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Excellon Resources Inc.
Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
in thousands of U.S. dollars
(unaudited)
| F-1 |
Excellon Resources Inc.
Condensed Consolidated Statements of Financial Position
(unaudited) (in thousands of U.S. dollars)
| September 30 | December 31 | |||||||||||
| 2022 | 2021 | |||||||||||
| Notes | $ | $ | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | 2,080 | 4,071 | ||||||||||
| Trade receivables | 891 | 326 | ||||||||||
| VAT recoverable | 2,761 | 3,439 | ||||||||||
| Inventories | 3 | 1,162 | 2,087 | |||||||||
| Other current assets | 1,985 | 2,320 | ||||||||||
| Total current assets | 8,879 | 12,243 | ||||||||||
| Non-current assets | ||||||||||||
| Property, plant and equipment | 4 | 3,564 | 9,044 | |||||||||
| Mineral rights | 5 | 20,514 | 20,273 | |||||||||
| Total assets | 32,957 | 41,560 | ||||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Trade and other payables | 5,915 | 8,143 | ||||||||||
| VAT payable | 2,155 | 1,839 | ||||||||||
| Convertible debentures | 7 | 10,646 | - | |||||||||
| Lease liabilities | 168 | 212 | ||||||||||
| Provision for litigation | 9 | 22,179 | 22,162 | |||||||||
| Provisions | 6 | 1,856 | 1,795 | |||||||||
| Total current liabilities | 42,919 | 34,151 | ||||||||||
| Non-current liabilities | ||||||||||||
| Convertible debentures | 7 | - | 9,238 | |||||||||
| Provisions | 6 | 1,933 | 1,813 | |||||||||
| Deferred tax liabilities | 760 | 612 | ||||||||||
| Lease liabilities | 90 | 233 | ||||||||||
| Total liabilities | 45,702 | 46,047 | ||||||||||
| Shareholders’ deficit | ||||||||||||
| Share capital | 8 | 140,387 | 138,961 | |||||||||
| Contributed surplus | 34,677 | 34,568 | ||||||||||
| Accumulated other comprehensive loss | (15,428 | ) | (15,851 | ) | ||||||||
| Deficit | (172,381 | ) | (162,165 | ) | ||||||||
| Total shareholders’ deficit | (12,745 | ) | (4,487 | ) | ||||||||
| Total liabilities and shareholders’ deficit | 32,957 | 41,560 | ||||||||||
Basis of presentation and going concern (Note 2)
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Approved by the Board | Director | Director | ||
| “Laurence Curtis” | “Jeff Swinoga” |
| F-2 |
Excellon Resources Inc.
Condensed Consolidated Statements of Comprehensive Loss
For the three and nine months ended September 30, 2022 and 2021
(unaudited) (in thousands of U.S. dollars, except per share data)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Notes | $ | $ | $ | $ | ||||||||||||||||
| Revenue | 10 | 6,982 | 9,151 | 23,260 | 28,649 | |||||||||||||||
| Production costs | (4,579 | ) | (5,567 | ) | (16,000 | ) | (17,557 | ) | ||||||||||||
| (Write-down) reversal of materials and supplies | - | - | (532 | ) | 24 | |||||||||||||||
| Depletion and amortization | (1,153 | ) | (1,809 | ) | (6,370 | ) | (5,372 | ) | ||||||||||||
| Cost of sales | 11.a | (5,732 | ) | (7,376 | ) | (22,902 | ) | (22,905 | ) | |||||||||||
| Gross profit | 1,250 | 1,775 | 358 | 5,744 | ||||||||||||||||
| Administrative expenses | 11.b | (1,080 | ) | (1,067 | ) | (3,104 | ) | (3,662 | ) | |||||||||||
| Share-based payment expenses | 8 | (145 | ) | (286 | ) | (405 | ) | (1,414 | ) | |||||||||||
| Amortization | (54 | ) | (100 | ) | (272 | ) | (360 | ) | ||||||||||||
| General and administrative expenses | (1,279 | ) | (1,453 | ) | (3,781 | ) | (5,436 | ) | ||||||||||||
| Exploration and holding expenses | 12 | (2,344 | ) | (2,538 | ) | (4,299 | ) | (5,411 | ) | |||||||||||
| Other (expenses) income | 11.c | (247 | ) | (6 | ) | 786 | (844 | ) | ||||||||||||
| Provision for litigation | - | (22,277 | ) | - | (22,277 | ) | ||||||||||||||
| Impairment loss | - | (752 | ) | - | (752 | ) | ||||||||||||||
| Finance expenses | 13 | (985 | ) | (688 | ) | (3,086 | ) | (2,438 | ) | |||||||||||
| Loss before income taxes | (3,605 | ) | (25,939 | ) | (10,022 | ) | (31,414 | ) | ||||||||||||
| Income tax expense | (174 | ) | (4,921 | ) | (194 | ) | (4,913 | ) | ||||||||||||
| Net loss | (3,779 | ) | (30,860 | ) | (10,216 | ) | (36,327 | ) | ||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||
| Items that may be reclassified subsequently to profit and loss: | ||||||||||||||||||||
| Foreign currency translation differences | 917 | (236 | ) | 423 | (54 | ) | ||||||||||||||
| Total other comprehensive income (loss) | 917 | (236 | ) | 423 | (54 | ) | ||||||||||||||
| Total comprehensive loss | (2,862 | ) | (31,096 | ) | (9,793 | ) | (36,381 | ) | ||||||||||||
| Loss per share | ||||||||||||||||||||
| Basic and diluted | $ | (0.11 | ) | $ | (0.94 | ) | $ | (0.30 | ) | $ | (1.12 | ) | ||||||||
| Weighted average number of shares | ||||||||||||||||||||
| Basic and diluted | 35,399,105 | 32,784,967 | 34,335,373 | 32,520,297 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
Excellon Resources Inc.
Condensed Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2022 and 2021
(unaudited) (in thousands of U.S. dollars)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Cash flow (used in) generated by | ||||||||||||||||
| Operating activities | ||||||||||||||||
| Net loss for the period | (3,779 | ) | (30,860 | ) | (10,216 | ) | (36,327 | ) | ||||||||
| Adjustments for non-cash items: | ||||||||||||||||
| Depletion and amortization | 1,207 | 1,909 | 6,642 | 5,732 | ||||||||||||
| Income tax expense | 174 | 4,921 | 194 | 4,913 | ||||||||||||
| Share-based payment expenses | 145 | 286 | 405 | 1,414 | ||||||||||||
| Write-down (recovery) of materials and supplies | - | - | 532 | (24 | ) | |||||||||||
| Interest and accretion expense | 726 | 744 | 3,041 | 2,512 | ||||||||||||
| Unrealized loss on currency hedges | - | - | - | 21 | ||||||||||||
| Gain on disposal of property, plant and equipment | (137 | ) | - | (253 | ) | - | ||||||||||
| Fair value loss on marketable securities and purchase warrants | 13 | 12 | 111 | 816 | ||||||||||||
| Provision for litigation | - | 22,277 | - | 22,277 | ||||||||||||
| Impairment loss | - | 752 | - | 752 | ||||||||||||
| Taxes paid | - | (50 | ) | (233 | ) | (219 | ) | |||||||||
| Operating cash (outflows) inflows before changes in working capital | (1,651 | ) | (9 | ) | 223 | 1,867 | ||||||||||
| Changes in non-cash working capital | ||||||||||||||||
| Trade receivables | (752 | ) | 1,252 | (567 | ) | 1,242 | ||||||||||
| VAT recoverable | (46 | ) | 1,071 | 655 | 2,198 | |||||||||||
| Inventories | - | (318 | ) | 433 | (946 | ) | ||||||||||
| Other assets | 360 | 169 | (117 | ) | (953 | ) | ||||||||||
| Trade and other payables | 643 | (813 | ) | (1,353 | ) | (257 | ) | |||||||||
| VAT payable | 597 | (864 | ) | 299 | (2,019 | ) | ||||||||||
| Net cash (used in) generated by operating activities | (849 | ) | 488 | (427 | ) | 1,132 | ||||||||||
| Investing activities | ||||||||||||||||
| Proceeds from sale of marketable securities | 25 | - | 342 | - | ||||||||||||
| Purchase of property, plant and equipment | (122 | ) | (2,248 | ) | (1,586 | ) | (5,761 | ) | ||||||||
| Proceeds from sale of property, plant and equipment | 137 | - | 321 | - | ||||||||||||
| Purchase of mineral rights | (151 | ) | (79 | ) | (151 | ) | (154 | ) | ||||||||
| Payments received under earn-in agreement | - | - | 100 | 75 | ||||||||||||
| Net cash used in investing activities | (111 | ) | (2,327 | ) | (974 | ) | (5,840 | ) | ||||||||
| Financing activities | ||||||||||||||||
| Proceeds from options and warrants exercised | - | - | - | 36 | ||||||||||||
| Lease payments | (45 | ) | (110 | ) | (168 | ) | (322 | ) | ||||||||
| Interest paid | (2 | ) | (10 | ) | (33 | ) | (36 | ) | ||||||||
| Net cash used in financing activities | (47 | ) | (120 | ) | (201 | ) | (322 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | 222 | (117 | ) | (389 | ) | 50 | ||||||||||
| Change in cash and cash equivalents | (785 | ) | (2,076 | ) | (1,991 | ) | (4,980 | ) | ||||||||
| Cash and cash equivalents - beginning of the period | 2,865 | 5,476 | 4,071 | 8,380 | ||||||||||||
| Cash and cash equivalents - end of the period | 2,080 | 3,400 | 2,080 | 3,400 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
Excellon Resources Inc.
Condensed Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2022 and 2021
(unaudited) (in thousands of U.S. dollars, except per share data)
| Accumulated | ||||||||||||||||||||
| other | Total | |||||||||||||||||||
| Share | Contributed | comprehensive | shareholders’ | |||||||||||||||||
| capital | surplus | (loss) income | Deficit | deficit | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| 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 | |||||||||||||
| Balance - January 1, 2022 | 138,961 | 34,568 | (15,851 | ) | (162,165 | ) | (4,487 | ) | ||||||||||||
| Net loss for the period | - | - | - | (10,216 | ) | (10,216 | ) | |||||||||||||
| Total other comprehensive income | - | - | 423 | - | 423 | |||||||||||||||
| Total comprehensive income (loss) | - | - | 423 | (10,216 | ) | (9,793 | ) | |||||||||||||
| Share options: | ||||||||||||||||||||
| Value of services recognized | - | 138 | - | - | 138 | |||||||||||||||
| Deferred and restricted share units: | ||||||||||||||||||||
| Shares issued on exercise of RSUs and DSUs | 282 | (282 | ) | - | - | - | ||||||||||||||
| Value of units recognized | - | 253 | - | - | 253 | |||||||||||||||
| Value of shares issued in asset acquisition | 450 | - | - | - | 450 | |||||||||||||||
| Convertible Debentures: | ||||||||||||||||||||
| Interest payable settled with shares | 694 | - | - | - | 694 | |||||||||||||||
| Balance - September 30, 2022 | 140,387 | 34,677 | (15,428 | ) | (172,381 | ) | (12,745 | ) | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-5 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
1. GENERAL INFORMATION
Excellon Resources Inc. (the “Company” or “Excellon”) is engaged in the acquisition, exploration, and advancement of mineral properties. The Company is listed on the Toronto Stock Exchange (the “TSX”) and 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 our employees, communities and shareholders. The Company is advancing a precious metals growth pipeline that includes: Kilgore, an advanced gold exploration project in Idaho with strong economics and significant growth and discovery potential; an option on Silver City, a high-grade epithermal silver district in Saxony, Germany with 750 years of mining history and no modern exploration; and Platosa, an 11,000 hectare exploration package on Mexico’s carbonate replacement deposit (CRD) trend. The Company is also actively seeking to acquire undervalued projects in the Americas.
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 7, 2022.
2. BASIS OF PRESENTATION AND GOING CONCERN
| 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, 2021.
On January 5, 2022, the Company announced that it was assessing the economic viability of mining at Platosa at achievable dewatering rates and with acceptable capital expenditures, beyond mid-2022. The estimated mineral resources remaining beyond mid-2022 steepened significantly, with fewer vertical-tonnes-per-metre than historically encountered. Underground and surface drilling continued throughout Q1 and Q2 2022; however, based on the drilling results and consideration of current and expected economic factors, production ceased and the Platosa Mine was placed on care and maintenance in early Q4 2022.
In addition, the Company has incurred losses from operations, has a shareholders’ deficit of $12,745, and negative working capital of $34,040 (including the Provision for litigation of $22,179 (Note 9)) as of September 30, 2022. Operating cash flows from the Platosa Mine ceased after the wind down of operations in early Q4 2022 and therefore the Company must utilize its current cash reserves, and pursue other financing transactions, to maintain its working capital requirements and planned corporate expenditures, as well as to fund exploration activities.
| F-6 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
As indicated in Note 9, the Company is also party to a legal claim (the “Judgment”) against the Company’s subsidiary San Pedro Resources SA de CV (“San Pedro”). 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 continued to operate in the ordinary course until final ore from Platosa was processed in early Q4 2002, at which time the San Pedro operations were transitioned to care and maintenance. To date, the Judgement has had no impact on the operation of the Company’s business.
On July 27, 2022, the Company received required approval from the Debentureholders to transfer the security under the Debentures from the Company’s Mexican assets to its Kilgore assets in Idaho (the “security transfer”) (Note 7). The security transfer was effective in late Q3 2022 and in early Q4 2022 cancellation of the Mexican security was registered with the applicable authorities. The Company does not consider the Judgment, and actions taken by the Plaintiff in connection with enforcing the Judgment prior to the security transfer, to constitute an event of default or default under the trust indenture governing the outstanding Debentures (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.
On March 7, 2022, the Company reported that the Sindicato Nacional Minero Metalúrgico (the “Platosa Union”) commenced a labour action at the Platosa Mine in Durango, Mexico. As a result, production was negligible, and no ore was processed by the Miguel Azua mill in the month of March. On April 1, 2022, the labour action was resolved.
The Company is considering various financing, corporate development opportunities and strategic alternatives that may include acquisitions, divestitures, mergers or spin-offs of the Company’s or third parties’ assets, as applicable.
These conditions indicate the existence of material uncertainties that cast substantial doubt on the Company’s ability to realize its assets and discharge its liabilities in the normal course of business and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The Company’s ability to continue as a going concern is dependent on its ability to repay or refinance its Debentures, and obtain the necessary financing to advance its exploration projects and meet its ongoing corporate overhead costs. Although the Company has been successful in obtaining debt or equity financing in the past, there is no assurance that it will be able to do so in the future or that such arrangements will be on terms advantageous to the Company.
These condensed consolidated financial statements are prepared on a going concern basis, which assumes that the Company will continue for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, these condensed consolidated financial statements do not include adjustments to the recoverability and classification of recorded assets and liabilities and related expenses that might be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities in other than the normal course of business at amounts different from those in the accompanying condensed consolidated financial statements. Such adjustments could be material.
| F-7 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
| 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, 2021.
3. INVENTORIES
SCHEDULE OF INVENTORIES
| September 30 | December 31 | |||||||
| 2022 | 2021 | |||||||
| $ | $ | |||||||
| Ore stockpiles (1) | 487 | 587 | ||||||
| Concentrate inventory (1) | 260 | 250 | ||||||
| Materials and supplies (2) | 415 | 1,250 | ||||||
| 1,162 | 2,087 | |||||||
| (1) | Change in inventories recorded in cost of sales (Note 11.a) excludes a currency translation adjustment of $10 (credit) for the nine months ended September 30, 2022 (December 31, 2021 – debit of $43). |
| (2) | Materials and supplies inventories were written down to net realizable value to align with current mining plans (Note 2). Amount of $532 was recorded in cost of sales for the nine months ended September 30, 2022 (recovery of $24 for the nine months ended September 30, 2021). |
4. PROPERTY, PLANT AND EQUIPMENT
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| Assets | Corporate and right | |||||||||||||||||||||||
| Mining | Mining | Processing | under | of use | ||||||||||||||||||||
| properties | equipment | equipment | construction | assets | Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| At January 1, 2021 | ||||||||||||||||||||||||
| Cost | 36,400 | 21,272 | 6,075 | 522 | 1,944 | 66,213 | ||||||||||||||||||
| Accumulated amortization | (21,930 | ) | (12,552 | ) | (5,079 | ) | - | (822 | ) | (40,383 | ) | |||||||||||||
| Opening net book value | 14,470 | 8,720 | 996 | 522 | 1,122 | 25,830 | ||||||||||||||||||
| Year ended December 31, 2021 | ||||||||||||||||||||||||
| Opening net book value | 14,470 | 8,720 | 996 | 522 | 1,122 | 25,830 | ||||||||||||||||||
| Additions | 4,441 | 516 | 263 | 2,711 | 30 | 7,961 | ||||||||||||||||||
| Disposals | ||||||||||||||||||||||||
| Reclassification | 2,131 | 875 | 196 | (3,202 | ) | - | - | |||||||||||||||||
| Impairment (2) | (10,471 | ) | (4,715 | ) | (738 | ) | - | (231 | ) | (16,155 | ) | |||||||||||||
| Depletion and amortization | (4,532 | ) | (2,373 | ) | (275 | ) | - | (348 | ) | (7,528 | ) | |||||||||||||
| Exchange differences (1) | (666 | ) | (333 | ) | (17 | ) | (31 | ) | (17 | ) | (1,064 | ) | ||||||||||||
| Closing net book value | 5,373 | 2,690 | 425 | - | 556 | 9,044 | ||||||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||||||
| Cost | 41,962 | 21,995 | 6,367 | - | 1,935 | 72,259 | ||||||||||||||||||
| Accumulated amortization and impairment | (36,589 | ) | (19,305 | ) | (5,942 | ) | - | (1,379 | ) | (63,215 | ) | |||||||||||||
| Closing net book value | 5,373 | 2,690 | 425 | - | 556 | 9,044 | ||||||||||||||||||
| F-8 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
| Assets | Corporate and right | |||||||||||||||||||||||
| Mining | Mining | Processing | under | of use | ||||||||||||||||||||
| properties | equipment | equipment | construction | assets | Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Period ended September 30, 2022 | ||||||||||||||||||||||||
| Opening net book value | 5,373 | 2,690 | 425 | - | 556 | 9,044 | ||||||||||||||||||
| Additions | 874 | 7 | 57 | - | - | 938 | ||||||||||||||||||
| Disposals | - | (68 | ) | - | - | - | (68 | ) | ||||||||||||||||
| Reclassification | - | (630 | ) | 744 | - | (114 | ) | - | ||||||||||||||||
| Depletion and amortization | (4,990 | ) | (157 | ) | (1,168 | ) | - | (155 | ) | (6,470 | ) | |||||||||||||
| Exchange differences (1) | 93 | 24 | 18 | - | (15 | ) | 120 | |||||||||||||||||
| Closing net book value | 1,350 | 1,866 | 76 | - | 272 | 3,564 | ||||||||||||||||||
| At September 30, 2022 | ||||||||||||||||||||||||
| Cost | 42,856 | 20,426 | 8,755 | - | 1,063 | 73,100 | ||||||||||||||||||
| Accumulated amortization and impairment | (41,506 | ) | (18,560 | ) | (8,679 | ) | - | (791 | ) | (69,536 | ) | |||||||||||||
| Closing net book value | 1,350 | 1,866 | 76 | - | 272 | 3,564 | ||||||||||||||||||
| (1) | Unrealized foreign exchange losses on translation of Mexican peso assets at the period-end exchange rate. |
| (2) | On January 5, 2022, the Company announced that it was assessing the economic viability of mining at Platosa at achievable dewatering rates and with acceptable capital expenditures, beyond mid-2022. The mineral resources remaining beyond mid-2022 steepen significantly, with fewer vertical-tonnes-per-metre than historically encountered. Based on the recent drilling results and consideration of current and expected economic factors, the Company wound down operations at Platosa in early Q4 2022. |
At December 31, 2021 and considering results from exploration and drilling assessments in Q4 2021 and Q1 2022, the Company performed an impairment test on the Platosa Mine CGU and Miguel Auza processing facility CGU. The recoverable amounts were calculated using the value-in-use method and estimated based on future cash flows. Key assumptions included future commodity prices, production based on current estimates of recoverable resources, and operating costs. In addition, the estimated residual value of Platosa’s property, plant and equipment required significant judgement. No discount rate was applied given the short-term nature of the cash flows. The estimated recoverable amount for the Platosa Mine CGU and Miguel Auza CGU was $7,264 and $1,338, respectively. Consequently, an impairment loss of $15,403 was recognized as at December 31, 2021 ($14,293 on the Platosa Mine, $1,110 on Miguel Auza). The recoverable amount and impairment was most sensitive to the future commodity price assumption – a 10% change in commodity prices would result in a $2,133 change in the recoverable amount and impairment. A 10% change in the residual value of Platosa’s property, plant and equipment would result in a $292 change in the recoverable amount and impairment.
In Q3 2021, the Company had recorded an impairment loss of $752 on the Miguel Auza CGU reflecting the impact of the Judgment against San Pedro (refer to Note 9).
| F-9 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
5. MINERAL RIGHTS
SCHEDULE OF MINERAL RIGHTS
| Platosa | Silver City | Kilgore | Oakley | Total | ||||||||||||||||
| (Mexico) | (Germany) (1) | (Idaho) | (Idaho) (2) | Total | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| At January 1, 2021 | ||||||||||||||||||||
| 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 | |||||||||||||||
| Year ended December 31, 2021 | ||||||||||||||||||||
| Opening net book value | 804 | 587 | 13,756 | 5,364 | 20,511 | |||||||||||||||
| Additions | - | 459 | - | - | 459 | |||||||||||||||
| Payments received under earn-in agreement | - | - | - | (75 | ) | (75 | ) | |||||||||||||
| Depletion and amortization | (219 | ) | - | - | - | (219 | ) | |||||||||||||
| Impairment (3) | (385 | ) | - | - | - | (385 | ) | |||||||||||||
| Exchange differences | (7 | ) | (11 | ) | - | - | (18 | ) | ||||||||||||
| Closing net book value | 193 | 1,035 | 13,756 | 5,289 | 20,273 | |||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||
| Cost | 3,665 | 1,035 | 13,756 | 5,289 | 23,745 | |||||||||||||||
| Accumulated amortization and impairment | (3,472 | ) | - | - | - | (3,472 | ) | |||||||||||||
| Closing net book value | 193 | 1,035 | 13,756 | 5,289 | 20,273 | |||||||||||||||
| Platosa | Silver City | Kilgore | Oakley | |||||||||||||||||
| (Mexico) | (Germany) (1) | (Idaho) | (Idaho) (2) | Total | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Period ended September 30, 2022 | ||||||||||||||||||||
| Opening net book value | 193 | 1,035 | 13,756 | 5,289 | 20,273 | |||||||||||||||
| Additions | - | 601 | - | - | 601 | |||||||||||||||
| Payments received under earn-in agreement | - | - | - | (100 | ) | (100 | ) | |||||||||||||
| Depletion and amortization | (172 | ) | - | - | - | (172 | ) | |||||||||||||
| Exchange differences | (5 | ) | (83 | ) | - | - | (88 | ) | ||||||||||||
| Closing net book value | 16 | 1,553 | 13,756 | 5,189 | 20,514 | |||||||||||||||
| At September 30, 2022 | ||||||||||||||||||||
| Cost | 3,556 | 1,553 | 13,756 | 5,189 | 24,054 | |||||||||||||||
| Accumulated amortization and impairment | (3,540 | ) | - | - | - | (3,540 | ) | |||||||||||||
| Closing net book value | 16 | 1,553 | 13,756 | 5,189 | 20,514 | |||||||||||||||
| (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. |
| F-10 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
In Q3 2021, shares to the value of C$425 and a cash payment of C$100 were made and recorded as an addition to mineral rights ($415). In Q3 2022, the Company made its final issuance of shares valued at C$625 and final cash payment of C$200 recorded as an addition to mineral rights ($601) to maintain its option on the Bräunsdorf exploration license and intends to exercise the option to acquire such licence in Q4 2022, upon which Globex will be granted 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 are to be made by the Company following any future announcement of a maiden mineral resource estimate on the property and upon achievement of commercial production from the project, respectively.
| (2) | On April 22, 2020, the Company acquired 100% ownership of the Oakley Project in Cassia County, Idaho as part of the Otis Gold Corp. (“Otis”) acquisition. |
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 $7,500 and cash payments to the Company of $550 over a six-year period. Excellon was Project Manager and earned 10% of the approved exploration expenditures for technical oversight and project management until November 30, 2021. Centerra now manages the Oakley Project directly.
In Q1 2021 and Q1 2022, the Company received a payment of $75 and $100, respectively, from Centerra under the earn-in agreement. In accordance with the Company’s farm-out accounting policy, these amounts were credited to the Oakley Project. As at September 30, 2022, Centerra has incurred $2,571 in qualifying exploration expenditures on the Oakley Project.
| (3) | Refer to Note 4 – mineral rights related to the Platosa Mine were included in the Platosa Mine CGU tested for impairment at December 31, 2021. An impairment of $385 was recorded. |
6. PROVISIONS
SCHEDULE OF PROVISIONS
| Post-retirement | Rehabilitation | |||||||||||
| benefits (1) | provision (2) | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Year ended December 31, 2021 | ||||||||||||
| Opening balance | 652 | 1,556 | 2,208 | |||||||||
| Termination payments | (62 | ) | - | (62 | ) | |||||||
| Change in estimate | 968 | 223 | 1,191 | |||||||||
| Accretion for the period | 236 | 85 | 321 | |||||||||
| Exchange differences | 1 | (51 | ) | (50 | ) | |||||||
| Closing balance | 1,795 | 1,813 | 3,608 | |||||||||
| Current | 1,795 | - | 1,795 | |||||||||
| Non-current | - | 1,813 | 1,813 | |||||||||
| Period ended September 30, 2022 | ||||||||||||
| Opening balance | 1,795 | 1,813 | 3,608 | |||||||||
| Termination payments | (80 | ) | - | (80 | ) | |||||||
| Change in estimate | (354 | ) | - | (354 | ) | |||||||
| Accretion for the period | 466 | 96 | 562 | |||||||||
| Exchange differences | 29 | 24 | 53 | |||||||||
| Closing balance | 1,856 | 1,933 | 3,789 | |||||||||
| Current | 1,856 | - | 1,856 | |||||||||
| Non-current | - | 1,933 | 1,933 | |||||||||
| (1) | Post-retirement benefits: Under Mexican labour law, the Company provides post-retirement indemnities and severance benefits to its employees terminated under certain circumstances. Key assumptions used by the independent 3rd party actuary in the above estimate include an annual discount rate of 7.00%, employee turnover rate of 4%, annual salary rate increase of 3.75% and minimum wage increase rate of 22%, and the life of mine plan to early Q4 2022. |
| (2) | Rehabilitation provision: Key financial assumptions used in the above estimate include independent 3rd party cost reports, an annual discount rate of 6.68% for Platosa and 7.19% for Miguel Auza, Mexican target inflation rates and the anticipated commencement of rehabilitation work (Platosa and Miguel Auza – 2024). The total undiscounted amount of estimated cash flows required to settle the Company’s obligations is $2.0 million of which $1.0 million relates to the Platosa Mine and $1.0 million relates to the Miguel Auza processing facility. |
| F-11 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
7. 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$17.91 million.
The Debentures have a term of 36 months and are convertible into common shares of the Company prior to maturity at a conversion price of C$ 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 were initially secured against the Company’s assets in Mexico (refer to Note 2). The security transfer was approved by the TSX Trust Company as Agent and Trustee for the Debentureholders in early Q3 2022 and became effective in early Q4 2022.
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$.
The purchasers of the Debentures were also issued 1,006,542 common share purchase warrants, with an exercise price of C$ 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 .
Net proceeds from the Debentures were C$17.1 million ($12.8 million) after cash transaction costs of C$768 ($572). The net proceeds 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 ($1,713) related to a taxable temporary difference on this equity component.
The debt component is recorded at amortized cost and is accreted to the principal amount over the term of the Debentures. The Company elected to pay the June 30, 2021, December 31, 2021, and June 30, 2022 interest payments in common shares valued at C$ ($), C$ ($), and C$ ($), respectively. The Company recorded interest expense of C$3,678 ($2,868) for the nine months ended September 30, 2022.
| F-12 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
SUMMARY OF DEBT COMPONENT
| $ CAD | $ USD | |||||||
| Year ended December 31, 2021 | ||||||||
| Opening balance | 9,299 | 7,283 | ||||||
| Interest expense | 4,294 | 3,427 | ||||||
| Value of shares issued to settle interest payable | (1,791 | ) | (1,433 | ) | ||||
| Exchange differences | - | (39 | ) | |||||
| Closing balance | 11,802 | 9,238 | ||||||
| Current | - | - | ||||||
| Non-current | 11,802 | 9,238 | ||||||
| Period ended September 30, 2022 | ||||||||
| Opening balance | 11,802 | 9,238 | ||||||
| Interest expense | 3,678 | 2,868 | ||||||
| Value of shares issued to settle interest payable | (888 | ) | (694 | ) | ||||
| Exchange differences | - | (766 | ) | |||||
| Closing balance | 14,592 | 10,646 | ||||||
| Current | 14,592 | 10,646 | ||||||
| Non-current | - | - | ||||||
SCHEDULE OF AUTHORIZED SHARE CAPITAL
| Number of shares | ||||||||
| (000’s) | $ | |||||||
| Year ended December 31, 2021 | ||||||||
| Opening balance | 32,339 | 136,199 | ||||||
| Shares issued on exercise of stock options | 15 | 54 | ||||||
| Shares issued on exercise of RSUs and DSUs | 281 | 970 | ||||||
| Value of shares issued in asset acquisition (1) | 232 | 305 | ||||||
| Shares issued to settle interest on convertible debentures (2) | 896 | 1,433 | ||||||
| Balance at December 31, 2021 | 33,763 | 138,961 | ||||||
| Period ended September 30, 2022 | ||||||||
| Opening balance | 33,763 | 138,961 | ||||||
| Shares issued on exercise of RSUs and DSUs | 162 | 282 | ||||||
| Value of shares issued in asset acquisition (1) | 1,330 | 450 | ||||||
| Shares issued to settle interest on convertible debentures (2) | 1,388 | 694 | ||||||
| Balance at September 30, 2022 | 36,643 | 140,387 | ||||||
| (1) | In accordance with the Globex Agreement (Note 5), the Company issued common shares (valued at C$ or $) on September 22, 2021 and common shares (valued at C$ or $) on September 20, 2022. |
| (2) | The Company elected to pay the June 30, 2021, December 31, 2021, and June 30, 2022 interest payments on the Debentures (Note 7) in common shares valued at C$888 ($727), C$903 ($706), and C$888 ($694), respectively. |
| F-13 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(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 (1) | Weighted Average Exercise Price (CAD) | RSUs Outstanding | DSUs Outstanding | |||||||||||||||||||
| Outstanding at January 1, 2021 | 847,437 | 4.21 | 2,538,588 | 6.00 | 465,511 | 491,330 | ||||||||||||||||||
| Granted/issued | 257,500 | 3.73 | - | - | 466,122 | 209,353 | ||||||||||||||||||
| Exercised/settled | (15,000 | ) | 3.05 | - | - | (41,117 | ) | (244,485 | ) | |||||||||||||||
| Expired | (104,366 | ) | 5.61 | (1,092,400 | ) | 7.00 | (54,448 | ) | - | |||||||||||||||
| Forfeited | (40,084 | ) | 3.85 | - | - | (168,659 | ) | - | ||||||||||||||||
| Outstanding at December 31, 2021 | 945,487 | 3.96 | 1,446,188 | 5.24 | 667,409 | 456,198 | ||||||||||||||||||
| Exercisable at December 31, 2021 | 816,987 | 4.03 | 1,446,188 | 5.24 | - | - | ||||||||||||||||||
| Options | Warrants | |||||||||||||||||||||||
| Options Outstanding | Weighted Average Exercise Price (CAD) | Warrants Outstanding (1) | Weighted Average Exercise Price (CAD) | RSUs Outstanding | DSUs Outstanding | |||||||||||||||||||
| Outstanding at January 1, 2022 | 945,487 | 3.96 | 1,446,188 | 5.24 | 667,409 | 456,198 | ||||||||||||||||||
| Granted/issued | 942,000 | 0.58 | - | - | 917,948 | 380,417 | ||||||||||||||||||
| Exercised/settled | - | 0.00 | - | - | (31,787 | ) | (130,455 | ) | ||||||||||||||||
| Expired | (208,750 | ) | 4.66 | (302,760 | ) | 3.30 | - | - | ||||||||||||||||
| Forfeited | (18,125 | ) | 3.95 | - | - | (405,070 | ) | - | ||||||||||||||||
| Outstanding at September 30, 2022 | 1,660,612 | 1.96 | 1,143,428 | 5.75 | 1,148,500 | 706,160 | ||||||||||||||||||
| Exercisable at September 30, 2022 | 961,612 | 2.93 | 1,143,428 | 5.75 | - | - | ||||||||||||||||||
| (1) | At September 30, 2022, the Company has warrants outstanding with an exercise price of C$, expiring on July 30, 2023 (Note 7). On March 29, 2022, warrants with an exercise price of C$ expired. |
| F-14 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(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 $ | 987,000 | 288,000 | 0.68 | |||||||||||||
| $ to $ | 313,037 | 313,037 | 2.97 | |||||||||||||
| $ to $ | 337,575 | 337,575 | 4.47 | |||||||||||||
| $ to $ | 5,000 | 5,000 | 7.50 | |||||||||||||
| $ to $ | 18,000 | 18,000 | 8.10 | |||||||||||||
| 1,660,612 | 961,612 | 2.93 | ||||||||||||||
SCHEDULE OF SHARE BASED COMPENSATION EXPENSE
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Stock options | 101 | 82 | 140 | 427 | ||||||||||||
| RSU | (65 | ) | 152 | 87 | 439 | |||||||||||
| DSU | 109 | 52 | 178 | 548 | ||||||||||||
| 145 | 286 | 405 | 1,414 | |||||||||||||
9. PROVISION FOR LITIGATION
A subsidiary of the Company 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 held by a subsidiary of the Company. La Antigua was subject to an exploration and exploitation agreement with a purchase option (the “Antigua Agreement”) between San Pedro Resources SA de CV (“San Pedro”, a subsidiary of Excellon) and the owner (the “Plaintiff”) that provided, 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 had 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 recorded a provision for litigation of $22,175 in Q3, 2021.
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, Germany 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 estimate. The book value of San Pedro’s assets included in the Condensed Consolidated Statements of Financial Position is $1.2 million, including VAT recoverable of $1.1 million and materials, supplies and other of $0.1 million. The Platosa Mine is owned and operated by a separate subsidiary of the Company.
| F-15 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
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 continued to operate in the ordinary course until it had processed the last ore from the Platosa Mine following its completion of production and transition to care and maintenance in early Q4 2022 (Note 2). In Q1 and Q2 2022, the Plaintiff registered the Judgment against the real property and certain assets owned by San Pedro. This does not currently impact use of the land, plant or mineral concessions. As of the date of approval of these financial statements, San Pedro has not received any notice that the Plaintiff has initiated any proceedings that could result in San Pedro losing control of its operations.
SCHEDULE OF PROVISION FOR LITIGATION
| September 30 | December 31 | |||||||
| 2022 | 2021 | |||||||
| $ | $ | |||||||
| Opening balance | 22,162 | - | ||||||
| Provision recognized | - | 22,282 | ||||||
| Transfer from accruals | - | 243 | ||||||
| Interest | 3 | 1 | ||||||
| Exchange differences (1) | 14 | (364 | ) | |||||
| Closing balance | 22,179 | 22,162 | ||||||
| (1) | Exchange differences include unrealized foreign exchange gain ($280) presented in other expenses (December 31, 2021 – loss of $294) and currency translation adjustment loss ($294) presented in other comprehensive income (December 31, 2021 – gain of $658). |
10. 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 four 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 trade receivables. 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 revenue.
The Company recognized the following amounts related to revenue:
SCHEDULE OF RECOGNIZED AMOUNTS RELATED TO REVENUE
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Concentrate revenue from contracts with customers | 7,569 | 9,451 | 24,557 | 28,736 | ||||||||||||
| Provisional pricing adjustments on concentrate sales | (587 | ) | (300 | ) | (1,297 | ) | (87 | ) | ||||||||
| Total revenue | 6,982 | 9,151 | 23,260 | 28,649 | ||||||||||||
| F-16 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
The following table sets out the disaggregation of revenue by metal:
SCHEDULE OF DISAGGREGATION OF REVENUE
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Concentrate revenue: | ||||||||||||||||
| Silver | 4,914 | 5,882 | 14,532 | 18,496 | ||||||||||||
| Lead | 1,089 | 1,457 | 3,140 | 4,215 | ||||||||||||
| Zinc | 979 | 1,812 | 5,588 | 5,938 | ||||||||||||
| Total revenue | 6,982 | 9,151 | 23,260 | 28,649 | ||||||||||||
11. EXPENSES BY NATURE
(a) Cost of sales consists of the following:
SCHEDULE OF COST OF SALES
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Direct mining and milling costs (1) | 4,716 | 5,992 | 15,900 | 18,386 | ||||||||||||
| Write-down (recovery) of materials and supplies | - | - | 532 | (24 | ) | |||||||||||
| Changes in inventories (2) | (137 | ) | (425 | ) | 100 | (829 | ) | |||||||||
| Depletion and amortization | 1,153 | 1,809 | 6,370 | 5,372 | ||||||||||||
| Cost of sales | 5,732 | 7,376 | 22,902 | 22,905 | ||||||||||||
| (1) | Direct mining and milling costs include personnel, administrative, fuel, electricity, supplies, transport, maintenance and repair costs. | |
| (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
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Office and overhead | 567 | 517 | 1,584 | 1,742 | ||||||||||||
| Salaries and wages | 355 | 395 | 1,051 | 1,537 | ||||||||||||
| Corporate development and legal | 107 | 115 | 351 | 227 | ||||||||||||
| Public company costs | 51 | 40 | 118 | 156 | ||||||||||||
| Administrative expenses | 1,080 | 1,067 | 3,104 | 3,662 | ||||||||||||
| F-17 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
(c) Other expenses (income) consist of the following:
SCHEDULE OF OTHER INCOME EXPENSES
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Fair value loss (gain) on marketable securities | 8 | (2 | ) | 67 | 696 | |||||||||||
| Fair value loss on purchase warrants | 5 | 14 | 44 | 120 | ||||||||||||
| Gain on disposal of property, plant and equipment | (137 | ) | - | (253 | ) | - | ||||||||||
| Unrealized foreign exchange loss (gain) | 343 | (53 | ) | (160 | ) | 219 | ||||||||||
| Realized foreign exchange (gain) loss | (43 | ) | 22 | (54 | ) | (134 | ) | |||||||||
| Interest and other | 71 | 70 | 162 | 55 | ||||||||||||
| Insurance proceeds received | - | - | (592 | ) | - | |||||||||||
| Management fee income (Note 5) | - | (45 | ) | - | (112 | ) | ||||||||||
| Other expenses (income) | 247 | 6 | (786 | ) | 844 | |||||||||||
12. 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 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||
| $ | $ | $ | $ | |||||||||||||||
| Platosa property (Mexico) | - exploration work (1) | 151 | 305 | 559 | 1,559 | |||||||||||||
| - holding costs | 52 | �� | 50 | 155 | 149 | |||||||||||||
| Evolución (Mexico) | - exploration work | 29 | 61 | 98 | 195 | |||||||||||||
| - holding costs | 86 | 72 | 257 | 216 | ||||||||||||||
| Silver City (Germany) | - exploration work | 175 | 1,423 | 887 | 2,142 | |||||||||||||
| - holding costs (2) | - | - | - | - | ||||||||||||||
| Kilgore (USA) | - exploration work | 1,721 | 497 | 2,213 | 1,020 | |||||||||||||
| - holding costs | 130 | 130 | 130 | 130 | ||||||||||||||
| Exploration and holding expenses | 2,344 | 2,538 | 4,299 | 5,411 | ||||||||||||||
| (1) | Platosa property exploration excludes underground drilling at the Platosa Mine which is capitalized to property, plant and equipment (Note 4). |
| (2) | There are no annual fees associated with exploration licenses in Saxony, Germany. See Note 5 for capitalized earn-in payments under the Globex Agreement. |
| F-18 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
13. FINANCE EXPENSES
Finance expenses consist of the following:
SCHEDULE OF FINANCE EXPENSES
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | �� | September 30 | September 30 | September 30 | ||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Interest expense - Debentures (1) | 926 | 748 | 2,868 | 2,380 | ||||||||||||
| Interest expense - other | 5 | 25 | 43 | 69 | ||||||||||||
| Rehabilitation provision - accretion | 32 | 22 | 96 | 59 | ||||||||||||
| Post-retirement benefits - accretion (2) | 22 | (107 | ) | 79 | (91 | ) | ||||||||||
| Unrealized loss on currency hedges | - | - | - | 21 | ||||||||||||
| Finance expenses | 985 | 688 | 3,086 | 2,438 | ||||||||||||
| (1) | The Debentures are recorded at amortized cost and accreted to the principal amount over the term of the Debentures (Note 7). For the nine months ended September 30, 2022, $ (September 30, 2021 – $) relates to the coupon interest expense, and $1,971 (September 30, 2021 – $1,459) relates to accretion using the effective interest rate method. |
| (2) | Reflects the discounting of post-retirement benefit liabilities. The post-retirement benefit accretion presented in Note 6 includes current service cost accretion of $387 (December 31, 2021 – $199) recorded in cost of sales. |
14. 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, 2022, 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 trade receivables. The embedded derivative is recorded at fair value each reporting period until settlement occurs, with the changes in fair value recorded to revenues.
| F-19 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(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 | 2022 | 2021 | ||||||||||
| hierarchy | $ | $ | ||||||||||
| Financial assets | ||||||||||||
| Fair value through profit and loss | ||||||||||||
| Marketable securities | Level 1 | - | 407 | |||||||||
| Warrants | Level 2 | 3 | 47 | |||||||||
| Trade receivables from provisionally priced sales | Level 2 | 891 | 326 | |||||||||
| Financial Assets | 894 | 780 | ||||||||||
There were no transfers between levels 1, 2 or 3 during the nine months ended September 30, 2022.
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 | |
| ● | Trade receivables from provisionally priced sales – key inputs are payable metal and future metal prices, marked-to-market based on a quoted forward price and final settlement weights and assays |
15. SEGMENT REPORTING
SCHEDULE OF SEGMENT REPORTING
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| MEXICO | CORPORATE | TOTAL | ||||||||||||||||||||||
| September 30 | December 31 | September 30 | December 31 | September 30 | December 31 | |||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Property, plant and equipment | 3,292 | 8,535 | 272 | 509 | 3,564 | 9,044 | ||||||||||||||||||
| Additions - Property, plant and equipment | 938 | 7,931 | - | 30 | 938 | 7,961 | ||||||||||||||||||
| Mineral rights | 16 | 193 | 20,498 | 20,080 | 20,514 | 20,273 | ||||||||||||||||||
| Additions - Mineral rights | - | - | 601 | 459 | 601 | 459 | ||||||||||||||||||
| Total assets | 9,829 | 15,309 | 23,128 | 26,251 | 32,957 | 41,560 | ||||||||||||||||||
| Total liabilities | 32,076 | 34,173 | 13,626 | 11,874 | 45,702 | 46,047 | ||||||||||||||||||
| F-20 |
Excellon Resources Inc.
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(in thousands of U.S. dollars, except share and per share data)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| MEXICO | ||||||||||||||||
| Revenue | 6,982 | 9,151 | 23,260 | 28,649 | ||||||||||||
| Cost of sales | (5,732 | ) | (7,376 | ) | (22,902 | ) | (22,905 | ) | ||||||||
| Exploration and holding expenses | (318 | ) | (488 | ) | (1,069 | ) | (2,119 | ) | ||||||||
| Other (expenses) income and foreign exchange gains (losses) | (169 | ) | 31 | 535 | (85 | ) | ||||||||||
| Provision for litigation (Note 9) | - | (22,277 | ) | - | (22,277 | ) | ||||||||||
| Impairment loss (Note 4) | - | (752 | ) | - | (752 | ) | ||||||||||
| Finance (expenses) income | (55 | ) | 73 | (197 | ) | (1 | ) | |||||||||
| Income tax expense | - | (4,843 | ) | - | (4,918 | ) | ||||||||||
| Net profit (loss) | 708 | (26,481 | ) | (373 | ) | (24,408 | ) | |||||||||
| CORPORATE | ||||||||||||||||
| General and administrative expenses | (1,279 | ) | (1,453 | ) | (3,781 | ) | (5,436 | ) | ||||||||
| Exploration and holding expenses | (2,026 | ) | (2,050 | ) | (3,230 | ) | (3,292 | ) | ||||||||
| Other (expenses) income and foreign exchange gains (losses) | (78 | ) | (37 | ) | 251 | (759 | ) | |||||||||
| Finance expenses | (930 | ) | (761 | ) | (2,889 | ) | (2,437 | ) | ||||||||
| Income tax (expense) recovery | (174 | ) | (78 | ) | (194 | ) | 5 | |||||||||
| Net loss | (4,487 | ) | (4,379 | ) | (9,843 | ) | (11,919 | ) | ||||||||
| Net loss | (3,779 | ) | (30,860 | ) | (10,216 | ) | (36,327 | ) | ||||||||
| F-21 |