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Thursday, July 20, 2017 Derek Macpherson

EXN's Q2 2017 Production Improves Post Optimization


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Excellon Resources Inc. (TSX:EXN) reported positive Q2 2017 production results, subsequent to the completion of its optimization plan at its Platosa Mine in Durango, Mexico (Figure 1). In mid-June, the company achieved dry mining conditions the initial benefits of which were scene in Q2 results. In Q2 production increased in all metals, silver (~49%), lead (~39%) and zinc (~28%) as compared to Q1 2017. We expect the remainder of the year to be strong, as the company should be able to ramp up production.



Platosa optimization successful. In mid-June, the company successfully completed the optimization plan which compared to the first half of 2017 increased daily production tonnage by 72% (47% over 2016) and development rates by 90% (21% over 2016). In addition, mobile equipment availability increased by 62% compared to 2016, while pumping rates have doubled with fewer more efficient pumps. The company began to see improvements near the end of the quarter and averaged 215 tpd in July, which we expect will be reflected by a strong Q3 2017.

Q2 2017 production results highlight initial benefits of optimization. Compared to Q1 2017, production of all metals increased significantly after development rates improved in mid-June and the company began to achieve initial benefits of dry mining conditions. Production from the quarter mostly came from the 674 heading (April and May), noting material changes in production were achieved in the last week of June, and therefore not entirely reflected in the quarter’s results. That being said, QoQ the company realized an ~49% increase in silver production, ~39% increase in lead production and ~28% increase in zinc production (41% AgEq production). In addition, QoQ grades improved materially, up ~24%, ~20% and ~9% for silver, lead and zinc respectively. YoY production, recoveries and grades (with the exception of zinc up ~2.5%) decreased, however over the remainder of the year we expect to see this gap close as operations ramp up, post optimization.

Valuation reflective of optimization. Excellon currently trades at a premium to peers at 8.4x 2017e EV/CF versus peers at 6.9x 2017e EV/CF. Subsequent to the completion of the optimization program we expect to see significant improvements in production over the remainder of the year. In the near-term, upcoming Q2 2017 financial results (July 31st, 2017) will be an important catalyst for the company, providing additional insight on the benefits of the optimization plan.


Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
 
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Excellon Resources Inc. - TSX:EXN - 2,4

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