TSX-V-listed Magna Gold has entered into a definitive purchase agreement with a subsidiary of Alio Gold to acquire the San Francisco mine, in Mexico.

Magna CEO Arturo Bonillas said in an announcement last week that the acquisition was a pivotal moment in the evolution of the company into a gold producer in Mexico.

The property that hosts the mine consists of 21 contagious mining concessions, totalling an area of about 47 000 ha. The San Francisco project comprises two previously mined open pits, together with heap leach processing facilities and associated infrastructure.

Following the acquisition’s close, Magna intends to executive a mine operational improvement plan that will include a full review and update to the mine design and production plan, its metallurgy and processing, workforce management, and local and regional exploration.

Magna says the improvement plan will be supported by either a preliminary economic assessment or feasibility study.

The transaction entails Magna acquiring 100% of Alio’s indirect wholly-owned subsidiary Molimentales del Noroeste, which owns 100% of the San Francisco mine and the surrounding mineral concessions, in exchange for almost 20% of Magna’s issued share capital. 

Additionally, Magna will pay Alio with $5-million in cash or a 1% net smelter return royalty on a portion of the mine, at the election of Magna.

The company expects the transaction to close by the end of March.

In July 2011, Alio expanded the mine’s crushing system to 15 000 t/d. In December 2012, a new additional 5 000 t/d circuit was installed and a further expansion was brought about in August 2013, enabling a  crushing capacity of 22 000 t/d.

Since the project’s start of production in April 2010, it produced more than 820 000 oz of gold.

Earlier this year, the mined entered into a period of residual leaching and Alio expected to recover between 12 500 oz and 15 000 oz of gold.

Meanwhile, Magna intends to complete a non-brokered private placement of up to 17.1-million common shares at a price of $0.35 apiece for aggregate gross proceeds of $6-million, which it will be using for general and working capital purposes in connection with the San Francisco mine.