Solitario Zinc Corp. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022; filed August 10, 2022. The filing identifies the registrant as Solitario Zinc Corp., an exploration-stage mineral company focused on precious-metal, zinc and base-metal properties. Core assets include the Lik project in Alaska, Golden Crest in South Dakota and a carried interest in Florida Canyon, Peru. The filing reports 64,768,873 common shares outstanding as of August 10, 2022.
Financial Results and Position
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Net loss | $(1.691) million | $(0.668) million | $(2.205) million | $(1.196) million |
| Loss per basic and diluted share | $(0.03) | $(0.01) | $(0.03) | $(0.02) |
| Exploration expense | $0.951 million | $0.237 million | $1.177 million | $0.384 million |
| General and administrative expense | $0.277 million | $0.256 million | $0.664 million | $0.536 million |
| Net cash used in operating activities | Not separately reported | Not separately reported | $(1.272) million | $(0.730) million |
Balance sheet at June 30, 2022: Cash and cash equivalents were $346,000; short-term investments were $5.870 million; marketable equity securities were $940,000; total assets were $23.718 million; current liabilities were $532,000; and total shareholders’ equity was $23.047 million. Working capital was $6.705 million, compared with $6.883 million at December 31, 2021.
Debt and liquidity: The filing reports no debt financing or senior securities. Liabilities consisted primarily of accounts payable, operating lease liabilities and a $125,000 asset retirement obligation related to Lik. Management stated that cash, short-term investments and marketable equity securities were adequate to fund expected expenditures for the next year. Cash and short-term investments totaled $6.216 million at June 30, 2022.
Investments: Short-term investments included $5.622 million of U.S. Treasury securities and a certificate of deposit carried at $248,000. The company also held marketable equity securities consisting of Kinross Gold, Vendetta Mining and Vox Royalty shares with a combined fair value of $940,000.
Cash Flow and Financing
- Operating activities used $1.272 million during the first six months of 2022, primarily reflecting increased exploration and administrative spending.
- Investing activities used $887,000, including a net $881,000 purchase of short-term investments and $10,000 spent on additional Golden Crest mineral claims.
- Financing activities provided $2.043 million, including $2.023 million of net proceeds from the at-the-market equity offering and $20,000 from stock-option exercises.
- Cash decreased by $116,000 during the first six months, from $462,000 at December 31, 2021 to $346,000 at June 30, 2022.
- The ATM program permits aggregate sales of up to $9.0 million. During the period, the company sold 2,650,724 shares at an average price of approximately $0.79 per share before related commissions and expenses.
Material Changes Versus the Prior Comparable Period
- Six-month net loss increased 84% to $2.205 million from $1.196 million, primarily because of higher exploration and general and administrative expenses.
- Six-month exploration expense increased to $1.177 million from $384,000. Golden Crest spending rose to $555,000, Lik spending rose to $448,000, and reconnaissance spending rose to $174,000.
- Second-quarter exploration expense increased to $951,000 from $237,000, driven by Golden Crest field work and an induced-polarization study, and Teck-operated drilling activity at Lik.
- Six-month general and administrative expense increased to $664,000 from $536,000, excluding the separately reported stock-option expense component in management’s discussion.
- Marketable equity securities generated a $159,000 realized loss in the first six months of 2022, compared with a $19,000 realized gain in the prior-year period.
- Unrealized losses on marketable equity securities were $155,000 versus $270,000 in the prior-year period, while unrealized losses on short-term investments increased to $98,000 from $56,000 due primarily to higher market interest rates.
- Florida Canyon exploration costs were zero for the first six months of 2022 because Nexa funded the exploration activity; Solitario had incurred $64,000 in the prior-year period.
- Shares outstanding increased from 62.036 million at December 31, 2021 to 64.769 million at June 30, 2022, mainly due to ATM sales and option exercises.
Guidance, Outlook, Risks and Unusual Items
- Management budgeted approximately $2.350 million of 2022 exploration expenditures, including approximately $1.723 million at Golden Crest and $574,000 for Solitario’s share of the Lik drilling program. Full-year exploration spending was expected to exceed 2021 levels.
- Management expected 2022 general and administrative costs to exceed 2021 levels and interest income to decline as short-term investments are used to fund operations and exploration.
- The company expects to use cash and short-term investments for Golden Crest, Lik and Florida Canyon activities, reconnaissance exploration and potential mineral-property acquisitions. Additional capital would be required to develop or operate a mining project.
- Management stated that COVID-19 was not expected to have a material effect on planned activities as of June 30, 2022, but continued to monitor the situation.
- Commodity-price volatility, financial-market volatility, inflation, rising interest rates, labor and supply shortages, political and regulatory developments, permitting, exploration risk and potential inability to obtain future financing could materially affect results.
- The company has never developed a mineral property and none of its exploration properties has proven and probable reserves. Mineral-resource estimates may not convert into economically mineable reserves.
- Vendetta warrants were expected to expire worthless in August 2022; the company recorded a $4,000 loss on derivative instruments for the first six months.
- No mineral-property impairment was recorded during the quarter or six-month period. No legal proceedings, material risk-factor changes or off-balance-sheet obligations were reported.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting.
Investor Verification Points
- Verify the remaining availability under the $9.0 million ATM program and the potential dilution from future equity sales and approximately 5.431 million outstanding stock options.
- Assess whether the planned $2.350 million exploration budget is sufficient for Golden Crest and Lik activities and whether additional financing may be required.
- Review exploration results, drilling outcomes, permitting status and partner funding obligations for Golden Crest, Lik and Florida Canyon.
- Monitor the liquidity and market value of the company’s U.S. Treasury securities and equity investments, including exposure to interest-rate and commodity-price volatility.
- Confirm the absence of reserves and the uncertainty that exploration expenditures and the $16.316 million mineral-property carrying value will generate an economic return.
- Evaluate the $125,000 Lik asset retirement obligation and the remaining $58,000 of office lease payments through October 2023.