Osisko Mining (TSE:OSK) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Osisko Mining Inc. (TSE:OSK) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Osisko Mining

What Is Osisko Mining's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Osisko Mining had CA$93.4m of debt, an increase on none, over one year. However, it does have CA$174.8m in cash offsetting this, leading to net cash of CA$81.4m.

How Healthy Is Osisko Mining's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Osisko Mining had liabilities of CA$28.0m due within 12 months and liabilities of CA$228.6m due beyond that. Offsetting these obligations, it had cash of CA$174.8m as well as receivables valued at CA$37.3m due within 12 months. So its liabilities total CA$44.5m more than the combination of its cash and short-term receivables.

Given Osisko Mining has a market capitalization of CA$903.3m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 it is future earnings, more than anything, that will determine Osisko Mining'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.

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?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$142m of cash and made a loss of CA$10m. However, it has net cash of CA$81.4m, 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. 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. For example, we've discovered 3 warning signs for Osisko Mining (2 can't be ignored!) 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.