These 4 Measures Indicate That Orezone Gold (TSE:ORE) Is Using Debt Reasonably Well

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Orezone Gold Corporation (TSE:ORE) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is Orezone Gold's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Orezone Gold had US$97.7m of debt, an increase on US$86.5m, over one year. However, its balance sheet shows it holds US$102.5m in cash, so it actually has US$4.86m net cash.

How Strong Is Orezone Gold's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Orezone Gold had liabilities of US$104.6m due within 12 months and liabilities of US$97.4m due beyond that. Offsetting these obligations, it had cash of US$102.5m as well as receivables valued at US$23.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$76.0m.

Of course, Orezone Gold has a market capitalization of US$464.8m, so these liabilities are probably manageable. 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, Orezone Gold also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Orezone Gold

On top of that, Orezone Gold grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Orezone Gold'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Orezone Gold 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, Orezone Gold recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While Orezone Gold does have more liabilities than liquid assets, it also has net cash of US$4.86m. And we liked the look of last year's 36% year-on-year EBIT growth. So we are not troubled with Orezone Gold's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Orezone Gold (1 is concerning!) that you should be aware of before investing here.

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.

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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.