Solitario Zinc Corp. — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the period ended September 30, 2021, filed November 9, 2021. The filing identifies the registrant as Solitario Zinc Corp. (NYSE American: XPL), an exploration-stage mineral company focused on acquiring and advancing precious-metal, zinc and other base-metal properties. Core assets include the Florida Canyon project in Peru, the 50%-owned Lik project in Alaska and the Golden Crest project in South Dakota. The company has not developed a mineral property and had no operating revenue during the periods presented.
Financial condition and results
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Net loss | $701,000 | $53,000 | $1.897 million | $405,000 |
| Loss per share | $0.01 | $0.00 | $0.03 | $0.01 |
| Exploration expense | $442,000 | $112,000 | $826,000 | $269,000 |
| General and administrative expense | $207,000 | $226,000 | $743,000 | $816,000 |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $1.723 million | $716,000 |
As of September 30, 2021, cash and cash equivalents were $554,000, short-term investments were $3.884 million and marketable equity securities were $1.226 million. Total current assets were $6.048 million and working capital was $5.797 million. Total assets were $22.351 million and shareholders’ equity was $21.929 million.
The company had minimal liabilities: current liabilities of $251,000 and long-term liabilities of $171,000. It had no remaining PPP loan balance and reported no debt or off-balance-sheet obligations. Lease liabilities totaled $82,000 on a present-value basis, and the Lik project asset-retirement obligation was $125,000.
Investing activities provided $1.452 million of cash in the first nine months, primarily from $1.837 million of net short-term investment sales. Financing activities provided $220,000, including $137,000 of net ATM offering proceeds and $83,000 from option exercises. Cash declined by $51,000 from $605,000 at December 31, 2020 to $554,000 at September 30, 2021.
Material changes versus the prior comparable period
- Q3 net loss increased to $701,000 from $53,000, and nine-month net loss increased to $1.897 million from $405,000.
- Nine-month exploration expense increased by $557,000, driven by Lik, Golden Crest, Gold Coin and Florida Canyon activities.
- Q3 exploration expense rose 295% to $442,000, primarily reflecting $207,000 at Lik, $94,000 at Golden Crest and $126,000 of reconnaissance activity.
- The company recorded a $17,000 Gold Coin property abandonment and impairment charge; no comparable charge was recorded in 2020.
- Marketable equity securities generated a $220,000 unrealized loss for the first nine months versus a $584,000 unrealized gain in 2020. The portfolio declined in fair value to $1.226 million from $1.620 million at year-end 2020.
- General and administrative expense declined to $743,000 for the first nine months from $816,000, although cash G&A excluding stock compensation increased to $639,000 from $529,000 due primarily to higher legal, accounting, travel and shareholder-relations costs.
- The company sold 340,400 shares under its $9.0 million ATM program for $137,000 of net proceeds and issued 185,000 shares through option exercises for $83,000. Shares outstanding increased to 58.634 million from 58.108 million at year-end.
- The remaining $10,000 PPP loan was forgiven, producing $10,000 of other income.
Guidance, outlook, risks and unusual items
- Management budgeted approximately $1.642 million of 2021 exploration expenditures and expects full-year exploration spending to exceed 2020 levels.
- The Lik drilling portion of the 2021 program was postponed because of personnel, weather and permitting delays; Lik spending is expected to be below the approximately $1.2 million project budget.
- Management expects additional Golden Crest spending during the remainder of 2021 following favorable early exploration results.
- Management stated that available cash, short-term investments, marketable securities and potential ATM proceeds are adequate to fund expected expenditures over the next year. Continued operating cash use is expected.
- Management may sell additional marketable securities and liquidate short-term investments to fund exploration, operating costs and potential acquisitions. Development of any project would require additional capital through cash, joint ventures, debt, equity or asset sales.
- Golden Crest obligations include annual payments, optional work commitments of up to $3.0 million over the first five years, a potential success fee of up to $1.5 million, and a 2.0% net smelter return royalty. The company also has future lease payments of $86,000 through October 2023.
- Key risks include exploration-stage uncertainty, commodity-price volatility, inability to establish economic reserves, permitting and exploration delays, financing requirements, market-value volatility in equity investments, political and regulatory risks, and COVID-19-related disruptions.
- The filing states that COVID-19 was not expected to materially affect planned 2021 exploration activities as of September 30, 2021, but future effects remain uncertain.
- The company recorded no income tax expense because valuation allowances fully offset deferred tax assets. Disclosure controls and procedures were deemed effective, and management reported no material changes in internal control over financial reporting.
Investor verification points
- Verify the pace, results and funding requirements of exploration at Lik and Golden Crest, including the postponed Lik drilling program.
- Review the carrying values and liquidity of the Vendetta, Kinross and Vox investments and their effect on earnings volatility.
- Assess the sustainability of the company’s cash runway given $1.723 million of nine-month operating cash use and the expected increase in exploration spending.
- Confirm potential dilution and remaining availability under the $9.0 million ATM program, as well as the 5.513 million outstanding stock options.
- Review Golden Crest lease payments, work commitments, success-fee exposure and royalty terms.
- Evaluate the feasibility and financing implications of any future project development or mineral-property acquisition.