Technical Report Update a 'Milestone' for Silver Producer

As MAG Silver Corp. (MAG:TSX; MAG:NYSE American) heads into its first full year of production at its new Juanicipio plant in Mexico, the company has released an updated technical report for the project with an initial mineral resource estimate and an after-tax NPV of US$1.2 billion over an initial 13-year life of mine (LOM).

Analysts Ovais Habib and Eric Winmill of Scotiabank Global Equity Research wrote in a March 28 note that they believe the report represents a "major de-risking milestone for MAG's shares."

"With this report, MAG solidifies its position as one of the lowest-cost silver producers in our coverage with our modeled LOM AISC (all-in sustaining cost) of US$4.83 vs peer average of US$11.39," wrote the authors, who upgraded their rating of the stock to Sector Outperform with a one-year target price of US$13.50 per share. "On valuation, MAG is trading at 1.00x our NAV versus the silver producers’ peer group at 1.44x using our Scotia price deck. At spot, MAG trades at 0.91x our valuation versus peers at 1.28x."

The analysts continued, "In our opinion, the combination of a high-grade orebody, low-cost production setting up for higher margin and solid FCF generation plus exploration upside at compelling valuation positions MAG as a re-rate candidate."

Analysts Ovais Habib and Eric Winmill of Scotiabank Global Equity Research wrote in a March 28 note that they believe the report represents a "major de-risking milestone for MAG's shares."

Nicolas Dion from Cormark Securities also saw upside in the report and increased its NAVPS (net asset value per share) model for the company.

"MAG is trading at the low end of its past range and below most of its peers, despite owning the highest-quality silver mine in the space in our view (currently ~1.24x our NAV)," the analyst wrote on March 28, rating the stock a Buy with a CA$18 per share target. "We see having Fresnillo as the operator as a key advantage, though we note uncertainty on the cadence of future dividends from the JV."

The Catalyst: Growing Resources

Juanicipio (44% Mag; 56% Fresnillo Plc, the operator) is in 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.

The updated National Instrument 43-101 compliant report released this week found mineral resources grew 33% from the original PEA to 17 million tonnes (Mt) at grades of 310 grams per tonne silver (g/t Ag), 1.86 g/t gold (Au), 2.89% lead (Pb), and 5.32% zinc (Zn), the company said.

Inferred mineral resources increased by 16% to 14.1 Mt at grades of 236 g/t Ag, 1.06 g/t Au, 2.41% Pb, and 6.12% Zn.

The company said the inaugural mineral reserve estimate in the report significantly increases economic confidence in the project, as well, with 15.4 Mt of Proven and Probable Mineral Reserves at grades of 248 g/t Ag, 1.58 g/t Au, 2.64% Pb, and 4.8% Zn (628 g/t silver equivalent, or Ag Eq).

A Tier 1 Asset

MAG officials noted that the results confirmed Juanicipio as a Tier 1 asset.

"The 2024 Technical Report reaffirms Juanicipio as a generational and premier silver mining asset," MAG President and Chief Executive Officer Paspalas said. "We are strategically positioned for sustained success with a robust production profile, compelling economics, and significant exploration potential. In the short term, we anticipate resource conversion to prolong high-grade silver production and mine life. Looking ahead, this district scale project remains 95% unexplored with multiple potentially high-impact targets identified."

In a release, MAG noted that "with strategic drilling plans in place, the company aims to unlock additional value from the extensive land holdings" in the more than 7,600-hectare Juancipio property.

Analyst Brian MacArthur of Raymond James agreed. "We also expect over time the mine life could be extended given the significant inferred resources and history of converting resources to reserves and good exploration potential." MacArthur rated the stock Outperform with a target price of CA$19.50 per share.

"We believe that MAG is one of the better options for investors looking for exposure to silver, given its 44% interest in the world-class Juanicipio joint venture (JV), which is a district scale, low-cost, higher-grade silver mine with a strong partner and meaningful exploration potential," he continued in a note on March 28.

The plan detailed in the report for the project is "achievable" and has the "potential to improve both recoveries and throughput compared to assumptions in the (2017) study," noted Kevin O'Halloran, an analyst with BMO Capital Markets, who rated the stock Outperform with a CA$24 per share target price.

"In our view, the most significant impact of the PFS is to remove the previous uncertainty that was driven by an outdated technical report," O'Halloran wrote. "We expect the increased confidence in Juanicipio to translate into strong performance for MAG shares." 

MAG said the independent report was prepared by AMC Mining Consultants (Canada) Ltd. of Vancouver, with assistance from Knight Piesold and Co.

Ownership and Share Structure

Institutions own 70% of MAG, and 30% is retail, according to the company.

Top institutional shareholders include Juanicipio project operator Fresnillo Plc. with 9%, BlackRock Investment Management (UK) Ltd. with 10.8%, Van Eck Associates Corp. with 9%, First Eagle Investment Management LLC with 6.2%, and Sprott Asset Management LP with 3%, the company said.

MAG Silver has a market cap of US$1.25 billion. It has 102.97 million shares outstanding, according to Reuters. It trades in a 52-week range of US$14.42 and US$8.20.

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. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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