Analysts Expect Silver Co.'s Cash Flow To Increase

MAG Silver Corp. (MAG:TSX; MAG:NYSE American) nearly doubled its net income from the first quarter of 2022 to the first quarter of this year as the company ramped up production at its new processing plant in Mexico.

The company reported a net income of US$4.7 million, or 5 cents per share, for the three months ending March 31, 2023, versus US$2.7 million, or US$0.03 per share, for the same period in 2022.

That EPS beat analyst Stephen Soock of Stifel GMP's forecast of US$0.04 per share because of "higher realized prices for gold offset by higher processing and mining costs in relation to ramping up activities at Juanicipio."

That EPS beat analyst Stephen Soock of Stifel GMP's forecast of US$0.04 per share because of "higher realized prices for gold offset by higher processing and mining costs in relation to ramping up activities at Juanicipio."

"We continue to see robust attributable free cash flow for MAG in the medium term," Soock wrote in an updated research note on Wednesday. "Over the next three years, we expect the company to generate US$320 million in free cash flow at current spot prices for a yield of 8%."

Soock, who named the stock one of his "top picks" for the third quarter of 2022, rated MAG a Buy and raised the target price from CA$25.75 per share to CA$26 per share.

The Catalyst: Approaching Design Capacity at Juanicipio

MAG recorded US$7.9 million as its 44% in first-quarter income from the large-scale Juanicipio plant after splitting with joint operator Fresnillo Plc.

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.

Canaccord Genuity analyst Michael Fairbairn also set a CA$26 target price with a Speculative Buy rating. He noted that MAG faced US$25 million cash call from the Juanicipio joint venture for "substantial tax and mining duty obligations in Mexico."

The company said about 2 million payable silver ounces, 5,291 payable gold ounces, 1,281 payable lead tonnes, and 1,656 payable zinc tonnes were produced and sold during the quarter.

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 at Juanicipio and Fresnillo's plants. 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 tonnes per day (tpd) with rates occasionally reaching 3,900 tpd, the company said.

Canaccord Genuity analyst Michael Fairbairn also set a CA$26 target price with a Speculative Buy rating. He noted that MAG faced US$25 million cash call from the Juanicipio joint venture for "substantial tax and mining duty obligations in Mexico."

"We note MAG remains well capitalized for any further calls as Juanicipio heads towards commercial production, expected by H2/23," he wrote Wednesday.

MAG: 'One of the Better Options for Investors' Wanting Silver Exposure

Juanicipio held a cash balance of US$8.4 million at the end of the quarter, and the company had about US$54.6 million in cash.

Analyst Brian MacArthur of Raymond James wrote that he also believed money flowing in from the new plant will increase the attractiveness of the stock.

Analyst Brian MacArthur of Raymond James wrote that he also believed money flowing in from the new plant will increase the attractiveness of the stock.

"We believe that MAG is one of the better options for investors looking for exposure to silver," MacArthur wrote Thursday, rating the stock Outperform with a target of CA$24.50 per share. "With the plant now in the commissioning and ramp-up phase, final project capital costs are expected to wind down as Juanicipio approaches full commercial production and associated free cash flow generation."

The company planned for the new plant to go online by the end of 2021, but the state electric authority said just before Christmas 2021 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.

MAG also continues to explore at Juanicipio, drilling 25,858 meters in 2022, with another 4,109 meters of infill drilling in the first quarter of this year. Assay results are pending. 

Exploration also continues at MAG's Deer Trail project in Utah and its Larder project in Ontario.

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 at 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$1.62 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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