Silver Co. Ships First Concentrate From Mexico Plant

Concentrate production and the shipment of commercial lead and zinc concentrates has begun at MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) large-scale Juanicipio plant in Mexico.

The company said regular shipments have started and will continue going forward. Lower-grade commissioning material was processed with recovery rates averaging 84% for silver, slightly above expectations at this stage in the plant's commissioning.

The update "helps build confidence" in MAG's plan to have the plant fully online by mid-to-late this year, Canaccord Genuity analyst Michael Fairbairn said in an updated research note on Thursday.

"We see the combination of the higher-than-expected silver recoveries along with mining/milling rates performing in line with expectations as positives," wrote Fairbairn, who reiterated his Speculative Buy rating of the stock with a CA$26 per share target.

The update "helps build confidence" in MAG's plan to have the plant fully online by mid-to-late this year, Canaccord Genuity analyst Michael Fairbairn said.

"We note that it remains early days for the operation," Fairbairn continued. " MAG noted that as throughput continues to ramp up over the coming months and higher-grade material from the underground stopes makes its way into the mill, the company expects to see recovery rates increase steadily and reach design."

Milling rates were around 60% of design, delivering an average of 2,476 tonnes per day and sometimes up to 3,900 tonnes per day in March, the company said.

"We are delighted with the high silver recoveries we are seeing so early in the commissioning process and look forward to the operation progressing into a significant cash flow generator for the Company and a substantial contributor to the local and regional economy," said MAG Silver President and Chief Executive Officer George Paspalas.

The Catalyst: Ramp-Up 'Remains on Track'

After construction began in 2019, the plant was expected to be online by the end of 2021. However, the state electric authority said just before Christmas that year that more equipment needed to be installed on the system for the electrical hookup.

Many analysts stuck by the company, including Stifel GMP analyst Stephen Soock named the stock one of his "top picks" for the third quarter of 2022. He continued to rate the stock a Buy with a CA$25.75 target last month.

"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.

MAG said construction activities are "substantially complete" at the site. "Current mill feed is a combination of mineralized material from underground stopes and lower grade stockpiles that were earmarked for commissioning activities," it noted in a release.

"Juanicipio remains on track to achieve nameplate (status)," analyst Don DeMarco of the National Bank of Canada wrote on Thursday, maintaining his Outperform rating for the stock with a CA$24.50 target.

Analyst: One of the Better Options for Silver Exposure

The company 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 recorded 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 analyst Brian MacArthur of Raymond James, who rated the stock Outperform with a target of CA$25.

"We believe that MAG is one of the better options for investors looking for exposure to silver," MacArthur wrote.

Silver Deficit in the Forecast

Demand for the precious metal was predicted to reach a new high of 1.21 billion ounces in 2022, up 16% from the year before, according to the Silver Institute. Industrial demand, including vehicle electrification and other green technologies, was on course to grow to 539 million ounces (Moz) during that time.

Stifel GMP analyst Stephen Soock named the stock one of his "top picks" for the third quarter of 2022. He continued to rate the stock a Buy with a CA$25.75 target last month.

The institute said the global silver market is forecasted to record a second consecutive deficit between supply and demand this year. At 194 Moz, it will be a multi-decade high and four times 2021's level.

Silver 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.

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.

MAG Silver has a market cap of US$1.81 billion. It has 102.9 million shares outstanding, according to TSX Infosuite. It trades in a 52-week range of US$22.96 and US$13.60.

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