In a September 30 research report, Stifel Nicolaus Canada Inc. (Stiefel GMP) Analyst Stephen Soock, P.Eng., CFA commented that Stiefel GMP has added advanced-stage silver developer and explorer MAG Silver Corp. (MAG:TSX; MAG:NYSE American) to its list of top picks for the fourth quarter of 2021.
The analyst stated that MAG Silver currently holds a 44% interest in the Juanicipio project with its partner and the JV's operator, Fresnillo Plc., owning the remaining interest.
Construction at the mining complex is nearing completion and the site's new 4,000 tpd processing plant is scheduled to commence operations this month and is expected to reach 40-50% of production capacity by December 2021. The JV's mining operations have continued during the new plant's construction which has served to alleviate a substantial amount of production metallurgy scaling risk with the project processing around 16,000 tons of material per month at the nearby Fresnillo mill.
The analyst advised that as of September 30, 2021, the company held approximately $42 million in cash on its balance sheet and is sufficiently funded to meet the remaining estimated $21 million in construction expenditures and production ramp up costs.
Stifel GMP highlighted that on a 100% basis, "When in full swing, Juanicipio will produce 27 Moz Ag eq per year making it the world's largest primary silver mine."
The report indicated that MAG is expected to net $178 million in free cash flow in 2022 with a free cash flow yield of 13% over the next 3 years. Stifel stated that the cash generated will be available to fund the company's dividend payments and fund further exploration at both the JV and its wholly owned Utah Deer Trail project. In addition, cash from operations will utilized to double the throughput of the new mill which in turn will produce even greater long-term cash flows from the Juanicipio mine.
Stiefel GMP advised that it believes that the stock will re-rate higher in the next several months as mill commissioning starts and commercial operations get underway. The firm expects that MAG Silver's "impending mountains of free cash flow on the horizon" warrant a substantial premium considering its 'royalty-like' structure and management's exploration expertise.
Stifel Canada currently has a "Buy" rating for MAG Silver Corp. with a 12-month price target of CA$30.50/share. The company's shares trade under the symbol MAG on the Toronto Stock Exchange and last closed for trading on November 5, 2021 at CA$25.82 per share.
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