Is Nordic Mining (OB:NOM) Using Debt 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.' 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 Nordic Mining ASA (OB:NOM) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Nordic Mining

How Much Debt Does Nordic Mining Carry?

The image below, which you can click on for greater detail, shows that at March 2023 Nordic Mining had debt of kr917.5m, up from kr138.0m in one year. But it also has kr956.8m in cash to offset that, meaning it has kr39.3m net cash.

How Healthy Is Nordic Mining's Balance Sheet?

The latest balance sheet data shows that Nordic Mining had liabilities of kr114.2m due within a year, and liabilities of kr919.3m falling due after that. Offsetting these obligations, it had cash of kr956.8m as well as receivables valued at kr17.2m due within 12 months. So its liabilities total kr59.5m more than the combination of its cash and short-term receivables.

Given Nordic Mining has a market capitalization of kr1.30b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Nordic Mining boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Nordic Mining'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.

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

So How Risky Is Nordic Mining?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Nordic Mining lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through kr358m of cash and made a loss of kr24m. Given it only has net cash of kr39.3m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example - Nordic Mining has 2 warning signs we think you should be aware of.

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.