RTG Mining: An Analysis of Cash Burn and Its Implications

Investors can make profits even from loss-making ventures if they invest in a good company at the right time. This is exemplified by Amazon.com, which incurred losses for years after its IPO but brought tremendous gains to long-term investors. However, there is a risk that many loss-making companies might burn through all their resources and go bankrupt. For the shareholders of RTG Mining, the question arises whether the company’s current cash burn rate is a cause for concern. Cash burn is defined as the annual negative free cash flow, i.e., the money a company spends each year to finance its growth. We begin by comparing RTG Mining’s cash burn with its reserves and then calculate its cash runway. A company’s cash runway is determined by dividing its cash reserves by the cash burn. As of June 2024, RTG Mining had $2.9 million in cash and was debt-free. Last year, the company burned $4.9 million. This means it had a cash runway of around seven months from June 2024. This short runway indicates that the company either needs to reduce its cash burn or increase its cash reserves. Although RTG Mining recorded statutory revenue of $19,000 last year, it did not generate any operating income. Therefore, the company is considered pre-revenue, and our growth analysis focuses primarily on the cash burn. The cash burn increased by 34% last year, indicating that the management is investing more heavily in future growth, albeit not too rapidly. However, the actual cash runway will be shorter if the spending trend continues. Admittedly, we are somewhat cautious about RTG Mining due to the lack of significant operating revenues. Given that the cash burn is heading in the wrong direction, RTG Mining shareholders should consider when the company might need to raise additional capital. Companies can raise capital either through debt or equity. A benefit of being publicly traded is the ability to sell shares to investors to raise funds and finance growth. By comparing the annual cash burn with a company’s total market capitalization, one can roughly estimate how many shares would need to be issued to sustain the same burn rate for another year. RTG Mining has a market capitalization of $33 million and burned $4.9 million last year, which equates to 15% of the company’s market value. In light of this situation, it’s fair to say that the company would not face significant difficulties raising additional capital for growth, but shareholders would experience some dilution. Although the cash runway makes us somewhat nervous, we would like to point out that we found RTG Mining’s cash burn relative to its market capitalization to be relatively promising. In summary, we believe that RTG Mining’s cash burn represents a risk due to the factors mentioned. Additionally, we have examined various risks and identified five warning signs for RTG Mining, three of which seem particularly concerning. If you prefer a company with better fundamentals, do not miss this free list of interesting companies with high capital returns and low debt, or this list of stocks that are all expected to grow.