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Derivative Instruments
 9 Months Ended
Sep. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments

6.        Derivative instruments

 

RMB Warrants

 

In August 2012, pursuant to the Facility Agreement, the Company issued the RMB 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 share of Solitario common stock pursuant to the terms and conditions of the RMB Warrants (a “Warrant Share”). 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. Solitario has recorded a liability for the fair value of the RMB Warrants based upon a Black-Scholes model. Solitario adjusts the fair value of the warrants at each balance sheet date, with changes in value recorded in other income (loss) in the statement of operations.

 

The following tables summarize the RMB Warrants:

 

  (in thousands)  
  RMB warrant liability balance December 31, 2012 $ 1,138 
   (Gain) on warrant liability (953)
  Ending balance September 30, 2013 $   185 

 

(in thousands)

Three months ended

September 30,

Nine months ended

September 30,

  2013 2012 2013 2012
(Gain) loss on warrant liability $ (96) $729  $ (953) $729 
Black Scholes model        
  Life (months)     23 35
  Stock price per share     $0.86 $1.85
  Volatility (%)     57 65
  Risk-free interest rate (%)     0.3 0.4

 

Ely and International Lithium Corp. Warrants

 

In connection with the equity investment in Ely during 2010, Solitario acquired warrants to purchase 1,666,666 shares of Ely common stock at Cdn$0.25 per share for a period of two years. The warrants expired unexercised during 2012. Solitario recorded an unrealized loss on derivative instrument of $22,000 and $73,000, respectively for the three and nine months ended September 30, 2012. Solitario also recorded a loss on International Lithium Corp. (“ILC”) warrants of $3,000 during the nine months ended September 30, 2012.

 

Covered Call Options

 

From time to time Solitario has sold covered call options against its holdings of Kinross. The business purpose of selling covered calls is to provide additional income on a limited portion of shares of Kinross that Solitario may sell in the near term, which is generally defined as less than one year. Solitario has not designated its covered calls as hedging instruments as described in ASC 815, “Derivatives and Hedging,” and any changes in the fair value of its covered calls are recognized in the statement of operations in the period of the change. During the three and nine months ended September 30, 2013, Solitario recorded the following liabilities and gain or loss on derivative instruments related to Kinross covered call options and Ely and ILC warrants:

 

  (in thousands)

KGC

February 2013

$11 call

KGC

February 2014

$7 call

KGC

February 2014 

$8 call

 Shares of Kinross 100  100  50 
 Balance December 31, 2012 $    3  $      -     $      -    
   Sale of call   55  35 
   (Gain) on derivative instrument (3) (40) (24)
  Ending liability balance September 30, 2013 $   -   $   15  $   11 

 

(in thousands)

Three months ended

September 30,

Nine months ended

September 30,

(Gain) Loss on derivative instruments 2013 2012 2013 2012
  (Gain) loss on Kinross $7 February 2014 call $ (40) $ -   $ (40) $ -  
  (Gain) loss on Kinross $8 February 2014 call (24) -   (24) -  
  (Gain) loss on Kinross $11 February 2013 call -   -   (3) 3 
     Total Kinross Calls  (64)  -    (67)  3 
  (Gain) loss on Ely & ILC warrants -   22  -   73 
     Total (gain) loss on derivative instruments $  (64) $ 22  $  (67) $ 76