MAG Silver Corp. (TSX:MAD) (NYSE American: MAG) announces the Company’s unaudited financial results for the three and six months ended June 30, 2020. For details of the unaudited condensed interim consolidated financial statements and Management’s Discussion and Analysis for the three and six months ended June 30, 2020, 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 – JUNE 30, 2020 & EVENTS SUBSEQUENT TO THE QUARTER END
“We continue to work carefully at the Juanicipio Project, respecting social distancing and maintaining very high levels of hygiene” said George Paspalas, President and CEO. “Construction of the flotation plant at Juanicipio is back to 100%, and we are making good progress. We processed approximately 8,800 tonnes of Juanicipio mineralized material through the Fresnillo plant in early August as an initial test, and are expecting processing of 2 days per month, representing a major milestone for the project and early cash flow to the Joint Venture.”
COVID-19 – Juanicipio Project
In April 2020 in response to the COVID-19 virus outbreak, the Mexican Government ordered a temporary suspension of all “non-essential” operations nationwide in Mexico, including mining operations, until May 30, 2020. Fresnillo, the Juanicipio Project operator, was in regular consultation with Mexican Government officials to ensure Minera Juanicipio’s compliance with the Order. Fresnillo advised the Company that while the Order was in effect, underground development continued under government mandated hygiene protocols, and surface construction work and surface-based drilling were both temporarily halted. All work has since resumed with a phased restart having commenced on June 1, 2020, and according to Fresnillo, the overall development timetable remains unchanged.
JUANICIPIO PROJECT UPDATE
In the quarter ended June 30, 2020, surface construction progress at Juanicipio was limited due to COVID-19 restrictions noted above. Nonetheless, as noted above Fresnillo, the Juanicipio Project operator has advised that the anticipated development timetable currently remains unchanged with the Juanicipio processing plant expected to be commissioned in mid-2021. Once work resumed in June, earthmoving and foundation pouring continued for the construction of the processing plant. A large portion of the concrete works, structural steel sections and process pipe spools are being fabricated off-site in controlled workshop conditions. These are now arriving on site and are being placed directly into position. As well, a number of specialized consulting firms have been engaged to conduct all aspects of the detailed design of the tailings dam.
Total underground development to date is now approaching 30 km (18.75 miles), including 4.4 km completed in the first half of 2020. The first cross-cuts through the vein have been made from the easternmost footwall ramp, exposing well-mineralized vein. Initial development indicates that the grade and width of the mineralization are in line with previous estimates. Mineralized material from underground development workings has been stockpiled during the past year and is now available for processing through the Fresnillo processing facility until the Juanicipio plant is commissioned in mid-2021. In early August 2020, 8,858 tonnes of mineralized stockpiled material was successfully processed at the Fresnillo plant on a test basis. The mineralized material is expected to be processed at an average rate of 16,000 tonnes per month at the Fresnillo plant, which has spare capacity. In addition to this mineralized material from development, the first production stope is expected to be ready for mining in Q3-2020. As such, by bringing forward the start-up of the underground mine and processing the mineralized material, MAG and Fresnillo are looking to secure several positive outcomes for the Juanicipio Project:
The Juanicipio plant is now expected to reach 85% name plate capacity by the end of 2021 and 90-95% in 2022. In the 2017 PEA, ramp-up to full production was originally envisioned over 3 years after commissioning of processing plant, the equivalent of 2024.
With detailed engineering almost complete, major equipment purchases completed and delivered to site, and several significant construction contracts awarded or under review, Fresnillo and MAG announced an update to the initial capex required for the project in the previous quarter (see Press Release dated February 24, 2020). The capex or pre-operative capital cost on a 100% basis of $395,000 from January 1, 2018 was revised to $440,000 from January 1, 2018, to reflect additional expenditures incurred by Minera Juanicipio on the underground development and bringing forward the full construction costs for two large life-of-mine ventilation shafts, as well as some sustaining capital to facilitate the early underground mine start.
The capex expended from January 1, 2018 to June 30, 2020 is approximately $172,695 leaving an estimated $267,305 of remaining initial capital (MAG’s 44% estimated remaining share is $117,614 as at June 30, 2020). This funding requirement would be reduced by both: existing cash held in Minera Juanicipio as at June 30, 2020 ($35,337); and, expected cash flows generated from mineralized rock sold and processed through the Fresnillo processing plant referenced above.
On the exploration front, MAG and Fresnillo, as shareholders of Minera Juanicipio, both acknowledge that there is considerable further exploration opportunity in the concession license area as most of it remains unexplored. Exploration drilling in recent years has been primarily designed to both convert the Inferred Mineral Resources included in the Deep Zone into Indicated Mineral Resources, and to further trace the Deep Zone laterally and to depth. The 2019 exploration program also targeted the newly discovered north-south trending Venadas Vein family, and additional prospective targets are expected to be drilled this year.
There are currently 5 drill rigs turning on the property, all designed to further expand and infill the Deep Zone.
FINANCING AND THE ATM PROGRAM
On April 30, 2020, the Company closed a non-brokered private placement offering and issued 4,528,302 common shares at C$13.25 for gross proceeds of C$60,000,002 ($43,134) to Mr. Eric Sprott, through 2176423 Ontario Ltd., a corporation beneficially controlled by him.
On June 29, 2020, the Company established an at-the-market equity program whereby the Company is permitted to issue up to an aggregate of $50 million worth of common shares from treasury at prevailing market prices to the public through the NYSE American or any other marketplace on which the common shares are listed, quoted or otherwise traded in the United States. The volume and timing of distributions under the ATM Program is determined at the Company’s sole discretion, subject to applicable regulatory limitations. The ATM Program is effective until June 2022, unless terminated prior to such date by the Company. Subsequent to June 30, 2020 and as at August 10, 2020, the Company has sold and issued 2,305,463 common shares under the ATM Program at an average price of $16.16 per share, for gross and net proceeds of $37,264 and $36,239 respectively. The remaining availability under the ATM Program is now $12,736, which MAG may utilize at its sole discretion.
FINANCIAL RESULTS – THREE AND SIX MONTHS ENDED JUNE 30, 2020
As at June 30, 2020, MAG had working capital of $87,682 (June 30, 2019: $114,326) including cash and cash equivalents of $87,108 (June 30, 2019: $113,833) and MAG has no long-term debt. As well, as at June 30, 2020 Minera Juanicipio had a cash balance of $35,337 (MAG’s attributable 44% share $15,548). The Company makes capital contributions through cash advances to Minera Juanicipio as ‘cash called’ by the operator Fresnillo, based on approved joint venture budgets. In the three and six months ended June 30, 2020, the Company funded advances to Minera Juanicipio, which combined with MAG’s Juanicipio expenditures on its own account, totaled $23,284 and $23,456 respectively (June 30, 2019: $15,375 and $15,456 respectively).
The Company’s net income for the three months ended June 30, 2020 amounted to $1,297 and net loss for the six months ended June 30, 2020 amounted to $13,601 or $0.01/share and $(0.15)/share respectively (June 30, 2019: $961 and $1,403 net loss respectively or $(0.01)/share and $(0.02)/share respectively). The Company recorded a deferred income tax benefit of $2,516 for the three months ended June 30, 2020 and a deferred income tax expense of $6,178 for the six months ended June 30, 2020 (June 30, 2019: $249 and $568 deferred income tax benefit respectively), the latter driven primarily by the non-cash devaluation of certain tax assets denominated in Mexican Pesos, as the Mexican Peso devalued significantly against the US dollar in the first six months of the year (from 18.87 Pesos/US$ on December 31, 2019 to 23.13 on June 30, 2020).
Share based payment expense (a non-cash item) recorded in the three and six months ended June 30, 2020 amounted to $1,230 and $1,708 respectively (June 30, 2019: $1,284 and $1,508 respectively) and is determined based on the fair value of equity incentives granted and vesting in the period. In the three and six months ended June 30, 2020, the Company earned interest income on its cash and cash equivalents of $110 and $384 respectively (June 30, 2019: $782 and $1,626 respectively). The Company recorded a 44% equity income pick up of $1,189 and equity loss pick up of $3,498 respectively in the three and six months ended June 30, 2020 from Minera Juanicipio (June 30, 2019: $480 and $762 equity income pick up respectively). The equity loss pick-up from Minera Juanicipio relates to the Company’s 44% share of a foreign exchange loss and a deferred income tax expense, which was partially offset by interest income earned within Minera Juanicipio.
About MAG Silver Corp.
MAG Silver Corp. is a Canadian advanced stage 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 in a joint venture with Fresnillo (56%). The Juanicipio Project is located in the Fresnillo Silver Trend in Mexico, the world’s premier silver mining camp. The Juanicipio Joint Venture is currently constructing and developing the surface and underground infrastructure on the property to support a 4,000 tonnes per day mining operation, with the operational expertise of Fresnillo, the project operator. As well, an expanded exploration program is in place at Juanicipio with multiple highly prospective targets across the property.
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