UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State of other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(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.
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).
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 ☐ | |
| 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
Number of shares of Common Stock outstanding as of July 30, 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 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, 2023, and all amendments thereto.
Bunker Hill Mining Corp.
Condensed Interim Consolidated Balance Sheets
(Expressed in United States Dollars)
Unaudited
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash (note 8) | ||||||||
| Accounts receivable and prepaid expenses (note 3) | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Spare parts inventory (note 5) | ||||||||
| Long term deposit | ||||||||
| Equipment (note 4) | ||||||||
| Right-of-use asset (note 4) | ||||||||
| Bunker Hill Mine and mining interests (note 6) | ||||||||
| Process plant (note 5) | ||||||||
| Total assets | $ | $ | ||||||
| EQUITY AND LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable (note 16) | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of lease liability (note 7) | ||||||||
| Deferred share units liability (note 12) | ||||||||
| Environment protection agency cost recovery payable (note 8) | ||||||||
| Current portion of stream debenture | ||||||||
| Interest payable (note 9) | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Lease liability (note 7) | ||||||||
| Series 1 convertible debenture (note 9) | ||||||||
| Series 2 convertible debenture (note 9) | ||||||||
| Stream debenture (note 9) | ||||||||
| Environment protection agency cost recovery liability, net of discount (note 8) | ||||||||
| Deferred tax liability (note 14) | ||||||||
| Derivative warrant liability (note 10) | ||||||||
| Total liabilities | ||||||||
| Shareholders’ Deficiency | ||||||||
| Preferred shares, $ par value, preferred shares authorized | ||||||||
| Common shares, $ par value, common shares authorized | ||||||||
| Additional paid-in-capital (note 10) | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficiency | ( | ) | ( | ) | ||||
| Total shareholders’ deficiency and liabilities | $ | $ | ||||||
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 and Comprehensive Loss
(Expressed in United States Dollars)
Unaudited
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating expenses (note 15) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other income or gain (expense or loss) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Change in derivative liabilities (note 10) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on FV of debentures (note 9) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on debt settlement (note 6) | ||||||||||||||||
| Gain on warrant settlement | ||||||||||||||||
| Interest expense (note 7,8,9) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Finance costs (note 9) | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Gain on stream debentures (note 9) | ||||||||||||||||
| Loss on debt modification (note 9) | ( | ) | ( | ) | ||||||||||||
| Loss on debt settlement (note 9) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss for the period pre tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deferred tax recovery (expense) (note 14) | ( | ) | ( | ) | ||||||||||||
| Loss for the period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) income, net of tax: | ||||||||||||||||
| Gain (loss) on change in FV on own credit risk | ( | ) | ||||||||||||||
| Other comprehensive income (loss) | ( | ) | ||||||||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share – basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share – fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares – basic | ||||||||||||||||
| Weighted average common shares – fully diluted | ||||||||||||||||
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 | |||||||
| Ended | Ended | |||||||
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Operating activities | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation (note 10, 11, 12) | ||||||||
| Depreciation expense | ||||||||
| Change in fair value of derivative liabilities | ||||||||
| Deferred tax (recovery) expense | ( | ) | ||||||
| (Gain) loss on warrant extinguishment | ( | ) | ||||||
| Units issued for services | ||||||||
| Interest expense on lease liability (note 7) | ||||||||
| Loss on debt settlement | ||||||||
| Gain on stream debenture | ( | ) | ||||||
| Loss on debt modification | ||||||||
| Accretion of liabilities | ||||||||
| Loss on fair value of debentures | ||||||||
| Gain on debt settlement | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable and prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Interest payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Process plant | ( | ) | ( | ) | ||||
| Mine improvements | ( | ) | ( | ) | ||||
| Purchase of machinery and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from stream obligation | ||||||||
| Transaction costs stream obligation | ( | ) | ||||||
| Proceeds from issuance of special warrants | ||||||||
| Proceeds from warrants exercise | ||||||||
| Proceeds from promissory note | ||||||||
| Repayment of bridge loan | ( | ) | ||||||
| Repayment of promissory notes | ( | ) | ||||||
| Lease payments | ( | ) | ( | ) | ||||
| Net cash (used) provided by financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures | ||||||||
| Cash interest paid | $ | $ | ||||||
| Non-cash activities | ||||||||
| Accounts payable, accrued liabilities, and promissory notes settled with special warrants issuance | $ | $ | ||||||
| Interest payable settled with common shares | $ | $ | ||||||
| Reconciliation from Cash Flow Statement to Balance Sheet: | ||||||||
| Cash and restricted cash end of period | $ | $ | ||||||
| Less restricted cash | ||||||||
| Cash end of period | $ | $ | ||||||
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 | other | |||||||||||||||||||||||
| Common stock | paid-in- | comprehensive | Accumulated | |||||||||||||||||||||
| Shares | Amount | capital | income | deficit | Total | |||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Shares issued for interest payable | ||||||||||||||||||||||||
| Shares issued for RSUs vested | ( | ) | ||||||||||||||||||||||
| OCI | - | |||||||||||||||||||||||
| Net (loss) for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Compensation options | ||||||||||||||||||||||||
| Shares issued for RSUs vested | ( | ) | ||||||||||||||||||||||
| Shares issued for interest payable | ||||||||||||||||||||||||
| Shares issued for warrant exercise | ||||||||||||||||||||||||
| OCI | - | |||||||||||||||||||||||
| Net (loss) for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
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, 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
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, 2023. The interim results for the period ended June 30, 2024, are not necessarily indicative of the results for the full fiscal year. The unaudited condensed interim 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.
3. Accounts receivable and prepaid expenses
Accounts receivable and prepaid expenses consists of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Prepaid expenses and deposits | $ | $ | ||||||
| HST and interest receivable | ||||||||
| Environment protection agency overpayment (note 8) | ||||||||
| Total | $ | $ | ||||||
4. Equipment, Right-of-Use Asset
Equipment consists of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Equipment | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Equipment, net | $ | $ | ||||||
The
total depreciation expense relating to equipment during the three and six months ended June 30, 2024, was $
| 7 |
Right-of-use asset consists of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Right-of-use asset | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Right-of-use asset, net | $ | $ | ||||||
The
total depreciation expense during the three and six months ended June 30, 2024, was $
5. Process Plant
On May 13, 2022, the Company purchased a comprehensive package of equipment and parts inventory from Teck Resources Limited (“Teck”). The package comprises substantially all processing equipment of value located at the Pend Oreille mine site, including complete crushing, grinding and flotation circuits suitable for a planned ~1,500 ton-per-day operation at the Bunker Hill site, and total inventory of nearly 10,000 components and parts for mill, assay lab, conveyer, field instruments, and electrical spares.
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 a purchase price allocation. As the plant is demobilized, transported and reassembled, installation and other costs associated with these activities is being captured and capitalized as components of the asset.
Process plant consists of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Plant purchase price less inventory | $ | $ | ||||||
| Ball Mill | ||||||||
| Demobilization | ||||||||
| Detailed engineering and construction costs | ||||||||
| Capitalized interest (note 9) | ||||||||
| Process Plant | $ | $ | ||||||
6. Bunker Hill Mine and Mining Interests
The Company purchased the Bunker Hill Mine (the “Mine”) in January 2022.
The carrying cost of the Mine is comprised of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Bunker Hill Mine purchase | $ | $ | ||||||
| Capitalized development | ||||||||
| Sale of mineral properties (note 9) | ( | ) | ( | ) | ||||
| Land | ||||||||
| Bunker Hill mine | $ | $ | ||||||
Land purchase and leases
The
Company owns a 225-acre surface land parcel valued at its original purchase price of $
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 $
| 8 |
7. Lease Liability
As of June 30, 2024, The Company’s undiscounted lease obligations consisted of the following:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Gross lease obligation – minimum lease payments | ||||||||
| 1 year | $ | $ | ||||||
| 2- 3 years | ||||||||
| 4-5 years | ||||||||
| Future interest expense on lease obligations | ( | ) | ( | ) | ||||
| Total lease liability | ||||||||
| Current lease liability | ||||||||
| Non-current lease liability | ||||||||
| Total lease liability | ||||||||
Interest expense for the three and six months ended June 30, 2024, was
$
8. Environmental Protection Agency and Water Treatment Liabilities (“EPA”)
Effective
December 19, 2021, the Company entered into an amended Settlement Agreement between the Company, Idaho Department of Environmental Quality,
U.S. Department of Justice, and the EPA (the “Amended Settlement”). Upon the effectiveness 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 $
| Date | Amount | |||
| Within 30 days of Settlement Agreement | $ | |||
| November 1, 2024 | $ | |||
| November 1, 2025 | $ | |||
| November 1, 2026 | $ | |||
| November 1, 2027 | $ | |||
| November 1, 2028 | $ | |||
| November 1, 2029 | $ | |||
In
addition to the changes in payment terms and schedule, the Amended Settlement includes a commitment by the Company to secure $
As
of June 30, 2024, the Company had two payment bonds of $
| 9 |
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 $
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 $
9. Promissory Notes Payable and Convertible Debentures
Promissory Notes
On
September 22, 2021, the Company issued a non-convertible promissory note of $
On February 21, 2023, the
Company issued a non-convertible promissory note to a related party of $
In June 2023, the Company issued a non-convertible
promissory note in the amount of $
Project Finance Package with Sprott Private Resource Streaming & Royalty Corp.
On
December 20, 2021, the Company executed a non-binding term sheet outlining a $
The
non-binding term sheet with SRSR outlined a $
On
June 17, 2022, the Company consummated a new $
On
June 23, 2023, the Company closed the upsized and improved $
| 10 |
$8,000,000 Royalty Convertible Debenture
The
Company closed the $
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
On
June 23, 2023, the funding date of the Stream, the RCD was repaid by the Company granting a royalty for
$6,000,000 Series 1 Convertible Debenture (CD1)
The
Company closed the $
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
Concurrent
with the funding of the Stream in June 2023, the Company and Sprott agreed to amend
$15,000,000 Series 2 Convertible Debenture (CD2)
The
Company closed the $
Concurrent
with the funding of the Stream in June 2023, the Company and Sprott agreed to amend the maturity date of the CD2 from 3 quarterly
payments of $
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.
| 11 |
The Company determined that in accordance with ASC 815 Derivatives and Hedging, each debenture will be valued and recorded 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 using the binomial lattice methodology based on a Cox-Ross-Rubenstein (“CRR”) approach:
| 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 | % | % | % | % | % | |||||||||||||||||||||||
| CD2 note | % | % | % | % | % | |||||||||||||||||||||||
| CD1 note | % | % | % | % | % | |||||||||||||||||||||||
| CD2 note | % | % | % | % | % | |||||||||||||||||||||||
| CD1 note | % | % | % | % | % | |||||||||||||||||||||||
| CD2 note | % | % | % | % | % | |||||||||||||||||||||||
| (1) | ||
| (2) | ||
| (3) |
The resulting fair values of the CD1 and CD2 at June 30, 2024, and as of December 31, 2023, were as follows:
| Instrument Description | June 30, 2024 | December 31, 2023 | ||||||
| CD1 | $ | $ | ||||||
| CD2 | ||||||||
| Total | $ | $ | ||||||
The
(loss) gain on changes in FV of convertible debentures recognized on the condensed interim consolidated statements of loss and
comprehensive loss during the three and six months ended June 30, 2024, was ($
The Company performs quarterly testing of the covenants in the CD1 and CD2 and was not in compliance with the working capital covenant require as of June 30, 2024, however, each debenture holder agreed to waive the working capital covenant for the period of June 30, 2024. It is probable that the violation will be cured by September 30, 2024.
| 12 |
The 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 and comprehensive loss.
The
Company determined the effective interest rate of the Stream obligation to be
$5,000,000 Bridge Loan
On December 6, 2022, the Company
closed a $
On June 23, 2023, the Company repaid the
outstanding principal and interest on the Bridge Loan recognizing a loss on extinguishment of debt of $
$21,000,000 Debt Facility
On
June 23, 2023, the Company closed a $
| 13 |
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 |
Issued and outstanding
In January 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 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
In
March 2023, the Company closed a brokered private placement of special warrants of the Company (the “March 2023 Offering”),
issuing
In connection with the March 2023
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 of the Company (a “March 2023 Unit”).
In
connection with the March 2023 Offering, the Company incurred share issuance costs of $
The Special Warrants issued on March 27, 2023, were converted to shares of common stock and common stock purchase warrants on July 24, 2023. 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 stock and common stock purchase warrants are issued.
In May 2023, the Company issued shares of common stock in connection with settlement of RSUs.
In June 2023, the Company issued shares of common stock in connection with settlement of RSUs.
In June 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 June 30, 2023.
| 14 |
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.
In March 2024, the Company issued shares of common stock in connection with settlement of RSUs.
In April 2024, the Company issued shares of common stock in connection with settlement of RSUs.
In April 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.
In 2024, the Company has accounted for the warrants in accordance with ASC Topic 815. The warrants are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the U.S. dollar. The estimated fair value of warrants accounted for as liabilities was determined on the date of issue and 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 loss and comprehensive loss as a gain or loss and is estimated using the Binomial model.
The fair value of the warrant liabilities related to the various tranches of warrants issued during the period were estimated using the Binomial model to determine the fair value using the following assumptions as at June 30, 2024 and December 31, 2023:
| March 2023 warrants | June 30, 2024 | December 31, 2023 | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Share price (C$) | $ | $ | ||||||
| Fair value | $ | $ | ||||||
| Change in derivative liability | $ | |||||||
| April 2022 special warrants issuance | June 30, 2024 | December 31, 2023 | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Share price (C$) | $ | $ | ||||||
| Fair value | $ | $ | ||||||
| Change in derivative liability | $ | ( | ) | |||||
| April 2022 non-brokered issuance | June 30, 2024 | December 31, 2023 | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Share price (C$) | $ | $ | ||||||
| Fair value | $ | $ | ||||||
| Change in derivative liability | $ | ( | ) | |||||
| 15 |
| June 2022 issuance | June 30, 2024 | December 31, 2023 | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Share price (C$) | $ | $ | ||||||
| Fair value | $ | $ | ||||||
| Change in derivative liability | $ | ( | ) | |||||
| February 2021 issuance | June 30, 2024 | December 31, 2023 | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Share price (C$) | $ | $ | ||||||
| Fair value | $ | $ | ||||||
| Change in derivative liability | $ | |||||||
| June 2019 issuance | June 30, 2024 | December 31, 2023 | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Share price (C$) | $ | $ | ||||||
| Fair value | $ | $ | ||||||
| Change in derivative liability | $ | ( | ) | |||||
| August 2019 issuance | June 30, 2024 | December 31, 2023 | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Share price (C$) | $ | $ | ||||||
| Fair value | $ | $ | ||||||
| Change in derivative liability | $ | ( | ) | |||||
Outstanding warrants at June 30, 2024 and June 30, 2023 were as follows:
| Weighted | Weighted | |||||||||||
| average | average | |||||||||||
| Number of | exercise price | grant date | ||||||||||
| warrants | (C$) | value ($) | ||||||||||
| Balance, December 31, 2022 | $ | $ | ||||||||||
| Exercised | ( | ) | ||||||||||
| Balance, June 30, 2023 | $ | $ | ||||||||||
| Balance, December 31, 2023 | $ | $ | ||||||||||
| Balance, June 30, 2024 | $ | $ | ||||||||||
During the six months ended June 30, 2023, May 2022 Teck warrants were exercised.
| 16 |
At June 30, 2024, the following warrants were outstanding:
| Exercise | Number of | Number of warrants | ||||||||||
| Expiry date | price (C$) | warrants | exercisable | |||||||||
Compensation options
At June 30, 2024, the following broker options were outstanding:
| Weighted | ||||||||
| Number of | average | |||||||
| broker | exercise price | |||||||
| options | (C$) | |||||||
| Balance, December 31, 2022 | $ | |||||||
| Issued – March 2023 Compensation Options (i) | ||||||||
| Balance, June 30, 2023 | ||||||||
| Balance, December 31, 2023 | ||||||||
| Expired – February 2024 | ( | ) | ||||||
| Expired – April 2024 | ( | ) | ||||||
| Balance, June 30, 2024 | ||||||||
| (i) |
| Grant Date | Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | |||||||||||
| March 2023 | % | % | % | C$ | years | |||||||||||
| Exercise | Number of | Grant date Fair value | ||||||||||
| Expiry date | price (C$) | broker options | ($) | |||||||||
| $ | $ | |||||||||||
| $ | ||||||||||||
| 17 |
| i) |
Stock options
| Weighted | ||||||||
| average | ||||||||
| Number of | exercise price | |||||||
| stock options | (C$) | |||||||
| Balance, December 31, 2022 | $ | |||||||
| Balance, June 30, 2023 | $ | |||||||
| Balance, December 31, 2023 | $ | |||||||
| Balance, June 30, 2024 | $ | |||||||
| Number of | ||||||||||||||||||
| Remaining | Number of | options | ||||||||||||||||
| Exercise | contractual | options | vested | Grant date | ||||||||||||||
| price (C$) | life (years) | outstanding | (exercisable) | fair value ($) | ||||||||||||||
| $ | ||||||||||||||||||
The vesting of stock options during the three and six months ending June 30, 2024, resulted in stock based compensation expense of $ and $, respectively ($ and $ for the three and six months ending June 30, 2023, respectively).
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.
| Weighted | ||||||||
| average | ||||||||
| grant date | ||||||||
| fair value | ||||||||
| Number of | per share | |||||||
| shares | (C$) | |||||||
| Unvested as at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Unvested as at June 30, 2023 | $ | |||||||
| Unvested as at December 31, 2023 | $ | |||||||
| Granted (i, ii) | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Unvested as at June 30, 2024 | $ | |||||||
| (i) |
| 18 |
| (ii) |
The vesting of RSU’s during the three and six months ending June 30, 2024, resulted in stock based compensation expense of $ and $ respectively ($ and $ for the three and six months ending June 30, 2023, 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.
| Weighted | ||||||||
| average | ||||||||
| grant date | ||||||||
| fair value | ||||||||
| Number of | per share | |||||||
| shares | (C$) | |||||||
| Unvested as at December 31 2022 | $ | |||||||
| Vested | ( | ) | $ | |||||
| Unvested as at June 30, 2023 | $ | |||||||
| Unvested as at December 31 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Unvested as at June 30, 2024 | $ | |||||||
The vesting of DSU’s during the three and six months ended June 30, 2024, resulted in stock based compensation expense of $ and $, respectively. The vesting of DSU’s during the three and six months ending June 30, 2023, resulted in stock based compensation expense of $ and $, respectively. The fair value of each DSU is $ as of June 30, 2024, and $ as of June 30, 2023.
13. Commitments and Contingencies
As stipulated in the agreement with the EPA and as described in 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.
| 19 |
On July 28, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by Crescent Mining, LLC (“Crescent”). The named defendants include Placer Mining, Robert Hopper Jr., and the Company. The lawsuit alleges that Placer Mining and Robert Hopper Jr. intentionally flooded the Crescent Mine during the period from 1991 and 1994, and that the Company is jointly and severally liable with the other defendants for unspecified past and future costs associated with the presence of Acid Mine Drainage (“AMD”) in the Crescent Mine. The plaintiff has requested unspecified damages. On September 20, 2021, the Company filed a motion to dismiss Crescent’s claims against it, contending that such claims are facially deficient. On March 2, 2022, Chief US District Court Judge, David C. Nye granted in part and denied in part the Company’s motion to dismiss. The court granted the Company’s motion to dismiss Crescent’s Cost Recovery claim under CERCLA Section 107(a), Declaratory Judgment, Tortious Interference, Trespass, Nuisance and Negligence claims. These claims were dismissed without prejudice. The court denied the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass, nuisance and negligence claims. Crescent later filed an amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining Corp are named as co-defendants. Bunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint except those that are assertions of fact as a matter of public record. The Company believes Crescent’s lawsuit is without merit and is vigorously defending itself, as well as Placer Mining Corp. pursuant to the Company’s indemnification of Placer Mining Corp in the Sale and Purchase agreement executed between the companies for the Mine on December 15, 2021. The lawsuit is currently in the discovery phase, in which information is gathered and exchanged.
14. Deferred tax liability
The
Company recorded income tax recovery (expense) of $
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.
15. Operating Expenses
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating expenses | ||||||||||||||||
| General administration expenses | $ | $ | $ | $ | ||||||||||||
| Salaries, wages, and consulting fees | ||||||||||||||||
| Total | ||||||||||||||||
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.
| Three Months
Ended | Three Months
Ended | Six Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Consulting fees & wages | $ | $ | $ | $ | ||||||||||||
At
June 30, 2024 and June 30, 2023, $
17. Subsequent Events
Share Issuance
On July 8, 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 June 30, 2024.
| 20 |
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 300-1055 West Hastings Street Vancouver, British Columbia, V6E 2E9, and its telephone number is 604.417.7952. The Company’s website is www.bunkerhillmining.com. Information appearing on the website is not incorporated by reference into this report.
Overview
The Company’s primary focus is the development and restart of its 100% owned flagship asset, the Bunker Hill mine (the “Bunker Hill Mine” or the “Mine”) in Kellogg, 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 was incorporated for the initial purpose of mineral exploration at the Mine. The Company has moved into the development stage concurrent with (i) purchasing the Mine and a process plant, (ii) completing successive technical and economic studies, including a Prefeasibility Study, (iii) delineating mineral reserves, and (iv) commencing the construction of the facilities required to move into commissioning in December of 2024.
The Company also initiated a resource expansion and exploration drilling program in support of the staged restart plan. This limited and precise program is fully funded within the existing restart budget. The program includes 8,975 feet of core to be drilled from underground to further define and expand the existing resource. The initial drill targets are in close proximity to where the initial mining phase will take place.
| 21 |
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, 2024, and June 30, 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, 2024 and 2023
Revenue
During the three and six months ended June 30, 2024, and 2023, respectively, the Company generated no revenue.
Expenses
During the three months ended June 30, 2024, and 2023, the Company reported total operating expenses of $4,150,114 and $3,336,973, respectively. The increase in total operating expenses was primarily due to increase in the volume of transactions and head count associated with construction of the process plant commencing in the quarter. The company continues to move closer to production.
During the six months ended June 30, 2024, and 2023, the Company reported total operating expenses of $7,937,745 and $5,522,461, respectively. The increase in total operating expenses was primarily due to increase in the volume of transactions and head count associated with construction of the process plant commencing in the six months ended June 30, 2024. The company continues to move closer to production.
Net Income and Comprehensive Income
The Company had net loss of $3,902,404 for the year three months ended June 30, 2024 (compared to net loss of $16,857,782 for the three months ended June 30, 2023). In addition to the increase in operating expenses (as described above), net loss for the three months ended June 30, 2024 was impacted by an increase in interest expense of $788,448 ($2,176,868 and $1,388,420 for the three months ended June 30, 2024 and 2023 respectively), a decrease in financing costs, $nil of financing costs for the three months ended June 30, 2024 compared to $524,130 for the three months ended June 30, 2023 and $nil of gain on debt settlement for the three months ended June 30, 2024 compared to $7,117,420 of gain on debt settlement relating to the conversion of royalty convertible debenture into a royalty during the three months ended June 30, 2023. The loss in the current period is lower than the comparable period because of a decrease in the loss due change in derivative liability of $12,895,159 (loss of $351,402 for the three months ended June 30, 2024 compared to a loss of $13,246,561 for the three months ended June 30, 2023), which was driven by a proportionally greater appreciation in the Company’s share price in Q2 2023 relative to Q2 2024. Additionally, a loss on fair value of the convertible debenture of $498,263 was recognized for the three months ended June 30, 2024, compared to a loss of $1,884,232 for the three months ended June 30, 2023. Additionally, the three months ended June 30, 2024, includes $2,748,000 ($nil for the three months ended June 30, 2023) gain on revaluation of the stream debenture due to updated key assumptions such as commodity prices. Net loss for the three months ending June 30, 2024, includes a deferred tax recovery of $504,798 compared to deferred tax expense of $3,508,741 for the three months ended June 30, 2023.
The Company had a net loss of $9,484,440 for the year six months ended June 30, 2024 (compared to a net loss of $15,066,635 for the six months ended June 30, 2023). In addition to the increase in operating expenses (as described above), net loss for the six months ended June 30, 2024 was impacted by an increase in interest expense of $1,547,554 ($4,260,603 and $2,713,049 for the six months ended June 30, 2024 and 2023 respectively), a decrease in financing costs, $nil of financing costs for the six months ended June 30, 2024 compared to $1,100,881 for the six months ended June 30, 2023 and $nil of gain on debt settlement for the six months ended June 30, 2024 compared to $7,117,420 of gain on debt settlement relating to the conversion of royalty convertible debenture into a royalty during the six months ended June 30, 2023. The loss in the current period is lower than the comparable period because of a decrease in the loss due change in derivative liability of $8,404,642 (loss of $615,345 for the six months ended June 30, 2024 compared to a loss of $9,019,987 for the six months ended June 30, 2023), which was driven by a proportionally greater appreciation in the Company’s share price in first six months of 2023 relative to first six months of 2024. Additionally, the six months ended June 30, 2024, includes $2,531,000 ($nil for the six months ended June 30, 2023) gain on revaluation of the stream debenture due to updated key assumptions such as commodity prices. Net loss for the six months ending June 30, 2024, includes a deferred tax recovery of $1,204,718 compared to deferred tax expense of $3,508,741 for the six months ended June 30, 2023.
| 22 |
The Company had comprehensive loss of $3,426,642 and $8,720,306 for the three and six months ended June 30, 2024, respectively (comprehensive loss of $17,231,197 and $14,633,038 for the month three and six ended June 30, 2023, respectively). Comprehensive (loss) income for the three and six months ended June 30, 2024, is inclusive of a $475,762 and $764,134 gain on change in fair value on own credit risk (loss of $373,415 and income of $433,597 for the three and six months ended June 30, 2023, respectively).
Liquidity and Capital Resources
Current Assets and Total Assets
As of June 30, 2024, the Company had total current assets of $9,624,431, compared to total current assets of $27,176,997 at December 31, 2023 – a decrease of $17,552,566; and total assets of $63,831,898, compared to total assets of $61,989,678 at December 31, 2023 – a increase of $1,842,220. During the six months ended June 30, 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 increased slightly constant as the increase in property plant and equipment was offset mostly by the decrease in cash.
Current Liabilities and Total Liabilities
As of June 30, 2024, the Company had total current liabilities of $18,688,789 and total liabilities of $97,242,585, compared to total current liabilities of $7,472,326 and total liabilities of $88,356,840 at December 31, 2023. Total liabilities increased because of accretion on the stream debenture and environmental protection agency payable as well as an increase in accounts payable and accruals due to timing of invoices and payments.
Working Capital and Shareholders’ Deficit
As of June 30, 2024, the Company had working capital deficit of $9,064,358 and a shareholders’ deficiency of $33,410,687 compared to a working capital of $19,704,671 and a shareholders’ deficiency of $26,367,162 as of December 31, 2023. The working capital balance decreased during the six months ended June 30, 2024, primarily due to cash expenditures on the process plant, purchasing of equipment, and additions to the Bunker Hill Mine. The shareholders’ deficiency increased primarily due to the net loss in the six months ended June 30, 2024.
Cash Flow
During the six months ended June 30, 2024, the Company had a net cash decrease of $18,564,172, primarily due to cash expenditures on the process plant, purchasing of equipment, and additions to the Bunker Hill Mine.
Financing Term Sheet
On June 7, 2024, The Company signed a non-binding term sheet with Monetary Metals & Co. to provide financing in the form of a silver loan (the “Loan”) of up to 1.2 million ounces of silver in support of the re-start and ongoing development of the Bunker Hill Mine. The Loan will be for a term of three years, secured against the Company’s assets and repayable in silver ounces. The Loan will bear interest at the rate of 15% per annum, payable in silver ounces on the last day of each quarterly interest period. The Loan is expected to close in August 2024.
Subsequent Events
AGM Results and Amendments to Equity Compensation Plans
The Company held its Annual General Meeting (the “Meeting”) on June 20, 2024. 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) Pamela Saxton, (v) Paul Smith and (vi) 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”).
| 23 |
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 33,909,921, being 10% of the issued and outstanding Common Shares (on a non-diluted basis as at May 8, 2024.
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.
Share Issuance
On July 8, 2024, the Company issued 4,653,409 shares of common stock in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending June 30, 2024.
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 Obligation and Warrants
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 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.
| 24 |
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 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.
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, 2024.
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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.
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, 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, 2024.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Other than as described below, neither the Company nor its property is the subject of any 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. Bunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint except those that are assertions of fact as a matter of public record. The Company believes Crescent’s lawsuit is without merit and is vigorously defending itself, as well as Placer Mining Corp. pursuant to the Company’s indemnification of Placer Mining Corp in the Sale and Purchase agreement executed between the companies for the Mine on December 15, 2021.
On October 26, 2021, the Company asserted claims against Crescent in a separate lawsuit, 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, in the US 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 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. The Court consolidated the two lawsuits on 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, 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, 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) | |||||||||||||||||||||||||
| Bunker Hill Mine | 3 | 0 | 0 | 0 | 0 | 0 | 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
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Management contract or compensatory plan, contract or arrangement. |
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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: July 30, 2024 | ||
| 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: July 30, 2024 | ||
| BUNKER HILL MINING CORP. | ||
| By | /s/ Gerbrand van Heerden | |
| Gerbrand van Heerden, Chief Financial Officer and Corporate Secretary | ||
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