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 20% 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, originally signed
with primary terms of approximately 19 and 18 years, each currently have
remaining terms of approximately nine years and provisions for automatic renewal
if Round Top is in production. Round Top also holds prospecting permits covering
9,345 acres adjacent to the Round Top Project. 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,
? 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,
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? numerous defense applications, such as guidance and control systems and global
positioning systems,
? advanced water treatment technology for use in industrial, military and
? outdoor recreation applications
Because of these applications, global demand for REE is projected to steadily
increase due to continuing growth in existing applications and increased
innovation and development of new end uses. Interest in developing resources
domestically has become a strategic necessity as there is limited production of
these elements outside of China. Our ability to raise additional funds to
continue to fund our participation interest in the Round Top Project may be
impacted by future prices for REEs.
History of the Round Top Project
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. We 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 and in particular engaging in stewardship of Lake Amistad, a large
and well-known fishing lake near Del Rio, Texas. The West Lease provides
exclusive surface access to the area for the potential development and mining of
the Round Top Project.
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 lease to develop the water necessary for the potential Round
Top Project mine operations. The option to purchase the surface rights covers
approximately 5,670 acres over the mining lease and the additional acreage
adequate to site all potential heap leaching and processing operations as
currently anticipated by the Company. 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. The lease area contains five
existing water wells. It is anticipated that all potential water needs for the
Round Top Project mine operations will be satisfied by the existing wells
covered by this water lease. 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.
In March 2015, we conducted a trial mining test during which we mined 500 tonnes
of rhyolite, transported and crushed the ore to 80% passing an approximate
one-inch screen. This rock is now stockpiled and is expected to be used in the
contemplated pilot plant development.
In April 2015, we announced the execution of a uranium offtake agreement with UG
USA, a subsidiary of Areva, now called Orano, According to the agreement, TMRC
will supply up to 300,000 pounds of natural uranium concentrates (U308) per year
based upon a pricing formula indexed to U308 spot prices at the times of
delivery. The agreement is for a term of five years commencing in 2018 or as
soon thereafter, contingent upon development and production at its Round Top
Project, and contains other industry standard terms and conditions.
During 2017, TMRC in association with Penn State University, REE Tech and
Inventure Renewables of Tuscaloosa, Alabama, jointly applied for a Department of
Energy grant to evaluate the economic potential of rare earth elements
associated with Appalachian coal deposits. Our group was awarded the first phase
of this grant in October 2017. Work in progress consists of our identification
of a resource, developing the physical metallurgy to concentrate the minerals
(Penn State) and developing the CIX/CIC process to separate the individual rare
earth elements and to separate and refine various other elements including iron
and aluminum. In August 2019, we published a PEA prepared in accordance with
Canadian NI 43-101 specifications. The PEA calls for a 20,000 tonnes per day
heap leach operation producing three basic revenue streams: (i) a REE stream,
(ii) a tech metal stream that includes lithium and uranium, and (iii) a variety
of industrial and fertilizer sulfate products.
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.
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Investment Company Act Exclusion
Section 3(a)(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.
Liquidity and Capital Resources
At August 31, 2021, our accumulated deficit was approximately $36,848,000 and
our cash position was approximately $5,107,000. We had a working capital surplus
of approximately $4,978,000. 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. All properties are in the exploration stage.
During the fiscal year ending August 31, 2021, we expended approximately
$220,000 in certain metallurgical activities. Currently all expenditures for
metallurgical activities are funded by Round Top, being USARE and us.
During the current fiscal year, Round Top is expected to fund the expenditure of
approximately $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 the Round Top Project where a pilot plant is expected to be
established. This work will consist of mining and crushing approximately 40,000
tonnes of rhyolite and setting up and equipping a facility to conduct pilot
plant scale heap leaching. It is estimated that the Round Top Project will
require additional time and further expenditure to complete a bankable
feasibility study. We plan to fund up to approximately $3.5 million of the
expected expenditures by Round Top during our current fiscal year.
We have sufficient cash on hand to fund our portion of the Round Top Budget
during our current fiscal year. Thereafter, we will need to raise additional
funding to implement our business strategy and to continue to fund our portion
of the Round Top Budget, the failure of which 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. 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. 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.
Results of Operations
Fiscal Years ended August 31, 2021 and 2020
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, 2021 and 2020, we recognized $712,000
and $0, respectively, of grant income which is presented in other income net of
grant related expenses totaling approximately $438,000 and $0, respectively.
Revenue
During the fiscal year ended August 31, 2021 and 2020, we had no revenues. For
the fiscal year ended August 31, 2021, our net income was approximately
$2,044,000. We are not currently profitable. As a result of ongoing operating
losses, we had an accumulated deficit of approximately $36,848,000 as of August
31, 2021.
Operating expenses and resulting losses from operations.
We incurred exploration costs for the fiscal years ended August 31, 2021 and
2020, in the amount of approximately $220,000 and $18,000, respectively.
Expenditures during fiscal year 2021 and 2020 were primarily for our mining
leases and metallurgical testing. Currently expenditures for most metallurgical
activities are funded by our joint venture partner, USARE.
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Our general and administrative expenses for the fiscal year ended August 31,
2021 were approximately $1,343,000 of which approximately $880,000 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,
2020 were approximately $1,056,000 of which approximately $157,000 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, 2021 and
2020 totaling approximately $1,563,000 and $1,074,000, respectively, and net
income for the fiscal year ended August 31, 2021 totaling approximately
$2,044,000 and a net loss for the fiscal year ended August 31, 2020 totaling
approximately $1,141,000. We earned interest from our cash balances of
approximately $6,000 for both of the years ended August 31, 2021 and 2020. We
had interest expense for the fiscal year ended August 31, 2020 of approximately
$7,000, primarily for interest on credit cards.
In May 2021, USARE met its obligations under the Option Agreement and acquired a
70% interest in Round Top. In addition, USARE exercised its option to acquire an
additional 10% interest in Round Top for $3 million. In connection with this
transaction, the Company received total consideration of approximately
$3,728,000, consisting of the $3 million upon exercise of the option and
approximately $728,000 in previous advances from USARE, and derecognized 80% of
the carrying amount of mineral properties, or approximately $402,000. The
resulting gain on sale of interest in mineral properties in the amount of
approximately $3,327,000 is included as its own line item in other income
(expense).
Off-Balance Sheet Arrangements
For the fiscal years ended August 31, 2021 and 2020, we have off-balance sheet
arrangements for annual payments in relation to the mineral leases as disclosed
in Note 5 of the notes to financial statements.
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 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 and officers using the
Black-Scholes model, and fair value of mineral properties. The accounting
policies are described in greater detail in Note 2 to our audited financial
statements for the fiscal year ended August 31, 2021.
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