Patagonia Gold (CVE:PGDC) Is Carrying A Fair Bit Of Debt
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Patagonia Gold Corp. (CVE:PGDC) does use debt in its business. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Patagonia Gold Carry?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Patagonia Gold had US$50.4m of debt, an increase on US$42.4m, over one year. However, because it has a cash reserve of US$15.3m, its net debt is less, at about US$35.0m.
How Healthy Is Patagonia Gold's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Patagonia Gold had liabilities of US$8.24m due within 12 months and liabilities of US$49.6m due beyond that. On the other hand, it had cash of US$15.3m and US$1.18m worth of receivables due within a year. So it has liabilities totalling US$41.4m more than its cash and near-term receivables, combined.
Patagonia Gold has a market capitalization of US$118.9m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Patagonia Gold will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Check out our latest analysis for Patagonia Gold
In the last year Patagonia Gold wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$9.3m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Caveat Emptor
Importantly, Patagonia Gold had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$7.8m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$30m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Patagonia Gold that you should be aware of.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.