In a May 18 research note, BMO Capital Markets analyst Ryan Thompson reported on MAG Silver Corp.'s (MAG:TSX; MAG:NYSE A) available cash relative to its share of remaining capex for the company's Juanicipio joint venture (JV) project with Fresnillo.
Thompson noted that MAG had US$94 million in cash, including about US$1 million in the JV, at the end of Q1/21, "largely in line with our expectations." The company owes US$74 million of the remaining US$168 million of initial capital required for the project. Once MAG pays this, it will be left with roughly US$20 million in cash, excluding revenue the JV's ore-processing operation generates.
The mining company "has enough cash to get Juanicipio across the finish line, however, the margin for error is not overly forgiving," Thompson wrote.
No funds were transferred to the joint venture during Q1/21, but in Q2/21, MAG has advanced US$23.7 million to it, the analyst noted. During Q1/21, the joint venture reported gross profit of US$8.2 million and net income of US$1.4 million.
Thompson noted that during Q1/21, the JV processed 36,400 tons of ore at the Fresnillo plant, the silver head grades of which were 458 grams per ton, 40% higher than the 2020 grade. The JV sold 431,000 ounces of silver, 631 ounces of gold, 199 tons of zinc and 137 tons of lead.
Construction of the Juanicipio plant continues. Near-term goals are to finish installing the semi-autogenous grinding and ball mills, expected in Q2/21; complete the building envelope; and finish the pipework and electrical/instrumentation installation. Work has begun on the initial tailings storage facility.
Until the new plant is running, the JV will keep processing ore material at the Fresnillo plant, aiming to process about 16,000 tons per month. In April, the JV exceeded that goal by processing 16,700 tons, the analyst noted.
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Disclosures from BMO Capital Markets, MAG Silver, May 18, 2021
I, Ryan Thompson, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 1: BMO Capital Markets has undertaken an underwriting liability with respect to MAG Silver within the past 12 months.
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to MAG Silver within the past 12 months.
Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to MAG Silver within the past12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from MAG Silver within the past 12 months.
Disclosure 6A: MAG Silver is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services
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