New Silver Producer Looks at Buying Back Shares

Source: Streetwise Reports 05/22/2024

MAG Silver Corp. MAG announced its intention to make a normal course issuer bid (NCIB) to possibly purchase for cancellation up to more than 8.6 million common shares in the company, or about 10% of the public float.

The silver producer said the Toronto Stock Exchange has accepted notice for the NCIB, in which a company can repurchase shares over a period of time when the stock is favorably priced.

In the United States, MAG said repurchases would be subject to a limit of more than 5.1 million common shares, or 5% of the public float as of May 8.

"MAG believes that when a disconnect exists between the share price and the intrinsic value of the business, an NCIB can increase shareholder value and per share growth" the company said in a release. "Further, the company believes that current market conditions provide opportunities for the company to acquire common shares at attractive prices."

Having the option to repurchase common shares opportunistically could be an effective use of its cash resources and in the best interests of the company and its shareholders, the company noted.

"It would both enhance liquidity for shareholders seeking to sell and provide an increase in the proportionate interests of shareholders wishing to maintain their positions" MAG said in the release.

The Catalyst: An Emerging Silver Producer

MAG is an emerging silver producer with its Tier 1 Juanicipio mine in Mexico and announced its first quarter 2024 financials last week.

The Juanicipio joint venture (JV), which the company owns 44% interest in, returned more than US$17.5 million in interest and loan principal repayments to MAG during the first quarter of 2024, the company said.

"We believe cash distributions are likely to increase in the quarters ahead, allowing MAG to consider paying a dividend by year-end 2024" continued Reagor, who reiterated his Buy rating on the stock and increased the price target from US$14 to US$14.50 per share.

"We view this as a significant development as this allowed the company to report an increase in its cash balance despite spending (US)$5.1 million on exploration at other projects and acquiring the Goldstake project for (US)$3.8 million" wrote Roth MKM analyst Joe Reagor in an updated research note.

"We believe cash distributions are likely to increase in the quarters ahead, allowing MAG to consider paying a dividend by year-end 2024" continued Reagor, who reiterated his Buy rating on the stock and increased the price target from US$14 to US$14.50 per share.

For the quarter, the company reported net income of US$14.9 million, or US$0.14 per share, driven by (equity accounted) income from Juanicipio of US$19.24 million and adjusted EBITDA of US$32.45 million.

"On a 100% basis, the Juanicipio JV reported (US)$123.7 million in revenue, beating our (US)$115.8 million estimate" Reagor wrote. "The JV revenue beat was driven by higher payability on metal sales. As a result, we increased our long-term payability assumptions."

A Productive First Quarter

The mine had a productive first quarter, processing more than 325,000 metric tons of ore, with a notable daily milling rate of 4,387 tons despite undergoing a routine maintenance shutdown. The silver head grade was 476 grams per tonne (g/t), with an equivalent silver head grade if 713 g/t.

Juanicipio achieved silver production and equivalent silver production of 4.5 million ounces (Moz) and 6.4 Moz, respectively, during the quarter, highlighting the mine's potential for sustained high-grade output.

An updated National Instrument 43-101 compliant report for the mine, released last month, found mineral resources grew 33% from the original PEA to 17 million tonnes (Mt) at grades of 310 g/t Ag, 1.86 g/t gold (Au), 2.89% lead (Pb), and 5.32% zinc (Zn), the company said. Inferred mineral resources increased by 16% to 14.1 Mt at grades of 236 g/t Ag, 1.06 g/t Au, 2.41% Pb, and 6.12% Zn.

Almost as soon as MAG released the technical report, silver prices began breaking out. Ron Struthers of Struthers Resource Stock Report recommended MAG shares to take advantage of the sector increases, saying Juanicipio "will be a real cash cow" for the company.

BMO Capital Markets analyst Kevin O'Halloran said he was encouraged by the "accelerating pace of cash distributions from the Juanicipio JV, and we expect the market will react positively to a growing track record of capital returns."

O'Halloran rated the stock Outperform with a CA$24 per share target price.

"We expect the cash flow to be steady now that the operation is at steady state" noted Stifel analyst Stephen Soock, who rated the stock a Buy with a CA$20.50 per share target.

Preliminary Base Shelf Prospectus Filed

Also last week, MAG announced it had filed a preliminary short form base shelf prospectus with securities commissions in all of the provinces and territories of Canada, and a corresponding registration statement will be filed with the U.S. Securities and Exchange Commission.

On issuance of a receipt for the final prospectus and the filing with the SEC, the company will be permitted to offer up to US$250 million of common shares, preferred shares, debt securities, subscription receipts, units, and warrants.

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$1.43 billion. It has 102.97 million shares outstanding, according to Reuters. It trades in a 52-week range of US$13.47 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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