Does Bear Creek Mining (CVE:BCM) Have A Healthy Balance Sheet?

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 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. Importantly, Bear Creek Mining Corporation (CVE:BCM) does carry debt. 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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Bear Creek Mining

How Much Debt Does Bear Creek Mining Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Bear Creek Mining had US$39.8m of debt, an increase on none, over one year. However, because it has a cash reserve of US$9.63m, its net debt is less, at about US$30.2m.

How Strong Is Bear Creek Mining's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bear Creek Mining had liabilities of US$79.5m due within 12 months and liabilities of US$75.8m due beyond that. On the other hand, it had cash of US$9.63m and US$7.00m worth of receivables due within a year. So it has liabilities totalling US$138.6m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of US$100.4m, we think shareholders really should watch Bear Creek Mining's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. 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 Bear Creek 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.

While it hasn't made a profit, at least Bear Creek Mining booked its first revenue as a publicly listed company, in the last twelve months.

Caveat Emptor

Importantly, Bear Creek Mining had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$16m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$24m over the last twelve months. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Bear Creek Mining 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.