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, 2026, has been prepared based on information available to us as of November 4, 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 since late 2025, on the 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 first nine months of 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, the Company initiated an as-built design review in April 2025. Following the review and related project rework, Demonstration Plant operations formally commenced in March 2026, shortly after which progress toward full-scale operations was paused as the Company worked through various operational and equipment changes to more efficiently produce the rare earth concentrates required as feed to the separation circuits.

September 2026 marked an important transition from rework to focusing on more reliable, repeatable plant operations. The Demonstration Plant reached a commissioning milestone by producing its initial batch of rare earth oxalates and successfully calcining the material to total rare earth oxides, validating the facility's key primary-processing steps. The operating focus is now shifting to the mechanical reliability, solids handling, ventilation, and automation required for repeatable campaigns and commercial-scale readiness. The Company currently expects full, end-to-end processing operations at the Demonstration Plant to be achieved in the fourth quarter of 2026 and to continue into 2027. 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 September 30, 2026, the Company had received the full amount of the $4,400 WEA grant. See Note 5 to the Condensed Consolidated Financial Statements for additional details regarding the WEA Funding Agreement.

As discussed in Notes 1 and 4 to the Condensed Consolidated Financial Statements, the Demonstration Plant's project costs have increased since inception due to corrective actions, upgrades and inflation among 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 $82,000.

Through September 30, 2026, the DoE had made payments totaling approximately $23,900 towards its commitment of approximately $24,200, leaving a balance of approximately $300 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 funds still expected to be received from the DoE, will be used to progress the Company's business strategy, which includes (i) the continued operation of the Demonstration Plant for a sufficient period of time 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 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 and the expected receipt of the remaining DoE funds, the Company will still require additional funding to design, construct, and operate the Bear Lodge REE Project.

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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.

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Current External Factors Impacting our Business

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During the first nine months of 2026, we continued to monitor the U.S. political climate and federal and state 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.

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Key developments in 2025 and through the first nine months of 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 (through November 10, 2026) as part of a broader trade truce. While the U.S. and China extended their broader trade truce until January 2027 following discussions in late September 2026, China had not yet formally confirmed as of November 4, 2026 whether the one-year suspension of the October 2025 REE export controls will be extended beyond November 10, 2026. Meanwhile, earlier April 2025 Chinese export licensing requirements on seven medium and heavy REEs remain in effect, and cumulative Chinese REE and magnet exports to the U.S. during the first nine months of 2026 remained constrained below pre-restriction averages. The Company continues to monitor these developments, as ongoing geopolitical tensions and U.S. tariffs/trade measures could affect REE supply chains and our Bear Lodge REE Project economics.

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The U.S. government as well as the State of Wyoming has announced direct financial support for domestic REE and critical minerals projects throughout 2025 and the first nine months of 2026, including matching grants, conditional loan commitments, equity or warrant participation, and infrastructure funding. The Company continues to evaluate and pursue opportunities to participate in these programs.

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Other external factors, including global supply chain and inflationary pressures, the Russia/Ukraine conflict, and the 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.

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Results of Operations

Summary

For the three and nine months ended September 30, 2026, our consolidated net losses totaled $3,918, or $0.01 per share, and $8,809, or $0.01 per share, respectively, compared with our consolidated net income for the three months ended September 30, 2025 of $1,106, or $0.00 per share, and net loss for the nine months ended September 30, 2025 of $2,469 or $0.00 per share. 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, 2026, our exploration and evaluation costs increased by $5,158 and $7,160, respectively, over the comparative 2025 periods. These period-to-period increases were largely attributable to the activities associated with (i) our Demonstration Plant as we moved from the as-built design review, corrective actions and upgrade stages in 2025 to the more costly plant operations phase during 2026 and (ii) our Bear Lodge REE Project licensing and permitting efforts as these efforts, which began in late 2025, ramped up over the first nine months of 2026. Our 2025 costs were favorably impacted by 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 was received from the DoE.

Corporate Administration

Our corporate administration costs remained relatively constant for the three months ended September 30, 2026 and 2025 at $539 and $578, respectively, while decreasing by $238 over the comparative nine-month periods from $1,896 for the nine months ended September 30, 2025 to $1,658 for the nine months ended September 30, 2026. This decrease was largely attributable to the costs related to our 2025 Form S-3 registration statement filing which were not incurred during the nine months ended September 30, 2026.

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Interest Income

For the three months ended September 30, 2026 and 2025, the Company generated interest income of $339 and $245, respectively, and $965 and $790 for the nine months ended September 30, 2026 and 2025, respectively, on investments of its cash holdings. These increases were primarily the result of the higher average cash balances available for investment during the 2026 periods due to the funds raised in the 2026 Rights Offering, which closed on March 4, 2026.

Grant Income

During the nine months ended September 30, 2026, the Company recognized grant income of $400 with the achievement of the final milestone under the WEA Funding Agreement. There were no such transactions for the three and nine months ended September 30, 2025, or for the three months ended September 30, 2026. See Note 5 to the Condensed Consolidated Financial Statements for a discussion of the WEA Funding Agreement.

Financial Position, Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $9,980 for the nine months ended September 30, 2026, compared with $4,857 for the same period in 2025. This increase of $5,123 was largely attributable to our decision in the 2025 period 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 reduced the Company's share of these costs as partial reimbursement was received from the DoE. In addition, our Bear Lodge REE Project licensing and permitting efforts over the first nine months of 2026 partially contributed to the increase.

Investing Activities

Net cash used in investing activities of $26,535 for the nine months ended September 30, 2026 consisted of $26,304 for the purchase of short-term investments and $231 for the purchase of equipment. Net cash used in investing activities of $157 for the nine months ended September 30, 2025 was for the purchase of equipment.

Financing Activities

Net cash provided by financing activities of $30,553 for the nine months ended September 30, 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 nine months ended September 30, 2025.

Working Capital

At September 30, 2026, we had a working capital balance of $41,258, which was an increase of $21,592 from our December 31, 2025 working capital balance of $19,666. This increase largely stemmed from the net proceeds of $30,478 received from our 2026 Rights Offering, partially offset by the cash consumed in our operations.

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 previously revised budget total. The Company currently estimates the total Demonstration Plant project cost to be approximately $82,000, inclusive of cost estimates through completion of the Demonstration Plant's operations phase.

Through September 30, 2026, the DoE has paid a total of approximately $23,900 towards its commitment of approximately $24,200, leaving a balance of approximately $300 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. Progress toward full-scale operations was subsequently paused as the Company worked through various operational and equipment changes to more efficiently produce the rare earth concentrates required as feed to the separation circuits. With this pause now lifted and with Demonstration Plant operations resumed, the Company currently expects full, end-to-end processing operations at the Demonstration Plant to be achieved in the fourth quarter of 2026 and to continue into 2027.

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, the funds received from the WEA, and those funds expected to be received from the DoE, will be used to progress the Company's business strategy as described in "Overview and Outlook" above. However, even with these funds, the Company would 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 alter 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

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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 the novation is completed, the Company is expected to 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 operations and advancements of the Demonstration Plant.

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