MAG Silver (MAG) – Major-Scale Silver Developer Doesn’t Have to Lift a Finger

MAG Silver Corp.
  • Shares Outstanding: 91.2M
  • Share price US$15.44 (09.09.2020)
  • Market Cap: US$1.41B

Interview with George Paspalas, President & CEO of MAG Silver (TSX, NYSE: MAG)

We last spoke to Paspalas in November 2019 in London. Things have certainly changed since then. Silver has, as expected by some analysts, been mirroring gold but with a timelapse. Whilst gold had been rushing up over US$2,000/oz, silver had remained stagnant; that is until the start of April, when a drastic uptick pushed it up over US$27/oz. It is trading at US$27/oz on the dot today.

It is time to pick some silver winners, then. One such winner could be MAG Silver Corp. It is a story many will already be familiar with and for good reason: these guys clearly know how to build a successful silver company with minimal effort. It helps that the company’s flagship asset contains the highest-grade silver in the world.

Matthew Gordon talks to George Paspalas, August 2020

It is rare that established mineral development companies provide investors with a multiple on their initial investment. Those who invested into MAG Silver at the market-reset/COVID-19 base have more than tripled their money. It is clear this is a management team that still has the ability to create accretive value where investors want to see it: the share price. If anything, MAG Silver serves as an example to its precious metals peers of what sort of company they should want to become.

The company holds a 44% interest in one of the largest silver projects in the world. It is in Mexico and is called the Juanicipio JV, with Fresnillo holding the remaining 56%. MAG Silver has previously earmarked underground production for ‘mid-2020,’ and while COVID-19 has created disruption, it doesn’t appear we are too far away from the JV bearing silver fruit. This is an unconventional approach of getting into production early, making the most of the silver cycle whilst conditions are favourable. A 2017 PEA is the only time the potential of Juanicipio has been defined in a conventional document. The PEA Base Case uses a 5% discount rate and metal prices of $17.90/oz silver, $1,250/oz gold, $0.95/lbs lead and $1.00/lbs for zinc. 

  1. Life-of-mine: An initial 19 years
  2. A low life-of-mine AISC: $5.02/oz silver
  3. Post-tax (NPV5%) – $1.14 billion
  4. Post-tax IRR: 44.5%
  5. CAPEX: $360M (which has now been revised and increased to $440M)
  6. Less than a 2-year payback from plant start-up because of ‘accelerated early silver flow.’
  7. 4,000tpd production rate

A resource update was also provided several months ago to outline the development of the scale of the project. Investors can expect Juanicipio to reach 85% name plate capacity in Q4/21 and 90-95% in 2022. In addition, commissioning of the flotation plant will be underway by mid-2021. This is an extremely economic, fairly low-risk (for mining) 11.7Moz silver and 43.5Koz gold resource. Why waste time on exhaustive, expensive and time-consuming studies for a project that would have an IRR of 15% even at extremely depressed prices: $8/oz silver and $0.75/lbs zinc? The project’s economics look totally foolproof.

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So, what is the plan moving forward and how has COVID-19 affected matters? Mine operator, Fresnillo, has been quite vocal throughout, stating on April 29th that it did not expect a change to the overall Juanicipio development timetable. MAG Silver has remained pragmatic, explaining to investors that COVID-19 has caused stoppages to surface development and underground development, which could result in additional medical costs, project delays, cost overruns and operational restart costs in the long run. By the order of the Mexican government, as of May 30 2020, surface exploration and construction work at Juanicipio was suspended with underground operations also being significantly hampered.

The Juanicipio JV commenced the phased Juanicipio Project restart on June 1st. Investors can expect to see underground mine production commencing soon, ahead of schedule, with c. 16,000t per month of mineralised ore being processed through Fresnillo’s plant before Juanicipio’s plant can be commissioned. Juanicipio’s plant looks ready to rock, having already processed 8,858t of material earlier on a test basis earlier this month. Detailed engineering and earthmoving for the beneficiation plant is nearing completion. Construction is now back to 100% of its capacity.

With no debt, c. $87M in the bank and a modest cash burn rate of $8.2M, MAG Silver is well financed to see out this next stage of development up until the commencement of production. In April, Sprott acquired 4.5M shares, and it is little surprise.

Just before I wrap things up, let’s explore exactly what the assay results from the 33,864m, 28-hole 2019 exploration program mean for some useful context. MAG Silver has now confirmed and expanded the continuous wide, high-grade mineralisation in the ValdecaƱas Deep Zone of the project. It has also confirmed and expanded the wide, high-grade zones in the Anticipada Vein and the Venadas vein to the south. Lastly, the northeast-trending Valentina and Venadas II veins were discovered, creating even more potential for exploration upside.

This is, without a shadow of a doubt, an extremely impressive silver mining story. Paspalas and his team have really impressed thus far, but now it is time to hit their deliverables and get Juanicipio into production within the timeframe allocated. I will be watching on in expectation. I doubt they will disappoint.

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