Seabridge Gold (TSE:SEA) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Seabridge Gold Inc. (TSE:SEA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Seabridge Gold

How Much Debt Does Seabridge Gold Carry?

The image below, which you can click on for greater detail, shows that at December 2022 Seabridge Gold had debt of CA$263.5m, up from none in one year. On the flip side, it has CA$131.5m in cash leading to net debt of about CA$132.0m.

How Healthy Is Seabridge Gold's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Seabridge Gold had liabilities of CA$52.0m due within 12 months and liabilities of CA$303.1m due beyond that. Offsetting these obligations, it had cash of CA$131.5m as well as receivables valued at CA$8.85m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$214.7m.

Since publicly traded Seabridge Gold shares are worth a total of CA$1.42b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Seabridge Gold'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 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$191m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Seabridge Gold (of which 2 can't be ignored!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.