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, includes “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 annual 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.
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”).
40
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 an extensive underground haulage development with several vent shafts complete with exhaust fans. The Sunday
Mine Complex is the Company’s core resource property and in July 2021was assigned “Active” status when mining operations
were restarted.
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 options to purchase Western common shares to certain
employees, directors, and consultants. 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”).
Recent Developments
January 2022 Private Placement
On January 20, 2022, the Company closed on a non-brokered
private placement of 2,495,575 units at a price of CAD $1.60 per unit. The aggregate gross proceeds raised in the private placement amounted
to CAD $3,992,920. Each unit consisted of one common share of Western plus one common share purchase warrant of Western. Each warrant
entitled the holder to purchase one common share at a price of CAD $2.50 per share for a period of three years following the closing date
of the private placement. A total of 2,495,575 common shares and 2,495,575 warrants were issued to investors, and 98,985 warrants were
issued to broker dealers in connection with the private placement.
Annual 2022 Incentive Stock Option Grant
The Company granted an aggregate of 1,665,000 stock options (“Options”)
to purchase common shares to a number of officers, directors, and employees of Western under the Company’s Incentive Stock Option
Plan. The Options were granted on October 31, 2022 after market close, and with the exercise price being set at CAD$1.60 based upon the
lower of the closing price on the day of the grant, and the pricing of units offered in the most recent private placement conducted by
Western. Each option is exercisable to acquire one common share for a five-year term starting with the vesting date. The Options vest
equally in two instalments beginning on the date of grant and thereafter on April 30, 2023.
Bullen Property (Weld County)
The Bullen Property is an oil and gas property
located in Weld County Colorado. The Company acquired this non-core property in 2015 in the Black Range Minerals Limited acquisition,
and Black Range purchased the property in 2008 for its Keota Uranium Project.
41
In 2017, the Company signed a three year oil and
gas lease which in 2020 was extended for an additional three year term or until the end of continuous operations. The consideration was
in the form of upfront bonus payments and a backend production royalty payment. Additional right-of-way easement agreements were signed
which allowed for the development of a pipeline. The lease agreement allows the Company to retain property rights to vanadium, uranium,
and other mineral resources.
In early 2020 Bison Oil & Gas (“Bison”)
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. These DJ-Basin wells target the Niobrara formation. During 2021, the operator completed all well development stages and eight
(8) wells commenced oil and gas production by August 2021. The first royalty payment was made in January 2022. During 2022, the operator
completed all well development stages on a second set of eight (8) wells which commenced oil and gas production by August 2022. The first
monthly royalty payment including production from the new wells was made in January 2023. Monthly royalty payments are ongoing.
In January 2023, Mallard was acquired by Bison.
During the years ended December 31, 2022 and 2021, we recognized aggregate
revenue of $635,363 and $272,142, respectively, under these oil and gas lease arrangements. On January 31, 2022, the operator of the Weld
County Colorado oil and gas pooled trust issued the first cumulative royalty payment in the amount of $207,552 for August 2021 through
December 2021 sales, which was recognized as income in the fourth quarter of 2021.
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 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 Complex must be regulated by the CDPHE through a milling license. Beginning
in 2017, the Company’s regulatory counsel 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 has proposed alternatives. However, management
has decided not to proceed at this time, given its present opportunity set.
42
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 was 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
was 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-19 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 Mine Complex
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 been 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 (the “Plaintiffs”) 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.
On May 5, 2021, the Plaintiffs in the Topaz Appeal filed an opening brief with the Denver District Court seeking to overturn the July
22, 2020 and October 21, 2020 MLRB permit hearing decisions on the Topaz Mine permit. The MLRB and the Company were to respond with an
answer brief within 35 days on or before June 9, 2021, but instead sought a settlement. The judicial review process was delayed as extensions
were put in place until August 20, 2021. A settlement was not reached, and the MLRB and the Company submitted answer briefs on August
20, 2021. The Plaintiff submitted a reply brief on September 10, 2021. On March 1, 2022, the Denver District Court reversed the MLRB’s
orders regarding the Topaz Mine and remanded the case back to MLRB for further proceedings consistent with its order. The Company and
the MLRB had until April 19, 2022 to appeal the Denver District Court’s ruling. Neither the Company nor the MLRB appealed the Denver
District Court ruling. Subsequently on March 20, 2023, the MLRB issued a board order for the Company to commence final reclamation, which
upon completion will terminate mining operations at the Topaz Mine. Reclamation is to commence immediately at the Topaz Mine and is to
be completed within five years by March 2028. The Company is currently working toward the completion of an updated Topaz Mine Plan of
Operations which is a separate federal requirement of the BLM for the conduct of mining activities on the federal land at the Topaz Mine
and needed to re-permit the Topaz Mine with Colorado’s DRMS.
Sunday Mine Complex Project 2021/2022 Project
The SMC project entailed the development of multiple SMC ore bodies
and involves a shift in the base of operations from the St. Jude Mine (2019) to the Sunday Mine (2021). The Sunday Mine Complex is the
Company’s core resource property and in July 2021 was assigned “Active” status when mining operations were restarted.
Underground development began in August 2021 following mine ventilation, power upgrades, and increasing explosive capabilities. The first
target was the extension of the drift (tunnel) 150 feet to reach the first surface exploration drill hole to access the GMG Ore Body (GMG).
Early results were positive as drilling toward the GMG resulted in the location of ore-grade material within thirty feet of the existing
mine workings. Notably, only limited exploration drilling has been done in this area due to the mountainous terrain on the surface above.
As drifting proceeded, very high-grade ore continued to be intersected through the drift path and on both sides of the drift. As a result,
the team shifted from development to mining. From December 2021 to March 2022, over 3,000 tons of uranium/vanadium ore was mined from
the drift. The mining contractor calculated grades based upon scintillometer sampling of each 10-ton truckload.
43
At the end of March 2022, the mining contractor
engaged by Western decided to retire from contract mining operations. Thereafter, Western began the acquisition of a full complement of
mining equipment and personnel to take over mining operations. Western’s transition from employing a mining contractor to building
an in-house mining operation has now been completed. Since this transition began in spring 2022, additional employees have been hired
to support mining operations and mining equipment and vehicles have been acquired to support deployment of two (2) fully equipped mining
teams. The equipment has been prepared for operations and readied for deployment; site infrastructure upgrades have been finished. In
early 2023, the mines were reopened for ventilation and infrastructure upgrades. Mining operations are restarting in April 2023 and will
initially involve additional development of the GMG Ore Body, stockpiling of high-grade ore and underground drilling/exploration to define
additional production zones. The next project will be similar in scope but on the St. Jude Mine target areas defined during the 2019/2020
work project.
Uranium Section 232 Investigation/Nuclear Fuel Working Group
Process
An investigation under Section 232 of the Trade
Expansion Act of 1962 was undertaken by the DoC in 2018 to assess the impact to national security of the importation of the vast majority
of uranium utilized by the approximately 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.
In April 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 undertaking of some NFWG findings and recommendations was a positive outcome for the U.S. nuclear industry and
U.S. uranium miners.
The Russian Suspension Agreement was extended
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. Also, 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.
In December 2020, 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 Biden-Harris
Administration has rolled the 2021 funding into its 2022 fiscal year budget to continue this initiative. In July 2021, the uranium Section
232 report was publicly released. The report concluded that uranium imports were “weakening our internal economy” and “threaten
to impair the national security” and recommended immediate actions to “enable U.S. producers to recapture and sustain a market
share of U.S. uranium consumption”.
The Russian invasion of Ukraine has fast tracked the Uranium Reserve
Program. On May 5, 2022, the U.S. Secretary of Energy Jennifer Granholm testified before the Senate Committee on Energy and Natural Resources
that the DoE “would make direct purchases of domestically mined and converted uranium this calendar year to establish a strategic
uranium reserve”. Secretary Granholm’s comments make clear that the U.S. is thinking larger. Granholm stated that “We
should not be sending any money to Russia for any American energy or for any other reason,” and “if we move away from Russia
right away, we want to make sure we have the ability to continue to keep the fleet afloat.” To accomplish this, she further disclosed
that the DoE is “developing a full-on uranium strategy that’s going through the interagency process.”
Subsequently in June 2022, the DoE issued a Request for Proposals (“RFP”)
to purchase up to 1 million pounds of uranium at an initial funding level of $75 million into the newly established U.S. Uranium Reserve.
The RFP sought uranium that was already held in inventory at Honeywell’s Metropolis Works Plant, the U.S. conversion facility. The
DOE awarded contracts in December 2022 for the purchase of approximately 1,000,000 lbs of uranium. To fulfill Uranium Reserve requirements,
U.S. origin uranium will be delivered during the first quarter of 2023. Five uranium companies disclosed receiving contract awards within
a price range from $59.50 to $70.50 per pound. Western did not hold qualifying inventory, and as such did not submit a bid proposal. An
expansion of the U.S. Uranium Reserve program continues to be discussed. As originally proposed, the program contemplated $150M in annual
purchases for a 10-year period, which would aggregate to $1.5 billion over its lifetime.
44
Vanadium Section 232 Investigation
In the United States,
a petition for an investigation under Section 232 of the Trade Expansion Act of 1962 was requested by two domestic companies in November
2019. In June of 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 Section 232 National Security Investigation
of Imports of Vanadium was concluded, and a report was submitted to President Biden in February 2021. In July 2021, the report was made
public. It concluded that vanadium imports “do not threaten to impair the national security as defined in Section 232,” but
identified and recommended “several actions that would help to ensure reliable domestic sources of vanadium and lessen the potential
for imports to threaten national security.” No action has been taken on these recommendations.
Biden-Harris Administration
Initiatives
The positive momentum has continued for the nuclear and uranium mining
sector due to the Biden-Harris Administration’s emphasis on climate change. Upon taking office, the Biden team immediately rejoined
the Paris Agreement and continued its pursuit of campaign promises of investments in clean energy, creating jobs, producing clean electric
power, and achieving carbon-pollution free energy in electricity generation by 2035. Since taking office, President Biden has given all
agencies climate change initiatives and has started a climate change working group. The existing U.S. nuclear reactor fleet currently
produces in excess of 50% of U.S. clean energy, and new, advanced nuclear technologies promise to generate additional clean energy. A
White House national climate advisor told the media in a press briefing that the Biden-Harris Administration intends to seek a national
clean energy standard that includes nuclear energy. The Company believes that nuclear energy will be increasingly able to compete on a
level playing field with renewable energy technologies. The Harris-Biden DoE has been a supporter of new nuclear technologies and invested
in next generation demonstration reactors due to its pro-climate agenda.
On August 16, 2022, President Biden signed into
law the Inflation Reduction Act, which is a significantly reduced version of the Build Back Better plan. This Act provides for $369 billion
in climate and energy investments, a portion of which will significantly benefit the U.S. domestic nuclear industry. Notably, while protecting
the climate, there is a leveling of the playing field with renewable energy, which has long benefited from government support. We see
the benefits to nuclear split across existing reactors, new advanced reactors, low enriched uranium and high-assay low enriched uranium
nuclear fuels, and in multiple stages of the domestic nuclear fuel cycle. We believe that each of these benefits increase future aggregate
uranium demand. While this represents the largest funding support of the U.S. nuclear industry in decades, there could be a larger secondary
benefit as greater funding was allocated to battery technologies including vanadium redox flow batteries (VRFB).
During 2022, we have observed the DoE becoming increasingly outspoken
and working hard at creating nuclear fuel solutions to address the current dependence on Russia and promote a geopolitical realignment
of the nuclear fuel cycle away from Russia. As an example, during September 2022, activity in the U.S. escalated in response to Russia’s
invasion of Ukraine. The U.S. Secretary of Energy, Jennifer Granholm, in an address to the IAEA Vienna conference stated: “And for
those countries held hostage by Russian fossil fuels right now, nuclear power—freed of Russian supply chains—is part of the
solution to sever that dependence.” The Biden-Harris Administration requested $1.5 billion in emergency funding to replace nuclear
fuel and services coming from Russia. This followed the DOE $4.3 billion commitment for the development of expanded domestic reactor fuel
supply chain specifically focused on domestic enrichment and conversion services. Most notably, the DoE continues to make preparations
for a Russian counter-sanction terminating the flow of nuclear fuel and services from Russia. Multiple bills were introduced into the
U.S. legislature, and many of these have bipartisan support.
45
Nuclear Fuel and Uranium Effect from the Russian Invasion of
Ukraine
The start of the Russia/Ukraine war created extraordinary volatility
in uranium markets during the first half of 2022. At the peak, the spot price was at an 11-year high. Prior to the invasion on February
24, 2022, uranium spot prices were in the $43 per pound range and rose to slightly over $63 per pound by April 2022, an increase of ~$20
per pound. Later in May 2022 and June 2022, the spot price receded to $45 levels, before recovering to the $50 level into September 2022.
In the subsequent six months, the spot price of uranium has been range bound at $50 +/- per pound levels.
Equity markets followed the price action of physical uranium prices
in speculation that governments worldwide would sanction and ban nuclear fuel from Russia. This was in recognition of Russia’s dominant
position in nuclear fuel services including 38% of world conversion capacity and 46% of world enrichment capacity. The market position
of Rosatom, Russia’s national nuclear company, was developed through decades of government subsidies. However, because of the lack
of replacement capacity in the global nuclear fuel cycle, Rosatom has avoided sanctions.
Because of the Ukraine invasion, new contracts are largely not being
signed with Rosatom, but deliveries under existing contracts continue to be made. Customer dependencies upon the Russian supply of uranium,
conversion and enrichment are being addressed slowly by governments as alternative suppliers are not currently available. However, a desire
to stay away from bad actors and the threat of Russia weaponizing energy exports or a Russian embargo has elicited responses. Worldwide,
utilities have accelerated their contracting of non-Russian conversion and enrichment services. New uranium supply agreements are being
signed with western producers. In the United States, multiple new nuclear funding programs have already been put in place and the language
from the Department of Energy has only gotten stronger. The Secretary of Energy recently declared: “The United States wants to be
able to source its own fuel from ourselves and that’s why we are developing a uranium strategy.”
In January 2023, ban and sanction discussions intensified as Rosatom
was shown to have become an active participant in the Ukraine war. An article entitled “Russia’s nuclear entity aids war effort,
leading to calls for sanctions” was published by the Washington Post. Obtained documents show that the Rosatom state nuclear power
conglomerate was supplying the Russian military with “components, technology, and raw materials for missile fuel” to be used
in the Ukraine war. In the months since, multiple legislative sanction proposals have been put forth in the United States, including banning
Russian uranium imports. As the U.S. has the largest fleet of nuclear reactors, these actions have the potential to cause a realignment
of uranium markets.
We believe the shift away from Russia/Rosatom will be a major catalyst
in the realignment of nuclear fuel markets which will benefit western producers. As a result, Western continues to accelerate the advancement
of our operational strategy in anticipation of increasing uranium price levels that will reward near-term scaled-up ore production.
Strategic Acquisition of Physical Uranium
In May 2021, the Company executed a binding agreement
to purchase 125,000 pounds of natural uranium concentrate at approximately $32 per pound. In December 2021, the Company paid $4,044,083
in connection with its full prepayment of the purchase price for 125,000 pounds of natural uranium concentrate. This uranium concentrate
was subsequently delivered and sold under the terms of the uranium supply agreement in the second quarter of 2022.
46
Uranium Supply Agreement Delivery
In the second quarter of 2022, in satisfaction
of the Year 5 delivery under our supply contract, we delivered and sold 125,000 lbs of uranium concentrate from our prepaid uranium concentrate
inventory. Accordingly, during the year ended December 31, 2022, we recorded revenue of $7,223,609 (at a price of approximately $57 per
pound) and cost of revenue of $4,044,083 related to this uranium delivery.
Sprott Physical Uranium Trust
The Sprott Physical Uranium Trust (U.UN) (the “Trust”)
took over the former Uranium Participation Corp. (U.TO) and launched an at-the-market program (ATM) on August 17, 2021 to raise capital
for the closed-ended trust. Since the inception of the ATM program, the Trust has bought significant quantities of uranium, causing spot
prices to increase. The New York Stock Exchange (NYSE) declined the U.S. listing application for the anticipated Sprott U.S. physical
uranium trust vehicle. Sprott has stated that they do not have an intent to further pursue a listing on a U.S. exchange “in the
near term.” In the one year since the Trust initiated its ATM program in August 2021, it has purchased in excess of 39 million pounds
of uranium and grown the net asset value to ~ $2.8 billion.
Due to Sprott’s success, a clone physical uranium fund was launched
on May 12, 2022. The ANU Energy OEIC Ltd fund raised over $75 million dollars in a private placement and has made its first uranium purchase.
Kazatomprom, the world’s largest producer of uranium is a strategic investor and uranium supplier to ANU Energy. Kazatomprom has
made the first uranium delivery at Cameco’s Port Hope conversion facility.
Utah Mineral Processing Plant
In January 2023, the Company issued news releases
announcing that it has begun site and facility design and permitting on a property acquired in Green River, Emery County, Utah to build
a state-of-the-art mineral processing plant. This facility will be designed to recover uranium, vanadium and cobalt from conventional
ore mined both from Company mines and ore produced by other mining companies. Selecting and acquiring the processing site has taken over
one year to find a location with the road, power and water infrastructure required. The processing plant will utilize the latest processing
technology, including Western’s patented Kinetic Separation process. These technology advancements will result in lower overall
capital and processing costs. This processing plant is expected to have a cost of approximately $50 to $60 million. After permitting and
construction, the processing of uranium and vanadium ore is expected to commence in late 2026. The facility will be designed to recover
cobalt, a metal essential in battery technology and electric vehicles. Within the State of Utah, there are numerous occurrences of cobalt
which may be economical to mine, if a processing facility were available. Construction of the cobalt circuit will be dependent on the
availability of feed material. The processing plant is expected to be licensed and constructed for annual production of two million pounds
of U3O8 and six to eight million pounds of V2O5.
COVID-19
The world continues to be impacted by the COVID-19 pandemic. COVID-19
and the measures to prevent its spread previously impacted the Company’s business in a number of ways. COVID-19 has primarily caused
Western delays in reporting, regulatory matters, operations, and sick/quarantine days for employees infected/exposed to COVID-19. The
COVID-19 pandemic previously limited Western’s participation in industry and investor conference events during 2020 and 2021. The
impact of future disruptions and the extent of adverse impacts on the Company’s financial and operating results will be dictated
by the unpredictable duration and severity of the future waves of COVID-19. The Company is continuing to monitor COVID-19 and its subvariants
and the potential impact of the pandemic on the Company’s operations.
47
Results of Operations
Year Ended December 31, 2022 as Compared to the Year Ended December
31, 2021
The following table presents the Company’s financial results
for the years ended December 31, 2022 and 2021.
For the Years Ended December 31,
Expenses
Settlement expense - 78,052
Other income (4,000 ) -
Other Comprehensive income (expense)
Net loss per share - basic and diluted $ (0.02 ) $ (0.06 )
Summary:
Our consolidated net loss for the years ended December 31, 2022 and
2021 was $713,767 and $2,074,037 or $0.02 and $0.06 per share, respectively. The principal components of these year over year changes
are discussed below.
Our comprehensive loss for the years ended Decembers 31, 2022 and 2021
was $1,038,377 and $1,985,017, respectively.
Revenue
Our revenue for the years ended December 31,
2022 and 2021 was $7,858,972 and $272,142, respectively. The increase in revenue of $7,586,830 was primarily related to the revenue
recognized upon the satisfaction of the uranium concentrate delivery under our supply contract whereby we delivered 125,000 lbs of
uranium concentrate from our prepaid uranium concentrate inventory for $7,223,609 in the second quarter of 2022. Further,
we recognized oil and gas royalties of $635,363 and $207,552 during 2022 and 2021, respectively.
Cost of Revenue
Cost of revenue was $4,044,083 for the year ended December 31, 2022
as compared to $0 for the year ended December 31, 2021. This increase was a result of recording the cost of the uranium concentrate that
was sold and delivered during the second quarter of 2022.
48
Mining Expenditures
Mining expenditures for the year ended
December 31, 2022 were $762,333 as compared to $717,657 for the year ended December 31, 2021. The increase in mining expenditures of
$44,676, or 6% was principally attributable to the relative scale and specific project costs of mining operations in 2022 versus
2021 at the Company’s Sunday Mine Complex.
Professional Fees
Professional fees for the year ended December 31, 2022 were $493,940
as compared to $365,302 for the year ended December 31, 2021. The increase in professional fees of $128,638, or 35% was primarily due
to the increased use of professional and advisory services after the reduced utilization in the prior year period due to COVID-19.
General and Administrative
General and administrative expenses for the year
ended December 31, 2022 were $3,246,171 as compared to $1,172,585 for the year ended December 31, 2021. The increase in general and administrative
expense of $2,073,586 was due primarily to a $1,566,520 increase in stock-based compensation expense (the awards granted in 2022 were
intended to provide stock-based compensation for performance in both 2021 and 2022) and a $323,151 increase in payroll expenses for increased
headcount as we build in-house capability to support scaled-up mining operations and related support functions.
Consulting fees
Consulting fees for the year ended December 31, 2022 were $91,626 as
compared to $29,543 for the year ended December 31, 2021. The increase in consulting fees of $62,083 was principally due to the increased
use of consultants after the reduced utilization in the prior year period due to COVID-19.
Accretion and Interest
Accretion and interest for the year ended
December 31, 2022 was income of $61,414 as compared to income of $16,960 for the year ended December 31, 2021. The increase of $44,454 was principally attributable to investment interest earned on higher level balances in the 2022 year.
Foreign Exchange
Foreign exchange (loss) gain for the
year ended December 31, 2022 was a loss of $324,610 as compared to a gain of $89,020 for the year ended December 31, 2021. The
foreign exchange loss is primarily due to the strengthening of the U.S. dollar relative to the Canadian dollar in the 2022
period.
49
Liquidity and Capital Resources
The Company’s cash and restricted cash
balance as of December 31, 2022 was $10,433,538. 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, to secure regulatory licenses and to construct a conventional mill for the processing of uranium and vanadium,
the Company will be required to raise additional capital by way of debt and/or equity. Western will also require additional working
capital to continue to scale-up its mining operations at the Sunday Mine Complex. 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.
Net cash provided by (used in) operating activities
Net cash provided by operating activities was
$4,550,246 for the year ended December 31, 2022, as compared with $6,154,665 used in operating activities for the year ended December
31, 2021. The increase in cash provided by operating activities of $10,704,911 was due to principally to the cash of $7,223,609 received
during 2022, as compared to the use of cash of $4,085,723 from the purchase of the Uranium contract in 2021, partially offset by additional
cash operating expenses incurred during 2022.
Net cash used in investing activities
Net cash used in investing activities was
$1,045,638 for the year ended December 31, 2022, as compared with $65,000 for the year ended December 31, 2022. The increase in cash
used in investing activities of $980,638 was due principally to the purchase of mining equipment and vehicles.
Net cash provided by financing activities
Net cash provided by financing activities
for the year ended December 31, 2022 and 2021 were $5,632,273 and $6,309,143, respectively. During the year ended December 31, 2022
we completed a private placement representing aggregate net proceeds of $3,011,878 and received $2,620,395 from the exercise of
warrants, as compared to the year ended December 31, 2021, where we completed private placements of $4,304,279 and received
$2,004,864 from the exercise of warrants.
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 to
be $751,405 and $740,446 as of December 31, 2022 and December 31, 2021, 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%. The net discounted aggregated values as of December 31, 2022 and December 31, 2021 were $300,276 and $271,620, respectively.
The gross reclamation liabilities as of December 31, 2022 and December 31, 2021 are secured by financial warranties in the amount of $751,405
and $740,446, respectively.
Oil and Gas Lease and Easement
The Company entered into an oil and gas lease that 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 lessee has agreed to pay the Company a royalty from the lessee’s revenue
attributed to oil and gas produced, saved, and sold attributable to the net mineral interest. The Company has also received cash payments
from the lessee related to the easement that the Company is recognizing incrementally over the eight year term of the easement.
On June 23, 2020, the same entity as 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 2021,
the operator completed all well development stages and each of the eight (8) Blue Teal Fed wells commenced oil and gas production by mid-August
2021.
During the year ended December 31, 2022 and 2021, the Company recognized
aggregate revenue of $635,363 and $272,142, respectively, under these oil and gas lease arrangements. The Company expects to receive approximately
$60,000 per month going forward in oil and gas royalties, subject to the price of oil and decline rates.
50
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 of the Company (“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 $340,252 as of December31, 2022) to Seller within 60 days of the first commercial application of the Kinetic
Separation technology. 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 is estimable, the Company recorded the deferred contingent consideration as an assumed liability
in the amount of $340,252 and $362,794 as of December 31, 2022 and 2021, respectively.
The Company has multiple lease arrangements with
Silver Hawk Ltd., an entity which is owned by George Glasier and his wife Kathleen Glasier. These leases, which are all on a month-to-month
basis, are for the Company’s rental of office, workshop, warehouse and employee housing facilities The Company incurred rent expense
of $55,198 and $34,427 in connection with these arrangement for the years ended December 31, 2022 and 2021, respectively.
The Company is obligated to pay Mr. Glasier for reimbursable expenses
in the amount of $87,221 and $65,753 December 31, 2022 and 2021, respectively.
Going Concern
With the exception of the quarter ending June 30, 2022, we had incurred
losses from our operations and as of December 31, 2022, the Company had an accumulated deficit of $13,875,263 and working capital of $9,568,963.
Since inception, the Company has met its liquidity requirements principally
through the issuance of notes and the sale of its common shares. On January 20, 2022, the Company closed on a non-brokered private placement
of 2,495,575 units at a price of CAD $1.60 per unit. The aggregate gross proceeds raised in the private placement amounted to CAD $3,992,920
(USD $3,011,878 in net proceeds). During the year ended December 31, 2022, the Company received $2,620,395 in proceeds from the exercise
of warrants. In April 2022, the Company delivered 125,000 lbs of uranium concentrate from its prepaid uranium concentrate inventory. Accordingly,
during the year ended December 31, 2022, the Company recorded revenue of $7,223,609 (at a price of approximately $57 per pound). Furthermore,
during the year ended December 31, 2022, the Company earned oil and gas royalty payments of $635,363.
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 licenses to fully utilize
its Kinetic Separation, to construct a conventional mill for the processing of uranium and vanadium and to incorporate Kinetic Separation
in the processing of ore to generate operating cash flows. Western will need additional capital to continue ongoing mining operations
by its in-house mining team at the Sunday Mine Complex while simultaneously permitting and construction a processing plant.
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, 2022, 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.
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.
51
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, 2022, 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, 2022, due to 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.
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.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS.
None.
52
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 79 President, Chief Executive Officer and Director
Robert Klein 57 Chief Financial Officer
Bryan Murphy 54 Director, Chairman
Andrew Wilder 52 Director
Executive Officers
George Glasier, J.D., founded Western Uranium & Vanadium
Corp. and has served as a Director and as President and Chief Executive Officer since 2014. 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 has served as Chief Financial Officer of
Western Uranium & Vanadium Corp since 2016. 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 earned 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.
53
Non-Employee Directors
Andrew Wilder serves as
a Director and the Chairman of the Audit Committee for Western Uranium & Vanadium Corporation, positions he has held since 2014. He
is the Founder and the Chief Executive Officer of Cross River Infrastructure Partners, a platform designed to accelerate global sustainability
through the development and construction of infrastructure projects deploying transformative industrial technologies. Areas of focus include
capturing and sequestering carbon emissions, generating green hydrogen and ammonia, generating clean power with advanced small modular
nuclear reactors, and upcycling biowaste into renewable natural gas. Mr. Wilder is also currently a Board Member for Bedford 2030, a community-based
climate action non-profit organization for the Township of Bedford, New York. In 2011, prior to launching Cross River Infrastructure Partners,
Mr. Wilder founded and managed the Cross River Group, an advisory business providing capital and business development services to alternative
asset managers and institutions. In 2001, Mr. Wilder co-founded and served as Chief Operating and Chief Financial Officer for North Sound
Capital LLC, an equity hedge fund manager with $3 billion peak assets under management. Mr. Wilder’s prior career included serving
as a Manager in the audit group of Deloitte. 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.
Bryan Murphy has served as a
Director of Western Uranium & Vanadium Corp. since 2018. He is the 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,