Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis of the consolidated financial results and condition of Rare Element Resources Ltd. (collectively, "we," "us," "our," "RER" or the "Company") for the three months ended March 31, 2026, has been prepared based on information available to us as of May 13, 2026. 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 RER for the year ended December 31, 2025, and the related notes thereto filed with our Annual Report on Form 10-K for the year ended December 31, 2025, 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 Quarterly Report. See "Cautionary Note Regarding Forward-Looking Statements."

All currency amounts are expressed in thousands of U.S. dollars, unless otherwise noted.

Overview and Outlook

Our primary focus is on the operation of the Demonstration Plant, and as of late 2025, the resumption of licensing and permitting activities for our Bear Lodge REE Project. The licensing and permitting efforts are expected to continue into early 2028.

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 full-scale production facility.

In September 2024, the DoE issued 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, cleared the path for operations of the Demonstration Plant to formally commence, with operations to process and separate REEs from the previously stockpiled high-grade sample materials from the Bear Lodge REE Project. During the three months ended March 31, 2026, the Company continued work on the Demonstration Plant project as described below, and this work is expected to continue until the completion of the Demonstration Plant's operations.

In early 2025, several design and equipment issues were identified during the Demonstration Plant's equipment testing phase. As a result of these issues, we initiated an as-built design review in April 2025. Following the review and related project rework, Demonstration Plant operations formally commenced in March 2026 and are expected to continue for up to 12 months. During the operations phase, the Demonstration Plant is expected to produce up to 10 tons of NdPr oxide.

In June 2023, the Company entered into the WEA Funding Agreement for a $4,400 grant from the WEA to be used toward the advancement of the Demonstration Plant. As of March 31, 2026, the Company had received $4,000 of the $4,400 WEA grant total. The remaining $400 of the $4,400 grant total, which is conditioned on Demonstration Plant operations and a report to the WEA, is currently expected to be invoiced in mid-2026. See Note 5 to the Condensed Consolidated Financial Statements for additional details regarding the WEA Funding Agreement.

As discussed in Note 4 to the Condensed Consolidated Financial Statements, the Demonstration Plant's project costs, have increased since inception, due to inflation and other factors. The Company currently estimates the total cost of the Demonstration Plant from inception, inclusive of operating cost estimates through completion of the Demonstration Plant's operations phase, to be approximately $77,500.

Through March 31, 2026, the DoE had made payments totaling approximately $20,500 towards its commitment of approximately $24,200, leaving a balance of approximately $3,700 to be collected from the DoE under the current cost share award.

To fund the Company's share of these cost increases, in March 2026, the Company completed the 2026 Rights Offering for gross proceeds of $30,968. See Note 7 to the Condensed Consolidated Financial Statements for additional details regarding the terms of the 2026 Rights Offering. The 2026 Rights Offering closed on March 4, 2026, generating net proceeds of $30,478. These funds, in conjunction with the funds already on hand and those funds still expected to be received from the DoE and WEA, will be used to progress the Company's business strategy, which includes (i) the continued operation of the Demonstration Plant for a sufficient time to provide

the information to support a commercialization decision, (ii) the advancement of projects for the as-constructed Demonstration Plant beyond the current NdPr separation objectives, including applying the technology to the separation of HREEs and possibly to third party feed sources, (iii) the completion of federal and state permitting and licensing for the Bear Lodge REE Project, and (iv) other general corporate purposes.

Even with the funds already on hand, the funds raised in the 2026 Rights Offering, and the expected receipt of the remaining WEA grant monies and DoE funds, the Company will still require additional funding to design, construct, and operate the Bear Lodge REE Project.

​

Ultimately, in the event the Company cannot secure additional financial resources or complete a strategic transaction, the Company may need to curtail its plans for the Demonstration Plant, suspend permitting and development of 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 External Factors Impacting our Business

​

During the first three months of 2026, we continued to monitor the U.S. political climate and federal actions aimed at securing a domestic REE supply chain. The Trump Administration has sustained and expanded initiatives from prior years to reduce reliance on China-dominated REE supply chains and strengthen the U.S. defense industrial base.

Key developments in 2025 and early 2026 include:

In October 2025, China announced enhanced export controls covering 12 of 17 REEs, including extraterritorial requirements for foreign-produced items containing even 0.1% Chinese-origin REEs or manufactured using Chinese refining equipment, as well as a prohibition on REE exports for military applications. Following a meeting between President Trump and Chinese President Xi Jinping on October 30, 2025, China agreed to suspend these enhanced controls, along with certain other related curtailments, for one year as part of a broader trade truce. As of March 2026, no new Chinese restrictions have been announced, and REE export volumes from China have increased following streamlined licensing. The Company continues to monitor these developments, as ongoing geopolitical tensions and U.S. tariffs/trade measures could affect REE supply chains and our project economics.

The U.S. government has also accelerated direct financial support for domestic REE and critical minerals projects throughout 2025 and early 2026, including equity or warrant participation and infrastructure funding. The Company continues to evaluate opportunities to participate in these programs.

Other external factors, including the lingering effects of the COVID-19 pandemic, the Russia/Ukraine conflict, and Middle East conflict, including the Iran War, have reinforced the U.S. focus on secure domestic supply chains for REEs and critical minerals. The ultimate impact of these evolving U.S. and Chinese government actions on the REE supply chain and our business operations remains uncertain.

Results of Operations

Summary

Our consolidated net loss for the three months ended March 31, 2026 was $2,133, or $0.00 per share, compared with our consolidated net loss of $2,395, or $0.00 per share, for the three months ended March 31, 2025. See our discussion below for the primary drivers of this change. As an exploration stage company, we had no properties in production and generated no revenues during either period.

Exploration and Evaluation

Our exploration and evaluation costs totaled $1,719 for the three months ended March 31, 2026, compared with $1,877 for the three months ended March 31, 2025. This decrease of $158 was largely attributable to the activities associated with our Demonstration Plant as we shifted from final construction and testing activities during the quarter ended March 31, 2025, to plant rework and operations start-up activities during the quarter ended March 31, 2026.

Corporate Administration

Our corporate administration costs decreased by $170 on a comparative year-over-years basis, decreasing from $750 for the three months ended March 31, 2025 to $580 for the three months ended March 31, 2026. This decrease was largely attributable to the additional costs incurred in the filing of our Form S-3 registration statement during the three months ended March 31, 2025.

Interest Income

For the three months ended March 31, 2026 and 2025, the Company generated interest income of $213 and $284, respectively, on investments of its cash holdings. This decrease of $71 was primarily due to the lower rates of interest earned on our invested cash balances during the quarter ended March 31, 2026.

Financial Position, Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $2,725 for the three months ended March 31, 2026, compared with $2,269 for the same period in 2025. This increase of $456 was largely attributable to changes in our working capital that consumed $646 of cash during the three months ended March 31, 2026, while generating cash of $77 during the three months ended March 31, 2025.

Investing Activities

Net cash used in investing activities of $59 for the three months ended March 31, 2025 was for the purchase of equipment. There were no similar transactions during the comparative 2026 period.

Financing Activities

Net cash provided by financing activities of $30,553 for the three months ended March 31, 2026 stemmed from the receipt of $30,478 in net proceeds from the 2026 Rights Offering and $75 from the exercise of stock options. There were no similar transactions during the three months ended March 31, 2025.

Financial Position, Liquidity and Capital Resources

At March 31, 2026, we had a working capital balance of $48,102, which was an increase of $28,436 from our December 31, 2025 working capital balance of $19,666. This increase was largely the result of the net proceeds received from the 2026 Rights Offering, partially offset by operating cash flows.

As discussed in Note 5 to the Condensed Consolidated Financial Statements, the Company entered into the WEA Funding Agreement in June 2023 for a $4,400 grant. As of March 31, 2026, the Company had received $4,000 of the $4,400 grant total, with the remaining $400 forecasted for collection in mid-2026.

As discussed in Note 4 to the Condensed Consolidated Financial Statements and in "Overview and Outlook" above, the Demonstration Plant's project costs have increased since inception. The DoE pledged an additional commitment of $2,400 (increasing its total commitment to approximately $24,200) in September 2024 to help fund a portion of this budget increase, with the balance to be funded by the Company, including any amounts in excess of the $53,600 revised budget total. The Company currently estimates the total Demonstration Plan project cost to be approximately $77,500, inclusive of cost estimates through the Demonstrations Plant's operations phase.

Through March 31, 2026, the DoE has paid a total of approximately $20,500 towards its commitment of approximately $24,200, leaving a balance of approximately $3,700 to be invoiced and collected from the DoE under the current cost share award.

As discussed in Note 1 to the Condensed Consolidated Financial Statements and in "Overview and Outlook" above, design and equipment issues identified in early 2025 led to a complete design review and the implementation of corrective actions and upgrades that continued into 2026, with Demonstration Plant operations formally commencing in March 2026.

The funds raised by the Company in the 2026 Rights Offering (see Note 7 to the Condensed Consolidated Financial Statements), in conjunction with the funds already on hand and those funds expected to be received from the DoE and WEA, will be used to progress the Company's business strategy as described in "Overview and Outlook" above. However, even with these funds, the Company will still require substantial additional funds to complete the design, construction, and operation of a commercial mine and plant for the Bear Lodge REE Project.

Ultimately, in the event the Company cannot secure additional financial resources or complete a strategic transaction, the Company may need to curtail its plans for the Demonstration Plant, suspend permitting and/or development of the Bear Lodge REE Project or other initiatives, or potentially liquidate its business interests, and investors may lose all or part of their investment.

Contractual Obligations

Financial Assistance Agreement

​

As discussed in Note 4 to the Condensed Consolidated Financial Statements, in September 2025, at the Company's request, General Atomics and the Company formally requested a novation of the financial assistance agreement between General Atomics and the DoE. If completed, the Company would be named the recipient of the award under the novated agreement and certain conditions are expected to be confirmed, including the potential for additional DoE funding support for further advancements of the Demonstration Plant.

​