RARE ELEMENT RESOURCES LTD

Previous wording

The following management’s discussion and analysis of the consolidated financial results and condition of Rare Element Resources Ltd. (collectively, “we,” “us,” “our,” “Rare Element” or the “Company”) for the three and six months ended June 30, 2024, has been prepared based on information available to us as of August 7, 2024. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herewith and the audited Consolidated Financial Statements of Rare Element for the year ended December 31, 2023, and the related notes thereto filed with our Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results, performance, or achievements 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 elsewhere in this report. See “Cautionary Note Regarding Forward-Looking Statements.”

Current wording

The following management’s discussion and analysis of the consolidated financial results and condition of Rare Element Resources Ltd. (collectively, “we,” “us,” “our,” “Rare Element” or the “Company”) for the three and nine months ended September 30, 2024, has been prepared based on information available to us as of November 6, 2024. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herewith and the audited Consolidated Financial Statements of Rare Element for the year ended December 31, 2023, and the related notes thereto filed with our Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results, performance, or achievements 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 elsewhere in this report. See “Cautionary Note Regarding Forward-Looking Statements.”

Previous wording

Our primary focus has been and continues to be the engineering, permitting, licensing, construction, and operation of the Demonstration Plant. If successful, this Demonstration Plant will show that our propriety extraction technology is able to process and separate certain REEs from high grade sample materials extracted from our Bear Lodge REE Project in a more efficient and economical manner than traditional REE processing methods and will serve as a precursor to inform the design and estimated cost for a future full-scale production facility.

Current wording

Our primary focus has been and continues to be the engineering, permitting, licensing, construction, and planned operation of the Demonstration Plant. If successful, the Demonstration Plant will show that our proprietary extraction technology is able to process and separate certain REEs from high grade sample materials extracted from our Bear Lodge REE Project in a more efficient and economical manner than traditional REE processing methods and will serve as a precursor to inform the design and estimated cost for a future full-scale production facility.

Previous wording

During the first six months of 2024, the Company, along with the other consortium members, continued their work on the Demonstration Plant project, and this work is expected to continue until the project’s expected completion of operations in 2025. In December 2022, the Demonstration Plant achieved its final engineering design milestone, marking the completion of the DoE’s first go/no-go decision point. The completion of this milestone was a gating event for the DoE’s continued funding of the project, as provided for in the 2021 award grant. A second milestone was achieved with the completion of permitting activities in the fourth quarter of 2023, allowing for the Demonstration Plant’s construction, which is currently nearing completion. Operations to process and separate the REE from the stockpiled mineral sample are expected to follow the completion of the Demonstration Plant’s construction for a term of up to 12 months.

Current wording

During the first nine months of 2024, the Company, along with the other consortium members, continued their work on the Demonstration Plant project, and this work is expected to continue until the completion of the project’s operations, expected in 2025. These efforts culminated in September 2024 with the DoE issuing its final Project Continuation Notice, confirming the Demonstration Plant’s readiness for operations. This notice, along with the NRC’s approval of operations received in October 2024, allows for operations of the Demonstration Plant to formally commence, with operations to process and separate the REE from the stockpiled mineral sample to follow the completion of construction for a term of up to 12 months.

Previous wording

In June 2023, the Company entered into the WEA Funding Agreement for its previously announced award of a $4,400 grant from the WEA to be used toward the advancement of the Demonstration Plant. This award, along with funds contributed by the Company, will be used to fund the Company’s 50% share of the Demonstration Plant’s originally estimated cost of approximately $43,800 with the other fifty percent of the funding coming from the DoE. Through June 30, 2024, the Company had advanced a total of $24,200 toward its share of the expected cost of the Demonstration Plant (see Note 4 to our Consolidated Financial Statements for further discussion). As of December 31, 2023, the Company had met the conditions allowing for the invoicing of $2,000 of the $4,400 WEA grant total. This $2,000 was subsequently received on January 31, 2024. The remaining $2,400 of the $4,400 grant total, which is conditioned on the achievement of other, future milestones, will be invoiced to the WEA once those milestones have been achieved (expected in the fourth quarter of 2024).

Current wording

In June 2023, the Company entered into the WEA Funding Agreement for its previously announced award of a $4,400 grant from the WEA to be used toward the advancement of the Demonstration Plant. This award, along with funds contributed by the Company and the DoE, is being used to fund the Demonstration Plant’s construction and operating costs. As of December 31, 2023, the Company had met the conditions allowing for the invoicing of $2,000 of the $4,400 WEA grant total. This $2,000 was subsequently received on January 31, 2024. As of September 30, 2024, the Company had met the conditions allowing for the invoicing of an additional $2,000 with collection expected in November 2024. The remaining $400 of the $4,400 grant total, which is conditioned on the achievement of other, future milestones, will be invoiced to the WEA once those final milestones have been achieved (expected in the first quarter of 2025).

Previous wording

Since inception, the General Atomics-led consortium has seen increases in the Demonstration Plant project costs, including expected final equipment costs, due to, among other factors, inflation. As a result of these cost pressures, General Atomics, on behalf of the consortium, has recently submitted to the DoE an updated Demonstration Plant construction and operations budget of approximately $53,600, which is approximately 21% higher than the original budget of approximately $43,800. The DoE has been asked to support the growth in this budget increase on the same 50% cost-share basis as previously agreed in the Cooperative Agreement. Irrespective of the DoE’s decision, the Company is prepared to cover the cost increases to ensure the Demonstration Plant can operate for a sufficient amount of time expected necessary for a commercialization decision.

Current wording

Since inception, the General Atomics-led consortium has seen increases in the Demonstration Plant project costs, including expected final equipment costs, due to, among other factors, inflation. As a result of these cost pressures, General Atomics, on behalf of the consortium, submitted to the DoE an updated Demonstration Plant construction and operations budget of approximately $53,600, which is approximately 21% higher than the original budget of approximately $43,800. In response, the DoE pledged an additional commitment of $2,400 to help fund a portion of this budget increase, with the balance to be funded by the Company, including any amount in excess of the $53,600 revised DoE approved budget.

Previous wording

In part to fund the Company’s share of these cost increases, the Company announced, during December 2023, its intention to launch the 2024 Rights Offering to raise approximately $36,000 in gross proceeds. In March 2024, the Company completed the 2024 Rights Offering for gross proceeds of approximately $35,800 in which each holder of the Company’s common shares as of the record date of December 15, 2023 was eligible to participate. The proceeds from the 2024 Rights Offering will be used to progress the Company’s business strategy to support commercialization, which includes funding the operation of the Demonstration Plant for a period of time

Current wording

To fund the Company’s share of these cost increases, the Company announced, during December 2023, its intention to launch the 2024 Rights Offering to raise approximately $36,000 in gross proceeds. In March 2024, the Company completed the 2024 Rights Offering for gross proceeds of approximately $35,800 in which each holder of the Company’s common shares as of the record date of December 15, 2023 was eligible to participate. The proceeds from the 2024 Rights Offering are being used to progress the Company’s business strategy to support commercialization, which includes funding the operation of the Demonstration Plant for a period of time that is expected to be sufficient to provide the information to support a commercialization decision, as well as for other general corporate purposes. Even with these funds, however, the Company will still require substantial additional funds for the permitting, development, and build-out of the Bear Lodge REE Project. Ultimately, in the event the Company cannot secure additional financial resources, or

Previous wording

that is expected to be sufficient to provide the information to support a commercialization decision, as well as for other general corporate purposes. Even with these funds, however, the Company will still require substantial additional funds for the permitting, development, and buildout of the Bear Lodge REE Project. Ultimately, in the event the Company cannot secure additional financial resources, or complete a strategic transaction in the longer term, the Company may need to curtail or suspend its operational plans regarding the Bear Lodge REE Project or other initiatives, or potentially liquidate its business interests, and investors may lose all or part of their investment.

Current wording

complete a strategic transaction in the longer term, the Company may need to curtail or suspend its operational plans regarding the Bear Lodge REE Project or other initiatives, or potentially liquidate its business interests, and investors may lose all or part of their investment.

Previous wording

During the first half of 2024, we continued to monitor the general U.S. political climate and actions taken by the U.S. government to secure a domestic, rare earth supply chain. Due to the dominance of China over the REE supply chain, the U.S. federal government issued two Presidential Executive Orders in 2017 to encourage and support the establishment of a domestic rare earth supply chain and to strengthen the defense industrial base with respect to critical minerals including rare earths. In June 2019, the Department of Commerce released its report entitled “Federal strategy to ensure secure and reliable supplies of critical minerals.” This was followed by four U.S. Presidential Determinations on July 22, 2019, directed to the Secretary of Defense. One Presidential Determination declared that “the domestic production capability for rare earth metals and alloys is essential to the national defense.” Since then, four more Presidential Determinations/Waivers have been signed that support the critical mineral industry, which include rare earth elements. The “Supply Chain Resilience (Waiver)” signed on February 27, 2023 allows funds to be directed towards industrial base supply chains critical to the Department of Defense, including rare earth mineral extraction, processing, and separation. These initiatives have increased the federal government’s level of interest in the rare earth industry and our potential rare earth products as a critical upstream segment of the supply chain, particularly considering China’s dominance in the global rare earth market.

Current wording

During the first nine months of 2024, we continued to monitor the general U.S. political climate and actions taken by the U.S. government to secure a domestic rare earth supply chain. Due to the dominance of China over the REE supply chain, the U.S. federal government issued two Presidential Executive Orders in 2017 to encourage and support the establishment of a domestic REE supply chain and to strengthen the defense industrial base with respect to critical minerals including REEs. In June 2019, the Department of Commerce released its report entitled “Federal strategy to ensure secure and reliable supplies of critical minerals.” This was followed by four U.S. Presidential Determinations on July 22, 2019, directed to the Secretary of Defense. One Presidential Determination declared that “the domestic production capability for rare earth metals and alloys is essential to the national defense.” Since then, four more Presidential Determinations/Waivers have been signed that support the critical mineral industry, which includes REEs. The “Supply Chain Resilience (Waiver)” signed on February 27, 2023, allows funds to be directed towards industrial base supply chains critical to the Department of Defense, including rare earth mineral extraction, processing, and separation. These initiatives have increased the federal government’s level of interest in the rare earth industry and our potential rare earth products as a critical upstream segment of the supply chain, particularly considering China’s dominance in the global rare earth market.

Previous wording

In addition, the impacts of the COVID-19 pandemic and other external influences (such as the Russia/Ukraine war and conflicts in the Middle East) have further focused the U.S. government on the importance of implementing secure domestic supply chains, including for rare earths, leading to a further Presidential Executive Order issued in February 2021 calling for an expedited 100-day review to address the strengthening of America’s supply chains, specifically requiring the Department of Defense to (i) submit a report identifying “risks in the supply chain of critical minerals and other strategic materials including rare earth elements” and (ii) make policy recommendations to address the risks. The 100-day review led to another Executive Order on June 8, 2021, calling for an investment in sustainable domestic and international production and processing of critical minerals, including a recommendation that Congress take actions to recapitalize and restore the National Defense Stockpile of critical minerals and materials. The Company monitors and participates in these initiatives as they are critical to the production of rare earth magnets used in the United States to support the manufacturing of, among other things, defense technologies, electric vehicles, wind turbines, consumer electronics, and oil refining equipment. In December 2023, China announced it had banned the export of technology to make rare earth magnets, adding to its previous export ban of critical material extraction and separation technology.

Current wording

In addition, the impacts of the COVID-19 pandemic and other external influences (such as the Russia/Ukraine war and conflicts in the Middle East) have further focused the U.S. government on the importance of implementing secure domestic supply chains, including for REEs, leading to a further Presidential Executive Order issued in February 2021 calling for an expedited 100-day review to address the strengthening of America’s supply chains, specifically requiring the Department of Defense to (i) submit a report identifying “risks in the supply chain of critical minerals and other strategic materials including rare earth elements” and (ii) make policy recommendations to address the risks. The 100-day review led to another Executive Order on June 8, 2021, calling for an investment in sustainable domestic and international production and processing of critical minerals, including a recommendation that Congress take actions to recapitalize and restore the National Defense Stockpile of critical minerals and materials. The Company monitors and participates in these initiatives as they are critical to the production of rare earth magnets used in the United States to support the manufacturing of, among other things, defense technologies, electric vehicles, wind turbines, consumer electronics, and oil refining equipment. In December 2023, China announced it had banned the export of technology to make rare earth magnets, adding to its previous export ban of critical material extraction and separation technology.

Previous wording

For the three and six months ended June 30, 2024, we experienced net losses of $6,179 ($0.01 per share) and $9,805 ($0.02 per share), respectively, compared with net losses of $2,744 ($0.01 per share) and $4,966 ($0.02 per share) for the three and six months ended June 30, 2023, respectively. See our discussion below for the primary drivers of these changes. As an exploration stage company, we had no properties in production and generated no revenues during either period.

Current wording

For the three and nine months ended September 30, 2024, we experienced net losses of $4,734 ($0.01 per share) and $14,539 ($0.03 per share), respectively, compared with net losses of $3,126 ($0.01 per share) and $8,092 ($0.03 per share) for the three and nine months ended September 30, 2023, respectively. See our discussion below for the primary drivers of these changes. As an exploration stage company, we had no properties in production and generated no revenues during either period.

Previous wording

Our exploration and evaluation costs increased by $3,656 over the comparative three-month period, rising from $2,165 for the three months ended June 30, 2023 to $5,821 for the three months ended June 30, 2024, and by $5,049 over the comparative six-month period, rising from $3,675 for the six months ended June 30, 2023 to $8,724 for the six months ended June 30, 2024. These increases were largely attributable to the activities associated with our Bear Lodge REE Project and the Demonstration Plant as work progressed under the Cost Share Agreement. See Note 4 to the Consolidated Financial Statements for a more complete discussion of this Cost Share Agreement.

Current wording

Our exploration and evaluation costs increased by $3,947 over the comparative three-month period, rising from $2,508 for the three months ended September 30, 2023 to $6,455 for the three months ended September 30, 2024, and by $8,996 over the comparative nine-month period, rising from $6,183 for the nine months ended September 30, 2023 to $15,179 for the nine months ended September 30, 2024. These increases were largely attributable to the activities associated with our Bear Lodge REE Project and the Demonstration Plant as work progressed under the Cost Share Agreement. See Note 4 to the Consolidated Financial Statements for a discussion of the Cost Share Agreement.

Previous wording

For the three months ended June 30, 2024 and 2023, the Company generated interest income of $371 and $139, respectively, and $452 and $261 for the six months ended June 30, 2024 and 2023, respectively, from investments of its cash holdings. These increases from period to period were primarily the result of the higher average cash balances available for investment during the three- and six-month periods ended June 30, 2024 due to the funds raised from the 2024 Rights Offering.

Current wording

For the three months ended September 30, 2024 and 2023, the Company generated interest income of $414 and $130, respectively, and $866 and $391 for the nine months ended September 30, 2024 and 2023, respectively, from investments of its cash holdings. These increases from period to period were primarily the result of the higher average cash balances available for investment during the three- and nine-month periods ended September 30, 2024 due to the funds raised from the 2024 Rights Offering.

Previous wording

We recorded accretion expense of $71 for each of the three months ended June 30, 2024 and 2023, and $142 for each of the six months ended June 30, 2024 and 2023,in each case related to the Company’s option to repurchase approximately 640 acres of non-core real property in Wyoming for not less than $1,200 nor greater than $1,850 in the form of cash, or a combination of cash and common shares of the Company. Accretion expense is recorded each reporting period to increase the repurchase option liability to the maximum exercise price of $1,850, less any annual option payments of $25. See Note 8 to the Consolidated Financial Statements for a discussion of the repurchase option.

Current wording

We recorded accretion expense of $70 for each of the three months ended September 30, 2024 and 2023, and $212 for each of the nine months ended September 30, 2024 and 2023,in each case related to the Company’s option to repurchase approximately 640 acres of real property in Wyoming for not less than $1,200 nor greater than $1,850 in the form of cash, or a combination of cash and common shares of the Company. Accretion expense is recorded each reporting period to increase the repurchase option liability to the maximum exercise price of $1,850, less any annual option payments made of $25. See Notes 8 and 9 to the Consolidated Financial Statements for a discussion of the repurchase option and subsequent exercise of this option.

Previous wording

Net cash used in operating activities was $8,287 for the six months ended June 30, 2024, compared with $4,072 for the same period in 2023. This increase of $4,215 was largely attributable to a $5,500 increase in amounts advanced by the Company to General Atomics under the Cost Share Agreement for work on the Demonstration Plant, partially offset by the collection of the $2,000 WEA grant receivable balance.

Current wording

Net cash used in operating activities was $9,177 for the nine months ended September 30, 2024, compared with $8,766 for the same period in 2023. This increase of $411 was largely attributable to an increase in amounts paid for work on the Demonstration Plant during the nine months ended September 30, 2024, partially offset by the January 2024 collection of the $2,000 WEA grant receivable balance.

Previous wording

Net cash used in investing activities of $52 and $4 for the six months ended June 30, 2024 and 2023, respectively, resulted from the purchase and sale of equipment during each period.

Current wording

Net cash used in investing activities of $52 and $4 for the nine months ended September 30, 2024 and 2023, respectively, resulted from the purchase and sale of equipment during each period.

Previous wording

Net cash provided by financing activities of $35,286 for the six months ended June 30, 2024 stemmed from the receipt of the net proceeds from the 2024 Rights Offering. Net cash provided by financing activities of $7 for the six months ended June 30, 2023 stemmed from the exercise of 100,000 stock options.

Current wording

Net cash provided by financing activities of $35,286 for the nine months ended September 30, 2024, stemmed from the receipt of the net proceeds from the 2024 Rights Offering. Net cash provided by financing activities of $23 for the nine months ended September 30, 2023, stemmed from the exercise of 330,000 stock options.

Previous wording

At June 30, 2024, we had a working capital balance of $33,130 which represented an increase of $25,321 from our December 31, 2023 working capital balance of $7,809. This increase was largely the result of the $35,286 in net proceeds received from the 2024 Rights Offering, partially offset by amounts paid by the Company during the six months ended June 30, 2024 under the Cost Share Agreement and for the payment of other ongoing expenses.

Current wording

At September 30, 2024, we had a working capital balance of $28,402, which represented an increase of $20,593 from our December 31, 2023 working capital balance of $7,809. This increase was largely the result of the $35,286 in net proceeds received from the 2024 Rights Offering, partially offset by amounts paid by the Company during the nine months ended September 30, 2024 under the Cost Share Agreement and for the payment of other ongoing expenses.

Previous wording

In June 2023, the Company entered into the WEA Funding Agreement for its previously announced award of a $4,400 grant from the WEA to be used toward the advancement of the Demonstration Plant. Following the achievement of the first milestone under the WEA Funding Agreement, the Company received in January 2024 the first $2,000 of the $4,400 grant. The remaining $2,400, which is conditioned on the achievement of other, future milestones, will be invoiced to the WEA upon achievement of those milestones.

Current wording

In June 2023, the Company entered into the WEA Funding Agreement for its previously announced award of a $4,400 grant from the WEA to be used toward the advancement of the Demonstration Plant. Following the achievement of the first milestone under the WEA

Previous wording

Due to inflationary cost pressures on labor, equipment, and consumables, as well as cost increases associated with certain optimized plant engineering and design parameters, General Atomics, on behalf of the consortium, has recently submitted to the DoE an updated Demonstration Plant construction and operations budget of approximately $53,600, which is approximately 21% higher than the original budget of approximately $43,800. The DoE has been asked to support the growth in this budget increase on the same 50% cost-share basis as previously agreed in the Cooperative Agreement. Irrespective of the DoE’s decision, the Company is prepared to cover the cost increases to ensure the Demonstration Plant can operate for a sufficient amount of time to gather the information necessary for a commercialization decision. The additional funding for this revised budget and contingency for additional budget adjustments, if necessary, that are not covered by the DoE would come from the proceeds generated by the 2024 Rights Offering. Through June 30, 2024, the Company had advanced funds totaling $24,200 for costs related to the Demonstration Plant.

Current wording

Due to inflationary cost pressures on labor, equipment, and consumables, as well as cost increases associated with certain optimized plant engineering and design parameters, General Atomics, on behalf of the consortium, submitted to the DoE an updated Demonstration Plant project budget of approximately $53,600, which is approximately 21% higher than the original budget of approximately $43,800. In response, the DoE pledged an additional cost-share funding commitment of $2,400 to fund a portion of the budget increase, with the balance coming from the Company, including from the funds raised by the Company in the 2024 Rights Offering. These additional funds are expected to support the operations of the Demonstration Plant for a sufficient amount of time to gather the information necessary for a commercialization decision.