Silver Producer Increases Head Grade, Beats Analyst Expectations

MAG Silver Corp. (MAG:TSX; MAG:NYSE American) announced it processed 336,593 tonnes of ore through its Juanicipio joint venture (JV) with Fresnillo Plc. in Mexico in the second quarter, building on its daily milling rates.

The Tier I silver producer's average head grade for the quarter increased to 498 grams per tonne (g/t), "reaffirming the high-grade nature of the Juanicipio deposit, which continues to demonstrate its significant long-term potential," the company said in a release.

"Production was better than expected overall, which we attribute to higher grades and recoveries compared to our expectations," analyst Joe Reagor of Roth MKM wrote in an updated research note on Wednesday. "Additionally, management announced an increase in its 2024 full-year silver head grade guidance. As a result of these factors, we are increasing our price target from (US)$14.50 to (US)$15.50 and maintaining our Buy rating."

Fresnillo owns 56% of the Juanicipio JV and MAG owns 44%.

"We are increasing our price target from (US)$14.50 to (US)$15.50 and maintaining our Buy rating,"  analyst Joe Reagor of Roth MKM wrote.

Consistent with the first quarter, MAG noted that all of the ore in Q2 was processed through Juanicipio and not any of Fresnillo's other plants.

"The second quarter continued to validate the strength and quality of our operations at Juanicipio," said MAG President and Chief Executive Officer George Paspalas. "We achieved solid milling rates, improvements in recovery, and exceptional head grades in a very supportive commodity price environment. With the robust foundation of the first half of 2024, increased silver grade guidance, and ongoing project optimization, we remain confident we are well positioned for continued growth and long-term success."

On a 100% basis, Juanicipio produced 5 million ounces silver (Moz Ag), 10 million pounds lead (Pb), and 18.9 million pounds zinc (Zn), which compared to Roth's estimates of 3.8 Moz Ag, 9.1 million pounds Pb, and 14.6 million pounds Zn, respectively.

"Higher than anticipated head grades for all three metals drove the majority of the beat, while higher than anticipated recovery rates for silver and zinc contributed as well," Reagor wrote.

Increasing Guidance

Because of those results, MAG announced it would increase its head grade guidance from "a range of 380-420 g/t to a range of 420-460 g/t," Reagor noted, causing Roth to increase its silver grade assumptions closer to the higher end of the revised guidance.

"While MAG's revised guidance positively impacted our valuation slightly, continued improvements in recoveries of zinc and silver had a more significant impact on our valuation," Reagor wrote. "We revised our long-term recovery rate assumptions to be more in line with the mill's current performance. As such, we increased our silver and zinc recovery assumptions and lowered our gold recovery assumptions."

Analyst Kevin O'Halloran with BMO Capital Markets also noted in an updated research note on Wednesday that the silver grade was "a strong beat" to its estimate and revised its guidance higher to 420-460 g/t, as well.

Analyst Kevin O'Halloran with BMO Capital Markets also noted in an updated research note on Wednesday that the silver grade was "a strong beat" to its estimate and revised its guidance higher to 420-460 g/t, as well.

O'Halloran said Q2 silver production at Junanicipio of 4.98 Moz exceeded the firm's 3.68 Moz forecast by 35%, and 6.82 Moz Ag Eq was 21% above its estimate of 5.62 Moz.

"The operation also displayed q/q improvements in throughput and recovery, rounding out an impressive quarter at Juanicipio," wrote O'Halloran, who rated the stock Outperform with a CA$24 per share price target.

MAG noted that comprehensive financial and operational results and a definitive guidance update are expected to be released on August 2.

The Catalyst: Volatile But Needed for Energy Transition

Silver spot prices rose to a new all-time high of US$32.43 per ounce on May 20 and have continued to be volatile. The price was US$29.17 on Wednesday, after the market plunged during the course of last week, FX Empire reported. "Keep in mind that silver is highly sensitive to the U.S. dollar and interest rates as well as risk appetite," Christopher Lewis wrote for the site.

The most conductive element in nature and important to the green energy transition for coating electrical contacts in computers, phones, cars, and appliances, silver is also an important element in solar technology.

"The next couple of days, and therefore the next weekly candlestick, is going to be crucial and could determine where the trend goes or whether it just completely implodes," Lewis continued. "I'd be very cautious, and I would be hesitant to put a bunch of money into this market right now as silver, although still technically bullish, has certainly seen a lot of negativity this week."

According to the Silver Institute's World Silver Survey, global demand for silver "massively exceeded" supply last year, a deficit that is expected to extend into a fourth consecutive year in 2024.

Mordor Intelligence noted that the white metal is expected to register a compound annual growth rate (CAGR) of more than 5% between 2024 and 2029.

"An increase in the demand for new technological products is expected to help the market expand in the future," Mordor analysts wrote. According to a U.S. Geological Survey report, "27% of the silver produced in the United States was being utilized in electrical and electronic applications."

Ownership and Share Structure

Institutions own 70% of MAG, and 30% is retail, according to the company.

Top institutional shareholders include Juanicipio operator Fresnillo Plc. with 9%, BlackRock Investment Management (UK) Ltd. with 10.8%, Van Eck Associates Corp. with 9%, First Eagle Investment Management LLC with 6.2%, and Sprott Asset Management LP with 3%, the company said.

MAG Silver has a market cap of US$1.39 billion. It has 103.14 million shares outstanding, according to Reuters. It trades in a 52-week range of US$14.30 and US$8.20.

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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