Health Check: How Prudently Does G Mining Ventures (CVE:GMIN) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that G Mining Ventures Corp. (CVE:GMIN) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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, 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 G Mining Ventures

What Is G Mining Ventures's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 G Mining Ventures had US$21.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$137.6m in cash, so it actually has US$116.6m net cash.

How Strong Is G Mining Ventures' Balance Sheet?

We can see from the most recent balance sheet that G Mining Ventures had liabilities of US$32.8m falling due within a year, and liabilities of US$208.0m due beyond that. On the other hand, it had cash of US$137.6m and US$1.56m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$101.6m.

This deficit isn't so bad because G Mining Ventures is worth US$409.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, G Mining Ventures boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine G Mining Ventures'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.

Since G Mining Ventures has no significant operating revenue, shareholders probably hope it will develop a valuable new mine before too long.

So How Risky Is G Mining Ventures?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year G Mining Ventures had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$46m and booked a US$4.8m accounting loss. But at least it has US$116.6m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 1 warning sign for G Mining Ventures you should be aware of.

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.