UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934

 

For: November 13, 2023

 

MAG Silver Corp.

(SEC File Number: 001-33574)

 

#770 – 800 West Pender Street, Vancouver BC, V6C 2V6, CANADA
(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [   ]      Form 40-F [ X ]

 

 

 

 

 

 

Exhibits  
   
99.1 Unaudited Condensed Interim Consolidated Financial Statements for the three and nine months ended September 30, 2023
99.2 Management Discussion and Analysis for the three and nine months ended September 30, 2023
99.3 Form 52-109F2 CEO Certification of Interim Filings
99.4 Form 52-109F2 CFO Certification of Interim Filings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     
Date: November 13, 2023 MAG Silver Corp.  
     
 

"Jill Neff"

 
 

Jill Neff

 
 

Corporate Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 99.1

 

 

 

 

 

 

MAG Silver Corp.

 

Unaudited Condensed Interim Consolidated Financial Statements

(expressed in thousands of US dollars)

 

For the three and nine months ended September 30, 2023

 

Dated: November 10, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A copy of this report will be provided to any shareholder who requests it.

 

 

 

 

 

VANCOUVER OFFICE

Suite 770

800 W. Pender Street

Vancouver, BC V6C 2V6

 

604 630 1399 phone

866 630 1399 toll free

604 681 0894 fax

     

TSX: MAG

NYSE American : MAG

info@magsilver.com

 

 

 

 

 

 

 

 

 

MAG SILVER CORP.                   
Condensed Interim Consolidated Statements of  Income and Comprehensive Income            
For the three and nine months ended September 30, 2023 and 2022            
(In thousands of US dollars, except for shares and per share amounts - Unaudited)            
                    
      For the three months ended   For the nine months ended 
      September 30,   September 30,   September 30,   September 30, 
      2023   2022   2023   2022 
   Note  $   $   $   $ 
                    
Income from equity accounted investment in Juanicipio  6   13,692    11,781    44,030    37,890 
General and administrative expenses  4   (4,094)   (3,003)   (10,599)   (8,555)
General exploration and business development      (468)   (20)   (610)   (111)
Exploration and evaluation assets written down  7   -    -    -    (10,471)
Operating income      9,130    8,758    32,821    18,753 
                        
Interest income      663    216    1,868    335 
Other income  9   269    -    629    - 
Foreign exchange loss      (192)   (199)   (204)   (403)
Income before income tax      9,870    8,775    35,114    18,685 
                        
Deferred income tax expense      (1,008)   (548)   (2,149)   (216)
Net income      8,862    8,227    32,965    18,469 
                        
Other comprehensive  income (loss)                       
Items that will not be reclassified subsequently to profit or loss:                       
Unrealized loss on equity securities      (2)   (1)   (4)   (60)
Deferred tax benefit      -    -    -    7 
Other comprehensive loss      (2)   (1)   (4)   (53)
                        
Total comprehensive income      8,860   8,226    32,961    18,416 
                        
                        
Basic earnings per share      0.09    0.08    0.32    0.19 
Diluted earnings per share      0.09    0.08    0.32    0.19 
                        
                        
Weighted average shares outstanding  8                    
Basic      102,945,350    98,732,615    102,329,945    98,266,916 
Diluted      103,501,006    99,329,230    102,934,823    98,952,729 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

  2

 

 

MAG SILVER CORP.           
Condensed Interim Consolidated Statements of Financial Position      
As at September 30, 2023           
(In thousands of US dollars, unless otherwise stated - Unaudited)    
            
   Note   September 30, 2023    December 31, 2022 
       $    $ 
              
Assets             
Current assets             
Cash      58,519    29,955 
Accounts receivable  5   1,014    708 
Prepaid expenses      1,335    1,232 
       60,868    31,895 
Non-current assets             
Investments      7    11 
Investment in Juanicipio  6   392,629    338,316 
Exploration and evaluation assets  3,7   48,119    37,259 
Property and equipment      312    348 
       441,067    375,934 
Total assets      501,935    407,829 
              
Liabilities             
Current liabilities             
Trade and other payables      3,286    2,542 
Current portion of lease obligation      137    121 
Flow-through share premium liability  9   2,357    - 
       5,780    2,663 
Non-current liabilities             
Lease obligation      31    140 
Deferred income taxes      5,070    2,921 
Provision for reclamation      484    409 
Total liabilities      11,365    6,133 
              
Equity             
Share capital  8   614,038    559,933 
Equity reserve      20,598    18,790 
Accumulated other comprehensive income      780    784 
Deficit      (144,846)   (177,811)
Total equity      490,570    401,696 
Total liabilities and equity      501,935    407,829 
              
Commitments and contingencies  15          
              
Subsequent events  16          

 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

 

 

  3

 

 

MAG SILVER CORP.

Condensed Interim Consolidated Statements of Cash Flows

For the three and nine months ended September 30, 2023 and 2022

(In thousands of US dollars, unless otherwise stated - Unaudited)

                 

 

      For the three months ended,   For the nine months ended, 
      September 30,   September 30,   September 30,   September 30, 
      2023   2022   2023   2022 
   Note  $   $   $   $ 
                    
OPERATING ACTIVITIES                       
Net  income      8,862    8,227    32,965    18,469 
Items not involving cash:                       
Amortization of flow-through premium liability  9   (269)   -    (629)   - 
Depreciation and amortization      133    34    201    102 
Deferred income tax expense      1,008    548    2,149    216 
Exploration and evaluation assets written down      -    -    -    10,471 
Income from equity accounted Investment in Juanicipio  6   (13,692)   (11,781)   (44,030)   (37,890)
Share-based payment expense  8   822    1,113    2,597    2,318 
Unrealized foreign exchange loss      129    97    102    313 
                        
Movements in non-cash working capital                       
Accounts receivable      281    (212)   229    (317)
Prepaid expenses      642    546    (104)   (963)
Trade and other payables      783    166    288    (675)
Net cash used in operating activities      (1,301)   (1,262)   (6,232)   (7,956)
                        
INVESTING ACTIVITIES                       
Exploration and evaluation expenditures  7   (3,811)   (3,554)   (10,053)   (7,394)
Acquisition of Gatling Exploration, net of cash acquired  3   -    -    -    (2,653)
Investment in Juanicipio  6   (53)   (171)   (25,376)   (489)
Receipt of principal and interest on loans to Juanicipio  6   11,295    86    14,589    215 
Proceeds from disposition of equity securities      -    -    -    1,111 
Purchase of equipment      (19)   (22)   (19)   (35)
Net cash from (used in) investing activities      7,412    (3,661)   (20,859)   (9,245)
                        
FINANCING ACTIVITIES                       
Issuance of common shares upon exercise of stock options  8   -    -    225    32 
Issuance of common shares, net of share issue costs  8   136    -    39,541    - 
Issuance of flow-through shares, net of share issue costs  8   -    -    16,208    - 
Payment of lease obligation (principal)      (33)   (28)   (94)   (81)
Net cash from (used in) financing activities      103    (28)   55,880    (49)
                        
Effect of exchange rate changes on cash      (359)   (197)   (225)   9 
                        
Increase (decrease) in cash during the period      5,855    (5,148)   28,564    (17,241)
Cash, beginning of period      52,664    44,655    29,955    56,748 
Cash, end of period      58,519    39,507    58,519    39,507 

 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

 

 

 

  4

 

 

MAG SILVER CORP.                           
Condensed Interim Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2023 and 2022                        
(In thousands of US dollars, except shares - Unaudited)                        
                            
                  Accumulated         
      Common shares       other         
      without par value   Equity   comprehensive       Total 
      Shares   Amount   Reserve   income   Deficit   equity 
   Note      $   $   $   $   $ 
Balance, January 1, 2022      97,809,441    543,927    18,215    1,798    (196,419)   367,521 
                                  
Stock options exercised      100,678    1,399    (362)   -    -    1,037 
Stock options exercised cashless      24,247    432    (432)   -    -    - 
Restricted and performance share units converted      98,012    1,147    (1,147)   -    -    - 
Deferred share units converted      86,295    871    (871)   -    -    - 
Shares issued on acquisition of Gatling Exploration      774,643    11,212    -    -    -    11,212 
Shares issued in settlement of Gatling Exploration                                 
liability      63,492    945    85    -    -    1,030 
Share-based payment      -    -    3,302    -    -    3,302 
Transfer of gain on disposal of equity securities                                 
 at FVOCI to deficit, net of tax      -    -    -    (964)   964    - 
                                  
Other comprehensive income loss      -    -    -    (50)   -    (50)
Net income      -    -    -    -    17,644    17,644 
Balance, December 31, 2022      98,956,808    559,933    18,790    784    (177,811)   401,696 
                                  
Stock options exercised  8   21,346    292    (67)   -    -    225 
Restricted and performance share units converted  8   96,009    994    (994)   -    -    - 
Issued for cash, net of flow-through share                                 
premium liability  8   3,874,450    56,761    -    -    -    56,761 
Share issue costs  8    .     (3,942)   -    -    -    (3,942)
Share-based payment  8   -    -    2,869    -    -    2,869 
                                  
Other comprehensive loss      -    -    -    (4)   -    (4)
Net income      -    -    -    -    32,965    32,965 
Balance, September 30, 2023      102,948,613    614,038    20,598    780    (144,846)   490,570 
                                  
                                  
Balance, January 1, 2022      97,809,441    543,927    18,215    1,798    (196,419)   367,521 
                                  
Stock options exercised      3,125    39    (7)   -    -    32 
Stock options exercised cashless      16,702    165    (165)   -    -    - 
Restricted and performance share units converted      78,895    778    (778)   -    -    - 
Deferred share units converted      25,000    218    (218)   -    -    - 
Shares issued on acquisition of Gatling Exploration      774,643    11,212    -    -    -    11,212 
Shares issued in settlement of Gatling Exploration                                 
liability      63,492    945    85    -    -    1,030 
Share-based payment      -    -    2,354    -    -    2,354 
Transfer of gain on disposal of equity securities                                 
 at FVOCI to deficit, net of tax      -    -    -    (964)   964    - 
                                  
Other comprehensive loss      -    -    -    (53)   -    (53)
Net income      -    -    -    -    18,469    18,469 
Balance, September 30, 2022      98,771,298    557,284    19,486    781    (176,986)   400,565 

 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

  5

 

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

1.NATURE OF OPERATIONS

 

MAG Silver Corp. (the “Company” or “MAG”) is a growth-oriented Canadian exploration company focused on advancing high-grade, district scale precious metals projects in the Americas. MAG is the ultimate parent company of its consolidated group, was incorporated on April 21, 1999, and is governed by the Business Corporations Act of the Province of British Columbia (“BCABC"). MAG’s shares are listed on both the Toronto Stock Exchange in Canada and the NYSE American, LLC in the United States of America.

 

The Company’s principal asset is a 44% interest in the Juanicipio Mine (Note 6 “Investment in Juanicipio”) located in Zacatecas, Mexico, which achieved commercial production at its 4,000 tonnes per day (“tpd”) processing facility on June 1, 2023.

 

Address of registered office of the Company:

2600 – 595 Burrard Street

Vancouver, British Columbia,

Canada V7X 1L3

 

Head office and principal place of business:

770 – 800 West Pender Street

Vancouver, British Columbia,

Canada V6C 2V6

 

2.MATERIAL ACCOUNTING POLICY INFORMATION

 

(a)Statement of compliance

 

These condensed interim consolidated financial statements (“Interim Financial Statements”) are prepared under International Accounting Standards 34 Interim Financial Reporting (“IAS 34”) in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). They do not include all of the information required for full annual IFRS financial statements and therefore should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022.

 

The accounting policies applied in the preparation of the Interim Financial Statements are consistent with those applied and disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2022.

 

These Interim Financial Statements have been prepared on a historical cost basis except for the revaluation of certain financial instruments, which are stated at their fair value.

 

These Interim Financial Statements were authorized for issuance by the Board of Directors of the Company on November 9, 2023.

 

  6

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

(b)Significant accounting judgments and estimates

 

The Company makes certain significant judgments and estimates in the process of applying the Company’s accounting policies. Management believes the judgments and estimates used in these condensed interim consolidated financial statements are reasonable; however, actual results could differ from those estimates and could impact future results of operations and cash flows. The areas involving significant judgments and estimates have been set out in Note 5 of the audited consolidated financial statements for the year ended December 31, 2022, except as noted herein.

 

Declaration of commercial production at Juanicipio

 

The Juanicipio mine and related mining infrastructure achieved commercial production on January 1, 2022. Following a successful commissioning period, the Juanicipio processing facility had been operating at approximately 85% of its nameplate of 4,000 tpd with silver recovery consistently above 88%. With all major construction activities completed and the Juanicipio mine, processing facility and other vital systems all operating in line with, or rapidly approaching design capacity (Juanicipio demonstrating its ability to sustain ongoing production levels), commercial production at the Juanicipio processing facility was declared effective June 1, 2023.

 

With the declaration of commercial production, Juanicipio began depreciating all assets related to processing and associated facilities. In addition, the Company commenced depreciating exploration expenditures at Juanicipio that were capitalized in accordance with the Company’s accounting policies as well as project oversight expenditures incurred by MAG (Note 6).

 

3.ACQUISITION OF GATLING EXPLORATION INC.

 

On March 11, 2022, the Company entered into a Definitive Arrangement Agreement with Gatling Exploration Inc. (“Gatling”) to acquire all of the issued and outstanding common shares of Gatling with the issuance of common shares of the Company and the advancement of a Canadian dollar (“C$”) $3 million convertible note receivable. On May 20, 2022, the Company completed the acquisition of Gatling by way of a court-approved plan of arrangement under the BCABC (the “Transaction”), pursuant to which Gatling became a wholly-owned subsidiary of the Company and the Company thereby acquired a 100% interest in the Larder Project (the “Larder Project”). Under the terms of the Transaction, each former Gatling shareholder received 0.0170627 of a common share of the Company in exchange for each share of Gatling held immediately prior to the Transaction. Holders of options and warrants to acquire common shares of Gatling received replacement options and warrants, respectively, entitling the holders thereof to acquire common shares of the Company, based on, and subject to, the terms of such options and warrants of Gatling, as adjusted by the plan of arrangement.

 

MAG issued a total of 774,643 common shares to the shareholders of Gatling in connection with the Transaction. The Company also issued 43,675 replacement stock options and 53,508 replacement warrants (Note 8). A portion of the liabilities of Gatling related to change of control payments to Gatling executive management was settled by the issuance of 63,492 common shares of the Company.

 

  7

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

The Company has determined that the Transaction did not meet the definition of business combination under IFRS 3, Business Combinations and accordingly, has been accounted for as an asset acquisition.

 

The purchase price allocation requires management to estimate the relative fair value of identifiable assets acquired and liabilities assumed.

 

The following tables summarize the fair value of the consideration given and the relative fair values of identified assets and liabilities recognized as a result of the Transaction.

 

Total shares issued on close:   774,643 
      
    $ 
MAG share price - C$   18.54 
USD exchange rate   0.7807 
MAG share price - US$   14.47 
      
Value of shares on close of Transaction   11,212 
Value of convertible note receivable   2,392 
Value of replacement options and warrants   85 
Transaction costs   350 
Value of consideration paid   14,039 

 

 

Identified assets acquired and liabilities assumed   $ 
      
Assets     
Cash and cash equivalents   89 
Receivables, prepaids and deposits   115 
Exploration and evaluation assets   15,187 
Total Assets   15,391 
      
Liabilities     
Accounts payable and accrued liabilities   1,315 
Lease liabilities   37 
Total Liabilities   1,352 
      
Net assets acquired   14,039 

 

 

  8

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

4.GENERAL AND ADMINISTRATIVE EXPENSES

 

       For the three months ended       For the nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
   $   $   $   $ 
                 
Accounting and audit   277    110    606    294 
Compensation and consulting fees   1,727    957    3,949    2,980 
Depreciation and amortization   133    34    201    102 
Filing and transfer agent fees   62    7    342    323 
General office expenses   171    51    561    414 
Insurance   334    530    1,162    1,483 
Juanicipio oversight costs   332    -    332    - 
Legal   110    74    344    244 
Share-based payment expense (see Note 8)   822    1,113    2,597    2,318 
Shareholder relations   87    90    276    284 
Travel   39    37    229    113 
    4,094    3,003    10,599    8,555 

 

5.ACCOUNTS RECEIVABLE

 

   September 30,   December 31, 
   2023   2022 
   $   $ 
Receivable from Minera Juanicipio (Notes 6 & 14)   643    323 
Value added tax ("IVA" and "GST")   367    382 
Other receivables   4    3 
    1,014    708 

 

6.INVESTMENT IN JUANICIPIO

 

Minera Juanicipio was created for the purpose of holding the Juanicipio property, and is held 56% by Fresnillo plc (“Fresnillo”) and 44% by the Company. On December 27, 2021, the Company and Fresnillo created Equipos Chaparral in the same ownership proportions. Equipos Chaparral owns the processing facility and mining equipment which is leased to Minera Juanicipio. Minera Juanicipio and Equipos Chaparral are collectively referred to herein as “Juanicipio,” and in reference to the mine, the “Juanicipio Mine.”

 

Juanicipio is governed by a shareholders’ agreement and by corporate by-laws. All costs relating to Juanicipio are required to be shared by the Company and Fresnillo pro-rata based on their ownership interests in Juanicipio, and if either party does not fund pro-rata, their ownership interest will be diluted in accordance with the shareholders’ agreement and by-laws.

 

  9

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

Fresnillo is the operator of Juanicipio, and with its affiliates, beneficially owns 9,314,877 common shares of the Company as at September 30, 2023, as publicly reported by Fresnillo.

 

The Company has recorded its Investment in Juanicipio using the equity method of accounting. The recorded value of the investment includes the carrying value of the deferred exploration, mineral and surface rights, Juanicipio costs incurred by the Company, the required net cash investments to establish and maintain its 44% interest in Juanicipio, and the Company’s 44% share of income (loss) from Juanicipio.

 

Changes during the period of the Company’s investment relating to its interest in Juanicipio is detailed as follows:

 

   Nine months ended   Year ended 
   September 30,   December 31, 
   2023   2022 
   $   $ 
Balance, beginning of period   338,316    291,084 
Juanicipio oversight expenditures incurred 100% by MAG   384    719 
Amortization of Juanicipio's oversight expenditures incurred 100% by MAG   (171)   - 
Cash contributions and advances to Juanicipio (see Note 14)   24,992    8,140 
Loan repayment from Juanicipio (see Note 14) (2)   (8,800)   - 
Total for the period   16,405    8,859 
Income from equity accounted Investment in Juanicipio   44,030    40,767 
Interest earned, net of recontributions, reclassified to accounts receivable (1)   (6,122)   (2,394)
Balance, end of period   392,629    338,316 

 

(1) A portion of the Investment in Juanicipio is in the form of interest bearing shareholder loans. For the nine months ended September 30, 2023, the Company earned interest, net of recontributions, amounting to $6,122 (year ended December 31, 2022: $2,394), which has been reclassified to accounts receivable, and $5,789 of interest payments were received from Juanicipio (December 31, 2022: $3,564).

 

(2) During the three and nine months ended September 30, 2023, a $7,251 loan to Juanicipio was converted into equity (December 31, 2022: nil).

 

 

  10

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

A summary of financial information of Juanicipio (on a 100% basis reflecting adjustments made by the Company, including adjustments for differences in accounting policies) is as follows:

 

Juanicipio Statements of Income

 

   For the three months ended   For the nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
    $    $    $    $ 
                     
Sales   125,046    49,715    311,303    169,855 
Cost of sales:                    
Production cost   43,782    18,127    125,731    46,108 
Depreciation and amortization   21,646    6,376    47,001    15,052 
Cost of sales   65,428    24,503    172,732    61,160 
Gross profit   59,618    25,212    138,571    108,695 
                     
Consulting and administrative expenses   (3,458)   (1,192)   (9,116)   (4,100)
Extraordinary mining and other duties   (1,635)   (64)   (3,532)   (276)
    54,526    23,956    125,924    104,319 
                     
Exchange gains (losses) and other   419    1,953    (2,414)   1,895 
Interest expense   (5,214)   (369)   (13,915)   (1,109)
Income tax (expense) benefit   (23,824)   825    (23,441)   (20,101)
                     
Net income   25,907    26,365    86,154    85,004 
                     
MAG's 44% portion of net income   11,399    11,601    37,908    37,402 
Interest on Junicipio loans - MAG's 44%   2,293    180    6,122    488 
MAG's 44% equity income   13,692    11,781    44,030    37,890 

 

 

  11

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

Juanicipio Statements of Financial Position

 

   September 30,   December 31, 
   2023   2022 
   $   $ 
Assets          
           
Current assets          
Cash and cash equivalents   23,434    1,102 
Value added tax and other receivables   11,759    13,945 
Income tax receivable   15,100    - 
Concentrate sales receivable   54,994    24,098 
Inventories          
Stockpiles   6,339    26,020 
Metal concentrates   2,891    - 
Materials and supplies   17,667    10,081 
Prepaids and other assets   6,360    7,756 
    138,544    83,002 
Non-current assets          
Right-of-use assets   1,803    1,336 
Mineral interests, plant and equipment   794,275    779,735 
Deferred tax assets   8,472    11,259 
    804,549    792,330 
Total assets   943,094    875,332 
           
Liabilities          
           
Current liabilities          
Payables   22,774    34,678 
Interest and other payables to shareholders   7,473    13,460 
Taxes payable   8,742    36,259 
    38,989    84,397 
Non-current liabilities          
Lease obligation   1,852    1,329 
Provisions          
Reserves for retirement and pension   54    29 
Reclamation and closure   3,519    3,073 
Deferred tax liabilities   11,464    22,242 
    16,889    26,673 
Total liabilities   55,878    111,070 
           
Equity          
Shareholders' equity including shareholder advances   887,216    764,262 
Total equity   887,216    764,262 
Total liabilities and equity   943,094    875,332 

 

 

  12

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

Juanicipio Statements of Cash Flows

 

   For the three months ended   For the nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
    $    $    $    $ 
Operating activities                    
Net income   25,907    26,365    86,154    85,004 
Items not involving cash                    
Depreciation   21,646    6,376    47,001    15,052 
Deferred income tax expense and special mining duty   23,824    (825)   23,441    20,101 
Interest incurred on loans   5,214    369    13,915    1,109 
Other   1,017    1,421    2,661    2,212 
Income tax and special mining duty payments   (21,257)   (3,233)   (77,053)   (7,951)
Change in other operating working capital   996    (14,574)   (35,094)   6,110 
Net cash from operating activities   57,346    15,899    61,026    121,638 
                     
Investing activities                    
Capital expenditures including plant, mine development and exploration   (16,953)   (34,448)   (62,368)   (121,367)
Other   430    194    716    345 
Net cash used in investing activities   (16,524)   (34,254)   (61,652)   (121,022)
                     
Financing activities                    
Loans and other capital provided by shareholders   -    -    56,800    255 
Repayments of loans to shareholders   (20,000)   -    (20,000)   - 
Interest paid to shareholders   (5,670)   (86)   (13,157)   (557)
Payment of lease obligations   (174)   (212)   (552)   (645)
Net cash (used in) from financing activities   (25,843)   (298)   23,091    (947)
                     
Effect of exchange rate changes on cash and cash equivalents   (84)   (676)   (133)   (464)
                     
Increase (decrease) in cash and cash equivalents during the period   14,895    (19,329)   22,332    (796)
                     
Cash and cash equivalents, beginning of period   8,540    37,504    1,102    18,972 
                     
Cash and cash equivalents, end of period   23,434    18,176    23,434    18,176 

 

 

7.EXPLORATION AND EVALUATION ASSETS

 

(a)In 2018, the Company entered into an option agreement with a private group, whereby the Company has the right to earn 100% ownership interest in a company which owns the Deer Trail project in Utah. The Company paid $150 upon signing the agreement, $150 in each of 2020 and 2021, and $200 in December 2022. To earn 100% interest in the property, the Company must make remaining cash payments totaling $1,350 over the next 6 years and fund a cumulative of $30,000 of eligible exploration expenditures by 2028 (as of September 30, 2023, the Company has incurred $24,460 of eligible exploration expenditures on the property). As at September 30, 2023, the Company has also bonded and recorded a $484 reclamation liability for the project. Other than the reclamation liability, the balance of cash payments and exploration commitments are optional at the Company’s discretion. Upon the Company’s 100% earn-in, the vendors will retain a 2% net smelter returns (“NSR”) royalty.

 

  13

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

(b)During the year ended December 31, 2022, through the acquisition of Gatling the Company acquired 100% of the Larder Project in Ontario (Note 3). As at September 30, 2023, the Company incurred $7,749 spend after acquisition costs, of which $2,396 were drilling costs.

 

(c)In 2017, the Company entered into an option earn-in agreement with a private group whereby the Company could earn up to a 100% interest in a land claim package in the Black Hills of South Dakota. Although the geological prospect of the property remained encouraging, growing negative sentiment towards resource extraction in the area, combined with a slow consultation process resulted in significant challenges being encountered in permitting the property for exploration drilling. The Company provided formal notice that it would not be making the final $150 option payment in May 2022 and concurrently wrote-down the property’s full carrying amount of $10,471 during the year ended December 31, 2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  14

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

During the three and nine months ended September 30, 2023 and year ended December 31, 2022, the Company has incurred the following exploration and evaluation expenditures on these projects:

 

   Three months ended   Nine months ended   Year ended 
   September 30,   September 30,   December 31, 
   2023   2023   2022 
   $   $   $ 
Deer Trail               
Option and other payments   75    75    210 
Total acquisition costs   75    75    210 
Geochemical   109    367    422 
Camp and site costs   188    577    713 
Drilling   1,540    2,963    6,255 
Geological consulting   399    915    964 
Geophysical   16    63    325 
Land taxes and government fees   178    200    232 
Legal, community and other consultation costs   54    296    303 
Travel   115    142    167 
Total for the period   2,674    5,598    9,591 
Balance, beginning of period   22,489    19,565    9,974 
Total Deer Trail Project cost   25,163    25,163    19,565 
Larder Project               
Acquisition (Note 3)   -    -    15,187 
Option and other payments   -    -    19 
Total acquisition costs   -    -    15,206 
Geochemical   141    901    112 
Camp and site costs   234    408    127 
Drilling   599    1,164    1,232 
Geological consulting   766    1,400    450 
Geophysical   296    872    314 
Land taxes and government fees   14    35    19 
Legal, community and other consultation costs   141    308    176 
Travel   113    174    58 
Total for the period   2,304    5,262    17,694 
Balance, beginning of period   20,652    17,694    - 
Total Larder Project cost   22,956    22,956    17,694 

 

 

  15

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

Black Hills            
Geochemical   -    -    5 
Camp and site costs   -    -    1 
Geological consulting   -    -    127 
Geophysical   -    -    3 
Land taxes and government fees   -    -    7 
Legal, community and other consultation costs   -    -    46 
Travel   -    -    2 
Total for the period   -    -    191 
Balance, beginning of period        -    10,280 
Less: Amounts written off   -    -    (10,471)
Total Black Hills Project cost   -    -    - 
Total Exploration and Evaluation Assets   48,119    48,119    37,259 

 

Included in exploration and evaluation assets at September 30, 2023 were liabilities for trade and other payables of $1,211 (December 31, 2022: $695).

 

 

8.SHARE CAPITAL

 

(a)Issued and outstanding

 

The Company is authorized to issue an unlimited number of common shares without par value.

 

As at September 30, 2023, there were 102,948,613 common shares outstanding (December 31, 2022: 98,956,808).

 

   Three months ended 
   September 30,   September 30, 
   2023   2022 
Basic weighted average number of shares outstanding   102,945,350    98,732,615 
Effect of dilutive common share equivalents (1)   555,656    596,614 
Diluted weighted average number of shares outstanding   103,501,006    99,329,230 
Antidilutive securities (1)   1,135,843    830,303 

 

  16

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

   Nine months ended 
   September 30,   September 30, 
   2023   2022 
Basic weighted average number of shares outstanding   102,329,945    98,266,916 
Effect of dilutive common share equivalents (1)   604,878    685,813 
Diluted weighted average number of shares outstanding   102,934,823    98,952,729 
Antidilutive securities (1)   890,926    719,877 

 

 (1)For the three and nine months ended September 30, 2023, stock options totaling 752,170 and 515,242 respectively (three and nine months ended September 30, 2022: 551,953 and 451,953 respectively), restricted share units (“RSUs”) totalling 88,212 and 80,223 respectively (three and nine months ended September 30, 2022: 78,715 and 68,289 respectively), and performance share units (“PSUs”) totaling 295,461 and 295,461 respectively (three and nine months ended September 30, 2022: 199,635 and 199,635 respectively), were excluded from the computation of diluted earnings per share due to being out of the money or unvested during the period.

 

On February 7, 2023, the Company closed a $42,558 bought deal public offering and issued 2,905,000 common shares, at a price of $14.65 per common share.

 

On February 16, 2023, the Company closed a $17,133 (C$23,024) bought deal private placement and issued 969,450 common shares on a “flow-through” basis” (as defined in the Income Tax Act (Canada)) (the Flow-Through Shares”), at a price of $17.67 (C$23.75) per Flow-Through Share. The premium paid by investors on the flow-through shares was calculated as $3.08 per share. Accordingly, $2,986 was recorded as flow-through liability (Note 9).

 

The aggregate gross proceeds from the combined bought deal public offering and bought deal private placement amounted to $59,691. The Company paid commissions to underwriters of $3,010 and legal and filing fees totalled an additional $932 yielding net proceeds of $55,749.

 

During the nine months ended September 30, 2023, 21,346 stock options were exercised (nine months ended September 30, 2022: 3,125) for cash proceeds of $225 (nine months ended September 30, 2022: $32). In addition, during the nine months ended September 30, 2023 no stock options were exercised under the cashless exercise provision of the stock option plan (nine months ended September 30, 2022: 16,702 shares were issued in settlement of 51,588 stock options and the remaining 34,886 were cancelled).

 

During the nine months ended September 30, 2023, 52,627 PSUs and 43,382 RSUs were converted into common shares (nine months ended September 30, 2022: 73,895 PSUs and 5,000 RSUs).

 

During the nine months ended September 30, 2023, no deferred share units (nine months ended September 30, 2022: 25,000) were converted into common shares.

 

  17

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

During the nine months ended September 30, 2022, the Company issued 774,643 common shares to acquire Gatling (see Note 3). Additionally, 63,492 common shares were issued to Gatling executive management in settlement of change of control liability.

 

(b)Stock options

 

The Company may enter into Incentive Stock Option Agreements with officers, employees, and consultants. On June 26, 2023, the Shareholders re-approved the Company’s rolling Stock Option Plan (the “Plan”). The maximum number of common shares that may be issuable under the Plan is set at 5% of the number of issued and outstanding common shares on a non-diluted basis at any time, provided that the number of common shares issued or issuable under the combined Plan and Share Unit Plan (Note 8(c)) shall not exceed 5% of the issued and outstanding common shares of the Company on a non-diluted basis. Options granted under the Plan have a maximum term of 5 years. As at September 30, 2023, there were 1,208,376 stock options (December 31, 2022: 1,012,794 stock options) outstanding under the Plan.

 

Stock option grants are recommended for approval to the Board of Directors by the Compensation and Human Resources Committee consisting of three independent members of the Board of Directors. At the time of a stock option grant, the exercise price of each option is set in accordance with the Plan and cannot be lower than the market value of the common shares at the date of grant.

 

The following table summarizes the Company’s option activity, excluding the Gatling replacement options (Note 3), for the period:

 

       Weighted average 
   Stock options   exercise price 
   activity   (C$/option) 
         
Outstanding, January 1, 2022   988,727    16.77 
Granted    230,089    18.86 
Exercised for cash   (100,678)   13.79 
Exercised cashless   (105,344)   16.52 
           
Outstanding, December 31, 2022   1,012,794    17.56 
Granted   236,928    16.42 
Expired   (20,000)   19.41 
Exercised for cash   (21,346)   14.12 
           
Outstanding, September 30, 2023   1,208,376    17.37 

 

  18

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

During the nine months ended September 30, 2023, 236,928 stock options were granted to employees and consultants (nine months ended September 30, 2022: 220,898) with a weighted average grant date fair value of $1,179 (C$1,596) or $4.97 (C$6.73) per option.

 

The Company determined the fair value of the options using the Black-Scholes option pricing model with the following weighted average assumptions:

 

   Nine months ended   Year ended 
   September 30,   December 31, 
   2023   2022 
Risk-free interest rate   3.53%   2.58%
Expected volatility   57%   61%
Expected dividend yield   nil    nil 
Expected life (years)   3    3 

 

The following table summarizes the Company’s stock options, excluding the Gatling replacement options (Note 3), outstanding and exercisable as at September 30, 2023:

 

Exercise price   Number   Number Weighted average remaining
(C$/option)   outstanding     exercisable       contractual life (years)
13.46   209,432   209,432 0.53
14.98   246,774   246,774 1.41
16.09   6,021   - 4.50
16.43   230,907   - 4.50
17.02   100,000   33,333 3.64
20.20   113,398   37,794 3.52
21.26   50,000   16,666 3.17
21.29   9,191   3,063 3.52
21.57   192,653   128,434 2.19
23.53   50,000   33,333 2.30
13.46 - 23.53   1,208,376   708,829 2.50

 

During the nine months ended September 30, 2023, the Company recorded share-based payment expense of $1,078 (nine months ended September 30, 2022: $1,065) relating to stock options vested to employees and consultants in the period of which $104 (nine months ended September 30, 2022: $36) was capitalized to exploration and evaluation assets.

 

 

  19

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

In 2022, the Company issued 43,675 replacement stock options pursuant to the Gatling acquisition (Note 3) of which 16,629 replacement stock options expired unexercised. The following table summarizes the Gatling replacement options that are outstanding and exercisable as at September 30, 2023:

 

Exercise price   Number   Number   Weighted average remaining
(C$/option)   outstanding     exercisable         contractual life (years)
21.40   1,706   1,706   0.81
21.68 - 21.93   9,986   9,986   0.87
25.80   4,264   4,264   0.31
26.37 - 26.41   11,090   11,090   0.22
21.40 - 26.41   27,046   27,046   0.51

 

(c)Restricted and performance share units

 

On June 26, 2023, the Shareholders re-approved a share unit plan (the “Share Unit Plan”) for the benefit of the Company’s officers, employees and consultants. The Share Unit Plan provides for the issuance of common shares from treasury, in the form of RSUs and PSUs. The maximum number of common shares that may be issuable under the Share Unit Plan is set at 1.5% of the number of issued and outstanding common shares on a non-diluted basis, provided that the number of common shares issued or issuable under the combined Share Unit Plan and Stock Option Plan (Note 8(b)) shall not exceed 5% of the issued and outstanding common shares on a non-diluted basis. RSUs and PSUs granted under the Share Unit Plan have a term of 5 years unless otherwise specified by the Board, and each unit entitles the participant to receive one common share of the Company subject to vesting criteria, and in the case of PSUs, performance criteria which may also impact the number of PSUs to vest between 0-200%. PSUs for which the performance targets are not achieved during the performance period are automatically forfeited and cancelled.

 

During the nine months ended September 30, 2023, 56,425 RSUs were granted (nine months ended September 30, 2022: 80,535) under the Company’s Share Unit Plan with 18,800 vesting in 12 months, 18,810 vesting in 24 months and another 18,815 vesting in 36 months. The RSUs had a weighted average grant date fair value of $12.13 per RSU (nine months ended September 30, 2022: $14.67) as determined using the fair market value of the common shares on the date of grant.

 

During the nine months ended September 30, 2023, 156,861 PSUs were granted (nine months ended September 30, 2022: 79,156) under the Company’s Share Unit Plan with a five-year term. Of the grant, 117,646 PSUs vest upon the achievement of specified performance targets over a three-year performance period. The remainder of the grant, 39,215 PSUs are subject to a market share price performance factor measured over a three-year performance period, resulting in a PSU payout range from 0% (0 PSUs) to 200% (78,430 PSUs). The PSUs had a weighted average grant date fair value of $12.13 per PSU (nine months ended September 30, 2022: $16.15).

 

  20

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

The three-year performance period for the February 2020 PSU grant ended in February 2023 and resulted in a PSU vesting of 86.3% of target or 72,437 PSUs. Consequently, 11,503 PSUs did not vest and were cancelled.

 

As at September 30, 2023, there were 323,986 PSUs and 114,102 RSUs issued and outstanding (December 31, 2022: 231,254 and 101,059 respectively) under the Share Unit Plan, of which 28,525 PSUs and 25,215 RSUs had vested (December 31, 2022: 23,400 PSUs and 16,415 RSUs) and are convertible into common shares of the Company. Included in the PSUs at September 30, 2023 are 78,314 PSUs with vesting conditions subject to a market share price performance factor measured over a three-year period, resulting in a PSU target vesting range from 0-50% (19,459 PSUs) to 150-200% (136,805 PSUs).

 

During the nine months ended September 30, 2023, the Company recognized a share-based payment expense of $1,142 (nine months ended September 30, 2022: $990) relating to RSUs and PSUs of which $168 (nine months ended September 30, 2022: nil) was capitalized to exploration and evaluation assets.

 

(d)Deferred share units

 

On June 26, 2023, the Shareholders re-approved a Deferred Share Unit Plan (the “DSU Plan”) for the benefit of the Company’s non-executive directors. The DSU Plan provides for the issuance of common shares from treasury, on conversion of Deferred Share Units (“DSUs”) granted. Directors may also elect to receive all or a portion of their annual retainer in the form of DSUs. DSUs may be settled in cash or in common shares issued from treasury, as determined by the Board at the time of the grant. The maximum number of common shares that may be issuable under the DSU Plan is set at 1.0% of the number of issued and outstanding common shares on a non-diluted basis.

 

During the nine months ended September 30, 2023, 51,849 DSUs were granted under the plan and 5,554 DSUs were granted to directors who elected to receive a portion of their annual retainer in DSUs rather than in cash (nine months ended September 30, 2022: 20,015 and 3,607 respectively). A DSU share-based payment expense of $649 was recorded in the nine months ended September 30, 2023 (nine months ended September 30, 2022: $299). Under the DSU plan, no common shares are to be issued, or cash payments made to, or in respect of a participant in the DSU Plan prior to such eligible participant’s termination date. During the nine months ended September 30, 2023, no DSUs (nine months ended September 30, 2022: 25,000) were converted and settled in common shares. As at September 30, 2023, there are 477,518 DSUs (December 31, 2022: 420,115) issued and outstanding under the DSU Plan, all of which have vested.

 

As at September 30, 2023, assuming 100% of the PSU’s vest, there are 2,123,982 common shares (December 31, 2022: 1,765,222) issuable under the combined share compensation arrangements referred to above (the Plan, the Share Unit Plan and the DSU Plan) representing 2.06% (December 31, 2022: 1.78%) of the issued and outstanding common shares on a non-diluted basis, and there are 6,176,916 (December 31, 2022: 4,172,186) share-based awards available for grant under these combined share compensation arrangements.

 

  21

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

(e)Replacement warrants

 

In 2022, the Company issued 53,508 replacement warrants pursuant to the Gatling acquisition (Note 3), of which as at December 31, 2022, 34,418 replacement warrants had expired unexercised. During the three and nine months ending September 30, 2023, all of the remaining 19,090 replacement warrants expired unexercised.

 

 

9.Flow-Through PRemium Liability

 

As at September 30, 2023, the Company has a flow-through share premium liability of $2,357 (December 31, 2022: nil) in relation to the flow-through share financing completed on February 16, 2023 (see Note 8(a) for full details of the financings). Flow-through shares are issued at a premium, and in the Company’s case, considering the separate offerings for flow-through shares and standard public offering for common shares both made on January 25, 2023, this premium has been calculated as the difference between the pricing of a flow-through share and that of a common share from the public offering made on the same date. Tax deductions generated by the eligible expenditures are passed through to the shareholders of the flow-through shares once the eligible expenditures are incurred and renounced. Below is a summary of the flow-through financing and the related flow-through share premium liability generated.

 

   Shares issued   Flow-through   Premium per flow   Flow-through 
       share price   through share price   premium liability 
       $   $   $ 
February 2023
Financing
   969,450    17.67    3.08    2,986 

 

 

The following table is a continuity of the flow-through share funding and expenditures along with the corresponding impact on the flow-through share premium liability:

 

   Flow-through funding
and expenditures
   Flow-through
premium liability
 
   $   $ 
Balance at January 1, 2023   -    - 
Flow-through funds raised   17,133    2,986 
Flow-through eligible expenditures   (3,609)   (629)
           
Balance at September 30, 2023   13,524    2,357 

 

 

  22

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

10.Capital risk management

 

The Company’s objectives in managing its liquidity and capital are to safeguard the Company’s ability to continue as a going concern and to provide financial capacity to meet its strategic objectives. The capital structure of the Company consists of its equity (comprised of share capital, equity reserve, accumulated other comprehensive income and deficit) and lease obligation, net of cash and investments in equity securities as follows:

 

   September 30,   December 31, 
   2023   2022 
   $   $ 
Equity   490,570    401,696 
Lease obligation   168    261 
Cash   (58,519)   (29,955)
Investments   (7)   (11)
Total   432,212    371,991 

 

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue debt and/or acquire or dispose of assets.

 

In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual budgets and any amendments thereto are approved by the Board of Directors. The Company currently does not pay out dividends.

 

The Company has working capital of $55,088 as at September 30, 2023 (December 31, 2022: $29,232). The Company may require additional capital in the future to meet its future project and other related expenditures (Notes 6 and 7). Future liquidity may depend upon the Company’s ability to arrange debt or additional equity financings.

 

As at September 30, 2023, the Company does not have any drawn long-term debt and is not subject to any externally imposed capital requirements.

 

11.Financial risk management

 

The Company’s operations consist of the acquisition, exploration and advancement of mineral projects in the Americas. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurrence. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and other price risks. Where material, these risks are reviewed and monitored by the Board of Directors.

 

  23

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

(a)Market risk

 

The Company conducts the majority of its business through its equity interest in its associates, Juanicipio (Note 6). Juanicipio is exposed to commodity price risk, specifically to the prices of silver, gold, and to a lesser extent, lead and zinc. Currently, Juanicipio produces and sells concentrates containing these metals which are each subject to market price fluctuations which will affect its profitability and its ability to generate cash flow. Juanicipio does not hedge any of the commodities produced and does not have any such positions outstanding at September 30, 2023.

 

(b)Credit risk

 

Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the Company by those counterparties, less any amounts owed to the counterparty by the Company where a legal right of set-off exists and also includes the fair values of contracts with individual counterparties which are recorded in the financial statements.

 

(i)Trade credit risk

Juanicipio, in which the Company has a 44% interest, has revenue from its operations as described in Note 6. Juanicipio sells and receives payment for its concentrates at market terms, under an offtake agreement with Met-Mex Peñoles, S.A. de C.V. (“Met-Mex”), a related party to Fresnillo. The Company believes Juanicipio is not exposed to significant trade credit risk.

 

(ii)Cash

In order to manage credit and liquidity risk, the Company’s practice is to invest only in highly rated investment grade instruments backed by Canadian commercial banks, and in the case of its Mexican and US operations, the Company maintains minimal cash in its US and Mexican subsidiaries.

 

(iii)Mexican value added tax

As at September 30, 2023, the Company had a net receivable of $3 (Note 5) for value added tax. As at September 30, 2023, Juanicipio, in which the Company has a 44% interest, had a receivable of $11,456 from the Mexican government for value added tax (Note 6) (MAG’s attributable portion $5,041). Management expects the balances to be fully recoverable by both entities.

 

  24

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

The Company’s maximum exposure to credit risk is the carrying value of its cash, accounts receivable and loans receivable from Juanicipio which is classified as an Investment in Juanicipio in the condensed interim consolidated statements of financial position, as follows:

 

   September 30,   December 31, 
   2023   2022 
   $   $ 
Cash   58,519    29,955 
Accounts receivable (Note 5)   1,014    708 
Juanicipio loans (Notes 6 & 14) (1)   111,328    104,653 
    170,861    135,316 

 

(1) The expected credit losses take into account future information of the credit worthiness of Juanicipio and are not considered significant.

 

(c)Liquidity risk

 

The Company has a planning and budgeting process in place to help determine the funds required to support the Company's normal operating requirements, its exploration and mineral projects advancement plans, and its various optional property and other commitments (Notes 6, 7 and 15). The annual budget is approved by the Board of Directors. The Company ensures that there are sufficient cash balances to meet its short-term business requirements.

 

On October 4, 2023 the Company executed definitive documentation for a $40,000 senior secured revolving credit facility with the Bank of Montreal (see Note 16 “Subsequent Events”).

 

The Company's overall liquidity risk has not changed significantly from December 31, 2022. Future liquidity may therefore depend upon the Company’s ability to repatriate capital from Juanicipio, arrange debt or additional equity financing.

 

(d)Currency risk

 

The Company is exposed to the financial risks related to the fluctuation of foreign exchange rates, both in the Mexican peso and C$, relative to the US$. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign exchange rates.

 

 

  25

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

Exposure to currency risk

 

As at September 30, 2023, the Company is exposed to currency risk through the following assets and liabilities denominated in currencies other than the functional currency of the applicable entity:

 

   Mexican peso   Canadian dollar 
(in US$ equivalent)  $   $ 
         
Cash   69    7,823 
Accounts receivable   107    365 
Investments   -    7 
Accounts payable   (189)   (3,063)
Lease obligations   -    (169)
Net (liabilities) assets exposure   (13)   4,963 

 

Mexican peso relative to the US$

 

Although the majority of operating expenses in Mexico are both determined and denominated in US$, an appreciation in the Mexican peso relative to the US$ will slightly increase the Company’s cost of operations in Mexico (reported in US$) related to those operating costs denominated and determined in Mexican pesos. Alternatively, a depreciation in the Mexican peso relative to the US$ will decrease the Company’s cost of operations in Mexico (reported in US$) related to those operating costs denominated and determined in Mexican pesos.

 

An appreciation/depreciation in the Mexican peso against the US$ will also result in a gain/loss before tax and deferred tax to the extent that the Company holds net monetary assets (liabilities) in pesos. Specifically, the Company's foreign currency exposure is comprised of peso denominated cash, prepaids and value added taxes receivable, net of trade and other payables. The carrying amount of the Company’s net peso denominated monetary liabilities at September 30, 2023 is 245 thousand pesos (September 30, 2022: 1.8 million pesos). A 10% appreciation or depreciation in the peso against the US$ would have an immaterial effect on the Company’s income (loss) before tax.

 

Mexican peso relative to the US$ - Investment in Juanicipio

 

The Company conducts the majority of its business through its equity interest in its associates (Note 6). The Company accounts for this investment using the equity method and recognizes the Company's 44% share of earnings and losses of Juanicipio. Juanicipio also has a US$ functional currency and is exposed to the same currency risks noted above for the Company.

 

An appreciation/depreciation in the Mexican peso against the US$ will also result in a gain/loss before tax and deferred taxes (Note 6) in Juanicipio to the extent that it holds net monetary assets (liabilities) in pesos, comprised of peso denominated cash, value added taxes receivable, net of trade and other payables. The carrying amount of Juanicipio’s net peso denominated monetary liabilities at September 30, 2023 is 220.6 million pesos (September 30, 2022: 287.6 million). A 10% appreciation in the peso against the US$ would result in a loss before tax at September 30, 2023 of $1,391 (September 30, 2022: $1,583) in Juanicipio, of which the Company would record its 44% share being $612 loss from equity investment in Juanicipio (September 30, 2022: $696 loss), while a 10% depreciation in the peso relative to the US$ would result in an equivalent gain.

 

  26

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

C$ relative to the US$

 

The Company is exposed to gains and losses from fluctuations in the C$ relative to the US$.

 

As general and administrative overheads in Canada are predominantly denominated in C$, an appreciation in the C$ relative to the US$ will increase the Company’s overhead costs as reported in US$. Alternatively, a depreciation in the C$ relative to the US$ will decrease the Company’s overhead costs as reported in US$.

 

An appreciation/depreciation in the C$ against the US$ will result in a gain/loss to the extent that MAG, the parent entity, and the Larder Project holds net monetary assets (liabilities) in C$. The carrying amount of the Company’s net Canadian denominated monetary assets at September 30, 2023 is C$6.7 million (September 30, 2022: C$153 thousand). A 10% appreciation or depreciation in the C$ against the US$ would have a $506 effect on the Company’s income (loss) before tax.

 

(e)Interest rate risk

 

The Company’s interest income earned on cash is exposed to interest rate risk. A decrease in interest rates would result in lower relative interest income and an increase in interest rates would result in higher relative interest income.

 

 

12.FINANCIAL INSTRUMENTS AND FAIR VALUE DISCLOSURES

 

The Company’s financial instruments include cash, accounts receivable, investments, and trade and other payables. The carrying values of cash, accounts receivable, and trade and other payables reported in the consolidated statement of financial position approximate their respective fair values due to the relatively short-term nature of these instruments.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value as described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

 

 

 

  27

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

Level 2: Observable inputs other than quoted prices in Level 1 such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Unobservable inputs which are supported by little or no market activity.

 

The Company’s financial assets or liabilities as measured in accordance with the fair value hierarchy described above are:

 

As at September 30, 2023  Level 1   Level 2   Level 3   Total 
   $   $   $   $ 
Investments(1)   7    -    -    7 

 

                 
As at December 31, 2022  Level 1   Level 2   Level 3   Total 
    $    $    $    $ 
Investments(1)   11    -    -    11 

 

(1) The fair value of equity securities quoted in active markets, is determined based on a market approach reflecting the closing price of each particular security as at the statement of financial position date. The closing price is a quoted market price obtained from the exchange that is the principal active market for the particular security, and therefore equity securities are classified within Level 1 of the fair value hierarchy.

 

There were no transfers between levels 1, 2 and 3 during the nine months ended September 30, 2023 or during the year ended December 31, 2022.

 

13.SEGMENTED INFORMATION

 

The Company operates in one operating segment, being the exploration and advancement of mineral projects in North America. The Company’s principal asset, its 44% ownership in the Juanicipio Mine, is located in Mexico, and the Company also has other exploration properties in North America. The Company’s executive and head office is located in Canada.

 

14.RELATED PARTY TRANSACTIONS

 

The Company does not have offices or direct personnel in Mexico, but rather is party to a Field Services Agreement, whereby it has contracted administrative and exploration services in Mexico with Minera Cascabel, S.A. de C.V. (“Cascabel”) and IMDEX Inc. (“IMDEX”). Dr. Peter Megaw, the Company’s Chief Exploration Officer, is a principal of both IMDEX and Cascabel, and is remunerated by the Company through fees to IMDEX. In addition to corporate executive responsibilities with MAG, Dr. Megaw is responsible for the planning, execution and assessment of the Company’s exploration programs, and he and his team developed the geologic concepts and directed the acquisition and discovery of the Juanicipio property.

 

  28

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

During the three and nine months ended September 30, 2023 and 2022, the Company incurred expenses with Cascabel and IMDEX as follows:

 

   Three months ended   Nine months ended 
   Sept 30,   June 30,   Sept 30,   Sept 30, 
   2023   2022   2023   2022 
    $    $    $    $ 
                     
Fees related to Dr. Megaw:                    
Exploration and marketing services   53    105    190    237 
Travel and expenses   5    15    34    30 
Other fees to Cascabel and IMDEX:                    
Administration for Mexican subsidiaries   11    13    38    40 
Field exploration services   40    38    118    126 
Share-based payments (non-cash)   121    115    356    325 
    230    286    737    758 

 

All transactions are incurred in the normal course of business and are negotiated on arm’s length terms between the parties for all services rendered. A portion of the expenditures are incurred on the Company’s behalf and are charged to the Company on a “cost + 10%” basis. The services provided do not include drilling and assay work which are contracted out independently from Cascabel and IMDEX. Included in trade and other payables at September 30, 2023 is $57 related to these services (December 31, 2022: $104).

 

Any amounts due to related parties arising from the above transactions are unsecured, non-interest bearing and are due upon receipt of invoices.

 

The details of the Company’s significant subsidiary and controlling ownership interests are as follows:

 

Name  Country of  Principal  MAG's effective interest 
   Incorporation  Asset  2023(%)   2022(%) 
                 
Minera Los Lagartos, S.A. de C.V.  Mexico  Juanicipio (44%)   100%   100%

 

Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.

 

As at September 30, 2023, Fresnillo and the Company have advanced $253,027 as shareholder loans (MAG’s 44% share $111,328) to Juanicipio, bearing interest at 1 and 6 months SOFR + 2%. From January 2022, with the mine being brought into commercial production, a portion of the interest incurred by Juanicipio was expensed whereas the remainder, pertaining to the processing facility, continued to be capitalized. Capitalized interest net of recontributions in 2022 of $1,336 was applied to MAG’s Investment in Juanicipio account reducing its balance as an eliminating related party entry. From January 2023, with the commencement of commissioning of the processing facility at Juanicipio, all of the interest is expensed. Interest recorded by Juanicipio for the nine months ended September 30, 2023 totalling $6,122 (year ended December 31, 2022: $1,058) has therefore been included in MAG’s income from equity investment in Juanicipio.

 

  29

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

During the three and nine months ended September 30, 2023 and 2022, compensation of key management personnel (including directors) was as follows:

 

       Three months ended       Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
   $   $   $   $ 
Salaries and other short term employee benefits   376    389    1,581    1,217 
Severance paid to a former executive   -    -    -    382 
Share-based payments (non-cash) (Note 8)   605    571    1,963    1,174 
    981    960    3,544    2,773 

 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, and consists of its directors, the Chief Executive Officer, the Chief Financial Officer and the Chief Sustainability Officer.

 

 

15.COMMITMENTS AND CONTINGENCIES

 

The following table discloses the contractual obligations of the Company and its subsidiaries as at September 30, 2023 for committed exploration work and committed other obligations.

 

   Total   Less than
1 year
   1-3 Years   3-5 Years   More than
5 years
 
   $   $   $   $   $ 
                     
Minera Juanicipio (1)&(2)   -    -    -    -    - 
                          
Consulting contract commitments   471    294    177    -    - 
Total Obligations and Commitments (3)   471    294    177    -    - 

 

 (1)Although the Company makes cash advances to Juanicipio as cash is called by the operator Fresnillo (based on approved budgets), they are not contractual obligations. The Company intends, however, to continue to fund its share of cash calls and avoid dilution of its ownership interest in Juanicipio.

 

 (2)According to the operator, Fresnillo, contractual commitments including project development and for continuing operations and purchase orders issued for project capital, sustaining capital, and continuing operations total $17,833 (December 31, 2022: $47,809), with respect to Juanicipio on a 100% basis as at September 30, 2023.

 

  30

 

 

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2023

(Expressed in thousands of US dollars unless otherwise stated - Unaudited)

 

 (3)The Company also has discretionary commitments for property option payments and exploration expenditures as outlined above in Note 7 Exploration and Evaluation Assets. There is no obligation to make any of those payments or to conduct any work on its optioned properties. As the Company advances them, it evaluates exploration results and determines at its own discretion which option payments to make and which additional exploration work to undertake in order to comply with the funding requirements.

 

The concessions associated with the Larder Project are all in good standing with various underlying obligations or royalties ranging from nil-2% NSRs associated with various mineral claims, and various payments upon a production announcement.

 

The Company is obligated to a 2.5% NSR royalty on the Cinco de Mayo property.

 

The Company could be subject to various investigations, claims and legal and tax proceedings covering matters that arise in the ordinary course of business activities. Each of these matters would be subject to various uncertainties and it is possible that some matters may be resolved unfavourably to the Company. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company is not aware of any such claims or investigations, and as such has not recorded any related provisions and does not expect such matters to result in a material impact on the results of operations, cash flows and financial position.

 

 

16.SUBSEQUENT EVENTS

 

On October 4, 2023 the Company executed definitive documentation for a $40,000 senior secured revolving credit facility with the Bank of Montreal. There is a provision for an accordion feature whereby, upon request, the facility may be increased to $75,000 any time prior to the maturity date, at the discretion of the lender. The credit facility will bear interest on a sliding scale of SOFR or the lenders Base Rate on US Dollar commercial loans plus an applicable margin on a sliding scale of between 200 and 400 basis points based on the Company’s leverage ratio. Commitment fees on the undrawn portion of the facility are calculated on a similar sliding scale of between 50 and 75 basis points. The term of the facility is 34 months, maturing on August 4, 2026. All debts, liabilities and obligations under the facility are guaranteed by the Company's material subsidiaries and secured by assets of the Company including the pledge of a material subsidiary. The facility includes a number of customary covenants (liquidity, leverage, tangible net worth) and conditions including limitations on acquisitions and investments (excluding exploration and capital expenditures) funded using cash with no limitations when equity is used as a funding source.

 

 

 

 

31

 

 

Exhibit 99.2

 

 

 

 

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Table of Contents

 

 

1. INTRODUCTION 3
2. DESCRIPTION OF BUSINESS 3
3. HIGHLIGHTS – SEPTEMBER 30, 2023 & SUBSEQUENT TO THE QUARTER END 4
4. RESULTS OF JUANICIPIO 6
5. DEER TRAIL PROJECT 12
6. LARDER PROJECT 15
7. OUTLOOK 17
8. REVIEW OF FINANCIAL RESULTS 18
9. FINANCIAL POSITION 22
10. CASH FLOWS 24
11. SUMMARY OF QUARTERLY RESULTS 25
12. NON-IFRS MEASURES 26
13. LIQUIDITY AND CAPITAL RESOURCES 31
14. CONTRACTUAL OBLIGATIONS 34
15. SHARE CAPITAL INFORMATION 35
16. OTHER ITEMS 35
17. TREND INFORMATION 36
18. RISKS AND UNCERTAINTIES 37
19. OFF-BALANCE SHEET ARRANGEMENTS 38
20. RELATED PARTY TRANSACTIONS 38
21. CRITICAL ACCOUNTING JUDGMENTS, SIGNIFICANT ESTIMATES AND ASSUMPTIONS 40
22. CHANGES IN ACCOUNTING STANDARDS 41
23. CONTROLS AND PROCEDURES 41
24. ADDITIONAL INFORMATION 42
25. CAUTIONARY STATEMENTS 42

 

 

 

 

 

 2

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

1. INTRODUCTION

 

The following Management’s Discussion and Analysis (“MD&A”) focuses on the financial condition and results of operations of MAG Silver Corp. (“MAG”, “MAG Silver” or the “Company”) for the three and nine months ended September 30, 2023 (“Q3 2023”). It is prepared as of November 9, 2023 and should be read in conjunction with the unaudited condensed interim consolidated financial statements of the Company for the three and nine months ended September 30, 2023 together with the notes thereto which are available on the Canadian Securities Administrator’s System for Electronic Data Analysis and Retrieval + (“SEDAR+”) at www.sedarplus.ca and on the U.S. Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.

 

All dollar amounts referred to in this MD&A are expressed in thousands of United States dollars (“US$”) unless otherwise stated; references to C$ refer to Canadian dollars. The functional currency of the parent, its subsidiaries and its investment in Juanicipio (as defined herein), is the US$.

 

The common shares of the Company trade on the Toronto Stock Exchange and on the NYSE American, LLC both under the ticker symbol MAG. MAG Silver is a reporting issuer in each of the provinces and territories of Canada and is a reporting “foreign issuer” in the United States of America.

 

Forward-Looking Statements and Risk Factors

 

This MD&A contains forward-looking statements (as defined herein) which should be read in conjunction with the risk factors described in section “Risks and Uncertainties” and the cautionary statements provided in section “Cautionary Statements” at the end of this MD&A.

 

Qualified Person

 

Unless otherwise specifically noted herein, all scientific or technical information in this MD&A, including assay results and Mineral Resource estimates, if applicable, is based upon information prepared by or under the supervision of, or has been approved by Dr. Peter Megaw, Ph.D., C.P.G., a Certified Professional Geologist who is a “Qualified Person” for purposes of National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”). Dr. Megaw is not independent as he is an officer and a paid consultant of MAG Silver (see ‘Related Party Transactions’ below).

 

2. DESCRIPTION OF BUSINESS

 

MAG Silver Corp. is a growth-oriented Canadian exploration company focused on advancing high-grade, district scale precious metals projects in the Americas. MAG is emerging as a top-tier primary silver mining company through its (44%) investment in the 4,000 tonnes per day (“tpd”) Juanicipio Mine, operated by Fresnillo plc (“Fresnillo”) (56%). The mine is located in the Fresnillo Silver Trend in Mexico, the world's premier silver mining camp, where in addition to underground mine production and processing of high-grade mineralized material, an expanded exploration program is in place targeting multiple highly prospective targets. MAG is also executing multi-phase exploration programs at the Deer Trail 100% earn-in Project in Utah and the 100% owned Larder Project, located in the historically prolific Abitibi region of Canada.

 

 3

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

3. HIGHLIGHTS – SEPTEMBER 30, 2023 & SUBSEQUENT TO THE QUARTER END

 

KEY HIGHLIGHTS (on a 100% basis unless otherwise noted)

 

ü Following a successful commissioning and ramp-up period, the Juanicipio processing facility has achieved nameplate capacity during September 2023 with silver recovery consistently above 88% marking a step change in performance relative to the comparative quarter and a successful transition to a fully independent producer.

 

ü A total of 322,249 and 921,990 tonnes of mineralized material were processed across the Juanicipio and Saucito plants during the three and nine months ended September 30, 2023, respectively. 92% of all material processed in Q3 was processed through the Juanicipio plant.

 

ü Average head grade for the three and nine months ended September 30, 2023 was 523 and 474 grams per tonne (“g/t”) yielding silver production of 4.78 million and 12.29 million ounces, respectively.

 

ü Juanicipio delivered robust cost performance with cash cost1 of $4.68 per silver ounce sold and all-in sustaining cost1 of $9.19 per silver ounce sold in Q3.

 

ü Juanicipio generated strong operating cash flow of $57,346 and free cash flow1 of $40,649 in Q3.

 

ü At the end of the quarter, Juanicipio held cash balances of $23,434, representing an increase of $14,895 over the second quarter, mainly as a result of strong operating cash flows driven by the mine reaching its intended production levels.

 

ü Juanicipio returned a total of $11,295 in interest and loan principal repayments to MAG during Q3.

 

ü MAG concluded a $40,000 senior secured revolving Credit Facility (as defined herein) with the Bank of Montreal on October 4, 2023.

 

ü As Juanicipio ramped up its operations and transitioned to full capacity, there was a progressive reduction of Juanicipio’s reliance on the nearby Fresnillo and Saucito plants (100% owned by Fresnillo). Notably, no feed was supplied to these plants in both August and September. This transition had a direct impact on total milling and, consequently, overall production for the quarter. Positively, this was partially offset by higher grade feed and continued efforts to optimize the Juanicipio plant as it ramped up to full capacity.

 

ü Effective June 20, 2023, MAG was included in the NYSE Arca Gold Miners Index which is tracked by the VanEck Vectors Gold Miners ETF.

 

 

_________________________

1 Total cash costs, cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce and free cash flow are non-IFRS measures, please refer to “Non-IFRS Measures” section of this MD&A for a detailed reconciliation of these measures to the Q3 2023 Financial Statements.

 

 4

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

ü MAG reported net income of $8,862 ($0.09 per share) and Adjusted EBITDA1 of $29,920 for the three months ended September 30, 2023.

 

ü MAG reported net income of $32,965 ($0.32 per share) and Adjusted EBITDA1 of $67,693 for the nine months ended September 30, 2023.

 

CORPORATE

 

ü In September the Company published its second annual Sustainability Report underscoring its commitment to transparency with its stakeholders while providing a comprehensive overview of the Company’s environmental, social and governance (“ESG”) commitments, practices and performance for the 2022 year. The 2022 Sustainability report is supported by the MAG Silver 2022 ESG Data Table which discloses MAG’s historical ESG performance data. MAG’s 2022 Sustainability report and ESG Data Table are available on the Company’s website at https://magsilver.com/esg/reports/.

 

EXPLORATION

 

ü Juanicipio:

 

· Infill drilling at Juanicipio continued in Q3 2023, with one rig on surface and one underground with the goal of upgrading and expanding the Valdecañas Vein system at depth and further defining areas to be mined in the near to mid term. During the quarter, 3,349 metres (nine months ended September 30, 2023, 13,273 metres) and 4,874 metres, (nine months ended September 30, 2023, 15,329 metres) were drilled from surface and underground respectively. The 2023 surface drilling program was completed during Q3 with results pending.

 

ü Deer Trail Project, Utah:

 

· Results from the 12,157 metres in surface-based Phase 2 drilling on the Deer Trail Carbonate Replacement Deposit (“CRD”) project were reported on January 17 and August 3, 2023 (see News Releases under the Company’s SEDAR+ profile at www.sedarplus.ca).

 

· On May 29, 2023 MAG started a Phase 3 drilling program focused on up to three porphyry “hub” targets thought to be the source of the manto, skarn and epithermal mineralization and extensive alteration throughout the project area including that at Deer Trail and Carissa. During Q3 2023, 1,994 metres were drilled at high elevation with results pending. An early onset of winter snowfall impacted the commencement of the third porphyry “hub” target which will be drilled next season and drilling has shifted to offset the Carissa discovery and test other high-potential targets.

 

ü Larder Project, Ontario:

 

· After completing the 2023 initial drilling campaign, the geological team embarked on a comprehensive property-wide data re-evaluation which included review of all historic drilling, selective relogging, re-assaying all available pulps with 4-acid digestion, additional geophysics, field mapping and sampling. These datasets were used to build a unified project model which will be systematically reinterpreted with additional information from future drill programs. Multiple well-defined high-priority drill targets are currently being tested by multiple rigs which are expected to be turning over the next eighteen months.

 

__________________________

1 Adjusted EBITDA is a non-IFRS measure, please refer to “Non-IFRS Measures” section of this MD&A for a detailed reconciliation of this measure to the Q3 2023 Financial Statements.

 

 5

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

· On July 12, 2023 drilling resumed at the Larder Project to test additional targets by the end of the year on the Cheminis and Bear areas. During Q3 2023 4,594 metres were drilled at Cheminis. A minimum of 17,000 metres of drilling is planned.

 

4. RESULTS OF JUANICIPIO

 

MAG owns 44% of Minera Juanicipio, S.A. de C.V.(“Minera Juanicipio”), a company incorporated under the laws of Mexico, which owns Juanicipio. Fresnillo is the project operator and holds the remaining 56%. On December 27, 2021, for various business reasons, the Company and Fresnillo incorporated Equipos Chaparral, S.A. de C.V. (“Equipos Chaparral”) in the same ownership proportions as Minera Juanicipio for the purpose of holding the Juanicipio plant and mining equipment to be leased to Minera Juanicipio. Minera Juanicipio and Equipos Chaparral, are collectively referred to herein as “Juanicipio” or the “Juanicipio Mine”.

 

All results of Juanicipio in this section are on a 100% basis, unless otherwise noted. The Company’s attributable equity interest in Juanicipio is 44%. As Q3 2023 is the first full quarter of commercial production, comparative information presented below together with associated per unit values, where applicable, are not directly comparable.

 

Operating Performance

 

The following table and subsequent discussion provide a summary of the operating performance of Juanicipio for the three and nine months ended September 30, 2023 and 2022, unless otherwise noted.

 

Key mine performance data of Juanicipio (100% basis)  Three months ended   Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
                 
Metres developed (m)   4,105    3,276    10,989    10,082 
                     
Material mined (t)   313,139    225,385    824,721    583,820 
Material processed (t)   322,249    180,808    921,990    480,362 
                     
Silver head grade (g/t)   523    513    474    556 
Gold head grade (g/t)   1.32    1.22    1.23    1.42 
Lead head grade (%)   1.33%   0.93%   1.07%   0.93%
Zinc head grade (%)   2.25%   1.81%   1.92%   1.76%
                     
Silver payable ounces (koz)   4,289    2,425    11,167    6,872 
Gold payable ounces (koz)   7.76    4.90    22.59    15.36 
Lead payable pounds (klb)   7,690    2,969    17,274    7,560 
Zinc payable pounds (klb)   9,595    4,494    23,348    11,211 

 

 6

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

a) Health and Safety

 

As reported by the operator, Fresnillo, there were zero fatalities during the three and nine months ended September 30, 2023.

 

During the three and nine months ended September 30, 2023, the Total Reportable Injury Frequency Rate (“TRIFR”, which includes the Lost Time Injury and medical treatment or first aid cases reported per 1,000,000 hours worked) was 17.3 and 17.9 respectively (three and nine months ended September 30, 2022: 12.2 and 15.4 respectively) and the Total Lost Time Injury Frequency Rate (“LTIFR”) was 9.9 and 11.3 respectively (three and nine months ended September 30, 2022: 6.1 and 7.2 respectively). On September 30, 2023 the 12 month rolling TRIFR and LTIFR were 17.3 and 10.6 respectively.

 

On September 30, 2023 there were 2,030 employees and contractors working at Juanicipio (521 employees and 1,509 contractors), for total hours worked of 1,214,200 and 3,525,400, for the three and nine months ending September 30, 2023, respectively.

 

b) Mining

 

During the three and nine months ended September 30, 2023 a total of 313,139 and 824,721 tonnes of mineralized material were mined, respectively. This represents an increase of 39% over Q3 2022 and an increase of 41% over the nine months ended September 30, 2022. Increases in mined tonnages at Juanicipio have been driven by the operational ramp up of the milling facility.

 

Due to the poor rock quality on the western section of the upper Valdecañas Vein, cut and fill has been chosen as the mining method for the higher levels in this section. Several longhole stopes have been in operation for the past year, and this is the preferred mining method through the main central section and eastern side of the Valdecañas Vein, and ultimately the west side as well, once ground conditions improve with depth.

 

c) Processing

 

During the three and nine months ended September 30, 2023 a total of 322,249 and 921,990 tonnes of mineralized material were processed through the Juanicipio, Saucito and Fresnillo plants. This represents an increase of 78% over Q3 2022 and an increase of 92% over the nine months ended September 30, 2022. The increase in milled tonnage has been driven by the Juanicipio mill commissioning and operational ramp up. As reported by the operator, Fresnillo, the Juanicipio processing facility has achieved nameplate capacity of 4,000 tpd during September 2023 with silver recovery consistently above 88%. During Q3 2023, 92% of all material was processed through the Juanicipio processing facility.

 

The average silver head grade for the mineralized material processed in the three and nine months ended September 30, 2023 was 523 g/t and 474 g/t respectively (three and nine months ended September 30, 2022: 513 g/t and 556 g/t, respectively). The lower head grade in the nine months ended September 30, 2023 was the result of processing of lower grade stockpiles which were earmarked for the commissioning and ramp-up phase of the Juanicipio processing facility.

 

 7

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

d) Underground Development

 

Total underground development to September 30, 2023 is approximately 71 km (44 miles), including 4.11 km (2.55 miles) and 11 km (6.83 miles) completed during the three and nine months ended September 30, 2023, respectively. Underground mine infrastructure is well advanced and development continues to focus on:

 

· advancing the three internal spiral footwall ramps to be used to further access the full strike length of the Valdecañas Vein System;
· making additional cross-cuts through the vein and establishing the initial mining stopes; and
· integrating additional ventilation and other associated underground infrastructure.

 

e) Total cash costs and AISC

 

The following table provides a summary of the total cash costs1 and all-in-sustaining costs1 (“AISC”) of Juanicipio for the three and nine months ended September 30, 2023, and 2022.

 

Key mine performance data of Juanicipio (100% basis)  Three months ended   Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
                 
Total operating cash costs (1)   18,432    13,987    73,900    27,768 
Operating cash cost per silver ounce sold ($/oz)   4.30    5.77    6.62    4.04 
                     
Total cash costs (1)   20,067    14,050    77,431    28,044 
Cash cost per silver ounce sold ($/oz)   4.68    5.79    6.93    4.08 
                     
All-in sustaining costs (1)   39,411    23,281    120,111    51,942 
All-in sustaining cost per silver ounce sold ($/oz)   9.19    9.60    10.76    7.56 

 

f) Exploration Update

 

The Q3 2023 Juanicipio exploration program expenditures totalled $2,059 (nine months ended September 30, 2023: $6,121), for drilling designed to expand and convert the Inferred Mineral Resources included in the Deep Zone into Indicated Mineral Resources and to explore other parts of the Juanicipio concession. During the quarter, 3,349 metres (nine months ending September 30, 2023: 13,273 metres) and 4,874 metres, (nine months ending September 30, 2023: 15,329 metres) were drilled from surface and underground respectively. The 2023 surface drill program was completed during Q3 2023. Drilling focused on infilling the Valdecañas Vein System including the Anticipada, Pre-Anticipada and Venadas structures.

 

 _________________________

1 Total operating cash costs, operating cash cost per ounce, total cash costs, cash cost per ounce, all-in sustaining costs, and all-in sustaining cost per ounce are non-IFRS measures, please refer to “Non-IFRS Measures” section of this MD&A for a detailed reconciliation of these measures to the Q3 2023 Financial Statements.

 

 8

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Financial Results

 

The following table presents excerpts of the financial results of Juanicipio for the three and nine months ended September 30, 2023 and 2022. 

 

   Three months ended   Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
    $    $    $    $ 
Sales   125,046    49,715    311,303    169,855 
Cost of sales:                    
Production cost   (43,782)   (18,127)   (125,731)   (46,108)
Depreciation and amortization   (21,646)   (6,376)   (47,001)   (15,052)
Gross profit   59,618    25,212    138,571    108,695 
Consulting and administrative expenses   (3,458)   (1,192)   (9,115)   (4,100)
Extraordinary mining and other duties   (1,635)   (64)   (3,532)   (276)
Interest expenses   (5,214)   (369)   (13,915)   (1,109)
Exchange gains (losses) and other   420    1,953    (2,414)   1,895 
Net income before tax   49,731    25,540    109,595    105,105 
Income tax (expense) benefit   (23,824)   825    (23,441)   (20,101)
Net income (100% basis)   25,907    26,365    86,154    85,004 
MAG’s 44% portion of net income     11,399    11,601    37,908    37,402 
Interest on Juanicipio loans - MAG's 44%   2,293    180    6,122    488 
MAG’s 44% equity income   13,692    11,781    44,030    37,890 

 

Three months ended September 30, 2023 and 2022

 

Sales increased by $75,331 during the three months ended September 30, 2023, mainly due to 76% higher metal volumes and 28% higher realized metal prices.

 

Offsetting higher sales was higher depreciation ($15,270) as Juanicipio achieved commercial production and commenced depreciating the processing facility and associated equipment, and higher production cost ($25,654) which was driven by higher sales and operational ramp up in mining and processing, including $7,700 in inventory movements.

 

Other expenses increased by $10,218 mainly as a result of higher extraordinary mining and other duties ($1,571) in relation to higher precious metal revenues from the sale of concentrates, higher consulting and administrative expenses ($2,266) as an operator services agreement became effective upon initiation of commercial production whereby Fresnillo and its affiliates continue to operate the mine (the “Operator Services Agreement”), and higher interest incurred on shareholder loans ($4,845) which were completely expensed during Q3 2023, whereas being only partly expensed with the rest capitalised to construction in progress in Q3 2022.

 

Taxes increased by $24,648 impacted by deferred tax charges associated with fixed assets as well as higher taxable profits generated during the period.

 

 9

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Mineralized Material Processed at Juanicipio and Saucito Plants (100% basis)

Three Months Ended September 30, 2023 (322,249 tonnes processed)

Q3 2022

Amount

$

Payable Metals Quantity

Average Price

$

Amount

$

Silver 4,288,747 ounces 23.51 per oz      100,841 44,518
Gold 7,761 ounces 1,911.99 per oz 14,839       8,219
Lead 3,448 tonnes 1.00 per lb.  7,571   2,578
Zinc 4,352 tonnes 1.15 per lb.  11,005   6,511
Treatment, refining, and other processing costs  (9,211) (12,111)
Net Revenue 125,046  49,715
Production cost  (43,782)      (18,127)
Depreciation and amortization (1)  (21,646) (6,376)
Gross Profit         59,618 25,212

 

(1) The underground mine was considered readied for its intended use on January 1, 2022, whereas the Juanicipio processing facility started commissioning and ramp-up activities in January 2023, achieving commercial production status on June 1, 2023.

 

Sales and treatment charges are recorded on a provisional basis and are adjusted based on final assay and pricing adjustments in accordance with the offtake contracts.

 

Nine months ended September 30, 2023 and 2022

 

Sales increased by $141,448 during the nine months ended September 30, 2023, mainly due to 67% higher metal volumes and 6% higher realized metal prices.

 

Offsetting higher sales was higher depreciation ($31,949) as Juanicipio achieved commercial production and commenced depreciating the processing facility and associated equipment, and higher production cost ($79,622) which was driven by higher sales and operational ramp up in mining and processing, including $31,983 in inventory movements as commissioning stockpiles were depleted.

 

Other expenses increased by $25,386 mainly as a result of higher extraordinary mining and other duties ($3,256) in relation to higher precious metal revenues from the sale of concentrates, higher consulting and administrative expenses ($5,016) as the Operator Services Agreement became effective upon initiation of commercial production, and interest incurred on shareholder loans ($12,806) which were completely expensed during the nine months ending September 30, 2023, whereas being only partly expensed with the rest capitalised to construction in progress during the nine months ending September 30, 2022.

 

Taxes increased by $3,340 impacted by deferred tax charges associated with fixed assets.

 

 10

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Mineralized Material Processed at Juanicipio, Saucito and Fresnillo Plants (100% basis)

Nine Months Ended September 30, 2023 (921,990 tonnes processed)

Nine Months Ended

September 30, 2022

Amount

$

Payable Metals Quantity

Average Price

$

Amount

$

Silver 11,167,181 ounces 23.49 per oz      262,271 147,488
Gold 22,588 ounces 1,942.32 per oz 43,874       27,897
Lead 7,796 tonnes 0.97 per lb.  16,599 7,196
Zinc 10,591 tonnes 1.16 per lb.  27,020   18,422
Treatment, refining, and other processing costs  (38,461) (31,148)
Net Revenue            311,303  169,855
Production cost  (125,731)      (46,108)
Depreciation and amortization (1)  (47,001) (15,052)  
Gross Profit         138,571 108,695

 

(1) The underground mine was considered readied for its intended use on January 1, 2022, whereas the Juanicipio processing facility started commissioning and ramp-up activities in January 2023, achieving commercial production status on June 1, 2023.

 

Cash Flow Results

 

The following table provides a summary of cash flows for Juanicipio on for the three and nine months ended September 30, 2023 and 2022: 

 

   Three months ended   Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
(in thousands of US dollars)  $   $   $   $ 
Cash provided by (used in):                    
Operating activities   57,346    15,899    61,026    121,638 
Investing activities   (16,524)   (34,254)   (61,652)   (121,022)
Financing activities   (25,843)   (298)   23,091    (947)
Impact of foreign exchange on cash and cash equivalents   (84)   (676)   (133)   (464)
Increase (decrease) in cash and cash equivalents during the period   14,895    (19,329)   22,332    (796)
Cash and cash equivalents, beginning of period   8,540    37,504    1,102    18,972 
Cash and cash equivalents, end of period   23,434    18,176    23,434    18,176 

 

a) Cash flows from operating activities

 

During the three months ended September 30, 2023, cashflow from operating activities increased ($41,447) due to higher operating margin driven by higher throughput and realized prices.

 

During the nine months ended September 30, 2023, despite higher operating margin, cash flow from operating activities decreased ($60,612) due to payments made to extinguish substantial 2022 tax and mining duty obligations (increase of $60,316 in income tax payments and $8,785 in mining duty tax payments).

 

 11

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

b) Cash used in investing activities

 

During the three and nine months ended September 30, 2023, the net cash used in investing activities was $17,730 and $59,369 lower than the three and nine months ended September 30, 2022, respectively. This decrease was mainly driven by lower initial capital development expenditures of $23,048 and $42,133, respectively, as the project progressed from the construction and development phase in 2022 to the commissioning and operational ramp up phase in 2023.

 

c) Cash from (used in) financing activities

 

During the three months ended September 30, 2023, cash used in financing activities was $25,545 higher than the three months ended September 30, 2022, due to a $20,000 loan repayment made to the shareholders ($8,800 for MAG’s account) and $5,670 of loan interest payments made to shareholders ($2,495 for MAG’s account).

 

During the nine months ended September 30, 2023, cash from financing activities was $24,038 higher than the nine months ended September 30, 2022, due to a $58,600 cash injection from shareholders (mainly to extinguish substantial tax and mining duty obligations, as mentioned above in a) Cash flows from operating activities) offset by the $20,000 loan repayment mentioned above and $13,157 of loan interest payments to shareholders ($5,789 for MAG’s account).

 

d) Liquidity position

 

With the plant completed and commercial production declared on June 1, 2023, all major construction activities have now been completed and Juanicipio is demonstrating its ability to sustain nameplate production levels. Going forward, cash flow from ongoing operations, along with the cash held by Juanicipio at September 30, 2023 of $23,434 on a 100% basis, are expected to substantially fund any remaining capital. Additional funding requirements, if any, related to market conditions (i.e. lower metal prices or higher inflation driving higher costs for instance) or for additional sustaining capital in excess of the operating cash flow generated may be funded by further cash calls by Fresnillo and MAG.

 

5.DEER TRAIL PROJECT

 

BACKGROUND AND HISTORY

 

MAG executed an option agreement (the “Deer Trail Agreement”) effective December 20, 2018 to acquire and consolidate 100% of the consolidated historic Deer Trail mine and surrounding Alunite Ridge area in Piute County, Utah (the “Deer Trail Project”). The Deer Trail Project includes a mixture of patented and unpatented claims totaling approximately 6,500 hectares (“ha”). The counterparties to the Deer Trail Agreement contributed their respective Deer Trail claims and property rights to a newly formed company for a 99% interest in the company, with MAG holding the other 1% interest. MAG is the project operator and has the right to earn a 100% interest in the company and the Deer Trail Project, with the counterparties retaining a 2% net smelter returns royalty. In order to earn in 100%, MAG must make a total of $30,000 in escalating annual exploration expenditures ($24,460 expended to September 30, 2023) and $2,000 in advanced royalty payments ($650 paid to September 30, 2023), both over the 10-year term of the Deer Trail Agreement, by December 2028. All minimum obligatory commitments under the Deer Trail Agreement have been satisfied.

 

 12

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

The Company believes that the Deer Trail Project is a silver-rich CRD related to one or more porphyry intrusive centres. Consolidating the property package allows MAG to apply its integrated district scale exploration model and apply new technologies to the search for an entire suite of mineralization systems expected to occur on the property.

 

MAG’s exploration focus is to seek the source of the historically mined high-grade silver-lead-zinc-copper-gold Deer Trail manto in the thick, high-potential Redwall Limestone host rock sequence that regional mapping indicates lies just below the interlayered sedimentary and limestone section that hosts the historical Deer Trail mine mineralization. Based on this concept, and the recognition of apparent “feeder” structures to mineralization in the Deer Trail mine, three surface holes totaling 3,927 metres were drilled in the context of the 2021’s Phase 1 program (see Press Release September 7, 2021 under the Company’s SEDAR+ profile at www.sedarplus.ca). These three holes successfully fulfilled all three initial objectives by:

 

1) Confirming that the thick section of regionally known Redwall Limestone and other favorable carbonate host rocks continues below the Deer Trail mine;

 

2) Confirming and projecting two suspected mineralization feeder structures to depth; and

 

3) Intercepting high-grade mineralization related to those structures in host rocks beneath the limits of historical drilling.

 

A follow up Phase 2 program was completed in Q1 2023, and included 12,157 metres in total, results were reported on January 17 and August 3, 2023 (see Press Releases under the Company’s SEDAR+ profile at www.sedarplus.ca) and highlights include:

 

§ Carissa Zone Discovery: by far the most widespread mineralization and strongest alteration drilled on the property were cut by “Carissa Discovery” holes DT22-09 and 10. Both holes cut several hundred metres of progressively increasing Argentiferous (silver-bearing) Manganese-Oxide Mineralization (“AMOM”), marble and skarn before entering zones of distinctive silver-copper-zinc bearing sulfide “lacing”, in turn cut by zones of pervasive mineralized skarn.

 

§ DT22-09 intercepted 273.8 metres of distinctive sulfide lacing (mineralization) averaging 12 g/t silver, 0.2% copper, 0.1% lead and 0.2% zinc, with individual sulphide bands grading 59-266 g/t silver, 0.2-5.5% copper, 0.1-1.5% lead, 0.1-5.2% zinc and trace-1.5 g/t gold.

 

§ The lacing zone in hole DT22-09 is preceded by hundreds of metres of progressively zoned AMOM, marble and mineralized garnet-pyroxene-magnetite skarn.

 

§ DT22-10 cut the same progression of alteration as DT22-09 over 115.6 metres before being lost in sulphide lacing mineralization.

 

§ DT22-11: 400 metres north of Carissa discovery cut a 23.5 metres zone of multiple stacked semi-massive sulfide mantos, the best of which grades 150 g/t silver, 1.1 g/t gold, 0.8% copper, 4.9% lead and 4.1% zinc over 5.0 metres.

 

§ DT22-12: 800 metres northwest of Carissa cut 33.0 metres grading 0.6 g/t gold encompassing four high-grade gold zones the best of which ran 6.1 g/t gold over 1.5 metre.

 

 13

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

§ DT22-13: 1.7 km southeast of the Carissa cut six strong copper-gold bearing structures, the best of which graded 2.2 g/t gold and 2.1% copper over 4.2 metres.

 

§ Mineralization intercepted in holes DT22-05 through 08 within the Deer Trail mine corridor differs compositionally and geologically from those observed at Carissa, indicating they were likely fed along a separate mineralization pathway from those responsible for Carissa.

 

§ The overall results continue to reinforce MAG’s CRD exploration model and suggest multiple mineralization channel-ways extend from the inferred Deer Trail Mountain porphyry center. Multiple fluid channel-ways are a characteristic of many major CRD systems. The distinctly different mineralization styles of the separate zones are hallmark indicators of a significant, long-lived, multi-stage CRD, potentially sourced from a productive Porphyry Copper-Molybdenum intrusive center. Results obtained provide strong support for Phase 3 drilling, currently underway to seek that porphyry center.

 

§ A comprehensive data review was conducted in Q2 2023 following the completion of Phase 2 drilling which included revisiting previous holes, relogging of historic holes and interpretation/target generation. The result of this review has opened a number of new targets and solidified the 3 targets in the current drilling campaign.

 

On May 29, 2023 MAG started a Phase 3 drilling program focused on up to three porphyry “hub” targets thought to be the source of the manto, skarn and epithermal mineralization and extensive alteration throughout the project area including that at Deer Trail and Carissa. During Q3 2023, 1,994 metres were drilled at high elevation with results pending. An early onset of winter snowfall impacted the commencement of the third porphyry “hub” target which will be drilled next season and drilling has shifted to offset the Carissa discovery and test other high-potential targets.

 

During the three and nine months ended September 30, 2023 and year ended December 31, 2022, the Company has incurred the following exploration and evaluation expenditures on the Deer Trail Project:

 

   Three months ended   Nine months ended   Year ended 
   September 30,   September 30,   December 31, 
   2023   2023   2022 
   $   $   $ 
Deer Trail               
Option and other payments   75    75    210 
Total acquisition costs   75    75    210 
Geochemical   109    367    422 
Camp and site costs   188    577    713 
Drilling   1,540    2,963    6,255 
Geological consulting   399    915    964 
Geophysical   16    63    325 
Land taxes and government fees   178    200    232 
Legal, community and other consultation costs   54    296    303 
Travel   115    142    167 
Total for the period   2,674    5,598    9,591 
Balance, beginning of period   22,489    19,565    9,974 
Total Deer Trail Project cost   25,163    25,163    19,565 

 

 14

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

6.LARDER PROJECT

 

BACKGROUND AND HISTORY 

 

On March 11, 2022, the Company entered into a Definitive Arrangement Agreement with Gatling Exploration Inc. (“Gatling”) to acquire all of the issued and outstanding common shares of Gatling with the issuance of common shares of the Company and the advancement of a C$3,000 convertible note receivable. On May 20, 2022, the Company completed the acquisition of Gatling by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia) (the “Gatling Transaction”), pursuant to which Gatling became a wholly-owned subsidiary of the Company and the Company thereby acquired a 100% interest in the Larder project located in the historically prolific Abitibi greenstone belt in Northern Ontario, Canada (the “Larder Project”). Under the terms of the Gatling Transaction, each former Gatling shareholder received 0.0170627 of a common share of the Company in exchange for each share of Gatling held immediately prior to the Gatling Transaction. Holders of options and warrants to acquire common shares of Gatling received replacement options and warrants, respectively, entitling the holders thereof to acquire common shares of the Company, based on, and subject to, the terms of such options and warrants of Gatling, as adjusted by the plan of arrangement.

 

MAG issued a total of 774,643 common shares in connection with the Gatling Transaction. The Company also issued 43,675 replacement stock options and 53,508 replacement warrants. A portion of the liabilities of Gatling related to change of control payments to Gatling executive management was settled by the issuance of 63,492 shares of the Company.

 

Through the acquisition of Gatling in 2022, the Company acquired 100% of the Larder Project in Ontario, for which the Company recognized $15,187 in exploration and evaluation assets.

 

Identified assets acquired and liabilities assumed  $ 
     
Assets     
Cash and cash equivalents   89 
Receivables, prepaids and deposits   115 
Exploration and evaluation assets   15,187 
Total Assets   15,391 
      
Liabilities     
Accounts payables and accrued liabilities   1,315 
Lease liabilities   37 
Total Liabilities   1,352 
      
Net assets acquired   14,039 

 

As at September 30, 2023, the Company has incurred $7,449 spend after acquisition costs, of which $2,396 were drilling costs.

 

The Company has determined that the Gatling Transaction did not meet the definition of business combination under International Financial Reporting Standards (“IFRS”) 3 – Business Combinations and accordingly, has been accounted for as an asset acquisition.

 

 15

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

The Larder Project hosts three gold zones along the Cadillac-Larder Break (the “Cadillac-Larder Break”), 35 km east of Kirkland Lake and is comprised of patented and unpatented claims, leases and mining licenses of occupation within the McVittie and McGarry townships. The concessions associated with the Larder Project are all in good standing with various underlying obligations or royalties associated with various mineral claims and various payments upon a production announcement. MAG retained the Larder Project exploration team and has since added to it.

 

The Larder property includes several known shear-hosted (“orogenic”) gold mineralization centres located along approximately 8.7 km of strike length of the greater than 250 km long Cadillac-Larder Break, a historically highly-productive regional first-order shear structure. MAG is applying an integrated district-scale exploration model and modern technology to the search for large-volume, high-grade gold mineralization of the style known to occur throughout the Abitibi region and along neighboring segments of the Cadillac-Larder Break. MAG’s technical team believe that a combination of systematic surface-based exploration combined with geophysics should uncover numerous targets in this highly gold mineralized region.

 

Unlike in many other shear-hosted gold deposits, where mineralization occurs principally along second or third-order structures solaying off a first-order structure, the Larder segment of the Break also has concentrated ore shoots along the first-order structure. This relationship appears similar to that in well-known neighbouring and nearby gold camps along the Break such as the Kerr-Addison mine (approximately 5 km to the east) and the Kirkland Lake district (approximately 35 km to the west). The Larder segment lacks systematic exploration, especially to depths below 500 metres on the main Break, so MAG will be focusing initial efforts along the Break proper. Subsequent focus will include exploration of the many known, and geophysically indicated, 2nd and 3rd order structures that occur throughout the balance of the sparsely tested claim package. The Kir Vit prospect within the Larder claim package is the most advanced of these and appears hosted by the same structure as the Upper Beaver mine owned by Agnico Eagle Mines Limited currently in construction a few kilometres to the west.

 

The Larder property has numerous non-technical advantages. It lies in a mining-friendly jurisdiction with a very long history of mining. There are First Nation agreements in place, with positive ongoing dialogue. No significant environmental legacies are known. Infrastructure (electrical, gas, highway, water) and access are excellent; exploration costs are relatively low; experienced labour is readily available in the area; and permitting is streamlined, predictable and timely. Importantly, many initial targets can be drilled from existing permitted pads.

 

MAG anticipates that the mineralization style and characteristics on this property may be similar as in neighbouring major camps. No assurance of this can be made however, readers are cautioned that, as the Company’s exploration and drilling programs at the Larder Project advance, results may prove to be materially different from those characterizing adjacent properties.

 

After completing the initial 2023 drilling campaign, the geological team embarked on a comprehensive property-wide data re-evaluation which included review of all historic drilling, selective relogging, re-assaying all available pulps with 4-acid digestion, additional geophysics, field mapping and sampling. These datasets are now undergoing systematic reinterpretation to build a unified project model for developing a well-defined pipeline of drill targets which are expected to be tested by multiple rigs turning over the next eighteen months.

 

 16

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

On July 12, 2023 drilling resumed at the Larder Project to test additional targets by the end of the year on the Cheminis and Bear areas. During Q3 2023 4,594 metres were drilled at Cheminis and a second drill rig was commissioned to drill the Bear target. A minimum of 17,000 metres of drilling is planned.

During the three and nine months ended September 30, 2023 and year ended December 31, 2022, the Company has incurred the following exploration and evaluation expenditures on the Larder Project:

 

   Three months ended   Nine months ended   Year ended 
   September 30,   September 30,   December 31, 
   2023   2023   2022 
   $   $   $ 
Larder Project               
Acquisition   -    -    15,187 
Option and other payments   -    -    19 
Total acquisition costs   -    -    15,206 
Geochemical   141    901    112 
Camp and site costs   234    408    127 
Drilling   599    1,164    1,232 
Geological consulting   766    1,400    450 
Geophysical   296    872    314 
Land taxes and government fees   14    35    19 
Legal, community and other consultation costs   141    308    176 
Travel   113    174    58 
Total for the period   2,304    5,262    17,694 
Balance, beginning of period   20,652    17,694    - 
Total Larder Project cost   22,956    22,956    17,694 

 

 

7.OUTLOOK

 

Juanicipio Outlook

 

All material mined at Juanicipio is now being processed through the Juanicipio processing facility, with the resulting lead (silver-rich) and zinc concentrates treated at market terms under offtake agreements with Met-Mex Peñoles, S.A. de C.V. (“Met-Mex”) (an affiliate of Fresnillo). An Operator Services Agreement became effective upon the declaration of commercial production, whereby Fresnillo and its affiliates will continue to operate the mine for a fee of $13,000 per annum. With the plant operating at nameplate capacity, the focus point is now on ongoing cost and operational optimisation.

 

Deer Trail Outlook

 

On May 29, 2023, MAG started a Phase 3 drilling program designed to test the mineralization of porphyry “hubs” inferred to underlie Mt. Brigham and Deer Trail Mountain. The first hole tested the Alunite Ridge target on the south slope of Mt. Brigham, followed by the recently completed Deer Trail Mountain target. These porphyry “hub” targets are defined by extensive surface work showing strong coincident geochemical, geophysical and alteration anomalies. These “hubs” are thought to be the source of the fluids that created the Project area’s manto, skarn and epithermal vein mineralization and pervasive alteration seen throughout the Deer Trail Project area including the Deer Trail and Carissa zones. An early onset of winter snowfall impacted the commencement of the third porphyry “hub” target which will be drilled next season and drilling has shifted to offset the Carissa zone discovery holes, follow up other well-mineralized intercepts and test entirely new targets identified by recent geophysical surveys and soil surveys.

 

 17

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Larder Project Outlook

 

The field team are currently undertaking a comprehensive re-evaluation of all existing drilling, targeted relogging of selected holes, rerunning all available pulps with 4-acid digestion, and additional geophysics, field mapping and sampling. The goal of this property-wide technical reassessment program is to improve understanding of the different styles of mineralization, alteration and structure as a basis to develop a long-term systematic property-wide exploration program. Initial plans are finalized, and drilling resumed on July 12, 2023 with a planned minimum of 17,000 metres on a pipeline on well-defined high priority targets for the second half of 2023. A second drill rig was commissioned in mid-October. The program will continue to expand as new data is collected and ultimately increase to a multi-rig exploration program in 2024.

 

8.REVIEW OF FINANCIAL RESULTS

 

Three months ended September 30, 2023 and 2022

 

   For the three months ended 
   September 30,   September 30, 
   2023   2022 
    $    $ 
           
Income from equity accounted investment in Juanicipio   13,692    11,781 
General and administrative expenses   (4,094)   (3,003)
General exploration and business development   (468)   (20)
Operating  income   9,130    8,758 
           
Interest income   663    216 
Other income   269    - 
Foreign exchange loss   (192)   (199)
Income before income tax   9,870    8,775 
           
Deferred income tax expense   (1,008)   (548)
Net income   8,862    8,227 

 

 18

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Income from equity accounted investment in Juanicipio increased to $13,692 during the three months ended September 30, 2023 (September 30, 2022 $11,781) representing the Company’s 44% equity interest in the Juanicipio Mine and is discussed above on a 100% basis in ‘Results of Juanicipio’.

 

General and administrative expenses increased to $4,094 during the three months ended September 30, 2023 (September 30, 2022: $3,003) due to:

· increase in management compensation and consulting fees to $1,727 (September 30, 2022: $957) mainly due to executive search fees and payroll related expenditures;
· increase in accounting and audit fees to $277 (September 30, 2022: $110) mainly due to an increase in audit and tax consulting fees;
· Juanicipio oversight costs now being expensed through profit and loss subsequent to the declaration of full commercial production at Juanicipio in June 2023 ($332);

Offset by;

· decrease in share-based payment expense to $882 (September 30, 2022: $1,113) mainly attributable to the initial incentive grants issued to new executives of the Company in 2022; and
· decrease in insurance expenses to $334 (September 30, 2022: $530) as a result of lower insurance premiums negotiated for the 2023 insurance renewal.

 

General exploration and business development expenses increased to $468 during the three months ended September 30, 2023 (September 30, 2022: $20) due to $433 of property holding costs consisting mainly of legal, licence renewal, and storage fees.

 

Interest income increased to $663 during the three months ended September 30, 2023 (September 30, 2022: $216) as a result of higher cash balance and deposit interest rates compared to the comparative quarter.

 

Other income of $269 during the three months ended September 30, 2023 (September 30, 2022: nil) is attributable to the amortization of the flow-through premium liability.

 

Deferred income tax expense of $1,008 during the three months ended September 30, 2023 (September 30, 2022: $548) primarily driven by the income from the equity accounted investment in Juanicipio recognized by the Company.

 

As a result of the foregoing, net income for the quarter was $8,862 compared to $8,227 net income in the same quarter of the prior year.

 

 19

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Nine months ended September 30, 2023 and 2022

 

   For the nine months ended 
   September 30,   September 30, 
   2023   2022 
    $    $ 
           
Income from equity accounted investment in Juanicipio   44,030    37,890 
General and administrative expenses   (10,599)   (8,555)
General exploration and business development   (610)   (111)
Exploration and evaluation assets written down   -    (10,471)
Operating  income   32,821    18,753 
           
Interest income   1,868    335 
Other income   629    - 
Foreign exchange loss   (204)   (403)
Income before income tax   35,114    18,685 
           
Deferred income tax expense   (2,149)   (216)
Net income   32,965    18,469 

 

Income from equity accounted investment in Juanicipio increased to $44,030 during the nine months ended September 30, 2023 (September 30, 2022 $37,890) representing the Company’s 44% equity interest in the Juanicipio Mine and is discussed above on a 100% basis in ‘Results of Juanicipio’.

 

General and administrative expenses increased to $10,599 during the nine months ended September 30, 2023 (September 30, 2022: $8,555) due to:

· increase in management compensation and consulting fees to $3,949 (September 30, 2022: $2,980) mainly due to executive search fees and payroll related expenditures;
· increase in share-based payment expense to $2,597 (September 30, 2022: $2,318) mainly attributable to the initial incentive grants issued to new executives of the Company.
· increase in accounting and audit fees to $606 (September 30, 2022: $294) mainly due to an increase in audit and tax consulting fees;
· Juanicipio oversight costs now being expensed through profit and loss subsequent to the declaration of full commercial production at Juanicipio in June 2023 ($332);

Offset by;

· decrease in insurance expenses to $1,162 (September 30, 2022: $1,483) as a result of lower insurance premiums negotiated.

 

General exploration and business development expenses increased to $610 during the nine months ended September 30, 2023 (September 30, 2022: $111) due to $433 of property holding costs consisting mainly of legal, licence renewal, and storage fees.

 

Exploration and evaluation assets written down decreased to nil during the nine months ended September 30, 2023. The $10,471 recorded during the nine months ended September 30, 2022, pertains to the Black Hills land claim package, where the Company wrote-down the full carrying amount.

 

 20

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

Interest income increased to $1,868 during the nine months ended September 30, 2023 (September 30, 2022: $335) as a result of higher cash balance and interest rates compared to the comparative period.

 

Other income of $629 during the nine months ended September 30, 2023 (September 30, 2022: nil) is attributable to the amortization of the flow-through premium liability.

 

Deferred income tax expense of $2,149 during the nine months ended September 30, 2023 (September 30, 2022: $216) primarily driven by the income from the equity accounted investment in Juanicipio recognized by the Company.

 

As a result of the foregoing, net income for the period was $32,965 compared to $18,469 net income in the same period of the prior year.

 

Other Comprehensive Income (Loss):

 

   For the three months ended   For the nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2023   2022   2023   2022 
                 
Net income   8,862    8,227    32,965    18,469 
                     
Other comprehensive income (loss)                    
Items that will not be reclassified subsequently to profit or loss:                    
Unrealized loss on equity securities   (2)   (1)   (4)   (60)
Deferred tax benefit   -    -    -    7 
Other comprehensive loss   (2)   (1)   (4)   (53)
                     
Total comprehensive income   8,860    8,226    32,961    18,416 

 

In other comprehensive income (loss) during the three and nine months ended September 30, 2023, MAG recorded an unrealized mark-to-market loss of $2 and $4, respectively (September 30, 2022: $1 and $53, respectively).

 

 

 21

MAG SILVER CORP.

Management’s Discussion & Analysis

For the three and nine months ended September 30, 2023

(expressed in thousands of US dollars except as otherwise noted)

 

9.FINANCIAL POSITION

 

The following table summarizes MAG’s financial position as at September 30, 2023 and December 31, 2022:

 

   September 30, 2023   December 31, 2022 
   $   $ 
Assets          
           
Current assets          
Cash   58,519    29,955 
Other current assets   2,349    1,940 
Total current assets   60,868    31,895 
Non-current assets          
Investments   7    11 
Investment in Juanicipio   392,629    338,316 
Exploration and evaluation assets   48,119    37,259 
Property and equipment   312    348 
    441,067    375,934 
Total assets   501,935    407,829 
           
Liabilities          
           
Current liabilities   5,780    2,663 
Non-current liabilities   5,585    3,470 
Total liabilities   11,365    6,133 
Total equity   490,570    401,696 
Total liabilities and equity   501,935    407,829 

 

Cash totalled $58,519 as at September 30, 2023 compared to $29,955 at December 31, 2022,