Excellon hurt by lower silver prices

Excellon Resources (TSX: EXN; US-OTC: EXLLF) is another junior miner hit by the recent downward trend in metal prices. It booked a second-quarter net loss of $5 million, or 9¢ per share, compared to a $478,000 profit, or 1¢ per share, in the same period last year.

The Toronto-based miner says the loss was driven by non-prod­uction costs, including a negative revenue adjustment of $3 million due to the drop in silver prices
that occurred between the time
it shipped concentrates and the time it settled payments. It adds
that it doesn’t expect revenue adjustments of a similar magnitude if the price of silver stabilizes or picks up.

The quarter’s revenue was also affected by a $1.2-million un­realized loss in the company’s
$5-million investment in Sprott Physical Silver Trust  (TSX: PHS.V; NYSE-Arca: PSLV), representing an interest in 134,732 silver oz., plus $1 million in drill­ing expenses that it incurred early in the quarter, along with lower production tonnages and grades. The declining production resulted from Excellon processing mainly lower-grade ore while optimizing its sole producing asset — the La Platosa silver mine in Mexico — to increase the mine’s production and mine life.

Quarterly production came in at 252,789 oz. silver at cash costs of US$12.07 per oz., net of by-products, compared to 374,204 oz. produced in the year-earlier period at cash costs of US$4.25 per oz. silver, minus by-products. Excellon explains the surging costs resulted from mining fewer tonnes at lower grades, as it developed the high-grade resource areas at La Platosa. This also declined its by-product credits per silver ounce. The silver grades during the quarter averaged 627 grams per tonne, below last year’s 825 grams.

Excellon’s president and CEO Brendan Cahill says the company completed significant development work at La Platosa during the first half of the year to improve head grades. Ore milled in July graded nearly 900 grams per tonne silver, as Excellon tapped into the high-grade ore from the Guada­lupe South Manto.

“We are now accessing high-grade ore from the 6A and 6B mantos, and plan to open new faces in the 623 Manto during the coming months,” Cahill adds.

The company is aiming to open seven ore faces, and expects six of them to enter production in the third quarter. The higher-grade production should help bring down the cash costs in the coming quarters.

But Excellon cautions that because its output in the first six months of the year was lower than expected, it may miss its annual production guidance of 1.5 million oz. silver, 9.6 million lb. lead and 13 million lb. zinc. For the first half of the year, the company produced 544,000 oz. silver, 3.7 million lb. lead and 5.9 million lb. zinc.

It is reviewing its capital expenditures and mine planning for the year, and will keep its exploration drilling on hiatus until metal prices rise. Excellon halted its drill program in mid-May, adding that while the results were promising, it would store the drills on-site until market conditions improve.

In response to the difficult environment, the junior has scrapped more than $1 million in annual corporate expenditures and planned further cuts of over $1 million if metal prices don’t stabilize. The average realized silver price during the quarter was US$21.07 per oz., compared to US$29.26 per oz. a year ago.