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
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as a result of many factors, including, but not limited to, those set forth in
"Item 1A. Risk Factors" and elsewhere in this Annual Report.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our Consolidated Financial
Statements and accompanying notes included in Item 8 of this Annual Report. This
Management's Discussion and Analysis (this "MD&A") has been prepared based on
information known to management as of March 27, 2023. This MD&A is intended to
help the reader understand the consolidated audited financial statements of the
Company.
All currency amounts are expressed in thousands of U.S. dollars, except per
share and common share amounts, unless otherwise noted.
OVERVIEW AND OUTLOOK
Our primary focus has been and continues to be the engineering, permitting,
construction and operation of a demonstration-scale REE processing and
separation plant to be located in Upton, Wyoming. If successful, this
Demonstration Plant will show that our propriety extraction technology is able
to process and separate certain REEs from sample materials extracted from our
Bear Lodge REE Project in a more efficient and economical manner than
traditional processing methods and will serve as a precursor to a future
full-scale production facility.
During 2022, the Company, along with the other consortium members, continued
their work on the Demonstration Plant, and this work is expected to continue
through the project's expected completion date in the early part of 2025. In
December 2022, the Demonstration Plant achieved its final engineering design
milestone marking the completion of the DoE's first 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. Future gating
milestones include the expected completion of permitting activities in the
second half of 2023 and the completion of the Plant's construction thereafter.
Operations to process and separate the REE from the stockpiled sample are
expected to follow the completion of the Plant's construction for an additional
eight-to-10-month period.
In November 2022, the Company received notice that it had been awarded an
additional $4,400 grant from the WEA to be used toward the advancement of the
Demonstration Plant. This award, along with the funds remaining from its
December 2021 rights offering will be used to fund the Company's fifty percent
(50%) share of the Demonstration Plant's total expected cost of $42,000 with the
other fifty percent of the funding coming from the DoE. Through December 31,
2022, the Company had paid a total of $6,700 toward its share of the expected
cost of the Demonstration Plant (see Note 4 to our Consolidated Financial
Statements for a more complete discussion).
Longer term, the Company will not have sufficient funds to progress its
development activities beyond the Demonstration Plant, including with respect to
feasibility studies, permitting, and licensing, and development and construction
related to its Bear Lodge REE Project. Therefore, the achievement of these
longer-term activities will be dependent upon securing additional funds through
financings, off-take agreements, joint ventures, strategic transactions, or
sales of non-core assets. There is no assurance, however, that the Company will
be successful in completing any such other financings or transactions.
Ultimately, in the event the Company cannot secure additional financial
resources, or complete a strategic transaction in the longer term, it may need
to suspend its operational plans or potentially liquidate its business
interests, and investors may lose all or part of their investment.
RESULTS OF OPERATIONS
Year Ended December 31, 2022 Compared with the Year Ended December 31, 2021
Summary
Our consolidated net loss for the year ended December 31, 2022 was $9,426, or
$0.04 per share, compared with our consolidated net loss of $5,402, or $0.03 per
share, for the same period in 2021. See our discussion below for the primary
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drivers of this change. As an exploration stage company, we had no properties in
production and generated no revenues during 2022 or 2021.
Exploration and Evaluation
Our exploration and evaluation costs totaled $4,155 for the year ended December
31, 2022, compared with $2,089 for the same period in 2021. This increase of
$2,066 was 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.
Corporate Administration
Our corporate administration costs increased to $5,205 for the year ended
December 31, 2022, compared with $3,114 for the same period in 2021. This
increase of $2,091 over the comparative period was largely driven by an increase
in our stock-based compensation of $1,384 and a severance payment of $242 made
to Mr. Scott, our former Chief Executive Officer.
Impairment Charges
During the year ended December 31, 2021, we recorded impairment charges of $30
related to the write-down of certain equipment that was no longer in use. We
had no such similar charge for the year ended December 31, 2022.
Interest Income
For the year ended December 31, 2022, the Company generated interest income of
$258 from the proceeds remaining from its December 2021 rights offering. During
the year ended December 31, 2021, we had no such proceeds available for
investment.
Accretion Expense
For the years ended December 31, 2022 and 2021, we recorded accretion expense of
$284 and $114, respectively, related to the Company's option to repurchase
approximately 640 acres of non-core real property in Wyoming for not less than
$1,200 or greater than $1,850 in the form of cash, common shares of the Company,
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 7 to the Consolidated Financial Statements for a more complete
discussion of the repurchase option.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash used in operating activities increased by $6,582 during the year ended
December 31, 2022 as compared to the same period in 2021. This increase was
almost entirely due to the $6,700 paid to General Atomics, as leader of the
consortium, during the year under the Cost Share Agreement for work on the
Demonstration Plant. During the year ended December 31, 2021, no similar
payments were made to General Atomics under the Cost Sharing Agreement.
Financing Activities
During the year ended December 31, 2021, the Company received net proceeds of
$24,950 from its rights offering (as discussed below) and $133 from stock option
exercises. There were no such financing activities during 2022.
In December 2021, the Company completed a rights offering for gross proceeds of
approximately $25,400 in which each holder of the Company's common shares as of
the close of business on the record date of October 19, 2021 was eligible to
participate. Terms of the rights offering included the issuance of one
subscription right for each common share owned
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by each holder on the record date, with each subscription right entitling the
holder to purchase one common share of the Company at a subscription price of
$0.24 per share (the "basic subscription privilege"). If any holder exercised
its basic subscription privilege in full, the holder could also exercise an
oversubscription privilege to purchase additional common shares for which were
unsubscribed at the expiration of the rights offering, subject to availability
and pro rata allocation of shares among persons exercising the oversubscription
privilege. The Company has used and plans to use the net proceeds from the
rights offering for the permitting, licensing, engineering, construction and
operation of the rare earth separation and processing Demonstration Plant near
the Company's Bear Lodge REE Project and other general corporate purposes, with
a portion used for the prepayment of outstanding indebtedness, in the principal
amount of $1,000, which repayment was completed in December 2021. The previously
discussed $21,900 financial award from the DoE for the Demonstration Plant will
fund approximately one-half of the expected total cost of the Demonstration
Plant, with the balance of the required funding being provided by the Company.
Liquidity and Capital Resources
At December 31, 2022, we had a working capital balance of $17,628, which was a
decrease of $6,257 from our December 31, 2021 working capital balance of
$23,885. This decrease was mainly due to amounts paid by the Company during 2022
under the Cost Share Agreement for work on the Demonstration Plant.
In November 2022, the Company received notice that it had been awarded a $4,400
grant from the WEA to be used toward the advancement of the Demonstration Plant.
The WEA grant is a cost-reimbursement award that will be available to the
Company for the reimbursement of future Demonstration Plant expenses. At
December 31, 2022, the terms of this grant were still being finalized by the WEA
pursuant to finalization of a funding or similar agreement and no amount of the
$4,400 award had been received by the Company. Depending on the award's final
terms and conditions, the Company may be able to claim a portion of the $4,400
grant during 2023.
Inclusive of amounts already advanced, the Company's share of the total costs
under the Cost Share Agreement are expected to equal or exceed $22,000 over the
life of the Demonstration Plant project. As a result, the Company will not have
sufficient funds to progress with longer term activities, including with respect
to feasibility studies, permitting, development and construction related to the
Bear Lodge REE Project, even after taking into account the expected receipt of
the $4,400 in WEA grant monies. Therefore, the achievement of these longer-term
activities will be dependent upon additional financings, off-take agreements,
joint ventures, strategic transactions, or sales of various assets. There can be
no assurance, however, that the Company will be successful in completing any
such financings or other transactions. Ultimately, in the event the Company
cannot secure additional financial resources, or complete a strategic
transaction in the longer term, it may need to suspend its operational plans or
potentially liquidate its business interests, and investors may lose all or part
of their investment.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements required to be disclosed in this
Annual Report.
Contractual Obligations
Cost Share Agreement - Related Party
On November 30, 2021, the Company and General Atomics entered into a Cost Share
Funding Assumption Agreement (the "Cost Share Agreement") pursuant to which the
Company agreed to assume and pay for certain costs incurred by General Atomics
and the consortium for the design, construction, and operation of a rare earth
separation and processing Demonstration Plant near the Bear Lodge REE Project in
Upton, Wyoming.
As previously discussed, in January 2021, the DoE announced that a consortium of
companies, which includes the Company, led by General Atomics, an affiliate of
Synchron, and certain of its affiliates, and LNV, an Ardurra Group, Inc.
company, as engineering and construction subcontractor, was selected for a
potential financial award in the amount of $21,900 for the engineering,
construction and operation of a rare earth separation and processing
Demonstration Plant. The DoE award was finalized through a cooperative
agreement dated October 1, 2021 (the "Cooperative
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Agreement") between General Atomics and the DoE with respect to the engineering,
permitting, and licensing, construction and operation of the Demonstration
Plant. The Cooperative Agreement provides that up to approximately $43,900 in
allowable costs for the Demonstration Plant would be funded on a cost-share
basis, 50% by the DoE and 50% by a non-federal entity.
Pursuant to the terms of the Cost Share Agreement, the Company is obligated to
make payments totaling $21,900 to General Atomics, as leader of the consortium,
for its share of the assumed costs for the Demonstration Plant, $6,700 of which
had been paid through December 31, 2022.
The term of the Cost Share Agreement will continue until the date of completion
of the Demonstration Plant, unless terminated earlier by either party. Either
party may terminate the Cost Share Agreement immediately upon written notice to
the other party if any of the following events occurs: (a) the Cooperative
Agreement is terminated for any reason prior to the completion of the
Demonstration Plant; (b) the other party commits a material breach of its
obligations under the Cost Share Agreement and fails to cure such breach within
30 days; or (c) the other party makes an assignment for the benefit of its
creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt,
or commences any insolvency or bankruptcy proceedings. Upon any early
termination of the Cost Share Agreement, the Company must pay for all costs
incurred by or on behalf of General Atomics to wind down the Demonstration Plant
other than any allowable costs for such wind-down paid for by the DoE.
Intellectual Property Rights - Related Party
During October 2017, the Company and Synchron executed an intellectual property
rights agreement, whereby Synchron received rights to use and improve the
Company's intellectual property relating to the Company's patents and related
technical information. The Company retains the right to use any such
improvements. See "Item 1A. Risk Factors" of this Annual Report.
Land Purchase Option
On October 25, 2021, the Company and Whitelaw Creek LLC, a Wyoming limited
liability company ("Whitelaw Creek"), entered into an amendment (the
"Amendment") to the asset purchase agreement dated October 20, 2016 between the
Company and Whitelaw Creek (the "Asset Purchase Agreement"). The Amendment
modified certain provisions of the Asset Purchase Agreement related to the terms
and conditions of the Company's option to repurchase (the "Repurchase Option")
approximately 640 acres of non-core real property located in Crook County,
Wyoming, that is under consideration for a waste rock facility for the Bear
Lodge REE Project. Pursuant to and subject to the terms of the Amendment, among
other things, the term of the Repurchase Option (which was to expire on October
26, 2021) was extended for up to three additional years, subject to annual
option extension payments from the Company to Whitelaw Creek of $25 in cash per
year (each, a "Repurchase Option Extension Payment"); and the exercise price of
the Repurchase Option was increased from $1,000 to a price to be determined by a
mutually agreed upon real estate appraiser (the "Repurchase Price"), provided
that (i) the Repurchase Price must not be less than $1,200 or greater than
$1,850 and (ii) any Repurchase Option Extension Payments paid by the Company to
Whitelaw Creek must be credited toward the Company's payment of the Repurchase
Price if the Repurchase Option is later exercised. In October 2022, the Company
made the $25 Repurchase Option Extension Payment to Whitelaw Creek to extend the
term of the Repurchase Option through October 26, 2023.
CRITICAL ACCOUNTING POLICIES
For a summary of our significant accounting policies, including those discussed
below, see Note 3 to our Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results
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could differ from those estimates. The amounts which involve significant
estimates include reclamation obligations and income tax.
Reclamation Obligations
Our mining and exploration activities are subject to various laws and
regulations, including legal and contractual obligations to reclaim, remediate,
or otherwise restore properties at the time the property is removed from
service. Reclamation obligations are recognized when incurred and recorded as
liabilities at fair value. The reclamation obligation is based on when spending
for an existing disturbance will occur. We reclaim the disturbance from our
exploration programs on an ongoing basis and, therefore, the portion of our
reclamation obligation corresponding to our exploration programs will be settled
in the near term and is classified as a current liability. The remaining
reclamation associated with environmental monitoring programs is classified as a
long-term liability; however, because we have not declared proven and probable
reserves as defined under Item 1300 of Regulation S-K, the timing of these
reclamation activities is uncertain as the reclamation areas will be utilized
once the project is operating. For exploration stage properties that do not
qualify for asset capitalization, the costs associated with the obligation are
charged to operations. For development and production stage properties, the
costs are added to the capitalized costs of the property and amortized using the
units-of-production method. We review, on a quarterly basis, unless otherwise
deemed necessary, the reclamation obligation associated with our properties.
Our reclamation obligation is secured by a surety bond held for the benefit of
the state of Wyoming in an amount determined by the applicable federal or state
regulatory agency.
Accounting for reclamation and remediation obligations requires management to
make estimates unique to each mining operation of the future costs the Company
expects to incur to complete the reclamation and remediation work required to
comply with existing laws and regulations. These estimates require considerable
judgment and are sensitive to changes in underlying inputs and assumptions. Such
changes, including, but not limited to, (i) changes to environmental laws and
regulations, which could increase the scope and extent of work required, (ii)
changes in the timing of reclamation and remediation activities, which could
occur over an extended future period and (iii) changes in the methods and
technology utilized to settle reclamation and remediation obligations, could
have a material impact on our business, financial condition, results of
operations and cash flows.
Income Taxes
The Company applies the provisions of Financial Accounting Standards Board
Accounting Standard Codification ("ASC") 740 Income Taxes. The Standard requires
an asset and liability approach for financial accounting and reporting for
income taxes and the recognition of deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled. Due to losses from inception, the
Company has no tax liability. Currently, the Company has no deferred taxes
arising from temporary differences between income for financial reporting and
income tax purposes.
The Company classifies tax-related penalties and net interest on income taxes as
income tax expense. As of December 31, 2022 and 2021, no income tax expense had
been incurred or accrued.
New Accounting Pronouncements
As of December 31, 2022, the Company had adopted all accounting pronouncements
affecting the Company.
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