Solitario Zinc Corp. 2022 Form 10-K Summary
Business context and reporting period
Solitario Zinc Corp. is an exploration-stage mineral company reporting for the fiscal year ended December 31, 2022. The company acquires and explores precious-metal, zinc and other base-metal properties and has never developed or operated a mine. Its common stock trades on NYSE American under XPL and on the TSX under SLR. Core assets are the 100%-owned Golden Crest gold project in South Dakota, a 39% interest in the Florida Canyon zinc project in Peru, and a 50% interest in the Lik zinc project in Alaska.
The filing identifies the registrant as Solitario Zinc Corp.; the request metadata refers to Solitario Resources Corp. The financial statements are presented in U.S. dollars.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $3.928 million | $2.367 million |
| Loss per basic and diluted share | $0.06 | $0.04 |
| Exploration expense | $2.283 million | $1.198 million |
| General and administrative expense | $1.360 million | $0.952 million |
| Net cash used in operating activities | $2.900 million | $2.157 million |
| Net cash provided by investing activities | $0.701 million | $0.090 million |
| Net cash provided by financing activities | $2.053 million | $1.924 million |
| Cash and cash equivalents | $0.316 million | $0.462 million |
| Short-term investments | $3.951 million | $5.087 million |
| Marketable equity securities | $0.949 million | $1.307 million |
| Working capital | $4.991 million | $6.883 million |
| Total assets | $22.034 million | $23.619 million |
| Mineral properties | $16.646 million | $16.306 million |
The company had no operating revenue, mining production or commercial development activities. Total current liabilities were $263,000. Long-term liabilities were $125,000, consisting of the Lik asset retirement obligation; the company reported no debt financing. Cash, Treasury securities and marketable equity securities totaled approximately $5.216 million at year-end. Approximately $293,000 of cash was held in uninsured brokerage or foreign-bank accounts.
Financing included net proceeds of $2.023 million from the sale of 2,650,724 shares under the at-the-market program and $30,000 from option exercises. Shares outstanding increased to 64.801 million at December 31, 2022 from 62.036 million at December 31, 2021.
Material changes versus the prior comparable period
- Net loss increased 66% to $3.928 million, principally because exploration expense rose by $1.085 million and general and administrative expense rose by $408,000.
- Golden Crest exploration expense increased to $1.505 million from $420,000, while Lik exploration expense increased to $668,000 from $362,000 following Teck’s three-hole, 737-meter drilling program.
- Cash used in operations increased to $2.900 million from $2.157 million. Year-end cash and short-term investments declined by approximately $1.282 million in aggregate.
- Marketable equity securities generated a $94,000 unrealized loss versus an $82,000 unrealized gain in 2021, and sales generated a $201,000 realized loss versus a $248,000 loss.
- Non-cash stock-option expense increased to $338,000 from $124,000, largely due to 2.36 million options granted in September 2022.
- No mineral-property impairment was recorded in 2022, compared with a $17,000 impairment related to the abandoned Gold Coin project in 2021.
Projects, outlook and management commentary
- Golden Crest: Surface work identified more than 20 gold-enriched target areas. Downpour mineralization has been identified over an approximately 800-meter strike length and up to 500 meters in width, while Ponderosa targets were identified in 2022. The project has no reported mineral resources or reserves. A 4,000-to-5,000-meter drilling program was planned for 2023, subject to permitting.
- Florida Canyon: Nexa funded approximately $3.2 million of 2022 project expenditures, primarily for access-road work and metallurgical testing. Nexa plans 4,000 to 5,000 meters of drilling in 2023. The project has reported mineral resources but no mineral reserves. Nexa may increase its interest from 61% to 70% by sole-funding expenditures and committing to production following a positive feasibility study.
- Lik: Teck’s 2022 drilling included one significant intersection of 3.5 meters grading 9% zinc and 3% lead; two other holes did not intersect significant mineralization. A 2023 program of approximately two core holes totaling 716 meters was under discussion, subject to approval and funding.
- 2023 budget: Management estimated total company exploration and development expenditures of approximately $2.0 million, excluding significant Florida Canyon spending funded by Nexa. Planned general and administrative expense was approximately $1.085 million.
- Liquidity: Management stated that existing cash, short-term investments and marketable securities were adequate for expected expenditures over the next year. Additional capital would be required for mine development or operations and may come from equity, debt, joint ventures, asset sales or other sources.
- The company expects to continue using its ATM program selectively and may sell marketable securities or write covered calls on a limited portion of its Kinross holdings.
Risks, contingencies and unusual items
- The company has no reported mineral reserves and no producing assets; mineral resources at Florida Canyon and Lik may never become reserves or prove economically viable.
- Exploration success, permitting, commodity prices, financing availability, environmental requirements, land and title matters, weather, political conditions in Peru, and the actions and priorities of joint-venture partners could materially affect results.
- Golden Crest drilling depends on U.S. Forest Service and other permit approvals. The filing does not provide assurance that the planned drilling schedule will occur.
- At Florida Canyon, Solitario’s future development funding may be financed by Nexa through a loan facility if Nexa elects to develop the project; repayment would come from future project cash flows.
- The Golden Crest leases include future payments, work commitments, a potential gold-resource success fee of up to $1.5 million and a 2% net smelter return royalty, reducible to 1% for a $1.0 million payment.
- Estimated 2023 property claim, lease and option payments were approximately $1.274 million, with approximately $854,000 expected to be paid or reimbursed by joint-venture partners according to the MD&A; the commitments note reports approximately $419,000 of estimated net payments.
- Financial results include volatile mark-to-market losses on Treasury securities and marketable equities, realized losses on equity-security sales, and non-cash stock-option compensation.
- The company has a history of losses, reporting losses in 26 of its 29 years of operations, and does not expect to pay dividends.
- The independent auditor issued an unqualified opinion. As a smaller reporting company, Solitario was not required to obtain an external audit attestation on internal control over financial reporting; management concluded its controls were effective.
Most important facts for investors to verify
- Verify the current permitting status and timing of the planned Golden Crest drilling program.
- Review the latest Florida Canyon and Lik technical report summaries, including resource assumptions, recoveries, cutoff grades and the absence of reserves.
- Confirm 2023 exploration funding and program approvals with Teck and Nexa, including the extent to which partner funding reduces Solitario’s cash requirements.
- Reconcile cash, Treasury securities, marketable equity securities, uninsured deposits and projected cash burn against the stated 2023 budget.
- Assess potential dilution from the remaining ATM program and outstanding options, including 5.39 million options outstanding at year-end.
- Monitor zinc and gold prices, permitting and environmental developments, joint-venture decisions, and any impairment indicators for capitalized mineral properties.