MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) joint venture Juanicipio project in Mexico delivered strong production and other improvements in Q2/24 for "an impressive quarter," reported BMO Capital Markets analyst Kevin O'Halloran in a July 24 research note.
31% Potential Gain
The analyst reiterated BMO's CA$24 per share target price on the Canadian silver explorer-producer, which was trading at the time of the report at about CA$18.81 per share. From here, the return to target is 31%.
MAG remains rated Outperform.
Overall Production a Beat
Q2/24 production at Juanicipio on a silver equivalent basis exceeded BMO's forecast by 21%. It came in at 6,820,000 ounces (6.82 Moz), and BMO's estimate was 5.62 Moz, O'Halloran reported. Commercial production of pyrite concentrate commenced at Juanicipio during the quarter, which boosted silver and gold recoveries, an effect expected to be ongoing.
Broken down by metal, Q2/24 production figures show silver did the best, zinc and lead were in line, and gold fell short.
During the quarter, silver production was 35% higher than BMO's estimate, at 4.98 Moz versus 3.68 Moz. It also exceeded Q1/24 production of 4.45 Moz. Lead production was 9,960,000 pounds (9.96 Mlb), zinc production was 18.85 Mlb.
Q2/24 gold production was 9,300 ounces (9.3 Koz), less than BMO's expected 13 Koz. Lower grades were to blame.
Total Q2/24 production attributable to MAG, given its 44% stake in Juanicipio, was 2.19 Moz of silver, 4.1 Koz of gold, 4.38 Mlb of lead, and 8.29 Mlb of zinc.
Silver Grade Guidance Raised
Silver head grades outperformed in Q2/24, noted O'Halloran. The grade was 498 grams per ton (498 g/t), surpassing the joint venture's grade guidance of 380–420 g/t as well as BMO's forecast of 400 g/t. Further, the Q2/24 silver grade was higher than in Q1/24 when it was 476 g/t.
Consequently, the Juanicipio JV increased its silver grade guidance for 2024 to 420–460 g/t.
Improvements at Juanicipio
O'Halloran pointed out operational elements that improved quarter over quarter. Throughput was one, increasing in Q2/24 to 337,000 (337 Kt) from 326 Kt in Q1/24 and exceeding BMO's 330 Kt estimate.
The silver recovery rate is another, coming in at 92.5%, compared to 89.1% in the quarter before.
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Important Disclosures:
- 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.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for BMO Capital Markets, MAG Silver Corp., July 24, 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.
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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