2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing identifies the registrant as Solitario Zinc Corp.; the request metadata refers to Solitario Resources Corp. The company is an exploration-stage mineral company focused primarily on zinc properties and has never developed or operated a mine.
Business Context
- Core assets are a 39% carried interest in the Florida Canyon zinc project in Peru and a 50% interest in the Lik zinc-lead-silver project in Alaska.
- Florida Canyon is operated by Nexa Resources. Nexa completed a 39-hole, 17,033-meter drilling program in 2019, funded in part by Solitario.
- Lik is a joint venture with Teck. A 2019 program included mapping, geophysics, geochemical sampling, relogging of historical core and environmental evaluation.
- The company also owns the La Promesa exploration project in Peru, an 85% interest in the Chambara project, and marketable securities, including Vendetta and Kinross holdings.
- The company has no reported proven or probable mineral reserves and no commercial mining operations.
Key Financial Metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Mineral property sale revenue | $408,000 | $502,000 |
| Exploration expense | $1.807 million | $1.254 million |
| General and administrative expense | $1.368 million | $1.954 million |
| Interest and dividend income | $252,000 | $192,000 |
| Unrealized loss on marketable equity securities | $711,000 | $1.058 million |
| Net loss | $3.289 million | $3.598 million |
| Basic and diluted loss per share | $0.06 | $0.06 |
| Net cash used in operating activities | $2.639 million | $1.357 million |
| Net cash provided by investing activities | $3.109 million | $1.361 million |
| Cash and cash equivalents at year-end | $574,000 | $117,000 |
| U.S. Treasury securities | $6.829 million | $10.223 million |
| Working capital | $8.487 million | $11.448 million |
| Total assets | $24.532 million | $27.903 million |
| Total shareholders’ equity | $24.131 million | $27.090 million |
| Long-term debt | None reported | None reported |
Revenue is not recurring and primarily reflects asset or royalty sales. The 2019 Royalty Sale generated $408,000 of reported revenue, comprising $185,000 of cash proceeds and a SilverStream convertible note initially valued at $263,000, less $40,000 of carrying value. The note had a recorded value of $268,000 at year-end.
Material Changes Versus 2018
- Net loss improved by $309,000, primarily because of lower general and administrative expense, higher interest income and a smaller unrealized loss on marketable equity securities.
- Exploration expense increased $553,000, largely because the company funded the remaining $1.053 million portion of its $1.580 million Florida Canyon drilling commitment in 2019. The full commitment was treated as an advance against future development funding obligations.
- Operating cash usage increased $1.282 million, reflecting the Florida Canyon drilling payments and lower cash proceeds from the 2019 royalty transaction.
- Short-term investments declined by $3.394 million as Treasury securities were sold to fund operations and exploration.
- General and administrative expense declined $586,000, while non-cash stock-option expense declined from $660,000 to $343,000.
- The company acquired Vendetta units for $233,000 and held 14.35 million Vendetta common shares, 100,000 Kinross shares and other marketable securities at year-end.
- The company repurchased 38,400 shares for $13,000 in 2019, compared with 263,100 shares for $101,000 in 2018.
Liquidity, Debt and Commitments
- Cash, Treasury securities and marketable equity securities totaled approximately $8.442 million at December 31, 2019, before considering the SilverStream note.
- Current liabilities were $269,000. The company reported no long-term debt, but had a $125,000 asset-retirement obligation related to Lik and $7,000 of non-current operating lease liability.
- Management stated that cash, short-term investments and marketable securities were adequate to fund expected expenditures for the following year.
- Estimated 2020 exploration and development spending was approximately $976,000, excluding potential acquisitions and material changes to planned drilling.
- Estimated 2020 property rentals and option payments were approximately $859,000, of which approximately $816,000 was expected to be paid or reimbursed by joint venture partners.
- The SilverStream note was extended to June 30, 2020 and its interest rate increased from 5% to 8%. It may be converted only if SilverStream completes a qualifying initial public offering; otherwise it is payable in cash at maturity.
Outlook, Commentary and Risks
- Florida Canyon: Nexa expected to complete a new NI 43-101 resource estimate incorporating the 2018–2019 drilling results, undertake additional metallurgical work and pursue permitting for future drilling. Development is not assured.
- Lik: Solitario and Teck were evaluating a 2020 program of two or three core holes totaling approximately 1,000 meters. The parties were also negotiating a new joint operating agreement after the prior Lik Block Agreement terminated.
- La Promesa: Planned 2020 work depended on obtaining a community agreement required for drilling permits. No agreement had been signed as of the filing.
- Management expected 2020 general and administrative expense, excluding stock compensation, of approximately $1.122 million and expected interest income to decline as cash and Treasury securities were used.
- The company’s principal risks include the absence of reserves, uncertainty of exploration results, dependence on joint venture partners, commodity-price volatility, permitting and environmental requirements, political and operating risks in Peru, title risks, limited recurring revenue and the need for future capital if projects advance to development.
- Marketable securities are subject to significant price volatility. The company recorded a $711,000 unrealized loss on such securities in 2019.
- Approximately $554,000 of cash was held in uninsured brokerage or foreign bank accounts, creating counterparty and liquidity risk.
- The independent auditor issued an unqualified opinion on the financial statements. Management assessed disclosure controls and internal control over financial reporting as effective; no auditor attestation was required because the company is a smaller reporting company.
Investor Verification Checklist
- Verify the registrant’s legal name and ticker information, because the filing uses Solitario Zinc Corp. while the request metadata uses Solitario Resources Corp.
- Review the 2020 Florida Canyon resource estimate, metallurgical results, permitting status and Nexa’s decision regarding further development.
- Confirm the status, collectability and maturity outcome of the SilverStream note due June 30, 2020.
- Assess whether the $976,000 2020 exploration budget and expected partner reimbursements were achieved.
- Monitor the proposed Lik drilling program and the new joint operating agreement with Teck.
- Evaluate the carrying values and subsequent market prices of Vendetta, Kinross and other marketable securities.
- Confirm future funding requirements if either Florida Canyon or Lik progresses beyond exploration, since no project has reported reserves or commercial production.
- Review subsequent filings for developments after February 28, 2020, including commodity-price changes, permitting, financing and any effects of later operational disruptions.