The deal will give Agnico-Eagle a near 10 per cent stake inKootenay Silver on a non-diluted basis, the company said in a statement on Tuesday.
The announcement comes at a time when Canadian mining juniors are looking for financing in a challenging market, with many resorting to creative alternatives than the typical placements with retail investors through brokerage firms.
Many, like Kootenay, have turned to strategic investments from established mining companies that want to get early-stage exposure.
Under the terms, Agnico-Eagle will buy a total of 6.25 million Kootenay units at a price of 76 cents each. Each unit will be made up of one common share and one half of a share purchase warrant, with each whole warrant good for one additional share of Kootenay at a price of $1.08 for a period of two years from closing.
If all the warrants are exercised, Kootenay will stand to raise an additional $3.375 million.
"We are very pleased that Agnico-Eagle has committed to become a strategic investor in Kootenay Silver. Agnico's investment provides us with a substantial alternative source of capital to the open market from a recognized world leader in precious metals mining, development and exploration," said president and CEO of Kootenay, James McDonald in the release.
"Agnico's commitment to exploration and mining in Mexico directly coincides with our own commitment to the exploration and development of Promontorio," he said, adding that the investment recognizes the "quality and near-term potential" of Kootenay's flaghsip Promontorio project.
Kootenay said Tuesday it plans to use the net proceeds for the advancement of the project and general working capital.
Earlier this month, the 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 up to 94.5 percent recovery of gold from pyrite concentrates from the Promontorio resource can be achieved through a pressure oxidation process.
Currently, three drills are operating at the site, as part of a 30,000 metre resource expansion program - the largest and most expansive drilling campaign conducted at Promontorio so far.
In March, the company unveiled the results of 11 more holes from its drill program, which hit values as high as 246 grams per tonne (g/t) silver equivalent in a newly discovered oxide zone.
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.
A preliminary economic assessment (PEA) study is planned for the end of the 30,000 metre drilling campaign, and will include an updated resource estimate with results from the latest drilling. The report will then form the basis for the pre-feasibility study at Promontorio.
"We are pleased to be involved with the advancement of Promontorio, a project that will continue to benefit from Kootenay's capable exploration team," said president of Agnico-Eagle, Sean Boyd. "This investment is also consistent with our desire to increase our presence in Sonora State."
The private placement financing is expected to close near the end of the week, subject to all necessary regulatory approvals. Once the deal is closed, Agnico-Eagle will also have the right to participate in any future equity offerings by the company in order to maintain its pro rata investment.