Source: Streetwise Reports 05/14/2019
Investment professionals around the world are cheering the go-ahead decision for the Juanicipio silver and gold mine in the Fresnillo Silver Trend district in central Mexico.
In April, Fresnillo Plc (FRES:LSE) and MAG Silver Corp. (MAG:TSX; MAG:NYSE.MKT) jointly announced that both boards approved the Juanicipio project and construction work is expected to be completed in late 2020. A dozen investment firms that specialize in analyzing precious metal mining companies rated MAG Silver Corp as a Buy.
Fresnillo and MAG Silver are partnered in a joint venture called Minera Juanicipio. The average annual production at their Juanicipio project is calculated at 11.7 million ounces (Moz) silver and 43.5 Koz gold, with an initial life of mine of 12 years. The productive period could be extended since the metal veins are rich, prospecting reports reveal.
“We expect MAG Silver to be largely funded to reach production.” – Raymond James
Macquarie Research advised, “With Juanicipio now officially being constructed, we would be adding to or establishing a position in MAG Silver for exposure to a best-of-breed asset <18mo from production as operated by one of the leading underground miners in the world.” Macquarie issued an Outperform recommendation with a CA$23.00 target.
ROTH Capital Partners now values MAG Silver at US$2 billion and a Buy with a target price of US$22. According to ROTH experts, “The main reason we view the [Juanicipio] announcement as a formality is that the project has been unofficially in development for over a year with nearly 20km in underground development. Fresnillo has already driven a significant portion of the ramp to the Valdecanas vein and has begun work on making a twin ramp to improve access.”
And then there is the milling process to consider. “The JV has purchased surface rights for a mill location. Based on the development to date, we believe the late 2020 startup estimate could prove conservative,” ROTH reports.
Vancouver-headquartered MAG Silver’s purview is exploring and developing high-grade, district scale, silver-dominant projects in the Americas.
Fresnillo is headquartered in the United Kingdom; it is the world’s primary silver producer and Mexico’s largest gold producer. The company operates seven mines in Mexico, covering 1.8 million hectares, including MAG Silver’s discovery, Juanicipio.
The obvious key to success at the Juanicipio project is the deployment of Fresnillo’s considerable technical and operational expertise in navigating Mexico’s sometimes challenging mining procedures.
In an interview with Streetwise Reports, MAG Silver Vice President of Investor Relations, Michael Curlook, explained the basics of the development partnership. “Juanicipio is located in the world’s premier silver mining camp. We own 44% of the property and Fresnillo Plc owns 56%. We are developing the surface and underground infrastructure to support a 4,000 tonne per day mining operation, with Fresnillo’s operational expertise. As well, we are aggressively exploring multiple highly prospective targets across the property.”
The Juanicipio deposit consists of the Valdecañas vein system and the Juanicipio vein, which are significant silver-gold epithermal structures. Reports note that the Valdecañas vein system displays the vertical grade transition typical of the principal veins in the Fresnillo district, observed as a change from silver and gold-rich zones at the top to increased lead and zinc in the deeper reaches.
Curlook remarked, “We have been exploring and developing the site for several years, de-risking the asset and ensuring full evaluation of its potential, taking into account the stringent development criteria. Discussions with contractors are advanced and orders for long lead-time equipment delivery have been placed. All principal permits and licensing have been obtained.
“When it opens, Juanicipio will be the largest silver mine in the world.”
George Paspalas, Chief Executive Officer of MAG Silver, remarked, “We are fortunate to have Fresnillo Plc, with over 130 years of experience in the area, managing the construction and operations of Juanicipio.”
Octavio Alvídrez, Chief Executive Officer of Fresnillo plc, added, “This decision to invest demonstrates our confidence in the long-term outlook for mining in Mexico.”
The Juanicipio project is expected to create approximately 2,750 jobs during construction and 1,720 jobs at full production. The estimated pre-production capex for Juanicipio is $395 million, up from last year’s $360 million estimate. The pre-production capex attributable to MAG Silver is ~$174 million. Can MAG Silver handle its financial obligation to the partnership?
TD Securities Inc.’s Flash Note stated that as of December 31, MAG Silver had $133 million in cash and no debt, rating it a Speculative Buy.
BMO Capital Markets rated MAG Silver as Outperform, “MAG Silver Corp is well financed for 2019 and well into 2020. We assume a small debt piece for MAG Silver to cross the finish line.”
Curlook says that even a small debt may not be necessary. “Development costs are coming in significantly under budget; we are saving a million dollars per kilometer.”
Raymond James agrees, rating the company Outperform, reporting, “We expect MAG Silver to be largely funded to reach production.”
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Disclosure:
1) Peter Byrne compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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Additional disclosures:
Macquarie: Important disclosure information regarding the subject companies covered in this report is available at research/disclosures.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business
relationships with the covered companies mentioned in this report in the next three months.
Full disclosures for all companies covered by TD Securities can be viewed here.
BMO Capital Markets: For Important Disclosures on the stocks discussed in this report, please go here.
Raymond James & Associates, Inc. makes a market in the shares of MAG Silver Corp.
( Companies Mentioned: MAG:TSX; MAG:NYSE.MKT,
)