This Annual Report on Form 10-K
contains statements that constitute "forward-looking statements" within the meaning of section 27A of the Securities
Act of 1933 and section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements
can be identified by the fact that they do not relate strictly to historical information and include the words "expects",
"believes", "anticipates", "plans", "may", "will", "intend", "estimate",
"continue" or other similar expressions. These forward-looking statements are subject to various risks and uncertainties
that could cause actual results to differ materially from those currently anticipated. These risks and uncertainties include, but
are not limited to, items discussed below in Item 1A "Risk Factors" in this Form 10-K. Forward-looking statements speak
only as of the date made. We undertake no obligation to publicly release or update forward-looking statements, whether as a result
of new information, future events or otherwise. You are, however, advised to consult any further disclosures we make on related
subjects in our quarterly reports on Form 10-Q and any reports made on Form 8-K to the United States Securities and Exchange Commission
(the "SEC").
Item 1.
Business
Business and Company Formation
Solitario Zinc Corp. (“Solitario”
or the “Company”) is an exploration stage company as defined in Industry Guide 7, as issued by the United States Securities
and Exchange Commission (“SEC”). Solitario was incorporated in the state of Colorado on November 15, 1984 as a wholly-owned
subsidiary of Crown Resources Corporation ("Crown"). In July 1994, Solitario became a publicly traded company on the
Toronto Stock Exchange (the "TSX") through its initial public offering. Solitario has been actively involved in mineral
exploration since 1993. Solitario’s primary business is to acquire exploration mineral properties and/or discover economic
deposits on its mineral properties and advance these deposits, either on its own or through joint ventures, up to the development
stage. At that point, or sometime prior to that point, Solitario would likely attempt to sell its mineral properties, pursue their
development either on its own, or through a joint venture with a partner that has expertise in mining operations, or create a royalty
with a third party that continues to advance the property. Solitario has never developed a property. Although Solitario has owned
exploration projects in both precious and base metals in the past, Solitario’s current focus is on the acquisition and exploration
of zinc-related exploration mineral properties. However, Solitario may still evaluate and/or acquire other precious metal projects
as part of its overall mineral property activity. In addition to focusing on its mineral exploration properties and the evaluation
of mineral properties for acquisition, Solitario also evaluates potential strategic transactions for the acquisition of new precious
and base metal properties and assets with exploration potential or business combinations that Solitario determines to be favorable
to Solitario.
In July 2017 Solitario completed the acquisition
of Zazu Metals Corp. (“Zazu”) whereby Solitario issued 19,788,177 shares of its common stock for all the issued and
outstanding common shares of Zazu (the “Acquisition”). Zazu had one primary asset, its interest in the Lik project,
and the Acquisition was treated as an asset purchase.
Solitario has recorded revenue from the sale
of mineral properties, including the sale on April 26, 2018 of its interest in the royalty on the Yanacocha property (discussed
below), the sale in 2015 of its former interest in Mount Hamilton LLC the owner of Solitario’s former Mt. Hamilton project
(the “Mt. Hamilton Transaction”), joint venture property payments and the sale of a royalty on the former Mt. Hamilton
project. Revenues from the sale or joint venture of properties or assets, although significant when they occur, have not been a
consistent annual source of revenue and would only occur in the future, if at all, on an infrequent basis.
Solitario currently considers its carried interest
in the Florida Canyon project in Peru and its interest in the Lik project in Alaska to be its core mineral property assets. Nexa
Resources, Ltd. (“Nexa”), Solitario’s joint venture partner, initiated a 17,000-meter drilling program at Florida
Canyon during the fourth quarter of 2018 (discussed below), which is expected to be completed during 2019. Solitario is working
with its 50% joint venture partner, Teck American Inc., a wholly-owned subsidiary of Teck Resources Limited (both companies are
referred to in this Annual Report as “Teck”) and completed a limited exploration program at the Lik project during
2018 consisting of mapping, geophysical work, relogging of prior drilling core and environmental evaluation.
As of December
31, 2018, Solitario has significant balances of cash and short-term investments that Solitario anticipates using, in part, to further
the development of the Florida Canyon and Lik projects and to 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 early-stage and advanced mineral exploration
projects or other related assets at potentially attractive terms.
Recent Developments
On April 26, 2018 Solitario sold its royalty
interest in the non-producing Yanacocha property (the “Yanacocha Royalty”) to a wholly owned subsidiary of Newmont
Mining Corporation (“Newmont”) for approximately $502,000 in cash. The Yanacocha Royalty covered 43 concessions totaling
36,052 hectares. Newmont owns the underlying mineral concessions covered by the Yanacocha Royalty. None of the concessions covered
by the Yanacocha Royalty have any reported reserves or resources. Solitario had no mineral property capitalized cost in the Yanacocha
Royalty and recorded Mineral Property Revenue of $502,000 during 2018.
Corporate Structure
Solitario Zinc Corp. [Colorado]
- Zazu Metals Corp. [Canada] (100%)
- Zazu Metals (AK) Corp [Alaska] (100%)
- Lik Project (50%)
- Minera Chambara, S.A. [Peru] (85%)
- Chambara Project
- Minera Solitario Peru, S.A. [Peru] (100%)
- Minera Bongará, S.A. [Peru] (39%)
- Florida Canyon Project
- Minera Soloco, S.A. [Peru] (100%)
Mineral Exploration Properties
We hold a 50% operating interest in the Lik
zinc-lead-silver property in Northwest Alaska, which is estimated to contain a large tonnage, high-grade deposit potentially mineable
by open-pit methods. Teck is a 50% partner with Solitario in the Lik deposit, with Solitario acting as the project manager. A Preliminary
Economic Assessment (“PEA”) was completed on the Lik deposit in 2014.
Solitario’s other core asset is a 39%
interest in the advanced, high-grade, Florida Canyon zinc project located in northern Peru. The project has a significant mineral
resource and Solitario is fully carried to production by its joint venture partner Nexa, formerly Votorantim Metais Holdings, SA
(“Votorantim”) and Compañía Minera Milpo S.A.A. (“Milpo”). Solitario and Nexa completed a
PEA on the Florida Canyon deposit in August 2017. Nexa is one of the largest zinc producers in Peru. Since inception of the Florida
Canyon joint venture in 2006, Nexa has funded 100% of project expenditures. Nexa will earn a 70% interest in the project by continuing
to solely fund all project expenditures, excluding a portion of the 2018-2019 drilling program, discussed below, and committing
to place the project into production based upon a positive feasibility study. After earning 70%, and at the request of Solitario,
Nexa has further agreed to finance Solitario's 30% participating interest for construction. Solitario will repay the loan facility
through 50% of its net cash flow distributions.
In August of 2018, Solitario agreed to fund
a portion of a 2018 – 2019 drilling program at the Florida Canyon project. Per the agreement, Solitario will fund up to $1,580,000
of a planned 41-hole 17,000-meter drilling program to be conducted through December 31, 2019 (the “Drilling Program”).
Upon Nexa completing the first 1,700 meters of the Drilling Program, Solitario will pay Nexa $527,000, upon completion of the next
1,700 meters (3,400 meters total) of the Drilling Program, Solitario will pay Nexa $527,000, and upon completion of the third 1,700
meters (5,100 meters total) of the Drilling Program, Solitario will pay Nexa the balance remaining on its $1,580,000 funding commitment,
or $526,000. Solitario has no obligation to pay Nexa prior to the attainment of the separate 1,700-meter thresholds. The funding
commitments are in the form of an advance on Solitario’s commitment to fund 30% of any future construction development costs
of Florida Canyon under the original joint venture agreement discussed above. Accordingly, in the event the Florida Canyon project
is developed, which cannot be assured at this time, any funds paid to Nexa under this agreement will reduce the amount of Solitario’s
obligation to fund 30% of future development costs, and / or repay loans from Nexa for future development costs at the Florida
Canyon project. As of December 31, 2018, Nexa had completed four holes and a total of 2,203 meters under the Drilling Program,
and Solitario has recorded an account payable to Nexa of $527,000 and recorded a charge to exploration expense of $527,000.
At December 31, 2018, Solitario
also owns the La Promesa gold exploration project. Solitario also holds an 85% interest in the Chambara exploration project in
Peru (Nexa holds the remaining 15%), and a 9.9% equity interest in Vendetta Mining Corp. (“Vendetta”).
Subsequent to December 31, 2018, on January
22, 2019, we announced the sale of our interests in a retained royalty on the Pedra Branca project in Brazil, a retained royalty
on non-producing exploration properties in Mexico, and an option to purchase a royalty on certain non-producing mineral claims
in Montana to SilverStream SEZC (“SilverStream”), a private Cayman Island royalty and streaming company for Cdn$250,000
in cash and a one-year promissory note from SilverStream for Cdn$350,000.
We are conducting exploration and property evaluation
activities in Peru either on our own using contract geologists, or through joint ventures operated by our partners.
Our exploration activities and those of our
joint venture partners are carried out on a property-by-property basis. These activities may include prospecting, geologic mapping,
sampling, geophysics and drilling. When we determine that this work indicates a project may not be economic or contain sufficient
geologic or economic potential, we may impair or completely write-off the property. A significant factor in the success or failure
of our activities is the price of commodities. For example, when the price of zinc or other commodities is down, we may determine
that the value of our mineral exploration properties decreases; however, during such down markets it may also become easier and
less expensive to locate and acquire new mineral exploration properties.
We have recorded revenue in the past from the
sale of mineral properties, joint venture property payments and the sale of a royalty on our formerly-held Mt. Hamilton property.
Proceeds from the sale or joint venture of properties, although potentially significant when they occur, have not been a consistent
source of cash and may only occur in the future, if at all, on an infrequent basis. Accordingly, while we conduct exploration activities
on our projects, we need to maintain and replenish our capital resources. Historically, we have met our need for capital through
(i) sale of our Yanacocha royalty to Newmont for $502,000 during 2018; (ii) proceeds received from the Mt. Hamilton Transaction;
(iii) sales of our shares of common stock of Vendetta and Kinross Gold Corporation (“Kinross”); (iv) borrowing in the
form of short-term margin debt secured by our investment in Kinross; (v) borrowing under long-term debt secured by our former Mt.
Hamilton project (vi) joint venture delay rental payments, including payments on our Florida Canyon project; (vii) a royalty sale
for $10,000,000 in 2012; (viii) issuances of common stock; (ix) sales of covered call options on our Kinross common stock; and
(x) interest on short term Treasury Notes and Bank CDs. In the past, we have reduced our exposure to the costs of our exploration
activities through the use of joint ventures.
We operate in one segment: mineral exploration.
We currently conduct exploration activities in Peru and Alaska and evaluate properties for potential acquisition and evaluation
of strategic corporate opportunities throughout North and South America. As of February 28, 2019, we had four full-time employees
located in the United States and no full-time employees outside of the United States. We utilize contract managers, geologists,
administrators and laborers to execute our Latin American and North American project work and acquisition evaluations.
A large number of companies are engaged in the
acquisition, exploration and development of mineral properties, many of which have substantially greater technical and financial
resources than we have and, accordingly, we may be at a disadvantage in being able to compete effectively for the acquisition,
exploration and development of mineral properties. We are not aware of any single competitor or group of competitors that dominate
the exploration and development of mineral properties. In acquiring mineral properties for exploration and development, we rely
on the experience, technical expertise and knowledge of our employees and advisors, which is limited by the size of our company
compared to many of our competitors who may have either more employees or employees with more specialized knowledge and experience.
Governmental Regulations
Mineral development and exploration activities
are subject to various national, state/provincial, and local laws and regulations, which govern prospecting, development, mining,
production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous
substances and other matters. Similarly, if any of our properties are developed and/or mined those activities are also
subject to significant governmental regulation and oversight. We are required to obtain the licenses, permits and other authorizations
in order to conduct our exploration programs.
Environmental Regulations
Our current and planned activities are subject
to various national and local laws and regulations governing protection of the environment. These laws are continually changing
and, in general, are becoming more restrictive. We are required to conduct our operations in compliance with applicable laws and
regulations. Changes to current local, state or federal laws and regulations in each jurisdiction in which we conduct our exploration
activities could, in the future, require additional capital expenditures and increased operating and/or reclamation costs. Although
we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements
could impact the economics of our projects. During 2018, we had no material environmental incidents or non-compliance with any
applicable environmental regulations.
Financial Information about Geographic Areas
Included in the consolidated balance sheets
at December 31, 2018 and 2017, are total assets of $416,000 and $73,000, respectively, related to Solitario's operations located
outside of the United States.
Available Information
We file our Annual Report on Form 10-K, our
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports electronically with the SEC. The
SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the SEC.
Paper copies of our Annual Report to Shareholders,
our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports
are available free of charge by writing to Solitario at its address on the front of this Form 10-K. In addition, electronic versions
of the reports we file with the SEC are available on our website, www.solitarioxr.com as soon as practicable, after filing with
the SEC.
Item 1A.
Risk Factors
In addition to considering the other information
in this Form 10-K, you should consider carefully the following factors. The risks described below are the significant risks we
face and include all material risks of which we are aware. Additional risks not presently known to us or risks that we currently
consider immaterial may also adversely affect our business.
Our mineral exploration activities involve a high degree of
risk, and a significant portion of our business model envisions the sale or joint venture of mineral properties. If we are unable
to sell or joint venture these properties, the money spent on exploration may never be recovered and we could incur an impairment
of our investments in our projects.
The exploration for mineral deposits involves
significant financial and other risks over an extended period of time. Few properties that are explored are ultimately developed
into producing mines. Major expenditures are required to determine if any of our mineral properties may have the potential to be
commercially viable and be salable or joint ventured. Prior to completion of the feasibility study on our former Mt. Hamilton project,
we had never established reserves on any of our properties. Significant additional expense and risks, including drilling and determining
the feasibility of a project, are required prior to the establishment of reserves. It is impossible to ensure that the current
or proposed exploration programs on properties in which we have an interest will be commercially viable or that we will be able
to sell, joint venture or develop our properties. Whether a mineral deposit will be commercially viable depends on a number of
factors, some of which are the particular attributes of the deposit, such as its size and grade, costs and efficiency of the recovery
methods that can be employed, proximity to infrastructure, commodity prices, financing costs and governmental regulations, including
regulations relating to prices, taxes, royalties, infrastructure, land use, importing and exporting of mineral products and environmental
protection.
We believe the data obtained from our own exploration
activities or our partners' activities to be reliable; however, the nature of exploration of mineral properties and analysis of
geological information is often subjective, and data and conclusions are subject to uncertainty. Even if exploration activities
determine that a project is commercially viable, it is impossible to ensure that such determination will result in a profitable
sale of the project or development either on our own or by a joint venture in the future and that such project will result in profitable
commercial mining operations. If we determine that capitalized costs associated with any of our mineral interests are not likely
to be recovered, we would incur an impairment of our investment in such property interest. All of these factors may result in losses
in relation to amounts spent, which are not recoverable. We have experienced losses of this type from time to time and may record
mineral property impairments in the future.
We have no reported proven and probable mineral reserves and
none of our current projects are likely to be monetized in the near future and any projects we may acquire are not likely to offer
the opportunity for near term revenues or sale proceeds, and if we are unsuccessful in identifying mineral reserves in the future,
we may not be able to realize any profit from these property interests.
None of our current projects have reported
proven and probable mineral reserves as those terms are used in SEC Guide 7. Any mineral reserves on these projects will only
come from extensive additional exploration, engineering and evaluation of existing or future mineral properties. The lack of reserves
on these mineral properties could prohibit us from any near-term sale or joint venture of our mineral properties and we would
not be able to realize any proceeds and or profit from our interests in such mineral properties, which could materially adversely
affect our financial position or results of operations.
Mineral exploration activities are inherently dangerous and
could cause us to incur significant unexpected costs, including legal liability for loss of life, damage to property and environmental
damage, any of which could materially adversely affect our financial position or results of operations.
Mining exploration operations are subject to
the hazards and risks normally related to exploration of a mineral deposit, including, but not limited to mapping and sampling,
drilling, road building, trenching, assaying and analyzing rock samples, transportation over primitive roads or via small contract
aircraft or helicopters and severe weather conditions. Any of the hazards of mining exploration could result in damage to life
or property, environmental damage and possible legal liability for such damage. Any of these risks could cause us to incur significant
unexpected costs that could have a material adverse effect on our financial condition and ability to finance our exploration and
development activities.
We have a history of losses and if we do not operate profitably
in the future it could have a material adverse effect on our financial position or results of operations and the trading price
of our common stock would likely decline.
We have reported losses in 22 of our 25 years
of operations. We can provide no assurance that we will be able to operate profitably in the future or begin to generate significant
and consistent sources of revenues or cash flows from operations. We have had net income in only three years in our history; during
2015, as a result of the Mt. Hamilton Transaction, during 2003, as a result of a $5,438,000 gain on a derivative instrument related
to our investment in certain Crown warrants and during 2000, when we sold our former Yanacocha property. We cannot predict when,
if ever, we will be profitable again or able to begin generating consistent revenues or cash flows from our operations or assets.
If we do not operate profitably or identify and execute on outside sources of funding, we may be unable to fund our current or
contemplated exploration activities, acquire new assets, or otherwise further our business plan.
Our operations outside of the United States of America may
be adversely affected by factors outside of our control, such as changing political, local and economic conditions, any of which
could materially adversely affect our financial position or results of operations.
Our mineral properties located in Latin America
consist primarily of mineral concessions granted by national governmental agencies and are held 100% by us or in conjunction with
our joint venture partners, or under lease, option or purchase agreements. Certain of our mineral properties are located in Peru
and we have held royalties on non-producing exploration properties in Mexico, Brazil and Montana (U.S.) through January 22, 2019
when they were sold. We act as operator on all of our mineral properties or assets that are not held in joint ventures or are royalty
interests. The success of projects held under joint ventures or royalty interests that are not operated by us are substantially
dependent on the joint venture partner, over which we have limited or no control.
Our exploration activities, mineral properties
and royalties located outside of the United States are subject to the laws of Peru, Mexico and Brazil and any other countries in
which we conduct business. Exploration and potential development activities in these countries are potentially subject to political
and economic risks, including:
·
cancellation or renegotiation of contracts;
·
disadvantages of competing against companies from countries that are not subject to US laws
and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”);
·
changes in foreign laws or regulations;
·
changes in tax laws;
·
royalty and tax increases or claims by governmental entities, including retroactive claims;
·
expropriation or nationalization of property;
·
currency fluctuations (particularly related to declines in the U.S. dollar compared to local
currencies);
·
foreign exchange controls;
·
restrictions on the ability for us to hold U.S. dollars or other foreign currencies in offshore
bank accounts;
·
import and export regulations;
·
environmental controls;
·
risks of loss due to community opposition to our activities, civil strife, acts of war, guerrilla
activities, insurrection and terrorism; and
·
other risks arising out of foreign sovereignty over the areas in which our exploration activities
are conducted.
Accordingly, our current exploration activities
outside of the United States may be substantially affected by factors beyond our control, any of which could materially adversely
affect the value of certain of our assets or results of operations. Furthermore, in the event of a dispute arising from such activities,
we would likely be subject to the exclusive jurisdiction of courts outside of the United States or may not be successful in subjecting
persons to the jurisdictions of the courts in the United States, which could adversely affect the outcome of a dispute.
We may not have sufficient funding for exploration and development,
which may impair our profitability and growth.
The capital required for exploration and development
of mineral properties is substantial. In the past we have financed operations through the sale of interests in mineral properties,
including the Mt. Hamilton Transaction in 2015, the utilization of joint venture arrangements with third parties (generally providing
that the third party will obtain a specified percentage of our interest in a certain property or a subsidiary owning a property
in exchange for the expenditure of a specified amount), the sale of other assets, the sale of marketable equity securities we hold,
short-term margin loans, funds from the long-term debt, and the issuance of common stock. We may need to raise additional capital,
or enter into joint venture arrangements, in order to fund the exploration activities required to determine whether mineral deposits
on our projects are commercially viable. New financing or acceptable joint venture partners may or may not be available on a basis
that is acceptable to us. The inability to obtain new financing or joint venture partners on acceptable terms may prohibit us from
continued development or exploration of our mineral properties. Without the successful sale or future development of our mineral
properties through joint ventures, or on our own, we will not be able to realize any profit from our interests in such properties,
which could have a material adverse effect on our financial position and results of operations.
A large number of companies are engaged in the exploration
and development or sale of mineral properties, many of which have substantially greater technical and financial resources than
us and, accordingly, we may be unable to compete effectively in this sector of the mining industry which could have a material
adverse effect on our financial position or results of operations.
We are at a disadvantage with respect to many
of our competitors in the acquisition, exploration and development or sale of mining projects. Our competitors with greater financial
resources than us will be better able to withstand the uncertainties and fluctuations associated with sustained downturns in the
market and to acquire high quality exploration and mining properties when market conditions are favorable. In addition, we compete
with other companies in the mineral properties sector to attract and retain key executives and other employees with technical skills
and experience in the mineral exploration business. There can be no assurance that we will continue to attract and retain skilled
and experienced employees or to acquire additional exploration projects. The realization of any of these risks from competitors
could have a material adverse effect on our financial position or results of operations.
The title to our mineral properties may be defective or challenged
which could have a material adverse effect on our financial position or results of operations.
In connection with the acquisition of our mineral
properties, we conduct limited reviews of title and related matters, and obtain certain representations regarding ownership. These
limited reviews and representations do not necessarily preclude third parties from challenging our title and, furthermore, our
title may be defective. Consequently, there can be no assurance that we hold good and marketable title to all of our mineral interests.
Additionally, we have to make annual filings to various government agencies on all of our mineral properties. If we fail to make
such filings, or improperly document such filings, the validity of our title to a mineral property could be lost or challenged.
If any of our mineral interests were challenged, we could incur significant costs in defending such a challenge. These costs or
an adverse ruling with regards to any challenge of our titles could have a material adverse effect on our financial position or
results of operations.
Our operations could be negatively affected by existing laws
as well as potential changes in laws and regulatory requirements to which we are subject, including regulation of mineral exploration
and ownership, environmental regulations and taxation.
The exploration and development of mineral properties
is subject to federal, state, provincial and local laws and regulations in the countries in which they are located in a variety
of ways, including regulation of mineral exploration and land ownership, environmental regulation and taxation. These laws and
regulations, as well as future interpretation of or changes to existing laws and regulations, may require substantial increases
in capital and operating costs to us and delays, interruptions, or a termination of operations.
In the United States and the other countries
in which we operate, in order to obtain permits for exploration or potential future development of mineral properties, environmental
regulations generally require a description of the existing environment, including but not limited to natural, archeological and
socio-economic environments, at the project site and in the region; an interpretation of the nature and magnitude of potential
environmental impacts that might result from such activities; and a description and evaluation of the effectiveness of the operational
measures planned to mitigate the environmental impacts. Currently, the expenditures to obtain exploration permits to conduct our
exploration activities are not material to our total exploration cost.
The laws and regulations in all the countries
in which we operate are continually changing and are generally becoming more restrictive, especially environmental laws and regulations.
As part of our ongoing exploration activities, we have made expenditures to comply with such laws and regulations, but such expenditures
could substantially increase our costs to achieve compliance in the future. Delays in obtaining or failure to obtain government
permits and approvals or significant changes in regulation could have a material adverse effect on our exploration activities,
our ability to locate economic mineral deposits, and our potential to sell, joint venture or eventually develop our properties,
which could have a material adverse effect on our financial position or results of operations.
Occurrence of events for which we are not insured may materially
adversely affect our business.
Mineral exploration is subject to risks of human
injury, environmental liability and loss of assets. We maintain limited insurance coverage to protect ourselves against certain
risks related to loss of assets for equipment in our operations and limited corporate liability coverage; however, we have elected
not to have insurance for other risks because of the high premiums associated with insuring those risks or for various other reasons
including those risks where insurance may not be available. There are additional risks in connection with investments in parts
of the world where civil unrest, war, nationalist movements, political violence or economic crisis are possible. These countries
may also pose heightened risks of expropriation of assets, business interruption, increased taxation and a unilateral modification
of concessions and contracts. We do not maintain insurance against political risk. Occurrence of events for which we are not insured
could have a material adverse effect on our financial position or results of operations.
Severe weather or violent storms could materially affect our
operations due to damage or delays caused by such weather.
Our exploration activities are subject to normal
seasonal weather conditions that often hamper and may temporarily prevent exploration or development activities. There is a risk
that unexpectedly harsh weather or violent storms could affect areas where we conduct these activities. Delays or damage caused
by severe weather could materially affect our operations or our financial position.
Our business is dependent on the market price of certain commodities,
particularly zinc, and currency exchange rates over which we have no control.
Our operations are significantly affected by
changes in the market price of commodities since the evaluation of whether a mineral deposit is commercially viable is heavily
dependent upon the market price of the commodities related to any specific project, such as gold or zinc. Because our core assets
are currently in zinc related projects, the spot price of zinc is particularly important to the value of our assets and future
prospects. The price of commodities also affects the value of exploration projects we own or may wish to acquire or joint venture.
These commodity prices fluctuate on a daily basis and are affected by numerous factors beyond our control. The supply and demand
for commodities, the level of interest rates, the rate of inflation, investment decisions by large holders of these commodities,
including governmental reserves, and stability of exchange rates can all cause significant fluctuations in prices. Currency exchange
rates relative to the United States dollar can affect the cost of doing business in a foreign country in United States dollar terms,
which is our functional currency. Consequently, the cost of conducting exploration in the countries where we operate, accounted
for in United States dollars, can fluctuate based upon changes in currency exchange rates and may be higher than we anticipate
in terms of United States dollars because of a decrease in the relative strength of the United States dollar to currencies of the
countries where we operate. We currently do not hedge against currency or commodity fluctuations. The prices of commodities as
well as currency exchange rates have fluctuated widely and future significant price declines in commodities or changes in currency
exchange rates could have a material adverse effect on our financial position or results of operations.
Our business is dependent on key executives and the loss of
any of our key executives could adversely affect our business, future operations and financial condition.
We are dependent on the services of key executives,
including our Chief Executive Officer, Christopher E. Herald, our Chief Operating Officer, Walter H. Hunt, and our Chief Financial
Officer, James R. Maronick. All of those officers have many years of experience and an extensive background with Solitario and
in the mining industry in general. We may not be able to replace that experience and knowledge with other individuals. We do not
have "Key-Man" life insurance policies on any of our key executives. The loss of these persons or our inability to attract
and retain additional highly skilled employees may adversely affect our business, future operations and financial condition.
Our business model relies significantly on other companies
to joint venture our projects and we anticipate continuing this practice in the future. Therefore, our results are subject to the
additional risks associated with the financial condition, operational expertise and corporate priorities of our joint venture partners.
Our Florida Canyon project is joint-ventured
with another mining company that manages the exploration and development activities on the project and we are the minority-interest
party. Although our joint venture agreement provides certain voting rights and other minority-interest safeguards, the majority
partner not only manages operations, but controls most decisions, including budgets and scope and pace of exploration and development
activities. Consequently, we are highly dependent on the operational expertise and financial condition of our joint venture partner,
as well as its own corporate priorities. For instance, even though our joint venture property may be highly prospective for exploration
success, or economically viable based on feasibility studies, our partner may decide to not fund the further exploration or development
of our project based on their respective financial condition or other corporate priorities. Therefore, our results are subject
to the additional risks associated with the financial condition, operational expertise and corporate priorities of our joint venture
partners, which could have a material adverse effect on our financial position or results of operations. Our Lik project is equally
owned with another mining company and unanimous consent by the joint venture partners is required for annual budgets in excess
of $1.0 million. Consequently, development of the project could be delayed without the unanimous consent of both parties to certain
proposed actions or transactions.
We may look to joint venture with another mining company in
the future to develop and/or operate one of our foreign projects; therefore, in the future, our results may become subject to additional
risks associated with development and production of our foreign mining projects.
We are not currently involved in mining development
or operation at any of our properties. In order to realize a profit from our mineral interests we have to: (1) sell such properties
outright at a profit; (2) form a joint venture for the project with a larger mining company with greater resources, both technical
and financial, to further develop and/or operate a project at a profit; (3) develop and operate such projects at a profit on our
own; or (4) create and retain a royalty interest in a property with a third party that agrees to advance the property toward development
and mining. In the future, if our exploration results show sufficient promise in one of our foreign projects, we may either look
to form a joint venture with another mining company to develop and/or operate our projects or sell the property outright and retain
partial ownership or a retained royalty based on the success of such project. Therefore, in the future, our results may become
subject to the additional risks associated with development and production of mining projects in general.
In the future, we may attempt to acquire a new property or
another company and the acquisition may require a substantial amount of capital or the issuance of Solitario equity to complete.
Acquisition costs may never be recovered due to changing market conditions, or our own miscalculation concerning the recoverability
of our acquisition investment. Such an occurrence could adversely affect our business, future operations and financial condition.
We have evaluated a wide variety of acquisition
opportunities involving mineral properties and companies for acquisition and we anticipate evaluating potential acquisition opportunities
in the future. Some of these opportunities may involve a substantial amount of capital or the issuance of Solitario equity to successfully
acquire. As many of these opportunities do not have reliable feasibility-level studies, we may have to rely on our own estimates
for investment analysis. Such estimates, by their very nature, contain substantial uncertainty. In addition, economic assumptions,
such as future costs and commodity prices, also contain significant uncertainty. Consequently, if we are successful in acquiring
any new opportunities and our estimates prove to be in error, either through miscalculations or changing market conditions, this
could have a material adverse effect on our financial position or results of operations.
The market for shares of our common stock has limited liquidity
and the market price of our common stock has fluctuated and may decline.
An investment in our common stock involves a
high degree of risk. The liquidity of our shares, or the ability of a shareholder to buy or sell our common stock, may be significantly
limited for various unforeseeable periods. The average combined daily volume of our shares traded on the NYSE American and the
TSX during 2018 was approximately 104,000
shares. The market price of our shares of common stock has historically
fluctuated within a wide range. The price of our common stock may be affected by many factors, including an adverse change in our
business, a decline in the price of zinc or other commodity prices, negative news on our projects, negative investment sentiment
for mining and commodity equities and general economic trends.
A significant portion of our liquid assets consist of U.S.
Treasuries and bank certificates of deposit. The failure of the financial institutions that issued or hold these financial instruments
could have a material adverse impact on the market price of our common stock and our liquidity and capital resources.
At December 31, 2018, we have invested approximately
$500,000 in separate, FDIC insured certificates of deposit with the maximum individual bank exposure of $250,000. Further, as of
December 31, 2018 we have invested $9,345,000 in United States Treasury securities, with maturities of between 15 days and 22 months
and we have approximately $495,000 of our cash in uninsured deposit accounts and brokerage accounts including $378,000 in a US
dollar bank savings account in Peru, none of which are covered by FDIC insurance. The failure of either Charles Schwab or the financial
institutions holding these funds and assets could have a material impact on the market price of our common stock and our liquidity
and capital resources.
We are dependent upon information technology systems, which
are subject to disruption, damage, failure and risks associated with implementation and integration.
We are dependent upon information technology
systems in the conduct of our operations. Our information technology systems are subject to disruption, damage or failure
from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters
and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious
software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in
systems, unauthorized release of confidential or otherwise protected information and the corruption of data. Various measures have
been implemented to manage our risks related to information technology systems and network disruptions. However, given the unpredictability
of the timing, nature and scope of information technology disruptions, we could potentially be subject to operational delays, the
compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation
or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse
effect on our cash flows, competitive position, financial condition or results of operations.
Failure to comply with the FCPA could subject us to penalties
and other adverse consequences.
As a Colorado corporation, we are subject to
the FCPA and similar worldwide anti-bribery laws, which generally prohibit United States companies and their intermediaries from
engaging in bribery or other improper payments to foreign officials for the purpose of obtaining or retaining business. Foreign
companies, including some that may compete with our company, are not subject to U.S. laws and regulations, including the FCPA,
and therefore our exploration, development, production and mine closure activities are subject to the disadvantage of competing
against companies from countries that are not subject to these prohibitions.
In addition, we could be adversely affected
by violations of the FCPA and similar anti-bribery laws in other jurisdictions. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices may occur from time-to-time in the countries outside of the United States in which we operate. Our
mineral properties are located in countries that may have experienced governmental corruption to some degree and, in certain circumstances,
strict compliance with anti-bribery laws may conflict with local customs and practices. Our policies mandate compliance with these
anti-bribery laws; however, we cannot assure you that our internal controls and procedures always will protect us from the reckless
or criminal acts committed by our employees or agents. We can make no assurance that our employees or other agents will not engage
in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices
or we are found to be liable for FCPA violations, we could suffer severe criminal or civil penalties or other sanctions and other
consequences that may have a material adverse effect on our business, financial condition and results of operations.
Item 2.
Properties
Florida Canyon Zinc Project (Peru)
1.
Property Description and Location
(Map of Florida Canyon Property, formerly Bongara)
On August 15, 2006, Solitario signed a Letter
Agreement with Votorantim Metais Cajamarquilla, S.A., a wholly-owned subsidiary of Votorantim (now known as Nexa) both companies
are referred to in this Item 2 as "Nexa”) on Solitario's 100%-owned Florida Canyon zinc project (formerly called the
Bongará project), On March 24, 2007, Solitario signed the Framework Agreement with Votorantim for the Exploration and Potential
Development of Mining Properties, pursuant to, and replacing, the Florida Canyon Letter Agreement. In 2015 Votorantim transferred
its interest in the Florida Canyon project to Compañía Minera Milpo S.A.A. (“Milpo”), an 80%-owned affiliate
of Votorantim. In October of 2017, Milpo and Votorantim merged to form Nexa. Nexa completed an IPO raising $570 million and listed
on the NYSE under the trading symbol NEXA and the TSX under the trading symbol NEXA. For the remainder of this Florida Canyon property
section, all references to Votorantim, Milpo or Nexa will be collectively referred to as Nexa.
The Florida Canyon project
consists of 16 concessions comprising 12,600 hectares of mineral rights originally granted to Minera Bongará S.A., our subsidiary
incorporated in Peru. The property is located in the Department of Amazonas, northern Peru. Solitario's and Nexa’s property
interests are held through the ownership of shares in Minera Bongará S.A., a joint operating company that holds a 100% interest
in the mineral rights and other project assets. Solitario currently owns 39% of the Florida Canyon project.
During 2015 Nexa completed the steps required
to earn a 61% interest in the Florida Canyon project, with Solitario retaining a 39% interest. Nexa may earn an additional 9% interest
(up to a 70% shareholding interest) in Minera Bongará S.A., by sole-funding future annual exploration and development expenditures
until a production decision is made. The option to earn the 70% interest can be exercised by Nexa at any time by committing to
place the project into production based upon a completed feasibility study. Nexa is the project manager. Once Nexa has committed
to place the project into production based upon a feasibility study, it has further agreed to finance Solitario's 30% participating
interest until production with a loan facility from Nexa to Solitario. Solitario will repay this loan facility through 50% of Solitario's
cash flow distributions from the joint operating company, however, as described above, funds provided by Solitario in the Drilling
Program may serve to fund Solitario’s obligation to finance a portion of its 30% participating interest.
According to Peruvian law, concessions may be
held indefinitely, subject only to payment of annual fees to the government. In June 2019, payments of approximately $289,000 to
the Peruvian government will be due in order to maintain the Florida Canyon mineral rights of Minera Bongará. Nexa is responsible
for paying these costs as part of its earn-in expenditures. Peru imposes a sliding scale royalty varying from 1% to 12% of the
operating profit of a mining operation. The percentage royalty is determined by rule based on the operating margin; however, the
minimum royalty is 1% of the revenues.
From time to time Nexa may enter into surface
rights agreements with individual landowners or communities to provide access for exploration work at the Florida Canyon project.
Generally, these are short-term agreements.
Environmental permits are required for exploration
and development projects in Peru that involve drilling, road building or underground mining. The requisite environmental and archeological
studies were completed for all past work, but new studies are required for expanded activities planned for future years at the
Florida Canyon project. Although we believe that these permits will be obtained in a timely fashion, the timing of government approval
of permits remains beyond our control.
2.
Accessibility, Climate, Local Resources, Infrastructure and
Physiology
The Florida Canyon property is accessed from
the coastal city of Chiclayo by the paved Carretera Marginal road, which is a heavily travelled paved national highway that passes
approximately eight kilometers south of the deposit. The nearest town to the project is Pedro Ruiz located 15 kilometers southeast
of the property. The area of the majority of past drilling and the most prospective mineralization, Florida Canyon, was previously
inaccessible by road, the work to date having been done by either foot or helicopter access. Nexa has now completed approximately
30 kilometers of access road and Nexa is planning to complete the road access to the mineralized area of the project in 2019. Nexa
maintains project field offices in Pedro Ruiz and a drill core processing facility and operations office in the nearby community
of Shipasbamba.
The project area elevation ranges between 1,800
and 3,200 meters above sea level. The climate is tropical with an average annual temperature of approximately 25
o
C.
Mean annual rainfall exceeds one meter with up to two meters in the cloud forest at higher elevations. Most precipitation occurs
during the rainy season, between November and April. Field work is considerably more difficult in the rainy season. Topography
is steep, consisting of prominent escarpments and deep valleys.
Dense jungle or forest vegetation covers the project area. With
the exception of the partially completed access road and approximately 700 meters of tunneling, no infrastructure facilities have
been constructed within the project area.
3.
History
We discovered the Florida Canyon mineralized
zone of the Florida Canyon Project in 1996. Subsequently, we joint ventured the property in December 1996 to Cominco (now Teck).
Cominco drilled 80 core holes from 1997-2000. Cominco withdrew from the joint venture in February 2001, and Solitario retained
its 100% interest in the project. We maintained the claims from 2001 to 2006, until the Florida Canyon Letter Agreement was signed.
Nexa conducted surface drilling on an annual basis from 2006 to 2013 and underground tunneling and drilling from 2010 to 2013.
All significant work on the property has been conducted by our joint venture partners, Cominco and Nexa and is described below
in Section 5, “Prior Exploration.”
4.
Geological Setting
The project is located within an extensive belt
of Mesozoic carbonate rocks belonging to the Upper Triassic to Lower Jurassic Pucará Group and equivalents. This belt extends
through the central and eastern extent of the Peruvian Andes for nearly 1000 km and is the host for many polymetallic and base
metal vein and replacement deposits in the Peruvian Mineral Belt. Among these is the San Vicente Mississippi Valley Type (“MVT”)
zinc-lead deposit that has many similarities to the Florida Canyon deposit and other MVT occurrences in the Project area.
The geology of the Florida Canyon area is relatively
simple consisting of a sequence of Jurassic and Triassic clastic and carbonate rocks which are gently deformed into a broad northwesterly
trending domal anticline. The MVT zinc-lead mineralization occurs in the carbonate facies of the Chambara (rock) Formation. This
domal anticline is cut on the west by the Sam Fault and to the east by the Tesoro-Florida Fault.
5.
Prior Exploration
We conducted a regional stream sediment survey
and reconnaissance geological surveys leading to the discovery of the Florida Canyon area in 1996. The discovered outcropping mineralization
is located in two deeply incised canyons within the limestone stratigraphy.
Subsequent to our initial work, Cominco conducted
extensive mapping, soil and rock sampling, stream sediment surveys and drilling. This work was designed to determine the extent
and grade of the zinc-lead mineralization, the controls of mineral deposition and to identify areas of potential new mineralization.
Nexa began work in the fall of 2006 and drilled annually from 2006 through 2013. Underground exploration operations were conducted
from 2011-2013. Since 2013 the most important work conducted consisted of continued access road construction and metallurgical
testing. All work performed by us, Cominco, and Nexa was done by direct employees of the respective companies with the exception
of the drilling, underground tunneling, helicopter services and road building, all of which were performed by third-party contractors
under the direction of Cominco and Nexa.
6.
Mineralization
Mineralization occurs as massive to semi-massive
replacements of sphalerite and galena localized by specific sedimentary facies (rock strata) within the limestone stratigraphy
and by structural feeders and karst breccias. More than three-quarters of mineralization is sulfide-dominant with the remainder
being oxide-dominant. A total of 11 preferred beds for replacement mineralization have been located within the middle unit of the
Chambara Formation. Mineralization is associated with the conversion of limestone to dolomite, which creates porosity and permeability
within the rock formations, promoting the passage of mineralizing fluids through the rock formations forming stratigraphically
controlled near-horizontal manto deposits. Drilling of stratigraphic targets has shown that certain coarser-grained facies of the
stratigraphy are the best hosts for manto mineralization. Stratigraphically controlled mineralization is typically one to several
meters in thickness, but often attains thicknesses of five to ten meters.
The laterally extensive manto deposits are strongly
related to, and potentially originate from, structurally controlled near-vertical conduits for mineralizing solutions. Replacement
deposits occur along these high-angle structures as well as in the stratigraphic mantos at Florida Canyon.
Karst features are localized along the feeder
faults and locally produce "breakout zones" where mineralization may extend vertically across thick stratigraphic intervals
where collapse breccias have been replaced by ore minerals. Mineralized karst structures are up to 50 meters in width (horizontal),
up to 100 meters vertically, and up to hundreds of meters along strike.
Evidence for these breakout zones is provided
by the following drill holes from various locations on the property:
Breakout
Zone Name
|
Drill Hole
Number
|
Intercepts
(meters)
|
Zinc
%
|
Lead
%
|
Zinc+Lead
%
|
Sam
|
GC-17
FC-23
|
58.8
81.5
|
12.0
4.8
|
2.8
0.8
|
14.8
5.6
|
Karen
|
A-1
|
36.2
|
12.8
|
2.7
|
15.5
|
North Zone
|
V-21
|
92.0
|
5.5
|
1.7
|
7.2
|
South Zone
|
V-44
V-169
|
28.3
51.6
|
15.2
7.1
|
0.8
0.7
|
16.0
7.8
|
San Jorge
|
V-297
|
56.6
|
22.69
|
1.15
|
23.84
|
Dolomitization reaches stratigraphic thicknesses
in excess of 100 meters locally. This alteration is thought to be related to the mineralizing event and is an important exploration
tool. Continuity of the mineralization is demonstrable in areas of highest drilling density by correlation of mineralization within
characteristic sedimentary facies, typical of specific stratigraphic intervals or within through-going observable structural zones
in drill core. At Florida Canyon the high-angle mineralization occurs along well-defined northwest and northeast fracture systems.
These structures occur in conjugate fractures, with N10º-50ºE trends present at a number of mineralized surface outcrops
while trends of N50º-80ºW are identified at other showings.
7.
Drilling
From 1997 through 2001, Cominco drilled 80 surface
core holes totaling 24,696 meters. From 2006-2013, Nexa completed 309 surface core holes totaling 77,193 meters. The majority of
Nexa’s surface drilling was infill drilling designed to demonstrate the continuity and geometry of mineralization, and to
a lesser extent, test for extensions of known mineralization. From 2011-2013, Nexa completed 95 underground core holes totaling
15,144 meters. The underground drilling was conducted from 10 drill stations at generally 40-meter centers (two drill stations
at 20-meter centers) and entirely within the San Jorge mineralized zone. Anywhere from three to 14 holes were drilled from each
of the ten drill stations. The underground drilling was tightly spaced and designed to allow for feasibility-level reserve estimation.
In November 2018, Nexa re-initiated drilling
with two core rigs at Florida Canyon, as part of a 2018/2019 41-hole, 17,000-meter drilling program. The first phase of this drilling
campaign ended in late-December 2018 upon the onset of the rainy season when helicopter supported drilling became operationally
inefficient. Four holes were completed to planned target depth and a fifth hole was abandoned due to technical drilling problems.
Total meterage completed was 2,203 meters. All holes were located at the northern and northeastern margin of the previous drilling
footprint in the Karen-Milagros zone.
All past drilling conducted is within a footprint
measuring approximately 2.5 kilometers long in a north-south direction and a little over a kilometer in an east-west direction.
The entire drill pattern is within what we have informally labeled the Florida Canyon district. Within this district, several zones
of strong zinc mineralization have been defined. The two zones with the largest amount of drilling are the San Jorge and the Karen-Milagros
zones. Drilling indicates that, for the most part, the entire Florida Canyon district remains open to expansion and the identified
zones are interconnected. Better 2013 drill-hole intercepts are provided in the table below:
Typical Mineralized Intersections
|
Drill Hole
|
Surface or
|
Intercept
|
Zinc
|
Lead
|
Zinc + Lead
|
Silver
|
Number
|
Underground
|
Meters
|
(%)
|
(%)
|
(%)
|
(grams/t)
|
V-378
|
Surface
|
7.7
|
14.62
|
2.11
|
16.73
|
15.69
|
V-386
|
Surface
|
16.2
|
16.20
|
10.70
|
12.41
|
11.13
|
V-427
|
Surface
|
15.1
|
12.06
|
2.75
|
14.81
|
17.59
|
V-436
|
Surface
|
17.0
|
11.74
|
1.08
|
12.81
|
18.48
|
V-451
|
Surface
|
30.7
|
13.06
|
4.97
|
18.03
|
32.64
|
V-407
|
Underground
|
3.6
|
26.31
|
1.59
|
27.90
|
74.87
|
V-432
|
Underground
|
21.1
|
8.31
|
1.71
|
10.02
|
12.11
|
V-433
|
Underground
|
5.0
|
38.22
|
3.89
|
42.12
|
60.76
|
V-458
|
Underground
|
25.5
|
7.22
|
0.55
|
7.77
|
6.21
|
V-465
|
Underground
|
10.7
|
45.60
|
5.25
|
50.84
|
106.71
|
8.
Sampling, Analysis and Security of Samples
Core samples were transported from the drill
by helicopter in sealed boxes to the processing facility in Shipasbamba where they were cut with a diamond saw. Half of the core
was taken of intervals selected according to geologic criteria under the supervision of the geologist in charge and shipped in
sealed bags by land. Cominco used SGS Laboratories and Nexa used ALS-Chemex, both in Lima, Peru, where all samples were analyzed
by ICP. Any samples that contained greater than 1% zinc were then analyzed by wet chemistry assay for zinc and lead to provide
a more accurate analysis of grade.
Since 2006, Nexa has been in control of all
field activities on the project and is responsible for the security of samples. Nexa has indicated that there have been no breaches
in the security of the samples. We have reviewed and engaged SRK Consulting (USA) Inc. (“SRK”) (a large independent
international mining engineering firm) to review Nexa’s sampling procedures and believe that adequate procedures are in place
to ensure the future security and integrity of samples. No breaches of security of samples are known to have occurred prior to
Nexa’s work on the project.
9.
Prefeasibility Studies
Nexa, either through its engineering staff or
contracted independent mining engineering firms, has conducted prefeasibility-level studies to provide estimates of deposit size
and grade, mining and processing recoveries, sizing of appropriate scale of operations, infrastructure design, and capital and
operating cost estimates at a level of detail varying from preliminary economic assessment to feasibility levels. These studies
were generally performed between 2007 and 2014.
Solitario and Nexa jointly completed a PEA for
the entire project in 2017 that incorporated a variety of Nexa-generated studies into the analysis. The PEA evaluation included
resource estimation, mining and processing recovery estimates, a preliminary mining and processing plan, infrastructure layout,
environmental considerations and an economic analysis based on certain base case parameters. The PEA envisioned an underground
mining operation with a 2,500 tonne per day floatation mill for processing, resulting in a 12.5-year mine life. It was assumed
that concentrates would be trucked to Nexa’s Cajamarquilla zinc smelter facility in Lima Peru.
Metallurgical testing to evaluate metal recoveries
and various processing options for mineralized material at Florida Canyon was conducted in 2010, 2011 and 2014. Tests to date on
composited samples indicate zinc recoveries of 91.8% and lead recoveries of 81.9% in the San Jorge zone and zinc recoveries of
80.3% and lead recoveries of 71.7% in the Karen-Milagros zone. These recoveries represent averages for each zone based on sulfide
dominant mineralization, but oxide material was present in the tested samples. Nexa also conducted a comprehensive geochemical
testing program that demonstrated that zinc (and lead) recoveries were significantly affected by the Zn-sulfide/Zn-oxide ratio
of mineralization. In general, mineralized material with greater than an 80% ratio of Zn-sulfide/Zn-oxide, recoveries are greater
than 90% for Zn. Conversely, for mineralized material, with less than a 20% ratio of Zn-sulfide/Zn-oxide, recoveries are approximately
40% for Zn. Although sulfide recoveries achieved to date are very good, SRK suggests that optimization of processing and metallurgical
parameters may result in improved recoveries and concentrate grade.
Other prefeasibility work completed by Nexa
included drilling 16 diamond core holes in 2013 to evaluate geotechnical and hydrological parameters of the mineralized areas for
both engineering and environmental purposes. In 2016, Nexa completed a geochemical/metallurgical study that more accurately defined
the distribution of sulfide/oxide mineralization based on re-assaying of nearly all past drill-hole samples. This information was
critical in resource estimation and accurately estimating metal recoveries.
The 2017 Florida Canyon Project PEA was completed
by SRK on behalf of Nexa and Solitario in August of 2017. The NI 43-101 compliant study entitled: “
Technical Report, Preliminary
Economic Assessment, Florida Canyon Zinc Project,
Amazonas Department, Peru; Effective Date: July 13, 2017, Report
Date: August 3, 2017
;” can be found in the Company’s Canadian Sedar filings and is furnished in the Company’s
U.S. Edgar filings.
10.
Reserves and Resources
There are no reported mineral reserves.
11.
Mining Operations
No commercial mining operations to recover metals
have occurred on the project. However, in September 2010 Nexa initiated an underground tunneling program to access mineralization
and completed its underground work in 2013. As of December 31, 2018, 700 meters of tunneling were completed.
12.
Planned Exploration and Development
Nexa is planning to resume its 41-hole, 17,000-meter
drilling program at the end of the rainy season, expected sometime in April 2019. At that time, Nexa plans to accelerate drilling
operations utilizing up to four core rigs operating simultaneously to complete the remaining 37 drill holes. In addition, Nexa
plans to conduct additional road construction work in 2019 that includes completion of the access road into the mineralized area
of Florida Canyon and also an access road to a local community as part of their social commitment to the local communities.
Lik Project (Alaska)
1.
Property Description and Location
(Map of Lik Property)
The Lik property consists of 47 contiguous Alaska
state mining claims. The contiguous claims have been grouped together for the purpose of working and operating under a common plan
of development for the benefit of all of the claims. The claims cover an area of approximately 6,075 acres (2,460 ha). The claims
are located in the southwestern DeLong Mountains in the Wulik River drainage.
To retain the state claims, the Company is required
to make annual rental payments to the State of Alaska. The estimated rental payments for 2019 are $7,000. Property holders are
also required to perform assessment work with the amount dependent on the area of the State claims. Excess assessment expenditure
credits may be carried forward for a maximum of
four years. If required, payments may be made in lieu of work to
allow retention of the property for a period of five consecutive years. The geographical coordinates of the Lik deposit are approximately
163
o
12’ W and 68
o
10’ N. The figure above illustrates the location of the Lik property.
2.
Acquisition History and Joint Venture Arrangement
Solitario acquired its 50% interest in the Lik
property from the acquisition of Zazu on July 12, 2017. As a result of the Acquisition, Zazu became a wholly-owned subsidiary of
Solitario. Prior to that, Zazu acquired its 50% interest in the Lik property from GCO Minerals Company a wholly-owned subsidiary
of the International Paper Company (“GCO”), on June 28, 2007 by making a cash payment to GCO of $20,000,000 and granting
GCO a 2% net proceeds interest. GCO also owns an additional 1% net profits interest in the Lik property from a 1997 agreement.
The Company is participating in the exploration
and possible development of the Lik property through a joint venture with Teck. The terms of the joint venture were governed by
the Lik Block Agreement, made as of January 27, 1983, between Houston Oil & Minerals Exploration Company (“HOMEX”)
and GCO. HOMEX assigned its interest in the Lik Block Agreement to Echo Bay Mines Ltd., which, in turn, assigned such interest
to Teck.
Under the terms of the Lik Block Agreement,
GCO held a 50% interest, and the right to increase its interest to up to 80% provided that GCO met an inflation-adjusted work commitment.
The required expenditure amount was originally $25 million when defined in 1983 and increased with inflation indexing and escalations
to approximately $43 million at the time Solitario closed the Acquisition. As of January 27, 2018, we estimate approximately $22
million had been incurred towards the inflation adjusted $43 million expenditure required to earn an additional 30% interest in
the property.
As the Company did not spend the full inflation-adjusted
expenditure amount by January 27, 2018, the Lik Block Agreement terminated. Consequently, as of December 31, 2018, Teck retains
its 50% participating interest in the Lik property, and Teck and Solitario are negotiating a new a joint operating agreement that
will governing all further operations relating to the Lik property. We anticipate that under such joint operating agreement, Solitario,
as successor to GCO, may be the operator and may have full and exclusive control of the Lik property, its facilities and production
as well as the exploration, development and mining undertaken pursuant to the Lik Block Agreement. The current agreement requires
unanimous approval by the parties for annual expenditures in excess of $1 million. In July 2018, the Company and Teck signed a
Joint Exploration Agreement whereby both parties agreed to fund a surface exploration program on a 50%-50% basis for 2018. However,
pending the completion of a new joint operating agreement, an extension to the Joint Exploration Agreement is expected to be signed
in 2019 to provide for the planned 2019 exploration program on the project. Teck was designated the operator for the 2018 program
and is expected to be the designated operator under the planned extension of the 2018 Joint Exploration Agreement for the upcoming
2019 program.
3.
Accessibility, Climate, Local Resources, Infrastructure and
Physiology
Access to the Lik property is by air to a gravel
surfaced airstrip located on the property. The airstrip is capable of handling multi-engine cargo planes. Charter flights may be
arranged from a number of sites in northwestern Alaska. The town of Kotzebue, which is located about 90 miles from the deposit,
is a seaport with commercial air service from Anchorage. Kotzebue is the center for access to the nearby Red Dog mine operated
by Teck.
The nearest location for which climatic data
is available is the town of Kotzebue. The average annual temperature at Kotzebue is 21.6
o
F, with seasonal extremes ranging
between 77
o
F in summer to -58
o
F in winter. There is an average of nine inches of rain and 47 inches of snowfall
per year. Snow falls are not extreme but blowing snow may form significant drifts. Strong winds are common in most parts of Alaska.
Diamond drilling is possible at the Lik property between June and October.
The exposures of mineralization at the Lik property
are located at about 800 feet above sea level. West of the deposit, the land rises steeply to peaks about 2,300 feet above sea
level. To the southeast, the land slopes down to the Wulik River where the bottom of the valley is about 700 feet above sea level.
There is sufficient space for tailings and waste rock disposal, and sufficient water is expected to be available for any proposed
processing. Locally, there is vegetation on the property consisting of tundra grasses and low brush made up of willow, dwarf birch,
and alder.
There is a camp located on the Lik property.
The camp has been used periodically over the last twelve years and was substantially refurbished as a part the 2007 and 2008 field
programs. The supply of electric power and workforce accommodation will have to be developed. There are no local resources adjacent
to the Lik property. The Red Dog mine, operated by Teck, is located about 13.6 miles southeast of the deposit. Potentially, concentrates
could be moved along the access road from the Red Dog mine to the port on the Chukchi Sea. The port has a shipping season in excess
of 100 days.
Zazu entered into an agreement with Alaska Industrial
Development and Export Agency (“AIDEA”) to enable AIDEA to begin due diligence on the proposed expansion of the port
and the Red Dog road, the Delong Mountain Transportation System (“DMTS”), to potentially handle Lik concentrates. AIDEA,
as owners of the DMTS, evaluated their possible role in the two parts of the proposed expansion project: the financing of a spur
road connecting the Lik project to the DMTS, and the financing of any required modifications at the port. The DMTS is open to multiple
users such as the Company. The studied expansion would facilitate both the development of the Lik project and handle future concentrate
production from the project. The DMTS road and port system currently handles all concentrate produced by the Red Dog zinc mine
of Teck. Prior to the AIDEA agreement, Zazu received a letter of Non-Objection from the Northwest Arctic Borough (“NWAB”).
In this letter, the NWAB formally acknowledged its awareness of the Lik project, and that NWAB had no objection to the project.
In January 2015, AIDEA announced the completion
of its study into capacity availability in its DMTS. The report concluded that there is sufficient excess capacity for the Company’s
concentrate shipping needs, confirming the assumptions made in Zazu's 2014 PEA. This study aimed to closely identify the outputs
of both Lik and Red Dog, if any modifications are required to the DMTS to support them, and if so, their potential cost. The study
concluded that sufficient handling capacity will exist with only minor modifications required to accommodate future planned production
from Lik under the analyzed PEA scenario.
4.
History
The Red Dog ore deposit was originally discovered
in 1970 by a geologist undertaking mapping in the De Long Mountains area on behalf of the United States Geological Survey. GCO,
in joint venture with New Jersey Zinc Company and WGM Inc., carried out stream geochemical sampling and reconnaissance for color
anomalies. Claims were staked in July 1976 to cover a stream geochemical anomaly on Lik Creek. HOMEX replaced New Jersey Zinc Company
in the joint venture in 1976/1977.
Diamond drilling on the Lik property commenced
in 1977 and targeted a gossan with a coincident soil and electromagnetic anomaly. The first hole encountered massive lead-zinc-silver-bearing
sulfides. By the end of 1977, the joint venture had completed 25 line-miles of ground geophysics, a soil sampling program, and
ten diamond drill holes with an aggregate depth of 5,260 feet. In 1978 and 1979, further geological, geochemical and geophysical
surveys were carried out, together with the drilling of another 93 diamond drill holes aggregating 51,200 feet. A mineral
resource was estimated. The joint venture continued to work in the district in the period 1980 to 1983. However, only limited diamond
drilling activity continued on the Lik property. The Lik Block Agreement was signed in 1984.
In 1984, Noranda optioned the GCO holding of
the Lik property. Much of Noranda’s activity was concentrated in the Lik North Area where ten diamond drill holes with an
aggregate depth of 13,710 feet were completed on four sections. Noranda also drilled holes in the Lik South deposit to better define
the deposit. Noranda released its interest in the Lik property after a re-organization of its holdings in the United States. From
1985 through June of 2007, when Zazu acquired its interest in the Lik property, only a limited amount of work was conducted at
Lik.
Zazu completed diamond drilling programs during
the 2007, 2008 and 2011 summer field seasons. From 2009 through 2014, Zazu conducted a suite of economic, engineering, environmental
and metallurgical studies on the Lik property, culminating with the completion of a Preliminary Economic Assessment in 2014.
5.
Geological Setting
The regional geology of the Western Brooks Range
area is structurally complex. The sedimentary rocks of the area have been significantly disrupted by thrust sheets. The Lik property
and the other zinc-lead deposits of the Brooks Range, including Red Dog, are hosted in the Kuna Formation of the Lisburne Group.
In the Western Brooks Range, the Lisburne Group includes both deep and shallow water sedimentary facies and local volcanic rocks.
The rocks have been extensively disrupted by thrusting. The deep-water facies of the Lisburne Group, the Kuna Formation, are exposed
chiefly in the Endicott Mountains.
On a district scale, the Lik property is hosted
in the Red Dog plate of the Endicott Mountains thrust sheet. The stratigraphically lowest rocks within the Red Dog plate belong
to the Kayak Shale. The top of the Kayak Shale is interbedded with rocks of the Kuna Formation. The Ikalukrok Unit has been divided
into a lower laminated black shale sub-unit and an upper medium- to thick-bedded black chert sub-unit. The Ikalukrok Unit hosts
all of the massive sulfide deposits in the area.
Locally, the Lik property is hosted in the upper
part of the Ikalukrok Unit of the Kuna Formation. The host rocks are carbonaceous and siliceous black shale, with subordinate black
chert and fine-grained limestone. These rocks strike broadly north-south and dip at about 25
o
to 40
o
to the
west. The massive sulfides are overlain conformably by rocks of the Siksikpuk Formation. The sequence is overridden by allochthonous
rocks that form high hills north and west of the deposits.
The mineralized sequence is cut by a number
of faults. The most significant disruption is the Main Break Fault, which drops the northern end of the Lik deposit down about
500 feet. It is unclear whether there is a change in strike north of the fault, or whether the change is more apparent due to topography.
The Main Break Fault strikes east-west and dips north at about 60
o
. There is another group of steeper faults that tend
to strike northerly or northwesterly and which are interpreted as being both normal and reverse with throws of up to 330 feet.
6.
Prior Exploration and the Results of the 2018 Exploration
Program
The Red Dog ore deposit was originally discovered
in 1970 by a geologist undertaking mapping in the De Long Mountains area on behalf of the United States Geological Survey. The
Lik deposit was discover by GCO in the mid-1970’s by following up on soil color and stream geochemical anomalies. From the
late 1970’s to 2011, various geochemical, geophysical and geologic activities were intermittently conducted to define drill
targets. The Lik property was sporadically drill tested from the late-1970’s to 2011 by seven different companies. Details
of these historical drilling campaigns are discussed above under the heading “History” and below under the heading
“Drilling.”
The 2018 exploration program consisted of geologic
mapping, geochemical sampling, re-logging of old core and ground gravity geophysical surveying. The geologic mapping program resulted
in a better understanding of the stratigraphic and structural control of mineralization at Lik, and the potential trend of mineralization
to the north. Geochemical sampling indicates an area of elevated geochemistry to the north that requires further investigation.
The gravity survey results are somewhat uncertain, but may point to an area of interest, also to the north. Re-logging of old core
is expected to be completed in the second quarter of 2019.
7.
Mineralization
The Lik deposit is a black shale-hosted stratiform
zinc-lead-silver sedimentary-exhalitive (SEDEX) deposit. Mineralization is syngenetic with respect to sediment deposition. Silicification
occurs within and peripheral to the main mass of sulfides. Major sulfides in decreasing order of abundance are pyrite-marcasite,
sphalerite and galena. The ore textures are massive, fragmental, chaotic, and veined; they rarely show typical sedimentary layering.
The portion of the ore body near the surface is oxidized. The deposit is continuous outside the Lik property onto the adjacent
100%-owned Teck property to the south. The southern continuation of the Lik deposit is referred to as the Su deposit, lying on
Teck’s Su property.
Within the Lik property, the deposit is divided
into two parts by the Main Break Fault. The main part of the deposit within the existing claims is referred to as the Lik South
deposit. As presently tested, the Lik South deposit has a surface footprint of about 3,600 feet long and about 2,000 feet wide.
It has been tested down dip to a depth of about 650 feet. The Lik South deposit remains open down dip. North of the Main Break
Fault, the Lik North deposit has a surface footprint of about 2,300 feet long and about 1,150 feet wide. It has been tested down
dip to a depth of about 1,000 feet. The Lik North deposit remains strongly open down dip and to the north.
The deposits strike northerly and dip westerly
at about 25
o
to 40
o
. The mineralization comprises irregular, stratiform lenses. The mineralogy of the sulfides
is simple and comprises pyrite, marcasite, sphalerite, and galena. Gangue minerals include quartz (as chert), clay minerals, carbonate
and barite. Noranda recognized six different ore types in its logging of drill core. Typical grades of mineralized intersections
within the Lik deposit are listed in the table below:
Typical Mineralized Intersections
|
Hole
No.
|
From
(m)
|
To
(m)
|
Length
(m)
|
Zn
(%)
|
Pb
(%)
|
Ag
(g/t)
|
5
|
54.56
|
78.79
|
24.23
|
19.72
|
6.27
|
126.5
|
16
|
80.16
|
94.49
|
14.33
|
21.67
|
7.01
|
230.4
|
21
|
129.54
|
135.33
|
5.79
|
7.07
|
1.88
|
8.6
|
24
|
40.87
|
50.14
|
9.27
|
11.09
|
1.44
|
51.1
|
38
|
45.90
|
63.76
|
17.86
|
8.13
|
1.80
|
48.0
|
38
|
70.53
|
87.75
|
17.22
|
8.92
|
2.08
|
28.8
|
43
|
35.66
|
40.69
|
5.03
|
17.66
|
3.62
|
8.6
|
43
|
60.96
|
80.28
|
19.32
|
9.07
|
2.49
|
47.7
|
43
|
84.73
|
91.04
|
6.31
|
21.07
|
5.95
|
111.4
|
68
|
32.31
|
53.43
|
21.12
|
13.34
|
2.85
|
56.9
|
Previous work by GCO determined that sulfides
were deposited in four distinct cycles. Individual cycles may be quite thin near the margins of the deposit and the thickest accumulation
in a single cycle noted to date is about 45 feet thick. The base of a sulfide cycle begins abruptly with the deposition of sphalerite,
galena and pyrite. Typically, the highest grades are found at or within 5-10 feet of the base of a sulfide cycle. In the central
portion of the deposit several cycles are stacked and comprise a cumulative thickness of up to 100 feet of mineralization.
8.
Drilling
All diamond drill programs are summarized in
the following table.
Historical Diamond Drilling Campaigns
|
Year
|
Number
of Holes
|
Aggregate
Depth (m)
|
Company
|
1977
|
10
|
1,603.3
|
Managed by WGM
|
1978
|
79
|
10,680.2
|
Managed by WGM
|
1979
|
14
|
4,931.1
|
Managed by GCO
|
1980
|
3
|
202.1
|
Managed by GCO
|
1983
|
1
|
835.2
|
Managed by GCO
|
1984
|
6
|
1,643.5
|
Managed by GCO
|
1985
|
16
|
4,883.1
|
Managed by Noranda
|
1987
|
1
|
696.5
|
Managed by GCO
|
1990
|
3
|
263.4
|
Managed by Moneta
|
1992
|
2
|
283.5
|
Managed by GCO
|
2007
|
11
|
1,393.5
|
Managed by Zazu
|
2008
|
58
|
6,827.5
|
Managed by Zazu
|
2011
|
25
|
3,871.0
|
Managed by Zazu
|
Totals
|
229
|
38,328.6
|
|
Zazu completed two diamond drilling programs
during the 2007 and 2008 to further test the Lik South deposit and and to obtain samples for metallurgical testing. At the end
of 2008, most of the Lik South deposit had been tested on lines spaced at 200 ft. with holes spaced at about 100 ft.
The 2011 drilling program at Lik combined
exploration and development drilling. The exploration drilling focused on improving resource definition, in particular near the
transition zone between Lik South and Lik North and also Lik North. The development drilling focused on obtaining additional metallurgical
samples and geotechnical drilling for the open pit design and foundation information to assist in infrastructure design. By the
end of 2011, a total of approximately 38,328 meters (125,700 feet) of drilling in 229 holes had been completed on the Lik property
by the Company (Zazu) and the previous owners. No drilling has been completed on the Lik project since 2011.
9.
Sampling, Analysis and Security of Samples
Pre-Zazu Drilling
Core recoveries were typically high within the
massive sulfides, but lower, more variable recoveries were obtained in the unmineralized and weakly mineralized sections. The entire
core obtained from the Lik deposit, usually NQ-size, was logged on site. All of the core containing sulfide mineralization was
cut using diamond saws and half of the core was sent for assay. Reference samples were not included in the sample stream. Sample
lengths in massive sulfides were typically from two to three feet, but occasionally up to nine feet. Sample lengths were probably
controlled by geology and the location of depth markers in the core boxes.
Most of the samples were assayed by Bondar Clegg
Laboratory Group (“Bondar Clegg”) of Vancouver. At various times, the laboratory-maintained preparation facilities
in Anchorage and Fairbanks Alaska. In the initial years, when the bulk of the drilling was completed, it is believed that sample
preparation and analysis were carried out in Vancouver. Bondar Clegg was not a registered laboratory at that time. However, Bondar
Clegg was a recognized, reputable laboratory and was experienced in the use of atomic absorption spectrophotometry.
As the entire core was logged and sampled in
an isolated field camp, security was not a major concern because access to the camp was closely controlled. It is noted that four
different companies (WGM, GCO, Noranda and Moneta) have completed drilling programs at the Lik property and all of them have obtained
consistent results. The work was considered completed to industry standards in use at the time of the work. Sample preparation
was completed in the assay laboratory.
Zazu Drilling
Drill core obtained during the 2007, 2008 and
2011 drilling campaigns was logged on site. The entire core containing sulfide mineralization was sawn using diamond saws and half
of the core was sent for assay. All massive and high-sulfide cores were sampled. Visual methods were used to select sample boundaries
and lengths. The mineralization at Lik is considered to be appropriately logged and sampled. It is not evident that logging or
sampling is leading to any bias in the sample results. An examination of logging showed that core recovery in sulfide areas was
generally very high.
Core drilled in 2007 was placed in the sample
bags, the air was evacuated and replaced with nitrogen. The samples were sent to Kotzebue by charter and then by licensed carrier
to Anchorage. The samples were stored under refrigeration in Anchorage. The samples were dispatched to G & T Metallurgical
Services Ltd. (“G & T”) of Kamloops, British Columbia, an ISO 9001:2000 certified laboratory for precious metals
and base metals. As well as completing metallurgical testing, G & T crushed and analyzed the samples. The 2008 diamond drill
core was not required for metallurgical testing and core was handled normally. Sawn samples were securely bagged and boxed on site
and dispatched to a facility of ALS Laboratory Group (“ALS Chemex”) located in Fairbanks, Alaska, for sample preparation.
Transportation of the samples was through third-party companies that provided secure transportation services. The pulps were analyzed
at ALS Chemex located in Fairbanks or Elko, Nevada. Zazu did not participate in any part of the sample preparation or analysis
except for cutting core.
Check samples from the 2007 drilling program
and all samples from the 2008 drilling campaign were sent to the preparation and assaying facilities of ALS Chemex (ISO 17025 accreditation).
Other QA/QC procedures employed by Zazu included the use of blanks (unmineralized core from outside of the mineralized zone) and
quartered core duplicates. Zazu was unable to obtain acceptable reference samples for the 2007 field season and reference samples
were not included as part of the 2007 ongoing QA/QC program. Reproducibility between G & T and ALS Chemex was found to be good.
A detailed description of QA/QC procedures can be found in the Solitario’s Canadian SEDAR filings and in the Company’s
US Edgar
filings: Technical Report; Zazu Metals Corporation, Lik Deposit,
Alaska, USA; Report Date: April 23, 2014; Effective Date: March 3, 2014; prepared by JDS Energy and Mining Inc (“JDS”).
.
10.
Prefeasibility Studies
Zazu completed a Preliminary Economic Assessment
in 2014 that incorporated a variety of prefeasibility level 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. A summary of metallurgical
testing and mineral processing is provided below. The PEA analyzed the Lik project as a stand-alone operation building its own
independent processing, tailings and port facilities.
Zazu engaged JDS to complete the PEA on the
Lik deposit in 2013. The NI 43-101 compliant study entitled: “
Technical Report; Zazu Metals Corporation, Lik Deposit,
Alaska, USA; Report Date: April 23, 2014; Effective Date: March 3, 2014
;” can be found in the Company’s Canadian
Sedar filings and is furnished in the Company’s U.S. Edgar filings. JDS is a Canadian independent and internationally recognized
mining engineering firm providing engineering services internationally.
Metallurgical Testing and Mineral Processing
There have been five metallurgical test work
reports issued to date on the Lik ores. The most recent and comprehensive processing and metallurgical testing programs include
work performed by G&T and by SGS. Samples collected during drilling in 2007 and 2008 were composited into one Master Composite
for testing at G&T in 2008, and later testing by SGS was carried out in 2010 on the remainder of the Master Composite. These
key testing results have formed the basis for this economic evaluation of the Lik deposit. Results are summarized in the table
below:
Summary of SGS 2010 and G&T 2008
Metallurgical Test Results
Test
|
Element
|
Feed
|
Lead Concentrate
|
Zinc Concentrate
|
Grade
|
Grade
|
Recovery
|
Grade
|
Recovery
|
SGS 2010
|
Pb%
|
2.83
|
52.00
|
69.10
|
1.88
|
9.70
|
Zn%
|
9.56
|
7.39
|
2.91
|
54.60
|
83.10
|
Ag gpt
|
37
|
55
|
5.5
|
68
|
26.6
|
G&T 2008
|
Pb%
|
2.36
|
70.30
|
70.3
|
1.57
|
9.4
|
Zn%
|
8.47
|
4.17
|
1.20
|
52.20
|
86.9
|
Ag gpt
|
34
|
68
|
4.8
|
64
|
26.9
|
Average Used for Mass Balance and NSR Estimates
|
Pb%
|
2.60
|
61.15
|
69.7
|
1.73
|
9.6
|
Zn%
|
9.02
|
5.78
|
2.06
|
53.40
|
85.0
|
Ag gpt
|
36
|
62
|
5.2
|
66
|
26.8
|
The metallurgical flowsheet for this PEA includes
conventional crushing, grinding, and flotation processing methods. Run-of–Mine (ROM) ore will be delivered to a primary crushing
plant and stored in a coarse ore stockpile awaiting reclaim into the grinding circuit. Crusher ore will be reclaimed and delivered
to a two-stage grinding circuit equipped with a Semi-Autogenous Grinding (SAG) mill and a ball mill in closed circuit with cyclones.
Recoveries from these modeled methods and metallurgical
testing conducted to date are anticipated to be 85% of zinc to the zinc concentrate and 69.7% of the lead to the lead concentrate.
Silver is also recovered and payable at times in the zinc concentrate and more significantly in the lead concentrate.
11. Reserves
There are no reported mineral reserves.
12. Mining Operations
No commercial mining operations to recover metals
have occurred on the project.
13. Planned Exploration and Development
Solitario and Teck are planning to negotiate
to jointly fund a 2019 exploration program with Teck acting as project operator. The budgeted program will have four components:
1) re-logging of previous drill core; 2) XRF (x-ray fluorescence) – Tuscan TruScan continuous scanning analysis of previous
drill core to analyze for geochemical trends within the Lik mineralized system; 3) continued geologic and geochemical investigations
of an area north of the Lik deposit; and, 4) Remodeling of the Lik geology. These activities are scheduled to begin in April and
be completed by the end of September.
Chambara Zinc Property (Peru)
In April 2008, we signed the Minera Chambara
shareholders’ agreement with Votorantim on Solitario's 100%-owned Chambara zinc project. In 2015 Votorantim transferred its
interest in the Chambara project to Milpo, now Nexa. In October of 2017, Milpo and Votorantim merged to form Nexa. For the remainder
of this Chambara property section, all references to Votorantim, Milpo or Nexa are collectively referred to as “Nexa.”
The original purpose of the Chambara joint venture
was to collectively pool independently owned Solitario
and Nexa properties into a jointly-held joint venture. These properties
were located within a large area of interest in northern Peru measuring approximately 200 by 85 kilometers, but outside of the
Florida Canyon property position. Nexa originally contributed 52 mineral concessions within the area of interest totaling 52,000
hectares to Minera Chambara for a 15% interest in Minera Chambara. We contributed 9,600 hectares of mineral claims and an extensive
exploration data base in our possession for an 85% interest in Minera Chambara. Existing and future acquired properties subject
to the terms of the shareholders’ agreement will be controlled by Minera Chambara. Minera Chambara dropped selected concessions
in 2013 and 2016 and acquired the rights to 13 new concessions totaling 11,600 hectares in 2017. This resulted in Minera Chambara
holding 36,400 hectares of valid concessions that completely surround the Florida Canyon project area held by Minera Bongará.
As of December 31, 2016, Minera Chambara’s only assets are the properties and Minera Chambara has no debt. Nexa may increase
its shareholding interest to 49% through cumulative spending of $6,250,000 and may further increase its interest to 70% by funding
a feasibility study and providing for construction financing for Solitario's interest. If Nexa provides such construction financing,
we would repay that financing, including interest, from 80% of Solitario's portion of the project cash flow.
The project has been on care and maintenance
in recent years. Significant geochemical anomalies and outcropping mineralization have been identified at several locations on
the Chambara property. Nexa is responsible for maintaining the property in good standing and making all concession payments to
the Peruvian government. Concession costs in 2019 to be paid by Nexa are estimated to be $423,000.
La Promesa Project (Peru)
The La Promesa property, acquired in 2008, consists
of three concessions totaling 2,600 hectares. Currently, our only holding costs for the mineral rights are annual payments of nine
dollars per hectare to the Peruvian government. Total holding costs in 2018 will be approximately $8,000. A subsidiary of Newmont
holds a 2% net smelter return (“NSR”) on the property.
During the past several years Solitario has
conducted an active social engagement program with the community located near the La Promesa project area with the objective of
obtaining a community agreement to support exploration activities, including drilling. To date, no agreement has been signed. In
Peru, a community agreement is required in order to obtain drilling permits. During 2019 our objectives are to complete an agreement
with the local community, to conduct surface exploration, and if warranted, conduct a drilling program.
At least five high-grade polymetallic veins
have been identified and sampled at surface. Two of the veins, about 300 meters apart, have been traced for at least 400 meters
along strike. There appears to be a systematic trend towards greater vein thickness with depth, as the widest observed vein in
outcrop occurs at the lowest elevation sampled to date. Channel sampling along 300 meters of strike length from the best exposed
vein yielded the following high-grade results:
Chip Channel #
|
True Width
|
Silver gpt
|
% Zinc
|
% Lead
|
Indium gpt
|
A
|
2.8
|
758
|
19.4
|
7.2
|
153
|
B
|
1.1
|
181
|
21.0
|
2.4
|
190
|
C
|
0.5
|
433
|
10.5
|
6.3
|
23
|
D
|
0.4
|
458
|
10.2
|
10.8
|
15
|
E
|
1.0
|
346
|
5.9
|
3.4
|
27
|
F
|
1.2
|
1975
|
33.1
|
5.6
|
430
|
Royalty Properties
Yanacocha Royalty Property (Peru)
The Yanacocha royalty property
covered 43 concessions totaling 36,052 hectares. Solitario, through its wholly owned subsidiary Minera Solitario Perú S.A.C.,
sold the non-producing Yanacocha royalty to Minera Los Tapados S.A., a wholly owned subsidiary of Newmont for approximately $502,000
in cash. Prior to the sale, Solitario received a term sheet from a third-party to purchase the Yanacocha Royalty as part of discussions
concerning the potential sale of Solitario’s entire portfolio of royalty properties. Newmont had a 30-day right of first
refusal (“ROFR”) to match any third-party offer to purchase the Yanacocha Royalty from Solitario. Newmont exercised
its ROFR and the transaction with Newmont closed on April 26, 2018.
No resources or reserves have been reported
by Newmont on the Yanacocha royalty property in Peru, nor has any mining been conducted on the property.
Other Royalty Properties (Brazil, Mexico and USA)
Subsequent to December 31, 2018, in January
2019, Solitario sold two royalties and an option to purchase a third royalty to SilverStream. Solitario received CDN $250,000 in
cash and CDN $350,000 in a convertible note as payment for the royalties and option. The royalties cover the 125,000-acre polymetallic
Pedra Branca palladium, platinum, gold, nickel, cobalt and chrome project in Brazil (1.0% NSR royalty) and the 3,880-acre Mexico
royalty portfolio (1.0% NSR royalty). The purchase option covers 11 separate properties covering 16,500 acres in Montana (1.5%
NSR royalty).
The CDN $350,000 convertible note has a one-year
term with a 5% per annum simple interest rate. The note is convertible into SilverStream stock should SilverStream complete an
initial public offering before the end of the one-year term.
Discontinued Projects
We did not abandon any mineral properties during
2018.
GLOSSARY OF MINING TERMS
“Allochthonous”
means originating in
a place other than a place where it was formed.
“
Assay
” means to test minerals by chemical
or other methods for the purpose of determining the amount of valuable metals contained.
“Anticline”
means folds in which each
half of the fold dips away front the crest.
“
Breccia
” means rock consisting of fragments,
more or less angular, in a matrix of finer-grained material or of cementing material.
“
Claim” or “Concession
” means
a mining interest giving its holder the right to prospect, explore for and exploit minerals within a defined area.
“Clastic”
means pertaining to rock or
rocks composed of fragments or particles of older rocks or previously existing solid matter; fragmental.
“
Deposit
” means an informal term for
an accumulation of mineral ores.
“Development”
means work carried out
for the purpose of opening up a mineral deposit and making the actual ore extraction possible.
“Domal”
means of a dome shape.
“
Dolomite”
means calcium magnesium carbonate, CaMg (CO
3
)
2
, occurring in crystals and in masses.
“Facies”
means the appearance and characteristics
of a sedimentary deposit, especially as they reflect the conditions and environment of deposition and serve to distinguish
the deposit from contiguous deposits.
“
Fault
” means a fracture in rock along
which there has been displacement of the two sides parallel to the fracture.
“gpt”
means grams per tonne.
“Karst”
means
a
landscape that is characterized by the features of solution weathering and erosion
in the subsurface. These features include caves, sinkholes, disappearing streams, subsurface drainage and deeply incised narrow
canyons.
“M
anto
deposits”
means replacement ore bodies that are strata bound, irregular to rod shaped ore occurrences usually horizontal
or near horizontal in attitude.
“
Mineralization
” means the concentration
of metals within a body of rock.
“
NSR
” means net smelter return royalty.
“opt”
or
“oz/ton”
means
ounces per ton.
“
Ore
” means material containing minerals
that can be economically extracted.
“Ounce”
means a troy ounce.
“
Reserves
” or “
Ore Reserves
”
means that part of a mineral deposit, which could be economically and legally extracted or produced at the time of the reserve
determination.
“
Sampling
” means selecting a fractional,
but representative, part of a mineral deposit for analysis.
“
Sediment
” means solid material settled
from suspension in a liquid.
“Sedimentary Exhalative Deposits (SEDEX)”
means ore deposits which have been formed by the release of ore-bearing hydrothermal fluids into a water reservoir.
“Silicification”
means the process in
which organic matter becomes saturated with silica (silicon dioxide).
“Sphalerite”
means a very common mineral,
zinc sulfide, usually containing some iron and a little cadmium, occurring in yellow, brown, or black crystals or cleavable
masses with resinous luster and it is the principal ore of zinc.
“Spectrophotometry”
means the quantitative
measurement of the reflection properties of a material as a function of its wavelength.
“Stratiform”
means formed parallel to
the bedding places of surrounding rock.
“Stratigraphy”
means t
he arrangement of rock strata, especially as to the geographic, chronologic order of sequence (age), classification,
characteristics and formation.
“
Strike
” when used as a noun, means the
direction, course or bearing of a vein or rock formation measured on a level surface and, when used as a verb, means to take such
direction, course or bearing.
“
Sulfide
” means a compound of sulfur
and some other element.
“Syngenetic”
means a mineral deposit
that forms at the same time as the surrounding rock.
“
Ton
” means a short ton (2,000 pounds).
“
Tonne”
means a metric ton that contains
2,204.6 pounds or 1,000 kilograms.
“
Vein
” means a fissure, fault or crack
in a rock filled by minerals that have traveled upwards from some deep source.