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, 2021, has been prepared based on information available to us as of November 8, 2021. This discussion should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included herewith and the audited Consolidated Financial Statements of Rare Element for the year ended December 31, 2020, 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 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.

Outlook

During the nine months ended September 30, 2021, we continued the confirmation and enhancement of our proprietary technology for recovery and separation of rare earth elements. The work is being conducted by Umwelt-und Ingenieurtechnik GmbH Dresden ("UIT"), an affiliate of Synchron, under an agreement with the Company. The testing was completed in late September 2021, with reports expected during the fourth quarter of 2021. The results are to be incorporated into the planned demonstration plant, as described below.

For the remainder of 2021, we expect to further the plans for the demonstration plant, including (i) completing further UIT test work as necessary to optimize certain process steps and scale-up design criteria, (ii) confirming operating and capital cost estimates, and (iii) proceeding with the initial demonstration project schedule consistent with the DoE-approved project work plan. Additional funding pursuant to the planned rights offering (see Note 6 of our unaudited Consolidated Financial Statements and notes thereto included herewith) is needed to progress these plans and provide working capital for the Company.

Further, throughout 2021, we continue to monitor the general U.S. political climate and actions taken by the U.S. government to secure a domestic, non-Chinese, rare earth 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 five 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." 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 Chinese dominance in the global rare earth market. In addition, COVID-19 has 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 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 January 2021, we received notice from the DoE that the Company, as a member of a consortium of companies, had been selected for negotiation of a potential financial award for the engineering, construction and operation of a rare earth separation and processing demonstration plant. The consortium of companies is led by General Atomics, an affiliate of Synchron, and includes certain of General Atomics' affiliates and LNV, an Ardurra Group, Inc. company, as engineering and construction subcontractor. A formal proposal was submitted by the consortium to the DoE in response to a published Funding Opportunity Announcement in mid-2020 for the construction and operation of a rare earth separation and processing plant utilizing proprietary technology to produce commercial grade products. The DoE funding is in the amount of $21,900 and represents approximately one-half of the total estimated costs for the project. It is our intent that the planned demonstration plant will process the already stockpiled high-grade material from the Bear Lodge REE Project.



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The DoE agreement was executed by the DoE's grants/agreement officer on September 27, 2021, with an effective date of October 1, 2021. The Company, as a subrecipient of the award, along with the other consortium members, is expected to finalize contractual arrangements with General Atomics in order to commence work on the project in November 2021.

COVID-19 Impact on Business

In response to the COVID-19 pandemic, we have implemented travel restrictions, both domestically and internationally, and our employee and consultants have abided by government guidance and orders. As a result, we have seen delays in the metallurgical studies being conducted by UIT which slowed the progression of the prior test work. Additionally, any economic downturn triggered by COVID-19 and resulting direct and indirect negative impact to us could have a prospective material impact to our future activities, cash flows and liquidity. We may also experience higher prices for the equipment and raw materials for the planned demonstration plant due to shortages, commodity inflation and supply chain issues, including transportation delays as a result of COVID-19 and other economic factors. Further, it is unknown what, if any, impact COVID-19 and any resulting economic factors will have on rare earth prices and market supply and demand fundamentals.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical changes to tax depreciation methods for qualified improvement property. On March 11, 2021, President Biden signed an additional coronavirus relief package entitled the American Rescue Plan Act of 2021, which included, among other things, provisions relating to stimulus payments to some Americans, extension of several CARES Act relief programs, expansion of the child tax credit, funding for vaccinations and other COVID-19 related assistance programs. The CARES Act and the American Rescue Plan Act have not had a material impact on the Company as of September 30, 2021; however, we will continue to examine the impacts that the CARES Act and the American Rescue Plan Act, as well as any future economic relief legislation, may have on our business For further discussion of this matter, refer to "Item 1A. Risk Factors" in Part II of the Company's Annual Report on Form 10-K as filed on March 26, 2021.

Results of Operations

Summary

Our consolidated net loss for the three months ended September 30, 2021 was $1,234, or $0.01 per share, compared with our consolidated net loss of $860, or $0.01 per share, for the same period in 2020. See the discussion below for the primary drivers regarding the change in net loss period-to-period.

Our consolidated net loss for the nine months ended September 30, 2021 was $3,548, or $0.03 per share, compared with our consolidated net loss of $2,245, or $0.02 per share, for the same period in 2020. See the discussion below for the primary drivers regarding the change in net loss period-to-period.

Exploration and evaluation

Exploration and evaluation costs were $383 and $397 for the three months ended September 30, 2021 and 2020, respectively. Exploration and evaluation costs were $1,307 and $921 for the nine months ended September 30, 2021 and 2020, respectively. Increased costs of $279 were related to processing and separation studies and pilot plant testing under the UIT technology agreement for the nine months ended September 30, 2021. Additionally, we have continued activities at the Bear Lodge REE Project related to maintaining our environmental obligations.

Corporate administration

Corporate administration costs were $829 and $443 for the three months ended September 30, 2021 and 2020, respectively, primarily due to an increase of $423 of stock-based compensation. Corporate administration costs were $2,177 and $1,287 for the nine months ended September 30, 2021 and 2020, respectively, primarily due an increase of $783 for stock-based compensation.



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Accretion expense

Accretion expense was $20 for the three months ended September 30, 2021 and 2020. Accretion expense was $60 for the nine months ended September 30, 2021 and 2020. We record accretion expense at each reporting period to increase the repurchase option liability to the anticipated exercise amount of $1,000. The repurchase option liability is related to the Company's option to purchase approximately 640 acres of non-core real property in Wyoming for $1,000 in the form of cash, common shares of the Company, or a combination of cash and common shares of the Company.

On October 25, 2021, the Company and Whitelaw Creek LLC entered into an amendment (the "Amendment") to the previously announced asset purchase agreement dated October 20, 2016 between the Company and Whitelaw Creek (the "APA").

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. The Company will reevaluate the repurchase option liability as of the date of the Amendment. The Company anticipates incurring accretion expense in future periods in order to increase the repurchase option liability to the anticipated exercise price.

Cash Flows, Financial Position, Liquidity and Capital Resources

Cash Flows from Operating Activities

Net cash used in operating activities was $2,269 for the nine months ended September 30, 2021, consistent with $2,285 for the same period in 2020.

Financial Position, Liquidity and Capital Resources

At September 30, 2021, our total current assets were $551, as compared with $2,753 as of December 31, 2020, which is a decrease of $2,202. The decrease in total current assets is primarily due to a decrease in the combination of cash and cash equivalents due to funding our operations. Our working capital as at September 30, 2021 was $224 as compared with $2,638 at December 31, 2020. The decrease in working capital is primarily due to a decrease in the combination of cash and cash equivalents and an increase in accounts payables and accrued expense due to funding our operations.

In January 2021, we received notice from the DoE that the Company, as a member of a consortium of companies, had been selected for negotiation of a potential financial award for the engineering, construction and operation of a rare earth separation and processing demonstration plant. The consortium of companies is led by General Atomics, an affiliate of Synchron, and includes certain of General Atomics' affiliates and LNV, an Ardurra Group, Inc. company, as engineering and construction subcontractor. A formal proposal was submitted by the consortium to the DoE in response to a published Funding Opportunity Announcement in mid-2020 for the construction and operation of a rare earth separation and processing plant utilizing proprietary technology to produce commercial grade products. The DoE funding is in the amount of $21,900 and represents approximately one-half of the total estimated costs for the project. It is our intent that the planned demonstration plant will process the already stockpiled high-grade material from the Bear Lodge REE Project. The DoE agreement was executed by the DoE's grants/agreement officer on September 27, 2021, with an effective date of October 1, 2021. The Company, as a subrecipient of the award, along with the other consortium members, is expected to finalize contractual arrangements with General Atomics to perform work on the project in November 2021.

For the remainder of 2021, we expect to further the plans for the demonstration plant, including (i) completing further UIT test work as necessary to optimize certain process steps and scale-up design criteria, (ii) confirming operating and capital cost estimates, and (iii) proceeding with the initial demonstration project schedule consistent with the DoE-approved project work plan. Additional funding pursuant the Company's planned rights offering (as described in Note 6) is needed to progress these plans and provide working capital for the Company.

To address the Company's funding needs, on October 14, 2021, the Company entered into a promissory note with Synchron pursuant to which Synchron made a loan to the Company in the aggregate amount of $1,000 (see Note 6 of our unaudited Consolidated Financial



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Statements and notes thereto included herewith). Additionally, on October 5, 2021, the Company announced its intent to launch a rights offering (see Note 6 of our unaudited Consolidated Financial Statements and notes thereto included herewith) to raise additional funds 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 to be used for the prepayment of outstanding indebtedness.

Even with a fully subscribed rights offering, the Company does not have sufficient funds to progress with longer-term activities, including feasibility studies, permitting, development and construction related to the Bear Lodge REE Project. 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 is no assurance, however, that the Company will be successful in completing other financings. Ultimately, in the event that 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 even have to liquidate its business interests, and investors may lose all or part of their investment.

Contractual Obligations

During the nine months ended September 30, 2021, there were no material changes to the contractual obligations disclosed in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020. During the interim period after September 30, 2021, the Company entered into the contractual obligation(s) discussed below.





Note Agreement

On October 14, 2021, the Company and Synchron entered into a promissory note (the "Note") pursuant to which Synchron made a loan to the Company in the aggregate amount of $1,000 (the "Loan Amount"). The Company is required to use the borrowed amounts for fees and expenses to be incurred in connection with the previously discussed rights offering, the permitting, engineering, construction and operation of a rare earth separation and processing demonstration plant near the Company's Bear Lodge REE Project, and other general corporate purposes.

The Note has substantially the following terms:

Maturity Date: The Loan Amount is due and payable on the earlier of

(i) October 1, 2022 or (ii) the date of consummation of an equity financing

? pursuant to which the Company issues and sells its common shares for aggregate

gross proceeds of at least $25,000 (the "Equity Financing"), which Equity

Financing the Company must use commercially reasonable efforts to consummate.

? Interest : Interest will accrue on a daily basis at a rate equal to 8% per

annum on the unpaid principal balance of the Note.

Optional Prepayment: The Company may, at its option, prepay without any premium

? or penalty all or any part of the unpaid principal amount of the Note

(including any capitalized interest) prior to the maturity date with at least

three business days' advance notice.

Registration Rights: As partial consideration for providing the loan pursuant to the Note, any common shares of the Company that may be acquired by Synchron from time to time will have registration rights substantially similar to those provided to Synchron in the Investment Agreement, dated as of October 2, 2017, between Rare Element and Synchron (the "Investment Agreement") with the respect to the Acquired Shares and the Option Shares (in each case, as defined in the Investment Agreement).

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