UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 (Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended      March 31, 2019      

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

For the transition period from               to              

 

Commission File Number.   001-39278

 

SOLITARIO ZINC CORP.

(Exact name of registrant as specified in its charter)

 

Colorado
(State or other jurisdiction of incorporation or organization);
4251 Kipling St. Suite 390, Wheat Ridge, CO
(Address of principal executive offices)
(303)  534-1030
(Registrant's telephone number, including area code)
84-1285791
(I.R.S. Employer Identification No.
80033
(Zip Code)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒   NO  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YES  ☒   NO  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐ Accelerated filer  ☐ Non-accelerated filer
(do not check if a smaller
reporting company)  ☐
Smaller reporting company  ☒

Emerging Growth Company  ☐

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES   ☐   NO  ☒

          

 There were 58,142,866 shares of $0.01 par value common stock outstanding as of May 6, 2019.

 1 

 

TABLE OF CONTENTS

 

 

PART 1 - FINANCIAL INFORMATION  Page
    
Item 1     Financial Statements   3 
      
Item 2    Management's Discussion and Analysis of Financial     
               Condition and Results of Operations   16 
      
Item 3    Quantitative and Qualitative Disclosures About Market Risk   21 
      
Item 4    Controls and Procedures   21 
      
PART II - OTHER INFORMATION     
      
Item 1    Legal Proceedings   22 
      
Item 1A   Risk Factors   22 
      
Item 2    Unregistered Sales of Equity Securities and Use of Proceeds   22 
      
Item 3    Defaults Upon Senior Securities   22 
      
Item 4    Mine Safety Disclosures   22 
      
Item 5    Other Information   23 
      
Item 6    Exhibits   23 
      
SIGNATURES   24 
      

 2 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SOLITARIO ZINC CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(in thousands of U.S. dollars,  March 31,  December 31,
except share and per share amounts)  2019  2018
   (unaudited)   
Assets
Current assets:          
  Cash and cash equivalents  $538   $117 
  Short-term investments   9,595    10,223 
  Investments in marketable equity securities, at fair value   1,259    1,585 
  Prepaid expenses and other   436    211 
    Total current assets   11,828    12,136 
           
Mineral properties   15,617    15,657 
Other assets   176    110 
       Total assets  $27,621   $27,903 
           
Liabilities and Shareholders’ Equity
Current liabilities:          
  Accounts payable  $692   $688 
  Operating lease liability   38    —   
       Total current liabilities   730    688 
           
Long-term liabilities          
  Asset retirement obligation – Lik   125    125 
  Operating lease liability   38    —   
       Total long-term liabilities   163    125 
           
Commitments and contingencies          
           
Equity:          
Shareholders’ equity:          
   Preferred stock, $0.01 par value, authorized 10,000,000
     shares (none issued and outstanding at March 31, 2019 and
     December 31, 2018)
   —      —   
   Common stock, $0.01 par value, authorized 100,000,000 shares
      (58,143,566 and 58,171,466 shares, respectively, issued
and outstanding at March 31, 2019 and December 31, 2018)
   582    582 
   Additional paid-in capital   69,952    69,873 
   Accumulated deficit   (43,806)   (43,365)
     Total shareholders’ equity   26,728    27,090 
        Total liabilities and shareholders’ equity  $27,621   $27,903 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 3 

 

SOLITARIO ZINC CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands of U.S. dollars, except per share amounts)  Three months ended
March 31
   2019  2018
Revenue, net – mineral property sale  $408   $—   
           
Costs, expenses and other:          
  Exploration expense  $163   $180 
  Depreciation   7    6 
  General and administrative   425    403 
Total costs, expenses and other   595    589 
Other (loss) income          
 Interest income (net)   72    26 
 Unrealized (loss) on marketable equity securities   (326)   (441)
Total other loss   (254)   (415)
Net loss  $(441)  $(1,004)
Loss per common share:          
    Basic and diluted  $(0.01)  $(0.02)
Weighted average shares outstanding:          
    Basic and diluted   58,158    58,444 
           

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 4 

 

SOLITARIO ZINC CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands of U.S. dollars)  Three months ended
March 31,
   2019  2018
Operating activities:          
 Net loss  $(441)  $(1,004)
 Adjustments to reconcile net loss to net cash used in operating activities:          
           
    Depreciation and amortization   7    6 
    Non-cash office lease expense   10    —   
    Unrealized loss of marketable equity securities   326    441 
    Employee stock option expense    88    10 
    Changes in operating assets and liabilities:          
      Prepaid expenses and other assets   64    32 
      Note receivable, net of mineral property sold   (223)   —   
      Accounts payable and other current liabilities   (3)   24 
        Net cash used in operating activities   (172)   (491)
Investing activities:          
 Sale of short-term investments, net   602    408 
 Purchase of other assets   —      (8)
       Net cash provided by investing activities   602    400 
Financing activities:          
 Purchase of common stock for cancellation   (9)   (26)
        Net cash used in financing activities   (9)   (26)
           
Net increase (decrease) in cash and cash equivalents   421    (117)
Cash and cash equivalents, beginning of period   117    214 
Cash and cash equivalents, end of period  $538   $97 
           
           

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 5 

 

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.       Business and Significant Accounting Policies

 

Business and company formation

 

Solitario Zinc Corp. (“Solitario,” or the “Company”) is an exploration stage company as defined in Industry Guide 7, as issued by the United States Securities and Exchange Commission (“SEC”). Solitario was incorporated in the state of Colorado on November 15, 1984 as a wholly-owned subsidiary of Crown Resources Corporation ("Crown"). In July 1994, Solitario became a publicly traded company on the Toronto Stock Exchange (the "TSX") through its initial public offering. Solitario has been actively involved in mineral exploration since 1993. Solitario’s primary business is to acquire exploration mineral properties or royalties and/or discover economic deposits on its mineral properties and advance these deposits, either on its own or through joint ventures, up to the development stage. At that point, or sometime prior to that point, Solitario would likely attempt to sell its mineral properties, pursue their development either on its own, or through a joint venture with a partner that has expertise in mining operations, or create a royalty with a third party that continues to advance the property. Solitario is primarily focused on the acquisition and exploration of zinc-related exploration mineral properties, however Solitario will evaluate and acquire other base and precious metal mineral exploration properties. In addition to focusing on its mineral exploration properties and the evaluation of mineral properties for acquisition, Solitario also evaluates potential strategic transactions for the acquisition of new precious and base metal properties and assets with exploration potential or business combinations that Solitario determines to be favorable to Solitario.

 

Solitario has recorded revenue in the past from the sale of mineral property, including the sale of certain mineral royalty properties in January 2019, discussed below, the sale in June 2018 of its interest in the royalty on the Yanacocha property. In addition, Solitario has received proceeds from the sale in 2015 of its former interest in Mount Hamilton LLC (“MH-LLC”) the owner of its former Mt. Hamilton project, and joint venture property payments and the sale of a royalty on its former Mt. Hamilton project. Revenues and / or proceeds from the sale or joint venture of properties or assets, although significant when they occur, have not been a consistent annual source of cash and would only occur in the future, if at all, on an infrequent basis.

 

Solitario currently considers its carried interest in the Florida Canyon project and its interest in the Lik project to be its core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, is expected to continue the exploration and furtherance of the Florida Canyon project and Solitario is monitoring progress at Florida Canyon. Solitario is working with its 50% joint venture partner, Teck American Incorporated, a wholly-owned subsidiary of Teck Resources Limited (both companies are referred to as “Teck”), in the Lik deposit to further the exploration and evaluate potential development plans for the Lik project.

 

As of March 31, 2019, Solitario has significant balances of cash and short-term investments that Solitario anticipates using, in part, to further the exploration of the Florida Canyon and Lik projects and to 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 early-stage and advanced mineral exploration projects or other related assets at potentially attractive terms.

 

The accompanying interim condensed consolidated financial statements of Solitario for the three months ended March 31, 2019 are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). They do not include all disclosures required by generally accepted accounting principles for annual financial statements, but in the opinion of management, include all adjustments, consisting only of normal recurring items, necessary for a fair presentation. Interim results are not necessarily indicative of results, which may be achieved in the future or for the full year ending December 31, 2019.

 6 

 

 

These financial statements should be read in conjunction with the financial statements and notes thereto which are included in Solitario’s Annual Report on Form 10-K for the year ended December 31, 2018. The accounting policies set forth in those annual financial statements are the same as the accounting policies utilized in the preparation of these financial statements, except as modified for appropriate interim financial statement presentation.

 

Recent Developments

 

Royalty sale

 

On January 22, 2019, Solitario completed the sale of its interest in certain royalties to SilverStream SEZC (“SilverStream”), a private Cayman Island royalty and streaming company for Cdn$600,000 (the “Royalty Sale”). The Royalty Sale covered (i) a royalty on the formerly Solitario-owned 125,000-acre polymetallic Pedra Branca palladium, platinum, gold, nickel, cobalt and chrome project in Brazil, (ii) a royalty covering 3,880-acres of non-producing exploration properties in Mexico, and (iii) a purchase option on 11 separate non-producing properties covering over 16,500 acres in Montana. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and a convertible note from SilverStream for Cdn$350,000 (the “SilverStream Note”). The SilverStream Note is due December 31, 2019, pays 5% per annum simple interest quarterly, and is convertible into common shares of SilverStream, at the discretion of SilverStream, by providing Solitario a notice of conversion. SilverStream may only provide a notice of conversion if SilverStream has completed an initial public offering during the term of the SilverStream Note for minimum proceeds of Cdn$5,000,000. Per the terms of the SilverStream Note, if converted, Solitario would receive common shares converted at 85% of the weighted average quoted price of a share of SilverStream common stock for the most recent 10-day period prior to the notice of conversion. During the three months ended March 31, 2019, Solitario recorded mineral property revenue of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties sold of $40,000. As of March 31, 2019, the approximate fair value of the SilverStream Note was $262,000, based upon the current US Dollar / Canadian Dollar exchange rate, and Solitario recorded a charge to exchange gain and loss of $1,000, included in general and administrative expense during the three months ended March 31, 2019.

 

Financial reporting

 

The consolidated financial statements include the accounts of Solitario and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are prepared in accordance with generally accepted accounting principles and are expressed in U.S. dollars.

 

Revenue recognition

 

Solitario has recorded revenue from the sale of exploration mineral properties and joint venture property payments. Solitario’s policy is to recognize revenue from the sale of its exploration mineral properties (those without reserves) on a property by property basis, computed as the cash received and / or collectable receivables less any capitalized cost. Payments received for the sale of exploration property interests that are less than the properties cost are recorded as a reduction of the related property's capitalized cost. In addition, Solitario’s policy is to recognize revenue on any receipts of joint venture property payments in excess of its capitalized costs on a property that Solitario may lease to another mining company.

 

Solitario has recognized revenue during the three months ended March 31, 2019 of $408,000 related to the Royalty Sale, discussed above in accordance with Accounting Standards Codification (“ASC”) 606. In addition, Solitario recorded revenue during the second quarter of 2018 for the first time in more than five years of $502,000 from the sale of its Yanacocha exploration mineral property. Solitario expects any property sales in the future to also be on an infrequent basis. Prior to the sale of its Yanacocha exploration mineral property, the last proceeds from joint venture property payments was in 2015 and Solitario does not expect to record joint venture property payments on any of its currently held properties for the foreseeable future. Historically, Solitario’s revenues have been infrequent and significant individual transactions and have only been from sales to well known or vetted mining companies. Solitario has never had a return on any of its sales recorded as revenue in its history and does not anticipate it will recognize any estimated returns on its current or future recorded revenues.

 7 

 

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Some of the more significant estimates included in the preparation of Solitario's financial statements pertain to: (i) Solitario’s carrying value of short-term investments; (ii) the recoverability of mineral properties related to its mineral exploration properties and their future exploration potential; (iii) the fair value of stock option grants to employees, to officers and directors and to others; (iv) the ability of Solitario to realize its deferred tax assets; and (v) Solitario's investment in marketable equity securities.

 

In performing its activities, Solitario has incurred certain costs for mineral properties. The recovery of these costs is ultimately dependent upon the sale of mineral property interests or the development of economically recoverable ore reserves and the ability of Solitario to obtain the necessary permits and financing to successfully place the properties into production, and upon future profitable operations, none of which is assured.

 

Cash equivalents

 

Cash equivalents include investments in highly liquid money-market securities with original maturities of three months or less when purchased. As of March 31, 2019, $516,000 of Solitario’s cash and cash equivalents are held in brokerage accounts and foreign banks, which are not covered under the Federal Deposit Insurance Corporation (“FDIC”) rules for the United States.

 

Short-term investments

 

As of March 31, 2019, Solitario has $9,277,000 of its current assets in United States Treasury Securities (“USTS”) with maturities of 15 days to 20 months. The USTS are recorded at their fair value, based upon quoted market prices and are not covered under the FDIC insurance rules for United States deposits. Solitario’s USTS are highly liquid and may be sold in their entirety at any time at their quoted market price and are classified as a current asset.

 

Mineral properties

          

Solitario expenses all exploration costs incurred on its mineral properties prior to the establishment of proven and probable reserves through the completion of a feasibility study. Initial acquisition costs of its mineral properties are capitalized. Solitario regularly performs evaluations of its investment in mineral properties to assess the recoverability and/or the residual value of its 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 established guidelines based upon undiscounted future net cash flows from the asset or upon the determination that certain exploration properties do not have sufficient potential for economic mineralization.

 

Leases

 

Solitario accounts for its leases in accordance with ASC 842, Leases (“ASC 842”) by recognizing right-of-use assets and lease liabilities on the condensed consolidated balance sheet and disclosing key information about lease arrangements. Solitario has elected the practical expedient option to use January 1, 2019, the effective date of adoption of ASC 842, as the initial date of transition and not to restate comparative prior periods and to carry forward historical lease classification. In addition, Solitario has elected the option not to apply the recognition of assets and liabilities provisions of ASC 842 to operating leases of less than one year. See Note 4 “Operating Leases” for more information and disclosures regarding Solitario’s leases.

 

Derivative instruments

 

Solitario accounts for its derivative instruments in accordance ASC 815. Solitario has entered into covered calls from time to time on its investment in Kinross Gold Corporation (“Kinross”) marketable equity securities. Solitario has not designated its covered calls as hedging instruments and any changes in the fair value of the covered calls are recognized in the statement of operations in the period of the change as gain or loss on derivative instruments.

 8 

 

 

Fair value

 

ASC 820 established a framework for measuring fair value of financial instruments and required disclosures about fair value measurements. For certain of Solitario's financial instruments, including cash and cash equivalents and accounts payable, the carrying amounts approximate fair value due to their short-term maturities. Solitario's short-term investments in USTS and CDs, its marketable equity securities and any covered call options against those marketable equity securities are carried at their estimated fair value based on quoted market prices. See Note 6, “Fair Value,” below.

 

Marketable equity securities

 

Solitario's investments in marketable equity securities are carried at fair value, which is based upon quoted prices of the securities owned. Solitario records investments in marketable equity securities for investments in publicly traded marketable equity securities for which it does not exercise significant control and where Solitario has no representation on the board of directors of those companies and exercises no control over the management of those companies. The cost of marketable equity securities sold is determined by the specific identification method. Changes in fair value are recorded as unrealized gain or loss in the statement of operations.

 

Foreign exchange

 

The United States dollar is the functional currency for all of Solitario's foreign subsidiaries. Although Solitario's South American exploration activities during 2018 and the first quarter of 2019 have been conducted primarily in Peru, a portion of the payments under the land, leasehold and exploration agreements of Solitario are denominated in United States dollars. Realized foreign currency gains and losses are included in the results of operations in the period in which they occur.

 

Income taxes

 

Solitario accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”). Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

Accounting for uncertainty in income taxes

 

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 provides that a company's tax position will be considered settled if the taxing authority has completed its examination, the company does not plan to appeal, and it is remote that the taxing authority would reexamine the tax position in the future.

 

Earnings per share

 

The calculation of basic and diluted earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the three months ended March 31, 2019 and 2018. Potentially dilutive shares related to outstanding common stock options of 4,373,000 and 2,082,428, respectively, for Solitario common shares for the three months ended March 31, 2019 and 2018 were excluded from the calculation of diluted earnings (loss) per share because the effects were anti-dilutive.

 9 

 

Employee stock compensation and incentive plans

 

Solitario classifies all of its stock options as equity options in accordance with the provisions of ASC 718, “Compensation – Stock Compensation.”

 

Recent accounting pronouncements

 

On January 1, 2019, Solitario adopted Accounting Standards Update No. 2016-02 Leases (“ASU 2016-02”) which requires the application of ASC 842 and the recognition of right-of-use assets and related liabilities associated with all leases that are not short-term in nature. As a result of the adoption of ASU 2016-02 on January 1, 2019, Solitario recorded both an operating lease asset for our Wheat Ridge Colorado office of $82,000 and an operating lease liability of $82,000 related to the same lease. The adoption of ASU 2016-02 did not require the recording of any other assets or liabilities on our condensed consolidated balance sheets and had an immaterial effect on Solitario’s condensed consolidated statement of operations and its condensed consolidated statement of cash flows for the three months ended March 31, 2019. Solitario has elected the practical expedient option to use January 1, 2019, the effective date of adoption, as the initial date of transition and not to restate comparative prior periods and to carry forward historical lease classification. See Note 4 “Operating Leases” for more information and disclosures regarding Solitario’s leases.

 

2.        Mineral Property

 

The following table details Solitario’s investment in Mineral Property:

(in thousands)  March 31,
   2019  2018
Exploration      
   Lik project (Alaska – US)  $15,611   $15,611 
   La Promesa (Peru)   6    6 
   Montana Royalty property (US)   —      40 
     Total exploration mineral property  $15,617   $15,657 

 

All exploration costs on our exploration properties, none of which have proven and probable reserves, including any additional costs incurred for subsequent lease payments or exploration activities related to our projects are expensed as incurred.

 

Royalty sale

 

On January 22, 2019, Solitario completed the Royalty Sale, discussed above under “Recent Developments” to SilverStream for Cdn$600,000. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and the SilverStream Note for Cdn$350,000, with a maturity date of December 31, 2019. During the three months ended March 31, 2019, Solitario recorded mineral property revenue of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties sold of $40,000.

 

Exploration expense

 

The following items comprised exploration expense:

 

(in thousands)  Three months ended
 March 31,
   2019  2018
Geologic and field expenses  $147   $24 
Administrative   16    156 
Total exploration costs  $163   $180 

 10 

 

Asset Retirement Obligation

 

In connection with the acquisition of the Lik project in 2017, Solitario recorded an asset retirement obligation of $125,000 for Solitario’s estimated reclamation cost of the existing disturbance at the Lik project. This disturbance consists of an exploration camp including certain drill sites and access roads at the camp. The estimate was based upon estimated cash costs for reclamation as determined by the permitting bond required by the State of Alaska, for which Solitario has purchased a reclamation bond insurance policy in the event Solitario or its 50% partner, Teck, do not complete required reclamation.

 

Solitario has not applied a discount rate to the recorded asset retirement obligation as the estimated time frame for reclamation is not currently known, as reclamation is not expected to occur until the end of the Lik project life, which would follow future development and operations, the start of which cannot be estimated or assured at this time. Additionally, no depreciation will be recorded on the related asset for the asset retirement obligation until the Lik project goes into operation, which cannot be assured.

 

3.        Marketable Equity Securities

 

Solitario's investments in marketable equity securities are carried at fair value, which is based upon quoted prices of the securities owned. The cost of marketable equity securities sold is determined by the specific identification method. Changes in market value are recorded in the condensed consolidated statement of operations. During the three months ended March 31, 2019, Solitario recorded an unrealized loss on marketable equity securities of $326,000. During the three months ended March 31, 2018, Solitario recorded an unrealized loss on marketable equity securities of $441,000.

 

The following tables summarize Solitario’s marketable equity securities and adjustments to fair value:

(in thousands)  March 31,
2019
  December 31,
2018
  Marketable equity securities at cost  $1,714   $1,714 
  Cumulative unrealized loss on marketable equity securities   (455)   (129)
  Marketable equity securities at fair value  $1,259   $1,585 

         

The following table represents changes, including sales, in marketable equity securities during the three months ended March 31, 2019 and 2018:

 

(in thousands)  Three months ended
March 31,
   2019  2018
Gross (loss) recorded in the statement of operations  $(326)  $(441)
Change in marketable equity securities at fair value  $(326)  $(441)

 

Solitario did not sell any marketable equity securities during the three months ended March 31, 2019 or 2018 and the change in the fair value of marketable equity securities was related entirely to the unrealized loss on marketable equity securities related to their fair values based upon quoted market prices for the marketable equity securities held by Solitario during the periods.

 

 11 

 

4.        Leases

 

Solitario adopted ASU 2016-02 effective January 1, 2019 and accounts for its leases in accordance with ASC 842. Solitario leases one facility, its Wheat Ridge, Colorado office (the “WR Lease”), that has a term of more than one year. Solitario has no other material operating lease costs. The WR Lease is classified as an operating lease and has a term of 23 months at March 31, 2019, with no renewal option. At March 31, 2019, the right-of-use office lease asset for the WR Lease is classified as other assets and the related liability separated between current and non-current office lease liabilities in the condensed consolidated balance sheet. Lease expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. During the three months ended March 31, 2019, Solitario recognized $10,000 of non-cash lease expense for the WR Lease included in general and administrative expense. Cash lease payments of $7,000 were made on the WR Lease during the three months ended March 31, 2019 and this amount, less $1,000 of imputed interest, reduced the related liability on the WR Lease. The discount rate within the WR Lease is not determinable and Solitario has applied a discount rate of 5% based upon Solitario’s estimate of its cost of capital.

 

The maturities of Solitario’s lease liability for its WR Lease are as follows at March 31, 2019:

 

(in thousands)  
   
2019   $   31 
2020 42 
2021   7 
Total lease payments 80 
  Less amount of payments representing interest (4)
Present value of lease payments $  76 

 

Supplemental cash flow information related to our operating lease was as follows for the period ended March 31, 2019:

 

(in thousands)  Three months ended March 31,
   2019
Cash paid for amounts included in the measurement of lease liabilities     
   Operating cash outflows from WR Lease payments  $7 
Non-cash amounts related to the WR lease     
   Leased assets recorded in exchange for new operating lease liabilities  $82 

 

5        Other Assets

 

The following items comprised other assets:

 

(in thousands)  March 31,  December 31
   2019  2018
Furniture and fixtures, net of accumulated depreciation  $34   $36 
Lik project equipment, net of accumulated depreciation   65    70 
Exploration bonds and other assets   4    4 
Office lease asset   73    —   
Total other assets  $176   $110 

 

6.        Fair Value

 

Solitario accounts for its financial instruments under ASC 820. For certain of Solitario’s financial instruments, including cash and cash equivalents and payables, the carrying amounts approximate fair value due to their short-term maturities. Solitario’s short-term investments in USTS, and marketable equity securities are carried at their estimated fair value primarily based on quoted market prices. During the three months ended March 31, 2019 there were no reclassifications in financial assets or liabilities between Level 1, 2 or 3 categories.

 

The following is a listing of Solitario’s financial assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of March 31, 2019:

 

(in thousands)  Level 1  Level 2  Level 3  Total
Assets                    
  Short-term investments  $9,595   $—     $—     $9,595 
  Marketable equity securities   1,259    —      —      1,259 

 

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The following is a listing of Solitario’s financial assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of December 31, 2018:

 

(in thousands)  Level 1  Level 2  Level 3  Total
Assets                    
  Short-term investments  $10,223   $—     $—     $10,223 
  Marketable equity securities  $1,585   $—     $—     $1,585 

 

7.        Income Taxes

 

Solitario accounts for income taxes in accordance with ASC 740. Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

At March 31, 2019 and December 31, 2018, a valuation allowance has been recorded, which fully offsets Solitario’s net deferred tax assets, because it is more likely than not that the Company will not realize some portion or all of its deferred tax assets.  The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be realized prior to their expiration.

 

During the three months ended March 31, 2019 and 2018, Solitario recorded no deferred tax expense.

 

8.       Commitments and contingencies

 

Solitario has recorded an asset retirement obligation of $125,000 related to its Lik project in Alaska. See Note 2, “Mineral Properties,” above.

 

In August of 2018, Solitario agreed to fund a portion of a 2018 – 2019 drilling program at the Florida Canyon project. Per the agreement, Solitario will fund up to $1,580,000 of a planned 41-hole 17,000-meter drilling program to be conducted through December 31, 2019 (the “Drilling Program”). Upon Nexa completing the first 1,700 meters of the Drilling Program, Solitario will pay Nexa $527,000, upon completion of the next 1,700 meters (3,400 meters total) of the Drilling Program, Solitario will pay Nexa $527,000, and upon completion of the next 1,700 meters (5,100 meters total) of the Drilling Program, Solitario will pay Nexa the balance remaining on its $1,580,000 funding commitment, or $526,000. Solitario has no obligation to pay Nexa prior to the attainment of the separate 1,700-meter thresholds. The funding commitments are in the form of an advance on Solitario’s commitment to fund 30% of any future development of Florida Canyon under the existing joint venture agreement with Nexa. Accordingly, in the event Florida Canyon is developed, which cannot be assured at this time, any funds paid to Nexa under this agreement, will reduce the amount of Solitario’s obligation to fund 30% of future development costs, and / or repay loans from Nexa for future development costs at the Florida Canyon project. During 2018, Nexa completed four holes and a total of 2,203 meters under the Drilling Program and Solitario recorded a charge to exploration expense of $527,000. As of March 31, 2019, Solitario has recorded an account payable to Nexa of $527,000, which was paid in April 2019. Should Nexa complete the remaining 2,897 meters (5,100 meters less the completed 2,203 meters) during the remainder of 2019, Solitario will be obligated to pay Nexa $1,053,000 during 2019.

 

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9.       Employee Stock Compensation Plans

 

On June 18, 2013, Solitario’s shareholders approved the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock and Incentive Plan (the “2013 Plan”). Under the terms of the 2013 Plan, a total of 1,750,000 shares of Solitario common stock were reserved for awards to directors, officers, employees and consultants. On June 29, 2017, Solitario shareholders approved an amendment to the 2013 Plan, which increased the number of shares of common stock available for issuance under the 2013 Plan from 1,750,000 to 5,750,000. Awards granted under the 2013 Plan may take the form of stock options, stock appreciation rights, restricted stock, and restricted stock units. The terms and conditions of the awards are pursuant to the 2013 Plan and are granted by the Board of Directors or a committee appointed by the Board of Directors.

 

As of March 31, 2019, and December 31, 2018 there were options outstanding that are exercisable to acquire 4,373,000 and 5,223,160 shares, respectively, of Solitario common stock, with option prices between $0.28 and $0.77 per share. During the three months ended March 31, 2019, Solitario granted options exercisable into 150,000 shares of common stock, with an exercise price of $0.28 per share, a five-year term, and a grant date fair value of $23,000 based upon a Black-Scholes model, with a 64% volatility and a 2.4% risk-free interest rate. In addition, during the three months ended March 31, 2019, options exercisable into 1,000,160 shares of common stock, with exercise prices between $1.68 and $0.70 per share, expired unexercised. During the three months ended March 31, 2018, Solitario granted options exercisable into 100,000 shares to a consultant, with an exercise price of $0.62 per share, a seven-month term and a grant date fair value of $12,000 based upon a Black-Scholes model with a 66% volatility and a 1% risk-free interest rate. There were no exercises of options under the 2013 Plan during the three months ended March 31, 2019 and 2018. During the three months ended March 31, 2019 and 2018, Solitario recorded stock option compensation expense of $88,000 and $10,000. At March 31, 2019, the total unrecognized stock option compensation cost related to non-vested options is $572,000 and is expected to be recognized over a weighted average period of 22 months.

 

10.        Shareholders’ Equity

 

Shareholders’ Equity for the three months ended March 31, 2018:

(in thousands, except              Accumulated   
Share amounts)  Common  Common  Additional     Other  Total
   Stock  Stock  Paid-in  Accumulated  Comprehensive  Shareholders’
   Shares  Amount  Capital  Deficit  Income  Equity
Balance at December 31, 2017   58,434,566    584   $69,312   $(40,343)  $576   $30,129 
Cumulative-effect adjustment
change in accounting principle
   —      —      —      576    (576)   —   
Adjusted balance January 1, 2018   58,434,566    584    69,312    (39,767)   —      30,129 
Stock option expense   —      —      10    —      —      10 
Purchase of shares for cancellation   (52,614)   —      (26)   —      —      (26)
Net loss   —      —      —      (1,004)   —      (1,004)
Balance at March 31, 2018   58,381,952   $584   $69,296   $(40,771)  $—     $29,109 

 

Solitario adopted ASU No. 2016-01 in the first quarter of 2018. ASU No. 2016-01 revised the classification and measurement of investment in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. Solitario recorded a cumulative-effect adjustment for the change in accounting principle to retained earnings of $576,000 related to the adoption of ASU 2016-01.

 

Shareholders’ Equity for the three months ended March 31, 2019:

(in thousands, except               
Share amounts)  Common  Common  Additional     Total
   Stock  Stock  Paid-in  Accumulated  Shareholders’
   Shares  Amount  Capital  Deficit  Equity
Balance at December 31, 2018   58,171,466    582   $69,873   $(43,365)  $27,090 
Stock option expense   —      —      88    —      88 
Purchase of shares for cancellation   (27,900)   —      (9)   —      (9)
Net loss   —      —      —      (441)   (441)
Balance at March 31, 2019   58,143,566   $582   $69,952   $(43,806)  $26,728 

 

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Share Repurchase Program

 

On October 28, 2015, Solitario’s Board of Directors approved a share repurchase program that authorized Solitario to purchase up to two million shares of its outstanding common stock. During 2018, Solitario’s Board of Directors extended the expiration date of the share repurchase program through December 31, 2019. During the three months ended March 31, 2019 and 2018, Solitario purchased 27,900 and 52,614 shares of Solitario common stock, respectively, for an aggregate purchase price of $9,000 and $26,000, respectively. As of March 31, 2019, Solitario has purchased a total of 958,800 shares for an aggregate purchase price of $458,000 under the share repurchase program since its inception.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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, 2018 and 2017, 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, 2018. 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 at March 31, 2019 under Industry Guide 7, as issued by the SEC. We were incorporated in the state of Colorado on November 15, 1984 as a wholly-owned subsidiary of Crown Resources Corporation ("Crown"). In July 1994, we became a publicly traded company on the Toronto Stock Exchange (the "TSX") through our initial public offering. We have been actively involved in mineral exploration since 1993. Our primary business is to acquire exploration mineral properties and/or discover economic deposits on our mineral properties and advance these deposits, either on our own or through joint ventures, up to the development stage (development activities include, among other things, completion of a feasibility study for the identification of proven and probable reserves, as well as permitting and preparing a deposit for mining). At that point, or sometime prior to that point, we would likely attempt to sell a given mineral property, pursue its development either on our own, or through a joint venture with a partner that has expertise in mining operations, or obtain a royalty from a third party that continues to advance the property. We are primarily focused on the acquisition and exploration of zinc-related exploration mineral properties. However, we will evaluate and acquire other base and precious metal mineral exploration properties. In addition to focusing on our current assets and the evaluation of mineral properties for acquisition, we also evaluate potential strategic corporate transactions for the acquisition of new precious and base metal properties and assets with exploration potential or business combinations we determine to be favorable to Solitario.

 

Our 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. Our exploration properties may be developed in the future by us or through a joint venture, although we have never developed a mineral property. At March 31, 2019, we consider 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. In addition, at March 31, 2019, we have one exploration property in Peru. We are conducting independent exploration activities in Peru and through joint ventures operated by our partners in Peru and the United States. We conduct potential acquisition evaluations in other countries of both South and North America.

 

We have recorded revenue in the past from the sale of mineral property, including the Royalty Sale of certain mineral royalty properties in January 2019, discussed above, and the sale in June 2018 of our interest in the royalty on the Yanacocha property. In addition, we have received proceeds from the sale in 2015 of our former interest in MH-LLC the owner of our former Mt. Hamilton project, and joint venture property payments and the sale of a royalty on our former Mt. Hamilton project. Revenues and / or proceeds from the sale or joint venture of properties or assets, although significant when they occur, have not been a consistent annual source of cash 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 venture funding for 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, 2019, we have significant balances of cash and short-term investments that we anticipate using, in part, to further the development of the Lik project and to 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.

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(b) Results of Operations

 

Comparison of the quarter ended March 31, 2019 to the quarter ended March 31, 2018

 

We had a net loss of $441,000 or $0.01 per basic and diluted share for the three months ended March 31, 2019 compared to a net loss of $1,004,000 or $0.02 per basic and diluted share for the three months ended March 31, 2018. As explained in more detail below, the primary reasons for the decrease in the net loss in the three months ended March 31, 2019 compared to the loss in the first three months of 2018 were (i) the Royalty Sale revenue, net, of $408,000 during the three months ended March 31, 2019 with no similar mineral property revenue during the three months ended March 31, 2018; (ii) a reduction in the non-cash loss on unrealized loss on marketable equity securities to $326,000 during the three months ended March 31, 2019 compared to a non-cash unrealized loss on marketable equity securities of $441,000 during the three months ended March 31, 2018; (iii) a decrease in exploration expense to $163,000 during the three months ended March 31, 2019 compared to exploration expense of $180,000 during the three months ended March 31, 2018; and (iv) an increase in interest income to $72,000 during the three months ended March 31, 2019 compared to interest income of $26,000 during the three months ended March 31, 2018. Partially offsetting the above items which decreased the loss were (i) an increase in depreciation during the three months ended March 31, 2019 to $7,000 compared to depreciation and amortization of $6,000 during the three months ended March 31, 2018; and (ii) an increase in general and administrative expenses to $425,000 during the three months ended March 31, 2019 compared to general and administrative costs of $403,000 during the three months ended March 31, 2018. Each of the major components of these items is discussed in more detail below.

 

          During the three months ended March 31, 2019, we completed the Royalty Sale, discussed above under “Recent Developments,” and recorded net revenues of $408,000. We received $185,000 in cash and the SilverStream Note for $263,000, less our capitalized cost of $40,000 for the royalties sold. There were no similar items during the three months ended March 31, 2018.

 

Our net exploration expense decreased to $163,000 during the three months ended March 31, 2019 compared to exploration expense of $180,000 during the three months ended March 31, 2018. During the three months ended March 31, 2019, we (i) decreased our reconnaissance exploration activities primarily related to the evaluation of mineral properties and / or entities for potential acquisition or other strategic transactions and (ii) decreased our activities at Florida Canyon compared to the three months ended March 31, 2018. During the three months ended March 31, 2019 we had three contract geologists in Peru, and our Denver personnel spent a majority of their time on reconnaissance exploration activities described above and related matters. We anticipate Nexa will begin the 2019 exploration program at our Florida Canyon project during the second quarter of 2019, as discussed above in Note 8, “Contingencies and Commitments.” Should Nexa complete the drilling program as budgeted, we anticipate we will record $1,053,000 in exploration expense at Florida Canyon for 2019. In addition, we have budgeted approximately $178,000 for our share of exploration at our Lik project in Alaska for the full year of 2019, which the bulk of those expenses are planned for the third and fourth quarter of 2019. As a result, we expect our full-year exploration expenditures for 2019 to exceed the expenditures for full-year 2018.

 

Exploration expense (in thousands) by project for the three months ended March 31, 2019 and 2018 consisted of the following:

 

   March 31,  March 31,
Project Name  2019  2018
Florida Canyon  $—     $14 
Lik   19    15 
La Promesa   24    29 
Reconnaissance   120    122 
  Total exploration expense  $163   $180 

 

General and administrative costs, excluding stock option compensation costs, discussed below, were $337,000 during the three months ended March 31, 2019 compared to $393,000 during the three months ended March 31, 2018. The major components of these costs were related to (i) salaries and benefit expense of $108,000 during the first three months of 2019 compared to salary and benefit costs of $158,000 during the three months ended March 31, 2018, as we have reduced staff and taken salary reductions during 2019; (ii) legal and accounting expenditures of $53,000 in the first three months of 2019 compared to $41,000 in the first three months of 2018; (iii) office rent and expenses of $43,000 during the three months ended March 31, 2019, compared to $40,000 during the three months ended March 31, 2018; and (iv) travel and shareholder relation costs of $133,000 during the first three months of 2019 compared to $154,000 during the three months ended March 31, 2018 as we reduced our outside investor relations efforts during the first three months of 2019 compared to the first three months of 2018. We anticipate the general and administrative costs will be incurred at comparable quarterly amounts for the remainder of 2019.

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We recorded $88,000 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, 2019 compared to $10,000 of stock option compensation expense during the three months ended March 31, 2018. The increase was related to vesting on additional stock options being outstanding during the three months ended March 31, 2019 compared to the first quarter of 2018. See Note 9, “Employee Stock Compensation Plans,” above, for additional information on our stock option expense. We anticipate our stock option expense related to vesting of grant date fair value will be comparable to the first quarter during the remainder of 2019.

 

We recorded an unrealized loss on marketable equity securities of $326,000 during the three months ended March 31, 2019 compared to an unrealized loss on marketable equity securities of $441,000 during the three months ended March 31, 2018. The loss during the three months ended March 31, 2019 was primarily related to a decrease in the value of our holdings of 11,000,000 shares of Vendetta common stock which decreased from a fair value of $1,249,000 at December 31, 2018 to a fair value of $906,000 at March 31, 2019 based on quoted market prices.

 

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, 2019 and 2018, we recorded no property impairments.

 

At March 31, 2019 and 2018, 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, 2019 or 2018. As a result of our exploration activities, we anticipate we will not have currently payable income taxes during 2019. 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 regards 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 and Short-term Investments

 

As of March 31, 2019, we have $11,392,000 in cash and short-term investments. As of March 31, 2019, we have invested $9,277,000 of our current assets in USTS with maturities of 15 days to 20 months. The USTS are recorded at their fair value, based upon quoted market prices. We anticipate we will roll over that portion of our USTS not used for exploration expenditures, operating costs or mineral property acquisitions as they become due during the remainder of 2019.

 

We intend to utilize a portion of our cash and short-term investments in our exploration activities and the potential acquisition of mineral assets over the next several years. We also expect to use a portion of our cash to repurchase shares of our common stock pursuant to the terms of a stock buy-back program announced on October 28, 2015, and discussed above in Note 10, “Shareholders’ Equity,” to the unaudited consolidated financial statements. The stock buy-back program may be terminated at any time and does not require Solitario to purchase a minimum number of shares.

 

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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, 2019 we own 11,000,000 shares of Vendetta common stock and 100,000 shares of Kinross common stock. The Vendetta shares are recorded at their fair market value of $906,000 and the Kinross shares are recorded at their fair value of $344,000 at March 31, 2019. In addition, we own other marketable equity securities with a fair market value of $9,000 at March 31, 2019. We did not sell any of our marketable equity securities during the three months ended March 31, 2019 or 2018.

 

Working Capital

 

We had working capital of $11,098,000 at March 31, 2019 compared to working capital of $11,448,000 as of December 31, 2018. Our working capital at March 31, 2019 consists primarily of our cash and cash equivalents, our investment in USTS, discussed above, and our investment in marketable equity securities of $1,259,000, other current assets of $436,000, which include the SilverStream note of $262,000 at March 31, 2019, less our accounts payable of $692,000. As of March 31, 2019, 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.

 

Stock-Based Compensation Plans

 

As of March 31, 2019, and December 31, 2018 there were options outstanding that are exercisable to acquire 4,373,000 and 2,028,428 shares of Solitario common stock, respectively, with exercise prices between $0.77 per share and $0.28 per share. We do not anticipate the exercise of options to be a significant source of cash flow during the remainder of 2019.

 

Share Repurchase Program

 

On October 28, 2015, our Board of Directors approved a share repurchase program that authorized us to purchase up to two million shares of our outstanding common stock. During 2018, our Board of Directors extended the term of the share repurchase program until December 31, 2019. All shares purchased to date have been cancelled and reduced the number of shares of outstanding common stock. The amount and timing of any shares purchased has been and will be determined by our management and the purchases will be effected in the open market or in privately negotiated transactions based upon market conditions and other factors, including price, regulatory requirements and capital availability and in compliance with applicable state and federal securities laws. Purchases may also be made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “1934 Act”). The repurchase program does not require the purchase of any minimum number of shares of common stock by the Company, and may be suspended, modified or discontinued at any time without prior notice. No purchases will be made outside of the United States, including on the TSX. Payments for shares of common stock repurchased under the program have been funded using the Company’s working capital. As of March 31, 2019, Solitario has purchased a total of 958,800 shares for an aggregate purchase price of $458,000 under the share repurchase program since its inception and these shares are no longer included in our issued and outstanding shares. We anticipate we will continue to purchase a limited number of shares under the share repurchase plan during 2019 as determined by management.

 

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(d) Cash Flows

 

Net cash used in operations during the three months ended March 31, 2019 decreased to $172,000 compared to $491,000 for the three months ended March 31, 2018 primarily as a result of (i) the mineral property revenue, net, cash received of $185,000 from the Royalty Sale, discussed above; (ii) a decrease in non-stock option general and administrative expense to $337,000 during the three months ended March 31, 2019 compared to $393,000 during the three months ended March 31, 2018, discussed above; (iii) a decrease in exploration expenses to $163,000 during the three months ended March 31, 2019 compared to $180,000 during the three months ended March 31, 2018, as a result of a decrease in reconnaissance exploration, discussed above; and (iv) an increase in interest income during the three months ended March 31, 2019 to $72,000 compared to $26,000 during the three months ended March 31, 2018. Based upon projected expenditures in our 2019 budget, we anticipate continued use of funds from operations through the remainder of 2019, primarily for exploration related to our Florida Canyon project and our Lik project and reconnaissance exploration. See “Results of Operations” discussed above for further explanation of some of these variances.

 

During the three months ended March 31, 2019, we provided $602,000 in cash from investing activities compared to the provision of $400,000 of cash from investing activities during the three months ended March 31, 2018. The primary sources of cash related to the net proceeds from short-term investment sales and purchases of $602,000 and $408,000, respectively, during the three months ended March 31, 2019 and 2018. During the three months ended March 31, 2018 we purchased $8,000 of office equipment. We do not anticipate significant sales of marketable equity securities during the remainder of 2019. However, we will continue to liquidate a portion of our investments in USTS as needed to fund our operations and or potential mineral property acquisitions during the remainder of 2019. Any potential mineral property acquisition or strategic corporate investment during the remainder of 2019, discussed above under “Business Overview and Summary,” could involve a significant change in our cash provided or used for investing activities, depending on the structure of any potential transaction.

 

We used $9,000 and $26,000, respectively, for the purchase of our common stock during the three months ended March 31, 2019 and 2018, as discussed above under “Share Repurchase Program” in “Liquidity and Capital Resources.” We anticipate the use of funds for additional purchases of our common stock during the remainder of 2019, however, this will be limited to the maximum number of shares, permissible under the share repurchase program.

 

(e) Off-balance sheet arrangements

 

As of March 31, 2019, and December 31, 2018 we have no off-balance sheet obligations.

 

(f) 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, 2019. As of March 31, 2019, 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, 2019.

 

(g) Discontinued Projects

 

We sold our Brazil, Mexico and Montana royalty properties during the three months ended March 31, 2019 in the Royalty Sale, discussed above. We did not record any mineral property write-downs during the three months ended March 31, 2019 and 2018.

 

(h) Critical Accounting Estimates

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. Actual results in these areas could differ from management’s estimates.

 

(i) Related Party Transactions

 

As of March 31, 2019, and for the three months ended March 31, 2019, we have no related party transactions or balances.

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(j) Recent Accounting Pronouncements

 

See Note 1, “Business and Summary of Significant Accounting Policies,” to the unaudited consolidated financial statements under Recent Accounting Pronouncements” above for a discussion of our significant accounting policies.

 

(k) 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 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 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, 2018. 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 future exploration, development, general and administrative and other costs;
·Our ability to realize a return on our investment in the Lik project;
·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 and Kinross;
·Our estimate of the collectability of the SilverStream Note:
·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; and
·Our business strategy and other plans and objectives for future operations.

 

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.

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

Smaller Reporting Companies are not required to provide the information required by this item.

 

Item 4.   Controls and Procedures

 

Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the 1934 Act, as of March 31, 2019, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer). Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2019.

 21 

 

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the 1934 Act) during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1.Legal Proceedings

 

None

 

Item 1A.Risk Factors

 

There are no material changes to the Risk Factors associated with our business disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table provides information about our purchase of our common shares under the share repurchase program during the three months ended March 31, 2019.

Issuer Purchases of Equity Securities
Period  Total Number of Shares Purchased  Average Price Paid Per Share  Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs  Maximum number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
January 1, 2019- January 31, 2019   1,505   $0.26    1,505    1,067,595 
February 1, 2019 – February 28, 2019   13,895   $0.31    13,895    1,053,700 
March 1, 2019 – March 31, 2019   12,500   $0.39    12,500    1,041,200 
(1)As of March 31, 2019, we have purchased a total of 958,800 shares for an aggregate purchase price of $458,000 under the share repurchase program and these shares are no longer included in our issued and outstanding shares.

 

Item 3.Defaults upon Senior Securities

 

None

 

Item 4.Mine Safety Disclosures

 

None

 22 

 

Item 5.Other Information

 

None

 

Item 6.Exhibits

 

The Exhibits to this report are listed in the Exhibit Index.

 23 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

SOLITARIO ZINC CORP.

 

May 7, 2019

Date

By: /s/ James R. Maronick
James R. Maronick
Chief Financial Officer
 
   

 

 

EXHIBIT INDEX

 

 

 3.1   Amended and Restated Articles of Incorporation of Solitario Exploration & Royalty Corp., as Amended (incorporated by reference to Exhibit 3.1 to Solitario’s Form 10-Q filed on August 10, 2010)
      
 3.1.1   Articles of Amendment to Restated Articles of Incorporation of Solitario Zinc Corp. (incorporated by reference to Exhibit 3.1 to Solitario’s Current Report on Form 8-K filed on July 14, 2017)
      
 3.2   Amended and Restated By-laws of Solitario Zinc Corp. (Solitario Exploration & Royalty Corp.) (incorporated by reference to Exhibit 99.1 to Solitario’s Form 10-K filed on March 22, 2013)
      
 4.1   Form of Common Stock Certificate of Solitario Zinc Corp. (incorporated by reference to Exhibit 4.1 to Solitario’s Form 10-Q filed on November 8, 2017)
      
 10-1*   Performance Loan Agreement for Funding of Drilling Program between Solitario and Compania Minera Milpo for the funding of the drilling of the Florida Canyon Project during 2018 and 2019 dated August 1, 2018.
      
 10-2*   Purchase and Sale Agreement between Solitario and SilverStream SEZC for the sale of certain royalty properties for cash and a convertible note dated January 8, 2019.
      
 31.1*  Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
      
 31.2*  Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
      
 32.1*  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
      
 101*  The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018; and (iv) Notes to the Condensed Unaudited Consolidated Financial Statements, tagged as blocks of text.
      
 *   Filed herewith

 

PERFORMANCE LOAN AGREEMENT FOR FUNDING OF DRILLING PROGRAM

THIS PERFORMANCE LOAN AGREEMENT FOR FUNDING OF DRILLING PROGRAM (the “Agreement”) is made and entered into as of August 1, 2018, by and between Compañía Minera Milpo S.A.A., a company organized under the laws of the Republic of Peru and hereinafter “Nexa”), and Minera Solitario Peru S.A.C., a company organized under the laws of the Republic of Peru (“Solitario”). Each of Nexa and Solitario is individually referred to herein as a “Party,” and they are collectively referred to herein as the “Parties.”

RECITALS

A.       Minera Bongará S.A., a company organized under the laws of the Republic of Peru (“Bongará”) is the holder of certain mining concessions located in Peru, as described on the attached Annex A (the “Properties”). Those Properties comprise a portion of the “Florida Canyon Project.”

B.       Solitario, Solitario Zinc Corp. (f/k/a Solitario Exploration & Royalty Corp. and Solitario Resources Corp.), of which Solitario is a wholly-owned subsidiary, and Votorantim Metais – Cajamarquilla S.A. (“Votorantim”) are parties to that Framework Agreement for the Exploration and Potential Development of Mining Properties dated March 23, 2007 (the “Bongará Framework Agreement”). Pursuant to the Bongará Framework Agreement, Votorantim has the right to conduct mineral exploration, evaluation, and possible development and exploitation of the Properties, make certain associated earn-in expenditures and earn up to a 70% shareholding interest in Bongará.

C.       Bongará and Votorantim are parties to a Mining Assignment Agreement dated August 4, 2006, formalized by public deed issued before the public notary in Lima, Peru, Luis Dannon Brender, dated April 19, 2007 (as amended, the “Mining Assignment Agreement”). The Mining Assignment Agreement allows Votorantim to conduct the activities referred to in Recital B above on the Properties.

D.       Effective November 28th 2014, Votorantim assigned its interests in the Bongará Framework Agreement and the Mining Assignment Agreement to Compañía Minera Milpo S.A.A.

E.       Under the terms of the Bongará Framework Agreement, Nexa is currently obligated to incur 100% of the expenditures at the Florida Canyon Project.

F.       Solitario engaged SRK Consulting (U.S.) Inc. (“SRK”) to design a drilling program for exploration drilling at the Florida Canyon Project. That drilling program calls for a 41-hole, 17,000 meter program (the “Drilling Program”). The first 16 holes which will be drilled as part of the Drilling Program are identified on Annex B attached hereto. In order to advance the Drilling Program, Solitario has agreed to provide to Nexa a portion of the funds required to complete the Drilling Program. Solitario will provide those funds to Nexa by way of a performance installment loan, as more particularly described in Section 2 (a) below.

G.       Solitario and Nexa have now agreed to proceed with the Drilling Program, and desire to enter into this Agreement, which will govern the implementation, funding and completion of the Drilling Program, loan amounts made by Solitario to Nexa, and repayment of those loan amounts, irrespective of any of the terms of either the Bongará Framework Agreement or the Mining Assignment Agreement to the contrary.

 1 

 

NOW, THEREFORE, for and in consideration of the mutual covenants contained in this Agreement, the Parties agree as follows:

1.                  Implementation of Drilling Program.

(a)               Nexa agrees to carry out the Drilling Program, and shall use commercially reasonable efforts to begin the Drilling Program by August 1, 2018, but in any event no later than October 1, 2018. Once it has started the Drilling Program, Nexa shall diligently pursue it to completion; provided, however, that Nexa may in its reasonable discretion temporarily suspend the Drilling Program if weather conditions (taking into account that some work may be season dependent) do not allow for responsible or safe conduct of the Drilling Program. In any event, however, Nexa shall be obligated to complete the Drilling Program by December 31, 2019.

Notwithstanding the above, if there are any permitting or community-related issues which do not allow Nexa to enter (on reasonable terms) into the necessary agreements with the titleholders of the surface land located within the boundaries of the Properties, or if there are delays in obtaining necessary permits or consents (in both cases, for more than sixty (60) days after the relevant access request or administrative application has been filed) that either prevent access or inhibit the initiation, performing or completion of the Drilling Program (“Delays”), and the circumstances and causes of such Delays are not caused by Nexa or are beyond Nexa’s control, all of the dates set out in this Section 1(a), except for the October 1, 2018 deadline for beginning the Drilling Program, shall be automatically deferred and extended for a period of time equal to the time of the Delays. Only once the Delays have ceased, such deferral and extension will cease and the relevant time periods will be resumed and begin running again.

 

In addition, Nexa may claim force majeure if it is prevented from or delayed in performing the Drilling Program by any cause beyond its reasonable control, including, without limitation, acts of God, strikes, lockouts, or other industrial disputes, laws, rules and regulations or orders of any duly constituted court or governmental authority, acts of terrorism, acts of the public enemy, war, insurrection, riots, fire, storm, flood, unusually harsh weather causing delay, explosion, government restriction, failure to obtain any approvals required from regulatory authorities, inability or failure to obtain surface access rights at all or on reasonable commercial terms, or unavailability of equipment, materials or transportation (provided that they were properly applied for and pursued in good faith and on a timely basis or the equipment, materials or transportation were sought in a timely way), interference by local community or third party interest groups or other causes beyond its reasonable control, whether of the kind enumerated above or otherwise. If Nexa claims an event of force majeure has occurred, Nexa shall promptly notify Solitario, and then the terms applicable for the performance of the Drilling Program, except for the October 1, 2018 deadline for beginning the Drilling Program, shall be extended for a period equivalent to the total period the cause of the prevention or delay persists regardless of the length of such total period. Nexa may also claim force majeure, if acting reasonably and having documented and/or supported the events, it believes that social or political unrest in the area of the Properties or the threat of that unrest will endanger the safety of its employees or the employees of its contractors if Nexa were to continue with the Drilling Program. Nexa shall promptly notify Solitario with a written notice summarizing events that have occurred and prospects for resolution.

 2 

 

 

Bongará will cooperate with Nexa, at Nexa’s request, in any negotiation with the titleholders of the surface lands.

If actual drilling under the Drilling Program has not commenced by October 1, 2018, then this Agreement will automatically terminate, and Solitario shall have no obligation to fund or reimburse Nexa for any expenditures incurred under this Agreement or pursuant to the Drilling Program.

(b)               Nexa shall be responsible for implementation and execution of all activities associated with the Drilling Program, including, without limitation, (i) the hiring and supervision of a drilling contractor, (ii) the hiring of a helicopter contractor as necessary to get materials and supplies to the Properties, (iii) arranging for all infrastructure (including, without limitation, an exploration camp with appropriate core processing and storage facilities, portable generators, satellite telephones, fuel, potable water, chemical toilets and site security) at the Properties as necessary to support the Drilling Program, (iv) the hiring and supervision of contract geologists, administrative staff and field helpers necessary to carry out the Drilling Program, (v) arranging for trucks and other heavy equipment necessary to support the Drilling Program, (vi) arranging for whatever temporary housing is required at or near the Properties for personnel working on the Drilling Program, and (vii) arranging for analysis of the drill core and drill results by the reputable consulting companies described below:

·Drilling: Explomin
·Helicopter: PumaAir
·Geology: Anglo Peruana Terra (APT)
·Field and administrative: Explosupport
·Chemistry analysis: ALS Global

and (viii) preparing reports of results of the Drilling Program as appropriate, and providing copies of those reports to Solitario within 15 calendar days after formal request or after they are prepared.

 3 

 

2.                  Funding and Conduct of Drilling Program.

(a)               Pursuant to the provisions of this Section 2(a), Solitario shall loan three (3) payments of U.S.$526,596.00 each to Nexa, which the Parties agree shall be based on the performance by Nexa of the first 5,100 meters of drilling under the Drilling Program. Once the first 1,700 meters of drilling is completed, Nexa shall notify Solitario; upon completion of the second 1,700 meters of drilling, Nexa shall provide a second notice; and upon completion of the third 1,700 meters (for a cumulative total of 5,100 meters of drilling), Nexa shall issue a final notice of completion. With each such notice, Nexa shall provide reasonable documentary evidence of the completion of the required 1,700 meters of drilling. Nexa shall issue such notices to Solitario not later than the 15th day of the calendar month following the month during which the required 1,700 meters of drilling on the Properties has been completed, and Solitario, unless it disputes in good faith the completion of the requisite amount of drilling, shall make a loan payment of U.S.$526,596.00 to Nexa within thirty (30) days after receipt of each such notice. Once Solitario has made three (3) loan payments to Nexa in the aggregate amount of U.S.$1,579,888.00 under this Section 2(a), Solitario shall have no further obligation to loan further amounts to Nexa to fund the Drilling Program. The funds loaned by Solitario to Nexa under this Section 2(a) shall not bear interest.

(b)               Nexa shall be obligated to complete the Drilling Program, and Nexa shall fund the remainder of the Drilling Program through completion (41 holes and 17,000 meters of drilling).

(c)               The funds loaned to Nexa by Solitario pursuant to Section 2(a) shall be repaid pursuant to the provisions of this Section 2(c). If Solitario makes an election to obtain a non-recourse loan from Nexa under Section 15.1 of the Bongará Framework Agreement (the “Construction Loan”), then all amounts of money loaned to Nexa by Solitario under Section 2(a) of this Agreement shall be repaid to Solitario by being credited against and treated as an advance against repayment of the Construction Loan by Solitario. Such amounts shall not accrue interest, and shall reduce the amount of principal outstanding under the Construction Loan. If Solitario does not make the election to obtain the Construction Loan from Nexa under the Bongará Framework Agreement, then all amounts loaned to Nexa by Solitario under Section 2(a) of this Agreement shall be repaid to Solitario by being credited against the next capital contributions Solitario is obligated to make to Bongará under the Bongará Framework Agreement.

(d)               Nexa’s books of account reflecting implementation of and expenditures under the Drilling Program, shall be available to Solitario in accordance with Section 6.7.2 of the Bongará Framework Agreement, the provisions of which are incorporated herein by this reference.

(e)               Any changes to the Drilling Program shall require the unanimous written agreement of the Parties. Prior to initiation of field activities Nexa and Solitario shall consult and mutually agree upon the order in which drilling shall occur under the Drilling Program, taking into account Bongará’s best interests as well as logistical considerations.

(f)                Solitario shall be entitled to all tax benefits available, if any, under applicable laws with respect to all amounts which it loans to Nexa hereunder.

3.                  Indemnity. Nexa agrees that the indemnification provisions of Section 21.1 of the Bongará Framework Agreement (the provisions of which are incorporated herein by this reference) shall apply with respect to activities conducted by or on behalf of Nexa pursuant to this Agreement. The provisions of this Section 3 shall survive the termination of this Agreement.

 4 

 

4.                  Inspection. The Parties agree that the provisions of Sections 6.7.2 and 23 of the Bongará Framework (the provisions of which are incorporated herein by this reference) shall apply with respect to the rights of Solitario and its authorized agents to inspect Nexa’s activities under this Agreement, and review information pertaining to those activities.

5.                  Environmental Obligations. The Parties agree that the provisions of Section 6.7.5 of the Bongará Framework Agreement (the provisions of which are incorporated herein by this reference) shall apply with respect to activities conducted by or on behalf of Nexa under this Agreement.

6.                  Default. If any party fails in the performance of any obligation under this Agreement (for purposes of this Section 6 called the “defaulting party”), the other Party shall serve upon the defaulting party written notice of default, describing the default with specificity. If the defaulting party, within thirty (30) days after receipt of such notice, does not cure any material default, the defaulting party shall be deemed to be in default.

7.                  Consequences of Default. In the event either Party is deemed to be in material default under Section 6 above, the non-defaulting Party shall have the right to terminate this Agreement pursuant to Section 8 hereof. An election by a Party to terminate the Agreement under Section 8 shall not be deemed to be a waiver by that Party of any other legal or equitable remedies it may have with respect to such default.

8.                  Termination for Default. Should either Party be in default of any of its material obligations under this Agreement, determined as provided in Section 6 above, then the other Party may, subject to the notice requirements and the defaulting Party’s right to cure as set forth in Section 6, at its election, terminate this Agreement by giving written notice of such intention to the defaulting Party, and, upon the defaulting Party’s receipt of such notice, this Agreement shall be conclusively deemed terminated.

9.                  Assignability. Neither Party shall have the right to assign, sublease or otherwise transfer any interest in this Agreement without the prior written consent of the non-assigning Party. Subject to the foregoing, this Agreement shall be binding upon, and shall inure to the benefit of, the Parties hereto, their successors and assigns.

10.              Notice. Any notice, election, report or other correspondence required or permitted hereunder shall be in writing and (i) delivered personally; or (ii) sent by reputable overnight courier; or (iii) sent by email, with a confirmatory copy delivered personally or sent by reputable overnight courier. All such notices shall be addressed to the Party to whom directed as follows:

If to Nexa: Jonas Mota e Silva


Email: jonas.silva@nexaresources.com
Telephone: 5117105500

 5 

 

If to Solitario: Chris Herald and Walt Hunt
Solitario Zinc Corp.
4251 Kipling Street, Suite 390, Wheat Ridge, CO 80033
Email: cherald@aol.com/whunt@solitariocorp.com
Telephone: 1 (303) 534-1030

11.              Counterpart Execution. This Agreement may be executed by each of the Parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of, which taken together shall constitute one and the same Agreement.

12.              Interpretation. Use of the word “including” in this Agreement means “including without limitation” or “including but not limited to.” Each of the Annexes and Schedules attached to this Agreement is incorporated into the Agreement by this reference.

13.              Relationship between Agreements. Except as specifically set forth in Section 2(c), this Agreement shall not in any way modify or amend or be deemed to modify or amend the Bongará Framework Agreement or the Mining Assignment Agreement. In addition, the execution and delivery of this Agreement shall not constitute a waiver by either of the Parties of any of its rights under either the Bongará Framework Agreement or the Mining Assignment Agreement, and shall not modify any of the Parties’ obligations thereunder, including funding obligations (except to the extent that the provisions of Section 2 of this Agreement are inconsistent with the Parties’ funding obligations under the Bongará Framework Agreement, the provisions of Section 2 of this Agreement shall be controlling).

14.              Amendments. Any amendment, supplement, variation, alteration or modification to this Agreement must be made in writing and duly executed by an authorized representative of each of the Parties hereto.

15.              Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any other jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Each Party hereby waives the benefit of any law which renders any provision hereof prohibited or unenforceable in any respect.

16.              No Waiver. The failure in any one or more instances of a Party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege in this Agreement conferred, or to waive any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving Party.

17.              Fees, Costs and Expenses. Each Party shall be responsible for its own fees, costs and expenses incurred by it in connection with this Agreement and the transactions contemplated hereby.

 6 

 

18.              Governing Law and Dispute Resolution. The provisions of Section 30 of the Bongará Framework Agreement, which are incorporated herein by this reference, shall apply with respect to any disputes that arise under this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first written above.

COMPAÑÍA MINERA MILPO S.A.A.

By: /s/ Jones Belther
Name: Jones Belther
Title:

COMPAÑÍA MINERA MILPO S.A.A

By: /s/ Diego Miranda
Name: Diego Miranda
Title:

MINERA SOLITARIO S.A.

By: /s/ Todd Christensen
Name: Todd Christensen
Title:

 7 

 

 

ANNEX A - Properties

 

NUM PROYECTO CODIGOU CONCESION TITULAR FECHA HA_DISP PARTID_REG
1 CAÑON FLORIDA 010233396 BONGARA CINCUENTICINCO MINERA BONGARA S.A. 07/08/1996 1,000.0000 P-20004465
2 CAÑON FLORIDA 010233296 BONGARA CINCUENTICUATRO MINERA BONGARA S.A. 07/08/1996 600.0000 P-20004464
3 CAÑON FLORIDA 010783595 BONGARA VEINTISIETE MINERA BONGARA S.A. 26/06/1995 300.0000 P-20005021
4 CAÑON FLORIDA 010000306 DEL PIERO CINCO MINERA BONGARA S.A. 03/01/2006 1,000.0000 P-11053964
5 CAÑON FLORIDA 010000206 DEL PIERO CUATRO MINERA BONGARA S.A. 03/01/2006 500.0000 P-11055358
6 CAÑON FLORIDA 010338405 DEL PIERO DOS MINERA BONGARA S.A. 02/11/2005 600.0000 P-11053955
7 CAÑON FLORIDA 010204507 DEL PIERO SEIS MINERA BONGARA S.A. 26/03/2007 1,000.0000 P-11078790
8 CAÑON FLORIDA 010338605 DEL PIERO TRES MINERA BONGARA S.A. 02/11/2005 700.0000 P-11053962
9 CAÑON FLORIDA 010338505 DEL PIERO UNO MINERA BONGARA S.A. 02/11/2005 1,000.0000 P-11053944
10 CAÑON FLORIDA 010190507 VM 42 MINERA BONGARA S.A. 21/03/2007 1,000.0000 P-11106001
11 CAÑON FLORIDA 010193707 VM 74 MINERA BONGARA S.A. 21/03/2007 1,000.0000 P-11106007
12 CAÑON FLORIDA 010045708 VM 94 MINERA BONGARA S.A. 28/01/2008 900.0000 P-11138318
13 CAÑON FLORIDA 010045808 VM 95 MINERA BONGARA S.A. 28/01/2008 500.0000 P-11136133
14 CAÑON FLORIDA 010193807 VM 75 MINERA BONGARA S.A. 21/03/2007 1,000.0000 P-11105995
15 CAÑON FLORIDA 010046008 VM 97 MINERA BONGARA S.A. 28/01/2008 1,000.0000 P-11136132
16 CAÑON FLORIDA 010046108 VM 98 MINERA BONGARA S.A. 28/01/2008 500.0000 P-11136186

 

 8 

 

 

 

 

 

 

ANNEX B – Drilling Program (First 16 Holes)

 

PROGRAMA DE PERFORACION DIAMANTINA  PROYECTO FLORIDA CANYON
Plataforma Drillhole Easting Northing Elevation Azimuth Dip Depth (m) Objetivo Comment
108 Plat_108-4 824620 9353967 2726.13 297.69 -73.94 450 Incremento Nuevos Recursos Continuidad del manto en la parte central
108 Plat_108-6 824620 9353967 2726.13 102.32 -78.35 470 Incremento Nuevos Recursos Continuidad del manto en la parte central
109 Plat_109-1 824582 9353834 2688.09 162.53 -74.44 400 Incremento Nuevos Recursos Extender el manto en la zona central
109 Plat_109-2 824582 9353834 2688.09 109.28 -79.10 390 Incremento Nuevos Recursos Extender el manto en la zona central
111 Plat_111-1 824529 9353705 2756.01 127.50 -72.01 495 Incremento Nuevos Recursos Infill Zona de alta ley de sulfuros en mantos
111 Plat_111-3 824529 9353705 2756.01 103.39 -77.58 455 Incremento Nuevos Recursos Extender el manto en la zona central
113 Plat_113-12 825305 9353754 2732.34 202.83 -70.57 490 Incremento Nuevos Recursos Continuidad del manto en la parte central
113 Plat_113-6 825305 9353754 2732.34 347.43 -78.90 560 Incremento Nuevos Recursos Continuidad del manto al lado NE
122 Plat_122-1 824577 9353236 2517.28 80.77 -63.40 170 Incremento Nuevos Recursos Continuidad del manto en la parte central
122 Plat_122-2 824577 9353236 2517.28 135.04 -65.20 170 Incremento Nuevos Recursos Continuidad del manto en la parte central
122 Plat_122-3 824577 9353236 2517.28 302.68 -80.59 150 Incremento Nuevos Recursos Continuidad del manto en la parte central
124 Plat_124-1 824488 9353222 2469.98 47.04 -66.46 150 Incremento Nuevos Recursos Continuidad del manto en la parte central
124 Plat_124-2 824488 9353222 2469.98 106.40 -50.41 150 Incremento Nuevos Recursos Continuidad del manto en la parte central

 9 

 

125 Plat_125-2 824418 9353137 2471.95 248.41 -63.25 170 Incremento Nuevos Recursos Continuidad del manto en la parte central
125 Plat_125-3 824418 9353137 2471.95 300.38 -52.98 180 Incremento Nuevos Recursos Continuidad del manto en la parte central
128 Plat_128-1 824437 9352985 2458.76 319.56 -52.62 170 Incremento Nuevos Recursos Continuidad del manto en la parte central
Total 5,020    

 

 

 

 

 

PURCHASE AND SALE AGREEMENT

by and between

SOLITARIO ZINC CORP.,

a Colorado corporation,

as Seller,

and

SILVERSTREAM SEZC,

a Cayman Island Company,

as Purchaser

dated

January 8, 2019

 1 

 

List of Exhibits to Purchase and Sale Agreement


 

Exhibit A – Properties included in Brazil Royalty

Exhibit B – Properties included in Mexico Royalty

Exhibit C – Properties included in Montana Royalties

Exhibit D – Form of Convertible Note

Exhibit E – Escrow Agreement

 2 

 

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of this 8th day of January, 2019 (the “Effective Date”), between SilverStream SEZC (“Purchaser”) and Solitario Zinc Corp. (“Seller”).

RECITALS

Royalty Agreement – Brazil

WHEREAS, Seller is party to a certain Royalty Agreement dated April 15, 2015 (the “Brazil Royalty Agreement”), by and among Seller (previously known as Solitario Exploration & Royalty Corp.), Mineracao Solitario do Brasil LTDA., a Brazilian limited liability company which at that time was wholly owned by Seller (“Solitario Brasil”), Pedra Branca do Brasil Mineracao S.A., a closely-held Brazilian corporation (“Pedra”) and Garrison Capital Partners, a United Arab Emirates corporation (“Garrison”).

WHEREAS, pursuant to the Brazil Royalty Agreement, Pedra is required to pay (and Garrison is required to cause Pedra to pay) to Seller a production equal to 1% of the Net Smelter Returns (as defined in the Brazil Royalty Agreement) from certain properties in Brazil as set forth on Exhibit A (the “Brazil Royalty”).

WHEREAS, subsequent to the Brazil Royalty Agreement, Pedra and Solitario Brasil merged into one company, whereby Pedra remained obligated to perform under the Brazil Royalty Agreement, including continuing to make royalty payments to Seller.

WHEREAS, pursuant to that certain Deed of Novation of a Royalty Agreement among Pedra, Seller, Garrison and Jangada Mines PLC (“Jangada”), Jangada acquired all of Garrison’s rights and obligations under the Brazil Royalty Agreement.

WHEREAS, pursuant to Section 2.2 of the Brazil Royalty Agreement, Seller may assign its rights and interests under the Brazil Royalty Agreement to any party so long as Seller provides written notice to Pedra.

Royalty Agreement – Mexico

WHEREAS, Seller is party to a certain Shares Sales Agreement dated December 15, 2016 (the “Mexico Royalty Agreement”), by and between the Seller and Luis Antonio Martinez Macias (“Martinez Macias”), an individual, whereby Martinez Macias is required to pay a 1% Net Smelter Return (as defined in the Mexico Royalty Agreement) royalty to Seller from certain properties in Mexico (the “Mexico Royalty”) as set forth on Exhibit B.

WHEREAS, pursuant to paragraph 8 of the Mexico Royalty Agreement, Seller may assign its rights and interests under the Mexico Royalty so long as it notifies Martinez Macias of the assignment.

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Royalty Agreement – Montana

WHEREAS, Seller is party to an Asset Purchase Agreement, dated June 1, 2016 (the “Montana Royalty Agreement”), by and between Seller and Canyon Resources Corporation, (“Canyon”), whereby Seller, pursuant to (a) that Royalty Deed dated June 1, 2016, between Canyon and Seller, covering the properties described in Part 1 of Exhibit C, (b) that Royalty Deed dated June 1, 2016, between Canyon and Seller, covering the properties described in Part 2 of Exhibit C, (c) that Royalty Deed dated June 1, 2016, between Canyon and Seller, covering the properties described in Part 3 of Exhibit C, and (d) that Royalty Deed dated June 1, 2016, between Canyon and Seller, covering the properties described in Part 4 of Exhibit D, which was recorded in the official records of Sanders County, Montana on June 2, 2016, Recording No. 303060, Book 1, Page 5820 (collectively, the “Royalty Deeds”), acquired a 1.5% Net Smelter Return (as defined in the Royalty Deeds) royalty interest on certain properties in Montana, United States (the “Montana Royalties”) as set forth on Exhibit C.

Purchase and Sale of Royalties

WHEREAS, Seller desires to sell and Purchaser desires to purchase all of Seller’s right, title and interest in and to the Brazil Royalty and the Mexico Royalty (collectively, the “Royalties”).

WHEREAS, Seller also desires to grant Purchaser an exclusive right and option to purchase all of Seller’s right, title and interest in and to the Montana Royalties (the “Option”).

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1 - PURCHASE AND SALE OF ROYALTIES AND GRANT OF OPTION

1.1.            Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, as of the Closing Date (as defined in Article 5): (i) the Seller agrees to assign and transfer to the Purchaser, and the Purchaser agrees to purchase from the Seller, the Royalties and all of the Seller’s right, title and interest therein; and (ii) the Seller agrees to grant the Option to Purchaser.

1.2.            Purchase Price. The purchase price for the Royalties and Option grant payable by the Purchaser to the Seller shall be Cdn$600,000 (the “Purchase Price”) with Cdn$250,000 to be paid in cash (the “Cash Consideration”) and the remaining Cdn$350,000 to be paid by Purchaser in the form of a Convertible Promissory Note in the form attached hereto as Exhibit D (the “Note”).

1.3.            Payment of the Purchase Price. The Purchase Price shall be paid and satisfied by the Purchaser as follows:

(a)               Cash Consideration. The Cash Consideration shall be paid by the wire transfer of immediately available funds to Burns, Figa & Will P.C. (the “Escrow Agent”), at Closing, to be held in escrow, as further described in Section 5.2 of this Agreement; and

(b)               Note. The Note, executed by Purchaser and issued in favor of the Seller, shall be delivered to Escrow Agent at Closing, to be held in escrow as further described in Section 5.2 of this Agreement.

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1.4.            Grant of the Option. In consideration of Cdn$100 (to be allocated from the Cash Consideration), on the Closing Date the Seller grants Purchaser the sole and exclusive right and option to acquire the Montana Royalties, exercisable for a period of four (4) years from the Closing Date (the “Option Termination Date”). To exercise the Option, Purchaser shall notify Seller at any time prior to the Option Termination Date and pay to Seller the exercise price of Cdn$100 as full consideration for the purchase of the Montana Royalties. If Purchaser does not timely provide notice of its exercise of the Option to Seller, the Option shall automatically expire on the Option Termination Date. Upon timely exercise of the Option, the Seller shall deliver royalty deeds conveying the Montana Royalties to the Purchaser, free and clear of all liens and encumbrances of any kind, in substantially the same form as the Royalty Deeds, and Seller shall execute a certificate confirming that: (i) the representations and warranties of Seller in Section 2.1 hereof are accurate as of the exercise date with respect to the Montana Royalties; and (ii) agreeing to take such further actions as reasonably necessary to transfer the Montana Royalties to Purchaser.

ARTICLE 2 - REPRESENTATIONS WARRANTIES AND ACKNOWLEDGEMENTS

2.1.            Representations and Warranties of the Seller. The Seller represents and warrants to the Purchaser as follows, and acknowledges that the Purchaser will rely on such representations and warranties in entering into this Agreement, and in concluding the purchase and sale contemplated by this Agreement.

(a)               Organization and Power. Seller is a duly incorporated, organized and validly existing corporation under the laws of its jurisdiction of incorporation and has the corporate power to own its interest in the Royalties and the Montana Royalties and to carry out its obligations under this Agreement.

(b)               Due Authorization. The execution and delivery of this Agreement and the other documents to be executed and delivered by the Seller hereunder and the carrying out of the transactions contemplated hereby on the part of the Seller have been duly authorized by all necessary corporate action on the part of the Seller.

(c)               Validity of Agreement. This Agreement and all other agreements and all assignments and transfers to be executed and delivered by the Seller hereunder at the Closing constitute valid, binding and enforceable obligations of the Seller, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws (as defined below) relating to creditors’ rights and general principles of equity.

(d)               No Conflicts or Violations. Neither the execution of this Agreement nor the consummation of the transactions contemplated hereby will be in violation of any judgment, order, permit, writ, injunction or decree of any court, commission, bureau or agency to which Seller or Seller’s interest in the Royalties or the Montana Royalties, or both, are subject to or by which Seller is bound, or constitute a breach or default under any agreement or other obligation in which Seller is a party or by which Seller or the Seller’s interest in the Royalties or the Montana Royalties, or both, are bound.

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(e)               Royalties Free and Clear. The Seller holds the Royalties free and clear of all liens, claims and encumbrances. The Seller has not previously:

(i)                 assigned the Royalties or any of its rights with respect thereto;

(ii)              granted or created any liens, charges or encumbrances on or in respect of the Royalties; or

(iii)            granted any options to purchase or rights of first refusal with respect to the Royalties.

(f)                Montana Royalties Free and Clear. The Seller holds the Montana Royalties free and clear of all liens, claim and encumbrances. The Seller has not previously:

(i)                 assigned any portion of the Montana Royalties or any of its rights with respect thereto;

(ii)              granted or created any liens, charges or encumbrances on or in respect of any portion of the Montana Royalties; or

(iii)            granted any options to purchase or rights of first refusal with respect to any portion of the Montana Royalties.

(g)               Royalty Documents. The following documents have been provided by Seller to Purchaser and are true, correct, accurate, and complete copies of the documents they purport to be: Brazil Royalty Agreement, Mexico Royalty Agreement, Montana Royalty Agreement, and the Royalty Deeds.

(h)               Compliance with Laws. The Seller has not received from any federal, state, provincial, regional, municipal or local government of the United States, Brazil, or Mexico or any subdivision thereof including an entity, person, court or other body or organization exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to any such government or subdivision (“Governmental Authority”), written notice of any pending or threatened investigation or inquiry relating to any actual or alleged violation by Seller of any applicable statutes, ordinances, regulations, rules and ordinances (collectively, “Laws”), including all laws relating to the environment or the protection of the environment (“Environmental Laws”), with respect to or affecting the properties encumbered by the Royalties or the Montana Royalties.

(i)                 Broker’s Fees. Seller has no liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Purchaser could become liable or obligated.

(j)                 Litigation. There is no action, suit, prosecution or other similar proceeding of a material nature, or which process initiating the same, that has been served on the Seller or to Seller’s knowledge threatened against the Seller and affecting any of the Seller’s interest in the Royalties or the Montana Royalties at law or in equity or before or by any Governmental Authority.

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(k)               Information and Data. The Seller has provided the Purchaser with access to or copies of all correspondence, notes, written information, data, and other documents in its possession or control relating to the Royalties and the Montana Royalties. Except as specifically set forth in this Section 2.1, Seller makes no representation or warranty as to the accuracy, reliability or completeness of any such data or information, and Purchaser shall rely on the same at its sole risk.

(l)                 Limitations. Except as specifically set forth in this Section 2.1, Seller makes no representation or warranty concerning the Royalties or the Montana Royalties.

2.2.            Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Seller as follows, and acknowledges that the Seller will rely on such representations and warranties in entering into this Agreement, and in concluding the purchase and sale contemplated:

(a)               Organization and Power. The Purchaser is a duly formed and validly existing company in good standing under the laws of its jurisdiction of formation and has the power to enter into this Agreement and to carry out its obligations under this Agreement.

(b)               Due Authorization. The execution and delivery of this Agreement and the other documents to be executed and delivered by the Purchaser hereunder and the carrying out of the transactions contemplated hereby on the part of the Purchaser have been duly authorized by all necessary company action on the part of the Purchaser.

(c)               Validity of Agreement. This Agreement and all other agreements to be executed and delivered by the Purchaser hereunder at the Closing constitute valid, binding and enforceable obligations of the Purchaser, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

(d)               No Conflicts or Violations. Neither the execution of this Agreement nor the consummation of the transaction contemplated hereby will be in violation of any judgment, order, permit, writ, injunction or decree of any court, commission, bureau or agency to which Purchaser is subject to or by which Purchaser is bound, or constitute a breach or default under any agreement or other obligation in which Purchaser is a party or by which Purchaser is bound.

(e)               Broker’s Fees. The Purchaser has no liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated.

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(f)                Due Diligence. Purchaser has had (or will have had by the Closing Date, as defined below) the opportunity to conduct all due diligence investigations of the Royalties, the Montana Royalties and the properties burdened by those royalties (collectively, the “Property Rights”) Purchaser has deemed advisable. Purchaser has relied upon its investigation, study and knowledge of the Property Rights, and not upon any representation or warranty of Seller concerning the Property Rights (other than those specifically set forth in Section 2.1), in making the decision to enter into this Agreement. Purchaser has not relied upon any estimates or forecasts by Seller concerning the potential payment or amount of any production royalties, the likelihood of mineral production at any of the properties burdened by the Royalties or the Montana Royalties, any mineral reserves or resources on or within those properties, or concerning the nature, quantity or quality or costs of mining thereof, or upon any estimates of Seller regarding the cost of remediation, reclamation or closure associated with any of those properties.

ARTICLE 3 - PRE-CLOSING COVENANTS

3.1.            Actions. Subject to the terms and conditions of this Agreement, each of the parties will use its good faith efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary to be ready to comply with the requirements of Article 4 of this Agreement at the Closing, including without limitation, making such filings or registrations with Governmental Authorities as may on its part be required.

3.2.            Consents and Approvals. Each party shall use its reasonable commercial efforts to obtain at its own expense as soon as reasonably possible after the date of this Agreement, and in any event on or before the Closing as required by this Agreement, any and all consents or approvals, without any material conditions or restrictions and in form and substance satisfactory to the other party acting reasonably, to this Agreement and to the transactions contemplated hereby that are required to be obtained from any Governmental Authorities or third parties and that are necessary to the completion of the transactions contemplated hereby and required on or before Closing as set forth herein in respect of the Royalties and the Option.

3.3.            Due Diligence. Following the execution of this Agreement, until the Closing Date (and in the case of the Montana Royalties, through the earlier of the Option exercise or the Option Termination Date) or earlier termination of this Agreement, the Purchaser shall have the exclusive right to conduct reasonable due diligence in respect of the ownership, terms and conditions, validity, and good standing of the Royalties and Montana Royalties, including without limitation, but subject to the provisions of Section 4.5, through inquiries made of Governmental Authorities and the Seller and its affiliates.

ARTICLE 4 - CONDITIONS TO CLOSING

4.1.            Mutual Conditions. The obligations of the Seller to complete the sale of the Royalties and grant of the Option as contemplated by this Agreement and the corresponding obligations of the Purchaser to complete the purchase of the Royalties are subject to fulfillment of the following conditions:

(a)               No Order or Proceedings. No injunction or restraining order of any Governmental Authority of competent jurisdiction shall be in effect which prohibits the transactions contemplated by this Agreement in respect of the Royalties, the Option, or both, and no action or proceeding shall have been instituted and remain pending before any such court or other Governmental Authority to restrain or prohibit any of the transactions contemplated hereby in respect of the Royalties, the Montana Royalties, or both.

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(b)               Approvals and Consents. All consents, approvals, orders and authorizations of any person or Governmental Authority (or registrations, declarations, filings or recordings with any such Governmental Authority) or stock exchange or securities commission required in connection with the completion of any of the transactions contemplated by this Agreement in respect of the Royalties, the Option, or both; the execution of this Agreement; the Closing, or the performance of any of the terms and conditions hereof, shall have been obtained without any material conditions or restrictions and in form and substance satisfactory to both the Purchaser and Seller, acting reasonably, on or before the Closing Date.

The foregoing conditions are inserted for the mutual benefit of the Seller and the Purchaser and may be waived in whole or in part only if jointly waived by the Seller and the Purchaser.

4.2.            Purchaser’s Conditions. The obligation of the Purchaser to complete the purchase of the Royalties is subject to fulfillment of the following conditions:

(a)               Due Diligence. The completion of due diligence to the Purchaser’s reasonable satisfaction with respect to the ownership, terms and conditions, validity, and good standing of the Royalties, the Montana Royalties and the Property Rights.

(b)               Representations and Warranties. The representations and warranties of the Seller made in the Agreement shall be true and correct in all material respects as if made at and as of the Closing Date.

(c)               Performance of Covenants. All covenants to be performed by the Seller on or before the Closing Date pursuant to this Agreement shall have been performed in all material respects.

The conditions in Section 4.2 are for the exclusive benefit of the Purchaser and may be waived by the Purchaser in whole or in part by Notice to the Seller from the Purchaser.

4.3.            Seller’s Conditions. The obligations of the Seller to complete the sale of the Royalties and granting of the Option are subject to fulfillment of the following conditions:

(a)               Representations and Warranties. The representations and warranties of the Purchaser made in this Agreement shall be true and correct in all material respects as if made on and as of the Closing Date.

(b)               Performance of Covenants. All covenants to be performed by the Purchaser hereunder on or before the Closing Date pursuant to this Agreement shall have been performed in all materials respects.

The conditions in Section 4.3 are for the exclusive benefit of the Seller and may be waived by the Seller in whole or in part by Notice to the Purchaser from the Seller.

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4.4.            Termination. This Agreement shall be subject to termination as follows:

(a)               by the Seller by Notice to the Purchaser on or before the Closing Date if any one or more of the conditions set forth in Sections 4.1 or 4.3 has become incapable of fulfillment or has not been fulfilled on the Closing Date and has not been waived by the Seller; or

(b)               by the Purchaser by Notice to the Seller on or before the Closing Date if any one or more of the conditions set forth in Sections 4.1 or 4.2 has become incapable of fulfillment or has not been fulfilled on the Closing Date, respectively, and has not been waived by the Purchaser.

Any such termination shall be without prejudice to any right or remedy of either party with respect to a breach of the Agreement by the other party.

4.5.            Confidentiality. The parties agree to hold in confidence all information obtained in confidence in respect of the Royalties, the Montana Royalties and the Option, or otherwise obtained in connection with this Agreement, other than (a) in circumstances where a party has an obligation to disclose such information in accordance with applicable securities laws or stock exchange rules, or (b) in the course of taking any actions required under Section 5.4. Subject to the foregoing requirement, neither party shall make or issue a press release or other public statement regarding this Agreement, the Royalties or the Montana Royalties, or the activities of the parties with respect thereto, without having given the other party two (2) business days’ prior written notice of the text of the proposed release or statement, and the opportunity to comment on the same. If the other party from whom such comment is requested has not provided any comments within two (2) business days of receiving such request, such other party shall be deemed to have waived its right to review the press release or public statement forming the subject matter of such request.

ARTICLE 5 - CLOSING & ESCROW

5.1.            Time and Place of Closing. The consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place at Purchaser’s principal place of business at Strathvale House 90 N. Church Street, Grand Cayman KY1 1003, by a method mutually agreed upon by the Purchaser and the Seller, on or before January 11, 2019, or such other date as the parties may mutually agree (the “Closing Date”).

5.2.            Escrow. On the Closing Date, in addition to the items specified below, Purchaser shall deliver the Cash Consideration by wire transfer of immediately available funds and the original executed Note to the Escrow Agent to be held until such time as the Purchaser and the Seller deliver joint written release instructions to the Escrow Agent (the “Release Date”) pursuant to the terms and conditions of the Escrow Agreement, attached hereto as Exhibit E.

5.3.            Documents to be Delivered by the Seller at Closing. At the Closing, the Seller shall deliver or cause to be delivered to the Escrow Agent:

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(a)               all deeds of conveyance, bills of sale, transfer and assignments, in form and content satisfactory to the Purchaser’s counsel, acting reasonably, appropriate to vest in the Purchaser all of the Seller’s rights to the Royalties, free and clear of all liens, claims and encumbrances in registrable form (if applicable) in all places where registration of such instruments is required;

(b)               certified copies of those resolutions of the directors and, if required, shareholders of the Seller required to be passed to authorize the execution, delivery and implementation of this Agreement and of all documents to be delivered by the Seller under this Agreement and the completion of the transactions contemplated hereby (drafts of which will be provided to Purchaser for review prior to the Closing Date);

(c)               a certificate of an officer of Seller as to the accuracy as of the Closing Date of Seller’s representations and warranties and the performance of its covenants under this Agreement to be performed at or before the Closing (a draft of which will be provided to Purchaser for review prior to the Closing Date); and

(d)               a countersigned copy of the Escrow Agreement.

5.4.            Documents to be Delivered by Seller on or before the Release Date. On or before the Release Date Seller shall deliver or cause to be delivered to the Escrow Agent:

(a)               a signed acknowledgement (in form reasonably satisfactory to Purchaser’s counsel) from Jangada that it is aware of the transaction contemplated herein and that upon written notice of the Release Date it will be obligated to pay the Brazil Royalty as it comes due to Purchaser;

(b)               a signed acknowledgement (in form reasonably satisfactory to Purchaser’s counsel) from Martinez Macias that he is aware of the transaction contemplated herein and that upon written notice of the Release Date he will be obligated to pay the Mexico Royalty as it comes due to Purchaser;

(c)               an acknowledgement, protocol, receipt or certification (in form reasonably satisfactory to Purchaser’s counsel) from either Jangada or Solitario, certifying that it has filed a copy of the Brazil Royalty Agreement before the DNPM/ANM branch of the State of Ceara on each of the dockets related to the mining rights subject to the Brazil Royalty Agreement;

(d)               with respect to Registration related to the Brazil Royalty Agreement, Seller shall cause the Brazil Royalty Agreement to be translated by a certified sworn translator and registered before the competent registry of deeds and documents having jurisdiction over the head offices of Pedra. Further, Seller shall deliver a written confirmation of such translation and registration to Purchaser (in form reasonably satisfactory to Purchaser’s Counsel) on or before the Release Date.

5.5.            Documents to be Delivered by the Purchaser at Closing. At the Closing the Purchaser shall deliver or cause to be delivered to the Escrow Agent:

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(a)               certified copies of those resolutions of the directors and, if required, shareholders of the Purchaser required to be passed to authorize the execution, delivery and implementation of this Agreement and of all documents and payments to be delivered by the Purchaser under this Agreement and the completion of the transactions contemplated hereby (drafts of which will be provided to Seller for review prior to the Closing Date);

(b)               a certificate of an officer of the Purchaser as to the accuracy as of the Closing Date of the Purchaser’s representations and warranties and the performance of its covenants to be performed at or before the Closing (a draft of which will be provided to Seller for review prior to the Closing Date);

(c)               a countersigned copy of the Escrow Agreement;

(d)               the wire transfer of immediately available funds for the Cash Consideration; and

(e)               the original executed Note, as evidence of the Purchaser’s obligation to pay the balance of the Purchase Price.

5.6.            Joint Instructions to be Delivered by the Parties on the Release Date. Upon satisfaction and receipt of all items indicated in Sections 5.3, 5.4 and 5.5, the parties will execute and deliver the joint written instructions contemplated by the Escrow Agreement to the Escrow Agent to release the Cash Consideration and Note to the Seller.

ARTICLE 6 - TAX LIABILITIES / INDEMNIFICATION

6.1.            Payment of Taxes. Seller is responsible for the payment and full satisfaction of all taxes due or incurred on the Royalties before the Closing Date and Purchaser is responsible for all taxes incurred on the Royalties on or after the Closing Date.

6.2.            Indemnification by Purchaser. In accordance with the procedures in Section 6.4, the Purchaser shall defend and indemnify the Seller, and its respective directors, officers, employees, agents, and representatives against and agrees to hold the Seller and its respective directors, officers, employees, agents, and representatives harmless from, any and all damages, claims, losses (but excluding consequential or punitive damages or damages for lost profits), liabilities, fines, penalties and expenses (including reasonable attorneys’ fees) incurred or suffered by the Seller, or its respective directors, officers, employees, agents, and representatives or any of them arising out of:

(a)               any misrepresentation or breach of warranty by Purchaser of which Notice has been given under Section 6.4 before expiration of the representation or warranty as provided in Section 8.2; and

(b)               any covenant or agreement made or to be performed by the Purchaser pursuant to this Agreement.

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6.3.            Indemnification by Seller. In accordance with the procedures in Section 6.4, the Seller agrees to defend and indemnify the Purchaser and its directors, officers, employees, agents, and representatives against and agrees to hold the Purchaser and its directors, officers, employees, agents, and representatives harmless from any and all damages, claims, losses (but excluding consequential or punitive damages or damages for lost profits), liabilities, fines, penalties and expenses (including reasonable attorneys’ fees) incurred or suffered by the Purchaser or its directors, officers, employees, agents, and representatives arising out of:

(a)               any misrepresentation or breach of warranty by Seller of which Notice has been given under Section 6.4 before expiration of the representation or warranty as provided in Section 8.1; and

(b)               any covenant or agreement made or to be performed by the Seller pursuant to this Agreement.

6.4.            Claims of Indemnity. A party claiming for indemnity under this Article 6 (the “Indemnitee”) shall give prompt Notice of any claim, action, proceeding or circumstances that could reasonably give rise to such a claim to the party which has agreed to indemnify it (the “Indemnitor”). Inadvertent failure to give such prompt Notice will not preclude the Indemnitee from pursuing the claim unless and to the extent that the Indemnitor is materially prejudiced by such failure. The Indemnitor may, and will, if directed to do so by the Indemnitee, at its own expense and in the name of the Indemnitee or otherwise, dispute any claim made, or any matter on which a claim could be made, by a third party in respect of which a Notice has been given by the Indemnitee under this Section 6.4 and may retain legal counsel acceptable to the Indemnitee to have conduct any proceeding relating to such a claim. The Indemnitee may employ separate counsel with respect to any such claims brought by a third party and participate in the defense thereof, provided the fees and expenses of such counsel shall be the responsibility of the Indemnitee unless:

(a)               the Indemnitor fails to assume the defense of such claim on behalf of the Indemnitee within five days of receiving Notice of such claim; or

(b)               the employment of such counsel has been authorized by the Indemnitor;

in each of which cases the Indemnitor shall not have the right to assume the defense of such suit on behalf of the Indemnitee but shall be liable to pay the reasonable fees and expenses of counsel for the Indemnitee. For the purpose of confirming or disputing such a claim, the Indemnitee will provide full and complete disclosure to the Indemnitor and complete access to and right of inspection by the representatives of the Indemnitor of all documents and records in the possession or control of the Indemnitee relating to such claim. If any security is required to be provided for the purpose of defending or contesting any such claim, including, without limitation, any appeal of any judgment, the Indemnitor shall provide such security and all monies or property representing such security received by the Indemnitee as a result of a successful defense or contestation will be held in trust by the Indemnitee for the benefit of the Indemnitor and will be remitted to the Indemnitor on demand. Neither the Indemnitee nor the Indemnitor shall settle, compromise or pay any claim for which indemnity is sought hereunder except with the prior written consent of the other, such consent not to be unreasonably withheld, or in the case of the Indemnitee, unless the Indemnitor fails to dispute and defend such claim.

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6.5.            Cap on Damages. Under no circumstances shall the Purchaser or the Seller be liable under the provisions of Sections 6.2 and 6.3, respectively, for an aggregate amount of damages and expenses in excess of the Purchase Price.

ARTICLE 7 - POST-CLOSING & POST-RELEASE DATE MATTERS; COVENANTS

7.1.            Payments for Royalties. From and after the Closing, the Purchaser will be entitled to the full use and enjoyment of the Royalties, including without limitation all payments thereunder.

7.2.            Further Assurances. From and after the Closing, Seller will make any and all such filings or registrations with Governmental Authorities as may on its part be required, or reasonably requested by Purchaser even if not required, to complete the transfer of the Royalties to the Purchaser. If the Purchaser elects to exercise the Option, each of the parties will make any and all such filings or registrations as may on its part be required to complete the transfer of the Montana Royalties to the Purchaser, including all necessary or appropriate filings and registrations with Governmental Authorities. Additionally, from and after Closing, the Seller will cooperate with reasonable requests by Purchaser to: (i) provide access to further information in its possession, if any, regarding the Property Rights and (ii) facilitate communication or introductions between Purchaser and third parties that Purchaser may reasonably request relating to the Property Rights.

7.3.            Registration Cooperation Post-Release Date. If post-Release Date, with respect to the Brazil Royalty, the new mining agency (whether DNPM/ANM, or any other mining agency) issues any new ordinances, resolutions or rules pertaining to annotations or registrations of liens, contracts and encumbrances over mineral rights, Seller covenants, upon receipt of written request by Purchaser, to take (within 30 days of the request from Purchaser) any actions required of the Seller (or otherwise reasonably requested by the Purchaser) by any Governmental Authority to produce any annotations or registrations with the new mining agency.

7.4.            Taxes. Each of Seller and Purchaser shall pay all taxes owed by it in connection with conveyance of the Royalties and the Montana Royalties.

7.5.            Registration Obligations Post-Release Date. Following the Release Date, Seller shall cause the deed of assignment or similar conveyance document by which the Brazil Royalty was conveyed from Seller to Buyer (the “Brazil Royalty Conveyance”) to be translated by a certified sworn translator and registered before the competent registry of deeds and documents having jurisdiction over the head offices of Pedra. If the Brazil Royalty Conveyance is not so registered within 30 days following the Release Date, then the transactions contemplated under this Agreement shall be deemed rescinded, and the following provisions shall apply:

(a)               Seller shall return an amount equal to the Cash Consideration to Purchaser;

(b)               Seller shall return the original Note to Purchaser;

(c)               Seller and Purchaser shall execute such re-conveyance and re-assignment documents as are deemed necessary by their respective Brazilian and Mexican counsel to affect the re-conveyance and re-assignment of the Brazil Royalty and the Mexico Royalty from Purchaser to Seller, and shall record and register with the appropriate Governmental Authorities all documents required in connection therewith;

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(d)               The Option shall terminate; and

(e)               Seller and Purchaser shall take all such actions and execute and deliver all such additional documents as may be reasonably required by their respective Brazilian, Mexican and U.S. counsel to rescind the transactions undertaken pursuant to this Agreement.

The provisions of the last sentence of Section 4.4, Section 4.5, Sections 6-2 – 6.5, Article 8, and Section 9.11 shall survive the termination of this Agreement pursuant to this Section 7.5; provided, however, that Seller’s inability to register the Brazil Royalty Conveyance as provided in this Section 7.5 after good faith efforts to do so shall not be deemed a breach by Seller under this Agreement.

ARTICLE 8 - SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND COVENANTS

8.1.            Seller’s Representations, Warranties and Covenants. All representations and warranties made by Seller in this Agreement or under this Agreement, shall, unless otherwise expressly stated, survive the Closing and shall continue in full force and effect for the benefit of Purchaser for a period of three years after the Closing, provided, however, that the representations and warranties made in Sections 2.1(a) and (b) shall survive for the applicable statute of limitations period.

8.2.            Purchaser’s Representations, Warranties and Covenants. All representations and warranties made by Purchaser in this Agreement or under this Agreement, shall, unless otherwise expressly stated, survive the Closing and shall continue in full force and effect for the benefit of Seller for a period of three years after the Closing, provided, however, that the representations and warranties made in Sections 2.2(a) and (b) shall survive for the applicable statute of limitations period.

ARTICLE 9 - MISCELLANEOUS

9.1.            Expenses. The parties shall each bear all of their own costs and expenses, including consultants’ and attorneys’ fees, incurred in connection with the negotiation of this Agreement and the consummation of the transactions contemplated hereby.

9.2.            Notices. All notices, requests, demands, claims, and other communications hereunder (“Notices”) must be in writing. Any party may send any Notice to the intended recipient at the address set forth below using certified mail, nationally recognized express courier, personal delivery or email, and any such Notice will be deemed to have been duly given (a) two Business Days after being deposited with a nationally recognized overnight courier and upon confirming delivery with such courier, and (b) when actually received by an individual at the intended recipient’s email address and acknowledged as received.

 15 

 

If to the Seller: Email: cherald@aol.com

Attn: Chris Herald

Solitario Zinc Corp.

4251 Kipling Street, Suite 390

Wheatridge, Colorado 80033

If to Purchaser: Email: kyle@silverstreamsecz.com

Attn: Kyle Floyd

SilverStream SECZ

Cayman Enterprise City, P.O. Box 10315 KY1-1003

Grand Cayman, Cayman Islands

Any party may change the address to which Notices are to be delivered by giving the other party Notice in the manner herein set forth.

9.3.            Entire Agreement. This Agreement, including the Exhibits hereto, constitute the entire agreement between the parties in relation to the transactions herein contemplated and, except as specifically set out herein, or in any documents delivered at Closing pursuant hereto, supersedes every previous agreement, communication, expectation, negotiation, representation or understanding, whether oral or written, express or implied, statutory or otherwise, among the parties with respect to the subject matter of this Agreement, including without limitation the letter of the Purchaser to the Seller dated August 24, 2018, and there are no collateral agreements other than as expressly set forth or referred to in this Agreement.

9.4.            Amendments and Waivers. This Agreement may not be amended except by written agreement among all the parties to this Agreement. No waiver of any provision of this Agreement will be valid unless it is in writing and signed by each party. No such waiver by any party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, will be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

9.5.            Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction will not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

9.6.            Assignment. No party hereto may assign any right, benefit or interest in this Agreement without the written consent of the other party hereto and any purported assignment without such consent shall be void and of no effect. Notwithstanding the foregoing, following the Maturity Date under the Note (as defined therein), provided that either (a) all amounts of principal and interest due thereunder have been fully repaid, or (b) those amounts due thereunder have been converted to common shares of Purchaser in accordance with the terms of the Note, Purchaser may assign its option to purchase the Montana Royalties under Section 1.4, and assign and delegate all of its rights and obligations under this Agreement associated with the Montana Royalties, subject to the terms and conditions of this Agreement pertaining thereto, to any third party without the consent of Seller.

 16 

 

9.7.            Inurement. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and permitted assigns.

9.8.            Gender and Number. In this Agreement, unless the context otherwise requires, words importing the singular include the plural and vice versa, and words importing a gender include all genders.

9.9.            Headings. The headings used in this Agreement are inserted for convenience of reference only and shall not affect the interpretation of this Agreement.

9.10.        Currency. All dollar amounts in this Agreement are stated in currency of Canada.

9.11.        Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Colorado without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Colorado.

9.12.        Execution. This Agreement may be executed by the parties in one or more counterparts and by electronic delivery, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument.



[Signature Page Follows]

 17 

 

 

IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement as of the Effective Date.

SELLER:

SOLITARIO ZINC CORP., a Colorado corporation

 

By: /s/ Christopher Herald                                
Christopher Herald, President and CEO

PURCHASER:

SILVERSTREAM SEZC, a Cayman Island company

By: /s/ Kyle Floyd                                            
Kyle Floyd, President and CEO

 

 

 18 

 

Exhibit A

Properties included in Brazil Royalty

 

Direritos Minerários                  
Dec-17                  
PROCESS STATUS AREA (ha) PHASE LICENSE NUMBER PUBLICATION DATE RENEWAL DATE EXPIRATION DATE DISTRICT STATE
800.002/18 IN PROGRESS 960 Application for exploration         MOMBAÇA, PEDRA BRANCA, TAUÁ Ceará
800.373/13 IN PROGRESS 999 Exploration License 3749 4/19/2016 2/18/2019 4/19/2019 PEDRA BRANCA Ceará
800.374/13 IN PROGRESS 580 Exploration License 3750 4/19/2016 2/18/2019 4/19/2019 PEDRA BRANCA Ceará
800.375/13 IN PROGRESS 976 Exploration License 3751 4/19/2016 2/18/2019 4/19/2019 PEDRA BRANCA Ceará
800.124/14 IN PROGRESS 2,000 Exploration License 4275 5/5/2016 3/1/2019 5/1/2019 BOA VIAGEM Ceará
800.126/14 IN PROGRESS 2,000 Exploration License 4277 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.128/14 IN PROGRESS 1,990 Exploration License 4279 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.129/14 IN PROGRESS 2,000 Exploration License 4280 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.133/14 IN PROGRESS 2,000 Exploration License 4284 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.134/14 IN PROGRESS 2,000 Exploration License 4285 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.137/14 IN PROGRESS 2,000 Exploration License 4286 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.140/14 IN PROGRESS 1,569 Exploration License 4287 5/5/2016 3/1/2019 5/1/2019 MOMBAÇA Ceará
800.235/14 IN PROGRESS 1,094 Exploration License 4288 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.236/14 IN PROGRESS 1,196 Exploration License 4289 5/5/2016 3/1/2019 5/1/2019 TAUÁ Ceará
800.410/14 IN PROGRESS 999 Exploration License 4299 5/5/2016 3/1/2019 5/1/2019 MOMBAÇA Ceará
800.411/14 ALVO TRAPIA 1,000 Exploration License 4300 5/5/2016 3/1/2019 5/1/2019 MOMBAÇA Ceará
800.412/14 IN PROGRESS 1,000 Exploration License 4301 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.413/14 ALVO TRAPIA 1,000 Exploration License 4302 5/5/2016 3/1/2019 5/1/2019 MOMBAÇA Ceará
800.414/14 ALVO TRAPIA 1,000 Exploration License 4303 5/5/2016 3/1/2019 5/1/2019 MOMBAÇA Ceará
800.415/14 ALVO TRAPIA 1,000 Exploration License 4304 5/5/2016 3/1/2019 5/1/2019 MOMBAÇA Ceará
800.515/14 IN PROGRESS 1,146 Exploration License 4306 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.698/14 ALVO CEDRO 483 Exploration License 4309 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.700/14 IN PROGRESS 1,000 Exploration License 4311 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.701/14 IN PROGRESS 989 Exploration License 4312 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.702/14 IN PROGRESS 993 Exploration License 4313 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.703/14 IN PROGRESS 160 Exploration License 4314 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.704/14 IN PROGRESS 423 Exploration License 4315 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará

 19 

 

800.705/14 IN PROGRESS 1,000 Exploration License 4316 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.706/14 IN PROGRESS 746 Exploration License 4317 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.707/14 IN PROGRESS 1,000 Exploration License 4318 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.710/14 IN PROGRESS 1,000 Exploration License 4321 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.711/14 IN PROGRESS 1,000 Exploration License 4322 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.712/14 IN PROGRESS 1,000 Exploration License 4323 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.713/14 IN PROGRESS 1,000 Exploration License 4324 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.714/14 IN PROGRESS 1,000 Exploration License 4325 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.715/14 IN PROGRESS 1,000 Exploration License 4340 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.716/14 IN PROGRESS 1,000 Exploration License 4341 5/5/2016 3/1/2019 5/1/2019 PEDRA BRANCA Ceará
800.152/14 IN PROGRESS 1,000 Exploration License 9748 9/14/2016 6/15/2019 8/13/2019 MOMBAÇA Ceará
800.159/14 IN PROGRESS 1,000 Exploration License 9749 9/14/2016 6/15/2019 8/13/2019 MOMBAÇA Ceará
800.495/16 IN PROGRESS 1,000 Exploration License 1,524 3/2/2017 12/2/2019 2/2/2020 PEDRA BRANCA Ceará
800.235/17 IN PROGRESS 49 Application for exploration         PEDRA BRANCA Ceará
800.095/99 Pedido de SOBRESTAMENTO/ALVO ESBARRO 1,000 Final Report Presented 3,911 11/28/2013     PEDRA BRANCA Ceará
800.096/99 Pedido de SOBRESTAMENTO/ALVO ESBARRO 1,000 Final Report Presented 2,558 10/25/2013     MOMBAÇA Ceará
800.097/99 Pedido de SOBRESTAMENTO/ALVO CURIU 1,000 Final Report Presented 5,599 11/28/2013     PEDRA BRANCA Ceará
800.138/14 PARCIAL ASSIGNMENT SUBIMITTED 1,159 License Extension Requested 8,910 9/26/2014     TAUÁ Ceará

 20 

 

800.139/14 PARCIAL ASSIGNMENT SUBIMITTED 2,000 License Extension Requested 8,911 9/26/2014     MOMBAÇA Ceará

 

 

 
 



 

 21 

 



 22 

 

Exhibit C

Properties included in Montana Royalties


 
 

 

1.Royalty Deed dated June 1, 2016, from Canyon Resources Corporation to Solitario Exploration & Royalty Corp.
County: Lincoln      
         
Township Range Section Description Acres
27 North 28 West 34 All 640.00
         
    35 All 640.00
         
         

 

 23 

 

2.Royalty Deed dated June 1, 2016, from Canyon Resources Corporation to Solitario Exploration & Royalty Corp.
County: Missoula      
         
Township Range Section Description Acres
13 North 14 West 3 Lot 1 22.30
      Lot 2 22.10
      Lot 3 21.90
      Lot 4 41.70
      S1/2N1/2 160.00
      S1/2 320.00
         
    5 Lot 1 22.60
      Lot 7 34.80
      SE1/4NE1/4 40.00
         
13 North 14 West 11 N1/2 320.00
      S1/2S1/2 160.00
         
    12 S1/2SW1/4 80.00
         
    13 N1/2 320.00
         
    15 N1/2 320.00
      N1/2S1/2 160.00
         
    17 SE1/4SE1/4 40.00
         
    20 E1/2 320.00
         
    21 SW1/4NW1/4 40.00
      W1/2SW1/4 80.00
         
    28 NW1/4NW1/4 40.00
         
    29 NE1/4 160.00
         
12 North 16 West 14 S1/2NW1/4 80.00
      W1/2SE1/4 80.00
      SW1/4 160.00
         
    15 All 640.00
         

 24 

 

Township Range Section Description Acres
         
14 North 17 West 29 E1/2 320.00
         
    32 S1/2NW1/4 80.00
      SW1/4NE1/4 40.00
      SE1/4 160.00
      NE1/4SW1/4 40.00

 

3.Royalty Deed dated June 1, 2016, from Canyon Resources Corporation to Solitario Exploration & Royalty Corp.

 

County:

 

Missoula

     
         
Township Range Section Description Acres
11 North 21 West 3 Lot 1 40.80
      Lot 2 40.80
      Lot 3 40.80
      Lot 4 40.80
      S1/2N1/2 160.00
      S1/2 320.00

 

 25 

 

4.Royalty Deed dated June 1, 2016, from Canyon Resources Corporation to Solitario Exploration & Royalty Corp.

 

County:

 

Sanders

     
         
Township Range Section Description Acres
24 North 26 West 21 W1/2SW1/4 80.00
      SE1/4SW1/4 40.00
      SE1/4 160.00
         
24 North 27 West 19 Lot 1 31.78
      Lot 2 31.95
      Lot 3 32.11
      Lot 4 32.28
      E1/2W1/2 160.00
      E1/2 320.00
         
    29 N1/2SE1/4 80.00
      S1/2SW1/4 80.00
         
         
    31 Lot 1 32.75
      Lot 2 33.46
      Lot 3 34.16
      Lot 4 34.87
      E1/2W1/2 160.00
      E1/2 320.00
         
25 North


26 West


6
(Part in
Flathead County)
Lot 1


39.65


                  Lot 2 39.75
         
             

 26 

 

 

Township Range Section Description Acres
      Lot 2 36.84
      Lot 3 36.70
      Lot 4 36.57

 

 

    E1/2W1/2 160.00
      E1/2 320.00
         
    18 Lot 4 37.32
      NW1/4SE1/4 40.00
         
    19 Lot 1 37.37
      Lot 2 37.21
      Lot 3 37.07
      Lot 4 36.91
      E1/2W1/2 160.00
      E1/2 320.00
         
    31 Lot 1 36.95
      Lot 2 36.85
      Lot 3 36.75
      Lot 4 36.65
      E1/2W1/2 160.00
      E1/2 320.00
         
26 North


26 West


19
(Part in
Flathead County)
 Lot 1


37.66


      Lot 2 37.72
      Lot 3 37.80
      Lot 4 37.86
      E1/2W1/2 160.00
      S1/2NE1/4 80.00
      SE1/4 160.00
         
    31 Lot 1 38.05
      Lot 2 38.14
      Lot 3 38.24
      Lot 4 38.33
      E1/2W1/2 160.00
      E1/2 320.00
         
             

 27 

 

 

Township Range Section Description Acres
         
24 North 26 West 5 Lot 1 47.02
      Lot 2 46.58
         
      Lot 4 45.70
      S1/2 320.00
         
    7 Lot 1 35.91
      Lot 2 36.23
      Lot 3 36.53
      Lot 4 36.85
      E1/2W1/2 60.00
      E1/2 320.00
         
    9 W1/2NW1/4 80.00
      SW1/4 160.00
         
    17 All 640.00
         
    18 Lot 2 37.44
      S1/2NE1/4 80.00
         
    19  Lot 1 38.27
      Lot 2 38.47
      Lot 3 38.65
      Lot 4 38.85
      E1/2W1/2 160.00
      E1/2 320.00
         
    20 NW1/4SE1/4 40.00
         
         
24 North 26 West 29 All 640.00
         
    31 Lot 1 38.48
      Lot 2 38.36
      Lot 3 38.24
      Lot 4 38.12
      E1/2W1/2 160.00
      E1/2 320.00
         
    32 SE1/4 160.00

 28 

 

Township Range Section Description Acres
         
    33 NW1/4 160.00
      N1/2NE1/4 80.00
         

 

 29 

 

Exhibit D

 

5.0% CONVERTIBLE PROMISSORY NOTE

 

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (“THE ACT”), NOR UNDER APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.

 

ISSUE DATE: [January 11], 2019

 

This 5.0% Convertible Promissory Note (the “Note”) is issued pursuant to that certain Purchase and Sale Agreement dated January 8, 2019 (the “PSA”) between Solitario Zinc Corp., a Colorado corporation (the “Holder”), and SilverStream SEZC, a Cayman Island company (the “Company”). Reference is made to the PSA for certain provisions specified therein, the definition of capitalized terms not otherwise defined herein, and for all other pertinent purposes.

 

1.       PROMISE TO PAY

 

1.1       Promise to Pay - FOR VALUE RECEIVED, the Company, promises to pay to the order of Holder, on the Maturity Date the principal amount of Cdn$350,000 (the “Principal Sum”). Simple interest at a rate of 5.0% per annum, based on a 365-day year and actual days lapsed, on the Principal Sum will be payable quarterly, in arrears, on the 15th of the month immediately following the end of each quarter, with the first payment commencing April 15th, 2019, for the partial quarter ended March 31, 2019.

 

1.2               Maturity Date - The Maturity Date of this Note is December 31, 2019. The Company shall pay any unpaid Principal Sum outstanding to the Holder in lawful Canadian funds on the Maturity Date, and any accrued but unpaid interest, at the address of the Holder provided in the PSA or such other address as the Holder designates by written notice to the Company at least one week prior to the Maturity Date.

 

1.3               Events of Default - The whole of the Principal Sum or the balance remaining unpaid, together with any accrued and unpaid interest may, at the option of the Holder, become immediately due and payable upon the occurrence of any of the following events (each being an “Event of Default”):

 

a)the Company defaults in payment of the Principal Sum on the Maturity Date and the default continues for 30 days after written notice of the default to the Company by Holder.

 

b)the Company defaults in payment of accrued interest for 90 days and the default continues for 60 days after written notice of the 90-day default.

 

c)the Company makes an assignment for the benefit of creditors; a receiver or agent is appointed in respect of the Company under bankruptcy or insolvency legislation or by or on behalf of a secured creditor of the Company; or an application is made under the United States Bankruptcy Code or any successor or similar legislation.

 

 30 

 

d)the Company ceases to carry on its business or disposes of substantially all of its assets.

e)the Company takes any corporate action or proceeding for its dissolution or liquidation.

 

f)the Company attempts to, or successfully does, sell, assign, or otherwise transfer the Royalties unless such sale, assignment or transfer is the result of a reverse merger or similar transaction whereby the surviving entity remains obligated under this Note.

 

1.4               Remedies for an Event of Default - Upon the occurrence of an Event of Default, the Holder may: (i) proceed against the Company (or if the Company has been party to a reverse takeover or similar transaction, its parent company) for payment in cash of the Principal Sum outstanding and any accrued but unpaid interest; or (ii) the Company (or if the Company has been party to a reverse takeover or similar transaction, its parent company) will reconvey the Royalties purchased under the PSA.

 

2.       CONVERSION

 

2.1       Mandatory Conversion – The Principal Sum of this Note, together with any unpaid interest thereon, shall automatically convert into shares of the Company’s Common Stock at the Conversion Price (defined below) upon 10 days written notice (the “Conversion Date”) to the Holder (“Mandatory Conversion Notice”) in the event: (i) there exists on the date of the Mandatory Conversion Notice a public trading market for the Company Common Stock and such shares are listed for quotation on the CSE, TSX, TSX-V, or any similar stock exchange; and (ii) an aggregate of Cdn$5.0 million in funds has been received by the Company from a public offering, or in funds received by the Company prior to a public offering, or in funds available to the Company as a result of any reverse take-over transaction.

 

a)Company Common Stock is defined as shares of the Company, or if the Company has been a party to a reverse takeover or similar transaction, its parent company, in either case where such shares are listed for quotation on the Canadian Stock Exchange, TSX-Venture Exchange, Toronto Stock Exchange, or any similar stock exchange.

 

b)Conversion Price is defined as 85% of the average of the closing sales price of the Company’s Common Stock for 10 consecutive trading days immediately preceding the date of the Mandatory Conversion Notice.

 

2.2        Shares Issued Upon a Conversion. The shares of Company Common Stock issued upon a conversion will be recorded on the books and records of the issuer as of the Conversion Date in the name of the Holder, and will rank pari passu with the issued and fully paid shares of the Company Common Stock outstanding on the Conversion Date, and the Holder will accordingly be entitled to any dividends or other distributions declared, made or paid on or after such Conversion Date. If the number of shares to be issued to Holder on conversion of this Note is not a whole number, then the number of shares shall be rounded up to the nearest whole number.

 

2.3       Payment Obligation Ceases. The obligation of the Company to repay the Principal Sum of the Note and pay interest on the Note or any portion thereof, as applicable, shall cease on the Conversion Date.

2.4       Available Shares of Common Stock. The Company (or if the Company is party to a reverse takeover or similar type of transaction, its parent company) will, at all times, ensure that there are sufficient shares of Common Stock available for issuance upon conversion while this Note is outstanding.

 31 

 

3.       GENERAL

 

3.1       Notice and Other Instruments - Any notice, demand or other communication required or permitted to be given to a party must be in writing and must be sent as set forth in the PSA.

 

3.2       Headings - Headings to the sections, paragraphs, subparagraphs and clauses of this Note have been inserted for convenience of reference only, and are not to affect its construction.

 

3.3       Governing Law - This Note and the rights, remedies, powers, covenants, duties and obligations of the parties will be construed in accordance with and governed by the laws of the Cayman Islands.

 

3.4       Severability - If any provision of this Note is or becomes invalid, illegal or unenforceable in any respect, that fact will not affect the validity, legality or enforceability of the remaining provisions of this Note or any valid, legal or enforceable parts of the impugned provision.

 

3.5       Binding on Successors – This Note will inure to the benefit of and be binding upon each of the parties and their respective heirs, executors, administrators, successors and permitted assigns.

 

3.6       Amendment and Waiver – This Note may not be amended, waived, discharged or terminated except by a document executed by the party against whom enforcement of the amendment, waiver, discharge or termination is sought.

 

3.7        Compliance with Securities Laws. Holder acknowledges that this Note is being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder shall not offer, sell or otherwise dispose of this Note except in accordance with applicable law.

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name as of the date first set forth above.

 

SILVERSTREAM SEZC

 

 

By:/s/ Kyle Floyd                              

Kyle Floyd, Chief Executive Officer

 

 

 

 

 32 

 

Exhibit E

 

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this “Agreement”) is made as of [January 11], 2019, by and among SilverStream SEZC, a Cayman Island company (“Purchaser”), Solitario Zinc Corp., a Colorado corporation (the “Seller”) and Burns, Figa & Will, P.C. (“Escrow Agent”).

RECITALS

WHEREAS, pursuant to the Purchase and Sale Agreement dated January 8, 2019 (“Purchase Agreement”) between Purchaser and Seller, the parties thereto have agreed to place certain funds (the “Escrow Funds”), a Promissory Note (the “Note”), and certain other documents described in Sections 5.3, 5.4 and 5.5 of the Purchase Agreement (the “Release Documents”), in an escrow account with the Escrow Agent.

WHEREAS, the Escrow Funds, the original executed Note and the Release Documents are to be delivered to the Escrow Agent upon the closing of the Purchase Agreement in accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties agree as follows:

ARTICLE 1
TERMS OF THE ESCROW

 

1.1.            The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the Escrow Funds, the Note, and the Release Documents.

1.2.            Purchaser will cause the Escrow Funds to be wired to the Escrow Agent at the closing of the Purchase Agreement into the following escrow account:

Colorado Business Bank

821 17th Street

Denver, Colorado 80202

ABA Routing Number: 102003206

Account Name: Burns, Figa & Will, P.C. COLTAF Trust Account

Account Number: 3532410

 

Purchaser will cause the Note and the Release Documents to be delivered to Escrow Agent by overnight carrier, signature required, at:

 

Burns, Figa & Will P.C.

Attn: Theresa M. Mehringer, Esq.

6400 S. Fiddlers Green Circle, Suite 1000

Greenwood Village, Colorado 80111

 33 

 

1.3.            This Agreement begins on the date first set forth above and terminates on the date all Escrow Funds, the Note, and the Release Documents have been released by the Escrow Agent (the “Termination Date”).

1.4.            The Escrow Funds and the Note will be delivered to Seller as indicated by a joint written statement provided to the Escrow Agent and executed by Purchaser and Seller. The Release Documents will be delivered to the Purchaser as indicated by a joint written statement provided to the Escrow Agent and executed by Purchaser and Seller. All parties acknowledge that no interest will be paid on the Escrow Funds. Notwithstanding anything to the contrary set forth in this Agreement, and notwithstanding Escrow Agent’s role as counsel for Purchaser, Escrow Agent shall not release the Escrow Funds and the Note to Seller or release the Release Documents to Purchaser unless and until Escrow Agent received such joint written instructions.

ARTICLE II

MISCELLANEOUS

2.1               No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act.

2.2               All notices or other communications required or permitted hereunder shall be in writing, and shall be sent to the addresses set forth herein or in the Purchase Agreement.

2.3               This Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto.

2.4               This Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein.

2.5               Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine. This Escrow Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if all parties had prepared the same.

2.6               The parties hereto expressly agree that this Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of Colorado. Any action to enforce, arising out of, or relating in any way to, any provisions of this Agreement shall only be brought in a state or federal court sitting in Denver, Colorado.

2.7               The Escrow Agent’s duties hereunder may be altered, amended, modified or revoked only by a writing signed by Purchaser, Seller and the Escrow Agent.

2.8               The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith and in the absence of gross negligence, fraud and willful misconduct, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent’s attorneys shall be conclusive evidence of such good faith, in the absence of gross negligence, fraud and willful misconduct.

 34 

 

2.9               The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. The Escrow Agent will provide each party with prompt notice of and a copy of each and all such warnings, orders, judgments, and decrees. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

2.10           The Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or purporting to execute or deliver the Purchase Agreement or any documents or papers deposited or called for thereunder in the absence of gross negligence, fraud and willful misconduct.

2.11           The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary or proper to advise the Escrow Agent in connection with the Escrow Agent’s duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation.

2.12           The Escrow Agent has acted as legal counsel for Purchaser, and may continue to act as legal counsel for Purchaser from time to time, notwithstanding its duties as the Escrow Agent hereunder. By executing this Agreement, and having had the opportunity to discuss with independent counsel this Agreement and any potential conflicts of interest resulting from this Agreement, Purchaser and Seller waive any conflict of interest between Purchaser and the Escrow Agent in its capacity as counsel to the Purchaser. This Agreement constitutes a business transaction between Purchaser, Seller and the Escrow Agent. The Escrow Agent has advised Seller to obtain independent legal advice with respect hereto. The Escrow Agent further notes that it has certain rights, duties and protections under this Agreement that may not be consistent with its duties to Seller as counsel to Seller, and Seller understands and accepts such rights, duties and protections in accordance with the terms of this Agreement for the purposes hereof.

2.13           The Escrow Agent’s responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by giving written notice to Purchaser and Seller. In the event of any such resignation, Purchaser and Seller shall appoint a successor escrow agent and the Escrow Agent shall deliver to such successor escrow agent any Escrow Funds, the Note, and the Release Documents held by the Escrow Agent.

2.14           If the Escrow Agent reasonably requires other or further instruments in connection with this Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

2.15           It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the Escrow Funds, the Note or the Release Documents held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent’s sole discretion (1) to retain in the Escrow Agent’s possession without liability to anyone all or any part of said Escrow Funds, the Note, and the Release Documents until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the Escrow Funds, the Note, and the Release Documents held by the Escrow Agent hereunder to a state court having competent subject matter jurisdiction and located in the Denver, Colorado metropolitan area, in accordance with the applicable procedure therefore.

 35 

 

2.16           Each of Purchaser and Seller, jointly and severally, agree to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated hereby other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence, fraud or willful misconduct of the Escrow Agent.

 

[SIGNATURE PAGE FOLLOWS]

 36 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of date first written above.

SILVERSSTREAM SEZC                                            SOLITARIO ZINC CORP.

 

By: /s/ Kyle Floyd                                                        By:/s/ Christopher Herald                   

Kyle Floyd, President & CEO                                      Christopher Herald, President & CEO

 

BURNS, FIGA & WILL P.C.

 

By:/s/ Theresa M. Mehringer                

Theresa M. Mehringer, Treasurer

 

 

 

 

 

Exhibit 31.1

CERTIFICATIONS

I, Christopher E. Herald, certify that:

 

1.          I have reviewed this quarterly report on Form 10-Q of Solitario Zinc Corp. for the three months ended March 31, 2019;

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.          The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and we have:

 

               a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

               b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

               c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

               d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.          The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

               (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

               (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 7, 2019

By: /s/ Christopher E. Herald
Christopher E. Herald
President and Chief Executive Officer

 

Exhibit 31.2

CERTIFICATIONS

I, James R. Maronick, certify that:

 

1.          I have reviewed this quarterly report on Form 10-Q of Solitario Zinc Corp. for the three months ended March 31, 2019;

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.          The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and we have:

 

               a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

               b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

               c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

               d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.          The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

               (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

               (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: May 7, 2019
By: /s/ James R. Maronick
James R. Maronick
Chief Financial Officer

 

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Solitario Zinc Corp. (the "Company") on Form 10-Q for the period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Christopher E. Herald, Chief Executive Officer, and James R. Maronick, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

 

          (1)          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

 

          (2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

   
   
/s/Christopher E. Herald                          /s/James R. Maronick                             
Christopher E. Herald James R. Maronick
Chief Executive Officer Chief Financial Officer

 

Dated: May 7, 2019

 

v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 06, 2019
Document And Entity Information    
Entity Registrant Name SOLITARIO ZINC CORP.  
Entity Central Index Key 0000917225  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity's Reporting Status Current? Yes  
Is Entity Emerging Growth Company? false  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Common Stock, Shares Outstanding   58,142,866
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 538 $ 117
Short-term investments 9,595 10,223
Investments in marketable equity securities, at fair value 1,259 1,585
Prepaid expenses and other 436 211
Total current assets 11,828 12,136
Mineral properties 15,617 15,657
Other assets 176 110
Total assets 27,621 27,903
Current liabilities:    
Accounts payable 692 688
Operating lease liability 38
Total current liabilities 730 688
Long-term liabilities    
Asset retirement obligation – Lik 125 125
Operating lease liability 82
Total long-term liabilities 163 125
Shareholders’ equity:    
Preferred stock, $0.01 par value, authorized 10,000,000 shares (none issued and outstanding at March 31, 2019 and December 31, 2018)
Common stock, $0.01 par value, authorized 100,000,000 shares (58,143,566 and 58,171,466 shares, respectively, issued and outstanding at March 31, 2019 and December 31, 2018) 582 582
Additional paid-in capital 69,952 69,873
Accumulated deficit (43,806) (43,365)
Total shareholders’ equity 26,728 27,090
Total liabilities and shareholders’ equity $ 27,621 $ 27,903
v3.19.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Preferred stock    
Preferred stock, par value $ .01 $ .01
Preferred stock, shares authorized 10,000,000 10,000,000
Common stock    
Common stock, par value $ .01 $ .01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 58,143,566 58,171,466
Common stock, shares outstanding 58,143,566 58,171,466
v3.19.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Revenue, net – mineral property sale $ 408
Costs, expenses and other:    
Exploration expense 163 180
Depreciation 7 6
General and administrative 425 403
Total costs, expenses and other 595 589
Interest income (net) 72 26
Unrealized (loss) on marketable equity securities (326) (441)
Total other loss (254) (415)
Net loss $ (441) $ (1,004)
Basic and diluted $ (0.01) $ (0.02)
Weighted average shares outstanding:    
Basic and diluted 58,158 58,444
v3.19.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating activities:    
Net loss $ (441) $ (1,004)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 7 6
Non-cash office lease expense 10
Unrealized loss of marketable equity securities 326 441
Employee stock option expense 88 10
Changes in operating assets and liabilities:    
Prepaid expenses and other assets 64 32
Note receivable, net of mineral property sold (223)
Accounts payable and other current liabilities (3) 24
Net cash used in operating activities (172) (491)
Investing activities:    
Sale of short-term investments, net 602 408
Purchase of other assets (8)
Net cash provided by investing activities 602 400
Financing activities:    
Purchase of common stock for cancellation (9) (26)
Net cash used in financing activities (9) (26)
Net increase (decrease) in cash and cash equivalents 421 (117)
Cash and cash equivalents, beginning of period 117 214
Cash and cash equivalents, end of period $ 538 $ 97
v3.19.1
Business and Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Business and Significant Accounting Policies

1.       Business and Significant Accounting Policies

 

Business and company formation

 

Solitario Zinc Corp. (“Solitario,” or the “Company”) is an exploration stage company as defined in Industry Guide 7, as issued by the United States Securities and Exchange Commission (“SEC”). Solitario was incorporated in the state of Colorado on November 15, 1984 as a wholly-owned subsidiary of Crown Resources Corporation ("Crown"). In July 1994, Solitario became a publicly traded company on the Toronto Stock Exchange (the "TSX") through its initial public offering. Solitario has been actively involved in mineral exploration since 1993. Solitario’s primary business is to acquire exploration mineral properties or royalties and/or discover economic deposits on its mineral properties and advance these deposits, either on its own or through joint ventures, up to the development stage. At that point, or sometime prior to that point, Solitario would likely attempt to sell its mineral properties, pursue their development either on its own, or through a joint venture with a partner that has expertise in mining operations, or create a royalty with a third party that continues to advance the property. Solitario is primarily focused on the acquisition and exploration of zinc-related exploration mineral properties, however Solitario will evaluate and acquire other base and precious metal mineral exploration properties. In addition to focusing on its mineral exploration properties and the evaluation of mineral properties for acquisition, Solitario also evaluates potential strategic transactions for the acquisition of new precious and base metal properties and assets with exploration potential or business combinations that Solitario determines to be favorable to Solitario.

 

Solitario has recorded revenue in the past from the sale of mineral property, including the sale of certain mineral royalty properties in January 2019, discussed below, the sale in June 2018 of its interest in the royalty on the Yanacocha property. In addition, Solitario has received proceeds from the sale in 2015 of its former interest in Mount Hamilton LLC (“MH-LLC”) the owner of its former Mt. Hamilton project, and joint venture property payments and the sale of a royalty on its former Mt. Hamilton project. Revenues and / or proceeds from the sale or joint venture of properties or assets, although significant when they occur, have not been a consistent annual source of cash and would only occur in the future, if at all, on an infrequent basis.

 

Solitario currently considers its carried interest in the Florida Canyon project and its interest in the Lik project to be its core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, is expected to continue the exploration and furtherance of the Florida Canyon project and Solitario is monitoring progress at Florida Canyon. Solitario is working with its 50% joint venture partner, Teck American Incorporated, a wholly-owned subsidiary of Teck Resources Limited (both companies are referred to as “Teck”), in the Lik deposit to further the exploration and evaluate potential development plans for the Lik project.

 

As of March 31, 2019, Solitario has significant balances of cash and short-term investments that Solitario anticipates using, in part, to further the exploration of the Florida Canyon and Lik projects and to 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 early-stage and advanced mineral exploration projects or other related assets at potentially attractive terms.

 

The accompanying interim condensed consolidated financial statements of Solitario for the three months ended March 31, 2019 are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). They do not include all disclosures required by generally accepted accounting principles for annual financial statements, but in the opinion of management, include all adjustments, consisting only of normal recurring items, necessary for a fair presentation. Interim results are not necessarily indicative of results, which may be achieved in the future or for the full year ending December 31, 2019.

 

These financial statements should be read in conjunction with the financial statements and notes thereto which are included in Solitario’s Annual Report on Form 10-K for the year ended December 31, 2018. The accounting policies set forth in those annual financial statements are the same as the accounting policies utilized in the preparation of these financial statements, except as modified for appropriate interim financial statement presentation.

 

Recent Developments

 

Royalty sale

 

On January 22, 2019, Solitario completed the sale of its interest in certain royalties to SilverStream SEZC (“SilverStream”), a private Cayman Island royalty and streaming company for Cdn$600,000 (the “Royalty Sale”). The Royalty Sale covered (i) a royalty on the formerly Solitario-owned 125,000-acre polymetallic Pedra Branca palladium, platinum, gold, nickel, cobalt and chrome project in Brazil, (ii) a royalty covering 3,880-acres of non-producing exploration properties in Mexico, and (iii) a purchase option on 11 separate non-producing properties covering over 16,500 acres in Montana. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and a convertible note from SilverStream for Cdn$350,000 (the “SilverStream Note”). The SilverStream Note is due December 31, 2019, pays 5% per annum simple interest quarterly, and is convertible into common shares of SilverStream, at the discretion of SilverStream, by providing Solitario a notice of conversion. SilverStream may only provide a notice of conversion if SilverStream has completed an initial public offering during the term of the SilverStream Note for minimum proceeds of Cdn$5,000,000. Per the terms of the SilverStream Note, if converted, Solitario would receive common shares converted at 85% of the weighted average quoted price of a share of SilverStream common stock for the most recent 10-day period prior to the notice of conversion. During the three months ended March 31, 2019, Solitario recorded mineral property revenue of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties sold of $40,000. As of March 31, 2019, the approximate fair value of the SilverStream Note was $262,000, based upon the current US Dollar / Canadian Dollar exchange rate, and Solitario recorded a charge to exchange gain and loss of $1,000, included in general and administrative expense during the three months ended March 31, 2019.

 

Financial reporting

 

The consolidated financial statements include the accounts of Solitario and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are prepared in accordance with generally accepted accounting principles and are expressed in U.S. dollars.

 

Revenue recognition

 

Solitario has recorded revenue from the sale of exploration mineral properties and joint venture property payments. Solitario’s policy is to recognize revenue from the sale of its exploration mineral properties (those without reserves) on a property by property basis, computed as the cash received and / or collectable receivables less any capitalized cost. Payments received for the sale of exploration property interests that are less than the properties cost are recorded as a reduction of the related property's capitalized cost. In addition, Solitario’s policy is to recognize revenue on any receipts of joint venture property payments in excess of its capitalized costs on a property that Solitario may lease to another mining company.

 

Solitario has recognized revenue during the three months ended March 31, 2019 of $408,000 related to the Royalty Sale, discussed above in accordance with Accounting Standards Codification (“ASC”) 606. In addition, Solitario recorded revenue during the second quarter of 2018 for the first time in more than five years of $502,000 from the sale of its Yanacocha exploration mineral property. Solitario expects any property sales in the future to also be on an infrequent basis. Prior to the sale of its Yanacocha exploration mineral property, the last proceeds from joint venture property payments was in 2015 and Solitario does not expect to record joint venture property payments on any of its currently held properties for the foreseeable future. Historically, Solitario’s revenues have been infrequent and significant individual transactions and have only been from sales to well known or vetted mining companies. Solitario has never had a return on any of its sales recorded as revenue in its history and does not anticipate it will recognize any estimated returns on its current or future recorded revenues.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Some of the more significant estimates included in the preparation of Solitario's financial statements pertain to: (i) Solitario’s carrying value of short-term investments; (ii) the recoverability of mineral properties related to its mineral exploration properties and their future exploration potential; (iii) the fair value of stock option grants to employees, to officers and directors and to others; (iv) the ability of Solitario to realize its deferred tax assets; and (v) Solitario's investment in marketable equity securities.

 

In performing its activities, Solitario has incurred certain costs for mineral properties. The recovery of these costs is ultimately dependent upon the sale of mineral property interests or the development of economically recoverable ore reserves and the ability of Solitario to obtain the necessary permits and financing to successfully place the properties into production, and upon future profitable operations, none of which is assured.

 

Cash equivalents

 

Cash equivalents include investments in highly liquid money-market securities with original maturities of three months or less when purchased. As of March 31, 2019, $516,000 of Solitario’s cash and cash equivalents are held in brokerage accounts and foreign banks, which are not covered under the Federal Deposit Insurance Corporation (“FDIC”) rules for the United States.

 

Short-term investments

 

As of March 31, 2019, Solitario has $9,277,000 of its current assets in United States Treasury Securities (“USTS”) with maturities of 15 days to 20 months. The USTS are recorded at their fair value, based upon quoted market prices and are not covered under the FDIC insurance rules for United States deposits. Solitario’s USTS are highly liquid and may be sold in their entirety at any time at their quoted market price and are classified as a current asset.

 

Mineral properties

          

Solitario expenses all exploration costs incurred on its mineral properties prior to the establishment of proven and probable reserves through the completion of a feasibility study. Initial acquisition costs of its mineral properties are capitalized. Solitario regularly performs evaluations of its investment in mineral properties to assess the recoverability and/or the residual value of its 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 established guidelines based upon undiscounted future net cash flows from the asset or upon the determination that certain exploration properties do not have sufficient potential for economic mineralization.

 

Leases

 

Solitario accounts for its leases in accordance with ASC 842, Leases (“ASC 842”) by recognizing right-of-use assets and lease liabilities on the condensed consolidated balance sheet and disclosing key information about lease arrangements. Solitario has elected the practical expedient option to use January 1, 2019, the effective date of adoption of ASC 842, as the initial date of transition and not to restate comparative prior periods and to carry forward historical lease classification. In addition, Solitario has elected the option not to apply the recognition of assets and liabilities provisions of ASC 842 to operating leases of less than one year. See Note 4 “Operating Leases” for more information and disclosures regarding Solitario’s leases.

 

Derivative instruments

 

Solitario accounts for its derivative instruments in accordance ASC 815. Solitario has entered into covered calls from time to time on its investment in Kinross Gold Corporation (“Kinross”) marketable equity securities. Solitario has not designated its covered calls as hedging instruments and any changes in the fair value of the covered calls are recognized in the statement of operations in the period of the change as gain or loss on derivative instruments.

 

Fair value

 

ASC 820 established a framework for measuring fair value of financial instruments and required disclosures about fair value measurements. For certain of Solitario's financial instruments, including cash and cash equivalents and accounts payable, the carrying amounts approximate fair value due to their short-term maturities. Solitario's short-term investments in USTS and CDs, its marketable equity securities and any covered call options against those marketable equity securities are carried at their estimated fair value based on quoted market prices. See Note 6, “Fair Value,” below.

 

Marketable equity securities

 

Solitario's investments in marketable equity securities are carried at fair value, which is based upon quoted prices of the securities owned. Solitario records investments in marketable equity securities for investments in publicly traded marketable equity securities for which it does not exercise significant control and where Solitario has no representation on the board of directors of those companies and exercises no control over the management of those companies. The cost of marketable equity securities sold is determined by the specific identification method. Changes in fair value are recorded as unrealized gain or loss in the statement of operations.

 

Foreign exchange

 

The United States dollar is the functional currency for all of Solitario's foreign subsidiaries. Although Solitario's South American exploration activities during 2018 and the first quarter of 2019 have been conducted primarily in Peru, a portion of the payments under the land, leasehold and exploration agreements of Solitario are denominated in United States dollars. Realized foreign currency gains and losses are included in the results of operations in the period in which they occur.

 

Income taxes

 

Solitario accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”). Under ASC 740, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses and tax credits that are available to offset future taxable income and income taxes, respectively. A valuation allowance is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

Accounting for uncertainty in income taxes

 

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 provides that a company's tax position will be considered settled if the taxing authority has completed its examination, the company does not plan to appeal, and it is remote that the taxing authority would reexamine the tax position in the future.

 

Earnings per share

 

The calculation of basic and diluted earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the three months ended March 31, 2019 and 2018. Potentially dilutive shares related to outstanding common stock options of 4,373,000 and 2,082,428, respectively, for Solitario common shares for the three months ended March 31, 2019 and 2018 were excluded from the calculation of diluted earnings (loss) per share because the effects were anti-dilutive.

 

Employee stock compensation and incentive plans

 

Solitario classifies all of its stock options as equity options in accordance with the provisions of ASC 718, “Compensation – Stock Compensation.”

 

Recent accounting pronouncements

 

On January 1, 2019, Solitario adopted Accounting Standards Update No. 2016-02 Leases (“ASU 2016-02”) which requires the application of ASC 842 and the recognition of right-of-use assets and related liabilities associated with all leases that are not short-term in nature. As a result of the adoption of ASU 2016-02 on January 1, 2019, Solitario recorded both an operating lease asset for our Wheat Ridge Colorado office of $82,000 and an operating lease liability of $82,000 related to the same lease. The adoption of ASU 2016-02 did not require the recording of any other assets or liabilities on our condensed consolidated balance sheets and had an immaterial effect on Solitario’s condensed consolidated statement of operations and its condensed consolidated statement of cash flows for the three months ended March 31, 2019. Solitario has elected the practical expedient option to use January 1, 2019, the effective date of adoption, as the initial date of transition and not to restate comparative prior periods and to carry forward historical lease classification. See Note 4 “Operating Leases” for more information and disclosures regarding Solitario’s leases.

v3.19.1
Mineral Property
3 Months Ended
Mar. 31, 2019
Extractive Industries [Abstract]  
Mineral Property

2.        Mineral Property

 

The following table details Solitario’s investment in Mineral Property:

(in thousands) March 31, December 31,
  2019 2018
Exploration    
   Lik project (Alaska – US) $15,611  $15,611 
   La Promesa (Peru)
   Montana Royalty property (US) -   40 
     Total exploration mineral property   $15,617    $15,657 
       

 

All exploration costs on our exploration properties, none of which have proven and probable reserves, including any additional costs incurred for subsequent lease payments or exploration activities related to our projects are expensed as incurred.

 

Royalty sale

 

On January 22, 2019, Solitario completed the Royalty Sale, discussed above under “Recent Developments” to SilverStream for Cdn$600,000. On closing of the Royalty Sale, Solitario received Cdn$250,000 in cash and the SilverStream Note for Cdn$350,000, with a maturity date of December 31 2019. During the three months ended March 31, 2019, Solitario recorded mineral property revenue of $408,000 for the Royalty Sale, consisting of the fair value of the cash received on the date of the sale of $185,000 and the fair value of the SilverStream Note on the date of the sale of $263,000 less the carrying value of the royalties sold of $40,000.

 

Exploration expense

 

The following items comprised exploration expense:

 

(in thousands) Three months ended
 March 31,
  2019 2018
Geologic and field expenses $147  $24 
Administrative 16  156 
Total exploration costs $ 163  $ 180 

 

Asset Retirement Obligation

 

In connection with the acquisition of the Lik project in 2017, Solitario recorded an asset retirement obligation of $125,000 for Solitario’s estimated reclamation cost of the existing disturbance at the Lik project. This disturbance consists of an exploration camp including certain drill sites and access roads at the camp. The estimate was based upon estimated cash costs for reclamation as determined by the permitting bond required by the State of Alaska, for which Solitario has purchased a reclamation bond insurance policy in the event Solitario or its 50% partner, Teck, do not complete required reclamation.

 

Solitario has not applied a discount rate to the recorded asset retirement obligation as the estimated time frame for reclamation is not currently known, as reclamation is not expected to occur until the end of the Lik project life, which would follow future development and operations, the start of which cannot be estimated or assured at this time. Additionally, no depreciation will be recorded on the related asset for the asset retirement obligation until the Lik project goes into operation, which cannot be assured.

v3.19.1
Marketable Equity Securities
3 Months Ended
Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Marketable Equity Securities

3.        Marketable Equity Securities

 

Solitario's investments in marketable equity securities are carried at fair value, which is based upon quoted prices of the securities owned. The cost of marketable equity securities sold is determined by the specific identification method. Changes in market value are recorded in the condensed consolidated statement of operations. During the three months ended March 31, 2019, Solitario recorded an unrealized loss on marketable equity securities of $326,000. During the three months ended March 31, 2018, Solitario recorded an unrealized loss on marketable equity securities of $441,000.

 

The following tables summarize Solitario’s marketable equity securities and adjustments to fair value:

(in thousands)

    March 31,

2019

 December 31,

2018

  Marketable equity securities at cost $1,714  $1,714 
  Cumulative unrealized loss on marketable equity securities (455)    (129)
  Marketable equity securities at fair value $1,259  $1,585 

         

The following table represents changes, including sales, in marketable equity securities during the three months ended March 31, 2019 and 2018:

 

(in thousands) Three months ended
March 31,
  2019 2018
Gross (loss) recorded in the statement of operations $(326) $(441)
Change in marketable equity securities at fair value $(326) $(441)

 

Solitario did not sell any marketable equity securities during the three months ended March 31, 2019 or 2018 and the change in the fair value of marketable equity securities was related entirely to the unrealized loss on marketable equity securities related to their fair values based upon quoted market prices for the marketable equity securities held by Solitario during the periods.

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases

4.        Leases

 

Solitario adopted ASU 2016-02 effective January 1, 2019 and accounts for its leases in accordance with ASC 842. Solitario leases one facility, its Wheat Ridge, Colorado office (the “WR Lease”), that has a term of more than one year. Solitario has no other material operating lease costs. The WR Lease is classified as an operating lease and has a term of 23 months at March 31, 2019, with no renewal option. At March 31, 2019, the right-of-use office lease asset for the WR Lease is classified as other assets and the related liability separated between current and non-current office lease liabilities in the condensed consolidated balance sheet. Lease expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. During the three months ended March 31, 2019, Solitario recognized $10,000 of non-cash lease expense for the WR Lease included in general and administrative expense. Cash lease payments of $7,000 were made on the WR Lease during the three months ended March 31, 2019 and this amount, less $1,000 of imputed interest, reduced the related liability on the WR Lease. The discount rate within the WR Lease is not determinable and Solitario has applied a discount rate of 5% based upon Solitario’s estimate of its cost of capital.

 

The maturities of Solitario’s lease liability for its WR Lease are as follows at March 31, 2019:

 

(in thousands)
 
2019   $   31 
2020 42 
2021   7 
Total lease payments 80 
  Less amount of payments representing interest (4)
Present value of lease payments $  76 

 

Supplemental cash flow information related to our operating lease was as follows for the period ended March 31, 2019:

 

(in thousands) Three months ended March 31,
  2019
Cash paid for amounts included in the measurement of lease liabilities  
   Operating cash outflows from WR Lease payments $ 7 
Non-cash amounts related to the WR lease  
   Leased assets recorded in exchange for new operating lease liabilities $82