Texas Mineral Resources Corp. - Quarter Report: 2021 February (Form 10-Q)

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 leases with the GLO expiring in 2029 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.

In March 2021, we acquired an additional 320 acres from the GLO for approximately $130,000. We plan to utilize this property as the site for the construction of our demonstration facility.

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:

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·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 

·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 April 2, 2021, USARE has funded an aggregate of approximately $6,238,000 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. 

For the avoidance of doubt, the Company and USARE agreed that USARE may exercise this additional option at any time following the date that USARE acquires seventy percent (70%) of the Round Top project until the 180 day anniversary of the date that the bankable feasibility study is completed.

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. 

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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.

Liquidity and Capital Resources

As of February 28, 2021, our accumulated deficit was approximately $39,700,000 and our cash position was approximately $2,200,000. We had a working capital surplus of approximately $1,476,000. 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

Six months ended February 28, 2021 and February 29, 2020

General & Revenue

We had no operating revenues during the six months ended February 28, 2021 and February 29, 2020. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $39.7 million as of February 28, 2021.

Operating expenses, other income (expenses) and resulting losses from Operations.

We incurred exploration costs for the six months ended February 28, 2021 and February 29, 2020, in the amount of approximately $96,000 and $6,000, respectively. Expenditures during the three months February 28, 2021 were primarily for permits and fees. Currently, expenditures for metallurgical activities are funded by our joint venture partner, USA Rare Earth.

Our general and administrative expenses for the six months ended February 28, 2021 and February 29, 2020, respectively, were approximately $735,000 and $316,000. For the six months ended February 28, 2021 and 2020, this amount included approximately $395,000 and $42,000, respectively, in stock-based compensation to Directors and outside consultants. The remaining expenditures were primarily for payroll, professional and consulting 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 has recently notified the consortium that it has been selected for the second phase of the grant, subject to final funding approval. For the six months ended February 28, 2021, we received $150,000 from the Department of Energy relating to this grant and incurred approximately $139,000 in grant related expenses.

For the six months ended February 28, 2021, we earned approximately $3,000 in interest income from depository accounts. For the six months ended February 29, 2020 we settled an outstanding payable of $45,000 for a past employee’s compensation, in exchange for 130,892 shares of our common stock valued at approximately $111,000 on the settlement date, resulting in a loss on settlement of approximately $66,000.

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We had losses from operations for the six months ended February 28, 2021 and February 29, 2020 totaling approximately $831,000 and $322,000, respectively.

We had net losses for the six months ended February 28, 2021 and February 29, 2020 totaling approximately $817,000 and $395,000, respectively.

General & Revenue

We had no operating revenues during the three months ended February 28, 2021 and February 29, 2020. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $39.7 million as of February 28, 2021.

Operating expenses, other income (expenses) and resulting losses from Operations.

Our general and administrative expenses for the three months ended February 28, 2021 and February 29, 2020, respectively, were approximately $410,000 and $227,000. For the three months ended February 28, 2021 and 2020, this amount included approximately $204,000 and $37,000, respectively, in stock-based compensation to Directors and outside consultants. The remaining expenditures were primarily for payroll, professional and consulting 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 has recently notified the consortium that it has been selected for the second phase of the grant, subject to final funding approval. For the three months ended February 28, 2021, we received $100,000 from the Department of Energy relating to this grant and incurred approximately $116,000 in grant related expenses.

For the three months ended February 28, 2021, we earned approximately $2,000 in interest income from depository accounts. For the three months ended February 29, 2020 we settled an outstanding payable of $45,000 for a past employee’s compensation, in exchange for 130,892 shares of our common stock valued at approximately $111,000 on the settlement date, resulting in a loss on settlement of approximately $66,000.

We had losses from operations for the three months ended February 28, 2021 and February 29, 2020 totaling approximately $463,000 and $232,000, respectively.

We had net losses for the three months ended February 28, 2021 and February 29, 2020 totaling approximately $477,000 and $301,000, 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 unaudited notes to interim financial statements.

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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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, and in light of the material weakness existing in our internal controls over financial reporting as of August 31, 2020 (as described in greater detail in our annual report on From 10-K for the year ended August 31, 2020), the CEO and CFO have concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective in providing reasonable assurance that: (i) information required to be disclosed by us in our reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially effect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings 

None.

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed in our Form 10-K for the year ended August 31, 2020 as filed with the SEC on November 30, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Except as set forth below, all unregistered sales of equity securities during the period covered by this Quarterly Report were previously disclosed in our current reports on Form 8-K or quarterly reports on Form 10-Q.

With respect to sales designated by “Sec. 4(a)(2),” these shares were issued pursuant to the exemption from registration contained in to Section 4(a)(2) of the Securities Act as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved.

We did not repurchase any of our securities during the quarter covered by this report.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Pursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended February 28, 2021, our U.S. exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977.

Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are attached hereto or are incorporated by reference:

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*Management contract or compensatory plan or arrangement. 

(1)Submitted Electronically Herewith. Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets at February 28, 2021 and August 31, 2020; (ii) Statements of Operations for the six and three months ended February 28, 2021 and February 29, 2020; (iii) Statements of Cash Flows for the six months ended February 28, 2021 and February 29, 2020; (iv) Statements of Shareholders’ Equity for the six months ended February 28, 2021 and February 29, 2020; and (v) Notes to Financial Statements. 

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TEXAS MINERAL RESOURCES CORP.

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