Is Norsemont Mining (CSE:NOM) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that Norsemont Mining Inc. (CSE:NOM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Norsemont Mining's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Norsemont Mining had debt of CA$2.96m, up from CA$1.28m in one year. However, because it has a cash reserve of CA$655.0k, its net debt is less, at about CA$2.31m.

How Healthy Is Norsemont Mining's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Norsemont Mining had liabilities of CA$2.71m due within 12 months and liabilities of CA$2.71m due beyond that. On the other hand, it had cash of CA$655.0k and CA$5.6k worth of receivables due within a year. So its liabilities total CA$4.76m more than the combination of its cash and short-term receivables.

Of course, Norsemont Mining has a market capitalization of CA$44.8m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But it is Norsemont Mining's earnings that will influence how the balance sheet holds up in the future. 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.

See our latest analysis for Norsemont Mining

Given its lack of meaningful operating revenue, investors are probably hoping that Norsemont Mining finds some valuable resources, before it runs out of money.

Caveat Emptor

Importantly, Norsemont Mining had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$1.7m. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$2.3m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example, we've discovered 5 warning signs for Norsemont Mining (2 don't sit too well with us!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.