Canadian gold exploration firm Tarachi Gold has signed a binding letter of agreement to divest its Magistral Project in Durango, Mexico, to mining company Compañia Minera de Atocha SA de CV (Atocha) for approximately $5,700,000.

The two firms plan to sign a definitive agreement for the deal within 60 days.

The Magistral project includes a 1,000 tons a day mill as well as access to a tailings deposit that has measured and indicated resources of 1.26 million tons at a grade of 1.93g/t Au.

Under the deal, Tarachi will transfer a 100% stake in its TGMEX Silver SA de CV (TGMEX), which owns the assets related to the Magistral Project, to Atocha.

Atocha will initially pay roughly $4.05m in cash.

The Mexican firm will make additional payments at later dates, including $500,000 when 50% of the tailings located on the Magistral Project have been sold and/or processed and $500,000 when 100% of the tailings have been mined, sold and/or processed.

Tarachi expects Atocha to realise the value-added tax (IVA) benefit and make payments to the firm within the first year of the project’s commercial operations.

Furthermore, Tarachi plans to cancel the private placement it announced last December.

Tarachi president and CEO Cameron Tymstra said: “This transaction represents an opportunity for Tarachi to convert our interest in the Magistral Project to hard dollars at a strong valuation.

“It has been a challenging year for the junior gold sector and difficult to raise money through traditional means for project development, particularly for assets with shorter mine lives, such as the Magistral Project.

“We are excited to be moving forward following the close of the Transaction with a strong cash position, which will provide us with the flexibility to pursue other gold assets in North America with superior value-creation potential.”

Atocha will advance $1m to Tarachi to be held in escrow and serve as a deposit against the initial payment.