New Plant at Mexico Mine Reaches Capacity
Research Report

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Disclosures for BMO Capital Markets, Mag Silver, October 25, 2023

Analyst's Certification I, Kevin O'Halloran, hereby certify that 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. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services.

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The Q3/23 highlight of MAG Silver Corp. (MAG:TSX; MAG:NYSE American) and Fresnillo's joint venture project in Mexico, Juanicipio, was the new processing plant reaching nameplate production, reported BMO Capital Markets analyst Kevin O'Halloran in an October 25 research note.

"This achievement marks the end of the ramp-up period, and the mine has transitioned to solely processing ore at the Juanicipio plant after processing additional material at Fresnillo's Saucito and Fresnillo plants," O'Halloran wrote.

Compelling Return Projected

Following MAG's release of Q3/23 production numbers (full Q3/23 financial results are due November 10), BMO reiterated its CA$23.50 per share target price on the Canadian silver producer. In comparison, the company's current share price is about CA$14.97.

The difference between these two prices implies an attractive total return for investors of 57%.

MAG remains rated as Outperform.

Milestone Reached at Plant

O'Halloran reported that the Juanicipio plant reached a nameplate capacity of 4,000 tons per day in September. This achievement met management guidance of attaining the goal by the end of Q3/23.

Now, the focus is on optimizing Juanicipio, according to MAG, the analyst wrote.

Because none of the material mined at Juanicipio was processed at Fresnillo's plants in August and September, as it had been previously, total throughput and, thus, production in Q3/23 were lower than they were in Q2/23, reported O'Halloran.

Silver and gold production in Q3/23 came in below BMO's forecasts.

Actual silver production at Juanicipio in Q3/23 was 4,782,000 ounces (4.782 Moz) of silver, 3% lower than BMO's forecast of 4.938 Moz. Gold production amounted to 9,444 oz (9.444 Koz) versus BMO's projected 10.2 Koz.

Q3/23 production attributed to MAG was 2.1 Moz of silver and 4.155 Koz of gold.

Throughput at Juanicipio in Q3/23 was "roughly in line," O'Halloran noted, averaging 3,540 tons per day.

Meanwhile, head grades "were strong" and slightly higher than BMO's projections, the analyst reported. For silver, they were 523 grams per ton (523 g/t), and for gold, 1.32 g/t.

Metal Recoveries To Blame

O'Halloran ascribed the production miss at Juanicipio to lower-than-expected metal recoveries. Specifically, BMO expected silver recovery to average 94.8% when, in fact, it averaged 88.3%. Gold recovery averaged 69.1%.

"We expect that fine-tuning at the plant will yield improving recoveries over the coming quarters," O'Halloran commented.

2023 Production Revised

BMO revised its Juanicipio production estimates for the next couple of quarters, O'Halloran wrote, "to reflect an improving recovery trajectory."

For the full year 2023 (FY23), BMO's new total production forecasts are 17 Moz of silver and 36 Koz of gold, down from 17.4 Moz silver and 38.2 Koz gold.

As for production attributable to MAG in FY23, BMO projects it to be 7.5 Moz of silver and 15.8 Koz of gold.