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.
|Want to be the first to know about interesting Gold, Base Metals and Silver investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter.||Subscribe|
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- The following companies mentioned in this article are billboard sponsors of Streetwise Reports: MAG Silver Corp. Click here for important disclosures about sponsor fees.
- From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures for Canaccord Genuity, Mag Silver Corp., May 10, 2023
Analyst Certification Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research, and (iii) to the best of the authoring analyst’s knowledge, she/he is not in receipt of material non-public information about the issuer. Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Required Company-Specific Disclosures (as of date of this publication) MAG Silver Corp. currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to MAG Silver Corp.. In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from MAG Silver Corp. . Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from MAG Silver Corp. in the next three months.
Online Disclosures Up-to-date disclosures may be obtained at the following website (provided as a hyperlink if this report is being read electronically) https://disclosures.canaccordgenuity.com/EN/Pages/default.aspx; or by sending a request to Canaccord Genuity Corp. Research, Attn: Disclosures, P.O. Box 10337 Pacific Centre, 2200-609 Granville Street, Vancouver, BC, Canada V7Y 1H2; or by sending a request by email to [email protected]. The reader may also obtain a copy of Canaccord Genuity’s policies and procedures regarding the dissemination of research by following the steps outlined above. General Disclaimers See “Required Company-Specific Disclosures” above for any of the following disclosures required as to companies referred to in this report: manager or co-manager roles; 1% or other ownership; compensation for certain services; types of client relationships; research analyst conflicts; managed/co-managed public offerings in prior periods; directorships; market making in equity securities and related derivatives. For reports identified above as compendium reports, the foregoing required company-specific disclosures can be found in a hyperlink located in the section labeled, “Compendium Reports.” “Canaccord Genuity” is the business name used by certain wholly owned subsidiaries of Canaccord Genuity Group Inc., including Canaccord Genuity LLC, Canaccord Genuity Limited.
Canaccord Genuity Corp., and Canaccord Genuity (Australia) Limited, an affiliated company that is 80%-owned by Canaccord Genuity Group Inc. The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadian broker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity LLC, a US broker-dealer with principal offices located in New York, Boston, San Francisco and Houston, or Canaccord Genuity Limited., a UK broker-dealer with principal offices located in London (UK) and Dublin (Ireland), or Canaccord Genuity (Australia) Limited, an Australian broker-dealer with principal offices located in Sydney and Melbourne. The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon (among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analysts have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Banking activities, or to recommendations contained in the research. Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity’s policy on managing conflicts of interest, and information barriers or firewalls have been used where appropriate. Canaccord Genuity’s policy is available upon request. The information contained in this research has been compiled by Canaccord Genuity from sources believed to be reliable, but (with the exception of the information about Canaccord Genuity) no representation or warranty, express or implied, is made by Canaccord Genuity, its affiliated companies or any other person as to its fairness, accuracy, completeness or correctness. Canaccord Genuity has not independently verified the facts, assumptions, and estimates contained herein. All estimates, opinions and other information contained in this research constitute Canaccord Genuity’s judgement as of the date of this research, are subject to change without notice and are provided in good faith but without legal responsibility or liability. From time to time, Canaccord Genuity salespeople, traders, and other professionals provide oral or written market commentary or trading strategies to our clients and our principal trading desk that reflect opinions that are contrary to the opinions expressed in this research. Canaccord Genuity’s affiliates, principal trading desk, and investing businesses also from time to time make investment decisions that are inconsistent with the recommendations or views expressed in this research. This research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designated investments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. As a result, the designated investments discussed in this research may not be eligible for sale in some jurisdictions. This research is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction.
This material is prepared for general circulation to clients and does not have regard to the investment objectives, financial situation or particular needs of any particular person. Investors should obtain advice based on their own individual circumstances before making an investment decision. To the fullest extent permitted by law, none of Canaccord Genuity, its affiliated companies or any other person accepts any liability whatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this research. Research Distribution Policy Canaccord Genuity research is posted on the Canaccord Genuity Research Portal and will be available simultaneously for access by all of Canaccord Genuity’s customers who are entitled to receive the firm's research. In addition research may be distributed by the firm’s sales and trading personnel via email, instant message or other electronic means. Customers entitled to receive research may also receive it via third party vendors. Until such time as research is made available to Canaccord Genuity’s customers as described above, Authoring Analysts will not discuss the contents of their research with Sales and Trading or Investment Banking employees without prior compliance consent. For further information about the proprietary model(s) associated with the covered issuer(s) in this research report, clients should contact their local sales representative. Short-Term Trade Ideas Research Analysts may, from time to time, discuss “short-term trade ideas” in research reports. A short-term trade idea offers a near-term view on how a security may trade, based on market and trading events or catalysts, and the resulting trading opportunity that may be available. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks. A short-term trade idea may differ from the price targets and recommendations in our published research reports that reflect the research analyst's views of the longer-term (i.e. one-year or greater) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors.
It is possible, for example, that a subject company's common equity that is considered a long-term ‘Hold' or 'Sell' might present a short-term buying opportunity as a result of temporary selling pressure in the market or for other reasons described in the research report; conversely, a subject company's stock rated a long-term 'Buy' or “Speculative Buy’ could be considered susceptible to a downward price correction, or other factors may exist that lead the research analyst to suggest a sale over the short-term. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm does not intend, and does not undertake any obligation, to maintain or update short-term trade ideas. Short-term trade ideas are not suitable for all investors and are not tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your salesperson for more information regarding Canaccord Genuity’s research.
For United States Persons: Canaccord Genuity LLC, a US registered broker-dealer, accepts responsibility for this research and its dissemination in the United States. This research is intended for distribution in the United States only to certain US institutional investors. US clients wishing to effect transactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity LLC. Analysts employed outside the US, as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.