Solitario Zinc Corp. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and nine months ended September 30, 2022, filed November 2, 2022. The filing identifies the registrant as Solitario Zinc Corp. (NYSE American: XPL), an exploration-stage company focused on acquiring and advancing precious-metal, zinc and base-metal properties and royalty interests. Core assets are the Lik project in Alaska, the Florida Canyon project in Peru and the Golden Crest project in South Dakota. The company has not developed a mineral property and has no revenue-producing mining operations.
Financial condition and key metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Net loss | $1.057 million | $0.701 million | $3.262 million | $1.897 million |
| Loss per share | $0.02 | $0.01 | $0.05 | $0.03 |
| Exploration expense | $0.655 million | $0.442 million | $1.832 million | $0.826 million |
| General and administrative expense | $0.435 million | $0.207 million | $1.099 million | $0.743 million |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $1.948 million | $1.723 million |
At September 30, 2022, cash and cash equivalents were $244,000, short-term investments were $4.898 million, and marketable equity securities were $953,000. Total current assets were $6.132 million and working capital was $5.523 million. Total assets were $22.973 million and shareholders’ equity was $22.235 million.
The company had no debt or senior borrowings. Liabilities consisted primarily of $567,000 of accounts payable, operating lease liabilities totaling $46,000 and a $125,000 asset-retirement obligation related to Lik. Management stated that available cash, short-term investments and marketable equity securities were adequate to fund expected expenditures over the next year.
There is no meaningful operating margin because the company reported no operating revenue and incurred continuing exploration and corporate expenses. The nine-month cash decline was $218,000, with ending cash of $244,000. Financing activities provided $2.043 million, principally from the ATM equity offering.
Material changes versus the prior comparable period
- Q3 net loss increased 51% to $1.057 million from $701,000; nine-month net loss increased 72% to $3.262 million from $1.897 million.
- Q3 exploration expense increased 48% to $655,000; nine-month exploration expense increased 122% to $1.832 million. The increase primarily reflected expanded Golden Crest work and higher Lik drilling-related costs.
- Q3 general and administrative expense more than doubled to $435,000, including $245,000 of stock-option compensation versus $32,000 in the prior-year quarter. Nine-month stock-option expense increased to $271,000 from $104,000.
- The company issued 2,650,724 shares under its ATM program during the first nine months for net proceeds of $2.023 million, increasing outstanding shares to 64,768,873 from 62,036,399 at December 31, 2021.
- Marketable equity securities declined to $953,000 from $1.307 million at December 31, 2021. The company sold 1 million Vendetta shares for $53,000 and recorded a $159,000 realized loss.
- Mineral properties increased to $16.692 million from $16.306 million, primarily from additional Golden Crest claims. No impairment was recorded.
Guidance, outlook, risks and unusual items
- Management budgeted approximately $2.350 million of 2022 exploration expenditure, including approximately $1.723 million for Golden Crest and $574,000 for Solitario’s share of the Lik drilling program. Full-year exploration spending was expected to exceed 2021 levels.
- Management expected 2022 general and administrative costs to exceed 2021 levels and interest income to decline as short-term investments were used to fund exploration and overhead.
- The company expects to liquidate or roll over short-term investments as needed and may sell additional marketable equity securities. It may require additional capital if it elects to develop or operate its projects, potentially through cash, joint ventures, debt, equity issuance or asset sales.
- Exploration and project outcomes remain uncertain. The properties do not have proven and probable reserves, and disclosed mineral resources may not become economically mineable reserves.
- Key risks include commodity-price volatility, exploration failure, permitting and regulatory risks, political and social developments, inflation, rising interest rates, labor and supply constraints, market volatility and potential COVID-19 or other pandemic impacts.
- Short-term investments included $4.650 million of U.S. Treasury securities and a $248,000 certificate of deposit. Approximately $225,000 of cash was held in brokerage accounts and foreign banks, and the Treasury securities and certificate of deposit were not covered by FDIC insurance.
- The company recognized $20,000 of other income from selling exploration data for cash and 200,000 restricted Highland Silver shares, to which no value was assigned at the transaction date.
- Vendetta warrants expired unexercised on July 31, 2022. The company recorded a $4,000 derivative loss for the nine-month period.
- Management reported effective disclosure controls as of September 30, 2022, no material changes in internal control over financial reporting, no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the company’s cash runway against the planned 2022 exploration budget and ongoing corporate cash burn.
- Review the remaining capacity and dilution implications of the $9.0 million ATM program and the 5.431 million outstanding stock options.
- Assess exploration results, spending commitments and partner funding at Golden Crest, Lik and Florida Canyon.
- Evaluate the carrying values and liquidity of marketable equity securities, including exposure to unrealized valuation losses.
- Verify whether future development decisions could require substantial additional financing and whether joint-venture funding remains available.
- Review the distinction between exploration-stage mineral resources and economically recoverable reserves; the filing states that the core properties have no proven and probable reserves.