Unfortunately for shareholders, when Metro Mining Limited (ASX:MMI) reported results for the period to December 2020, its auditors, Ernst & Young LLP, expressed uncertainty about whether it can continue as a going concern. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.
Given its situation, it may not be in a good position to raise capital on favorable terms. So shareholders should absolutely be taking a close look at how risky the balance sheet is. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.
Check out our latest analysis for Metro Mining
How Much Debt Does Metro Mining Carry?
As you can see below, Metro Mining had AU$37.1m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of AU$25.4m, its net debt is less, at about AU$11.6m.
A Look At Metro Mining's Liabilities
Zooming in on the latest balance sheet data, we can see that Metro Mining had liabilities of AU$37.7m due within 12 months and liabilities of AU$41.4m due beyond that. On the other hand, it had cash of AU$25.4m and AU$228.0k worth of receivables due within a year. So it has liabilities totalling AU$53.4m more than its cash and near-term receivables, combined.
This is a mountain of leverage relative to its market capitalization of AU$84.8m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Metro Mining can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Metro Mining made a loss at the EBIT level, and saw its revenue drop to AU$128m, which is a fall of 36%. To be frank that doesn't bode well.
Caveat Emptor
Not only did Metro Mining's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost AU$7.8m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through AU$2.7m of cash over the last year. So to be blunt we think it is risky. We prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Metro Mining you should be aware of, and 1 of them doesn't sit too well with us.
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. 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.
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About ASX:MMI
High growth potential and good value.
