BACKGROUNDER  –  REVISED  JANUARY  23,  2015     ILLEGAL  BLOCKADE  AT  LA  PLATOSA  MINE  IN  DURANGO,  MEXICO     • In   early   July   2012,   three   days   following   a   government   supervised   union   election   at   the   Company’s  La  Platosa  Mine,  the  losing  union  commenced  an  illegal  blockade  of  the  mine   with   the   advice   and   support   of   a   union-­‐backed   NGO,   and   the   support   of   a   local   agrarian   community  that  has  also  been  advised  by  that  NGO.   • The   NGO   subsequently   organized   a   campaign   of   lies   and   misrepresentations   to   further   the   losing   union’s   agenda,   with   the   agrarian   community   being   a   pawn   and   victim   of   the   misinformation  spread  in  that  campaign.   • The  blockade,  which  closed  the  mine  completely  for  two  months  and  production  for  three   months,   caused   significant   hardship   for   the   Company’s   workers   and   the   livelihood   and   economy  local  communities.   • Excellon  has  the  full  support  of  its  workers  and  the  local  communities.   • Excellon   is   in   full   compliance   with   all   of   its   commitments   and   all   Mexican   laws.       All   payments  for  land  use  and  rentals  are  current.       • Since   commencement   of   the   dispute,   allegations   against   Excellon   have   been   reviewed   and   dismissed   by   the   Organization   for   Economic   Cooperation   and   Development   (the   “OECD”)   and  the  Mexican  Federal  Environmental  Protection  Agency  (“PROFEPA”),  among  others.   • The  dispute  is  currently  before  the  Agrarian  Court.   • Excellon  is  committed  to  operating  one  of  the  highest  paying  and  safest  mines  in  Mexico   and  exceeding  industry  standards  and  best  practices  of  corporate  social  responsibility.       Chronology  of  the  Dispute     Excellon  is  the  highest-­‐grade  silver  producer  in  Mexico  from  its  100%  owned  La  Platosa  mine  in  the   state   of   Durango.   The   Company   produces   silver,   lead,   and   zinc   ore   at   La   Platosa,   which   is   then   trucked  to  the  Company’s  Miguel  Auza  mill  operations  in  the  state  of  Zacatecas.         On   July   5,   2012,   a   union   vote   of   the   workers   at   La   Platosa   was   held   to   determine   the   representative   union   of   the   mine.   The   Sindicato   Nacional   Minero   Metalúrgico   Napoleón   Gómez   Sada   (the   “Sada   Union”),   which   represents   approximately   12,000   workers   in   many   of   Mexico’s   major  companies,  won  the  most  votes  at  the  election  based  on  initial  results.         Three   days   later,   on   July   8,   2012,   members   of   the   Sindicato   Nacional   de   Trabajadores   Mineros   Metalúrgicos,   Siderúrgicos   y   Similares   de   la   República   Mexicana   (the   “Los   Mineros”),   a   United   Steel   Workers   (“USW”)   affiliated   union,   along   with   a   local   communal   land   ownership   group,   the   Ejido   La   Sierrita   (the   Ejido),   both   under   the   direction   of   a   non-­‐governmental   organization,   ProDESC,   and   with   the   assistance   of   certain   union   members,   commenced   an   illegal   blockade   of   La   Platosa.         Excellon Resources Inc. Suite 900 - 20 Victoria Street. Toronto. Ontario. Canada. M5C 2N8 T: 416.364.1130 F: 416.364.6745 W: ExcellonResources.com -2- On   August   29,   2012,   a   combined   group   of   approximately   30-­‐40   state   and   federal   officers   peacefully  reopened  access  to  the  minesite  via  a  new  access  located  approximately  one  mile  from   the   main   mine   site   access.     Later   that   day,   approximately   40   blockaders   from   the   main   mine   entrance   moved   to   illegally   block   this   new   access.     In   late   afternoon,   however,   the   Concerned   Women   of   Bermejillo   (the   “CWB”),   a   group   of   women   from   local   communities   that   have   been   affected   by   the   illegal   blockade,   disrupted   this   new   blockade   and   allowed   the   Company’s   work   force  to  peacefully  regain  regular  access  to  the  mine.       On  September  10  ,  2012  the  Company  announced  that  it  had  peacefully  regained  full  access  and   control   of   La   Platosa   through   the   main   mine   site   access.     Approximately   80   members   of   the   Concerned   Women   of   Bermejillo   along   with   members   of   the   Sada   Union   marched   to   the   main   mine   site   entrance   to   confront   the   illegal   blockaders.     Confronted   by   the   demonstrated   will   of   the   local  communities  and  the  workers  of  La  Platosa,  the  blockaders  peacefully  removed  the  blockade   and   workers   entered   La   Platosa   via   the   main   entrance   for   the   first   time   in   two   months.       On   October   15th,   Excellon   resumed   production   at   La   Platosa.     An   illegal   encampment   remained   on   Excellon’s  property,  approximately  300  metres  from  the  main  mine  access  gates.     Removal  of  Illegal  Encampment     On   October   23-­‐24,   2012   30-­‐50   illegal   protesters,   predominantly   members   of   the   Los   Mineros   attempted   to   blockade   a   communal   access   road   approximately   one   mile   from   the   illegal   encampment.    The  Company  requires  this  access  to  transport  ore;  the  rumour  was  widespread  in   the   community   that   a   blockade   attempt   would   be   made   when   the   Company   resumed   shipping.     Approximately,  50  members  of  the  Sada  union  confronted  the  attempted  blockaders  early  in  the   morning   of   October   24,   2012.     Following   discussions,   the   protesters   agreed   to   disperse   and   dismantled  the  makeshift  camp  they  had  set  up  nearby.    The  confrontation  remained  peaceful  at   all  times.     At   the   same   time,   the   Company’s   morning   shift   arrived   for   work   as   usual   via   the   general   access   route   approximately   one   mile   away   from   the   attempted   blockade   of   the   ore   truck   access   route,   accompanied  by  approximately  150  members  of  the  CWB.    The  workers  and  CWB  were  confronted   by  two  makeshift  wire  fences  that  had  been  newly  set  up  in  the  middle  of  the  road,  hundreds  of   metres   away   from   the   illegal   encampment.     As   the   Company   has   used   this   communal   access   road   for  nearly  a  decade,  the  fences  were  removed  to  restore  usual  and  normal  access  to  the  mine.     When   the   workers   and   CWB   reached   the   illegal   encampment   outside   the   main   mine   access,   there   were   only   three   people   present.     A   few   female   geologists   and   members   of   the   CWB   spoke   with   these  people  and  they  departed.         With   no   danger   of   confrontation,   the   Company   proceeded   to   dismantle   and   remove   the   illegal   encampment.    It  was  an  illegal  trespass  on  property  owned  and  used  by  Excellon  since  2004  and   was   a   serious   health,   safety   and   sanitation   risk.     It   was   immediately   beside   or   encroaching   on   a   busy  operations  and  ore  haulage  road  and  thus  posed  a  danger  to  those  illegally  encamped  and  a   danger   for   the   Company’s   workers/drivers.     It   had   no   sewerage   or   garbage   disposal.       The   -3- encampment  also  interfered  with  the  completion  of  a  new  access  road,  which  the  Company  had   been  working  on  and  permitting  for  two  years  in  cooperation  with  various  regulatory  bodies  and   local   authorities.     Excellon   had   received   permits   to   complete   the   road   in   late   June,   2012   and   completed  the  road  in  January  2013.     Shortly   thereafter   that   morning,   Excellon   recommenced   shipping   ore   to   its   mill   in   Miguel   Auza,   Zacatecas.     The   local   communities   of   Bermejillo   and   Mapimi   and   the   CWB,   in   particular,   have   pledged   to   continue  supporting  the  La  Platosa  operation  and  to  continue  demonstrating  the  support  of  local   communities  for  Excellon  and  the  livelihood  it  provides  for  hundreds  of  local  families.     The   following   provides   background   information   regarding   the   source   of   the   blockade,   the   Ejido   and  ProDESC.     Summary  Points:       • ProDESC   acknowledges   that   it   is   associated   with   the   Los   Mineros,   and   has   represented   the   Los  Mineros  at  various  meetings  with  state  and  federal  governments.   • During   2011   and   2012,   the   Los   Mineros   attempted   to   force   itself   upon   La   Platosa   mine   workers,   including   an   attempt   to   coerce   the   Company   into   accepting   the   Los   Mineros   as   the  Mine’s  sole  union  in  contravention  of  Mexican  labour  laws.     • At  a  vote  held  on  July  5,  2012  immediately  prior  to  the  commencement  of  the  blockade  by   the  Ejido,  approximately  60%  of  workers  at  the  La  Platosa  mine  expressed  their  support  for   unions  other  than  the  Los  Mineros,  with  the  Sada  Union  having  winning  the  election.   • The   blockade   was   immediately   recognized   as   illegal   by   local   and   state   governments,   and   criminal   charges   for   trespass   were   laid   against   the   blockaders.     These   charges   remain   outstanding,  with  further  charges  being  laid  for  subsequent  illegal  blockade  actions.   • ProDESC’s   website   (see   saved   screenshots)   endorses   and   encourages   illegal   actions,   as   evidenced  by  its  organization  of  an  illegal  blockade  by  the  Ejido,  while  also  stating  that  a   key  objective  of  the  group  is  self-­‐perpetuating  funding.   • ProDESC’s  stated  ideological  objectives  and  reliance  on  funding  from  unions  underline  its   lack   of   expertise   in   the   very   fields   –   small   business   development   and   commercial   contracts   –  that  would  serve  its  supposed  “clients”  best  interests  and  revitalize  the  Ejido  community.   • Further,   while   ProDESC   purports   to   act   in   the   name   of   human   rights,   the   Ejido   actually   living   in   the   community   number   only   20-­‐25   persons,   while   the   illegal   blockade   severely   affected  the  livelihoods  of  almost  300  Excellon  workers,  numerous  third  party  workers,  and   an  estimated  380  local  families  that  rely  on  direct  and  indirect  income  from  La  Platosa.   • Excellon   proposed   solutions   to   the   issues   that   the   Ejido   have   in   respect   of   water   management   and   trucking   and   cafeteria   concessions,   yet   ProDESC   refused   (and   has   prevented   the   Ejido   from   attending)   government   organized   and   mediated   meetings   to   address  these  issues.    ProDESC  refused  to  attend  such  meetings  without  also  representing   the  Los  Mineros  at  such  meetings.   • While   ProDESC   states   that   the   Ejido   are   concerned   about   (i)   water   management,   (ii)   -4- • trucking   and   (iii)   cafeteria   concessions,   ProDESC   continually   fails   to   state   the   first   of   the   Ejido’s  demands:    an  increase  in  surface  rights  and  rental  payments  to  over  US$1.4  million   per   year   for   access   to   exploration   ground   in   rugged,   semi-­‐desert   terrain   that   is   generally   non-­‐arable.   Excellon   does   not   require   the   Ejido’s   surface   rights   to   either   (i)   continue   producing   silver   and   growing   the   mineable   resource   at   the   La   Platosa   Mine,   or   (ii)   continue   effective   exploration   programs   elsewhere   on   the   La   Platosa   Property,   including   on   the   promising   Rincón  del  Caído  target.     The   Company   with   the   state   and   federal   governments   to   provide   a   peaceful   solution   to   the   blockade,   with   the   support   of   the   Concerned   Women   of   Bermejillo,   which   allowed   workers   to   return   to   the   mine   and   resume   their   livelihoods,   and   the   mine   to   resume   normal   operations   since   October   16,   2012.     Additionally,   the   dispute   was   reviewed   by   the   OECD,   PROFEPA,   CONAGUA   and   the   United   Nations   Commission   on   Human   Rights,   none   of   which   found   any   substance   in   the   claims  made  against  Excellon  by  any  of  the  Los  Mineros,  Ejido  or  ProDESC.       Los  Mineros  Interest  in  the  Illegal  Blockade     Although   superficially   an   Ejido   related   dispute,   the   Company   understands   that   the   real   root   of   the   illegal   blockade   action,   and   the   reason   for   the   Los   Mineros-­‐funding   of   the   action,   is   an   attempt   by   that   union   to   gain   control   of   the   La   Platosa   mine,   against   the   expressed   will   of   the   majority   of   the   mine’s  workers  and  in  contravention  of  Mexican  labour  laws  and  regulations.     Since   2005,   the   mine   workers   at   La   Platosa   have   been   represented   by   the   Sindicato   Nacional   “Presidente   Adolfo   Lopez   Mateos”   de   Trabajadores   y   Empleados   del   Comercio   en   General   y   Escuelas   Particulares,   Similares   y   Conexos   de   la   Republica   Mexicana,   a   nationally   certified   union   that  has  been  in  existence  for  over  30  years  and  represents  approximately  1,500  workers  in  mining   and  various  other  industries  across  Mexico.     In   Mexico,   applicable   labour   laws   and   government   authorities   govern   union   certification.     A   union   seeking   recognition   in   a   workplace   that   already   has   a   collective   bargaining   agreement   (a   “CBA”)   with  a  different  union  must  apply  to  the  federal  or  state  labour  authority,  which  then  conducts  a   government-­‐supervised  election  by  employees.    The  employer  is  not  involved  in  the  process  until   employees  elect  a  representative  union,  following  which  a  new  CBA  may  be  negotiated  between   the  employer  and  elected  union.       In   July   2011,   Jorge   Mora,   the   leader   of   the   local   309   section   of   the   Los   Mineros   (which   had   not   been  elected  by  La  Platosa’s  workers,  had  not  been  certified  by  government  authorities  and  did   not  have  a  CBA  with  Excellon)  was  dismissed  with  cause  for  sleeping  on  a  operating  scoop  tram   underground  -­‐  a  violation  of  the  Company’s  safety  policy  and  Mexican  law.       The   Los   Mineros   subsequently   organized   an   illegal   blockade   in   August   2011   with   over   250   demonstrators   (fewer   than   six   of   whom   were   Excellon   employees),   most   of   whom   were   bussed   in   by  the  Los  Mineros  from  as  far  away  as  Zacatecas  City,  400  kilometres  away.    The  Durango  state   -5- government  sought  to  resolve  the  situation  by  immediately  conducting  a  union  election,  but  the   Los   Mineros   refused   to   participate.     Following   further   discussions   with   the   Durango   state   government,   the   Los   Mineros   agreed   to   follow   the   legal   process   to   determine   union   representation   at   La   Platosa.     A   government   supervised   union   election   process   was   then   agreed   upon  among  union  representatives.       The  union  election  was  held  on  July  5,  2012.    Representatives  of  the  Ministry  of  Labour  were  in   attendance  as  were  officials  of  each  union  involved.    The  certification  will  not  be  official  until  the   Labour   Authority   completes   the   formal   tabulation   process   as   per   the   requirements   of   Mexican   labour  law,  but  the  Company  understands  that  the  election  did  not  favour  the  Los  Mineros,  with   over   60%   of   workers   voting   for   other   unions.     A   further   illegal   blockade   commenced   three   days   later,  supported  by  the  Los  Mineros.     The   Sada   Union,   which   represents   approximately   12,000   workers   in   many   of   Mexico’s   major   companies  and  is  the  Los  Mineros’s  primary  rival  in  Mexico,  won  the  most  votes  based  on  initial   results  from  the  July  5,   2012  election.      Following  several  legal  appeals  by  the  USW,  the  state  and   federal   courts   heard   and   dismissed   the   appeals.   In   December   2014,   the   Labour   Tribunal   of   Durango,   followed   by   the   state   and   federal   courts   and   the   courts   of   appeal   certified   the   Sada   Union   as   the   legitimate   union   representing   La   Platosa   employees.   Excellon   is   committed   to   support  the  union  elected  by  the  employees  of  La  Platosa..         Who  are  the  Ejido?     In  the  Mexican  system  of  government  an  “ejido”  is  an  area  of  communal  land  ownership  (surface   rights   only)   nominally   used   for   agriculture.     Within   the   law   there   is   provision   for   individual   community   members   (Ejidatarios)   to   possess   and   farm   a   specific   parcel   and   hold   title   to   the   surface  rights  of  such  parcel.    Ejidos  are  registered  with  Mexico’s  National  Agrarian  Registry.         Today,  some  Ejidatarios  still  farm  the  land,  though  many  others  have  become  business  leaders  in   their   states   and   communities   with   the   development   of   hotels   and   other   commercial   buildings   and   endeavours  on  their  collective  lands.     Excellon’s  relationship  with  the  Ejido  La  Sierrita  Community     Historically,   Excellon   has   been   a   strong   partner   of   the   Ejido   community   and   the   Ejido   made   up   approximately  12%  (30  of  250)  of  the  La  Platosa  workforce.         Excellon   holds   a   100%   interest   in   the   underlying   mineral   rights   on   the   Ejido   property,   with   the   Ejido  holding  the  surface  rights.    The  current  lease  agreement  between  Excellon  and  the  Ejido  for   1,100  hectares  of  surface  rights  provides  a  compensation  scheme  that  is  widely  considered  to  be   one  of  the  most  generous  paid  to  any  similar  landowner  group  in  Mexico.    The  surface  rights  are   rugged,   semi-­‐desert   terrain   that   is   generally   non-­‐arable.     The   agreement   was   finalized   and   ratified   in   2008.     ProDESC   provided   support   and   counsel   to   the   Ejido   during   the   negotiations,   the   government   of   the   state   of   Durango   witnessed   the   final   agreement   and   the   agreement   was   -6- ratified  and  endorsed  by  the  Ejido.    The  local  and  state  governments  agree  that  Excellon  remains   in  full  compliance  with  the  terms  of  the  agreement  and  all  applicable  Mexican  laws.     From   April   2008   to   date,   Excellon   has   paid   the   127   members   of   the   Ejido   in   excess   of   US$2.7   million.     All   payments   for   land   use   and   rentals   are   up   to   date.     Notably,   although   the   Ejido   community   numbers   127   members,   only   15-­‐20%   of   its   members   reside   in   the   community   (around   La  Platosa),  with  over  80%  of  the  Ejido  living  elsewhere  in  Mexico  and  in  the  United  States.         The  agreement  with  the  Ejido  includes  Excellon’s  commitment  to:     • Pay   annual   rent   of   MXN6,543,465/year   (~US$500,000   for   2012,   annually   adjusted   for   inflation)  for  surface  rights  and  access  to  1,100  hectares;   • Commit  social  funding  of  MXN594,860  /year  (~US$46,000  for  2012,  annually  adjusted  for   inflation);   • Issue  600,000  common  shares  of  Excellon  to  the  Ejido  (completed  in  2008,  with  a  value  of   ~Cdn.$900,000  as  of  the  date  of  issue);     • Provide  preferential  hiring  to  Ejido  with  appropriate  skill  sets;     • Provide  training  for  employees  that  are  members  of  the  Ejido  to  upgrade  from  labourers  to   specialized  employment;     • Implement  a  scholarship  program  benefitting  the  students  of  the  Ejido.     To  date,  in  respect  of  surface  rent  and  community  funding  alone  Excellon  has  paid  the  Ejido  a   total   of   35,560,978   pesos   since   April   2008   (or   approximately   US$2.7   million   based   on   an   exchange   rate   of   US1.00:13.00MXN).     Additionally,   Excellon   has   deposited   approximately   7.5   million  pesos  into  the  Agrarian  Court  in  respect  of  the  surface  rent,  community  and  scholarship   funding   payments   for   2013   pending   settlement   or   determination   of   the   legal   dispute   before   the   court.     While   the   Company   is   compliant   to   the   letter   of   all   applicable   Mexican   laws   and   the   current   agreement  with  the  Ejido,  certain  elements  of  the  agreement  remain  to  be  implemented.    These   elements  were  designed  to  be  implemented  over  time  upon  the  fulfillment  of  certain  conditions   that   the   Ejido   were   unable   to   satisfy   at   the   time   of   signing,   including   the   acquisition   of   a   water   permit  for  the  water  flowing  from  the  mine  and  the  provision  of  personnel  transport,  ore  trucking   and   cafeteria   concessions.     Subsequent   to   the   signing   of   the   agreement   2008,   the   Ejido   waived   its   right   to   the   personnel   transport   concession,   as   they   realized   they   would   not   be   able   to   provide   these   services.     The   Company   accepted   this   waiver   and   continued   to   transport   personnel   using   its   own  resources.     The   discussions   regarding   the   implementation   of   the   other   elements   of   the   agreement   were   advancing   immediately   prior   to   the   blockade,   with   the   Company   having   delivered   a   draft   agreement  to  implement  the  trucking  concession,  information  needed  for  the  Ejido  to  implement   the   cafeteria   concession   and   proposals   for   the   Ejido   to   participate   in   water   management   at   the   mine  (though  the  Ejido  had  failed  to  acquire  the  water  permit  required  by  the  agreement  –  see   below).    As  previously,  ProDESC  advised  the  Ejido  and  represented  itself  as  having  the  expertise  in   -7- small   business   and   commercial   law   to   negotiate   the   contracts   and   design   the   business   models   necessary   for   the   Ejido   to   successfully   run   the   trucking   and   cafeteria   concessions.     ProDESC   continues  to  purport  to  be  “highly  trained  in  community  development  and  organizing”  yet,  despite   Excellon  having  injected  over  US$2.7  million  into  the  Ejido  community  since  2008,  that  community   remains  underdeveloped  –  particularly  in  relation  to  the  other  local  communities  of  Bermejillo  and   Mapimi,   which   have   received   no   equivalent   to   the   significant   payments   made   to   the   Ejido,   but   have  worked  with  Excellon  to  improve  their  communities  on  a  mutually  beneficial  basis.       The   Ejido   provided   neither   comment   nor   counterproposal   following   discussions   prior   to   the   blockade,  but  instead  responded  with  an  illegal  blockade  under  the  guidance,  funding  and  urging   of  ProDESC  and  the  Los  Mineros.     On   September   6th,   the   federal   Ministry   of   the   Interior   organized   a   meeting   in   Mexico   City   to   mediate   the   three   primary   issues   as   stated   by   ProDESC   and   the   Ejido:   (i)   the   ore   trucking   concession,   (ii)   the   cafeteria   concession   and   (iii)   water   management.       Present   for   the   meeting   were   representatives   of   CONAGUA,   the   federal   Procuraduría   Agraria   and   the   state   government   of   Durango,   along   with   company   representatives   and   three   members   of   the   Concerned   Women   of   Bermejillo.         The  meeting  was  cancelled  by  the  federal  government  after  ProDESC  insisted  on  the  presence  at   the  meeting  of  representatives  of  the  Los  Mineros,  in  contravention  of  the  terms  of  the  meeting,   which  had  been  communicated  to,  and  agreed  upon  in  advance  by,  each  of  the  Ejido  and  ProDESC.   Although  representatives  of  both  the  federal  and  Durango  governments  attempted  to  reason  with   ProDESC   for   approximately   two   hours,   ProDESC   stated   that   it   would   not   enter   the   meeting   to   represent   the   Ejido   without   Los   Mineros   representatives   also   being   present.     The   Los   Mineros   representatives   included   Jorge   Mora,   the   leader   of   the   local   Section   309   of   the   Los   Mineros,   whose  employment  with  Excellon  was  terminated  in  2010  after  he  was  found  sleeping  on  a  scoop-­‐ tram   underground   while   the   equipment   was   running   (a   violation   of   Mexican   law   and   the   Company’s  safety  policy).     The  Ejido’s  Further  Demands     ProDESC   continually   fails   to   reference   the   further   demands   made   by   the   Ejido,   which   are   not   contemplated   in   the   surface   rights   agreement.     These   demands,   which   ProDESC   suggests   are   “minimal  changes”,  amount  to  the  following:     • A  silver-­‐linked  payment,  currently  estimated  at  ~$1,200,000/year  (from  ~$500,000/year)  in   rent  for  surface  rights  that  are  not  used  for  the  production  of  silver.    Excellon  earned  $4.4m   in  net  profits  during  2011,  with  a  net  loss  of  $7m  in  the  four  years  since  2008.    During  2012,   the   Company   earned   net   profits   before   tax   adjustments   of   US$524,000,   while   seeing   negative   cash   flow   from   operating   activities   of   US$9.7   million,   primarily   related   to   lost   production  and  associated  disruptions  and  expenditures  relating  to  the  illegal  blockade;   • an  increase  in  community  funding  to  ~$155,000/year  from  ~$50,000/year  –  The  Company     has  never  received  any  accounting  that  the  funds  paid  actually  go  to  community  works;   -8- • a  further  non-­‐merit  based  182  "scholarships".    The  Company  currently  pays  15,000  pesos   per   month   to   provide   merit   based   scholarships,   but   has   never   been   provided   with   any   accounting   by   the   Ejido   as   to   whether   these   funds   are   actually   used   for   scholarships.   Additionally,   as   of   2008,   there   were   a   total   of   only   55   students   (from   elementary   to   professional   level   schooling)   in   the   census   provided   by   the   Ejido,   raising   demographic   questions  regarding  the  current  demand  for  182  scholarships.     In   reality,   ProDESC’s   “minimal   changes”   to   the   agreement   amount   to   increased   payments   totaling   over   US$800,000   per   year,   which   ProDESC   continually   fails   to   note   in   its   public   statements.     At   numerous   meetings   with   the   ProDESC   and   the   Ejido,   the   Ejido   have   refused   to   even   discuss   the   three   issues   they   publicly   state   as   the   most   important   (trucking,   cafeteria   and   water)  unless  Excellon  first  agrees  to  these  extortionately  larger  rental  payments.         The   payments   Excellon   currently   makes   to   the   Ejido   rank   among   the   most   generous   paid   for   surface  rights  to  exploration  ground  in  Mexico,  and  already  consume  a  significant  portion  of  the   Company’s   profit   (or   have   previously   contributed   further   to   its   losses).   The   increases   in   compensation  demanded  by  the  Ejido  for  surface  rights,  which  at  this  stage  are  merely  payments   for   exploration   access,   are   completely   unreasonable   from   a   business   perspective.     Under   the   Ejido’s  demands  Excellon  would  effectively  be  forced  to  pay  up  to  30%  or  more  of  Excellon’s  net   profits  (based  on  2011’s  earnings)  for  exploration  access,  which  the  Company  cannot  justify  at  this   time,  particularly  with  other  available  exploration  options.     Excellon’s  Property  Rights  at  La  Platosa     Excellon  owns  a  total  of  approximately  40,000  hectares  of  mineral  and  mining  rights  at  La  Platosa,   including   the   mineral   rights   underlying   all   of   the   Ejido’s   surface   rights,   and   will   continue   to   hold   these   mineral   rights   for   the   foreseeable   future.     These   mineral   rights   entitle   the   Company   to   explore  for  and  mine  minerals  at  the  La  Platosa  Mine  and  in  an  extensive  surrounding  area.         Of  these  40,000  hectares  of  mineral  and  mining  rights,  Excellon  owns  all  associated  surface  rights   needed   to   produce   silver   from   the   La   Platosa   Mine   and   conduct   further   underground   exploration.     Additionally,   the   Company   owns   approximately   750   hectares   of   surface   rights,   including   those   immediately   beside   the   promising   Rincón   del   Caído   target,   from   which   further   drilling   on   that   target  may  be  conducted,  if  necessary.    Apart  from  the  1,100  hectares  leased  from  the  Ejido,  the   Company  also  leases  a  further  995  hectares  of  exploration  ground  in  the  northern  area  of  the  La   Platosa   property,   and   may   otherwise   obtain   permission   from   local   landowners   as   necessary   for   further  exploration  purposes.       Water  Issues  at  the  La  Platosa  Property     Under  the  2008  agreement  with  the  Ejido  (negotiated  with  the  advice  of  ProDESC),  the  Company   agreed  that,  upon  acquisition  of  a  water  permit  by  the  Ejido,  the  Company  would  build  a  water   treatment  plant  for  the  purposes  of  providing  agricultural  quality  water  to  the  Ejido.       -9- The   Federal   Government   of   Mexico,   through   its   water   management   authority,   CONAGUA,   controls,   and   provides   permits   in   respect   of,   all   water   rights   in   Mexico.     The   Ejido   do   not   currently   hold  any  permit  for  the  use  of  water  flowing  from  the  La  Platosa  mine  nor  does  Excellon,  either  for   human  consumption  or  for  agricultural  purposes.  To  date,  the  Ejido  have  not  applied  for  a  water   concession  from  CONAGUA,  and  have  been  informed  that  due  to  environmental  concerns  and  in   an  effort  to  preserve  the  water  table,  no  additional  water  concessions  will  be  granted  in  the  area.     Without  such  permit,  the  Ejido  may  not  use  or  transport  water  from  La  Platosa  and  the  Company   cannot  provide  them  with  such  water.    Under  mining  laws  in  Mexico,  the  Company  is  required  to   return  water  to  its  natural  state  in  the  underlying  basin,  which  is  accomplished  by  spreading  water   pumped   from   the   mine   over   the   Company’s   property,   allowing   it   to   filter   back   into   the   water   table.     The  water  pumped  from  La  Platosa  is  in  its  natural  state.    The  Company  does  not  use  any  reagents   in  the  mining  process  at  La  Platosa,  and  no  ore  treatment  or  milling  facility  is  located  at  La  Platosa   that  would  affect  the  natural  quality  of  the  water.    After  being  pumped  from  the  mine,  the  water   is   initially   controlled   in   a   series   of   settling   ponds   to   allow   any   suspended   solids   to   settle   before   being  spread  elsewhere  over  the  property.    The  water  discharged  from  La  Platosa  is  of  agricultural   quality   (in   compliance   with   NOM-­‐001-­‐Semarnat-­‐1996   standards)   and   in   its   natural   state,   as   confirmed   on   a   quarterly   basis   by   an   independent   certified   laboratory   (samples   collected   by   Health   Safety   and   Environmental   Outsourcing   (HSEO)   of   Torreon   and   tested   by   Laboratorio   del   Grupo   Microanálisis   S.A.   de   C.V.   of   Mexico   City),   with   the   results   of   such   testing   reviewed   by   CONAGUA.       As   the   water   that   is   ultimately   discharged   from   the   mine   is   already   of   agricultural   quality,   and   managed  at  all  times  in  a  controlled  manner,  the  Company  has  no  obligation  under  either  mining   or  water  law  to  build  a  water  treatment  plant,  as  the  water  does  not  “have  the  ability  to  damage   surrounding  lands.”    The  Company  has  been  mining  at  La  Platosa  since  2005  in  compliance  with  all   applicable   laws   and   has   worked   closely   with   all   levels   of   Mexican   government   and   regulatory   authorities  since  that  time,  including  CONAGUA  and  the  applicable  Ministries  of  Mining.         PROFEPA   conducted   a   site   visit   to   La   Platosa   in   late   November   2012.     Its   report,   released   in   January   2013,   states   that   PROFEPA   “did   not   find   a   violation   of   environmental   law,”   did   not   find   any  irregularity  and  closes  the  proceeding.     The   PROFEPA   report   and   a   certified   translation   has   been   posted   in   the   “Community”   section   of   Excellon’s  website.     Who  is  ProDESC?     Proyecto  de  Derechos  Economicos,  Sociales  y  Culturales,  A.C.  (“ProDESC”)  is  an  NGO  group  based   in  Mexico  that  is  partially  funded  by  The  Solidarity  Center  AFL-­‐CIO  (an  umbrella  organization  for   US  labour  unions,  see  http://www.aflcio.org).     - 10 - The   following   statements   and   points   have   been   extracted   from   ProDESC’s   website.   Please   note:   immediately   subsequent   to   the   initial   publication   of   this   backgrounder,   ProDESC's   website   was   shut   down   and   revised.    The   following   link   provides   a   saved   version   of   ProDESC's   English   web   pages  as  of  August  20,  2012.    Shareholders  are  urged  to  visit  these  saved  screenshots  of  ProDESC's   website  to  view  ProDESC’s  mission  statement  and  operating  principles,  which  include  the  mission   to  ensure  well-­‐paying  salaries  for  the  NGO’s  employees  and  the  endorsement  of  illegal  means  to   achieve  their  targets  and  goals.         Strategic  Objectives     ProDESC  has  three  pillars  to  its  mission  statement,  the  third  of  which  is:     3.   to   consolidate   the   process   of   institutionalization   by   means   of   a   solid   funding   base,   professionalization  of  our  staff,  and  adequate  employment  and  administrative  policies.     Organization  Structure     ProDESC  professes  to  use  any  and  all  means  necessary  to  achieve  its  objectives:     Due   to   our   work   experience   and   adherence   to   the   main   characteristics   of   human   rights   (universality,   integrity,   inalienability,   conformity,   and   justiciability),   the   team   has   found   it  necessary  to  elaborate  integrated  defense  strategies  for  the  cases  we  handle.  Therefore,   ProDESC   recognizes   that   the   legal   process   is   one   important   tool   but   that   alone   it   does   not  solve  the  deeper  structural  causes  for  human  rights  violations.  For  this  reason,  ProDESC   considers   the   following   to   be   fundamental   characteristics   of   integral   defense:  Interdisciplinarity,   strategy,   and   inclusion   of   aspects   that   are   not   necessarily   legal.     Foundations  that  Support  ProDESC's  work     Among  others:     • The  Solidarity  Center  AFL-­‐CIO  –  (an  umbrella  organization  for  numerous  US  labour  unions,   see  http://www.aflcio.org)     Excellon   recognizes   the   important   role   that   NGOs   can   play   in   the   development   of   underserved   communities.     Indeed,   ProDESC   served   the   Ejido   well   by   negotiating   a   very   generous   agreement   for  the  property  in  2008.       Unfortunately,  the  following  realities  have  undermined  the  implementation  of  the  agreement:       • A  pillar  of  ProDESC’s  stated  mission  is  the  acquisition  of  funding  for  its  ongoing  operations   and  salaries  for  its  employees;   • ProDESC  receives  funding  and  support  from  a  United  States-­‐based  labour  union  umbrella   - 11 - • • • organization;   In   the   current   circumstance,   ProDESC   is   (professedly)   affiliated   with   a   labour   union   resolved  on  acquiring  control  of  the  La  Platosa  mine,  against  the  expressed  will  of  the  mine   workers  and  in  contravention  of  labour  laws  in  Mexico;   While  ProDESC’s  stated  ideology  may  be  noble  (when  not  at  the  service  of  labour  unions),   ProDESC  does  not  have:   o the   legal   expertise   necessary   to   negotiate   commercial   agreements   in   respect   of   the   trucking  and  cafeteria  concessions;   o the  business  acumen  necessary  to  found  the  small  business  enterprises  that  would   most  effectively  revitalize  the  local  Ejido  economy.   ProDESC’s   publicly   stated   mission   to   use   all   means   necessary,   whether   legal   or   illegal,   to   reach  its  goals.     The  following  are  the  direct  consequence  of  ProDESC’s  advice  and  actions:     • Adversely  impacting  the  human  rights,  dignity  and  the  right  to  earn  a  livelihood  of  over  500   Excellon  and  third  party  workers  and  380  families  in  the  area  of  the  La  Platosa  mine;   • Adversely  affecting  the  economies  of  communities  further  afield,  particularly  at  the  Miguel   Auza  mill,  where  50  further  jobs  depend  on  the  ore  mined  at  La  Platosa;   • Adversely  affecting  the  businesses  of  numerous  contractors  and  suppliers  in  Mexico;   • Causing  the  Company’s  declaration  of  force  majeure,  which  resulted  in  the  suspension  of   all  operations  from  July  8th  to  August  29th,  2012  threatened  to  suspend  the  employment  of   substantially   all   of   the   Company’s   employees   in   Mexico,   and   caused   the   Company   to   reconsider  its  future  operations  in  Mexico;   • Jeopardizing  and,  indeed,  seeking  to  terminate  all  future  annual  payments  by  the  Company   to  the  Ejido;     • Adversely   affecting   Excellon’s   share   price,   thereby   affecting   the   finances   of   Excellon’s   shareholders   (which   include   ProDESC’s   client,   the   Ejido,   holders   of   600,000   Excellon   shares).     OECD  Evaluation  and  Report     In   November   2012   the   Mexican   National   Contact   Point   of   the   OECD   published   its   decision   in   respect  of  certain  claims  made  against  Excellon  by  ProDESC  on  behalf  of  the  Ejido,  the  Los  Mineros   and  other  related  groups.         The  Mexican  NCP  determined  that  these  claims  did  not  justify  further  examination  based  on  the   OECD  guidelines  as  none  of  the  claims  had  been  proven  or  substantiated.       The   Mexican   NCP   consulted   various   regulatory   ministries   in   Mexico,   including   the Mexican   Ministry   of   the   Environment   and   Natural   Resources   (“SEMARNAT”),   the   National   Agrarian   Ministry,   the   National   Water   Commission   (“CONAGUA”)   and   the   Ministry   of   Labor   and   Social   Welfare   (“STPS”).     The   Mexican   NCP   noted   in   particular   the   following   statements   by   these   - 12 - regulators:     • CONAGUA:   “CONAGUA   does   not   perceive   that   the   company   has   incurred   in   any   sanctionable   activity;”  and   • STPS:  “the  matters  and  evidence  provided  by  the  complainants  do  not  prove  any  violation  to  the   [guidelines].”     The  Mexican  NCP  further  stated  that  “with  respect  to  the  negotiation  of  the  collective  bargaining   agreement  of  the  company,  the  facts  enable  us  to  determine  that  the  problem  is  essentially  of  an   intra-­‐union   nature   deriving   from   a   dispute   over   title   to   the   collective   bargaining   agreement   between  two  unions.”     The   OECD   decision   and   a   certified   translation   are   available   in   the   “Community”   section   of   Excellon’s  website.         Agrarian  Court  Proceedings     Considering  the  ongoing  nature  of  the  dispute  with  the  Ejido,  in  late  August  2012,  the  Company   filed  a  legal  action  for  damages  and  rescission  (i.e.,  termination)  of  the  surface  rights  agreement   with  the  Ejido.    Excellon’s  suit  seeks  damages  for  lost  profits,  the  return  of  rental  payments  for  the   period  of  lost  production  and  losses  of  market  capitalization.    A  few  days  subsequent  to  the  filing   of   Excellon’s   claim,   the   Ejido   filed   a   similar   claim.     The   Ejido’s   claim   alleges   that   Excellon   breached   the   surface   rights   agreement   and   included   demands   for   (i)   the   termination   of   the   surface   rights   agreement   (ii)   one   year’s   surface   rent   in   respect   of   such   termination   and   (iii)   55   million   pesos   (~Cdn.$4.4   million)   in   respect   of   alleged   damages.     Excellon   considers   the   Ejido’s   claim   to   be   entirely   baseless   and   a   response   to   the   Company’s   previously   filed   claim.     Excellon   intends   to   vigorously  defend  this  baseless  action.     Summary:     Excellon  remains  committed  to  operating  one  of  the  highest  paying  and  safest  mines  in  Mexico.    La   Platosa   has   transformed   the   local   community   and   has   delivered   income   growth   to   hundreds   of   direct  and  indirect  workers  and  families.    The  mine  is  operated  according  to  exacting  health  and   safety   standards,   as   recognized   by   government   health   and   safety   inspectors,   with   a   doctor,   ambulance   and   treatment   facility   on   site,   daily   health   and   safety   instructions   for   workers   and   a   training  facility  for  best  practices  in  health  and  safety.         Excellon  will  continue  working  with  local  communities  and  all  levels  of  government  in  Mexico  to   ensure   that   its   operations   contribute   to   the   livelihood   of   local   residents   and   meet   industry   best   practices  of  corporate  social  responsibility.