First Majestic Silver (AG.TO) said on Thursday that it will acquire Gatos Silver (GATO.V) for US$970 million.

The companies said the transaction would consolidate the Cerro Los Gatos, San Dimas and Santa Elena silver mining operations in Mexico under one company.

Following the news, First Majestic's share price fell 5.1% at last look to US$5.02 in NYSE pre-market trading, while Gatos' share price jumped 7.5% to US$12.49.

Under the terms, Gatos shareholders will receive 2.55 common shares of First Majestic for each common share of Gatos held. The price implies a total offer value of US$13.49 per common share of Gatos, a 16% premium based on each company's closing prices and 20-day volume weighted average prices on the NYSE ending Sept. 4.

Following the transaction, existing Gatos shareholders will own about 38% of First Majestic shares on a fully-diluted basis.

"The acquisition of Gatos Silver is a highly compelling and transformative transaction that meaningfully enhances First Majestic's operating platform through the addition of 70% of Cerro Los Gatos - a high quality, long-life, unencumbered, free cash flow generating asset in the mining-friendly state of Chihuahua, Mexico," said Keith Neumeyer, First Majestic's president and CEO.

"We are pleased to enter into this transaction with First Majestic, as it provides our shareholders an attractive immediate premium and the opportunity to retain exposure to the high quality, long-life Cerro Los Gatos asset, now within a well-established intermediate primary silver producer," Gatos CEO Dale Andres said.

The transaction is expected to close early next year.