PFS on Mine in Mexico Sets Up Co.'s Shares to Rerate
Research Report

MAG Silver Corp. (MAG:TSX; MAG:NYSE American) released a positive prefeasibility study (PFS) for the Juanicipio mine in Mexico, its joint venture project with Fresnillo, reported BMO Capital Markets analyst Kevin O'Halloran in a March 27 research note.

"The most significant impact of the PFS is to remove the previous uncertainty that was driven by an outdated technical report," O'Halloran wrote. "With the market now having more visibility on Juanicipio's expected performance . . . we expect the increased confidence in Juanicipio to translate into strong performance for MAG shares."

96% Return Potential

Given the news, BMO reiterated its CA$24 per share target price on the silver miner, which is now trading at about CA$12.24 per share, noted the analyst. From the current price, the return to target reflects a 96% return for investors.

MAG remains rated Outperform.

Larger Resource, New Reserve

O'Halloran presented the main takeaways from the Juanicipio PFS, starting with the most favorable parts.

For one, the resource at Juanicipio "has grown substantially" since the 2017 preliminary economic assessment due to the completion of about 194 kilometers of drilling since then, the analyst highlighted. Now, the Measured & Indicated resource is 24% higher at 406,000,000 ounces of silver equivalent (406 Moz of Ag eq). The Inferred resource rose 21% to 284 Moz of Ag eq.

A mineral reserve was established, 312 Moz of 633 grams per ton (633 g/t) Ag eq.

Costs Better Than Expected

Also positive is that the Juanicipio costs outlined in the PFS are better than those of BMOs. The PFS has an operation cost over the 13-year mine life of US$85.85 per ton (US$85.85/ton) versus BMO's estimate of US$100.16/ton. Sustaining capital is US$413 million (US$413M), which is in line with BMO's US$408M forecast.

"The strong cost performance is largely driven by mining efficiencies as production moves to deeper levels of the mine," explained O'Halloran. "This includes a more favorable layout of production areas laterally, as well as generally widening mineralization at depth."

A conveyor belt would also help reduce costs, the analyst wrote, and the Juanicipio joint venture (JV) intends to have one installed in 2024 and 2025. This would cost US$34.3M.

On the downside, the analyst noted that the estimated throughput and recovery figures in the PFS are below BMO's. The PFS outlines an average throughput of about 3,600 tons per day (3.6 Ktpd), compared to BMO's nameplate 4,000 Ktpd estimate.

The expected silver recovery noted in the PFS is 86.6%, a figure MAG admitted in a recent conference call is conservative, while BMO's recovery estimate is 94.8%. The PFS recovery rate translates into lower average production than what BMO modeled, 22.5 Moz of Ag eq versus 24.8 Moz, respectively.

The Bottom Line

Because estimates of metal recovery and throughput outweigh the benefits of the lower costs, this reduced BMO's net asset value (NAV) of Juanicipio by 11%. BMO's new NAV, for MAG's 44% interest in the project, is now US$780M, down from US$909M.

"However, we see the PFS as an achievable mine plan with the potential to improve both recoveries and throughput compared to the assumptions in the study," commented O'Halloran.

Mine Life Extension

O'Halloran pointed out that the key difference between the PFS and BMO's Juanicipio model is the latter forecasts additional mine life beyond the 13 years noted in the former.

In its conference call, however, MAG indicated the JV also believes there is potential to extend the mine life. For instance, MAG noted it expects to get another three to five years out of Juanicipio by converting the Valdecas vein Inferred resource at depth. Beyond that, the existing Inferred mineralization in the Anticipada and Ramal 1 areas could add another three to five years.

2024 Guidance for Juanicipio

Finally, for the Juanicipio project this year, MAG guided to production of 14.3−15.8 Moz of silver at a cost of US$9.50−US$10.50 per ounce, reported O'Halloran.

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. Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
3.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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Disclosures for BMO Capital Partners, Mag Silver Corp., March 27, 2024

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. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

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