Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In
this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to “Texas Mineral Resources Corp,”
“the Company” “we,” “our” or “us” refer to Texas Mineral Resources Corp.
You
should read the following discussion and analysis of our financial condition and results of operations together with our financial
statements and related notes appearing elsewhere in this quarterly report. This Quarterly Report on Form 10-Q may also contain
statistical data and estimates we obtained from industry publications and reports generated by third parties. Although we believe
that the publications and reports are reliable, we have not independently verified their data.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements” within the meaning
of the United States Private Securities Litigation Reform Act of 1995 (collectively, “forward-looking statements”).
Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned
exploration and development of our properties, plans related to our business and other matters that may occur in the future. These
statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet
determinable and assumptions of management. Any statements that express or involve discussions with respect to predictions, expectations,
beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases
such as “expects” or “does not expect”, “is expected”, “anticipates” or “does
not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions,
events or results “may”, “could”, “would”, “might” or “will” be taken,
occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements
in this Quarterly Report on Form 10-Q, include, but are not limited to:
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the
progress, potential and uncertainties of our 2018-2019 rare-earth exploration plans at our Round Top project in Hudspeth County,
Texas (the “Round Top Project”);
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timing
for a completed feasibility study for our Round Top Project;
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the
success of getting the necessary permits for future drill programs and future project development;
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expectations
regarding our ability to raise capital and to continue our exploration plans on our properties;
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plans
regarding anticipated expenditures at the Round Top Project; and
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plans
outlined under the section heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Plan of Operation”.
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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:
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risks
associated with our history of losses and need for additional financing;
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risks
associated with our limited operating history;
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risks
associated with our properties all being in the exploration stage;
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risks
associated with our lack of history in producing metals from our properties;
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risks
associated with our need for additional financing to develop a producing mine, if warranted;
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risks
associated with our exploration activities not being commercially successful;
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risks
associated with increased costs affecting our financial condition;
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risks
associated with a shortage of equipment and supplies adversely affecting our ability to operate;
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risks
associated with mining and mineral exploration being inherently dangerous;
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risks
associated with mineralization estimates;
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risks
associated with changes in mineralization estimates affecting the economic viability of our properties;
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risks
associated with uninsured risks;
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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;
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risks
associated with the governmental and environmental regulations;
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risks
associated with future legislation regarding the mining industry and climate change;
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risks
associated with potential environmental lawsuits;
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risks
associated with our land reclamation requirements;
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risks
associated with rare earth and beryllium mining presenting potential health risks;
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risks
related to title in our properties
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risks
related to competition in the mining and rare earth elements industries;
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risks
related to economic conditions;
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risks
related to our ability to manage growth;
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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 our United States Securities and Exchange Commission (the “SEC”) filing history; and
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risks
related to our securities.
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risks
of being unable to successfully negotiate the Round Top and Hudspeth County leases.
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This
list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties
that could affect forward-looking statements are described further under the section heading “Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report and “Item 1A. Risk
Factors” in our Annual Report on Form 10-K for the year ended August 31, 2018, filed with the SEC on December 14, 2018.
Although we have attempted to identify important factors that could cause actual results to differ materially from those described
in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. Except as required by law, we disclaim any obligation
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 Quarterly Report by the foregoing cautionary statements
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Overview
We
are a mining company engaged in the business of the acquisition, exploration and, if warranted, development of mineral properties.
We currently hold two nineteen year leases, executed in September 2011 and November 2011, to explore and develop a 950 acre rare
earths project located in Hudspeth County, Texas known as the Round Top Project and prospecting permits covering an adjacent 9,345
acres. Our principal focus will be on developing a metallurgical process to concentrate or otherwise extract the metals from the
Round Top rhyolite, although we will continue to examine other opportunities in the region as they develop. We currently have
limited operations and have not established that any of our projects or properties contain any Proven or Probable Reserves under
SEC Industry Guide 7. Our operations are exploratory in nature.
We
currently do not have any producing properties and consequently, we have no current operating income or cash flow and have not
generated any revenues. Further exploration will be required before a final evaluation as to the economic and practical feasibility
of any of our properties is determined.
On
December 23, 2013, we published a revised version of the June 2012 Preliminary Economic Assessment (the “Revised PEA”)
on the Round Top Project based on a 20,000 tonne per day heap leach operation using a conventional element separation plant. The
mineralized material estimate was recalculated to include uranium, niobium, tantalum and tin. The revised PEA assesses the potential
economic viability of the simplified and “scaled down” operation which we believe is a much better fit with the present
rare earth market.
On
September 8, 2014, we announced that we had completed an internal analysis suggesting that there is a reasonable possibility to
adapt a lower volume staged growth approach to development of our Round Top project. The analysis indicated that an operation
designed to produce a selected group of separated REE products in the range of 350-450 tonnes per year range, could potentially
yield favorable mine economics. The goal of the proposed staged approach would be to increase mining rates if and when our products
gained acceptability. The analysis suggested that capital needs in the Revised PEA could be proportionally reduced in relation
to the lower volume initial stage. We are currently conducting a more detailed analysis of the relative capital expenses and operating
expenses requirements of a scaled down processing plant with both solvent extraction and ion exchange processes under evaluation.
We believe the lower capital requirements of a staged startup could offset any marginal increase in unit operating costs.
Our
current management and Board are stockholder-centric, and receive either no cash compensation or much less than previous management.
We will require definitive scientific documentation, rigorous economic studies, consideration of a wide range of alternatives
and meticulous oversight of any cash outlays of stockholder funds.
Current
Plan of Operations
Continued
Work Program on Round Top Project
See
“Properties – Current and Planned Metallurgical Activities” for a description of our current work activities
and budget for the Round Top Project.
Exploration
Potential of the Round Top Property
Although
we have no plans in the next 24 months to conduct more physical exploration, we do believe that there are untested exploration
targets present. They are:
1.
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Uranium-beryllium
mineralization at the lower contact of the rhyolite and the underlying sedimentary rock. This class of mineralization was
the target of the successful exploration program conducted in the late 1980’s by Cabot Corporation and Cyprus Exploration.
It appears to be structurally controlled and associated with a later phase of hydrothermal or gas phase deposition that occurred
sometime after the emplacement of the rhyolite. This fluorite-beryllium replacement mineralization in what is termed the West
Side Fault under the north side of Round Top was the topic of a 1988 in-house feasibility study by Cyprus Minerals to historical
standards (not NI 43-101 compliant under today’s Canadian regulations, not an SEC Industry Guide 7 compliant feasibility
study) to produce beryllium. This zone is the location of the intact decline and lateral mine workings developed by Cyprus
Minerals in 1988-89. Sampling and analysis by TMRC indicates the presence of uranium mineralization occurring adjacent to
and likely associated with these beryllium bearing structures. This “Contact Zone” mineralization is not restricted
to Round Top and is present under the Sierra Blanca rhyolite and there is some evidence in drill holes on Little Blanca that
this style of mineralization may also be present there.
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2.
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Uranium-beryllium-rare
earth and other rare metals hosted as structurally controlled fluorite replacements in the limestones at depth below the known
deposits. Geologic and geochemical conditions are thought to be conducive for the emplacement of replacement type deposits
within the same fault zones that hosted the known beryllium-uranium deposits at depth where favorable host limestones are
present. We believe that careful compilation and analysis of existing surface geologic mapping and of the drill data may better
define these targets.
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We
believe that using the existing data we can improve our understanding of the exploration potential of the area without resorting
to such expensive techniques such as drilling.
Actively
Seeking Project Partners
In
addition to pursuing the exploration of our Round Top Project, we are actively seeking industry partners to assist the Company
in financing the exploration and, if warranted, development of the Round Top Project. While we do not currently have any agreements
and do not anticipate any agreements in the near future, we are actively engaged in pursuing partners for the Round Top Project
for a range of participation, including but not limited to, joint-venture arrangements, project sale, significant investment in
the Company, back-end processing and product sales arrangements and other financing arrangements to assist in the Round Top Project.
Operation
and support of the DoE Grant.
Phase
1 of the DoE Grand have been successfully concluded. Subsequent to the completion of Phase 1, the grant with the DoE was not renewed.
Operation
of American Minerals Reclamation
Absent
the securing of feasibility financing for Round Top, the remainder of TMRC plans to actively pursue the development of American
Minerals Reclamation (AMR). We have set no geographical limitations on this project but we are currently basing our efforts in
the Pennsylvania coal producing region because of the excellent opportunities present there and existence of the network of people
and institutions that have been developed during the grant application process.
Recent
Corporate Developments
On
August 28, 2018 TMRC executed a Joint Venture agreement with Morzev PTY LTD (“Morzev”), doing business as USA Rare
Earth, to develop the Round Top Deposit. Terms of the agreement call for USA Rare Earth to expend up to $10 million to produce
a bankable feasibility study. The funds will be allocated in two tranches, the first of $2.5 Million to optimize and finalize
the metallurgical processing and the remaining $7.5 million to complete the engineering, design, geotechnical work, and permitting
necessary for a bankable feasibility study. USA Rare Earth will earn 70% of the property upon production of the feasibility study
and has the option of purchasing another 10% for $3 million at the completion of the feasibility study. On November 13, 2018,
Morzev funded an initial amount of $140,000 for 646,054 common shares to TMRC as consideration for the agreement. The 646,054
shares of common stock were issued on January 23, 2019.
Liquidity
and Capital Resources
As
of May 31, 2019, we had a working capital deficit of approximately $2,152,000. We currently have negative working capital and
will need to raise additional funding to implement our business strategy.
During
the fiscal year ending August 31, 2018, we completed Stage 1 of our metallurgical activities as discussed in the section heading
“ITEM 2. PROPERTIES” of the Annual Report filed with the SEC on December 14, 2018. Our budget for this stage of activity
was approximately $134,502. To date we have expended approximately that amount on Stage 1 which is now complete. Estimated cost
of Stage 2 is $2,015,454, $336,454 of which has been spent; this phase, called milestone 1, of Stage 2 has been modified and augmented
by the Defense Logistical Agency. There is no guarantee that we will be able to raise the working capital necessary for balance
of Stage 2 activities. After completion of Stage 1, we will use any remaining available capital to begin work on Stage 2 of our
metallurgical activities.
The
audit opinion and notes that accompany our financial statements for the year ended August 31, 2018, disclose a ‘going concern’
qualification to our ability to continue in business. The accompanying financial statements have been prepared under the assumption
that we will continue as a going concern. We are an exploration stage company and we have incurred losses since our inception.
We do not have sufficient cash to fund normal operations and meet debt obligations for the next 12 months without deferring payment
on certain current liabilities and raising additional funds. We believe that the going concern condition cannot be removed with
confidence until the Company has entered into a business climate where funding of its activities is more assured.
We
currently do not have funds to pursue exploration or development work on any of our properties, which means that we will be required
to raise additional capital, enter into joint venture relationships, or find alternative means to finance our properties in order
to place them into commercial production, if warranted, or evaluate the possibility of selling one or more of our projects or
the Company in its entirety. Failure to obtain sufficient financing may result in the delay or indefinite postponement of exploration
and, if warranted, development or production on one or more of our properties and any properties we may acquire in the future
or even a loss of property interests. This includes our leases over claims covering the principal deposits on our properties,
which may expire unless we expend minimum levels of expenditures over the terms of such leases. We cannot be certain that additional
capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable
or acceptable to us. Our ability to arrange additional financing in the future will depend, in part, on the prevailing capital
market conditions as well as our business performance.
Results
of Operations
Nine
months ended May 31, 2019 and May 31, 2018
General
& Revenue
We
had no operating revenues during the nine months ended May 31, 2019 and May 31, 2018. We are not currently profitable. As a result
of ongoing operating losses, we had an accumulated deficit of approximately $36.0 million as of May 31, 2019.
Operating
expenses and resulting losses from Operations
.
We
incurred exploration costs for the nine months ended May 31, 2019 and May 31, 2018, in the amount of approximately $48,000 and
$13,000, respectively. Expenditures for the nine months ended May 31, 2019 and May 31, 2018 were primarily for lease payments
to the GLO and property taxes for our Round Top project.
Our
general and administrative expenses for the nine months ended May 31, 2019 and May 31, 2018, respectively, were approximately
$595,000 and $226,000, respectively. For the nine months ended May 31, 2019, this amount included approximately $380,000 in stock-based
compensation to directors and a consultant. The remaining expenditures totaling approximately $215,000, were primarily for payroll
and related taxes and benefits, professional fees and other general and administrative expenses necessary for our operations.
We
had losses from operations for the nine months ended May 31, 2019 and May 31, 2018 totaling approximately $644,000 and $239,000,
respectively, and net losses for the nine months ended May 31, 2019 and May 31, 2018 totaling approximately $660,000 and $309,000,
respectively. For the nine months ended May 31, 2019 we recorded approximately $16,000 for finance charges. For the nine months
ended May 31, 2018, the Company has recorded approximately $69,000 for interest on various notes and finance charges.
Three
months ended May 31, 2019 and May 31, 2018
General &
Revenue
We
had no operating revenues during the three months ended May 31, 2019 and May 31, 2018. We are not currently profitable. As a result
of ongoing operating losses, we had an accumulated deficit of approximately $36 million as of May 31, 2019.
Operating
expenses and resulting losses from Operations
.
We
incurred exploration costs for the three months ended May 31, 2019 and May 31, 2018, in the amount of approximately $18,000 and
$1,000, respectively, primarily for the amortization of lease payments to the GLO and property taxes for our Round Top project.
Our
general and administrative expenses for the three months ended May 31, 2019 and May 31, 2018, respectively, were approximately
$85,000 and $62,000. For the three months ended May 31, 2019, this amount included approximately $8,600 in stock-based compensation
to an outside consultant. The remaining expenditures totaling approximately $76,000 for the three months ended May 31, 2019 and
$61,000 of expenditures for the three months ended May 31, 2018 were primarily for payroll and related taxes and benefits, professional
fees and other general and administrative expenses necessary for our operations.
For
the three months ended May 31, 2019 and May 31, 2018 we recorded interest expense of approximately $5,000 and $22,000, respectively,
for interest on various notes and finance charges.
We
had losses from operations for the three months ended May 31, 2019 and May 31, 2018 totaling approximately $103,000 and $63,000,
respectively.
We
had net losses for the three months ended May 31, 2019 and May 31, 2018 totaling approximately $108,000 and $85,000, respectively.
Off-Balance
Sheet Arrangements
We
do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial
condition, revenues, and results of operations, liquidity or capital resources.
Critical
Accounting Estimates
Management’s
discussion and analysis of financial condition and results of operations is based on our financial statements, which have been
prepared in accordance with GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies.
Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however,
due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On
a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial
statements are fairly presented in accordance with GAAP. However, because future events and their effects cannot be determined
with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Management
believes that the following critical accounting estimates and judgments have a significant impact on our financial statements:
Valuation of options granted to Directors, Officers and consultants using the Black-Scholes model.