Explainer
In a bought deal, underwriters commit to buy the whole offering up front. In a private placement, the company sells directly to chosen investors. Either way, new shares are issued and existing holders are diluted.
An investment dealer agrees to buy all the shares at a fixed price, then resells them to its clients. The company gets certainty and speed. The price is usually set at a discount to the market. A bought deal that upsizes or is described as oversubscribed shows institutional appetite, but it does not by itself make the stock go up.
Shares are sold directly to selected investors, often a strategic partner, insiders or a fund. Units frequently bundle a share with a warrant. Private placements are common for smaller raises and can be cheaper to run than a bought deal.
Take a company with 100 million shares raising C$10 million at C$0.50 per share. It issues 20 million new shares. Existing holders now own 100 of 120 million shares, which is 83.3% of what they owned before, a dilution of about 16.7%. If every unit also carries a half warrant, up to 10 million more shares can arrive later when those warrants are exercised.
Look at the issue price against the market price, how many warrants come attached and at what strike, what the proceeds will fund, whether insiders are participating, and how often the company raises. A company that funds a drill program it has already de-risked is a different story from one that raises every quarter to cover overhead.
Related terms: flow-through shares, warrants and dilution are defined in our glossary. Commodity Ape is information and commentary, not investment advice.