The clock will start ticking on the option period within 6-9 months, or when Equus secures approvals to drill from 60 locations across the property, whichever is earlier.
The junior can exercise its option at any time, and there is a review scheduled for 18 months.
If it does press ahead, it will issue Mandalay a 19% stake in the company, and Equus will enter into a royalty agreement to pay 2.25% of any production, although Equus has a buy-back right.
Equus will also assume 50% of the approved closure costs at Cerro Bayo, and will pay a share of care and maintenance costs if the option is terminated.
The leases, which are close to Equus' Los Domos gold and silver project, includes a 15,000 tonne per day processing plant that is on care and maintenance.
The 350sq.km Cerro Bayo project saw mining suspended in 2017 due to a catastrophic inundation event at Delia NW, one of three underground silver-gold mines at the project.
A subsidence event saw waters from Laguna Verde flood the mine, killing two miners.
Cerro Bayo has produced around 600,000 ounces gold and 40Moz silver since 1995, and the surrounding area is considered to be prospective for additional precious metal resources.
Equus shares were up 20% on the news, to reach A1.8c, valuing the company at $16.5 million.
The company recently raised $530,000 at 1c in an oversubscribed placement to fund its immediate drilling commitments at Los Domos and Cerro Bayo.