Top-Tier Silver Producer Talks Achieving Premium Mine Performance

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As MAG Silver Corp. (MAG:TSX; MAG:NYSE American) President and Chief Executive Officer George Paspalas recently told Streetwise Reports, "It's a wonderful time to be a silver producer."

Economics at its most basic is a game of supply of demand. While gold's exploding prices may be getting a lot of attention, silver is the kind of precious metal commodity that has other vital uses at the center of the energy transition that put it in a very good position for growth.

According to JM Bullion, the average solar panel uses 20 grams, or 0.643 troy ounces, of silver and the industry used just over 7% of the world's annual silver supply (an estimated 77.6 million ounces) in 2015, and that number is rising. The Silver Institute also just predicted that silver supply will be in a deficit in 2025 for the fifth straight year.

"There are some real fundamental aspects around silver that call for a high price," Paspalas said. "I think the fundamentals are so strong for silver that it's going to have a healthy price for a long time. … I do believe silver has a bit more of a runway yet, not to mention it's been so vital, not just as a precious metal but in industry, pretty much the entire time we've known of it."

Paspalas joined MAG in 2013 after he was president and chief executive officer of Aurizon Mines, which was acquired by Hecla. He also held many operation and project roles at Placer Dome, which was purchased by Barrick in 2006, including serving as chief executive officer for Placer Dome Africa.

According to his MAG biography, he has been "responsible for constructing and operating complex, open pit and underground mines in South Africa, Tanzania, Australia, South America and Canada."

Paspalas said after first talking to the people at MAG and looking at the company's asset, the now-producing Juanicipio Mine in Mexico, he thought, "Wow, this almost sounds too good to be true."

Mine Exceeding Potential, CEO Says

Paspalas said he found out it was not. The top-tier silver company has 44% interest in the Juanicipio plant, a joint venture (JV) with Fresnillo Plc. In a release announcing its production totals and guidance for 2025, the company said that for all of 2024, the plant produced 18.6 million ounces (Moz) silver (Ag) and 39,029 ounces of gold, marking a 10.5% and 6.3% year-over year increase, respectively.

An updated research report by BMO Capital Markets Analyst Kevin O'Halloran on February 18 noted that the mine exceeded 2024 production guidance, "primarily due to higher-than-expected grades," including 468 grams per tonne (g/t) Ag.

Juanicipio's journey did not go exactly as the company had planned initially when the plant's opening faced a delay. But for the time it was down, MAG's partner Fresnillo was able to process material from Juanicipio's mine in its own plants, and MAG still received sizeable operating cashflow from those resources that year, proving the partnership with Fresnillo is a valuable asset.

BMO Capital Markets' O'Halloran, who rated the stock Outperform with a CA$27 per share target price, wrote that the silver grade guidance is above the firm's forecast "as strong grade performance at Juanicipio is expected to continue."

"I think the (Juanicipio) mill will do more than nameplate; they generally do," Paspalas said. "But this one has shown it'll do more. But even if we can get the mining rate up and exceed that, we can still get incremental cash flow by putting material through the Fresnillo plant."

MAG said Juanicipio maintained steady production during Q4 2024 with 333,612 tonnes of ore processed, which was consistent with Q3's 332,290 tonnes. All material processed in 2024 was processed through the Juanicipio plant, the company said.

MAG said silver production exceeded the top end of revised guidance in 2024 by 1.3 Moz, reinforcing confidence in Juanicipio's long-term potential.

Paspalas said he expects performance at the project to continue to improve in 2025.

"There's still some ongoing optimized operations to be done, but now we're seeing some better performance underground, and we hope to be able to increase the mining rate," Paspalas said. "What investors will be rewarded for if we can achieve it is increasing the mining rate to start to lift the tonnage up."

90% of Property Unexplored

MAG also continues to search for more resources at Juanicipio, which Paspalas said has so far been less than 10% explored.

"There are some compelling reasons that there are two or three more of these upwelling zones that exist on the property, so I think that's going to be pretty exciting in the next few years," he said.

The company also just announced that its two other district-scale exploration projects at Larder in Ontario and Deer Trail in Utah "remain key components of the company's growth strategy."

Paspalas said it was important for MAG investors to know that "we've delivered on what we said we were going to do" by building a mine with "one of the best cash flow margins of any silver mine in the world."

"The biggest thing in the whole Juanicipio story is, you've got 90% of the property to go and explore, and there are compelling geological reasons why there could be one, two, or three more of these upwelling zones on the property," Paspalas said. "As I said at the start, sometimes I think, 'Is this real?'"

Expert: Producers Becoming 'Free Cash Flow Machines'

For 2025, silver production at the plant is expected to range between 14.7 Moz and 16.7 Moz, as reported by Fresnillo, the company has said. This guidance is based on a throughput rate of 4,000 tonnes per operating day at head grade ranges of 380 g/t to 430 g/t Ag and 1.2 g/t to 1.4 g/t gold.

BMO Capital Markets' O'Halloran, who rated the stock Outperform with a CA$27 per share target price, wrote that the silver grade guidance is above the firm's forecast "as strong grade performance at Juanicipio is expected to continue."

In the January 29 edition of What is Chen Buying? What is Chen Selling?, Chen Lin mentioned that MAG's Juanicipio partner Fresnillo met its silver guidance and slightly beat its gold guidance for the quarter and will end the year "with cash of US$1.2-1.3 billion!"

"Producers are becoming huge free cash flow machines," Chen continued, adding that the MAG report for the quarter was "very upbeat."

In an updated research report in November, Analyst Heiko F. Ihle of H.C. Wainwright wrote that the firm continued to monitor MAG's ongoing drilling results.

"We also emphasize that positive drilling and exploration results from the Deer Trail and Larder projects have the potential to unlock significant shareholder value for assets that are currently mostly ignored by the market," wrote Ihle, who rates the stock a Buy with a US$21 per share target price.

The analyst also said of Juanicipio, "We expect the site to remain a high-grade operation that should produce silver at favorable costs through its JV with a local partner for years to come."

Industrial Uses Are Key

Silver's industrial utility comes in clearer when contrasting it to the current gold market, which is setting multiple record highs as a safe haven in times of financial and geopolitical uncertainty.

While the silver market is "definitely not the same as the gold market," Christopher Lewis wrote for FX Empire on February 25, "the reality is that over the longer term, it does tend to follow gold."

According to James Hyerczyk of FX Empire on February 23, silver has gained 14% so far this year, following a robust 21% rise in 2024, reflecting strong demand across both precious and industrial markets​.

"Silver’s outlook remains positive, driven by both monetary and industrial demand," Hyerczyk wrote. "As inflation fears persist and geopolitical risks grow, silver’s dual role as a precious metal and an industrial commodity provides a robust foundation for further gains. While the potential for new tariffs adds uncertainty to industrial demand, silver’s safe-haven appeal should continue to attract investors looking for stability."

It's the industrial role that comes into play to help create the deficit for silver, which is the best conductor of electricity among the metals.

"Underpinning silver's fundamentals is robust demand from industrial applications," The Silver Institute said in its World Silver Survey 2024 report. "These continued to push higher last year, reaching a new all-time record, fueled by the remarkable rise in solar demand and in spite of stagnation in some other sectors. Sluggish silver supply, owing to the slight decline in global mine production, was another factor contributing to silver's deficit conditions last year."

The metal's unique properties "make it nearly impossible to substitute and its uses span a wide range of applications," the institute has said.

"From electrical switches and solar panels to chemical-producing catalysts and medical equipment, silver is an essential component in many industries," the institute wrote.

"Almost every computer, mobile phone, automobile and appliance contains silver. It is the perfect substance for coating electrical contacts – like those in printed circuit boards and switches — because of its high electrical conductivity and durability. Painting silver ink on any non-metal surface provides an electrical pathway, eliminating the need for wires. For example, Radio Frequency Identification Device (RFID) chips, with their tiny, thin antennas made of sprayed-on silver, are replacing bar codes on many items in supermarkets and supply chain inventories."

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

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$2.32 billion. It has 103.36 million shares outstanding, according to Reuters. It trades in a 52-week range of US$8.20 and US$18.27.