Business Context and Reporting Period
Registrant: Solitario Zinc Corp. (the filing text identifies the company as Solitario Zinc Corp.; request metadata refers to Solitario Resources Corp.). This unaudited Form 10-Q covers the three months ended March 31, 2022, filed May 4, 2022.
Solitario is an exploration-stage mineral company focused on precious-metal, zinc and base-metal properties. Its core assets are the Florida Canyon project in Peru, the 50%-owned Lik project in Alaska and the Golden Crest project in South Dakota. The company has not developed or operated a mine and has no revenue-producing operations.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Net loss | $514,000 | $528,000 |
| Basic and diluted loss per share | $0.01 | $0.01 |
| Exploration expense | $226,000 | $147,000 |
| General and administrative expense | $387,000 | $280,000 |
| Net cash used in operating activities | $597,000 | $382,000 |
| Net cash from investing activities | $(1.562) million | $1.016 million |
| Net cash from financing activities | $2.042 million | $165,000 |
| Cash and cash equivalents, period end | $345,000 | $1.404 million |
At March 31, 2022, total assets were $25.141 million, including $6.614 million of short-term investments and $1.413 million of marketable equity securities. Working capital was $8.422 million, compared with $6.883 million at December 31, 2021. Current liabilities were $267,000, and the company reported no debt. Long-term liabilities consisted primarily of a $125,000 Lik project asset-retirement obligation and $25,000 of operating lease liabilities.
Short-term investments consisted of $6.015 million of U.S. Treasury securities and $599,000 of certificates of deposit. The company also held marketable securities valued at $588,000 of Kinross Gold, $442,000 of Vendetta Mining and $383,000 of Vox Royalty.
Material Changes Versus the Prior Comparable Period
- Net loss improved by $14,000, primarily because a $213,000 unrealized gain on marketable equity securities replaced a $122,000 unrealized loss in Q1 2021.
- Exploration expense increased $79,000, driven mainly by $127,000 of Golden Crest spending and higher reconnaissance activity. Florida Canyon spending declined from $50,000 to zero because a resource update was substantially completed in Q1 2021.
- General and administrative expense increased $107,000. Salaries and benefits rose partly because three officers each received a $15,000 bonus, while legal and professional costs increased for accounting, SK-1300 mineral reporting and Golden Crest matters.
- Operating cash use increased $215,000 to $597,000, reflecting higher exploration and administrative spending.
- Investing cash flow shifted from $1.016 million provided to $1.562 million used, primarily because the company purchased $1.578 million of short-term investments, compared with net sales of $938,000 in Q1 2021.
- Financing cash flow increased substantially because the company sold 2,650,724 shares through its ATM program for net proceeds of $2.023 million, compared with $98,000 in Q1 2021.
- The company’s share count increased to 64.760 million shares at March 31, 2022 from 62.036 million at December 31, 2021. Options for 5.440 million shares remained outstanding.
Guidance, Outlook, Risks and Unusual Items
- Management expects 2022 exploration expenditures of approximately $2.350 million, excluding potential Golden Crest drilling and exploration costs for properties acquired during the year. Full-year exploration spending is expected to exceed 2021 levels.
- Planned exploration emphasizes Golden Crest, Lik and reconnaissance activities. Plans may change because of COVID-19, weather, commodity prices, joint-venture funding, acquisitions and capital allocation decisions.
- Management expects 2022 general and administrative costs to be higher than in 2021 and interest income to decline as cash and investments fund operations and exploration.
- Management believes cash, short-term investments and marketable equity securities are adequate to fund expected expenditures for the next year. Future mine development would require additional capital from cash, joint ventures, debt, equity issuance or asset sales.
- The company may sell additional marketable securities or liquidate short-term investments as needed, but does not expect marketable-security sales to be a significant 2022 cash source.
- Marketable securities generated a $213,000 unrealized gain, while the sale of 500,000 Vendetta shares generated an $81,000 realized loss on $26,000 of proceeds. These valuation changes are market-sensitive and may not recur.
- Options for 2.360 million shares with a $0.77 exercise price expire in August 2022; management does not expect significant option-exercise proceeds unless the stock price exceeds that level.
- The company recorded no mineral-property impairments, income-tax expense or benefit, or off-balance-sheet obligations. The deferred-tax asset remains fully offset by a valuation allowance.
- Key risks include exploration and resource-estimation uncertainty, commodity-price volatility, permitting and regulatory risks, political and operating risks, dependence on joint-venture partners, future financing needs, potential impairment of mineral properties and pandemic-related disruptions.
- The Lik project carries a $125,000 reclamation obligation. Office lease payments total approximately $65,000 through October 2023.
Investor Verification Checklist
- Verify the registrant’s legal name and ticker, because the filing names Solitario Zinc Corp. while the request metadata identifies Solitario Resources Corp.
- Reconcile the $2.023 million ATM financing proceeds with the 2.650 million shares issued and assess resulting dilution and remaining ATM capacity under the $9.0 million program.
- Review the approximately $2.350 million 2022 exploration budget, particularly the planned Lik program and potential Golden Crest drilling, against available liquidity.
- Assess the market value and liquidity of the Kinross, Vendetta and Vox holdings and the effect of future price changes on reported earnings.
- Review the economic significance and ownership terms of the Florida Canyon, Lik and Golden Crest projects, including joint-venture funding obligations and development prospects.
- Evaluate the expiration and potential dilution effects of outstanding stock options, including the 2.360 million options expiring in August 2022.
- Confirm that no material legal proceedings, risk-factor changes or internal-control deficiencies were reported for the quarter.