Mexico Plant's Silver Production Totals Surpass Predictions

MAG Silver Corp. (MAG:TSX; MAG:NYSE American) has announced its second-quarter production numbers for its new Juanicipio processing plant in Mexico, surpassing the expectations of several analysts.

MAG delivered nearly 7 million ounces (Moz) silver equivalent (Ag eq), ahead of PI Financial analyst Chris Thompson's prediction of about 4 Moz Ag eq. The silver grade milled was also higher than expected: 498 grams per tonnne (g/t) vs. 363 g/t, he noted.

"We are impressed with the delivery of Q2/23 operating results significantly ahead of our conservative expectations," Thompson wrote in a Wednesday update note. "Q2/23 production represents ~39% of our ~18k oz AgEq 2023 production expectation (for the entire year). We now see our estimates as potentially conservative with MAG anticipating nameplate capacity of 4,000 (tonnes per day) tpd in Q3/23 vs. our Q4/23 expectation."

Thompson maintained his Buy rating on the stock with a target of CA$19.15 per share. MAG Silver was up US$1.48 to US$16.30 on Wednesday afternoon.

Throughput during the quarter brought the plant to 85% of its design capacity.

"We are also impressed by the advanced speed of ramp-up at Juanicipio," Thompson wrote.

PI Financial analyst Chris Thompson maintained his Buy rating on the stock with a target of CA$19.15 per share. 

The company said a total of 377,018 tonnes of mineralized material was processed through the Juanicipio plant and two plants owned by Juanicipio joint operator Fresnillo Plc. during the second quarter. MAG Silver receives 44% of the income.

The quarter's total production, based on provisional estimates before offtake agreement adjustments, totaled nearly 5.3 Moz Ag, 10,639 ounces gold (Au), 3,402 tonnes lead (Pb), and 5,418 tonnes zinc (Zn).

"Q2 was a quarter of delivery," MAG Silver President and Chief Executive Officer George Paspalas said. "We are very encouraged with the steady progress of mining and milling performance at Juanicipio throughout the ramp-up period. The substantial increase in silver production coupled with the forecast of reaching design capacity by Q3 affirms MAG's position as a top-tier silver producer."

MAG expects to release its full financial and operational results for the quarter on August 7.

The Catalyst: Racing Toward Full Capacity

The company's focus is turning from construction to optimization at the plant, analyst Craig Hutchison of TD Securities wrote.

"With all major construction work now complete, the operation team is looking to improve and optimize the mine to achieve and potentially exceed design capacities," wrote Hutchison, who rated MAG a Speculative Buy with a CA$25 per share target price. "Investments in Juanicipio should be largely done by mid-year, and we expect MAG to start receiving its share (44%) of dividends from 2024."

"With all major construction work now complete, the operation team is looking to improve and optimize the mine to achieve and potentially exceed design capacities," wrote Craig Hutchison of TD Securities.

Analyst Brian MacArthur of Raymond James wrote that those dividends would make the stock even more attractive.

"We believe that MAG is one of the better options for investors looking for exposure to silver," MacArthur wrote, rating the stock Outperform with a target of CA$24.50 per share.

Analyst Lucas Pamatat of Canaccord Genuity Capital Markets wrote on Wednesday that silver production totals for Q2 were 63% above his estimate.

"Our estimates continue to assume the mill will reach full capacity by the end of Q3," Pamatat wrote. "In addition, higher-grade mill feed is being introduced to the comminution circuit as the ramp-up progresses, with a corresponding improvement in silver recovery."

Silver Supply Deficit Likely to Continue

In addition to being a precious metal used in jewelry, silver is used to coat electrical contacts and is an important element in solar technology. Almost all computers, phones, cars, and appliances contain it as it is the best metal for conducting electricity.

Analyst Brian MacArthur of Raymond James wrote that those dividends would make the stock even more attractive.

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.

"This environment is positive for safe-haven assets like silver (and gold)," the report said. "Similarly positive is the market deficit that silver will remain in this year."

Exploration Continues

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.

Analyst Lucas Pamatat of Canaccord Genuity Capital Markets wrote on Wednesday that silver production totals for Q2 were 63% above his estimate.

The Juanicipio plant was originally to go online by the end of 2021, but the state electric authority notified MAG just before Christmas 2021 that more equipment needed to be installed on the system for the electrical hookup. The power was finally turned on in December 2022.

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 65% of MAG, and 35% 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$1.64 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$13.93.

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