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Thursday, March 23, 2017 Derek Macpherson

EXN's Optimization Program Nearing Completion


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Excellon Resources Inc. (TSX:EXN) reported financial results for Q4 2016 and 12-months ended 2016 including an update on its ongoing optimization program at its Platosa Mine in Durango, Mexico. Costs for Q4 were much higher than the expected run-rate; however, this incorporates costs of the ongoing optimization program. The company anticipates operations to achieve higher rates of production and lower costs during H2 2017, when the optimization program is complete. While Excellon currently trades at a premium to peers; we believe this reflects the market's anticipation for improved production and costs later this year.


Costs expected to improve for 2017. During 2016, the company positioned itself for success in 2017, by implementing the water optimization plan at its Platosa mine. As a result of the costs associated with the optimization program along with lower production and grades, AISC increased by 103.8% to C$71.17 Ag/oz YoY (74.2% QoQ). The company expects grades and throughput to increase once the optimization plan is completed in Q2 2017.

Optimization to deliver positive results during H2 2017. Excellon is in the final stages of completing the ongoing optimization program at its Platosa Mine. All submersibles have been delivered, with installations to be completed during Q2, in addition the installation of a secondary booster is almost complete. The company expects to achieve its long-term target pumping rate in Q2 2017, which should result in drier mining conditions in Q2 2017. We expect this to result in higher throughput and grades, improving cash flow in H2 2017. The company expects an update on drawdown rates shortly.

Current valuation appears to reflect optimization program results. Excellon currently trades at a premium to peers at 1.58x NAV and 8.2x 2017e EV/CF versus peers at 0.97x NAV and 7.0x 2017e EV/CF. We believe this premium partially reflects the increased production and lower costs expected once the optimization program is completed at Platosa. We expect cash flow and profitability to improve materially in H2 2017.


Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
 
Red Cloud Klondike Strike Inc.
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Priced as of prior trading day's market close, EST (unless otherwise noted).
All values in USD unless otherwise noted.

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Excellon Resources Inc. - TSX:EXN - 2,4

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