As it continues to ramp up production at its new large-scale processing plant in Mexico, MAG Silver Corp. (MAG:TSX; MAG:NYSE American) is reporting first-quarter production totals from the flagship project.
The new plant has 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 project partner Fresnillo Plc.'s Saucito and Fresnillo plants.
Total Juanicipio project production for the first quarter, based on provisional estimates before offtake agreement adjustments, was 2.25 million ounces silver (Moz Ag) and 6,047 ounces gold (Au).
"We anticipate a ramp up to nameplate in the coming quarters and note our Q4/23 nameplate estimate is likely conservative . . . with the Juanicipio plant achieving 3,900 tpd (tonnes per day) intermittently through Q1 and rates of 3,700 tpd achieved throughout a three-week period," analyst Chris Thompson of PI Financial wrote in an April 26 research note. "We anticipate annual production of ~22.4M oz AgEq — roughly double 2022's production."
Chris Thompson of PI Financial rated the stock Buy with a target price of CA$21.15 per share.
Thompson rated the stock Buy with a target price of CA$21.15 per share.
Fresnillo reported that about 222,000 tonnes of mineralized material from underground stopes and low-grade stockpiles were processed during the three months ending March 31. The average silver head grade was 363 grams per tonne (g/t).
During March, milling rates at the new plant were about 60% of design, yielding an average of 2,476 tpd with rates occasionally reaching 3,900 tpd, the company said.
Performance over the last three weeks has increased to consistent delivery rates of 3,700 tpd with fewer unplanned stoppages.
"With the initial concentrate shipments behind us, our attention is now on achieving commercial production at Juanicipio," MAG Silver President and Chief Executive Officer George Paspalas said. "We have experienced some really promising days with milling rates at or around 4,000 tonnes per day. Our goal is to transform these good days into solid quarters and solid quarters into outstanding years."
The Catalyst: Transitioning to a Producer
The new plant had been planned to go online by the end of 2021 after construction began in 2019, but the state electric authority said just before Christmas 2021 year that more equipment needed to be installed on the system for the electrical hookup. The power was hooked up in December 2022, and the plant has since begun operations.
MAG is mining the Bonanza zone of the Valdecañas vein in the Zacatecas state of Mexico. A preliminary economic assessment (PEA) in 2017 estimated a 19-year mine life with 4,000 tonnes per day.
"But given MAG is transitioning from a developer into a producer, we believe that current EPS are not as relevant," wrote analyst Brian MacArthur of Raymond James, who rated the stock Outperform with a target of CA$25.
The company recorded a net income of US$17.6 million, or US$0.18 per share, for the year ending Dec. 31, 20221. That's compared to US$6 million or US$0.06 per share the year before. It reported a net loss of US$825,000 or US$0.01 per share for the fourth quarter of 2022, compared to a net income of US$8.6 million or US$0.09 per share in Q4 2021.
"But given MAG is transitioning from a developer into a producer, we believe that current EPS are not as relevant," wrote analyst Brian MacArthur of Raymond James, who rated the stock Outperform with a target of CA$25.
"We believe that MAG is one of the better options for investors looking for exposure to silver," MacArthur wrote.
Many analysts stuck by MAG through the plant's delay, including Stifel GMP analyst Stephen Soock, who named the stock one of his "top picks" for the third quarter of 2022. He continued to rate the stock a Buy with a CA$25.75 target last month.
"Over the next three years, we expect the company to generate CA$170 (million) in free cash flow at current spot prices for a yield of 4.6%," Soock wrote.
Market Set to Grow
The global silver market will see a compound annual growth rate (CAGR) of 9.83% through 2030, according to Market Research Future.
And demand for the precious metal was predicted to reach a new high of 1.21 billion ounces in 2022, up 16% from the year before, according to the Silver Institute. Industrial demand, including vehicle electrification and other green technologies, was on course to grow to 539 million ounces (Moz) during that time.
According to the Silver Institute. Industrial demand, including vehicle electrification and other green technologies, was on course to grow to 539 million ounces (Moz) during that time.
The institute said the global silver market is forecasted to record a second consecutive deficit between supply and demand this year. At 194 Moz, it will be a multi-decade high and four times 2021's level.
Silver is used to coat electrical contacts and is an important element in solar technology. Almost all computers, phones, cars, and appliances contain it.
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MAG Silver Corp. (MAG:TSX; MAG:NYSE American)
"Developments such as ongoing vehicle electrification (despite sluggish vehicle sales), growing adoption of 5G technologies, and government commitments to green infrastructure will have industrial demand overcome macro-economic headwinds and weaker consumer electronics demand," the report said.
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 with 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$1.8 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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