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 can see that Northern Dynasty Minerals Ltd. (TSE:NDM) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Northern Dynasty Minerals's Debt?
As you can see below, at the end of March 2025, Northern Dynasty Minerals had CA$2.85m of debt, up from CA$2.32m a year ago. Click the image for more detail. However, its balance sheet shows it holds CA$11.8m in cash, so it actually has CA$8.96m net cash.
How Strong Is Northern Dynasty Minerals' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Northern Dynasty Minerals had liabilities of CA$75.2m due within 12 months and liabilities of CA$507.0k due beyond that. On the other hand, it had cash of CA$11.8m and CA$183.0k worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$63.7m.
Since publicly traded Northern Dynasty Minerals shares are worth a total of CA$748.8m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Northern Dynasty Minerals also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Northern Dynasty Minerals's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Check out our latest analysis for Northern Dynasty Minerals
Since Northern Dynasty Minerals has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.
So How Risky Is Northern Dynasty Minerals?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Northern Dynasty Minerals lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$19m and booked a CA$71m accounting loss. With only CA$8.96m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For instance, we've identified 4 warning signs for Northern Dynasty Minerals (3 are significant) you should be aware of.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
Valuation is complex, but we're here to simplify it.
Discover if Northern Dynasty Minerals might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
About TSX:NDM
Northern Dynasty Minerals
Engages in the exploration of mineral properties in the United States.
Slight with imperfect balance sheet.
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