MAG Silver Corporation MAG : TSX : C$9.72 | C$541.1M | Speculative Buy, C$18.00 ↑ • Cinco de Mayo: 100+ million ounce silver-equivalent potential; maintain SPECULATIVE BUY with a target price of C$18.00, up from C$16.00 Nicholas Campbell, 604.643.7027
Investment recommendation We maintain our SPECULATIVE BUY recommendation on the shares of MAG Silver with a target price of C$18.00 per share, up from C$16.00.
Investment highlights • MAG Silver reported drill results from the 100%-owned Cinco de Mayo project in Chihuahua State, Mexico. Assay results from 10 holes were released from the Bridge Zone testing the up- and down-dip continuity of mineralization. Highlights include 8.1 metres grading 274 g/t Ag, 5.5% Pb and 17.2% Zn and 3.1 metres grading 198 g/t Ag, 5.7% Pb and 7.8% Zn. • The recent results from the Bridge zone demonstrate the potential for a 4,000-metre strike length with a down dip extension to 250 to 400 metres at an average width of 3 to 5 metres (see Figure 2). Based on these results, we see potential for the Cinco de Mayo project to develop into a 10+ million tonne resource, potentially hosting a 100+ million ounce silver-equivalent resource. • Two drill rigs are currently drilling progressive fences along the Bridge Zone (Figure 3). A third rig is dedicated to exploration for the source of the manto. An initial resource for Cinco De Mayo is expected in H2 2012. We are expecting an updated PEA for the 44%-owned Juanicipio project in H1 2012. Valuation We believe that the grade and resource potential of the Cinco De Mayo is not reflected in the current valuation for MAG Silver. We previously ascribed a value of $2.50/oz on a potential resource of 20 million ounces of silver to account for the Cinco De Mayo project. Given the results to date, we have increased the potential resource to 50 million ounces of silver. The net impact is an increase in our estimate of peak silver NAVPS (7.5%, US$35/oz) to $22.30, up from $21.32. We continue to value the shares of MAG Silver based on a 0.8x multiple to our peak silver estimate of NAVPS.