Silver Jr’s Mexico Plant on Track, Stock’s a ‘Buy’

Source: Streetwise Reports   06/06/2022

This Canadian junior’s processing plant is on track to open mid-year in Mexico. The mine feeding it is already producing and beating analysts’ estimates.

Canadian junior MAG Silver Corp. (MAG:TSX; MAG:NYSE American) is on track to open its 4,000 tonnes per day processing plant at its large-scale Juanicipio property in Mexico this summer and is expected to have it 85-90% online by the start of 2023.

Meanwhile, the operator of the project, Fresnillo Plc., is processing loads from the mine. MAG’s production results for the first quarter of 2022 have beaten analysts’ estimates and many are maintaining their Buy ratings on the stock, including PI Financial, ROTH Capital Partners, Stifel GMP, and H.C. Wainwright & Co.

“Production of 2.4 million ounces of silver (100% basis) was above our estimate of 2.0 million ounces, while gold production of 5,837 ounces was slightly below our 6,100-ounce estimate,” wrote ROTH analyst Joe Reagor. “We are reiterating our $26.00 price target. We are also reiterating our Buy rating as we believe MAG is poised for a significant rerating as it grows production over the next 12 months.”

MAG President and Chief Executive Officer George Paspalas told Streetwise Reports that the amounts recovered and their grades have exceeded expectations.

“The head grade coming from development faces and the two stopping areas underground is a very positive confirmation of the grade we are going to see once we are fully operational on our plant,” Paspalas said.

The company 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 of 4,000 tonnes per day.

The district is characterized by veins that appear to be fed by an ore fluid upwelling zone. Valdecañas is one of two such zones known in the trend.

MAG owns 44% interest in the project, and Fresnillo owns the remaining 56%. The mine generated nearly 252,000 tonnes of mineralized material last year, including 3.2 million ounces of silver and 6,577 ounces of gold, MAG said.

First Quarter Seen as Inflection Point

Construction of the Juanicipio plant started in 2019. It was expected to come online by the end of 2021, but at the end of the year the state-owned electrical utility Comisión Federal de Electricidad said it would not immediately approve the plant’s connection to the electrical grid because of the need to install further equipment on the system.

“If the expected increase in recoveries is realized once the Juanicipio mill is commissioned, continued outperformance of the mine could help to offset the costs associated with delayed commissioning,” analyst Chris Thompson wrote for PI Financial.

“I am expecting we will rerate to more of a producer valuation once the electricity is connected and we are ramping up our own plant,” he said. “Get in now before that happens.”

—MAG President and Chief Executive Officer George Paspalas

The company completed a CA$46 million equity financing last November, but “with impressive silver grades and higher mill throughput, the project has been able to self-fund in 2022 and not required any additional capital injections,” analyst Ryan Thompson wrote for BMO Capital Markets.

With the Juanicipio plant expected to come online soon, at least one analyst, Don DeMarco of National Bank of Canada Financial Markets, maintained an Outperform rating with a CA$28.25 target on the stock.

“Given the strong performance, we see Q1/22 as an inflection point and are constructive on the share price at this level,” he wrote.

Paspalas said he believes MAG’s stock is trading at a discount to silver producers, while the company has been producing for almost two years through the Fresnillo plants.

“I am expecting we will rerate to more of a producer valuation once the electricity is connected and we are ramping up our own plant,” he said. “Get in now before that happens.”

MAG Silver has a market cap of CA$1.85 billion and 98.75 million shares outstanding. It trades in a 52-week range of CA$29.28 to CA$15.75.

Disclosures:

1) Steve Sobek compiled this article for Streetwise Reports LLC. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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