Is Austral Gold (ASX:AGD) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Austral Gold Limited (ASX:AGD) does use debt in its business. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Austral Gold's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Austral Gold had US$27.9m of debt, an increase on US$18.3m, over one year. However, because it has a cash reserve of US$5.93m, its net debt is less, at about US$21.9m.

A Look At Austral Gold's Liabilities

According to the last reported balance sheet, Austral Gold had liabilities of US$30.1m due within 12 months, and liabilities of US$30.0m due beyond 12 months. Offsetting these obligations, it had cash of US$5.93m as well as receivables valued at US$3.93m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$50.2m.

This is a mountain of leverage relative to its market capitalization of US$53.7m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Austral Gold will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Austral Gold

In the last year Austral Gold had a loss before interest and tax, and actually shrunk its revenue by 5.8%, to US$36m. That's not what we would hope to see.

Caveat Emptor

Importantly, Austral Gold had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$7.3m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$8.6m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Austral Gold is showing 4 warning signs in our investment analysis , and 3 of those shouldn't be ignored...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.