Quarterly Report for Quarter Ending September 30, 2025 (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 and nine months ended September 30, 2025, has been prepared based on information available to us as of November 5, 2025. 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, 2024, 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."

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

Overview and Outlook

Our primary focus has been and continues to be the engineering, permitting, licensing, construction, and 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.

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 the REE from the already stockpiled high-grade sample materials from the Bear Lodge REE Project to follow the completion of construction and pre-operation activities. During the first nine months of 2025, the Company, along with the other consortium members, continued their work on the Demonstration Plant project as described below, and this work is expected to continue until the completion of the project's operations.

In early 2025, several design and equipment issues were identified during the Demonstration Plant's equipment testing phase, which followed the completion of construction activities. As a result of these issues, an as-built design review was commenced in April 2025. The Company now expects plant commissioning to start in late 2025 and commencement of plant operations to begin in the first quarter of 2026. During the production 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 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. By September 30, 2024, the Company had met the conditions allowing for the invoicing of an additional $2,000, which was subsequently received 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, which are currently expected to occur in early 2026.

Since inception, the General Atomics-led consortium has seen increases in the Demonstration Plant project costs, including 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 22% 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 amounts in excess of the $53,600 revised DoE approved budget total. The Company currently estimates the construction cost of the Demonstration Plant from inception to be approximately $60,000, including the design review, upgrades and rework through 2025. Once in operation, the Company expects ongoing cost of approximately $1,500 per month during 2026.

Through September 30, 2025, the DoE had made payments totaling $20,455 towards its commitment of $24,189, leaving a balance of $3,734 to be collected from the DoE under the current cost share award.

To fund the Company's share of these cost increases, in March 2024, the Company completed a rights offering (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, which includes the rework of the Demonstration Plant and its initial operation to provide the information to support a commercialization decision, as well as for other general corporate purposes.

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Even with these funds and the expected receipt of the remaining WEA grant monies and DoE funds, the Company will still require additional funding in 2026 to support a full 12-month optimal operation period and to advance other key technology initiatives, including recycle and waste minimization, processing feed from other sources, and heavy rare earth element ("HREE") separation.

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Additionally, the Company intends to restart the permitting and licensing for the Bear Lodge REE Project, which includes the mine and commercial plant. We plan on the formal restart of the permitting process in the fourth quarter of 2025 and are exploring the timely options available under the current U.S. Administration's critical minerals initiatives. As a result, substantial additional funds will be required to complete the permitting and licensing, and ultimate construction and operation of a commercial mine and plant for the Bear Lodge REE Project. The Company is reviewing its options regarding potential funding sources, which include, but are not limited to, off-take agreements, joint ventures, government grants and loans, equity and debt financings and other project financing opportunities. One potential opportunity for project financing is through the Export-Import Bank of the United States ("EXIM Bank"). In March 2025, the Company received a non-binding Letter of Interest from the EXIM Bank to provide debt financing of up to $553,000 for the Bear Lodge REE Project's development. Notwithstanding, there can be no assurance that sufficient funding from any source can be secured by Company on reasonable terms or at all.

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Ultimately, in the event the Company cannot secure additional financial resources or complete a strategic transaction in 2026, the Company may need to curtail operations at the Demonstration Plant, advancement of 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.

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Current External Factors Impacting our Business

During the first nine months of 2025, 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 has issued several Presidential Executive Orders, under the Biden Administration and the first and second Trump Administrations, 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.

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Presidential and Administrative Critical Mineral Initiatives

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On January 20, 2025, President Trump issued the "Unleashing American Energy" Executive Order, which included: (1) several urgent critical mineral and rare earth directives, including the immediate review of all agency actions that potentially burden the development of domestic energy resources with particular attention to critical minerals; (2) directing the Secretary of Energy to ensure that critical mineral projects, including the processing of critical minerals, receive consideration for federal support; (3) directing the Secretary of Defense to consider the needs of the U.S. in supplying and maintaining the national defense stockpile to provide a robust supply of critical minerals; and (4) establishing the U.S. position as the leading producer and processor of REEs, which will create jobs and prosperity at home, strengthen supply chains for the U.S. and its allies, and reduce the global influence of malign and adversarial states.

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In March 2025, President Trump issued the "Immediate Measures to Increase American Mineral Production" Executive Order. In this Executive Order, President Trump directed the federal agencies, including the EXIM Bank, to unlock the permitting, funding and issuance of off-take agreements for critical minerals, including REEs. The Executive Order includes near-term actions to be determined and implemented by the federal agencies to fast-track permits, mobilize capital for mineral producers and create off-take agreements for the strategic stockpiling of minerals critical to the United States' defense, technology and energy.

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In April 2025, President Trump directed the U.S. Department of Commerce to initiate a Section 232 investigation into whether imports of processed critical minerals and derivative products threaten national security, with a focus on REEs essential for defense and technology applications. This action was aimed at enhancing economic resilience and reducing reliance on foreign supplies.

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In August 2025, the DoE announced new initiatives to secure the American critical minerals and materials supply chain, including the establishment of a Critical Minerals and Materials Accelerator program to support domestic production and processing.

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Tariffs and Trade Restrictions for Critical Minerals

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Since early 2025 and continuing into the third quarter of 2025, the Trump Administration has announced several potential new and/or increased tariffs and other trade restrictions on imports to the United States in response to China's export and licensing restrictions. China, in December 2023, 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. In December 2024, China further banned the export of certain critical minerals, including gallium, germanium, and antimony, which have widespread military applications. In February 2025, China expanded its export licensing requirements to include five additional minerals: tungsten, indium, bismuth, tellurium, and molybdenum. In April 2025, China imposed export restrictions on an additional seven REEs (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium) as well as related magnets and processing technologies used in defense, energy, and automotive sectors, requiring exporters to obtain licenses from China's Ministry of Commerce. As U.S.-China trade negotiations continued, including a temporary 90-day suspension of non-tariff countermeasures in May 2025, and a June 2025 framework agreement to expedite shipments and create a "green channel" for trusted U.S. companies, these restrictions were partially eased for non-military uses. However, a Chinese REE licensing system remains in place, controlling the export of REEs and related technologies. In October 2025, China announced further expansions to cover five additional REEs (holmium, erbium, thulium, europium, and ytterbium), bringing the total to 12 out of 17 REEs under restriction, along with extraterritorial requirements for foreign-produced items containing even 0.1% Chinese-origin REEs or made using Chinese refining equipment, originally set to become effective December 1, 2025, and prohibiting exports for military applications. Following a meeting between President Trump and Chinese President Xi Jinping on October 30, 2025, China agreed to suspend these latest October 2025 export controls, along with certain other related curtailments, for one year as part of a broader trade truce, providing a pause on further escalations. The impact of the Trump Administration tariffs and other trade restrictions, and China's continued use of export controls and restrictions, is currently unknown and could have an impact on the REE supply chain and/or our business operations.

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U.S. Government Critical Mineral Investments

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In response to China's control of the REEs market, the U.S. government, in 2025, increased its investment into the critical minerals and REE supply chain. During the second half of 2025, the U.S. government made direct investments, including taking equity positions, in critical minerals companies, including MP Materials, Lithium Americas and Trilogy Metals, among other companies, in an effort to shore up the U.S.'s position in REEs and other strategic minerals. Additionally, in late October 2025, the U.S. signed a framework agreement with Japan to secure supplies of critical minerals and REEs through joint mining and processing projects, and President Trump announced REE supply deals with four Asian nations to counter China's dominance. Also in October 2025, the U.S. and Australia signed the Framework for Securing Supply in the Mining and Processing of Critical Minerals and Rare Earths, committing to mobilize at least $1,000,000 in financing within six months for joint projects in mining, separation, and processing. This agreement aims to enhance supply chain resilience, protect against unfair trade practices, and support the defense and technology sectors by prioritizing REEs.

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Other External Factors

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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.

Results of Operations

Summary

For the three and nine months ended September 30, 2025, we reported a net income of $1,106 ($0.00 per share) and a net loss of $2,469 ($0.00 per share), respectively, compared with net losses of $4,734 ($0.01 per share) and $14,539 ($0.03 per share) for the three and

nine months ended September 30, 2024, 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.

Exploration and Evaluation

For the three and nine months ended September 30, 2025, our exploration and evaluation expenses decreased by $7,949 and $13,978, respectively, over the comparative 2024 periods. These decreases were largely attributable to (i) the activities associated with our Demonstration Plant as activities shifted from the more expensive equipment acquisition and installation activities during 2024 to the less expensive plant rework and equipment upgrades in 2025, and (ii) the decision to include certain past Demonstration Plant expenses (formerly excluded from our billings under the Cost Share Agreement) in our billings to the DoE under the Cost Share Agreement. This change to include certain previously excluded costs from the Cost Share Agreement reduced the Company's share of these costs as partial reimbursement is now expected to be received from the DoE. See Note 4 to the Consolidated Financial Statements for a discussion of the Cost Share Agreement.

Corporate Administration

Our corporate administrative costs remained relatively constant at $578 and $569 for the three months ended September 30, 2025 and 2024, respectively, and $1,896 and $1,891 for the nine months ended September 30, 2025 and 2024, respectively. The majority of these expenses relate to costs associated with our public company compliance and reporting obligations.

Interest Income

Our interest income decreased by $169 from $414 for the three months ended September 30, 2024 to $245 for the three months ended September 30, 2025 and decreased by $76 from $866 for the nine months ended September 30, 2024 to $790 for the nine months ended September 30, 2025. These changes were largely attributable to our 2024 Rights Offering, which closed in March 2024, and its impact on our excess cash balances available for investment pre- and post-closing.

Grant Income

During September 2024, the Company recognized grant income of $2,000 with the achievement of the second milestone under the WEA Funding Agreement. There were no such transactions for the nine months ended September 30, 2025. See Note 5 to the Consolidated Financial Statements for a discussion of the WEA Funding Agreement.

Accretion Expense

For the three and nine months ended September 30, 2025, we recorded accretion expense of nil (in each period) compared to $70 and $212 for the three and nine months ended September 30, 2024, respectively, with the accretion expense recorded during 2024 being related to the Company's option to repurchase approximately 640 acres (257 hectares) of real property in Wyoming. With the Company's repurchase of this land in October 2024, the Company discontinued its recording of accretion expense and will not incur further accretion expense in future periods related to this repurchase option.

Financial Position, Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $4,857 for the nine months ended September 30, 2025, compared with $9,177 for the same period in 2024. This reduction of $4,320, partially offset by the collection in 2024 of $2,000 in WEA grant funds, was largely attributable to the decrease in our exploration and evaluation expenditures as activities shifted from Demonstration Plant equipment acquisitions and installation during 2024 to plant rework activities and equipment upgrades in 2025. Absent the $2,000 in WEA grant offset funds, net cash used in operating activities for the nine months ended September 30, 2024 would have been $11,177.

Investing Activities

Net cash used in investing activities of $157 and $52 for the nine months ended September 30, 2025 and 2024, respectively, were for the purchase of equipment. The 2024 total was partially offset by $12 in proceeds from the sale of equipment.

Financing Activities

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. There were no similar transactions during the nine months ended September 30, 2025.

Financial Position, Liquidity and Capital Resources

At September 30, 2025, we had a working capital balance of $22,205 which was a decrease of $2,616 from our December 31, 2024 working capital balance of $24,821. This decrease was largely the result of the reduction in our cash and cash equivalents balance, which decreased by $5,019 from $26,732 at December 31, 2024 to $21,713 at September 30, 2025,partially offset by an increase of $2,509 in our related party balance which changed from a $895 liability at December 31, 2024 to an asset of $1,614 at September 30, 2025.

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. In September 2024, a second funding request of $2,000 was submitted to the WEA with the achievement of the second milestone under the WEA Funding Agreement. The collection of this second $2,000 tranche was received in November 2024, with the remainder, or the $400 retainer, forecasted for collection in early 2026.

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 22% higher than the original budget of approximately $43,800. In response, 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 construction cost of the Demonstration Plant from inception to be approximately $60,000, including the design review, upgrades and rework through 2025. Once in operation, the Company expects ongoing cost of approximately $1,500 per month during 2026.

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Through September 30, 2025, 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.

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In the first months of 2025, several design and equipment issues were identified during the Demonstration Plant's equipment testing phase, which followed the completion of construction activities. As a result of these issues, an as-built design review was commenced in April 2025. The Company now expects plant commissioning to start in late 2025 and commencement of plant operations to begin in the first quarter of 2026. As of September 30, 2025, the rework activities were still in progress.

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The funds raised by the Company in the 2024 Rights Offering are expected to support the initial operations of the Demonstration Plant for a sufficient period of time to gather the information necessary for a commercialization decision.However, even with these funds and the expected receipt of the remaining WEA grant monies and DoE funds, the Company will still require substantial additional funds to complete the permitting and licensing, and ultimate 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 in 2026, the Company may need to curtail operations at the Demonstration Plant, advancement of 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.

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Contractual Obligations

Financial Assistance Agreement

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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, under which General Atomics' interests under the agreement would be transferred to the Company. Once the novation process is complete, the Company will be named the recipient of the award under the agreement and certain conditions are expected to be confirmed, including the potential for additional DoE funding support for further advancements of the Demonstration Plant.

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