Silver Producer Posts Strong Q1/24
Research Report

MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) Q1/24 financial results are notable for an earnings beat and strong free cash flow generation, reported BMO Capital Markets analyst Kevin O'Halloran in a May 14 research note.

"We are encouraged by the accelerating pace of cash distributions from the Juanicipio joint venture (JV), and we expect the market will react positively to a growing track record of capital returns," O'Halloran wrote. MAG owns 44% of the Juanicipio project in Mexico, and its JV partner Fresnillo owns 56%.

41% Upside Implied

As such, BMO reiterated its CA$24 per share target price on the Canadian silver producer, trading at about CA$16.97 per share at the time of the report, O'Halloran wrote. Thus, the implied return for investors is 41%.

MAG remains rated Outperform.

What To Take Away

In his report, O'Halloran presented the highlights of MAG's Q1/24 financials, noting that the production, revenue, and cost amounts all came in better than expected.

Overall, the company's earnings per share for the quarter was US$0.14, exceeding BMO and consensus' estimate of US$0.13 and US$0.10, respectively.

Q1/24 revenue from Juanicipio was US$124 million (US$124M), which is in line with BMO's forecast.

"The mine continued to generate strong cash flows, with US$28M of free cash flow in Q1/24, facilitating a US$17.5M return of capital to MAG," reported O'Halloran. BMO forecasts full-year 2024 free cash flow generation of US$126M.

Significantly Lower Costs

A main driver of the earnings beat was costs, which wound up being significantly lower than BMO's estimates and below guidance.

As for specific costs, those related to production at Juanicipio totaled US$37M, below BMO's US$56M estimate.  

Juanicipio's cash cost in Q1/24 was US$8.66 per ounce of silver equivalent (US$8.66 oz/Ag eq) versus BMO's US$11.25/oz projection. The all-in-sustaining cost (AISC) was US$11.22/oz compared to BMO's US$13.07/oz expectation.

On a byproduct basis, the cash cost in Q1/24 was US$2.50/oz, better quarter over quarter. Similarly, the Q1/24 AISC was US$6.11/oz, below Q4/23's US$9.17/oz and guidance of US$9.50–10.50/oz.

Strong Production, Grade

During Q1/24, Juanicipio produced 6,400,00 ounces (6.4 Moz) of Ag eq, higher than estimates, including 4.4 Moz silver, 9,900 ounces of gold, 8,700,000 pounds (8.7 Mlb) of lead and 14.7 Mlb of zinc.

The silver grade was 476 grams per ton (476 g/t), higher than BMO's forecast and guidance of 380–420 g/t, thanks to better recoveries of all metals.

Q1/24 Operational Activities

Other notable MAG developments in Q1/24 included the release of an updated prefeasibility study of Juanicipio, which clarified outdated project specifics, O'Halloran wrote. The report showed "strong unit costs and increasing mineral resources, offset by lower recoveries and throughput."

In another move earlier this year, MAG purchased the Goldstake property adjacent to its 100%-owned Larder project in Ontario, Canada's Abitibi Greenstone Belt. At Larder this year, the company intends to drill at least 35,000 meters.

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. Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. 
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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Disclosures for BMO Capital Partners, Mag Silver Corp., May 14, 2024

Analyst's Certification I, Kevin O'Halloran, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures Disclosure 1: BMO Capital Markets has undertaken an underwriting liability with respect to MAG Silver within the past 12 months. Disclosure 2: BMO Capital Markets has provided investment banking services for remuneration with respect to MAG Silver within the past 12 months. Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to MAG Silver within the past 12 months. Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from MAG Silver within the past 12 months. Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from MAG Silver. Disclosure 6A: MAG Silver is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services Disclosure 6C: MAG Silver is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services. Disclosure 16: A research analyst has extensively viewed the material operations of MAG Silver. Disclosure 17: MAG Silver has provided at its expense some or all of the itinerant travel for the research analyst related to facilitating a material site visit.

Methodology and Risks to Target Price/Valuation for MAG Silver (MAG-TSX) Methodology: Our target price is derived from a 100% weighting assigned to a 1.9x P/NPV multiple. Risks: Risks to our valuation include: operational risks at Juanicipio particularly as the ramp-up to full production is completed; financing risk in the case of further capital calls from the JV, although we view this scenario as relatively unlikely; and exploration risk, which we view as high for the company's secondary assets given their early-stage nature.

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