MAG Silver Corp. (TSX:MAG) (NYSE American: MAG) announces the Company’s unaudited financial results for the three months ended March 31, 2022. For details of the unaudited condensed interim consolidated financial statements and Management’s Discussion and Analysis for the three months ended March 31, 2022, please see the Company’s filings on SEDAR (www.sedar.com) or on EDGAR (www.sec.gov).
All amounts herein are reported in $000s of United States dollars (“US$”) unless otherwise specified.
HIGHLIGHTS – MARCH 31, 2022 & SUBSEQUENT TO THE QUARTER END
OPERATIONAL – Juanicipio owned 44% by MAG Silver
LIQUIDITY AND CAPITAL RESOURCES
JUANICIPIO PROJECT UPDATE
Underground Mine Production
In Q1 2022, a total of 145,484 tonnes of mineralized development and stope material were processed through the Fresnillo plants, realizing commercial and operational de-risking opportunities for the Juanicipio Project. The resulting payable metals sold and processing details on a 100% basis for Q1 2022 are summarized in Table 1 below. The sales and treatment charges for tonnes processed in the quarter were recorded on a provisional basis and will be adjusted in the second quarter of 2022 based on final assay and pricing adjustments in accordance with the offtake contracts.
Table 1: Q1 2022 Mineralized Material Processed at Fresnillo’s Processing Plants (100% basis)
|Three Months Ended March 31, 2022 (145,484 tonnes processed)||Q1 2021
|Payable Metals||Quantity||Average Per Unit (1)||$Amount|
|Silver||2,238,810 ounces||$24.97 per oz||$55,899||$11,157|
|Gold||5,345 ounces||$1,925.44 per oz||10,291||1,090|
|Lead||1,066 tonnes||$1.06 per lb||2,483||267|
|Zinc||1,448 tonnes||$1.79 per lb||5,712||555|
|Treatment and refining charges (“TCRCs”) and other processing costs||(9,469)||(1,838)|
|Provisional sales adjustment related to 2020 sales (2)||–||(1,146)|
|Mining and transportation costs||(15,264)||(1,886)|
|Depreciation and amortization||(3,431) (3)||–|
(1) Ounces for silver and gold and, pounds (“lb”) for lead and zinc.
(2) Provisional sales for 2020 were finalized in Q1 2021 resulting in negative adjustment to net sales revenue of $1,146.
(3) The underground mine is now in stopes with mineralized material being processed through Fresnillo’s plants and refined and sold, and effectively readied for its intended use.
The average silver head grade for the mineralized development and initial stope material processed in Q1 2022 was 597 g/t (Q1 2021 458 g/t). This increased grade reflects more stoped vein material being processed. Additionally, metal recoveries and concentrate grades are in line with expectations from the initial metallurgical test work conducted on Valdecañas. Originally planned at a targeted rate through Q3 2021 of 16,000 tonnes per month, the processing rate increased to an average of 37,983 tonnes per month in Q4 2021 and an average of 48,495 tonnes per month in Q1 2022. During the quarter ended March 31, 2022, 54% of the total tonnage processed was through the Saucito plant. The Saucito plant flowsheet better resembles that of the Juanicipio plant and will provide further valuable metallurgical benefits as production commences at Juanicipio.
Processing Plant Construction & Outlook
The Juanicipio project team delivered the 4,000 tpd processing plant for commissioning in the fourth quarter of 2021. However, according to the operator Fresnillo and as previously reported, the state-owned electrical company (Comision Federal de Electricidad “CFE”), notified Fresnillo late in December 2021 that the regulatory approval to complete the tie-in to the national power grid could not yet be granted and that the Juanicipio plant commissioning timeline was therefore extended by approximately six months. During Q1 2022, Fresnillo has indicated that they were focused on complying with requirements from the CFE and the energy regulator and expect the tie-in to the power grid in mid-2022. With commissioning of the Juanicipio processing plant expected to commence concurrently, it is expected that the plant will ramp up to 85-90% of the nameplate 4,000 tpd capacity by the end of 2022.
In the interim, stoping and mine development at Juanicipio continues. In order to minimize any potential adverse economic effect of the revised commissioning timeline, Fresnillo has indicated it will make available unused plant capacity at its Minera Fresnillo and Minera Saucito operations to process mineralized material produced at Juanicipio until the Juanicipio processing plant is commissioned. The effect on cashflow generation from Juanicipio therefore will also be mitigated while power connection approvals are pending. With the plant ready to commence commissioning, final construction costs are expected to wind down until commissioning and testing commence. The expected cash flow from the ongoing campaign processing, along with the working capital held by Juanicipio at March 31, 2022 of $36,011 on a 100% basis (which includes cash of $18,261) are likely to fund the remaining capital expenditures (a cash call has not been needed since mid-December 2021 which was $21,000 on a 100% basis). Should there be additional funding requirements related to further commissioning delays or for additional sustaining capital prior to attaining commercial production, in excess of the cashflow generated, there may still be further cash calls required from Fresnillo and MAG.
Juanicipio Exploration Update
The 2021 Juanicipio exploration program was completed with a spend of $6,296 on a 100% basis and was focused on continued step-out and infill drilling of the Valdecañas Vein System (including independent targeting of the Venadas Vein family and the Anticipada Vein). The Company’s interpretation of the 2021 Valdecañas drill results is below, with a complete set of assay tables by vein of the 2021 drilling results available at: https://magsilver.com/site/assets/files/6439/mda_mj_exploration-supplemental-assay-tables.pdf along with various long sections detailing the results, available at: https://magsilver.com/geological-long-sections/.
Most of the holes in the 2021 exploration program were directed at the Valdecañas Vein Deep Zone, with 13 coincidental intercepts of the Anticipada and 8 more for Pre-Anticipada, and various other hangingwall and footwall veins (see above noted links). Four holes cut the Venadas Vein Family and two holes were directed at a postulated vein lying to the northwest of the Valdecañas Vein System in the northeast corner of the concession. Most intercepts are comparable to previously drilled neighbouring holes with no major deviations either towards higher or lower grades or thicknesses. With the completion of the 2021 drilling program, the intercept density on the Valdecañas Vein Deep Zone is approaching that on the Bonanza Zone and confirms the continuity of mineralization in the Valdecañas Vein to depth.
The driving of development headings and test stopes in the Valdecañas Vein Bonanza Zone has been accompanied by channel sampling across the vein every 3 to 10 m. Samples are mostly 1 m in length and honour geology as much as possible. Importantly, the results of this detailed sampling show that the grade distribution in the vein is very close to that shown by the both the initial 50 m – 70 m spaced surface-based drilling and the 25m spaced underground drilling, which adds substantial confidence in the width and grade continuity indicated by the surface drilling for the balance of the vein.
The planned expenditures for the 2022 exploration program total $7,000 on a 100% basis, for drilling programs designed to expand and convert the Inferred Mineral Resources included in the Deep Zone into Indicated Mineral Resources, and to explore other parts of the Juanicipio concession. In mid-January 2022, drilling began on the first hole on the “Cesantoni Kaolinite Pits” (“Cesantoni”) target. Cesantoni lies in the northwestern corner of the Juanicipio concession, roughly 6 km west of the Valdecañas Vein and related underground infrastructure. Thousands of tonnes of mixed kaolinite-illite clays have been mined over the last 25 years by the Cesantoni Ceramics Company from a series of pits developed along the strong northeast-trending Cesantoni structure. This orientation is almost orthogonal to the northwest-trending veins that dominate the district, but is roughly parallel to the high-grade Venadas Vein family that cuts the NW-trending Valdecañas Vein. The extent of kaolinite-illite alteration at Cesantoni is much greater than that seen elsewhere in the district and may indicate passage of very large volumes of hydrothermal fluids. The top of anticipated mineralization at Cesantoni is expected to occur at depths similar to those elsewhere in the Juanicipio concession (350 to 500 m below the surface).
Initial planning as laid out by project operator, Fresnillo, is to drill 5 core holes totaling 6,000 m. Depending on ground conditions in this new area, the drilling program should take between five and seven months to complete after which time assays will be released.
Qualified Person: All scientific or technical information in this press release including assay results referred to, and Mineral Resource estimates, if applicable, is based upon information prepared by or under the supervision of, or has been approved by Dr. Peter Megaw, Ph.D., C.P.G., a Certified Professional Geologist who is a “Qualified Person” for purposes of National Instrument 43-101, Standards of Disclosure for Mineral Projects (“National Instrument 43-101” or “NI 43-101”). Dr. Megaw is not independent as he is an officer and a paid consultant of MAG Silver.
Quality Assurance and Control: The samples (half core) are shipped directly in security-sealed bags to ALS-Chemex Laboratories preparation facility in Guadalajara, Jalisco, Mexico (Certification ISO 9001). Samples shipped also include intermittent standards and blanks. Pulp samples are subsequently shipped to ALS-Chemex Laboratories in North Vancouver, British Columbia, Canada for analysis. Two extra pulp samples are also prepared and are analyzed by SGS Laboratories (Certification ISO 9001) and Inspectorate Laboratories (Certification ISO 9001) (or another recognized lab). The remaining half core is placed back into the core boxes and is stored on site with the rest of the drill hole core in a secured core storage facility. The bulk reject is subsequently sent to the Center for Investigation and Technical Development (“CIDT”) of Peñoles in Torreon, Coahuila State, Mexico for metallurgical testing where a fourth assay for each sample is analyzed and a calculated head grade is received on the basis of a concentrate balance. The CIDT also does a full microscopic, XRF and XRD mineralogical analysis.
DEER TRAIL PROJECT UPDATE
Phase II drilling commenced at the Deer Trail Project in Q3 2021 and is planned for 5,000 m of drilling over 5 holes and is in progress. Deviation/directional drilling is being used in Phase II to make the drilling more efficient and accurate. In part to facilitate the directional drilling, drilling contractors were changed in Q1 2022, with the new contractor having resumed drilling subsequent to the quarter ended March 31, 2022. To date, two holes of Phase II have been successfully completed, with assays pending.
GATLING ACQUISITION / LARDER LAKE PROJECT
On March 11, 2022, the Company entered into a Definitive Arrangement Agreement with Gatling pursuant to which the Company is expected to acquire all of the issued and outstanding common shares of Gatling by the issuance of common shares of the Company and the advancement of a C$3 million convertible loan. The Transaction was approved by the shareholders of Gatling on May 13, 2022 and is expected to close later in May 2022.
Gatling is a Canadian gold exploration company focused on advancing the Larder Lake Project, located in the prolific Abitibi greenstone belt in Northern Ontario, Canada. The property includes several known shear-hosted (“orogenic”) gold mineralization centres located along approximately 7 km of strike length of the greater than 250 km long Larder Lake–Cadillac Break (the “Break”), a highly-productive regional first-order shear structure.
Once the Transaction closes, MAG intends to apply an integrated district-scale exploration model and new technology to the search for large-volume, high-grade gold mineralization of the style known to occur throughout the Abitibi region. MAG’s technical team believe that a combination of systematic surface-based exploration combined with geophysics will likely uncover numerous targets in this highly gold mineralized region. This will focus efforts along not just the Break but also along the many known, and geophysically indicated 2nd and 3rd order structures throughout the balance of the sparsely tested mineral claim package.
FINANCIAL RESULTS – THREE MONTHS ENDED MARCH 31, 2022
As at March 31, 2022, the Company had working capital of $53,278 (December 31, 2021: $57,761) including cash of $52,248 (December 31, 2021: $56,748) and no long-term debt. As well, as at March 31, 2022, Juanicipio had working capital of $36,011 including cash of $18,261 (MAG’s attributable share is 44%).
The Company’s net income for three months ended March 31, 2022 amounted to $2,680 (March 31, 2021: $3,662 net loss) or $0.03/share (March 31, 2021: $(0.04)/share). MAG recorded a 44% income from equity accounted investment in Juanicipio of $13,762 (March 31, 2021: $632) which included MAG’s 44% share of net income from the sale of pre-production development and stope material (see Table 2 below).
Table 2: MAG’s share of income from its equity accounted Investment in Juanicipio
|March 31, 2022||March 31, 2021|
|Gross profit from processing mineralized material(see Underground Mine Production – Juanicipio Project above)||$46,221||$8,199|
|Extraordinary mining duty||(103)||(47)|
|Foreign exchange and other||(821)||(1,075)|
|Income before tax||43,765||6,756|
|Income tax expense (including deferred income tax)||(12,487)||(5,320)|
|Income for the period (100% basis)||$31,278||$1,436|
|MAG’s 44% share of income from equity accounted investment in Juanicipio||$13,762||$632|
In 2017, the Company entered into an option earn-in agreement with a private group whereby the Company can earn up to a 100% interest in a prospective land claim package in the Black Hills of South Dakota. Although the geological prospect of the property remains encouraging, growing negative sentiment towards resource extraction in the area, combined with a slow consultation process have resulted in significant challenges being encountered in permitting the property for exploration drilling. Concurrent efforts by the Company to find a partner or buyer for the project have been unsuccessful and the Company provided formal notice that it will not be making the final $150 option payment when due in May 2022 and consequently has recorded a write-down of $10,471 as at March 31, 2022.
About MAG Silver Corp.
MAG Silver Corp. is a Canadian development and exploration company focused on becoming a top-tier primary silver mining company by exploring and advancing high-grade, district scale, silver-dominant projects in the Americas. Its principal focus and asset is the Juanicipio Project (44%), being developed with Fresnillo Plc (56%), the operator. The project is located in the Fresnillo Silver Trend in Mexico, the world’s premier silver mining camp, where the operator is currently developing an underground mine and constructing a 4,000 tonnes per day processing plant. Underground mine production of mineralized development material commenced in Q3 2020, and an expanded exploration program is in place targeting multiple highly prospective targets at Juanicipio. MAG is also executing a multi-phase exploration program at the Deer Trail 100% earn-in project in Utah, and is in the process of acquiring the Larder Lake project located in the historically prolific Abitibi region of Canada.
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