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Derivative Instruments
 12 Months Ended
Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments

7. Derivative instruments:

 

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 share of Solitario common stock at an exercise price of $1.5387 for a term of 36 months, subject to standard anti-dilution adjustments. Solitario recorded a discount to the RMB Loan for the fair value of the RMB Warrants. Solitario is amortizing this discount on a straight-line basis to interest cost over the three-year term of the RMB Loan and as of December 31, 2013 the remaining unamortized warrant discount was $356,000.

 

Solitario has recorded a liability for the fair value of the RMB Warrants based upon a Black-Scholes model and 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:

 

    Black Scholes model
 

Warrant

Liability

(in thousands)

Life

(months)

Stock price

Per share

Volatility

(%)

Risk-

Free interest rate

  Initial RMB warrant liability balance $   650  36 $1.19 62 0.39
   Loss (gain) on warrant liability 488         
  Ending balance December 31, 2012 $1,138  32 1.68 62 0.35
   Loss (gain) on warrant liability (998)        
  Ending balance December 31, 2013 $  140  20 0.85 55 0.38

 

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 2013 and 2012, Solitario recorded the following liabilities and gain or loss on derivative instruments related to Kinross covered call options:

 

  (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, 2011 $  -     $   -    $  -   
   Sale of call 51  -    -   
   (Gain) on derivative instrument (48) -    -   
  Ending liability balance December 31,2012 $    3  $   -    $  -   
   Sale of call -    55  35 
   (Gain) on derivative instrument (3) (53) (34)
  Ending liability balance December 31,2013 $   -    $   2  $   1 

 

Other warrants

 

During 2010, in connection with the acquisition of Mt. Hamilton and the formation of MH-LLC, Solitario acquired warrants to purchase shares of Ely stock for Cdn$0.25 per share, with warrants for 833,333 shares that expired on August 30, 2012 and warrants for 833,333 that expired on October 19, 2012. In May 2011 Solitario acquired warrants to purchase shares of International Lithium Corp., which were written off during 2012 and expired during 2013. Solitario has recorded gains and losses on these warrants in its gain (loss) on derivative instruments in the statement of operations as detailed below.

 

The following table provides the location and amount of the fair values of Solitario's derivative instruments presented in the consolidated balance sheet as of December 31, 2013 and 2012:

 

  Derivatives
(in thousands) Balance Sheet Location December 31, 2013 December 31, 2012
Derivatives not designated as hedging instruments under ASC 815      
 RMB warrants Long-term liabilities $140  $  1,138 
 Kinross calls Other current liabilities $    3   -  

 

The following amounts are included in loss on derivative instruments in the consolidated statement of operations for the years ended December 31, 2013 and 2012:

 

 

Year ended

December 31,

(in thousands) 2013 2012
Gain (loss) on derivatives not designated as hedging instruments under ASC 815    
Kinross Calls $  90  $  48 
Ely warrants   -   (74)
ILC warrants -   (4)
    Total gain (loss) $ 90  $ (30)