Excellon Nixes Onsite Mill In Favour Of Silver Eagle Deal

Excellon Resources (EXN-T, EXLLF-O) is putting plans to build a mill at its Platosa silver-lead-zinc mine in Durango state, Mexico, on hold now that it has struck a friendly merger deal with Silver Eagle Mines (SEG-T, SVEGF-O).

Instead, the company will soon begin processing Platosa ore at Silver Eagle’s Miguel Auza mill, about 220 km away in Zacatecas state, cutting its current shipping distance in half.

Silver Eagle was forced to shut down the recently refurbished 300-tonne-per-day Miguel Auza mill in December due to low silver, lead and zinc prices, which strained the company’s books.

Robert Brissenden, Excellon’s vice-president of corporate development, says this is not a worry for the company because Platosa ore is much higher grade.

Indicated resources are 396,000 tonnes grading 986 grams silver per tonne, 9% lead and 10.1% zinc.

“The prices would have to sink a long way before we become uneconomical,” Brissenden says.

Silver Eagle shareholders will receive 0.2704 of an Excellon share for each Silver Eagle share held. Once the deal is complete, Excellon will have 176 million shares outstanding.

As a part of the deal, Excellon will lend Silver Eagle $500,000 to pay for the closing of the transaction. Excellon has already lent Silver Eagle half of that amount. The rest will be advanced once the definitive agreement is signed. If the deal doesn’t go through, Silver Eagle has agreed to provide Excellon with use of the Miguel Auza mill for one year on reasonable commercial terms.

By shipping Platosa ore to the Miguel Auza mill, Excellon will be able to increase near-term production to 150 tonnes per day, or 4,500 tonnes per month, eventually ramping up to 250 tonnes per day or more in 2010.

Excellon currently ships about 100 tonnes per day to the Naica mill, selling the ore based on assays. The Naica mill, about four hours away, is owned by Minera Maple, a subsidiary of Industrias Penoles (IPOAF-O, PENOLES-M).

Excellon announced it was starting construction of a 350-tonne-per-day plant at Platosa in October 2008. The company planned to process lead and zinc onsite to help cut operating costs while still sending silver ore to the Naica mill. Excellon said it expected to recover the $10-million capital cost of the mill in about one year. The company is only about 10% into construction of the mill, but all of the equipment has been purchased — valued at about $3 million, says Brissenden.

The equipment will be stored onsite for now, he says. “We may in the future expand San Miguel or complete the mill at Platosa.”

Excellon shares rose 1¢ to 23.5¢ apiece on March 5, when the deal was announced, on a trading volume of 546,000 shares. The company has 159.2 million shares outstanding.

Silver Eagle shares fell 8¢ to 2.5¢ each on a trading volume of 424,000 shares. The company has 55.5 million shares outstanding.