Letter from the President

Dear Stockholders:

2014 has seen market forces decimate the ambitions of many of the rare earth junior companies. The overoptimistic reaction to the spike of rare earth prices was followed by what we believe has been a over-reaction now to the downside. The principal driver of this market is China. Control of the entire rare earth production chain is a matter of National policy to them. Their light rare earth production is a by-product of a very large iron mine and they can fix light rare earth prices artificially low without affecting supply. China’s production of the heavy rare earth elements, however, is not so elastic. The heavy rare earth production in China is from literally hundreds of small in situ leach operations where much of the output is smuggled out of the country by the operators. These operations are very inefficient, yield low recoveries and are literally laying waste to large sections of the area where they are produced. The Chinese are in the process of bringing these under direct government control which, we believe, will both lessen the supply and raise the price of these elements. The rare earth market because of its complexity, is hard for the investing public to understand and has resulted in companies containing high percentages of the heavy rare earths to suffer undue devaluation because their valuations are measured against the light rare earth companies such as Molycorp and Lynas. The difference between the light rare earth elements and the heavy rare earth elements is beginning to be understood by the markets and by policy makers. We believe that while the outlook for the light rare earth sector, principally lanthanum and cerium is oversupply and stagnation, the fundamentals for the heavy sector is of decreasing supply and increasing demand.

We believe that, because of the importance of the heavy rare earth elements to defense systems, the policy makers in the West are finally awakening to the fact that a secure supply of these vital minerals are necessary for our maintaining military parity with the Chinese. We believe that Texas Mineral Resources Resources is superbly positioned to benefit from this deepening awareness of the importance of heavy rare earth elements to national defense.

2014 Operations

As the revised PEA published in December 2013 has shown, it is likely possible to conduct a heap leach operation at a reduced daily tonnage of 20,000 tonnes per day with favorable returns on investment. Economic analysis performed in house suggests that Round Top can be profitably operated at still lower production rates of 3,500 tonnes per day with a reduced CAPEX in the $70-90 million range. In a time when financing is difficult, the ability to start a mine at reduced scale and with reduced capital coasts is a decided advantage. Another advantage of heap leaching allows for the relatively seamless scaling up of an operation when conditions permit.

While the success of heap leaching crushed ore described in the 2013 PEA was a technical break-through of major importance, the details of downstream processing of this leach solution remained to be dealt with. It is with this downstream process metallurgy that we have been principally concerned with in 2014.

Texas Mineral Resources has been working with K-Technologies, Inc. (K-Tech) of Lakeland, Florida and has, in our opinion, made another major technical advance in processing the Round Top leach solutions.

The key to operating any type of rare earth separation plant is to have a feedstock solution that is relatively low in non-rare earth impurities. Using continuous ion exchange technology (CIC), K-Tech has successfully separated REE from the dirty (high impurity content), high volume, low grade pregnant leach solution (PLS) and has produced a high REE grade feedstock solution relatively free of impurities at a considerably lowered volume when compared to the original PLS solution.

This is, in our opinion, a major technical break-through and indicates that the rare earth leached from Round Top ore can likely be processed by conventional, well known separation methods such as the Chinese designed solvent extraction plant cited in the 2013 PEA if necessary.

In addition to the technological progress, we have executed agreements with the Texas General Land office that grant us an option to buy the surface acreage needed for the mine/plant complex and a ground water lease on approximately 13,000 acres which contains five existing water wells thought to be adequate to supply the operation. This lease is approximately three miles east of the mine site.

2015 Plans

Contingent on arranging the necessary financing, Texas Mineral Resources plans to complete feasibility level development of the process to make separated heavy earth products at a purity of 4-9’s (99.99%). This work is already underway at K-Tech’s lab in Florida.

The conventional process for making separated rare earth oxides is by solvent extraction. This is the process now being used in all REE separation plants around the world. Although solvent extraction (SX) is proven technology, this process is CAPEX and OPEX intensive and requires relatively large, complex and labor and instrument intensive plants. SX requires large quantities solvent, usually kerosene, and care must be taken with safety and environmental concerns.

K-Tech has in the past used their continuous ion exchange (CIX) and continuous ion chromatography (CIC) process to treat acid-sulfate REE leach solutions from ores such as monazite and bastnaesite to produce separated REE products at the bench-scale and pilot plant level. They have also recovered REE materials from phosphoric acid solutions at bench and pilot levels. The PLS produced from leaching Round Top ore with treatment by the KTech initial impurity rejection approach is similar (or superior) to that obtained from other REE containing ores, e.g. monazite. TMR has commissioned K-Tech to apply their CIX and CIC technology to commercially process the Round Top PLS in order to potentially allow for a system that can be operated at a smaller scale (economically) with maximum flexibility in terms of operating approach -- and the ability to selectively produce individual purified rare earth products.

The advantages to using CIC/CIX are many. Likely lower CAPEX and OPEX are the most obvious but the simplicity of operation, smaller footprint, lack of large amounts of petroleum-based solvents and the overall mitigation of safety and environmental risk are significant de-risking factors in the decision to go forward with this process. Reaction times are slow in SX plants. The time between the introduction of feed until product begins to appear can be weeks resulting in a very large inventory of REE held “captive” in the plant. CIC/CIX plant reaction times are low, in the range of hours. In addition, CIX/CIC allows campaign runs that produce individual REEs in the same equipment. This cannot be done with SX, as separate mixer/settler circuits must be used for each individual REE produced.

Concurrent with the process development, we plan to develop the water lease by rehabilitating the existing well in the lease area and/or drilling additional wells. We plan to initiate environmental baseline studies and to commence the geotechnical work associated with the permitting process. We will make every effort to advance this project to feasibility as soon as practically possible. As we have progressed our metallurgy we have seen a significant increase in outside interest in our project. As significant owners of stock, the management and the board of TMR remain committed to maximizing shareholder value.


Dan Gorski President & CEO