In an April 13 research note, CIBC World Markets Inc. research analyst Cosmos Chiu, CFA stated that the firm has initiated coverage of MAG Silver Corp. (MAG:TSX) with a "Neutral" rating and a12-18 month price target of CA$27.00/share.
MAG Silver is an emerging Canadian-based silver producer which owns a 44% interest in the high-grade Juanicipio mine located in Mexico's Fresnillo district. The analyst commented that MAG Silver's partner and operator at Juanicipio, Fresnillo Plc., is the world's largest primary silver producer.
The report noted that since August 2020, 16,000 tonnes per month of bulk material from Juanicipio has been toll milled at Fresnillo's nearby processing plant. The analyst noted that a new plant capable of handling up to 4,000 tpd is expected to be completed in Q4/21.
The report from CIBC World Markets indicated that once the new mill is fully operational MAG Silver's 44% share of the asset will transform the company into a substantial producer. The analyst stated that for the first five years of deployment MAG Silver could annually produce around 7.8 Moz AG at a lowest quartile all-in sustaining cost (AISC) of approximately $7.25/oz.
CIBC's forecast calls for MAG Silver to produce a total of 7.25 Moz AG in FY/22 at an AISC of $5.76/oz that is estimated to generate free cash flow of $120 million resulting in a free cash flow yield of 8.1%.
The analyst said that the existing resource and latest Preliminary Economic Assessment (PEA) for Juanicipio were completed in 2017 and noted that since then several new discoveries have been made within this mineralized system including the Pre-Anticipada and Venadas I & II veins which could serve to expand the resource.
CIBC World Markets commented that MAG Silver offers a unique attractive exposure to silver in that "its metal composition consists of ~56% from silver, which is one of the highest in our coverage universe." The report stated that if silver prices were to increase by 20%, MAG's cash flow would increase by 26% and NAV would rise by 19%.
The analyst remarked that MAG Silver is poised to benefit from the upward trend in silver prices. CIBC World Markets indicated that over the long term it sees robust upside potential for the asset from both plant expansion and additional resources.
CIBC mentioned that in modeling its base case valuation scenario for MAG Silver it assumed a $29/oz silver price in 2021, $31/oz in 2022, $30/oz in 2023 and $28/oz in subsequent years.
CIBC World Markets presently has a "Neutral" rating for MAG Silver Corp. with a target price of CA$27.00/share. The company's shares trade under the symbol MAG on the Toronto Stock Exchange and closed for trading at CA$20.70/share on April 14, 2021.
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