Commercial Production Achieved at Silver Co's New Mill in Mexico

Source: Streetwise Reports 06/06/2023

MAG Silver Corp. reaches what its leaders are calling an “important milestone” in its journey from a developer to a producer with its new plant in Mexico achieving commercial production.

MAG Silver Corp. (MAG:TSX; MAG:NYSE American) announced Monday that it had achieved commercial production at its new processing plant in Mexico.

The Juanicipio mill is operating at about 85% of its design capacity of 4,000 tonnes per day (tpd), the company said. Silver recovery has consistently been above 88%, and about 3.2 million ounces silver (Moz Ag) were produced from March to the end of May.

Production is expected to grow steadily and reach design capacity in Q3.

“Reaching this important milestone of commercial production at Juanicipio completes our transformation from developer to producer,” MAG’s President and Chief Executive Officer George Paspalas said. “Today marks the beginning of a very exciting and dynamic growth phase for MAG as we combine stable, high-margin silver production with the ongoing high-grade exploration potential that has made and continues to make MAG so unique.”

Canaccord Capital Markets analyst Michael Fairbairn has rated the stock a Speculative Buy with a CA$26 per share target price.

All major construction activities at the plant have been completed, the company said.

“Achieving commercial production at Juanicipio was a key step for MAG as it completes its transition from an explorer/developer to a producer,” Canaccord Capital Markets analyst Michael Fairbairn wrote in a Flash Update note on Monday. “We expect cash flow from Juanicipio will fund MAG’s exploration objectives at Juanicipio, Deer Trail, and Larder, with the remainder returned to shareholders, possibly via share buy-backs or an inaugural dividend.”

Fairbairn has rated the stock a Speculative Buy with a CA$26 per share target price.

“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.

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

The plant 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 Fresnillo’s Saucito and Fresnillo plants.

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.

The Catalyst: ‘One of the Better’ Silver Stocks

The company’s focus is turning from construction to optimization at the mill, analyst Craig Hutchison of TD Securities wrote in a Monday Flash Note.

“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.”

That money flowing in from the plant will increase the attractiveness of the stock, analyst Brian MacArthur of Raymond James has written.

“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.

“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.

Silver is used to coat electrical contacts and is an important element in solar technology. Almost all computers, phones, cars, and appliances contain it.

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.”

Analyst Predicts Silver Recovery Rate Will Go Higher

The company planned for the Juanicipio plant 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 hooked up in December 2022.

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 tpd.

With silver recovery so far at 88%, analyst Stephen Soock of Stifel GMP predicted that number to rise to more than 94% in the second half of the year.

With silver recovery so far at 88%, analyst Stephen Soock of Stifel GMP predicted that number to rise to more than 94% in the second half of the year.

“The timeline (for the ramp up) was in line with our model — fast but expected given that the mill was ‘hyper pre-commissioned’ due to the power connection delays,” Soock wrote on Monday.

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. [OWNERSHIP_CHART-536]

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$1.77 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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Important Disclosures:

1. MAG Silver Corp. is a billboard sponsor of Streetwise Reports and has paid SWR a sponsorship fee between US$3,000 and US$5,000.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
3. The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for 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. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

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( Companies Mentioned: MAG:TSX; MAG:NYSE American,
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