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REE > SEC Filings for REE > Form 10-Q on 6-Nov-2012All Recent SEC Filings

Show all filings for RARE ELEMENT RESOURCES LTD

Form 10-Q for RARE ELEMENT RESOURCES LTD


6-Nov-2012

Quarterly Report


ITEM 2. 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," "Rare Element" or the "Company") for the three-month period ended September 30, 2012 has been prepared based on information available to us as of November 5, 2012. 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 June 30, 2012 and the related notes thereto filed with our annual report on Form 10-K, which have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). All amounts stated herein are in U.S. dollars, unless otherwise noted. 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.

Introduction

Presently, we are focused on exploring and evaluating the Bear Lodge rare earth element ("REE") Project located near Sundance, Wyoming. We plan to develop and produce from the Bear Lodge REE Project subject to obtaining, among other things, a positive definitive feasibility study, the necessary mining permits and secure the necessary financing to construct the mine. We also, in the future, may potentially acquire advanced stage REE projects. As of September 30, 2012, we were considered an exploration stage entity under U.S. GAAP due to the lack of reserves reported under SEC Industry Guide 7. However, we have reported mineral reserves that are National Instrument 43-101 compliant and are contained within a prefeasibility study completed on our Bear Lodge REE Project which shows positive economic results. We have also begun the process of compiling data for the preparation of a definitive feasibility study on the Bear Lodge REE Project.

Outlook

We have sufficient cash on hand to conduct our exploration and development plans through 2014. Our plans for Bear Lodge REE Project include the following activities:

Additional resource definition drilling to expand and upgrade the mineral reserve and mineral resources at the Bull Hill, Whitetail Ridge, and Bull Hill NW deposits.

Exploration drilling at the Bull Hill West, Whitetail Ridge, Carbon REE, Taylor REE, and other prospective REE and heavy rare earth element ("HREE") targets identified during the 2010 and 2011 exploration programs.

Geological mapping, geochemical sampling, and geophysical surveys over selected areas in order to better delineate current target areas and identify new targets for economic REE mineralization.

Collection of additional bulk sample mineralized material for continued pilot plant testing from a second large diameter core drilling program in select, well-mineralized areas throughout the Bull Hill and Whitetail Ridge resource areas.

A condemnation drilling program to ensure that the proposed physical upgrade plant, low-grade stockpile and waste facility will not cover ground that is prospective for REE and/or gold mineralization; continued metallurgical testing of the oxide and oxide-carbonate for optimization of mineral concentration and chemical concentration processes.

Initial metallurgical testing of HREEs enriched oxide material at the Whitetail Ridge, Carbon REE and East Taylor REE deposits.

Perform market testing from product produced by the pilot plant.


Completion of a definitive feasibility study, which is anticipated by the end of calendar year 2013.

Start of the formal National Environmental Policy Act Environmental Impact Study process during the first quarter of calendar 2013.

Start of the formal Land Quality Division of the Wyoming Department of Environmental Quality permitting process in the fourth quarter of calendar 2013.

Continue to add key personnel to develop the corporate infrastructure to support the current project development and future planned production operation.

Results of Operations

Summary

Our consolidated net loss for the three-month period ended September 30, 2012 was $5,858 or $0.13 per share, compared to our consolidated net loss of $10,934 or $0.25 per share for the same period in 2011. For the three-month period ended September 30, 2012, the decrease in consolidated net loss of $5,076 from the respective prior period was primarily the result of an increase in the gain on foreign currency translation of $5,299 and a decrease in stock-based compensation expense of $2,328, which were partially offset by an increase in exploration costs of $1,535 and an increase in corporate administration and investor relations costs of $779.

Exploration

Exploration costs were $5,382 for the three month period ended September 30, 2012 as compared with $3,847 for the same period in 2011. The increase of $1,535 from the prior period was mostly the result of increased spending on our Bear Lodge Property. For the three-month period ended September 30, 2012, this increase was largely due to an increase in exploration activities as well as in environmental monitoring and programs as we begin the permitting process to move the project into the development stage.

Corporate administration and investor relations

Corporate administration and investor relations costs decreased to $2,393 for the three-month period ended September 30, 2012, as compared to $3,942 for the same period in 2011. The decrease of $1,549 from the prior period was primarily due to a decrease in stock-based compensation expense. The decrease in stock-based compensation expense was primarily the result of a large number of stock options that vested during the three-month period ended September 30, 2012. Offsetting the decrease in costs was an increase in employee compensation and benefits expenses. During the fiscal year ended June 30, 2012, we established a corporate office in Lakewood, CO, hired key personnel and set up benefits for our employees.

Gain/(loss) on currency translation

We report our financial statements in U.S. dollars. Therefore, any foreign currencies owned are converted to U.S. dollars at the current exchange rate. We hold a significant amount of Canadian dollars in Canadian and U.S. banks as a result of past financings that were denominated in Canadian dollars. We continue to hold Canadian dollars due to higher investment returns and due to the relative strength of the Canadian dollar versus the U.S. dollar. When the Canadian dollar to U.S. dollar exchange rate changes from one reporting period to another, we report gains and losses on currency translations. A strengthening Canadian dollar will result in gains and a weakening Canadian dollar will result in losses as long as we continue to hold Canadian dollars for investment purposes.

The gain on currency translation was $1,802 for the three-month period ended September 30, 2012 as compared with a loss of $3,497 for the same period in 2011. The Canadian dollar strengthened by 3.6% against the U.S. dollar over the three-month period ended September 30, 2012 which resulted in a gain, whereas the Canadian dollar weakened by 7.2% against the U.S. dollar over the three-month period ended September 30, 2011 which resulted in a loss.


Non-operating income and expenses

Interest income

Interest income decreased to $168 for the three-month period ended September 30, 2012 as compared with $286 for the same period in 2011. The decrease in interest income from the prior period is attributable to decreased average cash balances held in interest bearing accounts during the period as compared with the prior year.

Financial Position, Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $4,904 for the three-month period ended September 30, 2012 as compared to $7,989 for the same period in 2011. The decrease of $3,085 in cash used is mostly the result of foreign currency fluctuations on our bank accounts held in Canadian dollars. We recorded a gain on currency translation for the three-month period ended September 30, 2012 as compared to a loss for the same period in 2011.

Investing Activities

Net cash used in investing activities was $146 for the three-month period ended September 30, 2012 as compared to $208 for the same period in 2011. The decrease in cash used in investing activities of $62 is primarily due to the release of the restricted cash as a result of a surety bond that was put in place during the quarter. This was offset by an increase of $621 for purchases of short-term investments. We also received net proceeds of $39 from the sale of marketable securities during the 2012 period as well as proceeds of $14 from the disposal of equipment.

Financing Activities

Net cash provided by financing activities was $89 and $55 for the three-month periods ended September 30, 2012 and 2011, respectively. For both the 2012 and 2011 periods, the cash received was the result of employee stock option exercises.

Liquidity and Capital Resources

At September 30, 2012, our total current assets were $48,060 compared to $52,175 as of June 30, 2012, which is a decrease of $4,115. The decrease in total current assets is primarily due to a decrease in cash and cash equivalents of $4,961.

Our working capital as at September 30, 2012 was $46,093 as compared with $50,120 at June 30, 2012. Management estimates that the current cash position and future cash flows from the potential exercise of warrants and options and other potential equity financings will be sufficient for us to carry out our anticipated exploration and development plans through 2014.

Our plans for the remainder of calendar year 2012 and through 2013 is to continue those programs necessary to advance the Bear Lodge REE Project definitive feasibility study, to continue exploration drilling programs, to identify and establish a HREE mineral resource estimate, to increase our mineral reserves at the Bull Hill mine deposit and to continue moving forward with the Environmental Impact Statement and permitting process, while minimizing expenditures in other areas. The budget contemplates that additional financing would be required by the end of calendar year 2014 to have sufficient working capital to fund the further development and construction of the Bear Lodge REE Project.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations

There were no material changes to the contractual obligations disclosed in Item 7 of Part II in our Form 10-K for the fiscal year ended June 30, 2012.


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