MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) Juanicipio project in Mexico continues to produce as the company waits for its processing plant to get hooked up to the local power grid.
Production totaled 2.4 million ounces (2.4 Moz) of silver and 5,609 ounces of gold during the second quarter, above ROTH Capital Partners’ estimate of 2 Moz. The material continues to be processed by plants owned by the project’s operator, Fresnillo Plc.
“MAG stated that significant progress had been made by the utility company in preparation of the tie-in,” ROTH analyst Joe Reagor wrote on July 27. “As a result, MAG anticipates connecting the mill to the electrical grid in ‘the coming weeks.’ We believe completing the mill tie-in should serve as a significant positive catalyst for the company.”
Reagor reiterated ROTH’s Buy rating for the stock with a target of $26. Out of 12 analysts following MAG, nine rate it a Buy, and three rate it a hold.
The mine produced 154,000 tonnes of mineralized material at an average head grade of 567 silver grams per tonne during the quarter. Reagor said the production of 5,609 ounces of gold was “somewhat below” ROTH’s 6,100-ounce estimate for the quarter.
“However, we are encouraged by the continued increase in throughput during the quarter,” Reagor wrote.
‘Turning Point’ for MAG
Production from the Juanicipio plant will open many possibilities for MAG, according to asset manager Chen Lin, who follows the company.
“This could be the turning point in MAG history, as they will be enjoying great cash flow while continuing exploring many projects,” Chen wrote.
Construction of the Juanicipio plant began in 2019. It was expected to come online by the end of 2021, but the local electric authority said just before Christmas that more equipment needed to be installed on the system.
“The rest of the process plant has been fully commissioned and awaits the energizing of the mills,” MAG President and Chief Executive Officer George Paspalas said. “Target ramp-up to 85-90% of nameplate capacity by year-end remains within reach.”
“MAG's 'exploration mindset' has resulted in the discovery of a new mineralized vein set, which could drive additional discoveries as the model is applied more widely.”
—Stifel GMP analyst Stephen Soock
Fresnillo has been processing loads from Juanicipio’s mine. MAG owns 44% interest in the project, and Fresnillo owns the remaining 56%. The mine generated nearly 252,000 tonnes of mineralized material last year, including 3.2 Moz silver and 6,577 ounces of gold, MAG said.
Revenue from the materials will sustain capital cash requirements, the company said. At the end of the quarter, Juanicipio had $37 million in cash.
The company is mining the Bonanza zone of the Valdecañas vein in the Zacatecas state of Mexico, a district characterized by veins that appear to be fed by an ore fluid upwelling zone. Valdecañas is one of two such zones known in the trend.
A preliminary economic assessment (PEA) in 2017 estimated a 19-year life of 4,000 tonnes per day for the mine.
Deposit Will Continue to Grow, Analyst Says
Stifel GMP analyst Stephen Soock maintained his Buy rating for MAG as well with a CA$29.75 target. Soock said he expects the Juanicipio deposit to continue to grow as it is drilled.
“MAG's 'exploration mindset' has resulted in the discovery of a new mineralized vein set, which could drive additional discoveries as the model is applied more widely,” Soock wrote. “We believe there are additional economic ore deposits on the JV ground, the value of which will be realized in the market after Juanicipio reaches commercial production in the second half of 2022 and focus shifts to regional exploration.”
The company completed a CA$46 million equity financing last November, but “with impressive silver grades and higher mill throughput, the project has been able to self-fund in 2022 and not required any additional capital injections,” analyst Ryan Thompson wrote for BMO Capital Markets.
MAG has a market cap of $1.76 billion with 98.72 million shares outstanding. It trades in a 52-week range of $26.94 and $13.60.
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