MAG Silver Corp. (MAG:TSX; MAG:NYSE American) has published its second annual sustainability report as the silver producer continues to ramp up output at its new Juanicipio processing plant in Mexico and has picked up new analyst coverage.
The report provides a comprehensive overview of the company's environmental, social, and governance (ESG) commitments, practices, and performance for the past year.
The company said it had zero fatalities and no significant environmental incidents at its projects in Mexico, Utah, and Canada, and its total reportable injury frequency rate at Juanicipio shrunk to 17.4 per 1 million person-hours worked in 2022 from 26.37 in 2020, the report said.
"Safety performance has improved over the last year at Juanicipio, and both Deer Trail and Larder (the company's other projects) have embraced a 'step back and assess' culture to understand and appropriately address any risks," said Jim Mallory, MAG's chief sustainability officer.
The company also started receiving coverage from analysts Kieron Hodgson and Edward Gooden at Panmure Gordon and reinstated coverage with BMO Capital Markets and analyst Kevin O'Halloran.
Hodgson and Gooden said Panmure Gordon has a "very positive view" on Juanicipio and put a Buy rating on the stock with a price target of CA$22.10.
Hodgson and Gooden said Panmure Gordon has a "very positive view" on Juanicipio and put a Buy rating on the stock with a price target of CA$22.10.
"Underground operations are already delivering ore to the newly commissioned processing facility," they wrote in a research note. "Juanicipio is operational and being ramped up, allowing MAG and its partner, Fresnillo (Plc), to deliver the newest globally significant silver mine."
They said "exceptional exploration upside exists" at the project as "95% of the (license) area remains unexplored."
Success in exploration there could lead to future expansion of the plant, which would improve revenues and cashflows at the mine, they wrote.
"For investors, there are few companies offering silver production exposure, a metal we are confident will be well-supported over the coming years," the analysts noted. "Supply concerns emanating from secondary sources of the metal, predominantly in Latin America, are providing an opportunity for investors to refocus efforts on primary sources of the metal, of which Juanicipio will be a key beneficiary."
Report Highlights
More highlights from the sustainability report included a lost time injury frequency rate of 1.92 employees and mine contractors (per 200,000 hours, excluding construction contractors) at Juanicipio, over 62,000 hours dedicated to safety training across all of MAG's projects, more than 13 community engagement initiatives held at Juanicipio, and a 38% rate of female representation on its Board of Directors, surpassing the 30% target set by the company.
"The ongoing implementation of the 'I Care, We Care' approach to enhancing a safety culture together with assessing the risks and establishing the controls at Juanicipio have contributed to overall improvements in safety performance," the report noted.
The Catalyst: Production Numbers Surpassing Expectations
The new processing plant is moving toward capacity, and its production numbers are surpassing expectations.
The most conductive element in nature, silver is used to coat electrical contacts in computers, phones, cars, and appliances. It's also an important element in solar technology.
"The ramp-up so far at Juanicipio has gone very well, and we expect strong positive FCF (free cash flow) generation now that the mine is in commercial production, with development capex winding down," wrote Cormark Securities analyst Nicolas Dion.
After the completion of the plant's startup phase, about 4.4 million ounces of silver (Moz Ag) were produced at the plant between March 2023 and the end of June. Production is expected to increase steadily through the third quarter until the plant reaches its design capacity of 4,000 tonnes per day (tpd).
"The ramp-up so far at Juanicipio has gone very well, and we expect strong positive FCF (free cash flow) generation now that the mine is in commercial production, with development capex winding down," wrote Cormark Securities analyst Nicolas Dion in an updated research note.
"Despite this, MAG is trading at the low end of its range," wrote Dion, who rated the stock a Buy with a US$24 per share target price. "We see having Fresnillo as the operator as a key advantage, and the transition to full-scale production in H2/23 could be a catalyst to drive the multiple higher. MAG is our pick for a quality silver name."
Analyst: We Expect Shares to Re-Rate
MAG is mining the Bonanza zone of the Valdecañas vein system in the Zacatecas state of Mexico. A preliminary economic assessment (PEA) in 2017 estimated a 19-year mine life.
The company's focus is turning from construction to optimization at the plant, analyst Craig Hutchison of TD Securities wrote.
"With all major construction work now complete, the operation team is looking to improve and optimize the mine to achieve and potentially exceed design capacities," wrote Hutchison, who has rated MAG a Speculative Buy with a CA$24 per share target price.
O'Halloran with BMO Capital Markets said he viewed the project "as a premium silver asset" and rated the stock Outperform with a target price of CA$23.50.
Streetwise Ownership Overview*
MAG Silver Corp. (MAG:TSX; MAG:NYSE American)
"We expect MAG shares to re-rate to higher multiples as the mine's ramp-up is completed and as investors get visibility on cash distributions to MAG," he wrote. "Once cashflow distributions from Juanicipio begin, which we model in 2024, we expect MAG's treasury to grow. We see potential for MAG to return capital to shareholders in the medium term once the company has established a reliable track record of payments coming out of the Juanicipio JV."
Ownership and Share Structure
Institutions own 70% of MAG, and 30% is retail, according to the company.
Top institutional shareholders include Juanicipio project operator Fresnillo Plc. with 9.1%, Blackrock Investment Management at 10.1%, Van Eck Associates at 9.1%, First Eagle Investment Management at 5.6%, ETF Managers Group LLC at 5.3%, mining financier Eric Sprott at 4.4%, and Sprott Asset Management at 3.2%, the company said.
MAG Silver has a market cap of CA$ 1.45 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$13.93.
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