In this Quarterly Report on Form 10-Q, unless the context requires otherwise,
references to "Texas Mineral Resources Corp," "the Company" "we," "our" or "us"
refer to Texas Mineral Resources Corp. You should read the following discussion
and analysis of our financial condition and results of operations together with
our financial statements and related notes appearing elsewhere in this quarterly
report. This Quarterly Report on Form 10-Q may also contain statistical data and
estimates we obtained from industry publications and reports generated by third
parties. Although we believe that the publications and reports are reliable, we
have not independently verified their data.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the exhibits attached hereto contain
"forward-looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995 (collectively, "forward-looking
statements"). Such forward-looking statements concern our anticipated results
and developments in our operations in future periods, planned exploration and
development of our properties, plans related to our business and other matters
that may occur in the future. These statements relate to analyses and other
information that are based on forecasts of future results, estimates of amounts
not yet determinable and assumptions of management. Any statements that express
or involve discussions with respect to predictions, expectations, beliefs,
plans, projections, objectives, assumptions or future events or performance
(often, but not always, using words or phrases such as "expects" or "does not
expect", "is expected", "anticipates" or "does not anticipate", "plans",
"estimates" or "intends", or stating that certain actions, events or results
"may", "could", "would", "might" or "will" be taken, occur or be achieved) are
not statements of historical fact and may be forward-looking statements.
Forward-looking statements in this Quarterly Report on Form 10-Q, include, but
are not limited to:
·the progress, potential and uncertainties of our 2020-2021 rare-earth
exploration plans at our Round Top project in Hudspeth County, Texas (the "Round
Top Project" or "Round Top");
·timing for a completed feasibility study for our Round Top Project;
·the success of getting the necessary permits for future drill programs and
future project development;
·expectations that USA Rare Earth will fund an aggregate of $10 million and earn
a 70% interest in the Round Top Project;
·expectations regarding our ability to raise capital and to continue our
exploration plans on our properties (either to fund our proportionate
expenditures in the Round Top Project as a party in a venture with USA Rare
Earth or otherwise); and
·plans regarding anticipated expenditures at the Round Top Project;
Forward-looking statements are subject to a variety of known and unknown risks,
uncertainties and other factors which could cause actual events or results to
differ from those expressed or implied by the forward-looking statements,
including, without limitation:
·risks associated with our history of losses and need for additional financing;
·risks associated with our limited operating history;
·risks associated with our properties all being in the exploration stage;
·risks associated with our lack of history in producing metals from our
properties;
·risks associated with our inability to fund our proportionate expenditures in
the Round Top Project with USA Rare Earth which will result in dilution of our
remaining interest in Round Top;
·risks associated with our need for additional financing to develop a producing
mine, if warranted;
·risks associated with our exploration activities not being commercially
successful;
·risks associated with increased costs affecting our financial condition;
·risks associated with a shortage of equipment and supplies adversely affecting
our ability to operate;
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·risks associated with mining and mineral exploration being inherently
dangerous;
·risks associated with mineralization estimates;
·risks associated with changes in mineralization estimates affecting the
economic viability of our properties;
·risks associated with uninsured risks;
·risks associated with mineral operations being subject to market forces beyond
our control;
·risks associated with fluctuations in commodity prices;
·risks associated with permitting, licenses and approval processes;
·risks associated with the governmental and environmental regulations;
·risks associated with future legislation regarding the mining industry and
climate change;
·risks associated with potential environmental lawsuits;
·risks associated with our land reclamation requirements;
·risks associated with rare earth and beryllium mining presenting potential
health risks;
·risks related to title in our properties;
·risks related to competition in the mining and rare earth elements industries;
·risks related to economic conditions;
·risks related to our ability to manage growth;
·risks related to the potential difficulty of attracting and retaining qualified
personnel;
·risks related to our dependence on key personnel;
·risks related to our SEC filing history; and
·risks related to our securities.
This list is not exhaustive of the factors that may affect our forward-looking
statements. Some of the important risks and uncertainties that could affect
forward-looking statements are described further under the section heading "Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Quarterly Report and "Item 1A. Risk Factors" in our Annual
Report on Form 10-K for the year ended August 31, 2020, filed with the SEC on
November 30, 2020. Although we have attempted to identify important factors that
could cause actual results to differ materially from those described in
forward-looking statements, there may be other factors that cause results not to
be as anticipated, estimated or intended. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, believed, estimated
or expected. We caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Except as
required by law, we disclaim any obligation to subsequently revise any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events. We qualify all the forward-looking statements contained in this
Quarterly Report by the foregoing cautionary statements.
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Overview
We are a mining company engaged in the business of the acquisition, exploration
and development of mineral properties. We currently hold two eleven-year leases
with the GLO, executed in August 2010 and November 2011, respectively, to
explore and develop a 950 acre rare earths project located in Hudspeth County,
Texas, known as the Round Top Project. We also have prospecting permits covering
9,345 acres adjacent to the Round Top Project. Our principal focus in
conjunction with our joint venture partner, USA Rare Earth, is on developing a
metallurgical process to concentrate or otherwise extract the metals from the
Round Top Project's rhyolite, and to conduct additional engineering, design,
geotechnical work and permitting necessary for a bankable feasibility study. We
currently have limited operations and have not established that any of our
projects or properties contain any Proven or Probable Reserves under Guide 7.
Rare earth elements are a group of chemically similar elements that usually are
found together in nature - they are referred to as the "lanthanide series."
These individual elements have a variety of characteristics that are critical in
a wide range of technologies, products, and applications and are critical inputs
in existing and emerging applications. Without these elements, multiple
high-tech technologies would not be possible. These technologies include:
·Cell phones,
·Computer and television screens,
·Battery operated vehicles,
·Clean energy technologies, such as hybrid and electric vehicles and wind power
turbines,
·Fiber optics, lasers and hard disk drives,
·Numerous defense applications, such as guidance and control systems and global
positioning systems,
·Advanced water treatment technology for use in industrial, military and
·Outdoor recreation applications
Because of these applications, global demand for REE is projected to steadily
increase due to continuing growth in existing applications and increased
innovation and development of new end uses. Interest in developing resources
domestically has become a strategic necessity as there is limited production of
these elements outside of China. Our ability to raise additional funds in order
to complete our plan of exploration and, if warranted, development at the Round
Top Project may be impacted by future prices for REEs.
USA Rare Earth Agreement
In August 2018, the Company and Morzev Pty. Ltd. ("Morzev") entered into an
agreement (the "2018 Option Agreement") whereby Morzev was granted the exclusive
right to earn and acquire a 70% interest, increasable to an 80% interest, in the
Round Top Project from the Company by funding certain expenditures described
below. The 2018 Option Agreement contained customary representations, warranties
and covenants. In September 2018 and October 2018, the Company and Morzev
entered into minor, non-substantive amendments to the 2018 Option Agreement and,
in connection with the agreement, Morzev purchased 646,054 shares of Company
Common Stock for $140,000 in November 2018. Morzev began engaging in business as
USA Rare Earth and in May 2019 notified the Company that it was nominating USA
Rare Earth , LLC ("USARE") as the optionee under the terms of the 2018 Option
Agreement. In August 2019, the Company and USARE entered into an amended and
restated option agreement as further amended on June 29, 2020 (the "2019 Option
Agreement"), whereby the Company restated its agreement to grant USARE the
exclusive right to earn and acquire a 70% interest, increasable to an 80%
interest, in the Round Top Project from the Company by funding certain
expenditures described below. The 2019 Option Agreement has substantially
similar terms to the 2018 Option Agreement except that that 2019 Option
Agreement acknowledges the investment by USA Rare Earth into the Company and
recognized a broader range of expenditures advancing the Round Top Project as
contributing to the total $10,000,000 earn-in commitment for the initial 70%
interest. The 2019 Option Agreement contains customary representations,
warranties and covenants. In order to acquire and earn the 70% interest in the
Round Top Project, USA Rare Earth must perform and complete the following:
·commit to expend a total of $2,500,000 for mining operations (as described
below) on the Round Top Project prior to December 13, 2020 (inclusive of the
$140,000 Morzev 2018 stock purchase) which was achieved by expenditure
commitments USARE made on December 10, 2019; and
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·expend amounts for mining operations on the Round Top Project, up to a maximum
of $10,000,000 (including the $2,500,000 referred to above), which mining
operations include: (i) the work of de-risking Round Top (including specifically
optimizing the leaching cycle and determining final leach pad design,
undertaking the pilot plant, and developing the process and procedure to
separate and purify other economically important elements from the primary leach
solution including but not limited to lithium, aluminum sulfate, hafnium and
other fertilizer and industrial products); (ii) property maintenance;
(iii) process development solar evaporation; (iv) chemical processing;
(v) baseline studies; (vi) engineering; (vii) assessment, geophysical,
geochemical and geological surveys; (viii) studies and mapping; (ix)
investigating, drilling, assaying, prospecting, designing, examining, equipping,
improving, surveying, shaft-sinking, raising, cross-cutting and drifting,
searching for, digging, trucking, sampling, working and procuring minerals, ores
and metals; (x) surveying and bringing any mining claims to lease or patent;
(xi) reclaiming and all other work usually considered to be prospecting,
exploration, development, mining and reclamation work; (xii) paying wages and
salaries of workers engaged in the work and in supplying food, lodging,
transportation and other reasonable needs of the workers; (xiii) paying
assessments or premiums for workers' compensation insurance, contributions for
unemployment insurance or other pay allowances or benefits customarily paid in
the district to those workers; (xiv) paying rentals, license renewal fees, taxes
and other governmental charges required to keep the mineral interests comprising
the Round Top Project in good standing; (xv) purchasing or renting plant,
buildings, machinery, tools, appliances, equipment or supplies and in
installing, erecting, detaching and removing them; and (xvi) mining, milling,
concentrating, rehabilitation, reclamation, and environmental protections and in
the management of any work which may be done on Round Top or in any other
respect necessary for the due carrying out of the prospecting, exploration and
development work or any other expenditure approved by the Operating Committee.
USARE has the right to fund the balance of the $10,000,000 of mining operations
expenditures into the Round Top Project at any time and, simultaneously with
such funding, USARE will acquire a 70% interest in Round Top. As of the date of
this Form 10-Q, USARE has funded an aggregate of approximately $4,514,000 of the
$10,000,000 commitment.
If and when USARE acquires the 70% interest in the Round Top Project, the
Company's interest in Round Top will immediately reduce to 30% and each party
will be required to contribute to future expenditures with respect to Round Top
in proportion to their ownership and all budgets and timelines to be determined
and agreed by an operating committee established between the parties, consisting
of 2 appointees of USARE and one appointee of the Company. Additionally, the
failure of a party to timely fund its proportionate expenditure request shall
result in dilution of an ownership interest, which could result in further
reductions of the Company's ownership interest in the event the Company doesn't
have the financial resources to timely fund (or elects not to fund) its
proportionate expenditure requirements. It is expected that upon acquisition by
USARE of its 70% interest in the Round Top Project, USARE and the Company will
enter into documentation reflecting the terms of the 2019 Option Agreement as
well as other terms and conditions customary in the mining industry for these
types of arrangements.
USA Rare Earth shall have the option to acquire an additional 10% in the Round
Top Project by:
·providing written notice to the Company at any time prior to the 180-day
anniversary of the date of the completion of the bankable feasibility study;
and
·paying to the Company $3,000,000.
The additional option is only effective if USARE earns a 70% interest in the
Round Top Project.
USARE serves as the project manager of Round Top, with responsibility to manage,
supervise, direct, and control the mining operation with respect to Round Top.
Specifically, the project manager responsibilities include:
·arranging for and carrying out the mining operations at Round Top;
·making payments to maintain the mining interests and leases free of
encumbrances and in good standing;
·maintaining insurance; and
·customary indemnification obligations in connection with its mining
properties.
The parties have agreed not to transfer any rights under the 2019 Option
Agreement, without consent of the other, providing each other with a customary
right of first refusal, and the Company agreed to participate in a customary
drag-along provision if USA Rare Earth sells its interest in the 2019 Option
Agreement to an unrelated third party.
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Liquidity and Capital Resources
As of November 30, 2020, our accumulated deficit was approximately $39,200,000
and our cash position was approximately $2,600,000. We had a working capital
surplus of approximately $1,800,000. We have not commenced commercial production
on any of our mineral properties. We have no revenues from operations and
anticipate we will have no operating revenues until we place one or more of our
properties into production. All properties are in the exploration stage.
Other than the financial arrangement with USA Rare Earth to fund operations to
earn a 70% interest in the Round Top Project, we currently do not have funds to
pursue exploration or development work on the Round Top Project, which means
that we will be required to raise additional capital on best efforts terms if
USA Rare Earth ceases funding, or find alternative means to finance the Round
Top Project continued exploration activities, if warranted. Failure to obtain
required and sufficient financing in the absence of continued funding by USA
Rare Earth may result in the (i) delay or indefinite postponement of exploration
and, if warranted, development or production in the Round Top Project, and/or
(ii) curtailment or cessation of our operations. Subsequent to the funding of
the aggregate amount of $10,000,000 by USA Rare Earth, we will need to raise a
significant amount of additional capital to fund our proportionate expenditures
to further exploit the Round Top Project or our remaining 30% interest in the
Round Top project (20%, if USA Rare Earth exercises its option) will be further
diluted which dilution could result in a significant reduction of our remaining
interest if we are unable to fund our proportionate expenditure requirements. We
cannot be certain that additional capital or other types of financing will be
available if needed or that, if available, the terms of such financing will be
favorable or acceptable to us. Our ability to arrange additional financing in
the future is dependent upon third parties. Failure of obtaining the required
capital will result in the curtailment or cessation of our business operations
or the significant reduction of our ownership interest in the Round Top Project.
Results of Operations
Three months ended November 30, 2020 and November 30, 2019
General & Revenue
We had no operating revenues during the three months ended November 30, 2020 and
November 30, 2019. We are not currently profitable. As a result of ongoing
operating losses, we had an accumulated deficit of approximately $39.2 million
as of November 30, 2020.
Operating expenses and resulting losses from Operations.
We incurred exploration costs for the three months ended November 30, 2020 and
November 30, 2019, in the amount of approximately $66,000 and $1,000,
respectively. Expenditurevs during the three months 2020 and 2019 were primarily
for metallurgical testing and delay rentals. Currently expenditures for
metallurgical activities are funded by our joint venture partner, USA Rare
Earth.
Our general and administrative expenses for the three months ended November 30,
2020 and November 30, 2019, respectively, were approximately $325,000 and
$89,000. For the three months ended November 30, 2020 and 2019, this amount
included approximately $190,000 and $5,000, respectively, in stock-based
compensation to Directors and outside consultants. The remaining expenditures
were primarily for payroll and related taxes and benefits, professional fees and
other general and administrative expenses necessary for our operations.
In June 2020, TMRC led a consortium that included Penn State University and
applied for a Department of Energy grant to evaluate the economic potential of
rare earth elements associated with Appalachian coal deposits. Our group was
awarded the first phase of this grant in September 2020 as were twelve other
recipients. Work consisted of a conceptual study in the identification of a
resource, developing the physical metallurgy to concentrate the rare earth
minerals and then separating and refining both the rare earth elements as well
as various other elements. The final report was delivered to the Department of
Energy in December 2020. The Department of Energy will now choose, from among
the thirteen award recipients, projects which will receive further funding.
There is no assurance that TMRC or any other award recipient will be selected
for further funding. In November 2020, we received $50,000 from the Department
of Energy relating to this grant. We paid approximately $23,000 during the
quarter ended November 30, 2020 to various subcontractors.
For the three months ended November 30, 2019, we recorded interest expense of
approximately $3,500. We earned approximately $1,400 in interest income from
depository accounts during the three months ended November 30, 2020.
We had losses from operations for the three months ended November 30, 2020 and
November 30, 2019 totaling approximately $391,000 and $90,000, respectively.
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We had net losses for the three months ended November 30, 2020 and November 30,
2019 totaling approximately $340,000 and $94,000, respectively.
Off-Balance Sheet Arrangements
For the three months ended November 30, 2020 and 2019, we have off-balance sheet
arrangements for annual payments in relation to the mineral leases as disclosed
in Note 2 of the financial statements.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with GAAP. Preparation of financial statements requires management to
make assumptions, estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, costs and expenses, and the related disclosures
of contingencies. Management bases its estimates on various assumptions and
historical experience, which are believed to be reasonable; however, due to the
inherent nature of estimates, actual results may differ significantly due to
changed conditions or assumptions. On a regular basis, management reviews the
accounting policies, assumptions, estimates and judgments to ensure that our
financial statements are fairly presented in accordance with GAAP. However,
because future events and their effects cannot be determined with certainty,
actual results could differ from our assumptions and estimates, and such
differences could be material. Management believes that the following critical
accounting estimates and judgments have a significant impact on our financial
statements; Valuation of options granted to Directors, Officers and consultants
using the Black-Scholes model.
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TEXAS MINERAL RESOURCES CORP. 
