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Message: EXCELLON REPORTS ANNUAL LOSS OF $7,044,666
Toronto Stock Exchange – EXN
No. 25 – 2008
EXCELLON REPORTS ANNUAL LOSS OF $7,044,666
Toronto, Ontario – October 28, 2008 – Excellon Resources Inc. (TSX: EXN) (the “Company” or “Excellon”) reports net loss of $7,044,666 for the year ended July 31, 2008, and $4,829,394 for the three month period ended July 31, 2008. [For full details, please see the Company’s Management Discussion & Analysis, which was filed on SEDAR, www.sedar.com, on October 28, 2008.]
2008 Highlights:
Produced 1,476,676 ounces of silver, 9,790,717 pounds of lead, and 10,861,297 pounds of zinc
Received a new Mineral Resource estimate, more than doubling the Indicated Resource from that of May 2006 and intersected additional sulphide mineralization since the cut-off date of the new estimate
Subsequent to year-end received all permits necessary for an on-site flotation mill and tailings impoundment area, procured all major equipment and began construction in October 2008
Completed $10.0 million private placement equity financing
Loss of $0.05 per share
Financial Highlights
(please see pdf file attached)
Mining Operations
Shipments of crushed ore to the Naica milling facility ["Naica mill"] of Minera Maple, S.A. de C.V. [a subsidiary of Industrias Penoles S.A. de C.V. ["Penoles"]] were 44,946 tonnes for the year ended July 31, 2008 compared with 45,691 tonnes in the previous year. For the three months ended July 31, 2008, shipments were 8,713 tonnes compared with 11,080 tonnes in the three months ended April 30, 2008. Shipments currently average approximately 3,750 tonnes per month. Production from the Naica mine has been lower and as a result deliveries of Platosa ore have been reduced.
Shipments in the year averaged 3,746 tonnes per month [2007 – 3,808 tonnes per month]. Ore shipments in the current year were interrupted for a period of time due to a labor strike at Naica in January and February. In addition to the work stoppage at Naica, there were additional negative impacts on the Company's ore shipments during the year due to periodic lower rates of production at the Naica mine as well as a major maintenance service to the Naica mill process equipment.
In late May during the routine development of a third ventilation raise in the north western section of the Platosa Mine, there was an unexpected intersection of a water bearing formation at the 140 metre elevation. This resulted in a water inflow that exceeded the pumping capacity of the mine dewatering pumps and a suspension of mining activity. The Company successfully sealed the water inflow and placed a concrete safety barrier in the access drift to the raise during the grouting process. Drill testing has verified the integrity of both the plug in the raise and the barrier in the drift.
Following the water inflow event normal operations were resumed. Test drilling has been implemented ahead of mine development in new areas as well as an extensive study of the mine hydrology and alternative dewatering methods.
The average ore grades shipped during the year ended July 31, 2008 were 1,022.5 g/t silver [2007 – 1,593.3 g/t], 9.9% lead [2007 – 10.2%] and 11.0% zinc [2007 – 8.9%] which were primarily mined from the north western part of the Guadalupe Manto and included several higher grade zones that were discovered during mine development and were outside the 2008 Resource estimate.
The Company's directors formally approved the construction of a 350 tonne per day mill at Platosa ["Platosa Mill"] in April. Following the decision, work immediately began to procure major equipment and move the project from the basic engineering stage into detailed design. DRA Americas, based in Peterborough, Ontario, has been engaged to complete process design, major equipment procurement and oversee the project execution. RENMO S.A. de C.V. of San Louis Potosi, Mexico has been engaged to perform detailed design and construction of the mill.
The Platosa Mill construction started in late September following receipt of all required permits from the Mexican environmental agency, SAMARNAT. Procurement of all the major equipment is complete and some off site fabrication work has started. It is expected that construction of the Platosa Mill could be completed late in the first quarter or early in the second quarter of calendar 2009 at which time mill commissioning will commence.
The second contract for the purchase of ore from Platosa by Peñoles for the period of January 2007 to December 2007 was agreed in April 2008. Later in April, Peñoles presented proposed terms for 2008. A discussion of terms for 2008 with Penoles is ongoing.
Mine development and production progressed towards the Guadalupe South Manto in parallel with continued development and mining in the northwestern part of the main Guadalupe Manto. Recent development to the southwest has discovered an ore connection between the Guadalupe and Guadalupe South Mantos and this area has been sustaining recent mine production outside of the 2008 Resource.
The following are the shipping statistics for the years ended July 31, 2008 and 2007:
(please see pdf file attached)
[1] Oz/t is not a generally accepted unit measure as it combines imperial and metric units. However, it is the unit of measure upon which the Company's settlements with Peñoles are based. The generally accepted units of measure are g/t and oz/T.
Subsequent to year end, on October 4, 2008 the Company temporarily suspended production at the Platosa mine due to an unexpected water bearing fault that was intersected by normal mine development. The water inflow from this fault exceeded the mine's pumping capacity and as a result water has risen to the natural level of the water table in the mine. No employees were injured and all mobile equipment was brought to surface. Drilling and grouting operations to seal the fault have begun and on completion dewatering of the mine will resume to restore production. Excellon was already in the process of reviewing the mine hydrology and dewatering plans and has engaged industry recognized consulting hydrologists to assist in the review of the Platosa mine hydrology and dewatering plans.
Exploration
The Company's exploration efforts in fiscal 2008 and into October 2008 remained focused in two geographic areas, the immediate Platosa mine area and the Saltillera area five kilometres west of the mine. In the immediate mine area the focus is on finding additional high-grade mantos. In addition, during the year geological evidence of the potential for larger volume medial and proximal mineralization in this area was found and is being pursued.
The district-scale regional exploration program is focused on determining how sulphide mineralization, both at surface and intersected in diamond drilling, alteration, intrusion types and host rocks may indicate the location of large-tonnage proximal CDR mineralization in this portion of the property.
In the immediate mine area there are three primary objectives:
To further define and add to the known distal-style, high-grade CRD Mineral Resources;
To develop additional targeting tools and new drilling targets by carrying out ground geophysical surveys (induced polarization (IP), magnetic and gravity); and
To discover new mantos by drilling the geological, structural, geochemical, biogechemical and geophysical targets developed by the 2008 and previous surveys.
In the Saltillera area, the district-scale search for proximal-style CRD sulphide mineralization was continued. Ground geophysical surveys (IP, magnetic and gravity) were carried out and the results integrated into the Company’s targeting protocols. A small geological team was formed and dedicated to compiling and studying all geotechnical data for the area and preparing recommendations for further drilling.
From October 2007 to the end of September 2008, four diamond drilling rigs were in operation. In late September 2008 the Company announced that two drills were being temporarily released as it reduced operating expenses in response to lower metal prices. The remaining two rigs are being deployed between the immediate mine and Saltillera areas based on results and as targets are developed. The exploration team remains intact and those not involved with day-to-day drilling activity will compile and analyze data, which has been accumulated during the historic and ongoing exploration programs on the property.
Several exploration successes were achieved during the year and into October 2008 in both the mine area and in the district-scale exploration program. These were as follows:
The Company received an updated and significantly increased Mineral Resource estimate, more than doubling the Indicated Resource and including an important Inferred Resource, prepared as of February 3, 2008;
Drilling in the immediate Platosa mine area subsequent to February 3, 2008 encountered additional significant manto-style sulphide mineralization. Press releases dated February 21, April 23, June 5, and August 6, 2008 discussed assays and/or visual results for five, 16, 16 and 12 new intersections respectively. These intersections ranged from 0.20 metres (m) to 8.70 m in estimated true thickness. Details of intersections for each recognized manto or zone are provided in the table below. All interval widths are estimated true thicknesses. The reader is referred to the press releases for complete details;
Included within the resource was tonnage from the Rodilla Manto, a new discovery located 75 m northeast of the northeast portion of the Guadalupe Manto. Subsequent to the preparation of the new estimate, drilling confirmed that the Guadalupe and Rodilla mantos were connected;
Of particular importance was the discovery of the new NE Rodilla Manto 75 to 200 m northeast of the Rodilla Manto. Massive and semi-massive sulphide intersections, some with short inclusions of weakly mineralized limestone, ranging from 0.45 to 8.25 m in estimated true thickness have been cut. As of mid-October 2008 the NE Rodilla Manto has been defined as an irregularly shaped body occurring within a surface area of roughly 120 m from southwest to northeast and 100 m from north to south. It remains open in several directions and its evaluation continues;
During in-fill drilling near to and southeast of the Guadalupe Manto, new massive sulphides were found in the South Central Guadalupe area, located northwest of the 6A Manto and east of the mined-out N-1 Manto. This area is easily accessible from existing mine openings;
Following up on several intersections of disseminated and patchy sulphides, massive sulphides defining the NE-1 Manto were discovered 100 m east of the Rodilla Manto;
Additional sulphide mineralization was intersected immediately off the northwest corner of the principal Guadalupe Manto, where it is presently accessible from ongoing mine workings; and
Finally, ongoing underground development encountered several areas of massive sulphide mineralization not intersected during surface drilling programs.
Qualified Persons
Mr. G. Ross MacFarlane, PEng, Mr. John Sullivan, BSc., PGeo. and Dr. Peter Megaw, PhD, CPG, have acted as the Qualified Persons, as defined in NI 43-101, with respect to the disclosure of the scientific and technical information contained in this MD&A and have supervised the preparation of the technical information on which such disclosure is based.
Mr. MacFarlane is a graduate Mining Engineer with over 30 years of wide ranging experience in the mining industry. His experience includes senior responsibilities in the operation of mines and mills as well as mine project developments from feasibility to construction and the start-up of operations in Canada as well as in South America, Europe and Asia. Mr. MacFarlane is not independent of Excellon as he is an officer and shareholder and holds common share purchase options.
Mr. Sullivan is an economic geologist with over 35 years of experience in the mineral industry. Most recently a senior geologist at a Toronto-based international geological and mining engineering consulting firm, he has directed exploration programs, managed field offices and evaluated properties in Canada, Europe and Latin America. Mr. Sullivan is not independent of Excellon as he is an officer and holds common share purchase options.
Dr. Megaw has a PhD in geology and more than 25 years of relevant experience focused on silver and gold mineralization, and exploration and drilling in Mexico. He is a Certified Professional Geologist [CPG 10227] by the American Institute of Professional Geologists and an Arizona Registered Geologist [ARG 21613]. Dr. Megaw is not independent of Excellon as he is a shareholder.
Results of Operations
Year ended July 31, 2008 compared to year ended July 31, 2007
During the year ended July 31, 2008, the Company recorded net loss and comprehensive loss of $7,044,666 compared to net income and comprehensive income of $9,483,863 in 2007. Gross operating income for the year was $19,987,417 compared to $32,324,287 in 2007. Net loss before income taxes for the year was $3,562,171, compared to net income before income taxes of $14,240,261 in 2007. The financial performance of the Company in the year was negatively impacted by a labor strike at the Naica mill and an unexpected water inflow in the mine in late May 2008. The Naica mill labor strike prevented the Company from making any ore shipments to the Naica mill over a four week period in January and February 2008. The unexpected water inflow negatively impacted shipments in the fourth quarter of the current fiscal year due to the interruption to operations. Cash used in operating activities for the year was $4,623,233 [2007 – cash provided by operating activities of $3,841,253] and working capital as at July 31, 2008 was $5,366,841 [July 31, 2007 – $6,340,137].
During the year, the Company shipped 44,946 tonnes [2007 – 45,691 tonnes] of ore. Sales were $27,790,375 [2007 – $38,093,009] and cost of production was $7,802,958 [2007 – $5,768,722], resulting in gross operating income of $19,987,417 [2007 – $32,324,287]. Although the amount of ore shipped during the year was 2% lower than in 2007, the average grade of silver decreased to 1,023 g/t from 1,593 g/t in 2007. As a consequence of the lower silver grade, the resulting contained silver in ore shipped in the year decreased to 1,476,676 ounces from 2,338,723 ounces in 2007. Lead contained in ore shipped for the year was 9,790,717 pounds [2007 – 10,271,603 pounds] and zinc contained in ore shipped for the year was 10,861,297 pounds [2007 – 8,943,334 pounds]. The 27% decrease in sales in the year versus the prior year is primarily attributed to the decrease in silver contained in ore shipped partially offset by a higher realized price of silver in the year. The strengthening of the Canadian dollar versus the U.S. dollar also had a negative impact on sales which are denominated in U.S. dollars. The average Canadian dollar/U.S. dollar exchange rate for the year was 1.01 [2007 – 1.13].
Amortization of acquisition and deferred development costs for the year increased from $1,324,016 in 2007 to $2,795,392 in 2008. This increase resulted from the Company’s significant mineral property acquisition in August 2007. As at July 31, 2008, total mineral properties carried on the balance sheet increased to $10,468,304 from $3,856,856 as at July 31, 2007. Details of the mineral properties are included in the audited consolidated financial statements for the year ended July 31, 2008.
Expenses increased in the year from $18,396,234 in 2007 to $23,578,842 in 2008. The increase in expenses in is explained as follows:
Salaries increased to $2,777,198 in 2008 from $1,614,914 in 2007. The increase was primarily due to the arrangement with the Company's former President and Chief Executive Officer upon his resignation;
Mine administration increased to $1,734,179 from $1,503,766 in 2007 primarily due to the Company's MXN 3,000,000 pesos contribution to a community development fund for the benefit of the ELS who are neighbors to the Platosa mine in Mexico;
Professional fees increased to $1,996,062 from $1,410,690 in 2007. The increase was due to the additional legal fees incurred with respect to the retirement and settlement of the silver debenture, legal fees relating to the ELS negotiations, and increased audit fees;
Financing fees increased to $346,981 from $nil in 2007 due to fees incurred with respect to the retirement and settlement of its silver debenture;
Regulatory fees increased to $236,969 from $49,949 in 2007 due to the Company's initial listing fee on the Toronto Stock Exchange;
Bank charges and interest increased to $1,174,331 from $46,023 in 2007 due to realized and effective interest charged on its short term loans with Auramet Trading, LLC (“Auramet”) and interest paid to local tax authorities;
Exploration expenditures increased to $9,410,067 from $6,677,846 in 2007 due to the Company's planned increase in exploration activities in the current year versus the prior year; and
Stock-based compensation increased to $2,143,750 from $938,000 in 2007 due to the recognition of the fair value of incentive stock options issued to certain directors, officers, employees and consultants of the Company in January 2008 over their vesting period.
During the year, the provision for current income taxes was $2,086,293 [2007 – $5,624,796]. The requirements for the payment of taxes reflect the fact that the Company's Mexican operating subsidiary is, by virtue of its income-producing operations, a taxable entity in Mexico. During the current year, the Company re-assessed the valuation of its future income tax assets and determined that the value of the current portion of future income tax asset should be reduced to $nil [July 31, 2007 - $2,040,250]. The non-current future income tax asset as at July 31, 2008 was $nil [July 31, 2007 - $597,940]. Future income tax liability as at July 31, 2008 was $575,804 [July 31, 2007 – $1,769,792].
As at July 31, 2008, accounts receivable was $3,118,780 [July 31, 2007 – $7,350,569].
As at July 31, 2008, property, plant and equipment, net of accumulated amortization, was $3,770,911 [July 31, 2007 – $3,073,563]. During the year, the Company had net property, plant and equipment expenditures totaling $1,432,836 [2007 – $2,700,810]. Amortization increased from $367,468 in 2007 to $724,355 in 2008.
Three months ended July 31, 2008 compared to three months ended July 31, 2007
During the three months ended July 31, 2008, the Company recorded net loss and comprehensive loss of $4,829,394 compared to net income and comprehensive income of $1,861,568 in 2007. Gross operating income for the period was $1,736,607 compared to $6,840,126 in 2007. Net loss before income taxes for the period was $5,729,578 compared to net income before income taxes of $2,410,645 in 2007. The financial performance of the Company was negatively impacted in the period by an unexpected water inflow in the mine in late May 2008. This event reduced ore shipments in the period due to the interruption to underground mining operations. Cash used in operating activities for the period was $6,719,524 [2007 – cash provided by operating activities $1,997,787] and working capital as at July 31, 2008 was $5,366,841 [July 31, 2007 – $6,340,137]. The lower cash and working capital resulted from the impact of lower shipments in the period due to the interruption of underground mining.
During the period, the Company shipped 8,713 tonnes [2007 – 13,514 tonnes] of ore. Sales were $3,922,647 [2007 – $8,271,194] and cost of production was $2,186,040 [2007 – $1,431,068], resulting in gross operating income of $1,736,607 [2007 – $6,840,126]. The average grade of silver decreased to 982 g/t from 1,027 g/t in 2007. The resulting contained silver in ore shipped in the period decreased to 275,034 ounces from 445,686 ounces in 2007. Lead contained in ore shipped for the period was 1,621,226 pounds [2007 – 2,806,561 pounds] and zinc contained in ore shipped for the period was 1,664,663 pounds [2007 – 2,912,801 pounds]. The 54% decrease in sales in the period versus the prior year is attributed to the decrease in silver, lead and zinc contained in ore shipped in the period and the impact of the strengthening of the Canadian dollar versus the U.S. dollar. The average Canadian dollar/U.S. dollar exchange rate in the period was 1.01 [2007 – 1.07].
Amortization of acquisition and deferred development costs for the period decreased from $290,651 in 2007 to $167,088 in 2008. Amortization included in cost of production for the period was $136,136 [2007 – $46,761]. Amortization of acquisition costs for the period was $30,952 [2007 - $243,890]. As at July 31, 2008, total mineral properties carried on the balance sheet increased to $10,468,304 from $3,856,856 as at July 31, 2007. Details of the mineral properties are included in the audited consolidated financial statements for the period ended July 31, 2008.
Expenses increased in the period from $4,454,534 in 2007 to $7,486,458 in 2008. The increase in expenses in the period is explained as follows:
Professional fees increased to $690,850 from $566,843 in 2007 primarily due to increased legal and audit fees;
Exploration expenditures increased to $3,238,038 from $1,847,354 in 2007 due to the Company's planned increase in exploration activities in the current year versus the prior year; and
Stock-based compensation increased to $993,275 from $(36,000) in 2007 due to the recognition of the increased fair value of incentive stock options issued to certain directors, officers, employees and consultants of the Company in January 2008 over their vesting period compared with incentive stock options issued in 2007.
During the period, the provision for current income taxes was a recovery of $1,410,810 [2007 – expense of $580,366]. During the current period, the Company re-assessed the valuation of its future income tax assets and determined that the value of the current portion of future income tax asset should be reduced to $nil [July 31, 2007 - $2,040,250]. The non-current future income tax asset as at July 31, 2008 was $nil [July 31, 2007 - $597,940]. Future income tax liability as at July 31, 2008 was $575,804 [July 31, 2007 – $1,769,792].
Liquidity and Capital Resources
As at July 31, 2008, the Company's cash and cash equivalents, short-term investments and silver bullion were $4,392,878 [July 31, 2007 – $7,602,834], working capital was $5,366,841 [July 31, 2007 – $6,340,137] and the deficit was $25,042,310 [July 31, 2007 – $17,884,514]. During the year ended July 31, 2008, the Company used cash-flow in its operating activities of $4,623,233 [2007 – cash provided by operations of $3,841,253]. The increase in cash used by operations was due to lower sales and higher exploration expenditures in fiscal 2008. Net cash was also decreased due to the increased capital expenditures in 2008 of $10,839,676 [2007 - $2,700,810].
During the year, the Company closed a private placement of 7,700,000 common shares at a price of $1.30 per share for gross proceeds of $10,010,000 (the "Offering"). Maison Placements Canada Inc. (the "Agent") led the Offering. The Company paid the Agent a commission of 5% of the gross proceeds of the Offering and issued to the Agent compensation options (the "Compensation Options") equal to 10% of the number of common shares sold under the Offering. Each Compensation Option is exercisable at any time for one common share at $1.35 per share until May 14, 2010.
During the year, options to purchase 4,545,000 common shares [2007 – 1,860,000] were exercised for cash proceeds of $1,119,800 [2007 – $463,500]. Upon exercise of the options, the fair value of the options in contributed surplus of $841,368 [2007 – $83,241] was added to share capital.
Summary Financial Information
(please see attached pdf file)
About Excellon
Excellon, a mineral resource company operating in Durango State, Mexico, is committed to building value through production, expansion and discovery. The Company is producing silver, lead and zinc from high grade manto deposits on its Platosa Property, strategically located in the middle of the Mexican silver belt. Excellon's focus is on increasing its Mineral Resources through an aggressive exploration program, and expanding its operating capacity with the building of a mill at site. The Platosa Property, not fully explored, has several geological indicators of a large mineralized system.
On behalf of
EXCELLON RESOURCES INC.
"Peter Crossgrove"
Chairman
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