Analysts, Investors Like Silver Producer's Exceptional Silver Dividend

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Experts, analysts and investors are responding positively to top-tier silver producer MAG Silver Corp.'s (MAG:TSX; MAG:NYSE American) inaugural dividend announced with its financial results last week.

The payment is a fixed dividend of US$0.02 per share and an additional cash flow-linked dividend of US$0.16 per share (about 30% of the cash the company received from its 44% Juanicipio joint venture (JV) with Fresnillo Plc), for a total dividend of US$0.18 per share.

"MAG shares were up 5.9% on the news, showing that the market liked it," Peter Krauth wrote for The Gold Advisor on March 26. "The company has serious ongoing discovery potential at Juanicipio, Deer Trail, and Larder. Shares are up 24% just since the start of this year. Attractive to add on weakness."

A Flash Note from research firm TD Cowen on March 24 had predicted the reaction.

"We expect a positive reaction from MAG shares following Q4 financial results, which were ahead of consensus," the firm wrote. "More importantly, lower operating costs continued to showcase impressive margins at Juanicipio, and the company declared its widely anticipated inaugural dividend of US$0.18/share. The implied annualized dividend yield of 4.6% is the highest in our precious metals universe."

The firm held a Buy rating on the stock with a price target of CA$27.

"The announcement of our dividend policy and inaugural dividend is a major milestone for MAG and validates our confidence in the overall strength and sustainability of our business,” President and Chief Executive Officer George Paspalas said. “This inaugural dividend, with both fixed and cash flow linked components, demonstrates our dedication to delivering consistent value while sharing Juanicipio's operational and financial success with our shareholders."

MAG said the declaration, timing, amount, and payment of future dividends will be subject to the discretion and approval of the Board of Directors and it will review the dividend program "on an ongoing basis and may amend it at any time."

TD Cowen held a Buy rating on the stock with a price target of CA$27.

In addition to the inaugural dividend of US$26.4 million to MAG, Juanicipio returned a total of US$97.38 million in interest and loan principal repayments to MAG for a total capital return in 2024 of US$123.78 million, further augmenting MAG's cash position to US$162.35 million at the end of the year, the company said.

A total of 1,328,178 tonnes of ore at a silver head grade of 468 grams per tonne (g/t) (equivalent silver head grade of 712 g/t) was processed at Juanicipio, which achieved silver production and equivalent silver production of 18.6 and 26.8 million silver equivalent ounces, respectively.

Silver recovery at Juanicipio improved to 93% from 87% in 2023, reflecting the commencement of commercial pyrite and gravimetric concentrate production during the second quarter of 2024, delivering incremental silver and gold recovery, paired with ongoing optimizations in the processing plant, MAG noted.

Exposure to the 'World-Class Juanicipio Mine'

Analyst Kevin O'Halloran with BMO Capital Markets noted that MAG's fourth quarter 2024 EPS of US$0.18 "aligned with our forecast after pre-reporting production in January."

"Revenue at Juanicipio of US$160M was slightly above our US$153M and production costs of US$38M were in line with our US$39M after pre-reporting production," noted O'Halloran, who rated the stock Outperform with a CA$27 per share target price, a total return of 19% at the time he wrote the note. "Q4 mine-level operating cash flow of US$111M and FCF of US$78M compared to US$110M and US$97M in Q3."

The firm noted that investing in MAG offers investors "44% exposure to the world-class Juanicipio mine."

"Juanicipio, operated by MAG's 56% partner, Fresnillo, is expected to deliver robust economics and FCF (free cash flow) given its high grades," BMO's investment thesis for the company said. "We see potential for MAG shares to re-rate as Juanicipio ramps up and delivers cash flows to the JV partners."

Analyst Kevin O'Halloran with BMO Capital Markets noted that investing in MAG offers investors "44% exposure to the world-class Juanicipio mine."

Analyst Cosmos Chiu with Research Central, in an updated research note on March 24, noted that "operationally, 2024 was a successful year for the company."

"Although earnings for the quarter were slightly below our expectation and consensus, the introduction of a dividend further solidifies MAG's strategy for continued shareholder value creation," wrote Chiu, who set a target price for the stock of CA$26. " We maintain our Neutral rating at this time. MAG shares currently trade at 1.4x P/NAV, a premium to the group at 1x P/NAV."

For 2024, MAG reported AISC (all-in sustaining costs) of US$5.54 per ounce, better than the analyst's full-year guidance of US$8.50-US$9.25 per ounce (originally at US$9.50-US$10.50 per ounce), Chiu said.

"On a 100% basis, Juanicipio produced 18.6 Moz, also ahead of revised guidance of 16.3-17.3 Moz, benefitting from higher-than-expected grades at the mine," he wrote. "In 2024, the head grade at Juanicipio averaged 465 g/t silver, compared to the original guidance of 380-420 g/t."

For 2025 guidance, Chiu said he is modeling production of 6.67 Moz Ag at AISC of US$7.96 per ounce.

"Compared to our previous model, we have made slight improvements to our estimates of both production and costs," Chiu wrote.

Dividend Could Broaden Investor Base, Analyst Says

Roth Capital Partners LLC Analyst Joe Reagor, in an updated research note on March 25, said MAG's results were "somewhat below expectations, mainly due to higher operating costs," maintaining a neutral rating and cutting the price target from US16.50 to US$16 per share.

But Reagor said the firm also views the dividend as a boost for shareholders.

"The dividend consists of a fixed quarterly dividend of US$0.02 per share plus a cash flow linked dividend of 30% of cash flow from the JV as long as the price of silver remains above US$20 per ounce," Reagor wrote. "We believe this dividend policy could broaden MAG's investor base and thus, we view it as a positive."

Analyst Cosmos Chiu with Research Central, in an updated research note on March 24, noted that "operationally, 2024 was a successful year for the company."

Reagor wrote that the firm believes MAG is "fully valued by the market," thus the neutral rating.

Don DeMarco, an analyst with National Bank of Canada, also hailed the dividend.

"[The] inaugural dividend with cash flow-linked feature allows investors [to] get paid with a yield that's among the top for silver names while maintaining upside to silver prices," wrote DeMarco, who maintained an Outperform rating on the stock with a CA$30.50 per share target price.

"Our thesis considers production growth at Juanicipio (44%), diversified metal production, a rerate to producer multiples, exploration upside, and mergers and acquisitions appeal tempered by Juanicipio joint venture (JV) terms, which limit profit sharing to once per year," wrote DeMarco.

The Catalyst: Industrial Uses Helping to Cause Deficit

While gold surged again on Tuesday, silver failed to follow its lead, according to James Hyerczyk, writing for FX Empire.

The market faced resistance at US$34.59 and a more significant ceiling between US$34.87 and US$35.40, Hyerczyk wrote. Monday's bounce of US$33.63 offered temporary relief, but traders remained cautious. A break below this minor support could accelerate losses toward the 50-day moving average at US$32.43.

"This underperformance may be tied to weaker industrial signals out of China — a key demand center for silver — and a lack of buying interest from central banks, which have concentrated allocations heavily in gold," Hyerczyk noted.

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. However, it's the industrial role that comes into play to help create a 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."

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$1.58 billion. It has 103.36 million shares outstanding, according to Reuters. It trades in a 52-week range of CA$10.62 and CA$18.27.