Sierra Madre buys second silver mine from First Majestic in $60M deal

[Ben Graham]

Sierra Madre Gold & Silver (TSXV: SM) is buying another past-producing mine First Majestic Silver (NYSE, TSX: AG) to bolster its Mexico-focused mine portfolio.

In a press release on Wednesday, the Vancouver-headquartered silver miner said it has agreed to acquire First Majestic’s 100%-owned Del Toro silver mine in Zacatecas state to in a deal worth up to $60 million. The company currently has one mine in Mexico, La Guitarra, which it also bought from First Majestic.

Sierra Madre will pay $30 million upfront at closing, comprising $20 million cash and $10 million in shares, and another $10 million, paid in cash or shares, within 18 months. Two additional $10 million payments will be contingent on Sierra Madre achieving milestones related to Del Toro.

Closing of the transaction is conditional on Sierra Madre completing a C$40 million private placement, under which it will sell shares at C$1.30 each — same as the deemed price of shares issued to First Majestic in the upfront payment. In the second payment, Sierra Madre can issue shares at the market price of the day prior. Shareholder approval will also be required to complete the mine acquisition, with voting expected to take place by the end of April.

Sierra Madre’s shares closed Wednesday’s session down 3.3% at C$1.48 apiece, for a market capitalization of C$275.3 million ($200 million).

Second mine deal

Del Toro represents the second asset transaction involving the Mexico-focused miners. In 2023, Sierra Madre acquired the La Guitarra mine from First Majestic and successfully brought it into commercial production in January of this year.

“We are incredibly excited to be announcing our second mine acquisition in Mexico, which provides us with the opportunity to replicate the successful restart the Sierra Madre team has achieved at La Guitarra and advance the company towards mid-tier silver production levels,” stated Alex Langer, Sierra Madre’s president and CEO.

First Majestic first brought Del Toro into production in 2013. At the time, it was the company’s fifth silver mine, just after La Guitarra, benefiting from local infrastructure and proximity to its La Parrilla mine. While in operations, it produced an average of 2.54 million oz. in silver equivalent between 2015 and 2018, before mining activity ceased in 2019. In January 2020, First Majestic placed Del Toro under care and maintenance, as it sought to improve overall operating cash flows and profit margins.

The operation includes three fully permitted underground mines, a 3,000-tonne-per-day flotation processing circuit and numerous historic mines. The mines have a total of over 62.5 km of development in place.

Exploration upside

Greg Liller, Sierra Madre’s executive chairman and chief operating officer, said the Del Toro mine is an “excellent match” for the company’s portfolio, “not just on a production basis, but with considerable exploration upside.”

“Part of our long-standing corporate business model is to acquire mines, such as La Guitarra, with existing production facilities, and then to build a resource base in underexplored, large historic mining districts,” he said. “Del Toro fits in with this business model with an already built production plant and a strategic land position in the large, under-explored Chalchihuites district.”

The property covers 70 mining concessions covering 21.6 sq. km around the mine and surrounding area. According to First Majestic’s filings, the site already holds a historic resource totalling 7.57 million oz. of silver equivalent in the measured and indicated category and 11.18 million in the inferred category.

Restart plans

In the near term, Sierra Madre’s plan for Del Toro is to advance exploration and prepare an updated resource while it focuses on a two-staged expansion at La Guitarra. Liller said its initial exploration plans would include a drill program of approximately 50,000 metres, leading up to a new mineral resource estimate in early 2028.

“Our initial plan is to commence the mine restart process at Del Toro in mid-2027, with production currently slated for mid-2028,” Langer also said, but added that there is also the possibility of restarting Del Toro within 12 months if silver prices continue on their current upward trajectory.

Should the company deliver an estimate above 100 million oz. in silver equivalent within four years, it would be required to make a $10 million payment to First Majestic. A second $10 million will be due once Sierra Madre achieves commercial production at Del Toro within five years.