SOLITARIO ZINC CORP.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark
One)
X
Annual report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended
December
31, 2019
or
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the
transition period from
to
Commission
file number
001-32978
SOLITARIO ZINC CORP.
(Exact
name of registrant as specified in charter)
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Colorado
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84-1285791
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80033
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(State or other
jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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(Zip
Code)
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4251 Kipling St. Suite 390, Wheat Ridge,
CO
(Address of
principal executive offices)
Registrant's
telephone number, including area code
(303) 534-1030
(303) 534-1030
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Trading
symbol
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Name of
exchange on which registered
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Common Stock, $0.01 par value
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XPL
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NYSE American
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
YES
[ ] NO [X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
YES
[X] NO [ ]
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES
[X] NO [ ]
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
YES
[X] NO [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company" and “emerging growth company” in Rule 12b-2 of
the Exchange Act:
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Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [ ]
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Smaller
reporting company [X]
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Emerging
growth company [ ]
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.[ ]
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
YES [
] NO [X]
The
aggregate market value of the voting and non-voting common stock
held by non-affiliates of the registrant as of the last business
day of the registrant's most recently completed second fiscal
quarter, based upon the closing sale price of the registrant's
common stock on June 30, 2019 as reported on NYSE American, was
approximately $16,840,000.
There
were 58,133,066 shares of common stock, $0.01 par value,
outstanding on February 28, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the definitive Proxy Statement for the Registrant’s Annual
Meeting of Shareholders, which is expected to be filed by April 29,
2020, have been incorporated by reference into Part III of this
Annual Report on Form 10-K.
TABLE OF CONTENTS
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Page
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PART
1
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Item 1
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Business |
3
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Item 1A
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Risk Factors |
6
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Item 1B
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Unresolved Staff
Comments
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10
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Item 2
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Properties |
10
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Item 3
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Legal
Proceedings
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24
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Item 4
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Mine Safety
Disclosures
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24
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PART
II
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Item 5
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Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity
Securities
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25
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Item 6
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Selected Financial
Data
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27
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Item 7
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Management's
Discussion and Analysis of Financial Condition and
Results
of Operations
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28
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Item 7A
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Quantitative and
Qualitative Disclosures about Market Risk
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34
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Item 8
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Financial
Statements and Supplementary Data
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35
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Item 9
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Changes in and
Disagreements with Accountants on Accounting and
Financial
Disclosure
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Item 9A
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Controls and Procedures |
54
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Item 9B
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Other
Information
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54
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PART
III
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Item 10
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Directors,
Executive Officers and Corporate Governance
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55
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Item 11
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Executive
Compensation
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55
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Item 12
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Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters
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55
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Item 13
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Certain
Relationships and Related Transactions, and Director
Independence
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55
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Item 14
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Principal
Accounting Fees and Services
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55
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PART
IV
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Item 15
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Exhibits, Financial
Statement Schedules
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56
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Item 16
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Form 10-K
Summary
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56
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SIGNATURES
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57
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P
ART I
This
Annual Report on Form 10-K contains statements that constitute
"forward-looking statements" within the meaning of section 27A
of the Securities Act of 1933 and section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”). These statements can be identified by the fact that
they do not relate strictly to historical information and include
the words "expects", "believes", "anticipates", "plans", "may",
"will", "intend", "estimate", "continue" or other similar
expressions. These forward-looking statements are subject to
various risks and uncertainties that could cause actual results to
differ materially from those currently anticipated. These risks and
uncertainties include, but are not limited to, items discussed
below in Item 1A "Risk Factors" in this Form 10-K. Forward-looking
statements speak only as of the date made. We undertake no
obligation to publicly release or update forward-looking
statements, whether as a result of new information, future events
or otherwise. You are, however, advised to consult any further
disclosures we make on related subjects in our quarterly reports on
Form 10-Q and any current reports made on Form 8-K to the United
States Securities and Exchange Commission (the "SEC").
Business
and Company Formation
Solitario Zinc
Corp. (“Solitario” or the “Company”) is an
exploration stage company as defined in Industry Guide 7, as issued
by the SEC. Solitario was incorporated in the State of Colorado on
November 15, 1984 as a wholly owned subsidiary of Crown Resources
Corporation ("Crown"). In July 1994, Solitario became a publicly
traded company on the Toronto Stock Exchange (the "TSX") through
its initial public offering. Solitario has been actively involved
in mineral exploration since 1993. Solitario’s primary
business is to acquire exploration mineral properties and/or
discover economic deposits on its mineral properties and advance
these deposits, either on its own or through joint ventures, up to
the development stage of the project. At that point, or sometime
prior to that point, Solitario would likely attempt to sell its
mineral properties, pursue their development either on its own, or
through a joint venture with a partner that has expertise in mining
operations, or create a royalty with a third party that continues
to advance the property. Solitario has never developed a property.
Solitario’s primary focus is on the acquisition and
exploration of zinc-related exploration mineral properties.
However, Solitario evaluates and will potentially acquire other
base and precious metal properties and assets. In addition to
focusing on its mineral exploration properties and the evaluation
of mineral properties for acquisition, Solitario also evaluates
potential strategic transactions as a means to acquire and interest
in new precious and base metal properties and assets with
exploration potential or other potential corporate transactions
that Solitario determines to be favorable to
Solitario.
Solitario has
recorded revenue from the sale of mineral properties and assets,
including the sale of certain mineral royalties in January of 2019
and the sale in April of 2018 of its interest in the royalty on the
Yanacocha property, discussed below. Revenues from the sale or
joint venture of properties or assets, although significant when
they occur, have not been a consistent annual source of revenue and
would only occur in the future, if at all, on an infrequent
basis.
Solitario
currently considers its carried interest in the Florida Canyon
project in Peru and its interest in the Lik project in Alaska to be
its core mineral property assets. Nexa Resources, Ltd.
(“Nexa”), Solitario’s joint venture partner,
completed a 39-hole 17,033-meter drilling program at Florida Canyon
during 2019 (discussed below). Solitario is working with its 50%
joint venture partner, Teck American Inc., a wholly-owned
subsidiary of Teck Resources Limited (both companies are referred
to in this Annual Report as “Teck”) and completed a
limited exploration program at the Lik project during 2019
consisting of mapping, geophysical work, relogging of prior
drilling core and environmental evaluation.
As
of December 31, 2019, Solitario has significant balances of cash
and short-term investments that Solitario anticipates using, in
part, to further the development of the Florida Canyon and Lik
projects and to potentially acquire additional mineral property
assets. The fluctuations in precious metal and other commodity
prices contribute to a challenging environment for mineral
exploration and development, which has created opportunities as
well as challenges for the potential acquisition of early-stage and
advanced mineral exploration projects or other related assets at
potentially attractive terms.
Recent
Developments
On
January 22, 2019, Solitario completed the sale of its interest in
certain royalties to SilverStream SEZC, a private Cayman Island
royalty and streaming company (“SilverStream”), for
Cdn$600,000 (the “Royalty Sale”). The Royalty Sale
covered (i) a royalty on the formerly Solitario-owned 125,000-acre
polymetallic Pedra Branca palladium, platinum, gold, nickel, cobalt
and chrome project in Brazil, (ii) a royalty covering 3,880 acres
of non-producing exploration properties in Mexico, and (iii) a
purchase option on royalties covering 11 separate non-producing
properties covering over 16,500 acres in Montana. At closing of the
Royalty Sale, Solitario received Cdn$250,000 in cash and a
convertible note from SilverStream in the principal amount of
Cdn$350,000 (the “SilverStream Note”). The SilverStream
Note was originally due December 31, 2019, accrued 5% per annum
simple interest, payable on a quarterly basis, and is convertible
into common shares of SilverStream, at the discretion of
SilverStream, by providing Solitario a notice of conversion. In
December of 2019, Solitario and SilverStream agreed to extend the
due date of the SilverStream Note to June 30, 2020, and to increase
the interest rate to 8% per annum simple interest. All other terms
of the SilverStream Note remained the same. SilverStream may only
provide a notice of conversion if SilverStream has completed an
initial public offering during the term of the SilverStream Note
for minimum proceeds of Cdn$5,000,000, otherwise the SilverStream
Note will be payable in cash at the maturity date. Pursuant to the
terms of the SilverStream Note, if SilverStream were to complete an
initial public offering and the SilverStream Note was converted,
Solitario would receive common shares converted at 85% of the
weighted average quoted price of a share of SilverStream common
stock for the most recent 10-day period prior to the notice of
conversion
3
On
April 26, 2018 Solitario sold its royalty interest in the
non-producing Yanacocha property (the “Yanacocha
Royalty”) to a wholly owned subsidiary of Newmont Mining
Corporation (“Newmont”) for approximately $502,000 in
cash. The Yanacocha Royalty covered 43 concessions totaling 36,052
hectares. Newmont owns the underlying mineral concessions covered
by the Yanacocha Royalty. None of the concessions covered by the
Yanacocha Royalty have any reported reserves or resources.
Solitario had no mineral property capitalized cost in the Yanacocha
Royalty and recorded Mineral Property Revenue of $502,000 during
2018.
Corporate
Structure
Solitario
Zinc Corp. [Colorado]
- Zazu
Metals Corp. [Canada] (100%)
- Zazu
Metals (AK) Corp [Alaska] (100%)
- Lik
Project (50%)
-
Minera Chambara, S.A. [Peru] (85%)
-
Chambara Project
-
Minera Solitario Peru, S.A. [Peru] (100%)
-
Minera Bongará, S.A. [Peru] (39%)
-
Florida Canyon Project
-
Minera Soloco, S.A. [Peru] (100%)
Mineral
Exploration Properties
We hold
a 50% operating interest in the Lik zinc-lead-silver property in
Northwest Alaska, which is estimated to contain a large tonnage,
high-grade deposit potentially mineable by open-pit methods. Teck
is a 50% partner with Solitario in the Lik deposit, with Teck
acting as the project manager for 2018 and 2019. A Preliminary
Economic Assessment (“PEA”) was completed on the Lik
deposit in 2014.
Solitario also has
a 39% interest in the advanced, high-grade, Florida Canyon zinc
project located in northern Peru. The project has a significant
mineral resource and Solitario is fully carried to production by
its joint venture partner Nexa, formerly Votorantim Metais
Holdings, SA (“Votorantim”) and Compañía
Minera Milpo S.A.A. (“Milpo”). Solitario and Nexa
completed a PEA on the Florida Canyon deposit in August 2017. Nexa
is one of the largest zinc producers in Peru. Except for the
2018-2019 drilling program, discussed below, Nexa has funded 100%
of project expenditures since the inception of the Florida Canyon
joint venture in 2006. Nexa will earn a 70% interest in the project
by continuing to solely fund all project expenditures and
committing to place the project into production based upon a
positive feasibility study. After earning 70%, and at the request
of Solitario, Nexa has further agreed to finance Solitario's 30%
participating interest for construction. Solitario will repay the
loan facility through 50% of its net cash flow distributions from
the project.
In
August of 2018, Solitario agreed to fund a portion of a 2018
– 2019 drilling program at the Florida Canyon project.
Solitario funded $1,580,000 of the 39-hole 17,033-meter drilling
program, which was completed in the fourth quarter of 2019 (the
“Drilling Program”). The funding of the Drilling
Program will be treated as an advance on Solitario’s
commitment to fund 30% of any future construction and development
costs of Florida Canyon under the original joint venture agreement
discussed above. Accordingly, in the event the Florida Canyon
project is developed, which cannot be assured at this time, the
funds paid to Nexa under this agreement will reduce the amount of
Solitario’s obligation to fund 30% of future development
costs, and / or repay loans from Nexa for future development costs
at the Florida Canyon project. As of December 31, 2019, Solitario
has paid Nexa its entire funding commitment of $1,580,000, of which
$1,053,000 and $527,000, respectively, were charged to exploration
during 2019 and 2018.
At
December 31, 2019, Solitario also owns the La Promesa gold
exploration project. Solitario also holds an 85% interest in the
Chambara exploration project in Peru (Nexa holds the remaining
15%), and a 9.8% equity interest in Vendetta Mining Corp.
(“Vendetta”).
We
conduct exploration and property evaluation activities in Peru
either on our own using contract geologists, or through joint
ventures operated by our partners.
Our
exploration activities and those of our joint venture partners are
carried out on a property-by-property basis. These activities may
include prospecting, geologic mapping, sampling, geophysics and
drilling. When we determine that this work indicates a project may
not be economic or contain sufficient geologic or economic
potential, we may impair or completely write-off the property. A
significant factor in the success or failure of our activities is
the price of commodities. For example, when the price of zinc or
other commodities is down, we may determine that the value of our
mineral exploration properties decreases; however, during such down
markets it may also become easier and less expensive to locate and
acquire new mineral exploration properties.
4
We have
recorded revenue in the past from the sale of mineral properties
and assets, joint venture property payments and the sale of a
royalty on our formerly held Mt. Hamilton property. Proceeds from
the sale or joint venture of properties and royalty sales, although
potentially significant when they occur, have not been a consistent
source of cash and may only occur in the future, if at all, on an
infrequent basis. Accordingly, while we conduct exploration
activities on our projects, we need to maintain and replenish our
capital resources. Historically, we have met our need for capital
through (i) the sale of mineral property royalties to SilverStream
for $408,000 during 2019, (ii) the sale of our Yanacocha royalty to
Newmont for $502,000 during 2018; (iii) proceeds received from the
sale of our former Mt. Hamilton project in 2015; (iv) sales of our
shares of common stock of Vendetta and Kinross Gold Corporation
(“Kinross”); (v) borrowing in the form of short-term
margin debt secured by our investment in Kinross; (vi) borrowing
under long-term debt secured by our former Mt. Hamilton project
(vii) joint venture delay rental payments, including payments on
our Florida Canyon project; (viii) a royalty sale for $10,000,000
in 2012; (ix) issuances of common stock; (x) sales of covered call
options on our Kinross common stock; and (xi) interest on short
term Treasury Notes and Bank CDs. We have reduced our exposure to
the costs of our exploration activities through the use of joint
ventures.
We
operate in one segment: mineral exploration. We currently conduct
exploration activities in Peru and Alaska and evaluate properties
for potential acquisition and evaluation of strategic corporate
opportunities throughout North and South America. As of February
28, 2020, we had three full-time employees located in the United
States and no full-time employees outside of the United States. We
utilize contract managers, geologists, administrators and laborers
to execute our Latin American and North American project work and
acquisition evaluations.
A large
number of companies are engaged in the acquisition, exploration and
development of mineral properties, many of which have substantially
greater technical and financial resources than we have and,
accordingly, we may be at a disadvantage in being able to compete
effectively for the acquisition, exploration and development of
mineral properties. We are not aware of any single competitor or
group of competitors that dominate the exploration and development
of mineral properties. In acquiring mineral properties for
exploration and development, we rely on the experience, technical
expertise and knowledge of our employees, contractors and advisors,
which is limited by the size of our company compared to many of our
competitors who may have greater resources, including more
employees or employees with more specialized knowledge and
experience.
Governmental
Regulations
Mineral
development and exploration activities are subject to various
national, state/provincial, and local laws and regulations, which
govern prospecting, development, mining, production, exports,
taxes, labor standards, occupational health, waste disposal,
protection of the environment, mine safety, hazardous substances
and other matters. Similarly, if any of our properties
are developed and/or mined those activities are also subject to
significant governmental regulation and oversight. We are required
to obtain licenses, permits and other authorizations in order to
conduct our exploration programs.
Environmental
Regulations
Our
current and planned activities are subject to various national and
local laws and regulations governing protection of the environment.
These laws are continually changing and, in general, are becoming
more restrictive. We are required to conduct our operations in
compliance with applicable laws and regulations. Changes to current
local, state or federal laws and regulations in each jurisdiction
in which we conduct our exploration activities could, in the
future, require additional capital expenditures and increased
operating and/or reclamation costs. Although we are unable to
predict what additional legislation, if any, might be proposed or
enacted, additional regulatory requirements could impact the
economics of our projects. During 2019, we had no material
environmental incidents or non-compliance with any applicable
environmental regulations.
Financial
Information about Geographic Areas
Included in the
consolidated balance sheets at December 31, 2019 and 2018, are
total assets of $59,000 and $416,000, respectively, related to
Solitario's operations located outside of the United
States.
Available
Information
We file
our Annual Report on Form 10-K, our quarterly reports on Form 10-Q,
current reports on Form 8-K, and any amendments to those reports
electronically with the SEC. The SEC maintains a website
(
http://www.sec.gov
)
that contains periodic reports, proxy and information statements
and other information regarding registrants, including the Company,
that file electronically with the SEC.
Paper
copies of our Annual Report to Shareholders, our Annual Report on
Form 10-K, our quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to those reports are available free of
charge by writing to Solitario at its address on the front of this
Form 10-K. In addition, electronic versions of the reports we file
with the SEC are available on our website,
www.solitarioxr.com
as soon as practicable, after filing with the SEC.
5
I
tem 1A.
Risk Factors
In
addition to considering the other information in this Form 10-K,
you should consider carefully the following factors. The risks
described below are the significant risks we face and include all
material risks of which we are aware. Additional risks not
presently known to us or risks that we currently consider
immaterial may also adversely affect our business.
Our mineral exploration activities involve a high degree of risk,
and a significant portion of our business model envisions the sale
or joint venture of mineral properties. If we are unable to sell or
joint venture these properties, the money spent on acquisition and
exploration of our mineral properties may never be recovered and we
could incur an impairment of our investments in our
projects.
The
exploration for mineral deposits involves significant financial and
other risks over an extended period of time. Few properties that
are explored are ultimately developed into producing mines. Major
expenditures are required to determine if any of our mineral
properties may have the potential to be commercially viable, be
salable or joint ventured. Prior to completion of the feasibility
study on our former Mt. Hamilton project, we had never established
reserves on any of our properties. Significant additional expense
and risks, including drilling and determining the feasibility of a
project, are required prior to the establishment of reserves. It is
impossible to ensure that the current or proposed exploration
programs on properties in which we have an interest will be
commercially viable or that we will be able to sell, joint venture
or develop our properties. Whether a mineral deposit will be
commercially viable depends on a number of factors, some of which
are the particular attributes of the deposit, such as its size and
grade, costs and efficiency of the recovery methods that can be
employed, proximity to infrastructure, commodity prices, financing
costs and governmental regulations, including regulations relating
to prices, taxes, royalties, infrastructure, land use, importing
and exporting of mineral products and environmental
protection.
We
believe the data obtained from our own exploration activities or
our partners' activities to be reliable; however, the nature of
exploration of mineral properties and analysis of geological
information is often subjective, and data and conclusions are
subject to uncertainty. Even if exploration activities determine
that a project is commercially viable, it is impossible to ensure
that such determination will result in a profitable sale of the
project or development either on our own or by a joint venture in
the future and that such project will result in profitable
commercial mining operations. If we determine that capitalized
costs associated with any of our mineral interests are not likely
to be recovered, we would incur an impairment of our investment in
such property interest. All of these factors may result in losses
in relation to amounts spent, which are not recoverable. We have
experienced losses of this type from time to time in the past and
may record mineral property impairments in the future.
We have no reported proven and probable mineral reserves, and our
current projects and any projects we may acquire are not likely to
offer the opportunity for near term revenues or sale proceeds. If
we are unsuccessful in identifying mineral reserves in the future,
we may not be able to realize any profit from our property
interests.
None of
our current projects have reported proven and probable mineral
reserves as those terms are used in SEC Guide 7. Any mineral
reserves on these projects will only come from extensive additional
exploration, engineering and evaluation of existing or future
mineral properties. The lack of reserves on these mineral
properties could prohibit us from any near-term sale or joint
venture of our mineral properties and we would not be able to
realize any proceeds and or profit from our interests in such
mineral properties, which could materially adversely affect our
financial position or results of operations.
Mineral exploration activities are inherently dangerous and could
cause us to incur significant unexpected costs, including legal
liability for loss of life, damage to property and environmental
damage, any of which could materially adversely affect our
financial position or results of operations.
Mining
exploration operations are subject to the hazards and risks
normally related to exploration of a mineral deposit, including,
but not limited to mapping and sampling, drilling, road building,
trenching, assaying and analyzing rock samples, transportation over
primitive roads or via small contract aircraft or helicopters and
severe weather conditions. Any of the hazards of mining exploration
could result in damage to life or property, environmental damage
and possible legal liability for such damage. Any of these risks
could cause us to incur significant unexpected costs that could
have a material adverse effect on our financial condition and
ability to finance our exploration and development
activities.
We have a history of losses and if we do not operate profitably in
the future it could have a material adverse effect on our financial
position or results of operations and the trading price of our
common stock would likely decline.
We have
reported losses in 23 of our 26 years of operations. We can provide
no assurance that we will be able to operate profitably in the
future or begin to generate significant and consistent sources of
revenues or cash flows from operations. We have had net income in
only three years in our history; during 2015, as a result of the
sale of our former Mt. Hamilton project, during 2003, as a result
of a $5,438,000 gain on a derivative instrument related to our
investment in certain Crown warrants and during 2000, when we sold
our former Yanacocha property. We cannot predict when, if ever, we
will be profitable again or able to begin generating consistent
revenues or cash flows from our operations or assets. If we do not
operate profitably or identify and execute on outside sources of
funding, we may be unable to fund our current or contemplated
exploration activities, acquire new assets, or otherwise further
our business plan.
Our operations outside of the United States of America may be
adversely affected by factors outside of our control, such as
changing political, local and economic conditions, any of which
could materially adversely affect our financial position or results
of operations.
Our
mineral properties located in Latin America consist primarily of
mineral concessions granted by national governmental agencies and
are held 100% by us or in conjunction with our joint venture
partners, or under lease, option or purchase agreements. Certain of
our mineral properties are located in Peru and we have previously
held royalties on non-producing exploration properties in Mexico,
Brazil and Montana (U.S.) through January 22, 2019 when they were
sold. We have acted as operator on all of our mineral properties or
assets that are not held in joint ventures or are royalty
interests. The success of projects held under joint ventures or
royalty interests that are not operated by us are substantially
dependent on the joint venture partner, over which we have limited
or no control.
6
Our
current exploration activities, mineral properties and royalties
located outside of the United States are subject to the laws of
Peru and any other countries in which we may conduct business.
Exploration and potential development activities in other countries
we may conduct exploration are potentially subject to political and
economic risks, including:
●
cancellation
or renegotiation of contracts;
●
disadvantages
of competing against
companies from countries that are not subject to US laws and
regulations, including the U.S. Foreign Corrupt Practices Act
(“FCPA”);
●
changes in foreign laws or
regulations;
●
changes in tax laws;
●
royalty and tax increases or claims by
governmental entities, including retroactive claims;
●
expropriation or nationalization of
property;
●
currency fluctuations (particularly
related to a change in the U.S. dollar compared to local
currencies);
●
foreign
exchange
controls;
●
restrictions on the ability for us to hold
U.S. dollars or other foreign currencies in offshore bank
accounts;
●
import and export
regulations;
●
environmental
controls;
●
risks
of loss due to community
opposition to our activities, civil strife, acts of war, guerrilla
activities, insurrection and terrorism; and
●
other risks arising out of foreign
sovereignty over the areas in which our exploration activities
are conducted.
Accordingly, our
current exploration activities outside of the United States may be
substantially affected by factors beyond our control, any of which
could materially adversely affect the value of certain of our
assets or results of operations. Furthermore, in the event of a
dispute arising from such activities, we would likely be subject to
the exclusive jurisdiction of courts outside of the United States
or may not be successful in subjecting persons to the jurisdictions
of the courts in the United States, which could adversely affect
the outcome of a dispute.
We may not have sufficient funding for exploration and development,
which may impair our results of operations and growth
potential.
The
capital required for exploration and development of mineral
properties is substantial. In the past we have financed operations
through the sale of interests in mineral properties, including the
sale of our former Mt. Hamilton project in 2015, the utilization of
joint venture arrangements with third parties (generally providing
that the third party will obtain a specified percentage of our
interest in a certain property or a subsidiary owning a property in
exchange for the expenditure of a specified amount), the sale of
other assets, the sale of marketable equity securities we hold,
funds from the issuance of long-term debt, and the issuance of
common stock. We may need to raise additional capital, or enter
into new joint venture arrangements, in order to fund our
obligations with respect to our properties and our exploration
activities required to determine whether mineral deposits on our
projects are commercially viable. New financing or acceptable joint
venture partners may or may not be available on a basis that is
acceptable to us. The inability to obtain new financing or joint
venture partners on acceptable terms may prohibit us from continued
development or exploration of our mineral properties. Without the
successful sale or future development of our mineral properties
through joint ventures, or on our own, we will not be able to
realize any profit from our interests in such properties, which
could have a material adverse effect on our financial position and
results of operations.
A large number of companies are engaged in the exploration and
development or sale of mineral properties, many of which have
substantially greater technical and financial resources than us
and, accordingly, we may be unable to compete effectively in this
sector of the mining industry which could have a material adverse
effect on our financial position or results of
operations.
We are
at a disadvantage with respect to many of our competitors in the
acquisition, exploration and development or sale of mining
projects. Our competitors with greater financial resources than us
are better able to withstand the uncertainties and fluctuations
associated with sustained downturns in the market and to acquire
high quality exploration and mining properties when market
conditions are favorable. In addition, we compete with other
companies in the mineral properties sector to attract and retain
key executives and other personnel with technical skills and
experience in the mineral exploration business. There can be no
assurance that we will continue to retain skilled and experienced
employees or to acquire additional exploration projects. The
realization of any of these risks from competitors could have a
material adverse effect on our financial position or results of
operations.
7
The title to our mineral properties may be defective or challenged
which could have a material adverse effect on our financial
position or results of operations.
In
connection with the acquisition of our mineral properties, we
conduct limited reviews of title and related matters, and obtain
certain representations regarding ownership. These limited reviews
and representations do not necessarily preclude third parties from
challenging our title and, furthermore, our title may be defective.
Consequently, there can be no assurance that we hold good and
marketable title to all of our mineral interests. Additionally, we
have to make annual filings to various government agencies on all
of our mineral properties. If we fail to make such filings, or
improperly document such filings, the validity of our title to a
mineral property could be lost or challenged. If any of our mineral
interests were challenged, we could incur significant costs in
defending such a challenge. These costs or an adverse ruling with
regards to any challenge of our titles could have a material
adverse effect on our financial position or results of
operations.
Our operations could be negatively affected by existing laws as
well as potential changes in laws and regulatory requirements to
which we are subject, including regulation of mineral exploration
and ownership, environmental regulations and taxation.
The
exploration and development of mineral properties is subject to
federal, state, provincial and local laws and regulations in the
countries in which they are located in a variety of ways, including
regulation of mineral exploration and land ownership, environmental
regulation and taxation. These laws and regulations, as well as
future interpretation of or changes to existing laws and
regulations, may require substantial increases in capital and
operating costs to us and delays, interruptions, or a termination
of operations.
In the
United States and the other countries in which we operate or own
assets, in order to obtain permits for exploration or potential
future development of mineral properties, environmental regulations
generally require a description of the existing environment,
including but not limited to natural, archeological and
socio-economic environments, at the project site and in the region;
an interpretation of the nature and magnitude of potential
environmental impacts that might result from such activities; and a
description and evaluation of the effectiveness of the operational
measures planned to mitigate the environmental impacts. Currently,
the expenditures to obtain exploration permits to conduct our
exploration activities are not material to our total exploration
cost.
The
laws and regulations in all the countries in which we operate or
own assets are continually changing and are generally becoming more
restrictive, especially environmental laws and regulations. As part
of our ongoing exploration activities, we have made expenditures to
comply with such laws and regulations, but such expenditures could
substantially increase our costs to achieve compliance in the
future. Delays in obtaining or failure to obtain government permits
and approvals or significant changes in regulation could have a
material adverse effect on our exploration activities, our ability
to locate economic mineral deposits, and our potential to sell,
joint venture or eventually develop our properties, which could
have a material adverse effect on our financial position or results
of operations.
Occurrence of events for which we are not insured may materially
adversely affect our business.
Mineral
exploration is subject to risks of human injury, environmental
liability and loss of assets. We maintain limited insurance
coverage to protect ourselves against certain risks related to loss
of assets for equipment in our operations and limited corporate
liability coverage; however, we have elected not to have insurance
for other risks because of the high premiums associated with
insuring those risks or for various other reasons including those
risks where insurance may not be available. There are additional
risks in connection with investments in parts of the world where
civil unrest, war, nationalist movements, political violence or
economic crisis are possible. These countries may also pose
heightened risks of expropriation of assets, business interruption,
increased taxation and a unilateral modification of concessions and
contracts. We do not maintain insurance against political risk.
Occurrence of events for which we are not insured could have a
material adverse effect on our financial position or results of
operations.
Severe weather or violent storms could materially affect our
operations due to damage or delays caused by such
weather.
Our
exploration activities are subject to normal seasonal weather
conditions that often hamper and may temporarily prevent
exploration or development activities. There is a risk that
unexpectedly harsh weather or violent storms could affect areas
where we conduct these activities. Delays or damage caused by
severe weather could materially affect our operations or our
financial position.
Our business is dependent on the market price of certain
commodities, particularly zinc, and currency exchange rates over
which we have no control.
Our
operations are significantly affected by changes in the market
price of commodities since the evaluation of whether a mineral
deposit is commercially viable is heavily dependent upon the market
price of the commodities related to any specific project. Because
our core assets are currently in zinc related projects, the spot
price of zinc is particularly important to the value of our assets
and future prospects. The price of commodities also affects the
value of exploration projects we own or may wish to acquire or
joint venture. These commodity prices fluctuate on a daily basis
and are affected by numerous factors beyond our control. The supply
and demand for commodities, the level of interest rates, the rate
of inflation, investment decisions by large holders of these
commodities, including governmental reserves, and stability of
exchange rates can all cause significant fluctuations in prices.
Currency exchange rates relative to the United States dollar can
affect the cost of doing business in a foreign country in United
States dollar terms, which is our functional currency.
Consequently, the cost of conducting exploration in the countries
where we operate, accounted for in United States dollars, can
fluctuate based upon changes in currency exchange rates and may be
higher than we anticipate in terms of United States dollars because
of a decrease in the relative strength of the United States dollar
to currencies of the countries where we operate. We currently do
not hedge against currency or commodity fluctuations. The prices of
commodities as well as currency exchange rates have fluctuated
widely and future significant price declines in commodities or
changes in currency exchange rates could have a material adverse
effect on our financial position or results of
operations.
8
Our business is dependent on key executives and the loss of any of
our key executives could adversely affect our business, future
operations and financial condition.
We are
dependent on the services of key executives, including our Chief
Executive Officer, Christopher E. Herald, our Chief Operating
Officer, Walter H. Hunt, and our Chief Financial Officer, James R.
Maronick. All of those officers have many years of experience and
an extensive background with Solitario and in the mining industry
in general. We may not be able to replace that experience and
knowledge with other individuals. We do not have "Key-Man" life
insurance policies on any of our key executives. The loss of these
persons or our inability to attract and retain additional highly
skilled employees may adversely affect our business, future
operations and financial condition.
Our business model relies significantly on other companies to joint
venture our projects and we anticipate continuing this practice in
the future. Therefore, our results are subject to the additional
risks associated with the financial condition, operational
expertise and corporate priorities of our joint venture
partners.
Our
Florida Canyon project and our Lik project are joint ventured with
other mining companies that manage the exploration and development
activities on the projects. We are the minority-interest party at
Florida Canyon and a 50% partner at the Lik project, where Teck is
the operator. Although our joint venture agreements provide certain
voting rights and other minority-interest safeguards, the majority
partner and/or operator not only manages operations, but controls
most decisions, including budgets and scope and pace of exploration
and development activities. Consequently, we are highly dependent
on the operational expertise and financial condition of our joint
venture partners, as well as their corporate priorities. For
instance, even though our joint venture property may be highly
prospective for exploration success, or economically viable based
on feasibility studies, our partner may decide to not fund the
further exploration or development of our project based on their
respective financial condition or other corporate priorities.
Therefore, our results are subject to the additional risks
associated with the financial condition, operational expertise and
corporate priorities of our joint venture partners, which could
have a material adverse effect on our financial position or results
of operations. Our Lik project requires unanimous consent by the
joint venture partners for annual budgets in excess of $1.0
million. Consequently, development of the project could be delayed
without the unanimous consent of both parties to certain proposed
actions or transactions.
We may look to joint venture with another mining company in the
future to develop and/or operate our current or future projects;
therefore, in the future, our results may become subject to
additional risks associated with development and production of our
foreign mining projects.
We are
not currently involved in mining development or operation at any of
our properties. In order to realize a profit from our mineral
interests we have to: (1) sell our properties or interests outright
at a profit; (2) form a joint venture for the project with a larger
mining company with greater resources, both technical and
financial, to further develop and/or operate a project; (3) develop
and operate such projects at a profit on our own; or (4) create and
retain a royalty interest in a property with a third party that
agrees to advance the property toward development and mining. In
the future, if our exploration results show sufficient promise in
one of our foreign projects, not currently under joint venture, we
may either look to form a joint venture with another mining company
to develop and/or operate our projects or sell the property
outright and retain partial ownership or a retained royalty based
on the success of such project. Therefore, in the future, our
results may become subject to the additional risks associated with
development and production of mining projects in
general.
In the future, we may attempt to acquire a new property, or another
company and the acquisition may require a substantial amount of
capital or the issuance of Solitario equity to complete.
Acquisition costs may never be recovered due to changing market
conditions, or our own miscalculation concerning the recoverability
of our acquisition investment. Such an occurrence could adversely
affect our business, future operations and financial
condition.
We have
evaluated a wide variety of acquisition opportunities involving
mineral properties and companies for acquisition and we anticipate
evaluating potential acquisition opportunities in the future. Some
of these opportunities may involve a substantial amount of capital
or the issuance of Solitario equity to successfully acquire. As
many of these opportunities do not have reliable feasibility-level
studies, we may have to rely on our own estimates for investment
analysis. Such estimates, by their very nature, contain substantial
uncertainty. In addition, economic assumptions, such as future
costs and commodity prices, also contain significant uncertainty.
Consequently, if we are successful in acquiring any new
opportunities and our estimates prove to be in error, either
through miscalculations or changing market conditions, this could
have a material adverse effect on our financial position or results
of operations.
The market for shares of our common stock has limited liquidity and
the market price of our common stock has fluctuated and may
decline.
An
investment in our common stock involves a high degree of risk. The
liquidity of our shares, or the ability of a shareholder to buy or
sell our common stock, may be significantly limited for various
unforeseeable periods. The average combined daily volume of our
shares traded on the NYSE American and the TSX during 2019 was
approximately 61,000 shares. The market price of our shares of
common stock has historically fluctuated within a wide range. The
price of our common stock may be affected by many factors,
including an adverse change in our business, a decline in the price
of zinc or other commodity prices, negative news on our projects,
negative investment sentiment for mining and commodity equities and
general economic trends.
A significant portion of our liquid assets consist of U.S.
Treasuries and cash held in brokerage and foreign bank accounts.
The failure of the financial institutions that issued or hold these
financial instruments or our cash could have a material adverse
impact on the market price of our common stock and our liquidity
and capital resources.
At
December 31, 2019, we have invested $6,829,000 in United States
Treasury securities, with maturities of between 30 days and 17
months and we have approximately $554,000 of our cash in uninsured
deposit accounts and brokerage accounts none of which are covered
by FDIC insurance. The failure of a financial institution holding
these funds and assets could have a material impact on the market
price of our common stock and our liquidity and capital
resources.
9
We are dependent upon information technology systems, which are
subject to disruption, damage, failure and risks associated with
implementation and integration.
We are
dependent upon information technology systems in the conduct of our
operations. Our information technology systems are subject to
disruption, damage or failure from a variety of sources, including,
without limitation, computer viruses, security breaches,
cyber-attacks, natural disasters and defects in
design. Cybersecurity incidents, in particular, are evolving
and include, but are not limited to, malicious software, attempts
to gain unauthorized access to data and other electronic security
breaches that could lead to disruptions in systems, unauthorized
release of confidential or otherwise protected information and the
corruption of data. Various measures have been implemented to
manage our risks related to information technology systems and
network disruptions. However, given the unpredictability of the
timing, nature and scope of information technology disruptions, we
could potentially be subject to operational delays, the
compromising of confidential or otherwise protected information,
destruction or corruption of data, security breaches, other
manipulation or improper use of our systems and networks or
financial losses from remedial actions, any of which could have a
material adverse effect on our cash flows, competitive position,
financial condition or results of operations.
Failure to comply with the FCPA could subject us to penalties and
other adverse consequences.
As a
Colorado corporation, we are subject to the FCPA and similar
worldwide anti-bribery laws, which generally prohibit United States
companies and their intermediaries from engaging in bribery or
other improper payments to foreign officials for the purpose of
obtaining or retaining business. Foreign companies, including some
that may compete with our company, are not subject to U.S. laws and
regulations, including the FCPA, and therefore our exploration,
development, production and mine closure activities are subject to
the disadvantage of competing against companies from countries that
are not subject to these prohibitions.
In
addition, we could be adversely affected by violations of the FCPA
and similar anti-bribery laws in other jurisdictions. Corruption,
extortion, bribery, pay-offs, theft and other fraudulent practices
may occur from time-to-time in the countries outside of the United
States in which we operate. Our mineral properties are located in
countries that may have experienced governmental corruption to some
degree and, in certain circumstances, strict compliance with
anti-bribery laws may conflict with local customs and practices.
Our policies mandate compliance with the FCPA and other
anti-bribery laws; however, we cannot assure you that our internal
controls and procedures always will protect us from the reckless or
criminal acts committed by our employees or agents. We can make no
assurance that our employees or other agents will not engage in
such conduct for which we might be held responsible. If our
employees or other agents are found to have engaged in such
practices or we are found to be liable for FCPA violations, we
could suffer severe criminal or civil penalties or other sanctions
and other consequences that may have a material adverse effect on
our business, financial condition and results of
operations.
I
tem 1B.
Unresolved Staff
Comments
None
I
tem 2.
Properties
Florida Canyon Zinc Project (Peru)
1.
Property Description and
Location
(Map of
Florida Canyon Property formerly Bongará)
On
August 15, 2006, Solitario signed a Letter Agreement with
Votorantim Metais Cajamarquilla, S.A., a wholly-owned subsidiary of
Votorantim (now known as Nexa) (both companies are referred to in
this Item 2 as "Nexa”) on Solitario's 100%-owned Florida
Canyon zinc project (formerly called the Bongará project), On
March 24, 2007, Solitario signed the Framework Agreement with
Votorantim for the Exploration and Potential Development of Mining
Properties, pursuant to, and replacing, the Florida Canyon Letter
Agreement. In 2015 Votorantim transferred its interest in the
Florida Canyon project to Compañía Minera Milpo S.A.A.
(“Milpo”), an 80%-owned affiliate of Votorantim. In
October of 2017, Milpo and Votorantim merged to form Nexa. Nexa
completed an IPO raising $570 million and listed on the NYSE under
the trading symbol NEXA and the TSX under the trading symbol NEXA.
For the remainder of this Florida Canyon property section, all
references to Votorantim, Milpo or Nexa will be collectively
referred to as Nexa.
The
Florida Canyon project consists of 16 concessions comprising 12,600
hectares of mineral rights originally granted to Minera
Bongará S.A., our subsidiary incorporated in Peru. The
property is located in the Department of Amazonas, northern Peru.
Solitario's and Nexa’s property interests are held through
the ownership of shares in Minera Bongará S.A., a joint
operating company that holds a 100% interest in the mineral rights
and other project assets. Solitario currently owns 39% of the
Florida Canyon project.
10
During
2015 Nexa completed the steps required to earn a 61% interest in
the Florida Canyon project, with Solitario retaining a 39%
interest. Nexa may earn an additional 9% interest (up to a 70%
shareholding interest) in Minera Bongará S.A., by sole-funding
future annual exploration and development expenditures until a
production decision is made. The option to earn the 70% interest
can be exercised by Nexa at any time by committing to place the
project into production based upon a completed feasibility study.
Nexa is the project manager. Once Nexa has committed to place the
project into production based upon a feasibility study, it has
further agreed to finance Solitario's 30% participating interest
until production with a loan facility from Nexa to Solitario.
Solitario will repay this loan facility through 50% of Solitario's
cash flow distributions from the joint operating company. Solitario
completed the funding of $1,580,000 of the Drilling Program during
2019. The paid funding of the Drilling Program will be treated as
an advance on Solitario’s commitment to fund 30% of any
future construction development costs of Florida Canyon under the
original joint venture agreement. Accordingly, in the event the
Florida Canyon project is developed, which cannot be assured at
this time, the funds paid to Nexa under this agreement will reduce
the amount of Solitario’s obligation to fund 30% of future
development costs, and / or repay loans from Nexa for future
development costs at the Florida Canyon project.
According to
Peruvian law, concessions may be held indefinitely, subject only to
payment of annual fees to the government. In June 2020, payments of
approximately $289,000 to the Peruvian government will be due in
order to maintain the Florida Canyon mineral rights of Minera
Bongará. Nexa is responsible for paying these costs as part of
its earn-in expenditures. Peru imposes a sliding scale royalty
varying from 1% to 12% of the operating profit of a mining
operation. The percentage royalty is determined by rule based on
the operating margin; however, the minimum royalty is 1% of the
revenues.
From
time to time Nexa may enter into surface rights agreements with
individual landowners or communities to provide access for
exploration work at the Florida Canyon project. Generally, these
are short-term agreements.
Environmental
permits are required for exploration and development projects in
Peru that involve drilling, road building or underground mining.
The requisite environmental and archeological studies were
completed for all past work, but new studies are required for
expanded activities planned for future years at the Florida Canyon
project. Although we believe that these permits will be obtained in
a timely fashion, the timing of government approval of permits
remains beyond our control.
2.
Accessibility, Climate,
Local Resources, Infrastructure and Physiology
The
Florida Canyon property is accessed from the coastal city of
Chiclayo by the paved Carretera Marginal road, which is a heavily
travelled paved national highway that passes approximately eight
kilometers south of the deposit. The nearest town to the project is
Pedro Ruiz located 15 kilometers southeast of the property. The
area of the majority of past drilling and the most prospective
mineralization, Florida Canyon, was previously inaccessible by
road, the work to date having been done by either foot or
helicopter access. Nexa has now completed approximately 30
kilometers of access road and Nexa is planning to complete the road
access to the mineralized area of the project in 2020. Nexa
maintains project field offices in Pedro Ruiz and a drill core
processing facility and operations office in the nearby community
of Shipasbamba.
The
project area elevation ranges between 1,800 and 3,200 meters above
sea level. The climate is tropical with an average annual
temperature of approximately 25
o
C. Mean annual
rainfall exceeds one meter with up to two meters in the cloud
forest at higher elevations. Most precipitation occurs during the
rainy season, between November and April. Field work is
considerably more difficult in the rainy season. Topography is
steep, consisting of prominent escarpments and deep valleys. Dense
jungle or forest vegetation covers the project area. With the
exception of the partially completed access road and approximately
700 meters of tunneling, no infrastructure facilities have been
constructed within the project area.
3.
History
We
discovered the Florida Canyon mineralized zone of the Florida
Canyon Project in 1996. Subsequently, we joint ventured the
property in December 1996 to Cominco (now Teck). Cominco drilled 80
core holes from 1997-2000. Cominco withdrew from the joint venture
in February 2001, and Solitario retained its 100% interest in the
project. We maintained the claims from 2001 to 2006, until the
Florida Canyon Letter Agreement was signed. Nexa conducted surface
drilling on an annual basis from 2006 to 2013 and from 2018 to
2019, and underground tunneling and drilling from 2010 to 2013. All
significant work on the property has been conducted by our joint
venture partners, Cominco and Nexa and, is described below in
Section 5, “Prior Exploration.”
4.
Geological
Setting
The
project is located within an extensive belt of Mesozoic carbonate
rocks belonging to the Upper Triassic to Lower Jurassic Pucará
Group and equivalents. This belt extends through the central and
eastern extent of the Peruvian Andes for nearly 1000 km and is the
host for many polymetallic and base metal vein and replacement
deposits in the Peruvian Mineral Belt. Among these is the San
Vicente Mississippi Valley Type (“MVT”) zinc-lead
deposit that has many similarities to the Florida Canyon deposit
and other MVT occurrences in the Project area.
The
geology of the Florida Canyon area is relatively simple consisting
of a sequence of Jurassic and Triassic clastic and carbonate rocks
which are gently deformed into a broad northwesterly trending domal
anticline. The MVT zinc-lead mineralization occurs in the carbonate
facies of the Chambara (rock) Formation. This domal anticline is
cut on the west by the Sam Fault and to the east by the
Tesoro-Florida Fault.
11
5.
Prior
Exploration
We
conducted a regional stream sediment survey and reconnaissance
geological surveys leading to the discovery of the Florida Canyon
area in 1996. The discovered outcropping mineralization is located
in two deeply incised canyons within the limestone
stratigraphy.
Subsequent to our
initial work, Cominco conducted extensive mapping, soil and rock
sampling, stream sediment surveys and drilling. This work was
designed to determine the extent and grade of the zinc-lead
mineralization, the controls of mineral deposition and to identify
areas of potential new mineralization. Nexa began work in the fall
of 2006 and drilled annually from 2006 through 2013. Underground
exploration operations were conducted from 2011-2013. Since 2013
the most important work conducted consisted of continued access
road construction and metallurgical testing. All work performed by
us, Cominco, and Nexa was done by direct employees of the
respective companies with the exception of the drilling,
underground tunneling, helicopter services and road building, all
of which were performed by third-party contractors under the
direction of Cominco and Nexa.
6.
Mineralization
Mineralization
occurs as massive to semi-massive replacements of sphalerite and
galena localized by specific sedimentary facies (rock strata)
within the limestone stratigraphy and by structural feeders and
karst breccias. More than three-quarters of mineralization is
sulfide-dominant with the remainder being oxide-dominant. A total
of 11 preferred beds for replacement mineralization have been
located within the middle unit of the Chambara Formation.
Mineralization is associated with the conversion of limestone to
dolomite, which creates porosity and permeability within the rock
formations. It is believed that mineralizing fluids passed through
structurally controlled vertical feeder zones and into adjacent
near-horizontal rock formations to produce mineralized vertical
replacement bodies and stratigraphically controlled near-horizontal
manto deposits. Drilling of stratigraphic targets has shown that
certain coarser-grained facies of the stratigraphy are the best
hosts for manto mineralization. Stratigraphically controlled
mineralization is typically one to several meters in thickness, but
often attains thicknesses of five to ten meters.
Karst
features are localized along the feeder faults and locally produce
"breakout zones" where mineralization may extend vertically across
thick stratigraphic intervals where collapse breccias have been
replaced by ore minerals. Mineralized karst structures are up to 50
meters in width (horizontal), up to 100 meters vertically, and up
to hundreds of meters along strike.
Evidence for these
breakout zones is provided by the following drill holes from
various locations on the property:
|
BreakoutZone
Name
|
Drill
HoleNumber
|
Intercepts(meters)
|
Zinc%
|
Lead%
|
Zinc+Lead%
|
|
Sam
|
GC-17FC-23
|
58.881.5
|
12.04.8
|
2.80.8
|
14.85.6
|
|
Karen
|
A-1
|
36.2
|
12.8
|
2.7
|
15.5
|
|
V-1021
|
V-21
|
92.0
|
5.5
|
1.7
|
7.2
|
|
South
Zone
|
V-44V-169
|
28.351.6
|
15.27.1
|
0.80.7
|
16.07.8
|
|
San
Jorge
|
V-297
|
56.6
|
22.69
|
1.15
|
23.84
|
Dolomitization
reaches stratigraphic thicknesses in excess of 100 meters locally.
This alteration is thought to be related to the mineralizing event
and is an important exploration tool. Continuity of the
mineralization is demonstrable in areas of highest drilling density
by correlation of mineralization within characteristic sedimentary
facies, typical of specific stratigraphic intervals or within
through-going observable structural zones in drill core. At Florida
Canyon the high-angle mineralization occurs along well-defined
northwest and northeast fracture systems. These structures occur in
conjugate fractures, with N10º-50ºE trends present at a
number of mineralized surface outcrops while trends of
N50º-80ºW are identified at other showings.
7.
Drilling
From
1997 through 2001, Cominco drilled 80 surface core holes totaling
24,696 meters. From 2006-2013, Nexa completed 309 surface core
holes totaling 77,193 meters. From 2011-2013, Nexa completed 95
underground core holes totaling 15,144 meters. The underground
drilling was conducted from 10 drill stations at generally 40-meter
centers (two drill stations at 20-meter centers) and entirely
within the San Jorge mineralized zone. Anywhere from three to 14
holes were drilled from each of the ten drill stations. The
underground drilling was tightly spaced and designed to allow for
feasibility-level reserve estimation.
From
November 2018 to October 2019, Nexa completed a 39-hole,
17,033-meter core drilling program. The majority of holes were
drilled 2019. The program had three major objectives: 1) extend the
San Jorge near-vertical replacement body to the south and the
adjacent near-horizontal manto bodies to the east; 2) offset
previously drilled hole V-21 in the northern part of Florida Canyon
to determine if it represented a significant near-vertical
replacement body with horizontal mantos similar to the San Jorge
Zone; and 3) extend horizontal mantos in the central and northern
parts of the Florida Canyon drilling footprint. All three
objectives were successfully achieved.
12
All
past drilling conducted is within a footprint measuring
approximately 2.5 kilometers long in a north-south direction and a
little over a kilometer in an east-west direction. The entire drill
pattern is within what we have informally labeled the Florida
Canyon district. Within this district, several zones of strong zinc
mineralization have been defined. The two zones with the largest
amount of drilling are the San Jorge and the Karen-Milagros zones.
We believe that additional detailed drilling of the newly
delineated 1021 zone in the northern part of the Florida Canyon
district has potential to add significant new resources. Drilling
indicates that, for the most part, the entire Florida Canyon
district remains open to expansion and the identified zones are
interconnected. Better 2018-2019 drill-hole intercepts are provided
in the table below:
|
2018-2019
Mineralized Intersections
|
||||||
|
Drill
Hole
|
|
Intercept
|
Zinc
|
Lead
|
Silver
|
ZnEq*
|
|
Number
|
|
Meters
|
(%)
|
(%)
|
(grams/t)
|
(%)
|
|
PEBGD-03
|
|
1.3
|
42.7
|
15.0
|
83.0
|
56.9
|
|
PEBGD-04
|
|
1.3
|
40.5
|
0.0
|
4.8
|
40.6
|
|
PEBGD-08
|
|
4.4
|
16.8
|
1.1
|
32.1
|
18.3
|
|
PEBGD-10
|
|
48.9
|
5.2
|
1.0
|
11.5
|
6.2
|
|
including
|
|
17.5
|
11.3
|
2.2
|
25.4
|
13.7
|
|
PEBGD-15
|
|
12.4
|
14.9
|
0.0
|
8.9
|
15.1
|
|
PEBGD-24
|
|
4.1
|
18.6
|
0.9
|
5.7
|
19.5
|
|
PEBGD-25
|
|
6.3
|
7.7
|
0.5
|
3.2
|
8.2
|
|
and
|
|
8.8
|
5.2
|
1.5
|
18.1
|
6.9
|
|
PEBGD-30
|
|
6.7
|
18.4
|
0.0
|
10.6
|
18.7
|
|
PEBGD-31
|
|
7.4
|
11.3
|
1.7
|
14.5
|
13.1
|
|
PEBGD-32
|
|
9.3
|
23.5
|
2.8
|
18.1
|
26.5
|
|
PEBGD-33
|
|
9.9
|
5.9
|
1.6
|
12.9
|
7.7
|
|
PEBGD-36
|
|
6.1
|
20.1
|
5.6
|
42.4
|
25.6
|
|
and
|
|
1.8
|
35.2
|
0.5
|
69.7
|
37.1
|
|
PEBGD-38
|
|
9.7
|
22.8
|
0.2
|
11.8
|
23.2
|
|
PEBGD-39
|
|
3.3
|
37.7
|
9.6
|
65.5
|
47.1
|
*Zn-Eq
was calculated using the following price assumptions: Zn=$1.10/lb.,
Pb=$0.91lb., Ag=$16.50/oz.
Reported intervals
are estimated to be at least 80% of the true thickness
Numbers
in this table may not add exactly as numbers have been rounded to
the nearest decimal
8.
Sampling, Analysis and
Security of Samples
Core
samples were transported from the drill by helicopter in sealed
boxes to the processing facility in Shipasbamba where they were cut
with a diamond saw. Half of the core was taken of intervals
selected according to geologic criteria under the supervision of
the geologist in charge and shipped in sealed bags by land. Cominco
used SGS Laboratories and Nexa used ALS-Chemex, both in Lima, Peru,
where all samples were analyzed by ICP. Any samples that contained
greater than 1% zinc were then analyzed by wet chemistry assay for
zinc and lead to provide a more accurate analysis of
grade.
Since
2006, Nexa has been in control of all field activities on the
project and is responsible for the security of samples. Nexa has
indicated that there have been no breaches in the security of the
samples. We have reviewed and engaged SRK Consulting (USA) Inc.
(“SRK”) (a large independent international mining
engineering firm) to review Nexa’s sampling procedures and
believe that adequate procedures are in place to ensure the future
security and integrity of samples. No breaches of security of
samples are known to have occurred prior to Nexa’s work on
the project.
13
9.
Prefeasibility
Studies
Nexa,
either through its engineering staff or contracted independent
mining engineering firms, has conducted prefeasibility-level
studies to provide estimates of deposit size and grade, mining and
processing recoveries, sizing of appropriate scale of operations,
infrastructure design, and capital and operating cost estimates at
a level of detail varying from preliminary economic assessment to
prefeasibility levels. These studies were generally performed
between 2007 and 2014.
Solitario and Nexa
jointly completed a PEA for the entire project in 2017 that
incorporated a variety of Nexa-generated studies into the analysis.
The PEA evaluation included resource estimation, mining and
processing recovery estimates, a preliminary mining and processing
plan, infrastructure layout, environmental considerations and an
economic analysis based on certain base case parameters. The PEA
envisioned an underground mining operation with a 2,500 tonne per
day floatation mill for processing, resulting in a 12.5-year mine
life. It was assumed that concentrates would be trucked to
Nexa’s Cajamarquilla zinc smelter facility in Lima
Peru.
Metallurgical
testing to evaluate metal recoveries and various processing options
for mineralized material at Florida Canyon was conducted in 2010,
2011 and 2014. Tests to date on composited samples indicate zinc
recoveries of 91.8% and lead recoveries of 81.9% in the San Jorge
zone and zinc recoveries of 80.3% and lead recoveries of 71.7% in
the Karen-Milagros zone. These recoveries represent averages for
each zone based on sulfide dominant mineralization, but oxide
material was present in the tested samples. Nexa also conducted a
comprehensive geochemical testing program that demonstrated that
zinc (and lead) recoveries were significantly affected by the
Zn-sulfide/Zn-oxide ratio of mineralization. In general,
mineralized material with greater than an 80% ratio of
Zn-sulfide/Zn-oxide, recoveries are greater than 90% for Zn.
Conversely, for mineralized material, with less than a 20% ratio of
Zn-sulfide/Zn-oxide, recoveries are approximately 40% for Zn.
Although sulfide recoveries achieved to date are very good, SRK
suggests that optimization of processing and metallurgical
parameters may result in improved recoveries and concentrate
grade.
Other
prefeasibility work completed by Nexa included drilling 16 diamond
core holes in 2013 to evaluate geotechnical and hydrological
parameters of the mineralized areas for both engineering and
environmental purposes. In 2016, Nexa completed a
geochemical/metallurgical study that more accurately defined the
distribution of sulfide/oxide mineralization based on re-assaying
of nearly all past drill-hole samples. This information was
critical in resource estimation and accurately estimating metal
recoveries.
The
2017 Florida Canyon Project PEA was completed by SRK on behalf of
Nexa and Solitario in August of 2017. The NI 43-101 compliant study
entitled: “
Technical Report,
Preliminary Economic Assessment, Florida Canyon Zinc
Project,
Amazonas Department, Peru; Effective Date: July 13, 2017, Report
Date: August 3, 2017
;” can be found in the
Company’s Canadian Sedar filings and is furnished in the
Company’s U.S. Edgar filings.
10.
Reserves and
Resources
There
are no reported mineral reserves.
11.
Mining
Operations
No
commercial mining operations to recover metals have occurred on the
project. However, in September 2010 Nexa initiated an underground
tunneling program to access mineralization and completed its
underground work in 2013. As of December 31, 2019, 700 meters of
tunneling were completed.
12.
Planned Exploration and
Development
Nexa is
currently working on a new NI-43101 compliant resource estimate
incorporating the 2018-2019 drill hole assay results. This new
estimate is expected to be completed by the end of the first
quarter of 2020. Nexa is also planning to permit 84 new drilling
platforms and associated interconnecting roads scattered over an
area approximately six kilometers by five kilometers in 2020. These
proposed platforms are located immediately south and southeast of
the current Florida Canyon drilling footprint. Permitting is
expected to take approximately one year. Drilling may be possible
for the 2021 field season, depending upon the grant of permits and
funding approvals by Nexa. Nexa is also planning to conduct a new
metallurgical study beginning in the second quarter of 2020. This
study is expected to be completed in the second quarter of 2020. In
addition, Nexa plans to conduct additional road construction in
2020 to access local communities as part of their social commitment
to these communities.
14
Lik Project (Alaska)
1.
Property Description and
Location
(Map of
Lik Property) Lik.jpg
The Lik
property consists of 47 contiguous Alaska state mining claims. The
contiguous claims have been grouped together for the purpose of
working and operating under a common plan of development for the
benefit of all of the claims. The claims cover an area of
approximately 6,075 acres (2,460 ha). The claims are located in the
southwestern DeLong Mountains in the Wulik River
drainage.
To
retain the state claims, the Company is required to make annual
rental payments to the State of Alaska. The estimated rental
payments for 2020 are $7,000. Property holders are also required to
perform assessment work with the amount dependent on the area of
the State claims. Excess assessment expenditure credits may be
carried forward for a maximum of four years. If required, payments
may be made in lieu of work to allow retention of the property for
a period of five consecutive years. The geographical coordinates of
the Lik deposit are approximately 163
o
12’ W and
68
o
10’ N. The figure above illustrates the location of the Lik
property.
15
2.
Acquisition History and
Joint Venture Arrangement
Solitario acquired
its 50% interest in the Lik property from the acquisition of Zazu
Metals Corp (“Zazu”) on July 12, 2017. As a result of
the Acquisition, Zazu became a wholly owned subsidiary of
Solitario. Prior to that, Zazu acquired its 50% interest in the Lik
property from GCO Minerals Company, a wholly owned subsidiary of
the International Paper Company (“GCO”), on June 28,
2007 by making a cash payment to GCO of $20,000,000 and granting
GCO a 2% net proceeds interest. GCO also owns an additional 1% net
profits interest in the Lik property from a 1997
agreement.
The
Company is participating in the exploration and possible
development of the Lik property through a joint venture with Teck
American Incorporated (50%), a wholly owned subsidiary of Teck
Resources Limited (collectively “Teck”). The terms of
the joint venture were governed by the Lik Block Agreement, made as
of January 27, 1983, between Houston Oil & Minerals Exploration
Company (“HOMEX”) and GCO. HOMEX assigned its interest
in the Lik Block Agreement to Echo Bay Mines Ltd., which, in turn,
assigned such interest to Teck.
Under
the terms of the Lik Block Agreement, GCO held a 50% interest, and
the right to increase its interest to up to 80% provided that GCO
met an inflation-adjusted work commitment. The required expenditure
amount was originally $25 million when defined in 1983 and
increased with inflation indexing and escalations to approximately
$43 million at the time Solitario acquired Zazu. As of January 27,
2018, we estimated that approximately $22 million had been incurred
towards the inflation adjusted $43 million expenditure required to
earn an additional 30% interest in the property.
As the
Company did not spend the full inflation-adjusted expenditure
amount by January 27, 2018, the Lik Block Agreement terminated.
Consequently, as of December 31, 2019, Teck retains its 50%
participating interest in the Lik property, and Teck and Solitario
are negotiating a new a joint operating agreement that will govern
all further operations relating to the Lik property. We anticipate
that under such joint operating agreement, Solitario, as successor
to GCO, may be the operator and may have full and exclusive control
of the Lik property, its facilities and production as well as the
exploration, development and mining undertaken pursuant to the Lik
Block Agreement. The current agreement requires unanimous approval
by the parties for annual expenditures in excess of $1 million. In
July 2018, the Company and Teck signed a Joint Exploration
Agreement (“JEA”) whereby both parties agreed to fund a
surface exploration program on a 50%-50% basis for 2018. In January
2019, the Company and Teck signed an Addendum to extend the JEA to
January 31, 2020. However, pending the completion of a new joint
operating agreement, an extension to the JEA is expected to be
signed prior to the end of the first quarter 2020 to further extend
the terms of the JEA into early 2021 to provide for the planned
2020 exploration program on the project. Teck was designated the
operator for only the 2019 and 2018 programs and is expected to be
the designated operator under the planned extensions of the JEA
only for the upcoming 2020 program.
3.
Accessibility, Climate,
Local Resources, Infrastructure and Physiology
Access
to the Lik property is by air to a gravel surfaced airstrip located
on the property. The airstrip is capable of handling multi-engine
cargo planes. Charter flights may be arranged from a number of
sites in northwestern Alaska. The town of Kotzebue, which is
located about 90 miles from the deposit, is a seaport with
commercial air service from Anchorage. Kotzebue is the center for
access to the nearby Red Dog mine operated by Teck.
The
nearest location for which climatic data is available is the town
of Kotzebue. The average annual temperature at Kotzebue is
21.6
o
F,
with seasonal extremes ranging between 77
o
F in summer to
-58
o
F in
winter. There is an average of nine inches of rain and 47 inches of
snowfall per year. Snow falls are not extreme but blowing snow may
form significant drifts. Strong winds are common in most parts of
Alaska. Diamond drilling is possible at the Lik property between
June and October.
The
exposures of mineralization at the Lik property are located at
about 800 feet above sea level. West of the deposit, the land rises
steeply to peaks about 2,300 feet above sea level. To the
southeast, the land slopes down to the Wulik River where the bottom
of the valley is about 700 feet above sea level. There is
sufficient space for tailings and waste rock disposal, and
sufficient water is expected to be available for any proposed
processing. Locally, there is vegetation on the property consisting
of tundra grasses and low brush made up of willow, dwarf birch, and
alder.
There
is a camp located on the Lik property. The camp has been used
periodically over the last twelve years and was substantially
refurbished as a part the 2007 and 2008 field programs. The supply
of electric power and workforce accommodation will have to be
developed. There are no local resources adjacent to the Lik
property. The Red Dog mine, operated by Teck, is located about 13.6
miles southeast of the deposit. Potentially, concentrates could be
moved along the access road from the Red Dog mine to the port on
the Chukchi Sea. The port has a shipping season in excess of
100 days.
Zazu
entered into an agreement with Alaska Industrial Development and
Export Agency (“AIDEA”) to enable AIDEA to begin due
diligence on the proposed expansion of the port and the Red Dog
road, the Delong Mountain Transportation System
(“DMTS”), to potentially handle Lik concentrates.
AIDEA, as owners of the DMTS, evaluated their possible role in the
two parts of the proposed expansion project: the financing of a
spur road connecting the Lik project to the DMTS, and the financing
of any required modifications at the port. The DMTS is open to
multiple users such as the Company. The studied expansion would
facilitate both the development of the Lik project and handle
future concentrate production from the project. The DMTS road and
port system currently handles all concentrate produced by the Red
Dog zinc mine of Teck. Prior to the AIDEA agreement, Zazu received
a letter of Non-Objection from the Northwest Arctic Borough
(“NWAB”). In this letter, the NWAB formally
acknowledged its awareness of the Lik project, and that NWAB had no
objection to the project.
In
January 2015, AIDEA announced the completion of its study into
capacity availability in its DMTS. The report concluded that there
is sufficient excess capacity for the Company’s concentrate
shipping needs, confirming the assumptions made in Zazu's 2014 PEA.
This study aimed to closely identify the outputs of both Lik and
Red Dog, if any modifications are required to the DMTS to support
them, and if so, their potential cost. The study concluded that
sufficient handling capacity will exist with only minor
modifications required to accommodate future planned production
from Lik under the analyzed PEA scenario.
16
4.
History
The Red
Dog ore deposit was originally discovered in 1970 by a geologist
undertaking mapping in the De Long Mountains area on behalf of the
United States Geological Survey. GCO, in joint venture with New
Jersey Zinc Company and WGM Inc., carried out stream geochemical
sampling and reconnaissance for color anomalies. Claims were staked
in July 1976 to cover a stream geochemical anomaly on Lik Creek.
HOMEX replaced New Jersey Zinc Company in the joint venture in
1976/1977.
Diamond
drilling on the Lik property commenced in 1977 and targeted a
gossan with a coincident soil and electromagnetic anomaly. The
first hole encountered massive lead-zinc-silver-bearing sulfides.
By the end of 1977, the joint venture had completed 25 line-miles
of ground geophysics, a soil sampling program, and ten diamond
drill holes with an aggregate depth of 5,260 feet. In 1978 and
1979, further geological, geochemical and geophysical surveys were
carried out, together with the drilling of another 93 diamond
drill holes aggregating 51,200 feet. A mineral resource was
estimated. The joint venture continued to work in the district in
the period 1980 to 1983. However, only limited diamond drilling
activity continued on the Lik property. The Lik Block Agreement was
signed in 1984.
In
1984, Noranda optioned the GCO holding of the Lik property. Much of
Noranda’s activity was concentrated in the Lik North Area
where ten diamond drill holes with an aggregate depth of 13,710
feet were completed on four sections. Noranda also drilled holes in
the Lik South deposit to better define the deposit. Noranda
released its interest in the Lik property after a re-organization
of its holdings in the United States. From 1985 through June of
2007, when Zazu acquired its interest in the Lik property, only a
limited amount of work was conducted at Lik.
Zazu
completed diamond drilling programs during the 2007, 2008 and 2011
summer field seasons. From 2009 through 2014, Zazu conducted a
suite of economic, engineering, environmental and metallurgical
studies on the Lik property, culminating with the completion of a
PEA in 2014.
5.
Geological
Setting
The
regional geology of the Western Brooks Range area is structurally
complex. The sedimentary rocks of the area have been significantly
disrupted by thrust sheets. The Lik property and the other
zinc-lead deposits of the Brooks Range, including Red Dog, are
hosted in the Kuna Formation of the Lisburne Group. In the Western
Brooks Range, the Lisburne Group includes both deep and shallow
water sedimentary facies and local volcanic rocks. The rocks have
been extensively disrupted by thrusting. The deep-water facies of
the Lisburne Group, the Kuna Formation, are exposed chiefly in the
Endicott Mountains.
On a
district scale, the Lik property is hosted in the Red Dog plate of
the Endicott Mountains thrust sheet. The stratigraphically lowest
rocks within the Red Dog plate belong to the Kayak Shale. The top
of the Kayak Shale is interbedded with rocks of the Kuna Formation.
The Ikalukrok Unit has been divided into a lower laminated black
shale sub-unit and an upper medium- to thick-bedded black chert
sub-unit. The Ikalukrok Unit hosts all of the massive sulfide
deposits in the area.
Locally, the Lik
property is hosted in the upper part of the Ikalukrok Unit of the
Kuna Formation. The host rocks are carbonaceous and siliceous black
shale, with subordinate black chert and fine-grained limestone.
These rocks strike broadly north-south and dip at about
25
o
to
40
o
to the
west. The massive sulfides are overlain conformably by rocks of the
Siksikpuk Formation. The sequence is overridden by allochthonous
rocks that form high hills north and west of the
deposits.
The
mineralized sequence is cut by a number of faults. The most
significant disruption is the Main Break Fault, which drops the
northern end of the Lik deposit down about 500 feet. It is unclear
whether there is a change in strike north of the fault, or whether
the change is more apparent due to topography. The Main Break Fault
strikes east-west and dips north at about 60
o
. There is another
group of steeper faults that tend to strike northerly or
northwesterly and which are interpreted as being both normal and
reverse with throws of up to 330 feet.
6.
Prior Exploration and the
Results of the 2019 Exploration Program
The Red
Dog ore deposit was originally discovered in 1970 by a geologist
undertaking mapping in the De Long Mountains area on behalf of the
United States Geological Survey. The Lik deposit was discover by
GCO in the mid-1970’s by following up on soil color and
stream geochemical anomalies. From the late 1970’s to 2011,
various geochemical, geophysical and geologic activities were
intermittently conducted to define drill targets. The Lik property
was sporadically drill tested from the late-1970’s to 2011 by
seven different companies. Details of these historical drilling
campaigns are discussed above under the heading
“History” and below under the heading
“Drilling.”
The
2019 exploration program consisted of geologic mapping, geochemical
sampling, re-logging of old core, XRF analysis for trace elements
in old core, reinterpretation of the stratigraphic and structural
setting in the vicinity of the Lik deposit and ground gravity
geophysical surveying. The geologic mapping program resulted in a
better understanding of the stratigraphic and structural control of
mineralization at Lik, and the potential trend of mineralization to
the north. Geochemical sampling indicates an area of elevated
geochemistry to the north that could be proximal to zinc
mineralization. The gravity survey results are somewhat uncertain,
but may point to an area of interest, also to the north. The
stratigraphic and structural reinterpretation in the vicinity of
the Lik deposit suggests the potential for stacked deposits below
the Lik deposit.
17
7.
Mineralization
The Lik
deposit is a black shale-hosted stratiform zinc-lead-silver
sedimentary-exhalitive (SEDEX) deposit. Mineralization is
syngenetic with respect to sediment deposition. Silicification
occurs within and peripheral to the main mass of sulfides. Major
sulfides in decreasing order of abundance are pyrite-marcasite,
sphalerite and galena. The ore textures are massive, fragmental,
chaotic, and veined; they rarely show typical sedimentary layering.
The portion of the ore body near the surface is oxidized. The
deposit is continuous outside the Lik property onto the adjacent
100%-owned Teck property to the south. The southern continuation of
the Lik deposit is referred to as the Su deposit, lying on
Teck’s Su property.
Within
the Lik property, the deposit is divided into two parts by the Main
Break Fault. The main part of the deposit within the existing
claims is referred to as the Lik South deposit. As presently
tested, the Lik South deposit has a surface footprint of about
3,600 feet long and about 2,000 feet wide. It has been tested down
dip to a depth of about 650 feet. The Lik South deposit remains
open down dip. North of the Main Break Fault, the Lik North deposit
has a surface footprint of about 2,300 feet long and about 1,150
feet wide. It has been tested down dip to a depth of about 1,000
feet. The Lik North deposit remains strongly open down dip and to
the north.
The
deposits strike northerly and dip westerly at about 25
o
to 40
o
. The mineralization
comprises irregular, stratiform lenses. The mineralogy of the
sulfides is simple and comprises pyrite, marcasite, sphalerite, and
galena. Gangue minerals include quartz (as chert), clay minerals,
carbonate and barite. Noranda recognized six different ore types in
its logging of drill core. Typical grades of mineralized
intersections within the Lik deposit are listed in the table
below:
|
Typical
Mineralized Intersections
|
||||||
|
HoleNo.
|
From(m)
|
To(m)
|
Length(m)
|
Zn(%)
|
Pb(%)
|
Ag(g/t)
|
|
5
|
54.56
|
78.79
|
24.23
|
19.72
|
6.27
|
126.5
|
|
16
|
80.16
|
94.49
|
14.33
|
21.67
|
7.01
|
230.4
|
|
21
|
129.54
|
135.33
|
5.79
|
7.07
|
1.88
|
8.6
|
|
24
|
40.87
|
50.14
|
9.27
|
11.09
|
1.44
|
51.1
|
|
38
|
45.90
|
63.76
|
17.86
|
8.13
|
1.80
|
48.0
|
|
38
|
70.53
|
87.75
|
17.22
|
8.92
|
2.08
|
28.8
|
|
43
|
35.66
|
40.69
|
5.03
|
17.66
|
3.62
|
8.6
|
|
43
|
60.96
|
80.28
|
19.32
|
9.07
|
2.49
|
47.7
|
|
43
|
84.73
|
91.04
|
6.31
|
21.07
|
5.95
|
111.4
|
|
68
|
32.31
|
53.43
|
21.12
|
13.34
|
2.85
|
56.9
|
Previous work by
GCO determined that sulfides were deposited in four distinct
cycles. Individual cycles may be quite thin near the margins of the
deposit and the thickest accumulation in a single cycle noted to
date is about 45 feet thick. The base of a sulfide cycle begins
abruptly with the deposition of sphalerite, galena and pyrite.
Typically, the highest grades are found at or within 5-10 feet of
the base of a sulfide cycle. In the central portion of the deposit
several cycles are stacked and comprise a cumulative thickness of
up to 100 feet of mineralization.
18
8.
Drilling
All
diamond drill programs are summarized in the following
table.
|
Historical
Diamond Drilling Campaigns
|
|||
|
Year
|
Number of
Holes
|
Aggregate
Depth (m)
|
Company
|
|
1977
|
10
|
1,603.3
|
Managed
by WGM
|
|
1978
|
79
|
10,680.2
|
Managed
by WGM
|
|
1979
|
14
|
4,931.1
|
Managed
by GCO
|
|
1980
|
3
|
202.1
|
Managed
by GCO
|
|
1983
|
1
|
835.2
|
Managed
by GCO
|
|
1984
|
6
|
1,643.5
|
Managed
by GCO
|
|
1985
|
16
|
4,883.1
|
Managed
by Noranda
|
|
1987
|
1
|
696.5
|
Managed
by GCO
|
|
1990
|
3
|
263.4
|
Managed
by Moneta
|
|
1992
|
2
|
283.5
|
Managed
by GCO
|
|
2007
|
11
|
1,393.5
|
Managed
by Zazu
|
|
2008
|
58
|
6,827.5
|
Managed
by Zazu
|
|
2011
|
25
|
3,871.0
|
Managed
by Zazu
|
|
Totals
|
229
|
38,328.6
|
|
Zazu
completed two diamond drilling programs during the 2007 and 2008 to
further test the Lik South deposit and to obtain samples for
metallurgical testing. At the end of 2008, most of the Lik South
deposit had been tested on lines spaced at 200 ft. with holes
spaced at about 100 ft.
The
2011 drilling program at Lik combined exploration and development
drilling. The exploration drilling focused on improving resource
definition, in particular near the transition zone between Lik
South and Lik North and also Lik North. The development drilling
focused on obtaining additional metallurgical samples and
geotechnical drilling for the open pit design and foundation
information to assist in infrastructure design. By the end of 2011,
a total of approximately 38,328 meters (125,700 feet) of drilling
in 229 holes had been completed on the Lik property by the Company
(Zazu) and the previous owners. No drilling has been completed on
the Lik project since 2011.
9.
Sampling, Analysis and
Security of Samples
Pre-Zazu
Drilling
Core
recoveries were typically high within the massive sulfides, but
lower, more variable recoveries were obtained in the unmineralized
and weakly mineralized sections. The entire core obtained from the
Lik deposit, usually NQ-size, was logged on site. All of the core
containing sulfide mineralization was cut using diamond saws and
half of the core was sent for assay. Reference samples were not
included in the sample stream. Sample lengths in massive sulfides
were typically from two to three feet, but occasionally up to nine
feet. Sample lengths were probably controlled by geology and the
location of depth markers in the core boxes.
Most of
the samples were assayed by Bondar Clegg Laboratory Group
(“Bondar Clegg”) of Vancouver. At various times, the
laboratory-maintained preparation facilities in Anchorage and
Fairbanks Alaska. In the initial years, when the bulk of the
drilling was completed, it is believed that sample preparation and
analysis were carried out in Vancouver. Bondar Clegg was not a
registered laboratory at that time. However, Bondar Clegg was a
recognized, reputable laboratory and was experienced in the use of
atomic absorption spectrophotometry.
As the
entire core was logged and sampled in an isolated field camp,
security was not a major concern because access to the camp was
closely controlled. It is noted that four different companies (WGM,
GCO, Noranda and Moneta) have completed drilling programs at the
Lik property and all of them have obtained consistent results. The
work was considered completed to industry standards in use at the
time of the work. Sample preparation was completed in the assay
laboratory.
19
Zazu
Drilling
Drill
core obtained during the 2007, 2008 and 2011 drilling campaigns was
logged on site. The entire core containing sulfide mineralization
was sawn using diamond saws and half of the core was sent for
assay. All massive and high-sulfide cores were sampled. Visual
methods were used to select sample boundaries and lengths. The
mineralization at Lik is considered to be appropriately logged and
sampled. It is not evident that logging or sampling is leading to
any bias in the sample results. An examination of logging showed
that core recovery in sulfide areas was generally very
high.
Core
drilled in 2007 was placed in the sample bags, the air was
evacuated and replaced with nitrogen. The samples were sent to
Kotzebue by charter and then by licensed carrier to Anchorage. The
samples were stored under refrigeration in Anchorage. The samples
were dispatched to G & T Metallurgical Services Ltd. (“G
& T”) of Kamloops, British Columbia, an ISO 9001:2000
certified laboratory for precious metals and base metals. As well
as completing metallurgical testing, G & T crushed and analyzed
the samples. The 2008 diamond drill core was not required for
metallurgical testing and core was handled normally. Sawn samples
were securely bagged and boxed on site and dispatched to a facility
of ALS Laboratory Group (“ALS Chemex”) located in
Fairbanks, Alaska, for sample preparation. Transportation of the
samples was through third-party companies that provided secure
transportation services. The pulps were analyzed at ALS Chemex
located in Fairbanks or Elko, Nevada. Zazu did not participate in
any part of the sample preparation or analysis except for cutting
core.
Check
samples from the 2007 drilling program and all samples from the
2008 drilling campaign were sent to the preparation and assaying
facilities of ALS Chemex (ISO 17025 accreditation). Other QA/QC
procedures employed by Zazu included the use of blanks
(unmineralized core from outside of the mineralized zone) and
quartered core duplicates. Zazu was unable to obtain acceptable
reference samples for the 2007 field season and reference samples
were not included as part of the 2007 ongoing QA/QC program.
Reproducibility between G & T and ALS Chemex was found to be
good. A detailed description of QA/QC procedures can be found in
the Solitario’s Canadian SEDAR filings and in the
Company’s US Edgar filings: Technical Report; Zazu Metals
Corporation, Lik Deposit, Alaska, USA; Report Date: April 23, 2014;
Effective Date: March 3, 2014; prepared by JDS Energy and Mining
Inc (“JDS”).
.
10.
Prefeasibility
Studies
Zazu
completed a PEA in 2014 that incorporated a variety of
prefeasibility level studies into the analysis. These studies
included resource estimation, mining and processing recovery
estimates, a preliminary mining and processing plan, infrastructure
layout, environmental considerations and an economic analysis based
on the base case parameters. The PEA envisioned an open pit mining
operation with a 5,500 ton per day floatation mill for processing
resulting in a nine-year mine life. Concentrates would be handled
through the DMTS road and port system that currently handles all
concentrate produced by the nearby Red Dog zinc mine of Teck. A
summary of metallurgical testing and mineral processing is provided
below. The PEA analyzed the Lik project as a stand-alone operation
building its own independent processing, tailings and port
facilities.
Zazu
engaged JDS to complete the PEA on the Lik deposit in 2013. The NI
43-101 compliant study entitled: “
Technical Report; Zazu Metals Corporation, Lik
Deposit, Alaska, USA; Report Date: April 23, 2014; Effective Date:
March 3, 2014
;” can be found in the Company’s
Canadian Sedar filings and is furnished in the Company’s U.S.
Edgar filings. JDS is a Canadian independent and internationally
recognized mining engineering firm providing engineering services
internationally.
Metallurgical
Testing and Mineral Processing
20
There
have been five metallurgical test work reports issued to date on
the Lik ores. The most recent and comprehensive processing and
metallurgical testing programs include work performed by G&T
and by SGS. Samples collected during drilling in 2007 and 2008 were
composited into one Master Composite for testing at G&T in
2008, and later testing by SGS was carried out in 2010 on the
remainder of the Master Composite. These key testing results have
formed the basis for this economic evaluation of the Lik deposit.
Results are summarized in the table below:
Summary of SGS 2010 and G&T 2008 Metallurgical Test
Results
|
Test
|
Element
|
Feed
|
Lead Concentrate
|
Zinc Concentrate
|
||
|
Grade
|
Grade
|
Recovery
|
Grade
|
Recovery
|
||
|
SGS 2010
|
Pb%
|
2.83
|
52.00
|
69.10
|
1.88
|
9.70
|
|
|
Zn%
|
9.56
|
7.39
|
2.91
|
54.60
|
83.10
|
|
|
Ag gpt
|
37
|
55
|
5.5
|
68
|
26.6
|
|
G&T 2008
|
Pb%
|
2.36
|
70.30
|
70.3
|
1.57
|
9.4
|
|
|
Zn%
|
8.47
|
4.17
|
1.20
|
52.20
|
86.9
|
|
|
Ag gpt
|
34
|
68
|
4.8
|
64
|
26.9
|
|
Average Used for Mass Balance and NSR Estimates
|
Pb%
|
2.60
|
61.15
|
69.7
|
1.73
|
9.6
|
|
|
Zn%
|
9.02
|
5.78
|
2.06
|
53.40
|
85.0
|
|
|
Ag gpt
|
36
|
62
|
5.2
|
66
|
26.8
|
The
metallurgical flowsheet for this PEA includes conventional
crushing, grinding, and flotation processing methods.
Run-of–Mine (ROM) ore will be delivered to a primary crushing
plant and stored in a coarse ore stockpile awaiting reclaim into
the grinding circuit. Crusher ore will be reclaimed and delivered
to a two-stage grinding circuit equipped with a Semi-Autogenous
Grinding (SAG) mill and a ball mill in closed circuit with
cyclones.
Recoveries from
these modeled methods and metallurgical testing conducted to date
are anticipated to be 85% of zinc to the zinc concentrate and 69.7%
of the lead to the lead concentrate. Silver is also recovered and
payable at times in the zinc concentrate and more significantly in
the lead concentrate.
11.
Reserves
There
are no reported mineral reserves.
12.
Mining Operations
No
commercial mining operations to recover metals have occurred on the
project.
13.
Planned Exploration and Development
Solitario and Teck
are in discussions to jointly fund a 2020 exploration program with
Teck acting as project operator. The program, if approved, consists
of drilling two or three core holes totaling approximately 1,000
meters. Drill targets under consideration include an area
approximately one kilometer north of Lik and also below the Lik
deposit to test for stacked mineralized horizons. Drilling is
expected to begin during the 2020 summer field season. We expect to
reach a final decision on this program during the first quarter of
2020.
21
Chambara Zinc Property (Peru)
In
April 2008, we signed the Minera Chambara shareholders’
agreement with Votorantim on Solitario's 100%-owned Chambara zinc
project. In 2015 Votorantim transferred its interest in the
Chambara project to Milpo, now Nexa. In October of 2017, Milpo and
Votorantim merged to form Nexa. For the remainder of this Chambara
property section, all references to Votorantim, Milpo or Nexa are
collectively referred to as “Nexa.”
The original
purpose of the Chambara joint venture was to collectively pool
independently owned Solitario
and
Nexa properties into a jointly held joint venture. These properties
were located within a large area of interest in northern Peru
measuring approximately 200 by 85 kilometers, but outside of the
Florida Canyon property position. Nexa originally contributed 52
mineral concessions within the area of interest totaling 52,000
hectares to Minera Chambara for a 15% interest in Minera Chambara.
We contributed 9,600 hectares of mineral claims and an extensive
exploration data base in our possession for an 85% interest in
Minera Chambara. Existing and future acquired properties subject to
the terms of the shareholders’ agreement will be controlled
by Minera Chambara. Minera Chambara dropped selected concessions in
2013 and 2016 and acquired the rights to 13 new concessions
totaling 11,600 hectares in 2017. This resulted in Minera Chambara
holding 36,400 hectares of valid concessions that completely
surround the Florida Canyon project area held by Minera
Bongará. As of December 31, 2019, Minera Chambara’s only
assets are the properties and Minera Chambara has no debt. Nexa may
increase its shareholding interest to 49% through cumulative
spending of $6,250,000 and may further increase its interest to 70%
by funding a feasibility study and providing for construction
financing for Solitario's interest. If Nexa provides such
construction financing, we would repay that financing, including
interest, from 80% of Solitario's portion of the project cash
flow.
The project
has been on care and maintenance in recent years. Significant
geochemical anomalies and outcropping mineralization have been
identified at several locations on the Chambara property. Nexa is
responsible for maintaining the property in good standing and
making all concession payments to the Peruvian government.
Concession costs in 2020 to be paid by Nexa are estimated to be
$527,000.
La Promesa Project (Peru)
The La
Promesa property, acquired in 2008, consists of three concessions
totaling 2,600 hectares. Currently, our only holding costs for the
mineral rights are annual payments of nine dollars per hectare to
the Peruvian government. Total holding costs in 2020 will be
approximately $34,000. A subsidiary of Newmont holds a 2% net
smelter return (“NSR”) on the property.
During
the past several years Solitario has conducted an active social
engagement program with the community located near the La Promesa
project area with the objective of obtaining a community agreement
to support exploration activities, including drilling. To date, no
agreement has been signed and we are planning to conduct limited
exploration activities on the property in 2020. In Peru, a
community agreement is required in order to obtain drilling
permits. During 2020 our objectives are to complete an agreement
with the local community, to conduct surface exploration, and if
warranted, conduct a drilling program.
At
least five high-grade polymetallic veins have been identified and
sampled at surface. Two of the veins, about 300 meters apart, have
been traced for at least 400 meters along strike. There appears to
be a systematic trend towards greater vein thickness with depth, as
the widest observed vein in outcrop occurs at the lowest elevation
sampled to date. Channel sampling along 300 meters of strike length
from the best exposed vein yielded the following high-grade
results:
|
Chip Channel
#
|
True
Width
|
Silver
gpt
|
%
Zinc
|
%
Lead
|
Indium
gpt
|
|
A
|
2.8
|
758
|
19.4
|
7.2
|
153
|
|
B
|
1.1
|
181
|
21.0
|
2.4
|
190
|
|
C
|
0.5
|
433
|
10.5
|
6.3
|
23
|
|
D
|
0.4
|
458
|
10.2
|
10.8
|
15
|
|
E
|
1.0
|
346
|
5.9
|
3.4
|
27
|
|
F
|
1.2
|
1975
|
33.1
|
5.6
|
430
|
Discontinued Projects
We did
not abandon any mineral properties during 2018 or
2019.
22
GLOSSARY OF MINING TERMS
“Allochthonous”
means originating in a place
other than a place where it was formed.
“
Assay
”
means to test minerals by chemical or other methods for the purpose
of determining the amount of valuable metals
contained.
“Anticline”
means folds in which each half of
the fold dips away front the crest.
“
Breccia
” means rock consisting of
fragments, more or less angular, in a matrix of finer-grained
material or of cementing material.
“
Carbonaceous
”
means a compound relating to or containing carbon.
“
Chert
”
means a sedimentary rock of microcrystalline quartz (the mineral
form Silicon dioxide - SiO2).
“
Claim”
or “Concession
” means a mining interest giving
its holder the right to prospect, explore for and exploit minerals
within a defined area.
“Clastic”
means pertaining to rock or rocks
composed of fragments or particles of older rocks or previously
existing solid matter; fragmental.
“
Deposit
”
means an informal term for an accumulation of mineral
ores.
“Development”
means work carried out for the
purpose of opening up a mineral deposit and making the actual ore
extraction possible.
“Domal”
means of a dome shape.
“
Dolomite”
means calcium
magnesium carbonate, CaMg (CO
3
)
2
, occurring in
crystals and in masses.
“Facies”
means the appearance and
characteristics of a sedimentary deposit, especially as they
reflect the conditions and environment of deposition and serve
to distinguish the deposit from
contiguous deposits.
“
Fault
”
means a fracture in rock along which there has been displacement of
the two sides parallel to the fracture.
“
Galena
”
means a bluish gray or black mineral of metallic appearance,
generally the chief ore of lead sulfide.
“gpt”
means grams per tonne.
“Karst”
means
a
landscape that is characterized by the
features of solution weathering and erosion in the subsurface.
These features include caves, sinkholes, disappearing streams,
subsurface drainage and deeply incised narrow canyons.
23
“M
anto
deposits”
means replacement ore bodies that are strata
bound, irregular to rod shaped ore occurrences usually horizontal
or near horizontal in attitude.
“Metallurgy
”
means the domain of materials
science and engineering that studies the physical and chemical
behavior of metallic elements and their inter-metallic compounds,
alloys.
“
Mineralization
”
means the concentration of metals within a body of
rock.
“
NSR
”
means net smelter return royalty.
“opt”
or
“oz/ton”
means ounces per
ton.
“
Ore
”
means material containing minerals that can be economically
extracted.
“Ounce”
means a troy ounce.
“Oxide”
means a mineral class in which the
chemical compound that typically contains an 0 -2 oxygen atom in
its chemical formula.
“Pyrite”
means a compound of iron sulfide
(FeSO2) commonly found in mineral rich areas.
“
Reserves
”
or “
Ore
Reserves
” means that part of a mineral deposit, which
could be economically and legally extracted or produced at the time
of the reserve determination.
“
Sampling
”
means selecting a fractional, but representative, part of a mineral
deposit for analysis.
“
Shale
”
means a fine-grained sedimentary rock that forms from the
compaction of silt and clay commonly referred to as
mud.
“
Sediment
”
means solid material settled from suspension in a
liquid.
“Sedimentary Exhalative Deposits (SEDEX)”
means
ore deposits which have been formed by the release of ore-bearing
hydrothermal fluids into a water reservoir.
“Silicification”
means the process in which
organic matter becomes saturated with silica (silicon
dioxide).
“Sphalerite”
means a very common mineral,
zinc sulfide, usually containing some iron and a little
cadmium, occurring in yellow, brown, or black crystals or
cleavable masses with resinous luster and it is the principal
ore of zinc.
“Spectrophotometry”
means the quantitative
measurement of the reflection properties of a material as a
function of its wavelength.
“Stratiform”
means formed parallel to the
bedding places of surrounding rock.
“Stratigraphy”
means t
he arrangement of rock
strata, especially as to the geographic, chronologic order of
sequence (age), classification, characteristics and
formation.
“
Strike
”
when used as a noun, means the direction, course or bearing of a
vein or rock formation measured on a level surface and, when used
as a verb, means to take such direction, course
or bearing.
“
Sulfide
”
means a compound of sulfur and some other element.
“Syngenetic”
means a mineral deposit that forms
at the same time as the surrounding rock.
“
Ton
” means a short ton (2,000
pounds).
“
Tonne”
means a metric measure that contains 2,204.6 pounds or 1,000
kilograms.
“
Vein
”
means a fissure, fault or crack in a rock filled by minerals that
have traveled upwards from some deep source.
I
tem 3.
Legal Proceedings
None
I
tem 4.
Mine Safety
Disclosures
Not
applicable
24
P
ART II
I
tem 5.
Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our
common stock trades on the NYSE American exchange under the symbol
“XPL” and on the TSX under the symbol
“SLR.” Since 2008 trading volume of our common stock on
the NYSE American exchange has exceeded the trading volume of our
stock on the TSX by a substantial margin.
Shares authorized for issuance under equity compensation
plans
On June
18, 2013 Solitario’s shareholders approved the 2013 Solitario
Exploration & Royalty Corp. Omnibus Stock and Incentive Plan
(the “2013 Plan”). On June 29, 2017, Solitario
shareholders approved an amendment to the 2013 Plan, which
increased the number of shares available of common stock for
issuance under the 2013 Plan from 1,750,000 to 5,750,000. Under the
terms of the 2013 Plan, the Board of Directors may grant awards to
directors, officers, employees and consultants. Such awards may
take the form of stock options, stock appreciation rights,
restricted stock, and restricted stock units. The terms and
conditions of the awards are pursuant to the 2013 Plan and options
are granted by the Board of Directors or a committee appointed by
the Board of Directors.
On
September 1, 2017, the Board of Directors granted, subject to
shareholder approval at the next meeting of shareholders, 2,300,000
stock options under the 2013 Plan to officers and members of the
Board of Directors (the “Conditional Options”). The
Conditional Options were approved by Solitario’s shareholders
at Solitario’s annual meeting on June 19, 2018. The
Conditional Options have a five-year life, an exercise price of
$0.77 per share, and a grant date fair value of $970,000, based
upon a Black-Scholes model with a volatility of 64%, and a
risk-free interest rate of 1.70%. The Conditional Options vest on
the schedule of 25% on date of approval of the grant (June 19,
2018) and 25% on each of the next three anniversary dates of the
date of grant (September 1, 2018, 2019 and 2020).
On
November 1, 2018, the Board of Directors granted 1,623,000 stock
options under the 2013 Plan. These options have a five-year life,
vested 25% on the date of grant and vest 25% on each of the next
three anniversary dates of the date of grant, and have an exercise
price of $0.31 per share, and a grant date fair value of $282,000,
based upon a Black-Scholes model with a an expected volatility of
64%, and a risk free interest rate of 2.98%.
On
January 24, 2019, the Board of Directors granted 150,000 stock
options under the 2013 Plan. These options have a five-year life,
vested 25% on the date of grant and vest 25% on each of the next
three anniversary dates of the date of grant, and have an exercise
price of $0.28 per share, and a grant date fair value of $23,000,
based upon a Black-Scholes model with a an expected volatility of
64%, and a risk free interest rate of 2.4%.
|
Equity
Compensation Plan Information as of December 31, 2019:
|
|||
|
Plan category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(2013 Plan –
US$)
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
2013
Plan
|
(a)
|
(b)
|
(c)
|
|
Equity
compensation plans approved by security
holders
|
4,373,000
|
0.58
|
1,326,438
|
|
Equity
compensation plans not approved by security
holders
|
-
|
N/A
|
-
|
|
Total
2013 Plan
|
4,373,000
|
0.58
|
1,326,438
|
25
Holders of our common stock
As of
February 28, 2020, we have approximately 3,155 holders of our
common stock.
Dividend policy
We have
not paid a dividend in our history and do not anticipate paying a
dividend in the foreseeable future.
Issuer purchases of equity securities
The
following table provides information about our purchase of our
common shares during the three months ended December 31,
2019.
|
Period
|
Total Number of
Shares Purchased
|
Average Price
Paid Per Share
|
Total Number of
Shares Purchased as Part of Publicly Announced Plans or
Programs
(1)
|
Maximum number
of Shares that May Yet Be Purchased Under the Plans or
Programs
(1)
|
|
October 1, 2019
– October 31, 2019
|
1,800
|
$
0.29
|
1,800
|
1,031,200
|
|
November 1,
2019—November 30, 2019
|
-
|
N/A
|
-
|
1,031,200
|
|
December 1,
2019—December 31, 2019
|
500
|
$
0.27
|
500
|
1,030,700
|
|
|
|
|
|
|
(1)
On
October 28, 2015, the Board of Directors authorized a share
repurchase program pursuant to which Solitario may acquire up to 2
million of its common shares. All purchases listed were made in
open-market transactions through a broker dealer. During 2019 the
Board of Directors extended the termination date of the repurchase
program to December 31, 2020; however, the repurchase program may
be suspended or discontinued at any time and does not obligate
Solitario to acquire any particular amount of our shares. During
the years ended December 31, 2019 and 2018, we purchased 38,400 and
263,100 shares of Solitario common stock, respectively, for an
aggregate purchase price of $13,000 and $101,000, respectively. As
of December 31, 2019, we have purchased a total of 969,300 shares
of Solitario common stock for an aggregate purchase price of
$462,000 under the share repurchase program since its
inception.
26
I
tem 6.
Selected Financial
Data
The
following table summarizes the consolidated statements of
operations and balance sheet data for our business since January 1,
2015. This data has been derived from our audited consolidated
statements of operations for each of the five years ended December
31, 2019 and our audited consolidated balance sheets as of December
31, 2019, 2018, 2017, 2016 and 2015. You should read this
information in conjunction with Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
Solitario's historical consolidated financial statements and notes
included in Item 8, "Financial Statements and Supplementary Data."
The information set forth below is not necessarily indicative of
future results.
|
Balance
sheet data:
|
As of December
31,
|
||||
|
(in
thousands)
|
2019
|
2018
|
2017
|
2016
|
2015
|
|
Total current
assets
|
$
8,756
|
$
12,136
|
$
14,613
|
$
16,797
|
$
17,990
|
|
Total
assets
|
$
24,532
|
$
27,903
|
$
30,395
|
$
17,614
|
$
18,054
|
|
Working capital
(1)
|
$
8,487
|
$
11,448
|
$
14,472
|
$
16,671
|
$
17,811
|
|
Long-term
debt
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
|
Shareholders'
equity
|
$
24,131
|
$
27,090
|
$
30,129
|
$
17,488
|
$
17,875
|
|
Statement
of operations data:
|
Year ended
December 31,
|
||||
|
(in
thousands, except per share amounts)
|
2019
|
2018
|
2017
|
2016
|
2015
|
|
Revenue, net
– mineral property sale
|
$
408
|
$
502
|
$
-
|
$
-
|
$
-
|
|
Net
(loss) income
|
$
(3,289
)
|
$
(3,598
)
|
$
(942
)
|
$
(1,710
)
|
$
8,872
|
|
Per share
information:
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
|
|
|
|
Net
(loss) income
|
$
(0.06
)
|
$
(0.06
)
|
$
(0.02
)
|
$
(0.04
)
|
$
0.23
|
(1)
Working capital consists of current assets less current
liabilities.
27
I
tem 7.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations
The
following discussion should be read in conjunction with the
information contained in the consolidated financial statements and
notes thereto included in Item 8, "Financial Statements and
Supplementary Data." Our financial condition and results of
operations are not necessarily indicative of what may be expected
in future years.
(a).
Recent Developments
On
January 22, 2019, we completed the sale of our interest in certain
royalties to SilverStream SEZC, a private Cayman Island royalty and
streaming company (“SilverStream”), for Cdn$600,000
(the “Royalty Sale”). The Royalty Sale covered (i) a
royalty on the formerly Solitario-owned 125,000-acre polymetallic
Pedra Branca palladium, platinum, gold, nickel, cobalt and chrome
project in Brazil, (ii) a royalty covering 3,880 acres of
non-producing exploration properties in Mexico, and (iii) a
purchase option on royalties covering 11 separate non-producing
properties covering over 16,500 acres in Montana. At the closing of
the Royalty Sale, Solitario received Cdn$250,000 in cash and a
convertible note from SilverStream in the principal amount of
Cdn$350,000 (the “SilverStream Note”). The SilverStream
Note was originally due December 31, 2019, accrued 5% per annum
simple interest, payable on a quarterly basis, and is convertible
into common shares of SilverStream, at the discretion of
SilverStream, by providing a notice to us of conversion. In
December of 2019, Solitario and SilverStream agreed to extend the
due date of the SilverStream Note to June 30, 2020, and to increase
the interest rate to 8% per annum simple interest. All other terms
of the SilverStream Note remained the same. SilverStream may only
provide a notice of conversion if SilverStream has completed an
initial public offering during the term of the SilverStream Note
for minimum proceeds of Cdn$5,000,000; otherwise the SilverStream
Note will be payable in cash at the maturity date. Pursuant to the
terms of the SilverStream Note, if SilverStream were to complete an
initial public offering and the SilverStream Note was converted, we
would receive common shares converted at 85% of the weighted
average quoted price of a share of SilverStream common stock for
the most recent 10-day period prior to the notice of conversion.
During 2019, we recorded mineral property revenue of $408,000 for
the Royalty Sale, consisting of the fair value of the cash received
on the date of the sale of $185,000 and the fair value of the
SilverStream Note on the date of the sale of $263,000 less the
carrying value of the royalties sold of $40,000. We recorded
interest income of $12,000 from the SilverStream Note during 2019.
As of December 31, 2019, the SilverStream Note was recorded at
$268,000, based upon the current US dollar / Canadian dollar
exchange rate, and Solitario recorded a credit to exchange gain of
$5,000, included in general and administrative expense during
2019.
(b).
Business Overview and Summary
We are
an exploration stage company at December 31, 2019 under Industry
Guide 7, as issued by the SEC. We were incorporated in the state of
Colorado on November 15, 1984 as a wholly owned subsidiary of Crown
Resources Corporation ("Crown"). In July 1994, we became a publicly
traded company on the Toronto Stock Exchange (the "TSX") through
our initial public offering. We have been actively involved in
mineral exploration since 1993. Our primary focus is the
acquisition and exploration of zinc-related exploration mineral
properties. However, we continue to evaluate other mineral
properties for acquisition, and we hold a portfolio of mineral
exploration properties and assets for future sale, joint venture or
to create a royalty up to the development stage of the project
(development activities include, among other things, completion of
a feasibility study for the identification of proven and probable
reserves, as well as permitting and preparing a deposit for
mining). At that point, or sometime prior to that point, we would
likely attempt to sell a given mineral property, pursue its
development either on our own, or through a joint venture with a
partner that has expertise in mining operations, or obtain a
royalty from a third party that continues to advance the property.
Although our mineral properties may be developed in the future by
us, through a joint venture or by a third party, we have never
developed a mineral property. In addition to focusing on its
mineral exploration properties and the evaluation of mineral
properties for acquisition, Solitario also evaluates potential
strategic corporate transactions as a means to acquire and interest
in new precious and base metal properties and assets with
exploration potential as well as other potential corporate
transactions and combinations determined to be favorable to
Solitario.
Our
geographic focus for the evaluation of potential mineral property
assets is in North and South America; however, we have conducted
property evaluations for potential acquisition in other parts of
the world. At December 31, 2019, we consider our carried interest
in our Florida Canyon project in Peru and our interest in the Lik
project in Alaska to be our core mineral property assets. In
addition, at December 31, 2019, we have one exploration property in
Peru. We are conducting independent exploration activities in Peru
and through joint ventures operated by our partners in Peru and the
United States. We conduct potential acquisition evaluations in
other countries of both South and North America.
As
of December 31, 2019, we have significant balances of cash and
short-term investments that we anticipate using, in part, to fund
planned 2020 exploration, to further the exploration of our Lik
project, conduct exploration on the La Promesa project in Peru, and
to potentially acquire additional mineral property assets. The
fluctuations in commodity prices of base and precious metals has
contributed to a challenging environment for mineral exploration
and development, which has created opportunities as well as
challenges for the potential acquisition of advanced mineral
exploration projects or other related assets at potentially
attractive terms.
In
analyzing our activities, the most significant aspect relates to
results of our exploration and potential development activities and
those of our joint venture partners on a property-by-property
basis. When our exploration or potential development activities,
including drilling, sampling and geologic testing, indicate a
project may not be economic or contain sufficient geologic or
economic potential we may impair or completely write-off the
property. Another significant factor in the success or failure of
our activities is the price of commodities. For example, when the
price of zinc is down, the value of zinc-bearing mineral properties
decreases; however, when the price of zinc is up it may become more
difficult and expensive to locate and acquire new zinc-bearing
mineral properties with potential to have economic
deposits.
28
The
potential sale, joint venture or development of our mineral
properties will occur, if at all, on an infrequent basis.
Historically, we have recorded revenues and met our need for
capital in the past through (i) the sale of properties and assets;
(ii) joint venture payments, including delay rental payments; (iii)
a royalty sale on our former Mt. Hamilton property; (iv) the sale
of our shares of Vendetta and Kinross common stock; (v) long-term
debt secured by our mineral property; (vi) short-term margin
borrowing; and (vii) issuances of common stock. During 2019 we
recorded mineral property income of $408,000 from the Royalty Sale,
discussed above. During 2018 we recorded mineral property income
from the sale of our Yanacocha Royalty of $502,000. In 2015 we
recorded a gain on the sale of our interest in Mount Hamilton LLC
of $12,309,000. During June 2012, we sold a royalty interest in our
Mt. Hamilton project to Sandstorm Gold Ltd. for $10,000,000.
Previous to the sale of our interest in Mt. Hamilton LLC, our last
significant cash proceeds from a property or asset sale were
recorded in 2000 upon the sale of our former Yanacocha property for
$6,000,000. Proceeds from the sale or joint venture of
properties, although significant when they occur, have not been a
consistent annual source of cash and would occur in the future, if
at all, on an infrequent basis. We have reduced our exposure to the
costs of our exploration activities in the past through the use of
joint ventures. Although we anticipate the use of joint venture
funding for some of our exploration activities will continue for
the foreseeable future, we can provide no assurance that these or
other sources of capital will be available in sufficient amounts to
meet our needs, if at all.
(c). Results of Operations
Comparison of the year ended December 31, 2019 to the year ended
December 31, 2018
We had
a net loss of $3,289,000 or $0.06 per share for the year ended
December 31, 2019 compared to a loss of $3,598,000 or $0.06 per
basic and diluted share for the year ended December 31, 2018. As
explained in more detail below, the primary reasons for the
decrease in net loss during 2019 compared to 2018 was a decrease in
(i) general and administrative expense to $1,368,000 during 2019
compared to general and administrative expense of $1,954,000 during
2018; (ii) an increase in interest income to $252,000 during 2019
compared to interest income of $192,000 during 2018 and (iii) a
reduction in the unrealized loss on marketable equity securities to
$711,000 during 2019 compared to a unrealized loss on marketable
equity securities of $1,058,000 during 2018. Partially offsetting
these factors that served contributed to the decrease in our net
loss in 2019 were (i) a reduction in mineral property sale revenue
to $408,000 from the Royalty Sale during 2019 compared to $502,000
from the sale of our Yanacocha Royalty during 2018; (ii) an
increase in exploration expense to $1,807,000 during 2019 compared
to exploration expense of $1,254,000 during 2018 and (iii) a loss
on derivative instruments of $38,000 during 2019 with no similar
item during 2018. Each of these items is discussed in greater
detail below.
Our
primary exploration activities during 2019 and 2018 were related to
the Florida Canyon drilling program, started in 2018 and completed
in 2019. Solitario agreed to pay a total of $1,580,000 toward a
39-hole 17,033- meter drilling program at Florida Canyon in three
tranches based upon Nexa completing a fixed number of meters of
drilling (the “Drilling Program”). During the fourth
quarter of 2018, Nexa completed the first tranche of drilling, and
Solitario recorded $527,000 of exploration expense related to the
Drilling Program during 2018 accrued as accounts payable at
December 31, 2018. This compared to exploration expense of
$1,054,000 related to the Drilling Program during 2019 when Nexa
completed the remaining drilling commitment. In addition, we
incurred other exploration expenses at Florida Canyon of $18,000
and $24,000, respectively, during 2019 and 2018 not related to the
Drilling Program. Nexa is evaluating the 2020 exploration program
at Florida Canyon, however Solitario is not required to provide any
of the exploration funding at Florida Canyon during 2020. Solitario
incurred $199,000 of exploration expense during 2019 at its Lik
project in Alaska as part of a 50/50 exploration program managed by
its joint venture partner, Teck. This compares to exploration
expense of $125,000 at the Lik project during 2018. During 2019,
Teck completed extensive re-logging, re-mapping and related field
work at Lik which resulted in the increased costs during 2019
compared to 2018. We are evaluating, along with Teck, a modest
drilling program. The program, if approved, consists of drilling
two or three core holes totaling approximately 1,000 meters. Drill
targets under consideration include an area approximately one
kilometer north of Lik and also below the Lik deposit to test for
stacked mineralized horizons. Solitario would be responsible for
50% of the expenditures. During 2019 and 2018 we incurred
exploration expense of $92,000 and $86,000, respectively, at our La
Promesa project in Peru. These expenditures primarily related to
community agreements and general exploration activities. We are
planning a very limited exploration effort at La Promesa during
2020 and expect our related expenditures there will be lower during
2020 than in 2019. The remaining exploration expenditures during
2019 and 2018 related to reconnaissance work, including the
evaluation of potential mineral properties for acquisition. We
anticipate our 2020 reconnaissance exploration expenditures will be
reduced from our 2019 expenditures. Our 2020 total exploration and
development budget is approximately $976,000, which reflects the
significant reduction in the expenditures at Florida Canyon, La
Promesa and reconnaissance exploration, and the anticipated
increase in exploration at our Lik project during 2020. Although we
may acquire new mineral exploration properties during 2020, our
2020 exploration budget does not reflect any costs for projects we
do not currently own. Our planned exploration activities in 2020
may be modified, as necessary for any drilling programs we may
undertake, changes related to potential acquisition of new
properties, joint venture funding, commodity prices and deployment
of our capital.
Exploration
expense (in thousands) by property consisted of the
following:
|
Property
Name
|
2019
|
2018
|
|
Florida
Canyon
|
$
1,072
|
$
550
|
|
Lik
project
|
199
|
125
|
|
La
Promesa
|
92
|
86
|
|
Reconnaissance
exploration activity
|
444
|
493
|
|
Total
exploration expense
|
$
1,807
|
$
1,254
|
We
believe a discussion of our general and administrative costs should
be viewed without the non-cash stock option compensation expense
which is discussed below. Excluding these costs, general and
administrative costs were $1,025,000 during 2019 compared to
$1,294,000 during 2018. We reduced salary and benefits expense to
$427,000 during 2019 compared to $619,000 during 2018 as a result
of reductions in staff and salaries. In addition, (i) legal and
accounting costs decreased to $185,000 during 2019 compared to
$208,000 during 2018, primarily due to reduced activity; (ii)
travel and investor relation costs decreased to $271,000 during
2019 compared to $308,000 during 2018 as a result of reductions in
personnel and reduced market activities; (iii) we recorded
directors and officer insurance expense of $53,000 during 2019
compared to $60,000 during 2018; and (iv) other costs related to
office, insurance and miscellaneous costs decreased to $89,000
during 2019 compared to $99,000 during 2018. We anticipate general
and administrative costs for 2020 will be similar to the costs
incurred during 2019; however, this amount may vary significantly
during 2020 depending on the outcome of our property evaluations
and any strategic transactions we may attempt to execute upon. We
have forecast 2020 general and administrative costs to be
approximately $1,122,000, excluding non-cash stock option
compensation expense.
29
We
account for our employee stock options under the provisions of
Accounting Standards Codification No. 718 (“ASC No.
718”). We recognize stock option compensation expense on the
date of grant for 25% of the grant date fair value, and
subsequently, based upon a straight-line amortization of the grant
date fair value of each of its outstanding options. During the year
ended December 31, 2019, we recorded $343,000 of non-cash stock
option expense for the amortization of our outstanding options
grant date fair value with a credit to additional paid-in-capital
compared to $660,000 of non-cash stock option compensation expense
during 2018. The amount was higher during 2018 primarily due to the
amortization of 2,300,000 Conditional Options, which were approved
on June 19, 2018 by our shareholders, and we recorded $422,000 of
stock option compensation related to those options during 2018 for
the vested portion of the grant date fair value of those options as
of the date of approval. The majority of our remaining stock option
compensation during 2019 and 2018 related to the normal vesting of
other outstanding options. See Note 11, “Employee Stock
Compensation Plans,” to our consolidated financial statements
in Item 8, “Financial Statements and Supplementary Data to
this Form 10-K” for an analysis of the changes in the fair
value of our outstanding stock options and the components that are
used to determine the fair value.
We recorded an unrealized loss on marketable
equity securities of $711,000 during 2019 in the statement of
operations compared to an unrealized loss on marketable equity
securities of $1,058,000 recorded during 2018. The loss in both
periods was primarily related to
a decrease in the value of our holdings of
11,000,000 shares of Vendetta common stock, which decreased from a
fair value of $2,192,000 at December 31, 2017 to a fair value of
$1,249,000 at December 31, 2018, to a fair value of $424,000 at
December 31, 2019, based on quoted market prices. In addition, we
acquired an additional 3,450,000 common shares of Vendetta as part
of the acquisition of certain Vendetta units in July of 2019, which
decreased in the allocated fair value from the date of acquisition
of $165,000 to a fair value of $133,000 on December 31, 2019, each
unit consisting of one common share and one warrant to acquire one
common share (the 2019 Vendetta Warrants). In addition, we recorded
an unrealized gain on marketable equity securities of $150,000
during 2019 compared to an unrealized loss of $108,000 on our
holdings of Kinross during 2018. We adopted ASU 2016-01 in the
first quarter of 2018. We
recorded a cumulative-effect
adjustment for the change in accounting principle to accumulated
deficit of $576,000 related to the adoption of ASU 2016-01. See
Note 12, “Shareholders’ Equity” to the
consolidated financial statements.
As of
December 31, 2019, we had 14,450,000 shares of Vendetta common
stock and 3,450,000 2019 Vendetta Warrants. We may sell some of our
marketable equity securities from time to time during 2020 for
working capital needs; however, we do not expect to sell all of our
holdings of marketable equity securities during 2020. Any proceeds
we may receive from sales of marketable equity securities during
2020 will be dependent on the quoted market price of the securities
sold on the date of sale and may be at prices below the fair value
at December 31, 2019. See “Liquidity and Capital
Resources” below.
We
recorded a loss on derivative instruments of $38,000 during 2019
primarily related to a loss on our 2019 Vendetta Warrants of
$47,000 based upon a Black-Scholes model. This loss in value of the
2019 Vendetta Warrants was primarily related to a reduction in the
price per share of Vendetta common stock, which was Cdn$0.09 per
share when Solitario acquired the 2019 Vendetta Warrants and was
Cdn$0.05 on December 31, 2019. Partially offsetting this decrease
was a gain of $9,000 on certain Kinross covered call options we
sold during the third quarter of 2019. We may continue to sell
covered Kinross call options during 2019. There were no outstanding
derivative instruments during 2018.
We
recorded $25,000 of depreciation and amortization during 2019
compared to $25,000 of depreciation and amortization during 2018.
The majority of our depreciation relates to depreciation on
equipment acquired in 2017 as part of the acquisition at the Lik
project. We amortize these assets over a five-year period. We
anticipate our 2020 depreciation and amortization expense will be
similar to our 2019 depreciation expense.
We
recorded interest income of $252,000 during 2019 compared to
interest income of $192,000 during 2018. The increase during 2019
was primarily related to an increase in the value of our
mark-to-market investment in United States Treasury securities,
which have a life of 30 days to 17 months, as a result of declining
interest rates. The increase in interest income was partially
mitigated by a reduction in our outstanding balance of United
States Treasuries. We anticipate our interest income will decrease
in 2020 compared to 2019 as a result of the use of our short-term
investments and our cash balances for ordinary overhead,
operational costs, and the exploration, evaluation and or
acquisition of mineral properties discussed above. See
“Liquidity and Capital Resources,” below, for further
discussion of our cash and cash equivalent balances.
We
recorded no deferred tax expense or benefit in either 2019 or 2018
as we provide a valuation allowance for the tax benefit arising out
of our net operating losses for all periods presented. See Note 7,
“Income Taxes” to our consolidated financial statements
in Item 8, “Financial Statements and Supplementary
Data” of this Form 10-K for additional discussion of our
income tax valuation allowance, deferred tax assets and our net
operating losses for 2019 and 2018. We anticipate we will continue
to provide a valuation allowance for these net operating losses
until we are in a net tax liability position with regards to those
countries where we operate or until it is more likely than not that
we will be able to realize those net operating losses in the
future.
We
regularly perform evaluations of our mineral property assets to
assess the recoverability of our investments in these assets. All
long-lived assets are reviewed for impairment whenever events or
circumstances change which indicate the carrying amount of an asset
may not be recoverable utilizing guidelines based upon future net
cash flows from the asset as well as our estimates of the geologic
potential of early stage mineral property and its related value for
future sale, joint venture or development by us or others. We had
no mineral property impairments during 2019 or 2018.
30
(d). Liquidity and Capital Resources
Cash
As of
December 31, 2019, we had $574,000 in cash. We intend to utilize a
portion of this cash and a portion of our short-term investments,
discussed below, to fund our ordinary overhead, operational costs,
exploration activities and the potential acquisition of mineral
properties and other assets over the next several years. We may
also use a portion of these assets to repurchase shares of our
common stock, pursuant to the terms of a stock buy-back program
discussed below.
Short-term Investments
As of
December 31, 2019, we have $6,829,000 of our current assets in
United States Treasury securities (“USTS”) with
maturities of 30 days to 17 months. The USTS are recorded at their
fair value, based upon quoted market prices. The USTS are highly
liquid and may be sold in their entirety at any time at their
quoted market price and are classified as a current asset. We
anticipate we will roll over that portion of our USTS not used for
operating costs or mineral property acquisitions as they mature
during 2020.
Marketable Equity Securities
Our
marketable equity securities are classified as available-for-sale
and are carried at fair value, which is based upon market quotes of
the underlying securities. We owned 100,000 shares of Kinross
common stock at December 31, 2019. The Kinross shares are recorded
at their fair value of $474,000 at December 31, 2019. As of
December 31, 2019, we own 14,350,000 shares of Vendetta common
stock recorded at their fair market value of $556,000 based upon
quoted market prices. In addition, we own other marketable equity
securities with a fair value of $9,000 as of December 31, 2019
based upon quoted market prices. Changes in the fair value of
marketable equity securities are recorded as gains and losses in
the statements of operations.
Working Capital
We had
working capital of $8,487,000 at December 31, 2019 compared to
working capital of $11,448,000 as of December 31, 2018. Our working
capital at December 31, 2019 consists primarily of our cash and
cash equivalents, our investment in USTS, discussed above, and our
marketable equity securities, less our current liabilities of
$269,000. As of December 31, 2019, our cash balances along with our
short-term investments and marketable equity securities are
adequate to fund our expected expenditures over the next
year.
The
nature of the mineral exploration business requires significant
sources of capital to fund exploration, development and operation
of mining projects. We expect we will need additional capital if we
decide to develop or operate any of our current exploration
projects or any projects or assets we may acquire. We anticipate we
would finance any such development through the use of our cash
reserves, short-term investments, joint ventures, issuance of debt
or equity, or the sale of other exploration projects or
assets.
Stock-Based Compensation Plans
At
December 31, 2019, options to acquire 4,373,000 shares of our
common stock were outstanding. There are 2,774,000 options that are
vested and exercisable at December 31, 2019. At December 31, 2019,
our outstanding options include 150,000 options granted during 2019
that are in the money with an exercise price of $0.28 per share,
which is below the market price of a share of Solitario common
stock at December 31, 2019 of $0.30 per share as quoted on the NYSE
American exchange. See Note 11, “Employee Stock Compensation
Plans” to our consolidated financial statements in Item 8,
“Financial Statements and Supplementary Data of this Form
10-K for a discussion of the activity in our 2013 Plan during 2019
and 2018. We do not anticipate that stock option exercises will be
a significant source of cash during 2020.
31
Share Repurchase Program
On
October 28, 2015, our Board of Directors approved a share
repurchase program that authorized us to purchase up to two million
shares of our outstanding common stock. During 2019, our Board of
Directors extended the term of the share repurchase program until
December 31, 2020. All shares purchased to date have reduced the
number of shares of outstanding common stock. The amount and timing
of any shares purchased has been and will be determined by our
management and the purchases will be effected in the open market or
in privately negotiated transactions based upon market conditions
and other factors, including price, regulatory requirements and
capital availability and in compliance with applicable state and
federal securities laws. Purchases may also be made in accordance
with Rule 10b-18 of the Exchange Act. The repurchase program does
not require the purchase of any minimum number of shares of common
stock by the Company, and may be suspended, modified or
discontinued at any time without prior notice. No purchases have
been or will be made outside of the United States, including on the
TSX. Payments for shares of common stock repurchased under the
program are being funded using the Company’s working capital.
As of December 31, 2019, since the inception of the share
repurchase program, we have purchased a total of 969,300 shares for
an aggregate purchase price of $462,000 and these shares are no
longer included in our issued and outstanding shares. We anticipate
we will continue to purchase shares under the share repurchase plan
during 2020 as determined by management.
Off-balance sheet arrangements
As of
December 31, 2019, and 2018, we have no off-balance sheet
arrangements.
(e).
Cash Flows
Net
cash used in operations during the year ended December 31, 2019
increased to $2,639,000 compared to $1,357,000 for the year ended
December 31, 2018 primarily as a result of (i) the Drilling
Program, which included the use of cash of $1,580,000, during 2019,
as discussed above, compared to no use of cash for the Drilling
Program during 2018, as the payment of $527,000 for the first
tranche of drilling completed during 2018, was accrued as an
accounts payable in 2018 and paid in 2019 and (ii) a reduction in
mineral property revenue to $408,000 during 2019 for the Royalty
Sale, of which $186,000 was received in cash, compared to the sale
of our Yanacocha Royalty for cash of $502,000 during 2018.
Partially offsetting this increased use of cash in operations was
(i) a decrease in general and administrative expense, excluding
non-cash stock option compensation to $1,025,000 during 2019
compared to $1,294,000 during 2018 and (ii) additional interest
income of $252,000 during 2019 compared to $192,000 during 2018.
These items are discussed in further detail above under
“Results of Operations.”
Net
cash provided by investing activities increased to $3,109,000
during 2019 compared to net cash provided of $1,361,000 during
2018. The primary source of cash was the sale of short-term
investments of $3,338,000 during 2019 compared to $1,371,000 during
2018. During 2019 we used $233,000 to purchase of Vendetta units.
There were no other significant provisions or uses of cash during
2019 or 2018. We anticipate we will continue to utilize proceeds
from the sale of our short-term investments to fund our operations
during 2020.
The net
cash used in financing activities of $13,000 during 2019 and
$101,000 during 2018 were for the repurchase of common stock for
cancellation, discussed above. We anticipate we will use a limited
amount of cash approximating expenditures during each of the past
two years for the repurchase of shares during 2020.
(f). Development Activities, Exploration Activities, Environmental
Compliance and Contractual Obligations
Development Activities
We do
not have any ongoing mineral development activities, which are
activities for the development of mineral properties with reserves
for potential mining.
Exploration Activities
A
historically significant part of our business involves the review
of potential property acquisitions and continuing review and
analysis of properties in which we have an interest, to determine
the exploration and development potential of the properties. In
analyzing expected levels of expenditures for work commitments and
property payments, our obligations to make such payments fluctuate
greatly depending on whether, among other things, we make a
decision to sell a property interest, convey a property interest to
a joint venture, or allow our interest in a property to lapse by
not making the work commitment or payment required. In acquiring
many of our interests in mining claims and leases, we have entered
into agreements, which generally may be canceled at our option. We
are often required to make minimum rental and option payments in
order to maintain our interest in certain claims and leases. Our
net 2019 mineral and surface property rental and option payments,
included in exploration expense, were $13,000. Our 2020 total
exploration property rentals and option payments for properties we
own, have under joint venture, or operate are estimated to be
approximately $859,000. Assuming that our joint ventures continue
in their current status and that we do not appreciably change our
property positions on existing properties, we estimate that our
joint venture partners will pay on our behalf or reimburse us
approximately $816,000 of these annual payments. These obligations
are detailed below under “Contractual Obligations.” In
addition, we may be required to make further payments in the future
if we elect to exercise our options under those agreements or if we
enter into new agreements.
32
Environmental Compliance
We are
subject to various federal, state and local environmental laws and
regulations in the countries where we operate. We are required to
obtain permits in advance of initiating certain of our exploration
activities, to monitor and report on certain activities to
appropriate authorities, and to perform remediation of
environmental disturbance as a result of certain of our activities.
Historically, the nature of our activities of review, acquisition
and exploration of properties prior to the establishment of
reserves, which may include mapping, sampling, geochemistry and
geophysical studies, as well as some limited exploration drilling,
has not resulted in significant environmental impacts in the past.
We have historically carried on our required environmental
remediation expenditures and activities, if any, concurrently with
our exploration activities and expenditures. The expenditures to
comply with our environmental obligations are included in our
exploration expenditures in the statement of operations and have
not been material to our capital or exploration expenditures and
have not had a material effect on our financial position. For the
years ended December 31, 2019 and 2018, we have not capitalized any
costs related to environmental control facilities. We do not
anticipate our exploration activities will result in any material
new or additional environmental expenditures or liabilities in the
near future.
Contractual Obligations
The
following table provides an analysis of our contractual
obligations:
|
|
As of
December 31, 2019 Payments due by period
|
||||
|
(in
thousands)
|
Total
|
Less than
1 year
|
1–3
years
|
4–5
years
|
More than
5 years
|
|
Operating Lease
Obligations (1)
|
$
48
|
$
41
|
$
7
|
$
-
|
$
-
|
|
Mineral property
option and lease payments (2)
|
$
43
|
$
43
|
$
-
|
$
-
|
$
-
|
(1)
Lease obligation on our Wheat Ridge Colorado office.
(3)
Mineral property payments under lease and property claim and
concession payments for the next year, net of joint venture
payments.
(g). Exploration Joint Ventures, Royalty and Other
Properties
The
following discussion relates to an analysis of our anticipated
property exploration plans as of December 31, 2019. Please also see
Note 2, “Mineral Properties,” to the consolidated
financial statements in Item 8, “Financial Statements and
Supplementary Data,” and our discussion of our properties
under Item 2, “Properties” of this Annual Report on
Form 10-K for a more complete discussion of all of our mineral
properties.
Florida Canyon
The
Florida Canyon project is an advanced-stage high-grade zinc project
in Peru. Based on extensive exploration and development work
conducted to date, we believe the property has potential to be
developed into a mine over the next several years. The project is
held in a joint venture between Nexa (61%) and Solitario
(39%).
Solitario and Nexa
jointly completed a PEA in 2017 that incorporated a variety of
Nexa-generated prefeasibility studies into the analysis. The PEA
evaluation included resource estimation, mining and processing
recovery estimates, a preliminary mining and processing plan,
infrastructure layout, environmental considerations and an economic
analysis based on certain base case parameters. The PEA envisioned
an underground mining operation with a 2,500 tonne per day
floatation mill for processing, resulting in a 12.5-year mine life.
Concentrates would be trucked to Nexa’s Cajamarquilla zinc
smelter facility in Lima, Peru.
The
terrain at Florida Canyon is steep and previous project access
supporting surface and underground work programs was conducted by
helicopter. The lack of road access restricted the scope of field
activities to further advance the project. During 2019 limited work
was undertaken on road access to the project, and Nexa expects to
continue to work on completing the road access during 2020. During
2019, Nexa completed the Drilling Program and several significant
drill intercepts were encountered. Solitario reported the results
of the drill intercepts during 2019. Nexa is evaluating the results
of the Drilling Program and Solitario anticipates Nexa will
continue the exploration of Florida Canyon during 2020. Should Nexa
complete the road, heavy equipment will be able to enter the
project area and allow feasibility related activities to proceed
more efficiently. Important future activities that may be
facilitated by the completion of the road are the construction of
an underground tunnel into the Karen-Milagros high-grade zinc zone,
detailed underground resource/reserve definition drilling, surface
drilling designed to increase the project resources and additional
feasibility-related studies.
Solitario’s
payments of $1,580,000 related to the Drilling Program are in the
form of an advance on Solitario’s commitment to fund 30% of
any future development of Florida Canyon under the original joint
venture agreement between Solitario and Nexa. Accordingly, in the
event Florida Canyon is developed, which cannot be assured at this
time, the funds paid to Nexa related to the Drilling Program, will
reduce the amount of Solitario’s obligation to fund 30% of
future development costs, and / or repay any loans from Nexa for
future development costs at Florida Canyon.
33
Lik project
The Lik
project is an advanced-staged high-grade zinc project. The project
is held in a joint venture between Teck (50%) and Solitario
(50%).
Zazu
completed a PEA in 2014 that incorporated a variety of
prefeasibility studies into the analysis. These studies included
resource estimation, mining and processing recovery estimates, a
preliminary mining and processing plan, infrastructure layout,
environmental considerations and an economic analysis based on the
base case parameters. The PEA envisioned an open pit mining
operation with a 5,500 ton per day floatation mill for processing
resulting in a nine-year mine life. Concentrates would be handled
through the DMTS road and port system that currently handles all
concentrate produced by the nearby Red Dog zinc mine of Teck. The
PEA analyzed the Lik project as a stand-alone operation building
its own independent processing, tailings and port
facilities.
During
2019 Solitario and Teck jointly funded a gravity geophysical
program, geologic mapping, geochemical sampling, an evaluation of
past baseline environmental work for mine permitting previously
initiated by Zazu, and rehabilitation work at the Lik camp. Based
on this work, Teck and Solitario are evaluating a modest drilling
program at Lik for 2020. The program, if approved, consists of
drilling two or three core holes totaling approximately 1,000
meters. Drill targets under consideration include an area
approximately one kilometer north of Lik and also below the Lik
deposit to test for stacked mineralized horizons. It is anticipated
Teck will manage the 2020 exploration program as the designated
operator during 2020, although Solitario will remain the operator
of the joint venture in subsequent years.
Other Properties
Our
2020 total exploration and development budget is approximately
$976,000 for exploration and evaluation of the Lik project as well
as our La Promesa project and evaluation of potential new
acquisitions of properties primarily in Peru and in other regions
of North and South America. We expect to carry out our exploration
activities during 2020 utilizing Teck at Lik and our own employees
and contract geologists on our other projects.
(h). Discontinued Projects
We had
no mineral property impairments during 2019 or 2018. We did sell
certain royalty properties in the Royalty Sale during 2019,
discussed above under “Recent
Developments.”
(i). Significant Accounting Policies
See
Note 1, “Business and Summary of Significant Accounting
Policies,” in Item 8, “Financial Statements and
Supplementary Data” of this Form 10-K for a discussion of our
significant accounting policies.
(j). Related Party Transactions
None
(k). Recent Accounting Pronouncements
See
Note 1, “Business and Summary of Significant Accounting
Policies,” in Item 8 “Financial Statements and
Supplementary Data” of this Form 10-K for a discussion of
recent accounting pronouncements.
I
tem 7A.
Quantitative and Qualitative
Disclosures about Market Risk
Smaller
reporting companies are not required to provide the information
required by this item.
34
I
tem 8.
Financial Statements and Supplementary
Data
|
|
|
Page
|
|
Consolidated
Financial Statements
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
36
|
|
|
Consolidated
Balance Sheets as of December 31, 2019 and 2018
|
37
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2019 and
2018
|
38
|
|
|
Consolidated
Statements of Shareholders' Equity for the years ended December 31,
2019 and 2018
|
39
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2019 and
2018
|
40
|
|
|
Notes
to Consolidated Financial Statements
|
41
|
35
Report of Independent Registered Public Accounting
Firm
To the
Shareholders and Board of Directors
Solitario
Zinc Corp.
Wheat
Ridge, Colorado
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Solitario
Zinc Corp. (the “Company”) as of December 31, 2019 and
2018, the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 2019, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018,
and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 2019, in
conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
The
Company's management is responsible for these financial statements.
Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
We have
served as the Company’s auditor since 2005.
Denver,
Colorado
February
28, 2020
36
SOLITARIO
ZINC CORP.
CONSOLIDATED
BALANCE SHEETS
|
(in thousands of
U.S. dollars, except share and per share amounts)
|
December 31,
|
December 31,
|
|
|
2019
|
2018
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$
574
|
$
117
|
|
Short-term
investments, at fair value
|
6,829
|
10,223
|
|
Investments
in marketable equity securities, at fair value
|
1,039
|
1,585
|
|
SilverStream
note receivable
|
268
|
-
|
|
Prepaid
expenses and other
|
46
|
211
|
|
Total
current assets
|
8,756
|
12,136
|
|
|
|
|
|
Mineral
properties
|
15,617
|
15,657
|
|
Other
assets
|
159
|
110
|
|
Total
assets
|
$
24,532
|
$
27,903
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
228
|
$
688
|
|
Operating
lease liability
|
41
|
-
|
|
Total
current liabilities
|
269
|
688
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
Asset
retirement obligation - Lik
|
125
|
125
|
|
Operating
lease liability
|
7
|
-
|
|
Total
long-term liabilities
|
132
|
125
|
|
|
|
|
|
Commitments
and contingencies (Note 10)
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
Preferred
stock, $0.01 par value, authorized 10,000,000 shares (none issued
and outstanding at December 31, 2019 and 2018)
|
-
|
-
|
|
Common
stock, $0.01 par value, authorized, 100,000,000 shares
(58,133,066 and 58,171,466, respectively, shares issued and
outstanding at December 31, 2019 and 2018)
|
581
|
582
|
|
Additional
paid-in capital
|
70,204
|
69,873
|
|
Accumulated
deficit
|
(46,654
)
|
(43,365
)
|
|
Total
shareholders' equity
|
24,131
|
27,090
|
|
Total
liabilities and shareholders' equity
|
$
24,532
|
$
27,903
|
See
Notes to Consolidated Financial Statements.
37
SOLITARIO
ZINC CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(in thousands,
except share and per share amounts)
|
For the years ended December
31,
|
|
|
|
2019
|
2018
|
|
Revenue, net
– mineral property sale
|
$
408
|
$
502
|
|
|
|
|
|
Costs,
expenses and other
|
|
|
|
Exploration
expense
|
1,807
|
1,254
|
|
Depreciation
and amortization
|
25
|
25
|
|
General
and administrative
|
1,368
|
1,954
|
|
Total
costs, expenses and other
|
3,200
|
3,233
|
|
Other
(expense) income
|
|
|
|
Interest
and dividend income (net)
|
252
|
192
|
|
Unrealized
loss on marketable equity securities
|
(711
)
|
(1,058
)
|
|
Loss on
derivative instruments
|
(38
)
|
-
|
|
Loss on
sale of assets
|
-
|
(1
)
|
|
Total
other income (expense)
|
(497
)
|
(867
)
|
|
Net
loss
|
$
(3,289
)
|
$
(3,598
)
|
|
Loss
per common share
|
|
|
|
basic
and diluted
|
$
(0.06
)
|
$
(0.06
)
|
|
Weighted
average shares outstanding
|
|
|
|
Basic
and diluted
|
58,143
|
58,360
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
38
SOLITARIO
ZINC CORP.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
(in thousands, of
U.S. Dollars
|
|
|
|
Accumulated
|
|
|
|
except
share amounts)
|
|
Additional
|
|
Other
|
Total
|
|
|
|
Common Stock
|
Paid-in
|
Accumulated
|
Comprehensive
|
Shareholders’
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income
|
Equity
|
|
Balance
at December 31, 2017
|
58,434,566
|
$
584
|
$
69,312
|
$
(40,343
)
|
$
576
|
$
30,129
|
|
|
|
|
|
|
|
|
|
Cumulative-effect
adjustment
change
in accounting principle
|
-
|
-
|
-
|
576
|
(576
)
|
-
|
|
Adjusted
balance – January 1, 2018
|
58,434,566
|
584
|
69,312
|
(39,767
)
|
-
|
30,129
|
|
|
|
|
|
|
|
|
|
Stock option
expense
|
-
|
-
|
660
|
-
|
-
|
660
|
|
Repurchase of
shares for
cancellation
|
(263,100
)
|
(2
)
|
(99
)
|
|
|
(101
)
|
|
Net
loss
|
-
|
-
|
-
|
(3,598
)
|
-
|
(3,598
)
|
|
Balance
at December 31, 2018
|
58,171,466
|
582
|
69,873
|
(43,365
)
|
-
|
27,090
|
|
|
|
|
|
|
|
|
|
Stock option
expense
|
-
|
-
|
343
|
-
|
-
|
343
|
|
Repurchase of
shares for
cancellation
|
(38,400
)
|
(1
)
|
(12
)
|
|
|
(13
)
|
|
Net
loss
|
-
|
-
|
-
|
(3,289
)
|
-
|
(3,289
)
|
|
Balance
at December 31, 2019
|
58,133,066
|
$
581
|
$
70,204
|
$
(46,654
)
|
$
-
|
$
24,131
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
39
SOLITARIO
ZINC CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
(in thousands of
U.S. Dollars)
|
For the year
ended
December 31,
|
|
|
|
2019
|
2018
|
|
Operating
activities:
|
|
|
|
Net
loss
|
$
(3,289
)
|
$
(3,598
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Unrealized loss on marketable equity securities
|
711
|
1,058
|
|
Loss
on derivative instruments
|
38
|
-
|
|
Employee
stock option expense
|
343
|
660
|
|
Depreciation
|
25
|
25
|
|
Amortization
of right of use lease asset
|
37
|
-
|
|
Loss
on sale of assets
|
-
|
1
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Prepaid
expenses and other current assets
|
216
|
(50
)
|
|
Note
receivable, net of mineral property sold
|
(223
)
|
-
|
|
Accounts
payable and other current liabilities
|
(497
)
|
547
|
|
Net
cash (used in) operating activities
|
(2,639
)
|
(1,357
)
|
|
|
|
|
|
Investing
activities:
|
|
|
|
Sale of
short-term investments - net
|
3,338
|
1,371
|
|
Purchase
of Vendetta units
|
(233
)
|
-
|
|
Sale of
Kinross calls
|
9
|
-
|
|
Additions
to other assets
|
(5
)
|
(10
)
|
|
Net
cash provided by investing activities
|
3,109
|
1,361
|
|
|
|
|
|
Financing
activities:
|
|
|
|
Repurchase
of Solitario common stock for cancellation
|
(13
)
|
(101
)
|
|
Net
cash used in financing activities
|
(13
)
|
(101
)
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
457
|
(97
)
|
|
Cash
and cash equivalents, beginning of year
|
117
|
214
|
|
Cash
and cash equivalents, end of year
|
$
574
|
$
117
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
40
SOLITARIO
ZINC CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For the
years ended December 31, 2019 and 2018
1.
Business and Summary of
Significant Accounting Policies
Business and company formation
Solitario Zinc
Corp. (“Solitario,” or the “Company”) is an
exploration stage company as defined in Industry Guide 7, as issued
by the United States Securities and Exchange Commission
(“SEC”). Solitario was incorporated in the state of
Colorado on November 15, 1984 as a wholly owned subsidiary of Crown
Resources Corporation ("Crown"). In July 1994, Solitario became a
publicly traded company on the Toronto Stock Exchange (the "TSX")
through its initial public offering. Solitario has been actively
involved in mineral exploration since 1993. Solitario’s
primary business is to acquire exploration mineral properties
and/or discover economic deposits on its mineral properties and
advance these deposits, either on its own or through joint
ventures, up to the development stage. At that point, or sometime
prior to that point, Solitario would likely attempt to sell its
mineral properties, pursue their development either on its own, or
through a joint venture with a partner that has expertise in mining
operations, or create a royalty with a third party that continues
to advance the property. Solitario is primarily focused on the
acquisition and exploration of zinc-related exploration mineral
properties. In addition to focusing on its mineral exploration
properties and the evaluation of mineral properties for
acquisition. Solitario also evaluates potential strategic corporate
transactions as a means to acquire an interest in new precious and
base metal properties and assets with exploration potential as well
as other potential corporate transactions and business combinations
that Solitario determines to be favorable to
Solitario.
Solitario has
recorded revenue in the past from the sale of mineral properties,
including the sale of certain mineral royalty properties in January
2019, discussed below, and the sale in June 2018 of its interest in
the royalty on the Yanacocha property. Revenues and / or proceeds
from the sale or joint venture of properties or assets have not
been a consistent annual source of cash and would only occur in the
future, if at all, on an infrequent basis.
Solitario
currently considers its carried interest in the Florida Canyon
project and its interest in the Lik project to be its core mineral
property assets. Nexa Resources, Ltd. (“Nexa”),
Solitario’s joint venture partner, is continuing the
exploration and furtherance of the Florida Canyon project and
Solitario is monitoring progress at Florida Canyon. Solitario is
working with its 50% joint venture partner, Teck American
Incorporated, a wholly owned subsidiary of Teck Resources Limited
(both companies are referred to as “Teck”), in the Lik
deposit to further the exploration of the Lik project, and to
evaluate potential development plans for the Lik
project.
As
of December 31, 2019 and 2018, Solitario has significant balances
of cash and short-term investments that Solitario anticipates
using, in part, to further the development of the Florida Canyon
project and the Lik project and to potentially acquire additional
mineral property assets. The fluctuations in precious metal and
other commodity prices has contributed to a challenging environment
for mineral exploration and development, which has created
opportunities as well as challenges for the potential acquisition
of early-stage and advanced mineral exploration projects or other
related assets at potentially attractive terms.
Recent Developments
On
January 22, 2019, Solitario completed the sale of its interest in
certain royalties to SilverStream SEZC, a private Cayman Island
royalty and streaming company (“SilverStream”) for
Cdn$600,000 (the “Royalty Sale”). The Royalty Sale
covered (i) a royalty on the formerly Solitario-owned 125,000-acre
polymetallic Pedra Branca palladium, platinum, gold, nickel, cobalt
and chrome project in Brazil, (ii) a royalty covering 3,880 acres
of non-producing exploration properties in Mexico, and (iii) a
purchase option on royalties covering 11 separate non-producing
properties covering over 16,500 acres in Montana. At closing of the
Royalty Sale, Solitario received Cdn$250,000 in cash and a
convertible note from SilverStream in the principal amount of
Cdn$350,000 (the “SilverStream Note”). The SilverStream
Note was originally due December 31, 2019, accrued 5% per annum
simple interest, payable on a quarterly basis, and is convertible
into common shares of SilverStream, at the discretion of
SilverStream, by providing Solitario a notice of conversion. In
December of 2019, Solitario and SilverStream agreed to extend the
due date of the SilverStream Note to June 30, 2020, and to increase
the interest rate to 8% per annum simple interest. All other terms
of the SilverStream Note remained the same. SilverStream may only
provide a notice of conversion if SilverStream has completed an
initial public offering during the term of the SilverStream Note
for minimum proceeds of Cdn$5,000,000, otherwise the SilverStream
Note will be payable in cash at the maturity date. Pursuant to the
terms of the SilverStream Note, if SilverStream were to complete an
initial public offering and the SilverStream Note was converted,
Solitario would receive common shares converted at 85% of the
weighted average quoted price of a share of SilverStream common
stock for the most recent 10-day period prior to the notice of
conversion. During 2019, Solitario recorded mineral property
revenue of $408,000 for the Royalty Sale, consisting of the fair
value of the cash received on the date of the sale of $185,000 and
the fair value of the SilverStream Note on the date of the sale of
$263,000 less the carrying value of the royalties sold of $40,000.
Solitario recorded interest income of $12,000 from the SilverStream
Note during 2019. As of December 31, 2019, the SilverStream Note
was recorded at $268,000, based upon the current US dollar /
Canadian dollar exchange rate, and Solitario recorded a credit to
exchange gain of $5,000, included in general and administrative
expense during 2019.
41
Financial reporting
The
consolidated financial statements include the accounts of Solitario
and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States
of America ("generally accepted accounting principles") and are
expressed in US dollars.
Revenue recognition
Solitario has
recorded revenue from the sale of exploration mineral properties
and joint venture property payments. Solitario’s policy is to
recognize revenue from the sale of its exploration mineral
properties (those without reserves) on a property by property
basis, computed as the cash received and / or collectable
receivables less any capitalized cost. Payments received for the
sale of exploration property interests that are less than the
properties cost are recorded as a reduction of the related
property's capitalized cost. In addition, Solitario’s policy
is to recognize revenue on any receipts of joint venture property
payments in excess of its capitalized costs on a property that
Solitario may lease to another mining company.
Solitario has
recognized revenue during 2019 of $408,000 related to the Royalty
Sale, discussed above, and of $502,000 during 2018 from the sale of
its former Yanacocha exploration mineral property. Solitario
expects any property sales in the future to be on an infrequent
basis. Prior to the Yanacocha sale, the last proceeds from joint
venture property payments was in 2015 and Solitario does not expect
to record joint venture property payments on any of its currently
held properties for the foreseeable future. Historically,
Solitario’s revenues have been infrequent and significant
individual transactions and have only been from sales to well known
or vetted mining companies. Solitario has never had a return on any
of its sales recorded as revenue in its history and does not
anticipate it will recognize any estimated returns on its current
or future recorded revenues.
Use of estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Some of
the more significant estimates included in the preparation of
Solitario's financial statements pertain to: (i) the recoverability
of mineral properties related to its mineral exploration properties
and their future exploration potential; (ii) the fair value of
stock option grants to employees; (iii) the ability of Solitario to
realize its deferred tax assets; (iv) Solitario's investment in
marketable equity securities; and (v) the collectability of the
SilverStream Note.
In
performing its activities, Solitario has incurred certain costs for
mineral properties. The recovery of these costs is ultimately
dependent upon the sale of mineral property interests or the
development of economically recoverable ore reserves and the
ability of Solitario to obtain the necessary permits and financing
to successfully place the properties into production, and upon
future profitable operations, none of which is
assured.
Cash and cash equivalents
Cash
equivalents include investments in highly liquid money-market
securities with original maturities of three months or less when
purchased. At December 31, 2019, approximately $554,000 of
Solitario’s cash and cash equivalents are held in brokerage
accounts and foreign banks, which are not covered under the Federal
Deposit Insurance Corporation (“FDIC”) rules for the
United States.
Short-term investments
At
December 31, 2019, Solitario has United States Treasury securities
(“USTS”) with maturities of 30 days to 17 months
recorded at their fair value of $6,829,000. Solitario’s
short-term investments are recorded at their fair value, based upon
quoted market prices. The short-term investments are highly liquid
and may be sold in their entirety at any time at their quoted
market price and are classified as a current asset.
42
Mineral
properties
Solitario expenses
all exploration costs incurred on its mineral properties prior to
the establishment of proven and probable reserves through the
completion of a feasibility study. Initial acquisition costs of its
mineral properties are capitalized. Solitario regularly performs
evaluations of its investment in mineral properties to assess the
recoverability and/or the residual value of its investments in
these assets. All long-lived assets are reviewed for impairment
whenever events or circumstances change which indicate the carrying
amount of an asset may not be recoverable, utilizing established
guidelines based upon undiscounted future net cash flows from the
asset or upon the determination that certain exploration properties
do not have sufficient potential for economic
mineralization.
Derivative instruments
Solitario accounts
for its derivative instruments in accordance with ASC 815,
"Accounting for Derivative Instruments and Hedging Activities"
(“ASC 815”).
During 2016, Solitario acquired
its initial investment in Vendetta Mining Corp.
(“Vendetta”) units, including the 2016 Vendetta
Warrants (defined below). During 2017, Solitario exercised all of
the 2016 Vendetta Warrants. During 2019, Solitario acquired
additional Vendetta units, which included 2019 Vendetta Warrants
(defined below). Changes in fair value of the 2019 Vendetta
Warrants are recognized in the statements of operations in the
period of change as gain or loss on derivative instruments.
Solitario has entered into covered calls from time to time on its
investment in Kinross marketable equity securities. Solitario has
not designated its covered calls as hedging instruments and any
changes in the fair value of the covered calls and its warrants are
recognized in the statements of operations in the period of the
change as gain or loss on derivative instruments.
Fair value
Financial
Accounting Standards Board ASC 820, “Fair Value Measurements
and Disclosures” (“ASC 820”) establishes a
framework for measuring fair value and requires enhanced
disclosures about fair value measurements. ASC 820 clarifies that
fair value is an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. For certain of
Solitario's financial instruments, including cash and cash
equivalents accounts payable and the SilverStream Note, the
carrying amounts approximate fair value due to their short-term
maturities. Solitario's short-term investments in USTS, its
marketable equity securities and any covered call options against
those marketable equity securities are carried at their estimated
fair value based on quoted market prices. See Note 9, “Fair
Value of Financial Instruments,” below.
Marketable equity securities
Solitario's
investments in marketable equity securities are classified as
available-for-sale and are carried at fair value, which is based
upon quoted prices of the securities owned. Solitario records
investments in marketable equity securities as available-for-sale
for investments in publicly traded marketable equity securities for
which it does not exercise significant control and where Solitario
has no representation on the board of directors of those companies
and exercises no control over the management of those companies.
The cost of marketable equity securities sold is determined by the
specific identification method. Changes in fair value are recorded
as unrealized gain or loss in the consolidated statement of
operations.
Foreign exchange
The
United States dollar is the functional currency for all of
Solitario's foreign subsidiaries. Although Solitario's South
American exploration activities during 2019 and 2018 were conducted
primarily in Peru, a portion of the payments for the land,
leasehold and exploration agreements as well as certain exploration
activities are denominated in United States dollars. Foreign
currency gains and losses are included in the results of operations
in the period in which they occur.
Income taxes
Solitario accounts
for income taxes in accordance with ASC 740, “Accounting for
Income Taxes” (“ASC 740”). Under ASC 740, income
taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus
deferred taxes related to certain income and expenses recognized in
different periods for financial and income tax reporting purposes.
Deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses
and tax credits that are available to offset future taxable income
and income taxes, respectively. A valuation allowance is provided
if it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
43
Accounting for uncertainty in income taxes
ASC
740 clarifies the accounting for uncertainty in income taxes
recognized in a company's financial statements. ASC 740 prescribes
a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. ASC 740 also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. ASC 740
provides that a company's tax position will be considered settled
if the taxing authority has completed its examination, the company
does not plan to appeal, and it is remote that the taxing authority
would reexamine the tax position in the future. These provisions of
ASC 740 had no effect on Solitario's financial position or results
of operations. See Note 7, “Income Taxes,”
below.
Earnings per share
The
calculation of basic and diluted earnings (loss) per share is based
on the weighted average number of shares of common stock
outstanding during the years ended December 31, 2019 and 2018.
Potentially dilutive shares, consisting of outstanding common stock
options for 4,373,000 and 5,223,160, respectively, Solitario common
shares were excluded from the calculation of diluted earnings
(loss) per share for the year ended December 31, 2019 and 2018
because the effects were anti-dilutive.
Employee stock compensation and incentive plans
Solitario
classifies all of its stock options as equity options in accordance
with the provisions of ASC 718, “Compensation – Stock
Compensation.” See Note 11, “Employee Stock
Compensation Plans,” below.
Recently adopted accounting pronouncements
On
January 1, 2019, Solitario adopted Accounting Standards Update No.
2016-02
Leases
(“ASU
2016-02”) which requires the application of ASC 842
and the recognition of right-of-use
assets and related liabilities associated with all leases that are
not short-term in nature. As a result of the adoption of ASU
2016-02, Solitario recorded both an operating lease asset for its
Wheat Ridge, Colorado office of $82,000 and an operating lease
liability of $82,000 related to the same lease. The adoption of ASU
2016-02 did not require the recording of any other assets or
liabilities on our condensed consolidated balance sheets and had an
immaterial effect on Solitario’s consolidated statement of
operations for 2019 and its consolidated statement of cash flows
for 2019. Solitario has elected the practical expedient option to
use January 1, 2019, the effective date of adoption, as the initial
date of transition and not to restate comparative prior periods and
to carry forward historical lease classification. See Note 4,
“Operating Leases” for more information and disclosures
regarding Solitario’s leases.
Recently issued accounting pronouncements
In 2018, the SEC adopted amendments to the disclosure requirements
for mining registrants. Under these new rules, SEC Industry Guide 7
will be rescinded and replaced with the disclosure standards under
new Regulation S-K Subpart 1300. SEC Industry Guide 7 remains in
effect, subject to a transition period. Solitario will be required
to comply with the new rules for fiscal years 2021 and after.
Accordingly, future adjustment to estimates of mineralized material
will occur due to the differing standards under the new
requirements including, but not limited to, the replacement of any
estimate of mineralized material with an estimate of “mineral
resources.”
The
FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses
(Topic 326): Measurements of Credit Losses on Financial
Statements
(“ASU No. 2016-13”)
.
Among other things, these amendments
require the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts.
Financial institutions and other organizations will now use
forward-looking information to better inform their credit loss
estimates. ASU No. 2016-13 is effective for Solitario for fiscal
year, and interim periods within those fiscal years, beginning
after December 15, 2019. Solitario does not expect the adoption of
ASU No. 2016-13 to have a material impact on its consolidated
financial position or results of operations.
44
2.
Mineral
Properties
:
The
following table details Solitario’s capitalized investment in
exploration mineral property:
|
(in
thousands)
|
December 31,
|
|
|
|
2019
|
2018
|
|
Exploration
|
|
|
|
Lik
project (Alaska – US)
|
$
15,611
|
$
15,611
|
|
La
Promesa (Peru)
|
6
|
6
|
|
Montana
Royalty property (US)
|
-
|
40
|
|
Total
exploration mineral property
|
$
15,617
|
$
15,657
|
Exploration property
Solitario's
exploration mineral properties at December 31, 2019 and 2018
consist of use rights related to its exploration properties, and
the value of such assets is primarily driven by the nature and
amount of economic mineral ore believed to be contained, or
potentially contained, in such properties. The amounts capitalized
as mineral properties include concession and lease or option
acquisition costs. Capitalized costs related to a mineral property
represent its fair value at the time it was acquired. At December
31, 2019, none of Solitario’s exploration properties have
production (are operating) or contain proven or probable reserves.
Solitario's exploration mineral properties represent interests in
properties that Solitario believes have exploration and development
potential. Solitario's mineral use rights generally are enforceable
regardless of whether proven and probable reserves have been
established.
In
addition to its capitalized exploration properties, Solitario has
an interest in its Florida Canyon exploration concessions, which
are currently subject to a joint venture agreement where joint
venture partners made stand-by joint venture payments to Solitario
prior to January 1, 2015. Solitario recorded joint venture property
payment revenue received in excess of capitalized costs. Per the
joint venture agreement, as of December 31, 2019, no further
standby joint-venture payments are due to Solitario on the Florida
Canyon project. At December 31, 2019 and 2018, Solitario has no
remaining capitalized costs related to its Florida Canyon joint
venture.
On
January 22, 2019, Solitario completed the Royalty Sale, discussed
above under “Recent Developments” to SilverStream for
Cdn$600,000. At closing of the Royalty Sale, Solitario received
Cdn$250,000 in cash and the SilverStream Note with a principal
amount of Cdn$350,000, and a maturity date of December 31, 2019,
which was subsequently extended to June 30, 2020. During the nine
months ended September 30, 2019, Solitario recorded mineral
property revenue of $408,000 from the Royalty Sale, consisting of
the fair value of the cash received on the date of the sale of
$185,000 and the fair value of the SilverStream Note on the date of
the sale of $263,000, less the carrying value of the royalties sold
of $40,000.
On
April 26, 2018, Solitario sold the Yanacocha Royalty to Newmont for
$502,000 in cash. Newmont owns the underlying mineral concessions
covered by the Yanacocha Royalty. None of the concessions covered
by the Yanacocha Royalty have any reported reserves or resources.
Solitario had no mineral property capitalized cost in the Yanacocha
Royalty and recorded Mineral Property Revenue of $502,000 during
2018.
Discontinued projects
Solitario did not
abandon or impair any of its properties during 2019 or 2018 and did
not record any mineral property write-downs during the years ended
December 31, 2019 or 2018.
45
Exploration Expense
The
following items comprised exploration expense:
|
|
For the year
ended
December 31,
|
|
|
(in
thousands)
|
2019
|
2018
|
|
Geologic and field
expenses
|
$
1,726
|
$
1,165
|
|
Administrative
|
81
|
89
|
|
Total
exploration expense
|
$
1,807
|
$
1,254
|
Asset Retirement Obligation
In
connection with the acquisition of Zazu, Solitario recorded an
asset retirement obligation of $125,000 for Solitario’s
estimated reclamation cost of the existing disturbance at the Lik
project. This disturbance consists of an exploration camp including
certain drill sites and access roads at the camp. The estimate was
based upon estimated cash costs for reclamation as determined by
the permitting bond required by the State of Alaska, for which
Solitario has retained a reclamation bond insurance policy in the
event Solitario or its 50% partner, Teck, do not complete required
reclamation.
Solitario has not
applied a discount rate to the recorded asset retirement obligation
as the estimated time frame for reclamation is not currently known,
as reclamation is not expected to occur until the end of the Lik
project life, which would follow future development and operations,
the start of which cannot be estimated or assured at this time.
Additionally, no depreciation will be recorded on the related asset
for the asset retirement obligation until the Lik project goes into
operation, which cannot be assured.
3.
Marketable Equity
Securities
On May
2, 2016, Solitario purchased 7,240,000 units of Vendetta for
aggregate consideration of $289,000. Each unit included one common
share of Vendetta and one warrant which allow the holder to
purchase one share of Vendetta common stock at a price of Cdn$0.10
per share for a period of two years (the “2016 Vendetta
Warrants”). The purchase price of the units of $289,000 was
allocated between the Vendetta common shares and the 2016 Vendetta
Warrants based upon total fair values on the date of purchase. The
Vendetta common stock was allocated a purchase cost of $186,000 and
the 2016 Vendetta Warrants were allocated a purchase cost of
$103,000. During 2017 Solitario exercised all of its 2016 Vendetta
Warrants and sold 3,480,000 shares of Vendetta common
stock.
On July
31, 2019, Solitario purchased 3,450,000 Vendetta units for
aggregate consideration of $233,000. Each unit consisted of one
share of Vendetta common stock and one warrant which allows the
holder to purchase one additional share of Vendetta common stock at
a purchase price of Cdn$0.13 per share for a period of three years
(the “2019 Vendetta Warrants”). The purchase of the
units on July 31, 2019 increased Solitario’s holdings of
Vendetta common shares to 14,450,000 shares. On the purchase date
Solitario recorded marketable equity securities of $165,000 for the
Vendetta shares acquired and $68,000 for the 2019 Vendetta Warrants
based upon an allocation of the purchase price of the Vendetta
units, based upon (i) the fair value of the Vendetta common shares
received, based upon the quoted market price for Vendetta common
shares and (ii) the fair value of 2019 Vendetta Warrants based upon
a Black Scholes model, using the stock price of Cdn$0.09,
volatility of 79%, a term of three years and a discount rate of
1.5%. During 2019, Solitario charged loss on derivative instruments
$47,000 for the change in the value of the 2019 Vendetta
Warrants.
As of
December 31, 2019, Solitario owned 14,500,000 shares of Vendetta
common stock which are carried at their fair value based upon the
quoted market price of Vendetta, whose common shares are listed on
the TSX venture exchange, and included in marketable equity
securities.
The
following tables summarize Solitario’s marketable equity
securities and adjustments to fair value:
|
(in
thousands)
|
Year ended December
31,
|
|
|
|
2019
|
2018
|
|
Marketable
equity securities at cost
|
$
1,879
|
$
1,714
|
|
Cumulative
unrealized (loss) gain on marketable equity securities
|
(840
)
|
(129
)
|
|
Marketable
equity securities at fair value
|
$
1,039
|
$
1,585
|
46
During
2019 Solitario added 3,450,000 shares of Vendetta through the
purchase of the Vendetta units, discussed above, and recorded an
increase in marketable equity securities of $165,000. Solitario did
not acquire any marketable equity securities during 2018. Solitairo
did not sell any marketable equity securities during 2019 or 2018.
Solitario recorded a loss on marketable equity securities of
$711,000 and $1,058,000, respectively, during 2019 and 2018 for the
change in the fair value of its marketable equity
securities.
4.
Operating
Lease
Solitario adopted
ASU 2016-02 effective January 1, 2019 and accounts for its leases
in accordance with ASC 842. Solitario leases one facility, its
Wheat Ridge, Colorado administrative office (the “WR
Lease”), that has a term of more than one year. Solitario has
no other material operating lease costs. The WR Lease is classified
as an operating lease and has a term of 14 months at December 31,
2019, with no renewal option. At December 31, 2019, the
right-of-use office lease asset for the WR Lease is classified as
other assets and the related liability separated between current
and non-current office lease liabilities in the consolidated
balance sheet. Lease expense is recognized on a straight-line basis
over the lease term, with variable lease payments recognized in the
period those payments are incurred. During 2019, Solitario
recognized $40,000 of non-cash lease expense for the WR Lease
included in general and administrative expense. Cash lease payments
of $37,000 were made on the WR Lease during 2019 and this amount,
less $3,000 of imputed interest during 2019, reduced the related
liability on the WR Lease. The discount rate within the WR Lease is
not determinable and Solitario applied a discount rate of 5% based
upon Solitario’s estimate of its cost of capital in recording
the WR Lease.
The
maturities of Solitario’s lease liability for its WR Lease
are as follows at December 31, 2019:
|
(in
thousands)
|
|
|
Lease payments per
year
|
|
|
2020
|
$
42
|
|
2021
|
7
|
|
Total lease
payments
|
49
|
|
Less
amount of payments representing interest
|
(1
)
|
|
Present
value of lease payments
|
$
48
|
The
following is supplemental cash flow information related to our
operating lease for 2019:
|
(in
thousands)
|
Year ended December 31,
2019
|
|
|
|
|
Cash paid for
amounts included in the measurement of lease
liabilities
|
|
|
Operating
cash outflows from WR Lease payments
|
$
37
|
|
Non-cash amounts
related to the WR lease
|
|
|
Right
of use assets recorded in exchange for new operating lease
liabilities
|
$
82
|
47
5.
Other
Assets
The
following items comprised other assets:
|
(in
thousands)
|
December 31,
|
|
|
|
2019
|
2018
|
|
Furniture and
fixtures, net of accumulated depreciation
|
$
39
|
$
36
|
|
Lik project
equipment, net of accumulated depreciation
|
50
|
70
|
|
Office lease
asset
|
45
|
-
|
|
Vendetta
warrants
|
21
|
-
|
|
Exploration bonds
and other assets
|
4
|
4
|
|
Total
other assets
|
$
159
|
$
110
|
During
2017, Solitario acquired $100,000 of exploration-related equipment
at the Lik project as part of the acquisition of the Lik project.
The equipment is being depreciated over a five-year life on a
straight-line basis and Solitario recorded depreciation expense of
$20,000 during 2019 and 2018 related to this
equipment.
On July
31, 2019, Solitario acquired the 2019 Vendetta Warrants and
recorded $68,000 for the fair value of the 2019 Vendetta Warrants,
discussed above, and recorded a loss on derivative instruments
related to the 2019 Vendetta Warrants of $47,000, see Note 8,
“Derivative Instruments,” below.
6.
Revenue mineral property
sale
On
January 22, 2019, Solitario completed the sale of its interest in
certain royalties to SilverStream, discussed above and recorded
mineral property revenue of $408,000 for the Royalty Sale,
consisting of the fair value of the cash received on the date of
the sale of $185,000 and the fair value of the SilverStream Note on
the date of the sale of $263,000 less the carrying value of the
royalties sold of $40,000.
At
closing of the Royalty Sale, Solitario received Cdn$250,000 in cash
and the SilverStream Note in the principal amount of Cdn$350,000.
As of December 31, 2019, the SilverStream Note is due June 30, 2020
and accrues interest at 8% per annum simple interest. Solitario
recorded interest income of $12,000 from the SilverStream Note
during 2019. As of December 31, 2019, the SilverStream Note was
recorded at $268,000, based upon the current US dollar / Canadian
dollar exchange rate, and Solitario recorded a credit to exchange
gain of $5,000 related to the SilverStream Note, included in
general and administrative expense during 2019.
On
April 26, 2018, Solitario sold its royalty interest in the
non-producing Yanacocha property to a wholly owned subsidiary of
Newmont for approximately $502,000 in cash. The Yanacocha Royalty
covered 43 concessions totaling 36,052 hectares. Newmont owns the
underlying mineral concessions covered by the Yanacocha Royalty.
None of the concessions covered by the Yanacocha Royalty had any
reported reserves or resources. Solitario had no mineral property
capitalized cost in the Yanacocha Royalty and recorded Mineral
Property Revenue of $502,000 during 2018.
48
7.
Income
Taxes
:
Consolidated loss
before income taxes includes losses from foreign operations of
$1,261,000 and $260,000 in 2019 and 2018,
respectively.
The net
deferred tax assets/liabilities in the December 31, 2019 and 2018
consolidated balance sheets include the following
components:
|
(in
thousands)
|
2019
|
2018
|
|
Deferred tax
assets:
|
|
|
|
Loss
carryovers
|
$
13,284
|
$
12,432
|
|
Investment
in Mineral Property
|
1,669
|
1,669
|
|
Capitalized
Exploration Costs
|
652
|
877
|
|
Stock
option compensation expense
|
228
|
150
|
|
Unrealized
loss on derivative securities
|
237
|
60
|
|
Other
|
135
|
135
|
|
Valuation
allowance
|
(15,999
)
|
(15,099
)
|
|
Total
deferred tax assets
|
206
|
224
|
|
Deferred tax
liabilities:
|
|
|
|
Unrealized
gains on marketable equity securities
|
198
|
209
|
|
Other
|
8
|
15
|
|
Total
deferred tax liabilities
|
206
|
224
|
|
Net
deferred tax liabilities
|
$
-
|
$
-
|
A
reconciliation of expected federal income taxes on income (loss)
from continuing operations at statutory rates, with the expense for
income taxes is as follows:
|
(in
thousands)
|
2019
|
2018
|
|
Expected income tax
benefit
|
$
(691
)
|
$
(756
)
|
|
Equity based
compensation
|
7
|
-
|
|
Foreign tax rate
differences
|
(116
)
|
(27
)
|
|
State income
tax
|
(84
)
|
(143
)
|
|
Expiration of
Capital Loss Carryovers
|
66
|
-
|
|
Adjustment to
Deferred Taxes
|
(101
)
|
2,058
|
|
Change in Tax
Rate
|
-
|
53
|
|
Change in valuation
allowance
|
900
|
(1,164
)
|
|
Permanent
differences and other
|
19
|
(21
)
|
|
Income
tax (benefit) expense
|
$
-
|
$
-
|
49
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the
“Tax Act”) was signed into law making significant
changes to the Internal Revenue Code. Changes include, but are not
limited to, a federal corporate tax rate decrease from 35% to 21%
for tax years beginning after December 31, 2017, the transition of
U.S international taxation from a worldwide tax system to a
territorial system, and a one-time transition tax on the mandatory
deemed repatriation of foreign earnings.
While
the Tax Act provides for a territorial tax system, beginning in
2018, it includes two new U.S. tax base erosion provisions, the
global intangible low-taxed income (“GILTI”) provisions
and the base-erosion and anti-abuse tax (“BEAT”)
provisions. The GILTI provisions require the Company to include in
its U.S. income tax return foreign subsidiary earnings in excess of
an allowable return on the foreign subsidiary’s tangible
assets. The Company currently has no profitable foreign
subsidiaries. Therefore, this provision currently has no impact on
the Company.
The
BEAT provisions in the Tax Act eliminates the deduction of certain
base-erosion payments made to related foreign corporations and
impose a minimum tax if greater than regular tax. The Company does
not expect it will be subject to this tax and therefore has not
included any tax impacts of BEAT in its consolidated financial
statements for the years ended December 31, 2019 and
2018.
As a
result of the ownership change resulting from Solitario’s
acquisition of Zazu Metals (Alaska) Corp, utilization of its United
States Federal and State of Alaska net operating losses will be
limited due to the annual limitation provided by Section 382 of the
Internal Revenue Code.
During
2019, the valuation allowance increased primarily due to the
addition of deferred tax assets related to current year net
operating losses. During 2018, the valuation allowance decreased
primarily due to the adjustments to deferred taxes that were part
of the Zazu acquisition and the disposition of royalties that were
part of the Yanacocha sale.
At
December 31, 2019, Solitario has unused US Federal Net Operating
Loss carryovers of $17,576,000 and unused US State Net Operating
Loss carryovers of $18,174,000 which begin expiring in 2027. As a
result of the ownership change of Zazu Metals (Alaska) Corp,
utilization of some of these federal and state losses will be
limited due to the annual limitation provided by Section 382 of the
Internal Revenue Code. Solitario has unused Capital Loss carryovers
of $10,416,000 for US Federal and US State purposes which begin
expiring in 2020. Solitario has Canadian loss carryforwards of
$9,611,000 which begin expiring in 2027. Other foreign loss
carryforwards for which Solitario has provided a full valuation
allowance related to Solitario’s exploration activities in
Peru. The Peru losses do not expire.
Solitario adopted
ASC 740, which prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return.
ASC 740 requires that Solitario recognize in its consolidated
financial statements, only those tax positions that are
“more-likely-than-not” of being sustained as of the
adoption date, based on the technical merits of the position. As a
result of the implementation of ASC 740, Solitario performed a
comprehensive review of its material tax positions in accordance
with recognition and measurement standards established by ASC 740.
The provisions of ASC 740 had no effect on Solitario’s
financial position, cash flows or results of operations at December
31, 2019 or December 31, 2018, or for the years then ended as
Solitario had no unrecognized tax benefits.
Solitario and its
subsidiaries are subject to the following material taxing
jurisdictions: United States Federal, State of Colorado, State of
Alaska, Canada and Peru. Solitario’s United States federal,
Canada and State of Alaska returns for years 2017 and forward and
Solitario’s Peru and State of Colorado returns for tax years
2015 and forward are subject to examination. Solitario’s
policy is to recognize interest and penalties related to uncertain
tax benefits in income tax expense. Solitario has no accrued
interest or penalties related to uncertain tax positions as of
December 31, 2019, or December 31, 2018 or for the years then
ended.
8.
Derivative
Instruments:
Covered call options
From
time to time Solitario has sold covered call options against its
holdings of Kinross. The business purpose of selling covered calls
is to provide additional income on a limited portion of shares of
Kinross that Solitario may sell in the near term, which is
generally defined as less than one year and any changes in the fair
value of its covered calls are recognized in the statement of
operations in the period of the change. During 2019 Solitario sold
covered calls against its holdings of Kinross for $9,000 in cash,
all of which expired unexercised during 2019. As of December 31,
2019, there were no remaining liabilities related to call
options.
Vendetta Warrants
At
December 31, 2019 Solitario held 2019 Vendetta Warrants which give
Solitario the right to purchase 3,450,000 Vendetta common shares
for Cdn$0.13 per share through July 31, 2022. At December 31, 2019,
Solitario recorded 2019 Vendetta Warrants at their fair value of
$21,000 based upon a Black Scholes model with a stock price of
Cdn$0.05, a term of 2.6 years, a volatility of 65%, and an interest
rate of 1.6%. Solitario recorded a loss on derivative instruments
related to the 2019 Vendetta Warrants of $47,000 during
2019.
50
The
following items comprise gain (loss) on derivative
instruments:
|
(in
thousands)
|
Year
ended
December
31,
|
|
|
|
2019
|
2018
|
|
Gain on
Kinross calls – realized
|
$
9
|
$
-
|
|
Loss on
Vendetta Warrants – unrealized
|
(47
)
|
-
|
|
|
$
(38
)
|
$
-
|
9.
Fair Value of Financial
Instruments
:
For
certain of Solitario's financial instruments, including cash and
cash equivalents, the SilverStream Note, payables and short-term
debt, the carrying amounts approximate fair value due to their
short maturities. Solitario's marketable equity securities,
including its investment in shares of Kinross common stock,
Vendetta common stock and TNR Gold Corp (“TNR”) common
stock, are carried at their estimated fair value based on publicly
available quoted market prices.
Solitario applies
ASC 820 that establishes a framework for measuring fair value and
requires enhanced disclosures about fair value measurements. ASC
820 clarifies that fair value is an exit price, representing the
amount that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants.
ASC 820 also requires disclosure about how fair value is determined
for assets and liabilities and establishes a hierarchy for which
these assets and liabilities must be grouped, based on significant
levels of inputs as follows:
Level 1
: Quoted prices in active markets
for identical assets or liabilities;
Level 2
: Quoted prices in active markets
for similar assets and liabilities and inputs that are observable
for the asset or liability; or
Level 3
: Unobservable inputs in which
there is little or no market data, which require the reporting
entity to develop its own assumptions.
The
determination of where assets and liabilities fall within this
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. During the years ended
December 31, 2019 and 2018, there were no reclassifications in
financial assets or liabilities between Level 1, 2 or 3
categories.
The
following is a listing of Solitario’s financial assets and
liabilities required to be measured at fair value on a recurring
basis and where they are classified within the hierarchy as of
December 31, 2019:
|
(in
thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Assets
|
|
|
|
|
|
Short-term
investments
|
$
6,829
|
$
-
|
$
-
|
$
6,829
|
|
Marketable
equity securities
|
$
1,039
|
$
-
|
$
-
|
$
1,039
|
|
2019
Vendetta Warrants
|
$
-
|
$
21
|
$
-
|
$
21
|
The
following is a listing of Solitario’s financial assets and
liabilities required to be measured at fair value on a recurring
basis and where they are classified within the hierarchy as of
December 31, 2018:
|
(in
thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Assets
|
|
|
|
|
|
Short-term
investments
|
$
10,223
|
$
-
|
$
-
|
$
10,223
|
|
Marketable
equity securities
|
$
1,585
|
$
-
|
$
-
|
$
1,585
|
51
Items measured at fair value on a recurring basis:
Short-term investments:
At December 31, 2019 and 2018,
Solitario’s holdings of short-term investments consist of
USTS recorded at their fair value based upon quoted market
prices.
Marketable equity securities
:
At December 31, 2019 and 2018, the
fair value of Solitario’s holdings in shares of Vendetta,
Kinross, and TNR marketable equity securities are based upon quoted
market prices.
2019 Vendetta Warrants
: At December 31, 2019 the fair value
of Solitario’s 2019 Vendetta Warrants is based upon a Black
Scholes model, using market inputs.
During
the year ended December 31, 2019, Solitario did not change any of
the valuation techniques used to measure its financial assets and
liabilities at fair value.
10.
Commitments and
Contingencies:
In
acquiring its interests in mineral claims and leases, Solitario has
entered into lease agreements, which may be canceled at its option
without penalty. Solitario is required to make minimum rental and
option payments in order to maintain its interests in certain
claims and leases. See Note 2, “Mineral Properties,”
above. Solitario estimates its 2020 property rentals and option
payments for properties Solitario owns, has under joint venture or
Solitario operates to be approximately $859,000. Assuming that
Solitario’s joint ventures continue in their current status
and that Solitario does not appreciably change its property
positions on existing properties, approximately $816,000 of these
annual payments are paid or are reimbursable to us by
Solitario’s joint venture partners. Solitario may be required
to make further payments in the future if it acquires new
properties or enters into new agreements.
Solitario has
recorded an asset retirement obligation of $125,000 related to its
Lik project in Alaska. See Note 2, “Mineral
Properties,” above.
Solitario leases
office space under a non-cancelable operating lease for the Wheat
Ridge, Colorado office which provides for total minimum annual rent
payments of $43,000 through March of 2021.
11.
Employee Stock
Compensation Plans:
On June
18, 2013, Solitario’s shareholders approved the Solitario
Resources Corporation Omnibus Stock Incentive Plan (the “2013
Plan”). Under the terms of the 2013 Plan, as amended, a total
of 5,750,000 shares of Solitario common stock are reserved for
awards to directors, officers, employees and consultants. Awards
granted under the 2013 Plan may take the form of stock options,
stock appreciation rights, restricted stock, and restricted stock
units. The terms and conditions of the awards are pursuant to the
2013 Plan and are granted by the Board of Directors or a committee
appointed by the Board of Directors.
a.) 2013
Plan stock option grants
The
following table shows the grant date fair value of
Solitario’s awards during 2019 pursuant to the 2013
Plan:
|
Grant
Date
|
1/24/19 (1)
|
|
Option –
grant date price
|
$
0.28
|
|
Options
granted
|
150,000
|
|
Expected life
years
|
5.0
|
|
Expected
volatility
|
64
%
|
|
Risk free interest
rate
|
2.4
%
|
|
Weighted average
fair value
|
$
0.16
|
|
Grant date fair
value
|
$
23,000
|
(1)
Option
grants have a five-year term, and vest 25% on date of grant and 25%
on each of the next three anniversary dates.
The
following table shows the grant date fair value of
Solitario’s awards during 2018 pursuant to the 2013
Plan:
|
Grant
Date
|
1/02/18
(1)
|
11/01/18
(2)
|
|
Option –
grant date price
|
$
0.62
|
$
0.31
|
|
Options
granted
|
100,000
|
1,623,000
|
|
Expected life
years
|
0.80
|
5.00
|
|
Expected
volatility
|
66
%
|
64
%
|
|
Risk free interest
rate
|
1.0
%
|
3.0
%
|
|
Weighted average
fair value
|
$
0.12
|
$
0.17
|
|
Grant date fair
value
|
$
12,000
|
$
282,000
|
(2)
Option
granted to a consultant had an expected life of 0.8 years on grant
date and was fully vested during 2018. Option remains vested for a
maximum of five years from date of grant or termination of the
consulting contract.
(3)
Option
grants have a five-year term, and vest 25% on date of grant and 25%
on each of the next three anniversary dates.
52
b.) Stock
option activity
During
2019 and 2018 no options granted from the 2013 Plan were exercised.
The following table summarizes the activity for stock options
outstanding under the 2013 Plan for the years ended December 31,
2019 and 2018:
|
|
2019
|
2018
|
||||
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Average
|
Aggregate
|
|
Average
|
Aggregate
|
|
|
RSUs/
|
Exercise
|
Intrinsic
|
RSUs/
|
Exercise
|
Intrinsic
|
|
|
Options
|
Price
|
Value (1)
|
Options
|
Price
|
Value (2)
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
5,223,160
|
$
0.76
|
|
1,982,428
|
$
1.29
|
|
|
Granted
(3)
|
150,000
|
$
0.28
|
|
4,023,000
|
$
0.58
|
|
|
Exercised
|
-
|
-
|
|
-
|
-
|
|
|
Expired
|
(1,000,160
)
|
$
1.47
|
|
(782,268
)
|
$
2.09
|
|
|
Forfeited
|
-
|
-
|
|
-
|
-
|
|
|
Outstanding, end of
year
|
4,373,000
|
$
0.58
|
$
3,000
|
5,223,160
|
$
0.76
|
$
-
|
|
Exercisable, end of
year
|
2,774,000
|
$
0.63
|
$
840
|
2,770,910
|
$
0.95
|
$
-
|
(1)
Intrinsic
value based upon December 31, 2019 price of a share of Solitario
common stock as quoted on the NYSE American exchange of $0.30 per
share.
(2)
Intrinsic
value based upon December 31, 2018 price of a share of Solitario
common stock as quoted on the NYSE American exchange of $0.23 per
share.
(3)
Options
granted during 2018, include 2,300,000 Conditional Options (defined
below), approved by Solitario shareholders on June 19,
2018.
During
the years ended December 31, 2019 and 2018, Solitario recorded
$343,000 and $660,000, respectively, of stock option expense under
the 2013 Plan for the amortization of the grant date fair value of
each of its outstanding options with a credit to additional
paid-in-capital. At December 31, 2019, the total unrecognized stock
option compensation cost related to non-vested options is $317,000
and is expected to be recognized over a weighted average period of
14 months.
On
September 1, 2017, the Board of Directors granted, subject to
shareholder approval at the next meeting of shareholders, 2,300,000
stock options under the 2013 Plan to officers and members of the
Board of Directors (the “Conditional Options”). The
Conditional Options were approved by Solitario’s shareholders
at Solitario’s annual meeting on June 19, 2018. The
Conditional Options vest on the schedule of 25% on date of approval
of the grant (June 19, 2018) and 25% on each of the next three
anniversary dates of the date of grant (September 1, 2018, 2019 and
2020).
12.
Shareholders’ equity
and accumulated other comprehensive income
We adopted ASU 2016-01,
“Financial
Instruments – Overall (subtopic 825-10) Recognition and
Measurement of Financial Assets and Liabilities,” (“ASU
2016-01”)
.
ASU
2016-01 revises the classification and measurement of investment in
certain equity investments and the presentation of certain fair
value changes for certain financial liabilities measured at fair
value. ASU 2016-01 requires the change in fair value of many equity
investments to be recognized in net income.
Solitario adopted ASU 2016-01 in the first quarter
of 2018. Solitario
recorded a cumulative-effect adjustment
for the change in accounting principle from other comprehensive
income in the equity section of the consolidated balance sheet to
accumulated deficit of $576,000 related to the adoption of ASU
2016-01.
13.
Share Repurchase
Program
On
October 28, 2015, Solitario’s Board of Directors approved a
share repurchase program that authorized Solitario to purchase up
to two million shares of its outstanding common stock. During 2019
Solitario’s Board of Directors extended the expiration date
of the share repurchase program through December 31, 2020. During
the years ended December 31, 2019 and 2018, Solitario purchased
38,400 and 263,100 shares of Solitario common stock, respectively,
for an aggregate purchase price of $13,000 and $101,000,
respectively. As of December 31, 2019, Solitario has purchased a
total of 969,300 shares for an aggregate purchase price of $462,000
under the share repurchase program since its
inception.
13.
Subsequent
events
Solitario
has
evaluated events subsequent to December 31, 2019 to assess the need
for potential recognition or disclosure in this report. Such events
were evaluated through the date these financial statements were
available to be issued. Based upon this evaluation, it was
determined that no subsequent events occurred that require
recognition or disclosure in the financial
statements.
53
I
tem 9.
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
None
I
tem 9A.
Controls and
Procedures
The
management of Solitario is responsible for establishing and
maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(e) of the Exchange Act). During the fiscal
period covered by this report, Solitario's management, with the
participation of the Chief Executive Officer and Chief Financial
Officer, carried out an evaluation of the effectiveness of
Solitario’s internal control over financial reporting and the
design and operation of Solitario’s disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act). This
evaluation of the effectiveness of our internal control over
financial reporting was based on the framework and criteria
established in
Internal
Control
–
Integrated
Framework (2013)
, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on such
evaluations, Solitario’s Chief Executive Officer and Chief
Financial Officer have concluded that, as of December 31, 2019,
Solitario’s internal control over financial reporting is
effective and that its disclosure controls and procedures are
effective to ensure that information required to be disclosed by
Solitario in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the
required time periods and are designed to ensure that information
required to be disclosed in its reports is accumulated and
communicated to Solitario’s management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure. There were no
changes in internal control over financial reporting during the
three months ended December 31, 2019.
This
Annual Report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. As a smaller reporting company,
Solitario’s management’s report was not subject to
attestation by our independent registered public accounting firm
pursuant to rules of the SEC that permit us to provide only
management’s report in this annual report.
I
tem 9B.
Other Information
None
54
PART
III
I
tem 10.
Directors, Executive Officers and
Corporate Governance
The
information required under Item 10 is incorporated herein by
reference to the information set forth in our definitive proxy
statement in connection with the annual meeting of shareholders to
be filed with the SEC within 120 days after the end of our fiscal
year ended December 31, 2019 pursuant to Section 14(a) of the
Exchange Act (the "2020 Proxy").
I
tem 11.
Executive
Compensation
The
information required under Item 11 is incorporated herein by
reference to the information set forth in the 2020
Proxy.
I
tem 12.
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The
information with respect to Item 12 is incorporated herein by
reference to the information set forth in the 2020
Proxy
.
I
tem 13.
Certain Relationships and Related
Transactions, and Director Independence
The
information with respect to Item 13 is incorporated herein by
reference to the information set forth in the 2020
Proxy
.
I
tem 14.
Principal Accounting Fees and
Services
The
information required under Item 14 is incorporated herein by
reference to the information set forth in the 2020
Proxy
.
55
PART IV
I
tem 15.
Exhibits, Financial Statement
Schedules
The
following documents are filed as a part of this Annual Report on
Form 10-K:
1. Financial
Statements
The
following financial statements contained in Part II,
Item 8 are filed as part of this Annual Report on
Form 10-K:
|
Consolidated
Financial Statements
Report
of Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of December 31, 2019 and 2018
Consolidated
Statements of Operations for the years ended December 31, 2019 and
2018
Consolidated
Statements of Shareholders’ Equity for the years ended
December 31, 2019 and 2018
Consolidated
Statements of Cash Flows for the years ended December 31, 2019 and
2019
Notes
to Consolidated Financial Statements
|
2. Financial
Statement Schedules
Financial
statement schedules are omitted because they are not required or
are not applicable, or the required information is provided in the
consolidated financial statements or notes thereto described in
Item 15(1) above.
3. Exhibits
The
Exhibits listed in the Index to Exhibits, which appears immediately
following the signature page and is incorporated herein by
reference, are filed as part of this Annual Report on
Form 10-K.
I
tem 16. Form 10-K Summary
None.
56
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
SOLITARIO ZINC CORP. |
|
|
|
|
|
|
|
|
Date
:
February 28, 2020
|
By:
|
/s/
James
R. Maronick
|
|
|
|
|
James R. Maronick |
|
|
|
|
Chief
Financial Officer
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
Signature
|
|
Title
|
Date
|
|
|
|
|
|
|
/s/
|
|
|
|
|
Christopher
E. Herald,
Chief
Executive Officer
|
|
Principal
Executive Officer and Director
|
February
28, 2020
|
|
|
|
|
|
|
/s/
|
|
|
|
|
James
R. Maronick, Chief Financial Officer
|
|
Principal
Financial and Accounting Officer
|
February
28, 2020
|
|
|
|
|
|
|
/s/
|
|
|
|
|
John
Labate
|
|
Board
of
Directors
|
February 28, 2020
|
|
|
|
|
|
|
/s/
|
|
|
|
|
Brian
Labadie
|
|
Board
of
Directors
|
February 28, 2020
|
|
|
|
|
|
|
/s/
|
|
|
|
|
James
Hesketh
|
|
Board
of
Directors
|
February 28, 2020
|
|
|
|
|
|
|
/s/
|
|
|
|
|
Gil
Atzmon
|
|
Board
of
Directors
|
February
28, 2020
|
|
|
|
|
|
|
/s/
|
|
|
|
|
Joshua
D. Crumb
|
|
Board
of
Directors
|
February
28, 2020
|
|
|
|
|
|
|
/s/
|
|
|
|
|
James
R. Maronick,
|
|
Attorney-in-fact
|
February 28,
2020
|
57
INDEX TO EXHIBITS
|
Description
|
|
|
||
|
|
|
|
||
|
Amended
and Restated Articles of Incorporation of Solitario Exploration
& Royalty Corp., as Amended (incorporated by reference to
Exhibit 3.1 to Solitario’s Form 10-Q filed on August 10,
2010)
|
|
|||
|
|
|
|
||
|
Articles
of Amendment to Restated Articles of Incorporation of Solitario
Zinc Corp. (incorporated by reference to Exhibit 3.1 to
Solitario’s Current Report on Form 8-K filed on July 14,
2017)
|
|
|||
|
|
|
|
||
|
Amended
and Restated By-laws of Solitario Exploration & Royalty Corp.
(incorporated by reference to Exhibit 99.1 to Solitario’s
Form 8-K filed on March 22, 2013)
|
|
|||
|
|
|
|
||
|
Form of
Common Stock Certificate of Solitario Zinc (incorporated by
reference to Exhibit 4.1 to Solitario’s Form 10-Q filed on
November 8, 2017)
|
|
|||
|
|
|
|
||
|
Description
of Common Stock
|
|
|||
|
|
|
|
||
|
2013
Solitario Exploration & Royalty Corp. Omnibus Stock and
Incentive Plan (incorporated by reference to Exhibit 10.2 to
Solitario’s Form 8-K filed on June 20, 2013)
|
|
|||
|
|
|
|
||
|
Alliance
Agreement, dated January 18, 2005, between Solitario Resources
Corporation and Newmont Overseas Exploration Limited (incorporated
by reference to Exhibit 99.1 to Solitario's Form 8-K filed on
January 20, 2005)
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Change
in Control Severance Benefits Agreement between Solitario Resources
Corporation and Christopher E. Herald, dated as of March 14, 2007
(incorporated by reference to Exhibit 99.1 to Solitario's Form 8-K
filed on March 14, 2007)
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Change
in Control Severance Benefits Agreement between Solitario Resources
Corporation and James R. Maronick, dated as of March 14, 2007
(incorporated by reference to Exhibit 99.2 to Solitario's Form 8-K
filed on March 14, 2007)
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Change
in Control Severance Benefits Agreement between Solitario Resources
Corporation and Walter W. Hunt, dated as of March 14, 2007
(incorporated by reference to Exhibit 99.3 to Solitario's Form 8-K
filed on March 14, 2007)
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Framework
Agreement for the Exploration and Development of Potential Mining
Properties, related to Solitario's 100% owned Florida Canyon
project in Peru between Minera Florida Canyon S.A., Minera
Solitario Peru S.A.C., Solitario Resources Corporation, and
Votorantim Metais – Cajamarquilla S.A., dated March 24, 2007
(incorporated by reference to Exhibit 10.2 to Solitario's Form 8-K
filed on October 4, 2007)
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Performance
Agreement for Funding of Drilling Program between
Compañía Minera Milpo, S.A.A. and Minera Solitario Peru
S.A.C, related to the Framework Agreement for the Development of
Mining Properties dated August 1, 2019
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First
Amendment to the 2013 Solitario Exploration & Royalty Corp.
Omnibus Stock and Incentive Plan (incorporated by reference to
Exhibit 10.1 to Solitario’s Form 8-K filed on June 29,
2017)
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Code of
Ethics for the Chief Executive Officer and Senior Financial Officer
(incorporated by reference to Exhibit 99.1 to Solitario's Form 8-K
filed on July 18, 2006)
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Subsidiaries
of Solitario Zinc Corp.
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Consent
of Plante & Moran, PLLC
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Power
of Attorney
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Certification
of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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Certification
of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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101*
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The
following financial statements, formatted in XBRL: (i) Consolidated
Balance Sheets as of December 31, 2019 and 2018; (ii) Consolidated
Statements of Operations for the years ended December 31, 2019 and
2018; (iii) Consolidated Statements of Shareholders’ Equity
for the years ended December 31, 2019 and 2018; (iv) Consolidated
Statements of Cash Flows for the years ended December 31, 2019 and
2018; and (v) Notes to the Consolidated Financial
Statements.
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* Filed
herewith
#
Designates a management contract, or a compensatory plan or
arrangement.
58
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement SchedulesItem 16. Form 10-k Summary