Sociedad Punta del Cobre (SNSE:PUCOBRE) Seems To Use Debt Quite Sensibly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that Sociedad Punta del Cobre S.A. (SNSE:PUCOBRE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Sociedad Punta del Cobre's Net Debt?

As you can see below, Sociedad Punta del Cobre had US$48.0m of debt at June 2025, down from US$62.4m a year prior. However, it does have US$46.6m in cash offsetting this, leading to net debt of about US$1.47m.

A Look At Sociedad Punta del Cobre's Liabilities

The latest balance sheet data shows that Sociedad Punta del Cobre had liabilities of US$160.1m due within a year, and liabilities of US$232.3m falling due after that. Offsetting these obligations, it had cash of US$46.6m as well as receivables valued at US$75.2m due within 12 months. So its liabilities total US$270.7m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Sociedad Punta del Cobre is worth US$859.3m, 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. But either way, Sociedad Punta del Cobre has virtually no net debt, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Sociedad Punta del Cobre

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

With debt at a measly 0.008 times EBITDA and EBIT covering interest a whopping 36.0 times, it's clear that Sociedad Punta del Cobre is not a desperate borrower. So relative to past earnings, the debt load seems trivial. Even more impressive was the fact that Sociedad Punta del Cobre grew its EBIT by 103% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Sociedad Punta del Cobre will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. During the last three years, Sociedad Punta del Cobre burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Our View

Based on what we've seen Sociedad Punta del Cobre is not finding it easy, given its conversion of EBIT to free cash flow, but the other factors we considered give us cause to be optimistic. There's no doubt that its ability to to cover its interest expense with its EBIT is pretty flash. When we consider all the elements mentioned above, it seems to us that Sociedad Punta del Cobre is managing its debt quite well. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. 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. For example, we've discovered 4 warning signs for Sociedad Punta del Cobre (2 make us uncomfortable!) that you should be aware of before investing here.

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.

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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.