TMRC Texas Mineral Resources Corp (QB)

 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-K

 

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended August 31, 2023

 

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to 

Commission file number: 000-53482

 

TEXAS MINERAL RESOURCES CORP. 

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		87-0294969
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
539 El Paso Street
Sierra Blanca, Texas		79851
(Address of Principal Executive Offices)		(Zip Code)
(361) 790-5831
(Registrant’s Telephone Number, including Area Code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $0.01

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

 

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

☐	Large accelerated filer	☐	Accelerated filer
☐	Non-accelerated filer	☒	Smaller reporting company
☐	Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: As of February 28, 2023 the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was $59,917,619 based upon the closing sale price of the common stock as reported by the OTCQB.

 

The number of shares of the Registrant’s common stock outstanding as of November 21, 2023 was 73,784,810. 

 

 

TABLE OF CONTENTS

 

	PRELIMINARY NOTES	1
	GLOSSARY OF TERMS	1
	CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
PART I
ITEM 1.	BUSINESS	6
ITEM 1A.	RISK FACTORS	14
ITEM 1B.	UNRESOLVED STAFF COMMENTS	27
ITEM 1C.	CYBERSECURITY	27
ITEM 2.	PROPERTIES	27
ITEM 3.	LEGAL PROCEEDINGS	32
ITEM 4.	MINE SAFETY DISCLOSURES	32
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	33
ITEM 6.	RESERVED	34
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	38
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	56
ITEM 9A.	CONTROLS AND PROCEDURES	56
ITEM 9B.	OTHER INFORMATION	57
ITEM 9C	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	57
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	58
ITEM 11.	EXECUTIVE COMPENSATION	63
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	65
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	66
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	66
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES	68
ITEM 16.	FORM 10-K SUMMARY	70
	SIGNATURES	71

 

 

PRELIMINARY NOTES

 

As used in this Annual Report on Form 10-K (“Annual Report”), references to “Texas Mineral”, “the Company,” “we,” “our,” “us” or “TMRC” mean Texas Mineral Resources Corp. and its predecessors, as the context requires.

 

GLOSSARY OF TERMS

 

Alteration	Any physical or chemical change in a rock or mineral subsequent to its formation.
Concession	A grant of a tract of land made by a government or other controlling authority in return for stipulated services or a promise that the land will be used for a specific purpose.
Core	The long cylindrical piece of a rock, about an inch in diameter, brought to the surface by diamond drilling.
Diamond drilling	A drilling method in which the cutting is done by abrasion using diamonds embedded in a matrix rather than by percussion. The drill cuts a core of rock, which is recovered in long cylindrical sections.
Drift	A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a cross-cut which crosses the rock formation.
Exploration	Work involved in searching for ore, usually by drilling or driving a drift.
Exploration expenditures	Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects that may contain mineral deposit reserves.
Geophysics	Exploration techniques employing such indirect methods as gravity and electro-magnetism.
GLO	Texas General Land Office.
Grade	The average assay of a ton of ore, reflecting metal content.
HREE	Heavy rare earth element(s).
Intrusive	A body of igneous rock formed by the consolidation of magma intruded into other rocks, in contrast to lavas, which are extruded upon the surface.
Lode	A mineral deposit in solid rock.
Mine development	The work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible.
Mineral	A naturally occurring homogeneous substance having definite physical properties and chemical composition, and if formed under favorable conditions, a definite crystal forms.
Mineralization	The presence of minerals in a specific area or geological formation.
Mineral Reserve	That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of “Ore” when dealing with metalliferous minerals.
Ore	The naturally occurring material from which a mineral or minerals of economic value can be extracted profitably or to satisfy social or political objectives. The term is generally but not always used to refer to metalliferous material, and is often modified by the names of the valuable constituent; e.g., iron ore.
Ore body	A continuous, well-defined mass of material of sufficient ore content to make extraction economically feasible.

 

 

Ore Shoot	A zone or area within a vein that contains ore of economic grade.
PEA	Preliminary economic assessment.
Probable (Indicated) Reserves	Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
Prospect	A mining property, the value of which has not been determined by exploration.
Proven (Measured) Reserves	Reserves for which (i) (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes and (b) grade and/or quality are computed from the results of detailed sampling and (ii) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
REE	Rare earth element(s).
REO	Rare earth oxide(s).
Round Top, RTMD or Round Top Mountain Development	Round Top Mountain Development, LLC, a Delaware limited liability company, which is the entity that owns the Round Top Project.
Round Top Project	The Round Top Project is owned by Round Top and includes the following that were assigned by the Company to Round Top in May 2021:   ●     two leases with the GLO, executed in September 2011 and November 2011, that each expire in 2030, to explore and develop a 950 acre rare earths project located in Hudspeth County, Texas;   ●     the 54,990 acre surface lease, known as the West Lease, that provides unrestricted surface access for the potential development and mining of the Round Top Project;   ●     an option to purchase from the GLO the surface rights covering approximately 5,670 acres over the mining lease and additional acreage adequate to the site to handle potential heap leaching and processing operations as currently anticipated at the Round Top Project; and   ●     a ground water lease securing the right to develop the ground-water within a 13,120-acre lease area located approximately 4 miles from Round Top, containing five existing water wells.
Tonne	A metric ton which is equivalent to 2,200 pounds.
Trend	A general term for the direction or bearing of the outcrop of a geological feature of any dimension, such as a layer, vein, ore body, or fold.
Unpatented mining claim	A parcel of property located on federal lands pursuant to the General Mining Law and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a valid, unpatented lode-mining claim is granted certain rights including the right to explore and mine such claim.
Vein	A mineralized zone having a more or less regular development in length, width, and depth, which clearly separates it from neighboring rock.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report contains “forward-looking statements” (collectively, “forward-looking statements”) with respect to the Company’s anticipated results and developments in the Company’s operations, planned exploration and development of its properties, plans related to its 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, anticipations, 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 include, but are not limited to:

 

●

the progress, potential and uncertainties of the 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, if any, for the Round Top Project;

 

●

the success of obtaining the necessary permits for future Round Top drill programs and project development;

 

●

success, if any, of RTMD in developing the Round Top Project, including without limitation raising sufficient capital to fund any development;

 

●

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 member of RTMD or otherwise);

 

●

ability to complete a preliminary feasibility study;

 

●

plans regarding anticipated expenditures at the Round Top Project and ability, if any, to fund anticipated Company expenditures; and

 

●

plans to enter into a joint venture agreement with Santa Fe and our ability to fund such potential exploration and development 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 of being classified as an “exploration stage” company for purposes of SEC Regulation S-K Item 1300;

 

●

risks associated with our ability to continue as a going concern in future periods;

 

●

risks associated with our history of losses and need for additional financing;

 

●

risks associated with our ability to raise capital on acceptable terms, if at all;

 

●

risks associated with our operating history;

 

●

risks associated with owning a membership interest in Round Top which may be diluted (which could be significant) if we are unable to fund our cash call obligations and elect to dilute our ownership interest in Round Top in lieu of funding our cash calls per the amended RTMD Operating Agreement (as of the filing date of this Annual Report, our membership interest is 19.611%);

 

●

risks associated with our properties;

 

●

risks associated with the lack of history in producing metals from the Round Top Project;

 

 

●

risks associated with our need for additional financing to fund our cash call obligations with respect to Round Top, as well as the requirement in general for additional capital to further develop, the Round Top Project;

 

●

risks associated with dilution of our Round Top membership interest due to the inability to fund our cash calls;

 

●

risks associated with owing a minority interest in Round Top;

 

●

risks associated with exploration activities not being commercially successful (as there is no assurance that Round Top will be commercially successful);

 

●

risks associated with ownership of surface rights and other title issues with respect to the Round Top Project;

 

●

risks associated with increased costs affecting our financial condition;

 

●

risks associated with a shortage of equipment and supplies adversely affecting the ability to operate properties;

 

●

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 the properties;

 

●

risks associated with uninsured risks;

 

●

risks associated with mineral operations being subject to market forces beyond our control;

 

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risks associated with fluctuations in commodity prices;

 

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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;

 

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risks associated with land reclamation requirements;

 

●

risks associated with rare earth and mining in general presenting potential health risks;

 

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risks related to competition in the mining and rare earth elements industries;

 

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risks related to macroeconomic conditions, both in the United States and internationally, including without limitation inflation, high interest rates, and supply chain issues;

 

●

risks associated with cybersecurity threats, breaches, and disruptions associated therewith;

 

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risks related to our ability to manage growth;

 

●

risks related to the potential difficulty of attracting and retaining qualified personnel;

 

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risks related to our dependence on key personnel;

 

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risks related to conducting our business in order to be excluded from the definition of an “investment company” under the Investment Company Act of 1940;

 

●

risks related to global hostilities, both in Ukraine and the Middle East;

 

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risks related to cybersecurity threats;

 

 

●

risks related to our United States Securities and Exchange Commission (the “SEC”) filing history; and

 

●

risks related to our securities.

 

This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the section headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report. Although the Company has 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. The Company cautions 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, the Company disclaims any obligation subsequently to 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 Annual Report by the foregoing cautionary statements.

 

In light of these risks and uncertainties, many of which are described in greater detail elsewhere in this Annual Report, there can be no assurance that the events predicted in forward-looking statements contained in the Annual Report will in fact transpire.

 

An investment in our Common Stock involves significant risks, including the risk of a loss of your entire investment. You should carefully consider the risks and uncertainties described herein before purchasing our Common Stock. The risks set forth herein are not the only ones facing our Company. Additional risks and uncertainties may exist and others could arise that could also adversely affect our business, financial condition, operations and prospects. If any of the risks set forth herein actually materialize, our business, financial condition, prospects and operations would suffer. In such event, the value of our Common Stock would decline, and you could lose all or a substantial portion of your investment.

 

 

PART I

 

ITEM 1. BUSINESS

 

Narrative Description of Business

 

We are a mining company engaged in the business of the acquisition, exploration and development of mineral properties. We currently own a 19.611% membership interest in Round Top, which entity holds two mineral property leases with the GLO to explore and develop a 950-acre rare earths project located in Hudspeth County, Texas, known as the Round Top Project. The leases expire in 2030 with provisions for automatic renewal if Round Top is producing in paying quantities (the receipt from the sale of materials exceeds all costs and expenses associated therewith for the prior 12 months). Round Top also holds prospecting permits covering 9,345 acres adjacent to the Round Top Project and other related assets. The strategy with Round Top is to develop a metallurgical process to concentrate or otherwise extract the metals from the Round Top Project’s rhyolite, conduct additional engineering, design, geotechnical work, and permitting necessary for a bankable feasibility study and then to extract mineral resources from the Round Top Project. The Round Top Project has not established as of the date hereof that any of the properties contain any probable mineral reserves or proven mineral reserves under Item 1300 of Regulation S-K.

 

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,

 

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computer and television screens,

 

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battery operated vehicles,

 

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clean energy technologies, such as hybrid and electric vehicles and wind power turbines,

 

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fiber optics, lasers and hard disk drives,

 

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numerous defense applications, such as guidance and control systems and global positioning systems, and

 

●

advanced water treatment technology for use in industrial and military.

 

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 to continue to fund our participation interest in the Round Top Project may be impacted by, among other factors, future prices for REEs.

 

As a part of our ongoing operations, we will occasionally investigate new mining opportunities. We may also incur expenses associated with our investigations. These costs are expensed as incurred until such time when we have agreements in place to purchase such mining rights. See “Properties – Alhambra Project.”

 

Operations Update

 

USARE, the operating manager of the Round Top project, has advised TMRC that it continues to progress the Round Top Project toward operations. Over the last twelve months, Round Top achieved several major milestones including: (i) favorable breaker trials with the goal to increase mine throughput; (ii) favorable CIX separation trials for rare earth elements indicating that the CIX technology employed can extract commercial quality rare earths from the Round Top Project ore; and (iii) favorable membrane concentration trials. The USARE Round Top team continues its work to determine an efficient means of managing alumina content, adding gallium to its output and is working with a major lithium company to maximize the value of the lithium content. USARE has advised the Company that it (i) currently expects that (A) a PFS reflecting this work should be completed during calendar 2024 and (B) a small manufacturing unit should be established to begin processing Round Top Project ore in calendar 2025, and (ii) believes that Round Top remains an attractive venture and is in the process of updating the Round Top Project economic model.

 

History of the Round Top Project

 

In 2011, the Company entered into two leases with the GLO to explore and develop the Round Top Project, which leases were transferred to Round Top in 2021.

 

 

In March 2013, we purchased the 54,990 acre surface lease covering the Round Top Project, known as the West Lease, from the Southwest Wildlife and Range Foundation (“Foundation”) for $500,000 and the issuance of 1,063,830 shares of our Common Stock and agreed to support the Foundation through an annual payment of $45,000 for ten years to support conservation efforts within the Rio Grande Basin. The West Lease provides exclusive surface access to the area for the potential development and mining of the Round Top Project. We transferred the West lease to Round Top in 2021.

 

In October 2014, we executed agreements with the GLO securing the option to purchase the surface rights covering the Round Top Project mine and plant areas and, separately, a groundwater lease. The option to purchase the surface rights covers approximately 5,670 acres over the mining lease and we believe that the additional acreage should be adequate to site all potential heap leaching and processing operations as currently anticipated by Round Top. The option may be exercised for all or part of the option acreage at any time during the primary term of the mineral lease as defined above. The “primary term” of the GLO mineral leases and the option is through August 2030. The option can be kept current by an annual payment of $10,000. The purchase price will be the appraised value of the surface at the time of exercising the option. The ground water lease secures the right to develop the ground water within a 13,120-acre lease area located approximately 4 miles from the Round Top Project. This lease has an annual minimum production payment of $5,000 prior to production of water for the operation. After initiation of production payments of $0.95 per thousand gallons or $20,000 annually, whichever is greater, is required. This lease remains effective as long as the mineral lease is in effect. We transferred the option to produce the surface lease and water lease to Round Top in 2021.

 

Cautionary Note

 

Cautionary Note to Investors: The PEA dated August 16, 2019 was prepared in accordance with Canadian National Instrument 43-101 — Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) — CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. The Company voluntarily had the PEA prepared in accordance with NI 43-101 but the Company is not subject to regulation by Canadian regulatory authorities and no Canadian regulatory authority has reviewed the PEA or passed upon its accuracy or compliance with NI 43-101. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with NI 43-101. These definitions differ from the definitions in Item 1300 of Regulation S-K under the United States Securities Act of 1933, as amended (the “Securities Act”). Under Item 1300 of Regulation S-K standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” while defined in NI 43-101 and Item 1300 of Regulation S-K are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by Item 1300 of Regulation S-K standards as in place tonnage and grade without reference to unit measures. Accordingly, information in the PEA contains descriptions of our mineral deposits that may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder. The Round Top Project as described in the PEA currently does not contain any known proven or probable mineral reserves under Item 1300 of Regulation S-K reporting standards. U.S. investors are urged to consider closely the disclosure in the Registrant’s latest reports filed with the SEC. U.S. Investors are cautioned not to assume that any defined resources in these categories will ever be converted into Item 1300 of Regulation S-K compliant reserves.

 

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 in the Round Top Project by financing $10 million of expenditures in connection with the Round Top Project, increasable to an 80% interest, for an additional $3 million payment to the Company. 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” and collectively with the 2018 Option Agreement, the “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.

 

In May 2021, and in accordance with the terms of the Option Agreement, the Company and USARE entered into a contribution agreement (“Contribution Agreement”) whereby the Company and USARE contributed assets to Round Top, at the time a wholly-owned subsidiary of the Company, in exchange for their initial ownership interests in Round Top, of which the Company initially owned a membership interest equating to 20% of Round Top and USARE initially owned a membership interest equating to 80% of Round Top. Concurrently therewith, the Company and USARE as the two members entered into a limited liability company agreement (“Operating Agreement”) governing the operations of Round Top which contains customary and industry standard terms as contemplated by the Option Agreement. USARE serves as manager of Round Top.

 

 

Upon entry into the Contribution Agreement, the Company assigned the following contracts and assets to Round Top in exchange for its initial 20% membership interest in Round Top:

 

●

the assignment and assumption agreement with respect to the mineral leases from the Company to Round Top;

 

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the assignment and assumption agreement with respect to the surface lease from the Company to Round Top;

 

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the assignment and assumption agreement with respect to the surface purchase option from the Company to Round Top;

 

●

the assignment and assumption agreement with respect to the water lease from the Company to Round Top; and

 

●

the bill of sale and assignment agreement of existing data and other relevant contracts and permits with respect to Round Top owned by the Company.

 

and USARE assigned the following assets to Round Top (or the Company, as applicable) for its initial 80% membership interest in Round Top:

 

●

cash to Round Top to continue to fund Round Top operations in the amount of approximately $3,761,750 comprising the balance of the $10 million required expenditure to earn a 70% interest in Round Top;

 

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cash in the amount of $3 million to the Company upon exercise of the USARE option to acquire from the Company an additional 10% interest in Round Top, resulting in the aggregate ownership interest of 80% in Round Top;

 

●

bill of sale and assignment agreement of the Pilot Plant and other relevant contracts and permits to Round Top; and

 

●

bill of sale and assignment agreement of existing data and intellectual property owned by USARE to Round Top.

 

On June 26, 2023, the Company, USARE and the manager amended and restated the Operating Agreement and the following material amendments to the Operating Agreement were adopted:

 

Cash Calls.

 

On the basis of the adopted program and budget (sometimes referred to as the “Budget”) then in effect, the manager will submit to each member monthly cash calls at least 10 days before the last day of each month, and within 10 days of receipt, (a) USARE will pay to RTMD, as an additional capital contribution, its proportionate share of the estimated cash requirements based on its interest and (b) the Company will either (i) pay to RTMD, as an additional capital contribution, its proportionate share of the estimated cash requirements based on its interest, or (ii) deliver to RTMD a written notice indicating what amount, if any, of the applicable estimated cash requirements that the Company will contribute (the “Notice of Non-Contribution”). Failure by the Company to deliver payment of its proportionate share of the estimated cash requirements, as an additional capital contribution, or to deliver a Notice of Non-Contribution within the 10 day period shall automatically be considered a “Deemed Non-Contribution” and shall have the same effect as if the Company provided a timely Notice of Non-Contribution with respect to non-contribution of its entire proportionate share of the applicable cash call.

 

Remedies for Failure to Meet Cash Calls

 

Non-Contribution. Capital contributions only will be made to fund programs and budgets. If the Company does not contribute all or any portion of any additional capital contribution that it is required to contribute pursuant to a Notice of Non-Contribution or a Deemed Non-Contribution (such unfunded amount shall be deemed the “Shortfall Amount”), then USARE shall fund the entire Shortfall Amount within 5 business days after the Notice of Non-Contribution or Deemed Non-Contribution.

 

Dilution. Upon the contribution of the Shortfall Amount by USARE, the interests of the members will be recalculated based on the adjustment provision set forth below in the sub-heading “– Adjustment of Interests”.

 

Maximum Dilution. The dilution of the Company shall not fall below a 3% interest in RTMD (the “Minimum Percentage Interest”). Upon the contribution by USARE of a Shortfall Amount which otherwise would result in a dilution of the Company below the Minimum Percentage Interest, USARE will receive a priority distribution of available cash, in addition to a distribution of available cash to which USARE otherwise is entitled to receive as a result of its proportionate additional capital contribution pursuant to the applicable cash call request, up to the Shortfall Amount that would have resulted in the Company’s interest being further diluted but for the Minimum Percentage Interest (the “Priority Distribution”). The Priority Distribution will continue until USARE has been reimbursed for its contribution of the Shortfall Amount that would have resulted in the Company having an interest below the Minimum Percentage Interest, after which time the members shall receive distributions of available cash pro rata in proportion to their respective interests.

 

 

Adjustment of Interests.

 

If USARE contributes the Shortfall Amount, then the then current interest of the Company will be reduced (subject to the Minimum Percentage Interest), effective as of each cash call under an additional capital contribution for the applicable program and budget, by a fraction, expressed as a percentage:

 

●

the numerator of which equals the Shortfall Amount actually funded by USARE; and

 

●

the denominator of which equals the market capitalization of the Company.

 

For example, the dilution with respect to the December 2023 Round Top cash call notice that was sent on November 16, 2023 was calculated as follows: (A) the USARE ownership interest in Round Top at October 27, 2023 was 80.274% and the Company’s ownership interest in Round Top at October 27, 2023 was 19.726%; (B) the December 2023 Round Top cash call noticed on November 16, 2023 was for an aggregate amount of $726,188, of which $582,939 is to be contributed by USARE and $143,249 is to be contributed by the Company; (C) the Company provided a Notice of Non-Contribution stating that it will not contribute the $143,249 which then became the Shortfall Amount; (D) USARE will contribute its $582,939 plus the Shortfall Amount; and (E) the Company as of the date of the Notice of Non-Contribution had a market capitalization of $24,585,099. Accordingly, the Shortfall Amount equaled 0.583% of the Company’s market capitalization, and the Company’s percentage Interest in the Company was reduced to 19.611%.

 

Distributions

 

Cash in excess of authorized reserves will be distributed to the members pro-rata in proportion to their respective interests on a periodic basis as determined by the management committee. RTMD will be required to make tax distributions to each member. Once USARE has been paid the Priority Distribution, if applicable, all distributions made in connection with the sale or exchange of all or substantially all of RTMD’s assets and all distributions made in connection with the liquidation of RTMD will be made to the members pro-rata in accordance with their respective interests.

 

Other material terms of the Operating Agreement that remain unchanged are as follows:

 

Management.

 

A management committee will make the major decisions of RTMD, such as approval of the respective program and budget, and the manager will implement such decisions. The management committee consists of three representatives of the members, with two being appointed by USARE and one by the Company which is Dan Gorski. The representatives vote the ownership percentage interests of their appointing member.

 

Management Committee Meetings.

 

Meetings will be held every three months unless otherwise agreed. For matters before the management committee that require a vote, voting is by simple majority except for certain “major decisions” that require a unanimous vote. So long as the Company maintains a 15% or greater ownership interest, the nine decisions identified in the bullet points below require unanimous approval. If the Company’s ownership interest falls below 15%, the number of unanimous decisions is reduced to five (being the first five bullet points below). If the Company is acquired by a REE mining company or sells its ownership interest to a REE mining company, in each case who elects a majority of the Company’s board, this unanimous approval requirement can be suspended by USARE, at its option. The major decisions requiring unanimous approval, as set forth above, are:

 

●

approval of an amendment to any program and budget that causes the program and budget to increase by 15% or more, except for emergencies;

 

●

other than purchase money security interests or other security interests in RTMD equipment to finance the acquisition or lease of RTMD equipment used in operations, the consummation of a project financing or the incurrence by RTMD of any indebtedness for borrowed money that requires the guarantee by any member of any obligations of RTMD;

 

●

substitution of a member under certain circumstances and dissolution of RTMD;

 

●

the issuance of an ownership interest or other equity interest in RTMD, or the admission of any person as a new member of RTMD, other than in connection with the exercise of a right of first offer by a member;

 

●

the redemption of all or any portion of an ownership interest, except for limited circumstances provided for in the Operating Agreement;

 

 

●

a decision to grant authorization for RTMD to file a petition for relief under any chapter of the United States Bankruptcy Code, to consent to such relief in any involuntary petition filed against RTMD by any third party, or to admit in writing any insolvency of RTMD or inability to pay its debts as they become due, or to consent to any receivership of RTMD;

 

●

acquisition or disposition of significant mineral rights, other real property or water rights outside of the area of interest as set forth in the Operating Agreement or outside of the ordinary course of business;

 

●

the merger of RTMD into or with any other entity; and

 

●

the sale of all or substantially all of RTMD’s assets.

 

Manager.

 

The manager will manage, direct and control operations in accordance with program and budget, will prepare and present to the management committee a proposed program and budget, and will generally oversee and implement all of the day to day activities of RTMD. The manager will conduct necessary equipment and materials procurement and property and equipment maintenance activities, with all operations to be conducted in accordance with adopted program and budget.

 

Permitted Transfers.

 

Certain transfers are permitted under the Operating Agreement, including transfers to affiliates or through certain mergers or other forms of business reorganization. A member may also encumber its ownership interest provided that if the ownership interest is foreclosed upon, the other member has a pre-emptive right to acquire such ownership interest at the foreclosure sale. If the transfer is a “permitted transfer,” the transferee is automatically admitted as a member; otherwise unless the other member agrees, the transferee is only an economic interest holder with no voting or other rights held by a member.

 

Right of First Offer.

 

If a member desires to transfer all or a portion of its ownership interest to a third party (other than a permitted transfer), it may do that without the consent of the other member so long as it gives the other member the first right to purchase its ownership interest on the same terms. If the other member does not elect to purchase the ownership interest on such terms, the member may sell its ownership interest on such terms and the transfer will be a permitted transfer.

 

Drag-Along Right.

 

If USARE accepts a bona fide offer to purchase its entire ownership interest and all other rights under the Operating Agreement from an unrelated third party, the Company will then be obligated to sell its entire ownership interest and all other rights under the Operating Agreement to the unrelated third party on the same terms and conditions as are accepted by USARE.

 

Current Ownership in Round Top.

 

Pursuant to the Operating Agreement, USARE initially owned membership interests equating to 80% of Round Top and the Company initially owned membership interests equating to 20% of Round Top. These ownership interests have been and will be adjusted further under a variety of circumstances, including a decision by us not to fund in cash our portion of a Budget. USARE’s contribution of approximately $3,761,750 in cash to Round Top in May 2021 was used first to fund operations pursuant to the initial Budget. Currently, USARE and the Company are obligated, subject to an election by the Company not to fund in cash its portion of a Round Top cash call and in lieu thereof to incur dilution to its membership interests, to fund further expenditures in proportion to their respective ownership interests. We funded $386,400 in cash during the fiscal year ended August 31, 2023 and elected not to fund $448,800 which resulted in the dilution of our Round Top membership interest to 19.874% at August 31, 2023. Subsequent to September 1, 2023 through the date of this Annual Report, we notified USARE that we had elected not to contribute in cash our proportionate interest in aggregate cash calls of $396,249 which reduced our RTMD ownership interest to 19.611% as of the date of this Annual Report pursuant to the dilution mechanism in the June 2023 amended Operating Agreement. USARE has advised us that the preliminary estimate of the Round Top Budget for the fiscal year ending August 31, 2024, is currently anticipated to be between $15 million to $20 million, with the Company’s portion currently being estimated to be between $3 million to $4 million. It is possible that the Round Top Budget for the current fiscal year could increase and it should be expected that in future periods the Round Top Budget will be higher. The Company likely will decide to incur dilution to its then current membership interest in lieu of funding in cash its Round Top Budget obligations during this fiscal year, as it currently does not have sufficient capital to fund its currently expected cash calls and general and administrative expenses during the fiscal year ending August 31, 2024; consequently our ownership interest in the Round Top Project will likely be further diluted during this current fiscal year. In future periods, we will be required to raise additional capital to fund future cash calls from Round Top (unless we elect in lieu of making cash contributions to dilute our membership interest percentage, which dilution could be significant), and there can be no assurance that we will be able to raise the necessary capital to fund our Round Top cash calls. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

 

 

Operations of the Round Top Project

 

During the fiscal year ending August 31, 2024, Round Top is currently anticipated to fund the expenditure of between $15 million to $20 million to optimize the leaching and developing of the CIX/CIC processing of the Round Top Project. Initial process design work will be carried out at USARE’s facility in Wheat Ridge, Colorado. Pending completion of the initial process development, this facility will either be relocated to or replicated at USARE’s Oklahoma facility where a pilot plant is expected to be established. It is estimated that the Round Top Project will require additional time and further expenditure to complete a bankable feasibility study. As such, it is possible that the Round Top Budget will increase in the current fiscal year. In accordance with the current Round Top Budget, the Company does not have sufficient capital to fund its total cash calls (currently anticipated to be between $3 million to $4 million) and expected general and administrative expenses (of not less than $600,000) during the fiscal year ending August 31, 2024; accordingly, we expect to incur dilution to our then current membership interest in lieu of funding our Round Top cash calls.

 

Trends – Markets

 

Rare earth elements, or REEs, 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 important in a wide range of technologies, products, and applications and are critical inputs in existing and emerging applications including: computer hard drives, cell phones, clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems; and advanced water treatment technology for use in industrial, military and outdoor recreation applications. As a result, 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, if any, to raise additional funds in order to fund our expected cash calls in RTMD may be impacted by future prices for REEs.

 

Sources and Availability of Raw Materials

 

The Round Top Project is currently in the exploration stage and as such Round Top does not require any significant raw materials in order to carry out its primary operating activities. The goal of RTMD is to continue to fund the exploration and development of the Round Top Project to determine whether it is commercially feasible, of which there can be no assurance. The raw materials that the current operations of Round Top rely upon are gasoline and diesel fuel for the exploration vehicles and for the heavy equipment required to build roads and conduct drilling operations. Water is expected to be provided per service contract by Eagle Mountain Gang or through other sources.

 

Seasonality

 

Seasonality in the State of Texas is not a material factor to our operations for our project.

 

Competition

 

The mining industry is highly competitive. Round Top competes with numerous companies, substantially all of which have greater financial resources available to them. Round Top is, therefore, operating at a significant disadvantage in the course of acquiring mining properties and obtaining materials, supplies, labor, and equipment. Additionally, Round Top is and we are and will continue to be an insignificant participant in the business of exploration and mineral property development. A large number of established and well-financed companies are active in the mining industry and will have an advantage over RTMD and the Company if they are competing for the same properties. Nearly all such entities have greater financial resources, technical expertise and managerial capabilities than ourselves and, consequently, RTMD and the Company will be at a competitive disadvantage in identifying possible mining properties and procuring the same.

 

China accounts for the vast majority of rare earth element production. While rare earth element projects exist outside of China, very few are in actual production. Further, given the timeline for current exploration projects to come into production, if at all, it is likely that the Chinese will be able to dominate the market for rare earth elements into the future. This gives the Chinese a competitive advantage in controlling the supply of rare earth elements and engaging in competitive price reductions to discourage competition. Any increase in the amount of rare earth elements exported from other nations, and increased competition, may result in price reductions, reduced margins and loss of potential market share, any of which could materially adversely affect our operations. As a result of these factors, RTMD and the Company may not be able to compete effectively against current and future competitors.

 

Government Approvals

 

The exploration, drilling and mining industries operate in a legal environment that requires permits to conduct virtually all operations. Thus permits are required by local, state and federal government agencies. Local authorities, usually counties, also have control over mining activity. The various permits address such issues as prospecting, development, production, labor standards, taxes, occupational health and safety, toxic substances, air quality, water use, water discharge, water quality, noise, dust, wildlife impacts, as well as other environmental and socioeconomic issues.

 

 

Prior to receiving the necessary permits to explore or mine, the operator must comply with all regulatory requirements imposed by all governmental authorities having jurisdiction over the project area. Very often, in order to obtain the requisite permits, the operator must have its land reclamation, restoration or replacement plans pre-approved. Specifically, the operator must present its plan as to how it intends to restore or replace the affected area. Often all or any of these requirements can cause delays or involve costly studies or alterations of the proposed activity or time frame of operations, in order to mitigate impacts. All of these factors make it more difficult and costly to operate and have a negative and sometimes fatal impact on the viability of the exploration or mining operation. It is possible that future changes in these laws or regulations could have a significant impact on our business as well as RTMD’s business, causing those activities to be economically reevaluated at that time.

 

Effect of Existing or Probable Government and Environmental Regulations

 

Mineral exploration, including mining operations are subject to governmental regulation. The Round Top operations may be affected in varying degrees by government regulation such as restrictions on production, price controls, tax increases, expropriation of property, environmental and pollution controls or changes in conditions under which minerals may be marketed. An excess supply of certain minerals may exist from time to time due to lack of markets, restrictions on exports, and numerous factors beyond our control. These factors include market fluctuations and government regulations relating to prices, taxes, royalties, allowable production and importing and exporting minerals. The effect of these factors cannot be accurately determined. This section is intended as a brief overview of the laws and regulations described herein and is not intended to be a comprehensive treatment of the subject matter.

 

Overview. Like all other mining companies doing business in the United States, Round Top is subject to a variety of federal, state and local statutes, rules and regulations designed to protect the quality of the air and water, and threatened or endangered species, in the vicinity of its operations. These include “permitting” or pre-operating approval requirements designed to ensure the environmental integrity of a proposed mining facility, operating requirements designed to mitigate the effects of discharges into the environment during exploration, mining operations, and reclamation or post-operation requirements designed to remediate the lands affected by a mining facility once commercial mining operations have ceased.

 

Federal legislation in the United States and implementing regulations adopted and administered by the Environmental Protection Agency, the Forest Service, the Bureau of Land Management, the Fish and Wildlife Service, the Army Corps of Engineers and other agencies—in particular, legislation such as the federal Clean Water Act, the Clean Air Act, the National Environmental Policy Act, the Endangered Species Act, the National Forest Management Act, the Wilderness Act, and the Comprehensive Environmental Response, Compensation and Liability Act—have a direct bearing on domestic mining operations. These federal initiatives are often administered and enforced through state agencies operating under parallel state statutes and regulations.

 

The Clean Water Act. The federal Clean Water Act is the principal federal environmental protection law regulating mining operations in the United States as it pertains to water quality.

 

At the state level, water quality is regulated by the Environment Department, Water and Waste Management Division under the Water Quality Act (state). If our exploration or any future development activities might affect a ground water aquifer, it will have to apply for a Ground Water Discharge Permit from the Ground Water Quality Bureau in compliance with the Groundwater Regulations. If exploration affects surface water, then compliance with the Surface Water Regulations is required.

 

The Clean Air Act. The federal Clean Air Act establishes ambient air quality standards, limits the discharges of new sources and hazardous air pollutants and establishes a federal air quality permitting program for such discharges. Hazardous materials are defined in the federal Clean Air Act and enabling regulations adopted under the federal Clean Air Act to include various metals. The federal Clean Air Act also imposes limitations on the level of particulate matter generated from mining operations.

 

National Environmental Policy Act (NEPA). NEPA requires all governmental agencies to consider the impact on the human environment of major federal actions as therein defined.

 

Endangered Species Act (ESA). The ESA requires federal agencies to ensure that any action authorized, funded or carried out by such agency is not likely to jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of their critical habitat. In order to facilitate the conservation of imperiled species, the ESA establishes an interagency consultation process. When a federal agency proposes an action that “may affect” a listed species, it must consult with the United States Fish and Wildlife Service (“USFWS”) and must prepare a “biological assessment” of the effects of a major construction activity if the USFWS advises that a threatened species may be present in the area of the activity.

 

National Forest Management Act. The National Forest Management Act, as implemented through title 36 of the Code of Federal Regulations, provides a planning framework for lands and resource management of the National Forests. The planning framework seeks to manage the National Forest System resources in a combination that best serves the public interest without impairment of the productivity of the land, consistent with the Multiple Use Sustained Yield Act of 1960.

 

 

Wilderness Act. The Wilderness Act of 1964 created a National Wilderness Preservation System composed of federally owned areas designated by Congress as “wilderness areas” to be preserved for future use and enjoyment.

 

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). CERCLA imposes clean-up and reclamation responsibilities with respect to discharges into the environment, and establishes significant criminal and civil penalties against those persons who are primarily responsible for such discharges.

 

The Resource Conservation and Recovery Act (RCRA). RCRA was designed and implemented to regulate the disposal of solid and hazardous wastes. It restricts solid waste disposal practices and the management, reuse or recovery of solid wastes and imposes substantial additional requirements on the subcategory of solid wastes that are determined to be hazardous. Like the Clean Water Act, RCRA provides for citizens’ suits to enforce the provisions of the law.

 

National Historic Preservation Act. The National Historic Preservation Act was designed and implemented to protect historic and cultural properties. Compliance with the Act is necessary where federal properties or federal actions are undertaken, such as mineral exploration on federal land, which may impact historic or traditional cultural properties, including native or Indian cultural sites.

 

In the fiscal year ended August 31, 2023, RTMD incurred minimal costs in complying with environmental laws and regulations in relation to its operating activities.

 

Employees

 

Including our executive officers, we currently have two full-time employees. We also utilize the services of qualified consultants with geological and mineralogical expertise as well as an individual for accounting services.

 

Investment Company Act Exclusion

 

Section 3(c)(9) of the Investment Company Act of 1940, as amended (“1940 Act”), provides that a company “substantially all of whose business consists of owning or holding oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, leases, or fractional interests” is not an investment company within the meaning of the 1940 Act. The Company has determined that this exemption applies to it giving consideration to the following four factors:

 

●

whether the exempted activity constitutes “substantially all” of our business;

 

○

The Company has owned mineral leases since 2010, all of our business to date has been comprised of owning and developing the mineral leases and, after the May 2021 “farm-down” of its 100% interest in the mineral leases, substantially all of our business continues to be comprised of owning and holding a certificate of interest and a participation in the mineral leases owned by Round Top. The Company’s mineral assets historically, as well as the value of the certificate of interest at August 31, 2023, have been booked at cost in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We have an accumulated deficit of approximately $42.7 million at August 31, 2023 as a result of owning and developing the Round Top Project.

 

●

whether we own or trade in the mineral leases;

 

○

The Company has owned the mineral leases, which are now owned by Round Top, since 2010 and neither the Company nor Round Top is in the business of dealing or trading in the mineral leases.

 

●

what qualifies as an eligible asset for purposes of the exception; and

 

○

The statute specifically references mineral leases and our mineral leases were owned by the Company and are now owned by Round Top. In accordance with Regulation S-K Item 1300 that governs disclosure by registrants engaged in mining operations, the definition of mineral resource is “a concentration or occurrence of material of economic interest in or on the Earth’s crust.” Our rare earth elements and minerals underlying the mineral leases meet that definition, as well as does coal, silver, gold and other material mined for economic value by registrants involved in mining operations. The SEC staff has recognized that an excepted entity can also engage in related business activities such as exploring, developing, and operating the eligible assets.

 

 

●

what qualifies as a “certificate of interest or participation in” or an “investment contract relative to” the eligible assets.

 

○

The statute allows a Company to own a “certificate of interest” or “participation in” the mineral leases. The SEC staff has advised that limited partnership interests and/or similar securities issued by entities that themselves own the leases constitute “certificate of interest or participation in or investment contracts” related to such leases. The Company’s 20% membership interest in Round Top constitutes a “certificate of interest” and a “participation in” the mineral leases that are owned by Round Top.

 

The Company intends to continue to conduct its business operations in order to continue to be excluded from the definition of an “investment company” under the 1940 Act.

 

Available Information

 

We make available, free of charge, on or through our Internet website, at www.TMRC.com our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Our Internet website and the information contained therein or connected thereto are not intended to be, and are not incorporated into this Annual Report.

 

ITEM 1A. RISK FACTORS

 

The following sets forth certain risks and uncertainties that could have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock which may decline (it has recently declined and may continue to further decline) and investors may lose all or part of their investment. These risk factors should be considered along with the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our actual results or financial condition to differ materially from those projected in forward-looking statements. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial also may impair our business operations. We cannot assure you that we will successfully address these risks or that other unknown risks exist that may affect our business.

 

Risks Associated with our investment in Round Top

 

Failure to fund cash calls.

 

USARE, as manager, will issue monthly cash calls pursuant to adopted Budgets. Both parties, as members, will have 10 days after receipt of such a billing to meet the cash call. Failure to meet a cash call results in dilution. The governing provisions of the Operating Agreement with respect to cash calls and dilution are as follows:

 

Cash Calls.

 

On the basis of the adopted program and budget then in effect, the manager will submit to each member monthly cash calls at least 10 days before the last day of each month, and within 10 days of receipt, (a) USARE will pay to RTMD, as an additional capital contribution, its proportionate share of the estimated cash requirements based on its interest and (b) the Company will either (i) pay to RTMD, as an additional capital contribution, its proportionate share of the estimated cash requirements based on its interest, or (ii) deliver to RTMD a written notice indicating what amount, if any, of the applicable estimated cash requirements that the Company will contribute, being the Notice of Non-Contribution. Failure by the Company to deliver payment of its proportionate share of the estimated cash requirements, as an additional capital contribution, or to deliver a Notice of Non-Contribution within the 10 day period shall automatically be considered a “Deemed Non-Contribution” and shall have the same effect as if the Company provided a timely Notice of Non-Contribution with respect to non-contribution of its entire proportionate share of the applicable cash call.

 

Remedies for Failure to Meet Cash Calls

 

Non-Contribution. Capital contributions only will be made to fund programs and budgets. If the Company does not contribute all or any portion of any additional capital contribution that it is required to contribute pursuant to a Notice of Non-Contribution or a Deemed Non-Contribution, then USARE shall fund the entire shortfall, being the Shortfall Amount, within 5 business days after the Notice of Non-Contribution or Deemed Non-Contribution.

 

Dilution. Upon the contribution of the Shortfall Amount by USARE, the interests of the members will be recalculated based on the adjustment provision set forth below in the sub-heading “– Adjustment of Interests”.

 

Maximum Dilution. The dilution of the Company shall not fall below a 3% interest in RTMD, being the Minimum Percentage Interest. Upon the contribution by USARE of a Shortfall Amount which otherwise would result in a dilution of the Company below the Minimum Percentage Interest, USARE will receive a priority distribution of available cash, in addition to a distribution of available cash to which USARE otherwise is entitled to receive as a result of its proportionate additional capital contribution pursuant to the applicable cash call request, up to the Shortfall Amount that would have resulted in the Company’s interest being further diluted but for the Minimum Percentage Interest, being the Priority Distribution. The Priority Distribution will continue until USARE has been reimbursed for its contribution of the Shortfall Amount that would have resulted in the Company having an interest below the Minimum Percentage Interest, after which time the members shall receive distributions of available cash pro rata in proportion to their respective interests.

 

 

Adjustment of Interests.

 

If USARE contributes the Shortfall Amount, then the then current interest of the Company will be reduced (subject to the Minimum Percentage Interest), effective as of each cash call under an additional capital contribution for the applicable program and budget, by a fraction, expressed as a percentage:

 

●

the numerator of which equals the Shortfall Amount actually funded by USARE; and

 

●

the denominator of which equals the market capitalization of the Company.

 

As such, the failure by us to fund our cash calls will result in dilution to our membership interest in RTMD, which could be significant over time and could ultimately reduce us to a 3% membership interest and possibly a Priority Distribution owed to USARE, as described above. Dilution to our membership interest in RTMD will adversely affect the value of our Company and likely the value of our Common Stock. We currently do not have the necessary capital to fund future cash calls and there can be no assurance that we will be able to raise additional capital to fund cash calls. Moreover, the raising of capital by issuing shares of Common Stock will result in dilution to our common stockholders).

 

Certain matters that require unanimous management committee approval will not be applicable if the Company’s membership interest falls below 15% in Round Top.

 

Meetings will be held every three months unless otherwise agreed. For matters before the management committee that require a vote, voting is by simple majority except for certain “major decisions” that require a unanimous vote. So long as the Company maintains a 15% or greater ownership interest, the nine decisions identified in the bullet points below require unanimous approval. If the Company’s ownership interest falls below 15%, the number of unanimous decisions is reduced to five (being the first five bullet points below). If the Company is acquired by a REE mining company or sells its ownership interest to a REE mining company, in each case who elects a majority of the Company’s board, this unanimous approval requirement can be suspended by USARE, at its option. The major decisions requiring unanimous approval, as set forth above, are:

 

●

approval of an amendment to any Budget that causes the Budget to increase by 15% or more, except for emergencies;

 

●

other than purchase money security interests or other security interests in Round Top equipment to finance the acquisition or lease of Round Top equipment used in operations, the consummation of a project financing or the incurrence by Round Top of any indebtedness for borrowed money that requires the guarantee by any member of any obligations of Round Top;

 

●

substitution of a member under certain circumstances and dissolution of Round Top;

 

●

the issuance of an ownership interest or other equity interest in Round Top, or the admission of any person as a new member of Round Top, other than in connection with the exercise of a right of first offer by a member;

 

●

the redemption of all or any portion of an ownership interest, except for limited circumstances provided for in the Operating Agreement;

 

●

a decision to grant authorization for Round Top to file a petition for relief under any chapter of the United States Bankruptcy Code, to consent to such relief in any involuntary petition filed against Round Top by any third party, or to admit in writing any insolvency of Round Top or inability to pay its debts as they become due, or to consent to any receivership of Round Top;

 

●

acquisition or disposition of significant mineral rights, other real property or water rights outside of the area of interest as set forth in the Operating Agreement or outside of the ordinary course of business;

 

●

the merger of Round Top into or with any other entity; and

 

●

the sale of all or substantially all of Round Top’s assets.

 

Any future dilution of our membership interest in RTMD below 15% will adversely impact our input with respect to certain RTMD corporate actions, which could adversely affect us.

 

 

We have relied on an exclusion from the definition of “investment company” in order to avoid being subject to the Investment Company Act of 1940. To the extent the nature of our business changes in the future, we may become subject to the requirements of the 1940 Act, which would limit our business operations and require us to spend significant resources in order to comply with such Act.

 

The 1940 Act defines an “investment company,” among other things, as an issuer that is engaged in the business of investing, reinvesting, owning, holding or trading in securities and owns investment securities having a value exceeding 40 percent of the issuer’s unconsolidated assets, excluding cash items and securities issued by the federal government. However, the 1940 Act excludes from this definition any person substantially all of whose business consists of owning or holding oil, gas or other mineral royalties or leases or fractional interests therein, or certificates of interest or participation relating to such mineral royalties or leases. We believe that we satisfy this mineral company exception to the definition of “investment company.” If our reliance on the mineral company exclusion from the definition of investment company is misplaced, we may have been in violation of the 1940 Act, the consequences of which can be significant. For example, investment companies that fail to register under the 1940 Act are prohibited from conducting business in interstate commerce, which includes selling securities or entering into other contracts in interstate commerce.

 

If in the future the nature of our business changes, or a regulatory agency would disagree with our analysis regarding the exclusion from the 1940 Act, such that the mineral company exception to the threshold definition of investment company is not available to us, we will be required to register as an investment company with the SEC. The ramifications of becoming an investment company, both in terms of the restrictions it would have on our Company and the cost of compliance, would be significant. For example, in addition to expenses related to initially registering as an investment company, the 1940 Act also imposes various restrictions with regard to our ability to enter into affiliated transactions, the diversification of our assets and our ability to borrow money. If we became subject to the 1940 Act at some point in the future, our ability to continue pursuing our business plan would be severely limited as it would be significantly more difficult for us to raise additional capital in a manner that would comply with the requirements of the 1940 Act. To the extent we are unable to raise additional capital, we may be forced to discontinue our operations or sell or otherwise dispose of our mineral assets.

 

Risk Related to Our Business, Including Being an Owner of a 19.611% membership interest in a Mineral Project Being Operated by Round Top

 

Our financial statements have been prepared assuming that the Company will continue as a going concern.

 

Our financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit from inception through August 31, 2023, of approximately $42,344,000 and has yet to achieve profitable operations, and projects further losses in the development of its business. At August 31, 2023, the Company had a working capital surplus of approximately $1,025,000; however the Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due.

 

In accordance with our current projected Budget, the Company does not have sufficient capital to fund its (i) total cash calls expected during the fiscal year ending August 31, 2024 (currently anticipated to be between approximately $3 million to $4 million) and (ii) expected general and administrative expenses during the fiscal year ending August 31, 2024 (expected to be at least $600,000). Thus far during the current fiscal year, we have elected to incur dilution to our Round Top membership interest which as of the date of this Annual report is 19.611% and the failure of the Company to make required cash calls to Round Top during the remainder of our current fiscal year will result in further dilution to our current 19.611% ownership interest. We expect to incur dilution to our then current membership interest to fund our cash call obligations during the fiscal year ending August 31, 2024. The Company may be required to raise additional capital to fund its obligations (pursuant to the current Budget if it elects not to incur dilution to its then current membership interest and to fund general and administrative expenses) during the fiscal year ended August 31, 2024. There can be no assurance that the Company will be able to raise the necessary capital to fund its cash calls and expected general and administrative expenses. We have no firm commitments for equity or debt financing and any financing that may be obtained will be on a best efforts basis. Based on these factors, there is substantial doubt as to the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of these financial statements. The failure to obtain sufficient financing may cause us to curtail or discontinue operations.

 

We have a history of losses and will require additional financing to fund operations. Failure to obtain additional financing could have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern in future periods.

 

During the fiscal year ended August 31, 2023, we had no revenues. For the fiscal year ended August 31, 2023, our net loss was approximately $2.6 million and our accumulated deficit at August 31, 2023 was approximately $42.3 million. At August 31, 2023, our cash position was approximately $1.1 million and our working capital surplus was approximately $1.0 million. Round Top has not commenced commercial production on any of its mineral properties, and there can be no assurance that the Round Top Project will ever commence commercial production.

 

 

During the fiscal year ending August 31, 2024, it is likely that USARE will be required to fund our portion of current Round Top Budget estimated to be between $3 million and $4 million to optimize the leaching and developing of the CIX/CIC processing of the Round Top Project, based on our current cash position (which will result in dilution to our membership interest in RTMD). Initial process design work will be carried out at USARE’s facility in Wheat Ridge, Colorado. Pending completion of the initial process development, this facility will either be relocated to or replicated at USARE’s Oklahoma facility where a pilot plant is expected to be established. It is estimated that the Round Top Project will require additional time and further expenditure to complete a bankable feasibility study, if at all.

 

In accordance with the current Round Top Budget, the Company will likely continue to elect to incur dilution to its Round Top membership interest in lieu of providing cash payments to fund its portion of the Round Top Budget, as we don’t have sufficient capital to fund currently expected cash calls and general and administrative expenses during the fiscal year ending August 31, 2024. If we were to elect to fund our portion of the expected Round Top Budget in cash, we would be required to raise additional capital to fund our obligations during this fiscal year. Moreover, it is possible that the Round Top Budget for the fiscal year ended August 31, 2024 could increase and it should be expected that such Round Top Budget will be higher in future periods. There can be no assurance that we will be able to raise the necessary capital to fund our cash calls and general and administrative expenses either during this current fiscal year or thereafter. The failure to fund our portion of the Round Top Budget during this current fiscal year and/or thereafter would result in the continued dilution of our membership interest Round Top (currently 19.611%, which dilution during this current fiscal year and/or thereafter could be significant), and/or could cause us to curtail or cease our operations. The most likely source of future financing presently available to us is through the sale of our securities, of which there is no assurance that we will be able to raise additional capital on reasonable terms, if at all. Any sale of our shares of Common Stock to raise capital will result in dilution of equity ownership to existing stockholders. This means that if we sell shares of Common Stock, more shares will be outstanding and each existing stockholder will own a smaller percentage of the shares then outstanding. Additionally, the actual or perceived sale of additional shares of Common Stock could have the effect of decreasing our stock price, which would further exacerbate dilution to our existing shareholders. Alternatively, we may rely on debt financing and assume debt obligations that require us to make substantial interest and principal payments. Also, we may issue or grant warrants or options in the future pursuant to which additional shares of Common Stock may be issued. Exercise of such warrants or options will result in dilution of equity ownership to our existing stockholders. We have no firm commitments with respect to obtaining equity or debt financing and, accordingly, we will be reliant upon a best efforts financing strategy. The failure to obtain sufficient financing in this current fiscal year or subsequent thereto will result in the continued dilution of our membership interest in RTMD (which could be significant) and/or may cause us to curtail or discontinue operations.

 

We have a limited operating history on which to base an evaluation of our business and properties.

 

Any investment in the Company should be considered a high-risk investment because investors will be placing funds at risk in an early stage, under-capitalized business with unforeseen costs, expenses, competition, a history of operating losses and other problems to which start-up ventures are often subject. Investors should not invest in the Company unless they can afford to lose their entire investment. Your investment must be considered in light of the risks, expenses, and difficulties encountered in establishing a new business in a highly competitive and mature industry. Our operating history has been restricted to the acquisition and sampling of the Round Top Project and this does not provide a meaningful basis for an evaluation of the Round Top Project. Other than through conventional and typical exploration methods and procedures, we have no additional way to evaluate the likelihood of whether the Round Top Project contains commercial quantities of mineral reserves or, if it does, that it will be operated successfully. We anticipate that we will continue to incur operating costs in the form of cash calls in connection with our current 19.611% membership interest in Round Top without realizing any revenues during the foreseeable future. If we continue to satisfy our Round Top cash call obligations through dilution to our then current membership interest, then we will incur continued dilution to our membership interest, which could be significant. To date, substantially all of our business consists of owning a 19.611% membership interest in Round Top as of the date of this Annual Report.

 

The Round Top Project is in the exploration stage. There is no assurance that Round Top can establish the existence of any mineral reserve from the Round Top Project in commercially exploitable quantities. Until then, we cannot earn any revenues from the Round Top Project, and our business could fail.

 

We have not established that the Round Top Project contains any commercial exploitable quantities of mineral reserve, nor can there be any assurance that we will be able to do so. The probability of the Round Top Project ever having a commercial exploitable mineral reserve that meets the requirements of the SEC may be remote. Even if we do eventually discover commercial exploitable quantities of mineral reserve on the Round Top Project, there can be no assurance that it can be developed into a producing mine and extract those minerals. Both mineral exploration and development involve a high degree of risk and few properties, which are explored, are ultimately developed into producing mines.

 

The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the deposit to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral deposit unprofitable.

 

 

Even if commercial viability of a mineral deposit is established, it may take several years in the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable reserves through drilling and bulk sampling, to determine the optimal metallurgical process to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities. Because of these uncertainties, no assurance can be given that our exploration programs will result in the establishment or expansion of a mineral deposit or reserves.

 

The Round Top Project is a high risk project and investors should not make an investment in the Company unless you have the ability to lose your entire investment.

 

There is no history of producing metals from the Round Top Project.

 

There is no history of producing metals from the Round Top Project. The Round Top Project is an exploration stage property in the early stage of exploration and evaluation. Advancing properties from exploration into the development stage requires significant capital and time, and successful commercial production from the Round Top Project, if any, will be subject to completing feasibility studies, permitting and construction of the mine, processing plants, roads, and other related works and infrastructure. As a result, we are subject to all of the risks associated with developing and establishing new mining operations and business enterprises including:

 

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completion of feasibility studies to verify reserves and commercial viability, including the ability to find sufficient REE reserves to support a commercial mining operation;

 

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the timing and cost, which can be considerable, of further exploration, preparing feasibility studies, permitting and construction of infrastructure, mining and processing facilities;

 

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the availability and costs of drill equipment, exploration personnel, skilled labor and mining and processing equipment, if required;

 

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the availability and cost of appropriate smelting and/or refining arrangements, if required, and securing a commercially viable sales outlet for our products;

 

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compliance with environmental and other governmental approval and permit requirements;

 

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the availability of funds to finance exploration, development and construction activities, as warranted;

 

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potential opposition from non-governmental organizations, environmental groups, local groups or local inhabitants which may delay or prevent development activities;

 

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dilution to our membership interest in Round Top, which could be significant;

 

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potential increases in exploration, construction and operating costs due to changes in the cost of fuel, power, materials and supplies; and

 

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potential shortages of mineral processing, construction and other facilities related supplies.

 

The costs, timing and complexities of exploration, development and construction activities may be increased by the location of the Round Top Project (or other properties that may subsequently be acquired) and demand by other mineral exploration and mining companies. It is common in exploration programs to experience unexpected problems and delays during drill programs and, if warranted, development, construction and mine start-up activities. Accordingly, Round Top’s activities may not result in profitable mining operations and Round Top may not succeed in establishing mining operations or profitably producing metals with respect to the Round Top Project. This is a high risk project and investors should not make an investment in the Company unless you have the ability to lose your entire investment.

 

If we establish the existence of a mineral reserve in the Round Top Project in a commercially exploitable quantity, we will require additional capital in order to maintain our current membership interest in Round Top and fund our proportionate costs to develop the property into a producing mine. If we cannot raise this additional capital, our membership interest in RTMD will be diluted, our membership interest will lose value, and our Company could fail.

 

Round Top will be required to expend significant funds to determine if there exist mineral reserves in commercially exploitable quantities in the Round Top Project, and then Round Top will be required to expend substantial additional sums of money to establish the extent of the reserve, develop processes to extract it and develop extraction and processing facilities and infrastructure. Each of USARE and the Company, as the members of Round Top, will likely need to fund such expenditure. Our failure to raise capital to fund our portion of future cash calls will result in our current 19.611% membership interest being diluted. Round Top does not have adequate capital to fund expenditures at the project level, therefore requiring the members to fund cash calls based upon our current ownership interests in Round Top and we can elect to satisfy our cash call obligations through incurring dilution to our Round Top membership interest. There is no assurance that any Round Top project level financing can ever be obtained, which will depend initially upon obtaining a preliminary feasibility study which is anticipated to be completed during calendar 2024, although there can be no assurance that this will be obtained. As such, there is no assurance that, either at the member level or project level, the necessary financing can be obtained to develop necessary facilities and infrastructure to accomplish our goals. Although Round Top may derive substantial benefits from the discovery of a major mineral deposit, there can be no assurance that such a deposit will be large enough to justify commercial operations, nor can there be any assurance that Round Top will be able to raise the funds at the Round Top level required for development on a timely basis. If Round Top cannot raise the necessary capital at the Round Top level or complete the necessary facilities and infrastructure, cash calls from the members will continue and if we can’t fund our position, our membership interest will continue to be diluted (which dilution could be significant) and/or our business may fail and your investment in our Common Stock will be lost. Since June 2023 through the date of this Annual Report on Form 10-K, our current membership interest was diluted from 20% to 19.611%, and it should be expected that our membership interest will be further diluted during this current fiscal year.

 

 

Our exploration activities may not be commercially successful.

 

Our long-term success depends on our ability to identify mineral deposits in the Round Top Project or other properties we may acquire, if any, that we can then develop into commercially viable mining operations. Our belief that the Round Top Project contains commercially exploitable minerals has been based solely on preliminary tests that Round Top has conducted and data provided by third parties (including USARE). There can be no assurance that the tests and data upon which we have relied is correct or accurate and, accordingly, there is no assurance that the Round Top Project contains commercially exploitable minerals. Moreover, mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive. Unusual or unexpected geologic formations and the inability to obtain suitable or adequate machinery, equipment or labor are risks involved in the conduct of exploration programs. The success of mineral exploration and development is determined in part by the following factors:

 

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the identification of potential mineralization based on analysis;

 

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the availability of exploration permits;

 

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the quality of our management and our geological and technical expertise; and

 

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the capital available for exploration.

 

Substantial expenditures and time are required to establish existing proven and probable reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Whether a mineral deposit will be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, allowable production, importing and exporting of minerals and environmental protection. Any one or a combination of these factors may result in us not receiving an adequate return on our investment in Round Top or any other mineral project we may pursue. The decision to abandon a project will have an adverse effect on the market value of our securities and our ability, if any, to raise future financing.

 

Increased costs could affect our financial condition.

 

We anticipate that costs at the Round Top Project as it is developed, if warranted, will frequently be subject to variation from one year to the next due to a number of factors, such as changing ore grade, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities such as fuel, rubber, and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. A material increase in costs at any significant location could have a significant effect on the Round Top operations as well as Round Top member funding requirements.

 

Macroeconomic conditions, domestic and global political turbulence could have a materially adverse impact on our business, financial condition, or results of operations.

 

Macroeconomic conditions, such as high inflation, changes to monetary policy, high interest rates, volatile currency exchange rates, decreasing consumer confidence and spending, and global or local recessions could negatively impact our business, financial condition, or results of operations. Recent macroeconomic conditions have been and likely will continue to be adversely impacted by political instability and military hostilities in multiple geographies (including the ongoing conflict between Ukraine and Russia and the conflict in the Middle East). The results of these macroeconomic conditions, and the actions taken by governments and consumers in response, have, and may continue to, result in higher inflation and higher interest rates in the U.S. and globally, which may, in turn, lead to an increase in costs and cause changes in fiscal and monetary policy, including additional increased interest rates.

 

 

No assurance that the Company will enter into any agreement with respect to the Alhambra project owned by Santa Fe or that this project will proceed.

 

While the Company has entered into a mineral exploration and operation agreement with Santa Fe, there is no assurance the Company will enter into a formal joint venture agreement or otherwise pursue this project. Even if the Company enters into a formal joint venture agreement with Santa Fe, there is no assurance that this project will be economically feasible, that exploration will be successful or that this project will be a commercial success. The Company is currently pursuing financing sources for this project and there can be no assurance that the Company will be able to arrange and procure necessary financing to commercially exploit a silver property currently held by Santa Fe within the Black Hawk Mining District in Grant County, New Mexico. The status of our electromagnetic surveying and testing with respect to this project is preliminary in nature and there can be no assurance that this project will proceed or that results will be positive.

 

Licensing and permitting of mining operations in the State of New Mexico is difficult and could have a material effect on the length of time and cost of securing the required permits.

 

Regulatory agencies governing permitting include the New Mexico Mining and Minerals Division of the State of New Mexico, New Mexico Environmental Department, New Mexico Office of the State Engineer, the US Forest Service, the US Fish and Wildlife Service, the EPA, Mine Safety and Health Administration and Grant County, New Mexico. Permitting process is also vulnerable to the intrusion of various non-governmental organizations hostile to mining. Accordingly, there is no assurance that we will be able to obtain the necessary permits with respect to the Alhambra project, either at the state or federal level.

 

A shortage of equipment and supplies could adversely affect our ability to operate our business.

 

Round Top is and will be dependent on various supplies and equipment to carry out mining exploration and, if warranted, development operations. The shortage of such supplies, equipment and parts could have a material adverse effect on the ability to carry out Round Top’s operations and therefore limit or increase the cost of production.

 

Mining and mineral exploration is inherently dangerous and subject to conditions or events beyond our control, which could have a material adverse effect on our business and plans.

 

Mining and mineral exploration involves various types of risks and hazards, including:

 

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environmental hazards;

 

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power outages;

 

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metallurgical and other processing problems;

 

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unusual or unexpected geological formations;

 

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personal injury, flooding, fire, explosions, cave-ins, landslides and rock-bursts;

 

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inability to obtain suitable or adequate machinery, equipment, or labor;

 

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metals losses;

 

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fluctuations in exploration, development and production costs;

 

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labor disputes;

 

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unanticipated variations in grade;

 

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mechanical equipment failure; and

 

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periodic interruptions due to inclement or hazardous weather conditions.

 

These risks could result in damage to, or destruction of, the Round Top Project, production facilities or other properties, personal injury, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability. Round Top may not be able to obtain insurance to cover these risks at economically feasible premiums. Insurance against certain environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from production, may be prohibitively expensive. Round Top may suffer a material adverse effect on its business if not covered by insurance policies.

 

 

The figures for our mineralization are estimates based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.

 

Unless otherwise indicated, mineralization figures presented in this Annual Report and in our filings with securities regulatory authorities, press releases and other public statements that may be made from time to time are based upon estimates made by independent geologists and our internal geologists. When making determinations about whether to advance to development any project that we have or may have interest in will be reliant upon such estimated calculations as to the mineral reserves and grades of mineralization on our properties. Until ore is actually mined and processed, mineral reserves and grades of mineralization must be considered as estimates only. All resource and grade estimates are based on state of the art analytical methods. However, any procedure for analyzing small amounts of metals in a chemically complex matrix may be subject to error and other uncertainties.

 

Estimates made to date rely on geophysical data, and geophysics is an indirect method of exploration and must be verified by drilling and underground investigation. Additionally, estimates can be imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. We cannot assure you that:

 

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these interpretations and inferences will be accurate;

 

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mineralization estimates will be accurate; or

 

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this mineralization can be mined or processed profitably.

 

Investors should not rely upon any such figures in making an investment decision to acquire our Common Stock.

 

The Round Top operations may contain significant uninsured risks which could negatively impact future profitability.

 

Any exploration of the Round Top Project contains and will contain certain risks, including unexpected or unusual operating conditions including rock bursts, cave-ins, flooding, fire and earthquakes. It is not always possible to insure against these risks. Should events such as these arise, they could reduce or eliminate our investment in Round Top as well as result in increased costs and a decline in the value of our investment.

 

Mineral operations are subject to market forces outside of our control which could negatively impact us.

 

The marketability of minerals is affected by numerous factors beyond our control including market fluctuations, government regulations relating to prices, taxes, royalties, allowable production, imports, exports and supply and demand. One or more of these risk elements could have an impact on the costs of the Round Top operations and, if significant enough, could impact our investment.

 

We may be adversely affected by fluctuations in demand for, and prices of, rare earth minerals and products.

 

Our goal is for Round Top to derive revenues, if any, from the sale of rare earth and related minerals by Round Top. Changes in demand for, and the market price of, these minerals could significantly affect us. The value and price of our Common Stock and our financial results may be significantly adversely affected by declines in the prices of rare earth minerals and products. Rare earth minerals and product prices may fluctuate and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the relative value of the U.S. dollar against foreign currencies on the world market, global and regional supply and demand for rare earth minerals and products, and the political and economic conditions of countries (including specifically China and the U.S.’s relationship with China at any given time) that produce rare earth minerals and products.

 

A prolonged or significant economic contraction in the United States or worldwide could put further downward pressure on market prices of rare earth minerals and products. Protracted periods of low prices for rare earth minerals and products could significantly reduce revenues and the availability of required development funds in the future. This could cause substantial reductions to, or a suspension of, REO production operations, impair asset values and if reserves are established on our prospects, reduce our proven and probable rare earth ore reserves.

 

In contrast, extended periods of high commodity prices may create economic dislocations that may be destabilizing to rare earth minerals supply and demand and ultimately to the broader markets. Periods of high rare earth mineral market prices generally are beneficial to us. However, strong rare earth mineral prices also create economic pressure to identify or create alternate technologies that ultimately could depress future long-term demand for rare earth minerals and products, and at the same time may incentivize development of otherwise marginal mining properties.

 

 

Permitting, licensing and approval processes are required for the operations at the Round Top Project and obtaining and maintaining required permits and licenses is subject to conditions which may be unable to be achieved.

 

Both mineral exploration and extraction at the Round Top Project requires permits from various federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Permits known to be required are (i) an operating plan for the conduct of exploration and development approved by the GLO, (ii) an operating plan for production approved by the GLO, (iii) various reporting to and approval by the Texas Railroad Commission regarding drilling and plugging of drill holes, and (v) reporting to and compliance with regulations of the Texas Commission of Environmental Quality. If Round Top recovers uranium at the Round Top Project, it will be required to obtain a source material license from the United States Nuclear Regulatory Commission. Round Top may also be subject to the reporting requirements and regulations of the Texas Department of Health. Such licenses and permits are subject to changes in regulations and changes in various operating circumstances. Companies that engage in exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Issuance of permits for the Round Top activities is subject to the discretion of government authorities, and Round Top may be unable to obtain or maintain such permits. Permits required for future exploration or development may not be obtainable on reasonable terms or on a timely basis. There can be no assurance that Round Top will be able to obtain or maintain any of the permits required for the continued exploration or development of the Round Top Project (or any other of our mineral properties that we may subsequently acquire) or for the construction and operation of a mine on our properties that we may subsequently acquire at economically viable costs. If Round Top or we cannot accomplish these objectives, our business could face difficulty and/or fail.

 

Round Top is subject to significant governmental regulations, which affect its operations and costs of conducting its business.

 

Round Top’s current and future operations are and will be governed by laws and regulations, including:

 

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laws and regulations governing mineral concession acquisition, prospecting, development, mining and production;

 

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laws and regulations related to exports, taxes and fees;

 

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labor standards and regulations related to occupational health and mine safety;

 

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environmental standards and regulations related to waste disposal, toxic substances, land use and environmental protection; and

 

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other matters.

 

Corporations engaged in exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Failure to comply with applicable laws, regulations and permits may result in enforcement actions, including the forfeiture of claims, orders issued by regulatory or judicial authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or costly remedial actions. Round Top may be required to compensate those suffering loss or damage by reason of its mineral exploration activities and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and permits.

 

Existing and possible future laws, regulations and permits governing operations and activities of exploration companies, or more stringent implementation, could have a material adverse impact on Round Top’s business and cause increases in capital expenditures or require abandonment or delays in exploration.

 

Regulations and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse effect on Round Top as well as any other business in which we engage.

 

A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on Round Top, our venture partners and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact the ability to compete with companies situated in areas not subject to such limitations. Given the emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures. These impacts may adversely impact the cost, production and financial performance of the Round Top operations or any other mineral projects we may pursue.

 

 

Round Top’s exploration and development activities are subject to environmental risks, which could expose Round Top to significant liability and delay, suspension or termination of our operations.

 

The exploration, possible future development and production phases of the Round Top business will be subject to federal, state and local environmental regulation. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set out limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments, and a heightened degree of responsibility for companies and their officers, directors and employees. Future changes in environmental regulations, if any, may adversely affect our operations. If Round Top fails to comply with any of the applicable environmental laws, regulations or permit requirements, it could face regulatory or judicial sanctions. Penalties imposed by either the courts or administrative bodies could delay or stop operations or require a considerable capital expenditure. Although Round Top intends to comply with all environmental laws and permitting obligations in conducting its business, there is a possibility that those opposed to exploration and mining will attempt to interfere with its operations, whether by legal process, regulatory process or otherwise.

 

Environmental hazards unknown to Round Top, which have been caused by previous or existing owners or operators of the properties, may exist on the properties comprising the Round Top Project. It is possible that these properties could be located on or near the site of a Federal Superfund cleanup project; as such, it is possible that environmental cleanup or other environmental restoration procedures could remain to be completed or mandated by law, causing unpredictable and unexpected liabilities to arise.

 

The Comprehensive Environmental, Response, Compensation, and Liability Act (“CERCLA”), and comparable state statutes, impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances found on exploration, mining and processing sites long after activities on such sites have been completed.

 

The Clean Air Act, as amended, restricts the emission of air pollutants from many sources, including mining and processing activities. Our mining operations may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and the use of mobile sources such as trucks and heavy construction equipment, which are subject to review, monitoring and/or control requirements under the Clean Air Act and state air quality laws. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on our production levels or result in additional capital expenditures in order to comply with the rules.

 

The National Environmental Policy Act (“NEPA”) requires federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of their proposed actions, including issuance of permits to mining facilities, and assessing alternatives to those actions. If a proposed action could significantly affect the environment, the agency must prepare a detailed statement known as an Environmental Impact Statement (“EIS”). The U.S. Environmental Protection Agency (“EPA”), other federal agencies, and any interested third parties will review and comment on the scoping of the EIS and the adequacy of and findings set forth in the draft and final EIS. This process can cause delays in issuance of required permits or result in changes to a project to mitigate its potential environmental impacts, which can in turn impact the economic feasibility of a proposed project.

 

The Clean Water Act (“CWA”), and comparable state statutes, imposes restrictions and controls on the discharge of pollutants into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. The CWA regulates storm water mining facilities and requires a storm water discharge permit for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations. The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill material in wetlands and other waters of the United States unless authorized by an appropriately issued permit. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.

 

The Safe Drinking Water Act (“SDWA”) and the Underground Injection Control (“UIC”) program promulgated thereunder, regulate the drilling and operation of subsurface injection wells. EPA directly administers the UIC program in some states and in others the responsibility for the program has been delegated to the state. The program requires that a permit be obtained before drilling a disposal or injection well. Violation of these regulations and/or contamination of groundwater by mining related activities may result in fines, penalties, and remediation costs, among other sanctions and liabilities under the SWDA and state laws. In addition, third party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.

 

 

Round Top could be subject to environmental lawsuits.

 

Neighboring landowners and other third parties could file claims based on environmental statutes and common law for personal injury and property damage allegedly caused by the release of hazardous substances or other waste material into the environment on or around the Round Top Project. There can be no assurance that any defense of such claims will be successful. A successful claim against Round Top could have an adverse effect on not only Round Top, but us and our business prospects, financial condition and results of operation.

 

Land reclamation requirements for the Round Top Project may be burdensome and expensive.

 

Although variability exists by location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance.

 

Reclamation may include requirements to:

 

●

control dispersion of potentially deleterious effluents;

 

●

treat ground and surface water to drinking water standards; and

 

●

reasonably re-establish pre-disturbance land forms and vegetation.

 

In order to carry out reclamation obligations imposed on Round Top in connection with potential development activities, Round Top must allocate financial resources that might otherwise be spent on further exploration and development programs. Round Top plans to set up a provision for our reclamation obligations on its properties, as appropriate, but this provision may not be adequate. If Round Top is required to carry out unanticipated reclamation work, its financial position could be adversely affected. In accordance with GLO lease/prospecting permits, all the areas impacted by the surface operations shall be reclaimed upon completion of the activity, including (a) removal of all trash, debris, plastic and contaminated soil by off-site disposal, and (b) upon completion of surface grading, the soil surface shall be left in a roughened condition to negate wind and enhance water infiltration.

 

Mining presents potential health risks; payment of any liabilities that arise from these health risks may adversely impact Round Top.

 

Complying with health and safety standards will require additional expenditure on testing and the installation of safety equipment. Moreover, inhalation of certain minerals can result in specific potential health risks. Symptoms of these associated diseases may take years to manifest. Failure to comply with health and safety standards could result in statutory penalties and civil liability. Round Top does not currently maintain any insurance coverage against these health risks. The payment of any liabilities that arise from any such occurrences could have a material, adverse impact on Round Top.

 

There may be challenges to the title of the Round Top Project or any other mineral properties that we may acquire.

 

We expect that any additional properties to be acquired by Round Top or by us (with respect to any other opportunities) will be by unpatented claims or by lease from those owning the property. The lease of the Round Top Project property was issued by the State of Texas. The validity of title to many types of natural resource property depends upon numerous circumstances and factual matters (many of which are not discoverable of record or by other readily available means) and is subject to many uncertainties of existing law and its application. We cannot assure you that the validity of Round Top’s titles to its properties or our title to properties we may purchase in the future will be upheld or that third parties will not otherwise invalidate those rights. In the event the validity of Round Top’s or our titles with respect to any future properties are not upheld, such an event would have a material adverse effect on Round Top and us.

 

Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

 

The mining industry is intensely competitive. Significant competition exists for the acquisition of properties producing or capable of producing, REE or other metals. We likely are at a competitive disadvantage in acquiring additional mining properties because we must compete with other individuals and companies, most of which have greater financial resources, operational experience and technical capabilities than us. We may also encounter increasing competition from other mining companies in our efforts to hire experienced mining professionals. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs, mining equipment and production equipment. Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

 

Round Top competes with larger, better capitalized competitors in the mining industry.

 

The mining industry is competitive in all of its phases, including financing, technical resources, personnel and property acquisition. Round Top will require significant capital, technical resources, personnel and operational experience to effectively compete in the mining industry. Because of the high costs associated with exploration, the expertise required to analyze a project’s potential and the capital required to develop a mine, larger companies with significant resources may have a competitive advantage over Round Top. Round Top faces strong competition from other mining companies, some with greater financial resources, operational experience and technical capabilities than us. As a result of this competition, neither Round Top nor us may be able to acquire financing, personnel, technical resources or attractive mining properties on acceptable terms, if at all.

 

 

Current economic conditions and capital markets are subject to fluctuations which could adversely affect our ability to access the capital markets, and thus adversely affect our business and liquidity.

 

The current economic conditions are in a state of flux that could have a negative impact on our ability to access the capital markets, and thus have a negative impact on our business and liquidity. We currently face the macroeconomic headwinds of inflation and high interest rates. Furthermore, it is unclear how global hostilities will impact our business. Our ability to access the capital markets has been and continues to be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future financial disruptions or how long the current market conditions may continue. It should be expected that we will have difficulty to raise funds, if we are even able to raise funds at all, and any such capital raises will be dilutive to our current stockholders (which dilution could be significant).

 

Our resources may not be sufficient to manage our existing business as well as any growth; failure to properly manage our existing business will be detrimental.

 

We may fail to adequately manage our current business. Furthermore, any growth in our operations, of which there can be no assurance, will place a significant strain on our administrative, financial and operational resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our current operations or operations in the future or that we will be able to successfully implement appropriate measures consistent with any growth. We may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems. Moreover, there can be no assurance that cybersecurity threats, breaches, or disruptions will not adversely affect us.

 

If we are unable to manage our current business effectively, our financial condition could be materially adversely affected. There is no assurance that our current business will grow and it may well shrink due to lack of capital.

 

We may experience difficulty attracting and retaining qualified management to meet our current business needs and/or any growth needs, and the failure to manage any growth effectively could have a material adverse effect on our business and financial condition.

 

Competition for additional qualified management is intense, and we may be unable to attract and retain additional key personnel, or to attract and retain personnel on terms acceptable to us. Management personnel are currently limited and they may be unable to manage our expansion successfully and the failure to do so could have a material adverse effect on our business, results of operations and financial condition. We have not entered into non-competition agreements. As our business is substantially dependent upon the directors, executive officers and consultants, the lack of non-competition agreements poses a significant risk to us in the event such persons were to resign or be terminated from such positions. Under such circumstances, such persons may provide confidential information and key contacts to our competitors and we may have difficulties in preventing the disclosure of such information. Such disclosure would have a material adverse effect on our business and operations.

 

Our operations are dependent upon key personnel, the loss of which would be detrimental to our business.

 

The nature of our business, including our ability to continue our exploration and development activities, depends, in large part, on the efforts of key personnel such as Daniel Gorski, our Chief Executive Officer. The loss of Mr. Gorski could have a material adverse effect on our business. We do not maintain “key man” life insurance policies on any of our officers or employees.

 

Risks Associated with our Common Stock

 

Investment in our Company has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down.

 

We have a history of losses and fluctuating operating results that raises doubt about our ability to continue as a going concern.

 

From inception through August 31, 2023, we have incurred aggregate losses of approximately $42.334 million. There is no assurance that we will operate profitably or will generate positive cash flow in the future. In addition, our operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as general economic conditions, hostilities in the Middle East and Ukraine, market price of minerals and exploration and development costs. If we cannot raise sufficient financing to continue our operations, then we may be forced to scale down or even close our operations. Until such time as we generate revenues (not in the foreseeable future), we expect an increase in development costs and operating costs. Consequently, we expect to incur operating losses and negative cash flow until our properties enter commercial production (if such event occurs).

 

 

Our stock price is highly volatile.

 

The market price of our Common Stock has fluctuated and may continue to fluctuate. These fluctuations may be exaggerated since the trading volume of our Common Stock is limited, sporadic, and volatile. These fluctuations may or may not be based upon any business or operating results. Our Common Stock may experience similar or even more dramatic price and volume fluctuations in the future. Our Common Stock price has decreased from $1.31 per share on January 3, 2023 to $0.31 per share on November 10, 2023. We have limited trading volume in our Common Stock. There is no assurance that our Common Stock price will not continue to decline. Based on current market prices and current trading volume, raising any capital will likely be dilutive and difficult, and may not be possible at all.

 

The market for our Common Stock is limited, sporadic and volatile. Any failure to develop or maintain an active trading market could negatively affect the value of our shares and make it difficult or impossible for you to sell your shares.

 

Our Common Stock is currently traded on the OTCQB. Although our Common Stock is traded on the OTCQB, a regular trading market for our securities may not be sustained in the future. Prices for, and coverage of, securities quoted solely on the OTCQB may be difficult to obtain. In addition, stocks quoted solely on the OTCQB tend to have a limited number of market makers and a larger spread between the bid and ask prices than those listed on an exchange. All of these factors may cause holders of our Common Stock to be unable to resell their securities at any price. It should be expected that this limited trading also could decrease or eliminate our ability to raise additional funds through issuances of our securities.

 

Failure to develop or maintain an active trading market would negatively affect the value of our shares, make it difficult for you to sell your shares or recover any part of your investment in us, and impact our ability to raise capital through the sale of shares of our Common Stock. Even if an active market for our Common Stock does develop, the market price of our Common Stock may be highly volatile. In addition to the uncertainties relating to our future operating performance and any profitability of our operations, factors such as variations in our interim financial results, or various, as yet unpredictable factors, many of which are beyond our control, may have a negative effect on the market price of our Common Stock. Accordingly, there can be no assurance as to the liquidity of any active markets that may develop for our Common Stock, the ability of holders of our Common Stock to sell our Common Stock, the prices at which holders may be able to sell our Common Stock, or our ability (if any) to sell shares of our Common Stock to raise capital.

 

The sale of substantial shares of our Common Stock or the issuance of shares upon exercise of our common stock equivalents will cause immediate and substantial dilution to our existing stockholders and may depress the market price of our Common Stock.

 

In order to provide capital for the operation of our business, we may enter into additional financing arrangements. These arrangements may involve the issuance of new Common Stock, preferred stock that is convertible into Common Stock, debt securities that are convertible into Common Stock or warrants for the purchase of Common Stock. Any of these items could result in a material increase in the number of shares of Common Stock outstanding which would in turn result in a dilution of the ownership interest of existing Common Stockholders. It is likely that any future private placements of our Common Stock will be at prices below market, thereby further placing pressure on the price of our Common Stock that trade on the OTCQB – this would have the effect of both reducing our market price and diluting our current stockholders. As such, any future capital raises will likely adversely affect our shareholders. In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing Common Stock.

 

As of November 21, 2023, we have 73,784,810 shares of Common Stock issued and outstanding (100,000,000 shares of Common Stock are authorized to be issued), and 1,030,000 shares of our Common Stock underlying common stock equivalents at exercise prices between $0.10 and $1.31 per share, expiring through August 2028.

 

A low market price may severely limit the potential market for our Common Stock.

 

An equity security that trades below a certain price per share is subject to SEC rules requiring additional disclosures by broker-dealers. These rules generally apply to any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions (a “penny stock”). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Since our Common Stock trades at a price of less than $5.00 per share, the additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our Common Stock.

 

 

We do not currently intend to pay cash dividends.

 

We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Our present policy is to retain all available funds for use in our operations and the expansion of our business. Payment of future cash dividends, if any, will be at the discretion of our Board and will depend on our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our Board considers relevant. Accordingly, investors will only see a return on their investment if the value of our securities appreciates.

 

Control by current stockholders.

 

The current stockholders have elected the directors and the directors have appointed current executive officers to serve our Company. The voting power of these stockholders could also discourage others from seeking to acquire control of us through the purchase of our Common Stock which might depress the price of our Common Stock.

 

There is not now, and there may never be, an active market for our Common Stock.

 

Shares of our Common Stock have historically been thinly traded. Currently there is a limited, sporadic and highly volatile market for our Common Stock, and no active market for our Common Stock may develop in the future. As a result, our stock price as quoted by the OTCQB may not reflect an actual or perceived value. Moreover, several days may pass before any shares are traded; meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including, but not limited to:

 

●

we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume; and

 

●

stock analysts, stock brokers and institutional investors may be risk-averse and reluctant to follow a company such as ours that may in the future face substantial doubt about the ability to continue as a going concern or to purchase or recommend the purchase of our shares until such time as we become more viable.

 

As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, our Common Stock. Accordingly, investors must assume they may have to bear the economic risk of an investment in our Common Stock for an indefinite period of time, and may lose their entire investment. There can be no assurance that a more active market for our Common Stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our Common Stock and would likely have a material adverse effect on the market price of our Common Stock and on our ability to raise additional capital.

 

We may issue shares of preferred stock.

 

Our Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares of blank check preferred stock at $0.001 par value with designations, rights and preferences determined from time to time by the board of directors. There are currently no shares of preferred stock issued and outstanding. Our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 1C. CYBERSECURITY

 

N/A

 

ITEM 2. PROPERTIES

 

Executive and Field Offices. Our headquarters are located at 539 El Paso Street, Sierra Blanca, Texas 79851. Our accounting functions are conducted by personnel in Galveston, Texas and Denver, Colorado, all under the supervision of our chief financial officer.

 

 

Overview of the Round Top Project. Round Top is currently in the exploration stage and has not established that the Round Top Project contains proven mineral reserves or probable mineral reserves as defined under Item 1300 of Regulation S-K. The Round Top Project is currently owned by Round Top Development, LLC in which we currently have a 19.611% membership interest.

 

Description and Access

 

The Round Top Project is located in Hudspeth County approximately eight miles northwest of the town of Sierra Blanca. The property is reached by truck on a private dirt road that turns north off Interstate 10 access road approximately one mile west of the town of Sierra Blanca. A railroad line is located approximately one to three miles from the Round Top Project and a spur line stops at a stone quarry within three miles of the Round Top Project.

 

 

Round Top Location Map

 

 

August 2010 Lease

 

In August 2010, the Company entered into a new mining lease with the GLO covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres at Round Top Mountain in Hudspeth County, Texas. The mining lease issued by the GLO provided for the right to explore, produce, develop, mine, extract, mill, remove, and market uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash. The term of the lease is nineteen years from the execution date of the lease so long as minerals are produced in paying quantities. This lease was assigned to Round Top in May 2021.

 

Under the lease, Round Top is obligated to pay the State of Texas a lease bonus of $142,518; $44,718 of which the Company previously paid upon the execution of the lease, and $97,800 which will be due and payable by Round Top upon the submission of a supplemental plan of operations to conduct mining. Upon the sale of minerals removed from the Round Top Project, Round Top will be required to pay the State of Texas a $500,000 minimum advance royalty.

 

Thereafter, Round Top will be required to pay the State of Texas a production royalty equal to eight percent of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent of the market value of all other minerals removed and sold from the Round Top Project.

 

If paying quantities have not been obtained, Round Top may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:

 

			Per Acre Amount				Total Amount
September 2, 2020 – 2024			$	150			$	134,155
September 2, 2025 – 2029			$	200			$	178,873

 

In August 2023, Round Top paid the State of Texas a delay rental to extend the term of the lease in an amount equal to $134,155.

 

November 2011 Lease

 

In November 2011, the Company entered into a mining lease with the State of Texas covering approximately 90 acres contiguous with and extending the August 2010 Lease. Under the lease, the Company paid the State of Texas a lease bonus of $20,700 which was paid upon the execution of the lease. Upon the sale of minerals removed from the Round Top Project, Round Top will be required to pay the State of Texas a $50,000 minimum advance royalty. Thereafter, Round Top will be required to pay the State of Texas a production royalty equal to eight percent of the market value of uranium and other fissionable materials removed and sold from the Round Top Project and six and one quarter percent of the market value of all other minerals sold from the Round Top Project. The term of the lease is nineteen years from the execution date of the lease so long as minerals are produced in paying quantities. This lease was assigned to Round Top in May 2021.

 

 

Acquisition and Ownership

 

If paying quantities have not been obtained, Round Top may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:

 

			Per Acre Amount				Total Amount
November 1, 2020 – 2024			$	150			$	13,500
November 1, 2025 – 2029			$	200			$	18,000

 

In August 2023, Round Top paid the State of Texas a delay rental to extend the term of the lease in an amount equal to $13,500.

 

March 2013 Lease

 

On March 6, 2013, the Company purchased the surface lease at the Round Top Project, known as the West Lease, from the Southwest Wildlife and Range Foundation (since renamed the Rio Grande Foundation) for $500,000 cash and 1,063,830 shares of common stock valued at $500,000. The Company also agreed to support the Foundation through an annual payment of $45,000 for ten years to support conservation efforts within the Rio Grande Basin. The West Lease comprises approximately 54,990 acres. The purchase of the surface lease provides unrestricted surface access for the potential development and mining of the Round Top Project. The West Lease was assigned to Round Top in May 2021.

 

October 2014 Surface Option and Water Lease

 

In October 2014, the Company executed agreements with the GLO securing the option to purchase the surface rights covering the potential Round Top Project mine and plant areas and, separately, a groundwater lease. The option to purchase the surface rights covers approximately 5,670 acres over the mining lease and the additional acreage should be adequate to site all potential heap leaching and processing operations as currently anticipated by Round Top. Round Top may exercise the option for all or part of the option acreage at any time during the sixteen year primary term of the mineral lease. The option can be kept current by an annual payment of $10,000. The purchase price will be the appraised value of the surface at the time of exercising the option.

 

The ground water lease secures the right to develop the ground water within a 13,120 acre lease area located approximately 4 miles from the Round Top deposit. This lease has an annual minimum production payment of $5,000 prior to production of water for the operation. After initiation of production Round Top will pay $0.95 per thousand gallons or $20,000 annually, whichever is greater. This lease remains effective as long as the mineral lease is in effect.

 

This option and groundwater lease were assigned to Round Top in May 2021.

 

March 2021 Purchased the South ½ of Section 45, Block 71, Township 6, T&P RR Survey

 

This ½ section comprising 320 acres more or less was purchased for a price of $400 per acre, or a total of approximately $128,000. This tract was purchased for siting the demonstration plant when it is relocated from its present location at Wheatridge, Colorado. This tract is contiguous with the Surface Option area and was assigned to Round Top in May 2021.

 

May 2021 Easements

 

On May 7, 2021, the Company purchased a road, water line and power line easement extending slightly over a mile from the western boundary of the Water lease to the southeastern corner of the Section 45 tract. This easement completes the arrangements for the main access road from State Highway 111, across the Water Lease and into the Surface Option area, and was assigned to Round Top in May 2021.

 

Geology

 

The Round Top Project area lies within the Texas Lineament Zone or Trans-Pecos Trend. The lineament is a northwest trending structural zone where Laramide thrust faulting followed by basin and range normal faulting were active. Tertiary igneous activity is also associated with the lineament zone, both intrusive and extrusive.

 

Locally the project area is characterized by five Tertiary rhyolite bodies that intruded Cretaceous sedimentary rocks. The rhyolites occur as laccoliths, mushroom-shaped bodies emplaced at relatively shallow depths. At the current erosional levels, laccoliths form resistant peaks with relief up to 2,000 feet. The rhyolites are enriched with various metals which may or may not be economical to recover. The rare earth elements are located within the intrusive rhyolite body.

 

Sedimentary rocks exposed in the area are middle to upper Cretaceous limestone shales and sandstones. The limestone, where it is in contact with the microgranites, is the host for fluorspar mineralization.

 

 

Initial exploration took place in the mid-1980’s. During the course of this exploration, approximately 200 drill holes were drilled, targeting potential beryllium mineralization which penetrated varying thicknesses of the rhyolite volcanic rock that makes up the mass of Round Top Mountain.

 

The Texas Bureau of Economic Geology, working with the project geologists, conducted an investigation of the rhyolite to better understand its rare metal content. This research shows that the rhyolite laccoliths at Sierra Blanca are enriched in a variety of REEs, lithium gallium, beryllium, hafnium, and zirconium. They analyzed a series of samples from outcrop and drill holes and studied the geochemistry and mineralogy of the rhyolite. The results of their research were published in the GSA, Geological Society of America, Special Paper 246, 1990.

 

Mineralization

 

Round Top rhyolite is enriched in REEs, lithium, gallium, hafnium and beryllium. REE mineralization occurs primarily as disseminated microcrystals of varieties of fluorite (such as yttrium-rich yttrofluorite). REE minerals occur mainly in vugs and as crystal coatings, suggesting late-stage crystallization from an incompatible element-rich fluid.

 

Alhambra Project

 

In November 2021, the Company entered into a mineral exploration and option agreement with Santa Fe Gold Corporation (“Santa Fe”). Under the option agreement, the Company and Santa Fe plan to pursue, negotiate and subsequently enter into a joint venture agreement to jointly explore and develop a target silver property to be selected by the Company among patented and unpatented mining claims held by Santa Fe within the Black Hawk Mining District in Grant County, New Mexico. Completion of a joint venture agreement, if any, is subject to the successful outcome of a multi-phase exploration plan leading to a bankable feasibility study to be undertaken in the near future by the Company. Under the contemplated terms of the proposed joint venture agreement, the Company would be project operator and initially own 50.5% of the joint venture while Santa Fe would initially own 49.5%. Additional terms of the joint venture are expected to be negotiated between the Company and Santa Fe in the future. There can be no assurance that the Company and Santa Fe will enter into a formal join venture agreement.

 

Under the terms of the option agreement, the Company plans to conduct a district-wide evaluation among the patented and unpatented claims held by Santa Fe, consisting of geologic mapping, sampling, trenching, radiometric surveying, geophysics, drilling and/or other methods as warranted. Based on the district-wide evaluation, the Company would designate one 80-acre tract as the “project area” and commence detailed exploration work. The property covered in the option agreement is approximately 1,300 acres and covers approximately 75% of the known mining district. The area to be studied also includes a two-mile radius “area of interest.” The option agreement provides the Company with the right to designate any properties within the “area of interest” as “project area” properties. The term of the option is for so long as the Company continues to conduct exploration activities in the Project Area and can be exercised on 60 days’ notice to Santa Fe.

 

The Black Hawk district and the Alhambra mine, in particular, are historically known for the occurrence of native silver lenses, randomly distributed in narrow carbonate veins. The “ore shoots” are small, ranging from ten feet to seventy feet along the vertical axis and five to fifty along the horizontal axis. We believe that the excessive cost of locating and mining these small “ore shoots” has been the principal reason for the inability to sustain a mining operation in this district.

 

Because of the high native silver content of ore historically mined in the district, we have considered the use of geophysics to locate these small lenses and pods, with the goal to make potential development and mining feasible. We are working with a geophysical service provider and consultants, and have completed four phases of electromagnetic surveying in the immediate area of the Alhambra mine. The method producing the most meaningful geological data is a method called NANOTEM by its developer, Zonge International. This technique was developed to locate small electrically conducting objects such as pipes, underground tanks and unexploded ordinance. Working with consultants and with Zonge International this technique was modified and applied to the immediate area of the Alhambra mine. Results are encouraging and plans have been made to conduct a diamond drilling campaign to test the electrically conductive anomalies detected to date. This drilling is sited to test these “anomalies” within the geologically favorable area along the vein immediately to the north of the Alhambra mine workings.

 

If the diamond drilling yields positive results, the anticipated next phase will be to enter the mine and extend the one hundred twelve foot level into the area drilled. Work to be done upon re-entry of the mine will be determined by diamond drilling results and conditions encountered in the mine.

 

Because the desired aim of the geophysics and diamond drilling is to gain the confidence to re-enter the mine, very careful consideration has to be given to the permitting of this project. The permitting plan being submitted goes beyond the permits required for a simple drilling program and seeks to anticipate such factors as shaft rehabilitation, water management, road access and later, mine development.

 

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

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 fiscal year ended August 31, 2023, our U.S. exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).

 

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our Common Stock is listed for quotation on the OTCQB operated by OTC Markets Group Inc. under the symbol “TMRC.” The market for our Common Stock on the OTCQB is limited, sporadic and highly volatile. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions. The following table sets forth the range of high and low bid prices during the periods indicated.

 

Fiscal Year 2023		High				Low
Quarter ended August 31, 2023		$	1.26			$	0.79
Quarter ended May 31, 2023		$	1.32			$	0.78
Quarter ended February 28, 2023		$	1.79			$	1.20
Quarter ended November 30, 2022		$	2.13			$	1.76

 

Fiscal Year 2022		High				Low
Quarter ended August 31, 2022		$	2.30			$	1.70
Quarter ended May 31, 2022		$	2.21			$	1.65
Quarter ended February 28, 2022		$	2.38			$	1.62
Quarter ended November 30, 2021		$	2.49			$	1.41

 

The last bid price of our Common Stock on November 17, 2023 was $0.3450 per share.

 

Holders

 

The approximate number of holders of record of our Common Stock as of November 17, 2023 was 530.

 

Dividends

 

We have not paid any cash dividends on our equity securities and our Board has no present intention of declaring any cash dividends. We are not prohibited from paying any dividends pursuant to any agreement or contract.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We previously adopted a stock option plan, approved by our shareholders (“Amended 2008 Plan”). The following table sets forth certain information as of August 31, 2023 concerning our Common Stock that may be issued upon the exercise of options issued under the Amended 2008 Plan and outside of such plan:

 

Plan Category		(a)  Number of  Securities to be  Issued Upon   the Exercise    of Outstanding   Options				(b)  Weighted-  Average  Exercise Price of  Outstanding  Options				(c)  Available for  Future  Issuance Under  Equity  Compensation  Plans  (Excluding  Securities  Reflected in  Column (a))
Equity compensation plan approved by stockholders			330,000			$	0.34				—
Nonplan equity compensation			700,000			$	1.02				—
Total			1,030,000			$	0.80				—

 

 

Recent Sales of Unregistered Securities During Fiscal 2023

 

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

 

Date	Description	Number	Purchaser	Proceeds  ($)	Consideration	Exemption  (C)
June 2023	Common Stock	12,227(A)	Directors	$Nil	Services	Sec. 4(a)(2)
June 2023	Common Stock Options	10,000(B)	Consultant	$Nil	Services	Sec. 4(a)(2)
July 2022	Common Stock Options	10,000(B)	Consultant	$Nil	Services	Sec. 4(a)(2)
August 2022	Common Stock Options	10,000(B)	Consultant	$Nil	Services	Sec. 4(a)(2)

 

(A)	Common Stock issued to directors for services rendered.
(B)	Non-plan Common Stock options issued pursuant to a consulting agreement for professional services.
(C)	With respect to sales designated by “Sec. 4(a)(2),” these shares were issued pursuant to the exemption from registration contained in 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.

 

ITEM 6. RESERVED

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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 Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report.

 

Overview

 

We are a mining company engaged in the business of the acquisition, exploration and development of mineral properties. We currently own a 19.611% membership interest in Round Top, which entity holds two mineral property leases with the GLO to explore and develop a 950-acre rare earths project located in Hudspeth County, Texas, known as the Round Top Project. The leases expire in 2030 with provisions for automatic renewal if Round Top is producing in paying quantities (the receipt from the sale of materials exceeds all costs and expenses associated therewith for the prior 12 months). Round Top also holds prospecting permits covering 9,345 acres adjacent to the Round Top Project. The business strategy of Round Top is to develop a metallurgical process to concentrate or otherwise extract the metals from the Round Top Project’s rhyolite, conduct additional engineering, design, geotechnical work, and permitting necessary for a bankable feasibility study and then to extract mineral resources from the Round Top Project. There can be no assurance that Round Top will be successful in this endeavor. The Round Top Project has not established as of the date hereof that any of the properties contain any probable mineral reserves or proven mineral reserves under Item 1300 of Regulation S-K nor can there be any assurance that this will occur.

 

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; and

 

●

advanced water treatment technology for use in industrial, military.

 

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 to continue to fund our participation interest in the Round Top Project may be impacted by future prices for REEs.

 

Operations Update

 

USARE, the operating manager of the Round Top project, has advised TMRC that it continues to progress the Round Top Project toward operations.  Over the last twelve months, Round Top achieved several major milestones including: (i) favorable breaker trials with the goal to increase mine throughput; (ii) favorable CIX separation trials for rare earth elements indicating that the CIX technology employed can extract commercial quality rare earths from the Round Top Project ore; and (iii) favorable membrane concentration trials.  The USARE Round Top team continues its work to determine an efficient means of managing alumina content, adding gallium to its output and is working with a major lithium company to maximize the value of the lithium content.  USARE has advised the Company that it (i) currently expects that (A) a PFS reflecting this work should be completed during calendar 2024 and (B) a small manufacturing unit should be established to begin processing Round Top Project ore in calendar 2025, and (ii) believes that Round Top remains an attractive venture and is in the process of updating the Round Top Project economic model.

 

History of the Round Top Project

 

In May 2021, we contributed our assets in the Round Top Project to Round Top in exchange for our original 20% membership interest in Round Top. Between June 2023 through the date of this Annual Report, we elected not to contribute an aggregate of $845,049 to fund our cash calls and our membership interest in Round Top was diluted from 20% to 19.611%, our current membership interest in Round Top.

 

As a part of our ongoing operations, we will occasionally investigate new mining opportunities. We may also incur expenses associated with our investigations. These costs are expensed as incurred until such time when we have agreements in place to purchase such mining rights.

 

Investment Company Act Exclusion

 

Section 3(c)(9) of the 1940 Act provides that a company “substantially all of whose business consists of owning or holding oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, leases, or fractional interests” is not an investment company within the meaning of the 1940 Act. The Company has determined that this exemption applies to it giving consideration to the following four factors:

 

●

the exempted activity (ownership of our certificate of interest in the underlying mineral leases) constitutes “substantially all” of our business;

 

●

we own, and do not trade, in the certificate of interest in the mineral leases or the underlying mineral leases;

 

●

mineral leases qualify as an eligible asset for purposes of the exception; and

 

●

a membership interest in a limited liability company constitutes a “certificate of interest or participation in” or an “investment contract relative to” the eligible assets.

 

The Company intends to continue to conduct its business operations in order to continue to be excluded from the definition of an “investment company” under the 1940 Act.

 

Our financial statements have been prepared assuming that the Company will continue as a going concern.

 

Our financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit from inception through August 31, 2023, of approximately $42,344,000 and has yet to achieve profitable operations, and projects further losses in the development of its business. At August 31, 2023, the Company had a working capital surplus of approximately $1,025,000; however the Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due. 

 

 

In accordance with our current projected Budget, the Company does not have sufficient capital to fund its (i) total cash calls expected during the fiscal year ending August 31, 2024 (currently anticipated to be between $3 million to $4 million) and (ii) expected general and administrative expenses during the fiscal year ending August 31, 2024 (anticipated to be at least $600,000). The Company expects to incur dilution to its Round Top membership interest rather than to fund in cash its Round Top cash calls during the fiscal year ending August 31, 2024. If the Company were to determine to fund the Round Top cash calls in cash (rather than to incur dilution to its membership interest), the Company would be required to raise additional capital to fund its obligations (pursuant to the Budget and to fund general and administrative expenses) during the fiscal year ending August 31, 2024. There can be no assurance that the Company will be able to raise the necessary capital to fund its cash calls and expected general and administrative expenses. We have no firm commitments for equity or debt financing and any financing that may be obtained will be on a best efforts basis. Based on these factors, there is substantial doubt as to the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of these financial statements. The failure to obtain sufficient financing may cause us to curtail or discontinue operations.

 

Liquidity and Capital Resources

 

At August 31, 2023, our accumulated deficit was approximately $42,344,000 and our cash position was approximately $1,079,000. We had a working capital surplus of approximately $1,025,000. Round Top has not commenced commercial production on the Round Top Project. 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, of which there can be no assurance. All properties are in the exploration stage.

 

During the fiscal year ending August 31, 2023, we funded approximately $386,400 to Round Top pursuant to our funding obligations set forth in the Operating Agreement. In lieu of funding $448,800 of cash calls in June through August 2023, we incurred dilution in our membership interest from 20% to 19.874% at August 31, 2023.

 

During the current fiscal year, USARE has advised us that Round Top is expected to fund expenditures of approximately $15 million to $20 million to optimize the leaching and developing of the CIX/CIC processing of the Round Top Project. Initial process design work will be carried out at USARE’s facility in Wheat Ridge, Colorado. Pending completion of the initial process development, this facility will either be relocated to or replicated at USARE’s Oklahoma facility where a pilot plant is expected to be established. It is estimated that the Round Top Project will require additional time and further expenditure to complete a bankable feasibility study. Our current expected funding obligation is projected to be between approximately $3 million to $4 million of the expected expenditures by Round Top during our current fiscal year, and we currently expect to incur dilution to our Round Top membership interest in lieu of funding the Round Top cash calls in cash. It is possible that the Round Top Budget could increase in this current fiscal year and it should be expected that the Round Top Budget will be higher in future periods. The failure of us to raise capital to fund our cash call commitments in this current fiscal year and thereafter will result in dilution of our Round Top membership interest, which could be significant. See “Item 1, Business – USA Rare Earth Agreement” for a discussion of the calculation of the dilution mechanics.

 

We do not have sufficient cash on hand to fund our portion of the Round Top Budget during our current fiscal year. Therefore, we will need to raise additional capital to fund our portion of the Round Top Budget if we elect not to dilute our Round Top membership interest. If we elect to dilute our Round Top membership interest (through choice or as a result of the failure to raise capital), such event will result in the dilution to our Round Top membership interest. The most likely source of future financing presently available to us is through the sale of our securities. Any sale of our shares of Common Stock will result in dilution of equity ownership to existing stockholders. This means that if we sell shares of Common Stock, more shares will be outstanding and each existing stockholder will own a smaller percentage of the shares then outstanding. Moreover, the actual or perceived sale of additional shares of our Common Stock to raise capital could further depress the price of our Common Stock which could adversely impact our ability to raise capital, result in more dilution to be incurred by existing stockholders, and possibly cause us to curtail or cease our operations. Alternatively, we may rely on debt financing and assume debt obligations that require us to make substantial interest and capital payments. Also, we may issue or grant warrants or options in the future pursuant to which additional shares of Common Stock may be issued. Exercise of such warrants or options will result in dilution of equity ownership to our existing stockholders. We have no firm commitment with respect to obtaining debt or equity financing and, accordingly, we will be reliant upon a best efforts financing strategy. Accordingly, there is no assurance that we will be able to raise necessary capital, if any, to fund our portion of the Round Top Budget and our general administrative expenses during the fiscal year ending August 31, 2024, the failure of which could ultimately cause us to curtail or cease our operations.

 

Results of Operations

 

Fiscal Years ended August 31, 2023 and 2022

 

Grant Income

 

Grants received from government and other agencies in advance of a specific project’s expenses are deferred and recognized as other income in the statements of operations in the period they are earned and the related project costs are incurred. For the years ended August 31, 2023 and 2022, we recognized $0 and $561,950, respectively, of grant income which is presented in other income net of grant related expenses totaling approximately $0 and $561,860, respectively.

 

 

Revenue

 

During the fiscal year ended August 31, 2023 and 2022, we had no revenues. For the fiscal year ended August 31, 2023, our net loss was approximately $2,592,000. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $42,344,000 as of August 31, 2023. 

 

Operating expenses and resulting losses from operations.

 

We incurred exploration costs for the fiscal years ended August 31, 2023 and 2022, in the amount of approximately $782,000 and $1,535,000, respectively. Expenditures during fiscal year 2023 were primarily for our obligation to fund our portion of the cash requirements set forth by our joint venture agreement with USARE and for project contractors for our New Mexico mining exploration. Currently most of the expenditures associated with the USARE joint venture are funded by our joint venture partner, USARE.

 

Our general and administrative expenses for the fiscal year ended August 31, 2023 were approximately $1,822,000 of which approximately $952,000 were stock compensation for services. The remaining expenditures were primarily for payroll, professional fees and other general administrative expenses necessary for our operations.

 

Our general and administrative expenses for the fiscal year ended August 31, 2022 were approximately $1,376,000 of which approximately $503,000 were stock compensation for services. The remaining expenditures were primarily for payroll, professional fees and other general administrative expenses necessary for our operations.

 

We had losses from operations for the fiscal years ended August 31, 2023 and 2022 totaling approximately $2,604,000 and $2,911,000, respectively. We had a net loss for the fiscal year ended August 31, 2023 and 2022 totaling approximately $2,592,000 and $2,904,000, respectively. We earned interest from our cash balances of approximately $34,000 and $7,000 for the years ended August 31, 2023 and 2022, respectively.

 

Off-Balance Sheet Arrangements

 

None

 

Recently Issued Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position, or cash flow.

 

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 U.S. 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 U.S. 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 and valuation of options granted to directors and officers using the Black-Scholes model. The accounting policies are described in greater detail in Note 2 to our audited financial statements for the fiscal year ended August 31, 2023.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.