Solitario Exploration & Royalty Corp. — Q1 2015 Form 10-Q
Business context and reporting period
The filing covers the unaudited three months ended March 31, 2015, compared with the three months ended March 31, 2014. Solitario was a development-stage mineral company focused primarily on its 80% interest in the Mt. Hamilton gold project in Nevada, while maintaining a reduced portfolio of exploration properties and marketable securities. The company had never developed a mineral property and required substantial external capital to develop Mt. Hamilton.
The company reported 39,247,689 common shares outstanding as of May 13, 2015.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | No significant operating revenue reported | No significant operating revenue reported |
| Net loss attributable to Solitario shareholders | $450 thousand | $532 thousand |
| Basic and diluted loss per share | $0.01 | $0.01 |
| Exploration expense | $25 thousand | $48 thousand |
| General and administrative expense | $554 thousand | $531 thousand |
| Net cash used in operating activities | $403 thousand | $488 thousand |
| Net cash used in investing activities | $137 thousand | $138 thousand |
| Net cash provided by financing activities | $0 | $578 thousand |
- Cash and cash equivalents were $329 thousand at March 31, 2015, compared with $869 thousand at December 31, 2014.
- Marketable equity securities were $1.710 million, down from $2.308 million at December 31, 2014. The portfolio included Kinross and Ely securities.
- Total assets were $18.166 million, including $14.987 million of mineral properties, primarily Mt. Hamilton.
- Working capital was negative $3.2 million, compared with negative $1.987 million at December 31, 2014.
- The RMB Loan had a principal balance of $5.0 million and a carrying value of $4.915 million after discount at March 31, 2015. The stated interest rate was 5.28%.
- Total shareholders’ equity declined to $5.889 million from $6.781 million at December 31, 2014.
- Mt. Hamilton capitalized costs totaled $327 thousand, including $156 thousand of development expenditures, $169 thousand of capitalized interest and $2 thousand of depreciation.
Material changes versus the prior comparable period
- Net loss attributable to Solitario shareholders improved by $82 thousand, primarily because the prior-year period included a $125 thousand loss from an equity-method investment and a $260 thousand warrant-liability loss. In 2015, the company recorded a $49 thousand warrant-liability gain.
- Exploration expense decreased $23 thousand as activities in Peru and Mexico were further reduced to limited exploration and care-and-maintenance work.
- General and administrative expense increased $23 thousand. Excluding stock-based compensation, these costs decreased to $397 thousand from $475 thousand; stock-option expense increased to $157 thousand from $56 thousand.
- The prior-year period included a $300 thousand gain from selling marketable equity securities and a $100 thousand income-tax benefit; neither item occurred in Q1 2015.
- Unrealized losses on marketable equity securities produced a $598 thousand other comprehensive loss in Q1 2015, compared with $186 thousand of other comprehensive income in Q1 2014.
- Capitalized Mt. Hamilton costs fell to $327 thousand from $646 thousand, reflecting completion of the updated feasibility study and reduced permitting and development activity.
- No common stock was issued in Q1 2015. Q1 2014 financing included $1.630 million of net equity proceeds.
Guidance, outlook, risks and unusual items
- Going-concern uncertainty: Management stated that existing liquidity was insufficient to repay the RMB Loan when due and that this raised substantial doubt about the company’s ability to continue as a going concern. The financial statements included no adjustments for the outcome of this uncertainty.
- Debt maturity and default risk: The RMB Loan was described as due in August 2015; different filing passages state August 20 and August 21. Failure to repay could constitute a default and permit RMBAH to foreclose on security interests in the company’s assets, including its Mt. Hamilton interest.
- Planned financing: Management was pursuing refinancing, equity issuance, additional borrowing or asset sales. The filing provided no assurance that sufficient funds could be obtained on acceptable terms.
- 2015 spending outlook: Management budgeted approximately $732 thousand for Mt. Hamilton expenditures and approximately $390 thousand for leasehold acquisition and earn-in payments, subject to available financial resources.
- Asset monetization: The company expected to sell its remaining Kinross shares during 2015 and could monetize all or part of Mt. Hamilton through a sale or joint-venture arrangement.
- Market risk: The value and liquidity of the Kinross and Ely holdings were subject to market-price volatility. The filing noted that Kinross’s price was below the company’s $3.00 budgeting assumption as of May 11, 2015.
- Project risk: Mt. Hamilton development depended on permits, financing and successful future operations; required capital was not yet in place. Mineral-property recoverability, permitting and future financing remained uncertain.
- No material legal proceedings, off-balance-sheet obligations, risk-factor changes or control deficiencies were reported. Management concluded disclosure controls were effective as of March 31, 2015.
Important facts for investors to verify
- Confirm whether the RMB Loan maturity date is August 20 or August 21, 2015 and monitor any refinancing, repayment, waiver or default developments.
- Assess whether the company can fund near-term obligations with only $329 thousand of cash and $1.710 million of marketable securities against the RMB Loan and other commitments.
- Verify the current market value and saleability of the Kinross and Ely holdings and the effect of further price declines on liquidity and equity.
- Track progress toward permitting, financing and any sale or joint-venture transaction for Mt. Hamilton.
- Evaluate the assumptions supporting the $732 thousand Mt. Hamilton budget and $390 thousand of leasehold and earn-in payments.
- Review potential dilution from 3.748 million outstanding options and 1.625 million RMB warrants excluded from diluted loss per share.