Major U.S. stock indexes closed higher for the second week in a row. Small-cap stocks led the way, with the Russell 2000 Index gaining 3.19%, while $NASDAQ(.IXIC)$ (up 2.18%) and $Dow Jones(.DJI)$ (up 1.17%) both advanced to join $S&P 500(.SPX)$ in positive territory for the year.
The best-performing concepts is Silver. Considering the different perceptions of the stock, this time TigerPicks chose $MAG Silver(MAG)$ to have a fundamental highlight to help users understand it better.
$MAG Silver(MAG)$
MAG Silver Corp. engages in the exploration and development of precious metal mining properties. The company explores for silver, gold, lead, and zinc deposits. It primarily holds 44% interest in the Juanicipio project located in the Fresnillo District, Zacatecas State, Mexico. The company is headquartered in Vancouver, Canada.
MAG Silver's Portfolio Overview
MAG's flagship and only producing asset is a 44% ownership interest in the Juanicipio silver mine. The remaining 56% interest is owned by $Fresnillo Plc(FNLPF)$, the world's largest silver miner after producing 54.3 million ounces in 2024.
Juanicipio is located on the Fresnillo Silver Belt, a tiny area within Mexico from which approximately 10% of all the silver ever mined throughout history comes. Some of the mines in the area have been in continuous production since the 16th century, so it is no wonder that Mexico still accounts for ~23% of the world's primary silver production.
Moreover, mining activities in Mexico are highly concentrated, as the states of Sonora and Zacatecas account for almost 60% of Mexico's mining GDP on a combined basis. On its own, the state of Zacatecas, where Juanicipio is located, accounts for almost 50% of Mexico's total silver production. In short, it would be very difficult to find a better ZIP code than that for a primary silver mine, and the ultimate proof is in the incredibly low production costs.
Juanicipio Silver Mine Location
Similar to most silver mines, Juanicipio is polymetallic in nature. As indicated below, the mine produced ~5.5 million equivalent silver ounces in the first quarter of 2025, of which 4.0 million ounces, or 73%, came directly from silver. If we include gold in the picture, we can see that precious metals account for more than 90% of Juanicipio's revenues of $175.2 million. Of note, those figures are on a 100% owned basis, meaning they must be multiplied by 44% to arrive at MAG's share.
Q1-25 Juanicipio Mine Performance
Regarding production costs, Juanicipio's cash cost per silver ounce was -$0.91 per ounce. The negative cash costs simply mean that the ~4.0 million ounces of silver produced during the first quarter covered the entire cash costs of operating the mine, leaving the gold, zinc, and lead by-products as pure cash flows.
If we look at the entire production profile and add sustaining capital expenditures, all-in-sustaining costs increase to $10.64 per equivalent silver ounce, putting the mine in the first quartile of the industry's cost curve. To put Juanicipio's performance in perspective, Cerro Los Gatos reported all-in-sustaining costs of $13.07 per equivalent silver ounce in the first quarter of 2015, which is almost 25% higher than Juanicipio's. However, on a consolidated basis, First Majestic's all-in sustaining costs increase to $19.24 per equivalent silver ounce, or ~80% higher than MAG's pure-play exposure to Juanicipio.
Juanicipio Production Costs
2024 Silver Production Cost Curve
MAG Silver's Financial Overview
In the first quarter of 2025, Juanicipio generated operating cash flows of $86.4 million. When we deduct $10.2 million in capital expenditures, we get $76.2 million in free cash flows or the equivalent of ~$305 million on an annualized basis. Now, simply annualizing the first quarter results is unlikely to yield an accurate picture due to changes in working capital and the non-linearity of capital expenditures throughout any single year.
Juanicipio Cash Flow Statement
According to the acquisition documents released by Pan American, Juanicipio is expected to generate free cash flows on a 100% basis of $200 million in 2025, of which $88 million would be attributable to MAG's 44% ownership interest. Relative to the $2.1 billion purchase price paid by Pan American, it would represent a free cash flow yield of ~4.2%.
In terms of overall quality, I view Juanicipio as one of the best silver mines in the world, but there is also no question that Pan American paid top dollar for it. Considering silver's highly compelling supply and demand fundamentals, Pan American's team may have been willing to pay a premium to ensure long-term and low-cost exposure to the metal.
I view Pan American quite favourably from a capital allocation point of view. Over the last decade or so, management has done a good job replacing depleted ounces and growing overall production by issuing a reasonable number of shares. I cannot say the same with First Majestic, as I view the number of shares issued as excessive relative to the quality of the assets purchased.
Conclusion
MAG Silver would have been the perfect vehicle for me to gain exposure to silver prices. The company currently has $156 million in cash and zero debt, in addition to having a highly free-cash-flowing asset in the heart of the world's best silver mining area. Producing costs are in the first quartile of the industry's cost curve, and only a small fraction of the property is explored. MAG Silver would have been the perfect vehicle, but that was prior to the Pan American's transaction announcement.
A pure-play exposure to the highest-quality assets is exactly what I am looking for. For MAG's shareholders, the combination with Pan American will certainly provide greater diversification, but it will come at the cost of lower asset quality overall. Moreover, once the transaction is completed, Pan American expects to generate less than 30% of its revenues from silver; hence why it would be more accurate for the company to be named Pan American Gold.
With my 'Buy' rating, I want to underscore Juanicipio's tier-1 quality, along with its significant expiration potential, long mine life, and some of the lowest production costs in the industry. In a way, I would be happy if the deal fails, as it would provide the perfect opportunity to buy an initial position.
SLV, AG, PAAS & MAG Price Performance Comparison
Stock Price Forecast:
Here are the target price forecasts for the next 12 months from analysts.
Based on 9 Wall Street analysts offering 12 month price targets for MAG Silver in the last 3 months. The average price target is $20.67 with a high forecast of $23.91 and a low forecast of $18.00. The average price target represents a -2.41% change from the last price of $21.18.
Resource:
https://seekingalpha.com/article/4789633-mag-silver-juanicipio-as-one-of-the-most-profitable-silver-mines-globally
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