Solitario Zinc Corp. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021; filed August 4, 2021. The filing identifies the registrant as Solitario Zinc Corp. and describes it as an exploration-stage mineral company focused on precious-metal, zinc and base-metal properties. Its core assets are the Florida Canyon project in Peru, the Lik project in Alaska and the newly acquired Golden Crest project in South Dakota.
Financial condition and results
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | No revenue reported | No revenue reported | No revenue reported | No revenue reported |
| Net income (loss) | $(668,000) | $255,000 | $(1,196,000) | $(352,000) |
| Basic loss per share | $(0.01) | $0.00 | $(0.02) | $(0.01) |
| Exploration expense | $237,000 | $44,000 | $384,000 | $157,000 |
| General and administrative expense | $256,000 | $254,000 | $536,000 | $590,000 |
| Net cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $(730,000) | $(521,000) |
The company has no operating revenue or established mining operations. The quarterly loss reflected higher exploration spending, a $148,000 unrealized loss on marketable equity securities, a $30,000 loss on derivative instruments and lower interest income. The prior-year quarter benefited from a $484,000 unrealized investment gain and $44,000 of other income from conversion of the SilverStream note.
- Liquidity: Cash and cash equivalents were $405,000 at June 30, 2021, compared with $605,000 at December 31, 2020. Short-term investments were $5.248 million, and marketable equity securities were $1.281 million.
- Working capital: $6.481 million at June 30, 2021, versus $7.875 million at December 31, 2020. Management states that available cash, short-term investments and marketable securities are adequate to fund expected expenditures over the next year.
- Capital structure: Total assets were $23.149 million and shareholders’ equity was $22.494 million. The company had no conventional long-term debt. Current liabilities were $474,000 and long-term liabilities were $181,000.
- Cash flows: Investing activities provided $349,000, primarily from net short-term investment sales, partially offset by mineral property and other asset purchases. Financing activities provided $181,000 from ATM share sales and option exercises.
- Investments: Short-term investments consisted principally of U.S. Treasury securities and certificates of deposit. Marketable equity securities included Kinross, Vendetta and Vox holdings.
Material changes from the prior comparable period
- Second-quarter net income of $255,000 changed to a net loss of $668,000, while the six-month loss increased from $352,000 to $1.196 million.
- Six-month exploration expense increased 145% to $384,000, driven by Golden Crest activity, work at Lik and Florida Canyon activity. Golden Crest had no comparable prior-year expense.
- Six-month general and administrative expense declined to $536,000 from $590,000, although non-stock-option general and administrative costs increased to $463,000 from $375,000. Lower stock-option expense more than offset higher legal, accounting, travel and shareholder-relations costs.
- Investment results reversed from a $251,000 unrealized gain in the first six months of 2020 to a $270,000 unrealized loss in 2021.
- Interest income fell to $10,000 from $108,000 because of lower investment balances and lower yields.
- The company acquired the Golden Crest project and capitalized $374,000 of related mineral property costs, including $173,000 accrued in accounts payable.
- The company entered into a $9.0 million ATM program, sold 150,400 shares for approximately $177,000 of net proceeds and recorded $144,000 of related one-time costs. It also received $83,000 from option exercises.
- The remaining $10,000 PPP loan balance was forgiven and recognized as other income. No PPP balance remained at June 30, 2021.
Guidance, outlook, risks and unusual items
- Management budgeted approximately $1.642 million of 2021 exploration expenditures, including approximately $622,000 for Solitario’s share of the Lik joint drilling program. Most of the spending was expected in the third and fourth quarters.
- The 2021 Lik program includes up to three exploration holes, with total planned joint-venture expenditures of approximately $1.24 million.
- Management expects full-year exploration and general and administrative spending to exceed 2020 levels and expects continued operating cash outflows.
- The company expects to use cash and short-term investments for exploration, reconnaissance, potential mineral acquisitions and strategic transactions. It may sell additional marketable securities or use the ATM program as needed.
- Golden Crest includes future payments, optional work commitments, a potential success fee of up to $1.5 million and a 2% net smelter return royalty retained by the property owner.
- Principal risks include exploration failure, commodity-price volatility, uncertain ability to develop or monetize properties, dependence on joint-venture partners, future financing needs, market volatility in equity investments, regulatory and political developments, and COVID-19-related disruption.
- All exploration properties lack proven and probable reserves. The company has never developed a mineral property, and future development financing would likely require cash reserves, joint ventures, equity or debt financing, or asset sales.
- The company recorded no mineral property impairment and no income tax expense; deferred tax assets remain fully offset by a valuation allowance.
- Management reported effective disclosure controls as of June 30, 2021, with no material changes in internal control over financial reporting. No material changes to previously disclosed risk factors, legal proceedings or off-balance-sheet arrangements were reported.
Investor verification points
- Verify the company’s cash runway against the planned $1.642 million 2021 exploration budget and continuing corporate expenditures.
- Assess the exploration results, permitting status and funding obligations for Lik, Florida Canyon and Golden Crest.
- Review the terms and potential dilution of the $9.0 million ATM program and the approximately 5.5 million outstanding stock options.
- Monitor the fair value and liquidity of the Kinross, Vendetta and Vox investments, which produced material non-cash earnings volatility.
- Confirm the economic terms, work commitments, royalty and potential success fee under the Golden Crest agreement.
- Evaluate the company’s dependence on joint-venture partners, particularly Teck at Lik and Nexa at Florida Canyon.
- Reconcile the filing’s company name, which is Solitario Zinc Corp., with any external references to Solitario Resources Corp.