The following discussion should be read in conjunction with the information
contained in the consolidated financial statements of Solitario for the years
ended December 31, 2022 and 2021, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Solitario's Annual
Report on Form 10-K for the year ended December 31, 2022. Solitario's financial
condition and results of operations are not necessarily indicative of what may
be expected in future periods. Unless otherwise indicated, all references to
dollars are to U.S. dollars.
(a) Business Overview and Summary
We are an exploration stage company as defined by rules issued by the SEC, with
a focus on the acquisition of precious and base metal properties with
exploration potential and the development or purchase of royalty interests.
Currently our primary focus is the acquisition and exploration of precious
metals, zinc and other base metal exploration mineral properties. However, we
continue to evaluate other mineral properties for acquisition, and we hold a
portfolio of mineral exploration properties and assets for future sale, joint
venture or on which to create a royalty prior to the establishment of proven and
probable reserves. Although our mineral properties may be developed in the
future by us, through a joint venture or by a third party, we have never
developed a mineral property. In addition to focusing on our current mineral
exploration properties, we also from time to time evaluate potential strategic
transactions for the acquisition of new precious and base metal properties and
assets with exploration potential.
Our current geographic focus for the evaluation of potential mineral property
assets is in North and South America; however, we have conducted property
evaluations for potential acquisition in other parts of the world. At March 31,
2023, we consider our Golden Crest project in South Dakota, our carried interest
in the Florida Canyon project in Peru, and our interest in the Lik project in
Alaska to be our core mineral property assets. We are conducting exploration
activities in South Dakota on our own at Golden Crest and through joint ventures
operated by our partners in Peru at the Florida Canyon project and in Alaska at
the Lik project. We also conduct potential acquisition evaluations in other
countries located in South and North America.
We have recorded revenue in the past from the sale of mineral properties,
however revenues and / or proceeds from the sale or joint venture of properties
or assets, although generally significant when they have occurred in the past,
have not been a consistent source of annual revenue and would only occur in the
future, if at all, on an infrequent basis. We have reduced our exposure to the
costs of our exploration activities in the past through the use of joint
ventures. Although we anticipate that the use of joint ventures to fund some of
our exploration activities will continue for the foreseeable future, we can
provide no assurance that these or other sources of capital will be available in
sufficient amounts to meet our needs, if at all.
As of March 31, 2023, we have balances of cash and short-term investments that
we anticipate using, in part, to (i) fund costs and activities intended to
further the exploration of our Lik, Florida Canyon and Golden Crest projects,
(ii) conduct reconnaissance exploration and (iii) potentially acquire additional
mineral property assets. The fluctuations in precious metal and other commodity
prices contribute to a challenging environment for mineral exploration and
development, which has created opportunities as well as challenges for the
potential acquisition of advanced mineral exploration projects or other related
assets at potentially attractive terms.
As of March 31, 2023, we do not expect the effects of the COVID-19 pandemic to
have a material effect on our planned activities related to the exploration of
our Lik, Florida Canyon or Golden Crest projects. However, we continue to
monitor planned activities for the full year 2023 at our Florida Canyon, Lik and
Golden Crest projects. The extent to which the COVID-19 pandemic impacts our
business and projects, including our exploration and other activities and the
market for our securities, will depend on future developments, which are highly
uncertain and cannot be predicted at this time. Please see Item 1A, "Risk
Factors," in our Annual Report on Form 10-K for the year ended December 31,
2022.
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(b) Results of Operations
Comparison of the quarter ended March 31, 2023 to the quarter ended March 31,
2022.
We had a net loss of $380,000 or $0.01 per basic and diluted share for the three
months ended March 31, 2023 compared to a net loss of $514,000 or $0.01 per
basic and diluted share for the three months ended March 31, 2022. As explained
in more detail below, the primary reasons for the decrease in the net loss in
the three months ended March 31, 2023 compared to the loss in the three months
ended March 31, 2022 were (i) the recording of an unrealized gain on marketable
equity securities of $329,000 during the three months ended March 31, 2023
compared to an unrealized loss on marketable equity securities of $213,000
during the three months ended March 31, 2022; (ii) the recording of an
unrealized gain on short-term investments of $21,000 during the three months
ended March 31, 2023 compared to an unrealized loss on short-term investments of
$51,000 during the three months ended March 31, 2022; and (iii) no loss on sale
of marketable equity securities during the three months ended March 31, 2023
compared to a loss on the sale of marketable equity securities of $81,000 during
the three months ended March 31, 2022. Partially offsetting this decrease in the
net loss were (i) an increase in exploration expense to $275,000 during the
three months ended March 31, 2023 compared to exploration expense of $226,000
during the three months ended March 31, 2022; and (ii) an increase in general
and administrative costs to $476,000 during the three months ended March 31,
2023 compared to general and administrative costs of $387,000 during the three
months ended March 31, 2022. Each of the major components of these items is
discussed in more detail below.
Our exploration expense increased to $275,000 during the three months ended
March 31, 2023 compared to exploration expense of $226,000 during the three
months ended March 31, 2022. The increase was primarily as a result of an
increase in expenses at our Golden Crest project to $241,000 during the three
months ended March 31, 2023 compared to exploration expense of $127,000 during
the three months ended March 31, 2022. These costs were partially offset by a
reduction in our reconnaissance exploration expenses to $29,000 during the three
months ended March 31, 2023 compared to reconnaissance exploration expenses of
$95,000 during 2022. We also incurred exploration expenses of $5,000 and $4,000,
respectively, at our Lik project in Alaska during the three months ended March
31, 2023 and 2022. Our exploration expenditures are normally lower during the
first quarter of our fiscal year as a result of weather limitations. During the
three months ended March 31, 2023 we had two contract geologists at our Golden
Crest project along with several part-time employees. During the three months
ended March 31, 2023 and 2022, our Denver personnel spent a majority of their
time on Golden Crest and various reconnaissance exploration activities described
above and related matters. Our full-year 2023 total exploration and development
budget is approximately $2,000,000, which reflects a similar level of
anticipated activities at the Golden Crest project during 2023 compared to 2022,
as well as a proposed limited exploration and drilling program at Lik. Nexa is
responsible for all planned 2023 exploration expenditures at Florida Canyon. The
proposed 2023 budget does not reflect any costs for drilling the Golden Crest
project or any exploration costs for projects or assets we may acquire during
2023. Our planned exploration activities in 2023 may be modified, as necessary
for any drilling programs we may undertake at Golden Crest or projects we may
acquire. Changes may occur to our planned 2023 exploration expenditures related
to any number of factors including permitting delays, potential acquisition of
new properties, joint venture funding, commodity prices and changes in the
deployment of our capital. We expect our full-year exploration expenditures for
2023 to be similar to the exploration expenditures for full-year 2022.
Exploration expense (in thousands) by project for the three months ended March
31, 2023 and 2022 consisted of the following:
March 31, March 31,
Project Name 2023 2022
Golden Crest $ 241 $ 127
Lik 5 4
Reconnaissance 29 95
Total exploration expense $ 275 $ 226General and administrative costs, excluding stock option compensation costs,
discussed below, were $409,000 during the three months ended March 31, 2023
compared to $374,000 during the three months ended March 31, 2022. The major
components of these costs were related to (i) salaries and benefit expense of
$158,000 during the three months ended March 31, 2023 compared to salary and
benefit costs of $119,000 during the three months ended March 31, 2022,
primarily due to an increase in salary amounts during 2023 compared to 2022;
(ii) legal and professional expenditures of $81,000 during the three months
ended March 31, 2023 compared to legal and professional expenditures of $132,000
during the three months ended March 31, 2022, with the higher amount in 2022
primarily related to increased costs for accounting services, including work
performed on our SK-1300 mineral reserve reports completed during the three
months ended March 31, 2022; (iii) office rent and expenses of $31,000 during
the three months ended March 31, 2023 compared to $20,000 during the three
months ended March 31, 2022; and (iv) travel and shareholder relation costs of
$139,000 during the three months ended March 31, 2023 compared to $103,000
during the three months ended March 31, 2022. We anticipate the full-year
general and administrative costs will be higher for 2023 compared to 2022
primarily due to increased activity at both our Golden Crest and Lik projects.
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We recorded $67,000 of stock option expense for the amortization of unvested
grant date fair value with a credit to additional paid-in-capital during the
three months ended March 31, 2023 compared to $13,000 of stock option
compensation expense during the three months ended March 31, 2022. The higher
costs during the three months ended March 31, 2023 related to the grant date
fair value of 2,360,000 option grants made during 2022 which are being amortized
over three years. There were no significant option grants during 2021 or 2022
which increased the stock option expense in 2022 compared to the three months
ended March 31, 2023. These non-cash charges for the amortization of grant date
fair values are related to vesting of stock options outstanding during the three
months ended March 31, 2023 and 2022. See Note 9, "Employee Stock Compensation
Plans," above, for additional information on our stock option expense.
We did not sell any marketable equity securities during the three months ended
March 31, 2023. During the three months ended March 31, 2022, we sold 500,000
shares of Vendetta common stock for proceeds of $26,000 and recorded a loss on
sale of marketable equity securities of $81,000. See Note 3 "Marketable Equity
Securities" above to the condensed consolidated financial statements for a
discussion of the sale of Marketable Equity Securities. We may sell shares of
our holdings of marketable equity securities during the remainder of 2023;
however, we do not expect sales of marketable equity securities to be a
significant source of cash for the year ended December 31, 2023.
We recorded an unrealized gain on marketable equity securities of $329,000
during the three months ended March 31, 2023 compared to an unrealized gain on
marketable equity securities of $213,000 during the three months ended March 31,
2022. The gain during the three months ended March 31, 2023 was primarily
related to an increase in the value of our holdings, after the sales of
marketable equity securities discussed above in Note 3 "Marketable Equity
Securities" to the condensed consolidated financial statements, of (i) 100,000
shares of Kinross Gold Corp. ("Kinross") common stock, which increased from a
fair value of $409,000 at December 31, 2022 to a fair value of $471,000 at March
31, 2023; (ii) 134,055 shares of Vox common stock, which increased from a fair
value of $311,000 at December 31, 2022 to a fair value of $412,000 at March 31,
2023; (iii) 7,750,000 shares of Vendetta common stock, which increased from a
fair value of $229,000 at December 31, 2022 to a fair value of $373,000 at March
31, 2023; and (iv) a gain in the fair value of our holdings of Highlander Silver
Corp. to $22,000 during the three months ended March 31, 2023, which was
recorded at a zero fair value at December 31, 2022.
We recorded interest income of $27,000 during the three months ended March 31,
2023 compared to interest income of $27,000 during the three months ended March
31, 2022. Although there was no change in interest income there was a decrease
in the outstanding balance of short-term investments during the three months
ended March 31, 2023 compared to 2022, however this was offset by an increase in
average interest rates earned during the three months ended March 31, 2023
compared to the three months ended March 31, 2022. We anticipate our interest
income will decrease in 2023 compared to 2022 as a result of the use of our
short-term investments and our cash balances for ordinary overhead, operational
costs, and the exploration, evaluation and or acquisition of mineral properties
discussed above. See "Liquidity and Capital Resources" below for further
discussion of our cash and cash equivalent balances.
We recorded a non-cash unrealized gain on our short-term investments of $21,000
during the three months ended March 31, 2023 compared to an unrealized loss on
our short-term investments of $51,000 during the three months ended March 31,
2022 primarily due to an increase in fair value of our investments in USTS as
certain individual treasury securities matured and their value increased from
prior mark-to-market fair value toward their face value which is paid on
maturity. We generally invest in a ladder of USTS that mature in 30 days to one
year and hold those securities to maturity. The total value of individual
securities may increase above or decrease below their face values during the
time we hold them as short-term investments as a result of changes in interest
rates. However, because we generally hold our investments in USTS and other
short-term investments, such as certificates of deposit ("CD's"), to maturity,
these fluctuations tend to mitigate over time as we receive face value upon
maturity. These changes in interest rates are related to many factors that are
not related to our business and do not affect the yield-to-maturity quoted for
our investments in USTS or CD's at the time we acquire these short term
investments, to the extent we hold the investments to maturity.
We regularly perform evaluations of our mineral property assets to assess the
recoverability of our investments in these assets. All long-lived assets are
reviewed for impairment whenever events or circumstances change which indicate
the carrying amount of an asset may not be recoverable utilizing guidelines
based upon future net cash flows from the asset as well as our estimates of the
geological potential of an early-stage mineral property and its related value
for future sale, joint venture or development by us or others. During the three
months ended March 31, 2023 and 2022, we recorded no property impairments.
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At March 31, 2023 and 2022, our net operating loss carry-forwards exceed our
built-in gains on marketable equity securities resulting in a net tax asset
position for which we provide a valuation allowance for all net deferred tax
assets. We recorded no income tax expense or benefit during the three months
ended March 31, 2023 or 2022. As a result of our exploration activities, we
anticipate we will not have currently payable income taxes during 2023. In
addition to the valuation allowance discussed above, we provide a valuation
allowance for our foreign net operating losses, which are primarily related to
our exploration activities in Peru. We anticipate we will continue to provide a
valuation allowance for these net operating losses until we are in a net tax
liability position with regard to those countries where we operate or until it
is more likely than not that we will be able to realize those net operating
losses in the future.
(c) Liquidity and Capital Resources
Cash
As of March 31, 2023, we had $440,000 in cash. We intend to utilize a portion of
this cash and a portion of our short-term investments, discussed below, to fund
our ordinary overhead, operational costs, exploration activities and for the
potential acquisition of additional mineral properties and other assets over the
next several years.
Short-term Investments
As of March 31, 2023, we had $3,163,000 in short-term investments invested in
USTS with maturities of 30 days to eleven months. The USTS are recorded at their
fair value, based upon quoted market prices. We anticipate we will roll over
that portion of our short-term investments not used for exploration
expenditures, operating costs or mineral property acquisitions as they become
due during the remainder of 2023.
Investment in Marketable Equity Securities
Our marketable equity securities are carried at fair value, which is based upon
market quotes of the underlying securities. At March 31, 2023, we owned (i)
7,750,000 shares of Vendetta common stock with a fair value of $373,000; (ii)
100,000 shares of Kinross common stock with a fair value of $471,000; (iii)
134,055 shares of Vox common stock with a fair value of $412,000 and (iv)
200,000 shares of Highlander Silver Corp. with a fair value of $22,000. All of
our marketable equity securities are carried at their fair values based upon
quoted market prices. We did not sell any marketable equity securities during
the three months ended March 31, 2023. During the three months ended March 31,
2022, we sold certain portions of our marketable equity securities for proceeds
of $26,000 and realized a loss on sale of marketable equity securities of
$81,000. We anticipate we may sell some of our marketable equity securities
during the remainder of 2023 depending upon cash needs and market conditions.
Working Capital
We had working capital of 4,694,000 at March 31, 2023 compared to working
capital of 4,991,000 as of December 31, 2022. Our working capital at March 31,
2023 consists primarily of our cash and cash equivalents, our investment in
USTS, our investment in marketable equity securities of $1,278,000, and other
current assets of $26,000, less our accounts payable of $188,000 and other
current liabilities of $25,000. As of March 31, 2023, we believe our cash
balances along with our short-term investments and marketable equity securities
are adequate to fund our expected expenditures over the next year.
The nature of the mineral exploration business requires significant sources of
capital to fund exploration, development and operation of mining projects. We
will need additional capital if we decide to develop or operate any of our
current exploration projects or any projects or assets we may acquire. We
anticipate we would finance any such development through the use of our cash
reserves, short-term investments, joint ventures, issuance of debt or equity, or
the sale of other exploration projects or assets.
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Stock-Based Compensation Plans
As of March 31, 2023, and December 31, 2022 there were options outstanding to
acquire 5,390,000 and 5,390,000, respectively, shares of Solitario common stock.
The outstanding options have exercise prices between $0.20 per share and $0.67
per share. There were no options exercised during the three months ended March
31, 2023. During the three months ended March 31, 2022, options for 73,000
shares were exercised with an average exercise price of $0.26 per share for
proceeds of $19,000. Options for 1,561,500 shares of Solitario Common Stock,
with an exercise price of $0.31 per share, expire in October 2023. Unless the
quoted market price of a share of our common stock exceeds $0.31 per share prior
to the exercise date of these shares, we do not anticipate the exercise of
options will be a significant source of cash flow during the remainder of 2023.
At the Market Offering Agreement
On February 2, 2021, Solitario entered into the ATM Agreement with Wainwright,
under which Solitario may, from time to time, issue and sell shares of
Solitario's common stock through Wainwright as sales manager in an at-the-market
offering under a prospectus supplement for aggregate sales proceeds of up to
$9.0 million. Solitario did not sell any shares under the ATM agreement during
the three months ended March 31, 2023. During the three months ended March 31,
2022, Solitario sold an aggregate of 2,650,724 shares of common stock under the
ATM Agreement at an average price of $0.79 per share for net proceeds after
commissions and expenses of approximately $2,023,000.
(d) Cash Flows
Net cash used in operations during the three months ended March 31, 2023
increased to $685,000 compared to $597,000 of net cash used in operations for
the three months ended March 31, 2022 primarily as a result of (i) an increase
in exploration expense to $275,000 during the three months ended March 31, 2023
compared to exploration expense of $226,000 during the three months ended March
31, 2022; (ii) an increase in non-stock option general and administrative
expense to $409,000 during the three months ended March 31, 2023 compared to
$374,000 during the three months ended March 31, 2022, as discussed above, and
(iii) a use of cash of $50,000 for the reduction of accounts payable and other
liabilities during the three months ended March 31, 2023 compared to a use of
cash from a decrease in accounts payable and other liabilities of $20,000 during
the three months ended March 31, 2021. Partially offsetting this increased use
of cash was a decrease in prepaid expenses and other assets of $21,000 during
the three months ended March 31, 2023, compared to an increase (use of cash) in
prepaid expenses and other assets of $14,000 during the three months ended March
31, 2022. Based upon projected expenditures in our 2023 budget, we anticipate
continued use of funds from operations through the remainder of 2023, primarily
for exploration related to our Golden Crest and Lik projects and reconnaissance
exploration. See "Results of Operations" discussed above for further explanation
of some of these variances.
During the three months ended March 31, 2023, we received $809,000 in cash from
the net sale of our short-term investments compared to the use of $1,578,000 in
cash for net purchases of short-term investments during the three months ended
March 31, 2022. The remaining change in investing activities related to proceeds
of $26,000 from the sale of marketable equity securities during the three months
ended March 31, 2022 and the purchase of mineral properties of $10,000 during
the three months ended March 31, 2022 with no similar investment activities
during the three months ended March 31, 2023. We will continue to liquidate a
portion of our short-term investments as needed to fund our operations and our
potential mineral property acquisitions during the remainder of 2023. Any
potential mineral property acquisition or strategic corporate investment during
the remainder of 2023 could involve a significant change in our cash provided or
used for investing activities, depending on the structure of any potential
transaction.
During the three months ended March 31, 2023, we did not sell any of our common
stock. During the three months ended March 31, 2022, we received net cash of
$2,023,000 from the issuance of common stock under the ATM Program. In addition,
during the three months ended March 31, 2022 we received $19,000 from the
issuance of common stock from the exercise of stock options, discussed above in
Note 9, "Employee Stock Compensation Plans" to the condensed consolidated
financial statements.
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(e) Mineral Resources
CAUTIONARY NOTE REGARDING DISCLOSURE OF MINERAL PROPERTIES
Mineral Reserves and Resources
We are subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") and applicable Canadian securities laws which
have two different reporting standards. U.S. reporting requirements, are
governed by Item 1300 of Regulation S-K ("S-K 1300"), as issued by the SEC.
Canadian reporting requirements for disclosure of mineral properties are
governed by National Instrument 43-101 Standards of Disclosure for Mineral
Projects ("NI 43-101"), as adopted from the definitions provided by the Canadian
Institute of Mining, Metallurgy and Petroleum. Both sets of reporting standards
have similar goals in terms of conveying an appropriate level of confidence in
the disclosures being reported, but the standards generally embody slightly
different approaches and definitions.
In our public filings in the U.S. and Canada and in certain other announcements
not filed with the SEC, we disclose measured, indicated and inferred resources,
each as defined in S-K 1300. The estimation of measured resources and indicated
resources involve greater uncertainty as to their existence and economic
feasibility than the estimation of proven and probable reserves, and therefore
investors are cautioned not to assume that all or any part of measured or
indicated resources will ever be converted into S-K 1300-compliant reserves. The
estimation of inferred resources involves far greater uncertainty as to their
existence and economic viability than the estimation of other categories of
resources, and therefore it cannot be assumed that all or any part of inferred
resources will ever be upgraded to a higher category. Therefore, investors are
cautioned not to assume that all or any part of inferred resources exist, or
that they can be mined legally or economically.
(f) Off-balance sheet arrangements
As of March 31, 2023, and December 31, 2022, we have no off-balance sheet
obligations.
(g) Development Activities, Exploration Activities, Environmental Compliance and
Contractual Obligations
We are not involved in any development activities, nor do we have any
contractual obligations related to any potential development activities as of
March 31, 2023. As of March 31, 2023, there have been no changes to our
exploration activities, environmental compliance or other contractual
obligations from those disclosed in our Management's Discussion and Analysis
included in our Annual Report on Form 10-K for the year ended December 31, 2022.
(h) Discontinued Projects
We did not record any mineral property write-downs during the three months ended
March 31, 2023 and 2022.
(i) Significant Accounting Policies and Critical Accounting Estimates
See Note 1 to the Consolidated Financial Statements included in our Annual
Report on Form 10-K for the year ended December 31, 2022 for a discussion of our
significant accounting policies.
Solitario's valuation of mineral properties is a critical accounting estimate.
We review and evaluate our mineral properties for impairment when events or
changes in circumstances indicate that the related carrying amounts may not be
recoverable. Significant negative industry or economic trends, adverse social or
political developments, geologic results, geo-technical difficulties, or other
disruptions to our business are a few examples of events that we monitor, as
they could indicate that the carrying value of the mineral properties may not be
recoverable. In such cases, a recoverability test may be necessary to determine
if an impairment charge is required. There has been no change to our
assumptions, estimates or calculations during the three months ended March 31,
2023.
(j) Related Party Transactions
As of March 31, 2023, and for the three months ended March 31, 2023, we have no
related party transactions or balances.
(k) Recent Accounting Pronouncements
See Note 1, "Business and Summary of Significant Accounting Policies," to the
unaudited condensed consolidated financial statements under Recent Accounting
Pronouncements" above for a discussion of our significant accounting policies.
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(l) Forward Looking Statements
This Form 10-Q contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended (the "1934 Act") with respect to our
financial condition, results of operations, business prospects, plans,
objectives, goals, strategies, future events, capital expenditures, and
exploration and development efforts. Words such as "anticipates," "expects,"
"intends," "forecasts," "plans," "believes," "seeks," "estimates," "may,"
"will," and similar expressions identify forward-looking statements. These
forward-looking statements are based on our current expectations and assumptions
about future events and are based on currently available information as to the
outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements described herein and under the heading "Risk Factors" included in
Item 1A of Part I of our Annual Report on Form 10-K for the year ended December
31, 2022. These forward-looking statements appear in a number of places in this
report and include statements with respect to, among other things:
· Our estimates of the value and recovery of our short-term investments;
· Our estimates of the value and recovery of our mineral resources;
· Our estimates of future exploration, development, general and
administrative and other costs;
· Our ability to realize a return on our investment in the Lik and Golden
Crest projects;
· Our ability to successfully identify, and execute on transactions to
acquire new mineral exploration properties and other related assets;
· Our estimates of fair value of our investment in shares of Vendetta, Vox,
Kinross and Highlander;
· Our expectations regarding development and exploration of our properties
including those subject to joint venture and shareholder agreements;
· The impact of political and regulatory developments;
· Our future financial condition or results of operations and our future
revenues and expenses;
· Our business strategy and other plans and objectives for future
operations; and
· Risks related to pandemics, including the outbreak of COVID-19.
Although we have attempted to identify important factors that could cause actual
results to differ materially from those described in forward-looking statements,
there may be other factors that cause results not to be as anticipated,
estimated or intended. There can be no assurance that these statements will
prove to be accurate as actual results and future events could differ materially
from those anticipated in the statements. Except as required by law, we assume
no obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise.
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