LEASES

9 Months Ended

Sep. 30, 2023

LEASES

LEASES

9. LEASES

The Company’s lease portfolio consists of an operating lease for the corporate office (the “office lease”) and other small operating and finance leases for office equipment in the Alabama office.  In May 2023, the office lease was extended for an additional three years, effective August 2023.  The Company accounted for the lease extension as a lease modification.  The office lease includes an option to extend the lease term for an additional three years, however, the renewal option and any option to terminate is not reasonably certain as of September 30, 2023. Under our office lease, a component of our payment is to cover our proportion of the building’s operating expenses.  Because these amounts are related to common area maintenance of the leased space, they are considered a non-lease component and are not included in the measurement of the right-of-use asset and related lease liability, but rather expensed in the period incurred.  The remaining lease terms for the office equipment leases ranges from 2.6 to 3.8 years.

The Company is party to several leases that have terms that are less than a year in length. These include leases for land used in exploration activities, office equipment, machinery, office space, storage and other. The Company has elected the short-term lease exemption allowed under the new leasing standards, whereby leases with initial terms of one year or less are not capitalized and instead expensed on a straight-line basis over the lease term. In addition, the Company holds several leases related to mineral exploration and production to which it has not applied the new leasing standard. Leases to explore or use minerals and similar nonregenerative resources are specifically excluded by ASC 842, “Leases.”

The right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities were

recognized at the commencement date of the lease based on the present value of lease payments over the lease term using discount rates that range from 3.00% to 12.00%.  These rates are either implicit within the lease contract or reflected at the Company’s estimated incremental borrowing rate at the lease commencement dates.

For equipment leases that contain a variable lease component, the variable payment is typically based upon the amount of use of the leased equipment.  For our office lease, the variable lease payment is based on the Company’s estimated portion of the total operating expenses of the building.

The components of lease cost are as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(thousands of dollars)	2023		2022		2023		2022
Operating lease cost	$	38	$	38	$	117		115
Finance lease cost
Amortization of right-of-use assets		1		—		7		—
Interest on lease liabilities		—		—		1		—
Total finance lease cost		1		—		8		—
Variable lease costs		5		3		16		10
Lease cost	$	44	$	41	$	141	$	125

Supplemental cash flow information related to the Company’s leases are as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(thousands of dollars)	2023		2022		2023		2022
Cash paid for amounts included in lease liabilities:
Operating cash flows from operating leases	$	29	$	40	$	105	$	115
Operating cash flows from finance leases	$	—	$	—	$	1	$	—
Financing cash flows from finance leases	$	—	$	—	$	7	$	—

Weighted-average remaining lease term and discount rate for the Company’s operating lease are as follows:

	Operating Leases		Finance Leases
Weighted average remaining lease term (in years)	2.8		3.8
Weighted average discount rate	11.8	%	3.0	%

Maturities of lease liabilities for the Company’s leases is as follows:

Lease Payments by Year
(in thousands)	Operating Leases		Finance Leases
2023 (remainder of year)	$	37	$	2
2024		147		6
2025		150		6
2026		88		6
2027		—		3
Total lease payments		422		23
Less imputed interest		(58)		(2)
Total	$	364	$	21

As of September 30, 2023, the Company has $0.4 million in right-of-use assets and $0.4 million in related lease liabilities ($0.1 million of which is current). The most significant operating lease is for the Company’s corporate office in

Centennial, Colorado, with $0.4 million remaining in undiscounted cash payments through the end of the lease term in 2026.

As of September 30, 2023, the Company has entered into certain leases that have not yet commenced.  Each of the leases relate to equipment to be used at the Kellyton Graphite Plant and will commence in the last quarter of 2023 with lease terms of 5 years.  The net present value of such leases is $1.1 million.