Solitario Zinc Corp, which seems to have changed its name to Solitario Resources Corp though I have not yet seen a formal notice from the TSX, perhaps because the junior also trades on the NYSE, announced a USD $2.5 million financing at USD $0.60 on August 2, 2023 which boosts Newmont's existing stake to 9.95% of issued stock. Solitario now has about USD $6.1 million working capital. This financing done at a modest premium to the market gives Newmont certain pre-emptive rights with regard to the sale, financing and operation of the Golden Crest project in South Dakota. The financing makes Newmont the largest single Solitario shareholder, but it has not been granted a board seat. Why did Solitario do this financing now when the company may be drilling Golden Crest this fall for the first time ever in the property's history?
In KW Episode May 12, 2023 I explained why the USFS plan of operations permit the company expected by April in order to start drilling in May was delayed by an unrelated USFS distraction. There was hope that a permit would be in hand to allow a September drill program to begin, possibly with two rigs, because between November and April the project has too much snow to justify winter drilling a property that does not yet have a discovery. Unfortunately, the US Forest Service does not seem to have any sense of urgency and has yet to issue a "Finding of No Significant Impact" notice, FONSI for short. It may be only a couple weeks away, but once a FONSI is issued it is at least another two months before a drill permit is approved because first the FONSI must be exposed to a public comment period during which every anti-mining crank can lodge an objection, followed by administrative steps to deal with the comments. CEO Chris Herald sees August 20 as the date beyond which if no FONSI has been issued there will be no time to mount a drill program before the snow flies.
I made Solitario a KRO Favorite for 2023 based on the sleeper 30% carried interest in the Florida Canyon zinc-lead project in Peru and its grassroots generated Golden Crest project which I think is perhaps the last major frontier in the United States where it is possible to make a world class gold discovery based on surface indications. Tracker December 20, 2022 explains the story which has not really hit the radar of the investing public but has received intense scrutiny from Newmont and other major gold producers who have signed non-disclosure agreements. Golden Crest is west of the Black Hills that host the former Homestake Mine which yielded about 70 million ounces gold from shear structures within banded iron formation folds in the Precambrian basement. The Wharf system operated by Coeur Mining to the northwest had about 10 million ounces hosted by younger carbonates wholse mineralizing event was about 60 million years ago. Coeur only owns the right to mine the younger sediments above the Precambrian basement, with Barrick, via its acquisition of Homestake, owning the deeper rights. The basement rocks have thus never been explored. One of the theories is that 1.72 billion years ago was a major gold mineralizing event that created the Homestake deposit, which was buried by Paleozoic carbonates similar to the Wharf area, but thanks to uplift of the Black Hills those carbonates eroded away a long time ago. The suspicion is that the mineralizing event during the Tertiary period harvested Precambrian gold and redeposited it in the overlying Paleozoic carbonates. But with the split ownership the basement at Wharf has never been explored.
Golden Crest is extremely interesting because it has carbonates at surface which are younger than the Wharf carbonates, and yet gold mineralization is present at surface which past prospectors failed to recognize. The company has refrained from sharing a big picture view of everything that has emerged because it is not sure that it owns everything that might be part of a giant gold system whose roots potentially are in the Precambrian basement that starts below 400 m depth. So the public just gets to see the results of surface sampling here and there. But this summer Solitario has a 20 man crew at Golden Crest conducting a major soil sampling program which the company sees as key to seeing the gold structures beneath a 2 ft deep veneer of soil cover with lots of vegetation. In fact, Solitario has had such success identifying new gold in soil anomalies that it has already started a separate plan of operations application to allow future drilling of these areas. But until the market sees how the gold is distributed in the third dimension it just sees a gold geochemical anomaly with higher grade structures here and there. As Chris Herald started to realize the USFS permit might not come through in time to allow even a late season 2023 drill program, he became nervous about Solitario's treasury and general market apathy towards the resource sector. So he accepted the financing offer from Newmont so that he does not have to worry about getting properly funded when he finally has a drill permit. The reason I have assigned only a Fair Speculative Value is the uncertainty about the timing of a drill program that can turn this prospect into a major gold discovery.
Although it looks like we may have to wait until May 2024 to see drilling get underway at Golden Crest, Solitario did announce last week that Nexa plans a 4,000 m drill program at the Florida Canyon zinc-lead silver project in Peru where Solitario has a 30% carried through production interest. The property was last drilled in 2019 and has since been bogged down by Peru's covid complications. Nexa has secured a community agreement that will allow it to drill through 2025. It is permitting numerous targets in the valley well beyond the existing deposit and appears to have the goal of assessing what is this area's global potential before starting a feasibility study on the main deposit. The purpose would be to allow it choose a bigger processing scale that would deplete the existing resource faster than community stakeholders would like. But this would be justified if they have evidence of additional CRD style deposits in the area that could be developed at a later date to feed the mill. The current program involves holes that step out 500 m or more from the existing drilling footprint, so there is potential for news later this year that Florida Canyon is scaling bigger. Solitario does not plan to consider a spinout to facilitate a future buyout by Nexa until it is confident that Golden Crest is turning into a major gold discovery. At the current valuation speculators can choose to allocate the market cap to Florida Canyon or Golden Crest. |
