There's also a contingency for Timmins to pay an additional US$5 million once a permit is granted, making the deal potentially worth US$30 million.
The transaction has the potential to nearly double Timmins Gold's annual production to more than 220,000 ounces.
The Vancouver-based company's main holding is the San Francisco gold property in Sonora, Mexico, with a projected production of between 115,000 and 125,000 ounces of gold this year, at a cash cost os US$800 per ounce.
"The acquisition of Caballo Blanco will accomplish our strategic goal of adding a highly prospective gold mining project at an attractive valuation in Mexico, a very familiar, well-established and low-risk mining jurisdiction," said Bruce Bragagnolo, CEO of Timmins Gold.
Keith Piggott, chairman and CEO of Goldgroup, said the company will use proceeds from the sale to advance the San Jose de Gracia project in the state of Sinaloa and possibly for acquisitions. The company's holdings include a 50 per cent interest in DynaResource de Mexico, SA, which owns the San Jose de Gracia project.
"This sale unlocks the value of Caballo Blanco for Goldgroup shareholders and dramatically improves our balance sheet in a time where capital is very difficult to come by" Piggott said in a statement.