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 |
|
For the quarterly period ended March 31, 2024
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 333-150028
BUNKER HILL MINING CORP.
(Exact Name of Registrant as Specified in its Charter)
nevada | 32-0196442 | |
(State of other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
82 Richmond Street East | ||
Toronto, Ontario, Canada | M5C 1P1 | |
(Address of Principal Executive Offices) | (Zip Code) |
(416) 477-7771
(Registrant’s Telephone Number, including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☒ No ☐
Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant 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 ☐
to this Form 10-Q. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging Growth Company ☐ |
Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No No☒ ☒
Number of shares of Common Stock outstanding as of August 14, 2023:May 9, 2024:
TABLE OF CONTENTS
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”) a.a Nevada corporation, included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission. Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2022.2023, and all amendments thereto.
Bunker Hill Mining Corp.
Condensed Interim Consolidated Balance Sheets
(Expressed in United States Dollars)
Unaudited
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash | $ | 35,133,159 | $ | 708,105 | $ | 13,684,542 | $ | 20,102,596 | ||||||||
Restricted cash | 6,476,000 | 6,476,000 | ||||||||||||||
Restricted cash (note 8) | 6,476,000 | 6,476,000 | ||||||||||||||
Accounts receivable and prepaid expenses (note 3) | 1,222,565 | 556,947 | 703,004 | 598,401 | ||||||||||||
Total current assets | 42,831,724 | 7,741,052 | 20,863,546 | 27,176,997 | ||||||||||||
Non-current assets | ||||||||||||||||
Spare parts inventory | 341,004 | 341,004 | ||||||||||||||
Spare parts inventory (note 5) | 341,004 | 341,004 | ||||||||||||||
Long term deposit | 249,265 | 249,265 | ||||||||||||||
Equipment (note 4) | 534,784 | 551,204 | 1,164,830 | 946,661 | ||||||||||||
Right-of-use asset (note 4) | 102,151 | - | 608,725 | 625,022 | ||||||||||||
Long term deposit | 69,015 | 269,015 | ||||||||||||||
Bunker Hill Mine and mining interests (note 5) | 13,992,896 | 15,896,645 | ||||||||||||||
Process plant (note 4) | 9,992,390 | 8,130,972 | ||||||||||||||
Bunker Hill Mine and mining interests (note 6) | 15,679,985 | 15,198,259 | ||||||||||||||
Process plant (note 5) | 22,741,673 | 17,452,470 | ||||||||||||||
Total assets | $ | 67,863,964 | $ | 32,929,892 | $ | 61,649,028 | $ | 61,989,678 | ||||||||
EQUITY AND LIABILITIES | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 2,878,719 | $ | 4,523,502 | ||||||||||||
Accounts payable (note 16) | $ | 4,417,284 | $ | 1,788,950 | ||||||||||||
Accrued liabilities | 644,930 | 1,500,164 | 1,321,239 | 1,225,525 | ||||||||||||
Interest payable (note 7) | 27,738 | 1,154,477 | ||||||||||||||
Derivative warrant liability (note 8) | 1 | 903,697 | ||||||||||||||
Deferred share units liability (note 10) | 861,066 | 573,742 | ||||||||||||||
Derivative special warrant liability (note 8) | 12,845,643 | - | ||||||||||||||
Promissory notes payable (note 7) | 1,095,253 | 1,500,000 | ||||||||||||||
Current portion of lease liability (note 7) | 271,743 | 353,526 | ||||||||||||||
Deferred share units liability (note 12) | 644,305 | 569,327 | ||||||||||||||
Environment protection agency cost recovery payable (note 8) | 3,000,000 | 3,000,000 | ||||||||||||||
Current portion of stream debenture | 2,017,825 | - | ||||||||||||||
Interest payable (note 9) | 529,450 | 534,998 | ||||||||||||||
Total current liabilities | 18,353,350 | 10,155,582 | 12,201,846 | 7,472,326 | ||||||||||||
Non-current liabilities | ||||||||||||||||
Bridge loan (note 7) | - | 4,684,446 | ||||||||||||||
Series 1 convertible debenture (note 7) | 5,812,092 | 5,537,360 | ||||||||||||||
Series 2 convertible debenture (note 7) | 14,644,406 | 14,063,525 | ||||||||||||||
Stream obligation (note 7) | 45,260,844 | - | ||||||||||||||
Royalty convertible debenture (note 7) | - | 10,285,777 | ||||||||||||||
Environmental protection agency cost recovery liability, net of discount (note 6) | 8,712,435 | 7,941,466 | ||||||||||||||
Deferred tax liability (note 12) | 3,745,067 | - | ||||||||||||||
Derivative warrant liabilities (note 8) | 7,768,394 | 6,438,679 | ||||||||||||||
Lease liability (note 7) | 9,983 | 71,808 | ||||||||||||||
Series 1 convertible debenture (note 9) | 5,212,398 | 5,244,757 | ||||||||||||||
Series 2 convertible debenture (note 9) | 13,359,789 | 13,458,570 | ||||||||||||||
Stream debenture (note 9) | 50,695,175 | 51,138,000 | ||||||||||||||
Environment protection agency cost recovery liability, net of discount (note 8) | 7,026,947 | 6,574,140 | ||||||||||||||
Deferred tax liability (note 14) | 1,888,670 | 2,588,590 | ||||||||||||||
Derivative warrant liability (note 10) | 2,072,592 | 1,808,649 | ||||||||||||||
Total liabilities | 104,296,588 | 59,106,835 | 92,467,400 | 88,356,840 | ||||||||||||
Shareholders’ Deficiency | ||||||||||||||||
Preferred shares, $ | par value, preferred shares authorized; preferred shares issued and outstanding (note 8)- | - | ||||||||||||||
Common shares, $ | par value, common shares authorized; and common shares issued and outstanding, respectively (note 8)264 | 228 | ||||||||||||||
Additional paid-in-capital (note 8) | 49,538,834 | 45,161,513 | ||||||||||||||
Preferred shares, $ par value, preferred shares authorized | - | - | ||||||||||||||
Common shares, $ par value, common shares authorized | 331 | 321 | ||||||||||||||
Additional paid-in-capital (note 10) | 58,691,397 | 57,848,953 | ||||||||||||||
Accumulated other comprehensive income | 687,472 | 253,875 | 1,097,034 | 808,662 | ||||||||||||
Accumulated deficit | (86,659,194 | ) | (71,592,559 | ) | (90,607,134 | ) | (85,025,098 | ) | ||||||||
Total shareholders’ deficiency | (36,432,624 | ) | (26,176,943 | ) | (30,818,372 | ) | (26,367,162 | ) | ||||||||
Total shareholders’ deficiency and liabilities | $ | 67,863,964 | $ | 32,929,892 | $ | 61,649,028 | $ | 61,989,678 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
3 |
Bunker Hill Mining Corp.
Condensed Interim Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
(Expressed in United States Dollars)
Unaudited(Unaudited)
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30 | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Operating expenses | ||||||||||||||||
Operation and administration | $ | 2,003,905 | $ | 176,892 | $ | 2,883,897 | $ | 436,604 | ||||||||
Mine preparation | - | 1,821,223 | - | 4,328,302 | ||||||||||||
Legal and accounting | 388,776 | 401,318 | 923,687 | 764,054 | ||||||||||||
Consulting | 944,292 | 1,580,429 | 1,714,877 | 3,937,576 | ||||||||||||
Loss from operations | (3,336,973 | ) | (3,979,862 | ) | (5,522,461 | ) | (9,466,536 | ) | ||||||||
Other income or gain (expense or loss) | ||||||||||||||||
Interest income | 231,133 | - | 231,133 | - | ||||||||||||
Change in derivative liabilities (note 8) | (13,246,561 | ) | 7,769,211 | (9,019,987 | ) | 11,223,219 | ||||||||||
Gain (loss) on foreign exchange | (591 | ) | (249,244 | ) | (3,479 | ) | (221,324 | ) | ||||||||
(Loss) gain on FV of debentures (note 7) | (1,884,232 | ) | 1,813,456 | (194,531 | ) | 1,739,987 | ||||||||||
Gain on EPA settlement | - | 8,614,103 | - | 8,614,103 | ||||||||||||
Gain on debt settlement (note 5) | 7,117,420 | - | 7,117,420 | - | ||||||||||||
Gain on warrant settlement | - | - | 214,714 | - | ||||||||||||
Interest expense (note 7) | (1,388,420 | ) | (382,370 | ) | (2,713,049 | ) | (1,117,607 | ) | ||||||||
Debenture finance costs | - | (1,099,051 | ) | - | (1,166,485 | ) | ||||||||||
Finance costs (note 7, 8) | (524,130 | ) | (455,653 | ) | (1,100,881 | ) | (455,653 | ) | ||||||||
Other income | 24,439 | 24,191 | 24,439 | 24,191 | ||||||||||||
Loss on debt modification (note 7) | (99,569 | ) | - | (99,569 | ) | - | ||||||||||
Loss on debt settlement (note 7) | (241,557 | ) | - | (491,643 | ) | - | ||||||||||
(Loss) income for the period pre tax | $ | (13,349,041 | ) | $ | 12,054,781 | $ | (11,557,894 | ) | $ | 9,173,895 | ||||||
Deferred tax expense (note 12) | (3,508,741 | ) | - | (3,508,741 | ) | - | ||||||||||
Net (loss) income for the period | $ | (16,857,782 | ) | $ | 12,054,781 | $ | (15,066,635 | ) | $ | 9,173,895 | ||||||
Other comprehensive (loss) income, net of tax: | ||||||||||||||||
(loss) gain on change in FV on own credit risk | (373,415 | ) | 371,586 | 433,597 | 371,586 | |||||||||||
Other comprehensive income | (373,415 | ) | 371,586 | 433,597 | 371,586 | |||||||||||
Comprehensive (loss) income | $ | (17,231,197 | ) | $ | 12,426,367 | $ | (14,633,038 | ) | $ | 9,545,481 | ||||||
Dilutive effect of convertible debentures | - | (836,204 | ) | - | (865,015 | ) | ||||||||||
Dilutive effect of derivative warrant liabilities | $ | - | $ | - | $ | - | $ | - | ||||||||
Diluted net (loss) income and comprehensive (loss) income for the period | $ | (17,231,197 | ) | $ | 11,590,163 | $ | (14,633,038 | ) | $ | 8,680,466 | ||||||
Net income (loss) per common share – basic | $ | (0.07 | ) | $ | 0.06 | $ | (0.06 | ) | $ | 0.05 | ||||||
Net income (loss) per common share – fully diluted | $ | (0.07 | ) | $ | 0.05 | $ | (0.06 | ) | $ | 0.04 | ||||||
Weighted average common shares – basic | 258,236,840 | 210,586,156 | 247,170,167 | 187,638,287 | ||||||||||||
Weighted average common shares – fully diluted | 258,236,840 | 245,879,831 | 247,170,167 | 214,210,598 |
2024 | 2023 | |||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Operating expenses (note 15) | $ | (3,787,631 | ) | $ | (2,185,488 | ) | ||
Other income or gain (expense or loss) | ||||||||
Interest income | 291,330 | - | ||||||
Change in derivative liability (note 10) | (263,943 | ) | 4,226,574 | |||||
(Loss) gain on FV of convertible debentures (note 9) | (157,232 | ) | 1,689,701 | |||||
Gain on modification of warrants (note 10) | - | 214,714 | ||||||
Gain (loss) on foreign exchange | 5,654 | (2,886 | ) | |||||
Interest expense (note 7,8,9) | (2,083,735 | ) | (1,324,629 | ) | ||||
Financing costs (note 10) | - | (576,751 | ) | |||||
Loss on stream debentures (note 9) | (217,000 | ) | - | |||||
Loss on debt settlement (note 9) | (70,093 | ) | (250,086 | ) | ||||
Other income | 694 | - | ||||||
(Loss) income for the period pre tax | (6,281,956 | ) | 1,791,149 | |||||
Deferred income tax recovery (note 14) | 699,920 | - | ||||||
(Loss) income for the period | (5,582,036 | ) | 1,791,149 | |||||
Other comprehensive income (loss), net of tax | ||||||||
Gain on change in FV on own credit risk (note 9) | 288,372 | 807,012 | ||||||
Other comprehensive income | 288,372 | 807,012 | ||||||
Comprehensive (loss) income | (5,293,664 | ) | 2,598,161 | |||||
Net (loss)/income per common share – basic | $ | (0.02 | ) | $ | 0.01 | |||
Net (loss)/income per common share – fully diluted | $ | (0.02 | ) | $ | 0.01 | |||
Weighted average common shares – basic | 329,407,128 | 212,429,683 | ||||||
Weighted average common shares – fully diluted | 329,407,128 | 314,666,701 |
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 Cash Flows
(Expressed in United States Dollars)
Unaudited
Six Months | Six Months | Three Months | Three Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
June 30, | June 30, | March 31, | March 31, | |||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Operating activities | ||||||||||||||||
Net (loss) income for the period | $ | (15,066,635 | ) | $ | 9,173,895 | $ | (5,582,036 | ) | $ | 1,791,149 | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Stock-based compensation (note 9) | 975,188 | (135,128 | ) | |||||||||||||
Stock-based compensation (note 10) | 336,927 | 34,391 | ||||||||||||||
Depreciation expense | 89,193 | 129,445 | 90,814 | 51,076 | ||||||||||||
Change in fair value of warrant liability | 9,019,987 | (11,223,219 | ) | 263,943 | (4,226,574 | ) | ||||||||||
Deferred tax expense (note 12) | 3,508,741 | - | ||||||||||||||
Gain on warrant settlement | (214,714 | ) | - | |||||||||||||
Deferred tax expense | (699,920 | ) | - | |||||||||||||
Gain on warrant extinguishment | - | (214,714 | ) | |||||||||||||
Units issued for services | 111,971 | 1,060,858 | - | 68,656 | ||||||||||||
Interest expense on lease liability (note 7) | 5,080 | 1,834 | 27,008 | 3,611 | ||||||||||||
Financing costs | - | 264,435 | - | (384,984 | ) | |||||||||||
Foreign exchange loss (gain) | - | 221,324 | ||||||||||||||
Foreign exchange loss (gain) on re-translation of lease | - | 718 | ||||||||||||||
Loss on debt settlement | 70,093 | 250,086 | ||||||||||||||
Loss on debt modification | 99,569 | - | 217,000 | - | ||||||||||||
Loss on debt settlement | 491,643 | - | ||||||||||||||
loss (gain) on fair value of debentures | 194,531 | (1,739,987 | ) | |||||||||||||
Amortization of non-current liabilities | 855,969 | 284,087 | ||||||||||||||
Gain on debt settlement | (7,117,420 | ) | - | |||||||||||||
Gain on EPA debt settlement | - | (8,614,103 | ) | |||||||||||||
Accretion of liabilities | 1,551,867 | 374,307 | ||||||||||||||
Loss (gain) on fair value of derivatives | 157,232 | (1,689,701 | ) | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable and prepaid expenses | (470,181 | ) | (718,179 | ) | (104,603 | ) | 236,893 | |||||||||
Accounts payable | (61,969 | ) | (23,224 | ) | 608,475 | 954,046 | ||||||||||
Accrued liabilities | (118,577 | ) | 465,268 | (304,831 | ) | 498,412 | ||||||||||
Accrued EPA/IDEQ water treatment | - | (903,565 | ) | |||||||||||||
Prepaid finance costs | - | 393,640 | ||||||||||||||
Deposit on plant demobilization | - | (1,000,000 | ) | |||||||||||||
EPA cost recovery payable | - | (2,000,000 | ) | |||||||||||||
Interest payable | 1,041,361 | 766,955 | 504,864 | 892,753 | ||||||||||||
Net cash used in operating activities | (6,656,263 | ) | (13,594,946 | ) | (2,863,167 | ) | (1,360,593 | ) | ||||||||
Investing activities | ||||||||||||||||
Additions to Bunker Hill Mine and mining interests | (514,127 | ) | (5,524,322 | ) | ||||||||||||
Land purchase | - | (202,000 | ) | |||||||||||||
Process plant | (3,155,362 | ) | (1,289,477 | ) | (2,596,535 | ) | (93,765 | ) | ||||||||
Purchase of equipment | (60,004 | ) | (161,558 | ) | ||||||||||||
Purchase of spare parts inventory | - | (341,004 | ) | |||||||||||||
Mine improvements | (495,050 | ) | (280,466 | ) | ||||||||||||
Purchase of machinery and equipment | (264,634 | ) | (60,004 | ) | ||||||||||||
Net cash used in investing activities | (3,729,493 | ) | (7,518,361 | ) | (3,356,219 | ) | (434,235 | ) | ||||||||
Financing activities | ||||||||||||||||
Proceeds from stream obligation | 46,000,000 | - | ||||||||||||||
Transaction costs stream obligation | (304,156 | ) | - | |||||||||||||
Proceeds from convertible debentures | - | 29,000,000 | ||||||||||||||
Proceeds from issuance of shares, net of issue costs | - | 7,769,745 | ||||||||||||||
Proceeds from issuance of special warrants | 3,661,822 | - | - | 3,661,822 | ||||||||||||
Proceeds from warrants exercise | 837,459 | - | - | 837,459 | ||||||||||||
Proceeds from promissory note | 390,000 | - | - | 240,000 | ||||||||||||
Repayment of bridge loan | (5,000,000 | ) | - | |||||||||||||
Repayment of promissory notes | (654,315 | ) | (1,000,000 | ) | ||||||||||||
Lease payments | (120,000 | ) | (64,828 | ) | (198,668 | ) | (60,000 | ) | ||||||||
Net cash provided by financing activities | 44,810,810 | 35,704,917 | ||||||||||||||
Net cash (used) provided by financing activities | (198,668 | ) | 4,679,281 | |||||||||||||
Net change in cash | 34,425,054 | 14,591,610 | (6,418,054 | ) | 2,884,453 | |||||||||||
Cash and restricted cash, beginning of period | 7,184,105 | 486,063 | ||||||||||||||
Cash and restricted cash, end of period | $ | 41,609,159 | $ | 15,077,673 | ||||||||||||
Cash, beginning of period | 26,578,596 | 7,184,105 | ||||||||||||||
Cash, end of period | $ | 20,160,542 | $ | 10,068,558 | ||||||||||||
Supplemental disclosures | ||||||||||||||||
Cash interest paid | $ | 322,708 | $ | - | ||||||||||||
Non-cash activities | ||||||||||||||||
Accounts payable, accrued liabilities, and promissory notes settled with special warrants issuance | $ | 874,198 | $ | 228,421 | $ | - | $ | 874,198 | ||||||||
Mill purchase for shares and warrants | $ | - | $ | 3,243,296 | ||||||||||||
Units issued to settle DSU/RSU/Bonuses | $ | - | $ | 872,399 | ||||||||||||
Interest payable settled with common shares | $ | 2,039,282 | $ | 269,750 | $ | 580,498 | $ | 1,368,724 | ||||||||
Reconciliation from Cash Flow Statement to Balance Sheet: | ||||||||||||||||
Cash and restricted cash end of period | $ | 41,609,159 | $ | 15,077,673 | $ | 20,160,542 | $ | 10,068,558 | ||||||||
Less restricted cash | 6,476,000 | 9,476,000 | 6,476,000 | 6,476,000 | ||||||||||||
Cash end of period | $ | 35,133,159 | $ | 5,601,673 | $ | 13,684,542 | $ | 3,592,558 |
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 Changes in Shareholders’ Deficiency
(Expressed in United States Dollars)
Unaudited
Accumulated | ||||||||||||||||||||||||||||
Additional | Stock | other | ||||||||||||||||||||||||||
Common stock | paid-in- | subscriptions | comprehensive | Accumulated | ||||||||||||||||||||||||
Shares | Amount | capital | payable | income | deficit | Total | ||||||||||||||||||||||
Balance, December 31, 2022 | 229,501,661 | $ | 228 | $ | 45,161,513 | - | $ | 253,875 | $ | (71,592,559 | ) | $ | (26,176,943 | ) | ||||||||||||||
Stock-based compensation | - | - | 1,050,105 | - | - | - | 1,050,105 | |||||||||||||||||||||
Compensation options | - | - | 111,971 | - | - | - | 111,971 | |||||||||||||||||||||
Shares issued for RSUs vested | 5,767,218 | 6 | (6 | ) | - | - | - | - | ||||||||||||||||||||
Shares issued for warrant exercise | 10,416,667 | 10 | 907,080 | - | - | - | 907,091 | |||||||||||||||||||||
Shares issued for interest payable | 20,125,209 | 20 | 2,308,171 | - | - | - | 2,308,191 | |||||||||||||||||||||
OCI | - | - | - | - | 433,597 | - | 433,597 | |||||||||||||||||||||
Net income (loss) for the period | - | - | - | - | - | (15,066,635 | ) | (15,066,635 | ) | |||||||||||||||||||
Balance, June 30, 2023 | 265,810,755 | $ | 264 | $ | 49,538,834 | $ | - | $ | 687,472 | $ | (86,659,194 | ) | $ | (36,432,624 | ) | |||||||||||||
Balance, December 31, 2021 | 164,435,829 | $ | 164 | $ | 38,248,618 | $ | - | $ | - | $ | (72,491,150 | ) | $ | (34,242,368 | ) | |||||||||||||
Stock-based compensation | - | - | 161,107 | - | - | - | 161,107 | |||||||||||||||||||||
Compensation options | - | - | 264,435 | - | - | - | 264,435 | |||||||||||||||||||||
Shares issued for interest payable | 1,315,856 | 1 | 269,749 | - | - | - | 269,750 | |||||||||||||||||||||
Shares issued for RSUs vested | 933,750 | 1 | (1 | ) | - | - | - | - | ||||||||||||||||||||
Non brokered shares issued for $ | CAD1,471,664 | 1 | 352,854 | - | - | - | 352,855 | |||||||||||||||||||||
Stock subscription received for units | - | - | - | 1,775,790 | - | 1,775,790 | ||||||||||||||||||||||
Special warrant shares issued for $ | CAD37,849,325 | 38 | 9,083,719 | (1,775,790 | ) | - | - | 7,307,967 | ||||||||||||||||||||
Contractor shares issued for $ | CAD1,218,000 | 1 | 289,999 | - | - | - | 290,000 | |||||||||||||||||||||
Shares issued for Mill purchase | 10,416,667 | 10 | 1,970,254 | - | - | - | 1,970,264 | |||||||||||||||||||||
Issue costs | - | - | (896,009 | ) | - | - | - | (896,009 | ) | |||||||||||||||||||
Warrant valuation | - | - | (6,246,848 | ) | - | - | - | (6,246,848 | ) | |||||||||||||||||||
OCI | - | - | - | - | 371,586 | - | 371,586 | |||||||||||||||||||||
Net income (loss) for the period | - | - | - | - | - | 9,173,895 | 9,173,895 | |||||||||||||||||||||
Net income (loss) | - | - | - | - | - | 9,173,895 | 9,173,895 | |||||||||||||||||||||
Balance, June 30, 2022 | 217,641,091 | $ | 216 | $ | 43,497,877 | $ | - | $ | 371,586 | $ | (63,317,255 | ) | $ | (19,447,576 | ) | |||||||||||||
Balance | 217,641,091 | $ | 216 | $ | 43,497,877 | $ | - | $ | 371,586 | $ | (63,317,255 | ) | $ | (19,447,576 | ) |
Accumulated | ||||||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||||||
Common stock | paid-in- | Special | comprehensive | Accumulated | ||||||||||||||||||||||||
Shares | Amount | capital | warrants | income | deficit | Total | ||||||||||||||||||||||
Balance, December 31, 2023 | 322,661,482 | $ | 321 | $ | 57,848,953 | $ | - | $ | 808,662 | $ | (85,025,098 | ) | $ | (26,367,162 | ) | |||||||||||||
Stock-based compensation | 261,949 | 261,949 | ||||||||||||||||||||||||||
Compensation options | 111,971 | - | - | - | 111,971 | |||||||||||||||||||||||
Shares issued for interest payable | 7,392,859 | 7 | 580,498 | 580,505 | ||||||||||||||||||||||||
Shares issued for RSUs vested | 2,546,436 | 3 | (3 | ) | - | |||||||||||||||||||||||
Shares issued for warrant exercise | 10,416,667 | 10 | 907,080 | - | - | - | 907,091 | |||||||||||||||||||||
Special warrants | - | - | - | 1,484,788 | - | - | 1,484,788 | |||||||||||||||||||||
OCI | - | - | - | 288,372 | - | 288,372 | ||||||||||||||||||||||
Net income (loss) for the period | - | - | - | - | - | (5,582,036 | ) | (5,582,036 | ) | |||||||||||||||||||
Balance, March 31, 2024 | 332,600,777 | $ | 331 | $ | 58,691,397 | $ | - | $ | 1,097,034 | $ | (90,607,134 | ) | $ | (30,818,372 | ) | |||||||||||||
Balance, December 31, 2022 | 229,501,661 | $ | 228 | $ | 45,161,513 | $ | - | $ | 253,875 | $ | (71,592,559 | ) | $ | (26,176,943 | ) | |||||||||||||
Balance | 229,501,661 | $ | 228 | $ | 45,161,513 | $ | - | $ | 253,875 | $ | (71,592,559 | ) | $ | (26,176,943 | ) | |||||||||||||
Stock-based compensation | 233,668 | - | - | - | 233,668 | |||||||||||||||||||||||
Compensation options | 111,971 | - | - | - | 111,971 | |||||||||||||||||||||||
Shares issued for interest payable | 16,180,846 | 16 | 1,618,811 | - | - | - | 1,618,827 | |||||||||||||||||||||
Shares issued for warrant exercise | 10,416,667 | 11 | 907,080 | - | - | - | 907,091 | |||||||||||||||||||||
Special warrants | - | - | - | 1,484,788 | - | - | 1,484,788 | |||||||||||||||||||||
OCI | - | - | - | - | 807,012 | - | 807,012 | |||||||||||||||||||||
Net income (loss) for the period | - | - | - | - | - | 1,791,149 | 1,791,149 | |||||||||||||||||||||
Balance, March 31, 2023 | 256,099,174 | $ | 255 | $ | 48,033,043 | $ | 1,484,788 | $ | 1,060,887 | $ | (69,801,410 | ) | $ | (19,222,437 | ) | |||||||||||||
Balance | 256,099,174 | $ | 255 | $ | 48,033,043 | $ | 1,484,788 | $ | 1,060,887 | $ | (69,801,410 | ) | $ | (19,222,437 | ) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
6 |
Bunker Hill Mining Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2023March 31, 2024
(Expressed in United States Dollars)
1. Nature and Continuance of Operations
Bunker Hill Mining Corp. (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. 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(“Silver Valley”, 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, and exploitation activities. It continues to work at developing its project with a view towards putting it into production.
2. Significant Accounting Policies:
Basis of Presentation
The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, shareholders’ deficiency, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the annual audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the year ended December 31, 2022.2023. The interim results for the period ended June 30, 2023,March 31, 2024, are not necessarily indicative of the results for the full fiscal year. The unaudited interim condensed consolidated financial statements are presented in United States dollars, which is the Company’s functional currency.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for items such as mineral reserves, useful lives and depreciation methods, potential impairment of long-lived assets, sale of mineral properties for the accounting of the conversion of the royalty convertible debenture (the “RCD”), deferred income taxes, settlement pricing of commodity sales, fair value of stock based compensation, accrued liabilities, estimation of asset retirement obligations and reclamation liabilities, convertible debentures, stream obligation, and warrants. Estimates are based on historical experience and various other assumptions that the Company believes to be reasonable. Actual results could differ from those estimates.
7 |
3. Accounts receivable and prepaid expenses
Accounts receivable and prepaid expenses consists of the following:
Schedule of Accounts receivable and prepaid expenses
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Prepaid expenses and deposits | $ | 1,162,565 | $ | 386,218 | $ | 557,480 | $ | 382,198 | ||||||||
Environment protection agency overpayment (note 6) | 60,000 | 170,729 | ||||||||||||||
HST Receivable | 145,524 | 121,621 | ||||||||||||||
Environment protection agency overpayment (note 8) | - | 94,582 | ||||||||||||||
Total | $ | 1,222,565 | $ | 556,947 | $ | 703,004 | $ | 598,401 |
4. Equipment, Right-of-Use asset, and Process PlantAsset
Equipment consists of the following:
Schedule of Equipment
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Equipment | $ | 980,575 | $ | 920,571 | $ | 1,725,009 | $ | 1,460,375 | ||||||||
Equipment, gross | 980,575 | 920,571 | 1,725,009 | 1,460,375 | ||||||||||||
Less accumulated depreciation | (445,791 | ) | (369,367 | ) | (560,179 | ) | (513,714 | ) | ||||||||
Equipment, net | $ | 534,784 | $ | 551,204 | $ | 1,164,830 | $ | 946,661 |
The total depreciation expense relating to equipment during the three and six months ended June 30,March 31, 2024, and March 31, 2023 was $31,73246,465 and $76,424, respectively. Compared to the three and six months ended June 30, 2022, was $38,692 and $77,09144,692, respectively.
Right-of-use asset consists of the following:
Schedule of Right-of-use Asset
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Right-of-use asset | 698,860 | 670,808 | ||||||
Less accumulated depreciation | (90,135 | ) | (45,786 | ) | ||||
Right-of-use asset, net | $ | 608,725 | $ | 625,022 |
The total depreciation expense during the three months ended March 31, 2024, and March 31, 2023, was $44,349 and $6,384 (relating to an expired lease), respectively. The Company is a party primarily to lease contracts for mining related mobile equipment.
5. Process Plant
On May 13, 2022, theThe Company completed the purchase ofpurchased a comprehensive package of equipment and parts inventory from Teck Resources Limited’sLimited (“Teck”) Pend Oreille operation.. The package comprises substantially all the mineral processing equipment of value located at the Pend Oreille mine site, including complete crushing, grinding and flotation circuits suitable for a planned ~1,500 ton-per-day operation at the Bunker Hill site, and total inventory of nearly 10,000 components and parts for the mill, assay lab, conveyer, field instruments, and electrical spares.
The purchase of the mill has been valued at:
The process plant was purchased in an assembled state in the seller’s location, and included major processing systems, significant components, and a large inventory of spare parts. The Company has disassembled and transported it to the Bunker Hill site, and will be reassembling it as an integral part of the Company’s future operations. The Company determined that the transaction should be accounted for as an asset acquisition, with the process plant representing a single asset, with the exception of the inventory of spare parts, which has been separated out and appears on the condensed interim consolidated balance sheets as a non-current asset in accordance with thea purchase price allocation. As the plant is demobilized, transported and reassembled, installation and other costs associated with these activities will beis being captured and capitalized as components of the asset.
Process plant consists of the following:
Schedule of Plant Asset Consists
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Plant purchase price less inventory | $ | 3,633,292 | $ | 3,633,292 | ||||
Ball mill purchase | 745,626 | - | ||||||
Demobilization | 2,204,539 | 2,201,414 | ||||||
Site preparation costs | 3,408,933 | 2,296,266 | ||||||
Process Plant | $ | 9,992,390 | $ | 8,130,972 |
8 |
On June 30, 2023, the Company made the final payment of $545,626 to D’Angelo International LLC to complete the purchase of a ball mill for a total $745,626 (inclusive of two previously paid deposits of $100,000 from the Company to D’Angelo International LLC). The ball mill is capable of delivering the 1,800 ton per day mine plan envisaged in the Company’s Prefeasibility Study, and subject to future detailed engineering and mine planning, the mill could also potentially support a throughput increase.
Right-of-use assetProcess plant consists of the following:
Schedule of Right-of-usePlant Asset Consists
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Loader lease | 114,920 | - | ||||||
Loader accumulated depreciation | (12,769 | ) | - | |||||
Right-of-use asset, net | $ | 102,151 | $ | - |
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Plant purchase price less inventory | $ | 3,633,292 | $ | 3,633,292 | ||||
Ball Mill | 1,007,544 | 745,626 | ||||||
Demobilization | 2,204,539 | 2,204,539 | ||||||
Site preparation costs | 15,403,951 | 10,635,606 | ||||||
Capitalized interest (note 9) | 492,347 | 233,407 | ||||||
Process Plant | $ | 22,741,673 | $ | 17,452,470 |
The total depreciation expense during the three and six months ended June 30, 2023, was $6,385 and $12,769, respectively. Compared to the three and six months ended June 30, 2022, was $24,442 and $52,353, (relating to an expired lease) respectively.
5.6. Bunker Hill Mine and Mining Interests
Bunker Hill Mine Purchase
The Company purchased the Bunker Hill Mine (the “Mine”) in January 2022, as described below.2022.
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 option to purchase the Mine. The first of these agreements was announced on August 28, 2017, with subsequent amendments and/or extensions announced on November 1, 2019, July 7, 2020, and November 20, 2020.
Under the terms of the November 20, 2020, amended agreement (the “Amended Agreement”), a purchase price of $7,700,000 was agreed, with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price of the Mine as having been previously paid by the Company) and $2,000,000 in Common Shares of the Company. The Company agreed to make an advance payment of $2,000,000, credited towards the purchase price of the Mine, which had the effect of decreasing the remaining amount payable to purchase the Mine to an aggregate of $3,400,000 payable in cash and $2,000,000 in Common Shares of the Company.
The Amended Agreement also required payments pursuant to an agreement with the Environmental Protection Agency (“EPA”) whereby for so long as the Company leases, owns and/or occupies the Mine, the Company would make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for historical water treatment cost recovery as per the Settlement Agreement reached with the EPA in 2018. Immediately prior to the purchase of the Mine, the Company’s liability to EPA in this regard totaled $11,000,000.
The Company completed the purchase of the Mine on January 7, 2022. The terms of the purchase price were modified to $5,400,000 in cash, from $3,400,000 of cash and $2,000,000 of Common Shares. Concurrent with the purchase of the Mine, the Company assumed incremental liabilities of $8,000,000 to the EPA, consistent with the terms of the amended Settlement Agreement with the EPA that was executed in December 2021 (see “EPA Settlement Agreement” section below).
The $5,400,000 contract cash paid at purchase was the $7,700,000 less the $2,000,000 deposit and $300,000 credit given by the seller for prior years’ maintenance payments.
The purchase of the mine has been valued on January 7, 2022:
|
Management has determined the purchase to be an acquisition of a single asset.
Capitalized Development
Commencing on October 1, 2022, the Company capitalizes mine development. Through June 30, 2023, a total of $1,517,526 had been capitalized.
Sale of Mineral Properties
On June 23, 2023, as consideration for the extinguishment of the RCD, as described in note 7, the Company granted a royalty for 1.85% of life-of-mine gross revenue (the “Royalty”) from mining claims considered to be historically worked, contiguous to current accessible underground development, and covered by the Company’s 2021 ground geophysical survey. A 1.35% rate will apply to claims outside of these areas.
This transaction is treated as a sale of mineral interest to Sprott. The portion of the mineral interest sold was determined based on an analysis of discounted life-of-mine royalty payments relative to discounted future cash flows generated from the mine net of capital and operating costs, applied to the carrying value of the Bunker Hill Mine as of June 23, 2023 before consideration of the sale of mineral properties. This analysis utilized a discount rate of 13% and long-term metal prices of $1.09/lb, $0.98/lb and $25.51/oz for zinc, lead and silver respectively, consistent with assumptions utilized in the valuation of the RCD at extinguishment. The Company has recognized a gain of $6,980,932in the condensed interim consolidated condensed interim consolidated statements of (loss) income and comprehensive income.
The carrying cost of the Mine is comprised of the following:
Schedule of Mining Interests
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Bunker Hill Mine purchase | $ | 14,247,210 | $ | 14,247,210 | $ | 14,247,210 | $ | 14,247,210 | ||||||||
Capitalized development | 1,517,526 | 1,447,435 | 3,204,615 | 2,722,889 | ||||||||||||
Sale of mineral properties (royalty) | (1,973,840 | ) | - | |||||||||||||
Sale of mineral properties (note 9) | (1,973,840 | ) | (1,973,840 | ) | ||||||||||||
Bunker Hill mine | $ | 13,790,896 | $ | 15,694,645 | $ | 15,477,985 | $ | 14,996,259 |
Land purchase and leaseleases
On March 3, 2022, theThe Company purchasedowns a 225-acre surface land parcel forvalued at its original purchase price of $202,000 which includes the surface rights to portions of 24 patented mining claims, for which the Company already owns the mineral rights.
During the sixthree months ended June 30,March 31, 2023, the Company entered into a lease agreement with C & E Tree Farm LLC for the lease of a land parcel overlaying a portion of the Company’s existing mineral claims package. The Company is committed to making monthly payments of $10,000 through February 2026. The Company has the option to purchase the land parcel through March 1, 2026, for $3,129,500 less 50% of the payments made through the date of purchase.
7. Lease Liability
As of March 31, 2024, The Company’s undiscounted lease obligations consisted of the following:
Schedule of Lease Liability
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Gross lease obligation – minimum lease payments | ||||||||
1 year | $ | 288,007 | $ | 393,673 | ||||
2- 3 years | 10,337 | 73,588 | ||||||
4-5 years | - | - | ||||||
Future interest expense on lease obligations | (16,618 | ) | (41,927 | ) | ||||
Total lease liability | 281,726 | 425,334 | ||||||
Current lease liability | 271,743 | 353,526 | ||||||
Non-current lease liability | 9,983 | 71,808 | ||||||
Total lease liability | 281,726 | 425,334 |
9 |
6.8. Environmental Protection Agency and Water Treatment Liabilities (“EPA”)
Historical Cost Recovery Payables - EPA
As a part of the lease of the Mine with Placer Mining the Company was required to make payments pursuant to an agreement with the EPA whereby for so long as the Company leases, owns and/or occupies the Mine, it was required to make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for cost recovery related to historical treatment costs paid by the EPA from 1995 to 2017. These payments, if all are made, will total $20,000,000. The agreement called for payments starting with $1,000,000 30 days after an agreement was signed (which payment was made) followed by $2,000,000 on November 1, 2018, and $3,000,000 on each of the next five anniversaries with a final $2,000,000 payment on November 1, 2024. The November 1, 2018, November 1, 2019, November 1, 2020, and November 1, 2021, payments were not made. As a result, a total of $11,000,000 was outstanding as of December 31, 2021, accounted for within current liabilities. As the purchase of the Bunker Hill Mine (which would trigger the immediate recognition of the remaining liabilities due through November 1, 2024) had not yet taken place, the remaining $8,000,000 cost recovery liabilities were not recognized on the Company’s consolidated balance sheets as of December 31, 2021.
Prior to the purchase of the Mine, the Company engaged in discussions with the EPA to reschedule these payments in ways that enable the sustainable operation of the Mine as a viable long-term business.
Effective December 19, 2021, the Company entered into an amended Settlement Agreement between the Company, Idaho Department of Environmental Quality, USU.S. Department of Justice, and the EPA (the “Amended Settlement”). Upon the effectivityeffectiveness of the Amended Settlement, the Company would become fully compliant with its payment obligations to these parties. The Amended Settlement modified the payment schedule and payment terms for recovery of the historical environmental response costs. Pursuant to the terms of the Amended Settlement, upon purchase of the Bunker Hill Mine and the satisfaction of financial assurance commitments (as described below), the $19,000,000 of cost recovery liabilities will be paid by the Company to the EPA on the following dates:
Schedule of Amended Settlement Environmental Protection Agency Agreement
Date | Amount | |||
Within 30 days of Settlement Agreement | $ | 2,000,000 | ||
November 1, 2024 | $ | 3,000,000 | ||
November 1, 2025 | $ | 3,000,000 | ||
November 1, 2026 | $ | 3,000,000 | ||
November 1, 2027 | $ | 3,000,000 | ||
November 1, 2028 | $ | 3,000,000 | ||
November 1, 2029 | $ 2,000,000 plus accrued interest |
Date | Amount | |||
Within 30 days of Settlement Agreement | $ | 2,000,000 | ||
November 1, 2024 | $ | 3,000,000 | ||
November 1, 2025 | $ | 3,000,000 | ||
November 1, 2026 | $ | 3,000,000 | ||
November 1, 2027 | $ | 3,000,000 | ||
November 1, 2028 | $ | 3,000,000 | ||
November 1, 2029 | $ | 2,000,000 plus accrued interest |
In addition to the changes in payment terms and schedule, the Amended Settlement includedincludes a commitment by the Company to secure $17,000,000 of financial assurance in the form of performance bonds or letters of credit deemed acceptable to the EPA within 180 days from the effective date of the Amended Settlement. Once in place, the financial assurance can be drawn on by the EPA in the event of non-performance by the Company of its payment obligations under the Amended Settlement (the “Financial Assurance”). The amount of the bonds will decrease over time as individual payments are made.EPA.
The Company completed the purchase of the Mine (see note 5) and made the initial $2,000,000 cost recovery payment on January 7, 2022. Concurrent with the purchase of the Mine, the Company assumed the balance of the EPA liability totaling $17,000,000, an increase of $8,000,000. This was capitalized as $6,402,425 to the carrying value of the Bunker Hill Mine at time of purchase, comprised of $3,000,000 of incremental current liabilities and $5,000,000 of non-current liabilities (discounted to $3,402,425). See note 5.
During the year ended 2022, the financial assurance was put into place, enabling the restructuring of the payment under the Amendment Settlement with the entire $17,000,000 liability being recognized as long-term. As of June 30, 2023March 31, 2024 (unchanged from December 31, 2022)2023), the Company had two payment bonds of $9,999,000 and $5,000,000, and a $2,001,000 letter of credit, in place to secure this liability. The collateral for the payment bonds is comprised of two letters of credit of $4,475,000 in aggregate, as well as land pledged by third parties with whom the company has entered into a financing cooperation agreement that contemplates a monthly fee of $20,000 (payable in cash or common shares of the Company, at the Company’s election). The letters of credit of $6,476,000 in aggregate are secured by cash deposits under an agreement with a commercial bank, which comprise the $6,476,000 of restricted cash shown within current assets as of June 30,March 31, 2024, and December 31, 2023.
The financial assurance can be drawn on by the EPA in the event of non-performance by the Company of its payment obligations under the Amended Settlement (the “Financial Assurance”). The amount of the bonds will decrease over time as individual payments are made.
The Company recorded accretion expense on the liability of $396,663 and $770,969452,807 for the three and six months ended June 30, 2023, respectively,March 31, 2024 ($374,306 for the three months ended March 31, 2023), bringing the net liability to $8,712,43510,026,947 (previously accrued(inclusive of interest payable of $154,743156,343) as of June 30, 2023..
Water Treatment Charges – Idaho Department of Environmental Quality (“IDEQ”)
Separate to the cost recovery liability outlined above, the Company is responsible for the payment of ongoing water treatment charges. Water treatment charges incurred through December 31, 2021, were payable to the EPA, and charges thereafter are payable to the Idaho Department of Environmental Quality (“IDEQ”) following a handover of responsibilities for the Central Treatment Plant from the EPA to the IDEQ as of that date.
The Company currently makes monthly payments of $100,000 to the IDEQ as instalments toward the cost of treating water at the Central Treatment Plant. Upon receipt of an invoice from the IDEQ for actual costs incurred, a reconciliation is performed relative to payments made, with an additional payment made or refund received as applicable. The Company accrues $100,000 per month based on its estimate of the monthly cost of water treatment. As of June 30, 2023,March 31, 2024, a prepaid expense of $60,000 nil(December (December 31, 2022:2023: $170,72994,582) representsrepresented the difference between the estimated cost of water treatment and net payments made by the Company to the IDEQ to date. This balance has been recognized on the condensed interim consolidated balance sheets as accounts receivable and prepaid expenses.
7.9. Promissory Notes Payable and Convertible Debentures
Promissory Notes
On September 22, 2021, the Company issued a non-convertible promissory note of $2,500,000 bearing interest of 15% per annum and payable at maturity. The Company purchased a land parcel for approximately $202,000 on March 3, 2022, which may be used as security for the promissory note. The promissory note was originally scheduled to mature on March 15, 2022, however, was extended multiple times and is currently due on December 31, 2023. Principal payments of $1,000,000 in aggregate were made in the year ended December 31, 2022. Principal payment of $504,315 was made during the 6 months ended June 30, 2023. The Company incurred a one-time penalty of 10% of the outstanding principal on June 30, 2023, of $99,569 which is included in loss on modification of debt in the condensed interim consolidated statements of income.
On February 21, 2023, the Company issued a non-convertible promissory note to a related party of $120,000, and a separate non-convertible promissory note of $120,000 to another party. Each promissory note bore fixed interest of $18,000 per annum, payable at maturity, which was the earlier of one year or the receipt of an equity or debt financing. Both promissory notes, including interest, were settled on March 27, 2023.
In June 2023, the Company issued a non-convertible promissory note in the amount of $150,000. The promissory note bore fixed interest of $15,000 per annum, payable at maturity, which was the earlier of one year or the receipt of an equity or debt financing. The promissory note, including interest, was settled in June 2023.
At June 30, 2023, the Company owes $1,095,253 in promissory notes payable, which is included in current liabilities on the condensed interim consolidated balance sheets. Interest expense for the three and six months ended June 30, 2023, was $54,931 and $110,411 respectively. Compared to the three and six months ended June 30, 2022, was $92,466 and $167,877 respectively. At June 30, 2023 financing costs of $3,151 ($384,041 at December 31, 2022) is included in interest payable on the condensed interim balance sheet. The effective interest rate of the promissory note is 15%.
Project Finance Package with Sprott Private Resource Streaming & Royalty Corp. (“SRSR”)
On December 20, 2021, the Company executed a non-binding term sheet outlining a $50,000,000 project finance package with SRSR.Sprott Private Resource Streaming and Royalty Corp. (“SRSR”).
10 |
The non-binding term sheet with SRSR outlined a $50,000,000 project financing package that the Company expected to fulfill the majority of its funding requirements to restart the Mine. The term sheet consisted of an $8,000,000 royalty convertible debenture (the “RCD”), a $5,000,000 convertible debenture (the “CD1”), and a multi-metals Streamstream of up to $37,000,000 (the “Stream”). The CD1 was subsequently increased to $6,000,000, increasing the project financing package to $51,000,000.
On June 17, 2022, the Company consummated a new $15,000,000 convertible debenture (the “CD2”). As a result, total potential funding from SRSR was further increased to $66,000,000 including the RCD, CD1, CD2 and the Stream (together, the “Project Financing Package”).
On MayJune 23, 2023, the Company announced anclosed the upsized and improved $67,000,000 project finance package with SRSR, consisting of a $46,000,000 stream and a $21,000,000 new debt facility. The newly proposed $46,000,000 stream (the “Stream”) was envisaged to have the same economic terms as the previously proposed $37,000,000 stream, with a $9,000,000 increase in gross proceeds received by the Company, resulting in a lower cost of capital for the Company. The Company also announced a new $21,000,000 new debt facility (the “Debt Facility”), available for draw at the Company’s election for two years. As a result, total funding commitments from SRSR was envisaged to increase to $96,000,000 including the RCD, CD1, CD2, Stream and debt facility (together, the “Project Financing Package”). The Bridge Loan, as previously envisaged, was to be repaid from the proceeds of the Stream. The parties also agreed to extend the maturities of the CD1 and CD2 to March 31, 2026, when the full $6 million and $15 million, respectively, will become due.
On June 23, 2023, the Project Financing Package and related transactions closed, consistent with the Company’s announcement of May 23, 2023. The Company incurred $254,220 of financing costs on the condensed interim consolidated statements of (loss) income and comprehensive income relating to the modification of CD1, CD2, the extinguishment of RCD and the closing of the $21,000,000 debt facility.
$8,000,000 Royalty Convertible Debenture
The Company closed the $8,000,000 RCD on January 7, 2022. The RCD bears interest at an annual rate of 9.0%, payable in cash or Common Shares at the Company’s option, until such time that SRSR elects to convert a royalty, with such conversion option expiring at the earlier of advancement of the Stream or July 7, 2023 (subsequently amended as described below). In the event of conversion, the RCD will cease to exist, and the Company will grant a royalty for 1.85% of life-of-mine gross revenue from mining claims considered to be historically worked, contiguous to current accessible underground development, and covered by the Company’s 2021 ground geophysical survey (the “SRSR Royalty”). A 1.35%1.35% rate will apply to claims outside of these areas. The RCD was initially secured by a share pledge of the Company’s operating subsidiary, Silver Valley, until a full security package was put in place concurrent with the consummation of the CD1. In the event of non-conversion, the principal of the RCD will be repayable in cash.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the RCD, including an amendment of the maturity date from July 7, 2023 to March 31, 2025. The parties also agreed to enter into a Royalty Put Option such that in the event the RCD is converted into a royalty as described above, the holder of the royalty will be entitled to resell the royalty to the Company for $8,000,000 upon default under the CD1 or CD2 until such time that the CD1 and CD2 are paid in full. The Company determined that the amendments in the terms of the RCD should not be treated as an extinguishment of the RCD and have therefore been accounted for as a modification.
On June 23, 2023, the funding date of the Stream, the RCD was repaid by the Company granting a royalty for 1.85%1.85% of life-of-mine gross revenue (the “Royalty”) from mining claims historically worked as described above. A 1.35%1.35% rate will apply to claims outside of these areas. The Company recorded a gain on sale of mineral properties of $6,980,932 in the condensed interim consolidated statements of income (loss). Additionally, on settlement of the RCD, $347,499 of previously deferred to other comprehensive income was recognized in the net income (loss on FV of convertible debentures) on the condensed interim consolidated statement of income (loss). The Royalty Put Option permits SRSR Streaming to resell the royalty to the Company for $8 million upon default under the Series 1 Convertible Debentures or Series 2 Convertible Debentures until such time that they are repaid in full. The Company has accounted for the Royalty as a sale of mineral properties (refer to Note 5note 6 for further detail).
$6,000,000 Convertible Debenture (CD1)
The Company closed the $6,000,000 CD1 on January 28, 2022, which was increased from the previously announcedpreviously-announced $5,000,000. The CD1 bears interest at an annual rate of 7.5%, payable in cash or shares at the Company’s option, and initially had a maturity date of the earlier ofmatures on July 7, 2023 (subsequently amended, as described below) or the closing of the $37,000,000 stream that was announced on December 20, 2021.. The CD1 is secured by a pledge of the Company’s properties and assets, and isassets. Until the closing of the Stream, the CD1 was to be convertible into Common Shares at a price of C$ per Common Share, at SRSR’s election at any time throughsubject to stock exchange approval (subsequently amended, as described below). Alternatively, SRSR may elect to retire the maturity date.CD1 with the cash proceeds from the Stream. The Company may elect to repay the CD1 early; if SRSR elects not to exercise its conversion option at such time, a minimum of 12 months of interest would apply.
11 |
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the CD1, including that the maturity date would be amended from July 7, 2023 to March 31, 2025, and that the CD1 would remain outstanding until the new maturity date regardless of whether the streamStream is advanced, unless the Company elects to exercise its option of early repayment or SRSR elects to exercise its share conversion option.repayment. The Company determined that the amendments in the terms of the CD1 should not be treated as an extinguishment of the CD1 and have therefore been accounted for as a modification.
Concurrent with the funding of the Stream in June 2023, the Company and SRSRSprott agreed to amend the maturity date of CD1 from March 31, 2025, to March 31, 2026, and that CD1 would remain outstanding until the new maturity date unless the company elects to exercise its option of early repayment. The Company determined that the amendments to the terms of the CD1 should not be treated as an extinguishment of the CD1 and have therefore been accounted for as a modification.
$15,000,000 Series 2 Convertible Debenture (CD2)
The Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest at an annual rate of 10.5%, payable in cash or shares at the Company’s option, and maturedmatures on March 31, 2025.2025. The CD2 is secured by a pledge of the Company’s properties and assets, and is convertible into Common Shares at a price of C$0.29 per Common Share at SRSR’s election at any time through the maturity date.assets. The repayment terms include 3 quarterly payments of $2,000,000 each beginning June 30, 2024, and $9,000,000 on the maturity date.
Concurrent with the funding of the Stream in June 2023, the Company and SRSRSprott agreed to amend the maturity date of the CD2 from 3 quarterly payments of $2,000,000 each beginning June 30, 2024, and $9,000,000 on March 31, 2025, to payment in full on March 31, 2026, and that the CD2 would remain outstanding until the new maturity date unless the companyCompany elects to exercise its option of early repayment or SRSRSprott elects to exercise its share conversion option. The Company determined that the amendments to the terms of the CD2 should not be treated as an extinguishment of the CD2 and have therefore been accounted for as a modification.
The Company determined that in accordance with ASC 815 derivativesDerivatives and hedging,Hedging, each debenture will be valued and carriedrecorded as a single instrument, with the periodic changes to fair value accounted through earnings, profit and loss.
Consistent with the approach above, the following table summarizes the key valuation inputs as at applicable valuation dates:
Schedule of Key Valuation Inputs
Reference (2)(4) (5) | Valuation date | Maturity date | Contractual Interest rate | Stock price (US$) | Expected equity volatility | Credit spread | Risk-free rate | Risk- adjusted rate | |||||||||||||||||||||
CD1 note(3) | (2)(4)(5)(3) | 12-31-22 | 03-31-25 | 7.50 | % | 0.125 | 120 | % | 7.08 | % | 4.32 | % | 17.85 | % | |||||||||||||||
RCD note | (2)(4)(5) | 12-31-22 | 03-31-25 | 9.00 | % | 0.125 | 120 | % | 7.08 | % | 4.32 | % | 17.85 | % | |||||||||||||||
CD2 note(3) | (2)(4)(5)(3) | 12-31-22 | 03-31-25 | 10.50 | % | 0.125 | 120 | % | 7.08 | % | 4.32 | % | 19.76 | % | |||||||||||||||
CD1 note(3) | (2)(4)(5)(3) | 03-31-23 | 03-31-25 | 7.50 | % | 0.082 | 115 | % | 11.22 | % | 4.06 | % | 21.33 | % | |||||||||||||||
RCD note(5) | (2)(4)(5) | 03-31-23 | 03-31-25 | 9.00 | % | 0.082 | 115 | % | 11.22 | % | 4.06 | % | 21.33 | % | |||||||||||||||
CD2 note(3) | (2)(4)(5)(3) | 03-31-23 | 03-31-25 | 10.50 | % | 0.082 | 115 | % | 11.22 | % | 4.06 | % | 23.20 | % | |||||||||||||||
RCD note | (2)(4)(5) | 06-23-23 | 03-31-25 | 9.00 | % | 0.169 | 120 | % | 8.28 | % | 4.83 | % | 19.37 | % | |||||||||||||||
CD1 note(3) | (2)(4)(5)(3) | 06-30-23 | 03-31-26 | 7.50 | % | 0.186 | 120 | % | 7.93 | % | 4.58 | % | 18.83 | % | |||||||||||||||
CD2 note(3) | (2)(4)(5)(3) | 06-30-23 | 03-31-26 | 10.50 | % | 0.186 | 120 | % | 7.93 | % | 4.58 | % | 20.73 | % |
Reference (1,2,3) | Valuation date | Maturity date | Contractual Interest rate | Stock price (US$) | Expected equity volatility | Credit spread | Risk-free rate | Risk- adjusted rate | ||||||||||||||||||||
CD1 note | (1)(2)(3) | 12-31-23 | 03-31-26 | 7.50 | % | 0.098 | 115 | % | 8.41 | % | 4.18 | % | 18.89 | % | ||||||||||||||
CD2 note | (1)(2)(3) | 12-31-23 | 03-31-26 | 10.50 | % | 0.098 | 115 | % | 8.41 | % | 4.18 | % | 20.79 | % | ||||||||||||||
CD1 note | (1)(2)(3) | 03-31-24 | 03-31-26 | 7.50 | % | 0.104 | 110 | % | 10.07 | % | 4.59 | % | 20.77 | % | ||||||||||||||
CD2 note | (1)(2)(3) | 03-31-24 | 03-31-26 | 10.50 | % | 0.104 | 110 | % | 10.07 | % | 4.59 | % | 22.65 | % | ||||||||||||||
Convertible Debenture | (1)(2)(3) | 03-31-24 | 03-31-26 | 10.50 | % | 0.104 | 110 | % | 10.07 | % | 4.59 | % | 22.65 | % |
(1) | The CD1 carried a Discount for Lack of Marketability (“DLOM”) of 5.0% as of the issuance date and as of | |
(2) | CD1 | |
(3) | The conversion price of the CD1 is $ | |
The resulting fair values of the CD1 RCD, and CD2 at June 30, 2023,March 31, 2024, and as of December 31, 2022,2023, were as follows:
Schedule of Fair Value Derivative Liability
Instrument Description | June 30, 2023 | December 31, 2022 | March 31, 2024 | December 31, 2023 | ||||||||||||
CD1 | $ | 5,812,092 | $ | 5,537,360 | $ | 5,212,398 | $ | 5,244,757 | ||||||||
RCD | - | 10,285,777 | ||||||||||||||
CD2 | 14,644,406 | 14,063,525 | 13,359,789 | 13,458,570 | ||||||||||||
Total | $ | 20,456,498 | $ | 29,886,662 | $ | 18,572,187 | $ | 18,703,327 |
The total (loss) gain on fair valuechanges in FV of convertible debentures recognized on the condensed interim consolidated statements of (loss) Income during the three and six months ended June 30,March 31, 2024, and March 31, 2023, was $($1,884,232) (157,232)and ($194,531), respectively, and $1,813,456 1,689,701and $1,739,987 for the three and six months ended June 30, 2022, respectively., respectively. The portion of changes in fair value that is attributable to changes in the Company’s credit risk is accounted for within other comprehensive (loss) income duringincome. During the three and six months ended June 30,March 31, 2024, and March 31, 2023, was ($the Company recognized $373,415288,372) and $433,597, 807,012respectively. Compared to the three and six months ended June 30, 2022 was $371,255 and $371,255, respectively. respectively, within other comprehensive income. Interest expense for the three and six months ended June 30,March 31, 2024, and 2023 was $670,562 504,863and $1,347,411, 676,849respectively. Compared to the three and six months ended June 30, 2022 was $348,574 and $588,738, respectively. At June 30, 2023March 31, 2024 interest of $504,863 ($nil 510,411($691,890 at December 31, 2022)2023) is included in interest payable on the condensed interim consolidated balance sheets. For the three and six months ended June 30,March 31, 2024, and March 31, 2023, the Company recognized $18,80370,093 and $268,889250,086, respectively, loss on debt settlement inon the condensed interim consolidated statements of (loss) income (loss) and comprehensive (loss) income (loss) as a result of settling interest by issuance of shares. Compared to the three and six months ended June 30, 2022 was $niland $nil, respectively.
The Company performs quarterly testing of the covenants in the CD1 and CD2 and was in compliance with all such covenants as of June 30, 2023.March 31, 2024.
$5,000,000 Bridge Loan
On December 6, 2022, the Company closed a $5,000,000 loan facility with Sprott (the “Bridge Loan”). The Bridge Loan is secured by the same security package in place for the RCD, CD1, and CD2. The Bridge Loan bears interest of 10.5% per annum and matures at the earlier of (i) the advance of the Stream, or (ii) June 30, 2024. In addition, the minimum quantity of metal delivered under the Stream, if advanced, would increase by 5% relative to amounts previously announced.
On June 23, 2023 the Company repaid the outstanding principal and interest on the Bridge Loan recognizing a loss on extinguishment of debt of $222,754 in the condensed interim consolidated statements of (loss) income. At June 30, 2023 interest of $nil ($53,985 at December 31, 2022) is included in interest payable on the condensed interim balance sheets. Interest expense for three and six months ended June 30, 2023, was $168,166 and $346,550 respectively. Compared to the three and six months ended June 30, 2022, was $nil and $nil respectively.
$46,000,000 Stream
On June 23, 2023, all conditions were met for the closing of the Stream, and $46,000,000 was advanced to the Company. The Stream appliesis secured by the same security package that is in place with respect to the RCD, CD1, and CD2. The Stream is repayable by applying 10% of all payable metals sold until a minimum quantity of metal is delivered consisting of, individually, 63.5 million pounds of zinc, 40.4 million pounds of lead, and 1.2 million ounces of silver (subsequently amended, as described below). Thereafter, the Stream would apply tobe repayable by applying 2% of payable metals sold. The delivery price of streamed metals will be 20% of the applicable spot price. TheAt the Company’s option, the Company may buy back 50% of the Stream Amount at a 1.40x multiple of the Stream Amount between the second and third anniversary of the date of funding, and at a 1.65x multiple of the Stream Amount between the third and fourth anniversary of the date of fundingfunding.. The Company incurred $824,156740,956 of transactions costs directly related to the Stream which were capitalized against the initial recognition of the Stream of $45,175,844 on the condensed interim consolidated balance sheets.Stream.
The Company determined that in accordance with ASC 815 derivatives and hedging, the Stream does not meet the criteria for treatment as a derivate instrument as the quantities of metal to be sold thereunder are not subject to a minimum quantity, and therefore a notional amount is not determinable. The Company has therefore determined that in accordance with ASC 470, the stream obligation should be treated as a liability based on the indexed debt rules thereunder. The initial recognition has been made at fair value based on cash received, net of transaction costs, and the discount rate calibrated so that the future cash flows associated with the Stream, using forward commodity prices, equal the cash received. The measurement of the stream obligation is accounted for at amortized cost with accretion at the discount rate. Subsequent changes to the expected cash flows associated with the Stream will result in the adjustment of the carrying value of the stream obligation using the same discount rate, with changes to the carrying value recognized in the condensed interim consolidated statements of (loss) income and comprehensive (loss) income.
The Company determined the effective interest rate of the Stream obligation to be 11.610.8% and recorded accretion expense on the liability of $85,0001,099,060 for the three and six months ended June 30, 2023March 31, 2024 ($nil for the three months ended March 31, 2023) recognized in the consolidated statement of (loss) income and sixcomprehensive (loss) income, accretion expense on the liability of $258,940 for the three months 2022)ended March 31, 2024 ($nil for the three months ended March 31, 2023) capitalized into the process plant (note 5) on the condensed interim consolidated balance sheets and loss on revaluation of the liability of $217,000 for the three months ended March 31, 2024 ($nil for the three months ended March 31, 2023), bringing the liability to $45,260,84452,713,000 as of June 30, 2023.March 31, 2024. The revaluation is because of a change in projections. The key assumptions used in the revaluation are production of 700,000,000 lbs of zinc, 385,000,000 lbs of lead, 8,700,000 oz of silver over 14 years and commodity prices of 1.17 $/lb to 1.22 $/lb for zinc, 0.94 $/lb to 0.96 $/lb for lead, and 23.00 $/oz to $24.50 $/oz for silver.
$21,000,000 Debt Facility
On June 23, 2023, the Company closed a $21,000,000 debt facility with SRSRSprott which is available for draw at the Company’s election for a period of 2 years years.. As of June 23, 2023, and June 30, 2023,March 31, 2024, the companyCompany has not drawn on the facility. Any amounts drawn will bear interest of 1010%% per annum, payable annually in cash or capitalized until three years from closing of the Debt Facility at the Company’s election, and thereafter payable in cash only. The maturity date of any drawings under the Debt Facility will be June 23, 2027. For every $5 million or part thereof advanced under the Debt Facility, the Company will grant a new 0.5% life-of-mine gross revenue royalty, on the same terms as the Royalty, to a maximum of 2.0% on the Primary Claims and 1.4% on the Secondary Claims. The Company may buy back 50% of these royalties for $20 million. The Company determined that no recognition is required on the financial statements as of June 30, 2023.March 31, 2024, as no amount has been drawn from the facility.
8.10. Capital Stock, Warrants and Stock Options
Authorized
The total authorized capital is as follows:
● | Common Shares with a par value of $ per Common Share; and |
● | preferred shares with a par value of $ per preferred share |
13 |
Issued and outstanding
In January 2024, the Company issued
shares of common stock in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending December 31, 2022.In March 2023, the Company issued shares of common stock in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending March 31, 2023.
In March 2023, the Company amended the exercise price and expiry date of 10,416,667 warrants which were previously issued in a private placement to Teck Resources (“Teck”) on May 13, 2022 in consideration for the Company’s acquisition of the Pend Oreille processingprocess plant. The warrant entitled the holder thereof to purchase one share of Common Share of the Company at an exercise price of C$ per Warrant at any time on or prior to May 12, 2025. The Company amended the exercise price of the warrants from C$ to C$ per Warrant and the expiry date from May 12, 2025, to March 31, 2023, resulting in a gain on modification of warrants of $214,714. In March 2023, Teck exercised all warrants at an exercise price of C$ , for aggregate gross proceeds of C$1,145,834 to the Company. During the quarter the Company recognized a change in derivative liability of $400,152 relating to the Teck warrants using the following assumptions: volatility of %, stock price of C$ , interest rate of % to %, and dividend yield of %.
In March 2023, the Company closed a brokered private placement of special warrants of the Company (the “March 2023 Offering”), issuing 51,633,727 special warrants of the Company (“March 2023 Special Warrants”) at C$ per March 2023 Special Warrant for $4,536,020 (C$6,196,047), of which $3,661,822 was received in cash and $874,198 was applied towards settlement of accounts payable, accrued liabilities and promissory notes.
In connection with the Offering, each March 2023 Special Warrant is automatically exercisable (without payment of any further consideration and subject to customary anti-dilution adjustments) into one unit (“March 2023 Unit”) of the Company on the earlier date of: (i) the third business day following the date upon which the Company has obtained notification that a resale registration statement of the Company to be filed with the U.S. SEC (the “SEC”) registering the resale of the Underlying Shares (as defined below) issuable upon exercise of the March 2023 Special Warrants and the securities issuable thereunder, has been declared effective by the SEC; and (ii) September 27, 2023 (collectively, the “Automatic Exercise Date”), subject to compliance with U.S. securities laws.
Each March 2023 Unit consists of one share of Common Sharecommon stock of the Company (each, a “Unit Share”) and one common stock purchase warrant of the Company (each, a “Warrant”). Each whole Warrant entitles the holder thereof to acquire one Common Shareshare of common stock of the Company (a “Warrant Share”, and together with the Unit Shares, the “Underlying Shares”) at an exercise price of C$0.15 per Warrant Share until March 27, 2026, subject to adjustment in certain events. In the event that the Registration Statement hashad not been declared effective by the SEC on or before 5:00 p.m. (EST) on July 27, 2023, each unexercised Special Warrant willwould be deemed to be exercised on the Automatic Exercise Date into one penalty unit of the Company (each, a “Penalty Unit”), with each Penalty Unit being comprised of 1.2 Unit Shares and 1.2 Warrants. Notice of such effectiveness was received on July 11, 2023, eliminating the potential for issuance of the Penalty Units.
In connection with the March 2023 Offering, the Company incurred share issuance costs of $846,661585,765 and issued compensation options (the “March 2023 Compensation Options”). Each March 2023 Compensation Option is exercisable at an exercise price of C$ into one Unit Share and one Warrant Share. Refer to note 15 subsequent events for details on the effectiveness of the registration statement and conversion into units.
The Special Warrants issued on March 27, 2023 were converted to Common Sharesshares of common stock and common stock purchase warrants in the third quarter ofon July 24, 2023. As of June 30, 2023, the common shares and common stock purchase warrants had not been issued. The Company determined that in accordance with ASC 815 derivatives and hedging, each Special Warrant will be valued and carried as a single instrument, with the periodic changes to fair value accounted through earnings, profit and loss until the shares of common sharesstock and common stock purchase warrants are issued.
In January 2024, the Company issued shares of common stock in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending December 31, 2023.
The fair value
In March 2024, the Company issued the Special Warrant is determined through the valuationcommon stock in connection with settlement of the Unit Share based on the observed price of the Company’s Common Shares, a Level 1 input, together with a valuation of the warrant component of the March 2023 Unit using the Binomial model calibrated with inputs as shown in the table below. shares of
Consistent with the approach above, the following table summarizes the key valuation inputs as at applicable valuation dates:
RSUs.
Schedule of Estimated Fair Value of Special Warrant Liabilities
March 2023 special warrants | June 30, 2023 | Grant Date | ||||||
Expected life | 1,001 days | 1096 days | ||||||
Volatility | 24 | % | 24 | % | ||||
Risk free interest rate | 4.21 | % | 3.40 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.23 | $ | 0.11 | ||||
Fair value | $ | 12,845,643 | $ | 4,536,020 | ||||
Change in derivative liability | $ | 8,309,623 |
For prior financings, excluding the MarchIn 2023 Special Warrants, the Company has accounted for the warrants in accordance with ASC 815 derivatives and hedging.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 marked 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.
14 |
The fair value of the warrant liabilities related to the various tranches of outstanding warrants issued during the period were estimated using the Binomial model to determine the fair value using the following assumptions as at June 30, 2023March 31, 2024 and December 31, 2022:2023:
Schedule of Estimated Using the Binomial Model to Determine the Fair Value of Warrant Liabilities
April 2022 special warrants issuance | June 30, 2023 | December 31, 2022 | ||||||||||||||
March 2023 warrants | March 31, 2024 | December 31, 2023 | ||||||||||||||
Expected life | 641 days | 822 days | 726 days | 817 days | ||||||||||||
Volatility | 120 | % | 120 | % | 24 | % | 24 | % | ||||||||
Risk free interest rate | 4.58 | % | 4.06 | % | 4.17 | % | 3.88 | % | ||||||||
Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Share price (C$) | $ | 0.23 | $ | 0.17 | $ | $ | ||||||||||
Fair value | $ | 3,284,658 | $ | 2,406,104 | $ | 563,970 | $ | 281,085 | ||||||||
Change in derivative liability | $ | 878,554 | $ | 282,885 |
April 2022 special warrants issuance | March 31, 2024 | December 31, 2023 | ||||||
Expected life | 366 days | 457 days | ||||||
Volatility | 100 | % | 110 | % | ||||
Risk free interest rate | 4.17 | % | 3.88 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.125 | $ | 0.11 | ||||
Fair value | $ | 491,622 | $ | 546,592 | ||||
Change in derivative liability | $ | (54,970 | ) |
April 2022 non-brokered issuance | March 31, 2024 | December 31, 2023 | ||||||
Expected life | 366 days | 457 days | ||||||
Volatility | 100 | % | 110 | % | ||||
Risk free interest rate | 4.17 | % | 3.88 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.125 | $ | 0.11 | ||||
Fair value | $ | 19,115 | $ | 21,252 | ||||
Change in derivative liability | $ | (2,137 | ) |
June 2022 issuance | March 31, 2024 | December 31, 2023 | ||||||
Expected life | 366 days | 457 days | ||||||
Volatility | 100 | % | 110 | % | ||||
Risk free interest rate | 4.17 | % | 3.88 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.125 | $ | 0.11 | ||||
Fair value | $ | 15,821 | $ | 17,589 | ||||
Change in derivative liability | $ | (1,768 | ) |
February 2021 issuance | March 31, 2024 | December 31, 2023 | ||||||
Expected life | 680 days | 771 days | ||||||
Volatility | 110 | % | 110 | % | ||||
Risk free interest rate | 4.17 | % | 3.88 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.125 | $ | 0.11 | ||||
Fair value | $ | 455,954 | $ | 367,349 | ||||
Change in derivative liability | $ | (88,605 | ) |
June 2019 issuance | March 31, 2024 | December 31, 2023 | ||||||
Expected life | 640 days | 731 days | ||||||
Volatility | 110 | % | 110 | % | ||||
Risk free interest rate | 4.17 | % | 3.88 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.125 | $ | 0.11 | ||||
Fair value | $ | 207,385 | $ | 226,570 | ||||
Change in derivative liability | $ | (19,185 | ) |
April 2022 non-brokered issuance | June 30, 2023 | December 31, 2022 | ||||||||||||||
August 2019 issuance | March 31, 2024 | December 31, 2023 | ||||||||||||||
Expected life | 641 days | 822 days | 640 days | 731 days | ||||||||||||
Volatility | 120 | % | 120 | % | 110 | % | 110 | % | ||||||||
Risk free interest rate | 4.58 | % | 4.06 | % | 4.17 | % | 3.88 | % | ||||||||
Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Share price (C$) | $ | 0.23 | $ | 0.17 | $ | 0.125 | $ | 0.11 | ||||||||
Fair value | $ | 127,713 | $ | 93,553 | $ | 318,725 | $ | 348,211 | ||||||||
Change in derivative liability | $ | 34,160 | $ | (29,486 | ) |
June 2022 issuance | June 30, 2023 | December 31, 2022 | ||||||
Expected life | 641 days | 822 days | ||||||
Volatility | 120 | % | 120 | % | ||||
Risk free interest rate | 4.58 | % | 3.72 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.23 | $ | 0.17 | ||||
Fair value | $ | 105,701 | $ | 77,429 | ||||
Change in derivative liability | $ | 28,272 |
February 2021 issuance | June 30, 2023 | December 31, 2022 | ||||||
Expected life | 955 days | 1,136 days | ||||||
Volatility | 120 | % | 120 | % | ||||
Risk free interest rate | 4.21 | % | 3.72 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.23 | $ | 0.17 | ||||
Fair value | $ | 1,810,642 | $ | 1,335,990 | ||||
Change in derivative liability | $ | 474,652 |
August 2020 issuance | June 30, 2023 | December 31, 2022 | ||||||
Expected life | 62 days | 243 days | ||||||
Volatility | 100 | % | 120 | % | ||||
Risk free interest rate | 4.58 | % | 4.06 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.23 | $ | 0.17 | ||||
Fair value | $ | 1 | $ | 903,697 | ||||
Change in derivative liability | $ | (903,696 | ) |
June 2019 issuance | June 30, 2023 | December 31, 2022 | ||||||
Expected life | 915 days | 1,096 days | ||||||
Volatility | 115 | % | 120 | % | ||||
Risk free interest rate | 4.12 | % | 3.82 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.23 | $ | 0.17 | ||||
Fair value | $ | 961,686 | $ | 725,737 | ||||
Change in derivative liability | $ | 235,949 |
August 2019 issuance | June 30, 2023 | December 31, 2022 | ||||||
Expected life | 915 days | 1,096 days | ||||||
Volatility | 115 | % | 120 | % | ||||
Risk free interest rate | 4.21 | % | 3.82 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Share price (C$) | $ | 0.23 | $ | 0.17 | ||||
Fair value | $ | 1,477,994 | $ | 1,115,369 | ||||
Change in derivative liability | $ | 362,625 |
Outstanding warrants at June 30,March 31, 2024 and March 31, 2023 and June 30, 2022 were as follows:
Schedule of Warrant Activity
Weighted | Weighted | |||||||||||
average | average | |||||||||||
Number of | exercise price | grant date | ||||||||||
warrants | (C$) | value ($) | ||||||||||
Balance, December 31, 2021 | 111,412,712 | $ | 0.54 | $ | 0.18 | |||||||
Issued | 50,955,636 | 0.37 | 0.15 | |||||||||
Expired | (239,284 | ) | 0.70 | 0.21 | ||||||||
Balance, June 30, 2022 | 162,129,064 | 0.49 | 0.17 | |||||||||
Balance, December 31, 2022 | 162,129,064 | $ | 0.49 | $ | 0.17 | |||||||
Exercised | (10,416,667 | ) | 0.11 | 0.12 | ||||||||
Balance, June 30, 2023 | 151,712,397 | $ | 0.50 | $ | 0.17 |
Weighted | Weighted | |||||||||||
average | average | |||||||||||
Number of | exercise price | grant date | ||||||||||
warrants | (C$) | value ($) | ||||||||||
Balance, December 31, 2022 | 162,129,064 | $ | 0.49 | $ | 0.17 | |||||||
Exercised | (10,416,667 | ) | 0.11 | 0.12 | ||||||||
Balance, March 31, 2023 | 151,712,397 | $ | 0.50 | $ | 0.17 | |||||||
Balance, December 31, 2023 | 145,061,976 | $ | 0.37 | $ | 0.09 | |||||||
- | - | - | ||||||||||
Balance, March 31, 2024 | 145,061,976 | $ | 0.37 | $ | 0.09 |
During the sixthree months ended June 30,March 31, 2023, May 2022 Teck warrants were exercised. During the six months ended June 30, 2022, February 2020 broker warrants expired.
At June 30, 2023,March 31, 2024, the following warrants were outstanding:
Schedule of Warrants Outstanding Exercise Price
Exercise | Number of | Number of warrants | ||||||||||
Expiry date | price (C$) | warrants | exercisable | |||||||||
August 31, 2023 | 0.50 | 58,284,148 | 58,284,148 | |||||||||
December 31, 2025 | 0.59 | 32,895,200 | 32,895,200 | |||||||||
February 9, 2026 | 0.60 | 17,112,500 | 17,112,500 | |||||||||
February 16, 2026 | 0.60 | 2,881,580 | 2,881,580 | |||||||||
April 1, 2025 | 0.37 | 40,538,969 | 40,538,969 | |||||||||
151,712,397 | 151,712,379 |
Exercise | Number of | Number of warrants | ||||||||||
Expiry date | price (C$) | warrants | exercisable | |||||||||
April 1, 2025 | 0.37 | 40,538,969 | 40,538,969 | |||||||||
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 | |||||||||
March 27, 2026 | 0.15 | 51,633,727 | 51,633,727 | |||||||||
145,061,976 | 145,061,976 |
Compensation options
At June 30, 2023,March 31, 2024, the following broker options were outstanding:
Schedule of Compensation Options
Weighted | ||||||||
Number of | average | |||||||
broker | exercise price | |||||||
options | (C$) | |||||||
Balance, December 31, 2021 | 3,590,907 | 0.35 | ||||||
Issued – April 2022 Compensation Options | 1,879,892 | 0.30 | ||||||
Balance, December 31, 2022 | 5,470,799 | $ | 0.34 | |||||
Issued – March 2023 Compensation Options | 2,070,258 | 0.15 | ||||||
Balance, June 30, 2023 | 7,541,057 | 0.28 |
Weighted | ||||||||
Number of | average | |||||||
broker | exercise price | |||||||
options | (C$) | |||||||
Balance, December 31, 2022 | 5,470,799 | $ | 0.34 | |||||
Issued – March 2023 Compensation Options (i) | 2,070,258 | 0.15 | ||||||
Balance, March 31, 2023 | 7,541,057 | 0.28 | ||||||
Balance, December 31, 2023 | 4,301,150 | 0.24 | ||||||
Expired – February 2024 | (351,000 | ) | 0.50 | |||||
Balance, March 31, 2024 | 3,950,150 | 0.22 |
(i) | The grant date fair value of the March 2023 Compensation Options |
16 |
Schedule of Estimated Using Black-Scholes Valuation Model for Fair Value of Broker Options
Grant Date | Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | ||||||||||||||||||||||||||||||
March 2023 | 3.4 | % | 0 | % | 120 | % | C$ | years | 3.4 | % | 0 | % | 120 | % | C$ | years |
Schedule of Broker Exercise Prices
Exercise | Number of | Grant date Fair value | ||||||||||
Expiry date | price (C$) | broker options | ($) | |||||||||
August 31, 2023 (i) | $ | 0.35 | 3,239,907 | $ | 521,993 | |||||||
February 16, 2024 (ii) | $ | 0.40 | 351,000 | $ | 68,078 | |||||||
April 1, 2024 (iii) | $ | 0.30 | 1,879,892 | $ | 264,435 | |||||||
March 27, 2026(v) | $ | 0.15 | 2,070,258 | $ | 111,971 | |||||||
7,541,057 | $ | 966,477 |
Exercise | Number of | Grant date Fair value | ||||||||||
Expiry date | price (C$) | broker options | ($) | |||||||||
April 1, 2024 (i) | $ | 0.30 | 1,879,892 | $ | 268,435 | |||||||
March 27, 2026(ii) | $ | 0.15 | 2,070,057 | $ | 111,971 | |||||||
3,950,150 | $ | 380,406 |
i) | |
Exercisable into one April 2022 Unit | |
Exercisable into one March 2023 Unit |
Stock options
Schedule of Stock Options
Weighted | ||||||||
average | ||||||||
Number of | exercise price | |||||||
stock options | (C$) | |||||||
Balance, December 31, 2022 | 9,053,136 | $ | 0.58 | |||||
Granted | 700,000 | $ | 0.15 | |||||
Expired, May 1, 2022 | (47,000 | ) | $ | 10.00 | ||||
Forfeited | (150,000 | ) | $ | 0.15 | ||||
Expired, December 31, 2022 | (235,500 | ) | $ | 0.50 | ||||
Balance, December 31, 2022 | 9,320,636 | $ | 0.51 | |||||
Balance, June 30, 2023 | 9,320,636 | $ | 0.51 |
Weighted | ||||||||
average | ||||||||
Number of | exercise price | |||||||
stock options | (C$) | |||||||
Balance, December 31, 2022 | 9,320,636 | $ | 0.51 | |||||
Balance, March 31, 2023 | 9,320,636 | $ | 0.51 | |||||
Balance, December 31, 2023 | 8,970,636 | $ | 0.52 | |||||
Balance, March 31, 2024 | 8,970,636 | $ | 0.52 |
Schedule of Actual Stock Options Issued and Outstanding
Number of | ||||||||||||||||
remaining | Number of | options | ||||||||||||||
Exercise | contractual | options | vested | Grant date | ||||||||||||
price (C$) | life (years) | outstanding | (exercisable) | fair value ($) | ||||||||||||
0.60 | 200,000 | 200,000 | 52,909 | |||||||||||||
0.60 | 1,575,000 | 1,575,000 | 435,069 | |||||||||||||
0.55 | 5,957,659 | 4,468,245 | 1,536,764 | |||||||||||||
0.335 | 1,037,977 | 1,037,977 | 204,213 | |||||||||||||
0.15 | 150,000 | 150,000 | 14,465 | |||||||||||||
0.15 | 400,000 | 200,000 | 37,387 | |||||||||||||
9,320,636 | 7,631,222 | $ | 2,280,807 |
Number of | ||||||||||||||||||
remaining | Number of | options | ||||||||||||||||
Exercise | contractual | options | vested | Grant date | ||||||||||||||
price (C$) | life (years) | outstanding | (exercisable) | fair value ($) | ||||||||||||||
0.60 | 1,575,000 | 1,575,000 | 435,069 | |||||||||||||||
0.335 | 1,037,977 | 1,037,977 | 204,213 | |||||||||||||||
0.55 | 5,957,659 | 4,468,245 | 1,536,764 | |||||||||||||||
0.15 | 400,000 | 300,000 | 37,387 | |||||||||||||||
8,970,636 | 7,381,222 | $ | 2,213,433 |
The vesting of stock options during the three and six months ending June 30,March 31, 2024 and March 31, 2023, resulted in stock based compensation expenses of $ and $ respectively ($respectively.
66,384 and $ for the three and six months ending June 30, 2022, respectively).
17 |
Effective March 25, 2020, the Board of Directors approved a Restricted Share Unit (“RSU”) Plan to grant RSUs to its officers, directors, key employees and consultants.
Schedule of Restricted Share Units
Weighted | ||||||||
average | ||||||||
grant date | ||||||||
fair value | ||||||||
Number of | per share | |||||||
shares | (C$) | |||||||
Unvested as at December 31, 2021 | 576,000 | $ | 0.62 | |||||
Granted | 6,620,641 | 0.17 | ||||||
Vested | (2,373,900 | ) | 0.18 | |||||
Unvested as at December 31, 2022 | 4,822,741 | $ | 0.22 | |||||
Granted | 4,109,637 | 0.24 | ||||||
Vested | (5,767,218 | ) | 0.24 | |||||
Unvested as at June 30, 2023 | 3,165,160 | $ | 0.22 |
Weighted | ||||||||
average | ||||||||
grant date | ||||||||
fair value | ||||||||
Number of | per share | |||||||
shares | (C$) | |||||||
Unvested as at December 31, 2022 | 4,822,741 | $ | 0.22 | |||||
Granted (i, ii) | - | - | ||||||
Vested | - | - | ||||||
Unvested as at March 31, 2023 | 4,822,741 | $ | 0.22 | |||||
Unvested as at December 31, 2023 | 7,044,527 | $ | 0.24 | |||||
Granted (i, ii) | 9,720,403 | 0.11 | ||||||
Vested | (2,546,436 | ) | 0.21 | |||||
Unvested as at March 31, 2024 | 14,218,493 | $ | 0.16 |
(i) | On January | |
(ii) | On | |
| ||
The vesting of RSU’s during the three and six months ending June 30,March 31, 2024, and March 31, 2023, resulted in stock based compensation expense of $ and $ respectively ($ and $ for the three and six months ending June 30, 2022, respectively).
respectively.
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.
Schedule of Deferred Share Units
Weighted | ||||||||
average | ||||||||
grant date | ||||||||
fair value | ||||||||
Number of | per share | |||||||
shares | (C$) | |||||||
Unvested as at December 31 2022, and March 31, 2023 | $ | |||||||
Unvested as at December 31 2023, and March 31, 2024 | $ |
18 |
Weighted | ||||||||
average | ||||||||
grant date | ||||||||
fair value | ||||||||
Number of | per share | |||||||
shares | (C$) | |||||||
Unvested as at December 31, 2021 | 5,625,000 | $ | 1.03 | |||||
Vested (i) | (3,125,000 | ) | 1.03 | |||||
Unvested as at June 30, 2022 | 2,500,000 | $ | 1.03 | |||||
Unvested as at December 31, 2022 | 2,710,000 | 0.97 | ||||||
Vested (ii) | (1,250,000 | ) | 1.03 | |||||
Unvested as at December 31 2022 and June 30, 2023 | 1,460,000 | $ | 1.00 |
The vesting of DSU’s during the three and six months ending June 30, 2023,ended March 31, 2024 resulted in stock based compensation expense of $ and $, respectively (stock baseda recovery of stock-based compensation of $ and $ for the three months ended March 31, 2023. The fair value of each DSU is $ as of March 31, 2024, and six months ending June 30, 2022, respectively).$ as of March 31, 2023.
11.13. Commitments and Contingencies
As stipulated in the agreement with the EPA and as described in Note 6,note 8, the Company is required to make two types of payments to the EPA and IDEQ, one for historical water treatment cost-recovery to the EPA, and the other for ongoing water treatment. Water treatment costs incurred through December 2021 are payable to the EPA, and water treatment costs incurred thereafter are payable to the IDEQ. The IDEQ (as done formerly by the EPA) invoices the Company on an annual basis for the actual water treatment costs, which may exceed the recognized estimated costs significantly. When the Company receives the water treatment invoices, it records any liability for actual costs over and above any estimates made and adjusts future estimates as required based on these actual invoices received. The Company is required to pay for the actual costs regardless of the periodic required estimated accruals and payments made each year.
On July 28, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by Crescent Mining, LLC (“Crescent”). The named defendants include Placer Mining, Robert Hopper Jr., and the Company. The lawsuit alleges that Placer Mining and Robert Hopper Jr. intentionally flooded the Crescent Mine during the period from 1991 and 1994, and that the Company is jointly and severally liable with the other defendants for unspecified past and future costs associated with the presence of Acid Mine DrainageAMD in the Crescent Mine. The plaintiff has requested unspecified damages. On September 20, 2021, the Company filed a motion to dismiss Crescent’s claims against it, contending that such claims are facially deficient. On March 2, 2022, Chief US District Court Judge, David C. Nye granted in part and denied in part the Company’s motion to dismiss. The court granted the Company’s motion to dismiss Crescent’s Cost Recovery claim under CERCLA Section 107(a), Declaratory Judgment, Tortious Interference, Trespass, Nuisance and Negligence claims. These claims were dismissed without prejudice. The court denied the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass, nuisance and negligence claims. Crescent later filed an amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining Corp are named as co-defendants. The CompanyBunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint except those that are assertions of fact as a matter of public record. The Company believes theCrescent’s lawsuit against Placer Mining Corp. is without merit and intends to defendis vigorously defending itself, as well as 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. The lawsuit is currently in the discovery phase, in which information is gathered and exchanged.
During the six months ended June 30, 2023, the Company entered into a lease agreement with C & E Tree Farm LLC for the lease of a land parcel overlaying a portion of the Company’s existing mineral claims package. The Company is committed to making monthly payments of $10,000 through February 2026.
12.14. Deferred tax liability
The Company incurred income tax expenserecovery of $3.5699,920 million for the three and six months ended June 30, 2023,March 31, 2024 and incurred noincome tax recovery or expense for the three and six months ended June 30, 2022.March 31, 2023. The Company’s effective income tax rate for the first sixthree months of 20232024 was -30.2912.6% compared to 0.0% for the first sixthree months of 2022.2023. The effective tax rate during the first sixthree months of 20232024 rate differed from the statutory rate primarily due to the income tax treatmentrecognition of the Stream proceeds as deferred revenue compared to its treatment as debt under U.S. GAAP thereby resulting in a decrease of the existing valuation allowance against deferred tax assets relatedavailable to offset the utilization of $32.3 million of net operating losses not previously benefitted.deferred tax liability associated with the Stream Obligation. The Company maintains a valuation allowance against net operating losses subject to Section 382 and other deferred tax assets. The effective tax rate during the first sixthree months of 20222023 rate differed from the statutory rate primarily due to changes in the valuation allowance established to offset net deferred tax assets.
A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will likely ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced.
19 |
13.15. Operating Expenses
Schedule of Operating Expenses
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Salaries, wages, and consulting fees | $ | 942,394 | $ | 770,585 | ||||
General administration expenses | 2,845,237 | 1,414,903 | ||||||
Total | $ | 3,787,631 | $ | 2,185,488 |
16. Related party transactions
The Company’s key management personnel have the authority and responsibility for planning, directing and controlling the activities of the Company and consists of the Company’s executive management team and management directors.
Schedule of Related Party Transactions
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Consulting fees & wages | $ | 357,468 | $ | 486,241 | $ | 572,917 | $ | 1,583,850 |
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
Consulting Fees and Salaries | $ | 474,185 | $ | 215,448 |
At June 30,March 31, 2024 and March 31, 2023, and June 30, 2022, $52,14889,324 and $1,049,304248,533, respectively is owed to key management personnel with all amounts included in accounts payable and accrued liabilities.
14.17. Subsequent Events
Conversion of March 2023 Special Warrants
On July 24, 2023, the “March 2023, Special Warrants” automatically converted into one share of common stock of the company and one common stock purchase warrant of the company which entitles each warrant holder to acquire one share of common stock of the Company at an exercise price of $0.15 per warrant share until March 27, 2026.
2023 RSU GrantShare Issuance
On July 4, 2023,April 1, 2024, the Company granted RSU’s were grantedDSUs to employees and executivescertain members of the Company. The RSU awards vest in one-third increments on March 31board of 2024, 2025 and 2026.
2023 DSU Grant
On July 4, 2023, DSU’s were granted to directors of the Company. The DSU awards vestDSUs vested immediately.
On July 6, 2023,April 4, 2024, the Company issued shares of common stock in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending March 31, 2024.
DSU’s were granted
On April 5, 2024, the $2,001,000 letter of credit, in place to secure the environment protection agency cost recovery payable was returned to the Company and cancelled. As a result of this transaction the restricted cash balance was decreased by $2,001,000 (from $6,476,000 to $4,475,000) and the cash and cash equivalents was increased by the corresponding amount.
On April 16, 2024, the Company issued directormember of the Company. The DSU award vests on .executive team for the vesting of RSUs. shares to a
Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation
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-looking statement. Such forward looking statements include statements concerning the Company’s plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report and in the Company’s other filings with the SEC. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.
Description of 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.
20 |
Background and
Overview
The Company’s sole focus is the development and restart of its 100% owned flagship asset, the Bunker Hill mine (the “Bunker Hill Mine” or the “Mine”) in Idaho, USA. 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 Bunker Hill Mine is located within Operable Unit 2 of the Bunker Hill Superfund site (EPA National Priorities Listing IDD048340921), where cleanup activities have been completed.
The Company purchasedwas incorporated for the Mine on January 7, 2022 for $5,400,000initial purpose of engaging in cash. Prior tomineral exploration activities at the Mine. The Company has moved into the development stage concurrent with (i) 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 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 most recent of these agreements, the Company was required to make payments pursuant to an agreement with the U.S. Environmental Protection Agency (“EPA”) whereby for so long as the Company leases, owns and/or occupies the Mine, the Company would make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for historical water treatment cost recovery in accordance with the Settlement Agreement reached with the EPA in 2018. Immediately prior to the purchase of the Mine, the Company’s liability to EPA in this regard totaled $11,000,000. Concurrent with the purchase of the Mine, the Company assumed incremental liabilities of $8,000,000 to the EPA, consistent with the terms of the amended Settlement Agreement with the EPA that was executed in December 2021 (see “EPA 2018 Settlement Agreement & 2021 Amended Settlement Agreement” in the “Our Business” section above).
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 conducted multiple exploration campaigns, published multiple economic studies and Mineral Resource Estimates, and advanced the rehabilitation and development of the Mine. In December 2021, it announced a project finance package with Sprott Private Resource Streaming & Royalty Corp. (“SRSR”), an amended Settlement Agreement with the EPA, and the purchase of the Bunker Hill Mine, setting the stage for a restart of the Mine.
Key milestones following the purchase of the mine have included the purchase and demobilization of a process plant, to site, advancement of engineering(ii) completing successive technical and economic studies, including a Prefeasibility Study, envisaging(iii) delineating mineral reserves, and (iv) conducting the restartprogram of the Mine, the completion of the primary portion of the ramp decline connecting the 5 and 6 Levels and securing of $96,000,000 of financing commitments from SRSR.activities outlined above.
Results of Operations
The following discussion and analysis provide information that is believed to be relevant to an assessment and understanding of the results of operation and financial condition of the Company for the three and six months ended June 30, 2023March 31, 2024 and June 30, 2022.March 31, 2023. Unless otherwise stated, all figures herein are expressed in U.S. dollars, which is the Company’s functional currency.
Comparison of the three and six months ended June 30,March 31, 2024 and 2023 and 2022
Revenue
During the three and six months ended June 30,March 31, 2024, and 2023, and 2022, respectively, the Company generated no revenue.
Expenses
During the three and six months ended June 30,March 31, 2023, and 2022, the Company reported total operating expenses of $3,336,973$3,787,631 and $5,522,461, respectively (total operating expenses of $ 3,979,862 and $9,466,536 for the three and six months ending June 30, 2022, respectively).$2,185,488, respectively.
The decreaseincrease in total operating expenses was primarily due to (i) a decreaseincrease in the volume of transactions as the mine preparationcontinues to develop. Operation and administration expenses of $1,821,223, and $4,382,302 (ii) a decrease in consulting and wages expenses of $636,137 and $2,222,699increased by $1,018,781 ($1,898,773 for the three and six months ending, respectively. Mine preparation expenses were $nil in the six months ended June 30, 2023,March 31, 2024, compared to $879,992 for the three months ended March 31, 2023). Legal and accounting fees increased by $411,553 ($946,464 for the three months ended March 31, 2024, compared to $534,911 for the three months ended March 31, 2023) primarily as a resultbecause of the Company determining that costs directly attributedCompany’s uplisting from the Canadian Stock Exchange to the mine afterToronto Stock Exchange Venture which occurred in September 30, 2022 (upon the release of the prefeasibility study) constituted mine development costs (capitalized to non-current assets) instead of mine preparation costs (expense) given the existence of probable mineral reserves and an economic study incorporating them. The decrease in consulting2023. Consulting and wages expenses was impactedincreased by a lower volume of transactions and a lower bonus accrual in$171,809 ($942,394 for the three and six months ended June 30, 2023, asMarch 31, 2024, compared to $770,585 for the three and six months ended June 30, 2022.March 31, 2023) also increased to increased head count as the Bunker Hill Mine moves towards production.
Net Income (loss) and Comprehensive Income (loss)
The Company had net loss of $16,857,782 for the three months ended June 30, 2023 (net income of $12,054,781 for the three months ended June 30, 2022). Offsetting the decrease in operating expenses (as described above), net loss in the three months ended June 30, 2023 was impacted by a $21,015,772, increase in the loss due to change in derivative liability (loss of $13,246,561 for the three months ended June 30, 2023 compared to gain of $7,769,211 for the three months ended June 30, 2022) and a loss of $1,884,232 for the 3 months ending June 30, 2023 relating to the change in fair of convertible debentures compared to a gain of 626,075 for the 3 months ending June 30, 2022). Both changes in fair value were driven by a proportionally greater incline in the Company’s share price for the three months ending June 30, 2023, relative to a decline in share price in the three months ending June 30, 2022. The change in net loss was further impacted by a decrease of $1,496,683 gain on extinguishment in debt in the three months ending June 30, 2023, compared to the 3 months ending June 30, 2022. A gain of $7,117,420 was recognized in the three months ending June 30, 2023, relating to the sale of mineral properties, compared with a $8,614,103 gain on EPA settlement in the three months ending June 30, 2022. Net loss for the three months ending June 30, 2023, included the initial recognition of a deferred tax liability and corresponding deferred tax expense relating to the closing of the stream transaction ($3,508,741 for the six months ending June 30, 2023, compared to $nil for the 6 months ending June 30, 2022).
The Company had net loss of $15,066,635$5,582,036 for the sixyear three months ended June 30, 2023 (netMarch 31, 2024 (compared to net income of $9,173,895$1,791,147 for the sixthree months ended June 30, 2022)March 31, 2023). OffsettingIn addition to the decreaseincrease in operating expenses (as described above), net loss infor the sixthree months ended June 30, 2023March 31, 2024 was impacted by a $20,243,206 increase in interest expense of $759,106 ($2,083,735 and $1,324,629 for the loss due tothree months ended March 2024 and 2023 respectively), a decrease in change in derivative liability of $4,490,517 (loss of $9,019,987$263,943 for the sixthree months ended June 30, 2023 compared to gain of $11,223,2019 for the six months ended June 30, 2022) and a loss of $194,531 for the 3 months ending June 30, 2023 relating to the change in fair of convertible debenturesMarch 31, 2024 compared to a gain of 552,606$4,226,574 for the 3three months ending June 30, 2022). Both changes in fair value wereended March 31, 2023), driven by a proportionally greater inclinedecline in the Company’s share price for the six months ending June 30,in Q1 2023 relative to Q1 2024. Additionally, a decline in share price inloss on fair value of the sixconvertible debenture of $263,943 was recognized for the three months ending June 30, 2022. The change in net loss was further impacted by a decrease of $1,496,683 gain on extinguishment in debt in the six months ending June 30, 2023,ended March 31, 2024, compared to the 3 months ending June 30, 2022. Aa gain of $7,117,420 was recognized in$4,226,574 for the sixthree months ending June 30, 2023, relatingended March 31, 2024. The three months ended March 31, 2024, also includes $217,000 ($nil for the three months ended March 31, 2023) loss on revaluation of the stream debenture due to the sale of mineral properties, compared with a $8,614,103 gain on EPA settlement in the six months ending June 30, 2022.updated key assumptions such as commodity prices. Net loss for the sixthree months ending June 30, 2023, included the initial recognition ofMarch 31, 2024, includes a deferred tax liabilityrecovery of $699,920 and corresponding deferred tax expense relating to the closinginterest income of the stream transaction ($3,508,741 for the six months ending June 30, 2023,$291,330 compared to $nil and $nil respectively for three months ended March 31, 2023. Additionally, net loss for the 6three months ending June 30, 2022).ended March 31, 2024, includes $nil of financing costs compared to $576,751 for the three months ended March 31, 2023.
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The Company had comprehensive loss of $17,231,197 and $14,633,038$5,293,664 for the three and six months ended June 30, 2023, respectivelyMarch 31, 2024 (comprehensive income of $12,426,367 and $9,545,481$2,598,159 for the month three and six ended June 30, 2022, respectively)March 31, 2023). Comprehensive (loss) income for the three and six months ended June 30, 2023,March 31, 2024, is inclusive of a ($373,415) and $433,597$288,372 gain on change in fair value on own credit risk ($371,586 and $371,586807,012 for the three and six months ended June 30, 2022, respectively)March 31, 2023).
Liquidity and Capital Resources
Current Assets and Total Assets
As of June 30, 2023,March 31, 2024, the Company had total current assets of $42,831,724,$20,863,546, compared to total current assets of $7,741,052$27,176,997 at December 31, 20222023 – an increasea decrease of $35,090,672;$6,313,451; and total assets of $67,863,964,$61,649,028, compared to total assets of $32,929,892$61,989,678 at December 31, 20222023 – an increasedecrease of $34,934,072. The$340,650. During the three months ended March 31, 2024, the Company’s current assets decreased due to cash expenditures on the process plant, purchasing of equipment and additions to the Bunker Hill Mine. Total assets remained constant as the increase in current assetsproperty plant and total assetsequipment was primarily due tooffset by the closing of the $46,000,000 Stream, net of repayment of the $5,000,000 Bridge Loan and transaction related costs.decrease in cash.
Current Liabilities and Total Liabilities
As of June 30, 2023,March 31, 2024, the Company had total current liabilities of $18,353,350$12,201,846 and total liabilities of $104,296,588,$92,467,400, compared to total current liabilities of $10,155,582$7,472,326 and total liabilities of $59,106,835$88,356,840 at December 31, 2022. Current liabilities decreased primarily as a result of the repayment of the $5,000,000 Bridge Loan from the proceeds of the Stream.2023. Total liabilities increased primarilybecause of accretion on the stream debenture and environmental protection agency payable as a result of closing of the $46,000,000 Stream (net of repayment of the $5,000,000 Bridge Loan) andwell as an increase in the carrying valuesaccounts payable and accruals due to timing of the CD1invoices and CD2 and settlement of RCD.
payments.
Working Capital and Shareholders’ Deficit
As of June 30, 2023,March 31, 2024, the Company had a working capital balance of $24,478,374$8,661,700 and a shareholders’ deficiency of $36,432,624$30,818,372 compared to a working capital deficit of $2,414,530$19,704,671 and a shareholders’ deficiency of $26,176,943$26,367,162 as of December 31, 2022.2023. The working capital balance increaseddecreased during the sixthree months ended June 30, 2023,March 31, 2024, primarily due to cash received from closingexpenditures on the process plant, purchasing of equipment, and additions to the $46,000,000 Stream (net of repayment of the $5,000,000 Bridge Loan and transaction related costs) and cash received from the closing of a brokered private placement of special warrants of the Company, partially offset by operating expenses and capital expenditures incurred during the period.Bunker Hill Mine. The shareholders’ deficiency decreasedincreased primarily due to the net loss for the six months ended June 30, 2023, partially offset by an increase due to proceeds received from equity financing in the six months ended June 30, 2023.2024 quarter.
Cash Flow
During the sixthree months ended June 30, 2023,March 31, 2024, the Company had a net cash increasedecrease of $34,425,054,$6,418,054, primarily due to cash expenditures on the closingprocess plant, purchasing of a brokered private placement of special warrants ofequipment, and additions to the Company and proceeds received from the exercise of warrants and closing of the Stream agreement with SRSR. Cash expenditures during the six months ended June 30, 2023, were primarily related to working capital requirements.Bunker Hill Mine.
Subsequent Events
Conversion of March 2023 Special Warrants
On July 24, 2023,April 1, 2024, the “March 2023, Special Warrants” automatically converted into one share of common stockCompany granted 2,527,888 DSUs to certain members of the company and one common stock purchase warrantboard of the company which entitles each warrant holder therof to acquire one share of common stock of the Company at an exercise price of $0.15 per Warrant share until March 27, 2026.
2023 RSU Grant
On July 4, 2023, 6,735,354 RSU’s were granted to employees and executives of the Company. The RSU awards vest in one-third increments on March 31 of 2024, 2025 and 2026.
2023 DSU Grant
On July 4, 2023, 1,611,826 DSU’s were granted to directors of the Company. The DSU awards vestDSUs vested immediately.
On July 6, 2023, 245,454 DSU’s were grantedApril 1, 2024, the Company appointed Brenda Dayton as its Vice President Investor Relations.
On April 4, 2024, the Company issued 6,398,439 shares of common stock in connection with its election to a director ofsatisfy interest payments under the Company. The DSU award vest on July 6,outstanding convertible debentures for the three months ending March 31, 2024.
New DirectorOn April 5, 2024, the $2,001,000 letter of credit, in place to secure the environment protection agency cost recovery payable was returned to the Company and cancelled. As a result of this transaction the restricted cash balance was decreased by $2,001,000 (from $6,476,000 to $4,475,000) and the cash and cash equivalents was increased by the corresponding amount.
On July 6, 2023,April 16, 2024, the Company appointed Paul Smithissued 100,000 shares to its Boarda member of Directors and Chairthe executive team for the vesting of its new Growth Committee.RSUs.
On April 30, 2024, the Company received approval to commence construction from the Idaho Department of Environmental Quality (IDEQ, Air Quality Division) in accordance with IDAPA 58.01.01.213, Rules for the Control of Air Pollution in Idaho. The Company will continue to work with IDEQ regarding issuance of the full Air Permit.
AGM Results and Amendments to Equity Compensation Plans
The Company held its Annual General Meeting (the “Meeting”) on August 4, 2023. The nominees for the Board of Directors listed in the Company’s management information circular dated July 6, 2023 (the “Circular”), being (i) Sam Ash, (ii) Mark Cruise, (iii) Dickson Hall, (iv) Cassandra Joseph, (v) Pamela Saxton, (vi) Paul Smith and (vii) Richard Williams, were elected to the board of directors of the Company (the “Board”) to hold office until the next annual meeting of shareholders or until their successors are duly appointed or elected.
In addition, at the Meeting, the shareholders of the Company approved: (ii) the re-appointment of MNP LLP Chartered Professional Accountants as auditor of the Company for the ensuing year; (ii) the Company’s amended and restated stock option plan (the “Amended and Restated Stock Option Plan”); and (iii) the Company’s amended and restated restricted stock unit incentive plan (the “Amended and Restated RSU Plan” and, together with the Stock Option Plan, the “Security Based Compensation Plans”).
The Security Based Compensation Plans were each approved by the Board on July 5, 2023 and are being implemented to comply with the policies of the TSX Venture Exchange (the “TSXV”) in connection with Bunker Hill’s application to list its common stock (the “Common Shares”) on the TSXV.
The Amended and Restated Stock Option Plan is a rolling plan meaning that the maximum number of Common Shares issuable thereunder is 10% of the issued and outstanding Common Shares (on a non-diluted basis) at the time of the grant of options.
The Amended and Restated RSU Plan is a fixed plan meaning the maximum number of Common Shares issuable thereunder is fixed at 26,581,075, being 10% of the issued and outstanding Common Shares (on a non-diluted basis as at July 5, 2023.
Additional information regarding the Security Based Compensation Plans, including details regarding the amendments, can be found in the Circular posted on Bunker Hill’s SEDAR+ profile at www.sedarplus.ca.
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Critical accounting estimates
The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the 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 sheets 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.
Convertible loans, promissory notes, stream obligationLoans, Promissory Notes, Stream Obligation and warrantsWarrants
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 derivative liability, volatility and dividend yield and making assumptions about them.
The fair value estimates of the convertible loans use inputs to the valuation model that include risk-free rates, equity value per share of common share,stock, USD-CAD exchange rates, spot and futures prices of minerals, expected equity volatility, expected volatility in minerals prices, discount for lack of marketability, credit spread, expected mineral production over the life of the mine, and project risk/estimation risk factors.
The stream obligation inputs used to determine the future cash flows and effective interest for the amortized cost calculation include futures prices of minerals and expected mineral production over the life of the mine.
The fair value estimates may differ from actual fair values and these differences may be significant and could have a material impact on the Company’s balance sheets and the consolidated statements of operations. Assets are reviewed for an indication of impairment at each reporting date. This determination requires significant judgment. Factors that could trigger an impairment review include, but are not limited to, significant negative industry or economic trends, interruptions in exploration activities or a significant drop in precious metal prices.
Accrued liabilities
The Company has to make estimates to accrue for certain expenditures due to delay in receipt of third-party vendor invoices. These accruals are made based on trends, history and knowledge of activities. Actual results may be different.
The Company makes monthly estimates of its water treatment costs, with a true-up to the annual invoice received from the IDEQ. Using the actual costs in the annual invoice, the Company will then reassess its estimate for future periods. Given the nature, complexity and variability of the various actual cost items included in the invoice, the Company has used the most recent invoice as its estimate of the water treatment costs for future periods.
Incremental Borrowing rate
The Company estimates the incremental borrowing rate to determine the present value of future lease payments. Actual results may be different from estimates.
Borrowing Cost Capitalization rate
The Company makes estimates to determine the percentage of borrowing costs that are capitalized into property plant and equipment. Actual results may be different.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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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 conclusion that the design and operation of the disclosure controls and procedures were effective as of June 30, 2023.March 31, 2024.
Internal Control Over Financial Reporting
The management of the Company is responsible for the preparation of the financial statements and related financial information appearing in this report. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The management of the Company also is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the Company; and iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management, including the CEO and CFO, does not expect that the Company’s disclosure controls, procedures and internal control over financial reporting will prevent all error and all fraud. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Further, over time, control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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With the participation of the CEO and CFO, the Company’s management evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2023March 31, 2024 to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Company’s CEO and CFO have concluded that the internal control over financial reporting was effective as of June 30, 2023.March 31, 2024.
PART II – OTHER INFORMATION
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 July 28, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by Crescent Mining, LLC (“Crescent”). The named defendants include Placer Mining, Robert Hopper Jr., and the Company. The lawsuit alleges that Placer Mining and Robert Hopper Jr. intentionally flooded the Crescent Mine during the period from 1991 and 1994, and that the Company is jointly and severally liable with the other defendants for unspecified past and future costs associated with the presence of AMD in the Crescent Mine. The plaintiff has requested unspecified damages. On September 20, 2021, the Company filed a motion to dismiss Crescent’s claims against it, contending that such claims are facially deficient. On March 2, 2022, Chief US District Court Judge, David C. Nye granted in part and denied in part the Company’s motion to dismiss. The court granted the Company’s motion to dismiss Crescent’s Cost Recovery claim under CERCLA Section 107(a), Declaratory Judgment, Tortious Interference, Trespass, Nuisance and Negligence claims. These claims were dismissed without prejudice. The court denied the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass, nuisance and negligence claims. Crescent later filed an amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining Corp are named as co-defendants. The CompanyBunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint except those that are assertions of fact as a matter of public record. The Company believes theCrescent’s lawsuit against Placer Mining Corp. is without merit and intends to defendis vigorously defending itself, as well as 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.
On October 26, 2021, the Company asserted claims against Crescent in a separate lawsuit, which has been consolidated into the Crescent lawsuit. The Company commenced Bunker Hill Mining Corporation v. Venzee Technologies Inc. et al, Case No. 2:21-cv-209-REP, filed in the same courtUS District Court for the District of Idaho on May 14, 2021. The Company has subsequently executed a tolling agreement with Venzee in exchange for dropping its lawsuit.claims against Venzee. 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. This lawsuit has beenThe Court consolidated into the lawsuit Crescent filedtwo lawsuits on July 28, 2021.April 19, 2022. The consolidated lawsuits are currently in the discovery phase, in which information is gathered and exchanged.
Item 1A. Risk Factors
There have been no changes to our risk factors as reported in our annual report on Form 10-K for the year ended December 31, 2022.2023.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
Not Applicable.
Item 3. Defaults upon Senior Securities
None.
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Item 4. Mine Safety Disclosure
Pursuant 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 United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the Mine Safety and Health Administration (the “MSHA”), as well as related assessments and legal actions, and mining-related fatalities.
The following table provides information for the three months ended June 30, 2023.March 31, 2024.
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) | 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 | 1 | 0 | 0 | 0 | 0 | 143.00 | 0 | No | No | 1 | 0 | 0 | 0 | 0 | 143 | 0 | 0 | No |
(1) | The total number of violations received from MSHA under §104 of the Mine Act, which includes citations for health or safety standards that could significantly and substantially contribute to a serious injury if left unabated. |
(2) | The total number of orders issued by MSHA under §104(b) of the Mine Act, which represents a failure to abate a citation under §104(a) within the period of time prescribed by MSHA. |
(3) | The total number of citations and orders issued by MSHA under §104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards. |
(4) | The total number of flagrant violations issued by MSHA under §110(b)(2) of the Mine Act. |
(5) | The total number of orders issued by MSHA under §107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed. |
(6) | A written notice from the MSHA regarding a pattern of violations, or a potential to have such pattern under §104(e) of the Mine Act. |
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit No. | Document | |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act | |
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act | |
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: | ||
BUNKER HILL MINING CORP. | ||
By | /s/ Sam Ash | |
Sam Ash, Chief Executive Officer and President |
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has caused Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: | ||
BUNKER HILL MINING CORP. | ||
By | /s/ | |
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