UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017September 30, 2022
¨OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 333-150028
BUNKER HILL MINING CORP.
(Exact Name of Registrant as Specified in its Charter)
nevada | 32-0196442 | |
(State of other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
82 Richmond Street East | ||
Toronto, Ontario, Canada | M5C 1P1 | |
(Address of Principal Executive Offices) | (Zip Code) |
(416)477-7771
(Registrant’s Telephone Number, including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 13 OR 15(d)12(b) OF THE ACT: None
SECURITIES EXCHANGE ACTREGISTERED PURSUANT TO SECTION 12(g) OF 1934THE ACT: None
Commission File Number:333-150028
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
BUNKER HILL MINING CORP.
(FORMERLY LIBERTY SILVER CORP.)Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
(Exact name of registrant as specified in its charter)
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Indicate by check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes¨ ☒ No ☐
Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes¨ ☒ No ☐
to this Form 10-Q. ☒
Indicate by check mark whether the Registrantregistrant is¨ a large accelerated filer,¨ an accelerated file,¨filer, a non-accelerated filer,x a smaller reporting company (as definedor an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act) or¨ an emerging growth companyAct.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer☒ | Smaller reporting company ☒ |
Emerging Growth Company ☐ |
Indicate by check mark whether the Registrant is a shell company, (asas defined in Rule 12b-2 of the Exchange Act)Act. Yes ☐ No ☒
¨ Yes x No
AsNumber of February 19, 2018, the Issuer had 33,013,715 shares of common stock issued and outstanding.Common Stock outstanding as of November 4, 2022:
TABLE OF CONTENTS
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PART I -– FINANCIAL INFORMATION
ITEMItem 1. Financial Statements
FINANCIAL STATEMENTS
The condensed interim consolidated financial statements of Bunker Hill Mining Corp. (formerly Liberty Silver Corp.), (“Bunker Hill”, the “Company”, or the “Registrant”) a Nevada corporation, included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission. Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company'sCompany’s Form 10-K for the fiscal year ended June 30, 2017,December 31, 2021, and all amendments thereto.
BUNKER HILL MINING CORP. (FORMERLY LIBERTY SILVER CORP.)
INTERIM CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 2017
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Bunker Hill Mining Corp.
Condensed Interim Consolidated Balance Sheets
(Expressed in United States Dollars)
Unaudited
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 103,833 | $ | 486,063 | ||||
Restricted Cash (note 6) | 9,476,000 | - | ||||||
Accounts receivable and prepaid expenses (note 6) | 1,208,109 | 413,443 | ||||||
Short-term deposit (note 3) | 1,000,000 | 68,939 | ||||||
Prepaid mine deposit and acquisition costs (note 5) | - | 2,260,463 | ||||||
Prepaid finance costs | - | 393,640 | ||||||
Total current assets | 11,787,942 | 3,622,548 | ||||||
Non-current assets | ||||||||
Spare parts inventory | 341,004 | - | ||||||
Equipment (note 3) | 593,588 | 396,894 | ||||||
Right-of-use assets (note 4) | - | 52,353 | ||||||
Bunker Hill Mine and mining interests (note 5) | 14,805,360 | 1 | ||||||
Process plant (note 3) | 6,058,694 | - | ||||||
Total assets | $ | 33,586,588 | $ | 4,071,796 | ||||
EQUITY AND LIABILITIES | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 2,877,593 | $ | 1,312,062 | ||||
Accrued liabilities | 1,694,461 | 869,581 | ||||||
EPA water treatment payable (note 6) | 3,847,141 | 5,110,706 | ||||||
Interest payable (notes 6 and 7) | 1,156,195 | 409,242 | ||||||
DSU liability (note 12) | 363,648 | 1,531,409 | ||||||
Promissory notes payable (note 7) | 1,500,000 | 2,500,000 | ||||||
EPA cost recovery payable - short-term (note 6) | - | 11,000,000 | ||||||
Current portion of lease liability (note 8) | - | 62,277 | ||||||
Total current liabilities | 11,439,038 | 22,795,277 | ||||||
Non-current liabilities | ||||||||
Series 1 convertible debenture (note 7) | 4,892,435 | - | ||||||
Series 2 convertible debenture (note 7) | 12,710,097 | - | ||||||
Royalty convertible debenture (note 7) | 7,359,776 | - | ||||||
EPA cost recovery liability - long-term, net of discount (note 6) | 7,420,024 | - | ||||||
Derivative warrant liability (note 9) | 4,500,387 | 15,518,887 | ||||||
Total liabilities | 48,321,757 | 38,314,164 | ||||||
Shareholders’ Deficiency | ||||||||
Preferred shares, $ | par value, preferred shares authorized; preferred shares issued and outstanding (note 9)- | - | ||||||
Common shares, $ | par value, common shares authorized; and common shares issued and outstanding, respectively (note 9)219 | 164 | ||||||
Additional paid-in-capital (note 9) | 43,894,878 | 38,248,618 | ||||||
Accumulated other comprehensive income (note 7) | 996,636 | - | ||||||
Deficit accumulated during the exploration stage | (59,626,902 | ) | (72,491,150 | ) | ||||
Total shareholders’ deficiency | (14,735,169 | ) | (34,242,368 | ) | ||||
Total shareholders’ deficiency and liabilities | $ | 33,586,588 | $ | 4,071,796 |
The accompanying notes are an integral part of these unaudited condensed interim condensed consolidated financial statements,
4 |
Bunker Hill Mining Corp.
Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.) Interim Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | |||||
| For the Three Months ended December 31, | For the Six Months ended December 31, | |||
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| 2017 | 2016 | 2017 | 2016 |
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| $ | $ | $ | $ |
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Revenue | --- | --- | --- | --- | |
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Operating expenses |
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| Operation and administration | 845,097 | 24,057 | 1,055,054 | 77,308 |
| Legal and accounting | 188,563 | 19,419 | 260,638 | 30,193 |
| Lease payments and exploration | 2,168,676 | 73,788 | 2,174,892 | 81,734 |
| Consulting | 265,123 | 25,000 | 385,155 | 25,000 |
Total operating expenses | 3,467,459 | 142,264 | 3,875,739 | 214,235 | |
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Loss from operations | (3,467,459) | (142,264) | (3,875,739) | (214,235) | |
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Other income or gain (expense or loss) |
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| Change in derivative liability | 449,149 | --- | 449,149 | --- |
| Gain (loss) on foreign exchange | 26,401 | 2,496 | 32,394 | 649 |
| Interest expense | --- | (31,459) | --- | (76,150) |
Total other income or gain (expense or loss) | 475,550 | (28,963) | 481,543 | (75,501) | |
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Loss before income tax | (2,991,909) | (171,227) | (3,394,196) | (289,736) | |
Provision for income taxes | --- | --- | --- | --- | |
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Net loss and comprehensive loss | (2,991,909) | (171,277) | (3,394,196) | (289,736) | |
Loss per common share – basic and fully diluted | (0.11) | (0.01) | (0.13) | (0.02) | |
Weighted average common shares – basic and fully diluted | 27,176,344 | 12,354,497 | 26,026,621 | 12,354,497 | |
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Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Expressed in United States Dollars)
The accompanying notes are an integral part of these interim unaudited financial statementsUnaudited
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating expenses | ||||||||||||||||
Operation and administration | $ | 150,910 | $ | 221,451 | $ | 587,514 | $ | 1,506,859 | ||||||||
Exploration | - | 1,465,157 | - | 8,677,194 | ||||||||||||
Mine preparation | 2,533,101 | - | 6,861,403 | - | ||||||||||||
Legal and accounting | 210,960 | 335,431 | 975,014 | 872,647 | ||||||||||||
Consulting | 929,977 | 442,906 | 4,867,553 | 1,327,774 | ||||||||||||
Loss from operations | (3,824,948 | ) | (2,464,945 | ) | (13,291,484 | ) | (12,384,474 | ) | ||||||||
Other income or gain (expense or loss) | ||||||||||||||||
Change in derivative liability (note 9) | 7,315,161 | 6,460,513 | 18,538,380 | 22,172,679 | ||||||||||||
Gain (loss) on foreign exchange | (12,453 | ) | (26,719 | ) | (233,777 | ) | 119,655 | |||||||||
Gain on fair value of convertible debentures | 1,301,069 | - | 3,041,056 | - | ||||||||||||
Gain on EPA debt extinguishment (note 6) | - | - | 8,614,103 | - | ||||||||||||
Interest expense | (1,026,233 | ) | (8,219 | ) | (2,143,840 | ) | (8,219 | ) | ||||||||
Debenture finance costs | (64,054 | ) | - | (1,230,539 | ) | - | ||||||||||
Finance costs | - | - | (455,653 | ) | - | |||||||||||
Other income | 1,811 | - | 26,002 | - | ||||||||||||
Loss on debt settlement | - | - | - | (56,146 | ) | |||||||||||
Net income for the period | $ | 3,690,353 | $ | 3,960,630 | $ | 12,864,248 | $ | 9,843,495 | ||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Gain on change in FV on own credit risk | 625,050 | - | 996,636 | - | ||||||||||||
Other comprehensive income | 625,050 | - | 996,636 | - | ||||||||||||
Comprehensive income | $ | 4,315,403 | $ | 3,960,630 | $ | 13,860,884 | $ | 9,843,495 | ||||||||
Net income per common share – basic | $ | 0.02 | $ | 0.02 | $ | 0.07 | $ | 0.06 | ||||||||
Net income per common share – fully diluted | $ | 0.01 | $ | 0.02 | $ | 0.05 | $ | 0.06 | ||||||||
Weighted average common shares – basic | 219,466,235 | 164,179,999 | 198,364,188 | 160,690,371 | ||||||||||||
Weighted average common shares – fully diluted | 318,204,510 | 164,329,999 | 250,681,393 | 160,840,371 |
The accompanying notes are an integral part of these unaudited condensed interim condensed consolidated financial statements
statements.
5 |
Bunker Hill Mining Corp.
Condensed Interim Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
Unaudited
Nine Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Operating activities | ||||||||
Net income (loss) for the period | $ | 12,864,248 | $ | 9,843,495 | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | (300,475 | ) | 793,357 | |||||
Depreciation expense | 172,259 | 178,744 | ||||||
Change in derivative liability | (18,538,380 | ) | (22,172,679 | ) | ||||
Units issued for services | 1,060,858 | - | ||||||
Imputed interest expense on lease liability | 1,834 | 10,632 | ||||||
Interest expense | 2,143,840 | 8,219 | ||||||
Finance costs | 264,435 | - | ||||||
Foreign exchange loss (gain) | 233,059 | - | ||||||
Foreign exchange loss (gain) on re-translation of lease (Note 8) | 718 | 1,434 | ||||||
Loss on debt settlement | - | 56,146 | ||||||
Amortization of EPA discount | 631,701 | - | ||||||
Gain on fair value of convertible debt derivatives | (3,041,056 | ) | - | |||||
Gain on EPA debt extinguishment | (8,614,103 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Restricted cash | (9,476,000 | ) | - | |||||
Accounts receivable | (81,618 | ) | (13,632 | ) | ||||
Deposit on plant demobilization | (1,000,000 | ) | - | |||||
Prepaid finance costs | 393,640 | - | ||||||
Prepaid expenses | (1,064,109 | ) | 72,933 | |||||
Accounts payable | 947,699 | 606,056 | ||||||
Accrued liabilities | 526,322 | 1,243,042 | ||||||
Accrued EPA water treatment | (903,565 | ) | - | |||||
EPA cost recovery payable | (2,000,000 | ) | - | |||||
Interest payable – EPA | (113,579 | ) | - | |||||
Interest payable | (639,402 | ) | - | |||||
Net cash used in operating activities | (26,531,674 | ) | (9,372,253 | ) | ||||
Investing activities | ||||||||
Purchase of spare inventory | (341,004 | ) | - | |||||
Land purchase | (202,000 | ) | - | |||||
Bunker Hill mine purchase | (5,524,322 | ) | - | |||||
Mine improvements | (356,149 | ) | - | |||||
Purchase of Process plant | (2,815,398 | ) | - | |||||
Purchase of machinery and equipment | (316,600 | ) | (94,693 | ) | ||||
Net cash used in investing activities | (9,555,473 | ) | (94,693 | ) | ||||
Financing activities | ||||||||
Proceeds from convertible debentures | 29,000,000 | - | ||||||
Proceeds from issuance of shares, net of issue costs | 7,769,745 | 6,008,672 | ||||||
Proceeds from promissory note | - | 2,500,000 | ||||||
Repayment of promissory note | (1,000,000 | ) | - | |||||
Lease payments | (64,828 | ) | (97,138 | ) | ||||
Net cash provided by financing activities | 35,704,917 | 8,411,534 | ||||||
Net change in cash | (382,230 | ) | (1,055,412 | ) | ||||
Cash, beginning of period | 486,063 | 3,568,661 | ||||||
Cash, end of period | $ | 103,833 | $ | 2,513,249 | ||||
Supplemental disclosures | ||||||||
Non-cash activities | ||||||||
Units issued to settle accounts payable and accrued liabilities | $ | 228,421 | $ | 188,607 | ||||
Units issued to settle interest payable | 643,906 | - | ||||||
Mill purchase for shares and warrants | 3,243,296 | - | ||||||
Units issued to settle DSU/RSU/Bonuses | 872,399 | - |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
6 |
Bunker Hill Mining Corp.
Condensed Interim Consolidated Statements of Changes in Shareholders’ Deficiency
(Expressed in United States Dollars)
Unaudited
Accumulated | ||||||||||||||||||||||||||||
Additional | Stock | other | ||||||||||||||||||||||||||
Common stock | paid-in- | subscriptions | comprehensive | Accumulated | ||||||||||||||||||||||||
Shares | Amount | capital | payable | loss | deficit | Total | ||||||||||||||||||||||
Balance, December 31, 2021 | 164,435,442 | $ | 164 | $ | 38,248,618 | $ | - | $ | - | $ | (72,491,150 | ) | $ | (34,242,368 | ) | |||||||||||||
Stock-based compensation | - | - | 145,186 | - | - | - | 145,186 | |||||||||||||||||||||
Stock subscription payable | - | - | - | 1,775,790 | - | - | 1,775,790 | |||||||||||||||||||||
Net loss for the period | - | - | - | - | - | (2,880,886 | ) | (2,880,886 | ) | |||||||||||||||||||
Balance, March 31, 2022 | 164,435,442 | $ | 164 | $ | 38,393,804 | $ | 1,775,790 | $ | - | $ | (75,372,036 | ) | $ | (35,202,278 | ) | |||||||||||||
Stock-based compensation | - | - | 15,922 | - | - | - | 15,922 | |||||||||||||||||||||
Compensation options | - | - | 264,435 | - | - | - | 264,435 | |||||||||||||||||||||
Shares issued for interest payable | 1,315,857 | 1 | 269,749 | - | - | - | 269,750 | |||||||||||||||||||||
Shares issued for RSUs vested | 933,750 | 1 | (1 | ) | - | - | - | - | ||||||||||||||||||||
Non brokered shares issued for C$ | 1,471,664 | 1 | 352,854 | - | - | - | 352,855 | |||||||||||||||||||||
Special warrant shares issued for C$ | 37,849,325 | 38 | 9,083,719 | (1,775,790 | ) | - | - | 7,307,967 | ||||||||||||||||||||
Contractor shares issued for C$ | 1,218,000 | 1 | 289,999 | - | - | - | 290,000 | |||||||||||||||||||||
Shares issued for Process plant purchase | 10,416,667 | 10 | 1,970,254 | - | - | - | 1,970,264 | |||||||||||||||||||||
Shares issued @ $0.32 per share | ||||||||||||||||||||||||||||
Shares issued @ $0.32 per share, shares | ||||||||||||||||||||||||||||
Shares issued for debt settlement at $0.45 | ||||||||||||||||||||||||||||
Shares issued for debt settlement at $0.45, shares | ||||||||||||||||||||||||||||
Issue costs | - | - | (896,009 | ) | - | - | - | (896,009 | ) | |||||||||||||||||||
Warrant valuation | - | - | (6,246,848 | ) | - | - | - | (6,246,848 | ) | |||||||||||||||||||
Gain on fair value from change in credit risk | - | - | - | - | 371,586 | - | 371,586 | |||||||||||||||||||||
Net income for the period | - | - | - | - | - | 12,054,781 | 12,054,781 | |||||||||||||||||||||
Balance, June 30, 2022 | 217,640,705 | $ | 216 | $ | 43,497,878 | $ | - | $ | 371,586 | $ | (63,317,255 | ) | $ | (19,447,575 | ) | |||||||||||||
Stock-based compensation | - | - | 27,369 | - | - | - | 27,369 | |||||||||||||||||||||
Shares issued for RSUs vested | 33,000 | 1 | (1 | ) | - | - | - | - | ||||||||||||||||||||
Issue costs | - | - | (4,522 | ) | - | - | - | (4,522 | ) | |||||||||||||||||||
Shares issued for interest payable | 1,975,482 | 2 | 374,154 | - | - | - | 374,156 | |||||||||||||||||||||
Gain on fair value from change in credit risk | - | - | - | - | 625,050 | - | 625,050 | |||||||||||||||||||||
Net income for the period | - | - | - | - | - | 3,690,353 | 3,690,353 | |||||||||||||||||||||
Balance, September 30, 2022 | 219,649,187 | $ | 219 | $ | 43,894,878 | $ | - | $ | 996,636 | $ | (59,626,902 | ) | $ | (14,735,169 | ) | |||||||||||||
Balance, December 31, 2020 | 143,117,068 | $ | 143 | $ | 34,551,133 | $ | - | $ | - | $ | (66,088,873 | ) | $ | (31,537,597 | ) | |||||||||||||
Stock-based compensation | - | - | 620,063 | - | - | - | 620,063 | |||||||||||||||||||||
Shares issued at C $ | per share19,576,360 | 20 | 6,168,049 | - | - | - | 6,168,069 | |||||||||||||||||||||
Shares issued for debt settlement at C$ | 417,720 | - | 188,145 | - | - | - | 188,145 | |||||||||||||||||||||
Shares issued for RSUs vested | 437,332 | - | - | - | - | - | - | |||||||||||||||||||||
Issue costs | - | - | (159,397 | ) | - | - | - | (159,397 | ) | |||||||||||||||||||
Warrant valuation | - | - | (3,813,103 | ) | - | - | - | (3,813,103 | ) | |||||||||||||||||||
Net income for the period | - | - | - | - | - | 5,837,809 | 5,837,809 | |||||||||||||||||||||
Balance, March 31, 2021 | 163,548,480 | $ | 163 | $ | 37,554,890 | $ | - | $ | - | $ | (60,251,064 | ) | $ | (22,696,011 | ) | |||||||||||||
Stock-based compensation | - | - | 280,720 | - | - | - | 280,720 | |||||||||||||||||||||
Shares issued for RSUs vested | 233,057 | - | - | - | - | - | - | |||||||||||||||||||||
Net income for the period | - | - | - | - | - | 45,056 | 45,056 | |||||||||||||||||||||
Balance, June 30, 2021 | 163,781,537 | $ | 163 | $ | 37,835,610 | $ | - | $ | - | $ | (60,206,008 | ) | $ | (22,370,235 | ) | |||||||||||||
Beginning balance, value | 163,781,537 | 163 | 37,835,610 | - | - | (60,206,008) | (22,370,235) | |||||||||||||||||||||
Stock-based compensation | - | - | 323,538 | - | - | - | 323,538 | |||||||||||||||||||||
Shares issued for RSUs vested | 653,905 | 1 | (1 | ) | - | - | - | - | ||||||||||||||||||||
Net income for the period | - | - | - | - | - | 3,960,630 | 3,960,630 | |||||||||||||||||||||
Net income (loss) | - | - | - | - | - | 3,960,630 | 3,960,630 | |||||||||||||||||||||
Balance, September 30, 2021 | 164,435,442 | $ | 164 | $ | 38,159,147 | $ | - | $ | - | $ | (56,245,378 | ) | $ | (18,086,067 | ) | |||||||||||||
Ending balance, value | 164,435,442 | $ | 164 | $ | 38,159,147 | $ | - | $ | - | $ | (56,245,378) | $ | (18,086,067) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
7 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
1. Nature and Continuance of Operations and Going Concern
Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.)
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the Six Months Ended December 31, 2017
Note 1 – Basis of Presentation and Going Concern
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, shareholders’ equity or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the annual audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the year ended June 30, 2017. The interim results for the period ended December 31, 2017 are not necessarily indicative of the results for the full fiscal year. The interim unaudited condensed consolidated financial statements are presented in USD, which is the functional currency.
These unaudited interim condensed consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $21,837,898 and further losses are anticipated in the development of its business. The ability of the Company to emerge from the exploration stage is dependent upon, among other things, obtaining additional financing to continue operations, explore and develop the mineral properties and the discovery, development, and sale of reserves. In order to continue to meet its plans and fiscal obligations in the current fiscal year and beyond, the Company must seek additional financing. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The accompanying unaudited condensed consolidated interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management is considering various financing alternatives including, but not limited to, raising capital through the capital markets and debt financing. These interim condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. The ability of the Company to emerge from the exploration stage is dependent upon, among other things, obtaining additional financing to continue operations, explore and develop the mineral properties and the discovery, development, and sale of reserves. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Note 2 – Nature of Operations
Bunker Hill Mining Corp. (formerly Liberty Silver Corp.) (the “Company” or “Bunker”) was incorporated under the laws of the state of Nevada U.S.A, U.S.A. on February 20, 2007, under the name Lincoln Mining Corp. Pursuant to a Certificate of Amendment dated February 11, 2010, the Company changed its name to Liberty Silver Corp., and on September 29, 2017, the Company changed its name to Bunker Hill Mining Corp. The Company’s registered office is located at 1802 N. Carson Street, Suite 212, Carson City, Nevada 89701, and its head office is located at 401 Bay82 Richmond Street Suite 2702,East, Toronto, Ontario, Canada, M5H 2Y4, and its telephone number is 888-749-4916.M5C 1P1. As of the date of this Form 10-K,10-Q, the Company had two subsidiaries, Bunker Hill Operating LLC, a Colorado corporation that is currently dormant, andone subsidiary, Silver Valley Metals Corp. (“Silver Valley”, formerly American Zinc.Zinc Corp.), an Idaho corporation created to facilitate the work being conducted at the Bunker Hill Mine in Kellogg, Idaho.
The Company was incorporated for the purpose of engaging in mineral exploration activities. It continues to work at developing its projectsproject with a view towards putting themit into production.
Going Concern:
These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $59,626,902 and further losses are anticipated in the development of its business. Additionally, the Company owes a total of $3,847,141 to the Environmental Protection Agency (“EPA”) (see Note 6) for water treatment that is classified as current. The Company also owes a total of $7,420,024, net of discount, to the EPA that is classified as long-term debt. The Company does not have sufficient cash to fund normal operations and meet debt obligations for the next 12 months without deferring payment on certain current liabilities and/or raising additional funds. In order to continue to meet its fiscal obligations in the current fiscal year and beyond, the Company must seek additional financing. This raises substantial doubt about the Company’s ability to continue as a going concern. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The accompanying unaudited condensed interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management is considering various financing alternatives including, but not limited to, raising capital through the capital markets, debt, and closing on the multi-metals stream transaction (see note 7). These unaudited condensed interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
COVID-19:
The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of epidemics, pandemics, or other health crises, including the recent outbreak of respiratory illness caused by the novel coronavirus (“COVID-19”). Although the pandemic has subsided significantly, the Company cannot accurately predict the impact a COVID-19 resurgence would have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations.
The Russia/Ukraine Crisis:
The Company’s operations could be adversely affected by the effects of the Russia/Ukraine crisis and the effects of sanctions imposed against Russia or that country’s retributions against those sanctions, embargos or further-reaching impacts upon energy prices, food prices and market disruptions. The Company cannot accurately predict the impact the crisis will have on its operations and the ability of contractors to meet their obligations with the Company, including uncertainties relating the severity of its effects, the duration of the conflict, and the length and magnitude of energy bans, embargos and restrictions imposed by governments. In addition, the crisis could adversely affect the economies and financial markets of the United States in general, resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations. Additionally, the Company cannot predict changes in precious metals pricing or changes in commodities pricing which may alternately affect the Company either positively or negatively.
8 |
Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.)
Notes to Unauditedthe Condensed Interim Condensed Consolidated Financial Statements (Unaudited)
For the SixThree and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
2. Basis of Presentation
The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, shareholders’ deficiency, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the annual audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the year ended December 31, 20172021. The financial results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the full fiscal year. The unaudited interim condensed consolidated financial statements are presented in United States dollars, which is the Company’s functional currency.
3. Plant & Equipment
Equipment consists of the following:
Schedule of Equipment
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Equipment | $ | 920,571 | $ | 603,972 | ||||
Equipment, gross | 920,571 | 603,972 | ||||||
Less accumulated depreciation | (326,983 | ) | (207,078 | ) | ||||
Equipment, net | $ | 593,588 | $ | 396,894 |
The total depreciation expense for equipment during the three and nine months ended September 30, 2022 was $42,814 and $119,905, respectively. Compared to the three and nine months ended September 30, 2021 was $34,565 and $98,961, respectively. See Note 3 - Mining Interests4 for additional depreciation on the right-of-use asset.
Process Plant Purchase from Teck Resources Limited
On May 13, 2022, the Company completed purchase of a comprehensive package of equipment and parts inventory from Teck Resources Limited (“Teck”). The package comprises substantially all processing equipment of value located at the Pend Oreille mine site, including complete crushing, grinding and flotation circuits suitable for a planned ~1,500 ton-per-day operation at the Bunker Hill Mine Complexsite, and total inventory of nearly 10,000 components and parts for mill, assay lab, conveyer, field instruments, and electrical spares.
- | The purchase of the mill has been valued at: |
- | Cash consideration given, comprised of $500,000 nonrefundable deposit remitted on January 7, 2022 and $231,000 sales tax remitted on May 13, 2022, a total of $731,000 cash remitted. | |
- | Value of common shares issued on May 13, 2022 at the market price of that day, a value of $ . | |
- | Fair value of the warrants issued together with the inputs, as determined by a binomial model, resulted in a fair value of $1,273,032. See note 9. | |
- | As a result, the total value of the mill purchase was determined to be $3,974,296. |
9 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
The process plant was purchased in an assembled state in the seller’s location, and included major processing systems, significant components, and a large inventory of spare parts. The Company has disassembled and transported it to the Bunker Hill site, and will be reassembling it as an integral part of the Company’s future operations. The Company determined that the transaction should be accounted for as an asset acquisition, with the process plant representing a single asset, with the exception of the inventory of spare parts, which has been separated out and appears on the balance sheet as a current asset in accordance with a preliminary purchase price allocation. As the plant is demobilized, transported and reassembled, installation and other costs associated with these activities will be captured and capitalized as components of the asset.
At September 30, 2022, the asset consists of the following:
Schedule of Plant Asset Consists
September 30, 2022 | ||||
Deposit paid | $ | 500,000 | ||
Sales tax paid | 231,000 | |||
Value of shares issued | 1,970,264 | |||
Value of warrants issued | 1,273,032 | |||
Total plant & inventory purchased | 3,974,296 | |||
Site preparation costs | 619,172 | |||
Demobilization | 1,806,229 | |||
Less spare parts inventory | (341,003 | ) | ||
Pend Oreille plant asset, net | $ | 6,058,694 |
Additionally, at September 30, 2022, the Company has paid a refundable deposit of $1,000,000 to Teck as security while demobilization activities are ongoing. This is classified as a short-term deposit on the balance sheet.
Ball Mill upgrade
On November 27, 2016,August 30, 2022, the Company entered into an agreement to purchase a non-binding letterball mill from D’Angelo International LLC for $675,000. The purchase of intent with Placerthe mill is to be made in three cash payments:
$100,000 by September 15, 2022 as a non-refundable deposit (paid)
$100,000 by October 15, 2022 (paid)
$475,000 by December 15, 2022
At September 30, 2022, the Company paid $100,000 towards the purchase as a non-refundable deposit.
4. Right-of-Use Asset
Right-of-use asset consists of the following:
Schedule of Right-of-use Asset
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Office lease | $ | 319,133 | 319,133 | |||||
Less accumulated depreciation | (319,133 | ) | (266,780 | ) | ||||
Right-of-use asset, net | $ | - | $ | 52,353 |
The total depreciation expense for the right-of-use asset during the three and nine months ended September 30, 2022 was $nil and $52,353, respectively. Compared to the three and nine months ended September 30, 2021 was $26,594 and $79,783, respectively.
10 |
Bunker Hill Mining Corp. (“Placer Mining”), which letter of intent was further amended on March 29, 2017,
Notes to acquirethe Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
5. Mining Interests
Bunker Hill Mine Complex
The Company purchased the Bunker Hill Mine located(the “Mine”) in Kellogg, Idaho, inJanuary 2022, as described below.
Prior to purchasing the Coeur d’Alene Basin (the “Letter of Intent”). Pursuant to the terms and conditions of the Letter of Intent, the acquisition, which was subject to due diligence, would include all mining claims, surface rights, fee parcels, mineral interests, existing infrastructure, machinery and buildings at the Kellogg Tunnel portal in Milo Gulch, or anywhere underground at the Bunker Hill Mine, Complex. The acquisition would also include all current and historic data relating to the Bunker Hill Mine Complex, such as drill logs, reports, maps, and similar information located at the mine site or any other location.
The Company made certain payments totaling $300,000 as part of this Letter of Intent. During the quarter ended September 30, 2017, additional payments totaling $200,000 were made to extend the negotiation period. On August 28, 2017, the Company announced that it signedhad entered into a definitive agreement (the “Agreement”series of agreements with Placer Mining Corporation (“Placer Mining”), the prior owner, for the lease and option to purchase the Mine. The first of these agreements was announced on August 28, 2017, with subsequent amendments and/or extensions announced on November 1, 2019, July 7, 2020, and November 20, 2020.
Under the terms of the November 20, 2020 amended agreement (the “Amended Agreement”), a purchase price of $7,700,000 was agreed, with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price of the Mine as having been previously paid by the Company) and $2,000,000 in Common Shares of the Company. The Company agreed to make an advance payment of $2,000,000, credited towards the purchase price of the Mine, which had the effect of decreasing the remaining amount payable to purchase the Mine to an aggregate of $3,400,000 payable in cash and $2,000,000 in Common Shares of the Company.
The Amended Agreement also required payments pursuant to an agreement with the EPA whereby for so long as the Company leases, owns and/or occupies the Mine, the Company would make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for historical water treatment cost recovery in accordance with the Settlement Agreement reached with the EPA in 2018. Immediately prior to the purchase of the Mine, the Company’s liability to EPA in this regard totaled $11,000,000. (See also Note 6 Environmental Protection Agency Agreement and Water Treatment Liabilities).
The Company completed the purchase of the Mine on January 7, 2022. The terms of the purchase price were modified to $5,400,000 in cash, from $3,400,000 of cash and $2,000,000 of Common Shares. Concurrent with the purchase of the Mine, the Company assumed incremental liabilities of $8,000,000 to the EPA, consistent with the terms of the amended Settlement Agreement with the EPA that was executed in December 2021 (see “EPA Settlement Agreement” section below).
The $5,400,000 contract cash paid at purchase was the $7,700,000 less the $2,000,000 deposit and $300,000 credit given by the seller for prior years’ maintenance payments. The carrying cost of the Mine is comprised of the following:
Schedule of Mining Interests
January 7, | ||||
2022 | ||||
Contract purchase price | $ | 7,700,000 | ||
Less: Credit by seller for prior maintenance payments | (300,000 | ) | ||
Net present value of water treatment cost recovery liability assumed | 6,402,425 | |||
Closing costs capitalized | 2,638 | |||
Mine acquisition costs - legal | 442,147 | |||
Total carrying cost of mine | $ | 14,247,210 |
Management has determined the purchase to be an acquisition of a single asset as guided by ASU 805-10. During the three and nine months ended September 30, 2022, the Company has spent an additional $356,149 and $356,149, respectively, in mine improvements.
Land Purchase
On March 3, 2022, the Company purchased a 225-acre surface land parcel for $202,000 which includes the surface rights to portions of 24 patented mining claims, for which the Company already owns the mineral rights.
6. Environmental Protection Agency Agreement and Water Treatment Liabilities
Historical Cost Recovery Payables
As a part of the lease of the Mine, the Company was required to make payments pursuant to an agreement with the Environmental Protection Agency (the “EPA”) whereby for so long as the Company leases, owns and/or occupies the Mine, the Company was required to make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for cost recovery related to historical treatment costs paid by the EPA from 1995 to 2017. These payments, if all are made, will total $20,000,000. The agreement called for payments starting with $1,000,000 30 days after a fully ratified agreement was signed (which payment was made) followed by $2,000,000 on November 1, 2018, and $3,000,000 on each of the next five anniversaries with a final $2,000,000 payment on November 1, 2024. The November 1, 2018, November 1, 2019, November 1, 2020, and November 1, 2021, payments were not made. As a result, a total of $11,000,000 was outstanding as of December 31, 2021, accounted for within current liabilities. As the purchase of the Bunker Hill Mine assets (the “Bunker Assets”)(see note 5). All payments related(which would trigger the immediate recognition of the remaining liabilities due through November 1, 2024) had not yet taken place, the remaining $8,000,000 cost recovery liabilities were not recognized on the Company’s balance sheet as of December 31, 2021.
11 |
Bunker Hill Mining Corp.
Notes to the lease are being expensed untilCondensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
Through 2021, the option is exercisedCompany engaged in discussions with the EPA to reschedule these payments in ways that enable the sustainable operation of the Mine as a viable long-term business.
Effective December 19, 2021, the Company entered into an amended Settlement Agreement between the Company, Idaho Department of Environmental Quality, US Department of Justice, and the $500,000 previously capitalized hasEPA (the “Amended Settlement”). Upon the effectivity of the Amended Settlement, the Company would become fully compliant with its payment obligations to these parties. The Amended Settlement modified the payment schedule and payment terms for recovery of the aforementioned historical environmental response costs. Pursuant to the terms of the Amended Settlement, upon purchase of the Bunker Hill Mine and the satisfaction of financial assurance commitments (as described below), the $19,000,000 of cost recovery liabilities will be paid by the Company to the EPA on the following dates:
Schedule of Amended Settlement Environmental Protection Agency Agreement
Date | Amount | |||
Within 30 days of Settlement Agreement | $ | 2,000,000 | ||
November 1, 2024 | $ | 3,000,000 | ||
November 1, 2025 | $ | 3,000,000 | ||
November 1, 2026 | $ | 3,000,000 | ||
November 1, 2027 | $ | 3,000,000 | ||
November 1, 2028 | $ | 3,000,000 | ||
November 1, 2029 | $ | 2,000,000 plus accrued interest |
In addition to the changes in payment terms and schedule, the Amended Settlement included a commitment by the Company to secure $17,000,000 of financial assurance in the form of performance bonds or letters of credit deemed acceptable to the EPA within 180 days from the effective date of the Amended Settlement Agreement. Once put in place, the financial assurance can be drawn on by the EPA in the event of non-performance by the Company of its payment obligations under the Amended Settlement (the “Financial Assurance”). The amount of the bonds will decrease over time as individual payments are made.
The Company completed the purchase of the Mine (see note 5) and made the initial $2,000,000 cost recovery payment on January 7, 2022. Concurrent with the purchase of the Mine, the Company assumed the balance of the EPA liability totaling $17,000,000, an increase of $8,000,000.
As of March 31, 2022, the financial assurance had not yet been expensedsecured, and as such the Company accounted for the $17,000,000 liabilities according to the previous payment schedule, resulting in $12,000,000 classified as a current liability and $5,000,000 as a long-term liability. The long-term portion was discounted at an interest rate of 16.5% to arrive at a net present value of $3,402,425 after discount.
During the quarter ended June 30, 2022, the Company was successful in obtaining the final financial assurance. Specifically, a $9,999,000 payment bond and a $7,001,000 letter of credit were secured and provided to the EPA. This milestone provides for the Company to recognize the effects of the change in terms of the EPA liability as outlined in the December 19, 2021 agreement. Once the financial assurance was put into place, the restructuring of the payment stream under the Amendment occurred with the entire $17,000,000 liability being recognized as long-term in nature. The aforementioned payment bond is secured by a $2,475,000 letter of credit. The $2,475,000 and $7,001,000 letters of credit are secured by $9,476,000 of cash deposits under an agreement with a commercial bank. These cash deposits comprise the $9,476,000 of restricted cash shown within current assets as of September 30, 2022.
Under ASC 470-50, Debt Modifications and Extinguishments, the Company performed a comparison of NPV’s of the pre-settlement Cost Recovery obligation to the post-settlement schedule of Cost Recovery obligation to determine this was an extinguishment of debt. The Company recorded a gain on extinguishment of debt totaling $8,614,103. The old debt, including any discount, was written off and the new payment stream of the amended $17,000,000 table, including the new discount of $9,927,590, using the effective interest rate of 19.95%, was recorded to result in a net liability of $7,072,410, which is due long-term. During the three and nine months ended September 30, 2022, the Company recorded combined discount amortization expense of $347,614 and $631,701 on the discounted pre- and post-extinguishment liability, respectively, bringing the net liability to $7,420,024 as of September 30, 2022. As at September 30, 2022 interest of $192,923 ($306,501 at December 31, 2017.2021) is included in interest payable on the condensed consolidated balance sheet.
In November 2017,
12 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
Water Treatment Charges – EPA
Separate to the cost recovery liabilities outlined above, the Company negotiated an extensionis responsible for the payment of ongoing water treatment charges. Water treatment charges incurred through December 31, 2021 are payable to the commencementEPA, and charges thereafter are payable to the Idaho Department of Environmental Quality (“IDEQ”) given a handover of responsibilities for the Central Treatment Plant from the EPA to the IDEQ as of that date. The Company previously estimated a balance due to the EPA of $5,110,706 for ongoing water treatment through December 31, 2021. During the six months ended June 30, 2022, the Company received an invoice from the EPA for water treatment through October 2021. As a result, the Company reversed its previous accruals for this period and adjusted its estimated charges for November and December 2021. Through recent discussions with the EPA, the Company has confirmed that payments to the IDEQ for water treatment charges cannot be netted against invoices payable to the EPA. After taking this into account, the additional invoice received from the EPA, and a $1,000,000 payment made in April 2022, the Company has estimated water treatment payables to the EPA of $3,847,141 as of September 30, 2022 and $5,110,706 at December 31, 2021, which is reflected in current liabilities.
Water Treatment Charges – IDEQ
For water treatment charges beginning January 2022, the Company makes a monthly accrual of $80,000 to cover the IDEQ’s estimated costs of treating water at the water treatment facility. The Company also pays an agreed-upon monthly amount of $140,000, with a true-up to be recorded and credited to or paid by the Company once the actual annual costs are determined each year. At September 30, 2022, the Company has accrued $720,000 for water treatment costs to IDEQ and has prepaid $1,260,000, leaving a net prepaid of $540,000 ($nil at December 31, 2021) which is included in prepaid expenses on the unaudited condensed interim consolidated balance sheet.
7. Promissory Note Payable and Convertible Debentures
On September 22, 2021, the Company issued a non-convertible promissory note in the amount of $2,500,000 bearing interest of 15% per annum and payable at maturity. The promissory note was scheduled to mature on March 15, 2022; however, the note holder agreed to accept $500,000 payment, which the Company paid, by April 15, 2022, and the remaining principal and interest was deferred to June 20, 2022. Prior to the revised maturity of June 20, 2022, the note holder agreed to accept a further $500,000 payment by June 30, 2022, which the Company paid, and the remaining principal and interest was deferred to November 30, 2022. The Company purchased a land parcel for approximately $202,000 on March 3, 2022, which may be used as security for the promissory note. At September 30, 2022, the Company owes $1,500,000 in promissory notes payable, which is included in current liabilities on the condensed consolidated balance sheet. Interest expense for the three and nine months ended September 30, 2022 was $56,712 and $224,589, respectively. For the three and nine months ended September 30, 2021, interest expense was $8,219 and $8,219, respectively. At September 30, 2022 interest of $327,329 ($102,740 at December 31, 2021) is included in interest payable on the condensed consolidated balance sheet.
Project Finance Package with Sprott Private Resource Streaming & Royalty Corp.
On December 20, 2021, the Company executed a non-binding term sheet outlining a $50,000,000 project finance package with Sprott Private Resource Streaming and Royalty Corp. (“SRSR”).
The non-binding term sheet with SRSR outlined a $50,000,000 project financing package that the Company expects to fulfill the majority of its funding requirements to restart the Mine. The term sheet consisted of an $8,000,000 royalty convertible debenture (the “RCD”), a $5,000,000 convertible debenture (the “CD1”), and a multi-metals stream of up to $37,000,000 (the “Stream”). The CD1 was subsequently increased to $6,000,000, increasing the project financing package to $51,000,000.
13 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
On June 17, 2022, the Company consummated a new $15,000,000 convertible debenture (the “CD2”). As a result, total potential funding from SRSR was further increased to $66,000,000 including the RCD, CD1, CD2 and the Stream (together, the “Project Financing Package”).
$8,000,000 Royalty Convertible Debenture (RCD)
The Company closed the $8,000,000 RCD on January 7, 2022. The RCD bears interest at an annual rate of 9.0%, payable in cash or Common Shares at the Company’s option, until such time that SRSR elects to convert a royalty, with such conversion option expiring at the earlier of advancement of the leaseStream or July 7, 2023 (subsequently amended as described below). In the event of conversion, the RCD will cease to afford it timeexist and the Company will grant a royalty for 1.85% of life-of-mine gross revenue from mining claims considered to complete an equity financing (see note 5)be historically worked, contiguous to current accessible underground development, and covered by the Company’s 2021 ground geophysical survey (the “SRSR Royalty”). A 1.35% rate will apply to claims outside of these areas. The RCD was initially secured by a share pledge of the Company’s operating subsidiary, Silver Valley, until a full security package was put in place concurrent with the consummation of the CD1. In the event of non-conversion, the principal of the RCD will be repayable in cash.
Trinity Project
On August 31, 2017,Concurrent with the funding of the CD2 in June 2022, the Company and Renaissance Exploration Inc. signedSRSR agreed to a noticenumber of termination and releaseamendments to the terms of exploration Earn-In Agreement. Upon signing this agreement,the RCD, including an amendment of the maturity date from July 7, 2023 to March 31, 2025. The parties also agreed to enter into a Royalty Put Option such that in the event the RCD is converted into a royalty as described above, the holder of the royalty will be entitled to resell the royalty to the Company for $8,000,000 upon default under the CD1 or CD2 until such time that the CD1 and CD2 are paid in full. The Company determined that the amendments in the terms of the RCD should not be treated as an extinguishment of the RCD, and have therefore been accounted for as a modification as a result of the treatment the Company reported a gain of $607,261 in the statement of operations for the period ended September 30, 2022.
$6,000,000 Series 1 Convertible Debenture (CD1))
The Company closed the $6,000,000 CD1 on January 28, 2022, which was increased from the previously-announced $5,000,000. The CD1 bears interest at an annual rate of 7.5%, payable in cash or shares at the Company’s option, and matures on July 7, 2023 (subsequently amended, as described below). The CD1 is secured by a pledge of the Company’s properties and assets. Until the closing of the Stream, the CD1 was to be convertible into Common Shares at a price of C$0.30 per Common Share, subject to stock exchange approval (subsequently amended, as described below). Alternatively, SRSR may elect to retire the CD1 with the cash proceeds from the Stream. The Company may elect to repay the CD1 early; if SRSR elects not to exercise its conversion option at such time, a minimum of 12 months of interest would apply.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the CD1, including that the maturity date would be amended from July 7, 2023 to March 31, 2025, and that the CD1 would remain outstanding until the new maturity date regardless of whether the Stream is advanced, unless the Company elects to exercise its option of early repayment. The Company determined that the amendments in the terms of the RCD should not be treated as an extinguishment of the CD1, and have therefore been accounted for as a modification as a result of the treatment the Company reported a gain of $179,046 in the statement of operations for the period ended September 30, 2022
$15,000,000 Series 2 Convertible Debenture (CD2)
The Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest at an annual rate of 10.5%, payable in cash or shares at the Company’s option, and matures on March 31, 2025. The CD2 is secured by a pledge of the Company’s properties and assets. The repayment terms include 3 quarterly payments of $2,000,000 each beginning June 30, 2024 and $9,000,000 on the maturity date.
In light of the Series 2 Convertible Debenture financing, the previously permitted additional senior secured indebtedness of up to $15 million for project finance has terminatedbeen removed.
The Company determined that in accordance with ASC 815, each debenture will be valued and carried as a single instrument, with the March 29, 2010 Earn-In Agreement. periodic changes to fair value accounted through earnings, profit and loss.
Note 4 –
14 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
Consistent with the approach above, the following table summarizes the key valuation inputs as at applicable valuation dates:
Schedule of Key Valuation Inputs
Reference (2)(4) (5) | Valuation date | Maturity date | Contractual Interest rate | Stock price (US$) | Expected equity volatility | Credit spread | Risk-free rate | Risk- adjusted rate | ||||||||||||||||||||
CD1 note (1)(3) | 01-28-22 | 07-07-23 | 7.50 | % | 0.230 | 120 | % | 8.70 | % | 0.92 | % | 16.18 | % | |||||||||||||||
RCD note (stream not advanced scenario) | 01-07-22 | 07-07-23 | 9.00 | % | 0.242 | 130 | % | 9.21 | % | 0.65 | % | 16.39 | % | |||||||||||||||
RCD note (stream advanced) scenario | 01-07-22 | 06-30-22 | 9.00 | % | 0.242 | 130 | % | 9.16 | % | 0.23 | % | 15.96 | % | |||||||||||||||
CD1 note (1)(3) | 03-31-22 | 07-07-23 | 7.50 | % | 0.235 | 120 | % | 8.85 | % | 1.80 | % | 17.12 | % | |||||||||||||||
RCD note (stream not advanced scenario) | 03-31-22 | 07-07-23 | 9.00 | % | 0.235 | 120 | % | 8.85 | % | 1.80 | % | 17.12 | % | |||||||||||||||
RCD note (stream advanced) scenario | 03-31-22 | 06-30-22 | 9.00 | % | 0.235 | 120 | % | 8.78 | % | 0.52 | % | 15.88 | % | |||||||||||||||
CD2 note | 06-17-22 | 03-31-25 | 10.50 | % | 0.222 | 120 | % | 9.45 | % | 3.28 | % | 20.95 | % | |||||||||||||||
CD2 note | 06-30-22 | 03-31-25 | 10.50 | % | 0.225 | 120 | % | 10.71 | % | 2.95 | % | 21.78 | % | |||||||||||||||
CD1 note | 06-30-22 | 03-31-25 | 7.50 | % | 0.233 | 120 | % | 10.71 | % | 2.95 | % | 19.89 | % | |||||||||||||||
RCD note (stream not advanced scenario) | 06-30-22 | 03-31-25 | 9.00 | % | 120 | % | 10.71 | % | 2.95 | % | 19.89 | % | ||||||||||||||||
RCD note (stream advanced) scenario | 06-30-22 | 09-30-22 | 9.00 | % | 120 | % | 10.85 | % | 1.72 | % | 18.89 | % | ||||||||||||||||
CD1 note | 09-30-22 | 03-31-25 | 7.50 | % | 0.085 | 120 | % | 13.31 | % | 4.19 | % | 23.35 | % | |||||||||||||||
RCD note (stream not advanced) | 09-30-22 | 03-31-25 | 9.00 | % | 0.085 | 120 | % | 13.31 | % | 4.19 | % | 23.35 | % | |||||||||||||||
RCD note (stream advanced) | 09-30-22 | 11-30-22 | 9.00 | % | 0.085 | 120 | % | 13.85 | % | 3.04 | % | 22.79 | % | |||||||||||||||
CD2 note | 09-30-22 | 03-31-25 | 10.50 | % | 0.085 | 120 | % | 13.31 | % | 4.19 | % | 25.21 | % |
(1) | The CD’s carries a Discount for Lack of Marketability (“DLOM”) of 5.0%. | |
(2) | CD1 and RCD carry an instrument-specific spread of 7.23%, CD2 carries an instrument-specific spread of 9.32% | |
(3) | The conversion price of the CD1 is $0.219 and CD2 is $0.212 | |
(4) | A project risk rate of 13.0% was used for all scenarios of the RCD fair value computations | |
(5) | The probabilities for the stream being advanced and the stream not being advanced is 59% and 41%, respectively. |
The resulting fair values of the CD1, RCD, and CD2 at the issuance dates, June 30, 2022, and as of September 30, 2022 were as follows:
Schedule of Fair Value Derivative Liability
Instrument Description | Issuance date CD1 and RCD | Issuance date CD2 | March 31, 2022 | June 30, 2022 | September 30, 2022 | |||||||||||||||
CD1 | $ | 6,320,807 | $ | - | $ | 6,303,567 | $ | 5,633,253 | $ | 4,892,435 | ||||||||||
RCD | 7,679,193 | - | 7,886,743 | 7,078,596 | 7,359,776 | |||||||||||||||
CD2 | - | 15,000,000 | - | 14,176,578 | 12,710,097 | |||||||||||||||
Total | $ | 14,000,000 | $ | 15,000,000 | $ | 14,190,310 | $ | 26,888,427 | $ | 24,962,308 |
The total gain on fair value of debentures recognized during the three and nine months ended September 30, 2022 was $1,301,069 and $3,041,056, respectively. The portion of changes in fair value that is attributable to changes in the Company’s credit risk is accounted for within other comprehensive income. During the three and nine months ended September, 2022, the Company recognized $625,050 and $996,636, respectively, within other comprehensive income.
The Company performs quarterly testing of the covenants in the RCD, CD1 and CD2, and was in compliance with all such covenants as of September 30, 2022.
15 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
The Stream
A minimum of $27,000,000 and a maximum of $37,000,000 (the “Stream Amount”) will be made available under the Stream, at the Company’s option, once the conditions of availability of the Stream have been satisfied, including confirmation of full project funding by an independent engineer appointed by SRSR. If the Company draws the maximum funding of $37,000,000, the Stream would apply to 10% of payable metals sold until a minimum quantity of metal is delivered consisting of, individually, 55 million pounds of zinc, 35 million pounds of lead, and 1 million ounces of silver (subsequently amended, as described below). Thereafter, the Stream would apply to 2% of payable metals sold. If the Company elects to draw less than $37,000,000 under the Stream, the percentage and quantities of payable metals streamed will adjust pro-rata. The delivery price of streamed metals will be 20% of the applicable spot price. The Company may buy back 50% of the Stream Amount at a 1.40x multiple of the Stream Amount between the second and third anniversary of the date of funding, and at a 1.65x multiple of the Stream Amount between the third and fourth anniversary of the date of funding. As of September 30, 2022, the Stream had not been advanced.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed that the minimum quantity of metal delivered under the Stream, if advanced, will increase by 10% relative to the amounts noted above.
8. Lease Liability
The Company had an operating lease for office space that expired in May 2022. Below is a summary of the Company’s lease liability as of September 30, 2022:
Schedule of Operating Lease Liability
Office lease | ||||
Balance, December 31, 2020 | $ | 176,607 | ||
Addition | - | |||
Interest expense | 12,696 | |||
Lease payments | (129,191 | ) | ||
Foreign exchange loss | 2,165 | |||
Balance, December 31, 2021 | 62,277 | |||
Addition | - | |||
Interest expense | 1,834 | |||
Lease payments | (64,828 | ) | ||
Foreign exchange loss | 717 | |||
Balance, September 30, 2022 | $ | - |
9. Capital Stock, Warrants and WarrantsStock Options
Authorized
Authorized
The total authorized capital is as follows:
-
● | An increase to common shares, as approved in the July 29, 2022 annual meeting of shareholders, with a par value of $ per common share; and | |
● | preferred shares with a par value of $ per preferred share |
300,000,000 common shares with a par value of $0.001 per common share; and
-
10,000,000 preferred shares with a par value of $0.001 per preferred share
Issued and outstanding
In December 2017, Bunker announced that itFebruary 2021, the Company closed a non-brokered private placement led by Red Cloud Klondike Strike Inc. and including Haywood Securities Inc. (collectively,of units of the “Agents”Company (the “February 2021 Offering”), issuing units of the Company (“February 2021 Units”) to raiseat C$ per February 2021 Unit for gross proceeds of C$10,155,400 (the “Offering”$6,168,069 (C$7,830,544). Pursuant to the Offering, the Company issued 8,124,320 units (the "Units") at a price of C$1.25 per Unit. Each February 2021 Unit was comprisedconsisted of one common share of the Company (a "Common Share") and one half of one transferable common share purchase warrant (a "Warrant"of the Company (each, “February 2021 Warrant”), each Warrant having a three-year life and entitlingwhich entitles the holder thereof to acquire a common share of the Company at C$ per common share for a period of five years. In connection with the February 2021 Offering, the Company incurred share issuance costs of $154,630 and issued compensation options (the “February 2021 Compensation Options”). Each February 2021 Compensation Option is exercisable into one Common ShareFebruary 2021 Unit at an exercise price of C$ for a period of three years.
16 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
The Company also issued 132,000 of accrued liabilities at a deemed price of $0.45 based on the fair value of the units issued. As a result, the Company recorded a loss on debt settlement of $56,146. February 2021 Units to settle $
In April 2022, the Company closed a private placement of 9,384,622 (C$11,796,297). Related parties, including management, directors, and consultants, participated in the Special Warrant private placement for a total of shares (included in the total above). Special Warrants and a non-brokered private placement of units of the Company for aggregate gross proceeds of approximately $
The Special Warrants were issued at a price of C$2.00. per special warrant. Each Special Warrant shall be automatically exercisable (without payment of any further consideration and subject to customary anti-dilution adjustments) into one unit of the Company (a “Brokered Unit”) on the date that is the earlier of: (i) the date that is three (3) business days following the date on which the Company has obtained both (A) a receipt from the Canadian security commission in each of the each of the provinces of Canada which the purchasers and Agents (as defined herein) are residents where the Special Warrants are sold (the “Qualifying Jurisdictions”) for a (final) short-form prospectus qualifying the distribution of the common stock of the Company (“Common Shares”) and common stock purchase warrants of the Company (the “Warrants”) issuable upon exercise of the Special Warrants (the “Qualification Prospectus”); and (B) notification that the registration statement, under U.S. securities laws, of the Company filed with the United States Securities and Exchange Commission (the “SEC”) has been declared effective by the SEC (the “Registration Statement”); and (ii) the date that is six months following April 1, 2022 (the “Closing Date”). Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one common share for C$ until April 1, 2025. The warrants shall also be exercisable on a cashless basis in the event the Registration Statement has not been made effective by the SEC prior to the date of exercise.
On May 31, 2022, the Company announced that it had received a receipt from the Ontario Securities Commission for its final short-form Canadian prospectus qualifying the distribution of the common stock of the Company and common stock purchase warrants of the Company issuable upon exercise of the special warrants of the Company that were issued on April 1, 2022. The Company also announced that it received notice from the United States Securities and Exchange Commission that its Form S-1 has been declared effective as of May 27, 2022. As a result of obtaining the receipt for the Canadian prospectus and the declaration of effectiveness for the Form S-1, each unexercised Special Warrant was automatically exercised into one Common Share and one Warrant without further action on the part of the holders.
The non-brokered units were issued at a price of C$ per unit. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$ until April 1, 2025.
In connection with the special warrants offering, the agents earned a cash commission in the amount of C$563,968 and compensation options exercisable to acquire an aggregate of units of the Company at C$ a unit until April 1, 2024. Each compensation unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$ until April 1, 2024.
In April 2022, the Company issued common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ended March 31, 2022.
In May 2022, the Company issued units to Teck Resources Limited in consideration towards the purchase of the Pend Oreille Processing Plant at C$ per unit. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$ until May 13, 2025.
In June 2022, the Company issued units to contractors for bonuses accrued during the three months ended March 31, 2022. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$ until April 1, 2025.
In July 2022, the Company issued common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ended June 30, 2022.
17 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
For each financing, the Company has accounted for the warrant liabilitywarrants in accordance with ASC Topic 815. TheseThe warrants are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the USU.S. dollar. The estimated fair value of warrants accounted for as liabilities was determined on the date of issue and marks to market at each financial reporting period. The change in fair value of the warrant is recorded in the unaudited condensed interim consolidated statementstatements of operationsincome and comprehensive lossincome as a gain or loss and is estimated using the Binomial model.
The warrant liabilities as a result of the June 2019, August 2019, August 2020, February 2021, April 2022 special warrants, April 2022 non-brokered, May 2022 Teck purchase, and June 2022 contractor private placements were revalued as at September 30, 2022, issuance date in 2022, and December 31, 2021 using the Binomial model and the following assumptions:
Schedule of Estimated Using the Binomial Model to Determine the Fair Value of Warrant Liabilities
April 2022 special warrants issuance | September 30, 2022 | April 1, 2022 | ||||||
Expected life | 914 days | 1,096 days | ||||||
Volatility | 120 | % | 120 | % | ||||
Risk free interest rate | 3.72 | % | 2.35 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.29 | ||||
Fair value | $ | 1,488,348 | $ | 5,947,232 | ||||
Change in derivative liability | $ | (4,458,884 | ) | $ | - |
April 2022 non-brokered issuance | September 30, 2022 | April 1, 2022 | ||||||
Expected life | 914 days | 1,096 days | ||||||
Volatility | 120 | % | 120 | % | ||||
Risk free interest rate | 3.72 | % | 2.35 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.29 | ||||
Fair value | $ | 57,869 | $ | 186,190 | ||||
Change in derivative liability | $ | (128,321 | ) | $ | - |
May 2022 Teck issuance | September 30, 2022 | May 13, 2022 | ||||||
Expected life | 956 days | 1,096 days | ||||||
Volatility | 120 | % | 120 | % | ||||
Risk free interest rate | 3.72 | % | 2.68 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.25 | ||||
Fair value | $ | 424,053 | $ | 1,273,032 | ||||
Change in derivative liability | $ | (848,979 | ) | $ | - |
June 2022 issuance | September 30, 2022 | June 30, 2022 | ||||||
Expected life | 914 days | 1,006 days | ||||||
Volatility | 120 | % | 120 | % | ||||
Risk free interest rate | 3.72 | % | 3.14 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.20 | ||||
Fair value | $ | 47,895 | $ | 113,425 | ||||
Change in derivative liability | $ | (65,530 | ) | $ | - |
18 |
Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.)
Notes to Unauditedthe Condensed Interim Condensed Consolidated Financial Statements (Unaudited)
For the SixThree and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
February 2021 issuance | September 30, 2022 | December 31, 2021 | ||||||
Expected life | 1,228 days | 1,501 days | ||||||
Volatility | 120 | % | 100 | % | ||||
Risk free interest rate | 3.72 | % | 1.25 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.37 | ||||
Fair value | $ | 829,987 | $ | 3,483,745 | ||||
Change in derivative liability | $ | (2,653,758 | ) | $ | (329,358 | ) |
August 2020 issuance | September 30, 2022 | December 31, 2021 | ||||||
Expected life | 335 days | 608 days | ||||||
Volatility | 120 | % | 100 | % | ||||
Risk free interest rate | 3.79 | % | 0.95 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.37 | ||||
Fair value | $ | 484,745 | $ | 6,790,163 | ||||
Change in derivative liability | $ | (6,305,419 | ) | $ | (7,703,052) |
June 2019 issuance (i) | September 30, 2022 | December 31, 2021 | ||||||
Expected life | 1,188 days | 1,461 days | ||||||
Volatility | 120 | % | 100 | % | ||||
Risk free interest rate | 3.72 | % | 1.02 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.37 | ||||
Fair value | $ | 460,207 | $ | 2,067,493 | ||||
Change in derivative liability | $ | (1,607,286 | ) | $ | (1,371,346) |
(i) | During the six months ended December 31, 2020, the Company amended the exercise price to C$December 31, 2025 for 11,660,000 warrants. per common share and extended the expiry date to |
August 2019 issuance (ii) | September 30, 2022 | December 31, 2021 | ||||||
Expected life | 1,188 days | 1,461 days | ||||||
Volatility | 120 | % | 100 | % | ||||
Risk free interest rate | 3.72 | % | 1.02 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.115 | $ | 0.37 | ||||
Fair value | $ | 707,282 | $ | 3,177,485 | ||||
Change in derivative liability | $ | (2,470,203 | ) | $ | (2,744,785) |
(ii) | During the six months ended December 31, 2020, the Company amended the exercise price to C$December 31, 2025 for 17,920,000 warrants. The terms of the remaining 2,752,900 warrants remain unchanged. per common share and extended the expiry date to |
Warrants
Schedule of Warrant Activity
Weighted | Weighted | |||||||||||
average | average | |||||||||||
Number of | exercise price | grant date | ||||||||||
warrants | (C$) | value ($) | ||||||||||
Balance, December 31, 2020 | 95,777,806 | $ | 0.54 | $ | 0.08 | |||||||
Issued | 19,994,080 | 0.60 | 0.19 | |||||||||
Expired | (2,913,308 | ) | 0.48 | 0.14 | ||||||||
Balance, September 30, 2021 | 112,858,578 | $ | 0.55 | $ | 0.19 | |||||||
Balance, December 31, 2021 | 111,412,712 | $ | 0.54 | $ | 0.18 | |||||||
Issued | 50,955,636 | 0.37 | 0.15 | |||||||||
Expired | (239,284 | ) | 0.70 | 0.21 | ||||||||
Balance, September 30, 2022 | 162,129,064 | $ | 0.49 | $ | 0.17 |
During the nine months ended September 30, 2022, February 2020 broker warrants expired.
19 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
At September 30, 2022, the following warrants were outstanding:
Schedule of Warrants Outstanding Exercise Price
Number of | ||||||||||||
Exercise | Number of | warrants | ||||||||||
Expiry date | price (C$) | warrants | exercisable | |||||||||
August 31, 2023 | 0.50 | 58,284,148 | 58,284,148 | |||||||||
December 31, 2025 | 0.59 | 32,895,200 | 32,895,200 | |||||||||
February 9, 2026 | 0.60 | 17,112,500 | 17,112,500 | |||||||||
February 16, 2026 | 0.60 | 2,881,580 | 2,881,580 | |||||||||
April 1, 2025 | 0.37 | 40,358,969 | 40,358,969 | |||||||||
May 13, 2025 | 0.37 | 10,416,667 | 10,416,667 | |||||||||
162,129,064 | 162,129,064 |
Compensation options
At September 30, 2022, the following compensation options were outstanding:
Schedule of Compensation Options
Weighted | ||||||||
Number of | average | |||||||
compensation | exercise price | |||||||
options | (C$) | |||||||
Issued - August 2020 Compensation Options | 3,239,907 | $ | 0.35 | |||||
Balance, December 31, 2020 | 3,239,907 | 0.35 | ||||||
Issued – February 2021 Compensation Options | 351,000 | 0.35 | ||||||
Balance, December 31, 2021 | 3,590,907 | 0.35 | ||||||
Issued – April 2022 Compensation Options | 1,879,892 | 0.30 | ||||||
Balance, September 30, 2022 | 5,470,799 | $ | 0.34 |
The grant date fair value of the August 2020 and February 2021, and April 2022 Compensation Options were estimated at $ , $ and $ respectively, using the Black-Scholes valuation model with the following underlying assumptions:
Schedule of Estimated Using Black-Scholes Valuation Model for Fair Value of Broker Options
Grant Date | Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | ||||||||||||||
August 2020 | 0.31 | % | 0 | % | 100 | % | C$ | years | |||||||||||
February 2021 | 0.26 | % | 0 | % | 100 | % | C$ | years | |||||||||||
April 2022 | 2.34 | % | 0 | % | 100 | % | C$ | years |
Schedule of Broker Exercise Prices
Exercise | Number of | Fair value | ||||||||||
Expiry date | price (C$) | broker options | ($) | |||||||||
August 31, 2023 (i) | $ | 0.35 | 3,239,907 | $ | 521,993 | |||||||
February 16, 2024 (ii) | $ | 0.40 | 351,000 | $ | 68,078 | |||||||
April 1, 2024 (iii) | $ | 0.30 | 1,879,892 | $ | 264,435 | |||||||
5,470,799 | $ | 854,506 |
(i) | Exercisable into one August 2020 Unit |
(ii) | Exercisable into one February 2021 Unit |
(iii) | Exercisable into one April 2022 Unit |
20 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
Stock options
Schedule of Stock Options
Weighted | ||||||||
average | ||||||||
Number of | exercise price | |||||||
stock options | (C$) | |||||||
Balance, December 31, 2020 | 8,015,159 | $ | 0.62 | |||||
Granted (i) | 1,037,977 | 0.34 | ||||||
Balance, December 31, 2021 | 9,053,136 | $ | 0.58 | |||||
Granted (ii) | 300,000 | 0.15 | ||||||
Expired May 01, 2022 | (47,500 | ) | ||||||
Balance, September 30, 2022 | 9,305,636 | $ | 0.52 |
(i) | On February 19, 2021, stock options were issued to an officer of the Company, of which stock options vested immediately and the balance of stock options vested on December 31, 2021. These options have a -year life and are exercisable at C$ per common share. The grant date fair value of the options was estimated at $ . The vesting of these options resulted in stock-based compensation of $nil for the three and nine months ended September 30, 2022, compared to $ and $ for the three and nine months ended September 30, 2021, respectively, which is included in operation and administration expenses on the consolidated statements of income (loss) and comprehensive income (loss). | |
(ii) | On August 24, 2022, stock options were issued to an employee of the Company, of which vested immediately and the remaining balance of outstanding options to vest equally over the next two anniversaries of the grant date. These options have a -year life and are exercisable at C$ per common share. The grant fair value of the options was estimated at $ . The vesting of these options resulted in stock-based compensation of $ for the three and nine months ended September 30, 2022, which is included in the operation and administration expense of the consolidated statements of income (loss) and comprehensive income (loss). |
Schedule of Estimated Using Black-Scholes Valuation Model for Fair value of Stock Options
Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | |||||||||||||||||
(i) | % | % | % | C$ | years |
(ii) | On August 24, 2022, stock options were issued to an employee of the Company, of which stock options vested immediately and the balance of stock options will vest equally over two years on the anniversary date of issuance. These options have a -year life and are exercisable at C$ per common share. The grant date fair value of the options was estimated at $ . The vesting of these options resulted in stock-based compensation of $ for the period ended September 30, 2022, which is included in operation and administration expenses on the consolidated statements of income (loss) and comprehensive income (loss). |
The fair value of these stock options was determined on the date of grant using the Black-Scholes valuation model, and using the following underlying assumptions:
Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | |||||||||||||||||
(ii) | % | % | % | C$ | years |
20 |
Schedule of Actual Stock Options Issued and Outstanding
Number of | ||||||||||||||||||
remaining | Number of | options | ||||||||||||||||
Exercise | contractual | options | vested | Grant date | ||||||||||||||
price (C$) | life (years) | outstanding | (exercisable) | fair value ($) | ||||||||||||||
0.50 | 235,000 | 235,000 | 46,277 | |||||||||||||||
0.60 | 200,000 | 200,000 | 52,909 | |||||||||||||||
0.60 | 1,575,000 | 1,575,000 | 435,069 | |||||||||||||||
0.55 | 5,957,659 | 1,489,415 | 1,536,764 | |||||||||||||||
0.335 | 1,037,977 | 1,037,977 | 204,213 | |||||||||||||||
0.15 | 300,000 | 150,000 | 28,930 | |||||||||||||||
9,305,636 | 4,687,392 | $ | 2,304,162 |
Potentially dilutive securities include convertible loan payable, warrants, broker options, stock options, and unvested restricted share units (“RSU”). Diluted income per share reflects the assumed exercise or conversion of all dilutive securities using the treasury stock method.
Three Months ended September 30, 2022 | Three Months ended September 30, 2021 | Nine Months ended September 30, 2022 | Nine Months ended September 30, 2021 | |||||||||||||
Net income (loss) and comprehensive income (loss) for the period | 4,315,403 | 3,960,630 | 13,860,884 | 9,843,495 | ||||||||||||
Basic income (loss) per share Weighted average number of common shares - basic | 219,466,235 | 164,179,999 | 198,364,188 | 160,690,371 | ||||||||||||
Net income (loss) per share – basic | 0.02 | 0.02 | 0.07 | 0.06 | ||||||||||||
Net income (loss) and comprehensive income (loss) for the period | 4,315,403 | 3,960,630 | 13,860,884 | 9,843,495 | ||||||||||||
Dilutive effect of convertible debentures | (502,389 | ) | - | (1,945,686 | ) | - | ||||||||||
Dilutive effect of warrants on net income | - | - | - | - | ||||||||||||
Diluted net income (loss) and comprehensive income (loss) for the period | 3,813,014 | 3,960,630 | 11,915,198 | 9,843,495 | ||||||||||||
Diluted income (loss) per share | 219,466,234 | 164,179,999 | 198,364,188 | 160,690,371 | ||||||||||||
Weighted average number of common shares - basic | ||||||||||||||||
Diluted effect: | ||||||||||||||||
Warrants, broker options, and stock options, convertible debentures, and RSUs | 98,738,276 | 150,000 | 52,317,205 | 150,000 | ||||||||||||
Weighted average number of common shares - fully diluted | 318,204,510 | 164,329,999 | 250,681,393 | 160,840,371 | ||||||||||||
Net income (loss) per share - fully diluted | 0.01 | 0.02 | 0.05 | 0.06 |
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Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
Effective March 25, 2020, the Board of Directors approved a Restricted Share Unit (“RSU”) Plan to grant RSUs to its officers, directors, key employees, and consultants.
Schedule of Restricted Share Units
Weighted | |||||||||
average | |||||||||
grant date | |||||||||
fair value | |||||||||
Number of | per share | ||||||||
shares | (C$) | ||||||||
Unvested as at December 31, 2020 | 988,990 | $ | 0.39 | ||||||
Granted | 1,348,434 | 0.38 | |||||||
Vested | (1,516,299 | ) | 0.41 | ||||||
Forfeited | (245,125 | ) | 0.52 | ||||||
Unvested as at December 31, 2021 | 576,000 | $ | 0.62 | ||||||
Granted | 624,750 | 0.29 | |||||||
Vested | (774,750 | ) | 0.40 | ||||||
Unvested as at September 30, 2022 | 426,000 | $ | 0.60 |
(i) On April 14, 2020, the Company granted RSUs to a certain officer of the Company. The RSUs vest in one fourth increments upon each anniversary of the grant date. The vesting of these RSUs resulted in stock-based compensation of $ and $ for the nine months ended September 30, 2022 and 2021, respectively, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
(ii) On April 20, 2020, the Company granted RSUs to a certain director of the Company. The RSUs vest in one fourth increments upon each anniversary of the grant date. The vesting of these RSUs resulted in stock-based compensation of $ and $ for the nine months ended September 30, 2022 and 2021, respectively, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
(iii) On November 16, 2020, the Company granted RSUs to certain directors of the Company. The RSUs vest in one fourth increments upon each anniversary of the grant date. The vesting of these RSUs resulted in stock-based compensation of $ and $ for the nine months ended September 30, 2022 and 2021, respectively, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
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Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
(iv) On December 31, 20176, 2020, the Company granted RSUs to a consultant of the Company. The RSUs vest in one sixth increments per month. The vesting of these RSUs resulted in stock-based compensation of $ and $ for the nine months ended September 30, 2022 and 2021, respectively, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
(v) On January 1, 2021, the Company granted RSUs to a consultant of the Company. RSUs vested immediately with the remaining RSUs vesting in one twelfth increments per month. During the year ended 2021, a total of RSUs vested, and in July 2021, the consultant forfeited the remaining unvested RSUs, resulting in a reversal of share-based compensation of $ . The vesting of these RSUs resulted in stock-based compensation of $ and $ for the nine months ended September 30, 2022 and 2021, respectively.
(vi) On July 1, 2021, the Company granted RSUs to a consultant of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $ and $ for the nine months ended September 30, 2022 and 2021, respectively.
(vii) On August 5, 2021, the Company granted RSUs to consultants of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $ and $ for the nine months ended September 30, 2022 and 2021, respectively.
(viii) On January 10, 2022, the Company granted RSUs to a consultant of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the nine months ended September 30, 2022, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
(ix) On April 29, 2022, the Company granted RSUs to certain consultants of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the nine months ended September 30, 2022, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
(x) On June 30, 2022, the Company granted RSUs to a consultant of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the nine months ended September 30, 2022, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
(xi) On September 29, 2022 the Company granted RSUs to two consultants of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the nine months ended September 30, 2022, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).
Effective April 21, 2020, the Board of Directors approved a Deferred Share Unit (“DSU”) Plan to grant DSUs to its directors. The DSU Plan permits the eligible directors to defer receipt of all or a portion of their retainer or compensation until termination of their services and to receive such fees in the form of cash at that time.
Upon vesting of the DSUs or termination of service as a director, the director will be able to redeem DSUs based upon the then market price of the Company’s common share on the date of redemption in exchange for cash.
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Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
Schedule of Deferred Share Units
Weighted | ||||||||
average | ||||||||
grant date | ||||||||
fair value | ||||||||
Number of | per share | |||||||
shares | (C$) | |||||||
Unvested as at December 31, 2020 and September 30, 2021 (i) | 7,500,000 | $ | 1.03 | |||||
Unvested as at December 31, 2021 | 5,625,000 | $ | 1.03 | |||||
Granted (i) | 210,000 | 0.20 | ||||||
Vested (ii)(iii) | (3,125,000 | ) | 1.03 | |||||
Unvested as at September 30, 2022 | 2,710,000 | $ | 1.00 |
(i) | On April 21, 2020, the Company granted 2,500,000 DSUs (see (iii)) the fair value of the remaining DSU liability at September 30, 2022 was $ . DSUs. The DSUs vest in one fourth increments upon each anniversary of the grant date and expire in years. On July 1, 2022 the Company granted DSU’s, these DSU’s vest after months of the issuance date. During the nine months ended September 30, 2022, and 2021 the Company recognized $ and $ , respectively, recovery of stock-based compensation related to the DSUs, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss), as DSU’s were settled in cash during the 9 months ended September 30, 2022. Upon redemption of the | |
(ii) | On March 31, 2022, the Board approved the early vesting of DSUs for one of the Company’s Directors. | |
(iii) | During the nine months ended September 30, 2022, the director redeemed 2,500,000 DSUs for C$750,000, and elected to use net proceeds to subscribe for units in the Company’s April 2022 special warrant issuance at C$ per unit, with the balance of the redeemed amount payable in cash after applicable withholding tax deductions. The DSU’s were therefore all accelerated to vest. | |
13. Commitments and Contingencies
As stipulated in the agreement with the EPA and as described in Note 6, the Company is required to make two types of payments to the EPA and IDEQ, one for historical water treatment cost-recovery to the EPA, and the other for ongoing water treatment. Water treatment costs incurred through December 2021 are payable to the EPA, and water treatment costs incurred thereafter are payable to the IDEQ. The IDEQ (as done formerly by the EPA) invoices the Company on an annual basis for the actual water treatment costs, which may exceed the recognized estimated costs significantly. When the Company receives the water treatment invoices, it records any liability for actual costs over and above any estimates made and adjusts future estimates as required based on these actual invoices received. The Company is required to pay for the actual costs regardless of the periodic required estimated accruals and payments made each year.
On July 28, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by Crescent Mining, LLC (“Crescent”). The named defendants include Placer Mining, Robert Hopper Jr., and the Company. The lawsuit alleges that Placer Mining and Robert Hopper Jr. intentionally flooded the Crescent Mine during the period from 1991 and 1994, and that the Company is jointly and severally liable with the other defendants for unspecified past and future costs associated with the presence of acid mine drainage (“AMD”) in the Crescent Mine. The plaintiff has requested unspecified damages. On September 20, 2021, the Company filed a motion to dismiss Crescent’s claims against it, contending that such claims are facially deficient. On March 2, 2022, Chief US District Court Judge, David C. Nye granted in part and denied in part the Company’s motion to dismiss. The court granted the Company’s motion to dismiss Crescent’s Cost Recovery claim under CERCLA Section 107(a), Declaratory Judgment, Tortious Interference, Trespass, Nuisance and Negligence claims. These claims were dismissed without prejudice. The court denied the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass, nuisance and negligence claims. Crescent later filed an amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining Corp are named as co-defendants. Bunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint except those that are assertions of fact as a matter of public record. The Company believes Crescent’s is without merit and intends to vigorously defend itself, as well as Placer Mining Corp. pursuant to the Company’s indemnification of Placer Mining Corp in the Sale and Purchase agreement executed between the companies for the Mine on December 15, 2021.
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Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022
(Expressed in United States Dollars)
14. Related party transactions
The Company’s key management personnel have the authority and responsibility for planning, directing and controlling the activities of the Company and consists of the Company’s executive management team and management directors.
Schedule of Related Party Transactions
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Consulting fees and wages | $ | 248,472 | $ | 276,049 | $ | 1,832,323 | $ | 846,604 | ||||||||
At September 30, 2022 and September 30, 2021, $15,000 and $102,235, respectively is owed to key management personnel with all amounts included in accounts payable and accrued liabilities.
On July 1, 2022 the Company issued 210,000 DSU’s to a director of the Company.
15. Subsequent Events
In October 2022, the Company issued common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending September 30, 2022.
During October 2022, the Company reported that it has been successful in securing a new payment bond to secure a portion of its cost recovery obligations to the US Environmental Protection Agency (the “US EPA”), resulting in a $3,000,000 improvement in liquidity. As reported in the Company’s financial statements for the period ending September 30, 2022, the Company held restricted cash of $9,476,000 as of September 30, 2022 which included $7,001,000 as collateral for a letter of credit to the US EPA. This letter of credit has been reduced to $2,000,001 as a result of a new $5,000,000 payment bond obtained through an insurance company. The collateral for the new payment bond is comprised of a $2,000,000 letter of credit and land pledged by third parties, with whom the Company has entered into a financing cooperation agreement that contemplates a monthly fee of $20,000 (payable in cash or common shares of the Company, at the Company’s election). The new payment bond is scheduled to increase to $7,001,000 (from $5,000,000) upon the advance of the multi-metals Stream from Sprott Private Resource Streaming & Royalty Corp. (see the Company’s news release of December 20, 2021 for further detail), which would result in a further $2,001,000 improvement in liquidity for the Company from the Offering are being used primarilyrelease of restricted cash.
In October 2022, the Company reported that it awarded a new water management consulting services contract to MineWater LLC (“MineWater”) for lease payments, acquisition payments, exploration and developmentstrategic environmental support at the Bunker Hill Mine through September 30, 2023. Pursuant to the contract, the Company agreed to pay MineWater $60,000 in cash and for general corporateissue Restricted Share Units, which were issued and working capital purposes.
In connection with the Offering, the Agents received a cash fee in an amount equalvested immediately to 8.0%common shares of the gross proceeds ofCompany that are subject to customary resale restrictions in Canada and the Offering (excluding proceeds from certain president's list subscribers) and were granted common share purchase warrants (the "Broker Warrants") entitling them to subscribe for that number of Common Shares equal to 4.0% ofUnited States.
In November 2022, the aggregate number ofCompany awarded Restricted Share Units sold in the Offering (excluding Units sold to certain president's list subscribers). Each Broker Warrant is exercisable at a price equalexecutives in relation to C$2.00 for thirty-six months followingan annual grant under its issuance.Long-Term Incentive Plan. The Company issued an aggregateRSUs vest in one-third increments on March 31 of 278,160 Broker Warrants to the Agents in connection with the Offering.2023, 2024, and 2025.
At December 31, 2017 there were 33,013,715 common shares issued
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Item 2. Management’s Discussion and outstanding.Analysis of Financial Condition or Plan of Operation
Warrants
As of December 31, 2017, the Company had 4,340,320 warrants outstanding, all issued pursuant to the equity financing completed in December 2017 and described above.
Stock Options
As at December 31, 2017 there were 2,391,000 stock options outstanding, exercisable at a weighted average exercise price of C$1.01 per share. Of this total, 56,000 have an exercise price of $0.1875 and expire on February 17, 2020, 2,235,000 have an exercise price of C$1.00 and expire May 2, 2022 and 100,000 have an exercise price of C$1.65 and expire December 13, 2022.
Note 5 – Commitments and Contingencies
Effective June 1, 2017, the Company has a lease agreement for office space at 401 Bay Street, Suite 2702, Toronto, Ontario, Canada, M5H 2Y4. The 5-year lease provides for a monthly base rent of CDN$12,964 for the first two years, increasing to CDN$13,504 per month for years three through five. The Company has signed sub-leases with other companies that cover 78% of the monthly lease amount.
Pursuant to its Agreement for the lease and option to purchase the Bunker Assets, the Company was required to make two $500,000 bonus payments to Placer Mining by December 31, 2017. The 24-month lease was to commence November 1, 2017 but was deferred to December 1, 2017 and continues until October 31, 2019. The lease period can be extended by a further 12 months at the Company’s discretion. During the term of the lease, the Company must make $100,000 monthly mining lease payments, paid quarterly.
The Company has an option to purchase the Bunker Assets at any time before the end of the lease and any extension for a purchase price of $45 million with purchase payments to be made over a ten-year period. Under terms of the agreement, there is a 3% net smelter return royalty (“NSR”) on sales during the Lease and a 1.5% NSR on the sales after the purchase option is exercised, which post-acquisition NSR is capped at $60 million.
Note 6 – Related Party Transactions
During the six months ended December 31, 2017, each of Messrs. Bruce Reid (CEO), Julio DiGirolamo (CFO), Howard Crosby (Executive Vice President) and John Ryan (Director) received $5,000 per month for services to the Company. Commencing December 1, 2017, commensurate with the increased activities in the Company, Messrs. Reid and DiGirolamo’s pay increased to $20,000 and $15,000 per month, respectively. In early December 2017, the Board approved and ratified compensation to Mr. Reid for unaccrued and unpaid salary and bonus, including for risk-capital sums advanced by Mr. Reid to the Company in order that the Company could complete many of its obligations and initiatives during 2017. The payment, totaling $500,000 was accrued at December 31, 2017 and was paid in January 2018.
At December 31, 2017, a balance of CDN$5,000 was included in accounts payable as owing to the Company’s CFO.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS"Certain statements in this report, including statements in the following discussion, are what are known as “forward looking statements”, WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-Q AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as “plans,” “intends,” “will,” “hopes,” “seeks,” “anticipates,” “expects “and the like often identify such forward looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward looking statements include statements concerning the company’s plans and objectives with respect to the present and future operations of the company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report and in the company’s other filings with the sec. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.
DESCRIPTION OF BUSINESSCOVID-19 Coronavirus Pandemic Response and Impact
Following the outbreak of the COVID-19 coronavirus global pandemic (“COVID-19”) in early 2020, in March 2020 the U.S. Centers for Disease Control issued guidelines to mitigate the spread and health consequences of COVID-19. The CorporationCompany implemented changes to its operations and business practices to follow the guidelines and minimize physical interaction, including using technology to allow employees to work from home when possible. As long as they are required, the operational practices implemented could have an adverse impact on our results. Although the pandemic has subsided significantly, the negative impact of COVID-19 remains uncertain, including on overall business and market conditions. There is uncertainty related to the potential additional impacts COVID-19 could have on our operations and financial results for the year.
Bunker Hill Mining Corp. (Formerly Liberty Silver Corp.) (the “Company”
The Russia/Ukraine Crisis:
The Company’s operations could be adversely affected by the effects of the escalating Russia/Ukraine crisis and the effects of sanctions imposed against Russia or that country’s retributions against those sanctions, embargos or further-reaching impacts upon energy prices, food prices and market disruptions. The Company cannot accurately predict the “Corporation”)impact the crisis will have on its operations and the ability of contractors to meet their obligations with the Company, including uncertainties relating the severity of its effects, the duration of the conflict, and the length and magnitude of energy bans, embargos and restrictions imposed by governments. In addition, the crisis could adversely affect the economies and financial markets of the United States in general, resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations. Additionally, the Company cannot predict changes in precious metals pricing or changes in commodities pricing which may alternately affect the Company either positively or negatively.
Description of Business
Corporate Information
The Company was incorporated under the laws of the stateState of Nevada, U.S.A on February 20, 2007 under the name Lincoln Mining Corp. Pursuant to a Certificate of Amendment datedOn February 11, 2010, the Company changed its name to Liberty Silver Corp. OnCorp and subsequently, on September 29, 2017, the Company changed its name to Bunker Hill Mining Corp. The Company’s registered office is located at 1802 N. Carson Street, Suite 212, Carson City Nevada 89701, and its head office is located at 401 Bay82 Richmond Street Suite 2702,East, Toronto, Ontario, Canada, M5H 2Y4,M5C 1P1, and its telephone number is 416-477-7771. The Company’s website is www.bunkerhillmining.com. Information appearing on the website is not incorporated by reference into this report.
Current Operations
Overview
Overview
The Company was incorporated forCompany’s sole focus is the purposedevelopment and restart of engagingits 100% owned flagship asset, the Bunker Hill mine (the “Mine”). The Mine remains the largest single producing mine by tonnage in mineral explorationthe Silver Valley region of northwest Idaho, producing over 165 million ounces of silver and development activities. On August 28, 2017, the Company announced that it signed a definitive agreement (the “Agreement”) for the lease5 million tons of base metals between 1885 and option to purchase1981. The Bunker Hill Mine is located within Operable Unit 2 of the Bunker Hill Mine (the “Mine”) in Idaho. The “Bunker Hill Lease with Option to Purchase” is betweenSuperfund site (EPA National Priorities Listing IDD048340921), where cleanup activities have been completed.
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In early 2020, a new management team comprised of former executives from Barrick Gold Corp. assumed leadership of the Company. Since that time, the Company has conducted multiple exploration campaigns, published multiple economic studies, purchased the Bunker Hill Mine, purchased a process plant, and advanced the rehabilitation and development of the Mine. The Company is focused on completing the financing for, and execution of, a potential restart of operations at the Mine.
Lease and Purchase of the Bunker Hill Mine
The Company purchased the Bunker Hill Mine in January 2022, as described below.
Prior to purchasing the Mine, the Company had entered into a series of agreements with Placer Mining Corporation (“Placer Mining”), the currentprior owner, of the Mine.
Pursuant to its Agreement for the lease and option to purchase the Bunker Assets,Mine. The first of these agreements was announced on August 28, 2017, with subsequent amendments and/or extensions announced on November 1, 2019, July 7, 2020, and November 20, 2020.
Under the terms of the November 20, 2020 amended agreement (the “Amended Agreement”), a purchase price of $7,700,000 was agreed, with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price of the Mine as having been previously paid by the Company) and $2,000,000 in Common Shares of the Company. The Company is requiredagreed to make two $500,000 bonus payments to Placer Mining by December 31, 2017. The 24-month lease was to commence November 1, 2017, but has been deferred to December 1, 2017 and continues until October 31, 2019. The lease period can be extended by a further 12 months atan advance payment of $2,000,000, credited toward the Company’s discretion. During the termpurchase price of the lease,Mine, which had the Company must make $100,000 monthly mining lease payments, paid quarterly.
The Company has an optioneffect of decreasing the remaining amount payable to purchase the Mine to an aggregate of $3,400,000 payable in cash and $2,000,000 in Common Shares of the Company.
The Amended Agreement also required payments pursuant to an agreement with the U.S. Environmental Protection Agency (“EPA”) whereby for so long as the Company leases, owns and/or occupies the Mine, the Company would make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for historical water treatment cost recovery in accordance with the Settlement Agreement reached with the EPA in 2018. Immediately prior to the purchase of the Mine, the Company’s liability to EPA in this regard totaled $11,000,000.
The Company completed the purchase of the Bunker AssetsHill Mine on January 7, 2022. The terms of the purchase price were modified to $5,400,000 in cash, from $3,400,000 of cash and $2,000,000 of Common Shares. Concurrent with the purchase of the Mine, the Company assumed incremental liabilities of $8,000,000 to the EPA, consistent with the terms of the amended Settlement Agreement with the EPA that was executed in December 2021 (see “EPA 2018 Settlement Agreement & 2021 Amended Settlement Agreement” section below).
EPA 2018 Settlement Agreement & 2021 Amended Settlement Agreement
Bunker Hill entered into a Settlement Agreement and Order on Consent with the EPA on May 15, 2018. This agreement limits the Company’s exposure to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) liability for past environmental damage to the mine site and surrounding area to obligations that include:
● | Payment of $20,000,000 for historical water treatment cost recovery for amounts paid by the EPA from 1995 to 2017 | |
● | Payment for water treatment services provided by the EPA at the Central Treatment Plant (“CTP”) in Kellogg, Idaho until such time that Bunker Hill either purchases or leases the CTP or builds a separate EPA-approved water treatment facility | |
● | Conducting a work program as described in the Ongoing Environmental Activities section of this study |
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In December 2021, in conjunction with its intention to purchase the mine complex, the Company entered into an amended Settlement Agreement (the “Amendment”) between the Company, Idaho Department of Environmental Quality, US Department of Justice and the EPA modifying the payment schedule and payment terms for recovery of historical environmental response costs at any time beforeBunker Hill Mine incurred by the EPA. With the purchase of the mine subsequent to the end of the lease and any extension for a purchase price of $45 million with purchaseperiod, the remaining payments to be made over a ten-year period. Under terms of the agreement, there is a 3% net smelter return royalty (“NSR”) on sales during the Lease and a 1.5% NSR on the sales after the purchase option is exercised, which post-acquisition NSR is capped at $60 million.
Management believes this lease and option will provideEPA cost recovery liability would be assumed by the Company, time to both produce a mine plan and raise the money needed to move forward. Management also believes that this is a strong signal to the market that the Bunker Hill Mine is “backresulting in business”. Management is now able to push forward and advance the time line to realizing shareholder value.
The Bunker Hill Mine was the largest producing mine in the Coeur d'Alene zinc, lead and silver mining district in northern Idaho. Historically, the mine produced over 35M tonnes of ore grading on average 8.76% lead, 3.67% zinc, and 155 g/t silver (Bunker Hill Mines Annual Report 1980).
The Company believes that there are numerous targets of opportunity left in the mine from top to bottom, and particularly on strike to the west where more recent past drilling has resulted in major discoveries such as the Quill body of mineralized material.
The Bunker Hill Mine is now the Company’s only focus, with a view to raising capital to rehabilitate the mine and put it back into production.
The Company was previously focused on exploring and developing the Trinity Silver property located in Pershing County, Nevada (the “Trinity Project”). The Trinity Project consists of a total of approximately 10,020 acres, including 5,676 acres of fee land and 253 unpatented mining claims located along the west flank of the Trinity Range in Pershing County, Nevada, about 25 miles by road northwest of Lovelock, NV, the county seat. The annual cost to maintain the 253 claims is approximately $35,420 per year ($140 per claim per year). In 2016, due to the lack of funding available$19,000,000 liability to the Company, exploration progress was not onan increase of $8,000,000. The new payment schedule with the Company’s exploration and evaluation plan and, asincluded a result of these circumstances, the related carrying value of the properties may not be recoverable. The Company therefore recorded an impairment charge related$2,000,000 payment to the Trinity Project and reduced its carrying amountEPA within 30 days of the Trinity Project to $1execution of this amendment, which was made. The remaining $17,000,000 will be paid on the balance sheet for the fiscal years ended June 30, 2017 and 2016.following dates:
Date | Amount | |||
November 1, 2024 | $ | 3,000,000 | ||
November 1, 2025 | $ | 3,000,000 | ||
November 1, 2026 | $ | 3,000,000 | ||
November 1, 2027 | $ | 3,000,000 | ||
November 1, 2028 | $ | 3,000,000 | ||
November 1, 2029 | $ | 2,000,000 plus accrued interest |
The Company did not commence development stage activities, but with adequate resources previous Management intended on: (i) expanding the known mineralized material through drilling, (ii) permitting for operation, if deemed economically viable, (iii) conducting metallurgical studies aimed at enhancing the recoveryresumption of the silver and by-product lead and zinc, and (iv) prepare an engineering design related to potential construction of a new mine. Exploration of the property would be conducted simultaneously with the mine developmentpayments in 2024 were agreed in order to locate additional mineralized materials.
With the Company’s Management focused on the Bunker Hill Mine, in September 2017,allow the Company agreed to relinquish its rights to the Trinity Project to Renaissance Exploration, Inc., its project partner, in return for releasing the Companygenerate sufficient revenue from all past and future obligations.
Products
The Bunker Hill Mine is a Zinc-Silver-Lead Mine. When back in production, the Company will mill mineralized material on-site or at a local third-party mill and plans to produce concentrates to be shipped to third party smelters for processing.
The Company will continue to explore the property with a view to proving resources.
Infrastructure
The acquisition of the Bunker Hill mine includes all mining rights and claims, surface rights, fee parcels, mineral interests, easements, existing infrastructure at Milo Gulch, and the majority of machinery and buildings at the Kellogg Tunnel portal level, as well as all equipment and infrastructure anywhere undergroundactivities at the Bunker Hill Mine Complex. to address remaining payment obligations from free cash flow.
The acquisitionchanges in payment terms and schedule were contingent upon the Company securing financial assurance in the form of performance bonds or letters of credit deemed acceptable to the EPA totaling $17,000,000, corresponding to the Company’s cost recovery obligations to be paid in 2024 through 2029 as outlined above. Should the Company fail to make its scheduled payment, the EPA can draw against this financial assurance. The amount of the bonds or letters of credit will decrease over time as individual payments are made. If the Company failed to post the final financial assurance within 180 days of the execution of the Amendment, the terms of the original agreement would be reinstated.
During the quarter ended June 30, 2022, the Company was successful in obtaining the financial assurance. Specifically, a $9,999,000 payment bond and a $7,001,000 letter of credit were secured and provided to the EPA. This milestone provides for the Company to recognize the effects of the change in terms of the EPA liability as outlined in the December 20, 2021, agreement. Once the financial assurance was put into place, the restructuring of the payment stream under the Amendment occurred with the entire $17,000,000 liability being recognized as long-term in nature. The aforementioned payment bond and letter of credit are secured by $2,475,000 and $7,001,000 of cash deposits, respectively.
Project Finance Package with Sprott Private Resource Streaming & Royalty Corp.
On December 20, 2021, the Company executed a non-binding term sheet outlining a $50,000,000 project finance package with Sprott Private Resource Streaming and Royalty Corp. (“SRSR”). The non-binding term sheet with SRSR outlined a project financing package that the Company expects to fulfill the majority of its funding requirements to restart the Mine. The term sheet consisted of an $8,000,000 royalty convertible debenture (the “RCD”), a $5,000,000 convertible debenture (the “CD1”), and a multi-metals stream of up to $37,000,000 (the “Stream”). The CD1 was subsequently increased to $6,000,000, increasing the project financing package to $51,000,000.
On June 17, 2022, the Company consummated a new $15,000,000 convertible debenture (the “CD2”). As a result, total potential funding from SRSR was further increased to $66,000,000 including the RCD, CD1, CD2 and the Stream (together, the “Project Financing Package”).
The Company closed the $8,000,000 RCD on January 7, 2022. The RCD bears interest at an annual rate of 9.0%, payable in cash or Common Shares at the Company’s option, until such time that SRSR elects to convert a royalty, with such conversion option expiring at the earlier of advancement of the Stream or July 7, 2023 (subsequently amended as described below). In the event of conversion, the RCD will cease to exist and the Company will grant a royalty for 1.85% of life-of-mine gross revenue from mining claims considered to be historically worked, contiguous to current accessible underground development, and covered by the Company’s 2021 ground geophysical survey (the “SRSR Royalty”). A 1.35% rate will the apply to claims outside of these areas. The RCD was initially secured by a share pledge of the Company’s operating subsidiary, Silver Valley, until a full security package was put in place concurrent with the consummation of the CD1. In the event of non-conversion, the principal of the RCD will be repayable in cash.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the RCD, including an amendment of the maturity date from July 7, 2023, to March 31, 2025. The parties also includes all currentagreed to a Royalty Put Option such that in the event the RCD is converted into a royalty as described above, the holder of the royalty will be entitled to resell the royalty to the Company for $8,000,000 upon default under the CD1 or CD2 until such time that the CD1 and historic data relatingCD2 are paid in full.
The Company closed the $6,000,000 CD1 on January 28, 2022, which was increased from the previously announced $5,000,000. The CD1 bears interest at an annual rate of 7.5%, payable in cash or shares at the Company’s option, and matures on July 7, 2023 (subsequently amended, as described below). The CD1 is secured by a pledge of the Company’s properties and assets. Until the closing of the Stream, the CD1 was to be convertible into Common Shares at a price of C$0.30 per Common Share, subject to stock exchange approval (subsequently amended, as described below). Alternatively, SRSR may elect to retire the CD1 with the cash proceeds from the Stream. The Company may elect to repay the CD1 early; if SRSR elects not to exercise its conversion option at such time, a minimum of 12 months of interest would apply.
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Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the CD1, including that the maturity date would be amended from July 7, 2023, to March 31, 2025, and that the CD1 would remain outstanding until the new maturity date regardless of whether the Stream is advanced, unless the Company elects to exercise its option of early repayment. The Company determined that amendments to the terms should not be treated as an extinguishment of CD1, but as a debt modification.
The Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest at an annual rate of 10.5%, payable in cash or shares at the Company’s option, and matures on March 31, 2025. The CD2 is secured by a pledge of the Company’s properties and assets. The repayment terms include 3 quarterly payments of $2,000,000 each beginning June 30, 2024, and $9,000,000 on the maturity date.
In light of the Series 2 Convertible Debenture financing, the previously permitted additional senior secured indebtedness of up to $15 million for project finance has been removed.
A minimum of $27,000,000 and a maximum of $37,000,000 (the “Stream Amount”) will be made available under the Stream, at the Company’s option, once the conditions of availability of the Stream have been satisfied including confirmation of full project funding by an independent engineer appointed by SRSR. If the Company draws the maximum funding of $37,000,000, the Stream would apply to 10% of payable metals sold until a minimum quantity of metal is delivered consisting of, individually, 55 million pounds of zinc, 35 million pounds of lead, and 1 million ounces of silver (subsequently amended, as described below). Thereafter, the Stream would apply to 2% of payable metals sold. If the Company elects to draw less than $37,000,000 under the Stream, the percentage and quantities of payable metals streamed will adjust pro-rata. The delivery price of streamed metals will be 20% of the applicable spot price. The Company may buy back 50% of the Stream Amount at a 1.40x multiple of the Stream Amount between the second and third anniversary of the date of funding, and at a 1.65x multiple of the Stream Amount between the third and fourth anniversary of the date of funding. As of September 30, 2022, the Stream had not been advanced.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed that the minimum quantity of metal delivered under the Stream, if advanced, will increase by 10% relative to the amounts noted above.
Process Plant
On January 25, 2022, the Company announced that it had entered into a non-binding Memorandum of Understanding (“MOU”) with Teck Resources Limited (“Teck”) for the purchase of a comprehensive package of equipment and parts inventory from its Pend Oreille site (the “Process Plant”) in eastern Washington State, approximately 145 miles from the Bunker Hill Mine Complex, such as drill logs, reports, maps, and similar informationby road. The package comprises substantially all processing equipment of value located at the mine site, or any other location. including complete crushing, grinding and flotation circuits suitable for a planned ~1,500 ton-per-day operation at Bunker Hill, and total inventory of nearly 10,000 components and parts for mill, assay lab, conveyer, field instruments, and electrical spares. The Company paid a $500,000 non-refundable deposit in January 2022.
Government Regulation and Approval
The current exploration activities and any future mining operations are subjectOn March 31, 2022, the Company announced that it had reached an agreement with a subsidiary of Teck to extensive laws and regulations governingsatisfy the protectionremaining purchase price for the Process Plant by way of an equity issuance of the environment, waste disposal, worker safety, mine construction, and protection of endangered and protected species. The Company has made, and expects to make in the future, significant expenditures to comply with such laws and regulations. Future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have an adverse impact on the Company’s financial condition or results of operations.
It is anticipated that it may be necessary to obtain the following environmental permits or approved plans prior to commencement of mine operations:
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Reclamation and Closure Plan
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Water Discharge Permit
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Air Quality Operating Permit
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Industrial Artificial (tailings) pond permit
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Obtaining Water Rights for Operations
Property Description
The Company’s agreement with Placer Mining Corporation includes mineral rights to 434 patented mining claims covering 5769.467 acres of those 35 include surface ownership over approximately 259.1 acres. The transaction also includes certain parcels of fee property which includes mineral and surface rights but are not patented mining claims. Mining claims and fee properties are located in Townships 47, 48 North, Range 2 East, Townships 47, 48 North, Range 3 East, Boise Meridian, Shoshone County, Idaho.
Surface rights were originally owned by various previous ownersCompany. Teck will receive 10,416,667 units of the claims untilCompany (the “Teck Units”) at a deemed issue price of C$0.30 per unit. Each Teck Unit consists of one Common Share and one Common Share purchase warrant (the “Teck Warrants”). Each whole Teck Warrant entitles the acquisitionholder to acquire one Common Share at a price of C$0.37 per Common Share for a period of three years. The equity issuance and purchase of the properties by Bunker Limited Partners (“BLP”). BLP sold off surface rightsProcess Plant occurred on May 13, 2022.
Ball Mill upgrade
On August 30, 2022, the Company entered into an agreement to various parties over the years while maintaining access to conduct mining operations and exploration activities as well as easements topurchase a cross over and access other of its properties containing mineral rights. Said rights were reserved to its assigns and successors in continuous perpetuity. Idaho Law also allows mineral right holders access to mine and exploreball mill from D’Angelo International LLC for minerals on properties to which they hold minerals rights.
Title to all patented mining claims included in the transaction was transferred from Bunker Hill Mining Co. (U.S.) Inc. by Warranty Deed in 1992.$675,000. The salepurchase of the property was properly approved ofmill is to be made in three cash payments:
$100,000 by the U.S. Trustee and U.S. Bankruptcy Court. September 15, 2022 as a non-refundable deposit (paid)
Over 90% of surface ownership of patented mining claims not owned$100,000 by Placer Mining Corp. is ownedOctober 15, 2022 (paid)
$475,000 by different landowners. These include: Stimpson Lumber Co.; Riley Creek Lumber Co.; Powder LLC.; Golf LLC.; C & E Tree Farms; and Northern Lands LLC.December 15, 2022
Patented mining claims in the State of Idaho do not require permits for underground mining activities to commence on private lands. Other permits associated with underground mining may be required, such as water discharge and site disturbance permits. The water discharge is being handled by the EPA at the existing water treatment plant. The Company expects to take on the water treatment responsibility in the future and obtain an appropriate discharge permit. If
At September 30, 2022, the Company is able topaid $100,000 towards the purchase the EPA’s water treatment plant the water discharge permit comes along with the water treatment plant.
Competition
The Company competes with other mining and exploration companies in connection with the acquisition of mining claims and leases on zinc and other base and precious metals prospects as well as in connection with the recruitment and retention of qualified employees. Many of these companies are much larger than the Company, have greater financial resources and have been in the mining business for much longer than it has. As such, these competitors may be in a better position through size, finances and experience to acquire suitable exploration and development properties. The Company may not be able to compete against these companies in
acquiring new properties and/or qualified people to work on its current project, or any other properties that may be acquired in the future.
Given the size of the world market for base precious metals such as silver, lead and zinc, relative to the number of individual producers and consumers, it is believed that no single company has sufficient market influence to significantly affect the price or supply of these metals in the world market.
Employees
The Company is currently managed by Bruce Reid, President and CEO; Julio DiGirolamo, Chief Financial Officer; and Howard Crosby, Executive Vice President.
Completed Work and Future Plan of Operations
The Company has undertaken a due diligence program to assure itself of the viability of a restart of the Bunker Hill Mine. This necessitated an extensive review of the records that were present primarily at the Bunker Hill Mine offices. At those offices there are tens of thousands of pages of reports and records which detail the operations of the mine from its earliest days to the time of the shutdown in 1991 by BLP.
In addition to reports, there are several thousand historical maps of all scales and sizes as well as historical mineral diagrams which detail the mineral bodies that remained in the mine at the time of closure in January, 1991. These reports are not compliant with Canada National Instrument 43-101 and cannot be used for the purposes of establishing reserves pursuant to that standard.
The Company has satisfied itself that there is a large amount of zinc/lead/silver materials in numerous mineralized zones remaining within the Bunker Hill Mine. The Company is now developing a plan to bring a number of these zones into N.I. 43-101 compliance through new sampling and drilling programs. The Company has identified several zones as having highest priority. The Company has prioritized zones capable of providing the nearest term production as priority, these being the UTZ Zone, the Newgard Zone and the South Newgard Zone. These three mineral zones will be the first to be N.I. 43-101 verified and will provide the majority of the early feed upon mine start-up.
The Bunker Hill Mine main level is termed the nine level and is the largest level in the mine and is connected to the surface by the approximately 12,000 foot-long Kellogg Tunnel. Three major inclined shafts with associated hoists and hoistrooms are located on the nine level. These are the No. 1 shaft, which is used for primary muck hoisting in the main part of the mine; the No. 2 shaft, which is a primary shaft for men and materials in the main part of the mine; and the No. 3 Shaft, which is used for men, materials and muck hoisting for development in the northwest part of the mine.
The top stations of these shafts and the associated hoistrooms and equipment have all been examined by Company personnel and are in moderately good condition. The Company believes that all three shafts remain in a condition that they are repairable and can be bought back into good working order over the next few years.
The water level in the mine is held at approximately the ten level of the mine, roughly 200 feet below the nine level. The mine was historically developed to the 27 level, although the 25 level was the last major level that underwent significant development and past mining.
The southeastern part of the mine was historically serviced by the Cherry Raise, which consisted of a two-compartment shaft with double drum hoisting capability that ran at an incline up from the nine level to the four level. The central part of the mine was serviced upward by the Last Chance Shaft from the nine level to the historic three or four level. Neither the Cherry Raise or the Last Chance shaft are serviceable at this time. However, the upper part of the mine from nine level up to the four level has been developed by past operators by a thorough-going rubber tire ramp system, which is judged to be about 65% complete.
The Company has already repaired the first several thousand feet of the Russell Tunnel, which is a large rubber tire capable tunnel with an entry point at the head of Milo Gulch. This tunnel will provide early access to the UTZ and Newgard/South Newgard mineral zones. The Company has inspected a great deal of the ramp system between the nine level and the four level, and the ramps are in good shape with only minor repair and
rehabilitation needed. The Company has made development plans to provide interconnectivity of the ramp system from the Russell Tunnel at the four level down to the nine level. Thus rubber-tired equipment will be used for mining and haulage throughout the upper mine mineral zones, which have already been identified, and for newly found zones.
The Kellogg Tunnel will be used as a tracked rail haulage tunnel for supplynon-refundable deposit.
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Results of men and materials into the mine and for haulage of mined material out of the mine. Historically the Kellogg Tunnel (or “KT” for short) was used in this manner when the mine was producing upwards of 3000 tons per day of mined material. The Company has inspected the KT for its entire length and has determined that significant timbered sections of the tunnel will need extensive repairs. These are areas that intersect various faults passing through the KT at normal to oblique angles and create unstable ground.Operations
The Company has also determined that all of the track, as well as spikes, plates and ties holding the track will need to be replaced. Additionally, the water ditch that runs parallel to the track will need to be thoroughly cleaned out and new timber supports and boards that keep the water contained in its path will need to be installed. All new water lines, compressed air lines and electric power feeds will also need to be installed. The total cost estimate for this KT work is still in process at the time of the date of this report, but the time estimate for these repairs is approximately eighteen months.
It is anticipated that earliest production will come from the upper levels of the mine where company personnel have observed mining faces of mineralized material that are readily mineable, as they were left behind by past operators in a more or less fully developed state. These upper mineralized material zones could achieve limited mining at perhaps a rate of 500 tons per day by haulage out through the Russell Tunnel and then trucked from the Milo Gulch landing to one or more potential nearby custom milling facilities.
The Company believes that the potential does exist for early production by shipping mineralized material to a custom mill. The Company has undertaken discussions with mill owners, but such discussions are still at an early stage and there is no guarantee that they will result in a positive outcome. Longer term, the Company anticipates constructing its own milling facility near the mouth of the Kellogg Tunnel. Initially the mill capacity will be 1,500 tons per day, and the mill will be designed for ready expansion when needed.
The Company has identified multiple tailings disposal sites to the west-northwest of where the mill will be located. Ultimately the Company believes the existing Central Impoundment Area or “CIA” (which was the tailings disposal area for the historic mine) might once again be available for new tailings disposal. However, with pragmatic use of the existing identified sites, the Company is confident it will have tailings disposal adequate for approximately ten years of production. Down the road alternatives involve the use again of the CIA or the use of “dry stack” tailings disposal.
As noted above, the E.P.A. for several decades has provided mine water treatment services for the Bunker Hill Mine. When the Company begins its lease of the mine, it is planned that the E.P.A. will be providing water treatment services under contract with the Company and such services will continue for at least five years or more. Although no firm agreement has yet been reached, recent discussions with the E.P.A. also indicate that overflows from the mill or decant from the tailings facilities could also be treated at the water treatment plant under the same treatment contract.
If all of the mine water, mill outflows, and tailings discharges can be treated by the E.P.A. treatment plant as currently contemplated, the Company will be initially relieved of the need to obtain a water discharge permit. This will simplify the permitting required to return the mine to production and to build a mill and associated tailings ponds because a water discharge permit is often a difficult permit to obtain and is highly dependent on the characteristics of the surrounding watersheds and the capacity of these watersheds to tolerate additional discharges.
Upon initiating mine production from the UTZ, Newgard, and South Newgard zones at rates of approximately 1500 tons per day, the Company would anticipate mining approximately 450,000 tons per year of material. The three aforementioned zones are believed to have sufficient mineral to supply the Company mining needs for at least five years and beyond.
Once the repairs are completed to the Kellogg Tunnel, mineralized material haulage will be able to immediately occur out of this tunnel, which will enhance the production capabilities of the mine by several magnitudes. Some mineralized material will continue to be transported by rubber-tired equipment directly out the Russel Tunnel, but the majority of mineralized material will be dropped down existing internal passes and be hauled out of the KT on rail. By this time in the restart program the Company would expect to be in production at around 1500 tons per day, which is approximately the planned mill capacity. If all items proceed as planned, the Company believes a steady state production of 1,500 tons per day is achievable in approximately 36 months from the time of takeover of operations.
Additionally, once the KT repairs are completed, work on the repairs of the shafts and hoists can proceed with greater speed and the lower levels of the mine can be dewatered. The shaft work and pumping should commence at about year two of mine operations. Additionally, exploration and development work can begin on a major zinc mineral body, the “Quill”, which is already partly developed between the nine level and the fifteen level of the mine. This mineral body is expected to be in excess of 4 million tons of mineralized material and is primarily zinc.
Numerous other past-producing mineral bodies will begin to be revealed as the water levels are lowered and the mine is drained to the fullest. Some of these mineral bodies are lead-silver rich zones such as the Emery, Shea, Veral and the “J”, while others will add more material containing zinc such as the Tallon, Rosco, or Tony, while still others are best described as polymetallic such as the New Landers or the Francis.
The Company geologists and engineering personnel have studied the past records thoroughly and conclude that very good exploration and discovery potential exists at depth on downward rakes of known structures. Strata-bound zones such as the Newgard, Quill and Tallon await drilling to the west, while both the southeast and northwest limits of the main original Bunker Hill structure, in the heart of the Cate/Dull fault system, still remain viable as targets for future discovery of new mineral bodies or extensions of past mined structures.
Technical Report
As noted, the Company currently has in its possession, and has had access to, numerous historical technical reports that were completed in the past by highly qualified parties. The company does not currently have a technical report on the Bunker Hill Mine that is compliant with Canada National Instrument 43-101. The Company anticipates completing a compliant report within 3 to 4 months of the filing of this report, which will cover mineral zones that are adequately assessable for sampling and drilling. As repairs and improvements are made, additional mineral zones will be opened and subsequently drilled and sampled, and the resulting date will be used from time to time to update the N.I. 43-101 report as needed.
Subsequent Events
There are no subsequent events to report at this time.
RESULTS OF OPERATIONS
The following discussion and analysis providesprovide information that we believe is believed to be relevant to an assessment and understanding of ourthe results of operation and financial condition of the Company for the three and sixnine months ended December 31, 2017 as compared to the threeSeptember 30, 2022 and six months ended December 31, 2016.September 30, 2021. Unless otherwise stated, all figures herein are expressed in U.S. dollars, which is the Company’s functional currencycurrency.
Comparison of the Company.
Results of Operations for the three months endedDecember 31, 2017 compared to the three months ended December 31, 2016.
Revenue
During the three and six-month periodsnine months ended December 31, 2017September 30, 2022 and 2016,2021
Revenue
During the nine months ended September 30, 2022 and 2021, respectively, the Company generated no revenue.
Operating expensesExpenses
During the three-month periodthree and nine months ended December 31, 2017,September 30, 2022, the Company reported total operating expenses of $3,467,459 compared$3,824,948 and $13,291,484, respectively. Compared to $142,264 during the three-month periodthree and nine months ended December 31, 2016, an increaseSeptember 30, 2021, the Company reported total operating expenses of $3,325,195. $2,464,945 and $12,384,474, respectively.
The increase results from activities relatedin total operating expenses is primarily due to the Bunker Hill Mine, activities that did not exist in the previous year. This includes an increase in propertymine preparation legal and exploration costs of approximately $2,095,000 and an increase in operation and administrative expenses of $821,040 for the three months ended December 31, 2017consulting fees when compared to the same periodthree and nine-month periods ended December 31, 2016. Administrative expenses have increased dueSeptember 30, 2021. The Company was engaged in an active exploration campaign during the three and nine-month periods ended September 30, 2021, whereas the Company’s primary focus during the three and nine-month periods ended September 30, 2022 was on advancing mine restart efforts, including underground development and process plant demobilization activities.
The significant increase in consulting fees reflects the engagement of numerous engineering, geological and other professional firms to assist the Company being active once again after having been delistedin consummating several complex debt and relatively inactive for some years.equity financings, the purchases of the mine and processing plant, the EPA financial assurance requirements, fair value measurements of complex instruments, and advancement of project activities. These fees were somewhat offset by a decrease in operational and administration expenses.
For financial accounting purposes, the Company reports all direct exploration expenses all property lease paymentsunder the exploration expense line item of the condensed interim consolidated statements of income (loss) and exploration expenditurescomprehensive income (loss). Management determined that costs of the mine in the statement of operations. Duringmost recent quarter constituted mine preparation costs rather than exploration costs, since it was not focused on expanding the interim period endedDecember 31, 2017, activities were carried outmineral resources but was invested to execute on the Bunker Hilltasks and projects required to get the mine and payments made on account of the lease.
Consulting, legal and accounting, andinto shape for production activities. Certain indirect expenses may be reported as operation and administration expenses increased due toexpense or consulting expense on the Company’s new life with commensurate management and legal activity towards corporate “clean up”, investor relations and public relations work, as well as work related to acquiring and evaluating the Bunker Hill mine.
Net lossunaudited condensed interim consolidated statements of income and comprehensive loss income.
The Company had a net loss and comprehensive loss of $2,991,909 for the three months ended December 31, 2017, compared to a net loss and comprehensive loss of $171,227 for the three months ended December 31, 2016, a change of $2,820,682. The increase in net loss and comprehensive loss was due to increased corporate activities as described above. In addition, the Company recorded a change in the value of the derivative liability of $449,149 in the current quarter, something that was not present in the comparative period.
ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital Resources
Going Concern
These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $59,626,902 and further losses are anticipated in the development of its business. Additionally, the Company owes a total of $7,420,024 net of discount to the EPA (see Note 6) that is classified as long-term debt. The Company does not currently have sufficient working capital neededcash to fund normal operations and meet its planned expenditures and obligations.debt obligations for the next 12 months without deferring payment on certain current liabilities and/or raising additional funds. In order to execute on its plans, continue to meet its fiscal obligations in the current fiscal year and beyond, the next twelve months, the Company must seek additional financing. Management will be pursuingThis raises substantial doubt about the Company’s ability to continue as a financing by way of issuing new common shares or various other financing alternatives.
In December 2017, Bunker announced that it closedgoing concern. Its ability to continue as a private placement led by Red Cloud Klondike Strike Inc. and including Haywood Securities Inc. (collectively,going concern is dependent upon the “Agents”) to raise gross proceeds of C$10,155,400 (the “Offering”). Pursuant to the Offering, the Company issued 8,124,320 units (the "Units") at a price of C$1.25 per Unit. Each Unit is comprised of one common shareability of the Company (a "Common Share")to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and one half of one transferable common share purchase warrant (a "Warrant"),each Warrant having a three-year life and entitling the holder thereof to acquire one Common Share at a price of C$2.00.
repay its liabilities arising from normal business operations when they come due. The proceedsaccompanying condensed interim consolidated financial statements do not include any adjustments that might result from the Offering are beingoutcome of this uncertainty.
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Management is considering various financing alternatives including, but not limited to, raising capital through the capital markets, debt and closing on the multi-metals stream transaction. These unaudited condensed interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Debt and Equity Financings, EPA obligations, and Mine Purchase
As described above, during the nine months ended September 30, 2022, the Company closed on three convertible debentures totaling $29,000,000 and equity financings (net of issuance costs) totaling $7,769,745 and used primarily for lease payments, acquisition payments, exploration and development atthe proceeds to purchase the Bunker Hill Mine and for general corporatethe processing plant, as well as satisfy short-term obligations to the EPA including satisfaction of its financial assurance commitments, cost recovery and water treatment payments, advancement of mine restart activities and the funding of working capital purposes.requirements.
In connection with the Offering, the Agents received a cash fee in an amount equal to 8.0% of the gross proceeds of the Offering (excluding proceeds from certain president's list subscribers) and were granted common share purchase warrants (the "Broker Warrants") entitling them to subscribe for that number of Common Shares equal to 4.0% of the aggregate number of Units sold in the Offering (excluding Units sold to certain president's list subscribers). Each Broker Warrant is exercisable at a price equal to C$2.00 for thirty-six months following its issuance. The Company issued an aggregate of 278,160 Broker Warrants to the Agents in connection with the Offering. The proceeds from the Offering are being used primarily for lease payments, acquisition payments, exploration and development at the Bunker Hill Mine and for general corporate and working capital purposes
Current Assets and Total Assets
As of December 31, 2017,September 30, 2022, the unauditedCompany’s balance sheet reflects that the Company had: i) total current assets of $4,972,029,$11,787,942, compared to total current assets of $822,178$3,622,548 at June 30, 2017,December 31, 2021 – an increase of $4,149,851, or approximately 505%;$8,165,394; and ii) total assets of $4,979,941,$33,586,588, compared to total assets of $1,131,195$4,071,796 at June 30, 2017,December 31, 2021 – an increase of $3,848,746, or approximately 340%.$29,514,792. The increases resultedincrease in current assets was primarily due to an increase in restricted cash as a result of the proceeds from the financing completedconvertible debentures and equity financings, and from increases in December 2017 (noted above) netprepaid expenses and deposits. Total assets increased principally due to the increase in cash from financings and the purchase of expending cash over the quarter ended December 31, 2017.Bunker Hill Mine, the process plant and inventory.
Total Current Liabilities and Total Liabilities
As of December 31, 2017,September 30, 2022, the unauditedCompany’s balance sheet reflects that the Company had total current liabilities of $11,439,038 and total liabilities of $3,626,582,$48,321,757, compared to total current liabilities of $22,795,277 and total liabilities of $418,333$38,314,164 at June 30, 2017, a decrease of $404,236, or approximately 97%. Of the December 31, 2017 balance, $500,000 represents amounts owed2021. The decrease in the current liabilities is primarily reflective of financing and assurance activities that moved the EPA cost recovery liability from current to long term liabilities. Total liabilities increased as a result of the Company’s CEOclosing of the three convertible debentures and paidmovement of the EPA cost recovery liability from current to long term, offset by the decrease in January 2018.the long-term derivative warrant liability, promissory note.
In December 2017,
Working Capital and Shareholders’ Deficit
On September 30, 2022, the Company recordedhad working capital of $384,904 and a long-term Derivative Liability representing the valueshareholders’ deficiency of the warrants issued$14,735,169 compared to negative working capital of $19,172,729 and included in the units associated with the financing completed and described above. The Company has accounteda shareholders’ deficiency of $34,242,368 for the warrant liabilityyear ended December 31, 2021. Working capital increased during the nine months ended September 30, 2022 primarily due to funding from debt and equity financings, and the reclassification of cost recovery liabilities from current to long-term. Shareholders’ equity increased due to net income of $3,690,353 and $12,864,248 for the three and nine-month periods ended September 30, 2022, driven by decreases in accordance with ASC Topic 815. These warrants are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the US dollar. The estimated fair value of warrants accounted for as liabilities was determined on the date of issue and marks to market at each financial reporting period. The change in fair value of the derivative warrant is recordedliability.
Cash Flow
During the nine months ended September 30, 2022, the Company had a net cash decrease of $382,230, which represents cash provided from convertible debentures and equity financings, with proceeds used to satisfy short-term obligations with the EPA, purchase of the Bunker Hill Mine and a processing plant, partial repayment of the outstanding promissory note, advancement of mine restart activities, and funding of working capital requirements.
During the nine months ended September 30, 2022, cash of $26,531,674 was used in operating activities, primarily due to the usage of $9,476,000 to secure the Company’s financial assurance obligations with the EPA, $3,000,000 of payments against EPA cost recovery and water treatment payables, funding of mine restart activities, and other working capital requirements. This compares with cash used in operating activities of $9,372,253 for the nine months ended September 30, 2021.
During the nine months ended September 30, 2022, cash of $9,555,473 was used in investing activities for the purchase of the Bunker Hill Mine, a process plant, equipment, and real estate, compared with $94,693 used for investing activities in the condensed consolidated statementnine months ended September 30, 2021
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During the nine months ended September 30, 2022, cash of operations$35,704,917 was provided by financing activities by the three convertible debentures and comprehensive lossthe equity financings, offset by cash used for lease payments and repayment of a promissory note, compared with cash of $8,411,534 provided by financing activities in the nine months ended September 30, 2021
Subsequent Events
During October 2022, the Company issued 8,252,940 common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending September 30, 2022.
During October 2022, the Company reported that it has been successful in securing a new payment bond to secure a portion of its cost recovery obligations to the US Environmental Protection Agency (the “US EPA”), resulting in a $3,000,000 improvement in liquidity. As reported in the Company’s financial statements for the period ending September 30, 2022, the Company held restricted cash of $9,476,000 as of September 30, 2022 which included $7,001,000 as collateral for a letter of credit to the US EPA. This letter of credit has been reduced to $2,000,001 as a gain or loss and is estimated using the Binomial model.
Cash Flow –result of a new $5,000,000 payment bond obtained through an insurance company. The collateral for the interim periods endednew payment bond is comprised of a $2,000,000 letter of credit and land pledged by third parties, with whom the company has entered into a financing cooperation agreement that contemplates a monthly fee of $20,000 (payable in cash or common shares of the Company, at the Company’s election).
The new payment bond is scheduled to increase to $7,001,000 (from $5,000,000) upon the advance of the multi-metals Stream from Sprott Private Resource Streaming & Royalty Corp. (see the Company’s news release of December 31, 2017 and 201620, 2021 for further detail), which would result in a further $2,001,000 improvement in liquidity for the Company from the release of restricted cash.
During
In October 2022, the six months ended December 31, 2017 cash was primarily used to fund working capital and operations as well as property payments. The Company reported that it awarded a net increasenew water management consulting services contract to MineWater LLC (“MineWater”) for strategic environmental support at the Bunker Hill Mine through September 30, 2023. Pursuant to the contract, the Company agreed to pay MineWater $60,000 in cash and issue 1,599,150 Restricted Share Units, which were issued and vested immediately to common shares of $3,663,831 during the six months ended DecemberCompany that are subject to customary resale restrictions in Canada and the United States.
In November 2022, the Company awarded 4,396,741 Restricted Share Units to certain executives in relation to an annual grant under its Long-Term Incentive Plan. The RSUs vest in one-third increments on March 31 2017 compared to a net increase in cash of $16,107 during2023, 2024, and 2025.
Critical accounting estimates
The preparation of the six months ended December 31, 2016. The following provides additional discussion and analysis of cash flow.
For the six months ended December 31, | 2017 $ |
| 2016 $ |
|
|
|
|
Net cash used in operating activities | (3,520,210) |
| (219,978) |
Net cash provided by financing activities | 7,184,041 |
| 236,085 |
|
|
|
|
Net Change in Cash | 3,663,831 |
| 16,107 |
Going Concern
These unaudited interim condensed consolidated financial statement filings have been preparedstatements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the going concern basis, which assumes that adequatecircumstances. Actual outcomes can differ from these estimates. The key sources of financing will be obtained as required andestimation uncertainty that the Company’s assets will be realized, and liabilities settled in due coursehave a significant risk of business. Accordingly, the interim condensed consolidated unaudited financial statements do not include any adjustments relatedcausing material adjustment to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company not be able to continue as a going concern. The going concern assumption is discussedamounts recognized in the financial statements are:
Note 1 – BasisShare-based payments
Management determines costs for share-based payments using market-based valuation techniques. The fair value of Presentationthe share awards and Going Concern.warrant liabilities are determined at the date of grant using generally accepted valuation techniques and for warrant liabilities at each balance sheet date thereafter. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price and expected dividend yield. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.
OFF BALANCE SHEET ARRANGEMENTS
Warrants and accrued liabilities
Estimating the fair value of derivative warrant liability requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the issuance. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the warrants and conversion feature derivative liability, volatility and dividend yield and making assumptions about them.
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The Company doeshas to make estimates to accrue for certain expenditures due to delay in receipt of third-party vendor invoices. These accruals are made based on trends, history and knowledge of activities. Actual results may be different.
The Company makes monthly estimates of its water treatment costs, with a true-up to the annual invoice received from the IDEQ. Using the actual costs in the annual invoice, the Company will then reassess its estimate for future periods.
Complex Financing Transactions
The Company has engaged in a series of complex financing transactions, which involve the issuance of certain conversion features embedded in the debt, including options to receive interest payments in the form of the Company’s shares and to purchase a gross revenue royalty in the Bunker Hill Mine. These instruments require evaluation to determine fair values of the debt and the embedded conversion features, which require complex calculations of many appropriate inputs to the valuation model variables, including but not have anylimited to the expected life of the debt instrument and conversion feature derivative liability, volatility of the Company’s shares, effective discount rates, probabilities of operational assumptions as related to an anticipated royalty revenue stream, the Company’s own credit risk and other inputs. The Company has to make estimates of each of these inputs in applying a valuation model to account for the derivative values, the presentation of these values, the periodic changes to the fair values and the recognition of these changes.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETItem 4. Controls and Procedures
RISK.
Not Applicable.
ITEM 4.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission (“SEC”) defines the term “disclosure controls and procedures” to mean a company'scompany’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC'sSEC’s rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, the Company carried outmade an evaluation under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, theChief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are designed to provide reasonable assurance of achievingover financial reporting for the objectives of timely alerting themalert to material information required to be included in the Company’s periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified. This evaluation resulted in the identification of significant deficiencies. Based on the context in which the individual deficiencies occurred, management has concluded that these are significant deficiencies. The Company’s Chief Executive OfficerCEO and Chief Financial Officer also concluded thatCFO are in the process of making significant improvements to the disclosure controls and procedures were effective as of the end of the period covered by this reportin order to provide reasonable assurance of the achievementeffectiveness of these objectives.the controls and procedures.
Changes in Internal Control overOver Financial Reporting
There was no change
Mitigating these significant deficiencies, however, is that, commencing in the Company's internal control over financial reporting during the period ended December 31, 2017, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
TEM 1.
LEGAL PROCEEDINGS.
The Company is currently a party to litigation, which it initiated against Liberty International Underwriters, Inc., the underwriter of its directors and officer’s liability insurance. The case is captioned: Liberty Silver Corp. v. Liberty International Underwriters, Court File No. CV-15-529239 and was filed on May 29, 2015, in the Ontario Superior Court of Justice. In this legal action, the Company is seeking payment of legal fees incurred in connection with SEC and OSC cease trade orders. In connection with the substantial legal fees incurred by the Company with various law firms,2021, the Company has entered into an assignment agreement (the “Assignment Agreement”)replaced certain accounting resources by engaging qualified finance and accounting staff who are experienced in established and proven internal controls and accounting procedures with other companies in the various law firms thatsame industry. As the work product of these qualified staff are owedreflected in Company transactions more fully in 2022, management will be able to address these fees. Pursuant to the Assignment Agreement, the Company has irrevocably assigned the net proceedsremaining significant deficiencies.
As part of the Company’s action againstafore-mentioned engagement, Management has engaged a third-party firm to assist in developing Disclosure Controls and Procedures and Internal Controls Over Financial Reporting. The Company intends to remedy these significant deficiencies dependent on having the insurance underwriterfinancial resources available to each of the law firms that are owed fees in connection with the SEC and OSC cease trade orders. Each of the law firms have agreed, pursuant to the terms of the Assignment Agreement, to fully and finally release the Company from any and all claims, demands and causes of action, in respect of the accounts rendered by the law firms. complete them.
Neither
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Other than as described below, neither the Company nor its property is the subject of any othercurrent, pending, or threatened legal proceedings, and no other such proceeding is known to be contemplated by any governmental authority.proceedings. The Company is not aware of any other legal proceedings in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of the Company’s voting securities, or any associate of any such director, officer, affiliate or security holder of the Company, is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.
ITEMOn July 28, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by Crescent Mining, LLC (“Crescent”). The named defendants include Placer Mining, Robert Hopper Jr., and the Company. The lawsuit alleges that Placer Mining and Robert Hopper Jr. intentionally flooded the Crescent Mine during the period from 1991 and 1994, and that the Company is jointly and severally liable with the other defendants for unspecified past and future costs associated with the presence of AMD in the Crescent Mine. The plaintiff has requested unspecified damages. On September 20, 2021, the Company filed a motion to dismiss Crescent’s claims against it, contending that such claims are facially deficient. On March 2, 2022, Chief US District Court Judge, David C. Nye granted in part and denied in part the Company’s motion to dismiss. The court granted the Company’s motion to dismiss Crescent’s Cost Recovery claim under CERCLA Section 107(a), Declaratory Judgment, Tortious Interference, Trespass, Nuisance and Negligence claims. These claims were dismissed without prejudice. The court denied the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass, nuisance and negligence claims. Crescent later filed an amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining Corp are named as co-defendants. Bunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint except those that are assertions of fact as a matter of public record. The Company believes Crescent’s lawsuit is without merit and intends to vigorously defend itself, as well as Placer Mining Corp. pursuant to the Company’s indemnification of Placer Mining Corp in the Sale and Purchase agreement executed between the companies for the Mine on December 15, 2021.
On October 26, 2021, the Company asserted claims against Crescent in a separate lawsuit. Bunker Hill Mining Corporation v. Venzee Technologies Inc. et al, Case No. 2:21-cv-209-REP, filed in the same court on May 14, 2021. The Company has subsequently executed a tolling agreement with Venzee in exchange for dropping its lawsuit. The Company originally filed this lawsuit on May 14, 2021 against other parties but has since filed an amended complaint to include its claims against Crescent.
Item 1A. Risk Factors
RISK FACTORS.
There are significant risks in investing in our common shares. Reference is made to the risks described in our prospectus filed with the SEC on May 31, 2022, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
Not Applicable.
ITEM 2.Item 3. Defaults upon Senior Securities
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not Applicable.None.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.Item 4. Mine Safety Disclosure
None.
ITEM 4.
MINE SAFETY DISCLOSURES.
ThePursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (“(the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the Act”) requires the operators of minesUnited States are required to includedisclose in eachtheir periodic reportreports filed with the SecuritiesSEC information regarding specified health and Exchange Commission certain specified disclosures regardingsafety violations, orders and citations, issued under the Company’s historyFederal Mine Safety and Health Act of mine safety. The Company currently does not operate any mines and, as such, is not subject to disclosure requirements regarding mine safety that were imposed1977 (the “Mine Act”) by the Act.Mine Safety and Health Administration (the “MSHA”), as well as related assessments and legal actions, and mining-related fatalities.
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ITEM 5.
OTHER INFORMATION.
Not Applicable.
ITEM 6.
EXHIBITS.
(a)
The following exhibits are filed herewith:table provides information for the three months ended September 30, 2022.
Mine | Mine Act §104 Violations (1) | Mine Act §104(b) Orders (2) | Mine Act §104(d) Citations and Orders (3) | Mine Act §110(b)(2) Violations (4) | Mine Act §107(a) Orders (5) | Proposed Assessments from MSHA (In dollars $) | Mining Related Fatalities | Mine Act §104(e) Notice (yes/no) (6) | Pending Legal Action before Federal Mine Safety and Health Review Commission (yes/no) | |||||||||||||||||||||||
Bunker Hill Mine | 0 | 0 | 0 | 0 | 0 | 0 | 0 | No | No |
(1) | The total number of violations received from MSHA under §104 of the Mine Act, which includes citations for health or safety standards that could significantly and substantially contribute to a serious injury if left unabated. |
(2) | The total number of orders issued by MSHA under §104(b) of the Mine Act, which represents a failure to abate a citation under §104(a) within the period of time prescribed by MSHA. |
(3) | The total number of citations and orders issued by MSHA under §104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards. |
(4) | The total number of flagrant violations issued by MSHA under §110(b)(2) of the Mine Act. |
(5) | The total number of orders issued by MSHA under §107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed. |
(6) | A written notice from the MSHA regarding a pattern of violations, or a potential to have such pattern under §104(e) of the Mine Act. |
31.1Item 5. Other Information
None.
Item 6. Exhibits
Exhibit No. | Document | |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act | |
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act | |
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
35 |
SIGNATURES
In accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
32.1
32.2
101.
SCH XBRL Schema Document.
101
INS XBRL Instance Document.
101.
CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.
LAB XBRL Taxonomy Extension Label Linkbase Document.
101.
PRE XBRL Taxonomy Extension Presentation Linkbase Document.
101.
DEF XBRL Taxonomy Extension Definition Linkbase Document.
SIGNATURES
Pursuant to the requirements12 of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this reportQuarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
By: /s/ Bruce ReidDate: November 4, 2022
Bruce Reid, President and
BUNKER HILL MINING CORP. | ||
By | /s/ Sam Ash | |
Sam Ash, Chief Executive Officer and President |
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has caused Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 21, 2018November 4, 2022
BUNKER HILL MINING CORP. | ||
By | /s/ David Wiens | |
David Wiens, Chief Financial Officer and Corporate Secretary |
By: /s/ Julio DiGirolamo
Julio DiGirolamo, Chief Financial Officer
Date: February 21, 2018
19