Kootenay Silver (CVE:KTN) has just put to bed a $4.75 million strategic private placement with established miner Agnico-Eagle Mines (TSE:AEM), a deal the Canadian junior’s chief hails as “very beneficial” for the company, which is developing the flagship Promontorio silver mine in Mexico. 

Kootenay issued 6.25 million units at a price of 76 cents each to Agnico-Eagle, with each unit made up of one common share and one half of one share purchase warrant. Each whole warrant allows Agnico-Eagle to buy an additional common share at $1.08 apiece until April 26, 2015. 

As a result of the financing, Agnico-Eagle now owns 9.96 per cent of Kootenay on a non-diluted basis, or 14.23 per cent if the warrants are exercised. 

“We started to talk to Agnico-Eagle several months ago, and they completed quite an in-depth due diligence process, which included a site visit and a review of our geological model,” president and CEO James McDonald told Proactive Investors in an interview last week, citing Agnico-Eagle’s “selective process”. 

“This is big news for us. [Agnico-Eagle] is a very highly regarded mining company that boasts technical expertise and that is bullish on the potential in Sonora State, Mexico. They like that exposure there, and our whole land package in addition to Promontorio.”

Earlier this month, the Canadian junior company commissioned SRK Consulting to provide an updated resource estimate for Promontorio, which will include and quantify gold content. The decision to include gold assay results followed extensive metallurgical testing and technical analysis, which confirmed that up to 94.5 percent gold recovery rates from pyrite concentrates at Promontorio can be achieved through a pressure oxidation process.

“The updated resource is very close to being complete. The report will use the pre-existing drilling data prior to the 30,000 metre program underway,   to estimate the gold component. The recent oxidation work on the gold indicates there are some real possibilities to be able to extract the yellow metal economically that need to be evaluated,” says McDonald. 

“It’s quite promising – there is a lot of gold in the system that occurs with the silver. In other words,  most of the gold will be lying within the current resources, potentially providing a significant benefit to the resource. It’s not as if the gold is alone and has to pull its own pit.”

The most recent NI 43-101 mineral estimate on Promontorio from last August contains a measured and indicated silver resource of 61.68 million silver equivalent ounces, as well as another 14.47 million silver equivalent ounces in the inferred category. The resource is stated above an 15.00 grams per tonne (g/t) cut-off grade and contained within potentially economically mineable pit shells. 

The updated resource estimate, which is due out in approximately three weeks, will not include any information from the 30,000 metre program underway at the site – the largest and most expansive drilling campaign conducted at Promontorio so far. 

“We don’t expect anything from that [the 30,000 metre campaign] until later this year, likely in the third quarter, after which a preliminary economic assessment report is planned,” says McDonald. 

Kootenay’s CEO also highlights the company’s 80,000 hectare contiguous land package in Sonora, which provides it with “excellent upside potential” for high grade discoveries well within the complex, as well as separate from it. 

“We have a great resource we are working on expanding backed by a whole pipeline of potential new discoveries within the same land package,” he adds. 

Indeed, Agnico-Eagle clearly saw evidence of this potential before deciding to become the company’s strategic partner. 

“It’s a very good deal for us. It doesn’t preclude Kootenay from being taken out by another company and gives us a relationship with Agnico-Eagle for strong shareholder support,” McDonald affirms, adding that Agnico-Eagle was also a strong shareholder of Queenston Mining before that company was bought out by Osisko Mining (TSE:OSK).

“They [Agnico-Eagle] view this as a strategic and long-term type of investment.” 

Kootenay’s chief says the investment puts the company’s cash position at over $8 million, “funding us comfortably well into next year.” The new funds will of course be used for the advancement of Promontorio as well as for general working capital needs. 

McDonald is not surprisingly bullish on precious metals, despite their recent price rout. “The recent correction in gold is disconcerting to everyone in the sector. We don’t know where it will settle out, but fundamentally, the economic environment we’re in, and the continual injection of new currency all over the world is very supportive of a continued strong gold and silver price.

“My expectations continue to be strong going forward, even moving upward from where we are now. The volatility in the market is natural, but I am comfortable with the fundamentals that support a bullish trend.” 

Gold for June delivery rose $12.6 to $1,466.20 an ounce on the Comex this morning, while the silver contract for July gained 48 cents to $24.27 an ounce. High precious metals prices will certainly benefit Kootenay as it develops its high grade Promontorio project. In March, the company unveiled the results of 11 more holes from its 30,000 metre drill program, which hit values as high as 246 grams per tonne (g/t) silver equivalent in a newly discovered oxide zone.