Business Context and Reporting Period
Solitario Zinc Corp. filed this unaudited Form 10-Q for the three months ended March 31, 2023. The filing identifies the registrant as an exploration-stage mineral company focused on acquiring and advancing precious-metal, zinc and other base-metal properties. Its 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. The company has never developed a mineral property and had no producing operations or recurring revenue during the period.
The filing does not clearly reconcile the requested company name, “Solitario Resources Corp.,” with the registrant name shown in the filing, “Solitario Zinc Corp.”
Financial Results and Key Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | None reported | None reported | No recurring operating revenue |
| Exploration expense | $275,000 | $226,000 | Up $49,000, or 22% |
| General and administrative expense | $476,000 | $387,000 | Up $89,000, or 23% |
| Total costs, expenses and other | $757,000 | $621,000 | Up $136,000, or 22% |
| Other income | $377,000 | $107,000 | Up $270,000 |
| Net loss | $380,000 | $514,000 | Loss narrowed $134,000, or 26% |
| Basic and diluted loss per share | $0.01 | $0.01 | Unchanged as reported |
| Net cash used in operating activities | $685,000 | $597,000 | Use increased $88,000, or 15% |
The company had no operating margin because it reported no revenue. The Q1 net loss included significant non-cash investment gains, principally a $329,000 unrealized gain on marketable equity securities and a $21,000 unrealized gain on short-term investments. Interest and dividend income was $27,000.
At March 31, 2023, cash and cash equivalents were $440,000, short-term investments were $3.163 million, and marketable equity securities were $1.278 million. Total current assets were $4.907 million and working capital was approximately $4.694 million. Total assets were $21.671 million, including $16.646 million of mineral properties.
There was no debt reported. Current liabilities were $213,000, consisting primarily of $188,000 of accounts payable and a $25,000 operating lease liability. The company also reported a $125,000 asset-retirement obligation related to the Lik project.
Material Changes Versus the Prior Comparable Period
- Net loss improved from $514,000 to $380,000, primarily because Q1 2023 included a $329,000 unrealized gain on marketable equity securities versus a $213,000 unrealized gain comparison described in the filing’s results discussion, and because Q1 2022 included an $81,000 loss on securities sold.
- Exploration expense increased to $275,000 from $226,000, driven principally by Golden Crest spending of $241,000 versus $127,000.
- General and administrative expense increased to $476,000 from $387,000. Excluding stock compensation, expense increased to $409,000 from $374,000, primarily due to higher salaries, office costs, travel and shareholder-relations costs.
- Stock-option compensation expense increased to $67,000 from $13,000, reflecting amortization of prior grants.
- Operating cash outflow increased to $685,000 from $597,000.
- Investing activities provided $809,000 in Q1 2023 from net sales of short-term investments, compared with $1.562 million used in Q1 2022, primarily for purchases of short-term investments.
- No common stock was issued in Q1 2023. In Q1 2022, the company received $2.023 million of net proceeds from its at-the-market offering and $19,000 from option exercises.
- Cash increased by $124,000 during Q1 2023, ending at $440,000, compared with a $117,000 decrease during Q1 2022.
Guidance, Outlook, Risks and Unusual Items
- Management expects approximately $2.0 million of total 2023 exploration and development spending, subject to modification for drilling, permitting, acquisitions, joint-venture funding, commodity prices and capital allocation.
- Management expects full-year 2023 exploration expenditures to be similar to full-year 2022. The budget includes Golden Crest activity and a limited Lik program, but excludes Golden Crest drilling and exploration costs for properties that may be acquired.
- Nexa is responsible for planned 2023 exploration expenditures at Florida Canyon. Teck is the company’s 50% joint-venture partner at Lik.
- Management believes cash, short-term investments and marketable equity securities are adequate to fund expected expenditures over the next year. It expects to continue liquidating or rolling over short-term Treasury investments as needed.
- The company may sell marketable equity securities during the remainder of 2023, but does not expect such sales to be a significant cash source.
- Future development or operation of current or acquired projects would require additional capital, potentially from cash reserves, investments, joint ventures, debt, equity issuance or asset sales.
- Marketable equity securities are carried at quoted market values, creating earnings volatility. Q1 2023’s improvement in net loss was substantially affected by unrealized gains rather than operating performance.
- The company’s exploration properties have no proven or probable reserves, and the filing cautions that measured, indicated and inferred resources may not be converted into economically mineable reserves.
- Key risks include exploration and development uncertainty, commodity-price volatility, permitting and regulatory delays, political and environmental risks, reliance on joint-venture partners, future financing needs, securities-market volatility and potential pandemic impacts.
- The company reported no material legal proceedings, no off-balance-sheet obligations, no property impairments and no material changes to previously disclosed risk factors. Management concluded that disclosure controls were effective as of March 31, 2023.
Important Facts for Investors to Verify
- Confirm the registrant identity and ticker, because the filing names Solitario Zinc Corp. while the request identifies Solitario Resources Corp.
- Assess liquidity using the full $4.881 million of cash, short-term investments and marketable equity securities, while considering expected operating and exploration cash burn.
- Review the approximately $2.0 million 2023 exploration budget and whether Golden Crest drilling, Lik activities or acquisitions could increase spending.
- Separate recurring operating results from the $350,000 combined unrealized investment gains recognized in Q1 2023.
- Evaluate the carrying value and development prospects of the $16.646 million of mineral properties, particularly because none has proven and probable reserves.
- Monitor the company’s need for future financing if it advances projects toward development or makes acquisitions.
- Review the expiration in October 2023 of options covering 1,561,500 shares with a $0.31 exercise price and the potential dilution from approximately 5.390 million outstanding options.