MAG Silver (MAG) - 2023 Q4 - Annual Report

Front Matter Management's Responsibility and Report on Internal Control Management affirms responsibility for IFRS financial statements and effective internal control over financial reporting as of December 31, 2023 - Management is responsible for the preparation and presentation of the consolidated financial statements, which are prepared in accordance with International Financial Reporting Standards (IFRS)[3][4] - Management assessed the effectiveness of internal control over financial reporting and concluded that it was effective as of December 31, 2023, based on the criteria from the Committee of Sponsoring Organizations of the Treadway Commission (COSO)[10] Report of Independent Registered Public Accounting Firm Deloitte LLP issued unqualified opinions on financial statements and internal controls, highlighting the Juanicipio Mine investment as a critical audit matter - The auditor, Deloitte LLP, expressed an unqualified opinion, stating that the financial statements present fairly the financial position of MAG Silver Corp. as of December 31, 2023 and 2022, in accordance with IFRS[13] - The accounting for the 44% investment in the Juanicipio Mine was identified as a Critical Audit Matter due to its significance and the complex judgments made by management and the operator[18][19] - The auditor also issued an unqualified opinion on the company's internal control over financial reporting, concluding that it was maintained effectively as of December 31, 2023[22] Consolidated Financial Statements Consolidated Statements of Income and Comprehensive Income Net income significantly increased to $48.7 million in 2023, driven by higher income from the Juanicipio Mine investment Key Income Statement Data (in thousands of US dollars, except per share amounts) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Income from equity accounted investment in Juanicipio | $65,099 | $40,767 | | Operating income | $50,769 | $17,751 | | Net income | $48,659 | $17,644 | | Diluted earnings per share | $0.47 | $0.18 | Consolidated Statements of Financial Position Total assets grew to $520.5 million, primarily from the Juanicipio investment and cash, increasing total equity to $506.8 million Key Balance Sheet Data (in thousands of US dollars) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash | $68,707 | $29,955 | | Investment in Juanicipio | $394,622 | $338,316 | | Total Assets | $520,530 | $407,829 | | Total Liabilities | $13,773 | $6,133 | | Total Equity | $506,757 | $401,696 | Consolidated Statements of Cash Flows Cash increased by $38.8 million in 2023, driven by $55.0 million from financing activities, offsetting operating and investing uses Key Cash Flow Data (in thousands of US dollars) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,945) | ($8,718) | | Net cash used in investing activities | ($7,243) | ($18,895) | | Net cash from financing activities | $54,955 | $928 | | Increase (decrease) in cash | $38,752 | ($26,793) | | Cash, end of year | $68,707 | $29,955 | Consolidated Statements of Changes in Equity Total equity increased to $506.8 million, primarily due to $48.7 million net income and $56.8 million from share issuances - Total equity increased by $105.1 million during 2023, driven by net income of $48.7 million and net proceeds from share issuances[32] Notes to the Consolidated Financial Statements Note 1: Nature of Operations MAG Silver Corp. is a Canadian precious metals exploration company, with its 44% Juanicipio Mine interest achieving commercial production in June 2023 - The company's main asset is its 44% stake in the Juanicipio Mine in Mexico[34] - The Juanicipio Mine's processing facility achieved commercial production on June 1, 2023[34] Note 3: Material Accounting Policy Information Key policies include equity method accounting for Juanicipio, capitalization of exploration costs, and revenue recognition from concentrate sales - The company's 44% interest in Minera Juanicipio is accounted for as an investment in an associate using the equity method[38][49][50] - Costs for acquiring, exploring, and evaluating mining rights are capitalized. These costs are reclassified to mining properties if a mineable ore body is discovered and are depleted on a units-of-production basis upon commencement of commercial production[52] - Revenue from the Juanicipio Mine is recognized from concentrate sales when control transfers to the customer, based on estimated metal quantities and provisional prices[80] Note 5: Significant Accounting Judgments and Estimates Management's key judgments include commercial production date for Juanicipio and asset impairment, with estimates for revenue and share-based compensation - A significant judgment was the determination of commercial production for the Juanicipio processing facility, which was declared effective June 1, 2023, after operating at approximately 85% of its 4,000 tpd nameplate capacity with consistent silver recovery[93] - Management applies significant judgment in assessing whether indicators of impairment exist for non-current assets, including exploration and evaluation assets[90][91] Note 9: Investment in Juanicipio MAG's 44% equity-accounted investment in Juanicipio generated $65.1 million income in 2023, increasing its carrying value to $394.6 million Continuity of Investment in Juanicipio (in thousands of US dollars) | Description | 2023 | 2022 | | :--- | :--- | :--- | | Balance, beginning of year | $338,316 | $291,084 | | Net contributions/repayments | ($642) | $8,859 | | Income from equity accounted Investment | $65,099 | $40,767 | | Interest reclassified to accounts receivable | ($8,150) | ($2,394) | | Balance, end of year | $394,622 | $338,316 | Juanicipio Financial Summary (100% basis, in thousands of US dollars) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Sales | $442,288 | $215,736 | | Gross Profit | $201,983 | $132,838 | | Net Income | $129,428 | $90,247 | | MAG's 44% portion of net income | $56,948 | $39,709 | Note 10: Exploration and Evaluation Assets Exploration and evaluation assets increased to $52.6 million, including Deer Trail and Larder projects, following a $10.5 million Black Hills write-down in 2022 Exploration & Evaluation Asset Balances (in thousands of US dollars) | Project | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Deer Trail Project | $27,315 | $19,565 | | Larder Project | $25,322 | $17,694 | | Black Hills Project | $0 | $0 | | Total | $52,637 | $37,259 | - The company wrote down the entire $10,471 thousand carrying value of the Black Hills project in 2022 due to permitting difficulties[119] Note 11: Share Capital The company raised $59.7 million from share issuances in 2023 and maintains various equity compensation plans for employees and directors - In February 2023, the company closed a $42.6 million bought deal public offering and a $17.1 million bought deal private placement of flow-through shares[121][122] - The company's equity compensation plans are limited, with the combined Stock Option Plan and Share Unit Plan not to exceed 5% of issued and outstanding common shares[124][129] Note 13: Debt Facility A $40 million senior secured revolving credit facility was established in October 2023, undrawn as of year-end - The company entered into a $40 million senior secured revolving credit facility with a 34-month term[141] - The facility was undrawn as of December 31, 2023. The company incurred and expensed $48 thousand in commitment fees and capitalized $993 thousand in deferred financing fees[142] Note 15: Financial Risk Management The company faces commodity price, credit, liquidity, and currency risks, primarily through Juanicipio, without using derivative hedges - The company's associate, Juanicipio, is exposed to commodity price risk for silver, gold, lead, and zinc, and does not hedge these commodities[146] - The company is exposed to currency risk from the Mexican peso and Canadian dollar. A 10% appreciation in the peso would result in a $1.6 million loss for MAG's share of its investment in Juanicipio[154][159][162] Note 18: Related Party Transactions Related party transactions include services from firms linked to the Chief Exploration Officer and $94.4 million in Juanicipio shareholder loans - The company contracts services from Minera Cascabel and IMDEX Inc., firms where Chief Exploration Officer Dr. Peter Megaw is a principal. Total expenses with these firms were $1.1 million in 2023[171][172] - MAG's 44% share of shareholder loans to Juanicipio amounted to $94.4 million as of December 31, 2023[175] Key Management Compensation (in thousands of US dollars) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Salaries and other short term benefits | $1,949 | $2,075 | | Share-based compensation (non-cash) | $2,532 | $1,774 | | Total | $4,481 | $4,231 | Note 20: Income Taxes Deferred income tax expense was $5.6 million, with significant unrecognized deferred tax assets from non-capital loss carryforwards Income Tax Expense (in thousands of US dollars) | Description | 2023 | 2022 | | :--- | :--- | :--- | | Deferred tax expense | ($5,577) | ($371) | | Total income tax expense | ($5,577) | ($371) | - The company has significant non-capital loss carryforwards for which no deferred tax assets have been recognized, totaling $163.3 million across Canada, Mexico, and the U.S[183][184][185] Note 21: Subsequent Events The company agreed to acquire the Goldstake property for C$5.0 million, with the transaction expected to close in March 2024 - The company agreed to purchase the Goldstake property for C$5,000 thousand, with the transaction expected to close in March 2024[187]