Solitario Zinc Corp.
Annual Report 1997

Plain-text annual report

SOLITARIO R E S O U R C E S 1997 Annual Report “While the past year proved tumultuous for metals, our expectations for Bongará were fulfilled.” n Outstanding high-grade zinc results in 21 of 32 drill holes at the Florida Canyon prospect on the Bongará project. n Solitario joint venture partner Cominco identifies five new areas of zinc mineralization at Bongará with strong zinc mineralization at surface. n With over $5.0 million raised in 1997, Solitario maintains a solid cash balance. n Cominco enters second year of joint ven- ture agreement with Solitario by making a $300,000 cash payment in early 1998. n Solitario signs a letter of intent to sell its Argentina subsidiary to focus even greater attention on Peru. Inside Solitario Resources Solitario Resources Corporation is a precious and base metals exploration company. The Company is a 57 percent-owned subsidiary of Crown Resources Corporation. Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Despite an unstable metals market, Solitario advanced its major projects in 1997 and is now completely focused in Peru. Bongará Project, Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Drilling results at Florida Canyon by Cominco were outstanding. In addition, Cominco has identified five new areas of zinc mineralization at Bongará with an aggressive 1998 exploration program planned. Exploration in Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Rio Tinto completed its work commitment at Yanacocha. Newmont’s adjacent Yanacocha mine remains the largest gold mine in South America. Developments in Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 In early 1998, Solitario signed a letter of intent to sell its property assets in Argentina to concentrate its exploration efforts in Peru. Financial Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Solitario continues to minimize financial risk by funding major projects through joint ventures. In 1997, we raised over $5.0 million from share exchanges and option exercises. Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Officers & Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 All dollar figures are U.S. dollars unless otherwise noted. 1 Letter to Shareholders Expectations at Bongará Fulfilled Excellent drilling results were intersected on the Bongará zinc project in northern Peru. This was the result of a $27.5 million joint venture between Solitario and a unit of Cominco Ltd., the largest zinc mining Mark E. Jones, III company in the world. Cominco conducted an aggressive 9,700 of $282 per ounce on December 12, 1997. Base metals did not fare meter exploration drilling campaign during 1997. The highlight of much better, with copper starting the year at $1.05 per pound and this program confirmed widespread high-grade zinc mineralization finishing at $0.79 per pound. Even zinc, which climbed from $0.47 at Florida Canyon. Perhaps even more exciting was the discovery per pound at the beginning of 1997, to a high of $0.77 in July, of five new areas of strong zinc mineralization at surface on our finally succumbed to selling pressure and ended 1997 slightly above vast 215,000-acre property block. These areas will be the focus of where it started, at $0.50 per pound. Cominco’s exploration efforts in 1998. Despite the excellent drilling results on the Bongará zinc project, The Market Backdrop - An Eighteen-Year Low in Gold Solitario’s stock price eventually suffered toward the end of the year. We While the past year proved tumultuous for gold and for metals in remain confident that the long-term outlook for gold and zinc is positive. general, Solitario can not only weather this downturn, but benefit We Prioritize Our Areas of Exploration Interest from the opportunities these distressed markets present. Our Company has the financial strength to avoid securing additional financing under unfavorable conditions, and the operational flexibility to reduce expenditures and maintain an exciting exploration program. In early 1998 we made the decision to withdraw from exploration in Argentina. The major reason for this action was to concentrate Solitario’s attention and financial resources in Peru, where we believe the potential for success is greater. The current precious metals market condition dictates the need to focus only on the best Gold was under severe selling pressure throughout much of 1997. areas of mineral potential. In March 1998 we signed a letter of The year started with a gold price of approximately $370 per intent with Toscana Resources, Ltd., of Vancouver, B.C., Canada ounce. A steady erosion of the market led to an eighteen-year low to sell the Company’s Argentina assets . 2 Stock Performance (stated in Canadian Dollars) $3.10 $2.71 $2.00 $1.00 Christopher E. Herald 1994 1995 1996 1997 Finances - A Solid Base Remains Intact The Future - What’s In Store for 1998 Our business philosophy has always been to minimize financial risk Solitario anticipates an exciting year in 1998, even if the metals and maximize investor leverage. We have done this through markets remain depressed. At Bongará, we are looking forward to successful grassroots exploration programs and well-timed joint the next field season in which promising new zinc prospects will be ventures. Because our major projects are funded by joint venture explored and drill tested by our partner, Cominco. We will conduct partners, we can reduce expenditures without sacrificing the potential for major new discoveries. Solitario’s 1997 share price performance is within the top active grassroots exploration programs in Peru that should ultimately lead to drill testing. 5 percent of the mining industry. With the current state of the gold industry forcing some companies to Augmenting this philosophy has been a forward-looking curtail exploration expenditures, we are especially focused on approach to financing. In early 1997, we raised $4.6 million acquiring advanced high-quality gold properties, but only after through an innovative exchange of Solitario shares. We added careful evaluation. over $400,000 to Solitario’s treasury through option exercises and $300,000 through Cominco’s second-year cash payment for Sincerely, Bongará. Solitario’s consolidated cash position stood at approximately $4.0 million as of March 1, 1998. The Company had a net loss of $5.2 million, or $0.33 per share for 1997, principally due to non-cash write-downs on exploration Mark E. Jones, III Christopher E. Herald properties in Argentina and Peru. Chairman & CEO 3 President Core recovered in this year’s drilling was critical to understanding the nature of zinc mineralization. Bongará Project, Peru Solitario signed a joint venture with Cominco Peru s.r.l. (Cominco) on December 23, 1996, on the Bongará zinc project in northern Peru. Cominco can earn a 60 percent interest in the project by spending $27.5 million on exploration, completing a positive feasibility study, and paying Solitario $1.8 million in cash over a four-year period. Importantly, if Cominco initiated a drilling program utilizing two core rigs in early Solitario is unable to obtain outside financing for mine July and drilled continually to the end of November, when the rainy construction, Cominco has agreed to fund Solitario’s 40 percent season began. Cominco completed 32 holes at the Florida Canyon portion of construction costs, thereby ensuring no pre-production prospect, discovered by Solitario in the fall of 1996. An additional dilution of Solitario’s 40 percent interest in the project. seven holes were drilled at the Florcita prospect. Nearly 10,000 4 Over 32,000 feet of core drilling was completed by Cominco on the Bongará project. Further drill testing is planned in 1998. meters of drilling were completed, far exceeding Cominco’s 4,000- to an already impressive overall dimension of the mineralized area, meter contractual drilling commitment for 1997. the system remains open in three directions. High-grade zinc mineralization is controlled by both structure and stratigraphy. Drilling results at Florida Canyon were outstanding. An area measuring approximately 1.5 kilometers long and Drilling results at Florida Canyon 0.7 kilometers wide was tested by 32 were outstanding. An area measuring Detailed geologic interpretation of drill core by Cominco has established the presence of two favorable stratigraphic horizons that are nearly core holes. Twenty-one of these holes intersected intervals grading at least 5.0 percent zinc over 1.0 meter. The map on page six depicts the location of all Florida Canyon drill holes along with a listing of better drill hole intersections. approximately 1.5 kilometers long and always mineralized. These horizons, 0.7 kilometers wide was tested by 32 core holes. depicted on the geologic cross section on page six, are within the Chambara rock formation, a formation known to host substantial zinc deposits in other parts of Peru. Drilling at Florida Canyon has not yet been conducted in sufficient Besides the aggressive drilling program at Florida Canyon and detail to make an accurate estimate of potential reserves. In addition Florcita, Cominco considerably expanded Solitario’s highly 5 Drill Hole (mtrs/ft) Thick Zinc (%) Drill Hole (mtrs/ft) Thick Zinc (%) FC-1 6.6/21.7 16.3 FC-22 2.4/7.9 FC-4 3.7/12.1 12.5 1.2/3.9 11.6 22.6 FC-12 7.0/22.8 29.8 FC-23 19.9/65.3 5.8 FC-16 1.0/3.3 26.4 8.7/28.5 20.4 FC-17 58.8/192.7 12.0 4.1/13.4 9.0 FC-18 5.1/16.7 16.4 FC-24 2.8/9.2 FC-20 3.1/10.0 8.0 FC-25 1.1/3.6 24.6 20.2 A FC-21 1.1/3.6 19.7 FC-28 3.6/11.8 20.2 B successful regional stream sediment Cominco had seven crews, each consisting situated throughout our large claim block. sampling program. To date, ten strongly of a geologist and six laborers, traversing anomalous areas of zinc have been the vast joint venture area. partially delineated within a large area of anomalous zinc concentrations measuring Although information is still preliminary, 20 kilometers in length and 10 kilometers Cominco has identified five new areas of zinc Zinc values range from 1.0 percent zinc in disseminated concentrations to 10.0 percent zinc over widths up to 3.0 meters. These new areas of zinc mineralization will be part of the in width. At the height of this program, mineralization at Bongará. These areas are focus of Cominco’s 1998 exploration program. Exploration in Peru Rio Tinto, Ltd. (Rio Tinto) initiated an exploration program on Solitario’s strategically located 155,000- acre Yanacocha property in northern Peru (see photo on page 8), located adjacent to Newmont Mining’s Yanacocha gold mine, where reserves more than doubled to 13.9 million ounces of gold in 1997. Rio Tinto completed a $212,000 surface Capilla projects during 1997 and early (opt) of gold and 201 meters grading 0.38 exploration program of geologic mapping, 1998. At the same time, grassroots percent copper and 0.01 opt gold, geophysical interpretation and stream exploration in northern Peru resulted in respectively, from surface. Future work sediment sampling. This program was the acquisition of two new property on this property is contingent upon part of a $5 million, four-year work positions, the Shimbe gold project and the improved metal prices. commitment allowing Rio Tinto to earn a Soloco zinc prospect. 60 percent interest in the project. Rio Tinto has not yet informed Solitario whether or not it will proceed with next year’s exploration program. Strongly anomalous gold values, up to 0.03 At Santa Barbara, in central Peru, opt gold, were encountered in drilling both Solitario completed a 16-hole drilling the El Tigre and La Capilla properties, but program totaling 2,800 meters. The two no economic mineralization was intersected. best drill holes were SBR-7 and SBR-10, Based on these results, Solitario is not Solitario completed drilling programs on which intersected 156 meters grading 0.29 planning to conduct further work on the the Santa Barbara, El Tigre and La percent copper and 0.01 ounces per ton 6 properties. Solitario acquired the Soloco zinc prospect identified. A decision on whether to drill the Solitario. The geologic target at Shimbe is a south of the Bongará claim block in Soloco prospect or seek a joint venture Tertiary volcanic-hosted gold deposit similar to September of 1997. Zinc and lead partner will be made pending the results of the Yanacocha gold mine located mineralization is observed within a series of additional exploration work. prospect pits and tunnels situated within a approximately 250 kilometers to the southeast. Mineralized boulders containing values in gossanous zone that extends in excess of The 45,000-acre Shimbe property was staked excess of 1.0 opt gold have been discovered 1,000 meters. Strong soil anomalies and in 1997 based on the results of a geochemical and work is now being conducted to determine favorable rock formations have also been stream sediment survey conducted by the bedrock source of these boulders. Reverse circulation drilling is an economic drilling technique utilized by Solitario on more accessible project areas. Ongoing geophysics, stream sediment geochemistry, geologic mapping and satellite imaging at Yanacocha will allow us to move forward with more focused exploration programs. Developments in Argentina A reduced exploration program was conducted in Argentina in 1997. The Cañada Onda property in central Argentina was our most active project. Two drilling phases totaling 2,300 meters in 20 holes were completed. Four of the drill holes intersected gold concentrations ranging from 0.5 to 3.5 opt gold over a minimum width of 2.0 meters. Many of the remaining holes intersected strongly anomalous gold purchase these assets for 1.0 million shares (a 14 percent- values ranging from 0.01 to 0.20 opt gold. ownership interest in Toscana) and 0.5 million warrants of In early 1998 Solitario signed a letter of intent to sell its property Toscana. Upon completion of this transaction, Solitario will realize assets in Argentina to concentrate its exploration efforts in Peru. an annual savings of approximately $750,000 per year in Toscana Resources Ltd. (Toscana), a junior Canadian mineral exploration and fixed costs, and will benefit from any positive exploration company with assets principally in Guyana, agreed to Toscana exploration developments in either Argentina or Guyana. 8 Financials Table of Contents Management’s Discussion & Analysis. . . . . . . . . . . . . . . . . . . . . . . . . page 10 Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 13 Comments by Independent Auditors For Canadian Readers on U.S.- Canada Reporting Conflict. . . . . . . . . . . . . . . . . . . . . . . . page 13 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 14 Consolidated Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . page 15 Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . page 16 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . page 17 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . page 18 9 Management’s Discussion & Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements of Solitario Resources Corporation (“Solitario” or the “Company”) for the years ended December 31, 1997, 1996, and 1995, included elsewhere in this report. The Company’s financial condition and results of operations are not necessarily indicative of what may be expected in future years. Unless otherwise indicated, all references to dollars are to U.S. dollars. Solitario was formed in 1984 as a wholly-owned subsidiary of Crown Resource Corp. of Colorado (“CRCC”), but until 1993 it had no assets and conducted no operations. Results of Operations The Company had a net loss of $5,172,000 ($0.33 per share) in 1997 compared with a loss of $947,000 ($0.07 per share) in 1996 and a loss of $814,000 ($0.07 per share) in 1995. Included in the 1997, 1996, and 1995 losses were asset write-downs of $4,861,000, $455,000, and $325,000, respectively. Solitario made the decision to withdraw from exploration in Argentina to concentrate its attention and financial resources in Peru. Additionally, the current precious metals markets highlighted the need to focus exploration efforts on the best areas of price of Cdn$500,000 would be received in shares of Toscana. The transaction is subject to due diligence, board of directors approval, and regulatory approval. The Company received a non-refundable binder payment of Cdn$65,000 upon signing the letter of intent. During the year ended December 31, 1997, the Company incurred $363,000 of general and administrative expenses compared with $212,000 in 1996, and $233,000 in 1995. General and administrative expenses consist primarily of legal and accounting, and shareholder- related costs. Expanded exploration programs, primarily in Peru, contributed to the increase in costs during 1997. CRCC provides management and technical services to the Company under a management agreement (the “Management Agreement”). The Management Agreement provides for reimbursement to CRCC of direct out-of-pocket and certain allocated indirect costs and expenses paid by CRCC on behalf of Solitario, plus a service fee equal to 7.5 percent of all expenditures made by or on behalf of Solitario. Management service fees paid to CRCC by the Company in 1997, 1996, and 1995 amounted to $207,000, $224,000, and $198,000, respectively. The fees will generally fluctuate period to period based primarily on the overall level of exploration spending during the period. Depreciation, depletion, and amortization expense was $40,000 in 1997 compared with $66,000 in 1996, and $99,000 in 1995, and relates primarily to leasehold improvements and furniture and equipment. The Company incurred $73,000, $112,000, and $39,000 of interest expense in 1997, 1996, and 1995, respectively, related entirely to the note payable to CRCC. See Liquidity and Capital Resources. The Company initially capitalizes all land and leasehold, and exploration costs related to its properties. If certain projects are mineral potential. As a result of this decision, the Company recorded abandoned or determined to be permanently impaired, the Company a write-down of $3.8 million in December 1997. In early March 1998, records abandonment write-downs of these project costs. The the Company signed a letter of intent with Toscana Resources, Ltd. Company recorded write-downs of $4.9 million, $0.5 million, and (“Toscana”) of Vancouver, B.C., Canada, to sell all of the issued and $0.3 million in 1997, 1996, and 1995, respectively. outstanding shares of Solitario’s Argentina subsidiary. The purchase In June 1997, the Financial Accounting Standards Board (“FASB”) 10 issued Statement of Financial Accounting Standard (“SFAS”) No. holdings, presently covering approximately 215,000 acres (the 130, “Reporting Comprehensive Income,” and SFAS No. 131, “Bongará project”). Cominco has the right to earn a 60 percent “Disclosures about Segments of an Enterprise and Related interest in the Bongará project by spending a minimum of Information.” SFAS No. 130 establishes standards for reporting and $27,500,000 on exploration and development and by making cash display of comprehensive income and its components. SFAS No. 131 payments of $1,800,000 to Solitario over a four-year period, as well establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Statements are effective for fiscal years beginning after December 15, 1997. These standards, when adopted by the Company, are not expected to have a material impact on the Company’s reported financial position, results of operations, and cash flows. The year 2000 potentially poses unique challenges for many businesses insofar as their computer systems and those of third parties attempt to properly recognize the date change. The Company has made and will make certain investments in its software systems and applications to help the Company make the year 2000 transition. The operational and financial impact to the Company has not been and is not anticipated to be material to its financial position or results of operations. Liquidity and Capital Resources Due to the nature of the mining business, the acquisition, exploration, and development of mineral properties requires significant expenditures prior to the commencement of production. The Company has in the past financed its activities through the sale of securities, joint venture arrangements, and the sale of interests in its properties. as fully funding the project through a bankable feasibility study. Cash payments of $250,000 and $300,000 have been paid by Cominco in January 1997 and 1998, respectively. In addition to the cash payments and work commitments, Cominco has agreed to finance Solitario’s share of project development costs, subject to repayment, after a production decision is made, should Solitario not secure third- party financing. In April 1997, the Company signed an agreement with Rio Tinto, Ltd. giving Rio Tinto the right to earn a 60 percent interest in the Company’s Yanacocha property by spending $5 million over four years. The Yanacocha property, located in northern Peru, is comprised of one contiguous block of approximately 155,000 acres located in the center of the Yanacocha district. A second smaller block of 10,000 acres is situated five miles to the northwest. In April 1997, the Company entered into an agreement with RTZ Mining and Exploration (“RTZ”) granting Solitario the right to earn a 60 percent interest in the Santa Barbara project. The property contains approximately 12,300 acres located 120 miles northeast of Lima, Peru in the Cerro de Pasco Region. Solitario can earn its interest in the property by spending $1.5 million over a three-year period. No cash payments by Solitario are required. The Company’s exploration and development activities and funding For the year ended December 31, 1997, the Company expended opportunities, as well as those of its joint venture partners, may be funds on mineral property additions amounting to $2,436,000 materially affected by commodity price levels and changes in those compared to $2,745,000 expended in 1996. These expenditures are levels. Commodity market prices are determined in world markets exclusive of amounts spent on its properties by third parties and and are affected by numerous factors which are beyond the consist of leasehold acquisition and exploration costs for the Company’s control. Company’s properties in Peru and Argentina. In addition to the In December 1996, the Company signed an agreement with a Cominco work commitment of $3,000,000, the Company has subsidiary of Cominco Ltd. (“Cominco”) regarding its Bongará budgeted $1,350,000 for exploration in 1998, all of which is planned 11 Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued): for South America. As of December 31, 1997, all of the Company’s acquisition and exploration programs have been devoted to properties in South America. Total foreign assets, as reported in the consolidated balance sheet as of December 31, 1997, amounted to $5,603,000. The Company is exposed to risks normally associated with foreign investments, including political, economic, and social instabilities, as well as foreign exchange controls and currency fluctuations. Foreign investments may also be subject to laws and policies of the United States affecting foreign trade, investment, and taxation which could affect the conduct or profitability of future operations. In February 1997, the Company received proceeds of $4,610,000 (Cdn$6,300,000) through a private placement by CRCC. Solitario issued 1,500,000 units priced at Cdn$4.20 per unit, each consisting of one share of common stock plus one share purchase warrant. Each warrant is exercisable until February 27, 1999 into one common share of Solitario at a price of Cdn$4.83 per share. Proceeds from share of Solitario at a price of Cdn$2.66 per share. The warrants expired unexercised in February 1998. As of December 31, 1997, Solitario had $3,806,000 of working capital compared to $56,000 of working capital as of December 31, 1996. Included as an increase of working capital is the conversion of the $1.5 million convertible note to CRCC, which was a current liability as of December 31, 1996. Cash and cash equivalents at December 31, 1997 amounted to $3,850,000 compared to $1,463,000 in 1996. These funds are generally invested in short-term interest-bearing deposits and securities, pending investment in future projects. A significant part of Solitario’s business involves the review of potential property acquisitions and continuing review and analysis of properties in which it has an interest, to determine the exploration and development potential of the properties. In analyzing expected levels of expenditures for work commitments and property payments, the Company’s obligations to make such payments fluctuate greatly depending on whether, among other things, the Company makes a decision to sell a property interest, convey a property interest to a joint venture, or allow its interest in a property to lapse by not making the work commitment or payment required. all option exercises during 1997 amounted to $415,000 from the In acquiring its interests in mining claims and leases, the Company exercise of options for 231,250 shares. has entered into agreements which generally may be canceled at its In August 1997, CRCC elected to convert its $1.5 million 7.5 percent convertible note into 1,254,180 shares of the Company’s common option. The Company is required to make minimum rental and option payments in order to maintain its interests in certain claims stock. The conversion was in accordance with the terms of the note and leases. The Company estimates its 1998 mineral property rental dated August 25, 1995. Upon completion of the conversion and and option payments to be approximately $257,000. Based upon after giving effect to option exercises during 1997, CRCC held existing joint venture or leasing arrangements, the Company’s share 9,633,585 shares of the Company’s stock or 57.2 percent as of of these costs is approximately $14,000. December 31, 1997. The Company believes that its existing funds are sufficient to meet its In February 1996, the Company received proceeds of $2,640,000 currently planned operating activities and mandatory property (Cdn$3,627,000) through a private placement by CRCC. Solitario payments through 1998. The Company will need substantial issued 1,570,000 units priced at Cdn$2.31 per unit, each consisting of additional financing in order to bring its properties into production. one share of common stock plus one share purchase warrant. Each There is no assurance that such financing will be available when warrant was exercisable until February 1, 1998 into one common needed or that, if available, it can be secured on favorable terms. 12 Independent Auditors’ Report To the Board of Directors and Stockholders of Solitario Resources Corporation Denver, Colorado We have audited the consolidated balance sheets of Solitario Resources Corporation and subsidiaries (a majority-owned subsidiary of Crown Resources Corporation) as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 1997 which, as described in Note 1, have been prepared on the basis of accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Solitario Resources Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the consolidated financial statements, the consolidated balance sheet at December 31, 1997 includes land and leasehold costs of $547,000 and deferred exploration costs of $4,925,000. Note 1 to the consolidated financial statements emphasizes that the recovery of these costs is ultimately dependent upon the development of economically recoverable ore reserves, the ability of the Company to obtain the necessary permits and financing to successfully place the properties into production, and upon future profitable operations. DELOITTE & TOUCHE LLP Denver, Colorado March 9, 1998 Comments By Independent Auditors For Canadian Readers On U.S.–Canada Reporting Conflict To the Board of Directors and Stockholders of Solitario Resources Corporation Denver, Colorado In Canada, reporting standards for auditors do not permit the addition of an explanatory paragraph in the auditors’ report to emphasize a matter when such matter is adequately disclosed in the notes to the financial statements. Our report to the Board of Directors and Stockholders dated March 9, 1998 is expressed in accordance with auditing standards generally accepted in the United States of America, which permits the inclusion of an explanatory paragraph in the auditors’ report to emphasize a matter regarding the financial statements. DELOITTE AND TOUCHE LLP Denver, Colorado March 9, 1998 13 Consolidated Balance Sheets (in thousands of U.S. dollars, except share amounts) Assets Current assets: Cash and cash equivalents Short-term investments Prepaid expenses and other Total current assets Mineral properties, net Other assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Due to CRCC Note payable – CRCC Total current liabilities Deferred Income Taxes Stockholders’ equity: Preferred stock, $0.01 par value; authorized 10,000,000 shares; none outstanding Common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 16,854,521 and 13,869,091 shares Additional paid-in capital Accumulated deficit See notes to consolidated financial statements. On behalf of the board: Years Ended December 31, 1997 1996 $ 3,850 $ 1,463 — 49 3,899 5,472 11 9 287 1,759 7,947 75 $ 9,382 $ 9,781 $ 80 13 — 93 — — 169 16,507 (7,387) 9,289 $ 143 60 1,500 1,703 142 — 139 10,012 (2,215) 7,936 $ 9,382 $ 9,781 Christopher E. Herald Director 14 Mark E. Jones, III Director Consolidated Statements of Operations (in thousands of U.S. dollars, except per share amounts) Revenues: Interest income Costs and expenses: Depreciation, depletion, and amortization General and administrative Management fees – CRCC Interest expense – CRCC Asset write-downs Other, net Loss before income taxes Years Ended December 31, 1997 1996 1995 $ 227 $ 137 $ 69 40 363 207 73 4,861 (3) 5,541 (5,314) 66 212 224 112 455 31 1,100 (963) 99 233 198 39 325 — 894 (825) (11) Income tax benefit (142) (16) Net loss $ (5,172) $ (947) $ (814) Basic and diluted loss per common share $ (0.33) $ (0.07) $ (0.07) Weighted average number of common and common equivalent shares outstanding 15,683 13,645 11,745 See notes to consolidated financial statements. 15 Consolidated Statements of Stockholders’ Equity Common Stock Shares Amount Additional Paid-in Capital Deficit Total (in thousands of U.S. dollars,except share amounts) Balance, January 1, 1995 11,745,405 $ 118 $ 6,388 $ (454) Net loss — Balance, December 31, 1995 11,745,405 Issuance of shares: To CRCC, in private placement 1,570,000 On exercise of warrants Net loss 553,686 — Balance, December 31, 1996 13,869,091 Issuance of shares: To CRCC, in private placement 1,500,000 Conversion of note payable to CRCC On exercise of stock options Net loss 1,254,180 231,250 — — 118 16 5 — 139 15 13 2 — — 6,388 2,624 1,000 — 10,012 4,595 1,487 413 — (814) (1,268) — — (947) (2,215) — — — 6,052 (814) 5,238 2,640 1,005 (947) 7,936 4,610 1,500 415 (5,172) (5,172) Balance, December 31, 1997 16,854,521 $ 169 $ 16,507 $ (7,387) $ 9,289 See notes to consolidated financial statements. 16 Consolidated Statements of Cash Flows (in thousands of U.S. dollars) Operating Activities: Net Loss Adjustments: Depreciation, depletion and amortization Deferred income taxes Asset write-downs Changes in operating assets and liabilities: Prepaid expenses and other current assets Accounts payable Due to CRCC Net cash used in operating activities Investing Activities: Sale of short-term investments Additions to mineral properties Receipts on mineral property transactions Decrease (increase) in other assets Net cash used in investing activities Financing Activities: Issuance of common stock, net Issuance of note payable to CRCC Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Years Ended December 31, 1997 1996 1995 $ (5,172) $ (947) $ (814) 40 (142) 4,861 (12) (63) (47) (535) 9 (2,436) 300 24 66 (16) 455 19 15 (44) (452) — (2,745) 55 17 99 (11) 325 — (111) 24 (488) 9 (2,575) 125 (16) (2,103) (2,673) (2,457) 5,025 — 5,025 2,387 1,463 3,645 — 3,645 520 943 — 1,500 1,500 (1,445) 2,388 Cash and cash equivalents, end of year $ 3,850 $ 1,463 $ 943 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest Noncash investing and financing activities: Common stock issued to CRCC for conversion of note payable See notes to consolidated financial statements. 17 $ 106 $ 133 $ — 1,500 — — Notes to Consolidated Financial Statements 1. Business and Summary of Significant Accounting Policies: Business and company formation Solitario Resources Corporation (the “Company” or “Solitario”) engages principally in the acquisition, exploration, and development of mineral properties. Currently all of its mineral properties are in South America. The Company was incorporated in the state of Colorado on November 15, 1984 as a wholly-owned subsidiary of Crown Resource Corp. of Colorado (“CRCC”). CRCC is a wholly- owned subsidiary of Crown Resources Corporation (“Crown”). Prior to 1993, the Company had no assets and conducted no operations. Financial reporting The consolidated financial statements include the accounts of Solitario and its wholly-owned subsidiaries. All material 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. Cash equivalents Cash equivalents include investments in highly-liquid debt securities with maturities of three months or less when purchased. Investments with longer maturities at the date of purchase are classified as short-term investments. Mineral properties Land and leasehold costs of mineral properties are capitalized in cost centers and will be depleted on the basis of economic reserves using the units-of-production method. If the Company concludes that there are insufficient economic reserves to use as a basis for depleting such costs, a mineral property write-off will be made in the period in which the determination is made. Exploration costs are capitalized but are charged to operations if an area is abandoned or deemed impaired. Exploration costs on successful projects will be amortized by the units-of-production method based on estimated economic reserves. intercompany accounts and transactions have been eliminated. The The Company records the proceeds from the sale of property consolidated financial statements are prepared in accordance with interests to joint ventures as a reduction of the related property’s generally accepted accounting principles in the United States, and are expressed in U.S. dollars. capitalized cost. Other assets In performing its activities, the Company has incurred certain costs Furniture and office equipment are generally depreciated over five for land and leasehold interests and for exploration activities. years on a straight-line basis. Leasehold improvements are These costs are reflected as assets on the Company’s balance sheets. amortized over the expected life of the lease. The recovery of these costs is ultimately dependent upon the Foreign exchange development of economically recoverable ore reserves, the ability of The United States dollar is the functional currency for all of the the Company to obtain the necessary permits and financing to Company’s foreign subsidiaries. Although the Company’s successfully place the properties into production, and upon future exploration activities have been conducted primarily in Peru and profitable operations, none of which is assured. Argentina, substantially all of the land, leasehold, and exploration Use of estimates agreements of the Company are denominated in United States The preparation of financial statements in conformity with dollars. The Company expects that a significant portion of its generally accepted accounting principles requires management to required and discretionary expenditures in the foreseeable future make estimates and assumptions that affect the reported amounts of will also be denominated in United States dollars. For assets and liabilities and disclosure of contingent assets and transactions completed in a foreign currency, translation gains and 18 1. Business and Summary of Significant Accounting Policies (continued): 130 establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131 losses are included in the results of operations in the period in establishes standards for reporting information about operating which they occur. Income taxes segments and related disclosures about products and services, geographic areas, and major customers. The Statements are The Company reports income taxes pursuant to SFAS No. 109, effective for fiscal years beginning after December 15, 1997. These “Accounting for Income Taxes.” Under SFAS No. 109, income standards, when adopted by the Company, are not expected to have taxes are provided for the tax effects of transactions reported in the a material impact on the Company’s reported financial position, 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 net operating losses (“NOL”) and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if results of operations, and cash flows. Employee stock compensation plans The Company follows Accounting Principles Board Opinion (“APBO”) No. 25, “Accounting for Stock Issued to Employees.” The exercise price of stock options issued to employees equals the market price of the stock on the measurement date and, accordingly, the Company does not record compensation expense on stock options granted to employees. it is more likely than not that some portion or all of the deferred tax 2. Mineral Properties: assets will not be realized. Loss per share Peru The Company, including its joint ventures, holds exploration In February 1997, the FASB issued SFAS No. 128, “Earnings Per concessions or has filed applications for concessions covering Share.” SFAS No. 128 establishes standards for computing and presenting earnings per share. The Company has adopted SFAS No. 128 during 1997. There has been no change in prior period earnings per share data as a result of adopting SFAS No. 128. The calculation of basic and diluted loss per share is based on the weighted average number of common shares outstanding during the years ended December 31, 1997, 1996, and 1995. The effect of common stock equivalents, which include employee stock options, warrants, and convertible debt securities, is not included in the computation of per share amounts as inclusion would be anti-dilutive. New accounting pronouncements approximately 565,000 acres in Peru. These applications are subject to normal administrative approvals and the properties are subject to an annual rental of $2.00 per hectare (approximately 2.47 acres per hectare) in June of each year. In November 1993, the Company entered into option agreements (the “Bongará option”) whereby the Company obtained the right to acquire a leasehold interest in the Bongará Claims #1-10 situated in Northern Peru. The Bongará option area covered approximately 25,000 acres. During 1997, the Company relinquished its option rights under the agreements. In December 1996, the Company signed an agreement with a In June 1997, the FASB issued SFAS No. 130, “Reporting subsidiary of Cominco Ltd. (“Cominco”) presently covering Comprehensive Income,” and SFAS No. 131, “Disclosures about approximately 215,000 acres (the “Bongará project”). Cominco Segments of an Enterprise and Related Information.” SFAS No. has the right to earn up to a 60 percent interest in the Bongará 19 2. Mineral Properties (continued): project by spending a minimum of $27,500,000 on exploration and development and by making cash payments of $1,800,000 to Solitario over a four-year period, as well as fully funding the project through a bankable feasibility study. Cash payments of $250,000 and $300,000 have been paid by Cominco in January 1997 and January 1998, respectively. In addition to the cash payments and work commitments, Cominco has agreed to finance Solitario’s share of project development costs, subject to repayment, after a production decision is made, should Solitario not secure third-party financing. Through December 31, 1997, Cominco has spent approximately $4.9 million on exploration of the Bongará project. Argentina Through December 31, 1997, the Company held exploration rights or had filed applications for rights covering approximately 650,000 (in thousands) Land and leasehold costs Exploration costs December 31, 1997 $ $ 547 4,925 5,472 1996 $ $ 816 7,131 7,947 The above land, leasehold, and exploration costs at December 31, 1997 and 1996 are related to mineral properties for which exploration activities had not yet identified the presence of economic reserves. The following items comprised the additions to exploration costs: (in thousands) 1997 1996 1995 Geologic, drilling, and assay $ Field expenses Administrative 952 658 452 $ 976 1,097 474 $ 798 933 509 Total exploration costs $ 2,062 $ 2,547 $ 2,240 Included in the consolidated balance sheet at December 31, 1997 are total assets of the Company’s foreign operations, located in Peru and Argentina, in the amounts of $5,182,000 and $421,000, acres primarily in six provinces of Argentina. Such exploration respectively. rights are granted by the provincial governments, which have the right to impose up to a maximum three percent gross royalty on production. Solitario made the decision to withdraw from exploration in Argentina to concentrate its attention and financial resources in Peru. Additionally, the current precious metals In accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,” which the Company adopted in 1996, the Company regularly performs evaluations of its assets to assess the recoverability of its investments in these assets. Upon determining that certain markets highlighted the need to focus exploration efforts on the best properties did not have sufficient potential for economic areas of mineral potential. As a result of this decision, the mineralization, and related to the Company’s decision to withdraw Company recorded a write-down of $3.8 million in December 1997. from exploration in Argentina, the Company recorded write-downs In early March 1998, the Company signed a letter of intent with relating to exploration properties of $4,861,000, $455,000, and Toscana Resources, Ltd. (“Toscana”) of Vancouver, B.C., Canada, $325,000 in 1997, 1996, and 1995, respectively. to sell all of the issued and outstanding shares of Solitario’s Argentina subsidiary. The purchase price of Cdn$500,000 would be received in shares of Toscana. The transaction is subject to due diligence, board of directors approval, and regulatory approval. The Company received a non-refundable binder payment of Cdn$65,000 upon signing the letter of intent. 3. Related Party Transactions: During the three years ended December 31, 1997, 1996, and 1995, CRCC provided financial, management, and technical assistance under an arrangement whereby certain advances were made by CRCC to the Company. These advances are non-interest bearing, unsecured, and are due on demand. Net advances due to CRCC as Mineral property costs for all the Company’s properties are of December 31, 1997 and 1996 were $13,000 and $60,000, comprised of the following: respectively. 20 3. Related Party Transactions (continued): Consolidated loss before income taxes includes losses from foreign CRCC provides management and technical services to Solitario under a management agreement (the “Management Agreement”). operations of $5,016,000, $616,000, and $492,000 in 1997, 1996, and 1995, respectively. The Management Agreement provides for reimbursement to CRCC Deferred income taxes result from temporary differences in the of direct out-of-pocket and certain allocated indirect costs and expenses paid by CRCC on behalf of Solitario, plus a service fee equal to 7.5 percent of all expenditures made by or on behalf of timing of income and expenses for financial and income tax reporting purposes. The primary component of deferred income taxes relates to exploration and development costs. Solitario. Management service fees paid to CRCC by Solitario in During 1997, the Company recognized income tax deductions of 1997, 1996, and 1995 amounted to $207,000, $224,000, and $421,000 from the exercise of non-qualified stock options. The $198,000, respectively. In February 1997, CRCC acquired, by way of private placement, 1,500,000 Units of the Company at a price of Cdn$4.20 per Unit, income tax benefits of these income tax deductions have been fully offset by a valuation allowance, resulting in no net impact to stockholders’ equity. for an aggregate purchase price of $4,610,000. Each Unit is The net deferred tax liabilities in the accompanying December 31, comprised of one share of Solitario common stock and one share 1997 and 1996 balance sheets include the following components: purchase warrant. Each warrant is exercisable until February 27, (in thousands) 1997 1996 1999 into one common share at a price of Cdn$4.83 per share. In August 1997, CRCC elected to convert its $1.5 million 7.5 percent convertible note into 1,254,180 shares of the Company’s common stock. The conversion was in accordance with the terms of the note dated August 25, 1995. Upon completion of the conversion and after giving effect to option exercises during 1997, CRCC held 9,633,585 shares of the Company’s stock or 57.2 percent as of December 31, 1997. Deferred tax assets: NOL carryovers Investment in Argentina subsidiary Other Valuation allowance Deferred tax assets Deferred tax liabilities: Exploration and development costs Net deferred tax liabilities $ $ 3,498 1,930 — (4,938) 490 490 — $ $ 1,510 — 22 (1,049) 483 625 142 The Company has recognized a deferred tax asset relating to its investment in its Argentina subsidiary as it anticipates disposing of In March 1996, previously issued warrants to purchase 529,000 the investment in 1998. A full valuation allowance has been common shares of the Company, at Cdn$2.50 (approximately $1.82) provided against the deferred tax asset. per share, were exercised by CRCC, for an aggregate purchase A reconciliation of expected federal income taxes on income from price of $961,000. 4. Income Taxes: The Company’s income tax consists of the following: (in thousands) 1997 1996 1995 $ — 32 $ 26 46 Deferred U.S. Foreign Operating loss and credit carryovers: U.S. Foreign Income tax benefit $ (142) $ — (174) (26) (62) (16) $ $ 4 54 (40) (29) (11) 21 continuing operations at statutory rates with the benefit for income taxes is as follows: (in thousands) Income tax at statutory rates Non-deductible foreign expenses Disposition of investment in Argentina subsidiary Foreign mining incentives Foreign tax rate differences State income tax Valuation allowance Other Income tax benefit 1997 $ (1,807) 85 (1,683) (201) (17) (267) 3,747 1 (142) $ 1996 $ (327) 67 — (202) 22 (18) 443 (1) (16) $ 1995 $ (281) 75 — (324) 17 (11) 523 (10) (11) $ 4. Income Taxes (continued): 1998 mineral property rental and option payments to be At December 31, 1997, the Company has unused U.S. NOL carryovers of $1,982,000 which begin to expire commencing 2008. The Company also has Argentina and Peru NOL carryovers at approximately $257,000. Based upon existing joint venture or leasing arrangements, the Company’s share of these costs is approximately $14,000. December 31, 1997 of $7,420,000 and $920,000, respectively, which 7. Stockholders’ Equity: begin to expire in 1999 and 2000, respectively. A full valuation In 1994, the Company authorized the issuance of 617,168 share allowance has been provided against the income tax benefit of the purchase warrants (the “Warrants”) to shareholders of record at Argentina and Peru NOL carryovers. The anticipated 1998 March 4, 1994. The Warrants were exercisable at Cdn$2.50 per disposition of the Company’s investment in its Argentina subsidiary share at any time for two years after the date of grant. In February will result in (1) the elimination of the Argentina subsidiary NOL and March 1996, 553,686 shares of Solitario common stock were carryovers and attendant valuation allowance, and (2) the creation issued pursuant to the exercise of the Warrants, including issuance of a U.S. capital loss carryover of approximately $4,650,000, upon of 529,000 shares to CRCC. Proceeds from all Warrant exercises which a full valuation allowance will be provided. amounted to $1,005,000. On March 4, 1996, the remaining 63,482 5. Fair Value of Financial Instruments: SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires the determination of fair value for certain of the Company’s financial assets and liabilities. It defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. For certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts payable, and due to CRCC, the carrying amounts approximate fair value due Warrants expired unexercised. In February 1996, CRCC acquired, by way of private placement, 1,500,000 Units of the Company at a price of Cdn$2.31 per Unit, for an aggregrate purchase price of $2,640,000. Each Unit is comprised of one share of Solitario common stock plus one share purchase warrant exercisable into one common share at Cdn$2.66 per share. In February 1998, the warrants expired unexercised. In February 1997, CRCC acquired, by way of private placement, 1,500,000 Units of the Company at a price of Cdn$4.20 per Unit, for an aggregate purchase price of $4,610,000. Each Unit is comprised of one share of Solitario common stock plus one share to their short maturities. At December 31, 1996, the estimated fair purchase warrant. Each warrant is exercisable until February 27, value of the note payable to CRCC was $2,480,000, based on the 1999 into one common share at a price of Cdn$4.83 per share. quoted market value of 1,254,180 shares of Solitario common stock, into which the note was subsequently converted. There were no long-term financial instruments held by the Company at December 31, 1997. 6. Commitments and Contingencies: In acquiring its interests in minerals claims and leases, the Company has entered into agreements which generally may be canceled at its option. The Company is required to make minimum In August 1997, CRCC elected to convert its $1.5 million 7.5 percent convertible note into 1,254,180 shares of the Company’s common stock. The conversion was in accordance with the terms of the note dated August 25, 1995. Upon completion of the conversion and after giving effect to option exercises during 1997, CRCC held 9,633,585 shares of the Company’s stock or 57.2 percent as of December 31, 1997. 8. Stock Option Plan: rental and option payments in order to maintain its interests in On March 4, 1994, the Company’s board of directors (the “Board”) certain claims and leases. See Note 2. The Company estimates its adopted the 1994 Stock Option Plan (the “Plan”). Up to 1,100,000 22 8. Stock Option Plan (continued): 16, 1997, the Plan was amended, thereby increasing the authorized shares of the Company’s common stock were authorized for shares to 1,536,000. issuance under the Plan, subject to certain regulatory limitations. All options have been granted at exercise prices which are On December 15, 1995, the Plan was amended, increasing the determined by the Board to be the fair market value on the date of authorized shares to 1,170,000 and conforming the Plan to recently grant. The options expire five years from the date of grant, and are enacted regulatory requirements. On December 11, 1996 and April subject to certain vesting provisions, as determined by the Board. The activity in the Plan for the three years ended December 31, 1997 is as follows: Outstanding, beginning of year Granted Exercised Forfeited Outstanding, end of year Exercisable, end of year 1997 Weighted Average Price ($Cdn) 2.42 4.40 2.49 — 2.49 2.36 Options 1,385,000 50,000 (231,250) 1,203,750 1,051,250 1996 Weighted Average Options Price ($Cdn) 925,000 460,000 — 2.50 2.25 — — 2.42 2.50 1,385,000 846,250 1995 Weighted Average Options Price ($Cdn) 955,000 — 2.50 (30,000) 925,000 767,500 2.50 2.50 2.50 Range of Exercise Prices ($Cdn) Options Outstanding Weighted Average Remaining Contractual Life $2.25-4.40 1,203,750 2.5 Weighted Average Exercise Price ($Cdn) $2.49 In October 1995, the FASB issued SFAS No. 123, “Accounting for Stock Based Compensation.” The Company elected to continue to account for such compensation consistent with APBO No. 25 and to disclose the pro forma effect on net income and earnings per share had the new accounting standard been applied. Under APBO No. 25, no compensation expense is recognized for stock option grants following assumptions for 1997 and 1996, respectively: risk-free interest rate of 6.37 percent and 6.11 percent; dividend yield of 0 percent; volatility factor of the expected market price of the Company’s common stock of 78 percent and 80 percent; and a weighted average expected life of the options of four years. The weighted average fair value of the options granted is estimated at $1.82 and $1.05 per share in 1997 and 1996, respectively. Had the Company accounted for its stock options under the fair value method of SFAS No. 123, the following results would have been reported: because the exercise price of the Company’s stock options equals the (in thousands, except per share amounts) market price of the underlying stock on the date of grant. Pro forma information has been computed as if the Company had accounted for its stock options under the fair value method of SFAS No. 123. The fair values of these options were estimated at the date of grant using a Black-Scholes option pricing model with the Net loss As reported Pro forma Net loss per share As reported Pro forma 1997 1996 $ (5,172) (5,232) $ (947) (1,429) $ (0.33) (0.33) $ (0.07) (0.11) 23 9. Differences between Canadian and U.S. GAAP: effect on the consolidated balance sheet of the Company The consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) which differ in some respects from Canadian GAAP. The material differences, in respect to these consolidated financial statements between U.S. and Canadian GAAP, and their effect on the Company’s consolidated financial statements are summarized below: prepared in accordance with Canadian GAAP would be to increase accumulated deficit and increase additional paid-in capital by $465,000 as of December 31, 1997. The effect on the consolidated balance sheet of the Company as of December 31, 1996 would be to decrease total liabilities by $155,000, to increase accumulated deficit by $310,000, and to increase additional paid-in capital by $465,000. Statements of Cash Flows - Under Canadian GAAP, the The effect on the consolidated statement of operations statements of cash flows, which reflect cash transactions would be as follows: affecting financing and investing activities, is called the (in thousands, except per share amounts) statement of changes in financial position, which requires 1997 1996 1995 non-cash activities to be included in the statement. Note Payable, CRCC - Under Canadian GAAP, a portion of the proceeds of the convertible debt instrument should be allocated to additional paid-in capital at the time of issuance rather than the entire proceeds recorded as a liability. The Net loss under U.S. GAAP $ (5,172) $ Additional interest expense (155) (947) (233) $ ( 814) ( 77) Net Loss under Canadian GAAP $ (5,327) $ (1,180) $ ( 891) Basic and diluted loss per share under Canadian GAAP $ (0.34) $ (0.09) $ (0.08) Designed & Produced by Carl Thompson Associates 24 Shareholder Information Legal Counsel Stoel Rives LLP, Seattle, Washington Fogler, Rubinoff, Toronto, Ontario, Canada Auditors Deloitte & Touche LLP, Denver, Colorado Transfer Agents Montreal Trust Company of Canada, Toronto, Ontario, Canada Corporate Offices 1675 Broadway, Suite 2400, Denver, Colorado 80202 Phone: 303-534-1030 Fax: 303-534-1809 Investor Relations Questions and requests for information should be directed to: Debbie W. Mino at 800-229-6827. Internet Please visit the Company’s website at: http://www.solitarioresources.com Notice of Annual Meeting The Annual Meeting of Shareholders will be held at 2:00 p.m. (MDT) on Wednesday, June 17, 1998, at the Company’s offices at 1675 Broadway, Suite 2400, Denver, Colorado. Stock Exchange Listing Toronto: SLR Common Stock Data The Company’s common stock has been listed and traded in Canada on The Toronto Stock Exchange since July 19, 1994 under the symbol SLR. The following table sets forth the high and low sales prices on The Toronto Stock Exchange for the Company’s common stock for the quarterly periods from January 1, 1996 to December 31, 1997. High Low 1996: First Quarter Second Quarter Third Quarter Fourth Quarter 1997: First Quarter Second Quarter Third Quarter Fourth Quarter Cdn.$ 3.10 2.52 1.90 2.90 5.75 5.15 6.25 5.25 Cdn.$ 2.00 1.60 1.35 1.35 2.65 3.75 4.25 2.85 Holders of common stock are entitled to receive such dividends as may be declared by the Board of Directors. The Company has not paid any dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. At March 16, 1998 there were 23 record holders of the Company’s common stock. The Company believes that it has in excess of 500 holders of its common stock, including those shares held in street name. Officers & Directors Mark E. Jones, III Chairman and Chief Executive Officer Christopher E. Herald (1) President & Director James R. Maronick Vice President & Secretary Walter H. Hunt Vice President - Peru Operations Dr. Roger D. Morton (1) Director, Professor Emeritus, Geology, University of Alberta Debbie W. Mino Vice President - Investor Relations 25 (1) Member of the Audit Committee SOLITARIO RESOURCES 1675 Broadway, Suite 2400 Denver, Colorado 80202 Tel: 303-534-1030 • Fax: 303-534-1809 Internet: http://www.solitarioresources.com TORONTO: SLR On the Cover: Solitario’s drilling project at Santa Barbara represents our first undertaking in central Peru where we continue to evaluate new opportunities. 

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