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Vancouver-based First Majestic, whose six primary silver mines are located in Mexico, will acquire all Primero shares in the takeover, which is valued at US$320mn.
Labor and technical issues at San Dimas, culminating in a two-month strike last year, weighed on Primero over the past two years.
Rising costs and lower production contributed to a financial shortfall, with the company unable to repay a US$75mn revolving credit facility (RCF) despite the divestment of its other main assets, the Black Fox mine in Canada and the Cerro del Gallo project in Mexico, last year.
The RCF has been extended until the transaction closes or until April 30.
A key part of the acquisition is an overhaul of a streaming agreement with Wheaton Precious Metals at San Dimas.
The current deal, under which Primero sells the bulk of silver output to Wheaton for about US$4/oz, will be replaced by a 25% gold equivalent stream, with Wheaton paying US$600/oz.
This equates to a 60% reduction in the value of the stream, Neumeyer told a conference call on Friday.
"As a result the mine will have a lot more room for growth. We all know the mine needs investment and this is going to allow us to start reinvesting capital and rebuild San Dimas to where it was a few years ago," Neumeyer added.
In return Wheaton will receive 20.9mn First Majestic shares, worth about US$151mn.
While the First Majestic CEO gave scant details of his plans for San Dimas, the company has identified a number of steps to improve efficiency at the operation, he told the call.
Neumeyer said the firm has a solid relationship with the national mining-metallurgy union SNTMMSSRM which could help draw a line under labor issues at San Dimas.
First Majestic has also begun talks with Mexico's tax authority SAT aimed at resolving Primero's long-running dispute over payments on silver covered by the Wheaton stream.
First Majestic will issue 6.42mn shares to Primero shareholders, worth Cdn$0.30 per Primero share based on First Majestic's 20-day volume weighted average share price on the Toronto Stock Exchange.
This represents a 200% premium on Primero's shares over the same period.
First Majestic will also repay amounts owing under Primero's revolving credit facility, plus the expected repayment of US$75mn of outstanding convertible debentures, and transaction expenses.
"The acquisition of Primero is a highly compelling transformative transaction that further enhances First Majestic's operating platform, adding a very high quality, long-lived asset in San Dimas, all in First Majestic's backyard in Durango, Mexico," Neumeyer said in a statement.