In an October 27 research report, Scotia Capital Inc. (Scotiabank
Canada) Analyst Trevor Turnbull, MBA, MSc commented that
Canadian mining company MAG Silver Corp. (MAG:TSX; MAG:NYSE American), which is codeveloping the high-grade silver-gold-lead-zinc Juanicipio project in Zacatecas, Mexico is presently engaged in pre-commissioning activities and is on schedule for rapid production
ramp-up through early 2022.
Through a joint venture, MAG Silver holds a 44% interest in the Juanicipio project along with the project's operator, Fresnillo Plc., which owns the other 56%. The JV partners are now finalizing construction of new 4,000 tpd mill that is expected to be fully commissioned in Q4/21.
The analyst team covering gold and precious minerals at Scotia bank including Analyst Turnbull and Associates Ben de Wit, P.Eng, MEng, MFin and Charles Ehidiamhen, CFA, MBA, ACA, advised that the outlook for MAG Silver is very positive now that the new Juanicipio processing plant is approaching mechanical completion and pre-commissioning work has started.
Scotiabank pointed out that during Q3/21, the Juanicipio JV successfully processed more than 57,000 tonnes of development ore which was almost 20% greater than the 48,000 tonnes (16 Kt/mo.) that was previously scheduled.
The report noted that during the latest quarter, total pre-payable production at the Juanicipio mine was 668 Koz Ag and 1.1 Koz Au with MAG's 44% attributable share equating to 294 Koz Ag and approximately 0.5 Koz Au. Scotiabank noted that these values imply a grade of roughly 380 g/t Ag, which is slightly lower than the material grades recorded in H1/21.
The analysts stated that MAG Silver shares are currently trading at 1.20 times its spot silver and base metal valuation which is lower than other producing silver companies which typically are valued at higher than 1.5 times the spot price valuation metrics.
Scotiabank indicated that given current spot metal prices, MAG's revenue would come about 75% from silver, 14% from gold and remaining 11% from lead and zinc.
The analyst pointed out that the new processing plant at Juanicipio is now on track for commissioning and is now seeking authorization to connect to the national power grid commence no-load testing. It is anticipated that water testing will be performed this month (November) and that full load commissioning will initiated before the end of December 2021.
Scotiabank advised that its forecasting models call for commercial production to commence in Q2/22. The research firm stated that it projects a run rate of approximately 9 Moz Ag of pre-payable production attributable to MAG based upon it 44% attributable share in the JV. The analysts noted that all-in sustaining costs (AISC) at spot prices for the gold, lead and zinc by-product credits are expected to be lower than US$4.00/oz Ag.
Scotiabank stated that its net asset valuation is based on silver prices of $25.00/oz in 2022, $23.00/oz in 2024 and $20.00/oz thereafter.
The firm listed that some of the key risks for the company which hold true for most mining operations include the potential for multiple contraction, decreases in commodity prices and technical, operational and geopolitical risks.
Scotia Capital Inc. currently rates MAG Silver Corp. as a "Sector Outperform" with a 12-month price target of US24.00/share. The company's shares trade under the symbol "MAG" on the NYSE-American Exchange and last closed for trading on November 8, 2021 at US$20.88 per share. In addition to its U.S. listing, the firm's shares also trade under the same ticker symbol on the Toronto Stock Exchange and last closed for trading on November 9, 2021 at CA$26.02 per share.
Disclosure:
1) Stephen Hytha compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. 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.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: MAG Silver Corp. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for 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. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of MAG Silver Corp., a company mentioned in this article.
General Disclosures for Scotiabank, MAG Silver, Oct. 27, 2021.
This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject Scotiabank to any registration or licensing requirement within such jurisdiction. It is published solely for information purposes; it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy.
No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this document except with respect to information concerning Bank of Nova Scotia (TSX: BNS; NYSE: BNS).
This document is not intended to be a complete statement or summary of the securities, markets or developments referred to in this document. Scotiabank does not undertake to update or keep current the information contained herein, nor make any commitment as to the frequency of publication.
Any opinions expressed in this document may change without notice and may differ or be contrary to opinions expressed by other business areas or groups of Scotiabank. Any statements contained in this document attributed to a third party represent Scotiabank’s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Nothing in this document constitutes a representation that any
investment strategy or recommendation is suitable or appropriate to an investor's individual circumstances or otherwise constitutes a personal recommendation. Investments involve risks, and investors should exercise prudence and their own independent judgement in making their investment decisions and carefully consider any risks involved.
The financial instruments that may be described in this document may not be eligible for sale in all jurisdictions or to certain categories of investors. Instruments such as options, derivative products, and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates or other market conditions. Foreign currency rates of exchange may adversely affect the value, price, or income of any security or related instrument referred to in this document. For investment advice, trade execution, or other enquiries, clients should contact their local sales representative. The value of any investment or income may go down as well as up, and investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance.
To the full extent permitted by law, neither Scotiabank nor any of its directors, employees or agents accepts any liability whatsoever for any direct or consequential loss arising from any use of the information or this document. Nothing in this document constitutes financial, investment, tax, accounting or legal advice. Investors should seek their own legal, financial and tax advice regarding the appropriateness of investing in any securities or pursuing any strategies discussed in the document. Any prices stated in this document are for information purposes only and do not represent real-time valuations for individual securities or other financial instruments. There is no representation that any transaction can or could have been effected at those prices, and any prices do not necessarily reflect Scotiabank's internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions by Scotiabank or any other source may yield substantially different results. All pricing of securities in reports is based on the closing price of the securities' principal marketplace on the night before the publication date, unless otherwise explicitly stated.
The Research Analyst(s) responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information.
In the normal course of offering investment and banking products and services to clients, Scotiabank may act in several capacities (including issuer, market maker, underwriter, distributor, index sponsor, swap counterparty, and calculation agent) simultaneously with respect to a product, giving rise to potential conflicts of interest. Scotiabank uses controls such as information barriers to manage conflicts should they arise. Scotiabank and its affiliates, officers, directors, and employees may have long or short positions (including hedging and trading positions), trade as principal and buy and sell in instruments or derivatives identified herein; such transactions or positions may be inconsistent with the opinions expressed in this document.
Readers should expect that Scotiabank will from time to time perform services (including investment banking or capital market services) in connection with the services and activities described in this document and that they may perform services for and engage in transactions with other market participants, including the issuers of certain of the investments underlying the transactions herein.
The information in this document has been prepared without taking into account any investor's objectives, financial situation or needs, and investors should, before acting on the information, conduct independent due diligence when making an investment decision and consider the appropriateness of the information, having regard to their objectives, financial situation and needs.
