MAG Silver Corp. (MAG:TSX; MAG:NYSE American) offers investors a twofer, in Juanicipio and in its newly acquired project, Larder Lake in the Abitibi Greenstone Belt, wrote PI Financial analyst Chris Thompson in a June 22 research note.
"Now is the time to take a second look at MAG, not only for the near-term cash flow that Juanicipio will be generating but for the long-term value offered by a robust exploration pipeline," Thompson added.
The Canadian miner has an attractive valuation at its current levels, the analyst noted, due to delays in Juanicipio getting connected to the Mexican electrical grid and weakness in the silver price. PI Financial has a target price on MAG of CA$23.50, and the stock is trading at around CA$16.11.
Regarding Juanicipio, it is expected that MAG will reward shareholders once commercial production is reached there this year, noted Thompson. This should happen after grid hookup is completed.
"Once that occurs, we expect a quick ramp-up to nameplate capacity (4,000 tons per day) that will allow the company to deliver on its promise to become a cash flow machine," the analyst added. "We currently expect attributable after-tax cash flow of +$115 million annually for the next three years alone at $21.50 per ounce silver (spot) or +$120 million at $22.50 per ounce silver (PI's base case)."
In addition to Juanicipio, Thompson noted, "we see MAG having much more to offer with a promising exploration pipeline in the works." One, which the company highlighted at the recent PDAC convention, is MAG's newest addition, Larder Lake.
"While it is still early days for Larder Lake, we see MAG being well-positioned to rapidly unlock the potential value offered by one of the best gold-finding addresses in Canada," Thompson commented. Nearby prolific mines include Macassa, Malartic, and, bordering MAG's property, Kerr-Addison.
MAG came to own Larder Lake through its acquisition of Gatling Exploration, which closed in late May.
Located "in the heart of elephant country within the Abitibi Greenstone Belt" in Ontario, Canada, Larder Lake has a combined open-pit and underground resource of about 1.3 million ounces grading 3.4 grams per ton gold, developed by Gatling.
That resource, however, according to Thompson, is "patchy." It stretches over a strike length of about 4 kilometers with deeper shoots where wildcat holes struck high-grade gold at depths reaching 1,500 meters," he explained. Most of the Larder Lake property has not been explored.
"Limited follow-up work has left low-hanging fruit for a better-funded suitor (MAG) to take advantage of," added Thompson.
PI Financial has a Buy rating on MAG Silver.
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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