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 ☐
Number of shares of Common Stock outstanding as of November 13, 2023:
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited 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, 2022.
Bunker Hill Mining Corp.
Unaudited Condensed Interim Consolidated Balance Sheets
(Expressed in United States Dollars)
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | $ | ||||||
Restricted cash | ||||||||
Accounts receivable and prepaid expenses (note 3) | ||||||||
Total current assets | ||||||||
Non-current assets | ||||||||
Spare parts inventory | ||||||||
Equipment (note 4) | ||||||||
Right-of-use asset (note 4) | ||||||||
Long term deposit | ||||||||
Bunker Hill Mine and mining interests (note 5) | ||||||||
Process plant (note 4) | ||||||||
Total assets | $ | $ | ||||||
EQUITY AND LIABILITIES | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued liabilities | ||||||||
Current portion of lease liability | ||||||||
Derivative warrant liability (note 8) | ||||||||
Deferred share units liability (note 10) | ||||||||
Interest payable (note 7) | ||||||||
Promissory notes payable (note 7) | ||||||||
Total current liabilities | ||||||||
Non-current liabilities | ||||||||
Bridge loan (note 7) | ||||||||
Series 1 convertible debenture (note 7) | ||||||||
Series 2 convertible debenture (note 7) | ||||||||
Stream obligation (note 7) | ||||||||
Royalty convertible debenture (note 7) | ||||||||
Environmental protection agency cost recovery liability, net of discount (note 6) | ||||||||
Deferred tax liability (note 12) | ||||||||
Derivative warrant liabilities (note 8) | ||||||||
Total liabilities | ||||||||
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)||||||||
Additional paid-in-capital (note 8) | ||||||||
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.
Unaudited Condensed Interim Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
(Expressed in United States Dollars)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30 | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Operating expenses | ||||||||||||||||
Operation and administration | $ | $ | $ | $ | ||||||||||||
Mine preparation | ||||||||||||||||
Legal and accounting | ||||||||||||||||
Consulting and wages | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income or gain (expense or loss) | ||||||||||||||||
Interest income | ||||||||||||||||
Change in derivative liabilities (note 8) | ( | ) | ||||||||||||||
Gain on FV of debentures (note 7) | ||||||||||||||||
Gain on EPA settlement | ||||||||||||||||
Gain on debt settlement (note 5) | ||||||||||||||||
Gain on warrant settlement | ||||||||||||||||
Interest expense (note 6,7) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Debenture finance costs | ( | ) | ( | ) | ||||||||||||
Finance costs (note 7, 8) | ( | ) | ( | ) | ||||||||||||
Loss on debt modification (note 7) | ( | ) | ||||||||||||||
Loss on debt settlement (note 7) | ( | ) | ||||||||||||||
Other (loss) income | ( | ) | ||||||||||||||
(Loss) on foreign exchange | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
(Loss) income for the period pre tax | $ | $ | $ | ( | ) | $ | ||||||||||
Deferred tax recovery (expense) (note 12) | ( | ) | ||||||||||||||
Net (loss) income for the period | $ | $ | $ | ( | ) | $ | ||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Gain on change in FV on own credit risk | ||||||||||||||||
Other comprehensive income | ||||||||||||||||
Comprehensive (loss) income | $ | $ | $ | ( | ) | $ | ||||||||||
Dilutive effect of derivative warrant liabilities | $ | $ | $ | $ | ||||||||||||
Diluted net (loss) income and comprehensive (loss) income for the period | $ | $ | $ | ( | ) | $ | ||||||||||
Net income (loss) per common share – basic | $ | $ | $ | ( | ) | $ | ||||||||||
Net income (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.
Unaudited Condensed Interim Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
Nine Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2023 | 2022 | |||||||
Operating activities | ||||||||
Net (loss) income for the period | $ | ( | ) | $ | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | ( | ) | ||||||
Depreciation expense | ||||||||
Change in fair value of warrant liability | ( | ) | ||||||
Deferred tax expense | ||||||||
Gain on warrant settlement | ( | ) | ||||||
Units issued for services | ||||||||
Interest expense on lease liability | ||||||||
Interest expense | ||||||||
Financing costs | ||||||||
Foreign exchange loss (gain) | ||||||||
Foreign exchange loss (gain) on re-translation of lease | ||||||||
Loss on debt modification | ||||||||
Loss on debt settlement | ||||||||
Loss (gain) on fair value of debentures | ( | ) | ( | ) | ||||
Accretion of non-current liabilities | ||||||||
Gain on debt settlement | ( | ) | ||||||
Gain on EPA debt settlement | ( | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable and prepaid expenses | ( | ) | ( | ) | ||||
Accounts payable | ( | ) | ||||||
Accrued liabilities | ( | ) | ||||||
Accrued EPA/IDEQ water treatment | ( | ) | ||||||
Prepaid finance costs | ||||||||
Deposit on plant demobilization | ( | ) | ||||||
EPA cost recovery payable | ( | ) | ||||||
Interest payable - EPA | ( | ) | ||||||
Interest payable | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Investing activities | ||||||||
Additions to Bunker Hill Mine and mining interests | ( | ) | ( | ) | ||||
Land purchase | ( | ) | ||||||
Process plant | ( | ) | ( | ) | ||||
Purchase of equipment | ( | ) | ( | ) | ||||
Purchase of spare parts inventory | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Financing activities | ||||||||
Proceeds from stream obligation | ||||||||
Transaction costs stream obligation | ( | ) | ||||||
Proceeds from convertible debentures | ||||||||
Proceeds from issuance of shares, net of issue costs | ||||||||
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 provided by financing activities | ||||||||
Net change in cash | ||||||||
Cash and restricted cash, beginning of period | ||||||||
Cash and restricted cash, end of period | $ | $ | ||||||
Supplemental disclosures | ||||||||
Cash interest paid | $ | $ | ||||||
Non-cash activities | ||||||||
Accounts payable, accrued liabilities, and promissory notes settled with special warrants issuance | $ | $ | ||||||
Mill purchase for shares and warrants | $ | $ | ||||||
Units issued to settle DSU/RSU/Bonuses | $ | $ | ||||||
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.
Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Deficiency
(Expressed in United States Dollars)
Accumulated | ||||||||||||||||||||||||||||
Additional | Stock | other | ||||||||||||||||||||||||||
Common stock | paid-in- | subscriptions | comprehensive | Accumulated | ||||||||||||||||||||||||
Shares | Amount | capital | payable | income | deficit | Total | ||||||||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||||||
Compensation options | - | |||||||||||||||||||||||||||
Shares issued for RSUs vested | ( | ) | ||||||||||||||||||||||||||
Shares issued for warrant exercise | ||||||||||||||||||||||||||||
Shares issued for interest payable | ||||||||||||||||||||||||||||
Special warrant shares issued for $ | CAD||||||||||||||||||||||||||||
OCI | - | |||||||||||||||||||||||||||
Net income (loss) for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
Balance, September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
Stock-based compensation | - | |||||||||||||||||||||||||||
Compensation options | - | |||||||||||||||||||||||||||
Shares issued for interest payable | ||||||||||||||||||||||||||||
Shares issued for RSUs vested | ( | ) | ||||||||||||||||||||||||||
Non brokered shares issued for $ | CAD||||||||||||||||||||||||||||
Stock subscription received for units | - | |||||||||||||||||||||||||||
Special warrant shares issued for $ | CAD( | ) | ||||||||||||||||||||||||||
Contractor shares issued for $ | CAD||||||||||||||||||||||||||||
Shares issued for Mill purchase | ||||||||||||||||||||||||||||
Issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||
Warrant valuation | - | ( | ) | ( | ) | |||||||||||||||||||||||
OCI | - | |||||||||||||||||||||||||||
Net income (loss) for the period | - | |||||||||||||||||||||||||||
Balance, September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
6 |
Bunker Hill Mining Corp.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2023
(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, 2022. The interim results for the period ended September 30, 2023, 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:
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Prepaid expenses and deposits | $ | $ | ||||||
Environment protection agency overpayment (note 6) | ||||||||
Total | $ | $ |
7 |
4. Equipment, Right-of-Use asset, and Process Plant
Equipment consists of the following:
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Equipment | $ | $ | ||||||
Less accumulated depreciation | ( | ) | ( | ) | ||||
Equipment, net | $ | $ |
The
total depreciation expense relating to equipment during the three and nine months ended September 30, 2023, was $
Process Plant
On May 13, 2022, the Company completed the purchase of a package of equipment and parts inventory from Teck Resources Limited’s (“Teck”) Pend Oreille operation. The package comprises substantially all the mineral processing equipment 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 components and parts for the mill, assay lab, conveyer, field instruments, and electrical spares.
The purchase of the mill has been valued at:
- | Cash
consideration given, comprised of $ | |
- | Value
of common shares issued on May 13, 2022 at the market price of that day, a value of $ | |
- | Fair
value of the warrants issued together with the inputs, as determined by a binomial model, resulted in a fair value of $ | |
- | As
a result, the total value of the mill at the time of purchase was determined to be $ |
The process plant was purchased in an assembled state, and included major processing systems, significant components, and a large inventory of spare parts. The Company has disassembled and transported it to the Bunker Hill site, and will be reassembling it as an integral part of the Company’s future operations. The Company determined that the transaction should be accounted for as an asset acquisition, with the process plant representing a single asset, with the exception of the inventory of spare parts, which has been separated out and appears on the balance sheets as a non-current asset in accordance with the purchase price allocation. As the plant is demobilized, transported and reassembled, installation and other costs associated with these activities will be captured and capitalized as components of the asset.
Process plant consists of the following:
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Plant purchase price less inventory | $ | $ | ||||||
Ball mill purchase | ||||||||
Demobilization | ||||||||
Site preparation costs | ||||||||
Process Plant | $ | $ |
On
June 30, 2023, the Company made the final payment of $
8 |
Right-of-use asset consists of the following:
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Loader leases | ||||||||
Loader leases accumulated depreciation | ( | ) | ||||||
Right-of-use asset, net | $ | $ |
The
total depreciation expense during the three and nine months ended September 30, 2023, was $
5. 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.
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 $
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 $
The
Company completed the purchase of the Mine on January 7, 2022. The terms of the purchase price were modified to $
The
$
9 |
The purchase of the mine has been valued on January 7, 2022:
- | Contract
purchase price of $ | |
- | Net
present value of water treatment cost recovery liability assumed of $ | |
- | Capitalized
legal and closing costs of $ | |
- | As
a result, the total value of the mine at the time of purchase was determined to be $ The
Company completed the purchase of the Mine on January 7, 2022. The terms of the purchase price were modified to $ |
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 September 30, 2023, a total of $
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
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 $
The carrying cost of the Mine is comprised of the following:
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Bunker Hill Mine purchase | $ | $ | ||||||
Capitalized development | ||||||||
Sale of mineral properties (note 7) | ( | ) | ||||||
Bunker Hill mine | $ | $ |
Land purchase and lease
On
March 3, 2022, the Company purchased a 225-acre surface land parcel for $
During
the nine months ended September 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 |
6. 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,
US Department of Justice, and the EPA (the “Amended Settlement”). Upon the effectivity of the Amended Settlement, the Company
would become fully compliant with its payment obligations to these parties. The Amended Settlement modified the payment schedule and
payment terms for recovery of the historical environmental 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 included a commitment by the Company to secure $
11 |
The
Company completed the purchase of the Mine (see note 5) and made the initial $
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 $
The
Company recorded accretion expense on the liability of $
Water Treatment Charges – Idaho Department of Environmental Quality
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 $
7. 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 $
12 |
In
June 2023, the Company issued a non-convertible promissory note in the amount of $
At
September 30, 2023, the Company owes $
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 $
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 $
The Company incurred $
$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
13 |
On
June 23, 2023, the funding date of the Stream, the RCD was repaid by the Company granting a royalty for 1.85% of life-of-mine gross
revenue (the “Royalty”) from mining claims historically worked as described above. A 1.35% rate will apply to claims
outside of these areas. The Company recorded a gain on sale of mineral properties of $
$6,000,000 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 SRSR 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 $
Concurrent
with the funding of the Stream in June 2023, the Company and SRSR agreed to amend the maturity date of the CD2 from 3 quarterly payments
of $
The Company determined that in accordance with ASC 815 derivatives and hedging, each debenture will be valued and carried as a single instrument, with the periodic changes to fair value accounted through earnings, profit and loss.
14 |
Consistent with the approach above, the following table summarizes the key valuation inputs as at applicable valuation dates:
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) | % | % | % | % | % | ||||||||||||||||||||||||
RCD note | % | % | % | % | % | ||||||||||||||||||||||||
CD2 note(3) | % | % | % | % | % | ||||||||||||||||||||||||
CD1 note(3) | % | % | % | % | % | ||||||||||||||||||||||||
RCD note(5) | % | % | % | % | % | ||||||||||||||||||||||||
CD2 note(3) | % | % | % | % | % | ||||||||||||||||||||||||
RCD note | % | % | % | % | % | ||||||||||||||||||||||||
CD1 note(3) | % | % | % | % | % | ||||||||||||||||||||||||
CD2 note(3) | % | % | % | % | % | ||||||||||||||||||||||||
CD1 note(3) | % | % | % | % | % | ||||||||||||||||||||||||
CD2 note(3) | % | % | % | % | % |
(1) | The
CD1 carried a Discount for Lack of Marketability (“DLOM”) of | |
(2) | ||
(3) | ||
(4) | ||
(5) |
The resulting fair values of the CD1, RCD, and CD2 at September 30, 2023, and as of December 31, 2022, were as follows:
Instrument Description | September 30, 2023 | December 31, 2022 | ||||||
CD1 | $ | $ | ||||||
RCD | ||||||||
CD2 | ||||||||
Total | $ | $ |
15 |
The
total gain on fair value of debentures recognized during the three and nine months ended September 30, 2023 was $
The Company performs quarterly testing of the covenants in the CD1 and CD2 and was in compliance with all such covenants as of September 30, 2023.
$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 $
$46,000,000 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 unaudited condensed interim consolidated statements of income.
The
Company determined the effective interest rate of the Stream obligation to be
16 |
$21,000,000 Debt Facility
On
June 23, 2023 the Company closed a $
8. 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
April 2022, the Company closed a private placement of
The Special Warrants were issued at a price of C$ per special warrant. Each Special Warrant shall be automatically exercisable (without payment of any further consideration and subject to customary anti-dilution adjustments) into one unit of the Company (a “Brokered Unit”) on the date that is the earlier of: (i) the date that is three (3) business days following the date on which the Company has obtained both (A) a receipt from the Canadian security commission in each of the each of the provinces of Canada which the purchasers and Agents (as defined herein) are residents where the Special Warrants are sold (the “Qualifying Jurisdictions”) for a (final) short-form prospectus qualifying the distribution of the common stock of the Company (“Common Shares”) and common stock purchase warrants of the Company (the “Warrants”) issuable upon exercise of the Special Warrants (the “Qualification Prospectus”); and (B) notification that the registration statement, under U.S. securities laws, of the Company filed with the United States Securities and Exchange Commission (the “SEC”) has been declared effective by the SEC (the “Registration Statement”); and (ii) the date that is six months following April 1, 2022 (the “Closing Date”). Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one common share for C$ until April 1, 2025. The warrants shall also be exercisable on a cashless basis in the event the Registration Statement has not been made effective by the SEC prior to the date of exercise.
On May 31, 2022, the Company announced that it had received a receipt from the Ontario Securities Commission for its final short-form Canadian prospectus qualifying the distribution of the common stock of the Company and common stock purchase warrants of the Company issuable upon exercise of the special warrants of the Company that were issued on April 1, 2022. The Company also announced that it received notice from the United States Securities and Exchange Commission that its Form S-1 has been declared effective as of May 27, 2022. As a result of obtaining the receipt for the Canadian prospectus and the declaration of effectiveness for the Form S-1, each unexercised Special Warrant was automatically exercised into one Common Share and one Warrant without further action on the part of the holders.
The non-brokered units were issued at a price of C$ per unit. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$ until April 1, 2025.
In
connection with the special warrants offering, the agents earned a cash commission in the amount of C$
17 |
In April 2022, the Company issued common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ended March 31, 2022.
In May 2022, the Company issued units to Teck Resources Limited in consideration towards the purchase of the Pend Oreille Processing Plant at C$ per unit. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$ until May 13, 2025.
In June 2022, the Company issued units to contractors for bonuses accrued during the three months ended March 31, 2022. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$ until April 1, 2025.
In July 2022, the Company issued common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ended June 30, 2022.
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 (the “March 2023 Offering”), issuing
18 |
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 Common Shares 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 common shares and common stock purchase warrants are issued.
The fair value of the Special Warrant is determined through the valuation 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.
Consistent with the approach above, the following table summarizes the key valuation inputs as at applicable valuation dates:
March 2023 special warrants | Conversion | Grant Date | ||||||
Expected life | | |||||||
Volatility | % | % | ||||||
Risk free interest rate | % | % | ||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value of March 2023 Unit | $ | $ | ||||||
Change in derivative liability | $ | |||||||
Common Stock | $ | |||||||
Warrant | $ |
For prior financings, excluding the March 2023 Special Warrants, the Company has accounted for warrants in accordance with ASC 815 derivatives and hedging. The warrants are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the United States Dollars. 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 unaudited condensed interim consolidated statements of income (loss) and comprehensive (loss) income 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 outstanding warrants during the period were estimated using the Binomial model to determine the fair value using the following assumptions as at September 30, 2023 and December 31, 2022:
March 2023 warrants | September 30, 2023 | Grant Date | ||||||
Expected life | | |||||||
Volatility | % | |||||||
Risk free interest rate | % | |||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
April 2022 special warrants issuance | September 30, 2023 | December 31, 2022 | ||||||
Expected life | ||||||||
Volatility | % | % | ||||||
Risk free interest rate | % | % | ||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
April 2022 non-brokered issuance | September 30, 2023 | December 31, 2022 | ||||||
Expected life | ||||||||
Volatility | % | % | ||||||
Risk free interest rate | % | % | ||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
19 |
June 2022 issuance | September 30, 2023 | December 31, 2022 | ||||||
Expected life | ||||||||
Volatility | % | % | ||||||
Risk free interest rate | % | % | ||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
February 2021 issuance | September 30, 2023 | December 31, 2022 | ||||||
Expected life | days | |||||||
Volatility | % | % | ||||||
Risk free interest rate | % | % | ||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
August 2020 issuance | September 30, 2023 | December 31, 2022 | ||||||
Expected life | ||||||||
Volatility | % | |||||||
Risk free interest rate | % | |||||||
Dividend yield | % | |||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
June 2019 issuance | September 30, 2023 | December 31, 2022 | ||||||
Expected life | days | |||||||
Volatility | % | % | ||||||
Risk free interest rate | % | % | ||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
August 2019 issuance | September 30, 2023 | December 31, 2022 | ||||||
Expected life | days | |||||||
Volatility | % | % | ||||||
Risk free interest rate | % | % | ||||||
Dividend yield | % | % | ||||||
Share price (C$) | $ | $ | ||||||
Fair value | $ | $ | ||||||
Change in derivative liability | $ | ( | ) |
20 |
Outstanding warrants at September 30, 2023 and September 30, 2022 were as follows:
Weighted | Weighted | |||||||||||
average | average | |||||||||||
Number of | exercise price | grant date | ||||||||||
warrants | (C$) | value ($) | ||||||||||
Balance, December 31, 2021 | $ | $ | ||||||||||
Issued | ||||||||||||
Expired | ( | ) | ||||||||||
Balance, September 30, 2022 | ||||||||||||
Balance, December 31, 2022 | $ | $ | ||||||||||
Issued | ||||||||||||
Expired | ( | ) | ||||||||||
Exercised | ( | ) | ||||||||||
Balance, September 30, 2023 | $ | $ |
At September 30, 2023, the following warrants were outstanding:
Exercise | Number of | Number of warrants | ||||||||||
Expiry date | price (C$) | warrants | exercisable | |||||||||
Compensation options
At September 30, 2023, the following broker options were outstanding:
Weighted | ||||||||
Number of | average | |||||||
broker | exercise price | |||||||
options | (C$) | |||||||
Balance, December 31, 2021 | ||||||||
Issued – April 2022 Compensation Options (i) | ||||||||
Balance, December 31, 2022 | $ | |||||||
Issued – March 2023 Compensation Options (ii) | ||||||||
Expired – August 2020 Compensation Options | ( | ) | ||||||
Balance, September 30, 2023 |
21 |
(i) | The grant date fair value of the April 2022 Compensation Options were estimated at $ | using the Black-Scholes valuation model with the following underlying assumptions:
Grant Date | Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | |||||||||||||||
April 2022 | % | % | % | C$ |
(ii) | The grant date fair value of the March 2023 Compensation Options were estimated at $ using the Black-Scholes valuation model with the following underlying assumptions: |
Grant Date | Risk free interest rate | Dividend yield | Volatility | Stock price | Weighted average life | |||||||||||||||
March 2023 | % | % | % | C$ |
Exercise | Number of | Grant date Fair value | ||||||||||
Expiry date | price (C$) | broker options | ($) | |||||||||
$ | $ | |||||||||||
$ | $ | |||||||||||
$ | $ | |||||||||||
$ |
i) | |
ii) | |
iii) |
Stock options
Weighted | ||||||||
average | ||||||||
Number of | exercise price | |||||||
stock options | (C$) | |||||||
Balance, December 31, 2021 | $ | |||||||
Granted (i) | $ | |||||||
Expired, May 1, 2022 | ( | ) | $ | |||||
Forfeited | ( | ) | $ | |||||
Expired, December 31, 2022 | ( | ) | $ | |||||
Balance, December 31, 2022 | $ | |||||||
Expired, September 30, 2023 | ( | ) | $ | |||||
Balance, September 30, 2023 | $ |
(i) |
Number of | ||||||||||||||||
remaining | Number of | options | Grant date | |||||||||||||
Exercise | contractual | options | vested | fair value | ||||||||||||
price (C$) | life (years) | outstanding | (exercisable) | ($) | ||||||||||||
$ |
22 |
The vesting of stock options during the three and nine months ending September 30, 2023, resulted in stock based compensation expenses of $ and $ respectively ($ and $ for the three and nine months ending September 30, 2022, 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, 2021 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Unvested as at December 31, 2022 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Unvested as at September 30, 2023 | $ |
(i) | On January 10, 2022, the Company granted RSUs to a consultant of the Company, vested immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the six months ended June 30, 2022, which is included in operation and administration expenses on the unaudited condensed consolidated statements of (loss) income and comprehensive (loss) income. | |
(ii)
|
On April 29, 2022, the Company granted RSUs to certain consultants of the Company, vested immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the year ended December, 2022, which is included in operation and administration expenses on the consolidated statements of (loss) income and comprehensive (loss) income. | |
(iii)
|
On June 30, 2022, the Company granted RSUs to a consultant of the Company, vested immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the year ended December 31, 2022, which is included in operation and administration expenses on the consolidated statements of (loss) income and comprehensive (loss) income. | |
(iv) | On September 29, 2022 the Company granted RSUs to two consultants of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based compensation of $for the nine months ended September 30, 2022, which is included in operation and administration expenses on the unaudited condensed interim consolidated statements of income (loss) and comprehensive (loss) income. | |
(v) | On June 1, 2023, the Company granted RSUs to executives and employees of the Company, vested immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the nine months ended September 30, 2023, which is included in operation and administration expenses on the consolidated statements of (loss) income and comprehensive (loss) income. | |
(vi) | On June 4, 2023, the Company granted RSUs to a consultant of the Company, vested immediately. The vesting of these RSUs resulted in stock-based compensation of $ for the nine months ended September 30, 2023, which is included in operation and administration expenses on the consolidated statements of (loss) income and comprehensive (loss) income.
| |
(vii) | On July 4, 2023, the Company granted RSUs to executives and employees of the Company, which vest in one-third increments on March 31 of 2024, 2025 and 2026. The vesting of these RSUs resulted in stock-based compensation of $ for the nine months ended September 30, 2023, which is included in operation and administration expenses on the consolidated statements of (loss) income and comprehensive (loss) income. |
The vesting of RSU’s during the three and nine months ending September 30, 2023, resulted in stock based compensation expense of $ and $ respectively ($ and $ for the three and nine months ending September 30, 2022, respectively).
23 |
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, 2021 | $ | |||||||
Vested (i) | ( | ) | ||||||
Unvested as at December 31, 2022 | ||||||||
Granted (ii, iii) | ||||||||
Vested (iv, v) | ( | ) | ||||||
Unvested as at September 30, 2023 | $ |
(i) | |
(ii) | |
(iii) | |
(iv) | |
(v) |
The vesting of DSU’s during the three and nine months ending September 30, 2023, resulted in stock based compensation recovery (expense) of $ and ($ ), respectively (stock based recovery of $ and $ for the three and nine months ending September 30, 2022, respectively).
11. Commitments and Contingencies
As stipulated in the agreement with the EPA and as described in Note 6, the Company is required to make two types of payments to the EPA and IDEQ, one for historical water treatment cost-recovery to the EPA, and the other for ongoing water treatment. Water treatment costs incurred through December 2021 are payable to the EPA, and water treatment costs incurred thereafter are payable to the IDEQ. The IDEQ (as done formerly by the EPA) invoices the Company on an annual basis for the actual water treatment costs, which may exceed the recognized estimated costs significantly. When the Company receives the water treatment invoices, it records any liability for actual costs over and above any estimates made and adjusts future estimates as required based on these actual invoices received. The Company is required to pay for the actual costs regardless of the periodic required estimated accruals and payments made each year.
24 |
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 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 Company 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 the lawsuit against Placer Mining Corp. is without merit and intends to defend 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.
During
the nine months ended September 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 $
12. Deferred tax liability
The
Company incurred 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.
13. 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 | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Consulting fees & wages | $ | $ | $ | $ |
At
September 30, 2023 and September 30, 2022, $ and $
14. Subsequent Events
In October 2023, the Company issued
25 |
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.
Background and Overview
The Company’s sole focus is the development and restart of its 100% owned Bunker Hill mine (the “Mine”) in Idaho, US The Mine remains the largest single producing mine by tonnage in the Silver Valley region of northwest Idaho, producing over 165 million ounces of silver and 5 million tons of base metals between 1885 and 1981. The Mine is located within Operable Unit 2 of the Bunker Hill Superfund site (EPA National Priorities Listing IDD048340921), where cleanup activities have been completed.
The Company purchased the Mine on January 7, 2022 for $5,400,000 in cash. 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.
26 |
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 and a Prefeasibility Study envisaging the restart 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.
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 nine months ended September 30, 2023, and September 30, 2022. Unless otherwise stated, all figures herein are expressed in United States Dollars, which is the Company’s functional currency.
Comparison of the three and nine months ended September 30, 2023, and 2022
Revenue
During the three and nine months ended September 30, 2023, and 2022, respectively, the Company generated no revenue.
Expenses
During the three and nine months ended September 30, 2023, the Company reported total operating expenses of $2,771,722 and $8,294,183, respectively (total operating expenses of $3,824,948 and $13,291,484 for the three and nine months ending September 30, 2022, respectively).
The decrease in total operating expenses was primarily due to (i) a decrease in mine preparation expenses of $2,533,101, and $6,861,403 (ii) a decrease in consulting and wages expenses of $132,774 and $2,355,473 (iii) partially offset by an increase in operation and admin expenses of $1,379,974 and $3,827,267 for the three and nine months ending, respectively. Mine preparation expenses were $nil in the nine months ended September 30, 2023, primarily as a result of the Company determining that costs directly attributed to the mine after 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 consulting and wages expenses was impacted by a lower volume of transactions and a lower bonus accrual in the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022. Operation and admin expenses increased due to increased activities at site.
27 |
Net (Loss) Income and Comprehensive (Loss) Income
The Company had net income of $7,447,860 for the three months ended September 30, 2023 ($3,690,353 for the three months ended September 30, 2022). Offsetting the decrease in operating expenses (as described above), net loss in the three months ended September 30, 2023 was impacted by an increase in interest income of $476,397 ($nil for three months ending September 30, 2022) an increase in the gain recorded due to change in derivative liability of $1,216,469 ($8,513,630 and $7,315,161 for the three months ended September 30, 2023 and 2022 respectively) and an increase in the gain recorded due to change in convertible debentures of $1,149,899 ($2,450,968 and $1,301,069 for the three months ended September 30, 2023 and 2023 respectively). Both changes in fair value were driven by a proportionally greater decline in the Company’s share price for the three months ending September 30, 2023, relative to the decline in share price in the three months ending September 30, 2022. Net loss for the three months ending September 30, 2023, includes a deferred tax recovery of $903,000 compared to $nil for the three months ending September 30, 2022. Partially offset by an increase in interest expense of $1,267,410 ($2,293,643 and 1,026,233 for the three months ended September 2023 and 2022 respectively).
The Company had net loss of $7,618,775 for the nine months ended September 30, 2023 (net income of $12,864,248 for the nine months ended September 30, 2022). Offsetting the decrease in operating expenses (as described above), net loss in the nine months ended September 30, 2023 a decrease in the gain recorded due to change in derivative liability of $19,026,737 (loss of $488,357 and gain of $18,538,380 for the nine months ended September 30, 2023 and 2022 respectively) and a decrease in the gain recorded due to change in convertible debentures of $784,619 ($2,256,437 and $3,041,056 for the three months ended September 30, 2023 and 2023 respectively). Both changes in fair value were driven by a proportionally smaller decline in the Company’s share price for the nine months ending September 30, 2023, relative to the decline in share price in the three months ending September 30, 2022. The change in net loss was further impacted by a decrease of $1,496,683 gain on extinguishment in debt in the nine months ending September 30, 2023, compared to the nine months ending September 30, 2022. A gain of $7,117,420 was recognized in the nine months ending September 30, 2023, relating to the sale of mineral properties, compared with a $8,614,103 gain on EPA settlement in the nine months ending September 30, 2022. The decrease in net income was further increased by a higher interest expense in the nine months ending September 30, 2023 ($5,006,692) compared to the nine months ending September 30, 2022 (2,143,840). Net loss for the nine months ending September 30, 2023, also included the initial recognition of a deferred tax liability and corresponding deferred tax expense relating to the closing of the stream transaction ($2,605,741 for the nine months ending September 30, 2023, compared to $nil for the nine months ending September 30, 2022). The decrease in net income was partially offset by an increase in interest income of $707,530 ($nil for three months ending September 30, 2022).
The Company had comprehensive income (loss) of $7,516,598 and ($7,116,440) for the three and nine months ended September 30, 2023, respectively (comprehensive income of $4,315,403 and $13,860,884 for the three and nine months ended September 30, 2022, respectively). Comprehensive (loss) income for the three and nine months ended September 30, 2023, is inclusive of a $68,738 and $502,335 gain on change in fair value on own credit risk ($625,050 and $996,636 for the three and nine months ended September 30, 2022, respectively).
Liquidity and Capital Resources
Current Assets and Total Assets
As of September 30, 2023, the Company had total current assets of $35,521,813, compared to total current assets of $7,741,052 at December 31, 2022 – an increase of $27,780,761; and total assets of $65,164,122, compared to total assets of $32,929,892 at December 31, 2022 – an increase of $32,234,230. The increase in current assets and total assets was primarily due to the closing of the $46,000,000 Stream, net of repayment of the $5,000,000 Bridge Loan and transaction related costs.
Current Liabilities and Total Liabilities
As of September 30, 2023, the Company had total current liabilities of $5,122,137 and total liabilities of $86,356,025, compared to total current liabilities of $10,155,582 and total liabilities of $59,106,835 at December 31, 2022. Current liabilities decreased primarily as a result of the partial repayment of the promissory note, and settlement of accounts payable and accrued liabilities from the proceeds of the Stream. Total liabilities increased primarily as a result of closing of the $46,000,000 Stream and recognition of deferred tax liability, partially offset by a decrease in the carrying values of CD1 and CD2 as well as the settlement of the RCD and the bridge loan.
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Working Capital and Shareholders’ Deficit
As of September 30, 2023, the Company had a working capital balance of $30,399,676 and a shareholders’ deficiency of $21,191,903 compared to a working capital deficit of $2,414,530 and a shareholders’ deficiency of $26,176,943 as of December 31, 2022. The working capital balance increased during the nine months ended September 30, 2023, primarily due to cash received from closing of 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. The shareholders’ deficiency decreased due to net loss for the nine months ended September 30, 2023, partially offset by an increase due to proceeds received from equity financing in the nine months ended September 30, 2023.
Cash Flow
During the nine months ended September 30, 2023, the Company had a net cash increase of $27,652,390, primarily due to the closing of a brokered private placement of special warrants of the Company and proceeds received from the exercise of warrants and closing of the Stream agreement with SRSR. Cash expenditures during the nine months ended September 30, 2023, were primarily related to working capital requirements.
Subsequent Events
In October 2023, the Company issued 5,175,000 common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ended September 30, 2023.
Critical accounting estimates
The preparation of the interim unaudited 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 common share, 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.
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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.
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 September 30, 2023.
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.
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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, 2023 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 September 30, 2023.
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 Company 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 the lawsuit against Placer Mining Corp. is without merit and intends to defend 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. Bunker Hill Mining Corporation v. Venzee Technologies Inc. et al, Case No. 2:21-cv-209-REP, filed in the same court on May 14, 2021. The Company has subsequently executed a tolling agreement with Venzee in exchange for dropping its lawsuit. The Company originally filed this lawsuit on May 14, 2021 against other parties but has since filed an amended complaint to include its claims against Crescent. This lawsuit has been consolidated into the lawsuit Crescent filed on July 28, 2021.
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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.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
Not Applicable.
Item 3. Defaults upon Senior Securities
None.
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 September 30, 2023.
Mine | Mine Act §104 Violations (1) | Mine Act §104(b) Orders (2) | Mine Act §104(d) Citations and Orders (3) | Mine Act §110(b)(2) Violations (4) | Mine Act §107(a) Orders (5) | Proposed Assessments from MSHA (In dollars $) | Mining Related Fatalities | Mine Act §104(e) Notice (yes/no) (6) | Pending Legal Action before Federal Mine Safety and Health Review Commission (yes/no) | |||||||||||||||||||||||
Bunker Hill Mine | 0 | 0 | 0 | 0 | 0 | 0 | 0 | No | No |
(1) | The total number of violations received from MSHA under §104 of the Mine Act, which includes citations for health or safety standards that could significantly and substantially contribute to a serious injury if left unabated. |
(2) | The total number of orders issued by MSHA under §104(b) of the Mine Act, which represents a failure to abate a citation under §104(a) within the period of time prescribed by MSHA. |
(3) | The total number of citations and orders issued by MSHA under §104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards. |
(4) | The total number of flagrant violations issued by MSHA under §110(b)(2) of the Mine Act. |
(5) | The total number of orders issued by MSHA under §107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed. |
(6) | A written notice from the MSHA regarding a pattern of violations, or a potential to have such pattern under §104(e) of the Mine Act. |
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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: November 13, 2023 | ||
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: November 13, 2023 | ||
BUNKER HILL MINING CORP. | ||
By | /s/ Gerbrand Van Heerden | |
Gerbrand Van Heerden, Chief Financial Officer and Corporate Secretary |
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