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. Western is a Canadian domestic issuer and Canadian
reporting issuer.
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
40
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.
Under United States Securities and Exchange Commission
(“Commission”) rules, the Black Range transaction triggered the Company being deemed a United States domestic issuer and losing
its foreign private issuer exemption. On April 29, 2016, the Company filed a Form 10 registration statement with the Commission after
shifting its basis of accounting from IFRS to U.S. GAAP. On June 28, 2016, the Company’s registration statement became effective
and Western became a United States reporting issuer.
On June 30, 2023, Western re-qualified as a foreign
private issuer as that term is defined in Rule 3b-4(c) promulgated under the Exchange Act. As a result, the Company may now utilize certain
accommodations made to foreign private issuers, including (1) an exemption from complying with the Commission’s proxy rules, (2)
an exemption from the Company’s insiders having to comply with the reporting and short-swing trading liability provisions of Section
16 under the Exchange Act, (3) the ability to make periodic filings with the Commission on the Form 20-F and Form 6-K foreign issuer forms,
and (4) the ability to offer and sell unrestricted securities outside of the United States pursuant to Rule 903 of Regulation S. The Company
plans to take advantage of these accommodations. However, the Company currently has decided to voluntarily continue to file periodic reports
with the Commission using domestic issuer forms including filing annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K.
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
Department of Energy’s Oak Ridge National
Laboratory Visit
The Company received a visit at its Sunday Mine
Complex by a delegation from the U.S. Department of Energy’s Oak Ridge National Laboratory (“ORNL”) on September 14,
2023. The ORNL is considered among the world’s premier scientific research institutions and is charged with solving problems and
creating solutions at the intersection of energy, critical infrastructure, national security, and the nuclear fuel cycle.
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.
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, 2023 and 2022,
we recognized aggregate revenue of $431,065 and $635,363, respectively, under these oil and gas lease arrangements.
41
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.
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. The
review of Western’s most recent submission continues to be delayed due to staff turnover at the BLM.
42
Sunday Mine Complex 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.
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 deployed; site infrastructure upgrades have been finished. In early 2023, the
mines were reopened for ventilation and infrastructure upgrades. Mining operations restarted in April 2023 and initially focused on additional
development of the GMG Ore Body, where high-grade uranium ore was continuously intersected. Western’s in-house mining team drove
this drift to less than 30 feet of reaching the target ore hole. At that point, the GMG Ore Body was deemed ready for full-scale production.
As a result of the encouraging results, the in-house mining team refocused on other high value target areas that were never drilled due
to the mountainous terrain limiting surface exploration drilling. The mining team is currently engaged in an underground long-hole drilling
program to define additional production zones. The goal is to develop additional target zones in order to maximize simultaneous production
from the Sunday Mine Complex mines.
Stockpiled Mined Materials Inventory
From December 2021 to March 2022, 3,140 tons of
uranium/vanadium material was mined from the Sunday Mine Complex. The mining contractor calculated uranium grades based upon scintillometer
sampling of each 10-ton truckload and vanadium quantities were derived by applying the 6:1 historical ratio. The estimated stockpiled
inventory is 50,289 pounds of uranium and 301,736 pounds of vanadium. The value of this stockpile is not reflected as an asset on the
balance sheet as the costs to produce the stockpiled inventory was expensed in accordance with Regulation SK-1300. The in-house mining
team stockpiled limited quantities of additional mined material in the current year.
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.
43
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 U.S. Department
of Energy (“DOE”) released program guidelines to initiate purchases of up to $75 million of U.S. domestic origin uranium inventory
from existing storage at the Honeywell Metropolis Works uranium conversion facility in Metropolis, Illinois. The DOE awarded contracts
in December 2022 for the purchase of 1,100,000 lbs of uranium that were delivered in 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.
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.
44
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 +/- per pound price
level from September 2022 to March 2023. Following this range bound period, in 4Q2023 the spot uranium price rallied to an average $96
per pound price level in December 2023/January 2024.
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.
During this past year, there was significant legislative
progress favorable to increasing domestic uranium and nuclear fuel production in the United States. Before the U.S. Senate went on summer
recess, an amendment to establish a Nuclear Fuel Security Program was added to the National Defense Authorization Act (NDAA) on a 96-3
vote. This amendment requires the Secretary of Energy to establish a Nuclear Fuel Security Program, expand the American Assured Fuel Supply
Program, establish a High-Assay Low-Enriched Uranium (HALEU) for Advanced Nuclear Reactor Demonstration Projects Program, submit a report
on a civil nuclear credit program, and to enhance programs to build workforce capacity to meet mission critical needs of the Department
of Energy. In May 2023, the House Energy and Commerce Committee advanced a bill titled Prohibiting Russian Uranium Imports Act. The purpose
and intent of the proposed legislation is to begin banning Russian uranium 90 days after its enactment; subject to conditional Department
of Energy waivers. Those waivers include scenarios where no alternate source of low-enriched uranium is available to keep a U.S. nuclear
reactor in operation or that importing Russian uranium is in the national interest. Both pieces of legislation seek to replace Russian
uranium in U.S. civilian nuclear reactors with domestic production.
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’s DOE has sponsored multiple programs to support the U.S. nuclear sector with the goal of replacing nuclear
fuel and services coming from Russia. The United States has not put in place a ban or sanction of Russian uranium, however, 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. Congress and several have advanced through committee in both the Senate and the
House.
45
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, we continue to
accelerate the advancement of our operational strategy in anticipation of increasing uranium price levels that will reward near-term scaled-up
production.
Nuclear Fuel and Uranium Market Conditions
During the year ended December 31, 2023, the
spot uranium price increased +$43.32 or 90.9% to $91.00. The uranium market improved significantly during the second half of 2023.
Since July 2023, spot uranium increased from the approximately $50/lbs level to over $100/lbs in January 2024, before receding below
the $88/lbs level at the end of March 2024. The events of 2022 have set in motion uranium market and nuclear fuel opportunities for
the next decade and beyond. There are positive catalysts across multiple levels of the nuclear fuel and uranium markets. Underlying
fundamentals are the strongest in decades. This is attributable to multiple factors, including climate change, energy security,
supply chain and energy scarcity initiatives. The supply/demand imbalance has flipped from a market with excess supply into a market
with excess future demand. With the reduced availability of secondary supplies, utilities have begun adding multi-year contracts
with mining companies for primary supply. The drivers expanding the demand for nuclear fuel include non-nuclear nations adding
nuclear power generation, nuclear nations expanding fleets and/or extending lives of existing reactors, idled nuclear reactors being
redeployed, the reversal of phase-outs and shutdowns, and the deployment of advanced reactors / SMRs. However, the challenge is in
meeting increasing demand simultaneously with supply constraints from the world’s largest suppliers. We believe uranium equity
prices will continue to strengthen and reflect the underlying positive fundamentals in the nuclear/uranium sector. Most notably
during the quarter, multiple market analysts have flagged low availability of mobile secondary inventories. We believe the continued
draw down of inventories to be a market catalyst of the recent uptick in uranium prices.
Positive nuclear energy news has continued to
highlight the global growth of future nuclear electricity generation which will drive increased nuclear fuel demand. In terms of future
supply, utility contracting has continued into 2023, and some uranium mining companies are moving toward restarting production. However,
due to the lead time needed for future uranium production, we are entering a phase where the supply-demand fundamentals are in a deep
multi-year structural supply deficit. Uranium miners are moving toward start-up and utilities are waiting to understand how regulations
and geopolitics will modify their future access to Russian uranium and conversion and enrichment services.
Nuclear Fuel Supply Chain Concentration
Risks
Russia’s invasion of Ukraine and the ensuing
global energy crisis has focused attention on security of supply and supply chain risks. This has caused most of the world to re-evaluate
their dependence upon nuclear fuel exported by Russia. In spite of the dominant market position of Rosatom, future deliveries potentially
could be at risk due to sanctions, legislation, or a Russian embargo. Customer dependence upon the Russian supply of uranium, conversion
and enrichment are being addressed slowly by governments as alternative suppliers are not currently available. Since last quarter both
Urenco and Orano have announced that they will invest to expand their uranium enrichment capacity respectively in the United States and
France, which represents a shift away from Russia. Utilities are demonstrating their desire for increased security of their nuclear fuel
supply chains. Kazakhstan is also a concern because the world’s largest uranium producing country has an unguarded and the second
longest continuous land border in the world shared with Russia. The potential exists for Russia to exert influence over Kazakhstan. Additionally,
Kazatomprom is currently working toward putting large long-term contracts in place with China. This supply is needed for China to fulfill
its 15 year plan to deploy 150 new nuclear reactors. China National Nuclear Corp. (CNNC) has recently opened a uranium trading hub /warehouse
facility, on the China / Kazakhstan border, with the capacity to store 60 million pounds of uranium. It has become evident that the nuclear
fuel supply chain has become increasingly concentrated and interconnected in this very small area of the world. Expanding Kazakhstan uranium
exports to Russia and China significantly reduces future supply for Western nuclear fuel buyers.
46
In late July 2023, soldiers of Niger’s
presidential guard deposed from power President Mohamed Bazoum; and replaced him with a military junta. This is significant because
the new government is opposed to Western interests and has escalated anti-French rhetoric, while seeking support from Russia and its
Wagner mercenary group. Uranium is Niger’s main export and this small West African country holds the 7th largest uranium
resource in the world and was producing about 5% of global production. Orano, the French state-backed nuclear energy company has
significant operations in the country that were impacted. The Junta has initiated multiple actions that are counter to French
interests. Most importantly, Niger’s Junta has threatened the export of uranium to France which has serious implications
because France acquires 20% of its natural uranium from Niger. Subsequently, French President Macron has visited Kazakhstan and
Uzbekistan, both former Soviet Republics, citing the vast potential for further cooperation in regard to nuclear power. This
conflict also has the potential to impact future global uranium supply. Multiple uranium mine development projects in the country
continue to proceed despite the evacuation of many foreign nationals and
difficulties receiving supplies. Re-establishing political stability is likely a prerequisite to these companies receiving the
funding packages needed to cover the significant development costs of their respective projects.
During October 2023, geopolitical instabilities
spread further to the Middle East after a Hamas attack on Israel triggered a counterattack by Israel on Hamas in the Gaza strip. This
additional hot spot further increases volatility in the world and destabilizes the Middle East region that is highly influential on global
energy prices.
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 minerals processing plant (the “Maverick Minerals Processing Plant”). This facility will be designed to
recover uranium, vanadium and cobalt from conventional materials mined both from Company mines and materials produced by other mining
companies. 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 $75 million. After permitting and construction, the processing of uranium and vanadium materials is expected to commence
in late 2027. 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.
The development of the Maverick Minerals Processing
Plant in Green River Utah has advanced considerably. In the second quarter, the land acquisition was completed and in the third quarter
the project design and permitting activities commenced with the engagement of a full team of consulting firms, chosen for their expertise
in engineering / mill design, permit preparation, environmental, hydrology, and air quality. Site evaluation work was undertaken and a
preliminary plant and property site plan was compiled for the location of monitor wells, meteorological towers, buildings, processing
circuits, tailings and evaporation ponds, roads/infrastructure and ore storage facilities. At a pre-application permitting meeting in
November 2023, the Company and its consultants met onsite with local officials. During the fourth quarter / early 2024, additional progress
has been made. The collection of baseline date has commenced from the onsite meteorological towers. A final plant and animal study is
expected to be completed within 30 days as certain plant life is only observable during the spring. Additional consulting commitments
have been made to accelerate the licensing and development with Precision Systems Engineering (PSE), a leading engineering, and design
consulting firm headquartered in Sandy, Utah. PSE is targeting to release the preliminary engineering design and cost estimate in June
2024 for a 500 ton per day mill.
December 2023 Private Placement
On December 12, 2023, the Company closed a non-brokered
private placement of 5,215,828 units at a price of CAD $1.39 per unit. The aggregate gross proceeds raised in the private placement amounted
to CAD $7,250,000 (USD $4,836,867 in net proceeds). Each unit consisted of one common share of Western (a “Share”) plus one
half of one common share purchase warrant of Western (a “Warrant”). Each Warrant is exercisable into one share at a price
of CAD $1.88 per Share for a period of four years following the closing date of the private placement. A total of 5,215,828 Shares and
2,607,913 Warrants were issued to investors in connection with the private placement.
Annual 2023 Incentive Stock Option Grant
The Company granted an aggregate of 1,525,000
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 December 20, 2023 after market close, and with the exercise price
being set at CAD$1.60 based upon the Board’s assessment 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 three instalments of January 31, 2024, July 31, 2024 and January 31, 2025.
47
Results of Operations
Year Ended December 31, 2023 as Compared
to the Year Ended December 31, 2022
The following table presents the Company’s
financial results for the years ended December 31, 2023 and 2022.
For the Years Ended December 31,
Expenses
Accretion and interest (income) expense, net (158,904 ) (61,414 )
Other expense (income), net 5,598 (4,000 )
Other Comprehensive loss
Summary:
Our consolidated net loss for the years ended
December 31, 2023 and 2022 was $4,942,594 and $713,767, respectively. The principal components of these year over year changes are discussed
below.
Our comprehensive loss for the years ended Decembers
31, 2023 and 2022 was $4,755,471 and $1,038,377, respectively.
Revenues
Our revenues for the years ended December 31,
2023 and 2022 was $431,065 and $7,858,972, respectively. The decrease in revenues of $7,427,907 was primarily related to the revenue of
$7,223,609 recognized in the 2022 period for a uranium concentrate delivery/sale under our supply contract where we delivered 125,000
lbs of uranium concentrate from our prepaid uranium concentrate inventory. There was not a corresponding uranium concentrate delivery/sale
during the current period. Revenue from oil and gas wells decreased by $204,298, primarily due to lower prices and lower production volumes
from the oil and gas wells during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
48
Cost of Revenues
Cost of revenues was $0 for the year ended December
31, 2023 as compared to $4,044,083 for the year ended December 31, 2022. This decrease was a result of recording the cost of the uranium
concentrate that was sold and delivered during the second quarter of 2022. There was not a corresponding uranium concentrate delivery/sale
during the current period.
Mining Expenditures
Mining expenditures for the year ended December
31, 2023 were $2,951,579 as compared to $762,333 for the year ended December 31, 2022. The increase in mining expenditures of $2,189,246,
or 287% was principally attributable to scaling up mining activities at the Company’s Sunday Mine Complex. The increase was principally
attributable to the hiring of additional mining personnel, increases in the maintenance and depreciation of mining equipment and vehicles,
and increased utilization of mining services and supplies.
Professional Fees
Professional fees for the year ended December
31, 2023 were $386,473 as compared to $493,940 for the year ended December 31, 2022. The decrease in professional fees of $107,467, or
22% was primarily due to replacing outside professional service providers with in-house staff and a decrease of $63,533 in legal fees.
General and Administrative
General and administrative expenses for the year
ended December 31, 2023 were $1,884,456 as compared to $3,246,171 for the year ended December 31, 2022. The decrease in general and administrative
expense of $1,361,715, or 42% is primarily due to a $1,215,965 decrease in stock-based compensation expense and a $25,351 decrease in
investor relations costs.
Consulting fees
Consulting fees for the year ended December 31,
2023 were $304,457 as compared to $91,626 for the year ended December 31, 2022. The increase in consulting fees of $212,831, or 232% was
principally due to the increased use of consultants for the Maverick Minerals Processing Plant to prepare the permitting application.
Accretion and interest (income) expense, net
Accretion and interest (income) expense, net for
the year ended December 31, 2023 was income of $158,904 as compared to income of $61,414 for the year ended December 31, 2022. The increase
in interest income, net was principally attributable to higher interest rates earned during the year ended December 31, 2023 compared
to the year ended December 31, 2022.
Other expense (income), net
Other expense (income), net for the year ended
December 31, 2023 was expense of $5,598 as compared to income of $4,000 for the year ended December 31, 2022. The change was principally
attributable to a net loss on the sale of used vehicles during the year ended December 31, 2023 as compared to a gain on the sale of a
used vehicle during the year ended December 31, 2022.
Foreign currency translation adjustment
Foreign currency translation adjustment for the
year ended December 31, 2023 was a gain of $187,123 as compared to a loss of $324,610 for the year ended December 31, 2022. The change
in foreign exchange is primarily due to the strengthening of the USD against the CAD.
49
Liquidity and Capital Resources
Our cash and cash equivalents and restricted
cash balance as of December 31, 2023 was $9,969,029. Our cash position is highly dependent on our ability to raise capital through the
issuance of debt and equity and our management of expenditures for mining development and for fulfillment of our public company reporting
responsibilities. Our management believes that in order to finance the development of the mining properties and Kinetic Separation, to
secure regulatory licenses and to construct the Maverick Minerals Processing Plant for the processing of uranium and vanadium, we will
be required to raise additional capital by way of debt and/or equity. We will also require additional working capital to continue to
scale-up our mining operations at the Sunday Mine Complex. This outlook is based on our current financial position and is subject to
change if opportunities become available based on current exploration program results and/or external opportunities.
Net cash (used in) provided by operating activities
Net cash used in operating activities was $4,089,495
for the year ended December 31, 2023, as compared with $4,550,246 provided by operating activities for the year ended December 31, 2022.
The $8,639,741 reduction in cash generated by operating activities was principally due to the cash of $7,223,609 received during 2022
related to the delivery of the uranium during the year ended December 31, 2022. There was not a corresponding uranium concentrate delivery/sale
during the current period.
Net cash used in investing activities
Net cash used in investing activities was $2,404,440
for the year ended December 31, 2023, as compared with $1,045,638 for the year ended December 31, 2022. The increase in cash used in investing
activities of $1,358,802 was principally due to the purchase of additional mining equipment and vehicles to increase mining capacity and
to purchase property and equipment for the Maverick Minerals Processing Plant.
Net cash provided by financing activities
Net cash provided by financing activities for
the years ended December 31, 2023 and 2022 were $5,844,411 and $5,632,273, respectively. The increase in cash provided by financing activities
of $212,138 was principally due to aggregate net proceeds of $4,836,867 from a private placement and proceeds of $1,004,044 from the exercise
of warrants during the year ended December 31, 2023, as compared to aggregate net proceeds of $3,011,878 from a private placement and
proceeds of $2,620,395 from the exercise of warrants the year ended December 31, 2022.
Reclamation Liability
Our
mines are subject to certain asset retirement obligations, which we have 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 our best estimate of the present value of future reclamation
costs in connection with the mineral properties. We determined the gross reclamation liabilities of the mineral properties to be $751,444
and $751,405 as of December 31, 2023 and December 31, 2022, respectively. The portion of the reclamation liability related to the Van
4 Mine, which is in reclamation as of December 31, 2023, and its related restricted cash are included in current liabilities and current
assets, respectively, at a value of $75,057. We expect to begin incurring
the reclamation liability after 2054 for all mines that are not in reclamation and accordingly, have discounted these gross liabilities
over their remaining lives using a discount rate of 5.4%. The net discounted aggregated values as of December 31, 2023 and December 31,
2022 were $241,562 and $225,219, respectively, and are included in non-current liabilities. The gross reclamation liabilities as of December
31, 2023 and December 31, 2022 are secured by financial warranties in the amount of $751,444 and $751,405, respectively.
Oil and Gas Lease and Easement
We entered into an oil and gas lease that became
effective with respect to minerals and mineral rights owned by us of approximately 160 surface acres of our property in Colorado. As consideration
for entering into the lease, the lessee has agreed to pay us a royalty from the lessee’s revenue attributed to oil and gas produced,
saved, and sold attributable to the net mineral interest. We have also received cash payments from the lessee related to the easement
that we are 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 a first set of eight (8) wells which commenced oil and gas production
by August 2021. During 2022, the operator completed a second set of eight (8) wells which commenced oil and gas production by August
2022. Monthly royalty payments are ongoing on the sixteen (16) wells.
Under the oil and gas lease and easement arrangements,
during the years ended December 31, 2023 and 2022, we recognized aggregate revenue of $431,065 and $635,363, respectively, under these
oil and gas lease arrangements.
50
Related Party Transactions
We have 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 $340,650 as of December 31, 2023) to Seller within 60 days of the
first commercial application of the Kinetic Separation technology. We 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, we recorded the deferred contingent consideration
as an assumed liability in the amount of $340,650 and $340,252 as of December 31, 2023 and 2022, respectively.
We have 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 our rental of office, workshop, warehouse and employee housing facilities. We incurred rent expense of $71,700 and $55,198 in
connection with these arrangement for the years ended December 31, 2023 and 2022, respectively.
During the year ended December 31, 2023, we purchased
equipment from Silver Hawk Ltd. for $25,800.
We are obligated to pay Mr. Glasier for reimbursable
expenses in the amount of $84,040 and $87,221, included within accounts payable and accrued expenses, as of December 31, 2023 and 2022,
respectively.
Going Concern
With the exception of the quarter ended June 30,
2022, we had incurred losses from our operations and as of December 31, 2023, had an accumulated deficit of $18,817,857 and working capital
of $8,970,434.
Since inception, we have met our liquidity requirements
principally through the issuance of notes, the sale of our common shares and from limited revenue sources. During the year ended December
31, 2023, we received oil and gas royalty and lease revenues of $431,065 and $635,363, respectively. During the year ended December 31,
2022, we realized revenue of $7.2 million and corresponding costs of $4.0 million in connection with a single sale of uranium concentrate.
Our ability to continue our operations and to
pay our obligations when they become due is contingent upon us 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 our Kinetic Separation,
to construct Maverick Minerals Processing Plant for the processing of uranium and vanadium and to incorporate Kinetic Separation in the
processing uranium and vanadium bearing materials to generate operating cash flows. We will need additional capital to continue ongoing
mining operations by our in-house mining team at the Sunday Mine Complex while simultaneously permitting and construction a processing
plant.
There are no assurances that we will be able to
raise capital on terms acceptable to us or at all, or that cash flows generated from our operations will be sufficient to meet our current
operating costs and required debt service. If we are unable to obtain sufficient amounts of additional capital, we may be required to
reduce the scope of our planned product development, which could harm our financial condition and operating results, or we may not be
able to continue to fund our ongoing operations. These conditions raise substantial doubt about our 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.
51
Off Balance Sheet Arrangements
As of December 31, 2023, there were no off-balance
sheet transactions. We have not entered into any specialized financial agreements to minimize our 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 16 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, 2023, 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.
52
Description of Material Weakness