First Majestic Silver (TSX: FR; NYSE: AG) will sell its past producing La Guitarra silver mine, located in the Temascaltepec mining district in Mexico, to Sierra Madre Gold & Silver (TSXV: SM) in an all-share deal worth about $35 million.
Under the deal, First Majestic will receive 69.1 million Sierra Madre shares at C65¢ per share. Upon closing, First Majestic will own 47% of the outstanding shares in Sierra Madre. Sierra will have to raise a minimum of C$10 million ($7.8m) in a private placement concurrent with or prior to the closing of the deal.
First Majestic decided to place the La Guitarra mine and mill operation under maintenance in 2018 as the company wanted to reallocate capital and resources to projects that had better economics and internal rates of return.
In 2017, the mine produced 611,705 oz. silver, down from 923,597 oz. in 2016 and 945,662 oz. in 2015. It also produced 5,553 oz. gold in 2017, 8,181 oz. gold in 2016 and 6,907 oz. gold in 2015.
Sierra believes the acquisition of the underground mine and the 500-tonne-per-day mill will help it advance towards its goal of becoming a mid-tier precious metals company.
“I have always believed La Guitarra is one of the largest undeveloped silver opportunities in Mexico,” Greg Liller, the company’s COO said in a press release. “The eastern portion of the district was host to large high-grade mines that were significant producers during the Spanish colonial period. This area has only seen limited modern drilling and exploration.”
Sierra Madre has a management team that previously operated the La Guitarra mine from 2006 to 2009, the company said.
The mine site hosts historical measured and indicated resources of 701,000 tonnes grading 227 grams silver per tonne and 1.22 grams gold per tonne. Historical inferred resources add about 1 million tonnes grading 240 grams silver and 0.71 gram gold.