G Mining Ventures (TSE:GMIN) Is Making Moderate Use Of 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies G Mining Ventures Corp. (TSE:GMIN) makes use of debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for G Mining Ventures

What Is G Mining Ventures's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 G Mining Ventures had US$109.8m of debt, an increase on US$21.0m, over one year. However, it does have US$13.3m in cash offsetting this, leading to net debt of about US$96.5m.

How Strong Is G Mining Ventures' Balance Sheet?

The latest balance sheet data shows that G Mining Ventures had liabilities of US$92.8m due within a year, and liabilities of US$323.2m falling due after that. On the other hand, it had cash of US$13.3m and US$2.56m worth of receivables due within a year. So it has liabilities totalling US$400.2m more than its cash and near-term receivables, combined.

G Mining Ventures has a market capitalization of US$1.92b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine G Mining Ventures's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

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

Caveat Emptor

Importantly, G Mining Ventures had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$8.2m. 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. Another cause for caution is that is bled US$217m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for G Mining Ventures (of which 2 can't be ignored!) you should know about.

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.