Sierra Madre Gold and Silver (SM.V) has confirmed it has signed and received the proceeds of a US$5M loan provided by First Majestic Silver (FR.TO, AG). The loan is secured by the subsidiary which owns the La Guitarra silver mine while other subsidiaries have entered into general security agreements as well. Despite these extensive security agreements, the loan still comes with a hefty 15% interest rate but fortunately it is a ‘clean’ debt issue: there are no installment fees or warrants issued to First Majestic, and there are no penalties due if Sierra Madre would be in a position to repay the loan before the two year term is over.

The proceeds of the loan will immediately be used by Sierra Madre to get the La Guitarra mine and mill ready to restart operations. While Sierra Madre has already made good progress on the equipment and infrastructure at the mine site, the proceeds of this financing will help to place lead orders for additional mining equipment, finish up the mill repairs and get the underground workings ready to restart the mine. According to CEO Langer ‘the loan will allow the company to complete all the necessary steps for the possible restart of the fully permitted La Guitarra mine’ and we are looking forward to see additional updates on the potential reopening of the mine under a test mining scenario. As the silver price is still strong – trading at around $28.5 per ounce, while the gold price is still above $2350/ounce, this could be the right time to reopen this silver-gold mine in Mexico. As previously disclosed, the company has been working on restarting the mining activities at Guitarra.

Disclosure: The author has a long position in Sierra Madre Gold and Silver. Sierra Madre is a sponsor of the website. Please read the disclaimer.

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