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, 2022

 

 

Dated: August 12, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 (Loss)  and Comprehensive Income (Loss)

For the three and six months ended June 30, 2022 and 2021

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

 

      Three months ended   Six months ended 
      June 30,   June 30,   June 30,   June 30, 
      2022   2021   2022   2021 
   Note  $   $   $   $ 
                    
Income from equity accounted investment in Juanicipio  8   12,347    4,820    26,109    5,452 
General and administrative expenses  4   (3,282)   (3,029)   (5,552)   (5,802)
General exploration and business development      (66)   (33)   (91)   (40)
Exploration and evaluation costs written down  9   -    -    (10,471)   - 
Operating income (loss)      8,999    1,758    9,995    (390)
                        
Interest income      18    42    119    127 
Foreign exchange (loss) gain      (185)   100    (204)   148 
Income (loss) before income tax      8,832    1,900    9,910    (115)
                        
Deferred income tax (expense) benefit      (1,270)   1,405    332    (242)
Income (loss) for the period      7,562    3,305    10,242    (357)
                        
Other comprehensive  (loss) income                       
Items that will not be reclassified subsequently to profit or loss:                       
Unrealized loss on equity securities  7   (1)   (101)   (59)   (3,424)
Net of deferred tax benefit      -    14    7    465 
Other comprehensive (loss) income      (1)   (87)   (52)   (2,959)
                        
Total comprehensive income (loss)      7,561    3,218    10,190    (3,316)
                        
                        
                        
Basic and diluted income (loss) per share      0.08    0.03    0.10    (0.00)
                        
Weighted average shares outstanding  11a                    
Basic      98,238,658    94,884,411    98,030,207    94,857,283 
Diluted      98,524,121    95,235,559    98,335,822    94,857,283 

 

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, 2022 and December 31, 2021

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

 
   Note  June 30, 2022   December 31, 2021 
      $   $ 
Assets             
              
Current assets             
Cash  5   44,655    56,748 
Accounts receivable  6   2,620    2,097 
Prepaid expenses      2,036    526 
       49,311    59,371 
Non-current assets             
Investments  7   9    1,179 
Investment in Juanicipio  8   316,745    291,084 
Exploration and evaluation assets  3,9   29,207    20,254 
Property and equipment  10   419    484 
       346,380    313,001 
Total assets      395,691    372,372 
              
Liabilities             
              
Current liabilities             
Trade and other payables      1,494    1,500 
Current portion of lease obligation  10   144    110 
       1,638    1,610 
Non-current liabilities             
Lease obligation  10   215    275 
Deferred income taxes      2,218    2,557 
Provision for reclamation  9   409    409 
       2,842    3,241 
Total liabilities      4,480    4,851 
              
Equity             
              
Share capital  11   556,787    543,927 
Equity reserve      18,855    18,215 
Accumulated other comprehensive income      782    1,798 
Deficit      (185,213)   (196,419)
Total equity      391,211    367,521 
Total liabilities and equity      395,691    372,372 
              
Commitments and contingencies  17          

 

 

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, 2022 and 2021

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

 

      Three months ended   Six months ended 
      June 30,   June 30,   June 30,   June 30, 
      2022   2021   2022   2021 
   Note  $   $   $   $ 
                    
OPERATING ACTIVITIES                       
Income (loss) for the period      7,562    3,305    10,242    (357)
Items not involving cash:                       
Depreciation and amortization  10   34    39    68    68 
Deferred income tax expense (benefit)      1,270    (1,405)   (332)   242 
Exploration and evaluation assets written down  9   -    -    10,471    - 
Income from equity accounted Investment in Juanicipio  8   (12,347)   (4,820)   (26,109)   (5,452)
Share-based payment expense  11b,c,d   708    1,485    1,205    2,678 
Unrealized foreign exchange loss (gain)      201    (318)   216    (368)
                        
Movements in non-cash working capital                       
Accounts receivable      (43)   114    (105)   161 
Prepaid expenses      781    574    (1,509)   (624)
Trade and other payables      (3,196)   128    (841)   (168)
Net cash used in operating activities      (5,030)   (898)   (6,694)   (3,820)
                        
INVESTING ACTIVITIES                       
Exploration and evaluation expenditures  3,9   (2,549)   (2,218)   (3,840)   (3,815)
Acquisition of Gatling Exploration, net of cash acquired  3   (250)   -    (2,653)   - 
Investment in Juanicipio  8   (104)   (23,809)   (189)   (23,910)
Proceeds from disposition of equity securities  7   -    -    1,111    3,349 
Purchase of equipment  10   (13)   -    (13)   (4)
Net cash used in investing activities      (2,916)   (26,027)   (5,584)   (24,380)
                        
FINANCING ACTIVITIES                       
Issuance of common shares upon exercise of stock options  11a   32    117    32    192 
Payment of lease obligation (principal)  10   (25)   (18)   (53)   (41)
Net cash provided by (used in) financing activities      7    99    (21)   151 
                        
Effect of exchange rate changes on cash      346    324    206    383 
                        
Decrease in cash during the period      (7,593)   (26,502)   (12,093)   (27,666)
Cash, beginning of period      52,248    92,844    56,748    94,008 
Cash, end of period      44,655    66,342    44,655    66,342 

 

 

See accompanying notes to the condensed interim consolidated financial statements

  4

 

MAG SILVER CORP.

Condensed Interim Consolidated Statements of Changes in Equity

For the three and six months ended June 30, 2022 and 2021

(In thousands of US dollars, except shares - Unaudited)

 

                  Accumulated         
      Common shares       other         
      without par value   Reserve   comprehensive       Total 
      Shares   Amount   Equity   income (loss)   Deficit   equity 
   Note      $   $   $   $   $ 
Balance, January 1, 2021      94,813,122    496,604    16,906    10,628    (207,470)   316,668 
                                  
Stock options exercised  11a,b   75,066    1,315    (330)   -    -    985 
Stock options exercised cashless  11a,b   25,089    177    (177)   -    -    - 
Restricted and performance share units converted  11a,c   40,131    826    (826)   -    -    - 
Deferred share units converted  11a,d   159,810    1,663    (1,663)   -    -    - 
Share-based payment  11b,c,d   -    -    4,305    -    -    4,305 
Issued for cash      2,691,000    43,242    -    -    -    43,242 
Issued for property option payment      5,223    100    -    -    -    100 
Transfer of gain on disposal of equity securities                                 
 at FVOCI to deficit, net of tax  7   -    -    -    (5,026)   5,026    - 
                                  
Unrealized loss on equity securities  7   -    -    -    (4,401)   -    (4,401)
Deferred tax benefit on unrealized securities loss  7   -    -    -    597    -    597 
Income for the period      -    -    -    -    6,025    6,025 
Balance, December 31, 2021      97,809,441    543,927    18,215    1,798    (196,419)   367,521 
                                  
Stock options exercised  11a,b   3,125    39    (7)   -    -    32 
Stock options exercised cashless  11a,b   16,702    165    (165)   -    -    - 
Restricted and performance share units converted  11a,c   29,482    281    (281)   -    -    - 
Deferred share units converted  11a,d   25,000    218    (218)   -    -    - 
Shares issued on acquisition of Gatling Exploration  3,11a,b   774,643    11,212    -    -    -    11,212 
Shares issued in settlement of Gatling Exploration                                 
liability  3,11a,b   63,492    945    85    -    -    1,030 
Share-based payment  11b,c,d   -    -    1,226    -    -    1,226 
Transfer of gain on disposal of equity securities                                 
 at FVOCI to deficit, net of tax  7   -    -    -    (964)   964    - 
                                  
Unrealized loss on equity securities  7   -    -    -    (59)   -    (59)
Deferred tax benefit on unrealized securities loss  7   -    -    -    7    -    7 
Income for the period      -    -    -    -    10,242    10,242 
Balance, June 30, 2022      98,721,885    556,787    18,855    782    (185,213)   391,211 
                                  
Six months ended June 30, 2021                                 
Balance, January 1, 2021      94,813,122    496,604    16,906    10,628    (207,470)   316,668 
                                  
Stock options exercised  11a,b   16,386    246    (54)   -    -    192 
Stock options exercised cashless  11a,b   25,089    177    (177)   -    -    - 
Restricted and performance share units converted  11a,c   19,497    216    (216)   -    -    - 
Deferred share units converted  11a,d   80,836    902    (902)   -    -    - 
Share based payment  11b,c,d   -    -    2,678    -    -    2,678 
Issued for property option payment      5,223    100    -    -    -    100 
Transfer of gain on disposal of equity securities                                 
 at FVOCI to deficit, net of tax      -    -    -    (2,411)   2,411    - 
                                  
Unrealized loss on equity securities      -    -    -    (3,424)   -    (3,424)
Deferred tax benefit on unrealized securities loss      -    -    -    465    -    465 
Loss for the period      -    -    -    -    (357)   (357)
Balance, June 30, 2021      94,960,153    498,245    18,235    5,258    (205,416)   316,322 

 

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, 2022

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

 

1.NATURE OF OPERATIONS

 

MAG Silver Corp. (the “Company” or “MAG”) was incorporated on April 21, 1999 and is governed by the Business Corporations Act of the Province of British Columbia. Its shares are listed on both the Toronto Stock Exchange in Canada and the NYSE American Exchange in the United States of America.

 

The Company is a Canadian development and exploration company focused on becoming a top-tier primary silver mining company by exploring and advancing high-grade, district scale, silver-dominant projects in the Americas. The Company’s principal asset is a 44% interest in the Juanicipio Project (see Investment in Juanicipio, Note 8) located in Zacatecas, Mexico, which has substantially completed construction of a 4,000 tonnes per day processing plant, which will commence commissioning upon tie in to the national electrical grid expected in the third quarter of 2022. The Juanicipio Project is currently toll milling its mineralized material at two nearby Fresnillo plc (“Fresnillo”) facilities. The Company defers all acquisition, exploration and development costs related to the properties which are not yet in commercial production. The recoverability of these amounts is dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the development of the interests, and future profitable production, or alternatively, upon the Company’s ability to dispose of its interests on a profitable basis.

 

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

 

The Company’s capital and operating costs are affected by the cost of commodities and goods such as explosives, fuel, electrical power and supplies. Management of the Company assumes that the materials and supplies required for operations, development and commercial production will be available for purchase and that the Company will have access to the required amount of sufficiently skilled labour. As the Company relies on certain third-party suppliers and contractors, these factors can be outside its control and an increase in the costs of (due to inflation, rising interest rate environment, pandemics, impacts of the Russia and Ukraine conflict, or otherwise), or a lack of availability of, commodities, goods and labour may have an adverse impact on the Company’s financial condition and results of operations.

 

  6

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(i)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 (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). 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, 2021.

 

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, 2021 except as noted below.

 

The Company adopted the following accounting policy during the period:

 

Asset acquisition

Upon the acquisition of an asset or a group of assets and liabilities that does not constitute a business, the Company identifies and recognizes the individual identifiable assets acquired and liabilities assumed. The cost of the group is allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill.

 

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 August 12, 2022.

 

(ii)Critical Judgements, Significant Estimates and Assumptions

 

The Company makes certain critical judgements, significant estimates and assumptions in the process of applying the Company’s accounting policies. Management believes the estimates and assumptions 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 critical judgements, significant estimates and assumptions have been set out in Note 2 of the audited consolidated financial statements for the year ended December 31, 2021.

 

The Company considered the impact of the COVID-19 pandemic and Russia’s invasion of Ukraine and determined that their effects did not have a material impact on the significant judgments and estimates in these condensed interim consolidated financial statements.

 

  7

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

3.ACQUISITION OF GATLING EXPLORATION

 

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 (the “Transaction”) with the issuance of common shares of the Company and the advancement of a Canadian dollar (“C$”) $3 million convertible note receivable. Gatling is a Canadian gold exploration company focused on advancing the Larder Project, located in the prolific Abitibi greenstone belt in Northern Ontario, Canada. The Transaction was approved by the shareholders of Gatling on May 13, 2022 and on May 20, 2022 the Company completed the acquisition pursuant to which the Company acquired all of the common shares of Gatling by way of a court approved plan of arrangement. Under the terms of the arrangement each former Gatling shareholder became entitled to receive 0.0170627 of a common share of the Company in exchange for each share of Gatling held immediately prior to the arrangement. 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 Transaction. 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.

 

In addition, the Company also issued 43,687 replacement stock options and 53,525 replacement warrants (see Notes 11(a), 11(e))

 

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 fair value of identifiable assets acquired including intangible assets and liabilities assumed.

 

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

 

 

  8

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

 

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 

 

  9

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

4.GENERAL AND ADMINISTRATIVE EXPENSES

 

   Three months ended   Six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2022   2021   2022   2021 
    $    $    $    $ 
Accounting and audit   110    77    184    173 
Depreciation and amortization   34    39    68    68 
Filing and transfer agent fees   58    10    316    267 
General office expenses   276    331    363    441 
Insurance   530    360    953    609 
Legal   117    33    170    115 
Management compensation and consulting fees   1,254    627    2,023    1,319 
Share-based payment expense   708    1,485    1,205    2,678 
Shareholder relations   131    67    194    127 
Travel   64    -    76    5 
    3,282    3,029    5,552    5,802 

 

 

5.CASH

 

The Company’s cash consists of cash on hand and callable bank deposits.

 

 

6.ACCOUNTS RECEIVABLE

 

   June 30,   December 31, 
   2022   2021 
   $   $ 
Receivable from Minera Juanicipio (see Note 8 & 16)   2,337    1,944 
Value added tax ("IVA" and "GST")   280    152 
Other receivables   3    1 
    2,620   $2,097 

 

 

7.INVESTMENTS

 

The continuity of the Company’s investments in equity securities is as follows:

 

   June 30,   December 31, 
   2022   2021 
   $   $ 
Equity securities, beginning of period   1,179    11,951 
Disposition of equity securities at fair value   (1,111)   (6,371)
Unrealized loss for the period   (59)   (4,401)
Equity securities, end of period   9    1,179 

 

  10

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

During the six months ended June 30, 2022, the Company disposed of certain equity securities held as investments. The proceeds on disposition were $1,111 (year ended December 31, 2021: $6,371). In addition, the Company recognized a gain on disposal of $964 (net of $147 tax) (year ended December 31, 2021: $5,026 net of $784 tax) which was transferred from other comprehensive income (loss) to deficit. During the six months ended June 30, 2022, the Company recorded an unrealized loss of $59 (year ended December 31, 2021: $4,401) on its investment in equity securities designated as fair value through other comprehensive income (“FVTOCI”) instruments. A deferred tax benefit related to this unrealized loss in the period in the amount of $7 was also recorded (year ended December 31, 2021: $597) in other comprehensive income (loss).

 

 

8.INVESTMENT IN JUANICIPIO

 

The Company acquired a 100% interest in the Juanicipio property effective July 16, 2003. Pursuant to an agreement effective July 1, 2005 (the “Agreement”) with Industrias Peñoles, S.A. de C.V. (“Peñoles”), the Company granted Peñoles or any of its subsidiaries an option to earn a 56% interest in the Juanicipio property in Mexico in consideration for Peñoles conducting $5,000 of exploration on the property over four years and Peñoles purchasing $1,000 of common shares of the Company in two tranches for $500 each.

 

In mid 2007, Peñoles met all of the earn-in requirements of the Agreement. In December 2007, the Company and Peñoles created an operating company named Minera Juanicipio, S.A. de C.V. (“Minera Juanicipio”) for the purpose of holding and operating the Juanicipio property. In December 2007, all mineral rights and surface rights relating to the Juanicipio property held by the Company and Peñoles, respectively, were ceded into Minera Juanicipio. In 2008, MAG was notified that Peñoles had transferred its 56% interest of Minera Juanicipio to Fresnillo, a subsidiary of Peñoles, pursuant to a statutory merger. Minera Juanicipio is held 56% by Fresnillo and 44% by the Company. On December 27, 2021, the Company and Fresnillo created Equipos Chaparral, S.A. de C.V. (“Equipos Chaparral”) in the same ownership proportions (Fresnillo 56% / MAG 44%) 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,” and in reference to the project, the “Juanicipio Project.”

 

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.

 

Fresnillo is the operator of Juanicipio, and with its affiliates, beneficially owns 9.96% of the common shares of the Company as at June 30, 2022, as publicly reported.

 

The Company has recorded its investment in Juanicipio (“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.

 

  11

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

The Company’s investment relating to its interest in Juanicipio is detailed as follows:

 

   June 30,   December 31, 
   2022   2021 
   $   $ 
Juanicipio Project oversight expenditures incurred 100% by MAG   395    620 
Interest earned, net of interest contributed to Investment in Juanicipio   (843)   (1,316)
Cash contributions and advances to Juanicipio (see Note 16) (1)   -    73,524 
Total for the period   (448)   72,828 
Income from equity accounted Investment in Juanicipio (2)   26,109    15,686 
Balance, beginning of period   291,084    202,570 
Balance, end of period   316,745    291,084 

 

(1) A portion of the Investment in Juanicipio is in the form of interest bearing shareholder loans. The interest accrued within Juanicipio was capitalized to ‘Mineral interests, plant and equipment and the interest recorded by the Company on the loan totaling $1,570 for the six months ended June 30, 2022 (Year ended December 31, 2021: $1,316) was credited to the Investment in Juanicipio account as an eliminating related party entry (see Note 16). Offsetting this amount in the six months ended June 30, 2022, was interest receivable of $419 (Year ended December 31, 2021: nil) which was converted into additional shareholder loans and $179 was converted into additional shareholder capital.

 

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

 

 

  12

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

(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

 

   Three months ended   Six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2022   2021   2022   2021 
   $   $   $   $ 
                 
Sales   55,224    11,256    120,140    21,341 
Cost of sales:                    
Production cost   12,717    2,373    27,981    4,259 
Depreciation and amortization   5,245    -    8,676    - 
Cost of sales   17,962    2,373    36,657    4,259 
Gross profit   37,262    8,883    83,483    17,082 
Consulting and administrative expenses   (1,376)   (236)   (2,908)   (556)
Extraordinary mining duty   (109)   (51)   (212)   (99)
    35,777    8,596    80,363    16,427 
Exchange gain (losses) and other   23    1,199    (798)   124 
Income tax expense   (8,439)   1,160    (20,926)   (4,160)
                     
Income for the period   27,361    10,955    58,639    12,391 
                     
MAG's 44% equity income   12,039    4,820    25,801    5,452 
Loan interest on mining assets - MAG 44%   308    -    308    - 
MAG's 44% equity income   12,347    4,820    26,109    5,452 

 

 

 

 

 

 

 

 

 

  13

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

Juanicipio Statements of Financial Position

 

   June 30,   December 31, 
   2022   2021 
   $   $ 
         
Cash and cash equivalents   37,504    18,972 
Value added tax and other receivables   2,199    25,580 
Concentrate sales receivable from Fresnillo   20,884    18,853 
Inventories          
Materials and supplies   3,009    - 
Stockpiles   14,874    3,234 
Prepaids and other assets   2,617    104 
Total current assets   81,087    66,743 
Right-of-use assets   1,731    2,052 
Mineral interests, plant and equipment   714,127    644,609 
Deferred tax assets   7,690    5,254 
Total assets   804,635    718,658 
           
Payables to Peñoles and other vendors   28,414    19,364 
Interest and other payables to shareholders   2,014    4,279 
Income tax payable   26,890    3,471 
Total current liabilities   57,318    27,114 
Lease liabilities   1,718    2,053 
Provisions          
Reserves for retirement and pension   28    20 
Reclamation and closure   4,241    4,050 
Deferred tax liabilities   27,176    31,266 
Total liabilities   90,481    64,503 
Shareholders equity including shareholder advances   714,153    654,155 
Total liabilities and equity   804,634    718,658 

 

  14

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

The Juanicipio Project has not reached commercial production as of June 30, 2022 as the processing facility is awaiting regulatory approval to connect to the national power grid, at which time commissioning will commence. However, the underground mine is now in stopes with mineralized material being processed through Fresnillo’s plants with metals being refined and sold, and effectively ready for its intended use commencing January 2022. Depreciation on mining equipment, infrastructure and mineral assets has been recognised on a units of production basis for the three and six months ended June 30, 2022.

 

Expenditures on mineral interests, plant and equipment capitalized directly by Juanicipio for the six months ended June 30, 2022 amounted to $69,518 (year ended December 31, 2021: $262,829).

 

 

9.EXPLORATION AND EVALUATION ASSETS

 

(a) 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 prospective land claim package in the Black Hills of South Dakota. The Company was to make a final cash or share payment of $150 by May 17, 2022, the fifth anniversary of the agreement in order to complete the earn-in. 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. Concurrent efforts by the Company to find a partner or buyer for the project were unsuccessful and the Company provided formal notice that it would not be make the final $150 option payment in May 2022. Consequently, the Company wrote-down the property’s full carrying amount of $10,471 during the six months ended June 30, 2022.

 

(b) In 2018, the Company entered into an option agreement with another 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 October 2020 and another $150 in December 2021. To earn 100% interest in the property, the Company must make remaining cash payments totaling $1,550 over the next 7 years, and fund a cumulative of $30,000 of eligible exploration expenditures by 2028 (as of June 30, 2022, the Company has incurred $13,302 of eligible exploration expenditures on the property). As at June 30, 2022, 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.

 

(c) During the six months ended June 30, 2022, the Company acquired the Larder Project in Ontario (see Note 3).

 

  15

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

To June 30, 2022, the Company has incurred the following exploration and evaluation expenditures on these earn-in projects:

 

   Three months ended   Six months ended   Year ended 
   June 30, 2022   June 30, 2022   December 31, 2021 
   $   $   $ 
Exploration and evaluation assets:               
Acquisition costs               
Larder Project acquisition   15,187    15,187   $- 
Option and other payments   -    -   $300 
Total acquisition costs   15,187    15,187    300 
Geochemical   142    163    228 
Camp and site costs   131    231    319 
Drilling   2,016    2,812    3,343 
Geological consulting   299    582    1,968 
Geophysical   64    126    215 
Land taxes and government fees   -    27    721 
Legal, community and other consultation costs   83    191    475 
Travel   50    81    213 
Total for the period   17,972    19,400    7,782 
Balance, beginning of period   11,211    20,254    12,472 
Less: Amounts written off   -    (10,471)   - 
Balance, end of period   29,183    29,183    20,254 

 

Included in exploration and evaluation assets at June 30, 2022, were liabilities for trade and other payables of $879 (December 31, 2021: $518).

 

 

  16

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

10.PROPERTY AND EQUIPMENT

 

As at June 30, 2022, the Company had the following property and equipment:

 

Cost  Office and
computer
equipment		   Exploration
camp and
equipment		   Right of use asset
(see Leases
below)		   Total 
   $   $   $   $ 
Balance, January 1, 2021   487    411    550    1,448 
Additions and remeasurements   2    3    (5)   - 
Balance, December 31, 2021   489    414    545    1,448 
Additions and remeasurements   -    13    5    18 
Balance, June 30, 2022   489    427    550    1,466 

 

Accumulated depreciation and amortization  Office and
computer
equipment		   Exploration
camp and
equipment		   Right of use asset   Total 
   $   $   $   $ 
Balance, January 1, 2021   460    111    202    773 
Depreciation and amortization   8    45    138    191 
Balance, December 31, 2021   468    156    340    964 
Depreciation and amortization   3    15    65    83 
Balance, June 30, 2022   471    171    405    1,047 

 

Carrying amounts  Office and
computer
equipment		   Exploration
camp and
equipment		   Right of use asset   Total 
   $   $   $   $ 
At December 31, 2021   21    258    205    484 
At June 30, 2022   18    256    145    419 

 

Lease obligation

 

Minimum lease payments in respect of the lease obligation and the effect of discounting are as follows:

 

   June 30,   December 31, 
   2022   2021 
   $   $ 
Undiscounted minimum lease payments          
Less than one year   153    154 
Two to three years   233    314 
    386    468 
Effect of discounting   (27)   (83)
Present value of minimum lease payments - total lease obligation   359    385 
Less: current portion   (144)   (110)
Long-term lease obligation   215    275 

 

  17

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

For the three and six months ended June 30, 2022, the Company recognized $12 and $24 respectively (three and six months ended June 30, 2021: $15 and $30 respectively), of interest expense on the lease obligation which is included in ‘General office expenses’.

 

 

11.SHARE CAPITAL

 

(a)Basic and diluted weighted average number of shares outstanding

 

       Three months ended   Six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2022   2021   2022   2021 
Basic weighted average shares outstanding   98,238,658    94,884,411    98,030,207    94,857,283 
Effect of dilutive common share equivalents (1)   285,463    351,148    305,615    - 
Diluted weighted average shares outstanding   98,524,121    95,235,559    98,335,822    94,857,283 
Antidilutive securities   1,365,853    912,866    1,365,853    1,819,743 

 

 (1)In the six months ended June 30, 2021 comparative period, common share equivalents were not included for the purpose of calculating diluted loss per share as their effect would have been anti-dilutive.

 

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

 

As at June 30, 2022, there were 98,721,885 common shares outstanding (December 31, 2021: 97,809,441).

 

During the six months ended June 30, 2022, 3,125 stock options were exercised (six months ended June 30, 2021: 16,386) for cash proceeds of $32 (six months ended June 30, 2021: $192). An additional 51,588 stock options (six months June 30, 2021: 54,274) were exercised under the cashless exercise provision of the stock option plan whereby 16,702 (six months June 30, 2021: 25,089) shares were issued in settlement of the stock options and the remaining 34,886 were cancelled (six months ended June 30, 2021: 29,185).

 

During the six months ended June 30, 2022, 5,000 restricted share units and 24,482 performance share units were converted into common shares (six months ended June 30, 2021: 19,497 and nil respectively).

 

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.

 

During the six months ended June 30, 2022, 25,000 deferred share units (six months ended June 30, 2021: 80,836) were converted into common shares by a former director of the Company.

 

  18

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

(b)Stock options

 

The Company may enter into Incentive Stock Option Agreements with officers, employees, and consultants. On June 18, 2020, 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 11(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, 2022, there were 1,154,912 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, for the periods:

 

       Weighted       Weighted 
   Period ended   average   Year ended   average 
   June 30,   exercise price   December 31,   exercise price 
   2022   (C$/option)   2021   (C$/option) 
                 
Outstanding, beginning of period   988,727    16.77    1,018,067    16.07 
Granted    220,898    18.76    100,000    22.40 
Exercised for cash   (3,125)   12.75    (75,066)   16.48 
Exercised cashless   (51,588)   14.25    (54,274)   14.44 
                     
Outstanding, end of period   1,154,912    17.27    988,727    16.77 

 

During the six months ended June 30, 2022, 220,898 stock options to employees were granted (six months ended June 30, 2021: 50,000) with a weighted average grant date fair value of $1,402 (C$1,771) or $6.35 (C$8.02) per option.

 

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

 

   June 30, 2022 
     
Risk-free interest rate   2.54%
Expected volatility   61%
Expected dividend yield   nil 
Expected life (years)   3 

 

  19

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

During the six months ended June 30, 2022, 54,713 stock options were exercised (six months ended June 30, 2021: 70,660) with a weighted average market share price at the date of exercise of C$21.15 (six months ended June 30, 2021: C$26.95).

 

The following table summarizes the Company’s stock options, excluding the Gatling replacement options, outstanding and exercisable as at June 30, 2022:

 

Exercise price  Number   Number   Weighted average remaining 
(C$/option)  outstanding   exercisable   contractual life (years) 
12.75   6,250    9,375    2.35 
13.46   229,318    229,318    1.78 
13.91   85,263    85,263    0.43 
14.98   282,128    195,053    2.66 
17.02   100,000    -    4.77 
20.20   120,898    -    4.89 
21.26   50,000    -    4.42 
21.57   231,055    77,019    3.44 
23.53   50,000    16,667    3.55 
12.75 - 23.53   1,154,912    612,695    3.01 

 

During the six months ended June 30, 2022, the Company recorded share-based payment expense of $680 (six months ended June 30, 2021: $787) relating to stock options vested to employees and consultants in the period of which $21 (six months ended June 30, 2021: nil) was capitalized to exploration and evaluation assets.

 

During the six months ended June 30, 2022, the Company issued 43,687 replacement stock options pursuant to the Gatling acquisition with a weighted average grant date fair value of $84 (C$107) or $1.92 (C$2.45) per option summarized in the following table.

 

Exercise price  Number   Number   Weighted average remaining 
(C$/option)  outstanding   exercisable   contractual life (years) 
21.40   1,706    1,706    2.06 
21.69   9,991    9,991    2.12 
25.79   4,265    4,265    1.56 
26.38   11,090    11,090    1.48 
39.86   14,076    14,076    1.06 
45.72   853    853    0.09 
68.00   1,706    1,706    0.21 
21.40 - 68.00   43,687    43,687    1.44 

 

 

(c)Restricted and performance share units

 

On June 18, 2020, 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 Restricted Share Units (“RSUs”) and Performance Share Units (“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 11(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%.

 

  20

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

During the six months ended June 30, 2022, 80,535 RSUs were granted (six months ended June 30, 2021: 10,000) under the Company’s Share Unit Plan with 54,151 vesting in 12 months, 13,192 vesting in 24 months and another 13,192 vesting in 36 months. The RSUs had a weighted average grant date fair value of $14.67 per RSU (six months ended June 30, 2021: $18.44) as determined using the fair market value of the common shares on the date of grant. During the six months ended June 30, 2022, 5,000 RSUs (six months ended June 30, 2021: 19,497) were converted and settled with an equivalent number of common shares.

 

During the six months ended June 30, 2022, 79,156 PSUs were granted (six months ended June 30, 2021: nil) under the Company’s Share Unit Plan with a five-year term. Of the grant, 59,370 PSUs vest upon the achievement of specified performance targets over a three-year performance period. PSUs for which the performance targets are not achieved during the performance period are automatically forfeited and cancelled. The remainder of the grant, 19,786 PSUs are subject to a market share price performance factor measured over a three-year performance period, resulting in a PSU payout range from 50% (9,893) to 150% (29,679) PSUs. The PSUs had a weighted average grant date fair value of $16.15 per PSU as determined using the fair market value of the common shares on the date of grant.

 

During the six months ended June 30, 2022, 24,482 PSUs (six months ended June 30, 2021: nil) were converted and settled with an equivalent number of common shares.

 

The three-year performance period for the 2019 PSU grant ended on April 2022 and resulted in a PSU vesting of 96.92% or 84,960 PSUs. Consequently, 2,704 PSUs did not vest and were cancelled.

 

As at June 30, 2022, there were 288,871 PSUs and 99,644 RSUs issued and outstanding (December 31, 2021: 240,765 and 24,109 respectively) under the Share Unit Plan, of which 89,236 PSUs and 19,109 RSUs had vested (December 31, 2021: 6,346 PSUs and 10,776 RSUs) and are convertible into common shares of the Company. Included in the PSUs at June 30, 2022 are 59,943 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 50% (29,971 PSUs) to 150% (89,914 PSUs).

 

  21

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

During the six months ended June 30, 2022, the Company recognized a share-based payment expense of $482 (six months ended June 30, 2021: $883) relating to RSUs and PSUs vesting in the period.

 

(d)Deferred share units

 

On June 18, 2020, 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, 2022, no DSUs were granted under the plan and 4,104 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, 2021: 46,054 and 2,458 respectively). A DSU share-based payment expense of $64 was recorded in the six months ended June 30, 2022 (six months ended June 30, 2021: $1,008). 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, 2022, 25,000 DSUs (six months ended June 30, 2021: 80,836) were converted and settled in common shares by a former director of the Company. As at June 30, 2022, there are 448,477 DSUs (December 31, 2021: 469,373) issued and outstanding under the DSU Plan, all of which have vested and 61,295 of which are available for settlement to a director no longer with the Company.

 

As at June 30, 2022, there are 1,991,904 common shares (December 31, 2021: 1,722,974) issuable under the combined share compensation arrangements referred to above (the Plan, the Share Unit Plan and the DSU Plan) representing 2.02% (December 31, 2021: 1.76%) of the issued and outstanding common shares on a non-diluted basis, and there are 3,931,409 (December 31, 2021: 4,145,592) share-based awards available for grant under these combined share compensation arrangements.

 

(e)Replacement warrants

 

During the six months ended June 30, 2022, the Company issued replacement warrants pursuant to the Gatling acquisition summarized in the following table:

 

Exercise price  Number   Number   Weighted average remaining 
(C$/warrant)  outstanding   exercisable   contractual life (years) 
35.17   19,101    19,101    1.04 
41.03   34,424    34,424    0.48 
35.17 - 41.03   53,525    53,525    0.68 

 

 

  22

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

12.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 (comprising of share capital, equity reserve, accumulated other comprehensive income (loss) and deficit) and lease obligation, net of cash and investments in equity securities as follows:

 

   June 30,   December 31, 
   2022   2021 
   $   $ 
Equity   391,211    367,521 
Lease obligation (Note10)   359    385 
Cash (Note 5)   (44,655)   (56,748)
Investments (Note 7)   (9)   (1,179)

 

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 $47,673 as at June 30, 2022. The Company may require additional capital in the future to meet its future project and other related expenditures (see Notes 8, 9, and 17). Future liquidity may depend upon the Company’s ability to arrange debt or additional equity financings.

 

As at June 30, 2022, the Company does not have any long-term debt and is not subject to any externally imposed capital requirements. In the fourth quarter of 2021, the Company signed a commitment letter for a fully underwritten $40,000 revolving credit facility subject to the completion of definitive documentation which is still being finalized.

 

 

13.Financial risk management

 

The Company’s operations consist of the acquisition, exploration and development of projects primarily 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 six months ended June 30, 2022

(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 (see Note 8). Juanicipio is exposed to commodity price risk, specifically to the prices of silver, gold, 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 both operating and free cash flow. Juanicipio does not hedge silver and gold prices and does not have any such positions outstanding at June 30, 2022.

 

(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, is transitioning into commercial production and now has pre-production sales (see Note 8). Juanicipio sells and receives payment at market terms, under an offtake agreement upon delivery of its concentrates to Met-Mex Peñoles, S.A. de C.V. (“Met-Mex”), a related party to Fresnillo. Met-Mex and Fresnillo have a good history and credit rating, and 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.

 

(iii)Mexican value added tax

As at June 30, 2022, the Company had a receivable of $73 from the Mexican government for value added tax (Note 6). As at June 30, 2022, Juanicipio, in which the Company has a 44% interest, had a receivable of $2,036 from the Mexican government for value added tax (Note 8) (MAG’s attributable portion $896). Management expects the balances to be fully recoverable within both entities.

 

  24

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

(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 loan receivable from Juanicipio which is classified as an Investment in Juanicipio in the consolidated statement of financial position, as follows:

 

   June 30,   December 31, 
   2022   2021 
   $   $ 
Cash (Note 5)   44,655    56,748 
Accounts receivable (Note 6)   2,620    2,097 
Loan to the Juanicipio Entities (Note 8 and Note 16) (1)   96,513    106,036 
    143,788    164,881 

 

(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 development plans, and its various optional property and other commitments (see Notes 8, 9 and 17). 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 the prior year. 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 Canadian dollar, relative to the US$. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign exchange rates.

 

Exposure to currency risk

 

As at June 30, 2022, 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   19    1,004 
Accounts receivable   73    207 
Investments   -    9 
Accounts payable   (108)   (387)
Lease obligations   -    (359)
Net (liabilities) assets exposure   (16)   474 

 

  25

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

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 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 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 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, 2022 is 320 thousand pesos (June 30, 2021: 2.2 million net pesos monetary assets). A 10% appreciation or depreciation in the peso against the US$ would have 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 (see Note 8). 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 notedo 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 8) 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 June 30, 2022 is 17.7 million pesos (June 30, 2021: 469 million net pesos denominated monetary assets). A 10% appreciation in the peso against the US$ would result in a loss before tax at June 30, 2022 of $1,967 (June 30, 2021: $2,632 gain) in Juanicipio, of which the Company would record its 44% share being $865 loss from equity investment in Juanicipio (June 30, 2021: $1,158 income), while a 10% depreciation in the peso relative to the US$ would result in an equivalent loss.

 

In the six months ended June 30, 2022, the Mexican pesos slightly strengthened against the US$ from 20.52 Pesos/US$ on December 31, 2021 to 20.14 on June 30, 2022, resulting in an exchange gain in Juanicipio of $139 (the Company’s 44% share $61).

 

C$ relative to the US$

 

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

 

  26

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

As general and administrative overheads in Canada are 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, 2022 is C$611 thousand (June 30, 2021: C$9.5 million). A 10% appreciation or depreciation in the C$ against the US$ would have immaterial 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.

 

(f)Political and country risk

 

The Company conducts operations in Canada, the United States of America and Mexico, and as such the Company’s operations are exposed to various levels of political and economic risks by factors outside of the Company’s control. These potential factors include, but are not limited to: royalties and tax increases or claims by government bodies, rising interest rates, supply chain constraints and general cost escalation in the current inflationary environment heightened by the invasion of Ukraine by Russia, expropriation or nationalization, foreign exchange controls, extreme fluctuations in foreign currency exchange rates, import and export tariffs and regulations, lawlessness, cancellation or renegotiation of contracts and environmental and permitting regulations. The Company currently has no political risk insurance coverage against these risks.

 

The Company is unable to determine the impact of these risks on its future financial position or results of operations. Changes, if any, in mining or investment policies or shifts in political attitude of foreign countries may substantially affect the Company’s exploration, development and production activities.

 

 

14.FINANCIAL INSTRUMENTS AND FAIR VALUE DISCLOSURES

 

The Company’s financial instruments include cash, accounts receivable, investments, trade and other payables and lease obligation. The carrying values of cash, accounts receivable, trade and other payables and lease obligation 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:

 

  27

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

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

 

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, 2022  Level 1   Level 2   Level 3   Total 
   $   $   $   $ 
Cash   44,655    -    -    44,655 
Investments (Note 7)(1)   9    -    -    9 
    44,664    -    -    44,664 

 

As at December 31, 2021  Level 1   Level 2   Level 3   Total 
   $   $   $   $ 
Cash   56,748    -    -    56,748 
Investments (Note 7)(1)   1,179    -    -    1,179 
    57,927    -    -    57,927 

 

(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, 2022 or during the year ended December 31, 2021.

 

 

15.SEGMENTED INFORMATION

 

The Company operates primarily in one operating segment, being the exploration and development of mineral properties in North America. The Company’s principal asset, its 44% ownership in the Juanicipio Project, 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.

 

  28

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

16.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 discovery and acquisition of the Juanicipio property.

 

During the period, the Company incurred expenses with Cascabel and IMDEX as follows:

 

   Three months ended   Six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2022   2021   2022   2021 
    $    $    $    $ 
                     
Fees related to Dr. Megaw:                    
Exploration and marketing services   64    72    132    145 
Travel and expenses   7    6    15    9 
Other fees to Cascabel and IMDEX:                    
Administration for Mexican subsidiaries   14    14    27    27 
Field exploration services   48    46    88    86 
    133    138    262    267 

 

All transactions are incurred in the normal course of business, and are negotiated on terms between the parties which are believed to represent fair market value 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, 2022 is $34 related to these services (December 31, 2021: $22).

 

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

 

The Company holds various mineral property claims in Mexico upon which full impairments have been recognized. The Company is obligated to a 2.5% NSR royalty on the Cinco de Mayo property payable to the principals of Cascabel under the terms of an option agreement dated February 26, 2004, whereby the Company acquired a 100% interest in the property from Cascabel, and under the terms of assignment agreements entered into by Cascabel with its principals.

 

The immediate parent and ultimate controlling party of the consolidated group is MAG Silver Corp. (incorporated in British Columbia, Canada).

 

  29

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

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

 

   Country of   Principal   MAG's effective interest 
Name  Incorporation  Project   2022(%)   2021(%) 
                
Minera Los Lagartos, S.A. de C.V.  Mexico   (44%)   100%   100%
Gatling Exploration Inc.  Canada   (100%)   100%   - 

 

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

 

Juanicipio, created for the purpose of holding and operating the Juanicipio Project, are held 56% by Fresnillo plc (“Fresnillo”) and 44% by the Company through Minera Los Lagartos, S.A. de C.V. Fresnillo is the operator of Juanicipio, and with its affiliates, beneficially owns 10.0% of the common shares of the Company as at June 30, 2022, as publicly reported. Juanicipio is governed by a shareholders agreement and corporate by-laws. All costs relating to the project and Juanicipio are required to be shared by the Company and Fresnillo pro-rata based on their ownership interests in Juanicipio (see Note 8).

 

As at June 30, 2022, Fresnillo and the Company have advanced $219,358 as shareholder loans (MAG’s 44% share $96,513) to Juanicipio, bearing interest at 3 and 6 month LIBOR + 2%. During the six months ended June 30, 2022, the interest accrued within Juanicipio was capitalized to ‘Mineral interests, plant and equipment and the interest recorded by the Company on the loans totaling $1,570 has therefore been applied to the Investment in Juanicipio account reducing its balance as an eliminating related party entry (see Note 8).

 

During the period, compensation of key management personnel (including directors) was as follows:

 

   Three months ended   Six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2022   2021   2022   2021 
    $    $    $    $ 
Salaries and other short term employee benefits   412   $359    828    645 
Share-based payments (Note 11(b), (c ), and (d))   354    1,109    603    1,850 
    766    1,468    1,431    2,495 

 

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 and the Chief Financial Officer.

 

 

  30

MAG SILVER CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022

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

 

17.COMMITMENTS AND CONTINGENCIES

 

The following table discloses the contractual obligations of the Company and its subsidiaries as at June 30, 2022 for committed exploration work and committed other obligations.

 

   Total   Less than
1 year		   1-3 Years   3-5 Years   More than
5 years		 
   $   $   $   $   $ 
                     
Committed exploration expenditures   -    -    -    -    - 
                          
Minera Juanicipio (1)&(2)   -    -    -    -    - 
                          
Consulting contract commitments   660    363    218    79    - 
Total Obligations and Commitments   660    363    218    79    - 

 

 (1)Although the Company makes cash advances to Juanicipio as cash 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 total $59,359 (December 31, 2021: $76,632) and purchase orders issued for project capital and sustaining capital total $20,426 (December 31, 2021: $26,467), with respect to the Juanicipio Project on a 100% basis as at June 30, 2022.

 

 

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 also has discretionary commitments for property option payments and exploration expenditures as outlined above in Note 9 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 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.

 

 

 

31