aclara

ACLARA RESOURCES INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis ("MD&A") has been prepared as of March 20, 2025 and is intended to assist readers in understanding the operational performance and financial condition of Aclara Resources Inc. (hereinafter, the "Company" or "Aclara"). The Company is, and will remain, a holding company and the only business of the Company is that of the business of its subsidiaries. The Company's material assets consist of interests in: (i) Aclara Resources Mineracao Ltda. ("Aclara Brazil"), a wholly-owned Brazilian subsidiary that holds the Carina Project (as defined below) and performs exploration activities in Brazil; (ii) REE Uno SpA ("REE Uno"), a majority-owned Chilean subsidiary that holds the Penco Module (as defined below); (iii) Aclara Technologies Inc. ("Aclara Technologies"), a wholly-owned U.S. subsidiary with the objective of developing a project for the separation of mixed rare earth carbonates ("MREC") from the Carina Project and the Penco Module into individual rare earth oxides ("REO"); (iv) REE Alloys SpA ("Aclara Metals"), a 50%-owned Chilean subsidiary with the objective of developing a project for the conversion of individual REOs to metals and alloys for the manufacture of rare earth permanent magnets; (v) Prospecciones Greenfield SpA ("Prospecciones"), a wholly-owned indirect Chilean subsidiary that holds other exploration concessions located in Chile; (vi) Fundacion de Beneficencia Publica, Medioambiental, Cientifica, Cultural y Social Queule ("Fundacion"), a wholly-owned indirect Chilean subsidiary that performs charitable work through implementing, promoting and supporting initiatives and projects pertaining to environmental conservation and heritage rescue, as well as Chilean cultural, social and scientific development; and (vii) Aclara Resources Peru S.A.C. ("Aclara Peru"), a wholly-owned Peruvian subsidiary that provides administrative services to Aclara and performs exploration activities in Peru.

This MD&A provides information concerning the Company's financial condition and results of operations for the fiscal years ended December 31, 2024 ("FY 2024") and December 31, 2023 ("FY 2023"). This MD&A should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for FY 2024 and FY 2023 (together, the "Financial Statements"). The Financial Statements were prepared in accordance with International Financial Reporting Standards ("IFRS") and its interpretations adopted by the International Accounting Standards Board ("IASB").

As used in this MD&A, references to "Q4 2024" and "Q4 2023" are to the three (3) months ended December 31, 2024 and three (3) months ended December 31, 2023, respectively; references to "Q3 2024" and "Q3 2023" are to the three (3) months ended September 30, 2024 and three (3) months ended September 30, 2023, respectively; references to "Q2 2024" and "Q2 2023" are to the three (3) months ended June 30, 2024 and three (3) months ended June 30, 2023, respectively; and references to "Q1 2024" and "Q1 2023" are to the three (3) months ended March 31, 2024 and three (3) months ended March 31, 2023, respectively. Unless otherwise specified, the financial information contained in this MD&A is reported in United States dollars ("$ or "US$"). Certain totals, subtotals and percentages throughout this MD&A may not reconcile due to rounding. Additional cautionary statements regarding forward-looking information and mineral reserves and mineral resources can be found under the section of this MD&A entitled "Cautionary Statements and Reader Advisories".

COMPANY OVERVIEW

Aclara is a company focused on the development of a vertically integrated supply chain for rare earths alloys used in permanent magnets, and it is listed on the Toronto Stock Exchange ("TSX") under the ticker symbol "ARA".

Aclara's business strategy is supported by its ion-absorption clay ("ionic clay") deposits in Brazil and Chile, which feature large concentrations of heavy rare earths ("HREE"), which provides the Company with unique access to a reliable, long-term source of these critical minerals. Aclara has also developed and patented an innovative technology to extract rare earths from ionic clay deposits through recycling and circular economy processes, which results in low water consumption and minimal carbon emissions.

Aclara's flagship project is its Carina project, a 9,863-hectare HREE ionic clay project located in Nova Roma, Goiás, Brazil (the "Carina Project"). The Company is also advancing the Penco Module project, a 600-hectare HREE ionic clay project located in Biobío, Chile (the "Penco Module"). The Company has successfully completed the preliminary economic assessment ("PEA") for the Carina Project and Penco Module, the results of which are respectively detailed in the following technical reports:

"NI 43-101 Technical Report – Preliminary Economic Assessment Update for Carina Rare Earth Element Project", dated effective May 3, 2024 (the "Carina Project Technical Report"); and
"Amended and Restated NI 43-101 Technical Report – Preliminary Economic Assessment for Penco Module Project", dated effective September 15, 2021 (the "Penco Module Technical Report").

The Company holds an aggregate of approximately: (i) 83,285 hectares of mining rights in Chile, distributed in the regions of Maule, Ñuble and Biobío; (ii) 48,564 hectares of mining rights in Brazil, distributed in the states of Goiás, Bahia, Minas Gerais and Paraná; and (iii) 30,100 hectares of mining rights in Peru. The Company aims to identify additional opportunities to enhance potential future HREE production through its greenfield exploration programs in Chile, Brazil and Peru, alongside the development of further project "modules" within its mining concessions.

Aclara, through its wholly-owned U.S.-based subsidiary, Aclara Technologies, is focused on enhancing product value through the development of a rare earths separation plant in the United States. Aclara Technologies aims to source high purity MREC from Aclara's mining projects to further refine and separate it into individual REOs. Additionally, Aclara is developing rare earths alloy-making capabilities to convert refined oxides into the alloys needed for fabricating permanent magnets. The Company's vertical integration strategy seeks to address the demand for a geopolitically independent supply chain of permanent magnets, focused on traceability, high environmental standards throughout the value chain, cost-competitiveness and expedited access to market. Aclara is well-positioned to become the first vertically integrated HREE company outside of Asia.

BUSINESS DEVELOPMENT AND OVERALL PERFORMANCE HIGHLIGHTS

Mining Projects Development

During Q4 2024, the Company continued to advance the development of the Penco Module and the Carina Project and made consistent investments in respect of evaluation and exploration assets ("E&E") and property, plant and equipment assets ("PP&E").

In Q4 2024, the Company invested $8.30 million in E&E and $0.03 million in PP&E. In comparison, investments in Q4 2023 totaled $2.08 million for E&E and $9.94 million for PP&E. In FY 2024, total expenditures amounted to $19.29 million for E&E and $0.32 million for PP&E, compared to $15.51 million and $11.46 million, respectively, in FY 2023.

Carina Project and Future Outlook

On August 9, 2024, the Company announced an updated mineral resource estimate for the Carina Project, which reported an increase to inferred mineral resources of 77%, from 168 million tonnes ("Mt") to 298 Mt, and an extension to the life-of-mine from 17 years to 22 years. The update also highlighted a 69% increase in key magnetic elements (Dysprosium ("Dy"), Terbium ("Tb"), Neodymium and Praseodymium) as compared to the previously announced mineral resource statement in 2023.

On August 16, 2024, Aclara signed a Memorandum of Understanding ("MoU") with the state of Goiás and the municipality of Nova Roma, recognizing the strategic nature of the Carina Project. This strategic relationship aims to accelerate the analysis and evaluation of the permitting process and support the execution, implementation and

development of the Carina Project. The Company has also committed to hiring and developing the local workforce, as well as local suppliers. As a result of these efforts, the Company will reinforce its positive impact on the social and economic development of Nova Roma and Goiás regions, further positioning Brazil as a key player in the sustainable supply of critical minerals.

On September 5, 2024, the Company delivered an updated PEA for the Carina Project, reporting robust economic feasibility including the following: (i) net present value at an 8% discount rate of ~$1.5 billion; (ii) estimated internal return rate of 27% over the 22-year life-of-mine and payback period of 4.2 years; (iii) average annual net revenue and EBITDA of $505 million and $366 million, respectively (excluding the first year of ramp-up and last year of ramp-down); and (iv) average net smelter return of $52.0 per tonne processed, compared to an average production cost of $13.6 per tonne processed.

Following the positive results obtained at the Carina Project, and in an effort to move the Carina Project towards an investment decision, the Company has advanced or is advancing the following activities in parallel:

Drilling Campaigns. During Q4 2024, the Company updated its Phase 2 drilling campaign to include the areas in the new mining rights adjacent to the Carina Project. The new drilling estimate encompasses a total of 30,453 meters within 1,678 reverse circulation ("RC") drill holes and 3,934 meters within 251 auger drill holes. The primary objective of the Phase 2 drilling campaign is to convert the reported inferred mineral resources into a measured and indicated resource category.
Metallurgical Tests. The Company intends to conduct and complete metallurgical tests on samples obtained from the Carina Project during Q4 2024 and H1 2025. Sample collections were obtained through sonic drilling and will be sent to SGS Geosol for mineralogical and recovery characterization, which will serve as an input for the pre-feasibility study ("Carina PFS"), as well as form the basis for a new semi-industrial scale piloting operation scheduled to occur in Q2 2025.
Pilot Test Campaign. During Q3 2024, the Company relocated its pilot plant facility from Concepción, Chile to Aparecida de Goiania, Brazil, with the objective of conducting a new semi-industrial scale pilot operation with ionic clays obtained from the Carina Project. The piloting campaign will be a continuous operation including the optimized configuration of the Company's circular mineral harvesting process and will be aimed at: (i) confirming the processing parameters and final process flowsheet design for the Carina PFS and feasibility study ("Carina FS"); (ii) generating high purity MREC for separation trials in support of future off-take agreements; and (iii) demonstrating to relevant stakeholders the environmental sustainability of the process design. The pilot operation is expected to begin in Q2 2025 and will take approximately three (3) months to complete.
Technical Development. During Q1 2024, the Company awarded the Carina PFS to Hatch Ltd. ("Hatch Brazil"). The Company began Carina PFS-related activities during Q2 2024 and expects to deliver a technical report pursuant to National Instrument 43-101 Standard of Disclosure for Mineral Projects ("NI 43-101") during Q3 2025.
Environmental Baselines and EIA Development. During 2024, the Company successfully completed a majority of the baseline studies for the Carina Project. The Company is currently preparing the necessary reports for the environmental preliminary license application and plans to file the environmental impact assessment ("EIA") report during Q2 2025.
Commercial Efforts. The Company is developing a separation project in the United States to refine the Carina Project's MREC into individual rare earth oxides. Additionally, in partnership with CAP S.A. ("CAP"), the Company is advancing a metals and alloys project to produce the alloys needed for high-performance permanent magnets. As part of this strategy, the Company is engaged in commercial discussions with potential counterparties regarding offtake agreements, offering flexibility in product options including MREC, individual rare earth oxides and metals and alloys derived from the Carina Project.

Carina Project Schedule. The Company has updated its previously announced short-term milestones and/or targets in respect of the Carina Project as follows:
Complete Phase 2 Drilling Campaign Q2 2025
Complete Environmental Baseline Q2 2025
Pilot Plant Operation in Aparecida de Goiania, Goiás, Brazil Q2 2025
Complete Carina PFS Q3 2025
Complete Carina FS H1 2026

Penco Module and Future Outlook

EIA Application. On September 25, 2023, the Company revised its permitting strategy with the primary aim of addressing concerns associated with native forests located within the Penco Module project site, while minimizing substantial impacts to the Penco Module's development timeline. To effectively implement the revised permitting strategy, the Company decided to prepare and submit two (2) EIAs, which will collectively cover the full life-of-mine of the Penco Module. On June 10, 2024, the Company filed the first EIA ("EIA 1"), which encompasses the first six (6) years of the full life-of-mine of the Penco Module. The evaluation of EIA 1 by the Environmental Assessment Service (the "SEA") is expected to take approximately between 18 and 24 months. On September 12, 2024, the Company received the consolidated clarification report ("Technical ICSARA") including 394 technical observations from the SEA on EIA 1, followed by the citizen consolidated clarification report ("Citizen ICSARA") including 1,331 public consultation observations on December 12, 2024. The Company intends to deliver responses to the Technical ICSARA and the Citizen ICSARA by the end of Q1 2025.
Social License. The Company continued ongoing efforts to strengthen its relationship with the local community through continuous engagement at "Casa Aclara", (a community center located in the central Penco community), and through several social initiatives including education, technical training, reforestation and sports programs. The Company will continue maintaining open dialogue and incorporating community feedback into its plans for the Penco Module.
Technical Development. In light of the revised permitting strategy, the Company has decided to postpone the completion of the feasibility study ("Penco FS") technical report in respect of the Penco Module pursuant to the requirements of NI 43-101 and use the additional time to further refine the engineering aspects of the Penco Module by incorporating certain enhancements that are expected to result in a reorganization of operating and capital costs focused on improving operational efficiency. Such proposed engineering enhancements are a result of the Company's piloting work and research and development initiatives. The Company plans to reinitiate work on the Penco FS technical report during Q2 2025.
Commercial Efforts. The Company is pursuing the same commercial strategy for the Penco Module as with the Carina Project, as described above under "Mining Projects Development – Carina Project and Future Outlook – Commercial Efforts". In parallel, the Company has shipped high-purity MREC samples produced in the Company's pilot plant in Chile to more than 15 separation firms located within the United States, Europe and Asia, in an effort to validate product specifications and assess potential partnerships.
Updated Penco Module Schedule. As a result of its updated permitting and development strategy, the Company is working to achieve the following proposed milestones and/or targets in respect of the Penco Module:
Anticipated EIA 1 Approval Q4 2025
Penco FS Filing Q4 2025
Construction H1 2026
Production 2028

Separation of MREC to Individual Oxides and Future Outlook

On April 3, 2024, following the announcement of the CAP Investment Agreement (as defined below), the Company announced that it had incorporated a wholly-owned U.S.-based subsidiary, Aclara Technologies, to develop its rare earths separation capabilities in the United States. The Company's efforts through Aclara Technologies are intended to better position the Company and develop the necessary expertise required to carry out all stages of processing leading up to the production of rare earth alloys for high performance permanent magnets. Aclara Technologies is expected to source high purity MREC from the Company's extraction projects in Chile and Brazil. These carbonates will then be converted into individual rare earths oxides in the U.S.-based separation facility.

On October 15, 2024, the Company completed an initial conceptual engineering study for its rare earths separation project. The separation conceptual flowsheet, based on solvent extraction technology, was developed in collaboration with the Saskatchewan Research Council ("SRC") and supported a Class 5-AACE CAPEX and OPEX estimate developed by Hatch Ltd. ("Hatch Canada"). Hatch also incorporated robust environmental features such as significant waste reduction and zero liquid discharge. Highlights from the technical study include:

Separation of Key REE. Contemplates the separation of MREC to be produced by the Carina Project and Penco Module in order to obtain high-purity didymium ("NdPr"), Dy and Tb.
Proven Technology. The flowsheet process employs solvent extraction technology with hydrochloric acid chemistry.
High Purity. Achieves over 99.5% purity for all separated REEs.
Strong Metallurgical Recoveries. Expected metallurgical recoveries of 94% for NdPr, 92% for Dy and 91% for Tb.
Environmental Features. Incorporates full water recirculation, achieving no liquid discharge.
Unoptimized CAPEX and OPEX. Initial CAPEX is estimated at US$354 million, which includes US$244 million for the solvent extraction plant and US$110 million to significantly reduce waste and achieve no liquid discharges. OPEX is estimated at US$12 per kg of REO.
Synergies with Circular Mineral Harvesting Process. The development of the separation project has resulted in potential significant synergies with Aclara's proprietary circular mineral harvesting process, including the potential for: (i) reducing CAPEX and OPEX at both mine and separation stages; (ii) minimizing waste management costs; and (iii) maximizing the quality of MREC output from the Carina Project and Penco Module.

The Company has begun advancing the following activities as part of the next stage of development of its separation project:

Metallurgical Testing and Optimization. Execution of bench scale and mini-pilot testing to optimize the separation flowsheet, CAPEX and OPEX.
Location Study. Analysis within the United States to identify an optimal site for the contemplated industrial separation facility, with the goal of maximizing efficiency and minimizing cost and development timeline.
Pilot operation. Construction and operation of a pilot plant projected for Q3 2025.

Greenfield Exploration and Future Outlook

During Q4 2024, the Company continued to advance its greenfield exploration activities in order to identify REE mineralization and potential new modules for further development. The Company incurred total expenses of $0.30 million in Q4 2024, as compared to $3.61 million incurred in Q4 2023. In FY 2024, total greenfield exploration expenses amounted to $0.59 million, as compared to $6.99 million in FY 2023.

The Company intends to continue advancing its greenfield exploration strategy and objectives, which have been expanded to include additional exploration targets in Brazil. This expansion aligns with the Company's overarching objective of accelerating the development of additional project modules to achieve future growth of the Company.

Commercial Update

On July 9, 2024, the Company announced that it has signed a MoU with VACUUMSCHMELZE GmbH & Co. KG ("VAC"), which establishes a preliminary agreement to jointly approach potential clients as a "mine-to-magnets" solution for the production of ESG compliant permanent magnets. VAC is considered the largest producer of rare earths magnets outside of Asia, with more than 40 years' experience in magnet-making technology. VAC, whose main permanent magnet facility is located in Hanau, Germany, recently executed a contract with General Motors ("GM") to supply GM with permanent magnets by building a new magnet plant in the state of South Carolina, United States. Pursuant to the MoU, each of the parties will engage in collaborative efforts, through a preferred supplier-purchaser relationship with cooperative marketing, customer relations and related matters.

Corporate Development

On March 12, 2024, the Company entered into a strategic investment agreement (the "CAP Investment Agreement") with CAP, a publicly listed company on the Chilean Stock Exchange, providing for, amongst other things: (i) a $29.1 million capital contribution to be made by CAP in REE Uno in exchange for a 20% equity ownership interest, payable in three tranches upon closing and subsequently in January 2025 and January 2026; (ii) the grant of an option to invest an additional $50 million by CAP in REE Uno for an additional 20% equity ownership interest upon the Company obtaining the requisite environmental permit in respect of the Penco Module; (iii) the grant of an option exercisable by CAP to acquire up to 19.9% of the outstanding common shares of the Company in any private placement or public offering of common shares made by the Company within the 36 month period following the effective date of the CAP Investment Agreement, including a residual top-up right to maintain pro-rata voting rights; (iv) a demand subscription right for up to an aggregate of 19.9% of the outstanding common shares of the Company exercisable upon the satisfaction of certain conditions and continuing for a maximum period of 18 months beginning on the third anniversary of the CAP Investment Agreement; and (v) the terms on which CAP and the Company will form a joint venture to develop metals and alloys for the rare earths permanent magnet industry and contemplates an investment of $3 million in consideration for 50% of the ownership interests in such joint venture entity. On April 17, 2024, the Company announced the successful closing of the acquisition by CAP and receipt by the Company of the initial payment of approximately $9.7 million in connection with such acquisition. Subsequently, in January 2025, the Company reported the receipt of the second payment, amounting to approximately $12.5 million.

On December 23, 2024, the Company announced a non-brokered private placement financing of 51,303,573 common shares of the Company for aggregate gross proceeds of $25 million at a price of C$0.70 per common share (the "Private Placement"). The subscription price represented a 41% premium over the closing price of the common shares on TSX on the last trading day prior to the date of the announcement of the Private Placement. In connection with the Private Placement, the Company entered into subscription agreements with each of CAP, Hochschild Mining Holdings Limited ("HM Holdings") and New Hartsdale Capital Inc. ("New Hartsdale") whereby the Company agreed to offer, sell and issue an aggregate of 51,303,573 common shares and each of CAP, HM Holdings and New Hartsdale agreed to subscribe for and purchase 22,163,143, 10,260,715 and 18,879,715 common shares, respectively. The Company also announced its intention to seek disinterested shareholder approval of the Private Placement at a special meeting of shareholders (the "Special Meeting"), pursuant to certain Canadian securities laws requirements.

On February 13, 2025, the Company held the Special Meeting to allow disinterested shareholders to vote on an ordinary resolution approving the proposed Private Placement. As announced on February 13, 2025 in the Company's Report of Voting Results, the requisite number of disinterested shareholder votes were cast in favour of the resolution, and the Private Placement was thereby approved. On February 20, 2025, the Company announced the closing of the Private Placement. As a result of the Private Placement, the total number of issued and outstanding common shares of the Company increased from 166,409,223 to 217,712,796. Additionally, each of CAP, HM Holdings and New Hartsdale respectively hold 22,163,143, 42,787,104 and 80,340,876 common shares, representing approximately 10.18%, 19.65% and 36.90% of the issued and outstanding common shares of the Company.

Concurrent with the closing of the Private Placement, the Company and CAP executed an investor rights agreement (the "CAP Investor Rights Agreement") whereby for so long as CAP holds, directly or indirectly, between at least 10% and up to 15% of the issued and outstanding common shares of the Company (calculated on a non-diluted basis), Mr. Juan Enrique Rassmus will be the only eligible designated nominee of CAP for election to the Company's board of directors (the "Board"). Once CAP attains, and for so long as CAP holds, at least 15% of the issued and outstanding common shares of the Company (calculated on a non-diluted basis), it shall have the right to designate any eligible nominee for election to the Board. The CAP Investor Rights Agreement also granted to CAP certain pre-emptive and top-up rights to maintain its percentage interest in the outstanding common shares in connection with any future issuances of the Company's securities, subject to certain exclusions. In addition, the CAP Investor Rights Agreement grants CAP a demand subscription right providing it with the ability to increase its ownership interest in the Company to 19.9% (on a non-diluted basis) subject to certain conditions.

Cash Balance and General Administrative Expenses

Cash Balance

As at FY 2024, the Company's consolidated cash balance was $15.38 million, consisting of $11.58 million from its wholly-owned subsidiaries (Aclara Brazil, Aclara Technologies Inc. and Aclara Peru) and $3.80 million from its majority-owned Chilean subsidiaries (REE Uno, Prospecciones and Fundación). Comparatively, as at FY 2023, the Company's consolidated cash and cash equivalents were $33.25 million. In addition, as at FY 2024, the cash balance of the Company's joint venture Aclara Metals was $0.20 million.

On January 15, 2025, the Company received the second tranche payment of $12.5 million from CAP's strategic investment in REE Uno. To date, CAP has deposited two (2) of the three (3) tranches owed pursuant to the CAP Investment Agreement, totaling $22.2 million. The final tranche of $6.9 million is scheduled for deposit in January 2026. These funds, combined with the cash balance from the Company's majority-owned Chilean subsidiaries, will support planned capital and operating expenditures for the Penco Module over the next 24 months. These expenditures include permitting and environmental activities, the development of the Penco FS, and administrative and corporate costs.

On February 19, 2025, the Company received $25 million from its Private Placement. These funds, along with the cash balance from its wholly-owned subsidiaries, will finance planned capital and operating expenditures for the Carina Project throughout 2025. Planned expenditures include permitting and environmental activities, the pilot plant construction and operation, infill drilling for the conversion of inferred resources to measured and indicated category, and the development of both the Carina PFS and Carina FS, as well as administrative expenses. Additionally, a smaller portion of the funds will be allocated to advancing the Company's rare earths separation project in the United States and for corporate purposes.

General Administrative Expenses

In Q4 2024, the Company incurred $1.779 million in administrative expenses, which was primarily comprised of: (i) management compensation; (ii) continuous public disclosure and marketing activities; and (iii) ancillary activities undertaken for the development of the Penco Module, the Carina Project, greenfield exploration and vertical integration projects. In comparison, in Q4 2023, the Company incurred $2.760 million in administrative expenses.

Estimated Budget for 2025

The Company's budget for FY 2025 is $43.3 million, which is comprised of estimated costs relating to the development of the Penco Module, development of the Carina Project, development of the U.S. separation project, development of metals and alloys project and exploration activities aimed at identifying potential new modules. Key aspects of the FY 2025 budget include, among others: (i) $12.4 million in expenses related to the development of the Penco Module, which is comprised of permitting and community relations expenses ($2.8 million), purchase of surface land ($1.3 million), engineering activities ($2.4 million), expenses related to the maintenance of concessions ($0.2 million), administrative and personnel expenses ($5.7 million); (ii) $25.7 million in expenses related to the development of the Carina Project, which is comprised of mineral resource drilling work ($6.3 million), contracts related to surface land ($2.1 million), engineering activities and piloting works ($10.4 million), permitting and community relations expenses ($1.7 million), maintenance of mining concessions ($0.1 million), administrative and

personnel expenses ($5.1 million); (iii) $0.8 million in mining concession maintenance costs and exploration in new areas; (iv) $ 0.6 million in activities and studies related to the separation of rare earths; (v) 3.1 million in administrative expenses, personnel and for general corporate and working capital purposes; and (vi) $0.7 million for the metals and alloys project expenses.

SELECTED ANNUAL INFORMATION

Financial Performance

Aclara is a company focused on the development of a vertically integrated supply chain for rare earths from the mine to the alloys used in permanent magnets and, as such, has not earned any revenues to date. The majority of activities undertaken in FY 2024 were related to, among other things, engineering studies and exploration activities in connection with the Penco Module and the Carina Project, permit-related studies, community outreach, and mine and process engineering and design. The following table sets out selected aspects of the Company's income statement as at FY 2024, FY 2023 and FY 2022:

(in thousands of US$)	Fiscal year ended December 31
	2024	2023	2022
Income statement
Loss for the year from continuing operations	(7,414)	(11,383)	(8,355)
Basic loss per share	(0.04)	(0.07)	(0.05)
Diluted loss per share	(0.04)	(0.07)	(0.05)

In FY 2024, loss from continuing operations totaled $7.41 million, which was primarily comprised of administrative expenses of $8.24 million, greenfield exploration expenses of $0.59 million, financial income in the form of cash account and term deposit interest of $1.66 million, financial cost in the form of banking commissions of $0.07 million, other (expenses) income of $0.14 million, share of loss of a joint venture of $0.12 and an exchange rate expense of $0.19 million.

Comparatively, in FY 2023, loss from continuing operations totaled $11.38 million, which was primarily comprised of administrative expenses of $6.82 million, greenfield exploration expenses of $6.99 million, financial income in the form of a cash account and term deposit interest of $2.34 million, financial cost in the form of banking commissions of $0.06 million, other income of $0.06 million and an exchange rate income of $0.09 million.

During FY 2024, the Company incurred lower exploration expenses as compared to FY 2023, primarily attributable to the capitalization of investments related to the Carina Project, which began following the filing of the Carina Project Technical Report in January 2024.

During FY 2024, the Company incurred higher administrative expenses as compared to FY 2023, due to the appointment of its Executive Vice President as part of the corporate strategy to strengthen relationships with public and private stakeholders as well as business partners, overseeing the permitting strategy, managing complex strategic issues and guiding the development of corporate strategy and governance.

During FY 2023, the Company incurred higher exploration expenses as compared to FY 2022, due to an increase in the Company's exploration activities in Brazil and the development of the Carina Project. In addition, during FY 2023, the Company established a management team led by its General Manager, Brazil, with respect to the Company's operations in Brazil, which increased the administrative expenses in the same period.

During FY 2022, loss from continuing operations totaled $8.36 million, which was primarily comprised of administrative expenses of $5.39 million, greenfield exploration expenses of $3.49 million, financial income in the form of a cash account and term deposit interest of $0.65 million, financial cost in the form of banking commissions of $0.02 million and an exchange rate loss of $0.11 million.

Financial Position

The following table sets out selected aspects of the Company's consolidated statement of financial position as at FY 2024, FY 2023 and FY 2022:

(in thousands of US$)	2024	2023	Fiscal year ended December 31 2022
Statement of financial position
Total assets	153,893	147,009	156,817
Cash and cash equivalents	15,375	33,246	66,886
Property, plant and equipment	9,920	11,290	1,887
Evaluation and exploration assets	100,512	94,041	82,985
Account receivable current assets	14,446	1,699	367
Account receivable non-current assets	13,640	6,733	4,692
Total liabilities	7,645	8,648	3,630
Current liabilities	6,231	6,048	3,630
Non-current liabilities	1,414	2,600	-
Total equity	146,248	138,361	153,187

The Company's financial position in respect of its E&E assets includes capitalized expenses related to the development of the Penco Module and Carina Project. Capitalized expenses were mainly comprised of expenses incurred in relation to the Company's brownfield exploration, engineering activities, permitting expenses and management expenses.

During FY 2024 and FY 2023, the Company increased the expenses capitalized as E&E assets due to the increase in exploration and development activities related to the Penco Module and Carina Project. In addition, during FY 2024 the non-current portion of the Company's accounts receivable increased mainly due to the capital increase agreement with CAP, value-added tax credit incurred relating to exploration and administrative expenses.

During FY 2024, the Company reduced its non-current liabilities primarily in relation to the payment related to the land acquisition in Chile, amounting to $1.3 million.

Additional details with respect to the Company's financial position and expenses can be found under the section of this MD&A entitled "Discussion of Results and Operations Update".

As at FY 2023, the Company had $15.38 million in cash and cash equivalents. Comparatively, as at FY 2023, the Company had $33.25 million in cash and cash equivalents. As at FY 2022, the Company had $66.89 million in cash and cash equivalents.

Cash Flows

The following table sets out selected aspects of the Company's statement of cash flows as at FY 2024, FY 2023 and FY 2022:

(in thousands of US$)	2024	2023	Fiscal year ended December 31 2022
Statement of cash flows
Cash flows from/ (used in) operating activities	(7,792)	(11,140)	(8,441)
Cash flows used in investing activities	(19,688)	(22,500)	11,613
Cash flows generated from financing activities	9,610	-	(471)

As at FY 2024, cash flows used in operating activities totaled $7.87 million and were comprised of a profit loss of $7.41 million, a negative change in working capital of $2.80 million, an inflow of interests received of $1.66 million and a positive adjustment of non-cash flow concepts (i.e., depreciation and others) of $0.69 million. The Company's decrease in cash flows used was primarily related to the lack of greenfield exploration in Chile.

Comparatively, as at FY 2023, cash flows used in operating activities totaled $11.14 million and were comprised of a profit loss of $11.38 million, a negative change in working capital of $4.59 million, an inflow of interests received of $2.34 million and a positive adjustment of non-cash flow concepts (i.e., depreciation and others) of $2.56 million. The Company's increase in cash flows used was primarily in relation to greenfield exploration and activities related to the development of the Carina Project. In addition, the Company increased cash used due to the formation of the Brazilian management team to support its activities in Brazil.

As at FY 2022, cash flows used in operating activities totaled $8.44 million and were comprised of a profit loss of $8.36 million, a negative change in working capital of $2.33 million, an inflow of interests received of $0.65 million and a positive adjustment of non-cash flow concepts (i.e., depreciation and others) of $1.59 million.

As at FY 2024, cash flows from investing activities totaled $19.61 million and were comprised of investments in E&E assets of $19.29 million and in PP&E assets of $0.32 million. The Company's increase in cash flows used in investments is primarily due to the capitalization of the investment in the technical development of the Carina Project, which began following the issuance of the PEA in January 2024, and the ongoing development of the Penco Module.

Comparatively, as at FY 2023, cash flows from investing activities totaled $22.50 million and were comprised of investments in E&E assets of $14.51 million and in PP&E assets of $11.46 million. The Company's increase in cash flows used in investments is primarily due to the technical development of the Penco Module, acquisition of land in Chile and the costs associated with the construction of the Company's pilot plant in Chile.

As at FY 2022, cash flows from investing activities totaled $11.61 million and were comprised of investments in E&E assets of $14.15 million and in PP&E assets of $1.24 million, and a positive inflow of $27.00 million to cash and cash equivalents coming from a change in the length of a six (6) month term deposit to monthly term deposit.

As at FY 2024, cash flows used in financing activities totaled $9.61 million, mainly due to the first tranche of the capital contribution made by CAP to REE Uno in exchange for a 20% equity ownership interest. Comparatively, as at FY 2023, cash flow used in financing activities was nil.

As at FY 2022, cash flows used in financing activities totaled $0.47 million from the initial public offering of common shares of the Company completed in December 2021.

DISCUSSION OF RESULTS AND OPERATIONS UPDATE

Exploration Activities

Infill Drilling - Carina Project

Based on the initial auger drilling campaign results, the Company planned a two-phased RC drilling campaign at greater depths, aimed at increasing the inferred mineral resources and then converting them into a measured and indicated category.

The Phase 1 RC drilling campaign was completed during Q1 2024 and comprised a total of 2,002 meters of drilling within 80 RC drill holes. This initial phase confirmed that the mineralization extended through the full depth of the regolith to the bedrock and provided a greater level of certainty regarding the geological interpretation of the deposit and the existence of REE throughout the full cross-section of the regolith. The Phase 1 RC drilling campaign was the basis for the preparation of the Carina Project Technical Report announced on September 5, 2024.

The Company has updated its Phase 2 drilling estimate to incorporate newly acquired adjacent concessions and additional drilling aimed at expanding measured mineral resources. As a result, the total RC drilling campaign has increased from 15,200 meters across 760 drill holes to 30,453 meters across 1,678 drill holes. Additionally, 3,943 meters across 251 auger drill holes have been planned as part of Phase 2 campaign to target shallower zones.

During Q2 2024, the Company initiated Phase 2 of its RC drilling campaign and executed 579 meters across 29 drill holes.

During Q3 and Q4 2024, the Company advanced its drilling efforts, completing a total of 7,817 meters across 435 drill holes.

During Q2 2025, the Company aims to complete the remaining part of its Phase 2 drilling campaign, which includes 22,636 meters within 1,243 RC drill holes and 3,934 meters within 251 auger drill holes.

Comparatively, during Q1 2023, the Company explored 723 meters across 127 auger drillholes in a high-priority target within the concessions contemplated in the Company's earn-in agreement with the Brazilian mining company. The auger drilling campaign was insufficient in depth to intercept the entire mineralized body, suggesting that the mineralization remains open to depth and extends laterally. The entire regolith profile was identified in a significant portion of the area, indicating that the mineralized body, rich in REE-adsorbed ionic clay, was preserved.

During Q3 2023, the Company continued the auger drilling campaign and executed 1,013 meters within 109 drill holes, completing a total of 1,693 meters of drilling within 236 auger drill holes. On October 11, 2023, the Company announced the Phase 1 RC drilling campaign results and emphasized the discovery of the Carina Project.

During Q4 2023, the auger drilling campaign results were aimed at supporting an initial maiden resource statement report for the Carina Project, which was the basis for the preparation of the Carina Project Technical Report announced on January 23, 2024. Based on the initial auger drilling campaign results, the Company planned a deeper drilling with a two-phased RC drilling campaign. The first phase included an initial campaign of approximately 2,000 meters, of which 1,305 meters within 49 drill holes were completed during Q4 2023. The Company finalized its acquisition of a 100% ownership interest in the mining rights comprising the Carina Project during Q1 2024, following satisfaction of required conditions including those related to completion of exploration activities, meeting certain exploration expenditure thresholds and payment of cash consideration in the amount of $0.5 million.

Greenfield Exploration - Brazil

During FY 2024, the Company continued its exploration efforts in Brazil. The focus remains on delineating potential areas for REE prospectivity through comprehensive surface mapping and sample collection. The objective is to identify regions of similar size and quality to the Carina Project, which will provide a strong foundation for the Company's proposed exploration drilling campaigns in 2025.

Brownfield Exploration - Penco Module

During FY 2024 and FY 2023, the Company did not report any brownfield exploration activities within the Penco Module.

Greenfield Exploration - Chile

During FY 2024, Q3 2023 and Q4 2023, the Company did not report any greenfield exploration activities in Chile.

Comparatively, during Q1 2023, the Company announced drilling results following its recent drilling activities in the Verónica district (125 holes and 2,905 meters completed), which evidenced the following attributes: (i) the presence of REE mineralization, occurring mainly in the first 15 meters below surface, with an economic horizon of approximately seven (7) meters; (ii) that the REEs sampled are highly adsorbed into ionic clays, which indicates a comparatively higher percentage of REE exchangeable fraction recovery; and (iii) attractive recovery rates of Dy and Tb (HREE) and neodymium and praseodymium (LREE). The results from Verónica Norte indicate that mineralization remains open on its lateral extents at different topographic levels, providing new target zones for drilling.

Project Development Activities

Carina Project

General Engineering

During FY 2024, the Company focused its efforts on continuing the Carina PFS, which included site visits by Hatch Brazil to review potential locations for the processing plant and disposition zones, as well as potential water and power supply intakes and the completion of a trade-off analysis for the dry stacking facility.

Mining Study

During Q2 2024, mining design options were evaluated and included volumetric calculations for potential backfill in the northern area of the Carina Project pit. The Company analyzed the results of the second field campaign to integrate them with its ongoing hydrogeological modelling and further geotechnical stability analysis.

During Q3 2024, the first stage of the Carina PFS was successfully completed, which included a gap analysis of available mine engineering products, trade-off studies for the mine fleet and a geotechnical assessment with the definition of fieldwork requirements.

During Q4 2024, the Company conducted a thorough review of the Carina Project's drilling holes, identified for their potential to provide hydrogeological data.

The Company verified the topographical characteristics of the basin area, initially deemed suitable for receiving processed clays, with final confirmation pending engineering studies planned for 2025.

Comparatively, during FY 2023, the Company did not undertake any engineering activities in relation to the Carina Project.

Process Design

During Q1 2024, the Company conducted an indicative testing campaign with the Carina Project clays at its pilot plant in Concepción, Chile. The piloting program involved processing 25 tonnes of ionic clays from the Carina Project, producing 47 kilograms of mixed HREE carbonates and was completed at the end of February 2024.

During Q2 2024, compatibility tests of the Company's circular mineral harvesting process applied to the Carina Project sample clays resulted in the production of a rare earth carbonate with a purity exceeding 92%, reflecting improvements in impurity management. In addition, significant progress has been made in conjunction with the engagement of Hatch Brazil in terms of engineering studies, which include the completion of essential process documents for trade-off and optimization studies.

During Q3 2024, the Company conducted metallurgical tests, which resulted in valuable insights for the second stage of the Carina PFS and the subsequent Carina FS. Additionally, the Company relocated its pilot plant from its warehouse in San Pedro de la Paz, Chile, to a new warehouse in Aparecida de Goiania, Goiás, Brazil.

During Q4 2024, the Company has been preparing the pilot plant in Goiania, Brazil, focusing on logistical activities and site preparation to ensure the efficient setup of the plant, aligned with the strategic objectives of process validation at the pilot scale. Additionally, in February 2025, the Brazilian radionuclides agency confirmed that the Carina Project is not subject to any radioactivity control measures, as per their preliminary assessment.

During H2 2023, the Company initiated the development of the Carina Project Technical Report, which facilitated the conceptualization of the process through the creation of block diagrams, mass and energy balances and the generation of a sized equipment list.

Comparatively, during H1 2023, the Company had no process design activities in relation to the Carina Project.

Penco Module

General Engineering

During Q1 of 2024, the Company prepared an updated project description for EIA 1. In addition, the Company and the oil pipeline owner (ENAP) agreed on the technical description and drawings for the oil pipeline to be included in the EIA 1 permit processing. A follow-up was also developed with the recycled water supplier, Essbio S.A ("Essbio"),

to ensure the development of a permit study and the kick-off of the detailed engineering study for the intake water source.

During Q2 2024, the Company reviewed and managed technical requirements for EIA 1, including the integration of updated technical information, and coordination of CAP's peer review procedures. Additionally, follow-up discussions were conducted with Essbio to ensure the completion of a detailed engineering study for the intake water source and the permitting study developed by Essbio. Completion of the engineering study will allow for Essbio to source treated sewage water to the Penco Module.

During Q3 2024, the Company focused its efforts attending community meetings organized by the SEA and reviewing technical questions received from various Chilean governmental entities. Additionally, a site visit was conducted by Essbio, to review the detailed engineering study for water intake infrastructure in respect of the Penco Module.

During Q4 2024, the Company continued advancing the Company's EIA 1 filing requirements answering technical observations received from the SEA and revised a strategy to plan the reactivation of the Penco FS during 2025 incorporating certain enhancements that are expected to result in reduced capital and operating costs and improved operational efficiency.

Comparatively, during FY 2023, a request for proposal process was concluded to develop the Penco FS, which was intended to assist in defining the layout and engineering of the contemplated processing plant.

During Q1 2023, the Company awarded the development of the Penco FS to Pares & Alvarez ("P&A"). The scope of the Penco FS contract included matters related to process plant, mine infrastructure and mine services. Pursuant to the contract, P&A was also responsible for preparing the associated technical report in accordance with NI 43-101.

During Q2 2023, the Company, in collaboration with P&A, made significant strides in the development of the Penco FS. The focus was primarily on the creation of process and mechanical discipline-related documents and drawings, including process flow diagrams, equipment dimensions, layouts, and piping and instrumentation diagrams.

On September 25, 2023, in light of the revised permitting strategy, the Company decided to delay the completion of the Penco FS and used the additional time to further refine the engineering aspects of the Penco Module by incorporating certain enhancements that are expected to result in reduced capital and operating costs and improved operational efficiency. Finally, during Q4 2023, the Company focused its efforts on developing the necessary technical requirements for EIA 1 which included, among other things, incorporating updated information in respect of mechanical and architectural drawings, feasibility process design and the bifurcated project description.

Mining Study

During Q1 2024, an Electrical Resistivity Tomography ("ERT") study was concluded for the Victoria Norte deposit zone in the Penco Module, identifying that the rock basement appears, on average, 27 meters below the existing estimate. Based on the ERT, geostatistical analysis has been initiated to support the early assessment of a potential change for the geometry of the 3-D model in the Victoria Norte deposit zone. During the same period, a second field campaign was undertaken to assess the moisture level of existing geological drill holes (Victoria Norte, Maite and Luna). Existing hydrogeological models were updated based on results obtained from both the ERT study and the 2024 dry season-moisture level campaign.

During Q2 2024, conceptual designs for the Neptuno deposition zone were completed, and a medium-term mining schedule was put in place.

During Q3 and Q4 2024, the Company focused on the development of a conceptual design for the Neptuno deposition zone and conducted hydrogeological fieldwork, coinciding with the high rainfall season. This work involved assessing six (6) drill holes of interest to measure depth and physicochemical parameters. During the same period, a geostatistical analysis of granulometry was performed and results were used for adequate mine scheduling.

Comparatively, during Q1 and Q2 2023, two (2) hydrogeology holes were planned and executed in Victoria Sur and Victoria Norte to enhance the geotechnical study. The results of the field campaign to measure phreatic levels led to the development of hydrogeological models for Victoria Sur, Victoria Norte, Luna and Maite and served as inputs for geotechnical stability analysis, in conjunction with the current detailed pit designs.

During Q2 2023, the Company initiated mining studies for the Penco FS, completing key activities that include the estimation of economic pit shells for all six (6) extraction zones (EZ), incorporating surface constraints such as the "Native Preservation Forest", the selection of mining pushbacks, the execution of detailed pit design, the definition of the mining sequence, and the formulation of the mine schedule. During the same period, as part of the pilot plant program, the Company developed geostatistical estimation of grade block models for both total and desorbable grades for each of the 15 REE. Based on these models, an operative excavation was designed and executed for Victoria Sur and Victoria Norte.

During Q3 2023, the Company continued the development of the Penco Module FS, which included an improved design of the drainage infrastructure of the extraction zones and resulted in detailed drawings comprising pushback designs with access, main ramps, benches, berms and seepage channels for Victoria Norte, Luna and Maite extraction zones, with the rest of the study delayed to further refine the engineering aspects of the Penco Module.

Aclara Technologies - Separation

Through Q1 2024, the Company incorporated its U.S. subsidiary, Aclara Technologies, with the objective of converting the high purity MREC from the Company's extraction modules in Chile and Brazil to individual rare earths oxides. For this purpose, the Company awarded a contract to the SRC to develop a production flowsheet specifically designed for its product characteristics, and to Hatch to provide engineering services.

On October 15, 2024, the Company completed an initial conceptual engineering study for its rare earths separation project. The conceptual engineering study focused on a solvent extraction-based flowsheet with a Class 5-AACE CAPEX and OPEX estimate.

During Q4 2024, the Company engaged a U.S. based specialized company to optimize the separation flowsheet.

Comparatively, during FY 2023, the Company had no process design activities in relation to its separation process design project.

Environmental, Social and Governance

Penco Module

Environment and Permits

During Q1 and Q2 of 2024, the Company completed EIA 1 and submitted the document to the SEA on June 10, 2024. On June 17, 2024, the SEA confirmed the admissibility of EIA 1 for its formal evaluation. The Company published an extract of EIA 1 in both official and regional newspapers in Chile.

On June 27, 2024, the SEA initiated a formal "Citizen Participation Process" as part of its review. The Company carried out a series of successful town hall meetings in July 2024.

On July 8, 2024, the Company held its first technical meeting with various stakeholders at the SEA offices, followed by a technical field visit on July 9, 2024. During this visit, the SEA and other agencies evaluated the project site and conducted a preliminary assessment of the potential environmental impact of the Penco Module. Between July and September 2024, the technical services team provided their observations on the EIA 1, which were comprised in the Technical ICSARA submitted by the SEA on September 12, 2024.

On September 24, 2024, the SEA concluded the Citizen Participation Process that began on July 8, 2024. During this period, the Company participated in three (3) assemblies and four (4) town hall meetings, engaging nearly 300 participants who provided feedback on the EIA 1.

During Q4 2024, the SEA officially initiated the Indigenous Consultation Process. In addition, the Technical ICSARA report was reviewed and systematized, encompassing a total of 394 technical observations. During December 2024, the process of issuing responses began, involving six (6) sets of documents that will undergo a peer review process with various consultants, including CAP. During the same period, the main complementary field studies related to flora, fauna, hydrogeology, water quality and human/indigenous issues were initiated, with completion anticipated by the end of Q1 2025.

On December 12, 2024, the SEA published the Citizen ICSARA, which incorporated 1,331 observations gathered through its Citizen Participation Process. The Company is currently preparing responses to the Citizen ICSARA, which are scheduled to be submitted together with the responses to the Technical ICSARA by the end of Q1 2025.

Comparatively, during Q1 2023, the Company completed the environmental baseline studies for the Company's previously filed EIA. The Company held town hall expositions to finalize the anticipated Citizen Participation Process. These events were held in Penco, Lirquén and Concepción, where the Company held community presentations on the Penco Module and key topics forming the Company's submissions to the SEA.

During Q2 2023, the Company submitted the original EIA in respect of the Penco Module, which was followed by a comprehensive technical assessment of the Penco Module that involved multiple site visits by evaluation authorities and Penco stakeholders. The SEA ultimately elected to terminate its review of the previously-submitted EIA of the Penco Module in July 2023, pursuant to observations made by the National Forest Corporation following its identification of naranjillo trees located within the Penco Module project site.

During Q3 2023, the Company revised its permitting strategy with the primary aim of addressing concerns associated with native forests located within the Penco Module project site, whilst minimizing substantial impacts to the Penco Module's development timeline. To effectively implement the revised strategy, the Company decided to prepare and submit two (2) EIAs, which collectively cover the full life-of-mine of the Penco Module. EIA 1 encompassed approximately the first six (6) years of the Penco Module's life and included three (3) extraction zones (Victoria Norte, Luna and Maite), along with one (1) deposition zone (Neptuno) and the associated production facilities.

In addition, during Q4 2023, the Company improved its community relations outreach using the "Aclara House" located in Penco as a hub to host several activities with the community. The Company estimates that the Aclara House receives over 100 weekly visitors, who participate in information meetings regarding the Penco Module as well as other workshops designed to improve community engagement. The Aclara House also hosted INACAP, one of the largest technical institutions in Chile, to provide community members with technical training on the topic of processing plant operators. Additionally, the Company constructed a greenhouse within the Aclara House, where several flora species were planted using spent clays from the Penco Module produced at the pilot plant operation. The objective of the greenhouse is to demonstrate the cleanliness of the circular mineral harvesting process to the community and showcase the suitability of the spent clays for revegetation as part of the reclamation plan.

Social License

During Q1 and Q2 2024, the Company concluded the early citizen participation process recommended by Chilean authorities, which was a key step in designing a project reflective of community feedback. At conclusion, the process had engaged direct participation of over 1,000 citizens, registration of 280 signatures and 126 individual files, and collection of nearly 300 comments regarding the Penco Module. The comments primarily referred to maintaining dialogue, continuing the commitment to environmental care and recreational areas and promoting local employment and suppliers within the Biobío region. Additionally, the Company continued to strengthen its relationship with national and regional authorities by incorporating feedback with respect to the Penco Module from over 80 regulatory authorities, to better align with Chile's national policies on decarbonization, regional and local development and other environmental and social objectives.

During Q3 2024, the Company made significant progress on its social investment programs for the local Penco community related to education, technical training, reforestation and athletics, among others. The Company trained 75 individuals in various technical aspects and supported over 120 children in a range of activities. Additionally, workshops on agriculture and reforestation were conducted for community leaders, resulting in the introduction of more than 1,800 native species in areas of Penco, located in the Biobío region, that were affected by wildfires.

During Q4 2024, the Government of Chile included the Penco Module in the Industrial Strengthening Plan for the Biobío Region. The Company made significant progress in dialogue and territorial engagement, holding a total of 85 meetings with government authorities, directly reaching over 1,144 Penco residents, and indirectly engaging with over 10,000 residents through programs, ceremonies, community gatherings, seminars and other initiatives.

Comparatively, during Q1 2023, the Company's community relations team progressed with the third stage of the early citizen participation process, which focused on the collection and incorporation of community opinions. Throughout this period, nine (9) events were held in February 2023 to promote open dialogue with the Penco community. These engagements improved communication and assisted the Company in gaining a deeper understanding of the concerns and aspirations of the local community.

During Q2 2023, the Company's communication efforts aimed to highlight the positive attributes of the revised EIA application, with an emphasis on recycled water use and community co-design and a focus on explaining major changes from the original EIA. The Company partnered with INACAP for technical training of local residents and hired 60 employees from Penco and Concepción to operate the pilot plant. During the same period, the Company's Corporate Affairs & Social Value team showcased the pilot plant's circular mineral harvesting process to various stakeholders, strengthened collaborations with local universities and led innovation challenges for repurposing spent clays.

During Q3 2023, the Company continued to engage the community by conducting visits to the Penco Module pilot plant. These efforts successfully attracted over 220 visitors, including community leaders, local universities, media, authorities, business leaders and residents. Various community meetings culminated in a joint celebration on September 18, 2023, with more than 60 neighborhood leaders from Penco attending. During the same period, national media coverage of the significance of REE minerals as strategic resources for Chile increased significantly.

During Q4 2023, the Company led a new project perception survey, which demonstrated important findings such as an increase in the overall favorability of the project and that over 85% of Penco residents are open to engaging in dialogue with the Company. Additionally, 65% of the citizens surveyed believe that the Company's rare earths project will generate job opportunities in Penco, contributing to the overall development of the community. In parallel, over 90% of those surveyed believed that the fight against climate change is urgent and that the transition towards renewable energies is a priority.

Carina Project

Environment and Permits

During Q1 2024, the Company began the process of developing environmental baseline studies to apply for a preliminary environmental license ("PEL"), which is equivalent to an EIA in Brazil. This process includes environmental baseline and caving, radionuclides characterization, hydrogeological characterization and acid drainage potential study, archaeological survey and social baseline studies, including engagement with the traditional community.

During Q2 2024, the Company continued to develop environmental baseline studies in support of its application for a preliminary environmental license for the Carina Project.

During Q3 2024, the Company obtained the necessary license to proceed with its Phase 2 drilling campaign in support of its overall geological drilling program and is expecting to apply for a PEL in Q2 2025.

During Q4 2024, the Company obtained authorization from the Cultural Heritage Agency to assess the archaeological potential of the Carina Project, with activities scheduled to commence in Q1 2025. In addition, the Company initiated the permitting process for the pilot plant, which will facilitate the semi-industrial scale operation planned for Q2 2025. The Company also began preparing the environmental studies necessary for the transmission line permitting process. Furthermore, the environmental licenses for both the pilot plant and the exploration activities slated for 2025 were submitted by the end of 2024 and granted during Q1 2025.

Comparatively, during FY 2023, the Company did not undertake any environmental or permitting activities in relation to the Carina Project.

Social License

During Q1 and Q2 2024, the Company carried out various activities with the traditional community and conducted a range of environmental and socioeconomic studies in connection with the Carina Project, while actively engaging with the community through the facilitation of events and workshops. During the same period, the Company formalized agreements to provide training for community members, with the aim of providing employment to the community during the construction and operational phases of the Carina Project.

During Q2 2024, the Company was focused on meeting the requirements of, and establishing relations with, the Instituto Nacional de Colonização e Reforma Agrária, which is the federal authority responsible for land reform and rural development in Brazil. This initiative is designed to advance projects that will benefit the traditional community.

On August 16, 2024, the Company signed a MoU with the state of Goiás and the municipality of Nova Roma, recognizing the strategic nature of the Carina Project. This strategic relationship aims to accelerate the analysis and evaluation of the permitting process and support the execution, implementation and development of the Carina Project. During September 2024, the Company completed the first stage of its social communication plan in Nova Roma. From January to September 2024, 51 activities were conducted, reaching a total of 789 local residents.

During Q4 2024, the Company organized events in Nova Roma and Posse to introduce the Local Supplier Development Program ("PDF"), as part of the Municipal Support and Strengthening Program. The events were attended by approximately 100 merchants, businesspeople and entrepreneurs, who were provided with an in-depth overview of the benefits and opportunities offered by the program. In December, interviews were conducted to develop the Diagnosis and Work Plan for the PDF initiative. This study is one of the key documents to be submitted as part of the process for obtaining the preliminary environmental license. Additionally, the Company successfully sponsored four (4) cultural and religious events organized by the municipality of Nova Roma.

Comparatively, during FY 2023, the Company did not undertake any social license activities pertaining to the Carina Project.

Occupational Health and Safety

During Q1 and Q2 2024, the Company had no events with lost workdays.

During Q3 2024, the Company reported one (1) lost-time injury involving an employee in Brazil. In response, corrective measures were implemented, which included enhanced training requirements, stricter equipment use protocols and improvements in-field communication systems. These measures reflect the Company's ongoing commitment to maintaining a safe working environment.

During Q4 2024, the Company reinforced its commitment to occupational health and safety by advancing initiatives focused on emergency preparedness, defensive driving, workplace health programs and regulatory integration. Additionally, a health and safety communication procedure was established to strengthen internal coordination and risk management.

Comparatively, during FY 2023, the Company had no events with lost workdays.

OPERATIONAL PERFORMANCE

Unless otherwise specified, the financial information contained in this section of the MD&A entitled "Operational Performance", and the subsections thereunder, is reported in thousands of United States dollars.

As at Q4 2024, the Company's expenditures in respect of exploration, technical development, environmental, social and governance and administration activities were $27.48 million, which were partially offset by CAP's capital

contribution of $9.61 million, totaling a net cash outflow of $17.87 million and a total cash balance of $15.38 million. Comparatively, as at the end of Q4 2023, the Company's net cash outflow was $30.23 million, and the total cash balance was $33.25 million.

Overview of Operating Expenditure and Costs

The Company incurred an aggregate of $7.41 million in losses from continuing operations before income tax during FY 2024, as compared to an aggregate of $11.38 million in losses during FY 2023. During Q4 2024, the Company incurred $2.00 million in losses in connection with exploration expenses, administration expenses, other income, finance costs, finance income and loss/gain resulting from exchange rate fluctuations, as compared to Q4 2023, in which the Company incurred losses of $6.02 million.

	Three months ended December 31		Fiscal year ended December 31
(in thousands of US$)	2024	2023	2024	2023
Exploration expenses	299	3,612	594	6,991
Administration expenses	1,779	2,760	8,239	6,815
Other (expenses) income	-	(24)	(135)	(59)
Share of loss of a joint venture	84	-	115	-
Financial costs	25	36	65	59
Financial income	(326)	(308)	(1,657)	(2,338)
Exchange differences	142	(61)	193	(85)
Loss from continuing operations before income tax	2,003	6,015	7,414	11,383
Attributable to:
Equity shareholders of the Parent	1,915	6,015	7,223	11,383
Non-controlling interests	88	-	191	-

Exploration Expenses

The breakdown of exploration expenses incurred by the Company for the periods Q4 2024, Q4 2023, FY 2024 and FY 2023 are as follows:

	Three months ended December 31		Fiscal year ended December 31
(in thousands of US$)	2024	2023	2024	2023
Personnel expenses	51	529	133	1,651
Professional fees	54	370	57	691
Rentals	60	390	167	692
Subscriptions	-	-	-	5
Repair and maintenance	-	-	4	12
Analysis & technical	9	347	9	627
Studies	28	1,144	32	1,328
Technology and system	-	(36)	-	-
Exploration Supplies	-	4	-	4
Contractors and services	8	477	24	1,141
Travel expenses	84	131	119	391
Freight	-	154	14	154
Laboratory supplies and materials	2	129	9	129
Other	3	(25)	26	166
Total	299	3,613	594	6,991

Exploration expenses comprise all activities related to and arising from greenfield exploration. The purpose of greenfield exploration is to identify additional resources that may support new development and operation modules. Greenfield activities include surface mapping works, geophysics and topographic studies, among others.

During Q4 2024, the Company conducted superficial mapping and soil sampling, resulting in personnel expenses of $51, professional fees of $54, costs related to renting of geology equipment of $60, chemical assays resulting in analysis and technical costs of $9 and drilling expenses of the Carina Project and other study related expenses of $28. Comparatively, during Q4 2023, the Company incurred personnel expenses of $529, professional fees of $370,

costs related to renting geology equipment of $390, chemical assays resulting in analysis and technical costs of $347, and drilling expenses of the Carina Project and other study related expenses of $1,144. In addition, the Company incurred travel expenses of $84, laboratory supplies and other related expenses of $5, as compared to $389 in Q4 2023.

In Q4 2024, the Company incurred contractors and services expenses of $8, as compared to $477 in Q4 2023, which comprised $208 in drilling and related services, $197 in chemical analysis and $72 in other related expenses.

During FY 2024, the Company incurred personnel expenses of $133, professional fees of $57, costs related to renting of geology equipment of $167, costs related to repair and maintenance of $4, analysis and technical costs of $9 and drilling expenses and other study related expenses of $32. These expenses are primarily associated with soil sampling, chemical assays, and superficial mapping activities carried out for greenfield exploration. Comparatively, during FY 2023, the Company conducted greenfield exploration activities in Brazil and the development of the Carina Project resulting in personnel expenses of $1,651, professional fees of $691, subscription expenses of $5, costs related to renting of geology equipment of $692, costs related to repair and maintenance of $12, analysis and technical costs of $627 and drilling expenses and other study related expenses of $1,328.

In FY 2024, the Company also incurred travel expenses of $119, freight expenses of $14, laboratory supplies and other related expenses of $35, as compared to $840 in Q4 2023. In addition, the Company incurred contractors and services expenses of $24, as compared to $1,141 in FY 2023, which was comprised of $309 in drilling and related services, $197 in chemical analysis, $313 in exploration licenses, $75 in study related expenses, $41 warehouse and office related expenses, $134 in sample expenses and $72 in other related expenses.

Other Income (Expenses)

The breakdown of other income (expenses) incurred by the Company for the periods Q4 2024, Q4 2023, FY 2024 and FY 2023 are as follows:

	Three months ended December 31		Fiscal year ended December 31
(in thousands of US$)	2024	2023	2024	2023
Contractors and services	-	-	(135)	-
Gain on sale of property, plant and equipment	-	(24)	-	(59)
Total	-	(24)	(135)	(59)

As at FY 2024, the Company incurred other income (expenses) due to a reversal of an exploration expense provision of $135 in 2023. The provision included expenses related to contractors and services such as equipment leasing, drilling and topography which were overestimated at the time of provisioning the expenses.

Administration Expenses

The breakdown of administration expenses incurred by the Company for the periods Q4 2024, Q4 2023, FY 2024 and FY 2023 are as follows:

	Three months ended December 31		Fiscal year ended December 31
(in thousands of US$)	2024	2023	2024	2023
Personnel expenses	671	1,200	3,316	3,033
Professional fees	382	303	1,265	890
Depreciation and amortization	416	615	1,388	1,291
Contractors and services	107	88	1,305	729
Permit	-	369	-	266
Travel expenses	30	38	421	265
Marketing expenses	35	139	236	139
Other expenses	137	8	308	201
Total	1,779	2,760	8,239	6,815

In Q4 2024, the Company incurred personnel expenses of $671 as compared to $1,200 in Q4 2023. The Company experienced a decrease in personnel expenses compared to Q4 2024, primarily due to the capitalization of expenses associated with the Carina Project, which began in January 2024. During FY 2024, the Company experienced an increase in personnel expenses compared to FY 2023, primarily resulting from the appointment of a new Executive Vice President in June 2024.

Professional fees of $382 incurred during Q4 2024 comprised accounting, tax and legal expenses for the Company's annual tax and legal processes, as compared to professional fees rendered for a similar purpose of $303 incurred by the Company in Q4 2023. In addition, during Q4 2024, the Company incurred travel expenses of $30, marketing expenses of $35, subscriptions and other expenses of $137, as compared to $38 in travel expenses, marketing expenses of $139 and other expenses of $8 incurred in Q4 2023. The increase in other expenses from $8 to $137 was primarily driven by higher insurance, licensing and related costs.

In Q4 2024, the Company incurred depreciation and amortization expenses of $416, as compared to $615 in Q4 2023. In addition, during Q4 2024, the Company incurred contractor and services expenses of $107, primarily driven by Board expenses. Comparatively, during Q4 2023, the Company incurred contractor and services expenses of $88, which comprised Board expenses.

During FY 2024, the Company incurred increased operating expenses due to the management team formed to support its activities in the different projects, resulting in personnel expenses of $3,316 and professional fees of $1,265, as compared to personnel expenses of $3,033 and professional fees of $890 during FY 2023.

In FY 2024, the Company maintained mining concessions in Chile and Brazil, which were amortized, resulting in depreciation and amortization expenses of $1,388, as compared to $1,291 in FY 2023.

During FY 2024, the Company incurred higher contractors and services expenses as compared to FY 2023. These expenses are necessary to comply with disclosure obligations of the Company as a Canadian reporting issuer and TSX listed company, resulting in such expenses of $1,305, primarily due to the issuance of restricted share units to the board of directors, along with related expenses such as consulting fees, digital campaigns and market surveillance.

In FY 2024, the Company increased the expenses related to concessions, office, travel and related administrative expenses mainly due to the acquisition of concessions and the opening of an office in Brazil, marketing activities and related visits. This resulted in travel expenses of $421, marketing expenses of $236 and other related administrative expenses of $308, as compared to $266 in permit related costs, travel expenses of $265, marketing expenses of $139 and $201 other expenses in FY 2023.

Financial Income and Costs

In Q4 2024, the Company's net financial income and costs amounted to $301 and were associated with the Company's investments in short-term deposits, interest-bearing bank accounts and bank commissions, as compared to net financial income and costs of $272 in Q4 2023.

	Three months ended December 31		Fiscal year ended December 31
(in thousands of US$)	2024	2023	2024	2023
Financial costs	25	36	65	59
Loss from continuing operations before income tax	25	36	65	59
	Three months ended December 31		Fiscal year ended December 31
---	---	---	---	---
(in thousands of US$)	2024	2023	2024	2023
Financial income	(326)	(308)	(1,657)	(2,338)
Loss from continuing operations before income tax	(326)	(308)	(1,657)	(2,338)

During FY 2024, the Company incurred an increase in interest and bank commission expenses related to the administration of its bank accounts, resulting in such expenses of $65 as compared to $59 during FY 2023. In

addition, in FY 2024, financial income decreased to $1,697 as compared to $2,338 in FY 2023, primarily due to a decrease in interest earned on investments in short-term deposits and a reduced cash and cash equivalents.

Evaluation and Exploration Assets

In accordance with IFRS accounting principles regarding capitalization of E&E assets, costs of mineral properties are capitalized on a project-by-project basis. As at Q4 2024, the Company's principal business included the development of the Penco Module and Carina Project. The Company capitalizes expenses related to brownfield exploration and infill drilling, metallurgical testing and process design, engineering of the mine, processing plant and project infrastructure, permitting and administration activities and services. The following table sets out an overview of the Company's capitalized E&E asset balance:

(in thousands of US$)	Total
Balance at January 1, 2023	83,424
Additions	14,506
Foreign exchange effect	(2,778)
Balance at December 31, 2023	95,152
Additions	19,294
Foreign exchange effect	(12,222)
Balance at December 31, 2024	102,224
Accumulated amortisation and impairment
Balance at January 1, 2023	439
Additions	696
Foreign exchange effect	(24)
Balance at December 31, 2023	1,111
Additions	769
Foreign exchange effect	(168)
Balance at December 31, 2024	1,712
Net book value as at December 31, 2023	94,041
Net book value as at December 31, 2024	100,512

The total investments in the Carina Project and the Penco Module capitalized as E&E as at Q4 2024, Q4 2023, FY 2024 and FY 2023 are as follows:

(in thousands of US$)	Three months ended December 31		Fiscal year ended December 31
	2024	2023	2024	2023
Personnel expenses	1,381	494	4,593	2,926
Professional fees	578	772	3,059	4,125
Environmental impact study	427	539	1,367	1,557
Drilling services	-	(130)	-	-
Engineering services	-	-	-	7
Mining rights	2,397	15	2,858	667
Rent building, vehicles, others	228	16	1,086	433
Analysis & technical	627	134	1,590	763
Contractors and Services	2,165	85	3,256	2,677
Travel expenses	207	50	583	241
Other	285	102	902	1,110
Total	8,295	2,077	19,294	14,506

In FY 2024, the Company incurred personnel expenses of $4,593, as compared to the same period in 2023, in which the Company incurred personnel expenses of $2,926. The increase in personnel expenses is attributed to both the capitalization of costs associated with the Carina Project starting in 2024 and the increase of employees in Brazil as part of the Carina Project development. For purposes of calculating the Company's personnel expenses under its E&E asset balance sheet, the Company's employee headcount as at Q4 2024 is 67, as compared to 31 as at Q4 2023.

Each category of the Company's costs in relation to its investment in the Penco Module and Carina Project in FY 2024 has been discussed elsewhere in this MD&A. In FY 2024, expenses related to the technical development of the Penco Module and Carina Project were comprised of costs related to engineering services, feasibility studies, professional fees, rent building and vehicle expenses, analysis and technical, contractor services and other related expenses, each of which are discussed under the sections of this MD&A entitled "Project Development Activities" and "Exploration Activities" above. Comparatively, in FY 2023, expenses related to the Penco Module comprised the aforementioned categories of costs as well as costs related to geochemical study and diamond drilling, which were carried out for the purposes of developing the Penco Module Technical Report.

As at Q4 2024, expenses relating to permit-related activities were comprised of costs associated with the environmental impact study and are described in greater detail under the section entitled "Environmental, Social and Governance" above. The environmental impact study expenses incurred by the Company totaled $427 as at Q4 2024, as compared to the same period in 2023, in which the Company incurred environmental impact study expenses of $539.

Expenses related to mining rights, which consisted of costs relating to exploration and exploitation of the Company's concessions, totaled $2,397 as at Q4 2024 as compared to $15 incurred in Q4 2023. This increase was primarily due to the acquisition of mining concessions in Brazil.

As at FY 2024, the Company's concessions were comprised of 83,285 hectares in respect of the Penco Module, 54,014 hectares in respect of the Carina Project and 30,100 hectares in relation to other concessions, as compared to FY 2023, in which the Company's concessions were comprised of 190,685 hectares in respect of the Penco Module, 397,386 hectares in the Carina Project and 3,000 hectares related to other concessions.

Properties, Plants and Equipment

The breakdown of PP&E capitalized by the Company as at FY 2024 and FY 2023 are as follows:

(in thousands of US$)	Land	Plant and equipment	Total
Balance at January 1, 2023	575	1,793	2,368
Additions	9,984	1,480	11,464
Disposals	-	(327)	(327)
Foreign exchange effect	(1,325)	(69)	(1,394)
Balance at December 31, 2023	9,234	2,877	12,111
Additions	-	394	394
Foreign exchange effect	(1,106)	(85)	(1,191)
Balance at December 31, 2024	8,128	3,186	11,314
Accumulated amortisation and impairment
Balance at January 1, 2023	-	481	481
Additions	-	596	596
Depreciation - Disposals	-	(268)	(268)
Foreign exchange effect	-	12	12
Balance at December 31, 2023	-	821	821
Additions	-	619	619
Foreign exchange effect	-	(46)	(46)
Balance at December 31, 2024	-	1,394	1,394
Net book value as at December 31, 2023	9,234	2,056	11,290
Net book value as at December 31, 2024	8,128	1,792	9,920

During FY 2024, the Company incurred expenses of $394 due to equipment purchases. In Comparison, during FY 2023, the Company capitalized the purchase of land located in Concepción, Chile, due to the payment made of the fourth installment of an agreement with Forestal Arauco SA. The Company intends to continue to satisfy its payment obligations as of the date hereof, which contemplate annual payments of $1,300 from 2025 through 2026. During

FY 2023, total expenses including the land purchase, along with other equipment acquisitions and the construction of the pilot plant amounted to an increase of $11,464.

SUMMARY OF QUARTERLY RESULTS

| (in thousands of US$) | December 31
2024
US$000 | September 30
2024
US$000 | June 30
2024
US$000 | March 31
2024
US$000 |
| --- | --- | --- | --- | --- |
| Revenues | - | - | - |
| Net income (loss) from continuing operations | (2,003) | (1,947) | (2,101) | (1,363) |
| Net income (loss) and comprehensive income (loss) | (2,003) | (1,947) | (2,101) | (1,363) |
| Basic and diluted net income (loss) (per share) | (0.01) | (0.01) | (0.01) | (0.01) |
| | December 31
2023
US$000 | September 30
2023
US$000 | June 30
2023
US$000 | March 31
2023
US$000 |
| Revenues | - | - | - |
| Net income (loss) from continuing operations | (6,015) | (1,442) | (2,519) | (1,407) |
| Net income (loss) and comprehensive income (loss) | (6,015) | (1,442) | (2,519) | (1,407) |
| Basic and diluted net income (loss) (per share) | (0.04) | (0.01) | (0.02) | (0.01) |

During Q4 2024, the Company incurred higher net losses from continuing operations as compared to Q3 2024, primarily due to an increase in exploration expenses of $217, an increase in exchange rate expenses of $171, a decrease in financial income of $159, an increase in share of loss of a joint venture of $63 and an increase in financial costs of $15. The impacts were partially offset by a decrease in administrative expenses of $569, primarily due to lower Board related costs associated with restricted share unit compensation.

During Q3 2024, the Company incurred lower net losses from continuing operations compared to the previous quarter, primarily due to a decrease in exploration expenses of $36, an increase in financial income of $135, a decrease in exchange rate expenses of $32, an increase in share of loss of a joint venture of $10, a decrease in financial costs of $4, partially offset by an increase in administrative expenses of $44, primarily due to higher personnel expenses.

During Q2 2024, the Company incurred higher net losses from continuing operations compared to the previous quarter, primarily due to an increase in administrative expenses of $496, a decrease in financial income of $146, a decrease in exchange rate expenses of $69, an increase in exploration expenses of $24, and an increase in share of loss of a joint venture of $10, partially offset by a decrease in other (expenses) income of $135 and a decrease in financial costs of $2. The increase in administrative expenses was as a result of higher personnel expenses of $440, higher legal and professional expenses of $132 and other expenses of $63, partially offset by lower depreciation and amortization expenses of $139.

During Q1 2024, the Company incurred lower net losses from continuing operations compared to the previous quarter, primarily due to a decrease in administrative expenses of $952, a decrease in exploration expenses of $3,517, an increase in exchange rate expenses of $136, an increase in other (expenses) income of $135, a decrease in other income of $24 and an increase in financial income of $208. The decrease in administrative expenses was as a result of lower legal and professional expenses of $32, personnel expenses of $487, permit expenses of $369, depreciation expenses of $211 and marketing expenses of $77. The decrease in exploration expenses was as a result of the capitalization of expenses related to the Carina Project, resulting in lower chemical assays and drilling services of $2,802, personnel expenses of $529, travel expenses of $120, and other expenses of $67.

During Q4 2023, the Company incurred higher net losses from continuing operations compared to the previous quarter, primarily due to an increase in administrative expenses of $1,619, exploration expenses of $2,814, financial cost of $26, other income of $22, and a decrease in financial income of $262 and lower exchange rate expenses of $126. The increase in administrative expenses was primarily as a result of expenses related to the exploration in

the Carina Project and the incorporation of the local administrative team to support operations carried out in Brazil, resulting in higher legal and professional expenses of $165, personnel expenses of $698, concessions and related permit expenses of $474, marketing expenses of $139 and depreciation and amortization expenses of $314. In addition, the decrease in administrative expenses was as a result of travel expenses of $29, contractor services expenses of $91 and other expenses of $51. The increase in exploration expenses relates to additional exploration works in the regions of Minas Gerais and Goiás, Brazil, and the preparation of preliminary economic assessments, which resulted in higher chemical assays of $246, personnel expenses of $260, geophysical and topographic studies, laboratory and related services of $1,602, travel expenses of $85, legal and professional expenses of $267, rental expenses of $303 which includes vehicles for transporting staff, warehouses and offices, and other expenses of $51.

During Q3 2023, the Company incurred lower net losses from continuing operations compared to the previous quarter, primarily due to a decrease in administrative expenses of $680, a decrease in exploration expenses of $659, an increase in exchange rate expenses of $140 and a decrease in financial income of $122. The decrease in administrative expenses was as a result of lower legal and professional expenses of $222, personnel expenses of $270, permit expenses of $101 and other expenses of $87. The decrease in exploration expenses was as a result of the capitalization of expenses related to the Carina Project, resulting in lower chemical assays and drilling services of $492, travel expenses of $116, and other expenses of $51.

During Q2 2023, the Company incurred higher net losses from continuing operations compared to the previous quarter, primarily due to an increase in administrative expenses of $728, exploration expenses of $334 and exchange rate expenses of $50. The increase in administrative expenses was due to higher legal and professional expenses of $306, personnel expenses of $214, Board expenses of $158, and other expenses of $50. The increase in exploration expenses was as a result of additional drilling and chemical assays of $137, travel expenses related to exploration activities of $194 and other expenses of $3.

During Q1 2023, the Company incurred lower net losses from continuing operations compared to Q4 2022, primarily due to a decrease in administrative expenses of $846 and a decrease in exploration expenses of $501, an increase in financial income of $510, an increase in other income of $33, partially offset by an increase in exchange rate expenses of $132. The decrease in administrative expenses was due to lower legal and professional expenses of $207, Board expenses of $53, personnel expenses of $243, insurance expenses of $146, and depreciation and amortization of $197. The decrease in exploration expenses was primarily as a result of a reduction in the scope of exploration works in Chile compared to the previous quarter, resulting in lower chemical assays of $195 and drilling services of $306. In addition, the increase in financial income was primarily explained by higher interest received from short-term investments of $510.

The Company is in the development phase of both the Penco Module and Carina Project, which includes conducting exploration, feasibility and technical studies, as discussed in greater detail under the sections of this MD&A entitled "Development Activities" and "Exploration Activities" above. The Company has not generated any operating income as at FY 2024.

FINANCIAL INSTRUMENTS

Nature and Extent

The Company's consolidated financial instruments consist of cash and cash equivalents. Cash and cash equivalents are included in current assets due to their short-term nature. The fair value of cash and cash equivalents approximates their book value.

The Company's consolidated financial instruments for FY 2024 and FY 2023 are as follows:

	Fiscal year ended December 31
	2024	2023
	US$000	US$000
Cash and cash equivalents
Current demand deposit accounts	15,375	33,246

Total Cash and cash equivalents
15,375
33,246

Financial Instrument Risks

The Company manages risks to minimize potential losses by investing cash in the short term to reduce inflationary risks. The terms of the Company's short-term financial instruments are on arm's length terms and entered into with banks and institutional lenders. The primary objective is to ensure that the risks are properly identified and that the capital base is adequate in relation to those risks. The Company's risk exposure in respect of its financial instruments is summarized below.

Foreign Currency Risk

The Company is a development-stage mineral resources company and, accordingly, no income or operating costs have been recorded. The principal disbursements are denominated in Chilean pesos and Brazilian reals. The Company has deposits, trade and other payables and account payables to related parties stated in United States dollars.

Credit Risk

Credit risk relates to the Company's inability to make payment of their obligations as they become due. The Company is not exposed to credit risk as it does not currently engage in commercial activities.

Liquidity Risk

Liquidity risks relate to the Company's inability to obtain funds required to comply with its commitments, including the inability to sell a financial asset quickly enough and at a price close to its fair value. Management regularly monitors the Company's level of short- and medium-term liquidity and access to credit lines, in order to ensure appropriate financing is available for its operations. As of the date of this MD&A, the Company has not opened, or been provided access to, any lines of credit.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital Requirements

The Company has working capital requirements of $8.22 million as at the end of FY 2024, and the Company's cash and cash equivalent position as at the end of FY 2024 is $15.38 million.

Off-Balance Sheet Commitments

A summary of the Company's contractual obligations that must be satisfied with cash, and their approximate timing of payment, is as follows:

(in thousands of US$)	FY 2025	FY 2026	FY 2027	FY 2028	FY 2029	FY 2030	After 2031
Operating Leases (1)	387	9	-	-	-	-	-
Other Obligations (2)	2,134	6,215	-	-	-	-	-
Total Contractual Obligations	2,521	6,224	-	-	-	-	-

(1) Operating leases include office, warehouse, and vehicle leases.
(2) Other obligations include land acquisitions.

Cash and Liquidity

The Company did not have any commercial debt as at the end of Q4 2024. As at FY 2024, the Company had a cash and cash equivalent balance of $15.38 million. On January 15, 2025, the Company received the second tranche payment of $12.5 million from CAP's strategic investment in REE Uno. To date, CAP has deposited two (2)

of the three (3) tranches owed pursuant to the CAP Investment Agreement, totaling $22.2 million. The final tranche of $6.9 million is scheduled for deposit in January 2026. On February 19, 2025, the Company received $25 million from its Private Placement. These funds, along with the cash balance from its wholly-owned subsidiaries, will finance planned capital and operating expenditures for the Carina Project throughout 2025. The Company's present cash resources are sufficient to meet all its current liabilities and administrative and overhead expenses for the next 18 months.

Capital Resources

The Company's focus in FY 2025 is the continued advancement and development of the Penco Module, the Carina Project and any potential future modules located in the concessions beneficially held by the Company.

The primary uses of capital resources in 2025 are expected to include:

(in thousands of US $)	2025
Activities in connection with the Penco Module	12,372
Permitting and community engagement expenditures	2,787
Engineering activities	2,422
Surface land purchase and mining concessions	1,505
Administrative and personnel expenses	5,658
Activities in connection with the Carina Project	25,669
Drilling and related exploration expenses	6,307
Engineering and piloting	10,357
Permitting and community engagement expenditures	1,656
Surface land purchase and mining concessions	2,249
Administrative and personnel expenses	5,100
Separation of Rare Earths Project	570
REE Alloys Project	766
Maintenance of mining concessions and exploration activities in connection with potential new modules	809
Administrative expenses and general corporate purposes	3,099
TOTAL	43,284

As the Company does not currently generate cash flow from operating activities, the Company will be relying on further equity and/or debt financing, or a strategic partnership, as the most likely sources of additional funds for the development of the Penco Module, the Carina Project and any potential future modules, to the extent necessary.

RELATED PARTY TRANSACTIONS

Key Management Compensation

Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company.

For FY 2024, the remuneration of the Company's key management totaled $4.29 million, as compared to the same period in 2023 in which remuneration of the Company's key management totaled $3.39 million. The increase in the Company's key management remuneration is a result of the annual bonus payments made in April 2024, the appointment of a new Executive Vice President, and the increase in the value of common shares of the Company issued to the Company's key management during the same period.

(in thousands of US$)	Fiscal year ended December 31
	2024	2023
Shared-based payments (1)	1,198	902
Short-term employee benefits (2)	3,092	2,491
Total compensation paid to key management personnel	4,290	3,393

(1) Amortized share-based payment expenses due to restricted share units granted to management.

(2) The increase in short-term employee benefits during FY 2024 is primarily due to bonus expenses related to the achievement of specific goals and performance metrics. In addition, expenses increased due to the addition of a new executive officer position in Brazil.

Related Party Transactions

The Company was subject to the following related-party balances and transactions as at FY 2024 and FY 2023:

Accounts payable
		Fiscal year ended December 31
(in thousands of US$)	2024	2023
Hochschild Mining PLC	-	13
Compañia Minera Ares S.A.C.	19	1
CAP	6	-
Total	25	14
Accounts receivable
		Fiscal year ended December 31
(in thousands of US$)	2024	2023
REE Alloys SpA - Joint Venture	17	-
CAP	19,418	-
Total	19,435	-

Hochschild Mining PLC and Compañia Minera Ares S.A.C., as a member of Hochschild Mining PLC, are related parties and provide intercompany administrative services pursuant to the terms of a transition services agreement that continues to date.

CAP, a related party and investor in REE Uno, has made a capital contribution to REE Uno in exchange for 20% of the issued and outstanding share capital of REE Uno. As a result, the Company has an accounts receivable for two (2) of the three (3) installments of this contribution.

Accounts payable with Compañia Minera Ares S.A.C. amounted to $19 as at FY 2024, compared to accounts payable of $1 during FY 2023. This increase was primarily due to service costs for the year, which were invoiced in December 2024.

Accounts payable with Hochschild Mining PLC amounted to nil during FY 2024, compared to accounts payable of $13 as at FY 2023.

Accounts receivable with Aclara Metals amounted to $17 as at FY 2024, compared to accounts receivable of nil during FY 2023.

Accounts receivable with CAP amounted to $19,417 during FY 2024, compared to accounts receivable of nil during FY 2023. In addition, as at FY 2024, office rental expenses with CAP amounted to $6, due to a lease agreement with REE Uno.

OUTSTANDING SHARE DATA

As of the date of this MD&A, the Company's issued and outstanding share capital is comprised of an aggregate of 217,712,796 common shares and 4,614,811 restricted share units, which were issued in accordance with the terms of the Company's long-term incentive plan.

SIGNIFICANT ACCOUNTING POLICIES

The Company's accounting policies are described in Note 2 to the Financial Statements.

SIGNIFICANT EQUITY INVESTEE

Disclosure related to the Company's significant equity investee is provided under Notes 2 and 16 to the Financial Statements.

CAUTIONARY STATEMENTS AND READER ADVISORIES

Cautionary Note Regarding Forward-Looking Information

This MD&A includes "forward-looking information" and "forward-looking statements" within the meaning of applicable securities legislation (collectively referred to herein as "forward-looking statements") that is based on the opinions and estimates of management and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", "will", "will be 'taken', "will occur" or "will be achieved". All statements other than statements of historical fact are forward-looking statements and, in particular, any statements that refer to expectations, intentions, estimations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances and similar words suggesting future outcomes or statements regarding an outlook. All statements in this MD&A that address events or developments that the Company expects to occur in the future are forward-looking statements.

Forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, but are not limited to: operating in a foreign jurisdiction (including local political and socioeconomic issues); continued compliance with applicable laws and regulations; failure to obtain necessary permits and licenses or to renew them; timing and requirements of permits and third-party consents (as may be required); impact of social and environmental activism; relations and agreements with local communities; government regulation of mining operations; environmental compliance; actual production, capital and operating costs differing from those anticipated; price volatility of rare earth elements; statements regarding anticipated exploration, drilling, development, construction, permitting and other activities or achievements of Aclara; expectations, strategies and plans for the Penco Module and the Carina Project, including in relation to geology, metallurgy, engineering, title, and environmental matters; expected costs and timing of development of the Penco Module and Carina Project; costs, location and timing of potential future exploration and drilling and the uncertain nature of such exploration and drilling activities; the impact of competition and applicable laws and regulations on the Company's operations and results; environmental risks and hazards; future objectives of the Company and growth and other strategies to achieve those objectives; future financial or operating performance of the Company; global markets for the demand and supply of rare earth elements; continued availability of required expertise and manpower; continued access to capital markets; future trends that may affect the Company's business and results of operations; possible emergence of new global pandemics and their impact on Aclara's operations; continued qualification for listing on the TSX; Aclara having further potential through exploration at the Penco Module and the Carina Project, and those risks associated with the mining industry, including delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of resource estimates; the uncertainty of estimates and projections in relation to production, costs and expenses and health, safety and environmental risks; the risk of commodity price and foreign exchange rate fluctuations; as well as other factors identified and described in more detail in Aclara's most recent annual information form and its other filings with securities and regulatory authorities, which are available on SEDAR+ at www.sedarplus.ca.

Readers are cautioned that the foregoing list of risks, uncertainties and other factors is not exhaustive. The forward-looking statements contained in this document are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or those in any other documents filed with Canadian securities regulatory authorities, whether as a result of new information, future events or otherwise, except

in accordance with applicable securities laws. The forward-looking statements are expressly qualified by this cautionary statement.

Cautionary Note Regarding Mineral Reserves and Mineral Resources

This M&DA was prepared in accordance with Canadian standards for reporting of mineral resource estimates and the requirements of the securities laws in effect in Canada. In particular, and without limiting the generality of the foregoing, the terms "mineral reserve", "proven mineral reserve", "probable mineral reserve", "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" as may be used or referenced in this MD&A are Canadian mineral disclosure terms as defined in accordance with NI 43-101 and the guidelines set out in the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") Standards on Mineral Resources and Mineral Reserves (the "CIM Standards"), adopted by the CIM Council, as amended. Such terms used but not otherwise defined herein have the meanings ascribed to them in the CIM Standards.

The mineral resource estimates noted in this MD&A are preliminary in nature and include inferred mineral resources that at present are considered too geologically speculative in nature to enable categorization as mineral reserves. There is no certainty that such preliminary economic assessments will be realized.

APPROVAL

The Board of Directors of Aclara has approved the disclosure contained in this MD&A.

ADDITIONAL INFORMATION

Additional information relating to the Company and its other continuous disclosure materials, including the annual information form, annual management's discussion and analysis and audited annual financial statements, consolidated financial statements, and notice of annual meeting of shareholders and management information circular is available on Aclara's website at www.aclara-re.com and on SEDAR+ at www.sedarplus.ca.

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Aclara Resources Inc. — Management Reports 2025

48255_rns_2025-03-20_01b2dd1c-fbd3-400f-b0f4-9ee24c312bd2.pdf

ACLARA RESOURCES INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPANY OVERVIEW

BUSINESS DEVELOPMENT AND OVERALL PERFORMANCE HIGHLIGHTS

Mining Projects Development

Carina Project and Future Outlook

Penco Module and Future Outlook

Greenfield Exploration and Future Outlook

Commercial Update

Corporate Development

Cash Balance and General Administrative Expenses

Cash Balance

General Administrative Expenses

Estimated Budget for 2025

SELECTED ANNUAL INFORMATION

Financial Performance

DISCUSSION OF RESULTS AND OPERATIONS UPDATE

Exploration Activities

Infill Drilling - Carina Project

Greenfield Exploration - Brazil

Brownfield Exploration - Penco Module

Greenfield Exploration - Chile

Project Development Activities

Carina Project

Mining Study

Process Design

Penco Module

General Engineering

Mining Study

Aclara Technologies - Separation

Environmental, Social and Governance

Penco Module

Environment and Permits

Social License

Carina Project

Environment and Permits

Social License

Occupational Health and Safety

OPERATIONAL PERFORMANCE

Overview of Operating Expenditure and Costs

Exploration Expenses

Other Income (Expenses)

Administration Expenses

Financial Income and Costs

Evaluation and Exploration Assets

Properties, Plants and Equipment

SUMMARY OF QUARTERLY RESULTS

FINANCIAL INSTRUMENTS

Nature and Extent

Financial Instrument Risks

Foreign Currency Risk

Credit Risk

Liquidity Risk

LIQUIDITY AND CAPITAL RESOURCES

Working Capital Requirements

Off-Balance Sheet Commitments

Cash and Liquidity

Capital Resources

RELATED PARTY TRANSACTIONS

Key Management Compensation

Related Party Transactions

OUTSTANDING SHARE DATA

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT EQUITY INVESTEE

CAUTIONARY STATEMENTS AND READER ADVISORIES

Cautionary Note Regarding Forward-Looking Information

Cautionary Note Regarding Mineral Reserves and Mineral Resources

APPROVAL

ADDITIONAL INFORMATION

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Aclara Resources Inc. Management Reports 2025