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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-05 · 155 added, 115 removed, 74 unchanged (78% of the section changed)

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, 2022 and 2021, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Solitario’s Annual Report on Form 10-K for the year ended December 31, 2022.

Solitario's financial condition and results of operations are not necessarily indicative of what may be expected in future periods.

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We are an exploration stage company as defined by rules issued by the SEC, with a focus on the acquisition of precious and base metal properties with exploration potential and the development or purchase of royalty interests.

Currently our primary focus is the acquisition and exploration of precious metals, zinc and other base metal exploration mineral properties.

Currently our primary focus is the acquisition and exploration of precious metal, zinc and other base metal exploration mineral properties.

However, we continue to evaluate other mineral properties for acquisition, and we hold a portfolio of mineral exploration properties and assets for future sale, joint venture or on which to create a royalty prior to the establishment of proven and probable reserves.

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

At March 31, 2023, we consider our Golden Crest project in South Dakota, our carried interest in the Florida Canyon project in Peru, and our interest in the Lik project in Alaska to be our core mineral property assets.

We are conducting exploration activities in South Dakota on our own at Golden Crest and through joint ventures operated by our partners in Peru at the Florida Canyon project and in Alaska at the Lik project.

At June 30, 2023, we consider our Golden Crest project in South Dakota, our carried interest in the Florida Canyon project in Peru, and our interest in the Lik project in Alaska to be our core mineral property assets.

We are conducting exploration activities the United States on our own at Golden Crest and through joint ventures operated by our partners in Peru and in Alaska at the Lik project.

We also conduct potential acquisition evaluations in other countries located in South and North America.

We have recorded revenue in the past from the sale of mineral properties, however revenues and / or proceeds from the sale or joint venture of properties or assets, although generally significant when they have occurred in the past, have not been a consistent source of annual revenue and would only occur in the future, if at all, on an infrequent basis.

We have recorded revenue in the past from the sale of mineral properties, however revenues and / or proceeds from the sale or joint venture of properties or assets, although generally significant when they have occurred in the past, have not been a consistent source of revenue and would only occur in the future, if at all, on an infrequent basis.

We have reduced our exposure to the costs of our exploration activities in the past through the use of joint ventures.

Although we anticipate that the use of joint ventures to fund some of our exploration activities will continue for the foreseeable future, we can provide no assurance that these or other sources of capital will be available in sufficient amounts to meet our needs, if at all.

As of March 31, 2023, we have balances of cash and short-term investments that we anticipate using, in part, to (i) fund costs and activities intended to further the exploration of our Lik, Florida Canyon and Golden Crest projects, (ii) conduct reconnaissance exploration and (iii) potentially acquire additional mineral property assets.

As of June 30, 2023, we have balances of cash and short-term investments that we anticipate using, in part, to (i) fund costs and activities intended to further the exploration of our Lik, Florida Canyon and Golden Crest projects, (ii) conduct reconnaissance exploration and (iii) potentially acquire additional mineral property assets.

The fluctuations in precious metal and other commodity prices contribute to a challenging environment for mineral exploration and development, which has created opportunities as well as challenges for the potential acquisition of advanced mineral exploration projects or other related assets at potentially attractive terms.

As of March 31, 2023, we do not expect the effects of the COVID-19 pandemic to have a material effect on our planned activities related to the exploration of our Lik, Florida Canyon or Golden Crest projects.

However, we continue to monitor planned activities for the full year 2023 at our Florida Canyon, Lik and Golden Crest projects.

The extent to which the COVID-19 pandemic impacts our business and projects, including our exploration and other activities and the market for our securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time.

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

The extent to which our business, including our exploration and other activities and the market for our securities, may be impacted by public health threats, rising geopolitical tension, general economic uncertainty and market volatility will depend on future developments, which are highly uncertain and cannot be predicted at this time.

Please see Item 1A, “Risk Factors,” in our 2022 Annual Report.

(b) Results of Operations

Comparison of the quarter ended March 31, 2023 to the quarter ended March 31, 2022.

We had a net loss of $380,000 or $0.01 per basic and diluted share for the three months ended March 31, 2023 compared to a net loss of $514,000 or $0.01 per basic and diluted share for the three months ended March 31, 2022.

As explained in more detail below, the primary reasons for the decrease in the net loss in the three months ended March 31, 2023 compared to the loss in the three months ended March 31, 2022 were (i) the recording of an unrealized gain on marketable equity securities of $329,000 during the three months ended March 31, 2023 compared to an unrealized loss on marketable equity securities of $213,000 during the three months ended March 31, 2022;

(ii) the recording of an unrealized gain on short-term investments of $21,000 during the three months ended March 31, 2023 compared to an unrealized loss on short-term investments of $51,000 during the three months ended March 31, 2022;

and (iii) no loss on sale of marketable equity securities during the three months ended March 31, 2023 compared to a loss on the sale of marketable equity securities of $81,000 during the three months ended March 31, 2022.

Partially offsetting this decrease in the net loss were (i) an increase in exploration expense to $275,000 during the three months ended March 31, 2023 compared to exploration expense of $226,000 during the three months ended March 31, 2022;

and (ii) an increase in general and administrative costs to $476,000 during the three months ended March 31, 2023 compared to general and administrative costs of $387,000 during the three months ended March 31, 2022.

Comparison of the three months ended June 30, 2023 to the three months ended June 30, 2022

We had a net loss of $1,040,000 or $0.02 per basic and diluted share for the three months ended June 30, 2023 compared to a net loss of $1,691,000 or $0.03 per basic and diluted share for the three months ended June 30, 2022.

As explained in more detail below, the primary reasons for the decrease in our net loss in the three months ended June 30, 2023 compared to the net loss during the three months ended June 30, 2022 were (i) a decrease in exploration expense to $555,000 in the three months ended June 30, 2023 compared to exploration expense of $951,000 during the three months ended June 30, 2022;

a decrease in the unrealized loss on marketable equity securities to $227,000 during the three months ended June 30, 2023 compared to an unrealized loss on marketable equity securities of $368,000 during the three months ended June 30, 2022;

(iii) recording of a gain on unrealized loss on short-term investments of $14,000 compared to a loss of $47,000 during the three months ended June 30, 2022;

(iv) the recording of a loss on the sale of marketable equity securities of $78,000 during the three months ended June 30, 2022, with no similar loss in the three months ended June 30, 2023;

and (v) the recording of a gain on derivative instruments of $23,000 during the three months ended June 30, 2023 compared to a loss on derivative instruments of $3,000 during the three months ended June 30, 2022.

Partially offsetting the above items were (i) an increase in general and administrative expense to $315,000 in the three months ended June 30, 2023 compared to general and administrative expense of $277,000 during the three months ended June 30, 2022;

and (ii) a decrease in interest and dividend income to $26,000 during the three months ended June 30, 2023 compared to interest and dividend income of $41,000 during the three months ended June 30, 2022.

Each of the major components of these items is discussed in more detail below.

Our exploration expense increased to $275,000 during the three months ended March 31, 2023 compared to exploration expense of $226,000 during the three months ended March 31, 2022.

The increase was primarily as a result of an increase in expenses at our Golden Crest project to $241,000 during the three months ended March 31, 2023 compared to exploration expense of $127,000 during the three months ended March 31, 2022.

These costs were partially offset by a reduction in our reconnaissance exploration expenses to $29,000 during the three months ended March 31, 2023 compared to reconnaissance exploration expenses of $95,000 during 2022.

We also incurred exploration expenses of $5,000 and $4,000, respectively, at our Lik project in Alaska during the three months ended March 31, 2023 and 2022.

Our exploration expenditures are normally lower during the first quarter of our fiscal year as a result of weather limitations.

During the three months ended March 31, 2023 we had two contract geologists at our Golden Crest project along with several part-time employees.

During the three months ended March 31, 2023 and 2022, our Denver personnel spent a majority of their time on Golden Crest and various reconnaissance exploration activities described above and related matters.

Our full-year 2023 total exploration and development budget is approximately $2,000,000, which reflects a similar level of anticipated activities at the Golden Crest project during 2023 compared to 2022, as well as a proposed limited exploration and drilling program at Lik.

Nexa is responsible for all planned 2023 exploration expenditures at Florida Canyon.

The proposed 2023 budget does not reflect any costs for drilling the Golden Crest project or any exploration costs for projects or assets we may acquire during 2023.

Our planned exploration activities in 2023 may be modified, as necessary for any drilling programs we may undertake at Golden Crest or projects we may acquire.

Changes may occur to our planned 2023 exploration expenditures related to any number of factors including permitting delays, potential acquisition of new properties, joint venture funding, commodity prices and changes in the deployment of our capital.

We expect our full-year exploration expenditures for 2023 to be similar to the exploration expenditures for full-year 2022.

Exploration expense (in thousands) by project for the three months ended March 31, 2023 and 2022 consisted of the following:

Our net exploration expense decreased to $555,000 during the three months ended June 30, 2023 compared to exploration expense of $951,000 during the three months ended June 30, 2022 primarily as a result of (i) a later start of work at our Lik project by our joint venture partner, Teck, as Lik exploration was $28,000 during the three months ended June 30, 2023 compared to $444,000 of exploration expenditures at Lik, which included the start of a drilling program in the three months ended June 30, 2022;

and (ii) a reduction in reconnaissance exploration during the three months ended June 30, 2023 to $41,000 compared to reconnaissance exploration of $79,000 during the three months ended June 30, 2022.

Although our exploration expenditures at our Golden Crest project were generally comparable for the three months ended June 30, 2023 of $486,000 and $428,000 during the three months ended June 30, 2022, our focus during the 2023 period was on permitting a planned drilling program and additional soil and rock sampling program, while in the three months ended June 30, 2022 we conducted an inductive polarization study at our Golden Crest project as well as soil and rock sampling.

During the three and six months ended June 30, 2023 we had three contract geologists working at our Golden Crest project, as well as several part-time employees who assisted our contract geologists in collecting, organizing and testing soil and rock samples at Golden Crest.

In addition, certain of our Denver-based personnel spent a portion of their time on Golden Crest and reconnaissance exploration activities described above and related matters.

We have budgeted approximately $2,000,000 for the full-year exploration expenditure for 2023, which includes approximately $1,723,000 at the Golden Crest project and $574,000 for Solitario’s share of a joint drilling program with Teck at the Lik project.

We expect our full-year exploration expenditures for 2023 to be above the exploration expenditures for full-year 2022.

Exploration expense (in thousands) by project consisted of the following:

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Six months ended

Florida Canyon

Reconnaissance

Total exploration expense

General and administrative costs, excluding stock option compensation costs, discussed below, were $409,000 during the three months ended March 31, 2023 compared to $374,000 during the three months ended March 31, 2022.

The major components of these costs were related to (i) salaries and benefit expense of $158,000 during the three months ended March 31, 2023 compared to salary and benefit costs of $119,000 during the three months ended March 31, 2022, primarily due to an increase in salary amounts during 2023 compared to 2022;

(ii) legal and professional expenditures of $81,000 during the three months ended March 31, 2023 compared to legal and professional expenditures of $132,000 during the three months ended March 31, 2022, with the higher amount in 2022 primarily related to increased costs for accounting services, including work performed on our SK-1300 mineral reserve reports completed during the three months ended March 31, 2022;

(iii) office rent and expenses of $31,000 during the three months ended March 31, 2023 compared to $20,000 during the three months ended March 31, 2022;

and (iv) travel and shareholder relation costs of $139,000 during the three months ended March 31, 2023 compared to $103,000 during the three months ended March 31, 2022.

We anticipate the full-year general and administrative costs will be higher for 2023 compared to 2022 primarily due to increased activity at both our Golden Crest and Lik projects.

We recorded $67,000 of stock option expense for the amortization of unvested grant date fair value with a credit to additional paid-in-capital during the three months ended March 31, 2023 compared to $13,000 of stock option compensation expense during the three months ended March 31, 2022.

The higher costs during the three months ended March 31, 2023 related to the grant date fair value of 2,360,000 option grants made during 2022 which are being amortized over three years.

There were no significant option grants during 2021 or 2022 which increased the stock option expense in 2022 compared to the three months ended March 31, 2023.

These non-cash charges for the amortization of grant date fair values are related to vesting of stock options outstanding during the three months ended March 31, 2023 and 2022.

General and administrative costs, excluding stock option compensation costs, discussed below, were $257,000 during the three months ended June 30, 2023 compared to $264,000 during the three months ended June 30, 2022.

The major components of our general and administrative costs were (i) salaries and benefit expense of $103,000 during the three months ended June 30, 2023 compared to salary and benefit costs of $99,000 during the three months ended June 30, 2022;

(ii) legal and accounting expenditures of $66,000 in the three months ended June 30, 2023 compared to $65,000 in the three months ended June 30, 2022;

(iii) office rent and expenses of $23,000 during the three months ended June 30, 2023, compared to $32,000 during the three months ended June 30, 2022;

and (iv) travel and shareholder relation costs of $65,000 during the three months ended June 30, 2023 compared to $68,000 during the three months ended June 30, 2022.

We anticipate the full-year general and administrative costs will be comparable for 2023 and 2022.

We recorded $59,000 of stock option compensation expense for the amortization of unvested grant date fair value with a credit to additional paid-in-capital during the three months ended June 30, 2023 compared to $13,000 of stock option compensation expense during the three months ended June 30, 2022.

These non-cash charges related to the expense for vesting on stock options outstanding during the three months ended June 30, 2023 and 2022.

The primary reason for the increase in stock option compensation expense during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was as a result of the grant of 2,360,000 options in the third quarter of 2022, which resulted in an increase in the amortization of the grant date fair values during the three months ended June 30, 2023 compared to the same period of 2022.

See Note 10, “Employee Stock Compensation Plans,” above, for additional information on our stock option expense.

We did not sell any marketable equity securities during the three months ended March 31, 2023.

During the three months ended March 31, 2022, we sold 500,000 shares of Vendetta common stock for proceeds of $26,000 and recorded a loss on sale of marketable equity securities of $81,000.

See Note 3 “Marketable Equity Securities” above to the condensed consolidated financial statements for a discussion of the sale of Marketable Equity Securities.

We may sell shares of our holdings of marketable equity securities during the remainder of 2023;

however, we do not expect sales of marketable equity securities to be a significant source of cash for the year ended December 31, 2023.

We recorded an unrealized gain on marketable equity securities of $329,000 during the three months ended March 31, 2023 compared to an unrealized gain on marketable equity securities of $213,000 during the three months ended March 31, 2022.

The gain during the three months ended March 31, 2023 was primarily related to an increase in the value of our holdings, after the sales of marketable equity securities discussed above in Note 3 “Marketable Equity Securities” to the condensed consolidated financial statements, of (i) 100,000 shares of Kinross Gold Corp.

(“Kinross”) common stock, which increased from a fair value of $409,000 at December 31, 2022 to a fair value of $471,000 at March 31, 2023;

(ii) 134,055 shares of Vox common stock, which increased from a fair value of $311,000 at December 31, 2022 to a fair value of $412,000 at March 31, 2023;

(iii) 7,750,000 shares of Vendetta common stock, which increased from a fair value of $229,000 at December 31, 2022 to a fair value of $373,000 at March 31, 2023;

and (iv) a gain in the fair value of our holdings of Highlander Silver Corp.

to $22,000 during the three months ended March 31, 2023, which was recorded at a zero fair value at December 31, 2022.

We recorded interest income of $27,000 during the three months ended March 31, 2023 compared to interest income of $27,000 during the three months ended March 31, 2022.

Although there was no change in interest income there was a decrease in the outstanding balance of short-term investments during the three months ended March 31, 2023 compared to 2022, however this was offset by an increase in average interest rates earned during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

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

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

We recorded a non-cash unrealized gain on our short-term investments of $21,000 during the three months ended March 31, 2023 compared to an unrealized loss on our short-term investments of $51,000 during the three months ended March 31, 2022 primarily due to an increase in fair value of our investments in USTS as certain individual treasury securities matured and their value increased from prior mark-to-market fair value toward their face value which is paid on maturity.

We generally invest in a ladder of USTS that mature in 30 days to one year and hold those securities to maturity.

The total value of individual securities may increase above or decrease below their face values during the time we hold them as short-term investments as a result of changes in interest rates.

However, because we generally hold our investments in USTS and other short-term investments, such as certificates of deposit (“CD’s”), to maturity, these fluctuations tend to mitigate over time as we receive face value upon maturity.

These changes in interest rates are related to many factors that are not related to our business and do not affect the yield-to-maturity quoted for our investments in USTS or CD’s at the time we acquire these short term investments, to the extent we hold the investments to maturity.

We recorded a non-cash unrealized loss on marketable equity securities of $227,000 during the three months ended June 30, 2023 compared to an unrealized loss on marketable equity securities of $368,000 during the three months ended June 30, 2022.

The non-cash unrealized loss during the three months ended June 30, 2023 was primarily related to (i) a decrease in the value of our 7,750,000 shares of Vendetta common stock, which decreased to a fair value of $234,000 at June 30, 2023 from a fair value of $372,000 at March 31, 2023 or a decrease of $138,000, based on quoted market prices;

and (ii) a decrease in the value of our 134,055 shares of Vox Royalty Corp.

(“Vox”) to $324,000 at June 30, 2023 compared to a value of $412,000 at March 31, 2023 or a decrease of $88,000 based on quoted market prices.

The unrealized loss during the three months ended June 30, 2022 was primarily related to (i) a decrease in the value of our holdings of 100,000 shares of Kinross common stock, which decreased to a fair value of $358,000 at June 30, 2022 from a fair value of $588,000 at March 31, 2022 or a decrease of $230,000 based on quoted market prices;

(ii) a decrease in the value of our then 8,000,000 shares of Vendetta common stock to $279,000 at June 30, 2022 from a value of $442,000 at March 31, 2022 or a decrease of $163,000 based on quoted market prices and (iii) a decrease in the value of our 134,055 shares of Vox to $303,000 at June 30, 2022 compared to a value of $383,000 at March 31, 2022 or a decrease of $80,000 based on quoted market prices.

In addition, during the three months ended June 30, 2022, we transferred $78,000 of prior unrecognized loss on the sale of Vendetta common stock to realized loss on the sale of marketable equity securities, discussed below.

We did not sell any of our marketable equity securities during the three or six months ended June 30, 2023.

During the three months ended June 30, 2022, we sold 500,000 shares of our holdings of Vendetta common stock for proceeds of $27,000 and recorded a loss on sale of marketable equity securities of $78,000.

See Note 3 “Marketable Equity Securities” to the condensed consolidated financial statements for a discussion of the sales of Vendetta and Vox common stock.

We recorded interest and dividend income of $26,000 during the three months ended June 30, 2023 compared to interest income of $41,000 during the three months ended June 30, 2022.

This decrease was primarily due to a decrease in the amount of USTS we held during the three months ended June 30, 2023 compared to the amount of USTS we held during the three months ended June 30, 2022.

Partially offsetting the decrease in the outstanding balance of USTS on our interest income was an increase in the average interest rate earned on our short-term investments in USTS during the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

We anticipate interest income will decrease during the remainder of 2023 from the amounts recorded through the six months ended June 30, 2023 as we expect to utilize the proceeds from maturing USTS to fund our exploration and general and administrative expenditures.

We recorded a non-cash unrealized gain on our short-term investments of $14,000 during the three months ended June 30, 2023 compared to an unrealized loss on our short-term investments of $47,000 during the three months ended June 30, 2022 primarily due to the maturing of our USTS, which are marked-to-market and prior reductions in the quoted fair value of our existing USTS that were purchased at lower yield to maturities than current market values were reversed as the USTS matured and approached face value.

These changes in interest rates are a result of many factors that are not related to our business and do not affect the yield-to-maturity quoted for our investments in USTS or CDs at the time we acquire these short-term investments, to the extent we hold the investments to maturity.

During the three months ended June 30, 2023, we recorded a non-cash gain on derivative instruments of $23,000 related to certain Kinross calls we sold during the three months ended June 30, 2023, compared to a loss on derivative instruments of $3,000 during the three months ended June 30, 2022 related to a reduction in the value of our holdings of Vendetta Warrants which will expired in August 2022.

See Note 6 “Derivative Instruments,” above for a discussion of our Kinross calls.

We regularly perform evaluations of our mineral property assets to assess the recoverability of our investments in these assets.

All long-lived assets are reviewed for impairment whenever events or circumstances change which indicate the carrying amount of an asset may not be recoverable utilizing guidelines based upon future net cash flows from the asset as well as our estimates of the geological potential of an early-stage mineral property and its related value for future sale, joint venture or development by us or others.

During the three months ended March 31, 2023 and 2022, we recorded no property impairments.

At March 31, 2023 and 2022, our net operating loss carry-forwards exceed our built-in gains on marketable equity securities resulting in a net tax asset position for which we provide a valuation allowance for all net deferred tax assets.

We recorded no income tax expense or benefit during the three months ended March 31, 2023 or 2022.

As a result of our exploration activities, we anticipate we will not have currently payable income taxes during 2023.

During the three and six months ended June 30, 2023 and 2022, we recorded no property impairments.

We recorded no income tax expense or benefit during the three and six months ended June 30, 2023 or 2022 as we provide a valuation allowance for the tax benefit arising out of our net operating losses for all periods presented.

As a result of our administrative expenses and exploration activities, we anticipate we will not have currently payable income taxes during 2023.

In addition to the valuation allowance discussed above, we provide a valuation allowance for our foreign net operating losses, which are primarily related to our exploration activities in Peru.

We anticipate we will continue to provide a valuation allowance for these net operating losses until we are in a net tax liability position with regard to those countries where we operate or until it is more likely than not that we will be able to realize those net operating losses in the future.

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.

Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022

We had a net loss of $1,420,000 or $0.02 per basic and diluted share for the six months ended June 30, 2023 compared to a net loss of $2,205,000 or $0.03 per basic and diluted share for the six months ended June 30, 2022.

As explained in more detail below, the primary reasons for the decrease in our net loss were (i) an decrease in exploration expense to $830,000 during the six months ended June 30, 2023 compared to exploration expense of $1,177,000 during the six months ended June 30, 2022;

(ii) a gain on derivative instruments of $23,000 during the six months ended June 30, 2023 compared to a loss on derivative instruments of $4,000 during the three months ended June 30, 2022;

(iii) a realized loss of $159,000 on the sale of marketable equity securities during the six months ended June 30, 2022, with no comparable sales of marketable equity securities during the six months ended June 30, 2023;

an unrealized gain on short-term investments of $35,000 during the six months ended June 30, 2023 compared to an unrealized loss on short-term investments of $98,000 during the six months ended June 30, 2022 and (v) an unrealized gain of $102,000 on marketable equity securities during the six months ended June 30, 2023 compared to an unrealized loss on marketable equity securities of $155,000 during the six months ended June 30, 2022.

Partially offsetting these reductions in the loss for the six month period ended June 30, 203 compared to the six month period ended June 30, 2023 were (i) an increase in general and administrative expenses to $791,000 during the six months ended June 30, 2023 compared to general and administrative expenses of $664,000 during the six months ended June 30, 2022 and;

(ii) a decrease in interest and dividend income to $53,000 during the six months ended June 30, 2023 compared to interest income of $68,000 during the six months ended June 30, 2022.

The significant changes for these items are discussed in more detail below.

Our net exploration expense decreased to $830,000 during the six months ended June 30, 2023 compared to $1,177,000 during the six months ended June 30, 2022.

The primary reason for the decrease was that the exploration expenditures at our Lik project in Alaska were $33,000 during the six months ended June 30, 2023 compared to exploration expenditures of $448,000 during the six months ended June 30, 2022, where our joint venture partner, Teck, completed a portion of a planned $1.3 million (total) exploration program for 2022, including drilling, of which we are responsible for one-half of the total costs incurred.

We have agreed with Teck to complete a $1.1 million exploration program at Lik for 2023, of which we are responsible for one-half of that or approximately $550,000 for the full year of 2023, however due to timing of expenditures, we anticipate the bulk of those expenditures will occur in the third and fourth quarters of 2023.

Partially offsetting this decrease in exploration expenditures during the 2023 period compared to the 2022 period was an increase in our expenditures at the Golden Crest project to $727,000 during the six months ended June 30, 2023 compared to Golden Crest exploration expenditures of $555,000 during the six months ended June 30, 2022, as a result of additional permitting work and soil and rock sampling during 2023 compared to 2022.

General and administrative costs, excluding stock option compensation costs discussed below, were $664,000 during the six months ended June 30, 2023 compared to $638,000 during the six months ended June 30, 2022.

The major components of the costs were (i) salary and benefit expense during the six months ended June 30, 2023 of $263,000 compared to salary and benefit expense of $218,000 during the six months ended June 30, 2022, with these increases as a result of increased personnel and salaries in 2023;

(ii) legal and accounting expenditures of $145,000 during the six months ended June 30, 2023, compared to $197,000 during the six months ended June 30, 2022;

(iii) office and other costs of $51,000 during the six months ended June 30, 2023 compared to $53,000 during the six months ended June 30, 2022;

and (iv) travel and shareholder relation costs of $205,000 during the six months ended June 30, 2023 compared to $170,000 during the six months ended June 30, 2022.

During the six months ended June 30, 2023 and 2022, Solitario recorded $126,000 and $26,000, respectively, of stock option expense for the amortization of unvested grant date fair value with a credit to additional paid-in capital.

The increase during the six months ended June 30, 2023 was primarily related to the addition of 2,360,000 options granted during the third quarter of 2022 with a grant date fair value of $876,000, which increased the amortization of unvested options’ grant date fair value during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

We recorded an unrealized gain on marketable equity securities of $102,000 during the six months ended June 30, 2023 compared to an unrealized loss on marketable equity securities of $155,000 during the six months ended June 30, 2022.

The non-cash unrealized gain during the six months ended June 30, 2023 was primarily related to (i) an increase in the fair value of our holdings of 7,750,000 shares of Vendetta common stock to $235,000 at June 30, 2022 compared to a fair value of $229,000 at December 31, 2022, based on quoted market prices;

(ii) an increase in the fair value of our holdings of 100,000 shares of Kinross common stock at June 30, 2023 to $477,000 compared to a fair value of $409,000 at December 31, 2022, based on quoted market prices;

and (iii) an increase in the fair value of our holdings of 134,055 shares of Vox to $324,000 at June 30, 2022 compared to a fair value of $309,000 at December 31, 2022 based on quoted market prices.

The non-cash unrealized loss during the six months ended June 30, 2022 was primarily related to (i) a decrease in the fair value of our holdings of our then 8,000,000 shares of Vendetta common stock to $279,000 at June 30, 2022 compared to a fair value of $317,000 at December 31, 2021, based on quoted market prices;

(ii) a decrease in the fair value of our holdings of 100,000 shares of Kinross common stock to $358,000 compared to a fair value of $581,000 at December 31, 2021, based on quoted market prices;

and (iii) a decrease in the fair value of our holdings of 134,055 shares of Vox to $303,000 at June 30, 2022 compared to a fair value of $370,000 at December 31, 2021 based on quoted market prices.

We may reduce our holdings of marketable equity securities depending on cash needs and market conditions, which may reduce the volatility of the changes in unrealized gains and losses in marketable equity securities during the remainder of 2023.

We recorded interest and dividend income of $53,000 during the six months ended June 30, 2023 compared to interest and dividend income of $68,000 during the six months ended June 30, 2022.

The reduction in interest income was primarily related to a reduction in our average outstanding balance of USTS during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, which was partially offset by an increase in the average interest rate and income earned on our USTS during the six months ended June 30, 2023 compared to the average interest rate during the six months ended June 30, 2022.

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

We recorded a non-cash unrealized gain on our short-term investments of $35,000 during the six months ended June 30, 2023 compared to an unrealized loss on our short-term investments of $98,000 during the six months ended June 30, 2021 primarily due to certain of our USTS increasing in value as they approached maturity, which were previously recorded at a mark-to-market amount that was below their face value as a result of then current interest rates being higher than the yield-to-maturity rates our USTS at the time the USTS were acquired.

We did not sell any marketable equity securities during the six months ended June 30, 2023.

During the six months ended June 30, 2022, we sold 1,000,000 shares of our holdings of Vendetta common stock for proceeds of $53,000 and recorded a loss on sale of marketable equity securities of $159,000.

See Note 3 “Marketable Equity Securities” to the condensed consolidated financial statements for a discussion of the sale of marketable equity securities.

During the six months ended June 30, 2023, we recorded a non-cash gain on derivative instruments of $23,000 related to certain Kinross calls we sold during the three months ended June 30, 2023.

During the six months ended June 30, 2022 we recorded a non-cash loss of $4,000 on our Vendetta Warrants.

As of March 31, 2023, we had $440,000 in cash.

We intend to utilize a portion of this cash and a portion of our short-term investments, discussed below, to fund our ordinary overhead, operational costs, exploration activities and for the potential acquisition of additional mineral properties and other assets over the next several years.

Short-term Investments

As of March 31, 2023, we had $3,163,000 in short-term investments invested in USTS with maturities of 30 days to eleven months.

Cash and Short-term Investments

As of June 30, 2023, we have $2,573,000 in cash and short-term investments.

As of June 30, 2023, we have $2,077,000 of our current assets in USTS with maturities of 30 days to 8 months.

The USTS are recorded at their fair value based upon quoted market prices.

We anticipate we will roll over that portion of our short-term investments not used for exploration expenditures, operating costs or mineral property acquisitions as they become due during the remainder of 2023.

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.

Investment in Marketable Equity Securities

Our marketable equity securities are carried at fair value, which is based upon market quotes of the underlying securities.

At March 31, 2023, we owned (i) 7,750,000 shares of Vendetta common stock with a fair value of $373,000;

(ii) 100,000 shares of Kinross common stock with a fair value of $471,000;

(iii) 134,055 shares of Vox common stock with a fair value of $412,000 and (iv) 200,000 shares of Highlander Silver Corp.

with a fair value of $22,000.

All of our marketable equity securities are carried at their fair values based upon quoted market prices.

We did not sell any marketable equity securities during the three months ended March 31, 2023.

During the three months ended March 31, 2022, we sold certain portions of our marketable equity securities for proceeds of $26,000 and realized a loss on sale of marketable equity securities of $81,000.

We anticipate we may sell some of our marketable equity securities during the remainder of 2023 depending upon cash needs and market conditions.

At June 30, 2023 we own 7,750,000 shares of Vendetta common stock, 100,000 shares of Kinross common stock, 134,055 shares of Vox common stock and 200,000 shares of Highlander Silver Corp.

common stock.

At June 30, 2023, the Vendetta shares are recorded at their fair value of $234,000, the Kinross shares are recorded at their fair value of $477,000;

the Vox shares are recorded at their fair value of $325,000 and the Highlander Silver Corp.

shares are recorded at their fair value of $15,000.

We did not sell any of our marketable equity securities during the six months ended June 30, 2023.

During the six months ended June 30, 2022 we sold 1,000,000 shares of Vendetta common stock, as discussed above.

See Note 3 “Marketable Equity Securities” in the condensed consolidated financial statements.

We anticipate we may sell some portion of our holdings of marketable equity securities during the remainder of 2023 depending on cash needs and market conditions.

Working Capital

We had working capital of 4,694,000 at March 31, 2023 compared to working capital of 4,991,000 as of December 31, 2022.

Our working capital at March 31, 2023 consists primarily of our cash and cash equivalents, our investment in USTS, our investment in marketable equity securities of $1,278,000, and other current assets of $26,000, less our accounts payable of $188,000 and other current liabilities of $25,000.

As of March 31, 2023, we believe our cash balances along with our short-term investments and marketable equity securities are adequate to fund our expected expenditures over the next year.

We had working capital of $3,716,000 at June 30, 2023 compared to working capital of $4,991,000 as of December 31, 2022.

Our working capital at June 30, 2023 consists primarily of our cash and cash equivalents, our investment in USTS, discussed above, our investment in marketable equity securities of $1,051,000, and other current assets of $366,000, less our accounts payable of $235,000 and other current liabilities of $39,000.

As of June 30, 2023, 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.

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 our interests in other exploration projects or assets.

Stock-Based Compensation Plans

As of March 31, 2023, and December 31, 2022 there were options outstanding to acquire 5,390,000 and 5,390,000, respectively, shares of Solitario common stock.

As of June 30, 2023, and December 31, 2022 there were options outstanding from the 2013 Plan to acquire 5,340,000 and 5,390,000 shares, respectively, of Solitario common stock.

The outstanding options have exercise prices between $0.60 per share and $0.20 per share.

There were no options exercised during the three months ended March 31, 2023.

During the three months ended March 31, 2022, options for 73,000 shares were exercised with an average exercise price of $0.26 per share for proceeds of $19,000.

Options for 1,561,500 shares of Solitario Common Stock, with an exercise price of $0.31 per share, expire in October 2023.

Unless the quoted market price of a share of our common stock exceeds $0.31 per share prior to the exercise date of these shares, we do not anticipate the exercise of options will be a significant source of cash flow during the remainder of 2023.

During the six months ended June 30, 2023, options for 50,000 shares were exercised with an exercise price of $0.28 per share for proceeds of $14,000.

During the six months ended June 30, 2022, options for 81,750 shares were exercised with an average exercise price of $0.25 per share for proceeds of $20,000.

We do not anticipate the exercise of options to be a significant source of cash flow during the remainder of 2023.

At the Market Offering Agreement

On February 2, 2021, Solitario entered into the ATM Agreement with Wainwright, under which Solitario may, from time to time, issue and sell shares of Solitario’s common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $9.0 million.

Solitario did not sell any shares under the ATM agreement during the three months ended March 31, 2023.

During the three months ended March 31, 2022, Solitario sold an aggregate of 2,650,724 shares of common stock under the ATM Agreement at an average price of $0.79 per share for net proceeds after commissions and expenses of approximately $2,023,000.

On February 2, 2021, we entered into the ATM Agreement with Wainwright, under which we may, from time to time, issue and sell shares of our common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $9.0 million.

There were no sales of shares of common stock during the six months ended June 30, 2023.

During the six months ended June 30, 2022, we sold an aggregate of 2,650,724 shares of common stock under the ATM Program at an average price of $0.76 per share of common stock for net proceeds after commissions and expenses of approximately $2,023,000.

Solitario may sell additional shares under the ATM program during the remainder of 2023 if market conditions warrant such sales.

(d) Cash Flows

Net cash used in operations during the three months ended March 31, 2023 increased to $685,000 compared to $597,000 of net cash used in operations for the three months ended March 31, 2022 primarily as a result of (i) an increase in exploration expense to $275,000 during the three months ended March 31, 2023 compared to exploration expense of $226,000 during the three months ended March 31, 2022;

(ii) an increase in non-stock option general and administrative expense to $409,000 during the three months ended March 31, 2023 compared to $374,000 during the three months ended March 31, 2022, as discussed above, and (iii) a use of cash of $50,000 for the reduction of accounts payable and other liabilities during the three months ended March 31, 2023 compared to a use of cash from a decrease in accounts payable and other liabilities of $20,000 during the three months ended March 31, 2021.

Partially offsetting this increased use of cash was a decrease in prepaid expenses and other assets of $21,000 during the three months ended March 31, 2023, compared to an increase (use of cash) in prepaid expenses and other assets of $14,000 during the three months ended March 31, 2022.

Net cash used in operations during the six months ended June 30, 2023 increased to $1,765,000 compared to $1,272,000 of net cash used in operations for the six months ended June 30, 2022 primarily as a result of (i) the pre-payment of $350,000 during the second quarter of 2023 to our joint venture partner Teck for an advance on planned 2023 exploration program at the Lik project in Alaska, of which $332,000 remained in pre-paid expense at June 30, 2023 and is included in the changes in prepaid expenses and other current assets as a use of cash;

(ii) an increase in non-stock option general and administrative expense to $665,000 during the six months ended June 30, 2023 compared to $638,000 during the six months ended June 30, 2022, discussed above;

and (iii) a reduction in the provision of cash from changes in other prepaid expenses and other current assets of $4,000 to a total change of $228,000 during the six months ended June 30, 2023 compared to the provision of cash of $222,000 during the six months ended June 30, 2023, which was primarily due to the use of a prepaid balance of $221,000 due from Teck at December 31, 2021 during the six months ended June 30, 2022;

and (iv) the use of cash of $15,000 from a decrease in accounts payable and other current liabilities during the six months ended June 30, 2023 compared to the provision of cash of $234,000 from an increased in accounts payable and other current liabilities during the six months ended June 30, 2022 as a result of increased exploration activity at our Golden Crest project during the six months ended June 30, 2022.

These uses of cash were partially offset by (i) a decrease in exploration expense to $830,000 during the six months ended June 30, 2023 compared to exploration expense of $1,177,000 during the six months ended June 30, 2023;

and (ii) a reduction in interest and dividend income to $53,000 during the six months ended June 30, 2023 compared to interest and dividend income of $68,000 during the six months ended June 30, 2022.

Based upon projected expenditures in our 2023 budget, we anticipate continued use of funds from operations through the remainder of 2023, primarily for exploration related to our Golden Crest and Lik projects and reconnaissance exploration.

See “Results of Operations” discussed above for further explanation of some of these variances.

During the three months ended March 31, 2023, we received $809,000 in cash from the net sale of our short-term investments compared to the use of $1,578,000 in cash for net purchases of short-term investments during the three months ended March 31, 2022.

The remaining change in investing activities related to proceeds of $26,000 from the sale of marketable equity securities during the three months ended March 31, 2022 and the purchase of mineral properties of $10,000 during the three months ended March 31, 2022 with no similar investment activities during the three months ended March 31, 2023.

During the six months ended June 30, 2023, we provided $1,909,000 of cash from the sale of short-term investments compared to the use of $881,000 in cash during the six months ended June 30, 2022 from the net investment in short-term investments.

During the six months ended June 30, 2023 we acquired equipment and other assets used in our exploration activities of $9,000 compared to $49,000 of equipment acquired during the six months ended June 30, 2022.

We received cash proceeds of $31,000 from the sale of Kinross calls during the six months ended June 30, 2023 with no similar sales during the six months ended June 30, 2022.

During the six months ended June 30, 2022 we sold certain marketable equity securities for proceeds of $53,000, with no similar sales during the six months ended June 30, 2023.

We also used $10,000 of our cash to acquire additional mineral claims at our Golden Crest project during the six months ended June 30, 2022 with no similar mineral property additions during the six months ended June 30, 2023.

We may sell a portion of our marketable equity securities during the remainder of 2023;

however, we do not anticipate the sale of marketable equity securities will be a significant source of cash during the remainder of 2023.

We will continue to liquidate a portion of our short-term investments as needed to fund our operations and our potential mineral property acquisitions during the remainder of 2023.

Any potential mineral property acquisition or strategic corporate investment during the remainder of 2023 could involve a significant change in our cash provided or used for investing activities, depending on the structure of any potential transaction.

During the three months ended March 31, 2023, we did not sell any of our common stock.

During the three months ended March 31, 2022, we received net cash of $2,023,000 from the issuance of common stock under the ATM Program.

In addition, during the three months ended March 31, 2022 we received $19,000 from the issuance of common stock from the exercise of stock options, discussed above in Note 9, “Employee Stock Compensation Plans” to the condensed consolidated financial statements.

Any potential mineral property acquisition or strategic corporate investment during the remainder of 2023, discussed above, could involve a significant change in our cash provided or used for investing activities, depending on the structure of any potential transaction.

During the six months ended June 30, 2022, we received net cash of $2,023,000 from the issuance of common stock under the ATM Program, discussed above.

In addition, during the six months ended June 30, 2023 and 2022 we received $14,000 and $20,000, respectively, from the issuance of common stock from the exercise of stock options, discussed above in Note 10, “Employee Stock Compensation Plans” to the condensed consolidated financial statements.

(e) Mineral Resources

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Mineral Reserves and Resources

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and applicable Canadian securities laws which have two different reporting standards.

reporting requirements, are governed by Item 1300 of Regulation S-K (“S-K 1300”), as issued by the SEC.

Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), as adopted from the definitions provided by the Canadian Institute of Mining, Metallurgy and Petroleum.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and applicable Canadian securities laws, and as a result we report our mineral resources according to two different standards.

reporting requirements, are governed by Item 1300 of Regulation S-K (“S-K 1300”) issued by the SEC.

Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) adopted from the definitions provided by the Canadian Institute of Mining, Metallurgy and Petroleum.

Both sets of reporting standards have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but the standards generally embody slightly different approaches and definitions.

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(f) Off-balance sheet arrangements

As of March 31, 2023, and December 31, 2022, we have no off-balance sheet obligations.

As of June 30, 2023 and December 31, 2022 we had no off-balance sheet obligations.

(g) Development Activities, Exploration Activities, Environmental Compliance and Contractual Obligations

We are not involved in any development activities, nor do we have any contractual obligations related to any potential development activities as of March 31, 2023.

As of March 31, 2023, there have been no changes to our exploration activities, environmental compliance or other contractual obligations from those disclosed in our Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 31, 2022.

We are not involved in any development activities, nor do we have any contractual obligations related to any potential development activities as of June 30, 2023.

As of June 30, 2023, there have been no material changes to our contractual obligations for exploration activities, environmental compliance or other obligations from those disclosed in our Management’s Discussion and Analysis included in our 2022 Annual Report.

(h) Discontinued Projects

We did not record any mineral property write-downs during the three months ended March 31, 2023 and 2022.

We did not record any mineral property write-downs during the three and six months ended June 30, 2023 and 2022.

(i) Significant Accounting Policies and Critical Accounting Estimates

See Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our significant accounting policies.

See Note 1 to the condensed consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our significant accounting policies.

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

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In such cases, a recoverability test may be necessary to determine if an impairment charge is required.

There has been no change to our assumptions, estimates or calculations during the three months ended March 31, 2023.

There has been no change to our assumptions, estimates or calculations during the three and six months ended June 30, 2023.

(j) Related Party Transactions

As of March 31, 2023, and for the three months ended March 31, 2023, we have no related party transactions or balances.

As of June 30, 2023, and for the three and six months ended June 30, 2023, we have no related party transactions or balances.

(k) Recent Accounting Pronouncements

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(l) Forward Looking Statements

This Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “1934 Act”) with respect to our financial condition, results of operations, business prospects, plans, objectives, goals, strategies, future events, capital expenditures, and exploration and development efforts.

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 herein and under the heading "Risk Factors" included in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022.

These forward-looking statements appear in a number of places in this report and include statements with respect to, among other things:

Our estimates of the value and recovery of our short-term investments;

Our estimates of the value and recovery of our mineral resources;

Our estimates of future exploration, development, general and administrative and other costs;

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Our ability to successfully identify, and execute on transactions to acquire new mineral exploration properties and other related assets;

Our estimates of fair value of our investment in shares of Vendetta, Vox, Kinross and Highlander;

Our ability to secure financing in the credit or capital markets in amounts and on terms that will allow us tu execute our business strategy, invest in new projects, and maintain adequate liquidity;

Our estimates of fair value of our investment in shares of Vendetta, Vox and Kinross;

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;

The impact of technological changes, system failures, or breaches of our network security as well as other cyber security risks that could subject us to increased operating costs, litigation and other liabilities:

The effects of volatile economic conditions, including financial market volatility, the effects of inflation, rising interest rates, and labor and supply shortages;

Our future financial condition or results of operations and our future revenues and expenses;

Our business strategy and other plans and objectives for future operations;

Risks related to pandemics, including the outbreak of COVID-19.

Risks related to natural disasters or adverse external events such as endemics or pandemics, including the on-going effects from the COVID-19 pandemic.

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.

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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-Q

Item 2. Management’s Discussion and Analysis