Lower Costs Help Silver Co. Beat Earning Predictions

MAG Silver Corp. (MAG:TSX; MAG:NYSE American) has released its Q4 2023 and full-year financial results, coming in ahead of several analysts' predictions for adjusted earnings-per-share (EPS) at its new Juanicipio plant in Mexico.

The adjusted EPS of US$0.15 beat Scotiabank analysts Ovais Habib and Eric Winmill's estimate of US$0.10, they reported in an updated research note.

"We ascribe a positive bias to the Q4 results as the company's earnings exceeded ours and consensus expectations on lower costs," they noted. "We continue to look forward to the detailed 2024 guidance, which we expect will coincide with the release of the updated technical report by the end of Q1/24."

The analysts attributed the results to lower operating costs. The Juanicipio joint venture (JV) delivered robust cost performance with a cash cost of US$3.76 per silver ounce sold (43% below Scotiabank's estimate) and an all-in sustaining cost (AISC) of US$9.17 per ounce of silver sold in the fourth quarter, the company said. The bank had estimated AISC for the quarter at US$11.60 per ounce Ag, or 21% less than MAG reported.

"The company ended the year with US$68.7 million in cash (vs. US$58.5 million in Q3) after receiving cash of US$18.8 million from the JV for shareholder advances (interest and loan principal repayments) during Q4," noted the analysts, who gave the stock a target price of US$15.

Co. Reports Net Income of US$48.66 Million

Juanicipio is in 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. An updated technical report for the project is due next week.

MAG reported net income of US$48.66 million, or US$0.47 per share, driven by the income from the plant, and adjusted EBITDA of US$29.79 million for the year ending December 31.

The JV between MAG and operator Fresnillo Plc (40% is MAG Silver's share) achieved silver production of 4.5 million ounces (Moz) during the fourth quarter and 16.8 Moz for 2023.

Stifel's Stephen Soock maintained his Buy rating on MAG on the strength of the results and set a target price of CA$19 per share.

A total of 346,766 tonnes of material at a head grade of 467 grams per tonne (g/t) were processed at Juanicipio in the fourth quarter. MAG said milling performance for 2023 totaled 1.27 million tonnes at a head grade of 472 g/t.

MAG also recently announced preliminary 2024 guidance for the mine. Fresnillo reported the silver head grade at the project is expected to range between 380 g/t and 420 g/t for the year, "translating to significant silver production potential," the company said in a release.

Stifel's Stephen Soock maintained his Buy rating on MAG on the strength of the results and set a target price of CA$19 per share.

The company also beat Soock's predicted adjusted EPS of US$0.12 per share, and he noted the JV held US$43 million in cash at the end of the year, higher than the firm's modeled target of a "US$30 million cushion."

"We believe the market is focused on MAG returning capital to shareholders starting in a few months," Soock wrote. "While MAG does hold US$68 million in cash (less US$11.3 million in flow-through), we think investors would like to see more cash become available to be distributed."

The Catalyst: Technical Report Expected

Soock said the updated mine plan due next week would be the first data point since the 2017 PEA.

"We believe the stock has underperformed (-18% vs SILJ over the last six months) as the market has become more cautious about the free cash flow outlook from the operation ahead of this upcoming reset of expectations," he wrote.

BMO Capital Markets had predicted an adjusted EPS of US$0.11. Analyst Kevin O'Halloran rated the stock Outperform with a CA$24 per share target price.

"In addition to the updated Juanicipio technical report expected by the end of this month, we will also be watching for ongoing exploration results from MAG's Deer Trail and Larder exploration properties, where drilling in 2024 will follow up on positive results achieved at both projects in 2023," O'Halloran wrote in an updated research note.

Analyst Cosmos Chiu of CIBC Capital Markets also noted that exploration continues to be important for the company, not just at Deer Trail and Larder. He rated the stock Neutral with a target price of CA$17.50 per share.

"At Juanicipio, infill drilling in 2023 continued to confirm defined mineralization with a focus on upgrading and expanding the Valdecañas Vein System at depth and further defining areas to be mined in the near future," the analyst wrote on March 19. "A total of 13.3 (kilometers) were drilled from surface and 22 (kilometers) from underground."

Silver Bull Market Coming?

The most conductive element in nature, silver coats electrical contacts in computers, phones, cars, and appliances. It's also an important element in solar and fuel cell technology. 

The precious metal opened the year at US$23.08 per ounce and was at US$24.95 Thursday morning. Some analysts are very bullish on its future this year. Investinghaven.com predicted a target price of US$34.70 and said the price could go as high as US$48 in mid-2024 or mid-2025.

"We reiterate our bullish stance about the silver market," noted the site, which identified silver as the strongest precious metal going into 2024-2026.

"In one of those years, silver will be touching US$50," the site noted. "We are convinced that silver will exceed US$50 before the end of 2026."

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 US$968.23 million. It has 102.97 million shares outstanding, according to Reuters. It trades in a 52-week range of US$14.42 and US$8.12.

Important Disclosures:

1. MAG Silver Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
3.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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