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.

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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.