Is Integra Resources (CVE:ITR) A Risky Investment?

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. We note that Integra Resources Corp. (CVE:ITR) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Integra Resources

What Is Integra Resources's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Integra Resources had US$9.84m of debt, an increase on US$8.58m, over one year. However, it does have US$14.9m in cash offsetting this, leading to net cash of US$5.07m.

How Healthy Is Integra Resources' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Integra Resources had liabilities of US$16.3m due within 12 months and liabilities of US$21.0m due beyond that. Offsetting this, it had US$14.9m in cash and US$167.9k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$22.2m.

While this might seem like a lot, it is not so bad since Integra Resources has a market capitalization of US$67.3m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Integra Resources boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Integra Resources will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

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

So How Risky Is Integra Resources?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Integra Resources had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$28m and booked a US$28m accounting loss. However, it has net cash of US$5.07m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Case in point: We've spotted 5 warning signs for Integra Resources you should be aware of, and 4 of them shouldn't be ignored.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.