Gold$2,345.67/oz+0.82%
Silver$29.42/oz-0.34%
Copper$4.12/lb+1.15%
Uranium$85.50/lb+2.41%
Lithium (SC6)$1,240/t-1.08%
TSX-V$1,024.3+0.56%
Gold$2,345.67/oz+0.82%
Silver$29.42/oz-0.34%
Copper$4.12/lb+1.15%
Uranium$85.50/lb+2.41%
Lithium (SC6)$1,240/t-1.08%
TSX-V$1,024.3+0.56%
The Mining Watchlist

Share Structure & Dilution

Your Share of the Pie Can Change

How financing can quietly shrink your slice of the company.

Key Takeaways
  • A share represents a fraction of a company; issuing more shares can reduce your ownership percentage.
  • Share price alone does not tell you how much a company is worth.
  • Warrants, options and convertible securities can create additional shares in the future.
  • Raising money can fund valuable progress, so dilution must be judged alongside what the financing achieves.
  • Follow the funding requirement and value per share, not only the size of the project.

Start With the Whole Company

A 20-cent stock is not automatically cheaper than a $2 stock. Market capitalization is the share price multiplied by the number of shares outstanding.

A company with 500 million shares at $0.20 has a $100 million market capitalization. A company with 50 million shares at $2 also has a $100 million market capitalization. The sticker price of one share tells only part of the story.

A Simple Dilution Example

Before financing: 1% ownership
Suppose a hypothetical company has 100 million shares outstanding and you own 1 million. Your ownership is 1%.
After financing: 0.8% ownership
The company then issues 25 million new shares to raise money. There are now 125 million shares, and your 1 million shares represent 0.8%. Your ownership percentage has fallen by 20%, even though you still own the same number of shares.

This does not mean the share price must fall by 20%. The company also receives money, and what it does with that money matters.

Ownership dilution and changes in per-share value are related but different questions.

Look Beyond the Basic Share Count

Options can allow their holders to buy shares under specified terms. Warrants may accompany financing and also provide rights to acquire shares. Convertible securities can become shares according to their terms.

A fully diluted presentation considers potential additional shares, but its meaning should be checked. Not every security will necessarily be exercised or converted. Review exercise prices, expiry dates and conditions; exercise may also bring cash into the company.

Why Mining Companies Raise Money

Drilling, studies and construction can require cash long before a mine generates revenue. Equity financing can keep a worthwhile project moving and reduce immediate funding uncertainty.

Repeated financing at weak prices can be costly for existing holders. On the other hand, refusing to raise necessary capital can leave a company unable to advance. Judge the financing terms and the achievable milestone together.

Five Things to Write Down

Current shares outstanding and the date of the figure.
Options, warrants and convertible instruments that could add shares.
Cash available, planned spending and the next likely funding requirement.
The financing price, fees and additional rights offered to new investors.
What the money is expected to accomplish before more funding is needed.

The question is not simply whether the company becomes larger. It is whether the progress made with new money can create enough value to justify the larger number of claims on that value.

Permitting & Social Licence

Next in the Mining 101 Series

Red Flags in Mining Press Releases

Spotting hype, cherry-picked numbers and spin before you buy.

Continue →