Is Phoenix Copper (LON:PXC) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Phoenix Copper Limited (LON:PXC) does use debt in its business. But is this debt a concern to shareholders?

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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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Phoenix Copper's Net Debt?

The image below, which you can click on for greater detail, shows that Phoenix Copper had debt of US$5.40m at the end of June 2025, a reduction from US$6.82m over a year. However, it does have US$576.7k in cash offsetting this, leading to net debt of about US$4.83m.

A Look At Phoenix Copper's Liabilities

Zooming in on the latest balance sheet data, we can see that Phoenix Copper had liabilities of US$2.26m due within 12 months and liabilities of US$4.32m due beyond that. On the other hand, it had cash of US$576.7k and US$2.94m worth of receivables due within a year. So its liabilities total US$3.07m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Phoenix Copper is worth US$11.6m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Phoenix Copper can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Phoenix Copper

Given its lack of meaningful operating revenue, investors are probably hoping that Phoenix Copper finds some valuable resources, before it runs out of money.

Caveat Emptor

Over the last twelve months Phoenix Copper produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$1.2m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$3.3m of cash over the last year. So suffice it to say we consider the stock very risky. 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. Case in point: We've spotted 6 warning signs for Phoenix Copper you should be aware of, and 5 of them can't be ignored.

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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.