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Welcome to the era of the micro deal. In a transaction about as far away as one could imagine from the multibillion-dollar deals of the past great commodity boom, Barrick Gold Corp. is taking a tiny bet on a junior mining company.
On Wednesday, the world’s biggest gold producer announced a 19.9-per-cent investment in Vancouver-based Midas Gold Corp. worth US$38-million. Barrick is acquiring 46.5-million shares at $1.06 a share, a 9-per-cent premium to its Tuesday close.
It’s the latest example of a senior gold company making a so-called “strategic investment” in a junior, with the hope that it will eventually pay off in the form of much needed added production.
Over the past few years, strategic investments have grown in popularity as they offer a kind of quid pro quo rationale. Seniors make a relatively low-risk bet without jeopardizing huge amounts of capital, and juniors are able to raise money in a difficult financing environment.
It’s a strategy that’s on the rise. Last year, 46 per cent of capital raised by junior precious-metals firms listed on the Toronto Stock Exchange came from strategic investments, with the rest through traditional bought-deal financing, according to CIBC World Markets Inc.
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