MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) just reported Q3/23 financial results were mixed when compared to PI Financial's estimates, reported analyst Chris Thompson in a Nov. 10 research note.
Compelling return potential
As such, PI reiterated its CA$17.50 per share target price on the Canadian silver company, currently trading at CA$13.89 per share, noted Thompson. The difference between these prices implies an attractive potential gain of 26% for investors.
MAG remains a Buy.
Cost of sales stands out
As for MAG's Q3/23 financial results, Thompson pointed out, overall cost of sales was high during the quarter and offset the "robust production" that MAG prereported.
"We see the reduction of these costs as a key component required to drive a higher free cash flow:enterprise value yield and subsequent rerating," the analyst commented.
Earnings per share falls short
Thompson also reported that MAG's Q3/23 cash flow per share, excluding working capital, was (CA$0.03). This was slightly higher than PI's forecast of (CA$0.04) but lower than consensus' estimate of (CA$0.02).
Adjusted earnings per share (EPS) was notably lower than projections, coming in at CA$0.08 per share. In comparison, PI and consensus' expectations were CA$0.19 and of CA$0.16, respectively.
"The significant EPS miss can be largely attributed to higher-than-anticipated cost of sales and a roughly US$24 million (US$24M) negative income tax expense," Thompson explained.
Overall, MAG ended Q3/23 with about US$59M in cash and cash equivalents.
JV monies to MAG
In Q3/23, Thompson reported, the Juanicipio joint venture repaid MAG about $11.3M in loan principal plus interest but has yet to pay the mining company the first cash installment.
The amount of the first payment is unknown, but PI estimates it will amount to about 50% of MAG's 44% equity income from the quarter, increasing to 80% next year.
"We anticipate guidance from management in Q1/24 regarding cash repayment, costs and production," wrote Thompson.
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