By The Gold Report
Source: Streetwise Reports 11/14/2017
Five analysts explain why “several significant improvements” led to their Buy recommendations and highlight what investors need to know.
In a Nov. 7 announcement, MAG Silver Corp. (MAG:TSX; MAG:NYSE.MKT) released the results of its 44%-owned Juanicipio project preliminary economic assessment (PEA). “We are very pleased to see the strong positive impact of the enhanced project scope on the already remarkable economics of the Bonanza Zone,” said George Paspalas, MAG Silver’s president and CEO. “The upside to higher metal prices is obvious, but equally important, the project even shines brightly at significantly lower metal prices: At $8/oz silver and $0.75/lb zinc, the project still delivers an after-tax IRR of 15%,” Paspalas stated.
Bhakti Pavani, an analyst with Euro Pacific Capital, pointed out in a Nov. 9 report that “the new PEA on the Juanicipio project is robust with a significant increase in the mineral resource estimate, in our opinion.” She highlighted that “while the mineral resource estimate has increased 64% from its previous resource of 15.2MM, the majority of the increase is in the Deep Zone, where the Company has been actively drilling since 2015. We believe the new PEA economics are robust and have increased significantly despite the lower metal prices.”
Pavani also noted that “despite the increase in the throughput (from 2,650 tpd to 4,000 tpd), the mine life of the project has increased from over 15 years to over 19 years following an increase in the mineral resource estimate. Also, the key to note is the improvement in metal recoveries. For instance, the recovery of silver, gold, and zinc has improved from our estimate of 90% Ag, 69% Au and 87% Zn to 95% Ag, 82% Au, 90% Zn, respectively. The improvement in recoveries should significantly increase in the Net Asset Value of the project, in our opinion.”
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She noted that Euro Pacific has updated its “financial model for the new resource estimate, mine life, recoveries and operating cost estimate following which the NAV of the project has increased from $1.2 billion to $1.3 billion. Accordingly, we reiterate the ‘BUY’ rating on the stock but are increasing the PT from US$15.70 to US$17.50.”
Another Nov. 9 report, released by PI Financial analyst Philip Ker, stated that “with Juanicipio now set to turn into a more aggressive story, we continue to believe Juanicipio is one of the leading development projects on the planet.” He highlighted that “the economic study integrated an updated resource which included the discovery and expansion of the Deep Zone which contains a more base metal rich component of the high grade epithermal system. The PEA is quite conservative whereby only 17Mt of the 24.5Mt resource was used along with below average payable rates, higher than market TC/RC charges and operating costs well above what is being realized at the Saucito operation. Despite the conservative efforts MAG still reports a robust after-tax IRR of 44.5%.”
Ker concluded “that with further project advancement, increased value opportunities will emerge and continue to support our valuation.” Ker reiterated a Buy recommendation with a target price of CA$24.85.
Raymond James analyst Chris Thompson released a “Strong Buy” recommendation with a target price of CA$25 in a Nov. 8 report. Thompson pointed out that the “CA$25.00 target price is derived by applying a 1.5x multiple on our minesite NAV estimate for Juanicipio with a 1.0x multiple on the company’s other assets.” He explained that the “target implies a 1.4x Adj. P/NAV multiple which we feel is justified given MAG’s position holding 44% of one of the highest grade undeveloped silver mines in the world, and exploration upside.”
Analyst Joe Reagor with ROTH Capital Partners stated, in a Nov. 7 report, that “the PEA confirmed our prior views on the company and we have updated our model to reflect the new PEA. Additionally, we note that we continue to believe there is significant resource expansion potential at the project. Thus, we are reiterating our Buy rating and US$22 price target.”
Reagor highlighted that “one of the most important aspects of the Juanicipio project is its significant exploration potential, in our view. We note this as the new PEA does not reflect this potential and thus, excludes significant value, in our opinion.”
He concluded that “although we made a number of changes to our mine model for MAG, there was not a significant impact on our DCF based valuation. Most notably, we included a capital raise in 2018 to cover the increased initial capital estimate. However, this added dilution was more than offset by the inclusion of four additional years of mine life and the increase in average annual throughput.”
In a Nov. 7 report, BMO Capital analyst Andrew Kaip rated MAG an “Outperform” with a target price of CA$20. Kaip highlighted that “the new study provides an updated foundation for the scope of the project and underscores Juanicipio’s robust economics.” Kaip estimated that “MAG will need to raise $50-75M to fund its share of the project. MAG looks to be funded through 2018. In our view, the company should not have issues gaining access to additional capital given Juanicipio’s strong economics.”
MAG Silver is currently trading at US$10.44 on the NYSE and CA$13.30 on the TSX.
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( Companies Mentioned: MAG:TSX; MAG:NYSE.MKT,