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Excellon Resources Inc (2)
Symbol EXN
Shares Issued 54,990,897
Close 2014-03-27 C$ 1.45
Market Cap C$ 79,736,801
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Excellon loses $5.04-million (U.S.) in 2013

2014-03-27 07:17 ET - News Release

Mr. Brendan Cahill reports

EXCELLON REPORTS 2013 ANNUAL AND FOURTH QUARTER FINANCIAL RESULTS

Excellon Resources Inc. has released financial results for three- and 12-month periods ended Dec. 31, 2013. All currency figures in this release are expressed in United States dollars.

2013 annual and fourth quarter highlights

  • Revenue of $33.3-million (fourth quarter -- $7.4-million);
  • Sales of 2,038,295 silver equivalent (AgEq) ounces (fourth quarter -- 545,428 AgEq ounces), including 1,403,783 ounces silver (Ag), 7,237,003 pounds lead (Pb) and 9,683,329 pounds zinc (Zn);
  • Mine operating earnings of $8.7-million (fourth quarter -- $200,000);
  • Net loss of $5.0-million or nine cents per share (fourth quarter -- net loss of $2.4-million or four cents per share), including a deferred tax accounting adjustment of $800,000 recognized in fourth quarter as a result of the recently enacted Mexican tax reforms;
  • Cash flow from operations of $1.7-million or three cents per share before changes in working capital (fourth quarter -- $800,000 or one cent per share);
  • Net cash costs per payable silver ounce of $10.51 (fourth quarter -- $13.02);
  • All-in costs per payable AgEq ounce of $17.29 (fourth quarter -- $16.09);
  • Cash corporate administrative costs reduced by $2.2-million or 36 per cent relative to 2012;
  • Cash, marketable securities and current accounts receivable totalling $7-million at Dec. 31, 2013;
  • Working capital totalling $10.3-million at Dec. 31, 2013.

"During 2013, and particularly during the third quarter, we demonstrated our ability to generate cash flow at Platosa despite the significant decrease in silver prices," stated Brendan Cahill, president and chief executive officer. "The biggest impact on our profitability was the significant volatility in the silver price, particularly during the second and fourth quarters. We have now taken steps to reduce the effect of these fluctuations and we are confident that these adjustments will improve cash flow and profitability going forward. Additionally, just as we realized cost reductions throughout the year, we will continue to further reduce costs at the mine site level through 2014.

"Our strong, dedicated and valuable operations team should be proud of producing the most ounces from Platosa since 2009 and the most tonnes in the mine's history. In 2014, we aim to build on this improved production profile, while continuing to enhance our commitment to the highest levels of health and safety protocols and training."

                                     FINANCIAL AND OPERATING HIGHLIGHTS
                                          (In thousands of dollars)
                                                                                Full year    Full year
                                                        Q4 2013      Q4 2012         2013         2012

Revenue                                                  $7,445       $9,113      $33,332      $36,273
Production (costs)                                      (5,987)      (4,153)     (20,692)     (16,401)
Depletion and amortization (loss)                       (1,260)        (860)      (3,910)        2,788
(Cost) of sales                                         (7,247)      (5,013)     (24,602)     (19,189)
Gross profit (loss)                                         198        4,100        8,730       17,084
Corporate administration (loss)                         (1,448)      (1,854)      (5,831)      (7,338)
Exploration (loss)                                        (212)      (3,650)      (6,718)      (9,907)
Other (including finance cost)                              512        (417)          202          685
Income tax recovery (expense)                           (1,457)        8,481      (1,423)        7,884
Net income (loss)                                       (2,406)        6,660      (5,041)        8,408
Earnings per share -- basic (loss)                       (0.04)         0.12       (0.09)         0.15
Cash flow from operations                                   790          124        1,699        3,631
Cash flow from operations per share -- basic               0.01         0.00         0.03         0.07
Net cash cost per payable silver ounce ($/Ag oz)          13.02         9.88        10.51         6.80
All-in cost per payable silver
equivalent ounce ($/AgEq oz)                              16.09        18.85        17.29        16.78

Revenues during 2013 decreased 8 per cent from 2012, despite a 52-per-cent increase in tonnes produced, due to a 33-per-cent decrease in the average realized silver price from $31.03 to $20.93. The decrease in the silver price resulted in lower revenues as well as significant charges against revenue during 2013, both of which affected income and cash flow (as further described below). Total revenues for 2013 were also lower than anticipated due to inclement weather at year-end on the West Coast of Mexico delaying the delivery of $1.0-million in concentrate until early 2014. Costs of sales increased 28 per cent during 2013 due to the significant increase in produced tonnage during the year.

The company's net losses during 2013 and fourth quarter were primarily the result of $2.0-million (fourth quarter -- $900,000) in negative price adjustments relating to decreases in the price of silver between the deliver date and final settlement date (up to four months later) of concentrate sold during the periods (including $600,000 of unsettled deliveries marked to market at the end of fourth quarter 2013).

The fourth quarter revenue adjustments of $900,000 were the major contributor to the relatively low mine operating earnings of $200,000 during the quarter. The company has entered into new concentrate purchase terms, which are expected to reduce the effect of similar revenue adjustments in 2014/2015.

Other significant items contributing to the company's net losses during 2013 and fourth quarter include: a one-time non-cash income tax provision of $800,000 resulting from the initial recognition of the Mexican mining tax reform; expensed drilling and exploration totalling $6.7-million during the year; an unrealized loss of $1.5-million (fourth quarter -- $400,000) from a decrease in the fair value of 344,000 units of the Sprott Physical Silver Trust held by the company, representing an underlying investment in 134,732 ounces of silver; and non-cash charges totalling $1.6-million (fourth quarter -- $500,000) in respect of share-based compensation.

Net working capital decreased $5-million during 2013 to $10.3-million (Dec. 31, 2012 -- $15.3-million), primarily due to exploration expenditures of $6.7-million and cash repayments of $4.5-million during the year related to the negative revenue reductions discussed above. Cash, marketable securities and current accounts receivable decreased to $7-million at Dec. 31, 2013 ($15.3-million at Dec. 31, 2012).

Cash corporate administration expenses decreased by approximately $2.2-million or 36 per cent during 2013 relative to 2012 as the company implemented cost reduction measures in the Toronto office. Cash compensation, in particular, was $1.4-million or 45 per cent lower in 2013 than in 2011 and 2012.

During the first two quarters of 2013, the company expended $6.2-million in drilling and exploration expenditures at Platosa and the Beschefer and DeSantis properties. Subsequent to May, 2013, exploration expenses were reduced significantly. Due to current silver prices and market conditions, the company has suspended drilling at La Platosa, though drill rigs remain on-site and available to resume exploration at short notice.

The company has committed going forward to providing costs per silver equivalent ounce on a payable basis, rather than on a produced or sold basis, as the payable basis provides a more accurate measure of the cash income received from each silver equivalent ounce sold by the company. On the payable metric, costs per ounce appear higher than they may historically have appeared when reported on a produced or sold basis.

Cash cost per payable silver ounce net of byproducts increased during 2013 to $10.51 (2012 -- $6.80). This increase was primarily attributable to lower grades of silver (minus 15 per cent) and zinc (minus 32 per cent) in the mantos mined during 2013 relative to 2012, lower recoveries in respect of lead and zinc (as discussed in operating highlights, below) and related lower byproduct credits on silver production, as well as higher costs in respect of certain consumables that are not expected to recur in 2014. All-in cost per payable silver equivalent ounce was slightly higher relative to 2012 at $17.29 versus $16.78.

Relative to third quarter 2013, net cash costs and all-in costs increased, primarily due to lower grades mined during fourth quarter (684 g/t Ag in fourth quarter versus 975 g/t Ag in third quarter) offsetting the increased tonnage milled (21,186 tonnes in fourth quarter versus 16,707 tonnes in third quarter). As in third quarter, during fourth quarter significant expenditures were made on electricity to manage water inflows in the 6A manto (which were resolved in late February, 2014), the areas mined during the quarter contained lower lead and zinc grades, reducing byproduct credits and silver equivalent ounces, and recoveries were lower than in previous periods (see operating highlights for a further discussion). The company realized significant improvements in each of these respects in early 2014.

                                       PRODUCTION HIGHLIGHTS
                             
                                                   Q4          Q4         Year          Year
                                                 2013        2012         2013          2012

Tonnes of ore produced                         20,481      11,139       70,490        46,495
Tonnes of ore processed                        21,186      11,452       69,862        48,199
Ore grades
Silver (g/t)                                      684         751          718           846
Silver (oz/t)                                   19.96       21.89        20.94         24.67
Lead (%)                                         5.27        6.59         6.14          6.75
Zinc (%)                                         5.08       11.21         8.00         11.81
Recoveries
Silver (%)                                       89.9        94.4         92.6          93.4
Lead (%)                                         71.2        85.7         79.4          82.1
Zinc (%)                                         75.8        83.7         80.2          84.8
Production
Silver -- (oz)                                411,277     251,065    1,409,852     1,081,165
Silver equivalent ounces (oz)                 545,428     360,831    2,055,567     1,550,964
Lead -- (lb)                                1,720,303   1,393,067    7,342,108     5,731,160
Zinc -- (lb)                                1,857,066   2,387,785    9,876,955    10,450,813
Sales
Silver ounces -- (oz)                         393,908     233,773    1,403,783     1,060,211
Silver equivalent ounces (oz)                 513,568     337,642    2,038,295     1,523,422
Lead -- (lb)                                1,530,833   1,324,026    7,237,003     5,638,330
Zinc -- (lb)                                1,660,102   2,253,698    9,683,329    10,316,726
Payable
Silver ounces -- (oz)                         360,285     208,702    1,279,364       951,707
Silver equivalent ounces (oz)                 466,391     326,729    1,841,335     1,476,413
Lead -- (lb)                                1,453,171   1,254,681    6,868,685     5,331,554
Zinc -- (lb)                                1,376,336   1,892,706    8,117,208     8,660,607
Realized prices
Silver -- ($US/oz)                              20.02       35.56        20.93         31.03
Lead -- ($US/lb)                                 0.96        1.03         0.94          0.91
Zinc -- ($US/lb)                                 0.87        0.93         0.86          0.90

Production of over 1.4 million ounces of silver was the company's highest annual production at La Platosa since 2009. The company realized a significant improvement in tonnes per day (tpd) of production during the latter half of the year from about 175 tonnes per day during first quarter/second quarter to about 210 tpd in third quarter/fourth quarter (including 223 tpd in fourth quarter) as the benefits of underground development work during the first half of the year were realized and the company began identifying further operational efficiencies and improving water management. Production of 2.1 million silver equivalent ounces during the year was in line with the company's revised target (announced Sept. 17, 2013) and silver grades were generally in line with budget (718 g/t Ag versus 728 g/t Ag budgeted).

During the fourth quarter, ore was produced primarily from the 5A, 6A and Guadalupe North mantos. Tonnes milled represented a 27-per-cent increase on the previous quarter for a total of 21,186 tonnes. Grades were in line with estimates for the La Platosa resources mined during the period. As in the third quarter, recoveries were slightly lower due to significant remnant grouting from historical water management measures in certain areas mined, oxide mineralization in the 5A manto and similar lead and zinc grades affecting the mill's differential separation of each metal. Recoveries of all metals have exceeded budget to date in 2014.

Outlook

Excellon is targeting 2014 production of 1.4 million to 1.6 million ounces of silver, 7.5 million to 8.5 million pounds of lead and nine million to 10 million pounds of zinc or 2.1 million to 2.3 million silver equivalent ounces (based on $24 silver, 90 cents lead and 90 cents zinc).

In December, 2013, Mexico passed tax reform legislation that took effect Jan. 1, 2014. The reform includes, among other items, cancellation of the reduction in the Mexican corporate tax rate from 30 per cent to 28 per cent by 2015, a special mining duty of 7.5 per cent on taxable mining profits, fewer allowable deductions excluding interest and capital depreciation, and a 0.5-per-cent environmental tax on gold and silver revenue. The tax reform is expected to impact the company's future earnings and cash flows. The company intends to minimize the impact of these reforms to the full extent possible and, additionally, still holds significant loss carry forwards from its acquisition of Silver Eagle Mines Inc. in 2009, which may be applied against profits going forward.

Corporate governance updates

The board of directors of the company is also pleased to announce the implementation of a majority voting policy and the approval of an advance notice bylaw, each as further described below.

Advance notice bylaw

The advance notice bylaw requires that advance notice be provided to the company in circumstances where nominations of persons for election to the board are made by shareholders other than pursuant to: a requisition to call a shareholders meeting; or a shareholder proposal, in each case as made in accordance with the provisions of the Business Corporations Act (Ontario). Among other things, the advance notice bylaw fixes a deadline by which shareholders must notify the company of nominations of persons for election to the board and provide that the same information about the proposed nominee as one would be required to include in a dissident proxy circular under applicable securities laws must be provided to the company by the deadline.

In the case of an annual meeting of shareholders, notice to the company must be made not less than 30 and not more than 65 days prior to the date of the annual meeting, provided, however, that in the event that the annual meeting is to be held on a date that is less than 40 days after the date on which the first public announcement of the date of the annual meeting was made, notice may be made not later than the close of business on the 10th day following such public announcement.

In the case of a special meeting of shareholders (which is not also an annual meeting) notice to the company must be made no later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting was made.

The advance notice bylaw provides a clear process for shareholders to follow to nominate directors and set out a reasonable time frame for nominee submissions along with a requirement for accompanying information. The purpose of the advance notice bylaw is to treat all shareholders fairly by ensuring that all shareholders, including those participating in a meeting by proxy rather than in person, receive adequate notice of the nominations to be considered at a meeting and can thereby exercise their voting rights in an informed manner. In addition, the advance notice bylaw should assist in facilitating an orderly and efficient meeting process.

In accordance with the provisions of the act, the advance notice bylaw will be subject to confirmation by shareholders at the next annual meeting of shareholders of the company. A copy of the bylaw has been filed under the company's profile on SEDAR.

Majority voting policy

Under the majority voting policy, any nominee for director of the company who receives a greater number of votes withheld from his or her election than votes for such election shall immediately following the shareholder meeting tender his or her resignation from the board for consideration by the nominating and corporate governance committee of the board. The committee shall consider the resignation and recommend to the board the action to be taken with respect to such resignation, which may include acceptance of the resignation or rejection of the resignation. The committee shall be expected to recommend acceptance of the resignation unless exceptional circumstances exist that would warrant the applicable director continuing to serve on the board. The board has 90 days following the date of the shareholder meeting at which the election occurred to decide whether to accept the resignation. Promptly after the board's decision, the company will disseminate a press release disclosing whether or not the director's resignation was accepted. If the board determined not to accept the resignation, the press release must disclose reason or reasons for rejecting the tendered resignation. The majority voting policy is accessible on the company's website.

Annual meeting

The annual meeting of Excellon shareholders will be held at 4 p.m. Eastern Time on April 29, 2014, at 330 Bay St. in Toronto, Ont. Excellon shareholders as of March 11, 2014, are entitled to attend and vote their shares at the annual meeting. Materials outlining the matters to be approved at the annual meeting will be mailed in early April, 2014.

We seek Safe Harbor.

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