Solitario Exploration & Royalty Corp. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2015. The filing identifies the registrant as Solitario Exploration & Royalty Corp.; the request metadata refers to Solitario Resources Corp. The interim financial statements are unaudited and presented in U.S. dollars.
Business context and reporting period
Solitario was an exploration-stage mineral company focused on acquiring and holding precious- and base-metal exploration properties and royalty interests. On August 25, 2015, the company sold its 80% interest in the Mt. Hamilton gold project to Waterton Nevada Splitter, LLC as part of a transaction involving total project proceeds of $30.0 million. Solitario received gross proceeds of $24.0 million and shifted its focus away from Mt. Hamilton development toward exploration assets, royalties, and potential acquisitions.
Financial position and key metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Property and joint venture revenue | $0 | $0.2 million | $0 | $0.2 million |
| Loss from continuing operations | $2.8 million | $0.5 million | $3.4 million | $1.6 million |
| Net income attributable to Solitario shareholders | $10.0 million | $(0.5) million | $9.4 million | $(1.6) million |
| Basic and diluted earnings per share | $0.25 | $(0.01) | $0.24 | $(0.04) |
| Cash flow from operations | Not separately provided for the quarter | Not separately provided for the quarter | $(1.4) million | $(1.3) million |
- The $12.7 million gain on sale of discontinued operations drove reported profitability in 2015. The gain was $13.3 million before $0.6 million of tax expense.
- Cash and cash equivalents were $17.9 million at September 30, 2015, compared with $0.5 million at December 31, 2014.
- Working capital was $18.1 million at September 30, 2015, versus negative working capital of $2.0 million at December 31, 2014.
- Marketable equity securities were $0.2 million, primarily 100,000 Kinross shares, compared with $2.3 million at December 31, 2014.
- Total assets were $18.4 million and shareholders’ equity was $18.3 million at September 30, 2015.
- The company had no interest-bearing debt after repaying the $5.0 million RMB Loan, plus $7,000 of interest and fees, at the Mt. Hamilton closing. The RMB warrant liability was $6,000.
- Nine-month investing cash flow was positive $23.8 million, primarily reflecting the $24.0 million Mt. Hamilton proceeds. Financing cash flow was negative $5.0 million due to debt repayment.
Material changes versus the prior comparable period
- Reported results improved from a loss to substantial net income because of the Mt. Hamilton disposal; continuing operations remained loss-making and worsened to a $3.4 million nine-month loss from $1.6 million.
- Exploration expense declined to $48,000 for the nine months from $242,000, and general and administrative expense declined to $1.5 million from $1.7 million.
- Development spending ceased after the Mt. Hamilton sale. The company had capitalized $1.4 million of Mt. Hamilton costs during the first nine months of 2015, compared with $2.0 million in 2014, but expects no further development capitalization in the near term.
- Marketable-security results shifted from a $472,000 nine-month gain in 2014 to a $969,000 loss in 2015, including a $1.5 million loss on transferring Ely shares in connection with the transaction.
- The $200,000 Bongará standby rental payment received in 2014 was not received in 2015.
- The Pedra Branca joint venture with Anglo Platinum was terminated during 2015; Solitario retained a 1% royalty and had no remaining recorded investment.
Guidance, outlook, risks and unusual items
- Management expects 2015 exploration expenditures to be below 2014 levels, with future activity potentially increasing as new projects are evaluated.
- Management stated that cash and marketable securities were adequate to fund expected expenditures for the following year and did not expect additional financing during the remainder of 2015.
- The company intended to use cash for exploration, potential mineral-asset acquisitions, and a possible repurchase of up to two million common shares under a program announced October 28, 2015. The program had no minimum purchase requirement and could be terminated at any time.
- Management expected no currently payable 2015 income taxes because losses, carryforwards, and tax-basis items were expected to offset the Mt. Hamilton transaction gain, although $997,000 of income tax expense was recorded through September 30.
- Key risks include the speculative nature of mineral exploration, uncertain recoverability of mineral-property investments, commodity and marketable-security price volatility, political and regulatory risks, the need for future capital if projects are developed, and the ability to identify and complete acquisitions.
- The company cautioned that its cash position could make it a heightened takeover target. It reported no off-balance-sheet obligations, legal proceedings, or material changes to previously disclosed risk factors other than risks eliminated by the Mt. Hamilton sale and RMB Loan repayment.
- Disclosure controls and procedures were assessed as effective as of September 30, 2015, with no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant identity and whether the filing relates to Solitario Exploration & Royalty Corp. rather than Solitario Resources Corp.
- Verify that reported 2015 earnings are primarily a one-time result of the Mt. Hamilton disposal and do not represent recurring operating profitability.
- Review the allocation and recoverability of the $997,000 tax expense and management’s expectation of no current 2015 tax payable.
- Assess how the $17.9 million cash balance will be allocated among exploration, acquisitions, royalties, and the proposed share repurchase.
- Evaluate the prospects and funding requirements of the Bongará asset and the company’s remaining exploration portfolio, which had only $19,000 of recorded mineral properties.
- Monitor the 1,624,748 RMB warrants, exercisable at $1.5387 per share through August 21, 2016, for potential dilution.