Is McEwen Mining (NYSE:MUX) Using Too Much Debt?

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. Importantly, McEwen Mining Inc. (NYSE:MUX) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for McEwen Mining

How Much Debt Does McEwen Mining Carry?

As you can see below, McEwen Mining had US$40.0m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$30.2m in cash leading to net debt of about US$9.77m.

How Healthy Is McEwen Mining's Balance Sheet?

The latest balance sheet data shows that McEwen Mining had liabilities of US$50.9m due within a year, and liabilities of US$114.8m falling due after that. On the other hand, it had cash of US$30.2m and US$2.10m worth of receivables due within a year. So its liabilities total US$133.4m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since McEwen Mining has a market capitalization of US$390.6m, 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if McEwen 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.

Over 12 months, McEwen Mining reported revenue of US$200m, which is a gain of 47%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, McEwen Mining still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$765k. 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. Surprisingly, we note that it actually reported positive free cash flow of US$8.6m and a profit of US$103m. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that McEwen Mining is showing 2 warning signs in our investment analysis , you should know about...

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.