MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) Q1/24 financial results are notable for an earnings beat and strong free cash flow generation, reported BMO Capital Markets analyst Kevin O'Halloran in a May 14 research note.
"We are encouraged by the accelerating pace of cash distributions from the Juanicipio joint venture (JV), and we expect the market will react positively to a growing track record of capital returns," O'Halloran wrote. MAG owns 44% of the Juanicipio project in Mexico, and its JV partner Fresnillo owns 56%.
41% upside implied
As such, BMO reiterated its CA$24 per share target price on the Canadian silver producer, now trading at about CA$16.97 per share, O'Halloran wrote. Thus, the implied return for investors is 41%.
MAG remains rated Outperform.
What to take away
In his report, O'Halloran presented the highlights of MAG's Q1/24 financials, noting that the production, revenue and cost amounts all came in better than expected.
Overall, the company's earnings per share for the quarter was US$0.14, exceeding BMO and consensus' estimate of US$0.13 and US$0.10, respectively.
Q1/24 revenue from Juanicipio was US$124 million ($124M), in line with BMO's forecast.
"The mine continued to generate strong cash flows, with US$28M of free cash flow in Q1/24, facilitating a US$17.5M return of capital to MAG," reported O'Halloran. BMO forecasts full-year 2024 free cash flow generation of US$126M.
Significantly lower costs
A main driver of the earnings beat was costs, which wound up being significantly lower than BMO's estimates and below guidance.
As for specific costs, those related to production at Juanicipio totaled US$37M, below BMO's US$56M estimate.
Juanicipio's cash cost in Q1/24 was US$8.66 per ounce of silver equivalent (US$8.66 oz/Ag eq) versus BMO's US$11.25/oz projection. The all-in sustaining cost (AISC) was US$11.22/oz compared to BMO's US$13.07/oz expectation.
On a byproduct basis, the cash cost in Q1/24 was US$2.50/oz, better quarter over quarter. Similarly, the Q1/24 AISC was US$6.11/oz, below Q4/23's US$9.17/oz and guidance of US$9.50–10.50/oz.
Strong production, grade
During Q1/24, Juanicipio produced 6,400,00 ounces (6.4 Moz) of Ag eq, higher than estimates, including 4.4 Moz silver, 9,900 ounces of gold, 8,700,000 pounds (8.7 Mlb) of lead and 14.7 Mlb of zinc.
The silver grade was 476 grams per ton (476 g/t), higher than BMO's forecast and guidance of 380–420 g/t, thanks to better recoveries of all metals.
Q1/24 operational activities
Other notable MAG developments in Q1/24 included release of an updated prefeasibility study of Juanicipio, which clarified outdated project specifics, O'Halloran wrote. The report showed "strong unit costs and increasing mineral resources, offset by lower recoveries and throughput."
In another move earlier this year, MAG purchased the Goldstake property, adjacent to its 100%-owned Larder project in Ontario, Canada's Abitibi Greenstone Belt. At Larder this year, the company intends to drill at least 35,000 meters.
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