Solitario Zinc Corp. Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2018; filed August 1, 2018. The filing identifies the registrant as Solitario Zinc Corp. (metadata refers to Solitario Resources Corp.). The company is an exploration-stage mineral property and royalty company focused primarily on zinc-related projects, including the Lik project in Alaska and Florida Canyon in Peru. The financial statements are unaudited.
Financial Results and Position
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Mineral property revenue | $502,000 | $502,000 |
| Exploration expense | $162,000 | $342,000 |
| General and administrative expense | $762,000 | $1,165,000 |
| Net loss | $613,000 | $1,617,000 |
| Loss per share | $0.01 | $0.03 |
| Operating cash flow | Not provided for the quarter | $(440,000) |
- The $502,000 revenue resulted from the April 26, 2018 sale of the non-producing Yanacocha royalty to a Newmont subsidiary. Such property-sale revenue is described as infrequent and non-recurring.
- Cash and cash equivalents were $210,000 at June 30, 2018. Short-term investments were $11.121 million, including $9.424 million in U.S. Treasury securities and $1.697 million in certificates of deposit.
- Marketable equity securities totaled $1.980 million, consisting principally of 11 million Vendetta shares and 100,000 Kinross shares.
- Total assets were $29.167 million, including $15.657 million of mineral properties. Accounts payable were $153,000, the asset retirement obligation was $125,000, and the company reported no debt.
- Working capital was $13.236 million, compared with $14.472 million at December 31, 2017. Management stated that cash, investments and marketable securities were adequate to fund expected expenditures for the next year.
- Net cash provided by investing activities was $501,000, primarily from net sales of short-term investments. Net cash used in financing activities was $65,000 for share repurchases.
- There were no off-balance-sheet obligations and no material legal proceedings reported.
Material Changes Versus the Prior Comparable Period
- Second-quarter net loss increased to $613,000 from $273,000; six-month net loss increased to $1.617 million from $379,000.
- General and administrative expense increased in the second quarter to $762,000 from $560,000, primarily because of $432,000 of non-cash stock-option compensation. For the six-month period, G&A increased to $1.165 million from $860,000.
- Marketable equity securities generated a $222,000 unrealized loss in the quarter and a $663,000 loss for six months, compared with unrealized gains of $333,000 and $461,000, respectively, in the prior-year periods.
- Exploration expense declined in the quarter to $162,000 from $188,000 but increased slightly for six months to $342,000 from $339,000.
- There was no derivative gain in 2018, compared with $113,000 in the second quarter and $285,000 in the first six months of 2017. The company no longer held the Vendetta warrants or Kinross covered calls at June 30, 2018.
- The company adopted ASU 2016-01 and recorded a $576,000 cumulative-effect adjustment to retained earnings. The new standard requires changes in the fair value of certain equity investments to be recognized in earnings.
- Shares outstanding declined modestly because of repurchases, from 58.435 million at December 31, 2017 to 58.289 million at June 30, 2018. The company repurchased 145,200 shares for $65,000 during the first six months.
Guidance, Outlook, Risks and Unusual Items
- Management planned a joint 2018 exploration program at Lik with Teck and expected exploration activity at Lik and Florida Canyon to increase materially in the second half of 2018. Full-year 2018 exploration expense was expected to exceed 2017 levels.
- Management expected general and administrative costs to remain at comparable quarterly levels and interest income to decline as invested funds were used.
- The company intended to use cash and investments for exploration, potential mineral acquisitions, share repurchases and other strategic transactions. Additional capital could be required to develop or operate any project.
- The company has never developed a mineral property, and its properties have no proven and probable reserves. Recovery of mineral-property carrying values depends on successful exploration, permitting, financing, joint-venture support and future economic development, none of which is assured.
- Commodity-price volatility, political and regulatory developments, exploration results, partner performance, market values of equity investments and the ability to complete acquisitions are key risks.
- The $422,000 portion of second-quarter stock-option expense related to the vested portion of 2.3 million conditional options approved by shareholders on June 19, 2018. Outstanding options covered approximately 4.025 million shares at June 30, 2018.
- All deferred tax assets were fully offset by valuation allowances, and no income-tax expense or benefit was recorded for the periods presented.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2018, with no material changes in internal control over financial reporting.
Investor Verification Checklist
- Verify the registrant name and ticker because the filing states Solitario Zinc Corp., while the request metadata uses Solitario Resources Corp.
- Confirm the non-recurring nature and accounting treatment of the $502,000 Yanacocha royalty sale.
- Review the valuation and liquidity of the Vendetta and Kinross holdings, including exposure to further unrealized gains or losses.
- Assess the planned second-half exploration spending at Lik and Florida Canyon against the $13.236 million working-capital balance.
- Evaluate the technical, permitting, financing and joint-venture risks of the Lik and Florida Canyon projects, which remain exploration-stage assets without proven and probable reserves.
- Review dilution risk from approximately 4.025 million outstanding stock options and the company’s continuing share-repurchase program.