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Canada’s Barrick Gold (TSX:ABX)(NYSE:GOLD), the world’s top bullion producer by volume has entered into a 50-50 strategic alliance with fellow junior miner Reunion Gold (TSX-V:RGD), to jointly explore for and develop projects on South America’s North Atlantic coast.
The deal allows Barrick to tighten its grip on four of the Guyana-based projects Reunion already owns — Waiamu, Aremu, Arawini and Oko.
As part of the deal, Barrick will initially invest $4.2 million on those assets, as credit for exploration conducted so far by Quebec-based Reunion. Subsequent funding, said the gold giant, will be on a 50:50 basis between the two companies.
Strategic alliance expands Barrick’s exploration footprint in the Guiana Shield, a significantly under-explored region and one of the most prospective in the world for large scale gold discoveries.
The deal specifies that if Reunion acquires an interest or an option to acquire a stake in any mineral property in the joint venture’s target area, Barrick will have 90 days to decide whether to include the new project in the association.
“The strategic alliance agreement expands Barrick’s exploration footprint in the Guiana Shield, a significantly underexplored region and one of the most prospective in the world for large scale gold discoveries,” Barrick said.
President and CEO Mark Bristow noted the two companies will jointly to identify and acquire properties in the Guiana Shield and Northern Brazil, which have the potential to yield discoveries consistent with Barrick’s definition of Tier 1 mines.
The Toronto-based company, which already owns 15% of Reunion and bought further shares in the junior last year, will buy up to 35,700,000 common shares at a price of C$0.15 per unit, which increases Barrick’s ownership in the smaller miner to 19.9%.
The move on Reunion is another example of a growing trend that dominated the mergers and acquisition scene last year.
It’s not uncommon these days to see a senior gold company making a so-called “strategic investment” in a junior, in the hope that it will eventually pay off in the form of much needed added production.
Seniors make a rather low-risk bet without jeopardizing huge amounts of capital, and juniors are able to raise much-needed money to fund their projects.
Barrick is becoming an expert on these kinds of deals. Last year, the company forked out $8.3 million on ATAC Resources Ltd. and $9.1-million on Reunion itself. It also invested $1.6-million into Royal Road Minerals Limited and, in May, announced a 19.9% investment in Vancouver-based Midas Gold (TSX-V:MAX), worth $38 million.
