In a May 19 research note, Cormark Securities analyst Richard Gray wrote that MAG Silver Corp. (MAG:TSX; MAG:NYSE A) and joint venture (JV) partner Fresnillo remain on track with construction to meet their Q4/21 Juanicipio mill-commissioning target.
Gray noted that mechanical installation of the major processing equipment is nearly finished. The next major tasks are completing the building envelope and finishing the pipework and electrical/instrumentation installation.
The transition to commissioning "is the next major milestone that could drive the multiple higher," the analyst wrote.
Following commissioning, the Minera Juanicipio JV intends to ramp up processing to 40–50% of the mill's 4,000 tons per day capacity by year-end 2021 and to 90–95% of capacity next year.
This timeline "compares favourably to the 2017 PEA [preliminary economic assessment], which envisioned the ramp up to full production taking three years after commissioning of the process plant," Gray wrote.
As for processing at the Fresnillo plant, in Q1/21 it amounted to 36,395 tons, below the JV's goal of 16,000 tons per month.
"However, Q2/21 is shaping up well with processing in April of 16,771 t exceeding the targeted rate," Gray wrote.
As for grade, the analyst relayed, the silver grade of the ore processed in Q1/21 was 458 grams per ton, "a material improvement from the head grade of 328 [grams per ton] in 2020." Q1/21 metals sales were 431,188 ounces of silver, 631 ounces of gold, 199 tons of zinc and 137 tons of lead.
"This resulted in gross profit of US$8.2 MM at Minera Juanicipio, which helps offset the initial capex on the project," Gray commented.
The total remaining initial capex for Juanicipio is US$168 million. Of that, MAG is responsible for US$74 million, which "can easily be funded," noted the analyst, from three sources: MAG's corporate cash, the US$3 millin of joint venture monies and expected cash flow from the JV operation.
MAG now has US$69 million in cash and no debt after advancing US$24 million to Minera Juanicipio after Q1/21 for plant construction and further underground development at Juanicipio.
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Disclosures from Cormark Securities, MAG Silver Corp., Morning Note, May 19, 2021
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