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Long Term Debt

9 Months Ended

Sep. 30, 2012

4. Long-term debt

Augusta debt

The following is the schedule of debt payments due Augusta Resources Corporation ("Augusta") as of September 30, 2012 and December 31, 2011:

(in thousands) Payment date		September 30, 2012			December 31, 2011
June 1, 2012	$	—		$	750
June 1, 2013		750			750
June 1, 2014		750			750
June 1, 2015		1,000			1,000
Unamortized discount		(305	)		(448	)
Total		2,195			2,802
Current portion		714			727
Long-term debt	$	1,481		$	2,075

The following interest expense from the accretion of the debt discount related to MH-LLC long-term debt due to Augusta:

(in thousands)	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Interest expense Augusta loan	$	41	$	51	$	143	$	165

During the nine months ended September 30, 2012 and 2011 Solitario made payments of $750,000 and $500,000 of principal on the long-term debt to DHI-US, which in turn was paid to Augusta.

RMB Loan

On August 10, 2012, Solitario entered into a Facility Agreement (the “Facility Agreement”) with RMB Australia Holdings Limited, an Australian corporation (“RMBAH”), and RMB Resources Inc., a Delaware corporation (“RMBR”). Under the Facility Agreement, Solitario may borrow up to $5,000,000 from RMBAH (with any amounts outstanding collectively being the “RMB Loan”) at any time during the 24 month period commencing on August 21, 2012, the date of initial funding (the

“Availability Period”), after which time any undrawn portion of the $5,000,000 commitment will be cancelled and will no longer be available for drawdown. Solitario borrowed $1,500,000 on August 21, 2012 from which it received net proceeds of $912,000 after deducting deferred offering costs of $588,000, which included an arrangement fee of $250,000, legal costs of $328,000 and other costs of $10,000. The deferred offering costs are recorded in other long-term assets and are being amortized on a straight-line basis to interest expense over 36 months, the term of the Facility Agreement. Solitario has recorded deferred offering costs of $567,000 as of September 30, 2012 in other long-term assets. The proceeds from the initial funding were used to pay the balance due on the facility arrangement fee of $175,000, to pay certain legal expenses related to the Facility Agreement, and to reduce outstanding short-term margin loans.

The Facility Agreement was subject to a $250,000 arrangement fee, of which $75,000 had been paid prior to initial funding. The RMB Loan matures on the earlier to occur of (i) 36 months from the date of initial funding or (ii) the date on which financing is made available to MH-LLC for purposes of placing the Mt. Hamilton project into commercial production. The RMB Loan amounts bear interest at LIBOR plus 5%, payable in arrears on the last day of each quarterly interest period. All proceeds from the RMB Loan are to be deposited in a proceeds account (the “Proceeds Account”) and are recorded as restricted cash until disbursed in accordance with the Facility Agreement. Pursuant to the Facility Agreement, funds may only be disbursed from the Proceeds Account for approved expenditures, including (i) exploration and development activities at the Mt. Hamilton project, ongoing earn-in payments at MH-LLC, general corporate purposes as set forth in a project and corporate budget approved by RMBAH and (iv) any other purpose approved by RMBAH. As of September 30, 2012 there was no cash balance in the Proceeds Account. The RMB Loan may be repaid at any time without penalty. Any amounts repaid may not be redrawn under the Facility Agreement. The RMB Loan is secured by a lien on Solitario’s 80% interest in MH-LLC as well as a general security interest in Solitario’s remaining assets.

As of September 30, 2012, the outstanding balance under the RMB Loan was $1,500,000. During the three and nine months ended September 30 Solitario recorded the following interest expense related to the RMB Loan:

(in thousands)	Three and nine months ended September 30,
	2012
Interest expense RMB Loan	$	8
Amortization of the RMB Warrants discount		23
Amortization of RMB deferred offering costs		21
Total interest expense related to the RMB Loan	$	52

RMB Warrants

Pursuant to the Facility Agreement, the Company issued 1,624,748 warrants to RMBAH as partial consideration for financing services provided in connection with the Facility Agreement. Each RMB Warrant entitles the holder to purchase one common Share of Solitario pursuant to the terms and conditions of the RMB Warrants. The RMB Warrants expire 36 months from their date of issuance and have an exercise price of $1.5387 per Warrant Share, subject to customary anti-dilution adjustments. During the three months ended September 30, 2012, Solitario registered the resale of the Warrant Shares with the U.S. Securities and Exchange Commission following the execution of the Facility Agreement. Solitario recorded a discount to the RMB Loan for the fair value of the RMB Warrants of $650,000 as of August 21, 2012, based upon a Black-Scholes model using a 36-month life, volatility of 62%, and a risk-free interest rate of 0.39%. Solitario is amortizing this discount on a straight-line basis to interest expense over the three-year term of the RMB Loan and as of September 30, 2012 the remaining unamortized warrant discount was $627,000.

As a result of certain registration rights requirements, Solitario has classified its RMB Warrants as a liability in accordance with ASC 815-40, “Derivatives and Hedging, Contracts in Entity’s Own Equity.” Under ASC 815-40, Solitario adjusts the fair value of the warrants at each balance sheet date, with changes in value recorded in other income/expense in the statement of operations. Solitario recorded a loss on the RMB Warrants of $729,000 for the three months ended September 30, 2012, based upon a Black-Scholes model using a 35 month-life, a volatility of 62% a stock price of $1.85 per share and a risk free interest rate of 0.40%