Excellon Resources (EXN) - Focus is Silver with Gold Optionality

February 23 2021, 19:06 GMT

Excellon Resources

  • TSX: EXN
  • Shares Outstanding: 32.3M
  • Share price C$4.22 (15.02.2021)
  • Market Cap: C$136M

Excellon Resources is a mineral resource company with assets in Mexico, US and Germany. As well as the geographic diversification, direct exposure to Silver, Lead and Zinc production in Mexico and Silver exploration in Germany, the company has a Gold exploration project in the US, providing Excellon with commodity diversification too.

We caught up with Brendan Cahill, President & CEO, of Silver Producer, Excellon Resources for an overview of each of their projects in Mexico, Germany and the US, but also to find out what they're planning to do this year. They raised a large amount of money in the middle of last year and the markets have moved in their favour so we are interested to see what the future holds.

Company & Strategy Overview

Excellon Resources is operating the Platosa mine in Durango, Mexico. It's been operating as a high-grade producer since operations started in 2005. Platosa is a small, high-grade Silver producer that generates cash to allow the company to invest in their exploration projects; Platosa, Evolución in Mexico, Kilgore and Oakley in Idaho, and Silver City in Germany. The hope and expectation is that these new assets will create larger opportunities and value for shareholders.

Excellon Resources (EXN) - Focus is Silver with Gold Optionality

Progress on the Platosa Mine: Finding Bigger & Better

Kilgore is a high-quality Gold resource growth and development asset with an NPV5 of CAD$300M and the company thinks it could be a lot bigger if they use some of that Platosa cash flow. Silver City in Saxony Germany is a discovery story with 36km of strike but Excellon is the first company to drill the area in a few decades, so it’s a chance to make a series of high-grade Silver discoveries. There is also potential at Platosa to expand the resource and the mine life, and also try to find multiples of the deposit around the project. Excellon Resources (EXN) - Focus is Silver with Gold Optionality

Platosa was one of their big successes of 2020 in that the company was able to overcome some of the technical issues and impacts of Covid and produce into a higher Silver price. In 2020 they acquired Otis Gold, which added 1.1Moz of global Gold resource. They published a Resource update on Evolución, which is about 100Moz of Silver equivalent. They started 2020 with a 14Moz Silver equivalent resource and ended 2020 with 170Moz Silver equivalent resource all together. The company has grown from less than 1oz per share of stock to 5.5oz per share which is due to ramping up production, company acquisitions and organic growth through drilling. They've acquired to grow ounces at a very low cost with this high-end P/B asset. They've done the drilling to put out a 100Moz Silver equivalent Resource and turned around the operation to increase the number of ounces and cash flow they can generate from the mine. Now, they also have the assets in place to continue to grow organically with drilling. well.Excellon Resources (EXN) - Focus is Silver with Gold Optionality

Opportunity at the Evolución Project: Plans & Goals for 2021 

Evolución is potentially an interesting project for Excellon. It's 45,000hectares and about 200km south of Platosa. Their processing facility is in the middle of Evolución in the town of Miguel Auza where they have an existing resource that they upgraded this year from around 30Moz of Silver equivalent to almost 100Moz of Silver Equivalent. It's right beside the mill, right by the tailing dam and is currently an inferred resource. Evolución is a lower priority at the moment, but with further drilling, the permits that are in place, it's a project that could potentially go into production at a relatively low cost.

The management team is keen to see a better Silver price environment to ramp it up, but also around Evolución, 45,000hectares, 35km of strike of the Fresnillo Silver trend, they have San Sebastián, Hecla's mine, just to the north of them. Then south is a direct connection to Juanicipio and Fresnillo itself, so from a greenfields exploration project perspective, it's interesting. To be able to take 35km of strike of the Fresnillo Silver trend is really difficult and everybody between Fresnillo and Zacatecas is scrapping for ground. 

Evolución it's not the key priority project for 2021 and they plan to spend about C$2M there just to refine the resource that they have. The fieldwork to define targets is quite inexpensive so they can advance the project well and effectively. It's not a priority target for 2021 though.

Money Matters: Cash Position, Allocation, & Burn Rate 

Excellon raised CAD$18M in the middle of last year and had CAD$10.5M left at the end of Q3/20. The money generated by the mine goes into the ground in the exploration of assets which they plan to continue going forward. CAD$18M is about USD$13M. USD$6M went to repay a Sprott bridge loan and the rest of the money has gone into proving the operation and on exploration on Platosa and Silver City in particular.

In terms of the cash flows from Platosa, the company plans for the project to be self-sustaining for 2021 with no more raises. The main reason to do a raise is if they have a big discovery or need to increase the exploration on one of the projects, otherwise, Platosa is paying for everything.

Update on Oakley & Centerra Gold Venture

There has been a lot of work at the Oakley and the Centerra Gold venture in the second half of 2020 and they will be drilling there shortly. Centerra has been active in pushing exploration forward over the past few months. They are earning into the projects and are spending up to CAD$7M over the next 6-years to get to 70%. It shows a lot of potential and is about 70km - 80km just west of Liberty Gold's Black Pine project, which is a great success. It just needs drilling now.

Centerra Gold is a good company, they know what they're doing and they're operating, but Excellon Resources is managing it, and picking up 10% of expenditure for its troubles.

Acquisition of Otis Gold: Opportunity & Plans for Kilgore 

Last time we met, Excellon said that Kilgore was their number one asset and the one they are most excited about and they still stand by that statement now. Kilgore has 1Moz at 0.5g Gold in a very good jurisdiction in Idaho. It's a fresh project, so there aren’t any historical environmental liabilities, which can be a challenge. The focus of drilling historically was a lot of RC drilling, a step out to grow the deposit, and then put a PEA on it. The structural aspect of the deposit, following up on some of the high-grade results at depth, are drill holes of 95m of 4.2g, 31m of 5.4g. Historically, they were looking for Oxide, near-surface because Gold prices were USD$300oz. In 2015 and 2016, some more diamond structurally focused drilling was done and that's where they see these much higher-grade results which is clearly what Excellon wants to focus on. 

It is low-grade at surface, where there will be better recoveries and they hope to see good recoveries once they redo the metallurgy on those systems. At the very bottom of the holes, they started to see some Sulphides which are much higher-grade.

Right now, Excellon is permitting for the next phase of drilling. The environmental assessment is in a common period right now and they are aiming to get that in May/June of this year and start drilling in July. It's a pretty straightforward process and it is US forest service land.

Excellon Resources (EXN) - Focus is Silver with Gold Optionality

Silver City, Germany: Progress, Results, & Expectations 

At the Silver City project in Germany, Excellon is going into a brand-new jurisdiction effectively. Even though it was mined for 800-years, there's been no mining for 150-years on this part of the system. Further south, there were operations until the 1960s and 1970s.  It's part of East Germany so there was a very different interest in metals. It was about base metals, Lead versus high-grade Silver. When Excellon optioned this project in September 2019, the first thing to do was to get the permit. They successfully got the permit for the drill programme in May and started drilling in July. 

There was apparently some curiosity from the local communities as they hadn't seen a drill rig in quite some time. There was an effective ramp-up of the drill programme and then they started hitting a big, epithermal system on hole after hole after hole on 12km of strike and are seeing high-grade Silver species. They're seeing up to 1kg/t Silver over 0.5m on just the first 6 or 7 drill holes which shows the system is there and the high-grade is there and they're getting the intersections as well. 

Excellon drilled 16 holes in 2020 and are waiting for results back on 9 of them. They are currently permitting the programme for 2021 which is far more extensive for 2021 relative to 2020 and continue to drill for new discoveries along the breadth of this trend. Excellon will have more news out on this in the next quarter or so and they are planning a programme of 10,000m to 15,000m for 2021. Kilgore's will be bigger than that and will take most of the drilling expenditure this year, but they've certainly got some big plans for Silver City in 2021.

Excellon Resources (EXN) - Focus is Silver with Gold Optionality

Momentum, Media, & Market Manipulation

There is currently a bit of a silver squeeze which shows how quickly the Silver price can move. The silver market is manipulated because it's a small market that's easy to manipulate. You cannot buy physical Silver at the moment and there's a massive paper market. There is evidence of suppression in the market but there is this physical shortage of Silver and with the demand for solar panels and high technology, they will need physical Silver and there's just not a lot of it out there. Silver and Copper and Nickel and any other element that you need to electrify the world will be in high demand going forward. 

Board Changes: Reasons Why & Impact on Business   

Craig Lindsay and Roger Norwich coming on the board through the Otis acquisition have been great additions to the board. Mike Timmins joining the board has been huge for Excellon as he is a very strategic thinker. Anna Ladd-Kruger left as CFO in October but moved up to the board which is great for the company. Changing the board often changes the mood and the tempo and the ambition of the business and it is about finding the balance of strategy versus risk.  

It's been interesting to see the evolution of the business. The precious metal prices have helped for sure but Excellon Resources has done a good job at solving problems in Mexico and done it responsibly and ethically. With their additional assets, they now have big optionality. We are excited for the company to start seeing all the drilling happening and this exploration pan out. 

The last half of 2020 was putting all the pieces in place to have rigs going on all the projects and really starting to generate consistent, regular news. Now with all they're doing at Platosa, Silver City coming along, Kilgore behind that and Oakley in the middle, there will be a lot of news results coming out through the course of 2021. 

It was good to catch up with the news and we look forward to seeing regular results from the company during 2021. 

To find out more, go to Excellon Resources' Website.

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