While MAG Silver Corp. emerges as a producer with its Tier 1 Juanicipio mine in Mexico and production exceeds estimates. Find out why at least one analyst thinks the fruits of the joint venture could land more in investors' pockets.
As MAG Silver Corp. (MAG:TSX; MAG:NYSE American) emerges as a producer with its Tier 1 Juanicipio mine in Mexico and production beats estimates, analysts are paying attention and predicting good things for shareholders.
The Juanicipio joint venture (JV), in which the company holds a 44% stake, returned more than US$17.5 million in interest and principal repayments of the loan to MAG during the first quarter of 2024, said the society. announcing its financial highlights and results for the quarter Tuesday.
“We view this as a significant development as it allowed the company to report an increase in its cash balance despite spending $5.1 million on exploration on other projects and acquiring the Goldstake project for 3 .8 million dollars,” wrote Roth analyst MKM. Joe Reagor in an updated research note.
“We believe cash distributions will likely increase in the coming quarters, allowing MAG to consider paying a dividend by the end of 2024,” continued Reagor, who reiterated his rating purchase on the stock and increased the price target from US$14 to US$14.50. per share.
For the quarter, the company reported net income of US$14.9 million, or US$0.14 per share, driven by Juanicipio's equity-accounted profit of US$19.24 million. and adjusted EBITDA of US$32.45 million.
“On a 100% basis, the Juanicipio JV reported revenue of $123.7 million (US), exceeding our estimate of $115.8 million (US),” Reagor wrote. “The increase in joint venture revenues is explained by higher remuneration on metal sales. As a result, we have increased our long-term payment assumptions. »
The Catalyst: Stable Cash Flow
The company recorded strong operating cost performance at Juanicipio, with cash costs and all-in sustaining costs (AISC) of US$8.66 per ounce of silver (Ag) and 11.22 US$ per ounce Ag Eq (silver equivalent), beating BMO Capital Markets analyst Kevin O. “Halloran's expectations of US$11.25 per ounce Ag and US$13.07 per ounce Ag Eq.
“We believe cash distributions will likely increase in the coming quarters, allowing MAG to consider paying a dividend by the end of 2024,” Reagor continued.
“We are encouraged by the accelerated pace of cash distributions from the Juanicipio JV, and we expect the market to respond positively to a growing track record of capital returns,” wrote O'Halloran, who rated the stock outperform with a price of CA$24 per share. indicated price.
MAG reported having cash totaling US$74.7 million as of March 31, 2024, compared to US$68.7 million as of December 31, 2023.
Analyst Stephen Soock of Stifel predicted in April that $16 million would be returned in principal and interest on the JV loan, and that the company would have $77 in cash at the end of the first quarter, almost exactly the amounts reported by MAG. .
“We expect cash flow to be stable now that operations are at steady state and look forward to MAG returning capital to shareholders beginning in the third quarter of this year,” Soock wrote. He rated the stock a Buy with a target of CA$20.50 per share.
“The company wants to carry $100 million in cash on its balance sheet (reached at the end of the second quarter) to fund three years of exploration and overhead costs before distributing profits to shareholders,” Soock wrote.
A productive first quarter
The mine had a first productive quarter, processing over 325,000 metric tons of ore, with a notable daily grinding rate of 4,387 tons despite a routine maintenance shutdown. The silver content of the head was 476 grams per tonne (g/t), with an equivalent silver content of 713 g/t.
Juanicipio achieved silver production and silver equivalent production of 4.5 million ounces (Moz) and 6.4 Moz, respectively, during the quarter, highlighting the mine's potential for sustained production at high content.
The mine also showed strong value for money with a cash cost of US$2.50 per silver ounce sold and an AISC of $6.11 per silver ounce sold, MAG noted.
Juanicipio is located in the Bonanza zone of the Valdecañas vein system in the state of Zacatecas, Mexico. A preliminary economic assessment (PEA) carried out in 2017 estimated the life of the mine at 19 years.
The updated National Instrument 43-101 report for the mine, released last month, revealed that mineral resources increased by 33% from the original PEA to 17 million tonnes (Mt) at grades of 310 g/t Ag, 1.86 g/t gold (Au), 2.89% lead (Pb) and 5.32% zinc (Zn), the company said. Inferred mineral resources increased by 16% to 14.1 Mt at grades of 236 g/t Ag, 1.06 g/t Au, 2.41% Pb and 6.12% Zn.
A “real cash cow” for the company
Almost as soon as MAG released the technical report, silver prices began to explode. As of Tuesday, spot silver per ounce was up 19.28% year-to-date, USA Today reported.
Ron Struthers of the Struthers Resource Stock Report generally follows gold, but predicts market movements and Recommended MAG actions to take advantage of the sector's increases, saying Juanicipio “will be a real cash cow” for the company.
“A mine doesn't get much better than this one, and I don't think the stocks reflect that fact,” Struthers wrote on April 3 as the price of the precious metal rose.
According to FX EmpireThere could be more volatility in the silver market as investors anticipate the release of April Consumer Price Index data on Wednesday.
“If the CPI shows that inflation is slowing more than expected, or if employment figures show further weakening in the labor market, the value of money could rise as the likelihood of a decline anticipation of interest rates becomes more achievable,” notes the website.
Shareholding and sharing structure
Institutions own 70% of MAG and 30% is retail, according to the company.
Major institutional shareholders include operator Juanicipio Fresnillo Plc. with 9%, BlackRock Investment Management (UK) Ltd. with 10.8%, Van Eck Associates Corp. with 9%, First Eagle Investment Management LLC with 6.2% and Sprott Asset Management LP with 3%, the company said.
MAG Silver has a market capitalization of US$1.33 billion. It has 102.97 million shares outstanding, according to Reuters. It trades in a 52-week range of US$13.39 to US$8.20.
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- MAG Silver Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee of between US$4,000 and US$5,000.
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