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 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 of the project. 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.
Solitario’s primary focus is on the acquisition and
exploration of zinc-related exploration mineral properties.
However, Solitario evaluates and will potentially acquire other
base and precious metal properties and assets. In addition to
focusing on its mineral exploration properties and the evaluation
of mineral properties for acquisition, Solitario also evaluates
potential strategic transactions as a means to acquire and interest
in new precious and base metal properties and assets with
exploration potential or other potential corporate transactions
that Solitario determines to be favorable to
Solitario.
Solitario has
recorded revenue from the sale of mineral properties and assets,
including the sale of certain mineral royalties in January of 2019
and the sale in April of 2018 of its interest in the royalty on the
Yanacocha property, discussed below. 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,
completed a 39-hole 17,033-meter drilling program at Florida Canyon
during 2019 (discussed below). 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 2019
consisting of mapping, geophysical work, relogging of prior
drilling core and environmental evaluation.
As
of December 31, 2019, 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
January 22, 2019, Solitario completed the sale of its interest in
certain royalties to SilverStream SEZC, a private Cayman Island
royalty and streaming company (“SilverStream”), for
Cdn$600,000 (the “Royalty Sale”). The Royalty Sale
covered (i) a royalty on the formerly Solitario-owned 125,000-acre
polymetallic Pedra Branca palladium, platinum, gold, nickel, cobalt
and chrome project in Brazil, (ii) a royalty covering 3,880 acres
of non-producing exploration properties in Mexico, and (iii) a
purchase option on royalties covering 11 separate non-producing
properties covering over 16,500 acres in Montana. At closing of the
Royalty Sale, Solitario received Cdn$250,000 in cash and a
convertible note from SilverStream in the principal amount of
Cdn$350,000 (the “SilverStream Note”). The SilverStream
Note was originally due December 31, 2019, accrued 5% per annum
simple interest, payable on a quarterly basis, and is convertible
into common shares of SilverStream, at the discretion of
SilverStream, by providing Solitario a notice of conversion. In
December of 2019, Solitario and SilverStream agreed to extend the
due date of the SilverStream Note to June 30, 2020, and to increase
the interest rate to 8% per annum simple interest. All other terms
of the SilverStream Note remained the same. SilverStream may only
provide a notice of conversion if SilverStream has completed an
initial public offering during the term of the SilverStream Note
for minimum proceeds of Cdn$5,000,000, otherwise the SilverStream
Note will be payable in cash at the maturity date. Pursuant to the
terms of the SilverStream Note, if SilverStream were to complete an
initial public offering and the SilverStream Note was converted,
Solitario would receive common shares converted at 85% of the
weighted average quoted price of a share of SilverStream common
stock for the most recent 10-day period prior to the notice of
conversion
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 Teck
acting as the project manager for 2018 and 2019. A Preliminary
Economic Assessment (“PEA”) was completed on the Lik
deposit in 2014.
Solitario also has
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. Except for the
2018-2019 drilling program, discussed below, Nexa has funded 100%
of project expenditures since the inception of the Florida Canyon
joint venture in 2006. Nexa will earn a 70% interest in the project
by continuing to solely fund all project expenditures 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 from
the project.
In
August of 2018, Solitario agreed to fund a portion of a 2018
– 2019 drilling program at the Florida Canyon project.
Solitario funded $1,580,000 of the 39-hole 17,033-meter drilling
program, which was completed in the fourth quarter of 2019 (the
“Drilling Program”). The funding of the Drilling
Program will be treated as an advance on Solitario’s
commitment to fund 30% of any future construction and 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, the
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, 2019, Solitario
has paid Nexa its entire funding commitment of $1,580,000, of which
$1,053,000 and $527,000, respectively, were charged to exploration
during 2019 and 2018.
At
December 31, 2019, 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 9.8% equity interest in Vendetta Mining Corp.
(“Vendetta”).
We
conduct 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
and assets, 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 and royalty sales, 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) the sale of mineral property royalties to SilverStream
for $408,000 during 2019, (ii) the sale of our Yanacocha royalty to
Newmont for $502,000 during 2018; (iii) proceeds received from the
sale of our former Mt. Hamilton project in 2015; (iv) sales of our
shares of common stock of Vendetta and Kinross Gold Corporation
(“Kinross”); (v) borrowing in the form of short-term
margin debt secured by our investment in Kinross; (vi) borrowing
under long-term debt secured by our former Mt. Hamilton project
(vii) joint venture delay rental payments, including payments on
our Florida Canyon project; (viii) a royalty sale for $10,000,000
in 2012; (ix) issuances of common stock; (x) sales of covered call
options on our Kinross common stock; and (xi) interest on short
term Treasury Notes and Bank CDs. 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, 2020, we had three 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, contractors and advisors,
which is limited by the size of our company compared to many of our
competitors who may have greater resources, including 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 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 2019, 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, 2019 and 2018, are
total assets of $59,000 and $416,000, 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 periodic 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.
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 acquisition and
exploration of our mineral properties 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, 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 in the past and
may record mineral property impairments in the future.
We have no reported proven and probable mineral reserves, and our
current projects and any projects we may acquire are not likely to
offer the opportunity for near term revenues or sale proceeds. If
we are unsuccessful in identifying mineral reserves in the future,
we may not be able to realize any profit from our 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 23 of our 26 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
sale of our former Mt. Hamilton project, 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 previously
held royalties on non-producing exploration properties in Mexico,
Brazil and Montana (U.S.) through January 22, 2019 when they were
sold. We have acted 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
current exploration activities, mineral properties and royalties
located outside of the United States are subject to the laws of
Peru and any other countries in which we may conduct business.
Exploration and potential development activities in other countries
we may conduct exploration 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;
●
royalty and tax increases or claims by
governmental entities, including retroactive claims;
●
expropriation or nationalization of
property;
●
currency fluctuations (particularly
related to a change 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 results of operations and growth
potential.
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
sale of our former Mt. Hamilton project 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,
funds from the issuance of long-term debt, and the issuance of
common stock. We may need to raise additional capital, or enter
into new joint venture arrangements, in order to fund our
obligations with respect to our properties and our 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
are 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 personnel with technical skills and
experience in the mineral exploration business. There can be no
assurance that we will continue to 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 or own
assets, 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 or
own assets 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. 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 and our Lik project are joint ventured with
other mining companies that manage the exploration and development
activities on the projects. We are the minority-interest party at
Florida Canyon and a 50% partner at the Lik project, where Teck is
the operator. Although our joint venture agreements provide certain
voting rights and other minority-interest safeguards, the majority
partner and/or operator 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 partners, as well as their 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 requires unanimous consent by the
joint venture partners 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 our current or future 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 our properties or interests 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; (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, not currently under joint venture, 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 2019 was
approximately 61,000 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 cash held in brokerage and foreign bank accounts.
The failure of the financial institutions that issued or hold these
financial instruments or our cash could have a material adverse
impact on the market price of our common stock and our liquidity
and capital resources.
At
December 31, 2019, we have invested $6,829,000 in United States
Treasury securities, with maturities of between 30 days and 17
months and we have approximately $554,000 of our cash in uninsured
deposit accounts and brokerage accounts none of which are covered
by FDIC insurance. The failure of a financial institution 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 the FCPA and other
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.
Florida Canyon Zinc Project (Peru)
1.
Property Description and
Location
(Map of
Florida Canyon Property formerly Bongará)
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. Solitario
completed the funding of $1,580,000 of the Drilling Program during
2019. The paid funding of the Drilling Program will be treated as
an advance on Solitario’s commitment to fund 30% of any
future construction development costs of Florida Canyon under the
original joint venture agreement. Accordingly, in the event the
Florida Canyon project is developed, which cannot be assured at
this time, the 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.
According to
Peruvian law, concessions may be held indefinitely, subject only to
payment of annual fees to the government. In June 2020, 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 2020. 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 25oC. 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 from 2018 to
2019, 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. It is believed that mineralizing fluids passed through
structurally controlled vertical feeder zones and into adjacent
near-horizontal rock formations to produce mineralized vertical
replacement bodies and 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.
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:
|
BreakoutZone
Name
|
Drill
HoleNumber
|
Intercepts(meters)
|
Zinc%
|
Lead%
|
Zinc+Lead%
|
|
Sam
|
GC-17FC-23
|
58.881.5
|
12.04.8
|
2.80.8
|
14.85.6
|
|
Karen
|
A-1
|
36.2
|
12.8
|
2.7
|
15.5
|
|
V-1021
|
V-21
|
92.0
|
5.5
|
1.7
|
7.2
|
|
South
Zone
|
V-44V-169
|
28.351.6
|
15.27.1
|
0.80.7
|
16.07.8
|
|
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. 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.
From
November 2018 to October 2019, Nexa completed a 39-hole,
17,033-meter core drilling program. The majority of holes were
drilled 2019. The program had three major objectives: 1) extend the
San Jorge near-vertical replacement body to the south and the
adjacent near-horizontal manto bodies to the east; 2) offset
previously drilled hole V-21 in the northern part of Florida Canyon
to determine if it represented a significant near-vertical
replacement body with horizontal mantos similar to the San Jorge
Zone; and 3) extend horizontal mantos in the central and northern
parts of the Florida Canyon drilling footprint. All three
objectives were successfully achieved.
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.
We believe that additional detailed drilling of the newly
delineated 1021 zone in the northern part of the Florida Canyon
district has potential to add significant new resources. Drilling
indicates that, for the most part, the entire Florida Canyon
district remains open to expansion and the identified zones are
interconnected. Better 2018-2019 drill-hole intercepts are provided
in the table below:
|
2018-2019
Mineralized Intersections
|
|
Drill
Hole
|
|
Intercept
|
Zinc
|
Lead
|
Silver
|
ZnEq*
|
|
Number
|
|
Meters
|
(%)
|
(%)
|
(grams/t)
|
(%)
|
|
PEBGD-03
|
|
1.3
|
42.7
|
15.0
|
83.0
|
56.9
|
|
PEBGD-04
|
|
1.3
|
40.5
|
0.0
|
4.8
|
40.6
|
|
PEBGD-08
|
|
4.4
|
16.8
|
1.1
|
32.1
|
18.3
|
|
PEBGD-10
|
|
48.9
|
5.2
|
1.0
|
11.5
|
6.2
|
|
including
|
|
17.5
|
11.3
|
2.2
|
25.4
|
13.7
|
|
PEBGD-15
|
|
12.4
|
14.9
|
0.0
|
8.9
|
15.1
|
|
PEBGD-24
|
|
4.1
|
18.6
|
0.9
|
5.7
|
19.5
|
|
PEBGD-25
|
|
6.3
|
7.7
|
0.5
|
3.2
|
8.2
|
|
and
|
|
8.8
|
5.2
|
1.5
|
18.1
|
6.9
|
|
PEBGD-30
|
|
6.7
|
18.4
|
0.0
|
10.6
|
18.7
|
|
PEBGD-31
|
|
7.4
|
11.3
|
1.7
|
14.5
|
13.1
|
|
PEBGD-32
|
|
9.3
|
23.5
|
2.8
|
18.1
|
26.5
|
|
PEBGD-33
|
|
9.9
|
5.9
|
1.6
|
12.9
|
7.7
|
|
PEBGD-36
|
|
6.1
|
20.1
|
5.6
|
42.4
|
25.6
|
|
and
|
|
1.8
|
35.2
|
0.5
|
69.7
|
37.1
|
|
PEBGD-38
|
|
9.7
|
22.8
|
0.2
|
11.8
|
23.2
|
|
PEBGD-39
|
|
3.3
|
37.7
|
9.6
|
65.5
|
47.1
|
*Zn-Eq
was calculated using the following price assumptions: Zn=$1.10/lb.,
Pb=$0.91lb., Ag=$16.50/oz.
Reported intervals
are estimated to be at least 80% of the true thickness
Numbers
in this table may not add exactly as numbers have been rounded to
the nearest decimal
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
prefeasibility 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, 2019, 700 meters of
tunneling were completed.
12.
Planned Exploration and
Development
Nexa is
currently working on a new NI-43101 compliant resource estimate
incorporating the 2018-2019 drill hole assay results. This new
estimate is expected to be completed by the end of the first
quarter of 2020. Nexa is also planning to permit 84 new drilling
platforms and associated interconnecting roads scattered over an
area approximately six kilometers by five kilometers in 2020. These
proposed platforms are located immediately south and southeast of
the current Florida Canyon drilling footprint. Permitting is
expected to take approximately one year. Drilling may be possible
for the 2021 field season, depending upon the grant of permits and
funding approvals by Nexa. Nexa is also planning to conduct a new
metallurgical study beginning in the second quarter of 2020. This
study is expected to be completed in the second quarter of 2020. In
addition, Nexa plans to conduct additional road construction in
2020 to access local communities as part of their social commitment
to these communities.
Lik Project (Alaska)
1.
Property Description and
Location
(Map of
Lik Property) Lik.jpg
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 2020 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 163o 12’ W and
68o
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
Metals Corp (“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
American Incorporated (50%), a wholly owned subsidiary of Teck
Resources Limited (collectively “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 acquired Zazu. As of January 27,
2018, we estimated that 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, 2019, Teck retains its 50%
participating interest in the Lik property, and Teck and Solitario
are negotiating a new a joint operating agreement that will govern
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 (“JEA”) whereby both parties agreed to fund a
surface exploration program on a 50%-50% basis for 2018. In January
2019, the Company and Teck signed an Addendum to extend the JEA to
January 31, 2020. However, pending the completion of a new joint
operating agreement, an extension to the JEA is expected to be
signed prior to the end of the first quarter 2020 to further extend
the terms of the JEA into early 2021 to provide for the planned
2020 exploration program on the project. Teck was designated the
operator for only the 2019 and 2018 programs and is expected to be
the designated operator under the planned extensions of the JEA
only for the upcoming 2020 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
21.6oF,
with seasonal extremes ranging between 77oF in summer to
-58oF 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
PEA 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
25o to
40o 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 60o. 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 2019 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
2019 exploration program consisted of geologic mapping, geochemical
sampling, re-logging of old core, XRF analysis for trace elements
in old core, reinterpretation of the stratigraphic and structural
setting in the vicinity of the Lik deposit 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 could be proximal to zinc
mineralization. The gravity survey results are somewhat uncertain,
but may point to an area of interest, also to the north. The
stratigraphic and structural reinterpretation in the vicinity of
the Lik deposit suggests the potential for stacked deposits below
the Lik deposit.
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 25o to 40o. 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
|
|
HoleNo.
|
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 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 PEA 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 in discussions to jointly fund a 2020 exploration program with
Teck acting as project operator. The program, if approved, consists
of drilling two or three core holes totaling approximately 1,000
meters. Drill targets under consideration include an area
approximately one kilometer north of Lik and also below the Lik
deposit to test for stacked mineralized horizons. Drilling is
expected to begin during the 2020 summer field season. We expect to
reach a final decision on this program during the first quarter of
2020.
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, 2019, 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 2020 to be paid by Nexa are estimated to be
$527,000.
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 2020 will be
approximately $34,000. 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 and we are planning to conduct limited
exploration activities on the property in 2020. In Peru, a
community agreement is required in order to obtain drilling
permits. During 2020 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:
|
|
|
|
|
|
|
|
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
|
Discontinued Projects
We did
not abandon any mineral properties during 2018 or
2019.
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.
“Carbonaceous”
means a compound relating to or containing carbon.
“Chert”
means a sedimentary rock of microcrystalline quartz (the mineral
form Silicon dioxide - SiO2).
“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 (CO3)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.
“Galena”
means a bluish gray or black mineral of metallic appearance,
generally the chief ore of lead sulfide.
“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.
“Manto
deposits” means replacement ore bodies that are strata
bound, irregular to rod shaped ore occurrences usually horizontal
or near horizontal in attitude.
“Metallurgy” means the domain of materials
science and engineering that studies the physical and chemical
behavior of metallic elements and their inter-metallic compounds,
alloys.
“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.
“Oxide” means a mineral class in which the
chemical compound that typically contains an 0 -2 oxygen atom in
its chemical formula.
“Pyrite” means a compound of iron sulfide
(FeSO2) commonly found in mineral rich areas.
“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.
“Shale”
means a fine-grained sedimentary rock that forms from the
compaction of silt and clay commonly referred to as
mud.
“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 the 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 measure 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.