MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) just reported Q3/23 financial results were mixed when compared to PI Financial's estimates, reported analyst Chris Thompson in a November 10 research note.
Compelling Return Potential
As such, PI reiterated its CA$17.50 per share target price on the Canadian silver company, currently trading at CA$13.89 per share, noted Thompson. The difference between these prices implies an attractive potential gain of 26% for investors.
MAG remains a Buy.
Cost of Sales Stands Out
As for MAG's Q3/23 financial results, Thompson pointed out the overall cost of sales was high during the quarter and offset the "robust production" that MAG prereported.
"We see the reduction of these costs as a key component required to drive a higher free cash flow:enterprise value yield and subsequent rerating," the analyst commented.
Thompson also reported that MAG's Q3/23 cash flow per share, excluding working capital, was (CA$0.03). This was slightly higher than PI's forecast of (CA$0.04) but lower than the consensus estimate of (CA$0.02).
Adjusted earnings per share (EPS) was notably lower than projections, coming in at CA$0.08 per share. In comparison, PI and consensus expectations were CA$0.19 and of CA$0.16, respectively.
"The significant EPS miss can be largely attributed to the higher-than-anticipated cost of sales and a roughly US$24 million (US$24M) negative income tax expense," Thompson explained.
Overall, MAG ended Q3/23 with about US$59M in cash and cash equivalents.
JV Monies to MAG
In Q3/23, Thompson reported the Juanicipio joint venture repaid MAG about US$11.3M in loan principal plus interest but has yet to pay the mining company the first cash installment.
The amount of the first payment is unknown, but PI estimates it will amount to about 50% of MAG's 44% equity income from the quarter, increasing to 80% next year.
"We anticipate guidance from management in Q1/24 regarding cash repayment, costs, and production," wrote Thompson.
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Important Disclosures:
- Mag Silver Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for PI Financial, Mag Silver Corp., November 10, 2023
Analyst Certification I, Chris Thompson, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this report. I am the research analyst primarily responsible for preparing this report.
Research Disclosures PI Financial Corp. and/or its affiliates expect to receive or intend to seek compensation for investment banking services from the subject company.
General Disclosure The affiliates of PI Financial Corp. are PI Financial (US) Corp., PI Financial Services Corp., and PI Capital Corp. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is amongst other factors determined by revenue generated directly or indirectly from various departments including Investment Banking. Evaluation is largely on an activity-based system that includes some of the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance, and client feedback. Analysts and all other Research staff are not directly compensated for specific Investment Banking transactions. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of PI Financial Corp.
