of money?
A company’s cash runway is calculated by dividing its cash hoard by its cash burn. Premier African Minerals has such low debt that we will put that aside, and focus on US$727k in cash held in December 2020. Importantly, its cash burn in the last twelve months was US$802k. This means it had about 11 months of cash runway as of December 2020. This is a fairly short cash runway, indicating that the company should either reduce its annual cash burn or replenish its cash. Shown below, you can see how its cash holdings have changed over time.
Is Premier African Minerals’ Cash Burn A Worry?
On this analysis of Premier African Minerals’ cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. 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 Premier African Minerals’ situation. On another note, Premier African Minerals has 4 warning signs (and 1 which is a bit concerning) we think you should know about.
“2018 was disappointing as many achievements were stalled and generally not within our control immediately due to circumstances. The full vision may have avoided some of these and subsequent events and decisions discussed in this report aimed at mitigation, treatment and redirection, aimed at Premier African Minerals Limited (“Premier” or “Company”) is to stabilize and revive again. The prospect of a restructuring of ownership in RHA Tungsten (Pty) Limited (“RHA”), born out of the promise of a new Zimbabwe, failed to materialize and was replaced by Zimbabwe’s National Indigenization and Economic Empowerment Fund (“NIEF”). offered to. At the end of 2018 that they will return RHA to production while retaining their ownership,” said George Roach.