Thursday, January 03, 2013

MAG Silver (MVG) In Mexico

MAG Silver (MVG / MAG.TO) mines silver in Mexico.  I've never been south of the border but I hear there's lots of tortillas down there, plus attractive women.  I don't know whether MAG Silver employs attractive Mexican women but if they do they should pay them in pesos rather then tortillas.

I have no quibble with the management team because they have the proper backgrounds.  They have a lot of projects in play.  The Cinco de Mayo project's MII resources look low at first glance but the moly grades actually exceed the average grades found in porphyry copper deposits.  The rest of their projects may show promise after more exploration but it's too early to tell.

Their Q3 financial statement for 2012 reveals US$44M in cash on hand, but they'll need much more than that to complete several simultaneous drill programs.  The diverse project portfolio requires a look at fundamentals from a value perspective.  Their FCF is severely negative and so is their five-year average ROE.

I can't understand why the market values MAG Silver at over $10/share when they've been losing money since 2008.  Inferred grades only get you to the threshold of a production decision.  I could understand the optimistic valuation if one of their larger projects were close to starting production but I can't be so optimistic with so many other undeveloped properties eating up capital.

Full disclosure:  No position in MAG Silver at this time.