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Solitario Resources Corp. Reports Operating Results (10-Q)

November 12, 2010 | About:
10qk

10qk

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Solitario Resources Corp. (XPL) filed Quarterly Report for the period ended 2010-09-30.

Solitario Resources Corp. has a market cap of $69.6 million; its shares were traded at around $2.34 with and P/S ratio of 348.2.

Highlight of Business Operations:

We had a net income of $7,000 or $0.00 per basic and diluted share for the three months ended September 30, 2010 compared to a net loss of $377,000 or $0.01 per share for the three months ended September 30, 2009. As explained in more detail below, the primary reason for the income for the three months ended September 30, 2010 compared to the loss in the same period of 2009 was the recording of a gain on deconsolidation of PBM, a reduction in exploration expense, a reduction in our loss on derivative instruments and the recording of income tax benefit of $341,000 in the three months ended September 30, 2010 compared to income tax expense of $204,000 in the same period of 2009. These changes were partially offset by stock option compensation expense of $206,000 recorded in the three months ended September 30, 2010 compared to a stock option compensation benefit of $1,082,000 in the same period of 2009. In addition we recorded a gain on sale of marketable equity securities of $919,000 from the sale of 60,000 shares of Kinross in the three months ended September 30, 2009 and there were no sales of Kinross during the three months ended September 30, 2010. Each of these items is discussed in more detail below.

We had a loss of $2,190,000 or $0.07 per share for the nine months ended September 30, 2010 compared to a loss of $2,436,000 or $0.08 per share for the nine months ended September 30, 2009. The primary reasons for the decrease in the loss in the nine months ended September 30, 2010 from the loss in the same period of 2009 was an decrease in exploration expense to $2,312,000 during the nine months ended September 30, 2010 compared to exploration expense of $2,596,000 in the same period of 2009, a gain on deconsolidation of our PBM subsidiary and an increase in our income tax benefit to $634,000 in the nine months ended September 30, 2010 compared to an income tax benefit of $7,000 in the same period of 2009. These items were offset by an increase in general and administrative expense, and a decrease in the gain on sale of marketable equity securities to $553,000 during the first nine months of 2010 compared to $1,409,000 in the same period of 2009. Each of these items is discussed in more detail below.

Excluding the stock option compensation expense of $851,000 during the nine months ended September 30, 2010 and the stock option compensation benefit of $335,000 during the nine months ended September 30, 2009, discussed below, other general and administrative costs were $1,301,000 during the first nine months of 2010 compared to $1,787,000 in the same period of 2009. Salary and benefits expense decreased to $736,000 in the first nine months of 2010 compared to $915,000 in the first nine months of 2009, primarily due to the transfer of certain South American administrative duties to exploration. Legal and accounting costs decreased to $179,000 in the first nine months of 2010 compared to $493,000 in the first nine months of 2009, primarily related to the activities related to the attempted merger with Metallic Ventures in 2009 and to an increase in legal and accounting costs during 2009 in connection with a review and restatement of our financial statements during 2009 and there were no similar activities during 2010. We also reduced certain office and supply costs to $55,000 during the first nine months of 2010 compared $87,000 in the same period of 2009 as part of our ongoing effort to reduce administrative costs during 2010 discussed above. These reductions were partially offset by increases in exchange rates and increased travel during the first nine months of 2010 compared to 2009.

We recorded deferred tax benefit of $634,000 during the first nine months of 2010 compared to a deferred tax benefit of $7,000 during the same period of 2009 related to the expected benefit of the currently generated net operating losses on United States activities. The increase in the deferred tax benefit in 2010 compared to 2009 primarily related to (i) an decrease in taxable proceeds from the sale of marketable equity securities to $730,000 in the first nine months of 2010 compared to proceeds of $1,852,000 during the same period of 2009 and (ii) an increase in the tax deductible general and administrative costs included in our total general and administrative costs of $2,152,000 during the first nine months of 2010 compared to our total general and administrative costs of $1,452,000 in the same period of 2009. The tax effects of these items were partially mitigated by the tax effects of the decrease to a $52,000 loss on derivative instrument during the nine months ended September 30, 2010 compared to the $299,000 gain on derivative instruments during the same period of 2009. Changes in our exploration activities do not have a significant effect on our recorded deferred tax benefit, as these costs are incurred in jurisdictions outside of the United States and we provide a full valuation allowance against any net operating losses generated.

Net cash used in operations during the nine months ended September 30, 2010 decreased to $3,792,000 compared to $3,945,000 for the nine months ended September 30, 2009 primarily as a result of reduced exploration activity and a reduction in general and administrative costs. We also had a net increase in prepaid expenses and other current assets of $3,000 during the nine months ended September 30, 2010, compared to a decrease of $105,000 during the nine months ended September 30, 2009. We also had a decrease (payment of) in net accounts payable and other current liabilities of $469,000 in the nine months ended September 30, 2010 compared to an increase in accounts payable and other current liabilities of $237,000 in the nine months ended September 30, 2009.

A significant part of our business involves the review of potential property acquisitions and continuing review and analysis of properties in which we have an interest, to determine the exploration and development potential of the properties. In analyzing expected levels of expenditures for work commitments and property payments, our obligations to make such payments fluctuate greatly depending on whether, among other things, we make a decision to sell a property interest, convey a property interest to a joint venture, or allow our interest in a property to lapse by not making the work commitment or payment required. In acquiring our interests in mining claims and leases, we have entered into agreements, which generally may be canceled at our option. We are required to make minimum rental and option payments in order to maintain our interest in certain claims and leases. In 2010 we have expended approximately $240,000 in land holding costs during the first three quarters and expect expenditures to total about $600,000 for the entire year. Of the expected $600,000 annual 2010 amount, approximately $195,000 will be reimbursed to Solitario by our joint venture partners, and $300,000 will be paid related to our recently approved Ely LOI. Excluded from these amounts are land payments paid on our Bongara and Chambara Joint Ventures operated by Votorantim Metais. In addition, we may be required to make further payments in the future if we elect to exercise our options under our property agreements or if we enter into new agreements. We expect our consolidated land and mineral right payment commitments will increase substantially as a result of the approval of the Ely LOI, including a $300,000 advance royalty payment due in November 2010.

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