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Marketable Equity Securities

3 Months Ended

Mar. 31, 2017

3. 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 or loss 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.

On May 2, 2016 Solitario purchased 7,240,000 units of Vendetta for aggregate consideration of $289,000. Each unit included one common share of Vendetta and one purchase warrant which allow the holder to purchase one share of Vendetta common stock at a price of Cdn$0.10 per share for a period of two years (the “Vendetta Warrants”). The total purchase price of the units of $289,000 was allocated between the Vendetta common shares and the Vendetta Warrants based upon total fair values on the date of purchase. The Vendetta common shares were allocated a purchase cost of $186,000 and the Vendetta Warrants were allocated a purchase cost of $103,000. As of March 31, 2017, the common shares of Vendetta are carried at their fair value based upon the quoted market price of Vendetta, a publicly traded company on the TSX Venture Exchange, and included in marketable equity securities. The Vendetta Warrants are carried at their fair value, based upon a Black-Scholes valuation model.

During the three months ended March 31, 2017, Solitario sold 1,480,000 common shares of Vendetta for proceeds of $259,000, and recorded a gain on the sale of marketable equity securities of $221,000. In addition, during the three months ended March 31, 2017 Solitario exercised 2,240,000 of its Vendetta Warrants and received 2,240,000 Vendetta common shares, by paying $167,000 (Cdn$224,000) to Vendetta. The cost of the common shares received from the exercise of the Vendetta Warrants was recorded based upon the total of the (i) exercise price of the Vendetta Warrants exercised, $167,000, and (ii) the fair value of the Vendetta Warrants on the date of exercise, which equaled their intrinsic value, $309,000, for a total value of $476,000. As of March 31, 2017, Solitario owns 8,000,000 common shares of Vendetta, which are carried at their fair value based upon quoted market prices, with any unrealized gain or loss included in other comprehensive income.

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

(in thousands)	March 31, 2017	December 31, 2016
Marketable equity securities at fair value	$1,685	$1,339
Cost	713	274
Accumulated other comprehensive (loss) income for unrealized holding gains	972	1,065
Deferred taxes on accumulated other comprehensive income for unrealized holding gains	(353)	(353)
Accumulated other comprehensive income	$619	$ 712

The following table represents changes in marketable equity securities.

(in thousands)	Three months ended March 31,
	2017	2016
Gross cash proceeds from sales	$ 259	$ -
Cost	38	-
Gross gain (loss) on sale included in earnings during the period	221	-
Reclassification adjustment to unrealized gain in other comprehensive income for net (gain) loss included in earnings	(221)	-
Gross unrealized holding gain arising during the period included in other comprehensive income (loss)	128	$169
Deferred taxes on unrealized holding gains included in other comprehensive (income) loss	-	(62)
Net unrealized holding gain	128	107
Other comprehensive (loss) income from marketable equity securities	$(93)	$107