Solitario Zinc Corp. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The filing identifies the registrant as Solitario Zinc Corp. (formerly Solitario Exploration & Royalty Corp.); the requested company metadata refers to Solitario Resources Corp. The financial statements are unaudited and presented in U.S. dollars, except share and per-share data.
Business Context
Solitario is an exploration-stage mineral company focused primarily on acquiring and advancing zinc-related exploration properties, royalties and joint ventures. Its core assets are its carried interest in the Florida Canyon project in Peru and its 50% interest in the Lik project in Alaska, operated with Teck. The company has not developed a mineral property and has no producing mines.
Revenue from mineral-property sales and joint-venture transactions is irregular. On April 26, 2018, Solitario sold its non-producing Yanacocha royalty to Newmont for approximately $502,000 in cash.
Financial Highlights
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Mineral-property revenue | $0 | $502,000 |
| Exploration expense | $344,000 | $686,000 |
| General and administrative expense | $344,000 | $1.509 million |
| Unrealized gain/(loss) on marketable securities | $(74,000) | $(737,000) |
| Net loss | $(723,000) | $(2.340 million) |
| Basic and diluted loss per share | $(0.01) | $(0.04) |
| Net cash used in operating activities | Not separately provided | $(1.014 million) |
At September 30, 2018, total assets were $28.483 million, including $182,000 of cash, $10.561 million of short-term investments and $1.906 million of marketable equity securities. Working capital was $12.575 million, compared with $14.472 million at December 31, 2017. Accounts payable was $134,000, the asset-retirement obligation was $125,000, and the company reported no debt or off-balance-sheet obligations.
Cash and short-term investments totaled $10.743 million. Short-term investments included $9.662 million of U.S. Treasury securities, $499,000 of certificates of deposit and $400,000 in a Peruvian bank savings account. Management stated that available cash, investments and marketable securities were adequate to fund expected expenditures for the next year.
Investing activities provided $1.057 million of cash, primarily from net sales of short-term investments. Financing activities used $75,000 for share repurchases. Cash and cash equivalents declined from $214,000 at December 31, 2017 to $182,000 at September 30, 2018.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss increased to $723,000 from $49,000, while the nine-month net loss increased to $2.340 million from $428,000.
- Quarterly exploration expense increased to $344,000 from $180,000; nine-month expense increased to $686,000 from $519,000, mainly because of increased activity at Lik and reconnaissance work.
- Quarterly general and administrative expense increased to $344,000 from $40,000; nine-month expense increased to $1.509 million from $900,000. The 2018 nine-month amount included $510,000 of non-cash stock-option compensation versus $23,000 in 2017.
- Marketable-securities results changed from a $157,000 unrealized gain to a $74,000 unrealized loss for the quarter and from a $618,000 gain to a $737,000 loss for the nine-month period.
- The company recorded $502,000 of mineral-property revenue from the Yanacocha royalty sale, with no comparable revenue in 2017.
- Derivative results were nil in 2018 compared with a $18,000 quarterly loss and a $267,000 nine-month gain in 2017. The company no longer held Vendetta warrants or Kinross covered calls at September 30, 2018.
- The company adopted ASU 2016-01, recording a $576,000 cumulative-effect reduction to accumulated deficit and recognizing changes in equity-security fair values in earnings.
- Shares outstanding declined modestly through the repurchase program. The company repurchased 173,200 shares for $75,000 during the first nine months and had repurchased 841,000 shares for $423,000 since program inception.
Guidance, Outlook, Risks and Unusual Items
Management expected full-year 2018 exploration expenditures to exceed 2017 levels, with additional spending planned for Lik, Florida Canyon and reconnaissance activities. Florida Canyon drilling was delayed by permitting and logistical issues and was expected to begin in the fourth quarter of 2018, although further delay into spring 2019 was possible. Management expected quarterly general and administrative costs to remain broadly comparable for the rest of 2018.
The company expects to fund operations, exploration, potential acquisitions and limited share repurchases from cash, short-term investments and, potentially, sales of marketable securities. Future development would require additional capital, potentially through cash reserves, joint ventures, debt, equity issuance or asset sales.
- Exploration properties have no proven or probable reserves, and recovery of capitalized mineral-property costs depends on successful exploration, permitting, financing, development or future sales.
- Commodity prices, permitting, weather, logistics, political and regulatory conditions, joint-venture performance and access to capital may materially affect results.
- The value of the company’s equity investments is market-sensitive. At September 30, 2018, the company held 11 million Vendetta shares valued at $1.617 million and 100,000 Kinross shares valued at $275,000.
- All net deferred-tax assets were offset by a valuation allowance; no income-tax expense or benefit was recorded for the periods presented.
- The company recorded no mineral-property impairment and reported no material legal proceedings, subsequent events, related-party transactions or changes to previously disclosed risk factors.
- Disclosure controls were evaluated as effective, and no material changes to internal control over financial reporting were reported.
Important Facts for Investors to Verify
- Confirm the registrant’s legal name and any distinction between Solitario Zinc Corp. and the company name in the request metadata.
- Assess the sustainability of liquidity after planned Lik and Florida Canyon exploration, potential acquisitions and share repurchases.
- Verify permitting and timing for Florida Canyon drilling and the scope and funding of the 2018-2019 exploration programs.
- Review the valuation and liquidity of the Vendetta and Kinross holdings and their potential effect on reported earnings.
- Review the Lik joint-venture terms, Teck’s participation and future reclamation obligations, including the $125,000 asset-retirement obligation.
- Consider the absence of producing operations and recurring revenue, and the resulting dependence on investment balances, joint ventures and occasional asset sales.