With the current depressed commodity price environment and stressed balance sheets for both senior and junior mining companies, we believe it is an optimal time for the company to judiciously deploy its new found financial strength through property acquisitions. We do not plan on conducting grassroots exploration to discover new exploration targets during this period of depressed metal prices, but rather focus on properties that have identified value and growth potential.
We want to remain flexible in our approach – we will focus on gold, silver and zinc, but will not rule out other metals or corporate opportunities. Our targeted geographic range will stress safe jurisdictions in the Americas, with an emphasis in Peru, Mexico, Canada and the U.S., but we will consider venturing outside of these jurisdictions if the right opportunity presents itself. We plan to target relatively early-stage exploration projects that have some drilling, and potentially a defined resource with excellent upside potential, but we will also consider select greenfield projects with defined exploration targets and/or more advanced exploration or pre-development projects where our feasibility and permitting experience may be valuable.
Our preferred acquisition strategy is to acquire a 100%-interest in a project through staged work/cash commitments or corporate transactions. We will also pursue joint ventures in which Solitario can earn a majority participating interest under the right joint venture conditions. We may also option properties from major mining companies. Such agreements may contain a majority claw-back joint venture provision for the major, with Solitario retaining a carried interest.
We will continue to evaluate royalty opportunities on advanced projects, but we believe current royalty acquisition costs in the industry are generally fully valued and do not offer the opportunity for attractive returns on investment.
We will be patient in not only finding the right project, but also negotiating the right terms for transactions that fit our technical strengths and financial capabilities. Finally, we will be vigilant in maintaining a strong balance sheet and a low number of shares outstanding. We intend execute these strategies while maintaining a low cost structure.
Mt. Hamilton Sale Paves the Way for a New Chapter
We note that Solitario’s management team executed a similar strategy in 2006 when we sold our parent company, Crown Resources, owner of the Buckhorn Mt. Gold Project, to Kinross Gold for proceeds in excess of $150 million, benefitting Crown’s shareholders. Solitario was a major beneficiary of this transaction netting approximately $25 million in Kinross stock within the framework of that transaction.
As a note of interest, we invested approximately $14 million into the Mt. Hamilton project since its acquisition in August 2010. We reported a gain of approximately $10 million on the transaction. This is an exceptional outcome during a period of nearly universal losses reported by most other mining companies that have sold assets within the past two years. Clearly, we acquired the right property under favorable terms, successfully enhanced its value through solid technical work, and negotiated a favorable sales transaction in these challenging times. We are committed to acquiring only the best assets available under favorable terms, an endeavor that requires time and a lot of technical due diligence.
Strong Tradition as a Project Generator and Value Creator
In addition to identifying and acquiring early stage properties, we also acquired more advanced stage projects, conducted detailed exploration, engineering and permitting. On two of these properties, Mt. Hamilton and Buckhorn Mountain (thru parent Crown Resources), we successfully sold our interests in these projects.
Recapping Our Strengths and Defining Our New Direction
• Solitario is in a strong financial position with approximately $16.0 million in cash and no debt.
• Solitario’s management team has a proven record of project generation that has attracted major mining company interest and investment under favorable joint venture arrangements on multiple projects. Over the years two of these partnerships have resulted in the production of more than 2.5 million ounces of gold (Kettle River and Buckhorn Mt.) with another million ounces of potential gold production from Mt. Hamilton.
• Solitario retains a fully carried 30% interest in the high-grade Bongará zinc project, an asset expected to attain commercial production in the future.
• Solitario has demonstrated its abilities in generative minerals exploration, in follow-on project resource expansion and through the feasibility/permitting process resulting in attractive transactions to the company and its shareholders. By implementing different approaches tailored to individual projects and under varied market conditions the company has maximized the value of its assets.
• Solitario has largely self-funded all of its programs for over twenty years without significant shareholder dilution by excessive financings.
Solitario Zinc Corp.
4251 Kipling Street, Suite 390; Wheat Ridge, CO 80033 | Tel: 303-534-1030; Fax: 303-534-1809