Solitario Zinc

Building a Leader in Zinc Exploration and Development

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Overview

Solitario Zinc Corp. (TSX:SLR, NYSE:XPL) is an exploration and development-stage junior focused on becoming a mid-tier zinc company. Solitario is building a strong portfolio of zinc properties across the Americas. The company has significant interest in two large high-grade zinc development projects through joint venture agreements with two of the world’s top five zinc producers. These partners have the technical and financial capabilities to advance projects to production.

The high-grade Florida Canyon project in Peru is a joint venture between Solitario (currently 39% going to 30% at full Nexa earn in) and Nexa Resources S.A., (operator) (NYSE:NEXA, TSX:NEXA). Nexa, one of the nation’s largest zinc producers, operates three large underground zinc mines in Peru. Solitario’s partners have funded over $60 million in exploration at Florida Canyon. A Preliminary Economic Assessment (PEA) was completed in August 2017, demonstrating robust economics for the project. Following the expected completion of a critical access road in 2018, Solitario anticipates moving the project into development with a completed Feasibility Study in 2019/2020.

The Lik project in northern Alaska hosts a large tonnage, high-grade, open-pittable zinc deposit located approximately 22 kilometers from Teck Resources’ (NYSE:TECK, TSX:TECK) Red Dog Mine. The project is a 50/50 joint venture with Teck Resources and Solitario as the project manager. The company recently initiated a metallurgical program at Lik to improve silver recoveries and improve upon the economic returns outlined in the 2014 PEA. In 2018, Solitario plans to conduct an exploration program at Lik with the goal of generating new drill targets.

Solitario also holds a 100-percent interest in the La Promesa high-grade silver-zinc-lead project in Peru. The early-stage project displays veins at surface over an area 1,200 by 600 meters. The company is actively engaging with the local community to reach agreements before embarking on an exploration program at La Promesa.

In addition, Solitario is currently reviewing prospective properties in Peru with plans to kickoff of a Project Generation program in early 2018. The company’s management has been working in Peru for a quarter of a century, and in that time they have generated a large proprietary historical database on properties all over the country including several areas with interesting anomalies.

The zinc market is performing exceptionally well, with prices hitting a decade high in August of 2017 and remaining above the $3,000-per-tonne level near the close of 2017. Supported largely by supply-side factors, the outlook for zinc remains bullish into 2018 and beyond.

Investment Highlights

  • Joint venture interest in two large, high-grade zinc projects:
    • Florida Canyon (Peru) in partnership with Nexa Resources S.A.  
    • Lik (Alaska) in partnership with Teck Resources
  • Strong JV partners translates to lower risks and costs
  • Work programs at both Florida Canyon and Lik in 2018
  • Well financed with approximately $14 million in cash and securities
  • Building a portfolio of high quality exploration properties in the Americas
  • Project Generating program to commence in 2018
  • Strong management/director equity ownership at 9.2 percent, excluding options—Newmont Mining (NYSE:NEM, FRA:NMM) holds 4.62 percent.

Florida Canyon Zinc Project, Peru

The Florida Canyon zinc project is located in the Eastern Cordillera region of Peru, 680 kilometers north-northeast of Lima and 245 kilometers northeast of Chiclayo in the province of Bongará. The property covers 12,600 hectares in the Florida Canyon claim block, and an additional 30,700 hectares in adjoining Chambara claim block, located within the extensive Peruvian Mineral Belt which is known to host many polymetallic and base metal vein and replacement deposits such as the San Vicente zinc-lead deposit. The high-grade (12.7 percent zinc equivalent) Florida Canyon deposit and other mineral occurrences in the project area have many similarities to San Vicente.

Partner-funded PEA shows robust economics

Solitario’s joint venture partners on the project have spent $60 million in exploration on the property, including core drilling, both surface and underground, tunneling, metallurgy, and various other engineering studies. This work resulted in the completion of a 2017 PEA on Florida Canyon which includes the 2014 Resource Estimate for the deposit that was based on 486 core holes totaling approximately 117,280 meters of drilling.

solitario-zinc-mineral-resources

The PEA, funded by Solitario and its partner Nexa Resources, outlines an underground operation using conventional mining methods with an average throughput rate of 2,500 tonnes per day, or approximately 912,000 tonnes per year. The mine plan includes a conventional mill design flow sheet with three-stage crushing followed by single-stage grinding and two multi-stage flotation circuits to produce lead and zinc concentrates. Metallurgical studies to date indicate excellent zinc recoveries in sulfides of greater than 90-percent.

The highlights below demonstrate the project’s excellent economics.

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solitario-zinc-zinc-price-sensitivity

“We are extremely pleased with the outstanding economic results shown in the PEA for the Florida Canyon deposit,” said Chris Herald, President and CEO of Solitario. “It clearly demonstrates that a high-grade deposit with clean metallurgy delivers superior economic results. For the first seven years of operations, payable zinc-equivalent production is forecast to average in excess of 140 million pounds per year.”

Road to production

The Florida Canyon project is located approximately 8 kilometers from a paved road that connects coastal northern Peru with the Amazon basin. Nexa Resources is planning on completing an access road to link the project to this existing paved road with a targeted completion date in 2018. Once completed, the road will allow Solitario and its partner to accelerate development of the project.

solitario-zinc-florida-2

One underground access tunnel to the ore body is currently in place. Once the road is finished, the partners are planning to drive an additional underground access to another zone in the Florida Canyon project area. The new underground access tunnel will allow for the further delineation of resources to add to the current Measured & Indicated estimate and potentially increase the confidence to the Proven & Probable category.  The access road will also serve to fast-track the project through the feasibility phase in 2019 and closer to production.

Favorable Project Funding in Place

Under the terms of the joint venture agreement, Nexa Resources will continue to provide 100% of project funding through completion of a feasibility study, without any Solitario repayment of these costs.  Upon completion of a feasibility study and approval of project construction, Nexa will have earned an additional 9% interest (to 70%) and will finance Solitario’s 30 percent interest for construction costs in the form of a loan to Solitario.  Solitario will repay the loan facility through 50% of its net cash flow distributions.  Consequently, no Solitario equity dilution will be required to reach production.

solitario-zinc-florida-canyon

Blue sky potential

The Florida Canyon project offers significant exploration upside. The deposit remains open in several directions and management is confident that additional drilling will add to the existing resource base, resulting in higher outputs once in operation and an extended mine life. The most prospective targets include untested areas surrounded by mineralized zones and those at the periphery of the mineralized footprint as well as over the 20-kilometer-long northern Florida Canyon mineralized corridor where large areas of strong zinc in soil and rock chip geochemistry indicate the potential for additional mineralized zones.

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Lik Zinc Project, Alaska

The 2,225- hectares Lik zinc project is located 22 kilometers from Teck’s Red Dog Mine in northwestern Alaska, with access to the state’s purpose built infrastructure for shipping concentrate from the port on the Chukchi Sea.

Lik is a large-tonnage, stratiform zinc-lead-silver deposit hosted in the Red Dog plate of the Endicott Mountains allochthon. The is southern continuation of the Lik is known as the Su deposit and it runs onto Teck’s adjacent Su property to the south. Within the Lik property, the deposit is divided by the Main Break Fault into two parts: Lik South and Lik North.

2014 Resource Estimate

solitario-zinc-lik-project

2014 PEA

The 2014 PEA completed on the Lik property demonstrates the economic viability of the project based on the Lik South resource estimate.

The economic model is based on:

  • Production total of 234 million pounds payable zinc/year and 71.5 million pounds payable lead/year
  • Mine life of 9 years using the open-pittable Lik South only
  • OPEX of US$0.63/pound zinc, net of by-products; inclusive of transport to port
  • CAPEX of $352M, including 20-percent contingency and a 5,500 tpd mill

solitario-zinc-zinc-price

Upcoming exploration

The Lik property includes approximately 22 kilometers of highly prospective ground with identified exploration targets as well as potential for significant underground expansion.

In 2018, Solitario plans to conduct geophysical work using modern techniques—the first program of its kind for the property—to generate new drill targets. The same technology deployed successfully by Teck at the Red Dog project will now be used at the Lik property.

Management

Christopher E. Herald—CEO and Director
Christopher Herald has been a director of Solitario since August 1992. He has also served as Chief Executive Officer since June 1999 and President since August 1993. Mr. Herald also served as a director of Crown since April 1989, as Chief Executive Officer of Crown since June of 1999, President of Crown since November 1990 and was Executive Vice President of Crown from January 1990 to November 1990. Prior to joining Crown, Mr. Herald was a Senior Geologist with Echo Bay Mines and Anaconda Minerals.Mr. Herald also serves as non-executive Chairman of Viva Gold Corp. Mr. Herald received a M.S. in Geology from the Colorado School of Mines and a B.S. in Geology from the University of Notre Dame.

Walter H. Hunt—COO
Prior to his appointment as COO in June of 2008, Walter Hunt was Vice President – Operations and President – South American Operations of Solitario since June 1999. He also served as Vice President – Peru Operations from July 1994 until June 1999. Prior to its acquisition by Kinross Gold Corp. in August 2006, Mr. Hunt was Vice President Operations of Crown since 1994. Mr. Hunt has over 30 years of exploration, development and operational experience with Anaconda Minerals, Noranda and Echo Bay Mines where he served as Superintendent, Technical Services and Chief Geologist at Echo Bay’s Kettle River Operations. Mr. Hunt received his M.S. degree in Geology from the Colorado School of Mines and a B.S. degree from Furman University.

James R. Maronick—CFO
James Maronick has served as Chief Financial Officer of Solitario and Chief Financial Officer of Crown since June 1999 and served as Vice President – Finance and Secretary/Treasurer and Vice President – Finance and Secretary/Treasurer of Crown since September 1997. Prior to that, Mr. Maronick served as Vice President – Finance and Secretary/Treasurer of Consolidated Nevada Gold Fields Corporation from November 1994 to September 1997. Mr. Maronick graduated with honors from the University of Notre Dame in 1977 with a BA in accounting and received his Masters degree in Finance with highest honors from the University of Denver in 1986.

Brian Labadie—Chairman of the Board
Brian Labadie has been a director of Solitario since June 2006. He is an independent mining industry consultant. He also was a director of Crown from June of 2002 until August 2006 upon completion of the Crown-Kinross merger. Mr. Labadie has over thirty years’ experience in the mining industry including ten years with Miramar Mining Corporation from November 1996 to September 2006 as the Executive Vice President, COO. Prior to that, Mr. Labadie spent nine years with Echo Bay Mines, Ltd. as Vice President of Operations, including full operational and management responsibility for the Kettle River Mine in Republic, Washington. Mr. Labadie holds a Bachelor of Science degree in geological engineering from the University of Toronto.

Joshua Crumb—Director
Joshua Crumb is an engineer and mineral economist with a wide range of experience in the mining industry. His career included roles in project/construction management, engineering design, corporate development, and metals market research and strategy. Mr. Crumb was recently the Senior Metals Strategist at Goldman Sachs, working for the Global Economics, Commodities and Strategies research division in London. Mr. Crumb also held various positions within the Lundin group of companies, serving as Director of Corporate Development at Lundin Mining, and Special Project Analyst for group chairman Lukas Lundin, and is currently a director of Astur Gold.

Jim Hesketh—Director
Jim Hesketh has been nominated to serve as a new director of Solitario. He is presently serving as President, CEO, and Director of Viva Gold Corp. a start-up exploration company listed on the TSXV, which owns an advanced stage gold exploration property near Tonopah Nevada. From March 2008 to December 2016 Mr. Hesketh served as President, CEO and Director of Atna Resource, Ltd, a TSX listed company that operated two gold mines in California and Nevada. Prior to that, Mr. Hesketh served as President, CEO and Director of Canyon Resources Corporation (2005-2008), a NYSE MKT listed mining company, which was merged with Atna Resources in 2008. Prior to joining Canyon, Mr. Hesketh served as Principal Mining Engineer and Vice President of NM Rothschild & Sons (Denver) Inc. (2000-2004) engaged in structured lending to the global metals and mining industry. Mr. Hesketh has proven leadership skills and broad based industry experience ranging from mergers and acquisitions to mining finance, to mine permitting, development, construction and operations, both domestically and internationally and under U.S. and international regulatory regimes. In evaluating Mr. Hesketh’s qualifications to serve as a director, the Board of Solitario believes that his formal training in engineering and economics combined with over 35 years of broad based industry experience and leadership makes him uniquely suited to serve on the Board. Mr. Hesketh holds a BS in Mining engineering and an MS in Mineral economics, both from the Colorado School of Mines.

John Labate—Director
John Labate is a seasoned executive with over thirty years of financial management and accounting experience. Mr. Labate is currently the Chief Financial Officer of Gold Resource Corporation (NYSE-MKT: GORO) and has served in that capacity since May 2015. From August 2008 to February 2012, he served as Senior Vice President and Chief Financial Officer of Golden Star Resources Ltd., a gold mining company with securities listed on the NYSE MKT and TSX. Prior to that, from March 2004 to August 2008 he was Vice President and Chief Financial Officer for Constellation Copper Corporation, a copper mining company with securities formerly traded on the TSX. Prior to March 2004, Mr. Labate held senior financial management positions in mining and technology companies, including chief financial officer positions at Crown Resources Corporation and Applied Optical Technologies. Mr. Labate received a bachelor’s degree in Accounting from San Diego State University.


 

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