Is K92 Mining (TSE:KNT) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 K92 Mining Inc. (TSE:KNT) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is K92 Mining's Debt?

As you can see below, at the end of March 2025, K92 Mining had US$59.1m of debt, up from none a year ago. Click the image for more detail. However, it does have US$182.1m in cash offsetting this, leading to net cash of US$123.0m.

How Healthy Is K92 Mining's Balance Sheet?

The latest balance sheet data shows that K92 Mining had liabilities of US$94.9m due within a year, and liabilities of US$75.1m falling due after that. On the other hand, it had cash of US$182.1m and US$55.6m worth of receivables due within a year. So it can boast US$67.6m more liquid assets than total liabilities.

This surplus suggests that K92 Mining has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, K92 Mining boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for K92 Mining

Better yet, K92 Mining grew its EBIT by 378% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if K92 Mining can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While K92 Mining has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, K92 Mining reported free cash flow worth 2.3% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case K92 Mining has US$123.0m in net cash and a decent-looking balance sheet. And we liked the look of last year's 378% year-on-year EBIT growth. So is K92 Mining's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for K92 Mining (of which 1 is significant!) 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.