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Duketon Mining Limited (ASX:DKM) continues its loss-making streak, announcing negative earnings for its latest financial year ending. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. Selling new shares may dilute the value of existing shares on issue, and since Duketon Mining is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Duketon Mining may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question.
Check out our latest analysis for Duketon Mining
What is cash burn?
Currently, Duketon Mining has AU$3.3m in cash holdings and producing negative free cash flow of -AU$3.0m. The biggest threat facing Duketon Mining investors is the company going out of business when it runs out of money and cannot raise any more capital. Furthermore, it is not uncommon to find loss-makers in an industry such as metals and mining. The activities of these companies tend to be project-driven, which generates lumpy cash flows, meaning the business can be loss-making for a period of time while it invests heavily in a new project.
When will Duketon Mining need to raise more cash?
We can measure Duketon Mining's ongoing cash expenditure requirements by looking at free cash flow, which I define as cash flow from operations minus fixed capital investment, is a measure of how much cash a company generates/loses each year.
Free cash outflows declined by 8.0% over the past year, which could be an indication of Duketon Mining putting the brakes on ramping up high growth. Though, if the company kept its cash burn level at -AU$3.0m, it may not need to raise capital for another 1.1 years. Even though this is analysis is fairly basic, and Duketon Mining still can cut its overhead further, or open a new line of credit instead of issuing new shares, the outcome of this analysis still helps us understand how sustainable the Duketon Mining operation is, and when things may have to change.
Next Steps:
Loss-making companies are a risky play, even those that are reducing their cash burn over time. Though, this shouldn’t discourage you from considering entering the stock in the future. The cash burn analysis result indicates a cash constraint for the company, due to its current level of cash reserves. This may lead to share price pressure in the near term, should Duketon Mining be forced to raise capital to fund its growth. This is only a rough assessment of financial health, and DKM likely also has company-specific issues impacting its cash management decisions. I recommend you continue to research Duketon Mining to get a more holistic view of the company by looking at: