MAG Silver’s project robust despite rising costs
By Peter Koven
Cost inflation is a continuing problem in the mining industry these days. So when a company releases updated economic projections for a project, it goes without saying that the new capital cost estimates will be higher than the old ones.
So it goes with MAG Silver Corp. and its Juanicipio project in Mexico. On Thursday, the company released an updated economic assessment that predicts capital costs of US$302-million at Juanicipio, up 40% from the US$217-million estimate released in September 2009. Estimated operating costs per tonne jumped 57% to US$66.56 in that timeframe.
BMO Capital Markets analyst John Hayes treated the news as a negative. He noted that the higher capital and operating costs will likely result in a “material downward revision” to his net asset value estimates.
That said, he remains a strong believer in Juanicipio, which is among the world’s most promising undeveloped silver deposits. He has an outperform rating on MAG shares for now.
“The project, by virtue of its high grades and high estimated recoveries, remains robust,” he wrote in a note.
Vancouver-based MAG controls 44% of Juanicipio, while joint venture partner Fresnillo PLC controls the other 56%.