When your company only has one mine, that one mine had better be a good one. For Excellon Resources, their only mine just so happens to be the highest-grade silver producer in Mexico, as well as one of the lowest-cost operations in the country.
As of now, Excellon's Platosa mine, consisting of several carbonate-replacement manto deposits, has a resource of 484,000 measured and indicate tonnes grading no less than 777 g/t silver, plus 8.42% lead and 10.15% zinc, for a 1,277 g/t silver equivalence. That makes for about 20 million silver equivalent ounces in less than half-a-million tonnes of rock.
Along with grades, the mine benefits from great infrastructure including grid power, a national highway close by, and the sizable city of Torreon with its international airport only 55 km away.
The high-grade, low-cost mine in northeastern Durango State gives the company cash flow and potential profits despite the pullback in precious metal prices, and has the company set to reap big rewards if the silver price climbs. But it's the potential of a big-tonnage, lower-grade source deposit that brought Excellon to the 41,000-ha project in the first place, and it's discovering that resource that could truly transform the project, and the company.
In March, I visited Durango, Mexico spending time at the mine site with senior management. The quick 45 minute drive from the airport makes it a pleasant mine to access, easily allowing for breakfast in Denver and lunch at the mine site.
Visiting La Platosa, the large property itself, would require an extended stay, so my focus was on the underground mine and reviewing prospective core samples. Which could lead the way to finding what would be the real blue sky potential for Excellon, locating the large tonnage source deposit. Such a discovery could turn this project into a multi-decade mine which would not only reward its investors but also the local community with its social and economic benefits.
Even though now is not the best time for ambitious and expensive exploration programs, Excellon’s healthy financial position allows them to hunt for that big deposit while keeping focusing on their core mission of producing as much metal from its mine, at as low a cost, as possible.
Last quarter those efforts led to the production of 365,941 oz. silver, or 589,881 oz. silver eq. with lead and zinc factored in, from the 18,890 tonnes milled. Overall the company produced 1.4 million oz. silver from 70,000 tonnes in 2013, the most tonnes milled since it opened the mine in 2005, and the most silver produced since 2009. Total cash costs came in at $10.01 per silver oz. payable and all-in sustaining costs were $19.62 per silver oz. payable for 2013.
The company has fantastic grades but has struggled with water issues at the Platosa mine, despite it sitting in the arid plains of northern Mexico. In 2013 the company continuously pumped 800 litres of water per second, or 12,500 gallons per minute, to the surface. It's been a complicated and expensive road to get the right water management system in place, including installing back-up pumps and generators, finding the right concrete and reinforcements, and getting the right safety system in place, but the company says that it now has the issue largely under control, allowing it to reach its record tonnes milled last quarter and getting silver production back up to its peak.
Despite the operational challenges and the silver price, the company still reported gross profits of $8.7 million for the year and net income of $1.9 million for the first quarter 2014, while bringing all-in sustaining costs down to $17.28 per silver ounce payable. The company had about $4 million in the treasury at the first quarter, along with securities and accounts receivable totalling a further $5.1 million. With steady operations and increased efficiencies ahead the company expects costs to go down further in 2014, as it looks to produce between 1.4 and 1.6 million oz. silver, 7.5 and 8.5 million lbs. lead, and 9 to 10 million lbs. zinc.
Besides getting the mine running smoothly last year, the company spent 2013 getting its corporate side refurbished as it settles into the role of established producer.
Brendan Cahill stepped into the role of CEO, having quickly worked his way up from an appointment as executive vice president in mid-2012 to president and CEO in early 2013. The 35-year-old Cahill joined a management team with extensive experience, including chief operating officer Rob Moore with more than 30 years of mining experience and vp of exploration John Sullivan with more than 35 years.
At the same time as Cahill came on as CEO, Ned Goodman, president and CEO of Dundee Corporation, and Joanne Ferstman, chair of Dundee Industrial REIT, joined the board of directors. Goodman recently stepped down from Excellon's and several other boards, but Excellon still has impressive roster of board members including Peter Crossgrove, Thor Eaton, Alan McFarland, Tim Ryan, André Fortier, and Oliver Fernández.
To broaden its investment appeal the company also instituted a share rollback last year, bringing the share count down to an attractive 55 million outstanding from the 277 million it reached after financing and building the mine. With no anticipated need to raise money by issuing stock, the company saw it as a way to attract more stable institutional investors without burning current shareholders. Institutional investors now include Sprott Asset Management, Dundee Corp, Crystal Fund and Notae Investments and represents 33% of shareholders.
Excellon also started a share buyback program to keep its share price up, buying a total of 232,000 shares during 2013 at an average of $1.59. The company renewed the program in December 2013 to keep open the option of buying as many as 5.2 million shares, or 10% of the total float.
Along with working to impress institutions, Cahill has been busy improving relations with locals living around the mine. That relationship soured somewhat in 2012 following a government supervised union election at Platosa. A union-backed NGO instigated a bitter campaign with the support of a local agrarian community, and the losing union commenced an illegal blockage of the mine. For 64 days in mid-2012 the losing union blockaded the mine, which resulted in 99 days of suspended mine production.
Cahill came on with the company in the midst of this challenge, and has been steering the company towards a more sustainable and conciliatory relationship with the locals. Excellon has initiated a number of community initiatives in health care, education, and cultural programs. The company is also running vocational training so more locals can benefit from employment at the mine, which currently employs 352 Mexicans, making up 100% of its workforce in an area with limited opportunities. Excellon reports that it has an excellent working relationship with its employees, the local communities, and all levels of the Mexican government.
During my time at the Platosa mine, I visited with their community manager Sandra Magaña and was able to see that these efforts paying off. Excellon’s engagement in the community is creating a healthy relationship for this important source of opportunities. I saw the positive impact of the local population being engaged in various programs to improve their town. For example, as difficult as it may seem for many to relate to not having access to the internet, such is a privilege for the community. Now with Excellon’s support, internet will soon be brought to students.
Community relationships are a big priority for Excellon, because the company plans to be at La Platosa for the long term. The current resource will sustain production for about seven more years, but the company is busy exploring for more high-grade mantos to the north, east, and southeast of the current mine workings. And then there's the potential of that major source deposit lurking nearby.
The style of mineralization at the Platosa deposit is similar to several of the world-class carbonate replacement deposits of Mexico. Those include New Gold's 151-million-tonne Cerro San Pedro deposit, Penoles' 120-million-tonne San Martin-Sabinas deposit, and Goldcorp's 45-million-tonne Penasquito deposit, though overall the CRD deposits in Mexico average around 10 to 15 million tonnes. CRD's are epigenetic, intrusion-related; high-temperature, sulphide-dominant, lead-zinc-silver-copper-gold-rich deposits that commonly occur in clusters associated with major regional geologic features.
La Platosa sits in the middle of the prolific belt of such deposits that run along Mexico's spine, leading Excellon to suspect the source of the precious metals from the mine is a carbonate replacement deposit nearby. Indeed, finding the big-tonnage source has been Excellon's eventual intention since acquiring the project back in 1996.
The company was busy drilling away and exploring for this game-changer when the silver price plunged, so Excellon had to shelve an ambitious $18 million exploration program it had planned for 2013. But the drill results the company had before cutting back are sure to keep Excellon's exploration team excited to start looking again soon.
Drilling in early 2012 hit upon the Rincon Del Caido discovery about a kilometer from the current mine, which is the most promising lead on the source of the Platosa deposit. Results include hole LP1019 that hit 55 metres grading 132 g/t silver, 3.1% lead, 1.7% zinc, and 0.08 g/t gold, and hole LP1030 that returned 7 metres averaging 409 g/t silver, 10.2% lead, 8.4% zinc, and 0.11 g/t gold. Hole LP1038 hit 7 metres carrying 13.1 g/t gold, which the company says could indicate a more gold-rich source deposit.
For 2014 the company is keeping a cautious approach to exploration, holding back on any big programs. The latest technical report proposed a $5 million drill program, with about 90% of that going towards looking for more high-grade mantos and the rest to keep the search alive for the large-tonnage source, but the company has not committed to any program yet. The company also has the option of exploring its 41,500-ha Miguel Auza project in Zacatecas State, but exploration focus will remain focused on the La Platosa property.
As a silver investor, Excellon’s valuations are very attractive at these levels with much more upside than downside. Even more so since the stock price has come down substantially with the silver sector. Excellon provides investors with a very low cost producing mine reaping profits with strong upside exposure to the silver price. There is an excellent share structure in place (55M) along with a solid management team that can leverage their cash flow into exploring and potentially unlocking a large-tonnage long-term mine. 2014 looks to be an exciting time for the company and I expect we will see Excellon be a sector outperformer.
- Peter Spina, President of SilverSeek.com
Shares Issued: 54.9M
Market Cap: C$ 77M | US$ 70M
Peter Spina's experience with the precious metal markets started back in the mid-1990s, which led to the creation of GoldSeek.com back in 1995. Today GoldSeek.com ranks in the top three most popular global gold websites and its sister site, SilverSeek.com ranks as the most visited silver website in the world. Back at the start of the new secular precious metals bull market, Peter established the technically-focused subscription newsletter, which at the start of 2005 was merged into the more comprehensive Gold Forecaster (goldforecaster.com) service. In addition to the newsletter and websites, Peter frequently appears in the media including MarketWatch, Reuters, and Investors Business Daily.
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