MAG #Silver ($MAG.to) CAD 9.00 - Comments from Raymond James

MAG Silver is one of the best silver stocks to play as its main asset, the Juanicipio silver project (44%) (Fresnillo 56%) is under construction and the Cinco de Mayo (100%) silver-zinc-lead project has huge exploration potential.

Both projects are in Mexico.

THIS IS FROM RAYMOND JAMES RESEARCH:

Although we do not officially cover Fresnillo, I don't think many people dispute the high quality silver miner that they are.  The company is known for its lowest cost silver assets, high return projects, strong track record of project delivery and history of district consolidation.

Fresnillo's next best asset - Juanicipio, is the world's highest grading project that continues to grow at depth and has high potential for new vein discoveries on the property and at depth under the main vein (drilling has been incredibly encouraging).  As you can see by the picture, this is in a main district Fres operates in.

Fresnillo, is JV'd with MAG Silver on this project and development has already started with significant progress of an impeccable ramp you could drive a Ferrari down.  Our analyst recently visited the site and believes the ramp up risks have been lowered and the mine is being constructed to a level typical of much larger mines – foresees them meeting the late 2017 start date.

MAG is trading at ~0.59x total company NAV, but if you believe their two other assets are getting no value then it is trading at closer to just over 1xNAV for Juanicipio but gives you upside in exploration (bumped target once recently)/ takeout premium / development and then strong FCF profile.

Their second project currently hosts 12mmt of Zinc grading 13%... we think there is incredibly strong potential to triple this…overhang- surface access temporarily blocked-  a resolution with the Ejido group this year would likely result in a nice bump to the stock price.

We strongly urge investors to take advantage of recent share price weakness in MAG; cheap Tier 1 assets don't stick around – they either appreciate in value or get taken-out.

It has paid to trade around core positions in this stock…development is on track, new zones are being added, potential for access rights to be received at second project, people adding to precious exposure, takeout potential is real…

·         MAG is unequivocally the best silver developer in the world with:

o   the highest grade project globally that continues to grow at depth and has high potential for new vein discoveries

o   low risk profile, with development quarterbacked by the world's most experienced silver operator and its location in a safe part of Mexico

o   hopeful 2015 return to 100%-owned Cinco de Mayo, which has massive potential and is zinc-dominant, yet is overlooked by the market

o   strong balance sheet with some ~$80 mln in cash – well over half their upfront capex requirements at Juanicipio

o   high caliber, albeit small, management team with low G&A

o   and yet the stock is trading at only 0.5x P/NAV,

§  we currently value this asset using a DCF valuation for MAG's 44% at C$8.84/share

·         recent exploration results increased tonnage and LOM, our NAV increased by $1.00

Exploration points to further upside at Jaunicipio

o   Upside through an entirely new silver rich phase of mineralization overprinting the roots of the main vein, Valdecanas, opening up additional high-grade potential at depth.

o   4 holes were recently drilling into this area that on their own have doubled the existing Deep Zone resource of 4.5mmt and have significantly increased the average grade

o   Increases ounces per vertical and development meter, increasing mine effenciency and lowering future unit costs

o   Extends mine life by an additional 4 yrs and boosted our NAV by $1

• The higher deep tonnes also underlines emerging potential to raise a shaft later in the mine life to support higher throughputs and production rates

o   Potential to build on results such as this..

Other assets not getting much value by the market:

Superb Exploration Upside at Cinco de Mayo – A Potential Second Tier 1 Zinc Asset

·        Cinco is MAG's second project, 100%-owned and also in Mexico, but where MAG has had its surface access to the site temporarily blocked  

·        Cinco already hosts 12 Mt grading 13% ZnEq (for about ~3.6 Blbs Zn) but we believe there is potential to triple that resource and develop a world-class, bulk-tonnage CRD mining operation providing MAG with a second, Tier 1 producing asset after Juanicipio.

·        The project is also zinc-dominant (~50% by value) – a metal with a very compelling-term supply/demand outlook.

·        The legal process to return MAG's access is moving along (government will overturn illegal Ejido meeting and set-up a new meeting), negotiations are ongoing, and management remains confident they will secure surface access during this calendar year, which in our view should lead to a significant bump in the stock given the huge CRD potential of the project.

MAG is earning-in at Salamandra

o   a potential Cinco lookalike where MAG just expanded the on-going $1Mio, 3000 m program - MAG's CRD expert Peter Megaw is very excited it

o   And the Pozo Seco moly-gold zone on the Cinco property is likely to be monetized in the coming few years – hard to say what they would get, but it has $2.2 bln dollars of in-situ moly and gold near surface

Link to the Full Research Document
MAG Silver MAG-TSX MVG-NYSE MKT
Strong Deep Drill Results Unlock Long-term Juanicipio Potential

Link to the Full Research Document
MAG Silver MAG-TSX MVG-NYSE MKT
Juanicipio Site Visit - Ramp Development Accelerating

Long run silver price, US$/oz

US$17.50/oz