Solitario Resources Corp. Form 10-Q Summary
Business context and reporting period
Solitario Resources Corp. is an exploration-stage mineral company focused on acquiring and advancing precious-metal, zinc and other base-metal properties. The unaudited Form 10-Q covers the quarter and six months ended June 30, 2023. The company has never developed or operated a mine and had no revenue during the periods presented.
Core assets are the Lik project in Alaska, the Golden Crest project in South Dakota and a carried interest in the Florida Canyon project in Peru. Lik is held through a 50% joint venture with Teck, Florida Canyon is advanced by Nexa Resources, and Solitario is conducting exploration independently at Golden Crest. In June 2023, shareholders approved a name change from Solitario Zinc Corp. to Solitario Resources Corp., effective in July 2023.
Financial condition and key metrics
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Net loss | $1.040 million | $1.691 million | $1.420 million | $2.205 million |
| Loss per share | $0.02 | $0.03 | $0.02 | $0.03 |
| Exploration expense | $555,000 | $951,000 | $830,000 | $1.177 million |
| General and administrative expense | $315,000 | $277,000 | $791,000 | $664,000 |
| Interest and dividend income | $26,000 | $41,000 | $53,000 | $68,000 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $1.765 million | $1.272 million |
At June 30, 2023, cash and cash equivalents were $496,000, short-term investments were $2.077 million, and marketable equity securities were $1.051 million. Total current assets were $3.990 million, current liabilities were $274,000, and working capital was $3.716 million. Total assets were $20.835 million and shareholders’ equity was $20.366 million.
The company had no debt reported. Long-term liabilities consisted primarily of a $70,000 operating lease liability and a $125,000 asset retirement obligation related to the Lik project. Future office lease payments totaled $111,000 through February 2026.
Marketable equity securities included Kinross Gold, Vendetta Mining, Vox Royalty and Highlander Silver holdings. Their aggregate fair value increased from $949,000 at December 31, 2022 to $1.051 million at June 30, 2023, but the company recognized a $227,000 unrealized loss in the second quarter and a $102,000 unrealized gain for the first six months.
Material changes versus prior comparable periods
- Second-quarter net loss declined by $651,000, or approximately 39%, primarily because exploration expense decreased by $396,000 and marketable-security losses were lower.
- Six-month net loss declined by $785,000, or approximately 36%, primarily because exploration expense decreased by $347,000, the company recorded a $102,000 unrealized gain on marketable equity securities versus a $155,000 loss in 2022, and avoided the $159,000 realized loss on security sales recorded in 2022.
- Exploration shifted toward Golden Crest. First-half Golden Crest spending increased to $727,000 from $555,000, while Lik spending decreased to $33,000 from $448,000 because the 2023 Lik program was scheduled primarily for the second half of the year.
- General and administrative expense increased to $791,000 from $664,000 for the first six months, partly due to higher salaries, personnel costs and travel/shareholder-relations spending.
- Stock-option compensation increased to $126,000 from $26,000 for the first six months, reflecting the amortization of options granted in the third quarter of 2022.
- Operating cash use increased to $1.765 million from $1.272 million, primarily due to a $350,000 advance to Teck for planned Lik exploration, of which $332,000 remained prepaid at June 30, 2023.
- Investing activities provided $1.931 million in the first six months, primarily from the net sale or maturity of short-term investments, compared with $887,000 of investing cash outflow in the prior-year period.
- No shares were sold under the company’s $9.0 million ATM program during the first six months of 2023, compared with $2.023 million of net ATM proceeds in the first six months of 2022. Stock-option exercises generated $14,000 in 2023.
Guidance, outlook, risks and unusual items
- Management budgeted approximately $2.0 million of 2023 exploration spending, including approximately $1.723 million at Golden Crest and approximately $574,000 for Solitario’s share of the Lik program. Management expects full-year 2023 exploration spending to exceed 2022 levels.
- Management expects the bulk of Solitario’s approximately $550,000 share of the $1.1 million 2023 Lik program to occur during the third and fourth quarters.
- Management expects full-year general and administrative costs to be comparable with 2022 and expects interest income to decline as cash and short-term investments are used for exploration and corporate expenses.
- Management stated that cash, short-term investments and marketable equity securities were adequate to fund expected expenditures over the next year. Additional capital would be required for any decision to develop or operate a mining project.
- On July 31, 2023, after the reporting period, Solitario agreed to sell 4,166,667 shares to Newmont Overseas Exploration Ltd. at $0.60 per share for gross proceeds of $2.5 million. Proceeds are intended for core-project exploration and general corporate purposes. Newmont received preemptive, anti-dilution and other investor rights.
- Principal risks include exploration and development uncertainty, commodity-price volatility, inability to secure future financing, reliance on joint-venture partners, political and regulatory risks, market volatility, inflation and rising interest rates, cybersecurity risks, and health or other external events.
- The company has no proven or probable reserves reported for its exploration properties. Mineral-resource estimates carry uncertainty and may not convert into economically mineable reserves.
- The company recorded no mineral-property impairment during the quarter or six-month period and reported no off-balance-sheet arrangements, material litigation changes or material changes to previously disclosed risk factors.
Important facts for investors to verify
- Verify the timing, completion and use of proceeds of the $2.5 million Newmont private placement and the related investor rights.
- Verify execution and funding of the Golden Crest and Lik exploration programs, including the timing of the planned drilling activities.
- Monitor liquidity after exploration spending, lease payments and potential mineral-property acquisitions, including the company’s reliance on liquidating short-term investments.
- Assess the market value and liquidity of the company’s concentrated marketable-equity portfolio and the resulting volatility in reported earnings.
- Review the economic potential, permitting status and future funding requirements of the Lik, Golden Crest and Florida Canyon projects; none has yet been developed by Solitario.
- Confirm the company’s future financing plans, including any potential use of the ATM program or other equity, debt, joint-venture or asset-sale funding.
- Review the reported asset retirement obligation and reclamation responsibilities associated with the Lik project.