MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) new processing plant at its 44%-owned Juanicipio mine in Zacatecas, Mexico, achieved full capacity of 4,000 tonnes per day (tpd) in September, the company said as it announced third-quarter production figures.
No feed was supplied to nearby plants owned by joint operator Fresnillo Plc. in both August and September, enabling MAG to make the "successful transition to a fully independent producer," the company said in a release.
"We are impressed with the delivery of Q3/23 operating results ahead of our expectations," PI Financial analyst Chris Thompson wrote on Wednesday. "We note a slight drop in processing due to material becoming solely processed through Juanicipio, though this was offset by higher head grades. With reliance on Fresnillo's Fresnillo and Saucito plants now in the rearview mirror, we see the JV as well-positioned to deliver Q4/23."
Thompson, who continued to rate the stock a Buy with a target price of CA$19.15 per share, wrote that he anticipated "longer periods operating at nameplate capacity across Q4/23."
Analyst Kevin O'Halloran of BMO Capital Markets wrote Wednesday that BMO had updated its production estimates from Juanicipio to reflect improving recoveries in the coming quarters.
PI Financial's Chris Thompson, who continued to rate the stock a Buy with a target price of CA$19.15 per share, wrote that he anticipated "longer periods operating at nameplate capacity across Q4/23."
"Now that nameplate production is achieved, MAG indicated that the next focus will be on optimization," wrote O'Halloran, who rated the stock Outperform with a CA$23.50 per share target price. "We expect that fine-tuning at the plant will yield improving recoveries over the coming quarters."
MAG President and Chief Executive Officer George Paspalas said, "Juanicipio reaching its design capacity and transitioning to a stand-alone operation is a testament to the team's dedication and hard work. This significant step forward not only showcases Juanicipio's place as a cornerstone asset for MAG but also solidifies MAG's stature as a premier silver producer. Our focus is now on ongoing project optimization leading to robust cash flow generation and delivering exceptional value to our stakeholders."
The Catalyst: Beating Expectations
As reported by Fresnillo, a total of 322,249 tonnes of mineralized material was processed across the Juanicipio and Saucito plants during the quarter. The average silver head grade was 523 grams per tonne (g/t). Preliminary production estimates for the quarter, before any adjustments from offtake agreements, totaled 4.8 million ounces silver (Moz Ag) and 9,444 ounces gold (Au).
"MAG delivered 9.4k oz Au, beating our expectation at 8.5k oz Au," Thompson wrote. "Gold grade milled was also significantly higher than expected (1.32 g/ t vs. 0.98 g/t E)."
MAG said it expected to release its comprehensive financial and operational results on November 10.
"We expect these strong (but in line) operating results to translate into FCF (free cash flow) for MAG when the Q3 financials (are) released," wrote Stifel analyst Stephen Soock, who rated the stock a Buy.
"We expect these strong (but in line) operating results to translate into FCF (free cash flow) for MAG when the Q3 financials (are) released," wrote Stifel analyst Stephen Soock, who rated the stock a Buy.
For the company's second-quarter earnings, MAG reported a net income of US$19.4 million, or US$0.19 per share, for the three months ending June 30, vs. US$7.6 million or US$0.08 per share for the same three months in 2022.
Cormark Securities analyst Nicolas Dion noted that the ramp-up at Juanicipio "has gone very well," and he predicted strong cash flow generation from the project.
"Despite this, MAG is trading at the low end of its range," wrote Dion, who rated the stock a Buy with a US$24 per share target price. "We see having Fresnillo as the operator as a key advantage, and the transition to full-scale production in H2/23 could be a catalyst to drive the multiple higher. MAG is our pick for a quality silver name."
Focus Shifts to Optimization
MAG is mining the Bonanza zone of the Valdecañas vein system in the Zacatecas state of Mexico. A preliminary economic assessment (PEA) in 2017 estimated a 19-year mine life.
The company's focus is turning from construction to optimization at the plant, analyst Craig Hutchison of TD Securities wrote.
"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," wrote Hutchison, who has rated MAG a Speculative Buy with a CA$24 per share target price. "We expect MAG to start receiving its share (44%) of dividends from 2024."
Cormark Securities analyst Nicolas Dion noted that the ramp-up at Juanicipio "has gone very well," and he predicted strong cash flow generation from the project.
Analyst Brian MacArthur of Raymond James wrote that those dividends would make the stock even more attractive.
"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$23 per share.
Canaccord Genuity analyst Lucas Pamatat expected the mill to operate at capacity "going forward," forecasting annual production of about 21 Moz Ag.
"With the mill now ramped up, we continue to believe that ore will be processed solely at the Juanicipio mill," wrote Pamatat, who kept a Speculative Buy rating on the stock with a target price of CA$23 per share.
H.C. Wainwright & Co. analyst Heiko F. Ihle has instituted a Buy rating on the stock with a US$20.50 per share target price.
Streetwise Ownership Overview*
MAG Silver Corp. (MAG:TSX; MAG:NYSE American)
"Following the successful commissioning period of Juanicipio's processing facility, the operation continues to perform in line with expectations," Ihle wrote.
Ownership and Share Structure
Institutions own 70% of MAG, and 30% is retail, according to the company.
Top institutional shareholders include BlackRock Asset Management at 10.1%, Juanicipio project operator Fresnillo Plc. with 9.1%, Van Eck Associates (ETF) at 9.1%, First Eagle Investment Management at 5.6%, ETF Managers Group LLC at 5.3%, Eric Sprott 4.4%, Sprott Asset Management at 3.2%, the company said.
MAG Silver has a market cap of CA$ 1.51 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$13.39.
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