Solitario Zinc Corp. Annual Report 2006

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FY2006 Annual Report · Solitario Zinc Corp.

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Summary of Current Projects

PPrroojjeecctt

MMiinneerraall AAsssseett

JJooiinntt VVeennttuurree PPaarrttnneerr

EExxpplloorraattiioonn SSttaattuuss || DDeevveellooppmmeenntt SSttaaggee

PPaacchhuuccaa RReeaall

(Silver/Gold | Mexico)

Newmont (max 70%)

Drilling | Early-stage exploration ($2.0mm by March 2008)

BBoonnggaarráá

(Zinc | Peru)

Votorantim (max 70%)

Definition drilling | Pre-feasibility ($2.0mm)

MMeerrccuurriioo

(Gold | Brazil)

100% Solitario

Definition drilling | Exploration

PPeeddrraa BBrraannccaa

(PGM | Brazil)

Anglo Platinum (max 65%)

Definition drilling | Advanced exploration ($1.0mm)

SSttrraatteeggiicc AAlllliiaannccee

(Gold | Peru)

Newmont

Property Acquisition | Early-stage exploration

YYaannaaccoocchhaa RRooyyaallttyy

(Gold | Peru)

Royalty 100% Solitario

Drilling | Exploration ($0.5mm)

($ amounts presented above are those funded by our partners)))))

Silver: +46% ($12.90/oz.)
PPaacchhuuccaa RReeaall,, MMeexxiiccoo

Zinc: +127% ($1.93/lb.)
Lead: +51% ($0.77/lb.)
BBoonnggaarráá,, PPeerruu

Royalties
YYaannaaccoocchhaa,, PPeerruu

Gold: +24% ($636/oz.)
MMeerrccuurriioo,, BBrraazziill

Platinum: +15% ($1,117/oz.)
Palladium: +26% ($324/oz.)
PPeeddrraa BBrraannccaa,, BBrraazziill

Strategic Alliance
NNeewwmmoonntt MMiinniinngg

(% increase in commodity prices from 12/31/05 to 12/31/06)

Solitario Resources Corporation

Dear Shareholders,
We firmly believe 2006 was a milestone year in Solitario's 14-

year history with the signing of two landmark joint ventures and

the receipt of 1.94 million shares of Kinross Gold Corporation in

exchange for our 6.1 million shares of Crown Resources

Corporation upon the completion of the merger between Crown

and Kinross. We now have three significant joint ventures with

three major mining companies in six different commodities and in

three different countries. This gives Solitario unmatched com-

modity and country diversification with exceptional low-risk

exploration leverage. Very few, if any, mineral exploration com-

panies can report a comparable array of project assets and indus-

try relationships. As proud as we are of these important achieve-

ments, we believe the best is yet to come.

After a six-year hiatus, drilling resumed on our high-grade
Bongará zinc project.

In addition, we have increased our pipeline of new 100%-owned

In August 2006 we signed a joint venture agreement with

exploration projects in Peru, Mexico and Brazil and believe these

Votorantim Metais on our most advanced exploration property,

projects will provide exciting new developments for the company in

the high-grade Bongará zinc project in northern Peru. The

2007. Solitario, together with our partners, is planning the most

Votorantim Group of Companies is a privately owned Brazilian

active drilling campaign in our history. The three joint ventures and

enterprise with businesses in metals, cement, pulp and paper,

our independent exploration projects will result in about $7.0 million

chemicals, and orange juice. Votorantim is Latin America's

in exploration expenditures on very high profile projects. Current

largest primary zinc producer that operates two zinc mines, three

plans call for 20,000 meters of drilling on seven different projects.

zinc smelters, one of which is located in Peru, and owns a 25%

interest in Milpo, one of Peru's largest zinc mining companies.

We believe these credentials make Votorantim the perfect partner

to advance Bongará through feasibility and into production.

In our 2005 Annual Report we reported we had recently acquired

the Pachuca Real silver-gold project in central Mexico. We

expressed optimism for this project and its potential to host signif-

icant silver-gold mineralization, especially in an area adjacent to

the historic mining district, which we refer to as the North District.

Our enthusiasm was confirmed in September 2006 when we

signed a major joint venture agreement with Newmont Mining, the

world's second largest gold producer. At Pachuca Real, we control

virtually all potential extensions to one of the greatest silver dis-

tricts in the world. Newmont's financial resources and technical

depth make them the right partner to conduct the first ever modern

exploration program in the North District.

Anglo Platinum, our other major joint venture partner, continues

to fund our Pedra Branca platinum-palladium project in northeast-

ern Brazil. Anglo Platinum is the world's largest platinum pro-

ducer and has funded exploration on the Pedra Branca project for

the past three years. We recently signed a definitive agreement

with Anglo Platinum providing for another round of exploration

drilling that is expected to begin in the second quarter of 2007.

Last year we presented a commodity chart showing the price

improvement for gold, silver platinum, palladium, zinc, lead and

copper from the end of 2004 to the end of 2005. We expressed

our view that it was a watershed year for metal commodities.

However, price appreciation in 2006 was even more impressive

than 2005 as shown in the commodity legends on the globe fac-

ing this page. As we believe that commodity pricing strength is a

long term phenomenon, Solitario is well positioned to benefit.

Solitario's financial position has never been better. As of March

31, 2007, we have approximately $2.8 million in cash and $21.0

million in Kinross Gold Corporation stock. Kinross is the eighth

largest gold producer in the world and actively trades on both the

Toronto and New York stock exchanges. With a backdrop of high-

er metal prices and our strong financial condition, we believe

2007 will be a banner year for Solitario with our exciting array of

developing properties and aggressive drilling plans. We look for-

ward to sharing with you the results of our various programs dur-

ing the upcoming year.

Sincerely,

Christopher E. Herald
President & Chief Executive Officer

2006 Annual Report | 1

Peru

Bongará

The Bongará project hosts the high-grade Florida Canyon zinc deposit in northern Peru. We
discovered Florida Canyon in 1996 and joint ventured it with Cominco Ltd. in early 1997.
Between 1997 and 2000, Cominco drilled 80 core holes partially delineating the carbonate-
hosted high-grade Florida Canyon zinc deposit measuring 2.5 kilometers by 1.5 kilometers.
As successful as this drilling was, however, low zinc prices (about $0.45 per pound) result-
ed in Cominco terminating its option to earn an interest after spending nearly $16 million on
the project. We maintained the core property assets from 2000 to 2006, when we began
independently permitting a new drilling program.

While permitting in mid-2006, we signed a significant joint venture Letter Agreement with
Votorantim Metais, a large private Brazilian resource company. Votorantim assumed man-
agement of project operations and completed a very successful 26-hole drilling program
totaling 4,354 meters (see the chart below for drilling highlights). In the first quarter of
2007, we signed a definitive Framework Agreement with Votorantim.

Votorantim can earn up to a 70% interest in the project by funding a $1.0 million drilling
program (completed), completing future annual exploration and development expenditures,
and by making annual cash payments beginning in August 2007. The agreement calls for
Votorantim to have minimum annual work expenditures of $1.5 million in each of years two
and three, and $2.5 million in all subsequent years until a minimum of $18.0 million has
been expended by Votorantim. The option to earn the 70% interest can be exercised by
Votorantim at any time by committing to place the project into production based upon a fea-
sibility study. Once Votorantim has fully funded its $18.0 million work commitment, it has
further agreed to finance Solitario's 30% participating interest for construction. Solitario will
repay the loan facility through 50% of its cash flow distributions. Votorantim can elect to
terminate its option to earn an interest at any time.

Votorantim's 26-hole drilling program utilized four drilling platforms that tested a relatively
small area (500 meters x 200 meters) of the much larger mineralized system. The specific

Drill
Hole

Interval

Thickness
Meters

Zinc
(%)

Lead
(%)

Silver
(g/t)

A-1

A-2

A-3
A-5
C-3

C-4
C-5
D-4
D-5
E-1
E-2
E-3
E-4
E-5
E-6

62.5
26.3 -
77.3
76.3 -
35.5
31.4 -
54.8
53.3 -
74.5
71.8 -
33.8
28.6 -
77.1
72.9 -
89.3 -
92.0
97.9 - 104.7
82.4
80.2 -
83.9
78.6 -
87.0 -
95.2
189.3 - 191.8
144.3 - 148.6
178.4 - 181.2
180.4 - 185.1
171.4 - 176.7
142.5 - 147.3

36.15
1.00
4.10
1.55
2.70
5.22
4.20
2.70
6.80
2.15
5.25
8.20
2.50
2.60
2.80
4.65
5.30
4.80

12.84
42.60
7.95
12.53
16.81
15.04
5.02
6.04
15.98
8.74
6.37
7.57
25.48
14.82
22.05
6.01
29.77
12.07

2.69
4.85
0.05
2.76
4.13
0.66
0.56
0.03
5.03
7.74
1.25
1.27
0.69
1.22
6.47
3.04
4.65
1.06

18.45
46.00
1.70
15.86
27.97
5.73
4.17
1.10
36.51
37.52
6.29
10.31
9.61
9.06
47.96
21.93
43.99
6.94

About Votorantim Metais –

Votorantim Metais belongs
the
Votorantim Group, a private Brazilian
industrial conglomerate that is market
leader or has outstanding share in every
market segment in which it operates,
including cement, pulp and paper, metals,
chemicals, and orange juice. In 2005,
Votorantim Group’s revenues amounted to
US$7.8 billion. The metal business division
accounted for 30% of revenues and pro-
duces zinc, nickel, steel and aluminum.
Votorantim Metais is the world's tenth
largest primary zinc producer with three
operating zinc smelters and two operating
zinc mines.
It owns the Cajamarquilla
zinc smelter and is the major shareholder
of Milpo, both located in Peru.

2 | Solitario Resources Corporation

target of this drill program consisted of two stratiform layers of

mineralization, the Milagros and Karen zones. Significant miner-

alization, greater than 2.0% zinc over two meters (or equivalent)

was intersected in 19 out of 26 drill holes. This is an outstanding

success ratio of good drill holes to sub-mineralized holes and

bodes well for the overall potential of the project.

Drilling resumed at Bongará in 2006 with Votarantim’s highly
successfuly detailed drilling program.

Strategic Alliance With Newmont
In early 2005, Solitario signed a Strategic Alliance Agreement
("Agreement") with Newmont Overseas Exploration Limited
(“Newmont”), a subsidiary of Newmont Mining Corporation, the
world’s second largest gold producer. As part of the Agreement,
Newmont also provided, through its affiliate company Newmont
Mining Corporation of Canada Limited, a Cdn$4.59 million pri-
vate placement into Solitario to fund Strategic Alliance explo-
ration. This is proving to be an exciting opportunity for Solitario
to expand its grassroots exploration program in South America
and to utilize Newmont’s extensive South American data base and
advanced exploration technology. The Strategic Alliance demon-
strates Newmont's confidence in our experienced and successful
South American exploration team.

Since signing the Strategic Alliance with Newmont, we have
accelerated our grassroots exploration program in Peru. The cur-
rent Strategic Alliance area consists of 15,000-square kilometers
in southern Peru. Newmont has provided valuable technical data,
guidance and technology to assist Solitario in its efforts to explore
for gold within the Strategic Alliance area.

Under the terms of the Agreement, Solitario owns 100% of any
property acquired (“Alliance Property”) within the Strategic
Alliance area, subject to a maximum sliding scale net smelter
return royalty of 2% in favor of Newmont, depending on the pro-
cessing method. Newmont retains the right to joint venture any
Alliance Property after Solitario has expended and completed a
minimum drilling program. If Newmont elects to joint venture an
Alliance Property, it can earn a 51% interest by spending 200% of
the costs Solitario had incurred on the property. Newmont can
elect to earn a further 24% interest (to 75%) by taking the Alliance
Property through a bankable feasibility study and providing 100%
project financing for construction. Solitario would repay its 25%
share of project costs after feasibility through production cash

2006 Annual Report | 3

flow. Newmont also has the Right of First Offer to joint venture

other Solitario projects in South America.

Mexico

Yanacocha Royalty
Solitario owns a net smelter return royalty ("NSR-Royalty") on

approximately 61,000 hectares (150,000 acres) of mineral rights

in northern Peru situated immediately north of Newmont-

Buenaventura's Minera Yanacocha gold mine, South America's

largest gold mine. The NSR-Royalty is indexed to the gold price

and processing method that is utilized to produce gold and vari-

ous other metals. For heap leach ores, at today's prices

(+$500/oz. gold), the NSR-Royalty for gold is 2.75%. For ores

that are milled, in a non-flotation mill at today’s gold price, the

NSR-royalty for gold would be 2.0%. In 2006, Newmont con-

tinued its extensive surface exploration work on the northern part

of the property with a commitment to spend an additional $1.0

million on our royalty property between January 2007 and

December 2008.

Newmont will be conducting the first-ever drilling program
on the Pachuca Real North District.

Pachuca Real
The focus of our 2005 and 2006 Mexican exploration effort was

the acquisition and subsequent joint venturing with Newmont

Mining of our 47,300-hectare (116,900 acres) Pachuca Real sil-

ver-gold project (see map opposite page) in the state of Hidalgo

in central Mexico. The historic Pachuca mining district was one

of the most prolific silver districts in the world and one of the

largest gold producers in Mexico. Past production totals at least

1.4 billion ounces of silver and just over 7.0 million ounces of

gold. Solitario's property encompasses about 30 percent of the

historic district, but more importantly, covers over 95% of the

potential extensions of the district to the north and northwest.

The historical ownership and exploration history of our Pachuca

Real property provides important insight to our enthusiasm for

this property and its potential. The Mexican government held the

concessions from 1947 to the early 1990's with very limited or no

exploration during that period. The concessions were subsequent-

ly sold to a private Mexican company and held by that same com-

pany until 2006, which conducted sporadic surface exploration

during their ownership. We acquired title to the main portion of

the property on the first day that the land was open to staking.

After conducting an initial reconnaissance exploration program

during mid-2006, we signed a definitive venture agreement with

Newmont de Mexico, S.A. de C.V. ("Newmont"), a wholly

owned subsidiary of Newmont Mining Corporation in September

2006. The venture agreement calls for the following work com-

mitments over the next 4.5 years:

Exploration
Expenditures
and Due Dates

First 18 months -
firm commitment

18-30 months –
optional commitment

30-42 months –
optional commitment

42-54 months –
optional commitment

Amount

Aggregate
Amount

$2,000,000

$2,300,000

$4,300,000

$3,500,000

$7,800,000

$4,200,000

$12,000,000

Newmont's firm $2.0 million work commitment also includes a

minimum of 7,500 meters of drilling by March 2008. Should the

drilling not be completed within the initial 18-month period, the

agreement allows for an additional six-month period to complete

4 | Solitario Resources Corporation

of geologic mapping and geochemical

sampling. This work has developed

four drilling targets, with most of the

property remaining to be mapped and

sampled. We are confident that addi-

tional work will generate many new

drill targets for testing beyond 2007.

Drilling on the four developed targets

is anticipated to begin sometime in the

second quarter of 2007.

Other Mexican Projects
We are conducting initial surface

exploration on two other early stage

properties in Mexico. These include

the 26,000-hectare Providencia gold

project in the northern state of Sonora

and the 1,420-hectare Corazon del Oro

project in the Concepcion del Oro dis-

trict in the central state of Zacatecas.

Both properties have zones of strong

gold mineralization at surface and

have never been drill tested. Both

Providencia and Corazon del Oro may

be drill tested later this year, if surface

exploration continues to be favorable.

The Pachuca Real North District displays a similar-sized vein system as the historic
world-class Pachuca silver-gold district.

the drilling. Upon the completion of $12.0 million in expendi-

tures, Newmont will have earned a 51% interest in the project.

Newmont will have the right to earn an additional 14% (total

65%) by spending at least $5.0 million annually until such time as

a positive feasibility study is completed for the project. Newmont

has the right to terminate the agreement at any time following its

initial work commitment.

Upon completion of a feasibility study, Solitario will have the

option to self-finance its 35% participating interest in the project, or

to have Newmont finance its portion of construction costs. Such

post-feasibility funding plus interest would be paid from 80% of

Solitario's distribution of future earnings or dividends from the ven-

ture. If Solitario elects to have Newmont fund all its venture costs

after feasibility, then Solitario's participating interest will be imme-

diately reduced to 30% and Newmont's interest will be 70%.

The footprint of mineralization in the historic Pachuca district is

approximately 15 kilometers long and 10 kilometers wide. A sim-

ilar scale of mineralization occurs on Solitario controlled property

to the north and northwest of the historic district where Newmont

is conducting an intensive surface exploration program consisting

Many veins have been located and mapped by Newmont in
the North District and constitute excellent drill targets.

2006 Annual Report | 5

Much of our work in the Tapajos region consists of evaluating
prospects where informal gold mining occured in the past.

Highlights of 2006 drilling include core holes SB-16 that intersect-
ed 7.0 meters grading 6.8 grams per tonne ("g/t") gold, SB-18 that
intersected 34.0 meters of 2.7 g/t gold and SB-20 that intersected
25.5 meters grading 1.6 g/t gold. At the Colonia prospect in the
southern part of the property, a mineralized east-west structural
trend has been traced for at least 400 meters. This trend remains
open in both directions along horizontal strike and at depth. At the
Patoa prospect further north, two holes, SB-04 drilled in 2005, and
SB-18, may represent a separate mineralized trend. These holes
intersected 12.2 meters grading 12.2 g/t gold and 34 meters of 2.7
g/t gold, respectively. In addition, SB-20, that intersected 25.5
meters of 1.6 g/t gold, was drilled 600 meters west of the main
Patoa area and suggests significant new potential for the Patoa
zone. Finally, at the Tucanaré prospect, all five drill holes complet-
ed have intersected gold mineralization and we are planning addi-
tional work to determine the size of this highly prospective zone.

Good old-fashioned rock sampling by hand remains one of our principal evaluation tools.

Brazil

Mercurio Gold Project
We continue to be encouraged with the drilling results from our
100%-owned 8,550-hectare Mercurio gold project situated in the
Tapajos region of northern Brazil. It is estimated that the Tapajos
gold region, an area about the size of Colorado, has produced 30
to 40 million ounces of gold by local small-scale mining of soils.
The Mercurio property, located near the center of the Tapajos
region, has relatively easy access by a seasonal unimproved road
that services the region.

In 2006 we followed up our 2005 drilling campaign with a second
round of drilling by completing 11 additional core holes totaling
1,596 meters. In total, 18 out of 23 widely spaced drill holes have
intersected significant gold mineralization in the 2005 and 2006
drilling campaigns. The 2006 Mercurio drilling results are pro-
vided in the table below.

Hole

From

Interval Gold Grade

Number Meters Meters Meters

g/t

77.0
111.0
94.0

7.2
22.1
39.1
110.7
62.6

55.8
74.5
122.4
39.8
199.3

105.0
117.0
101.0

41.2
25.1
41.5
112.7
88.1

67.6
78.1
131.0
41.9
205.7

28.0
6.0
7.0

34.0
3.0
2.4
2.0
25.5

11.8
3.6
9.4
2.1
6.4

1.0
1.8
6.8

2.7
1.1
1.9
1.8
1.6

0.6
1.6
0.7
1.8
2.1

Prospect
Name

Colonia

Patoa

SB-13
SB-15
SB-16

SB-18
SB-19

SB-20

Tucanaré

SB-21

SB-22
SB-23

6 | Solitario Resources Corporation

program, as well as other project work,
which is estimated to cost approximately
$1.0 million.

During the past three years, Anglo Platinum
funded two drilling campaigns and other
surface work totaling about $1.25 million in
expenditures. This work, combined with
drilling previously conducted by Solitario,
has defined near-surface PGM-mineraliza-
tion in four different deposits: the Esbarro,
Curiu, Santa Amaro and Trapia I deposits.
Mineralization in all four deposits occurs at
shallow depths within chromite-bearing
ultramafic rocks, geologically similar to the
prolific
Bushveld
PGM-producing
Complex in South Africa.

Geochemistry has revealed a large 5x3 km gold anomaly in soils.

Our exceptional success ratio in interesecting mineralization at
Mercurio confirms our optimism about the potential of the prop-
erty. In 2007 we are planning our largest drill program to date on
the property with 2,000 meters of core drilling scheduled.

Solitario and Anglo Platinum signed several
definitive agreements in early 2007 to for-
malize the long-term relationship between
the two companies. Anglo Platinum can
earn a 51% interest in Pedra Branca by spending an additional
US$6.0 million on exploration and development over the next four
years. Anglo Platinum can earn a further 14% interest (to a total 65%
interest) by completing a bankable feasibility study or spending an
additional $10 million on the project, whichever comes first, and
arranging 100% project financing.

Pedra Branca
In late-2006 and early-2007 we
conducted additional geophys-
ical work consisting of induced
polarization surveys and rigor-
ous new reprocessing of previ-
ously generated ground mag-
netic data on this 45,365-
hectare property located in
Ceará State, Brazil. This work
has provided enhanced target
definition for drilling to extend
mineralization at the previous-
ly drilled Esbarro, Cedro,
Trapia and Santa Amaro
prospects, and provided excit-
ing new information for the
Galante, Conceição and South
Synform prospects that have
never been drill tested. Our
current plans call for drilling to
begin in late-April. The 2007
program will consist of 3,500
meters of core drilling in at
least seven different areas.
Anglo Platinum will fund this

Detailed ground magnetic surveys delineate large potential ore-bearing drill targets at our Pedra Branca project.

2006 Annual Report | 7

Bolivia

Political Currents in Bolivia
We have buyout options on two early stage exploration projects

from private parties in Bolivia. We had planned on drilling both

properties in 2006, but the political climate in Bolivia became

increasingly uncertain with the national government sending

conflicting signals on its position relative to private foreign

ownership of natural resource projects. Consequently, we elect-

ed to postpone our drilling plans. We continue to monitor the

political situation in Bolivia to determine when, and if, we may

resume more significant exploration activities.

Titicayu
The Titicayu silver prospect is located 175 kilometers south of

La Paz. A mineralized structural zone has been traced on sur-

face for nearly one-kilometer in length and this zone averages

10 to 20 meters in width. The zone is covered by younger

unmineralized volcanics on each end and is consequently open

to expansion. Our geologists have interpreted the exposed sur-

face mineralization to be "high level," meaning that the best

grades could reside at depth. No drilling has ever been conduct-

ed on the property.

Triunfo
The Triunfo polymetallic (gold-silver-lead-zinc) project is locat-

ed about 35 kilometers east of the capital city of La Paz, Bolivia.

Exposed mineralization occurs as a structurally controlled zone

of veins and veinlets up to 80 meters wide and at least 400

meters long. The eastern and western limits along strike and

southern limit of width are covered by shallow talus, and are

In 2007 Solitario expects to complete 20,000 meters of drilling
on seven projects throughout Latin America.

.In Summary

With over $20 million in cash and Kinross stock, no

debt, three significant joint ventures with three

major mining companies and an emerging array of

new 100%-owned gold prospects, we are more

potentially open to expansion. No drilling has ever been con-

optimistic than ever concerning the future

ducted on the property

prospects for Solitario.

8 | Solitario Resources Corporation

Management’s Discussion & Analysis
of Financial Condition & Results of Operations

The following discussion should be read in conjunction with the
information contained in the consolidated financial statements and notes
thereto included in Item 8 “Financial Statements and Supplementary
Data.” Our financial condition and results of operations are not
necessarily indicative of what may be expected in future years.

(a) Business Overview and Summary
We are an exploration stage company with a focus on the acquisition of
precious and base metal properties with exploration potential. We
acquire and hold a portfolio of exploration properties for future sale or
joint venture prior to the establishment of proven and probable reserves.
Although our mineral properties may be developed in the future through
a joint venture, we have never developed a mineral property and we do
not anticipate developing any currently owned mineral properties on our
own in the future. We were incorporated in the state of Colorado on
November 15, 1984 as a wholly owned subsidiary of Crown. We have
been actively involved in this business since 1993 and have in the past
recorded revenues from joint venture payments and the sale of these
properties on an infrequent basis, with the last significant revenues
recorded in 2000 upon the sale of our Yanacocha property for
$6,000,000. We expect future revenues from joint venture payments or
the sale of properties, if any, would also occur on an infrequent basis. At
December 31, 2006 we had nine exploration properties in Peru, Bolivia,
Mexico and Brazil. We are conducting exploration activities in all of
those countries. 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. Crown was acquired by Kinross upon the
completion of the Crown – Kinross merger and Kinross currently owns
less than one percent of our outstanding common stock.

Our principal expertise is in identifying mineral properties with promising
mineral potential, acquiring these mineral properties and exploring them
to enable us to sell or joint venture these properties prior to the
establishment of proven and probable reserves. Currently we have no
mineral properties in development and we do not anticipate developing
any currently owned properties on our own in the future. We currently
own nine mineral properties under exploration and we own our Yanacocha
royalty interest. Our goal is to discover economic deposits on our mineral
properties 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 properties or pursue their development 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
property-by-property 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 property. 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 gold-bearing mineral
properties increases, however, it also becomes more difficult and
expensive to locate and acquire new gold-bearing mineral properties
with potential to have economic deposits.

The potential sale, joint venture or development through a joint venture
of our mineral 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 (i) sale of properties, which last occurred in
2000 with the sale of our Yanacocha property for $6,000,000; (ii) joint
venture payments, which last occurred during the years from 1996

through 2000; (iii) investment in Kinross (previously Crown); (iv)
issuance of common stock, including exercise of options, and through
private placements; (v) 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
although we expect that our primary funds will come from the sale of
our investment in Kinross.

(b) Recent Developments
On September 25, 2006 we signed a definitive venture agreement (the
“Venture Agreement”) with Newmont de Mexico, S.A. de C.V.
("Newmont"), a wholly owned subsidiary of Newmont Mining
Corporation, on Solitario's Pachuca Real silver-gold project in central
Mexico. The Venture Agreement calls for a firm work commitment by
Newmont of $2.0 million over the next 18 months. Work commitments
over the next 4.5 years total $12.0 million.

EExxpplloorraattiioonn EExxppeennddiittuurreess
aanndd DDuuee DDaatteess
18 months from signing –
30 months from signing –
42 months from signing –
54 months from signing –
(1) firm commitment
(2) optional commitment

AAmmoouunntt

$ 2,000,000 (1)
$ 2,300,000 (2)
$ 3,500,000 (2)
$ 4,200,000 (2)

AAggggrreeggaattee
AAmmoouunntt
$ 2,000,000
$ 4,300,000
$ 7,800,000
$ 12,000,000

Newmont's initial firm work commitment includes a minimum of 7,500
meters of drilling, however Newmont will have 24 months to complete
such drilling and any costs beyond the initial 18 month period to
complete that drilling, if necessary, will be in addition to the $2.0 million
work commitment above. Upon the completion of $12.0 million in
expenditures, Newmont will have earned a 51% interest in the project.
Newmont will have the right to earn an additional 14% (total 65%) by
completing a positive feasibility study for the project. After Newmont
has spent $12.0 million and has elected to complete a feasibility study,
Newmont is required to spend a minimum of $5.0 million annually until
such time as the positive feasibility study is completed. Newmont has
the right to terminate the agreement at any time following its firm initial
work commitment. Upon completion of the feasibility study, we will
have the option to self-finance our 35%-participating interest in the
project, or to have Newmont fund our portion of construction costs at
Libor + 3.5%. Such post-feasibility funding plus interest shall be paid
from 80% of our distribution of future earnings or dividends from the
venture. If we elect to have Newmont fund all our venture costs after
feasibility, then our participating interest will be immediately reduced to
30% and Newmont's interest will be 70%.

On August 15, 2006 we signed a Letter Agreement with Votorantim
Metais Cajamarquilla, S.A., a wholly owned subsidiary of Votorantim
Metais (collectively, "Votorantim"), on our 100%-owned Bongará zinc
project in northern Peru. The Bongará project hosts the Florida Canyon
zinc deposit where high-grade zinc mineralization has been encountered
in drill holes over an area two by two kilometers in dimension. The Letter
Agreement calls for a firm commitment by Votorantim to fund a one-
year, $1.0 million exploration program which began in late October 2006.
Votorantim can earn up to a 70% interest in the project by funding the
$1.0 million exploration program, by completing future annual
exploration and development expenditures, and by making cash
payments of $100,000 on the first anniversary of signing the Letter
Agreement and $200,000 on all subsequent anniversaries until a
production decision is made or the agreement is terminated. The option
to earn the 70% interest can be exercised by Votorantim any time after the
first year commitment by committing to place the project into production
based upon a feasibility study. Additionally, Votorantim, in its sole

2006 Annual Report | 9

discretion, may elect to terminate the option to earn the 70% interest at
any time after the first year commitment. The Letter Agreement calls for
Votorantim to have minimum annual exploration and development
expenditures of $1.5 million in each of years two and three, and $2.5
million in all subsequent years until a minimum of $18.0 million has been
expended by Votorantim. Votorantim will act as project operator. Once
Votorantim has fully funded its $18.0 million work commitment, it has
further agreed to finance our 30% participating interest through
development. We will repay the loan facility through 50% of our cash
flow distributions. Both parties are currently working towards signing
definitive agreements effectuating the Letter Agreement.

We have a significant investment in Kinross Gold Corporation (“Kinross”)
at December 31, 2006, which consists of 1,742,920 shares of Kinross
common stock. We received 1,942,920 shares in exchange for 6,071,626
shares of Crown common stock we owned on the date of the completion
of a merger on August 31, 2006 whereby Kinross acquired all of the
outstanding shares of Crown common stock for 0.32 shares of Kinross
common stock per share of Crown common stock (the “Crown – Kinross
merger”). On September 15, 2006, subsequent to the Crown – Kinross
merger, we sold 100,000 Kinross common shares for net proceeds of
$1,206,000. We sold an additional 100,000 shares of Kinross common
stock for net proceeds of $1,236,000 on October 24, 2006. Subsequent to
December 31, 2006 we sold an additional 100,000 shares for net proceeds
of $1,274,000 and as of February 21, 2007, we own 1,642,920 shares of
Kinross common stock which have a value of approximately $22.2
million based upon the market price of $13.51 per Kinross share. Any
significant fluctuation in the market value of Kinross common shares
could have a material impact on our liquidity and capital resources.

On August 2, 2006 we received approval to list our common shares on
the American Stock Exchange (“AMEX”). Trading on the AMEX
began on Friday, August 11, 2006, under the symbol XPL. Our common
stock continues to trade on the Toronto Stock Exchange (“TSX”) under
the symbol SLR.

As a result of ongoing geologic and exploration activities including
drilling, during 2006 we made the decision to drop our interest in three
properties: the La Libertad and the Pillune projects in Peru and the
Pozos and Zinda projects in Mexico and the Pau d' Arco project in
Brazil. We recorded property abandonment and impairment expense of
$35,000 related to the write-off of the capitalized costs on these
properties during 2006.

On April 16, 2006, we signed the fourth amendment to the Pedra Branca
Letter Agreement with Anglo Platinum, Ltd. ("Anglo"), which extended
to July 15, 2006 from May 15, 2006 the date by which Anglo and
Solitario would complete a definitive operating agreement for the
exploration and development of Solitario's Pedra Branca Project. In
addition, Anglo agreed to reimburse us for certain care and maintenance
expenses incurred at the Pedra Branca Project during 2005 and 2006 and
to pay up to $5,000 of monthly care and maintenance costs through July
15, 2006. On July 14, 2006, we signed a Framework Agreement that
commits Anglo Platinum to fund the next six months of work totaling
approximately $373,000. Solitario's and Anglo Platinum's property
interests will be held indirectly through a joint operating company that
will hold a 100% interest in the mineral rights and other project assets.
The relationship between Solitario and Anglo Platinum will be defined
by a definitive Shareholders Agreement. Solitario and Anglo Platinum
have completed drafting of a definitive operating agreement and we
anticipate signing the definitive agreement before the end of the 2007
first quarter, upon approval of several regulatory filings within Brazil.
Current plans call for approximately $1.0 million in exploration
expenditures for the ten month period ending October 31, 2007. Upon
the completion of the aforementioned expenditures, Anglo Platinum will
have earned a 15% interest in the joint operating company holding Pedra
Branca mineral rights, with Solitario retaining an 85% interest.

During 2006, we capitalized $47,000 related to initial staking and lease
costs on five exploration projects. We capitalized $18,000 for initial
staking and concession costs paid to the Brazilian government and initial
acquisition costs paid to a private Brazilian individual on its Pau d'Arco

project in Brazil. We capitalized $10,000 on our Titicayo project in
Bolivia, capitalized $5,000 for initial lease and option payments related to
our Pachuca property in Mexico for initial lease payments and capitalized
approximately $14,000 on our Amazonas property in Peru. Solitario
subsequently dropped its interest in the Pau d'Arco project in Brazil during
the fourth quarter of 2006. Any additional costs incurred for subsequent
lease payments or exploration activities will be expensed as incurred.

On May 1, 2006 the government of Bolivia effectively nationalized its oil
and gas production, by reducing the share of production a foreign owner
of such assets may receive to 18%, and by ordering the Bolivian armed
forces to forcibly occupy the country's largest gas fields. Solitario has a
small mineral exploration program in Bolivia, covering two properties
with total capital costs of approximately $30,000. The action by the
Bolivian government did not include mining assets and does not directly
affect our operations or assets. We will continue to monitor the actions of
the Bolivian government for any future impact or potential impairment.

(c) Results of Operations
CCoommppaarriissoonn ooff tthhee yyeeaarr eennddeedd DDeecceemmbbeerr 3311,, 22000066 ttoo tthhee yyeeaarr
eennddeedd DDeecceemmbbeerr 3311,, 22000055
We had a net loss of $3,183,000 or $0.11 per basic and diluted share for
the year ended December 31, 2006 compared to net loss of $2,080,000
or $0.08 per basic and diluted share for the year ended December 31,
2005. As explained in more detail below, the primary reason for the
increase in net loss during 2006 compared to the net loss during 2005
was an increase in exploration expense to $2,942,000 in 2006 from
$2,072,000 in 2005, non-cash charge of $955,000 for stock-based
compensation expense, of which $951,000 related to stock-based
compensation from the grant of options during 2006, plus an increase in
other general and administrative costs including increases as a result of
the termination of the management services agreement with Crown and
the receipt of other income during 2005 in the form of a dividend from
Crown of $1,275,000. These differences in income and expenses were
mitigated by gain of $2,121,000 on the sale of Kinross stock during 2006
and a reduction in the management service agreement fee to $232,000 in
2006 compared to $423,000 during 2005.

Our net exploration expense increased to $2,942,000 during 2006
compared to $2,072,000 in 2005. During 2006 we further expanded
our exploration efforts in Peru, Brazil and Mexico, portions of which
led to the addition of certain exploration projects. We increased our
surface sampling and evaluation programs during 2006 compared to
2005 including reconnaissance activities related to our Strategic
Alliance projects and at our Pachuca property in Mexico prior to
signing of our Pachuca-Real agreement with Newmont, discussed
above. We also increased our exploration expense at our Pedra Branca
property in Brazil. Our gross exploration costs increased to $3,207,000
in 2006 from $2,172,000 in 2005. The exploration expenses were
offset by joint venture reimbursements by Anglo Platinum on our Pedra
Branca project of $265,000 during 2006 and $100,000 during 2005. In
addition to the increase in surface exploration activities, we increased
our direct drilling expenditures to $590,000 at our Pau d'Arco,
Mercurio, Libertad and Pillune projects during 2006 compared to direct
drilling exploration expenditures at our Pedra Branca, Mercurio and La
Tola projects of $264,000 during 2005. As a result of our exploration
and evaluation activities we decided to drop or reduce our interests in
five properties during 2006: Libertad and Pillune in Peru, Pozos and
Zinda in Mexico, and Pau d'Arco in Brazil, recording $35,000 in
mineral property write-downs. We acquired three new projects during
2006 and we anticipate continuing to acquire mineral properties, either
through staking, joint venture or lease, in Latin America during 2007
and have budgeted our related net exploration expenditure to be
approximately $1,932,000 for 2007. The primary factors in our
decision to decrease exploration expenditures in 2007 relate to more
projects being joint-ventured in 2007 and a reduction in drill targets on
our existing non-joint venture projects.

Exploration expense (in thousands) by property consisted of the
following:

10 | Solitario Resources Corporation

PPrrooppeerrttyy NNaammee
Newmont Alliance
Bongará
Pedra Branca, net
Mercurio
Pau d’Arco
Pachuca
Libertad
Conception del Oro
Purisimas
Pozos
Zinda
Titicayo
Triunfo
Windy Peak
Odin
Reconnaissance
Total exploration expense

22000066

22000055

470
129
(13)
629
495
189
144
30
19
18
15
34
15
-
-
768
2,942

296
69
34
559
-
6
-
6
-
21
8
-
17
105
131
820
2,072

General and administrative costs were $2,010,000 during 2006 compared
to $576,000 in 2005. The largest change in general and administrative costs
related to a non-cash charge of $951,000 during 2006 for stock-based
compensation expense discussed below. In addition we incurred salary
expense of $248,000 subsequent to August 31, 2006 as a result of the
termination of the Crown management services agreement and the addition
of our employees who previously were paid by Crown. We also had
increases in costs during 2006 compared to 2005 for shareholder relations
including corporate and exchange fees of $103,000, primarily related to
$75,000 for listing fees on the AMEX during 2006. We also incurred
increases in legal and accounting costs totaling $75,000, which primarily
related to an SEC review of our financial statements and the application to
list on the AMEX. We recorded consulting expense of $27,000 during
2006 related to an agreement entered into in 2006 with Mark Jones,
discussed below under related party transactions. In addition, other general
and administrative costs (net) increased approximately $29,000 in 2006
compared to 2005 primarily related to costs which had previously been
allocated between Crown and Solitario. We anticipate an increase in
general and administrative costs in the future due to full year costs of
salaries, rent and shareholder costs, previously included in the management
services contract, which will be offset by reductions in the stock option
compensation cost which is forecast to be approximately $632,000 in 2007.

On January 1, 2006, we adopted SFAS 123R. SFAS 123R requires the
expensing of the grant date fair value of options over the term of their
vesting. On June 27, 2006 the Board of Directors granted 1,655,000
options under the 2006 Plan. We determined the fair value of
$2,536,000 for the 2006 Plan options granted on June 27, 2006 using a
Black-Scholes option pricing model. We immediately recognized
$634,000 of stock-based compensation expense as part of general and
administrative expense for the 25% vesting on the date of grant and we
have elected cliff-vesting to recognize the fair value of the option grant
over the vesting period of three years on a straight line basis.
Accordingly, we have recognized an additional $317,000 during 2006 of
option compensation expense for the portion vested of the remaining
75% of the fair value as of the date of the grant, which is being
recognized over the three years from the date of grant. There were no
similar grants in the prior year, and prior to adopting SFAS 123R, we did
not recognize stock-option compensation expense in the statement of
operations. See Stock Based Compensation Plans in Note 1 to the
condensed consolidated financial statements.

We had $49,000 of depreciation and amortization expense during 2006
compared to $29,000 in 2005 primarily as a result of the addition of
furniture and fixtures of $119,000 and $126,000, respectively, which
were added during 2006 and 2005. We amortize these assets over a three
year period. We anticipate our 2007 depreciation and amortization costs
will be similar to our 2006 amount.

Management fee expense decreased to $232,000 during 2006 compared
to $423,000 in 2005. Although there were no changes in the management
agreement, the decrease in management fees during 2006 was related to
the termination of the agreement on August 31, 2006. Under the modified

management agreement Solitario paid 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
reimbursed Crown for direct out-of-pocket expenses.

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 exercised our remaining 500,000 TNR warrant on July 24, 2006
by paying $70,000 in cash and transferred our existing warrant valuation of
$12,000 on the date of exercise to marketable equity securities and as a result
recorded no gain or loss on derivative instruments related to our holdings of
TNR warrants during the second half of 2006. The TNR shares were classified
as marketable equity securities and the TNR warrants were 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. We recorded a
decrease in the value of our TNR warrants through the date of exercise of
$5,000 compared to a decrease in value for the year ended December 31, 2005
of $20,000 to loss on derivative instruments in the consolidated statement of
operations. We do not anticipate recognizing any future gains or losses in our
derivative instruments as we no longer own any warrants.

During 2006 we recorded interest income of $26,000 compared to interest
income of $52,000 during the same period in 2005. The interest income
recorded during 2006 and 2005 consisted of payments on cash and cash
equivalent deposit accounts. Our average cash balances were larger
during 2005 compared to 2006, which led to the decline in interest income.

On September 15, 2006, we sold 100,000 shares of Kinross common
stock for net proceeds of $1,206,000 and recorded a gain of $1,046,000
on the sale. On October 24, 2006, we sold an additional 100,000 shares
of Kinross common stock for net proceeds of $1,236,000 and recorded a
gain of $1,076,000 on the sale. There were no similar sales of marketable
equity securities during 2005. We anticipate we will continue to liquidate
our Kinross holdings over the next three years. See liquidity and capital
resources below. During 2005 Crown paid a one-time special dividend
and we received $1,275,000 on our holdings of Crown stock, which was
recorded as other income. There were no similar items in 2006 and we
do not anticipate receiving any dividends on our holdings of marketable
equity securities in Kinross or TNR in the foreseeable future.

During 2006, we recorded income tax expense of $54,000 compared to an
income tax expense of $257,000 during 2005. The decrease in net tax
expense is related to the increase in general and administrative expenses
during 2006 discussed above, which are included in the United States
taxable income which was offset by the gains on sale of Kinross stock
during 2006 discussed above. This increase in other income compared to
the $1,275,000 Crown dividend during 2005, described above. We provide
a valuation allowance for our foreign net operating losses, which are
primarily related to our exploration activities in Peru, Mexico, Bolivia and
Brazil. We anticipate we will continue to provide a valuation allowance for
these net operating losses until we are in a net tax liability position with
regards to those countries where we operate or until it is more likely than
not that we will be able to realize those net operating losses in the future.

We regularly perform evaluations of our 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 2006 we recorded $35,000 of
property impairments, related to our Libertad and Pillune projects in
Peru, our Pozos and Zinda projects in Mexico, and the Pau d'Arco
project in Brazil, compared to $30,000 of property impairments during
2005, related to our La Pampa, Windy Peak and Odin projects.

2006 Annual Report | 11

CCoommppaarriissoonn ooff tthhee yyeeaarr eennddeedd DDeecceemmbbeerr 3311,, 22000055 ttoo tthhee yyeeaarr
eennddeedd DDeecceemmbbeerr 3311,, 22000044
We had net loss of $2,080,000 or $0.08 per basic and diluted share for
the year ended December 31, 2005 compared to net loss of $2,925,000
or $0.12 per basic and diluted share for the year ended December 31,
2004. As explained in more detail below, the primary reason for the
decrease in net loss during 2005 compared to the net loss during 2004
was the receipt of a dividend from Crown during 2005 of $1,275,000,
and the recognition of a $1,704,000 unrealized loss on derivative
instruments primarily related to our holdings of Crown warrants during
2004 while only recording a $20,000 unrecorded loss on derivative
instruments in 2005. However these decreases were partially mitigated
by an increase in exploration expense to $2,072,000 in 2005 from
$1,088,000 in 2004. Finally we recorded deferred tax expense of
$257,000 during 2005, primarily related to the Crown dividend,
compared to a deferred tax benefit of $935,000 during 2004 primarily as
a result of our pre-tax loss of $3,860,000.

During the year ended December 31, 2005 we recorded an unrealized loss
on derivative instruments of $20,000 related to our holdings of TNR
warrants compared to an unrealized loss of $1,704,000 during 2004
primarily related to our Crown warrants. Because we exercised our
Crown warrants on July 12, 2004 there were no unrealized gains or losses
related to our Crown warrants recorded during 2005. The Crown warrants
represented the right to receive 2,057,143 Crown shares, were exercisable
into Crown shares at any time prior to October 2006 at exercise prices
between $0.60 and $0.75 per share 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.

During 2005 we recorded interest income of $52,000 compared to
interest income of $193,000 during the same period in 2004. The
interest income recorded during 2005 consisted of payments on cash and
cash equivalent deposit accounts. During 2004 we recorded interest of
$192,000 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.

Our net exploration expense increased to $2,072,000 during 2005
compared to $1,088,000 in 2004. During 2005 we focused our exploration
efforts on reconnaissance exploration in Peru, Brazil and Mexico, portions
of which led to the addition of certain exploration projects, discussed
above. Additionally, we increased our exploration activities associated with
the Strategic Alliance upon the signing of the Alliance Agreement in
January 2005, discussed above under “Recent Developments.”
Accordingly, our gross exploration costs increased to $2,172,000 in 2005
from $1,499,000 in 2004. The exploration expenses were offset by joint
venture reimbursements by Anglo Platinum on our Pedra Branca project of
$100,000 during 2005 and $411,000 during 2004. In addition to our work
at Pedra Branca the increase in our gross exploration costs primarily
consisted of drilling, sampling and exploration in our Alliance Project
Areas 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 or reduce our
interests in three properties during 2005: La Tola in Peru, Windy Peak in
Nevada and Odin in Brazil. We acquired seven projects during 2005 and
we anticipate continuing to acquire mineral properties, either through
staking, joint venture or lease, in Latin America during 2006.

We had $29,000 of depreciation and amortization expense during 2005
compared to $119,000 in 2004. During 2004, depreciation and
amortization expense up to April 2004 included $117,000 of
amortization of mineral interests. 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 which included
depreciation on additions of $126,000 during 2005 for computers, trucks
and other equipment, which replaced much of our previous equipment,
most of which had become fully depreciated by the end of 2004.

General and administrative costs were $576,000 during 2005 compared to
$629,000 in 2004. The largest change in general and administrative costs
related to a decrease in legal and accounting costs, which decreased to
$122,000 during 2005 compared to $303,000 in 2004. The primary reason
for the increased cost in 2004 is related to 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 we recorded
currency gains of $62,000 during 2005 compared to currency gains of
$30,000 primarily related to currency gains on our larger 2005 Canadian
cash deposits as well as a result of a general decline in the United States
dollar relative to our deposits in Latin America during 2005 compared to
2004. These decreases were offset by increased administrative and staff
costs in Latin America to $123,000 in 2005 compared to $102,000 in 2004
as well as increased staff and travel costs with the increase in exploration
activity during 2005 compared to 2004. We also increased our costs for
shareholder relations and printing and distribution of our annual report to
$131,000 in 2005 from $93,000 in 2004.

Management fee expense increased to $423,000 during 2005 compared
to $390,000 in 2004. The increase in management fees is related to
increased managerial time spent by Crown on our activities during 2005
compared to 2004. 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.

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 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 a decrease in the value of its TNR warrants as of December 31,
2005 of $20,000 to loss on derivative instruments in the consolidated
statement of operations compared to an increase of $38,000 recorded to
gain on derivative instruments in 2004.

During 2005, we recorded income tax expense of $257,000 compared to
an income tax benefit of $935,000 during 2004. The increase in net tax
expense is related to the expected United States taxable income, including
the $1,275,000 Crown dividend during 2005, described above, as well as
a reduction in the non-deductible gain on derivative instruments from
$1,704,000 in 2004 compared to $20,000 in 2005. In addition we provide
a valuation allowance for our foreign net operating losses, which are
primarily related to our exploration activities in Peru, Mexico, Bolivia and
Brazil. We anticipate we will continue to provide a valuation allowance

12 | Solitario Resources Corporation

for these net operating losses until we are in a net tax liability position with
regards to those countries where we operate or until it is more likely than
not that we will be able to realize those net operating losses in the future.

During 2004, we sold an investment in marketable equity securities for
$16,000, and recorded a gain on such sale of $14,000. We also exchanged
500,000 shares of TNR common stock for 500,000 shares of TNR common
stock that could not 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. There were no similar items during 2005.

Included in asset write-downs during 2005 were $30,000 of property write-
downs related to our La Pampa, Windy Peak and Odin projects, compared to
$64,000 of mineral property impairments during 2004, related to our San
Pablo, Legacy Ridge, La Pampa, and Sapalache projects.

(d) 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 our properties, joint venture
arrangements, the sale our securities and most recently from the sale of our
marketable equity security investment in Kinross. The receipts from joint
venture payments last occurred during the years from 1996 through 2000
and the sale of properties last occurred in 2000 upon the sale of our
Yanacocha property for $6,000,000. We expect future revenues from joint
venture payments and from the sale of properties, if any, would also occur
on an infrequent basis. 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.

IInnvveessttmmeenntt iinn MMaarrkkeettaabbllee EEqquuiittyy SSeeccuurriittiieess
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, 2006 and 2005, we owned
1,742,920 shares of Kinross common stock and 6,071,626 shares of
Crown common stock, respectively. The Kinross and Crown shares are
recorded at their fair market value of $20,706,000 and $13,965,000 at
December 31, 2006 and December 31, 2005, respectively. In addition
we own other marketable equity securities with a fair value of $198,000
and $94,000 as of December 31, 2006 and December 31, 2005,
respectively. At December 31, 2006, we have classified $15,728,000 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 stockholders’ equity. During the year
ended December 31, 2006, we recorded a gain in other comprehensive
income on marketable equity securities of $9,205,000, less related
deferred tax expense of $3,590,000. In addition during the year ended
December 31, 2006, we sold 200,000 shares of Kinross stock for
proceeds of $2,442,000 resulting in a gain of $2,121,000 which was
transferred, less related deferred tax expense of $827,000, from
previously unrealized gain on marketable equity securities in other
comprehensive income. See marketable equity securities in Note 1 to
the consolidated financial statements. Any change in the market value

of the shares of Kinross common stock could have a material impact on
our liquidity and capital resources. The price of shares of Kinross
common stock has varied from a high of $15.01 per share to a low of
$8.92 per share during the year ended December 31, 2006.

WW oorrkkiinngg CCaappiittaall
We had working capital of $4,555,000 at December 31, 2006 compared to
working capital of $4,189,000 as of December 31, 2005. Our working
capital at December 31, 2006 consists of our cash and equivalents and
marketable equity securities, primarily consisting of the current portion of
our investment in 1,742,920 shares of Kinross common stock of
$5,176,000, less related current deferred taxes of $1,652,000. 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 have been
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 Crown or 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.

On January 18, 2005, pursuant to a Stock Purchase Agreement, we
agreed to sell to Newmont Canada 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 $3,773,000. 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 Canada received restricted stock in the
offering. We have used a portion of the proceeds of this offering to
perform exploration as contemplated under an Alliance Agreement with
Newmont Exploration and will continue to do so during 2007.

SSttoocckk--BBaasseedd CCoommppeennssaattiioonn PPllaannss
During 2006, holders exercised options from the 1994 Plan for
1,213,000 shares for proceeds of $952,000 and exercised options for
17,500 shares from the 2006 plan for proceeds of $42,000. The exercise
price of options for 980,000 of the shares from the 1994 Plan was
Cdn$0.94 per share, the exercise price of options for 158,000 of the
shares from the 1994 Plan was Cdn$0.73 per share, the exercise price for
25,000 of the shares from the 1994 Plan was Cdn$0.81per share and the
exercise price of 50,000 of shares from the 1994 Plan was Cdn$0.65 per
share. The exercise price for the 17,500 shares from the 2006 Plan was
Cdn$2.77 per share. During 2005 holders exercised options for 30,500
shares for proceeds of $22,000.

The following table summarizes the activity for stock options
outstanding under the 1994 Plan and the 2006 Plan as of December 31,
2006, with exercise prices equal to the fair market value, as defined, on
the date of grant and no restrictions on exercisability after vesting:

11999944 PPllaann::

Outstanding, beginning of year

Exercised

Outstanding at December 31, 2006
Exercisable at December 31, 2006

22000066 PPllaann

Outstanding, beginning of year

Granted
Exercised

Outstanding at December 31, 2006
Exercisable at December 31, 2006

SShhaarreess iissssuuaabbllee WW eeiigghhtteedd aavveerraaggee WW eeiigghhtteedd aavveerraaggee
eexxeerrcciissee PPrriiccee
oonn oouuttssttaannddiinngg
((CCddnn$$))
OOppttiioonnss

rreemmaaiinniinngg
ccoonnttrraaccttuuaall tteerrmm

AAggggrreeggaattee
iinnttrriinnssiicc
vvaalluuee((11))

2,240,000
(1,213,000)
1,027,000
1,027,000

–
1,655,000
(17,500)
1,637,500
396,250

$
$
$
$

0.82
0.91
0.74
0.74

n/a
2.77
2.77
2.77
2.77

0.3
0.3

4.6
4.6

$ 3,559,000
$ 3,559,000

$ 2,808,000
679,000
$

(1) The intrinsic value at December 31, 2006 based upon the quoted market price of Cdn$4.76 per share for our common stock on the

Toronto Stock Exchange and an exchange ratio of 0.86169 Canadian dollars per United States dollar.

2006 Annual Report | 13

As a result of the options from the 1994 Plan being significantly "in the
money" as of December 31, 2006, we anticipate that 917,000
unexercised options currently outstanding from our 1994 Plan will be
exercised prior to their expiration date of March 2, 2007 for estimated
proceeds of approximately $576,000, based upon the above exchange
ratio, assuming there is no significant decline in the quoted market price
for a share of our common stock on the Toronto Stock Exchange. We
would not expect that a significant number of our other remaining vested
options, from either the 1994 Plan or the 2006 Plan will be exercised in
the next year.

As of December 31, 2006, we have no outstanding long-term debt,
capital or operating leases or other purchase obligations. We estimate
our facility lease costs will be approximately $32,000 per year, related to
the Wheat Ridge, Colorado office.

We currently have deferred tax liabilities recorded in the amount of
$5,783,000. These deferred tax liabilities primarily relate to our
unrealized holding gains on our Kinross shares. We expect that a portion
of these deferred tax liabilities may become currently payable as we sell
the Kinross shares.

(e) Cash Flows
Net cash used in operations during the year ended December 31, 2006
increased to $4,483,000 compared to $1,572,000 for 2005 primarily as a
result of (i) increased exploration expenses of $2,942,000 in 2006
compared to $2,072,000 in 2005, (ii) increased general and
administrative costs of $2,010,000 in 2006 compared to $576,000 in
2005, (iii) the Crown dividend of $1,275,000 received in 2005 and no
similar item in 2006, and (iv) a use of cash for prepaid expenses and
other current assets of $164,000 in 2006 compared to a source of cash of
$279,000 in 2005. These increases in cash uses were mitigated by the
reduction in the management services agreement to $232,000 in 2006
from $423,000 in 2005 and the inclusion of non-cash option
compensation expense of $955,000 in 2006 general and administrative
costs. The remaining uses of cash for operations were comparable in
2006 and 2005.

Net cash provided from investing activities increased to $2,273,000
during 2006 compared to $178,000 cash used in investing activities
during the year ended December 31, 2005 primarily related to the
$2,442,000 proceeds from the sale of Kinross stock during 2006, with
no similar item in 2005. The remaining uses of cash from investing
activities were comparable in 2006 and 2005.

Net cash provided from financing activities was $994,000 during the
year ended December 31, 2006 compared to $3,794,000 during 2005.
The cash provided from financing activities in 2005 was primarily due
to the issuance of 2,700,000 shares of our common stock to Newmont
Canada for net proceeds of $3,773,000 pursuant to a private placement
to Newmont Canada. The remaining cash provided in 2005 and all of
the cash provided in 2006 related to cash payments of $21,000 from the
exercise of options for 32,500 shares of our common stock in 2005 and
cash payments of $994,000 from the exercise options for 1,230,500
shares of our common stock in 2006.

(f) Exploration activities and contractual obligations
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 net 2006 mineral property rental and
option payments were approximately $284,000. In 2007 we estimate
mineral property rental and option payments to be approximately
$350,000. Approximately $102,000 of these annual payments are
reimbursable to us by our joint venture partners.

We may be required to make further payments in the future if we elect
to exercise our options under those agreements. As part of the Alliance
Agreement we are committed to spend $3,773,000 over the four years
from the date of the Alliance Agreement on gold exploration in regions
(“Alliance Projects Areas”) that are mutually agreed upon by Newmont
Exploration and us. As of December 31, 2006, we have spent
approximately $807,000 of this commitment.

(g) Joint Ventures, royalty and the Strategic
Alliance properties
BBoonnggaarráá–– On August 15, 2006 we signed a Letter Agreement with
Votorantim on our 100%-owned Bongará zinc project in northern Peru.
We anticipate signing a definitive agreement, "Framework Agreement
for the Exploration and Potential Development of Mining Properties,"
with Votorantim during the first quarter of 2007. The Bongará project
hosts the Florida Canyon zinc deposit where high-grade zinc
mineralization has been encountered in drill holes over an area two by
two kilometers in dimension. The Letter Agreement calls for a firm
commitment by Votorantim to fund a one-year, $1.0 million exploration
program which began in late October 2006. Votorantim can earn up to
a 70% interest in the project by funding the $1.0 million exploration
program, by completing future annual exploration and development
expenditures, and by making cash payments of $100,000 on the first
anniversary of signing the Letter Agreement and $200,000 on all
subsequent anniversaries until a production decision is made or the
agreement is terminated. The option to earn the 70% interest can be
exercised by Votorantim any time after the first year commitment by
committing to place the project into production based upon a feasibility
study. Additionally, Votorantim, in its sole discretion, may elect to
terminate the option to earn the 70% interest at any time after the first
year commitment. The agreement calls for Votorantim to have
minimum annual exploration and development expenditures of $1.5
million in each of years two and three, and $2.5 million in all
subsequent years until a minimum of $18.0 million has been expended
by Votorantim. Votorantim will act as project operator. Once
Votorantim has fully funded its $18.0 million work commitment, it has
further agreed to finance our 30% participating interest through
production. Solitario will repay the loan facility through 50% of its
cash flow distributions.

PPaacchhuuccaa–– On September 25, 2006 we signed a definitive venture
agreement (the “Venture Agreement”) with Newmont de Mexico, S.A. de
C.V. ("Newmont"), a wholly owned subsidiary of Newmont Mining
Corporation, on our Pachuca Real silver-gold project in central Mexico.
The Venture Agreement calls for a firm work commitment by Newmont
of $2.0 million over the next 18 months. Work commitments over the
next 4.5 years total $12.0 million.

AAmmoouunntt

$ 2,000,000 (1)
$ 2,300,000 (2)
$ 3,500,000 (2)
$ 4,200,000 (2)

AAggggrreeggaattee
AAmmoouunntt
$ 2,000,000
$ 4,300,000
$ 7,800,000
$ 12,000,000

14 | Solitario Resources Corporation

$5.0 million annually until such time as the positive feasibility study is
completed. Newmont is also obligated to make payments on our behalf
to keep the property in good standing. Newmont has the right to
terminate the agreement at anytime following its firm initial work
commitment. Upon completion of the feasibility study, we will have the
option to self-finance our 35%-participating interest in the project, or to
have Newmont fund our portion of construction costs at Libor + 3.5%.
Such post-feasibility funding plus interest shall be paid from 80% of our
distribution of future earnings or dividends from the venture. If we elect
to have Newmont fund all our venture costs, including our portion of
construction costs, then our participating interest will be 30% and
Newmont's interest will be 70%.

The 47,300 hectare Pachuca Real silver-gold property in central Mexico
was acquired by staking in late 2005 and early 2006. Part of the property,
the 13,600 hectare El Cura claim, is held under an option agreement with
a private Mexican party. The option agreement provides for payments
of $500,000 over four years. Payments totaling $12,000 are due to the
underlying owner in 2007. Claims fees to be paid to the government of
Mexico totaling $42,000 are due in 2007. As discussed above, all 2006
and 2007 payments to maintain the Pachuca-Real property are the
responsibility of Newmont.

PPeeddrraa BBrraannccaa–– 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, or spending an
additional $10 million on exploration and development, whichever comes
first. Anglo Platinum can also earn an additional 5% interest in Pedra
Branca (for a total of 65%) by arranging for financing, including our 35%
participating interest, to put the project into commercial production. The
Letter Agreement was amended four times between July 2004 and April
2006, generally to extend various work commitment deadlines mandated
in the Letter Agreement. On July 14, 2006, we signed the Pedra Branca
Framework Agreement with Anglo Platinum that specified actions we and
Anglo Platinum would take to establish and govern Pedra Branca Do
Mineraç_o S.A., the corporate entity that would hold 100% title to all the
assets of the Pedra Branca project, and the mechanics for Anglo Platinum's
continued funding of Pedra Branca exploration. We and Anglo Platinum
will own shares in Pedra Branca Do Mineraç_o S.A, in proportion to our
respective participating interests as specified in the Framework
Agreement. Anglo Platinum has funded approximately $1.24 million in
exploration and property maintenance costs since signing the Letter
Agreement. Solitario and Anglo Platinum have completed drafting of a
definitive operating agreement and we anticipate signing the definitive
agreement before the end of the 2007 first quarter, upon approval of
several regulatory filings within Brazil. Current plans call for
approximately $1.0 million in exploration expenditures for the ten month
period ending October 31, 2007. Upon the completion of the
aforementioned expenditures, Anglo Platinum will have earned a 15%
interest in the joint operating company holding Pedra Branca mineral
rights, with Solitario retaining an 85% interest. We have recorded a
receivable of $88,000 at December 31, 2006 from Anglo for these
reimbursements on costs incurred through December 31, 2006. Should
this agreement fail to be signed or if Anglo Platinum declines to continue
for some other reason, we will retain 100% of the Pedra Branca Project.

SSttrraatteeggiicc AAlllliiaannccee–– On January 18, 2005, we signed a Strategic Alliance
Agreement with Newmont Overseas Exploration Limited (“Newmont
Exploration”), 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 Exploration. Concurrent with the signing of the Alliance
Agreement, Newmont Mining Corporation of Canada (“Newmont
Canada”) purchased 2.7 million shares of Solitario (approximately 9.9%
equity interest) for Cdn$4,590,000. As part of the Alliance Agreement we
are committed to spend $3,773,000 over the four years from the date of the
Alliance Agreement on gold exploration in regions (“Alliance Projects
Areas”) that are mutually agreed upon by Newmont Exploration and us.
As of December 31, 2006, we have spent approximately $807,000 of this

commitment. If we acquire properties within Alliance Project Areas and
meet certain minimum exploration expenditures, Newmont Exploration
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 Exploration
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 Exploration 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 with a third party.

As part of the Strategic Alliance we staked the 1,400 hectare Libertad
property in August of 2005 within the Alliance Project Area. Surface work
has been completed including geologic mapping and sampling and a
geophysical program was completed during the third quarter of 2006. We
completed a five-hole drilling program in the third quarter of 2006. Although
anomalous gold was intersected the grade was not high enough to warrant
continued exploration expenditures on the property and we terminated our
interest in La Libertad during the third quarter of 2006, recorded a $4,000
mineral property abandonment charge and have no further work or
expenditure commitment at La Libertad as of December 31, 2006.

YYaannaaccoocchhaa RRooyyaallttyy PPrrooppeerrttyy–– Concurrent with the signing of the Strategic
Alliance Letter of Intent, was the signing of a second Letter of Intent by
us and Newmont Peru, Ltd. (“Newmont Peru”), to amend our net smelter
return (“NSR”) royalty on a 61,000-hectare 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 Newmont Peru to a
long-term US$4.0 million work commitment on our royalty property and
provides us access to Newmont Peru's future exploration results on an
annual basis. Both the Strategic Alliance and Yanacocha royalty
amendment and work commitment Letter Agreements were subsequently
replaced by definitive agreements with the same terms.

(h) Wholly-owned exploration properties
AAmmaazzoonnaass–– In September of 2006, we acquired 5,200 hectares of 100%-
owned mineral rights through concessions for our Amazonas property.
We capitalized $13,000 in lease acquisition costs related to these
concessions. The Amazonas project consists of four widely spaced areas
where previous sampling has identified high-grade zinc mineralization
at surface similar to that found at Florida Canyon (see Item 2. Properties:
Bongará Zinc Property, Peru). We may seek a joint venture partner for
the property during 2007.

MMeerrccuurriioo–– In September 2005, we completed an option agreement for the
purchase of 100% of the mineral rights over the 8,550-hectare Mercurio
property in the state of Para, Brazil. An initial payment of 20,000
Brazilian Reals (approximately $7,000) was paid on signing of the
agreement and the next payment of 36,000 Reals (approximately
$12,000) was made in 2005 on signing of a definitive agreement upon
conversion of the existing washing claims to exploration claims. Further
payments are required upon the conversion of garimpeiro licenses to
exploration claims which occurred in the third quarter of 2006. During
2007 payments will total approximately $42,000. To purchase the
property, an escalating scale of payments totaling 780,000 Reals
(approximately $350,000) are required over a sixty month period. A net
smelter return of 1.5% is retained by the owner. This NSR can be
extinguished with a payment of 2,300,000 Reals (approximately
$1,070,000). All payments are indexed to inflation as of the signing of
the agreement. The owner of the mineral rights also owns the surface
rights, the use of which is included in the exploration of the property. On
completion of all payments we will receive title to 1,500 hectares of
surface rights. We may terminate the agreement at any time at our sole
discretion. We completed a second phase of extensive soil sampling and
auger testing of soils over selected portions of the property during the
first half of 2006 and core drilling of eleven holes totaling 1,596 meters
completed during the third quarter for which assay results have been
received and are under review. During 2005 we completed 1,466 meters
of core drilling.

2006 Annual Report | 15

TTiittiiccaayyoo–– On March 31, 2006, we signed a lease agreement with a private
Bolivian company to lease certain concessions covering approximately
1,300 hectares, which comprise the Titicayo project in Bolivia. We
capitalized our initial payment under the lease of $10,000. The lease calls
for additional lease payments of $10,000 eight months from the date of
the lease, $55,000 during the second year of the lease, $75,000 during the
third year of the lease, $100,000 during the fourth year of the lease,
$150,000 during the fifth year of the lease and $600,000 during the sixth
year of the lease after which we will own a 99% participating interest in
the concessions. An amendment to the Titicayo Agreement was signed
in November of 2006 that delayed the first additional lease payment until
June 2007 with a corresponding adjustment to the rest of the payment
schedule. A one time payment of $10,000 was made to the claim holders
in consideration for this amended schedule. We have conducted a limited
amount of surface exploration work to define drilling targets. We are
currently planning a three-hole drilling program later in 2007.

TTrriiuunnffoo–– The 256-hectare Triunfo poly-metallic exploration property in
Bolivia was acquired in 2003. Lease obligations were renegotiated in
2006 providing for a payment of $12,000, which was paid in July of
2006, $35,000 in 2007 and $45,000 in 2008 in order to keep the
agreement in good standing. An option to purchase the property for
$1,000,000 must be exercised by September 2009. A geophysical
survey has been completed on the property and drilling is under
consideration for later in 2007.

CCoonncceeppttiioonn ddeell OOrroo aanndd PPuurriissiimmaass–– In September 2005, we signed an
agreement with a private Mexican mineral concession holder allowing us
to enter into lease options on four separate properties located throughout
central Mexico. The Concepcion del Oro gold property is located near
the city of Mazapil in the state of Zacatecas and consists of 35
concessions totaling approximately 1,420 hectares. The Hedionda gold
property is located near the city of Allende in the state of Guanajuato and
consists of six concessions totaling 620 hectares. The Las Tortugas gold
property is located near the city of Chiquilistlan in the state of Jalisco and
consists of four concessions totaling 400 hectares. The Las Purisimas
gold property is located near the city of Tepic in the state of Navarit and
consists of six concessions totaling 600 hectares. The agreement called
for us to make an initial payment of $15,000 on signing and provided that
we would conduct surface exploration on the four properties over a six-
month period. We elected to sign definitive option agreements on the
Concepcion del Oro, and Purisimas properties. The Concepcion del Oro
and Purisimas properties required payments of $10,000 each in 2006 and
in 2007 we are required to pay $25,000 for the Concepcion del Oro
property and $35,000 for the Purisimas property to maintain the option
agreements in good standing. Additionally the properties require claim
payments to the government of $1,600 and $400 respectively in 2007. As
of December 31, 2006, work is ongoing on the properties to determine if
drilling is warranted. Solitario did not exercise its option to option the
Hedionda and Las Tortugas properties and has no further payment or
work obligations for these two properties.

PPaauu dd’’AArrccoo–– During 2006, we acquired priority to mineral rights covering
2,400 hectares from the Brazilian government at our Pau d' Arco project
in Brazil. As a result of this acquisition we capitalized $18,000 of costs
incurred and initial payments made pursuant to an agreement with three
private Brazilian individuals to gain access to the Pau d' Arco project.
These agreements called for access payments of approximately $23,000
for 2006 and payments totaling approximately $1,380,000 over four years.
We may also buy out a 1% net smelter return retained by the owners for
approximately $2,600,000. We conducted surface exploration work
during the third quarter of 2006 and drilled and completed six core holes
totaling 1,111 meters. Although low-grade gold was intersected in three
holes, the drilling results were not sufficiently encouraging to continue
exploration on the property. Consequently, we will not make 2007 claim
fee payments to the government and will terminate our agreements with
the private Brazilian parties. We have recorded an impairment of $18,000
for property abandonment.

ZZiinnddaa–– In August 2005, we received title to the Zinda concession near the
city of Morelia in the state of Michoacan. We paid $5,000 in concession
fees (plus tax) to the Mexican government for the 10,000-hectare

concession. After a limited reconnaissance surface sampling program
conducted in 2005 and 2006, we decided not to renew our concessions
with the Mexican government. We have recorded an impairment of
$5,000 for property abandonment, and at December 31, 2006, have no
further payment or work obligations.

PPoozzooss–– In September 2005, we signed an agreement with a private
Mexican mineral concession holder to option a 100% interest in the
Pozos gold property near the city of San Luís de la Paz in the state of
Guanajuato, Mexico. The property consists of two concessions totaling
918 hectares. The option agreement required an initial payment of
$10,000 plus the 15% IVA (value added tax) on signing and future
escalating payments totaling $1,500,000 over a four-year period. In the
third quarter of 2006, we terminated our option to earn an interest in the
property, recorded a property abandonment charge of $4,000, and at
December 31, 2006, have no further payment or work obligations.

(i) Critical Accounting Estimates
MMiinneerraall PPrrooppeerrttiieess,, nneett
We classify our interest in mineral properties as Mineral Properties, net
(tangible assets) pursuant to EITF 04-2. 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 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.

IImmppaaiirrmmeenntt
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
$35,000 and $30,000 write-down of our mineral properties during the
years ended December 31, 2006 and 2005, respectively. 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.

MMaarrkkeettaabbllee eeqquuiittyy sseeccuurriittiieess
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 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, 2006 and December 31, 2005, we have
recorded unrealized holding gains of $17,004,000 and $9,922,000,
respectively, net of deferred taxes of $6,553,000 and $3,792,000,
respectively, related to our marketable equity securities.

SSttoocckk--bbaasseedd ccoommppeennssaattiioonn
We compute the fair value of each option on the date of grant based upon
the Black-Scholes option pricing model. This model requires the input
of subjective assumptions, including the expected term based upon

16 | Solitario Resources Corporation

historical data of past exercises of option awards and expected stock-
price volatility based upon the historical quoted market prices of
Solitario common stock as well as an estimate of forfeitures. These
estimates involve inherent uncertainties and the application of
management judgment. As a result, if other assumptions had been used,
Solitario's recorded and pro-forma stock-based compensation expense
could have been materially different from that reported. We determined
the fair value of the 2006 Plan options on June 27, 2006, the date of
grant, of $2,536,000 using a Black-Scholes option pricing model, for a
weighted average fair value of $1.53 per share. In determining the fair
value, Solitario has assumed a four-year effective life based upon
expected volatility and past historical exercise patterns, an expected
volatility of 76% that mirrors the historical volatility based upon daily
quoted stock prices from the Toronto Stock Exchange over the prior four
years, a risk-free interest rate of 5.2%, an exchange rate on the date of
grant of 0.89193 Canadian dollars to each United States dollar, and an
intrinsic value of Cdn$0.08 per share on the date of grant as discussed
above. Solitario has elected cliff-vesting to recognize the fair value of
the option grant over the vesting period, with 25% recognized
immediately, and the remaining 75% over three years on a straight line
basis, recognizing as stock option compensation expense an amount at
least equal to the percentage of options vested at that date. Solitario has
assumed a zero forfeiture rate and a zero dividend rate, based upon
historical experience. Accordingly, as of December 31, 2006, Solitario
has recognized $951,000 of option compensation expense, net of
deferred taxes of $371,000, for the vesting of the fair value as of the date
of the grant over the life of the option grant, as discussed above under
results of operations, which has been included in general and
administrative expense for the year ended December 31, 2006. In
January 2007, an employee resigned and forfeited unexercised an option
for 52,500 shares. The remaining unrecognized stock option
compensation expense of approximately $50,000 from these forfeited
options will not be recognized over the remaining vesting period of the
options. Solitario will recognize the balance of the remaining
$1,535,000 unrecognized stock options compensation expense over the
remaining vesting period, or approximately $154,000 per quarter.

DDeerriivvaattiivvee iinnssttrruummeennttss
In July 2006 we exercised our only remaining TNR warrant as discussed
above in recent developments. Our TNR warrants were recorded at fair
market value based upon quoted prices and classified as derivative
instruments. We recognized any increase or decrease in the fair value of
these 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 TNR
warrants of $5,000 and $20,000 for the year ended December 31, 2006 and
December 31, 2005, respectively. We exercised our 500,000 share TNR
warrant on July 27, 2006 by paying the exercise price of $70,000 to TNR,
and have no remaining derivative instruments as of December 31, 2006.

IInnccoommee ttaaxxeess
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 Kinross securities we own. If these values are not
realized, we may record additional valuation allowances in the future.

(j) Related Party Transactions
Crown provided 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. The
agreement was terminated on August 31, 2006 upon the completion of
the Crown – Kinross merger. Under the modified agreement we were

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 reimbursed Crown for direct out-of-pocket expenses.
These allocations were based upon the estimated time and expenses spent
by Crown management and employees on both Crown activities and
Solitario activities. Our management believed these allocations were
reasonable and the allocations were periodically reviewed by our
management and approved by independent Board members of both
Crown and Solitario. Management service fees were billed monthly, due
on receipt and are generally paid within thirty days. Management service
fees incurred by Solitario were $232,000, $423,000 and $390,000 for the
years ended December 31, 2006, 2005 and 2004, respectively.

On September 1, 2006, we entered into a consulting agreement with Mark
E. Jones, III, a director and vice-chairman of our Board of Directors. The
consulting agreement has a two-year term. Under the agreement, Mr.
Jones will advise the Company on matters of strategic direction, planning,
and identification of corporate opportunities, when and as requested by
Solitario. In consideration for the services to be performed, Mr. Jones has
been paid a one time lump sum payment of $160,000, plus he is entitled
to receive pre-approved, documented expenses incurred in performance of
the consulting services. We have charged $27,000 for consulting expense,
related to the agreement, included in general and administrative expense
for the year ended December 31, 2006.

On July 24, 2006, we exercised a warrant to purchase 500,000 shares of
TNR Gold Corp. (“TNR”) common stock by paying $70,000. We recorded
the cash paid and the fair value of the warrant on the date of exercise of
$12,000 as marketable equity securities. We received this warrant in July
2004 when we exchanged 500,000 shares of TNR Gold Corp ("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 2004 transaction was
accounted for as a sale of our previously owned TNR shares and an
acquisition of the new TNR shares and warrants. The TNR shares are
classified as marketable equity securities held for sale. As of December 31,
2006, we do not own warrants for the purchase of TNR shares. Previous
to their exercise, the TNR warrants were recorded at fair market value
based upon quoted prices and classified as derivative instruments. We
recorded a loss on derivative instruments of $5,000, $20,000 and $38,000
for the decrease in the value of its warrants during the years ended
December 31, 2006, 2005 and 2004, respectively. 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 of our shares for the benefit of
Crown’s warrant holders who would receive those shares when the
warrant holders exercise their warrants. Subsequent to the spin-off,
through August 31, 2006 when the Crown – Kinross merger was
completed, Crown distributed 995,229 of these retained shares upon
exercise of its warrants and at December 31, 2006 the remaining 3,077
shares of our stock became the property of Kinross which is not a related
party to Solitario. 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.

We entered into a Voting Agreement dated as of April 15, 2002 among
Zoloto Investors, LP ("Zoloto") and Crown. Zoloto and Solitario were
both shareholders of Crown (the "Signing Shareholders"). Pursuant to
the Voting Agreement, Zoloto and Solitario agreed that each would 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

2006 Annual Report | 17

Shareholder would be subject to the terms of the Voting Agreement
during its term. The Voting Agreement terminated on June 25, 2006.

Prior to the completion of the Crown – Kinross merger, 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 voted all of the shares of Crown common stock
owned by them in favor of the approval of the Crown – Kinross merger.
On August 31, 2006, the shareholders of Crown approved the Crown –
Kinross merger and all of Crown’s common shares were converted to
Kinross shares and the stockholder and voting agreement terminated.

Christopher E. Herald, and Mark E. Jones, III were directors of both Crown
and Solitario until August 31, 2006 when they resigned as directors of
Crown upon the completion of the Crown – Kinross merger. Stephen
Webster and Brian Labadie were directors of both Crown and Solitario
from June 27, 2006 to August 31, 2006, when they resigned as directors of
Crown upon the completion of the Crown – Kinross merger. Christopher
E. Herald, James R. Maronick and Walter H. Hunt were officers of both
Crown and Solitario until August 31, 2006 when they resigned as officers
of Crown upon the completion of the Crown – Kinross merger.

(k) Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
("FASB”) issued Statement of Financial Accounting Standard No. 157
“Fair Value Measurements” (“SFAS No. 157”). SFAS 157 clarifies that
fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date in the most advantageous market for the asset
or liability. SFAS 157 clarifies that the transaction to sell an asset or
transfer a liability is a hypothetical transaction at a measurement date,
considered from the prospective of a market participant that holds the
asset or owes the liability. SFAS 157 states that fair value is a market-
based measurement, not an entity specific measurement and that market
assumptions should be based upon independent observations of the
reporting entity over a reporting entity's observations about market
participant assumptions. SFAS 157 states that market participant
assumptions should include risk, restrictions on asset sales, non-
performance risk, but that quoted market prices for financial instruments
should not be adjusted for the size of a position relative to trading
volume (block discounts). SFAS 157 expands disclosures about, among
other things, the use of fair value to measure assets and liabilities in
interim and annual periods, including the use of unobservable inputs,
and the effect of fair value on earnings and changes in net assets. SFAS
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years.
We have not yet determined what effect if any, the adoption of SFAS No.
157 will have our financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes,” (“FIN 48”) an interpretation of FASB
Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Interpretation requires that the
entities recognize in the financial statements, the impact of a tax position,
if that position is more likely than not of being sustained on audit, based
on the technical merits of the position. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in
interim periods and disclosure. The provisions of FIN 48 are effective
beginning January 1, 2007 with the cumulative effect of the change in
accounting principle recorded as an adjustment to the opening balance of
retained earnings. We adopted FIN 48 on January 1, 2007 and have not
yet determined what effect its adoption will have on our financial
position, results of operations or cash flows.

In February 2006, the FASB issued SFAS No. 155, “Accounting for
Certain Hybrid Financial Instruments—an amendment of FASB
Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155
resolves issues addressed in SFAS No. 133 Implementation Issue No.

D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.” SFAS No. 155 will become effective for the first
fiscal year after September 15, 2006. The impact of SFAS No. 155 will
depend on the nature and extent of any new derivative instruments
entered into after the effective date. We adopted SFAS No. 155 on
January 1, 2007 and have not yet determined what effect its adoption
will have on our financial position, results of operations or cash flows.

In September 2006, the Securities and Exchange Commission issued
Staff Bulletin No. 108 (“SAB 108”). SAB 108 was issued to provide
interpretive guidance on how the effects of the carryover reversal of
prior year misstatements should be considered in quantifying a current
year misstatement. The provisions of SAB 108 are effective for our
December 31, 2006 year end. The adoption of SAB 108 had no impact
on our financial position, results of operation or cash flows.

(l) Disclosure Controls and Procedures and
Internal Controls Over Financial Reporting
DDiisscclloossuurree ccoonnttrroollss aanndd pprroocceedduurreess
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in the
reports that we file under the Securities Exchange Act is accumulated
and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.

As of the end of the period covered by this report (the “Evaluation Date”), we
carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive
Officer and the Company’s Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive
Officer and the Chief Financial Officer concluded that as of the Evaluation
Date, our disclosure controls and procedures were effective in alerting them
in a timely manner to material information relating to the Company and its
subsidiaries that is required to be included in the reports that we file or submit
under the Securities Exchange Act of 1934.

IInntteerrnnaall ccoonnttrrooll oovveerr ffiinnaanncciiaall rreeppoorrttiinngg
Internal control over financial reporting is defined as a process designed
by, or under the supervision of our chief executive officer and our chief
financial officer, and effected by our board of directors, through our
audit committee, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. These include procedures that (i) pertain to
maintenance of records in reasonable detail to accurately reflect
transactions and disposition of assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles and that receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on our financial statements.

We have performed a limited review of our system of internal controls
over financial reporting and noted certain deficiencies in these controls.
These deficiencies include (i) lack of segregation of duties, (ii) limited
capability to interpret and apply United States generally accepted
accounting principles, (iii) lack of adequate documentation of our system
of internal controls, (iv) lack of formal accounting policies and procedures
and related documentation, (v) deficiencies in our information technology
systems and (vi) lack of experience in the review of our formal budgeting
process, which has been operational for less than one year.

18 | Solitario Resources Corporation

Report of Independent Registered
Public Accounting Firm

To the Board of Directors and Stockholders of
Solitario Resources Corporation
Wheat Ridge, Colorado

We have audited the consolidated balance sheets of Solitario
Resources Corporation (a Colorado corporation) as of December 31,
2006 and 2005, and the related consolidated statements of
operations, changes in stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2006. 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 audits.

We conducted our audits 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 mis-statement. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Solitario Resources Corporation as of
December 31, 2006 and 2005, and the consolidated results of its
operations and its cash flows for the each of the three years in the
period ending December 31, 2006 in conformity with accounting
principles generally accepted in the United States of America.

Ehrhardt Keefe Steiner & Hottman P.C.
February 23, 2007
Denver, Colorado

SStteeppss ttaakkeenn ttoo aaddddrreessss nnootteedd ddeeffiicciieenncciieess aanndd iinnhheerreenntt lliimmiittaattiioonnss
We have taken steps to address the above identified deficiencies,
including (i) hiring of an outside accounting firm, other than our
independent public accounting firm, to assist with preparation of our
quarterly and annual reports, (ii) instituting a plan to update our
accounting policies and procedures and budgeting processes, (iii)
ongoing training and education regarding United States generally
accepted accounting principles and Securities and Exchange
Commission reporting and disclosure requirements and (iv) an ongoing
process to upgrade our existing information technology systems.

Management believes that due to our nature and size, with only four total
United States employees, it may not be economically feasible to
completely eliminate and or mitigate all noted deficiencies in internal
control over financial reporting. Management believes to do so would
require the addition of several high-level accounting and financial
reporting staff or the engagement of additional outside accounting and
legal firms as well as the potential addition of several administrative
positions that we believe may not make economic sense for our
shareholders. The existence of these deficiencies potentially subjects
our Company to additional risk that there may be material misstatements
in the future as a result of the misapplication of United States generally
accepted accounting principles or the improper recording of our
accounts from the lack of segregation of duties.

IInntteeggrriittyy ooff tthhee ffiinnaanncciiaall iinnffoorrmmaattiioonn
Our officers assure themselves of the integrity of financial information
by applying existing control procedures. For example, our CFO
reconciles general ledger balances to subsidiary ledgers or supporting
schedules for all significant accounts and also performs various
analytical procedures on financial information. Officers also hold
informal meetings to review and approve all financial information.

In addition, our senior management consists of Mr. Herald, our CEO,
Mr. Maronick, our CFO and Mr. Hunt, our Vice President of Operations
and our entire company has only four United States employees. With
such a small and (operationally) efficient staff, we are in constant
contact on a daily basis and are intimately familiar with the contents of
our financial information and the related disclosures. Our senior
management essentially creates our financial information as opposed to
having financial information “provided” to them as may be the case
with larger organizations. Furthermore, our total number of
transactions, for example checks drawn on our bank accounts and
recorded journal entries to our accounting records, rarely exceed 150
per month. We believe this gives us a natural advantage over large
organizations, but has its limitations, as discussed above, for example
with regard to internally available depth of knowledge in complex
accounting and reporting and the application of all United States
generally accepted accounting principles. Mr. Maronick has and will
continue to regularly attend ongoing professional training in these areas
to stay up to date. We intend to continue to utilize the outside
accounting firm, discussed above, (not our independent registered
public accounting firm) to assist in preparation of our financial
statements and disclosures. We believe these steps also provide
management with additional assurance regarding the integrity of our
financial information.

Our audit committee also reviews the financial information including
discussions with the outside accounting firm and our independent
registered public accounting firm. Management regularly discusses our
financial statements and the annual and quarterly filings on Form 10-K
and Form 10-Q with our outside accounting firm and members of the
audit committee to satisfy management regarding the integrity of the
financial information included in public filings with the Securities and
Exchange Commission.

Accordingly, the combination of all of the above factors along with our
existing disclosure controls and procedures and our systems of internal
control, including the implementation of the steps we have taken to
mitigate the above noted deficiencies, allow management to assure
themselves of the integrity of our financial information.

2006 Annual Report | 19

Consolidated Balance Sheets

(in thousands except share and per share amounts)

December 31,

2006

2005

Assets
Current assets:

Cash and cash equivalents
Joint venture receivable
Investments in marketable equity securities, at fair value
Investment in derivative instruments, at fair value
Prepaid expenses and other
Total current assets

Mineral properties, net
Investments in marketable equity securities, at fair value
Other assets

Total assets

Liabilities and Stockholders' Equity
Current liabilities:

Accounts payable
Due to Crown Resources Corporation
Deferred income taxes
Other

Total current liabilities

Deferred income taxes
Other

Commitments and contingencies (Notes 2 and 6)

Stockholders' equity:

Preferred stock, $0.01 par value, authorized 10,000,000 shares

904
88
5,176
–
219
6,387

2,687
15,728
236
25,038

163
–
1,652
17
1,832

4,131
31

2,120
–
3,491
18
36
5,665

2,675
10,568
129
19,037

69
45
1,362
–
1,476

2,220
–

(none issued and outstanding at December 31, 2006 and 2005)

–

Common stock, $0.01 par value, authorized, 50,000,000 shares

(28,689,992 and 27,459,492 shares issued and outstanding at
December 31, 2006 and 2005, respectively)

Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income

Total stockholders' equity

Total liabilities and stockholders' equity

287
28,462
(20,156)
10,451
19,044
25,038

On behalf of the Board:

Christopher E. Herald
Director

John Hainey
Director

See Notes to Consolidated Financial Statements.

275
25,909
(16,973)
6,130
15,341
19,037

20 | Solitario Resources Corporation

Consolidated Statements of Operations

(in thousands except per share amounts)

Costs, expenses and other:

Exploration expense, net

Depreciation and amortization

General and administrative

Management fees to Crown

Unrealized loss on derivative instruments

Asset write-downs

Loss on sale of assets

Interest and other, net

Total costs expenses and other

Other income - gain on sale of marketable equity securities

Other income - Crown dividend payment

Loss before income taxes

Income tax (expense) benefit

Net loss

Basic and diluted loss per common share

Basic and diluted weighted average shares outstanding

For the year ended December 31,
2005

2004

2006

2,942

2,072

1,088

2,010

232

(26)

5,250

2,121

–

(3,129)

(54)

(3,183)

(0.11)

28,422

576

423

–

(52)

3,098

–

(1,275)

(1,823)

(257)

(2,080)

(0.08)

27,311

119

629

390

1,704

(193)

3,860

–

(3,860)

935

(2,925)

(0.12)

25,190

See Notes to Consolidated Financial Statements.

2006 Annual Report | 21

Consolidated Statements of Stockholders’ Equity

For the years ended December 31, 2006, 2005 and 2004
(in thousands, except Share amounts)

Common Stock

Amount

Additional
Paid-in
Capital

Accumulated
Other

Accumulated
Deficit

Comprehensive
Income

Total

Balance at 12/31/2003
Shares issued:

Option exercise

Deferred taxes on
option exercises
Cancellation of shares

Comprehensive income:

Net loss
Net unrealized gain

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

Comprehensive income

Balance at 12/31/2004
Shares issued:
Cash
Option exercise

Deferred taxes on
option exercises

Comprehensive loss:

Net loss
Net unrealized gain

on marketable equity
securities (net of
tax of $704)

Comprehensive loss

Balance at 12/31/2005
Shares issued:

Option exercise

Deferred taxes on
option exercises
Stock option expense
from vesting

Comprehensive income:

Net loss
Net unrealized gain

on marketable equity
securities (net of
tax of $2,763)

Comprehensive income

24,923,134

1,121,000

(1,317,142)

–

–
–

24,726,992

2,700,000

32,500

–

–
–

27,459,492

1,230,500

–

–
–

249

(13)

–

–
–

247

27
1

–

–
–

275

–

–
–

22,498

(11,968)

1,155

11,934

974

188
(1,528)

–

–
–

–

(2,925)

–

985

188
(1,541)

(2,925)

–

–
–

3,875

–

3,875
950

22,132

(14,893)

5,030

12,516

3,746
20

–

–
–

(2,080)

–
–

–

3,773
21

(2,080)

–
–

1,100
–

1,100
(980)

25,909

(16,973)

6,130

15,341

982

616

955

–

–
–

–

994

616

955

(3,183)

–

(3,183)

–
–

4,321
–

4,321
1,138

Balance at 12/31/2006

28,689,992

287

$ 28,462

$ (20,156)

$ 10,451

$ 19,044

See Notes to Consolidated Financial Statements.

22 | Solitario Resources Corporation

Consolidated Statements of Cash Flows

(in thousands)

Operating activities:

Net loss
Adjustments:

Unrealized loss on derivative instruments
Depreciation and amortization
Asset write-downs
Employee stock option expense from vesting
Deferred income taxes
(Gain) loss on asset and equity security sales
Interest income received in stock
Interest income from amortization of note discount
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Accounts payable and other current liabilities
Due to Crown Resources Corporation

Net cash used in operating activities

Investing activities:

Additions to mineral interests and other
Other assets
Proceeds from sale of marketable equity securities
Collection on note receivable

Net cash (used in) provided by investing activities

Financing activities:

Issuance of common stock

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Supplemental disclosure of cash flow information:

Deferred taxes on stock option exercises charged

to additional paid-in capital

Treasury stock received in spin-off from Crown Resources

Corporation as treasury stock

Cancellation of treasury stock
Non-cash proceeds on the sale of marketable equity Securities

For the year ended December 31,
2005

2004

2006

(3,183)

(2,080)

(2,925)

5
49
35
955
54
(2,118)
–
–

(164)
(71)
(45)
(4,483)

(50)
(119)
2,442
–

2,273

994
994

(1,216)
2,120
904

20
29
30
–

257
–
–
–

279
(73)
(34)
(1,572)

(52)
(126)
–
–
(178)

3,794
3,794

2,044
76
2,120

1,704
119
64
–
(935)
59
(142)
(12)

(284)
89
54
(2,209)

(76)
(25)
16
112
27

985
985

(1,197)
1,273
76

616

188

–
–
–

$
$
$

1,541
(1,541)
57

See Notes to Consolidated Financial Statements.

2006 Annual Report | 23

Notes to Consolidated Financial Statements

For the years ended December 31, 2006, 2005 and 2004

1. Business and Summary of Significant

Accounting Policies:
BBuussiinneessss aanndd ccoommppaannyy ffoorrmmaattiioonn
Solitario is an exploration stage company with a focus on the acquisition of
precious and base metal properties with exploration potential. Solitario
acquires and holds a portfolio of exploration properties for future sale or
joint venture prior to the establishment of proven and probable reserves.
Although its mineral properties may be developed in the future through a
joint venture, Solitario has never developed a mineral property and Solitario
does not anticipate developing any currently owned mineral properties on its
own in the future. Solitario was incorporated in the state of Colorado on
November 15, 1984 as a wholly owned subsidiary of Crown Resources
Corporation (“Crown”). Solitario has been actively involved in this business
since 1993 and has in the past recorded revenues from joint venture
payments and the sale of its properties on an infrequent basis, with the last
significant revenues recorded in 2000 upon the sale of its Yanacocha
property for $6,000,000. Future revenues from joint venture payments or
the sale of properties, if any, would also occur on an infrequent basis. At
December 31, 2006 Solitario had nine exploration properties in Peru,
Bolivia, Mexico and Brazil. Solitario is conducting exploration activities in
all of those countries. 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. Solitario previously owned 6,071,626 shares of Crown common
stock and 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. Crown was
acquired by Kinross Gold Corporation of Toronto, Canada ("Kinross") on
August 31, 2006 upon the completion of a merger on August 31, 2006
whereby Kinross acquired all of the outstanding shares of Crown common
stock for 0.32 shares of Kinross common stock for each share of Crown
common stock (the “Crown – Kinross merger”). Kinross currently owns
less than one percent of Solitario outstanding common stock.

Solitario has a significant investment in Kinross Gold Corporation
(“Kinross”) at December 31, 2006, which consists of 1,742,920 shares
of Kinross common stock. Solitario received 1,942,920 shares in
exchange for 6,071,626 shares of Crown common stock it owned on the
date of the completion of the Crown – Kinross merger. On September
15, 2006, subsequent to the Crown – Kinross merger, Solitario sold
100,000 Kinross common shares for net proceeds of $1,206,000.
Solitario sold an additional 100,000 shares of Kinross common stock for
net proceeds of $1,236,000 on October 24, 2006. Subsequent to
December 31, 2006, Solitario sold an additional 100,000 of Kinross
common shares, for net proceeds of $1,274,000 and as of February 21,
2007, Solitario owns 1,642,920 shares of Kinross common stock, which
have a value of approximately $22.2 million based upon the market
price of $13.51 per Kinross share. Any significant fluctuation in the
market value of Kinross common shares could have a material impact
on Solitario’s liquidity and capital resources.

FFiinnaanncciiaall rreeppoorrttiinngg
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.

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.

UUssee ooff eessttiimmaatteess
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
recoverability of mineral properties and their future exploration
potential, the ability of Solitario to realize it’s deferred tax assets and the
fair value of Solitario’s investment in Kinross (previously Crown) shares
included in marketable equity securities.

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

MMiinneerraall pprrooppeerrttiieess
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. 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.
Solitario adopted the amendment on April 1, 2004 and ceased amortizing
exploration stage mineral property interests prior to the commencement
of production. Solitario recorded $117,000 of amortization of its mineral
property interests for the year ended December 31, 2004.

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 years ended December 31, 2006, 2005 and 2004, Solitario
recorded impairments of $35,000, $30,000 and $64,000 of its mineral
properties, respectively.

In performing its activities, Solitario has incurred certain costs for mineral
properties. The recovery of these costs is ultimately dependent upon the
sale of mineral property interests or the development of economically

Solitario's net capitalized mineral properties of $2,687,000, $2,675,000 and
$2,653,000 at December 31, 2006, 2005 and 2004, respectively, related to
gross land, leasehold and acquisition costs of $3,710,000 $3,698,000 and

24 | Solitario Resources Corporation

$3,676,000 at December 31, 2006, 2005 and 2004, respectively, less
accumulated amortization of $1,023,000 at December 31, 2006, 2005 and
2004. 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 potential to sell, joint venture or develop through a
joint venture its interests in the properties. These activities are ultimately
dependent on successful identification of proven and probable reserves.

DDeerriivvaattiivvee iinnssttrruummeennttss
As of December 31, 2005, Solitario owned warrants for the purchase of
500,000 shares of TNR Gold Corp. (“TNR”), which it received during
2004. The TNR warrants are recorded at fair market value based upon
quoted prices and discounts and classified as derivative instruments. On
July 27, 2006, Solitario exercised its TNR warrant by paying $70,000 in
cash and transferred its existing warrant valuation of $12,000 on the date of
exercise to marketable equity securities and Solitario has no derivative
instruments as of December 31, 2006. Solitario recorded a decrease in the
value of its TNR warrants of $5,000 and $20,000, respectively, for the years
ended December 31, 2006 and 2005 and recorded an increase of $38,000
for the year ended December 31, 2004. In July 2004, Solitario exercised
all of its Crown warrants and at December 31, 2004 Solitario did not own
any Crown warrants. Solitario recognized a decrease in the fair value of its
Crown warrants of $1,742,000 for the year ended December 31, 2004.

MMaarrkkeettaabbllee eeqquuiittyy sseeccuurriittiieess
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 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 $20,904,000
and $14,059,000, respectively, and cost of $3,900,000 and $4,137,000,
respectively, at December 31, 2006 and 2005. Solitario has accumulated
other comprehensive income for unrealized holding gains of $17,005,000
and $9,922,000, respectively, net of deferred taxes of $6,554,000 and
$3,792,000, respectively, at December 31, 2006 and 2005 related to our
marketable equity securities. Solitario sold 200,000 shares of its Kinross
common stock during 2006 for gross proceeds of $2,442,000.

The following table represents changes in marketable equity securities (000's).

Gross cash proceeds

$ 2,442

$ -

$ 16

2006

2005

2004

Gross non-cash proceeds

Cost

Gross gain on sale included
in earnings during the period

Gross loss on sale included
in earnings during the period

Unrealized holding gain arising
during the period included in other
comprehensive income, net of tax
of $3,590, $704 and $2,496

Reclassification adjustment for
net losses (gains) included in
earnings during the period,
net of tax of $827, $0 and $15

321

2,121

132

(73)

5,615

1,100

3,864

(1,294)

FFoorreeiiggnn eexxcchhaannggee
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, a significant

portion of the payments under 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.

IInnccoommee ttaaxxeess
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 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.

EEaarrnniinnggss ppeerr sshhaarree
The calculation of basic and diluted loss per share is based on the
weighted average number of common shares outstanding during the
years ended December 31, 2006, 2005 and 2004. Potentially dilutive
shares related to outstanding common stock options of 2,664,500,
2,240,000, and 2,273,000 for the years ended December 31, 2006, 2005
and 2004, respectively, were excluded from the calculation of diluted
loss per share because the effects were anti-dilutive.

EEmmppllooyyeeee ssttoocckk ccoommppeennssaattiioonn ppllaannss
On January 1, 2006 Solitario adopted the revised Statement of Financial
Accounting Standard No. 123, “Share Based Payments” (“SFAS No.
123R”). 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
requires 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. Solitario computes the fair value of each option on the date
of grant based upon the Black-Scholes option pricing model. This model
requires the input of subjective assumptions, including the expected term
based upon historical data of past exercises of option awards and
expected stock-price volatility based upon the historical quoted market
prices of Solitario common stock as well as an estimate of forfeitures.
These estimates involve inherent uncertainties and the application of
management judgment. As a result, if other assumptions had been used,
Solitario's recorded and pro-forma stock-based compensation expense
could have been materially different from that reported.

aa)) TThhee 22000066 SSttoocckk OOppttiioonn IInncceennttiivvee PPllaann
On June 27, 2006 Solitario's shareholders approved the 2006 Stock
Option Incentive Plan (the "2006 Plan"). Under the terms of the 2006
Plan, the Board of Directors may grant up to 2,800,000 options to
Directors, officers and employees with exercise prices equal to the market
price of Solitario's common stock. However, under the terms of the 2006
Plan, the total number of outstanding options from all plans may not
exceed 2,800,000. Under the 2006 Plan, the market price is defined as the
volume weighted average trading price of such shares traded on The
Toronto Stock Exchange for the five trading days immediately preceding
the date on which the option is granted by the Board.

On June 27, 2006 the Board of Directors granted 1,655,000 options under
the 2006 Plan at an exercise price of Cdn$2.77 per share, in accordance
with the terms of the 2006 Plan. The quoted closing price of Solitario's
common shares on June 27, 2006, the date of the grant was Cdn$2.85.
The options have a five-year contractual life and vest 25% on the date of

2006 Annual Report | 25

the grant and 25% on each anniversary date for the next three years, and
become fully vested on June 27, 2009. All of the options granted on June
27, 2006 have the same terms. As of December 31, 2006, options for
17,500 shares had been exercised, options for 1,637,500 shares were
outstanding and 396,250 shares were vested and available for exercise.

Solitario determined the fair value of the 2006 Plan options on June 27,
2006, the date of grant, was $2,536,000 using a Black-Scholes option
pricing model, for a weighted average fair value of $1.53 per share. In
determining the fair value, Solitario has assumed a four-year effective life
based upon expected volatility and past historical exercise patterns, an
expected volatility of 76% that mirrors the historical volatility based upon
daily quoted stock prices from the Toronto Stock Exchange over the prior
four years, a risk-free interest rate of 5.2%, an exchange rate on the date
of grant of 0.89193 Canadian dollars to each United States dollar, and an
intrinsic value of Cdn$0.08 per share on the date of grant as discussed
above. Solitario has elected cliff-vesting to recognize the fair value of the
option grant over the vesting period, with 25% recognized immediately,
and the remaining 75% over three years on a straight line basis,
recognizing as stock option compensation expense an amount at least
equal to the percentage of options vested at that date. Solitario has
assumed a zero forfeiture rate and a zero dividend rate, based upon
historical experience. Accordingly, Solitario has recognized $951,000
option compensation expense, net of deferred taxes of $371,000 for the
year ended December 31, 2006. This option compensation expense is
included in general and administrative expense and Solitario has not
capitalized any compensation expense related to its options under the
2006 Plan. The unrecognized compensation related to non-vested
options of $1,585,000 as of December 31, 2006 will be recognized over
the next three years, or approximately $159,000 per quarter. Options for
17,500 shares from the 2006 Plan were exercised during 2006 for
proceeds of $42,000. The intrinsic value of the shares exercised during
2006 on the date of exercise of options from the 2006 Plan was $30,000.

bb)) TThhee 11999944 SSttoocckk OOppttiioonn PPllaann
Solitario adopted SFAS No. 123R using the modified prospective
transition method for the Solitario Resources Corporation Stock Incentive
Plan (the "1994 Plan"). Under this method, compensation cost recognized
during the year ended December 31, 2006 includes cost for option grants
prior to, but not yet vested as of January 1, 2006, based upon the grant-
date fair value, estimated in accordance with the original provisions of
SFAS No. 123. Solitario has recorded a charge of $4,000 as compensation
expense, which is included in general and administrative expense for the
year ended December 31, 2006, for options granted pursuant to the 1994
Plan prior to, but not yet vested as of January 1, 2006. Options for 20,625
shares from the 1994 Plan vested during the year ended December 31,
2006 and Solitario recognizes the grant date fair value on a straight-line

basis over the vesting period. The results from prior periods have not been
restated and accordingly, there was no stock option related compensation
expense recorded during the year ended December 31, 2005.

As of December 31, 2006, Solitario has vested and outstanding options
for 1,027,000 shares of its common stock under the 1994 Plan. Under
the 1994 Plan, these options were granted at option prices equal to the
fair market value of the underlying common stock as quoted on the
Toronto Stock Exchange on the date of grant. The 1994 Plan expired in
2004 and no additional shares may be granted pursuant to the 1994 Plan.

As of December 31, 2006 Solitario had 917,000 options exercisable at
Cdn$ 0.73 per share that expire March 2, 2007 and 110,000 exercisable
at Cdn$0.81 per share that expire August 14, 2008. Options from the
1994 Plan for 1,213,000 shares were exercised during the year ended
December 31, 2006 for proceeds of $952,000. The intrinsic value of the
shares issued during 2006 on the date of exercise of options from the
2004 Plan was $1,549,000. Options from the 1994 Plan for 32,500
shares were exercised during the year ended December 31, 2005 for
proceeds of $21,000. The intrinsic value of the shares issued during
2005 on the date of exercise of options from the 2004 Plan was $8,000.
Options from the 1994 Plan for 1,121,000 shares were exercised during
the year ended December 31, 2004 for proceeds of $985,000. The
intrinsic value of the shares issued during 2004 on the date of exercise
of options from the 2004 Plan was $477,000. As of December 31, 2006,
Solitario has no remaining unrecognized compensation expense, related
to unvested stock options granted pursuant to the 1994 Plan.

Prior to the adoption of SFAS No. 123R, Solitario accounted for certain
awards under the 1994 Plan in accordance with Accounting Principles
Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to
Employees.” The following table illustrates the effect on net income and
earnings per share if Solitario had applied the fair value recognition
provisions of SFAS No. 123R to options granted under the 1994 Plan for
the years ended December 31, 2005 and 2004:

((iinn tthhoouussaannddss,, eexxcceepptt ppeerr sshhaarree aammoouunnttss))
Net loss as reported

22000055

$(2,080)

22000044
$(2,925)

Deduct: total stock-based comp-
ensation expense determined
under fair value based method
for all awards, net of related
tax effects
Pro forma net income (loss)

Basic and diluted net loss per share
As reported
Pro forma

(8)
$(2,088)

$ (0.08)
$ (0.08)

(24)
$(2,949)

$ (0.12)
$ (0.12)

cc)) SSuummmmaarryy ooff ssttoocckk--bbaasseedd ccoommppeennssaattiioonn ppllaannss
The following table summarizes the activity for stock options outstanding under the 1994 Plan and the 2006 Plan as of December 31, 2006, with
exercise prices equal to the fair market value, as defined, on the date of grant and no restrictions on exercisability after vesting:

Shares issuable
on outstanding
Options

Weighted average
exercise Price
(Cdn$)

Weighted average
remaining
contractual term

Aggregate
i n t r i n s i c
value(1)

1994 Plan:

Outstanding, beginning of year

Exercised

Outstanding at December 31, 2006
Exercisable at December 31, 2006

2006 Plan

Outstanding, beginning of year

Granted
Exercised

Outstanding at December 31, 2006
Exercisable at December 31, 2006

2,240,000
(1,213,000)
1,027,000
1,027,000

-
1,655,000
(17,500)
1,637,500
396,250

$0.82
$0.91
$0.74
$0.74

n/a
$2.77
$2.77
$2.77
$2.77

0.3
0.3

4.6
4.6

$3,559,000
$3,559,000

$2,808,000
$ 679,000

(1) The intrinsic value at December 31, 2006 based upon the quoted market price of Cdn$4.76 per share for our common stock on the Toronto Stock

Exchange and an exchange ratio of 0.86169 Canadian dollars per United States dollar.

26 | Solitario Resources Corporation

SSeeggmmeenntt rreeppoorrttiinngg
Solitario operates in one business segment, minerals exploration. At
December 31, 2006, all of Solitario's operations are located in Peru,
Bolivia, Brazil and Mexico as further described in Note 2 to these
consolidated financial statements.

Included in the consolidated balance sheet at December 31, 2006 and
2005 are total assets of $2,854,000 and $2,944,000, respectively, related
to Solitario's foreign operations, located in Bolivia, Brazil, Peru and
Mexico. Included in mineral properties, net in the consolidated balance
sheet at December 31, 2006 and 2005 are net capitalized costs related to
the Pedra Branca Property, located in Brazil, of $2,607,000. We are not
aware of any foreign exchange restrictions on Solitario’s subsidiaries
located in foreign countries.

RReecceenntt aaccccoouunnttiinngg pprroonnoouunncceemmeennttss
In September 2006, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 157 "Fair Value
Measurements" (SFAS No. 157"). SFAS 157 clarifies that fair value is
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date in the most advantageous market for the asset or
liability. SFAS 157 clarifies that the transaction to sell an asset or transfer
a liability is a hypothetical transaction at a measurement date, considered
from the prospective of a market participant that holds the asset or owes
the liability. SFAS 157 states that fair value is a market-based
measurement, not an entity specific measurement and that market
assumptions should be based upon independent observations of the
reporting entity over a reporting entity's observations about market
participant assumptions. SFAS 157 states that market participant
assumptions should include risk, restrictions on asset sales, non-
performance risk, but that quoted market prices for financial instruments
should not be adjusted for the size of a position relative to trading volume
(block discounts). SFAS 157 expands disclosures about, among other
things, the use of fair value to measure assets and liabilities in interim and
annual periods, including the use of unobservable inputs, and the effect
of fair value on earnings and changes in net assets. SFAS 157 is effective
for financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. Solitario has not
yet determined what effect if any, the adoption of SFAS No. 157 will have
its financial position, results of operations or cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes,” (“FIN 48”) an
interpretation of FASB Statement No. 109, “Accounting for Income
Taxes.” FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. The
Interpretation requires that the entities recognize in the financial
statements, the impact of a tax position, if that position is more likely
than not of being sustained on audit, based on the technical merits of the
position. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods and
disclosure. The provisions of FIN 48 are effective beginning January 1,
2007 with the cumulative effect of the change in accounting principle
recorded as an adjustment to the opening balance of retained earnings.
Solitario adopted FIN 48 on January 1, 2007 and has not yet determined
what effect if any, the adoption of SFAS No. 155 will have its financial
position, results of operations or cash flows.

In February 2006, the FASB issued SFAS No. 155, "Accounting for
Certain Hybrid Financial Instruments—an amendment of FASB
Statements No. 133 and 140" ("SFAS No. 155"). SFAS No. 155
resolves issues addressed in SFAS No. 133 Implementation Issue No.
D1, "Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets." SFAS No. 155 will become effective for the first fiscal
year after September 15, 2006. The impact of SFAS No. 155 will
depend on the nature and extent of any new derivative instruments

entered into after the effective date. Solitario adopted SFAS No. 155 on
January 1, 2007 and has not yet determined what effect if any, the
adoption of SFAS No. 155 will have its financial position, results of
operations or cash flows.

In September 2006, the Securities and Exchange Commission issued
Staff Bulletin No. 108 (SAB 108). SAB 108 was issued to provide
interpretive guidance on how the effects of the carryover reversal of prior
year misstatements should be considered in quantifying a current year
misstatement. The provisions of SAB 108 are effective for Solitario for
its December 31, 2006 year end. The adoption of SAB 108 had no impact
on Solitario's financial position, results of operation or cash flows.

2. Mineral Properties:
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,

Mineral interests

Accumulated amortization

Net mineral interests

2006

$3,710

(1,023)

$2,687

2005

$3,698

(1,023)

$2,675

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 was $117,000. We recorded a reduction of
accumulated amortization of $25,000 during 2004 in connection with
property impairments.

PPeerruu
Solitario holds exploration concessions or has filed applications for
concessions covering approximately 15,000 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 2,200
hectares subject to an additional $6.00 per hectare surcharge as the
concessions are more than 10 years old.

BBoonnggaarráá–– 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").

On August 15, 2006 Solitario signed a Letter Agreement with Votorantim
Metais Cajamarquilla, S.A., a wholly owned subsidiary of Votorantim
Metais (both companies referred to as "Votorantim"), on Solitario's
Bongará Project. Solitario anticipates on signing a definitive agreement,
"Framework Agreement for the Exploration and Potential Development
of Mining Properties," with Votorantim during the first quarter of 2007.

2006 Annual Report | 27

The Bongará project hosts the Florida Canyon zinc deposit where high-
grade zinc mineralization has been encountered in drill holes over an area
two by two kilometers in dimension. The Letter Agreement calls for a
firm commitment by Votorantim to fund a one-year, $1.0 million
exploration program which began in late October 2006. Votorantim can
earn up to a 70% interest in the project by funding the $1.0 million
exploration program, by completing future annual exploration and
development expenditures, and by making cash payments of $100,000 on
the first anniversary of signing the Letter Agreement and $200,000 on all
subsequent anniversaries until a production decision is made or the
agreement is terminated. The option to earn the 70% interest can be
exercised by Votorantim any time after the first year commitment by
committing to place the project into production based upon a feasibility
study. Additionally, Votorantim, in its sole discretion, may elect to
terminate the option to earn the 70% interest at any time after the first
year commitment. The agreement calls for Votorantim to have minimum
annual exploration and development expenditures of $1.5 million in each
of years two and three, and $2.5 million in all subsequent years until a
minimum of $18.0 million has been expended by Votorantim.
Votorantim will act as project operator. Once Votorantim has fully funded
its $18.0 million work commitment, it has further agreed to finance
Solitario's 30% participating interest though development. Solitario will
repay the loan facility through 50% of Solitario's cash flow distributions.

YYaannaaccoocchhaa–– On April 26, 2000, Solitario completed a transaction with
an affiliate of Newmont Mining Corporation ("Newmont Peru") 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. The NSR royalty applies to any commercial production on
exploration concessions covering approximately 60,000 hectares. In
January 2005, Solitario and Newmont Peru 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 Peru, through its subsidiaries and
affiliates, also agreed to a $4.0 million work commitment on
Solitario’s royalty property over the next eight years.

NNeewwmmoonntt SSttrraatteeggiicc AAlllliiaanncc–– On January 18, 2005, Solitario signed a
Strategic Alliance Agreement with Newmont Overseas Exploration
Limited (“Newmont Exploration”), a subsidiary of Newmont Mining
Corporation, to explore for gold in South America. Concurrent with
the signing of the Alliance Agreement, Newmont Mining Corporation
of Canada, Limited ("Newmont Canada") purchased 2.7 million shares
of Solitario common stock (or approximately 9.9% of Solitario's issued
and outstanding shares) for Cdn$4,590,000 or $3,773,000. Solitario
has committed to spend $3.78 million over the next four years on gold
exploration in regions (“Alliance Project Areas”) that are mutually
agreed upon by Newmont Exploration and Solitario. The first two
Alliance Project Areas are located in southern Peru and total
approximately 10,000 square kilometers in size. If Solitario acquires
properties within Alliance Project Areas and meet certain minimum
exploration expenditures, Newmont Exploration 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 Exploration 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 Exploration also has a right of
first offer on any non-alliance Solitario property, acquired after the
signing of the Alliance Agreement, that Solitario may elect to sell an
interest in, or joint venture with a third party. As of December 31, 2006,
we have expended $807,000 of the total commitment of $3,773,000.

concessions. The Amazonas project consists of four widely spaced areas
where previous sampling has identified high-grade zinc mineralization
at surface similar to that found at Florida Canyon (see Item 2. Properties:
Bongará Zinc Property, Peru). Solitario may seek a joint venture partner
for the property during 2007.

The Libertad and Pillune gold properties were acquired within the
Alliance Project Area during 2005. Both properties were located in the
Arequipa Department of southern Peru and comprised of a total of 2,600
hectares. Solitario performed surface exploration work on both
properties, including drilling of the Libertad project during 2006. In
October 2006, Solitario decided to drop these claims and recorded
$18,000 for property abandonment, and at December 31, 2006, have no
further payment or work obligations.

BBrraazziill
PPeeddrraa BBrraannccaa–– 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 47 concessions totaling approximately 45,000
hectares 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 can earn an additional 9%
interest in Pedra Branca (for a total of 60%) by completing a bankable
feasibility study or spending an additional $10 million on exploration and
development, whichever occurs first. Anglo Platinum can also earn an
additional 5% interest in Pedra Branca (for a total of 65%) by arranging
for financing, including our 35% participating interest, to put the project
into commercial production. Anglo Platinum completed its initial six-
month $500,000 exploration expenditure in July 2003. The Letter
Agreement was amended four times between July 2004 and April 2006,
generally to extend various work commitment deadlines mandated in the
Letter Agreement. On July 14, 2006, we signed the Pedra Branca
Framework Agreement with Anglo Platinum that specified actions we and
Anglo Platinum would take to establish and govern Pedra Branca Do
Mineraç_o S.A., the corporate entity that would hold 100% title to all the
assets of the Pedra Branca project, and the mechanics for Anglo Platinum's
continued funding of Pedra Branca exploration. We and Anglo Platinum
will own shares in Pedra Branca Do Mineraç_o S.A, in proportion to our
respective participating interests as specified in the Letter Agreement.
Anglo Platinum has funded approximately $1.24 million in exploration
and property maintenance costs since signing the Letter Agreement. We
have recorded a receivable of $88,000 at December 31, 2006 from Anglo
for reimbursements on costs incurred through December 31, 2006, but not
yet paid by Anglo Platinum. Solitario and Anglo Platinum have
completed drafting of a definitive operating agreement (or Shareholders
Agreement) and we anticipate signing the definitive agreement before the
end of the 2007 first quarter, upon approval of several regulatory filings
within Brazil. Should this agreement fail to be signed or if Anglo Platinum
declines to continue for some other reason, Solitario will retain 100% of
the Pedra Branca Project. Current plans call for Anglo Platinum to fund
approximately $1.0 million in exploration expenditures for the ten-month
period ending October 31, 2007. Upon the completion of the
aforementioned expenditures, Anglo Platinum will have earned a 15%
interest in the joint operating company holding Pedra Branca mineral
rights, with Solitario retaining an 85% interest.

In September of 2006, Solitario acquired 5,200 hectares of 100%-owned
mineral rights through concessions for our Amazonas property. Solitario
capitalized $13,000 in lease acquisition costs related to these

OOtthheerr BBrraazziill pprroojjeeccttss
MMeerrccuurriioo–– In September 2005, Solitario completed an option
agreement for the purchase of 100% of the mineral rights over the

28 | Solitario Resources Corporation

8,550-hectare Mercurio property in the state of Para, Brazil. An
initial payment of approximately $7,000 was paid on signing of the
agreement and the next payment of approximately $12,000 was
made in 2005 on signing of a definitive agreement upon conversion
of the existing washing claims to exploration claims. Further
payments are required upon the conversion of garimpeiro licenses to
exploration claims which occurred in the third quarter of 2006.
During 2007 payments will total approximately $41,900. To
purchase the property, an escalating scale of payments totaling
approximately $350,000 is required over a sixty month period. A net
smelter return of 1.5% is retained by the owner. This NSR can be
extinguished with a payment of approximately $1,070,000. All
payments are indexed to inflation as of the signing of the agreement.
The owner of the mineral rights also owns the surface rights, the use
of which is included in the exploration of the property. On
completion of all payments Solitario will receive title to 1,500
hectares of surface rights. Solitario may terminate the agreement at
any time at its sole discretion. Solitario completed a second phase
of extensive soil sampling and auger testing of soils over selected
portions of the property during the first half of 2006 and core drilling
of eleven holes totaling 1,596 meters completed during the third
quarter. During 2005 Solitario completed 1,466 meters of core
drilling. Solitario is currently planning a 2007 drilling program.

PPaauu dd'' AArrccoo–– During 2006, we acquired priority to mineral rights
covering 2,400 hectares from the Brazilian government at our Pau d'
Arco project in Brazil. As a result of this acquisition we capitalized
$18,000 of costs incurred and initial payments made pursuant to an
agreement with three private Brazilian individuals to gain access to
the Pau d' Arco project. These agreements called for access
payments of approximately $23,000 for 2006 and payments totaling
approximately $1,380,000 over four years. We may also buy out a
1% net smelter return retained by the owners for approximately
$2,600,000. We conducted surface exploration work during the
third quarter of 2006 and drilled and completed six core holes
totaling 1,111 meters. Although low-grade gold was intersected in
three holes, the drilling results were not sufficiently encouraging to
continue exploration on the property. Consequently, we will not
make 2007 claim fee payments to the government and will terminate
our agreements the private Brazilian parties. We have recorded an
impairment of $18,000 for property abandonment.

BBoolliivviiaa
TTrriiuunnffoo–– In August 2003, Solitario signed an Option Agreement to
acquire a 100% interest in the 256-hectare 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 $170,000 over a four-year period to the underlying
owners. The first, second and third payments to the owners of
$10,000, $12,500 and $12,500, respectively, have been made. A
100% interest in the property can be acquired at any time within a
five-year time frame 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. A geophysical
survey has been completed on the property and we are currently
evaluating whether drilling is warranted for later in 2007.

TTiittiiccaayyoo–– On March 31, 2006, we signed a lease agreement with a
private Bolivian company to lease certain concession covering
approximately 1,300 hectares, which comprise the Titicayo project
in Bolivia. We capitalized our initial payment under the lease of
$10,000. The lease calls for additional lease payments of $10,000
eight months from the date of the lease, $55,000 during the second
year of the lease, $75,000 during the third year of the lease,
$100,000 during the fourth year of the lease, $150,000 during the

fifth year of the lease and $600,000 during the sixth year of the lease
after which we will own a 99% participating interest in the
concessions. An amendment to the Titicayo Agreement was signed
in November of 2006 that delayed the first additional lease payment
until June 2007 with a corresponding adjustment to the rest of the
payment schedule. A one time payment of $10,000 was made to the
claim holders in consideration for this amended schedule. We have
conducted a limited amount of surface exploration work to assess if
drilling is warranted. We are currently planning a three-hole drilling
program later in 2007.

MMeexxiiccoo
In September 2005, Solitario signed an agreement with a private
Mexican mineral concession holder allowing Solitario to enter into lease
options on four separate properties located throughout central Mexico.
The Concepcion del Oro gold property is located near the city of
Mazapil in the state of Zacatecas and consists of 35 concessions totaling
approximately 1,420 hectares. The Hedionda gold property is located
near the city of Allende in the state of Guanajuato and consists of six
concessions totaling 620 hectares. The Las Tortugas gold property is
located near the city of Chiquilistlan in the state of Jalisco and consists
of four concessions totaling 400 hectares. The Las Purisimas gold
property is located near the city of Tepic in the state of Navarit and
consists of six concessions totaling 600 hectares. The agreement called
for Solitario to make an initial payment of $15,000 on signing and
provided for Solitario to conduct surface exploration on the four
properties over a six-month period. Solitario has elected to sign
definitive option agreements on the Concepcion del Oro, and Purisimas
properties. The Concepcion del Oro and Purisimas properties required
payments of $10,000 each in 2006 and in 2007 we are required to pay
$25,000 for the Concepcion del Oro property and $35,000 for the
Purisimas property to maintain the option agreements in good standing.
Additionally the properties require claim payments to the government of
$1,600 and $400 respectively in 2007. As of December 31, 2006, work
is ongoing on the properties to determine if drilling is warranted.
Solitario did not exercise its option to option the Hedionda and Las
Tortugas properties and at December 31, 2006, have no further payment
or work obligations for these two properties.

In August 2005, Solitario received title to the Zinda concession near the
city of Morelia in the state of Michoacan, Mexico. Solitario paid $5,000
in concession fees (plus tax) to the Mexican government for the 10,000-
hectare concession. As a result of exploration activities during 2006,
Solitario decided to abandon its interests in the Zinda concession and
recorded a mineral property write-down of $5,000. No further work is
planned at the Zinda property.

In September 2005, Solitario signed an agreement with a private
Mexican mineral concession holder to option a 100% interest in the 918
hectare Pozos gold property near the city of San Luís de la Paz in the
state of Guanajuato, Mexico. Solitario decided to abandon its interest in
the Pozos gold property in the fourth quarter of 2006 and recorded a
$4,000 mineral property write-down. No further work is planned at the
Pozos gold property.

EExxpplloorraattiioonn eexxppeennssee
The following items comprised exploration expense:

(in thousands)

2006

2005

2004

Geologic, drilling and assay

$1,370

$ 923

$ 770

Field expenses

Administrative

995

842

Joint venture reimbursement

(265)

727

522

(100)

479

250

(411)

Total exploration expense

$2,942

$2,072

$1,088

2006 Annual Report | 29

3. Related party transactions:
Crown provided 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. The agreement was terminated on August 31, 2006 upon
the completion of the Crown – Kinross merger. Under the modified
agreement Solitario was 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 reimbursed Crown for direct out-of-pocket expenses. These
allocations were based upon the estimated time and expenses spent by
Crown management and employees on both Crown activities and
Solitario activities. Management of Solitario believed these
allocations were reasonable and the allocations were periodically
reviewed by Solitario management and approved by independent
Board members of both Crown and Solitario. Management service
fees were billed monthly, due on receipt and are generally paid within
thirty days. Management service fees incurred by Solitario were
$232,000, $423,000 and $390,000 for the years ended December 31,
2006, 2005 and 2004, respectively.

On September 1, 2006, Solitario entered into a consulting agreement
with Mark E. Jones, III, a director and vice-chairman of the Board of
Directors of the Solitario. The consulting agreement has a two-year
term. Under the agreement, Mr. Jones will advise the Company on
matters of strategic direction, planning, and identification of
corporate opportunities, when and as requested by the Solitario. In
consideration for the services to be performed, Mr. Jones was paid a
one time lump sum payment of $160,000, upon signing the
agreement, plus he is entitled to receive pre-approved, documented
expenses incurred in performance of the consulting services.
Solitario has charged $27,000 for consulting expense, related to the
agreement, included in general and administrative expense for the
year ended December 31, 2006.

On July 24, 2006, Solitario exercised a warrant to purchase 500,000
shares of TNR Gold Corp. (“TNR”) common stock by paying
$70,000. Solitario recorded the cash paid and the fair value of the
warrant on the date of exercise of $12,000 as marketable equity
securities held for sale. Solitario received this warrant in July 2004
when Solitario exchanged 500,000 shares of TNR Gold Corp
("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 2004 transaction was accounted for as a sale of
Solitario’s previously owned TNR shares and an acquisition of the
new TNR shares and warrants. As of December 31, 2006, Solitario
does not own warrants for the purchase of TNR shares. Previous to
their exercise, the TNR warrants were recorded at fair market value
based upon quoted prices and classified as derivative instruments.
Solitario recorded a loss on derivative instruments of $5,000, $20,000
and $38,000 for the decrease in the value of its warrants during the
years ended December 31, 2006, 2005 and 2004, respectively.
Christopher E. Herald, Solitario’s CEO, is a member of the Board of
Directors of TNR.

exercise of its warrants and at December 31, 2006 the remaining 3,077
shares of Solitario stock became the property of Kinross which is not a
related party to Solitario. 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.

Solitario entered into a Voting Agreement dated as of April 15, 2002
among Zoloto Investors, LP ("Zoloto") and Crown. Zoloto and Solitario
were both shareholders of Crown (the "Signing Shareholders").
Pursuant to the Voting Agreement, Zoloto and Solitario agreed that each
would vote its owned shares during the term of the Voting Agreement for
the election of three designees of Zoloto and one designee of Solitario
(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 terminated on June 25, 2006.

Prior to the completion of the Crown – Kinross merger, 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 voted all of the shares of Crown
common stock owned by them in favor of the approval of the Crown –
Kinross merger. On August 31, 2006, the shareholders of Crown
approved the Crown – Kinross merger and all of Crown’s common
shares were converted to Kinross shares and the stockholder and voting
agreement terminated.

Christopher E. Herald, and Mark E. Jones, III were directors of both
Crown and Solitario until August 31, 2006 when they resigned as
directors of Crown upon the completion of the Crown – Kinross merger.
Stephen Webster and Brian Labadie were directors of both Crown and
Solitario from June 27, 2006 to August 31, 2006, when they resigned as
directors of Crown upon the completion of the Crown – Kinross merger.
Christopher E. Herald, James R. Maronick and Walter H. Hunt were
officers of both Crown and Solitario until August 31, 2006 when they
resigned as officers of Crown upon the completion of the Crown –
Kinross merger.

Income Taxes:

4.
Solitario's income tax expense (benefit) consists of the following as
allocated between foreign and United States components:

(in thousands)

2006

2005

2004

Deferred:

United States

Foreign

Operating loss and
credit carryovers:

United States

Foreign

$ (492)

$ 31

$ (645)

(51)

546

226

(290)

Income tax expense (benefit)

$ 54

$ 257

$ (935)

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. Subsequent to the spin-off,
through August 31, 2006 when the Crown – Kinross merger was
completed, Crown distributed 995,229 of these retained shares upon

Consolidated income (loss) before income taxes includes losses from
foreign operations of $3,286,000, $2,476,000, and $1,457,000 in 2006,
2005 and 2004, respectively. During 2006, 2005 and 2004, Solitario
recognized income tax deductions of $1,579,000, $28,000 and
$483,000, respectively, from the exercise of nonqualified stock options.
Stockholders’ equity has been credited in the amount of $616,000,
$11,000 and $188,000, respectively, for the income tax benefit of these
deductions during 2006, 2005 and 2004.

30 | Solitario Resources Corporation

During 2006, 2005 and 2004, Solitario recognized other comprehensive
income related to unrealized gains on marketable equity securities of
$9,205,000, $1,804,000 and $6,356,000, respectively.
Other
comprehensive income has been charged $3,590,000, $704,000 and
$2,481,000, respectively, for the income tax expense associated with
these gains. During 2006, Solitario transferred unrealized gain of
$2,121,000 from other comprehensive income upon the sale of 200,000
shares of Kinross common stock, less income tax of $827,000 associated
with these unrealized gains.

The net deferred tax assets/liabilities in the December 31, 2006 and 2005
consolidated balance sheets include the following components:

((iinn tthhoouussaannddss))

Deferred tax assets:

Net operating loss (NOL)

carryovers

Stock option compensation

expense

Royalty

Other

Valuation allowance

Total deferred tax assets

Deferred tax liabilities:

Unrealized gain on derivative

securities

Exploration costs

Unrealized gains on marketable

equity securities

Other

Total deferred tax liabilities

22000066

22000055

$ 6,543

$ 5,516

373

1,560

(5,320)

3,206

1,467

870

6,632

8,989

1,560

(4,363)

2,768

1,599

870

3,869

6,350

During 2006, 2005 and 2004, the valuation allowance was increased by
$957,000, $609,000 and 422,000, respectively 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.

At December 31, 2006, Solitario has unused US Net Operating Loss
("NOL") carryovers of $4,904,000 which begin
to expire
commencing in 2010. Solitario also has foreign NOL carryovers at
December 31, 2006 of $13,800,000 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 greater than 50% 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 Kinross and Crown shares was $20,706,000 and
$13,965,000 at December 31, 2006 and 2005, respectively. The fair
value of the TNR shares was $198,000 and $94,000 at December 31,
2006 and 2005, respectively.

The fair value of the TNR warrants was $18,000 at December 31, 2005.
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 exercised its only outstanding TNR
warrant during 2006 and has no remaining TNR warrants as of
December 31, 2006.

Net deferred tax liabilities

$ 5,783

$ 3,582

6. Commitments and Contingencies

At December 31, 2006 and 2005, Solitario has classified $1,652,000 and
$1,362,000, respectively, of its deferred tax liability as current, related to
the current portion of its investment in Kinross common stock.

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)

2006

2005

2004

Expected income tax
expense (benefit)

Non-deductible foreign

expenses

Foreign tax rate differences

State income tax

Change in valuation

allowance

Other

Income tax expense

(benefit)

$(1,064)

$ (620)

$ (1,310)

142

957

(6)

202

609

(122)

422

(4)

$ 54

$ 257

$ (935)

In acquiring its interests in mineral claims and leases, Solitario has
entered into lease agreements, which may be canceled at its option
without penalty. Solitario is required to make minimum rental and
option payments in order to maintain its interests in certain claims and
leases. See Note 2. Solitario estimates its 2007 mineral property rental
and option payments to be approximately $350,000. If Solitario's
current joint venture partners elect to continue funding their respective
joint ventures throughout the remainder of 2007, Solitario would be
reimbursed for approximately $102,000 of those costs.

Solitario has committed to spend $3,773,000 over the next two years on
gold exploration in regions that are mutually agreed upon by Newmont
Exploration and Solitario. As of December 31, 2006, we have expended
$807,000 of the total commitment of $3,773,000.

Solitario has entered into certain month-to-month office leases for its
field offices in Peru and Brazil. The total rent expense for these
offices during 2006, 2005 and 2004 was approximately $28,000,
$36,000 and $29,000, respectively. In addition, Solitario leases office
space under a non-cancelable operating lease for the Wheat Ridge,
Colorado office which provides for minimum annual rent payments of
$32,000 in 2007.

2006 Annual Report | 31

7. Stock Option Plans:
The activity in the Plan for the three years ended December 31, 2006 is as follows:

2006

2005

2004

Weighted
Average
Exercise
Price

Cdn $0.82
-
Cdn $0.90
-
Cdn $0.74
Cdn $0.74

-
$2.77
$2.77
-
$2.77
$2.77

Options

2,240,000
-
(1,213,000)

1,027,000
1,027,000

-
1,655,000
(17,500)

1,637,500
396,250

Weighted
Average
Exercise
Price (Cdn$)

0.82
-
0.75
-
0.82
0.83

-
-
-
-
-
-

Options

3,488,500
-
(1,121,000)
(95,000)
2,272,500
2,073,750

-
-
-
-
-
-

Weighted
Average
Exercise
Price (Cdn$)

0.95
-
1.17
1.25
0.82
0.83

-
-
-
-
-
-

Options

2,272,500
-
(32,500)

2,240,000
2,219,375

-
-
-
-
-
-

2004 Plan
Outstanding, beginning of year
Granted
Exercised
Expired
Outstanding, end of year
Exercisable, end of year

2006 Plan
Outstanding, beginning of year
Granted
Exercised
Expired
Outstanding, end of year
Exercisable, end of year

The following table summarizes Solitario's stock options as of December 31, 2006:

Options Outstanding

Options Exercisable

2004 Plan

Cdn$0.81
Cdn$0.94
Total

2006 Plan
$2.77

Number

110,000
917,000
1,027,000

1,637,500

Weighted Average Weighted
Average
Exercise
Price

Remaining
Contractual
Life (in years)

Cdn $0.81
Cdn $0.94

1.6
0.2

4.5

Weighted
Average
Exercise
Price

Cdn$0.81
Cdn$0.94

Number
Exercisable

110,000
917,000
1,027,000

$2.77

396,250

$2.77

8. Stockholders' Equity:
Because Solitario owned 6,071,626 shares of Crown, 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. 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 2006 options for 1,230,500 shares of Solitario common stock
were exercised for proceeds of $994,000, during 2005 options for
32,500 shares of Solitario common stock were exercised for proceeds of
$21,000 and during 2004 options for 1,121,000 shares of Solitario
common stock were exercised for proceeds of $985,000.

9. Selected Quarterly Financial Data (Unaudited):
(in thousands)

2006

Net loss
Loss per share:

March 31,
$ (621)

June 30,
$ (1,225)

Sept. 30,(1) Dec. 31,(1)(2)
$ (787)

$ (550)

Basic and diluted

$ (0.02)

$ (0.04)

$ (0.02)

$ (0.03)

Weighted shares
outstanding:

Basic and diluted

27,976

28,512

28,557

28,626

(in thousands)

2005

Net income (loss)
Earnings (loss)
per share:
Basic
Diluted
Weighted shares
outstanding:

Basic
Diluted

March 31,
$ (413)

June 30,
$ (711)

Sept. 30,(3)
$ 38

Dec. 31,
$ (994)

$ (0.02)
$ (0.02)

$ (0.03)
$ (0.03)

$ 0.00
$ 0.00

$ (0.04)
$ (0.04)

26,887
26,887

27,429
27,429

27,433
28,611

27,456
27,456

(1) Solitario sold a total of 200,000 shares of Kinross common stock,
100,000 shares in the third quarter for proceeds of $1,206,000 and a
net gain of $1,046,000 and 100,000 shares in the fourth quarter for
proceeds of $1,236,000 and a net gain of $1,076,000.

(2) General and administrative costs increased during the fourth quarter as
a result of the termination of the Crown management agreement and
Solitario assuming all costs which were previously shared with Crown.

(3) Solitario reported net income during the third quarter of 2005
primarily related to the Crown dividend payment of $1,275,000
received on July 26, 2005.

32 | Solitario Resources Corporation

Corporate Information

Officers & Directors

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 Investor Services
100 University Avenue
Toronto, Ontario M5J2Y1 Canada
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
Tuesday, June 14, 2007 at the Company’s corporate offices.

Stock Exchange Listings
AMEX: XPL | 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 and on the American Stock Exchange in
the U.S. since August 11, 2006 under the symbol XPL.

Christopher E. Herald
President, CEO & Director

Steven A. Webster
Chairman of the Board

James R. Maronick
Chief Financial Officer

John Hainey
Director

Walter H. Hunt
President – SA Operations

Leonard Harris
Director

Mark E. Jones, III
Vice Chairman of the Board

Brian Labadie
Director

On August 11, 2006, Solitario Resources recorded another milestone in
our corporate history as we began trading on the American Stock
Exchange. Our first trade was for 5,100 shares at $2.67. Standing in the
front row from left to right: Debbie Mino (Director-IR); Jim Maronick
(CFO); Marion Herald; Neal Wolkoff (Chairman & CEO of the AMEX);
Paula Mann (Manager-Administration) Chris Herald (President and CEO)

This publication includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization
and reserves, exploration results and future plans and objectives of Solitario, are forward-looking statements that involve various risks and uncertainties.
There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated
in such statements. Development of Solitario’s properties are subject to the success of exploration, completion and implementation of an economically viable
mining plan, obtaining the necessary permits and approvals from various regulatory authorities, compliance with operating parameters established by such
authorities and political risks such as higher tax and royalty rates, foreign ownership controls and our ability to finance in countries that may become politi-
cally unstable. Important factors that could cause actual results to differ materially from Solitario’s expectations are disclosed under the heading "Risk
Factors" and elsewhere in Solitario’s documents filed from time to time with Canadian Securities Commissions, the United States Securities and Exchange
Commission and other regulatory authorities. This publication also contains information about adjacent properties on which we have no right to explore or
mine. We advise U.S. investors that the SEC's mining guidelines strictly prohibit information of this type in documents filed with the SEC. U.S. investors are
cautioned that mineral deposits on adjacent properties are not indicative of mineral deposits on our properties.

Primary Photography: Walter H. Hunt | Design: Pite Creative Services, Inc.

2006 Annual Report