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Thursday, April 27, 2017 Derek Macpherson

EXN's Optimization Plan On-Track


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Excellon Resources Inc. (TSX:EXN) reported Q1 2017 production results and an update on its ongoing optimization program at its Platosa Mine in Durango, Mexico. The optimization plan remains on schedule for the end of Q2. The company saw higher than forecasted drawdown and expects full installation to be completed during May. Production results decreased significantly YoY and QoQ, as the company faced challenging mining conditions in the Rodilla Manto during Q1. Operations and cash flow are expected to improve in H2 2017, once the optimization program has been completed. Excellon currently trades at a premium to peers, we believe this premium partially reflects the expected increase in production and lower costs once the optimization program is completed.


Optimization plan continues to be on schedule. The primary booster is operating at full capacity, with the secondary booster expected to operate near capacity next week. Well cleaning procedures are ongoing and the company is installing an additional four submersibles in the next two weeks, 5 of the 12 planned are currently in operation. Over a two-week period (April 11th-25th), the company averaged a pumping rate of 18,600 gpm, achieving a drawdown of the water table of 1.3m, surpassing the forecasted 0.85m. The deepest development heading and production headings are now less than 10m and 5m below the water tables, respectively. Pumping rates are expected to increase as maintenance is completed and additional submersibles are installed, installation is expected to be fully completed during May. Drier mining conditions appear to be achievable by the end of Q2, we expect this to result in higher throughput and grades, improving cash flow in H2 2017.

Q1 production hindered by challenging mining conditions. Q1 2017 production showed significant decrease YoY and QoQ (Figure 1), as production originated from the Rodilla Manto, the deepest parts of the mine where ore is below the water table. As the company continues to achieve positive results from the optimization program, drier mining conditions should benefit production results. In Q2, the company will continue to mine from Rodilla, in addition to accessing the Gaudalupe South Manto and 623 Manto.


Premium valuation reflects optimization progress. Excellon currently trades at a premium to peers at 1.31x NAV and 6.6x 2017e EV/CF versus peers at 0.89x NAV and 6.2x 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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