Equity issues invariably form an integral component of a corporations growth cycle. But they also result in dilution for existing shareholders, and too much dilution often turns a carefully crafted investment profile upside down. Take hundreds of junior mining companies as a classic example: exploration exercises, triggering repeated issuance of shares, have caused so much dilution that shareholders can only look forward to nominal returns (if any) even if a resource is eventually identified in accordance with industry standards.
The dilution rate is an expression of the ratio of new shares issued for each existing share on a corporate transfer book at any given point in time. In theory, dilution should be accompanied by substantive enhancement in shareholder value along a pre-determined timeline. In practice, however, proceeds from shares sold are spent on useless experimentation and head office costs; particularly in the case of an exceptionally large number of juniors, also rather presumptuously called growth corporations.
As history proves, exploration can lead to windfall profits for shareholders. The trick is to discover operations which can find the balance...
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