Is Osisko Mining (TSE:OSK) Weighed On By Its Debt Load?

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.' 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. Importantly, Osisko Mining Inc. (TSE:OSK) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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.

Check out our latest analysis for Osisko Mining

How Much Debt Does Osisko Mining Carry?

As you can see below, at the end of September 2022, Osisko Mining had CA$95.7m of debt, up from none a year ago. Click the image for more detail. However, it does have CA$126.1m in cash offsetting this, leading to net cash of CA$30.4m.

A Look At Osisko Mining's Liabilities

The latest balance sheet data shows that Osisko Mining had liabilities of CA$28.2m due within a year, and liabilities of CA$230.2m falling due after that. On the other hand, it had cash of CA$126.1m and CA$38.6m worth of receivables due within a year. So it has liabilities totalling CA$93.7m more than its cash and near-term receivables, combined.

Since publicly traded Osisko Mining shares are worth a total of CA$1.15b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Osisko Mining boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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.

Since Osisko Mining has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

So How Risky Is Osisko Mining?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Osisko Mining had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CA$141m and booked a CA$8.7m accounting loss. But at least it has CA$30.4m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Osisko Mining you should be aware of, and 1 of them is a bit unpleasant.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.