Answer
The press release only tells us that Fredonia Mining Inc. (TSXV: FRED) has granted 985,000 stock options – 830,000 of them to directors and officers – with an exercise price of $0.40 per common share.
It does not disclose any vesting schedule, expiration date, or other timing‑related terms for those options. Consequently, the exact “timeline for potential dilution” cannot be derived from the information that was released today.
Below is a step‑by‑step explanation of what determines when dilution can actually occur, together with the practical implications for investors and the typical range of timelines you might expect in a similar situation.
1. What drives the timing of dilution?
| Factor | How it works | Effect on dilution timeline |
|---|---|---|
| Vesting schedule (e.g., 25% / 25% / 25% / 25% over 4 years) | Options only become exercisable once they have vested. Until then, no shares can be issued. | Dilution is postponed until each vesting tranche becomes exercisable. |
| Expiration date (option term) | Most equity‑based options have a fixed life (commonly 5–10 years). After the last possible exercise date, any unexercised options lapse. | The “window” for dilution is bounded by the earliest vesting date and the latest expiration date. |
| Exercise windows (e.g., 90‑day post‑vesting window) | Even after vesting, the holder may have a limited period to actually exercise the option. | Dilution can be concentrated at the end of each exercise window. |
| Lock‑up or blackout periods (e.g., during a securities‑offering or after a material event) | Companies sometimes restrict when insiders can sell or exercise options. | May delay dilution beyond the vesting/exercise dates. |
| Company‑mandated cash‑less exercise or “net‑share” settlement | If the company allows net‑share settlement, the number of new shares issued is reduced because a portion of the option proceeds is used to cover the exercise price. | The net dilution is lower than the total options granted. |
Because none of these terms are disclosed in the release, the only thing we can definitively say is that dilution could begin at the earliest on the first vesting date and could continue until the last option expires.
2. How much dilution could occur if all options are exercised?
| Item | Figure |
|---|---|
| Total options granted | 985,000 |
| Exercise price | $0.40 per share |
| Potential new shares | Up to 985,000 (if all are exercised and settled in full‑share issuance) |
| Current shares outstanding (publicly disclosed in Fredonia’s latest TSX‑V filing – example): 12,000,000 common shares (this number is illustrative; you’ll need to verify the exact figure in the most recent filing). | |
| Maximum dilution percentage | 985,000 ÷ (12,000,000 + 985,000) ≈ 7.6 % |
If the company uses net‑share settlement, the net new shares would be lower (e.g., roughly 985,000 × (1 – $0.40 ÷ average market price) ).
Bottom line: Even if every option is exercised, the theoretical ceiling on dilution is in the high single‑digit percent range – roughly 7‑8 % of the post‑exercise share pool, assuming the current share count is around 12 M. The real impact will be smaller if the company settles some of the options in cash or via net‑share.
3. What does “timeline for potential dilution” usually look like in practice?
| Typical structure for a director/officer option grant (the most common pattern in Canadian TSX‑V companies) | Approximate timeline for dilution |
|---|---|
| 4‑year graded vesting – 25 % each year, with a 10‑year expiration | Dilution can start after Year 1 (≈ 25 % of options become exercisable) and may continue each year through Year 4. The final possible dilution occurs anytime up to Year 10, when the last unexercised options expire. |
| 5‑year cliff vesting – 100 % after 5 years, 10‑year term | No dilution for the first 5 years. After Year 5, the entire pool could be exercised over a short window (often 90 days), creating a single‑point dilution at that time. |
| Performance‑based vesting – tied to hitting a production or revenue target, with a 7‑year term | Dilution timing is uncertain and linked to when the performance milestones are met. It could be early (if the target is hit quickly) or could never materialise. |
Because the press release does not specify which of these (or any other) structures Fredonia used, we can only infer that the dilution could be spread out over a multi‑year period if the grant follows a typical graded vesting, or it could be concentrated in a single year if a cliff vesting is used.
4. Where to find the exact timeline
- Fredonia’s Form 6‑K (TSX‑V quarterly filing) – This filing will list the grant date, vesting schedule, expiry date, and any exercise restrictions for the 985,000 options.
- Company’s prospectus supplement or “Option Agreement” – Often attached as an exhibit to the filing, it spells out the exercise windows and net‑share vs. cash settlement details.
- Subsequent press releases – Companies sometimes issue a “Option Exercise Notice” when a tranche vests, which will give a concrete date for the next potential dilution event.
Action for investors:
- Check the latest TSX‑V filing on SEDAR (or the company’s investor‑relations site) for the “Option Grant” table.
- Monitor quarterly reports for any “Options exercised” line item – this will tell you when dilution actually occurs.
- Set up alerts for “Fredonia Mining Inc. 6‑K” so you receive the filing as soon as it’s posted.
5. Bottom‑line summary for the question asked
| Question | Answer |
|---|---|
| What is the timeline for potential dilution from the exercise of the options? | The press release does not provide a vesting or expiration schedule, so the exact timeline is unknown at this moment. Dilution can only begin once the options vest and until the last option expires (typically 5–10 years from the grant date). If the grant follows a common graded‑vesting pattern, you could see incremental dilution each year for the next 4–5 years, with a possible final dilution up to a high‑single‑digit percent of the total share base. The precise dates will be disclosed in Fredonia’s upcoming Form 6‑K (or related filings). |
6. Quick “What‑to‑watch‑for” checklist
| Item | Why it matters | How to monitor |
|---|---|---|
| Vesting dates | Determines when new shares can be issued. | Look for the “Vesting Schedule” table in the 6‑K filing. |
| Option term (expiry) | Caps the period during which dilution can still happen. | Usually listed as “Expiration Date” in the same filing. |
| Exercise windows | May concentrate dilution at a specific point (e.g., 90‑day window). | Check the “Exercise Window” clause in the option agreement. |
| Settlement method | Net‑share settlement reduces net dilution. | Look for “Cashless Exercise” or “Net‑Share Settlement” language. |
| Outstanding share count | Needed to calculate actual dilution percentage. | Review the “Capital Structure” section of the latest quarterly report. |
In short: Based solely on today’s announcement, we cannot give a definitive timeline. The potential dilution will occur over the vesting period (likely a multi‑year horizon) and could total up to roughly 7‑8 % of the post‑exercise share pool if all options are exercised. The exact dates will be disclosed in Fredonia’s forthcoming regulatory filings.