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, 2019
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 ZINC 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
Title of each class
Common Stock, $0.01 par value
Trading symbol
XPL
Name of exchange on which registered
NYSE American
Securities registered pursuant to Section 12(b) of the Act:
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 [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.
YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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 such files).
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated
filer [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]
Accelerated filer [ ] Non-accelerated filer [ ]
Smaller reporting
company [X]
Emerging growth
company [ ]
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, 2019 as reported on NYSE American, was approximately $16,840,000.
There were 58,133,066 shares of common stock, $0.01 par value, outstanding on February 28, 2020.
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, 2020, 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
Item 16 Form 10-K Summary
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, as amended (the
“Exchange Act”). 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 current reports made on Form 8-K to the United States Securities and Exchange Commission (the "SEC").
Item 1. Business
Business and Company Formation
Solitario Zinc Corp. (“Solitario” or the “Company”) is an exploration stage company as defined in Industry Guide 7,
as issued by the 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 exploration mineral properties and/or discover economic deposits on its
mineral properties and advance these deposits, either on its own or through joint ventures, up to the development stage of the
project. At that point, or sometime prior to that point, Solitario would likely attempt to sell its mineral properties, pursue their
development either on its 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. Solitario has never developed a property. Solitario’s primary
focus is on the acquisition and exploration of zinc-related exploration mineral properties. However, Solitario evaluates and will
potentially acquire other base and precious metal properties and assets. In addition to focusing on its mineral exploration
properties and the evaluation of mineral properties for acquisition, Solitario also evaluates potential strategic transactions as a
means to acquire and interest in new precious and base metal properties and assets with exploration potential or other potential
corporate transactions that Solitario determines to be favorable to Solitario.
Solitario has recorded revenue from the sale of mineral properties and assets, including the sale of certain mineral
royalties in January of 2019 and the sale in April of 2018 of its interest in the royalty on the Yanacocha property, discussed
below. Revenues from the sale or joint venture of properties or assets, 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.
Solitario currently considers its carried interest in the Florida Canyon project in Peru and its interest in the Lik project
in Alaska to be its core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, completed a
39-hole 17,033-meter drilling program at Florida Canyon during 2019 (discussed below). Solitario is working with its 50%
joint venture partner, Teck American Inc., a wholly-owned subsidiary of Teck Resources Limited (both companies are referred
to in this Annual Report as “Teck”) and completed a limited exploration program at the Lik project during 2019 consisting of
mapping, geophysical work, relogging of prior drilling core and environmental evaluation.
As of December 31, 2019, Solitario has significant balances of cash and short-term investments that Solitario
anticipates using, in part, to further the development of the Florida Canyon and Lik projects and to potentially acquire
additional mineral property assets. The fluctuations in precious metal and other commodity prices contribute to a challenging
environment for mineral exploration and development, which has created opportunities as well as challenges for the potential
acquisition of early-stage and advanced mineral exploration projects or other related assets at potentially attractive terms.
Recent Developments
On January 22, 2019, Solitario completed the sale of its interest in certain royalties to SilverStream SEZC, a
private Cayman Island royalty and streaming company (“SilverStream”), for Cdn$600,000 (the “Royalty Sale”). The
Royalty Sale covered (i) a royalty on the formerly Solitario-owned 125,000-acre polymetallic Pedra Branca palladium,
platinum, gold, nickel, cobalt and chrome project in Brazil, (ii) a royalty covering 3,880 acres of non-producing
exploration properties in Mexico, and (iii) a purchase option on royalties covering 11 separate non-producing properties
covering over 16,500 acres in Montana. At closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and a
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convertible note from SilverStream in the principal amount of Cdn$350,000 (the “SilverStream Note”). The
SilverStream Note was originally due December 31, 2019, accrued 5% per annum simple interest, payable on a
quarterly basis, and is convertible into common shares of SilverStream, at the discretion of SilverStream, by providing
Solitario a notice of conversion. In December of 2019, Solitario and SilverStream agreed to extend the due date of the
SilverStream Note to June 30, 2020, and to increase the interest rate to 8% per annum simple interest. All other terms
of the SilverStream Note remained the same. SilverStream may only provide a notice of conversion if SilverStream has
completed an initial public offering during the term of the SilverStream Note for minimum proceeds of Cdn$5,000,000,
otherwise the SilverStream Note will be payable in cash at the maturity date. Pursuant to the terms of the SilverStream
Note, if SilverStream were to complete an initial public offering and the SilverStream Note was converted, Solitario
would receive common shares converted at 85% of the weighted average quoted price of a share of SilverStream
common stock for the most recent 10-day period prior to the notice of conversion
On April 26, 2018 Solitario sold its royalty interest in the non-producing Yanacocha property (the “Yanacocha
Royalty”) to a wholly owned subsidiary of Newmont Mining Corporation (“Newmont”) for approximately $502,000 in cash.
The Yanacocha Royalty covered 43 concessions totaling 36,052 hectares. Newmont owns the underlying mineral concessions
covered by the Yanacocha Royalty. None of the concessions covered by the Yanacocha Royalty have any reported reserves or
resources. Solitario had no mineral property capitalized cost in the Yanacocha Royalty and recorded Mineral Property Revenue
of $502,000 during 2018.
Corporate Structure
Solitario Zinc Corp. [Colorado]
- Zazu Metals Corp. [Canada] (100%)
- Zazu Metals (AK) Corp [Alaska] (100%)
- Lik Project (50%)
- Minera Chambara, S.A. [Peru] (85%)
- Chambara Project
- Minera Solitario Peru, S.A. [Peru] (100%)
- Minera Bongará, S.A. [Peru] (39%)
- Florida Canyon Project
- Minera Soloco, S.A. [Peru] (100%)
Mineral Exploration Properties
We hold a 50% operating interest in the Lik zinc-lead-silver property in Northwest Alaska, which is estimated to
contain a large tonnage, high-grade deposit potentially mineable by open-pit methods. Teck is a 50% partner with Solitario in
the Lik deposit, with Teck acting as the project manager for 2018 and 2019. A Preliminary Economic Assessment (“PEA”)
was completed on the Lik deposit in 2014.
Solitario also has a 39% interest in the advanced, high-grade, Florida Canyon zinc project located in northern Peru.
The project has a significant mineral resource and Solitario is fully carried to production by its joint venture partner Nexa,
formerly Votorantim Metais Holdings, SA (“Votorantim”) and Compañía Minera Milpo S.A.A. (“Milpo”). Solitario and Nexa
completed a PEA on the Florida Canyon deposit in August 2017. Nexa is one of the largest zinc producers in Peru. Except for
the 2018-2019 drilling program, discussed below, Nexa has funded 100% of project expenditures since the inception of the
Florida Canyon joint venture in 2006. Nexa will earn a 70% interest in the project by continuing to solely fund all project
expenditures and committing to place the project into production based upon a positive feasibility study. After earning 70%,
and at the request of Solitario, Nexa has further agreed to finance Solitario's 30% participating interest for construction.
Solitario will repay the loan facility through 50% of its net cash flow distributions from the project.
In August of 2018, Solitario agreed to fund a portion of a 2018 – 2019 drilling program at the Florida Canyon project.
Solitario funded $1,580,000 of the 39-hole 17,033-meter drilling program, which was completed in the fourth quarter of 2019
(the “Drilling Program”). The funding of the Drilling Program will be treated as an advance on Solitario’s commitment to fund
30% of any future construction and development costs of Florida Canyon under the original joint venture agreement discussed
above. Accordingly, in the event the Florida Canyon project is developed, which cannot be assured at this time, the funds paid
to Nexa under this agreement will reduce the amount of Solitario’s obligation to fund 30% of future development costs, and / or
repay loans from Nexa for future development costs at the Florida Canyon project. As of December 31, 2019, Solitario has
paid Nexa its entire funding commitment of $1,580,000, of which $1,053,000 and $527,000, respectively, were charged to
exploration during 2019 and 2018.
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At December 31, 2019, Solitario also owns the La Promesa gold exploration project. Solitario also holds an 85% interest
in the Chambara exploration project in Peru (Nexa holds the remaining 15%), and a 9.8% equity interest in Vendetta Mining
Corp. (“Vendetta”).
We conduct exploration and property evaluation activities in Peru either on our own using contract geologists, or
through joint ventures operated by our partners.
Our exploration activities and those of our joint venture partners are carried out on a property-by-property basis.
These activities may include prospecting, geologic mapping, sampling, geophysics and drilling. When we determine that this
work indicates a project may not be economic or contain sufficient geologic or economic potential, we may impair or
completely write-off the property. A significant factor in the success or failure of our activities is the price of commodities.
For example, when the price of zinc or other commodities is down, we may determine that the value of our mineral exploration
properties decreases; however, during such down markets it may also become easier and less expensive to locate and acquire
new mineral exploration properties.
We have recorded revenue in the past from the sale of mineral properties and assets, joint venture property payments
and the sale of a royalty on our formerly held Mt. Hamilton property. Proceeds from the sale or joint venture of properties and
royalty sales, although potentially significant when they occur, have not been a consistent source of cash and may only occur in
the future, if at all, on an infrequent basis. Accordingly, while we conduct exploration activities on our projects, we need to
maintain and replenish our capital resources. Historically, we have met our need for capital through (i) the sale of mineral
property royalties to SilverStream for $408,000 during 2019, (ii) the sale of our Yanacocha royalty to Newmont for $502,000
during 2018; (iii) proceeds received from the sale of our former Mt. Hamilton project in 2015; (iv) sales of our shares of
common stock of Vendetta and Kinross Gold Corporation (“Kinross”); (v) borrowing in the form of short-term margin debt
secured by our investment in Kinross; (vi) borrowing under long-term debt secured by our former Mt. Hamilton project (vii)
joint venture delay rental payments, including payments on our Florida Canyon project; (viii) a royalty sale for $10,000,000 in
2012; (ix) issuances of common stock; (x) sales of covered call options on our Kinross common stock; and (xi) interest on short
term Treasury Notes and Bank CDs. We have reduced our exposure to the costs of our exploration activities through the use of
joint ventures.
We operate in one segment: mineral exploration. We currently conduct exploration activities in Peru and Alaska and
evaluate properties for potential acquisition and evaluation of strategic corporate opportunities throughout North and South
America. As of February 28, 2020, we had three full-time employees located in the United States and no full-time employees
outside of the United States. We utilize contract managers, geologists, administrators and laborers to execute our Latin
American and North 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, contractors and advisors, which is limited by the size of our company compared to many of our
competitors who may have greater resources, including 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 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 are required to
conduct our operations in compliance with applicable laws and regulations. Changes to current local, 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
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any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects. During
2019, we had no material environmental incidents or non-compliance with any applicable environmental regulations.
Financial Information about Geographic Areas
Included in the consolidated balance sheets at December 31, 2019 and 2018, are total assets of $59,000 and $416,000,
respectively, related to Solitario's operations located outside of the United States.
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 SEC maintains a website (http://www.sec.gov) that contains
periodic reports, proxy and information statements and other information regarding registrants, including the Company, 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 SEC.
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 of which we are aware. 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, and a significant portion of our business model envisions
the sale or joint venture of mineral properties. If we are unable to sell or joint venture these properties, the money spent on
acquisition and exploration of our mineral properties 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 expenditures are required to determine
if any of our mineral properties may have the potential to be commercially viable, be salable or joint ventured. Prior to
completion of the feasibility study on our former 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, commodity prices, financing costs and governmental regulations, including regulations relating to
prices, taxes, royalties, infrastructure, land use, importing and exporting of mineral products 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 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 in the past and may record mineral property
impairments in the future.
We have no reported proven and probable mineral reserves, and our current projects and any projects we may acquire are
not likely to offer the opportunity for near term revenues or sale proceeds. If we are unsuccessful in identifying mineral
reserves in the future, we may not be able to realize any profit from our property interests.
None of our current projects have reported proven and probable mineral reserves as those terms are used in SEC Guide
7. Any mineral reserves on these projects will only come from extensive additional exploration, engineering and evaluation of
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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.
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.
Mining exploration operations are subject to the hazards and risks normally related to exploration of a mineral deposit,
including, but not limited to 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 the
hazards of mining exploration 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 23 of our 26 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 sale of our former Mt.
Hamilton project, during 2003, as a result of a $5,438,000 gain on a 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. Certain of our mineral properties are located in Peru and we have previously held royalties on non-
producing exploration properties in Mexico, Brazil and Montana (U.S.) through January 22, 2019 when they were sold. We
have acted as operator on all of our mineral properties or assets that are not held in joint ventures or are royalty interests. The
success of projects held under joint ventures or royalty interests that are not operated by us are substantially dependent on the
joint venture partner, over which we have limited or no control.
Our current exploration activities, mineral properties and royalties located outside of the United States are subject to
the laws of Peru and any other countries in which we may conduct business. Exploration and potential development activities in
other countries we may conduct exploration 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 U.S. Foreign Corrupt Practices Act (“FCPA”);
• 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 a change in the U.S. dollar compared to local currencies);
• foreign exchange controls;
• restrictions on the ability for us to hold U.S. dollars or other foreign currencies in offshore bank accounts;
• import and export regulations;
• environmental controls;
• risks of loss due to community opposition to our activities, civil strife, acts of war, guerrilla activities,
insurrection and terrorism; and
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• 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 the value of certain of our assets 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 results of operations and
growth potential.
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 sale of our former Mt. Hamilton project 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 marketable equity securities we hold, funds from the issuance of long-term debt,
and the issuance of common stock. We may need to raise additional capital, or enter into new joint venture arrangements, in
order to fund our obligations with respect to our properties and our 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 are 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 are 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 personnel with technical skills and experience in the mineral exploration
business. There can be no assurance that we will continue to 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 and representations 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 laws as well as potential changes in laws and regulatory
requirements to which we are subject, including regulation of mineral exploration and 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 they are located 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
8
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 or own assets, 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 or own assets 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 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 dependent on the market price of certain commodities, particularly zinc, and currency exchange rates over
which we have no control.
Our operations are significantly affected by changes in the market price of commodities since the evaluation of
whether a mineral deposit is commercially viable is heavily dependent upon the market price of the commodities related to any
specific project. Because our core assets are currently in zinc related projects, the spot price of zinc is particularly important to
the value of our assets and future prospects. 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 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 Operating Officer, Walter H. Hunt, and our Chief Financial Officer, James R. Maronick. All of those 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 Florida Canyon project and our Lik project are joint ventured with other mining companies that manage the
exploration and development activities on the projects. We are the minority-interest party at Florida Canyon and a 50% partner
at the Lik project, where Teck is the operator. Although our joint venture agreements provide certain voting rights and other
minority-interest safeguards, the majority partner and/or operator 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 partners, as well as their 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. Our Lik project requires unanimous consent by the
joint venture partners for annual budgets in excess of $1.0 million. Consequently, development of the project could be delayed
without the unanimous consent of both parties to certain proposed actions or transactions.
We may look to joint venture with another mining company in the future to develop and/or operate our current or future
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 operation at any of our properties. In order to realize a profit
from our mineral interests we have to: (1) sell our properties or interests 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 a
project; (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, not currently under joint venture, we may either look to form a joint venture
with another mining company to develop and/or operate our projects 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 attempt to acquire a new property, or another company and the acquisition may require a substantial
amount of capital or the issuance of Solitario equity to complete. 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 evaluated 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.
The market for shares of our common stock has limited liquidity and the market price of our common stock has fluctuated
and may decline.
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
10
combined daily volume of our shares traded on the NYSE American and the TSX during 2019 was approximately 61,000
shares. The market price of our shares of common stock 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 zinc or
other commodity prices, negative news on our projects, negative investment sentiment for mining and commodity equities and
general economic trends.
A significant portion of our liquid assets consist of U.S. Treasuries and cash held in brokerage and foreign bank accounts.
The failure of the financial institutions that issued or hold these financial instruments or our cash could have a material
adverse impact on the market price of our common stock and our liquidity and capital resources.
At December 31, 2019, we have invested $6,829,000 in United States Treasury securities, with maturities of between
30 days and 17 months and we have approximately $554,000 of our cash in uninsured deposit accounts and brokerage accounts
none of which are covered by FDIC insurance. The failure of a financial institution 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 are dependent upon information technology systems, which are subject to disruption, damage, failure and risks
associated with implementation and integration.
We are dependent upon information technology systems in the conduct of our operations. Our information technology
systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses,
security breaches, cyber-attacks, natural disasters and defects in design. Cybersecurity incidents, in particular, are evolving and
include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security
breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and
the corruption of data. Various measures have been implemented to manage our risks related to information technology systems
and network disruptions. However, given the unpredictability of the timing, nature and scope of information technology
disruptions, we could potentially be subject to operational delays, the compromising of confidential or otherwise protected
information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and
networks or financial losses from remedial actions, any of which could have a material adverse effect on our cash flows,
competitive position, financial condition or results of operations.
Failure to comply with the 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.
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 the FCPA and other 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
Florida Canyon Zinc Project (Peru)
1. Property Description and Location
11
(Map of Florida Canyon Property formerly Bongará)
On August 15, 2006, Solitario signed a Letter Agreement with Votorantim Metais Cajamarquilla, S.A., a wholly-
owned subsidiary of Votorantim (now known as Nexa) (both companies are referred to in this Item 2 as "Nexa”) on Solitario's
100%-owned Florida Canyon zinc project (formerly called the Bongará project), On March 24, 2007, Solitario signed the
Framework Agreement with Votorantim for the Exploration and Potential Development of Mining Properties, pursuant to, and
replacing, the Florida Canyon Letter Agreement. In 2015 Votorantim transferred its interest in the Florida Canyon project to
Compañía Minera Milpo S.A.A. (“Milpo”), an 80%-owned affiliate of Votorantim. In October of 2017, Milpo and Votorantim
merged to form Nexa. Nexa completed an IPO raising $570 million and listed on the NYSE under the trading symbol NEXA
and the TSX under the trading symbol NEXA. For the remainder of this Florida Canyon property section, all references to
Votorantim, Milpo or Nexa will be collectively referred to as Nexa.
The Florida Canyon project consists of 16 concessions comprising 12,600 hectares of mineral rights originally granted
to Minera Bongará S.A., our subsidiary incorporated in Peru. The property is located in the Department of Amazonas, northern
Peru. Solitario's and Nexa’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
Florida Canyon project.
During 2015 Nexa completed the steps required to earn a 61% interest in the Florida Canyon project, with Solitario
retaining a 39% interest. Nexa may earn an additional 9% interest (up to a 70% shareholding interest) in Minera Bongará S.A.,
by sole-funding future annual exploration and development expenditures until a production decision is made. The option to
earn the 70% interest can be exercised by Nexa at any time by committing to place the project into production based upon a
completed feasibility study. Nexa is the project manager. Once Nexa has committed to place the project into production based
upon a feasibility study, it has further agreed to finance Solitario's 30% participating interest until production with a loan
facility from Nexa to Solitario. Solitario will repay this loan facility through 50% of Solitario's cash flow distributions from
12
the joint operating company. Solitario completed the funding of $1,580,000 of the Drilling Program during 2019. The paid
funding of the Drilling Program will be treated as an advance on Solitario’s commitment to fund 30% of any future
construction development costs of Florida Canyon under the original joint venture agreement. Accordingly, in the event the
Florida Canyon project is developed, which cannot be assured at this time, the funds paid to Nexa under this agreement will
reduce the amount of Solitario’s obligation to fund 30% of future development costs, and / or repay loans from Nexa for future
development costs at the Florida Canyon project.
According to Peruvian law, concessions may be held indefinitely, subject only to payment of annual fees to the
government. In June 2020, payments of approximately $289,000 to the Peruvian government will be due in order to maintain
the Florida Canyon mineral rights of Minera Bongará. Nexa is responsible for paying these costs as part of its earn-in
expenditures. Peru imposes a sliding scale royalty varying from 1% to 12% of the operating profit of a mining operation. The
percentage royalty is determined by rule based on the operating margin; however, the minimum royalty is 1% of the revenues.
From time to time Nexa may enter into surface rights agreements with individual landowners or communities to
provide access for exploration work at the Florida Canyon project. 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 required for expanded activities planned for future years at the Florida Canyon project. 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 Florida Canyon property is accessed from the coastal city of Chiclayo by the paved Carretera Marginal road,
which is a heavily travelled paved national highway that passes approximately eight kilometers south of the deposit. The
nearest town to the project is Pedro Ruiz located 15 kilometers southeast of the property. 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. Nexa has now completed approximately 30 kilometers of access road and Nexa
is planning to complete the road access to the mineralized area of the project in 2020. Nexa maintains project field offices in
Pedro Ruiz and a drill core processing facility and operations office in the nearby community of Shipasbamba.
The project area elevation ranges between 1,800 and 3,200 meters above sea level. The climate is tropical with an
average annual temperature of approximately 25oC. Mean annual rainfall exceeds one meter with up to two meters in the cloud
forest at higher elevations. Most precipitation occurs during the rainy season, between November and April. Field work is
considerably more difficult in the rainy season. Topography is steep, consisting of prominent escarpments and deep valleys.
Dense jungle or forest vegetation covers the project area. With the exception of the partially completed access road and
approximately 700 meters of tunneling, no infrastructure facilities have been constructed within the project area.
3. History
We discovered the Florida Canyon mineralized zone of the Florida Canyon Project in 1996. Subsequently, we joint
ventured the property in December 1996 to Cominco (now Teck). 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 Florida Canyon Letter Agreement was signed. Nexa conducted surface drilling on an
annual basis from 2006 to 2013 and from 2018 to 2019, and underground tunneling and drilling from 2010 to 2013. All
significant work on the property has been conducted by our joint venture partners, Cominco and Nexa and, is described below
in Section 5, “Prior Exploration.”
4. Geological Setting
The project is located within an extensive belt of Mesozoic carbonate rocks belonging to the Upper Triassic to Lower
Jurassic Pucará Group and equivalents. This belt extends through the central and eastern extent of the Peruvian Andes for
nearly 1000 km and is the host for many polymetallic and base metal vein and replacement deposits in the Peruvian Mineral
Belt. Among these is the San Vicente Mississippi Valley Type (“MVT”) zinc-lead deposit that has many similarities to the
Florida Canyon deposit and other MVT occurrences in the Project area.
The geology of the Florida Canyon area is relatively simple consisting of a sequence of Jurassic and Triassic clastic
and carbonate rocks which are gently deformed into a broad northwesterly trending domal anticline. The MVT zinc-lead
13
mineralization occurs in the carbonate facies of the Chambara (rock) Formation. This domal anticline is cut on the west by the
Sam Fault and to the east by the Tesoro-Florida Fault.
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. Nexa began work in the fall of 2006 and drilled
annually from 2006 through 2013. Underground exploration operations were conducted from 2011-2013. Since 2013 the
most important work conducted consisted of continued access road construction and metallurgical testing. All work performed
by us, Cominco, and Nexa 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 and Nexa.
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. More than three-
quarters of mineralization is sulfide-dominant with the remainder being oxide-dominant. 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. It is believed
that mineralizing fluids passed through structurally controlled vertical feeder zones and into adjacent near-horizontal rock
formations to produce mineralized vertical replacement bodies and stratigraphically controlled near-horizontal manto deposits.
Drilling of stratigraphic targets has shown that certain coarser-grained facies of the stratigraphy are the best hosts for manto
mineralization. Stratigraphically controlled mineralization is typically one to several meters in thickness, but often attains
thicknesses of five to ten meters.
Karst features are localized along the feeder faults and locally produce "breakout zones" where mineralization may
extend vertically across thick stratigraphic intervals 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
V-1021
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
Dolomitization reaches stratigraphic thicknesses in excess of 100 meters locally. This alteration is thought to be
related to the mineralizing event 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. At Florida Canyon the high-angle
mineralization occurs along well-defined northwest and northeast fracture systems. These structures occur in conjugate
fractures, with N10º-50ºE trends present at a number of mineralized surface outcrops while trends of N50º-80ºW are identified
at other showings.
7. Drilling
14
From 1997 through 2001, Cominco drilled 80 surface core holes totaling 24,696 meters. From 2006-2013, Nexa
completed 309 surface core holes totaling 77,193 meters. From 2011-2013, Nexa completed 95 underground core holes
totaling 15,144 meters. 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 ten drill stations. The underground drilling was tightly spaced and designed to allow for feasibility-level
reserve estimation.
From November 2018 to October 2019, Nexa completed a 39-hole, 17,033-meter core drilling program. The majority
of holes were drilled 2019. The program had three major objectives: 1) extend the San Jorge near-vertical replacement body to
the south and the adjacent near-horizontal manto bodies to the east; 2) offset previously drilled hole V-21 in the northern part of
Florida Canyon to determine if it represented a significant near-vertical replacement body with horizontal mantos similar to the
San Jorge Zone; and 3) extend horizontal mantos in the central and northern parts of the Florida Canyon drilling footprint. All
three objectives were successfully achieved.
All past 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 largest amount of drilling are the San Jorge and the Karen-Milagros zones. We believe that additional
detailed drilling of the newly delineated 1021 zone in the northern part of the Florida Canyon district has potential to add
significant new resources. Drilling indicates that, for the most part, the entire Florida Canyon district remains open to
expansion and the identified zones are interconnected. Better 2018-2019 drill-hole intercepts are provided in the table below:
2018-2019 Mineralized Intersections
Drill Hole
Number
PEBGD-03
PEBGD-04
PEBGD-08
PEBGD-10
including
PEBGD-15
PEBGD-24
PEBGD-25
and
PEBGD-30
PEBGD-31
PEBGD-32
PEBGD-33
PEBGD-36
and
PEBGD-38
PEBGD-39
Intercept
Meters
1.3
1.3
4.4
48.9
17.5
12.4
4.1
6.3
8.8
6.7
7.4
9.3
9.9
6.1
1.8
9.7
3.3
Zinc
(%)
42.7
40.5
16.8
5.2
11.3
14.9
18.6
7.7
5.2
18.4
11.3
23.5
5.9
20.1
35.2
22.8
37.7
Lead
(%)
15.0
0.0
1.1
1.0
2.2
0.0
0.9
0.5
1.5
0.0
1.7
2.8
1.6
5.6
0.5
0.2
9.6
Silver
(grams/t)
83.0
4.8
32.1
11.5
25.4
8.9
5.7
3.2
18.1
10.6
14.5
18.1
12.9
42.4
69.7
11.8
65.5
ZnEq*
(%)
56.9
40.6
18.3
6.2
13.7
15.1
19.5
8.2
6.9
18.7
13.1
26.5
7.7
25.6
37.1
23.2
47.1
*Zn-Eq was calculated using the following price assumptions: Zn=$1.10/lb., Pb=$0.91lb., Ag=$16.50/oz.
Reported intervals are estimated to be at least 80% of the true thickness
Numbers in this table may not add exactly as numbers have been rounded to the nearest decimal
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 cut with 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 Nexa 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 2006, Nexa has been in control of all field activities on the project and is responsible for the security of samples.
Nexa has indicated that there have been no breaches in the security of the samples. We have reviewed and engaged SRK
Consulting (USA) Inc. (“SRK”) (a large independent international mining engineering firm) to review Nexa’s sampling
15
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 Nexa’s work on the project.
9. Prefeasibility Studies
Nexa, either through its engineering staff or contracted independent mining engineering firms, has conducted
prefeasibility-level studies to provide estimates of deposit size and grade, mining and processing recoveries, sizing of
appropriate scale of operations, infrastructure design, and capital and operating cost estimates at a level of detail varying from
preliminary economic assessment to prefeasibility levels. These studies were generally performed between 2007 and 2014.
Solitario and Nexa jointly completed a PEA for the entire project in 2017 that incorporated a variety of Nexa-
generated studies into the analysis. The PEA evaluation included resource estimation, mining and processing recovery
estimates, a preliminary mining and processing plan, infrastructure layout, environmental considerations and an economic
analysis based on certain base case parameters. The PEA envisioned an underground mining operation with a 2,500 tonne per
day floatation mill for processing, resulting in a 12.5-year mine life. It was assumed that concentrates would be trucked to
Nexa’s Cajamarquilla zinc smelter facility in Lima Peru.
Metallurgical testing to evaluate metal recoveries and various processing options for mineralized material at Florida
Canyon was conducted in 2010, 2011 and 2014. Tests to date on composited samples 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. These recoveries represent averages for each zone based on sulfide dominant mineralization, but oxide material
was present in the tested samples. Nexa also conducted a comprehensive geochemical testing program that demonstrated that
zinc (and lead) recoveries were significantly affected by the Zn-sulfide/Zn-oxide ratio of mineralization. In general,
mineralized material with greater than an 80% ratio of Zn-sulfide/Zn-oxide, recoveries are greater than 90% for Zn.
Conversely, for mineralized material, with less than a 20% ratio of Zn-sulfide/Zn-oxide, recoveries are approximately 40% for
Zn. Although sulfide recoveries achieved to date are very good, SRK suggests that optimization of processing and
metallurgical parameters may result in improved recoveries and concentrate grade.
Other prefeasibility work completed by Nexa included drilling 16 diamond core holes in 2013 to evaluate geotechnical
and hydrological parameters of the mineralized areas for both engineering and environmental purposes. In 2016, Nexa
completed a geochemical/metallurgical study that more accurately defined the distribution of sulfide/oxide mineralization
based on re-assaying of nearly all past drill-hole samples. This information was critical in resource estimation and accurately
estimating metal recoveries.
The 2017 Florida Canyon Project PEA was completed by SRK on behalf of Nexa and Solitario in August of 2017.
The NI 43-101 compliant study entitled: “Technical Report, Preliminary Economic Assessment, Florida Canyon Zinc Project,
Amazonas Department, Peru; Effective Date: July 13, 2017, Report Date: August 3, 2017;” can be found in the Company’s
Canadian Sedar filings and is furnished in the Company’s U.S. Edgar filings.
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 Nexa
initiated an underground tunneling program to access mineralization and completed its underground work in 2013. As of
December 31, 2019, 700 meters of tunneling were completed.
12. Planned Exploration and Development
Nexa is currently working on a new NI-43101 compliant resource estimate incorporating the 2018-2019 drill hole
assay results. This new estimate is expected to be completed by the end of the first quarter of 2020. Nexa is also planning to
permit 84 new drilling platforms and associated interconnecting roads scattered over an area approximately six kilometers by
five kilometers in 2020. These proposed platforms are located immediately south and southeast of the current Florida Canyon
drilling footprint. Permitting is expected to take approximately one year. Drilling may be possible for the 2021 field season,
depending upon the grant of permits and funding approvals by Nexa. Nexa is also planning to conduct a new metallurgical
study beginning in the second quarter of 2020. This study is expected to be completed in the second quarter of 2020. In
16
addition, Nexa plans to conduct additional road construction in 2020 to access local communities as part of their social
commitment to these communities.
Lik Project (Alaska)
1. Property Description and Location
(Map of Lik Property) Lik.jpg
The Lik property consists of 47 contiguous Alaska state mining claims. The contiguous claims have been grouped
together for the purpose of working and operating under a common plan of development for the benefit of all of the claims. The
claims cover an area of approximately 6,075 acres (2,460 ha). The claims are located in the southwestern DeLong Mountains in
the Wulik River drainage.
To retain the state claims, the Company is required to make annual rental payments to the State of Alaska. The
estimated rental payments for 2020 are $7,000. Property holders are also required to perform assessment work with the amount
dependent on the area of the State claims. Excess assessment expenditure credits may be carried forward for a maximum of
four years. If required, payments may be made in lieu of work to allow retention of the property for a period of five consecutive
years. The geographical coordinates of the Lik deposit are approximately 163o 12’ W and 68o 10’ N. The figure above
illustrates the location of the Lik property.
2. Acquisition History and Joint Venture Arrangement
Solitario acquired its 50% interest in the Lik property from the acquisition of Zazu Metals Corp (“Zazu”) on July 12,
2017. As a result of the Acquisition, Zazu became a wholly owned subsidiary of Solitario. Prior to that, Zazu acquired its
50% interest in the Lik property from GCO Minerals Company, a wholly owned subsidiary of the International Paper Company
(“GCO”), on June 28, 2007 by making a cash payment to GCO of $20,000,000 and granting GCO a 2% net proceeds interest.
GCO also owns an additional 1% net profits interest in the Lik property from a 1997 agreement.
The Company is participating in the exploration and possible development of the Lik property through a joint venture
with Teck American Incorporated (50%), a wholly owned subsidiary of Teck Resources Limited (collectively “Teck”). The
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terms of the joint venture were governed by the Lik Block Agreement, made as of January 27, 1983, between Houston Oil &
Minerals Exploration Company (“HOMEX”) and GCO. HOMEX assigned its interest in the Lik Block Agreement to Echo
Bay Mines Ltd., which, in turn, assigned such interest to Teck.
Under the terms of the Lik Block Agreement, GCO held a 50% interest, and the right to increase its interest to up to
80% provided that GCO met an inflation-adjusted work commitment. The required expenditure amount was originally $25
million when defined in 1983 and increased with inflation indexing and escalations to approximately $43 million at the time
Solitario acquired Zazu. As of January 27, 2018, we estimated that approximately $22 million had been incurred towards the
inflation adjusted $43 million expenditure required to earn an additional 30% interest in the property.
As the Company did not spend the full inflation-adjusted expenditure amount by January 27, 2018, the Lik Block
Agreement terminated. Consequently, as of December 31, 2019, Teck retains its 50% participating interest in the Lik property,
and Teck and Solitario are negotiating a new a joint operating agreement that will govern all further operations relating to the
Lik property. We anticipate that under such joint operating agreement, Solitario, as successor to GCO, may be the operator and
may have full and exclusive control of the Lik property, its facilities and production as well as the exploration, development
and mining undertaken pursuant to the Lik Block Agreement. The current agreement requires unanimous approval by the
parties for annual expenditures in excess of $1 million. In July 2018, the Company and Teck signed a Joint Exploration
Agreement (“JEA”) whereby both parties agreed to fund a surface exploration program on a 50%-50% basis for 2018. In
January 2019, the Company and Teck signed an Addendum to extend the JEA to January 31, 2020. However, pending the
completion of a new joint operating agreement, an extension to the JEA is expected to be signed prior to the end of the first
quarter 2020 to further extend the terms of the JEA into early 2021 to provide for the planned 2020 exploration program on the
project. Teck was designated the operator for only the 2019 and 2018 programs and is expected to be the designated operator
under the planned extensions of the JEA only for the upcoming 2020 program.
3. Accessibility, Climate, Local Resources, Infrastructure and Physiology
Access to the Lik property is by air to a gravel surfaced airstrip located on the property. The airstrip is capable of
handling multi-engine cargo planes. Charter flights may be arranged from a number of sites in northwestern Alaska. The town
of Kotzebue, which is located about 90 miles from the deposit, is a seaport with commercial air service from Anchorage.
Kotzebue is the center for access to the nearby Red Dog mine operated by Teck.
The nearest location for which climatic data is available is the town of Kotzebue. The average annual temperature at
Kotzebue is 21.6oF, with seasonal extremes ranging between 77oF in summer to -58oF in winter. There is an average of nine
inches of rain and 47 inches of snowfall per year. Snow falls are not extreme but blowing snow may form significant drifts.
Strong winds are common in most parts of Alaska. Diamond drilling is possible at the Lik property between June and October.
The exposures of mineralization at the Lik property are located at about 800 feet above sea level. West of the deposit,
the land rises steeply to peaks about 2,300 feet above sea level. To the southeast, the land slopes down to the Wulik River
where the bottom of the valley is about 700 feet above sea level. There is sufficient space for tailings and waste rock disposal,
and sufficient water is expected to be available for any proposed processing. Locally, there is vegetation on the property
consisting of tundra grasses and low brush made up of willow, dwarf birch, and alder.
There is a camp located on the Lik property. The camp has been used periodically over the last twelve years and was
substantially refurbished as a part the 2007 and 2008 field programs. The supply of electric power and workforce
accommodation will have to be developed. There are no local resources adjacent to the Lik property. The Red Dog mine,
operated by Teck, is located about 13.6 miles southeast of the deposit. Potentially, concentrates could be moved along the
access road from the Red Dog mine to the port on the Chukchi Sea. The port has a shipping season in excess of 100 days.
Zazu entered into an agreement with Alaska Industrial Development and Export Agency (“AIDEA”) to enable AIDEA
to begin due diligence on the proposed expansion of the port and the Red Dog road, the Delong Mountain Transportation
System (“DMTS”), to potentially handle Lik concentrates. AIDEA, as owners of the DMTS, evaluated their possible role in
the two parts of the proposed expansion project: the financing of a spur road connecting the Lik project to the DMTS, and the
financing of any required modifications at the port. The DMTS is open to multiple users such as the Company. The studied
expansion would facilitate both the development of the Lik project and handle future concentrate production from the project.
The DMTS road and port system currently handles all concentrate produced by the Red Dog zinc mine of Teck. Prior to the
AIDEA agreement, Zazu received a letter of Non-Objection from the Northwest Arctic Borough (“NWAB”). In this letter, the
NWAB formally acknowledged its awareness of the Lik project, and that NWAB had no objection to the project.
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In January 2015, AIDEA announced the completion of its study into capacity availability in its DMTS. The report
concluded that there is sufficient excess capacity for the Company’s concentrate shipping needs, confirming the assumptions
made in Zazu's 2014 PEA. This study aimed to closely identify the outputs of both Lik and Red Dog, if any modifications are
required to the DMTS to support them, and if so, their potential cost. The study concluded that sufficient handling capacity
will exist with only minor modifications required to accommodate future planned production from Lik under the analyzed PEA
scenario.
4. History
The Red Dog ore deposit was originally discovered in 1970 by a geologist undertaking mapping in the De Long
Mountains area on behalf of the United States Geological Survey. GCO, in joint venture with New Jersey Zinc Company and
WGM Inc., carried out stream geochemical sampling and reconnaissance for color anomalies. Claims were staked in July 1976
to cover a stream geochemical anomaly on Lik Creek. HOMEX replaced New Jersey Zinc Company in the joint venture in
1976/1977.
Diamond drilling on the Lik property commenced in 1977 and targeted a gossan with a coincident soil and
electromagnetic anomaly. The first hole encountered massive lead-zinc-silver-bearing sulfides. By the end of 1977, the joint
venture had completed 25 line-miles of ground geophysics, a soil sampling program, and ten diamond drill holes with an
aggregate depth of 5,260 feet. In 1978 and 1979, further geological, geochemical and geophysical surveys were carried out,
together with the drilling of another 93 diamond drill holes aggregating 51,200 feet. A mineral resource was estimated. The
joint venture continued to work in the district in the period 1980 to 1983. However, only limited diamond drilling activity
continued on the Lik property. The Lik Block Agreement was signed in 1984.
In 1984, Noranda optioned the GCO holding of the Lik property. Much of Noranda’s activity was concentrated in the
Lik North Area where ten diamond drill holes with an aggregate depth of 13,710 feet were completed on four sections. Noranda
also drilled holes in the Lik South deposit to better define the deposit. Noranda released its interest in the Lik property after a
re-organization of its holdings in the United States. From 1985 through June of 2007, when Zazu acquired its interest in the
Lik property, only a limited amount of work was conducted at Lik.
Zazu completed diamond drilling programs during the 2007, 2008 and 2011 summer field seasons. From 2009
through 2014, Zazu conducted a suite of economic, engineering, environmental and metallurgical studies on the Lik property,
culminating with the completion of a PEA in 2014.
5. Geological Setting
The regional geology of the Western Brooks Range area is structurally complex. The sedimentary rocks of the area
have been significantly disrupted by thrust sheets. The Lik property and the other zinc-lead deposits of the Brooks Range,
including Red Dog, are hosted in the Kuna Formation of the Lisburne Group. In the Western Brooks Range, the Lisburne
Group includes both deep and shallow water sedimentary facies and local volcanic rocks. The rocks have been extensively
disrupted by thrusting. The deep-water facies of the Lisburne Group, the Kuna Formation, are exposed chiefly in the Endicott
Mountains.
On a district scale, the Lik property is hosted in the Red Dog plate of the Endicott Mountains thrust sheet. The
stratigraphically lowest rocks within the Red Dog plate belong to the Kayak Shale. The top of the Kayak Shale is interbedded
with rocks of the Kuna Formation. The Ikalukrok Unit has been divided into a lower laminated black shale sub-unit and an
upper medium- to thick-bedded black chert sub-unit. The Ikalukrok Unit hosts all of the massive sulfide deposits in the area.
Locally, the Lik property is hosted in the upper part of the Ikalukrok Unit of the Kuna Formation. The host rocks are
carbonaceous and siliceous black shale, with subordinate black chert and fine-grained limestone. These rocks strike broadly
north-south and dip at about 25o to 40o to the west. The massive sulfides are overlain conformably by rocks of the Siksikpuk
Formation. The sequence is overridden by allochthonous rocks that form high hills north and west of the deposits.
The mineralized sequence is cut by a number of faults. The most significant disruption is the Main Break Fault, which
drops the northern end of the Lik deposit down about 500 feet. It is unclear whether there is a change in strike north of the fault,
or whether the change is more apparent due to topography. The Main Break Fault strikes east-west and dips north at about 60o.
There is another group of steeper faults that tend to strike northerly or northwesterly and which are interpreted as being both
normal and reverse with throws of up to 330 feet.
6. Prior Exploration and the Results of the 2019 Exploration Program
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The Red Dog ore deposit was originally discovered in 1970 by a geologist undertaking mapping in the De Long
Mountains area on behalf of the United States Geological Survey. The Lik deposit was discover by GCO in the mid-1970’s by
following up on soil color and stream geochemical anomalies. From the late 1970’s to 2011, various geochemical, geophysical
and geologic activities were intermittently conducted to define drill targets. The Lik property was sporadically drill tested from
the late-1970’s to 2011 by seven different companies. Details of these historical drilling campaigns are discussed above under
the heading “History” and below under the heading “Drilling.”
The 2019 exploration program consisted of geologic mapping, geochemical sampling, re-logging of old core, XRF
analysis for trace elements in old core, reinterpretation of the stratigraphic and structural setting in the vicinity of the Lik
deposit and ground gravity geophysical surveying. The geologic mapping program resulted in a better understanding of the
stratigraphic and structural control of mineralization at Lik, and the potential trend of mineralization to the north. Geochemical
sampling indicates an area of elevated geochemistry to the north that could be proximal to zinc mineralization. The gravity
survey results are somewhat uncertain, but may point to an area of interest, also to the north. The stratigraphic and structural
reinterpretation in the vicinity of the Lik deposit suggests the potential for stacked deposits below the Lik deposit.
7. Mineralization
The Lik deposit is a black shale-hosted stratiform zinc-lead-silver sedimentary-exhalitive (SEDEX) deposit.
Mineralization is syngenetic with respect to sediment deposition. Silicification occurs within and peripheral to the main mass of
sulfides. Major sulfides in decreasing order of abundance are pyrite-marcasite, sphalerite and galena. The ore textures are
massive, fragmental, chaotic, and veined; they rarely show typical sedimentary layering. The portion of the ore body near the
surface is oxidized. The deposit is continuous outside the Lik property onto the adjacent 100%-owned Teck property to the
south. The southern continuation of the Lik deposit is referred to as the Su deposit, lying on Teck’s Su property.
Within the Lik property, the deposit is divided into two parts by the Main Break Fault. The main part of the deposit
within the existing claims is referred to as the Lik South deposit. As presently tested, the Lik South deposit has a surface
footprint of about 3,600 feet long and about 2,000 feet wide. It has been tested down dip to a depth of about 650 feet. The Lik
South deposit remains open down dip. North of the Main Break Fault, the Lik North deposit has a surface footprint of about
2,300 feet long and about 1,150 feet wide. It has been tested down dip to a depth of about 1,000 feet. The Lik North deposit
remains strongly open down dip and to the north.
The deposits strike northerly and dip westerly at about 25o to 40o. The mineralization comprises irregular, stratiform
lenses. The mineralogy of the sulfides is simple and comprises pyrite, marcasite, sphalerite, and galena. Gangue minerals
include quartz (as chert), clay minerals, carbonate and barite. Noranda recognized six different ore types in its logging of drill
core. Typical grades of mineralized intersections within the Lik deposit are listed in the table below:
Typical Mineralized Intersections
Hole
No.
From
(m)
To
(m)
Length
(m)
Zn
(%)
Pb
(%)
Ag
(g/t)
5
16
21
24
38
38
43
43
43
68
54.56
78.79
24.23
19.72
6.27
126.5
80.16
94.49
14.33
21.67
7.01
230.4
129.54
135.33
5.79
7.07
1.88
40.87
50.14
9.27
11.09
1.44
45.90
63.76
17.86
8.13
1.80
70.53
87.75
17.22
8.92
2.08
35.66
40.69
5.03
17.66
3.62
8.6
51.1
48.0
28.8
8.6
60.96
80.28
19.32
9.07
2.49
47.7
84.73
91.04
6.31
21.07
5.95
111.4
32.31
53.43
21.12
13.34
2.85
56.9
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Previous work by GCO determined that sulfides were deposited in four distinct cycles. Individual cycles may be quite
thin near the margins of the deposit and the thickest accumulation in a single cycle noted to date is about 45 feet thick. The
base of a sulfide cycle begins abruptly with the deposition of sphalerite, galena and pyrite. Typically, the highest grades are
found at or within 5-10 feet of the base of a sulfide cycle. In the central portion of the deposit several cycles are stacked and
comprise a cumulative thickness of up to 100 feet of mineralization.
8. Drilling
All diamond drill programs are summarized in the following table.
Historical Diamond Drilling Campaigns
Number
of Holes
Aggregate
Depth (m)
Company
10
79
14
3
1
6
16
1
3
2
11
58
25
229
1,603.3 Managed by WGM
10,680.2 Managed by WGM
4,931.1 Managed by GCO
202.1 Managed by GCO
835.2 Managed by GCO
1,643.5 Managed by GCO
4,883.1 Managed by Noranda
696.5 Managed by GCO
263.4 Managed by Moneta
283.5 Managed by GCO
1,393.5 Managed by Zazu
6,827.5 Managed by Zazu
3,871.0 Managed by Zazu
38,328.6
Year
1977
1978
1979
1980
1983
1984
1985
1987
1990
1992
2007
2008
2011
Totals
Zazu completed two diamond drilling programs during the 2007 and 2008 to further test the Lik South deposit and to
obtain samples for metallurgical testing. At the end of 2008, most of the Lik South deposit had been tested on lines spaced at
200 ft. with holes spaced at about 100 ft.
The 2011 drilling program at Lik combined exploration and development drilling. The exploration drilling focused on
improving resource definition, in particular near the transition zone between Lik South and Lik North and also Lik North. The
development drilling focused on obtaining additional metallurgical samples and geotechnical drilling for the open pit design
and foundation information to assist in infrastructure design. By the end of 2011, a total of approximately 38,328 meters
(125,700 feet) of drilling in 229 holes had been completed on the Lik property by the Company (Zazu) and the previous
owners. No drilling has been completed on the Lik project since 2011.
9. Sampling, Analysis and Security of Samples
Pre-Zazu Drilling
Core recoveries were typically high within the massive sulfides, but lower, more variable recoveries were obtained in
the unmineralized and weakly mineralized sections. The entire core obtained from the Lik deposit, usually NQ-size, was
logged on site. All of the core containing sulfide mineralization was cut using diamond saws and half of the core was sent for
assay. Reference samples were not included in the sample stream. Sample lengths in massive sulfides were typically from two
to three feet, but occasionally up to nine feet. Sample lengths were probably controlled by geology and the location of depth
markers in the core boxes.
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Most of the samples were assayed by Bondar Clegg Laboratory Group (“Bondar Clegg”) of Vancouver. At various
times, the laboratory-maintained preparation facilities in Anchorage and Fairbanks Alaska. In the initial years, when the bulk of
the drilling was completed, it is believed that sample preparation and analysis were carried out in Vancouver. Bondar Clegg
was not a registered laboratory at that time. However, Bondar Clegg was a recognized, reputable laboratory and was
experienced in the use of atomic absorption spectrophotometry.
As the entire core was logged and sampled in an isolated field camp, security was not a major concern because access
to the camp was closely controlled. It is noted that four different companies (WGM, GCO, Noranda and Moneta) have
completed drilling programs at the Lik property and all of them have obtained consistent results. The work was considered
completed to industry standards in use at the time of the work. Sample preparation was completed in the assay laboratory.
Zazu Drilling
Drill core obtained during the 2007, 2008 and 2011 drilling campaigns was logged on site. The entire core containing
sulfide mineralization was sawn using diamond saws and half of the core was sent for assay. All massive and high-sulfide cores
were sampled. Visual methods were used to select sample boundaries and lengths. The mineralization at Lik is considered to
be appropriately logged and sampled. It is not evident that logging or sampling is leading to any bias in the sample results. An
examination of logging showed that core recovery in sulfide areas was generally very high.
Core drilled in 2007 was placed in the sample bags, the air was evacuated and replaced with nitrogen. The samples
were sent to Kotzebue by charter and then by licensed carrier to Anchorage. The samples were stored under refrigeration in
Anchorage. The samples were dispatched to G & T Metallurgical Services Ltd. (“G & T”) of Kamloops, British Columbia, an
ISO 9001:2000 certified laboratory for precious metals and base metals. As well as completing metallurgical testing, G & T
crushed and analyzed the samples. The 2008 diamond drill core was not required for metallurgical testing and core was
handled normally. Sawn samples were securely bagged and boxed on site and dispatched to a facility of ALS Laboratory Group
(“ALS Chemex”) located in Fairbanks, Alaska, for sample preparation. Transportation of the samples was through third-party
companies that provided secure transportation services. The pulps were analyzed at ALS Chemex located in Fairbanks or Elko,
Nevada. Zazu did not participate in any part of the sample preparation or analysis except for cutting core.
Check samples from the 2007 drilling program and all samples from the 2008 drilling campaign were sent to the
preparation and assaying facilities of ALS Chemex (ISO 17025 accreditation). Other QA/QC procedures employed by Zazu
included the use of blanks (unmineralized core from outside of the mineralized zone) and quartered core duplicates. Zazu was
unable to obtain acceptable reference samples for the 2007 field season and reference samples were not included as part of the
2007 ongoing QA/QC program. Reproducibility between G & T and ALS Chemex was found to be good. A detailed
description of QA/QC procedures can be found in the Solitario’s Canadian SEDAR filings and in the Company’s US Edgar
filings: Technical Report; Zazu Metals Corporation, Lik Deposit, Alaska, USA; Report Date: April 23, 2014; Effective Date:
March 3, 2014; prepared by JDS Energy and Mining Inc (“JDS”).
.
10. Prefeasibility Studies
Zazu completed a PEA in 2014 that incorporated a variety of prefeasibility level studies into the analysis. These
studies included resource estimation, mining and processing recovery estimates, a preliminary mining and processing plan,
infrastructure layout, environmental considerations and an economic analysis based on the base case parameters. The PEA
envisioned an open pit mining operation with a 5,500 ton per day floatation mill for processing resulting in a nine-year mine
life. Concentrates would be handled through the DMTS road and port system that currently handles all concentrate produced
by the nearby Red Dog zinc mine of Teck. A summary of metallurgical testing and mineral processing is provided below. The
PEA analyzed the Lik project as a stand-alone operation building its own independent processing, tailings and port facilities.
Zazu engaged JDS to complete the PEA on the Lik deposit in 2013. The NI 43-101 compliant study entitled:
“Technical Report; Zazu Metals Corporation, Lik Deposit, Alaska, USA; Report Date: April 23, 2014; Effective Date: March
3, 2014;” can be found in the Company’s Canadian Sedar filings and is furnished in the Company’s U.S. Edgar filings. JDS is
a Canadian independent and internationally recognized mining engineering firm providing engineering services internationally.
Metallurgical Testing and Mineral Processing
There have been five metallurgical test work reports issued to date on the Lik ores. The most recent and
comprehensive processing and metallurgical testing programs include work performed by G&T and by SGS. Samples
collected during drilling in 2007 and 2008 were composited into one Master Composite for testing at G&T in 2008, and later
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testing by SGS was carried out in 2010 on the remainder of the Master Composite. These key testing results have formed the
basis for this economic evaluation of the Lik deposit. Results are summarized in the table below:
Summary of SGS 2010 and G&T 2008 Metallurgical Test Results
Test
Element
Feed
Lead Concentrate
Zinc Concentrate
Grade Grade Recovery Grade Recovery
SGS 2010
G&T 2008
Average Used for
Mass Balance and
NSR Estimates
Pb%
Zn%
Ag gpt
Pb%
Zn%
Ag gpt
Pb%
Zn%
Ag gpt
2.83
9.56
37
2.36
8.47
34
2.60
9.02
36
52.00
69.10
7.39
55
70.30
4.17
68
61.15
5.78
62
2.91
5.5
70.3
1.20
4.8
69.7
2.06
5.2
1.88
54.60
68
1.57
52.20
64
1.73
53.40
66
9.70
83.10
26.6
9.4
86.9
26.9
9.6
85.0
26.8
The metallurgical flowsheet for this PEA includes conventional crushing, grinding, and flotation processing methods.
Run-of–Mine (ROM) ore will be delivered to a primary crushing plant and stored in a coarse ore stockpile awaiting reclaim
into the grinding circuit. Crusher ore will be reclaimed and delivered to a two-stage grinding circuit equipped with a Semi-
Autogenous Grinding (SAG) mill and a ball mill in closed circuit with cyclones.
Recoveries from these modeled methods and metallurgical testing conducted to date are anticipated to be 85% of zinc
to the zinc concentrate and 69.7% of the lead to the lead concentrate. Silver is also recovered and payable at times in the zinc
concentrate and more significantly in the lead concentrate.
11. Reserves
There are no reported mineral reserves.
12. Mining Operations
No commercial mining operations to recover metals have occurred on the project.
13. Planned Exploration and Development
Solitario and Teck are in discussions to jointly fund a 2020 exploration program with Teck acting as project operator.
The program, if approved, consists of drilling two or three core holes totaling approximately 1,000 meters. Drill targets under
consideration include an area approximately one kilometer north of Lik and also below the Lik deposit to test for stacked
mineralized horizons. Drilling is expected to begin during the 2020 summer field season. We expect to reach a final decision
on this program during the first quarter of 2020.
Chambara Zinc Property (Peru)
In April 2008, we signed the Minera Chambara shareholders’ agreement with Votorantim on Solitario's 100%-owned
Chambara zinc project. In 2015 Votorantim transferred its interest in the Chambara project to Milpo, now Nexa. In October of
2017, Milpo and Votorantim merged to form Nexa. For the remainder of this Chambara property section, all references to
Votorantim, Milpo or Nexa are collectively referred to as “Nexa.”
The original purpose of the Chambara joint venture was to collectively pool independently owned Solitario
and Nexa properties into a jointly held joint venture. These properties were located within a large area of interest in northern
Peru measuring approximately 200 by 85 kilometers, but outside of the Florida Canyon property position. Nexa 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 an extensive exploration data base in our
possession for an 85% interest in Minera Chambara. Existing
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and future acquired properties subject to the terms of the shareholders’ agreement will be controlled by Minera Chambara.
Minera Chambara dropped selected concessions in 2013 and 2016 and acquired the rights to 13 new concessions totaling
11,600 hectares in 2017. This resulted in Minera Chambara holding 36,400 hectares of valid concessions that completely
surround the Florida Canyon project area held by Minera Bongará. As of December 31, 2019, Minera Chambara’s only assets
are the properties and Minera Chambara has no debt. Nexa may increase its shareholding interest to 49% through cumulative
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 Nexa provides such construction financing, we would repay that financing,
including interest, from 80% of Solitario's portion of the project cash flow.
The project has been on care and maintenance in recent years. Significant geochemical anomalies and outcropping
mineralization have been identified at several locations on the Chambara property. Nexa is responsible for maintaining the
property in good standing and making all concession payments to the Peruvian government. Concession costs in 2020 to be
paid by Nexa are estimated to be $527,000.
La Promesa Project (Peru)
The La Promesa property, acquired in 2008, consists of three concessions totaling 2,600 hectares. Currently, our only
holding costs for the mineral rights are annual payments of nine dollars per hectare to the Peruvian government. Total holding
costs in 2020 will be approximately $34,000. A subsidiary of Newmont holds a 2% net smelter return (“NSR”) on the
property.
During the past several years Solitario has conducted an active social engagement program with the community
located near the La Promesa project area with the objective of obtaining a community agreement to support exploration
activities, including drilling. To date, no agreement has been signed and we are planning to conduct limited exploration
activities on the property in 2020. In Peru, a community agreement is required in order to obtain drilling permits. During 2020
our objectives are to complete an agreement with the local community, to conduct surface exploration, and if warranted,
conduct a drilling program.
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
Discontinued Projects
We did not abandon any mineral properties during 2018 or 2019.
“Allochthonous” means originating in a place other than a place where it was formed.
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.
“Anticline” means folds in which each half of the fold dips away front the crest.
“Breccia” means rock consisting of fragments, more or less angular, in a matrix of finer-grained material or of cementing
material.
“Carbonaceous” means a compound relating to or containing carbon.
“Chert” means a sedimentary rock of microcrystalline quartz (the mineral form Silicon dioxide - SiO2).
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“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.
“Domal” means of a dome shape.
“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.
“Galena” means a bluish gray or black mineral of metallic appearance, generally the chief ore of lead sulfide.
“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 ore bodies that are strata bound, irregular to rod shaped ore occurrences usually
horizontal or near horizontal in attitude.
“Metallurgy” means the domain of materials science and engineering that studies the physical and chemical behavior of
metallic elements and their inter-metallic compounds, alloys.
“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.
“Ounce” means a troy ounce.
“Oxide” means a mineral class in which the chemical compound that typically contains an 0 -2 oxygen atom in its chemical
formula.
“Pyrite” means a compound of iron sulfide (FeSO2) commonly found in mineral rich areas.
“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.
“Shale” means a fine-grained sedimentary rock that forms from the compaction of silt and clay commonly referred to as mud.
“Sediment” means solid material settled from suspension in a liquid.
“Sedimentary Exhalative Deposits (SEDEX)” means ore deposits which have been formed by the release of ore-bearing
hydrothermal fluids into a water reservoir.
“Silicification” means the process in which organic matter becomes saturated with silica (silicon dioxide).
“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.
“Spectrophotometry” means the quantitative measurement of the reflection properties of a material as a function of its
wavelength.
“Stratiform” means formed parallel to the bedding places of surrounding rock.
“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.
25
“Syngenetic” means a mineral deposit that forms at the same time as the surrounding rock.
“Ton” means a short ton (2,000 pounds).
“Tonne” means a metric measure 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
26
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 American exchange under the symbol “XPL” and on the TSX under the
symbol “SLR.” Since 2008 trading volume of our common stock on the NYSE American exchange has exceeded the trading
volume of our stock on the TSX by a substantial margin.
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”). On June 29, 2017, Solitario shareholders approved an amendment to the 2013 Plan,
which increased the number of shares available of common stock for issuance under the 2013 Plan from 1,750,000 to
5,750,000. Under the terms of the 2013 Plan, the Board of Directors may grant 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 options are granted by the Board of Directors
or a committee appointed by the Board of Directors.
On September 1, 2017, the Board of Directors granted, subject to shareholder approval at the next meeting of
shareholders, 2,300,000 stock options under the 2013 Plan to officers and members of the Board of Directors (the “Conditional
Options”). The Conditional Options were approved by Solitario’s shareholders at Solitario’s annual meeting on June 19, 2018.
The Conditional Options have a five-year life, an exercise price of $0.77 per share, and a grant date fair value of $970,000,
based upon a Black-Scholes model with a volatility of 64%, and a risk-free interest rate of 1.70%. The Conditional Options
vest on the schedule of 25% on date of approval of the grant (June 19, 2018) and 25% on each of the next three anniversary
dates of the date of grant (September 1, 2018, 2019 and 2020).
On November 1, 2018, the Board of Directors granted 1,623,000 stock options under the 2013 Plan. These options
have a five-year life, vested 25% on the date of grant and vest 25% on each of the next three anniversary dates of the date of
grant, and have an exercise price of $0.31 per share, and a grant date fair value of $282,000, based upon a Black-Scholes model
with a an expected volatility of 64%, and a risk free interest rate of 2.98%.
On January 24, 2019, the Board of Directors granted 150,000 stock options under the 2013 Plan. These options have a
five-year life, vested 25% on the date of grant and vest 25% on each of the next three anniversary dates of the date of grant, and
have an exercise price of $0.28 per share, and a grant date fair value of $23,000, based upon a Black-Scholes model with a an
expected volatility of 64%, and a risk free interest rate of 2.4%.
Equity Compensation Plan Information as of December 31, 2019:
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(2013 Plan – US$)
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
4,373,000
-
4,373,000
0.58
N/A
0.58
1,326,438
-
1,326,438
Plan category
2013 Plan
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total 2013 Plan
Holders of our common stock
As of February 28, 2020, we have approximately 3,155 holders of our common stock.
Dividend policy
27
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, 2019.
Period
October 1, 2019 – October 31, 2019
November 1, 2019—November 30, 2019
December 1, 2019—December 31, 2019
Total Number of
Shares Purchased
Average Price Paid
Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)
Maximum
number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs(1)
1,800
-
500
$0.29
N/A
$0.27
1,800
-
500
1,031,200
1,031,200
1,030,700
(1)
On October 28, 2015, the Board of Directors authorized a share repurchase program pursuant to which
Solitario may acquire up to 2 million of its common shares. All purchases listed were made in open-market transactions
through a broker dealer. During 2019 the Board of Directors extended the termination date of the repurchase program to
December 31, 2020; however, the repurchase program may be suspended or discontinued at any time and does not obligate
Solitario to acquire any particular amount of our shares. During the years ended December 31, 2019 and 2018, we purchased
38,400 and 263,100 shares of Solitario common stock, respectively, for an aggregate purchase price of $13,000 and $101,000,
respectively. As of December 31, 2019, we have purchased a total of 969,300 shares of Solitario common stock for an
aggregate purchase price of $462,000 under the share repurchase program since its inception.
28
Item 6. Selected Financial Data
The following table summarizes the consolidated statements of operations and balance sheet data for our business
since January 1, 2015. This data has been derived from our audited consolidated statements of operations for each of the five
years ended December 31, 2019 and our audited consolidated balance sheets as of December 31, 2019, 2018, 2017, 2016 and
2015. 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 (1)
Long-term debt
Shareholders' equity
2019
$ 8,756
$24,532
$ 8,487
$ -
$24,131
As of December 31,
2017
$14,613
$30,395
$14,472
$ -
$30,129
2018
$12,136
$27,903
$11,448
$ -
$27,090
2016
$16,797
$17,614
$16,671
$ -
$17,488
Statement of operations data:
(in thousands, except per share amounts)
Revenue, net – mineral property sale
Net (loss) income
Per share information:
Basic and diluted
Net (loss) income
(1) Working capital consists of current assets less current liabilities.
2019
$ 408
$(3,289)
$(0.06)
2015
$17,990
$18,054
$17,811
$ -
$17,875
2015
$ -
$8,872
Year ended December 31,
2017
$ -
$(942)
2018
$ 502
$(3,598)
2016
$ -
$(1,710)
$(0.06)
$(0.02)
$(0.04)
$0.23
29
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). Recent Developments
On January 22, 2019, we completed the sale of our interest in certain royalties to SilverStream SEZC, a private
Cayman Island royalty and streaming company (“SilverStream”), for Cdn$600,000 (the “Royalty Sale”). The Royalty Sale
covered (i) a royalty on the formerly Solitario-owned 125,000-acre polymetallic Pedra Branca palladium, platinum, gold,
nickel, cobalt and chrome project in Brazil, (ii) a royalty covering 3,880 acres of non-producing exploration properties in
Mexico, and (iii) a purchase option on royalties covering 11 separate non-producing properties covering over 16,500 acres in
Montana. At the closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and a convertible note from SilverStream
in the principal amount of Cdn$350,000 (the “SilverStream Note”). The SilverStream Note was originally due December 31,
2019, accrued 5% per annum simple interest, payable on a quarterly basis, and is convertible into common shares of
SilverStream, at the discretion of SilverStream, by providing a notice to us of conversion. In December of 2019, Solitario and
SilverStream agreed to extend the due date of the SilverStream Note to June 30, 2020, and to increase the interest rate to 8% per
annum simple interest. All other terms of the SilverStream Note remained the same. SilverStream may only provide a notice of
conversion if SilverStream has completed an initial public offering during the term of the SilverStream Note for minimum
proceeds of Cdn$5,000,000; otherwise the SilverStream Note will be payable in cash at the maturity date. Pursuant to the terms
of the SilverStream Note, if SilverStream were to complete an initial public offering and the SilverStream Note was converted,
we would receive common shares converted at 85% of the weighted average quoted price of a share of SilverStream common
stock for the most recent 10-day period prior to the notice of conversion. During 2019, we recorded mineral property revenue
of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair
value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties sold of $40,000. We
recorded interest income of $12,000 from the SilverStream Note during 2019. As of December 31, 2019, the SilverStream Note
was recorded at $268,000, based upon the current US dollar / Canadian dollar exchange rate, and Solitario recorded a credit to
exchange gain of $5,000, included in general and administrative expense during 2019.
(b). Business Overview and Summary
We are an exploration stage company at December 31, 2019 under Industry Guide 7, as issued by the 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 focus is the acquisition and
exploration of zinc-related exploration mineral properties. However, we continue to evaluate other mineral properties for
acquisition, and we hold a portfolio of mineral exploration properties and assets for future sale, joint venture or to create a
royalty up to the development stage of the project (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 likely attempt to sell a given mineral property, pursue its development
either on our own, or through a joint venture with a partner that has expertise in mining operations, or obtain a royalty from a
third party that continues to advance the property. Although our mineral properties may be developed in the future by us,
through a joint venture or by a third party, we have never developed a mineral property. In addition to focusing on its mineral
exploration properties and the evaluation of mineral properties for acquisition, Solitario also evaluates potential strategic
corporate transactions as a means to acquire and interest in new precious and base metal properties and assets with exploration
potential as well as other potential corporate transactions and combinations determined to be favorable to Solitario.
Our geographic focus for the evaluation of potential mineral property assets is in North and South America; however,
we have conducted property evaluations for potential acquisition in other parts of the world. At December 31, 2019, we
consider our carried interest in our Florida Canyon project in Peru and our interest in the Lik project in Alaska to be our core
mineral property assets. In addition, at December 31, 2019, we have one exploration property in Peru. We are conducting
independent exploration activities in Peru and through joint ventures operated by our partners in Peru and the United States.
We conduct potential acquisition evaluations in other countries of both South and North America.
As of December 31, 2019, we have significant balances of cash and short-term investments that we anticipate using, in
part, to fund planned 2020 exploration, to further the exploration of our Lik project, conduct exploration on the La Promesa
project in Peru, and to potentially acquire additional mineral property assets. The fluctuations in commodity prices of base and
precious metals has contributed to a challenging environment for mineral exploration and development, which has created
30
opportunities as well as challenges for the potential acquisition of advanced mineral exploration projects or other related assets
at potentially attractive terms.
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 potential
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 zinc is down, the value of zinc-
bearing mineral properties decreases; however, when the price of zinc is up it may become more difficult and expensive to
locate and acquire new zinc-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.
Historically, we have recorded revenues and met our need for capital in the past through (i) the sale of properties and assets; (ii)
joint venture payments, including delay rental payments; (iii) a royalty sale on our former Mt. Hamilton property; (iv) the sale
of our shares of Vendetta and Kinross common stock; (v) long-term debt secured by our mineral property; (vi) short-term
margin borrowing; and (vii) issuances of common stock. During 2019 we recorded mineral property income of $408,000 from
the Royalty Sale, discussed above. During 2018 we recorded mineral property income from the sale of our Yanacocha Royalty
of $502,000. In 2015 we recorded a gain on the sale of our interest in Mount Hamilton LLC of $12,309,000. During June
2012, we sold a royalty interest in our Mt. Hamilton project to Sandstorm Gold Ltd. for $10,000,000. Previous to the sale of
our interest in Mt. Hamilton LLC, our last significant cash proceeds from a property or asset sale were recorded in 2000 upon
the sale of our former Yanacocha property for $6,000,000. Proceeds from the sale or joint venture of properties, although
significant when they occur, have not been a consistent annual source of cash and would occur in the future, if at all, on an
infrequent basis. We have reduced our exposure to the costs of our exploration activities in the past through the use of joint
ventures. Although we anticipate the use of joint venture funding for some of our exploration activities will continue for the
foreseeable future, we can provide no assurance that these or other sources of capital will be available in sufficient amounts to
meet our needs, if at all.
(c). Results of Operations
Comparison of the year ended December 31, 2019 to the year ended December 31, 2018
We had a net loss of $3,289,000 or $0.06 per share for the year ended December 31, 2019 compared to a loss of
$3,598,000 or $0.06 per basic and diluted share for the year ended December 31, 2018. As explained in more detail below, the
primary reasons for the decrease in net loss during 2019 compared to 2018 was a decrease in (i) general and administrative
expense to $1,368,000 during 2019 compared to general and administrative expense of $1,954,000 during 2018; (ii) an increase
in interest income to $252,000 during 2019 compared to interest income of $192,000 during 2018 and (iii) a reduction in the
unrealized loss on marketable equity securities to $711,000 during 2019 compared to a unrealized loss on marketable equity
securities of $1,058,000 during 2018. Partially offsetting these factors that served contributed to the decrease in our net loss in
2019 were (i) a reduction in mineral property sale revenue to $408,000 from the Royalty Sale during 2019 compared to
$502,000 from the sale of our Yanacocha Royalty during 2018; (ii) an increase in exploration expense to $1,807,000 during
2019 compared to exploration expense of $1,254,000 during 2018 and (iii) a loss on derivative instruments of $38,000 during
2019 with no similar item during 2018. Each of these items is discussed in greater detail below.
Our primary exploration activities during 2019 and 2018 were related to the Florida Canyon drilling program, started
in 2018 and completed in 2019. Solitario agreed to pay a total of $1,580,000 toward a 39-hole 17,033- meter drilling program
at Florida Canyon in three tranches based upon Nexa completing a fixed number of meters of drilling (the “Drilling Program”).
During the fourth quarter of 2018, Nexa completed the first tranche of drilling, and Solitario recorded $527,000 of exploration
expense related to the Drilling Program during 2018 accrued as accounts payable at December 31, 2018. This compared to
exploration expense of $1,054,000 related to the Drilling Program during 2019 when Nexa completed the remaining drilling
commitment. In addition, we incurred other exploration expenses at Florida Canyon of $18,000 and $24,000, respectively,
during 2019 and 2018 not related to the Drilling Program. Nexa is evaluating the 2020 exploration program at Florida Canyon,
however Solitario is not required to provide any of the exploration funding at Florida Canyon during 2020. Solitario incurred
$199,000 of exploration expense during 2019 at its Lik project in Alaska as part of a 50/50 exploration program managed by its
joint venture partner, Teck. This compares to exploration expense of $125,000 at the Lik project during 2018. During 2019,
Teck completed extensive re-logging, re-mapping and related field work at Lik which resulted in the increased costs during
2019 compared to 2018. We are evaluating, along with Teck, a modest drilling program. The program, if approved, consists of
drilling two or three core holes totaling approximately 1,000 meters. Drill targets under consideration include an area
approximately one kilometer north of Lik and also below the Lik deposit to test for stacked mineralized horizons. Solitario
would be responsible for 50% of the expenditures. During 2019 and 2018 we incurred exploration expense of $92,000 and
31
$86,000, respectively, at our La Promesa project in Peru. These expenditures primarily related to community agreements and
general exploration activities. We are planning a very limited exploration effort at La Promesa during 2020 and expect our
related expenditures there will be lower during 2020 than in 2019. The remaining exploration expenditures during 2019 and
2018 related to reconnaissance work, including the evaluation of potential mineral properties for acquisition. We anticipate our
2020 reconnaissance exploration expenditures will be reduced from our 2019 expenditures. Our 2020 total exploration and
development budget is approximately $976,000, which reflects the significant reduction in the expenditures at Florida Canyon,
La Promesa and reconnaissance exploration, and the anticipated increase in exploration at our Lik project during 2020.
Although we may acquire new mineral exploration properties during 2020, our 2020 exploration budget does not reflect any
costs for projects we do not currently own. Our planned exploration activities in 2020 may be modified, as necessary for any
drilling programs we may undertake, changes related to potential 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
Florida Canyon
Lik project
La Promesa
Reconnaissance exploration activity
Total exploration expense
2019
$ 1,072
199
92
444
$1,807
2018
$ 550
125
86
493
$1,254
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 $1,025,000
during 2019 compared to $1,294,000 during 2018. We reduced salary and benefits expense to $427,000 during 2019 compared
to $619,000 during 2018 as a result of reductions in staff and salaries. In addition, (i) legal and accounting costs decreased to
$185,000 during 2019 compared to $208,000 during 2018, primarily due to reduced activity; (ii) travel and investor relation
costs decreased to $271,000 during 2019 compared to $308,000 during 2018 as a result of reductions in personnel and reduced
market activities; (iii) we recorded directors and officer insurance expense of $53,000 during 2019 compared to $60,000 during
2018; and (iv) other costs related to office, insurance and miscellaneous costs decreased to $89,000 during 2019 compared to
$99,000 during 2018. We anticipate general and administrative costs for 2020 will be similar to the costs incurred during 2019;
however, this amount may vary significantly during 2020 depending on the outcome of our property evaluations and any
strategic transactions we may attempt to execute upon. We have forecast 2020 general and administrative costs to be
approximately $1,122,000, excluding non-cash stock option compensation expense.
We account for our employee stock options under the provisions of Accounting Standards Codification No. 718
(“ASC No. 718”). 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, 2019, we recorded $343,000 of non-cash stock option expense for the amortization of our
outstanding options grant date fair value with a credit to additional paid-in-capital compared to $660,000 of non-cash stock
option compensation expense during 2018. The amount was higher during 2018 primarily due to the amortization of
2,300,000 Conditional Options, which were approved on June 19, 2018 by our shareholders, and we recorded $422,000 of
stock option compensation related to those options during 2018 for the vested portion of the grant date fair value of those
options as of the date of approval. The majority of our remaining stock option compensation during 2019 and 2018 related to
the normal vesting of other outstanding options. See Note 11, “Employee Stock Compensation Plans,” to our consolidated
financial statements in Item 8, “Financial Statements and Supplementary Data to this Form 10-K” 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.
We recorded an unrealized loss on marketable equity securities of $711,000 during 2019 in the statement of operations
compared to an unrealized loss on marketable equity securities of $1,058,000 recorded during 2018. The loss in both periods
was primarily related to a decrease in the value of our holdings of 11,000,000 shares of Vendetta common stock, which
decreased from a fair value of $2,192,000 at December 31, 2017 to a fair value of $1,249,000 at December 31, 2018, to a fair
value of $424,000 at December 31, 2019, based on quoted market prices. In addition, we acquired an additional 3,450,000
common shares of Vendetta as part of the acquisition of certain Vendetta units in July of 2019, which decreased in the allocated
fair value from the date of acquisition of $165,000 to a fair value of $133,000 on December 31, 2019, each unit consisting of
one common share and one warrant to acquire one common share (the 2019 Vendetta Warrants). In addition, we recorded an
unrealized gain on marketable equity securities of $150,000 during 2019 compared to an unrealized loss of $108,000 on our
holdings of Kinross during 2018. We adopted ASU 2016-01 in the first quarter of 2018. We recorded a cumulative-effect
adjustment for the change in accounting principle to accumulated deficit of $576,000 related to the adoption of ASU 2016-01.
See Note 12, “Shareholders’ Equity” to the consolidated financial statements.
32
As of December 31, 2019, we had 14,450,000 shares of Vendetta common stock and 3,450,000 2019 Vendetta
Warrants. We may sell some of our marketable equity securities from time to time during 2020 for working capital needs;
however, we do not expect to sell all of our holdings of marketable equity securities during 2020. Any proceeds we may
receive from sales of marketable equity securities during 2020 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, 2019. See “Liquidity and Capital Resources”
below.
We recorded a loss on derivative instruments of $38,000 during 2019 primarily related to a loss on our 2019
Vendetta Warrants of $47,000 based upon a Black-Scholes model. This loss in value of the 2019 Vendetta Warrants
was primarily related to a reduction in the price per share of Vendetta common stock, which was Cdn$0.09 per share
when Solitario acquired the 2019 Vendetta Warrants and was Cdn$0.05 on December 31, 2019. Partially offsetting
this decrease was a gain of $9,000 on certain Kinross covered call options we sold during the third quarter of 2019.
We may continue to sell covered Kinross call options during 2019. There were no outstanding derivative instruments
during 2018.
We recorded $25,000 of depreciation and amortization during 2019 compared to $25,000 of depreciation and
amortization during 2018. The majority of our depreciation relates to depreciation on equipment acquired in 2017 as part of the
acquisition at the Lik project. We amortize these assets over a five-year period. We anticipate our 2020 depreciation and
amortization expense will be similar to our 2019 depreciation expense.
We recorded interest income of $252,000 during 2019 compared to interest income of $192,000 during 2018. The
increase during 2019 was primarily related to an increase in the value of our mark-to-market investment in United States
Treasury securities, which have a life of 30 days to 17 months, as a result of declining interest rates. The increase in interest
income was partially mitigated by a reduction in our outstanding balance of United States Treasuries. We anticipate our
interest income will decrease in 2020 compared to 2019 as a result of the use of our short-term investments and our cash
balances for ordinary overhead, operational costs, and the exploration, evaluation and or acquisition of mineral properties
discussed above. See “Liquidity and Capital Resources,” below, for further discussion of our cash and cash equivalent
balances.
We recorded no deferred tax expense or benefit in either 2019 or 2018 as we provide a valuation allowance for the tax
benefit arising out of our net operating losses for all periods presented. See Note 7, “Income Taxes” to our consolidated
financial statements in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for additional discussion of
our income tax valuation allowance, deferred tax assets and our net operating losses for 2019 and 2018. 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 2019 or 2018.
(d). Liquidity and Capital Resources
Cash
As of December 31, 2019, we had $574,000 in cash. We intend to utilize a portion of this cash and a portion of our
short-term investments, discussed below, to fund our ordinary overhead, operational costs, exploration activities and the
potential acquisition of mineral properties and other assets over the next several years. We may also use a portion of these
assets to repurchase shares of our common stock, pursuant to the terms of a stock buy-back program discussed below.
Short-term Investments
As of December 31, 2019, we have $6,829,000 of our current assets in United States Treasury securities (“USTS”)
with maturities of 30 days to 17 months. The USTS are recorded at their fair value, based upon quoted market prices. The
USTS are highly liquid and may be sold in their entirety at any time at their quoted market price and are classified as a current
33
asset. We anticipate we will roll over that portion of our USTS not used for operating costs or mineral property acquisitions as
they mature during 2020.
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, 2019. The
Kinross shares are recorded at their fair value of $474,000 at December 31, 2019. As of December 31, 2019, we own
14,350,000 shares of Vendetta common stock recorded at their fair market value of $556,000 based upon quoted market prices.
In addition, we own other marketable equity securities with a fair value of $9,000 as of December 31, 2019 based upon quoted
market prices. Changes in the fair value of marketable equity securities are recorded as gains and losses in the statements of
operations.
Working Capital
We had working capital of $8,487,000 at December 31, 2019 compared to working capital of $11,448,000 as of
December 31, 2018. Our working capital at December 31, 2019 consists primarily of our cash and cash equivalents, our
investment in USTS, discussed above, and our marketable equity securities, less our current liabilities of $269,000. As of
December 31, 2019, our cash balances along with our short-term investments and 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 expect 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, short-term investments, joint ventures, issuance of debt or equity, or the sale of other
exploration projects or assets.
Stock-Based Compensation Plans
At December 31, 2019, options to acquire 4,373,000 shares of our common stock were outstanding. There are
2,774,000 options that are vested and exercisable at December 31, 2019. At December 31, 2019, our outstanding options
include 150,000 options granted during 2019 that are in the money with an exercise price of $0.28 per share, which is below the
market price of a share of Solitario common stock at December 31, 2019 of $0.30 per share as quoted on the NYSE American
exchange. See Note 11, “Employee Stock Compensation Plans” to our consolidated financial statements in Item 8, “Financial
Statements and Supplementary Data of this Form 10-K for a discussion of the activity in our 2013 Plan during 2019 and 2018.
We do not anticipate that stock option exercises will be a significant source of cash during 2020.
Share Repurchase Program
On October 28, 2015, our Board of Directors approved a share repurchase program that authorized us to purchase up
to two million shares of our outstanding common stock. During 2019, our Board of Directors extended the term of the share
repurchase program until December 31, 2020. All shares purchased to date have reduced the number of shares of outstanding
common stock. The amount and timing of any shares purchased has been and 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 Exchange 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 have been or will be made outside of the United
States, including on the TSX. Payments for shares of common stock repurchased under the program are being funded using the
Company’s working capital. As of December 31, 2019, since the inception of the share repurchase program, we have purchased
a total of 969,300 shares for an aggregate purchase price of $462,000 and these shares are no longer included in our issued and
outstanding shares. We anticipate we will continue to purchase shares under the share repurchase plan during 2020 as
determined by management.
Off-balance sheet arrangements
As of December 31, 2019, and 2018, we have no off-balance sheet arrangements.
34
(e). Cash Flows
Net cash used in operations during the year ended December 31, 2019 increased to $2,639,000 compared to
$1,357,000 for the year ended December 31, 2018 primarily as a result of (i) the Drilling Program, which included the use of
cash of $1,580,000, during 2019, as discussed above, compared to no use of cash for the Drilling Program during 2018, as the
payment of $527,000 for the first tranche of drilling completed during 2018, was accrued as an accounts payable in 2018 and
paid in 2019 and (ii) a reduction in mineral property revenue to $408,000 during 2019 for the Royalty Sale, of which $186,000
was received in cash, compared to the sale of our Yanacocha Royalty for cash of $502,000 during 2018. Partially offsetting
this increased use of cash in operations was (i) a decrease in general and administrative expense, excluding non-cash stock
option compensation to $1,025,000 during 2019 compared to $1,294,000 during 2018 and (ii) additional interest income of
$252,000 during 2019 compared to $192,000 during 2018. These items are discussed in further detail above under “Results of
Operations.”
Net cash provided by investing activities increased to $3,109,000 during 2019 compared to net cash provided of
$1,361,000 during 2018. The primary source of cash was the sale of short-term investments of $3,338,000 during 2019
compared to $1,371,000 during 2018. During 2019 we used $233,000 to purchase of Vendetta units. There were no other
significant provisions or uses of cash during 2019 or 2018. We anticipate we will continue to utilize proceeds from the sale of
our short-term investments to fund our operations during 2020.
The net cash used in financing activities of $13,000 during 2019 and $101,000 during 2018 were for the repurchase of
common stock for cancellation, discussed above. We anticipate we will use a limited amount of cash approximating
expenditures during each of the past two years for the repurchase of shares during 2020.
(f). Development Activities, Exploration Activities, Environmental Compliance and Contractual Obligations
Development Activities
We do not have any ongoing mineral development activities, which are activities for the development of mineral
properties with reserves for potential mining.
Exploration Activities
A historically significant part of our business involves the review of potential property acquisitions and continuing
review and analysis of properties in which we have an interest, to determine the exploration and development potential of the
properties. In analyzing expected levels of expenditures for work commitments and property payments, our obligations to
make such payments fluctuate greatly depending on whether, among other things, we make a decision to sell a property
interest, convey a property interest to a joint venture, or allow our interest in a property to lapse by not making the work
commitment or payment required. In acquiring many of our interests in mining claims and leases, we have entered into
agreements, which generally may be canceled at our option. We are often required to make minimum rental and option
payments in order to maintain our interest in certain claims and leases. Our net 2019 mineral and surface property rental and
option payments, included in exploration expense, were $13,000. Our 2020 total exploration property rentals and option
payments for properties we own, have under joint venture, or operate are estimated to be approximately $859,000. 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 $816,000 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
35
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, 2019 and 2018, 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, 2019
Payments due by period
(in thousands)
Operating Lease Obligations (1)
Mineral property option and lease payments (2)
Total
$ 48
$ 43
Less than
1 year
$ 41
$ 43
1–3 years
$ 7
$ -
4–5 years
$ -
$ -
More than
5 years
$ -
$ -
(1) Lease obligation on our Wheat Ridge Colorado office.
(2) Mineral property payments under lease and property claim and concession payments for the next year, net of joint venture payments.
(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, 2019.
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.
Florida Canyon
The Florida Canyon 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 potential to be developed into a mine over the next several
years. The project is held in a joint venture between Nexa (61%) and Solitario (39%).
Solitario and Nexa jointly completed a PEA in 2017 that incorporated a variety of Nexa-generated prefeasibility
studies into the analysis. The PEA evaluation included resource estimation, mining and processing recovery estimates, a
preliminary mining and processing plan, infrastructure layout, environmental considerations and an economic analysis based on
certain base case parameters. The PEA envisioned an underground mining operation with a 2,500 tonne per day floatation mill
for processing, resulting in a 12.5-year mine life. Concentrates would be trucked to Nexa’s Cajamarquilla zinc smelter facility
in Lima, Peru.
The terrain at Florida Canyon is steep and previous project access supporting surface and underground work programs
was conducted by helicopter. The lack of road access restricted the scope of field activities to further advance the project.
During 2019 limited work was undertaken on road access to the project, and Nexa expects to continue to work on completing
the road access during 2020. During 2019, Nexa completed the Drilling Program and several significant drill intercepts were
encountered. Solitario reported the results of the drill intercepts during 2019. Nexa is evaluating the results of the Drilling
Program and Solitario anticipates Nexa will continue the exploration of Florida Canyon during 2020. Should Nexa complete
the road, heavy equipment will be able to enter the project area and allow feasibility related activities to proceed more
efficiently. Important future activities that may be facilitated by the completion of the road are the construction of an
underground tunnel into the Karen-Milagros high-grade zinc zone, detailed underground resource/reserve definition drilling,
surface drilling designed to increase the project resources and additional feasibility-related studies.
Solitario’s payments of $1,580,000 related to the Drilling Program are in the form of an advance on Solitario’s
commitment to fund 30% of any future development of Florida Canyon under the original joint venture agreement between
Solitario and Nexa. Accordingly, in the event Florida Canyon is developed, which cannot be assured at this time, the funds
paid to Nexa related to the Drilling Program, will reduce the amount of Solitario’s obligation to fund 30% of future
development costs, and / or repay any loans from Nexa for future development costs at Florida Canyon.
Lik project
The Lik project is an advanced-staged high-grade zinc project. The project is held in a joint venture between Teck
(50%) and Solitario (50%).
36
Zazu completed a PEA in 2014 that incorporated a variety of prefeasibility studies into the analysis. These studies
included resource estimation, mining and processing recovery estimates, a preliminary mining and processing plan,
infrastructure layout, environmental considerations and an economic analysis based on the base case parameters. The PEA
envisioned an open pit mining operation with a 5,500 ton per day floatation mill for processing resulting in a nine-year mine
life. Concentrates would be handled through the DMTS road and port system that currently handles all concentrate produced
by the nearby Red Dog zinc mine of Teck. The PEA analyzed the Lik project as a stand-alone operation building its own
independent processing, tailings and port facilities.
During 2019 Solitario and Teck jointly funded a gravity geophysical program, geologic mapping, geochemical
sampling, an evaluation of past baseline environmental work for mine permitting previously initiated by Zazu, and
rehabilitation work at the Lik camp. Based on this work, Teck and Solitario are evaluating a modest drilling program at Lik for
2020. The program, if approved, consists of drilling two or three core holes totaling approximately 1,000 meters. Drill targets
under consideration include an area approximately one kilometer north of Lik and also below the Lik deposit to test for stacked
mineralized horizons. It is anticipated Teck will manage the 2020 exploration program as the designated operator during 2020,
although Solitario will remain the operator of the joint venture in subsequent years.
Other Properties
Our 2020 total exploration and development budget is approximately $976,000 for exploration and evaluation of the
Lik project as well as our La Promesa project and evaluation of potential new acquisitions of properties primarily in Peru and in
other regions of North and South America. We expect to carry out our exploration activities during 2020 utilizing Teck at Lik
and our own employees and contract geologists on our other projects.
(h). Discontinued Projects
We had no mineral property impairments during 2019 or 2018. We did sell certain royalty properties in the Royalty
Sale during 2019, discussed above under “Recent Developments.”
(i). Significant Accounting Policies
See Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8, “Financial Statements and
Supplementary Data” of this Form 10-K 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” of this Form 10-K 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.
37
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2019 and
2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
Page
39
40
41
42
43
44
38
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Solitario Zinc Corp.
Wheat Ridge, Colorado
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Solitario Zinc Corp. (the “Company”) as of December 31,
2019 and 2018, the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in
the two-year period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Plante Moran, PLLC
We have served as the Company’s auditor since 2005.
Denver, Colorado
February 28, 2020
39
SOLITARIO ZINC CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share amounts)
December 31,
2019
December 31,
2018
Assets
Current assets:
Cash and cash equivalents
Short-term investments, at fair value
Investments in marketable equity securities, at fair value
SilverStream note receivable
Prepaid expenses and other
Total current assets
Mineral properties
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Operating lease liability
Total current liabilities
Long-term liabilities
Asset retirement obligation - Lik
Operating lease liability
Total long-term liabilities
Commitments and contingencies (Note 10)
Shareholders’ equity:
Preferred stock, $0.01 par value, authorized 10,000,000 shares (none issued
and outstanding at December 31, 2019 and 2018)
Common stock, $0.01 par value, authorized, 100,000,000 shares
(58,133,066 and 58,171,466, respectively, shares issued and outstanding
at December 31, 2019 and 2018)
Additional paid-in capital
Accumulated deficit
Total shareholders' equity
Total liabilities and shareholders' equity
See Notes to Consolidated Financial Statements.
$ 574
6,829
1,039
268
46
8,756
15,617
159
$24,532
$228
41
269
125
7
132
$ 117
10,223
1,585
-
211
12,136
15,657
110
$27,903
$688
-
688
125
-
125
-
-
581
70,204
(46,654)
24,131
$24,532
582
69,873
(43,365)
27,090
$27,903
40
SOLITARIO ZINC CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Revenue, net – mineral property sale
Costs, expenses and other
Exploration expense
Depreciation and amortization
General and administrative
Total costs, expenses and other
Other (expense) income
Interest and dividend income (net)
Unrealized loss on marketable equity securities
Loss on derivative instruments
Loss on sale of assets
Total other income (expense)
Net loss
Loss per common share
basic and diluted
Weighted average shares outstanding
Basic and diluted
See Notes to Consolidated Financial Statements.
For the years ended
December 31,
2019
$ 408
2018
$ 502
1,807
25
1,368
3,200
252
(711)
(38)
-
(497)
$(3,289)
1,254
25
1,954
3,233
192
(1,058)
-
(1)
(867)
$(3,598)
$(0.06)
$(0.06)
58,143
58,360
41
SOLITARIO ZINC CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(in thousands, of U.S. Dollars
except share amounts)
Balance at December 31, 2017
Cumulative-effect adjustment
change in accounting principle
Adjusted balance – January 1,
2018
Stock option expense
Repurchase of shares for
cancellation
Net loss
Balance at December 31, 2018
Stock option expense
Repurchase of shares for
cancellation
Net loss
Balance at December 31, 2019
Common Stock
Shares
58,434,566
Amount
$584
Additional
Paid-in
Capital
$69,312
Accumulated
Other
Accumulated Comprehensive
Deficit
$(40,343)
Income
Total
Shareholders’
Equity
$576
$30,129
-
-
-
576
(576)
-
58,434,566
584
69,312
(39,767)
-
-
660
-
(263,100)
-
58,171,466
(2)
-
582
(99)
-
69,873
(3,598)
(43,365)
-
-
343
-
(38,400)
-
58,133,066
(1)
-
$581
(12)
-
$70,204
(3,289)
$(46,654)
-
-
-
-
-
-
$ -
30,129
660
(101)
(3,598)
27,090
343
(13)
(3,289)
$24,131
See Notes to Consolidated Financial Statements.
42
SOLITARIO ZINC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(in thousands of U.S. Dollars)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Unrealized loss on marketable equity securities
Loss on derivative instruments
Employee stock option expense
Depreciation
Amortization of right of use lease asset
Loss on sale of assets
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Note receivable, net of mineral property sold
Accounts payable and other current liabilities
Net cash (used in) operating activities
Investing activities:
Sale of short-term investments - net
Purchase of Vendetta units
Sale of Kinross calls
Additions to other assets
Net cash provided by investing activities
Financing activities:
Repurchase of Solitario common stock for cancellation
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See Notes to Consolidated Financial Statements.
For the year ended
December 31,
2019
2018
$ (3,289)
$ (3,598)
711
38
343
25
37
-
216
(223)
(497)
(2,639)
1,058
-
660
25
-
1
(50)
-
547
(1,357)
3,338
(233)
9
(5)
3,109
1,371
-
-
(10)
1,361
(13)
(13)
(101)
(101)
457
117
$ 574
(97)
214
$ 117
43
SOLITARIO ZINC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
1. Business and Summary of Significant Accounting Policies
Business and company formation
Solitario Zinc Corp. (“Solitario,” or the “Company”) is an exploration stage company as defined in 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 exploration
mineral properties and/or discover economic deposits on its mineral properties and advance these deposits, either on its own or
through joint ventures, up to the development stage. At that point, or sometime prior to that point, Solitario would likely
attempt to sell its mineral properties, pursue their development either on its 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. Solitario is
primarily focused on the acquisition and exploration of zinc-related exploration mineral properties. In addition to focusing on
its mineral exploration properties and the evaluation of mineral properties for acquisition. Solitario also evaluates potential
strategic corporate transactions as a means to acquire an interest in new precious and base metal properties and assets with
exploration potential as well as other potential corporate transactions and business combinations that Solitario determines to be
favorable to Solitario.
Solitario has recorded revenue in the past from the sale of mineral properties, including the sale of certain mineral
royalty properties in January 2019, discussed below, and the sale in June 2018 of its interest in the royalty on the Yanacocha
property. Revenues and / or proceeds from the sale or joint venture of properties or assets have not been a consistent annual
source of cash and would only occur in the future, if at all, on an infrequent basis.
Solitario currently considers its carried interest in the Florida Canyon project and its interest in the Lik project to be its
core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, is continuing the exploration
and furtherance of the Florida Canyon project and Solitario is monitoring progress at Florida Canyon. Solitario is working
with its 50% joint venture partner, Teck American Incorporated, a wholly owned subsidiary of Teck Resources Limited (both
companies are referred to as “Teck”), in the Lik deposit to further the exploration of the Lik project, and to evaluate potential
development plans for the Lik project.
As of December 31, 2019 and 2018, Solitario has significant balances of cash and short-term investments that Solitario
anticipates using, in part, to further the development of the Florida Canyon project and the Lik project and to potentially acquire
additional mineral property assets. The fluctuations in precious metal and other commodity prices has contributed to a
challenging environment for mineral exploration and development, which has created opportunities as well as challenges for the
potential acquisition of early-stage and advanced mineral exploration projects or other related assets at potentially attractive
terms.
Recent Developments
On January 22, 2019, Solitario completed the sale of its interest in certain royalties to SilverStream SEZC, a private
Cayman Island royalty and streaming company (“SilverStream”) for Cdn$600,000 (the “Royalty Sale”). The Royalty Sale
covered (i) a royalty on the formerly Solitario-owned 125,000-acre polymetallic Pedra Branca palladium, platinum, gold,
nickel, cobalt and chrome project in Brazil, (ii) a royalty covering 3,880 acres of non-producing exploration properties in
Mexico, and (iii) a purchase option on royalties covering 11 separate non-producing properties covering over 16,500 acres in
Montana. At closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and a convertible note from SilverStream in
the principal amount of Cdn$350,000 (the “SilverStream Note”). The SilverStream Note was originally due December 31,
2019, accrued 5% per annum simple interest, payable on a quarterly basis, and is convertible into common shares of
SilverStream, at the discretion of SilverStream, by providing Solitario a notice of conversion. In December of 2019, Solitario
and SilverStream agreed to extend the due date of the SilverStream Note to June 30, 2020, and to increase the interest rate to
8% per annum simple interest. All other terms of the SilverStream Note remained the same. SilverStream may only provide a
notice of conversion if SilverStream has completed an initial public offering during the term of the SilverStream Note for
minimum proceeds of Cdn$5,000,000, otherwise the SilverStream Note will be payable in cash at the maturity date. Pursuant
to the terms of the SilverStream Note, if SilverStream were to complete an initial public offering and the SilverStream Note was
44
converted, Solitario would receive common shares converted at 85% of the weighted average quoted price of a share of
SilverStream common stock for the most recent 10-day period prior to the notice of conversion. During 2019, Solitario
recorded mineral property revenue of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the date
of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of
the royalties sold of $40,000. Solitario recorded interest income of $12,000 from the SilverStream Note during 2019. As of
December 31, 2019, the SilverStream Note was recorded at $268,000, based upon the current US dollar / Canadian dollar
exchange rate, and Solitario recorded a credit to exchange gain of $5,000, included in general and administrative expense
during 2019.
Financial reporting
The consolidated financial statements include the accounts of Solitario and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial
statements are prepared in accordance with accounting principles generally accepted in the United States of America
("generally accepted accounting principles") and are expressed in US dollars.
Revenue recognition
Solitario has recorded revenue from the sale of exploration mineral properties and joint venture property payments.
Solitario’s policy is to recognize revenue from the sale of its exploration mineral properties (those without reserves) on a
property by property basis, computed as the cash received and / or collectable receivables less any capitalized cost. Payments
received for the sale of exploration property interests that are less than the properties cost are recorded as a reduction of the
related property's capitalized cost. In addition, Solitario’s policy is to recognize revenue on any receipts of joint venture
property payments in excess of its capitalized costs on a property that Solitario may lease to another mining company.
Solitario has recognized revenue during 2019 of $408,000 related to the Royalty Sale, discussed above, and of
$502,000 during 2018 from the sale of its former Yanacocha exploration mineral property. Solitario expects any property sales
in the future to be on an infrequent basis. Prior to the Yanacocha sale, the last proceeds from joint venture property payments
was in 2015 and Solitario does not expect to record joint venture property payments on any of its currently held properties for
the foreseeable future. Historically, Solitario’s revenues have been infrequent and significant individual transactions and have
only been from sales to well known or vetted mining companies. Solitario has never had a return on any of its sales recorded as
revenue in its history and does not anticipate it will recognize any estimated returns on its current or future recorded revenues.
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) the recoverability of mineral properties related to its mineral
exploration properties and their future exploration potential; (ii) the fair value of stock option grants to employees; (iii) the
ability of Solitario to realize its deferred tax assets; (iv) Solitario's investment in marketable equity securities; and (v) the
collectability of the SilverStream Note.
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 and cash equivalents
Cash equivalents include investments in highly liquid money-market securities with original maturities of three
months or less when purchased. At December 31, 2019, approximately $554,000 of Solitario’s cash and cash equivalents are
held in brokerage accounts and foreign banks, which are not covered under the Federal Deposit Insurance Corporation
(“FDIC”) rules for the United States.
Short-term investments
45
At December 31, 2019, Solitario has United States Treasury securities (“USTS”) with maturities of 30 days to 17
months recorded at their fair value of $6,829,000. Solitario’s short-term investments are recorded at their fair value, based
upon quoted market prices. The short-term investments are highly liquid and may be sold in their entirety at any time at their
quoted market price and are classified as a current asset.
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 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”). During 2016, Solitario acquired its initial investment in Vendetta Mining Corp.
(“Vendetta”) units, including the 2016 Vendetta Warrants (defined below). During 2017, Solitario exercised all of the 2016
Vendetta Warrants. During 2019, Solitario acquired additional Vendetta units, which included 2019 Vendetta Warrants
(defined below). Changes in fair value of the 2019 Vendetta Warrants are recognized in the statements of operations in the
period of change as gain or loss on derivative instruments. Solitario has entered into covered calls from time to time on its
investment in Kinross marketable equity securities. Solitario has not designated its covered calls as hedging instruments and
any changes in the fair value of the covered calls and its warrants are recognized in the statements of operations in the period of
the change as gain or loss on derivative instruments.
Fair value
Financial Accounting Standards Board 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 accounts payable and the SilverStream Note, the carrying amounts approximate fair value due to their
short-term maturities. Solitario's short-term investments in USTS, its 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 9,
“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 directors 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 as unrealized gain or loss in the consolidated statement 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 during 2019 and 2018 were conducted primarily in Peru, a portion of the payments for
the land, leasehold and exploration agreements as well as certain exploration activities 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.
Income taxes
Solitario accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”).
Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of
46
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 7, “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, 2019 and 2018. Potentially dilutive shares, consisting of
outstanding common stock options for 4,373,000 and 5,223,160, respectively, Solitario common shares were excluded from the
calculation of diluted earnings (loss) per share for the year ended December 31, 2019 and 2018 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 11, “Employee Stock Compensation Plans,” below.
Recently adopted accounting pronouncements
On January 1, 2019, Solitario adopted Accounting Standards Update No. 2016-02 Leases (“ASU 2016-02”) which
requires the application of ASC 842 and the recognition of right-of-use assets and related liabilities associated with all leases
that are not short-term in nature. As a result of the adoption of ASU 2016-02, Solitario recorded both an operating lease asset
for its Wheat Ridge, Colorado office of $82,000 and an operating lease liability of $82,000 related to the same lease. The
adoption of ASU 2016-02 did not require the recording of any other assets or liabilities on our condensed consolidated balance
sheets and had an immaterial effect on Solitario’s consolidated statement of operations for 2019 and its consolidated statement
of cash flows for 2019. Solitario has elected the practical expedient option to use January 1, 2019, the effective date of
adoption, as the initial date of transition and not to restate comparative prior periods and to carry forward historical lease
classification. See Note 4, “Operating Leases” for more information and disclosures regarding Solitario’s leases.
Recently issued accounting pronouncements
In 2018, the SEC adopted amendments to the disclosure requirements for mining registrants. Under these new rules,
SEC Industry Guide 7 will be rescinded and replaced with the disclosure standards under new Regulation S-K Subpart 1300.
SEC Industry Guide 7 remains in effect, subject to a transition period. Solitario will be required to comply with the new rules
for fiscal years 2021 and after. Accordingly, future adjustment to estimates of mineralized material will occur due to the
differing standards under the new requirements including, but not limited to, the replacement of any estimate of mineralized
material with an estimate of “mineral resources.”
The FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurements of Credit
Losses on Financial Statements (“ASU No. 2016-13”). Among other things, these amendments require the measurement of all
expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information
to better inform their credit loss estimates. ASU No. 2016-13 is effective for Solitario for fiscal year, and interim periods
47
within those fiscal years, beginning after December 15, 2019. Solitario does not expect the adoption of ASU No. 2016-13 to
have a material impact on its consolidated financial position or results of operations.
2. Mineral Properties:
The following table details Solitario’s capitalized investment in exploration mineral property:
(in thousands)
Exploration
Lik project (Alaska – US)
La Promesa (Peru)
Montana Royalty property (US)
Total exploration mineral property
Exploration property
December 31,
2019
2018
$15,611
6
-
$15,617
$15,611
6
40
$15,657
Solitario's exploration mineral properties at December 31, 2019 and 2018 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, 2019, 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 Florida Canyon exploration
concessions, which are currently subject to a joint venture agreement where joint venture partners made stand-by joint venture
payments to Solitario prior to January 1, 2015. Solitario recorded joint venture property payment revenue received in excess of
capitalized costs. Per the joint venture agreement, as of December 31, 2019, no further standby joint-venture payments are due
to Solitario on the Florida Canyon project. At December 31, 2019 and 2018, Solitario has no remaining capitalized costs
related to its Florida Canyon joint venture.
On January 22, 2019, Solitario completed the Royalty Sale, discussed above under “Recent Developments” to
SilverStream for Cdn$600,000. At closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and the SilverStream
Note with a principal amount of Cdn$350,000, and a maturity date of December 31, 2019, which was subsequently extended
to June 30, 2020. During the nine months ended September 30, 2019, Solitario recorded mineral property revenue of
$408,000 from the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the
fair value of the SilverStream Note on the date of the sale of $263,000, less the carrying value of the royalties sold of $40,000.
On April 26, 2018, Solitario sold the Yanacocha Royalty to Newmont for $502,000 in cash. Newmont owns the
underlying mineral concessions covered by the Yanacocha Royalty. None of the concessions covered by the Yanacocha
Royalty have any reported reserves or resources. Solitario had no mineral property capitalized cost in the Yanacocha Royalty
and recorded Mineral Property Revenue of $502,000 during 2018.
Discontinued projects
Solitario did not abandon or impair any of its properties during 2019 or 2018 and did not record any mineral property
write-downs during the years ended December 31, 2019 or 2018.
Exploration Expense
The following items comprised exploration expense:
(in thousands)
Geologic and field expenses
Administrative
Total exploration expense
48
For the year ended
December 31,
2019
2018
$1,726
81
$1,807
$1,165
89
$1,254
Asset Retirement Obligation
In connection with the acquisition of Zazu, Solitario recorded an asset retirement obligation of $125,000 for
Solitario’s estimated reclamation cost of the existing disturbance at the Lik project. This disturbance consists of an exploration
camp including certain drill sites and access roads at the camp. The estimate was based upon estimated cash costs for
reclamation as determined by the permitting bond required by the State of Alaska, for which Solitario has retained a
reclamation bond insurance policy in the event Solitario or its 50% partner, Teck, do not complete required reclamation.
Solitario has not applied a discount rate to the recorded asset retirement obligation as the estimated time frame for
reclamation is not currently known, as reclamation is not expected to occur until the end of the Lik project life, which would
follow future development and operations, the start of which cannot be estimated or assured at this time. Additionally, no
depreciation will be recorded on the related asset for the asset retirement obligation until the Lik project goes into operation,
which cannot be assured.
3. Marketable Equity Securities
On May 2, 2016, Solitario purchased 7,240,000 units of Vendetta for aggregate consideration of $289,000. Each unit
included one common share of Vendetta and one warrant which allow the holder to purchase one share of Vendetta common
stock at a price of Cdn$0.10 per share for a period of two years (the “2016 Vendetta Warrants”). The purchase price of the
units of $289,000 was allocated between the Vendetta common shares and the 2016 Vendetta Warrants based upon total fair
values on the date of purchase. The Vendetta common stock was allocated a purchase cost of $186,000 and the 2016 Vendetta
Warrants were allocated a purchase cost of $103,000. During 2017 Solitario exercised all of its 2016 Vendetta Warrants and
sold 3,480,000 shares of Vendetta common stock.
On July 31, 2019, Solitario purchased 3,450,000 Vendetta units for aggregate consideration of $233,000. Each unit
consisted of one share of Vendetta common stock and one warrant which allows the holder to purchase one additional share of
Vendetta common stock at a purchase price of Cdn$0.13 per share for a period of three years (the “2019 Vendetta Warrants”).
The purchase of the units on July 31, 2019 increased Solitario’s holdings of Vendetta common shares to 14,450,000 shares. On
the purchase date Solitario recorded marketable equity securities of $165,000 for the Vendetta shares acquired and $68,000 for
the 2019 Vendetta Warrants based upon an allocation of the purchase price of the Vendetta units, based upon (i) the fair value
of the Vendetta common shares received, based upon the quoted market price for Vendetta common shares and (ii) the fair
value of 2019 Vendetta Warrants based upon a Black Scholes model, using the stock price of Cdn$0.09, volatility of 79%, a
term of three years and a discount rate of 1.5%. During 2019, Solitario charged loss on derivative instruments $47,000 for the
change in the value of the 2019 Vendetta Warrants.
As of December 31, 2019, Solitario owned 14,500,000 shares of Vendetta common stock which are carried at their fair value
based upon the quoted market price of Vendetta, whose common shares are listed on the TSX venture exchange, and included
in marketable equity securities.
The following tables summarize Solitario’s marketable equity securities and adjustments to fair value:
Year ended
December 31,
(in thousands)
Marketable equity securities at cost
Cumulative unrealized (loss) gain on marketable equity securities
Marketable equity securities at fair value
2019
2018
$1,879
(840)
$1,039
$1,714
(129)
$1,585
During 2019 Solitario added 3,450,000 shares of Vendetta through the purchase of the Vendetta units, discussed
above, and recorded an increase in marketable equity securities of $165,000. Solitario did not acquire any marketable equity
securities during 2018. Solitairo did not sell any marketable equity securities during 2019 or 2018. Solitario recorded a loss on
marketable equity securities of $711,000 and $1,058,000, respectively, during 2019 and 2018 for the change in the fair value of
its marketable equity securities.
4. Operating Lease
49
Solitario adopted ASU 2016-02 effective January 1, 2019 and accounts for its leases in accordance with ASC 842.
Solitario leases one facility, its Wheat Ridge, Colorado administrative office (the “WR Lease”), that has a term of more than
one year. Solitario has no other material operating lease costs. The WR Lease is classified as an operating lease and has a term
of 14 months at December 31, 2019, with no renewal option. At December 31, 2019, the right-of-use office lease asset for the
WR Lease is classified as other assets and the related liability separated between current and non-current office lease liabilities
in the consolidated balance sheet. Lease expense is recognized on a straight-line basis over the lease term, with variable lease
payments recognized in the period those payments are incurred. During 2019, Solitario recognized $40,000 of non-cash lease
expense for the WR Lease included in general and administrative expense. Cash lease payments of $37,000 were made on the
WR Lease during 2019 and this amount, less $3,000 of imputed interest during 2019, reduced the related liability on the WR
Lease. The discount rate within the WR Lease is not determinable and Solitario applied a discount rate of 5% based upon
Solitario’s estimate of its cost of capital in recording the WR Lease.
The maturities of Solitario’s lease liability for its WR Lease are as follows at December 31, 2019:
(in thousands)
Lease payments per year
2020
2021
Total lease payments
Less amount of payments representing interest
Present value of lease payments
The following is supplemental cash flow information related to our operating lease for 2019:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from WR Lease payments
Non-cash amounts related to the WR lease
Right of use assets recorded in exchange for new operating lease liabilities
5. Other Assets
The following items comprised other assets:
(in thousands)
Furniture and fixtures, net of accumulated depreciation
Lik project equipment, net of accumulated depreciation
Office lease asset
Vendetta warrants
Exploration bonds and other assets
Total other assets
$ 42
7
49
(1)
$ 48
Year ended
December 31, 2019
$37
$82
December 31,
2019
2018
$ 39
50
45
21
4
$159
$ 36
70
-
-
4
$110
During 2017, Solitario acquired $100,000 of exploration-related equipment at the Lik project as part of the acquisition
of the Lik project. The equipment is being depreciated over a five-year life on a straight-line basis and Solitario recorded
depreciation expense of $20,000 during 2019 and 2018 related to this equipment.
On July 31, 2019, Solitario acquired the 2019 Vendetta Warrants and recorded $68,000 for the fair value of the 2019
Vendetta Warrants, discussed above, and recorded a loss on derivative instruments related to the 2019 Vendetta Warrants of
$47,000, see Note 8, “Derivative Instruments,” below.
6. Revenue mineral property sale
50
On January 22, 2019, Solitario completed the sale of its interest in certain royalties to SilverStream, discussed above
and recorded mineral property revenue of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the
date of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying
value of the royalties sold of $40,000.
At closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and the SilverStream Note in the principal
amount of Cdn$350,000. As of December 31, 2019, the SilverStream Note is due June 30, 2020 and accrues interest at 8% per
annum simple interest. Solitario recorded interest income of $12,000 from the SilverStream Note during 2019. As of
December 31, 2019, the SilverStream Note was recorded at $268,000, based upon the current US dollar / Canadian dollar
exchange rate, and Solitario recorded a credit to exchange gain of $5,000 related to the SilverStream Note, included in general
and administrative expense during 2019.
On April 26, 2018, Solitario sold its royalty interest in the non-producing Yanacocha property to a wholly owned
subsidiary of Newmont for approximately $502,000 in cash. The Yanacocha Royalty covered 43 concessions totaling 36,052
hectares. Newmont owns the underlying mineral concessions covered by the Yanacocha Royalty. None of the concessions
covered by the Yanacocha Royalty had any reported reserves or resources. Solitario had no mineral property capitalized cost in
the Yanacocha Royalty and recorded Mineral Property Revenue of $502,000 during 2018.
7. Income Taxes:
Consolidated loss before income taxes includes losses from foreign operations of $1,261,000 and $260,000 in 2019 and
2018, respectively.
The net deferred tax assets/liabilities in the December 31, 2019 and 2018 consolidated balance sheets include the
following components:
(in thousands)
Deferred tax assets:
Loss carryovers
Investment in Mineral Property
Capitalized Exploration Costs
Stock option compensation expense
Unrealized loss on derivative securities
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gains on marketable equity securities
Other
Total deferred tax liabilities
Net deferred tax liabilities
2019
2018
$13,284
1,669
652
228
237
135
(15,999)
206
198
8
206
$ -
$12,432
1,669
877
150
60
135
(15,099)
224
209
15
224
$ -
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
Equity based compensation
Foreign tax rate differences
State income tax
Expiration of Capital Loss Carryovers
Adjustment to Deferred Taxes
Change in Tax Rate
Change in valuation allowance
51
2019
2018
$(691)
7
(116)
(84)
66
(101)
-
900
$(756)
-
(27)
(143)
-
2,058
53
(1,164)
Permanent differences and other
Income tax (benefit) expense
19
$ -
(21)
$ -
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant
changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35%
to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax
system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings.
While the Tax Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion
provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”)
provisions. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in
excess of an allowable return on the foreign subsidiary’s tangible assets. The Company currently has no profitable foreign
subsidiaries. Therefore, this provision currently has no impact on the Company.
The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to related
foreign corporations and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to
this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the years ended
December 31, 2019 and 2018.
As a result of the ownership change resulting from Solitario’s acquisition of Zazu Metals (Alaska) Corp, utilization of its
United States Federal and State of Alaska net operating losses will be limited due to the annual limitation provided by Section
382 of the Internal Revenue Code.
During 2019, the valuation allowance increased primarily due to the addition of deferred tax assets related to current
year net operating losses. During 2018, the valuation allowance decreased primarily due to the adjustments to deferred taxes
that were part of the Zazu acquisition and the disposition of royalties that were part of the Yanacocha sale.
At December 31, 2019, Solitario has unused US Federal Net Operating Loss carryovers of $17,576,000 and unused US
State Net Operating Loss carryovers of $18,174,000 which begin expiring in 2027. As a result of the ownership change of
Zazu Metals (Alaska) Corp, utilization of some of these federal and state losses will be limited due to the annual limitation
provided by Section 382 of the Internal Revenue Code. Solitario has unused Capital Loss carryovers of $10,416,000 for US
Federal and US State purposes which begin expiring in 2020. Solitario has Canadian loss carryforwards of $9,611,000 which
begin expiring in 2027. Other foreign loss carryforwards for which Solitario has provided a full valuation allowance related to
Solitario’s exploration activities in Peru. The Peru losses do not expire.
Solitario adopted 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, 2019 or December 31, 2018, 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, State of Alaska, Canada and Peru. Solitario’s United States federal, Canada and State of Alaska returns for years
2017 and forward and Solitario’s Peru and State of Colorado returns for tax years 2015 and forward are subject to examination.
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, 2019, or December 31, 2018 or for the years
then ended.
8. Derivative Instruments:
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 and any changes in the fair value of its covered calls are recognized in
52
the statement of operations in the period of the change. During 2019 Solitario sold covered calls against its holdings of Kinross
for $9,000 in cash, all of which expired unexercised during 2019. As of December 31, 2019, there were no remaining
liabilities related to call options.
Vendetta Warrants
At December 31, 2019 Solitario held 2019 Vendetta Warrants which give Solitario the right to purchase 3,450,000
Vendetta common shares for Cdn$0.13 per share through July 31, 2022. At December 31, 2019, Solitario recorded 2019
Vendetta Warrants at their fair value of $21,000 based upon a Black Scholes model with a stock price of Cdn$0.05, a term of
2.6 years, a volatility of 65%, and an interest rate of 1.6%. Solitario recorded a loss on derivative instruments related to the
2019 Vendetta Warrants of $47,000 during 2019.
The following items comprise gain (loss) on derivative instruments:
(in thousands)
Gain on Kinross calls – realized
Loss on Vendetta Warrants – unrealized
9. Fair Value of Financial Instruments:
Year ended
December 31,
2019
2018
$ 9
(47)
$(38)
$ -
-
$ -
For certain of Solitario's financial instruments, including cash and cash equivalents, the SilverStream Note, 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, Vendetta common stock and TNR Gold Corp (“TNR”)
common stock, are carried at their estimated fair value based on publicly available quoted market prices.
Solitario applies ASC 820 that 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, 2019 and 2018, 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, 2019:
(in thousands)
Assets
Short-term investments
Marketable equity securities
2019 Vendetta Warrants
Level 1
Level 2
Level 3
Total
$6,829
$1,039
$ -
$ -
$ -
$ 21
$ -
$ -
$ -
$6,829
$1,039
$ 21
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, 2018:
(in thousands)
Assets
Level 1
Level 2
Level 3
Total
53
Short-term investments
Marketable equity securities
$10,223
$ 1,585
$ -
$ -
$ -
$ -
$10,223
$ 1,585
Items measured at fair value on a recurring basis:
Short-term investments: At December 31, 2019 and 2018, Solitario’s holdings of short-term investments consist of USTS
recorded at their fair value based upon quoted market prices.
Marketable equity securities: At December 31, 2019 and 2018, the fair value of Solitario’s holdings in shares of Vendetta,
Kinross, and TNR marketable equity securities are based upon quoted market prices.
2019 Vendetta Warrants: At December 31, 2019 the fair value of Solitario’s 2019 Vendetta Warrants is based upon a Black
Scholes model, using market inputs.
During the year ended December 31, 2019, Solitario did not change any of the valuation techniques used to measure
its financial assets and liabilities at fair value.
10. 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 2020 property rentals
and option payments for properties Solitario owns, has under joint venture or Solitario operates to be approximately $859,000.
Assuming that Solitario’s joint ventures continue in their current status and that Solitario does not appreciably change its
property positions on existing properties, approximately $816,000 of these annual payments are paid or are reimbursable to us
by Solitario’s joint venture partners. Solitario may be required to make further payments in the future if it acquires new
properties or enters into new agreements.
Solitario has recorded an asset retirement obligation of $125,000 related to its Lik project in Alaska. See Note 2,
“Mineral Properties,” above.
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 $43,000 through March of 2021.
11. Employee Stock Compensation Plans:
On June 18, 2013, Solitario’s shareholders approved the Solitario Resources Corporation Omnibus Stock Incentive
Plan (the “2013 Plan”). Under the terms of the 2013 Plan, as amended, a total of 5,750,000 shares of Solitario common stock
are reserved for awards to directors, officers, employees and consultants. Awards granted under the 2013 Plan 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.
a.) 2013 Plan stock option grants
The following table shows the grant date fair value of Solitario’s awards during 2019 pursuant to the 2013 Plan:
Grant Date
Option – grant date price
Options granted
Expected life years
Expected volatility
Risk free interest rate
Weighted average fair
value
Grant date fair value
1/24/19 (1)
$0.28
150,000
5.0
64%
2.4%
$0.16
$23,000
(1) Option grants have a five-year term, and vest 25% on date of grant and 25% on each of the next three anniversary dates.
The following table shows the grant date fair value of Solitario’s awards during 2018 pursuant to the 2013 Plan:
54
Grant Date
Option – grant date price
Options granted
Expected life years
Expected volatility
Risk free interest rate
Weighted average fair
value
Grant date fair value
1/02/18 (1)
$0.62
100,000
0.80
66%
1.0%
11/01/18 (2)
$0.31
1,623,000
5.00
64%
3.0%
$0.12
$12,000
$0.17
$282,000
(2) Option granted to a consultant had an expected life of 0.8 years on grant date and was fully vested during 2018. Option remains vested for a
maximum of five years from date of grant or termination of the consulting contract.
(3) Option grants have a five-year term, and vest 25% on date of grant and 25% on each of the next three anniversary dates.
b.) Stock option activity
During 2019 and 2018 no options granted from the 2013 Plan were exercised. The following table summarizes the
activity for stock options outstanding under the 2013 Plan for the years ended December 31, 2019 and 2018:
2019
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (1)
$0.76
$0.28
-
$1.47
-
$0.58
$0.63
$ 3,000
$ 840
RSUs/
Options
5,223,160
150,000
-
(1,000,160)
-
4,373,000
2,774,000
RSUs/
Options
1,982,428
4,023,000
-
(782,268)
-
5,223,160
2,770,910
2018
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (2)
$1.29
$0.58
-
$2.09
-
$0.76
$0.95
$ -
$ -
Outstanding, beginning of year
Granted (3)
Exercised
Expired
Forfeited
Outstanding, end of year
Exercisable, end of year
(1) Intrinsic value based upon December 31, 2019 price of a share of Solitario common stock as quoted on the NYSE American exchange of $0.30
per share.
(2) Intrinsic value based upon December 31, 2018 price of a share of Solitario common stock as quoted on the NYSE American exchange of $0.23
per share.
(3) Options granted during 2018, include 2,300,000 Conditional Options (defined below), approved by Solitario shareholders on June 19, 2018.
During the years ended December 31, 2019 and 2018, Solitario recorded $343,000 and $660,000, respectively, of
stock option expense under the 2013 Plan for the amortization of the grant date fair value of each of its outstanding options
with a credit to additional paid-in-capital. At December 31, 2019, the total unrecognized stock option compensation cost
related to non-vested options is $317,000 and is expected to be recognized over a weighted average period of 14 months.
On September 1, 2017, the Board of Directors granted, subject to shareholder approval at the next meeting of
shareholders, 2,300,000 stock options under the 2013 Plan to officers and members of the Board of Directors (the “Conditional
Options”). The Conditional Options were approved by Solitario’s shareholders at Solitario’s annual meeting on June 19, 2018.
The Conditional Options vest on the schedule of 25% on date of approval of the grant (June 19, 2018) and 25% on each of the
next three anniversary dates of the date of grant (September 1, 2018, 2019 and 2020).
12. Shareholders’ equity and accumulated other comprehensive income
We adopted ASU 2016-01, “Financial Instruments – Overall (subtopic 825-10) Recognition and Measurement of
Financial Assets and Liabilities,” (“ASU 2016-01”). ASU 2016-01 revises the classification and measurement of investment in
certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair
value. ASU 2016-01 requires the change in fair value of many equity investments to be recognized in net income. Solitario
adopted ASU 2016-01 in the first quarter of 2018. Solitario recorded a cumulative-effect adjustment for the change in
accounting principle from other comprehensive income in the equity section of the consolidated balance sheet to accumulated
deficit of $576,000 related to the adoption of ASU 2016-01.
55
13. Share Repurchase Program
On October 28, 2015, Solitario’s Board of Directors approved a share repurchase program that authorized Solitario to
purchase up to two million shares of its outstanding common stock. During 2019 Solitario’s Board of Directors extended the
expiration date of the share repurchase program through December 31, 2020. During the years ended December 31, 2019 and
2018, Solitario purchased 38,400 and 263,100 shares of Solitario common stock, respectively, for an aggregate purchase price
of $13,000 and $101,000, respectively. As of December 31, 2019, Solitario has purchased a total of 969,300 shares for an
aggregate purchase price of $462,000 under the share repurchase program since its inception.
13. Subsequent events
Solitario has evaluated events subsequent to December 31, 2019 to assess the need for potential recognition or
disclosure in this report. Such events were evaluated through the date these financial statements were available to be issued.
Based upon this evaluation, it was determined that no subsequent events occurred that require recognition or disclosure in the
financial statements.
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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 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, 2019,
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, 2019.
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 SEC that permit us to
provide only management’s report in this annual report.
Item 9B. Other Information
None
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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 SEC within 120 days after the end
of our fiscal year ended December 31, 2019 pursuant to Section 14(a) of the Exchange Act (the "2020 Proxy").
Item 11. Executive Compensation
The information required under Item 11 is incorporated herein by reference to the information set forth in the 2020
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 2020
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 2020
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 2020
Proxy.
58
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, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2019
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.
Item 16. Form 10-K Summary
None.
59
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 ZINC CORP.
By:
/s/ James R. Maronick
Chief Financial Officer
Date:
February 28, 2020
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
February 28, 2020
Principal Financial and Accounting Officer
February 28, 2020
A majority of
the Board of
Directors
February 28, 2020
/s/
Christopher E. Herald,
Chief Executive Officer
/s/
James R. Maronick,
Chief Financial Officer
/s/
John Labate
/s/
Brian Labadie
/s/
James Hesketh
/s/
Gil Atzmon
/s/
Joshua D. Crumb
By: /s/
James R. Maronick,
Attorney-in-fact
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Description
INDEX TO EXHIBITS
3.1
3.1.1
3.2
4.1
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)
Articles of Amendment to Restated Articles of Incorporation of Solitario Zinc Corp. (incorporated by reference
to Exhibit 3.1 to Solitario’s Current Report on Form 8-K filed on July 14, 2017)
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 Zinc (incorporated by reference to Exhibit 4.1 to Solitario’s
Form 10-Q filed on November 8, 2017)
4.2*
Description of Common Stock
10.1#
10.2
10.3#
10.4#
10.5#
10.6
10.7*
10.8#
14.1
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)
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)
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)
Framework Agreement for the Exploration and Development of Potential Mining Properties, related to Solitario's
100% owned Florida Canyon project in Peru between Minera Florida Canyon 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)
Performance Agreement for Funding of Drilling Program between Compañía Minera Milpo, S.A.A. and Minera
Solitario Peru S.A.C, related to the Framework Agreement for the Development of Mining Properties dated
August 1, 2019
First Amendment to the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock and Incentive Plan
(incorporated by reference to Exhibit 10.1 to Solitario’s Form 8-K filed on June 29, 2017)
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 Zinc Corp.
23.1*
Consent of Plante & Moran, PLLC
24.1*
Power of Attorney
61
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,
2019 and 2018; (ii) Consolidated Statements of Operations for the years ended December 31, 2019 and 2018;
(iii) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019 and 2018; (iv)
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018; and (v) Notes to the
Consolidated Financial Statements.
* Filed herewith
# Designates a management contract, or a compensatory plan or arrangement.
62