EX-99.1 2 exh_991.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

 

MAG Silver Corp.

 

Unaudited Condensed Interim Consolidated Financial Statements

(expressed in thousands of US dollars)

 

For the three and six months ended June 30, 2023

 

Dated: August 7, 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

www.magsilver.com

info@magsilver.com

 

 

 

 

MAG SILVER CORP.

Condensed Interim Consolidated Statements of Income and Comprehensive Income

For the three and six months ended June 30, 2023 and 2022

(In thousands of US dollars, except for shares and per share amounts - Unaudited)

 

      For the three months ended   For the six months ended 
      June 30,   June 30,   June 30,   June 30, 
      2023   2022   2023   2022 
   Note  $   $   $   $ 
                    
Income from equity accounted investment in Juanicipio  6   22,419    12,347    30,338    26,109 
General and administrative expenses  4   (3,233)   (3,282)   (6,505)   (5,552)
General exploration and business development      (40)   (66)   (142)   (91)
Exploration and evaluation assets written down  7   -    -    -    (10,471)
Operating income      19,146    8,999    23,691    9,995 
                        
Interest income      641    18    1,205    119 
Other income  9   233    -    360    - 
Foreign exchange gain (loss)      168    (185)   (12)   (204)
Income before income tax      20,188    8,832    25,244    9,910 
                        
Deferred income tax (expense)  benefit      (798)   (1,270)   (1,141)   332 
Net income      19,390    7,562    24,103    10,242 
                        
Other comprehensive  income (loss)                       
Items that will not be reclassified subsequently to profit or loss:                       
Unrealized loss on equity securities      (2)   (1)   (3)   (59)
Deferred tax benefit      -    -    -    7 
Other comprehensive loss      (2)   (1)   (3)   (52)
                        
Total comprehensive income      19,388    7,561    24,100    10,190 
                        
                        
Basic earnings per share      0.19    0.08    0.24    0.10 
Diluted earnings per share      0.19    0.08    0.23    0.10 
                        
                        
Weighted average shares outstanding  8                    
Basic      102,906,482    98,238,658    102,017,142    98,030,207 
Diluted      103,486,246    98,944,087    102,626,761    98,769,907 

 

 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 2

 

 

MAG SILVER CORP.

Condensed Interim Consolidated Statements of Financial Position  

As at June 30, 2023

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

 

   Note  June 30, 2023   December 31, 2022 
      $   $ 
            
Assets             
Current assets             
Cash      52,664    29,955 
Accounts receivable  5   1,294    708 
Prepaid expenses      1,978    1,232 
       55,936    31,895 
Non-current assets             
Investments      8    11 
Investment in Juanicipio  6   390,154    338,316 
Exploration and evaluation assets  3,7   43,141    37,259 
Property and equipment      296    348 
       433,599    375,934 
Total assets      489,535    407,829 
              
Liabilities             
Current liabilities             
Trade and other payables      1,575    2,542 
Current portion of lease obligation      136    121 
Flow-through share premium liability  9   2,625    - 
       4,336    2,663 
Non-current liabilities             
Lease obligation      69    140 
Deferred income taxes      4,062    2,921 
Provision for reclamation      409    409 
Total liabilities      8,876    6,133 
              
Equity             
Share capital  8   613,843    559,933 
Equity reserve      19,743    18,790 
Accumulated other comprehensive income      781    784 
Deficit      (153,708)   (177,811)
Total equity      480,659    401,696 
Total liabilities and equity      489,535    407,829 
              
Commitments and contingencies  15          

 

 

 

 

 

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 six months ended June 30, 2023 and 2022

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

 

      For the three months ended,   For the six months ended, 
      June 30,   June 30,   June 30,   June 30, 
      2023   2022   2023   2022 
   Note  $   $   $   $ 
                    
OPERATING ACTIVITIES                       
Net income      19,390    7,562    24,103    10,242 
Items not involving cash:                       
Amortization of flow-through premium liability  9   (233)   -    (360)   - 
Depreciation and amortization      58    34    68    68 
Deferred income tax expense (benefit)      798    1,270    1,141    (332)
Exploration and evaluation assets written down      -    -    -    10,471 
Income from equity accounted Investment in Juanicipio  6   (22,419)   (12,347)   (30,338)   (26,109)
Share-based payment expense  8   1,012    708    1,775    1,205 
Unrealized foreign exchange (gain) loss      (202)   201    (27)   216 
                        
Movements in non-cash working capital                       
Accounts receivable      153    (43)   (52)   (105)
Prepaid expenses      (18)   781    (746)   (1,509)
Trade and other payables      (364)   (3,196)   (495)   (841)
Net cash used in operating activities      (1,825)   (5,030)   (4,931)   (6,694)
                        
INVESTING ACTIVITIES                       
Exploration and evaluation expenditures  7   (3,263)   (2,549)   (6,242)   (3,840)
Acquisition of Gatling Exploration, net of cash acquired  3   -    (250)   -    (2,653)
Investment in Juanicipio  6   (164)   (167)   (25,323)   (318)
Interest payment on Juanicipio loans  6   3,145    64    3,294    129 
Proceeds from disposition of equity securities      -    -    -    1,111 
Purchase of equipment      -    (13)   -    (13)
Net cash used in investing activities      (282)   (2,916)   (28,271)   (5,584)
                        
FINANCING ACTIVITIES                       
Issuance of common shares upon exercise of stock options  8   -    32    225    32 
Issuance of common shares, net of share issue costs  8   (67)   -    39,405    - 
Issuance of flow-through shares, net of share issue costs  8   -    -    16,208    - 
Payment of lease obligation (principal)      (31)   (25)   (61)   (53)
Net cash (used in) from financing activities      (98)   7    55,777    (21)
                        
Effect of exchange rate changes on cash      256    346    134    206 
                        
(Decrease) Increase in cash during the period      (1,949)   (7,593)   22,709    (12,093)
Cash, beginning of period      54,613    52,248    29,955    56,748 
Cash, end of period      52,664    44,655    52,664    44,655 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 4

 

 

MAG SILVER CORP.

Condensed Interim Consolidated Statements of Changes in Equity

For the six months ended June 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   91,088    935    (935)   -    -    - 
Issued for cash, net of flow-through share                                 
premium liability  8   3,874,450    56,761    -    -    -    56,761 
Share issue costs  8    .     (4,078)   -    -    -    (4,078)
Share-based payment  8   -    -    1,955    -    -    1,955 
                                  
                                  
Other comprehensive loss      -    -    -    (3)   -    (3)
Net income      -    -    -    -    24,103    24,103 
Balance, June 30, 2023      102,943,692    613,843    19,743    781    (153,708)   480,659 
                                  
                                  
Balance, January 1, 2022      97,809,441    543,927    18,215    1,798    (196,419)   367,521 
                                  
Stock options exercised  8   3,125    39    (7)   -    -    32 
Stock options exercised cashless  8   16,702    165    (165)   -    -    - 
Restricted and performance share units converted  8   29,482    281    (281)   -    -    - 
Deferred share units converted  8   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  8   -    -    1,226    -    -    1,226 
Transfer of gain on disposal of equity securities                                 
at FVOCI to deficit, net of tax      -    -    -    (964)   964    - 
                                  
Other comprehensive loss      -    -    -    (52)   -    (52)
Net income      -    -    -    -    10,242    10,242 
Balance, June 30, 2022      98,721,885    556,787    18,855    782    (185,213)   391,211 

 

 

 

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 six months ended June 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 consolidated financial statements were authorized for issuance by the Board of Directors of the Company on August 4, 2023.

 

 6

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

(b)Significant accounting judgments and estimates

 

The Company and Juanicipio make 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 has 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 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 six months ended June 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 

 

Fair value of 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 six months ended June 30, 2023

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

 

4.GENERAL AND ADMINISTRATIVE EXPENSES

 

   For the three months ended   For the six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2023   2022   2023   2022 
   $   $   $   $ 
                 
Accounting and audit   201    110    329    184 
Compensation and consulting fees   1,087    1,254    2,222    2,023 
Depreciation and amortization   58    34    68    68 
Filing and transfer agent fees   13    58    280    316 
General office expenses   246    276    390    363 
Insurance   339    530    828    953 
Legal   109    117    234    170 
Share-based payment expense (see Note 8)   1,012    708    1,775    1,205 
Shareholder relations   73    131    189    194 
Travel   95    64    190    76 
    3,233    3,282    6,505    5,552 

 

5.ACCOUNTS RECEIVABLE

 

   June 30,   December 31, 
   2023   2022 
   $   $ 
Receivable from Minera Juanicipio (Notes 6 & 14)   844    323 
Value added tax ("IVA" and "GST")   446    382 
Other receivables   4    3 
    1,294    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 six months ended June 30, 2023

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

 

Fresnillo is the operator of Juanicipio, and with its affiliates, beneficially owns 9,318,466 common shares of the Company as at June 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:

 

   Six months ended   Year ended 
   June 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   (47)   - 
Cash contributions and advances to Juanicipio (see Note 14)   24,992    8,140 
Total for the period   25,329    8,859 
Income from equity accounted Investment in Juanicipio  (2)   30,338    40,767 
Interest earned, net of recontributions, reclassified to accounts receivable (1)    (3,829)   (2,394)
Balance, end of period   390,154    338,316 

 

(1) A portion of the Investment in Juanicipio is in the form of interest bearing shareholder loans. For the six months ended June 30, 2023, the Company earned interest, net of recontributions, amounting to $3,829 (year ended December 31, 2022: $2,394), which has been reclassified to accounts receivable.

 

(2) Represents the Company’s 44% share of Juanicipio’s net income for the period, as determined by the Company.

 

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:

 

 10

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

Juanicipio Statements of Income

 

   For the three months ended   For the six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2023   2022   2023   2022 
    $    $    $    $ 
                     
Sales   134,775    55,224    186,257    120,140 
Cost of sales:                    
Production cost   54,571    12,717    81,949    27,981 
Depreciation and amortization   17,400    5,245    25,355    8,676 
Cost of sales   71,971    17,962    107,304    36,657 
Gross profit   62,804    37,262    78,953    83,483 
Consulting and administrative expenses   (4,158)   (1,376)   (5,657)   (2,908)
Extraordinary mining duty and other duties   (1,377)   (109)   (1,897)   (212)
    57,269    35,777    71,399    80,363 
Exchange gains (losses) and other   32    763    (2,832)   (58)
Interest expenses   (4,886)   (740)   (8,702)   (740)
Income tax (expense) benefit   (6,349)   (8,439)   382    (20,926)
                     
Net income   46,066    27,361    60,247    58,639 
                     
MAG's 44% portion of net income   20,269    12,039    26,509    25,801 
Interest on Juanicipio loans - MAG's 44%   2,150    308    3,829    308 
MAG's 44% equity income   22,419    12,347    30,338    26,109 

 

 11

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

Juanicipio Statements of Financial Position

 

   June 30,   December 31, 
   2023   2022 
   $   $ 
Assets          
           
Current assets          
Cash and cash equivalents   8,539    1,102 
Value added tax and other receivables   36,775    13,945 
Concentrate sales receivable   58,711    24,098 
Inventories          
Stockpiles   10,864    26,020 
Metal concentrates   1,710    - 
Materials and supplies   15,079    10,081 
Prepaids and other assets   6,639    7,756 
    138,317    83,002 
Non-current assets          
Right-of-use assets   1,473    1,336 
Mineral interests, plant and equipment   795,092    779,735 
Deferred tax assets   9,188    11,259 
    805,753    792,330 
Total assets   944,070    875,332 
           
Liabilities          
           
Current liabilities          
Payables   19,976    34,678 
Interest and other payables to shareholders   21,581    13,460 
Income tax payable   2,471    36,259 
    44,028    84,397 
Non-current liabilities          
Lease obligation   1,471    1,329 
Provisions          
Reserves for retirement and pension   49    29 
Reclamation and closure   3,454    3,073 
Deferred tax liabilities   13,759    22,242 
    18,734    26,673 
Total liabilities   62,761    111,070 
           
Equity          
           
Shareholders equity including shareholder advances   881,309    764,262 
Total equity   881,309    764,262 
Total liabilities and equity   944,070    875,332 

 

 12

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

Expenditures on mineral interests, plant and equipment capitalized directly by Juanicipio for the six months ended June 30, 2023 amounted to $40,328 (year ended December 31, 2022: $160,112).

 

The Juancipio mine and related mining infrastructure achieved commercial production on January 1, 2022. Following a successful commissioning period, the Juanicipio processing facility has 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 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.

 

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 June 30, 2023, the Company has incurred $22,215 of eligible exploration expenditures on the property). As at June 30, 2023, the Company has also bonded and recorded a $409 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.

 

(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 June 30, 2023, the Company incurred $5,446 spend after acquisition costs, of which $1,797 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.

 

 13

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

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

 

   Three months ended   Six months ended   Year ended 
   June 30,   June 30,   December 31, 
   2023   2023   2022 
   $   $   $ 
Deer Trail               
Option and other payments   -    -    210 
Total acquisition costs   -    -    210 
Geochemical   143    258    422 
Camp and site costs   248    389    713 
Drilling   656    1,423    6,255 
Geological consulting   247    516    964 
Geophysical   31    47    325 
Land taxes and government fees   3    22    232 
Legal, community and other consultation costs   143    242    303 
Travel   (14)   27    167 
Total for the period   1,457    2,924    9,591 
Balance, beginning of period   21,032    19,565    9,974 
Total Deer Trail Project cost   22,489    22,489    19,565 
Larder Project               
Acquisition (Note 3)   -    -    15,187 
Option and other payments   -    -    19 
Total acquisition costs   -    -    15,206 
Geochemical   571    760    112 
Camp and site costs   141    174    127 
Drilling   43    565    1,232 
Geological consulting   369    634    450 
Geophysical   486    576    314 
Land taxes and government fees   10    21    19 
Legal, community and other consultation costs   93    167    176 
Travel   24    61    58 
Total for the period   1,737    2,958    17,694 
Balance, beginning of period   18,915    17,694    - 
Total Larder Project cost   20,652    20,652    17,694 

 

 

 14

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 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   43,141    43,141    37,259 

 

Included in exploration and evaluation assets at June 30, 2023 were liabilities for trade and other payables of $230 (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 June 30, 2023, there were 102,943,692 common shares outstanding (December 31, 2022: 98,956,808).

 

   Three months ended 
   June 30,   June 30, 
   2023   2022 
Basic weighted average number of shares outstanding   102,906,482    98,238,658 
Effect of dilutive common share equivalents (1)   579,764    705,429 
Diluted weighted average number of shares outstanding   103,486,246    98,944,087 
Antidilutive securities (1)   912,619    728,117 

 

 15

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

   Six months ended 
   June 30,   June 30, 
   2023   2022 
Basic weighted average number of shares outstanding   102,017,142    98,030,207 
Effect of dilutive common share equivalents (1)   609,619    739,700 
Diluted weighted average number of shares outstanding   102,626,761    98,769,907 
Antidilutive securities (1)   809,135    723,986 

 

(1)For the three and six months ended June 30, 2023, stock options totaling 530,242 and 430,242 respectively (three and six months ended June 30, 2022: 451,953 and 451,953 respectively), restricted share units (“RSUs”) totalling 86,919 and 83,432 respectively (three and six months ended June 30, 2022: 76,529 and 72,398 respectively), and performance share units (“PSUs”) totaling 295,461 and 295,461 respectively (three and six months ended June 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 $1,068 yielding net proceeds of $55,613.

 

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

 

During the six months ended June 30, 2023, 48,452 PSUs and 42,636 RSUs were converted into common shares (six months ended June 30, 2022: 24,482 PSUs and 5,000 RSUs).

 

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

 

 16

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

During the six months ended June 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 June 30, 2023, there were 1,228,376 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 
Exercised for cash   (21,346)   14.12 
           
Outstanding, June 30, 2023   1,228,376    17.40 

 

During the six months ended June 30, 2023, 236,928 stock options were granted to employees and consultants (six months ended June 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.

 

 17

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

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

 

     June 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 

 

During the six months ended June 30, 2023, 21,346 stock options were exercised (six months ended June 30, 2022: 54,713) with a weighted average market share price at the date of exercise of C$22.44 (six months ended June 30, 2022: C$21.15).

 

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

 

Exercise price  Number   Number   Weighted average remaining 
(C$/option)  outstanding   exercisable   contractual life (years) 
13.46   209,432    209,432    0.78 
14.98   251,774    251,774    1.63 
16.09   6,021    -    4.75 
16.43   230,907    -    4.75 
17.02   100,000    33,333    3.89 
20.20   120,898    40,294    3.55 
21.26   50,000    16,666    3.42 
21.29   9,191    3,063    3.77 
21.57   200,153    133,434    2.36 
23.53   50,000    33,333    2.55 
13.46 - 23.53   1,228,376    721,329    2.71 

 

During the six months ended June 30, 2023, the Company recorded share-based payment expense of $817 (six months ended June 30, 2022: $680) relating to stock options vested to employees and consultants in the period of which $79 (six months ended June 30, 2022: $21) was capitalized to exploration and evaluation assets.

 

 18

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 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 2,559 replacement stock options expired unexercised. The following table summarizes the Gatling replacement options that are outstanding and exercisable as at June 30, 2023:

 

Exercise price  Number   Number   Weighted average remaining 
(C$/option)  outstanding   exercisable   contractual life (years) 
21.40   1,706    1,706    1.06 
21.68 - 21.93   9,986    9,986    1.12 
25.80   4,264    4,264    0.56 
26.37 - 26.41   11,090    11,090    0.48 
39.86 - 39.91   14,070    14,070    0.06 
21.40 - 39.91   41,116    41,116    0.52 

 

(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 six months ended June 30, 2023, 56,425 RSUs were granted (six months ended June 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 (six months ended June 30, 2022: $14.67) as determined using the fair market value of the common shares on the date of grant.

 

During the six months ended June 30, 2023, 156,861 PSUs were granted (six months ended June 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 (six months ended June 30, 2022: $16.15).

 

 19

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

The three-year performance period for the February 2020 PSU grant ended on February 2023 and resulted in a PSU vesting of 86.3% of target or 72,437 PSUs. Consequently, 11,562 PSUs did not vest and were cancelled.

 

As at June 30, 2023, there were 328,161 PSUs and 114,848 RSUs issued and outstanding (December 31, 2022: 231,254 and 101,059 respectively) under the Share Unit Plan, of which 32,700 PSUs and 25,961 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 June 30, 2023 are 76,914 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 six months ended June 30, 2023, the Company recognized a share-based payment expense of $705 (six months ended June 30, 2022: $482) relating to RSUs and PSUs of which $102 (six months ended June 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 six months ended June 30, 2023, 33,159 DSUs were granted under the plan and 3,552 DSUs were granted to directors who elected to receive a portion of their annual retainer in DSUs rather than in cash (six months ended June 30, 2022: nil and 4,104 respectively). A DSU share-based payment expense of $434 was recorded in the six months ended June 30, 2023 (six months ended June 30, 2022: $64). 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 six months ended June 30, 2023, no DSUs (six months ended June 30, 2022: 25,000) were converted and settled in common shares. As at June 30, 2023, there are 456,826 DSUs (December 31, 2022: 420,115) issued and outstanding under the DSU Plan, all of which have vested.

 

As at June 30, 2023, assuming 100% of the PSU’s vest, there are 2,128,211 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 2.07% (December 31, 2022: 1.78%) of the issued and outstanding common shares on a non-diluted basis, and there are 4,048,004 (December 31, 2022: 4,172,186) share-based awards available for grant under these combined share compensation arrangements.

 

 20

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

(e)Replacement warrants

 

In 2022, the Company issued replacement warrants pursuant to the Gatling acquisition (Note 3), of which as at December 31, 2022, 34,418 replacement warrants had expired unexercised. The following table summarizes the Gatling warrants that are outstanding and exercisable as at June 30, 2023.

 

Exercise price  Number   Number   Weighted average remaining 
(C$/warrant)  outstanding   exercisable   contractual life (years) 
35.17   10,893    10,893    0.02 
35.18   1,599    1,599    0.02 
35.21   6,177    6,177    0.02 
35.27   319    319    0.02 
35.29   102    102    0.02 
35.17 - 35.29   19,090    19,090    0.02 

 

9.Flow-Through PRemium Liability

 

As at June 30, 2023, the Company has a flow-through share premium liability of $2,625 (December 31, 2022: nil) in relation to the flow-through share financing completed on February 16, 2023 (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 

 

 21

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

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   (2,069)   (361)
           
Balance at June 30, 2023   15,064    2,625 

 

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:

 

   June 30,   December 31, 
   2023   2022 
   $   $ 
Equity   480,659    401,696 
Lease obligation   205    261 
Cash   (52,664)   (29,955)
Investments   (8)   (11)

 

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 $51,600 as at June 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.

 

 22

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

As at June 30, 2023, the Company does not have any 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.

 

(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 June 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 underground mining operation 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 policy 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, as generally cash is only sent to them to cover current planned expenditures.

 

 23

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

(iii)Mexican value added tax

As at June 30, 2023, the Company had a net payable of $8 (Note 5) for value added tax. As at June 30, 2023, Juanicipio, in which the Company has a 44% interest, had a receivable of $36,427 from the Mexican government for value added tax (Note 6) (MAG’s attributable portion $16,028). Management expects the balances to be fully recoverable by both entities.

 

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

 

   June 30,   December 31, 
   2023   2022 
   $   $ 
Cash   52,664    29,955 
Accounts receivable (Note 5)   1,294    708 
Juanicipio loans (Notes 6 & 14) (1)   127,379    104,653 
    181,337    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.

 

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

 

(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.

 

 24

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

Exposure to currency risk

 

As at June 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   9    10,474 
Accounts receivable   69    442 
Investments   -    8 
Accounts payable   (192)   (1,005)
Lease obligations   -    (205)
Net (liabilities) assets exposure   (114)   9,714 

 

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 June 30, 2023 is 1.96 million pesos (June 30, 2022: 320 thousand 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.

 

 25

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

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 assets at June 30, 2023 is 959.9 million pesos (June 30, 2022: 17.7 million net peso denominated monetary liabilities). A 10% appreciation in the peso against the US$ would result in a gain before tax at June 30, 2023 of $6,230 (June 30, 2022: $1,967 loss) in Juanicipio, of which the Company would record its 44% share being $2,741 gain from equity investment in Juanicipio (June 30, 2022: $865 loss), while a 10% depreciation in the peso relative to the US$ would result in an equivalent gain.

 

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 June 30, 2023 is C$12.8 million (June 30, 2022: C$611 thousand). A 10% appreciation or depreciation in the C$ against the US$ would have a $964 effect on the Company’s income (loss) before tax.

 

(e)Interest rate risk

 

The Company’s interest revenue 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.

 

 26

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 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 June 30, 2023    Level 1      Level 2      Level 3      Total  
    $    $    $    $ 
Investments(1)   8    -    -    8 
                     
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 six months ended June 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 Project, 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.

 

 27

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

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

 

   Three months ended   Six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2023   2022   2023   2022 
    $    $    $    $ 
                     
Fees related to Dr. Megaw:                    
Exploration and marketing services   59    64    137    132 
Travel and expenses   16    7    29    15 
Other fees to Cascabel and IMDEX:                    
Administration for Mexican subsidiaries   14    14    27    27 
Field exploration services   41    48    78    88 
Share-based payments (non-cash)   122    124    235    210 
    252    257    506    472 

 

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 June 30, 2023 is $73 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
Incorporation		 Principal MAG's effective interest
Project 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 June 30, 2023, Fresnillo and the Company have advanced $289,507 as shareholder loans (MAG’s 44% share $127,379) to Juanicipio, bearing interest at 3 and 6 month LIBOR + 2% up to May 31, 2023, and thereafter June 1, 2023 at 1 and 6 months SOFR + 2%. From January 2022, with the mine being brought into commercial production, a portion of the interest 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 the 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 the Company for the six months ended June 30, 2023 totalling $3,829 (year ended December 31, 2022: $1,058) has therefore been included in the income from equity investment in Juanicipio.

 

 28

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

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

 

       Three months ended       Six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2023   2022   2023   2022 
   $   $   $   $ 
Salaries and other short term employee benefits   704    412    1,205    828 
Severance paid to a former executive   -    382    -    382 
Share-based payments (non-cash) (Note 8)   704    354    1,358    603 
    1,408    1,148    2,563    1,813 

 

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 June 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   752    561    114    77    - 
Total Obligations and Commitments   752    561    114    77    - 

 

(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.

 

 29

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2023

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

 

(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 $36,331 (December 31, 2022: $47,809), with respect to the Juanicipio Project on a 100% basis as at June 30, 2023.

 

(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 of 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.

 

 

 

 

 

 

 

 

 

30