On today’s TSX Breakouts report, there are 31 stocks on the positive breakouts list (stocks with positive price momentum), and just four securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appears on the positive breakouts list. Analysts have positive expectations for the stock with a unanimous buy call and a consensus target price that suggests a potential one-year return of over 86 per cent. A potential near-term catalyst is the announcement of formal development approval for its high-grade silver project located in Mexico with production anticipated to begin in 2020. The security I am referring to is MAG Silver Corp. (MAG-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Headquartered in Vancouver, B.C., the company is an exploration and development silver mining company with a focus on advancing its 44 per cent owned high-grade silver project located in Mexico along with its joint venture partner Fresnillo Plc that owns 56 per cent - its Juanicipio Property. In terms of price sensitivities, the project is most sensitive to silver prices and secondly to zinc prices. MAG also has a 100 per cent ownership in the Cinco de Mayo Project located in Mexico.
In Nov. 2017, the company announced a new Preliminary Economic Assessment (PEA) for its Juanicipio Project, a positve report that sent the share price soaring 7 per cent the following trading day. Highlights of the PEA include: expected production of 4,000 tonnes per day, an expected mine life of 19 years, operating costs estimated at $58.67 per tonne, All-In Sustaining Costs (AISC) of $5.02 per ounce of silver with production targeted to begin in 2020. Management describes the project as a “robust, high-grade, high-margin underground silver project exhibiting low development risks”.
The Feasibility Study is currently under review by the Technical Committee. Upon approval, the Feasibility Study will be presented to the boards. A potential catalyst for the stock is the announcement of development approval. The recent Management’s Discussion and Analysis (MD&A) issued in Nov. stated that, “MAG expects to support the development of the project” and noted that, “Fresnillo has publicly advised that it expects Minera Juanicipio to be in production by mid-2020 and have also reported that discussions have commenced with suppliers to order long lead time equipment in order to maintain the anticipated project development schedule.”
The initial capital cost for the Juanicipio Project is projected to come in at $360-million (U.S.), of which $159-million (44 per cent) would be MAG’s responsibility. The company has a strong balance sheet. As at Sept. 30, the company had $142-million (U.S.) in cash and no debt on its balance sheet. However, the company may need to issue equity or debt to fund the project. The recent MD&A highlighted, “Although discussions with suppliers of long lead-time delivery equipment as well as construction contractors have been initiated by Minera Juanicipio, the larger capital expenditures items associated with the mine development have not yet been formally approved by the board of Minera Juanicipio. As noted above, development activity is actively ongoing; however, a project development budget and a timeline to production will only be formalized upon approval of the Feasibility Study and project approval by Minera Juanicipio. The Feasibility Study will not include Inferred Mineral Resources in the mine plan and is based on more detailed engineering which may change the development scope. As a result, the Feasibility Study may contain an incremental increase in the estimated initial capital cost as compared to the 2017 PEA. The Company may therefore need to raise additional capital in the future in order to meet its full share of initial capital required to develop the Juanicipio Project.“
The stock is dual-listed trading on Toronto Stock Exchange as well as the NYSE American Stock Exchange under the same ticker, MAG.
The company does not pay its shareholders a dividend. The company is in the exploration and development stage and as a result, it is not yet generating steady income to distribute to its shareholders.
This small-cap stock with a market capitalization of $944-million is well covered by the Street. Since Oct,, 10 analysts have issued recommendations on this stock, of which all 10 analysts issued buy recommendations. More specifically, three analysts have “speculative“ buy recommendations and one analyst (from Cormark Securities) has a “top pick“ recommendation.
The 10 firms providing recent research coverage on the company are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, Cormark Securities, HC Wainwright & Co., Macquarie, National Bank Securities, PI Financial, Raymond James, Scotia Capital and TD Securities.
Recently, a couple of analysts revised their target prices. Of note, are two revisions listed below.
Earlier this month, Tyron Breytenback, the analyst from Cormark Securities, trimmed his target price to $17.50 from $22.30 but maintained his “top pick“ recommendation.
In Dec., Ryan Thompson, the analyst from BMO Capital Markets, reduced his target price to $16.50 from $18.
The following financial figures are expressed in U.S. dollars.
The Street is forecasting revenue to grow sharply in the upcoming years. The consensus revenue estimates are $234-million in 2020 and $684-million in 2021. The consensus cash flow per share estimates are 53 cents in 2020 and $1.16 in 2021.
The stock is commonly valued by analysts on a price-to-net asset value basis. The consensus one-year target price is $20.61, suggesting there is over 86 per cent upside potential in the stock price over the next 12 months.
Insider transaction activities
Looking back to the beginning of 2018, there has not been any trading activity reported by insiders in over a year.
The share price can be quite volatile. Over the past decade, the share price has traded in a wide range, primarily between $5 and $14. The share price spiked above this range in early 2016, rising to a record closing high of $23.09 in Sept. 2016. However, since the beginning of 2017, the share price has been in a downtrend, making lower highs and lower lows. In recent weeks, the share price is firming with the stock price rising over 10 per cent year-to-date, causing the stock to appear on the positive breakouts list.
In terms of key resistance and support levels, the share price has a ceiling of resistance around $12, near its 200-day moving average (at $11.77). After that, there is major resistance around $15. In terms of downside support, there is support around $10, close to its 50-day moving average (at $9.51).
This small-cap stock has reasonable liquidity. The three-month historical daily average trading volume is approximately 340,000 shares.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.