UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2015
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-32978
SOLITARIO EXPLORATION & ROYALTY CORP.
(Exact name of registrant as specified in charter)
Colorado
(State or other jurisdiction of incorporation or organization)
4251 Kipling St. Suite 390, Wheat Ridge, CO
(Address of principal executive offices)
Registrant's telephone number, including area code
84-1285791
(I.R.S. Employer Identification No.)
80033
(Zip Code)
(303) 534-1030
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of exchange on which registered
NYSE MKT
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES [ ] NO [X]
YES [ ] NO [X]
YES [X] NO [ ]
YES [X] NO [ ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained to the best of registrant's knowledge in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.:
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated Filer [ ]
(Do not check if a smaller
reporting company)
Smaller Reporting Company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES [ ] NO [X]
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last
business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price of the
registrant's common stock on June 30, 2015 as reported on NYSE MKT, was approximately $22,857,000.
There were 39,044,994 shares of common stock, $0.01 par value, outstanding on March 3, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant’s Annual Meeting of Shareholders, which is expected to be filed
by April 29, 2016, have been incorporated by reference into Part III of this Annual Report on Form 10-K
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TABLE OF CONTENTS
PART 1
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
SIGNATURES
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PART I
This Annual Report on Form 10-K contains statements that constitute "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These
statements can be identified by the fact that they do not relate strictly to historical information and include the words "expects",
"believes", "anticipates", "plans", "may", "will", "intend", "estimate", "continue" or other similar expressions. These forward-
looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those
currently anticipated. These risks and uncertainties include, but are not limited to, items discussed below in Item 1A "Risk
Factors" in this Form 10-K. Forward-looking statements speak only as of the date made. We undertake no obligation to
publicly release or update forward-looking statements, whether as a result of new information, future events or otherwise. You
are, however, advised to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and
any reports made on Form 8-K to the United States Securities and Exchange Commission (the "SEC").
Item 1. Business
The Company
Solitario Exploration & Royalty Corp. (“Solitario” or the “Company”) is an exploration stage company with a focus
on the acquisition of precious and base metal properties with exploration potential, and the purchase of royalty interests. 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.
Sale of Mt. Hamilton LLC
On August 25, 2015, we, along with DHI Minerals (US) Ltd. (“DHI”), sold our combined interests in the Mt.
Hamilton gold project to Waterton Nevada Splitter, LLC, (“Waterton”) for total cash proceeds of US$30 million (the
“Transaction”) pursuant to a definitive agreement entered into on June 10, 2015 (the “Agreement”). We sold our 80%
interest in Mt. Hamilton LLC (“MH-LLC”), a limited liability company which holds 100% of the Mt. Hamilton project
assets, and DHI sold its 20% interest in MH-LLC. DHI is a wholly-owned subsidiary of Ely Gold and Minerals, Inc.
(“Ely”). We received gross cash proceeds of US$24 million and Ely received gross cash proceeds of US$6 million.
Our costs and fees related to the Transaction, including broker fees and professional service fees, were $439,000. The
Transaction was structured as the sale of DHI’s and our combined membership interests in MH-LLC. Completion of the
Transaction was subject to the satisfaction of various conditions precedent, including the approval of the holders of a
majority of Solitario’s outstanding shares of common stock, which was received at Solitario’s annual shareholder
meeting on August 14, 2015. We recorded a gain on sale related to the Transaction of $12,309,000. The assets and
liabilities sold and the gain on the Transaction are detailed under Recent Developments in Note 1, “Business and
Summary of Significant Accounting Policies” to the Consolidated Financial statements in Part II, Item 8, “Financial
Statements and Supplementary Data.”
Repayment of the RMB Loan
Concurrent with the closing of the Transaction, we paid $5,000,000 plus $7,000 of interest and fees to fully
repay the funds we had borrowed (the “RMB Loan”) pursuant to a facility agreement (the “Facility Agreement”) with
RMB Australia Holdings Limited (“RMBAH”) and RMB Resources, Inc. (“RMBR”). On August 5, 2015, we entered
into an agreement with RMBAH to extend the maturity date of the RMB Loan from August 21, 2015 to September 30,
2015 (the “RMB Loan Extension”). In consideration for entering into the RMB Loan Extension, we paid RMBAH an
extension fee of $50,000 and agreed to extend the terms of warrants to acquire 1,624,748 shares of Solitario common
stock (the “RMB Warrants”) from August 21, 2015 to August 21, 2016. The RMB Warrants were originally issued in
August 2012 to RMBAH as partial consideration for financing services provided in connection with the Facility
Agreement.
We have been actively involved in mineral exploration and related activities since 1993. Previous to the Transaction,
our last significant proceeds from the sale of a mineral property were recorded in 2000 upon the sale of our Yanacocha property
for $6,000,000. During 2014 we recorded revenues from joint venture delay rental payments of $200,000 related to our
Bongará project in Peru. Future proceeds from the sale of properties, if any, will also occur on an infrequent basis. At
December 31, 2015, we had four mineral exploration properties in Peru and Mexico, our Yanacocha royalty property in Peru
and a retained royalty on the Pedra Branca project in Brazil. We are conducting limited property evaluation activities in those
countries either on our own using contract geologists, or through joint ventures operated by our partners.
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Solitario was incorporated in the state of Colorado on November 15, 1984 as a wholly-owned subsidiary of Crown
Resources Corporation ("Crown"). In July 1994, we became a publicly traded company on the Toronto Stock Exchange (the
"TSX") through our initial public offering. On July 26, 2004, Crown completed a spin-off of its holdings of our shares to its
shareholders as part of the acquisition of Crown (the “Crown - Kinross Merger”) by Kinross Gold Corporation (“Kinross”). On
June 12, 2008, our shareholders approved an amendment to our Articles of Incorporation to change the name of the corporation
to Solitario Exploration & Royalty Corp. from Solitario Resources Corporation.
Our corporate structure as of December 31, 2015 is as follows: All of the subsidiaries are 100%-owned, with the
exception of Bongará project in Peru, with Solitario retaining a 39% interest and Minera Chambara, which is 85%-owned.
Both of these projects are joint ventured to Compania Minera Milpo S.A.A. (“Milpo”). Milpo is traded on the Lima exchange
under the symbol MILPOCI. Beginning in January 2015, Solitario accounts for its interest in both Bongará and Minera
Chambara under the equity method of accounting. During the year ended December 31, 2015 we dissolved our previously
owned subsidiary, Altoro Gold Corp., which had held interest in exploration properties in Brazil that had been abandoned in
prior years.
Solitario Exploration & Royalty Corp. [Colorado]
- Minera Chambara, S.A. [Peru] (85%)
- Minera Solitario Peru, S.A. [Peru]
- Minera Bongará, S.A. [Peru] (39%)
- Minera Soloco, S.A. [Peru]
- Minera Solitario Mexico, S.A. [Mexico]
General
Prior to the Transaction, a significant part of our focus was on the permitting and development of the Mt. Hamilton
project. Currently our primary goal is to acquire and/or 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, 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 sell our 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 addition to focusing on our current assets and
properties, we expect to focus on the potential acquisition of new precious and base metal properties and assets with exploration
potential and the development or purchase of royalty interests.
Prior to the completion of the Transaction we had significantly reduced our exploration activities in Peru, Mexico and
Brazil. We no longer have any active properties in Brazil and we have no full-time employees in any of those countries. Our
current and near-term future exploration activities in Peru and Mexico consist of care and maintenance of our existing
exploration projects through the use of contract geologists, and oversight of our joint ventures in Peru and Mexico that are
managed by our partners.
In analyzing our activities, a significant aspect relates to our exploration activities and those of our joint venture
partners on a property-by-property basis. When these 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 down, the value of any of our gold-bearing mineral exploration properties decreases; however, it may also
become easier and less expensive to locate and acquire new gold-bearing mineral exploration properties with potential to have
economic deposits.
The sale, joint venture or development, either on our own or through a joint venture of our mineral properties has, and
is expected to occur on an infrequent basis. Accordingly, while we conduct exploration activities on our projects, we need to
maintain and replenish our capital resources. We have met our need for capital in the past through (i) proceeds of the
Transaction; (ii) sale of our shares of Kinross common stock; (iii) borrowing in the form of short-term margin debt secured by
our investment in Kinross; (iv) borrowing under the Facility Agreement (v) joint venture delay rental payments, including
payments on our Bongará project; (vi) a royalty sale to Sandstorm, Ltd for $10,000,000 in 2012; and (vii) issuance of common
stock, including cash received upon the exercise of options. In the past, we have reduced our exposure to the costs of our
exploration activities through the use of joint ventures. We anticipate these practices will continue for the foreseeable future.
We operate in one segment, mineral exploration. We currently conduct limited exploration activities in Peru and
Mexico. See Note 11 “Segment Reporting” in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-
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K. As of March 3, 2016, we had five full-time employees, located in the United States and no full-time employees outside of
the United States. We utilize contract managers, geologists and laborers to execute our Latin American project work and
acquisition evaluations.
A large number of companies are engaged in the acquisition, exploration and development of mineral properties, many
of which have substantially greater technical and financial resources than we have and, accordingly, we may be at a
disadvantage in being able to compete effectively for the acquisition, exploration and development of mineral properties. We
are not aware of any single competitor or group of competitors that dominate the exploration and development of mineral
properties. In acquiring mineral properties for exploration and development, we rely on the experience, technical expertise and
knowledge of our employees and advisors, which is limited by the size of our company compared to many of our competitors
who may have either more employees or employees with more specialized knowledge and experience.
Governmental Regulations
Mineral development and exploration activities are subject to various national, state/provincial, and local laws and
regulations, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health,
waste disposal, protection of the environment, mine safety, hazardous substances and other matters. Similarly, if any of our
properties are developed and/or mined those activities are also subject to significant governmental regulation and oversight. We
are required to obtain the licenses, permits and other authorizations in order to conduct our exploration programs.
Environmental Regulations
Our current and planned activities are subject to various national and local laws and regulations governing protection
of the environment. These laws are continually changing and, in general, are becoming more restrictive. We attempt to conduct
our exploration business in a way that safeguards public health and the environment. We are required to conduct our operations
in compliance with applicable laws and regulations. Changes to current state or federal laws and regulations in each
jurisdiction in which we conduct our exploration activities could, in the future, require additional capital expenditures and
increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be
proposed or enacted, additional regulatory requirements could impact the economics of our projects. During 2015, we had no
material environmental incidents or non-compliance with any applicable environmental regulations.
Mineral Properties - General
We have been involved in the exploration for minerals in the United States and Latin America, focusing on precious
and base metals, including gold, silver, platinum, palladium, copper, lead and zinc. We have held concessions in Peru since
1993 and Brazil since 2000. During 2004 we began a reconnaissance exploration program in Mexico and acquired mineral
interests there in 2005. During 2013 we significantly reduced our exploration activities in Peru and Mexico, and in 2015 we
terminated all of our activities in Brazil. We no longer have any active employees in any of those countries, and our
exploration activities consist of care and maintenance of our existing exploration projects in Peru and Mexico through the use
of contract geologists and oversight of our joint ventures that are managed by our partners.
Financial Information about Geographic Areas
Included in the consolidated balance sheets at December 31, 2015 and 2014 are total assets of $86,000 and $70,000,
respectively, related to Solitario's foreign operations located in Peru and Mexico.
Available Information
We file our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports electronically with the SEC. The public may read and copy any materials we file with the SEC at
the SEC's public reference room at 100 F Street NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an internet website, http://www.sec.gov, which contains reports, proxy information and other
information regarding issuers that file electronically with the SEC.
Paper copies of our Annual Report to Shareholders, our Annual Report on Form 10-K, our quarterly reports on Form
10-Q, current reports on Form 8-K, and any amendments to those reports are available free of charge by writing to Solitario at
its address on the front of this Form 10-K. In addition, electronic versions of the reports we file with the SEC are available on
our website, www.solitarioxr.com as soon as practicable, after filing with the United States Securities and Exchange
Commission.
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Item 1A. Risk Factors
In addition to considering the other information in this Form 10-K, you should consider carefully the following factors.
The risks described below are the significant risks we face and include all material risks. Additional risks not presently known
to us or risks that we currently consider immaterial may also adversely affect our business.
Our mineral exploration activities involve a high degree of risk; a significant portion of our business model envisions the
sale or joint venture of mineral property. If we are unable to sell or joint venture these properties, the money spent on
exploration may never be recovered and we could incur an impairment of our investments in our projects.
The exploration for mineral deposits involves significant financial and other risks over an extended period of time.
Few properties that are explored are ultimately developed into producing mines. Major expenses are required to determine if
any of our mineral properties may have the potential to be commercially viable and be salable or joint ventured. Prior to
completion of the feasibility study on our Mt. Hamilton project, we had never established reserves on any of our properties.
Significant additional expense and risks, including drilling and determining the feasibility of a project, are required prior to the
establishment of reserves. It is impossible to ensure that the current or proposed exploration programs on properties in which
we have an interest will be commercially viable or that we will be able to sell, joint venture or develop our properties. Whether
a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the
deposit, such as its size and grade, costs and efficiency of the recovery methods that can be employed, proximity to
infrastructure, financing costs and governmental regulations, including regulations relating to prices, taxes, royalties,
infrastructure, land use, importing and exporting of gold or other minerals, and environmental protection.
We believe the data obtained from our own exploration activities or our partners' activities to be reliable; however, the
nature of exploration of mineral properties and analysis of geological information is often subjective and data and conclusions
are subject to uncertainty. Even if our exploration activities determine that a project is commercially viable, it is impossible to
ensure that such determination will result in a profitable sale of the project or development either on our own or by a joint
venture in the future and that such project will result in profitable commercial mining operations. If we determine that
capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur an impairment of
our investment in such property interest. All of these factors may result in losses in relation to amounts spent, which are not
recoverable. We have experienced losses of this type from time to time including during 2014 when we wrote down our
investments in our Pachuca silver project in Mexico, recording mineral property impairments totaling $20,000.
A significant portion of our liquid assets consist of U.S. Treasuries and bank certificates of deposit. The failure of the
financial institutions that issued or hold these financial instruments could have a material adverse impact on the market
price of our common stock and our liquidity and capital resources.
At December 31, 2015, $17,359,000 of our cash was held in a Key Bank, NA money market account which is in
excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000. As of March 3, 2016, we have
invested approximately $7,510,000 in separate, FDIC insured certificates of deposit with the maximum individual bank
exposure of $250,000, reducing this exposure. However, as of March 3, 2016 we have invested $8,502,000 in United States
Treasury securities, with maturities of between 60 days and 18 months with the remaining balance of our cash held in money
market accounts both of which are held in a brokerage account at Charles Schwab, and none of which are covered by FDIC
insurance. The failure of either Charles Schwab or the financial institutions holding these funds and assets could have a
material impact on the market price of our common stock and our liquidity and capital resources.
We have no reported mineral reserves and none of our current projects are likely to be monetized in the near future and any
projects we may acquire could are likely to offer the opportunity for near term revenues or sale proceeds, and if we are
unsuccessful in identifying mineral reserves in the future, we may not be able to realize any profit from these property
interests.
None of our projects have reported mineral reserves. Any mineral reserves on these projects will only come from
extensive additional exploration, engineering and evaluation of existing or future mineral properties. The lack of reserves on
these mineral properties could prohibit us from any near-term sale or joint venture of our mineral properties and we would not
be able to realize any proceeds and or profit from our interests in such mineral properties, which could materially adversely
affect our financial position or results of operations.
The market for shares of our common stock has limited liquidity and the market price of our common stock has fluctuated
and may decline.
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An investment in our common stock involves a high degree of risk. The liquidity of our shares, or the ability of a
shareholder to buy or sell our common stock, may be significantly limited for various unforeseeable periods. The average
combined daily volume of our shares traded on the NYSE MKT and the TSX during 2015 was approximately 51,000 shares.
The market price of our shares has historically fluctuated within a wide range. The price of our common stock may be affected
by many factors, including an adverse change in our business, a decline in the price of gold or other commodity prices, negative
news on our projects, negative investment sentiment for mining and commodity equities and general economic trends.
Our mineral exploration activities are inherently dangerous and could cause us to incur significant unexpected costs,
including legal liability for loss of life, damage to property and environmental damage, any of which could materially
adversely affect our financial position or results of operations.
Our operations are subject to the hazards and risks normally related to exploration of a mineral deposit, including
mapping and sampling, drilling, road building, trenching, assaying and analyzing rock samples, transportation over primitive
roads or via small contract aircraft or helicopters and severe weather conditions, any of which could result in damage to life or
property, environmental damage and possible legal liability for such damage. Any of these risks could cause us to incur
significant unexpected costs that could have a material adverse effect on our financial condition and ability to finance our
exploration and development activities.
We have a history of losses and if we do not operate profitably in the future it could have a material adverse effect on our
financial position or results of operations and the trading price of our common stock would likely decline.
We have reported losses in 19 of our 22 years of operations. We can provide no assurance that we will be able to
operate profitably in the future or begin to generate significant and consistent sources of revenues or cash flows from
operations. We have had net income in only three years in our history; during 2015, as a result of the Transaction, during 2003,
as a result of a $5,438,000 gain on derivative instrument related to our investment in certain Crown warrants and during 2000,
when we sold our former Yanacocha property. We cannot predict when, if ever, we will be profitable again or able to begin
generating consistent revenues or cash flows from our operations or assets. If we do not operate profitably or identify and
execute on outside sources of funding, we may be unable to fund our current or contemplated exploration activities, acquire
new assets, or otherwise further our business plan.
Our operations outside of the United States of America may be adversely affected by factors outside of our control, such as
changing political, local and economic conditions, any of which could materially adversely affect our financial position or
results of operations.
Our mineral properties located in Latin America consist primarily of mineral concessions granted by national
governmental agencies and are held 100% by us or in conjunction with our joint venture partners, or under lease, option or
purchase agreements. Our mineral properties are located in Peru and Mexico. We act as operator on all of our mineral
properties that are not held in joint ventures or royalty properties. The success of projects held under joint ventures or royalty
properties that are not operated by us is substantially dependent on the joint venture partner, over which we have limited or no
control.
Our exploration activities and mineral properties located outside of the United States are subject to the laws of Peru
and Mexico, where we operate. Exploration and potential development activities in these countries are potentially subject to
political and economic risks, including:
• cancellation or renegotiation of contracts;
• disadvantages of competing against companies from countries that are not subject to US laws and regulations,
including the Foreign Corrupt Practices Act;
• changes in foreign laws or regulations;
• changes in tax laws;
• royalty and tax increases or claims by governmental entities, including retroactive claims;
• expropriation or nationalization of property;
• currency fluctuations (particularly related to declines in the US dollar compared to local currencies);
• foreign exchange controls;
• restrictions on the ability for us to hold US dollars or other foreign currencies in offshore bank accounts;
• import and export regulations;
• environmental controls;
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• risks of loss due to community opposition to our activities, civil strife, acts of war, guerrilla activities,
insurrection and terrorism; and
• other risks arising out of foreign sovereignty over the areas in which our exploration activities
are conducted.
Accordingly, our current exploration activities outside of the United States may be substantially affected by factors
beyond our control, any of which could materially adversely affect our financial position or results of operations. Furthermore,
in the event of a dispute arising from such activities, we would likely be subject to the exclusive jurisdiction of courts outside of
the United States or may not be successful in subjecting persons to the jurisdictions of the courts in the United States, which
could adversely affect the outcome of a dispute.
We may not have sufficient funding for exploration and development, which may impair our profitability and growth.
The capital required for exploration and development of mineral properties is substantial. In the past we have financed
operations through the sale of interests in mineral properties, including the Transaction in 2015, the utilization of joint venture
arrangements with third parties (generally providing that the third party will obtain a specified percentage of our interest in a
certain property or a subsidiary owning a property in exchange for the expenditure of a specified amount), the sale of other
assets, the sale of strategic investments in other companies such as Kinross, short-term margin loans, funds from the Facility
Agreement, and the issuance of common stock. We may need to raise additional cash, or enter into joint venture arrangements,
in order to fund the exploration activities required to determine whether mineral deposits on our projects are commercially
viable. New financing or acceptable joint venture partners may or may not be available on a basis that is acceptable to us. The
inability to obtain new financing or joint venture partners on acceptable terms may prohibit us from continued development or
exploration of our mineral properties. Without the successful sale or future development of our mineral properties through joint
ventures, or on our own, we will not be able to realize any profit from our interests in such properties, which could have a
material adverse effect on our financial position and results of operations.
A large number of companies are engaged in the exploration and development or sale of mineral properties, many of which
have substantially greater technical and financial resources than us and, accordingly, we may be unable to compete
effectively in this sector of the mining industry which could have a material adverse effect on our financial position or
results of operations.
We may be at a disadvantage with respect to many of our competitors in the acquisition, exploration and development
or sale of mining projects. Our competitors with greater financial resources than us will be better able to withstand the
uncertainties and fluctuations associated with sustained downturns in the market and to acquire high quality exploration and
mining properties when market conditions are favorable. In addition, we compete with other companies in the mineral
properties sector to attract and retain key executives and other employees with technical skills and experience in the mineral
exploration business. There can be no assurance that we will continue to attract and retain skilled and experienced employees or
to acquire additional exploration projects. The realization of any of these risks from competitors could have a material adverse
effect on our financial position or results of operations.
The title to our mineral properties may be defective or challenged which could have a material adverse effect on our
financial position or results of operations.
In connection with the acquisition of our mineral properties, we conduct limited reviews of title and related matters,
and obtain certain representations regarding ownership. These limited reviews do not necessarily preclude third parties from
challenging our title and, furthermore, our title may be defective. Consequently, there can be no assurance that we hold good
and marketable title to all of our mineral interests. Additionally, we have to make annual filings to various government agencies
on all of our mineral properties. If we fail to make such filings, or improperly document such filings, the validity of our title to
a mineral property could be lost or challenged. If any of our mineral interests were challenged, we could incur significant costs
in defending such a challenge. These costs or an adverse ruling with regards to any challenge of our titles could have a material
adverse effect on our financial position or results of operations.
Our operations could be negatively affected by existing as well as potential changes in laws and regulatory requirements to
which we are subject, including regulation of mineral exploration and land ownership, environmental regulations and
taxation.
The exploration and development of mineral properties is subject to federal, state, provincial and local laws and
regulations in the countries in which we operate in a variety of ways, including regulation of mineral exploration and land
ownership, environmental regulation and taxation. These laws and regulations, as well as future interpretation of or changes to
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existing laws and regulations, may require substantial increases in capital and operating costs to us and delays, interruptions, or
a termination of operations.
In the United States and the other countries in which we operate, in order to obtain permits for exploration or potential
future development of mineral properties, environmental regulations generally require a description of the existing
environment, including but not limited to natural, archeological and socio-economic environments, at the project site and in the
region; an interpretation of the nature and magnitude of potential environmental impacts that might result from such activities;
and a description and evaluation of the effectiveness of the operational measures planned to mitigate the environmental
impacts. Currently the expenditures to obtain exploration permits to conduct our exploration activities are not material to our
total exploration cost.
The laws and regulations in all the countries in which we operate are continually changing and are generally becoming
more restrictive, especially environmental laws and regulations. As part of our ongoing exploration activities, we have made
expenditures to comply with such laws and regulations, but such expenditures could substantially increase our costs to achieve
compliance in the future. Delays in obtaining or failure to obtain government permits and approvals or significant changes in
regulation could have a material adverse effect on our exploration activities, our ability to locate economic mineral deposits,
and our potential to sell, joint venture or eventually develop our properties, which could have a material adverse effect on our
financial position or results of operations.
Occurrence of events for which we are not insured may materially adversely affect our business.
Mineral exploration is subject to risks of human injury, environmental liability and loss of assets. We maintain limited
insurance coverage to protect ourselves against certain risks related to loss of assets for equipment in our operations and limited
corporate liability coverage; however, we have elected not to have insurance for other risks because of the high premiums
associated with insuring those risks or for various other reasons including those risks where insurance may not be available.
There are additional risks in connection with investments in parts of the world where civil unrest, war, nationalist movements,
political violence or economic crisis are possible. These countries may also pose heightened risks of expropriation of assets,
business interruption, increased taxation and a unilateral modification of concessions and contracts. We do not maintain
insurance against political risk. Occurrence of events for which we are not insured could have a material adverse effect on our
financial position or results of operations.
Severe weather or violent storms could materially affect our operations due to damage or delays caused by such weather.
Our exploration activities in Peru and Mexico are subject to normal seasonal weather conditions that often hamper and
may temporarily prevent exploration or development activities. There is a risk that unexpectedly harsh weather or violent
storms could affect areas where we conduct these activities. Delays or damage caused by severe weather could materially affect
our operations or our financial position.
Our business is extremely dependent on the market price of gold and other commodities and currency exchange rates over
which we have no control.
Our operations are significantly affected by changes in the market price of gold and other commodities since the
evaluation of whether a mineral deposit is commercially viable is heavily dependent upon the market price of gold and other
commodities. The price of commodities also affects the value of exploration projects we own or may wish to acquire or joint
venture. These commodity prices fluctuate on a daily basis and are affected by numerous factors beyond our control. The
supply and demand for gold and other commodities, the level of interest rates, the rate of inflation, investment decisions by
large holders of these commodities, including governmental reserves, and stability of exchange rates can all cause significant
fluctuations in prices. Currency exchange rates relative to the United States dollar can affect the cost of doing business in a
foreign country in United States dollar terms, which is our functional currency. Consequently, the cost of conducting
exploration in the countries where we operate, accounted for in United States dollars, can fluctuate based upon changes in
currency exchange rates and may be higher than we anticipate in terms of United States dollars because of a decrease in the
relative strength of the United States dollar to currencies of the countries where we operate. We currently do not hedge against
currency or commodity fluctuations. The prices of commodities as well as currency exchange rates have fluctuated widely and
future significant price declines in commodities or changes in currency exchange rates could have a material adverse effect on
our financial position or results of operations.
Our business is dependent on key executives and the loss of any of our key executives could adversely affect our business,
future operations and financial condition.
9
We are dependent on the services of key executives, including our Chief Executive Officer, Christopher E. Herald, our
Chief Financial Officer, James R. Maronick, and our Chief Operating Officer, Walter H. Hunt. All of the above named officers
have many years of experience and an extensive background with Solitario and in the mining industry in general. We may not
be able to replace that experience and knowledge with other individuals. We do not have "Key-Man" life insurance policies on
any of our key executives. The loss of these persons or our inability to attract and retain additional highly skilled employees
may adversely affect our business, future operations and financial condition.
Our business model relies significantly on other companies to joint venture our projects and we anticipate continuing this
practice in the future. Therefore, our results are subject to the additional risks associated with the financial condition,
operational expertise and corporate priorities of our joint venture partners.
Our Bongará project is joint-ventured with another mining company that manages the exploration and development
activities on the project and we are the minority-interest party. Although our joint venture agreements provide certain voting
rights and other minority-interest safeguards, the majority partner not only manages operations, but controls most decisions,
including budgets and scope and pace of exploration and development activities. Consequently, we are highly dependent on the
operational expertise and financial condition of our joint venture partner, as well as their own corporate priorities. For instance,
even though our joint venture property may be highly prospective for exploration success, or economically viable based on
feasibility studies, our partner may decide to not fund the further exploration or development of our project based on their
respective financial condition or other corporate priorities. Therefore, our results are subject to the additional risks associated
with the financial condition, operational expertise and corporate priorities of our joint venture partners, which could have a
material adverse effect on our financial position or results of operations.
We may look to joint venture with another mining company in the future to develop and/or operate one of our foreign
projects; therefore, in the future, our results may become subject to additional risks associated with development and
production of our foreign mining projects.
We are not currently involved in mining development or operating activities at any of our properties located outside of
the United States. In order to realize a profit from these mineral interests we either have to: (1) sell such properties outright at a
profit; (2) form a joint venture for the project with a larger mining company with greater resources, both technical and financial,
to further develop and/or operate the project at a profit; (3) develop and operate such projects at a profit on our own; or (4)
create and retain a royalty interest in a property with a third party that agrees to advance the property toward development and
mining. In the future, if our exploration results show sufficient promise in one of our foreign projects, we may either look to
form a joint venture with another mining company to develop and/or operate the project, or sell the property outright and retain
partial ownership or a retained royalty based on the success of such project. Therefore, in the future, our results may become
subject to the additional risks associated with development and production of mining projects in general.
In the future, we may participate in a transaction to acquire a property, royalty or another company that requires a
substantial amount of capital or the issuance of Solitario equity to complete. Our acquisition costs may never be recovered
due to changing market conditions, or our own miscalculation concerning the recoverability of our acquisition investment.
Such an occurrence could adversely affect our business, future operations and financial condition.
We have been involved in evaluating a wide variety of acquisition opportunities involving mineral properties and
companies for acquisition and we anticipate evaluating potential acquisition opportunities in the future. Some of these
opportunities may involve a substantial amount of capital or the issuance of Solitario equity to successfully acquire. As many of
these opportunities do not have reliable feasibility-level studies, we may have to rely on our own estimates for investment
analysis. Such estimates, by their very nature, contain substantial uncertainty. In addition, economic assumptions, such as future
costs and commodity prices, also contain significant uncertainty. Consequently, if we are successful in acquiring any new
opportunities and our estimates prove to be in error, either through miscalculations or changing market conditions, this could
have a material adverse effect on our financial position or results of operations.
Failure to comply with the United States Foreign Corrupt Practices Act (“FCPA”) could subject us to penalties and other
adverse consequences.
As a Colorado corporation, we are subject to the FCPA and similar worldwide anti-bribery laws, which generally
prohibit United States companies and their intermediaries from engaging in bribery or other improper payments to foreign
officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with our
company, are not subject to U.S. laws and regulations, including the FCPA, and therefore our exploration, development,
production and mine closure activities are subject to the disadvantage of competing against companies from countries that are
not subject to these prohibitions.
10
In addition, we could be adversely affected by violations of the FCPA and similar anti-bribery laws in other
jurisdictions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the
countries outside of the United States in which we operate. Our mineral properties are located in countries that may have
experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws
may conflict with local customs and practices. Our policies mandate compliance with these anti-bribery laws; however, we
cannot assure you that our internal controls and procedures always will protect us from the reckless or criminal acts committed
by our employees or agents. We can make no assurance that our employees or other agents will not engage in such conduct for
which we might be held responsible. If our employees or other agents are found to have engaged in such practices or we are
found to be liable for FCPA violations, we could suffer severe criminal or civil penalties or other sanctions and other
consequences that may have a material adverse effect on our business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
Joint Ventures and Strategic Alliance Properties
Bongará Zinc Project (Peru)
1. Property Description and Location
(Map of Bongará Property) Bongará.jpg
The Bongará project consists of 16 concessions comprising 12,600 hectares of mineral rights granted to Minera
Bongará S.A., our subsidiary incorporated in Peru. The property is located in the Department of Amazonas, northern Peru. On
August 15, 2006, Solitario signed a Letter Agreement with Votorantim Metais Cajamarquilla, S.A., a wholly-owned subsidiary
of Votorantim Metais (both companies referred to as "Votorantim”) on Solitario's 100%-owned Bongará zinc project (the
“Bongará Letter Agreement”). On March 24, 2007, Solitario signed the Framework Agreement with Votorantim for the
Exploration and Potential Development of Mining Properties, (the "Framework Agreement") pursuant to, and replacing, the
Bongará Letter Agreement. Solitario's and Votorantim's property interests are held through the ownership of shares in Minera
Bongará S.A., a joint operating company that holds a 100% interest in the mineral rights and other project assets. Solitario
currently owns 39% of the shares in Minera Bongará S.A.
During 2015 Votorantim completed the steps required to earn a 61% interest in the Bongará project, with Solitario
retaining a 39% interest. In addition, Solitario consented to the transfer of Votorantim’s interest in both the Bongará and
Chambara projects to Compañía Minera Milpo S.A.A. (“Milpo”). Milpo, an affiliate of Votorantim, is traded on the Lima
exchange under the symbol MILPOCI.
Milpo can earn an additional 9% interest (up to a 70% shareholding interest) in Minera Bongará S.A., by funding
future annual exploration and development expenditures until a production decision is made or the agreement is terminated.
The option to earn the 70% interest can be exercised by Milpo at any time by committing to place the project into production
based upon a completed feasibility study. Milpo is the project manager. Once Milpo has committed to place the project into
production based upon a feasibility study, it has further agreed to finance Solitario's 30% participating interest through
production with a loan facility from Milpo to Solitario. Solitario will repay this loan facility through 50% of Solitario's cash
flow distributions from the joint operating company.
According to Peruvian law, concessions may be held indefinitely, subject only to payment of annual fees to the
government. In June 2016, payments of approximately $140,000 to the Peruvian government will be due in order to maintain
the mineral rights of Minera Bongará. Milpo is responsible for paying these costs as part of its work commitment. Peru also
imposes a sliding scale net smelter return royalty (“NSR”) on all precious and base metal production of 1% on all gross
proceeds from production up to $60,000,000, a 2% NSR on proceeds between $60,000,000 and $120,000,000 and a 3% NSR
on proceeds in excess of $120,000,000.
As part of the transfer from Votorantim, Milpo acquires the surface rights agreement with the local community, which
controls the surface of the primary area of interest of our Bongará joint venture. This agreement provides for an annual
payment of approximately $85,000 and funding for mutually agreed social development programs in return for the right to
11
perform exploration work including road building and drilling. From time to time Votorantim has entered into surface rights
agreements with individual landowners or communities to provide access for exploration work. Generally, these are short-term
agreements.
Environmental permits are required for exploration and development projects in Peru that involve drilling, road
building or underground mining. The requisite environmental and archeological studies were completed for all past work, but
new studies are ongoing to allow for the expanded activities planned for future years. Although we believe that these permits
will be obtained in a timely fashion, the timing of government approval of permits remains beyond our control.
2. Accessibility, Climate, Local Resources, Infrastructure and Physiology
The Bongará property is accessed by the paved Carretera Marginal road, which provides access from the coastal city
of Chiclayo. The nearest town is Pedro Ruiz located 15 kilometers southeast of the property, and the Carretera Marginal, a
heavily travelled national highway, is situated approximately eight kilometers south of the deposit. The area of the majority of
past drilling and the most prospective mineralization, Florida Canyon, was previously inaccessible by road, the work to date
having been done by either foot or helicopter access. Milpo has now completed 38 kilometers of access road. Milpo maintains
project field offices in Pedro Ruiz and a drill core processing facility and operations office in the nearby community of
Shipasbamba. The climate is tropical and the terrain is mountainous and jungle covered. Seasonal rains hamper exploration
work by limiting access for four to five months of the year. Several small villages are located within five kilometers of the
drilling area.
3. History
We discovered the Florida Canyon mineralized zone of the Bongará Project in 1996. Subsequently, we optioned the
property in December 1996 to Cominco (now Teck Resources). Cominco drilled 80 core holes from 1997-2000. Cominco
withdrew from the joint venture in February 2001, and Solitario retained its 100% interest in the project. We maintained the
claims from 2001 to 2006, until the Bongará Letter Agreement was signed. Votorantim conducted surface drilling on an annual
basis from 2006 to 2013 and underground tunneling and drilling from 2010 to 2013. All significant work on the property has
been conducted by our joint venture partners: Cominco, Votorantim and now Milpo, and is described below in Section 5, “Prior
Exploration.”
4. Geological Setting
The geology of the Bongará area is relatively simple consisting of a sequence of Jurassic and Triassic clastic and
carbonate rocks which are gently deformed. The Mississippi Valley type zinc-lead mineralization occurs in the carbonate
facies of the Chambara (rock) Formation. This sedimentary sequence is part of what is referred to as the Pucura Group that
hosts mineral deposits throughout Peru.
5. Prior Exploration
We conducted a regional stream sediment survey and reconnaissance geological surveys leading to the discovery of
the Florida Canyon area in 1996. The discovered outcropping mineralization is located in two deeply incised canyons within
the limestone stratigraphy.
Subsequent to our initial work, Cominco conducted extensive mapping, soil and rock sampling, stream sediment
surveys and drilling. This work was designed to determine the extent and grade of the zinc-lead mineralization, the controls of
mineral deposition and to identify areas of potential new mineralization. Votorantim began work in the fall of 2006 and
worked continuously on the project until it transferred its interest to its 51%-held affiliate, Milpo, in 2015. All work performed
by us, Cominco, Votorantim or Milpo was done by direct employees of the respective companies with the exception of the
drilling, underground tunneling, helicopter services and road building, all of which were performed by third-party contractors
under the direction of Cominco, Votorantim or Milpo.
6. Mineralization
Mineralization occurs as massive to semi-massive replacements of sphalerite and galena localized by specific
sedimentary facies (rock strata) within the limestone stratigraphy and by structural feeders and karst breccias. A total of 11
preferred beds for replacement mineralization have been located within the middle unit of the Chambara Formation.
Mineralization is associated with the conversion of limestone to dolomite, which creates porosity and permeability within the
rock formations, promoting the passage of mineralizing fluids through the rock formations forming stratigraphically controlled
12
near-horizontal manto deposits and structurally controlled near-vertical replacement deposits. Drilling of stratigraphic targets
has shown that certain coarser-grained facies of the stratigraphy are the best hosts for mineralization.
Karst features are localized along faults and locally produce "breakout zones" where mineralization may extend
vertically across thick stratigraphic intervals along the faults where collapse breccias have been replaced by ore minerals.
Mineralized karst structures are up to 50 meters in width (horizontal), up to 100 meters vertically, and up to hundreds of meters
along strike.
Evidence for these breakout zones is provided by the following drill holes from various locations on the property:
Breakout
Zone Name
Sam
Karen
North Zone
South Zone
San Jorge
Drill Hole
Number
GC-17
FC-23
A-1
V-21
V-44
V-169
V-297
Intercepts
(meters)
58.8
81.5
36.2
92.0
28.3
51.6
56.6
Zinc
%
12.0
4.8
12.8
5.5
15.2
7.1
22.69
Lead
%
2.8
0.8
2.7
1.7
0.8
0.7
1.15
Zinc+Lead
%
14.8
5.6
15.5
7.2
16.0
7.8
23.84
Stratigraphically controlled mineralization is typically one to several meters in thickness, but often attains thicknesses
of five to ten meters. Generally the stratigraphic mineralization, while thinner, is of higher grade and laterally more extensive.
Dolomitization reaches stratigraphic thicknesses in excess of 100 meters locally. This alteration is thought to be
related to the mineralizing event in most cases and is an important exploration tool. Continuity of the mineralization is
demonstrable in areas of highest drilling density by correlation of mineralization within characteristic sedimentary facies,
typical of specific stratigraphic intervals or within through-going observable structural zones in drill core.
7. Drilling
From 1997 through 2001, Cominco drilled 80 surface core holes totaling 24,696 meters. From 2006-2013, Votorantim
completed 309 surface core holes totaling 77,193 meters. From 2011-2013, Votorantim completed 95 underground core holes
totaling 15,144 meters. The majority of Votorantim’s surface drilling was infill drilling designed to demonstrate the continuity
and geometry of mineralization, and to a lesser extent, test for extensions of known mineralization. The underground drilling
was conducted from 10 drill stations at generally 40-meter centers (two drill stations at 20-meter centers) and entirely within
the San Jorge mineralized zone. Anywhere from three to 14 holes were drilled from each of the eight drill stations. The
underground drilling was tightly spaced and designed to allow for feasibility-level reserve estimation.
All drilling conducted is within a footprint measuring approximately 2.5 kilometers long in a north-south direction and
a little over a kilometer in an east-west direction. The entire drill pattern is within what we have informally labeled the Florida
Canyon district. Within this district, several zones of strong zinc mineralization have been defined. The two zones with the
most amount of drilling are the San Jorge and the Karen-Milagros zones. Drilling indicates that, for the most part, the entire
Florida Canyon district remains open to expansion.
8. Sampling, Analysis and Security of Samples
Core samples were transported from the drill by helicopter in sealed boxes to the processing facility in Shipasbamba
where they were split by a diamond saw. Half of the core was taken of intervals selected according to geologic criteria under
the supervision of the geologist in charge and shipped in sealed bags by land. Cominco used SGS Laboratories and Votorantim
used ALS-Chemex, both in Lima, Peru, where all samples were analyzed by ICP. Any samples that contained greater than 1%
zinc were then analyzed by wet chemistry assay for zinc and lead to provide a more accurate analysis of grade.
Since August 2006, Votorantim has been in control of all field activities on the project and is responsible for the
security of samples. Votorantim has indicated to us that there have been no breaches in the security of the samples. We have
reviewed and engaged SRK Consulting (USA) Inc. (a large independent international mining engineering firm) to review
Milpo’s sampling procedures and believe that adequate procedures are in place to ensure the future security and integrity of
samples. No breaches of security of samples are known to have occurred prior to Votorantim's work on the project.
13
9. Prefeasibility Studies
Votorantim, either through its engineering staff or contracted independent mining engineering firms, has conducted
prefeasibility-level studies to provide estimates of deposit size and grade, sizing of appropriate scale of operations,
infrastructure design, and capital and operating cost estimates on a scoping level of detail. Votorantim has engaged an
independent metallurgical testing firm to evaluate metal recoveries and various processing options for mineralized material at
Florida Canyon. Tests to date indicate zinc recoveries of 91.8% and lead recoveries of 81.9% in the San Jorge zone and zinc
recoveries of 80.3% and lead recoveries of 71.7% in the Karen-Milagros zone.
In 2013 Votorantim drilled 16 diamond core holes evaluating geotechnical and hydrological parameters of the
mineralized areas for both engineering and environmental purposes. Votorantim also completed detailed geology-
mineralization modeling to develop an internal resource estimate as part of their ongoing pre-feasibility efforts. Additionally,
Votorantim completed scoping-level infrastructure design and costing analysis for the project. Milpo plans to continue several
prefeasibility-level studies in 2016.
10. Reserves and Resources
There are no reported mineral reserves.
11. Mining Operations
No commercial mining operations to recover metals have occurred on the project. However, in September 2010
Votorantim initiated an underground tunneling program to access mineralization. As of December 31, 2014, 700 meters of
tunneling were completed.
12. Planned Exploration and Development
Work in 2016 is expected to focus on additional road building activities to establish access to surface drilling
platforms to conduct future drilling activities. Additional prefeasibility-level studies are also planned by Milpo.
Chambara Zinc Property (Peru)
In April 2008, we signed the Minera Chambara shareholders’ agreement with Votorantim for the exploration of a large
area of interest in northern Peru measuring approximately 200 by 85 kilometers. In 2015 Milpo became the project manager,
and funds and conducts all exploration on the project. Votorantim originally contributed 52 mineral concessions within the area
of interest totaling 52,000 hectares to Minera Chambara for a 15% interest in Minera Chambara. We contributed 9,600
hectares of mineral claims and certain exploration data in our possession for an 85% interest in Minera Chambara. Existing
and future acquired properties subject to the terms of the shareholders’ agreement will be held by Minera Chambara. In
November 2013, Minera Chambara dropped selected concessions, resulting in Minera Chambara now holding 56 concessions
totaling 47,000 hectares of valid concessions. As of December 31, 2015, Minera Chambara’s only assets are the properties and
Minera Chambara has no debt. Milpo may increase its shareholding interest to 49% by completing future spending of
$6,250,000, and may further increase its interest to 70% by funding a feasibility study and providing for construction financing
for Solitario's interest. If Milpo provides such construction financing, we would repay that financing, including interest, from
80% of Solitario's portion of the project cash flow.
In 2010 Votorantim placed the project on care and maintenance, focusing all of their efforts on the Bongará project.
Milpo is studying the past data pertaining to the Chambara project and is evaluating the land holdings in preparation for claims
payments in mid-2016. Further reductions in the Chambara land position may occur during 2016 as a result of these studies.
The only field work conducted in 2015 and planned for 2016 is social work in preparation for any future exploration
programs. In June 2016 payments of approximately $264,000 to the Peruvian government will be due by Milpo in order to
maintain the mineral rights if no further reductions in the claims package are made. Milpo is responsible for making these
payments.
Newmont Alliance and the La Promesa Project (Peru)
On January 18, 2005, we signed a Strategic Alliance Agreement (the "Alliance Agreement") with Newmont Overseas
Exploration Limited ("Newmont") to explore for gold in South America (the "Strategic Alliance"). Concurrent with the signing
of the Alliance Agreement, Newmont Mining Corporation of Canada made an equity investment in Solitario a portion of which
14
Solitario spent on exploration on Strategic Alliance areas covered by the Alliance Agreement. Under the terms of the Alliance
Agreement, we granted Newmont a 2% NSR on properties included in the Strategic Alliance areas including the La Promesa
project. If we meet certain minimum exploration expenditures on the project, Newmont will have the right to joint venture it
and earn up to a 75% interest by taking the project through feasibility and financing Solitario's retained 25% interest into
production.
The La Promesa property, acquired in 2008, consists of three concessions totaling 2,600 hectares. Our only holding
costs for the mineral rights are annual payments of three dollars or nine dollars per hectare, depending on the age of the claims,
to the Peruvian government. Total holding costs in 2016 will be approximately $8,000. In February 2012 Newmont waived its
exclusive right to joint venture La Promesa and allowed us to potentially joint venture the project with another company.
During 2016 we intend to secure a joint venture partner to advance the project.
At least five high-grade polymetallic veins have been identified and sampled at surface. Two of the veins, about 300
meters apart, have been traced for at least 400 meters along strike. There appears to be a systematic trend towards greater vein
thickness with depth, as the widest observed vein in outcrop occurs at the lowest elevation sampled to date. Channel sampling
along 300 meters of strike length from the best exposed vein yielded the following high-grade results:
Chip Channel # True Width Silver gpt % Zinc % Lead
7.2
2.4
6.3
10.8
3.4
5.6
758
181
433
458
346
1975
19.4
21.0
10.5
10.2
5.9
33.1
2.8
1.1
0.5
0.4
1.0
1.2
A
B
C
D
E
F
Indium gpt
153
190
23
15
27
430
Royalty Properties
Yanacocha Royalty Property (Peru)
The Yanacocha royalty property consists of 69 concessions totaling approximately 61,000 hectares in northern Peru,
25 kilometers north of the city of Cajamarca. The property position consists of a rectangular-shaped contiguous block of
concessions nearly 50 kilometers long in an east-west direction and 25 kilometers wide in a north-south direction. The
southern boundary of the royalty property abuts Newmont Mining Corporation's Minera Yanacocha mining operation, a large
gold mine currently in operation. We held 100% interest in the concessions until April 2000, at which time we signed an
agreement with Newmont Peru, Ltd., a wholly-owned subsidiary of Newmont Mining Corporation (both companies referred to
as "Newmont Peru"), whereby we sold our Yanacocha Property to Newmont Peru for $6,000,000 and retained a sliding scale
net smelter return royalty ("NSR-Royalty") that varied from two to five percent, depending on the price of gold.
In January 2005 we signed an Amended and Restated Royalty Grant with affiliates of Newmont Peru to modify the
NSR-Royalty schedule. The modified royalty structure is classified into several categories, depending on the type of process
used to recover each metal, gold silver and copper prices, as well as any government royalty burden imposed by Peru on the
project ores. Assuming the current maximum royalty due the government of Peru and gold prices above $500 per ounce, our
gold royalty ranges from 1% to 2¾%, our silver royalty would be 2% and our copper royalty would be 1%. No resources or
reserves have been reported by Newmont, nor has any mining been conducted on the property.
Pedra Branca Platinum-Palladium Metals Project (Brazil)
During 2015 we converted our operating interest in the Pedra Branca project to a 1% NSR interest. The Pedra Branca
platinum-palladium (“PGM”) project consisted of 57 exploration concessions totaling approximately 70,000 hectares in Ceará
State, Brazil. The property is now owned by Garrison Capital Partners Limited, a Dubai, UAE company, which controls all
activities related to the Pedra Branca project.
Norcan and Aconchi Copper Properties (Mexico)
In June 2010 we applied for mineral rights to the Norcan Copper property located north of the Cananea mine, a major
copper producer, in the State of Sonora, Mexico. We received title to two concessions totaling 35,991 hectares in 2012.
Geochemical and biogeochemical surveys in this area exhibit locally anomalous copper values. Most of the area is covered by
15
recent gravel deposits, but in several areas moderately to strongly altered intrusive rocks have been mapped. The 8,200-
hectare Aconchi property in northern Sonora, Mexico, was acquired in October 2010. It is an early-stage property that displays
copper and other trace element anomalies in soils. Most of the area is covered by pediment gravels.
In 2014 we entered into an option agreement for our Norcan and Aconchi properties with Minera Cuicuilco S.A de
C.V, a Mexican indirect subsidiary of Freeport-McMoRan Inc. (“Cuicuilco”). Terms of the agreement with Cuicuilco provide
for exploration expenditures of $5,000,000 to earn a 100% interest in the properties of which a firm commitment of $750,000 is
required during the first year. If Cuicuilco completes its earn-in then Solitario retains a 1.5% net NSR which may be purchased
for $20,000,000.
100%-Owned Properties
Canta Colorado Gold Property (Peru)
In 2012 we applied for two exploration concessions totaling 2,000 hectares. Reconnaissance surface exploration
indicates this property has the potential to host an epithermal gold deposit in Tertiary volcanic rocks. No work is planned on
this property for 2016.
Discontinued Projects
During 2015 we did not have any mineral property impairments. During 2015 we terminated our operating interest in
the Pedra Branca project, retaining a 1% royalty interest. We had no remaining investment in the Pedra Branca project at the
time of the termination of our operating interest. In addition, we transferred our royalty interest in the Mercurio gold property in
Brazil during 2015 to a private Brazilian party in return for the elimination of potential administrative and regulatory costs
associated with our exit from Brazil. We had no remaining investment in Mercurio when we dropped the project. During 2014
we dropped our holdings at our Pachuca property in Mexico and recorded a mineral property write-down of $20,000.
GLOSSARY OF MINING TERMS
“Assay” means to test minerals by chemical or other methods for the purpose of determining the amount of valuable metals
contained.
“Breccia” means rock consisting of fragments, more or less angular, in a matrix of finer-grained material or of cementing
material.
“Claim” or “Concession” means a mining interest giving its holder the right to prospect, explore for and exploit minerals
within a defined area.
“Clastic” means pertaining to rock or rocks composed of fragments or particles of older rocks or previously existing solid
matter; fragmental.
“Deposit” means an informal term for an accumulation of mineral ores.
“Development” means work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction
possible.
“Dolomite” means calcium magnesium carbonate, CaMg (CO3)2, occurring in crystals and in masses.
“Facies” means the appearance and characteristics of a sedimentary deposit, especially as they reflect the conditions and
environment of deposition and serve to distinguish the deposit from contiguous deposits.
“Fault” means a fracture in rock along which there has been displacement of the two sides parallel to the fracture.
“gpt” means grams per tonne.
“Karst” means a landscape that is characterized by the features of solution weathering and erosion in the subsurface. These
features include caves, sinkholes, disappearing streams, subsurface drainage and deeply incised narrow canyons.
“Manto deposits” means replacement orebodies that are strata bound, irregular to rod shaped ore occurrences usually
horizontal or near horizontal in attitude.
“Mineralization” means the concentration of metals within a body of rock.
“NSR” means net smelter return royalty.
“opt” or “oz/ton” means ounces per ton.
“Ore” means material containing minerals that can be economically extracted.
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“Ounce” means a troy ounce.
“Reserves” or “Ore Reserves” means that part of a mineral deposit, which could be economically and legally extracted or
produced at the time of the reserve determination.
“Sampling” means selecting a fractional, but representative, part of a mineral deposit for analysis.
“Sediment” means solid material settled from suspension in a liquid.
“Sphalerite” means a very common mineral, zinc sulfide, usually containing some iron and a little cadmium, occurring in
yellow, brown, or black crystals or cleavable masses with resinous luster and it is the principal ore of zinc.
“Stratigraphy” means the arrangement of rock strata, especially as to the geographic, chronologic order of sequence (age),
classification, characteristics and formation.
“Strike” when used as a noun, means the direction, course or bearing of a vein or rock formation measured on a level surface
and, when used as a verb, means to take such direction, course or bearing.
“Sulfide” means a compound of sulfur and some other element.
“Ton” means a short ton (2,000 pounds).
“Tonne” means a metric ton that contains 2,204.6 pounds or 1,000 kilograms.
“Vein” means a fissure, fault or crack in a rock filled by minerals that have traveled upwards from some deep source.
Item 3. Legal Proceedings
None
Item 4. Mine Safety Disclosures
Not applicable
17
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock trades on the NYSE MKT under the symbol XPL and on the TSX under the symbol SLR. Since
2008 trading volume of our stock on NYSE MKT has exceeded the trading volume of our stock on the TSX by a substantial
margin.
The following table sets forth the high and low sales prices on NYSE MKT for our common stock for the quarterly
periods from January 1, 2014 to December 31, 2015:
Period
First quarter
Second quarter
Third quarter
Fourth quarter
All prices are in US$
2015
2014
High
$0.95
0.83
0.65
0.58
Low
$0.74
0.52
0.45
0.44
High
$1.65
1.51
1.56
1.24
Low
$0.85
0.97
1.20
0.88
The following table sets forth the high and low sales prices on the TSX for our common stock for the quarterly periods
from January 1, 2014 to December 31, 2015:
Period
First quarter
Second quarter
Third quarter
Fourth quarter
All prices are in CDN$
2015
2014
High
$1.18
0.96
0.80
0.74
Low
$0.92
0.70
0.57
0.57
High
$1.83
1.57
1.66
1.36
Low
$0.87
1.09
1.31
1.01
Shares authorized for issuance under equity compensation plans
On June 18, 2013, Solitario's shareholders approved the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock
and Incentive Plan (the "2013 Plan"). Under the terms of the 2013 Plan, the Board of Directors may grant awards of stock
options, stock appreciation rights, restricted stock, and restricted stock units. A total of 1,750,000 shares of common stock
were initially reserved for issuance under the 2013 Plan. As of December 31, 2015, a total of 1,699,438 shares of Solitario
common stock are reserved and available for issuance of future awards under the 2013 Plan. As of December 31, 2015, there
are no outstanding options or other awards under the 2013 Plan.
On June 27, 2006, Solitario's shareholders approved the 2006 Stock Option Incentive Plan (the "2006 Plan"). A total
of 2,800,000 shares of common stock were initially reserved for issuance under the 2006 Plan. As of December 31, 2015, a
total of 2,441,150 shares of Solitario common stock are reserved and available for issuance of future awards under the 2006
Plan. As of December 31, 2015, there is one outstanding option grant under the 2006 Plan exercisable for a total of 40,000
shares at a price of Cdn$1.60.
Equity Compensation Plan Information as of December 31, 2015:
Plan category
2006 Plan
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Subtotal 2006 Plan
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(2006 Plan -Cdn$)
(2013 Plan – US$)
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
40,000
-
40,000
18
$1.60
N/A
$1.60
2,441,150
-
2,441,150
2013 Plan
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Subtotal 2013 Plan
Total all plans
Holders of our common stock
-
-
-
40,000
N/A
N/A
N/A
1,699,438
-
1,699,438
4,140,588
As of March 3, 2016, we have approximately 2,879 holders of our common stock.
Dividend policy
We have not paid a dividend in our history and do not anticipate paying a dividend in the foreseeable future.
Issuer purchases of equity securities
The following table provides information about our purchase of our common shares during the three months ended
December 31, 2015.
Period
Total Number of
Shares Purchased
Average Price Paid
Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs(1)
November 1, 2015—November 30, 2015
December 1, 2015—December 31, 2015
99,560
45,440
$0.46
$0.47
99,560
45,440
1,900,440
1,855,000
(1)
On October 28, 2015, our board of directors authorized a share repurchase program pursuant to which we
may acquire up to 2 million of our common shares. All purchases listed were made in open-market transactions through a
broker dealer. The repurchase program expires on December 31, 2016, but may be suspended or discontinued at any time, and
does not obligate us to acquire any particular amount of our shares.
19
Item 6. Selected Financial Data
The following table summarizes the consolidated statements of operations and balance sheet data for our business
since January 1, 2010. This data has been derived from our audited consolidated statements of operations for each of the five
years ended December 31, 2015 and our audited consolidated balance sheets as of December 31, 2015, 2014, 2013, 2012 and
2011. You should read this information in conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Solitario's historical consolidated financial statements and notes included in Item 8,
"Financial Statements and Supplementary Data." The information set forth below is not necessarily indicative of future results.
Balance sheet data:
(in thousands)
Total current assets
Total assets
Working capital (deficit) (1)
Long-term debt
Shareholders' equity
Statement of operations data:
(in thousands, except per share amounts)
Property and joint venture revenue
Net income (loss) attributable to Solitario shareholders
Per share information:
Basic and diluted
Net income loss attributable to Solitario shareholders
(1) Working capital consists of current assets less current liabilities.
2015
$17,990
$18,054
$17,811
$ -
$17,875
2015
$ -
$8,872
As of December 31,
2013
$ 3,784
$19,500
$ 2,531
$ 3,144
$ 7,963
2014
$ 3,217
$19,040
$(1,987)
$ -
$ 6,781
2012
$ 7,936
$23,483
$ 4,245
$ 2,437
$ 9,217
Year ended December 31,
2013
$ 300
$(2,052)
2014
$ 200
$(1,833)
2012
$ 300
$(3,297)
2011
$ 5,281
$22,054
$ 345
$ 2,075
$13,873
2011
$ 242
$(3,377)
$0.23
$ (0.05)
$ (0.06)
$ (0.10)
$ (0.10)
20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the information contained in the consolidated financial
statements and notes thereto included in Item 8, "Financial Statements and Supplementary Data." Our financial condition and
results of operations are not necessarily indicative of what may be expected in future years.
(a). Business Overview and Summary
We are an exploration stage company at December 31, 2015 under Industry Guide 7, as issued by the United States
Securities and Exchange Commission (“SEC”). We were incorporated in the state of Colorado on November 15, 1984 as a
wholly-owned subsidiary of Crown Resources Corporation ("Crown"). In July 1994, we became a publicly traded company on
the Toronto Stock Exchange (the "TSX") through our initial public offering. We have been actively involved in mineral
exploration since 1993. Our primary business is to acquire and hold a portfolio of exploration properties and other related
assets for future sale, for joint venture, to create a royalty, or develop the property ourselves. As a result of the completion of
the Transaction (defined below), we have shifted our primary focus from the development of the Mt. Hamilton project to our
historical focus of the acquisition of precious and base metal properties and assets with exploration potential and the
development or purchase of royalty interests. Although our geographic focus is in North and South America, we are now
evaluating properties in other parts of the world. Our exploration properties may be developed in the future by us or through a
joint venture, although we have never developed a mineral property.
We have recorded proceeds in the past from the sale of mineral property and joint venture property payments and the
sale of a royalty on the Mt. Hamilton property. We recorded revenues from joint venture delay rental payments related to our
Bongará project of $200,000 during 2014. In 2015 we recorded a gain on the sale on the Transaction of $12,309,000. During
June 2012, we sold a royalty interest in our Mt. Hamilton project to Sandstorm Gold Ltd. (“Sandstorm”) for $10,000,000.
Previously, our last significant revenues were recorded in 2000 upon the sale of our former Yanacocha property for
$6,000,000. Revenues from the sale or joint venture of properties, although significant when they occur, have not been a
consistent annual source of revenue and would occur in the future, if at all, on an infrequent basis. At December 31, 2015, we
had four exploration properties in Peru and Mexico, and one royalty property in each of Peru, Mexico and Brazil. We are
conducting limited exploration activities in those countries either on our own or through joint ventures operated by our
partners.
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 down, the value of gold-bearing
mineral properties decreases; however, when the price of gold is up it may become more difficult and expensive to locate and
acquire new gold-bearing mineral properties with potential to have economic deposits.
The potential sale, joint venture or development of our mineral properties will occur, if at all, on an infrequent basis.
We have met our need for capital in the past through (i) the sale of properties; (ii) joint venture payments, including delay
rental payments discussed above; (iii) the Sandstorm royalty sale during 2012; (iv) the sale of our shares of Kinross common
stock; (v) borrowing against the Facility Agreement; (vi) short-term margin borrowing; and (vii) issuance of common stock,
including exercise upon the of options. We have reduced our exposure to the costs of our exploration activities in the past
through the use of joint ventures. 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.
(b). Recent Developments
21
Sale of Mt. Hamilton LLC
On August 25, 2015, we, along with DHI Minerals (U.S.) Ltd. (“DHI”), sold our combined interests in the Mt.
Hamilton gold project (“Mt. Hamilton”) to Waterton Nevada Splitter, LLC (“Waterton”), for total cash proceeds of US$30
million (the “Transaction”) pursuant to a definitive agreement entered into on June 10, 2015 (the “Agreement”). We sold our
80% interest in Mt. Hamilton LLC (“MH-LLC”), a limited liability company which holds 100% of the Mt. Hamilton project
assets, and DHI sold its 20% interest in MH-LLC. DHI is a wholly-owned subsidiary of Ely Gold and Minerals, Inc. (“Ely”).
We received gross cash proceeds of US$24 million and Ely received gross cash proceeds of US$6 million. Our costs and fees
related to the Transaction, including broker fees and professional service fees, were $439,000. The Transaction was structured
as the sale of Solitario’s and DHI’s combined membership interests in MH-LLC. Completion of the Transaction was subject to
the satisfaction of various conditions precedent, including the approval of the holders of a majority of our outstanding shares of
common stock, which was received at our annual shareholder meeting on August 14, 2015.
The assets and liabilities as of December 31, 2014 related to MH-LLC and sold in the Transaction are shown as assets
and liabilities of discontinued operations on the 2014 consolidated balance sheet as follows:
(in thousands)
Cash and cash equivalents
Other current assets
Current assets
Mineral properties, net
Other assets
Noncurrent assets
Total assets
Accounts payable
Deferred revenue
Total liabilities
December 31,
2014
$ 382
12
394
14,641
982
15,623
$16,017
$ 201
7,000
$ 7,201
During years ended December 31, 2015 and 2014, virtually all of the costs incurred by MH-LLC were directly related
to the development of the Mt. Hamilton project, which were capitalized to mineral property during all periods. Accordingly,
separate presentation of discontinued operations would not have resulted in any material change to the results presented in the
consolidated statements of operations for the years ended December 31, 2015 and 2014.
The gain on sale of MH-LLC as of December 31, 2015 is shown in discontinued operations as follows:
(in thousands)
Proceeds from sale of MH-LLC
Net assets and liabilities disposed of
Non-controlling interest
Expenses of sale of MH-LLC
Gain on sale of discontinued operations, before tax
Income tax expense
Gain on sale of discontinued operations
Year ended
December 31,
2015
$24,000
9,998
256
439
13,307
998
$12,309
Income taxes have been allocated between discontinued operations and continuing operations in accordance with ASC
No. 740 “Income Taxes” (“ASC 740”). As a result of the anticipated use of available loss carryforwards and expected 2015 tax
losses sufficient to offset the gain from the Transaction, we do not expect to have any currently payable income taxes for 2015.
Repayment of the RMB Loan
Concurrent with the closing of the Transaction, we paid $5,000,000 plus $7,000 of interest and fees to fully repay the
funds we had borrowed pursuant to a facility agreement (the “Facility Agreement”) with RMB Australia Holdings Limited
(“RMBAH”) and RMB Resources, Inc., a Delaware corporation (“RMBR”) whereby we had borrowed $5,000,000 from
RMBAH (“RMB Loan”). On August 5, 2015, we entered into an agreement with RMBAH to extend the maturity date of the
RMB Loan from August 21, 2015 to September 30, 2015 (the “RMB Loan Extension”). In consideration for entering into the
22
RMB Loan Extension, we paid RMBAH an extension fee of $50,000 and agreed to extend the terms of warrants to acquire
1,624,748 shares of Solitario common stock (the “RMB Warrants”) from August 21, 2015 to August 21, 2016. The RMB
Warrants were originally issued in August 2012 to RMBAH as partial consideration for financing services provided in
connection with the Facility Agreement.
(c). Results of Operations
Comparison of the year ended December 31, 2015 to the year ended December 31, 2014
We had net income attributable to Solitario shareholders of $8,872,000 or $0.23 per basic and diluted share for the
year ended December 31, 2015 compared to a net loss attributable to Solitario shareholders of $1,833,000 or $0.05 per basic
and diluted share for the year ended December 31, 2014. As explained in more detail below, the primary reason for change to
net income was the gain on sale from the Transaction. In addition factors contributing to the change from net loss in 2014 to
net income during 2015 included (i) a decrease in exploration expense to $89,000 during 2015 compared to $279,000 during
2014; (ii) a decrease in our non-cash stock option expense to $566,000 during 2015 compared to $779,000 during 2014; (iii)
the elimination of the net loss of our equity method investment during 2015 compared to $153,000 during 2014; (iv) an
increase in the gain on derivative instruments primarily from the sale of covered calls during 2015 of $84,000 compared to a
gain of $39,000 during 2014; and (v) no property impairments during 2015 compared to $20,000 of property impairments
during 2014. Partially offsetting these decreases in net loss were (i) a decrease from a gain on sale of marketable equity
securities to a loss on the sale of marketable equity securities of $969,000 during 2015 compared to the gain on sale of
marketable equity securities of $472,000 during 2014; (ii) a decrease in the gain on warrant liability to $51,000 during 2015
compared to a gain on warrant liability of $85,000 during 2014; and (iii) an increase in our income tax expense to $560,000
during 2015, compared to no income tax expense in 2014. Each of these items is discussed in greater detail below.
Our primary activities during 2015 and 2014, prior to the Transaction, were the 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. Up until the closing of the Transaction, during 2015 we continued our
development efforts related to our Mt. Hamilton project capitalizing $1,382,000 in mineral property costs including $699,000 in
direct development costs, property payments of $190,000 and capitalization of interest costs of $493,000. During 2014 we
capitalized $2,582,000 of mineral property, including $1,699,000 in direct development costs, $250,000 of property payments
and $633,000 of capitalized interest. In addition, we recorded an increase in other assets during 2014 of $320,000 including
bonding costs of $20,000 and $300,000 of advance royalty payment. The expenditures were less during 2015 as we focused on
the Transaction and had completed the majority of the permitting work and engineering work related to the development of the
Mt. Hamilton project necessary for the Transaction.
We decreased our exploration expenditures at our South American and Mexico properties to $89,000 during 2015
compared to $279,000 during 2014 as a result of a shift in our focus to effecting the Transaction, and placing all of our non-
joint ventured exploration activities on care and maintenance during 2014. We did no drilling on any of our exploration
projects in South America or Mexico during 2015 or 2014. Our 2016 exploration and development expenditure budget is
approximately $635,000, which is expected to be directed toward the evaluation and potential acquisition of mineral exploration
properties. We cannot predict with certainty that we will acquire new mineral exploration properties during 2016; however, we
will continue our reduced early-stage exploration activities. Our exploration activities may be modified, as necessary for
changes in the acquisition of new properties, joint venture funding, commodity prices and deployment of our capital.
Exploration expense (in thousands) by property consisted of the following:
Property Name
Bongará
Pachuca
La Promesa
Norcan
Canta Colorado
Reconnaissance
Total exploration expense
2015
$ 13
8
8
2
-
58
$89
2014
$ 98
29
15
-
6
131
$279
23
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 $1,399,000
during 2015 compared to $1,397,000 during 2014. We incurred comparable salary and benefits expense of $789,000 during
2015 compared to $734,000 during 2014. In addition, (i) legal and accounting costs were increased to $183,000 during 2015
compared to $133,000 during 2014 as a result of increased legal work associated with the Transaction; (ii) travel and investor
relation costs were reduced to $207,000 during 2015 compared to $311,000 during 2014 as a result of ongoing cost reductions
and reduced activities in travel and investor relations costs during 2015 and (iii) other costs related to office, insurance and
miscellaneous costs were reduced to $193,000 during 2015 compared to $217,000 during 2014 primarily due to lower activity
levels as we focused on the completion of the Transaction. We anticipate general and administrative costs for 2016 will be
comparable to the costs incurred during 2015 as we will have no activity with regard to Mt. Hamilton but expect to have
additional activity in South American operations and look to evaluate existing and new exploration mineral properties. We
have forecast 2016 general and administrative costs to be approximately $1,280,000, 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, 2015, we recorded $566,000 of non-cash stock option expense for the amortization of grant date fair value with a
credit to additional paid-in-capital compared to $779,000 of non-cash stock option compensation expense during 2014. On
November 24, 2015, holders of option awards voluntarily cancelled awards for 1,990,000 options from our 2006 Plan and
1,250,000 options from our 2013 Plan to allow Solitario to have additional financial flexibility. No consideration was given or
received by the holders of the options to cancel the awards. The cancellation of the awards along with the increase in non-cash
compensation during 2014 as a result of the grant of 1,990,000 options on August 15, 2014 and the related 25% expense of the
grant date fair value of $404,000 on that date, contributed to the decrease in the non-cash stock option compensation from 2014
to 2015. See Note 10, “Employee Stock Compensation Plans,” to our consolidated financial statements in Item 8, “Financial
Statements and Supplementary Data” 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 2015 we recorded a gain on derivative instruments of $84,000 compared to a gain of $39,000 during 2014.
The gains were related to the sale of Kinross calls during 2015 and 2014. 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 intend to continue to sell covered Kinross call options during
2016. See Note 7, “Derivative Instruments,” to our consolidated financial statements in Item 8, “Financial Statements and
Supplementary Data,” 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 $18,000 of depreciation and amortization during 2015, of which we capitalized $7,000 to mineral property in
connection with the development of Mt. Hamilton compared to $34,000 of depreciation and amortization during 2014, of which
we capitalized $21,000 to mineral property. The decrease is primarily as a result of certain equipment being fully amortized
during 2014 as well as the reduction in Mt. Hamilton depreciation after the Transaction. We amortize these assets over a three-
year period. We anticipate our 2016 depreciation and amortization costs will be less than our 2015 amount.
During 2015 we incurred $493,000 of interest costs, including (i) $228,000 paid in cash on the RMB Loan, (ii)
$126,000 for the amortization of our deferred offering costs on the RMB Loan and (iii) $139,000 of interest costs associated
with the amortization of the discount associated with the RMB warrants issued in connection with the RMB Loan. During
2014 we incurred $633,000 of interest costs, including (i) $217,000 paid in cash on the RMB Loan, (ii) $4,000 paid on our
UBS margin loans, (iii) $195,000 for the amortization of our deferred offering costs on the RMB Loan and (iv) $217,000 of
interest costs associated with the amortization of the discount associated with the RMB warrants issued in connection with the
RMB Loan. As discussed above, we capitalized all of our interest costs during 2015 and 2014 to mineral property associated
with the development of the Mt. Hamilton project. See Note 2, “Mineral Properties” and Note 5 “Short-term Debt,” to our
consolidated financial statements in Item 8, “Financial Statements and Supplementary Data.” As a result of the Transaction we
do not anticipate incurring any interest cost in 2016.
We recorded interest and dividend income of $12,000 during 2015 compared to $1,000 during 2014. The increase
during 2015 was related to the investment of the net proceeds from the Transaction in short-term money market funds since the
date of the Transaction. We anticipate our interest income will increase in 2016 as a result of the investment of our cash
balances in short-term money market funds, certificates of deposit and United States Treasury securities. See “Liquidity and
Capital Resources,” below, for further discussion of our cash and cash equivalent balances.
24
During 2015 we sold 380,000 shares of Kinross stock for proceeds of $809,000 and recorded a gain on sale of Kinross
of $541,000. During 2014 we sold 120,000 shares of Kinross stock for proceeds of $556,000 and recorded a gain on sale of
Kinross of $472,000. Prior to the Transaction, Solitario entered into an agreement with Ely and transferred 15,732,274 shares
of Ely common stock it held, in exchange for cancellation of certain payment obligations related to MH-LLC, and in
consideration for consent to extend the RMB Loan from August 21, 2015 to September 30, 2015 (the “Ely Consent”). Solitario
recorded a loss on sale of marketable equity securities of $1,510,000 on the transfer of the Ely common stock during 2015.
We do not anticipate we will have any significant sales of marketable equity securities during 2016. See Liquidity and Capital
Resources below. Any proceeds we may receive from sales of marketable equity securities during 2016 will be dependent on
the quoted market price of the securities sold on the date of sale and may be at prices below the fair value at December 31,
2015.
During 2015 we recorded $560,000 of income tax expense resulting primarily from: (a) $1,558,000 of tax expense
related to the clearing of a disproportionate tax effect lodged in other comprehensive income; and (b) $998,000 of tax benefit
related to current year losses. The disproportionate tax effect in other comprehensive income was cleared due to Solitario's
disposition of substantially all of the associated available for sale securities. During 2014 we recorded no income tax benefit or
expense primarily related to the reduction in the value of our holdings of marketable equity securities to the point that we no
longer have a built-in-gain in our marketable equity securities for federal and state income tax purposes in excess of our net
operating losses, and accordingly we are recording a valuation allowance for the tax losses we have incurred during 2014.
Furthermore we have reduced our deferred income tax liability, previously related to the built-in-gains on our marketable
equity securities and have recorded a valuation allowance for our deferred tax assets at December 31, 2015. See Note 6,
“Income Taxes” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” for
additional discussion of our income tax valuation allowance, deferred tax assets and our net operating losses for 2014 as well as
our discussion of the use of net operating losses and current year tax losses during 2015. We continue to 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. We had no mineral property impairments during 2015. During 2014 we recorded $20,000 of
mineral property impairments related to our Pachuca property in Mexico.
(d). Liquidity and Capital Resources
Cash
As of December 31, 2015 we have $17,718,000 in cash and liquid assets. We intend to utilize a portion of this cash in
to fund our exploration activities and the potential acquisition of mineral assets and our general and administrative overhead
over the next several years. We expect to also use a portion of this cash to focus on our historical activities of acquiring
mineral exploration properties and general minerals exploration during 2016 and beyond. In addition, we may repurchase up to
2,000,000 shares of our common stock, pursuant to the terms of a stock repurchase program announced on October 28, 2015,
discussed below. As of December 31, 2015 a portion of our cash is invested in short-term money market funds.
Sale of Mt. Hamilton LLC
On August 25, 2015 we, along with DHI, sold our combined interests in the Mt. Hamilton project to Waterton for total cash
proceeds of US$30 million in the Transaction. We received gross cash proceeds of US$24 million for our 80% interest in MH-
LLC. Our costs and fees related to the Transaction, including broker fees and professional service fees, were $439,000. The
assets and liabilities sold and the gain on the Transaction are detailed above under Recent Developments in Note 1, “Business
and Summary of Significant Accounting Policies” to our consolidated financial statements under Item 8, “Financial Statements
and Supplementary Data.”
Repayment of the RMB Loan
Concurrent with the closing of the Transaction, we paid RMBAH $5,000,000 plus $7,000 of interest and fees in full
payment of the RMB Loan. On August 5, 2015, we entered into the RMB Loan Extension to extend the maturity date of the
RMB Loan from August 21, 2015 to September 30, 2015. In consideration for entering into the RMB Loan Extension, we paid
RMBAH an extension fee of $50,000 and agreed to extend the terms of the RMB Warrants from August 21, 2015 to August 21,
2016. During 2015 we paid $228,000 in cash for interest and fees on the RMB Loan, we incurred $126,000 in interest cost for
25
the amortization of deferred offering costs related to the RMB Loan and we incurred $139,000 of interest cost related to the
warrant discount associated with the RMB Warrants issued in connection with the Facility Agreement. As of December 31,
2015 we have no outstanding interest-bearing debt and we do not anticipate paying any interest in the near future.
RMB Warrants
Pursuant to the Facility Agreement, we issued 1,624,748 RMB 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. As of December 31, 2015 we
have estimated the RMB Warrants have a $4,000 fair value based upon a Black-Scholes model. We recorded a gain of $51,000
during 2015 compared to a gain of $85,000 during 2014 related to the change in the fair value of the RMB Warrants. The RMB
Loan Extension, discussed above, extended the expiration date of the RMB Warrants to August 21, 2016. We currently do not
expect RMBAH to exercise any of these warrants during 2016.
Investment in Marketable Equity Securities
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. We owned 100,000 shares of Kinross common stock at December 31, 2015. The
Kinross shares are recorded at their fair value of $182,000 at December 31, 2015. We may sell our remaining 100,000 shares
of Kinross during 2016, depending on market conditions and capital needs, and we have recorded our investment in Kinross
shares at their fair market value as part of our current assets at December 31, 2015.
In addition, we own other marketable equity securities with a fair value of $20,000 as of December 31, 2015 classified
as available for sale and recorded at their fair value, based upon quoted market prices. We have classified all of our marketable
equity securities as a current asset as we plan to sell these securities during 2016, depending on market conditions and capital
needs. Changes in the fair value of marketable equity securities are recorded as gains and losses in other comprehensive
income in shareholders’ equity.
Working Capital
We had working capital of $17,811,000 at December 31, 2015 compared to a working capital deficit of $2,042,000 as
of December 31, 2014. Our working capital at December 31, 2015 is made up of our current assets, consisting primarily of our
cash and cash equivalents and our marketable equity securities of $202,000, less our current liabilities primarily consisting of
our accounts payable of $175,000 and warrant liability of $4,000.
Cash and cash equivalents were $17,718,000 as of December 31, 2015 compared to $487,000 at December 31, 2014.
As of December 31, 2015 our cash balances along with our marketable equity securities are adequate to fund our expected
expenditures over the next year.
The nature of the mineral exploration business requires significant sources of capital to fund exploration, development
and operation of mining projects. We will need additional capital if we decide to develop or operate any of our current
exploration projects or any projects or assets we may acquire. We anticipate we would finance any such development through
the use of our cash reserves, joint ventures, issuance of debt or equity, or the sale of other exploration projects or assets.
Stock-based Compensation Plans
During the year ended December 31, 2015, no options were granted or exercised from the 2006 Plan or the 2013 Plan.
During the year ended December 31, 2014 we granted options for 1,990,000 shares from the 2006 Plan with an exercise price
of Cdn$1.60 per share, equal to the quoted price on the TSX on the date of grant. The options vested 25% on the date of grant
and 25% on each the next three anniversary dates. In addition, during 2014 we granted restricted stock units that vested on the
grant date from the 2013 Plan for a total of 50,562 shares and issued as shares to two employees as part of their severance pay
upon the employees’ termination from Solitario. There were no other stock or option awards during 2014 or 2015 from either
the 2006 or 2013 Plans. On November 24, 2015, holders of option awards voluntarily cancelled awards for 1,990,000 options
from our 2006 Plan and 1,250,000 options from our 2013 Plan to allow Solitario to have additional financial flexibility. No
consideration was given or received by the holders of the options to cancel the awards. As of December 31, 2015, we have one
option grant outstanding for 40,000 options exercisable at a price of Cdn$1.60. We do not anticipate the exercise of any
options from the 2006 or 2013 Plans during 2016.
Sale of Common Stock
On February 28, 2014 we sold 1,600,000 shares of our common stock in a private placement for gross proceeds of
$1,680,000 (the “Offering”). There were no other sales of common stock for cash during the years ended December 31, 2015
or 2014.
26
During years ended December 31, 2015 and 2014, we issued 66,500 and 35,000 shares of our common stock,
respectively, at their fair value, based upon quoted market prices of $51,000 and $38,000, respectively, to an underlying
leaseholder at the Mt. Hamilton project for mineral property pursuant to our leasehold agreement. There were no other
issuances of shares of our common stock during 2015.
Share Repurchase Program
On October 28, 2015, our Board of Directors approved a share repurchase program that authorizes us to purchase up to
two million shares of our outstanding common stock through December 31, 2016. All shares purchased will be cancelled and
reduce our shares of outstanding common stock. The amount and timing of any shares purchased will be determined by our
management and the purchases will be effected in the open market or in privately negotiated transactions based upon market
conditions and other factors, including price, regulatory requirements and capital availability and in compliance with applicable
state and federal securities laws. Purchases may also be made in accordance with Rule 10b-18 of the Securities Act. The
repurchase program does not require the purchase of any minimum number of shares of common stock by the Company, and
may be suspended, modified or discontinued at any time without prior notice. No purchases will be made outside of the United
States, including on the Toronto Stock Exchange. Payment for shares of common stock repurchased under the program will be
funded using the Company’s working capital. As of December 31, 2015, we have purchased a total of 145,000 shares of our
common stock for an aggregate purchase price of $67,000 under the share repurchase program and these shares are no longer
included in our issued and outstanding shares. Subsequent to December 31, 2015, we purchased an additional 124,195 shares
for an aggregate purchase price of $58,000 (for a total of 269,195 shares purchased under the share repurchase program) and as
a result have 39,044,994 shares outstanding as of March 3, 2015.
Off-balance sheet arrangements
As of December 31, 2015 and 2014, we have no off-balance sheet arrangements.
(e). Cash Flows
Net cash used in operations during the year ended December 31, 2015 increased to $1,723,000 compared to
$1,610,000 for 2014 primarily as a result of (i) cash used in discontinued operations of $190,000 prior to the date of the
Transaction during 2015 with no comparable item during 2014 and (ii) an increase in the use of cash for the change in other
current assets. Partially offsetting these increases in the uses of cash were (i) a decrease in the use of cash for the payment of
current liabilities and (ii) a decrease in exploration expense during 2015 compared to 2014, all of which are discussed in more
detail above in “Results of Operations.”
Net cash provided by (used in) investing activities increased to $23,766,000 cash provided during 2015 compared to a
use of $(1,691,000) during 2014. The primary reason for the increase was as a result of the $24,000,000 received in the
Transaction. In addition (i) we used less cash in development activities at Mt. Hamilton during 2015, which is reflected in the
cash used from activities of discontinued operations of $1,059,000 during 2015 compared to $2,778,000 during 2014; (ii) we
received $809,000 from the sale of Kinross stock during 2015 compared to $556,000 from the sale of Kinross stock during
2014; and (iii) we received $84,000 from the sale of Kinross covered calls during 2015 compared to $36,000 during 2014. The
Transaction is more fully discussed above under “Recent Developments.”
Net cash used in financing activities was $4,812,000 during 2015 compared to cash provided by financing activities of
$2,078,000 during 2014. The primary reason for the change in cash provided from financing activities in 2015 was the
repayment of the $5,000,000 RMB Loan, discussed above. This is compared to 2014 when we (i) borrowed long-term debt of
$1,500,000 from the RMB Loan; and (ii) issued stock in a private placement for net proceeds of $1,630,000. Partially
offsetting this decrease in the use of cash between 2015 and 2014 were the net payments of short-term debt of $802,000 during
2014 and $250,000 paid to the noncontrolling interest during 2014.
(f). Development Activities, Exploration Activities, Environmental Compliance and Contractual Obligations
Development Activities
With the completion of the Transaction we no longer have any ongoing development activities.
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
27
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 2015 mineral and surface property rental and
option payments, included in exploration expense, were $8,000. Our 2016 total exploration property rentals and option
payments for properties we own or operate are estimated to be approximately $341,000. 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 $327,000 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 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, 2015 and 2014, we have not capitalized any costs related to
environmental control facilities. We do not anticipate our exploration activities will result in any material new or additional
environmental expenditures or liabilities in the near future.
Contractual Obligations
The following table provides an analysis of our contractual obligations:
As of December 31, 2015
Payments due by period
(in thousands)
Operating Lease Obligations (1)
Mineral property option and lease payments
Total
$ 94
$ 14
Less than
1 year
$ 33
$ 14
1–3 years
$61
$ -
4–5 years
$ -
$ -
More than
5 years
$ -
$ -
(1) Lease obligation on our Wheat Ridge Colorado office.
(g). Exploration Joint Ventures, Royalty and Other Properties
The following discussion relates to an analysis of our anticipated property exploration plans as of December 31, 2015.
Please also see Note 2, “Mineral Properties,” to the consolidated financial statements in Item 8, “Financial Statements and
Supplementary Data,” and our discussion of our properties under Item 2, “Properties” of this Annual Report on Form 10-K for
a more complete discussion of all of our mineral properties.
Bongará
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. During 2015
Votorantim announced the transfer of the Bongará project to Compania Minera Milpo S.A.A. (“Milpo”), an affiliate of
Votorantim. Milpo has assumed all of the development responsibilities of Votorantim, which owns 51% of Milpo. 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.
Milpo is funding and managing all work conducted on the project. Work in 2016 is expected to focus on additional
road building activities to establish access to surface drilling platforms to conduct future drilling activities. Additional
prefeasibility-level studies are also planned by Milpo.
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, one of the largest gold mines in South America. We acquired the property in 1993
28
and sold it to Newmont in 2000 for $6.0 million and we retained a NSR on the property. We consider the property to be an
early-stage exploration property, but believe it has good potential to host gold mineralization. We will not receive any royalties
from Yanacocha until such time as Newmont develops and places into operation a mine on the properties covered by our
royalty. Accordingly, we cannot predict revenue from our royalty in the near future, if ever.
Other Properties
We have significantly reduced activities in Peru and Mexico. We have budgeted 2016 exploration expenditures of
$635,000 for exploration and evaluation of potential new acquisitions of properties primarily in North and South America, but
potentially in other regions of the world. We expect to carry on limited exploration activities during 2016 by utilizing contract
geologists.
(h). Discontinued Projects
During 2015 we did not have any mineral property impairments. During 2015 we converted our operating interest in
the Pedra Branca project to a 1% NSR. We had no remaining investment in the Pedra Branca project at the time of the
termination of our operating interest. In addition, we transferred our royalty interest in the Mercurio gold property in Brazil
during 2015 to a private Brazilian party in return for the elimination of potential administrative and regulatory costs associated
with our exit from Brazil. We had no remaining investment in Mercurio when we exited from operations in Brazil. During
2014, Solitario recorded $20,000 of mineral property write-downs related to its Pachuca exploration project in Mexico.
(i). Significant Accounting Policies
See Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8, “Financial Statements and
Supplementary Data” for a discussion of our significant accounting policies.
(j). Related Party Transactions
None
(k). Recent Accounting Pronouncements
See Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8 “Financial Statements and
Supplementary Data” for a discussion of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Smaller reporting companies are not required to provide the information required by this item.
29
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31,
2015 and 2014
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2015 and
2014
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements
Page
31
32
33
34
35
36
37
30
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, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, shareholders'
equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position Solitario
Exploration & Royalty Corp. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of
the years then ended, in conformity with accounting principles generally accepted in the United States of America.
EKS&H LLLP
March 3, 2016
Denver, Colorado
31
SOLITARIO EXPLORATION & ROYALTY CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share amounts)
December 31,
2015
December 31,
2014
Assets
Current assets:
Cash and cash equivalents
Investments in marketable equity securities, at fair value
Prepaid expenses and other
Current assets of discontinued operations
Total current assets
Mineral properties
Other assets
Noncurrent assets of discontinued operations
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Current portion long-term debt, net of discount
Warrant liability
Current liabilities of discontinued operations
Total current liabilities
Noncurrent liabilities of discontinued operations
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, 2015 and 2014)
Common stock, $0.01 par value, authorized, 100,000,000 shares
(39,169,189 and 39,247,689 , respectively, shares issued and outstanding
at December 31, 2015 and 2014)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total Solitario shareholders’ equity
Noncontrolling interest
Total shareholders' equity
Total liabilities and shareholders' equity
See Notes to Consolidated Financial Statements.
$17,718
202
70
-
17,990
19
45
-
$18,054
$175
-
4
-
179
-
$487
2,308
28
394
3,217
19
181
15,623
$19,040
$142
4,861
55
201
5,259
7,000
-
-
392
55,063
(37,691)
111
17,875
-
17,875
$18,054
393
54,512
(46,563)
(1,120)
7,222
(441)
6,781
$19,040
32
SOLITARIO EXPLORATION & ROYALTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
For the year ended
December 31,
2015
2014
$ -
$200
89
11
1,965
(84)
-
(7)
(12)
1,962
(969)
51
-
(918)
(2,880)
(560)
(3,440)
12,309
8,869
3
$8,872
$(0.09)
0.31
$0.23
279
13
2,176
(39)
20
(1)
(1)
2,447
472
85
(153)
404
(1,843)
-
(1,843)
-
(1,843)
10
$(1,833)
$(0.05)
-
$(0.05)
39,287
38,967
(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 on derivative instruments
Property abandonment and impairment
Gain on sale of assets
Interest expense and dividend income (net)
Total costs, expenses and other
Other (expense) income
(Loss) gain on sale of marketable equity securities
Gain on warrant liability
Equity in net loss of equity method investment
Total other (expense) income
Loss before income tax
Income tax expense
Loss from continuing operations
Gain on sale of discontinued operations
Net income (loss)
Loss attributable to noncontrolling interest
Net income (loss) attributable to Solitario shareholders
Income (loss) per common share attributable to Solitario
shareholders basic and diluted
Continuing operations
Discontinued operations
Net income (loss)
Weighted average shares outstanding
Basic and diluted
See Notes to Consolidated Financial Statements.
33
SOLITARIO EXPLORATION & ROYALTY CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(in thousands of U.S. Dollars)
Net income (loss) for the period, before other comprehensive loss
Other comprehensive income (loss):
Unrealized gain (loss) on marketable equity securities, net of deferred taxes
Comprehensive income (loss)
Loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to Solitario shareholders
See Notes to Consolidated Financial Statements.
For the year ended
December 31,
2015
$8,869
2014
$(1,843)
1,231
10,100
3
$10,103
(1,580)
(3,423)
10
$(3,413)
34
(in thousands, of U.S. Dollars
except share amounts)
Balance at December 31, 2013
Issuance of shares from
restricted stock grant
Issuance of shares and $250 of
cash to noncontrolling
shareholder for future earn-in
Issuance of shares in private
placement
Stock option expense
Issuance of shares for
mineral property
Net loss
Net unrealized (loss)
on marketable equity
securities (net of tax of
$0)
Balance at December 31, 2014
Stock option expense
Issuance of shares for
mineral property
Noncontrolling interest contribution
Sale of MH-LLC
Repurchase of shares for
cancellation
Net income (loss)
Net unrealized gain
on marketable equity
securities (net of deferred taxes)
Balance at December 31, 2015
SOLITARIO EXPLORATION & ROYALTY CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Common Stock
Amount
Shares
37,512,127
50,562
50,000
1,600,000
-
35,000
-
Additional
Paid-in
Capital
Accumulated
Other
Total
Solitario
Accumulated Comprehensive Shareholders’ Controlling Shareholders’
Equity
Interest
Income
Deficit
Equity
Total
Non-
$375
$51,963
$(44,730)
$460
$8,068
$(105)
$7,963
-
1
16
-
1
-
45
75
1,614
778
37
-
-
-
-
-
-
(1,833)
-
-
-
-
-
-
45
-
45
76
(326)
1,630
778
38
(1,833)
-
-
-
(10)
(250)
1,630
778
38
(1,843)
-
39,247,689
-
393
-
54,512
-
(46,563)
(1,580)
(1,120)
(1,580)
7,222
-
(441)
(1,580)
6,781
-
66,500
-
-
(145,000)
-
-
-
-
-
(1)
-
566
51
-
-
(66)
-
-
-
-
-
8,872
-
-
-
-
-
566
51
-
-
(67)
8,872
-
-
188
256
(3)
566
51
188
256
(67)
8,869
-
39,169,189
-
$392
-
$55,063
-
$(37,691)
1,231
$ 111
1,231
$17,875
-
$ -
1,231
$17,875
See Notes to Consolidated Financial Statements.
35
SOLITARIO EXPLORATION & ROYALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(in thousands of U.S. Dollars)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
(Gain) loss on derivative instruments
Depreciation and amortization
Loss on equity method investment
Property abandonment and impairment
Employee stock option expense
Deferred income taxes
(Gain) loss on warrant liability
Loss (gain) on asset and equity security sales
(Gain) on sale of discontinued operations
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Accounts payable and other current liabilities
Net cash (used in) operating activities from continuing operations
Net cash (used in ) operating activities from discontinued operations
Net cash (used in) operating activities
Investing activities:
Additions to other assets
Sale of derivative instrument, net
Proceeds from sale of MH-LLC
Proceeds from sale of marketable equity securities
Proceeds from sale of other assets
Net cash provided by (used in) investing activities from continuing operations
Net cash (used in) investing activities from discontinued operations
Net cash provided by (used in) investing activities
Financing activities:
Repayment of long-term debt
Noncontrolling interest contribution, net
Repurchase of Solitario common stock for cancellation
Proceeds from issuance of debt, net
Proceeds from issuance of common stock , net
Short-term borrowing
Repayment of short-term borrowing
Payment to noncontrolling interest
Net cash (used by) provided by financing activities
Net (decrease) 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
Capitalized property payment included in accounts payable
Issuance of stock from restricted stock grant
See Notes to Consolidated Financial Statements.
36
For the year ended
December 31,
2015
2014
$8,869
$(1,843)
(84)
11
-
-
566
560
(51)
962
(12,309)
(53)
(4)
(1,533)
(190)
(1,723)
(8)
84
24,000
809
7
24,892
(1,059)
23,833
(5,000)
188
(67)
-
-
-
-
-
(4,879)
17,231
487
$17,718
(39)
13
153
20
778
-
(85)
(473)
-
60
(225)
(1,641)
31
(1,610)
(5)
36
-
556
-
587
(2,278)
(1,691)
-
-
-
1,500
1,630
100
(902)
(250)
2,078
(1,223)
1,710
$ 487
$ 228
$ 220
$ 265
$ 7
$ 51
$ -
$ -
$ 412
$ 21
$ 38
$ 150
$ 45
SOLITARIO EXPLORATION & ROYALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015 and 2014
1. Business and Summary of Significant Accounting Policies
Recent developments
Sale of Mt. Hamilton LLC
On August 25, 2015 Solitario Exploration & Royalty Corp. (“Solitario” or the “Company”), along with DHI Minerals
(U.S.) Ltd. (“DHI”), sold their combined interests in the Mt. Hamilton gold project (“Mt. Hamilton”) to Waterton Nevada
Splitter, LLC (“Waterton”), for total cash proceeds of US$30 million (the “Transaction”) pursuant to a definitive agreement
entered into on June 10, 2015 (the “Agreement”). Solitario sold its 80% interest in Mt. Hamilton LLC (“MH-LLC”), a limited
liability company which holds 100% of the Mt. Hamilton project assets, and DHI sold its 20% interest in MH-LLC. DHI is a
wholly-owned subsidiary of Ely Gold and Minerals, Inc. (“Ely”). Solitario received gross cash proceeds of US$24 million and
DHI received gross cash proceeds of US$6 million. Solitario’s costs and fees related to the Transaction, including broker fees
and professional service fees, were $439,000. The Transaction was structured as the sale of Solitario’s and DHI’s combined
membership interests in MH-LLC. Completion of the Transaction was subject to the satisfaction of various conditions
precedent, including the approval of the holders of a majority of Solitario’s outstanding shares of common stock, which was
received at Solitario’s annual shareholder meeting on August 14, 2015.
The assets and liabilities as of December 31, 2014 related to MH-LLC and sold in the Transaction are shown as assets
and liabilities of discontinued operations on the 2014 consolidated balance sheet as follows:
(in thousands)
Cash and cash equivalents
Other current assets
Current assets
Mineral properties, net
Other assets
Noncurrent assets
Total assets
Accounts payable
Deferred revenue
Total liabilities
December 31,
2014
$ 382
12
394
14,641
982
15,623
$16,017
$ 201
7,000
$ 7,201
During years ended December 31 2015 and 2014, virtually all of the costs associated with MH-LLC and the assets
sold were directly related to the development of the Mt. Hamilton project, and were capitalized to mineral property during all
periods. Accordingly, separate presentation of discontinued operations would not have resulted in any material change to the
results presented in the consolidated statements of operations for the years ended December 31, 2015 and 2014.
The gain on sale of MH-LLC as of December 31, 2015 is shown in gain on sale of discontinued operations as follows:
(in thousands)
Proceeds from sale of MH-LLC
Net assets and liabilities disposed of
Noncontrolling interest
Expenses of sale of MH-LLC
Gain on sale of discontinued operations, before tax
Income tax expense
Gain on sale of discontinued operations
Year ended
December 31,
2015
$24,000
9,998
256
439
13,307
998
$12,309
Income taxes have been allocated between discontinued operations and continuing operations in accordance with ASC
No. 740, “Income Taxes” (“ASC 740”). As a result of the anticipated use of available loss carryforwards and expected 2015
37
tax losses sufficient to offset the gain from the Transaction, Solitario does not expect to have any currently payable income
taxes for 2015. See Note 6, “Income Taxes”, below.
Repayment of the RMB Loan
Concurrent with the closing of the Transaction, Solitario paid $5,000,000 plus $7,000 of interest and fees to fully
repay the funds Solitario had borrowed pursuant to a facility agreement (the “Facility Agreement”) with RMB Australia
Holdings Limited (“RMBAH”) and RMB Resources, Inc., a Delaware corporation (“RMBR”) whereby Solitario had borrowed
$5,000,000 from RMBAH (“RMB Loan”). On August 5, 2015, Solitario entered into an agreement with RMBAH to extend the
maturity date of the RMB Loan from August 21, 2015 to September 30, 2015 (the “RMB Loan Extension”). In consideration
for entering into the RMB Loan Extension, Solitario paid RMBAH an extension fee of $50,000 and agreed to extend the terms
of warrants to acquire 1,624,748 shares of Solitario common stock (the “RMB Warrants”) from August 21, 2015 to August 21,
2016. The RMB Warrants were originally issued in August 2012 to RMBAH as partial consideration for financing services
provided in connection with the Facility Agreement.
Business and company formation
Solitario is an exploration stage company at September 30, 2015 under Industry Guide 7, as issued by the United
States Securities and Exchange Commission (“SEC”). Solitario was incorporated in the state of Colorado on November 15,
1984 as a wholly-owned subsidiary of Crown Resources Corporation ("Crown"). In July 1994, Solitario became a publicly
traded company on the Toronto Stock Exchange (the "TSX") through its initial public offering. Solitario has been actively
involved in mineral exploration since 1993. Solitario’s primary business is to acquire and hold a portfolio of exploration
properties and other related assets for future sale or joint venture or to create a royalty prior to the establishment of proven and
probable reserves. As a result of the completion of the Transaction, Solitario has shifted its primary focus from the
development of the Mt. Hamilton project to Solitario’s historical focus of the acquisition of precious and base metal properties
and assets with exploration potential and the development or purchase of royalty interests.
Solitario has recorded revenue in the past from the sale of mineral property and joint venture property payments and
the sale of a royalty on its Mt. Hamilton property. Revenues from the sale or joint venture of properties, although significant
when they occur, have not been a consistent annual source of revenue and would only occur in the future, if at all, on an
infrequent basis.
Financial reporting
The consolidated financial statements include the accounts of Solitario and its wholly-owned subsidiaries and
controlled non-wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements are prepared in accordance with accounting principles generally accepted
in the United States of America ("generally accepted accounting principles"), and are expressed in US dollars.
Revenue recognition
Solitario records delay rental payments as revenue in the period received. 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.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Some of the more significant estimates included
in the preparation of Solitario's financial statements pertain to: (i) Solitario’s investment in cash and cash equivalents; (ii) the
recoverability of mineral properties related to its mineral exploration properties and their future exploration potential; (iii) the
fair value of Solitario's stock option grants to employees; (iv) the ability of Solitario to realize its deferred tax assets; (v)
Solitario's investment in marketable equity securities; (vi) the fair value of Solitario’s liability for warrants Solitario granted to
RMBAH upon entering into the Facility Agreement.
38
In performing its activities, Solitario has incurred certain costs for mineral properties. The recovery of these costs is
ultimately dependent upon the sale of mineral property interests or the development of economically recoverable ore reserves
and the ability of Solitario to obtain the necessary permits and financing to successfully place the properties into production,
and upon future profitable operations, none of which is assured.
Cash equivalents
Cash equivalents include investments in highly liquid money-market securities with original maturities of three
months or less when purchased. As of December 31, 2015 and 2014, Solitario had concentrations of cash and cash equivalents
in excess of federally insured amounts and cash in foreign banks, which are not covered under the federal deposit insurance
rules for the United States.
Mineral properties
Solitario expenses all exploration costs incurred on its mineral properties prior to the establishment of proven and
probable reserves through the completion of a feasibility study. Initial acquisition costs of its mineral properties are
capitalized. Solitario began capitalizing all of its development expenditures on its Mt. Hamilton project, subsequent to the
completion of a feasibility study in 2012 through the date of the Transaction. Solitario regularly performs evaluations of its
investment in mineral properties to assess the recoverability and/or the residual value of its investments in these assets. All
long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of
an asset may not be recoverable, utilizing established guidelines based upon 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
Solitario accounts for its derivative instruments in accordance with ASC 815, "Accounting for Derivative Instruments
and Hedging Activities" (“ASC 815”). Solitario has not designated its covered calls as hedging instruments and any changes in
the fair market value of the covered calls and its warrants are recognized 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 measurements. ASC 820 clarifies that fair value is an exit price,
representing 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, including cash and cash equivalents and accounts payable,
the carrying amounts approximate fair value due to their short-term maturities. Solitario's marketable equity securities and any
covered call options against those marketable equity securities 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 investments in marketable equity securities as
available-for-sale for investments in publicly traded marketable equity securities for which it does not exercise significant
control and where Solitario has no representation 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 fair value are recorded in accumulated other comprehensive income within shareholders' equity, unless a
decline in fair value is considered other than temporary, in which case the decline is recognized as a loss in the consolidated
statements of operations.
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 period in which they occur.
39
Equity method investments
Solitario records its share of income or loss of unconsolidated subsidiaries where it has a significant influence over the
unconsolidated subsidiary, under the equity method of accounting, as an increase or decrease in its investment in the
unconsolidated subsidiary. Solitario accounted 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 terminated
its interest in PBM during 2015, and has no equity method investments as of December 31, 2015. See Note 2, “Mineral
Properties,” below.
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 financial statements and consist of taxes currently
due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax
reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized
for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A
valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be
realized.
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,
interest 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 its examination, the company does not plan to appeal, and it is
remote that the taxing authority would reexamine the tax position 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 earnings (loss) per share is based on the weighted average number of shares of
common stock outstanding during the years ended December 31, 2015 and 2014. Potentially dilutive shares related to
outstanding common stock options of 40,000 and 3,748,000 for the years ended December 31, 2015 and 2014, respectively,
and RMB warrants of 1,624,748 for the years ended December 31, 2015 and 2014 were excluded from the calculation of
diluted earnings (loss) per share because the effects were anti-dilutive.
Employee stock compensation and incentive plans
Solitario classifies all of its stock options as equity options in accordance with the provisions of ASC 718,
“Compensation – Stock Compensation.” See Note 10, “Employee Stock Compensation Plans,” below.
Recent accounting pronouncements
There are no recent accounting pronouncements, adopted or issued by the FASB during the year ended December 31,
2015 that would have a material impact upon Solitario.
2. Mineral Properties:
The following table details Solitario’s capitalized investment in exploration mineral property:
(in thousands)
Exploration
La Promesa (Peru)
Norcan (Mexico)
Aconchi (Mexico)
Canta Colorado (Mexico)
December 31,
2015
2014
$ 5
6
5
3
$ 5
6
5
3
40
Total exploration mineral property
$19
$19
Mt. Hamilton
On February 22, 2012, Solitario earned an 80% interest 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”).
In October 2014, SRK, on behalf of Solitario completed an updated feasibility study on the Mt. Hamilton project.
Solitario sold its interest in the Mt. Hamilton project on August 25, 2015 through the Transaction. Mt. Hamilton
capitalized costs are included in discontinued operations at December 31, 2014. See above in “Recent Developments” in Note
1, “Business and Summary of Significant Accounting Policies.”
Capitalized costs
Solitario has been capitalizing its development costs incurred at its Mt. Hamilton project subsequent to the completion
of the Feasibility Study in February 2012. The following table details the capitalization during 2015 up to the date of the
Transaction and for the year ended December 31, 2014:
(in thousands)
Development expenditures
Capitalized interest
Property payments
Capitalized depreciation
Total capitalized costs
Year ended
December 31,
2015
$692
493
190
7
$ 1,382
2014
$ 1,678
633
250
21
$ 2,582
Included in the property payments during 2015 and 2014 are the issuance of 66,500 and 35,000, respectively, common
shares of Solitario with fair values of $51,000 and $38,000, respectively, issued to underlying leaseholders, which were
recorded as an increase to common stock, for the par value of the shares issued and to additional paid-in-capital. These
capitalized costs at December 31, 2014 are included in discontinued operations and all costs associated with Mt. Hamilton
related to the Transaction were included in the net assets disposed of in determining the gain on sale of MH-LLC during 2015.
Solitario also capitalized $300,000 during 2014 of advance royalty payments to the underlying leaseholder as long-
term other assets. See Note 4, “Other Assets,” below.
Exploration property
Solitario's exploration mineral properties at December 31, 2015 consist of use rights related to its exploration
properties, and the value of such assets is primarily driven by the nature and amount of economic mineral ore believed to be
contained, or potentially contained, in such properties. The amounts capitalized as mineral properties include concession and
lease or option acquisition costs. Capitalized costs related to a mineral property represent its fair value at the time it was
acquired. At December 31, 2015, 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 generally 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 exploration concession,
which is currently subject to a joint venture agreement where joint venture partners made stand-by joint venture payments to
Solitario during 2014. Solitario records joint venture property payment revenue received in excess of capitalized costs and
recorded $200,000 of standby joint venture property revenue on its Bongará project during 2014. Per the joint venture
agreement, as of December 31, 2015, no further standby joint-venture payments are due to Solitario on the Bongará project.
At December 31, 2015 and 2014, Solitario has no remaining capitalized costs related to its Bongará joint venture.
Solitario previously sold its mineral interests in its Yanacocha exploration projects and retained a royalty interest.
Solitario has no capitalized costs related to its Yanacocha royalty interest.
Discontinued projects
41
During 2015, Solitario converted its operating interest in Pedra Branca Mineracao, Ltd (“PBM”), which was the
owner of the Pedra Branca project in Brazil, to a 1% net smelter royalty in the Pedra Branca project, upon the termination of its
interest in PBM. Previously Solitario had accounted for its interest in PBM under the equity method of accounting through
2014, recognizing a reduction of its remaining interest in PBM of $153,000 during 2014, and has no remaining asset value
assigned to PBM or Pedra Branca as of December 31, 2015 and 2014. During 2014, Solitario recorded $20,000 of mineral
property write-downs related to its Pachuca exploration project in Mexico.
Exploration Expense
The following items comprised exploration expense:
(in thousands)
Geologic and field expenses
Administrative
Total exploration expense
3. Marketable Equity Securities
For the year ended
December 31,
2015
2014
$31
58
$89
$197
82
$279
Prior to the Transaction, Solitario entered into an agreement with Ely and transferred 15,732,274 shares of Ely
common stock it held, in exchange for cancellation of certain payment obligations related to MH-LLC, and in consideration for
consent to extend the RMB Loan from August 21, 2015 to September 30, 2015 (the “Ely Consent”). Solitario recorded a loss
on sale of marketable equity securities of $1,510,000 on the transfer of the Ely common stock during 2015.
Solitario holdings in Kinross Gold Corporation (“Kinross”) consisted of the following at December 31, 2015 and
2014:
(in thousands of US Dollars, except share amounts)
Shares
Fair value
Current assets
December 31,
2015
2014
100,000
480,000
$182
$1,354
Additionally at December 31, 2015, Solitario owned other marketable equity securities carried at their fair value of
$20,000.
Solitario sold the following shares of Kinross during 2015 and 2014:
(in thousands)
Shares sold
Proceeds
Gain on sale
Year ended
December 31,
2015
2014
380
$809
$541
120
$556
$472
The following tables summarize Solitario’s marketable equity securities and accumulated other comprehensive
income related to its marketable equity securities:
(in thousands)
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
Accumulated other comprehensive income (loss)
42
December 31,
2015
2014
$202
91
111
$2,308
1,870
438
-
$ 111
(1,558)
$ (1,120)
The following table represents changes in marketable equity securities:
(in thousands)
Gross cash proceeds
Cost
Gross (loss) gain on sale included in earnings during the period
Deferred taxes on gross gain on sale included in earnings
Reclassification adjustment to unrealized gain (loss) in other
comprehensive income for net loss (gain) included in earnings
Gross unrealized holding loss arising during the period
included in other comprehensive loss
Clearing of disproportionate tax effect for deferred taxes on
unrealized holding losses included in other comprehensive loss
Net unrealized holding gain (loss)
Other comprehensive income (loss) from marketable equity
securities
4. Other Assets:
The following items comprised other assets:
(in thousands)
Furniture and fixtures, net of accumulated depreciation
Exploration bonds and other assets
Deferred offering costs RMB Loan
Total other assets
Year ended
December 31,
2015
2014
$ 809
1,778
(969)
-
$ 556
84
472
-
969
(472)
(1,296)
(1,108)
1,558
262
-
(1,108)
$1,231
$(1,580)
December 31,
2015
2014
$ 41
4
-
$ 45
$ 51
4
126
$ 181
In connection with the RMB Loan, Solitario recorded deferred offering costs that were amortized on a straight-line
basis to interest cost over 36 months, the term of the Facility Agreement. See Note 5, “Short-term Debt,” below.
5. Short-term Debt:
RMB Facility Agreement
On August 10, 2012, Solitario entered into the Facility Agreement and had borrowed $5,000,000 from RMBAH as of
the date of the Transaction. In connection with the Facility Agreement, Solitario recorded a warrant discount related to the
RMB Warrants. Solitario also recorded deferred offering costs related to the RMB Loan. The warrant discount and deferred
offering costs were amortized on a straight-line basis to interest cost over 36 months, the term of the Facility Agreement. 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.
On August 5, 2015, Solitario entered into the RMB Loan Extension to extend the maturity date of the RMB Loan
from August 21, 2015 to September 30, 2015. In consideration for entering into the RMB Loan Extension, Solitario paid
RMBAH an extension fee of $50,000 and agreed to extend the terms of the RMB Warrants from August 21, 2015 to August
21, 2016. Concurrent with the closing of the Transaction, Solitario paid RMBAH $5,000,000 plus $7,000 of interest and fees
in full payment of the RMB Loan and all obligations due under the Facility Agreement. Upon payment the RMB Loan was
terminated and may not be drawn in the future. Solitario had no balance due on the RMB Loan as of December 31, 2015.
The following table summarizes the RMB Loan:
(in thousands)
Balance December 31, 2013
Borrowing
RMB
Loan
borrowing
$3,500
1,500
RMB
Warrant
discount
RMB
Short-term
debt
$(356)
-
$3,144
1,500
43
Amortization of discount to interest cost
Ending balance December 31, 2014
Amortization of discount to interest cost
Repayment of RMB Loan
Ending balance December 31, 2015
UBS short-term credit line
-
5,000
-
(5,000)
$ -
217
(139)
139
-
$ -
217
4,861
139
(5,000)
$ -
During 2014 Solitario had a secured credit line agreement with UBS Bank, USA (“UBS”), which was secured by
Solitario’s assets held in its UBS brokerage account. The UBS secured line of credit of $802,000 was paid off during 2014.
Solitario recorded the following interest cost related to outstanding short-term debt:
(in thousands)
Interest paid in cash
Amortization of the RMB Warrants discount
Amortization of RMB deferred financing costs
Total interest expense related to the RMB Loan
UBS secured credit line
Year ended
December 31,
2015
2014
$228
139
126
493
-
$493
$217
217
195
629
4
$633
Solitario capitalized all of its interest incurred during 2015 and 2014 to mineral property. See Note 2, “Mineral
Properties,” above.
6. Income Taxes:
Solitario's income tax expense from continuing operations consists of the following as allocated between foreign and
United States components:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Income tax expense
Income tax expense is included in the financial statements as follows:
(in thousands)
Continuing Operations
Discontinued Operations
Other Comprehensive Income
Total Income tax expense
2015
2014
$ -
-
-
662
(102)
-
$ 560
$ -
-
-
-
-
-
$ -
2015
$ 560
998
(1,558)
$ -
2014
$ -
-
-
$ -
Consolidated loss before income taxes includes losses from foreign operations of $98,000 and $262,000 in 2015 and
2014, respectively.
As discussed in Note 1, “Business and Summary of Significant Accounting Policies,” the Transaction resulted in a
$13,307,000 before tax gain reported in discontinued operations. Solitario recorded $998,000 of tax expense in discontinued
operations which was net of $3,930,000 tax benefit for the release of valuation allowance. Income taxes have been allocated
between discontinued operations and continuing operations in accordance with ASC No. 740 “Income Taxes” (“ASC 740”).
44
See Note 3, “Marketable Equity Securities,” for detail of the deferred taxes associated with the sale of marketable
equity securities and the deferred taxes associated 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, 2015 and 2014 consolidated balance sheets include the
following components:
(in thousands)
Deferred tax assets:
Loss carryovers
Deferred gain
Stock option compensation expense
Royalty
Unrealized loss on derivative securities
Earnings in unconsolidated subsidiary
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
Capitalized interest
Other
Total deferred tax liabilities
Net deferred tax liabilities
2015
2014
$6,982
-
7
1,482
38
-
105
(8,571)
43
$11,168
2,376
350
1,387
-
865
105
(12,431)
3,820
-
-
-
41
-
2
43
$ -
238
2,305
845
152
277
3
3,820
$ -
A reconciliation of expected federal income taxes on income (loss) from continuing operations at statutory rates, with
the expense for income taxes is as follows:
(in thousands)
Expected income tax benefit
Reversal of disproportionate tax effect in other comprehensive income
Equity based compensation
Foreign tax rate differences
State income tax
True-up of deferred taxes
Tax attributes of disposed subsidiary
Previously unrecognized basis in disposed subsidiary
Change in valuation allowance
MH-LLC investment
Permanent differences and other
Income tax expense
2015
2014
$(976)
1,558
575
3
(606)
267
3,941
(4,170)
(40)
1
7
$ 560
$(627)
-
850
(101)
(146)
-
-
-
(5)
3
26
$ -
During 2015, the valuation allowance was decreased primarily due to the utilization of loss carryforwards for which no
tax benefit was previously realized. During 2014, the valuation allowance was increased primarily as a result of increases in
Solitario foreign net operating loss carryforwards, for which it was more likely than not that the deferred tax benefit would not
be realized, as well as a decrease in unrealized gains available to offset the future reversal of deferred tax assets.
45
During 2015 and 2014, other comprehensive income/(loss) was recognized in the amounts of approximately ($327,000)
and ($1,580,000), respectively. In 2015 and 2014, no tax benefit was recorded in other comprehensive income/(loss) as a
$111,000 and $535,000 valuation allowance fully offset the attendant tax benefit.
At December 31, 2015, Solitario has unused US Federal Net Operating Loss ("NOL") carryovers of $58,000 and unused
US State NOL carryovers of $1,601,000 which expire in 2034. Solitario has unused Capital Loss carryovers of $5,902,000 for
US Federal and US State purposes which begin expiring in 2019. Solitario has foreign loss carryforwards for which Solitario
has provided a full valuation allowance and which expire over various periods from five years to no expiration depending on
the foreign jurisdiction.
Solitario adopted the provisions ASC 740, which 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
requires that Solitario recognize in its consolidated financial statements, only those tax positions that are “more-likely-than-
not” of being sustained as of the adoption date, based on the technical merits of the position. As a result of the implementation
of ASC 740, Solitario performed a comprehensive review of its material tax positions in accordance with recognition and
measurement standards established by ASC 740. The provisions of ASC 740 had no effect on Solitario’s financial position,
cash flows or results of operations at December 31, 2015 or December 31, 2014, or for the years then ended as Solitario had no
unrecognized tax benefits.
Solitario and its subsidiaries are subject to the following material taxing jurisdictions: United States Federal, State of
Colorado, Mexico and Peru. Solitario’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, 2015, or
December 31, 2014 or for the years then ended.
7. Derivative Instruments:
RMB warrants
The RMB Warrants entitle the holder to purchase one share of Solitario common stock pursuant to the terms and
conditions of the RMB Warrants. As amended, the RMB Warrants expire on August 21, 2016, and have an exercise price of
$1.5387 per share, subject to customary anti-dilution adjustments. Solitario recorded a warrant discount at the time it entered
into the Facility Agreement, which it amortized on a straight-line basis. See Note 5, “Short-term debt,” above.
Solitario has recorded a liability as of December 31, 2015 and 2014 of $4,000 and $55,000, respectively, for the fair
value of the RMB Warrants based upon a Black-Scholes model. Solitario 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 operations. Solitario recorded a gain of
$51,000 and $85,000, respectively, on the RMB Warrants during the year ended December 31, 2015 and 2014.
.
Covered call options
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 designated 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. As of December 31 2015 and 2014, all of the covered calls had expired
unexercised and there were no liabilities related to those calls entered during each of the years.
Solitario recorded the following gain on derivative instruments related to Kinross calls:
(in thousands)
Gain on derivative instruments
Year ended
December 31,
2015
December 31,
2014
$84
$39
The following table provides the location and amount of the fair values of Solitario's derivative instruments presented
in the consolidated balance sheet as of December 31, 2015 and 2014:
(in thousands)
Derivatives
Balance Sheet Location
46
December 31,
2015
December 31,
2014
Derivatives not designated as hedging instruments under
ASC 815
RMB warrants
Kinross calls
8. Fair Value of Financial Instruments:
Other current liabilities
Other current liabilities
$ 4
$ -
$55
$ -
For certain of Solitario's financial instruments, including cash and cash equivalents, payables and short-term debt, the
carrying amounts approximate fair value due to their short maturities. Solitario's marketable equity securities, including its
investment in shares of Kinross common stock and TNR Gold equity investments are carried at their estimated fair value
primarily based on publicly available quoted market prices.
Solitario applies ASC 820, "Fair Value Measurements." ASC 820 establishes a framework for measuring fair value
and requires enhanced disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. ASC 820 also requires disclosure about how fair value is determined for assets and liabilities and
establishes a hierarchy 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 assets or liabilities;
Level 2: Quoted prices in active markets for similar assets 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
develop 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, 2015 and 2014, there were no
reclassifications in financial assets or liabilities between Level 1, 2 or 3 categories.
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, 2015:
(in thousands)
Assets
Marketable equity securities
Liabilities
RMB warrants
Level 1
Level 2
Level 3
Total
$202
$ -
$ -
$202
-
4
-
4
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, 2014:
(in thousands)
Assets
Marketable equity securities
Liabilities
RMB warrants
Level 1
Level 2
Level 3
Total
$2,308
$ -
$ -
$2,308
-
55
-
55
Items measured at fair value on a recurring basis:
Marketable equity securities: At December 31, 2015 and 2014, the fair value of Solitario’s holdings in shares of
Kinross, TNR and Ely marketable equity securities is based upon quoted market prices.
RMB Warrants: The RMB Warrants 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 Solitario
common stock and discount rates that include an assessment of performance risk, that are readily available from
public markets; therefore, they are classified as Level 2 inputs as of December 31, 2015 and 2014.
During the year ended December 31, 2015, Solitario did not change any of the valuation techniques used to measure
its financial assets and liabilities at fair value.
47
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 2016 property rentals
and option payments, excluding certain earn-in payments discussed below, for properties we own or operate to be
approximately $341,000. Assuming that our joint ventures continue in their current status and that we do not appreciably
change our property positions on existing properties, approximately $327,000 of these annual payments are paid or are
reimbursable 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 leases office space under a non-cancelable operating lease for the Wheat Ridge, Colorado office which
provides for total minimum annual rent payments of $33,000 through October of 2018.
10. Employee Stock Compensation Plans:
a.) The 2006 Plan
On June 27, 2006, Solitario's shareholders approved the 2006 Stock Option Incentive Plan (the "2006 Plan"). Under
the terms of the 2006 Plan, the Board of Directors reserved a total of 2,800,000 shares of Solitario common stock for the
potential awards to Directors, officers and employees with exercise prices equal to the market price of Solitario's common
stock at the date of grant. Solitario classifies its stock options under the 2006 Plan as equity options in accordance with the
provisions of ASC 718, “Compensation – Stock Compensation.”
b.) 2006 Plan stock option compensation
Solitario’s outstanding options from the 2006 Plan on the date of grant have a five-year term, and vest 25% on date of
grant and 25% on each of the next three anniversary dates. Solitario recognizes stock option compensation expense on the date
of grant for 25% of the grant date fair value, and subsequently, based upon a straight-line amortization of the unvested grant
date fair value of each of its outstanding options. The following table shows the grant date fair value of Solitario’s only option
grant during either 2015 or 2014 from the 2006 Plan as of the date of grant.
Grant date fair value
Grant Date
Option – grant date price (Cdn$)
Options granted
Expected life years
Expected volatility
Risk free interest rate
Weighted average fair value
Grant date fair value
8/15/14
$1.60
1,990,000
5.0
66%
1.6%
$0.81
$1,618,000
Solitario recorded $396,000 and $591,000, respectively, of stock option expense from the 2006 Plan during 2015 and
2014 included in general and administrative expense, for the amortization of grant date fair value with a credit to additional
paid-in capital.
c.) 2006 Plan stock option activity
During 2015 and 2014 there were no shares issued from the exercise of options. The following table summarizes the
activity for stock options outstanding under the 2006 Plan as of December 31, 2015 and 2014:
2015
Weighted
Average
Exercise
Aggregate
Intrinsic
Price (Cdn$) Value(1)
2014
Weighted
Average
Exercise
Price (Cdn)$
Aggregate
Intrinsic
Value(1)
Options
Options
2006 Plan
48
Outstanding, beginning of year
Granted
Exercised
Cancelled/expired (2)(3)
Forfeited
Outstanding, end of year
Exercisable, end of year
2,348,000
-
-
(2,188,000)
(120,000)
40,000
20,000
$1.66
-
-
1.66
1.60
$1.60
$1.60
2,419,000
1,990,000
-
(2,061,000)
-
2,348,000
814,250
$ -
$ -
$2.22
1.60
-
2.31
-
$1.66
$1.78
$ -
$ -
(1)The intrinsic value at December 31, 2015 and 2014 based upon the quoted market price of Cdn$0.70 and Cdn$1.05, respectively, per share for our common
stock on the TSX and an exchange ratio of 0.72120 and 0.85993, respectively, United States dollars per Canadian dollar.
(2)On November 24, 2015, holders of option awards from the 2006 Plan voluntarily cancelled awards for 160,000 options with an option price of Cdn$1.49
with an expiration date of December 16, 2017 and 1,830,000 options with an option price of Cdn$1.60 with an expiration date of August 14, 2019 to allow
Solitario to have additional financial flexibility. No consideration was given or received by the holders of the options to cancel the awards.
(3)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
options to cancel the awards.
d.) 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, a total of 1,750,000 shares of Solitario common stock
are reserved for awards to Directors, officers, employees and consultants. 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 pursuant to the
2013 Plan and are granted by the Board of Directors 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.”
e.) Stock option compensation
Solitario made no grants of options during 2015 or 2014 from the 2013 Plan. Grants from the 2013 Plan 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
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.
Solitario recorded $170,000 and $188,000 of stock option expense from the 2013 Plan during 2015 and 2014,
respectively, included in general and administrative expense, for the amortization of grant date fair value with a credit to
additional paid-in capital.
f.) Stock option activity
During 2015 and 2014 no options granted from the 2013 Plan were exercised. During 2014 Solitario issued restricted
stock units (“RSUs”) from the 2014 Plan for a total of 50,562 shares that vested upon grant and were issued as shares to two
employees as part of their severance pay upon the employees’ termination from Solitario. Solitario recorded a credit to
additional paid-in-capital of $45,000 on the date of issuance of the shares from the 2013 Plan. The following table summarizes
the activity for stock options and RSUs outstanding under the 2013 Plan as of December 31, 2015 and 2014:
2013 Plan
Outstanding, beginning of year
Granted
Exercised
Cancelled (2)
Forfeited
Outstanding, end of year
Exercisable, end of year
RSUs/
Options
1,400,000
-
-
(1,250,000)
(150,000)
-
-
2015
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value(1)
$0.96
-
-
0.94
1.10
-
-
49
$ -
$ -
2014
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value(1)
$0.96
0.89
0.89
-
-
$0.96
$0.96
$ -
$ -
Options
1,400,000
50,562
(50,562)
-
-
1,400,000
700,000
(1)The intrinsic value at December 31, 2015 and 2014 based upon the quoted market price of $0.49 per share and $0.92 per share, respectively, for our
common stock on the NYSE-MKT.
(2)On November 24, 2015, holders of option awards from the 2006 Plan voluntarily cancelled awards for 1,250,000 options with an option price of $0.94 with
an expiration date of October 21, 2018 to allow Solitario to have additional financial flexibility. No consideration was given or received by the holders of the
options to cancel the awards.
11. Segment Reporting
As a result of the Transaction, Solitario operates in one segment, mineral exploration. The assets and liabilities as of
December 31, 2014 related to MH-LLC and sold in the Transaction are shown as discontinued operations as detailed above
under “Recent Developments” in Note 1, “Business and Summary of Significant Accounting Policies.”
50
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
The management of Solitario is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). During the
fiscal period covered by this report, Solitario's management, with the participation of the Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of Solitario’s internal control over financial reporting and the
design and operation of Solitario’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). This
evaluation of the effectiveness of our internal control over financial reporting was based on the framework and criteria
established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on such evaluations, Solitario’s Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2015, Solitario’s internal control over financial reporting is effective and that its disclosure
controls and procedures are effective to ensure that information required to be disclosed by Solitario in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and are
designed to ensure that information required to be disclosed in its reports is accumulated and communicated to Solitario’s
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. There were no changes in internal control over financial reporting during the three months
ended December 31, 2015.
This annual report does not include an attestation report of our independent registered public accounting firm
regarding internal control over financial reporting. As a smaller reporting company, Solitario’s management’s report was not
subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual report.
Item 9B. Other Information
None
51
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required under Item 10 is incorporated herein by reference to the information set forth in our definitive
proxy statement in connection with the annual meeting of shareholders to be filed with the Securities and Exchange
Commission within 120 days after the end of our fiscal year ended December 31, 2015 pursuant to Section 14(a) of the
Exchange Act (the "2016 Proxy").
Item 11. Executive Compensation
The information required under Item 11 is incorporated herein by reference to the information set forth in the 2016
Proxy.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information with respect to Item 12 is incorporated herein by reference to the information set forth in the 2016
Proxy.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information with respect to Item 13 is incorporated herein by reference to the information set forth in the 2016
Proxy.
Item 14. Principal Accounting Fees and Services
The information required under Item 14 is incorporated herein by reference to the information set forth in the 2016
Proxy.
52
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as a part of this Annual Report on Form 10-K:
PART IV
1. Financial Statements
The following financial statements contained in Part II, Item 8 are filed as part of this Annual Report on Form 10-K:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015 and 2014
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not required or are not applicable, or the required information
is provided in the consolidated financial statements or notes thereto described in Item 15(1) above.
3. Exhibits
The Exhibits listed in the Index to Exhibits, which appears immediately following the signature page and is incorporated
herein by reference, are filed as part of this Annual Report on Form 10-K.
53
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SOLITARIO EXPLORATION & ROYALTY CORP.
By:
/s/ James R. Maronick
Chief Financial Officer
Date: March 3, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
Principal Executive Officer and Director
March 3, 2016
Principal Financial and Accounting Officer
March 3, 2016
A majority of
the Board of
Directors
March 3, 2016
/s/
Christopher E. Herald,
Chief Executive Officer
/s/
James R. Maronick,
Chief Financial Officer
/s/
Mark E. Jones, III
/s/
Brian Labadie
/s/
Leonard Harris
/s/
John Hainey
By: /s/
James R. Maronick,
Attorney-in-fact
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54
Description
INDEX TO EXHIBITS
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Amended and Restated Articles of Incorporation of Solitario Exploration & Royalty Corp., as Amended
(incorporated by reference to Exhibit 3.1 to Solitario’s Form 10-Q filed on August 10, 2010)
Amended and Restated By-laws of Solitario Exploration & Royalty Corp. (incorporated by reference to Exhibit
99.1 to Solitario’s Form 8-K filed on March 22, 2013)
Form of Common Stock Certificate of Solitario Exploration & Royalty Corp. (incorporated by reference to
Exhibit 4.1 to Solitario’s Form 10-Q filed on August 7, 2008)
Form of Warrant Certificate of Solitario Exploration & Royalty Corp. (incorporated by reference to Exhibit 99.2
to Solitario’s Form 8-K filed on August 16, 2012)
Membership Interest Purchase Agreement between Solitario Exploration & Royalty Corp., Ely Gold & Minerals,
Inc., DHI Minerals (U.S.) Ltd., and Waterton Nevada Splitter LLC dated June 10, 2015 (incorporated by reference
to Exhibit 10.1 to Solitario’s Form 8-K filed on June 12, 2015)
Waterton Commitment Letter Agreement between Solitario Exploration & Royalty Corp. and Waterton Precious
Metals Fund II Cayman, LP dated June 10, 2015 (incorporated by reference to Exhibit 10.2 to Solitario’s Form 8-K
filed on June 12, 2015)
Consent and Waiver between Solitario Exploration & Royalty Corp., Ely Gold & Minerals, Inc., and DHI Minerals
(U.S.) Ltd. dated June 10, 2015 (incorporated by reference to Exhibit 10.3 to Solitario’s Form 8-K filed on June 12,
2015)
Warrant Amendment between Solitario Exploration & Royalty Corp. and RMB Australia Holdings Limited dated
August 5, 2015 (incorporated by reference to Exhibit 99.1 to Solitario’s Form 8-K filed on August 10, 2015)
2013 Solitario Exploration & Royalty Corp. Omnibus Stock and Incentive Plan (incorporated by reference to
Exhibit 10.2 to Solitario’s Form 8-K filed on June 20, 2013)
Solitario Resources Corporation 2006 Stock Option Incentive Plan (As Amended), an amendment of the Solitario
Resources Corporation 2006 Stock Option Incentive Plan (incorporated by reference to Exhibit A to Solitario's
Proxy Statement Pursuant to Section 14(a) filed on April 30, 2007)
Alliance Agreement, dated January 18, 2005, between Solitario Resources Corporation and Newmont Overseas
Exploration Limited (incorporated by reference to Exhibit 99.1 to Solitario's Form 8-K filed on January 20,
2005)
Amended and Restated Royalty Grant, dated January 18, 2005, between Solitario Resources Corporation and
Minera Los Tapados S.A. (incorporated by reference to Exhibit 99.3 to Solitario's Form 8-K filed on January 20,
2005)
Change in Control Severance Benefits Agreement between Solitario Resources Corporation and Christopher E.
Herald, dated as of March 14, 2007 (incorporated by reference to Exhibit 99.1 to Solitario's Form 8-K filed on
March 14, 2007)
Change in Control Severance Benefits Agreement between Solitario Resources Corporation and James R.
Maronick, dated as of March 14, 2007 (incorporated by reference to Exhibit 99.2 to Solitario's Form 8-K filed on
March 14, 2007)
Change in Control Severance Benefits Agreement between Solitario Resources Corporation and Walter W. Hunt,
dated as of March 14, 2007 (incorporated by reference to Exhibit 99.3 to Solitario's Form 8-K filed on March 14,
2007)
55
10.12
Framework Agreement for the Exploration and Development of Potential Mining Properties, related to Solitario's
100% owned Bongará project in Peru between Minera Bongará S.A., Minera Solitario Peru S.A.C., Solitario
Resources Corporation, and Votorantim Metais – Cajamarquilla S.A., dated March 24, 2007 (incorporated by
reference to Exhibit 10.2 to Solitario's Form 8-K filed on October 4, 2007)
14.1
Code of Ethics for the Chief Executive Officer and Senior Financial Officer (incorporated by reference to Exhibit
99.1 to Solitario's Form 8-K filed on July 18, 2006)
21.1*
Subsidiaries of Solitario Exploration & Royalty Corp.
23.1*
Consent of EKS&H LLLP
24.1*
Power of Attorney
31.1*
31.2*
32.1*
101*
Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of December 31,
2015 and 2014; (ii) Consolidated Statements of Operations for the years ended December 31, 2015 and 2014;
(iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015 and
2014; (iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015 and 2014;
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014; and (vi) Notes to
the Consolidated Financial Statements.
* Filed herewith
56