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Business and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

1. Business and Significant Accounting Policies

1. Business and Significant Accounting Policies

Business

Solitario Exploration & Royalty Corp. (“Solitario”) is a development stage company (but not a company in the “Development Stage”) under Industry Guide 7, as issued by the United States Securities and Exchange Commission, with a focus on developing the Mt. Hamilton project located in Nevada. Although Solitario intends to develop the Mt. Hamilton project, Solitario has never developed a mineral property. Solitario may explore other strategic options with respect to the Mt. Hamilton project, including a potential sale of all or a part of its interest or other contractual arrangements intended to monetize its interest. In addition to the Mt. Hamilton project, Solitario owns the Bongará zinc project in Brazil, which is subject to a joint venture with Votorantim Matais Cajamarquilla, S.A. (“Votorantim”), whereby Votorantim is earning a 70% interest in the Bongará zinc project, subject to certain conditions. In addition, Solitario acquires and holds a portfolio of precious and base metal exploration properties for future sale, joint venture or to create a royalty prior to the establishment of proven and probable reserves and at September 30, 2014 has four mineral exploration properties in Peru and Mexico and its Yanacocha and Mercurio royalty properties in Peru and Brazil, respectively. Solitario is conducting limited exploration activities in these countries.

The accompanying interim condensed consolidated financial statements of Solitario for the three and nine months ended September 30, 2014 and 2013 are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America. They do not include all disclosures required by generally accepted accounting principles for annual financial statements, but in the opinion of management, include all adjustments, consisting only of normal recurring items, necessary for a fair presentation. Interim results are not necessarily indicative of results, which may be achieved in the future or for the full year ending December 31, 2014.

These financial statements should be read in conjunction with the financial statements and notes thereto which are included in Solitario’s Annual Report on Form 10-K for the year ended December 31, 2013. The accounting policies set forth in those annual financial statements are the same as the accounting policies utilized in the preparation of these financial statements, except as modified for appropriate interim financial statement presentation.

Investment in Kinross

Solitario has a significant investment in Kinross Gold Corporation (“Kinross”) at September 30, 2014 and December 31, 2013, which consists of the following:

(in thousands)	September 30, 2014	December 31, 2013
Shares	480	600
Fair value
Current assets	$1,584	$1,577
Long term assets	$ -	$1,051

During the three and nine months ended September 30, 2014 and 2013, Solitario sold the following shares of Kinross:

(in thousands)	Three months ended September 30		Nine months ended September 30
	2014	2013	2014	2013
Shares sold	20	10	120	70
Proceeds	$83	$45	$556	$358
Gain on sale	$69	$38	$472	$308

At December 31, 2013, Solitario had borrowed $802,000 in short-term margin loans against its holdings of Kinross shares, which loans were paid during the nine months ended September 30, 2014. The short-term margin loans are discussed below under, “Short-term debt.” As of November 3, 2014 we own 480,000 shares of Kinross common stock which have a value of approximately $1.0 million based upon the market price of $2.22 per Kinross share as of such date. Solitario’s investment in Kinross common stock represents a significant concentration of assets, with the inherent risk that entails. Any significant decline in the market value of Kinross common shares could have a material negative impact on our liquidity and capital resources.

Equity method investments

Solitario accounts for its investment in Pedra Branca do Mineracao, Ltd. (“PBM”) under the equity method as of July 21, 2010, when Anglo Platinum Limited (“Anglo”) earned a 51% interest in PBM. Solitario elected not to record its investment in PBM at fair value after July 21, 2010 and during the three and nine months ended September 30, 2014 recorded a loss of $nil and $153,000, respectively, in its equity method investment for Solitario’s share of the loss of PBM. During the nine months ended September 30, 2014, Solitario’s equity investment in PBM was reduced to zero and Solitario is no longer recognizing its share of losses in PBM in the statement of operations. Solitario’s unrecognized losses related to its 49% interest in PBM were $461,000 as of September 30, 2014.

Employee stock compensation plans

Solitario’s outstanding options on the date of grant have a five year term, and vest 25% on date of grant and 25% on each of the next three anniversary dates. Solitario recognizes stock option compensation expense on the date of grant for 25% of the grant date fair value, and subsequently, based upon a straight line amortization of the unvested grant date fair value of each of its outstanding options. During the three and nine months ended September 30, 2014, Solitario recorded $511,000 and $622,000, respectively, of stock option expense for the amortization of grant date fair value with a credit to additional paid-in-capital. During the three and nine months ended September 30, 2013, Solitario recorded $13,000 and $206,000, respectively, of stock option expense for the amortization of grant date fair value with a credit to additional paid-in-capital.

The 2006 Plan

On June 27, 2006 Solitario’s shareholders approved the 2006 Stock Option Incentive Plan (the “2006 Plan”). Under the terms of the 2006 Plan, the Board of Directors may grant up to 2,800,000 options to Directors, officers and employees with exercise prices equal to the market price of Solitario’s common stock at the date of grant.

On January 28, 2014, holders of option awards from the 2006 Plan voluntarily cancelled awards for 1,797,000 options with an option price of Cdn$2.40 having an expiration date of May 5, 2015 to allow Solitario to have additional financial flexibility. No consideration was given or received by the holders of the options to cancel the awards. On May 19, 2014, previously granted options to acquire 264,000 shares expired unexercised and were available for grant from such date under the 2006 Plan.

During the three and nine months ended September 30, 2014, Solitario granted options under the 2006 Plan to acquire 1,990,000 shares with an exercise price of Cdn$1.60 per share, the closing price of a share of Solitario common stock as quoted on the Toronto Stock Exchange on the date of grant. The options have a term of five years, vest 25% on the date of grant and 25% on each subsequent anniversary date and had a grant date fair value of $1,618,000 based upon a Black Scholes model with a 66% expected volatility, an expected life of five years and a risk free interest rate of 1.55%. There were no new options granted during the three and nine months ended September 30, 2013 under the 2006 Plan.

No options were exercised during the three and nine months ended September 30, 2014. During the nine months ended September 30, 2013 options for 112,500 shares were exercised at a price of Cdn$1.55 per share for proceeds of $176,000 and 5,000 options were exercised at a price of Cdn$1.49 per share for proceeds of $7,000.

The 2013 Plan

On June 18, 2013 Solitario’s shareholders approved the 2013 Solitario Exploration & Royalty Corp. Omnibus Stock and Incentive Plan (the “2013 Plan”). Under the terms of the 2013 Plan, the Board of Directors may grant awards for up to 1,750,000 shares to Directors, officers, employees and consultants. Such awards may take the form of stock options, stock appreciation rights, restricted stock, and restricted stock units. The terms and conditions of the awards are pursuant to the 2013 Plan and are granted by the Board of Directors or a committee appointed by the Board of Directors. Solitario classifies its awards from the 2013 Plan as equity awards under the provisions of ASC 718 “Compensation – Stock Compensation.”

During the nine months ended September 30, 2014, Solitario granted restricted stock units from the 2013 Plan for a total of 50,562 shares, which vested upon grant. These restricted stock units were granted to two former employees as part of their severance upon termination from Solitario. During the nine months ended September 30, 2013, Solitario granted optionsto acquire 120,000 shares with an exercise price of $1.14 per share, the closing price of a share of Solitario common stock as quoted on the NYSE-MKT on the date of grant. The option has a term of five years, vested 25% on the date of grant and 25% on each subsequent anniversary date and a grant date fair value of $78,000 based upon a Black Scholes model with a 68% expected volatility, an expected life of five years and a risk free interest rate of 1.24%.

Earnings per share

The calculation of basic and diluted earnings and loss per share is based on the weighted average number of common shares outstanding during the three and nine months ended September 30, 2014 and 2013. During the three and nine months ended September 30, 2014 and 2013, Solitario excluded 3,748,000 and 2,600,900, respectively, potentially dilutive shares related to outstanding common stock options from the calculation because the effects were anti-dilutive. In addition, during the three and nine months ended September 30, 2014 and 2013, Solitario excluded an additional 1,624,748 shares related to warrants from the calculation because the effects were anti-dilutive.

Marketable equity securities

Solitario's investments in marketable equity securities are classified as available-for-sale and are carried at fair value, which is based upon quoted prices of the securities owned. The cost of marketable equity securities sold is determined by the specific identification method. Changes in market value are recorded in accumulated other comprehensive income within shareholders' equity, unless a decline in market value is considered other than temporary, in which case the decline is recognized as a loss in the consolidated statement of operations.

The following tables summarize Solitario’s marketable equity securities and accumulated other comprehensive income related to its marketable equity securities:

(in thousands)	September 30, 2014	December 31, 2013
Marketable equity securities at fair value	$3,012	$3,973
Cost	1,869	1,954
Accumulated other comprehensive income for unrealized holding gains	1,143	2,019
Deferred taxes on accumulated other comprehensive income for unrealized holding gains	(1,559)	(1,559)
Accumulated other comprehensive (loss) income	$(416)	$460

The following table represents changes in marketable equity securities.

(in thousands)	Three months ended September 30,		Nine months ended September 30
	2014	2013	2014	2013
Gross cash proceeds	$ 83	$ 45	$ 556	$ 358
Cost	14	7	84	50
Gross gain on sale included in earnings during the period	(69)	(38)	(472)	(308)
Deferred taxes on gross gain on sale included in earnings	-	14	-	115
Reclassification adjustment to unrealized gain in other comprehensive income for net gains included in earnings	(69)	(24)	(472)	(193)
Gross unrealized holding (loss) gain arising during the period included in other comprehensive loss	(625)	(187)	(404)	(3,445)
Deferred taxes on unrealized holding gain (loss) included in other comprehensive loss	-	(61)	-	813
Net unrealized holding (loss) gain	(625)	(248)	(404)	(2,632)
Other comprehensive (loss) income from marketable equity Securities	$(694)	$(272)	$(876)	$(2,825)