🕐13.02.12 - 01:27 Uhr

THE EQUEDIA REPORT: MAG SILVER



The Most Important Silver Project in the World � � � � Dear Readers,



Silver is undeniably one of the most favoured investment vehicles for the top minds in the industry. From its ability to rise with a growing economy, to a precious metals hedge against inflation, silver is a metal with many talents.

 

Right now, were seeing history in the making for silver. 2012 will be a big year for silver and with it, my favourite way to play the precious metals boom: silver stocks. 


This may all sound familiar to you. Thats because during the last few years, every silver company we featured showed our readers gains of 100% plus.    

So its no wonder why our first report for 2012 involves a silver company that analysts are calling "one of the most important high grade silver projects on the planet."

      

More on this story in a bit.

 

Silver Set to Explode 

 

Just recently, Eric Sprott showed that the actual demand for silver, especially for investment, has been staggeringly underreported. Take a look:

  

 

 

His calculations show that more than 255 million ounces of silver demand was "missing" from figures for the decade-long stretch that ended in December 2009.  


This figure doesnt include the demand from 2010, where the amount of trading in silver to ETFs and other investing vehicles was, according to Sprott, approaching 800 million ounces - a day!

Some of the smartest minds in the industry are already calling for $50, $75, $100, and even $150 dollar silver. While these numbers seem far off, critics also said the same when silver hit $20 a few years back, before it skyrocketed to nearly $50.   

  

In the last ten years, the price of silver has had four major crashes, yet it still increased five-fold. Take a look:

 

 

 

Every time silver crashed, it found a way to climb higher - much higher.

 

The net result? If you invested US$10,000 in silver at the start of 2004, it would now be worth $58,000 plus.

 

While silver saw a 48% correction last year, it is now poised to explode with clear signs the latest correction is finished. Not only does silver generally bottom at this time of year, its starting to break above its 65 week moving average.

 

But thats not all.

  

While institutional and retail demand for physical silver is on the rise (and over 255 million ounces short, according to Eric Sprott), industrial demand is also growing at a staggering pace.  

 

Silvers use in industrial applications increased 20.7% last year to 487 million ounces. That means as much as 50% of silvers total annual production is for industrial use...and that number is expected to rise another 36% by 2015.  

 

But heres the shocker: Unlike gold, silver is 98% consumable. Of all the silver ever mined - about 46 billion ounces - experts estimate that only 1 billion ounces are left above ground in bullion form (of the 5 billion ounces of gold ever mined, about 2 billion are available above ground in bullion form.) So wheres the rest of the silver? Its being consumed at an astronomical rate...   

 

Most silver, used in electronics including the billions of cell phones and millions of TVs around the world, is not recoverable.Once a cell phone or TV goes to the landfill, you cant get the silver in them back. Its no wonder silver miners are struggling to keep up with the demand. 

 

The amount of silver coming out of the ground is going down every year. Few discoveries have been announced in the last decade and most silver produced now is coming from the last stages of existing mines.  

 

Not only that, but the quality of silver mined is the lowest its ever been and like most metals, silver is rarely mined in veins now. It takes many tons of earth and rock to process even a single ounce.  

 

And thats what makes the next company I am about to introduce so special.

   

One of the Highest Grade Silver Projects on the Planet 

  

Haywood Securities called this companys marquee project "one of the most important high grade silver projects globally."    

  

Canaccord Genuity views this company as "a likely acquisition target with a joint venture that hosts one of the richest and highest-grade silver deposits worldwide ...Its simply one of the most attractive undeveloped silver projects on the planet."

  

BMO Capital Markets says the companys "current resource and exploration upside at their (flagship project) together with the companys other 100%-owned district-scale holdings in Mexico comprise an attractive asset for any silver producer, not just (the worlds largest primary silver producer in the world.) "

  

If youre looking for the next silver play and a potential takeover target, look no further than:

  

MAG Silver Corp (TSX: MAG) (NYSE.A: MVG)

  

Were not the only ones who think so.  

 

Experts at Raymond James and Canaccord Genuity both have strong buy ratings for MAG Silver Corp (TSX: MAG)(NYSE.A: MVG) (and all believe that MAG Silver may be the next potential takeover target - especially given the significant events that have occurred with MAG over the last few years.)  

 

Canaccord just upgraded MAG Silver Corp (TSX: MAG)(NYSE.A: MVG)  with a target price of $16.00, while Raymond James has a price target of $14.50. Target prices from large institutions are often very conservative, factoring in every possible risk. With the price of silver looking to explode again, these target prices will undoubtedly be raised to reflect that.    

 

But theres another significant reason why these target prices may soon be raised much higher.

 

MAG is about to announce something in the next few weeks that has the potential to make MAG Silvers NPV (Net Present Value) rise dramatically. Based on preliminary numbers by management, MAGs NPV could easily double from where it stands today - resulting in an even bigger discount to MAG Silvers current share price.  

 

More on this later.    

 

Simply One of the Most Attractive Undeveloped Silver Projects on the Planet: Juanicipio Joint Venture   

 

MAG Silver Corps (TSX: MAG)(NYSE.A: MVG) flagship project is its Juanicipio Joint Venture with the worlds largest primary silver producer, Fresnillo. Its located in the Juanicipio property, of which MAG owns 44% and Fresnillo the remainder 56%.

 

Juanicipio is an exceptionally high grade epithermal vein system that has the potential to produce up to 16 million ounces of silver per year. It is considered to be one of the richest silver discoveries in recent history, hosting an astounding:

 

Indicated resource of 6.2 million tonnes with an astounding average grade of 728 grams/t silver, 1.9 g/t gold, 1.9% lead, 3.9% zinc (containing 146 million ounces of silver)

  

and  

 

Inferred resource of 7.1 million tonnes with an average grade of 373 g/t silver, 1.6 g/t gold, 1.5% lead, and 2.6% zinc (containing 85 million ounces of silver)

 

Thats not a typo. The Juanicipio Joint Venture contains an indicated resource of 146 million ounces with an average grade of 728 grams/t silver and 1.9 g/t gold and an inferred resource of 85 million ounces of silver with and average grade 373 g/t silver and 1.6 g/t gold.

 

I know I am repeating myself. But these numbers are so spectacular that when I speak with industry experts, they find it hard to believe. These type of numbers simply dont exist anymore. 

  

The vast majority of the Juanicipio resource is hosted within the principal vein, the Valdecanas, which spans over 1600 metres in length with average vein width between 4 and 6 metres.  

 

If you look at the map, Fresnillo has already developed its Jarillas shaft and the Saucito mill within 800 metres of the Valdecanas vein on the JV property.   

 

click to enlarge

 

Its no wonder why analysts at Canaccord Genuity call Juanicipio, "simply one of the most attractive undeveloped silver projects on the planet."   

 

Crunching the Numbers

 

A scoping study was done a few years back and the numbers are truly remarkable - especially considering the low silver price used in the calculations ($12 silver).  

 

Based on a scoping study done in 2009, the NPV (Net Present Value) of the Juanicipio project is estimated at US$ 967M using a 5% discount rate and a silver price of US$12.32 per ounce. That means MAGs share at 44% is estimated at US$425.5M. The payback period is 2.3 years with an estimated CAPEX of US$ 217.0M.

 

Operating cost were estimated at US$ 42.28 per tonne milled, which means that the unit cost per ounce of accountable silver sits at only US$ 2.56. Considering silver is over US$33 /ounce today, that spells significant profits for MAG and anyone developing this project.  

 

If we were to use a higher silver price in our calculations, say US$15 /ounce, MAGs NPV would soar to over $1.1 billion. That means every dollar increase in the price of silver adds another $100 million plus to MAGs NPV. Just take a look:

  

click to enlarge  

This scoping study is based on a stand-alone mine development, with a 3.5 year development timeline to advance ramp down to the Valdecanas mineralization. While there are no current studies for alternative development scenarios, much of the CAPEX costs could be reduced significantly and development timeline significantly shortened if MAG were to use Fresnillos current infrastructure. By drifting over from the Jarillas shaft less than 1km away, the development timeline could potentially be reduced to 18 months, instead of the 3.5 years estimated in the scoping study.  

 

Furthermore, even if mine development were to commence without the use of Fresnillos nearby infrastructure, the payback period given todays current silver price could be less than a year. Try finding another silver project like this.   

click to play

 

In addition to Juanicipio, MAG Silver Corp (TSX: MAG)(NYSE.A: MVG) also has a strong portfolio of promising high grade silver district projects in Mexico. One of these projects is their 100% owned Cinco De Mayo, which contains a high grade Moly-Gold project that alone would be a major company maker.  

 

Cinco de Mayo, Pozo Seco & Jose Manto Projects    

  

The Cinco de Mayo property comprises 22,000 and is the most advanced of MAGs five Carbonate Replacement Deposit ("CRD") style targets.   

 

MAG Silver Corp (TSX: MAG)




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