Is Osisko Mining (TSE:OSK) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Osisko Mining Inc. (TSE:OSK) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Osisko Mining

How Much Debt Does Osisko Mining Carry?

As you can see below, at the end of December 2021, Osisko Mining had CA$132.7m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has CA$233.6m in cash, leading to a CA$100.9m net cash position.

A Look At Osisko Mining's Liabilities

The latest balance sheet data shows that Osisko Mining had liabilities of CA$26.8m due within a year, and liabilities of CA$256.6m falling due after that. Offsetting this, it had CA$233.6m in cash and CA$33.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$16.5m.

Having regard to Osisko Mining's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$1.57b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Osisko Mining boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Osisko Mining can strengthen its balance sheet over time. 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 Osisko Mining finds some valuable resources, before it runs out of money.

So How Risky Is Osisko Mining?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Osisko Mining had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$182m of cash and made a loss of CA$23m. However, it has net cash of CA$100.9m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 Osisko Mining has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.