MAG Silver (TSX:MAG) is popular stock for investors who want a pure-play mining bet on silver. The share price has bounced around a lot over the past two years, and the recent dip has investors wondering if MAG stock is now undervalued.
MAG Silver overview
MAG Silver is a Canadian exploration and development company based in Vancouver with a focus on high-grade silver projects located in North and South America.
The largest operation is a 44% stake in the Juanicipio Project in Mexico. This mine is located in the top silver district in the country. The operator, Fresnillo, is building a new processing plant, and opportunities exist to expand production at the site.
MAG is also working through an exploration program at its Deer Trail project in Utah and is in the process of acquiring the Larder Lake gold project in Canada.
MAG Silver Q1 2022 results
MAG Silver reported gross profit of US$46.2 million in Q1 2022 compared to US$8.2 million in the same period last year. Net income for the first three months of the year came in at US$2.68 million, or US$0.03 per share, compared to a US$3.66 million loss last year.
MAG Silver finished Q1 2022 with US$52.25 million in cash and no long-term debt. The solid balance sheet is an important consideration for invests who want to get exposure to the silver market through a producer. Mining companies with large debt balances can get into trouble when market prices fall or projects run into operational challenges. The fact that MAG Silver does not carry any long-term debt gives the company good financial flexibility.
MAG Silver outlook
The pending acquisition of the Larder Lake Project in northern Ontario marks a pivot for MAG Silver. The site is a gold play in the prolific Abitibi greenstone belt that has produced significant gold. The project has already identified several gold mineralization centres along a seven km strike length.
As soon as the deal closes, MAG Silver plans to use new technology to identify potential large deposits along the claim zone.
Silver market
Silver trades near US$$21.50 per ounce at the time of writing. The price of the metal is down from the 2022 high around US$27 per ounce and close to its lowest point in the past 12 months. The recent drop is largely due to the surge in the value of the U.S. dollar. Silver is priced in American dollars, so silver becomes more expensive for holders of other currencies when the dollar increases in value. This can put pressure on demand.
Long-term demand for silver, however, should be strong. The metal is popular for jewelry, but it also has many industrial uses that could drive demand significantly higher in the coming years.
That being said, the silver market can be volatile, as we have seen in recent weeks. The price is still well above the pre-pandemic levels, so the next few months will tell if silver is currently taking a pause before the next leg higher, or in the early stage of a slide back to the 2019 pricing.
Is MAG Silver stock a buy now?
MAG Silver has a solid balance sheet, a productive operating silver mine, and promising gold resources at the Larder Lake site. Ongoing volatility should be expected, but silver bulls who want exposure to the metal through a quality mining company primarily focused on silver might want to consider adding MAG Silver to their holdings after the recent pullback.
The stock trades near $17 per share on the TSX Index at the time of writing. It was above $28 last June, so there is decent upside potential on the next rebound in the silver market.
