Equity
Selling shares is the main way exploration is funded. It needs no repayment, but every raise dilutes existing shareholders.
2 min read
Equity financing means selling new shares in the company. Investors get a slice of the whole company; existing shareholders own a smaller share of it.
What it is
Exploration rarely produces cash, and banks do not lend against an idea, so fund most of their work by selling shares. The money never has to be repaid. The cost is : each new share reduces every existing shareholder's percentage of the company.
How it is raised
- : shares sold directly to selected investors such as resource funds, family offices and wealthy individuals. The most common route for juniors, usually priced at a discount to the market price.
- Warrants: often attached to placement shares. A warrant gives the right to buy another share at a set price for a set time, typically two to three years.
- Bought deals and public offerings: a bank buys the shares and resells them, or sells them to the public under a prospectus.
- Listings: an initial public offering (IPO), or a reverse takeover into an existing listed company.
- Rights issues: new shares offered to existing shareholders in proportion to their holdings, so they can avoid dilution by taking part.
- Flow-through shares (Canada): investors receive tax deductions for the exploration the money pays for, so the company can sell the shares at a premium.
- Strategic investments: a larger miner buys a stake, often 10–20%, sometimes with rights to keep its percentage in future raises and a seat on a technical committee.
Dilution
Dilution is not a loss in itself if the money adds more value than the shares cost. It hurts most when shares are sold cheaply, which tends to happen in weak markets and during the funding gap between discovery and development.
Typical terms
| Item | Typical range |
|---|---|
| Placement price | 5–20% below the recent market price |
| Warrants | Half or one warrant per share, two to three years |
| Strategic stake | 10–20%, often with participation rights |
| Flow-through premium (Canada) | Often 10–40% above the market price |
Advantages and disadvantages
| For the company | |
|---|---|
| Advantages | No repayment, no interest, no claim on the project's output |
| Disadvantages | Dilution; depends on market sentiment; frequent small raises distract management |
Terms and ranges are indicative and vary by market, jurisdiction and project. This is educational material, not investment advice.
Key terms
Next in this track
Earn-ins, options and joint venturesA partner can fund exploration in return for a share of a project rather than shares in the company. Options, earn-ins, joint ventures and carried interests are the main forms.Related articles
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Educational material only. Nothing here is investment advice or an offer to buy or sell any security or mineral interest.