Timmins Gold has signed an agreement to acquire Newstrike for C$140m ($113m) to create a Mexico-focused gold mining company.
The combined business will have production and development assets based in Mexico, as well as a producing mine in San Francisco and development assets, Newstrike's Ana Paula gold project and Timmins Gold's Caballo Blanco gold project.
Once the deal is closed, Timmins Gold shareholders will hold about 63% of the company, while the remaining 37% will be owned by Newstrike shareholders.
Timmins Gold CEO Bruce Bragagnolo said: "The combination of Timmins Gold and Newstrike will immediately position Timmins Gold as an emerging intermediate gold company supported by current production and a very attractive pipeline of development projects."
Newstrike president and CEO Richard Whittall said: "This transaction provides an attractive premium to Newstrike's current share price, offers immediate leverage to gold production at the San Francisco mine and de-risks the future development of Ana Paula.
"We believe the consideration offered by Timmins Gold is highly attractive for our shareholders who will also have the opportunity to participate in the growth and re-rating potential of the combined company."
Newstrike acquired the Ana Paula project in Guerrero from Goldcorp in June 2010, and it is estimated to contain 2.2 million ounces of gold reserves.
Following the transaction, Timmins Gold's mine life is expected to grow by around 175% to 326,000oz of gold, assuming that both Ana Paula and Caballo Blanco projects are put into production at the levels estimated in their respective preliminary economic assessments.
The deal will also result in an increase in global resource size and grade, with a 75% increase in total measured and indicated (M&I) gold resources and a 34% increase in average M&I gold grade.