Here's Why Critical Mineral Resources (LON:CMRS) Can Afford Some Debt

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.' 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. As with many other companies Critical Mineral Resources PLC (LON:CMRS) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Critical Mineral Resources Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Critical Mineral Resources had debt of UK£1.42m, up from none in one year. However, it does have UK£671.5k in cash offsetting this, leading to net debt of about UK£745.6k.

How Strong Is Critical Mineral Resources' Balance Sheet?

We can see from the most recent balance sheet that Critical Mineral Resources had liabilities of UK£1.57m falling due within a year, and liabilities of UK£26.1k due beyond that. On the other hand, it had cash of UK£671.5k and UK£98.2k worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£823.0k.

Since publicly traded Critical Mineral Resources shares are worth a total of UK£8.17m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Critical Mineral Resources's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Critical Mineral Resources

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

Caveat Emptor

Importantly, Critical Mineral Resources had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping UK£842k. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled UK£1.0m in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Critical Mineral Resources is showing 6 warning signs in our investment analysis , and 5 of those are concerning...

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.