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, 2020
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
(State
or other jurisdiction of incorporation or
organization)
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84-1285791
(I.R.S.
Employer Identification No.)
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4251 Kipling St. Suite 390, Wheat Ridge,
CO
(Address
of principal executive offices)
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80033
(Zip
Code)
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Registrant's
telephone number, including area code
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(303)
534-1030
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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 [X]
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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]
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report.
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, 2020 as reported on NYSE American, was
approximately $16,286,000.
There
were 58,379,116 shares of common stock, $0.01 par value,
outstanding on March 5, 2021.
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 30,
2021, 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
Business
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3
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Item 1A
Risk Factors
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6
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Item 1B
Unresolved Staff Comments
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12
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Item 2
Properties
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13
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Item 3
Legal Proceedings
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25
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Item 4
Mine Safety
Disclosures
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25
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PART
II
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26
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Item 6
Selected Financial Data
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26
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27
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35
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36
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55
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Item 9A
Controls and Procedures
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55
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Item 9B
Other Information
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55
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PART
III
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56
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Item 11
Executive Compensation
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56
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56
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56
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56
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PART
IV
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57
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Item 16
Form 10-K
Summary
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57
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58
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PART 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 an 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
(discussed below) and the sale in April of 2018 of its interest in
the royalty on the Yanacocha property. 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, 2020, 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.
Risks
and Uncertainties
Solitario faces
risks related to health epidemics and other outbreaks of
communicable diseases, which could significantly disrupt its
operations and may materially and adversely affect its business and
financial conditions.
Solitario’s
business could be adversely impacted by the effects of the
coronavirus (“COVID-19”) or other epidemics or
pandemics. Solitario has recommended all of its employees and
contractors follow government guidelines for health and safety
policies for employees and contractors, including encouraging
tele-commuting and working from home where possible. Solitario has
evaluated the effects of COVID-19 on its operations and taken
pro-active steps to address the impacts on its operations,
including reducing costs, in response to the economic uncertainty
associated with potential risks from COVID-19. These reductions
included implementing salary reductions and evaluation and
reduction of 2020 exploration programs through its joint venture
partners at the Florida Canyon and Lik exploration projects.
Solitario’s 2021 tentative exploration programs include
provisions for the implementation of safeguards and protocols which
follow mandates and recommendations of appropriate government
authorities where we work. Also, Solitario has evaluated the
potential impacts on its ability to access future traditional
funding sources on the same or reasonably similar terms as in past
periods. Solitario will continue to monitor the effects of COVID-19
on its operations, financial condition and liquidity. However, the
extent to which COVID-19 impacts Solitario’s business,
including our exploration and other activities and the market for
our securities, will depend on future developments, which are
highly uncertain and cannot be predicted at this time, and include
the duration, severity and scope of the COVID-19 outbreak and the
actions taken to contain or treat the outbreak.
3
Corporate
Structure
Solitario
Zinc Corp. [Colorado]
- Zazu
Metals Corporation. [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 2020. 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 increase its ownership to a 70%
interest in the project from its current ownership of 61%, 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, in the event Nexa makes the decision to develop the
Florida Canyon project, Nexa has agreed to finance Solitario's 30%
participating interest for any development costs through a loan
facility to Solitario. Solitario would then 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, 2020, Solitario
has paid Nexa its entire funding commitment of $1,580,000, of which
$1,053,000 was charged to exploration during 2019.
At
December 31, 2020, Solitario also holds an 85% interest in the
Chambara exploration project in Peru. Nexa holds the remaining
15%.
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) sales of covered call options on our common stock of
Kinross Gold Corporation (“Kinross”) we hold; (ii) the
sale of our investments in, and interest on, our short term
Treasury Notes and Bank CDs; (iii) the sale of mineral property
royalties to SilverStream SEZC, a private Cayman Island royalty and
streaming company (“SilverStream”) for $408,000 during
2019, (iv) sales of our shares of common stock of Vendetta Mining
Corp. and Kinross; (v) the sale of our Yanacocha royalty to Newmont
Mining Corporation for $502,000 during 2018; (vi) proceeds received
from the sale of our former Mt. Hamilton project in 2015; (vii)
joint venture delay rental payments; (vii) a royalty sale for
$10,000,000 in 2012; and (Ix) issuances of common stock. 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 March 5,
2021, 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 2020, 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, 2020 and 2019, are
total assets of $20,000 and $59,000, 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.
5
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.
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.
Risks Related to Our Business and Industry
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. 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.
The outbreak of pandemics, including the coronavirus (COVID-19) may
affect our assets and development plans.
We face
risks related to health epidemics and other outbreaks of
communicable diseases, which could significantly disrupt our
operations and may materially and adversely affect our business and
financial conditions.
Our
business could be adversely impacted by the effects of the COVID-19
or other epidemics or pandemics. In December 2019, a novel strain
of COVID-19 emerged in China and has spread
globally, including the
areas we operate in - the western U.S., Alaska, and
Peru.
The extent to which the coronavirus impacted our
business and projects during 2020 is discussed above. How COVID-19
may further impact our business, including our future exploration
and other activities and the market for our securities, will depend
on future developments, which are highly uncertain and cannot be
predicted at this time, and include the duration, severity, and any
recurrence of various strains of the outbreak and the actions taken
to contain or treat the coronavirus outbreak. In particular, the
continuing spread of COVID-19 and travel and other restrictions
established to curb the spread of COVID-19, could materially and
adversely impact our business including without limitation, planned
exploration programs at our Florida Canyon and Lik projects during
2021 and beyond, employee health, workforce productivity, increased
insurance premiums, limitations on travel, the availability of
industry experts and personnel, the timing to process drill and
other metallurgical testing, and other factors that will depend on
future developments beyond our control, which may have a material
and adverse effect on our business, financial condition and results
of operations. There can be no assurance that our personnel will
not be impacted by COVID-19 or other pandemic diseases and that we
could ultimately see our workforce productivity reduced or incur
increased medical costs or insurance premiums as a result of these
health risks. In addition, the outbreak of COVID-19 has resulted in
a widespread global health crisis that has adversely affected
global economies and financial markets result
ing in an economic downturn that could have an
adverse effect on the future demand for precious and base metals
and our prospects.
6
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, and 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 24 of our 27 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; (i) during 2015, as a result of
the sale of our former Mt. Hamilton project; (ii) during 2003, as a
result of a $5,438,000 gain on a derivative instrument related to
our investment in certain Crown warrants and (iii) 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 mineral properties and royalties on non-producing exploration
properties in Peru, Mexico and Brazil. We have acted as operator on
all of our mineral properties or assets that are not held in joint
ventures or are royalty interests.
Our
current exploration activities and mineral properties 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 U.S. 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.
7
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 including short-term investments, 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 which
could have a material adverse effect on our financial position,
prospects, 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 mineral
property assets and 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.
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, or our joint venture partners,
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.
8
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.
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.
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.
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 for 2021. 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
Lik project could be delayed without the unanimous consent of both
parties to certain proposed actions or transactions.
9
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 a
future domestic or foreign project, not currently under joint
venture, we may either look to form a joint venture with another
mining company to develop and/or operate the project 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 our capital stock 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 our capital stock 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.
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, theft of
assets, 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, loss of assets, including our cash,
short-term investments, or marketable equity securities,
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.
10
Risks Related to Our Common Stock
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 2020 was
approximately 486,000 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.
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.
We have never paid and do not intend to pay cash dividends and,
consequently, the ability to achieve a return on any investment in
our common stock will depend on appreciation in the price of our
common stock.
We have
never paid cash dividends on any of our capital stock, and we
currently intend to retain future earnings, if any, to fund the
development and growth of our business. Therefore, a holder of our
stock is not likely to receive any dividends on our common stock
for the foreseeable future. Since we do not intend to pay
dividends, the ability to receive a return on an investment in our
common stock will depend on any future appreciation in the market
value of our common stock. There is no guarantee that our common
stock will appreciate or even maintain the price at which it was
purchased.
11
Issuances of our stock in the future could dilute existing
shareholders and adversely affect the market price of our common
stock.
We have
the authority to issue up to 100,000,000 shares of common stock,
10,000,000 shares of preferred stock, and to issue options and
warrants to purchase shares of our common stock without shareholder
approval. Future issuances of our securities could be at prices
substantially below the price paid for our common stock by our
current shareholders. In addition, we can issue blocks of our
common stock in amounts up to 20% of the then-outstanding shares
without further shareholder approval. Sales of a substantial number
of shares by the Company in the public market (or otherwise), or
the perception that those sales may occur, could cause the market
price of our common stock to decline.
General Risk Factors
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, 2020, we have invested $3,989,000 in United States
Treasury securities (“USTS”), with maturities of
between 30 days and 12 months and we have approximately $595,000 of
our cash in uninsured deposit accounts and brokerage accounts which
are not 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.
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, theft of
assets, 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, loss of assets, including our cash,
short-term investments, or marketable equity securities,
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.
Item 1B.
U
nresolved Staff Comments
None
12
Item 2.
P
roperties
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 (the “Framework Agreement”), pursuant to,
and replacing, the Florida Canyon Letter Agreement. In 2015
Votorantim transferred its interest in the Florida Canyon project
to Milpo, an 80%-owned affiliate of Votorantim. In October of 2017,
Milpo and Votorantim merged to form Nexa. Nexa is 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 are 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 a 39% interest
in the Florida Canyon project.
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. Solitario was not obligated to fund under the terms of the
Framework Agreement. 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 arrangement
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.
13
According to
Peruvian law, concessions may be held indefinitely, subject only to
payment of annual fees to the government. In June 2021, payments of
approximately $313,000 to the Peruvian government will be due in
order to maintain all the Florida Canyon mineral rights of Minera
Bongará S.A. 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 to provide access for exploration work at the
Florida Canyon project. Generally, these are short-term agreements.
Nexa has an agreement with the local community which specifies
certain obligations and payments that Nexa is required to provide
in exchange for community permissions to perform work. Nexa is in
compliance with the terms of the community agreement.
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 40
kilometers of access road and is planning to complete the road
access to local communities and the mineralized area of the project
in 2021. 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 permanent infrastructure facilities
have been constructed within the project area. A private Peruvian
power company has proposed building a hydro-electric power plant
within 10 kilometers of the Florida Canyon deposit and has obtained
nearly all permits required to begin construction. Nexa signed a
Memorandum of Understanding with the power company that provides
for 100% of the power required for mining and milling operations at
low-cost.
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 at that time 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 1,000 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-silver 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-silver 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.
14
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, to determine 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,
and in 2018-2019. Underground exploration operations were conducted
from 2011-2013.
6.
Mineralization
Two
important styles of mineralization occur at Florida Canyon:
Manto-style with mineralization usually localized in favorable
carbonate strata in a near horizontal orientation; and a second
style with mineralization in a near-vertical orientation occurring
within high-angle structural zones. Manto mineralization occurs as
both massive to semi-massive replacements and disseminations of
sphalerite and galena localized by specific sedimentary facies
(rock strata) within the limestone stratigraphy. Often manto-style
mineralization is laterally associated with near-vertical
structural feeders and karst breccias that cut the carbonate
stratigraphy. 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.
Zinc
mineralization was originally deposited in the form of sulfide
minerals. However, some near-surface mineralization has been
oxidized to varying degrees. More than three-quarters of
mineralization defined at Florida Canyon is sulfide-dominant with
the remainder being mixed sulfide-oxide, or oxide-dominant.
Processing of sulfide mineralization is commercially more
profitable.
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 900 meters vertically, and up
to 1,000 meters along strike.
Evidence for these
breakout zones is provided by the following drill holes from
various locations on the property:
|
Breakout Zone Name
|
Drill Hole Number
|
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 two largest-sized high-angle zones identified to date
are the San Jorge and 1021 zones. These zones represent
well-defined north-northeast structural feeder zones. Less
important mineralization occurs along 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.
15
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.
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 three zones with the largest
amount of drilling are the San Jorge, the Karen-Milagros and the
1021 zones. 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 (“SGS”) 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 periodically been assisted by SRK
Consulting (USA) Inc. (“SRK) and Gustavson Associates, both
independent international mining engineering firms, 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.
16
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.
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
As of
December 31, 2020, 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
During
2020, Nexa worked on a new NI-43-101 compliant resource estimate
incorporating the 2018-2019 drill hole assay results and remodeling
the previous 2017 resource model. This new estimate was reported on
February 23, 2021. Nexa is currently working on two new drilling
permits that will greatly expand the area available for exploration
drilling. One of the permits would allow for 84 new drilling
platforms and associated interconnecting roads scattered over an
area approximately six kilometers by five kilometers. These
proposed platforms are located immediately south, east and
southeast of the current Florida Canyon drilling footprint. In
addition, Nexa plans to conduct additional road construction in
2021 to access the mineralized areas of the project as well as
local communities as part of their social commitment to these
communities.
17
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 2021 are $9,000. 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.
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.
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. The Lik Block
Agreement terminated on January 27, 2018 and the joint venture is
now governed under the Joint Operating Agreement
(“JOA”) that was attached to the Lik Block Agreement.
Since 2018, Teck and Solitario have agreed to annual exploration
funding to advance the Lik project. The JOA requires unanimous
approval by the parties for annual expenditures in excess of $1
million. Solitario is the operator of the joint venture. Solitario
and Teck each retain a 50% interest in the Lik
property.
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. Addendums
extending the JEA and providing funding for continued exploration
were signed in 2019, 2020, and a third Addendum to the JEA is
expected to be signed in 2021. Teck has acted as manager of the
exploration programs for the past three years.
18
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.
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 known massive sulfide
deposits in the area.
19
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.
Low
angle thrust faults also cut the rocks at Lik and regionally. These
faults are known to cut and displace massive sulfide mineralization
at the Red Dog deposits and others in the district.
6.
Prior Exploration and the
Results of the 2019 Exploration Program
The Lik
deposit was discovered 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.”
No
field work was conducted on the Lik property in 2020 due to
COVID-19 travel restrictions and limited availability of Teck
employees for field geology as well as health concerns for local
residents. However, significant progress was made in further
analyzing previously acquired data from both historical Zazu work
and Teck field work in 2018 and 2019. The focus of Teck’s
2020 work consisted of reinterpretation of the stratigraphic and
structural setting in the vicinity of the Lik deposit, and refining
the results of the 2019gravity geophysical information. This work
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 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.
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.
20
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
|
||||||
|
Hole
No.
|
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.
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 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.
21
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 British Columbia. 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.
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”).
.
22
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 DeLong Mountain Regional Transportation System (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.
11.
Metallurgical Testing and
Mineral Processing
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 floatation 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.
12.
Reserves
There
are no reported mineral reserves.
13.
Mining Operations
No
commercial mining operations to recover metals have occurred on the
project.
14.
Planned Exploration and Development
Solitario and Teck
are in discussions to jointly fund a 2021 exploration program with
Teck acting as project manager. The program, if approved, consists
of drilling four-to-five core holes totaling approximately 1,000
meters. Drill targets under consideration are extensions to the
currently defined Lik deposit on the northeast, northwest and
southern limits of the deposit, including one-hole testing for
stacked mineralized horizons. Drilling is expected to begin during
the 2021 summer field season. Besides drilling, a rigorous soil
sampling program of up to 500 samples and an eight-line-kilometer
induced polarization geophysical program is planned for an area
northeast of the Lik deposit where there are indications of a
second mineralized zone where no drilling has been conducted. We
expect to reach a final decision on this program before the end of
the first quarter of 2021. Timing of this program could be impacted
by COVID-19 restrictions.
23
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. 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. The current claim holdings of
Minera Chambara are 28 concessions totaling 28,000 hectares of
valid concessions that completely surround the Florida Canyon
project area held by Minera Bongará. As of December 31, 2020,
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 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 2021 to be paid by Nexa are estimated to be
$462,000.
Gold Coin (Arizona)
Solitario
acquired an option-to-buy a 100% interest in the Gold Coin Property
in southeastern Arizona in late-2020. Gold Coin hosts significant
surface gold values over an area of more than 400 acres. The
property has never been drilled to depths greater than 20 meters
(60 feet). Work to date has identified five potential target areas
for drilling. In addition, a second property, the Texas-Arizona,
which contains polymetallic mineralization
(copper-lead-zinc-silver-gold) which is included in the Gold Coin
option agreement.
Geologically, Gold
Coin is a low-sulfidation system hosted primarily in low-angle
thrust faults that offset Paleozoic carbonate and Tertiary volcanic
rocks. Gold occurs in oxidized rocks with associated
quartz-hematite alteration and siliceous hydrothermal breccias.
Historical rock chip sampling (collected before NI 43-101
protocols) was conducted by several companies since the
1990’s in trenches, prospect pits and outcrops. Out of 197
chip samples, 53 contain greater than 350 ppb gold, with the
overall average of these 53 samples containing 3.2 grams per tonne
gold, with slightly higher grades of silver. Geologic mapping and
geochemical sampling is planned for 2021 to further identify
potential drill targets.
Terms
of the Gold Coin option agreement include scheduled payments to the
underlying owner of $12,000 upon signing (paid), and at
Solitario’s option, to pay $15,000 at the first anniversary
date, with a total of $242,000 over a five-year period. Upon
signing the Gold Coin option agreement Solitario paid a
finders’ fee of $5,000 to a contract geologist. Solitario has
agreed to escalating work commitments at Solitario’s option
totaling $1,025,000 during the first four years, with the first
year totaling $75,000. The underlying owner will retain a 2.0% Net
Smelter Return royalty. Solitario will have the option, but not
obligation, to reduce the Net Smelter Return royalty to 1.0% by
paying the owner $500,000 and will have the option to eliminate the
remaining royalty of 1.0% by paying the owner $1.0
million.
Discontinued Projects
During
2020 we recorded $6,000 of mineral property impairment related to
its decision to abandon its La Promesa project in Peru. We did not
abandon any mineral properties during 2019.
24
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.
“M
anto
deposits”
means replacement ore bodies that are strata
bound, irregular to rod shaped ore occurrences usually horizontal
or near horizontal in attitude.
“
Mineralization
”
means the concentration of metals within a body of
rock.
“
NSR
”
means net smelter return royalty.
“
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.
None
Item 4.
M
ine Safety Disclosures
Not
applicable
25
PART II
Item 5.
M
arket 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 of common stock available 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 of Solitario 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
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, 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 an expected volatility of
64%, and a risk-free interest rate of 2.4%.
On
April 2, 2020, the Board of Directors granted 1,325,000 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, have an exercise
price of $0.20 per share, and a grant date fair value of $145,000,
based upon a Black-Scholes model with an expected volatility of
67%, and a risk-free interest rate of 0.4%.
|
Equity Compensation
Plan Information as of December 31, 2020:
|
|||
|
Plan category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(2013 Plan –
US$)
|
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
|
5,558,000
|
0.48
|
141,438
|
|
Equity compensation
plans not approved by security holders
|
-
|
N/A
|
-
|
|
Total
2013 Plan
|
5,558,000
|
0.48
|
141,438
|
Holders of our common stock
As of
March 5, 2021, we have approximately 3,151 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
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 2020 the
Board of Directors extended the termination date of the repurchase
program to December 31, 2021; however, the repurchase program may
be suspended or discontinued at any time and does not obligate us
to acquire any particular amount of our shares. During the years
ended December 31, 2020 and 2019, we purchased 24,700 and 38,400
shares of our common stock, respectively, for an aggregate purchase
price of $5,000 and $13,000, respectively. As of December 31, 2020,
we have purchased a total of 994,000 shares of our common stock for
an aggregate purchase price of $467,000 under the share repurchase
program since its inception.
We did
not purchase any shares of our common stock during the three months
ended December 31, 2020.
Item 6.
S
elected Financial Data
Information
requested by this Item is not applicable as we are electing scaled
disclosure requirements available to Smaller Reporting Companies
with respect to this Item.
26
Item 7.
M
anagement'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).
Effects of COVID-19
As
of December 31, 2020, the effects of COVID-19 have not had a
material adverse effect on Solitario’s administrative
activities as we have only three full-time employees, all of whom
can work remotely, and are not required to meet in person on a
regular basis. However, our joint-venture partners, Teck at our Lik
project and Nexa at our Florida Canyon project, reduced, with our
concurrence, the planned exploration activities on these projects
for 2020 and are reviewing their 2021 exploration plans on our
projects due to several factors. These factors include but are not
limited to; (i) our partners’ limited exploration staffing;
(ii) the need to put into place safety and operational protocols
for COVID-19 and other potential pandemics related to all of their
exploration activities; (iii) the ability to reallocate exploration
resources to non-site specific tasks, such as data and resource
review, and planning for future drilling; and (iv) the ability to
modify and or postpone 2021 exploration activities using the
interim period to enhance future potential exploration programs.
Solitario does not believe these steps by our joint venture
partners with regard to 2020 exploration activities or plans for
2021 exploration reflects on the long-term economic potential of
either its Lik or Florida Canyon projects.
Because
of the uncertainty caused by COVID-19, and the resulting market
volatility and unknown long-term effects of COVID-19, Solitario has
taken steps to reduce the potential impact of COVID-19 on its
liquidity and capital resources by; (i) obtaining the PPP Loan
(defined below); (ii) initiating salary reductions for all of its
employees; (iii) reducing its contractual amounts owed to
contractors; (iv) reducing non-core activities such as travel and
investor relations; and (v) reducing or delaying certain capital
costs such as equipment replacement. Although the impact of
COVID-19 on Solitario’s ability to access capital markets is
unknown and may be reduced, Solitario believes the proceeds of the
PPP Loan combined with Solitario’s current assets, provide
Solitario with the flexibility to continue its on-going
operations.
Nonetheless,
the extent to which COVID-19 impacts our business, including our
exploration and other activities and the market for our securities,
will depend on future developments, which are highly uncertain and
cannot be accurately predicted at this time. Please see Item 1A,
“Risk Factors” contained in this Form
10-K.
(b).
Business Overview and Summary
We are
an exploration stage company at December 31, 2020 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. In July 1994, we became a publicly traded company on 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 evaluate other mineral properties for
acquisition, and we have historically held a portfolio of mineral
exploration properties and assets for future sale, for 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 an 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, 2020, 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. 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.
27
As
of December 31, 2020, we have balances of cash and short-term
investments that we anticipate using, in part, to fund planned 2021
exploration, to further the exploration of our Lik project, conduct
reconnaissance exploration and to potentially acquire additional
mineral property assets. The fluctuations in commodity prices of
base and precious metals have 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.
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 borrowing;
and (vii) issuances of common stock. During 2019 we recorded
mineral property income of $408,000 from the Royalty Sale (defined
below), discussed below. We did not record any mineral property
income during 2020. Our last major property asset sale occurred in
2015, when 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 potentially 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.
Royalty sale
On
January 22, 2019, we completed the sale of certain royalties (the
“Royalty Sale”) to SilverStream for Cdn$600,000. On
closing of the Royalty Sale, we 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 was convertible
into common shares of SilverStream, at the discretion of
SilverStream, by providing us a notice of conversion. In December
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. During 2019, we
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 May
19, 2020, SilverStream completed an initial public offering,
including changing its name to Vox Royalty Corp.
(“Vox”), and, in accordance with the terms of the
SilverStream Note, issued Solitario 137,255 shares of common stock
of Vox in full satisfaction of obligations owed under the
SilverStream Note. In accordance with the terms of the SilverStream
Note, the 137,255 Vox shares were issued at a price of Cdn$2.55 per
share, which was at a 15% discount to the initial public offering
price of Cdn$3.00 per share. Solitario recorded its initial
investment in the Vox common shares at the initial public offering
price, or a total of Cdn$412,000 or $294,000. Solitario recorded
other income of $44,000 for the gain on the conversion of the
SilverStream Note during 2020.
Solitario recorded
interest income from the SilverStream Note of $7,000 and $12,000
during 2020 and 2019, respectively.
28
(c). Results of Operations
Comparison of the year ended December 31, 2020 to the year ended
December 31, 2019
We had
a net loss of $939,000 or $0.02 per basic and diluted share for the
year ended December 31, 2020 compared to a loss of $3,289,000 or
$0.06 per basic and diluted share for the year ended December 31,
2019. As explained in more detail below, the primary reasons for
the decrease in net loss during 2020 compared to 2019 was (i) a
decrease in exploration expense to $413,000 during 2020 compared to
exploration expense of $1,807,000 during 2019; (ii) a decrease in
general and administrative expense to $1,044,000 during 2020
compared to general and administrative expense of $1,368,000 during
2019; (iii) recording other income of $104,000 during 2020, with no
comparable amount in 2019; (iv) a realized gain on sale of
marketable equity securities of $50,000 during 2020, with no sales
of marketable equity securities in 2019; and (v) an unrealized gain
on marketable equity securities of $360,000 during 2020 compared to
an unrealized loss on marketable equity securities of $711,000
during 2019. Partially offsetting these factors that contributed to
the decrease in our net loss in 2020 were the following (i) no
mineral property sales or revenue during 2020 compared to mineral
property sale revenue of $408,000 from the Royalty Sale during
2019; (ii) a reduction in interest and dividend income to $127,000
during 2020 compared to interest and dividend income of $252,000
during 2019; (iii) mineral property impairment of $6,000 during
2020, with no similar impairment during 2019; and (iv) a loss on
derivative instruments of $92,000 during 2020 compared with a loss
of $38,000 during 2019. Each of these items is discussed in greater
detail below.
Our
primary exploration activities during 2020 were related to
evaluating new projects for acquisition and reviewing data related
to our Florida Canyon and Lik projects. There was significantly
less work by us during 2020, with no drilling and almost no outside
contract cost compared to 2019 when Nexa was completing the Florida
Canyon drilling program, started in 2018 and completed in 2019.
Solitario agreed to pay a total of $1,580,000 toward the Drilling
Program. We recorded exploration expense of $1,054,000 related to
the Drilling Program during 2019 when Nexa completed the second and
third tranches of the Drilling Program. In addition, we incurred
other exploration expenses at Florida Canyon of $18,000 during 2019
not related to the Drilling Program. During all of 2020 our
exploration expense at Florida Canyon was $22,000. Nexa is
evaluating the 2021 exploration program at Florida Canyon, however
Solitario is not required to provide any of the exploration funding
at Florida Canyon during 2021. Solitario incurred $14,000 of
exploration expense at our Lik project in Alaska during 2020 which
consisted of limited analysis and planning for drilling during 2021
as part of a 50/50 exploration program managed by Teck. This
compares to exploration expense of $199,000 at the Lik project
during 2019 when Teck completed extensive re-logging, re-mapping
and related field work at Lik resulting in the increased costs
during 2019 compared to 2020. We are evaluating, along with Teck, a
modest drilling program for 2021. 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 deposit and also below the
Lik deposit to test for stacked mineralized horizons. Solitario
would be responsible for 50% of the expenditures. During 2020 we
made the decision to abandon our La Promesa project in Peru and had
essentially no exploration expenditures at La Promesa during 2020
compared to 2019, where we incurred exploration expense of $92,000.
The expenditures at La Promesa in 2019 were related to community
agreements and general exploration activities. The remaining
exploration expenditures during 2020 and 2019 were reconnaissance
work, including the evaluation of potential mineral properties for
acquisition. Our 2021 total exploration and development budget,
excluding any new projects, in which we may acquire and interest,
is approximately $921,000, 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, but does not reflect any costs for
the Gold Coin project or any new projects we may acquire during
2021. Our planned exploration activities in 2021 may be modified,
as necessary for any drilling programs we may undertake at Gold
Coin or projects we may acquire, changes related to any number of
factors including COVID-19 adjustments and or delays, potential
acquisition of new properties, joint venture funding, commodity
prices and changes in the deployment of our capital.
Exploration
expense (in thousands) by property consisted of the
following:
|
(in thousands of
dollars)
|
Year
ended
December
31,
|
|
|
Property
Name
|
2020
|
2019
|
|
Florida
Canyon
|
$
22
|
$
1,072
|
|
Lik
project
|
14
|
199
|
|
La
Promesa
|
-
|
92
|
|
Reconnaissance
exploration activity
|
377
|
444
|
|
Total
exploration expense
|
$
413
|
$
1,807
|
We
believe a discussion of our general and administrative costs should
be viewed without the non-cash stock option compensation expense
(discussed below). Excluding these costs, general and
administrative costs were $729,000 during 2020 compared to
$1,025,000 during 2019. We reduced salary and benefits expense to
$291,000 during 2020 compared to $427,000 during 2019 as a result
of reductions in staff and salaries. In addition, (i) legal and
accounting costs decreased to $131,000 during 2020 compared to
$185,000 during 2019, primarily due to reduced activity; (ii)
travel and investor relation costs decreased to $197,000 during
2020 compared to $271,000 during 2019 as a result of reductions in
travel and in-person meetings and presentations and reduced market
activities; (iii) we recorded directors and officer insurance
expense of $53,000 during 2019 with no comparable cost during 2020;
and (iv) other costs related to office, insurance and miscellaneous
costs increased to $107,000 during 2020, which included a $17,000
charge to currency fluctuation, compared to $89,000 during 2019. We
anticipate general and administrative costs for 2021 will be
similar to the costs incurred during 2020; however, this amount may
vary significantly during 2021 depending on the outcome of our
property evaluations and any strategic transactions we may attempt
to execute upon. We have forecast 2021 general and administrative
costs to be approximately $747,000, 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 our outstanding options. During the year
ended December 31, 2020, we recorded $315,000 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 $343,000 of non-cash stock option compensation expense
during 2019. The amount was higher during 2019 primarily due to the
amortization of options which became fully vested during 2019 and
had no grant date fair value amortization during 2020, which was
partially offset by 1,325,000 new options granted during 2020
compared to the 150,000 new options granted during 2019. The
majority of our remaining stock option compensation during 2020 and
2019 related to the normal vesting of other outstanding options.
See Note 12, “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 gain on marketable
equity securities of $360,000 during 2020 compared to an unrealized
loss on marketable equity securities of $711,000 during 2019. The
gain in 2020 was primarily related to
an unrealized gain on marketable equity securities
of $61,000 due to an increase in the value of our holdings of
shares of Vendetta common stock compared to a decrease in the value
of our holdings of Vendetta common stock during 2019, which
resulted in an unrealized loss on marketable equity securities of
$857,000 during 2019. In addition, we recorded an unrealized gain
on marketable equity securities of $259,000 during 2020 compared to
an unrealized gain of $150,000 on our holdings of Kinross common
stock during 2019. We also recorded an unrealized gain on our
holdings of Vox during 2020 of $30,000, with no similar item during
2019 and we recorded an unrealized gain of $10,000 on holdings of
TNR Gold Corp during 2020 compared to a loss of $4,000 during
2019.
During 2020 we acquired 137,255 shares of Vox
recorded at $294,000 as part of the Royalty Sale in 2019 in
exchange for the SilverStream Note and we sold 2,900,000 shares of
Vendetta for cash proceeds of $123,000 and a realized gain of
$50,000, with no similar item during 2019. In July of 2019, we
acquired 3,450,000 common shares of Vendetta as part of the
acquisition of certain Vendetta units, each unit consisting of one
common share of Vendetta and one warrant to acquire one common
share of Vendetta (the “Vendetta Warrants”). The
Vendetta common shares associated with the units were recorded at
their fair value on the date of acquisition of $165,000.
See
Note 3, “Marketable Equity Securities” to our
consolidated financial statements in Item 8, “Financial
Statements and Supplementary Data” of this Form 10-K for
additional discussion of our marketable equity securities.
W
e may sell some of our
marketable equity securities from time to time during 2021 for
working capital needs; however, we do not expect to sell all of our
holdings of marketable equity securities during 2021. Any proceeds
we may receive from sales of marketable equity securities during
2021 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, 2020. See “Liquidity and Capital
Resources” below.
We
recorded a loss on derivative instruments of $92,000 during 2020
compared to a loss on derivative instruments of $38,000 during
2019. The loss during 2020 was primarily related to certain covered
calls we sold against our holdings of Kinross common stock for cash
proceeds of $103,000 and repurchases of those calls prior to their
expiration of $224,000 for a loss on derivative instruments of
$121,000, which was partially offset by a gain on derivative
instruments during 2020 of $29,000 related to our Vendetta
Warrants. The loss during 2019 was primarily related to a loss of
$47,000 on our Vendetta Warrants which was partially offset by a
gain of $9,000 on covered calls against our holdings of Kinross
common stock during 2019. See Note 8, “Derivative
Instruments” to our consolidated financial statements in Item
8, “Financial Statements and Supplementary Data” of
this Form 10-K for additional discussion of our derivative
instruments. We anticipate we will continue to write calls against
our holdings of Kinross common stock in 2021 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.
We
recorded $25,000 of depreciation and amortization during 2020
compared to $25,000 of depreciation and amortization during 2019.
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 2021 depreciation and amortization expense will be
similar to our 2020 depreciation expense.
We
recorded interest income of $127,000 during 2020 compared to
interest income of $252,000 during 2019. The decrease during 2020
was primarily related to a reduction in the outstanding balances of
our investments in United States Treasury securities and Bank
Certificates of Deposit, which decreased to $5,798,000 at December
31, 2020 from a balance of $6,829,000 at December 31, 2019. In
addition, during 2020 the value of our mark-to-market short term
investments in United States Treasury securities, earned less
income as a result of declining interest rates. We anticipate our
interest income will decrease in 2021 compared to 2020 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.
30
Our
other income of $104,000 related to (i) $44,000 of gain on the
conversion of the SilverStream Note to Vox shares (discussed
above), and (ii) forgiveness of $60,000 from a Paycheck Protection
Program loan of $70,000 (the “PPP Loan”), with no
similar items during 2019. See Note 9, “Paycheck Protection
Program Loan” to our consolidated financial statements in
Item 8, “Financial Statements and Supplementary Data”
of this Form 10-K for additional discussion of the PPP
Loan.
We
recorded no deferred tax expense or benefit in either 2020 or 2019
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 2020 and 2019. 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. During
2020 we recorded $6,000 of mineral property impairment related to
our decision to abandon our La Promesa project in Peru. We did not
abandon or impair any of our properties during 2019 and did not
record any mineral property impairment during 2019.
(d). Liquidity and Capital Resources
Cash
As of
December 31, 2020, we had $605,000 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, 2020, we have USTS with maturities of 30 days to one
year, recorded at their fair value of $3,989,000. Solitario also
holds FDIC insured bank certificates of deposit
(“CD’s”) with face values between $100,000 and
$250,000 and maturities of two months to 17 months, which are
recorded at their fair value of $1,809,000 as of December 31, 2020.
The USTS and CD’s are recorded at their fair value based upon
quoted market prices. Our short-term investments in USTS and
CD’s 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
short-term investments not used for operating costs or mineral
property acquisitions as they mature during 2021.
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 as of December 31, 2020, which are recorded at their
fair value of $734,000. As of December 31, 2020, we own 11,550,000
shares of Vendetta common stock recorded at their fair market value
of $544,000 and we own 137,255 shares of Vox common stock recorded
at their fair market value of $323,000. In addition, we own other
marketable equity securities with a fair value of $19,000 as of
December 31, 2020 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 $7,875,000 at December 31, 2020 compared to
working capital of $8,487,000 as of December 31, 2019. Our working
capital at December 31, 2020 consists primarily of our cash and
cash equivalents, our investment in short-term investments
(discussed above) and our marketable equity securities, less our
current liabilities of $174,000. As of December 31, 2020, 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.
31
Stock-Based Compensation Plans
As of
December 31, 2020, options to acquire 5,558,000 shares of our
common stock were outstanding. There are 4,083,500 options that are
vested and exercisable at December 31, 2020. As of December 31,
2020, our outstanding options include 3,098,000 options that are in
the money with a weighted average exercise price of $0.26 per
share, which is below the market price of a share of Solitario
common stock at December 31, 2020 of $0.56 per share as quoted on
the NYSE American exchange. See Note 12, “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 2020 and 2019. We do not anticipate that stock option
exercises will be a significant source of cash during
2021.
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 2020, our Board of
Directors extended the term of the share repurchase program until
December 31, 2021. 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, 2020, since the inception of the share
repurchase program, we have purchased a total of 994,000 shares for
an aggregate purchase price of $467,000 and these shares are no
longer included in our issued and outstanding shares. We anticipate
we will purchase fewer shares, if any, under the share repurchase
plan during 2021 than were purchased during 2020, depending on
market conditions and the price of our common stock.
At the Market Offering
On
February 2, 2021, we entered into an at-the-market offering
agreement (the “ATM Agreement”) with H.C. Wainwright
& Co., LLC (“Wainwright”), establishing an
at-the-market equity program (the “ATM Program”).
Pursuant to the ATM Program, we may, from time-to-time issue and
sell shares of our common stock (the “Shares”) to the
public through Wainwright on the NYSE American exchange. No sales
of the Shares will be made in Canada, including on the TSX. By
definition, the offering price of shares sold in an at-the-market
offering is based on a price in line with the current market price
of the security. We will determine, at our sole discretion, the
timing and number of Shares to be sold. The net proceeds of any
sales of the Shares under the ATM Program would be used for
primarily for operational expenditures, to maintain our working
capital balances and for general corporate purposes. We are not
obligated to make any sales of Shares under the ATM Agreement.
Concurrent with entering into the ATM Agreement, we filed with the
SEC a prospectus supplement, qualifying the offer and sale of the
Shares having an aggregate offering price of up to US$9,000,000
through the ATM Program. We anticipate we will sell a portion of
the available Shares during 2021 to provide additional working
capital.
Off-balance sheet arrangements
As of
December 31, 2020, and 2019, we have no off-balance sheet
arrangements.
(e).
Cash Flows
Net
cash used in operations during the year ended December 31, 2020
decreased to $1,010,000 compared to $2,639,000 for the year ended
December 31, 2019 primarily as a result of (i) the Drilling
Program, which included the use of cash of $1,580,000, during 2019
compared to no use of cash for the Drilling Program during 2020, as
the
Drilling
Program was completed in 2019 and (ii) a decrease in general and
administrative expense, excluding non-cash stock option
compensation to $729,000 during 2020 compared to $1,025,000 during
2019. Partially offsetting this decreased use of cash in operations
was (i) no mineral property revenue during 2020 compared to mineral
property revenue to $408,000 during 2019 for the Royalty Sale, of
which $186,000 was received in cash and (ii) a reduction in
interest income to $127,000 during 2020 compared to interest income
of $252,000 during 2019. These items are discussed in further
detail above under “Results of
Operations.”
32
Net
cash provided by investing activities decreased to $976,000 during
2020 compared to net cash provided of $3,109,000 during 2019. The
primary source of cash during 2019 was the sale of short-term
investments of $3,338,000 compared to $974,000 during 2020, with
the bulk of the cash from the sales of short-term investments in
2019 used (i) to fund the Drilling Program and (ii) to purchase
$233,000 of Vendetta units, described above, with no similar items
in 2020. We anticipate we will continue to utilize proceeds from
the sale of our short-term investments and any proceeds we may
derive from the ATM Program, discussed above in Liquidity and
Capital Resources to fund our operations during 2021.
Our net
cash provided by financing activities during 2020 included $70,000
from the PPP Loan, with no similar item during 2019. We used cash
of $5,000 during 2020 and $13,000 during 2019 for the repurchase of
common stock for cancellation. We do not anticipate receiving any
additional PPP Loan funds during 2021 and we anticipate we may not
repurchase shares of common stock during 2021. However, we may sell
shares of common stock pursuant to the ATM Program as a source of
financing for working capital during 2021.
(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 2020 mineral and surface property rental and option payments,
included in exploration expense, were $10,000. Our 2021 total
exploration property rentals and option payments for properties we
own, have under joint venture, or operate are estimated to be
approximately $788,000. 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 $780,000 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.
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, 2020 and 2019, 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, 2020 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)
|
$
7
|
$
7
|
$
-
|
$
-
|
$
-
|
|
Mineral property
option and lease payments (2)
|
$
8
|
$
8
|
$
-
|
$
-
|
$
-
|
(1)
Lease obligation on our Wheat Ridge, Colorado office.
(2)
Mineral property payments under lease and property claim and
concession payments for the next year, net of joint venture
payments.
33
(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, 2020. 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 and 2020
limited work was undertaken on road access to the project, and Nexa
expects to continue to work on completing the road access during
2021. During 2019, Nexa completed the Drilling Program and several
significant drill intercepts were encountered. Solitario reported
the results of the drill intercepts in February 2021.
Nexa is
currently working on two new drilling permits that will greatly
expand the area available for exploration drilling. One of the
permits would allow for 84 new drilling platforms and associated
interconnecting roads scattered over an area approximately six
kilometers by five kilometers. These proposed platforms are located
immediately south, east and southeast of the current Florida Canyon
drilling footprint. In addition, Nexa plans to conduct additional
road construction in 2021 to access the mineralized areas of the
project as well as local communities as part of their social
commitment to these communities.
Solitario’s
payments of $1,580,000 related to the Drilling Program were
expensed as incurred, however the payments will be treated as 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.
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.
Solitario and Teck
are in discussions to jointly fund a 2021 exploration program with
Teck acting as project manager. The program, if approved, consists
of drilling four-to-five core holes totaling approximately 1,000
meters. Drill targets under consideration are extensions to the
currently defined Lik deposit on the northeast, northwest and
southern limits of the deposit, including one-hole testing for
stacked mineralized horizons. Drilling is expected to begin during
the 2021 summer field season. Besides drilling, a rigorous soil
sampling program of up to 500 samples and an eight-line-kilometer
induced polarization geophysical program is planned for an area
northeast of the Lik deposit where there are indications of a
second mineralized zone where no drilling has been conducted. We
expect to reach a final decision on this program before the end of
the first quarter of 2021. Teck will manage the 2021 exploration
program as the designated operator during 2021, although Solitario
will remain the operator of the joint venture in subsequent
years.
34
Other Properties
Chambara
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.
Although concession costs in 2021 to be paid by Nexa are estimated
to be $462,000, Solitario is fully carried and has no funding
requirement at Chambara.
Gold Coin
We are
currently evaluating the Gold Coin project exploration activities
for 2021 and do not expect to have significant exploration
expenditures for 2021, pending the results of our evaluation, and /
or the availability of permits for drilling or other field
activities. Our 2021 concession costs are estimated to be
approximately $4,000.
2021 Planned Expenditures
Our
2021 total exploration and development budget is approximately
$921,000 for our planned exploration expenditures. This amount
includes a limited drilling program and evaluation of the Lik
project, where we are responsible for 50% of the exploration
expenditures. This amount does not include any significant
expenditures for our Florida Canyon project where our joint venture
partner, Nexa, is responsible for 100% of exploration costs, nor
does it include any significant expenditures, such as drilling, at
our newly acquired Gold Coin project, as we are evaluating planned
exploration activities for 2021 at Gold Coin. We will continue the
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 2021 utilizing Teck at
Lik, Nexa at Florida Canyon, and our own employees and contract
geologists on our other projects.
(h). Discontinued Projects
During
2020 we recorded $6,000 of mineral property impairment related to
our decision to abandon the La Promesa project in Peru. We had no
mineral property impairments during 2019. We did sell certain
royalty properties in the Royalty Sale during 2019.
(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.
Item 7A.
Q
uantitative and Qualitative Disclosures about
Market Risk
Smaller
reporting companies are not required to provide the information
required by this item.
35
Item 8.
F
inancial Statements and Supplementary
Data
|
|
|
Page
|
|
Consolidated
Financial Statements
|
|
|
|
|
37
|
|
|
|
38
|
|
|
|
39
|
|
|
|
40
|
|
|
|
41
|
|
|
|
42
|
|
36
R
eport of Independent Registered
Public Accounting Firm
To the
Stockholders and Board of Directors of Solitario Zinc
Corp.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Solitario
Zinc Corp. (the “Company”) as of December 31, 2020 and
2019, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the years in
the two-year period ended December 31, 2020, and the related notes
and schedules (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, 2020 and 2019,
and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 2020, 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.
Critical Accounting Matters
Critical
audit matters are matters arising from the current period audit of
the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial
statements and (2) involved especially challenging, subjective, or
complex judgements. We determined that there are no critical audit
matters.
/s/
Plante & Moran, PLLC
We have
served as the Company’s auditor since 2005.
Denver,
Colorado
March
5, 2021
37
SOLITARIO
ZINC CORP.
CONSOLIDATED
B
ALANCE SHEETS
|
(in thousands of
U.S. dollars, except share and per share amounts)
|
December
31,
|
December
31,
|
|
|
2020
|
2019
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$
605
|
$
574
|
|
Short-term
investments, at fair value
|
5,798
|
6,829
|
|
Investments
in marketable equity securities, at fair value
|
1,620
|
1,039
|
|
SilverStream
note receivable
|
-
|
268
|
|
Prepaid
expenses and other
|
26
|
46
|
|
Total
current assets
|
8,049
|
8,756
|
|
|
|
|
|
Mineral
properties
|
15,628
|
15,617
|
|
Other
assets
|
124
|
159
|
|
Total
assets
|
$
23,801
|
$
24,532
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
157
|
$
228
|
|
Paycheck
Protection Loan
|
10
|
-
|
|
Operating
lease liability
|
7
|
41
|
|
Total
current liabilities
|
174
|
269
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
Asset
retirement obligation - Lik
|
125
|
125
|
|
Operating
lease liability
|
-
|
7
|
|
Total
long-term liabilities
|
125
|
132
|
|
|
|
|
|
Commitments
and contingencies (Note 11)
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
Preferred
stock, $0.01 par value, authorized 10,000,000 shares (none issued
and outstanding at December 31, 2020 and
2019)
|
-
|
-
|
|
Common
stock, $0.01 par value, authorized, 100,000,000 shares
(58,108,366 and 58,133,066, respectively,
shares issued and outstanding at December 31, 2020 and
2019)
|
581
|
581
|
|
Additional
paid-in capital
|
70,514
|
70,204
|
|
Accumulated
deficit
|
(47,593
)
|
(46,654
)
|
|
Total
shareholders' equity
|
23,502
|
24,131
|
|
Total
liabilities and shareholders' equity
|
$
23,801
|
$
24,532
|
See
Notes to Consolidated Financial Statements.
38
SOLITARIO
ZINC CORP.
CONSOLIDATED
STATEMENTS OF
O
PERATIONS
|
(in thousands,
except share and per share amounts)
|
For the years
ended December 31,
|
|
|
|
2020
|
2019
|
|
Revenue, net
– mineral property sale
|
$
-
|
$
408
|
|
|
|
|
|
Costs,
expenses and other
|
|
|
|
Exploration
expense
|
413
|
1,807
|
|
Depreciation
and amortization
|
25
|
25
|
|
Mineral
property impairment
|
6
|
-
|
|
General
and administrative
|
1,044
|
1,368
|
|
Total
costs, expenses and other
|
1,488
|
3,200
|
|
Other
(expense) income
|
|
|
|
Interest
and dividend income (net)
|
127
|
252
|
|
Other
income
|
104
|
-
|
|
Loss on
derivative instruments
|
(92
)
|
(38
)
|
|
Gain on
sale of marketable equity securities
|
50
|
-
|
|
Unrealized
gain (loss) on marketable equity securities
|
360
|
(711
)
|
|
Total
other income (expense)
|
549
|
(497
)
|
|
Net
loss
|
$
(939
)
|
$
(3,289
)
|
|
Loss
per common share
|
|
|
|
basic
and diluted
|
$
(0.02
)
|
$
(0.06
)
|
|
Weighted
average shares outstanding
|
|
|
|
Basic
and diluted
|
58,116
|
58,143
|
See
Notes to Consolidated Financial Statements.
39
SOLITARIO
ZINC CORP.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS'
E
QUITY
FOR THE
YEARS ENDED DECEMBER 31, 2020 AND 2019
|
(in thousands, of
U.S. Dollars
|
|
|
|
|
|
|
except
share amounts)
|
|
Additional
|
|
Total
|
|
|
|
Common
Stock
|
Paid-in
|
Accumulated
|
Shareholders’
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
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
|
|
|
|
|
|
|
|
|
Stock option
expense
|
-
|
-
|
315
|
-
|
315
|
|
Repurchase of
shares for cancellation
|
(24,700
)
|
-
|
(5
)
|
|
(5
)
|
|
Net
loss
|
-
|
-
|
-
|
(939
)
|
(939
)
|
|
Balance
at December 31, 2020
|
58,108,366
|
$
581
|
$
70,514
|
$
(47,593
)
|
$
23,502
|
See
Notes to Consolidated Financial Statements.
40
SOLITARIO
ZINC CORP.
CONSOLIDATED
STATEMENTS OF
C
ASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2020 AND 2019
|
(in thousands of
U.S. Dollars)
|
For the year
ended
December
31,
|
|
|
|
2020
|
2019
|
|
Operating
activities:
|
|
|
|
Net
loss
|
$
(939
)
|
$
(3,289
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Unrealized (gain) loss on marketable equity securities
|
(360
)
|
711
|
|
Gain
on sale of marketable equity securities
|
(50
)
|
-
|
|
Loss
on derivative instruments
|
92
|
38
|
|
Other
income – Paycheck Protection Program loan
forgiveness
|
(60
)
|
-
|
|
Other
income – gain on conversion of SilverStream note
|
(44
)
|
-
|
|
Mineral
property impairment
|
6
|
-
|
|
Employee
stock option expense
|
315
|
343
|
|
Depreciation
|
25
|
25
|
|
Amortization
of right of use lease asset
|
38
|
37
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Prepaid
expenses and other current assets
|
95
|
216
|
|
Note
receivable, net of mineral property sold
|
-
|
(223
)
|
|
Accounts
payable and other current liabilities
|
(128
)
|
(497
)
|
|
Net
cash (used in) operating activities
|
(1,010
)
|
(2,639
)
|
|
|
|
|
|
Investing
activities:
|
|
|
|
Sale of
short-term investments – net
|
974
|
3,338
|
|
Purchase
of Vendetta units
|
-
|
(233
)
|
|
Sale of
marketable equity securities
|
123
|
-
|
|
(Purchase)
sale of derivative instruments – net
|
(121
)
|
9
|
|
Additions
to other assets
|
-
|
(5
)
|
|
Net
cash provided by investing activities
|
976
|
3,109
|
|
|
|
|
|
Financing
activities:
|
|
|
|
Paycheck
Protection Program loan
|
70
|
-
|
|
Repurchase
of Solitario common stock for cancellation
|
(5
)
|
(13
)
|
|
Net
cash used in financing activities
|
65
|
(13
)
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
31
|
457
|
|
Cash
and cash equivalents, beginning of year
|
574
|
117
|
|
Cash
and cash equivalents, end of year
|
$
605
|
$
574
|
|
|
|
|
|
Supplemental
Cash Flow information:
|
|
|
|
Conversion
of SilverStream note to Marketable equity securities
|
$
294
|
-
|
|
Acquisition of Gold Coin
property included in accounts payable
|
$
17
|
|
See
Notes to Consolidated Financial Statements.
41
SOLITARIO
ZINC CORP.
N
OTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the
years ended December 31, 2020 and 2019
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
previously recorded revenue in the past from the sale of mineral
properties, including the sale of certain mineral royalty
properties in January 2019, discussed below. 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, 2020 and 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
project and the Lik project and to potentially acquire additional
mineral property assets. During 2020 Solitario acquired an option
to buy a 100% interest in the non-producing Gold Coin project in
Arizona and recorded mineral property of $17,000 for its initial
investment in the Gold Coin project. All future expenditures for
the Gold Coin project will be expensed as incurred as exploration
expense until such time Solitario establishes proven and probable
reserves, which cannot be assured. If Solitario establishes proven
and probable reserves, subsequent expenditures would be evaluated
to determine appropriate accounting treatment. The fluctuations in
precious metal and other commodity prices have 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.
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.
42
Solitario has
recognized revenue during 2019 of $408,000 related to the Royalty
Sale, discussed below, with no similar item during 2020. Solitario
expects any property sales in the future to be on an infrequent
basis. Prior to the Royalty Sale, the last proceeds from joint
venture property payments was in 2018 from the sale of its royalty
in the Yanacocha property. 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 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; and (iv) Solitario's investment in
marketable equity securities.
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, 2020, approximately $595,000 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, 2020, Solitario has United States Treasury securities
(“USTS”) with maturities of 30 days to one year,
recorded at their fair value of $3,989,000 compared to USTS
recorded at their fair value of $6,829,000 at December 31, 2019.
Solitario also holds FDIC insured bank certificates of deposit
(“CD’s”) with face values between $100,000 and
$250,000 and maturities of two months to 17 months, which are
recorded at their fair value of $1,809,000 at December 31, 2020.
Solitario held no CD’s at December 31, 2019.
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.
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.
43
Derivative instruments
Solitario accounts
for its derivative instruments in accordance with ASC 815,
"Accounting for Derivative Instruments and Hedging Activities"
(“ASC 815”).
During 2019, Solitario acquired
certain Vendetta Mining Corp. (“Vendetta”) units, which
included Vendetta Warrants (defined below). Changes in fair value
of the 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
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. 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 10, “Fair Value of Financial
Instruments,” below.
Marketable equity securities
Solitario's
investments in marketable equity securities are carried at fair
value, which is based upon quoted prices of the securities owned.
Solitario records investments in marketable equity securities 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 2020 and 2019 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.
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, 2020 and 2019.
Potentially dilutive shares, consisting of outstanding common stock
options of 5,558,000 and 4,373,000, respectively, exercisable for
Solitario common shares were excluded from the calculation of
diluted loss per share for the year ended December 31, 2020 and
2019 because the effects were anti-dilutive.
44
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 12, “Employee Stock
Compensation Plans,” below.
Risks and Uncertainties
Solitario faces
risks related to health epidemics and other outbreaks of
communicable diseases, which could significantly disrupt its
operations and may materially and adversely affect its business and
financial conditions.
Solitario’s
business could be adversely impacted by the effects of the
coronavirus (“COVID-19”) or other epidemics or
pandemics. Solitario has recommended all of its employees and
contractors follow government guidelines for health and safety
policies for employees and contractors, including encouraging
tele-commuting and working from home where possible. Solitario has
evaluated the effects of COVID-19 on its operations and taken
pro-active steps to address the impacts on its operations,
including reducing costs, in response to the economic uncertainty
associated with potential risks from COVID-19. These reductions
include implementing salary reductions and evaluation and reduction
in certain planned 2020 exploration programs through its joint
venture partners at the Florida Canyon and Lik exploration
projects. Also, Solitairo has evaluated the potential impacts on
its ability to access future traditional funding sources on the
same or reasonably similar terms as in past periods. Solitario will
continue to monitor the effects of COVID-19 on its operations,
financial condition and liquidity. However, the extent to which
COVID-19 impacts Solitario’s business, including our
exploration and other activities and the market for its securities,
will depend on future developments, which are highly uncertain and
cannot be predicted at this time, and include the duration,
severity and scope of the outbreak and the actions taken to contain
or treat the coronavirus outbreak.
Recently adopted accounting pronouncements
The
FASB issued ASU No. 2018-13,
Fair
Value Measurement (topic 820) Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement
(“ASU 2018-13”).
The amendments in ASU 2018-13
simplified certain disclosures regarding fair value measurements
including the amount and reasons for transfers between Level 1 and
Level 2 of the fair value hierarchy and the policy for timing of
transfers between levels and the valuation processes for Level 3
fair value measurements. In addition, ASU 2018-13 requires
disclosures regarding unrealized gains and losses included in other
comprehensive income and the range and weighted average of
significant unobservable inputs used in Level 3 fair value
measurements. Solitario adopted ASU 2018-13 effective January 1,
2020. The adoption of ASU 2018-13 did not have an impact on
Solitario’s consolidated financial position or results of
operations.
The
FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses
(Topic 326): Measurements of Credit Losses on Financial
Statements
(“ASU 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. Solitario adopted ASU No. 2016-13 effective January 1,
2020. The adoption of ASU 2016-13 did not have an impact on its
consolidated financial position or results of
operations.
Recently issued accounting pronouncements
The SEC
has adopted amendments to its disclosure rules to modernize the
mineral property disclosure requirements for issuers whose
securities are registered with the SEC. These amendments became
effective February 25, 2019 (the “SEC Modernization
Rules”) and, following a two-year transition period, the SEC
Modernization Rules will replace the historical property disclosure
requirements for mining registrants that are included in SEC
Industry Guide 7.
Under the SEC
Modernization Rules, consistent with global standards as embodied
by the Committee for Reserves International Reporting Standards
(“CRIRSCO”),
registrants will be required to
disclose specified information concerning mineral resources that
have been identified on one or more of its mineral properties.
Consistent with CRIRSCO standards the SEC Modernization Rules have
added definitions to recognize “Measured Mineral
Resources”, “Indicated Mineral Resources” and
“Inferred Mineral Resources.” The Company is not
required to provide disclosure on its mineral properties under the
SEC Modernization Rules until its fiscal year beginning January 1,
2021.
45
Upon
adoption of the SEC Modernization Rules, among other requirements,
the Company will be required to report its mineral resources, if
any, as Measured, Indicated or Inferred Mineral Resources in
accordance with the SEC Modernization Rules. This will allow
investors to evaluate the Company’s resources on a comparable
basis with other mining and exploration issuers registered with the
SEC. In addition, the SEC Modernization Rules will require the
Company to disclose exploration results, mineral reserves, if any,
and mineral resources based upon information and supporting
documentation prepared by a mining expert (the “qualified
person”). The SEC Modernization Rules will require the
Company to obtain a dated and signed technical report summary from
the qualified person identifying and summarizing the information
reviewed and conclusions reached by the qualified person(s) about
the mineral resources or reserves for each mineral property. The
Company is currently evaluating the requirements under the SEC
Modernization Rules and has not determined what effect adoption
will have on its consolidated financial statements and
disclosures.
2.
Mineral
Properties
:
The
following table details Solitario’s capitalized investment in
exploration mineral property:
|
(in
thousands)
|
December
31,
|
|
|
|
2020
|
2019
|
|
Exploration
|
|
|
|
Lik
project (Alaska – US)
|
$
15,611
|
$
15,611
|
|
Gold
Coin (Arizona – US)
|
17
|
-
|
|
La
Promesa (Peru)
|
-
|
6
|
|
Total
exploration mineral property
|
$
15,628
|
$
15,617
|
Exploration property
Solitario's
exploration mineral properties at December 31, 2020 and 2019
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 or the cost to
acquire the property, as appropriate. At December 31, 2020, 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.
Lik Property
Solitario holds a
50% operating interest in the Lik zinc-lead sliver property in
northwest Alaska, which we acquired as part of the acquisition of
Zazu metals corporation (“Zazu”) in July 2017.
Solitario recorded its acquisition cost of $15,611,000 as mineral
property at the date of acquisition. Teck is Solitario’s 50%
partner on the Lik Project and acted as the project manager during
2020.
Gold Coin
Solitario acquired
an option-to-buy a 100% interest in the Gold Coin Property in
southeastern Arizona in late-2020. Terms of the Gold Coin option
agreement include scheduled payments to the underlying owner of
$12,000 upon signing (paid), and at the owner’s option, to
pay $15,000 at the first anniversary date, with a total of $242,000
over a five-year period. Upon signing the Gold Coin option
agreement Solitario paid a finders’ fee of $5,000 to a
contract geologist. Solitario has agreed to escalating work
commitments at Solitario’s option totaling $1,025,000 during
the first four years, with the first year totaling $75,000. The
underlying owner will retain a 2.0% Net Smelter Return royalty.
Solitario will have the option, but not obligation, to reduce the
Net Smelter Return royalty to 1.0% by paying the owner $500,000 and
will have the option to eliminate the remaining royalty of 1.0% by
paying the owner $1.0 million.
46
Florida Canyon
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 previously recorded joint
venture property payment revenue received in excess of capitalized
costs. Per the joint venture agreement, as of December 31, 2020, no
further standby joint-venture payments are due to Solitario on the
Florida Canyon project. At December 31, 2020 and 2019, Solitario
has no remaining capitalized costs related to its Florida Canyon
joint venture. Per the joint venture agreement with Nexa covering
the Florida Canyon project, Solitario currently holds a 39%
interest in the Florida Canyon zinc project with Nexa. With the
exception of the Drilling Program during 2018 and 2019 (discussed
below), Nexa is required to fund 100% of exploration expenditures
at Florida Canyon, until Nexa commits to put the project into
production based upon a positive feasibility study, at which time
Nexa’s interest will increase from its current 61% interest
to a 70% interest. 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”).
Royalty sale
On
January 22, 2019, Solitario completed the Royalty Sale to
SilverStream SEZC (“SilverStream”), for Cdn$600,000. On
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 was 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. During 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 May
19, 2020, SilverStream completed an initial public offering,
including changing its name to Vox Royalty Corp.
(“Vox”) and, in accordance with the terms of the
SilverStream Note, issued Solitario 137,255 shares of common stock
of Vox in full satisfaction of obligations owed under the
SilverStream Note. In accordance with the terms of the SilverStream
Note, the 137,255 Vox shares were issued at a price of Cdn$2.55 per
share, which was at a 15% discount to the initial public offering
price of Cdn$3.00 per share. Solitario recorded its initial
investment in the Vox common shares at the initial public offering
price, or a total of Cdn$412,000 or $294,000. Solitario recorded
other income of $44,000 for the gain on the conversion of the
SilverStream Note during 2020.
Solitario recorded
interest income from the SilverStream Note of $7,000 and $12,000
during 2020 and 2019, respectively.
Discontinued projects
During
2020 Solitario recorded $6,000 of mineral property impairment
related to its decision to abandon its La Promesa project in Peru.
Solitario did not abandon or impair any of its properties during
2019 and did not record any mineral property impairment during the
year ended December 31, 2019.
Exploration Expense
The
following items comprised exploration expense:
|
|
For the year
ended
December
31,
|
|
|
(in
thousands)
|
2020
|
2019
|
|
Geologic and field
expenses
|
$
326
|
$
1,726
|
|
Administrative
|
87
|
81
|
|
Total
exploration expense
|
$
413
|
$
1,807
|
Asset Retirement Obligation
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.
47
3.
Marketable Equity
Securities
During
2020, Solitario received 137,255 shares of Vox upon conversion of
the SilverStream Note, discussed above, valued at $294,000 and
Solitario sold 2,900,000 shares of Vendetta common stock for
proceeds of $123,000 and recorded a gain on sale $50,000. During
2019 Solitario acquired 3,450,000 shares of Vendetta through the
purchase of the Vendetta units, discussed below, and recorded an
increase in marketable equity securities of $165,000. Solitairo did
not sell any marketable equity securities during 2019.
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 “Vendetta Warrants”). The purchase of the units
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 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 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 2020, Solitario
charged gain on derivative instruments $29,000 for the change in
the value of the Vendetta Warrants. During 2019, Solitario charged
loss on derivative instruments $47,000 for the change in the value
of the Vendetta Warrants.
At
December 31, 2020 Solitario owns the following marketable equity
securities:
|
|
Year
ended
December 31
2020
|
|
|
|
shares
|
Fair
value
(000’s)
|
|
Kinross
Gold Corp
|
100,000
|
$
734
|
|
Vendetta
Mining Corp.
|
11,550,000
|
544
|
|
Vox
Royalty Corp.
|
137,255
|
323
|
|
TNR
Gold Corp.
|
430,000
|
19
|
|
Total
|
|
$
1,620
|
The
following tables summarize Solitario’s marketable equity
securities and adjustments to fair value:
|
(in
thousands)
|
Year
ended
December
31,
|
|
|
|
2020
|
2019
|
|
Marketable
equity securities at cost
|
$
2,099
|
$
1,879
|
|
Cumulative
unrealized (loss) gain on marketable equity securities
|
(479
)
|
(840
)
|
|
Marketable
equity securities at fair value
|
$
1,620
|
$
1,039
|
The
following table represents changes in marketable equity
securities:
|
(in
thousands)
|
Year
ended
December
31,
|
|
|
|
2020
|
2019
|
|
Cost of marketable
equity securities sold
|
$
73
|
$
-
|
|
Realized gain on
marketable equity securities sold
|
50
|
-
|
|
Proceeds from the
sale of marketable equity securities sold
|
(123
)
|
-
|
|
Net gain (loss) on
marketable equity securities
|
410
|
(711
)
|
|
Additions to
marketable equity securities
|
294
|
165
|
|
Change in
marketable equity securities at fair value
|
$
581
|
$
(546
)
|
The
following table represents the realized and unrealized gain (loss)
on marketable equity securities:
|
(in
thousands)
|
Year
ended
December
31,
|
|
|
|
2020
|
2019
|
|
Unrealized
gain (loss) on marketable equity securities
|
$
360
|
$
(711
)
|
|
Realized
gain on marketable equity securities sold
|
50
|
-
|
|
Net
gain (loss) on marketable equity securities
|
$
410
|
$
(711
)
|
48
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 remaining term of 2 months at
December 31, 2020. The right-of-use office lease asset for the WR
Lease is classified as other assets and the related liability as a
current office lease liability 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
2020 and 2019, Solitario recognized $40,000 and $40,000,
respectively, of non-cash lease expense for the WR Lease included
in general and administrative expense. Cash lease payments of
$42,000 and $37,000, respectively, were made on the WR Lease during
2020 and 2019 and this amount, less $1,000 and $3,000,
respectively, of imputed interest during 2020 and 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. Solitario has $7,000 remaining cash
payments as of December 31, 2020 which is also its remaining lease
liability.
The
following is supplemental cash flow information related to our
operating lease for 2020 and 2019:
|
(in
thousands)
|
Year
ended
December 31,
2020
|
Year
ended
December 31,
2019
|
|
|
|
|
|
Cash paid for
amounts included in the measurement of lease
liabilities
|
|
|
|
Operating
cash outflows from WR Lease payments
|
$
42
|
$
37
|
|
Non-cash amounts
related to the WR lease
|
|
|
|
Right
of use assets recorded in exchange for new operating lease
liabilities
|
$
-
|
$
82
|
5.
Other
Assets
The
following items comprised other assets:
|
(in
thousands)
|
December
31,
|
|
|
|
2020
|
2019
|
|
Furniture and
fixtures, net of accumulated depreciation
|
$
34
|
$
39
|
|
Lik project
equipment, net of accumulated depreciation
|
30
|
50
|
|
Office lease
asset
|
7
|
45
|
|
Vendetta
warrants
|
49
|
21
|
|
Exploration bonds
and other assets
|
4
|
4
|
|
Total other
assets
|
$
124
|
$
159
|
During
2017, Solitario acquired $100,000 of exploration-related equipment
at the Lik project as part of the acquisition of its interest in
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 each of 2020 and 2019
related to this equipment.
6.
Revenue mineral property
sale
On
January 22, 2019, Solitario completed the sale of its interest in
certain royalties to SilverStream, discussed above. 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 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.
49
7.
Income
Taxes
:
Consolidated loss
before income taxes includes losses from foreign operations of
$79,000 and $1,261,000 in 2020 and 2019, respectively.
The net
deferred tax assets/liabilities in the December 31, 2020 and 2019
consolidated balance sheets include the following
components:
|
(in
thousands)
|
2020
|
2019
|
|
Deferred tax
assets:
|
|
|
|
Loss
carryovers
|
$
12,636
|
$
13,284
|
|
Investment
in Mineral Property
|
1,669
|
1,669
|
|
Capitalized
Exploration Costs
|
410
|
652
|
|
Stock
option compensation expense
|
286
|
228
|
|
Unrealized
loss on derivative securities
|
148
|
237
|
|
Other
|
110
|
135
|
|
Valuation
allowance
|
(15,050
)
|
(15,999
)
|
|
Total deferred tax
assets
|
209
|
206
|
|
Deferred tax
liabilities:
|
|
|
|
Unrealized
gains on marketable equity securities
|
207
|
198
|
|
Other
|
2
|
8
|
|
Total deferred tax
liabilities
|
209
|
206
|
|
Net
deferred tax liabilities
|
$
-
|
$
-
|
A
reconciliation of expected federal income taxes on loss from
continuing operations at statutory rates, with the expense for
income taxes is as follows:
|
(in
thousands)
|
2020
|
2019
|
|
Expected income tax
benefit
|
$
(197
)
|
$
(691
)
|
|
Equity based
compensation
|
7
|
7
|
|
Foreign tax rate
differences
|
(8
)
|
(116
)
|
|
State income
tax
|
(37
)
|
(84
)
|
|
Expiration of
Capital Loss Carryovers
|
1,225
|
66
|
|
Adjustment to
Deferred Taxes
|
(23
)
|
(101
)
|
|
Change in valuation
allowance
|
(949
)
|
900
|
|
Permanent
differences and other
|
(18
)
|
19
|
|
Income tax
(benefit) expense
|
$
-
|
$
-
|
During
2020, the valuation allowance decreased primarily due to the
expiration of Capital Loss carryovers. During 2019, the valuation
allowance increased primarily due to the addition of deferred tax
assets related to current year net operating losses.
At
December 31, 2020, Solitario has unused US Federal Net Operating
Loss carryovers of $19,381,000 and unused US State Net Operating
Loss carryovers of $20,080,000 which begin expiring in 2027. As a
result of the ownership change of Zazu Metals (Alaska) Corp, that
resulted from our acquisition of Zazu, 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 $5,576,000 for US
Federal and US State purposes which begin to expire in 2021.
Solitario has Canadian loss carryforwards of $9,822,000 which begin
expiring in 2027. Other foreign loss carryforwards for which
Solitario has provided a full valuation allowance relate to
Solitario’s exploration activities in Peru. The Peru losses
do not expire.
50
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, 2020 or December 31, 2019, 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
2016 and forward are subject to examination. Solitario’s
policy is to recognize interest and penalties related to uncertain
tax positions in income tax expense. Solitario has no accrued
interest or penalties related to uncertain tax positions as of
December 31, 2020, or December 31, 2019 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 shares of common stock of Kinross Gold Corporation
(“Kinross”) included in Marketable Equity Securities.
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 2020, Solitario sold covered calls against
its holdings of Kinross for cash proceeds of $103,000, and
repurchased certain of its covered calls prior to expiration for
$224,000. As of December 31, 2020, Solitario has no remaining
liability, related to one outstanding Kinross call option which
expired unexercised in January 2021. During 2019 Solitario sold
covered calls against its holdings of Kinross for $9,000 in cash,
all of which expired unexercised during 2019.
Vendetta Warrants
At both
December 31, 2020 and 2019 Solitario held 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, 2020, and 2019 Solitario recorded Vendetta Warrants at their
fair value of $49,000 and $21,000, respectively, based upon a Black
Scholes model.
The
following items comprise gain (loss) on derivative
instruments:
|
(in
thousands)
|
Year
ended
December
31,
|
|
|
|
2020
|
2019
|
|
(Loss)
Gain on Kinross calls – realized
|
$
(121
)
|
$
9
|
|
Gain
(loss) on Vendetta Warrants – unrealized
|
29
|
(47
)
|
|
|
$
(92
)
|
$
(38
)
|
9.
Paycheck Protection
Program Loan
On
April 20, 2020, in response to significant market volatility and
uncertainty, our general history of operating losses, and the
resulting need for Solitario to conserve its financial resources,
Solitario applied for and received a loan in the amount of $70,000
(the “PPP Loan”) pursuant to the Paycheck Protection
Program under the Coronavirus Aid, Relief, and Economic Security
Act (the “CARES Act”) to help fund Company payroll,
rent and utilities obligations.
The
PPP Loan has a two-year term and bears interest at a rate of 1.0%
per annum. Monthly principal and interest payments are deferred for
six months after the date of the loan. The PPP Loan may be prepaid
at any time prior to maturity, under certain conditions, with no
prepayment penalties. The PPP Loan promissory note contains events
of default and other provisions customary for a loan of this type.
The Paycheck Protection Program provides that the PPP Loan may be
partially or wholly forgiven if the funds are used for certain
qualifying expenses as described in the CARES Act. Solitario
believes it used the proceeds from the PPP Loan for qualifying
expenses and applied for forgiveness of the PPP Loan in accordance
with the terms of the CARES Act. During 2020, $60,000 of the PPP
Loan was forgiven, and Solitario recorded $60,000 of other income
related to the forgiveness of the PPP Loan. However, Solitario
cannot assure that forgiveness for any of the remaining portion of
the PPP Loan of $10,000 will occur. In addition, the Small Business
Administration retains the right to review the eligibility
requirements of Solitario for its PPP Loan. As of December 31,
2020, Solitario has recorded $10,000 for the PPP Loan, including
accrued interest through December 31, 2020 at 1% per annum, as a
current liability. Solitario expects to repay its remaining balance
of the PPP Loan, less forgiveness, if any, within the next twelve
months.
51
10.
Fair Value of Financial
Instruments
:
For
certain of Solitario's financial instruments, including cash and
cash equivalents, the SilverStream Note in 2019, 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, Vox 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, 2020 and 2019, 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, 2020:
|
(in
thousands)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
Assets
|
|
|
|
|
|
Short-term
investments
|
$
5,798
|
$
-
|
$
-
|
$
5,798
|
|
Marketable
equity securities
|
$
1,620
|
$
-
|
$
-
|
$
1,620
|
|
Vendetta
Warrants
|
$
-
|
$
49
|
$
-
|
$
49
|
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
|
|
Vendetta
Warrants
|
$
-
|
$
21
|
$
-
|
$
21
|
Items measured at fair value on a recurring basis:
Short-term investments:
At December 31, 2020 and 2019,
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, 2020 and 2019, the
fair value of Solitario’s holdings in shares of Vendetta,
Kinross, Vox, and TNR marketable equity securities are based upon
quoted market prices.
Vendetta Warrants
: At December 31, 2020 and 2019 the fair
value of Solitario’s Vendetta Warrants is based upon a Black
Scholes model, using market inputs.
During
the year ended December 31, 2020, Solitario did not change any of
the valuation techniques used to measure its financial assets and
liabilities at fair value.
52
11.
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 2021 property rentals and option
payments for properties Solitario owns, has under joint venture or
Solitario operates to be approximately $788,000. 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 $780,000 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.
12.
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 2020 and 2019 pursuant to the 2013
Plan:
|
Grant
Date
|
4/2/20
(1)
|
1/24/19
(1)
|
|
Option –
grant date price
|
$
0.20
|
$
0.28
|
|
Options
granted
|
1,325,000
|
150,000
|
|
Expected life
years
|
5.0
|
5.0
|
|
Expected
volatility
|
67
%
|
64
%
|
|
Risk free interest
rate
|
0.4
%
|
2.4
%
|
|
Weighted average
fair value
|
$
0.11
|
$
0.16
|
|
Grant date fair
value
|
$
145,000
|
$
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.
b.) Stock
option activity
During
2020 and 2019 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,
2020 and 2019:
|
|
2020
|
2019
|
||||
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Average
|
Aggregate
|
|
Average
|
Aggregate
|
|
|
RSUs/
|
Exercise
|
Intrinsic
|
RSUs/
|
Exercise
|
Intrinsic
|
|
|
Options
|
Price
|
Value
(1)
|
Options
|
Price
|
Value
(2)
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
4,373,000
|
$
0.58
|
|
5,223,160
|
$
0.76
|
|
|
Granted
|
1,325,000
|
$
0.20
|
|
150,000
|
$
0.28
|
|
|
Exercised
|
-
|
-
|
|
-
|
-
|
|
|
Expired
|
-
|
-
|
|
(1,000,160
)
|
$
1.47
|
|
|
Forfeited
|
(140,000
)
|
$
0.77
|
|
-
|
-
|
|
|
Outstanding, end of
year
|
5,558,000
|
$
0.48
|
$
925,000
|
4,373,000
|
$
0.58
|
$
3,000
|
|
Exercisable, end of
year
|
4,083,500
|
$
0.57
|
$
446,000
|
2,774,000
|
$
0.63
|
$
840
|
(1)
Intrinsic value based upon December 31, 2020 price of a share of
Solitario common stock as quoted on the NYSE American exchange of
$0.56 per share.
(2)
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.
53
During
the years ended December 31, 2020 and 2019, Solitario recorded
$315,000 and $343,000, 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, 2020, the total unrecognized stock
option compensation cost related to non-vested options is $146,000
and is expected to be recognized over a weighted average period of
20 months.
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 2020
Solitario’s Board of Directors extended the expiration date
of the share repurchase program through December 31, 2021. During
the years ended December 31, 2020 and 2019, Solitario purchased
24,700 and 38,400 shares of Solitario common stock, respectively,
for an aggregate purchase price of $5,000 and $13,000,
respectively. As of December 31, 2020, Solitario has purchased a
total of 994,000 shares for an aggregate purchase price of $467,000
under the share repurchase program since its
inception.
14.
Subsequent
events
Solitario
has
evaluated events subsequent to December 31, 2020 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.
In January 2021, Solitario extended its lease on its Wheat Ridge,
Colorado office space for a period of 32 months and the Wheat
Ridge, Colorado office lease now expires on October 31, 2023. As of
January 25, 2021, the commencement date of the lease extension
Solitario has total minimum lease payments of $110,000, with a net
present value of $103,000, using Solitario’s estimated cost
of capital of 5% at the commencement date of the lease
extension.
In February 2021
Solitario
entered into an at-the-market offering agreement
(the “ATM Agreement”) with H.C. Wainwright & Co.,
LLC (“Wainwright”), establishing an at-the-market
equity program (the “ATM Program”). Pursuant to the ATM
Program, Solitario may, from time-to-time issue and sell shares of
our common stock (the “Shares”) to the public through
Wainwright on the NYSE American stock exchange up to $9,000,000
aggregate sales price through the ATM Program. Solitario will
determine, at its sole discretion, the timing and number of the
Shares to be sold. We are not obligated to make any sales of Shares
under the ATM Agreement.
54
Item 9.
C
hanges in and Disagreements with Accountants
on Accounting and Financial Disclosure
None
Item 9A.
C
ontrols 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 Securities Exchange Act of 1934,
as amended (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, 2020,
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, 2020.
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.
Item 9B.
O
ther Information
None
55
PART
III
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, 2020 pursuant to Section 14(a) of the
Exchange Act (the "2021 Proxy").
Item
11.
E
xecutive Compensation
The
information required under Item 11 is incorporated herein by
reference to the information set forth in the 2021
Proxy.
Item 12.
S
ecurity 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 2021
Proxy
.
Item 13.
C
ertain 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 2021
Proxy
.
The
information required under Item 14 is incorporated herein by
reference to the information set forth in the 2021
Proxy
.
56
PART IV
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 StatementsReport of Independent Registered Public
Accounting Firm
Consolidated
Balance Sheets as of December 31, 2020 and 2019
Consolidated
Statements of Operations for the years ended December 31, 2020 and
2019
Consolidated
Statements of Shareholders’ Equity for the years ended
December 31, 2020 and 2019
Consolidated
Statements of Cash Flows for the years ended December 31, 2020 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.
Item 16. Form 10-K
S
ummary
None.
57
S
IGNATURES
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.
|
|
|
|
|
|
By:
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/s/ James R.
Maronick
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Chief
Financial Officer
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Date:
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March 5,
2021
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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.
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Signature
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Title
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Date
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/s/
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Christopher
E. Herald,
Chief
Executive Officer
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Principal
Executive Officer and Director
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March
5, 2021
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/s/
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James
R. Maronick,
Chief
Financial Officer
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Principal
Financial and Accounting Officer
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March
5, 2021
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/s/
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John
Labate
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A
majority of
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/s/
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the
Board of
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March
5, 2021
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Brian
Labadie
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Directors
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/s/
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James
Hesketh
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/s/
Gil
Atzmon
/s/
Joshua
D. Crumb
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By:
/s/
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James
R. Maronick,
Attorney-in-fact
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58
INDEX TO EXHIBITS
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Description
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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)
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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)
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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)
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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)
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Description
of Common Stock (incorporated by reference to Exhibit 4.2 to
Solitario’s Form 10-K filed on March 2, 2020)
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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)
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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 (incorporated by reference
to Exhibit 10.7 to Solitario’s Form 10-K filed on March 3,
2020)
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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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At The Market Offering Agreement between Solitario Zinc Corp.
and
H.C. Wainwright & Co., LLC, dated February 2, 2021
(incorporated by reference to Solitario’s Form 8-K filed on
February 2, 2021)
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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, 2020 and 2019; (ii) Consolidated
Statements of Operations for the years ended December 31, 2020 and
2019; (iii) Consolidated Statements of Shareholders’ Equity
for the years ended December 31, 2020 and 2019; (iv) Consolidated
Statements of Cash Flows for the years ended December 31, 2020 and
2019; and (v) Notes to the Consolidated Financial
Statements.
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* Filed
herewith
#
Designates a management contract, or a compensatory plan or
arrangement.
59
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