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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