Does Seabridge Gold (TSE:SEA) Have A Healthy Balance Sheet?

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. As with many other companies Seabridge Gold Inc. (TSE:SEA) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Seabridge Gold

What Is Seabridge Gold's Debt?

The image below, which you can click on for greater detail, shows that at June 2023 Seabridge Gold had debt of CA$456.3m, up from CA$234.3m in one year. However, it does have CA$206.2m in cash offsetting this, leading to net debt of about CA$250.1m.

A Look At Seabridge Gold's Liabilities

We can see from the most recent balance sheet that Seabridge Gold had liabilities of CA$69.8m falling due within a year, and liabilities of CA$494.2m due beyond that. Offsetting these obligations, it had cash of CA$206.2m as well as receivables valued at CA$5.03m due within 12 months. So it has liabilities totalling CA$352.8m more than its cash and near-term receivables, combined.

Seabridge Gold has a market capitalization of CA$1.24b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Seabridge Gold 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 Seabridge Gold finds some valuable resources, before it runs out of money.

Caveat Emptor

Over the last twelve months Seabridge Gold produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CA$23m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CA$251m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Seabridge Gold (of which 3 don't sit too well with us!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.