Excellon seeks sunnier days in Mexico

Shareholders of Excellon Resources (EXN-T) appeared unimpressed at the company’s recent annual general meeting (AGM) in Toronto, with many urging the producer to get to the root of the community and labour issues that have dogged the La Platosa silver mine in Mexico’s Durango state — notably since last July — eroding its share value and hurting investor confidence.

The company’s stock has nearly halved since the most recent blockade at its only mine last July, where production was halted for three months. Excellon closed May 1 at 34¢, near its 52-week low.

President and CEO Brendan Cahill says that the underlying problem involves the United Steel Workers (USW) affiliated union, Los Mineros, which approached the company in 2011 to represent the mine workers, who were already represented by another nationally certified union.

The company says that under Mexican labour laws, a union seeking to represent a workplace that has a collective bargaining agreement (CBA) in place with another union needs to apply to the federal or state labour authority to request a union election.

After a short blockade by the USW-backed union in August 2011, Excellon says the Durango state government stepped in to organize a union election, which Los Mineros refused to attend, but that the union participated in another election on July 5, 2012, where it lost to the competing Sada Union.

The USW contested the election results, alleging that an international monitoring team reported Los Mineros lost by one vote, after “intimidation” of workers and “irregularities” in the voting procedure.

Three days later on July 8, Excellon said that members of the defeated USW-affiliated union and Ejido La Sierrita, a local group of Mexican landowners — both under the support of ProDESC, a Mexican-based non-governmental group — started an illegal blockade at La Platosa.

During the AGM Cahill told shareholders that the election was overseen by the Durango government, international observers and three unions, noting several appeals regarding the voting procedure were heard and dismissed by the state and federal governments, with the decision back with the labour tribunal to certify that the Gomez Sada union represents the mine workers. Cahill says that the certification will happen shortly.

But the USW argues that Excellon should allow workers and landowners “who are asserting their rights to a fair share of the economic benefits . . . workers want the company to recognize the union as the legitimate bargaining agent for workers, and to bargain a fair agreement,” Doug Olthuis, USW’s department head of global affairs and workplace issues, says in an email.

But Cahill insists that “we have never had any CBA or any type of agreement with the Los Mineros. They have never demonstrated any evidence of representing our workers and, obviously, lost the union election, with 60% of workers voting for the other unions.” 

Regardless, the USW helped organize a small protest outside of the Exchange Tower in Toronto where Excellon held its AGM on April 30, 2013. A few of the protestors who held Excellon shares were able to attend the meeting, including representatives from the Ejido La Sierrita and ProDESC.

The junior has a second issue with the Ejido La Sierrita, an agrarian community near the La Platosa mine.
Excellon leased 11 sq. km of surface rights on exploration ground from the Ejido under a deal reached in April 2008. But last August the producer sued the community to terminate the deal, citing damages related to the illegal mine blockade.

A week later, the Ejido also filed a lawsuit to end the surface-rights agreement and sued for damages, claiming the company did not fulfill the requirements of the deal, which included building a water-treatment plant and providing ore trucking and cafeteria concessions.

USW says that the landowners have tried to reach a new agreement with the company since November 2011.

But Excellon contends it was working towards implementing the conditions in the 2008 deal before the blockade. It says that under the existing agreement, the Ejido has to acquire a water permit before the company can build a water-treatment facility, noting that the community failed to submit a “counter proposal following discussions prior to the blockade.”

In April 2012, Excellon reported that the Agrarian Court in Mexico has advised that it return the 11 sq. km on May 9, 2013, following resolution regarding 10 of those hectares, which Cahill says contain electrical lines. He says the 11 sq. km are not used for production.  

But the Ejido that attended the meeting had several other complaints. David Espinoza, president of the Ejido La Sierrita, said through his translator that the company rejected three proposals to revise the 2008 agreement; conducted a “violent eviction” of the encampment outside of the mine; and violated the 2008 surface-rights agreement by exploring outside of the 11 sq. km.

Cahill responded that the community leaders, including Espinoza, failed to entertain the secondary issues, such as building a water-treatment plant if the company didn’t agree to first triple the payment for the surface rights to US$1.5 million a year.

The company pays US$600,000 a year for the square kilometres, which Cahill later explained in an email “are about ten times the government-appraised rate for the ground.”

During the AGM, Cahill said that once the company realized it “accidentally” drilled a hole outside of the rented land in early March 2011, it notified the ejido and reclaimed the land, pointing out that the ejido failed to raise any concerns back then.

Clarifying the removal of the encampment, company chairman Peter Crossgrove said that after the illegal blockade ended “there was outdoor sanitation, food and garbage all over the place, and we went in and cleaned it out because it was on our property.”

He added: “I’m getting kind of sick and tired of press releases that aren’t true.”

Espinoza asked the company’s management how they plan to continue to explore the Platosa property without the 11 sq. km.

“As we said a number of times, we have all the surface rights necessary to explore and we own all the mineral rights in the area in their entirety, which is something the ejido have been unfortunately misinformed about,” Cahill said. 

More importantly, the company has shifted its strategy on mantos exploration rather than recon exploration. “So we don’t need those surface rights,” he said, pointing out that the company is striving to improve its operations and community relations.

Excellon has the support of the local communities of Bermejillo and Mapimi, and is working on new community initiatives, Cahill said.

He says Platosa is one of the highest-paying mining projects in Mexico. It has 365 workers, and plans to expand its workforce.

For the first-quarter, Excellon produced 495,000 equivalent oz. silver from La Platosa at net cash costs of US$6.96 per silver oz. The cost is slightly higher than last year’s annual average net cash cost of US$5.99 per oz. silver.

It reported a net loss of US$601,000 in the quarter and a cash position of US$11.5 million.

To help boost its capital structure, the company completed a five-for-one share consolidation on May 8.