Sierra Madre will aquire the mine from First Majestic for a total cash consideration of US$35 million in a deal that will see the latter become the largest shareholder in the former.
"Greg Liller, our COO, Luis Saenz, our director of exploration and development and other members of the team operated the La Guitarra mine under prior ownership from 2006 to 2009," Sierra Madre's president and CEO Alex Langer said.
"We intend to provide more details on our planned work programme in the coming months and will announce additions to our team shortly," he added.
The deal will see Sierra Madre acquire La Guitarra Compania Minera (Subco), a wholly-owned subsidiary of First Majestic that holds a 100% interest in La Guitarra.
In exchange, Sierra Madre will issue First Majestic with 69.06 million shares at a price of C$0.65 (US$0.51), giving an aggregate value of US$35 million. Once the deal is closed, First Majestic would hold about 47% of Sierra Madre.
At closing, Subco is to grant First Majestic a 2% net smelter return royalty on all production and have the right to buy back 1% of the NSR royalty at a price of US$2 million.
A condition to closing, meanwhile, is that Sierra Madre raises a minimum of C$10 million in a private placement.
La Guitarra, located in the southest end of the Mexican Silver Belt, operating as an underground mine until August 2018 with past production in the order of 1 million-1.5 million silver equivalent ounces between 2015 and 2018, Sierra Madre noted.
The current infrastructure includes two underground centres, a 500 tones per day flotation mill, permitted tailings facility, multiple work buildings, equipment, and related infrastructure, it added.
Historical measured and indicated mineral resources stand at about 7.45 million oz AgEq and inferred mineral resources of about 10.02 million oz AgEq, based on 128,671 metres of drilling, it said.
"I have always believed La Guitarra is one of the largest undeveloped silver opportunities in Mexico," Liller said, noting that he oversaw the district's first large-scale exploration programme.
"The eastern portion of the district was host to large high-grade mines that were significant producers during the Spanish colonial period," he said.
"This area has only seen limited modern drilling and exploration even though it is host to hundreds of old mines, prospects, workings and veins," he said.
First Majestic maintained all permits and prepared development plans for restarting operations, which includes a fully permitted new tailings facility with a 5.8 million tonnes capacity, he said.
He said the underground development along with the milling and processing facility has been well maintained.
Sierra Madre's share price was C$0.74 on May 25 and the company had a market capitalization of C$47.32 million. On the same date, First Majestic's share price and market capitalization were C$10.45 and C$2.75 billion, respectively.
