Excellon Resources (TSX: EXN; NYSE: EXN) has announced a deal to buy the past-producing Mallay silver mine in Peru, bringing the company back into silver production by mid-2025.
The transaction follows years of efforts to find a replacement for the company’s La Platosa mine in Mexico. It was once the highest-grade silver mine in the country. It closed in 2022 due to high costs, labour disputes, and tough market conditions.
The Peru deal includes a $1.3 million cash payment to privately held Adar Mining and an equity stake of 12.9% in Excellon. Excellon will also pay a 1% net smelter royalty and provide a zinc and lead stream to Adar.
President and CEO Shawn Howarth said he expects Excellon to regain producer status soon. He said the deal removed a debt overhang on the asset, clearing it for a rapid restart.
“Excellon’s operational expertise sets the foundation for a highly collaborative and productive partnership (with Adar),” he said in a news release on Thursday. “Upon closing the transaction, our immediate focus will be on mine rehabilitation, finalizing restart plans, conducting near-mine drilling to extend mineralization and mine life, and demonstrating the robust economics of the mine.”
Excellon’s acquisition depends on Adar Mining first securing the Mallay mine and Tres Cerros assets through Canadian bankruptcy proceedings.
The $115 million Mallay mine, built by Buenaventura (NYSE: BVN), produced an annual average of 1.3 million oz. of silver from 2012 to 2018. As of 2018, it held proven and probable reserves of 133,000 tonnes at 626 grams of silver equivalent per tonne for 2.7 million o. of metal and inferred resources of 251,805 tonnes at 564 grams of silver equivalent for 4.6 million oz. of metal.
With its full permits, the Mallay mine offers Excellon a faster path to mining than other exploration-stage assets, especially in Mexico, where it’s been operating for about two decades.
At its height in 2007, Excellon share traded as high as C$47.50 each, in sharp contrast to the C$0.11 bids it attracts today. Over the past 12 months, shares traded in a band between C$0.08 and C$0.27. It has a market capitalization of C$12.4 million.
Excellon will need approvals from Canadian and Peruvian authorities. It also needs clearances from shareholders and the stock exchange. The deal includes Tres Cerros, a large, promising exploration property. But, it is still in early exploration stages.
Excellon plans to drill to extend mineralized veins down dip and along strike to expand resources and support a three-year mine plan.
Excellon operated the former La Platosa mine for over 15 years before shutting down in late 2022, as rising costs and a labour strike in early 2022 made operations unfeasible. The operation ranked for years as Mexico’s highest-grade silver producer, with indicated resources in 2010 averaging 909 grams silver per tonne, 9.09% lead, and 10.51% zinc.
The closure left Excellon scrambling to find a new production source.
Initial efforts included acquiring Otis Gold in 2020 in an all-share deal worth about C$32.3 million. This brought in the Kilgore and Oakley projects in the US. It aimed to diversify Excellon’s asset base. But, these projects remain in the exploration phase.
It also holds the Silver City, a high-grade silver district in Saxony, Germany. It has 750 years of mining history and little modern exploration.
In 2023, Excellon sought to buy the La Negra mine, another past-producing silver mine in Mexico, hoping it would fill the production gap. The $50 million deal fell through last July. The seller, Orion Resource Partners, ended the agreement due to Excellon’s financing issues.
