In a May 17 research note, National Bank of Canada analyst Don DeMarco reported the "most relevant" points from MAG Silver Corp.'s (MAG:TSX; MAG:NYSE A) Q1/21 filings and recent Juanicipio project update. The key topics were capex, cash and catalysts.
As for capex and cash, DeMarco noted that the MAG Silver–Fresnillo joint venture (JV) has increased its capex spending rate recently with the advancement of construction at the Mexico project. Specifically, in Q1/21, the JV spent US$34.0 million versus US$26.2 million in Q4/20. The firm's view is that most of the capex spent during Q1/21 was funded with Minera Juanicipio JV working capital, which was US$51.5 million and is now US$3.1 million.
The remaining total Juanicipio capex required is US$178.0 million, and MAG's share of that is US$77.0 million. DeMarco noted that the rate of capex spend quarter over quarter has picked up as construction advances. "MAG's remaining share from its own cash balance is now $77.0 mln (Q4/20 was $70.6 mln), with the increase reflecting MAG's ~unchanged cash balance of $92.8 mln (was $94.0 mln) despite $34 mln capex spend in the quarter," the analyst wrote.
"Netting the remaining capex from MAG's cash balance, we calculate a funding surplus of US~$15.8M, a comfortable amount," DeMarco commented. "With this, we view the project as fully funded."
DeMarco listed the upcoming and pending catalysts regarding the Juanicipio project. Construction-wise, they are the installation of major processing equipment, nearly done; installation of the semi-autogenous grinding and ball mills, expected in Q2/21; and completion of underground development, now at about 37 kilometers.
Once the new mill is up and running, one milestone will be achieving 40–50% of the facility's 4,000 tons per day capacity, expected by the end of 2021, the analyst stated. The goal of reaching 90–95% capacity is targeted for sometime in 2022.
Considering the information provided in the Q1/21 filing and Juanicipio update, DeMarco concluded that "the Juanicipio development is progressing on pace, fully funded with capex and timelines unchanged, aiming for commercial production in 2022," which is in line with prior messaging from Fresnillo.
The National Bank of Canada has an Outperform rating and a CA$27.00 per share target price on MAG Silver Corp., the current share price of which is about CA$26.20 per share.
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Disclosures from National Bank of Canada Financial Markets, MAG Silver Corp., Research Flash, May 17, 2021
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