Solitario
2000
Resources
Annual Report
…to Platinum
Metals for
& Palladium
the Future
World demand for Platinum Group Metals (“PGM”) continues to outpace supply. South Africa and Russia
produce 90% of the world’s supply of PGMs. PGM consumers are looking for new production from more
politically stable western hemisphere sources to meet anticipated future demand.
Why have the prices of platinum and palladium increased so dramatically during the last decade?
There are two primary reasons: (1) environmental legislation on car/truck emissions has led to the use of
autocatalysts and to the development of fuel cell technology in order to meet the mandatory government
standards; and, (2) a very strong increase in the demand for platinum jewelry .
What are PGMs used for?
The automotive industry relies on palladium and platinum in the manufacture of autocatalysts needed to comply
with governmental regulations on auto emission standards. The largest growth in industrial demand has been in
the personal computer industry, where platinum is used to improve storage capacity in hard drives. PGMs are
also used in the production of fiber optic cables, LCD displays, mobile phones, dentistry and pacemakers to
name a few. Over 50% of annual platinum production is used for jewelry. Presently, Japan, China, North
America and Europe are the largest consumers. Platinum jewelry demand growth is forecast to continue along
with expanded demand in emerging countries.
With higher PGM prices, will there be significant new production coming on line?
Modest production increases are anticipated over the next several years from existing mines. However, unlike gold,
quality undeveloped PGM projects are extremely rare. Initial results at Solitario’s Pedra Branca property place the
project in a very elite group of potentially large, high-grade PGM projects. It is unlikely that new production
sources can be brought on line fast enough to negatively affect the current price of either platinum or palladium.
Will the demand for PGMs continue?
We believe the demand will increase as nearly all industrial applications for PGMs are showing increased usage.
Longer term, PGM demand from fuel cells could be an explosive growth area.
2000 Demand for Precious Metals
(000's ounces)
8,962
7,822
Industrial Demand
Jewelry Demand
Total Fabrication Demand
Precious Metal Prices:
(as of April 5, 2001)
Gold: $258
Platinum: $556
Palladium: $680
120,000
102,000
9,000
5,690
2,940
2,190
Gold
Platinum
210
Palladium
C
B
S
H
:
e
c
r
u
o
S
Solitario
Message to
Shareholders
Resources
Dear Shareholders,
The first year of the new millennium was a very active one for Solitario Resources. Highlighting 2000 was
the successful closing of the Solitario Resources - Altoro Gold Plan of Arrangement (merger). With this
acquisition, Solitario has taken a giant step forward in realizing our corporate objective to become the
leader in platinum-palladium (“PGM”) exploration in South America. Also significant was Solitario’s sale
of its Yanacocha property to Newmont for US$6.0 million and a sliding-scale royalty. This sale provides
financial strength for the future.
With our outstanding array of PGM, gold and zinc properties, coupled with our strong financial position
and relatively low number of outstanding shares (23.3 million), we believe that Solitario is well positioned
to grow without diluting our existing shareholders. We are more convinced than ever that this combination
will produce tangible exploration success during the upcoming exploration season. As this is the first
Solitario Annual Report that former shareholders of Altoro Gold will receive, we hope you find it informative
and we welcome you as a new Solitario shareholder.
Solitario-Altoro Merger
The Solitario-Altoro merger closed in mid-October 2000. Solitario issued approximately 6.5 million shares
(including various warrant exercises) to Altoro shareholders on the basis of one share of Solitario for every three
1
shares of Altoro. Solitario now has approximately 23.3 million shares outstanding. Crown Resources Corporation’s
9.63 million shares of Solitario now constitute a 41% equity interest in Solitario, down from 57% pre-Altoro
merger, giving Solitario a more independent image.
2000 Palladium
Demand by Sector
Jewelry
3%
Other
1%
Electrical
25%
Dental
10%
Autocatalyst
40%
2000 Platinum
Demand by Sector
Other
6%
Petroleum
2%
2000 Platinum Jewelry
Demand
Chemical
3%
Autocatalyst
28%
Jewelry
52%
Chemical
5%
Electrical
8%
Investment
0%
Glass
4%
Europe
7%
N. America
13%
Japan
39%
C
B
S
H
:
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c
r
u
o
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China
37%
Rest of World
4%
Pedra Branca PGM Project
The driving force behind the Solitario-Altoro merger was Altoro’s 99,800-hectare (246,500 acres) Pedra Branca
PGM property in Brazil. Past drilling by Gencor, Rio Tinto and Altoro intersected potentially economic grades
and thicknesses of PGM mineralization. The property is subject to a joint venture agreement between Solitario and
Rockwell Ventures Inc. signed earlier this year by Altoro. Rockwell can earn a 60% interest in Pedra Branca by
spending US$7.0 million on the property and by paying Solitario 500,000 shares of Rockwell, with a minimum
market value of US$500,000, in five equal tranches over the next four years.
An extensive soil and rock sampling campaign, in conjunction with geologic mapping, was completed in February
of 2001. This work identified 13 significant PGM-bearing chromitite occurrences over a 45-kilometer strike length
of the Pedra Branca ultramafic complex. Over 40% of the 300 representative chromitite grab and channel samples
collected over these prospects returned values in excess of 5.0 g/t PGM, with nearly 20% of the samples returning
values in excess of 10 g/t PGM.
Approximately 11,500 soil samples have been collected over the favorable ultramafic rock horizon that hosts the
PGM-bearing chromitite reef. The soil program tested 37 kilometers of horizontal strike length of the
ultramafic unit. With many of the results still pending, the soil survey indicates that at least 17.5 kilometers of
the ultramafic unit are PGM-bearing, a remarkably long and continuous anomaly.
The high-grade PGM surface values are consistent with past drilling results at the Esbarro prospect in the north-
central part of the project area. At Esbarro, approximately 40 drill holes completed by previous operators
intersected a high-grade chromitite reef zone that averaged 1.8 meters grading 10.0 g/t PGM within a lower grade
zone that averaged 17.0 meters grading 2.8 g/t. Drilling on the Esbarro prospect indicates the zone is at least 800
2
meters long and 150 meters in down-dip width. The zone is open in both directions along strike and down dip.
Recent surface work at Esbarro has traced the chromitite zone with strong PGM values nearly continuously for
1.2 kilometers along strike horizontally. This suggests the potential for a significant PGM deposit at Esbarro.
A core drilling campaign at Pedra Branca began in late March.
Pedra Branca Project
Location Map
55ºW
0º
N
0º
BRAZIL
Belem
Fortaleza
PEDRA BRANCA
Platinum - Palladium Project
Salvador
Rio de Janeiro
Sao Paulo
55ºW
800 Km
Pedra Branca Ultramafic Complex & Drill Pattern
2950 S
3050 S
Cana Brava
Curiu
OutcropProjection
ofMainReefZone
PBE-15
U
PBE-16
PBE-19
Average Drill Hole Intercept of
High-Grade PGM Mineralization:
1.8 meters @ 10.0 g/t
Average Drill Hole Intercept of
Low-Grade PGM Mineralization:
17.0 meters @ 2.8 g/t
3150 S
F
3250 S
3350 S
3450 S
Conceicao
ESBARRO
ES-08
PBE-18
PBE-21
PBE-17
PBE-20
PBE-09
ES-02
PBE-10
PBE-14
PBE-12
U
PBE-23
PBE-13
PBE-24
PBE-22
15°
PBE-22
ES-03
ES-04
PSE-42
PBE-35
20.33
PBE-25
PBE-26
ES-01
PBE-28
PBE-06
PBE-07
PBE-05
PBE-31
PBE-29
PBE-30
PBE-08
PBE-01
ES-05
ES-07
PBE-11
PBE-32
PBE-33
3550 S
3650 S
0
50
meters
Mendes
Serra
do
Galo
Serrote
Massape
Trapia West
Trapia
Morado Nova
Ipueiras
cline
Syn
of
Axis
Pitombeira
Ultramafic Rock with Chromitite
Chromitite Occurrence with
Significant PGM Values
10 km
Drill Hole Started In Footwall
Drill Hole Intersected Main Reef
PGM Zone
Drill Hole Not Deep Enough To
Intersect Main Reef PGM Zone
Pedra Branca Cross Section Map
PBE-26
8m
6.5g
3m
14.5g
ES-01
1m
7.3g
7m
2.7g
ES-06
PBE-25
PBE-24
PBE-23
ES-02
6.5m
6.0g
17m
4.5g
3.1m
4.7g
2m
8.2g
2m
5.6g
19m
2.6g
4m
3.1g
12m
2.1g
5m
1.7g
8m
4.8g
High-Grade PGM Mineralization
Low-Grade PGM Mineralization
3m
14.5g
=
Drill Interval in meters
Grade Pt + Pd in grams
0
40
meters
Geologic Map of the
Rincon del Tigre Complex
6
0
6
12
Kilometers
SF1
SF2
AC1
PA1
SI1
SR1
A'
PO1
Rio Tinto Drill Holes
A
Power Auger Survey Area
EXPLANATION
Generalized Geology
Anticline
Syncline
Fault
Cover Rocks
Pre-Cambrian Vibosi
Metasediments
Felsic Unit
Mafic Unit
Ultramafic Unit
Pre-Cambrian Sunsas
Metasediments
Summary of Target Locations
in the Rincon del Tigre Stratigraphy
Schematic Stratigraphy &
Precious Metal Distribution,
Palmarito Zone
Palmarito Zone
High-Grade Reef
Targets
Potentially Comparable
Stratigraphic Location
of the Mernesky & UG 2
Stratigraphic Column
Rincon del Tigre Complex
3000 M
2500 M
2000 M
1500 M
1000 M
500 M
MG
Magnetite
Gabbro
G
O
B
Gabbro
Olivine Norite
Bronzitite
Hp
Granular
Harzburgite
H/B
Hp
Interlayered Harzburgite
& Olivine Bronzitite
Granular
Harzburgite
BG
Fine-Grained Bronzitite
& Gabbro
Basal Target Zone
H/B
Hp
0 M
Interlayered Harzburgite
& Olivine Bronzitite
Granular
Harzburgite
100 M
50 M
0 M
MG
Au
Pd
Pt
G
Rh
BOLIVIA
La Paz
Santa Cruz
Cochabama
Rincon del Tigre Project
Bolivia
Rincon
del Tigre
A Layered Ultramafic
Complex with PGMs
Puerto Suarez
500 Km
500 Mi.
Rincon del Tigre
The Rincon del Tigre layered ultramafic complex, acquired in the Altoro transaction, is perhaps the last such
complex in the world that remains largely unexplored. These large ultramafic complexes account for the majority
of PGMs produced in the world today.
Solitario completed initial surface exploration work on its 51,400-hectare (127,000 acres) Rincon del Tigre PGM
property in Bolivia. Results at Rincon del Tigre continue to encourage us that this very large ultramafic complex could
host a significant PGM deposit. Previous work at Rincon del Tigre has defined a minimum 24 kilometer long PGM-
bearing horizon. Only two Rio Tinto drill holes have tested this portion of the horizon intersecting the following:
Hole No. Meters
PA-1
(Including)
SI-1
Palmarito Drilling Results (from 1993)
Feet
111.5
32.8
55.8
0.58
1.27
0.90
34
10
17
Grade Palladium (g/t)
This PGM horizon has been traced on the surface by geochemical techniques for more than 127 kilometers.
Based on Solitario’s analysis of the ultramafic stratigraphy, the potential for additional undiscovered PGM-bearing
horizons is considered good. Because of the large scope of this promising project, Solitario is seeking a joint
venture partner to further explore the property.
5
Palmarito Zone: Geochemical Anomaly Map
(reference the Power Auger Survey Area on the Geologic Map of the Rincon del Tigre Complex - opposite page)
Palmarito Area Showing Location of Palladium Anomalies, Completed and Proposed Drill Holes
N
PA1
1 km
Magnetite
Gabbro
SI1
30°
TraceofthePa l ma r
i
t o PGM Zoneak
South Anomaly
North Anomaly
Middle
Anomaly
Strong Palladium Anomaly in Soils
Proposed Drill Hole
Moderate Palladium Anomaly in Soils
Rio Tinto Drill Hole
Gabbro
Bongará
An aggressive 31-hole, 10,295-meter drilling campaign was completed by Pasminco on the Bongará zinc project
in Peru during 2000. Eighty drill holes totaling approximately 24,700 meters have now been completed in the
Florida Canyon area during the past four field seasons.
This year’s drilling results significantly expanded the footprint of mineralization at Florida Canyon to over 2,500
meters in a north-south direction and 1,300 meters in an east-west direction. With approximately one-third of all
drill holes encountering potentially economic mineralization, and another third intersecting significant mineralization
of lower grade or narrower thickness, results from the 2000 drilling program were consistent with previous drilling
campaigns. This success ratio is considered excellent for a grid drilling program in a Mississippi Valley type of zinc
deposit where drill hole spacing is 100 to 300 meters.
The best fifteen drill holes for 2000 are as follows:
Drill
Hole No.
FC-56
FC-58
(Including)
(Including)
FC-59
FC-60
FC-62
FC-64
FC-65
FC-66
Thickness
Grade
(meters)
2.5
11.0
2.7
3.5
2.0
3.5
2.1
1.1
2.2
2.1
2.6
4.6
(feet)
8.2
36.1
8.9
11.5
6.6
11.5
6.9
3.6
7.2
6.9
8.5
14.9
Zn-%
11.89
8.08
11.96
15.55
9.35
20.87
13.59
18.00
7.08
16.60
15.98
10.80
Pb-%
–
0.75
0.58
1.52
1.44
12.46
0.74
0.59
0.24
1.14
3.23
2.26
Drill
Hole No.
FC-69
FC-71
FC-72
FC-76
FC-77
FC-78
(Including)
FC-80
Thickness
Grade
(meters)
2.3
3.0
1.0
2.0
5.3
5.1
13.9
3.1
5.2
0.9
2.3
2.6
(feet)
7.4
9.8
3.3
6.5
17.2
16.7
45.6
10.0
17.0
3.0
7.5
8.5
Zn-%
6.71
11.22
15.64
15.82
6.54
10.82
3.75
7.61
3.39
28.14
7.48
13.00
Pb-%
2.31
–
7.04
2.11
0.45
0.71
2.21
1.24
8.17
0.16
0.17
4.49
Early in 2001, Pasminco and Cominco terminated their option to earn an interest in the Bongará project.
6
Consequently, Solitario now owns 100% of the property. With over US$16 million invested in the Bongará
project to date, and strong high-grade zinc mineralization encountered over a large area at Florida Canyon,
Bongará remains a core asset of the Company. Solitario will seek a joint venture partner during 2001
in this advanced-stage exploration property. Interest in this project by mid-sized zinc producers is strong.
Yanacocha Royalty Property
Peru
Yanacocha
In February 2000, Solitario Resources sold its mineral interests in its Yanacocha gold property in northern Peru to
Newmont Mining Corporation. The agreement converted Solitario's interest in its Yanacocha property to a net
smelter return (“NSR”) royalty and transferred approximately 60,000 hectares (150,000 acres) of mineral rights to
Newmont. Solitario received US$5.6 million in cash upon closing and will receive four annual payments of
$100,000. The transaction closed in late April 2000.
Solitario’s gold royalty ranges from 2% to 5%, depending on the prevailing price of gold. Solitario also retains a
3% NSR royalty for all silver produced and a 2% NSR royalty for copper production. In late 2000, Newmont
announced outstanding exploration results and an increase in reserves to 36.6 million ounces of gold on its 51%-
owned Minera Yanacocha property located immediately south of Solitario’s royalty property. We view this
announcement as positive for the future of our retained royalty position located in such close proximity to the
largest gold mine in South America.
Tocantinzinho
Gold mineralization on the Tocantinzinho property, located in Brazil and acquired as part of the Altoro transaction,
occurs in shear zones cutting a variety of intrusive rock types. A considerable amount of channel sampling of old pits
and short power auger holes in saprolitic soils indicates strong gold mineralization over a strike length of at least 600
meters and a combined width of two zones of up to 120 meters. Gold grades of surface and auger samples average
between 1.2 and 3.2 grams per tonne within this large zone. Solitario is in serious discussions with a major gold
producer that may lead to a joint venture on this promising gold property.
7
Sapalache
AngloGold completed four widely-spaced diamond drill holes totaling 650 meters on the Sapalache gold project in
northern Peru. Drill hole DDH-3 intersected four gold bearing zones with numerous +1.0 g/t gold values. The best
zone graded 9.38 g/t over one meter, with three other one meter intervals grading in excess of 3.0 g/t gold. Drill
hole DDH-4 intersected one meter grading 5.96 g/t gold. Drill holes DDH-1 and 2 encountered strong argillic
alteration, silicification, and anomalous gold. AngloGold elected to terminate its option to earn a 51% interest in
the property. Solitario is seeking a new joint venture partner interested in high-grade underground gold targets.
Outlook for 2001
We believe the outlook for Solitario has never been brighter. Our attention is currently focused on the Pedra
Branca drilling program where we hope to establish the presence of a new district-scale PGM project. With the
worldwide scarcity of quality PGM projects, Pedra Branca could emerge as one of the most significant new
exploration discoveries in years.
Adding to this excitement, we are attempting to complete important new joint ventures on the Rincon del Tigre
PGM project in Bolivia, the Tocantinzinho gold project in Brazil and the Bongará zinc project in Peru. These
potential new joint ventures all contemplate serious drilling commitments during 2001.
With our current cash position of US$5.6 million (C$8.9 million) as of March 25, 2001 and no debt, Solitario is
well positioned for growth. We look forward to reporting the Company’s progress during 2001.
Sincerely,
8
Christopher E. Herald
Chief Executive Officer
Mark E. Jones III
Chairman
Table
Financial
of Contents
Statements
Management’s Discussion & Analysis
Independent Auditors’ Report
Comments by Independent Auditors for Canadian Readers on U.S. –
Canada Reporting Conflict
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
10
13
13
14
15
16
16
17
9
Financial Conditions &
Managements
Results of Operations
Discussion & Analysis
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,
2000, 1999, and 1998, included elsewhere in this report. The
Company's financial condition and results of operations are not nec-
essarily 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 ("Crown or CRCC"), but
until 1993 it had no assets and conducted no operations.
Results of Operations
The Company had net income of $4,285,000 or $0.24 per share
in 2000 compared with a loss of $6,003,000 or $0.36 per share in
1999 and a loss of $405,000 or $0.02 per share in 1998.
On April 26, 2000 Solitario completed a transaction with an affili-
ate of Newmont Mining Corporation ("Newmont") and sold its
interest in its Yanacocha property for proceeds of $6,000,000 mil-
lion and a sliding scale net smelter return royalty ("NSR") that
varies with the price of gold. In order to effect the transaction,
Solitario transferred all of the operating assets and liabilities,
excluding its interest in Yanacocha, of its Peru operating subsidiary,
Minera Los Tapados ("Los Tapados"), to a new operating sub-
sidiary, Minera Solitario Peru. Newmont received all of the out-
standing shares of Los Tapados for cash consideration of
$5,600,000. The balance of the proceeds, $400,000, is being held
in a reserve by Newmont and, pending release of certain contin-
gent liabilities, will be paid in four annual payments of $100,000
plus interest. Solitario recorded a gain on the sale of the Yanacocha
property of $5,809,000 during the second quarter of 2000.
On October 18, 2000, Solitario, completed a Plan of Arrangement
("the Plan") with Altoro Gold Corp. of Vancouver, Canada
("Altoro"), whereby Altoro became a wholly-owned subsidiary of
Solitario. In connection with the Plan, Solitario issued 6,228,894
shares to Altoro shareholders and option holders. Solitario also
reserved 825,241 Solitario shares for issuance upon the exercise of
825,241 warrants in exchange for Altoro warrants. On October
24, 2000, Solitario issued 261,232 shares upon the exercise of the
above warrants and 286,231 the warrants expired unexercised.
After the issuance of the shares in connection with the
Arrangement and exercise of the warrants discussed above, Solitario
has 23,344,647 shares outstanding of which CRCC owns
9,633,585 shares. Primarily as a result of the issuance of Solitario
shares in connection with the Plan, CRCC’s ownership percentage
of Solitario was reduced from 57.2% to 41.3% at December 31,
2000. As a result of the acquisition of Altoro, Solitario acquired
exploration properties in Bolivia and Brazil. Additionally Solitario
expanded its focus of exploration from gold and base metal proper-
ties to include platinum group metals with targets primarily located
in Brazil and Bolivia.
Interest income was $360,000, $144,000, and $200,000 in 2000,
1999 and 1998, respectively. The change in interest income was
primarily the result of larger cash balances related to the Yanacocha
sale during 2000, compared to 1999 and 1998.
Included in the 1999 loss was the cumulative effect of a change in
accounting principle for exploration costs on properties without
proven and probable reserves from capitalizing all expenditures to
expensing all costs, other than acquisition costs, prior to the establish-
ment of proven and probable reserves. The $5,094,000 cumulative
effect of the change on prior years is included in the loss for 1999.
Exploration expense was $1,182,000 in 2000 compared to
$666,000 in 1999 as a result of Solitario's expansion of its explo-
ration to include Brazil and Bolivia as well as an expansion of the
focus of exploration to include platinum group metals during 2000.
During the year ended December 31, 2000, the Company incurred
$372,000 of general and administrative expenses compared with
$75,000 in 1999, and $112,000 in 1998. General and administra-
tive expenses consist primarily of administrative, legal, accounting,
and shareholder-related costs. The increased activities in Brazil and
Bolivia as well as costs related to the sale of the Yanacocha property
and the Altoro transaction account for the increase in general and
administrative costs. Reduced exploration programs coupled with
lower administrative costs, related to reductions in activities in Peru,
contributed to the decrease in costs from 1998 to 1999.
CRCC provides management and technical services to Solitario under
a management agreement originally signed in 1994 and modified in
April 1999 and again in December 2000. The modified agreement,
which has a three year term, provides for reimbursement to CRCC of
direct out-of-pocket costs; payment of seventy-five percent of execu-
tive and administrative salaries and benefits, rent, insurance and
investor relations costs ("Administrative Costs") and payment of cer-
tain allocated indirect costs and expenses paid by CRCC on behalf of
Solitario. Prior to December 2000, Administrative Costs were reim-
bursed at fifty percent and a management fee of 2% was charged on
direct Solitario expenses paid by CRCC. Prior to April 1999, the
agreement reimbursed CRCC direct out-of-pocket costs; for certain
allocated indirect costs; and payment of a service fee equal to 7% of
expenditures. Management service fees paid to CRCC by Solitario in
2000, 1999 and 1998 were $414,000, $333,000 and $89,000,
respectively. The fees will generally fluctuate period- to-period based
on the overall level of exploration spending during the period.
Depreciation, depletion, and amortization expense was $18,000 in
2000 compared with $35,000 in 1999, and $10,000 in 1998, and
relates primarily to leasehold improvements and furniture and
equipment.
10
The Company regularly performs evaluations of its assets to assess
the recoverability of its investments in these assets. All long-lived
assets are reviewed for impairment whenever events or circum-
stances change which indicate the carrying amount of an asset may
not be recoverable utilizing established guidelines based upon future
net cash flows from the asset. Write-downs relating to exploration
properties amounted to $63,000 in 1999 and $403,000 in 1998.
There were no property write-downs in 2000. Property write-downs
have been reduced since 1998 primarily as a result of Solitario's
change in accounting principle to no longer capitalize exploration
expenditures on properties without proven and probable reserves.
Liquidity and Capital Resources
Due to the nature of the mining business, the acquisition, explo-
ration, 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. To the extent necessary, the Company expects to con-
tinue to use similar financing techniques.
As a result of the Altoro transaction, the Company's 2000 acquisi-
tion and exploration programs have been devoted to properties in
Brazil and Bolivia as well as Peru. Solitario also has approximately
$50,000 of assets in Canada, consisting primarily of marketable
equity securities. Total foreign assets, as reported in the consolidated
balance sheet as of December 31, 2000, amounted to $5,124,000.
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.
Additions to mineral properties for land and leasehold costs during
2000 were $4,820,000 which related primarily to the acquisition of
Altoro properties as follows: The Pedra Branca property in Brazil of
$3,627,000; the Tocantinzinho property in Brazil of $621,000; and
the Rincon del Tigre property in Bolivia of $558,000. There were
no capitalized exploration costs during 2000 and 1999 due to
Solitario's decision to expense exploration costs on properties with-
out proven and probable reserves, compared to additions of
$991,000 for leasehold acquisition costs and exploration expendi-
tures in 1998.
During 2000, the Company received net proceeds of $6,000,000
from the sale of its Yanacocha property to Newmont. Newmont
retained $400,000 which has been recorded as restricted cash. The
restricted cash will be paid in four annual payments of $100,000
plus interest pending the release of certain contingent liabilities.
the issuance of its shares in connection with the acquisition of
Altoro. There were no other share issuances in 2000, 1999, or
1998. Primarily as a result of the issuance of shares in connection
with the acquisition of Altoro, CRCC's ownership percentage has
been reduced from 57.2% to 41.3% as of December 31, 2000.
During 1998, the Company completed the sale of its Argentina
subsidiary to TNR Resources, Ltd. of Vancouver, B.C. Canada
("TNR"). The purchase price of $350,000 was received in the form
of 1,250,000 common shares of TNR and warrants to purchase an
additional 625,000 common shares. TNR reimbursed the
Company $29,000 for costs incurred through a cash payment of
$8,000 and delivery of 184,709 additional common shares of TNR.
Cash and cash equivalents amounted to $6,334,000 at December
31, 2000. These funds are generally invested in short-term inter-
est-bearing deposits and securities, pending investment in current
and future projects. Restricted cash held by Newmont amounted
to $416,000, including $300,000 in other (long-term) assets.
Working capital at December 31, 2000 was $6,339,000. The
increase in cash and working capital is primarily attributable to the
sale of the Yanacocha property.
The Company believes that its existing funds are sufficient to meet
its currently planned operating activities and mandatory property
payments through 2001. The Company will need substantial addi-
tional financing in order to bring its properties into production.
There is no assurance that such financing will be available when
needed or that, if available, it can be secured on favorable terms.
Joint Ventures
In December 1996, Solitario signed an agreement regarding the
Bongará project with a subsidiary of Cominco Ltd. ("Cominco") of
Vancouver, B.C., Canada. Cominco had the right to earn a 65%
interest in the Bongará project by spending a minimum of
$17,000,000 over a five year period from January 2000 forward on
exploration and development (in addition to the approximately $10
million spent prior to January 2000) and by making annual cash
payments to the Company of between $100,000 and $500,000
(depending on the price of zinc), as well as fully funding the project
through a bankable feasibility study. Cash payments of $118,000,
$118,000, and $354,000, including value added taxes of 18%, have
been paid to the Company by Cominco in January 2000, 1999 and
1998, respectively. In February 2001 Cominco terminated their
option to acquire an interest in the Bongará project. Through
December 31, 2000, Cominco had spent approximately $16 mil-
lion on exploration and drilled eighty holes totaling 81,000 feet on
the Bongará project. Solitario currently holds a 100% interest in
the project covering approximately 111,000 acres and may seek a
new joint venture partner to explore and develop this property.
Solitario recorded property acquisition costs of $4,705,000 from
Altoro signed an agreement in May of 1999 with Eldorado Gold
11
Corporation ("Eldorado") on a portion of the Pedra Branca Project
located in Ceará state in Brazil. Solitario can earn a 70% interest
in concessions covering approximately 24,000 acres by spending $2
million on exploration over three years. Solitario can earn an addi-
tional 20% (90% total) by spending an extra $1 million within five
years of the signature date. Should Eldorado be diluted to 10%
this interest converts to a 2% NSR. Additionally, Solitario has
applied for concessions in its own name at Pedra Branca covering
approximately 141,000 acres for a total of 165,000 acres at the
Pedra Branca Project.
On February 18, 2000, Altoro signed a letter of intent granting
Hunter Dickinson Group, Inc., of Vancouver, Canada an option to
earn a 60% interest in Altoro’s share of the Pedra Branca Project
which has been assigned to Rockwell Ventures, Inc. of Vancouver,
Canada ("Rockwell"), a publicly-traded exploration company.
Under the terms of the agreement, Rockwell has the right to earn
the 60% interest in the Pedra Branca Project by spending $7 mil-
lion on exploration within four years from July 2000, with a mini-
mum expenditure of $1 million during the first year. In addition
Rockwell must issue to Solitario a total of 500,000 shares of
Rockwell common shares over four years in five equal installments
with a minimum value of US$100,000 per allotment. Rockwell
delivered 125,433 shares and $50,000 in cash May 2000 upon reg-
ulatory approval of the agreement to satisfy the first payment under
the agreement. Upon Rockwell earning its 60% interest, Solitario
will have the right to put its 40% interest in Pedra Branca Project
to Rockwell (the "Put Option") in exchange for the right to own
40% of Rockwell's market capitalization after exercise of the put
option (the Purchase Price). The Purchase Price may be paid 100%
in shares of Rockwell or 25% in cash and 75% in shares of
Rockwell. Rockwell is responsible for making all payments related
to the property during the earn-in period.
The Company's exploration and development activities and fund-
ing opportunities, as well as those of its joint venture partners, may
be materially affected by commodity price levels and changes in
those levels. Commodity market prices are determined in world
markets and are affected by numerous factors which are beyond the
Company's control.
Exploration Activities
A significant part of Solitario's business involves the review of
potential property acquisitions and continuing review and analy-
sis 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, Solitario's obligations to make such pay-
ments 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.
In acquiring its interests in mining claims and leases, Solitario has
entered into agreements which generally may be canceled at its
option. Solitario is required to make minimum rental and option
payments in order to maintain its interests in certain claims and
leases. Solitario estimates its 2001 mineral property rental and
option payments to be approximately $168,000. Based upon exist-
ing joint venture or leasing arrangements, the Company's share of
these costs is approximately $108,000.
Solitario charged operations $1,182,000 in 2000 and $666,000 in
1999 for exploration expenditures on mineral properties. The
increase in the expenditures in 2000 is related to the expansion of
the focus of Solitario's exploration activities to include platinum
group metals as well as the acquisition of Altoro which increased
the number and scope of properties to be evaluated and the num-
ber and cost of exploration personnel. There is no exploration
expense charged to operations in 1998 as Solitario capitalized all
exploration expenditures prior to January 1, 1999, the date of the
change in accounting principle. Exploration charged to operations
is exclusive of amounts spent on its properties by third parties.
Solitario has budgeted $930,000 for exploration expenditures, to
be charged to operations, during 2001 which will be in addition to
planned expenditures by joint venture partners.
New Accounting Pronouncements
In June of 1998, the Financial Accounting Stadards Board issued
Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
The standard, which is effective for fiscal years beginning after
June 15, 2000, sets forth guidelines for recording derivative instru-
ments as assets and liabilities to be reported in the financial state-
ments at fair value and that changes in the fair value of the instru-
ments shall be recognized in the results of operations. This stan-
dard, will be adopted by the Company in 2001 and is not expect-
ed to have a material effect on the Company's financial position,
results of operations and cash flows.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 summarizes certain
of the SEC views in applying generally accepted accounting princi-
ples to revenue recognition as it relates to, among other things, the
revenue recognition from non-refundable, up-front payments in
connection with service contracts. Solitario adopted the provisions
of SAB 101 in the fourth quarter of 2000. The adoption of SAB
101 did not have a material effect on Solitario's financial condition
or results of operations.
12
Financial
Independent
Auditors’ Report
Statements
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 (the Company) as of
December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000 which, as described in Note 1, have been prepared on the basis
of accounting principles generally accepted in the United States of America. 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 of America. 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, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the consolidated balance sheet at December 31, 2000 includes
land and leasehold costs of $4,873,000. 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.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for explo-
ration costs on properties without proven and probable reserves in 1999.
Deloitte & Touche LLP
Denver, Colorado
March 23, 2001
13
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 explanatory paragraphs 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 23, 2001 is expressed in accordance with auditing standards generally accepted in
the United States of America, which permits the inclusion of an explanatory paragraphs in the auditors' report to emphasize a
matter regarding the financial statements.
Deloitte & Touche LLP
Denver, Colorado
March 23, 2001
Balance
Consolidated
Sheets
(in thousands of U.S. dollars, except share amounts)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Prepaid expenses and other
Total current assets
Mineral properties, net
Assets held for sale
Marketable equity securities, at fair value
Other assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Due to CRCC
Total current liabilities
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 23,344,647 and 16,854,521
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total stockholder’s equity
14
On behalf of the Board:
Christopher E. Herald,
Director
See notes to consolidated financial statements.
Daniel Leonard,
Director
Years Ended December 31,
2000
1999
$
6,334
116
40
6,490
4,873
—
220
377
$ 11,960
$
70
81
151
—
234
21,147
(9,510)
(62)
11,809
$ 11,960
$
$
$
2,386
—
43
2,429
53
178
103
33
2,796
7
39
46
—
169
16,507
(13,795)
(131)
2,750
2,796
$
Consolidated
of Operations
Statements
(in thousands of U.S. dollars, except per share amounts)
Revenues:
Mineral property option proceeds
Gain on sale of assets
Interest income
Costs and expenses:
Exploration
Depreciation, depletion and amortization
General and administrative
Management fees - CRCC
Asset write-downs
Other, net
Net income (loss) before cumulative effect of
change in accounting principle
Cumulative effect of change in accounting principle
Net income (loss)
Earnings (loss) per common share:
Basic before cumulative effect of change in
accounting principle
Change in accounting principle
Basic earnings (loss) per share
Diluted before cumulative effect of change in
accounting principle
Change in accounting principle
Diluted earnings (loss) per share
Weighted average of shares outstanding
Basic
Diluted
2000
100
5,811
360
6,271
1,182
18
372
414
—
—
1,986
4,285
—
4,285
0.24
—
0.24
0.23
—
0.23
$
$
$
$
$
$
$
Years Ended December 31,
1999
1998
$
$
100
19
144
263
666
35
75
333
63
—
1,172
(909)
(5,094)
$ (6,003)
$
$
$
$
(0.05)
(0.31)
(0.36)
(0.05)
(0.31)
(0.36)
$
$
$
$
$
$
$
—
—
200
200
—
10
112
89
403
(9)
605
(405)
—
(405)
(0.02)
—
(0.02)
(0.02)
—
(0.02)
18,163
18,350
16,855
16,855
16,855
16,855
Pro forma amounts assuming the method of expensing
exploration costs as incurred is applied retroactively:
Net income (loss)
Basic income (loss) per common share
$
$
4,285
0.24
$
$
(909)
(0.05)
$
$
(923)
(0.05)
See notes to consolidated financial statements.
15
of Stockholders’
Consolidated
Equity
Statements
(in thousands of U.S. dollars,
except share amounts)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive
Deficit
Income (Loss)
Total
Balance at January 1, 1998
Comprehensive income (loss):
Net loss
Net unrealized gain on
marketable equity securities
Comprehensive loss
Balance at December 31, 1998
Comprehensive income (loss):
Net loss
Net unrealized loss on
marketable equity securities
Comprehensive loss
Balance at December 31, 1999
Shares issued:
16,854,521
$
169
$ 16,507
$ (7,387)
$
—
—
—
—
—
—
(405)
—
—
16,854,521
169
16,507
(7,792)
—
—
—
—
—
—
(6,003)
—
—
—
17
—
17
—
$
9,289
(405)
17
(388)
8,901
(6,003)
(148)
—
(148)
(6,151)
16,854,521
169
16,507
(13,795)
(131)
2,750
Acquisition of Altoro
Exercise of warrants
6,228,894
261,232
Comprehensive income (loss):
Net income
Net unrealized gain on
marketable equity securities
Comprehensive income
—
—
62
3
—
—
4,464
176
—
—
—
—
4,285
—
—
—
—
69
—
4,526
179
4,285
69
4,354
16
Balance at December 31, 2000
23,344,647
$
234
$ 21,147
$ (9,510)
$
(62)
$ 11,809
See notes to consolidated financial statements.
of Cash
Consolidated
Flows
Statements
Years Ended December 31,
2000
1999
1998
$
4,285
$ (6,003)
$
(405)
18
—
(5,811)
—
99
(77)
(73)
42
(1,517)
(374)
(55)
—
5,715
—
5,286
179
179
3,948
2,386
6,334
—
—
35
63
(19)
5,094
—
(11)
(12)
34
(819)
—
—
—
19
(59)
(40)
—
—
10
403
—
—
—
24
(61)
(8)
(37)
—
(991)
434
—
(11)
(568)
—
—
(859)
3,245
$ 2,386
(605)
3,850
$ 3,245
17
21
—
212
29
(in thousands of U.S. dollars)
Operating activities:
Net income (loss)
Adjustments:
Depreciation, depletion and amortization
Asset write-downs
Gain on asset sales
Cumulative effect of change in accounting principle
Other
Changes in operating assets and liabilities,
excluding effects of acquisition:
Prepaid expenses and other current assets
Accounts payable
Due to CRCC
Net cash used in operating activities
Investing activities:
Payments for acquisition, net of cash acquired
Additions to mineral properties and other
Receipts on mineral property transactions
Proceeds from asset and mineral property sales
Decrease (increase) in other assets
Net cash provided by (used in) in investing activities
Financing activities:
Issuance of common stock, net
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
Supplemental disclosure of cash flow information:
Noncash investing and financing activities:
Securities received for mineral property transactions,
sale of Argentina subsidiary
Increase in accounts receivable from sale of
Argentina subsidiary
See notes to consolidated financial statements.
Notes
Financial
Statements
to Consolidated
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. Solitario's mineral properties are located in Brazil, Bolivia
and Peru. 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"). On October 18, 2000 Solitario com-
pleted a Plan of Arrangement ("the Plan") whereby Solitario issued
6,228,894 shares of its stock to the shareholders of Altoro Gold Corp.
("Altoro") in exchange for 100% of the outstanding shares of Altoro.
After the issuance of shares in connection with the Plan, CRCC owns
41.3% of Solitario as of December 31, 2000. See Note 9.
Financial reporting
The consolidated financial statements include the accounts of Solitario
and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation. The consoli-
dated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, and are
expressed in U.S. dollars. See Note 11 for differences between
Canadian and U.S. generally accepted accounting principles.
In performing its activities, the Company has incurred certain costs for
land and leasehold interests. 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, none of which is assured.
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 liabili-
ties and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expens-
es 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 are capitalized in cost centers and will be
depleted on the basis of economic reserves using the units-of-produc-
tion method. If 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.
During 1999, the Company changed its method of accounting for
exploration costs on properties without proven and probable reserves
from capitalizing all expenditures to expensing all costs incurred, other
than acquisition costs, prior to the establishment of proven and proba-
ble reserves See Note 2.
The Company records the proceeds from the sale of property interests
to joint ventures as a reduction of the related property's capitalized cost.
Proceeds which exceed the capitalized cost of property are recognized as
revenue. When such proceeds are associated with properties subject to
a joint venture, they are recorded as revenue in accordance with the
terms of the joint venture and the transfer of the property interest to
the joint venture partner during the term of the joint venture.
Marketable equity securities
The Company's equity securities are classified as available-for-sale and
are carried at fair value which is based upon market quotes of the
underlying securities. The cost of marketable equity securities sold is
determined by the specific identification method.
Foreign exchange
The United States dollar is the functional currency for all of the
Company's foreign subsidiaries. Although the Company's exploration
activities have been conducted primarily in Brazil, Bolivia and Peru,
substantially all of the land, leasehold, and exploration agreements of
the Company are denominated in United States dollars. The
Company expects that a significant portion of its required and discre-
tionary expenditures in the foreseeable future will also be 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
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 rec-
ognized 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.
Earnings per share
The calculation of basic earnings per share, "Earnings Per Share," is
based on the weighted average number of common shares outstanding
during the years ended December 31, 2000, 1999 and 1998. The cal-
culation of diluted earnings per share for the year ended December 31,
18
2000 includes the effect of common stock equivalents, which include
employee stock options and warrants, unless inclusion would be anti-
dilutive. The potentially dilutive securities, which include stock
options and warrants were 1,615,000, 1,178,000 and 2,681,000 at
December 31, 2000, 1999 and 1998, respectively. The effects of these
securities are not included in the computation of diluted earnings per
share where their inclusion would be anti-dilutive.
Employee stock compensation plans
The Company follows Accounting Principles Board Opinion
("APBO") No. 25, "Accounting for Stock Issued to Employees."
Under the Company's stock option plans, the exercise price of stock
options issued to employees equals the market price of the stock on the
measurement date. As a result of repricing of its options in 1999, the
Company accounts for all grants which have been repriced as variable
awards and records increases and decreases in compensation expense
during the period based upon changes in the market price of Solitario's
stock as required by APBO 25.
Segment reporting
The Company operates in one segment, minerals exploration. All of
the Company's operations are located in South America as further
described in note 2. Solitario's United States assets consist primarily of
cash and cash equivalents at December 31, 2000 of $6,379,000 and
conducts certain administrative functions in the United States.
Solitario holds certain South American assets through its Canadian
wholly-owned subsidiary, Altoro.
New accounting pronouncements
In June of 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The standard, which
is effective for fiscal years beginning after June 15, 2000, sets forth
guidelines for recording derivative instruments as assets and liabilities to
be reported in the financial statements at fair value and that changes in
the fair value of the instruments shall be recognized in the results of
operations. This standard was adopted by Solitario in 2001 and did
not have a material effect on Solitario's financial position, results of
operations and cash flows.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC
views in applying generally accepted accounting principles to revenue
recognition as it relates to, among other things, the revenue recognition
from non-refundable, up-front payments in connection with service
contracts. Solitario adopted the provisions of SAB 101 in the fourth
quarter of 2000. The adoption of SAB 101 did not have a material
effect on Solitario's financial condition or results of operations.
2. Mineral Properties:
Change in accounting principle
During 1999, the Company changed its method of accounting for
exploration costs on properties without proven and probable reserves
from capitalizing all expenditures to expensing all costs, other than
acquisition costs, prior to the establishment of proven and probable
reserves. This will bring the Company's accounting method in accor-
dance with the predominant practice in the U.S. mining industry. The
$5,094,000 cumulative effect of the change on prior years is included
in the loss for 1999. The effect of the change in 1999 was to increase
the loss before cumulative effect of change in accounting principle by
$69,000 or $0.00 per share.
Peru
The Company holds exploration concessions or has filed applications
for concessions covering approximately 179,000 acres in Peru. These
applications are subject to normal administrative approvals and the
properties are subject to an annual rental of $5.00 per hectare (approxi-
mately 2.47 acres per hectare) in June of each year.
Bongará
Since 1993, the Company acquired exploration concessions or has filed
claims for concessions currently covering approximately 111,000 acres
in northern Peru (the "Bongará project").
In December 1996, Solitario signed an agreement regarding the
Bongará project with a subsidiary of Cominco Ltd. ("Cominco") of
Vancouver, B.C., Canada. After a modification signed in 1999,
Cominco had the right to earn a 65% interest in the Bongará project
by spending a minimum of $17,000,000 over a five year period from
January 1999 forward on exploration and development and by making
annual cash payments to the Company of between $100,000 and
$500,000 (depending on the price of zinc), as well as fully funding the
project through a bankable feasibility study. Cash payments of
$118,000, $118,000, and $354,000, including value added taxes of
18%, have been paid to the Company by Cominco in January 2000,
1999 and 1998, respectively. In February 2001 Cominco terminated
their option to acquire an interest in the Bongará project. As of that
date, Cominco had spent approximately $16 million and drilled eighty
holes totaling approximately 81,000 feet. Solitario currently holds
100% interest in the property and may seek a new joint venture part-
ner to explore and develop this property.
Yanacocha
On April 26, 2000 Solitario completed a transaction with an affiliate of
Newmont Mining Corporation ("Newmont") and sold its interest in
its Yanacocha property for $6 million and a sliding scale net smelter
return royalty ("NSR") that varies with the price of gold. In order to
effect the transaction, Solitario transferred all of the operating assets and
liabilities, excluding its interest in Yanacocha, of its Peru operating sub-
sidiary, Minera Los Tapados ("Los Tapados"), to a new operating sub-
19
sidiary, Minera Solitario Peru. Newmont received all of the outstand-
ing shares of Los Tapados for cash consideration of $5.6 million. The
balance of the $6 million, $0.4 million, is being held in a reserve by
Newmont and, pending release of certain contingent liabilities, will be
paid in four annual payments of $0.1 million plus interest. Solitario
recorded a gain on the sale of the Yanacocha property of $5.8 million
during the second quarter of 2000.
Other Peruvian properties
Solitario holds concessions comprising approximately 67,000 acres on
the La Pampa, Sapalache and Esmeralda exploration properties.
Solitario will conduct limited exploration activities while it seeks joint
venture partners to explore and develop these properties.
Brazil
Pedra Branca
With the completion of the acquisition of Altoro in October 2000,
Solitario acquired the Pedra Branca platinum-palladium (PGM) Project
located in Ceará state in Brazil. Altoro signed an agreement in May of
1999 with Eldorado Gold Corporation ("Eldorado") whereby Solitario
can earn a 70% interest in concessions covering approximately 24,000
acres, by spending $2 million on exploration over three years. Solitario
can earn an additional 20% (90% total) by spending an extra $1 million
within five years of the signature date. Should Eldorado be diluted to
10% this interest converts to a 2% NSR. Additionally, Solitario (through
Altoro) has applied for concessions in its own name covering approximate-
ly 141,000 acres for a total of 165,000 acres at the Pedra Branca Project.
On February 18, 2000, Altoro signed a letter of intent granting Hunter
Dickinson Group, Inc., of Vancouver Canada an option to earn a 60%
interest in Altoro’s share of the Pedra Branca Project which has been
assigned to Rockwell Ventures, Inc. of Vancouver, Canada ("Rockwell") a
publicly-traded exploration company. Under the terms of the agreement,
Rockwell has the right to earn the 60% interest in the Pedra Branca
Project by spending $7 million on exploration within four years from
July 2000, with a minimum expenditure of $1 million during the first
year. In addition Rockwell must issue to Solitario a total of 500,000
shares of Rockwell common shares over four years in five equal install-
ments with a minimum value of US$100,000 per allotment. Rockwell
delivered 125,433 shares and $50,000 in cash May 2000 upon regulatory
approval of the agreement to satisfy the first payment under the agree-
ment. Upon Rockwell earning its 60% interest, Solitario will have the
right to put its interest in Pedra Branca to Rockwell (the "Put Option")
in exchange for ownership of 40% of Rockwell's market capitalization
after exercise of the Put Option (the “Purchase Price”). The Purchase
Price may be paid, at Solitario's option, in shares of Rockwell or 25% in
cash and 75% in shares of Rockwell. Rockwell is responsible for making
all payments related to the properties during the earn in period.
In October 2000, Solitario recorded $3,627,000 in mineral property
additions for the Pedra Branca project in connection with the acquisi-
tion of Altoro.
Tocantinzinho
In November 1998 Altoro entered into an option agreement (subse-
quently modified) to acquire a 100% interest in the Tocantinzinho gold
property in Brazil. The agreement covers washing licences for approxi-
mately 10,000 acres located in the Para state in Brazil. In order to keep
the option in force under the terms of the agreement, Solitario will
have to pay the former title holder of the licences $40,000 in each of
the years 2001 and 2002 and $50,000 annually thereafter until com-
mercial production is achieved. At that time Solitario will be required
to make a lump-sum payment of $1.0 million. The owner retains a
0.5% royalty from any production which may be purchased for
$500,000. Solitario expects to convert the washing licenses to explo-
ration concessions in 2001. Additionally, Solitario has the right under
a separate agreement to convert about 10,000 acres in additional wash-
ing licenses to exploration licenses. No underlying payments are associ-
ated with this agreement. A payment to the Brazilian government of
$0.55 per hectare is required to keep the washing licenses in force total-
ing about $4,400 in 2001.
In October 2000, Solitario recorded $621,000 in mineral property
additions for the Tocantinzinho property in connection with the acqui-
sition of Altoro.
Bolivia
Rincon del Tigre
Since April 1999 Altoro entered into a series of agreements which
allow Solitario to earn a 100% interest in concessions covering 127,000
acres at the Rincon del Tigre PGM property located in Santa Cruz state
in southeastern Bolivia. The agreements require Solitario to spend
$3.15 million on exploration over six years and to issue 800,000 shares
of Altoro, 100,000 shares of which were issued in 1999 and 2000. The
remaining 700,000 shares of Altoro will be issued as 233,333 shares of
Solitario, with 45,833 shares due in 2001, 58,333 due in 2002, 70,834
shares due in 2003, 37,500 shares due in 2004 and 20,833 due in
2005. Solitario's share payments are cancelable if Solitario elects not to
exercise its purchase option. The owner of the Rincon del Tigre con-
cessions retains a 2% NSR on the concessions, which can be purchased
for $2 million at any time subject to regulatory approval. Annual pay-
ments are required by the Bolivian government in order to keep the
claims in good standing. Solitario has estimated these payments to be
approximately $25,000 for 2001.
In October 2000, Solitario recorded $558,000 in mineral property
additions for the Rincon del Tigre property in connection with the
acquisition of Altoro.
Land and leasehold and exploration costs
Mineral property costs for all the Company's properties are comprised
of land and leasehold costs at December 31, 2000 and 1999. Mineral
property costs at December 31, 1998 include land and leasehold costs as
well as exploration costs related to mineral properties for which explo-
ration activities had not yet identified the presence of economic reserves.
20
The following items comprised the additions to exploration costs:
(in thousands)
Expensed
2000
1999
Capitalized
1998
Geologic, drilling, and assay
Field expenses
Administrative
Total exploration costs
$ 284
394
504
$1,182
$ 179
76
411
$ 666
$ 240
400
237
$ 877
Included in the consolidated balance sheet at December 31, 2000 are
total assets of $5,124,000 related to the Company's foreign operations.
Assets totaling $5,037,000 are located in South America in Brazil,
Bolivia, and Peru. Assets totaling $87,000 are located in Canada.
Asset write downs
The Company regularly performs evaluations of its assets to assess the
recoverability of its investments in these assets. Upon determining that
certain properties did not have sufficient potential for economic miner-
alization the Company recorded write-downs to exploration properties
of $63,000 and $403,000 in 1999 and 1998 respectively. There were
no write-downs to exploration properties in 2000.
3. Acquisitions:
As described in Note 9, Solitario acquired 100% of the outstanding
common stock of Altoro (the "Transaction"). Solitario accounted for
the Transaction using the purchase method of accounting. The pur-
chase price was $4,996,000 which included the issuance of 6,228,884
shares valued at $4,526,000. The fair value of assets acquired was
$666,000 and the fair value of the liabilities assumed was $136,000.
The excess purchase cost of $4,466,000 was allocated to mineral prop-
erties acquired as follows: Pedra Branca in Brazil, $3,573,000;
Tocantinzinho in Brazil, $447,000; and Rincon del Tigre in Bolivia,
$447,000. The pro forma results, assuming the transaction occurred
as of January 1, 1999 are as follows:
(in thousands)
Year ended December 31,
1999
2000
$ 6,278
Revenues
Net income (loss)
$ 3,410
Basic and diluted income (loss) per share $ 0.15
$ 280
$(8,495)
$ (0.37)
4. Related Party Transactions:
CRCC provides management and technical services to Solitario under a
management agreement originally signed in 1994 and modified in April
1999 and again in December 2000. The modified agreement, which
has a three year term, provides for reimbursement to CRCC of direct
out-of-pocket costs; payment of seventy-five percent of executive and
administrative salaries and benefits, rent, insurance and investor relations
costs ("Administrative Costs") and payment of certain allocated indirect
costs and expenses paid by CRCC on behalf of Solitario. Prior to
December 2000, Administrative Costs were reimbursed at fifty percent
and a management fee of 2% was charged on direct Solitario expenses
paid by CRCC. Prior to April 1999, the agreement reimbursed CRCC
direct out-of-pocket costs; for certain allocated indirect costs; and pay-
ment of a service fee equal to 7% of expenditures. Management service
fees paid to CRCC by Solitario in 2000, 1999 and 1998 were
$414,000, $333,000 and $89,000, respectively. Net advances due to
CRCC as of December 31, 2000 and 1999 were $81,000 and $39,000,
respectively, related to the management services and fee.
5. Income Taxes:
The Company's income tax expense (benefit) consists of the following:
(in thousands)
2000
1999
1998
Deferred
U.S.
Foreign
Operating loss and
credit carryovers:
U.S.
Foreign
Income tax benefit
$ -
(347)
$ -
1
$ 105
85
-
347
$ -
-
(1)
$ -
(105)
(85)
$ -
Consolidated income (loss) before income taxes includes losses from
foreign operations of $1,275,000, $664,000, and $441,000 in 2000,
1999 and 1998, respectively.
Deferred income taxes result from temporary differences in the timing
of income and expenses for financial and income tax reporting purpos-
es. The primary component of deferred income taxes relates to explo-
ration and development costs.
The net deferred tax assets/liabilities in the December 31, 2000 and
1999 balance sheets include the following components:
(in thousands)
Deferred tax assets:
2000
1999
Net operating loss (NOL) carryovers
Capital loss carryovers
Investment in Peru
Royalty
Other
Valuation allowance
Deferred tax assets
$ 2,791
711
-
1,560
32
(3,510)
1,584
$ 2,596
1,874
2,722
-
63
(7,255)
-
Deferred tax liabilities:
Exploration and development costs
Other
Deferred tax liabilities
Net deferred tax assets/liabilities
1,584
-
1,584
$ -
-
-
-
$ -
The change in accounting principle discussed in Note 2 had the effect
of increasing the 1999 valuation allowance offset to deferred tax assets
21
and decreasing the exploration and development costs deferred tax liability by $1,642,000
A reconciliation of expected federal income tax benefit on loss from continuing operations at the U.S. Federal tax rate of 34% with the benefit for
income taxes is as follows:
(in thousands)
2000
1999
1998
Expected income tax
Non-deductible foreign
expenses
Deconsolidation of
Argentine NOL
Disposition of investment
in Peru
Foreign tax rate differences
State income tax
Valuation allowance
Other
Income tax benefit
$ 1,457
$ (309)
$ (138)
109
-
1,818
12
351
(3,727)
(20)
$ -
32
-
(2,373)
21
(363)
2,992
-
$ -
26
,480
-
9
(4)
(2,374)
1
$ -
22
At December 31, 2000, the Company has unused U.S. Net Operating Loss ("NOL") and capital loss carryovers of $2,248,000 and $1,822,000,
respectively, which begin to expire commencing 2008 and 2004, respectively. The Company also has Foreign NOL carryovers at December 31,
2000 of $5,539,000 which begin to expire four years after the first year in which taxable income arises.
6. Fair Value of Financial Instruments:
For certain of the Company's financial instruments, including cash and cash equivalents, accounts payable, and due to CRCC, the carrying amounts approxi-
mate fair value due to their short maturities. The Company's marketable equity securities are carried at their estimated fair value based on quoted market prices.
7. Commitments and Contingencies:
In acquiring its interests in minerals claims and leases, the Company has entered into lease agreements which generally may be canceled at its option.
The Company is required to make minimum rental and option payments in order to maintain its interests in certain claims and leases. See Note 2.
The Company estimates its 2001 mineral property rental and option payments to be approximately $168,000. Based upon existing joint venture or
leasing arrangements, the Company's share of these costs is approximately $108,000.
8. Stock Option Plan:
On March 4, 1994, the Company's board of directors (the "Board") adopted the 1994 Stock Option Plan (the "Plan"). Up to 1,100,000 shares of
the Company's common stock were authorized for issuance under the Plan. The Board of Directors voted for, and shareholders approved, amend-
ments that have increased the authorized shares under the Plan to 2,336,000 as of June 2000.
All options have been granted at exercise prices which are determined by the Board to be the fair market value on the date of grant. The options
expire five years from the date of grant, and are subject to certain vesting provisions, as determined by the Board.
The activity in the Plan for the three years ended December 31, 2000 is as follows:
2000
1999
1998
Weighted
Average
Price (Cdn$)
1.23
1.30
1.17
1.22
1.22
Options
1,263,750
1,162,000
-
(15,000)
(706,000)
1,704,750
1,231,750
Weighted
Average
Price (Cdn$)1
2.51
1.19
2.25
2.41
1.22
1.23
Options
1,203,750
60,000
-
-
1,263,750
1,181,250
Weighted
Average
Price (Cdn$)
2.49
3.00
2.51
2.48
Options
1,704,750
45,000
-
(25,000)
-
1,724,750
1,472,750
Outstanding, beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding, end of year
Exercisable, end of year
1 In March 1999, the shareholders of the Company approved a repricing of existing options for current employees, officers and directors to Cdn$1.16 per share,
which was the market price of the Company's stock.
The options outstanding at December 31, 2000 have a range of exercise prices of between Cdn$1.16 and Cdn$1.30 and a weighted average remain-
ing contractual life of 2.7 years.
As a result of the repricing of existing options in 1999, Solitario began to account for the awards as variable as of July 1, 2000, in accordance with FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation" (an interpretation of APB 25). Accordingly, an increase in the current market price of Solitario com-
mon stock above the higher of the option strike price and the market price of Solitario's common stock as of July 1, 2000, multiplied by vested options outstanding will be
recorded as compensation expense in the period of the price increase. A subsequent reduction in the current market price, to the extent of previously recorded compensation
expense will be credited as a reduction of compensation expense. There was no compensation expense recorded during 2000 as a result of variable accounting for the repriced
options.
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 val-
ues of these options were estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 2000, 1999 and 1998,
respectively: risk-free interest rate of 6.1%, 5.31% and 5.52%; dividend yield of 0 percent; volatility factor of the expected market price of the Company's com-
mon stock of 65%, 68% and 75%; and a weighted average expected life of the options of 4.0 years, 3.6 years and 4.0 years. The weighted average fair value of
the options granted is estimated at $0.48, $0.40 and $1.36 per share in 2000, 1999 and 1998, 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:
(in thousands, except
per share amounts)
Net income (loss)
As reported
Pro forma
Net income (loss) per share
2000
1999
1998
$ 4,285
4,306
$ (6,003)
(6,661)
$ (405)
(459)
As reported
Pro forma
$ (0.24)
(0.24)
$ (0.36)
(0.40)
$ (0.02)
(0.03)
9. Stockholders' Equity:
On October 18, 2000, Solitario, completed a Plan of Arrangement ("the Plan") with Altoro Gold Corp. of Vancouver, Canada ("Altoro"), whereby
Altoro became a wholly-owned subsidiary of Solitario. In connection with the Plan, Solitario issued 6,228,894 shares to Altoro shareholders and
option holders. Solitario also reserved 825,241 Solitario shares for issuance upon the exercise of 825,241 warrants issued in exchange for Altoro war-
rants. On October 24, 2000, Solitario issued 261,232 shares upon the exercise of the above warrants and 286,231 of the warrants expired unexer-
cised. An additional 16,667 warrants expired unexercised in December 2000. As of December 31, 2000, warrants to purchase 261,111 shares of
Solitario shares were outstanding including warrants to purchase 100,000 shares at Cdn$1.05 per share expiring on July 27, 2001 and warrants to
purchase 161,111 shares at Cdn$1.80 expiring on May 9, 2001. After the issuance of the shares in connection with the Arrangement and exercise of
the warrants discussed above, Solitario has 23,344,647 shares outstanding as of December 31, 2000 of which CRCC owns 9,633,585 shares. These
transactions reduced CRCC's ownership of Solitario from 57.2% prior to the transactions to 41.3% at December 31, 2000.
10. Earnings Per Share:
Diluted earnings per share for the year ended December 31, 2000 include the effect of stock options which are dilutive. The proceeds from the issuance of
shares are assumed to be used to purchase common stock in accordance with the treasury stock method. Weighted average number of shares outstanding
increased from 18,162,549 to 18,350,069 as a result of the assumption of the exercise of options which are dilutive common stock equivalents. There is no
change to the income available to common shareholders as a result of the assumption of conversion of dilutive common stock equivalents. Basic and diluted
earnings per share were the same for the years ended December 31, 1999 and 1998 as the conversions of common stock equivalents would be anti-dilutive.
11. Differences between Canadian and U.S. GAAP:
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 financial statements between U.S. and Canadian GAAP, and
their effect on the Company's financial statements, are summarized below:
23
Change in accounting principle - Under Canadian GAAP the change in accounting principle, as described in Note 2, requires restatement of prior periods.
Marketable equity securities - Under Canadian GAAP, marketable equity securities are valued at cost, unless a decline in the value of the securities is permanent.
The effect on the consolidated statement of operations of this item would be as follows:
(in thousands, except per share amounts)
Net income (loss) under U.S. GAAP
Effect of change in accounting principle:
Mineral property option proceeds
Exploration
Reduction in asset write-downs
Cumulative effect of change in accounting principle
Net income (loss) under Canadian GAAP
Income (loss) per share under Canadian GAAP:
Basic
Diluted
2000
$ 4,285
-
-
-
-
$ 4,285
$ 0.24
$ 0.23
1999
$(6,003)
-
-
-
5,094
$ (909)
$ (0.05)
$ (0.05)
As a result of the above, under Canadian GAAP, the following line items in the consolidated balance sheets would be presented as follows:
(in thousands)
Mineral properties, net
Marketable equity securities
Total assets
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
2000
$ 4,873
$ 282
$ 12,022
$ 21,147
$ (9,510)
$
-
$ 11,871
$ 12,022
1998
$ (405)
300
(896)
78
-
$ (923)
$(0.05)
$(0.05)
1999
$ 53
$ 234
$ 2,927
$ 16,972
$(14,260)
$
-
$ 2,881
$ 2,927
As a result of the above, under Canadian GAAP, the following line items in the consolidated statements of cash flows would be presented as follows:
24
Operating Activities:
Net income (loss)
Asset write-downs
Cumulative effect of change in accounting principle
Net cash used in operating activities
Investing activities:
Additions to mineral properties
Receipts on mineral property transactions
Net cash provided by(used in) investingactivities
2000
$ 4,285
$ -
$ -
$ (1,517)
$ (55)
$ -
$ 5,286
1999
$ (909)
$ 63
-
$
$ (819)
-
$
-
$
$ (40)
1998
$ (923)
$ 325
-
$
$ (633)
$ (95)
$ 134
$ 28
Sept. 30, March 31,
$ 137
$ (46)
$ 135
$ (199)
1999
June 30,
$ 36
$ (294)
Sept. 30,
$ 35
$ (251)
12. Selected Quarterly Financial Data (Unaudited):
(in thousands)
March 31,
$ 129
$ (272)
2000
June 30,
$5,905
$5,470
Revenues
Net income (loss)
Earnings (loss) per common and common
equivalent share:
Basic
Fully diluted
$(0.02)
$(0.02)
$ 0.33
$ 0.32
$(0.01)
$(0.01)
$(0.00)
$(0.00)
$(0.02)
$(0.02)
$(0.02)
$(0.02)
The above quarterly data do not reflect any pro forma adjustments to give effect to acquisition of Altoro as disclosed in Notes 9 and 3. During the
fourth quarter of 1999, Solitario changed its method of accounting for exploration costs as described in Note 2. This change in accounting principle
was applied retroactively to January 1, 1999. The above quarterly financial data for 1999 are the amounts as reported during 2000 to reflect the
restatement of the amounts previously reported during 1999.
Solitario
Corporate
Information
Resources
Legal Counsel
Solomon, Pearl, Blum
Heymann & Stich, LLP
Denver, Colorado
Auditors
Deloitte & Touche LLP
Denver, Colorado
Fogler, Rubinoff
Toronto, Ontario
Transfer Agents
Computershare
Toronto, Ontario
800.663.9097
Corporate Offices
1675 Broadway, Suite 2400
Denver, Colorado 80202
Phone: 303.534.1030
Fax: 303.534.1809
Effective July 1, 2001:
4251 Kipling Street, Suite 390
Wheat Ridge, Colorado 80033
Phone: 303.534.1030
Fax: 303.534.1809
Investor Relations
Questions and requests for information should be
directed to Debbie W. Mino, Vice President-Investor
Relations at 800.229.6827 or via email at
dwmino@solitarioresources.com
Internet
Visit our website at www.solitarioresources.com
Notice of Annual Meeting
The Annual Meeting of Shareholders will be at 8:30a.m.
(MDT) on Tuesday, June 26, 2001 at 1625 Broadway,
Suite 850, 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.
Officers and Directors
Christopher E. Herald
Chief Executive Officer
Walter H. Hunt
President – South American Operations
James R. Maronick
Chief Financial Officer
Debbie W. Mino
Vice President – Investor Relations
Mark E. Jones, III
Chairman
John Hainey
Director
Leonard Harris
Director
Dan Leonard
Director
Solitario
Toronto
Resources
exchange: slr
1675 Broadway, Suite 2400 • Denver, Colorado 80202
Tel: 303.534.1030 • Fax: 303.534.1809 • www.solitarioresources.com
Effective July 1, 2001, Solitario’s new address will be:
4251 Kipling Street, Suite 390 • Wheat Ridge, Colorado 80033
Tel: 303.534.1030 • Fax: 303.534.1809 • www.solitarioresources.com