ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The information disclosed in this annual report, and the information
incorporated by reference herein, include “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking
statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions
or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,”
“plan,” “possible,” “potential,” “predict,” “project,” “should,”
“would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that
a statement is not forward-looking.
The forward-looking statements contained or incorporated
by reference in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential
effects on us and speak only as of the date of each such statement. There can be no assurance that future developments affecting us will
be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond
our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied
by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in Item 1A,
“Risk Factors,” and this Item 7 of this annual report. Should one or more of these risks or uncertainties materialize, or
should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking
statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities laws.
The following discussion should be read in conjunction with our audited
consolidated annual financial statements and footnotes thereto contained in this annual report.
37
Overview
General
Western Uranium & Vanadium
Corp. (“Western” or the “Company”, formerly Western Uranium Corporation) was incorporated in December 2006
under the Ontario Business Corporations Act. On November 20, 2014, the Company completed a listing process on the Canadian Securities
Exchange (“CSE”). As part of that process, the Company acquired 100% of the members’ interests of Pinon Ridge Mining
LLC (“PRM”), a Delaware limited liability company. The transaction constituted a reverse takeover (“RTO”)
of Western by PRM. Subsequent to obtaining appropriate shareholder approvals, the Company reconstituted its Board of Directors
and senior management team. Effective September 16, 2015, Western completed its acquisition of Black Range Minerals Limited (“Black
Range”).
On August 18, 2014, the Company
closed on the purchase of certain mining properties in Colorado and Utah from Energy Fuels Holding Corp. Assets purchased included
both owned and leased lands in Utah and Colorado and all represent properties that have been previously mined for uranium to varying
degrees in the past. The acquisition included the purchase of the Sunday Mine Complex. The Sunday Mine Complex is located in western
San Miguel County, Colorado. The complex consists of the following five individual mines: the Sunday mine, the Carnation mine,
the Saint Jude mine, the West Sunday mine and the Topaz mine. The operation of each of these mines requires a separate permit and
all such permits have been obtained by Western and are currently valid. In addition, each of the mines has good access to a paved
highway, electric power to existing declines, office/storage/shop and change buildings, and extensive underground haulage development
with several vent shafts complete with exhaust fans. These properties were formerly secured by a first priority interest collateralizing
a $500,000 promissory note which was paid in full on August 31, 2018 and thus the properties are now held free and clear of encumbrances.
The Sunday Mine Complex is the Company’s core resource property and was assigned active status effective June 2019.
On September 16, 2015, Western
completed its acquisition of Black Range, an Australian company that was listed on the Australian Securities Exchange until the
acquisition was completed. The acquisition terms were pursuant to a definitive Merger Implementation Agreement entered into between
Western and Black Range. Pursuant to the agreement, Western acquired all of the issued shares of Black Range by way of Scheme of
Arrangement (“the Scheme”) under the Australian Corporation Act 2001 (Cth) (the “Black Range Transaction”),
with Black Range shareholders being issued common shares of Western on a 1 for 750 basis. On August 25, 2015, the Scheme was approved
by the shareholders of Black Range and on September 4, 2015, Black Range received approval by the Federal Court of Australia. In
addition, Western issued to certain employees, directors and consultants options to purchase Western common shares. Such stock
options were intended to replace Black Range stock options outstanding prior to the Black Range Transaction on the same 1 for 750
basis.
The Company has registered offices
at 330 Bay Street, Suite 1400, Toronto, Ontario, Canada, M5H 2S8 and its common shares are listed on the CSE under the symbol “WUC”
and are traded on the OTCQX Best Market under the symbol “WSTRF”. Its principal business activity is the acquisition
and development of uranium and vanadium resource properties in the states of Utah and Colorado in the United States of America
(“United States”).
38
Recent Developments
Kinetic Separation Licensing
During 2016, the Company submitted
documentation to the Colorado Department of Public Health and Environment (“CDPHE”) for a determination ruling regarding
the type of license which may be required for the application of Kinetic Separation at the Sunday Mine Complex within the state
of Colorado. During May and June of 2016, CDPHE held four public meetings in several cities in Colorado as part of the process.
On July 22, 2016 CDPHE closed the comment period. In connection with this matter, the CDPHE consulted with the United States Nuclear
Regulatory Commission (“NRC”). In response, the CDPHE received an advisory opinion dated October 16, 2016, which did
not contain support for the NRC’s opinion and with which the Company’s regulatory counsel does not agree. NRC’s
advisory opinion recommended that Kinetic Separation should be regulated as a milling operation but did recognize that there may
be exemptions to certain milling regulatory requirements because of the benign nature of the non-uranium bearing sands produced
after Kinetic Separation is completed on uranium-bearing ores. On December 1, 2016, the CDPHE issued a determination that the proposed
Kinetic Separation operations at the Sunday Mine must be regulated by the CDPHE through a milling license. The 2018 increase in
the blended uranium/vanadium price has brought the Company closer to production. Beginning in 2017, the Company’s regulatory
counsel has prepared significant documentation in preparation for a prospective submission. On September 13, 2019, the Company’s
regulatory counsel submitted a white paper to the NRC entitled Recommendations on the Proper Legal and Policy Interpretation for
Using Kinetic Separation Processes at Uranium Mine Sites. On July 24, 2020, the NRC staff responded with a letter in support of
the original conclusion; Western’s regulatory counsel is evaluating alternatives.
Letter of Intent with Pinon Ridge Mill
The Company entered into a letter of intent with Pinon Ridge
Corporation for use of its Kinetic Separation at the permitted uranium recovery facilities at the Pinon Ridge Mill site. The letter
of intent provided for the processing of all of Western’s ore produced by its mines in the region at the mill site to produce
U308 and vanadium utilizing both the application of Kinetic Separation and traditional milling techniques, at a cost to be determined
in a definitive agreement. The Pinon Ridge Mill license is held by Pinon Ridge Resources Corporation, a wholly owned subsidiary
of Pinon Ridge Corporation, which is owned by Mr. George Glasier, our Chief Executive Officer and a director, Mr. Andrew Wilder,
a director, and Mr. Russell Fryer, a former executive chairman and director. On February 22, 2019, the Company and Pinon Ridge
Corporation cancelled and released each other from obligations under the letter of intent.
Incentive Stock Option Plan
The Company maintains an Incentive Stock Plan (the “Plan”)
which permits the granting of stock options as incentive compensation. See Item 12, “Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters – Equity Compensation Plan Information,” for more detailed information about
the Plan.
Sunday Mine Complex Vanadium Project Supplementary Requirements
On June 18, 2019, The Colorado Division of Reclamation, Mining and
Safety (CDRMS) issued a letter indicating limited supplementary requirements prior to the removal of material (ore) from the Sunday Mine
Complex underground workings and further offsite handling. In a follow-up meeting on Monday, August 5, 2019, the Company agreed to construct
an ore pad on the surface before stockpiling or storing ore outside the mine and acquire certification that the storm drainage system
was constructed in accordance with the existing plan prior to the removal of ore from the SMC. On August 15, 2019, the Company sent a
response letter to CDRMS providing the requested additional information regarding the reopening of the Sunday Mine Complex mines. On September
18, 2019, the CDRMS issued a letter indicating that activities at the Sunday Mines did not meet the definition of a “Mining Operation”
and thus at that time, the Division did not consider the permits in active status. In the letter, CDRMS reiterated that prior to the removal
of ore material from the mines and upgrading to an active status, the CDRMS surface requirements needed to be completed, inspected and
accepted by CDRMS. The CDRMS further noted requirements that would apply to Western’s proposed off-site kinetic separation test
facility. On April 9, 2020, CDRMS issued a letter acknowledging that the Construction Completion Reports and As-Built Certifications for
the ore storage pads have been reviewed and accepted. It was further noted that prior to ore being removed and placed on the ore pad an
inspection would still need to be completed, but due to COVID-19 the CDRMS staff were subject to a no-travel policy under the Governor’s
Stay-at-Home Order. Hence, CDRMS offered an alternative remote procedure requiring extensive photo documentation and a signed affidavit
from both the manufacturer and installation crew certifying that the ore pad liner was installed in accordance with the approved Environmental
Protection Plan. Additional requirements included the submission of a comprehensive hydrogeology report and completion of the Sunday Mine
Complex MLRB permit hearing process. With this approval, Western has now completed every project, study, and submission stipulated as
required under the existing Environmental Protection Plan by CDMRS, and all submissions have been made. The hydrogeology report is currently
being reviewed by CDMRS and approval is needed to conduct mining activities below the static groundwater level or to affect ground or
surface waters. The Company is working toward the completion of an updated Plan of Operations, which is required for resumption of mining
activities at the Topaz Mine.
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Sunday Mine Complex Permitting Status
On February 4, 2020, the Colorado DRMS sent a Notice of Hearing to
Declare Termination of Mining Operations related to the status of the mining permits issued by the state of Colorado for the Sunday Mine
Complex. At issue is the application of an unchallenged Colorado Court of Appeals Opinion for a separate mine (Van 4) with very different
facts that are retroactively modifying DRMS rules and regulations. The Company maintains that it was timely in meeting existing rules
and regulations. The hearing was scheduled to be held during several monthly MLRB Board meetings, but this matter has been delayed several
times. The permit hearing was held during the MLRB Board monthly meeting on July 22, 2020. At issue was the status of the five existing
permits which comprise the Sunday Mine Complex. Due to COVID restrictions, the hearing took place utilizing a virtual-only format. The
Company prevailed in a 3 to 1 decision which acknowledged that the work completed at the Sunday Mines under DRMS oversight was timely
and sufficient for Western to maintain these permits. In a subsequent July 30, 2020 letter, the DRMS notified the Company that the status
of the five permits (Sunday, West Sunday, St. Jude, Carnation, and Topaz) had been changed to Active status effective June 10, 2019, the
original date on which the change of the status was approved. On August 23, 2020, the Company initiated a request for temporary cessation
status for the Sunday Mine Complex as the mines had not be restarted within a 180-day window due to the direct and indirect impacts of
the COVID-19 pandemic. Accordingly, a permit hearing was scheduled for October 21, 2020 to determine temporary cessation status. In a
unanimous vote, the MLRB approved temporary cessation status for each of the five Sunday Mine Complex permits (Sunday, West Sunday, St.
Jude, Carnation, and Topaz). On October 9, 2020, the MLRB issued a board order which finalized the findings of the July 22, 2020 permit
hearing. On November 10, 2020, the MLRB issued a board order which finalized the findings of the October 21, 2020 permit hearing. On November
6, 2020, the MLRB signed an order placing the five Sunday Mine Complex mine permits into Temporary Cessation. On November 12, 2020, a
coalition of environmental groups filed a complaint against the MLRB seeking a partial appeal of the July 22, 2020 decision by requesting
termination of the Topaz Mine permit. On December 15, 2020, the same coalition of environmental groups amended their complaint against
the MLRB seeking a partial appeal of the October 21, 2020 decision requesting termination of the Topaz Mine permit. The Company has joined
with the MLRB in defense of their July 22, 2020 and October 21, 2020 decisions. According to the judicial review timetable, an opening
brief and answer brief will be filed with the Denver District Court during second quarter 2021.
Van 4 Mine Permitting Status
A prior owner of the Van 4 Mine had been
granted a first Temporary Cessation from reclamation of the mine by the Colorado Mined Land Reclamation Board (“MLRB”)
which was set to expire June 23, 2017. Prior to its expiration, PRM formally requested an extension through a second Temporary
Cessation. PRM subsequently participated in a public process which culminated in a hearing on July 26, 2017. Prior to the hearing,
three non-profit organizations who pursue environmental and conservation objectives filed a brief objecting to the extension. The
MLRB board members voted to grant a second five-year Temporary Cessation for the Van 4 Mine. Thereafter, the three objecting parties
filed a lawsuit on September 18, 2017. The MLRB was named as the defendant and PRM was named as a party to the case due to the
Colorado law requirement that any lawsuit filed after a hearing must include all of the parties in the proceeding. The plaintiff
organizations are seeking for the court to set aside the board order granting a second five-year Temporary Cessation period to
PRM for the Van 4 Mine. The Colorado state Attorney General was defending this action in the Denver Colorado District Court. On
May 8, 2018, the Denver Colorado District Court ruled in favor, whereby the additional five-year temporary cessation period was
granted. The Plaintiffs appealed this ruling to the Colorado Court of Appeals and on July 25, 2019 the ruling was reversed, ruling
that the additional five-year temporary cessation period should not have been granted.
The MLRB and the Colorado Attorney General advised Western that it
will not make an additional appeal of the ruling. Further, the time period for an appeal has passed. The Judge has subsequently issued
an instruction for the MLRB to issue an order revoking the permit and putting the Van 4 Mine into reclamation. On January 22, 2020, the
MLRB held a hearing and on March 2, 2020, the MLRB issued an order vacating the Van 4 Temporary Cessation, revoking the permit and ordered
commencement of final reclamation, which must be completed within five (5) years. The Company commenced reclamation of the Van 4 Mine
but progress has been delayed both by COVID-19 restrictions and countywide fire and open flame restrictions. The reclamation cost is fully
covered by the reclamation bonds posted upon acquisition of the property.
Warrant Extension for Warrants issued in 2018 Private Placement
On April 20, 2020, the Company announced the extension by nine months
of the common share purchase warrants (the “Warrants”) issued to investors in non-brokered private placements that closed
on May 4, June 30, and August 9, 2018 (the “2018 Private Placements”) and the amendment of the trigger price in the acceleration
clause of each Warrant. A total of 2,671,116 Warrants were amended.
In accordance with ASC 178-20-35-3, the
Company must record a warrant modification expense to account for the effects of these amendments to the original terms. See Note
8 for more information.
40
Each Warrant originally entitled the holder to purchase one common
share in the capital of the Company at a price of $1.15 CAD at any time prior to May 4, June 30, and August 9, 2020, respectively. Each
of these dates was extended by nine months such that the Warrants expired or will expire on February 4, April 30, and May 9, 2021, respectively.
Additionally, each Warrant originally contained an acceleration clause that allowed the Company to accelerate the expiration date of the
warrant if the closing price of the Company’s common shares was equal to or greater than $2.50 CAD for a period of five consecutive
trading dates. The Company is amending this clause by lowering the trigger price from $2.50 CAD to $1.83 CAD. The Company performed a
Black-Scholes analysis to determine the fair value of the Warrants using the pre-modification terms and the post-modification terms on
the date of modification. Based on the Company’s analysis performed, the Company recorded a warrant modification expense of $639,012
on April 20, 2020.
Uranium Section 232 Investigation/Nuclear Fuel Working Group
Process
In the United States, an investigation
under Section 232 of the Trade Expansion Act of 1962 (U.S) was undertaken by the U.S Department of Commerce (“DoC”)
in 2018 to assess the impact to national security of the importation of the vast majority of uranium utilized by the ~100 operative
civilian nuclear reactors within the United States. In response to the Section 232 report, the White House disseminated a Presidential
Memoranda in July 2019. At that time, President Trump formed the Nuclear Fuel Working Group (“NFWG”) to find solutions
for reviving and expanding domestic nuclear fuel production and reinvigorating recommendations. As a first step in addressing this
issue, President Trump’s Fiscal Year 2021 budget included a $150 million line item each year for the next decade to establish
a Uranium Reserve.
Thereafter, U.S. Energy Secretary Dan Brouillette
stated that the Department of Energy (“DoE”) was preparing to release the NFWG report in early March 2020. This announcement
was made prior to the coronavirus contagion which has delayed the report release. In parallel, Congress has requested that the
DoE prepare a report on Key Challenges in Reconstituting Uranium Mining and Conversion Capabilities in the United States. The extended
deadline for industry to supply responses to the Request For Information launched by DoE was March 30, 2020. Western continued
to participate in the process and made an RFI submission.
On April 23, 2020, the DoE released the
NFWG report entitled “Restoring America’s Competitive Nuclear Energy Advantage – A strategy to assure U.S. national
security”. The report outlines a strategy for the reestablishment of critical capabilities and direct support to the front
end of the U.S. domestic nuclear fuel cycle. The Summary of Measures included the following which could benefit U.S. uranium miners:
direct purchases of uranium by establishing a Uranium Reserve, ending DoE’s program which barters uranium and re-evaluates
DoE’s Excess Uranium Inventory Management Policy, creating a level playing field for all energy sources in power markets,
streamlining regulatory reform and land access for uranium dumping in the U.S. market. The NFWG finding and recommendations presented
by the DoE are a positive outcome for U.S. uranium miners; however, the ultimate outcome and timing remains uncertain as this is
a continuing process requiring approvals and budget appropriation from Congress and implementation by U.S. government agencies.
Presently, Western is one of the very few uranium companies holding previously producing, permitted, and developed mines in the
United States and thus well positioned to benefit in the short-term from a favorable determination.
Implementation of the NFWG recommendations remains an ongoing process.
During July 2020, the U.S. House Committee on Appropriations has decided not to provide $150 million uranium reserve funding for fiscal
2021. Instead the DoE was given 180 days to develop and submit the uranium reserve plan. Subsequently, Senator Barrasso introduced a bill
into the U.S. Senate entitled the “The American Nuclear Infrastructure Act of 2020 and Representatives Latta and Cheney introduced
a bill to the U.S. House entitled the Nuclear Prosperity and Security Act. These bills implement the key provisions of the NFWG report’s
recommendations; both include the creation of a national uranium reserve. In parallel, the preparation of a Congressional report by the
DoE on Key Challenges in Reconstituting Uranium Mining and Conversion Capabilities in the United States remains ongoing and is anticipated
to be imminently completed for the U.S. House. In November 2020, Post-U.S. election, the Senate Committee on Appropriations released its
funding measures and allocations recommending the creation and funding of the American Uranium Reserve. In October 2020, the DoC extended
the Russian Suspension Agreement for an additional 20 years until 2040. Existing categories of quotas on imports of Russian uranium into
the U.S. were reduced by a graduated scale and additional provisions were modified to eliminate loopholes. An extension of this agreement
was among the NFWG’s recommendations. In further implementation of the report’s recommendations, the DoE made multiple investment
awards to companies advancing new nuclear technologies. TerraPower and X-energy received awards to build demonstration models of their
advanced reactor designs and NuScale received support to deploy the first U.S. small modular reactor (“SMR”) plan comprised
of 12 modules at the Idaho National Laboratory. The International Development Finance Corp. signed a letter of intent to finance NuScale’s
development of 42 SMR modules in South Africa. In an acknowledgement of the future growth potential of new nuclear technologies, the U.S.
government has increased its industry support to a level not seen in decades, this is being done to level the playing field versus state-sponsored
foreign entities. In December 2020, the U.S.Congress passed the COVID-Relief and Omnibus Spending Bill, which included $75 million for
the establishment of a strategic U.S. Uranium Reserve. The U.S. Department of Energy (DOE) is working on establishing the parameters of
the program. There will be a different outcome as a President Biden appointed Secretary of Energy transitioned into leading DOE and the
focus has shifted toward climate change.
41
Vanadium Section 232 Investigation
In the United States, a petition for an investigation under Section
232 of the Trade Expansion Act of 1962 (U.S) was requested by two domestic companies in November 2019. On June 2, 2020, the U.S. Secretary
of Commerce, Wilbur Ross, initiated an investigation into whether the present quantities or circumstances of vanadium imports into the
United States threaten to impair the national security. The initiation of this investigation created a 270 day window, which lasts until
February 2021, to compile and deliver a report to the President of the United States. The Section 232 National Security Investigation
of Imports of Vanadium was concluded and a report submitted to President Biden on February 22, 2021. The President has 90 days to decide
if he concurs with the findings and recommendations and determine whether to take an action to mitigate the impairment of national security.
As a remedy, the petitioners requested a 40% tariff on vanadium imports from all sources and the establishment of a stockpiling program.
Separate tariff rate quotas were requested for refined vanadium products. Western has submitted survey data and continues to support this
investigation and remedies that level the playing field for U.S. domestic producers versus foreign state-sponsored competitors.
Paycheck Protection Program Loan
On May 6, 2020, the Company obtained the
PPP Loan of $73,116. The loan had a fixed interest rate of 1%, required the Company to make seventeen (17) monthly payments, after
a seven months deferral period, and had a maturity date of May 6, 2022. The entirety of the loan principal was eligible for forgiveness
to the extent that the proceeds are utilized toward permissible expenditures within the initial period. On December 2, 2020, the
Company received notice from the U.S. Small Business Association that the entire PPP Loan balance and accrued interest would be
forgiven in full on such date. The Company recorded the loan forgiveness as other income in the Company’s consolidated statement
of operations.
COVID-19 Coronavirus
In December 2019, a novel strain of coronavirus,
COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID- 19 coronavirus has spread to multiple countries,
including the United States and Canada. As the COVID-19 coronavirus continues to spread in the United States and Canada, we may
experience disruptions that could severely impact our business. The global outbreak of the COVID-19 coronavirus continues to evolve
rapidly. The extent to which the COVID-19 coronavirus may impact our business will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak,
travel restrictions and social distancing in the United States, Canada and other countries, business closures or business disruptions
and the effectiveness of actions taken in the United States, Canada and other countries to contain and treat the disease.
42
Year Ended December 31, 2020 as Compared to the Year Ended
December 31, 2019
The following table presents the Company’s financial results
for the years ended December 31, 2020 and 2019.
For the Years Ended December 31,
Revenue
Expenses
Warrant modification expense 639,012 -
Gain on forgiveness of debt (73,116 ) -
Other Comprehensive income (expense)
Net loss per share - basic and diluted $ (0.08 ) $ (0.07 )
Summary:
Our consolidated net loss for the years ended December 31, 2020
and 2019 was $2,392,890 and $2,110,227 or $0.08 and $0.07 per share, respectively. The principal components of these year over
year changes are discussed below.
Our comprehensive loss for the years ended December 31, 2020
and 2019 was $2,503,750 and $2,066,741, respectively.
Revenue
Our revenue for the years ended December 31, 2020 and 2019 was
$54,620 and $44,620, respectively. This revenue resulted from lease revenue pursuant to a July 2017 oil and gas lease agreement,
which was extended for an additional three years in 2020, February 2018 pipeline easement, and July 2018 right-of-way agreement.
This revenue is derived from the Weld County Colorado (DJ-Basin) oil and gas property acquired in the Black Range Minerals acquisition.
Mining Expenditures
Mining expenditures for the year ended December 31, 2020 were
$393,182 as compared to $466,117 for the year ended December 31, 2019. The decrease in mining expenditures of $72,935, or 15.6%
was principally attributable to the Sunday Mine Complex project’s disproportionately larger exploration, development, and
mining expenditures during 2019 versus the surface infrastructure portion of the projects conducted during 2020.
43
Professional Fees
Professional fees for the year ended December 31, 2020 were $299,908 as
compared to $362,698 for the year ended December 31, 2019. The decrease in professional fees of $62,790, or 17.3% was due to a $31,123
decrease in professional services utilization and $21,890 decrease in investor relations expenditure.
General and Administrative
General and administrative expenses for the year ended December 31, 2020
were 1,136,049 as compared to $1,122,591 for the year ended December 31, 2019. The increase in general and administrative expense of $13,458,
or 1.2% is due to a $87,581 increase in payroll and stock based compensation, offset by a $53,160 decrease due to reduced 2020 travel
and convention expenditures and $25,373 in reduced utilities costs from not having the mines open during 2020.
Consulting Fees
Consulting fees for the year ended December 31, 2020 were $39,137
as compared to $138,096 for the year ended December 31, 2019. The decrease in consulting fees of $98,959, or 71.7% was principally
due to the Company’s reduced utilization of consultants during the current period.
Interest Expense, net
Interest expense, net, for the year ended December 31, 2020
was $13,338 as compared to $65,345 for the years ended December 31, 2019. The decrease of interest expense, net, of $52,007 was
due to the acceleration of amortization expense in 2019 on the Van 4 Mine as it was placed into reclamation.
Warrant Modification Expense
Warrant modification expense for the year ended December 31,
2020 was $639,012 as compared to $0 for the year ended December 31, 2019. The increase in warrant modification expense relates
to the Company’s decision on April 20, 2020 to extend warrants issued to investors during various 2018 private placements
and amend the trigger price in the acceleration clause for each tranche of warrants, resulting in a warrant modification expense
of $639,012.
Gain on Forgiveness of Debt
Gain on forgiveness of debt for the year ended December 31,
2020 was $73,116 as compared to $0 for the year ended December 31, 2019. The gain on forgiveness of debt relates to the Company
having its PPP Loan forgiven by the U.S. Small Business Association in December 2020.
Foreign Exchange
Foreign exchange (loss) gain for the year ended December 31,
2020 was $(110,860) as compared to $43,486 for the year ended December 31, 2019. The increase of the foreign exchange loss of $154,346
is primarily due to a swing from a gain in 2019 to a loss in 2020 from holding cash balances in Canadian Dollars and the translation
loss from using United Stated Dollars as the reporting currency.
Liquidity and Capital Resources
The Company’s cash balance as of December 31, 2020 was
$565,250. The Company’s cash position is highly dependent on its ability to raise capital through the issuance of debt and
equity and its management of expenditures for mining development and for fulfillment of its public company reporting responsibilities.
Management believes that in order to finance the development of the mining properties and Kinetic Separation, the Company will
be required to raise additional capital by way of debt and/or equity. The Company could potentially require additional capital
in 2021 if the scope of the Sunday Mine Complex expands. This outlook is based on the Company’s current financial position
and is subject to change if opportunities become available based on current exploration program results and/or external opportunities.
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Net cash used in operating activities
Net cash used in operating activities was $1,513,626 for the
year ended December 31, 2020, as compared with $1,784,544 for the year ended December 31, 2019. Of the $1,513,626 in net cash
used in operating activities, $2,392,890 is derived from our net loss before non-cash adjustments. During the years ended December
31, 2020, $10,628 represented an increase in depreciation, $15,712 represented an increase in accretion of reclamation liability,
$73,116 represented a gain on forgiveness of debt, $204,808 represented an increase in stock based compensation, $639,012 represented
an increase in warrant modification expense, $67,029 represented an increase in prepaid expenses and other current assets, $110,543
represented a decrease in accounts payable and accrued expenses, and $125,380 represented an increase in deferred revenue.
Net cash used in investing activities
Net cash used in investing activities was $0 for the year ended
December 31, 2020, as compared with $71,042 for the year ended December 31, 2019. This capital expenditure in 2019 represents the
initiation of expenditures needed to re-open the Sunday Mine Complex.
Net cash provided by financing activities
Net cash provided by financing activities for the years ended
December 31, 2020 and 2019 were $73,116 and $2,996,911, respectively. The Company applied for and received $73,116 in the form
of a PPP Loan on May 6, 2020 from the U.S. Small Business Association, as discussed above, which was forgiven on December 2, 2020.
Reclamation Liability
The Company’s mines are subject to
certain asset retirement obligations, which the Company has recorded as reclamation liabilities. The reclamation liabilities of
the United States mines are subject to legal and regulatory requirements, and estimates of the costs of reclamation are reviewed
periodically by the applicable regulatory authorities. The reclamation liability represents the Company’s best estimate of
the present value of future reclamation costs in connection with the mineral properties. The Company determined the gross reclamation
liabilities of the mineral properties as of December 31, 2020 and 2019, to be approximately $906,811 and $897,662, respectively.
On March 2, 2020, the Colorado Mined Land Reclamation Board (“MLRB”) issued an order vacating the Van 4 Temporary Cessation,
terminating mining operations and ordering commencement of final reclamation. The Company has begun the reclamation of the Van
4 Mine. The reclamation cost is fully covered by the reclamation bonds posted upon acquisition of the property. The Company adjusted
the fair value of its reclamation obligation for the Van 4 Mine. The portion of the reclamation liability related to the Van 4
Mine, and its related restricted cash are included in current liabilities, and current assets, respectively, at a value of $75,057.
The Company expects to begin incurring the reclamation liability after 2054 for all mines that are not in reclamation and accordingly,
has discounted the gross liabilities over their remaining lives using a discount rate of 5.4% to net discounted aggregated values
as of December 31, 2020 and 2019 of $309,940 and $294,228, respectively. The gross reclamation liabilities as of December 31, 2020
and 2019 are secured by financial warrantees in the amount of $906,811 and $897,662, respectively.
Oil and Gas Lease and Easement
On July 18, 2017, an oil and gas lease became effective with
respect to minerals and mineral rights owned by the Company of approximately 160 surface acres of the Company’s property
in Colorado. As consideration for entering into the lease, the Company received $120,000 during the third quarter of 2017. The
lease will be in force for an initial term of three years and may be extended by the lessee at 150% of the initial rate. The lessee
has also agreed to pay the Company a royalty of 18.75% of the lessee’s revenue attributed to oil and gas produced, saved,
and sold attributable to the net mineral interest. The Company is recognizing the initial payment incrementally over the term of
the lease.
On February 26, 2018, the Company entered into a further agreement
with the same entity as the oil and gas lease to provide them with an easement to an additional part of the Company’s property
solely for the purposes of transporting the oil and gas extracted via a pipeline. As consideration for the easement, the Company
received $36,960 during the first quarter of 2018. The Company is recognizing this payment incrementally over the eight-year term
of the easement.
45
On June 23, 2020, the same entity discussed above elected to
extend the oil and gas lease easement for three additional years commencing on the date the lease would have previously expired.
During the years ended December 31, 2020 and 2019, the Company
recognized aggregate revenue of $54,620 and $44,620, respectively, under these oil and gas lease arrangements.
In early 2020, Bison Oil & Gas traded this lease to Mallard Exploration
(“Mallard”). Mallard subsequently filed an application with the Colorado Oil & Gas Conservation Commission (“COGCC”)
to update the permitting to create a new pooled unit.
In late 2020, Mallard began development of the pooled unit. By March
31, 2021, the drilling portion of the project had been completed for the eight horizontal wells named Blue Teal Fed. Seven wells were
drilled to a 2.5 miles lateral length and one well was drilled to a 3.0 mile lateral length. These DJ-Basin wells target the Niobrara
formation. During May 2021, Mallard will commence the well completion stage, fracking, and flow back. Despite some weather delays over
the winter, the Operations Plan remains close to schedule and production is projected to commence during the third quarter of 2021. Upon
production, the Company will receive a net royalty of 1/16th.
Related Party Transactions
The Company has transacted with related parties pursuant to
service arrangements in the ordinary course of business, as follows:
Prior to the acquisition of Black Range, Mr. George Glasier,
the Company’s CEO, who is also a director (“Seller”), transferred his interest in a former joint venture with
Ablation Technologies, LLC to Black Range. In connection with the transfer, Black Range issued 25 million shares of Black Range
common stock to Seller and committed to pay AUD $500,000 (USD $392,086 as of December 31, 2020) to Seller within 60 days of the
first commercial application of the Kinetic Separation. Western assumed this contingent payment obligation in connection with the
acquisition of Black Range. At the date of the acquisition of Black Range, this contingent obligation was determined to be probable.
Since the deferred contingent consideration obligation is probable and the amount estimable, the Company recorded the deferred
contingent consideration as an assumed liability in the amount of $392,086 and $351,099 as of December 31, 2020 and 2019, respectively.
Going Concern
The Company has incurred continuing losses from its operations
and as of December 31, 2020, the Company had an accumulated deficit of $11,087,459 and working capital of $162,375.
Since inception, the Company has met its liquidity requirements
principally through the issuance of notes and the sale of its common shares.
The Company’s ability to continue its operations and to
pay its obligations when they become due is contingent upon the Company obtaining additional financing. Management’s plans
include seeking to procure additional funds through debt and equity financings, to secure regulatory approval to fully utilize
its Kinetic Separation and to initiate the processing of ore to generate operating cash flows.
There are no assurances that the Company will be able to raise
capital on terms acceptable to the Company or at all, or that cash flows generated from its operations will be sufficient to meet
its current operating costs and required debt service. If the Company is unable to obtain sufficient amounts of additional capital,
it may be required to reduce the scope of its planned product development, which could harm its financial condition and operating
results, or it may not be able to continue to fund its ongoing operations. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern to sustain operations for at least one year from the issuance of the accompanying financial
statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome
of these uncertainties.
Off Balance Sheet Arrangements
As of December 31, 2020, there were no off-balance sheet transactions.
The Company has not entered into any specialized financial agreements to minimize its investment risk, currency risk or commodity
risk.
Critical Accounting Estimates and
Policies
The preparation of these consolidated financial statements requires
management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and reported amounts of expenses during the reporting period.
46
Significant assumptions about the future and other sources of
estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment
to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, include, but
are not limited to, the following: fair value of transactions involving common shares, assessment of the useful life and evaluation
for impairment of intangible assets, valuation and impairment assessments on mineral properties, deferred contingent consideration,
the reclamation liability, valuation of stock-based compensation, valuation of available-for-sale securities and valuation of long-term
debt, HST and asset retirement obligations. Other areas requiring estimates include allocations of expenditures, depletion and
amortization of mineral rights and properties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
This information appears following Item 17 of this report and
is included herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our principal executive
officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on their evaluation of our
disclosure controls and procedures, our principal executive officer and principal financial officer concluded that our disclosure controls
and procedures were not effective as of December 31, 2020, to ensure that information required to be disclosed by the Company in the reports
that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms and (b) accumulated and communicated to management, including our principal executive officer and principal
financial officer, as appropriate to allow for timely decisions regarding required disclosure.
Description of Material Weakness
Management has concluded that the Company’s
disclosure controls and procedures were not effective as of December 31, 2020, due to the lack of segregation of duties and the
failure to report disclosures on a timely basis.
Remediation of Material Weakness
Management has developed a plan and related
timeline for the Company to design a set of control procedures and the related required documentation thereof in order to address
this material weakness. However, its implementation was delayed as a decline in commodity prices caused the Company to pursue aggressive
cost cutting and de-staffing which has increasingly concentrated duties on the remaining staff. Until the Company has the proper
staff in place, it likely will not be able to remediate its material weaknesses.
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Management’s Annual Report on Internal Control Over
Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the company’s assets that could have a material effect on the financial statements.
This annual report does not include an attestation report of
our independent registered public accounting firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by our independent registered public accounting firm pursuant to a provision under the Dodd-Frank
Wall Street Reform and Consumer Protection Act that grants a permanent exemption for non-accelerated filers from complying with
Section 404(b) of the Sarbanes-Oxley Act of 2002.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred
during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
The following table sets forth information regarding the members
of our board of directors (the “Board”) and our executive officers.
Name Age Position(s)
George Glasier 77 President, Chief Executive Officer and Director
Robert Klein 55 Chief Financial Officer
Bryan Murphy 52 Director, Chairman
Andrew Wilder 50 Director
Executive Officers
George Glasier, J.D., our Director, President and Chief
Executive Officer, founded Western Uranium & Vanadium Corp. He has over thirty years’ experience in the uranium industry
in the United States, with extensive experience in sales and marketing; project development and permitting uranium processing facilities.
He is the founder of Energy Fuels Inc. (Volcanic Metals Exploration Inc.) and served as its Chief Executive Officer and President from
January 2006 to March 2010. He was responsible for assembling a first-class management team, acquiring a portfolio of uranium projects,
and leading the successful permitting process that culminated in the licensing of the Piñon Ridge uranium mill; planned for construction
in Western Montrose County, Colorado. He began his career in the uranium industry in the late 1970’s with Energy Fuels Nuclear,
which built and operated the White Mesa Mill near Blanding, Utah, becoming the largest uranium producer in the United States.
Robert Klein is Chief Financial Officer of Western
Uranium & Vanadium Corp. He is in charge of accounting and finance, and is closely involved in capital markets activities,
corporate transactions, investor relations, public relations, and legal, and compliance. Formerly, Mr. Klein served as Vice President
Finance and had leading roles in reporting, corporate transactions, and Western’s public listings on the CSE and OTCQX. Mr.
Klein was formerly the Chief Operating Officer of Cross River Group and began his association with Western on an Operating Partner
basis after the formation of Western’s predecessor company, Pinon Ridge Mining, LLC. Previously, Mr. Klein was a Managing Director
at Analytical Research, an alternative investments research firm. He has a broad financial background derived from senior operating
and investment roles with asset managers and through Exeter Analytics, a consulting firm he founded. Mr. Klein was formerly the
CFO of Five Points Capital, a hedge fund spin-out from Soros Fund Management. After having begun his career in public accounting,
Mr. Klein worked for Lehman Brothers, an investment bank, and William E. Simon & Sons, a merchant bank and private investment
firm. Rob holds the Chartered Financial Analyst designation, received an M.B.A. from the Robert H. Smith School of Business at
the University of Maryland and a B.S. in Accounting from George Mason University.
Non-Employee Directors
Andrew Wilder serves
as a Director for Western Uranium & Vanadium Corporation. He is the Founder and Chief Executive Officer of the Cross River
Group, a firm that provides capital, strategic business development and operations to alternative asset managers and operating
companies. Prior to founding Cross River, Mr. Wilder co-founded and was the Chief Operating Officer for Kiski Group, an advisory
firm organized in 2009 to help institutions develop their alternative manager platforms by helping vet managers and offer infrastructure
solutions in areas of investment and business risk management. In 2001, Mr. Wilder co-founded and served as Chief Operating Officer
and Chief Financial Officer of North Sound Capital LLC, a long/short equity hedge fund manager. North Sound launched with $15 million
in July of 2001 and reached $3 billion AUM and 65 employees within 5 years. Mr. Wilder was responsible for building and overseeing
all aspects of the business ex-research. In 2003, Mr. Wilder also co-founded Columbus Avenue Consulting, an independent fund administration
business with 90 clients and $7 billion in AUA when it was subsequently sold in 2012. Mr. Wilder’s prior career included
heading operations for C. Blair Asset Management, a $500 million long/short equity hedge fund, and serving as a Manager in audit
of Deloitte & Touche (in their Cayman Islands and Toronto practices). Mr. Wilder received the Chartered Accountant (Canada)
designation, holds the CFA designation, and received an MBA from the University of Toronto and a BA from the University of Western
Ontario.
49
Bryan Murphy is Founder
of Magellan Limited, an advisory firm focusing on providing strategic, M&A, and financial advisory services and currently serves
as CFO and Head of Finance for Biome Renewables Inc., an early stage renewable energy innovation and industrial design company.
Formerly, Mr. Murphy was Co-Founder and Managing Partner of Quest Partners, a boutique investment bank that focuses on the provision
of M&A, corporate finance, and business strategy services. In these capacities, Mr. Murphy has developed extensive international
experience and relationships advising high-growth businesses across North America, Europe, and the Middle East. In the prior dozen
years, Mr. Murphy held senior management roles at Canadian Tire Corporation overseeing divisions and business lines. Additionally,
Mr. Murphy was formerly a board member of Covenant House Toronto, one of Canada’s largest homeless youth agencies. Bryan
has an Honours Bachelor of Arts in Business Administration majoring in Finance and an MBA with Distinction from the University
of Western Ontario Richard Ivey School of Business. Bryan earned the ICD.D designation from the Rotman School of Management at
the University of Toronto and the Institute of Corporate Directors.
Involvement of Officers and Directors
in Certain Legal Proceedings
None of our officers and directors
has filed for bankruptcy, been convicted in a criminal proceeding or been the subject of any order, judgment, or decree permanently,
temporarily, or otherwise limiting activities (1) in connection with the sale or purchase of any security or commodity or in connection
with any violation of Federal or State securities laws or Federal commodities laws, (2) engaging in any type of business practice,
or (3) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission or an associated person of
any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director
or employee of an investment company, bank, savings and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity.
Family Relationships
There are no family relationships among
our directors and executive officers.
Code of Ethics
We have adopted a code of ethics that
applies to our officers, directors, employees and consultants. A copy of the code of ethics will be sent, free of charge, to any
person who sends a written request for a copy to Western Uranium & Vanadium Corp., 330 Bay Street, Toronto, Ontario, Canada
M5H 2S8.
Audit Committee
Western has established a separately
designated audit committee of the Board of Directors consisting of Andrew Wilder, George Glasier, and Bryan Murphy. Our audit committee
is responsible for oversight of audits, corporate governance, board nominations, and executive compensation. The Board has determined
that one of its members, Andrew Wilder, who has previously served as Western’s Chief Financial Officer, qualifies as an “audit
committee financial expert”.
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information
regarding compensation earned by our named executive officers:
Employment Agreements
George Glasier
On February 8, 2017, the Company entered into an employment agreement
with George Glasier, its Chief Executive Officer. The employment agreement automatically renews each year unless either party provides
a 90-day advance written notice of their desire to not renew the agreement. The employment agreement provides for a base salary of $180,000
per annum and a discretionary annual cash bonus to be determined by the Company’s Board of Directors. On May 30, 2019, the Board
of Directors approved an addendum to Mr. Glasier’s employment agreement, increasing his annual salary from $180,000 to $220,000.
Pursuant to the employment agreement, if the Company terminates the employment agreement without cause, or if a change of control occurs,
the Company is required to pay to Mr. Glasier a lump sum payment equal to two and one-half times his annual base salary.
Robert Klein
On November 12, 2020, the Company entered into a new employment agreement
with its Chief Financial Officer, Robert Klein. The agreement was effective as of October 1, 2020 and has an initial term that ends on
September 30, 2021. The agreement will automatically renew for successive annual terms unless either party provides a 90-day advance written
notice of their intention not to renew. The Agreement provides for a base salary of $150,000 per year, the amount of which is subject
to review by the Board of Directors at least annually. Under the agreement, Mr. Klein is eligible to receive bonuses after the end of
each calendar year or earlier in the discretion of the Board, and a bonus will also be considered upon the closing of a strategic transaction
by the Company. The agreement provides that Mr. Klein is eligible to participate generally in any employee benefit plan of the Company
or its affiliates and to receive annual stock option grants under the Company’s incentive stock option plan in amounts to be determined
and approved by the Board.
Outstanding
Equity Awards Table
The following table sets forth unexercised
options, unvested stock and equity incentive plan awards outstanding for our named executive officers as of December 31, 2020.
Outstanding Option Awards at Fiscal