Business Context and Reporting Period
Solitario Zinc Corp. is an exploration-stage mineral company reporting for the fiscal year ended December 31, 2021. The filing identifies its core assets as the 50%-owned Lik zinc-lead-silver project in Alaska, the 39%-owned Florida Canyon zinc project in Peru, and the 100%-owned Golden Crest gold exploration project in South Dakota. The company has never developed or operated a mine and has no producing properties, reported mineral reserves, or recurring operating revenue.
The filing was signed March 30, 2022. The request metadata refers to Solitario Resources Corp.; the filing registrant is Solitario Zinc Corp.
Financial and Operating Metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $2.367 million | $0.939 million |
| Loss per basic and diluted share | $0.04 | $0.02 |
| Exploration expense | $1.198 million | $0.413 million |
| General and administrative expense | $0.952 million | $1.044 million |
| Net cash used in operations | $2.157 million | $1.010 million |
| Net cash provided by investing activities | $0.090 million | $0.976 million |
| Net cash provided by financing activities | $1.924 million | $0.065 million |
| Cash and cash equivalents | $0.462 million | $0.605 million |
| Short-term investments | $5.087 million | $5.798 million |
| Marketable equity securities | $1.307 million | $1.620 million |
| Working capital | $6.883 million | $7.875 million |
| Total assets | $23.619 million | $23.801 million |
| Current liabilities | $0.276 million | $0.174 million |
| Total debt | No conventional debt; $0.125 million asset retirement obligation and $0.072 million operating lease liability | PPP loan and lease liabilities |
Operating margin and revenue-based profitability metrics are not meaningful because the company had no revenue. The net loss was approximately 3.8 times the prior-year loss. At year-end, liquid financial assets consisting of cash, short-term investments, and marketable equity securities totaled approximately $6.856 million.
Cash Flow and Financing
- Operating cash use increased by $1.147 million, primarily because of higher exploration spending and working-capital uses.
- Investing cash flow was supported by $0.609 million of net short-term investment sales and $0.147 million of marketable equity security sales, partly offset by $0.635 million of capitalized Golden Crest acquisition costs and $0.039 million of other asset purchases.
- Financing cash flow included $1.542 million of net proceeds from a December 2021 sale of 3.1 million shares, $0.299 million from the ATM program, and $0.083 million from option exercises.
- The company had 62.036 million shares outstanding at December 31, 2021, compared with 58.108 million at December 31, 2020.
- The company maintained an ATM facility allowing aggregate sales of up to $9.0 million. Subsequent to year-end, it sold 2.651 million shares for $2.023 million of net proceeds in March 2022.
Material Changes Versus the Prior Comparable Period
- Net loss increased to $2.367 million from $0.939 million, driven primarily by a $0.785 million increase in exploration expense, a swing from a $0.050 million realized investment gain to a $0.248 million loss, lower interest and dividend income, and lower unrealized equity-security gains.
- Exploration expense increased to $1.198 million from $0.413 million. 2021 spending included $0.420 million at Golden Crest, $0.362 million at Lik, and $0.085 million at Florida Canyon.
- Golden Crest was acquired and advanced during 2021. The company capitalized $0.695 million of initial acquisition and staking costs and recorded $0.420 million of exploration expense.
- General and administrative expense declined to $0.952 million from $1.044 million, while non-cash stock-option expense declined to $0.124 million from $0.315 million.
- Marketable equity securities declined to $1.307 million from $1.620 million. The company sold Vendetta, TNR, and Vox shares and recorded a net investment loss of $0.166 million, compared with a $0.410 million net gain in 2020.
- The PPP loan was fully forgiven in 2021; no balance remained at year-end.
- The share repurchase program expired December 31, 2021, with no repurchases during 2021.
Projects, Outlook, Risks, and Unusual Items
Project Developments
- Golden Crest: Early-stage South Dakota gold project with no reported resources or reserves. Surface sampling identified 14 gold-enriched target areas, but the filing cautions that grab samples do not establish economically mineable mineralization. A drilling plan was under review by the U.S. Forest Service.
- Lik: Teck completed mapping, geophysics, core relogging, and environmental work in 2021. The company and Teck considered a 2022 program involving approximately three core holes totaling about 2,130 feet and additional geophysics.
- Florida Canyon: Nexa continued to fund project expenditures and held a 61% interest, with the ability to earn up to 70% by committing to production based on a positive feasibility study. Nexa received a 2021 drilling permit, continued road and metallurgical work, and was pursuing expanded drilling permits.
Resources and Development Status
The company reported no mineral reserves at Lik or Florida Canyon. At its stated ownership interests, measured and indicated resources totaled approximately 9.752 million tonnes at Lik and 0.952 million tonnes at Florida Canyon; inferred resources totaled approximately 1.400 million tonnes and 5.795 million tonnes, respectively. Resources are not reserves and may never be converted into economically mineable reserves.
2022 Outlook and Commitments
- Management estimated 2022 exploration spending of approximately $2.350 million, including $1.723 million planned for Golden Crest. The budget excludes significant Golden Crest drilling costs and new acquisitions.
- Expected 2022 general and administrative costs were approximately $0.966 million, excluding non-cash stock-option expense.
- Estimated 2022 property claim, lease, and option payments were approximately $1.046 million in one disclosure and approximately $1.116 million in the MD&A contractual-obligations discussion; approximately $0.777 million was expected to be paid or reimbursed by joint-venture partners. The filing text does not clearly reconcile this discrepancy.
- In February 2022, the company added the Easter Claims to Golden Crest, including a $10,000 signing payment, future lease payments, and optional work commitments.
Key Risks and Unusual Items
- The company has a long history of losses, reporting losses in 25 of its 28 years, and does not expect recurring revenue from property sales or joint-venture payments.
- Future funding may require equity issuance, asset sales, debt, or additional joint ventures. Equity financing may dilute shareholders.
- Exploration success, permitting, commodity prices, environmental compliance, political conditions in Peru, weather, title, and the decisions and funding capacity of Teck and Nexa materially affect project value.
- COVID-19 reduced or delayed partner exploration activities and could affect staffing, permitting, supply chains, field programs, and financing access.
- Approximately $0.451 million of cash was held in uninsured brokerage or foreign-bank accounts. Treasury securities and CDs comprised most short-term investments.
- The company recorded a $0.017 million impairment for abandoning the Gold Coin project in Arizona and has a $0.125 million asset retirement obligation related to Lik reclamation.
- The financial statements received an unqualified audit opinion. The auditor reported no critical audit matters, and management concluded internal controls were effective; the auditor did not provide an internal-control attestation because the company is a smaller reporting company.
Investor Verification Priorities
- Verify the year-end liquidity position, including the composition, maturity, custody, and insurance status of cash, Treasury securities, CDs, and marketable equity securities.
- Reconcile the reported 2022 property-payment estimates of $1.046 million and $1.116 million and confirm the expected $0.777 million partner reimbursement.
- Review the Florida Canyon and Lik S-K 1300 technical report summaries, resource assumptions, recoveries, cutoff grades, commodity-price assumptions, and the absence of reserves.
- Confirm the scope, permitting status, funding responsibility, and timing of planned 2022 drilling at Golden Crest, Lik, and Florida Canyon.
- Assess dilution from the ATM facility, the March 2022 issuance, outstanding options covering 5.513 million shares, and potential future financing.
- Evaluate whether current liquidity can support exploration and corporate costs if commodity prices decline, partner funding changes, or planned property transactions do not occur.