These 4 Measures Indicate That China Nonferrous Mining (HKG:1258) Is Using Debt Safely

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.' 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 China Nonferrous Mining Corporation Limited (HKG:1258) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is China Nonferrous Mining's Net Debt?

You can click the graphic below for the historical numbers, but it shows that China Nonferrous Mining had US$9.84m of debt in June 2025, down from US$160.7m, one year before. However, its balance sheet shows it holds US$1.35b in cash, so it actually has US$1.34b net cash.

How Healthy Is China Nonferrous Mining's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that China Nonferrous Mining had liabilities of US$1.18b due within 12 months and liabilities of US$272.4m due beyond that. Offsetting this, it had US$1.35b in cash and US$500.9m in receivables that were due within 12 months. So it actually has US$406.3m more liquid assets than total liabilities.

This surplus suggests that China Nonferrous Mining has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that China Nonferrous Mining has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for China Nonferrous Mining

Also positive, China Nonferrous Mining grew its EBIT by 26% in the last year, and that should make it easier to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine China Nonferrous Mining'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. China Nonferrous Mining may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, China Nonferrous Mining generated free cash flow amounting to a very robust 92% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that China Nonferrous Mining has net cash of US$1.34b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$655m, being 92% of its EBIT. So we don't think China Nonferrous Mining's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with China Nonferrous Mining , and understanding them should be part of your investment process.

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.