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

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterlytransition period ended June 30, 2021from            to        

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number: 333-150028

 

BUNKER HILL MINING CORP.COMPANY

(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)

 

Nevada333-150028nevada 32-0196442

(State orof other jurisdiction

of incorporation)incorporation or organization)

 

(CommissionI.R.S. Employer

File Number)Identification No.)

 

(IRS Employer

Identification Number)

82 Richmond Street East,
Toronto, Ontario, Canada M5C 1P1
(Address of principal executive offices)Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: 416(416)-477-7771

(Registrant’s Telephone Number, including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

 

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under SectionSECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Exchange Act: OF THE ACT: None

 

Indicate by check mark if the registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities ActAct. Yes ☐ YesNo ☒ No

 

Indicate by check mark if the registrantRegistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☒ YesNo ☐ No

 

Indicate by check mark whether the Registrant (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 pastpreceding 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. ☒ Yes ☒ No ☐ 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). ☒ Yes ☒ No ☐ No.

to this Form 10-K. ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitionsdefinition of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and smaller reporting company”“emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company Growth Company ☐

Indicate by check mark whether the registrantRegistrant is a shell company, (asas defined in Rule 12b-2 of the Exchange Act).Act. Yes ☐ Yes ☒ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price  at which the common equity was last sold, or the average bid and asked price on June 30, 2021: CDN$45,858,830. As a result of the change in fiscal year end from the last day of June to a calendar fiscal year ending on the last day of December of each year, effective January 1, 2021, the reporting period for this Form 10-Q represents the second quarter for the fiscal year ended December 31, 2021.

As of August 13, 2021, the Issuer had 164,435,827Common Shares issued and outstanding.

☒

 

Number of shares of Common Stock outstanding as of May 16, 2022: 178,408,764

 

PART I – FINANCIAL INFORMATIONTABLE OF CONTENTS

 

ITEM 1.PART I – FINANCIAL INFORMATIONFINANCIAL STATEMENTS3
Item 1. Financial Statements3
Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation21
Item 3. Quantitative and Qualitative Disclosures about Market Risk28
Item 4. Controls and Procedures28
PART II – OTHER INFORMATION29
Item 1. Legal Proceedings29
Item 1A. Risk Factors29
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds29
Item 3. Defaults upon Senior Securities29
Item 4. Mine Safety Disclosure29
Item 5. Other Information30
Item 6. Exhibits30

 

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The Condensed interim consolidated financial statements of Bunker Hill Mining Corp., (“Bunker Hill”, the “Company”, or the “Registrant”) aa. 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’s Form 10-KT10-K for the six monthsyear ended December 31, 2020,2021, and all amendments thereto.

 

BUNKER HILL MINING CORP.

CONDENSED INTERIM CONSOLIDATED FINANCIAL

STATEMENTS

THREE AND SIX MONTHS ENDED

JUNE 30, 2021

(EXPRESSED IN UNITED STATES DOLLARS)

(UNAUDITED)

3

 

Bunker Hill Mining Corp.

Condensed Interim Consolidated Balance Sheets

(Expressed in United States Dollars)

Unaudited

 

As at

June 30,

  

As at

December 31,

   March 31,  December 31, 
 2021 2020  2022  2021 

ASSETS

             
        
Current assets                

Cash and cash equivalents

 $2,377,389  $3,568,661 
Cash $3,010,080  $486,063 
Accounts receivable  113,397   100,032   169,207   112,630 
Prepaid expenses  297,722   376,925   246,270   300,813 
Short-term deposit (notes 3 and 14)  500,000   68,939 
Prepaid mine deposit and acquisition costs (note 5)  -   2,260,463 
Prepaid finance costs  190,649   393,640 
Total current assets  2,788,508   4,045,618   4,116,206   3,622,548 
                
Non-current assets                

Equipment (note 3)

  466,024   435,727   496,229   396,894 
Right-of-use assets (note 4)  105,542   158,731   27,911   52,353 
Long term deposit (note 5)  2,068,939   2,068,939 
Mining interests (note 5)  1   1 
Bunker Hill Mine and mining interests (note 5)  14,449,211   1 
Total assets $5,429,014  $6,709,016  $19,089,557  $4,071,796 
                

EQUITY AND LIABILITIES

                
                
Current liabilities                

Accounts payable (notes 5 and 14)

 $2,958,101  $2,392,761 
Accrued liabilities (notes 5 and 13)  11,639,638   10,560,884 
Accounts payable (note 13) $900,984  $1,312,062 
Accrued liabilities (note 12)  2,415,382   869,581 
EPA/IDEQ water treatment payable (note 6)  5,185,706   5,110,706 
Interest payable (note 6)  506,735   409,242 
DSU liability (note 11)  970,404   1,110,125   1,331,488   1,531,409 
Promissory notes payable (note 7)  2,500,000   2,500,000 
EPA cost recovery payable - short-term (note 6)  12,000,000   11,000,000 
Current portion of lease liability (note 8)  123,934   114,783   31,889   62,277 
Total current liabilities  15,692,077   14,178,553   24,872,184   22,795,277 
                
Non-current liabilities                
        

Lease liability (note 8)

  -   61,824 
Derivative warrant liability (notes 7 and 9)  12,107,172   24,006,236 
Convertible debentures (note 7)  

12,553,070

   - 
Derivatives of convertible debenture (note 7)  1,260,850   - 
EPA cost recovery liability - long-term, net of discount (note 6)  3,540,852   - 
Derivative warrant liability (notes 8 and 9)  12,064,879   15,518,887 
Total liabilities  27,799,249   38,246,613   54,291,835   38,314,164 
                

Shareholders’ Deficiency

                
Preferred shares, $0.000001 par value, 10,000,000 preferred shares authorized; Nil 0 preferred shares issued and outstanding (note 9)  -   - 
Common shares, $0.000001 par value, 750,000,000 common shares authorized;163,781,537 and 143,117,068 common shares
issued and outstanding, respectively (note 9)		  163   143 
Preferred shares, $0.000001 par value, 10,000,000 preferred shares authorized; Nil preferred shares issued and outstanding (note 9)  -   - 
Common shares, $0.000001 par value, 750,000,000 common shares authorized; 164,435,442 and 143,117,068 common shares issued and outstanding, respectively (note 9)  164   164 
Subscriptions received (note 14)  1,775,790   - 
Additional paid-in-capital (note 9)  37,835,610   34,551,133   38,393,804   38,248,618 
Deficit accumulated during the exploration stage  (60,206,008)  (66,088,873)  (75,372,036)  (72,491,150)
Total shareholders’ deficiency  (22,370,235)  (31,537,597)  (35,202,278)  (34,242,368)
Total shareholders’ deficiency and liabilities $5,429,014  $6,709,016  $19,089,557  $4,071,796 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

4

Bunker Hill Mining Corp.

Condensed Interim Consolidated Statements of Income (loss)(Loss) and Comprehensive Income (loss) (Expressed(Loss)

(Expressed in United States Dollars)

Unaudited

  Three Months Ended June 30, 2021  Three Months Ended June 30, 2020  Six Months Ended June 30, 2021  Six Months Ended June 30, 2020 
             
Operating expenses                
Operation and administration (notes 9, 10 and 11) $447,463  $850,015  $1,285,408  $

1,033,739

 
Exploration  4,123,735   2,461,383   7,212,037   3,377,124 
Legal and accounting  318,110   123,798   537,218   186,206 
Consulting (note 14)  406,249   154,165   884,868   355,252 
Loss from operations  (5,295,557)  (3,589,361)  (9,919,531)  (4,952,321)
                 
Other income or gain (expense or loss)                
Change in derivative liability (notes 7 and 9)  5,236,792   (19,060,232)  15,712,168   (8,214,828)
Accretion expense (notes 6 and 7)  -   (143,759)  -   (252,009)
Financing costs (note 7)  -   (30,000)  -   (30,000)
Gain (loss) on foreign exchange  103,821   (9,294)  146,374   (19,868)
Interest expense (notes 6 and 7)  -   (49,929)  -   (102,545)
Loss on loan extinguishment (note 6)  -   -   -   (9,407)
Loss on debt settlement (note 9)  -   -   (56,146)    
Net income (loss) and comprehensive income (loss) for the period $45,056  $(22,882,575) $5,882,865  $(13,580,978)
Dilutive effect of warrant $(175,816) $-  $(520,066) $- 
Diluted net income (loss) and comprehensive income (loss) for the period (Note 12) $(130,760) $(22,882,575) $5,362,799  $(13,580,978)
Net income (loss) per common share (note 12)                
- basic $0.00  $(0.29) $0.04  $(0.18)
- fully diluted (note 12) $0.00  $(0.29) $0.03  $(0.18)
Weighted average number of common shares (note 12)                
- basic  163,677,564   79,005,399   158,916,637   76,010,941 
- fully diluted  164,381,133   79,005,399   159,944,037   76,010,941 

(Unaudited)

   1   2 
  Three Months Ended 
  March 31, 
  2022  2021 
Operating expenses        
Operation and administration $259,712  $837,945 
Exploration  -   3,088,302 
Mine preparation  2,507,079   - 
Legal and accounting  362,736   219,108 
Consulting  2,357,147   478,619 
Loss from operations  (5,486,674)  (4,623,974)
         
Other income or gain (expense or loss)        
Change in derivative liability  3,454,008   10,475,376 
Gain on foreign exchange  27,920   42,553 
Loss on FV of debenture derivative  (73,469)  - 
Interest expense  (735,237)  - 
Debenture finance costs (note 7)  (67,434)  - 
Loss on debt settlement  -   (56,146)
Net (loss) income and comprehensive (loss) income for the period  (2,880,886)  5,837,809 
         
Net (loss) income per common share – basic $(0.02) $0.04 
Net (loss) income per common share – fully diluted $(0.02) $0.04 
         
Weighted average common shares – basic  164,435,442   154,102,811 
Weighted average common shares – fully diluted  165,076,880   155,192,827 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

5

Bunker Hill Mining Corp.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in United States Dollars)

Unaudited

 

  1   2 
 Three Months Three Months 
 Six Months Ended Six Months Ended  Ended Ended 
 June 30, June 30,  March 31, March 31, 
 2021 2020  2022  2021 
Operating activities                

Net income (loss) for the period

 $5,882,865  $(13,580,978) $(2,880,886) $5,837,809 
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based compensation  761,062   879,618 
Stock-based compensation (note 10)  (54,735)  534,528 
Depreciation expense  117,585   70,035   78,457   56,425 
Change in fair value of warrant liability  (15,712,168)  8,214,828   (3,454,008)  (10,475,376)
Accretion expense  -   252,009 
Financing costs  -   30,000 
Loss on loan extinguishment  -   9,407 
Interest expense on lease liability  7,827   12,118 
Foreign exchange gain on re-translation of lease liability  4,485   (10,766)
Imputed interest expense on lease liability (note 8)  1,317   4,210 
Foreign exchange loss (gain)  (27,920)  (42,553)
Foreign exchange loss (gain) on re-translation of lease (Note 8)  718   2,015 
Loss on debt settlement  56,146   -   -   56,146 
Changes in operating assets and liabilities: Accounts receivable  (13,365)  (20,667)
Amortization of EPA discount  138,427   - 
Loss on fair value of convertible debt derivatives  73,469   - 
Imputed interest expense on convertible debentures  468,116   - 
Changes in operating assets and liabilities:        
Accounts receivable  (56,577)  (23,184)
Prepaid finance costs  (524,674)  - 
Prepaid expenses  79,203   (92,997)  63,482  1,278 
Accounts payable  565,340   752,734   (383,159)  (533,471)
Accrued liabilities  1,210,754   861,141   1,545,801   550,235 
Accrued EPA/IDEQ water treatment  75,000   - 
EPA cost recovery payable  (2,000,000)  - 
Interest payable  -   102,545   97,493   - 
Net cash used in operating activities  (7,040,266)  (2,520,973)  (6,839,679)  (4,031,935)
                
Investing activities                
Deposit on plant  (500,000)  - 
Land purchase  (202,000)  - 
Bunker Hill mine purchase  (5,524,322)  - 

Purchase of machinery and equipment

  (94,693)  (219,528)  (153,350)  - 
Net cash used in investing activities  (94,693)  (219,528)  (6,379,672)  - 
                
Financing activities                

Proceeds from issuance of common stock

  6,008,672   1,271,066 
Proceeds from warrants exercised  -   417,006 
Shares to be issued  -   549,363 
Proceeds from convertible debentures  14,000,000   - 
Proceeds from issuance of shares, net of issue costs  -   6,008,672 
Proceeds from subscriptions received  1,775,790   - 
Lease payments  (64,985)  (61,594)  (32,422)  (32,000)
Proceeds from promissory note  -   702,169 
Repayment of promissory note  -   (158,094)
Net cash provided by financing activities  5,943,687   2,719,916   15,743,368   5,976,672 
Net change in cash and cash equivalents  (1,191,272)  (20,585)
Cash and cash equivalents, beginning of period  3,568,661   82,558 
Cash and cash equivalents, end of period $2,377,389  $61,973 
Net change in cash  2,524,017   1,944,737 
Cash, beginning of period  486,063   3,568,661 
Cash, end of period $3,010,080  $5,513,398 
        
Supplemental disclosures                
Non-cash activities:        
Units issued to settle accounts payable, accrued liabilities and promissory notes $188,607  $- 
Common stock issued to settle convertible loan $-  $300,000 
Non-cash activities        
Units issued to settle accrued liabilities $-  $188,607 

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

       1   2   5    3   4 
         Stock   Deficit    
         subscriptions   accumulated    
     Additional  received for  during the    
  Common stock  paid-in-  Units to be  exploration    
  Shares  Amount  capital  issued  stage  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 received for Units  -   -   -   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)
                         
Balance, December 31, 2020  143,117,068  $143  $34,551,133  $34,551,133  $(66,088,873) $(31,537,597)
Beginning Balance  143,117,068  $143  $34,551,133  $34,551,133  $(66,088,873) $(31,537,597)
Stock-based compensation        620,063   620,063   -   620,063 
Shares issued at $0.32 per share (1)  19,576,360   20   6,168,049   6,168,049   -   6,168,069 
Shares issued for debt settlement at $0.45 per share (2)  417,720   -   188,145   188,145   -   188,145 
Shares issued for RSUs vested  437,332   -   -   -   -   - 
Issue costs  -   -   (159,397)  (159,397)  -   (159,397)
Warrant valuation  -   -   (3,813,103)  (3,813,103)  -   (3,813,103)
Net loss for the period  -   -   -   -   5,837,809   5,837,809 
Balance, March 31, 2021  163,548,480  $163  $37,554,890  $37,554,890  $(60,251,064) $(22,696,011)
Ending Balance  163,548,480  $163  $37,554,890  $37,554,890  $(60,251,064) $(22,696,011)

                         
 
 		 
 		 
 		 
 		 
 		 
Additional		 
 		 
 		 
 		 
 		 
 		Deficit
accumulated during the		 
 		 
 		 
 		 
 
  Common stock  paid-in-  Shares to  exploration    
  Shares  Amount  capital  be issued  stage  Total 
Balance, December 31, 2019  69,817,196  $70  $27,008,634  $-  $(50,343,441) $(23,334,737)
Stock-based compensation  -   -   329,954   -   -   329,954 
Shares issued at $0.42 per share (i)  3,098,216   3   1,301,522   -   -   1,301,525 
 Units issued at $0.32 per unit (iii)                        
Units issued at $0.32 per share, shares                        
Shares issued for debt settlement at $0.42 per share (i)  696,428   1   299,999   -   -   300,000 
Units issued for debt settlement at $0.45 per unit (iv)                        
Units issued for debt settlement at $0.42 per share, shares                        
Shares issued for RSUs vested                        
Shares issued for RSUs vested, shares                        
Finder’s units issued  3,315,200   3   125,177   -   -   125,180 
Finder’s warrants issued  -   -   50,223   -   -   50,223 
Warrants exercised at $0.18 per share (ii)  2,332,900   2   1,288,714   -   -   1,288,716 
Issue costs  -   -   (271,165)  -   -   (271,165)
Warrant valuation                        
Shares to be issued  -   -   -   549,363   -   549,363 
Net loss for the period  -   -   -   -   (13,580,978)  (13,580,978)
Balance, June 30, 2020  79,259,940  $79  $30,133,058  $549,363  $(63,924,419) $(33,241,919)
                         
Balance, December 31, 2020  143,117,068  $143  $34,551,133  $-  $(66,088,873) $(31,537,597)
Stock-based compensation  -   -   900,783   -   -   900,783 
Units issued at $0.32 per unit (iii)  19,576,360   20   6,168,049   -   -   6,168,069 
Units issued for debt settlement at $0.45 per unit (iv)  417,720   -   188,145   -   -   188,145 
Shares issued for RSUs vested  670,389   -   -   -   -   - 
Issue costs  -   -   (159,397)  -   -   (159,397)
Warrant valuation  -   -   (3,813,103)  -   -   (3,813,103)
Net income for the period  -   -   -   -   5,882,865   5,882,865 
Net income (loss) for the period  -   -   -   -   5,882,865   5,882,865 
Balance, June 30, 2021  163,781,537  $163  $37,835,610  $-  $(60,206,008) $(22,370,235)

(i)Shares issued at C$0.56, converted to US at $0.42 (note 9)
(ii)Shares issued upon warrants exercised at C$0.25, converted to US at $0.18 (note 9)
(iii)Units issued at C$0.40, converted to US at $0.32 (note 9)
(iv)(i)Units issued at C$0.57,0.40, converted to US at $0.45 (note 9)$0.32 (note 11)
(ii)Units issued at C$0.57, converted to US at $0.45 (note 11)

 

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 Six Months Ended June 30, 2021March 31, 2022

(Expressed in United States Dollars)

Unaudited

1. Nature and continuanceContinuance of operationsOperations and going concernGoing Concern

Bunker Hill Mining Corp. (the “Company”) was incorporated under the laws of the state of Nevada, U.S.AU.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 82 Richmond Street East, Toronto, Ontario, Canada, M5C 1P1. As of the date of this Form 10-Q, the Company had one subsidiary, Silver Valley Metals Corp. (formerly American 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 project with a view towards putting it 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 $60,206,00875,372,036 and further losses are anticipated in the development of its business. Additionally, the Company owes a total of $17,497,236 to the Environmental Protection Agency (“EPA”) (see Note 6) that is classified as current liability unless the Company can consummate financial assurances that would reclassify $12,000,000 of this liability to long-term debt. The Company owes a total of $3,540,852, net of discount, to the EPA that is classified as long-term debt. The Company does not have sufficient working capital neededcash to fund normal operations and meet itsdebt obligations for the next 12 months without deferring payment on certain current fiscal obligations and commitments.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 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 and debt financing. These 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 as a going concern.in existence.

 

The ability of the Company to emerge from the exploration stage is dependent upon, among other things, obtainingobtain additional financing to continue operations, explore and develop the mineral properties and the discovery, development, and sale of reserves.

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 (“COVID19”COVID-19”). The Company cannot accurately predict the impact COVID19COVID-19 will 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.

 

8

The Russia/Ukraine Crisis:

 

Bunker Hill Mining Corp.

NotesThe 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 impact the crisis will have on its operations and the ability of contractors to Condensed Interim Consolidated Financial Statements

Threemeet their obligations with the Company, including uncertainties relating the severity of its effects, the duration of the conflict, and Six Months Ended June 30, 2021

(Expressed inthe 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 Dollars)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.

Unaudited

 

2. Basis of presentationPresentation

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’ equitydeficiency, 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/T,10-K, which contains the annual audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the six monthsyear ended December 31, 2020.2021. The interim results for the period ended June 30, 2021March 31, 2022, are not necessarily indicative of the results for the full fiscal year. The unaudited interim condensed consolidated financial statements are presented in USD,United States dollars, which is the Company’s functional currency.

 

8

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022

(Expressed in United States Dollars)

3. Equipment

 

Equipment consists of the following:

Schedule of Equipment

 March 31, December 31, 
 2022  2021 
 

June 30,

2021

 

December 31,

2020

      

Equipment

 $603,972  $509,279  $757,322  $603,972 
Equipment, gross  757,322   603,972 
Less accumulated depreciation  (137,948)  (73,552)  (261,093)  (207,078)
Equipment, net $466,024  $435,727  $496,229  $396,894 

 

The total depreciation expense during the three and six months ended June 30,March 31, 2022 and March 31, 2021 was $34,56654,015 and $64,39629,830, respectively (three and six months ended June 30, 2020 - $14,392 and $16,673, respectively).respectively.

Pend Oreille Process Plant

On January 25, 2022, the Company 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 “Pend Oreille Mill”). The package comprises substantially all processing equipment of value located at the site, 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 MOU outlined a purchase price under two scenarios, at Teck’s option: an all-cash $2,750,000 purchase price, or a $3,000,000 purchase price comprised of cash and Bunker Hill shares. Each option includes a $500,000 non-refundable deposit, which was paid by the Company in January 2022.

On March 31, 2022, the Company reached an agreement with a subsidiary of Teck to satisfy the remaining purchase price for the Pend Oreille Mill by way of an equity issuance of the Company. Teck will receive 10,416,667 units of the Company (the “Teck Units”) at a deemed issue price of C$0.30 per unit. Each Teck Unit consists of one common share of the Company and one common share purchase warrant (the “Teck Warrants”). Each whole Teck Warrant entitles the holder to acquire one common share at a price of C$0.37 per common share for a period of three years. The equity issuance occurred on May 13, 2022.

4. Right-of-use assetRight-of-Use Asset

 

Right-of-use asset consists of the following:

Schedule of Right-of-UseRight-of-use Asset

  

June 30,

2021

  

December 31,

2020

 
Office lease $319,133  $319,133 
Less accumulated depreciation  (213,591)  (160,402)
Right-of-use asset, net $105,542  $158,731 

  March 31,  December 31, 
  2022  2021 
       
Office lease $319,133   319,133 
Less accumulated depreciation  (291,222)  (266,780)
Right-of-use asset, net $27,911  $52,353 

 

The total depreciation expense during the three and six months ended June 30,March 31, 2022 and March 31, 2021 was $26,59424,442 and $53,18926,595, respectively (threerespectively.

5. Mining Interests

Bunker Hill Mine Complex

The Company purchased the Bunker Hill Mine (the “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 prior owner, for the lease and six months ended June 30,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 $27,4307,700,000 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 $53,3622,000,000 in Common Shares of the Company. The Company agreed to make an advance payment of $2,000,000, respectively).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.

 

9

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021March 31, 2022

(Expressed in United States Dollars)

Unaudited

5. Mining interests

Bunker Hill Mine Complex

On November 27, 2016,The Amended Agreement also required payments pursuant to an agreement with the EPA whereby for so long as the Company entered into a non-binding letterleases, owns and/or occupies the Mine, the Company would make payments to the EPA on behalf of intent with Placer Mining Corp. (“Placer Mining”), which letterin satisfaction of intent was further amended on March 29, 2017, to acquire the Bunker Hill MineEPA’s claim for historical water treatment cost recovery in Idaho and its associated milling facility locatedaccordance with the Settlement Agreement reached with the EPA in Kellogg, Idaho, in the Coeur d’Alene Basin (as amended, the “Letter of Intent”). Pursuant2018. Immediately prior to the terms and conditionspurchase of the LetterMine, the Company’s liability to EPA in this regard totaled $11,000,000.

The Company completed the purchase of Intent, the acquisition, which was subjectMine on January 7, 2022. The terms of the purchase price were modified to due diligence, would include all mining claims, surface rights, fee parcels, mineral interests, existing infrastructure, machinery$5,400,000 in cash, from $3,400,000 of cash and buildings at$2,000,000 of Common Shares. Concurrent with the Kellogg Tunnel portal in Milo Gulch, or anywhere underground atpurchase of the Bunker Hill Mine, Complex. The acquisition would also include all current and historic data relatingthe Company assumed incremental liabilities of $8,000,000 to the Bunker Hill Mine Complex, such as drill logs, reports, maps, and similar information located at the mine site or any other location.

During the year ended June 30, 2017, the Company made payments totaling $300,000 as part of this Letter of Intent. These amounts were initially capitalized and subsequently written off during fiscal 2018 and were included in exploration expenses.

On August 28, 2017, the Company announced that it signed a definitive agreement (the “Agreement”) for the lease and option to purchase the Bunker Hill Mine assets (the “Bunker Assets”).

UnderEPA, consistent with the terms of the amended Settlement Agreement with the CompanyEPA that was required to make a $1,000,000 bonus payment to Placer Mining no later than October 31, 2017, which payment was made, along with two additional $500,000 bonus paymentsexecuted in December 2017. 2021 (see “EPA Settlement Agreement” section below).

The 24month lease commenced November 1, 2017.$5,400,000 Duringcontract cash paid at purchase was the term$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 lease,Mine is comprised of the Company was to make $following:

100,000Schedule of Mining Interests monthly mining lease payments, paid quarterly.

  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 

 

The Company had an option toManagement has determined the purchase the Bunker Assets at any time before the end of the lease and any extension for a purchase price of $45,000,000 with purchase price payments to be made overan acquisition of a ten year period to Placer Mining. Under the 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 $60,000,000.single asset.

On October 2, 2018, the Company announced that it was in default of the Agreement. The default arose as a result of missed lease and operating cost payments, totaling $400,000, which were due at the end of September and on October 1, 2018. As per the Agreement, the Company had 15 days, from the date notice of default was provided (September 28, 2018), to remediate the default by making the outstanding payment. While management worked with urgency to resolve this matter, management was ultimately unsuccessful in remedying the default, resulting in the Agreement being terminated.

On November 13, 2018, the Company announced that it was successful in renewing the Agreement, effectively with the original Agreement intact, except that monthly payments were reduced to $60,000 per month for 12 months, with the accumulated reduction in payments of $140,000 per month (“deferred payments”) being accrued. As at June 30, 2021, the Company has accrued for a total of $nil (December 31, 2020 - $nil), which is included in accounts payable. These deferred payments will be waived should the Company choose to exercise its option.

 

10

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021March 31, 2022

(Expressed in United States Dollars)

UnauditedLand Purchase

5. Mining interests (continued)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.

 

Bunker Hill Mine Complex (continued)6. Environmental Protection Agency Agreement

 

On November 1, 2019, the Agreement was amended (the “Amended Agreement”). The key termsAs a part of the Amended Agreement are as follows:

●The lease period was extended for an additional period of nine months to August 1, 2020, with the option to extend for a further six months based upon payment of a one-time $60,000extension fee (extended);
●The Company will make monthly care and maintenance payments to Placer Mining of $60,000 until exercising the option to purchase; and
●The purchase price is set at $11,000,000 for 100% of the Bunker Assets to be paid with $6,200,000 in cash, and$4,800,000 in common shares. The purchase price also includes the negotiable United States Environmental Protection Agency (“EPA”) costs of $20,000,000. The Amended Agreement provides for the elimination of all royalty payments that were to be paid to the mine owner. Upon signing the Amended Agreement, the Company paid a onetime, nonrefundable cash payment of $300,000 to the mine owner. This payment will be applied to the purchase price upon execution of the purchase option. In the event the Company elects not to exercise the purchase option, the payment shall be treated as an additional care and maintenance payment.

On July 27, 2020, lease of the Mine, the Company extended the lease with Placer Mining for a further 18 months for a $150,000 extension fee. This extension expires on August 1, 2022.

On November 20, 2020, the Company signed a further amendmentwas required to the Amended Agreement. Under the terms of this amendment:

●The Company will continue to make monthly care and maintenance payments to Placer Mining of $60,000 until exercising the option to purchase;
●The purchase price was reduced to $7,700,000 in cash, with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price of the Bunker Assets as having been previously paid by the Company and an aggregate of $5,400,000 payable in cash outstanding) and $2,000,000 in common shares. The reference price for the payment in common shares will be based on the common share price of the last equity raise before the option is exercised;
●The Company’s contingent obligation to settle $1,787,300 of accrued payments due to Placer Mining has been waived. As a result, the Company recorded a gain on settlement of accounts payable of $1,787,300 during the six months ended December 31, 2020; and
●The Company is to make an advance payment of $2,000,000 (paid) to Placer Mining which shall be credited toward the purchase price if and when the Company elects to exercise its purchase right. In the event that the Company irrevocably elects not to exercise its purchase right, the advance payment of $2,000,000 will be repaid to the Company within twelve months from the date of such election. The amount has been recorded as a long term deposit. This payment had the effect of decreasing the remaining amount payable to purchase the Bunker Assets to an aggregate of $3,400,000 payable in cash and $2,000,000 in Common Shares of the Company.

11

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

5. Mining interests (continued)

Bunker Hill Mine Complex (continued)

In addition to the payments to Placer Mining, and pursuant to an agreement with the EPA whereby for so long as Bunkerthe Company leases, owns and/or occupies the Bunker Hill Mine, the Company will make payments to the EPA on behalf of the current ownerPlacer Mining in satisfaction of the EPA’s claim for cost recovery. These payments, if all are made, will total $20,000,000. The agreement callscalled 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, December 1, 2018, June 1, 2019, November 1, 2019, November 1, 2020, and November 1, 2021, payments were not made, and the Company engaged in discussions with the EPA in an effort to reschedule these payments in ways that enable the sustainable operation of the Mine as a viable long-term business.

The EPA liability schedule in effect at March 31, 2022 was:

Schedule Of Environmental Protection Agency Agreement Liability

Date Amount 
November 1, 2021 $11,000,000 (aggregate amounts from 2018, 2019, 2020 and 2021) 
November 1, 2022 $3,000,000 
November 1, 2023 $3,000,000 
November 1, 2024 $2,000,000 plus accrued interest 

Interest is accrued at EPA superfund interest rates, which was 0.10% and 2.22% for the quarters ended March 31, 2022 and 2021, respectively. Interest expense for those periods was $5,028 and $47,982, respectively. At March 31, 2022 interest of $311,530 is included in interest payable on the condensed consolidated balance sheet.

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 EPA (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 detailed below:and payment terms for recovery of historical environmental response costs at Mine by the EPA. Pursuant to the terms of the Amended Settlement, the Company paid $2,000,000 to the EPA on January 7, 2022. Pursuant to the terms of the Amended Settlement, an additional $17,000,000 will be paid by the Company to the EPA on the following dates:

Schedule Of Amended Settlement Environmental Protection Agency Agreement

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 Amended Settlement included additional payment for outstanding water treatment costs (described below) that have been incurred over the period from 2018 through 2020. This $Schedule2,900,000 payment was to be made within 90 days of Payments for Miningexecution of the Amended Settlement.

DateAmountAction
Within 30 days of the effective date$1,000,000Paid
November 1, 2018$2,000,000Not paid
November 1, 2019$3,000,000Not paid
November 1, 2020$3,000,000Not paid
November 1, 2021$3,000,000
November 1, 2022$3,000,000
November 1, 2023$3,000,000
November 1, 2024$2,000,000

 

In addition to these cost recoverythe 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. 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. If the Company does not post the Financial Assurance within 90 days of execution of the Amended Settlement, it must issue an irrevocable letter of credit for $9,000,000. The EPA may draw on this letter of credit after an additional 90 days if the Company is unable to either put the Financial Assurance in place or make semi-annual paymentspayment for the full $17,000,000 of remaining historical cost recovery sums. In the event neither occurs, the terms of the initial Settlement Agreement will be reinstated. On March 22, 2022, the Company reported that in consultation with the EPA, it has committed to meet the $480,0002,900,000 on June 1payment and December 1 of each year, to cover the EPA’s costs of operating and maintaining the water treatment facility that treats the water being dischargedFinancial Assurance obligations by 180 days from the Bunker Hill Mine. Prior to July 2021,effective date of the Company had received invoices fromAmended Settlement Agreement. At March 31, 2022, the EPA for water treatment charges forterms of the periods from December 2017 to October 2019. The Company received the supporting details from the EPA and began the process of reconciling and reviewing these invoicesinitial Settlement Agreement were still in September 2020.place.

 

SubsequentThe Company completed the purchase of the Mine on January 7, 2022 (see note 5). The terms of the purchase price were modified to June 30, 2021,$5,400,000 in cash, from $3,400,000 of cash and $2,000,000 of Common Shares. The purchase price of the mine totaled $7,342,638 was capitalized, after taking into effect the deposits previously made, the credits given and closing costs. Additionally, a total of $442,147 of legal costs were capitalized. Concurrent with the purchase of the Mine, the Company received an invoice fromassumed the EPA for water treatment charges for the period from November 2019 to October 2020, in the amount of approximately $2,500,000. Based on preliminary review, the Company believes that this increase in water treatment charges is not consistent with the EPA’s cost to treat water from the Mine, and plans to initiate a discussion with the EPA in this regard. A material increase in water treatment charges had not been anticipated, and the Company had therefore been accruing $133,000 per month for water treatment charges from the November 2019 to March 2021 period, consistent with the invoice relating to the November 2018 to October 2019 period. As a resultbalance of the new estimate basedEPA liability totaling $17,000,000 (after the payment of the $2,000,000 on January 7, 2022), an increase of $8,000,000 of which $3,000,000 is current liability and $5,000,000 is long-term in nature. 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 March 31, 2022, $138,427 of the discount was amortized to interest expense.

At March 31, 2022, the total EPA cost recovery liability was $17,000,000, less $1,457,147 discount on the invoice received in July 2021, an additional accrual of approximatelylong-term portion, or $1,309,00015,540,853 has been made to exploration expense. An additional $630,000 has been accrued for the three months ending June 30, 2021..

 

A totalof $4,977,186 for water treatment charges, net of payments made, was accrued for as at June 30, 2021 (December 31, 2020 - $3,136,055). The unpaid EPA balance is subject to interest at the rate specified for interest on investmentscurrent portion of the EPA Hazardous Substance Superfund. Ascost recovery liability at June 30, 2021,March 31, 2022 was $12,000,000 as detailed below:

Schedule Of Environmental Cost Recover Liability

  Amount 
EPA cost recovery payable at December 31, 2021 $11,000,000 
Payment as part of mine purchase on January 7, 2022  (2,000,000)
Assumed with mine purchase – current portion  3,000,000 
EPA cost recovery at March 31, 2022 $12,000,000 

The balance of the interest accrued onNPV of the unpaidlong-term portion of the EPA balance iscost recovery payable at March 31, 2022 was $258,1543,540,853 (December 31, 2020 -detailed below:

Schedule Of Net Present Vale of Environmental Protection Agency Agreement

  Amount 
Long-term portion of NPV of EPA cost recovery payable at purchase of mine on January 7, 2022 $3,402,425 
Accretion of NPV discount during the quarter  138,427 
Long-term portion of NPV of EPA cost recovery payable at March 31, 2022 $3,540,853 

In addition to these payments, the Company makes a monthly accrual of $162,540165,000 to cover the Idaho Department of Environmental Quality (“IDEQ”). (formerly performed and invoiced by the EPA) estimated costs of treating water at the water treatment facility. The Company has included all unpaidalso pays an agreed-upon monthly amount of $140,000, with a true-up to be recorded and accrued EPA payments and accrued interest in accounts payable and accrued liabilities amounting to $13,235,340 (December 31, 2020 - $11,298,594).paid by the Company once the actual annual costs are determined each year.

 

12

The balance of EPA/IDEQ water treatment liability at March 31, 2022 was $5,185,706 as detailed below:

Schedule Of EPA/IDEQ Water Treatment Liability

  Amount 
EPA/IDEQ water treatment liability at December 31, 2021 $5,110,706 
Payments during the quarter  (420,000)
Accruals during the quarter  495,000 
EPA/IDEQ water treatment liability at March 31, 2022 $5,185,706 

 

11

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021March 31, 2022

(Expressed in United States Dollars)

Unaudited7. 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 matured 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. Interest expense for the three months ended March 31, 2022 and 2021 was $92,466 and $nil, respectively. At March 31, 2022 interest of $195,205 is included in interest payable on the condensed consolidated balance sheet.

 

6. Convertible loan payable$50,000,000 Project Finance Package

On June 13, 2018,December 20, 2021, the Company entered intoexecuted a loannon-binding term sheet outlining a $50,000,000 project finance package with Sprott Private Resource Streaming and warrant agreementRoyalty Corp. (“SRSR”).

The non-binding term sheet with Hummingbird Resources PLC SRSR outlined a $(“Hummingbird”50,000,000 project financing package that the Company expects to fulfill the majority of its funding requirements to restart the Mine. The financing package consisted of an $8,000,000 royalty convertible debenture (the “RCD”), an arm’s length investor,a $5,000,000 convertible debenture (the “CD”), and a multi-metals stream of up to $37,000,000 (the “Stream”, together with the RCD and the CD, the “Project Financing Package”). Total finance costs for an unsecuredlegal fees associated with the two convertible debentures was $795,100, of which $67,435 associated with the derivative portions of the financing was recognized as a period expense and $727,665 was allocated to the CD and RCD pro-ratably based on their fair value on the issuance date, with $300,579 convertible loan inand $427,086 allocated, respectively.

$8,000,000 Royalty Convertible Debenture

The Company closed the aggregate sum of $1,500,0008,000,000 , bearingRCD on January 7, 2022. The RCD bears interest at an annual rate of 109.0%% per annum, maturing, payable in one year. Contemporaneously,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 18 months. In the event of conversion, the RCD will cease to exist and the Company agreedwill grant a royalty for 1.85% of life-of-mine gross revenue from mining claims considered to issue 229,464be 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 is secured by a share purchase warrants, entitling the lender to acquire 229,464 common sharespledge of the Company’s operating subsidiary, Silver Valley, until a full security package was put in place concurrent with the consummation of the CD. In the event of non-conversion, the principal of the RCD will be repayable in cash.

$6,000,000 Convertible Debenture

The Company closed the $6,000,000 CD on January 28, 2022, which was increased from the previously-announced $5,000,000. The Convertible Debenture 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. The CD is secured by a pledge of the Company’s properties and assets. Until the closing of the Stream, the CD is convertible into Common Shares at a price of C$8.500.30 per common share, for two years. UnderCommon Share, subject to stock exchange approval. Alternatively, SRSR may elect to retire the terms ofCD with the loan agreement, the lender may, at any time prior to maturity, convert any or all of the principal amount of the loan and accrued interest thereon, into common shares of the Company at a price per share equal to C$8.50. In the event that a notice of conversion would result in the lender holding 10% or more of the Company’s issued and outstanding shares, then, in the alternative, and under certain circumstances, the Company would be required to pay cash to the lender in an amount equal to C$8.50 multiplied by the number of shares intended to be issued upon conversion. Further, in the event that the lender holds more than 5% of the issued and outstanding shares of the Company subsequent to the exercise of any of its convertible securities held under this placement, it shall have the right to appoint one director to the board of the Company. Lastly, among other things, the loan agreement further provides that for as long as any amount is outstanding under the convertible loan, the investor retains a right of first refusal on any Company financing or joint venture/strategic partnership/disposal of assets.

In August 2018, the amount of the Hummingbird convertible loan payable was increased to $2,000,000 from its original $1,500,000 loan, net of $45,824 of debt issue costs. An additional 116,714 warrants with each warrant exercisable at C$4.50 were issued. Under the terms of the amended and restated loan agreement, Hummingbird may, at any time prior to maturity, convert any or all of the principal amount of the loan and accrued interest thereon, into common shares of Bunker as follows: (i) $1,500,000, being the original principal amount (the “Principal Amount”), may be converted at a price per share equal to C$8.50; (ii) 229,464 common shares may be acquired upon exercise of warrants at a price of C$8.50 per warrant for a period of two yearsproceeds from the dateStream. The Company may elect to repay the CD early; if SRSR elects not to exercise its conversion option at such time, a minimum of issuance; (iii) $500,000, being the additional principal amount (the “Additional Amount”), may be converted at a price per share equal to C$4.50; and (iv) 116,714 common shares may be acquired upon exercise12 months of warrants at a price of C$4.50 per warrant for a period of two years from the date issuance. In the event that Hummingbirdinterest would acquire common shares in excess of 9.999% through the conversion of the Principal Amount or the Additional Amount, including interest accruing thereon, or on exercise of the warrants as disclosed herein, the Company shall pay to Hummingbird a cash amount equal to the common shares exercised in excess of 9.999%, multiplied by the conversion price.

During the year ended June 30, 2019, Hummingbird agreed to extend the scheduled maturity date of the loan to June 30, 2020. This was accounted for as a loan extinguishment which resulted in the recording of a net loss on loan extinguishment.

In June 2019, the Company settled $100,000 of the Additional Amount by issuing 2,660,000 common shares, which resulted in the recording of a net loss on loan extinguishment.

In February 2020, the Company settled $300,000 of the Additional Amount by issuing 696,428 common shares, which resulted in the recording of a net loss on loan extinguishment of $9,407.

In June 2020, Hummingbird agreed to extend the scheduled maturity date of the loan to July 31, 2020.

In October 2020, the Company settled the full amount of the outstanding loan by issuing 5,572,980 common shares at a deemed price of C$0.49 based on the fair value of the shares issued. As a result, the Company recorded a gain on debt settlement.apply.

 

1312

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021March 31, 2022

(Expressed in United States Dollars)

Unaudited

The Company determined that the conversion features in both the RCD and CD were not closely related to their respective debt components, and should be considered as derivatives under ASC 815. As such, these derivative components were bifurcated, accounted for and valued separately under the framework prescribed by ASC 820. The fair value of the derivative components in the RCD included the utilization of payable metal production estimates from the Company’s Preliminary Economic Assessment published in November 2022, and a Monte Carlo Simulation approach that included simulating the future prices of metals, and application of an appropriate project discount rate, as well as key inputs included in the table below. The value of the conversion feature in the CD was determined with the binomial model which involves the modelling of stock prices over the applicable term to evaluate the payouts under ‘hold’, ‘convert’, and ‘prepay’ decisions and select the decision that would maximize the fair value from a market participant’s perspective. The derivative components will be fair valued at each reporting period, with changes in fair value recorded as a gain or loss in the statement of profit or loss.

 

6. Convertible loan payable (continued)

The Company hasdebt components of the RCD and CD were initially measured by first valuing the derivative components as described above, and are accounted for the conversion features and warrants in accordance with ASC Topic 815. The conversion features and warrants are considered derivativeseparately as financial liabilities as they are convertible into common sharesthat will be subsequently measured at a conversion price denominated in a currency other than the Company’s functional currency of the U.S. dollar. The estimated fair value of the conversion features and warrants was determined on the date of issuance and marked to market at each financial reporting period.amortized cost.

 

Accretion expense forConsistent with the three and six months ended June 30, 2021 was $approach above, the following table summarizes the key valuation inputs:

nil and $nil, respectively (three and six months ended June 30, 2020 - $37,380 and $75,093, respectively) based on effective interest rateSchedule of Key Valuation Inputs16% after the loan extension.

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 
CD 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%
CD 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%

 

(1)The CD carries a Discount for Lack of Marketability (“DLOM”) of 5.0%.
(2)All instruments carry an instrument-specific spread of 7.23%
(3)The conversion price of the CD is $0.235
(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 55% and 45%, respectively.

Interest expense for the three and six months ended June 30, 2021 was $nil and $nil, respectively (three and six months ended June 30, 2020 - $40,329 and $83,945, respectively). As at June 30, 2021, the Company has an outstanding interest payable of $nil (December 31, 2020 - $nil).

Schedule of Convertible Loan Outstanding Interest Payable

  

Amount

 
Balance, December 31, 2019 $1,815,500 
Accretion expense  75,093 
Loss on loan extinguishment  9,407 
Partial extinguishment  (300,000)
Loan extinguishment  (1,600,000)
Balance, December 31, 2020 and June 30, 2021 $- 

7.Promissory notes payable

(i) On November 13, 2019, the Company issued a promissory note in the amount of $300,000. The note was unsecured, bore interest of 1% monthly, and is due on demand after 90 days from issuance. In consideration for the loan, the Company issued 400,000 common share purchase warrants to the lender. Each whole warrant entitles the lender to acquire 1 common shareresulting fair values of the CompanyCD and RCD at a pricethe issuance dates, and as of C$0.80 per share for a period of two years.

On April 24, 2020, the Company extended the maturity date of the promissory note payable to August 1, 2020. In consideration, the Company issued 400,000 common share purchase warrants to the lender at an exercise price of C$0.50. The warrants expire on November 13, 2021. This was accounted forMarch 31, 2022 were as a loan modification.

During the six months ended December 31, 2020, the Company repaid $110,658 of the promissory note and settled the remaining balance of $218,281 (C$288,000), which included interest payable of $28,939, in full by issuing 822,857 August 2020 Units (as defined in note 9).

The Company has accounted for the warrants in accordance with ASC Topic 815. The warrants are considered derivative financial liabilities as they are convertible into common shares at a conversion price denominated in a currency other than the Company’s functional currency of the US dollar. The estimated fair value of the warrants was determined on the date of issuance and marks to market at each financial reporting period.

14

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

7. Promissory notes payable (continued)

(i)(continued)

The fair value of the warrants were estimated using the Binomial model to determine the fair value of the derivative warrant liabilities using the following assumptions:follows:

 Schedule of Fair Value of Derivative Warrant Liability Assumptions

November 2019 issuance December 31, 2020  June 30, 2021 
Expected life  317 days   136 days 
Volatility  100%  100%
Risk free interest rate  0.64%  0.58%
Dividend yield  0%  0%
Share price $0.41  $0.23 
Fair value $40,999   $nil 
Change in derivative liability     $40,999 
Instrument Description Valuation Date 

Value of the Debt

Component, Net of Finance Costs

  

Value of the

Embedded

Derivatives

  

Total

Value

 
CD January 28, 2022  4,991,976   1,028,252   6,020,228 
RCD January 7,2022  7,092,978   159,129   7,252,107 
Total    12,084,954   1,187,381   13,272,335 

 

April 2020 issuance December 31, 2020  June 30, 2021 
Expected life  317 days   136 days 
Volatility  100%  100%
Risk free interest rate  0.27%  0.27%
Dividend yield  0%  0%
Share price $0.41  $0.23 
Fair value $58,373  $8,198 
Change in derivative liability     $50,175 
Instrument Description Valuation Date 

Value of the Debt Component

Including Interest at Effective Rates(1)

  

Value of the

Embedded

Derivatives

  

Total

Value

 
CD March 31, 2022  5,173,075   997,614   6,170,689 
RCD March 31,2022  7,379,995   263,236   7,643,231 
Total    12,553,070   1,260,850   13,813,920 

  

(1)The effect rates for the CD and RCD are 21.357% and 17.795%, respectively. Accretion of $181,099 and $287,017 was recognized as interest expense for the CD and RCD, respectively.

Accretion expense

The Company performs quarterly testing of the covenants in the RCD and CD.  The RCD and CD contain a covenant that the Company must maintain positive working capital at each quarterly filing date, as determined by the financial statements filed on such date.  As the Company would not have been in compliance with this covenant as of May 16, 2022 with respect to its working capital position as of March 31, 2022, it has obtained a waiver of this covenant from the holders of the RCD and CD until the next filing date, which is August 15, 2022.  The Company intends to ensure compliance with this covenant for future filing dates through the three and six months ended June 30, 2021 was $nil, respectively (three and six months ended June 30, 2020 - $48,379 and $118,916, respectively) based on an effective interest rateadvance of 11% after the loan extension.Stream or other long-term financing.

  

Interest expense for the three and six months ended June 30, 2021 was $nilThe Stream, respectively (three and six months ended June 30, 2020 - $9,600 and $18,600, respectively). As at June 30, 2021, the Company has an outstanding interest payable of $nil (December 31, 2020 - $nil).

 

(ii) On May 12, 2020,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. If the Company issued a promissory note indraws the amountmaximum funding of $362,65037,000,000, 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. 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. (C$500,000), netThe 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. The Company will be permitted to incur additional indebtedness of $89,19015,000,000 of debt issue costs. The note bore no interest and was due on demand after 90 days after the issue date. This promissory note was repaid during the six months ended December 31, 2020. Accretion expense for the three and six months ended June 30, 2021 was $nil (three and six months ended June 30, 2020 - $41,453) based on effective interest rate of 7%.

(iii) On May 12, 2020, the Company issued a promissory note in the amountcost over-run facility of $141,70413,000,000 (C$200,000), net of $35,676 of debt issue costs. The note bore no interest and was due on demand after 90 days after the issue date. During the six months ended December 31, 2020, the Company settled the promissory note in full by issuing 714,285 common shares. Accretion expense for the three and six months ended June 30, 2021 was $nil (three and six months ended June 30, 2020 - $16,547) based on effective interest rate of 8%.

15

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

7. Promissory notes payable (continued)

(iv) On June 30, 2020, the Company issued a promissory note in the amount of $75,000, net of $15,000 of debt issue costs. The note bore no interest and was due on demand. This promissory note was repaid in full during the six months ended December 31, 2020. Financing cost for the three and six months ended June 30, 2021 was $nil (three and six months ended June 30, 2020 - $15,000).

(v) On June 30, 2020, the Company issued a promissory note in the amount of $75,000 to a director of the Company. The note bore no interest and was due on demand. This promissory note was repaid in full during the six months ended December 31, 2020. Financing cost for the three and six months ended June 30, 2021 was $nil (three and six months ended June 30, 2020 - $15,000).from other financing counterparties.

 

8. Lease liabilityLiability

 

The Company has an operating lease for office space that expires in 2022. Below is a summary of the Company’s lease liability as of June 30, 2021:March 31, 2022:

Schedule of Operating Lease Liability

 

Office lease

  Office lease 
Balance, December 31, 2019 $274,981 
Addition  - 
Interest expense  22,156 
Lease payments  (123,098)
Foreign exchange loss  2,568 
   
Balance, December 31, 2020  176,607  $176,607 
Addition  -   - 
Interest expense  7,827   12,696 
Lease payments  (64,985)  (129,191)
Foreign exchange loss  4,485   2,165 
Balance, June 30, 2021  123,934 
Less: current portion  (123,934)
Long-term lease liability $- 
Balance, December 31, 2021  62,277 
Addition  - 
Interest expense  1,317 
Lease payments  (32,422)
Foreign exchange loss  717 
Balance, March 31, 2022 $31,889 

In addition to the minimum monthly lease payments of C$13,504, the Company is required to make additional monthly payments amounting to C$12,505 for certain variable costs. The schedule below represents the Company’s obligations under the lease agreement in Canadian dollars.

Schedule of Lease Obligations

 Less than 1 year  1-2 years  2-3 years  Total 
 Less than 1 year 1-2 years 2-3 years Total          
Base rent $149,044  $-  $-  $149,044  $40,512  $    -  $     -  $40,512 
Additional rent  137,555   -   -   137,555   37,515   -   -   37,515 
 $286,599  $-  $-  $286,599  $78,027  $-  $-  $78,027 

 

The monthly rental expenses are offset by rental income obtained through a series of short termshort-term subleases held by the Company.

 

1613

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022

(Expressed in United States Dollars)

9. Capital stock, warrantsStock, Warrants and stock optionsStock Options

Authorized

 

The total authorized capital is as follows:

 

●750,000,000 common shares with a par value of $0.000001 per common share; and
●10,000,000 preferred shares with a par value of $0.000001 per preferred share

 

Issued and outstanding

On February 26, 2020, the Company closed a non-brokered private placement, issuing 2,991,073 common shares of the Company at C$0.56 per common share for gross proceeds of C$1,675,000 ($1,256,854) and incurring financing costs of $95,763, and issuing 239,284 broker warrants. Each broker warrant entitles the holder to acquire one common share at a price of C$0.70 per common share for a period of two years. The Company also issued 696,428 common shares for $300,000 which was applied to reduce the principal amount owing under the convertible loan facility (see note 6).

During the three months ended March 31, 2020, the Company issued 1,403,200 June 2019 Units and 1,912,000 August 2019 Units at a deemed price of C$0.05 as finder’s fees with a total value of C$165,760 ($125,180) to a shareholder of the Company.

On May 12, 2020, the Company closed a non-brokered private placement, issuing 107,143 common shares of the Company at C$0.56 per common share for gross proceeds of C$60,000 ($44,671).

On August 14, 2020, the Company closed the first tranche of a brokered private placement of units of the Company (the “August 2020 Offering”), issuing 35,212,142 units of the Company (“August 2020 Units”) at C$0.35 per August 2020 Unit for gross proceeds of $9,301,321 (C$12,324,250). Each August 2020 Unit consisted of one common share of the Company and one common share purchase warrant of the Company (each, an “August 2020 Warrant”), which entitles the holder to acquire a common share of the Company at C$0.50 per common share until August 31, 2023. In connection with the first tranche of the August 2020 Offering, the Company incurred share issuance costs of $709,488 (C$849,978) and issued 2,112,729 compensation options (the “August 2020 Compensation Options”). Each August 2020 Compensation Option is exercisable into one August 2020 Unit at an exercise price of C$0.35 until August 31, 2023.

On August 25, 2020, the Company closed the second tranche of the August 2020 Offering, issuing 20,866,292 August 2020 Units at C$0.35 per August 2020 Unit for gross proceeds of $5,510,736 (C$7,303,202). In connection with the second tranche of the August 2020 Offering, the Company incurred share issuance costs of $237,668 (C$314,512) and issued 1,127,178 August 2020 Compensation Options.

17

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

9. Capital stock, warrants and stock options (continued)

Issued and outstanding (continued)

In the August 2020 Offering, the fair value of warrants, which are treated as a liability and fair value accounted for, were greater than gross proceeds. As a result, a loss of $940,290 has been recognized and $947,156 of total share issue costs were also expensed.

The Company also issued 2,205,714 August 2020 Units to settle $177,353 of accounts payable, $55,676 of accrued liabilities, $28,300 of interest payable, and $344,185 of promissory notes payable at a deemed price of $0.67 based on the fair value of the units issued. As a result, the Company recorded a loss on debt settlement of $899,237.

On October 9, 2020, the Company issued 5,572,980 common shares at a deemed price of C$0.49 based on the fair value of the common shares issued to settle $1,600,000 of convertible loan payable and $500,000 of interest payable. As a result, the Company recorded a gain on debt settlement of $23,376.

 

In February 2021, the Company closed a non-brokered private placement of units of the Company (the “February 2021 Offering”), issuing 19,576,360 units of the Company (“February 2021 Units”) at C$0.40 per February 2021 Unit for gross proceeds of $6,168,069 (C$7,830,544). Each February 2021 Unit consisted of one common share of the Company and one common share purchase warrant of the Company (each, an “February 2021 Warrant”), which entitles the holder to acquire a common share of the Company at C$0.60 per common share for a period of five years. In connection with the February 2021 Offering, the Company incurred share issuance costs of $159,397154,630 and issued 351,000 compensation options (the “February 2021 Compensation Options”). Each February 2021 Compensation Option is exercisable into one February 2021 Unit at an exercise price of C$0.40 for a period of three years.

 

The Company also issued 417,720 February 2021 Units to settle $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.

 

For each financing, the Company has accounted for the warrants in accordance with ASC Topic 815. The warrants are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the U.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 condensed interim consolidated statements of income (loss) and comprehensive income (loss) as a gain or loss and is estimated using the Binomial model.

18

 

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

9. Capital stock, warrants and stock options (continued)

Issued and outstanding (continued)

The fair value of the warrant liabilities related to the various tranches of warrants issued during the periodwith private placements in June 2019, August 2019, August 2020, and February 2021 were estimatedrevalued as at March 31, 2022 and December 31, 2021 using the Binomial model to determine the fair value usingand the following assumptions on the day of issuance and as at June 30, 2021:assumptions:

Schedule of Estimated Using the Binomial Model to Determine the Fair Value of Warrant Liabilities

February 2021 issuance February 9 and
16, 2021		 June 30, 2021  March 31, 2022  December 31, 2021 
Expected life 1826 days 1685 days   1,411 days   1,501 days 
Volatility  100%  100%  100%  100%
Risk free interest rate  0.49%  0.89%  2.28%  1.25%
Dividend yield  0%  0%  0%  0%
Share price $0.27 and $0.29  $0.23  $0.285  $0.37 
Fair value $3,813,103  $2,745,677  $2,563,262  $3,483,745 
Change in derivative liability     $1,067,426  $(920,484) $(329,358)

August 2020 issuance March 31, 2022  December 31, 2021 
Expected life  518 days   608 days 
Volatility  120%  100%
Risk free interest rate  2.27%  0.95%
Dividend yield  0%  0%
Share price $0.285  $0.37 
Fair value $5,681,025  $6,790,163 
Change in derivative liability $(1,109,138) $(7,703,052)

June 2019 issuance March 31, 2022  December 31, 2021 
Expected life  1,371 days   1,461 days 
Volatility  100%  100%
Risk free interest rate  2.28%  1.02%
Dividend yield  0%  0%
Share price $0.285  $0.37 
Fair value $1,506,021  $2,067,493 
Change in derivative liability $(561,472) $(1,371,346)

14

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022

(Expressed in United States Dollars)

August 2019 issuance (ii) December 31, 2020  December 31, 2021 
Expected life  1,371 days   1,461 days 
Volatility  100%  100%
Risk free interest rate  2.28%  1.02%
Dividend yield  0%  0%
Share price $0.285  $0.37 
Fair value $2,314,571  $3,177,485 
Change in derivative liability $(862,914) $(2,744,785)

Outstanding warrants at March 31, 2021 and March 31, 2022 were as follows:

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 
Balance, March 31, 2021  115,771,886  $0.55  $0.10 
             
Balance, December 31, 2021  111,412,712  $0.54  $0.18 
Expired  (239,284)  0.70   0.21 
Balance, March 31, 2022  111,173,428  $0.52  $0.18 

 

The warrant liabilities as a result ofDuring the August 2018, November 2018, June 2019, August 2019, and Augustthree months ended March 31, 2022, 239,284 February 2020 private placements were revalued as at June 30, 2021 and December 31, 2020 using the Binomial model and the following assumptions:

August 2018 issuance December 31, 2020  June 30, 2021 
Expected life 221 days  40 days 
Volatility  100%  100%
Risk free interest rate  1.23%  1.09%
Dividend yield  0%  0%
Share price $0.41  $0.23 
Fair value $nil  $nil 
Change in derivative liability     $nil 

November 2018 issuance December 31, 2020  June 30, 2021 
Expected life 332 days  151 days 
Volatility  100%  100%
Risk free interest rate  1.09%  0.96%
Dividend yield  0%  0%
Share price $0.41  $0.23 
Fair value $52,540  $nil 
Change in derivative liability     $52,540 

19

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

9. Capital stock,broker warrants and stock options (continued)expired.

 

Issued and outstanding (continued)

June 2019 issuance (i) December 31, 2020  June 30, 2021 
Expected life 1826 days  1645 days 
Volatility  100%  100%
Risk free interest rate  0.85%  0.86%
Dividend yield  0%  0%
Share price $0.41  $0.23 
Fair value $3,438,839  $1,588,033 
Change in derivative liability     $1,850,806 

(i)In December 2020, the Company amended the exercise price to C$0.59per common share and extended the expiry date to December 31, 2025for 11,660,000warrants.

August 2019 issuance (ii) December 31, 2020  June 30, 2021 
Expected life  213-1826 days   32-1645 days 
Volatility  100%  100%
Risk free interest rate  0.81%  0.67%
Dividend yield  0%  0%
Share price $0.41  $0.23 
Fair value $5,922,270  $2,554,772 
Change in derivative liability     $3,367,498 

(ii)In December 2020, the Company amended the exercise price to C$0.59 per common share and extended the expiry date to December 31, 2025 for 17,920,000 warrants. The terms of the remaining 2,752,900 warrants remain unchanged.

August 2020 issuance December 31, 2020  June 30, 2021 
Expected life  973 days   792 days 
Volatility  100%  100%
Risk free interest rate  1.31%  0.36%
Dividend yield  0%  0%
Share price $0.41  $0.23 
Fair value $14,493,215  $5,210,492 
Change in derivative liability     $9,282,723 

20

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

9. Capital stock,At March 31, 2022, the following warrants and stock options (continued)

Warrants

Schedule of Warrant Activity

  

Number of

  Weighted average exercise price  Weighted average grant date 
  warrants  (C$)  value ($) 

Balance, December 31, 2019

  36,452,284  $0.48  $0.16 
Issued  3,954,484   0.28   0.07 
Expired  (229,464)  8.50   3.54 
Exercised (i)  (2,332,900)  0.25   0.02 
Balance, June 30, 2020  37,844,404  $0.43  $0.14 

Balance, December 31, 2020

  95,777,806  $0.54  $0.16 
Issued  19,994,080   0.60   0.19 
Balance, June 30, 2021  115,771,886  $0.55  $0.08 

(i)During the six months ended June 30, 2020, 2,332,900 warrants were exercised at C$0.25 per warrant for gross proceeds of C$583,225 ($417,006). In conjunction with the exercise of warrants, the Company recognized a change in derivative liability of $871,710.

were outstanding:

Schedule of Warrants Outstanding Exercise Price

Expiry date Exercise price (C$)  Number of warrants  

Number of warrants

exercisable

 
August 1, 2021  0.25   2,752,900   2,752,900 
August 9, 2021  4.50   160,408   160,408 
November 28, 2021  1.00   645,866   645,866 
November 13, 2021  0.80   400,000   400,000 
November 13, 2021  0.50   400,000   400,000 
February 26, 2022  0.70   239,284   239,284 
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 
       115,771,886   115,771,886 
        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   117,112,500 
February 16, 2026  0.60   2,881,580   2,881,580 
       111,173,428   111,173,428 

 

2115

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

 

9. Capital stock, warrants and stock options (continued)Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022

(Expressed in United States Dollars)

Broker options

 

At March 31, 2022, the following broker options were outstanding:

Schedule of Broker Options

  

Number of

  Weighted average 
  broker options  exercise price (C$) 
Balance, December 31, 2019 and June 30, 2020  -  $- 

Balance, December 31, 2020

  3,239,907  $0.35 
Issued - February 2021 Compensation Options  351,000   0.40 
Balance, June 30, 2021  3,590,907  $0.35 

(i) The grant date fair value of the February 2021 Compensation Options were estimated at $68,078 using the Black-Scholes valuation model with the following underlying assumptions:

     Weighted 
  Number of  average 
  broker  exercise price 
  options  (C$) 
       
Balance, December 31, 2020  3,239,907  $0.35 
Issued – February 2021 Compensation Options  351,000   0.40 
Balance, December 31, 2021  3,590,907   0.35 
Balance, March 31, 2022  3,590,907   0.35 

 

(i)The grant date fair value of the February 2021 Compensation Options were estimated at $68,078 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

Risk free interest rate  Dividend yield  Volatility  Stock price Weighted average life
 0.26%  0%  100% C$0.35 3 years
Grant Date Risk free interest rate  Dividend yield  Volatility  Stock price  Weighted average life 
February 2021  0.26%  0%  100%  C$0.40   3 years 

Schedule of Warrants Outstanding Broker Option Exercise Prices

 Exercise Number of    
Expiry date 

Exercise

price (C$)

 

Number of

broker options

  Fair value ($)  price (C$) broker options Fair value ($) 
       
August 31, 2023 (i)  0.35   3,239,907   521,993  $0.35   3,239,907  $521,993 
February 16, 2024 (ii)  0.40   351,000   68,078  $0.40   351,000  $68,078 
      3,590,907   590,071       3,590,907  $590,071 

 

(i)Exercisable into one August 2020 Unit

(ii)Exercisable into one February 2021 Unit

22

 

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

9. Capital stock, warrants and stock options (continued)

Stock options

 

The following table summarizes the stock option activity during the periodsthree months ended June 30, 2021 and 2020:March 31, 2022:

Schedule of Stock Options

  

Number of

stock options

  

Weighted

Average exercise price (C$)

 
Balance, December 31, 2019  1,692,500  $1.27 
Granted (i)(ii)  5,957,659   0.55 
Forfeited  (70,000)  10.38 
Balance, June 30, 2020  7,580,159  $0.62 

Balance, December 31, 2020

  8,015,159  $0.62 
Granted (iv)  1,037,977   0.34 
Balance, June 30, 2021  9,053,136  $0.58 
     Weighted 
     average 
  Number of  exercise price 
  stock options  (C$) 
       
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 
Balance, March 31, 2022  9,053,136  $0.58 

(i)On October 24, 2019, 1,575,000 stock options were issued to directors and officers of the Company. These options have a 5-year life and are exercisable at C$0.60 per share. The grant date fair value of the stock options was estimated at $435,069. The vesting of these options resulted in stock-based compensation of $13,946 and $37,759, respectively for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $55,550 and $141,441, 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, 5,957,659 stock options were issued to certain directors of the Company. Each stock option entitles the holder to acquire one common share of the Company at an exercise price of C$0.55. The stock options vest in one fourth increments upon each anniversary of the grant date and expire in 5 years. The grant date fair value of the stock options was estimated at $1,536,764. The vesting of these options results in stock-based compensation of $124,802 and $322,144, respectively (three and six months ended June 30, 2020 - $155,681 and $155,681, respectively), which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).

(iii)On September 30, 2020, 200,000 stock options were issued to a consultant. Each stock option entitles the holder to acquire one common share of the Company at an exercise price of C$0.60. The stock options vest 50% at 6 months and 50% at 12 months from the grant date and expire in 3 years. The grant date fair value of the options was estimated at $52,909. The vesting of these options resulted in stock-based compensation of $6,596 and $26,056, respectively for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $nil and $nil, respectively), which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).

(iv)On February 19, 2021, 1,037,977stock options were issued to an officer of the Company, of which 273,271stock options vestvested immediately and the balance of 764,706stock options shall vestvested on December 31, 2021. These options have a 5-year life and are exercisable at C$0.335per common share. The grant date fair value of the options was estimated at $204,213. The vesting of these options resulted in stock-based compensation of $43,46354,735 for the quarter ended March 31, 2022 and $116,809204,213 , respectively for the three and six monthsyear ended June 30,December 31, 2021, (three and six months ended June 30, 2020 - $nil and $nil, respectively), which isare included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).

 

2316

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021March 31, 2022

(Expressed in United States Dollars)

Unaudited

9. Capital stock, warrants and stock options (continued)

Stock options (continued)

 

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:

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)  0.64%  0%  100%  C$0.34   5 years 

  Risk free interest rate Dividend yield Volatility Stock price Weighted average life
(i) 1.54% 0% 100% C$0.50 5 years
(ii) 0.44% 0% 100% C$0.50 5 years
(iii) 0.25% 0% 100% C$0.58 3 years
(iv) 0.64% 0% 100% C$0.34 5 years

The following table reflects the actual stock options issued and outstanding as of June 30, 2021:March 31, 2022:

Schedule of Stock Option Issued and Outstanding

Exercise price

(C$)

 

Weighted average remaining

contractual life (years)

  Number of options outstanding  

Number of options

vested (exercisable)

  

Grant date

fair value ($)

 
10.00  0.84   47,500   47,500   258,013 
0.50  1.50   235,000   235,000   46,277 
0.60  2.25   200,000   100,000   52,909 
0.60  3.32   1,575,000   1,275,000   435,069 
0.55  3.81   5,957,659   1,489,415   1,536,764 
0.335  4.64   1,037,977   273,271   204,213 
       9,053,136   3,420,186   2,533,245 
   Weighted average     Number of    
   remaining  Number of  options    
Exercise  contractual  options  vested  Grant date 
price (C$)  life (years)  outstanding  (exercisable)  fair value ($) 
$10.00   0.00   47,500   47,500  $258,013 
 0.50   0.02   235,000   235,000   46,277 
 0.60   0.03   200,000   200,000   52,909 
 0.60   0.45   1,575,000   1,575,000   435,069 
 0.55   2.01   5,957,659   1,489,415   1,536,764 
 0.335   0.45   1,037,977   1,037,977   204,213 
         9,053,136   4,584,892  $2,533,245 

 

24

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

10. Restricted share unitsShare Units

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.

 

The following table summarizes the RSU activity during the periodsthree months ended June 30, 2021 and 2020:March 31, 2022:

Schedule of Restricted Share Units

  Number of  

Weighted

average

grant date

fair value

per share

 
  shares  (C$) 
Unvested as at December 31, 2019  -  $- 
Granted (i)(ii)  600,000  0.40 
Unvested as at June 30, 2020  600,000  $0.40 
Unvested as at December 31, 2020  988,990  $0.39 
Granted (v)  735,383   0.41 
Vested  (861,248)  0.41 
Unvested as at June 30, 2021  863,125  $0.40 
     Weighted 
     average 
     grant date 
     fair value 
  Number of  per share 
  shares  (C$) 
       
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  500,000   0.31 
Vested  (500,000)  0.31 
Unvested as at March 31, 2022  576,000  $0.62 

 

(i)On April 20, 2020, the Company granted 400,000 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 results in stock-based compensation of $16,192 and $43,160,

(i) On April 14, 2020, the Company granted 400,000 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 $14,023 and $26,968 for the three months ended March 31, 2022 and 2021, respectively, for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $23,073), 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 200,000 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 results in stock-based compensation of $5,785 and $14,933, respectively for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $7,217), 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 168,000 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 results in stock-based compensation of $8,085 and $16,081, respectively for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $nil), which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).

(iv)On December 6, 2020, the Company granted 220,990 RSUs to a consultant of the Company. The RSUs vest in one sixth increments per month. The vesting of these RSUs results in stock-based compensation of $9,628 and $58,740, respectively for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $nil), which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss). As at June 30, 2021, these RSUs were fully exercised and settled in Common Shares of the Company.

(v)On January 1, 2021, the Company granted 735,383 RSUs to a consultant of the Company. Of the 735,383 RSUs, 245,128 RSUs vested immediately, and the remaining 490,255 RSUs vested in 1/12 increments per month. The vesting of these RSUs results in stock-based compensation of $52,223 and $265,101, respectively for the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 - $nil), which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss). As at June 30, 2021, 449,400 of these RSU’s were exercised and settled in Common Shares of the Company.

 

2517

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021March 31, 2022

(Expressed in United States Dollars)

Unaudited

(ii) On April 20, 2020, the Company granted 200,000 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 $4,757 and $9,148 for the three months ended March 31, 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 168,000 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 $4,158 and $7,996 for the three months ended March 31, 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).

(iv) On December 6, 2020, the Company granted 220,990 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 $nil and $49,112 for the three months ended March 31, 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 735,383 RSUs to a consultant of the Company. 245,128 RSUs vested immediately with the remaining RSUs vesting in one twelfth increments per month. During the year ended 2021, a total of 490,258 RSUs vested, and in July 2021, the consultant forfeited the remaining 245,125 unvested RSUs, resulting in a reversal of share-based compensation of $64,870. The vesting of these RSUs resulted in stock-based compensation of $nil and $212,878 for the three months ended March 31, 2022 and 2021, respectively.

(vi) On July 1, 2021, the Company granted 17,823 RSUs to a consultant of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $nil for the three months ended March 31, 2022 and 2021, respectively.

(vii) On August 5, 2021, the Company granted 595,228 RSUs to consultants of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $nil for the three months ended March 31, 2022 and 2021, respectively.

(vii) On January 10, 2022, the Company granted 500,000 RSUs to a consultant of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $122,249 for the three months ended March 31, 2022, which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income (loss).

 

11. Deferred share unitsShare Units

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.

 

18

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022

(Expressed in United States Dollars)

The following table summarizes the DSU activity during the periodsthree months ended June 30,March 31, 2022 and 2021:

Schedule of Deferred Share Units

  

Number of

shares

  

Weighted
Average

grant date
fair value

per share

(C$)

 
Unvested as at December 31, 2019  -   - 
Granted (i)  7,500,000  $0.65 
Unvested as at June 30, 2020, December 31, 2020 and June 30, 2021  7,500,000  $0.65 
     Weighted 
     average 
     grant date 
     fair value 
  Number of  per share 
  shares  (C$) 
       
Unvested as at December 31, 2020 and March 31, 2021 (i)  7,500,000  $1.03 
   -    
Unvested as at December 31, 2021  5,625,000  $1.03 
Vested (ii)  (625,000)  1.03 
Unvested as at March 31, 2022  5,000,000  $1.03 

(i)On April 21, 2020, the Company granted 7,500,000 DSUs. The DSUs vest in one fourth increments upon each anniversary of the grant date and expire in 5 yearsyears.. During the three and six months ended June 30,March 31, 2022, and 2021 the Company recognized $54,186 199,921 and $139,72185,535, respectively, recovery of stock-based compensation related to the DSUs, (three and six months ended June 30, 2020 - $549,664of stock-based compensation expensed), which is included in operation and administration expenses on the condensed interim consolidated statements of income (loss) and comprehensive income.income (loss). The fair value at March 31, 2022 was $1,331,488.
(ii)On March 31, 2022, the Board approved the early vesting of 625,000 DSUs for one of the Company’s Directors

26

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

 

12. Income per share

Potentially dilutive securities include convertible loan payable, warrants, broker options, stock options, RSUs and DSUs. Diluted income per share reflects the assumed exercise or conversion of all dilutive securities using the treasury stock method.

Schedule of Income per Share

  

Three Months

Ended

  

Three Months

Ended

  

Six Months

Ended

  Six Months Ended 
  June 30,  June 30,  June 30,  June 30, 
  2021  2020  2021  2020 
                
Net income (loss) and comprehensive income (loss) for the period $45,056  $(22,882,575) $5,882,865  $(13,580,978)
                
Basic income (loss) per share Weighted average number of common shares - basic  163,677,564   79,005,399   158,916,637   76,010,941 
Net income (loss) per share – basic $0.00 $(0.29) $0.04  $(0.18)
Net income (loss) and comprehensive income (loss) for the period $45,056  $ (22,882,575) $ 5,882,865  $ (13,580,978)
Dilutive effect of warrants on net income  (175,816)  -   (520,066)  - 
Diluted net income (loss) and comprehensive income (loss) for the period $(130,760) $(22,882,575) $5,362,799  $(13,580,978)
Diluted income (loss) per share
Weighted average number of common shares - basic		  163,677,564   79,005,399   158,916,637   76,010,941 
Diluted effect:                
Warrants, broker options, and stock options  703,569   -   1,027,400   - 
Weighted average number of common shares
- fully diluted		  164,381,133   79,005,399   159,944,037   76,010,941 
Net income (loss) per share - fully diluted $0.00  $(0.29) $0.03  $(0.18)

13. Commitments and contingenciesContingencies

As stipulated by the agreements with Placer Mining as described in note 5, the Company is required to make monthly payment of $60,000 for care and maintenance.

 

As stipulated in the agreement with the EPA and as described in note 5,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. As at June 30,Water treatment costs incurred through December 2021 $13,235,340are payable to the EPA, and water treatment costs incurred thereafter are payable to the IDEQ. The IDEQ (formerly 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. As at March 31, 2022 and December 31, 2021, $5,185,709 and $5,110,706, respectively, is payable to the EPA and IDEQ, which has been included in accounts payable and accrued liabilities. The Company is now engaged withmajority of these amounts relate to the EPA, given that they primarily relate to discuss an amendment to or deferral of these payments.costs incurred through December 2021.

 

The Company has entered intopays a lease under a lease agreement which expires in May 2022. Monthly rental expenses are approximately C$26,000and are offset by rental income obtained through a series of short termshort-term subleases held by the Company. See note 8.

 

19

On or about June 14, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by a purported personal representative of the estate of a minority shareholder of Placer Mining. The named defendants include Placer

Bunker Hill Mining certain of Placer Mining’s shareholders, the Company, and certain of the Company’s shareholders. The lawsuit alleges that Placer Mining entered into a series of transactions, including amendmentsCorp.

Notes to the Company’s lease with Placer Mining,Condensed Interim Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022

(Expressed in breach of an agreement dated August 31, 2018, which allegedly restricted the sale of shares in Placer Mining by certain shareholders. On August 13, 2021, the Company filed a motion to dismiss the claim for lack of jurisdiction and standing.United States Dollars)

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 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 it amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining Corp are named as co-defendants. Bunker Hill and Placer have until May 20, 2022 to respond to the amended filing. The Company believes the claims in both lawsuits, as they relate to Bunker Hill, areCrescent Mining LLC’s lawsuit against Placer Mining Corp. is without merit and intends to defend them vigorously.Placer Mining Corp. vigorously pursuant to the Company’s indemnification of Placer Mining Corp in the Sale and Purchase agreement executed between the companies for Bunker Hill Mine on December 15, 2021.

 

27

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.

 

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

14.13. Related party transactions

Compensation of key management personnel

 

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  Six Months Ended  Six Months Ended 
  June 30,  June 30,  June 30,  June 30, 
  2021  2020  2021  2020 
Consulting fees $245,936  $131,448  $570,555  $291,203 
  Three Months
Ended
March 31, 2022		  Three Months
Ended
March 31, 2021		 
Consulting Fees and Salaries $1,097,610  $324,619 

 

At June 30,March 31, 2022 and March 31, 2021, $69,835825,776 and $171,223, respectively is owed to key management personnel (December 31, 2020 - $45,000) with all amounts included in accounts payable and accrued liabilities.

 

Share subscriptions14.

Subsequent Events

During the six months ended June 30, 2021, the CEO of the Company subscribed for 208,860 units in the February 2021 Offering.

 

DuringOn April 1, 2022, the six months ended June 30, 2021,Company announced that it had closed the private placement of 37,849,325 Special Warrants, and concurrent non-brokered private placement of 1,471,644 units of the Company (the “Non-Brokered Units”) for aggregate gross proceeds of approximately $11,796,297 (the “Offering”). Of this amount, $1,775,790 was received prior to the end of the quarter and is included in Subscriptions received in the equity section of the balance sheet.

Pursuant to the Offering, the Company issued 208,86037,849,325 February 2021 UnitsSpecial Warrants at a deemed price of $0.450.30 per Special Warrant. Each Special Warrant is automatically exercisable (without payment of any further consideration and subject to settle $66,000customary anti-dilution adjustments) into one unit of debt owed to the CFO.Company (a “Brokered Unit”) on the date that is the earlier of: (i) the date that is three 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 in which the purchasers of the Special Warrants were sold 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 “Final Qualification Prospectus”); and (B) notification that the registration statement, of which this Prospectus is a part, has been declared effective by the SEC (the “Registration Statement”); and (ii) October 1, 2022.

 

DuringEach Brokered Unit consists of one Common Share and one Warrant. Each whole Warrant will entitle the six months ended June 30, 2021,holder to acquire one Common Share (a “Warrant Share”) for C$0.37 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.

In addition, pursuant to the Offering, the Company issued 208,8601,471,644 February 2021Non-Brokered Units at a deemed price of $0.450.30 per Non-Brokered Units. Each Non-Brokered Unit consists of one Common Share and one Warrant. Each whole Warrant will entitle the holder to settleacquire one Warrant Share for C$0.37 until April 1, 2025.

Related parties, including management, directors and officers purchased 4,537,160 of Non-Brokered Units for a total of $66,0001,361,148 of gross cash proceeds to the Company.

On May 13, 2022, the Company issued 10,416,667 units of the Company to Teck Resources Limited at an issue price of C$0.30 per unit, or C$3,125,000 (US$2,500,000), which together with the $500,000 cash payment made in January 2022, satisfies the purchase price of debt owed$3,000,000and applicable sales tax for the Pend Oreille Mill. Each unit consists of one common share and one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share at a consultant that is deemed to beprice of C$0.37 for a related party.period of three years.

 

2820

Bunker Hill Mining Corp.

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2021

(Expressed in United States Dollars)

Unaudited

 

15. Item 2. Management’s Discussion and Analysis of Financial instrumentsCondition or Plan of Operation

 

Fair values

The carrying amounts reported in the condensed interim consolidated balance sheets for cash and cash equivalents, accounts receivable excluding HST, accounts payable, accrued liabilities, DSU liability and lease liability, all of which are financial instruments, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and current market rate of interest. The Company measured its DSU liability at fair value on recurring basis using level 1 inputs and derivative warrant liabilities at fair value on recurring basis using level 3 inputs. There were no transfers of financial instruments between levels 1, 2, and 3 during the period ended June 30, 2021 and year ended December 31, 2020.

Foreign currency risk

Foreign currency risk is the risk that changes the rates of exchange on foreign currencies will impact the financial position of cash flows of the Company. The Company is exposed to foreign currency risks in relation to certain activities that are to be settled in Canadian dollars. Management monitors its foreign currency exposure regularly to minimize the risk of an adverse impact on its cash flows.

Concentration of credit risk

Concentration of credit risk is the risk of loss in the event that certain counterparties are unable to fulfill its obligations to the Company. The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company’s management also routinely assesses the financial strength and credit worthiness of any parties to which it extends funds and as such, it believes that any associated credit risk exposures are limited.

Liquidity risk

Liquidity risk is the risk that the Company’s consolidated cash flows from operations will not be sufficient for the Company to continue operating and discharge its liabilities. The Company is exposed to liquidity risk as its continued operation is dependent upon its ability to obtain financing, either in the form of debt or equity, or achieving profitable operations in order to satisfy its liabilities as they come due.

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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”, 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-LOOKINGforward-looking statement. Such forward looking statements include statements concerning THE COMPANY’Sthe company’s plans and objectives with respect to the present and future operations of the Company,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 Companycompany 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’scompany’s other filings with the UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“SEC”). NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.

30

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),sec. No statements contained in the “Company” refers to Bunker Hill Mining Corp. and its consolidated subsidiaries, except where the context requires otherwise. Youfollowing discussion should read this discussion in conjunction with the Company’s consolidated financial statements, the related MD&A and the discussion of our Business and Properties in its report on Form 10-KT for the six months ended December 31, 2020, filed with the SEC. The results of operations reported and summarized below are not necessarily indicativebe construed as a guarantee or assurance of future operating results (refer to “Special Note of Caution Regarding Forward-Looking Statements” above for further discussion). References to “Notes” are Notes included in the Company’s Notes to Interim Condensed Consolidated Financial Statements (Unaudited).performance or future results.

 

COVID-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 Company 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. 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.

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 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 State of Nevada, U.S.A on February 20, 2007 under the name Lincoln Mining Corp. On February 11, 2010, the Company changed its name to Liberty Silver Corp 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 82 Richmond Street East, Toronto, Ontario, Canada, 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.

 

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Current Operations

 

Overview

 

The Company was incorporated for the purpose of engaging in sustainable mineral exploration, development and mining activities. The Company’s sole focus is the development and restart of its 100% owned flagship asset, the Bunker Hill mine and assets related thereto (the “Mine”). The Mine remains the largest single producing mine by tonnage in the Silver Valley region of northwest Idaho, producing over 165 million ounces of silver and 5 million tons of base metals between 1885 and 1981. The Mine is located within Operable Unit 2 of the Bunker Hill Superfund site (EPA National Priorities Listing IDD048340921), as described below.where cleanup activities have been completed.

 

21

On August 28, 2017,

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 announced that it signedhas conducted multiple exploration campaigns, published multiple economic studies, purchased the Mine, entered into an agreement to purchase a definitive agreementprocess 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 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, for the lease and option to purchase the Mine in Idaho (the “Lease and Option Agreement”).

OnMine. The first of these agreements was announced on August 28, 2017, with subsequent amendments and/or extensions announced on November 1, 2019, the LeaseJuly 7, 2020, and Option Agreement was amended (the “Amended Agreement”). November 20, 2020.

Under the terms of the Amended Agreement, the Company has an option to purchase the marketable assets of the Mine forNovember 20, 2020 amended agreement (the “Amended Agreement”), a purchase price of $11,000,000 at any time prior to the expiration of the Amended Agreement, payable $6,200,000 in cash, and $4,800,000 in unregistered Common Shares of the Company (calculated using the market price at the time of exercise of the purchase option). Upon signing the Amended Agreement, the Company paid a one-time, non-refundable cash payment of $300,000 to Placer Mining. This payment will be applied to the cash portion of the purchase price upon execution of the purchase option. In the event the Company elects not to exercise the purchase option, the payment shall be treated as an additional care and maintenance payment. An additional term of the Amended Agreement provides for the elimination of all royalty payments that were to be paid to Placer Mining.

Under the terms of the Amended Agreement, during the term of the lease, the Company must make care and maintenance payments in the amount of $60,000 monthly plus other expenses, i.e., taxes, utilities and mine rescue payments.

On July 27, 2020, the Company announced that it secured, for a $150,000 cash payment, a further extension to the Lease and Option, Amended and Extension Agreements to purchase the Mine from Placer Mining (the “Second Extension”). The Second Extension is for a further 18 months and is in addition to the 6-month extension. This Second Extension expires on August 1, 2022.

On November 20, 2020, the Company successfully renegotiated the Amended Agreement. Under the new terms, the purchase price has been decreased from $11,000,000 to $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 an aggregate of $5,400,000 payable in cash outstanding)Company) and $2,000,000 in Common Shares of the Company. The reference price for the payment in Common Shares will be based on the share price of the last equity raise before the option is exercised. The Company will continue to make a monthly care and maintenance payment of $60,000 to the Lessor in return for on-going technical support to the Company. Under this amendment to the Amended Agreement, the Company’s contingent obligation to settle $1,787,300 of accrued payments due to the Lessor has been waived. Further, under the amendment to the Amended Agreement, the Company isagreed to make an advance payment of $2,000,000, to Placer Mining, which shall be credited toward the purchase price of the Mine, when the Company elects to exercise its purchase right. In the event that the Company irrevocably elects not to exercise its purchase right, the advance payment of $2,000,000 will be repaid to the Company within twelve months from the date of such election. The Company made this advance payment, 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.

As a part of the purchase price, theThe Amended Agreement also requiresrequired 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 willwould make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for cost recovery. These payments, if all are made, will total $20,000,000. The agreement calls 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 5 anniversaries with a final $2,000,000 payment on November 1, 2024. In addition to these payments, the Company is to make semi-annual payments of $480,000 on June 1 and December 1 of each year, to cover the EPA’s estimated costs of maintaining and treating water at thehistorical water treatment facilitycost recovery in accordance with a true-up to be paid by the Company once the actual costs are determined. The November 1, 2018, December 1, 2018, June 1, 2019, November 1, 2019 and November 1, 2020 payments, totaling $8,960,000,   were not made, and concurrent with discussions concerning the long-term water management solutions the Company is having discussionsSettlement Agreement reached with the EPA in an effort2018. Immediately prior to reschedule these payments in ways that enable the sustainable operationpurchase of the Mine, as a viable long-term business.the Company’s liability to EPA in this regard totaled $11,000,000.

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).

 

3222

 

The Mine remains the largest single producing mine by tonnage in the Coeur d’Alene lead, zinc and silver mining district in Northern Idaho. Historically and according to the Bunker Hill Mines Annual Report 1980, the Mine produced over 35,000,000 tonnes of ore grading on average 8.76% lead, 3.67% zinc, and 155 g/t silver. The Mine is the Company’s only focus, with a view to raising capital to rehabilitate the mine and put it back into production.EPA 2018 Settlement Agreement & 2021 Amended Settlement Agreement

 

The Company believes that there are numerous exploration targets of opportunity left inBunker Hill entered into a Settlement Agreement and Order on Consent with the Mine from surface, in parallel to known and mined mineralization and at depth, below existing workings. In additionEPA on May 15, 2018. This agreement limits the Company’s exposure to the zinc-rich zones, these also include high-grade lead-silver veins which are currently the primary focus of the Company’s exploration programs.

Products

The Mine is a lead-silver-zinc Mine. When back in production, the Company intends to mill mineralized material on-site or at a local third-party mill to produce both lead-silverComprehensive Environmental Response, Compensation, and zinc concentrates which will then be shipped to third party smeltersLiability Act (“CERCLA”) liability for processing.

The Company will continue to explore the property with a view to proving additional resources.

Infrastructure

The acquisition of the 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 underground at the Bunker Hill Mine Complex. The acquisition also includes all current and historic data relatingpast environmental damage to the Bunker Hill Mine Complex, such as drill logs, reports, maps,mine site and similar information located at the Mine site or any other location.

Government Regulation and Approval

The current exploration activities and any future mining operations are subjectsurrounding area to extensive laws and regulations governing the protection 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 anticipatedobligations that it may be necessary to obtain the following environmental permits or approved plans:include:

 

 ●Reclamation and Closure PlanPayment of $20,000,000 for historical water treatment cost recovery for amounts paid by the EPA from 1995 to 2017
 ●Water Discharge PermitPayment of 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
 ●Air Quality Operating Permit
●Obtaining Water Rights for OperationsConducting a work program as described in the Ongoing Environmental Activities section of this study

 

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 the Mine incurred by the EPA. With the purchase of the mine subsequent to the end of the period, the remaining payments of the EPA cost recovery liability would be assumed by the Company, resulting in a total of $19,000,000 liability to the Company, an increase of $8,000,000. The new payment schedule included a $2,000,000 payment to the EPA within 30 days of execution of this amendment, which was made. The remaining $17,000,000 will be paid on the following dates:

Property Description

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 resumption of payments in 2024 were agreed in order to allow the Company to generate sufficient revenue from mining activities at the Mine to address remaining payment obligations from free cash flow.

In addition to the cost recovery payments outlined above, the Amendment includes an initial payment for outstanding water treatment costs that have been incurred over the period from 2018 through 2021. This approximately $2,900,000 settlement payment was to be made within 90 days of the execution of the Amendment.

 

The changes in payment terms and schedule, are 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. These assurances correspond 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 does not post an Interim Financial Assurance within 90 days of execution of the Amendment, or fail to post the Final Financial Assurance within 180 days of the execution of the Amendment, the terms of the original agreement will be reinstated.

On March 22, 2022, the Company reported that in consultation with the EPA, it has committed to meet the $2,900,000 payment and Financial Assurance obligations by 180 days from the effective date of the Amended Agreement includes mineral rightsSettlement Agreement.

As at March 31, 2022, the Company had not secured the interim financial assurance, and therefore the contingency had not been removed or satisfied. Further, as of the date of this filing, the financial assurance has not been secured, and as a result, the liability to approximately 440 patented mining claims covering over 5700 acres. Of these claims, 35 include surface ownershipthe EPA is accounted for with no effectivity of approximately 259 acres. the Amendment, with the liabilities each reflected as current liabilities.

23

The transaction also includes certain parcelsEPA liability schedule in effect at March 31, 2022 was:

Date Amount 
November 1, 2021 $11,000,000 (aggregate amounts from 2018, 2019, 2020 and 2021) 
November 1, 2022 $3,000,000 
November 1, 2023 $3,000,000 
November 1, 2024 $2,000,000 plus accrued interest 

$50,000,000 Project Finance Package

On December 20, 2021, the Company announced the execution of fee property which includes minerala non-binding term sheet outlining a $50 million project finance package with Sprott Private Resource Streaming and surface rights but 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.Royalty Corp. (“SRSR”).

 

The Amended Agreement specifically excludesnon-binding term sheet with SRSR outlined a $50,000,000 project financing package that the following: the Machine Shop Building and Parcel number 21 including all fixed equipment located inside the building and personal property located upon this parcel; unmilled ore located at the Mine yard; and residual lead/zinc ore mined and broken, but not removed from the Mine.

Surface rights were originally owned by various previous owners of the claims until the acquisition of the properties by Bunker Limited Partners (“BLP”). BLP sold off surface rights to various parties over the years while maintaining access to conduct mining operations and exploration activities as well as easements to 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 explore 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. The sale of the property was approved of by the U.S. Trustee and U.S. Bankruptcy Court.

Over 90% of surface ownership of patented mining claims not owned by Placer Mining is owned by different landowners. These include: Stimpson Lumber Co.; Riley Creek Lumber Co.; Powder LLC.; Golf LLC.; C & E Tree Farms; and Northern Lands LLC.

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 CTP. The Company expects to take onfulfill the water treatment responsibility inmajority of its funding requirements to restart the futureMine. The financing package consisted of an $8,000,000 royalty convertible debenture (the “Royalty Convertible Debenture”), a $5,000,000 convertible debenture (the “Convertible Debenture”), and obtain an appropriate discharge permit.

33

Competitiona multi-metals stream of up to $37,000,000 (the “Stream”, together with the Royalty Convertible Debenture and the Convertible Debenture, the “Project Financing Package”).

 

The Company competesclosed the $8,000,000 Royalty Convertible Debenture in January 2022. The Royalty Convertible Debenture 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 othersuch conversion option expiring at the earlier of advancement of the Stream or 18 months. In the event of conversion, the Royalty Convertible Debenture 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 exploration companiescovered by the Company’s 2021 ground geophysical survey (the “SRSR Royalty”). A 1.35% rate will apply to claims outside of these areas. The Royalty Convertible Debenture is secured by a share pledge of the Company’s operating subsidiary, Silver Valley, until a full security package was put in connectionplace concurrent with the acquisitionconsummation of mining claimsthe Convertible Debenture. In the event of non-conversion, the principal of the Royalty Convertible Debenture will be repayable in cash.

The Company also closed the $6,000,000 Convertible Debenture in January 2022, which was increased from the previously-announced $5,000,000. The Convertible Debenture bears interest at an annual rate of 7.5%, payable in cash or shares at the Company’s option, and leasesmatures on zinc and other base and precious metals prospects as well as in connectionJuly 7, 2023. Until the closing of the Stream, the Convertible Debenture is convertible into Common Shares at a price of C$0.30 per Common Share, subject to stock exchange approval. Alternatively, SRSR may elect to retire the Convertible Debenture with the recruitment and retention of qualified employees. Many of these companies are much larger thancash proceeds from 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.Stream. The Company may elect to repay the Convertible Debenture early; if SRSR elects not be able to compete against these companies in acquiring new properties and/or qualified people to work onexercise its current project, or any other properties that may be acquired in the future.conversion option at such time, a minimum of 12 months of interest would apply.

 

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 has two employees in executive positions. The balance of the Company’s operations is contracted for as consultants.

Completed Work and Future Plan of Operations

Officer Appointment

Effective as of January 12, 2021, the Board appointed Mr. David Wiens to the role of Chief Financial Officer and Corporate Secretary of the Company, replacing Mr. Wayne Parsons, who continues to serve on the Board.

Financing TransactionPend Oreille Process Plant

 

On February 24, 2021,January 25, 2022, the Company closedannounced that it had entered into a non-brokered private placementnon-binding Memorandum of 19,994,080 UnitsUnderstanding (“MOU”) with Teck Resources Limited (“Teck”) for the purchase of a comprehensive package of equipment and parts inventory from its Pend Oreille site (the “Pend Oreille Mill”) in eastern Washington State, approximately 145 miles from the Mine by road. The package comprises substantially all processing equipment of value located at the site, 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 MOU outlined a purchase price under two scenarios, at Teck’s option: an all-cash $2,750,000 purchase price, or a $3,000,000 purchase price comprised of cash and Bunker Hill shares. Each option includes a $500,000 non-refundable deposit, which was paid by the Company in January 2022. On March 7, 2022, the Company announced the signing of an Asset Purchase agreement for the purchase of the Pend Oreille Mill.

On March 31, 2022, the Company announced that it had reached an agreement with a subsidiary of Teck to satisfy the remaining purchase price for the Pend Oreille Mill by way of an equity issuance of the Company. Teck will receive 10,416,667 units of the Company (the “Teck Units”) at $0.40a deemed issue price of C$0.30 per Unit for gross proceeds of approximately C$8,000,000.unit. Each Teck Unit consists of one Common Share of the Company and one Common Share purchase warrant.warrant (the “Teck Warrants”). Each whole warrantTeck Warrant entitles the holder to acquire one Common Share of the Company at a price of C$0.600.37 per Common Share for a period of fivethree years. Pursuant to the offering, certain directors and officers of the Company acquired 626,580 Units. ThisThe equity issuance of such Units in connection with the offering was considered a “related party transaction” as such term is defined under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”).

Mineral Resources

Concurrent with the digitization work, and since March 2020, the Company has been working systematically to bring a number of mineralized zones into accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) through drilling and channel sampling of the open stopes. This work focused upon the mineralization that is closest to the existing infrastructure and above the current water-level.

On March 19, 2021, the Company announced an updated mineral resources estimate consisting of a total of 4.4 million tons in the Indicated category, containing 3.0 million ounces of silver, 487 million pounds of zinc, and 176 million pounds of lead; and a total of 5.6 million tons in the Inferred category, containing 8.3 million ounces of silver, 548 million pounds of zinc, and 312 million pounds of lead.

Onoccurred on May 3, 2021, the Company filed a technical report entitled “Technical Report for the Bunker Hill Mine, Coeur d’Alene Mining District, Shoshone County, Idaho, USA” with an effective date of March 22, 2021 prepared in accordance with NI 43-101 in support of such mineral resources estimate. Further details regarding the Company’s mineral resources estimate, including estimation methodologies, can be found in the technical report filed on EDGAR and SEDAR    .

It should be noted that mineral resources as stated above, including those delineated in the Inferred, Measured and Indicated categories, are not mineral reserves as defined by SEC guidelines, and do now show demonstrated economic viability. Due to the uncertainty that may be attached to Inferred mineral resources, it cannot be assumed that all or any part of an Inferred mineral resource will be upgraded to an Indicated or Measured mineral resource as a result of continued exploration.

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Exploration

With the completion of exploration drilling related to the updated mineral resources estimate as announced on March 19, 2021 (as described above), the Company’s exploration strategy has been focused on high-grade silver targets within the upper areas of the Mine that have been identified by the data review and digitization process. The aim of this program is to identify, develop and add high-grade silver resources in ways that materially increase the quantity of silver resources relative to lead and zinc.

Consistent with that strategy and concurrent with the announcement of the updated mineral resources estimate, the Company announced the identification of a new silver exploration opportunity in the hanging wall of the Cate Fault which it intends to include in its ongoing drilling campaign. In conjunction with this drilling campaign, continued digitization, geologic modeling and interpretation will continue to focus on identifying additional high grade silver exploration targets.

On March 29, 2021, the Company announced multiple high-grade silver mineralization results through chip-channel sampling of newly accessible areas of the Mine identified through the Company’s proprietary 3D digitization program, and as part of its ongoing silver-focused drilling program. An area was identified on the 9-level that resulted in ten separate chip samples greater than 900 g/t AgEq(1), each with minimum 0.6m length. Mineralization remains open up dip, down dip and along strike from the sampling location. The Company also reported drill results including a 3.8m intercept with a grade of 996.6 g/t AgEq(1), intersected at the down-dip extension of the UTZ zone at the 5-level. The Company will continue to report mineralized drill intercepts concurrent with the receipt of data from its exploration program.

On June 16, 2021, the Company announced that it was initiating an extensive ground geophysical survey spanning approximately 1,500 acres of previously un-explored ground immediately to the south and south-west of historic underground workings, conducted as a high-resolution 3D IP (DCIP) survey method. The coverage area will extend to a depth of approximately 1,300 feet, with the objective of identifying near-surface drilling targets that are directly accessible from existing workings. The program is scheduled for the third quarter of 2021.

(1)Prices used to calculate Ag Eq are as follows: Zn=$1.16/lb; Pb=$0.92/lb; and Ag=$20/oz.

Water Management Optimization

The EPA currently provides mine water treatment services for the Mine to ensure compliance with existing discharge standards. This is done via its management of the EPA’s Central Treatment Plant (“CTP”), located adjacent and downstream to the Mine. Although it also treats other contaminated water collected from other sources in the vicinity, with respect to its service to the Mine, this facility treats all the water that exits the Kellogg Tunnel before it is discharged into the South Fork of the Coeur D’Alene River.

In September 2020, the Company began its water management program with the goal of improving the understanding of the Mine’s water system and enacting immediate improvement in the water quality of effluent leaving the mine for treatment at the CTP. Informed by historical research provided by the EPA, the Company initiated a study of the water system of the mine to: i) identify of the areas where sulphuric acid (Acid Mine Drainage, or “AMD”) is generated in the greatest and most concentrated quantities, and ii) understand the general flow paths of AMD on its way through and out of the mine as it travels to the CTP.

Leveraging its improved understanding through this study, on February 11, 2021, the Company announced the successful commissioning of a water pre-treatment plant located within the Mine, designed to significantly improve the quality of Mine water discharge, which in turn would support a rapid re-start of the Mine. Specifically, the water pre-treatment plant achieves this goal by reducing significantly the amount of treatment required at the CTP, and the associated costs, before the Mine water is discharged into the south fork of the Coeur D’Alene River, removing over 70% of the metals from water before it leaves the Mine, with the potential for further improvements.

In an effort to improve transparency to all stakeholders with regard to the results of this system, the Company launched a water quality tracking platform on its website on March 15, 2021, which uploads real-time data every five minutes and provides an interactive database to allow detailed historical analysis.13, 2022.

 

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Land Purchase

Infrastructure Review

On March 3, 2022, the Company purchased a 225-acre surface land parcel for $202,000. The Company intends this property to serve as a strategic asset for the restart of the Mine, optimizing construction efficiency and costs while providing improved access to prospective areas identified by our recent geophysics survey.

 

The Mine main level is termed the nine level and is the largest level in the Mine. It 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 personnel, 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. Each level is approximately 200 feet vertically apart.

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 eight 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 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 Zone, and Quill and Newgard Zones, following ramp and access development. The Company has made development plans to provide interconnectivity of the ramp system from the Russell Tunnel at the four level down to the eight level, with further plans to extend the ramp 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 supply of personnel and materials into the Mine and for haulage of mined material out of the Mine. Historically, the Kellogg Tunnel was used in this manner when the Mine was producing upwards of 3,000 tons per day of mined material. The Company has inspected the Kellogg Tunnel 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 Kellogg Tunnel at normal to oblique angles and create unstable ground.

The Company has determined that all of the track, as well as spikes, plates and ties holding the track will need to be replaced, and has started that process in support of the on-going exploration program. 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 Kellogg Tunnel work is still in process as of the date hereof, but the time estimate for these repairs is approximately twelve months.

Bunker Hill Mine Re-start Developments and Preliminary Economic Assessment

In November 2020, the Company launched a Preliminary Economic Assessment (“PEA”) to assess the potential for a rapid re-start of the Mine for minimal capital by focusing on the de-watered upper areas of the Mine, utilizing existing infrastructure, and based on truck haulage and toll milling methods.

To support the Company’s strategy of targeting a rapid production re-start as outlined above, development drilling subsequent to November 2020 focused on targets in the upper levels of the Mine located in close proximity to existing infrastructure, aimed at expanding the resource base for the PEA.

In January 2021, the Company reported continued progress towards completing a PEA and further detailed the potential parameters of the re-start, including: i) low up-front capital costs through utilization of existing infrastructure, potentially enabling a rapid production re-start; ii) a staged approach to mining, potentially supporting a long-life operation; iii) underground processing and tailings deposition with potential for high recovery rates; iv) development of a sustainable operation with minimal environmental footprint; and v) potential increase in the existing resource base.

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On April 20, 2021, the Company reported the results of its PEA for the Mine. The PEA contemplates a $42 million initial capital cost (including 20% contingency) to rapidly restart the Mine, generating approximately $20 million of annual average free cash flow over a 10-year mine life, and producing over 550 million pounds of zinc, 290 million pounds of lead, and 7 million ounces of silver at all-in sustaining costs of $0.65 per payable pound of zinc (net of by-products). The PEA contemplates a low environmental footprint, long-term water management solution, and significant positive economic impact for the Shoshone County, Idaho community. The PEA is based on the mineral resources estimate described above and published on March 22, 2021, following the drilling program conducted in 2020 and early 2021 to validate the historical reserves. The PEA includes a mining inventory of 5.5Mt, which represents a portion of the 4.4Mt Indicated mineral resource and 5.6Mt Inferred mineral resource. Further details regarding the PEA can be found in the news release dated April 20, 2021 on EDGAR, SEDAR and the Company’s website www.bunkerhillmining.com. In addition, on June 4, 2021, the Company filed the Preliminary Economic Assessment report, entitled “NI 43-101 Technical Report and Preliminary Economic Assessment of the Bunker Hill Mine” on SEDAR. There were no material differences between the key results, assumptions and estimates contained in the report filed on June 4, 2021 and the news release dated April 20, 2021.

The PEA is preliminary in nature and includes Inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the project described in the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

On April 27, 2021, the Company announced that it had engaged Cutfield Freeman & Co. to provide independent advice on all aspects of restart mining finance related to the Mine.

It should be noted that mineral resources as stated above, including those delineated in the Inferred, Measured and Indicated categories, are not mineral reserves as defined by SEC guidelines, and do now show demonstrated economic viability. Due to the uncertainty that may be attached to Inferred mineral resources, it cannot be assumed that all or any part of an Inferred mineral resource will be upgraded to an Indicated or Measured mineral resource as a result of continued exploration.

Results of Operations

 

The following discussion and analysis providesprovide information that the Company believes is believed to be relevant to an assessment and understanding of itsthe results of operation and financial condition of the Company for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.March 31, 2022 and March 31, 2021. Unless otherwise stated, all figures herein are expressed in U.S. dollars, which is the Company’s functional currency of the Company.currency.

Comparison of the three and six months ended June 30,March 31, 2022 and 2021 and June 30, 2020

 

Revenue

 

During the three and six months ended June 30,March 31, 2022, and 2021, and June 30, 2020,respectively, the Company generated no revenue.

 

Operating Expenses

 

During the three months ended June 30,March 31, 2022 and 2021, the Company reported total operating expenses of $5,295,557 as compared to $3,589,361 during the three months ended June 30, 2020, an increase of $1,706,196 or approximately 48%.$5,486,674 and $4,623,974, respectively.

 

The increase in total operating expenses during the three months ended June 30, 2021 was primarilyis due to an increase in exploration expense of $1,662,352 ($4,123,735mine preparation costs in the three months ended June 30, 2021 comparedmost recent quarter as the Company ramps up its preparations to $2,461,383 input the three months ended June 30, 2020) mostly due to significant additional accrual for water treatment charges from the EPA resulting from a higher than expected invoice received in July 2021. The decrease in operationmine into production and administration expenses ($447,463 in the three months ended June 30, 2021 compared to $850,015 in the three months ended June 30, 2020) was mostly due to lower stock based compensation expensed during the three months ended June 30, 2021. The increase in legal and accounting ($318,110 in the three months ended June 30, 2021 compared to $123,798 in the three months ended June 30, 2020), and consulting ($406,249 in the three months ended June 30, 2021 compared to $154,165 in the three months ended June 30, 2020) were due to increased activity at the Mine, and legal, professionalexpenses and consulting expenses relatedrequired to completionaccomplish the significant events of the PEA.

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Duringquarter (convertible debentures, mine purchase and preparation of the six months ended June 30, 2021,placement of Special Warrants that closed the Company reported total operating expensesday after the close of $9,919,531 asthe quarter) when compared to $4,952,321 during the three monthsthree-month period ended June 30, 2020, an increase of $4,967,210 or approximately 100%.  

The increase was due to additional exploration expenses resulting from the Company’s drilling activities, significant additional accrual for water treatment charges from the EPA as a result of a higher than expected invoice received in July 2021, and additional legal and consulting expenses related to the completion of the PEA.

March 31, 2021.

 

For financial accounting purposes, the Company reports all direct exploration expenses under the exploration expense line item of the Condensed Interim Consolidated Statementscondensed interim consolidated statements of Incomeincome (loss) and Comprehensive Income.comprehensive income (loss). Management determined that costs of the mine in the most recent quarter constituted mine preparation costs rather than exploration costs, since it was not focused on expanding the mineral resources, but was invested to execute on the tasks and projects required to get the mine into shape for production activities. Certain indirect expenses may be reported as operation and administration expense or consulting expense on the statementcondensed interim consolidated statements of operations.income (loss) and comprehensive income (loss).

 

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Net Incomes and Comprehensive Income

 

The Company reported net income and comprehensive income of $45,056 for the three months ended June 30, 2021, compared to net loss and comprehensive loss of $22,882,575 for the three months ended June 30, 2020, an increase of $22,927,631. The Company also reported net income and comprehensive income of $5,882,865 for the six months ended June 30, 2021, compared to net loss and comprehensive loss of $13,580,978 for the six months ended June 30, 2020. The increase in net income and comprehensive income was primarily due to a gain related to the change in derivative liability of $5,236,792 for the three months ended June 30, 2021 and $15,712,168 for the six months ended June 30, 2021, as compared to a loss of $19,060,232 for the three months ended June 30, 2020, and a loss of $8,214,828 for the six month ended June 30, 2020. The gain in the three and six months ended June 30, 2021 related mostly to a decrease in the fair value of the Company’s outstanding warrants due to a decrease in the Company’s share price. The Company’s share price decreased from $0.52 per Common Share on December 31, 2020 to C$0.35 per Common Share on March 31, 2021 to C$0.28 per Common Share on June 30, 2021. Conversely, the loss in the three months ended June 30, 2020 related mostly to an increase in the fair value of the Company’s outstanding warrants due to an increase in the Company’s share price. The Company’s share price increased from C$0.55 on December 31, 2019 to C$0.68 per Common Share on March 31, 2020 to C$1.00 per Common Share on June 30, 2020.  

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 $75,372,036 and further losses are anticipated in the development of its business. Additionally, the Company owes a total of $12,000,000 to the EPA (see Note 6) that is classified as current liability unless and until the Company can consummate financial assurances that would reclassify this liability to long-term debt. The Company owes an additional $5,185,706 to the EPA and IDEQ that is due within 12 months. The Company owes a total of $3,540,852, net of discount, to the EPA that is classified as long-term debt. The Company does not have sufficient working capital neededcash to fund normal operations and meet itsdebt obligations for the next 12 months without deferring payment on certain current fiscal obligations and commitments, including commitments associated with the acquisition of the Mine.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 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 and debt financing. These 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, obtain additional financing to continue operations, explore and develop the mineral properties and the discovery, development, and sale of reserves.

Convertible Debentures and Mine Purchase

 

As noted previously,described above, in January 2022, the Company has engaged Cutfield Freeman & Co.closed on two convertible debentures totaling $14,000,000 and used the proceeds to provide independent advice on all aspects of restart mining financing related topurchase the Mine includingfor a total capitalized cost of $14,247,210, also as described above, as well as satisfy the acquisition$2,000,000 EPA payment requirement, the $500,000 deposit requirement on the upcoming plant equipment purchase, the purchase of the Mine.225 acres and fund its continuing working capital requirements.

 

The Company is also working to secure adequate capital to continue making lease payments, payments to the EPA, conduct exploration activities on site and cover general and administrative expenses associated with managing a public company.

In February 2021, the Company closed a non-brokered private placement of 19,994,080 units of the Company at C$0.40 per unit for gross cash proceeds of C$7,830,544. Each unit consists of one Common Share of the Company and one Common Share purchase warrant, which entitles the holder to acquire one Common Share at a price of C$0.60 per Common Share for a period of five years. In connection with the financing, the Company paid a cash commission of C$140,400 and issued 351,000 finder options, which are exercisable into units at an exercise price of C$0.40 for a period of three years. Pursuant to the offering, certain directors and officers of the Company acquired 626,580 Units. This issuance of such Units in connection with the offering was considered a “related party transaction” as such term is defined under MI 61-101.

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The Company has accounted for the warrants issued through units issuance in accordance with ASC Topic 815. These warrants issued through units issuance are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the U.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 liability is recorded in the interim condensed consolidated statements of income and comprehensive income as a gain or loss and is estimated using the Binomial model.

The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the current outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will 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.

Current Assets and Total Assets

 

As of June 30, 2021, the Company’s balance sheet reflects thatMarch 31, 2022, the Company had: i) total current assets of $2,788,508,$4,116,206, compared to total current assets of $4,045,618$3,622,548 at December 31, 2020, a decrease2021 – an increase of $1,257,110 or approximately 31%;$493,658; and ii) total assets of $5,429,014,$19,089,557, compared to total assets of $6,709,016$4,071,796 at December 31, 2020, a decrease2021 – an increase of $1,280,002 or approximately 19%.$15,017,761. The decreaseincrease in current assets was mostly impacteddue to an increase in available cash as a result of the proceeds from the convertible debentures and the deposit toward the purchase of the Pend Oreille Mill, offset by a decrease in prepaid mine acquisition costs held at December 31, 2021 toward the purchase of the Mine and financing activities related to the convertible debentures. Total assets increased principally due to the increase in cash and the purchase of the Mine and mining interest assets, offset by the decrease in cash and cash equivalents, primarily dueprepaid costs related to the Company’s spending related to exploration partially offset by proceeds from the non-brokered private placement closed on February 24, 2021.anticipated mine acquisition and financing activities.

 

Total Current Liabilities and Liabilities

 

As of June 30, 2021, the Company’s balance sheet reflects thatMarch 31, 2022, the Company had total current liabilities of $15,692,077$24,872,184 and total liabilities of $27,799,249,$54,291,835, compared to total current liabilities of $14,178,553$22,795,277 and total liabilities of $38,246,613 as of$38,314,164 at December 31, 2020.2021. The increase in the current liabilities is impacted by increased accruals related toreflective of increases in accrued liabilities, interest payable and EPA water treatment charges frompayable and current portion of the EPA. The decreaseEPA liability assumed upon the purchase of the Mine, offset by decreases in totalaccounts payable and the short-term DSU liability. Total liabilities is primarily due to a decrease in derivative warrant liabilityincreased as a result of athe two convertible debentures, the net present value of the long-term portion of the EPA liability assumed with the purchase of the Mine and subscriptions payable for cash received during the quarter for the financing which closed subsequent to the end of the quarter, offset by the decrease in the Company’s share price over the six months ended June 30, 2021.

Working Capital

As of June 30, 2021, the Company had negative working capital of $12,903,569 compared to negative working capital of $10,132,935 as of December 31, 2020. The increase in negative working capital was due to the decrease in cash and cash equivalents primarily related to exploration activity, and additional liability accrued in relation to water treatment charges from the EPA.long-term derivative warrant liability.

 

Cash Flow

 

During the six monthsquarter ended June 30, 2021,March 31, 2022, the Company had a net cash was primarilyincrease of $2,524,017, which represents cash provided from convertible debentures and subscriptions received, with proceeds used to fund activities atmining operations and purchase the Mine operations including exploration and property payments. The Company reportedreal estate assets and make a net decrease indeposit on future equipment purchases.

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During the quarter ended March 31, 2022, cash of $1,191,272 during the six months ended June 30, 2021 compared to a net decrease of $20,585 during the six months ended June 30, 2020. The decrease$6,839,679 was used in cash during the six months ended June 30, 2021 as a result of $7,040,266 of netoperating activities. This compares with cash used in operating activities $94,693 used in investing activities , and $5,943,687 of net cash provided by financing activities including$4,031,935 for the non-brokered private placement closed on February 24,quarter ended March 31, 2021.

 

Going Concern

These unaudited interim condensed consolidated financial statement filings have been preparedDuring the quarter ended March 31, 2022, cash of $6,379,672 was used in investing activities for the purchase of the Mine, equipment, real estate and a deposit on the going concern basis, which assumes that adequate sourcespurchase of financing will be obtained as required and that the Company’s assets will be realized, and liabilities settled in due course of business. Accordingly, the interim condensed consolidated unaudited financial statements do not include any adjustments related 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 discussedplant equipment, compared with no cash used for investing activities in the financial statements Note 1 – Nature and Continuance of Operations and Going Concern.quarter ended March 31, 2021

 

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During the quarter ended March 31, 2022, cash of $15,743,368 was provided by financing activities by the two convertible debentures and subscriptions received for an upcoming financing, offset by cash used for lease payments, compared with cash of $5,976,675 provided by financing activities in the quarter ended March 31, 2021

Subsequent Events

CRIT

ICAL ACCOUNTING ESTIMATESOn April 1, 2022, the Company announced that it had closed the private placement of 37,849,325 Special Warrants, and concurrent non-brokered private placement of 1,471,644 units of the Company (the “Non-Brokered Units”) for aggregate gross proceeds of approximately $11,796,297 (the “Offering”). Of this amount, $1,775,790 was received prior to the end of the quarter and is included in Subscriptions received in the equity section of the balance sheet.

Pursuant to the Offering, the Company issued 37,849,325 Special Warrants at a price of $0.30 per Special Warrant. Each Special Warrant is 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 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 in which the purchasers of the Special Warrants were sold 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 “Final Qualification Prospectus”); and (B) notification that the registration statement, of which this Prospectus is a part, has been declared effective by the SEC (the “Registration Statement”); and (ii) October 1, 2022.

Each Brokered Unit consists of one Common Share and one Warrant. Each whole Warrant will entitle the holder to acquire one Common Share (a “Warrant Share”) for C$0.37 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.

In addition, pursuant to the Offering, the Company issued 1,471,644 Non-Brokered Units at a price of $0.30 per Non-Brokered Units. Each Non-Brokered Unit consists of one Common Share and one Warrant. Each whole Warrant will entitle the holder to acquire one Warrant Share for C$0.37 until April 1, 2025.

Related parties, including management and members of the Board of Directors purchased 4,537,160 of Non-Brokered Units for a total of $1,361,148 of cash proceeds to the Company.

On May 13, 2022, the Company issued 10,416,667 units of the Company to Teck Resources Limited at an issue price of C$0.30 per unit, or C$3,125,000 (US$2,500,000), which together with the $500,000 cash payment made in January 2022, satisfies the purchase price of $3,000,000 and applicable sales taxes for the Pend Oreille Mill. Each unit consists of one common share and one common share purchase warrant. Each whole warrant entitles the holder to acquire one common share at a price of C$0.37 for a period of three years.

Critical accounting estimates

The preparation of the interim condensed consolidated financial statements in conformity with U.S,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 circumstances. Actual outcomes can differ from these estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the financial statements are:

 

Share-based payments

Management determines costs for share-based payments using market-based valuation techniques. The fair value of the share awards and 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.

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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.

The Company has to make estimates to accrue for certain expenditures due to delay in receipt of third partythird-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 entered into convertible debentures that contain embedded derivatives arising from contractual terms that allow prepayment, payment of interest with shares of the Company’s stock, conversion of the debentures into shares of the Company’s stock, or conversion into a royalty stream. These embedded derivatives require the use of valuation models, techniques and assumptions that utilize estimates of several key valuation inputs. The embedded derivatives require revaluation at each quarter end, with updates to and re-evaluation of each of the key valuation inputs at each revaluation.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not Applicable.applicable.

 

ITEM 4.CONTROLS AND PROCEDURES.

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’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 SEC’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 Exchange Act 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified under the SEC’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 made an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures over financial reporting for the timely alert 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 significant deficiencies, in combination, represent a material weakness. The Company’s CEO and CFO also concluded that updates to the disclosure controls and procedures should be made to improve the effectiveness of the controls and procedures to provide reasonable assurance of the assurance of these objectives.

 

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Changes in Internal Control Over Financial Reporting

 

Mitigating these significant deficiencies, however, is that, commencing in 2020 andDecember of 2021, the Company has a new management teamreplaced certain accounting resources by engaging qualified finance and new members of the Board of Directors, including a new Chair of the Audit Committee,accounting staff who are experienced in established and a new Chief Financial Officer, which are focused on transitioning the Company to a new management approach, modern thinking, new systems and practices, modern approaches to engagement and a system ofproven internal controls and procedures. Management’s daily involvementaccounting procedures with other companies in the business provides it with more than adequate knowledge to identify the areas of financial reporting risks and related controls. In addition, the procedures followed are integrated within the daily responsibilities of the Company’s employees, allowing management to rely on their own intimate knowledge and supervision of controls.same industry. As the Company’s business plan is implemented and additionalwork product of these qualified staff is added,are reflected in Company transactions more fully in 2022, management will be able to address these remaining significant deficiencies.

 

As part of the afore-mentioned engagement, Management has also engaged a contract Controller and a third-party firm to assist in developing Disclosure Controls and Procedures and Internal Controls Over Financial Reporting. The Company intends to remediateremedy these significant deficiencies dependent on having the financial resources available to complete them.

 

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PART II – OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS.

Item 1. Legal Proceedings

 

Other than as described below, neither the Company nor its property is the subject of any current, pending, or threatened legal 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.

 

On or about June 14, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by a purported personal representative of the estate of a minority shareholder of Placer Mining. The named defendants include Placer Mining, certain of Placer Mining’s shareholders, the Company, and certain of the Company’s shareholders. The lawsuit alleges that Placer Mining entered into a series of transactions, including amendments to the Company’s lease with Placer Mining, in breach of an agreement dated August 31, 2018 which allegedly restricted the sale of shares in Placer Mining by certain shareholders. On August 13, 2021, the Company filed a motion to dismiss the claim for lack of jurisdiction and standing.

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 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 it amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining Corp are named as co-defendants. Bunker Hill and Placer have until May 20, 2022 to respond to the amended filing. The Company believes the claims in both lawsuits, as they relate to Bunker Hill, areCrescent Mining LLC’s lawsuit against Placer Mining Corp. is without merit and intends to defend them vigorously.Placer Mining Corp. vigorously 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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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.

 

Item 1A -1A. Risk Factors of the Company’s

There have been no changes to our risk factors as reported in our annual report filed on Form 10-KT10-K for the six monthsyear ended December 31, 2020 sets forth information relating to important risks and uncertainties that could materially adversely affect the Company’s business, financial condition or operating results.2021.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds

 

Not Applicable.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

Item 3. Defaults upon Senior Securities

 

None.

 

ITEM 4.MINE SAFETY DISCLOSURES.

Item 4. Mine Safety Disclosure

 

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 SEC certaininformation regarding specified disclosures regardinghealth and safety 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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The following table provides information for the three months ended March 31, 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 5  0  0  0  0  665  0  0  No

 

ITEM 5.(1)OTHER INFORMATIONThe 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.

 

Not applicable.Item 5. Other Information

 

ITEM 6.EXHIBITS

None.

 

The exhibits required by this item are set forth on the Exhibit Index below.Item 6. Exhibits

31.1*Exhibit No.Document
31.1CertificationsCertification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 30213a-14 of the Sarbanes-OxleyExchange Act of 2002.*
31.2*31.2CertificationsCertification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 30213a-14 of the Sarbanes-OxleyExchange Act of 2002.*
32.1*32.1Certifications pursuant to 18 U.S.C. Section 1350, as adoptedCertification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*2002
32.2*32.2Certifications pursuant to 18 U.S.C. Section 1350, as adoptedCertification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*2002
101*SCH XBRL Schema Document *
101*101.INSINSInline XBRL Instance Document *
101*101.SCHCALInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*Document
101*101.DEFLABInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document *
101*101.PREPREInline XBRL Taxonomy Extension Presentation Linkbase Document *
101*104DEFCover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Definition Linkbase Document*and contained in Exhibit 101)

* Filed Herewith

 

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SIGNATURES

 

Pursuant to the requirements ofIn accordance with Section 13 or 15(d)12 of the Securities Exchange Act of 1934, the registrantRegistrant has caused this reportQuarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

 

By:/s/ Sam AshDate: May 16, 2022 
Sam Ash, President and Chief Executive Officer 
   
Date:AugustBUNKER 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: May 16, 20212022 
   
By:BUNKER HILL MINING CORP.
By/s/ David Wiens
 
 David Wiens, Chief Financial Officer and Corporate Secretary
Date:August 16, 2021

 

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