Excellon Resources Inc.
TSX : EXN

Excellon Resources Inc.

December 11, 2008 13:04 ET

Excellon Reports Q1 Financial Results

TORONTO, ONTARIO--(Marketwire - Dec. 11, 2008) - Excellon Resources Inc. (TSX:EXN) (the "Company" or "Excellon") reports net loss of $5,933,698 for the three month period ended October 31, 2008. (For full details, please see the Company's Management Discussion & Analysis, which was filed on SEDAR, www.sedar.com, on December 11, 2008.)

Q1 HIGHLIGHTS:

- Produced 269,012 ounces of silver, 1,276,733 pounds of lead, and 847,726 pounds of zinc

- Additional high-grade silver, lead and zinc assays reported for the recently-discovered NE-1 Manto

- Received all permits necessary for an on-site flotation mill and tailings impoundment area, procured all major equipment and began construction in October 2008

- Loss of $0.037 per share

Financial Highlights

The following are the financial highlights for the three months ended October 31, 2008 and 2007.



Three months ended
31-Oct-08 31-Oct-07
-------------- ------------

Sales $ 1,020,374 $ 8,377,391
Cost of production (including amortization
for 3 month period of $139,644
(2007 - $1,133,029) 1,772,086 2,267,593
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(751,712) 6,109,798
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Expenses:
Non-cash items 2,079,041 340,754
Exploration expenditures 2,158,218 1,666,687
Other 1,265,314 2,164,804
Provision for (recovery of) income taxes -
current (131,094) 1,106,875
Recovery of income taxes - future (189,493) (209,132)
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5,181,986 5,069,988
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Net income/(loss) for the period $ (5,933,698) $ 1,039,810
-------------- ------------
-------------- ------------
Earnings/(loss) per share - basic $ (0.037) $ 0.007
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-------------- ------------
- diluted $ (0.037) $ 0.007
-------------- ------------
-------------- ------------

Cash provided by (used in) operating activities $ (1,183,581) $ 714,750
-------------- ------------
-------------- ------------

Cash, short-term investments and silver bullion $ 2,364,719 $ 3,939,393
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Working capital $ (2,018,907) $ (10,055)
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The Company believes that cash flow from its operations will not be sufficient to meet its objectives. As a result, the Company is taking a number of steps to prudently reduce costs and conserve cash. These measures include a suspension of exploration drilling until early calendar 2009, a reduction in planned general and administrative expenditures and temporary halt to construction of the Platosa mill. The Company is also actively pursuing external financing alternatives.

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 7,803 tonnes for the three months ended October 31, 2008 compared with 14,351 tonnes for the same period in the previous year.

In early October 2008 the Company temporarily suspended production at the Platosa mine due to an unexpected water inflow that occurred when a water bearing fault was intersected by normal mine development. This event occurred because normal company development procedures were not followed. The company has strengthened its internal control procedures to ensure that all protocols are followed taken in the future. The water inflow from this fault exceeded the mine's pumping capacity and as a result water rose 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 were completed in late November and the mine has been dewatered. Normal production resumed on December 1, 2008.

During the temporary suspension to production, the Company completed the installation of a well and a second surface pump that has accelerated the mine dewatering and will serve as back-up capacity to the existing underground pumping capacity. Excellon continues to work with its hydrology consultants on the design and implementation of a water monitoring and control program to minimize the impact of water on future mine development and production activities. For the next four to six months the Company plans to mine from areas unlikely to encounter unexpected water inflow.

The average grades of ore shipped during the three months ended October 31, 2008 were 1,072.9 g/t silver (2007 - 877.7 g/t), 7.4% lead (2007 - 9.7%) and 4.9% zinc (2007 - 12.6%) . The ore was 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 area of the 2008 Mineral Resource estimate.

Following approval of the mill construction in April 2008, the engineering and procurement started and the Company applied for all required permits from the Mexican government. Basic engineering and procurement of all major equipment is complete and the permit for construction and operation was received on September 23, 2008. Detailed engineering is well progressed and civil construction began in October 2008. Expenditures to October 31, 2008 are $2,822,420 and it is expected that the total cost will be on budget. As previously stated, the Company halted construction of the mill subsequent to the end of the period until such time that it is economically feasible to resume the project.

The following are the shipping statistics for the three months ended October 31, 2008 and 2007:



3 months ended Year Ended
--------------
31-Oct-08 31-Oct-07 31-Jul-08
--------- --------- ----------

Tonnes of ore shipped 7,803 14,351 44,946
--------- --------- ----------
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Contained metal
Silver (ozs.) 269,012 404,748 1,476,676
Lead (lbs.) 1,276,733 3,073,851 9,790,717
Zinc (lbs.) 847,726 3,986,315 10,861,297

Average grade:
Silver (oz/t)(1) 34.5 28.2 32.9
Silver (g/t) 1,072.9 877.7 1,022.5
Silver (oz/T) 31.3 25.6 29.8
Lead (%) 7.4 9.7 9.9
Zinc (%) 4.9 12.6 11.0

Payable metal:
Silver - (ozs.) 207,677 312,466 1,139,994
Lead - (lbs.) 970,317 2,336,128 7,440,945
Zinc - (lbs.) 571,800 2,630,969 7,232,364

(1) Oz/t is not a generally accepted unit of measure as it combines imperial
and metric units. However, it is the unit of measure upon which the
Company's settlements with Penoles are based. The generally accepted
units of measure are g/t and oz/T.


Exploration

The Company's exploration efforts in the three month period ended October 31, 2008 and into December 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 there are three primary objectives:

- To further define and add to the known distal-style, high-grade CRD Mineral Resources;

- To pursue the potential for discovery of larger volume medial and proximal CRD mineralization. (Evidence of this potential was discovered during diamond drilling earlier in 2008); and

- To discover new mantos by drilling the geological, structural, geochemical, biogeochemical and geophysical targets developed by 2008 and previous surveys.

In the Saltillera area, the district-scale search for intrusion-related, large-tonnage proximal-style CRD sulphide mineralization was continued. Ground geophysical surveys (induced polarization, magnetic and gravity) were carried out in fiscal 2008 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, including, but not limited to, diamond drilling, alteration, intrusion types and host rocks, for the area and preparing recommendations for further drilling.

At the end of September 2008, two of the four diamond drilling rigs then in operation were temporarily released as the Company moved to reduce operating expenses in response to lower metal prices. In early to mid-October the other two drills were assigned to mine operations. The Company expects to resume exploration drilling early in calendar 2009. The exploration team remains intact and will carry out focussed geological mapping, core relogging and compile and analyze data, which has been accumulated during the historic and ongoing exploration programs on the property.

The Company issued exploration-focussed press releases on August 6 and November 18, 2008. These releases highlighted continued success in adding massive sulphide mineralization in the South Central Guadalupe area, close to and easily accessible from existing underground workings and in addition they discussed important sulphide intersections from the NE-1 Manto (previously referred to as NE Rodilla). In particular, hole LP614 intersected 7.60 metres grading 1,064 g/t (31.0 oz/T) silver, 14.55% lead and, 6.15% zinc. Details of several intersections from these press releases are provided in the table below. All interval widths are estimated true thicknesses. The reader is referred to the two press releases for assay results of all holes disclosed.

As noted above, recent drill results from the NE-1 Manto have provided evidence of the potential for discovery of large-tonnage proximal sulphide mineralization in the area. This evidence is in the form of multiple or stacked manto-sulphide intersections in several holes and the presence of a silicified zone carrying persistent gold values ranging from 0.097 g/t gold over 1.39 m to 0.811 g/t gold over 10.39 m, lying from 75 to 220 metres above the sulphides. This zone has been encountered in eight holes. The NE-1 Manto may be part of a feeder zone leading to proximal mineralization at depth. The general area remains open in several directions.

Qualified Persons

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.

Directors and Management

On December 9, 2008 Mr. G. Ross MacFarlane, Executive Vice President of Operations and Chief Operating Officer, left the Company. His successor has not yet been named. The Company extends its gratitude to Mr. MacFarlane for his contributions to Excellon and wishes him well in his future endeavours.

Results of Operations

Three months ended October 31, 2008 compared to three months ended October 31, 2007

During the three month period ended October 31, 2008, the Company recorded net loss and comprehensive loss of $5,933,698 compared to net income and comprehensive income of $1,039,810 in 2007. Gross operating loss for the period was $751,712 compared to gross operating income of $6,109,798 in 2007. Net loss before income taxes for the period was $6,254,285, compared to net income before income taxes of $1,937,553 in 2007. The financial performance of the Company in the period was negatively impacted by a temporary suspension of mining operations due to an unexpected water inflow in the mine in early October 2008. The unexpected water inflow negatively impacted shipments in the period due to the interruption to operations. In addition, declining market prices of silver, lead and zinc negatively impacted sales in the period. Cash used in operating activities for the period was $1,183,581 (2007 - cash provided by operating activities of $714,750) and working capital deficiency as at October 31, 2008 was $2,018,907 (July 31, 2008 - working capital surplus of $5,366,841).

During the period, the Company shipped 7,803 tonnes (2007 - 14,351 tonnes) of ore. Sales were $1,020,374 (2007 -$8,377,391) and cost of production was $1,772,086 (2007 - $2,267,593), resulting in gross operating loss of $751,712 (2007 -gross operating income of $6,109,798). The amount of ore shipped during the period was 46% lower than in 2007. The average grade of silver increased to 1,073 g/t from 878 g/t in 2007. The resulting contained silver in ore shipped in the period decreased to 269,012 ounces from 404,748 ounces in 2007. Lead contained in ore shipped for the period was 1,276,733 pounds (2007 -3,073,851 pounds) and zinc contained in ore shipped for the period was 847,726 pounds (2007 - 3,986,315 pounds). The 88% decrease in sales in the period versus the prior year is attributed to the decreases in contained silver, lead and zinc shipped and lower realized silver, lead and zinc prices versus the prior year. The average Canadian dollar/U.S. dollar exchange rate for the period was 1.10 (2007 - 1.02).

Amortization of acquisition and deferred development costs for the period decreased from $1,491,874 in 2007 to $171,184 in 2008. This decrease resulted from the impact of the increase in the 2008 Mineral Resource and reduced production in the current period of 2008 versus last year. As at October 31, 2008, total mineral properties carried on the balance sheet decreased to $10,297,120 from $10,468,304 as at July 31, 2008. Details of the mineral properties are included in the unaudited interim consolidated financial statements for the three months ended October 31, 2008.

Expenses increased in the period from $4,178,361 in 2007 to $5,516,261 in 2008. The increase in expenses is explained as follows:

i. Exploration expenditures increased to $2,158,218 from $1,666,687 in 2007 due to the Company's planned increase in exploration activities in the current year versus the prior year. In addition, the prior year expense was below planned spending levels;

ii. Foreign exchange loss was $1,460,137 in 2008 compared to a foreign exchange gain of $323,873 in 2007 due to a strengthening of the U.S. dollar versus the Canadian dollar and Mexican peso. In 2007 the gain was realized due to the impact of a strengthening Canadian dollar versus the U.S. dollar; and

iii. Stock-based compensation increased to $273,086 from $nil 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.

The increase in expenses was partially off-set by the following:

i. Salaries decreased to $316,277 from $426,622 in 2007 due to the decrease in head office staff;

ii. Professional fees decreased to $231,874 from $472,215 in 2007 as significant legal fees were incurred with respect to the retirement of the silver debentures in 2007. This was a one-time item;

iii. Financing fees decreased to $nil from $346,981 in 2007 as significant fees were incurred with respect to the retirement of the silver debentures in 2007. This was a one-time item;

iv. Bank charges and interest decreased to $(10,459) from $220,356 in 2007. In the prior year the Company was incurring actual and effective interest expense on its short-term debt which was repaid prior to the current period; and

v. Amortization of acquisition costs decreased to $31,540 from $358,845 in 2007 due to the impact of the 2008 Mineral Resource estimate and reduced production in the current period.

During the period, the recovery of current income taxes was $131,094 (2007 - provision of $1,106,875). Future income tax liability as at October 31, 2008 was $387,203 (July 31, 2008 - $575,804).

As at October 31, 2008, accounts receivable was $945,084 (July 31, 2008 - $3,118,780). The decrease is due to the decrease in sales experienced in the current period.

As at October 31, 2008, property, plant and equipment, net of accumulated amortization, was $5,811,590 (July 31, 2008 -$3,770,911). During the period, the Company had net property, plant and equipment expenditures totaling $2,210,597 (2007 -$197,426) primarily related to the construction of the mill. Amortization decreased from $182,610 in 2007 to $169,918 in 2008.

Liquidity and Capital Resources

As at October 31, 2008, the Company's cash and cash equivalents, short-term investments and silver bullion were $2,364,719 (July 31, 2008 - $4,392,878), working capital deficiency was $2,018,907 (July 31, 2008 - working capital surplus of $5,366,841) and the deficit was $30,976,008 (July 31, 2008 - $25,042,310). During the period ended October 31, 2008, the Company used cash-flow in its operating activities of $1,183,581 (2007 - cash provided by operations of $714,750). The increase in cash used by operations was due to lower sales and higher exploration expenditures in the current period. Net cash was also decreased due to the increased capital expenditures in the current period of $2,210,597 (2007 - $197,426).

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

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, proposed production rates, potential mineral recovery processes and rates, the proposed construction of a mill, 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 April 14, 2008 NI 43-101-compliant technical report prepared by Scott Wilson Roscoe Postle Associates Inc. 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 Toronto Stock 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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