TORONTO (miningweekly.com) – Mexico’s highest-grade, lowest-cost silver producer Excellon Resources is comfortably steaming ahead of its peers, even in the currently difficult silver price environment,

In a recent interview, CEO Brendan Cahill told Mining Weekly Online that the company had moved on from the troubles that beset it in 2012. The focus would now shift to further reducing mining costs while being on the lookout for potential acquisitions, expanding La Platosa’s resources and building on discoveries at its other projects in Mexico and Canada.

Excellon is currently embroiled in ongoing legal proceedings against certain local Mexican landowners, known as the Ejido La Sierrita, before the local Agrarian Court, for the rescission of a land-rights contract and damages.

In August 2012, Excellon sued the Ejido to terminate the surface rights agreement (SRA) signed in 2008 for 1 100 ha west of its La Platosa mine and for assorted damages relating to an illegal blockade by the landowners and members of a union that lost an election of workers last year.

The Ejido, with the help of a nongovernmental organisation, also sued to terminate the SRA one week after being advised of Excellon's suit.

Excellon said the decision to terminate the SRA was driven by the need to limit the risk exposure of the SRA on La Platosa production capabilities. This decision had since been solidified by current capital market conditions and had become an element of Excellon's business strategy.

Protests at the La Platosa mine, in the northern Mexican state of Durango, began on July 8 when landowners and union members blocked the entrance to the mine, which produced 1.1-million ounces of silver in 2012.

Excellon resumed mining in mid-October, about a month after the landowners lifted the blockade.

Cahill said the company was now focused on optimising the high-grade, low-cost production, increasing cash flow and expanding high-grade and near-term mineable resources at the La Platosa mine.

The company expected that terminating the SRA could result in reduced expenditures of more than $600 000/y and immediate savings of about $600 000 during 2013.

Excellon holds about 41 000 ha of mineral and mining rights at La Platosa.

HIGH-GRADE FUTURE

Cahill said the company was now able to move forward with implementing its corporate social investment programme to the benefit of the majority of community members who support the company’s activities in the area.

This included supporting local school activities and Cahill said the firm was working with local stakeholders to provide vocational training for locals, to equip them to benefit economically from Excellon’s potential employment opportunities.

He explained that community involvement in the La Platosa operations was a critical key in the company’s strategy to successfully move forward.

Coupled to this was Excellon’s need to further drive down costs to enable it to survive and flourish at the current depressed silver price.

Cahill pointed out that at targeted all-in costs of $14/oz of silver, Excellon is still turning out positive cash flow, which in the current market situation, could be argued is more valuable for survival than big tonnage production.

According to 2012 data, Excellon counted as the lowest net cash cost silver producer among its peers, including Aurcana, SilverCrest Mines, US Silver & Gold, and Great Panther Silver.

Cahill said one of the critical areas where cost-reduction efforts are currently focused is water management at La Platosa, which is seen as a production and cost bottleneck, but also an opportunity to further increase mining efficiency and reduce costs, as the lion’s share of operating costs were being spent in this area of the operation.

Cahill also stressed that the company is in a position to acquire suitable projects or whole operations, as it did in an all-scrip $4-million deal to acquire Silver Eagle Mines in 2009, which gave it access to a new mill for a fraction of the cost of constructing its own new mill, as well as significant tax assets and exploration ground.

“A silver lining in this difficult market is that we are in a position to capitalise on the opportunities presenting themselves with the sustained low silver prices of the past months,” he said.

Meanwhile, the company is also focused on replacing and expanding resource ounces at La Platosa, funding drill work from its own pocket.

“As Excellon has historically been focused on exploration, we have always expensed all of our exploration costs on our income statement, which is a bit different from our peers and sometimes hides the Platosa mine’s ability to generate cash flow.  While the industry is struggling for survival at prices under $25/oz, we are actively pursuing new opportunities,” he said.

Excellon also owns the 41 498 ha Miguel Auza property and that lies on the eastern flank of the Fresnillo Mexican Silver Trend, some 150 km to 200 km north of Fresnillo and Zacatecas City.

The company carried out a modest exploration programme at Miguel Auza between the fall of 2009 and the fall of 2010 and while certain areas were highlighted as meriting further early -tage exploration work, a decision was made to concentrate exploration activities at La Platosa.

Excellon also owns two exploration properties in Canada, namely DeSantis, near Timmins, Ontario, and Beschefer, in the Abitibi Greenstone Belt of north-western Quebec. Cahill said exploration efforts at both properties were progressing, with another round of drilling in planning at the marshy Beschefer project during the coming winter months.

Q3 UPSIDE

Excellon last week reported that it had lifted output from La Platosa by 50% quarter-on-quarter, boosted by higher grades.

The Toronto-based miner reported silver-equivalent output of 607 252 oz for the three months ended September 30, comprising 454 573 oz of silver, 1.92-million pounds of lead and 2.14-million pounds of zinc.

The ore on average graded 975 g/t silver, and during September, Excellon produced 190 000 oz of silver production from ore grading over 1 000 g/t silver.

The net cash costs totalled $7.77/oz silver and all-in costs totalled $10.65/oz of silver equivalent.

Excellon said it generated positive cash flow, with cash, accounts receivable and securities totalling $9.7-million at the end of the quarter.

"Our operations team at La Platosa deserves credit for a solid third quarter. Our year-to-date results position us well to deliver on our updated production targets for 2013. We will continue to implement our mine optimisation plans to improve mine production over the coming year. We also remain focused on reducing corporate and mine-site costs to maintain and further improve our peer-leading all-in cost profile,” Cahill said.

Excellon's estimated 2013 silver production is 1.35-million ounces. The company's measured and indicated silver resources total about 17.1-million ounces.