We Think SSR Mining (TSE:SSRM) Can Manage Its Debt With Ease

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that SSR Mining Inc. (TSE:SSRM) does use debt in its business. But should shareholders be worried about its use of debt?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SSR Mining

How Much Debt Does SSR Mining Carry?

As you can see below, SSR Mining had US$349.5m of debt at March 2022, down from US$375.0m a year prior. But it also has US$1.03b in cash to offset that, meaning it has US$683.8m net cash.

How Healthy Is SSR Mining's Balance Sheet?

We can see from the most recent balance sheet that SSR Mining had liabilities of US$278.5m falling due within a year, and liabilities of US$848.1m due beyond that. On the other hand, it had cash of US$1.03b and US$132.7m worth of receivables due within a year. So it can boast US$39.3m more liquid assets than total liabilities.

Having regard to SSR Mining's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$4.45b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that SSR Mining has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, SSR Mining grew its EBIT by 32% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine SSR Mining's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. SSR Mining may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, SSR Mining produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that SSR Mining has net cash of US$683.8m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 32% over the last year. So we don't think SSR Mining's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that SSR Mining is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

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.