As I was about to count sheep last night, I took one last peek at my stock monitor.

What a mistake!

I noticed Viszla Silver, one of the holdings in the unofficial Rude portfolio, was down about 15% in after-hours trading. Since we were sitting on a 20% gain, a full 75% of that gain was instantly wiped out.

Pissed off as all hell, I figured they announced some sort of capital raising event, and, lo and behold! I was correct. The same thing happened to our former holding, Guanajuato, a while back. Today, I wanted to explain capital raising and dilution.

The wonderful world of silver mining stocks, where the ore is scarce and the optimism is overflowing, is still the place to be invested. But their management teams hand out new shares like Oprah handing out cars. You get dilution! And you get dilution!

Vizsla and Guanajuato reminded investors—in their own special ways—that miners will always find a way to make your slice of the pie just a little smaller.

Let’s break down what happened, why it happened, and whether you should laugh, cry, or quietly average down and pretend everything’s fine.

What the Heck Is Dilution?

Dilution is simple. The company issues additional shares to outside investors to raise new capital. Your slice of the pie shrinks. Management insists this is somehow “good for you.”

They’ll tell you it’s to “unlock value,” “fortify the balance sheet,” or the classic “advance the company’s growth trajectory.” Translation: We need money, and this is the only way we’re going to get it.

If they spend the new capital wisely, your now-smaller slice might eventually become more valuable. If they don’t… well, you already know.

Case Study #1: Guanajuato Silver — “Here’s 87 Million New Shares!”

Ah, Guanajuato Silver. A charming little company with four mines in Mexico, a growing profile, and the distinct smell of a liquidity crunch.

Last month, they raised C$43.5 million by issuing 87 million new shares at 50 cents a pop. That pushed their total share count to 647.5 million—a relatively large number, though not underheard of.

Why’d they do it?

Because operating mines costs money. And losing money also costs money. And when you’re doing both, the equity markets become your capital supplier of choice.

Existing shareholders, of course, got diluted into oblivion. Your percentage ownership? Lower. Your voting power? Lower. Your sense of dignity? Yes, you guessed it! Lower.

The optimistic take: If Guanajuato uses the cash to turn those mines into real cash-flow machines, the stock could eventually recover.

The realistic take: Miners burn cash faster than teenagers burn through mobile data, which is why I dumped the shares.

Case Study #2: Vizsla Silver - The Classier Dilution

Vizsla, on the other hand, chose a more elegant route: convertible senior notes.

Convertible notes are debt instruments investors can convert into common stock.

That’s right—debt that might turn into shares later, depending on the stock price. It’s a dilution time bomb with a long fuse. Wall Street loves it. Retail investors pretend to understand it.

Vizsla raised $250 million—big-boy money—because their Panuco project is inching toward production and, shocker, requires a mountain of cash to finish.

Growth is expensive, my friend.

To soften the blow, they set the conversion price about 25% above the current share price.

Interestingly, Vizsla also bought capped calls as part of the bond issuance.

Capped calls allow the issuer to reduce (and, in some cases, eliminate) the dilution that would otherwise occur if the notes are converted into stock.

If the stock trades above the cap, holders of the notes don’t benefit from any upside above this cap when converting, which is beneficial for existing shareholders.

The capped calls cost Vizsla nearly $40 million, but this can save much more in terms of preserved equity value… if the share price rises strongly. It was a nice touch, but that didn’t stop investors from knocking 15% off the stock price last night.

In short: We promise not to dilute you today, but check back after the stock goes up and the bankers start sniffing around.

So, What Should You Do, Brave Silver Investor?

Dilution isn’t always bad. Sometimes it’s like watering down your whiskey: sure, it unlocks rich flavor, but you lose some punch keeping the night going.

Guanajuato needed life support. Vizsla needed growth capital. In both cases, management should use the money to create future value.

The operative word is “should.”

Here’s what to watch like a hawk:

• More dilution events (they usually travel in packs).
  
  
• Production delays (“unexpected challenges,” “geological surprises,” etc.).
  
  
• Capex overruns—especially from companies that swear they’re “fully funded.”
  
  
• Silver prices: miners look like geniuses when silver rises and imbeciles when it falls.

If the cash actually builds mines, ramps production, and increases ounces out the door, then your diluted shares may still multiply in value over time.

If not? Well, there’s always gold.

Wrap Up

Dilution isn’t a four-letter word. It’s more like a warning label: “This company is about to ask you for more patience (and maybe more money).”

Guanajuato and Vizsla took different roads, but both are betting big: raise money today, hope the silver gods smile tomorrow. For investors, the trick isn’t avoiding dilution—it’s knowing when it’s fuel for a rocket ship and when it’s just another slow leak in a very expensive bucket.

Welcome to silver mining, my friend. Strap in.