Is Sabina Gold & Silver (TSE:SBB) Weighed On By Its Debt Load?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Sabina Gold & Silver Corp. (TSE:SBB) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Sabina Gold & Silver

What Is Sabina Gold & Silver's Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Sabina Gold & Silver had debt of CA$39.1m, up from none in one year. However, its balance sheet shows it holds CA$42.4m in cash, so it actually has CA$3.37m net cash.

How Strong Is Sabina Gold & Silver's Balance Sheet?

We can see from the most recent balance sheet that Sabina Gold & Silver had liabilities of CA$44.8m falling due within a year, and liabilities of CA$53.0m due beyond that. On the other hand, it had cash of CA$42.4m and CA$1.03m worth of receivables due within a year. So its liabilities total CA$54.4m more than the combination of its cash and short-term receivables.

Since publicly traded Sabina Gold & Silver shares are worth a total of CA$498.7m, 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. While it does have liabilities worth noting, Sabina Gold & Silver 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 ultimately the future profitability of the business will decide if Sabina Gold & Silver can strengthen its balance sheet over time. 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 Sabina Gold & Silver finds some valuable resources, before it runs out of money.

So How Risky Is Sabina Gold & Silver?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Sabina Gold & Silver lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$75m of cash and made a loss of CA$6.6m. Given it only has net cash of CA$3.37m, the company may need to raise more capital if it doesn't reach break-even soon. 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. Be aware that Sabina Gold & Silver is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

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.