Canadian gold producer Highlander Silver has entered an agreement with SSR Mining to acquire the San Luis gold-silver project in Peru for $42.5m (C$57.46m).

The transaction is expected to be completed in the first quarter of next year, subject to the receipt of regulatory approvals and certain customary closing conditions.

Highlander will pay a $5m upfront cash payment, $7.5m in company shares, or a combination of both. The remaining $37.5m in contingent payments will be paid in cash.

According to the agreement, SSR will retain a 4% net smelter return (NSR) royalty on the project, which will be granted before the transaction is closed.

If any portion of the initial payment is made in common shares of Highlander, then the number of shares must not exceed the 4.9% stake in the company.

The $37.5m contingent payment will be made after certain milestones at the project are achieved.

The first tranche of $2.5m will be paid after initial drilling programme at the project begins. The next tranche of $5m will be made after a feasibility study on any portion of the project is completed.

A third tranche of $10m will be paid after the start of commercial production. It will be followed by an additional payment of $10m following the first anniversary of the production.

The final payment of $10m will be made after the second anniversary of production.

According to terms of the agreement, at any time prior to the project’s construction commencement, half of the NSR royalty can be repurchased by Highlander for $15m in cash and this would cut down SSR’s royalty interest to 2%.

The San Luis project is located in the Ancash Department in central Peru. It covers around 23,098 hectares or 230 km² of area. The project has high potential through evidence of several deposit styles and with high number of targets from limited exploration.

Some of the targets at the property include low-to-intermediate sulphidation epithermal gold-silver veins, copper – molybdenum porphyries, silver, lead, zinc ± copper hydrothermal breccias, and silver, lead, zinc ± copper replacement mantos.

Highlander plans to conduct a comprehensive programme of geological mapping and sampling to build technical assessment of the potential for discovery before more focused exploration is conducted on the highest priority targets.

Highlander Silver president and CEO David Fincham said: “This acquisition has the potential to be transformative for Highlander Silver and aligned with our vision of building a portfolio focused on world-class silver gold projects to the benefit of all our stakeholders.”

Earlier this year, SSR Mining acquired a 40% stake in the Hod Maden gold-copper project in Turkey from Lidya Mines and Horizon Copper for $270m. These two companies hold 70% and 30% stakes in the project, respectively.