KWG Resources Inc. (CSE: KWG) is involved in the exploration and evaluation of base metals and in the development of a transportation link to access the remote areas where these are located. It has interests in properties located in Canada.

Key Updates:

• Poor working capital management: The company is struggling to fund its short-term liability through its current assets and posted current ratio of 0.67x in FY21, as compared to the industry median of 2.52x. This remains a key concern, and continuation of the trend would likely to impact the company’s short-term liquidity.

• Negative Cash flows: In FY21, the company reported a higher cash used by operating activities of CAD 1.6 million, which is significantly higher than cash used of CAD 0.1 million in pcp. This is primarily due to a higher net loss during FY21.

• Increase in Accumulated deficit: The company is yet to report an income from its operation and hence, it has posted constant loss since its inception. Notably, in FY21, the company reported its accumulated deficit of CAD 73.8 million, which is higher than CAD 58.9 million in FY20. This is alarming from the operational point.
  

Stock Recommendation:

KWG is focusing on the possible exploration opportunity for chromium iron alloys metals and is conducting its operations across different parts of Canada and has not yet determined whether its exploration and evaluation projects contain mineral deposits that are economically recoverable. Moreover, the company is yet to report its revenue from its operations, and the exact time is unknown. The company’s operations s being funded by the equity component only and remains a key concern for the company during capital investment. Moreover, the KWG stock corrected ~31% in the last one month, which indicates strong selling pressure, Hence, considering the aforesaid facts, we give an “Avoid’ rating on the stock of KWG at the last closing price of CAD 0.055 on May 16, 2022.

One-Year Technical Price Chart (as of May 16, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV

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