The Q3/23 highlight ofand Fresnillo's joint venture project in Mexico, Juanicipio, was the new processing plant reaching nameplate production, reported BMO Capital Markets analyst Kevin O'Halloran in an October 25 research note.
"This achievement marks the end of the ramp-up period, and the mine has transitioned to solely processing ore at the Juanicipio plant after processing additional material at Fresnillo's Saucito and Fresnillo plants," O'Halloran wrote.
Compelling Return Projected
Following MAG's release of Q3/23 production numbers (full Q3/23 financial results are due November 10), BMO reiterated its CA$23.50 per share target price on the Canadian silver producer. In comparison, the company's current share price is about CA$14.97.
The difference between these two prices implies an attractive total return for investors of 57%.
MAG remains rated as Outperform.
Milestone Reached at Plant
O'Halloran reported that the Juanicipio plant reached a nameplate capacity of 4,000 tons per day in September. This achievement met management guidance of attaining the goal by the end of Q3/23.
Now, the focus is on optimizing Juanicipio, according to MAG, the analyst wrote.
Because none of the material mined at Juanicipio was processed at Fresnillo's plants in August and September, as it had been previously, total throughput and, thus, production in Q3/23 were lower than they were in Q2/23, reported O'Halloran.
Silver and gold production in Q3/23 came in below BMO's forecasts.
Actual silver production at Juanicipio in Q3/23 was 4,782,000 ounces (4.782 Moz) of silver, 3% lower than BMO's forecast of 4.938 Moz. Gold production amounted to 9,444 oz (9.444 Koz) versus BMO's projected 10.2 Koz.
Q3/23 production attributed to MAG was 2.1 Moz of silver and 4.155 Koz of gold.
Throughput at Juanicipio in Q3/23 was "roughly in line," O'Halloran noted, averaging 3,540 tons per day.
Meanwhile, head grades "were strong" and slightly higher than BMO's projections, the analyst reported. For silver, they were 523 grams per ton (523 g/t), and for gold, 1.32 g/t.
Metal Recoveries To Blame
O'Halloran ascribed the production miss at Juanicipio to lower-than-expected metal recoveries. Specifically, BMO expected silver recovery to average 94.8% when, in fact, it averaged 88.3%. Gold recovery averaged 69.1%.
"We expect that fine-tuning at the plant will yield improving recoveries over the coming quarters," O'Halloran commented.
2023 Production Revised
BMO revised its Juanicipio production estimates for the next couple of quarters, O'Halloran wrote, "to reflect an improving recovery trajectory."
For the full year 2023 (FY23), BMO's new total production forecasts are 17 Moz of silver and 36 Koz of gold, down from 17.4 Moz silver and 38.2 Koz gold.
As for production attributable to MAG in FY23, BMO projects it to be 7.5 Moz of silver and 15.8 Koz of gold.
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- Mag Silver Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- 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 BMO Capital Markets, Mag Silver, October 25, 2023
Analyst's Certification I, Kevin O'Halloran, 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 for remuneration 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 past 12 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 Disclosure 9B: BMO Capital Markets makes a market in MAG Silver in United States.
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