In an Aug. 12 research note, Raymond James analyst Brian MacArthur reported the results of MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) Q2/21 and provided a near-term outlook on its joint venture project Juanicipio.
In Q2/21 at Juanicipio, 44,435 tonnes were processed. Sales from processed tonnes totaled 404,518 ounces of payable silver, 709 ounces of payable gold, 133 tonnes of lead, and 209 tonnes of zinc.
Gross sales during the quarter amounted to $11.3 million ($11.3M). Subtracting Q2/21 mining and transportation costs of $2.4M, total Q2/21 gross profit from Juanicipio was $8.9M. These monies were put back into the project.
MAG is responsible for an additional $49M in Juanicipio development costs. With $66M in cash at the end of Q2/21, the company should be able to easily cover this, MacArthur wrote.
Looking forward, commissioning of the Juanicipio production plant is expected to start in Q4/21. Construction remains on schedule and on budget.
Meanwhile, MacArthur indicated, drilling, now with five rigs, continues at Juanicipio, stepout, and infill of the Valdecañas vein system primarily. However, other places slated for drilling are the Venadas and Anticipada veins and three key targets elsewhere on the property.
Raymond James rates MAG Silver's shares Outperform, "given the high quality of the [Juanicipio] asset, a strong partner, its near-term start-up which could lead to a market rerating and the company's financial position and excellent exploration potential," MacArthur wrote. Raymond James' target price on MAG is CA$28 per share. In comparison, the current share price is about CA$21.92.
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Disclosures from Raymond James, MAG Silver, August 12, 2021
The analyst Brian MacArthur, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
Brian MacArthur of Raymond James Ltd. is a non-U.S. analyst.
Raymond James Ltd. values MAG Silver Corp. on a comparative basis by applying a P/NAV multiple in line with silver peers to our company NAVPS estimate.
Single-Asset Risk: The majority of MAG’s NAV is in its 44% interest in the Juanicipio JV, any negative news with respect to Juanicipio could have a material impact on its shares.
Development Risk: Given Juanicipio is a development-stage project and the PEA was preliminary, parameters could change materially from the PEA economics.
Minority Interest Risk: MAG is a minority shareholder and non-operator of Minera Juanicipio and therefore is dependent on, and subject to, the decisions of Fresnillo, the majority shareholder and operator of the project. Fresnillo has the ability to undertake certain actions which may result in MAG having to fund cash calls for the Juanicipio project. If MAG fails to fund the required cash calls, the company risks having its interest in the Juanicipio project reduced and could ultimately be diluted out of project altogether.
Financing Risk: While Raymond James Ltd. believes that the project is currently well funded, more capital may still be required to cover the initial capital cost if capital inflation and/or timing delays due to COVID-19 occur, although to date Fresnillo has indicated that the project remains on schedule.
Lower Share Liquidity: Given MAG's smaller market cap, Raymond James Ltd. notes that the company's share liquidity may be an issue for some investors.
Certain affiliates of Raymond James expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months. The person(s) responsible for the production of this report declare(s) that, as far as they are aware, there are no relationships or circumstances (including conflicts of interest) that may in any way impair the objectivity of this recommendation directly or indirectly. This statement applies equally to any persons closely associated with him or her. However, it is possible that persons making communications in relation to a security may have a holding in that security and this will be disclosed. As stated, Raymond James has controls in place to manage such risks.