As MAG Silver Corp. (MAG:TSX; MAG:NYSE American) continues to increase production at its large-scale Juanicipio plant in Mexico, the company announced a rise in net income for 2022, but with a slight loss in the fourth quarter.
The 4,000-tonne-per-day processing plant is now in the commissioning and ramp-up phase and is expected to reach nameplate capacity in Q3 2023.
Meanwhile, Juanicipio produced its first lead concentrate this month and expects its first commercial shipment of concentrate in the coming weeks.
"We believe that MAG is one of the better options for investors looking for exposure to silver, given its 44% interest in the world-class Juanicipio joint venture (JV), which is a district-scale, low-cost, high-grade silver development project with a strong partner and meaningful exploration potential," analyst Brian MacArthur of Raymond James wrote in a note on Monday.
"We note MAG remains very well capitalized for any further calls as Juanicipio heads towards commercial production," hanaccord Genuity Capital Markets analyst Michael Fairbairn said.
The company reported a net income of US$17.6 million, or US$0.18 per share, for the year ending Dec. 31, 20221. That's compared to US$6 million or US$0.06 per share the year before.
It reported a net loss of US$825,000 or US$0.01 per share for the fourth quarter of 2022, compared to a net income of US$8.6 million or US$0.09 per share in Q4 2021.
"But given MAG is transitioning from a developer into a producer, we believe that current EPS are not as relevant," wrote MacArthur, who rated the stock Outperform with a target of CA$25.
Q4 payable silver production of about 1.83 million ounces silver (Moz Ag) exceeded Canaccord Genuity Capital Markets analyst Michael Fairbairn's estimate of about 1.68 Moz Ag. Silver equivalent production of about 2.54 Moz Ag eq (silver equivalent) also beat his estimate by about 5%.
"It was a mixed set of results for MAG that featured higher-than-expected costs, somewhat offset by payable metal production and realized prices that beat our estimates," Fairbairn wrote Monday.
Fairbairn noted the company had faced a US$8 million cash call from the Juanicipio joint venture (JV) in Q4.
"We note MAG remains very well capitalized for any further calls as Juanicipio heads towards commercial production," he said, rating MAG a Speculative Buy with a CA$26 target.
The Catalyst: Cash Flow Will Increase, Analysts Say
Construction of the plant began in 2019, and it was expected to come online by the end of 2021, but the state electric authority said just before Christmas that year that more equipment needed to be installed on the system.
Many analysts stuck by the company through the wait for the power hookup. Stifel GMP analyst Stephen Soock named the stock one of his “top picks" for the third quarter of 2022. He continues to rate the stock a Buy with a CA$25.75 target.
"MAG's management team has guided that it expects its project capital costs to wind down upon approaching commercial-scale production for the site," H.C. Wainwright & Co. analyst Heiko F. Ihle wrote.
"Over the next three years, we expect the company to generate CA$170 (million) in free cash flow at current spot prices for a yield of 4.6%," Soock wrote on Monday.
MAG is mining the Bonanza zone of the Valdecañas vein in the Zacatecas state of Mexico. A preliminary economic assessment (PEA) in 2017 estimated a 19-year mine life with 4,000 tonnes per day.
The company closed a US$42.6 million bought deal public offering of common shares on February 7 and a US$17.3 million bought deal private placement of common shares on a flow-through basis. It also had about US$30 million in cash at the end of Q4.
"MAG's management team has guided that it expects its project capital costs to wind down upon approaching commercial-scale production for the site," H.C. Wainwright & Co. analyst Heiko F. Ihle wrote in a note on Tuesday. "In turn, we anticipate the reduction in project capital to result in increased cash flow. Importantly, we expect this effect to be exacerbated as precious metal prices simultaneously show strength going into 2Q23."
Ihle rated the stock a Buy with a price target of US$16.
Silver Demand on the Rise
The Silver Institute has predicted that global silver demand will reach a new high of 1.21 billion ounces in 2022, up 16% from 2021. Industrial demand, including vehicle electrification and other green technologies, is on course to grow to 539 million ounces (Moz).
The precious metal is used to coat electrical contacts and is an important element in solar technology. Almost all computers, phones, cars, and appliances contain it.
"Developments such as ongoing vehicle electrification (despite sluggish vehicle sales), growing adoption of 5G technologies, and government commitments to green infrastructure will have industrial demand overcome macro-economic headwinds and weaker consumer electronics demand," the report said.
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MAG Silver Corp. (MAG:TSX; MAG:NYSE American)
The global silver market is forecasted to record a second consecutive deficit between supply and demand this year, the Institute said. At 194 Moz, it will be a multi-decade high and four times 2021's level.
Ownership and Share Structure
Institutions own 71% of MAG, and 29% is retail, according to the company.
Top institutional shareholders include Juanicipio project operator Fresnillo Plc. with 10%, BlackRock Asset Management with 8.2%, Sprott Asset Management with 5.3%, First Eagle Investment Management with 5.2%, and mining financier Eric Sprott with 4.6%, the company said.
The company is covered by a plethora of analysts, including Soock of Stifel, among others. Newsletter writers Peter Krauth of the Gold Resource Investor, Chen, and Bob Moriarty of 321 Gold. Click "See More Live Data" in the data box above to view them all.
MAG Silver has a market cap of US$1.2 billion. It has 102.9 million shares outstanding, according to TSX Infosuite. It trades in a 52-week range of US$23.29 to US$13.60.
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