Several industry analysts traveled to Mexico to visit MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) Juanicipio project in Mexico last week after its mill hit nameplate status and helped the company make the full transition to being a producer.
One of the analysts, Stifel's Stephen Soock, called the mine portion's development "extremely impressive."
"The mine infrastructure is of a caliber we have not seen before anywhere else," wrote Soock, who has given the stock a Buy rating with a CA$23 per share price target.
"Grades continue to be very strong with one longitudinal retreat stope we visited grading 852 (grams per tonne silver equivalent) g/t Ag Eq over 185 (meter) strike length — roughly two weeks' worth of mill feed," he also noted.
The mill itself is running at its 4,000 tonnes per day (tpd) rate with the focus now on improving recoveries, Soock said.
One of the analysts, Stifel's Stephen Soock, called the mine portion's development "extremely impressive."
"We look forward to the resource update for Juanicipio and updated mine plan in Q1, which 'may include an inaugural declaration of reserves,'" Soock wrote.
Earlier this month, MAG reported a net income of US$8.9 million or 9 cents per share in the three months ending Sept. 30, compared to US$8.2 million or 8 cents per share in the same quarter of 2022.
The Canadian silver company also recorded its first payment from its 44% share of income from the Mexican plant — US$13.7 million from operations and loan interest.
A total of 322,249 and 921,990 tonnes of mineralized material were processed in the Juanicipio and Fresnillo's Saucito plant during the quarter, respectively, the company said. No feed was supplied to Saucito or Fresnillo's other nearby plant in August or September.
The Catalyst: Built for a 'Long and Productive Mine Life'
BMO Capital Markets analyst Kevin O'Halloran also was impressed. He said the visit "highlighted the impressive infrastructure at the mine, which has clearly been built for a long and productive mine life."
Highlights included three portals to an underground decline/ramp system with concrete floors, concreted underground production decline for 50-ton trucks, and a large underground workshop and office area.
"At the plant, room has been left for potential future expansion, including a possible copper recovery circuit for later in the mine life," O'Halloran wrote in an updated research note on Monday. He rated the stock Outperform with a target of CA$23.50 per share.
"Overall, we were impressed with the extensive infrastructure put in place that we expect will facilitate ongoing low-cost production," he wrote. "Optimizations at the process plant and underground mine have potential to provide incremental cost improvements."
BMO Capital Markets analyst Kevin O'Halloran said the visit "highlighted the impressive infrastructure at the mine, which has clearly been built for a long and productive mine life."
O'Halloran said exploration potential for the project, including near-mine opportunities like expanding mineralization at the Valdecañas, Juanicipio, Anticipada, and Pe-Anticipada veins.
"MAG highlighted the potential to drive an exploration drift that could be used as a drill platform from underground, negating the need for additional drill permits," he wrote.
Analyst Craig Hutchison of TD Cowen wrote that he came away with a "positive view" of the project.
"The operation is well-built, in our view, with good underground access, an impressive underground maintenance facility, and room for expansion in the mill, including the potential to add a copper-circuit and twin the concentrator plant should further exploration work ultimately prove successful," Hutchison wrote.
He considered the stock a Buy with a CA$21 per share 12-month target price.
Hutchison said he believed silver grades would stay elevated through the end of the quarter and modeled a 2024 production total of 14.7 million ounces (Moz) Ag.
"The next two or three years should be among the best years for Juanicipio as we expect above average grades to drive strong FCF (free cash flow), which can be repatriated to MAG in the form of shareholder loan repayments and dividends," Hutchison wrote. "We expect MAG to use these proceeds to continue to invest in exploration across its asset base and to look to return capital to shareholders in the form of future dividends or buybacks."
Silver Deficit Likely to Continue
MAG is mining the Bonanza zone of the Valdecañas vein system in the Zacatecas state of Mexico. A preliminary economic assessment (PEA) in 2017 estimated a 19-year mine life.
The most conductive element in nature, silver is used to coat electrical contacts in computers, phones, cars, and appliances. It's also an important element in solar and fuel cell technology.
Streetwise Ownership Overview*
MAG Silver Corp. (MAG:TSX; MAG:NYSE American)
The World Silver Survey 2023, published by the Silver Institute, said there was a 237.7 Moz deficit between supply and demand for the precious metal in 2022. This deficit is likely to be repeated in 2023, the institute said.
Ownership and Share Structure
Institutions own 70% of MAG, and 30% is retail, according to the company.
Top institutional shareholders include Juanicipio project operator Fresnillo Plc. with 9.1%, BlackRock Asset Management at 9.9%, ETF Managers Group LLC at 5.3%, Sprott Asset Management at 5.1%, and First Eagle Investment Management at 5.6%, the company said.
MAG Silver has a market cap of CA$ 1.65 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$13.26.
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