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Mineral Properties

12 Months Ended

Dec. 31, 2013

2. Mineral properties:

The following table details Solitario’s investment in Mineral Property:

(in thousands)	December 31,
	2013	2012
Development (United States)
Mt. Hamilton	$12,059	$9,275
Exploration
Pachuca (Mexico)	20	20
La Promesa (Peru)	5	5
Norcan (Mexico)	6	6
Aconchi (Mexico)	5	5
Canta Colorado (Mexico)	3	3
Atico (Peru)	-	5
Cerro Azul (Peru)	-	3
Jaripo (Mexico)	-	5
Total exploration	39	52
Total mineral property	$12,098	$9,327

Mt. Hamilton

MH-LLC joint venture of the Mt. Hamilton project

In December 2010 Solitario signed the MH Agreement with DHI and formed MH-LLC, the owner of the Mt. Hamilton project. Pursuant to the MH Agreement, the fair value of the DHI contribution was valued at $3,000,000 for its 90% interest and MH-LLC assumed $3,066,000 for the fair value of the Augusta debt, discussed below in Note 5, “Long-term debt.”

As of December 31, 2013, pursuant to the MH Agreement, Solitario had one remaining cash payment to DHI of $250,000 and one remaining stock payment to DHI of 50,000 shares of Solitario common stock, both of which were paid in February 2014. In addition, Solitario has annual advance royalty payments due to the underlying leaseholder of $300,000 per year and a $5,000,000 royalty reduction payment due the underlying leaseholder prior to commercial production at Mt. Hamilton. Failure to make these payments to the underlying leaseholder will result in a reduction in Solitario’s interest in MH-LLC from 80% to 49% with a corresponding increase in the DHI’s interest in MH-LLC.

The MH Agreement provides that all costs for development at Mt. Hamilton after completion of the Feasibility Study will be shared by Solitario and DHI pro-rata. Upon completion of the Feasibility Study, DHI notified Solitario that it had exercised its option of having Solitario contribute DHI’s share of costs through commercial completion as a loan, with such loan, plus interest at 8%, being repaid to Solitario from 80% of DHI’s share of distributions from MH-LLC. During 2012, Solitario loaned DHI $127,000 for its share of costs subsequent to the completion of the Feasibility Study. However, subsequently, DHI repaid Solitario $131,000 for the remaining balance due on the loan from Solitario, including interest, and has no balance due to Solitario as of December 31, 2013 or 2012.

During 2013, MH-LLC distributed $250,000 to its members, Solitario and DHI, in proportion to their interests. Solitario received $200,000 from this distribution which was eliminated in consolidation. During 2012, MH-LLC distributed $2.5 million to its members in proportion to their interests. Solitario received $2 million from this distribution which was eliminated in consolidation. In addition, during 2012 Solitario received $500,000 from DHI to repay a portion of a prior loan to Solitario, and Solitario agreed to forgive $35,000 of accrued interest due from DHI, which represented the accrued interest on loans made to DHI in connection with the MH Agreement through June 30, 2012. Including accrued interest of $17,000 prior to the repayment of the DHI loan, Solitario recorded a net decrease to interest income of $18,000 for the interest earned and forgiven during 2012.

Sandstorm royalty sale

In June 2012, MH-LLC completed the sale of a 2.4% net smelter royalty on its Mt. Hamilton project to Sandstorm for $10 million. MH-LLC received an upfront payment of $6 million upon signing the agreement and received $4 million on January 15, 2013, which Solitario recorded as a current asset as of December 31, 2012. The Sandstorm royalty agreement provides that in the event Sandstorm does not receive $10 million in royalty proceeds by December 31, 2022, MH-LLC will make up any shortfall. As a result of this guarantee, Solitario believes it is appropriate to defer the gain on sale, until such time as the potential funding obligation under the guarantee is reduced or eliminated. Solitario reduced mineral property $3,000,000 and recorded a deferred gain as a long-term liability on the sale of the Sandstorm royalty of $7,000,000 during 2012.

As part of the agreement, MH-LLC will have the option, for a period of 30 months from the date of the agreement to repurchase the NSR for $12 million, provided that MH-LLC enters into a gold stream agreement with Sandstorm that has an upfront deposit of greater than $30 million. In addition, MH-LLC has provided Sandstorm with a right of first refusal on any future royalty or gold stream financing for the Mt. Hamilton project. Pursuant to the agreement, Solitario is jointly and severally liable for all obligations of MH-LLC to Sandstorm.

Capitalized costs

Solitario began capitalizing its development costs incurred at its Mt. Hamilton project subsequent to the completion of the Feasibility Study, as detailed in the following table:

(in thousands)	Year ended December 31,
	2013	2012
Development expenditures	$ 1,854	$ 3,107
Capitalized interest	726	-
Property payments	174	325
Capitalized depreciation	30	22
Total capitalized costs	$ 2,784	$ 3,454

Included in the property payments during 2013 are the issuance of 35,000 shares with a fair value of $41,000 issued to underlying leaseholders which were recorded as an increase to additional paid-in-capital. Solitario also capitalized $300,000 during each year of advance royalty payments to the underlying leaseholder of as long-term other assets. See Note 3, “Other assets,” below.

Exploration property

Solitario's exploration mineral properties at December 31, 2013 consist of use rights related to exploration stage properties, and the value of such assets is primarily driven by the nature and amount of economic mineral ore believed to be contained, or potentially contained, in such properties. The amounts capitalized as mineral properties include concession and lease or option acquisition costs. Capitalized costs related to a mineral property represent its fair value at the time it was acquired. At December 31, 2013, none of Solitario’s exploration properties have production (are operating) or contain proven or probable reserves. Solitario's exploration mineral properties represent interests in properties that Solitario believes have exploration and development potential. Solitario's mineral use rights generally are enforceable regardless of whether proven and probable reserves have been established.

In addition to its capitalized exploration properties, Solitario has an interest in its Bongará and Mercurio exploration concessions, which are currently subject to joint venture agreements where joint venture partners made payments to Solitario. Solitario records joint venture property payment revenue received in excess of capitalized costs and recorded $200,000 of joint venture property revenue on its Bongará project during 2013 and 2012 and recorded $100,000 of joint venture property revenue on its Mercurio project in Brazil during 2013 and 2012. . At December 31, 2013 and 2012, neither of these properties have any remaining capitalized costs.

Solitario also sold its mineral interests in its Yanacocha and Mercurio exploration projects and retained a royalty interest in each. Solitario has no capitalized costs related to these royalty interests.

Discontinued projects

During 2013, Solitario recorded $13,000 of mineral property write-downs related to its Cerro Azul and Atico properties in Peru and its Jaripo property in Mexico. During 2012, Solitario recorded $31,000 of mineral property mineral property write-downs related to its Excelsior, Triunfo and Espanola projects.

Exploration Expense

The following items comprised exploration expense:

	For the year ended December 31,
(in thousands)	2013	2012
Geologic and field expenses	$311	$1,307
Administrative	486	378
Mt. Hamilton exploration	-	301
Total exploration expense	$797	$1,986