Why These Analysts Like This Silver Producer With a New Processing Plant

MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) new Juanicipio processing plant in Mexico achieved commercial production status this month.

It was slated to open by the end of 2021, but local requirements delayed its electricity hookup by a year.

Despite the delay, several analysts — including those from PI Financial, TD Securities, Stifel GMP, and Canaccord Genuity — continue to rate the stock a Buy.

"Following a six-month ramp-up period, achieving commercial production at Juanicipio was a key step for MAG as it completes its transition from an explorer/developer to a producer," Canaccord analyst Michael Fairbairn wrote on June 5, the day MAG announced commercial production at the plant. "Going forward, we expect cash flow from Juanicipio will fund MAG's exploration objectives … with the remainder returned to shareholders, possibly via share buybacks or an inaugural dividend."

Canaccord analyst Michael Fairbairn has rated MAG a Speculative Buy with a CA$26 per share target.

Fairbairn has rated MAG a Speculative Buy with a CA$26 per share target.

The Juanicipio mill is operating at about 85% of its design capacity of 4,000 tonnes per day (tpd), the company said. Silver recovery has consistently been above 88% and about 3.2 million ounces silver (Moz Ag) were produced from March to the end of May.

Production is expected to grow steadily and reach design capacity in Q3.

Commercial production at the plant "completes our transformation from developer to producer," MAG's President and Chief Executive Officer George Paspalas said at the time. "Today marks the beginning of a very exciting and dynamic growth phase for MAG as we combine stable, high-margin silver production with the ongoing high-grade exploration potential that has made and continues to make MAG so unique."

The Catalyst: Mill Ramping Up to Capacity

MAG is mining the Bonanza zone of the Valdecañas vein in the Zacatecas state of Mexico. It is jointly operating the mill with Fresnillo Plc. and receives 44% of the income.

The plant is expected to reach nameplate capacity by the end of the third quarter. Once the power was hooked up, the plant's ramp-up "was in line with our model," wrote analyst Stephen Soock of Stifel GMP.

The plant is expected to reach nameplate capacity by the end of the third quarter. Once the power was hooked up, the plant's ramp-up "was in line with our model," wrote analyst Stephen Soock of Stifel GMP.

It was "fast, but expected given that the mill was 'hyper pre-commissioned' due to the power connection delays," wrote Soock, who has maintained a Buy rating on the stock with a CA$26 per share target price. "We currently model Q3 production of 3.8 Moz Ag (on a 100% basis), slightly above the company's expectation."

Soock wrote that partner Fresnillo has a long history of operating underground in the district and brings "best in class" practices to the project.

MAG continues to explore at Juanicipio, drilling 25,858 meters in 2022, with another 4,109 meters of infill drilling in the first quarter of this year. Assay results are pending. 

"The Juanicipio deposit continues to grow as it is drilled, and MAG's 'exploration mindset' has resulted in the discovery of a new mineralized vein set, which could drive additional discoveries as the model is applied more widely," Soock wrote. "We believe there are additional economic ore deposits on the JV ground, the value of which will be realized in the market after Juanicipio reaches commercial production by July 2023 and focus shifts to regional exploration."

Soock named the stock one of his "top picks" for the third quarter of 2022. 

Focus Turning to Optimization

The company's focus is turning from construction to optimization at the mill, analyst Craig Hutchison of TD Securities wrote in a note on the day of the announcement.

"With all major construction work now complete, the operation team is looking to improve and optimize the mine to achieve and potentially exceed design capacities," Hutchison wrote.

Craig Hutchison of TD Securities rated MAG a Speculative Buy with a CA$25 per share target price.

He rated MAG a Speculative Buy with a CA$25 per share target price.

"Investments in Juanicipio should be largely done by mid-year, and we expect MAG to start receiving its share (44%) of dividends from 2024," he wrote.

That money flowing in from the plant will increase the attractiveness of the stock, analyst Brian MacArthur of Raymond James has written.

"We believe that MAG is one of the better options for investors looking for exposure to silver," MacArthur wrote, rating the stock Outperform with a target of CA$24.50 per share.

Analysts Say Progress Is Encouraging

MAG recorded US$7.9 million as its 44% in first-quarter income from the large-scale Juanicipio plant after splitting the cash with Fresnillo.

The plant produced its first concentrate and started shipping commercial lead and zinc concentrates in March. About 30% of the Q1 totals reported were processed through the plant, the rest through Fresnillo's Saucito and Fresnillo plants.

The company said about 2 million payable silver ounces, 5,291 payable gold ounces, 1,281 payable lead tonnes, and 1,656 payable zinc tonnes were produced and sold during the quarter.

Analyst Chris Thompson of PI Financial wrote that the anticipated Q3 nameplate capacity of the plant was encouraging and ahead of his Q4/23 assumption.

Analyst Chris Thompson of PI Financial wrote that the anticipated Q3 nameplate capacity of the plant was encouraging and ahead of his Q4/23 assumption.

"We anticipate updates through to year-end as Juanicipio achieves nameplate capacity and material processed through the nearby Saucito and Fresnillo beneficiation plants is reduced," Thompson wrote on June 5. "We also anticipate an improvement in feed grade at the Juanicipio plant from low head grades which were a direct result of the processing of lower grade stockpiles earmarked for commissioning." 

Almost all computers, phones, cars, and appliances contain some silver, which is used to coat electrical contacts and is an important element in solar technology.

The World Silver Survey 2023, published by the Silver Institute, said there was a 237.7 Moz deficit between supply and demand for the precious metal in 2022. This deficit is likely to be repeated in 2023, the institute said. 

"This environment is positive for safe-haven assets like silver (and gold)," the report said. "Similarly positive is the market deficit that silver will remain in this year."

Ownership and Share Structure

Institutions own 71% of MAG, and 29% is retail, according to the company.

Top institutional shareholders include Juanicipio project operator Fresnillo Plc. with 9.9%, BlackRock Asset Management at 8.8%, ETF Managers Group LLC at 5.3%, Sprott Asset Management at 5.1%, and First Eagle Investment Management at 5%, the company said.

MAG Silver has a market cap of US$1.76 billion. It has 102.9 million shares outstanding, according to TSX Infosuite. It trades in a 52-week range of US$22.96 and US$13.60.

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1. MAG Silver Corp. is a billboard sponsor of Streetwise Reports and has paid SWR a sponsorship fee between US$3,000 and US$5,000.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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