Excellon Resources Inc.

Excellon Resources Inc.

December 20, 2007 16:49 ET

Excellon Reports First Quarter Earnings of $1,039,810

TORONTO, ONTARIO--(Marketwire - Dec. 20, 2007) - Excellon Resources Inc. (TSX VENTURE:EXN) reports earnings of $1,039,810 for the three month period ended October 31, 2007. For full details, please see the Company's Management Discussion & Analysis, which was filed on SEDAR, www.sedar.com, on December 20, 2007.


- Reported earnings of $0.007 per share;

- Produced 404,747 ounces of silver, 3,073,850 pounds of lead, and 3,986,316 pounds of zinc;

- Paid for and cancelled all silver debentures;

- Sales of $8,377,391, operating income of $1,931,437, and net income of $1,039,810;

- Working capital of $(10,055);

- Cash, short-term investments and silver bullion of $3,939,393

- Significantly expanded Rodilla Manto;

- Continued mill evaluation and permitting process; and,

- Common shares conditionally approved for listing on the Toronto Stock Exchange subsequent to the quarter end.

To view the Financial Highlights, please visit the following link:


Test-Mining Program

Shipments of crushed ore to the Naica milling facility ("Naica mill") of Compania Maple, S.A. de C.V. (a subsidiary of Industrias Penoles S.A. de C.V. ("Penoles")) were 14,351 tonnes for the three months ended October 31, 2007 compared with 11,536 tonnes in the previous year. Shipments currently average approximately 4,800 tonnes per month. The target shipping rate is 6,000 tonnes per month, and the Platosa mine is capable of maintaining this rate of production. Some modifications were completed to the Naica mill in May 2007 and other improvements are currently being implemented at the Naica mill that should allow the operation to process increased amounts of ore delivered from Platosa. The primary constraints at the Naica mill relate to maintaining optimum recoveries while blending the high-grade Platosa ores with the lower grade Naica mine ores. Platosa mine management maintains ongoing dialogue with that of the Naica mill to optimize planning and blending of the Platosa ore to maximize the monthly ore deliveries. Platosa currently supplies about 7% of the tonnage being milled at the Naica mill, but more than 30% of the metal produced.

Excellon is presently evaluating the construction of a 350 tonne per day mill on the Platosa Property. The mining operation has produced high-grade silver, lead and zinc ore, and sold it to the Naica mill, since April 2005. The construction of the Platosa flotation mill ("Platosa mill") would allow the production of two concentrates, containing silver, lead and zinc, at the site for sale to world markets and would decrease Excellon's current operating costs. Excellon has initiated an environmental impact assessment and process development work for the mill design. Sites near the main mine entry have been selected for construction of the Platosa mill and the tailings dam. Discussions with equipment suppliers and construction contractors are ongoing while the process development work is being completed. The environmental permit is anticipated to be received in the first quarter of calendar 2008. On completion of the process development work, detailed design and equipment selection will start. With receipt of the permit and assuming a decision by the Company to proceed, construction would start later in calendar 2008 with start-up predicted for the latter part of calendar 2008.

The initial contract for the purchase of 60,000 tonnes of Platosa ore by Penoles was completed in October 2006 and discussions were initiated to settle on new purchase terms. Due to the increasing metal prices for lead and zinc, Penoles and the Company agreed to apply interim terms that included a price participation formula that reflected smelter industry standard practices. The interim terms have been applied to all settlements on ore purchases since November 2006. Excellon has been in discussions with Penoles on the final proposed terms for the deliveries since November 2006.

Excellon is actively investigating another possible option to mill the Platosa ore that may have more favourable terms to the current ore purchase contract. The option may serve as a complete replacement to the Penoles contract or as a supplement to reduced deliveries to Penoles to improve the overall return on the ore sales.

Development and mining of the Platosa deposit during the quarter was carried out in the northwest area of the main Guadalupe Manto. Mine production was sustained from this area, with mining from both the areas included in the 2006 Resource as well as from mineralization encountered by mine development outside the mineralization included in the 2006 Resource.

The metal grades produced during the quarter were significantly impacted by the amount of production outside of both the fiscal 2008 mine plan and the 2006 Resource. The grades encountered in the mine development can be impacted by the lower than average grade encountered in breccia style mineralization common on the fringes of the Mantos, as well as higher than normal dilution as the development headings may not carry a full heading in mineralization.

The silver and lead grades during the three months ended October 31, 2007 were considerably lower, at 877g/t and 9.7% respectively, compared to the grades for the same quarter in the previous year of 2,555g/t and 12.9%. However, the zinc grade was significantly higher for the three months ended October 31, 2007 at 12.6% versus 6.4% for the same period in 2006.

The mine development and production continues to be carried out at similar mine depths as the previously mined out areas of Manto 5. Mining of the higher grade material in Manto 6 and the interconnection zone between Manto 5 and Manto 6 continues to be deferred until it becomes necessary to develop the mine to a lower elevation.

To view the production statistics for the three months ended October 31, 2007 and 2006 please visit the follow link:



Early in the period ended October 31, 2007, shortly after the Company acquired certain surface rights in the immediate test-mine area, an aggressive drilling program began to the northwest of the Guadalupe Manto where there were indications that the Guadalupe Manto massive sulphide mineralization extended into sparsely tested areas. In addition, a single hole drilled in late 2006 had intersected 2.0 m of massive sulphide mineralization grading 1,143 g/t (36.8 oz/T) silver, 8.3% lead, 10.7% zinc, 75 m north of the northeast portion of the Guadalupe Manto and drilling was resumed in this area, known as the Rodilla Manto. On October 16, 2007 the Company announced that massive sulphides ranging in estimated true thickness from 3.42 to 13.06 m had been intersected in three new holes at Rodilla. A further 10 sulphide intersections (making a total of 14 for the Rodilla Manto) ranging in estimated true thickness from 0.12 to 15.25 m and assays for seven holes were announced on November 13 and December 13, 2007 and are shown in the following link:


As known in mid-December, when drilling ceased temporarily for the holiday period, Rodilla is an irregularly-shaped, sub-horizontal massive sulphide lens approximately 70 m east-west by 90 m north-south (in plan) that remains open to the northeast, west and southeast. The thickest portions of the mineralization lie around holes LP408 and LP413, which intersected 14.2 and 12.5 m of high-grade massive sulphides respectively. Hole LP424, drilled northwest of LP413 and in line with LP408 and LP413, intersected 15.25 m of massive sulphides. Assays are pending for LP424 and several other Rodilla holes.

The Company also partially tested biogeochemical and geophysical targets north and northwest of the Guadalupe Manto during the period. While favourable geology was encountered, there were no significant sulphides intersected. Drilling in the immediate test-mine area will resume with two drills in mid-January, 2008.

In the Saltillera area, three to five kilometres west on the test-mine area, the district-scale search for proximal-style, large-tonnage potential CRD sulphide mineralization was continued and accelerated with the addition of a second drill in October, making a total of four drills operating on the Platosa property. On August 21, 2007, the Company announced the discovery of geologically significant mineralization and alteration roughly five kilometres west of the test-mine. The discovery lies in a previously undrilled overburden-covered area lying along the strong northwest-trending structural corridor that contains the historic Zorra and Saltillera mines. Hole EX07ST-50 cut 85 metres (estimated true thickness) of variably sulphide-mineralized proximal or near-source hornfels and skarn developed around two swarms of fine-grained felsite dykes. Galena, sphalerite and chalcopyrite were locally visible in the core with the most strongly mineralized section (1.1 m estimated true thickness) grading 129 g/t (3.8 oz/T) silver; 2.12% lead and 0.92% zinc. The two most continuously mineralized portions of the 85-metre intercept in EX07ST-50 average 19.3 g/t silver, 0.31% lead and 0.32% zinc over 8.01 m (estimated true thickness) and 41.2 g/t silver, 0.64% lead and 0.44% zinc over 16.25 m (estimated true thickness). Thirteen holes have now been drilled in the general area of hole ST-50. Favourable geology, in the form of an extensive multi-phase intrusive system with numerous dyke offshoots, has been intersected in these holes. Overall, the intrusive system shows numerous features similar to those associated with the largest lead-zinc-silver-copper-gold CRDs of Mexico. Drilling in the Saltillera area will resume with two drills in mid-January, 2008.

During the quarter the Company received the final results of the airborne electromagnetic and magnetic (AEM) survey flown in early 2007. The Company's site geologists and consulting geophysicist have begun integrating mapping and drilling information with the detailed airborne interpretation, and initial indications are that structures and structural trends associated with the massive sulphide mantos can be detected geophysically. The Company expects to begin testing targets emerging from this effort early in 2008.

In November, the Company exercised its option to earn a 100% interest, subject to a 3% Net Smelter Returns royalty, in the Altiplano portion of the Platosa Property. The Altiplano mining concessions cover the Saltillera area and form the southwestern portion of the overall property.

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 evaluated properties and prepared NI 43-101 reports on gold and base metal projects in Canada and internationally. 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.

2007 Annual General Meeting Results

The Company is pleased to announce that, at the 2007 annual general meeting held on December 18, 2007, Messrs. Richard W. Brissenden, Peter A. Crossgrove, Andre Y. Fortier, Timothy J. Ryan and Alan R. McFarland were re-elected as directors of the Company. In addition, the directors have appointed the following officers for the ensuing year:

Peter A. Crossgrove - Chairman
Richard W. Brissenden - President and Chief Executive Officer
G. Ross MacFarlane - Executive Vice-President, Operations &
Chief Operating Officer
Robert C. Brissenden - Vice-President, Corporate Development
John R. Sullivan - Vice-President, Exploration
Jeffrey Hillis - Chief Financial Officer
Lawrence W. Talbot, LLB - Corporate Secretary & General Counsel

All resolutions placed before the shareholders, including the required re-approval of the Company's 2004 Incentive Stock Option Plan, were passed. Messrs. Ernst & Young, LLP were re-appointed as auditors for the Company for the fiscal year ending July 31, 2008.

Results of Operations

Three months ended October 31, 2007 compared to three months ended October 31, 2006

During the three months ended October 31, 2007, the Company recorded net income and comprehensive income of $1,039,810 compared to $7,628,251 in 2006. Gross operating income for the period was $6,109,798 compared to $11,043,924 in 2006. Income before income taxes for the period was $1,937,553, compared to $7,956,837 in 2006. Cash provided by operating activities for the period was $710,625 (2006 - $2,248,335) and working capital as at October 31, 2007 was a deficit of $10,055 (July 31, 2007 - surplus of $6,340,137)

During the period, the Company shipped 14,351 tonnes (2006 - 11,536 tonnes) of ore. Sales were $8,377,391 (2006 - $12,274,681) and cost of production was $2,267,593 (2006 - $1,230,757), resulting in gross operating income of $6,109,798 (2006 - $11,043,924).

The amount of ore shipped during the period was 24% greater than in 2006, however, the average grade of silver decreased to 28.2 oz/t from 82.1 oz/t in 2006. The resulting silver production in the period decreased to 404,747 ounces from 946,835 ounces in 2006. Lead production for the period was 3,073,850 pounds (2006 - 3,285,663 pounds) and zinc production for the period was 3,986,316 pounds (2006 - 1,626,235 pounds). The 32% decrease in sales in the period versus the prior year is attributed to the decrease in silver production 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 1.02 (2006 - 1.12). This was partially off-set by an increase in the realized silver price in the period to U.S. $13.17/oz (2006 - U.S. $11.86/oz).

Amortization of acquisition and deferred development costs for the period increased from $599,154 in 2006 to $1,491,874 in 2007. Mineral properties increased in the period due to the Company's acquisition of surface rights. This increase resulted in the higher amortization of acquisition and deferred development costs in the period. Amortization included in cost of production for the period is $1,133,029 (2006 - $300,366). Amortization of acquisition cost for the period is $358,845 (2006 - $298,788). As at October 31, 2007, total mineral properties carried on the balance sheet increased to $11,301,053 from $3,856,856 as at July 31, 2007. Details of the mineral properties are included in the interim consolidated financial statements for the period ended October 31, 2007.

Expenses increased in the period from $3,189,735 in 2006 to $4,178,361 in 2007. Details of the increase in expenses are as follows:

i. Salaries increased to $426,622 in 2007 from $139,585 in 2006 due to the addition of key senior management positions to support the continued growth of the Company's operations, exploration program and financial reporting obligations;

ii. Professional fees increased to $472,215 from $127,739 in 2006 primarily due to legal fees incurred with respect to the transfer of the silver debenture obligation to Minera Excellon and the purchase and cancellation of the silver debentures;

iii. Bank charges and interest increased to $220,356 from $7,507 in 2006 due to the effective interest and actual interest incurred on the Company's short-term debt that was drawn in the current period;

iv. Financing fees increased to $346,981 from $nil in 2006 due to fees incurred related to the purchase and cancellation of the silver debenture;

v. Amortization of property, plant and equipment increased to $182,610 from $38,277 in 2006 due to investments made in mining equipment, information technology and office leaseholds since 2006; and

vi. Exploration expenditures increased to $1,666,687 from $1,152,789 in 2006 due to the growth of the Company's exploration program in the current period.

The increase in expenses was partially offset by reduced travel and business development of $109,003 (2006 - $292,528), an increased foreign exchange gain of $323,873 (2006 - $79,484) and a reduced silver debenture valuation loss of $25,927 (2006 - $572,283).

During the period no incentive stock options were granted.

During the period, the provision for current income taxes was $1,106,875 (2006 - $328,586). The requirements for the payment of taxes reflect the fact that the Company has, by virtue of its income-producing operations, now utilized all of its previously available losses available to offset income. During the current period, the Company has re-assessed the valuation of its future income tax asset and determined that no change in the valuation allowance relating to the future income tax asset was required. The current portion of future income tax asset, as at October 31, 2007, was $2,040,250 and the non-current future income tax asset as at October 31, 2007 was $597,940.

Future income tax liability as at October 31, 2007 was $1,560,660 (July 31, 2007 - $1,769,792).

As at October 31, 2007, accounts receivable was $4,679,374 (July 31, 2007 - $7,350,569).

As at October 31, 2007, property, plant and equipment, net of accumulated amortization, was $3,088,379 (July 31, 2007 - $3,073,563). During the period, the Company had capital expenditures totalling $197,426 (2006 - $36,396). Amortization expense as a result of the capital expenditures during the period increased from $38,277 in 2006 to $182,610 in 2007.

During the period, the Company acquired surface rights totalling 622 hectares adjacent to the Platosa test-mine property from a group of local land owners for $1,072,329 representing the land cost and applicable legal and transfer fees. In a separate transaction, the Company acquired other surface rights, totalling 5 hectares, located in nearby Coahulia State, for $ 7,863,742. To fund these purchases, the Company entered into a U.S. $4,000,000 bridge financing loan with Auramet Trading, LLC ("Auramet"). The Company borrowed U.S. $2,500,000 of this facility. The loan is guaranteed by the Company's Mexican subsidiary Minera Excellon de Mexico, S.A. de C.V. ("Minera Excellon") and the Company has pledged to provide the shares of Minera Excellon as collateral for this loan.

Silver-backed debentures

As at July 31, 2007, the Company had outstanding 9,000 silver units. Each silver unit consisted of one U.S. $1,100 principal amount debenture and 1,000 warrants. Under the terms of the debentures, the Company was required to place 50% of its silver production with the custodian appointed by the silver debentures trustee up to a maximum of 1,800,000 ounces. The debentures were non-interest bearing and secured by a pledge of all the outstanding shares of the Company's subsidiaries Minera Excellon de Mexico, S.A. de C.V. ("Minera Excellon") and Destorbelle Mines Limited, as well as any silver held for the account of the Company with a custodian. The Company extended the maturity date of the debentures from June 9, 2007 to August 31, 2007 prior to July 31, 2007 and further extended the maturity date to October 31, 2007 during August 2007, with the consent of the debenture holders. When the debentures matured, the holders (other than U.S. Persons) elected to take repayment of the principal amount at maturity in silver bullion (or the proceeds of sale thereof), based on 200 ounces of silver per U.S. $1,100 principal amount of debentures. All warrants had been previously exercised.

Costs relating to the issue of the silver units were deferred and amortized over the original term of the debentures.

In September 2007 Minera Excellon assumed all obligations of the silver debenture in accordance with the terms and conditions of the debenture. Minera Excellon, as permitted by the silver debenture, paid for and cancelled all of the outstanding U.S. $9,900,000 principal sum debentures. The payment was the equivalent of 1,800,000 ounces of silver, which was settled through the delivery to the debenture holders of the silver held by the custodian under the terms of the debenture trust indenture, and cash. The purchase and cancellation of the silver debentures and related embedded derivative resulted in a silver debenture valuation of loss of $25,927 in the period. Financing fees of $346,981 were incurred in the period in connection with the purchase and cancellation of the silver debentures.

The following table summarizes the components of the loss on silver valuation relating to the purchase and cancellation of the silver debentures included in the consolidated statement of operations and deficit for the three months ended October 31, 2007:

Gain on silver debenture and embedded derivative liability: $ 1,752,059
Loss on silver bullion: $(1,777,986)

Silver debenture valuation loss $ (25,927)

Liquidity and Capital Resources

As at October 31, 2007, the Company's cash and cash equivalents, short-term investments and silver bullion were $3,939,393 (July 31, 2007 - $7,602,834), working capital deficiency was $10,055 (July 31, 2007 - surplus of $6,340,137) and the deficit was $16,957,834 (July 31, 2007 - $17,884,514).

During the period, the Company generated cash of $710,625 from its operations (2006 - $2,248,335).

During the period, the Company entered into the following agreements with Auramet:

(a) Silver Purchase Agreement

On September 4, 2007 the Company and Auramet entered into a Silver Purchase Agreement (the "Agreement"). Pursuant to the Agreement, the Company will pre-sell to Auramet 50% of the silver refined from ore mined at its Platosa test-mine (up to a maximum of U.S. $4,000,000 of silver) for the next two years. The Agreement provides for a U.S. $4,000,000 revolving silver based pre-production advance facility ("Revolving Facility") for the Company, whereby Auramet will pay for silver produced by the Company prior to the same being refined into deliverable form. The silver will be priced at market prices, as agreed between Auramet and the Company at the time of pricing, and will be subject to deduction for financing charges based upon LIBOR plus 3.5% for the applicable financing period. Transaction costs related to the Revolving Facility are $318,103 and are recorded as deferred financing costs. These transaction costs are being amortized on a straight-line basis until September 4, 2009. During the period the Company did not borrow any funds under the Revolving Facility.

In connection with the Agreement, the Company has issued 1,350,000 non-transferable share purchase warrants to Auramet. Each warrant is exercisable at a price of $1.38 per share until September 4, 2009. The warrants, and any shares issued upon exercise of the warrants, are subject to a hold period until January 5, 2008. The fair value of these warrants as at September 4, 2007 was $877,500 and this amount is recorded in contributed surplus and deferred financing costs. The fair value of the warrants is being amortized on a straight line basis over the life of the warrants.

During the period, 50% of the payment to the Company for the payable silver contained in the ore sold by the Company was made to the Company in the form of silver bullion. This silver bullion is held in trust by Auramet on behalf of the Company or is in transit to Auramet. Under the terms of the Agreement, Auramet, as sales agent for the Company, will sell this silver bullion upon receipt at market terms on behalf of the Company for cash proceeds. If the Company has borrowed funds under the Revolving Facility, this silver bullion shipped to Auramet will be used to repay these borrowings. As at October 31, 2007, the value of the Company's silver bullion was $2,666,732 (197,125 oz). The Company views the silver bullion as a near-cash item.

(b) Bridge Loan Facility

On August 2, 2007, the Company entered into a U.S. $4,000,000 bridge loan financing loan ("Bridge Loan") with Auramet. The Company borrowed U.S. $2,500,000 of this facility to partially finance the acquisition of surface rights. The Bridge Loan has an interest rate of 12% per annum and is repayable in six equal monthly instalments, starting in October 2007. The loan is guaranteed by Minera Excellon and the Company has pledged the shares of Minera Excellon as collateral for the Bridge Loan. Transaction costs of $190,242 have been incurred with respect to the Bridge Loan and have been included in the carrying value of the debt and are being amortized using the effective interest method. The carrying value of the debt as at October 31, 2007 is $1,896,551. Total effective interest for the period is $179,912, which is included in bank charges and interest.

The Company's cash flow projections indicate that the cash flow from the test-mining operations and the Revolving Facility will be sufficient to allow the Company to carry out all of its proposed exploration and test-mining activities, and pay all of its anticipated general and administrative expenses, over the next eighteen months, as well as to fully retire all advances drawn under the Bridge Loan and the Revolving Facility.

There are no restrictions that prevent the Company from paying dividends. The Company has not paid any dividends on its common shares in the last five fiscal years. The Company has no present intention of paying any dividends on its common shares, as it anticipates that all available funds will be invested to finance the growth of its business. The directors of the Company will determine if and when dividends should be declared and paid in the future, based on the Company's financial position at the relevant time.

To view the Summary Financial Information please visit the following link:


About Excellon

Excellon, a self-sustaining 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. In fiscal 2008, Excellon's focus is on increasing its Mineral Resources through an aggressive $11-million exploration program, expanding its operation, and studying the feasibility of building a mill at site. The Platosa Property, not fully explored, has several geological indicators of a large mineralized system, the tracking of which Excellon believes will lead to the discovery of a world class deposit.

On behalf of


Richard W. Brissenden, President and Chief Executive Officer

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 27E of the Exchange Act. Such statements include, without limitation, statements regarding the future results of operations, performance and achievements of the Company, including potential property acquisitions, the timing, content, cost and results of proposed work programs, the discovery and delineation of mineral deposits/resources/reserves, geological interpretations, potential mineral recovery processes and rates, the proposed construction of a mill, the acquisition of surface rights, business and financing plans, business trends and future operating revenues. Although the Company believes that such statements are reasonable, it can give no assurance that such expectations will prove to be correct. Forward-looking statements are typically identified by words such as: believe, expect, anticipate, intend, estimate, postulate and similar expressions, or are those, which, by their nature, refer to future events. The Company cautions investors that any forward-looking statements by the Company are not guarantees of future results or performance, and that actual results may differ materially from those in forward looking statements as a result of various factors, including, but not limited to, variations in the nature, quality and quantity of any mineral deposits that may be located, significant downward variations in the market price of any minerals produced (particularly silver), the Company's inability to obtain any necessary permits, consents or authorizations required for its activities, to produce minerals from its properties successfully or profitably, to continue its projected growth, to raise the necessary capital or to be fully able to implement its business strategies.

All of the Company's public disclosure filings may be accessed via www.sedar.com and readers are urged to review these materials, including the technical reports filed with respect to the Company's mineral properties, and particularly the September 29, 2006 43-101 resource report prepared by Scott Wilson Roscoe Postle & Associates with respect to the Platosa property.

This press release is not, and is not to be construed in any way as, an offer to buy or sell securities in the United States.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of the content of this Press Release, which has been prepared by management.

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