SOLITARIO RESOURCES CORP. 10-K

Item 1. Business   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 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 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 of the project. 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 has never developed a property. Solitario’s primary focus is on the acquisition and exploration of zinc-related exploration mineral properties. However, Solitario evaluates and will potentially acquire other base and precious metal properties and assets. In addition to focusing on its mineral exploration properties and the evaluation of mineral properties for acquisition, Solitario also evaluates potential strategic transactions as a means to acquire an interest in new precious and base metal properties and assets with exploration potential or other potential corporate transactions that Solitario determines to be favorable to Solitario.   Solitario has recorded revenue from the sale of mineral properties and assets, including the sale of certain mineral royalties in January of 2019 (discussed below) and the sale in April of 2018 of its interest in the royalty on the Yanacocha property. Revenues from the sale or joint venture of properties or assets, although significant when they occur, have not been a consistent annual source of revenue 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 in Peru and its interest in the Lik project in Alaska to be its core mineral property assets. Nexa Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, completed a 39-hole 17,033-meter drilling program at Florida Canyon during 2019 (discussed below). Solitario is working with its 50% joint venture partner, Teck American Inc., a wholly-owned subsidiary of Teck Resources Limited (both companies are referred to in this Annual Report as “Teck”) and completed a limited exploration program at the Lik project during 2019 consisting of mapping, geophysical work, relogging of prior drilling core and environmental evaluation.   As of December 31, 2020, Solitario has significant balances of cash and short-term investments that Solitario anticipates using, in part, to further the development 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.   Risks and Uncertainties   Solitario faces risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt its operations and may materially and adversely affect its business and financial conditions.   Solitario’s business could be adversely impacted by the effects of the coronavirus (“COVID-19”) or other epidemics or pandemics. Solitario has recommended all of its employees and contractors follow government guidelines for health and safety policies for employees and contractors, including encouraging tele-commuting and working from home where possible. Solitario has evaluated the effects of COVID-19 on its operations and taken pro-active steps to address the impacts on its operations, including reducing costs, in response to the economic uncertainty associated with potential risks from COVID-19. These reductions included implementing salary reductions and evaluation and reduction of 2020 exploration programs through its joint venture partners at the Florida Canyon and Lik exploration projects. Solitario’s 2021 tentative exploration programs include provisions for the implementation of safeguards and protocols which follow mandates and recommendations of appropriate government authorities where we work. Also, Solitario has evaluated the potential impacts on its ability to access future traditional funding sources on the same or reasonably similar terms as in past periods. Solitario will continue to monitor the effects of COVID-19 on its operations, financial condition and liquidity. However, the extent to which COVID-19 impacts Solitario’s business, including our exploration and other activities and the market for our securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the COVID-19 outbreak and the actions taken to contain or treat the outbreak.     3       Corporate Structure   Solitario Zinc Corp. [Colorado] - Zazu Metals Corporation. [Canada] (100%)   - Zazu Metals (AK) Corp. [Alaska] (100%)     - Lik Project (50%) - Minera Chambara, S.A. [Peru] (85%)   - Chambara Project - Minera Solitario Peru, S.A. [Peru] (100%) - Minera Bongará, S.A. [Peru] (39%)   - Florida Canyon Project - Minera Soloco, S.A. [Peru] (100%)   Mineral Exploration Properties   We hold a 50% operating interest in the Lik zinc-lead-silver property in northwest Alaska, which is estimated to contain a large tonnage, high-grade deposit potentially mineable by open-pit methods. Teck is a 50% partner with Solitario in the Lik deposit, with Teck acting as the project manager for 2020. A Preliminary Economic Assessment (“PEA”) was completed on the Lik deposit in 2014.   Solitario also has a 39% interest in the advanced, high-grade, Florida Canyon zinc project located in northern Peru. The project has a significant mineral resource and Solitario is fully carried to production by its joint venture partner Nexa, formerly Votorantim Metais Holdings, SA (“Votorantim”) and Compañía Minera Milpo S.A.A. (“Milpo”). Solitario and Nexa completed a PEA on the Florida Canyon deposit in August 2017. Nexa is one of the largest zinc producers in Peru. Except for the 2018-2019 drilling program (discussed below) Nexa has funded 100% of project expenditures since the inception of the Florida Canyon joint venture in 2006. Nexa will increase its ownership to a 70% interest in the project from its current ownership of 61%, by continuing to solely fund all project expenditures and committing to place the project into production based upon a positive feasibility study. After earning 70%, and at the request of Solitario, in the event Nexa makes the decision to develop the Florida Canyon project, Nexa has agreed to finance Solitario's 30% participating interest for any development costs through a loan facility to Solitario. Solitario would then repay the loan facility through 50% of its net cash flow distributions from the project.   In August of 2018, Solitario agreed to fund a portion of a 2018 – 2019 drilling program at the Florida Canyon project. Solitario funded $1,580,000 of the 39-hole 17,033-meter drilling program, which was completed in the fourth quarter of 2019 (the “Drilling Program”). The funding of the Drilling Program will be treated as an advance on Solitario’s commitment to fund 30% of any future construction and development costs of Florida Canyon under the original joint venture agreement discussed above. Accordingly, in the event the Florida Canyon project is developed, which cannot be assured at this time, the 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. As of December 31, 2020, Solitario has paid Nexa its entire funding commitment of $1,580,000, of which $1,053,000 was charged to exploration during 2019.   At December 31, 2020, Solitario also holds an 85% interest in the Chambara exploration project in Peru. Nexa holds the remaining 15%.   We conduct exploration and property evaluation activities in Peru either on our own using contract geologists, or through joint ventures operated by our partners.   Our exploration activities and those of our joint venture partners are carried out on a property-by-property basis. These activities may include prospecting, geologic mapping, sampling, geophysics and drilling. When we determine that this work indicates a project may not be economic or contain sufficient geologic or economic potential, we may impair or completely write-off the property. A significant factor in the success or failure of our activities is the price of commodities. For example, when the price of zinc or other commodities is down, we may determine that the value of our mineral exploration properties decreases; however, during such down markets it may also become easier and less expensive to locate and acquire new mineral exploration properties.     4       We have recorded revenue in the past from the sale of mineral properties and assets, joint venture property payments and the sale of a royalty on our formerly held Mt. Hamilton property. Proceeds from the sale or joint venture of properties and royalty sales, although potentially significant when they occur, have not been a consistent source of cash and may only occur in the future, if at all, on an infrequent basis. Accordingly, while we conduct exploration activities on our projects, we need to maintain and replenish our capital resources. Historically, we have met our need for capital through (i) sales of covered call options on our common stock of Kinross Gold Corporation (“Kinross”) we hold; (ii) the sale of our investments in, and interest on, our short term Treasury Notes and Bank CDs; (iii) the sale of mineral property royalties to SilverStream SEZC, a private Cayman Island royalty and streaming company (“SilverStream”) for $408,000 during 2019, (iv) sales of our shares of common stock of Vendetta Mining Corp. and Kinross; (v) the sale of our Yanacocha royalty to Newmont Mining Corporation for $502,000 during 2018; (vi) proceeds received from the sale of our former Mt. Hamilton project in 2015; (vii) joint venture delay rental payments; (vii) a royalty sale for $10,000,000 in 2012; and (Ix) issuances of common stock. We have reduced our exposure to the costs of our exploration activities through the use of joint ventures.   We operate in one segment: mineral exploration. We currently conduct exploration activities in Peru and Alaska and evaluate properties for potential acquisition and evaluation of strategic corporate opportunities throughout North and South America. As of March 5, 2021, we had three full-time employees located in the United States and no full-time employees outside of the United States. We utilize contract managers, geologists, administrators and laborers to execute our Latin American and North American project work and acquisition evaluations.   A large number of companies are engaged in the acquisition, exploration and development of mineral properties, many of which have substantially greater technical and financial resources than we have and, accordingly, we may be at a disadvantage in being able to compete effectively for the acquisition, exploration and development of mineral properties. We are not aware of any single competitor or group of competitors that dominate the exploration and development of mineral properties. In acquiring mineral properties for exploration and development, we rely on the experience, technical expertise and knowledge of our employees, contractors and advisors, which is limited by the size of our company compared to many of our competitors who may have greater resources, including more employees or employees with more specialized knowledge and experience.   Governmental Regulations   Mineral development and exploration activities are subject to various national, state/provincial, and local laws and regulations, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters.  Similarly, if any of our properties are developed and/or mined those activities are also subject to significant governmental regulation and oversight. We are required to obtain licenses, permits and other authorizations in order to conduct our exploration programs.   Environmental Regulations   Our current and planned activities are subject to various national and local laws and regulations governing protection of the environment. These laws are continually changing and, in general, are becoming more restrictive. We are required to conduct our operations in compliance with applicable laws and regulations. Changes to current local, state or federal laws and regulations in each jurisdiction in which we conduct our exploration activities could, in the future, require additional capital expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects. During 2020, we had no material environmental incidents or non-compliance with any applicable environmental regulations.   Financial Information about Geographic Areas   Included in the consolidated balance sheets at December 31, 2020 and 2019, are total assets of $20,000 and $59,000, respectively, related to Solitario's operations located outside of the United States.   Available Information   We file our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports electronically with the SEC. The SEC maintains a website ( http://www.sec.gov ) that contains periodic reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the SEC.     5       Paper copies of our Annual Report to Shareholders, our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports are available free of charge by writing to Solitario at its address on the front of this Form 10-K. In addition, electronic versions of the reports we file with the SEC are available on our website, www.solitarioxr.com , as soon as practicable, after filing with the SEC.