Analysts continue to bet on MAG Silver Corp. (MAG:TSX; MAG:NYSE American) as it waits for the electricity hookup to open its large-scale Juanicipio mill in Mexico, and Stifel GMP analyst Stephen Soock has named the stock one of his “top picks” for the third quarter.
Soock lowered his target price CA$1 to CA$28.75, but the strength of the company’s “positive” second-quarter financials continues to rate MAG a Buy.
Many analysts are continuing to recommend MAG, including PI Financial, ROTH Capital Partners, Stifel GMP, Cormark Securities, and H.C. Wainwright & Co. At least nine have Buy ratings on the stock.
“We look forward to the final electrical connection allowing the ramp up to commercial production at the Juanicipio mill, inaugural results from the Cesantoni target at the JV (just 4km from the Juanicipio mine), and initial assays from MAG's recently acquired, 100%-owned Larder property in the Abitibi as near-term catalysts,” Soock wrote in an August 18, 2022 note.
Many analysts are continuing to recommend MAG, including PI Financial, ROTH Capital Partners, Stifel GMP, Cormark Securities, and H.C. Wainwright & Co. At least nine have Buy ratings on the stock.
Catalyst
The company generated CA$19.2 million in cash during Q2 from processing 154,000 tonnes of material for 2.2 Moz Ag, 5,119 ounces gold (Au), and 1,599 tonnes zinc. The average silver grade for the quarter was 567 g/t. At the end of the quarter, the Juanicipio project held a cash balance of CA$37.5 million, up from CA$18.2 million at the end of Q1.
The new 4,000 tonnes per day plant was due to come online at the end of 2021, but the state-owned electrical utility Comisión Federal de Electricidad said it would not immediately approve the plant's connection to the electrical grid because of the need to install further equipment on the system.
Approval for the electricity hookup could come in the coming weeks. The mill is still expected to be 85-90% online by the end of the year.
“We look forward to the final electrical connection at Juanicipio and exploration drill results across MAG's portfolio as a near-term positive catalyst,” Soock wrote.
Company Soon to Be Reranked Producer
The company’s production estimates for the year have continued to beat analysts’ estimates as it mines the Bonanza zone of the Valdecañas vein in the Zacatecas state of Mexico. A preliminary economic assessment (PEA) in 2017 estimated a 19-year mine life with 4,000 tonnes per day.
The district is characterized by veins that appear to be fed by an ore fluid upwelling zone. Valdecañas is one of two such zones.
MAG owns 44% interest in the project, and Fresnillo owns the remaining 56%. The mine generated nearly 252,000 tonnes of mineralized material last year, including 3.2 million ounces of silver and 6,577 ounces of gold, MAG said.
It completed a CA$46 million equity financing last November, but the project has been able to fund itself this year with the amount of cash it has been taking in.
“We believe that MAG is one of the better options for investors looking for exposure to silver, given its 44% interest in the world-class Juanicipio joint venture (JV), which is a district scale, low cost, high-grade silver development project with a strong partner and meaningful exploration potential,” wrote analyst Brian MacArthur of Raymond James Ltd. on August 15, 2022. “Given the quality of the asset, a strong partner, MAG's financial position, and excellent exploration potential, we rate the shares Outperform.”
MacArthur set a target price of CA$26.
“We are a true silver play, we have extraordinarily high margins relative to others. Analysts see the case we are making now with the plant still not hooked up, so they know there is lots to come."
—MAG President and Chief Executive Officer George Paspalas
Analyst Don DeMarco of National Bank of Canada ranked the stock Outperform with a CA$23.50 target.
“We are encouraged that MAG has not incurred a cash call since Q4/21,” the analyst wrote on Aug. 15.
MAG President and Chief Executive Officer George Paspalas said there’s a compelling case to buy MAG now before the plant opens and the company rerates to producer status.
“We are a true silver play; we have extraordinarily high margins relative to others,” Paspalas told Streetwise Reports. “Analysts see the case we are making now with the plant still not hooked up, so they know there is lots to come, and we still represent a very viable exploration story.”
MAG continues to explore and develop the rest of the Juanicipio property, its Deer Trail project in Utah, and the Larder gold project, which it gained with the purchase of Gatling Exploration Inc. earlier this year.
Share Structure and Institutions
Top shareholders include Juanicipio project operator Fresnillo with 10%, BlackRock Asset Management with 6.9%, Sprott Asset Management with 5.2%, Van Eck Associates with 4.7%, mining financier Eric Sprott with 4.6%, First Eagle Investment Management with 4.2%, and ETF Managers Group with 2.6%.
MAG Silver has a market cap of CA$1.85 billion and 98.7 million shares outstanding, 97.7 million free-floating. It trades in a 52-week range of CA$29.28 to CA$15.75.
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Disclosures
1) Steve Sobek wrote this article for Streetwise Reports LLC. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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