MAG Silver (MAG) - 2021 Q3 - Quarterly Report

Unaudited Condensed Interim Consolidated Financial Statements Condensed Interim Consolidated Statements of Financial Position As of September 30, 2021, MAG Silver Corp. reported total assets of $320.6 million, a slight decrease from $323.1 million at year-end 2020, primarily due to reduced cash offset by increased investment in Juanicipio, resulting in a marginal increase in liabilities and a slight decrease in total equity Consolidated Statements of Financial Position (in thousands of US dollars) | | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $34,770 | $95,414 | | Investment in Juanicipio | $263,891 | $202,570 | | Total Assets | $320,599 | $323,082 | | Total Current Liabilities | $793 | $901 | | Total Liabilities | $7,239 | $6,414 | | Total Equity | $313,360 | $316,668 | | Total Liabilities and Equity | $320,599 | $323,082 | Condensed Interim Consolidated Statements of Loss and Comprehensive Income (Loss) For the nine months ended September 30, 2021, the company reported a net loss of $2.6 million, a significant improvement from the $13.7 million loss in 2020, primarily due to income from its equity investment in Juanicipio despite operating expenses and deferred income tax Statement of Loss Highlights (in thousands of US dollars, except per share amounts) | | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Expenses | $7,974 | $5,886 | | Income (Loss) from Equity Investment in Juanicipio | $6,909 | ($3,372) | | Deferred Income Tax (Expense) Benefit | ($1,724) | ($4,949) | | Loss for the Period | ($2,637) | ($13,690) | | Total Comprehensive (Loss) | ($7,174) | ($4,617) | | Basic and Diluted Loss Per Share | ($0.03) | ($0.15) | Condensed Interim Consolidated Statements of Changes in Equity Total equity decreased from $316.7 million at December 31, 2020, to $313.4 million at September 30, 2021, primarily due to a net loss and unrealized loss on equity securities, partially offset by share-based payment expenses Changes in Equity (in thousands of US dollars) | | Amount | | :--- | :--- | | Balance, December 31, 2020 | $316,668 | | Share based payment | $3,574 | | Unrealized loss on equity securities (net of tax) | ($4,537) | | Loss for the period | ($2,637) | | Other (stock option exercises, etc.) | $292 | | Balance, September 30, 2021 | $313,360 | Condensed Interim Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, cash decreased by $62.3 million, primarily driven by $57.7 million in investing activities, notably the Juanicipio project, with minor impacts from operating and financing activities Cash Flow Summary (in thousands of US dollars) | | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($5,094) | ($3,704) | | Net cash used in investing activities | ($57,671) | ($23,974) | | Net cash provided by financing activities | $127 | $91,433 | | (Decrease) Increase in Cash | ($62,301) | $63,685 | | Cash, beginning of period | $94,008 | $72,360 | | Cash, end of period | $31,707 | $136,045 | - The most significant cash outflow was the $55.8 million investment in the Juanicipio project during the nine-month period[7] Notes to the Condensed Interim Consolidated Financial Statements Note 1: Nature of Operations MAG Silver Corp. is an advanced-stage development and exploration company primarily focused on its 44% interest in the Juanicipio Project in Mexico, while also acknowledging potential material impacts from the COVID-19 pandemic - The company's primary asset is its 44% interest in the Juanicipio Project, which is in the construction phase and heading towards production[9] - The Juanicipio Project is currently toll milling its mineralized development material at a nearby facility while its own processing facility is in the pre-commissioning stage[9] - The company identifies potential risks from the COVID-19 pandemic, including project delays, supply chain disruptions, and volatility in metal prices, which could materially impact financial performance[10] Note 2: Summary of Significant Accounting Policies The financial statements are prepared under IFRS, with key policies including the equity method for the 44% Juanicipio investment, capitalization of exploration costs, and recognition of pre-commercial production sales in profit or loss - The company accounts for its 44% interest in Minera Juanicipio S.A. de C.V. as an investment in an associate using the equity method[15][16] - All costs related to the acquisition, exploration, and evaluation of mining rights are capitalized. These costs are tested for impairment if facts suggest the carrying amount is not recoverable[35][38] - The company adopted an amendment to IAS 16, which requires proceeds from pre-commercial production sales to be recognized in profit or loss, rather than as a deduction from capitalized costs[40][62] Note 6: Investment in Juanicipio The company's 44% equity investment in the Minera Juanicipio project increased to $263.9 million by September 30, 2021, driven by cash contributions and its share of project income from pre-commercial production sales - Minera Juanicipio is a joint venture held 56% by Fresnillo (operator) and 44% by MAG Silver[73] Reconciliation of Investment in Juanicipio (in thousands of US dollars) | | Nine months ended Sep 30, 2021 | | :--- | :--- | | Balance, beginning of period | $202,570 | | Cash contributions to Minera Juanicipio | $55,484 | | Other adjustments (oversight, interest) | ($1,072) | | Income from equity investment in Juanicipio | $6,909 | | Balance, end of period | $263,891 | Minera Juanicipio Pre-Commercial Production Results (100% basis, in thousands of US dollars) | | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Sales | $36,025 | $9,525 | | Cost of sales | ($7,736) | ($1,531) | | Gross profit | $28,289 | $7,994 | | MAG's 44% equity income (loss) | $6,909 | ($3,372) | Note 7: Exploration and Evaluation Assets The company's exploration and evaluation assets increased to $18.2 million, primarily due to expenditures on earn-in projects like Deer Trail, where it aims to earn a 100% interest through significant exploration funding - The company has an option to earn 100% of the Deer Trail project in Utah by making cash payments and funding $30 million in exploration expenditures by 2028. As of September 30, 2021, $8.0 million has been incurred[82] Exploration and Evaluation Asset Balance (in thousands of US dollars) | | Amount | | :--- | :--- | | Balance, December 31, 2020 | $12,472 | | Expenditures for the period | $5,686 | | Balance, September 30, 2021 | $18,158 | Note 9: Share Capital As of September 30, 2021, the company had 95.0 million shares outstanding and recorded a total share-based payment expense of $3.6 million across various equity compensation plans - As of September 30, 2021, there were 95,028,926 shares outstanding[86] Share-Based Payment Expense (in thousands of US dollars) | Compensation Type | Nine months ended Sep 30, 2021 | | :--- | :--- | | Stock options | $1,147 | | RSUs and PSUs | $1,275 | | Deferred Share Units (DSUs) | $1,152 | | Total | $3,574 | - As of September 30, 2021, there were 1,758,913 common shares issuable under all combined share compensation arrangements, representing 1.85% of outstanding shares[103] Note 11: Financial Risk Management The company faces significant financial risks, including market risk from commodity price fluctuations, credit risk from cash and VAT receivables, liquidity risk, and currency risk from Mexican Peso and Canadian Dollar movements against the U.S. Dollar - The company is exposed to commodity price risk for silver, gold, lead, and zinc through its interest in the Juanicipio project. Minera Juanicipio does not hedge silver and gold prices[110] - Credit risk includes a $37.1 million VAT receivable (100% basis) held by Minera Juanicipio from the Mexican government[114] - A 10% depreciation in the Mexican peso against the USD would result in a loss of approximately $2.5 million (100% basis) within Minera Juanicipio, of which MAG's 44% share would be $1.1 million[123] Note 14: Related Party Transactions The company engages in related party transactions, including services from firms associated with its Chief Exploration Officer and significant shareholder loans to the Juanicipio project, with key management compensation totaling $3.4 million - The company contracts exploration and administrative services from Cascabel and IMDEX, firms associated with Dr. Peter Megaw, the Company's Chief Exploration Officer[133] - As of September 30, 2021, MAG and Fresnillo have advanced shareholder loans to Minera Juanicipio, with MAG's 44% share amounting to $87,428 thousand[140] Key Management Compensation (in thousands of US dollars) | | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Salaries and other benefits | $973 | $848 | | Share based payments | $2,403 | $1,400 | | Total | $3,376 | $2,248 | Note 15: Commitments and Contingencies While MAG Silver Corp. has minimal direct commitments, its Juanicipio Project joint venture has significant contractual commitments and purchase orders totaling $101.8 million, which MAG intends to fund to avoid dilution of its 44% interest - The Juanicipio Project had combined contractual commitments and purchase orders of $101.8 million on a 100% basis as of September 30, 2021[144] - The Company intends to continue funding its share of cash calls for the Juanicipio project to avoid dilution, although these are not contractual obligations[143] Note 17: Subsequent Event Subsequent to the quarter end, MAG Silver Corp. secured a $40 million revolving credit facility from the Bank of Montreal, maturing December 31, 2024, for general corporate purposes, exploration, and Juanicipio project investment - The Company secured a commitment for a $40,000 revolving credit facility from the Bank of Montreal after the quarter end[149] - The facility has a maturity date of December 31, 2024 and can be used for general corporate purposes, exploration, and investment in Minera Juanicipio[149]