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Exhibit 99.1
Excellon Resources Inc.
Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
in thousands of U.S. dollars
(unaudited)
Excellon Resources Inc.
Condensed Consolidated Statements of Financial Position
(unaudited) (in thousands of U.S. dollars)
Notice to Reader
Pursuant to National Instrument 51-102, subsection 4.3(3)(b), if a reporting issuer engaged an auditor to perform a review of an interim financial report and the auditor was unable to complete the review, the interim financial report must be accompanied by a notice indicating that the auditor was unable to complete a review of the interim financial report and the reasons why the auditor was unable to complete the review. The Company engaged its auditor to complete an interim review but as a result of time constraints directly related to evaluating the impact of legal matters associated with the Provision for litigation (Note 12), the auditor was not able to complete its review prior to the Company’s filing deadline.
| September 30 | December 31 | |||||||||
| 2021 | 2020 | |||||||||
| Notes | $ | $ | ||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | 3,400 | 8,380 | ||||||||
| Marketable securities and warrants | 3 | 1,551 | 2,350 | |||||||
| Trade receivables | 479 | 1,782 | ||||||||
| VAT recoverable | 3,305 | 5,573 | ||||||||
| Inventories | 4 | 3,301 | 2,375 | |||||||
| Other current assets | 2,151 | 1,333 | ||||||||
| Total current assets | 14,187 | 21,793 | ||||||||
| Non-current assets | ||||||||||
| Property, plant and equipment | 5 | 25,564 | 25,830 | |||||||
| Mineral rights | 6 | 20,752 | 20,511 | |||||||
| Deferred tax assets | 7 | 532 | 5,145 | |||||||
| Total assets | 61,035 | 73,279 | ||||||||
| Liabilities | ||||||||||
| Current liabilities | ||||||||||
| Trade and other payables | 8 | 8,211 | 8,172 | |||||||
| VAT payable | 1,357 | 3,415 | ||||||||
| Lease liabilities | 244 | 405 | ||||||||
| Provision for litigation | 12 | 22,175 | - | |||||||
| Total current liabilities | 31,987 | 11,992 | ||||||||
| Non-current liabilities | ||||||||||
| Convertible debentures | 10 | 8,932 | 7,283 | |||||||
| Provisions | 9 | 2,410 | 2,208 | |||||||
| Deferred tax liabilities | 855 | 929 | ||||||||
| Lease liabilities | 277 | 425 | ||||||||
| Total liabilities | 44,461 | 22,837 | ||||||||
| Equity | ||||||||||
| Share capital | 11 | 137,995 | 136,199 | |||||||
| Contributed surplus | 34,732 | 34,015 | ||||||||
| Accumulated other comprehensive loss | (15,434 | ) | (15,380 | ) | ||||||
| Deficit | (140,719 | ) | (104,392 | ) | ||||||
| Total equity | 16,574 | 50,442 | ||||||||
| Total liabilities and equity | 61,035 | 73,279 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
Excellon Resources Inc.
Condensed Consolidated Statements of Comprehensive Loss
For the three and nine months ended September 30, 2021 and 2020
(unaudited) (in thousands of U.S. dollars, except per share data)
| Three months ended | Nine months ended | |||||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Notes | $ | $ | $ | $ | ||||||||||||||
| Revenue | 13 | 9,151 | 9,857 | 28,649 | 16,105 | |||||||||||||
| Production costs | (5,567 | ) | (5,875 | ) | (17,533 | ) | (13,994 | ) | ||||||||||
| Depletion and amortization | (1,809 | ) | (1,269 | ) | (5,372 | ) | (3,204 | ) | ||||||||||
| Cost of sales | 14.a | (7,376 | ) | (7,144 | ) | (22,905 | ) | (17,198 | ) | |||||||||
| Gross profit (loss) | 1,775 | 2,713 | 5,744 | (1,093 | ) | |||||||||||||
| Administrative expenses | 14.b | (1,067 | ) | (1,078 | ) | (3,662 | ) | (3,167 | ) | |||||||||
| Share-based payment expenses | 11 | (286 | ) | (296 | ) | (1,414 | ) | (1,582 | ) | |||||||||
| Amortization | (100 | ) | (128 | ) | (360 | ) | (260 | ) | ||||||||||
| General and administrative expenses | (1,453 | ) | (1,502 | ) | (5,436 | ) | (5,009 | ) | ||||||||||
| Exploration and holding expenses | 15 | (2,538 | ) | (2,001 | ) | (5,411 | ) | (2,631 | ) | |||||||||
| Other expenses | 12,14.c | (22,283 | ) | (934 | ) | (23,121 | ) | (367 | ) | |||||||||
| Impairment loss | 5 | (752 | ) | - | (752 | ) | - | |||||||||||
| Finance expenses | 16 | (688 | ) | (292 | ) | (2,438 | ) | (1,829 | ) | |||||||||
| Loss before income taxes | (25,939 | ) | (2,016 | ) | (31,414 | ) | (10,929 | ) | ||||||||||
| Income tax (expense) recovery | 7 | (4,921 | ) | 1,776 | (4,913 | ) | 919 | |||||||||||
| Net Loss | (30,860 | ) | (240 | ) | (36,327 | ) | (10,010 | ) | ||||||||||
| Other comprehensive (loss) income | ||||||||||||||||||
| Items that may be reclassified subsequently to profit and loss: | ||||||||||||||||||
| Foreign currency translation differences | (236 | ) | 1,267 | (54 | ) | (5,379 | ) | |||||||||||
| Total other comprehensive (loss) income | (236 | ) | 1,267 | (54 | ) | (5,379 | ) | |||||||||||
| Total comprehensive (loss) income | (31,096 | ) | 1,027 | (36,381 | ) | (15,389 | ) | |||||||||||
| Loss per share | ||||||||||||||||||
| Basic and diluted | $ | (0.94 | ) | $ | (0.01 | ) | $ | (1.12 | ) | $ | (0.36 | ) | ||||||
| Weighted average number of shares | ||||||||||||||||||
| Basic and diluted | 32,784,967 | 31,743,702 | 32,520,297 | 27,757,750 | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
Excellon Resources Inc.
Condensed Consolidated Statements of Cash Flow
For the three and nine months ended September 30, 2021 and 2020
(unaudited) (in thousands of U.S. dollars)
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Cash flow generated by (used in) | ||||||||||||||||
| Operating activities | ||||||||||||||||
| Net loss for the period | (30,860 | ) | (240 | ) | (36,327 | ) | (10,010 | ) | ||||||||
| Adjustments for non-cash items: | ||||||||||||||||
| Depletion and amortization | 1,909 | 1,392 | 5,732 | 3,401 | ||||||||||||
| Income tax expense (recovery) | 4,921 | (1,882 | ) | 4,913 | (895 | ) | ||||||||||
| Share-based payment expenses | 286 | 356 | 1,414 | 1,497 | ||||||||||||
| Interest and accretion expense | 744 | 659 | 2,512 | 1,106 | ||||||||||||
| Unrealized (gain) loss on currency hedges | - | (346 | ) | 21 | 673 | |||||||||||
| Loss on disposal of mineral rights | - | - | - | 188 | ||||||||||||
| Unrealized loss (gain) on marketable securities and purchase warrants | 12 | 276 | 816 | (1,407 | ) | |||||||||||
| Discount on shares issued to settle payables | - | 122 | - | 196 | ||||||||||||
| Provision for litigation | 22,277 | - | 22,277 | - | ||||||||||||
| Impairment loss | 752 | - | 752 | - | ||||||||||||
| Taxes paid | (50 | ) | (114 | ) | (219 | ) | (262 | ) | ||||||||
| Operating cash flows before changes in working capital | (9 | ) | 223 | 1,891 | (5,513 | ) | ||||||||||
| Changes in non-cash working capital | ||||||||||||||||
| Trade receivables | 1,252 | (2,467 | ) | 1,242 | (189 | ) | ||||||||||
| VAT recoverable | 1,071 | (166 | ) | 2,198 | (845 | ) | ||||||||||
| Inventories | (318 | ) | 600 | (970 | ) | 252 | ||||||||||
| Other assets | 169 | (210 | ) | (953 | ) | 163 | ||||||||||
| Trade and other payables | (813 | ) | 483 | (257 | ) | 576 | ||||||||||
| VAT payable | (864 | ) | 377 | (2,019 | ) | 722 | ||||||||||
| Net cash generated by (used in) operating activities | 488 | (1,160 | ) | 1,132 | (4,834 | ) | ||||||||||
| Investing activities | ||||||||||||||||
| Purchase of property, plant and equipment | (2,248 | ) | (1,812 | ) | (5,761 | ) | (5,454 | ) | ||||||||
| Purchase of mineral rights | (79 | ) | (68 | ) | (154 | ) | (68 | ) | ||||||||
| Transaction costs paid on acquisition of Otis Gold Corp. | - | - | - | (1,723 | ) | |||||||||||
| Payments received under earn-in agreement | - | - | 75 | - | ||||||||||||
| Loan to Otis Gold Corp., net of cash received on acquisition | - | - | - | (304 | ) | |||||||||||
| Net cash used in investing activities | (2,327 | ) | (1,880 | ) | (5,840 | ) | (7,549 | ) | ||||||||
| Financing activities | ||||||||||||||||
| Proceeds from issuance of Convertible Debt | - | 12,761 | - | 12,761 | ||||||||||||
| Proceeds from Credit Facility | - | - | - | 5,871 | ||||||||||||
| Repayment of Credit Facility | - | (6,000 | ) | - | (6,000 | ) | ||||||||||
| Proceeds from options and warrants exercised | - | 187 | 36 | 311 | ||||||||||||
| Lease payments | (110 | ) | (97 | ) | (322 | ) | (196 | ) | ||||||||
| Interest paid | (10 | ) | (140 | ) | (36 | ) | (423 | ) | ||||||||
| Net cash (used in) from financing activities | (120 | ) | 6,711 | (322 | ) | 12,324 | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (117 | ) | (128 | ) | 50 | 893 | ||||||||||
| Change in cash and cash equivalents | (2,076 | ) | 3,543 | (4,980 | ) | 834 | ||||||||||
| Cash and cash equivalents - beginning of the period | 5,476 | 3,635 | 8,380 | 6,344 | ||||||||||||
| Cash and cash equivalents - end of the period | 3,400 | 7,178 | 3,400 | 7,178 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
Excellon Resources Inc.
Condensed Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2021 and 2020
(unaudited) (in thousands of U.S. dollars, except per share data)
| Accumulated | ||||||||||||||||||||
| other | ||||||||||||||||||||
| Share | Contributed | comprehensive | Total | |||||||||||||||||
| capital | surplus | loss | Deficit | equity | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Balance - January 1, 2020 | 114,840 | 28,730 | (13,006 | ) | (88,372 | ) | 42,192 | |||||||||||||
| Net loss for the period | - | - | - | (10,010 | ) | (10,010 | ) | |||||||||||||
| Total other comprehensive loss | - | - | (5,379 | ) | - | (5,379 | ) | |||||||||||||
| Total comprehensive loss | - | - | (5,379 | ) | (10,010 | ) | (15,389 | ) | ||||||||||||
| Acquisition of Otis Gold Corp. | 16,370 | 594 | - | - | 16,964 | |||||||||||||||
| Shares issued as part of Credit Facility | 180 | - | - | - | 180 | |||||||||||||||
| Shares issued to settle payables | 1,738 | - | - | - | 1,738 | |||||||||||||||
| Share options: | ||||||||||||||||||||
| Value of services recognized and shares issued | 508 | 162 | - | - | 670 | |||||||||||||||
| Proceeds on issuing shares | ||||||||||||||||||||
| Deferred and restricted share units: | ||||||||||||||||||||
| Value of units recognized and shares issued | 1,626 | (497 | ) | - | - | 1,129 | ||||||||||||||
| Warrants: | ||||||||||||||||||||
| Value of warrants issued with Convertible Debentures | - | 1,001 | - | - | 1,001 | |||||||||||||||
| Proceeds on issuing shares | 8 | (2 | ) | - | - | 6 | ||||||||||||||
| Value of shares issued in asset acquisition | 246 | - | - | - | 246 | |||||||||||||||
| Convertible Debentures | ||||||||||||||||||||
| Value of conversion options on Convertible Debentures | - | 3,815 | - | - | 3,815 | |||||||||||||||
| Interest payable settled with shares | ||||||||||||||||||||
| Balance - September 30, 2020 | 135,516 | 33,803 | (18,385 | ) | (98,382 | ) | 52,552 | |||||||||||||
| Balance - January 1, 2021 | 136,199 | 34,015 | (15,380 | ) | (104,392 | ) | 50,442 | |||||||||||||
| Net loss for the period | - | - | - | (36,327 | ) | (36,327 | ) | |||||||||||||
| Total other comprehensive loss | - | - | (54 | ) | - | (54 | ) | |||||||||||||
| Total comprehensive loss | - | - | (54 | ) | (36,327 | ) | (36,381 | ) | ||||||||||||
| Share options: | ||||||||||||||||||||
| Value of services recognized | - | 427 | - | - | 427 | |||||||||||||||
| Proceeds on issuing shares | 54 | (18 | ) | - | - | 36 | ||||||||||||||
| Deferred and restricted share units: | ||||||||||||||||||||
| Shares issued on exercise of RSUs and DSUs | 679 | (679 | ) | - | - | - | ||||||||||||||
| Value of units recognized | - | 987 | - | - | 987 | |||||||||||||||
| Value of shares issued in asset acquisition | 336 | - | - | - | 336 | |||||||||||||||
| Convertible Debentures: | ||||||||||||||||||||
| Interest payable settled with shares | 727 | - | - | - | 727 | |||||||||||||||
| Balance - September 30, 2021 | 137,995 | 34,732 | (15,434 | ) | (140,719 | ) | 16,574 | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
1. GENERAL INFORMATION
Excellon Resources Inc. (the “Company” or “Excellon”) is a silver mining and exploration company listed on the Toronto Stock Exchange (the “TSX”), NYSE American, LLC exchange (the “NYSE American”) under the symbol EXN and the Frankfurt Stock Exchange under the symbol E4X2. Excellon’s vision is to create wealth by realizing strategic opportunities through discipline and innovation for the benefit of employees, communities and shareholders. The Company is advancing a precious metals growth pipeline that includes: Platosa, Mexico’s highest-grade silver mine since production commenced in 2005; Kilgore, a high quality advanced exploration gold project in Idaho; and an option on Silver City, a high-grade epithermal silver district in Saxony, Germany with 750 years of mining history and no modern exploration. The Company also aims to continue capitalizing on current market conditions by acquiring undervalued projects.
On April 2, 2020, the Company announced a temporary suspension of mining, milling and exploration activities at its Mexican operations in accordance with the Mexican Presidential Order to mitigate the spread of COVID-19 (the “Suspension”). The Suspension impacted all industries considered non-essential across Mexico. For the Company, the Suspension resulted in the suspension of mining operations, though essential care and maintenance activities required at the Companies operations were permitted to continue. At Platosa, such essential care and maintenance included ongoing labour costs and water pumping to maintain water levels of the mine, incurring a cost during the Suspension of approximately $3,300 during a period of negligible revenues. The Suspension and associated care and maintenance costs impacted the comparable three- and nine-month periods in 2020. The Mexican Government subsequently declared mining an essential service, and companies were allowed to commence activities to restart operations on June 1, 2020, provided they met the COVID-19 guidelines established by the Mexican Government. The Company recommenced mining and exploration activities in June 2020 and concentrate shipments resumed on July 6, 2020.
On April 22, 2020, the Company completed the acquisition of Otis Gold Corp. (“Otis”) by way of a statutory plan of arrangement resulting in Otis becoming a wholly-owned subsidiary of Excellon.
In September 2020, the Company completed a consolidation of its common shares at a ratio of five pre-consolidation common shares for one post-consolidation common share effective September 10, 2020, and the listing of its common shares on the NYSE American, LLC exchange effective September 23, 2020. As a result of the consolidation, shares issuable pursuant to the Company’s outstanding options, warrants, restricted share units and other convertible securities were proportionally adjusted on the same basis. All common share numbers, numbers of shares issuable under stock options, warrants and restricted share units and related per share amounts in these consolidated condensed financial statements have been retrospectively adjusted to reflect the share consolidation.
Excellon is domiciled in Canada and incorporated under the laws of the province of Ontario. The address of its registered office is 10 King Street East, Suite 200, Toronto, Ontario, M5C 1C3, Canada.
These condensed consolidated financial statements were approved by the Board of Directors on November 15, 2021.
| 5 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
2. BASIS OF PRESENTATION
| a) | Statement of compliance and going concern |
| The Company prepares its condensed consolidated financial statements in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain information and note disclosures normally included in the annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the IASB, have been omitted or condensed. These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2020. | |
These condensed consolidated financial statements are prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Provision for litigation (Note 12) has adversely impacted the Company’s Condensed Consolidated Statement of Financial Position as at September 30, 2021. The Judgment (as that term is defined in Note 12) is solely against San Pedro Resources SA de CV (“San Pedro”) as defendant and the Company believes that the Plaintiff (as that term is defined in Note 12) has no recourse against the Company’s other assets in Mexico (including Platosa), Idaho, Saxony or Canada. The book value of San Pedro’s assets included in the Statement of Financial Position of the Company is $5.0 million, including plant, property and equipment of $3.2 million, VAT recoverable of $1.4 million and materials, supplies and other of $0.4 million. The Platosa Mine is owned and operated by a separate subsidiary. Based on the Company’s understanding of corporate, labour and insolvency laws in Mexico, it does not foresee any significant cash outflow from Excellon or San Pedro and considers the likelihood of an interruption to San Pedro’s toll milling operations to be remote. While the Judgment is not subject to further legal appeal in Mexico, the Company continues to pursue avenues through its labour, community and government relationships and is investigating remedies under international law. The Company’s assets in Mexico, including those held in San Pedro, are security for the Debentures (Note 10). The Company is monitoring and assessing whether the Judgment and actions taken by the Plaintiff to date in connection with enforcing the Judgment could be considered to constitute an event of default under the trust indenture dated July 30, 2020 governing the outstanding Debentures (the "Indenture"). While the Company does not consider that an event of default has occurred under the Indenture, the Debenture holders may try to take the position that an event of default has occurred under the Indenture. An event of default under the Indenture, if not cured or waived, could result in the acceleration of all the Company's debt under the Debentures and could materially and adversely affect the Company’s future operations, cash flows, earnings, results of operations, financial condition and the economic viability of its projects. As of the date of the board approval of these financial statements, San Pedro has not received any notice that the Plaintiff has initiated any insolvency proceedings or any enforcement proceedings that could result in San Pedro losing control of the toll milling operations.
The Company applies judgment in assessing the future impact of the Provision for litigation, going concern uncertainties including management’s assessment that the Judgment is solely against San Pedro as the defendant, potential insolvency proceedings of San Pedro, potential event of default under the Indenture, the Plaintiff having no recourse to the Company’s other assets, COVID-19 on its business and operations, future commodity prices, and continued access to debt and/or equity financing. After considering these judgments, management has concluded that there are no material uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. In making this assessment, management does not foresee any significant cash outflow from Excellon or San Pedro concerning the Judgment. Management anticipates that the Company will have sufficient cash resources to fund the next 12 months of planned expenditures and discharge its liabilities in the normal course of operations. | |
| b) | Summary of significant accounting policies, judgments, and estimates |
| These condensed consolidated financial statements have been prepared using the same accounting policies, methods of computation, judgments and estimates as the annual consolidated financial statements of the Company as at and for the year ended December 31, 2020. Certain comparatives in the statement of cash flow have been reclassified to conform with the current period classification. |
| 6 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
3. MARKETABLE SECURITIES AND WARRANTS
In 2018, the Company entered into an option agreement to farm-out its Beschefer property to Wallbridge Mining Company Ltd. (“Wallbridge”, TSX:WM), receiving an initial consideration of 500,000 common shares of Wallbridge (“Wallbridge Shares”). On March 17, 2020, the Company entered into an amended agreement to receive an additional Wallbridge Shares and common share purchase warrants (“Wallbridge Warrants”) to relinquish all interest in the Beschefer Property (“Wallbridge Consideration”). The Wallbridge Warrants have a strike price of C$ and a term of five years from the date of issuance.
The Wallbridge Shares and Wallbridge Warrants are measured at fair value with changes recorded in other income/expense.
SCHEDULE OF FAIR VALUE OF MARKETABLE SECURITIES AND WARRANTS
| September 30 | December 31 | |||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Marketable securities at fair value | ||||||||
| Opening balance | 2,138 | 348 | ||||||
| Additions | - | 995 | ||||||
| Unrealized (loss) gain on revaluation | (696 | ) | 645 | |||||
| Exchange differences | 15 | 150 | ||||||
| Closing balance | 1,457 | 2,138 | ||||||
| Warrants at fair value | ||||||||
| Opening balance | 212 | - | ||||||
| Additions | - | 128 | ||||||
| Unrealized (loss) gain on revaluation | (120 | ) | 67 | |||||
| Exchange differences | 2 | 17 | ||||||
| Closing balance | 94 | 212 | ||||||
| Marketable securities and warrants | 1,551 | 2,350 | ||||||
4. INVENTORIES
SCHEDULE OF INVENTORIES
| September 30 | December 31 | |||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Ore stockpiles (1) | 701 | 453 | ||||||
| Concentrate inventory (1) | 567 | 4 | ||||||
| Materials and supplies | 2,033 | 1,918 | ||||||
| 3,301 | 2,375 | |||||||
| (1) | Change in inventories recorded in cost of sales (Note 14.a) excludes currency translation adjustment of $19 for the nine months ended September 30, 2021. |
| 7 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
5. PROPERTY, PLANT AND EQUIPMENT
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| Assets | Right | |||||||||||||||||||||||
| Mining | Mining | Processing | under | of use | ||||||||||||||||||||
| properties | equipment | equipment | construction | assets | Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| At January 1, 2020 | ||||||||||||||||||||||||
| Cost | 31,774 | 16,887 | 6,160 | 5,071 | 1,646 | 61,538 | ||||||||||||||||||
| Accumulated amortization | (20,198 | ) | (11,267 | ) | (5,036 | ) | - | (219 | ) | (36,720 | ) | |||||||||||||
| Opening net book value | 11,576 | 5,620 | 1,124 | 5,071 | 1,427 | 24,818 | ||||||||||||||||||
| Year ended December 31, 2020 | ||||||||||||||||||||||||
| Opening net book value | 11,576 | 5,620 | 1,124 | 5,071 | 1,427 | 24,818 | ||||||||||||||||||
| Additions | 1,416 | 1,873 | 673 | 3,658 | 48 | 7,668 | ||||||||||||||||||
| Reclassification | 4,046 | 3,333 | - | (7,325 | ) | (54 | ) | - | ||||||||||||||||
| Depletion and amortization | (2,191 | ) | (2,101 | ) | (298 | ) | - | (202 | ) | (4,792 | ) | |||||||||||||
| Exchange differences (2) | (377 | ) | 164 | (503 | ) | (882 | ) | (266 | ) | (1,864 | ) | |||||||||||||
| Closing net book value | 14,470 | 8,889 | 996 | 522 | 953 | 25,830 | ||||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||||||||
| Cost | 36,400 | 21,576 | 6,075 | 522 | 1,640 | 66,213 | ||||||||||||||||||
| Accumulated amortization | (21,930 | ) | (12,687 | ) | (5,079 | ) | - | (687 | ) | (40,383 | ) | |||||||||||||
| Opening net book value | 14,470 | 8,889 | 996 | 522 | 953 | 25,830 | ||||||||||||||||||
| Period ended September 30, 2021 | ||||||||||||||||||||||||
| Opening net book value | 14,470 | 8,889 | 996 | 522 | 953 | 25,830 | ||||||||||||||||||
| Additions (1) | 3,350 | 308 | 214 | 2,599 | 13 | 6,484 | ||||||||||||||||||
| Reclassification | 1,435 | 382 | 18 | (1,835 | ) | - | - | |||||||||||||||||
| Impairment (3) | (90 | ) | (386 | ) | (233 | ) | (43 | ) | - | (752 | ) | |||||||||||||
| Depletion and amortization | (3,207 | ) | (1,964 | ) | (213 | ) | - | (181 | ) | (5,565 | ) | |||||||||||||
| Exchange differences (2) | (266 | ) | (139 | ) | (15 | ) | (10 | ) | (3 | ) | (433 | ) | ||||||||||||
| Closing net book value | 15,692 | 7,090 | 767 | 1,233 | 782 | 25,564 | ||||||||||||||||||
| At September 30, 2021 | ||||||||||||||||||||||||
| Cost | 40,546 | 21,506 | 5,968 | 1,233 | 1,650 | 70,903 | ||||||||||||||||||
| Accumulated amortization | (24,854 | ) | (14,416 | ) | (5,201 | ) | - | (868 | ) | (45,339 | ) | |||||||||||||
| Closing net book value | 15,692 | 7,090 | 767 | 1,233 | 782 | 25,564 | ||||||||||||||||||
| (1) | During the nine months ended September 30, 2021, the Company incurred $2,599 in sustaining capital expenditures recorded as assets under construction (September 30, 2020 – $2,931), primarily relating to ventilation and dewatering systems at the Platosa Mine. The associated assets will be reclassified to their appropriate asset class when commissioned. |
| (2) | Unrealized foreign exchange losses on translation of Mexican peso assets at the period-end exchange rate. |
| (3) | Refer to Note 12 – Provision for Litigation. As a result of the Judgment, the Company performed an impairment test on the Miguel Auza processing facility (held in San Pedro) and the Platosa Mine CGUs as of September 30, 2021. The recoverable amounts were calculated using the value in use method and estimated based on discounted future cash flows. The recoverable amount of the Platosa Mine was estimated to exceed the carrying amount of the CGU. The discounted cash flows for the Miguel Auza processing facility have been adjusted to reflect risks related to the Judgment. The other key assumptions used in making this assessment included forecast tonnes delivered from Platosa, forecast third party toll-milling tonnes and rates, operating and maintenance costs, and the discount rate. A discount rate of 10% was estimated based on the Company’s weighted average cost of capital. As a result, an impairment loss of $752 was recognized in San Pedro at September 30, 2021. In the event that the projected third party toll-milling cash flows could not be generated, a further impairment charge of $525 would result. The Company is currently operating the Miguel Auza processing facility uninterrupted. In the event San Pedro enters into insolvency proceedings an additional impairment could result. |
| 8 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
6. MINERAL RIGHTS
SCHEDULE OF MINERAL RIGHTS
| Platosa | Beschefer | Silver City (1) | Kilgore (2) | Oakley (3) | ||||||||||||||||||||
| Platosa | Beschefer | Silver City | Kilgore | Oakley | ||||||||||||||||||||
| (Mexico) | (Canada) | (Germany)(1) | (Idaho) (2) | (Idaho) (3) | Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| At January 1, 2020 | ||||||||||||||||||||||||
| Cost | 3,785 | 1,428 | 245 | - | - | 5,458 | ||||||||||||||||||
| Accumulated amortization | (2,782 | ) | - | - | - | - | (2,782 | ) | ||||||||||||||||
| Opening net book value | 1,003 | 1,428 | 245 | - | - | 2,676 | ||||||||||||||||||
| Year ended December 31, 2020 | ||||||||||||||||||||||||
| Opening net book value | 1,003 | 1,428 | 245 | - | - | 2,676 | ||||||||||||||||||
| Additions | - | - | 317 | 13,756 | 5,364 | 19,437 | ||||||||||||||||||
| Payments received under earn-in agreement | ||||||||||||||||||||||||
| Disposals | - | (1,348 | ) | - | - | - | (1,348 | ) | ||||||||||||||||
| Depletion and amortization | (178 | ) | - | - | - | - | (178 | ) | ||||||||||||||||
| Exchange differences | (21 | ) | (80 | ) | 25 | - | - | (76 | ) | |||||||||||||||
| Closing net book value | 804 | - | 587 | 13,756 | 5,364 | 20,511 | ||||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||||||||
| Cost | 3,721 | - | 587 | 13,756 | 5,364 | 23,428 | ||||||||||||||||||
| Accumulated amortization | (2,917 | ) | - | - | - | - | (2,917 | ) | ||||||||||||||||
| Opening net book value | 804 | - | 587 | 13,756 | 5,364 | 20,511 | ||||||||||||||||||
| Period ended September 30, 2021 | ||||||||||||||||||||||||
| Opening net book value | 804 | - | 587 | 13,756 | 5,364 | 20,511 | ||||||||||||||||||
| Additions | - | - | 490 | - | - | 490 | ||||||||||||||||||
| Payments received under earn-in agreement | - | - | - | - | (75 | ) | (75 | ) | ||||||||||||||||
| Depletion and amortization | (167 | ) | - | - | - | - | (167 | ) | ||||||||||||||||
| Exchange differences | (5 | ) | - | (2 | ) | - | - | (7 | ) | |||||||||||||||
| Closing net book value | 632 | - | 1,075 | 13,756 | 5,289 | 20,752 | ||||||||||||||||||
| At September 30, 2021 | ||||||||||||||||||||||||
| Cost | 3,694 | - | 1,075 | 13,756 | 5,289 | 23,814 | ||||||||||||||||||
| Accumulated amortization | (3,062 | ) | - | - | - | - | (3,062 | ) | ||||||||||||||||
| Closing net book value | 632 | - | 1,075 | 13,756 | 5,289 | 20,752 | ||||||||||||||||||
| (1) | On September 24, 2019 the Company signed an option agreement (the “Globex Agreement”) with Globex Mining Enterprises Inc. (“Globex”) to acquire a 100% interest in the Bräunsdorf exploration license for the Silver City Project in Saxony, Germany, pursuant to which the Company agreed to pay total aggregate consideration of C$500 in cash and issue common shares valued at C$1,600 over a period of three years. Upon completion of the payments and common share issuances the Company will grant Globex a gross metals royalty of 3% for precious metals and 2.5% for other metals, both of which may be reduced by 1% upon a payment of $1,500. Additional one-time payments of C$300 and C$700 will be made by the Company following any future announcement of a maiden resource on the property and upon achievement of commercial production from the project, respectively. On September 22, 2021, the issuance of common shares (valued at C$425) and the cash payment (C$100) were made and recorded as an addition to mineral rights ($415). The Company has the option to issue shares to the value of C$625 and a cash payment of C$200 to complete the acquisition of the Bräunsdorf exploration license before September 23, 2022. |
| 9 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
| In March 2021, the Frauenstein, Mohorn and Oederan exploration licenses were granted to the Company following applications to the Sächsisches Oberbergamt (Saxon Mining Authority), increasing the Silver City ground position by 17,600 hectares. | |
| (2) | On April 22, 2020, the Company acquired the Kilgore Gold Project as part of the Otis acquisition. The Company has a 100% interest in the Kilgore Gold property located in Clark County, Idaho, which comprises 614 federal lode mining claims unencumbered by any underlying royalties. In Q4 2020, the Company staked 175 new claims expanding the Kilgore property by 28%. |
| (3) | On April 22, 2020, the Company acquired 100% ownership of the Oakley Project in Cassia County, Idaho as part of the Otis acquisition. The Oakley Project includes Blue Hill Creek, Matrix Creek, Cold Creek: |
| ● | Blue Hill Creek (“BHC”) – 44 unpatented federal lode mining claims and an adjacent 80 acre Idaho state lease, subject to a 2% net smelter returns (“NSR”) royalty on gold. | |
| ● | Matrix Creek – 61 unpatented federal lode mining claims and a 320 acre mineral lease, subject to a 2% NSR on gold. The NSRs at BHC and Matrix Creek can be purchased for a total of $2,000. | |
| ● | Cold Creek – 117 unpatented federal lode mining claims. |
| On February 26, 2020, Otis entered into a definitive option agreement with Centerra Gold Inc. (“Centerra”) whereby Centerra can earn up to a 70% interest in the Oakley Project in exchange for total exploration expenditures of $7,000 and cash payments to the Company of $550 over a six-year period. During the term of the Oakley Agreement, Excellon is Project Manager and earns 10% of the approved exploration expenditures for technical oversight and project management. | |
| In Q1 2021, the Company received a payment of $75 from Centerra under the earn-in agreement. In accordance with the Company’s farm-out accounting policy this amount was credited to the Oakley Project. |
7. INCOME TAX
The Company recognized deferred tax assets of $5,145 in respect of Mexican tax losses as at December 31, 2020. For the nine months ended September 30, 2021, the Company utilized $1,231 of these deferred tax assets to offset taxable profits (nine months ended September 30, 2020: $nil). At September 30, 2021 the Company derecognized deferred tax assets of $326 as a result of a legal restructuring of subsidiaries in response to changes in Mexican labour laws, and of $3,056 due to the uncertainty related to the Provision for litigation (Note 12) and certain forecast taxable profits related to third-party toll milling services. The Company continues to hold unrecognized Mexican non-capital losses of $42.1 million (pre-tax), to be carried forward and applied against future taxable profits.
8. TRADE AND OTHER PAYABLES
The Company’s payables comprise trade payables, accruals and other payables as at September 30, 2021. Trade payables comprise $4,248 of the $8,211 balance (as at December 31, 2020 $4,252 of the $8,172 balance), of which $2,432 relate to operations in Mexico (as at December 31, 2020 – $2,429). Accruals and other payables of $3,963 (as at December 31, 2020 – $3,920) include administrative and operating costs, accounting and legal services, income taxes and statutory payroll withholding taxes. Trade payables and accruals related to property, plant and equipment additions totaled $561 at September 30, 2021 (December 31, 2020 – $173).
| 10 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
9. PROVISIONS
SCHEDULE OF PROVISIONS
| benefits (1) | provision (2) | Total | ||||||||||
| Post-retirement | Rehabilitation | |||||||||||
| benefits (1) | provision (2) | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Year ended December 31, 2020 | ||||||||||||
| Opening balance | 617 | 1,626 | 2,243 | |||||||||
| Termination payments | (113 | ) | - | (113 | ) | |||||||
| Change in estimate | 233 | - | 233 | |||||||||
| Accretion for the period | 40 | 61 | 101 | |||||||||
| Change on reorganization | ||||||||||||
| Exchange differences | (125 | ) | (131 | ) | (256 | ) | ||||||
| Closing balance | 652 | 1,556 | 2,208 | |||||||||
| Period ended September 30, 2021 | ||||||||||||
| Opening balance | 652 | 1,556 | 2,208 | |||||||||
| Termination payments | (57 | ) | - | (57 | ) | |||||||
| Change in estimate | - | 147 | 147 | |||||||||
| Accretion for the period | 184 | 59 | 243 | |||||||||
| Change on reorganization (3) | (90 | ) | - | (90 | ) | |||||||
| Exchange differences | (11 | ) | (30 | ) | (41 | ) | ||||||
| Closing balance | 678 | 1,732 | 2,410 | |||||||||
| (1) | Post-retirement benefits: The Company provides post-retirement benefit supplements as well as leaving indemnities to employees at the Mexican operations. Under Mexican labour law, the Company provides statutorily mandated severance benefits to its employees terminated under certain circumstances. Key financial assumptions used in the above estimate include an annual discount rate of 6.50% (December 31, 2020 – 4.86%), annual salary rate increase of 3.75% (December 31, 2020 – 3.75%) and minimum wage increase rate of 5.31% (December 31, 2020 – 5.31%) and the life of mine of approximately three years. |
| (2) | Rehabilitation provision: Key financial assumptions used in the above estimate include an annual discount rate of 6.22% (December 31, 2020 – 4.73%), Mexican inflation rate and the life of mine of approximately three years. The total undiscounted amount of estimated cash flows required to settle the Company’s obligations is $2,075 of which $1,087 relates to the Platosa mine and $988 relates to the Miguel Auza processing facility. |
| (3) | In accordance with changes in Mexican labour laws, the Company’s post-retirement benefit obligations were transferred between subsidiaries of the Company and revalued, resulting in a net reduction in the provision. |
Also refer to Note 12 for the Provision for litigation that was recognized in the three- and nine-month periods ended September 30, 2021.
10. CONVERTIBLE DEBENTURES
On July 30, 2020, the Company closed a private placement (the “Financing”) of secured convertible debentures (the “Debentures”) for total proceeds of C$17.91 million.
The Debentures have a term of 36 months and are convertible into common shares of the Company prior to maturity at a conversion price of C$5.30 per common share. The Debentures bear interest at an annual rate of 5.75%, payable in cash semi-annually. Interest on the Debentures may alternatively be paid in common shares of the Company at the Company’s option based on the 10-day volume-weighted average price (“VWAP”) of the common shares prior to the payment date and an effective annual rate of 10%. The Debentures are secured against the Company’s assets in Mexico - please refer to Note 2 Basis of presentation.
On or after July 30, 2022 and prior to maturity, the Company may accelerate the conversion of the entire issuance of Debentures, provided that the 20-day VWAP of the common shares on or after such 24-month anniversary is equal to or greater than C$12.50.
| 11 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
The purchasers of the Debentures were also issued 1,006,542 common share purchase warrants (“Warrants”), with an exercise price of C$ and an expiry date of July 30, 2023. In connection with the Financing, the Company granted common share purchase warrants (the “Broker Warrants”), with an exercise price of C$ and an expiry date of July 30, 2023.
Net proceeds from the Debentures were C$17.1 million ($12.8 million) after cash transaction costs of C$768 ($572) and were allocated between debt and equity components. On initial recognition, the fair value of the debt of C$8,459 ($6,298) was estimated using a coupled Black-Scholes model based on an expected term of 36 months and a coupon rate of 5.75%. The residual portion of C$6,382 ($4,751) represented the value of the conversion option and other features of the Debentures and was recognized in equity net of a deferred tax recovery of C$2,301 ($1,713) related to a taxable temporary difference on this equity component.
The debt component is recorded at amortized cost and is accreted to the principal amount over the term of the Debentures. The Company elected to pay the December 31, 2020 and June 30, 2021 interest payments in common shares valued at C$ ($) and C$ ($) respectively. The Company recorded interest expense of C$2,969 ($2,380) for the nine months ended September 30, 2021.
SUMMARY OF DEBT COMPONENT
| $ CAD | $ USD | |||||||
| Year ended December 31, 2020 | ||||||||
| Opening balance | - | - | ||||||
| Proceeds on issuance of Debenture | 17,910 | 13,334 | ||||||
| Transaction costs paid | (768 | ) | (572 | ) | ||||
| Portion allocated to equity - conversion option and other features | (8,683 | ) | (6,464 | ) | ||||
| Interest expense | 1,594 | 1,222 | ||||||
| Value of shares issued to settle interest payable | (754 | ) | (588 | ) | ||||
| Exchange differences | - | 351 | ||||||
| Closing balance | 9,299 | 7,283 | ||||||
| Period ended September 30, 2021 | ||||||||
| Opening balance | 9,299 | 7,283 | ||||||
| Interest expense | 2,969 | 2,380 | ||||||
| Value of shares issued to settle interest payable | (888 | ) | (727 | ) | ||||
| Exchange differences | - | (4 | ) | |||||
| Closing balance | 11,380 | 8,932 | ||||||
| 12 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
SCHEDULE OF AUTHORIZED SHARE CAPITAL
| Number of shares | ||||||||
| (000’s) | $ | |||||||
| Year ended December 31, 2020 | ||||||||
| Opening balance | 22,491 | 114,840 | ||||||
| Shares issued on exercise of stock options | 261 | 602 | ||||||
| Shares issued on exercise of RSUs and DSUs | 382 | 1,627 | ||||||
| Shares issued on exercise of warrants | 2 | 8 | ||||||
| Shares issued on acquisition of Otis Gold Corp (1) | 8,131 | 16,370 | ||||||
| Shares issued as part of Credit Facility (2) | 107 | 180 | ||||||
| Shares issued to settle payables (3) | 671 | 1,738 | ||||||
| Value of shares issued in asset acquisition (4) | 66 | 246 | ||||||
| Shares issued to settle interest on convertible debentures (5) | 228 | 588 | ||||||
| Balance at December 31, 2020 | 32,339 | 136,199 | ||||||
| Period ended September 30, 2021 | ||||||||
| Opening balance | 32,339 | 136,199 | ||||||
| Shares issued on exercise of stock options | 15 | 55 | ||||||
| Shares issued on exercise of RSUs and DSUs | 183 | 678 | ||||||
| Value of shares issued in asset acquisition (4) | 232 | 336 | ||||||
| Shares issued to settle interest on convertible debentures (5) | 286 | 727 | ||||||
| Balance at September 30, 2021 | 33,055 | 137,995 | ||||||
| (1) | On April 22, 2020, the Company completed the acquisition of Otis. Otis shareholders received of a common share for each Otis common share held (the “Exchange Ratio”), resulting in the issuance of common shares valued at the market price of C$ per common share. |
| (2) | On March 16, 2020, the Company closed a $6,000 bridge-loan credit facility (the “Credit Facility”) with Sprott Private Resource Lending II (Collector), LP (“Sprott Lending”). The Credit Facility bore interest of 10% per annum, compounded and payable monthly, and was due and payable in full on or before September 14, 2020. In consideration for the Credit Facility, Excellon issued 107,291 common shares to Sprott Lending. The Company repaid the Credit Facility on August 4, 2020 on the closing of the Financing (Note 10). |
| (3) | During the second and third quarters of 2020, the Company issued common shares in settlement of certain Otis transaction costs and Mexican trade payables totaling C$, as approved by the TSX. An amount of $196 (C$261) was recorded in other expenses to reflect the difference between the market value of the common shares issued and the carrying amount of the payables settled. |
| (4) | On September 21, 2020 and in accordance with the Globex Agreement, the second issuance of common shares (valued at C$) and second cash payment (C$100) were made and recorded as an addition to mineral rights. On September 22, 2021, the third issuance of common shares (valued at C$) and third cash payment (C$100) were made and recorded as an addition to mineral rights (Note 6). |
| (5) | The Company elected to pay the December 31, 2020 and June 30, 2021 interest payments on the Debentures (Note 10) in common shares valued at C$($) and C$($) respectively. |
| 13 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
The outstanding number and weighted average exercise prices of equity-settled Stock Options, Warrants, Deferred Share Units (“DSUs”) and Restricted Share Units (“RSUs”) are as follows:
SCHEDULE OF OUTSTANDING NUMBER AND WEIGHTED AVERAGE EXERCISE PRICES
| Options | Warrants | |||||||||||||||||||||||
| Options Outstanding | Weighted Average Exercise Price (CAD) | Warrants Outstanding (2) | Weighted Average Exercise Price (CAD) | RSUs Outstanding | DSUs Outstanding | |||||||||||||||||||
| Outstanding at January 1, 2020 | 461,000 | 5.59 | 1,092,500 | 7.00 | 572,485 | 467,572 | ||||||||||||||||||
| Granted/issued/acquired (1) | 1,002,395 | 3.34 | 1,448,488 | 5.23 | 337,331 | 217,264 | ||||||||||||||||||
| Exercised/settled | (260,596 | ) | 1.93 | (2,400 | ) | 3.45 | (224,750 | ) | (193,507 | ) | ||||||||||||||
| Expired | (332,359 | ) | 5.20 | - | - | (91,332 | ) | - | ||||||||||||||||
| Forfeited | (23,004 | ) | 4.26 | - | - | (128,223 | ) | - | ||||||||||||||||
| Outstanding at December 31, 2020 | 847,437 | 4.21 | 2,538,588 | 6.00 | 465,511 | 491,330 | ||||||||||||||||||
| Exercisable at December 31, 2020 | 548,009 | 4.52 | 2,538,588 | 6.00 | - | 98,417 | ||||||||||||||||||
| Outstanding at January 1, 2021 | 847,437 | 4.21 | 2,538,588 | 6.00 | 465,511 | 491,330 | ||||||||||||||||||
| Granted/issued | 212,500 | 4.14 | - | - | 428,562 | 199,353 | ||||||||||||||||||
| Exercised/settled | (15,000 | ) | 3.05 | - | - | (41,117 | ) | (146,068 | ) | |||||||||||||||
| Expired | (59,450 | ) | 4.75 | (1,092,400 | ) | 7.00 | - | - | ||||||||||||||||
| Forfeited | (27,584 | ) | 3.72 | - | - | (29,000 | ) | - | ||||||||||||||||
| Outstanding at September 30, 2021 | 957,903 | 4.20 | 1,446,188 | 5.24 | 823,956 | 544,615 | ||||||||||||||||||
| Exercisable at September 30, 2021 | 757,944 | 4.32 | 1,446,188 | 5.24 | - | 98,417 | ||||||||||||||||||
| (1) | On April 22, 2020, the Company issued Options and Warrants (“$3.30 Warrants”) in replacement of Otis Options and Warrants outstanding at the date of acquiring Otis. In accordance with the Otis Stock Option Plan, stock options expired on , 90 days after the closing of the Transaction. | |
| (2) | The Company has the following warrants outstanding: |
| ● | warrants with an exercise price of C$, expiring on March 29, 2022; and | |
| ● | warrants with an exercise price of C$, expiring on July 30, 2023 (Note 10). |
On August 27, 2021, warrants with an exercise price of C$ expired.
| 14 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
Options outstanding and exercisable are as follows:
SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE
| Exercise Price Range (CAD) | Stock Options Outstanding | Weighted Average Remaining Contractual Life (years) | Stock Options Exercisable | Weighted Average Exercise Price (CAD) | ||||||||||||||
| $ | to $ | 426,787 | 333,912 | 2.99 | ||||||||||||||
| $ | to $ | 440,116 | 333,032 | 4.54 | ||||||||||||||
| $ | to $ | 15,000 | 15,000 | 7.63 | ||||||||||||||
| $ | to $ | 76,000 | 76,000 | 8.51 | ||||||||||||||
| 957,903 | 757,944 | 4.32 | ||||||||||||||||
SCHEDULE OF SHARE BASED COMPENSATION EXPENSE
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Stock options | 82 | 127 | 427 | 367 | ||||||||||||
| RSU | 152 | 110 | 439 | 691 | ||||||||||||
| DSU | 52 | 59 | 548 | 524 | ||||||||||||
| 286 | 296 | 1,414 | 1,582 | |||||||||||||
12. PROVISION FOR LITIGATION
The Company is defending a legal claim against a subsidiary of the Company which is party to an action by a claimant in respect of damages under a property agreement regarding the La Antigua mineral concession (“La Antigua”), a non-material mineral concession within the Evolución Project. La Antigua is subject to an exploration and exploitation agreement with a purchase option (the “Antigua Agreement”) dated December 3, 2006 between San Pedro Resources SA de CV (“San Pedro”, now a subsidiary of Excellon) and the owner (the “Plaintiff”) that provides, among other things, for a minimum payment of $2.5 plus value added tax per month and the payment of a 3% NSR royalty. Pursuant to the Antigua Agreement, San Pedro has the right to purchase absolute title to La Antigua including the NSR royalty upon payment of $500. San Pedro was under no contractual obligation to put the mine into production and has not done so. The Plaintiff was initially awarded damages of $700 in the court of first instance in Torreón, Coahuila. Both San Pedro and the Plaintiff appealed the decision to the Second District State Court in the Judicial District of Torreón. That Court confirmed the initial decision but, subsequently, pursuant to an order obtained by the Plaintiff, granted the Plaintiff an award of $22,175 (the “Judgment”), which in the view of management is multiple times greater than any income the applicable NSR royalty could produce even in the event of commercial production. San Pedro’s appeal of this decision to the federal courts of Mexico was dismissed on July 1, 2021, a decision that was formally communicated to the Company in August 2021, and as the Judgment is not subject to further legal appeal in Mexico, the Company has recorded a Provision for litigation of $22,175 in Q3.
The Judgment is solely against San Pedro as defendant and the Company believes that the Plaintiff has no recourse against the Company’s other assets in Mexico (including Platosa), Idaho, Saxony or Canada. San Pedro is a wholly-owned, indirect subsidiary of the Company that holds the Miguel Auza processing facility and the original Miguel Auza mineral concessions, including the Evolución mineral resource. The book value of San Pedro’s assets included in the consolidated Statement of Financial Position of the Company is $5.0 million, including plant, property and equipment of $3.2 million, VAT recoverable of $1.4 million and materials, supplies and other of $0.4 million. The Platosa Mine is owned and operated by a separate subsidiary.
The Company continues to pursue avenues through our labour, community and government relationships and is investigating remedies under international law. In the interim, San Pedro continues to operate in the ordinary course and there is currently no impact to the operation of the Company’s business. As of the date of approval of these financial statements, San Pedro has not received any notice that the Plaintiff has initiated any insolvency proceedings or any enforcement proceedings that could result in San Pedro losing control of the toll milling operations.
| 15 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
13. REVENUE
Under the terms of the Company’s concentrate sales contracts, lead–silver and zinc–silver concentrates are sold on a provisional pricing basis whereby sales are recognized at prevailing metal prices when the revenue recognition criteria have been met, namely when title and the risks and rewards of ownership have transferred to the customer. Final pricing of each delivery is not determined until one to three months post-delivery. The price recorded at the time of sale may differ from the actual final price received from the customer due to changes in market prices for metals. The price volatility is considered an embedded derivative in accounts receivable. The embedded derivative is recorded at fair value by mark-to-market adjustments at each reporting period until settlement occurs, with the changes in fair value recorded in revenues.
The Company recognized the following amounts related to revenue:
SCHEDULE OF RECOGNIZED AMOUNTS RELATED TO REVENUE
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Concentrate revenue from contracts with customers (1) | 9,451 | 9,518 | 28,736 | 16,049 | ||||||||||||
| Provisional pricing adjustments on concentrate sales (1) | (300 | ) | 339 | (87 | ) | (440 | ) | |||||||||
| Revenue from toll milling services | - | - | - | 496 | ||||||||||||
| Total revenue | 9,151 | 9,857 | 28,649 | 16,105 | ||||||||||||
| (1) | Refer to Note 18 of the Q1 2021 Condensed Consolidated Financial Statements. The 2020 quarterly information was revised for the reclassification of foreign exchange differences on provisionally priced sales. The revision for the three and nine months ended September 30, 2020, are an increase in revenue of $190 and a decrease in revenue of $1,068, respectively. |
The following table sets out the disaggregation of revenue by metal and form of sale:
SCHEDULE OF DISAGGREGATION OF REVENUE
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Concentrate revenue: | ||||||||||||||||
| Silver | 5,882 | 6,699 | 18,496 | 10,043 | ||||||||||||
| Lead | 1,457 | 1,273 | 4,215 | 2,378 | ||||||||||||
| Zinc | 1,812 | 1,885 | 5,938 | 3,188 | ||||||||||||
| Revenue from toll milling services | - | - | - | 496 | ||||||||||||
| Total revenue | 9,151 | 9,857 | 28,649 | 16,105 | ||||||||||||
The Company has offtake agreements with Trafigura Mexico, S.A. de C.V. (“Trafigura”), a subsidiary within the Trafigura group of companies. Due to the availability of alternative processing and commercialization options for its concentrate, the Company believes it would suffer no material adverse effect if it lost the services of Trafigura.
| 16 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
14. EXPENSES BY NATURE
(a) Cost of sales consist of the following:
SCHEDULE OF COST OF SALES
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Direct mining and milling costs (1) | 5,992 | 5,125 | 18,362 | 13,904 | ||||||||||||
| Changes in inventories (2) | (425 | ) | 750 | (829 | ) | (144 | ) | |||||||||
| Depletion and amortization | 1,809 | 1,269 | 5,372 | 3,204 | ||||||||||||
| Toll milling costs | - | - | - | 234 | ||||||||||||
| Cost of sales | 7,376 | 7,144 | 22,905 | 17,198 | ||||||||||||
| (1) | Direct mining and milling costs include personnel, general and administrative, fuel, electricity, maintenance and repair costs as well as operating supplies, external services and transport fees. | |
| (2) | Changes in inventories reflect the net cost of ore and concentrate (i) sold during the current period but produced in a previous period (an addition to direct mining and milling costs) or (ii) produced but not sold in the current period (a deduction from direct mining and milling costs). |
(b) Administrative expenses consist of the following:
SCHEDULE OF ADMINISTRATIVE EXPENSES
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Office and overhead | 517 | 468 | 1,742 | 1,133 | ||||||||||||
| Salaries and wages | 395 | 308 | 1,537 | 1,377 | ||||||||||||
| Corporate development and legal | 115 | 245 | 227 | 519 | ||||||||||||
| Public company costs | 40 | 57 | 156 | 138 | ||||||||||||
| Administrative expenses | 1,067 | 1,078 | 3,662 | 3,167 | ||||||||||||
| 17 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
(c) Other expenses consist of the following:
SCHEDULE OF OTHER EXPENSES
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Unrealized (gain) loss on marketable securities (Note 3) | (2 | ) | 236 | 696 | (1,244 | ) | ||||||||||
| Unrealized loss (gain) on purchase warrants (Note 3) | 14 | 40 | 120 | (163 | ) | |||||||||||
| Loss on disposal of assets | - | - | - | 188 | ||||||||||||
| Unrealized foreign exchange (gain) loss (1) | (53 | ) | 634 | 219 | 1,507 | |||||||||||
| Realized foreign exchange loss (gain) | 22 | (2 | ) | (134 | ) | 8 | ||||||||||
| Provision for litigation (Note 12) | 22,277 | - | 22,277 | - | ||||||||||||
| Interest income | (1 | ) | (10 | ) | (5 | ) | (41 | ) | ||||||||
| Shares issued at a discount to settle payables | - | 122 | - | 196 | ||||||||||||
| Management fee income (Note 6) | (45 | ) | (39 | ) | (112 | ) | (58 | ) | ||||||||
| Other | 71 | (47 | ) | 60 | (26 | ) | ||||||||||
| Other expenses | 22,283 | 934 | 23,121 | 367 | ||||||||||||
| (1) | Refer to Note 18 of the Q1 2021 Condensed Consolidated Financial Statements. The 2020 quarterly information was revised for the reclassification of foreign exchange differences on provisionally priced sales. The revisions for the three and nine months ended September 30, 2020 are an increase to Other expense of $190 and a decrease to Other expense of $1,068, respectively. |
15. EXPLORATION AND HOLDING EXPENSES
Exploration and holding expenses were incurred on the following projects:
SCHEDULE OF EXPLORATION AND HOLDING EXPENSES
| Three months ended | Nine months ended | |||||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| $ | $ | $ | $ | |||||||||||||||
| Platosa property (Mexico) | - exploration work (1) | 305 | 153 | 1,559 | 187 | |||||||||||||
| - holding costs | 50 | 43 | 149 | 134 | ||||||||||||||
| Evolución (Mexico) | - exploration work | 61 | 183 | 195 | 344 | |||||||||||||
| - holding costs | 72 | 53 | 216 | 185 | ||||||||||||||
| Silver City (Germany) | - exploration work | 1,423 | 911 | 2,142 | 1,083 | |||||||||||||
| - holding costs (2) | - | - | - | - | ||||||||||||||
| Kilgore (USA) | - exploration work | 497 | 528 | 1,020 | 568 | |||||||||||||
| - holding costs | 130 | 130 | 130 | 130 | ||||||||||||||
| Exploration and holding expenses | 2,538 | 2,001 | 5,411 | 2,631 | ||||||||||||||
| (1) | Platosa property exploration excludes underground drilling at the Platosa Mine which is capitalized to Property, plant and equipment (Note 5). |
| (2) | There are no annual fees associated with exploration licenses in Saxony, Germany. See Note 6 for capitalized earn-in payments under the Globex Agreement. |
| 18 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
16. FINANCE EXPENSES
Finance expenses consist of the following:
SCHEDULE OF FINANCE EXPENSES
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Interest expense - Debentures | 748 | 365 | 2,380 | 365 | ||||||||||||
| Interest expense - other | 25 | 255 | 69 | 742 | ||||||||||||
| Rehabilitation provision - accretion | 22 | 16 | 59 | 46 | ||||||||||||
| Post-retirement benefits - accretion | 11 | 2 | 27 | 3 | ||||||||||||
| Post-retirement benefits - transfer (1) | (118 | ) | - | (118 | ) | - | ||||||||||
| Unrealized (gain) loss on currency hedges | - | (346 | ) | 21 | 673 | |||||||||||
| Finance expenses | 688 | 292 | 2,438 | 1,829 | ||||||||||||
| (1) | In accordance with changes in Mexican labour laws, the Company’s post-retirement benefit obligations were transferred between subsidiaries of the Company resulting in a net reduction in the provision on revaluation. |
17. FINANCIAL INSTRUMENTS
Fair Values of non-derivative financial instruments
All financial assets and financial liabilities, other than derivatives, are initially recognized at the fair value of consideration paid or received, net of transaction costs, as appropriate, and are subsequently carried at fair value or amortized cost. At September 30, 2021, the carrying amounts of trade and other payables and other current assets are considered to be reasonable approximations of their respective fair values due to the short-term nature of these instruments. The methods and assumptions used in estimating the fair value of other financial assets and liabilities are as follows:
Embedded derivatives – provisional pricing
Revenues from the sale of metals produced are based on provisional prices at the time of shipment. Variations between the price recorded at the time of sale and the actual final price received from the customer are caused by changes in market prices for metals sold and final settlement weights and assays, which result in an embedded derivative in accounts receivable. The embedded derivative is recorded at fair value each reporting period until settlement occurs, with the changes in fair value recorded to revenues.
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Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
Fair Value Hierarchy
The three levels of the fair value hierarchy are as follows:
| ● | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; | |
| ● | Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and | |
| ● | Level 3 – Inputs that are not based on observable market data |
SCHEDULE OF THREE LEVELS OF FAIR VALUE HIERARCHY
| September 30 | December 31 | |||||||||
| Fair value | 2021 | 2020 | ||||||||
| hierarchy | $ | $ | ||||||||
| Financial assets | ||||||||||
| Fair value through profit and loss | ||||||||||
| Marketable securities | Level 1 | 1,457 | 2,138 | |||||||
| Warrants | Level 2 | 94 | 212 | |||||||
| Trade receivables | Level 2 | 479 | 1,782 | |||||||
| Forward foreign exchange contracts | Level 2 | - | 21 | |||||||
| 2,030 | 4,153 | |||||||||
There were no transfers between levels 1, 2 or 3 during the nine months ended September 30, 2021.
Valuation techniques and inputs used to determine fair values include:
| ● | Marketable securities – the use of quoted market prices | |
| ● | Warrants – based on a Black-Scholes model which uses quoted observable inputs | |
| ● | Provisional pricing receivables – key inputs are payable metal and future metal prices, marked-to-market based on a quoted forward price and final settlement weights and assays | |
| ● | Forward foreign currency contracts – present value of future cash flows based on the forward exchange rates at the balance sheet date |
18. SEGMENT REPORTING
SCHEDULE OF SEGMENT REPORTING
| MEXICO | CORPORATE | TOTAL | ||||||||||||||||||||||
| September 30 | December 31 | September 30 | December 31 | September 30 | December 31 | |||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Property, plant and equipment | 24,855 | 24,877 | 709 | 953 | 25,564 | 25,830 | ||||||||||||||||||
| Additions - Property, plant and equipment | 6,471 | 7,620 | 13 | 48 | 6,484 | 7,668 | ||||||||||||||||||
| Mineral rights | 635 | 804 | 20,117 | 19,707 | 20,752 | 20,511 | ||||||||||||||||||
| Additions - Mineral rights | - | - | 490 | 19,437 | 490 | 19,437 | ||||||||||||||||||
| Total assets (1) | 34,961 | 40,897 | 26,074 | 32,382 | 61,035 | 73,279 | ||||||||||||||||||
| Total liabilities (1) (Note 12) | 31,621 | 11,959 | 12,840 | 10,878 | 44,461 | 22,837 | ||||||||||||||||||
| (1) | Certain comparative period balances related to deferred income tax and foreign exchange impacts have been reallocated to conform with the current period allocation. As a result, total assets for Mexico and Corporate as at December 31, 2020, previously reported as $63,062 and $10,217, were revised to $40,897 and $32,382, respectively. |
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Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2021 and 2020
(in thousands of U.S. dollars, except share and per share data)
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| MEXICO | ||||||||||||||||
| Revenue | 9,151 | 9,857 | 28,649 | 16,105 | ||||||||||||
| Cost of sales | (7,376 | ) | (7,144 | ) | (22,905 | ) | (17,198 | ) | ||||||||
| General and administrative expenses | ||||||||||||||||
| Exploration and holding expenses | (488 | ) | (432 | ) | (2,119 | ) | (850 | ) | ||||||||
| Other expenses (Note 12) | (22,246 | ) | (916 | ) | (22,362 | ) | (1,805 | ) | ||||||||
| Impairment loss (Note 5) | (752 | ) | - | (752 | ) | - | ||||||||||
| Finance income (expenses) | 73 | 969 | (1 | ) | (80 | ) | ||||||||||
| Income tax (expense) recovery | (4,843 | ) | 115 | (4,918 | ) | (694 | ) | |||||||||
| Net income (loss) | (26,481 | ) | 2,449 | (24,408 | ) | (4,522 | ) | |||||||||
| CORPORATE | ||||||||||||||||
| General and administrative expenses | (1,453 | ) | (1,502 | ) | (5,436 | ) | (5,009 | ) | ||||||||
| Exploration and holding expenses | (2,050 | ) | (1,569 | ) | (3,292 | ) | (1,781 | ) | ||||||||
| Other expenses | (37 | ) | (18 | ) | (759 | ) | 1,438 | |||||||||
| Other income (expense) | (37 | ) | (18 | ) | (759 | ) | 1,438 | |||||||||
| Finance expenses | (761 | ) | (1,261 | ) | (2,437 | ) | (1,749 | ) | ||||||||
| Finance income (expense) | (761 | ) | (1,261 | ) | (2,437 | ) | (1,749 | ) | ||||||||
| Income tax (expense) recovery | (78 | ) | 1,661 | 5 | 1,613 | |||||||||||
| Net loss | (4,379 | ) | (2,689 | ) | (11,919 | ) | (5,488 | ) | ||||||||
| Net loss | (30,860 | ) | (240 | ) | (36,327 | ) | (10,010 | ) | ||||||||
| Net income (loss) | (30,860 | ) | (240 | ) | (36,327 | ) | (10,010 | ) | ||||||||
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