Business Context and Reporting Period
Solitario Exploration & Royalty Corp. (formerly Solitario Resources Corp.) is an exploration-stage company focused on acquiring precious and base metal properties in Latin America (Peru, Brazil, Mexico, Bolivia) for future sale, joint venture, or royalty creation. The company does not anticipate developing properties on its own. This Form 10-K covers the fiscal year ended December 31, 2008.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Revenue | $200,000 | $100,000 |
| Net Loss | $(617,000) | $(4,397,000) |
| Loss Per Share (Basic/Diluted) | $(0.02) | $(0.15) |
| Total Assets | $26,463,000 | $30,430,000 |
| Working Capital | $3,415,000 | $6,245,000 |
| Cash and Equivalents | $1,942,000 | $2,250,000 |
| Exploration Expense | $4,589,000 | $3,112,000 |
| Debt | $0 | $0 |
Note: The company has no long-term debt. Total assets are heavily weighted by marketable equity securities (primarily Kinross Gold Corp. stock) valued at $21,216,000.
Material Changes vs. Prior Period
- Improved Net Loss: The net loss decreased significantly from $4.4 million in 2007 to $0.6 million in 2008. This improvement was primarily driven by a non-cash stock option compensation benefit of $3.26 million in 2008 (compared to an expense of $2.0 million in 2007) and an unrealized gain on derivative instruments of $1.18 million (compared to a loss of $1.7 million in 2007).
- Increased Exploration Costs: Exploration expenses rose 47% to $4.59 million due to expanded activities in Peru and Mexico and a change in accounting treatment for the Pedra Branca joint venture in Brazil.
- Derivative Gains: The company recorded a $1.19 million gain on the Kinross Collar derivative in 2008, reversing a $1.7 million loss recorded in 2007.
- Asset Impairments: No mineral property impairments were recorded in 2008, compared to $20,000 in 2007. However, a $107,000 impairment was recognized for TNR Gold Corp. stock.
Guidance, Outlook, and Risks
- Liquidity Strategy: The company expects primary funding for 2009 to come from the sale of its Kinross Gold Corp. investment. It plans to sell approximately 150,000 shares in 2009 for estimated proceeds of $2.48 million.
- 2009 Budget: Exploration expenditures are budgeted at approximately $4.4 million, with $1.5 million for the Pedra Branca project funded by joint venture partner Anglo Platinum. General and administrative costs are forecast at $1.68 million (excluding stock options).
- Key Risks:
- Kinross Collar: 900,000 shares of Kinross stock are subject to a "collar" agreement that limits upside appreciation above specific thresholds ($21.69 to $27.54 depending on tranche) while providing downside protection. This restricts liquidity and potential cash proceeds.
- Exploration Risk: As an exploration-stage company with no proven reserves, the value of assets depends entirely on future discovery and the ability to sell or joint venture properties.
- Foreign Operations: Operations in Bolivia, Peru, Brazil, and Mexico face political, regulatory, and currency risks, including potential nationalization or tax changes.
Investor Verification Checklist
- Kinross Collar Terms: Verify the specific settlement dates (April 2009, 2010, 2011) and price thresholds for the 900,000 shares under the Kinross Collar to understand liquidity constraints.
- Joint Venture Funding: Confirm the status of funding commitments from Votorantim (Bongara/Chambara) and Anglo Platinum (Pedra Branca) to ensure exploration budgets are met without dilution.
- Stock Option Liability: Review the volatility of the stock option liability, which created a $3.26 million non-cash benefit in 2008 due to the decline in Solitario's share price; this is a non-recurring accounting adjustment.
- Property Status: Verify the progress of the Newmont Strategic Alliance properties (Chonta, La Promesa, etc.) and the termination of the Newmont Pachuca Real joint venture.