Namibia Rare Earths Inc

Namibia Rare Earths Inc.

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS WITH MANAGEMENT DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012

(Unaudited)

NAMIBIA RARE EARTHS INC. – CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS WITH MANAGEMENT DISCUSSION AND ANALYSIS

NAMIBIA RARE EARTHS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

NAMIBIA RARE EARTHS INC. - MANAGEMENT’S DISCUSSION AND ANALYSIS – FEBRUARY 28, 2013 PAGE 1

This management's discussion and analysis of the financial condition and results of operations ("MD&A") of Namibia Rare Earths Inc. (the “Company”) is dated April 9, 2013 and provides an analysis of the Company’s financial results and progress for the three months ended February 28, 2013 and February 29, 2012. This MD&A should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements for the three months ended February 28, 2013 and February 29, 2012 and related notes thereto, which were prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”). All amounts are expressed in Canadian dollars unless otherwise noted.

This discussion includes certain statements that may be deemed “forward‐looking statements”. All statements in this discussion, other than statements of historical fact, that address exploration drilling, exploitation activities and events or developments that the Company expects, are forward‐looking statements. Although the Company believes the expectations expressed in such forward‐looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward‐looking statements. Factors that could cause actual results to differ materially from those in forward‐looking statements include market prices, exploitation and exploration results, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward‐looking statements. The information contained herein is subject to change and the Company does not assume the obligation to revise or update these forward‐looking statements, except as may be required under applicable securities laws.

Overall Performance

The Company is engaged in the exploration for rare earth elements in Namibia through its 100% owned subsidiary, Namibia Rare Earths (Pty) Ltd., a Namibian company (“Namibia Pty”). Since incorporation in 2004, Namibia Pty has established a presence in Namibia and has applied for and been granted a number of exclusive prospecting licenses.

It is management’s belief that there is a fundamental risk in taking any resource project from grass roots exploration through to production. This level of risk is heightened in the rare earth sector due in large part to the complexity of the metallurgy and the lack of operators with rare earth processing knowledge and expertise. The Company will mitigate these risks by focusing on exploration and identifying economically recoverable deposits of rare earth minerals, demonstrating through metallurgical testing that the rare earths are amenable to extraction, and then seeking a qualified strategic partner possessing the mining, extraction and processing expertise in the rare earth sector to develop the deposit.

The major focus of the Company’s activities since 2010 has been in relation to the Lofdal Rare Earths Project, which comprises an exclusive prospecting license (“EPL 3400”) located approximately 450 kilometers northwest of the capital city of Windhoek and 25 kilometers northwest of the town of Khorixas in the Kunene Region of north‐western Namibia. The Lofdal property covers a total area of 573 square kilometers centered on the Lofdal carbonatite complex, a regional geological feature known to be associated with numerous occurrences of rare earth mineralization hosted by carbonatitic dykes, dyke swarms and to a lesser extent by intrusive plugs. EPL 3400, which provides for mineral rights to base and rare metals, and precious metals, was originally granted in 2005. It was renewed by the Government of Namibia in November, 2012 and is in good standing until November, 2014, after which it may be




renewed at the discretion of the Minister of Mines for Namibia. The property is subject to a 2% net smelter revenue royalty. The Company released a National Instrument 43‐101 (“NI 43‐101”) compliant initial mineral resource estimate on Area 4 of the Lofdal Rare Earths Project in September 2012.

Development Strategy

The Company is implementing a phased approach in the development of the Lofdal Rare Earths Project. The first phase of the program was directed at continued exploration and delineation of NI 43‐101 compliant mineral resources within priority targets already identified, with the first resource reported in September 2012. The Company has undertaken metallurgical test work on samples from the resource to determine the potential for extraction of the rare earths and will continue with general exploration of the Lofdal property.

Lofdal Rare Earths Project

Regional Assessment of Rare Earths Potential

The first systematic exploration for rare earths over Lofdal was initiated by Namibia Pty in 2008 and since that time exploration results have demonstrated the occurrence of rare earth mineralization on a district scale. In the fall of 2010, the Company completed the first comprehensive trenching and diamond drilling program on the property over a selected carbonatite dyke known as the 2B Zone to produce a NI 43‐101 compliant technical report for which consultants Swinden Geoscience Consultants Ltd. and GeoAfrica Prospecting Services cc were retained. The technical report, entitled Amended 43‐101 Technical Report on the Rare Earths Element Occurrences in the Lofdal Carbonatite Complex, Kunene Region, Khorixas District, Namibia dated February 18, 2011, amended April 4, 2011 (“Technical Report”), is available on SEDAR at www.sedar.com.

From the initial public offering in April 2011 to date, over 14,400 meters of exploration drilling has been completed on a number of planned targets within a 50 square kilometer portion of the Lofdal Carbonatite Complex. The drill program was augmented with detailed ground geophysical surveys with the objective of determining if a potential heavy rare earth enriched resource target could be identified. The most prospective target from this program was Area 4 which was selected for more detailed drilling to develop the initial NI 43‐101 compliant resource which comprised an additional 10,025 meters of drilling.

Rare earth mineralization at Lofdal is hosted in carbonatite dykes, structural zones and plugs exhibiting grades between 0.2‐3% total rare earths (“TREO” which includes yttrium) and often exhibiting exceptional heavy rare earth enrichment (“HREE”) greater than 50%. Rare earth deposits containing greater than 10% heavy rare earths (“HREO”) can be considered to be enriched in heavy rare earths. Mineralized zones in dykes or structures are variable in thickness from less than one meter to 15 meters at surface and can be traced in some cases up to three kilometers in strike length. The more significant mineralized structures have associated alteration haloes which can carry anomalous concentrations of rare earth elements. As per industry norms, heavy rare earths comprise europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb), lutetium (Lu) and yttrium (Y). Light rare earths comprise lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd) and samarium (Sm). “Heavy rare earth enrichment” is the ratio of HREO:TREO, expressed as a percentage.




In addition to the confirmation of heavy rare earth enrichment, drilling has provided a number of significant geological insights into the nature of the rare earth enrichment (“REE”) mineralization at Lofdal, all of which impact positively upon the potential for multiple discoveries. Project geologists are now of an opinion that mineralization is more broadly associated with large scale hydrothermal systems rather than being restricted to discrete dykes. These hydrothermal systems can be characterized by either heavy or light rare earth enrichment, and zones can be traced laterally on surface in some instances for several kilometers. Many of the larger, lower grade “dykes” previously mapped on surface are in fact alteration zones associated with these systems which in some areas significantly increases the strike and width potential of the heavy rare earth exploration target. There are two intrusive carbonatite bodies on the property. The Main Intrusion is an early stage calcitic (“sovite”) body some 2 kilometers in strike length which does not carry significant amounts of rare earths but has potential for niobium and uranium mineralization. The smaller Emanya plug is some 350 meters in diameter in outcrop and carries anomalous concentrations of rare earths typically in the range of 0.2‐1% TREO but is not enriched in heavy rare earths.

The results from exploration drilling in Area 4 indicated the highest potential for the rapid development of mineral resources. Detailed studies of Area 4 drill core confirmed that the principal heavy rare earth mineral at Lofdal is xenotime. The potential ore mineral assemblage is dominated by xenotime and subordinate zircon ± generally minor amounts of aeschynite, bastnasite group minerals (including synchysite‐Y), thorite, and unidentified phases (Ca‐Y silicate and Th‐Zr silicate). In samples with high thorium (2,000‐4,000 ppm) the potential ore mineral assemblage is dominated by xenotime and thorite. It should be noted that the average thorium content of the high grade metallurgical composite is 326 ppm and for the low grade metallurgical composite it is 674 ppm indicating that high thorium samples are likely localized. Grain size and habit are variable with ore minerals being generally fine‐ to very fine‐grained with much of the potential ore minerals averaging 15‐20 microns but locally reaching up to 150 microns.

Lofdal Area 4 Mineral Resource Estimate

In September 2012, the Company released a National Instrument 43‐101 compliant initial mineral resource estimate for Area 4 of the Lofdal Rare Earths Project as set out in the technical report “NI 43‐101 Technical Report and Mineral Resource Estimate for Area 4 of the Lofdal Rare Earth Element (REE) Project, Khorixas District, Republic of Namibia” dated October 29, 2012 (the “Lofdal Initial Resource Report”) independently prepared for the Company by The MSA Group (Pty) Ltd. of South Africa (“MSA”), a full copy of which is available on SEDAR at www.sedar.com. The mineral resource exhibits exceptional levels of HREE of between 75% and 93% HREE depending on cut‐off grade with corresponding TREO ranging from 0.27‐1.26% TREO. The resource drilling program has provided a mineral resource estimate extending from surface to a vertical depth of approximately 150 meters. Ongoing exploration drilling, however, has intersected the deposit to 200 meters further down‐dip of the initial 43‐101 resource. The geological database supporting the initial mineral resource estimate is detailed and is of a high quality, comprising over 10,025 meters of diamond drilling in 93 holes and 987 meters of trenching.

MSA has currently identified 0.3% TREO as the appropriate cut‐off grade for the mineral resource which provides 0.90 MMT at 0.62% TREO with 86% heavy enrichment (Indicated) and 0.75 MMT at 0.56% TREO with 85% heavy enrichment (Inferred). Details on the base case resource are provided in Table 1. A summary of mineral resources at varying cut‐off grades is presented in Table 2. The NI 43‐101 compliant technical report was filed on SEDAR on October 30, 2012.




Table 1 – Mineral Resource (Base Case) Lofdal Area 4

Table 2 – Mineral Resources at Varying Cut‐off Grades Lofdal Area 4

Table 2 – Mineral Resources at Varying Cut‐off Grades Lofdal Area 4

Although mineral resource grades (% TREO) are relatively low, the high levels of heavy rare earth enrichment can provide significant tonnages of contained heavy REOs. The main elements of interest from the Area 4 mineral resource are europium, terbium, dysprosium and yttrium (with yttrium and dysprosium being the most abundant). Based on the REO distributions, these four elements are the most valuable in the deposit. The tonnage of the mineral resource is particularly sensitive to cut‐off grade as can be seen from Table 2. It is therefore of particular interest to determine if viable extraction of the rare earths can be achieved at the lower grades.

Tonnes La2O3 Ce2O3 Pr2O3 Nd2O3 Sm2O3 LREO Eu2O3 Gd2O3 Tb2O3 Dy2O3 Ho2O3 Er2O3 Tm2O3 Yb2O3 Lu2O3 Y2O3 HREO TREO H:T

million % % % % % % % % % % % % % % % % % % %

0.90 0.022 0.040 0.004 0.016 0.007 0.09 0.006 0.027 0.007 0.050 0.011 0.033 0.005 0.030 0.004 0.359 0.53 0.62 85.6%

Tonnes La2O3 Ce2O3 Pr2O3 Nd2O3 Sm2O3 LREO Eu2O3 Gd2O3 Tb2O3 Dy2O3 Ho2O3 Er2O3 Tm2O3 Yb2O3 Lu2O3 Y2O3 HREO TREO H:T

million % % % % % % % % % % % % % % % % % % %

0.75 0.020 0.037 0.004 0.015 0.006 0.08 0.005 0.024 0.006 0.045 0.010 0.029 0.004 0.027 0.004 0.320 0.47 0.56 85.2%

In‐situ Inferred Mineral Resource @ 0.3% Cut‐off

In‐situ Indicated Mineral Resource @ 0.3% Cut‐off




Metallurgical studies for the confirmation of the most appropriate cut‐off grade are ongoing and preliminary results released in April are summarized under “Area 4 Metallurgical Program”. Should the deposit be amenable to lower cut‐off grades, there can be significant gains in tonnage and contained tonnes REO.

Carbonatite deposits are known to be naturally anomalous in thorium. Thorium concentrations at the reported cut‐off grades range from 297 ppm to 531 ppm, which would not be considered abnormally high; however, the removal of thorium must be addressed in metallurgical studies (see “Area 4 Metallurgical Program”). It remains to be demonstrated that the rare earths can be extracted from the mineral resource at Area 4. As a first step, Mintek has demonstrated that mineral concentrates can be produced (beneficiation) and that thorium can be removed. On‐going test work will determine the amenability of the concentrate to extraction.

The mineral resource has been presented using a range of cut‐off grades considered appropriate for the deposit type and the characteristics of the rare earth mineralization in Area 4, and is currently classified as Indicated and Inferred following guidelines recommended under CIM Standards on Mineral Resources and Reserves. Regarding the Area 4 mineral resource classification, MSA makes note that the level of confidence in the geological model with respect to quantity, grade or quality, densities, shape, and physical characteristics is currently sufficient such that portions of the current classifications of Indicated and Inferred could be upgraded to the Measured and Indicated categories upon receipt of an independent qualified metallurgical report indicating that the deposit has reasonable prospects for economic extraction.

Area 4 Metallurgical Program

The Company engaged Mintek of South Africa (“Mintek”) to undertake a broad scope of metallurgical test work including, but not limited to, sorting test work, comminution test work, separation options and milling, mineralogy, floatation test work, and leaching test work. Test work is being conducted on composite samples from HQ diameter core drilled expressly for this purpose. Portions of these samples were shipped to Tomra Sorting Solutions (Commodas Ultrasort) in Germany where detailed sorting test work was completed. Tomra has concluded that with further optimizations, the Area 4 mineralization could be upgraded using x‐ray transmission (“XRT”) sorting which can potential double the run‐of‐mine grade and reduce the mass by 50%. The Company received a preliminary metallurgical report from Mintek confirming that a xenotime concentrate can be produced from the fine grained mineralization at Lofdal, and that thorium can be removed from concentrates on site using conventional technologies. A concentrate grade of 8.39% TREO with 96.1% heavy rare earth enrichment was produced from a representative sample of the high grade mineralization with a head grade of 1.37% TREO and achieved an overall recovery of 64.7%. Concentrates were also produced from sorted product and from fines (see Table 3 below). The report provides a number of recommendations to optimize grades and recoveries.




These preliminary findings are considered very encouraging and the metallurgical test work will continue to optimize grade and recovery from the high grade sample to confirm the beneficiation process flow sheet. Parallel test work will then be undertaken on the low grade sample and the resulting concentrates will then be available for further downstream metallurgical work on separation. Additional Lofdal Exploration

Area 4

The Area 4 resource was estimated to a maximum vertical depth of 150 meters based on the available drill data at that time. One hole had intersected the deposit at a vertical depth of 250 meters but was excluded from the resource due to the lack of supporting drill data at that depth. The three holes subsequently reported are considered as exploration holes at this time, and only provide an indication of the potential to develop additional resources at depth. Highlights from the three deep exploration holes down dip on the Area 4 resource include:

Hole 4098: 0.44% TREO over 10 meters with 82.4% HREE enrichment at 350 vertical meters (including 1.34% TREO over 2 meters with 94.1% HREE enrichment)

Hole 4099: 0.14% TREO over 15 meters with 72.7% HREE enrichment at 240 vertical meters

Hole 4100: 0.17% TREO over 19 meters with 50.8% HREE enrichment at 270 vertical meters Field teams completed geological mapping to the northeast of the resource area, and with the support of geophysical surveys have traced the favourable structure believed to be controlling mineralization in Area 4. A new zone of mineralization located 1.5 kilometers along strike was mapped over a distance of 450 meters and was selected as a priority drill target. A total of eight holes were completed in four fences along the zone, all of which intersected significant rare earth mineralization in a geological setting similar to the Area 4 resource. The drilling has demonstrated continuity over the 450 meter strike length making this zone a potential target for more detailed resource drilling in the future. Highlights from this new discovery include:

0.52% TREO over 8 meters with 19.4% HREE enrichment







Other Rare Earth Occurrences at Lofdal (Areas 5, 6, and 8)

Drilling in Area 5 in 2011 encountered exceptional HREE enrichment from the priority targets (5A, 5B and 5C). Significant REE mineralization, but with lower HREE enrichment, has been encountered in the lower priority areas (5D, 5E and 5F). There is a wide area of weak to moderate alteration that has been mapped towards the western margin of Area 5 over a strike length of two kilometers and this was the focus of drilling in late 2012. Two holes intersected a zone of modest thickness (6‐8 meters) but two others intersected considerably greater thickness (26‐39 meters) with moderate levels of HREE enrichment (20%). Samples of the mineralized cores will be taken for mineralogical studies to determine what rare earth minerals are being encountered in these latest holes in Area 5. In 2011 significant REE mineralization was intersected in four holes reported from Area 6 which is a low grade light rare earth target located five kilometers to southwest of Area 4. Mineralization in Area 6 is not well understood as it is not directly related to any obvious carbonatites but rather is hosted by gneissic country rocks that appear to have been hydrothermally altered with pervasive chlorite and carry 1‐2% disseminated sulphides. Field crews have completed additional geological mapping on Area 6 where new targets were identified. Two new mineralized zones were intersected by exploration drilling in late 2012, and rare earth mineralization occurs in these new zones over very broad widths grading 0.2‐0.7% TREO with moderate levels of heavy rare earth enrichment (10‐25%). Samples of the mineralized cores will be taken for mineralogical studies to determine what rare earth minerals are being encountered in Area 6. In 2011, drilling in Area 8 focused on determining the extent and nature of mineralization associated with the Emanya plug. This is a very different target than the linear structures in Areas 4 and 5. At Emanya the REE mineralization is dominantly low grade LREEs but has potential for much higher tonnage. All holes ended in carbonatite with low grade LREE mineralization. The four holes drilled indicate that the Emanya plug may have a strike length in excess of 650 meters and is up to 350 meters in width. These initial results confirm the potential for Emanya to host a large tonnage, at‐surface open pittable deposit. Three additional holes were drilled at Emanya in late 2012. Higher grades were intersected at depths of 100‐120 vertical meters in 2 holes, with one of the holes ending in mineralization. While still a low priority target at Lofdal, Emanya will be further evaluated given its substantial tonnage potential as a satellite deposit.

Niobium and Uranium Target at Lofdal

The Company has discovered an area within the Main Intrusion (Area 7) with the potential to host a significant uranium and niobium occurrence. In September, 2011, the Company entered into a memorandum of understanding (“MOU”) with Epangelo Mining Company (Pty) Limited (“Epangelo”) which provides the framework for the Company to investigate uranium occurrences discovered on its Lofdal license in Namibia. In 2011, the Government of Namibia, through the Minister of Mines and Energy, announced an initiative to develop a mining regime which will allow the country of Namibia to more fully benefit from the mineral resources located within Namibia, and to utilize Epangelo as the private corporate vehicle to implement this new strategy. The MOU represents the first agreement to be negotiated between Epangelo and a private sector mineral development company under the new strategy. The MOU provides that, upon removal of the current nuclear fuel moratorium, Epangelo will assist the Company in obtaining an Exclusive Prospecting License to permit the Company to explore any discoveries related to nuclear fuels which the Company has identified on its Lofdal license. In the event




an economically recoverable nuclear fuels resource is identified on Lofdal, the Company and Epangelo will work cooperatively to obtain a Nuclear Fuels Mining License which will be held by a newly formed mining company to be owned 90% by Namibia Rare Earths and 10% by Epangelo. Epangelo will not be required to contribute to any costs associated with the exploration or development of a nuclear fuels deposit on Lofdal. Epangelo will however have the option, exercisable on commencement of commercial production, to acquire an additional 10% interest in the mining company by paying to Namibia Rare Earths an amount equal to 10% of all costs associated with exploration and development of the nuclear fuels deposit. All costs after commencement of commercial production will be funded by the parties based on their percentage ownership of the mining company. This will allow the Company to continue on its own with its current exploration for rare earths on Lofdal and, at the same time, investigate the incidental finds of nuclear fuel.

Other Prospecting Rights

Through Namibia Pty, the Company holds mineral rights on four other exclusive prospecting licenses (“EPLs”) in Namibia. While the Company’s focus is clearly on rare earths, certain of the remaining EPLs hold potential for other commodities which will be evaluated in conjunction with the exploration commitments related to these other permits.

During the first quarter of 2013, one geological team was deployed to the Marinkas permit in southern Namibia to complete reconnaissance mapping and sampling of the Marinkas Quellen Carbonatite Complex. A second team is carrying out orientation and prospecting of the Florida permit which is contiguous with Lofdal, with the objective of determining if certain airborne geophysical anomalies from government surveys are related to extensions of the Lofdal Carbonatite Complex.

Results of Operations

Three months ended February 28, 2013 and February 29, 2012

For the three months ended February 28, 2013, the Company capitalized exploration costs of $669,929 (2011 ‐ $1,254,842), primarily related to expenditures on the Lofdal Rare Earths Project.

For the three months ended February 28, 2013, the Company reported a net loss of $558,010, compared to a net loss of $507,478 for the same period in the prior year.

Administration expenses were $627,146 for the period compared to $583,550 for the same period in the prior year. The larger differences were as follows:

Salaries and benefits expense decreased to $211,226 compared to $234,384 for the same period in 2012 due to the timing of staff incentive payments;

Shareholder communications expense increased to $109,285 compared to $85,230 for the same period in the prior year due to increased attendance at conferences and trade shows;

Professional fees decreased to $8,693 compared to $33,354 for the same period in 2012 primarily due to audit fees related to IFRS conversion in the prior period and the timing of prior period audit fees;

Consulting fees increased to $57,372 compared to $41,551 for the same period in the prior year due to a reduction in consulting fees charged to exploration and evaluation expenditures;




Travel expenses increased to $140,462 compared to $48,642 for the same period in 2012 due to increased travel related to shareholder communications and increased administrative travel to the Lofdal property;

Listing and filing fees increased to $44,329 compared to $13,902 for the same period in the prior year due to the Company’s recent listing on the OTCQX in the United States; and

Share‐based payments expense decreased to $Nil compared to $65,200 for the same period in 2012 as no options were issued in the current period compared to 200,000 options issued and vested in the prior period.

Other income

Other income was $69,136 for the three months ended February 28, 2013 compared to $76,072 for the same period in 2012, primarily due to a decrease of $17,911 in interest income due to a decrease in the average cash balance available for investment, partially offset by an increase of $10,975 in foreign exchange gain related to the revaluation of lower taxes receivable denominated in a foreign currency.

Summary of Quarterly Results

The following table sets out selected financial information for the periods indicated (expressed in Canadian dollars):

For the quarters ended

Feb. 28 2013

Nov. 30 2012

Aug. 31 2012

May 31 2012

Feb. 29 2012

Nov. 30 2011

Aug. 31 2011

May 31 2011

$ $ $ $ $ $ $ $

Revenue Nil Nil Nil Nil Nil Nil Nil Nil

Administration expenses

(627,146) (1,137,933) (357,586) (425,936) (583,550) (971,594) (835,460) (2,045,630)

Write‐down of mineral properties

‐ ‐ ‐ (1,008,628) ‐ ‐ (976,297) ‐

Foreign exchange gain (loss)

23,899 (31,766) (18,363) (52,476) 12,924 (31,568) 14,023 (5,362)

Other income 45,237 41,920 56,531 66,064 63,148 75,211 84,199 45,322

Net and comprehensive loss

(558,010) (1,127,778) (319,418) (1,420,976) (507,478) (927,951) (1,713,535) (2,005,670)

Loss per share – basic and diluted

(0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.03) (0.03)

Total assets (millions) 30.3 31.6 32.2 32.4 34.1 34.7 35.1 35.9

As the Company has capitalized all exploration expenditures to date, the expenses are primarily related to administration and shareholder relations. The higher administration expenditures in each of the quarters ended May 31, August 31, and November 30, 2011 was primarily due to non‐cash share‐based payments expense of $1,676,400, $534,600, and $194,100 respectively for stock options issued that vested in each of the quarters. The higher administration expenses in the quarter ended November 30, 2012 was related to the Company’s listing on the OTCQX in the United States and staff remuneration. The higher increase in net loss in each of the quarters ended August 31, 2011 and May 31, 2012 was primarily due to non‐cash write‐offs of exploration and evaluation assets due to mineral property




licenses that were not renewed based on historical exploration results. The Company has foreign exchange gains and losses arising mainly due to variations in the Canadian dollar and the Namibian dollar exchange rate during the periods, as certain of the Company’s expenditures are paid in Namibian dollars, while the Company’s functional and reporting currency is the Canadian dollar. The Company has interest revenue related to excess cash invested in a high‐interest account with a major chartered bank.

Liquidity and Capital Resources

At February 28, 2013, the Company had working capital of $15,269,338 compared to working capital of $16,478,051 at November 30, 2012 as follows:

February 28, 2013 November 30, 2012

$ $

Cash 15,145,703 16,683,126

Amounts receivable 441,276 749,231

Deposits and prepaid expenses 80,589 201,963

Accounts payable and accrued liabilities (398,230) (1,156,269)

Working capital 15,269,338 16,478,051

During the three months ended February 28, 2013, the Company used cash of $821,436 for operating activities (2012 – $1,081,249) and used cash of $730,869 for investing activities (2012 ‐ $847,758). The decrease of $259,813 in cash used in operating activities was primarily related to a decrease in taxes receivable of $307,955, partially offset by an increase in cash‐based administration and other expenditures of $102,516. The decreased use of cash in investing activities was primarily related to a decrease in exploration spending at Lofdal.

The Company’s principal asset is at an advanced exploration and evaluation stage and as a result the Company has no current source of operating cash flow. On April 14, 2011, the Company completed a public offering of its common shares and concurrent listing on the Toronto Stock Exchange, for net proceeds to the Company of $26.3 million. The Company has sufficient working capital to retain its interests in its mineral properties and fund its planned expenditures for the next twelve months.

Contractual Obligations

The Company has a lease commitment for office space expiring on August 31, 2014. Remaining minimum lease payments to the end of the lease are as follows:

$ November 30, 2013 68,625 August 31, 2014 68,625

137,250

Off‐Balance Sheet Arrangements

There are no off‐balance sheet arrangements.




Share Capital

The Company’s authorized capital consists of an unlimited number of common shares without nominal or par value. As of the date of this MD&A, the Company has issued and outstanding 77,828,500 common shares.

Stock options outstanding as of the date of this MD&A:

Warrants outstanding as of the date of this MD&A:

Critical Accounting Estimates and Judgments

Critical accounting estimates used in the preparation of the Company’s consolidated financial statements, which could be significantly affected by factors beyond the Company’s control are as follows:

(i) Valuation of exploration and evaluation assets: The value of the Company’s exploration and evaluation assets is dependent upon the success of the Company in discovering economic and recoverable mineral resources, the ability of the Company to obtain financing to complete development of the properties, and future production or proceeds from disposition. The estimation of future revenue flows relating to these assets is uncertain and will also be affected by competition, relative exchange rates between the Canadian dollar and the Namibian dollar and potential new legislation and related environmental requirements.

(ii) Decommissioning liabilities: The Company makes estimates of future site restoration costs based upon current legislation in Namibia, technical reports and estimates provided by the Company’s senior employees and advisors. These estimates will be affected by actual legislation in place, actual mining activity to be performed and actual conditions of the relevant sites when the restoration activity is to be performed in future periods.

(iii) Share‐based payments: Share‐based payments expense is calculated using the Black‐Scholes model, a recognized option/warrant valuation formula, which is highly dependent on the expected volatility of the market price of the Company’s common shares. Due to the Company’s short trading history, the Company uses a volatility rate based on past share trading data from similar entities to predict future volatility, and actual volatility may be different from the estimate used in the valuation formula. Share‐based payments

Exercise price $ Number of Shares Expiry Date

0.80 2,875,000 April 14, 20160.82 300,000 April 26, 20160.72 1,300,000 June 12, 20160.56 525,000 November 2, 20160.41 200,000 February 23, 2017

5,200,000

Exercise price $ Number of Shares Expiry Date

0.80 2,156,250 April 14, 2013




expense represents a non‐cash expense and, as such, has no impact on the Company’s financial position or liquidity.

(iv) Realizable Amount of Deferred Tax Assets: The Company reviews its deferred tax assets at each balance sheet date and reduces the carrying amount to the extent that it is not probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.

Critical judgments or assessments made by management used in the preparation of the Company’s consolidated financial statements, which could be significantly affected by factors beyond the Company’s control are as follows:

(i) The determination of categories of financial assets and financial liabilities;

(ii) The determination of a cash‐generating unit for assessing and testing impairment, which management has determined to be the mineral property;

(iii) The allocation of exploration costs to cash‐generating units; and

(iv) The determination of when an exploration and evaluation asset moves from the exploration stage to the development stage.

Changes in Accounting Policies

Recently issued accounting pronouncements

The following standards are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted unless otherwise disclosed. The Company is assessing the impact of these new standards, but does not expect them to have a significant impact on the consolidated financial statements.

IFRS 9, Financial instruments, is effective for annual periods beginning on or after January 1, 2015, with early adoption permitted, and introduces new requirements for the classification, measurement and derecognition of financial instruments. Specifically, IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value.

IFRS 10, Consolidated financial statements, requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC‐12 Consolidation – Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements.

IFRS 11, Joint arrangements, requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venture will recognize its share of the assets, liabilities revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionally consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Joint Ventures.

IFRS 12, Disclosure of interests in other entities, establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles.




The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities.

IFRS 13, Fair value measurement, is a comprehensive standard for fair value measurement and disclosure requirements across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.

International Accounting Standard 27, Separate financial statements (“IAS 27”), replaces IAS 27: Consolidated and Separate Financial Statements and contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9.

International Accounting Standard 28, Investments in Associates and Joint Ventures (“IAS 28”), has been amended as a consequence of the issuance of IFRS 10, IFRS 11, and IFRS 12, IAS 28 and will further provide accounting guidance for investments in associates and will set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. This standard will be applied by the Company when there is joint control or significant influence over an investee.

IFRS Interpretations Committee Interpretation 20, Stripping costs in the production phase of a surface mine (“IFRIC 20”), sets out the criteria for the capitalization of production stripping costs to non‐current assets, and states that stripping activity is recognized as a component of the larger asset to which it relates. In addition, IFRC 20 requires companies to ensure that capitalized costs are amortized over the useful life of the component of the ore body to which access has been improved due to the stripping activity.

Amendments to International Accounting Standard 32, Financial Instruments: Presentation (“IAS 32”) clarify the application of the requirements for offsetting financial assets and financial liabilities. The amendments are effective for annual periods beginning on or after January 1, 2014, with earlier application permitted.

Amendments to International Financial Reporting Standards 7, Financial Instruments: Disclosure (“IFRS 7”) outline new disclosure requirements that enable users of the financial statements to better compare financial statements prepared in accordance with IFRS and US Generally Accepted Accounting Principles.

Disclosure Controls and Procedures

As at the end of the period covered by this management’s discussion and analysis, management evaluated the design and effectiveness of the operation of the Company’s disclosure controls and procedures, under the supervision of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”). Based on that evaluation, the CEO and CFO have concluded that, as of February 28, 2013, the disclosure controls and procedures (as such terms are defined under National Instrument 52‐109 Certification of Disclosure in Issuers’ Annual and Interim Filings) are effective to ensure information required to be disclosed in reports filed or submitted under Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified therein.




Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company, and its subsidiaries, to disclose material information otherwise required to be set forth in the Company’s periodic reports. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of a change in conditions, or the degree of compliance with the policies and procedures may deteriorate.

Management, under the supervision of the CEO and CFO, has evaluated the effectiveness of internal controls over financial reporting. Based on this evaluation, the CEO and CFO have concluded that internal controls over financial reporting were effective as of February 28, 2013.

There have been no material changes in the Company’s internal controls over financial reporting during the three months ended February 28, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Financial Instruments

The Company’s financial instruments consist of cash, amounts receivable, deposits, and accounts payable and accrued liabilities. Financial assets and financial liabilities are measured on an ongoing basis at fair value or amortized cost. Cash is designated as fair value through profit or loss and measured at fair value. Amounts receivable and deposits are designated as loans and receivables and measured at amortized cost. Accounts payable and accrued liabilities are designated as other financial liabilities and measured at amortized cost. The recorded values of all financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

The Company may be affected by liquidity risk, exchange rate risk, interest rate risk and commodity price risk. Liquidity risk arises as the Company will continue to require equity financing and there is no assurance that it can continue to raise the capital required to maintain liquidity. Exchange rate risk arises as the Company’s functional currency is the Canadian dollar while the majority of exploration expenditures are denominated in Namibian dollars. The Company does not currently undertake any hedging activities to mitigate exchange rate risk. The Board will continue to monitor the situation and will consider various options to mitigate this risk as it deems appropriate as the business develops. Interest rate risk arises as the Company invests cash at floating rates of interest. Fluctuations in interest rates therefore impact the value of cash. The Company does not have any interest‐bearing liabilities. Commodity price risk arises as the value of the Company’s mineral resource properties is highly dependent on the market price of certain rare earth elements. Rare earth elements prices historically have fluctuated widely and are affected by numerous factors outside of the Company’s control, including, but not limited to, industrial and retail demand, speculators, levels of worldwide production, short‐term changes in supply and demand, and other factors.

Risks and Uncertainties

Under Canadian reporting requirements, management of the Company is required to identify and comment on significant risks and uncertainties associated with its business activities. For a summary of potentially significant risks and uncertainties, refer to the Company’s Management’s Discussion and Analysis for the year ended November 30, 2012, which is available on SEDAR at www.sedar.com.




Additional Information

The financial statements and additional information regarding the Company, including the Company’s Annual Information Form, are available on SEDAR at www.sedar.com.

NAMIBIA RARE EARTHS INC. – UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS PAGE 16

NOTICE TO READER

Under National Instrument 51‐102 “Continuous Disclosure Obligations”, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed consolidated interim financial statements, they must be accompanied by a notice to this effect. The accompanying unaudited condensed consolidated interim financial statements of Namibia Rare Earths Inc. have been prepared by management. Management have compiled the condensed consolidated interim statements of financial position of Namibia Rare Earths Inc. as at February 28, 2013 and November 30, 2012, the condensed consolidated interim statements of net and comprehensive loss for the three months ended February 28, 2013 and February 29, 2012, the condensed consolidated interim statements of changes in equity as at February 28, 2013 and February 29, 2012, and the condensed consolidated interim statements of cash flows for the three months ended February 28, 2013 and February 29, 2012. The Company's independent auditors have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of these condensed consolidated interim financial statements. Readers are cautioned that these statements may not be appropriate for their intended purposes.

Namibia Rare Earths Inc. Unaudited Condensed Consolidated Interim Statements of Financial Position As at (in Canadian dollars)

NAMIBIA RARE EARTHS INC. – UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 17

Nature of operations and going concern (Note 1) Commitments (Note 9)

See accompanying notes to the condensed consolidated interim financial statements.

February 28 2013

$

November 302012

$ Assets Current assets Cash 15,145,703 16,683,126Taxes and other receivables 441,276 749,231Deposits and prepaid expenses 80,589 201,963 15,667,568 17,634,320 Equipment 75,215 94,441 Exploration and evaluation assets (note 4) 14,532,127 13,862,198

Total Assets 30,274,910 31,590,959 Liabilities Current liabilities Accounts payable and accrued liabilities 398,230 1,156,269

Total Liabilities 398,230 1,156,269 Equity Total Equity 29,876,680 30,434,690

Total Liabilities and Equity 30,274,910 31,590,959

Namibia Rare Earths Inc. Unaudited Condensed Consolidated Interim Statements of Loss and Comprehensive Loss For the three months ended February 28, 2013 and February 29, 2012 (in Canadian dollars)


PAGE 18


2013 2012

$ $

Administration Expenses

Salaries and benefits 211,226 234,384

Shareholder communications 109,285 85,230

Professional fees 8,693 33,354

Office and administration 55,018 60,526

Consulting fees 57,372 41,551

Travel 140,462 48,642

Listing and filing fees 44,329 13,902

Share‐based payments ‐ 65,200

Depreciation 761 761

Total administration expenses 627,146 583,550

Loss before other items (627,146) (583,550)

Other income

Interest income 45,237 63,148

Foreign currency exchange gain 23,899 12,924

Total other income 69,136 76,072

Net and comprehensive loss for the period (558,010) (507,478)

Loss per share ‐ Basic and diluted (0.01) (0.01)

Weighted average number of shares outstanding – Basic and diluted 77,828,500 77,828,500


Unaudited Condensed Consolidated Interim Statements of Changes in Equity For the three months ended (in Canadian dollars)


PAGE 19


Common Shares Without Par Value

Share‐based Payments Reserve

Warrants Reserve

Deficit

Total Equity

Number $ $ $ $ $

Balance, November 30, 2012 77,828,500 36,146,334 4,278,800 983,600 (10,974,044) 30,434,690

Net and comprehensive loss ‐ ‐ ‐ ‐ (558,010) (558,010)

Balance, February 28, 2013 77,828,500 36,146,334 4,278,800 983,600 (11,532,054) 29,876,680

Common Shares Without Par Value

Share‐based Payments Reserve

Warrants Reserve

Deficit

Total Equity

Number $ $ $ $ $

Balance, November 30, 2011 77,828,500 36,146,334 2,915,600 2,281,600 (7,598,394) 33,745,140

Share‐based payments ‐ ‐ 65,200 ‐ ‐ 65,200

Net and comprehensive loss ‐ ‐ ‐ ‐ (507,478) (507,478)

Balance, February 29, 2012 77,828,500 36,146,334 2,980,800 2,281,600 (8,105,872) 33,302,862


Unaudited Condensed Consolidated Interim Statements of Cash Flows For the three months ended February 28, 2013 and February 29, 2012 (in Canadian dollars)


PAGE 20


2013 2012

$ $ Cash provided by (used in)

Operating activities

Net loss for the period (558,010) (507,478)

Adjustments for:

Foreign currency exchange gain (23,899) (12,941)

Interest income recognized in net loss (47,153) (71,327)

Share‐based payments ‐ 65,200

Depreciation 761 761

(628,301) (525,785)

Net change in non‐cash working capital balances related to operations

Decrease (increase) in amounts receivable, deposits and prepaids 441,504 (102,128)

Decrease in accounts payable and accrued liabilities (634,639) (453,336)

(821,436) (1,081,249)

Investing activities

Interest income received 47,153 71,327

Expenditures on exploration and evaluation assets (778,022) (919,085)

(730,869) (847,758)

Effect of exchange rate changes on cash 14,882 8,486

Net change in cash during the period (1,537,423) (1,920,521)

Cash – Beginning of period 16,683,126 24,523,002

Cash – End of period 15,145,703 22,602,481

Supplemental cash flow information (note 8)


Notes to Unaudited Condensed Consolidated Interim Financial Statements For the three months ended February 28, 2013 and February 29, 2012 (in Canadian dollars)


1. Nature of operations and going concern Namibia Rare Earths Inc. (the “Company”) was incorporated pursuant to the Canada Business Corporations Act on April 26, 2010 for the purpose of acquiring ownership of the rare earth assets held by Endeavour Resources Inc. (“ERI”), (formerly Etruscan Resources Inc., a publicly‐traded entity, now a wholly‐owned subsidiary of Endeavour Mining Corporation). The Company is a public company listed on the Toronto Stock Exchange (the “TSX”), trading under the “NRE” symbol and in the United States on the OTCQX International under the ticker symbol NMREF. The address of the Company’s corporate office and principal place of business is Suite 306, 1597 Bedford Highway, Halifax, Nova Scotia, Canada. On April 30, 2010, ERI transferred all of its inter‐corporate debt and equity interest in its wholly‐owned subsidiary Etruscan Resources Namibia (Pty) Ltd., a Namibia‐based company holding its rare earth assets, to the Company and its wholly owned subsidiary Cayman Namibia Rare Earth Ltd. in exchange for 30 million common shares of the Company. There was no substantive change in ownership. The Company is in the business of exploring and developing rare earth properties in Namibia. The amount shown as exploration and evaluation assets, all of which are located in Namibia, represents costs net of recoveries to date, less amounts amortized and written off, and do not necessarily represent present or future values. The Company has not yet determined whether its exploration and evaluation assets contain economically recoverable reserves. The recoverability of the amounts shown for exploration and evaluation assets is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of the properties, and future profitable production or proceeds of disposition thereof. These condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business as the liabilities come due. The Company has reported losses to date and at February 28, 2013 has an accumulated deficit of $11,532,054. Whether and when the Company can attain profitability is uncertain. These uncertainties cast significant doubt upon the Company’s ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon rare earths prices, successful results from its mineral property acquisitions and exploration activities, its ability to maintain title and beneficial interest in the mineral properties, and its ability to raise additional financing. The outcome of these matters cannot be predicted at this time. These condensed consolidated interim financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material.

2. Basis of Preparation a) Statement of Compliance

These unaudited condensed consolidated interim financial statements, including comparative figures, have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the IFRS Interpretations Committee (“IFRIC”). These condensed consolidated interim financial statements were authorized for issue by the Audit Committee of the Board of Directors on April 9, 2013.

b) Basis of Measurement

These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for fair value through profit or loss financial assets and share‐based payments which are measured at fair value, using the accrual basis of accounting.

c) Basis of Consolidation

These condensed consolidated interim financial statements include the accounts of the Company’s wholly‐owned subsidiary, Cayman Namibia Rare Earths Ltd., incorporated under the laws of the Cayman Islands, and its wholly‐owned subsidiary, Namibia




Rare Earths (Pty.) Ltd., incorporated under the laws of Namibia. All inter‐company balances and transactions are eliminated upon consolidation.

3. Significant Accounting Policies

These condensed consolidated interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes for the year ended November 30, 2012. These condensed consolidated interim financial statements have been prepared using the same accounting policies and judgments and estimates as described in the Company’s November 30, 2012 annual consolidated financial statements. Certain prior period comparatives have been reclassified to conform with the current period’s presentation. Accounting Standards Issued But Not Yet Effective

The following standards are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted, unless otherwise disclosed. The Company is assessing the impact of these new standards, but does not expect them to have a significant impact on the consolidated financial statements.

IFRS 9, Financial instruments, introduces new requirements for the classification, measurement and derecognition of financial instruments. Specifically, IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value. IFRS 9 is effective for annual periods beginning on or after January 1, 2015, with earlier application permitted.

IFRS 10, Consolidated financial statements, requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC‐12, Consolidation – Special Purpose Entities and parts of IAS 27, Consolidated and Separate Financial Statements.

IFRS 11, Joint arrangements, requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venture will recognize its share of the assets, liabilities revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionally consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures.

IFRS 12, Disclosure of interests in other entities, establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities.

IFRS 13, Fair value measurement, is a comprehensive standard for fair value measurement and disclosure requirements across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.

International Accounting Standard 27, Separate Financial Statements (“IAS 27”), replaces IAS 27, Consolidated and Separate Financial Statements and contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9.

International Accounting Standard 28, Investments in Associates and Joint Ventures (“IAS 28”), has been amended as a consequence of the issuance of IFRS 10, IFRS 11, and IFRS 12, and will further provide accounting guidance for investments in associates and will set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. This standard will be applied by the Company when there is joint control or significant influence over an investee.




IFRS Interpretations Committee Interpretation 20, Stripping costs in the production phase of a surface mine (“IFRIC 20”), sets out the criteria for the capitalization of production stripping costs to non‐current assets, and states that stripping activity is recognized as a component of the larger asset to which it relates. In addition, IFRC 20 requires companies to ensure that capitalized costs are amortized over the useful life of the component of the ore body to which access has been improved due to the stripping activity.

International Accounting Standard 32, Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (“IAS 32”), clarifies the application of the offsetting requirements. The amendments are effective for annual periods beginning on or after January 1, 2014, with earlier application permitted.

Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) outlines new disclosure requirements that enable users of the financial statements to better compare financial statements prepared in accordance with IFRS and US Generally Accepted Accounting Principles.

4. Exploration and evaluation assets

Property description

Balance Nov. 30, 2012

$

Acquisitions and expenditures during

the period $

Write‐downs during the

period $

Balance

Feb. 28, 2013$

Lofdal rare earths property 13,764,464 482,498 ‐ 14,246,962

Other mineral properties 97,734 187,431 ‐ 285,165

13,862,198 669,929 ‐ 14,532,127

Lofdal rare earths property

The Lofdal rare earths property comprises an exclusive prospecting license (“EPL 3400”) located approximately 450 kilometres northwest of the capital city of Windhoek and 25 kilometres northwest of the town of Khorixas in the Kunene Region of north‐western Namibia. EPL 3400, which provides for mineral rights to base and rare metals, and precious metals, was originally granted in 2005. It was renewed by the Government of Namibia in November, 2012 and is in good standing until November, 2014, after which it may be renewed at the discretion of the Minister of Mines for Namibia. The property is subject to a 2% net smelter revenue royalty.

Other mineral properties

The Company holds mineral rights, or has applications pending, on four other exclusive prospecting licenses in Namibia.

5. Capital stock

Authorized capital stock

An unlimited number of common shares without nominal or par value.

Issued and outstanding

At February 28, 2013, there were 77,828,500 common shares issued and outstanding. Warrants

The following table summarizes information about common share purchase warrants issued and outstanding as at February 28, 2013:

Expiry Date Exercise price

$ Number

April 14, 2013 0.80 2,156,250




Stock option plan The Company has a stock option plan providing for the issuance of options equal to up to 10% of the outstanding shares. The Company may grant options to its directors, officers, employees, consultants and management company employees. The exercise price of each option cannot be lower than the market price of the shares at the date of grant of the option. The number of shares optioned to insiders may not exceed 10% of the issued and outstanding shares at the date of grant. The options are generally exercisable immediately for up to a ten‐year period from the date of grant. The following tables summarize information about options outstanding at February 28, 2013:

Exercise price $

Options outstanding and exercisable Expiry date

Remaining contractual life

(in years)

0.80 2,875,000 April 14, 2016 3.120.82 300,000 April 26, 2016 3.160.72 1,300,000 June 12, 2016 3.280.56 525,000 November 2, 2016 3.670.41 200,000 February 23, 2017 3.98

5,200,000 3.25

6. Capital Disclosures

The Company manages its capital to maintain adequate levels of funding to support the acquisition and exploration of mineral properties and to maintain the necessary corporate and administrative functions to facilitate these activities. The capital structure consists of working capital and equity. The Company raises capital, as necessary, to meet its needs and to take advantage of perceived opportunities and, therefore, does not have a numeric target for its capital structure. The Company invests all capital that is surplus to its immediate operational needs in highly liquid financial instruments such as high interest cash accounts. There were no changes to the Company’s approach to capital management during the three months ended February 28, 2013. Total managed capital was as follows: February 28, 2013

$ November 30, 2012

$

Working capital 15,269,338 16,478,051

Equity 29,876,680 30,434,690

There are no externally imposed capital requirements.

7. Financial Instruments The Company’s financial instruments that are measured at fair value are cash, and fair value is based on Level 1 valuations. The Company’s financial instruments consist of cash, amounts receivable, deposits, and accounts payable and accrued liabilities. Financial assets and financial liabilities are measured on an ongoing basis at fair value or amortized cost. Cash is designated as fair value through profit and loss and measured at fair value. Amounts receivable and deposits are designated as loans and receivables and measured at amortized cost. Accounts payable and accrued liabilities are designated as other financial liabilities and measured at amortized cost. The recorded values of all financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below. Credit risk

The Company’s exposure to credit risk on its cash is limited by maintaining these assets in a high‐interest savings account with a high‐credit quality financial institution.




Liquidity risk

The Company attempts to ensure that there is sufficient capital to meet short‐term business requirements, after taking into account cash required for operations and the Company’s holdings of cash. Market risk

The significant market risk exposures to which the Company is exposed are foreign exchange risk, interest rate risk and commodity price risk. Foreign exchange risk

Certain of the Company’s expenditures are denominated in Namibia dollars (which are equal to the South African rand), US dollars, British Pounds and Euros. The Company’s cash, amounts receivable, deposits, and accounts payable and accrued liabilities include amounts denominated in foreign currencies. Accordingly, the results of the Company’s operations are subject to currency transaction risk and currency translation risk. At February 28, 2013, the Company had the following amounts denominated in the above currencies and converted to Canadian dollars: $407,032 in cash, $51,488 in deposits, $303,116 in taxes receivable, and $254,549 in accounts payable. A ten percent change in the exchange rates would impact the Company’s working capital by less than $75,000. The operating results and financial position of the Company are reported in Canadian dollars in the Company’s condensed consolidated interim financial statements. The fluctuation of the Canadian dollar primarily in relation to other currencies, primarily the Namibian dollar, will consequently have an impact on the profitability of the Company and the value of the Company’s assets and equity. The Company does not currently undertake any hedging activities to mitigate foreign exchange risk. Interest rate risk

In respect of financial assets, the Company’s policy is to invest cash at floating rates of interest. Cash reserves are maintained in cash or cash equivalents to maintain liquidity while achieving a satisfactory return for shareholders. Fluctuations in interest rates therefore impact the value of cash. Commodity price risk

The value of the Company’s mineral resource properties is highly dependent on the market prices of certain rare earth elements and the outlook for these prices. Rare earth elements prices historically have fluctuated widely and are affected by numerous factors outside of the Company’s control, including, but not limited to, industrial and retail demand, speculators, levels of worldwide production, short‐term changes in supply and demand and other factors.

8. Supplemental cash flow information

During the three months ended February 28, 2013, the Company incurred expenditures on exploration and evaluation assets of $126,558 which were recorded as a decrease in accounts payable (2012 ‐ $318,392 recorded as an increase in accounts payable) and $18,465 (2012 ‐ $17,367) in amortization of equipment which was recorded to exploration and evaluation assets. These items are non‐cash transactions and have been excluded from the statements of cash flows.

9. Commitments

The Company has a lease commitment for office space expiring on August 31, 2014. Remaining minimum lease payments to the end of the lease are as follows:

$ November 30, 2013 68,625 August 31, 2014 68,625 137,250

10. Segmented Reporting

The company has one reportable operating segment, being that of acquisition, exploration and evaluation activities.

Namibia Rare Earths Inc

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