Premium Silver Asset Ramping up Cash Flow
Research Report

Now that MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) Juanicipio processing plant in Mexico is nearing nameplate capacity, BMO Capital Markets reinstated coverage on the company, which it says has "strong cash flows on the way."

"We see MAG shares at an inflection point with construction of Juanicipio complete, commissioning challenges behind them, and production increasing," BMO analyst Kevin O'Halloran wrote in a Sept. 14 research note. "We see the stock poised to re-rate towards higher P/NPV multiples as Juanicipio ramps up and establishes a reliable track record of cash flows for the JV partners."

O'Halloran rated the stock Outperform with a target price of US$23.50 per share.

Poised to Become a Top-Tier Asset

With MAG Silver having a 44% ownership stake in Juanicipio, it is poised to become a top-tier asset in the silver mining space, O'Halloran noted. He pointed out the project's exceptionally high ore grades and large production scale, saying it should be able to generate low-cost silver output at wide profit margins.

"We expect Juanicipio to reach nameplate production capacity of 4,000tpd (tons per day) at the end of Q3, and we expect MAG to begin receiving cash flows from the mine in 2024. We expect MAG shares to re-rate to higher multiples as the mine's ramp-up is and as investors get visibility on cash distributions to MAG. MAG shares currently trade at 1.1x our NAV estimate," O'Halloran wrote. 

'Relatively Strong' Balance Sheet

The report also pointed out Mag's "relatively strong" balance sheet. Currently, the company is reported to have US$53 million in the bank and no debt. O'Halloran commented, "Once cashflow distributions from Juanicipio begin, which we model in 2024, we expect MAG's treasury to grow."

Additionally, O'Halloran highlighted that Mag not only provides investors with formidable access to silver but also offers them exposure to strong mining jurisdictions. 

The company generated 87% of its attributable revenues from silver in 2022, the analyst said. "We forecast 74% of revenues coming from silver. Our model sees increased by-product production in later years but maintains more than half of revenues from silver throughout the mine life."

O'Halloran wrote that he saw MAG as being towards the middle of its peer group, but "but based largely on the quality of Juanicipio, we assert that MAG shares have room to re-rate towards higher P/NAV multiples. We would expect MAG shares to revalue in the near term as Juanicipio achieves full production, and as initial cash flows are received from the JV, reminding investors of the strong cash-generating potential that MAG possesses."

Important Disclosures:

1. MAG Silver Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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Disclosures for BMO Capital Markets, MAG Silver Corp., Sept. 14

Analyst's Certification: I, Kevin O'Halloran, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.

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Company Specific Disclosures

Disclosure 1: BMO Capital Markets has undertaken an underwriting liability with respect to MAG Silver within the past 12 months.

Disclosure 2: BMO Capital Markets has provided investment banking services for remuneration with respect to MAG Silver within the past 12 months.

Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to MAG Silver within the past 12 months.

Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from MAG Silver within the past 12 months.

Disclosure 6A: MAG Silver is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services

Disclosure 9B: BMO Capital Markets makes a market in MAG Silver in United States.

Disclosure 18: A redacted draft of this report was previously shown to MAG Silver (for fact checking purposes) and changes were made to the report before publication.

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The recommendation contained in this report was produced at September 14, 2023, 04:21 ET. and disseminated at September 14, 2023, 04:21 ET.