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

November 04, 2009 | About:
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10qk

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Solitario Resources Corp. (XPL) filed Quarterly Report for the period ended 2009-09-30.

Solitario is a gold silver platinum-palladium and base metal exploration company actively exploring in Brazil Mexico and Peru. Solitario has significant business relationships with Anglo Platinum Newmont Mining and Votorantim Metais. Solitario has approximately US$24 million in cash and marketable securities and no debt. Solitario is traded on the American Stock Exchange (XPL) and on the Toronto Stock Exchange (TSX: SLR). Solitario Resources Corp. has a market cap of $62.5 million; its shares were traded at around $2.1 with and P/S ratio of 312.3.

Highlight of Business Operations:

On April 16, 2009 we sold a covered call option covering 40,000 shares of Kinross (the "August 09 Kinross Call") for net proceeds of $45,000. The option had a strike price of $17.50 per share and an expiration date of August 19, 2009. On July 21, 2009, we repurchased the August 09 Kinross Call for cash of $125,000 and recorded a loss on derivative instrument during the three and nine months ended September 30, 2009 of $17,000 and $80,000, respectively. On July 21, 2009, concurrently with the purchase of the August 09 Kinross Call, we sold a covered call option covering 40,000 shares of Kinross with a strike price of $17.50 expiring on November 21, 2009 (the "November 09 Kinross Call") for $158,000. As of September 30, 2009, we have recorded a liability for the fair market value of the November 09 Kinross Call of $176,000 and have recorded a loss on derivative instruments of $18,000 in the three and nine months ended September 30, 2009.

We had a net loss of $377,000 or $0.01 per basic and diluted share for the three months ended September 30, 2009 compared to net income of $3,193,000 or $0.11 per share for the three months ended September 30, 2008. As explained in more detail below, the primary reason for the loss for the three months ended September 30, 2009 compared to the income in the same period of 2008 was the unrecognized gain on our Kinross Collar during the three months ended September 30, 2008 of $4,697,000 compared to an unrecognized gain on our Kinross Collar of $851,000 during the three months ended September 30, 2009. Additionally, our general and administrative (net) costs increased related to our stock option compensation benefit decreasing to $1,082,000 during the three months ended September 30, 2009 compared to a stock option compensation benefit of $1,377,000 during the three months ended September 30, 2008 and our gain of $919,000 from the sale of our Kinross stock during the three months ended September 30, 2009 was less than the gain of $993,000 during the three months ended September 30, 2008. These changes were partially offset by a decline in our exploration expense in the three months ended September 30, 2009 compared to September 30, 2008. These fluctuations caused a decrease from our pre-tax income of $5,455,000 during the three months ended September 30, 2008 to a pre-tax loss of $326,000 during the three months ended September 30, 2009, which reduced our income tax expense to $204,000 during the three months ended September 30, 2009 compared to an income tax expense of $2,347,000 during the three months ended September 30, 2008. Each of these items is discussed in more detail below.

We had a loss of $2,436,000 or $0.08 per share for the nine months ended September 30, 2009 compared to net income of $271,000 or $0.01 per share for the nine months ended September 30, 2008. The primary reasons for the loss in the nine months ended September 30, 2009 compared to the income in the same period of 2008 were due to (i) a loss on derivative instruments of $299,000 during the nine months ended September 30, 2009 compared to a gain on derivative instruments of $1,966,000 during the nine months ended September 30, 2008; (ii) a reduction in the gain on marketable equity securities of $2,167,000 from the nine months ended September 30, 2008 to the nine months ended September 30, 2009 and (iii) a increase in our general and administrative expense to $1,452,000 during the nine months ended September 30, 2009 compared to $431,000 during the nine months ended September 30, 2008. Included in general and administrative expense was a stock option compensation benefit of $334,000 for the nine months ended September 30, 2009 compared to a benefit of $1,360,000 for the nine months ended September 30, 2008. Partially offsetting these reduction in gains and increases in costs was a reduction in our tax expense of $2,004,000 during the nine months ended September 30, 2008 to an income tax benefit of $7,000 during the nine months ended September 30, 2009. Each of these items is discussed in more detail below.

Excluding the stock option compensation benefit of $334,000 during the nine months ended September 30, 2009 and the stock option compensation benefit of $1,360,000 during the nine months ended September 30, 2008, discussed below, other general and administrative costs were $1,786,000 during the first nine months of 2009 compared to $1,791,000 in the same period of 2008. Salary and benefits expense increased to $915,000 in the first nine months of 2009 compared to $899,000 in the first nine months of 2008. Legal and accounting costs increased to $493,000 in the first nine months of 2009 compared to $221,000 in the first nine months of 2008, primarily related to the terminated Metallic Ventures transaction, discussed above. However these increases were offset by (i) a $53,000 decrease in consulting expense to a related party, discussed below; (ii) a decrease in office and insurance expense to $85,000 in the first nine months of 2009 compared to $154,000 in the first nine months of 2008; and (iii) a decrease in our travel and shareholder services expenses to $230,000 in the first nine months of 2009 compared to $346,000 in the same period of 2008. These decreases were partially related to the decreased exploration activity discussed above.

Our marketable equity securities are classified as available-for-sale and are carried at fair value, which is based upon market quotes of the underlying securities. At September 30, 2009 and December 31, 2008, we owned 1,050,000 shares and 1,150,000 shares of Kinross common stock, respectively. The Kinross shares are recorded at their fair market value of $22,785,000 and $21,183,000 at September 30, 2009 and December 31, 2008, respectively. At September 30, 2009, 500,000 of these 1,050,000 shares are subject to the Kinross Collar. In addition we own other marketable equity securities with a fair value of $286,000 and $33,000 as of September 30, 2009 and December 31, 2008, respectively. Changes in the fair value of marketable equity securities are recorded as gains and losses in other comprehensive income in stockholders' equity. During the three and nine months ended September 30, 2009, we recorded an unrealized gain on marketable equity securities in accumulated other comprehensive income in stockholders' equity of $3,944,000 and $3,706,000, respectively, less related deferred tax expense of $1,471,000 and $1,383,000, respectively. During the three and nine months ended September 30, 2009, we reclassified $919,000 and $1,409,000, respectively, of unrealized gain on marketable equity securities, net of related deferred taxes of $343,000 and $526,000, respectively, to gain on sale of marketable equity securities as a result of the sale of 60,000 and 100,000 shares, respectively, of Kinross common stock. During the three and nine months ended September 30, 2008, we recorded a loss on marketable equity securities in accumulated other comprehensive income in stockholders' equity of $8,664,000 and $1,875,000, respectively, less related deferred tax benefit of $3,232,000 and $699,000, respectively. We reclassified $993,000 and $3,576,000, respectively, of unrealized gain on marketable equity securities, net of related deferred taxes of $370,000 and $1,334,000, respectively, to gain on sale of marketable equity securities as a result of the sale of 50,000 and 192,920 shares of Kinross, respectively. Any change in the market value of the shares of Kinross common stock could have a material impact on our liquidity and capital resources. The share price of Kinross common stock has varied from a high of $23.91 per share to a low of $6.85 per share during the 52 weeks ended September 30, 2009.

On April 16, 2009 we sold the August 09 Kinross Call covering 40,000 shares of Kinross for net proceeds of $45,000. The option had a strike price of $17.50 per share and an expiration date of August 19, 2009. On July 21, 2009, we repurchased the August 09 Kinross Call for cash of $125,000 and recorded a loss on derivative instrument during the three and nine months ended September 30, 2009 of $17,000 and $80,000, respectively. On July 21, 2009, concurrently with the purchase of the August 09 Kinross Call, we sold the November 09 Kinross Call for $158,000 covering 40,000 shares of Kinross with a strike price of $17.50 expiring on November 21, 2009. As of September 30, 2009, we have recorded a liability for the fair market value of the November 09 Kinross Call of $176,000 and have recorded a loss on derivative instruments of $18,000 in the three and nine months ended September 30, 2009.

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10qk
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