First Majestic Silver has signed a $35m deal to divest its 100%-owned La Guitarra silver-gold mine in Mexico to Sierra Madre Gold & Silver.

Located in the Temascaltepec mining district, the past-producing 39,714ha La Guitarra high-grade underground mine was placed under care and maintenance in August 2018.

According to the agreed terms, Sierra Madre will issue around 69.1 million of its shares to First Majestic at C$0.65 apiece to acquire all of the issued and outstanding shares of La Guitarra Compania Minera, a wholly owned subsidiary of First Majestic.

This will make First Majestic its largest shareholder.

La Guitarra Compania owns a 100% interest in the La Guitarra project, which produced one million to 1.5 million AgEq ounces per annum between 2015 and 2018.

First Majestic will also secure a 2% net smelter return royalty (NSR) on all mineral production from the La Guitarra concessions. The NSR will be open to a 1% repurchase option for $2m.

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The mine currently comprises two underground centres, a permitted tailings facility, the 500tpd flotation mill, multiple work buildings, equipment, and related infrastructure.

Sierra Madre president and CEO Alex Langer said: “The underground mine and 500tpd mill will advance Sierra Madre towards its goal of becoming a mid-tier precious metals company.

“Upon closing of the transaction, Sierra Madre will hold three exciting precious metal projects in Mexico – La Guitarra, Tepic and La Tigra.”

Upon completion of the deal in the second half of 2022, First Majestic will own 47% of the outstanding shares in Sierra Madre.

The deal awaits the clearance of the TSX Venture Exchange and other customary closing conditions.

Furthermore, Sierra plans to raise up to C$10m ($7.8m) in a private placement concurrent with or before the deal completion.