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

May 06, 2010 | About:
10qk

10qk

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Solitario Resources Corp. (XPL) filed Quarterly Report for the period ended 2010-03-31.

Solitario Resources Corp. has a market cap of $69 million; its shares were traded at around $2.32 with and P/S ratio of 345.1.
This is the annual revenues and earnings per share of XPL over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of XPL.


Highlight of Business Operations:

On March 9, 2010 we signed a letter agreement with Regent Holdings, Ltd. ("Regent"), related to Solitario's Mercurio project located in Brazil, whereby Regent has agreed to pay to Solitario $1,000,000 over the next four years, in the amounts of $50,000, $100,000, $200,000 and $650,000 beginning March 15, 2011 and on each anniversary of that date through March 15, 2014, and invest in minimum expenditure amounts totaling $900,000 over the same period. Upon the final payment Regent will own Mercurio and we will retain a net smelter royalty of 1.5% on all ounces of gold produced at Mercurio up to 2 million ounces and will retain a net smelter royalty of 2.0% on all ounces of gold over 2 million ounces. Regent may terminate the agreement at any time after six months from the date of signing the agreement. Regent will be responsible for all payments to keep the Mercurio claims in good standing during the period of the agreement.

We had a net loss of $905,000 or $0.03 per basic and diluted share for the three months ended March 31, 2010 compared to a loss of $671,000 or $0.02 per basic and diluted share for the first three months ended March 31, 2009. As explained in more detail below, the primary reason for the increase in the loss in the first three months of 2010 compared to the loss in the first three months of 2009 was from a reduction in the unrealized gain on derivative instruments to $112,000 during the three months ended March 31, 2010 compared to an unrealized gain of $527,000 during the three months ended March 31, 2009, primarily related to a smaller reduction in the estimated liability related to our Kinross Collar during the three months ended March 31, 2010 compared to the three months ended March 31, 2009. In addition, we recorded stock-option compensation expense of $9,000 included in general and administrative costs during the three months ended March 31, 2010 related to an increase in our estimated stock option liability compared to stock-option compensation benefit of $121,000 during the first three months of 2009. These items were mitigated by an increase in our exploration expense during the three months ended March 31, 2010 to $775,000 compared to exploration expense of $681,000 during the first three months of 2009. In addition there was a reduction in our non-stock option general and administrative costs to $469,000 during the three months ended March 31, 2010 compared to non-stock option general and administrative costs of $635,000 during the first three months of 2009. There were no sales of Kinross stock during the three months ended March 31, 2010 or 2009. Additionally as a result of an increase in our pre-tax loss during the three months ended March 31, 2010 compared to the three months ended March 31, 2009, we recorded income tax benefit of $115,000 during the first quarter of 2010 compared to an income tax expense of $84,000 during the first quarter of 2009. Each of these items is discussed in more detail below.

Our net exploration expense increased to $775,000 during the first quarter of 2010 compared to $681,000 in the first quarter of 2009. During 2010 we significantly increased our exploration efforts in Mexico by drilling our La Noria project in Mexico and pre-drilling expenditures on our Palmira project in Mexico. In addition we increased our exploration activity on our Pedra Branca, Cajatambo, El Sello and Espanola projects during the three months ended March 31, 2010 compared to the three months ended March 31, 2009. We also slightly increased our reconnaissance efforts during the three months ended March 31, 2010 compared to the first quarter 2009. The price of an ounce of gold has fluctuated significantly during 2009 and 2010, but has been trending upward during this period and has been trading between approximately $1,075 and $1,150 during the first three months of 2010, compared to an average price of approximately $972 per ounce of gold for 2009. Accordingly, we have selectively increased our exploration efforts to capitalize on the recent increase in commodity prices. We anticipate our future exploration activities will continue to follow the broad commodity pricing but will be most affected by the property-by-property results of our exploration efforts and assumed potential of our currently owned properties and any properties we may acquire. We anticipate continuing to acquire mineral properties, either through staking, joint venture or lease, in Latin America during 2010 and our 2010 exploration expenditure budget is approximately $4,705,000. This budget includes approximately $1,428,000 for the Pedra Branca project, which has been budgeted to be funded by deferred noncontrolling shareholder contributions from Anglo.

We had working capital of $2,964,000 at March 31, 2010 compared to working capital of $4,318,000 as of December 31, 2009. Our working capital at March 31, 2010 consists of our cash and cash equivalents and marketable equity securities, primarily consisting of the current portion of our investment in 1,050,000 shares of Kinross common stock of $4,273,000, less related current deferred taxes of $1,472,000. In addition, at March 31, 2010 we have recorded $4,000 as a current liability for the estimated fair value of the April 10 Kinross Call and have recorded $2,000 as a current asset for the estimated fair value of the portion of the Kinross Collar due on April 13, 2010, discussed above. We intend to liquidate a portion of our Kinross shares over the next three years, subject to the Kinross Collar discussed above, to reduce our exposure to a single asset, taking into consideration our cash and liquidity requirements, tax implications, the market price of gold and the market price of Kinross stock and have forecasted the sale of 250,000 shares of Kinross during 2010 for expected proceeds of $4,750,000. During the first three months of 2010, we did not sell any Kinross shares. Subsequent to March 31, 2010, we sold 30,000 shares of Kinross common stock for proceeds of $541,000. Any funds received from the sale of Kinross shares would be used primarily to fund exploration on our existing properties, for the acquisition and exploration of new properties and general working capital. In addition, we anticipate that proceeds from sale of Kinross shares in excess of our United States tax deductible expenses, which consist primarily of our general and administrative costs, will create a current tax liability. We have forecast that a portion of any proceeds from the sale of our Kinross shares in the future will be used to pay these taxes.

Net cash used in operations during the first quarter of 2010 increased to $1,716,000 compared to $1,262,000 for the first quarter of 2009 primarily as a result of an increased use of cash from the reduction of outstanding payables of $514,000 during the three months ended March 31, 2010 compared to an increase in payables of $13,000 during the three months ended March 31, 2009. In addition we had an increase in exploration expense to $775,000 in the three months ended March 31, 2010 compared to $681,000 in the three months ended March 31, 2009. The large reduction in payables in 2010 primarily related to a payment of previously accrued United States federal and Colorado state taxes of $366,000 during the three months ended March 31, 2010. We also had a net increase in prepaid expenses and other current assets of $11,000 during the first quarter of 2010, compared to an increase in prepaid expenses and other current assets of $7,000 during the first quarter of 2009. These increases were mitigated by a decrease in non-stock option compensation general and administrative costs to $469,000 for the three months ended March 31, 2010 compared to non-stock option compensation general and administrative costs of $635,000 during the three months ended March 31, 2009. See Results of Operations discussed above for further explanation of these variances.

In September 2005, we completed an option agreement for the purchase of 100% of the mineral rights over the 8,476-hectare Mercurio property in the state of Para, Brazil. We have conducted extensive soil sampling and auger testing of soils over a large portion of the property during the past four years including three rounds of core drilling of 36 holes, the last of which was completed in 2008. On March 9, 2010 we signed a letter agreement with Regent Holdings, Ltd. ("Regent"), whereby Regent has agreed to pay to Solitario $1,000,000 over the next four years, in the amounts of $50,000, $100,000, $200,000 and $650,000 beginning on March 15, 2011 and on each anniversary of that date through March 15, 2014, and invest in minimum expenditure amounts totaling $900,000 over the same period. At the end of the final payment Regent will own Mercurio and we will retain a net smelter royalty of 1.5% on all ounces of gold produced at Mercurio up to 2 million ounces and will retain a net smelter royalty of 2.0% on all ounces of gold over 2 million ounces. Regent may terminate the agreement at any time after six months from the date of signing the agreement. Regent will be responsible for all payments to keep the Mercurio claims in good standing during the period of the agreement.

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