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Hycroft Mining Holding (NASDAQ:HYMC) Has Debt But No Earnings; Should You Worry?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Hycroft Mining Holding Corporation (NASDAQ:HYMC) does carry debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out the opportunities and risks within the US Metals and Mining industry.
What Is Hycroft Mining Holding's Net Debt?
The image below, which you can click on for greater detail, shows that Hycroft Mining Holding had debt of US$144.8m at the end of September 2022, a reduction from US$158.9m over a year. However, it does have US$153.6m in cash offsetting this, leading to net cash of US$8.76m.
How Healthy Is Hycroft Mining Holding's Balance Sheet?
We can see from the most recent balance sheet that Hycroft Mining Holding had liabilities of US$17.4m falling due within a year, and liabilities of US$179.0m due beyond that. Offsetting this, it had US$153.6m in cash and US$2.80m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$39.9m.
While this might seem like a lot, it is not so bad since Hycroft Mining Holding has a market capitalization of US$115.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Hycroft Mining Holding also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Hycroft Mining Holding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Hycroft Mining Holding had a loss before interest and tax, and actually shrunk its revenue by 55%, to US$46m. That makes us nervous, to say the least.
So How Risky Is Hycroft Mining Holding?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Hycroft Mining Holding had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$31m of cash and made a loss of US$94m. With only US$8.76m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Case in point: We've spotted 3 warning signs for Hycroft Mining Holding you should be aware of, and 1 of them is a bit unpleasant.
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.
About NasdaqCM:HYMC
Hycroft Mining Holding
Operates as a gold and silver development company in the United States.
Slight with imperfect balance sheet.