Solitario Zinc Corp. Annual Report 2004

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FY2004 Annual Report · Solitario Zinc Corp.

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2004 Annual Report

olitario is pioneering

mineral exploration in emerging

new geologic terrains

throughout the Americas,

establishing major new

and positions, and delineating
L

a rich diversity of base

and precious metal
R

esource projects.

Solitario
Resources
Corporation

Solitario’s focus will be on gold exploration in 2005.
We have expanded our geographic search area from
our traditional strongholds of Peru and Brazil to
now include Mexico, Bolivia and Nevada (USA).
We also anticipate advancing our PGM and base
metal projects through joint venture arrangements.

Gold Projects
Tapajos, Brazil
La Tola, Peru

Base Metal Projects
l

Bongará, Peru
Triunfo, Bolivia

Royalties
Yanacocha, Peru
La Tola, Peru

PGM Projects
Pedra Branca, Brazil

Strategic Alliance

Newmont Mining

PeruBrazilBoliviannnnllllssssuuHH
Our drilling activitiy in 2005 is expected to be one of the most aggressive in our history.

Message to Shareholders:
In 2004 the groundwork was laid for what should be an

On the base metal front, strong commodity demand from

exciting 2005 exploration season for Solitario. In Brazil,

Asia has pushed prices to multiyear highs. Our Bongará

we carried out a very active grassroots exploration

zinc-lead project in Peru and Triunfo polymetallic (gold-

program focused on gold that resulted in the recent

silver-lead-zinc) property in Bolivia, both of which have

acquisition of four outstanding gold prospects in the

been on care-and-maintenance status during the past

Tapajos region in northern Brazil. We also ventured into

several years because of low zinc and lead prices, once

Mexico working on several fronts to acquire high

again represent attractive economic prospects. During

potential gold-silver exploration properties. Several of

the next several months we hope to secure base-metal

these projects may be drill tested in 2005.

producing partners to advance these projects.

Perhaps the most significant event was the signing of a

Solitario’s financial position remained strong with over

Strategic Alliance with a subsidiary of Newmont Mining

US$14 million in cash and securities, and no debt. The merger

Corporation, the world’s largest gold producer.

between Crown Resources Corporation, in which Solitario

Newmont gave Solitario’s South American exploration

owns a 13.6% equity interest, and Kinross Gold Corporation

prowess a vote of confidence with a Cdn$4.59 million

financing to fund gold exploration over the next four

years. We are already working closely with Newmont to

identify and acquire new properties in southern Peru.

We were also active in the joint venture arena, with

Newmont on the La Tola gold project in Peru and with

was delayed due to continued SEC review of certain Kinross

accounting issues. We remain optimistic that this important

transaction will be completed before mid-year 2005.

With our current array of outstanding exploration projects,

strong balance sheet, and quality joint venture partners, we

believe 2005 will be an exciting year for Solitario.

Anglo Platinum on the Pedra Branca platinum-

Sincerely,

palladium (“PGM”) project in Brazil. Taken together,

nearly US$1.0 million was spent on these projects,

including the completion of nearly 50 drill holes, with all

funding provided by our partners.

Christopher E. Herald
President & Chief Executive Officer

Solitario Resources Corporation 1

Solitario now has access to Newmont’s proven BLEG geochemical technology.

Peru Projects:
Newmont Strategic Alliance and Financing

Solitario signed a Strategic Alliance agreement and a private

placement financing with a subsidiary of Newmont Mining

Corporation in early 2005. As part of the Strategic Alliance,

Solitario and Newmont will mutually select specific regions

(“Alliance Projects”) in South America to explore for gold.

Solitario has initiated exploration in the first such Alliance Project

area located in a 4,000 square kilometer region of southern Peru.

Solitario will own 100% of any property acquired (“Alliance

Property”) subject to a sliding scale royalty to a maximum

leachable extractable gold) sampling regime and analysis and the

NEWTEM airborne geophysical package. Both methods will

significantly enhance our ability to detect and delineate gold

mineralization. We are already utilizing Newmont’s BLEG

system in our Strategic Alliance Project areas in Peru.

Newmont purchased 2,700,000 common shares of Solitario

for Cdn$1.70 per share, or Cdn$4,590,000 in aggregate.

Before this placement, Solitario had approximately

24.7 million shares outstanding.

Solitario’s Yanacocha Royalty Property

of 2% net smelter return (“NSR”) royalty in favor of

Solitario agreed to modify the royalty schedule on its 61,000-

Newmont. Newmont has the right to joint venture with

hectare (150,000-acre) royalty property situated immediately north

Solitario any acquired Alliance Property. Subject to various

of the largest gold mine in South America, Miñera Yanacocha, in

other conditions and terms, Newmont can elect to earn a

exchange for a $4.0 million work commitment by various

51% interest in an Alliance Property by spending 200% of

subsidiaries of Newmont. We agreed to modify our original

Solitario’s investment in such property and can further

royalty rate, which, when combined with the recently imposed

increase its participating interest to 75% by completing a

feasibility study and providing financing for Solitario’s

portion of development capital. Solitario will spend

approximately US$3.8 million on exploration over a four-

year period as its contribution to the Strategic Alliance.

Peruvian government royalty, created a disincentive for Newmont

to explore Solitario’s royalty property in the future. In addition to

the eight-year work commitment, Solitario now has the right to

annual exploration reviews of Newmont’s results. This will enable

us to provide our shareholders significant new developments on

this strategically located royalty property. We view this agreement

One important aspect to the Strategic Alliance is that Newmont

with Newmont as a win-win situation: We retain a significant

is making available to Solitario’s exploration team proprietary

royalty and Newmont now has the economic incentive to commit

Newmont technology, such as their in-house BLEG (bio-

to an aggressive long-term work program on our royalty property.

2 Solitario Resources Corporation

Peru Projects:
La Tola

La Tola is an early stage gold project discovered by Solitario in

mid-2003. We signed a joint venture on this property with a

subsidiary of Newmont Mining Corporation in early 2004.

The 11,030-hectare (27,240-acre) property is situated in the

meters of 0.85 gpt gold, respectively. Newmont is currently

completing a second round of drilling totaling approximately

800 meters. Pending the results of this round of drilling,

Newmont will then decide whether to fund the next phase of

exploration or terminate its option to earn an interest.

heart of the rapidly emerging southern Peru gold belt.

Bongará

Newmont can earn a 65% interest in the property by spending

$7 million on exploration, completing a feasibility study, and

arranging 100% project financing. Besides retaining at least a

35% participating interest in the project, Solitario also has a

sliding scale NSR royalty interest on gold, currently at 1.75%.

The price of zinc came roaring back from the sub-$0.40 per

pound level in 2003 to above the $0.60 per pound level by

early 2005. This dramatic 50% price improvement has

enabled Solitario to move our 100%-owned Bongará zinc-

lead project from care-and-maintenance to an active status,

Initial work by Solitario at La Tola identified a northeasterly

and we are seeking a joint venture partner with experience in

trending, eight-kilometer-long corridor of altered and

base metal production to advance the project. With the right

mineralized Tertiary volcanic rocks. Newmont’s exploration

joint venture partner, we believe an aggressive

program focused on this corridor of altered volcanic rocks

exploration/feasibility program could bring the Bongará

identifying both disseminated and stockwork gold mineralization

project to a production decision within a two-year timeframe.

within a large low-sulfidation gold system. Newmont collected

approximately 4,000 surface samples, including 3,820 meters of

trench and channel samples, and conducted 850 line-kilometers

of magnetic geophysical surveys and 102 line-kilometers of IP-

geophysical surveys to define drill targets.

This high-potential, high-grade zinc prospect in northern Peru

was a grassroots discovery made by Solitario in the mid-

1990’s. Cominco Ltd., now Teck-Cominco, joint ventured

the property and spent approximately US$16 million on

exploration. The most promising area of mineralization is the

In late 2004 Newmont drilled 13 reverse circulation drill

high-grade Florida Canyon deposit where zinc mineralization

holes (1,700 meters) on four separate target areas. The best

has been delineated by 80 core holes. In early 2001, Cominco

drill holes were LT-04 and LT-05, which intersected 18

dropped its option to earn an interest in the property when

meters grading 1.29 grams per ton (“gpt”) gold and 14

zinc prices fell below $0.40 per pound.

Florida Canyon Cross-Section “K” (Looking NE)

Solitario Resources Corporation 3

208 holes have now been completed on the Pedra Branca PGM project.

Peru Projects:
Mineralization in the Florida Canyon area is best described as

Mississippi Valley type that is both strata-bound and structurally

controlled zinc-lead mineralization. Within the footprint of

mineralization measuring approximately two-by-two kilometers

in size, the stacked near-horizontal, strata-bound zones typically

average two to five meters in thickness and grade 2% to 25% in

zinc and 0% to 5% in lead. The table to the right provides some

of the past drilling highlights and the geologic cross section on the

preceding page depicts typical strata-bound mineralization.

Strata-bound mineralization appears to have potential for

expansion to the north, east and south, and is untested at

depth to the west. Structurally controlled karst break-through

mineralization has been intersected in the southwestern part of

Florida Canyon where drill hole FC-17 intersected 58.8 meters

Bongará Drill Hole Assay Results

Hole
Number

From
(meters)

Interval

(meters) Meters

Feet

Percent Percent

Zinc

Lead

FC-01
FC-12
FC-17
FC-23

FC-24
FC-28
FC-36
FC-41
FC-58
FC-65
FC-66
FC-77
FC-80

168.3
90.9
142.5
22.1
79.9
58.9
129.0
142.0
436.1
241.2
393.2
308.0
90.4
228.6

174.9
97.9
201.3
58.8
88.6
63.6
132.6
147.1
443.9
252.2
397.2
312.6
95.5
232.8

6.6
7.0
58.8
36.7
8.7
4.7
3.6
5.1
7.8
11.0
4.0
4.6
5.1
4.2

21.6
23.0
192.7
120.2
28.5
15.4
11.8
16.7
25.6
36.1
13.1
15.1
16.7
13.8

16.3
28.4
11.9
4.5
21.1
15.2
21.2
27.0
14.7
8.0
10.8
11.3
10.8
8.2

6.2
3.4
2.7
1.0
2.0
0.0
0.0
3.2
0.1
0.8
2.3
5.4
0.7
2.8

favorable, consisting of coarse-grained, low-iron zinc-bearing

sphalerite with lesser amounts of lead-bearing galena.

grading 11.9% zinc and 2.7% lead. We believe excellent

We are confident that with the high price of zinc and the

potential remains for the discovery of additional large-tonnage

outstanding potential to develop an economic high-grade

karst break-through deposits within, and peripheral to, the

zinc-lead mine, we will be able to complete a meaningful new

existing drill pattern. The ore is metallurgically very

joint venture that will advance Bongará into feasibility.

4 Solitario Resources Corporation

Phase II: Pedra Branca Drill Hole Assay Results

Hole
Number

From
(meters)

Interval

(meters) Meters

Feet

Pt
g/t

Pd
g/t

PGM
(+gold)

Hole
Number

From
(meters)

Interval

(meters) Meters

Feet

Pt
g/t

Pd
g/t

PGM
(+gold)

Esbarro
ES-35

ES-36

Curiu

CU-14

CU-15

CU-16

CU-18

Trapia I
TU-04

TU-06

4.8

20.0

3.1

28.5

1.1

1.2

0.5

81.2
70.0

8.1

26.6

6.1

54.6

28.0

12.0

30.5

122.6
128.0

3.3

6.6

3.0

26.1

26.9

10.8

30.0

41.4

58.0

10.8

21.6

9.8

85.6

88.2

35.4

98.4

4.72

0.65

2.33

0.53

1.13

1.57

0.96

7.11 11.87
1.46 2.11
4.47 6.81

1.18 1.79
1.92 3.17
2.05 3.91
1.43 2.45

135.8
190.2

0.33

0.52

0.73 1.08
1.05 1.72

Cedro Area

CD-21

CD-22

91.0

11.2

100.0

24.0

Santa Amaro

SA-08

37.7

59.4

including 108.0

SA-09

1.8

74.0

39.1

142.0

120.0

34.0

78.0

9.0

12.8

1.5

82.7

12.0

32.2

4.0

29.5

42.0

1.24

0.43

2.22 3.51
0.83 1.26

4.8

271.1

39.4

105.6

13.1

2.68

0.60

1.66

0.82

1.28

3.00 5.76
0.84 1.45
1.41 3.08
0.76 1.61
1.92 3.33

Drill intervals were calculated utilizing a 0.7 g/t PGM+gold cutoff.

Brazil Projects:
Pedra Branca

In mid-2004, Anglo Platinum made the decision to further

advance Solitario’s Pedra Branca platinum-palladium

(“PGM”) project in northeastern Brazil by funding a

$500,000 Phase II exploration drilling program. Pedra

Branca has undergone nearly five years of continuous

850 meters in length and approximately 200 meters in

width. The Cedro deposit is the highest grade

mineralization yet defined in the Pedra Branca project area

with drill hole intercepts averaging about 3.0 grams per ton

PGM+gold. Mineralization at Curiu has now been traced

over an area about 200 meters long by 100 meters wide.

exploration for PGM mineralization. Through this period,

The Trapia I, Cedro, and Santo Amaro prospects with 8,

208 holes totaling 15,112 meters of core drilling have been

completed on 15 target areas.

23 and 9 core holes completed on each, respectively, are

emerging new deposits that are scheduled for future

drilling. These prospects have outstanding potential to

The Letter Agreement signed with Anglo Platinum in early

contribute significantly to the overall scope of

2003 allows Anglo Platinum to earn a 51% interest in the

mineralization at Pedra Branca.

property by spending $7.0 million on exploration and

development over a four-year period, and the right to earn

an additional 14% by completing a bankable feasibility

study and arranging for 100% project financing.

We believe the next round of work should consist of

additional delineation drilling at Trapia I, Cedro and Santo

Amaro, and pre-feasibility related work such as initial

metallurgy and resource estimation. Anglo Platinum is

The Phase II drilling program consisted of 30 drill holes

currently reviewing the Phase II drilling results and our

totaling 2,466 meters in 12 different target areas.

future exploration/pre-feasibility plans to determine

Highlights of the most recent drilling program are provided

whether or not they will fund the next annual work

in the table above.

commitment of $1.25 million.

To date, the Esbarro and Curiu deposits have been drilled

in the greatest detail, with 105 and 21 core holes,

respectively. The Esbarro prospect is the largest PGM

deposit on the property with mineralization extending over

Solitario Resources Corporation 5

Brazil Projects:

ESBARRO DEPOSIT

CURIU DEPOSIT

100

200

Meters

TRAPIA I PROSPECT

100

Meters

SANTO AMARO PROSPECT

100

Meters

6 Solitario Resources Corporation

100

Meters

CEDRO PROSPECT

200

400

Meters

Pedra Branca Drill Hole Location Maps

Phase II Results:
H
HH

Mineralized Holes (GxT >=2) (Pt+Pd+Au)
Unmineralized

Previous Results:
l
ll

Unmineralized

Mineralized Holes (GxT >=2) (Pt+Pd+Au)

Angle Holes Surface Trace

Brazil Projects:
Tapajos

Bolivia Projects:
Triunfo

After careful review of where the best undeveloped gold

The Triunfo property is a large stockwork quartz-sulfide

opportunities might be found in the Western Hemisphere,

we took the bold step of initiating an aggressive exploration

program in early 2004 in what is referred to as the Tapajos

region of northern Brazil. This region, which is roughly

the size of Colorado, is well endowed in gold mineralization

with estimates of up to 40 million ounces of gold being

zone, traceable for over 800 meters, that has the potential to

host a significant low-grade polymetallic deposit. We have

an option to earn a 100%-interest in the property from

private Bolivian parties. We have sampled a previously

excavated tunnel perpendicular to this zone and situated

extracted during the past 50 years by local informal miners

near the middle of its strike length that averaged 0.46 gpt

called garimpeiros utilizing rudimentary recovery processes.

gold, 22 gpt silver, 0.62% lead and 0.28% zinc over its

The properties that we have under option include Sudario,

Conforto, Surubim and Roque. Each of these four

properties has had up to several hundred thousand ounces

of gold contained in soils extracted by garimpeiros during the

past 10 years. We believe the hard rocks underlying and on

trend with the garimpeiro pits have the potential to host

significant gold mineralization. We are currently

conducting additional surface sampling, geologic mapping

and ground geophysics to further define drill targets. Our

goal is to drill at least two of these properties during 2005.

entire 50-meter length.

In 2004 we conducted a ground induced-polarization

geophysical survey that indicated the zone has continuity

of sulfide mineralization at depth. We are currently

seeking a joint venture partner to drill test this significant

polymetallic target.

Front row (l-r) Victor Livia (geologist),
Chris Herald (CEO), Mike Schuller (Chief geologist)
and Todd Christensen (Senior geologist).

Solitario Resources Corporation 7

North America:
Nevada Reconnaissance and Windy Peak

Mexico

We signed an option agreement to earn up to an 80%

We are conducting a limited reconnaissance exploration

interest in the Windy Peak gold-silver property with

program in Mexico to identify high-potential gold and

Silverthorn Exploration, Inc., a private Nevada exploration

company. The easily accessed 1,175-hectare (2,900-acre)

Windy Peak property is located 45 miles southeast of the

town of Fallon, Nevada. Widespread gold and silver

mineralization occurs in Tertiary volcanic rocks. We are

planning an eight to twelve hole, 1,220-meter drilling

campaign during the second quarter of 2005. The figure

silver properties. In 2004 we evaluated approximately

15 properties, primarily in central Mexico. Although we

have not yet acquired a property, we remain confident

that, with time, our efforts in Mexico will be rewarded.

Proposed Drill Site Proposed Road Access

to the right shows our proposed drilling configuration.

250

500

Previous drilling on the property reportedly intersected

Meters

thick intercepts of low-grade gold mineralization. Our

drilling will be focused in untested areas of the property

covered by pediment gravels.

View of the Windy Peak area in Nevada with
Victor Callaway (Consulting geologist) and Chris Herald

8 Solitario Resources Corporation

Management’s Discussion & Analysis
of Financial Condition and Results of Operations:
Business Overview and Summary

We are a precious and base metals exploration company with
exploration mineral interests in Peru, Bolivia, Brazil and the state of
Nevada in the United States. We are conducting exploration
activities in all of those countries as well as Mexico and may acquire
mineral interests in Mexico. We were incorporated in the state of
Colorado on November 15, 1984 as a wholly owned subsidiary of
CRCC. CRCC is a wholly-owned subsidiary of Crown. As a result
of the issuance of shares subsequent to 1984, CRCC's ownership of
our shares was reduced to 37.1% as of July 26, 2004. On July 26,
2004, Crown completed a spin-off of its holdings of our shares to its
shareholders, whereby each Crown shareholder received 0.2169
shares of our common stock for each Crown share they owned. As
part of the spin-off, Crown retained 998,306 of our shares, of which
it retains 950,013 shares as of March 14, 2005, for the benefit of
Crown’s warrant holders who will receive those shares when the
warrant holders exercise their warrants. Crown has disclaimed any
beneficial ownership interest in those retained shares. In addition
Crown retained 93 of our shares, from fractional shares, which it
intends to sell. After the disposition of our shares retained for
warrant holders and fractional shares, Crown will no longer own any
of our shares. Because we owned 6,071,626 shares of Crown from
the conversion of Crown Senior and Subordinated B Notes, the
exercise of Crown warrants and shares received as interest, as part of
the spin-off, we received 1,317,142 shares of our own common stock,
which were retired on August 11, 2004, and have the status of
authorized but unissued shares of common stock.

Our principal expertise is in identifying mineral interests and mineral
properties with promising mineral potential, acquiring these mineral
interests and mineral properties and exploring them to an advanced
stage. Currently we have no mineral interest or mineral properties in
development. We currently own five mineral interest projects under
exploration and we own our Yanacocha royalty interest. We also are
in various stages of project acquisition for properties in Mexico and
Brazil that have not yet been completed. Our goal is to discover
economic deposits on our mineral interests and advance these
deposits, either on our own or through joint ventures, up to the
development stage (development activities include, among other
things, the completion of a feasibility study, the identification of
proven and probable reserves, as well as permitting and preparing a
deposit for mining). At that point we would attempt to either sell our
mineral interests or pursue their development, either on our own or
through a joint venture with a partner that has expertise in mining
operations.

In analyzing our activities, the most significant aspect relates to
results of our exploration activities and those of our joint venture
partners on a project-by-project basis. When our exploration
activities, including drilling, sampling and geologic testing indicate a
project may not be economic or contain sufficient geologic or
economic potential we may impair or completely write-off the
project. Another significant factor in the success or failure of our
activities is the price of commodities. For example, when the price of
gold is up, the value of our gold-bearing mineral interests increases
and it also becomes more difficult and expensive to locate and
acquire new gold-bearing mineral interests or mineral properties with
potential to have economic deposits.

The potential sale, joint venture or development of our mineral
interests or properties will occur, if at all, on an infrequent basis.
Accordingly, while we conduct exploration activities, we need to
maintain and replenish our capital resources. We have met our need

for capital in the past through issuance of common stock, usually
through private placements, and more recently as part of a strategic
alliance with major mining companies. We have reduced our
exposure to the costs of our exploration activities through the use of
joint ventures. We anticipate these practices will continue for the
foreseeable future depending on what happens with our investment
in Crown.

We have a significant investment in Crown at December 31, 2004,
which consists of 6,071,626 shares of Crown common stock or
approximately 15.2% of the outstanding Crown common shares.
Crown announced in November 2003 that it had executed an
acquisition agreement, whereby Kinross, will acquire all of the
outstanding shares of Crown. Assuming the pending merger
between Kinross and Crown is completed, we have estimated that as
of March 14, 2005 our holdings of Crown common stock would
convert into 1,767,450 shares of Kinross common stock with a value
of approximately $12.1 million based upon the market price of
$6.82 per Kinross share. Any significant fluctuation in the market
value of either Crown or Kinross common shares could have a
material impact on our liquidity and capital resources.

Recent Developments

On November 17, 2004, we signed a Letter of Intent to form a
strategic alliance with Newmont Overseas Exploration Limited
(“Newmont”), a subsidiary of Newmont Mining Corporation, the
world’s largest gold producer, to explore for gold in South America.
Included in the Letter of Intent was a commitment from Newmont
to purchase 2.7 million shares of Solitario (approximately 9.9%
equity interest) for Cdn$4.59 million. The Letter of Intent also
committed us to spend approximately $3,776,000 over the next four
years on gold exploration in regions (“Alliance Projects”) that are
mutually agreed upon by Newmont and us. The first Alliance
Project area is located in southern Peru and is approximately 4,000
square kilometers in size. If we acquire properties within Alliance
Project areas and meet certain minimum exploration expenditures,
Newmont will have the right to joint venture acquired properties and
earn up to a 75% interest by taking the project through feasibility
and financing Solitario’s retained 25% interest into production.
Newmont may elect to earn a lesser interest, or no interest at all, in
which case it would retain a 2% net smelter return royalty.
Newmont also has a right of first offer on any non-alliance Solitario
property acquired after the signing of the definitive Alliance
Agreement, that we may elect to sell an interest in, or joint venture.

Concurrent with the signing of the strategic alliance Letter of Intent,
was the signing of a second Letter of Intent by us and Minera Los
Tapados S.A., a subsidiary of Newmont Peru Limited, Minera
Yanacocha S.R.L., and Minera Chaupiloma Dos de Cajamarca,
S.R.L. (collectively “Tapados”), to amend Solitario’s net smelter
return (“NSR”) royalty on a 150,000-acre property located
immediately north of the Newmont Mining-Buenaventura’s Minera
Yanacocha Mine, the largest gold mine in South America. In
addition to amending the NSR royalty schedule, the Letter
Agreement committed Tapados to a long-term US$4.0 million work
commitment on Solitario’s royalty property and provides Solitario
access to Tapados’ future exploration results on an annual basis.
Both the strategic alliance and Yanacocha royalty amendment and
work commitment Letter Agreements were subject to the companies
signing a definitive agreement and various regulatory approvals.

On January 18, 2005, we signed the definitive agreements for the
strategic alliance, Newmont’s 2.7 million-share purchase of Solitario

Solitario Resources Corporation 9

MD&A:

common stock and the Yanacocha NSR-royalty amendment and
work commitment agreements with Newmont and its associated
subsidiaries and affiliates. The terms of the definitive agreement
were the same as those within the two Letters of Intent.

On July 28, 2004, we exchanged 500,000 shares of TNR Gold Corp.
(“TNR”) common stock for 500,000 shares of TNR common stock
and a warrant to purchase an additional 500,000 shares of TNR for
Cdn$0.16 per share for a period of two years. The TNR common
shares received contain a restriction on public sale in Canada through
November 28, 2004. The transaction has been accounted for as a
sale of our previously owned TNR shares and an acquisition of the
new TNR shares and warrant. We recorded a loss on sale of
marketable equity securities of $73,000 during the three months
ended September 30, 2004. The TNR shares and warrants are
classified as marketable equity securities held for sale. Christopher E.
Herald, our CEO, is a member of the Board of Directors of TNR.

On July 26, 2004, Crown completed a spin-off of our shares to its
shareholders, whereby each Crown shareholder received 0.2169
shares of our common stock for each Crown share they owned. As
part of the spin-off, Crown retained 998,306 Solitario shares for the
benefit of Crown’s warrant holders who will receive those shares
when the warrant holders exercise their warrants. Crown has
disclaimed any beneficial ownership interest in those retained shares.
In addition, Crown retained 93 Solitario shares, from fractional
shares, which it intends to sell. After the disposition of the Solitario
shares retained for warrant holders and fractional shares, Crown will
no longer own any shares of Solitario. As part of the spin-off,
Solitario, which owns 6,071,626 shares of Crown from the
conversion of Crown Senior and Subordinated B Notes, the exercise
of Crown warrants and shares received as interest, received
1,317,142 shares of its own common stock, valued at the market
price of the shares received on July 26, 2004 of $1,541,000, which
were retired on August 11, 2004, and have the status of authorized
but unissued shares of common stock.

On July 14, 2004, we converted its $1,000,000 face value of Crown
Senior Notes into 3,132,509 shares of Crown common stock (which
included 75,367 shares issued for accrued interest through the date of
conversion on the Notes). On July 12, 2004, we exercised two Crown
warrants, which gave us the right to receive (i) 1,200,000 shares of
Crown common stock when exercised on a cash basis for $0.60 per
share and (ii) 1,857,143 shares of Crown common stock when
exercised on a cash basis for $0.75 per share. Theses warrants were
exercised on a cashless exercise basis per the terms of the warrants. We
received a total of 1,973,626 shares of Crown common stock from the
exercise of these warrants. Under the cashless exercise, we received
that number of shares of Crown equal to the in-the-money portion of
its Crown warrants based on the July 12, 2004 closing market price of
Crown common stock of $1.95 per share. After conversion of the
Senior Notes and exercise of Crown warrants discussed above, as of
March 14, 2005, we owned 6,071,626 shares of Crown common
stock, which represents 15.2% of Crown, which is accounted for under
the cost method. We account for our shares of Crown common stock
as available for sale marketable equity securities, which have a fair
value of $12,143,000 as of December 31, 2004.

On July 12, 2004, we signed an agreement with Silverthorn
Exploration, Inc. (“Silverthorn”) to earn a 60% interest in the Windy
Peak property located in west-central Nevada (U.S.). The property
consists of 144 unpatented mining claims totaling approximately
1,175 hectares. The agreement (the “Silverthorn Agreement”) calls
for us to make an initial payment of $10,000 on signing and for us to
make additional escalating payments totaling $90,000 over the next
four years as well as spend a total of $2.0 million on exploration over

10 Solitario Resources Corporation

four years to earn its 60% interest. We may earn an additional 20%
interest in the property by paying Silverthorn an additional $100,000
and spending an additional $2.0 million in exploration by the sixth
anniversary of the signing date. After completing the first year 1,220-
meter drilling commitment, we may terminate our option to acquire
the property with no further obligations, except reclamation due to
our drilling activities. At December 31, 2004, we are developing our
drilling plan to meet our first year’s work commitment.

In February 2004, we signed an option agreement (the "San Pablo
Agreement") to acquire a 100% interest, with no retained royalty, in
the 700-hectare San Pablo gold project in southwestern Bolivia.
The San Pablo Agreement called for us to make escalating payments
to the underlying private Bolivian owners of the property totaling
$1.0 million and spend $190,000 on exploration over a four-year
period. The first six-month payment of $10,000 was made. After
spending $15,000 during the first six-month period, we had the right
to terminate the San Pablo Agreement at any time with no further
obligations. In September 2004, after performing a detailed
geochemical rock chip-sampling program to confirm the presence of
gold mineralization, we decided to terminate the San Pablo
agreement and recorded a $10,000 mineral property write down. As
of December 31, 2004, we have no interest in the San Pablo project.

In February 2004, we signed an option agreement (the "CC
Agreement") to acquire a 100% interest in 88 unpatented claims
totaling approximately 700-hectares on the Legacy Ridge project in
west-central Nevada (U.S.). The CC Agreement called for us to
make escalating payments to the underlying private owner of the
project of $25,000 in the first year with a total of $2.0 million over a
five-year period and spend $900,000 in exploration over four years,
including $150,000 in the first year. We completed our initial
$150,000 exploration commitment during the second quarter of
2004 by conducting a surface sampling program and drilling 14
reverse circulation drill holes totaling 1,203 meters. After reviewing
the assay results of the drilling we elected to terminate our option to
earn an interest in the project and recorded a $25,000 mineral
property write-down during the third quarter of 2004. As of
December 31, 2004, we have no interest in the Legacy Ridge project.

In February 2004, Bear Creek Mining Company (“Bear Creek”)
notified us that it intended to terminate its joint venture interest in
the La Pampa project. In June 2004, Bear Creek paid us $15,000 to
terminate its joint venture interest in the La Pampa project. During
the third quarter of 2004 we dropped the La Pampa project and
because it had no capitalized mineral interest, there was no related
charge to mineral property write down. As of December 31, 2004,
we have no interest in the La Pampa project.

During the third quarter of 2004, after failing to secure a joint
venture, we dropped our claims at the Sapalache gold project located
in the Department of Piura, Peru and recorded a mineral property
write-down of $29,000. As of December 31, 2004, we have no
interest in the Sapalache project.

MD&A:
Results of Operations

Comparison of the year ended December 31, 2004 to
the year ended December 31, 2003
We had net loss of $2,925,000 or $0.12 per basic and diluted share
for the year ended December 31, 2004 compared to net income of
$3,354,000 or $0.14 per basic and diluted share for the year ended
December 31, 2003. As explained in more detail below, the primary
reason for the decrease to a net loss during 2004 compared to net
income during 2003 was the recognition of a $1,704,000 unrealized
loss on derivative instruments primarily related to our holdings of
Crown warrants during 2004, compared to an unrealized gain on
derivative instruments of $5,438,000 in 2003. Additionally, net
exploration expense increased to $1,088,000 during 2004 compared
to $418,000 during 2003 and general and administrative costs
increased to $629,000 during 2004 compared to $404,000 during
2003, primarily as a result of legal and accounting costs associated
with filing our Form 10 registration statement with the U.S. Securities
and Exchange Commission (the “SEC”). We also recorded a
$64,000 loss on sale of marketable equity securities primarily related
to an exchange of 500,000 shares of TNR Gold Corp. (“TNR”)
common stock for 500,000 shares of TNR common stock and a
warrant to purchase 500,000 shares of TNR during the third quarter
of 2004. We recorded a deferred tax benefit of $935,000 primarily
as a result of our pre-tax loss of $3,860,000.

During the year ended December 31, 2004 we recorded an
unrealized loss on derivative instruments of $1,704,000 primarily
related to our holdings of Crown warrants compared to an
unrealized gain of $5,438,000 during 2003. We exercised our
Crown warrants on July 12, 2004. The warrants were exercisable
into Crown shares at any time prior to October 2006 at exercise
prices between $0.60 and $0.75 per share. The warrants could be
net settled and were classified as derivative instruments. Accordingly,
any increase or decrease in the market value of our Crown warrants
has been included in the consolidated statement of operations as
unrealized gain or loss on derivative instruments. The fair value of
our Crown warrants decreased to $3,849,000 at July 12, 2004
compared to $5,591,000 at December 31, 2003, primarily as a result
of the decrease in the value of Crown's common stock, which
decreased from $2.52 per share at December 31, 2003 to $1.95 per
share at July 12, 2004, just prior to exercise. On July 12, 2004, we
exercised all of our Crown warrants on a cashless basis and received
a total of 1,973,626 shares of Crown common stock from the
exercise of these warrants. Assuming the completion of the
acquisition of Crown by Kinross, these Crown common shares will
be converted into Kinross shares.

During 2004 we recorded interest income of $193,000 compared to
interest income of $272,000 during the same period in 2003.
During 2004 we recorded $192,000 of interest income related to our
investment in Crown Senior Notes, which were converted in July
2004. Upon conversion of our Crown Senior Notes we received
75,367 shares of Crown common stock for interest, which were paid
at the conversion rate of $0.35 per share when the market price of
the shares was $1.88 per share. As a result we recorded $117,000
additional interest over the interest income we would have received
had the interest been paid in cash upon the conversion of the Senior
Notes during the third quarter of 2004. During the year ended
December 31, 2003 we recorded $212,000 of interest on Crown
Senior Notes including $112,000 of interest relating to additional
interest due to interest being paid in Crown shares rather than being
paid in cash. We also received $30,000 of interest income on our
investment in Crown Subordinated B Notes, which were converted to
shares of Crown common stock in November 2003, including $4,000

of interest relating to additional interest due to interest being paid in
Crown shares rather than being paid in cash. Remaining interest
income related to interest income on our cash balances. We expect
our interest income will decrease in 2005 as we converted our Senior
Notes to shares of Crown common stock in July 2004.

Our net exploration expense increased to $1,088,000 during 2004
compared to $418,000 in 2003. During 2004 we focused our
exploration efforts on our Legacy Ridge project in Nevada, La Tola
project in Peru, our Triunfo and San Pablo projects in Bolivia, as well
as on our previously explored Pedra Branca project in Brazil.
Additionally, we increased our activities related to evaluations of
properties for potential acquisition, including evaluation of data and
site visits, in two new geographic areas, the Tapajos region in
northern Brazil and Mexico. Accordingly, our gross exploration costs
increased to $1,499,000 in 2004 from $875,000 in 2003. The
exploration expenses were offset by joint venture reimbursements by
Anglo Platinum on our Pedra Branca project of $411,000 during
2004 and $457,000 during 2003. In addition to our work at Pedra
Branca the increase in our gross exploration costs primarily consisted
of drilling, sampling and exploration at our Legacy Ridge project in
Nevada as well as increased efforts to add new prospects as well as to
evaluate and advance our existing exploration properties and targets.
As a result of this exploration and evaluation we decided to drop our
interests in four properties during the third quarter of 2004; San
Pablo in Bolivia, Legacy Ridge in Nevada, La Pampa in Peru and
Sapalache in Peru. We anticipate continuing to acquire mineral
properties, either through staking, joint venture or lease, in South and
North America during 2005 and have tentatively budgeted our
related net exploration expenditure to be approximately $2,050,000.
The primary factors in our decision to increase exploration
expenditures in 2005 relate to the increase in capital resources
expected from the anticipated completion of the Crown-Kinross
merger, the completion of the Newmont Alliance and related private
placement in January 2005 and increased exploration opportunities
in Brazil and Mexico. This budget is subject to significant reduction,
should the Kinross transaction be delayed or not completed in 2005.
The actual amount of exploration expenditures has not been
determined and any reduction in our tentative exploration budget
due to a delay in the completion or termination of the Crown
Kinross merger has not been determined.

We had $119,000 of depreciation and amortization expense during
2004 compared to $488,000 in 2003. During 2004, depreciation
and amortization expense up to April 2004 included $118,000 of
amortization of mineral interests, compared to $466,000 of mineral
interest amortization in 2003. Beginning January 1, 2002, we
amortized our mineral interests in exploration properties over their
expected lives of three to five years. The remaining depreciation and
amortization expense related to furniture and fixtures most of which
became fully depreciated by the end of 2004. We anticipate our
2005 depreciation and amortization costs will be reduced as a result
of no longer amortizing mineral interests in accordance with
Emerging Issues Task Force Issue No. 04-2, “Whether Mineral
Rights are Tangible or Intangible Assets” (“EITF No. 04-2”) adopted
on April 1, 2004, which requires companies to reclassify Mineral
Interests, net as Mineral Properties, net and cease amortizing
exploration stage mineral interest prior to the commencement of
production. See Recent Accounting Pronouncements below.

General and administrative costs were $629,000 during 2004
compared to $404,000 in 2003. The largest increase in general and
administrative costs related to an increase in legal and accounting
costs, which increased to $303,000 during 2004 compared to
$186,000 in 2003. The primary reason for the increase is related to

Solitario Resources Corporation 11

MD&A:

work on completing a Form 10 registration statement with the United
States Securities and Exchange Commission (the “SEC”) during 2004
as well as costs related to being a U.S. reporting issuer, which occurred
when our Form 10 registration statement became effective in
February 2004. In addition, during 2004, we increased staff and
travel costs with the addition of the U.S. property in Nevada and the
increased exploration effort in Peru, Brazil and Bolivia. We also
increased our costs for shareholder relations and printing and
distribution of our annual report to $93,000 in 2004 from $50,000 in
2003. The remaining general and administrative costs for travel,
consulting, and shareholder meetings were comparable between 2004
and 2003. We anticipate an increase in general and administrative
costs in the future if the Crown and Kinross merger is completed and
the management services agreement is terminated as discussed below
under related party transactions.

Management fee expense increased to $390,000 during 2004
compared to $351,000 in 2003. As there were no changes in the
Management Agreement the increase in management fees are
related to increased managerial time spent by Crown on our
activities during 2004 compared to 2003. Under the modified
management agreement Solitario pays Crown for services by
payment at 25% of Crown's corporate administrative costs for
executive and technical salaries, benefits and expenses, 50% of
Crown's corporate administrative costs for financial management
and reporting salaries, benefits and expenses and 75% of Crown's
corporate administrative costs for investor relations salaries, benefits
and expenses. In addition, we reimburse Crown for direct out-of-
pocket expenses. If the Crown and Kinross merger is completed we
anticipate the management services contract will be terminated,
which will eliminate our management fee expense, but increase our
general and administrative costs, as discussed below under related
party transactions.

On July 28, 2004, we exchanged 500,000 shares of TNR common
stock for 500,000 shares of TNR common stock that were not
available to be publicly traded in Canada until November 28, 2004
and a warrant to purchase an additional 500,000 shares of TNR
common stock for Cdn$0.16 per share for a period of two years.
The transaction has been accounted for as a sale of our previously
owned TNR shares and an acquisition of the new TNR shares and
warrants. We recorded a loss on sale of marketable equity securities
of $73,000 during the third quarter of 2004. During 2003, we
recorded a charge of $26,000 to earnings related to decline in the
value of our TNR shares, which we considered other than
temporary. The TNR shares are classified as marketable equity
securities held for sale and the TNR warrants are recorded at fair
value based on quoted prices and classified as derivative instruments
and changes in the fair value of the warrants are included in gain
loss on derivative instruments in the consolidated statement of
operations. Solitario recorded an increase in the value of its TNR
warrants as of December 31, 2004 of $38,000 to gain loss on
derivative instruments in the consolidated statement of operations.

During 2004, we recorded an income tax benefit of $935,000 related
to the expected benefit of the currently generated net operating
losses that are expected to offset future taxable income related to our
unrealized gains on marketable equity securities, primarily related to
our holdings of Crown common shares, with such gain recorded as
other comprehensive income. We anticipate we may recognize some
of that gain upon either the sale of Crown common stock or,
assuming the Crown and Kinross merger is completed, the sale of
Kinross common stock received upon conversion of Crown common
stock. During the third quarter of 2004, upon the conversion of our
Senior Notes and the exercise of our Crown warrants into Crown

12 Solitario Resources Corporation

common stock, we recorded a $3,015,000 deferred tax liability
related to an increase of $7,005,000 in the fair value of that Crown
stock. During 2003, we recorded income tax expense of $669,000
related to our estimated tax provision at statutory rates on income
before income taxes, which was offset primarily by a $1,530,000
reduction in net operating loss carry forwards.

We regularly perform evaluations of our assets to assess the
recoverability of our investments in these assets. All long-lived assets
are reviewed for impairment whenever events or circumstances
change which indicate the carrying amount of an asset may not be
recoverable utilizing guidelines based upon future net cash flows from
the asset as well as our estimates of the geologic potential of early
stage mineral property and its related value for future sale, joint
venture or development by us or others. During the quarter ended
September 30, 2004 we recorded $64,000 of property write-downs
related to our San Pablo, Legacy Ridge, La Pampa, and Sapalache
projects. There were no property or mineral interest write-downs
during the third quarter of 2003.

Comparison of the year ended December 31, 2003 to
the year ended December 31, 2002
We had net income of $3,354,000 or $0.14 per share in 2003
compared to a loss of $2,079,000 or $0.09 per share in 2002. The
primary reason for the income in 2003 was the recognition of
$5,438,000 in gain on derivative instruments during 2003, compared
to gain of $105,000 in 2002 related to our holding of Crown
warrants. Net exploration expense in 2003 was reduced as we
entered into a joint venture with Anglo Platinum on our Pedra
Branca project, whereby Anglo Platinum paid for approximately
$457,000 of exploration costs. General and administrative costs
increased primarily as a result of legal and accounting costs
associated with filing a Form 10 registration statement with the US
Securities and Exchange Commission during the fourth quarter of
2003. As a result of our pre-tax net income, we recorded income tax
expense of $669,000 during 2003.

During 2003 we recorded an unrealized gain on derivative
instruments of $5,438,000 related to our holdings of Crown
warrants. Our Crown warrants were exercisable into Crown shares
at any time prior to October 2006 at exercise prices between $0.60
and $0.75 per share. The warrants could be net settled and were
classified as derivative instruments at December 31, 2003 and 2002.
Accordingly, any increase or decrease in the market value of our
Crown warrants is included in the consolidated statement of
operations as unrealized gain or loss on derivative instruments. The
fair value of our Crown warrants increased to $5,591,000 at
December 31, 2003 compared to $153,000 at December 31, 2002,
primarily as a result of the increase in the value of Crown's common
stock, which increased from $0.58 per share at December 31, 2002
to $2.52 per share at December 31, 2003. We exercised all of our
Crown warrants in July 2004.

During 2003 we recorded interest income of $272,000 compared to
interest income of $137,000 in 2002. The increase was primarily the
result of interest on our investment in Crown Senior and Subordinated
B Notes. Crown elected to pay interest in its common shares for the
first three quarters of 2003. Per the terms of the Notes, the number of
shares of Crown stock received was fixed at a conversion rate which
did not fluctuate with the quoted market price of the stock and this
resulted in additional interest income of $112,000 during 2003
compared to the amount of interest income we would have received
had Crown paid the interest in cash. During 2002, the amount of
interest received from Crown, which was also paid in Crown common
shares, was approximately $24,000 less than the amount we would
have received had Crown paid the interest in cash.

MD&A:

Our net exploration expense decreased to $418,000 during 2003
compared to $957,000 in 2002. During 2003 we focused our
exploration on our Pedra Branca project as well as newly acquired
projects including Triunfo in Bolivia and La Tola in Peru. Although
our gross exploration costs decreased slightly from $957,000 in 2002 to
$875,000 in 2003, these exploration expenses were offset by joint
venture reimbursements of $457,000 by Anglo Platinum on our Pedra
Branca project in 2003. The change in our remaining costs primarily
consisted of reduced general and administrative salaries in Peru as we
eliminated the position of our vice president of South American
operations from our office in Lima and we closed one of our two
Brazilian offices and reduced our Bolivian office in 2002, which was
reflected in the full year costs of 2003. Increased geologic drilling and
field expenses at our Pedra Branca project offset these reductions.

Depreciation and amortization expense was $488,000 in 2003
compared to $504,000 in 2002. Depreciation and amortization
expense during 2003 included $466,000 of amortization of mineral
interests compared to $464,000 in 2002. Beginning January 1, 2002,
we have been amortizing our mineral interests in exploration
properties over their expected lives of three to five years. The
remaining reduction in depreciation and amortization expense
between 2003 and 2002 related to furniture and fixtures becoming
fully depreciated during 2003 and 2002.

General and administrative costs were $404,000 in 2003 compared
to $372,000 in 2002. General and administrative costs increased
primarily related to an increase in legal and accounting costs, which
increased to $38,000 and $108,000, respectively in 2003 compared
to $6,000 and $41,000, respectively, in 2002. The primary reason for
the increase is related to work on completing a Form 10 registration
statement with the US Securities and Exchange Commission during
the fourth quarter of 2003. The remaining general and
administrative costs for travel, consulting, and shareholder meetings
were comparable between 2003 and 2002.

Management fee expense was reduced to $351,000 in 2003
compared to $449,000 in 2002 partially as a result of a modification
in July 2002 of the Management Agreement that reduced the
percentage of reimbursement from 75% of certain administrative
costs and finance costs to 25% of those administrative costs and 50%
of those finance costs. The full effect of this modification was felt in
2003. Additionally our reduced exploration and administrative
activity, partially as a result of the Anglo Platinum joint venture on
the Pedra Branca project, reduced the need for Crown's
management of our overall activities. Net amounts due to Crown as
of December 31, 2003 and 2002 were $25,000 and $73,000,
respectively, related to the Management Agreement.

During 2003, we wrote down an investment in marketable equity
securities, when we determined the decline in the market value of
the related stock was other than temporary, which resulted in a loss of
$26,000 being recorded as an asset write-down. During 2002, we
recorded a loss on the sale of certain equipment and marketable
equity securities of $39,000.

Liquidity and Capital Resources

Due to the nature of the mining business, the acquisition, and
exploration of mineral properties requires significant expenditures
prior to the commencement of development and production. In the
past, we have financed our activities through the sale of securities,
joint venture arrangements, and the sale of interests in our
properties. To the extent necessary, we expect to continue to use
similar financing techniques; however, there is no assurance that such
financing will be available to us on acceptable terms, if at all.

We had working capital of $3,207,000 at December 31, 2004
compared to working capital of $3,230,000 as of December 31,
2003. Our working capital consists primarily of our cash and
equivalents and marketable equity securities and a joint venture
receivable of $299,000 at December 31, 2004 compared to $3,000 at
December 31, 2003 from Anglo Platinum, related to our Pedra
Branca property.

Our marketable equity securities are classified as available-for-sale and
are carried at fair value, which is based upon market quotes of the
underlying securities. At December 31, 2004, we owned 6,071,626
shares of Crown common stock from the conversion of our Crown
Senior Notes, the exercise of our Crown warrants and interest on our
Crown Senior notes paid in shares of Crown common stock. At
December 31, 2003, we owned 965,491 shares of Crown common
stock received as interest on our Crown Senior Notes and Crown
Subordinated B Note and conversion of the Subordinated Note. The
Crown shares are recorded at their fair market value of $12,143,000
and $2,433,000 at December 31, 2004 and December 31, 2003,
respectively. In addition we own other marketable equity securities
with a fair value of $112,000 and $143,000 as of December 31, 2004
and December 31, 2003, respectively. At December 31, 2004, we
have classified $9,219,000 of our marketable equity securities as a
long-term asset. Changes in the fair value of marketable equity
securities are recorded as gains and losses in other comprehensive
income in stockholder’s equity. During the year ended December 31,
2004, we recorded a gain in other comprehensive income on
marketable equity securities of $6,356,000, less related deferred tax
expense of $2,481,000. In addition during the year ended December
31, 2004, we sold marketable equity securities for proceeds of $16,000
resulting in a gain of $14,000, which included the recognition of
$6,000 of previously unrealized gain on marketable equity securities
in other comprehensive income. In addition, during the year ended
December 31, 2004, we exchanged 500,000 shares of TNR common
stock for 500,000 shares of TNR common stock that were not
available to be publicly traded in Canada until November 28, 2004
and a warrant to purchase 500,000 shares of TNR and recorded a
loss of $73,000 on the exchange, which included previously
unrealized loss on marketable equity securities of $70,000. During
the year ended December 31, 2003, we recorded a gain on
marketable equity securities of $5,438,000. Any change in the market
value of the shares of Crown common stock could have a material
impact on our liquidity and capital resources. The price of shares of
Crown common stock has varied from a high of $2.62 per share to a
low of $1.35 per share during the year ended December 31, 2004.

On July 14, 2004, we converted our $1,000,000 face value of Crown
Senior Notes into 3,132,509 shares of Crown common stock (which
included 75,367 Crown shares issued for accrued interest through the
date of conversion on the Notes). The 3,057,142 Crown shares
received from the conversion of the Senior Notes were recorded to
marketable equity securities at $949,000, the book value of the
Senior Notes on July 14, 2004. The 75,367 shares received as
interest were recorded as interest income at $142,000, the fair value
of the shares on July 14, 2004.

On July 12, 2004, we exercised our Crown warrants on a cashless
exercise basis per the terms of the warrants. We received a total of
1,973,626 shares of Crown common stock from the exercise of these
warrants. These shares were recorded at the book value of the
warrants, $3,849,000, which also equaled the fair value of the shares
on July 12, 2004.

Because we owned 6,071,626 shares of Crown, as part of the spin-
off we received 1,317,142 shares of our own common stock, which
were retired on August 11, 2004, and have the status of authorized

Solitario Resources Corporation 13

MD&A:

but unissued shares of common stock. These shares of our common
stock were recorded as treasury stock at $1,541,000, the fair value of
the shares on July 26, 2004, the date of the spin-off by reducing the
basis in our holdings of Crown common stock. Upon retiring these
shares we reduced common stock by $13,000 and reduced additional
paid in capital by $1,528,000.

Assuming the completion of the Crown’s merger with Kinross as
contemplated in the Merger Agreement, we have estimated our
investment in Crown securities would convert into approximately
1,767,450 shares of Kinross. We have estimated that these Kinross
shares would be valued at approximately $12.1 million, assuming the
March 14, 2005 market price of $6.82 per share for each Kinross
share. Although no specific plans have been formulated by our
Board, we intend to liquidate a portion of our Kinross shares over
the next one to three years to reduce our exposure to a single asset,
taking into consideration our cash and liquidity requirements, tax
implications, the market price of gold and the market price of
Kinross stock. Although our Kinross shares would be issued
pursuant to an effective registration statement under the U.S.
Securities Act of 1933 (the “Securities Act”), due to our status as a
Crown affiliate, sales of our Kinross shares must be made in
accordance with the requirements of Rule 145(d) under the
Securities Act, which could limit or restrict sales of our Kinross
shares during the next one to two years. Any funds received from the
sale of Kinross shares would be used primarily to fund exploration
on our existing properties, for the acquisition and exploration of new
properties and general working capital.

If the Crown and Kinross merger is not completed we anticipate we
will use existing funds to continue to explore our existing exploration
projects. We anticipate we have enough cash and working capital to
meet our operating and net exploration requirements through 2005.

As a result of recording an unrealized gain of $6,356,000 during 2004
on marketable equity securities in other comprehensive income, related
primarily to our holdings of Crown stock, and the recognition of gain
on Solitario’s holdings of Crown warrants of $5,438,000 during 2003,
Solitario estimated that its deferred tax liabilities exceeded its realizable
deferred tax assets by $2,633,000 at December 31, 2004.

Subsequent to December 31, 2004, on January 18, 2005, pursuant to
a Stock Purchase Agreement, we agreed to sell to Newmont and
Newmont agreed to purchase from us 2,700,000 newly issued shares
of our Common Stock for Cdn$1.70 per share or Cdn$4,590,000 in
the aggregate or approximately $3,776,000. We sold the Common
Stock in a private offering in reliance on an exemption from
registration pursuant to Rule 506 of Regulation D and Section 4(2)
of the Securities Act of 1933, as amended. Newmont received
restricted stock in the offering. We expect to use the proceeds of this
offering to perform exploration as contemplated under an Alliance
Agreement with Newmont. Cash and cash equivalents were $76,000
as of December 31, 2004 compared to $1,273,000 at December 31,
2003. Our cash balances, including the proceeds of the private
offering of our shares to Newmont and the anticipated sale of shares
of Crown or Kinross common stock, as needed, are considered
adequate to fund our 2005 exploration plan and all other
expenditures. The nature of the mining business requires significant
sources of capital to fund exploration, development and operation of
mining projects. We will need additional resources if we choose to
develop on our own any mineral deposits we have. We anticipate
that we would finance these activities through the use of joint
venture arrangements, the issuance of debt or equity, the sale of
interests in our properties or the sale of our shares of Crown or
Kinross common stock. There can be no assurance that such sources
of funds will be available on terms acceptable to us, if at all.

14 Solitario Resources Corporation

As previously noted, under the Management Agreement we currently
reimburse Crown for certain expenses, including management salaries
and benefits, rent, insurance and investor relations costs and certain
other expenses paid by Crown on our behalf. Assuming the
completion of the Kinross merger, we will no longer operate under
the Management Agreement. This change will result in an increase
in general and administrative costs related to salaries and benefits for
employees, rent, audit and legal fees, shareholder relations costs, travel
and office expenses. In the event that the Kinross transaction is not
completed, we anticipate that we would continue to operate under the
Management Agreement with Crown. See Related Party
Transactions below for further discussion.

Cash Flows

Net cash used in operations during 2004 increased to $2,209,000
compared to $1,157,000 for 2003 primarily as a result of increases
in net exploration expenses related to new properties and
reconnaissance work, increases in general and administrative
expenses related to our Form 10 registration, as well as a reduction
in interest income, all of which are discussed above in Results of
Operations. Investing activities generated $27,000 of cash during
2004, primarily related to the collection of a note receivable of
$112,000 and proceeds from the sale of equity securities. This
compared to a use of $299,000 of cash in the same period of
2003, primarily from the purchase of $400,000 of Crown
Subordinated B Notes discussed above. Cash provided by
financing activities in 2004 of $985,000 related to the exercise of
stock options for 1,121,000 shares of our common stock compared
to exercises of stock options for 16,000 shares of our common
stock in 2003 for proceeds of $14,000. In addition we completed a
private placement of our common stock to Sprott Securities during
2003 for $1,310,000 (net of offering costs). There were no similar
sales in 2002.

Contractual Obligations

As of December 31, 2004, we have no outstanding long-term debt,
capital or operating leases or other purchase obligations.

However, we do have annual concession and lease payments
required to maintain our current interests in mineral properties.
While the majority of these payments are not fixed obligations since
we can generally abandon the mineral properties after meeting a
minimum work commitment at any time without penalty or further
payments, these payments are required in order to maintain our
interests. We estimate these payments to be approximately
$218,000 for 2005, before reimbursement from any of our partners.
Our existing mineral property agreements commit us to exploration
expenditures of $280,000 in 2005. We may be required to make
further payments in the future if we elect to exercise our options
under those contracts.

Additionally, we currently do not lease any facilities, however we have
co-signed the facilities leased by Crown for their Wheat Ridge, CO
office. Assuming completion of the Crown transaction with Kinross,
we estimate our facility lease costs will be approximately $30,000 per
year, related to the Wheat Ridge, CO facility.

We currently have deferred tax liabilities recorded in the amount of
$2,633,000. These deferred tax liabilities primarily relate to our
unrealized holding gains on our Crown shares. If the Crown
transaction with Kinross is completed, we expect that a portion of
these deferred tax liabilities may become currently payable as we sell
the resultant Kinross shares.

MD&A:
Joint Ventures

On January 18, 2005, we signed a Strategic Alliance Agreement with
Newmont Overseas Exploration Limited (“Newmont”), a subsidiary
of Newmont Mining Corporation, the world’s largest gold producer,
to explore for gold in South America. Prior to the definitive
agreement, we had signed a Letter of Intent on November 17, 2004,
with Newmont. Concurrent with the signing of the Alliance
Agreement, Newmont purchased 2.7 million shares of Solitario
(approximately 9.9% equity interest) for Cdn$4,590,000. We have
committed to spend $3.78 million over the next four years on gold
exploration in regions (“Alliance Projects”) that are mutually agreed
upon by Newmont and us. If we acquire properties within Alliance
Project areas and meet certain minimum exploration expenditures,
Newmont will have the right to joint venture acquired properties and
earn up to a 75% interest by taking the project through feasibility
and financing Solitario’s retained 25% interest into production.
Newmont may elect to earn a lesser interest, or no interest at all, in
which case it would retain a 2% net smelter return royalty.
Newmont also has a right of first offer on any non-alliance Solitario
property, acquired after the signing of the Alliance Agreement, that
we may elect to sell an interest in, or joint venture.

On July 12, 2004, we signed an agreement (the “WP Agreement”)
with Silverthorn Exploration, Inc. (“Silverthorn”), a private Nevada
exploration company, to earn up to an 80% interest in the Windy
Peak property located in west-central Nevada (U.S.). The property
consists of 144 unpatented mining claims totaling approximately
1,175 hectares. To earn an 80% interest in the property, the WP
Agreement calls for us to make payments to Silverthorn of $10,000
on signing (paid), $15,000 on the first (annual) anniversary, $20,000
on the second anniversary, $25,000 on the third anniversary; and
$30,000 on the fourth anniversary. We must also complete 1,220
meters of drilling (firm commitment) before the first anniversary and
then spend the following cumulative amounts on exploration and
development (optional commitments); $300,000 before the second
anniversary; $1.0 million before the third anniversary; and, $2.0
million in cumulative expenditures before the fourth anniversary.
Upon completion of these payment and work commitment
obligations, we will then have earned a 60% interest in the property.
We have a Phase II Earn-in option to earn an additional 20% (for a
total interest of 80%) by spending an additional $2.0 million on
exploration and development before the sixth anniversary and paying
Silverthorn $50,000 on the fifth and sixth anniversaries. We may
elect to terminate the WP Agreement at anytime after completing
the first year’s drilling commitment without any additional payment
or work commitment obligations due Silverthorn. We are developing
our drilling plan to meet our first year’s work commitment.

On April 2, 2004, we signed a Letter Agreement with Newmont
Peru Limited, ("Newmont"), a subsidiary of Newmont Mining
Corporation, whereby Newmont can earn a 51% interest in our
100%-owned La Tola gold property in southern Peru by spending
US$7.0 million on exploration and development work over a four-
year period. Newmont can earn an additional 14% interest (to a total
interest of 65%) by completing a positive feasibility study and
arranging 100% of project financing. In addition to our retained
participating interest in the project, Solitario retains a sliding scale
net smelter return royalty interest on gold and silver production (zero
to 2.25% subject to gold price and other conditions) from the
property. Since signing the joint venture agreement, Newmont has
been responsible for managing all exploration activities on the
project. In addition to a extensive surface exploration effort in 2004,
Newmont completed 13 reverse circulation drill holes totaling 1,698
meters. Newmont is currently planning to complete its firm year-one
drilling commitment of 2,500 meters by drilling an additional 802
meters on the project in March of 2005.

On January 28, 2003, we entered into an agreement with Anglo
Platinum whereby Anglo Platinum may earn a 51% interest in the
Pedra Branca Project by spending $7 million on exploration at Pedra
Branca over a four-year period. Anglo Platinum agreed to a
minimum expenditure of $500,000 during the first six months of the
agreement. Anglo Platinum can earn an additional 9% interest in
Pedra Branca (for a total of 60%) by completing a bankable feasibility
study. Anglo Platinum can also earn an additional 5% interest in
Pedra Branca (for a total of 65%) by arranging for financing to put
the project into commercial production. Anglo Platinum completed
its initial six-month $500,000 exploration expenditure in July 2003. A
First Amendment to the agreement was signed in July 2004 to provide
Anglo Platinum a ten-month Phase II work commitment period to
spend an additional $500,000 on exploration. Drilling for the Phase
II commitment was completed in late 2004 and Anglo Platinum is
currently reviewing the technical information to determine whether or
not it will proceed with the next annual work commitment of
$1,250,000. We have recorded a joint venture receivable from Anglo
Platinum related to the Pedra Branca Project of $299,000 and $3,000
at December 31, 2004 and 2003, respectively.

In February 2004, we signed an option agreement (the "San Pablo
Agreement") to acquire a 100% interest, with no retained royalty, in
the 700-hectare San Pablo gold project in southwestern Bolivia.
The San Pablo Agreement called for us to make escalating payments
to the underlying private Bolivian owners of the property totaling
$1.0 million and spend $190,000 on exploration over a four-year
period. The first six-month payment of $10,000 was made. After
spending $15,000 during the first six-month period, we had the right
to terminate the San Pablo Agreement at any time with no further
obligations. In September 2004, after performing a limited project
review consisting of geochemical sampling to confirm the presence of
gold mineralization, we decided to terminate the San Pablo
agreement and recorded a $10,000 mineral property write down. As
of December 31, 2004 we have no interest in the San Pablo project.

Solitario Resources Corporation 15

MD&A:

reverse circulation drill holes totaling 1,203 meters. After reviewing
the assay results of the drilling we elected to terminate our option to
earn an interest in the project and recorded a $24,000 mineral
property write-down during the third quarter of 2004. As of
December 31, 2004 we have no interest in the Legacy Ridge project.

In February 2004, Bear Creek Mining Company (“Bear Creek”)
notified us that it intended to terminate its joint venture interest in
the La Pampa project. In June 2004, Bear Creek paid Solitario
$15,000 to terminate its joint venture interest in the La Pampa
project. During the third quarter of 2004 we dropped the La Pampa
project and because we had no capitalized mineral interest, there was
no related charge to mineral property write down. As of December
31, 2004 we have no interest in the La Pampa project.

In August 2003, we signed an Option Agreement to acquire a 100%
interest in the Triunfo gold-silver-lead-zinc property in west-central
Bolivia. Terms of the Option Agreement call for escalating
payments totaling $185,000 over a four-year period to the underlying
owners. The first payment of $10,000 has been made. A 100%
interest in the property can be acquired at any time within a five-year
timeframe for a one-time payment of $1.0 million. Solitario
completed its $100,000 first year work commitment as part of its
five-year $2.3 million work commitment. Solitario is in the process of
seeking a joint venture partner to further advance the project.

Our exploration activities, funding opportunities and joint ventures
may be materially affected by commodity prices and fluctuations.
Commodity market prices are determined in world markets and are
affected by numerous factors beyond our control.

Exploration Activities

A significant part of our business involves the review of potential
property acquisitions and continuing review and analysis of
properties in which we have an interest, to determine the exploration
and development potential of the properties. In analyzing expected
levels of expenditures for work commitments and property payments,
our obligations to make such payments fluctuate greatly depending
on whether, among other things, we make a decision to sell a
property interest, convey a property interest to a joint venture, or
allow our interest in a property to lapse by not making the work
commitment or payment required.

In acquiring our interests in mining claims and leases, we have
entered into agreements, which generally may be canceled at our
option. We are required to make minimum rental and option
payments in order to maintain our interest in certain claims and
leases. Our final 2004 mineral property rental and option payments
were approximately $181,000. We were reimbursed approximately
$25,000 of this amount from our joint venture partners. In 2005 we
estimate mineral property rental and option payments to be
approximately $218,000. If our current joint venture partners elect
to continue funding their respective joint ventures throughout the
remainder of 2005, we would be reimbursed approximately
$108,000 of those costs.

Critical Accounting Estimates

Mineral Properties, net
We classify our interest in mineral properties as Mineral Properties,
net (tangible assets) pursuant to EITF 04-2 (see “Recent Accounting
Pronouncements, below). Prior to adoption of EITF 04-2 in April
2004, we classified our interests in mineral properties as intangible
assets, Mineral Interests, net. Our mineral properties represent

16 Solitario Resources Corporation

mineral use rights for parcels of land we do not own. All of our
mineral properties relate to exploration stage properties and the
value of these assets is primarily driven by the nature and amount of
economic minerals believed to be contained, or potentially
contained, in such properties. Prior to the adoption of EITF 04-2,
we amortized the excess cost of our mineral interests over their
estimated residual value over the lesser of (i) the term of any mineral
interest option or lease or (ii) the estimated life of the mineral
interest, which was our estimated exploration cycle. We amortized
our mineral interests over a three-to-eight year period based upon
facts and circumstances for each mineral interest on a property-by-
property basis. We no longer amortize our mineral properties
pursuant to the adoption of EITF 04-2.

Impairment
We regularly perform evaluations of our investment in mineral
properties to assess the recoverability and/or the residual value of
its investments in these assets. All long-lived assets are reviewed
for impairment whenever events or circumstances change, such as
negative drilling results or termination of a joint venture, which
indicate the carrying amount of an asset may not be recoverable,
utilizing established guidelines based upon discounted future net
cash flows from the asset or upon the determination that certain
exploration properties do not have sufficient potential for
economic mineralization as a result of our analysis of exploration
activities including surveys, sampling and drilling. We recorded a
$64,000 write-down of our mineral properties during the year
ended December 31, 2004. There were no impairments of
mineral properties in year ended December 31, 2003. However,
we may record future impairment if certain events occur,
including loss of a venture partner, reduced commodity prices or
unfavorable geologic results from sampling assaying surveying or
drilling, among others.

Marketable equity securities
Our investments in marketable equity securities are classified as
available-for-sale and are carried at fair value, which is based upon
quoted prices of the securities owned. The cost of marketable equity
securities sold is determined by the specific identification method.
Changes in market value are recorded in accumulated other
comprehensive income (loss) within stockholders' equity, unless a
decline in market value is considered other than temporary, in which
case the decline is recognized as a loss in the consolidated statement
of operations. At December 31, 2004, we have recorded unrealized
holding gains of $8,118,000, net of deferred taxes of $3,088,000,
related to our marketable equity securities.

Derivative instruments
Our Crown warrants had a net settlement feature and accordingly
we classified the warrants as derivative instruments up to July 12,
2004 when we exercised all of them on a cashless basis as discussed
above in results of operations. We recorded our investment in the
Crown warrants at their estimated fair value based upon a Black-
Scholes pricing model. As of December 31, 2004, we own warrants
for the purchase of 1,000,000 shares of TNR Gold Corp. (“TNR”),
which we received in exchanges for TNR shares during 2004 and
2003. The TNR warrants are recorded at fair market value based
upon quoted prices and classified as derivative instruments. We
recognize any increase or decrease in the fair value of warrants as a
gain or loss on derivative instruments in the consolidated statement
of operations. We recorded a decrease in the fair value of our
Crown warrants of $1,742,000 for the year ended December 31,
2004 and an increase in the value of our TNR warrants of $38,000

MD&A:

for the year ended December 31, 2004 and an increase in the fair
value of our Crown warrants of $5,438,000 and $106,000 for the
years ended December 31, 2003 and 2002, respectively.

Income taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of 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 also are
recognized for operating losses and tax credits that are available to
offset future taxable income and income taxes, respectively. A valuation
allowance is provided if it is more likely than not that some or all of
the deferred tax assets will not be realized. Currently we believe our
deferred tax assets, exclusive of our Yanacocha royalty asset, are
recoverable. Recovery of these assets is dependent upon our expected
gains on the Crown securities we own. If these values are not realized,
we may record additional valuation allowances in the future.

Related Party Transactions

Crown provides management and technical services to us under a
management and technical services agreement originally signed in
April 1994 and modified in April 1999, December 2000 and July
2002. Under the modified agreement we are billed by Crown for
services at 25% of Crown's corporate administrative costs for
executive and technical salaries, benefits and expenses, 50% of
Crown's corporate administrative costs for financial management
and reporting salaries, benefits, expenses and 75% of Crown's
corporate administrative costs for investor relations salaries, benefits
and expenses. In addition, we reimburse Crown for direct out-of-
pocket expenses. These allocations are based upon the estimated
time and expenses spent by Crown management and employees on
both Crown activities and our activities. Management believes these
allocations are reasonable and the allocations are periodically
reviewed by management and approved by independent Board
members of both Crown and Solitario. Management service fees are
billed monthly, due on receipt and are generally paid within thirty
days. Management service fees incurred by us were $390,000,
$351,000 and $449,000 for the years ended December 31, 2004,
2003 and 2002, respectively.

On July 28, 2004, we exchanged 500,000 shares of TNR common
stock for 500,000 shares of TNR common stock that were not able
to be publicly traded in Canada until November 28, 2004 and a
warrant to purchase an additional 500,000 shares of TNR common
stock for Cdn$0.16 per share for a period of two years. The
transaction has been accounted for as a sale of our previously owned
TNR shares and an acquisition of the new TNR shares and
warrants. We recorded a loss on sale of marketable equity securities
of $73,000 during the year ended December 31, 2004. The TNR
shares and warrants are classified as marketable equity securities held
for sale. Christopher E. Herald, our CEO, is a member of the Board
of Directors of TNR.

intends to sell. After the disposition of the shares retained for warrant
holders and fractional shares, Crown will no longer own any of our
shares. As part of the spin-off we received 1,317,142 shares of our
own common stock, which were retired on August 11, 2004, and have
the status of authorized but unissued shares of common stock.

In October 2001, we invested in two 10% convertible secured
promissory notes ("Senior Notes") totaling $1,000,000 out of
$3,600,000 Senior Notes issued by Crown. The first Senior Note
(the "Solitario Note") of $350,000 has a conversion price of $0.2916
per share and the second Senior Note of $650,000 has a conversion
price of $0.35 per share. The independent Board members of
Crown and Solitario approved the investment in the Notes. We were
paid $50,000 in cash as interest income under the Senior Notes for
the year ended December 31, 2004. We were paid 249,718 and
182,440, respectively, Crown shares as interest income under the
Senior Notes for the years ended December 31, 2003 and 2004. On
July 14, 2004, we converted our $1,000,000 face value of Crown
Senior Notes into 3,132,509 shares of Crown common stock, which
included 75,367 shares issued for accrued interest through the date of
conversion on the Notes. We recorded $949,000, the net book value
of Crown Senior Notes, as marketable equity securities for the
Crown shares received upon conversion of the Senior Notes.

As part of the investment in the Senior Notes, we also received two
warrants. The first warrant gave us the right to purchase 1,857,143
shares of Crown for $0.75 through October 2006 and the second
warrant gave us the right to purchase 1,200,000 shares of Crown at
$0.60 through October 2006. The fair value of the warrants at the
time of issuance, $110,000, was recorded as a discount to the Senior
Notes. This discount was being amortized over the life of the Senior
Notes as additional interest income. On July 12, 2004, we exercised
the two Crown warrants on a cashless exercise basis per the terms of
the warrants. We received a total of 1,973,626 shares of Crown
common stock from the exercise of these warrants. The fair value
of the warrants, based upon a quoted bid price, was $3,849,000 at
July 12, 2004, just prior to exercise and $5,591,000 at December 31,
2003. We recognized any increase or decrease in the fair value of
the warrants as an unrealized gain or loss on derivative instruments
in the consolidated statement of operations. We recorded a
decrease in the value of the Crown warrants of $1,742,000 for the
year ended December 31, 2004 and an increase in the value of our
TNR warrants of $38,000 for the year ended December 31, 2004
and an increase in the value of the Crown warrants of $5,438,000
and $105,000 for the years ended December 31, 2003 and 2002,
respectively. We recorded $3,849,000, the net book value of our
Crown warrants, as marketable equity securities for the Crown shares
received upon exercise of our Crown warrants.

We entered into a Voting Agreement dated as of April 15, 2002
among Zoloto Investors, LP ("Zoloto") and Crown. Zoloto and
Solitario are both shareholders of Crown (the "Signing
Shareholders"). Pursuant to the Voting Agreement, Zoloto and
Solitario agreed that each will vote its owned shares during the term
of the Voting Agreement for the election of three designees of
Zoloto and one designee of ours (the "Designee Directors") to the
Board of Directors of Crown. The Signing Shareholders agreed
that any shares received by either Signing Shareholder would be
subject to the Voting Agreement during its term and any successor,
assignee or transferee of shares from either Signing Shareholder
would be subject to the terms of the Voting Agreement during its
term. The Voting Agreement terminates on June 25, 2006. As of
December 31, 2004, the Signing Shareholders collectively held
12,695,186 shares or 31.7% of the outstanding Crown shares. In
addition the Signing Shareholders hold warrants which could be

Solitario Resources Corporation 17

of incremental cost for any modification of the terms or conditions of
an award at the time of modification based upon the difference of the
fair value of the modified award and the fair value of the award
immediately before the modification. SFAS No. 123R is effective as
of the beginning of the first interim or annual period that begins after
June 15, 2005. We have not yet adopted SFAS 123R and we have not
determined what effect, if any, adoption of SFAS123R will have on
our financial position or results of operations or cash flows.

The Emerging Issues Task Force (“EITF”) formed a committee
(“Committee”) to evaluate certain mining industry accounting issues,
including issues arising from the application of SFAS No. 141,
“Business Combinations” (“SFAS No. 141”) and SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS No. 142”) that
included whether mineral interests conveyed by leases represent
tangible or intangible assets and the amortization of such assets. In
March 2004, the EITF reached a consensus in EITF Issue No. 04-2
“Whether Mineral Rights Are Tangible or Intangible Assets” (“EITF
No. 04-2”), subject to ratification by the Financial Accounting
Standards Board (“FASB”), that mineral interests conveyed by leases
should be considered tangible assets. On March 31, 2004, the FASB
ratified the consensus of the EITF that mineral interests conveyed by
leases should be considered tangible assets subject to the finalization
of a FASB Staff Position (“FSP”) in this regard. On April 30, 2004,
the FASB issued a FSP amending SFAS No. 141 and SFAS No. 142
to provide that certain mineral use rights are considered tangible
assets and that mineral use rights should be accounted for based on
their substance. The FSP is effective for the first reporting period
beginning after April 29, 2004, with early adoption permitted. We
adopted EITF No. 04-2 on April 1, 2004 and reclassified our mineral
interests conveyed by leases from Mineral interests, net to Mineral
Properties, net in our balance sheets and ceased amortizing
exploration stage mineral interests prior to the commencement of
production.

In April 2004, the EITF issued EITF Issue No. 04-3 “Mining Assets:
Impairment and Business Combinations” (“EITF No. 04-3”), which
evaluated certain issues related to values in mining properties beyond
proven and probable reserves (VBPP) and the effects of anticipated
fluctuations in the future market price of minerals. The EITF
reached a consensus that fair value of mining properties generally
includes both VBPP and the effects of anticipated fluctuations in the
future market price of minerals and that entities should generally
include both in determining the fair value allocated to mining assets
in a purchase price allocation and in the cash flow analysis (both
discounted and undiscounted) used for determining whether a
mining asset should be impaired. The consensus reached by the
EITF should be applied prospectively in the periods after March 31,
2004, but early application is permitted in periods for which financial
statements have not been issued. The adoption of EITF No. 04-3
did not have any impact on our financial position, results of
operations, or cash flows.

MD&A:

exercised for an additional 5,714,286 Crown shares or a total of
18,409,472 or 38.1% of the then outstanding Crown shares.

We entered into a stockholder and voting agreement with Kinross,
along with several Crown directors, Crown executive officers and
entities affiliated with these directors and officers (collectively the
“Signatories”), pursuant to which the Signatories agreed, among
other things to cause to be voted, all of the shares of Crown
common stock owned by them, as set forth in the stockholder and
voting agreement, as well as all shares of Crown common stock
acquired by them, as set forth in the stockholder and voting
agreement, in favor of the approval of the plan of merger, and
against the acquisition of Crown by any person other than Kinross.
As of December 31, 2004, 14,891,278 shares of Crown common
stock were subject to the stockholder and voting agreement,
representing approximately 37.2% of the outstanding shares of
Crown common stock entitled to vote at the Crown special meeting.
Additionally, as of December 31, 2004, the Signatories hold warrants
for 5,714,286 Crown shares, which could be exercised prior to the
vote for a total of 20,605,564 Crown shares or approximately 42.7%
of the then outstanding Crown shares.

As of December 31, 2004, we own 6,071,626 shares of Crown
common stock or approximately 15.2% of the outstanding shares of
Crown. These shares of Crown common stock have been recorded
in our investment in marketable equity securities using the cost
method. As of December 31, 2004, the fair market value of these
shares was $12,143,000.

Assuming the successful acquisition of Crown by Kinross, the
Management Agreement will be terminated and we will contract
directly with Crown management and directly pay all administrative
expenses. If we terminate the Management Agreement, we have
estimated our annual general and administrative costs would be
approximately $400,000 to $500,000 higher as a result of increases in
salaries and benefits, rent, audit and legal fees, administrative costs, and
shareholder relations costs with such increases in general and
administrative costs partially offset by an estimated reduction in annual
management fees of approximately $200,000. In the event that the
Kinross transaction is not completed, we anticipate that we would
continue to operate under the Management Agreement with Crown.

Christopher E. Herald, and Mark E. Jones, III are directors of both
Crown and us. Christopher E. Herald, James R. Maronick and
Walter H. Hunt are officers of both Crown and the Company.

Recent Accounting Pronouncements

In December 2004, the FASB issued a revision to SFAS No. 123,
“Share Based Payments” (“SFAS No. 123R”) which establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. SFAS No.
123R requires public entities to measure the cost of employee services
received in exchange for an award of equity instruments based upon
the grant-date fair value of the award and that the cost be recognized
over the period during which an employee is required to provide
service in exchange for the award, which is generally the vesting
period. The grant-date fair value of employee share options and
similar instruments will be measured using option-pricing models
adjusted for any unique characteristics of those instruments. SFAS
No. 123R eliminates the alternative to use Accounting Principle
Board Opinion No. 25, Accounting for Stock Issued to Employees
(“APB No. 25”) intrinsic value method of accounting that was
provided in SFAS No. 123 as originally issued. SFAS No. 123R also
requires entities to estimate the number of instruments for which the
requisite service is expected to be rendered and requires the recording

18 Solitario Resources Corporation

Reports of Independent Registered Public Accounting Firms
To the Board of Directors and

To the Board of Directors and

Stockholders of Solitario Resources

Corporation, Wheat Ridge, Colorado

We have audited the consolidated balance sheet of Solitario
Resources Corporation (a Colorado corporation) as of December 31,
2004, and the related consolidated statements of operations, changes
in stockholders’ equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the 2004 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Solitario Resources Corporation as of December 31,
2004, and the consolidated results of its operations and its cash flows
for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

Ehrhardt Keefe Steiner & Hottman P.C.

March 11, 2005
Denver, Colorado

We have audited the accompanying consolidated balance sheet of
Solitario Resources Corporation and subsidiaries (the “Company”) as
of December 31, 2003, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the two
years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on the financial statements
based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, 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, 2003, and the results
of their operations and their cash flows for each of the two years in the
period ended December 31, 2003, 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, 2003 includes net
mineral interests costs of $2,760,000. Note 1 to the consolidated
financial statements emphasizes that the recovery of these costs is
ultimately dependent upon either the sale of these mineral interests
or the development of economically recoverable ore reserves, the
ability of the Company to obtain the necessary permits and
financing to successfully place the projects into production, and upon
future profitable operations.

Deloitte & Touche, LLP

Denver, Colorado
March 10, 2004

Solitario Resources Corporation 19

Consolidated Balance Sheets:

(in thousands except share and per share amounts)

Assets
Current assets:

Cash and cash equivalents

Joint venture receivable

Note receivable

Investments in marketable equity securities, at fair value

Prepaid expenses and other

Total current assets

Mineral properties, net

Note receivable from Crown Resources Corporation, net of discount

Investment in Crown Resources Corporation warrant, at fair value

Investments in marketable equity securities, at fair value

Investment in derivative instruments, at fair value

Other assets

December 31,

2004

2003

299

–

3,036

3,428

2,653

–

9,219

1,273

112

2,576

3,993

2,760

937

5,591

–

Total assets

15,370

13,288

Liabilities and Stockholders' Equity
Current liabilities:

Accounts payable

Due to Crown Resources Corporation

Deferred income taxes

Total current liabilities

Deferred income taxes

142

–

221

2,633

685

763

591

Commitments and contingencies (Notes 2, 3, and 6)
Stockholders' equity:

Preferred stock, $0.01 par value, authorized 10,000,000 shares (none issued

and outstanding at December 31, 2004 and 2003)

–

Common stock, $0.01 par value, authorized, 50,000,000 shares (24,726,992

and 24,923,134 shares issued and outstanding at December 31, 2004

and 2003, respectively)

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income

Total stockholders' equity

Total liabilities and stockholders' equity

On behalf of the Board:

247

22,132

(14,893)

5,030

12,516

15,370

249

22,498

(11,968)

1,155

11,934

13,288

Christopher E. Herald
Director

Daniel Leonard
Director

20 Solitario Resources Corporation

See Notes to Consolidated Financial Statements.

Consolidated Statements of Operations:

(in thousands except share amounts)

Costs, expenses and other:

Exploration expense, net

Depreciation and amortization

General and administrative

Management fees

For the year ended December 31,

2004

2003

2002

1,088

418

119

629

390

488

404

351

Unrealized (gain) loss on derivative instruments

1,704

(5,438)

Asset write-downs

Loss on sale of assets

Interest and other (net)

(Loss) income before income taxes

Income tax expense (benefit)

Net (loss) income

Basic and diluted (loss) earnings per common share

Basic and diluted weighted average shares outstanding

(193)

(3,860)

935

(2,925)

–

(272)

4,023

(669)

3,354

(0.12)

0.14

25,190

23,638

957

504

372

449

(105)

–

(137)

(2,079)

–

(2,079)

(0.09)

23,407

See Notes to Consolidated Financial Statements.

Solitario Resources Corporation 21

Consolidated Statements of Stockholders’ Equity:

(in thousands

Common Stock

Additional

Accumulated
Other
Paid-in Accumulated Comprehensive

except share amounts)

Amount

Capital

Deficit

Income (Loss) Total

Balance at December 31, 2001

23,407,134

234

$ 21,189

$ (13,243)

(196)

7,984

Comprehensive loss:

Net

Net unrealized gain on marketable

equity securities

Comprehensive loss

–

(2,079)

–

(2,079)

–

372

–

372

(1,707)

Balance at December 31, 2002

23,407,134

234

21,189

(15,322)

176

6,277

Shares issued:

Option exercise

16,000

Private placement, net

1,500,000

Comprehensive income:

Net income

Net unrealized gain on marketable

equity securities
(net of tax of $607)

Comprehensive income

–

1,295

–

1,310

–

3,354

–

3,354

–

979

–

979

4,333

Balance at December 31, 2003

24,923,134

249

22,498

(11,968)

1,155

11,934

Shares issued:

Option exercise

1,121,000

Deferred taxes on option exercises

–

Cancellation of shares

(1,317,142)

Comprehensive income:

Net loss

Net unrealized gain on marketable

equity securities
(net of tax of $2,481)

Comprehensive income

–

(13)

–

974

188

(1,528)

–

985

188

(1,541)

(2,925)

–

(2,925)

–

3,875

–

3,875

950

Balance at December 31, 2004

24,726,992

247

$ 22,132

$ (14,893)

5,030

$ 12,516

22 Solitario Resources Corporation

See Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows:

(in thousands)

Operating activities:

Net (loss) income

Adjustments:

Unrealized loss (gain) on derivative instruments

Depreciation and amortization

Asset write-downs

Loss on asset and equity security sales

Interest income received in stock

Interest income from amortization of note discount

Deferred income taxes

Other

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Accounts payable

Due to Crown Resources Corporation

Net cash used in operating activities

Investing activities:

Investment in Crown Resources Corporation

promissory notes and warrants

Additions to mineral interests and other

Proceeds from asset sales

Proceeds from sale of marketable equity securities

Collection on note receivable

Purchase of marketable equity securities

Other assets

Net cash provided by (used in) investing activities

Financing activities:

Issuance of common stock

Net cash provided by financing activities

Net 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:

Treasury stock received in spin-off from Crown Resources

Corporation as treasury stock

Cancellation of treasury stock

Conversion of Crown notes receivable to shares of

Crown common stock

For the year ended December 31,

2004

2003

2002

(2,925)

3,354

(2,079)

1,704

119

(142)

(12)

(935)

–

(284)

(2,209)

–

(76)

–

112

–

(25)

985

(1,197)

1,273

1,541

(1,541)

(5,438)

488

–

(207)

(22)

669

(6)

(48)

(105)

504

–

(74)

(22)

–

(18)

(1,157)

(1,704)

(400)

(10)

–

111

–

(299)

1,324

(132)

1,405

1,273

–

381

109

(130)

–

386

–

(1,318)

2,723

1,405

–

400

See Notes to Consolidated Financial Statements.

Solitario Resources Corporation 23

Notes to Consolidated Financial Statements:
1. Business and Summary of

Significant Accounting Policies:

Business and company formation
Solitario Resources Corporation ("Solitario") engages principally in
the acquisition and exploration of mineral interests. At December
31, 2004, Solitario's mineral interests are located in Brazil, Bolivia
and Peru and the state of Nevada. Solitario was incorporated under
the laws of the state of Colorado on November 15, 1984, as a
wholly-owned subsidiary of Crown Resource Corp. of Colorado,
("CRCC") which is a wholly-owned subsidiary of Crown Resources
Corporation (“Crown”). Prior to 1993, we had no activity. As of
March 14, 2005 we have 27,426,992 shares outstanding.

Prior to July 26, 2004 CRCC owned 9,633,585 shares of our
common stock or approximately 37.1%. On July 26, 2004, Crown
completed a spin-off of its holdings of our shares to its shareholders,
whereby each Crown shareholder received 0.2169 shares of our
common stock for each Crown share they owned. As part of the
spin-off, Crown retained 998,306 of our shares, of which it retains
950,013 shares as of March 14, 2005, for the benefit of Crown’s
warrant holders who will receive those shares when the warrant
holders exercise their warrants. Crown has disclaimed any beneficial
ownership interest in those retained shares. In addition Crown
retained 93 of our shares, from fractional shares, which it intends to
sell. After the disposition of our shares retained for warrant holders
and fractional shares, Crown will no longer own any of our shares.
Because we owned 6,071,626 shares of Crown from the conversion
of Crown Senior and Subordinated B Notes, the exercise of Crown
warrants and shares received as interest, as part of the spin-off, we
received 1,317,142 shares of our own common stock, which were
retired on August 11, 2004, and have the status of authorized but
unissued shares of common stock.

Financial reporting
The consolidated financial statements include the accounts of
Solitario and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the
United States of America ("generally accepted accounting
principles"), and are expressed in US dollars.

In performing its activities, Solitario has incurred certain costs for
mineral properties. The recovery of these costs is ultimately
dependent upon either the sale of mineral property interests or the
development of economically recoverable ore reserves, the ability of
Solitario to obtain the necessary permits and financing to successfully
place the properties into production, and upon future profitable
operations, none of which is assured.

Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Some of the more significant
estimates included in the preparation of Solitario's financial
statements pertain to the valuation of mineral properties and their
future exploration potential, the realisability of Solitario’s deferred
tax assets and the fair value of Solitario’s investment in Crown shares
included in marketable equity securities.

24 Solitario Resources Corporation

Reclassifications
Certain prior period items have been reclassified in the consolidated
financial statements to conform with the current year presentation.

Cash equivalents
Cash equivalents include investments in highly-liquid debt securities
with original maturities of three months or less when purchased.

Note receivable
Note receivable at December 31, 2003 consists of $100,000, plus
interest, issued by Newmont Mining Company, which was paid in
full to Solitario in April 2004.

Mineral properties
On January 1, 2002, Solitario adopted Statement of Financial
Accounting Standards ("SFAS") No. 141, “Business Combinations”
and SFAS No. 142, "Goodwill and Other Intangible Assets," which,
among other things, required the reclassification of Solitario's
mineral properties as mineral interests (intangible assets) and the
amortization of those assets over their expected useful lives.
Solitario's mineral property interests represent mineral use rights for
parcels of land not owned by Solitario. At January 1, 2002, Solitario
reclassified $3,680,000 from Mineral Properties, net to Mineral interests, net.
The excess of the cost of each of its interests in mineral properties
over the estimated residual value was amortized from January 1,
2002 through April 1, 2004 over the lesser of (i) the term or the
length of any mineral interest option or lease, or (ii) the estimated life
of the mineral interest, which approximates Solitario's estimated
exploration cycle. Solitario amortized its mineral interests over a
three-to-eight year period based upon facts and circumstances for
each mineral interest on a property-by-property basis including
Solitario's current intentions for the property and Solitario's history
with similar properties. On April 30, 2004 the Financial Accounting
Standards Board amended SFAS No. 141 and SFAS No. 142 to
provide that certain mineral use rights, conveyed by leases and
concessions, are tangible assets and that mineral use rights should be
accounted for based on their substance. This amendment was
effective for the first reporting period beginning after April 29, 2004,
with early adoption permitted. Solitario adopted the amendment on
April 1, 2004 and reclassified its interests in mineral properties
classified as Mineral interests, net to Mineral Properties, net in its
consolidated balance sheets and ceased amortizing exploration stage
mineral property interests prior to the commencement of
production. Solitario recorded $117,000, $466,000 and $464,000 of
amortization of its mineral property interests for the years ended
December 31, 2004, 2003 and 2002, respectively.

Solitario expenses all exploration costs incurred on its mineral
properties, other than acquisition costs, prior to the establishment of
proven and probable reserves. Solitario regularly performs
evaluations of its investment in mineral properties to assess the
recoverability and/or the residual value of its investments in these
assets. All long-lived assets are reviewed for impairment whenever
events or circumstances change which indicate the carrying amount
of an asset may not be recoverable, utilizing established guidelines
based upon discounted future net cash flows from the asset or upon
the determination that certain exploration properties do not have
sufficient potential for economic mineralization. During the year
ended December 31, 2004, Solitario recorded impairments of
$64,000 of its mineral properties. There were no mineral property
impairments in 2003 and 2002.

Solitario's net capitalized mineral properties of $2,653,000 and
$2,760,000 at December 31, 2004 and 2003, respectively, related to
gross land, leasehold and acquisition costs of $3,676,000 and
$3,690,000 at December 31, 2004 and 2003, respectively, less

Notes:

accumulated amortization of $1,023,000 and $930,000 at December
31, 2004 and 2003, respectively. Solitario has not identified any
proven and probable reserves related to its mineral properties. The
recoverability of these costs is dependent on, among other things, the
successful identification of proven and probable reserves, as well as the
potential to develop, sell or joint venture its interests in the properties.

Derivative instruments
At December 31, 2003, Solitario owned Crown warrants, which
entitled Solitario the right to purchase Crown common stock, had a
net settlement feature and accordingly, Solitario classified the Crown
warrants as derivative instruments. Solitario recorded its investment
in these warrants at their estimated fair value, based upon quoted
prices of $5,591,000 at December 31, 2003. In July 2004, Solitario
exercised all of its Crown warrants and at December 31, 2004
Solitario did not own any Crown warrants. Solitario recognized any
increase or decrease in the fair value of the warrants up to the date
of their exercise as a gain or loss on derivative instruments in the
consolidated statement of operations. As of December 31, 2004,
Solitario owns warrants for the purchase of 1,000,000 shares of
TNR Gold Corp. (“TNR”), which it received in exchanges for TNR
shares during 2004 and 2003. The TNR warrants are recorded at
fair market value based upon quoted prices and classified as
derivative instruments. Solitario recorded a decrease in the fair value
of its Crown warrants of $1,742,000 for the year ended December
31, 2004 and an increase in the value of its TNR warrants of
$38,000 for the year ended December 31, 2004 and an increase in
the fair value of the warrants of $5,438,000 and $105,000 for the
years ended December 31, 2003 and 2002, respectively.

Marketable equity securities
Solitario's investments in marketable equity securities are classified as
available-for-sale and are carried at fair value, which is based upon
quoted prices of the securities owned. The cost of marketable equity
securities sold is determined by the specific identification method.
Changes in market value are recorded in accumulated other
comprehensive income (loss) within stockholders' equity, unless a
decline in market value is considered other than temporary, in which
case the decline is recognized as a loss in the consolidated statement of
operations. Solitario had marketable equity securities with fair values
of $12,255,000 and $2,576,000, respectively, and cost of $4,137,000
and $814,000, respectively at December 31, 2004 and 2003. Solitario
has recorded other comprehensive income for unrealized holding
gains of $8,118,000 and $1,762,000, respectively, net of deferred
taxes of $3,088,000 and $607,000, respectively, at December 31, 2004
and 2003 related to our marketable equity securities.

The following table represents changes in marketable equity
securities.

Sales of marketable equity securities

2004

2003

2002

Gross cash proceeds

$ 16,000

$ -

$381,000

Gross non-cash proceeds

57,000

Cost

132,000

433,000

Gross gain on sale
included in earnings
during the period

Gross loss on sale
included in earnings
during the period

14,000

54,000

(73,000)

(106,000)

2004

2003

2002

Write down of marketable
equity securities

(26,000)

Unrealized holding gain
arising during the period
included in other
comprehensive income,
net of tax

3,864,000

953,000

320,000

Reclassification adjustment
for net losses included in
earnings during the
period, net of tax

$ 39,000

$ 26,000

$ 52,000

Foreign exchange
The United States dollar is the functional currency for all of Solitario's
foreign subsidiaries. Although Solitario's exploration activities have been
conducted primarily in Brazil, Bolivia, Peru and Mexico, payments under
substantially all of the land, leasehold, and exploration agreements of
Solitario are denominated in United States dollars. Solitario expects that a
significant portion of its required and discretionary 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
recognized for operating losses and tax credits that are available to offset
future taxable income and income taxes, respectively. A valuation
allowance is provided, if it is more likely than not that some portion or
all of the deferred tax assets will not be realized.

Earnings per share
The calculation of basic and diluted earnings (loss) per share is based
on the weighted average number of common shares outstanding during
the years ended December 31, 2004, 2003 and 2002. Potentially
dilutive shares related to outstanding common stock options of
2,273,000, 3,488,000 and 3,372,000 for the years ended December 31,
2004, 2003 and 2002, respectively, were excluded from the calculation
of diluted earnings (loss) per share because the effects were anti-dilutive.

Employee stock compensation plans
Solitario accounts for certain awards under its 1994 Stock Option
Plan (the “Plan”) in accordance with Accounting Principles Board
Opinion (“APB”) No. 25, “Accounting for Stock Issued to
Employees”. Under Solitario’s stock option plans, the exercise price
of stock options issued to employees equals the quoted market price
of the stock on the grant date. As a result of repricing of its options
in 1999, Solitario 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 quoted market
price of Solitario’s stock in accordance with FASB Interpretation No.
44 “Accounting for Certain Transactions involving Stock
Compensation (an interpretation of APB No. 25).” There was no
compensation expense recorded during the years ended December
31, 2004, 2003 and 2002 as a result of variable plan accounting. As
of December 31, 2004, there were no remaining options that are
subject to variable plan accounting. The Plan had a ten-year

Solitario Resources Corporation 25

Notes:

duration and terminated during 2004. No further options may be
granted pursuant to the Plan as of December 31, 2004.

Pro forma information has been computed as if Solitario had
accounted for its stock options under the fair value method of SFAS
No. 123 "Accounting for Stock-Based Compensation." The fair
values of these options were estimated at the date of grant using a
Black-Scholes option pricing model. As there were no options issued
during 2004, the following assumptions were used for 2003 and
2002, respectively: risk-free interest rate of 3.31% and 4.34%;
dividend yield of 0 percent; volatility factor of the expected market
price of Solitario's common stock of 65% and 60%; and a weighted
average expected life of the options of 3.9 and 4.3 years. The
weighted average fair value of the options granted is estimated at
$0.28 and $0.25 per share in 2003 and 2002, respectively.

Had Solitario 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

Deduct total stock-based
compensation expense
determined under fair
value based method for
all rewards, net of related
tax effects

2004

2003

2002

$(2,925)

$3,354

$(2,079)

(24)

(54)

(232)

Pro forma net income (loss)

$(2,949)

$3,300

$(2,311)

Earnings (loss) per share:
Basic and diluted as
reported

Basic and diluted
pro forma

$ (0.12)

$ 0.14

$ (0.09)

$ (0.12)

$ 0.14

$ (0.10)

Segment reporting
Solitario operates in one business segment, minerals exploration. At
December 31, 2004, all of Solitario's operations are located in Peru,
Bolivia, Brazil, Mexico and the state of Nevada as further described
in Note 2 to these consolidated financial statements.

Included in the consolidated balance sheet at December 31, 2004,
2003 and 2002 are total assets of $2,716,000, $2,789,000 and
$3,794,000, respectively related to Solitario's foreign operations, located
in South America in Bolivia, Brazil and Peru. Included in mineral
property in the consolidated balance sheet at December 31, 2004,
2003 and 2002 are net capitalized costs related to the Pedra Branca
Property, located in Brazil, of $2,568,000, $2,680,000 and $3,174,000,
respectively. We are not aware of any foreign exchange restrictions
on Solitario’s subsidiaries located in foreign countries.

Recent accounting pronouncements
In December 2004, the FASB issued a revision to SFAS No. 123,
“Share Based Payments” (“SFAS No. 123R”) which establishes
standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. SFAS No.
123R requires public entities to measure the cost of employee
services received in exchange for an award of equity instruments
based upon the grant-date fair value of the award and that the cost
be recognized over the period during which an employee is required
to provide service in exchange for the award, which is generally the

26 Solitario Resources Corporation

vesting period. The grant-date fair value of employee share options
and similar instruments will be measured using option pricing models
adjusted for any unique characteristics of those instruments. SFAS
No. 123R eliminates the alternative to use Accounting Principle
Board Opinion No. 25, Accounting for Stock Issued to Employees
(“APB No. 25”) intrinsic value method of accounting that was
provided in SFAS No. 123 as originally issued. SFAS No. 123R also
requires entities to estimate the number of instruments for which the
requisite service is expected to be rendered and requires the
recording of incremental cost for any modification of the terms or
conditions of an award at the time of modification based upon the
difference of the fair value of the modified award and the fair value
of the award immediately before the modification. SFAS 123R is
effective as of the beginning of the first interim or annual period that
begins after June 15, 2005. Solitario has not yet adopted SFAS
123R, as revised, and it has not determined what effect, if any
adoption of SFAS 123R would have on its financial position or
results of operations or cash flows.

The Emerging Issues Task Force (“EITF”) formed a committee
(“Committee”) to evaluate certain mining industry accounting issues,
including issues arising from the application of SFAS No. 141,
“Business Combinations” (“SFAS No. 141”) and SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS No. 142”) that
included whether mineral interests conveyed by leases represent
tangible or intangible assets and the amortization of such assets. In
March 2004, the EITF reached a consensus in EITF Issue No. 04-2
“Whether Mineral Rights Are Tangible or Intangible Assets” (“EITF
No. 04-2”), that mineral interests conveyed by leases should be
considered tangible assets. On April 30, 2004, the Financial
Accounting Standards Board (“FASB”) amended SFAS No. 141 and
SFAS No. 142 to provide that certain mineral use rights are
considered tangible assets and that mineral use rights should be
accounted for based on their substance. The amendment was
effective for the first reporting period beginning after April 29, 2004,
with early adoption permitted. Solitario adopted EITF No. 04-2 on
April 1, 2004 and reclassified its mineral interests conveyed by leases
from Mineral interests, net to Mineral Properties, net in its
consolidated balance sheets and ceased amortizing exploration stage
mineral interests prior to the commencement of production.

In April 2004, the EITF issued EITF Issue No. 04-3 “Mining Assets:
Impairment and Business Combinations” (“EITF No. 04-3”), which
evaluated certain issues related to values in mining properties beyond
proven and probable reserves (VBPP) and the effects of anticipated
fluctuations in the future market price of minerals. The EITF
reached a consensus that fair value of mining properties generally
includes both VBPP and the effects of anticipated fluctuations in the
future market price of minerals and that entities should generally
include both in determining the fair value allocated to mining assets
in a purchase price allocation and in the cash flow analysis (both
discounted and undiscounted) used for determining whether a mining
asset should be impaired. Solitario adopted EITF No. 04-3 on April
1, 2004. The adoption of EITF No. 04-3 did not have any impact on
Solitario’s financial position or results of operations or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46") and in
December 2003 issued FIN 46R. FIN 46 requires the consolidation
of variable interest entities which have one or both of the following
attributes (1) the equity investment at risk is not sufficient to permit
the entity to finance its activities without additional financial support
from other parties which is provided by other parties that will absorb
some or all of the expected losses of the entity, (2) the equity
investors lack controlling financial interest as evidenced by (i) the

Notes:

ability to make decisions regarding the entity's activities through
voting or similar rights (ii) the obligation to absorb expected losses,
which make it possible for the entity to finance its activities and (iii)
the right to receive expected residual returns of the entity if they
occur, which is the compensation for absorbing the expected losses.
FIN 46 was immediately effective for variable interest entities formed
after January 31, 2003. FIN 46R requires the adoption of either
FIN 46 or FIN 46R in financial statements of public entities that
have interests in structures that are commonly referred to as special
purpose entities for periods ending after December 15, 2003.
Application for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The
adoption of FIN 46 and FIN 46R did not have a material effect on
Solitario’s financial position or results of operations or cash flows.

2. Mineral interests:

Solitario's mineral properties consist of use rights related to
exploration stage properties, and the value of such assets is primarily
driven by the nature and amount of economic mineral ore believed
to be contained, or potentially contained, in such properties. The
amounts capitalized as mineral properties include concession and
lease or option acquisition costs. Capitalized costs related to a
mineral property represent its fair value at the time it was acquired,
either as an individual asset purchase or as a part of a business
combination. Solitario has no production (operating) or development
stage mineral properties nor any interests in properties that contain
proven or probable reserves. Solitario's exploration stage mineral
properties represent interests in properties that Solitario believes have
exploration potential that is not associated with any other production
or development stage property. Solitario's mineral use rights
generally are enforceable regardless of whether proven and probable
reserves have been established.

The following represents Solitario's investment in mineral properties:

(in thousands)

December 31,

2004

2003

Mineral interests

$3,676

$3,690

Accumulated amortization

(1,023)

(930)

Net mineral interests

$2,653

$2,760

As discussed in Note 1, the amortization of mineral interests
commenced January 1, 2002, upon the adoption of SFAS No. 142
and we no longer amortize our mineral properties as of April 1,
2004 in accordance with EITF 04-2. Amortization expense related
to mineral interests in 2004, 2003 and 2002 was $118,000, $466,000
and $464,000, respectively. We recorded a reduction of
accumulated amortization of $25,000 during 2004 in connection
with property impairments.

Peru
Solitario holds exploration concessions or has filed applications for
concessions covering approximately 17,030 hectares in Peru. These
applications are subject to normal administrative approvals and the
mineral interests are subject to an annual rental of $3.00 per hectare
(approximately 2.477 acres per hectare) in June of each year, with
6,000 hectares subject to an additional $6.00 per hectare surcharge
as the concessions are more than 10 years old.

Bongará
Solitario acquired the initial Bongará exploration concessions in 1993.
The current holdings consist of a 100% interest concessions covering
approximately 6,000 hectares in northern Peru (the "Bongará

project"). Solitario initiated an effort in early 2005 to secure a new
joint venture partner to explore and develop the project.

Yanacocha
On April 26, 2000, Solitario completed a transaction with an affiliate
of Newmont Mining Corporation ("Newmont") and sold its interest
in its Yanacocha project for $6 million and a sliding scale net smelter
return royalty ("NSR") that varies with the price of gold. Newmont
retained $400,000 of the $6 million purchase price to be paid in four
annual installments plus interest pending release of certain
contingent liabilities. Solitario received payments of $112,000,
$111,000 and $109,000 (including interest) in April 2004, 2003 and
2002, respectively. Solitario recorded a gain on the sale of the
Yanacocha project of $5.8 million during the second quarter of
2000. The NSR royalty applies to any commercial production on
exploration concessions covering approximately 60,000 hectares. In
January 2005, Solitario and Newmont amended the NSR royalty
schedule so that the royalty rate was not only based on the price of
gold, but also considered the method of gold and copper extraction
and the national Peruvian NSR royalty rate schedule that was
enacted in 2004. Newmont, through its subsidiaries and affiliates,
also agreed to a $4.0 million work commitment on Solitario’s royalty
property over the next eight years.

La Tola
In October 2003, we acquired the La Tola project to explore for gold
and possibly silver. The project is located in southern Peru and
consists of 14 concessions totaling 11,030 hectares. We own a
100%-interest in all the concessions without any underlying owners
or royalties, except for a 100-hectare option to buy lease from a
private Peruvian party, which we acquired in March 2004.
According to Peruvian law, claims may be held indefinitely subject
only to payment of annual fees to the government. A payment of
$3.00 per hectare must be made by the last day of June each year to
keep the concessions in good standing. These payments to the
government of approximately $7,000 and $36,000 were made in
2004 and 2003, respectively. An equal amount will be due in 2005
to keep all the concessions in good standing. In April 2004, we
signed a Letter Agreement with Newmont Peru S.L.R. (“Newmont”),
a subsidiary of Newmont Mining Corporation, whereby Newmont
can earn a 51%-interest in the property by completing 2,500 meters
of drilling (firm commitment) within the first year of the Letter
Agreement and by spending the following cumulative amounts on
future exploration and development (optional): by end of second year
- $1.25 million; by end of third year - $3.0 million; and, by end of
fourth year - $7.0 million. Newmont can earn an additional 9%
interest (total 60% interest) by completing a feasibility study and an
additional 5% interest by arranging 100% project financing. In
addition to our participating interest, we also retain a sliding scale
NSR-Royalty interest on gold and silver production (0 to 2.25%
subject to gold price and the imposed national Peruvian NSR-
Royalty rate).

Newmont Strategic Alliance
On January 18, 2005 Solitario signed a Strategic Alliance Agreement
with Newmont Overseas Exploration Limited (“Newmont”), a
subsidiary of Newmont Mining Corporation, to explore for gold in
South America. Concurrent with the signing of the Alliance
Agreement, Newmont purchased 2.7 million shares of Solitario
common stock (or approximately 9.9% of our issued and outstanding
shares) for Cdn$4,590,000. We have committed to spend $3.78
million over the next four years on gold exploration in regions
(“Alliance Projects”) that are mutually agreed upon by Newmont and
Solitario. The first Alliance Project area is located in southern Peru
and is approximately 4,000 square kilometers in size. If we acquire

Solitario Resources Corporation 27

Notes:

properties within Alliance Project areas and meet certain minimum
exploration expenditures, Newmont will have the right to joint
venture acquired properties and earn up to a 75% interest by taking
the project through feasibility and financing Solitario’s retained 25%
interest into production. Newmont may elect to earn a lesser
interest, or no interest at all, in which case it would retain a 2% net
smelter return royalty. Newmont also has a right of first offer on any
non-alliance Solitario property, acquired after the signing of the
Alliance Agreement, that we may elect to sell an interest in, or joint
venture. See Note 9, Subsequent Events, below.

La Pampa
In July 2002, Solitario signed an agreement with Bear Creek Mining
Company ("Bear Creek") whereby Bear Creek was entitled to earn a
51% interest in the La Pampa project by expending $4.5 million on
exploration of La Pampa over a five-year period. In February 2004,
Bear Creek Mining Company (“Bear Creek”) notified us that it
intended to terminate its joint venture interest in the La Pampa
project. In June 2004, Bear Creek paid us $15,000 to terminate its
joint venture interest in the La Pampa project. During the third
quarter of 2004 we dropped the La Pampa project and because it
had no capitalized mineral interest, there was no related charge to
mineral property write down. As of December 31, 2004, Solitario
has no interest in the La Pampa project.

Other Peruvian properties
During the third quarter of 2004, after failing to secure a joint
venture, we dropped our claims at the Sapalache gold project located
in the Department of Piura, Peru and recorded a mineral property
write-down of $29,000. As of December 31, 2004 we have no
interest in the Sapalache project.

Brazil
Pedra Branca
In October 2000, Solitario recorded $3,627,000 in mineral interest
additions for the Pedra Branca project in connection with the
acquisition of Altoro Gold Corp, (“Altoro”).

Solitario holds a 100% interest in 60 concessions totaling 61,357-
hectare in its Pedra Branca platinum-palladium (PGM) Project
located in Ceará State, Brazil. Solitario acquired Pedra Branca as
part of its acquisition of Altoro. Eldorado Gold Corporation holds a
2% net smelter return royalty on 10,000 hectares of Solitario’s
property position.

On January 28, 2003, Solitario entered into an agreement with
Anglo Platinum whereby Anglo Platinum may earn a 51% interest
in the Pedra Branca Project, by spending $7 million on exploration
at Pedra Branca over a four-year period. Anglo Platinum agreed
to a minimum expenditure of $500,000 during the first six months
of the agreement. Anglo Platinum can earn an additional 9%
interest in Pedra Branca (for a total of 60%) by completing a
bankable feasibility study. Anglo Platinum can also earn an
additional 5% interest in Pedra Branca (for a total of 65%) by
arranging for financing to put the project into commercial
production. In July 2004 we signed the First Amendment to Pedra
Branca Letter Agreement that provided Anglo Platinum a ten-
month period (to May 26, 2005) to complete its Phase II $500,000
work commitment, and extended subsequent work commitments
by one-year. Anglo Platinum met its minimum required
expenditure for the first six-month period and has nearly
completed its ten-month $500,000 Phase II work commitment.
Anglo Platinum is currently reviewing the results of the
exploration program, before making a decision on whether to fund
the next $1.25 million in exploration, or terminate its option to
earn an interest. If Anglo Platinum declines to continue, Solitario

28 Solitario Resources Corporation

will retain 100% of the Pedra Branca Project. Solitario recorded
a joint venture receivable from Anglo Platinum related to the
Pedra Branca Project of $299,000 and $3,000 at December 31,
2004 and 2003, respectively.

Bolivia
Triunfo
In August 2003, we signed an Option Agreement to acquire a 100%
interest in the Triunfo gold-silver-lead-zinc property in west-central
Bolivia. The agreement was amended in March 2004. Terms of
the Option Agreement call for escalating payments totaling
$185,000 over a four-year period to the underlying owners. The
first and second payments to the owners of $10,000 and $15,000,
respectively, have been made. A 100% interest in the property can
be acquired at any time within a five-year timeframe for a one-time
payment of $1.0 million. Solitario has completed the first year
$100,000 work commitment as part of its five-year $2.3 million
work commitment.

San Pablo
During the third quarter of 2004, after performing a geological
review of the potential of our San Pablo project, located in the Potosi
Department of southwestern Bolivia, we decided to terminate our
agreement on this property and recorded a mineral property write-
down of $29,000. As of December 31, 2004 we have no interest in
the San Pablo project.

United States
Legacy Ridge Project
In February 2004, we signed (an option agreement (the "CC
Agreement") to acquire a 100% interest in 88 unpatented claims
totaling approximately 700-hectares on the Legacy Ridge project
in west-central Nevada (U.S.). The CC Agreement called for us to
make escalating payments to the underlying private owner of the
project of $25,000 in the first year with a total of $2.0 million over
a five-year period and spend $900,000 in exploration over four
years, including $150,000 in the first year. We completed our
initial $150,000 exploration commitment during the second
quarter of 2004 by conducting a surface sampling program and
drilling 14 reverse circulation drill holes totaling 1,203 meters.
After reviewing the assay results of the drilling we elected to
terminate our option to earn an interest in the project and
recorded a $25,000 mineral property write-down during the third
quarter of 2004. As of December 31, 2004, we have no interest
in the Legacy Ridge project.

Windy Peak
On July 12, 2004, Solitario signed an agreement with Silverthorn
Exploration, Inc. (“Silverthorn”) to earn up to a 80% interest in the
Windy Peak property located in west-central Nevada (U.S.). The
property consists of 144 unpatented mining claims totaling
approximately 1,175 hectares. The agreement (the “Silverthorn
Agreement”) calls for Solitario to make an initial payment of
$10,000 on signing (paid) and for Solitario to make additional
escalating payments totaling $90,000 over the next four years as well
as spend a total of $2.0 million on exploration over four years to
earn its 60% interest. Solitario may earn an additional 20% interest
(for a total of 80%) in the property by paying Silverthorn an
additional $100,000 and spending an additional $2.0 million in
exploration by the sixth-year anniversary. After completing the first
year exploration commitment by completing 1,220 meters of drilling,
Solitario may terminate its option to acquire the property with no
further obligation. Solitario is developing a drilling plan to meet its
first year’s work commitment.

Notes:
Exploration expense
The following items comprised exploration expense:

(in thousands)

2004

Geologic, drilling and assay

$770

Field expenses

Administrative

Joint venture

reimbursement

2003

$488

237

150

2002

$335

214

408

479

250

(411)

(457)

Total exploration
expense

$1,088

$418

$957

3. Related party transactions:

Crown provides management and technical services to Solitario
under a management and technical services agreement originally
signed in April 1994 and modified in April 1999, December 2000
and July 2002. Under the modified agreement Solitario is billed by
Crown for services at 25% of Crown's corporate administrative costs
for executive and technical salaries, benefits and expenses, 50% of
Crown's corporate administrative costs for financial management
and reporting salaries, benefits, expenses and 75% of Crown's
corporate administrative costs for investor relations salaries, benefits
and expenses. In addition, Solitario reimburses Crown for direct out-
of-pocket expenses. These allocations are based upon the estimated
time and expenses spent by Crown management and employees on
both Crown activities and Solitario activities. Management of
Solitario believes these allocations are reasonable and the allocations
are periodically reviewed by Solitario management and approved by
independent Board members of both Crown and Solitario.
Management service fees are billed monthly, due on receipt and are
generally paid within thirty days. Management service fees incurred
by Solitario were $390,000, $351,000 and $449,000 for the years
ended December 31, 2004, 2003 and 2002, respectively.

On July 28, 2004, Solitario exchanged 500,000 shares of TNR
common stock for 500,000 shares of TNR common stock that were
not available to be publicly traded in Canada until November 28,
2004 and a warrant to purchase an additional 500,000 shares of
TNR common stock for Cdn$0.16 per share for a period of two
years. The transaction was accounted for as a sale of Solitario’s
previously owned TNR shares and an acquisition of the new TNR
shares and warrants. Solitario recorded a loss on sale of marketable
equity securities of $73,000 during the year ended December 31,
2004. The TNR shares are classified as marketable equity securities
held for sale. As of December 31, 2004, Solitario owns warrants for
the purchase of 1,000,000 shares of TNR Gold Corp. (“TNR”),
which it received in exchanges for TNR shares during 2004 and
2003. The TNR warrants are recorded at fair market value based
upon quoted prices and classified as derivative instruments. Solitario
recorded a gain on derivative instruments of $38,000 for the increase
in the value of its warrants during the year ended December 31,
2004. There were no gains and losses recorded for the fair value of
the TNR warrants in 2003 or 2002. Christopher E. Herald,
Solitario’s CEO, is a member of the Board of Directors of TNR.

On July 26, 2004, Crown completed a spin-off of Solitario shares to its
shareholders, whereby each Crown shareholder received 0.2169 shares
of Solitario common stock for each Crown share they owned. As part
of the spin-off, Crown retained 998,306 of Solitario shares for the
benefit of Crown’s warrant holders who will receive those shares when
the warrant holders exercise their warrants. Crown has disclaimed any

beneficial ownership interest in those retained shares. In addition
Crown retained 93 shares, from fractional shares, which it intends to
sell. After the disposition of the shares retained for warrant holders
and fractional shares, Crown will no longer own any of Solitario
shares. As part of the spin-off Solitario received 1,317,142 shares of
its own common stock, which were retired on August 11, 2004, and
have the status of authorized but unissued shares of common stock.

In October 2001, Solitario invested in two 10% convertible secured
promissory notes ("Senior Notes") totaling $1,000,000 out of
$3,600,000 Senior Notes issued by Crown. The first Senior Note (the
"Solitario Note") of $350,000 has a conversion price of $0.2916 per
share and the second Senior Note of $650,000 has a conversion price
of $0.35 per share. The independent Board members of Crown and
Solitario approved the investment in the Notes. Solitario was paid
$50,000 in cash as interest income under the Senior Notes for the
year ended December 31, 2004. Solitario was paid 249,718, and
182,440 Crown shares, respectively with market values on the date of
issuance of $207,000 and $74,000, respectively, as interest income
under the Senior Notes for the years ended December 31, 2003 and
2002. On July 14, 2004, Solitario converted $1,000,000 face value of
Crown Senior Notes into 3,132,509 shares of Crown common stock,
which included 75,367 Crown shares, with a market value of
$142,000 on the date of issuance, for accrued interest through the
date of conversion on the Notes. Solitario recorded $949,000, the net
book value of Crown Senior Notes, as marketable equity securities for
the Crown shares received upon conversion of the Senior Notes.

As part of the investment in the Senior Notes, Solitario also received
two warrants. The first warrant gave Solitario the right to purchase
1,857,143 shares of Crown for $0.75 through October 2006 and the
second warrant gave Solitario the right to purchase 1,200,000 shares of
Crown at $0.60 through October 2006. The fair value of the warrants
at the time of issuance, $110,000, was recorded as a discount to the
Senior Notes. This discount was being amortized over the life of the
Senior Notes as additional interest income. On July 12, 2004, Solitario
exercised the two Crown warrants on a cashless exercise basis per the
terms of the warrants. Solitario received a total of 1,973,626 shares of
Crown common stock from the exercise of these warrants. The fair
value of the warrants, based upon a quoted bid price, was $3,849,000
at July 12, 2004, just prior to exercise and $5,591,000 at December 31,
2003. Solitario recognized any increase or decrease in the fair value of
the warrants as an unrealized gain or loss on derivative instruments in
the consolidated statement of operations. Solitario recorded a loss on
derivative instruments related to a decrease in the value of the Crown
warrants of $1,742,000 up to the date of exercise during the year
ended December 31, 2004. Solitario recorded a gain on derivative
instruments related to an increase in the value of the warrants of
$5,438,000 and $106,000 for the years ended December 31, 2003 and
2002, respectively. Solitario recorded $3,849,000, the net book value of
our Crown warrants, as marketable equity securities for the Crown
shares received upon exercise of our Crown warrants.

Solitario entered into a Voting Agreement dated as of April 15, 2002
among Zoloto Investors, LP ("Zoloto") and Crown. Zoloto and
Solitario are both shareholders of Crown (the "Signing
Shareholders"). Pursuant to the Voting Agreement, Zoloto and
Solitario agreed that each will vote its owned shares during the term
of the Voting Agreement for the election of three designees of
Zoloto and one designee of ours (the "Designee Directors") to the
Board of Directors of Crown. The Signing Shareholders agreed
that any shares received by either Signing Shareholder would be
subject to the Voting Agreement during its term and any successor,
assignee or transferee of shares from either Signing Shareholder
would be subject to the terms of the Voting Agreement during its

Solitario Resources Corporation 29

Notes:

term. The Voting Agreement terminates on June 25, 2006. As of
December 31, 2004, the Signing Shareholders collectively held
12,695,186 shares or 31.7% of the outstanding Crown shares. In
addition the Signing Shareholders hold warrants which could be
exercised for an additional 5,714,286 Crown shares or a total of
18,409,472 or 38.1% of the then outstanding Crown shares.

Solitario entered into a stockholder and voting agreement with
Kinross, along with several Crown directors, Crown executive officers
and entities affiliated with these directors and officers (collectively the
“Signatories”), pursuant to which the Signatories agreed, among other
things to cause to be voted, all of the shares of Crown common stock
owned by them, as set forth in the stockholder and voting agreement,
as well as all shares of Crown common stock acquired by them, as set
forth in the stockholder and voting agreement, in favor of the
approval of the plan of merger, and against the acquisition of Crown
by any person other than Kinross. As of December 31, 2004,
14,891,278 shares of Crown common stock were subject to the
stockholder and voting agreement, representing approximately 37.2%
of the outstanding shares of Crown common stock entitled to vote at
the Crown special meeting. Additionally, as of December 31, 2004,
the Signatories hold warrants for 5,714,286 Crown shares, which
could be exercised prior to the vote for a total of 20,605,564 Crown
shares or approximately 42.7% of the then outstanding Crown shares.

As of December 31, 2004, Solitario owns 6,071,626 shares of Crown
common stock or approximately 15.2% of the outstanding shares of
Crown. These shares of Crown common stock have been recorded
in its investment in marketable equity securities using the cost
method. As of December 31, 2004, the fair market value of these
shares was $12,143,000.

Christopher E. Herald, and Mark E. Jones, III are directors of both
Crown and Solitario. Christopher E. Herald, James R. Maronick
and Walter H. Hunt are officers of both Crown and Solitario.

4. Income Taxes:

Solitario's income tax expense (benefit) consists of the following as
allocated between foreign and United States components:

(in thousands)

2004

2003

2002

Deferred:

United States

$ (645)

$ 2,207

Foreign

(51)

(164)

Operating loss and
credit carryovers:

United States

Foreign

Income tax expense

(benefit)

(290)

(1,538)

164

$ (935)

$ 669

$ -

Consolidated income (loss) before income taxes includes losses from
foreign operations of $1,457,000, $1,092,000 and $1,622,000 in
2004, 2003 and 2002, respectively. During 2004, Solitario
recognized income tax deductions from the exercise of nonqualified
stock options. Stockholders’ equity has been credited in the amount
of $188,000 for the income tax benefit of these deductions. During
2004 and 2003, Solitario recognized other comprehensive income
related to unrealized gains on marketable equity securities of
$6,401,000 and $1,544,000, respectively. Other comprehensive

30 Solitario Resources Corporation

$ 286

159

(286)

(159)

income has been charged $2,498,000 and $607,000, respectively, for
the income tax expense associated with these gains.

The net deferred tax assets/liabilities in the December 31, 2004 and
2003 consolidated balance sheets include the following components:

(in thousands)

Deferred tax assets:

2004

2003

Net operating loss (NOL) carryovers
Capital loss carryovers
Royalty
Other
Valuation allowance

$ 5,101
21
1,560
26
(3,754)

$ 4,252
21
1,560
-
(3,332)

Total deferred tax assets

2,954

2,501

Deferred tax liabilities:

Unrealized gain on derivative securities
Exploration costs
Unrealized gains on marketable
equity securities
Other

1,551
870

3,166

2,138
921

685
33

Total deferred tax liabilities

5,587

3,777

Net deferred tax liabilities

$ 2,633

$ 1,276

A reconciliation of expected federal income taxes on income (loss)
from operations at statutory rates, with the expense (benefit) for
income taxes is as follows:

(in thousands)

2004

2003

2002

Expected income tax
expense (benefit)

Non-deductible foreign

expenses

Foreign tax rate
differences

State income tax

Expiration of loss

carryovers

Change in valuation

allowance

Other

Income tax expense

(benefit)

$ (1,310)

$ 1,368

$ (707)

(122)

(60)

338

495

(19)

542

422

(4)

(1,530)

212

$ (935)

$ 669

$ -

During 2004 and 2002, the valuation allowance was increased
primarily as a result of increases in net operating loss carryforwards,
for which it was more likely than not that the deferred tax benefit
would not be realized. During 2003, the valuation allowance was
reduced by $1,530,000 to reflect the projected utilization of net
operating loss carryforwards for which no income tax benefit was
previously provided.

At December 31, 2004, Solitario has unused US Net Operating
Loss ("NOL") and capital loss carryovers of $5,220,000 and $53,000,
respectively, which begin to expire commencing in 2008. Solitario
also has foreign NOL carryovers at December 31, 2004 of
$8,983,000 that begin to expire four years after the first year in which
taxable income arises. In connection with the Bankruptcy of Crown
and Solitario's acquisition of Altoro Gold Corp., Solitario had a

Notes:

greater than fifty percent change in ownership as defined in Section
382 of the Internal Revenue Code. Pursuant to Section 382, the
amount of future taxable income available to be offset by Solitario's
carryovers is limited to approximately $614,000 per year.

5. Fair Value of Financial Instruments:

For certain of Solitario's financial instruments, including cash and
cash equivalents, the carrying amounts approximate fair value due to
their short maturities. Solitario's marketable equity securities are
carried at their estimated fair value based on quoted market prices.

The fair value of the Crown shares was $12,143,000 at December
31, 2004. The fair value of the TNR shares was $112,000 and
$135,000 at December 31, 2004 and 2003 respectively.

The fair value of the Senior Notes was $7,729,000 at December 31,
2003. The fair value of the Crown warrants was $5,591,000 at
December 31, 2003. The fair value of the TNR warrants was
$38,000 at December 31, 2004. Solitario recognizes any increase or
decrease in the fair value of the warrants as a gain or loss on
derivative instruments in the consolidated statement of operations.
Solitario recorded an increase (decrease) in the fair value of its Crown
warrants of ($1,742,000), $5,438,000 and $106,000 for the years
ended December 31, 2004, 2003 and 2002, respectively and recorded
an increase in the fair value of its TNR warrants of $38,000 for the
year ended December 31, 2004. There were no changes to the fair
value of the TNR warrants in 2003 and 2002.

6. Commitments and Contingencies:

In acquiring its interests in mineral claims and leases, Solitario has
entered into lease 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. See Note 2. Solitario estimates its 2005 mineral

property rental and option payments to be approximately
$218,000. If Solitario's current joint venture partners elect to
continue funding their respective joint ventures throughout the
remainder of 2005, Solitario would be reimbursed for
approximately $108,000 of those costs.

Solitario has entered into certain month-to-month office leases for its
field offices in Lima, Peru and Rio de Janeiro, Brazil. The total rent
expense for these offices during 2004, 2003 and 2002 was
approximately $29,000, $17,000 and $13,000, respectively. In
addition, Crown leases office space under a non-cancelable operating
lease for the Wheat Ridge, Colorado office and Solitario is a co-
signor on the lease, which provides for minimum annual rent
payments of $33,000, in 2005 and $27,000 in 2006. Crown paid
approximately $36,000 for rent expense under this lease in 2004.
Should the merger with Kinross be completed Solitario will assume
the liability for the Wheat Ridge office lease.

7. Stock Option Plan:

On March 4, 1994, Solitario's Board of Directors (the "Board")
adopted the 1994 Stock Option Plan (the "Plan"). The Plan has a
ten-year duration and terminated during 2004. As of December 31,
2004, no more options may be granted under the Plan. Up to
1,100,000 shares of Solitario's common stock were authorized for
issuance under the Plan. The Board voted for, and shareholders
approved, amendments that have increased the authorized shares
under the Plan to 3,736,000 as of June 2002.

All options have been granted at exercise prices that are equal to the
quoted market price of the stock on the grant date. 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,
2004 is as follows:

Outstanding,

beginning of year

Granted
Exercised
Expired

Outstanding,
end of year

Exercisable,

end of year

Options

3,488,500
-
(1,121,000)
(95,000)

2,272,500

2,073,750

2004
Weighted Average
Exercise
Price (Cdn$)

0.95
-
1.17
1.25

0.82

0.83

Options

3,372,000
192,500
(16,000)
(60,000)

3,488,500

3,019,125

2003
Weighted Average
Exercise
Price (Cdn$)

0.96
0.77
1.16
1.16

0.95

0.97

2002
Weighted Average
Exercise
Price (Cdn$)

1.08
0.73
-
1.16

0.96

1.00

Options

2,282,000
1,140,000

(50,000)

3,372,000

2,742,000

As a result of the repricing of existing options in 1999, Solitario began to account for the repriced 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
Opinion No. 25)." Accordingly, an increase in the current market price of Solitario common 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 options outstanding will be recorded as compensation
expense over the vesting term of the options. 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 2004,
2003 or 2002 as a result of variable accounting for the repriced options. As of December 31, 2004 all repriced options have expired.

Solitario Resources Corporation 31

Notes:

The following table summarizes Solitario's stock options as of December 31, 2004:

Options Outstanding
Weighted
Average
Remaining
Contractual
Life (in years)

Weighted
Average
Exercise
Price
Cdn$

3.1
2.2
3.7
1.2
1.9

$0.65
$0.73
$0.81
$0.94

Options Exercisable

Weighted
Average
Exercise
Price
Cdn$

$0.65
$0.73
$0.81
$0.94

Number
Exercisable

25,000
967,500
101,250
980,000
2,073,750

Exercise Price
Cdn$

$0.65
$0.73
$0.81
$0.94
Total

Number

50,000
1,100,000
142,500
980,000
2,272,500

8. Stockholders' Equity:

Because Solitario owned 6,071,626 shares of Crown, as part of the spin-off we received 1,317,142 shares of its own common stock, which were retired
on August 11, 2004, and have the status of authorized but unissued shares of common stock. These shares of Solitario common stock were recorded
as treasury stock at $1,541,000, the fair value of the shares on July 26, 2004, the date of the spin-off by reducing the basis in Solitario’s holdings of
Crown common stock. Upon retiring these shares Solitario reduced common stock by $13,000 and reduced additional paid in capital by $1,528,000.

During 2004 options for 1,121,000 shares of Solitario common stock were exercised for proceeds of $1,173,000.

9. Subsequent Events

On January 18, 2005, pursuant to a Stock Purchase Agreement, we agreed to sell to Newmont and Newmont agreed to purchase from us
2,700,000 newly issued shares of our Common Stock for Cdn$1.70 per share or Cdn$4,590,000 in the aggregate or approximately $3,776,000.
We sold the Common Stock in a private offering in reliance on an exemption from registration pursuant to Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933, as amended. Newmont received restricted stock in the offering.

10. Selected Quarterly Financial Data (Unaudited):

(in thousands)

Net income (loss)
Earnings (loss) per share:

Basic
Diluted

Weighted shares outstanding:

Basic
Diluted

March 31,

$ (946)

$ (0.04)
$ (0.04)

25,133
25,133

June 30,

$ (1,861)

$ (0.07)
$ (0.07)

25,722
25,722

2004

Sept. 30,(1)

Dec. 31,

$ 228

$ 0.01
$ 0.01

25,228
26,346

$ (369)

$ (0.02)
$ (0.02)

24,693
24,693

(1) Solitario reported net income during the third quarter of 2004 primarily related to $612,000 of unrealized gain on derivative instruments related to
its investment in Crown warrants. In addition, during the third quarter of 2004 Solitario recorded an increase in its deferred tax liabilities related to
its holdings of Crown stock from conversions of Crown Senior Notes and Crown warrants, which caused Solitario net deferred tax liabilities to
exceed its deferred tax assets at September 30, 2004. This allowed Solitario to recognize deferred tax benefit of $253,000, primarily related to its year
to date loss during the quarter. Previously Solitario had provided a valuation allowance that had completely offset its net operating loss carryforwards.

(in thousands)

Net income (loss)
Earnings (loss) per share:

Basic
Diluted

Weighted shares outstanding:

Basic
Diluted

March 31,

June 30,

Sept. 30,

Dec. 31,

$ 370

$ 488

$ 603

$ 1,893

2003

$ 0.02
$ 0.02

23,407
23,407

$ 0.02
$ 0.02

23,407
23,407

$ 0.03
$ 0.03

23,407
23,407

$ 0.08
$ 0.07

24,322
25,572

The information set forth includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934 and is subject to the safe harbor created by those sections. Factors that could cause results to differ materially from those projected in the forward-looking statements
include, but are not limited to, the timing of receipt of necessary governmental permits, the results of judicial proceedings, commodity prices, results of current exploration
activities and other risks as described in greater detail in the Company’s 2004 Annual Information Form.

32 Solitario Resources Corporation

Officers & Directors

Christopher E. Herald

President and Chief Executive Officer

Walter H. Hunt

Vice President – Operations

James R. Maronick

Chief Financial Officer

Mark E. Jones, III

Chairman

John Hainey

Director

Leonard Harris

Director

Dan Leonard

Director

Corporate Information:
Corporate Offices

4251 Kipling Street, Suite 390

Wheat Ridge, Colorado 80033

Telephone: 303-534-1030

Fax: 303-534-1809

www.solitarioresources.com

Legal Counsel

Solomon, Pearl, Blum Heymann & Stich, LLP

Denver, Colorado

Fogler, Rubinoff LLP

Toronto, Ontario

Auditors

Ernhardt Keefe Steiner and Hottman, PC

Denver, Colorado

Transfer Agent

Computershare

Toronto, Ontario; 800-564-6253

Investor Relations

Questions and requests for information should be

directed to Debbie W. Mino, Director-Investor

Relations at 800-229-6827, or via email at

dwmino@solitarioresources.com

Notice of Annual Meeting

The Annual Meeting of Shareholders will be at 10 a.m.

MDT on Thursday, June 23, 2005 at the Company’s

corporate offices.

Stock Exchange Listing

TSX: SLR

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.

Photography by Walt Hunt & Todd Christensen
Designed & Produced by Pite Creative – www.pitecreative.com

Solitario Resources Corporation

4251 Kipling Street, Suite 390

Wheat Ridge, Colorado 80033

Telephone: 303-534-1030

Fax: 303-534-1809

www.solitarioresources.com

Toronto Stock Exchange: SLR

Solitario
Resources
Corporation