ITEM 1A. RISK FACTORS 9
ITEM 1B. UNRESOLVED STAFF COMMENTS 19
ITEM 2. PROPERTIES 19
ITEM 3. LEGAL PROCEEDINGS 30
ITEM 4. MINE SAFETY DISCLOSURES 30
ITEM 6. SELECTED FINANCIAL DATA 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
ITEM 9A. CONTROLS AND PROCEDURES 68
ITEM 9B. OTHER INFORMATION 69
PART III 70
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 70
ITEM 11. EXECUTIVE COMPENSATION 71
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 79
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 80
SIGNATURES 81
PART
I
ITEM
1. BUSINESS
Change
in Fiscal Year End
On February 12, 2021, the Company’s Board of Directors (the “Board”)
approved a change in our fiscal year end from the last day of June to a calendar fiscal year ending on the last day of December of each
year, effective January 1, 2021. In this report, references to “fiscal year” refer to years ending December 31, 2021 and June
30, 2020. References in this report to the “transition period” refer to the six-month period ended December 31, 2020.
Our
Business
The Company was incorporated for the purpose
of engaging in mineral exploration and development activities. The Company’s sole focus is the Bunker Hill mine (the “Mine”),
as described below.
On
August 28, 2017, the Company announced that it signed a definitive agreement with Placer Mining Corporation (“Placer Mining”),
the current owner of the Mine, for the lease and option to purchase the Mine in Idaho (the “Lease and Option Agreement”).
The
Mine remains the largest single producing mine by tonnage in the Coeur d’Alene lead, zinc and silver mining district in Northern
Idaho. Historically and according to the Bunker Hill Mines Annual Report 1980, the Mine produced over 35,000,000 tonnes of ore grading
on average 8.76% lead, 3.67% zinc, and 155 g/t silver. The Mine is the Company’s only focus, with a view to raising capital to
rehabilitate the mine and put it back into production.
On
November 1, 2019, the Lease and Option Agreement was amended (the “Amended Agreement”). Under the terms of the Amended Agreement,
the Company has an option to purchase the marketable assets of the Mine for a purchase price of $11,000,000 at any time prior to the
expiration of the Amended Agreement, payable $6,200,000 in cash, and $4,800,000 in unregistered Common Shares of the Company (calculated
using the market price at the time of exercise of the purchase option). Upon signing the Amended Agreement, the Company paid a one-time,
non-refundable cash payment of $300,000 to Placer Mining. This payment will be applied to the cash portion of the purchase price upon
execution of the purchase option. In the event the Company elects not to exercise the purchase option, the payment shall be treated as
an additional care and maintenance payment. An additional term of the Amended Agreement provides for the elimination of all royalty payments
that were to be paid to Placer Mining.
Under
the terms of the Amended Agreement, during the term of the lease, the Company must make care and maintenance payments in the amount of
$60,000 monthly plus other expenses, i.e. taxes, utilities and mine rescue payments.
On
July 27, 2020, the Company announced that it secured, for a $150,000 cash payment, a further extension to the Lease and Option, Amended
and Extension Agreements to purchase the Mine from Placer Mining (the “Second Extension”). The Second Extension is for a
further 18 months and is in addition to the 6-month extension. This Second Extension expires on August 1, 2022. This Second Extension
provides the Company with more time to invest the proceeds of the ongoing financing in ways that compile and digitize fully over 95 years
of historical and geological data, verify the historical reserves, and explore the high-grade silver targets within the Mine complex.
On
November 20, 2020 the Company successfully renegotiated the Amended Agreement. Under the new terms, the purchase price has been decreased
from $11,000,000 to $7,700,000, with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price
of the Mine as having been previously paid by the Company and an aggregate of $5,400,000 payable in cash outstanding) and $2,000,000
in Common Shares of the Company. The reference price for the payment in Common Shares will be based on the share price of the last equity
raise before the option is exercised. The Company will continue to make a monthly care and maintenance payment of $60,000 to the Lessor
in return for on-going technical support to the Company. Under this amendment to the Amended Agreement, the Company’s contingent
obligation to settle $1,787,300 of accrued payments due to the Lessor has been waived. Further, under the amendment to the Amended Agreement,
the Company is to make an advance payment of $2,000,000 to Placer Mining, which shall be credited toward the purchase price of the Mine
when the Company elects to exercise its purchase right. In the event that the Company irrevocably elects not to exercise its purchase
right, the advance payment of $2,000,000 will be repaid to the Company within twelve months from the date of such election. The Company
made this advance payment, which had the effect of decreasing the remaining amount payable to purchase the Mine to an aggregate of $3,400,000
payable in cash and $2,000,000 in Common Shares of the Company.
As a part of the purchase price, the Amended Agreement
also requires 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 will make payments to the EPA on behalf of Placer Mining in satisfaction
of the EPA’s claim for cost recovery. These payments, if all are made, will total $20,000,000. The agreement calls for payments
starting with $1,000,000 30 days after a fully ratified agreement was signed (which payment was made) followed by $2,000,000 on November
1, 2018 and $3,000,000 on each of the next 5 anniversaries with a final $2,000,000 payment on November 1, 2024. In addition to these
payments, the Company is to make semi-annual payments of $480,000 on June 1 and December 1 of each year, to cover the EPA’s estimated
costs of maintaining and treating water at the water treatment facility with a true-up to be paid by the Company once the actual costs
are determined. The November 1, 2018, December 1, 2018, June 1, 2019, November 1, 2019, November 1, 2020, and November 1, 2021
payments were not made, and the Company engaged in discussions with the EPA in an effort to reschedule these payments in ways
that enable the sustainable operation of the Mine as a viable long-term business.
On December 20, 2021, the Company announced the execution of a non-binding
term sheet outlining a $50,000,000 non-dilutive project finance package, the execution of a settlement agreement amendment with the EPA,
and the execution of an agreement to purchase of the Bunker Hill Mine.
The non-binding term sheet with Sprott Private Resource
Streaming and Royalty Corp. (“SRSR”) and other investors outlined a $50,000,000 project financing package that
the Company expects to fulfill the majority of its funding requirements to restart the Bunker Hill Mine. The financing package consisted
of a $8,000,000 royalty convertible debenture (the “Royalty Convertible Debenture”), a $5,000,000 (increased to $6,000,000)
convertible debenture (the “Convertible Debenture”), and a multi-metals stream of up to $37,000,000 (the “Stream”,
together with the Royalty Convertible Debenture and the Convertible Debenture, the “Project Financing Package”). The
closing for Royalty Convertible Debenture, the Convertible Debenture and the Stream are conditional on a number of matters, including
the finalization of definitive documentation, regulatory and stock exchange approvals, and closing of the purchase of Bunker Hill Mine.
The Company consummated the $8,000,000 the Royalty
Convertible Debenture in January 2022. The Royalty Convertible Debenture will initially bear interest at an annual rate of 9.0% payable
in cash or Common Shares at the Company’s option, until such time that SRSR elects to convert a royalty, with such conversion option
expiring at the earlier of advancement of the Stream or 18 months. In the event of conversion, the Royalty Convertible Debenture will
cease to exist and the Company will grant a royalty for 1.85% of life-of-mine gross revenue from mining claims considered to be historically
worked, contiguous to current accessible underground development, and covered by the Company’s 2021 ground geophysical survey (the
“SRSR Royalty”). A 1.35% rate will apply to claims outside of these areas. The Royalty Convertible Debenture will
initially be secured by a share pledge of the Company’s operating subsidiary, Silver Valley, until such time that a full security
package is put in place. In the event of non-conversion, the principal of the Royalty Convertible Debenture will be repayable in cash.
The Company also consummated the $6,000,000 Convertible
Debenture in January 2022, which was increased from a previously-announced $5,000,000. The
Convertible Debenture will initially bear interest at an annual rate of 7.5%, payable in cash or shares at the Company’s option,
and a maturity of 18 months from the closing of the Royalty Convertible Debenture. Until the closing of the Stream, the Convertible Debenture
is convertible into Common Shares at a price of C$0.30 per Common Share, subject to stock exchange approval. Alternatively, SRSR may
elect to retire the Convertible Debenture with the cash proceeds from the Stream. The Company may elect to repay the Convertible Debenture
early; if SRSR elects not to exercise its conversion option at such time, a minimum of 12 months of interest would apply.
Subject to SRSR internal approvals, further technical
and other diligence, and satisfactory definitive documentation, the Company expects to close the Stream concurrent with a formal construction
decision being made by the end of Q2 2022. A minimum of $27,000,000 and a maximum of $37,000,000 (the “Stream Amount”)
will be made available under the Stream, at the Company’s option, once the conditions of availability of the Stream have been satisfied.
Assuming the maximum funding of $37,000,000 is drawn, the Stream would apply to 10% of payable metals sold until a minimum quantity of
metal is delivered consisting of, individually, 55 million pounds of zinc, 35 million pounds of lead, and 1 million ounces of silver.
Thereafter, the Stream would apply to 2% of payable metals sold. If the Company elects to draw less than $37,000,000 under the Stream,
the percentage and quantities of payable metals streamed will adjust pro-rata. The delivery price of streamed metals will be 20% of the
applicable spot price.
The Company may buy back 50% of the Stream Amount
at a 1.40x multiple of the Stream Amount between the second and third anniversary of the date of funding, and at a 1.65x multiple of
the Stream Amount between the third and fourth anniversary of the date of funding. The Company will be permitted to incur additional
indebtedness of $15,000,000 and a cost over-run facility of $13,000,000 from other financing counterparties.
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 entering the Amended Settlement, the Company is now fully compliant with its
payment obligations to these parties. The Amended Settlement modifies the payment schedule and payment terms for recovery of historical
environmental response costs at Bunker Hill Mine by the EPA. A total of $19,000,000 remains to be paid by the Company. The new payment
schedule includes a $2,000,000 payment to the EPA within 30 days of the execution of this Amended Settlement. The remaining $17,000,000
will be paid on the following dates:
Date Amount
The Amended Settlement includes additional payment
for outstanding water treatment costs that have been incurred over the period from 2018 through 2020. This $2,900,000 payment will be
made within 90 days of execution of this Amended Settlement.
In addition to the changes in payment terms and
schedule, the Company has committed to securing financial assurance in the form of performance bonds or letters of credit deemed acceptable
to the EPA. The financial assurance will total $17,000,000, corresponding to the Company’s obligations to be paid in the 2024-2029
period as outlined above, that can be drawn on by the EPA in the event of non-performance by the Company (the “Financial Assurance”).
The amount of the bonds will decrease over time as individual payments are made. If the Company does not post the Financial Assurance
within 90 days of execution of the Amended Settlement, it must issue an irrevocable letter of credit for $9,000,000. The EPA may draw
on this letter of credit after an additional 90 days if the Company is unable to either put the Financial Assurance in place or make
payment for the full $17,000,000 of remaining historical cost recovery sums. In the event neither occurs, the terms of the initial Settlement
Agreement will be reinstated. On March 22, 2022, the Company reported that in consultation with the EPA, it has committed to meet the
$2,900,000 payment and Financial Assurance obligations by 180 days from the effective date of the Amended Settlement Agreement.
On January 10, 2022, the Company announced that
following the approval of the transaction by Placer Mining Corp. shareholders and satisfaction of other closing conditions, the purchase
of the Bunker Hill Mine closed on January 7, 2022. The terms of the purchase were modified to $5,400,000 in cash, from $3,400,000 of
cash and $2,000,000 of Common Shares. Concurrently, the Royalty Convertible Debenture in the amount of $8,000,000 also closed as definitive
documentation and all closing conditions were met.
On January 31, 2022, the Company announced that
following the satisfaction of all closing conditions, including completion of definitive documentation and a full security package, the
Convertible Debenture closed on January 28, 2022. The parties agreed to amend the funding to $6,000,000, an increase of $1,000,000 from
the previously envisaged amount of $5,000,000, reflecting increased demand from Sprott and other investors. The terms of the Convertible
Debenture are unchanged from the Company’s news release of December 20, 2021 as described above.
On March 9, 2022, the Company announced a private
placement of up to C$15,000,000 of special warrants of the Company (the “Special Warrants”). The Company intends to use the
net proceeds of the offering to fund the restart and development of the Mine, outstanding obligations to the EPA, and for general corporate
purposes.
In support of plans to rapidly restart the Mine,
the Company worked systematically through 2020 and 2021 to delineate mineral resources and conduct various technical studies. If successful
in closing the Stream, together with securing additional financing requirements, which may include additional indebtedness of $15,000,000
and a cost over-run facility of $13,000,000, management believes that it is well positioned to execute this strategy.
Between
April and July 2020, the Company worked to validate in accordance with National Instrument
43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”)
standards up to 9 million tons of primarily zinc ore contained within the UTZ, Quill and
Newgard Ore Bodies. This involved over 9,000 feet of drilling from Underground and extensive
sampling from the many open stopes above the water-level. These zones could provide the majority
of the early feed if the Company were to achieve a restart of the Mine.
On
September 28, 2020, the Company announced its maiden mineral resources estimate consisting of a total of 8.9 million tons in the Inferred
category, containing 11 million ounces of silver, 880 million pounds of zinc, and 410 million pounds of lead, which represented the result
of the Company’s extensive drilling and sampling efforts conducted between April and July 2020.
On
November 12, 2020, the Company announced the launch of a Preliminary Economic Assessment (“PEA”) to assess the potential
for a rapid restart of the Mine for minimal capital by focusing on the de-watered upper areas of the Mine, utilizing existing
infrastructure, and based on truck haulage and toll milling methods.
On January 26, 2021, the Company reported continued
progress towards completing the previously announced PEA, and further detail regarding the potential parameters of the restart,
including: i) low up-front capital costs through utilization of existing infrastructure, potentially enabling a rapid production restart;
ii) a staged approach to mining, potentially supporting a long-life operation; iii) underground processing and tailings deposition
with potential for high recovery rates; iv) development of a sustainable operation with minimal environmental footprint; and v) potential
increase in the existing resource base.
On March 19, 2021, the Company announced a mineral
resource estimate consisting of a total of: 4.4 million tons in the Indicated category, containing 3.0 million ounces of silver,
487 million pounds of zinc, and 176 million pounds of lead; 5.6 million tons in the Inferred category, containing 8.3 million ounces
of silver, 548 million pounds of zinc, and 312 million pounds of lead.
On April 20, 2021, the Company announced the results
of its PEA for the Mine. The PEA contemplates a $42,000,000 initial capital cost (including 20% contingency) to rapidly restart
the Mine, generating approximately $20,000,000 of annual average free cash flow over a 10-year mine life, and producing over 550
million pounds of zinc, 290 million pounds of lead, and 7 million ounces of silver at all-in sustaining costs of $0.65 per payable pound
of zinc (net of by-products). The PEA contemplates a low environmental footprint, long-term water management solution, and significant
positive economic impact for the Shoshone County, Idaho community. The PEA is based on the Mineral Resource Estimate described above
and published on May 3, 2021, following the drilling program conducted in 2020 and early 2021 to validate the historical reserves. The
PEA includes a mining inventory of 5.5Mt, which represents a portion of the 4.4Mt Indicated mineral resource and 5.6Mt Inferred mineral
resource that comprise the Mineral Resource Estimate. The PEA is preliminary in nature and includes Inferred mineral resources that are
considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized
as mineral reserves. There is no certainty that the project described in the PEA will be realized. Mineral resources that are not mineral
reserves do not have demonstrated economic viability.
On May 3, 2021, the Company filed a technical report
with further detail regarding the mineral resource estimate announced on March 19, 2021, entitled “Technical Report for the Bunker
Hill Mine, Coeur d’Alene Mining District, Shoshone County, Idaho, USA” with an effective date of March 22, 2021. This technical
report was prepared in accordance with the requirements of subpart 1300 of Regulation S-K (the “SEC Mining Modernization Rules”)
and Canadian National Instrument 43-101 — Standards of Disclosure for Mineral Projects (“NI 43-101”).
On June 4, 2021, the Company filed a technical report
entitled “Technical Report And Preliminary Economic Assessment For Underground Milling And Concentration Of Lead, Silver And Zinc
At The Bunker Hill Mine, Bunker Hill Mine, Coeur d’Alene Mining District, Shoshone County, Idaho, USA” in support of the PEA
that it announced on April 20, 2021 (as described above). This technical report was prepared in accordance with the requirements of the
SEC Mining Modernization Rules and NI 43-101
On September
20, 2021, the Company announced the results of an updated PEA for the Mine. The updated PEA contemplates a $44,000,000 initial
capital cost (including 20% contingency) to rapidly restart the Mine, generating approximately $25,000,000 of annual average free
cash flow over an 11-year mine life, and producing over 590 million pounds of zinc, 320 million pounds of lead, and 8 million ounces
of silver at all-in sustaining costs of $0.47 per payable pound of zinc (net of by-products). As with the PEA published on June 4, 2021,
the updated PEA is based on the Mineral Resource Estimate described above and published on May 3, 2021, following the drilling program
conducted in 2020 and early 2021 to validate the historical reserves. The PEA includes a mining inventory of 6.4Mt, which represents
a portion of the 4.4Mt Indicated mineral resource and 5.6Mt Inferred mineral resource that comprise the Mineral Resource Estimate.
On November 3, 2021, the Company filed a technical
report entitled “Technical Report And Preliminary Economic Assessment For Underground Milling And Concentration Of Lead, Silver
And Zinc At The Bunker Hill Mine, Bunker Hill Mine, Coeur d’Alene Mining District, Shoshone County, Idaho, USA” in support
of the updated PEA that it announced on September 20, 2021 (as described above).
On November 30, 2021, the Company announced the
completion of an updated mineral resource estimate (the “Mineral Resource Estimate” or “MRE”) for the Bunker
Hill Mine consisting of a total of: 6.6 million tons in the Measured and Indicated category, containing 6.8 million ounces of silver,
740 million pounds of zinc, and 324 million pounds of lead; 6.7 million tons in the Inferred category, containing 10.4 million ounces
of silver, 669 million pounds of zinc, and 392 million pounds of lead.
On December 29, 2021, the Company filed a technical
report entitled “Technical Report And Preliminary Economic Assessment For Underground Milling And Concentration Of Lead, Silver
And Zinc At The Bunker Hill Mine, Bunker Hill Mine, Coeur d’Alene Mining District, Shoshone County, Idaho, USA” (the “Technical
Report” or “Bunker Hill Technical Report”) in support of the updated MRE that it announced on November 30, 2021 (as
described above). This technical report was prepared in accordance with the requirements of the SEC Mining Modernization Rules and NI-43-101
and is filed as an exhibit to the Registration Statement of which this prospectus is a part.
On January 31, 2022, the Company announced the signing of a non-binding
Memorandum of Understanding (“MOU”) with Teck Resources Limited (“Teck”) for the purchase of a comprehensive package
of equipment and parts inventory from its Pend Oreille site (the “Pend Oreille Process Plant”) in eastern Washington State,
approximately 145 miles from the Bunker Hill Mine by road. The package comprises substantially all processing equipment of value located
at the site, including complete crushing, grinding and flotation circuits suitable for a planned ~1,500 ton-per-day operation at Bunker
Hill, and total inventory of nearly 10,000 components and parts for mill, assay lab, conveyer, field instruments, and electrical spares.
The MOU outlines a purchase price under two scenarios, at Teck’s option: an all-cash $2,750,000 purchase price, or a $3,000,000
purchase price comprised of cash and Bunker Hill shares. Each option includes a $500,000 non-refundable deposit, which has been paid by
the Company subsequent to the end of the year. On March 7, 2022, the Company announced the signing of an Asset Purchase agreement for
the purchase of the Pend Oreille Process Plant. Closing of the transaction remains subject to certain conditions, including payment of
the remaining purchase price by May 15, 2022.
On March 3, 2022, the Company announced the purchase
of a 225-acre surface land parcel for approximately $200,000. The Company intends this to serve as a strategic asset for the rapid restart
of the Mine, optimizing construction efficiency and costs while providing improved access to prospective areas identified by our recent
geophysics survey.
Water
Management Optimization
In
September 2020, the Company began its water management program with the goal of improving the understanding of the Mine’s water
system and enacting immediate improvement in the water quality of effluent leaving the Mine for treatment at the Central Treatment Plant
(“CTP”). Informed by historical research provided by the EPA, the Company initiated a study of the water system of the Mine
to: i) identify of the areas where sulphuric acid (Acid Mine Drainage, or “AMD”) is generated in the greatest and most concentrated
quantities, and ii) understand the general flow paths of AMD on its way through and out of the mine as it travels to the CTP.
Leveraging
its improved understanding through this study, on February 11, 2021 the Company announced the successful commissioning of a water pre-treatment
plant located within the Mine, designed to significantly improve the quality of Mine water discharge, which in turn would support a rapid
restart of the Mine. Specifically, the water pre-treatment plant achieves this goal by reducing significantly the amount of treatment
required at the CTP, and the associated costs, before the Mine water is discharged into the south fork of the Coeur D’Alene River,
removing over 70% of the metals from water before it leaves the Mine, with the potential for further improvements.
In
an effort to improve transparency to all stakeholders with regard to the results of this system, the Company launched a water quality
tracking platform on its website on March 15, 2021, which uploads real-time data every five minutes and provides an interactive database
to allow detailed historical analysis.
Business
Operations
The
Mine is a lead-silver-zinc Mine. When back in production, the Company intends to mill mineralized material on-site or at a local third-party
mill to produce both lead-silver and zinc concentrates which will then be shipped to third party smelters for processing.
Infrastructure
The
Mine includes all mining rights and claims, surface rights, fee parcels, mineral interests, easements, existing infrastructure at Milo
Gulch, and the majority of machinery and buildings at the Kellogg Tunnel portal level, as well as all equipment and infrastructure anywhere
underground at the Bunker Hill Mine Complex. It also includes all current and historic data relating to the Bunker Hill Mine Complex,
such as drill logs, reports, maps, and similar information located at the Mine site or any other location.
Government
Regulation and Approval
The
current exploration activities and any future mining operations are subject to extensive laws and regulations governing the protection
of the environment, waste disposal, worker safety, mine construction, and protection of endangered and protected species. The Company
has made, and expects to make in the future, significant expenditures to comply with such laws and regulations. Future changes in applicable
laws, regulations and permits or changes in their enforcement or regulatory interpretation could have an adverse impact on the Company’s
financial condition or results of operations.
It
is anticipated that it may be necessary to obtain the following environmental permits or approved plans prior to commencement of mine
operations:
● Reclamation and Closure Plan
● Water Discharge Permit
● Air Quality Operating Permit
● Industrial Artificial (tailings) pond permit
● Obtaining Water Rights for Operations
Property
Description
The Company has mineral rights to approximately
440 patented mining claims covering over 5700 acres. Of these claims, 35 include surface ownership of approximately 259 acres. It
also has certain parcels of fee property which includes mineral and surface rights but not patented mining claims. Mining
claims and fee properties are located in Townships 47, 48 North, Range 2 East, Townships 47, 48 North, Range 3 East, Boise Meridian,
Shoshone County, Idaho.
Surface
rights were originally owned by various previous owners of the claims until the acquisition of the properties by Bunker Limited Partners
(“BLP”). BLP sold off surface rights to various parties over the years while maintaining access to conduct mining operations
and exploration activities as well as easements to a cross over and access other of its properties containing mineral rights. Said rights
were reserved to its assigns and successors in continuous perpetuity. Idaho Law also allows mineral right holders access to mine and
explore for minerals on properties to which they hold minerals rights.
Title
to all patented mining claims included in the transaction was transferred from Bunker Hill Mining Co. (U.S.) Inc. by Warranty Deed in
1992. The sale of the property was approved of by the U.S. Trustee and U.S. Bankruptcy Court.
Over
90% of surface ownership of patented mining claims not owned by Placer Mining is owned by different landowners. These include: Stimpson
Lumber Co.; Riley Creek Lumber Co.; Powder LLC.; Golf LLC.; C & E Tree Farms; and Northern Lands LLC.
Patented
mining claims in the State of Idaho do not require permits for underground mining activities to commence on private lands. Other permits
associated with underground mining may be required, such as water discharge and site disturbance permits. The water discharge is being
handled by the EPA at the existing CTP. The Company expects to take on the water treatment responsibility in the future and obtain an
appropriate discharge permit.
Competition
The
Company competes with other mining and exploration companies in connection with the acquisition of mining claims and leases on zinc and
other base and precious metals prospects as well as in connection with the recruitment and retention of qualified employees. Many of
these companies are much larger than the Company, have greater financial resources and have been in the mining business for much longer
than it has. As such, these competitors may be in a better position through size, finances and experience to acquire suitable exploration
and development properties. The Company may not be able to compete against these companies in acquiring new properties and/or qualified
people to work on its current project, or any other properties that may be acquired in the future.
Given
the size of the world market for base precious metals such as silver, lead and zinc, relative to the number of individual producers and
consumers, it is believed that no single company has sufficient market influence to significantly affect the price or supply of these
metals in the world market.
Employees
The Company has four
employees. The balance of the Company’s operations is contracted for as consultants.
Reports
to Security Holders
The
Company files reports with the SEC under section 15d of the Securities Exchange Act of 1934 (the “Exchange Act”). The reports
will be filed electronically. All copies of any materials filed with the SEC may be read at the SEC’s Public Reference Room at
100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that will contain copies of the reports that are filed electronically.
The address for the SEC Internet site is http://www.sec.gov.
ITEM
1A. RISK FACTORS
As
a Smaller Reporting Company, this item is not required under SEC rules. However, the Company believes that it is important to have an
understanding of the risks associated with an investment in the Company. In addition, these risk factors are incorporated by reference
in press releases and other Company publications for purposes of the Private Securities Reform Act of 1995.
General
Risk Factors
The
Company’s ability to operate as a going concern is in doubt.
The
audit opinion and notes that accompany the Company’s Financial Statements disclose a going concern qualification to its ability
to continue in business. The accompanying Financial Statements have been prepared under the assumption that the Company will continue
as a going concern. The Company is an exploration and development stage company and has incurred losses since its inception. The
Company has incurred losses resulting in an accumulated deficit of $72,491,150 as of December 31, 2021 and further losses
are anticipated in the development of its business.
The
Company currently has no historical recurring source of revenue and its ability to continue as a going concern is dependent on its ability
to raise capital to fund its future exploration and working capital requirements or its ability to profitably execute its business plan.
The Company’s plans for the long-term return to and continuation as a going concern include financing its future operations through
sales of its Common Shares and/or debt and the eventual profitable exploitation of the Mine. Additionally, the volatility in capital
markets and general economic conditions in the U.S. and elsewhere can pose significant challenges to raising the required funds. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company’s consolidated financial statements do not give effect to any adjustments required to realize its assets and discharge
its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying Financial
Statements.
The
Company will require significant additional capital to fund its business plan.
The
Company will be required to expend significant funds to determine whether proven and probable mineral reserves exist at its properties,
to continue exploration and, if warranted, to develop its existing properties, and to identify and acquire additional properties to diversify
its property portfolio. The Company anticipates that it will be required to make substantial capital expenditures for the continued exploration
and, if warranted, development of the Mine. The Company has spent and will be required to continue to expend significant amounts of capital
for drilling, geological, and geochemical analysis, assaying, and feasibility studies with regard to the results of its exploration at
the Mine. The Company may not benefit from some of these investments if it is unable to identify commercially exploitable mineral reserves.
Neither
the Company nor any of the directors of the Company nor any other party can provide any guarantee or assurance, that the Company will
be able to raise sufficient capital to satisfy the Company’s short-term obligations. The Company does not have sufficient funds
to satisfy its short-term financial obligations, as at December 31, 2021, the Company has $486,063 in cash and total current liabilities
of $22,795,277 and total liabilities of $38,314,164.
If
the Company cannot raise additional capital, the Company will be in breach of its debt obligations, including under the Royalty Convertible
Debenture and the Convertible Debenture. Further, pursuant to the terms of the Company’s agreement with the EPA, the Company is
required to make certain payments to the EPA on behalf of Placer Mining in the amount of $20,000,000 for cost recovery. If the Company
is unable to raise sufficient capital, the Company may be unable to pay the cost of recovery resulting in a breach of its obligations
and the failure to pay may be considered a default under the terms of the Amended Settlement with the EPA and the Amended Agreement with
Placer Mining.
Neither
the Company nor any of the directors of the Company nor any other party can provide any guarantee or assurance that the full $50,000,000
project financing package will be finalized or close, as the Project Financing Package remains subject to SRSR internal approvals, further
technical and other due diligence and satisfactory documentation. Approximately $14,000,000 of the project financing closed in January
2022, subsequent to the close of the year. If the full Project Financing Package does not close there is no guarantee that capital can
be raised on terms favorable to the Company, or at all. Any additional equity funding will dilute existing shareholders.
In support of plans to rapidly restart the Mine,
the Company worked systematically through 2020 and 2021 to delineate mineral resources and conduct various technical studies. Executing
this strategy may require securing additional financing, which may include additional indebtedness of $15,000,000 and a cost over-run
facility of $13,000,000.
The
Company’s ability to obtain necessary funding for these purposes, in turn, depends upon a number of factors, including the status
of the national and worldwide economy and the price of metals. Capital markets worldwide were adversely affected by substantial losses
by financial institutions, caused by investments in asset-backed securities and remnants from those losses continue to impact the ability
for the Company to raise capital. The Company may not be successful in obtaining the required financing or, if it can obtain such financing,
such financing may not be on terms that are favorable to us.
The
Company’s inability to access sufficient capital for its operations could have a material adverse effect on its financial condition,
results of operations, or prospects. Sales of substantial amounts of securities may have a highly dilutive effect on the Company’s
ownership or share structure. Sales of a large number of shares of the Company’s Common Shares in the public markets, or the potential
for such sales, could decrease the trading price of the Common Shares and could impair the Company’s ability to raise capital through
future sales of Common Shares. The Company has not yet commenced commercial production at any of its properties and, therefore, has not
generated positive cash flows to date and has no reasonable prospects of doing so unless successful commercial production can be achieved
at the Mine. The Company expects to continue to incur negative investing and operating cash flows until such time as it enters into successful
commercial production. This will require the Company to deploy its working capital to fund such negative cash flow and to seek additional
sources of financing. There is no assurance that any such financing sources will be available or sufficient to meet the Company’s
requirements, or if available, available upon terms acceptable to the Company. There is no assurance that the Company will be
able to continue to raise equity capital or to secure additional debt financing, or that the Company will not continue to incur losses.
The
Company has a limited operating history on which to base an evaluation of its business and prospects.
Since
its inception, the Company has had no revenue from operations. The Company has no history of producing products from the Bunker Hill
property. The Mine is a historic, past producing mine with very little recent exploration work. Advancing the Mine into the development
stage will require significant capital and time, and successful commercial production from the Mine will be subject to completing feasibility
studies, permitting and re-commissioning of the Mine, constructing processing plants, and other related works and infrastructure. As
a result, the Company is subject to all of the risks associated with developing and establishing new mining operations and business enterprises,
including:
The
costs, timing, and complexities of exploration, development, and construction activities may be increased by the location of its properties
and demand by other mineral exploration and mining companies. It is common in exploration programs to experience unexpected problems
and delays during drill programs and, if commenced, development, construction, and mine start-up. In addition, the Company’s management
and workforce will need to be expanded, and sufficient housing and other support systems for its workforce will have to be established.
This could result in delays in the commencement of mineral production and increased costs of production. Accordingly, the Company’s
activities may not result in profitable mining operations and it may not succeed in establishing mining operations or profitably producing
metals at any of its current or future properties, including the Mine.
The
Company has a history of losses and expects to continue to incur losses in the future.
The Company has incurred losses since inception,
has had negative cash flow from operating activities, and expects to continue to incur losses in the future. The Company has incurred
the following losses from operations during each of the following periods:
The
Company expects to continue to incur losses unless and until such time as the Mine enters into commercial production and generates sufficient
revenues to fund continuing operations. The Company recognizes that if it is unable to generate significant revenues from mining operations
and dispositions of its properties, the Company will not be able to earn profits or continue operations. At this early stage of its operation,
the Company also expects to face the risks, uncertainties, expenses, and difficulties frequently encountered by smaller reporting companies.
The Company cannot be sure that it will be successful in addressing these risks and uncertainties and its failure to do so could have
a materially adverse effect on its financial condition.
Epidemics,
pandemics or other public health crises, including COVID-19, could adversely affect the Company’s business.
The
Company’s operations could be significantly adversely affected by the effects of a widespread outbreak of epidemics, pandemics
or other health crises, including the recent outbreak of respiratory illness caused by the novel coronavirus (“COVID-19”),
which was declared a pandemic by the World Health Organization on March 12, 2020. The Company cannot accurately predict the impact COVID-19
will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to
the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and
quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the
human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries,
resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations.
The Russia/Ukraine crisis, including the
impact of sanctions or retributions thereto, could adversely affect the Company’s business.
The Company’s operations could be adversely
affected by the effects of the escalating Russia/Ukraine crisis and the effects of sanctions imposed against Russia or that country’s
retributions against those sanctions, embargos or further-reaching impacts upon energy prices, food prices and market disruptions. The
Company cannot accurately predict the impact the crisis will have on its operations and the ability of contractors to meet their obligations
with the Company, including uncertainties relating the severity of its effects, the duration of the conflict, and the length and magnitude
of energy bans, embargos and restrictions imposed by governments. In addition, the crisis could adversely affect the economies and financial
markets of the United States in general, resulting in an economic downturn that could further affect the Company’s operations and
ability to finance its operations. Additionally, the Company cannot predict changes in precious metals pricing or changes in commodities
pricing which may alternately affect the Company either positively or negatively.
Risks
Related to Mining and Exploration
The
Mine is in the exploration stage. There is no assurance that the Company can establish the existence of any mineral reserve on the Mine
or any other properties the Company may acquire in commercially exploitable quantities. Unless and until the Company does so, the Company
cannot earn any revenues from these properties and if the Company does not do so, the Company will lose all of the funds that it expends
on exploration. If the Company does not discover any mineral reserve in a commercially exploitable quantity, the exploration component
of its business could fail.
The
Company has not established that any of its mineral properties contain any mineral reserve according to recognized reserve guidelines,
nor can there be any assurance that the Company will be able to do so.
The
Company has not established that any of its mineral properties contain any mineral reserve according to recognized reserve guidelines,
nor can there be any assurance that the Company will be able to do so.
In general, the probability of any individual prospect having a “reserve” that meets the requirements of the SEC is
small, and the Mine may not contain any “reserves” and any funds that the Company spends on exploration could be lost. Even
if the Company does eventually discover a mineral reserve on the Mine, there can be no assurance that it can be developed into a producing
mine and that the Company can extract those minerals. Both mineral exploration and development involve a high degree of risk, and few
mineral properties that are explored are ultimately developed into producing mines.
The
commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade,
and other attributes of the mineral deposit, the proximity of the mineral deposit to infrastructure such as processing facilities, roads,
rail, power, and a point for shipping, government regulation, and market prices. Most of these factors will be beyond its control, and
any of them could increase costs and make extraction of any identified mineral deposit unprofitable.
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses.
Exploration
for and the production of minerals is highly speculative and involves much greater risk than many other businesses. Most exploration
programs do not result in the discovery of mineralization, and any mineralization discovered may not be of sufficient quantity or quality
to be profitably mined. The Company’s operations are, and any future development or mining operations the Company may conduct will
be, subject to all of the operating hazards and risks normally incidental to exploring for and development of mineral properties, including,
but not limited to:
● economically insufficient mineralized material;
● fluctuation in production costs that make mining uneconomical;
● labor disputes;
● unanticipated variations in grade and other geologic problems;
● environmental hazards;
● water conditions;
● difficult surface or underground conditions;
● industrial accidents;
● metallurgic and other processing problems;
● mechanical and equipment performance problems;
● unusual or unexpected rock formations; and
● personal injury, fire, flooding, cave-ins and landslides.
Any
of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates,
costs and expenditures, potential revenues, and production dates. If the Company determines that capitalized costs associated with any
of its mineral interests are not likely to be recovered, the Company would incur a write-down of its investment in these interests. All
of these factors may result in losses in relation to amounts spent that are not recoverable, or that result in additional expenses.
Commodity
price volatility could have dramatic effects on the results of operations and the Company’s ability to execute its business plan.
The
price of commodities varies on a daily basis. The Company’s future revenues, if any, will likely be derived from the extraction
and sale of base and precious metals. The price of those commodities has fluctuated widely, particularly in recent years, and is affected
by numerous factors beyond its control including economic and political trends, expectations of inflation, currency exchange fluctuations,
interest rates, global and regional consumptive patterns, speculative activities and increased production due to new extraction developments
and improved extraction and production methods. The effect of these factors on the price of base and precious metals, and therefore the
economic viability of the Company’s business, could negatively affect its ability to secure financing or its results of operations.
The
Company’s production, development plans and cost estimates in the PEA may vary and/or
not be achieved.
The
PEA is preliminary in nature and will include Inferred mineral resources that are considered too speculative geologically to have
the economic considerations applied to them that would enable them to be categorized as mineral reserves. Consequently, there is no certainty
that the PEA will be realized. The decision to implement the Mine restart scenario to be included in the PEA will not be based
on a feasibility study of mineral reserves demonstrating economic and technical viability, and therefore there is increased risk that
the PEA results will not be realized. If the Company is unable to achieve the results in the PEA, it may have a material negative impact
on the Company and its capital investment to implement the restart scenario may be lost.
Costs charged to the Company by the Idaho
Department of Environmental Quality (“IDEQ”) for treatment of waste water fluctuate a great deal and are not within the Company’s
control.
The Company is billed annually for water treatment
activities performed by the IDEQ for the EPA. The water treatment costs that Bunker Hill is billed for are partially related to the EPA’s
direct cost of treating the water emanating from the Bunker Hill Mine, which are comprised of lime and flocculant usage, electricity
consumption, maintenance and repair, labor and some overhead. Rate of discharge of effluent from the Bunker Hill Mine is largely dependent
on the level of precipitation within a given year and how close in the calendar year the Company is to the spring run-off. Increases
in water infiltrations and gravity flows within the mine generally increase after winter and result in a peak discharge rate in May.
Increases in gravity flow and consequently the rate of water discharged by the mine have a highly robust correlation with metal concentrations
and consequently metals loads of effluent.
Hydraulic loads (quantities of water per unit
of time) and metal loads (quantities of metals per unit of volume of effluent per unit of time) are the two main determinants of cost
of water treatment by the EPA in the relationship with the Bunker Hill Mine because greater metal loads consume more lime and more flocculent
and more electricity to remove the increased levels of metals and make the water clean. The scale of the treatment plant is determined
by how much total water can be processed (hydraulic load) at any one point in time. This determines how much labor is required to operate
the plant and generally determine the amount of overhead required to run the EPA business.
The EPA has completed significant upgrades to
the water treatment capabilities of the CTP and is now capable of producing treated water than can meet a much higher discharge standard
(which Bunker Hill will be forced to meet beyond May 2023). While it was understood that improved performance capability would increase
the cost of operating the plant, it was unclear to EPA, and consequently to Bunker Hill, how much the costs would increase by.
These elements described above, and others,
impact the direct costs of water treatment. A significant portion of the total amount invoiced by EPA each year is indirect cost that
is determined as a percentage of the direct cost. Each year the indirect costs percentage changes within each region of the EPA. Bunker
Hill has no ability to impact the percentage of indirect cost that is set by the EPA regional office. Bunker Hill also has no advanced
notice of what the percentage of indirect cost will be until it receives its invoice in June of the year following the billing period.
The Company remains unable to estimate EPA billings to a high degree of accuracy.
Estimates
of mineralized material and resources are subject to evaluation uncertainties that could result in project failure.
Its
exploration and future mining operations, if any, are and would be faced with risks associated with being able to accurately predict
the quantity and quality of mineralized material and resources/reserves within the earth using statistical sampling techniques. Estimates
of any mineralized material or resource/reserve on the Mine would be made using samples obtained from appropriately placed trenches,
test pits, underground workings, and intelligently designed drilling. There is an inherent variability of assays between check and duplicate
samples taken adjacent to each other and between sampling points that cannot be reasonably eliminated. Additionally, there also may be
unknown geologic details that have not been identified or correctly appreciated at the current level of accumulated knowledge about the
Mine. This could result in uncertainties that cannot be reasonably eliminated from the process of estimating mineralized material and
resources/reserves. If these estimates were to prove to be unreliable, the Company could implement an exploitation plan that may not
lead to commercially viable operations in the future.
Any
material changes in mineral resource/reserve estimates and grades of mineralization will affect the economic viability of placing a property
into production and a property’s return on capital.
As
the Company has not commenced actual production, mineralization resource estimates
may require adjustments or downward revisions. In addition, the grade of ore ultimately mined, if any, may differ from that indicated
by future feasibility studies and drill results. Minerals recovered in small scale tests may not be duplicated in large scale tests under
on-site conditions or in production scale.
The
Company’s exploration activities may not be commercially successful, which could lead the Company to abandon its plans to develop
the Mine and its investments in exploration.
The
Company’s long-term success depends on its ability to identify mineral deposits on the Mine and other properties the Company may
acquire, if any, that the Company can then develop into commercially viable mining operations. Mineral exploration is highly speculative
in nature, involves many risks, and is frequently non-productive. These risks include unusual or unexpected geologic formations, and
the inability to obtain suitable or adequate machinery, equipment, or labor. The success of commodity exploration is determined in part
by the following factors:
● the identification of potential mineralization based on surficial analysis;
● availability of government-granted exploration permits;
● the quality of its management and its geological and technical expertise; and
● the capital available for exploration and development work.
Substantial
expenditures are required to establish proven and probable reserves through drilling and analysis, to develop metallurgical processes
to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Whether a mineral
deposit will be commercially viable depends on a number of factors that include, without limitation, the particular attributes of the
deposit, such as size, grade, and proximity to infrastructure; commodity prices, which can fluctuate widely; and government regulations,
including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals,
and environmental protection. The Company may invest significant capital and resources in exploration activities and may abandon such
investments if the Company is unable to identify commercially exploitable mineral reserves. The decision to abandon a project may have