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1 Precious Metals Value Stock Focused on Undervalued Projects

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Excellon (TSX:EXN) is principally engaged in the mining and processing of silver, lead, and zinc and the exploration, development, and acquisition of gold- and silver-bearing properties in the United States, Mexico, Germany, and worldwide. The company aims to continue capitalizing on current market conditions by acquiring undervalued projects.

The company is advancing a precious metals growth pipeline that includes several projects. The Platosa property is Mexico’s highest‐grade silver mine since production commenced in 2005, and the Kilgore project is a high‐quality gold development project in Idaho with strong economics and significant growth and discovery potential. Also, the company has an option on the Silver City project, a high‐grade epithermal silver district in Saxony, Germany with 750 years of mining history and no modern exploration.

Lucrative principal product

The company’s principal product is lead‐silver and zinc‐silver concentrates. Production crushed ore mined from the company’s Platosa property is shipped to a mill for processing, where separate mineral concentrates containing lead‐silver and zinc‐silver are produced on site. These mineral concentrates are then transported and sold to third parties for further processing.

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Diverse customer base

From 2011 to 2016, Trafigura was the sole purchaser of the company’s concentrates. In late 2016, the company negotiated offtake agreements for 2017 with Trafigura and MK Metal following a robust tender process involving numerous commodity traders. In 2018, the company, after another robust tender process, extended the agreements with each party for 2018 production. Excellon agreed to terms on lead and zinc concentrate production for 2020 and 2021 with Trafigura.

Due to the availability of alternative processing and commercialization options for the company’s concentrate, it would suffer no material adverse effect if it lost the services of Trafigura.

Control over subsidiaries

The company’s corporate structure has been designed to ensure that the Excellon controls or has a measure of direct oversight over the operations of the company’s subsidiaries. The company’s subsidiaries are 100% beneficially owned, controlled directly or indirectly, by Excellon. The company, as the ultimate shareholder, has internal policies and systems in place which provide it with visibility into the operations of subsidiaries and the company’s management team is responsible for monitoring the activities of the subsidiaries.

Strong governance

The annual budget, capital investment, and exploration program in respect of the Excellon’s mineral properties are established by the company. Further, the authorized signing officers for the bank accounts of the foreign subsidiaries are either senior employees of the company or senior employees of the subsidiaries, as the case may be.

In connection with the acquisition, ownership, and disposition of material property interests in Mexico, the United States, and Germany, including mining concessions and real property interests, the company engages reputable, local law firms located in such jurisdictions to periodically conduct a review of the company’s ownership of Excellon’s material property interests. In respect of other assets, such as equipment or materials purchased by Excellon’s foreign subsidiaries, the company has enacted internal control procedures to ensure that all appropriate documentation is obtained for the legal transfer of assets to the company. These controls should serve long-term shareholders well.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.

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