ITEM 1. DESCRIPTION OF BUSINESS
CORPORATE BACKGROUND
Rare Element was incorporated under the laws of the Province of British Columbia, Canada, on June 3, 1999 as Spartacus Capital Inc. Our executive office is located at 225 Union Blvd., Suite 250, Lakewood, Colorado 80228. The telephone number for our executive office is (720) 278-2460. We maintain a corporate website at www.rareelementresources.com.
Effective October 8, 1999, we completed our initial public offering of 1,500,000 common shares at CDN$0.20 per share, raising CDN$300,000. The common shares began trading on the predecessor exchange to the TSX Venture Exchange (TSX-V) in Canada on November 15, 1999 under the symbol SCI.
Originally organized as a capital pool company whose activities were focused on the identification and completion of a qualifying transaction as required by the rules of the TSX-V, we transitioned to a venture company on July 25, 2003, coincident with (1) the completion of a reverse takeover acquisition of Rare Element Holdings Ltd. (the qualifying transaction), (2) a name change of Spartacus Capital, Inc., to Rare Element Resources Ltd., and (3) the completion of a CDN$551,000 private placement. Rare Element Holdings Ltd.s main asset, through its wholly-owned subsidiary, Rare Element Resources, Inc., a Wyoming corporation, is the 100% interest in a group of unpatented mining claims and adjacent property owned in fee, together known as the Bear Lodge Property.
On December 20, 2004, our authorized share capital was changed from 100,000,000 common shares to an unlimited number of common shares without par value. Our common shares began trading on the NYSE MKT on August 18, 2010 under the symbol REE. On May 27, 2011, we graduated from a listing on the TSX-V to the Toronto Stock Exchange (TSX) and trade under the symbol RES. As of December 31, 2013, there were 47,627,245
common shares issued and outstanding.
SUBSIDIARIES
We have one wholly-owned subsidiary, incorporated under the laws of British Columbia, Canada, on July 12, 1996 under the name Rare Element Holdings Ltd. That subsidiary has one wholly owned subsidiary, Rare Element Resources, Inc., incorporated on August 21, 1997 in the state of Wyoming, USA, formerly known as Paso Rico (USA), Inc.
DESCRIPTION OF BUSINESS
Rare Element is focused on advancing the Bear Lodge REE Project located near the town of Sundance in northeastern Wyoming on the Bear Lodge Property. The Bear Lodge REE Project consists of a large disseminated REE deposit and a proposed hydrometallurgical plant to be located near Upton, Wyoming. The REE deposit is the second highest grade REE deposit identified in North America and one of the highest grade Eu deposits in the world. In addition, the Bear Lodge REE Project has a favorable distribution of the remaining CREEs. At present, we are undertaking advanced engineering, process confirmation, geological modeling and technical studies while working toward obtaining the necessary permits that will enable us to develop the Bear Lodge REE Project with the intent of commissioning the project in late 2016, subject to permitting, financing and other factors.
The Bear Lodge REE Project is located near excellent mining infrastructure, including good road access and a power line within two kilometers of the property. The project site is 100 kilometers east of Gillette, Wyoming, a major infrastructure, support and logistics center for coal mines in the Powder River Basin, and 64 kilometers from the nearest railhead at Upton, Wyoming, which should provide for ready access to the required production supplies and materials as well as skilled labor. The Bear Lodge REE Project has favorable community acceptance and is located in one of the top-ranked mining jurisdictions globally (based on the Fraser Institutes 2013 ranking of 96 jurisdictions).
Further description of the Bear Lodge REE Project and the Bear Lodge Property is included under the section heading Item 2. Properties in this Annual Report.
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RECENT CORPORATE DEVELOPMENTS
Accomplishments in 2013
During 2013, additional drilling was completed at the Bear Lodge REE Project that upgraded Mineral Resources from the Inferred Mineral Resource category to the Indicated Mineral Resource category and further delineated HREE-enriched zones. These HREE-enriched zones enhance the value of our district-scale project and increase the proportion of CREEs within the resource. The Companys 2013 drilling further delineated a high-grade zone within the Bull Hill deposit. Early extraction of this high-grade zone is expected to enhance project economics by accelerating cash flow in the early years of operation. Metallurgical and process studies continue to advance the optimization of the REE concentration process.
Metallurgical pilot plant testing was conducted to refine the upgrading process, improve the recovery of RE oxides, identify further opportunities to optimize the project and to support a future updated PFS and DFS. Out of the pilot plant testing, the Company filed two provisional patents, which were subsequently combined into a single utility patent in January 2014, with the U.S. Patent Office for (1) selective recovery of REEs from acid leach solutions using oxalic acid, and (2) thorium extraction process technology. These advances increased the grade and purity of our rare earth concentrate produced in testing, which is expected to enhance the marketability of rare earth products from the Bear Lodge REE Project.
In September 2013, we raised net proceeds of approximately $7.4 million after expenses via a registered offering of $8 million of common shares and warrants. We issued a total of 2,677,376 shares and 1,338,688 associated warrants at a price of $2.988 per unit. Each unit consisted of a share plus a half warrant.
In December 2013, the Company announced that the U.S. Forest Service (USFS) had selected a project manager and prime contractor for the environmental impact statement (EIS) in furtherance of the National Environmental Policy Act (NEPA) process.
The Company appointed three new directors to the board in 2013, who bring significant, relevant operating, financial and business experience. Two former directors left the board of the Company. The new directors were:
·
Gerald Grandey former CEO of Cameco Corp., one of the worlds largest uranium producers;
·
F. Steven Mooney former Owner, Chairman and CEO of Thompson Creek Metals Company; and
·
Lowell Shonk current vice-chairman and former CEO and CFO of Cupric Canyon Capital LLC.
These directors enhance the Companys project management and operating capabilities as it moves from the exploration phase toward project development and operations.
Plans for 2014
We plan to advance the Bear Lodge REE Project during 2014, including the following:
·
Complete an updated PFS in the first half of 2014 and file an updated NI 43-101 technical report addressing project economics and incorporating updated Mineral Resource information and process innovations;
·
Finalize the processing flowsheet after completion of additional bench and pilot plant test work for the DFS, planned to start in the second half of 2014 and be completed by mid-2015;
·
Achieve key environmental permitting milestones including (i) EIS Notice of Intent publication, public involvement plan development and scoping completion, (ii) Wyoming Department of Environmental Quality license application filing, and (iii) U.S. Nuclear Regulatory Commission (NRC) possession licensing application filing;
·
Support the permitting process by continuing to communicate and build stakeholder support for the project at the federal, state, and local levels;
·
Produce enough sample product material for testing and analysis by potential customers to allow the Company to advance one or more offtake and/or strategic partner relationship agreements;
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·
Evaluate the technical and economic merits of downstream separation of our high-purity, hydrometallurgical REO concentrate output;
·
Raise additional funding to support the above activities and continue to advance the project in a timely fashion; and
·
Complete a limited drilling program and combine district-wide geological/geochemical/ geophysical/mineralogical data to optimize future exploration and exploitation of the district.
TRENDS AND DESCRIPTION OF THE REE MARKET
Uses for REE products
REEs are used in computers, cellular telephones, TV screens, wind turbines, fuel cells, magnetic refrigeration technologies, compact fluorescent and LED lights, petroleum-refining catalysts and numerous other modern specialty technologies. REEs are also used in hybrid-electric-vehicles and all-electric vehicles, many of which contain REE-bearing nickel-metal-hydride batteries and REE super magnets within electrical motors and generators. Prices of REEs are affected by the supply and demand fundamentals of the market.
Trends affecting supplies of REE products
Global REE supply continues to be dominated by production from China, which produced nearly 86% of the worlds REE output in 2013, according to the Industrial Minerals Company of Australia Pty Ltd (IMCOA) and Curtin University. Over the past eight years (with a marked reduction in the summer of 2010) China has reduced its export quotas for REEs by 57% and increased related export taxes. The quota reductions resulted in significantly higher REE prices beginning in 2010. Since then, the slowdown in global economic growth, coupled with some demand destruction from 2010s and 2011s elevated REE prices and significant supply from accumulated REE stockpiles, caused dramatic REE price declines in 2012 and 2013. Chinese export quotas for the first half of 2014 have been set at an equivalent level with the first half of 2013.
Global supply and demand for rare earths are expected to be approximately in balance in 2014, with continued increases in non-Chinese production from Mt. Weld (Australia) and Mountain Pass (California) offsetting slightly reduced exports from China. Chinese domestic REE production is expected to increase at a rate of 5% per year from 2014 to 2016 to approximately match expected domestic demand increases during the same period.
Although the total overall supply and demand tonnages may be in proximate balance, it is expected that Ce and La may be in oversupply, while other rare earth markets may be more in balance or even in deficit, particularly magnet materials and HREEs.
As a result of increased investment in the REE industry outside of China, there are several new and refurbished REE projects that are being developed to add to the non-Chinese supply of rare earths. New production began to ramp up beginning in 2013 and is expected to continue through 2014. Some market observers believe that this new production may have a negative impact on the pricing of some REE products, especially the LREEs of La and Ce. According to an IMCOA report dated February 2014 (the IMCOA Report), REE total supply is forecasted to increase from 105,000 tonnes in 2013 to 175,000 tonnes in 2017.
Trends affecting demand of REE products
The global economy plays a key role in the continuation and pace of increased demand for REEs. If the global economy experiences a prolonged period of slow growth, then the expected increase in REE product demand may not materialize at the pace expected. In addition, the spike in REE prices in 2010-2011 to extremely high levels seems to have accelerated REE consumers efforts to economize on rare earth consumption or use substitute materials and slowed the expected pace of future demand growth. Based on the IMCOA Report, REE total demand is forecasted to increase from 108,500 tonnes in 2013 to 145,000 tonnes in 2017, driven mainly by demand for magnet materials, metal alloys, glass polishing and catalysts. Based on forecast production levels, these figures would imply a significant oversupply of total rare earths by 2017, but a more detailed analysis of the supply/demand balance by element suggests that the oversupply is driven by significant imbalances in Ce and La markets. In the IMCOA Report, the excess Ce and La production seems to be a result of demand destruction caused by 2011s very high REE prices. On balance, the other more highly-valued rare earths would remain in relatively short supply.
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Certain market experts believe that demand growth for some REEs is supply constrained (e.g., magnet materials are often mentioned) and that an increase in global production of these rare earths could actually accelerate demand growth. Since REEs are used for many new technologies, the pace of technology innovation could also continue to boost REE demand. According to the IMCOA report, annual global demand growth for REEs from 2013-2020 could average 7.5% p.a. overall. Within this forecast, however, there is a significant variation in demand by end use. For instance, demand for REE magnets using Nd, Pr, Dy, Sm and Tb is expected to average annual growth of more than 10% p.a., while demand for REE phosphors, which include Eu, is expected to moderate to only 2% p.a. Other REE uses that are expected by IMCOA to have the strongest demand growth from 2013-2020 are metal alloys (8% p.a.), glass polishing (7% p.a.) and catalysts (5.5% p.a.).
Trends affecting prices of REE products
The prices of REEs are quoted in different forms, including oxides, metals, ferroalloys, and cerium carbonate concentrate (with approximately 45% TREOs). The marketability of REE concentrates will depend on the concentrate grade, the distribution of REEs in the concentrate and the types of impurities contained in the concentrate. Mixed REE concentrates are often then separated into individual REOs or groups of similar REOs that can be sold or can be tolled for further refinement.
According to
www.metal-pages.com
(Metal Pages), weighted average quarterly prices in U.S. dollars of REOs of 99% purity, FOB China increased more than 1,100% from the end of 2009 through the third quarter of 2011. Since peaking in the third quarter of 2011, REO prices have fallen dramatically with average quarterly prices for the fourth quarter of 2013 at a level almost 80% lower than the quarterly average peak in 2011. La oxide and Ce oxide decreased from highs exceeding $150 per kilogram in mid-2011 to between $5.00 and $6.00 per kilogram for 99.9% oxide as of December 31, 2013. Average prices for the first two months of 2014 declined another 4% from the average of the fourth quarter of 2013 due to relatively weak global economic activity and a continued reluctance of major RE customers in China to restock these materials prior to the Chinese New Year. Although REE prices, other than Ce and La, remain well above their 2009 levels, recently announced financial results of certain major Chinese rare earth companies and Chinas ongoing consolidation of its rare earths industry may suggest that prices may not fall much further.
Supply and demand factors for REE products that could positively impact REE prices include:
·
the use of Nd, Pr, Tb and Dy in high-strength NdFeB magnets that are critical to hybrid and electric vehicles and the increased construction of wind power generation facilities, particularly off-shore installations;
·
the use of Sm in high-performance Sm-cobalt permanent magnets
·
the use of La and Ce for NiMH batteries that are utilized in hybrid and electric vehicles;
·
the use of Eu, Tb, Y and Ce in the production of compact fluorescent and LED light bulbs;
·
the use of high-strength NdFeB magnets in the miniaturization of electronic products;
·
the use of La in FCCs by refineries processing lower quality crude oil that consumes greater quantities of the catalysts;
·
the increased use of REEs in the drive to improve energy efficiency and reduce greenhouse gases, or GHGs, by the United States and the European Union;
·
China consolidating its REE industry and closing small, inefficient and polluting REE producers;
·
the stockpiling of certain REE products and increases in export taxes by China;
·
the use of Ce in glass, ceramics, glass polishing, and advanced water filtration applications; and
·
continued research and commercialization of new applications for REE products.
Supply and demand factors for REE products that could negatively impact REE prices:
·
the potential for oversupply of certain REEs due to new production outside of China and/or increased exports by China;
·
the potential substitution of other materials for high-priced REEs;
·
the potential for increased recycling of high-priced REEs;
·
static or lower global growth reducing demand for REEs; and
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·
potential by-product REE production that may increase supply irrespective of the normal economics of REE production.
The feasibility of the Bear Lodge REE Project and our ability to raise additional funds to develop the project may be impacted by global supply and demand and future prices of REEs.
SEASONALITY
Seasonality in the state of Wyoming is not a material factor to our current and planned operations for the Bear Lodge Property. Snowfall in the winter can limit our access to the Bear Lodge Property and our ability to drill or operate from approximately November through June, but it is not a material issue at this time.
COMPETITION
The industry in which we operate is highly competitive. We compete with other mining and exploration companies in connection with the acquisition, exploration and development of mineral properties. There is competition for the limited number of opportunities, some involving companies having substantially greater financial resources, staff and facilities than we do. We also compete with other mining and exploration companies in our efforts to hire and retain experienced mining professionals. As a result, we may have difficulty attracting or retaining key personnel or outside technical resources.
In 2013, China accounted for an estimated 86% of global REE production and 63% of total world demand. While REE projects exist outside of China, current non-Chinese production is relatively small. Further, even though several large mines outside of China are in the process of ramping up production, it is likely that the Chinese will be able to dominate the market for REEs for the foreseeable future. This gives the Chinese a competitive advantage in controlling the supply of REEs and engaging in competitive price reductions to discourage competition. Any increase in the amount of REEs exported from other nations increases competition and may result in price reductions, reduced margins and loss of potential market share, any of which could materially adversely affect our profitability. As a result of these factors, the Company may not be able to compete effectively against current and future competitors.
See
Item 1A. Risk Factors of this Annual Report.
PATENTS, TRADEMARKS AND LICENSES
We rely on a combination of trade secret protection, nondisclosure and licensing agreements, patents and trademarks to establish and protect our proprietary intellectual property rights. We utilize trade secret protection and nondisclosure agreements to protect our proprietary rare earth technology. As of December 31, 2013, we had filed two U.S. patent applications for (1) selective recovery of REEs from acid leach solutions using oxalic acid, and (2) thorium extraction process technology. On January 18, 2014, we combined our two provisional patent applications into a single utility patent application filing with the U.S. Patent Office and initiated a Patent Cooperation Treaty Application claiming priority to the U.S. Provisional Applications. If allowed, a patent granted from the utility patent application would have a term of twenty years measured from the filing date of the utility patent application.
See
Item 1A. Risk Factors of this Annual Report.
ENVIRONMENTAL REGULATION
Our exploration activities are subject to extensive and costly environmental laws and regulations under various federal, state, county and local laws relating to the protection of the environment, which generally includes air and water quality, hazardous waste management, radionuclide handling and reclamation. Environmental hazards may exist on the properties in which we hold interests that are unknown to us at present and that have been caused by previous owners of the properties. Environmental legislation is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Current and future laws, regulations and permits will impose significant costs, liabilities or obligations or could limit or prevent our ability to continue operations or undertake new operations.
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Our Bear Lodge Property in Wyoming is subject to federal and state environmental laws, regulations, and permits. The federal agency responsible for regulatory jurisdiction is the United States Forest Service, Bearlodge Ranger District, Sundance, Wyoming. The state agency with regulatory jurisdiction is the Wyoming Department of Environmental Quality. We operate under approvals and permits granted by these two agencies and have established a surety bond to ensure environmental reclamation of areas disturbed. As of December 31, 2013, the Company had a surety bond with the state of Wyoming totaling $430,000. Prior to operating, we will require several other permits and licenses including those issued by the NRC, US Army Corps of Engineers, and others.
MINERALS EXPLORATION REGULATION
Mining operations and exploration and development activities are subject to various national, state, county and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. The Company believes that it is in compliance in all material respects with applicable mining, health, safety and environmental statutes and the regulations passed thereunder in the United States. There are no current orders or notices of violations relating to the Company with respect to the foregoing laws and regulations.
Compliance with these laws and regulations may impose substantial costs on the Company and will subject it to significant potential liabilities. Changes in these laws or regulations could require us to expend significant resources to comply with new laws or regulations or changes to current requirements and could have a material adverse effect on our business operations.
MINE SAFETY AND HEALTH REGULATIONS
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the year ended December 31, 2013, our Bear Lodge Property was not subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under the
Federal Mine Safety and Health Act of 1977
(the Mine Act).
EMPLOYEES
At December 31, 2013, we had 26 full-time employees of which 16 were directly engaged in exploration and evaluation activities. None of our employees are covered by collective bargaining agreements.
AVAILABLE INFORMATION
We make available, free of charge, on or through our Internet website, at www.rareelementresources.com, our annual reports on Form 10-K, our Transition Report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Our Internet website and the information contained therein or connected thereto are not intended to be, and are not, incorporated into this Annual Report.
Our filings can also be viewed at our corporate offices, located at 225 Union Blvd., Suite 250, Lakewood, CO 80228. Our reports, registration statements and other information can be inspected on the SECs website at www.sec.gov and such information can also be inspected, and copies ordered, at the public reference facilities maintained by the SEC at the following location: Judiciary Plaza, 100 F Street NE, Washington, D.C. 20549. Information regarding the operation of the SECs public reference facilities may be obtained by calling the SEC at 1-800-SEC-0330
.
Further, the Company also files reports under Canadian regulatory requirements on SEDAR. You may access our reports filed on SEDAR by accessing its website at www.sedar.com.
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ITEM 1A. RISK FACTORS
The following sets forth certain risks and uncertainties that could have a material adverse effect on our business, financial condition and/or results of operations and the trading price of our common shares, which may decline, and investors may lose all or part of their investment. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial also may impair our business operations. We cannot assure you that we will successfully address these risks.
We have a history of losses and will require additional financing to fund our exploration activities and, if warranted, future development and production efforts. Failure to obtain additional financing could have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern.
For the year ended December 31, 2013, our net loss was $22.2 million. Our accumulated deficit at December 31, 2013 was $99.4 million. At December 31, 2013, our cash position was $23.9 million, and our working capital position was $22.6 million. We have no revenues from operations, and we anticipate we will have no operating revenues until we place the Bear Lodge REE Project into production. Our Bear Lodge REE Project is currently in the exploration stage as defined under U.S. GAAP.
We do not have sufficient funds to complete feasibility studies, permitting, development and construction at the Bear Lodge REE Project. We will be required to raise additional funding through equity sales, asset sales in the form of joint venture relationships, debt instruments and/or alternative means of funding. Failure to obtain sufficient financing may result in the delay or indefinite postponement of feasibility studies, process test work, development and/or production at our Bear Lodge REE Project. We cannot be certain that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable or acceptable to us. Future financings may cause dilution to our shareholders. Our ability to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions as well as our business performance and the economic attractiveness of our Bear Lodge REE Project.
We are an exploration stage company and have no history of producing mineral products from our properties. Any future revenues and profits are uncertain.
We have no history of mining or refining any mineral products, and our Bear Lodge REE Project is not currently producing. There can be no assurance that the Bear Lodge REE Project or any properties that we may acquire in the future will be successfully developed, placed into production, produce minerals in commercial quantities or otherwise generate operating earnings. Advancing properties from the exploration stage into development and commercial production requires significant capital and time and will be subject to further feasibility studies, permitting requirements and construction of the mine, processing plants, roads and related works and infrastructure. We will continue to incur losses until our mining activities successfully reach commercial production levels and generate sufficient revenue to fund continuing operations. There is no certainty that we will produce revenue from any source, operate profitably or provide a return on investment in the future. If we are unable to generate revenues or profits, our shareholders might not be able to realize returns on their investment in our common shares.
The planned development of our Bear Lodge REE Project involves numerous uncertainties that could affect the feasibility or profitability of such project.
Mine development projects typically require a number of years and significant expenditures during the exploration and development phases before production is possible. The economic feasibility of exploration and development projects is based on many factors such as:
·
completion of definitive feasibility studies to further verify Mineral Resources, establish Mineral Reserves and commercial viability;
·
the timing and cost, which can be considerable, of further exploration, preparing feasibility studies, permitting and construction of infrastructure, mining and processing facilities;
·
securing a commercially viable sales outlet for our products;
·
the availability and costs of drill equipment and skilled labor, as required;
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·
the availability and cost of appropriate processing and/or refining arrangements, if required;
·
compliance with environmental and other governmental approval and permit requirements;
·
the availability of funds to finance exploration, development and construction activities, as warranted;
·
future prices for rare earth minerals;
·
potential opposition from non-governmental organizations, environmental groups or local groups or inhabitants that may delay or prevent development activities;
·
potential increases in exploration, construction and operating costs due to changes in the cost of fuel, power, materials and supplies;
·
potential shortages of mineral processing, construction and other facilities-related equipment and supplies; and
·
the ability to attract and retain talent for development and operation of the project.
It is common in exploration programs and in development, construction and mine start-up to experience unexpected problems and delays. Accordingly, our activities may not result in profitable mining operations, and we may not succeed in establishing mining operations or profitably producing REE products at our Bear Lodge REE Project.
We are preparing an updated PFS on our Bear Lodge REE Project that will include project economics using the most recent Mineral Resource information and our process technology, and the results of this updated PFS are uncertain.
We expect to report an updated PFS in the first half of 2014 that will include the most recent Mineral Resource information and reflect our process technology. This will update our prior PFS, dated April 13, 2012 and our technical report dated June 26, 2013. The results of this study are uncertain and may indicate project economics that are less favorable than previously reported. We cannot ensure that the results will support a DFS based upon the same inputs. As a result, we may need to update our processing technology and project development plan to enhance economics and further study aspects of the Bear Lodge REE Project. This could result in significant additional delays and expense and could make financing efforts with respect to such efforts more difficult.
Our growth depends on the exploration, permitting, development and operation of our Bear Lodge REE Project, which is our only rare earth project.
Our only rare earth exploration project at this time is our Bear Lodge REE Project. Our continued viability is based on successfully implementing our strategy, including completion of a DFS, permitting and construction of a mine and processing facilities in an expected timeframe. If we are unable to implement our strategy or in the event of the imposition of significant additional regulatory burdens or delays or a significant deterioration of the market for rare earth products, our ability to maintain a sustainable or profitable business would be materially adversely affected.
Increased costs could affect our ability to bring our projects into production and, once in production, to be profitable.
We have estimated the capital costs required to bring the Bear Lodge REE Project into commercial production in our PFS, dated April 13, 2012. Our updated PFS may suggest that our actual costs may be higher than we presently anticipate, which could make it more difficult to finance the project or to successfully establish mining operations at the Bear Lodge REE Project.
We anticipate that our future operating costs at the Bear Lodge REE Project will vary from one year to the next due to a number of factors, such as changing ore grade, metallurgy and revisions to mine plans in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities such as oil, gas, acid, steel, rubber and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production less profitable or not profitable at all. A material increase in costs could also impact our ability to commence or maintain future development or mining operations.
We may be adversely affected by fluctuations in demand for, and prices of, rare earth products.
Because our primary focus currently is the advancement of the Bear Lodge REE Project, changes in demand for, and the market price of, REE products could significantly affect our ability to develop and finance the Bear Lodge REE Project or eventually attain commercial production and profitability. The value and price of our common shares may
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be adversely affected by declines in the prices of REE products. REE product prices may fluctuate and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the relative value of the U.S. dollar against foreign currencies on the world market, global and regional supply and demand for REE products, and the political and economic conditions of countries that produce REE.
As a result of the recent global economic crisis, REE prices declined by approximately 50% between 2008 and the end of the third quarter of 2009. REE prices increased significantly during 2010 and most of 2011 and then again experienced declines in 2012 and 2013. Protracted periods of low prices for REE products could significantly reduce our ability to develop the Bear Lodge REE Project or, if we attain commercial production, to maintain operations.
Demand for REE products is impacted by demand for downstream products incorporating rare earths, including hybrid and electric vehicles, wind power equipment and other clean technology products, as well as demand in the general automotive and electronics industries. Lack of growth in these markets could adversely affect the demand for REE products, which would have a material adverse effect on our Bear Lodge REE Project and our business. In contrast, periods of high REE prices are generally beneficial to us; however, strong REE prices, as well as real or perceived disruptions in the supply of REE, also create economic pressure to identify or create non-REE alternate technologies that ultimately could depress future long-term demand for REE products, and at the same time may incentivize development of otherwise marginal mining properties. For example, automobile manufacturers have previously announced plans to develop motors for electric and hybrid cars that do not require REE products due to concerns about the available supply of rare earths. If the automobile industry or other industries reduce their reliance on rare earth products, the resulting change in demand could have a material adverse effect on our business.
In particular, if prices or demand for rare earths were to decline, our stock price would likely decline, and this could also impair our ability to obtain capital needed for our Bear Lodge REE Project and our ability to find purchasers for our products at prices acceptable to us.
An increase in the global supply of rare earth products, dumping and/or predatory pricing by our competitors may materially adversely affect our ability to raise capital, develop our Bear Lodge REE Project or operate profitably.
The pricing and demand for REE products is affected by a number of factors beyond our control, including growth of economic development and the global supply and demand for REE products.
REE supply markets continue to be dominated by production from China, which produced an estimated 86% of the global REE production in 2013.
China also dominates the manufacture of metals, NdFeB magnets and other products from rare earths. The threat of increased competition may lead our competitors to engage in predatory pricing behavior or manipulation of the available supply of REEs. Any increase in the amount of rare earth products exported from other nations and increased competition may result in price reductions, reduced margins or loss of potential market share, any of which could materially adversely affect our profitability. As a result of these factors, we may not be able to compete effectively against our future competitors.
The success of our business may depend, in part, on the establishment of new uses and markets for rare earth products.
The success of our business may depend, in part, on the establishment of new markets by us or third parties for certain rare earth products. Although we plan to produce rare earth products for use in end products such as NdFeB magnets, which are used in critical existing and emerging technologies such as hybrid and electric vehicles, wind power turbines and compact fluorescent lighting, the success of our business may depend on the creation of new markets and the successful commercialization of REE products in existing and emerging markets. Any unexpected costs or delays in the commercialization of any of the foregoing products or applications could have a material adverse effect on our ability to develop our Bear Lodge REE Project and operate our business.
We rely on our proprietary technology and processes to further our Project.
We rely on a combination of trade secret protection, nondisclosure and licensing agreements, patents and trademarks to establish and protect our proprietary intellectual property rights. We utilize trade secret protection and nondisclosure agreements to protect our proprietary rare earth technology. We have filed two U.S. patent applications which were combined into a single utility patent application filing with the U.S. Patent Office and
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initiated a Patent Cooperation Treaty Application claiming priority to the U.S. Provisional Applications. These intellectual property rights may be challenged or infringed upon by third parties or we may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms. In addition, our intellectual property could be subject to infringement or other unauthorized use outside of the United States. In such case, our ability to protect our intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices are undeveloped or do not recognize or protect intellectual property rights to the same extent as the United States. Unauthorized use of our intellectual property rights or inability to preserve existing intellectual property rights could adversely impact our competitive position and results of operations. The loss of our patents could reduce the value of the related products.
The success of our business depends, in part, on our ability to incorporate our proprietary process technologies, and we could encounter unforeseen problems or costs, or both, in scaling up our technologies to commercial applications.
Our Mineral Resource estimates may be inaccurate and any material change in these estimates could affect the viability of placing our property into production.
Unless otherwise indicated, our Mineral Resources are based upon estimates made by independent geologists and our internal geologists. When making determinations about whether to advance the Bear Lodge REE Project to development, we must rely upon such estimated calculations as to the quantity and grades of mineralization on the property. Until mineralized material is actually mined and processed, Mineral Resources and grades of such mineralization must be considered estimates only, which may prove to be unreliable.
Because we have not completed a DFS on the Bear Lodge REE Project and have not commenced actual production, mineralization estimates, including Mineral Resource estimates, for the Bear Lodge REE Project may require adjustments or downward revisions. In addition, the grade of material ultimately mined, if any, may differ from that indicated in our Mineral Resource estimates or in future definitive feasibility studies.
Our Mineral Resource estimates have been determined based on assumed cut-off grades that depend upon estimated RE prices, recovery rates and project operating costs. Any significant change in cut-off grades could reduce our estimates of mineralization, or the amount of mineralization to be extracted, and could have a material adverse effect on our share price and the value of our Bear Lodge REE Project.
We are subject to significant governmental regulations, including permitting, licensing and approval processes that affect our operations and impact the cost of conducting our business.
Our current and future activities will be governed by laws and regulations, including:
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laws and regulations governing mineral concession acquisition, prospecting, development, mining and production;
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laws and regulations related to exports, taxes and fees;
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labor standards and regulations related to occupational health and mine safety;
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environmental standards and regulations related to waste disposal, toxic and radioactive substances, land use and environmental protection; and
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other matters.
We believe we hold, or are in the process of obtaining, all necessary licenses and permits to carry on the activities that we are currently conducting or propose to conduct under applicable laws and regulations. Such licenses and permits are subject to changes in regulations and changes in various operating circumstances. There can be no guarantee that we will be able to obtain all necessary licenses and permits that may be required to maintain the current or planned exploration, development and mining activities including constructing mines and/or processing facilities and commencing operations at the Bear Lodge REE Project. In addition, if we proceed to production on the Bear Lodge REE Project or any other properties that we may acquire in the future, we must obtain and comply with permits and licenses that may contain specific operating conditions. There can be no assurance that we will be able to obtain such permits and licenses or that we will be able to comply with any such conditions. Costs related to applying for and obtaining permits and licenses may be prohibitive and could delay planned exploration and
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development activities. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions.
Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on our operations, cause increases in capital expenditures or production costs or reductions in levels of production at producing properties, or require abandonment or delays in development of new mining properties.
Our operations are subject to environmental risks and compliance with environmental regulations that are increasing and costly.
All phases of our operations are subject to environmental regulation in the jurisdictions in which we operate. Environmental legislation is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Compliance with environmental laws and regulations and future changes in these laws and regulations may require significant capital outlays and may cause material changes or delays in our current and planned operations and future activities. It is possible that future changes in these laws or regulations could have a significant adverse impact on our Bear Lodge REE Project or some portion of our business, causing us to re-evaluate those activities at that time.
Examples of some of the current U.S. federal laws which may affect our operations and may impact future business and operations include, but are not limited to, the following:
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The National Environmental Policy Act (NEPA) requires federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of proposed actions, including issuance of permits to mining facilities, and assessing alternatives to those actions. If a proposed action could significantly affect the environment, the agency must prepare a detailed statement known as an Environmental Impact Statement (EIS). The U.S. Environmental Protection Agency will, and other federal agencies and any interested third parties can, review and comment on the scoping of the EIS and the adequacy of and findings set forth in the draft and final EIS. We are required to undertake the NEPA process for the Bear Lodge Property permitting. The NEPA process can cause delays in issuance of required permits or result in changes to a project to mitigate its potential environmental impacts that can in turn impact the economic feasibility of a proposed project or the ability to construct or operate the Bear Lodge Property or other properties entirely.
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The Nuclear Regulatory Commission (NRC), pursuant to its authority under the Atomic Energy Act, oversees the regulatory framework governing the control of mining and processing of rare earth elements that contain uranium and thorium, including issuance of licenses for source material or processing involving concentrations of uranium or thorium that exceeds 0.05% by weight. If a proposed action, including waste generation, results in materials with concentrations of uranium and thorium that equal or exceed 0.05% by weight, a license to possess may be required. We are required to follow the regulations pertaining to license application for the Bear Lodge REE Project. The licensing process, including a NEPA review relating to the NRC licensing, may cause delays or result in changes to the project design to mitigate impacts as required under the licensing issuance.
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The Comprehensive Environmental, Response, Compensation, and Liability Act (CERCLA), and comparable state statutes, impose strict joint and several liabilities on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. The government has filed claims requiring cleanup actions, demands for reimbursement for government-incurred cleanup costs, or natural resource damages. Neighboring landowners and other third parties have also filed claims for personal injury and property damage allegedly caused by hazardous substances released into the environment.
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The Federal Resource Conservation and Recovery Act (RCRA), and comparable state statutes, govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances found on exploration, mining and processing sites long after activities on such sites have been completed.
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The Clean Air Act, as amended, restricts the emission of air pollutants from many sources, including mining and processing activities. Our mining operations may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and the use of mobile sources such as trucks and heavy construction equipment that are subject to review, monitoring and/or control requirements under the Clean Air Act and state air quality laws. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on our production levels or result in additional capital expenditures in order to comply with the regulations.
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The Clean Water Act (CWA), and comparable state statutes, imposes restrictions and controls on the discharge of pollutants into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the Environmental Protection Agency (EPA) or an analogous state agency. The CWA regulates storm water handling at mining facilities and requires a storm water discharge permit for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations. The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill material in wetlands and other waters of the United States unless authorized by an appropriately issued permit. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.
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The Safe Drinking Water Act (SDWA) and the Underground Injection Control (UIC) program promulgated thereunder, regulate the drilling and operation of subsurface injection wells. EPA directly administers the UIC program in some states and in others the responsibility for the program has been delegated to the state. Violation of these regulations and/or contamination of groundwater by mining related activities may result in fines, penalties, and/or remediation costs, among other sanctions and liabilities under the SWDA and state laws. In addition, third-party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.
Regulations and pending legislation governing issues involving climate change could result in increased operating costs that could have a material adverse effect on our business.
A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impact of climate change and various climate change interest groups. Legislation and increased regulation regarding climate change could impose significant costs on us and/or our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and/or other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete.
Even without such regulation, increased awareness and any adverse publicity in the global marketplace about the mining or rare earth industries potential impacts on climate change could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic circumstances in areas in which we operate. These may include changes in precipitation, and storm patterns and intensities, water shortages and changing temperatures. These factors may have an adverse impact on the cost, production and financial performance of our operations.
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We depend on key personnel, and the absence of any of these individuals could adversely affect our business.
Our success is currently largely dependent on the performance, retention and abilities of our directors, officers, management and employees. The loss of the services of these persons could have a material adverse effect on our business and prospects. There is no assurance that we can maintain the services of our directors, officers, employees or other qualified personnel required to operate our business. Failure to do so could have a material adverse effect on us and our prospects. We do not maintain key man life insurance policies on any of our officers or employees.
We may experience difficulty attracting and retaining qualified management to meet the needs of our anticipated growth, and the failure to manage our growth effectively could have an adverse effect on our business and financial condition.
Competition for additional qualified management is intense, and we may be unable to attract and retain additional key personnel, or to attract and retain personnel on acceptable terms. Management personnel are currently limited, and they may be unable to manage our expansion successfully. Failure to do so could have a material adverse effect on our business, results of operations and financial condition. As the business is substantially dependent upon the directors, executive officers and consultants, the lack of non-competition agreements poses a significant risk in the event such persons were to resign or be terminated from such positions. Under such circumstances, such persons may provide confidential information and key contacts to competitors, and we may have difficulties in preventing the disclosure of such information. Such disclosure may have a material adverse effect on our business and operations.
A shortage of equipment and supplies could adversely affect our ability to operate our business.
We depend on various supplies and equipment to carry out our exploration and, if warranted, future development and mining operations. The shortage of such supplies, equipment and parts could have a material adverse effect on our ability to carry out our planned activities and increase our operating costs and expenses.
Mineral exploration and development and mining are potentially dangerous and subject to conditions or events beyond our control, which could have a material adverse effect on our business and plans.
Mineral exploration and development and mining involve various types of risks and hazards, including:
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environmental hazards;
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power outages;
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metallurgical and other processing problems;
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unusual or unexpected geological formations;
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personal injury, flooding, fire, explosions, cave-ins, earthquakes, landslides and rock-bursts;
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mineral exploration or mining accidents;
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metal losses;
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fluctuations in exploration, development and production costs;
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labor disputes;
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unanticipated variations in grade;
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mechanical equipment failure;
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periodic interruptions due to inclement or hazardous weather conditions, and
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regulatory curtailments or shutdowns.
These risks could result in damage to, or destruction of, mineral properties, production equipment, facilities or other properties, personal injury, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums or at all. Insurance against certain environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from production, may be prohibitively expensive. We may suffer a material adverse effect on our business, if we incur losses related to any significant events that are not covered by insurance policies.
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Mineral exploration and development is highly speculative, and certain inherent exploration risks could have a negative effect on our business.
Our long-term success depends on our ability to develop mineral deposits on existing properties and other properties we may acquire, if any, that can then be developed into commercially viable mining operations. Resource exploration is a highly speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. Substantial expenditures are required to establish Proven and Probable Mineral Reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. The marketability of minerals acquired or discovered by us may be affected by numerous factors that are beyond our control and cannot be accurately predicted, such as market pricing fluctuations, the proximity and capacity of milling facilities, mineral markets demand and processing equipment, and such other factors such as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. Any one or a combination of these factors may result in our failure to receive an adequate return on our investment capital. The decision to abandon a project may have an adverse effect on the market value of our common shares and our ability to raise future financing.
Title to our Bear Lodge Property may be subject to other claims, or we may lose our interest in our claims, which could affect our property rights and claims.
There are risks that title to our Bear Lodge Property may be challenged or impugned. Our Bear Lodge Property is located in the state of Wyoming and may be subject to prior unrecorded agreements, transfers or native land claims, and title may be affected by undetected defects. There may be valid challenges to the title of our Bear Lodge Property which, if successful, could impair development and/or operations.
The vast majority of the mineral rights to our Bear Lodge Property consist of unpatented mining claims created and maintained in accordance with the U.S. general mining law. Unpatented mining claims are unique property interests and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims can be uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations with which the owner of an unpatented mining claim must comply in order to locate and maintain a valid claim. Also, unpatented mining claims are always subject to possible challenges by third parties or validity contests by the federal government. The validity of an unpatented mining claim, in terms of both its location and its maintenance, is dependent on strict compliance with not only a complex body of U.S. federal and state statutory, but also administrative and judicial decisions interpreting those statutes and case law. In addition, there may be limitations as to the completeness of public records that determine prior claimants that could impact the validity and ownership of unpatented mining claims.
Our operations are subject to significant uninsured risks that could negatively impact future profitability as we maintain limited insurance against our operations.
The exploration of our Bear Lodge Property entails certain risks including unexpected or unusual operating conditions, such as rock bursts, cave-ins, flooding, fire and earthquakes. It is not always possible to insure against these risks. Should events such as these arise, they could reduce or eliminate our assets and shareholder equity as well as result in increased costs and/or a decline in the value of our assets or common shares. We expect to maintain general liability, director and officer insurance, and some insurance against our assets but not with expectation of full replacement value. We may decide to update or amend our insurance portfolio in the future, if coverage is available at economically viable rates.
Increased competition could adversely affect our ability to attract necessary capital funding and/or acquire suitable producing properties or prospects for mineral exploration in the future.
The mining industry is intensely competitive. Significant competition exists for the acquisition of properties producing or capable of producing REE, gold or other metals. We may be at a competitive disadvantage in acquiring additional mining properties because we must compete with other individuals and companies, many of which have greater financial resources, operational experience and technical capabilities than we have. We may also encounter increasing competition from other mining companies in our efforts to hire experienced mining professionals.
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Competition for exploration resources at all levels can be very intense, particularly affecting the availability of manpower, drill rigs, mining equipment and production equipment. Increased competition could adversely affect our ability to attract necessary capital funding, acquire suitable producing properties or prospects for mineral exploration in the future or attract or retain key personnel or outside technical resources.
Mineral operations are subject to market factors outside of our control that could negatively impact our business or operations
.
The marketability of minerals is affected by numerous factors beyond our control including market forces, government regulations relating to prices, taxes, royalties, allowable production, imports, exports, and overall supply and demand for rare earths. One or more of these risk elements could have an impact on the costs of our operations and if significant enough, reduce the profitability or viability of operations.
Land reclamation requirements for our properties may be burdensome and expensive.
Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies as well as companies with mining operations in order to minimize long-term effects of land disturbance.
Reclamation may include requirements to:
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control dispersion of potentially deleterious effluents;
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treat ground and surface water to drinking water standards; and
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reasonably re-establish pre-disturbance vegetation and land forms.
In order to carry out reclamation obligations imposed on us in connection with the potential future development activities at the Bear Lodge Property, we must allocate financial resources that might otherwise be spent on further exploration and future development programs. We have set up a provision for reclamation obligations as currently anticipated for the Bear Lodge Property, as appropriate, but this provision may not be adequate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected.
Legislation has been proposed that would significantly affect the mining industry and our business.
Members of the U.S. Congress have repeatedly introduced bills which would supplant or alter the provisions of the Mining Law of 1872. If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on unpatented mining claims. Such bills have proposed, among other things, to (i) impose a federal royalty on production from unpatented mining claims, (ii) impose time limits on the effectiveness of plans of operation that may not coincide with mine life, (iii) impose more stringent environmental compliance and reclamation requirements on activities on unpatented mining claims, (iv) establish a mechanism that would allow states, localities and Native American tribes to petition for the withdrawal of identified tracts of federal land from the operation of the U.S. general mining laws, and (v) allow for administrative determinations that mining would not be allowed in situations where undue degradation of the federal lands in question could not be prevented. Although we cannot predict what legislated royalties might be, the enactment of a federal royalty or other provisions contained in these proposed bills could adversely affect the potential for development of our unpatented mining claims. Passage of such legislation could adversely affect our ability to operate or our financial performance.
Foreign currency fluctuations may have a negative impact on our financial position and results.
Certain property interests are subject to foreign currency fluctuations that may adversely affect our financial position and results. We maintain some accounts in Canadian dollars, and thus, any appreciation in the U.S. Dollar against the Canadian Dollar increases the costs of carrying out our operations in the United States. Management may or may not enter into foreign currency contracts from time-to-time to mitigate this risk. Failing to enter into currency contracts, or the risk in the currency contracts themselves, may cause losses due to adverse foreign currency fluctuations.
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Our directors and senior management may be engaged in other businesses. Potential conflicts of interest and other obligations of management could interfere with corporate operations.
Some of our directors, officers and key contractors may be engaged in additional businesses, and situations may arise where our directors, officers and contractors could be in direct competition with us. Conflicts, if any, will be dealt with in accordance with the relevant provisions of applicable policies, regulations and legislation. Some of our directors and officers are or may become directors or officers of other entities engaged in other business ventures. As a result of their other business endeavors, our directors, officers and contractors may not be able to devote sufficient time to our business affairs, which may negatively affect our ability to conduct ongoing operations and to generate revenues.
We are subject to the risk of litigation, the causes and costs of which are not always known.
The Company is subject to litigation arising in the normal course of business and may be involved in disputes that may result in litigation. Although we are not aware of any material pending or threatened litigation or of any proceedings known to be contemplated which are, or would be, likely to have a material adverse effect upon us or our operations, taken as a whole, the causes of potential future litigation cannot be known and may arise from, among other things, business activities, environmental and health and safety concerns, share price volatility or failure to comply with disclosure obligations. The results of litigation cannot be predicted with certainty but could include costly damage awards or settlements, fines, and the loss of licenses, concessions or rights, among other things. If the Company is unable to resolve a dispute favorably, either by judicial determination or settlement, it may have a material adverse effect on the Companys financial performance, cash flow and results of operations.
We depend upon information technology systems, which are subject to disruption, damage, failure and risks associated with implementation and integration.
We depend upon information technology systems in the conduct of our operations. Our information technology systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. Various measures have been implemented to manage our risks related to the information technology systems and network disruptions. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to downtimes, operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.
U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling persons and officers.
It may be difficult to bring and enforce suits against us. We are incorporated in the province of British Columbia, Canada under the British Columbia
Business Corporations Act
. Some of our directors are residents of Canada, and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult for U.S. holders of our common shares to effect service of process on these persons within the United States or to realize in the United States upon judgments rendered against them. In addition, a shareholder should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or other laws of the United States.
We do not currently intend to pay cash dividends.
We have not declared any dividends since our incorporation and do not anticipate that we will do so in the foreseeable future. Our present policy is to retain all available funds for use in our business development, operations and expansion. Payment of future cash dividends, if any, will be at the discretion of the board of directors and will depend on our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that the board of directors considers relevant. In the absence of dividends, investors will only see a return on their investment if the value of our common shares appreciates.
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Dilution through outstanding common share options could adversely affect our shareholders.
Because our success is highly dependent upon our employees and consultants, we have granted to some or all of our key employees, directors and consultants options to purchase common shares as non-cash incentives. To the extent that significant numbers of such options may be granted and exercised, the interests of the other shareholders may be diluted. As of December 31, 2013, there are 4,705,500 common share purchase options outstanding, which, if exercised, would result in an additional 4,705,500 common shares being issued and outstanding which is approximately 10% of our common shares outstanding as of December 31, 2013.
Future sales of our securities in the public or private markets could adversely affect the trading price of our common shares and our ability to continue to raise funds in new stock offerings.
It is likely that we will sell common shares or securities exercisable or convertible into common shares in order to finance our planned exploration and development activities. Future sales of substantial amounts of our securities in the public or private markets would dilute our existing shareholders and potentially adversely affect the trading prices of our common shares and could impair our ability to raise capital through future offerings of securities. Alternatively, we may rely on debt financing and assume debt obligations that require us to make substantial interest and capital payments that could adversely affect our business and future growth potential.
Price volatility of our publicly traded securities could adversely affect investors portfolios.
In recent years, the securities markets in the United States and Canada have experienced high levels of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. It is likely that continual fluctuations in price will occur. It may be anticipated that any quoted market for the common shares will be subject to market trends and conditions generally, notwithstanding any potential success we have in creating revenues, cash flows or earnings. The price of our common shares has been subject to price and volume volatility in the past and will likely continue to be subject to such volatility in the future.
We likely were a passive foreign investment company (PFIC) for the period ended December 31, 2013, which could have adverse U.S. federal income tax consequences for U.S. shareholders.
Investors in our common shares that are U.S. taxpayers (referred to as a U.S. shareholder) should be aware that we believe that we were a passive foreign investment company (a PFIC) for the period ended December 31, 2013, and based on current business plans and financial expectations, we expect that we will be a PFIC for the year ending December 31, 2014, and may be a PFIC in subsequent years. We will use commercially reasonable efforts to provide information as to our status as a PFIC and the PFIC status of any subsidiary in which the Company owns more than 50% of such subsidiarys total aggregate voting power to U.S. shareholders who make a written request for such information.
If we are a PFIC for any year during a U.S. shareholders holding period, then such U.S. shareholder generally will be subject to a special, highly adverse tax regime with respect to so-called excess distributions received on our common shares. Gain realized upon a disposition of our common shares (including upon certain dispositions that would otherwise be tax-free) also will be treated as excess distributions.
The portion of any excess distribution, including gains treated as excess distributions, would be allocated ratably to the U.S. shareholder's holding period. The portion allocated to the current year and to prior years before we first became a PFIC would be includible as ordinary income in the current year. The portion allocated to all other prior years would be taxed at the highest marginal rate applicable to ordinary income for each such year (regardless of the U.S. shareholders actual marginal rate for that year and without reduction by any losses or loss carryforwards) and would be subject to interest charges to reflect the value of the U.S. income tax deferral.
A U.S. shareholder may make a qualified electing fund election (QEF election) or a mark-to-market election with respect to our common shares to mitigate the adverse tax rules that apply to PFICs, but these elections may accelerate the recognition of taxable income and may result in the recognition of ordinary income. A U.S. shareholder who makes a QEF election generally must report on a current basis its pro rata share of our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our shareholders. A U.S. shareholder may make a QEF election only if the U.S. shareholder receives certain information (known as a PFIC annual information statement) from us annually. We will use commercially reasonable efforts
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to make available to a U.S. shareholder, upon written request, an accurate PFIC annual information statement for each year in which the Company is a PFIC. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of our common shares over the U.S. shareholder basis therein.
Additional special adverse rules also apply to U.S. shareholders who own our common shares if we are a PFIC and have a non-U.S. subsidiary that is also a PFIC. Special adverse rules that impact certain estate planning goals could apply to our common stock if we are a PFIC. Each U.S. shareholder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, and U.S. state and local consequences of the PFIC rules and the acquisition, ownership, and disposition of our common shares if we are or become a PFIC.
ITEM 2. PROPERTIES
BEAR LODGE PROPERTY (Wyoming, USA)
The Bear Lodge Property contains two projects, the Bear Lodge REE Project and the Sundance Gold Project. The Bear Lodge REE Project consists of the Bull Hill Mine, inclusive of the Bull Hill and Whitetail Ridge deposits and the exploration targets of East Taylor and Carbon, all of which are located near Sundance, Wyoming. The Bear Lodge REE Project also includes the proposed hydrometallurgical plant site to be located on private property in Upton, Wyoming. Additional details on each of these areas are set forth below under the heading Bear Lodge REE Project. We hold our interest in the Bear Lodge Property through our wholly owned subsidiary, Rare Element Resources, Inc. (RER, Inc.).
The Bear Lodge Property is located in central Crook County, northeastern Wyoming, and is approximately 19 kilometers northwest of Sundance, Wyoming. The Bear Lodge Property is accessible by paved and well-maintained gravel roads. The Bear Lodge Property lies within the Black Hills National Forest along the crest of the northern part of the Bear Lodge Mountains, a narrow northwest-trending range. Physiographically, it is the northwest extension of the Black Hills in western South Dakota. The range is characterized by rolling grass and pine-covered mountains that reach elevations of 1,950 meters within the Bear Lodge Property. The mountains have moderate slopes covered by western yellow pine forest interspersed with dense thickets of brush. Narrow grassy meadows cover the upper reaches of seasonal drainages. The lowest point within the Bear Lodge Property is about 1,768 meters in elevation. The climate during the summer is warm and relatively dry, followed by cold winters with variable amounts of snow.
We control 100% of the mineral rights at the Bear Lodge Property, consisting of both unpatented mining claims and adjacent property owned in fee by the Company. We hold 499 unpatented mining claims located on land administered by the USFS and 634 acres (257 hectares) of owned property for a total of approximately 9,000 acres (3,642 hectares). The Bear Lodge Property is located within parts of Sections 5, 7 through 9, Sections 14 through 23 and Sections 26 through 35 in Township 52 North and Range 63 West, Sixth Principal Meridian, Crook County, Wyoming. All of the public property mining claims are unpatented, such that the paramount title of the land is held by the United States of America. Claim maintenance payments and related documents must be filed annually with the Wyoming State Office of the U.S. Bureau of Land Management (the BLM) and recorded with the Crook County, Wyoming Clerk and Recorder to keep the claims from terminating by operation of law, and the claims can be maintained in good standing so long as those requirements are met. All of our Mineral Resources are located on mining claims that we hold.
Our 100% interest in the 499 unpatented mining claims was, in part, acquired from Phelps Dodge Exploration Company (now a subsidiary of Freeport-McMoran Copper and Gold Inc. (Freeport) by way of a Mineral Lease and Option for Deed in 2000. An additional 404 claims were transferred from Newmont Mining Corporation (Newmont) to us in May, 2010. A portion of the Newmont transferred claims had been held in a joint venture between Newmont and the Company since 2006 until such joint venture was terminated in May 2010. A portion of the Newmont-transferred claims (approximately 327) are subject to a perpetual 0.5% production Net Smelter Return (NSR) royalty on minerals, except for rare earth minerals, which are excluded from any royalty obligation. The Newmont transferred claims are further subject to a right of first refusal granted to Newmont for any sale or
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disposition of the claims to third parties by the Company. This right of first refusal applies only to parties or partners for non-rare earth extraction and terminates on May 14, 2015. In addition and in connection with the Newmont joint venture termination, the Company assumed all obligations of Newmont under a consulting agreement with Bronco Creek Exploration and Mining, Inc. (Bronco Creek) requiring the Company to pay as a finders fee, 3% of exploration expenditures made during each quarter until a cap of $500,000 has been paid. The claims covered by the Bronco Creek consulting agreement are outside of the rare earth deposits and are further subject to a 0.25% NSR royalty with a cap of $3,000,000. We located additional unpatented mining claims in 2011 and 2012, and now have a 100% interest in 499 total unpatented mining claims.
Some of our mining claims and a portion of a defined area of influence surrounding the claims were previously subject to a production royalty of 2% of NSR royalty payable to Freeport, but the royalty was purchased by us in March 2009. As a result of the agreements above, we hold an unencumbered rare-earth project including all 499 unpatented mining claims, free of royalties for rare-earth production.
The Company acquired 634 acres (257 hectares) in 2013 through a land exchange with the state of Wyoming, State Board of Land Commissioners within the Bear Lodge Project area and now owns that land in fee (the Land Exchange Property). The Wyoming Patent to the land issued by the State Board of Land Commissioners provides for a production royalty retained by the state of Wyoming for any minerals produced from the Land Exchange Property, at a rate to be determined by the parties commensurate with likely situated mineral royalties in the state of Wyoming at the time of production. Notwithstanding the above, the Land Exchange Property was acquired for ancillary facilities in support of the actual mining operation on adjacent land, and we do not intend at this time to extract minerals therefrom. The state of Wyoming Patent states that the mineral estate of the Land Exchange Property will revert to Wyoming state ownership at the conclusion of mining and termination of the Companys mining permit.
Exploration has been carried out on the Bear Lodge Property since its discovery in 1949. In addition to Freeport, several mining companies have conducted exploration and drilling programs at or near the Bear Lodge Property since the discovery of mineralization. No mining or operations were conducted at the Bear Lodge Property by any of the prior owners.
Necessary infrastructure, such as housing, food and fuel is available in townships in close proximity to the Bear Lodge Property. Supplies can be delivered on both US Interstate Highway 90 and rail lines. A Burlington Northern rail transport line also runs through Moorcroft, 55 kilometers west of Sundance. The Gillette, Wyoming area, located approximately 89 kilometers to the west, has two coal-fired power plants and is currently a major logistics center for Powder River Basin activity and will serve as such for any development at the Bear Lodge Property. The current size of the Bear Lodge Property is sufficiently large to support a mining operation, with no foreseeable obstacles regarding expansion, subject to a favorable environmental permitting outcome.
We are not aware of any outstanding environmental liabilities, except for required reclamation work associated with our ongoing exploration and drilling activities. Our 2014 exploration plan is subject to USFS approval prior to commencement. Previous exploration activities were approved by both the USFS and the Wyoming Department of Environmental Quality. We have an approved reclamation plan and a posted surety bond to cover the required reclamation associated with our exploration and environmental related work.
Additional local, state and federal permits will be required for mining and processing operations should we decide to proceed to mine development and operations.
27
Bear Lodge Property Location Map
Geological Setting
The Bear Lodge Mountains of northeastern Wyoming are composed primarily of the upper levels of a mineralized Tertiary alkaline
‐
igneous complex that is a component of the Black Hills Uplift of western South Dakota and northeastern Wyoming. Tertiary alkaline intrusive bodies in the northern Black Hills occur along a N70-80W trending belt that extends from Bear Butte in South Dakota, through the Bear Lodge Mountains, to Devils Tower and Missouri Buttes in northeastern Wyoming. The Bear Lodge mining district is located in the Bear Lodge Mountains, near the western end of the northern Black Hills intrusive belt. The Bear Lodge Mountains expose and are underlain by multiple alkaline plugs, sills, and dikes intruded into Precambrian basement and Paleozoic and Mesozoic sedimentary rocks approximately 38 52 million years ago. Rare earth and gold mineralization are found in separate areas of the central crest and northern part of the Bear Lodge Mountains.
The Bear Lodge alkaline-igneous complex is a northwest-trending alkaline intrusive dome with dimensions of approximately 10 kilometers NW-SE by 6 kilometers NE-SW. The complex consists predominantly of multiple intrusions of phonolite, trachyte, and other alkaline igneous rocks, and a variety of associated breccias and diatremes.
Exploration and Drilling
Historical exploration in the Bear Lodge district, including REE exploration carried out by the Company from 2004 through 2012 is summarized in the Technical Report. Exploration activities carried out by the Company in 2013 were limited as the focus turned to development drilling at the Bull Hill and Whitetail Ridge deposits. These exploration activities included geochemical, geophysical, and mineralogical modeling of the district and individual deposits.
The 2013 drilling program was conducted in two phases. The first phase took place in June and July and involved infill drilling at the Whitetail Ridge deposit in order to upgrade a significant portion of the resource from the Inferred Mineral Resource category to the Indicated Mineral Resource category. During this phase, 14 core holes were drilled for a total of 11,697.5 feet (3,556.3 m). The second phase was designed to upgrade part of the high-
28
grade resource at the Bull Hill deposit to the Measured Mineral Resource category, develop a more detailed model of the REE grade distribution and provide additional material for bulk metallurgical testing. It consisted of 21 core holes totaling 10,650.5 ft (3,247.1 m) and 6 reverse circulation (RC) twin holes totaling 2,730 ft (832.3 m). The RC twin holes were drilled using a center return hammer with the objective of minimizing hole erosion and obtaining assay data directly correlative to that from the adjacent core holes.
Bear Lodge REE Project
The Bear Lodge REE Project comprises several REE resource areas within the Bear Lodge Property. REE mineralization at the Bear Lodge Property occurs in the northern lobe of the Bear Lodge alkaline-igneous complex. Most of the important REE deposits and occurrences within the Bear Lodge alkaline complex are contained within the Companys block of unpatented lode mining claims. The REE deposits are located primarily in the vicinity of the Bull Hill deposit.
REE mineralized bodies occur as dikes, veins, and stockworks within the Bull Hill deposit area and Whitetail deposit area of the Bear Lodge REE Project. The mineralization includes a well-defined, near-surface, oxidized FMR zone; a near-surface, oxidized, but incompletely leached, carbonatite zone (oxide-carbonate zone); a transitional or mixed zone (oxide + sulfide); and a deeper sulfide-bearing carbonatite (a high-carbonate igneous rock) zone. The oxide-carbonate and transitional zones were referred to collectively as a transitional zone in some early previous news releases and technical reports. The mineralized zones were subsequently sub-classified, based on key characteristics of those zones. The FMR dikes and veins contain no matrix carbonates or sulfides. The sulfides are completely oxidized to hydrous iron oxides, and the non-REE bearing carbonate minerals (calcite and strontianite) show near-complete leaching from the zone, which ranges from the surface to depths of about 90 150 meters. The oxide-carbonate zone generally occurs beneath the oxide zone, but may breach the surface locally in select dikes. It is characterized by the near absence of sulfides, with the residual iron oxides formed during almost complete oxidation of the former sulfide minerals, and by variable amounts of relict matrix carbonates (calcite ± strontianite) and the REE mineral, ancylite (a hydrous Sr-REE carbonate).
Bull Hill Mine
The Bull Hill Mine contains the Mineral Resources reported in the Companys technical report dated
May 2, 2013 as amended June 26, 2013
, as discussed below. The Bull Hill Mine Mineral Resources, for purposes of this Annual Report, comprises mineralized material from both the Bull Hill deposit and Whitetail Ridge deposit resource areas. The mineralized bodies occur as steeply-dipping FMR-carbonatite dike swarms and associated stockwork. Geological interpretation of results from the 2010 - 2013 drill programs indicates that the Bull Hill resource area is dominated by northwest-striking mineralized bodies in the southern two-thirds of the resource area, while the northern part of the resource area exhibits a transitional change in strike from dominantly northwesterly to almost due north. The dike swarm primarily intrudes heterolithic intrusive breccia of the Bull Hill diatreme and adjacent trachytic and phonolitic intrusive rocks. Carbonatite dikes at depth are interpreted to transition toward the surface into oxide-carbonate and FMR bodies. The mineralized structures range in size from veinlets to large dikes more than 30 meters in width. The Bull Hill deposit resource consists of one dominant dike set and several subsidiary dike sets in a swarm that has dimensions of more than 457 meters along strike and less than 100 meters in width. The dikes appear to pinch and swell in both strike and dip directions, and they can be traced in drill holes more than 305 meters down dip.
The Whitetail Ridge deposit occurs about 700 meters northwest of the Bull Hill deposit. The REE mineralization consists of northwest- and north-striking FMR dikes, and an FMR stockwork zone that is also elongated northeasterly, with dimensions of roughly 380 meters by 290 meters. The enveloping geophysical anomaly is larger and may indicate a broader distribution of REE mineralization beneath the extensive soil and colluvial cover. Drilling conducted in 2011 through 2013 indicates that much of the mineralization is confined within the volume of the Whitetail Ridge diatreme. Preliminary mineralogical studies by the Company indicate that the REE mineralization occurs in REE fluorocarbonates (bastnasite, parisite, and synchysite), cerianite [(Ce, Th)O2], and subordinate monazite (an REE-Th phosphate). The Whitetail Ridge deposit mineralization is enriched in HREE, relative to the Bull Hill deposit, and both are enriched in CREE.
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Prefeasibility Study
The Companys PFS dated April 13, 2012 for the Bull Hill Mine was authored principally by Roche Engineering Inc. (Roche), which undertook the process engineering and mine and mill capital and operating cost estimation for the project at that time. This PFS for the Bull Hill Mine was updated in a subsequent NI 43-101 technical report to reflect an increase in the Mineral Resource estimate, based on drilling and assay data that were unavailable when this PFS was prepared.
The report dated May 2, 2013 as amended June 26, 2013 is titled Rare Element Resources Inc. Bear Lodge Project Canadian National Instrument 43-101 Technical Report on the Mineral Reserves and Resources and Development of the Bull Hill Mine (the Technical Report) is available under our profile at
www.sedar.com
. The Technical Report was authored by Alan C. Noble, P.E. of Ore Reserves Engineering in Lakewood, Colorado and all sections of the Technical Report were prepared under his supervision. Mr. Noble is an independent Qualified Person, as defined by NI 43-101. Other Qualified Persons, as defined by NI 43-101, that participated in the preparation of the Technical Report are Jaye T. Pickarts, P.E., Chief Operating Officer for Rare Element, who contributed to the preparation of Chapters 13, 17, and 20; and Richard K. Larsen, Licensed Professional Geologist in the states of Wyoming, Utah, and Washington, and Registered Member of the Society for Mining, Metallurgy, and Exploration (SME), who contributed to the preparation of Chapters 6, 7, and 8 of the Technical Report, both under supervision of Mr. Noble, the primary author of the Technical Report.
In 2013, the Company worked on optimizing both the Bull Hill Mine plan and the mineral process methods. This has resulted in the Company undertaking an updated PFS to reflect these significant changes. The updated PFS is targeted for completion in the first half of 2014.
Mineral Resources Estimates
The Mineral Resources estimates were developed by Alan C. Noble, P.E. of Ore Reserves Engineering, an independent Qualified Person as defined by NI 43-101, and approved by the Rare Element management team.
Cautionary Note to U.S. Investors Concerning Estimates of Measured and Indicated Mineral Resources
This Annual Report uses the terms Measured Mineral Resources and Indicated Mineral Resources. We advise U.S. investors that while those terms are recognized and required by Canadian regulations, the SEC does not recognize them.
U.S. investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into Mineral Reserves.
|
|
|
|
|
|
|
Measured and Indicated Resource Estimate for the Bull Hill Mine
(1)
effective March 17, 2014
(2)
|
Cut-off Grade
(3)
|
Bull Hill
|
Whitetail
|
Total
|
Resource Classification
|
Tonnes (in millions)
|
Average Grade (% TREO)
|
Tonnes (in millions)
|
Average Grade (% TREO)
|
Tonnes (in millions)
|
Average Grade (% TREO)
|
Measured
|
2.58
|
3.88
|
-
|
-
|
2.58
|
3.88
|
Indicated
|
9.30
|
3.16
|
3.83
|
2.50
|
13.13
|
2.96
|
Measured & Indicated
|
11.88
|
3.31
|
3.83
|
2.50
|
15.71
|
3.11
|
(1) Bull Hill Mine includes both the Bull Hill and Whitetail Ridge deposits.
|
(2) Inclusive of previously reported Mineral Reserves under NI 43-101.
(3) Cut-off grade of 1.5% was developed using estimated operating costs, forecast recoveries and internal assumed long-term REO prices as of September 2013.
|
Cautionary Note to U.S. Investors Concerning Estimates of Inferred Mineral Resources
This Annual Report uses the term Inferred Mineral Resources. We advise U.S. investors that while this term is recognized and required by NI 43-101, the SEC does not recognize it. Inferred Mineral Resources have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of Inferred Mineral Resources will ever be upgraded to a higher category. In accordance with Canadian rules, estimates of Inferred Mineral Resources cannot form the basis of feasibility or other economic studies.
U.S. investors are cautioned not to assume that part or all of the Inferred Mineral Resource exists or is economically or legally mineable.
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|
|
|
Inferred Mineral Resources Estimate for the Bull Hill Mine
(1)
effective March 17, 2014
(
2
)
|
Cut-off Grade
|
Oxides >1.5
|
Resource Classification
|
Tonnes (in millions)
|
Average Grade (% TREO)
|
Inferred
|
26.62
|
2.58
|
|
|
|
(1) Bull Hill Mine includes both the Bull Hill and Whitetail Ridge deposits.
|
(2) Cut-off grade of 1.5% was developed using estimated operating costs, forecast recoveries and internal assumed long-term REO prices as of September 2013.
|
The Mineral Resources estimates, effective March 17, 2014, justify further technical work, including drilling, metallurgical testing, and engineering studies. Considerable in-fill definition drilling is required to increase the confidence level of the mineral resource and upgrade more of the Inferred Resources to the Measured and Indicated Mineral Resources categories.
The major dike sets in all of the resource areas are accompanied by peripheral zones of lower-grade stockwork REE mineralization. The term stockwork refers to a body of rock cut by a network of small veins or dikes that contain the mineralization. REE grades in the stockwork zones generally range between about 0.5% and 2.5% REO.
Quality Assurance
The Mineral Resource estimate was completed by Mr. Alan C. Noble, P.E., principal engineer of Ore Reserves Engineering, and is based on geological interpretations supplied by the Company to Ore Reserves Engineering and subsequently modified by Ore Reserves Engineering. Mr. Noble is an independent Qualified Person for the purposes of NI 43-101 and verified the data disclosed here.
Rare Elements field programs were carried out under the supervision of Dr. James G. Clark, formerly the Companys Vice President of Exploration. Dr. Clark was a senior geologist and, subsequently, exploration supervisor for Hecla Mining Company during the late 1980s and early 1990s, and was responsible for that companys exploration of Bull Hill and the Bear Lodge district, and its initial discovery of the Bull Hill resource area. A detailed QA/QC program was implemented for the 2007 through 2013 drill programs. The QA/QC program was organized by Dr. Jeffrey Jaacks. Drs. Jaacks and Clark verified the sampling procedures and QA/QC data delivered to Ore Reserves Engineering. They share the opinion that the data are of good quality and suitable for use in the Mineral Resource estimate.
Metallurgy
and Mineralization
The Mineral Resource size is sensitive to an assumed cut-off grade and to metallurgical operating costs. The mineable pit includes the known Measured and Indicated (M&I) Mineral Resource as disclosed in the Technical Report and as modified by 2013 drilling results and is inclusive of the adjacent Whitetail Resource Area that extends towards the northwest. The current mine plan for the Bull Hill Mine will allow mining and processing for approximately 43 years.
A Physical Upgrade (PUG) Plant, located within the Project area, is designed to maximize concentration of the rare earth minerals and produce a mineral concentrate using a crushing, screening, and gravity separation process depending on the material type. The PUG process is designed to concentrate the rare earth-bearing fines and reduce the physical mass. There are areas of the mineable pit that contain variable amounts of weathered oxide material or oxide-carbonate (OxCa) mineralized material, and that contain variable grades of stockwork mineralization adjacent to the higher grade material. Each of these material types has a different upgrade percentage and mass reduction in the PUG circuit. The mining plan anticipates exposure to a distinct high-grade zone early in the project that will allow for preferential mining in the initial years of the mine. Low and mid-grade material will also be mined and stockpiled for future PUG processing.
Stockpiled material is planned to be PUG-processed up through year 43 when they are estimated to be depleted. Reclamation of mining-related facilities will occur during mine operations, where applicable, and upon completion of mining and stockpiling of materials. Other facilities, including the PUG, will be reclaimed as soon as the stockpiled materials are depleted.
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The mineral concentrate produced at the PUG Plant is planned to be transported to a hydrometallurgical plant near Upton, Wyoming via covered trucks. The hydrometallurgical plant will process the mineral concentrate by acid leaching followed by additional chemical processing to remove impurities and precipitation to produce the final TREO product. The tailings produced from the process will be neutralized and stored in a double-lined tailings storage facility (TSF) adjacent to the hydrometallurgical plant.
The Company conducts metallurgical test work primarily at SGS Lakefield of Lakefield, Ontario, Canada.
Other Exploration Target Areas at the Bear Lodge REE Project
Discovery of high-grade REE mineralization at the East Taylor and Carbon target areas expanded the area of known REE mineralization outside of the Bull Hill and Whitetail Ridge deposits, and further delineate a district underlain by significant and potentially economic REE mineralization. The data indicates that the Bear Lodge REE Project area covers a crudely elliptical area that extends approximately 1,750 meters northwest-southeast by 1,300 meters northeast-southwest. The Carbon exploration target area is located northwest of the Bull Hill deposit, and the East Taylor target is located west of the Bull Hill deposit. Drill assay data from the East Taylor and Carbon exploration targets identify these areas as zones of HREE-enrichment relative to the Bull Hill deposit. All are enriched in CREEs. These two exploration target areas, along with the Whitetail Ridge deposit, are peripheral to the Bull Hill deposit. They are characterized both by high TREO grades, and by some of the highest HREE grades of any known North American deposit. They are particularly enriched in Eu, Tb, Dy and Y.
The discovery of these target areas indicates good potential for additional deposits of high-grade REE in the western half of the Bear Lodge REE Project, and those deposits appear particularly enriched in HREE.
Sundance Gold Project
The Sundance Gold Project is the second project located on our Bear Lodge Property. For a description of the propertys location, ownership, accessibility, infrastructure and climate, see the section heading Item 2. Properties Bear Lodge Property (Wyoming, USA) above. There was no exploration work in 2013 for this project, and no exploration work is planned in 2014.
Mineral Resources Estimates
The Sundance Gold Project contains an NI 43-101 compliant Inferred Mineral Resource with an effective date of March 15, 2011, prepared by Ore Reserves Engineering of Lakewood, Colorado. Total Inferred Mineral Resources assuming a $1200/oz. gold price were 69,300,000 tonnes with a grade of 0.42/g/t Au.
The Technical Report summarizes the project and is available on SEDAR at
www.sedar.com
.