Q1/23 was notable for both financial and operational hits and misses in terms of expected performance, reported Canaccord Genuity analyst Michael Fairbairn in a May 10 research note.
"It was a mixed set of results for MAG," Fairbairn wrote.
However, Canaccord Genuity maintained its Speculative Buy rating and CA$26 per share target price on the Canadian explorer-developer, trading now at about CA$16.51 per share.
Production, EBITDA Fall Short
Fairbairn presented the key takeaways from MAG's Q1/23.
Payable metals production (entirely at Juanicipio, MAG's Mexican joint venture [JV] project with Fresnillo) fell slightly short of Canaccord's estimates, the analyst reported. For silver, it came in at 2,000,000 ounces (2 Moz) versus Canaccord's 2.15 Moz. For silver equivalent (Ag eq), it was 2.8 Moz compared to Canaccord's 2.91 Moz.
MAG's attributable adjusted EBITDA also was a miss at US$6.4 million (US$6.4M). Canaccord forecasted it to be US$9.8M.
"The variance [was] driven by higher-than-expected production costs," wrote Fairbairn.
Costs Creep Up
MAG's costs were higher quarter over quarter and "slightly above expectations, the analyst pointed out. Specifically, the company's co-product all-in sustaining cost (AISC) was US$14.84 per ounce (US$14.84/oz) of Ag eq, 19% higher than in Q4/22, when it was US$12.49. Canaccord's AISC forecast was US$12.23/oz Ag eq.
Another capital outlay during Q1/23 was for about $25M, in the form of a cash call from the Juanicipio joint venture to pay taxes and mining duties owed to Mexico, reported Fairbairn.
In MAG's favor during Q1/23, the analyst noted, several factors offset some of the total costs. They were deferred tax credits, lower than expected taxes related to Juanicipio (the JV's tax liability dropped in Q1/23 to less than US$1M from US$36.3M) and additional interest income from the loan on mining assets.
EPS a Highlight
This trio of factors, noted Fairbairn, contributed to MAG achieving an attributable adjusted earnings per share in Q1/23 that exceeded Canaccord's estimate: $0.05 versus $0.03. However, it was lower than the Street's projection, of $0.07 per share.
Strong Balance Sheet
Further, the company ended Q1/23 well situated financially, having raised US$59.6M earlier in the year, Fairbairn wrote. At quarter's end, MAG had US$54.6M in cash and zero debt, but total cash was a miss. Canaccord expected it to be about US$65M.
Juanicipio Ramp-Up Underway
Fairbairn reported that the ramp-up at the Juanicipio plant remains a primary focus for MAG. With commissioning having been started in early January, the project is on track to reach nameplate capacity (4,000 tons per day) in mid- to late 2023. As the joint venture partners get closer to achieving this goal, they expect related costs to decrease and free cash flow generation to increase.
At the same time, though, "any additional funding needed due to market conditions, delayed ramp-up to nameplate capacity, tax payments or extra sustaining capital beyond the operating cash flow generated will be provided through cash calls required from Fresnillo and MAG," Fairbairn wrote.
Juanicipio had a cash balance of US$8.4M at the end of Q1/23.
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- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Canaccord Genuity, Mag Silver Corp., May 10, 2023
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