MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) Q2/23 earnings per share (EPS) was depressed primarily by higher operating costs at its joint venture project Juanicipio in Mexico, reported ROTH Capital Partners analyst Joe Reagor in an Aug. 9 research note.
"These costs should reduce over time as the joint venture shifts focus from ramp-up to optimization," Reagor wrote.
Estimates unchanged, 91% return
ROTH maintained its target price on MAG of $22 per share, noted Reagor. In comparison, the Canadian miner's current share price is about $11.53.
"While Q2/23 results were somewhat below our estimates, this did not significantly impact our discounted cash flow valuation," he added. "MAG is in the early stages of a rerating as a significant silver producer."
The gap between the current and target prices implies a compelling return for investors, of 91%.
MAG remains a Buy.
Higher costs tied to ramp-up
MAG's Q2/23 EPS missed expectations, but this was due to the ramp-up and should ease once this process concludes, Reagor wrote.
The company's Q2/23 EPS was $0.19 versus ROTH's $0.28 forecast. The cause was less of a profit than expected, resulting from higher operating costs and lower sales, than expected.
Reagor pointed out that higher operating costs are commonplace during a mill ramp-up. Recovery tends to be less because the focus is on testing the mill, and the ore used at first typically is lower grade. Also, because the mill is running at a lower rate, fixed costs on a per-ton basis rise.
"We believe the Juanicipio joint venture is likely to demonstrate improved costs in the quarters ahead as it moves towards steady-state operations," Reagor wrote.
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