Here's Why Coeur Mining (NYSE:CDE) Can Afford Some Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Coeur Mining, Inc. (NYSE:CDE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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.

Check out our latest analysis for Coeur Mining

What Is Coeur Mining's Debt?

As you can see below, at the end of March 2024, Coeur Mining had US$514.5m of debt, up from US$429.4m a year ago. Click the image for more detail. On the flip side, it has US$67.5m in cash leading to net debt of about US$447.0m.

How Healthy Is Coeur Mining's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Coeur Mining had liabilities of US$286.2m due within 12 months and liabilities of US$815.8m due beyond that. Offsetting these obligations, it had cash of US$67.5m as well as receivables valued at US$36.5m due within 12 months. So its liabilities total US$998.0m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Coeur Mining has a market capitalization of US$2.40b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Coeur Mining 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 Coeur Mining wasn't profitable at an EBIT level, but managed to grow its revenue by 8.0%, to US$847m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Coeur Mining had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$26m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$246m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Coeur 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com