What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-30 · 113 added, 143 removed, 187 unchanged (58% of the section changed)

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Effects of COVID-19

As of December 31, 2021, the effects of COVID-19 have not had a material adverse effect on Solitario’s administrative activities as we have only three full-time employees, all of whom can work remotely, and are not required to meet in person on a regular basis.

We use part-time and contract geologists at our South Dakota project and to date, the effects of COVID-19 have not had a material impact on our operations at the Golden Crest project.

However, as a result of the on-going pandemic our joint-venture partners, Teck at our Lik project and Nexa at our Florida Canyon project, reduced, with our concurrence, the planned exploration activities on these projects for 2021 and are reviewing their 2022 exploration plans on our projects due to several factors.

These factors include, but are not limited, to;

As of December 31, 2022, the effects of COVID-19 have not had a material adverse effect on Solitario’s administrative activities as we have three full-time employees, all of whom can work remotely, and are not required to meet in person on a regular basis.

We use part-time employees and contract geologists at our Golden Crest project in South Dakota and to date, the effects of COVID-19 have not had a material impact on our operations at the Golden Crest project.

However, as a result of the pandemic our joint-venture partners, Teck at our Lik project and Nexa at our Florida Canyon project, reduced, with our concurrence, the planned exploration activities on these projects for 2021 and during 2022 implemented safety and operational protocols for COVID-19 and are reviewing their 2023 exploration plans on our projects to comply with these protocols.

These protocols include, but are not limited, to;

(i) our partners’ limited exploration staffing;

(ii) the need to put into place safety and operational protocols for COVID-19 and other potential pandemics related to their exploration activities;

(iii) the ability to reallocate exploration resources to non-site specific tasks, such as data and resource review, and planning for future drilling;

and (iv) the ability to modify and or postpone 2022 exploration activities using the interim period to enhance future potential exploration programs.

Solitario does not believe these steps by our joint venture partners with regard to 2021 exploration activities or plans for 2022 exploration reflects on the long-term economic potential of either its Lik or Florida Canyon projects.

During 2020 and 2021 as a result of the uncertainty caused by COVID-19, and the resulting market volatility and unknown long-term effects of COVID-19, Solitario took steps to reduce the potential impact of COVID-19 on its liquidity and capital resources by;

(i) obtaining the PPP Loan (defined below);

(ii) effecting salary reductions for all of its employees;

(iii) reducing its contractual amounts owed to contractors;

(iv) reducing certain non-core activities such as travel and investor relations;

and (v) reducing or delaying certain capital costs such as equipment replacement.

We do not anticipate taking further similar steps during 2022 and are currently planning expanded exploration at our Golden Crest project.

Solitario believes its current cash and short-term assets together with potential access to capital under its ATM program or otherwise, provide Solitario with the flexibility to continue its short and mid-term operations.

Nonetheless, the extent to which COVID-19 impacts our 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 accurately predicted at this time.

Please see Item 1A, “Risk Factors” contained in this Form 10-K.

(ii) certain safety and operational guidelines for COVID-19 and other potential pandemics related to their exploration activities;

(iii) the reallocation of exploration resources to non-site specific tasks, such as data and resource review, and planning for future drilling;

and (iv) the ability to modify and or postpone 2023 exploration activities if necessary.

Solitario has discussed these operational and safety measures with our joint venture partners and currently does not believe these measures are expected to have a major impact on planned 2023 exploration activities and does not believe these measures negatively reflect on the long-term economic potential of either its Lik or Florida Canyon projects.

The extent to which the COVID-19 pandemic impacts our 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.

Please see Item 1A, “Risk Factors,” in this Annual Report on Form 10-K for the year ended December 31, 2022.

Solitario believes its current cash and short-term assets together with potential access to capital under its ATM Program (defined below) or otherwise, provide Solitario with the flexibility to continue its short and mid-term operations.

Business Overview and Summary

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We have been actively involved in mineral exploration since 1993.

Our primary focus is the acquisition and exploration of zinc-related and precious metals exploration mineral properties.

Our primary focus is the acquisition and exploration of precious metals and zinc-related exploration mineral properties.

We have historically held a portfolio of mineral exploration properties and assets for future sale, for joint venture or to create a royalty up to the development stage of the project (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).

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however, we have conducted property evaluations for potential acquisition in other parts of the world.

At December 31, 2021, we consider our carried interest in our Florida Canyon project in Peru, our interest in the Lik project in Alaska and our Golden Crest project in South Dakota to be our core mineral property assets.

At December 31, 2022, we consider our Golden Crest project in South Dakota, our carried interest in our Florida Canyon project in Peru, and our interest in the Lik project in Alaska to be our core mineral property assets.

We are conducting independent exploration activities in Peru and through joint ventures operated by our partners in Peru and the United States.

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The fluctuations in commodity prices of base and precious metals have contributed 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.

In analyzing our activities, the most significant aspect relates to results of our exploration and potential development activities and those of our joint venture partners on a property-by-property basis.

In analyzing our activities, the most significant aspect relates to the results of our exploration and potential development activities and those of our joint venture partners on a property-by-property basis.

When our exploration or potential development activities, including drilling, sampling and geologic testing, indicate a project may not be economically feasible or contain sufficient geologic or economic potential we may impair or completely write-off the property.

Another significant factor in the success or failure of our activities is the price of commodities.

For example, when the price of zinc or gold is down, the value of zinc, gold or other precious metal-bearing mineral properties, respectively, decreases;

For example, when the price of zinc or gold is down, the value of zinc, gold or other precious metal-bearing mineral properties decreases;

however, when the price of zinc or gold is up it may become more difficult and expensive to locate and acquire new zinc, gold or other precious metal-bearing mineral properties with potential to have economic deposits.

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Hamilton property;

(iv) the sale of our shares of Vendetta and Kinross common stock;

(iv) the sale of shares of marketable equity securities we hold;

(v) long-term debt secured by our mineral properties;

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and (vii) joint venture payments, including delay rental payments.

During 2021 we issued 3,100,000 shares of common stock in a directed registered offering for net proceeds of $1,542,000 and also sold 643,033 shares of common stock pursuant to an ATM program for net proceeds of $299,000.

During 2022 we issued a total of 2,650,724 shares of common stock pursuant to our ATM Program for net proceeds of $2,023,000.

We did not record any mineral property income from the sale of mineral properties during 2022 or 2021.

Although we sold certain royalty properties to SilverStream for Cdn$600,000 and recorded $408,000 in mineral property revenue in January 2019, our last major property asset sale occurred in 2015, when we recorded a gain on the sale of our former interest in Mount Hamilton LLC of $12,309,000.

During June 2012, we sold a royalty interest in our Mt.

Hamilton project to Sandstorm Gold Ltd.

for $10,000,000.

Prior to the sale of our interest in Mt.

Hamilton LLC, our last significant cash proceeds from a property or asset sale were recorded in 2000 upon the sale of our former Yanacocha property for $6,000,000.

Proceeds from the sale or joint venture of properties, although potentially significant when they occur, have not been a consistent annual source of cash and would occur in the future, if at all, on an infrequent basis.

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Although we anticipate 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.

2019 Royalty sale

As part of the Royalty Sale, Solitario received a Cdn$350,000 convertible note (the “SilverStream Note”) from the purchaser, SilverStream.

The SilverStream Note was convertible into common shares of SilverStream, at the discretion of SilverStream, by providing us a notice of conversion.

On May 19, 2020, SilverStream completed an initial public offering, including changing its name to Vox Royalty Corp., and, in accordance with the terms of the SilverStream Note, issued Solitario 137,255 shares of common stock of Vox in full satisfaction of obligations owed under the SilverStream Note.

Solitario recorded its initial investment in the Vox common shares at the initial public offering price, or a total of Cdn$412,000 or $294,000.

Solitario recorded other income of $44,000 for the gain on the conversion of the SilverStream Note during 2020.

Solitario recorded interest income from the SilverStream Note of $7,000 during 2020.

Results of Operations

Comparison of the year ended December 31, 2022 to the year ended December 31, 2021

We had a net loss of $2,367,000 or $0.04 per basic and diluted share for the year ended December 31, 2021 compared to a loss of $939,000 or $0.02 per basic and diluted share for the year ended December 31, 2020.

We had a net loss of $3,928,000 or $0.06 per basic and diluted share for the year ended December 31, 2022 compared to a net loss of $2,367,000 or $0.04 per basic and diluted share for the year ended December 31, 2021.

As explained in more detail below, the primary reasons for the increase in net loss during 2022 compared to 2021 was (i) an increase in exploration expense to $2,283,000 during 2022 compared to exploration expense of $1,198,000 during 2021;

(ii) a realized loss on sale of marketable equity securities of $248,000 during 2021 compared to a realized gain of $50,000 during 2020;

(iii) a reduction in interest and dividend income to $123,000 during 2021 compared to interest and dividend income of $184,000 during 2020;

(iv) a reduction in other income to $10,000 during 2021 compared to other income of $104,000 during 2020;

(v) a reduction in the unrealized gain on marketable equity securities during 2021 to $82,000 compared to an unrealized gain of $360,000 during 2020;

(vi) mineral property impairment of $17,000 during 2021 compared to mineral property impairment of $6,000 during 2020 and an increase in unrealized loss on short-term investments to $102,000 in 2021 compared to a $57,000 in 2020.

Partially offsetting these factors that contributed to the increase in our net loss in 2021 were the following (i) a decrease in general and administrative expense to $952,000 during 2021 compared to general and administrative expense of $1,044,000 during 2020;

and (ii) a reduction in the loss on derivative instruments to $38,000 during 2021 compared to a loss on derivative instruments of $92,000 during 2020.

(ii) an increase in general and administrative expense to $1,360,000 during 2022 compared to general and administrative expense of $952,000 during 2021;

and (iii) the recording of an unrealized loss on marketable equity securities during 2022 of $94,000 compared to an unrealized gain on marketable equity securities of $82,000 during 2021.

Partially offsetting these factors that contributed to the increase in our net loss in 2022 were the following (i) a decrease in the loss on sale of marketable equity securities to $201,000 during 2022 compared to a loss on the sale of marketable equity securities of $248,000 during 2021;

(ii) an increase in interest and dividend income to $131,000 during 2022 compared to interest and dividend income of $123,000 during 2021;

(iii) an increase in other income to $20,000 during 2022 compared to other income of $10,000 during 2021;

and (iv) a decrease in the loss on derivative instruments to $4,000 during 2022 compared to a loss on derivative instruments of $38,000 during 2021.

Each of these items is discussed in greater detail below.

Our primary exploration activities during 2022 were related to our Golden Crest project in South Dakota and our Lik project in Alaska.

We recorded $420,000 of exploration costs at Golden Crest during 2021, which consisted primarily of geologic evaluation of claims for staking, mapping and soil and rock sampling with related assay costs.

There were no similar costs during 2020 related to Golden Crest as we acquired the property during 2021.

In addition to these exploration costs, we also capitalized $695,000 of mineral acquisition costs at Golden Crest for our initial acquisition costs related to leasing, staking and filings on claims acquired during 2021.

We recorded $1,505,000 of exploration costs at Golden Crest during 2022 compared to $420,000 during 2021.

The Golden Crest expenditures during 2022 and 2021 consisted primarily of geologic evaluation of claims for staking, mapping and soil and rock sampling with related assay costs.

In addition to these exploration costs, we also capitalized $340,000 and 695,000 of mineral acquisition costs at Golden Crest for our initial acquisition costs related to leasing, staking and filings on claims acquired during 2022 and 2021, respectively.

All future exploration and filing costs related to these claims will be expensed as incurred.

Solitario’s share of exploration expenses at our Lik project in Alaska were $362,000 during 2021 compared to $14,000 of exploration expense at the Lik project 2020.

Teck undertook a geologic evaluation of the Lik project which included on-site work of mapping and analysis of prior drilling and planning for drilling during 2022 as part of a 50/50 exploration program managed by Teck.

We are evaluating, along with Teck, a drilling program for 2022, which was originally planned for 2021, but was delayed due to Teck staffing availability and extended permitting.

The program, if approved, consists of drilling two or three core holes totaling approximately 1,000 meters.

Drill targets under consideration include an area approximately one kilometer north of the Lik deposit and also below the Lik deposit to test for stacked mineralized horizons.

Solitario would be responsible for 50% of the expenditures.

Solitario’s share of exploration expenses at our Lik project in Alaska was $668,000 during 2022 compared to $362,000 of exploration expense at the Lik project 2021.

Teck completed a three-hole drilling program during 2022 which accounted for the increase in expenses during 2022 compared to 2021.

This was the first drilling program conducted since 2011.

Drill hole Lik-231 intersected 3.5 meters (11.5 feet) grading 9% zinc and 3% lead.

Holes Lik-230 and 232 did not intersect significant mineralization.

In addition, Teck performed on-going geologic evaluation of the Lik project during both 2022 and 2021, which included on-site geophysics, mapping and analysis of prior drilling and permitting as part of a 50/50 exploration program managed by Teck.

The geophysical survey was successful in defining a low-amplitude gravity anomaly that requires further follow-up work.

We are evaluating, along with Teck, the completed 2022 drilling program for planned exploration including potential drilling in 2023.

The decision to drill at Lik during 2023 is expected to be made prior to the end of the second quarter of 2023.

Given that the exploration program at our Florida Canyon project in Peru is fully funded by our joint venture partner, Nexa, we had relatively small exploration expenses at Florida Canyon of $16,000 during 2022 compared to $85,000 in 2021.

During 2021 we made the decision to abandon our Gold Coin project in Arizona after initial exploration efforts did not provide sufficient encouragement to move the project forward.

The remaining exploration expenditures during 2021 and 2020 were reconnaissance work, including the evaluation of potential mineral properties for acquisition, including work at Golden Crest, prior to its acquisition.

Our 2022 total exploration and development budget, excluding any new projects, in which we may acquire an interest, is approximately $2,350,000, which reflects a significant increase in the anticipated activities at the Golden Crest project as well as the proposed exploration and drilling program at Lik.

The proposed 2022 budget does not reflect any costs for drilling the Golden Crest project or any exploration costs for projects or assets we may acquire during 2022.

The remaining exploration expenditures during 2022 and 2021 were reconnaissance work, including the evaluation of potential mineral properties for acquisition, including work during 2021 at Golden Crest, prior to its acquisition.

Our 2023 total exploration and development budget, excluding any new projects, in which we may acquire an interest, is approximately $2,000,000, which reflects planned work at the Golden Crest project as well as the Lik project.

Our planned exploration activities in 2023 may be modified, as necessary for any drilling programs we may undertake at Golden Crest or projects we may acquire, changes related to any number of factors including COVID-19 adjustments and delays, potential acquisition of new properties, joint venture funding, commodity prices and changes in the deployment of our capital.

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Excluding these costs, general and administrative costs were $1,022,000 during 2022 compared to $828,000 during 2021.

Salary and benefits expense increased to $301,000 during 2021 compared to $291,000 during 2020.

In addition, (i) legal and accounting costs increased to $199,000 during 2021 compared to $131,000 during 2020, primarily due to increased activity, including the ATM financing and the private placement of 3,100,000 common stock for proceeds of $1,542,000;

(ii) travel and investor relation costs increased to $234,000 during 2021 compared to $200,000 during 2020 as a result of increased investor relations costs related to the Golden Crest project and other investor out-reach during 2021 compared to 2020;

and (iii) other costs related to office, insurance and miscellaneous costs decreased to $94,000 during 2021 compared to $107,000 during 2020.

We anticipate general and administrative costs for 2022 will be somewhat higher than the costs incurred during 2021;

The major components of our general and administrative costs were (i) salary and benefits expense which increased to $411,000 during 2022 compared to $301,000 during 2021;(ii) legal and accounting costs which increased to $287,000 during 2022 compared to $199,000 during 2021 primarily due to increased exploration activity, as well as initial costs to comply with initial SK-1300 disclosure requirements during 2022;

(iii) travel and investor relation costs which decreased to $205,000 during 2022 compared to $234,000 during 2021 as a result of less travel and fewer investor conferences attended during 2022 compared to 2021, despite some increased investor relations costs related to the Golden Crest project during 2022;

and (iv) other costs related to office, insurance and miscellaneous costs which increased to $119,000 during 2022 compared to $94,000 during 2021 as a result of additional activity and general cost increases.

We anticipate general and administrative costs for 2023 to be $1,085,000 which will be somewhat higher than the costs incurred during 2022;

however, this amount may vary significantly during 2023 depending on the outcome of our exploration activity at Golden Crest and Lik and any strategic transactions we may attempt to execute upon.

We have forecast 2022 general and administrative costs to be approximately $966,000, excluding non-cash stock option compensation expense.

We account for our employee stock options under the provisions of Accounting Standards Codification No.

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During the year ended December 31, 2022, we recorded $338,000 of non-cash stock option expense for the amortization of our outstanding options grant date fair value with a credit to additional paid-in-capital compared to $124,000 of non-cash stock option compensation expense during 2021.

The amount was lower during 2021 primarily due to the amortization of options which became fully vested during 2021 and a lower grant date fair value amortization during 2021.

During 2020 we charged general and administrative expense $36,000 for the amortization of 25% of the grant date fair value of 1,325,000 new options granted during 2020 compared to expense of $23,000 for the amortization of 25% of the grant date fair value of the 140,000 new options granted during 2021.

Most of our remaining stock option compensation during 2021 and 2020 related to the normal vesting of other outstanding options.

See Note 11, “Employee Stock Compensation Plans,” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data to this Form 10-K” for an analysis of the changes in the fair value of our outstanding stock options and the components that are used to determine the fair value.

We recorded an unrealized gain on marketable equity securities of $82,000 during 2021 compared to an unrealized gain on marketable equity securities of $360,000 during 2020.

The net gain during 2021 was primarily related to an unrealized gain on marketable equity securities of $193,000 due to an increase in the value of our holdings of shares of Vendetta common stock, and an unrealized gain on marketable equity securities of $53,000 on our holdings of Vox common stock offset by an unrealized loss on marketable equity securities of $153,000 in the value of our holdings of Kinross common stock and an unrealized loss on the value of our holdings of TNR of $11,000 during 2021.

This compared to an unrealized gain in the value of our holdings of (i) Vendetta common stock during 2020 of $60,000 along with (ii) $260,0000 on the value of our holdings of Kinross common stock;

(iii) $10,000 on our holdings of TNR common stock;

and (iv) $30,000 on our holdings of TNR common stock during 2020.

Changes in the unrealized value of our holdings of marketable equity securities are related to the changes in the fair values of those holdings which is dependent on the market prices of the individual securities.

During 2021 we sold 2,550,000 shares of Vendetta common stock for proceeds of $112,000 and recorded a realized loss on the sales of $269,000 and we sold 430,000 shares of TNR common stock for proceeds of $27,000 and recorded a gain on the sale of $19,000 and we sold 3,200 shares of Vox for proceeds of $8,000 and recorded a gain on the sale of $2,000.

During 2020 we acquired 137,255 shares of Vox recorded at $294,000 as part of the Royalty Sale in 2019 in exchange for the SilverStream Note and we sold 2,900,000 shares of Vendetta for cash proceeds of $123,000 and a realized gain of $50,000.

See Note 3, “Marketable Equity Securities” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for additional discussion of our marketable equity securities.

The amount was higher during 2022 primarily due the grant of 2,360,000 options with a total grant date fair value of $876,000, of which Solitario recognized 25% on the grant date or $218,000 compared to expense of $23,000 for the amortization of 25% of the grant date fair value of the 140,000 new options granted during 2021.

The remaining compensation expense was related to the straight-line amortization of our outstanding options in 2022 and 2021.

See Note 10, “Employee Stock Compensation Plans,” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data to this Annual Report on Form 10-K” for an analysis of the changes in the fair value of our outstanding stock options and the components that are used to determine the fair value.

We recorded an unrealized loss on marketable equity securities of $94,000 during 2022 compared to a gain on marketable equity securities of $82,000 during 2021.

The net loss on marketable equity securities during 2022 was primarily related to a $172,000 unrealized loss related to a decrease in the value of our holdings of Kinross common stock and a decrease of $59,000 in the value of our holdings of Vox common stock, which was partially offset by an unrealized gain related to the increase of $137,000 in the value of our holdings of Vendetta stock.

(“TNR”) of $11,000 during 2021.

Changes in the unrealized value of our holdings of marketable equity securities are related to the changes in the fair values of those holdings which are dependent on the market prices of the individual securities.

During 2022 we sold 1,250,000 shares of Vendetta common stock for proceeds of $63,000 and recorded a realized loss on the sales of $201,000.

During 2021 we sold (i) 2,550,000 shares of Vendetta common stock for proceeds of $112,000 and recorded a realized loss on the sales of $269,000;

(ii) 430,000 shares of TNR common stock for proceeds of $27,000 and recorded a gain on the sale of $19,000 and (iii) 3,200 shares of Vox for proceeds of $8,000 and recorded a gain on the sale of $2,000.

See Note 3, “Marketable Equity Securities” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional discussion of our marketable equity securities.

We may sell some of our marketable equity securities from time to time during 2023 for working capital needs;

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We recorded a loss on derivative instruments of $4,000 during 2022 compared to a loss on derivative instruments of $38,000 during 2021.

During 2022, our warrants to acquire Vendetta common stock (“Vendetta Warrants”) expired unexercised, which resulted in the $4,000 loss on derivative instruments.

The loss during 2021 was primarily related to a $46,000 loss on our Vendetta Warrants offset by a gain on certain Kinross calls we sold for $8,000, which expired unexercised.

The loss during 2020 was primarily related to certain covered calls we sold against our holdings of Kinross common stock for cash proceeds of $103,000 and repurchases of those calls prior to their expiration of $224,000 for a loss on derivative instruments of $121,000, which was partially offset by a gain on derivative instruments during 2020 of $29,000 related to our Vendetta Warrants.

See Note 7, “Derivative Instruments” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for additional discussion of our derivative instruments.

We anticipate we will continue to write calls against our holdings of Kinross common stock in 2022 to provide additional income on a limited portion of shares of Kinross that Solitario may sell in the near term, which is generally defined as less than one year.

See Note 7, “Derivative Instruments” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional discussion of our derivative instruments.

We anticipate we may write calls against our holdings of Kinross common stock in 2023 to provide additional income on a limited portion of shares of Kinross that Solitario may sell in the near term, which is generally defined as less than one year.

We recorded $29,000 of depreciation and amortization during 2022 compared to $27,000 of depreciation and amortization during 2021.

The majority of our depreciation relates to depreciation on equipment acquired in 2017 as part of the acquisition at the Lik project.

We amortize these assets over a five-year period.

We added approximately $50,000 of equipment for use at our Golden Crest project which accounted for the majority of the increase in our depreciation between 2022 and 2021.

We amortize our equipment over a five-year period.

We anticipate our 2023 depreciation and amortization expense will be similar to our 2022 depreciation expense.

We recorded interest income of $131,000 during 2022 compared to interest income of $123,000 during 2021.

The decrease during 2021 was primarily related to a reduction in the outstanding balances of our investments in United States Treasury securities and Bank Certificates of Deposit, which decreased to $5,087,000 at December 31, 2021 from a balance of $5,798,000 at December 31, 2020.

In addition, during 2021 we recorded an unrealized loss of $102,000 during 2021 the value of our mark-to-market short term investments in United States Treasury securities compared to an unrealized loss of $57,000 during 2020as a result of declining interest rates.

The increase during 2022 was primarily related to an increase in the outstanding balances of our investments in United States Treasury securities during the majority of the year as a result of the $2,036,000 received from sales of our common stock under our ATM Program effected in the first quarter of 2022.

In addition, during 2022we recorded an unrealized loss of $108,000related to the value of our mark-to-market short term investments in United States Treasury securities compared to an unrealized loss of $102,000 during 2021 as a result of changing interest rates.

We anticipate our interest income will decrease in 2023 compared to 2022 as a result of the use of our short-term investments and our cash balances for ordinary overhead, operational costs, and the exploration, evaluation and or acquisition of mineral properties discussed above.

See “Liquidity and Capital Resources,” below, for further discussion of our cash and cash equivalent balances.

Our other income of $20,000 during 2022 was from the sale of certain exploration data on a non-owned mineral property upon which Solitario had previously done exploration activities.

Our other income of $10,000 during 2021 related to the forgiveness of $10,000 remaining balance on our Paycheck Protection Program loan (the “PPP Loan”) that originated in 2019 with an original balance of $70,000.

Our other income during 2020 of $104,000 related to (i) $44,000 of gain on the conversion of the SilverStream Note to Vox shares, and (ii) forgiveness of $60,000 from the PPP Loan during 2020.

See Note 8, “Paycheck Protection Program Loan” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for additional discussion of the PPP Loan.

We do not anticipate other income will be a significant source of cash in 2023, if at all.

We recorded no deferred tax expense or benefit in either 2022 or 2021 as we provide a valuation allowance for the tax benefit arising out of our net operating losses for all periods presented.

See Note 6, “Income Taxes” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for additional discussion of our income tax valuation allowance, deferred tax assets and our net operating losses for 2021 and 2020.

See Note 6, “Income Taxes” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional discussion of our income tax valuation allowance, deferred tax assets and our net operating losses for 2022 and 2021.

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.

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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 geologic potential of early-stage mineral property and its related value for future sale, joint venture or development by us or others.

During 2022 we recorded no mineral property impairments.

During 2021 we recorded $17,000 of mineral property impairment related to our decision to abandon our Gold Coin project in Arizona.

During 2020 we recorded $6,000 of mineral property impairment related to our decision to abandon our La Promesa project in Peru.

Liquidity and Capital Resources

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As of December 31, 2022, we have USTS with maturities of 15 days to one year, recorded at their fair value of $3,951,000.

Solitario also holds FDIC insured bank certificates of deposit (“CD’s”) with face values between $100,000 and $250,000 and maturities of three months to one year, which are recorded at their fair value of $851,000 as of December 31, 2021.

Solitario has also held CD’s during 2021 and 2022 which matured during 2022 and Solitario has no outstanding CD’s at December 31, 2022.

The USTS and CD’s are recorded at their fair value based upon quoted market prices.

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Changes in the fair value of marketable equity securities are recorded as gains and losses in the statements of operations.

Solitario also holds 200,000 shares of Highlander Silver Corp.

stock at December 31, 2022, which has a restrictive legend and has been recorded with a zero fair value until the restrictive legend is removed.

Working Capital

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The nature of the mineral exploration business requires significant sources of capital to fund exploration, development and operation of mining projects.

We anticipate using our working capital and any additional funds we might acquire to carry out our 2023 planned expenditures.

Our existing resources are adequate to fund these expenditures.

These expenditures include planned exploration for Golden Crest, including potential drilling, pending the receipt of required permits, as well as planned exploration at our Lik project where we are in discussions with our joint venture partner, Teck regarding planned 2023 expenditures.

We do not expect any significant exploration expenditures at our Florida Canyon project where Nexa is responsible for all 2023 planned expenditures.

We expect 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.

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As of December 31, 2022, our outstanding options include 5,250,000 options that are in the money with a weighted average exercise price of $0.41 per share, which is below the market price of a share of Solitario common stock at December 31, 2022 of $0.62 per share as quoted on the NYSE American exchange.

See Note 11, “Employee Stock Compensation Plans” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data of this Form 10-K for a discussion of the activity in our 2013 Plan during 2021 and 2020.

We do not anticipate that stock option exercises will be a significant source of cash during 2021.

See Note 10, “Employee Stock Compensation Plans” to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a discussion of the activity in our 2013 Plan during 2022 and 2021.

We anticipate that a portion of stock options for 1,561,500 shares of our common stock, which expire in October 2023 with an exercise price of $0.31 per share may be exercised during 2023 if our stock price as quoted on the NYSE American exchange exceeds the exercise price prior to the expiration date.

December 2021 Equity Offering

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The ATM Agreement provides that Wainwright is entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold.

During 2021, we recorded $144,000 as a charge to additional paid-in-capital for one-time expenses related to entering into the ATM Agreement.

During 2021, we sold an aggregate of 643,033 shares of our common stock under the ATM Program at an average price of $0.68 per share for net proceeds of $299,000 after commissions, sale, and one-time expenses.

In March 2022, we sold 2,650,724 shares of our common stock under the ATM Program at a price of $0.79 per share for net proceeds of $2,023,000 after commissions and sale expenses.

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 2020 our Board of Directors extended the expiration date of the share repurchase program through December 31, 2021.

During 2021, we did not purchase any shares pursuant to the share repurchase program.

During the year ended December 31, 2020, we purchased 24,700 shares of Solitario common stock for an aggregate purchase price of $5,000.

As of December 31, 2021, we have purchased a total of 994,000 shares for an aggregate purchase price of $467,000 under the share repurchase program since its inception.

The share repurchase plan expired on December 31, 2021.

During 2021, we recorded $144,000 as a charge to additional paid-in-capital for one-time expenses related to entering into the ATM Agreement.

Off-balance sheet arrangements

As of December 31, 2022 and 2021, we have no off-balance sheet arrangements.

Net cash used in operations during the year ended December 31, 2021 increased to $2,157,000 compared to $1,010,000 for the year ended December 31, 2020 primarily as a result of (i) the exploration expense at our Golden Crest project of $420,000 during 2021 with no similar expense in 2020 and the increase in exploration expense at our Lik project to $362,000 during 2021 compared to $14,000 during 2020;

(ii) a reduction in interest income to $123,000 during 2021 compared to interest income of $184,000 recorded during 2020, the majority of which was a reduction in the cash balances during each of the years ending December 31, 2021 and 2020;

and (iii) a net use of cash from changes in prepaid expenses and other current assets of $277,000 during 2021 compared to a net source of cash from changes in prepaid expenses and other current assets of $38,000 during 2020.

Partially offsetting this increased use of cash in operations was a reduction in the use of cash from the net change in accounts payable and other current liabilities to $17,000 during 2021 compared to a use of cash of $128,000 from the net change in accounts payable and other current liabilities during 2020.

Net cash used in operations during the year ended December 31, 2022 increased to $2,900,000 compared to $2,157,000 for the year ended December 31, 2021 primarily as a result of (i) the increase in exploration expense at our Golden Crest project to $1,505,000 during 2022 compared to $420,000 of exploration expense incurred at our Golden Crest project during 2021, and the increase in exploration expense at our Lik project to $668,000 during 2022 compared to $362,000 expense incurred at Lik during 2021;

and (ii) an increase in the use of cash from the net change in accounts payable and other current liabilities to $51,000 during 2022 compared the a net use of cash of $17,000 from the net change in accounts payable and other current liabilities during 2021.

Partially offsetting this increased use of cash in operations was (i) a net source of cash from changes in prepaid expenses and other current assets of $265,000 during 2022 compared to a net use of cash from changes in prepaid expenses and other current assets of $277,000 during 2021;

(ii) a reduction in reconnaissance exploration expense to $94,000 during 2022 compared to reconnaissance exploration of $306,000 during 2021;

and (iii) and increase in interest income to $131,000 during 2022 compared to interest income of $123,000 during 2021.

These items are discussed in further detail above under “Results of Operations.”

Net cash provided by investing activities decreased to $90,000 during 2021 compared to net cash provided of $976,000 during 2020.

In addition to the reduction in the cash provided from the sale of short-term investments to $609,000 during 2021 compared to $974,000 during 2020, we (i) capitalized $635,000 of initial costs on the Golden Crest claims and lease acquired during 2021, with no similar expenditure in 2020 and (ii) we acquired other assets related to the Golden Crest project of $39,000 during 2021 with no similar items acquired during 2020.

Partially offsetting these reductions in cash provided by investing activities were (i) an increase in cash from the sale of marketable equity securities to $147,000 during 2021 compared to $123,000 during 2020;

and (ii) the receipt of cash from the sale of derivative instruments of $8,000 during 2021 compared to the net use of cash of $121,000 from the sale and repurchase of derivative instruments during 2020.

Net cash provided by investing activities increased to $701,000 during 2022 compared to net cash provided of $90,000 during 2021.

The primary reasons for the increase in cash provided by investing activities are (i) an increase in the cash provided from the sale of short-term investments to $1,028,000 during 2022 compared to $609,000 during 2021;

and (ii) a reduction in capitalized initial costs for new Golden Crest claims to $340,000 compared to the capitalization of initial costs on claims and lease acquisition costs at Golden Crest of $695,000 during 2021.

Partially offsetting these net increases in cash provided by investing activities were (i) an increase in acquired exploration related equipment classified as other assets related to the Golden Crest project to $50,000 during 2022 compared to additions to other assets of $39,000 during 2021, and (ii) a decrease in the cash from the sale of marketable equity securities to $63,000 during 2022 compared to cash from the sale of marketable equity securities of $147,000 during 2021.

We anticipate we will continue to utilize proceeds from the sale of our short-term investments and any proceeds we may derive from potential sales of marketable equity securities to fund our operations during 2023.

Our net cash provided by financing activities during 2022 was from (i) the sale of 2,650,724 shares of our common stock under the ATM Program at a price of $0.79 per share for net proceeds of $2,023,000, and (ii) the exercise of options for 114,250 shares of our common stock for net proceeds of $30,000.

Our net cash provided by financing activities during 2021 was from (i) the sale of 3,100,000 shares in December 2021 of our common stock for net proceeds of $1,542,000;

(ii) the issuance of 643,033 shares of our common stock under the ATM Program for net proceeds of $299,000 and (ii) the exercise of options for 185,000 shares of our common stock for net proceeds of $83,000.

Our net cash provided by financing activities in 2020 included $70,000 from the PPP Loan, with no similar item during 2021.

We used cash of $5,000 during 2020 for the repurchase of common stock for cancellation.

We may utilize the ATM program during 2022 to supplement our existing cash resources however we have will only use the ATM when we believe the market conditions based upon the quoted price of a share of our common stock are appropriate.

Our share repurchase program expired on December 31, 2021 and thus we will not repurchase shares of common stock under the share repurchase plan during 2022.

We may utilize the ATM Program during 2023 to supplement our existing cash resources, however we will only use the ATM Program when we believe the market conditions based upon the quoted price of a share of our common stock are appropriate.

Development Activities, Exploration Activities, Environmental Compliance and Contractual Obligations

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We are often required to make minimum rental and option payments in order to maintain our interest in certain claims and leases.

Our net 2021 mineral and surface property rental and option payments, included in exploration expense, were $9,000.

Our net 2022 mineral and surface property filing rental and option payments, included in exploration expense, were $107,000.

Our 2023 total exploration property rentals and option payments for properties we own, have under joint venture, or operate are estimated to be approximately $1,273,000.

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The following table provides an analysis of our contractual obligations:

(in thousands)

As of December 31, 2022

Payments due by period

Less than 1 year

(in thousands)

More than 5 years

Operating Lease Obligations (1)

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The Golden Crest project is 100%-owned early-stage exploration project located in the northern Black Hills of western South Dakota in Lawrence County.

The Golden Crest Project is comprised of 1390 unpatented lode claims, with an associated area of just under 28,000 acres.

The Golden Crest project is comprised of 1707 unpatented lode claims, with an associated area of approximately 33,000 acres.

Solitario acquired its initial interest in the Golden Crest project during 2021.

During 2021 Solitario conducted exploration activities on the Golden Crest Project including soil and rock sampling, mapping and geotechnical work.

Solitario is planning to conduct an aggressive surface exploration program during 2022 at the Golden Crest Project consisting of prospecting for new areas of mineralization through the collection of select rock grab samples, systematic soil sampling and geophysics.

A Plan of Operations for drilling has been submitted to the US Forest Service and is currently under review.

If permits to drill are received before the end of the 2022 field season, drilling will also likely be conducted on select targets.

During 2022 Solitario conducted exploration activities on the Golden Crest project including grid soil and grab rock sampling, hand trenching, mapping, induced polarization ground geophysics, permitting and geotechnical work.

Over twenty gold-enriched target areas have been identified, with fourteen of these areas containing multi-gram gold per tonne assays.

A Plan of Operations for drilling has been submitted to the USFS and is currently under review.

If permits to drill are received during 2023 field season, Solitario will conduct a 4,000-5,000 meter drilling program.

In addition, we will be continuing a surface exploration program during 2023 consisting of prospecting for new areas of mineralization through the collection of select rock grab samples, systematic soil sampling and geophysics.

Florida Canyon

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During 2022 and 2021 limited work was undertaken on road access to the project, and Nexa expects to continue to work on completing the road access during 2023.

During 2019, Nexa completed the Drilling Program and several significant drill intercepts were encountered.

Solitario reported the results of the drill intercepts in February 2021.

Nexa’s expenditures during 2022 were for the advancement of the access road, community outreach, and a metallurgical testing program.

During 2021, Nexa worked on two separate drilling permits.

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The second permit (5MEIAsd) greatly expands the area in which drilling is permitted to the south and east.

The second permit is expected to be granted before the 2023 field season.

A robust metallurgical testing program is underway to better quantify recoveries of zinc, lead and silver and to better determine the quality of concentrate that the Florida Canyon ores can produce.

Surface exploration consisting of geological mapping and sampling will continue throughout the project area.

Nexa plans to complete road construction to local communities that currently do not have vehicle access as part of their ESG commitment.

The access road could also serve as a support road to project activities.

The metallurgical testing program was undertaken to better quantify recoveries of zinc, lead and silver and to more accurately determine the quality of concentrate that the Florida Canyon ores can produce.

The results of the program were encouraging by increasing the estimated recoveries and concentration grades at Florida Canyon.

Nexa has indicated during 2023 they will undertake a 4,000 to 5,000 meter drilling program to focus on the extension of the current resource, Nexa is also continuing to extend road construction to local communities that currently do not have vehicle access as part of their ESG commitment.

The Lik project is an advanced-staged high-grade zinc project.

The project is held in a joint venture between Teck (50%) and Solitario (50%).

Zazu completed a PEA in 2014 that incorporated a variety of prefeasibility studies into the analysis.

These studies included resource estimation, mining and processing recovery estimates, a preliminary mining and processing plan, infrastructure layout, environmental considerations and an economic analysis based on the base case parameters.

The PEA envisioned an open pit mining operation with a 5,500 ton per day floatation mill for processing resulting in a nine-year mine life.

Concentrates would be handled through the DMTS road and port system that currently handles all concentrate produced by the nearby Red Dog zinc mine of Teck.

The PEA analyzed the Lik project as a stand-alone operation building its own independent processing, tailings and port facilities.

Solitario and Teck are in final discussions to jointly fund a 2022 exploration program, with Teck acting as project manager.

The program, if approved, consists of drilling three core holes totaling approximately 2,130 feet.

Drill targets under consideration are extensions to the currently defined Lik deposit on the northwest and southern limits of the deposit, including one-hole testing for stacked mineralized horizons.

Drilling is expected to begin during the 2022 summer field season.

Besides drilling, a gravity geophysical survey west of the Lik deposit is planned where favorable stratigraphy to host zinc mineralization similar to Lik is thought to exist at shallow depths.

Gravity geophysics have proven very effective in detecting zinc mineralization at depth.

We expect to reach a final decision on this program early in the second quarter of 2022.

During 2022 Teck completed a three-hole, 737-meter (2,415 feet) drilling program in 2022.

Drill hole Lik-231 intersected 3.5 meters (11.5 feet) grading 9% zinc and 3% lead.

In addition to the drilling, Teck also conducted traverse geologic mapping and a ground gravity geophysics survey, which was successful in defining a low-amplitude gravity anomaly that requires further follow-up work.

For 2023, Teck has submitted a drilling permit application to the Alaskan Department of Natural Resources for 70 core holes, including water sources for drilling.

Drill hole location include step-out drilling surrounding the currently defined deposit as well as location along strike to the northeast and theoretical targets more distant to the deposit.

This robust permitting submission allows for significant flexibility for the next five years.

Solitario and Teck are in discussions to jointly fund a 2023 exploration program, with Teck acting as project manager.

The program will include core analysis, mapping and other surface work, project maintenance and, if approved, a limited drilling program to follow-up on the results of the three core holes drilled during 2022.

No specific drill targets have been approved, which is expected to be decided prior to the end of the second quarter of 2023.

Other Properties

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Our 2023 total exploration and development budget is approximately $2,000,000 for our planned exploration expenditures.

This amount includes the proposed drilling program and evaluation of the Lik project, where we are responsible for 50% of the exploration expenditures.

This amount does not include any significant expenditures for our Florida Canyon project where our joint venture partner, Nexa, is responsible for 100% of exploration costs.

It includes $1,723,000 planned exploration expense at our Golden Crest project, which does not include any significant drilling expenditures, which are dependent on receiving permits during 2022.

It includes $1,852,000 planned exploration expense at our Golden Crest project, excluding drilling, pending permitting.

We will continue the evaluation of potential new acquisitions of properties primarily in the United States around the Golden Crest project as well as other regions of North and South America.

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Discontinued Projects

We recorded no mineral property impairments during 2022.

During 2021 we recorded $17,000 of mineral property impairment related to our decision to abandon the Gold Coin project in Arizona.

During 2020 we recorded $6,000 of mineral property impairment related to our decision to abandon the La Promesa project in Peru.

Significant Accounting Policies and Critical Accounting Estimates

See Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for a discussion of our significant accounting policies.

See Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a discussion of our significant accounting policies.

Solitario’s valuation of mineral properties is a critical accounting estimate.

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Recent Accounting Pronouncements

See Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8 “Financial Statements and Supplementary Data” of this Form 10-K for a discussion of recent accounting pronouncements.

See Note 1, “Business and Summary of Significant Accounting Policies,” in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis