Dilution

A company with no cash flow pays for every further drilling season with new shares. That is not mismanagement, it is the business model: there is no other source of funds.

What follows is plain arithmetic. The asset in the ground stays the same, the number of shares rises — so the value per share falls, even where everything operational goes to plan.

Why this overturns most calculations

The usual error: someone arrives at a net asset value of, say, CAD 200 million and divides it by today's 84 million shares. Result: CAD 2.38 per share.

But the company still needs money before it reaches production. If 40 million new shares arrive in the meantime, the count is 124 million — and the value per share is CAD 1.61. A third less, with nothing whatever having changed at the project.

So we always calculate the value per share after expected dilution through to production. Anything else is a brochure.

What has to be looked at

Shares outstanding — the starting point, from the most recent quarterly report.

Warrants and options. They are exercised when the share price sits above the exercise price — which is to say precisely when things are going well. At many explorers they amount to 15% to 25% of the shares outstanding. They are found in the notes to the accounts, not in the price table.

Cash runway. How many months does the money last? On that hangs when the next equity raise comes — and therefore how often it happens at all before production. → Cash runway

Timing. A financing done before an important data point is priced worse than one done after it. A company that can wait for the drill results dilutes less than one that needs the money beforehand. Often enough that is the most important difference between two otherwise similar names.

What it is not

Dilution is not in itself a warning sign. Every explorer must dilute — the question is only how much and at what price. An equity raise at a high price after good results is a good piece of business for existing shareholders. One at a depressed price because the money had run out is the opposite.

Which is why the bare number of new shares says little. What counts is the price at which they were issued and whether the company was able to choose the moment.

How we handle it

In every piece of analysis we set out shares outstanding, warrants, options and cash runway in months. The net asset value per share is always the one after expected dilution.

The full framework: How we value resource companies.

Version 1 · 11 August 2026