Mr. Peter Crossgrove reports

EXCELLON PROVIDES UPDATE INFORMATION REGARDING LA PLATOSA ILLEGAL ACTION

Excellon Resources Inc. has provided the following background information on the illegal action at the company's La Platosa mine.

Background on Excellon's Platosa property

Excellon is the highest-grade silver producer in Mexico from its 100-per-cent-owned La Platosa mine in the state of Durango. The company produces silver, lead and zinc ore at La Platosa, which is then trucked to the company's Miguel Auza mill operations in the state of Zacatecas.

On July 8, 2012, members of a local communal land ownership group, the ejido de La Sierrita (the ejido), under the direction of a non-governmental organization, ProDESC (Proyecto de Derechos Economicos, Sociales y Culturales AC), and with the assistance of certain union members, commenced an illegal blockade of La Platosa.

The following provides background information regarding the source of the blockade, the ejido and ProDESC.

Key points:

• ProDESC acknowledges that it is associated with Sindicato Nacional de Trabajadores Mineros Metalurgicos, Siderurgicos y Similares de la Republica Mexicana (the USW union), a United Steel Workers-affiliated union, and has represented the USW union at various meetings with state and federal governments.
• For the past 12 months, the USW union has attempted to force itself upon La Platosa mine workers, including an attempt to coerce the company into accepting the USW union as the mine's sole union, in contravention of Mexican labour laws.
• At a vote held on July 5, 2012, immediately prior to the commencement of the blockade by the ejido, approximately 60 per cent of workers at the La Platosa mine expressed their support for unions other than the USW union.
• The blockade was immediately recognized as illegal by local and state governments, and criminal charges for trespass were laid against the blockaders. These remain outstanding.
• ProDESC's website endorses and encourages illegal actions, while also stating that a key objective of the group is self-perpetuating financing.
• ProDESC's stated ideological objectives and reliance on financing from unions underline its lack of expertise in the very fields -- small business development and commercial contracts -- that would serve its supposed clients best and revitalize the ejido community.
• Further, while ProDESC purports to act in the name of human rights, the ejido actually living in the community number only 25 to 30 persons, while the illegal blockade has severely affected the livelihoods of almost 300 Excellon workers, numerous third party workers and an estimated 380 local families that rely on direct and indirect income from La Platosa.
• Excellon does not require the ejido's surface rights to either (i) continue producing silver and growing the minable resource at the La Platosa mine or (ii) continue effective exploration programs elsewhere on the La Platosa property, including on the promising Rincon del Caido target.

Status of the illegal blockade

The company has the full support of the state and federal governments, and is working closely with them to end this action as soon as possible so that the workers can return to the mine and resume their livelihoods.

The company ran out of its stockpiled ore at Miguel Auza shortly after the blockade and has not been in production since. Mining and exploration activities at La Platosa have been suspended, and the mine remains on care and maintenance.

USW union interest in the illegal blockade

Although superficially an ejido-related dispute, the company understands that the real root of the illegal blockade action, and the reason for the USW-union-financing of the action, is an attempt by that union to gain control of the La Platosa mine against the expressed will of the majority of the mine's workers, and in contravention of Mexican labour laws and regulations.

Since 2005, the mine workers at La Platosa have been represented by the Sindicato Nacional Presidente Adolfo Lopez Mateos de Trabajadores y Empleados del Comercio en General y Escuelas Particulares, Similares y Conexos de la Republica Mexicana, a nationally certified union that has been in existence for over 30 years, and represents approximately 1,500 workers in mining and various other industries across Mexico.

On July 5, 2012, a vote was held to select the representative union at La Platosa. As required by state and federal labour laws, representatives of the Ministry of Labour were in attendance as were officials of each union involved. The certified results of the vote will not be official until the labour authority completes the formal tabulation process as per the requirements of Mexican labour law, but the company understands that the election did not favour the USW union, with over 60 per cent of workers voting for other unions. The illegal blockade commenced three days later, supported by the USW union.

The Sindicato Nacional Minero Metalurgico Napoleoen Gomez Sada, which represents approximately 5,200 workers in many of Mexico's major companies and is the USW union's primary rival in Mexico, won the most votes based on initial results from the July 5, 2012, election.

Excellon is committed to support the union elected by the employees of La Platosa as certified by the labour authority in due course.

Who are the ejido?

In the Mexican system of government, an ejido is an area of communal land ownership (surface rights only) nominally used for agriculture. Within the law, there is provision for individual community members (ejiditarios) to possess and farm a specific parcel, and hold title to the surface rights of such parcel. Ejidos are registered with Mexico's National Agrarian Registry.

Today, some ejiditarios still farm the land, though many others have become business leaders in their states and communities with the development of hotels and other commercial buildings and endeavours on their collective lands.

Excellon's relationship with the ejido de La Sierrita community

Historically, Excellon has been a strong partner of the ejido community and the ejido make up approximately 12 per cent (30 of 250) of the La Platosa work force.

Excellon holds a 100-per-cent interest in the underlying mineral rights on the ejido property, with the ejido holding the surface rights. The current lease agreement between Excellon and the ejido for 1,100 hectares of surface rights provides a compensation scheme that is widely considered to be one of the most generous paid to any similar landowner group in Mexico. The surface rights are rugged, semi-desert terrain that is generally non-arable. The agreement was finalized and ratified in 2008. ProDESC provided support and counsel to the ejido during the negotiations, the government of the state of Durango witnessed the final agreement, and the agreement was ratified and endorsed by the ejido. The local and state governments agree that Excellon remains in full compliance with the terms of the agreement and all applicable Mexican laws, and neither the ejido nor ProDESC has taken any legal action to suggest otherwise.

From April, 2008, to date, Excellon has paid the 127 members of the ejido well in excess of $2-million (U.S.). All payments for land use and rentals are up to date. Notably, although the ejido community numbers 127 members, only 15 to 20 per cent of its members reside in the community proper (around La Platosa), with over 80 per cent of the ejido living elsewhere in Mexico and in the United States.

The agreement with the ejido includes Excellon's commitment to:

• Pay annual rent of approximately $600 (U.S.) per hectare (annually adjusted for inflation) for surface rights and access to 1,100 hectares;
• Issue 600,000 common shares of Excellon to the ejido (completed in 2008);
• Provide preferential hiring to ejido with appropriate skill sets;
• Provide training for employees that are members of the ejido to upgrade from labourers to specialized employment;
• Implement a scholarship program benefiting the students of the ejido.

While the company is compliant to the letter of all applicable Mexican laws and the current agreement with the ejido, certain elements of the agreement remain to be implemented. These elements were designed to be implemented over time upon the fulfilment of certain conditions that the ejido was unable to satisfy at the time of signing, including the acquisition of a water permit for the water flowing from the mine as well as the provision of personnel transport, ore trucking and cafeteria concessions. Subsequent to the signing of the agreement 2008, the ejido waived its right to the personnel transport concession, as it realized it would not be able to provide these services. The company accepted this waiver and continued to transport personnel using its own resources.

The discussions regarding the implementation of the other elements of the agreement were advancing immediately prior to the blockade, with the company having delivered a draft agreement to implement the trucking concession, information needed for the ejido to implement the cafeteria concession and proposals for the ejido to participate in water management at the mine (though the ejido had failed to acquire the water permit required by the agreement -- later explained in this press release). As previously, ProDESC advised the ejido and represented itself as having the expertise in small business and commercial law to negotiate the contracts and design the business models necessary for the ejido to successfully run the trucking and cafeteria concessions.

The ejido provided neither comment nor counterproposal following these discussions, but instead responded with an illegal blockade under the guidance, financing and urging of ProDESC and the USW union.

Presently, under the guidance of ProDESC, the ejido is further demanding:

• A silver-linked payment, currently estimated at approximately $1-million per year (from approximately $450,000 per year) in rent for surface rights that are not used for the production of silver. Excellon earned $4.4-million in net profits last year, with a net loss of $7-million in the four years since 2008;
• An increase in community financing to approximately $155,000 per year from approximately $40,000 per year -- the company has never received any accounting that the funds paid actually go to community works;
• A further non-merit-based 182 scholarships.

The company currently pays 15,000 pesos per month to provide merit-based scholarships, but has never been provided with any accounting by the ejido as to whether these funds are actually used for scholarships. Additionally, as of 2008, there were a total of only 55 students (from elementary- to professional-level schooling) in the census provided by the ejido, raising questions regarding the current demand for 182 scholarships.

Excellon's property rights at La Platosa

Excellon owns a total of approximately 41,000 hectares of mineral and mining rights at La Platosa, including the mineral rights underlying all of the ejido's surface rights, and will continue to hold these mineral rights for the foreseeable future. These mineral rights entitle the company to explore for and mine minerals at the La Platosa mine and in an extensive surrounding area.

Of these 41,000 hectares of mineral and mining rights, Excellon owns all associated surface rights needed to produce silver from the La Platosa mine and conduct further underground exploration. Additionally, the company owns approximately 750 hectares of surface rights, including those immediately beside the promising Rincon del Caido target, from which further drilling on that target may be conducted, if necessary. Apart from the 1,100 hectares leased from the ejido, the company also leases a further 995 hectares of exploration ground in the northern area of the La Platosa property and may otherwise obtain permission from local landowners as necessary for further exploration purposes.

Water issues at the La Platosa property

Under the 2008 agreement with the ejido (negotiated with the advice of ProDESC), the company agreed that, upon acquisition of a water permit by the ejido, the company would build a water treatment plant for the purposes of providing agricultural quality water to the ejido.

The federal government of Mexico, through its water management authority, CONAGUA, controls, and provides permits in respect of, all water rights in Mexico. The ejido does not currently hold any permit for the use of water flowing from the La Platosa mine, or does Excellon, either for human consumption or for agricultural purposes. To date, the ejido has not applied for a water concession from CONAGUA, and has been informed that, due to environmental concerns and in an effort to preserve the water table, no additional water concessions will be granted in the area.

Without such permit, the ejido may not use or transport water from La Platosa and the company cannot provide it with such water. Under mining laws in Mexico, the company is required to return water to its natural state in the underlying basin, which is accomplished by spreading water pumped from the mine over the company's property, allowing it to filter back into the water table.

The water pumped from La Platosa is in its natural state. The company does not use any reagents in the mining process at La Platosa, and no ore treatment or milling facility is located at La Platosa that would affect the natural quality of the water. After being pumped from the mine, the water is initially put in ponds to allow any suspended solids to settle before being spread elsewhere over the property. The water is tested on a quarterly basis by an independent certified laboratory and has always been shown to be of agricultural quality. The results of water testing are reviewed by CONAGUA on a regular basis.

What is ProDESC?

ProDESC is a non-governmental organization (NGO) group based in Mexico that is partially financed by the Solidarity Center AFL-CIO (an umbrella organization for U.S. labour unions).

The following statements and points have been extracted from ProDESC's website. Shareholders are urged to visit the ProDESC website to view ProDESC's mission statement and operating principles, which include the mission to ensure well-paying salaries for the NGO's employees, and the endorsement of illegal means to achieve their targets and goals.

Strategic objectives

ProDESC has three pillars to its mission statement, the third of which is "to consolidate the process of institutionalization by means of a solid funding base, professionalization of our staff, and adequate employment and administrative policies."

Organization structure

ProDESC professes to use any and all means necessary to achieve its objectives: "Due to our work experience and adherence to the main characteristics of human rights (universality, integrity, inalienability, conformity and justiciability), the team has found it necessary to elaborate integrated defense strategies for the cases we handle. Therefore, ProDESC recognizes that the legal process is one important tool but that, alone, it does not solve the deeper structural causes for human rights violations. For this reason, ProDESC considers the following to be fundamental characteristics of integral defense: interdisciplinarity, strategy and inclusion of aspects that are not necessarily legal.

A foundation that support ProDESC's work, among others, is the Solidarity Center AFL-CIO.

Excellon recognizes the important role that NGOs can play in the development of underserved communities. Indeed, ProDESC served the ejido well by negotiating a very generous agreement for the property in 2008. Today, however, the company is seeking to complete the implementation of that agreement with the ejido by confirming the practical terms of the trucking and cafeteria concessions, and extending the compromise of a water management agreement.

Unfortunately, the following realities have undermined the implementation of the agreement:

• A pillar of ProDESC's stated mission is the acquisition of financing for its continuing operations and salaries for its employees.
• ProDESC receives financing and support from a U.S.-based labour union umbrella organization.
• In the current circumstance, ProDESC is (professedly) affiliated with a labour union resolved on acquiring control of the La Platosa mine, against the expressed will of the mine workers and in contravention of labour laws in Mexico.
• While ProDESC's stated ideology may be noble (when not at the service of labour unions), ProDESC does not have:
  • The legal expertise necessary to negotiate commercial agreements in respect of the trucking and cafeteria concessions;
  • The business acumen necessary to found the small business enterprises that would most effectively revitalize the local ejido economy.
• ProDESC's publicly stated mission is to use all means necessary, whether legal or illegal, to reach its goals.

The following are the direct consequence of ProDESC's advice and actions:

• Adversely impacting the human rights, dignity and the right to earn a livelihood of over 500 Excellon and third party workers as well as 380 families in the area of the La Platosa mine;
• Adversely affecting the economies of communities farther afield, particularly at the Miguel Auza mill, where 50 further jobs depend on the ore mined at La Platosa;
• Adversely affecting the businesses of numerous contractors and suppliers in Mexico;
• Causing the company's declaration of force majeure, resulting in the suspension of all operations until further notice, the pending suspension of the employment of substantially all of the company's employees in Mexico and the company's reconsideration of its future operations in Mexico;
• Jeopardizing future annual payments by the company to the ejido;
• Adversely affecting Excellon's share price, thereby affecting the finances of Excellon's shareholders (which include ProDESC's client, the ejido).

Excellon remains committed to operating one of the highest-paying and safest mines in Mexico. La Platosa has transformed the local community and has delivered income growth to hundreds of direct and indirect workers and families. The mine is operated according to exacting health and safety standards, as recognized by government health and safety inspectors (most recently on Aug. 29, 2012), with a doctor, ambulance and treatment facility on site, daily health and safety instructions for workers, and a training facility for best practices in health and safety.

Excellon will continue working with local communities and all levels of government in Mexico to ensure that its operations contribute to the livelihood of local residents and meet industry best practices of corporate social responsibility.

We seek Safe Harbor.