As Silver Prices Rise, Excellon Shares Fall

At a time of rising silver prices, increased silver production from Excellon Resources (EXN-V, EXLLF-O) hasn’t been enough for it to curry favour with the market.

Despite reporting in mid-September that silver production at its Platosa project, in Durango, Mexico, was up 4% from last year — Excellon’s fiscal year ends on July 31 — the company’s share price began a steady decline.

That decline was made all the more noticeable by the gains fellow silver producers made over the same period on the back of rising silver prices.

Over the week following its production announcement, the price of silver climbed to US$13.62 per oz. from US$12.59, an 8% gain, but Excellon’s share price fell to $1.34 from $1.46 — a 9% decrease.

The decrease points to factors lying beneath the production numbers, the most notable being the company’s continuing inability to reach its planned rate of production.

At the end of its fiscal year for 2006, Excellon announced the amount of ore it shipped from its Platosa mine to Compania Fresnillo’s Naica mill was averaging 4,000 tonnes per month — 2,000 tonnes less than the targeted shipping rate of 6,000 tonnes per month.

Now, Excellon reports that problems with blending its ore with Fresnillo ore caused it to miss its targeted shipping rate again.

While overall production did rise to 45,690 tonnes from 44,400 tonnes the previous year, that averages out to just over 3,800 tonnes shipped per month, putting it below its own target.

However, Excellon says improved ore handling at Naica and better blending of high-grade ore meant production was trending upward in the latter part of the year. The company is targeting production of 60,000 tonnes, or 5,000 tonnes per month, for the fiscal year 2008.

Also reported in the same release, was news that lead and zinc production from Platosa was down.

Excellon reported that 10.3 million lbs. lead and 8.9 million lbs. zinc were turned out for the year compared with production of 10.9 million lbs. lead and 12.8 million lbs. zinc the previous year.

The company blames the decrease on its increased silver production, saying that to get better silver production, it is favouring a more uniform blend of high-grade ores. The new blend, however, results in lead and zinc being mined at grades closer to the average grade of the resource.

Despite the relative weakness of its stock against the upward momentum of its peers recently, Excellon president and chief executive Richard Brissenden is focused on the company’s strength going forward.

“Excellon is pleased with how its share price has held up during the pressures placed on the market in recent months,” Brissenden said via email. “We have gotten the debentures off the books, are aggressively pursuing an eleven-million-dollar exploration program, and increased our silver production. These achievements will anchor our growth in the coming fiscal year.”

On Sept. 10, Excellon paid the outstanding US$9.9-million principal on silver debentures by delivering the equivalent of 1.8 million oz. silver, in silver and cash, to debenture holders.

The debentures — which were backed by 50% of silver production from Platosa — were initially established to raise the funds the company needed to get into production. With the debentures cleared, the company can enjoy the increased cash flows that will come from not having to deliver half of its silver production to a custodian for the debentures.

And more cash could help with the company’s plan to build its own mill at Platosa.

The junior is considering building a flotation plant on-site to make lead and zinc concentrates. The mill would be able to handle 350 tonnes of ore per day and, Excellon says, would decrease its current operating costs.

Towards that end, an environmental impact assessment, process development work and preliminary discussions with suppliers and contractors are under way.

If it goes ahead, the mill would be slated to start up in the last quarter of 2008. Brissenden expects a decision to be made before the end of the year.

Platosa has an indicated resource of 184,000 tonnes of ore grading 1,546 grams sliver per tonne, 10.86% lead and 10.5% zinc. It has an additional 8,400 tonnes grading 777 grams silver, 5.47% lead and 11.31% zinc in the inferred category.

The site is not yet fully explored, and by nearly doubling its exploration budget from last year, Excellon hopes to pursue geological indicators that, it says, point to a large mineralized system.

As part of its arrangement to have ore milled at Naica, Excellon sells its production to Fresnillo parent company Industrias Peoles (ipoaf-o, penoles-m), and is paid 77.2% of its silver production, 76% of its lead production, and 66% of its zinc production. It also pays a treatment charge for lead and zinc, a refining charge for the silver and a transportation charge.