BONGARA ZINC PROJECT - PERU
‘
SOLITARIO
E X P L O R AT I O N
& R O YA LT Y
2013 ANNUAL REPORT
MT. HAMILTON GOLD PROJECT - USA
Letter to Shareholders
2013 will go down in history as one of the most challenging years in decades for the metals
industry. Solitario was able to not only successfully navigate through this difficult time period,
but also to accomplish virtually all of our major goals set out for the year.
2013 Gold, Silver and Zinc Market Overview
To better understand just how noteworthy Solitario’s 2013
accomplishments were, it is informative to review the major
trends in the commodity space during this time period.
The year began with robust gold and silver prices of
approximately $1,680 and $31.00 per ounce, but finished
at $1,200 and $19.50, respectively, representing a 28%
decline in gold and a 37% decline in silver. This
significant downturn created a near-crisis financial
situation for the industry, where funding for companies and
projects of all sizes became extremely difficult.
Fortunately, precious metal investors, especially the
Chinese, found these prices attractive and began
purchasing ever larger quantities of physical metal. The
intensity of the physical buying of gold appears to have
turned the tide resulting in double digit gains for both gold
and silver since the beginning of 2014.
Zinc was a different story, trading in a rather subdued range
between $0.80 and $0.95 per pound throughout 2013, but
ending the year in the upper range. The intriguing
backstory for zinc in 2013 was the apparent transition from
an over-supplied to an under-supplied market. We firmly
believe that zinc will be one of the best performing metals
over the next five years, as zinc mine closures due to
reserve depletion and modest world consumption growth
continue to occur.
Financing
The drop in gold and silver prices in 2013 resulted in a
significant reduction in precious metal project/corporate
financing. We determined that additional funding was
necessary to keep our Mt. Hamilton permitting and
engineering program on schedule. As a result, a $2.06
million management-led financing was successfully
completed in July 2013. Company insiders funded 25% of
the placement. A second financing at a 25% higher price
was completed in February 2014 resulting in gross proceeds
of another $1.68 million. Both financings were non-
brokered and without warrants. With these two financings,
plus reducing non-Mt. Hamilton project expenditures, and a
series of other financial undertakings in late 2013 related to
our Mt. Hamilton contract obligations, we have significantly
strengthened Solitario’s financial position.
Mt. Hamilton at the Forefront
Our number one priority for
2013 was to continue
advancing the Mt.
Hamilton gold project in
Nevada toward
construction where
substantial progress was
made on both the
permitting and engineering
fronts. In last year’s annual
report, we estimated that permitting would be completed
sometime in the second half of 2014 – we remain on
schedule for this timeline. Additional details of our
progress, along with what remains to be completed, are
provided in the Mt. Hamilton section of this year’s annual.
Bongará
Our partner, Votorantim Metais, (“Votorantim”) continued
their aggressive exploration and development efforts on our
high-grade Bongará zinc project in Peru. Additional
drilling, metallurgy, road building, engineering and
permitting work highlighted 2013 activities. A 43-101
compliant resource is currently in preparation and will be
released upon completion.
2014 and Beyond
Our number one 2014 corporate objective is clear: Gain
approval for all permits necessary to allow construction of
the Mt. Hamilton gold mine. Our best estimate for
acquiring these permits is sometime in the third quarter of
2014. A close second objective is to arrange project
financing. Our goal here is to secure project funding within
three months of final permit acquisition.
As you read Solitario’s 2013 Annual Report, I hope you agree
that 2014 should be a transformational year for the Company.
Our expectations for Solitario have never been higher, and we
remain totally committed to achieving our objectives.
With best regards,
Christopher E. Herald
President & Chief Executive Officer
2013 Annual Report
Mt. Hamilton Gold Project, Nevada USA
Permitting often seems like a never-ending bureaucratic process – even to us – but it is a
highly regimented process on both the federal and state levels that has a beginning, lots of
intermediate steps, and finally an ending. The beginning and ending are rather brightline
milestones, but it’s the intermediate steps that take the longest and are generally less
newsworthy as standalone landmarks. However, we are pleased to say that we are very near
the end of the Mt. Hamilton permitting process.
Permitting
additional water rights that are sufficient for all foreseeable
Mine permitting was formally initiated in November 2012
construction and operational requirements.
with the filing of our Mt. Hamilton Gold Mine Plan of
Operations (“PoO”) with the U.S. Forest Service (“USFS”),
based upon our 2012 Feasibility Study completed by SRK
Consulting (US), Inc. (“SRK”). Since then, we have
focused on completing the permit process that will allow us
to begin construction. Three important permit approvals
were received during 2013. The first was a Bureau of Land
Management (“BLM”) right-of-way road grant to Solitario
There are four main permits or approvals required for us to
complete the permitting process at Mt. Hamilton. During
2013 and the first half of 2014, our work centered upon
collecting, evaluating, and organizing all data required to
submit the applications for these four important permits.
We anticipate approval of all four of these permits in the
second and third quarters of 2014. These are:
over BLM administered lands. This right-of-way is
1. Environmental Assessment (“EA”): This is the
important for operational access to our mining and
major federal approval required before any construction
processing areas. The second approval was for an
on federal lands can take place. As part of the National
Environmental Assessment (“EA”) that we submitted in
Environmental Protection Act requirements, a draft EA
2011 that now allows us to build a system of drill roads to
was recently completed by a third party contractor and
drill test the large (1.0 mile x 0.5 mile) Wheeler Ridge gold
submitted to the USFS for their review and comments.
anomaly. We hope to conduct some initial drill testing of
Responses will be developed to USFS comments and
this exciting target in 2015. Finally, we were granted
then the EA will undergo public review.
View of Mt. Hamilton
Wheeler
Ridge
Centennial
Seligman
Solitario Exploration & Royalty Corp. | 1
Mt. Hamilton Gold Project, Nevada USA | continued
2. Water Pollution Control Permit (“WPCP”): This
Figure 1: Mt. Hamilton Ore Reserve Block Model
permit required by the Nevada Department of
Environmental Protection (“NDEP”) addresses water
pollution control measures. The permit application was
submitted to the NDEP in the fourth quarter of 2012.
NDEP observations have been received and we are
preparing responses to these comments.
3. Nevada Reclamation Permits (“NRP”): The
approval of these permits by the NDEP addresses all
planned project reclamation plans through mine closure
and related remediation. The NRP permit applications
were submitted to the NDEP in the second quarter of
2012. NDEP comments have been received and we
have responded to these comments.
4. Air Quality Permit (“AQP”): This permit is the last
of the three significant Nevada permits required to
begin construction and also traditionally has the shortest
timeline for approval. The permit application was
recently submitted.
In addition to these four permits, we are also completing an
Archeological Treatment Plan and Mitigation Reports
prepared for the Nevada State Historical Preservation
Office for their review, comment and subsequent
acceptance for archeological and historical resources that
occur on private lands that we control. The USFS
participates in the review of these reports through a
consultation process, as well as inputs from various
stakeholders including Native American tribes.
Engineering
Additional engineering work conducted in 2013 advanced
our preparations for construction, operation and closure of
the Mt. Hamilton mine. Included in these activities was
the completion in March 2014 of the design of our
Adsorption-Desorption-Recovery (“ADR”) processing plant
contract with KCA for the fabrication, construction and
for the recovery of gold and silver. This engineering was
start-up of the ADR plant at a turn-key price of $9.2
performed by Kappes Cassiday & Associates (“KCA”) of
million. This price will be fixed for a period of five months
Reno, Nevada, one of the world’s best known ADR plant
after the issuance of the engineering report, and thereafter
designers. Our agreement with KCA provides an option to
will be subject to escalation based upon CPI data.
2 | 2013 Annual Report
Mt. Hamilton Gold Project, Nevada USA | continued
In the fourth quarter of 2013 and into the second quarter
Indicated Resources that we believe can be converted to
of 2014, we engaged SRK, the engineering firm that
Reserve status in the future, lengthening mine life.
completed our 2012 Feasibility Study, to develop and
optimize a mine and processing plan that contemplates
processing 10,000 tons per day rather than 8,500 tons
per day that was the base case scenario in the
Feasibility Study. Our permitting plan that has been
submitted to the state and federal regulatory agencies
The potential to add new resources at Mt. Hamilton
remains high. Although we are not planning any new
drilling in 2014, we have identified the area between the
Centennial and Seligman open pits as having a very high
potential to add resources that would have the effect of
allows us to mine at this higher rate. In addition, through
creating a single pit with reduced waste stripping, rather
our drilling efforts since the 2012 Feasibility Study was
than two separate pits. This is an exciting new potential
completed, we have added significant new Measured and
for the project.
Figure 2: Centennial & Seligman Cross Sections
Cross Section thru Centennial
Cross Section thru Seligman
Solitario Exploration & Royalty Corp. | 3
Bongará Zinc Project, Peru
2013 was another year of steady progress on our Bongará high-grade zinc project in Peru.
The focus of Votorantim’s efforts, as managing and funding partner, was completion of
pre-feasibility related work. This work consisted mainly of extensions of activities conducted
in 2012 including additional infill drilling, metallurgical and geotechnical testing, updated
resource modeling incorporating the results of the 2013 exploration program, infrastructure
scoping studies and permitting.
Some of the Best Ever Drilling Results
Underground drilling on the San Jorge zone and surface
drilling on the Karen-Milagros zone once again yielded
exceptional drilling results. Twenty-five core holes totaling
2,817 meters were drilled from the San Jorge underground
workings and 61 core holes totaling 7,545 meters were
completed in the Karen-Milagros zone from the surface.
Remarkably, the Bongará mineralization remains open to
expansion in all directions, even after 487 drill holes
totaling 117,380 meters have been completed.
projection of mineralization from one drill hole to another.
Votorantim brought in consulting experts that studied the
drill core and other geologic data in detail and recognized
that mineralization was not only controlled by stratigraphy
(favorable horizontal rock formations), but more importantly,
it was also structurally controlled by near-vertical fault
zones. Armed with this new interpretation, Votorantim
designed the 2013 drilling program to test this new theory.
The 2013 drilling results provided support for this
interpretation and has enabled Votorantim to much more
confidently project continuity and model the geometry of
This year’s underground drilling at San Jorge proved to be a
mineralization (see Figure 5).
watershed event, not only because of the exceptionally high-
grade results (see Table 1), but also because we developed a
The Karen-Milagros zone was the focal point of surface
drilling in 2013. Sixty-one core holes were drilled; of these,
much better level of understanding of the geometry of zinc
four of the holes did not reach the target depth. Of the
mineralization. Within the San Jorge zone, Votorantim’s
remaining 57 drill holes, 40 holes intersected mineralization
geologists had difficulty evaluating the 2011-2012 drilling
grading in excess of 2.0% zinc + lead over at least two
data to establish continuity of mineralization, which is the
meters, or equivalent (see Table 2). This latest round of
Table 1: 2013 Underground Drilling Highlights - San Jorge Zone
Drill Hole
Number
V-404
V-405
and
V-407
V-410
V-431
V-432
V-433
V-456
V-458
V-465
Intercept *
(meters)
6.8
7.0
10.2
3.6
9.9
4.3
21.1
5.0
15.7
25.5
10.7
Zinc
(%)
19.42
15.34
7.15
26.31
22.94
17.24
8.31
38.22
6.50
7.22
45.60
* True thickness has not been estimated for each individual intercept.
Lead
(%)
0.39
1.44
0.18
1.59
3.09
0.25
1.71
3.89
0.46
0.55
5.25
Zinc + Lead
(%)
19.81
16.78
7.33
27.90
26.04
17.50
10.02
42.12
6.96
7.77
50.84
Silver
(gpt)
22.04
24.85
13.35
74.87
20.61
6.21
12.11
60.76
7.21
6.21
106.71
4 | 2013 Annual Report
Bongará Zinc Project, Peru | continued
Figure 3: Long Section of Bongará Mineralization
Karen-Milagros
San Jorge
surface drilling was focused in the central portion of the
the northeast and also to the south towards the San Jorge
Karen-Milagros zone that previously had insufficient drill
zone. The spatial relationship between the San Jorge and
density. The Karen-Milagros zone is open to expansion to
Karen-Milagros zones is shown in Figures 3 and 4.
Figure 4: Distribution of Mineralized Material
Karen-Milagros
San Jorge
Solitario Exploration & Royalty Corp. | 5
Bongará Zinc Project, Peru | continued
Table 2: 2013 Surface Drilling Highlights - Karen-Milagros Zone
Drill Hole
Number
V-378
V-386
V-394
V-397
V-401
V-412
V-424
V-427
V-436
and
V-451
V-452
V-453
Intercept *
(meters)
7.7
16.2
3.5
2.4
12.7
5.5
17.2
15.1
17.0
6.0
30.7
19.4
22.0
Zinc
(%)
14.62
10.70
21.72
33.00
7.38
17.17
5.83
12.06
11.74
15.51
13.06
7.66
13.70
Lead
(%)
2.11
1.71
7.08
21.33
1.78
0.94
0.26
2.75
1.08
2.52
4.97
0.73
1.54
Zinc + Lead
(%)
16.73
12.41
28.79
54.33
9.16
18.11
6.09
14.81
12.81
18.04
18.03
8.38
15.24
Silver
(gpt)
15.69
11.13
48.69
133.96
13.29
8.49
2.36
17.59
18.48
29.74
32.64
7.33
14.47
* True thickness has not been estimated for each individual intercept but is generally thought to be about 75-90% of the actual drill thicknesses.
Bongará Development Activities –
Includes First Resource Report
regarding the geotechnical characteristics of bedrock
and the hydrology/water quality of the ground water
Engineering and other development activities that started
in 2012 continued throughout much of 2013. Work was
in the Florida Canyon and surrounding areas.
4. Road Construction: Nearly 5.0 kilometers of
concentrated in four areas:
the access road were completed in 2013, bringing
the total length of road constructed to date to over
1. Resource Modeling: We believe we now have
25 kilometers.
enough drill data to produce a NI 43-101 compliant
resource estimate for the San Jorge and Karen-
Milagros mineralized zones. We will rely heavily
upon Votorantim’s work in modeling the
mineralization delineated to date. We will release the
results of this effort when it is completed.
2. Metallurgy: Additional detailed metallurgical
studies were conducted on both the San Jorge and
Karen-Milagros mineralized samples. Although
metallurgical work remains an ongoing work in
progress, substantial advances have been made in
understanding the metallurgy and defining the
optimal processing options. Currently, Votorantim
2014 Objective – Complete a Pre-feasibility Report
Votorantim’s main goal for 2014 is to complete a pre-
feasibility study for the Bongará project by year end.
Included in these plans are completion of all hydrologic
and geotechnical studies and pre-feasibility level project
design for construction and operations. In addition,
construction of another 4.0 kilometers of access road is
planned, bringing the total length of completed access road
to approximately 30 kilometers. Finally, a further 6,000
meters of surface drilling is planned in the Karen-Milagros
(75%) and San Jorge (25%) zones. The mine permitting
process, which has already begun, is expected to be 20%
completed by year’s end. Mine permitting is expected to
believes that a standard floatation process is the most
take approximately two years, with the completion date
efficient path for recovering both zinc and lead.
3. Geotechnical/Hydrologic Drilling: Sixteen core
estimated in the first half of 2016. Votorantim will also
continue its highly successful community engagement
holes were completed to provide baseline data
activities throughout 2014.
6 | 2013 Annual Report
Bongará Zinc Project, Peru | continued
Figure 5: San Jorge Cross Section
Our Agreement with Votorantim Metais
The cornerstone of our agreement with Votorantim is that
our 30% interest is 100% funded through commencement
of commercial production. In fact, all funds expended by
Votorantim through completion of a Feasibility Study are
not have to pay back Votorantim for any of its expenditures
prior to completion of the Feasibility Study and a production
decision. After a production decision is made, Votorantim is
required to finance Solitario's 30% participating interest for
construction. Solitario will repay the loan facility through
100% Votorantim’s obligation, with
50% of our net cash flow distributions.
no repayment required by
Figure 6: Karen-Milagros Cross Section
Solitario. Considering the difficult
resource financing environment
that our industry has been in for
the past two years, it is clear that
our underlying agreement with
Votorantim makes this great
project even better for Solitario
and its shareholders.
Votorantim has the option to earn
up to a 70% interest in the project
by committing to place the project
into production based upon a
Feasibility Study. Solitario does
Solitario Exploration & Royalty Corp. | 7
Pedra Branca PGM Property, Brazil | Pachuca Norte Silver-Gold Property, Mexico
Pedra Branca Project, Brazil –
Drill Testing New Targets to Commence
Pachuca Norte –
2013-2014 Drilling Program Nearly Complete
Platinum and palladium ("PGM") mineralization and
Solitario’s Pachuca Norte project area surrounds the famed
associated mines are even more rare than gold mines in
Pachuca-Real del Monte silver-gold mining district in
terms of worldwide distribution. Moreover, South Africa
central Mexico. Historically, the district produced about
and Russia are the largest producers of PGM's and their
1.4 billion ounces of silver and over 7.0 million ounces of
capacity to continue current production rates is in
gold, making it one of the largest historic silver-gold
question. These are some of the reasons why the PGM
districts in the world.
market is forecast to stay strong for years to come by
most precious metal commodity experts. It is also why
we believe that Pedra Branca could become an important
development project for Solitario in the future.
In June 2013 we signed a definitive Pachuca Norte joint
venture agreement with Hochschild Mining. The joint
venture terms include progressively accelerating work
commitments by Hochschild totaling $10 million over 60
In 2013 Anglo Platinum, the largest platinum producer
months, with a firm initial work commitment of $2.0 million
in the world and our 51% joint venture partner,
over the first 18 months to earn a 51% interest in the
completed a major regional airborne geophysical survey
project. Hochschild will have the right to earn an
designed to identify buried magnetic ultramafic rock
additional 19% interest (total 70%) by completing a
formations. Ultramafic rocks are iron-magnesium rich,
positive Feasibility Study on the project. Upon completion
often with a very high magnetic geophysical signature.
of the Feasibility Study, both companies will fund their
Ultramafic rock formations commonly host platinum-
respective participating interests. Hochschild is the
palladium mineralization not only in the Pedra Branca
project manager and can terminate its funding obligations
area, but in many of the major PGM producing regions
at any time after completing its firm initial $2.0 million
throughout the world.
work commitment.
The geophysical program was successful in identifying new
To date, Hochschild completed and received assay drilling
magnetic bodies. Anglo Platinum is planning a 7,000-
results for 13 core holes. Three targets were tested. The
8,000 meter core drill program to drill test a number of
best five drill hole intercepts for which results have been
these newly identified drill targets.
received are presented in the Table 3 below.
Table 3: 2013 Pachuca Norte Drilling Highlights
Drill Hole
Number
DDHPA13-02
DDHPA13-05
DDHPA13-10
DDHPA13-11
DDHPA13-13
Intercept *
(meters)
0.60
1.10
0.28
0.30
0.80
Gold
(gr/tonne)
6.21
0.83
0.61
1.01
6.57
Silver
(gr/tonne)
520.0
64.3
79.2
88.0
392.0
Silver Equivalent **
(gr/tonne)
892.6
114.1
115.8
148.6
786.2
* True thickness has not been estimated for each individual intercept.
** Ag Eq. = Silver Equivalent at 1.0 g/gold = 50 g/silver.
8 | 2013 Annual Report
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 this Annual Report. 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 a development stage company (prior to February 22, 2012
we were an exploration stage company) with a focus on
developing the Mt. Hamilton gold project, the acquisition of
precious and base metal properties with exploration potential,
and the development or purchase of royalty interests. We
announced on February 22, 2012 the completion of a feasibility
study on our Mt. Hamilton project (the “Feasibility Study”),
prepared by SRK Consulting (US), Inc. of Lakewood, Colorado
(“SRK”). As a result of the completion of the Feasibility Study,
we have earned an 80% interest in the Mt. Hamilton project and
intend to develop the Mt. Hamilton project, subject to a number
of factors including obtaining necessary permits and availability
of required development financing capital, none of which is
currently in place. The Mt. Hamilton project is discussed below
under “Mt. Hamilton Joint Venture.” In addition, we acquire and
hold a portfolio of exploration properties for future sale, joint
venture or to create a royalty prior to the establishment of proven
and probable reserves. Although our exploration properties may
be developed in the future by us or through a joint venture, and
we currently intend to develop the Mt. Hamilton project, we have
never developed a mineral property. We may also evaluate
mineral properties to potentially buy a royalty.
Solitario was incorporated in the state of Colorado on November 15,
1984 as a wholly owned subsidiary of Crown Resources Corporation
(“Crown”). We have been actively involved in this business since
1993. We recorded revenues from joint venture delay rental
payments related to our Bongará project of $200,000, each year,
during 2013 and 2012 and we recorded $100,000 of delay rental
payments each year during 2013 and 2012 related to our Mercurio
project. During June 2012 we sold a royalty interest in our Mt.
Hamilton project to Sandstorm Gold Ltd. (“Sandstorm”) for
$10,000,000 of which $6,000,000 was paid in June 2012 and
$4,000,000 was paid in January 2013. Previously, our last
significant revenues were recorded in 2000 upon the sale of our
Yanacocha property for $6,000,000. We expect that future revenues
from the sale of properties, if any, would also occur on an infrequent
basis. At December 31, 2013, in addition to our Mt. Hamilton
project, we had six exploration properties in Peru and Mexico, and
one royalty property in each of Peru and Brazil. We are conducting
limited exploration activities in those countries either on our own or
through joint ventures operated by our partners.
In addition to our work at Mt. Hamilton, we have expertise in
identifying mineral properties with promising mineral potential,
acquiring these exploration mineral properties and exploring
them to enable us to sell, joint venture or create a royalty on these
properties prior to the establishment of proven and probable
reserves. For these early-stage projects, one of our primary goals
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
for the identification of proven and probable reserves, as well as
permitting and preparing a deposit for mining). At that point, or
sometime prior to that point, we would attempt to either sell our
exploration mineral properties, pursue their development either
on our own or through a joint venture with a partner that has
expertise in mining operations or create a royalty with a third
party that continues to advance the property.
In analyzing our activities, the most significant aspect relates to
results of our exploration and potential development activities
and those of our joint venture partners on a property-by-property
basis. When our exploration or development activities, including
drilling, sampling and geologic testing, indicate a project may not
be economic or contain sufficient geologic or economic potential
we may impair or completely write-off the property. Another
significant factor in the success or failure of our activities is the
price of commodities. For example, when the price of 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. We anticipate the success of our
development activities on our Mt. Hamilton property will become
increasingly important in the future.
The potential sale, joint venture or development of our mineral
properties will occur, if at all, on an infrequent basis. Accordingly,
while we conduct development activities at the Mt. Hamilton
project, we need to maintain and replenish our capital resources.
We have met our need for capital in the past through (i) the sale of
properties, which last occurred in 2000 with the sale of our
Yanacocha property for $6,000,000; (ii) joint venture payments,
including delay rental payments discussed above; (iii) the
Sandstorm royalty sale during 2012; (iv) the sale of our investment
in Kinross common stock; (v) borrowing against our RMB Facility
Agreement; (vi) short-term margin borrowing secured by our
investment in Kinross common stock; and (vii) issuance of
common stock, including exercise of options. We have reduced
our exposure to the costs of our exploration activities in the past
through the use of joint ventures; however, we do not have any
current plans to further joint venture Mt. Hamilton. In 2012 and
2013, we significantly reduced our level of expenditures in our
foreign exploration and administrative activities to just the care
and maintenance of existing 100%-owned properties. Although
we anticipate these practices will continue for the foreseeable
future, we can provide no assurance that these sources of capital
will be available in sufficient amounts to meet our needs, if at all.
Solitario Exploration & Royalty Corp. | 9
Management’s Discussion & Analysis | continued
(b). Recent Developments
Feasibility Study
On February 22, 2012, we announced the completion of the
Feasibility Study, and as a result we earned an 80% interest in
MH-LLC, and became a development-stage company (but not a
company in the “Development Stage”) and we reported the
following mineral reserves at our Mt. Hamilton project:
Mineral Reserves Statement, Centennial Gold-Silver Deposit, White Pine County, Nevada - SRK Consulting (Inc.)
Contained
Contained
Gold (koz)** Silver (koz)**
Silver Grade*
Gold Grade
Reserve Category
Proven
Probable
Proven + Probable
*Reported silver grade is cyanide soluble. **Some numbers may not add due to rounding.
g/tonne
1.10
0.72
0.75
oz/ton
0.155
0.134
0.136
oz/ton
0.032
0.021
0.022
g/tonne
5.31
4.59
4.66
Tons
(millions)
0.923
21.604
22.527
29.3
457.8
487.1
142.7
2,884.3
3,028.2
Augusta long-term debt
On November 22, 2013, we entered into a letter agreement, (the
“Letter Agreement”) between us, Ely Gold and Minerals, Inc.
(“Ely”) and DHI Minerals (US) Ltd. (“DHI”). Under the Letter
Agreement, Solitario subscribed for $1,300,000 of shares of
common stock of Ely at a price of Cdn$0.10 and upon approval
by Ely and other regulatory approvals we received 13,571,354
shares of Ely common stock. Ely used the $1,300,000 from the
subscription to pay Augusta Resource Corporation (“Augusta”)
$1,300,000 pursuant to the terms of an agreement between Ely
and Augusta dated November 20, 2013. Ely’s receipt of the
$1,300,000 and payment of those funds to Augusta fully satisfied
Solitario’s prior obligations to subscribe for an aggregate of
US$1,750,000 of shares of Ely common stock (US$750,000 on or
before May 1, 2014 and US$1,000,000 on or before May 1, 2015)
and paid off Solitario’s Augusta debt which was deemed fully paid
upon receipt by Augusta of the $1,300,000 from Ely. Solitario
recorded a gain on early retirement of debt of $313,000 during
2013 as a result of the payoff of the Augusta long-term debt.
Investment in Mt. Hamilton
On November 22, 2013, Solitario and DHI entered into the
second amendment (the “Second Amendment”) to the Limited
Liability Company Operating Agreement of Mt. Hamilton LLC, as
amended (the “MH Agreement”). Pursuant to the terms of the
Second Amendment, the parties agreed to modify Solitario’s
payment obligation of US$250,000 and 50,000 shares of Solitario
common stock due to DHI on August 21, 2014 to a payment of
327,000 shares of Solitario common which was paid on December
20, 2013.
Investment in Kinross
We have a significant investment in Kinross at December 31,
2013, which consists of 600,000 shares of Kinross common stock.
During 2013 and 2012, we sold 70,000 and 180,000 shares,
respectively, of Kinross common stock for proceeds of $358,000
and $1,591,000. As of February 28, 2013, we own 530,000
shares of Kinross common stock. Our investment in Kinross
common stock represents a significant concentration of risk and
any significant fluctuation in the market value of Kinross common
shares could have a material impact on our liquidity and capital
resources. As of December 31, 2013, we have sold two covered
options covering 200,000 shares of Kinross stock whereby the
holder could purchase 100,000 shares at $7.00 per share and
purchase 100,000 shares at $8.00 per share, both of which
expired unexercised in February 2014. The Kinross call option
is discussed below under Note 7, "Derivative instruments" in the
Consolidated Financial Statements of this Annual Report. As of
December 31, 2013, we have borrowed $802,000 in a margin
loan against our holdings of Kinross shares. The short-term
margin loan is discussed below under Note 4, “Short-term debt”
to the Consolidated Financial Statements of this Annual Report.
Investment in Ely
During 2013 we sold 6,303,563 shares of Ely common stock for
proceeds of $481,000. As part of the Letter Agreement,
discussed above, we received 13,571,354 shares of Ely common
stock and as of December 31, 2013 we own 15,732,274 shares of
Ely common stock, representing approximately 19.5% of the
outstanding shares of Ely. We have classified our holdings of Ely
common stock as marketable equity shares available for sale and
gains and losses on our holdings of Ely are recorded in other
comprehensive income in the shareholders’ equity section of our
Consolidated Balance Sheets.
Mineral property
Solitario began capitalizing its development costs incurred at its
Mt. Hamilton project subsequent to the completion of the
Feasibility Study. During 2013, Solitario capitalized $2,784,000
of mineral property to Mt. Hamilton, including $1,884,000 of
development costs, $174,000 of payments on mineral properties
and $726,000 of interest. In addition, Solitario capitalized
$11,000 of net bonding costs and $300,000 of advance royalty
payments to an underlying leaseholder as other assets. See Note
2, “Mineral Properties,” in the Consolidated Financial
Statements of this Annual Report for further discussion of the Mt.
Hamilton project.
Cancellation of options
On January 28, 2014, holders of option awards from the 2006
Stock Option Incentive Plan (the "2006 Plan") voluntarily
10 | 2013 Annual Report
Management’s Discussion & Analysis | continued
cancelled awards for 1,797,000 options with an option price of
Cdn$2.40 with an expiration date of May 5, 2015 to allow us to
have additional financial flexibility. No consideration was given
or received by the holders of the options to cancel the awards.
Private placement
On February 28, 2014, we closed a private placement of
1,600,000 shares of Solitario common stock priced at $1.05 per
share for total proceeds of $1,680,000 (the “2014 Offering”). We
retained a placement agent in connection with the portion of the
Offering conducted in Canada and paid the placement agent a fee
of $50,000 for the sale effected to the single Canadian investor
that participated in the 2014 Offering.
(c). Results of Operations
Comparison of the year ended December 31, 2013
to the year ended December 31, 2012
We had a net loss of $2,052,000 or $0.06 per basic and diluted
share for the year ended December 31, 2013 compared to a net
loss of $3,297,000 or $0.10 per basic and diluted share for the
year ended December 31, 2012. As explained in more detail
below, the primary reasons for the decrease in net loss during
2013 compared to the net loss during 2012 were (i) cessation of
exploration activities in February 2012 at Mt. Hamilton after
the completion of the Feasibility Study, resulting in the
capitalization of development expenditures, compared to
exploration costs of $301,000 on our Mt. Hamilton project
during 2012; (ii) a decrease in other exploration expense to
$797,000 during 2013 compared to $1,685,000 during 2012;
(iii) recording of a gain on early termination of debt on the
payoff of our Augusta debt of $313,000 during 2013; (iv) the
recording of a gain on our warrant liability of $998,000 during
2013 from the decrease in the value of the RMB warrants
compared to a loss on warrant liability of $488,000 during
2012; (v) a decrease in our interest expense and dividend
income, net, to a credit of $57,000 compared to interest
expense, net of $318,000 during 2012 as a result of capitalizing
interest expense to mineral property related to the development
of Mt. Hamilton during 2013; and (vi) a decrease in our non-
stock option general and administrative expense to $1,824,000
during 2013 compared to $1,948,000 during 2012. Partially
offsetting these decreases in net loss were (i) a reduction in our
gain on the sale of marketable equity securities to $142,000
during 2013 compared to gain on sale of marketable equity
securities of $1,528,000 during 2012; (ii) recording a reduction
in the net income at our MH-LLC subsidiary attributable to
noncontrolling interest of $47,000 during 2013 for the net
income attributable to the noncontrolling interest, compared to
reduction in the net loss, during 2012 of $301,000 for the net
loss attributable to noncontrolling interest; (iii) an increase in
the net loss of our equity method investment to $1,012,000
during 2013 compared to $488,000 during 2012 and (iv) a
decrease in income tax benefit to $176,000 during 2013
compared to an income tax benefit of $648,000 during 2012.
Each of these items is discussed in greater detail below.
Our primary activities during 2013 and 2012 have been the (i)
engineering and permitting activities to advance the Mt.
Hamilton property toward future production, and to a lesser
extent the monitoring of the exploration and development
activities of our joint venture partners. During 2013 we
continued our development efforts related to our Mt. Hamilton
project capitalizing $2,784,000 in mineral property costs
including $1,884,000 in direct development costs, property
payments of $174,000 and capitalization of interest costs of
$726,000. In addition we recorded an increase in other assets
during 2013 of $311,000 including bonding costs of $11,000 and
$300,000 of advance royalty payment. During 2012 we
capitalized $3,454,000 of mineral property, including $3,129,000
in direct development costs and $325,000 of property payments.
In addition we capitalized $35,000 of bonding costs and
$300,000 of advanced royalty payment to other assets. The
expenditures were greater during 2012 as we were preparing our
Feasibility Study and subsequently completing permitting and
engineering work related to the development of the Mt. Hamilton
project and filing of our Plan of Operations with the United States
Forest Service as part of the permitting process at Mt. Hamilton.
We decreased our exploration expenditures at our South
American and Mexico properties to $797,000 during 2013
compared to $1,685,000 in 2012 as a result of a shift in our focus
to the Mt. Hamilton project. We did no drilling on any of our
exploration projects in South America or Mexico during 2013
compared to 2012 when we completed a drilling campaign at our
Jaripo project in Mexico.
Our 2014 exploration and development expenditure budget is
approximately $1,130,000, which includes approximately
$956,000 for development costs related to Mt. Hamilton. In
addition we anticipate we will spend approximately $765,000 for
payments on leases to landowners, advance minimum royalty
payments and payments to DHI pursuant to the MH Agreement.
The primary factor in the reduction in Mt. Hamilton exploration
and development expenditures in 2014 compared to 2013
relates to the planned completion of our primary permitting
activities during 2014, with reductions in engineering design
work and project management pending obtaining all necessary
permits and obtaining financing to begin construction of the
project. The future construction of Mt. Hamilton will be
dependent on a number of factors including receiving permits
and obtaining financing for construction, none of which is
currently in place. We cannot predict with certainty that we will
be successful in achieving any of these goals. During 2014 we
plan to significantly curtail our early-stage planned exploration
activities on our other properties and our reconnaissance
exploration activities as we focus on the development of Mt.
Hamilton. These exploration activities may also be modified, as
Solitario Exploration & Royalty Corp. | 11
Management’s Discussion & Analysis | continued
necessary for changes, in joint venture funding, commodity
prices and access to capital.
Exploration expense (in thousands) by property consisted of the
following:
$
Property Name
Cerro Azul
Pachuca
La Promesa
Norcan
Mercurio
Canta Colorado
Jaripo
Mt. Hamilton
Espanola
Atico
Triunfo
Pedra Branca, net
Reconnaissance
Total exploration expense
$
2013
71
14
8
5
4
2
1
-
-
-
-
-
692
797
$
$
2012
99
32
19
2
9
17
247
301
22
4
1
(30)
1,263
1,986
During 2013 as a result of the payoff of the Augusta debt,
discussed above under recent developments, we recorded a
gain on early termination of debt for the difference between
(i) $1,613,000, the discounted fair value of the Augusta debt on
the date of payoff and (ii) $1,300,000 used by Ely to fully pay the
Augusta debt.
We recorded an increase in our consolidated loss of $47,000
during 2013 for DHI’s noncontrolling interest in the net income, as
a result of the gain on retirement of debt of $313,000, at MH-LLC.
We recorded a credit (reduction of expense) of $301,000, during
2012 for DHI’s noncontrolling interest in the losses of MH-LLC.
The change from a loss in 2012 to income in 2013 is related to the
capitalization of direct development costs of $1,884,000 and the
capitalization of $726,000 of interest during 2013 coupled with
the gain on early retirement of debt, discussed above. During
2012 we recorded management fees of $30,000, as a credit to
exploration expense prior to Anglo Platinum, Ltd., the 51% owner
of our PBM subsidiary taking over as manager of PBM.
We believe a discussion of our general and administrative costs
should be viewed without the non-cash stock option
compensation expense which is discussed below. Excluding
these costs, general and administrative costs were $1,824,000
during 2013 compared to $1,948,000 during 2012. We incurred
salary and benefits expense of $880,000 during 2013 compared
to $1,008,000 during 2012, which decreased as a result of the
full-year capitalization to Mt. Hamilton property of certain salary
costs during 2013 compared to 2012. In addition, travel and
investor relation costs were reduced to $394,000 during 2013
compared to $463,000 during 2012. These decreases were
mitigated by an increase in legal, accounting and other costs to
$284,000 during 2013 compared to $224,000 during 2012
12 | 2013 Annual Report
partially as a result of certain costs incurred with regard to our
investment in Ely and our early termination of the Augusta debt
during 2013. We anticipate general and administrative costs for
2014 will be slightly lower than the costs incurred during 2013 as
we expect less activity with regard to Mt. Hamilton and our South
American operations and we have targeted reductions in salary
costs during 2014. We have forecast 2014 general and
administrative costs to be approximately $1,522,000, excluding
non-cash stock option compensation expense.
We account for our employee stock options under the provisions
of ASC 718. Beginning in January 1, 2011, we recognize stock
option compensation expense on the date of grant for 25% of the
grant date fair value, and subsequently, based upon a straight
line amortization of the grant date fair value of each of its
outstanding options. During the year ended December 31, 2013,
we recorded $420,000 of non-cash stock option expense for the
amortization of grant date fair value with a credit to additional
paid-in capital compared to $732,000 of non-cash stock option
compensation expense during 2012. See Note 10, “Employee
stock compensation plans” in our Consolidated Financial
Statements of this Annual Report for an analysis of the changes
in the fair value of our outstanding stock options and the
components that are used to determine the fair value.
During 2013 we recorded a gain on derivative instruments of
$90,000 compared to a loss of $30,000 during 2012. The gain
was primarily related to the sale of two Kinross calls during 2013
for $90,000 which expired unexercised in February 2014. We
recorded a loss during 2012 primarily related to the remaining
value attributed to Ely warrants we received in 2010 in
connection with the formation of MH-LLC, which expired during
2012. We have sold covered calls on a limited portion of our
Kinross common stock that we intend to sell within one year, to
enhance our return on Kinross common stock in exchange for
some potential upside in those covered Kinross shares. We do
not anticipate selling a material number of covered Kinross call
options during 2014. See Note 7, “Derivative instruments” to
our Consolidated Financial Statements of this Annual Report for
an analysis of the changes in our derivative instruments, and the
components that are used to determine the fair value of our
derivative instruments.
We had $56,000 of depreciation and amortization during 2013, of
which we capitalized $30,000 to mineral property in connection
with the development of Mt. Hamilton, compared to $61,000 in
2012. The decrease is primarily as a result of certain equipment
being fully amortized during 2013, which was partially offset by a
small increase in furniture and fixtures at Mt. Hamilton. We
amortize these assets over a three-year period. We anticipate our
2014 depreciation and amortization costs will be similar to our
2013 amount.
Management’s Discussion & Analysis | continued
During 2013 we incurred $726,000 of interest costs, including (i)
$165,000 paid in cash on the RMB Loan; (ii) $22,000 paid on
our UBS margin loans; (iii) $195,000 for the amortization of our
deferred offering costs on the RMB Loan and $217,000 of interest
costs associated with the amortization of the discount associated
with the RMB warrants issued in connection with the RMB Loan
and (iv) $127,000 of interest costs during 2013 related to the
accretion of interest on the Augusta debt prior to the payoff of the
loan in November 2013. As discussed above, we capitalized all
of our interest costs during 2013 to mineral property associated
with the development of the Mt. Hamilton project. See Note 2,
“Mineral properties” and Note 5 “Long-term debt” to our
Consolidated Financial Statements of this Annual Report.
During 2012 we recorded interest expense, net of interest and
dividend income, of $318,000 which included (i) $70,000 of
interest expense related to the amortization of deferred offering
costs on the RMB Loan; (ii) $77,000 of interest expense related to
the discount recorded on the warrants issued in connection with
the RMB Loan; (iii) $30,000 interest paid in cash on the RMB
Loan; (iv) $58,000 of interest paid in cash on our outstanding
margin loans and (v) $184,000 of interest expense related to the
accretion of discount on our Augusta long-term debt. Both the
deferred offering costs and the warrant discount are being
amortized to interest expense on a straight-line basis over the
expected life of the RMB Loan. We recorded dividend income of
$57,000 during 2013 compared to $98,000 during 2012,
primarily related to dividends on our Kinross stock. Interest
income during 2013 and 2012 was not significant as our interest
bearing accounts were kept to a minimum to reduce borrowing
costs. We anticipate our interest cost will decrease in 2014 as a
result of the payoff of the Augusta debt, mitigated by an increase
in the outstanding balance on the RMB Loan anticipated during
2014 compared to 2013. We also anticipate dividend income will
decrease during 2014 as we sell our Kinross common stock to
fund our operations. See Note 4, “Short-term debt” and Note 5,
“Long-term debt” to our Consolidated Financial Statements of
this Annual Report for additional discussion of our interest
expense related to our short and long-term debt.
During 2013 we sold 70,000 shares of Kinross stock for proceeds
of $358,000 and recorded a gain on sale of Kinross of $308,000
compared to 2012 when we sold 180,000 shares of Kinross stock
for proceeds of $1,591,000 and recorded a gain on sale of
$1,464,000. In addition during 2013 we sold 6,303,563 shares of
Ely for gross proceeds of $481,000 and recorded a loss on sale of
marketable equity securities of $166,000 compared to 2012 when
we sold 570,000 shares of TNR for proceeds of $73,000 and
recorded a gain on sale of $64,000. We anticipate we will
continue to liquidate our holdings of Kinross stock to fund our
exploration activities and our 2014 budget anticipates the sale of
360,000 shares of Kinross stock for assumed proceeds of
$1,800,000 during 2014. Although we have not budgeted any
sales of shares of Ely for 2014, we may also sell some shares of
Ely to meet our cash and liquidity needs. See “Liquidity and
Capital Resources” below. Any proceeds we may receive from
sales of marketable equity securities are significantly dependent
on the quoted market price of the securities sold on the date of
sale and may be at prices significantly below our projected price.
During 2013 we recorded an income tax benefit of $176,000
compared to an income tax benefit of $648,000 during 2012.
The change in our tax benefit during 2013 is primarily related to
the following factors, discussed above, which reduced our
expected 2013 tax benefit compared to 2012: (a) the decrease in
our taxable non-stock option general and administrative
expenses; (b) the gain on warrant liability compared to the loss on
warrant liability in 2012; (c) the decrease in direct development
and exploration expenses at our Mt. Hamilton project and (d) the
decrease in our United States exploration costs. The following
factors, discussed above, partially mitigated the decrease in our
deferred tax expense in 2013 compared to 2012: (a) a reduction
in the gain on sale of marketable equity securities; (b) our
reduction in US taxable-deductible capitalized costs at Mt.
Hamilton and (c) the decrease in interest expense incurred
during 2013 compared with 2012, discussed above. See Note 6,
“Income taxes” to our Consolidated Financial Statements of this
Annual Report for additional discussion of our income tax
expense and deferred income tax liability at December 31, 2013.
We provide a valuation allowance for our foreign net operating
losses, which are primarily related to our exploration activities in
Peru, Mexico 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 mineral property assets to
assess the recoverability of our investments in these assets. All
long-lived assets are reviewed for impairment whenever events or
circumstances change which indicate the carrying amount of an
asset may not be recoverable utilizing guidelines based upon future
net cash flows from the asset as well as our estimates of the
geologic potential of early stage mineral property and its related
value for future sale, joint venture or development by us or others.
During 2013 we recorded $13,000 of mineral property impairments
related to our Cerro Azul and Atico properties in Peru and our
Jaripo property in Mexico compared to $31,000 of mineral property
impairments related to our Triunfo and Espanola properties in
Bolivia and our Excelsior project in Peru during 2012.
(d). Liquidity and Capital Resources
Short-term debt
As of December 31, 2013, we have borrowed $802,000 from
UBS Bank, USA ("UBS Bank") pursuant to a secured credit line
agreement between us and UBS Bank including $2,000 of
accrued interest. As of February 28, 2014, we have borrowed an
Solitario Exploration & Royalty Corp. | 13
Management’s Discussion & Analysis | continued
additional $100,000, net of interest, on the UBS loan and have
an outstanding balance of $906,000. The UBS Bank credit line
carries an interest rate which floats, based upon a base rate of
2.25% plus the one-month London Interbank Offered Rate
("LIBOR"), which was 0.17% as of December 31, 2013. We are
required to maintain minimum equity value percentages of 40%
at UBS. The equity value percentage may be modified by UBS
at any time. If the equity value in our account at UBS falls
below the minimum, UBS may call the loan, or may sell enough
Kinross shares held in our brokerage account or liquidate any
other assets to restore the minimum equity value. At December
31, 2013 and February 28, 2014, the equity balance in our
account at UBS was approximately 69% and 67%, respectively.
Solitario incurred interest costs related to the UBS credit line of
$22,000 and $36,000, respectively, for the years ended
December 31, 2013 and 2012.
We also had access to short-term margin loan borrowing capacity
from RBC Capital Markets, LLC (“RBC”) using our investment
in Kinross stock held at RBC as collateral for the short-term
margin loans. As of December 31, 2013, we have repaid all
short-term margin loans previously borrowed from RBC and have
closed our RBC brokerage accounts and no longer have short-
term borrowing capacity at RBC. We had no short-term
borrowing from RBC during 2013. We recorded $22,000 of
interest expense related to the RBC short-term margin loans for
the year ended December 31, 2012.
We are using short-term debt as an alternative source of capital
to selling our Kinross stock. We intend to continue to borrow
money for the next year using our Kinross common stock as
collateral to defer potential current United States income taxes
if we were to sell our Kinross common stock in excess of our
anticipated United States tax deductible expenses for the entire
year of 2014, which consist primarily of United States general
and administrative costs and a portion of our costs to develop
the Mt. Hamilton project in Nevada. We anticipate the
proceeds from the sale of Kinross common stock sold during
2014 will not exceed our anticipated United States tax
deductible expenses, and accordingly, we do not anticipate
having any currently payable United States income taxes for
2014. We anticipate proceeds from the sale of shares of Kinross
common stock less any repayment of outstanding short-term
margin loans, and proceeds from borrowing from the RMB Loan
will provide adequate funds for our operations through the end
of 2014. Our use of short-term borrowing is not considered
critical to our liquidity, capital resources or credit risk
strategies. We consider the use of short-term borrowing as a
component of our overall strategy to potentially maximize our
after-tax returns on the sale of our investment in Kinross stock.
We currently intend to repay the short-term debt with proceeds
from the sale of Kinross stock during 2014. Our maximum
amount of short-term borrowing was $1,710,000, including
accrued interest, during the year ended December 31, 2013.
Our average short-term borrowing during the year ended
December 31, 2013 was $863,000.
Long-term debt
RMB Facility Agreement
On August 10, 2012, we entered into a Facility Agreement with
RMBAH and RMBR. Under the Facility Agreement, we may
borrow up to $5,000,000 from RMBAH (with any amounts
outstanding collectively being the “RMB Loan”) at any time
during the 24-month period commencing on August 21, 2012,
the date of initial funding (the “Availability Period”), after
which time any undrawn portion of the $5,000,000 commitment
will be cancelled and will no longer be available for drawdown.
We borrowed $1,500,000 on August 21, 2012 from which we
received net proceeds of $912,000 after deducting deferred
offering costs of $588,000, which included an arrangement fee
of $250,000, legal costs of $328,000 and other costs of $10,000.
The deferred offering costs are recorded in other long-term
assets and are being amortized on a straight-line basis to
interest expense over 36 months, the term of the Facility
Agreement. We have recorded deferred offering costs of
$322,000 and $518,000, respectively as of December 31, 2013
and 2012 in other assets. We borrowed an additional
$2,000,000 during 2013 and at December 31, 2013, the
balance of the RMB Loan is $3,500,000.
The RMB Loan matures on the earlier to occur of (i) 36 months
from the date of initial funding or (ii) the date on which
financing is made available to MH-LLC for purposes of placing
the Mt. Hamilton project into commercial production. The
RMB Loan amounts bear interest at the 90-day LIBOR rate
plus 5%, payable in arrears on the last day of each quarterly
interest period. All proceeds from the RMB Loan are
deposited in a proceeds account (the “Proceeds Account”) and
are recorded as restricted cash until disbursed in accordance
with the Facility Agreement. Pursuant to the Facility
Agreement, funds may only be disbursed from the Proceeds
Account for approved expenditures, including (i) exploration
and development activities at the Mt. Hamilton project,
ongoing earn-in payments at MH-LLC, general corporate
purposes as set forth in a project and corporate budget
approved by RMBAH and (ii) any other purpose approved by
RMBAH. As of December 31, 2013 there was no cash balance
in the Proceeds Account. The RMB Loan may be repaid at any
time without penalty. Any amounts repaid may not be redrawn
under the Facility Agreement. The RMB Loan is secured by a
lien on our 80% interest in MH-LLC as well as a general
security interest in our remaining assets.
The following table details the interest costs associated with the
RMB Loan:
14 | 2013 Annual Report
Management’s Discussion & Analysis | continued
(in thousands)
Year ended December 31,
2013 2012
Interest expense paid in cash
Amortization of the RMB
Warrants discount
Amortization of RMB deferred
offering costs
Total interest related to the
$
165
$
217
195
30
77
70
RMB Loan
$
577
$
177
RMB Warrants
Pursuant to the Facility Agreement, we issued 1,624,748
warrants to RMBAH as partial consideration for financing
services provided in connection with the Facility Agreement.
Each RMB Warrant entitles the holder to purchase one share of
Solitario common stock pursuant to the terms and conditions of
the RMB Warrants. The RMB Warrants expire 36 months from
their date of issuance and have an exercise price of $1.5387 per
share, subject to customary anti-dilution adjustments. We
recorded a discount to the RMB Loan for the fair value of the
RMB Warrants of $650,000 as of August 21, 2012, based upon a
Black-Scholes model using a 36-month life, volatility of 62%,
and a risk-free interest rate of 0.39%. We are amortizing this
discount on a straight-line basis to interest expense over the
three-year term of the RMB Loan and the remaining unamortized
warrant discount was $356,000 and $573,000, respectively, as of
December 31, 2013 and 2012.
Augusta long-term debt
In connection with the formation of MH-LLC, the Mt. Hamilton
properties contributed by DHI to MH-LLC were subject to a
security interest granted to Augusta related to Ely’s acquisition of
the Mt. Hamilton properties. Pursuant to the MH Agreement, as
part of our earn-in, we agreed to make private placement
investments totaling $2,500,000 in Ely common stock, all to
provide Ely with the funds necessary for Ely to make the loan
payments due to Augusta. The payments due to Augusta were
non-interest bearing. Accordingly, upon formation and the
contribution of the mineral properties by DHI to MH-LLC, MH-
LLC recorded the fair value of the payments due to Augusta,
discounted at 7.5%, which was our estimated cost of similar
credit as of the formation of MH-LLC.
As discussed above under recent developments, on November
22, 2013, we subscribed for 13,571,354 shares of Ely common
stock for $1,300,000 and, pursuant to the Letter Agreement Ely
used the funds to fully pay off the Augusta long-term debt. We
recorded a gain on early retirement of debt of $313,000 during
2013 as a result of the payoff of the Augusta long-term debt. At
December 31, 2012, we had three payments remaining on the
Augusta long-term debt totaling $2,500,000, less $264,000 of
unamortized discount for total Augusta debt of $2,236,000, of
which $727,000 was recorded as current.
In April 2013 Ely exercised its right to reduce to $500,000
Solitario’s required subscription of $750,000 for Ely common
stock, funds from which Ely was required to pay the June 1, 2013
payment due to Augusta. Ely agreed to pay the remaining
$250,000 due to Augusta from its own funds, for a total payment
of $750,000 which was done in June 2013. As a result, we
received 5,131,150 shares of Ely common stock and recorded the
fair market value of the Ely stock received as marketable equity
securities and an increase in additional paid-in capital. Ely’s
payment of the $250,000 portion of the Augusta debt was
recorded as an increase in noncontrolling interest in the equity
section of Solitario’s balance sheet and is shown as a
noncontrolling interest contribution, net as well as a repayment of
long-term debt in the statement of cash flows.
During 2013 and 2012 we recorded $127,000 and $184,000,
respectively, for accretion of interest related to the Augusta long-
term debt and paid $2,050,000, including the contribution of
$250,000 from noncontrolling interest, discussed above and
$750,000, respectively, in cash on the long-term note. All
interest accreted on the Augusta long-term debt during 2013 was
capitalized to mineral property. See Note 2, “Mineral
properties,” to our Consolidated Financial Statements of this
Annual Report.
Joint venture and delay rental payments
In the past, we have financed our activities through the sale of our
properties, joint venture arrangements, and the sale of our
securities and from the sale of our marketable equity security
investment in Kinross. We received $200,000, each year
respectively, from joint venture payments during 2013 and 2012
related to delay rental payments on our Bongará project from
Votorantim Metais Cajamarquilla, S.A., a wholly-owned
subsidiary of Votorantim Metais (both companies referred to as
“Votorantim”), our joint venture partner. In addition, we received
$100,000 delay rental payments, respectively, on our Mercurio
project in Brazil from Brazilian Resources, Inc., our joint venture
partner during 2013 and 2012. Receipts from joint venture
payments previously occurred on an infrequent basis. Per our
agreements with both Votorantim on our Bongará project and
Brazilian Resources, Inc. on our Mercurio project, the joint
venture partners may terminate the agreements at any time, and
will not be required to make further delay rental payments if they
terminate the agreements. Our agreement with Votorantim on
our Bongará project calls for annual delay rental payments of
$200,000 until Votorantim provides notice that it has made
certain minimum expenditures or makes a decision to place the
project in production or decides to drop the project. We expect
future revenues from joint venture payments and from the sale of
properties, if any, would occur on an infrequent basis.
Sale of mineral property
During 2012 MH-LLC completed the sale of a 2.4% net smelter
Solitario Exploration & Royalty Corp. | 15
Management’s Discussion & Analysis | continued
return royalty (“NSR”) on the Mt. Hamilton project to Sandstorm
for $10,000,000. MH-LLC received an upfront payment of
$6,000,000 upon signing the agreement and received $4,000,000
on January 15, 2013, which we recorded as a current asset as of
December 31, 2012. See Note 2, “Mineral Properties,” to the
Consolidated Financial Statements of this Annual Report for
further discussion of the Sandstorm royalty sale. Previously a
significant sale of mineral properties occurred in 2000 when we
sold our interest in our Yanacocha property in Peru for
$6,000,000 in cash. Any sales of property, whether as a royalty,
gold-stream or outright sale will also occur in the future, if at all,
on an infrequent basis.
MH Agreement
During 2013 MH-LLC distributed $250,000 to its members in
proportion to their interests. Solitario received $200,000 from
this distribution which was eliminated in consolidation. During
2012, MH-LLC distributed $2.5 million to its members in
proportion to their interests. Solitario received $2,000,000 from
this distribution which was eliminated in consolidation. In
addition during 2012 Solitario received $500,000 from DHI to
repay a portion of a prior loan to Solitario, and Solitario agreed to
forgive $35,000 of accrued interest due from DHI, which
represented the accrued interest on loans made to DHI in
connection with the MH Agreement through June 30, 2012.
Solitario and DHI entered into the Second Amendment whereby
the parties agreed to modify Solitario’s payment obligation of
US$250,000 and 50,000 shares of Solitario common stock due to
DHI on August 21, 2014 as previously contemplated under the
terms of the MH Agreement to a payment of 327,000 shares of
Solitario common stock which was paid on December 20, 2013.
Investment in marketable equity securities
Our investments in marketable equity securities are based
upon market quotes on the NYSE MKT and the TSXV. At
December 31, 2013, we have classified $1,577,000 of our
marketable equity securities as a short-term asset. Changes in
the fair value of marketable equity securities are recorded as
gains and losses in other comprehensive income in
shareholders’ equity. During the year ended December 31,
2013, we recorded a loss in other comprehensive income on
marketable equity securities of $3,454,000, net of related
deferred tax expense of $770,000.
Kinross common stock
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, 2013 and
2012, we owned 600,000 and 670,000 shares of Kinross common
stock, respectively. The Kinross shares are recorded at their fair
market value at December 31, 2013 and 2012 of $2,628,000 and
$6,512,000, respectively.
During 2013 we sold 70,000 shares of Kinross stock for proceeds
of $358,000 and recorded a gain on sale of Kinross of $308,000.
During 2012 we sold 180,000 shares of Kinross stock for
proceeds of $1,591,000 and recorded a gain on sale of
marketable equity securities of $1,464,000 in the consolidated
statement of operations. The gain on sale was transferred, less
related deferred tax expense, from previously unrealized gain on
marketable equity securities in other comprehensive income.
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 varied
from a high of $9.87 per share to a low of $4.28 per share during
the year ended December 31, 2013.
Ely common stock
During 2013 we sold 6,303,563 shares of Ely for gross proceeds
of $481,000 and recorded a loss on sale of marketable equity
securities of $166,000 in the consolidated statement of
operations. The loss on sale was transferred, less related
deferred tax expense, from previously unrealized gain on
marketable equity securities in other comprehensive income.
As part of the Letter Agreement, discussed above, we received
13,571,354 shares of Ely common stock. As of December 31,
2013 we own 15,732,274 shares of Ely common stock,
representing approximately 19.5% of the outstanding shares of
Ely that are recorded at their fair market value of $1,324,000 at
December 31, 2013. We have classified our holdings of Ely
common stock as marketable equity shares available for sale,
and gains and losses on our holdings of Ely are recorded in other
comprehensive income in the shareholders’ equity section of our
Consolidated Balance Sheet.
Other common stock
We also own 430,000 shares of TNR Gold Corp. that are recorded
at their fair market value of $16,000 at December 31, 2013 and
250,000 shares of International Lithium Corporation that are
recorded at their fair market of $5,000 at December 31, 2013.
Working capital
We had working capital of $2,531,000 at December 31, 2013
compared to $4,245,000 at December 31, 2012. Our working
capital at December 31, 2013 primarily consists of our cash and
equivalents and our investment in 360,000 shares of Kinross
common stock of $1,577,000, which we plan to sell in the next
year, less our accounts payable of $367,000 and our short-term
margin loan of $802,000. We also intend to borrow pursuant to
the RMB Facility Agreement and to repay our UBS Bank secured
credit line margin loan. We will continue to monitor our exposure
to Kinross as 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. We have budgeted
the anticipated sale of 360,000 shares of Kinross stock during
2014 for assumed proceeds of $1,800,000. Any funds received
16 | 2013 Annual Report
Management’s Discussion & Analysis | continued
from the sale of our Kinross shares or borrowing against the value
of our Kinross shares would be used primarily to fund exploration
and development on our existing properties, for the acquisition
and exploration of new properties and general working capital.
Cash and cash equivalents were $2,092,000 as of December 31,
2013 compared to $616,000 as of December 31, 2012. As of
December 31, 2013, our cash balances along with our available
credit from the RMB Facility Agreement, our investment in
marketable equity securities and our UBS Bank credit line are
considered adequate to fund our expected expenditures over the
next year, including our planned 2014 development and payment
obligations related to MH-LLC and the Mt. Hamilton project.
The nature of the mining exploration business requires significant
sources of capital to fund exploration, development and operation
of mining projects. We will need additional resources to fund our
long-term payment obligations associated with MH-LLC, develop
the Mt. Hamilton project on our own and explore any mineral
deposits we have. We anticipate that we would finance these
activities through the use of joint venture arrangements, the
issuance of debt or equity, the sale of interests in our properties or
the sale of our shares of Kinross common stock. There can be no
assurance that a combination of such sources of funds will be
available in the quantity or on terms acceptable to us, if at all.
Sale of our common stock
On February 28, 2014, we announced the sale of 1,600,000
shares of our common stock in a private placement at a price of
$1.05 per share for total proceeds of $1,680,000 (the “2014
Offering”). We paid a finder’s fee of $50,000 in connection with
the 2014 Offering. The 2014 Offering was unanimously approved
by our Board of Directors.
On July 26, 2013, we sold 2,451,892 shares of our common stock
in a private placement at a price of $0.84 per share for total
proceeds of $2,060,000 (the “Offering”). The Offering was
unanimously approved by our Board of Directors and, as part of
the Offering insiders subscribed for and acquired 606,665 shares
(the “Insider Shares”) for a total purchase of $510,000. The offer
and sale of the Insider Shares was unanimously approved by the
Audit Committee of the Board of Directors. All shares in the
Offering were offered and sold on the same terms and conditions.
On June 26, 2012, we sold 180,000 shares of common stock to
Christopher Herald, President and Chief Executive Officer of
Solitario, and 45,000 shares of common stock to James Maronick,
Chief Financial Officer of Solitario, at a price of $1.22 per share.
The purchase of the shares was unanimously approved by our
Board of Directors and was also unanimously approved by our
Audit Committee of the Board of Directors. The price of the
shares was the last closing price of our common stock as quoted
on the NYSE MKT (formerly NYSE Amex) on June 25, 2012.
Solitario received total proceeds of $274,500.
Any future sale of our common stock, if any, would be dependent
on a number of factors including the market price of our stock, the
availability of investors, our ability to meet necessary regulatory
requirements, including possible registration of the shares to be
sold with the United States Securities and Exchange Commission
among other things, none of which are currently in place.
Stock-based compensation plans
On June 18, 2013, Solitario’s shareholders approved the 2013
Solitario Exploration and Royalty Corp. Omnibus Stock and
Incentive Plan (the “2013 Plan”). Under the terms of the 2013
Plan, the Board of Directors may grant awards for up to 1,750,000
shares to Directors, officers, employees and consultants. Such
awards may take the form of stock options, stock appreciation
rights, restricted stock, and restricted stock units. During the year
ended December 31, 2013, we granted options for 120,000 shares
at an exercise price of $1.14 per share and options for 1,280,000
shares at an exercise price of $0.94 per share. The options vest
25% on date of grant and 25% on the next three anniversary dates.
During the year ended December 31, 2013, options for 117,500
shares were exercised from the 2006 Plan for cash proceeds of
$184,000. During 2013 there were no shares exercised or
granted from the 2006 Plan. During the year ended December
31, 2012, no options were exercised from the 2006 Plan and we
granted 165,000 options from the 2006 Plan. Subsequent to
December 31, 2013, holders of 1,797,000 options from the 2006
Plan priced at Cdn$2.40 agreed to voluntarily cancel their
options. No consideration was given or received from the holders
to cancel their options.
We do not expect a significant number of our vested options from
either the 2006 Plan or the 2013 Plan will be exercised in the
next year. See Note 10, “Employee stock compensation plans” to
the Consolidated Financial Statements of this Annual Report for
a summary of the activity for stock options outstanding under the
2006 Plan and the 2013 Plan as of December 31, 2013.
Off-balance sheet arrangements
As of December 31, 2013 and 2012, we have no off-balance
sheet arrangements.
(e). Cash Flows
Net cash used in operations during the year ended December 31,
2013 decreased to $2,237,000 compared to $3,504,000 for 2012
primarily as a result of (i) a decrease in exploration expenses to
$797,000 in 2013 compared to $1,986,000 in 2012, primarily
related to reduced activity in South America and Mexico during
2013 as well as the capitalization of $1,884,000 in exploration
and development costs at our Mt. Hamilton project, as discussed
above, which is included in investing activities and (ii) a decrease
in non-stock option general and administrative costs to
$1,824,000 during 2013 compared to $1,948,000 during 2012.
Solitario Exploration & Royalty Corp. | 17
Management’s Discussion & Analysis | continued
Net cash provided from investing activities decreased to
$2,517,000 during 2013 compared to $3,870,000 during 2012
primarily related to (i) a reduction in proceeds from the
Sandstorm sale, discussed above to $4,000,000 during 2013
compared to $6,000,000 during 2012, and (ii) a reduction in
proceeds from the sale of marketable equity securities to
$839,000 during 2013, which included the sale of 6,303,563
shares of Ely for proceeds of $481,000 discussed above,
compared to $1,664,000 during 2012. This decrease was
partially offset by (i) a decrease in the capitalization of
expenditures for additions to mineral properties, primarily at Mt.
Hamilton, as discussed above, to $2,173,000 during 2013
compared to $3,457,000 in 2012 and (ii) an increase in funds
from the sale of derivative instruments and the proceeds from the
sale of other assets in 2013 compared to 2012.
Net cash provided from (used in) financing activities increased to
$1,196,000 provided during 2013 compared to $(182,000) used
during 2012. The primary reason for the increase in cash
provided from financing activities in 2013 was primarily related
to (i) the $2,060,000 private placement completed during 2013
and (ii) the increase in the proceeds from the RMB Loan to
$2,000,000 during 2013 compared to net proceeds of $912,000
during 2012. These increases in cash provided from financing
activities during 2013 compared to the decrease in cash used in
2012 were partially offset by an increase in cash due to (i) an
increase in net repayments on short-term debt of $698,000 during
2013 compared to net short-term debt repayments of $510,000
during 2012, and (ii) the increase in long-term debt repayment
associated with the Augusta debt, discussed above, of $2,050,000
during 2013 compared to $750,000 during 2012.
(f). Development Activities, Exploration
Activities, Environmental Compliance
and Contractual Obligations
Development Activities
With the completion of the Feasibility Study on February 22,
2012, we entered the development stage of the Mt. Hamilton
project. The development of the Mt. Hamilton project, if it
occurs, will entail a significant capital investment, which is
estimated in the Feasibility Study to be $71.9 million. We
currently do not have the funds for the estimated $71.9 million
capital investment to develop the Mt. Hamilton project and there
can be no assurance that the funds to complete the development
of Mt. Hamilton will not be higher than is estimated in the
Feasibility Study. As a result, the funding for the full
development will require significant additional capital which we
anticipate may come from the liquidation of our investment in
Kinross, additional issuance of our common stock, equipment
leasing, debt and commodity stream financing, none of which is
currently in place to adequately fund the required development
financing capital investment. We cannot provide any assurance
that such capital will be available in sufficient amounts, if at all.
If we develop the Mt. Hamilton deposit, we will be responsible for
reclamation at the completion of mining. In addition we are
required to make certain annual claim payments on our mineral
property at Mt. Hamilton and to certain other underlying
leaseholders at Mt. Hamilton to maintain our ownership of MH-
LLC and the Mt. Hamilton project. These obligations are
detailed below under “Contractual Obligations.” If we fail to
make any of these payments we may lose some or all of our
interest in MH-LLC and/or the Mt. Hamilton project.
Exploration Activities
A historically significant part of our business involves the review of
potential property acquisitions and continuing review and analysis
of properties in which we have an interest, to determine the
exploration and development potential of the properties. In
analyzing expected levels of expenditures for work commitments
and property payments, our obligations to make such payments
fluctuate greatly depending on whether, among other things, we
make a decision to sell a property interest, convey a property
interest to a joint venture, or allow our interest in a property to
lapse by not making the work commitment or payment required. In
acquiring many of our interests in mining claims and leases, we
have entered into agreements, which generally may be canceled at
our option. We are often required to make minimum rental and
option payments in order to maintain our interest in certain claims
and leases. Our net 2013 mineral and surface property rental and
option payments included in exploration expense were $44,000. In
2014 we estimate our net exploration property rentals and option
payments for properties we own or operate to be approximately
$1,040,000, which includes $294,000 of mineral property
payments at Mt. Hamilton. Assuming that our joint ventures
continue in their current status and that we do not appreciably
change our property positions on existing properties, we estimate
that our joint venture partners will pay on our behalf, or reimburse
us approximately $694,000 of these annual payments. These
obligations are detailed below under “Contractual Obligations.” In
addition, we may be required to make further payments in the
future if we elect to exercise our options under those agreements or
if we enter into new agreements.
Environmental Compliance
We are subject to various federal, state and local environmental
laws and regulations in the countries where we operate. We are
required to obtain permits in advance of initiating certain of our
exploration activities, to monitor and report on certain activities
to appropriate authorities, and to perform remediation of
environmental disturbance as a result of certain of our activities.
Historically, the nature of our activities of review, acquisition and
exploration of properties prior to the establishment of reserves,
which may include mapping, sampling, geochemistry and
geophysical studies, as well as some limited exploration drilling,
has not resulted in significant environmental impacts in the past.
We have historically carried on our required environmental
18 | 2013 Annual Report
Management’s Discussion & Analysis | continued
remediation expenditures and activities, if any, concurrently with
our exploration activities and expenditures. The expenditures to
comply with our environmental obligations are included in our
exploration expenditures in the statement of operations and have
not been material to our capital or exploration expenditures, and
have not had a material effect on our financial position. For the
years ended December 31, 2013 and 2012, we have not
capitalized any costs related to environmental control facilities.
We do not anticipate our non-Mt. Hamilton project exploration
activities will result in any material new or additional
environmental expenditures or liabilities in the near future.
Our planned Mt. Hamilton project development activities will
increase our environmental expenditures in the event we complete
the development of the Mt. Hamilton project, which entails among
other things, building a mine, building and operating an open pit,
an ore processing plant and leach pads and other similar
activities. Prior to construction and the completion of mining
development activities, substantial reclamation and mine closure
bonds and similar financial assurances must be given to the
federal and state regulatory agencies and maintained. The
requirements to fund these development and operating financial
assurances are dependent on, among other things, receiving
required permits and obtaining necessary financing, none of which
are in place currently; please see “Risk Factors” in Item 1A of
Part I of our Annual Report or Form 10-K (“Form 10-K”) filed
with the United States Securities and Exchange Commission. We
anticipate the majority of our activities during 2014 at our Mt.
Hamilton project will relate to obtaining required permits to
develop the project. With the exception of any potential Mt.
Hamilton project construction activities, we do not expect any
material additional environmental exposures or required
environmental remediation expenditures within the next year.
Contractual Obligations
The following table provides an analysis of our contractual obligations at December 31, 2013:
(in thousands)
As of December 31, 2013 – Payments due by period
Operating lease obligations
Short-term margin loan (1)
Landholding costs (2)
Mt. Hamilton landholding costs (3)
Mt. Hamilton cash earn-in payments (4)
Mt. Hamilton earn-in payments in stock
of Solitario (4)(5)
Mt. Hamilton advance royalty and royalty
buy-down payments (4)(6)
RMB Loan long-term debt (7)
Total
Total
$
47
802
52
1,164
250
43
6,800
3,500
$ 12,658
$
Less than
1 year
47
802
52
294
250
43
300
-
1,788
$
1-3
years
3-5
years
$
-
-
-
618
-
-
5,600
3,500
9,718
$
$
$
-
-
-
168
-
-
600
-
768
More than
5 years
-
$
-
-
84
-
-
300
-
$ 384
(1) The short term-margin loan is due on demand and includes $2,000 of accrued interest at December 31, 2013.
(2) Excluding Mt. Hamilton, discussed below, our other landholding contractual obligations, net of expected joint venture reimbursements
of $694,000. Our non-Mt. Hamilton landholding agreements are generally cancelable at our option and this amount includes all
required net land payments for the next 12 months to maintain our existing mineral properties.
(3) Mt. Hamilton landholding costs have been shown through 2019 and include $44,000 of annual unpatented mining claim fees, minimum
cash stand-by royalty and land payments and required minimum royalty payments of 33 ounces of gold per year in 2016 through 2019,
valued at $1,206 per ounce, the closing price of an ounce of gold at December 31, 2013, quoted on kitco.com.
(4) Pursuant to the MH Agreement, we have agreed to make the following payments as part of our earn-in upon completion of the
Feasibility Study: We have agreed to (i) make payments totaling $250,000 and deliver 50,000 shares of Solitario common stock to DHI
by February 21, 2014, of which $250,000 was paid and 50,000 shares of our stock were delivered in February 2014. We have further
agreed to (i) buy down the existing 6% net smelter return (“NSR”) royalty to a 1% NSR royalty by paying the underlying royalty
holder $5,000,000 on or before commercial completion of the Mt. Hamilton project, which we have estimated the payment for the
purposes of this schedule to be due on or before December 31, 2016. If we fail to make any of the payments due to DHI, described
above, or fail to make the annual advanced royalty payments discussed below or fail to pay down the existing royalty, discussed below,
our interest in MH-LLC will be reduced to 49% and DHI’s interest will be increased to 51%.
(5) The commitment value of the shares of Solitario stock to be paid to DHI, discussed above in note (4) to this table, have been valued at
$0.85 per share, the December 31, 2013 ending stock price as quoted on the NYSE MKT.
(6) The minimum annual advance royalty payments of $300,000 per year have been included in this table through December 2019. In
addition the $5,000,000 royalty buy-down discussed above is due on or before commercial completion, which is estimated to occur on or
before December 31, 2016 for purposes of this schedule only. The actual date of commercial completion is not currently known and is
dependent upon obtaining permits, financing and other factors, none of which are currently in place and may be delayed for a number
of reasons beyond our control. Please see “Risk Factors” in Item 1A of Part 1 of the Form 10-K.
(7) The RMB Loan is a three-year term loan and is estimated to be paid in full for the purpose of this schedule on or before August 2015.
Solitario Exploration & Royalty Corp. | 19
Management’s Discussion & Analysis | continued
(g). Mt. Hamilton Joint Venture
Bongará
The Mt. Hamilton gold property, located in east-central Nevada, is
currently the most important project in the Company and is our
primary focus for 2014. With the completion of the Feasibility
Study in February 2012, we have now earned an 80% interest in
the property. It is our only property with proven and probable
reserves. Our initial participation in the Mt. Hamilton property
began in August 2010, when we signed a Letter of Intent with Ely
to earn up to an 80% interest. In December 2010, we entered into
the definitive MH Agreement with DHI, a wholly owned subsidiary
of Ely, with respect to MH-LLC, the limited liability company that
holds the Mt. Hamilton project assets. During 2013, Solitario, Ely
and DHI revised the LOI to clarify the timing and pricing of the
payments due to Ely as a result of the early termination of the
Augusta debt, as further described above in recent developments.
See also Note 2, “Mineral properties” in our Consolidated
Financial Statements.
We are the manager of all project activities. Our focus for 2014 is
to complete environmental permitting for the project. The most
important component of permitting will be approval of the
Environmental Assessment by the USFS. Additional engineering
studies will also be undertaken. In addition, we entered into a
contract with Kappes Cassiday & Associates (“KCA”) for the
preparation during 2014 of an engineering report concerning the
engineering and design of the proposed adsorption, desorption
and recovery (“ADR”) plant at Mt. Hamilton. The KCA contract
also provided an option to us to contract with KCA for the
fabrication and construction of the ADR plant on the Mt.
Hamilton mine site and the wet testing and training of Mt.
Hamilton personnel at a fixed price of $9.3 million. The option is
entirely at our discretion and the price will be fixed for a period of
five months after the issuance of the engineering report, after
which the price will be subject to escalation based upon
published CPI data. No exploration activities are planned for
2014 at Mt. Hamilton. There can be no assurance as to when
permitting will be completed as it is dependent on a number of
factors over which we have no control. Other planned activities
for 2014 include other limited engineering and project
management in support of a positive permitting decision.
We have budgeted approximately $1,895,000 for permitting
activities, planned development, land and earn-in payments for
2014 at Mt. Hamilton.
(h). Exploration Joint Ventures, Royalty and
Other Properties
The following discussion relates to an analysis of our anticipated
property exploration plans as of December 31, 2013. Please also
see Note 2, “Mineral Properties” in our Consolidated Financial
Statements of this Annual Report for a more complete discussion
of all of our mineral properties.
The Bongará project is an advanced stage, high-grade zinc
project in Peru. Based on extensive exploration and development
work conducted to date, we believe the property has excellent
potential to be developed into a mine over the next several years.
In August 2006 we signed a Letter Agreement with Votorantim
Metais (“Votorantim”), granting Votorantim the right to earn up to
a 70% interest in the project by meeting certain spending and
development milestones. The Bongará project hosts the Florida
Canyon zinc deposit, where high-grade zinc mineralization has
been encountered in drill holes over an area approximately 2.5
kilometers by 1.3 kilometers in dimension.
Votorantim is funding and managing all work conducted on the
project. Work in 2014 will focus on activities necessary to
complete a prefeasibility study and then to transition to
feasibility-level work for 2015. A total of 6,000 meters of both
surface and underground drilling is scheduled this year. Another
four kilometers of road is also scheduled to be completed in
2014. As part of the 2014 program, permitting for a new 700-
meter long tunnel to provide underground access and drilling
platforms in the Karen-Milagros zone of the Florida Canyon
deposit is planned, as well as permitting an extension of the
existing San Jorge tunnel a further 300 meters to the south to test
for the continuation of high-grade mineralization. Detailed
drilling from both these tunnels will provide feasibility-level
reserve information. No date has been set to initiate construction
of these new tunnels. Permitting and social development
activities with surrounding communities will also continue
throughout 2014.
Pedra Branca
The Pedra Branca project is an advanced stage project in which
we are exploring for platinum and palladium (“PGM”) in Brazil.
Several well mineralized bodies containing strong values of
PGM’s have been delineated by drilling. We believe there is good
potential to discover additional PGM-bearing deposits. The
property is 100% owned by PBM. Our joint venture partner,
Anglo Platinum (“Anglo”), currently owns 51% of PBM and is
funding, through PBM, all work conducted on the project. We
hold a 49% interest in PBM. We deconsolidated PBM during
2010 and record our share of any exploration expense as our
equity interest in the gains and losses of PBM against our
investment in PBM. As part of the Shareholders Agreement,
Anglo is the manager of the project and is paid a management fee
of 5% of the incurred costs at PBM.
Anglo has indicated the 2014 exploration program will consist of
a drilling program to drill-test areas identified by a helicopter-
borne geophysics program completed in 2013. The drilling
program will focus on magnetic anomalies that may be related to
areas of ultramafic rocks that are the host to all PGM
mineralization identified on the property.
20 | 2013 Annual Report
Management’s Discussion & Analysis | continued
Pachuca Norte
In June 2013 a definitive joint venture agreement was signed that
provides for Hochschild Mining (“Hochschild”) to earn a 51%
interest in the property by funding a total of $10,000,000 in
exploration commitments over the five years from the signing of
the definitive agreement. Hochschild will have the option to earn
an additional 19% (total interest 70%) by funding all project
expenditures necessary to complete a positive feasibility study.
Hochschild will manage the operations and has the right to
terminate the joint venture at any time.
(k). Related Party Transactions
On July 26, 2013, we sold 2,451,892 shares of Solitario common
stock in a private placement at a price of $0.84 per share for total
proceeds of $2,060,000 (the “Offering”). The Offering was
unanimously approved by our Board of Directors and, as part of
the Offering insiders subscribed for and acquired 606,665 shares
(the “Insider Shares”) for a total purchase of $510,000. The offer
and sale of the Insider Shares was unanimously approved by the
Audit Committee of the Board of Directors. All shares in the
Offering were offered and sold on the same terms and conditions.
On June 26, 2012, Christopher Herald, our President and Chief
Executive Officer, and James Maronick, our Chief Financial
Officer, purchased shares of our common stock at a price of $1.22
per share, with Mr. Herald purchasing 180,000 shares and Mr.
Maronick purchasing 45,000 shares. The purchase of the shares
was unanimously approved by our Board of Directors and was
also unanimously approved by our Audit Committee of the Board
of Directors. The price of the shares was the last closing price of
our common stock as quoted on the NYSE MKT on June 25,
2012. We received total proceeds of $275,000.
(l). Recent Accounting Pronouncements
There are no recently issued accounting standards for which the
Company expects a material impact on our Consolidated
Financial Statements.
The project is located about 80 kilometers north of Mexico City
near the city of Pachuca.
Hochschild is planning to complete approximately 20 core holes
by mid-2014 in the North District area. Most drill holes are
located adjacent to previously drilled holes that displayed strong
mineralization. However, several of the holes will be targeted on
veins that have never been drill tested. Depending upon drilling
results, Hochschild may elect to continue the drilling program
into the second half of 2014.
Yanacocha Royalty Property
The 61,000-hectare Yanacocha royalty property is located in
northern Peru immediately north of Newmont Mining-
Buenaventura's Minera Yanacocha Mine, the largest gold mine in
South America. We acquired the property in 1993 and sold it to
Newmont in 2000 for $6.0 million and we retained a net smelter
return ("NSR") royalty on the property. We amended the NSR
royalty schedule in January 2005 at which time Newmont committed
to a long-term $4.0 million work program on our royalty property. We
consider the property to be an early-stage exploration property, but
believe it has good potential to host gold mineralization.
Other Properties
We have significantly reduced activities in Peru and Mexico and
have budgeted expenditures of $166,000 for exploration on our
other properties in Peru and Mexico that are not subject to joint
venture and have terminated our Latin American employees. We
will carry on limited exploration activities during 2014 by
utilizing contract geologists and have placed our current
properties on care and maintenance.
(i). Discontinued Projects
During 2013 we abandoned our Cerro Azul and Atico properties in
Peru and our Jaripo property in Mexico and recorded $13,000 of
mineral property impairments. During 2012 we abandoned our
Triunfo and Espanola properties in Bolivia and our Excelsior project
in Peru and recorded $31,000 of mineral property impairments.
(j). Significant Accounting Policies
See Note 1, “Business and Summary of Significant Accounting
Policies,” to our Consolidated Financial Statements for a
discussion of our Significant Accounting Policies.
Solitario Exploration & Royalty Corp. | 21
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Solitario Exploration & Royalty Corp.
Wheat Ridge, Colorado
We have audited the accompanying consolidated balance sheets of Solitario Exploration & Royalty Corp. (the "Company") as of
December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, shareholders' equity, and
cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibil-
ity is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effective-
ness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements and assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Solitario
Exploration & Royalty Corp. as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the United States of America.
EKS&H LLLP
March 7, 2014
Denver, Colorado
22 | 2013 Annual Report
Consolidated Balance Sheets | in thousands of U.S. dollars, except share & per share amounts
December 31,
2013
December 31,
2012
Assets
Current assets:
Cash and cash equivalents
Investments in marketable equity securities, at fair value
Royalty sale receivable
Prepaid expenses and other
Total current assets
Mineral properties
Investments in marketable equity securities, at fair value
Equity method investment
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Short-term margin loan
Current portion long-term debt
Deferred income taxes
Other
Total current liabilities
$
$
$
Long-term debt, net of discount
Deferred gain on sale of mineral property
Warrant liability
Commitments and contingencies (Notes 2 and 9)
Shareholders’ equity:
Solitario shareholders’ equity
Preferred stock, $0.01 par value, authorized 10,000,000 shares
(none issued and outstanding at December 31, 2013 and 2012)
Common stock, $0.01 par value, authorized, 100,000,000 shares
(37,512,127 and 34,479,958, respectively, shares issued and
outstanding at December 31, 2013 and 2012)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total Solitario shareholders’ equity
Noncontrolling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
2,092
1,577
-
115
3,784
12,098
2,396
153
1,069
19,500
367
802
-
-
84
1,253
3,144
7,000
140
-
375
51,963
(44,730)
460
8,068
(105)
7,963
19,500
On behalf of the Board:
Christopher E. Herald
Director
John Hainey
ohn Hainey
Director
See Notes to Consolidated Financial Statements.
$
$
$
$
616
3,110
4,000
210
7,936
9,327
3,983
1,165
1,072
23,483
398
1,500
727
963
103
3,691
2,437
7,000
1,138
-
345
47,107
(42,678)
3,914
8,688
529
9,217
23,483
Solitario Exploration & Royalty Corp. | 23
Consolidated Statements of Operations | in thousands of U.S. dollars, except per share amounts
Property and joint venture revenue
Joint venture property payments
Costs, expenses and other:
Exploration expense
Depreciation and amortization
General and administrative
(Gain) loss on derivative instruments
Property abandonment and impairment
Gain on sale of assets
Interest expense and dividend income (net)
Total costs, expenses and other
Other income (expense)
Gain on early termination of debt
Gain on sale of marketable equity securities
Gain (loss) on warrant liability
Equity in net loss of equity method investment
Total other income (expense)
Loss before income tax
Income tax benefit
Net loss
(Income) loss attributable to noncontrolling interest
Net loss attributable to Solitario shareholders
Loss per common share attributable to
Solitario shareholders:
Basic and diluted
Weighted average shares outstanding:
Basic and diluted
For the year ended December 31,
2013
2012
$
300
$
300
797
26
2,244
(90)
13
(11)
(57)
2,922
313
142
998
(1,012)
441
(2,181)
176
(2,005)
(47)
(2,052)
(0.06)
35,743
$
$
1,986
61
2,680
30
31
(8)
318
5,098
-
1,528
(488)
(488)
552
(4,246)
648
(3,598)
301
(3,297)
(0.10)
34,351
$
$
See Notes to Consolidated Financial Statements.
24 | 2013 Annual Report
Consolidated Statements of Comprehensive Loss | in thousands of U.S. dollars
Net loss for the period, before comprehensive loss
Other comprehensive income (loss):
Unrealized loss on marketable equity sequrities,
net of deferred taxes
Comprehensive loss
Income (loss) attributable to noncontrolling interests
Comprehensive loss attributable to Solitario shareholders
For the year ended December 31,
2012
2013
$
(2,005)
$
(3,598)
(3,454)
(5,459)
(47)
(5,506)
$
(1,963)
(5,561)
301
(5,260)
$
See Notes to Consolidated Financial Statements.
Solitario Exploration & Royalty Corp. | 25
Consolidated Statements of Shareholders’ Equity| in thousands of U.S. dollars, except share amounts
For the years ended December 31, 2013 and 2012
Solitario Shareholders’
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Total
Solitario
Non-
Accumulated Comprehensive Shareholders’ Controlling
Deficit
Income
Equity
Interest
Contra-
Non-
Controlling
Interest
Total
Shareholders’
Equity
Balance at 12/31/11 34,204,958
$ 342 $ 49,015 $ (39,381) $ 5,877 $ 15,853
$(1,640)
$ (340) $ 13,873
Issuance of shares and
$300 of cash to
noncontrolling
shareholder for future
earn-in
Noncontrolling interest
contribution (net)
Disproportionate share entry
on earn-in to MH-LLC
Reversal of contra-
noncontrolling interest
on earn-in
Stock option expense
Issuance of shares in
private placement
Net loss
Net unrealized (loss)
50,000
-
-
-
-
225,000
-
on marketable equity
securities (net of
tax of $1,168)
-
34,479,958
Balance at 12/31/12
Issuance of shares and
$500 of cash to
noncontrolling
shareholder for future
earn-in
Noncontrolling interest
distribution (net)
Credit for payment to
receive Ely shares as
well as Augusta
debt payment
Issuance of shares in
private placement
Exercise of stock options
Stock option expense
Issuance of shares for
mineral property
Net loss
Net unrealized (loss)
on marketable equity
securities (net of tax
of $770)
Balance at 12/31/13
427,777
-
2,451,892
117,500
-
35,000
-
-
37,512,127
1
-
-
-
-
2
-
70
-
(2,983)
-
732
273
-
-
-
-
-
-
-
(3,297)
-
-
-
-
-
-
-
71
-
(180)
198
(2,983)
2,983
-
732
275
(3,297)
(531)
-
-
(301)
(191)
-
-
531
-
(300)
198
-
-
732
-
-
275
(3,598)
-
345
-
47,107
-
(42,678)
(1,963)
3,914
(1,963)
8,688
-
529
-
-
(1,963)
9,217
4
-
25
1
-
-
-
377
-
1,800
2,035
183
420
-
-
-
-
-
41
-
-
(2,052)
-
-
-
-
-
-
-
381
-
(881)
(50)
1,800
2,060
184
420
41
(2,052)
250
-
-
-
-
47
-
-
-
-
-
-
-
(500)
(50)
2,050
2,060
184
420
41
(2,005)
-
-
$ 375 $ 51,963 $ (44,730)
-
(3,454)
(3,454)
$ 460 $ 8,068 $ (105)
-
-
(3,454)
$ - $ 7,963
See Notes to Consolidated Financial Statements.
26 | 2013 Annual Report
Consolidated Statements of Cash Flows | in thousands of U.S. dollars
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in
operating activities:
(Gain) loss on derivative instruments
Depreciation and amortization
Gain on early termination of debt
Loss on equity method investment
Property abandonment and impairment
Employee stock option expense
Deferred income taxes
(Gain) loss on warrant liability
Amortization of interest on debt discounts
Gain on asset and equity security sales
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Accounts payable and other current liabilities
Net cash used in operating activities
Investing activities:
Additions to mineral properties
Additions to other assets
Sale of derivative instrument, net
Proceeds from sale of mineral property
Proceeds from sale of marketable equity securities
Proceeds from sale of other assets
Net cash provided by investing activities
Financing activities:
Short-term borrowing
Repayment of short-term borrowing
Repayment of long-term debt
Proceeds from issuance of debt, net
Proceeds from issuance of common stock, net
Proceeds from exercise of options
Payment to noncontrolling interest
Noncontrolling interest contribution, net
Net cash provided by (used in) financing activities
For the year ended December 31,
2013
2012
$
(2,005)
$
(3,598)
(90)
26
(313)
1,012
13
420
(176)
(998)
-
(153)
78
(51)
(2,237)
(2,173)
(318)
90
4,000
839
79
2,517
2,300
(2,998)
(2,050)
2,000
2,060
184
(550)
250
1,196
1,476
616
2,092
30
61
-
488
31
732
(648)
488
332
(1,536)
200
(84)
(3,504)
(3,457)
(397)
51
6,000
1,664
9
3,870
2,665
(3,165)
(750)
912
275
-
(300)
181
(182)
184
432
616
$
Net increase 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:
Cash paid for interest, capitalized to mineral property
Supplemental disclosure of non-cash flow investing
and financing activities:
Capitalized non-cash interest
Capitalized depreciation
Issuance of stock for mineral property
Issuance of stock to noncontrolling interest
Shares of Ely marketable equity securities received upon
payment of Augusta debt
Royalty sale receivable
Transfer of contra-noncontrolling interest to noncontrolling
interest upon earn-in
Disproportionate share entry from noncontrolling interest to
additional paid-in capital upon earn-in
Debt financing costs
Issuance of stock to noncontrolling interest
$
186
$
87
$
$
$
$
$
$
$
$
$
$
540
30
41
381
1,800
-
-
-
-
-
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
4,000
531
2,983
588
71
See Notes to Consolidated Financial Statements.
Solitario Exploration & Royalty Corp. | 27
Notes to Consolidated Financial Statements | for the years ended December 31, 2013 & 2012
1. Business and Summary of Significant
Accounting Policies:
Business and company formation
Solitario Exploration & Royalty Corp. (“Solitario”) is a develop-
ment stage company at December 31, 2013 (but not a company
in the “Development Stage”) under Industry Guide 7, as issued
by the United States Securities and Exchange Commission, with
a focus on the development of the Mt. Hamilton gold project lo-
cated in Nevada.
In December 2010 Solitario signed the Limited Liability Com-
pany Operating Agreement of Mt. Hamilton LLC (the “MH
Agreement”) with DHI Minerals (U.S.) Ltd., (“DHI”) and formed
Mt. Hamilton LLC (“MH-LLC”), the owner of the Mt. Hamilton
project. On February 22, 2012, Solitario earned an 80% inter-
est in MH-LLC as a result of the completion of a feasibility study
on the Mt. Hamilton project (the “Feasibility Study”) prepared
by SRK Consulting (US), Inc. of Lakewood, Colorado (“SRK”).
Solitario intends to develop the Mt. Hamilton project. How-
ever, Solitario has never developed a mineral property. In addi-
tion Solitario has a focus on the acquisition of precious and base
metal properties with exploration potential and the development
or purchase of royalty interests. Solitario acquires and holds a
portfolio of exploration properties for future sale or joint venture
or to create a royalty prior to the establishment of proven and
probable reserves.
Solitario has been actively involved in mineral exploration since
1993. During 2012 Solitario sold a royalty on its Mt. Hamilton
Project for $10,000,000 and recorded a deferred gain on that sale
of $7,000,000. Additionally, although Solitario records joint ven-
ture property payments as revenue for standby delay rental pay-
ments, Solitario's previously significant revenues were in 2000
upon the sale of the Yanacocha property for $6,000,000. Rev-
enues from the sale of properties, if any, would also occur on an in-
frequent basis in the future. At December 31, 2013, in addition to
the Mt. Hamilton project, Solitario had six mineral exploration
properties in Peru and Mexico and its Yanacocha and Mercurio
royalty properties in Peru and Brazil, respectively. Solitario is con-
ducting limited exploration activities in these countries.
Solitario was incorporated in the state of Colorado on November
15, 1984 as a wholly-owned subsidiary of Crown Resources Cor-
poration ("Crown"). In July 1994 Solitario became a publicly
traded company on the Toronto Stock Exchange (the "TSX")
through its Initial Public Offering.
Recent developments
Augusta long-term debt
On November 22, 2013 Solitario entered into a letter agreement,
(the “Letter Agreement”) between Solitario, Ely and DHI, a
wholly-owned subsidiary of Ely Gold & Minerals Inc. Under the
Letter Agreement, Solitario subscribed for $1,300,000 of shares
of common stock of Ely at a price of Cdn$0.10 and upon approval
by Ely and regulatory approvals we received 13,571,354 shares
of Ely common stock. Ely used the $1,300,000 from the sub-
scription to pay Augusta Resource Corporation (“Augusta”)
$1,300,000 pursuant to the terms of an agreement between Ely
and Augusta Resource Corporation (“Augusta”) dated November
20, 2013. Ely’s receipt of the $1,300,000 and payment to Au-
gusta fully satisfied Solitario’s prior obligations to subscribe for an
aggregate of US$1,750,000 of shares of Ely common stock
(US$750,000 on or before May 1, 2014 and US$1,000,000 on or
before May 1, 2015) and satisfied Solitario’s Augusta debt which
was deemed fully paid upon Augusta’s receipt of the $1,300,000
from Ely. Solitario recorded a gain on early retirement of debt of
$313,000 during 2013 as a result of the payoff of the Augusta
long-term debt.
Investment in Mt. Hamilton
On November 22, 2013, Solitario and DHI also entered into the
second amendment (the “Second Amendment”) to the MH Agree-
ment. Pursuant to the terms of the Second Amendment, the par-
ties agreed to modify Solitario’s payment obligation of
US$250,000 and 50,000 shares of Solitario common stock due to
DHI on August 21, 2014 previously contemplated under the
terms of the MH Agreement to a payment of 327,777 shares of
Solitario common stock which was paid on December 20, 2013.
Investment in Kinross
Solitario has a significant investment in Kinross Gold Corpora-
tion (“Kinross”), which consisted of the following at December
31, 2013 and 2012:
(in thousands) Year ended December 31,
Shares
Fair value
Current assets
Long-term assets
2013
600
2012
670
$
$
1,577
1,051
$
$
3,110
3,402
The current assets represent Solitario's estimate of the portion of
marketable equity securities that will be liquidated within one
year. Solitario sold the following shares of Kinross during 2013
and 2012:
(in thousands) Year ended December 31,
Shares sold
Proceeds
Gain on sale
2013
70
358
308
$
$
2012
180
1,591
1,464
$
$
As of December 31, 2013, and 2012, Solitario has borrowed
$802,000 and $1,500,000, respectively, in short-term margin loans,
which are primarily secured by its investment in Kinross. The
short-term margin loan is discussed below under Note 4, “Short-
term debt.” At December 31, 2013, Solitario had sold two covered
calls covering a total of 200,000 shares of its Kinross common stock,
as further described below in Note 7, “Derivative Instruments,” both
of which expired unexercised in February 2014. As of February 28,
2014, Solitario owns 530,000 shares of Kinross common stock
which have a value of approximately $2.8 million based upon the
market price of $5.22 per Kinross share. Solitario’s investment in
Kinross common stock represents a significant concentration of as-
sets, with the inherent risk that entails. Any significant fluctuation
in the market value of Kinross common shares could have a material
impact on Solitario’s liquidity and capital resources.
28 | 2013 Annual Report
Notes | to Consolidated Financial Statements continued
Investment in Ely
As part of the Letter Agreement, discussed above, we received
13,571,354 shares of Ely common stock. During 2013 we sold
6,303,563 shares of Ely common stock for proceeds of $481,000,
recording a loss on sale of marketable equity securities of
$166,000. As of December 31, 2013 we own 15,732,274 shares of
Ely common stock, representing approximately 19.5% of the out-
standing shares of Ely with a fair value of $1,324,000. We have
classified our holdings of Ely common stock as marketable equity
shares available-for-sale and gains and losses on our holdings of
Ely are recorded in accumulated other comprehensive income in
the shareholders’ equity section of our Consolidated Balance Sheet.
Financial reporting
The consolidated financial statements include the accounts of
Solitario and its wholly-owned subsidiaries, controlled non-
wholly-owned subsidiaries and its equity investment in Pedra
Branca Mineracao, Ltd (“PBM”), which owns the Pedra Branca
project in Brazil. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consoli-
dated financial statements are prepared in accordance with ac-
counting principles generally accepted in the United States of
America ("generally accepted accounting principles"), and are
expressed in US dollars.
Revenue recognition
Solitario records delay rental payments as revenue in the period
received. Solitario recorded $300,000, in joint venture and prop-
erty payments for both of the years ended December 31, 2013 and
2012. Any payments received for the sale of property interests are
recorded as a reduction of the related property's capitalized cost.
Proceeds which exceed the capitalized cost of the property without
reserves are recognized as revenue. Payments received on the
sale of properties with reserves are recognized as revenue to the
extent the proceeds exceed the proportionate basis in the assets
sold. Gain on the sale of a mineral property revenue stream is de-
ferred to the extent there is a guarantee for the future revenue
stream until such time as the potential funding obligation for the
guarantee is reduced or released.
Use of estimates
The preparation of financial statements in conformity with gener-
ally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of as-
sets and liabilities and disclosure of contingent assets and liabili-
ties 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 fi-
nancial statements pertain to: (i) the recoverability of mineral
properties and their future exploration potential; (ii) the estimate
of the fair value of Solitario's stock option grants to employees; (iii)
the ability of Solitario to realize its deferred tax assets; (iv) the cur-
rent portion of Solitario's investment in Kinross stock and other
marketable equity securities and (v) the fair value of Solitario’s lia-
bility for warrants Solitario granted RMB Australia Holdings Lim-
ited (“RMBAH”) upon entering into the facility agreement,
discussed below.
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 de-
velopment of economically recoverable ore reserves and the abil-
ity of Solitario to obtain the necessary permits and financing to
successfully place the properties into production, and upon fu-
ture profitable operations, none of which is assured.
Cash equivalents
Cash equivalents include investments in highly liquid money-mar-
ket securities with original maturities of three months or less when
purchased. As of December 31, 2013 and 2012, Solitario had con-
centrations of cash and cash equivalents in excess of federally in-
sured amounts and cash in foreign banks, which are not covered
under the federal deposit insurance rules for the United States.
Mineral properties
Solitario began capitalizing all of its expenditures on its Mt.
Hamilton project, subsequent to the completion of the Feasibil-
ity Study. Solitario expenses all exploration costs incurred on its
mineral properties prior to the establishment of proven and prob-
able reserves. Initial acquisition costs of its mineral properties
are capitalized. Solitario regularly performs evaluations of its in-
vestment in mineral properties to assess the recoverability
and/or the residual value of its investments in these assets. All
long-lived assets are reviewed for impairment whenever events
or circumstances change which indicate the carrying amount of
an asset may not be recoverable, utilizing established guidelines
based upon undiscounted future net cash flows from the asset or
upon the determination that certain exploration properties do not
have sufficient potential for economic mineralization.
Derivative instruments
Beginning in December 2008, Solitario sold covered calls on a
limited basis covering its shares of Kinross common stock. Soli-
tario also owned certain warrants issued by Ely, which expired un-
exercised during 2012. As explained in more detail in Note 5,
“Long-term debt,” Solitario entered into a facility agreement (the
“Facility Agreement”) with RMBAH, and RMB Resources, Inc., a
Delaware corporation (“RMBR”) whereby Solitario may borrow up
to $5,000,000 from RMBAH (with any amounts outstanding col-
lectively being the “RMB Loan”). In connection with the Facility
Agreement, Solitario issued 1,624,748 warrants (the “RMB War-
rants”), as partial consideration for financing services provided in
connection with the Facility Agreement. All of these derivative
instruments are further discussed in Note 7, “Derivative instru-
ments” below. Solitario accounts for its derivative instruments in
accordance with ASC 815 "Accounting for Derivative Instruments
and Hedging Activities" (“ASC 815”). Solitario has not desig-
nated its covered calls as hedging instruments and any changes in
the fair market value of the covered calls and its warrants are rec-
ognized in the statement of operations in the period of the change.
Fair value
FASB ASC 820, “Fair Value Measurements and Disclosures”
(“ASC 820”) establishes a framework for measuring fair value
and requires enhanced disclosures about fair value measure-
ments. ASC 820 clarifies that fair value is an exit price, repre-
senting the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants. For certain of Solitario's financial instruments, in-
cluding cash and cash equivalents, short-term margin loans and
accounts payable, the carrying amounts approximate fair value
due to their short-term maturities. Solitario's marketable equity
Solitario Exploration & Royalty Corp. | 29
Notes | to Consolidated Financial Statements continued
securities and the Kinross calls are carried at their estimated fair
value based on quoted market prices. See Note 8, “Fair value of
financial instruments” below.
Marketable equity securities
Solitario's investments in marketable equity securities are classified
as available-for-sale and are carried at fair value, which is based
upon quoted prices of the securities owned. Solitario records invest-
ments in marketable equity securities as available-for-sale for in-
vestments in publicly traded marketable equity securities for which
it does not exercise significant control, including owning less than
20% of the outstanding securities, and where Solitario has no repre-
sentation on the Board of those companies and exercises no control
over the management of those companies. The cost of marketable
equity securities sold is determined by the specific identification
method. Changes in market value are recorded in accumulated
other comprehensive income within shareholders' 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
statements of operations. The following tables summarize Solitario’s
marketable equity securities and accumulated other comprehensive
income related to its marketable equity securities:
(in thousands) December 31,
2013
2012
Marketable equity securities
at fair value
Cost
Accumulated other
comprehensive income for
unrealized holding gains
Deferred taxes on accumulated
other comprehensive
income for unrealized holding gains
Valuation allowance on deferred taxes
on unrealized holding losses in-
cluded in other comprehensive loss
Accumulated other comprehensive
$
$
3,973
1,954
7,093
851
2,019
6,242
(688)
(2,328)
(871)
-
income
$
460
$
3,914
The following table represents changes in marketable equity securities:
(in thousands) Year ended December 31,
$
$
2013
839
697
2012
1,664
136
142
(58)
1,528
(571)
(84)
(957)
(4,081)
(1,603)
1,582
597
(871)
(3,370)
-
(1,006)
$
(3,454) $
(1,963)
Gross cash proceeds
Cost
Gross gain on sale included in
earnings during the period
Deferred taxes on gross gain
on sale included in earnings
Reclassification adjustment to
unrealized gain in other
comprehensive income for net
gains included in earnings
Gross unrealized holding loss
arising during the period included
in other comprehensive loss
Deferred taxes on unrealized
holdings loss included in
other comprehensive loss
Valuation allowance on deferred taxes
on unrealized holding losses in-
cluded in other comprehensive loss
Net unrealized holding gain (loss)
Other comprehensive income (loss)
from marketable equity securities
30 | 2013 Annual Report
Foreign exchange
The United States dollar is the functional currency for all of
Solitario's foreign subsidiaries. Although Solitario's South
American exploration activities have been conducted primarily
in Brazil, Peru and Mexico, a portion of the payments under
the land, leasehold and exploration agreements of Solitario are
denominated in United States dollars. Foreign currency gains
and losses are included in the results of operations in the pe-
riod in which they occur. During 2013 and 2012, Solitario
recorded foreign exchange losses of $21,000 and $32,000, re-
spectively. Solitario's cash accounts in foreign subsidiaries not
denominated in United States dollars represent the only signifi-
cant foreign currency denominated assets. Foreign currency
denominated cash accounts totaled $64,000 and $36,000, re-
spectively, at December 31, 2013 and 2012.
Equity method investments
Solitario records its share of income or loss of unconsolidated
subsidiaries where it has a significant influence over the uncon-
solidated subsidiary, under the equity method of accounting, as
an increase or decrease in its investment in the unconsolidated
subsidiary. Solitario accounts for its investment in Pedra
Branca do Mineracao, Ltd. (“PBM”) under the equity method
since July 2010, when Anglo Platinum Limited (“Anglo”)
earned a 51% interest in PBM. Solitario elected not to record
its investment in PBM at fair value after July 2010 and during
2013 and 2012 recorded a reduction of $1,012,000 and
$488,000, respectively, in its equity method investment for Soli-
tario’s share of the loss of PBM during 2013 and 2012. During
the years ended December 31, 2013 and 2012, PBM had no
revenues and reported a net operating loss of approximately
$2,065,000 and $996,000, respectively.
Income taxes
Solitario accounts for income taxes in accordance with ASC 740,
“Accounting for Income Taxes.” Under ASC 740, income taxes
are provided for the tax effects of transactions reported in the fi-
nancial statements and consist of taxes currently due plus de-
ferred taxes related to certain income and expenses recognized
in different periods for financial and income tax reporting pur-
poses. 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 recov-
ered or settled. Deferred taxes are also recognized for operating
losses and tax credits that are available to offset future taxable
income and income taxes, respectively. A valuation allowance is
provided if it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Accounting for uncertainty in income taxes
ASC 740 clarifies the accounting for uncertainty in income
taxes recognized in a company's financial statements. ASC 740
prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC
740 also provides guidance on derecognition, classification, in-
terest and penalties, accounting in interim periods, disclosure,
and transition. ASC 740 provides that a company's tax position
will be considered settled if the taxing authority has completed
Notes | to Consolidated Financial Statements continued
its examination, the company does not plan to appeal, and it is
remote that the taxing authority would reexamine the tax posi-
tion in the future. These provisions of ASC 740 had no effect
on Solitario's financial position or results of operations. See
Note 6, “Income taxes” below.
Earnings per share
The calculation of basic and diluted loss per share is based on
the weighted average number of shares of common stock out-
standing during the years ended December 31, 2013 and 2012.
Potentially dilutive shares related to outstanding common stock
options of 3,819,000 and 2,598,400 for the years ended Decem-
ber 31, 2013 and 2012, respectively, and RMB warrants of
1,624,748 for the years ended December 31, 2013 and 2012
were excluded from the calculation of diluted loss per share be-
cause the effects were anti-dilutive.
Employee stock compensation and incentive plans
Solitario classifies all of its stock options as equity options in ac-
cordance with the provisions of ASC 718 “Compensation – Stock
Compensation.” See Note 10, “Employee stock compensation
plans” below.
Solitario’s outstanding options on the date of grant have a five-
year term, and vest 25% on date of grant and 25% on each an-
niversary date. Solitario recognizes stock option compensation
expense based upon the grant date fair value of the awards and
as the stock options vest by multiplying the estimated grant date
fair value determined using the Black-Scholes model by a vest-
ing percentage, with 25% recognized immediately, and the re-
maining 75% recognized over three years on a straight line
basis. Solitario may also grant Restricted Stock Units and Re-
stricted Stock in connection with its 2013 Plan.
Segment reporting
With the completion of the Feasibility Study on February 22,
2012, Solitario now operates in two segments: (i) mineral explo-
ration and (ii) mining development and operations. Solitario is
capitalizing Mt. Hamilton development and operations costs
subsequent to February 22, 2012. Solitario’s Mt. Hamilton proj-
ect is located in Nevada and all of Solitario's remaining opera-
tions are located in Peru, Brazil and Mexico as further described
in Note 2 to these consolidated financial statements. Included
in the consolidated balance sheet at December 31, 2013 and
2012 are total assets of $412,000 and $1,433,000, respectively,
related to Solitario's foreign operations located in Brazil, Peru
and Mexico. Solitario is not aware of any foreign exchange re-
strictions on its subsidiaries located in foreign countries.
Recent accounting pronouncements
There are no recently issued accounting standards for which
Solitario expects a material impact on its consolidated finan-
cial statements.
2. Mineral Properties:
The following table details Solitario’s investment in Mineral
Property:
(in thousands) December 31,
Development (United States)
Mt. Hamilton
Exploration
Pachuca (Mexico)
La Promesa (Peru)
Norcan (Mexico)
Aconchi (Mexico)
Canta Colorado (Mexico)
Atico (Peru)
Cerro Azul (Peru)
Jaripo (Mexico)
Total exploration
Total mineral property
2013
2012
$ 12,059
$
9,275
20
5
6
5
3
-
-
-
39
$ 12,098
$
20
5
6
5
3
5
3
5
52
9,327
Mt. Hamilton
MH-LLC joint venture of the Mt. Hamilton project
In December 2010 Solitario signed the MH Agreement with DHI
and formed MH-LLC, the owner of the Mt. Hamilton project.
Pursuant to the MH Agreement, the fair value of the DHI contri-
bution was valued at $3,000,000 for its 90% interest and MH-
LLC assumed $3,066,000 for the fair value of the Augusta debt,
discussed below in Note 5, “Long-term debt.”
As of December 31, 2013, pursuant to the MH Agreement, Soli-
tario had one remaining cash payment to DHI of $250,000 and
one remaining stock payment to DHI of 50,000 shares of Soli-
tario common stock, both of which were paid in February 2014.
In addition, Solitario has annual advance royalty payments due
to the underlying leaseholder of $300,000 per year and a
$5,000,000 royalty reduction payment due the underlying lease-
holder prior to commercial production at Mt. Hamilton. Failure
to make these payments to the underlying leaseholder will result
in a reduction in Solitario’s interest in MH-LLC from 80% to
49% with a corresponding increase in the DHI’s interest in MH-
LLC.
The MH Agreement provides that all costs for development at
Mt. Hamilton after completion of the Feasibility Study will be
shared by Solitario and DHI pro-rata. Upon completion of the
Feasibility Study, DHI notified Solitario that it had exercised its
option of having Solitario contribute DHI’s share of costs through
commercial completion as a loan, with such loan, plus interest at
8%, being repaid to Solitario from 80% of DHI’s share of distri-
butions from MH-LLC. During 2012 Solitario loaned DHI
$127,000 for its share of costs subsequent to the completion of
the Feasibility Study. However, subsequently, DHI repaid Soli-
tario $131,000 for the remaining balance due on the loan from
Solitario, including interest, and has no balance due to Solitario
as of December 31, 2013 or 2012.
During 2013 MH-LLC distributed $250,000 to its members,
Solitario and DHI, in proportion to their interests. Solitario re-
ceived $200,000 from this distribution which was eliminated in
consolidation. During 2012, MH-LLC distributed $2.5 million
to its members in proportion to their interests. Solitario re-
ceived $2 million from this distribution which was eliminated in
Solitario Exploration & Royalty Corp. | 31
Notes | to Consolidated Financial Statements continued
consolidation. In addition, during 2012 Solitario received
$500,000 from DHI to repay a portion of a prior loan to
Solitario, and Solitario agreed to forgive $35,000 of accrued in-
terest due from DHI, which represented the accrued interest on
loans made to DHI in connection with the MH Agreement
through June 30, 2012. Including accrued interest of $17,000
prior to the repayment of the DHI loan, Solitario recorded a net
decrease to interest income of $18,000 for the interest earned
and forgiven during 2012.
Sandstorm royalty sale
In June 2012 MH-LLC completed the sale of a 2.4% net
smelter royalty on its Mt. Hamilton project to Sandstorm for
$10 million. MH-LLC received an upfront payment of $6
million upon signing the agreement and received $4 million
on January 15, 2013, which Solitario recorded as a current
asset as of December 31, 2012. The Sandstorm royalty agree-
ment provides that in the event Sandstorm does not receive
$10 million in royalty proceeds by December 31, 2022, MH-
LLC will make up any shortfall. As a result of this guarantee,
Solitario believes it is appropriate to defer the gain on sale,
until such time as the potential funding obligation under the
guarantee is reduced or eliminated. Solitario reduced min-
eral property $3,000,000 and recorded a deferred gain as a
long-term liability on the sale of the Sandstorm royalty of
$7,000,000 during 2012.
As part of the agreement, MH-LLC will have the option, for a pe-
riod of 30 months from the date of the agreement to repurchase
the NSR for $12 million, provided that MH-LLC enters into a
gold stream agreement with Sandstorm that has an upfront de-
posit of greater than $30 million. In addition, MH-LLC has pro-
vided Sandstorm with a right of first refusal on any future royalty
or gold stream financing for the Mt. Hamilton project. Pursuant
to the agreement, Solitario is jointly and severally liable for all
obligations of MH-LLC to Sandstorm.
Capitalized costs
Solitario began capitalizing its development costs incurred at its
Mt. Hamilton project subsequent to the completion of the Feasi-
bility Study, as detailed in the following table:
(in thousands) Year ended December 31,
Development expenditures
Capitalized interest
Property payments
Capitalized depreciation
Total capitalized costs
$
$
2013
1,854
726
174
30
2,784
2012
3,107
-
325
22
3,454
$
$
Included in the property payments during 2013 is the issuance
of 35,000 shares with a fair value of $41,000 issued to underly-
ing leaseholders which was recorded as an increase to additional
paid-in capital. Solitario also capitalized $300,000 during each
year of advance royalty payments to the underlying leaseholder
as long-term other assets. See Note 3, “Other assets” below.
Exploration property
Solitario's exploration mineral properties at December 31, 2013
consist of use rights related to exploration stage properties, and
the value of such assets is primarily driven by the nature and
32 | 2013 Annual Report
amount of economic mineral ore believed to be contained, or
potentially contained, in such properties. The amounts capital-
ized as mineral properties include concession and lease or op-
tion acquisition costs. Capitalized costs related to a mineral
property represent its fair value at the time it was acquired. At
December 31, 2013, none of Solitario’s exploration properties
have production (are operating) or contain proven or probable
reserves. Solitario's exploration mineral properties represent
interests in properties that Solitario believes have exploration
and development potential. Solitario's mineral use rights gener-
ally are enforceable regardless of whether proven and probable
reserves have been established.
In addition to its capitalized exploration properties, Solitario
has an interest in its Bongará and Mercurio exploration conces-
sions, which are currently subject to joint venture agreements
where joint venture partners made payments to Solitario. Soli-
tario records joint venture property payment revenue received
in excess of capitalized costs and recorded $200,000 of joint
venture property revenue on its Bongará project during 2013
and 2012 and recorded $100,000 of joint venture property rev-
enue on its Mercurio project in Brazil during 2013 and 2012.
At December 31, 2013 and 2012, neither of these properties
have any remaining capitalized costs.
Solitario also sold its mineral interests in its Yanacocha and
Mercurio exploration projects and retained a royalty interest in
each. Solitario has no capitalized costs related to these royalty
interests.
Discontinued projects
During 2013 Solitario recorded $13,000 of mineral property
write-downs related to its Cerro Azul and Atico properties in
Peru and its Jaripo property in Mexico. During 2012 Solitario
recorded $31,000 of mineral property write-downs related to its
Excelsior, Triunfo and Espanola projects.
Exploration expense
The following items comprised exploration expense:
(in thousands) Year ended December 31,
Geologic and field expenses
Administrative
Mt. Hamilton exploration
Total exploration expense
2013
311
486
$
-
797
$
2012
1,307
378
301
1,986
$
$
3. Other Assets:
The following items comprised other assets:
(in thousands) Year ended December 31,
Deferred offering costs
RMB Loan
Accumulated Mt. Hamilton
advance royalty payments (1)
Furniture and fixtures, net of
accumulated depreciation
Exploration bonds and
other assets
Total other assets
2013
2012
$
322
$
518
600
95
300
143
52
1,069
$
111
1,072
$
Notes | to Consolidated Financial Statements continued
(1) Total advanced royalty payments at Mt. Hamilton are
$1,700,000. The capitalized advanced royalty payments here
exclude advanced royalty payments of $1,100,000 incurred by
Ely, prior to the formation of MH-LLC and payments by MH-
LLC expensed prior to completion of the Feasibility Study.
In connection with the RMB Loan, Solitario recorded deferred
offering costs that are being amortized on a straight-line basis to
interest cost over 36 months, the term of the Facility Agreement.
See Note 5, “Long-term debt,” below.
4. Short-term Debt:
Solitario maintained a secured credit line agreement with UBS
Bank, USA (“UBS”) during 2013 and 2012. At December 31,
2013, the credit line is secured by all of Solitario’s assets held in
its UBS brokerage account, consisting primarily of 600,000 Kin-
ross shares. The UBS credit line may be terminated by UBS at
any time by UBS or Solitario and any amounts outstanding must
be repaid upon termination. The UBS credit line carries an inter-
est rate which floats, based upon a base rate of 2.25% plus the
one-month London Interbank Offered Rate ("LIBOR"), which is
0.17% as of December 31, 2013. The average interest rate was
approximately 2.45% and 2.49%, respectively, for 2013 and
2012. UBS may change the base rate at any time. The UBS
credit line provides that Solitario may borrow up to $2 million,
subject to the value of the assets held in its brokerage account at
UBS, and that Solitario maintain a minimum equity value per-
centage in its UBS brokerage account above 40%, based upon
the value of its Kinross shares and any other assets held in Soli-
tario's UBS brokerage account, less the value of its UBS credit
line and any other balances owed to UBS. UBS may modify the
minimum equity value percentage of the loan at any time. In ad-
dition, if the equity value in Solitario's UBS brokerage account
falls below the minimum equity value, UBS may sell enough Kin-
ross shares held in Solitario's UBS brokerage account or liquidate
any other assets to restore the minimum equity value. At Decem-
ber 31, 2013, the equity value in Solitario's UBS brokerage ac-
count was 69%.
Solitario also maintained a short-term margin account with RBC
Capital Markets, LLC ("RBC") during 2012, which was closed
during 2013 and Solitario no longer has any short-term borrow-
ing capacity with RBC. Solitario borrowed against its short-term
margin account during 2012, which was repaid during 2012.
During 2012, the loans carried interest at a margin loan rate of
4.25% per annum. At December 31, 2013, Solitario has no out-
standing short-term debt owed to RBC.
The following tables summarize Solitario’s short-term debt:
(in thousands) Year ended December 31,
2013
2012
$
$
1,500
2,300
(2,998)
802
2,000
1,200
(1,700)
1,500
UBS short-term credit line
Beginning balance
Borrowing
Repayments
Ending balance
RBC short-term margin loan
Beginning balance
Borrowing
Repayments
Ending balance
Total short-term margin loans
$
802
$
(in thousands) Year ended December 31,
2013
2012
Interest UBS short-term
credit line
Interest RBC short-term
margin loan
Total interest short-term
margin loans
$
$
22
$
-
22
$
36
22
58
During 2013 Solitario capitalized all of its interest to mineral
property. See Note 2, “Mineral properties,” above.
5. Long-term Debt:
Augusta long-term debt
In connection with the formation of MH-LLC, the Mt. Hamilton
properties contributed by DHI to MH-LLC were subject to a se-
curity interest granted to Augusta related to Ely’s acquisition of
the Mt. Hamilton properties. Pursuant to the MH Agreement, as
part of its earn-in, Solitario agreed to make private placement in-
vestments totaling $2,500,000 in Ely common stock, all to pro-
vide Ely with the funds necessary for Ely to make the loan
payments due to Augusta at the time of the formation of MH-
LLC. The payments due to Augusta were non-interest bearing.
Accordingly, upon formation and the contribution of the mineral
properties by DHI to MH-LLC, MH-LLC recorded the dis-
counted fair value of the payments due to Augusta, discounted at
7.5%, which was Solitario’s estimated cost of similar credit as of
the formation of MH-LLC.
As discussed above under recent developments, on November
22, 2013, Solitario subscribed for 13,571,354 shares of Ely com-
mon stock for $1,300,000 and, pursuant to the Letter Agree-
ment, Ely used the funds from the sale of their shares to fully
pay off the Augusta long-term debt. Solitario recorded a gain on
early retirement of debt of $313,000 during 2013 as a result of
the payoff of the Augusta long-term debt.
In April 2013 Ely exercised its right to reduce to $500,000 Soli-
tario’s required subscription of $750,000 for Ely common stock,
funds from which Ely was required to pay the June 1, 2013 pay-
ment due to Augusta. Ely agreed to pay the remaining $250,000
due to Augusta from its own funds, for a total payment of
$750,000, which was done in June 2013. As a result, Solitario
received 5,131,150 shares of Ely common stock and recorded the
fair value of the Ely stock received as marketable equity securi-
ties and an increase in additional paid-in capital. Ely’s payment
of the $250,000 portion of the Augusta debt was recorded as an
increase in noncontrolling interest in the equity section of Soli-
tario’s balance sheet.
During 2013 and 2012 Solitario recorded $127,000 and
$184,000, respectively, for accretion of interest related to the
Augusta long-term debt and paid $1,800,000 and $750,000, re-
spectively, in cash on the long-term note. All interest accreted
on the Augusta long-term debt during 2013 was capitalized to
mineral property. See Note 2, “Mineral properties,” above.
-
-
-
-
-
1,465
(1,465)
-
1,500
RMB Facility Agreement
On August 10, 2012, Solitario entered into the Facility Agree-
ment with RMBAH, and RMBR whereby Solitario may borrow
up to $5,000,000 from RMBAH (with any amounts outstanding
Solitario Exploration & Royalty Corp. | 33
Notes | to Consolidated Financial Statements continued
collectively being the “RMB Loan”) at any time during the 24-
month period commencing on August 21, 2012, (the “Availabil-
ity Period”), after which time any undrawn portion of the
$5,000,000 commitment will be cancelled and will no longer be
available for drawdown. Solitario recorded $588,000 of deferred
offering costs related to the Facility Agreement in long-term as-
sets, which are being amortized over the 36-month life of the
Facility Agreement on a straight-line basis. See Note 3, “Other
Assets,” above. In connection with the Facility Agreement,
Solitario recorded a warrant discount related to the 1,624,748
warrants issued to RMBAH at the time Solitario entered into the
Facility Agreement (the “RMB Warrants”) and recorded a debt
discount of $650,000 for the fair value of the RMB warrants.
The debt discount is being amortized to interest cost over 36
months, the term of the Facility Agreement. See Note 7, “De-
rivative instruments,” below. The RMB Loan amounts bear in-
terest at the 90-day LIBOR rate plus 5%, payable in arrears on
the last day of each quarterly interest period. The RMB Loan
interest rate was 5.25% at December 31, 2013. The RMB Loan
may be repaid at any time without penalty. Any amounts repaid
may not be redrawn under the Facility Agreement. The RMB
Loan is secured by a lien on Solitario’s 80% interest in MH-
LLC as well as a general security interest in Solitario’s remain-
ing assets.
The following table summarizes the RMB Loan:
(in thousands)
RMB
Loan
RMB
RMB
Warrant Long-term
Borrowing Discount
Debt
Beginning balance
December 31, 2011
Initial borrowing,
August 21, 2012
Amortization of dis-
count to interest cost
Ending balance
December 31, 2012
Borrowing
Amortization of dis-
$
- $
- $
-
1,500
(650)
-
77
850
77
$
$
1,500
2,000
(573) $
-
927
2,000
count to interest cost
-
217
217
Ending balance
December 31, 2013
$
3,500
$
(356) $
3,144
Solitario recorded the following interest cost related to the RMB Loan:
(in thousands) Year ended December 31,
Interest paid in cash
Amortization of the RMB
Warrants discount
Amortization of RMB
deferred financing costs
Total interest expense
2013
165
2012
30
$
$
217
196
77
70
related to the RMB Loan
$
578
$
177
Solitario capitalized all of its interest incurred during 2013 to
mineral property. See Note 2, “Mineral properties,” above.
34 | 2013 Annual Report
6. Income Taxes:
Solitario's income tax benefit consists of the following as allo-
cated between foreign and United States components:
(in thousands)
Current:
United States
Foreign
Deferred:
United States
Foreign
2013
2012
$
$
5
12
-
18
(853)
-
187
-
(648)
(614)
-
421
-
(176) $
Operating loss and credit carryovers:
United States
Foreign
Income tax benefit
$
Consolidated loss before income taxes includes losses from for-
eign operations of $1,564,000 and $1,944,000 in 2013 and
2012, respectively.
See Note 1, “Business and Summary of Significant Accounting
Policies” for a detail of the deferred taxes associated with the
sale of marketable equity securities and the deferred taxes asso-
ciated with unrealized gains and losses associated with other
comprehensive income related to marketable equity securities.
The net deferred tax assets/liabilities in the December 31, 2013
and 2012 consolidated balance sheets include the following com-
ponents:
(in thousands)
2013
2012
Deferred tax assets:
Loss carryovers
Deferred gain
Stock option compensation
expense
Royalty
Earnings in unconsolidated
subsidiary
Severance
Unrealized loss on derivative
securities
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gain on derivative
securities
MH-LLC investment
Exploration costs
Unrealized gains on marketable
equity securities
Other
Total deferred tax liabilities
Net deferred tax liabilities
$
$
9,852
2,335
$ 10,118
1,253
932
1,363
798
23
900
1,492
496
30
-
107
(12,545)
2,865
79
106
(11,441)
3,033
160
1,168
845
688
4
2,865
-
-
819
845
2,328
4
3,996
963
$
Notes | to Consolidated Financial Statements continued
At December 31, 2012, Solitario has classified its deferred tax
liability as current, primarily 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 benefit for in-
come taxes is as follows:
(in thousands)
Expected income tax benefit
Non-deductible foreign expenses
Non-deductible foreign stock
compensation expense
Foreign tax rate differences
State income tax
Change in valuation allowance
MH-LLC Investment
Permanent differences and other
Income tax benefit
2013
$
(741) $
-
2012
(1,444)
1
18
31
303
233
(16)
(4)
(176) $
20
72
(82)
629
102
54
(648)
$
During 2013 the valuation allowance was decreased primarily as
a result of reduction in the value of its holdings of Kinross with a
corresponding decrease in the built-in gains and during 2012
the valuation allowance was increased primarily as a result of in-
creases in Solitario foreign net operating loss carry-forwards, for
which it was more likely than not that the deferred tax benefit
would not be realized.
At December 31, 2013, Solitario has unused US federal Net
Operating Loss ("NOL") carryovers of $1,250,000 and unused
US State NOL carryovers of $3,543,000, both of which begin
expiring in 2030. Solitario has foreign loss carryforwards for
which Solitario has provided a full valuation allowance and
which expire over various periods from two to five years de-
pending on the foreign jurisdiction.
Solitario and its subsidiaries are subject to the following mate-
rial taxing jurisdictions: United States Federal, States of Col-
orado and Nevada, Mexico, Peru and Brazil. The tax years
that remain open to examination by the United States Internal
Revenue Service are years 2010 through 2013. The tax years
that remain open to examination by the State of Colorado are
years 2009 through 2013. The tax years that remain open to
examination by Mexico are years 2010 through 2013. All tax
years remain open to examination in Peru and Brazil. Soli-
tario’s policy is to recognize interest and penalties related to
uncertain tax benefits in income tax expense. Solitario has no
accrued interest or penalties related to uncertain tax positions
as of December 31, 2013, or December 31, 2012 or for the
years then ended.
7. Derivative Instruments:
RMB warrants
Pursuant to the Facility Agreement, the Company issued
1,624,748 warrants to RMBAH as partial consideration for fi-
nancing services provided in connection with the Facility Agree-
ment. Each RMB Warrant entitles the holder to purchase one
share of Solitario common stock at an exercise price of $1.5387
for a term of 36 months, subject to standard anti-dilution adjust-
ments. Solitario recorded a discount to the RMB Loan for the
fair value of the RMB Warrants. Solitario is amortizing this dis-
count on a straight-line basis to interest cost over the three-year
term of the RMB Loan and as of December 31, 2013 the remain-
ing unamortized warrant discount was $356,000.
Solitario has recorded a liability for the fair value of the RMB
Warrants based upon a Black-Scholes model and adjusts the fair
value of the warrants at each balance sheet date, with changes in
value recorded in other income (loss) in the statement of opera-
tions. The following tables summarize the RMB Warrants:
Initial RMB warrant liability balance
Loss (gain) on warrant liability
Ending balance December 31, 2012
Loss (gain) on warrant liability
Ending balance December 31, 2013
Warrant Liability
(in thousands)
$
$
$
650
488
1,138
(998)
140
Life
(months)
36
32
20
Covered call options
(in thousands)
From time to time Solitario has sold covered call options against
its holdings of Kinross. The business purpose of selling covered
calls is to provide additional income on a limited portion of
shares of Kinross that Solitario may sell in the near term, which
is generally defined as less than one year. Solitario has not des-
ignated its covered calls as hedging instruments as described in
ASC 815, “Derivatives and Hedging,” and any changes in the
fair value of its covered calls are recognized in the statement of
operations in the period of the change. During 2013 and 2012,
Solitario recorded the following liabilities and gain or loss on de-
rivative instruments related to Kinross covered call options:
Shares of Kinross
Balance
December 31, 2011
Sale of call
(Gain) on derivative
instrument
Ending liability balance
December 31, 2012
Sale of call
(Gain) on derivative
instrument
Black-Scholes Model
Stock
Price
Per Share
$ 1.19
Volatility
(%)
62
Risk-Free
Interest
Rate
0.39
1.68
0.85
62
55
0.35
0.38
KGC
02/2013
$11 call
100
KGC
KGC
02/2014 02/2014
$8 call
$7 call
50
100
$
$
- $
51
(48)
$
3
-
(3)
- $
-
-
$
-
55
(53)
-
-
-
-
35
(34)
Ending liability balance
December 31, 2013
$
- $
2
$
1
Solitario Exploration & Royalty Corp. | 35
Notes | to Consolidated Financial Statements continued
Other warrants
During 2010 in connection with the acquisition of Mt. Hamilton
and the formation of MH-LLC, Solitario acquired warrants to
purchase shares of Ely stock for Cdn$0.25 per share, with war-
rants for 833,333 shares that expired on August 30, 2012 and
warrants for 833,333 shares that expired on October 19, 2012.
In May 2011 Solitario acquired warrants to purchase shares of
International Lithium Corp., which were written off during 2012
and expired during 2013. Solitario has recorded gains and
(in thousands)
Derivatives not designated as hedging instruments under ASC 815
RMB warrants
Kinross calls
The following amounts are included in loss on derivative instru-
ments in the Consolidated Statements of Operations for the years
ended December 31, 2013 and 2012:
(in thousands) Year ended December 31,
2013
2012
Gain (loss) on derivatives not
designated as hedging
instruments under ASC 815
Kinross Calls
Ely warrants
ILC warrants
Total gain (loss)
$
$
90
-
-
90
$
$
48
(74)
(4)
(30)
8. Fair Value of Financial Instruments:
For certain of Solitario's financial instruments, including cash
and cash equivalents, the Sandstorm royalty sale receivable,
payables and short-term debt, the carrying amounts approximate
fair value due to their short maturities. Solitario's marketable eq-
uity securities, including its investment in Kinross common
stock, TNR Gold and Ely equity investments, are carried at their
estimated fair value primarily based on publicly available
quoted market prices.
losses on these warrants in its gain (loss) on derivative instru-
ments in the statement of operations as detailed below.
The following table provides the location and amount of the fair
values of Solitario's derivative instruments presented in the Con-
solidated Balance Sheets as of December 31, 2013 and 2012:
Derivatives
Balance Sheet
Location
December 31, December 31,
2012
2013
Long-term liabilities
Other current liabilities
$
$
140
3
$ 1,138
-
$
the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market par-
ticipants. ASC 820 also requires disclosure about how fair value
is determined for assets and liabilities and establishes a hierar-
chy for which these assets and liabilities must be grouped, based
on significant levels of inputs as follows:
Level 1: Quoted prices in active markets for identical as-
sets or liabilities;
Level 2: Quoted prices in active markets for similar as-
sets and liabilities and inputs that are observable for the
asset or liability; or
Level 3: Unobservable inputs in which there is little or
no market data, which require the reporting entity to de-
velop its own assumptions.
The determination of where assets and liabilities fall within
this hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. During the years
ended December 31, 2013 and 2012, there were no other re-
classifications in financial assets or liabilities between Level 1,
2 or 3 categories.
Solitario applies ASC 820, "Fair Value Measurements." ASC
820 establishes a framework for measuring fair value and re-
quires enhanced disclosures about fair value measurements.
ASC 820 clarifies that fair value is an exit price, representing
The following is a listing of Solitario’s financial assets and liabili-
ties required to be measured at fair value on a recurring basis
and where they are classified within the hierarchy as of Decem-
ber 31, 2013:
(in thousands)
Assets
Level 1
Level 2
Level 3
Total
Marketable equity securities
$
3,973
$ -
$
Liabilities
RMB warrants
Kinross calls
-
3
140
-
-
-
-
$
3,973
140
3
The following is a listing of Solitario’s financial assets and liabilities required to be measured at fair value on a recurring basis and
where they are classified within the hierarchy as of December 31, 2012:
36 | 2013 Annual Report
Notes | to Consolidated Financial Statements continued
(in thousands)
Assets
Level 1
Level 2
Level 3
Total
Marketable equity securities
$
7,093
$ -
$
Liabilities
RMB warrants
-
1,138
-
-
$
7,093
1,138
Items measured at fair value on a recurring basis:
Marketable equity securities: At December 31, 2013 and 2012,
the fair value of Solitario’s investment in Kinross, TNR and Ely
marketable equity securities is based upon quoted market
prices.
Kinross calls: The fair value of the Kinross calls, which are
traded on a public market, is based upon quoted market prices.
RMB warrants: The RMB warrants issued by Solitario are not
traded on any public exchange. Solitario determines the fair
value of the RMB warrants using a Black-Scholes pricing
model, using inputs, including share price, volatility of Soli-
tario common stock and discount rates that include an assess-
ment of performance risk, that are readily available from
public markets; therefore they are classified as Level 2 inputs
as of December 31, 2013 and 2012.
During the year ended December 31, 2013, Solitario did not
change any of the valuation techniques used to measure its fi-
nancial assets and liabilities at fair value.
9. Commitments and Contingencies:
In acquiring its interests in mineral claims and leases, Solitario
has entered into lease agreements, which may be canceled at its
option without penalty. Solitario is required to make minimum
rental and option payments in order to maintain its interests in
certain claims and leases. See Note 2, “Mineral properties,”
above. Solitario estimates its 2014 property rentals and option
payments, excluding certain earn-in payments discussed below,
for properties we own or operate to be approximately
$1,040,000, which includes $294,000 of mineral property pay-
ments at Mt. Hamilton, assuming that our joint ventures con-
tinue in their current status and that we do not appreciably
change our property positions on existing properties; approxi-
mately $694,000 of these annual payments are paid or are reim-
bursable to us by our joint venture partners. In addition, we may
be required to make further payments in the future if we elect to
exercise our options under those agreements or if we enter into
new agreements.
Solitario has entered into certain month-to-month office leases
for its field offices in Nevada, Peru and Mexico. The total rent
expense for these offices during 2013 and 2012 was approxi-
mately $72,000 and $61,000, respectively. In addition, Solitario
leases office space under a non-cancelable operating lease for
the Wheat Ridge, Colorado office which provides for total mini-
mum rent payments through October 2015 of $47,000.
As a result of completion of the Mt. Hamilton feasibility study,
Solitario is committed to make certain earn-in payments, as con-
templated in the MH Agreement: (1) annual cash payments of
$300,000 for an advance minimum royalty due to an underlying
royalty holder; (2) payment to DHI of $250,000 in cash and deliv-
ery of 50,000 shares of Solitario common stock by February 21,
2014; and (3) buy down a portion of an existing 6% net smelter
royalty to a 1% net smelter royalty by paying $5,000,000 to an un-
derlying royalty holder on or before commercial completion of the
Mt. Hamilton project.
10. Employee Stock Compensation Plans:
a.) The 2006 Plan
On June 27, 2006, Solitario's shareholders approved the 2006
Stock Option Incentive Plan (the "2006 Plan"). Under the terms
of the 2006 Plan, the Board of Directors may grant up to
2,800,000 options to Directors, officers and employees with ex-
ercise prices equal to the market price of Solitario's common
stock at the date of grant. Solitario classifies its stock options
under the 2006 Plan as equity options in accordance with the
provisions of ASC 718 “Compensation – Stock Compensation.”
b.) 2006 Plan stock option compensation
Solitario’s outstanding options from the 2006 Plan on the date of
grant have a five-year term, and vest 25% on date of grant and
25% on each of the next three anniversary dates. Solitario rec-
ognizes stock option compensation expense on the date of grant
for 25% of the grant date fair value, and subsequently, based
upon a straight line amortization of the unvested grant date fair
value of each of its outstanding options. The following table
shows the grant date fair value of Solitario’s options grants from
the 2006 Plan as of the date of grant:
Grant date fair value
Grant Date
Option – grant date price (Cdn$)
Options granted
Expected life years
Expected volatility
Risk free interest rate
Weighted average fair value
Grant date fair value
12/17/12
$
1.49
165,000
5.0
68%
0.7%
$
0.84
$ 139,000
5/5/10
5/19/09
$
2.40
2,065,000
5.0
56%
2.2%
$
1.19
$2,449,000
$
1.55
519,000
5.0
56%
1.9%
$
0.65
$ 339,000
Solitario Exploration & Royalty Corp. | 37
Notes | to Consolidated Financial Statements continued
Solitario recorded $189,000 and $732,000, respectively, of
stock option expense from the 2006 Plan during 2013 and
2012 included in general and administrative expense, for the
amortization of grant date fair value with a credit to additional
paid-in capital.
c.) 2006 Plan stock option activity
During the year ended December 31, 2013, options for
117,500 shares were exercised for cash proceeds of $184,000.
During 2012 there were no shares exercised from the 2006
Plan. The following table summarizes the activity for stock op-
tions outstanding under the 2006 Plan as of December 31,
2013 and 2012:
2006 Plan
Outstanding, beginning of year
Granted
Exercised
Cancelled
Forfeited
Outstanding, end of year
Exercisable, end of year
2013
Weighted
Average
Exercise
Price (Cdn$)
Aggregate
Intrinsic
Value (1)
Options
2,598,400
-
(117,500)
-
$ 2.22
-
$ 1.55
-
(61,900) $ 2.40
2,419,000
2,336,500
$ 2.25
$ 2.27
$ -
$ -
Options
2,433,400
165,000
-
-
-
2,598,400
1,958,400
2012
Weighted
Average
Exercise
Price (Cdn$)
Aggregate
Intrinsic
Value (1)
$ 2.27
$ 1.49
-
-
-
$ 2.22
$ 2.22
$ 1,650
$ 413
(1) The intrinsic value at December 31, 2013 and 2012 based upon the quoted market price of Cdn$0.87 and Cdn$1.50, respectively,
per share for our common stock on the TSX and an exchange ratio of 0.93485 and 1.0031, respectively, United States dollars per
Canadian dollar.
Grant date fair value
Grant Date
Option – grant date price
Options outstanding
Expected life years
Expected volatility
Risk free interest rate
Weighted average fair value
Grant date fair value
6/18/13 10/21/13
$
1.14 $
0.94
1,280,000
5.0
67%
1.39%
$
0.53
$ 78,000 $ 674,000
120,000
5.0
68%
1.24%
0.65 $
Solitario recorded $231,000 of stock option expense from the
2013 Plan during 2013 included in general and administrative
expense, for the amortization of grant date fair value with a
credit to additional paid-in capital.
c.) Stock option activity
The following table summarizes the activity for stock options
outstanding under the 2013 Plan as of December 31, 2013:
a.) The 2013 Plan
On June 18, 2013, Solitario’s shareholders approved the 2013
Solitario Exploration and Royalty Corp. Omnibus Stock and
Incentive Plan (the “2013 Plan”). Under the terms of the
2013 Plan, the Board of Directors may grant awards for up to
1,750,000 shares to Directors, officers, employees and con-
sultants. Such awards may take the form of stock options,
stock appreciation rights, restricted stock, and restricted
stock units. The terms and conditions of the awards are pur-
suant to the 2013 Plan and are granted by the Board of Direc-
tors or a committee appointed by the Board of Directors.
Solitario classifies its awards from the 2013 Plan as equity
awards under the provisions of ASC 718 “Compensation –
Stock Compensation.”
b.) Stock option compensation
Solitario’s made two grants of options during 2013 from the
2013 Plan which on the date of grant have a five-year term,
and vest 25% on date of grant and 25% on each of the next
three anniversary dates. Solitario recognizes stock option com-
pensation expense on the date of grant for 25% of the grant
date fair value, and subsequently, based upon a straight-line
amortization of the unvested grant date fair value of each of its
outstanding options. The following table shows the grant date
fair value of Solitario’s options grants from the 2013 Plan as of
the date of grant.
38 | 2013 Annual Report
Notes | to Consolidated Financial Statements continued
2013 Plan
Outstanding, beginning of year
Granted
Exercised
Cancelled
Forfeited
Outstanding, end of year
Exercisable, end of year
2013
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (1)
-
$ 0.96
-
-
-
$ 0.96
$ 0.96
$ -
$ -
Options
-
1,400,000
-
-
-
1,400,000
350,000
(1) The intrinsic value at December 31, 2013 based upon the quoted market price of $0.85 per share for our common stock on the
NYSE MKT.
11. Related Party Transactions:
On July 26, 2013, Solitario closed a private placement of
2,451,892 shares of its common stock at a price of $0.84 per
share for total proceeds of $2,060,000 (the “Offering”). The Of-
fering was unanimously approved by our Board of Directors
and, as part of the Offering, insiders subscribed for and ac-
quired 606,665 shares (the “Insider Shares”) for a total pur-
chase of $510,000. The offer and sale of the Insider Shares was
unanimously approved by the Audit Committee of the Board of
Directors. All shares in the Offering were offered and sold on
the same terms and conditions.
On June 26, 2012, Christopher Herald, President and Chief Ex-
ecutive Officer of Solitario, and James Maronick, Chief Finan-
cial Officer of Solitario, purchased shares of the Company’s
common stock at a price of $1.22 per share, with Mr. Herald
purchasing 180,000 shares and Mr. Maronick purchasing
45,000 shares. The purchase of the shares was unanimously ap-
proved by Solitario’s Board of Directors and was also unani-
mously approved by Solitario’s Audit Committee of the Board of
Directors. The price of the shares was the last closing price of
Solitario’s common stock as quoted on the NYSE MKT (formerly
NYSE Amex) on June 25, 2012. Solitario received total pro-
ceeds of $275,000.
12. Segment Reporting:
With the completion of the Feasibility Study on February 22,
2012, Solitario now operates in two segments: (i) mineral explo-
ration and (ii) mining development and operations. Solitario is
capitalizing Mt. Hamilton development and operations costs
subsequent to February 22, 2012, as detailed above in Note 2,
“Mineral properties.”
The following summarizes Solitario segment information for the
year ended December 31, 2013:
(in thousands)
Exploration expense
Interest expense
Other (income) loss (1)
Pre-tax income (loss)
Total assets (2)(3)
Capital expenditures (4)
Year ended December 31, 2013
Corporate
and Other Consolidated
Mt. Hamilton Exploration
$
$
$
$
-
-
(287)
287
14,283
3,094
$
797
-
784
(1,581)
784
5
$
$
$
$
$
$
$
-
-
887
(887)
4,433
4
$
$
$
$
797
-
1,384
(2,181)
19,500
3,103
(1) Mt. Hamilton other includes gain on early retirement of debt of $313. Corporate and other includes gain on sale of marketable
equity securities of $142.
(2) Exploration total assets include equity method investment of $153.
(3) Corporate and other total assets include investment in marketable equity securities of $3,973.
(4) Capital expenditures at Mt. Hamilton include capitalized interest of $726 and capitalized other assets of $311.
Solitario Exploration & Royalty Corp. | 39
Notes | to Consolidated Financial Statements continued
(in thousands)
Exploration expense
Interest expense
Other (1)
Pre-tax (loss)
Total assets (2)(3)
Capital expenditures
Year ended December 31, 2012
Corporate
and Other Consolidated
$
-
$
$
Mt. Hamilton Exploration
$ 1,685
-
798
(2,483)
1,467
3
301
184
58
(543)
14,236
3,789
$
$
$
$
$
$
234
986
(1,220)
7,780
62
$
$
$
$
$
$
1,986
418
1,842
(4,246)
23,483
3,854
(1) Corporate and other includes gain on sale of marketable equity securities of $1,528.
(2) Exploration total assets include equity method investment of $1,165.
(3) Corporate and other total assets include investment in marketable equity securities of $7,093.
13. Subsequent Events:
On January 28, 2014, holders of option awards from the 2006
Plan voluntarily cancelled awards for 1,797,000 options with an
option price of Cdn$2.40 with an expiration date of May 5,
2015 to allow Solitario to have additional financial flexibility.
No consideration was given or received by the holders of the op-
tions to cancel the awards.
On February 28, 2014, Solitario closed a private placement of
1,600,000 shares of Solitario common stock priced at $1.05 per
share for total proceeds of $1,680,000 (the “2014 Offering”).
Solitario retained a placement agent in connection with the por-
tion of the Offering conducted in Canada and paid the place-
ment agent a fee of $50,000 for the sale effected to the single
Canadian investor that participated in the 2014 Offering.
This annual report (including drill hole information and mineral reserve and resource numbers) has been reviewed for
accuracy by Mr. Walt Hunt, COO for Solitario Exploration & Royalty Corp., who is a qualified person as defined by
National Instrument 43-101.
Forward-looking Statements
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 is 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
politically 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 the United States Securities and
Exchange Commission, the Canadian Securities
Commissions and other regulatory authorities.
Cautionary Note to U.S. Investors concerning
estimates of Resources: This annual report uses the
terms “Measured, Indicated and Inferred
Resources.” The Company advises U.S. investors
that while these terms are recognized and required
by Canadian regulations, the SEC does not
recognize the terms. U.S. and Canadian investors
are further cautioned not to assume that all of
Measured or Indicated Mineral Resources will ever
be converted into Reserves. Inferred Resources
have a great amount of uncertainty as to their
existence, and great uncertainty as to their
economic and legal feasibility. It cannot be assumed
that all or any part of an Inferred Mineral Resource
will ever be upgraded to a higher category. Under
Canadian rules, estimates of Inferred Mineral
Resources may not form the basis of feasibility or
pre-feasibility studies, except in rare cases. U.S.
investors are cautioned not to assume that any part
or all of a measured, indicated or inferred resource
exists, or is economically or legally minable. 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.
40 | 2013 Annual Report
Corporate Information | Officers & Directors
Corporate Offices
4251 Kipling Street, Suite 390
Wheat Ridge, Colorado 80033
Telephone: 303-534-1030
Fax: 303-534-1809
www.SolitarioXR.com
Legal Counsel
Polsinelli Shughart PC
Denver, Colorado
Fogler, Rubinoff LLP
Toronto, Ontario
Auditors
EKS&H, LLLP
Denver, Colorado
Transfer Agent
Computershare Investor Services
100 University Avenue
Toronto, Ontario M5J2Y1 Canada
800-564-6253
Stock Exchange Listings
NYSE MKT: 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 NYSE
MKT (formerly the NYSE Amex) since August 11, 2006
under the symbol XPL.
Investor Relations
Questions and requests for information should be
directed to Debbie Mino-Austin, Director-Investor
Relations at 800-229-6827, or via email at
dwmino@slrxpl.com
Officers
Christopher E. Herald | President & CEO
James R. Maronick | Chief Financial Officer
Walter H. Hunt | Chief Operating Officer
Directors
Brian Labadie | Chairman of the Board
Mark E. Jones, III | Vice Chairman of the Board
Web Contact Form: www.investorcentre.com/service
John Hainey | Director
Notice of Annual Meeting of Shareholders
The Annual Meeting will be at 10 a.m. MDT
on Tuesday, June 17, 2014 at the
Company’s corporate offices.
Leonard Harris | Director
Christopher E. Herald | Director
Design: PiteCreative.com
Projects & Properties
Project
Mt. Hamilton
(Gold-Silver, Nevada, US)
Bongará
(Zinc, Peru)
Pachuca Norte
(Silver-Gold, Mexico)
Pedra Branca
(PGM, Brazil)
Yanacocha Royalty
(Gold, Peru)
Mercurio
(Gold, Brazil)
Partner (% owned)
Ely Gold
(20%)
Votorantim
(max 70%)
Hochschild
(max 70%)
Anglo Platinum
(max 65%)
NSR-Royalty
NSR-Royalty
2014 Plans
Permitting, Financing
& Construction
Development, Permitting
& Drilling
Drilling
Drilling
Exploration
Exploration
Classification
Development
Pre-feasibility
Early-Stage
Exploration
Advanced
Exploration
Early-Stage
Exploration
Exploration
Solitario Exploration & Royalty Corp. | 41
SOLITARIO
E X P L O R AT I O N
& R O YA LT Y
4251 Kipling Street, Suite 390
Wheat Ridge, Colorado 80033
Tel: 303.534.1030
Fax: 303.534.1809
SolitarioXR.com
NYSE MKT: XPL | TSX: SLR
With completion of the Mt. Hamilton Feasibility Study and Plan
The high-grade Bongará zinc project
of Operations in 2012, Solitario Exploration & Royalty Corp.
in Peru is joint ventured with Votorantim
is on track to become one of the newest U.S. gold produc-
Metais, the fifth largest zinc producer in
ers. The Mt. Hamilton gold project in eastern Nevada is a
the world. Nearly $60 million has been
development-stage project with permitting expected to
spent on the property to date where recent
be completed in mid-2014. Measured and Indicated
drilling results identified some of the highest
Resources have nearly doubled since acquisition
grade intercepts in the history of the project.
and Solitario is now evaluating a ten-year, 60,000
Completion of a pre-feasibility study is anticipated
oz./year production schedule. Initial production
in late 2014, followed by a feasibility study in 2015
is scheduled for the third quarter 2015. An
on this development-stage property. Solitario’s 30%
optimized mining and processing plan for
interest is fully funded through the start of production
the project is nearly complete and shows
by our partner, Votorantim, making it a dilution-free
that total operating cash costs will be
project to Solitario and its shareholders.
under $600 per ounce and initial capi-
tal costs will be less than $80 million,
making it an attractive project at
today’s gold price.
MT. HAMILTON GOLD PROJECT - In Development
BONGARA ZINC PROJECT - In Pre-feasibility
‘