SSR Mining (TSE:SSRM) Seems To Use Debt Quite Sensibly

Stock Analysis

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.' 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 can see that SSR Mining Inc. (TSE:SSRM) does use debt in its business. But is this debt a concern to shareholders?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for SSR Mining

You can click the graphic below for the historical numbers, but it shows that SSR Mining had US$262.5m of debt in June 2023, down from US$331.9m, one year before. However, it does have US$412.1m in cash offsetting this, leading to net cash of US$149.6m.

The latest balance sheet data shows that SSR Mining had liabilities of US$203.7m due within a year, and liabilities of US$924.1m falling due after that. On the other hand, it had cash of US$412.1m and US$125.2m worth of receivables due within a year. So its liabilities total US$590.4m more than the combination of its cash and short-term receivables.

Of course, SSR Mining has a market capitalization of US$2.98b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, SSR Mining boasts net cash, so it's fair to say it does not have a heavy debt load!

It is just as well that SSR Mining's load is not too heavy, because its EBIT was down 79% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine SSR Mining's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While SSR Mining has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, SSR Mining produced sturdy free cash flow equating to 59% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Although SSR Mining's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$149.6m. So we don't have any problem with SSR Mining's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with SSR Mining , and understanding them should be part of your investment process.

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.

Find out whether SSR Mining is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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

SSR Mining Inc., together with its subsidiaries, engages in the acquisition, exploration, development, and operation of precious metal resource properties in Turkey and the Americas.

Flawless balance sheet with limited growth.