In an April 13 research note, CIBC World Markets Inc. research analyst Cosmos Chiu stated that the firm has initiated coverage of MAG Silver Corp. (MAG:TSX; MAG:NYSE A), an emerging Canada-based silver producer that owns a 44% interest in the high-grade Juanicipio mine located in Mexico's Fresnillo district. The analyst noted 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 tonnes per day 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 million ounces (Moz) of silver 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 silver in FY/22 at an AISC of $5.76/oz that is estimated to generate free cash flow of US$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.
Chiu 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 noted 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, with a target price of CA$27.00/share. The stock is currently trading at around CA$22.08/share.
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Disclosures from CIBC, MAG Silver Corp., Initiating Coverage, April 13, 2021
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Important Disclosure Footnotes for MAG Silver Corp. (MAG.TO)
• 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: MAG Silver Corp.
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