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 Tue Dec 20, 2022
Tracker: Speculative Value Rating for Solitario Zinc Corp
    Publisher: Kaiser Research Online
    Author: Copyright 2022 John A. Kaiser

Solitario Zinc Corp (SLR-T: $0.780)

Tracker - December 20, 2022: Speculative Value Rating for Solitario Zinc Corp

Solitario Zinc Corp was confirmed on November 28, 2022 at $0.77 with a Bottom-Fish Spec Value rating based on the potential of the relatively new Golden Crest project in South Dakota to turn into a major gold discovery, and the sleeper potential of the company's Florida Canyon and LIK zinc projects. The key missing piece is a plan of operations permit which would allow Solitario to begin drilling targets it has developed on the 13,500 ha Golden Crest project which the junior began assembling in early 2021. Environmental assessment work was initiated in February 2022 and approval is expected in Q2 of 2023 with drilling underway in H2 of 2023. Golden Crest covers an unexplored plateau to the west of the Black Hills where 93 million ounces have been identified within a 12,000 ha area. Of these 68.3 million ounces are attributable to the Precambrian basement hosted banded-iron-formation Homestake deposit, 8.2 million ounces to the Paleozoic sediment hosted Wharf Mine, and the rest in a variety of deposits including the Richmond Hill/Maitland land package assembled by Bob Quartermain's Dakota Gold Corp. Whereas the exploration activity in the Black Hills to the east involves rethinking the existing geology in the hope that past exploration overlooked significant gold zones, Solitario's work at Golden Crest to the west is old-fashioned grassroots exploration so far limited to geophysical surveys with surface prospecting and trenching.

Golden Crest has seen limited exploration beyond a few old-timer prospect pits that didn't come up with much, and several scout holes drilled by Homestake in the 1990s which confirmed the presence of Homestake Formation within the Precambrian basement at a depth of 300-400 m but never attracted further attention from Homestake. The major also conducted a BLEG stream sediment sampling program in 1988-1993 which generated an anomaly bigger than anything identified in the Black Hills. But the area was covered by soil and trees, and whatever outcropped looked uninspiring.

Although the Paleozoic carbonates at Golden Crest are younger than the older Paleoziocs whose Deadwood Formations are the gold-silver host rocks at the Wharf Mine, prospecting by Solitario has revealed zones of high grade gold mineralization with a silver kicker at surface in zones such as Downpour and more recently Geyser. The mineralization and alteration has a similar early Tertiary age as the Wharf system, which suggests that this more recent episode of hydrothermal activity had a footprint that extended well beyond the uplifted Black Hills area.

Solitario has developed a model for three types of targets. The first is near surface gold mineralization associated with sub-vertical structures which may not have big tonnage implications. The second is the potential for Wharf style Deadwood Formation hosted mineralization where the fluids traveled sideways within these more porous and permeable rocks at a depth of 200-400 metres as they traveled up structures eventually leaking out near the current surface. The third target would be much older Homestake Formation gold mineralization which may have been the pantry from which the younger Tertiary fluid flow harvested its gold payload. A potential fourth target is within the upper 200 metre sequence which may have strata that no longer exist in the uplifted Wharf area but which may have been laterally receptive like the Upper Deadwood Formation. Solitario's drilling strategy would involve holes that penetrate at least 100 m into the Precambrian basement and test the entire package of overlying carbonates.

Solitario is headed by Chris Herald and Walter Hunt who have been with the junior since the 1990s when it was spun out of Crown Resources Corp which discovered the Buckhorn gold deposit in Washington. Until recently its flagship has been the Florida Canyon zinc-lead-silver project in Peru where it has a 30% carried to production interest. The operator Nexa (formerly Votorantim) has undertaken a major permitting campaign to test targets beyond the Bongara deposit so that it knows what scale to build a future mine at. These permits might not be in place until 2024. Solitario also has a 50:50 JV with Teck on the LIK zinc deposit in Alaska not far from the Red Dog Mine whose 35% NPI in favor of the Nana Native Corp increases to 50% in 2032. The bet with LIK is that Teck may want to buy out Solitario and develop LIK as a royalty free project. Solitario will have USD $5.5 million working capital at the end of 2022. In addition to the TSX listing Solitario trades on the NYSE with the symbol XPL. That exposes this junior to being periodically hijacked by algo-traders as happened in late 2020. The junior has in place an "at the market" (ATM) facility that would allow it to sell up to USD $9 million of treasury stock into the market should Golden Crest results catch the market's imagination. With only 70.2 million shares fully diluted Solitario is primed for substantial upside if Golden Crest delivers a major gold discovery.

Golden Crest is a 13,500 ha land package next door to the similarly sized Black Hills mining district where the Homestake deposit was discovered in 1876. Although 93 million gold ounces have been identified in this district, the plateau to the west of the Black Hills reaching to Wyoming has seen almost zero exploration. A key reason is that the Golden Crest area never experienced uplift like the Black Hills area which has seen substantial erosion which exposed the Precambrian hosted Homestake deposit. The radical hypothesis proposed by Solitario is that the uplift is a post-mineralization event and that there is no reason to believe that similar Homestake deposit forming processes could not take place to the west. The counter-argument would be, why has nothing been found to the west of the Black Hills? The simple answer is that nobody bothered to look because younger rocks are visible at surface. Solitario started looking in 2021 and was startled to find high grade gold mineralization in outcrop. Golden Crest is arguably the most exciting gold exploration frontier left in the United States.

The Homestake Formation consisting of banded iron formation was laid down about 1.9 billion years but the Homestake gold mineralization did not form until about 1.72 billion years when the Harney's Peak Granite intruded the region. During the intervening period the Homestake Formation underwent folding and later shearing. The intersection of shearing with BIF fold structures became the depositional setting for gold mineralization in association within pyrrhotite. These zones became known as "ledges" and were chased down plunge 7 km to a depth of 2,440 m until mining ceased in 2002. From 1876-1988 the Homestake Mine produced 124.9 million tonnes of 8.8 g/t gold. The Black Hills underwent a couple cycles of regional uplift which eroded the Paleozoic sediments that began to pile up 550 million years ago, leaving the Homestake Formation exposed at surface and shedding placer gold which led to the discovery of the bedrock source. The region underwent another mineralizing episode in the early Tertiary period of 65-50 million years ago which penetrated the Upper and Lower Deadwood Formations that host the Wharf Mine mineralization which has yielded 8.2 million oz gold and 30 million oz silver through open pit mining.

The Golden Crest area did not undergo uplift and consequently younger sedimentary strata of the Middle to Upper Paleozoic period (400-250 million years ago) sit on top of the Lower Paleozoic rocks whose Deadwood Formations host the Wharf mineralization. The absence of uplift to the west of the Black Hills and the surface outcrop of younger rocks may have discouraged exploration in this area. And it would have stayed that way if Solitario's prospecting work had not turned up areas of very high grade gold values with a silver kicker such as Downpour and Geyser. Over a dozen targets with mineralized outcrop have been identified throughout the property, of which Downpour has the highest gold values. This distribution suggests widespread hydrothermal activity that at a minimum created Wharf style gold-silver zones within the Paleozoic carbonates 50-65 million years ago, and at a maximum created Homestake style banded-iron-formation gold zones 1.7-1.8 billion years ago.


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