Solitario Zinc Corp. — Form 10-Q Summary
Business context and reporting period
This unaudited Form 10-Q covers the quarter ended March 31, 2018. Solitario Zinc Corp. is an exploration-stage company focused on acquiring and advancing zinc, precious-metal and base-metal exploration properties, royalties and strategic assets. Its core properties are the Lik project in Alaska, held with 50% joint-venture partner Teck, and the Florida Canyon project in Peru.
The company has not developed a mineral property and had no operating mining revenue during the periods presented. It reported 58.4 million common shares outstanding at March 31, 2018 and 58,332,266 shares outstanding as of May 1, 2018.
Financial condition and key metrics
| Metric | Q1 2018 | Q1 2017 or comparison |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Net loss | $1.004 million | $0.106 million loss |
| Basic and diluted loss per share | $0.02 loss | Less than $0.01 loss |
| Exploration expense | $180,000 | $151,000 |
| General and administrative expense | $403,000 | $300,000 |
| Net cash used in operating activities | $491,000 | $385,000 |
| Cash and cash equivalents | $97,000 | $214,000 at December 31, 2017 |
| Short-term investments | $11.223 million | $11.642 million at December 31, 2017 |
| Marketable equity securities | $2.202 million | $2.643 million at December 31, 2017 |
| Working capital | $13.450 million | $14.499 million at December 31, 2017 |
| Total assets | $29.399 million | $30.395 million at December 31, 2017 |
| Debt | No debt reported | No debt reported |
Total current assets were $13.615 million and accounts payable were $165,000 at March 31, 2018. Short-term investments included $9.976 million of U.S. Treasury securities and $1.247 million of bank certificates of deposit. Management stated that cash, short-term investments and marketable securities were adequate to fund expected expenditures over the following year.
The company generated $400,000 from investing activities, primarily from net sales of short-term investments, and used $26,000 for common-share repurchases. Cash decreased by $117,000 during the quarter, ending at $97,000.
Material changes versus the prior comparable period
- Net loss increased to $1.004 million from $106,000, primarily because of a $441,000 unrealized loss on marketable equity securities versus a $128,000 unrealized gain in Q1 2017, higher general and administrative expense, higher exploration expense, lower interest income and the absence of a prior-year derivative gain.
- General and administrative expense increased 34% to $403,000, including higher legal, accounting, travel, investor-relations and exchange-related costs.
- Exploration expense increased 19% to $180,000. Reconnaissance work represented $122,000, with additional spending on La Promesa, Lik and Florida Canyon.
- Operating cash use increased to $491,000 from $385,000.
- Marketable equity securities declined $441,000 in fair value during the quarter, largely reflecting a decline in the value of the company’s 11 million Vendetta shares.
- The company adopted ASU 2016-01, recording a $576,000 cumulative-effect adjustment to retained earnings and recognizing changes in equity-security fair values in net income.
- The company repurchased and cancelled 52,614 common shares for $26,000 during the quarter. A total of 720,414 shares had been repurchased under the program since inception.
Guidance, outlook, risks and unusual items
- Management expects 2018 full-year exploration expenditures to exceed 2017 levels, including additional work at Lik and Florida Canyon and continued reconnaissance activity.
- General and administrative costs are expected to remain at comparable quarterly levels for the rest of 2018.
- The company plans a joint 2018 exploration program at Lik with Teck and expects its Florida Canyon joint-venture partner to continue project advancement.
- Management expects continued use of funds from operations and may liquidate Treasury securities and certificates of deposit to fund operations, exploration and potential acquisitions.
- Future development or operation of mining projects would require additional capital, potentially from cash reserves, joint ventures, debt, equity issuance or asset sales.
- Exploration properties have no proven or probable reserves. Recovery of capitalized mineral-property costs depends on successful exploration, permitting, financing, development or sale, none of which is assured.
- Commodity-price volatility, property impairment risk, market-price fluctuations in Vendetta and Kinross securities, regulatory and political developments, and the availability of joint-venture or other financing are material risks.
- No mineral-property impairment, income-tax expense, material legal proceeding or off-balance-sheet obligation was reported for the quarter.
- On April 27, 2018, after quarter-end, the company sold its non-producing Yanacocha royalty to a Newmont subsidiary for $502,000 in cash.
Important facts for investors to verify
- Verify the carrying value, liquidity and concentration risk of the company’s Vendetta and Kinross equity holdings, including the effect of subsequent market-price changes.
- Review the Lik and Florida Canyon joint-venture terms, planned 2018 exploration budgets, partner funding obligations and project permitting status.
- Assess the pace of cash consumption and whether current liquid investments remain sufficient for planned exploration and acquisitions.
- Confirm the accounting impact of ASU 2016-01 and distinguish recurring operating performance from non-cash investment valuation losses.
- Review the terms, shareholder approval status and potential dilution from outstanding and conditional stock options.
- Evaluate the risks that mineral properties may not support economic mineralization, development, financing or recovery of recorded costs.
- Confirm the completion and cash proceeds of the April 27, 2018 Yanacocha royalty sale in subsequent filings.