UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
For the fiscal year ended December 31, 2022
OR
For
the transition period from to
Commission
file number: 333-150028
BUNKER
HILL MINING CORP.
(Exact
name of registrant as specified in its charter)
82 Richmond Street East
Toronto, Ontario, Canada M5C 1P1
(Address of principal executive offices) (Zip Code)
(416)477-7771
(Registrant’s
Telephone Number, including area code)
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate
by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
(“Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒ Emerging Growth Company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the Registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒
As
of December 31, 2022, the aggregate market value of the voting and non-voting shares of common stock of the registrant issued and outstanding
on such date, excluding shares held by affiliates of the registrant as a group, was $28,804,983.
Number
of shares of Common Stock outstanding as of April 17, 2023: 256,099,173.
TABLE
OF CONTENTS
PART I 4
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 9
ITEM 1B. UNRESOLVED STAFF COMMENTS 21
ITEM 2. PROPERTIES 21
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 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36
ITEM 9A. CONTROLS AND PROCEDURES 68
ITEM 9B. OTHER INFORMATION 68
PART III 69
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 69
ITEM 11. EXECUTIVE COMPENSATION 71
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 76
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 77
SIGNATURES 78
Cautionary
Note to U.S. Residents Concerning Disclosure of Mineral Resources
Bunker
Hill Mining Corp. (“Bunker Hill,” “we,” “us,” “our” or the “Company”) is
a U.S. domestic issuer for U.S. Securities and Exchange Commission (“SEC”) purposes, it is required to report its financial
results under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), and its shares of common stock trade on the Canadian
Securities Exchange (the “CSE”) and the OTCQB Venture Market. However, certain prior regulatory filings made in Canada
contain or incorporate by reference therein certain disclosure that satisfies the additional requirements of Canadian securities laws,
which differ from the requirements of United States’ securities laws. Unless otherwise indicated, all resource estimates included
in those Canadian filings, and in the documents incorporated by reference therein, had been prepared in accordance with Canadian National
Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of
Mining, Metallurgy and Petroleum (“CIM”) classification system. NI 43-101 is a rule developed by the Canadian Securities
Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning
mineral projects.
Canadian
standards, including NI 43-101, may differ from the requirements of subpart 1300 of Regulation S-K (“S-K 1300”). Thus, resource
information contained, or incorporated by reference, in the Company’s Canadian filings, and in the documents incorporated by reference
therein, may not be comparable to similar information disclosed by companies reporting mineral reserve and mineral resource information
under S-K 1300.
The
terms “mineral reserve,” “proven mineral reserve” and “probable mineral reserve” are Canadian mining
terms as defined in accordance with NI 43-101 and CIM standards. Pursuant to S-K 1300, the SEC now recognizes estimates of “measured
mineral resources,” “indicated mineral resources” and “inferred mineral resources.” In addition, the SEC
has amended its definitions of “proven mineral reserves” and “probably mineral reserves” to be substantially
similar to the corresponding standards of the CIM.
Investors
are cautioned that while terms are substantially similar to CIM standards, there are differences in the definitions and standards under
S-K 1300 and the CIM standards. Accordingly, there is no assurance any mineral reserves or mineral resources that the Company may report
as “proven reserves,” “probable reserves,” “measured mineral resources,” “indicated mineral
resources” and “inferred mineral resources” under NI 43-101 will be the same as the reserve or resource estimates prepared
under the standards adopted under S-K 1300.
Investors
are also cautioned that while the SEC now recognizes “measured mineral resources,” “indicated mineral resources”
and “inferred mineral resources,” investors should not assume that any part or all of mineral deposits in these categories
will ever be converted into mineral reserves.
Mineralization
described using these terms has a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an “measured mineral resource,” “indicated mineral resource”
or “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume
that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces”
in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization
that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures.
PART
I
ITEM
1. BUSINESS
Our
Business
Overview
The
Company’s sole focus is the development and restart of its 100% owned flagship asset, the Bunker Hill mine (the “Mine”)
in Idaho, USA. The Mine remains the largest single producing mine by tonnage in the Silver Valley region of northwest Idaho, producing
over 165 million ounces of silver and 5 million tons of base metals between 1885 and 1981. The Bunker Hill Mine is located within Operable
Unit 2 of the Bunker Hill Superfund site (EPA National Priorities Listing IDD048340921), where cleanup activities have been completed.
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. (“Sprott”), an amended Settlement Agreement with the
U.S. Environmental Protection Agency (“the EPA”), and the purchase of the Bunker Hill Mine, setting the stage for a rapid
restart of the Mine.
In
January 2022, with the closing of the purchase of the Bunker Hill Mine, the funding of the $8,000,000 Royalty Convertible Debenture and
$6,000,000 Series Convertible Debenture, and the announcement of an Memorandum (“MOU”)for the purchase of the Pend Oreille process plant from a subsidiary
of Teck Resources Limited, the Company embarked on a program of activities with the goal of achieving a restart of the Mine. Key milestones
and achievements from January 2022 onwards have included the closing of the purchase of the Pend Oreille process plant, the demobilization
of the process plant to the Bunker Hill site, the completion of demolition activities at the Pend Oreille site, a Prefeasibility Study
envisaging the restart of the Mine, and the completion of the primary portion of the ramp decline connecting the 5 and 6 Levels of the
Bunker Hill Mine.
The Company was incorporated for the initial purpose of engaging in mineral
exploration activities at the Mine. The Company has moved into the development stage concurrent with (i) purchasing the Mine and a process
plant, (ii) completing successive technical and economic studies, including a Prefeasibility Study, (iii) delineating mineral reserves,
and (iv) conducting the program of activities outlined above.
Lease
and Purchase of the Bunker Hill Mine
The
Company purchased the Bunker Hill 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 $7,700,000 was agreed,
with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price of the Mine as having been previously
paid by the Company) and $2,000,000 in shares of common stock of the Company (“Common Shares”). The Company agreed to make
an advance payment of $2,000,000, credited toward the purchase price of the Mine, which had the effect of decreasing the remaining amount
payable to purchase the Mine to an aggregate of $3,400,000 payable in cash and $2,000,000 in Common Shares of the Company.
The
Amended Agreement also required payments pursuant to an agreement with the 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.
The
Company completed the purchase of the Bunker Hill Mine on January 7, 2022. The terms of the purchase price were modified to $5,400,000
in cash, from $3,400,000 of cash and $2,000,000 of Common Shares. Concurrent with the purchase of the Mine, the Company assumed incremental
liabilities of $8,000,000 to the EPA, consistent with the terms of the amended Settlement Agreement with the EPA that was executed in
December 2021 (see “EPA 2018 Settlement Agreement & 2021 Amended Settlement Agreement” section below).
EPA
2018 Settlement Agreement & 2021 Amended Settlement Agreement
Bunker
Hill entered into a Settlement Agreement and Order on Consent with the EPA on May 15, 2018. This agreement limits the Company’s
exposure to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) liability for past environmental
damage to the mine site and surrounding area to obligations that include:
In December 2021, in conjunction with its intention
to purchase the mine complex, the Company entered into an amended Settlement Agreement (the “Amendment”) between the Company,
Idaho Department of Environmental Quality, US Department of Justice and the EPA modifying the payment schedule and payment terms for recovery
of historical environmental response costs at Bunker Hill Mine incurred by the EPA. With the purchase of the mine in early 2022, the remaining
payments of the EPA cost recovery liability were assumed by the Company, resulting in a total of $19,000,000 liability to the Company,
an increase of $8,000,000. The new payment schedule included a $2,000,000 payment to the EPA within 30 days of execution of this amendment,
which was made.
The
remaining $17,000,000 will be paid on the following dates:
Date Amount
The
resumption of payments in 2024 was agreed in order to allow the Company to generate sufficient revenue from mining activities at the
Bunker Hill Mine to address remaining payment obligations from free cash flow.
The
changes in payment terms and schedule were contingent upon the Company securing financial assurance in the form of performance bonds
or letters of credit deemed acceptable to the EPA totaling $17,000,000, corresponding to the Company’s cost recovery obligations
to be paid in 2024 through 2029 as outlined above. Should the Company fail to make its scheduled payment, the EPA can draw against this
financial assurance. The amount of the bonds or letters of credit will decrease over time as individual payments are made. If the Company
failed to post the final financial assurance within 180 days of the execution of the Amendment, the terms of the original agreement would
be reinstated.
In
June 2022, the Company was successful in obtaining financial assurance. Specifically, a $9,999,000 payment bond and a $7,001,000
letter of credit were secured and provided to the EPA. This milestone provides for the Company to recognize the effects of the change
in terms of the EPA liability as outlined in the December 20, 2021, agreement. Once the financial assurance was put into place, the restructuring
of the payment stream under the Amendment occurred with the entire $17,000,000 liability being recognized as long-term in nature. The
aforementioned payment bond and letter of credit were secured by $2,475,000 and $7,001,000 of cash deposits, respectively as of September
30, 2022.
In
October 2022, the Company reported that it had been successful in securing a new payment bond to replace the aforementioned $7,001,000
letter of credit, in two stages. Initially, the letter of credit was reduced to $2,000,001 as a result of a new $5,000,000 payment bond
obtained through an insurance company. The collateral for the new payment bond is comprised of a $2,000,000 letter of credit and land
pledged by third parties, with whom the Company has entered into a financing cooperation agreement that contemplates a monthly fee of
$20,000 (payable in cash or common shares of the Company, at the Company’s election). The new payment bond is scheduled to increase
to $7,001,000 (from $5,000,000) upon the advance of the multi-metals stream from Sprott Private Resource Streaming & Royalty Corp.
Project
Finance Package with Sprott Private Resource Streaming & Royalty Corp.
On
December 20, 2021, the Company executed a non-binding term sheet outlining a $50,000,000 project finance package with Sprott Private
Resource Streaming and Royalty Corp. (“Royalty”). The non-binding term sheet with SRSR outlined a project financing
package that the Company expects to fulfill the majority of its funding requirements to restart the Mine. The term sheet consisted
of an $8,000,000 royalty convertible debenture (the “RCD”), a $5,000,000 convertible debenture (the “CD1”),
and a multi-metals stream of up to $37,000,000 (the “Stream”). The CD1 was subsequently increased to $6,000,000,
increasing the project financing package to $51,000,000.
On
June 17, 2022, the Company consummated a new $15,000,000 convertible debenture (the “CD2”). As a result, total potential
funding from SRSR was further increased to $66,000,000 including the RCD, CD1, CD2 and the Stream (together, the “Project Financing
Package”).
The
Company closed the $8,000,000 RCD on January 7, 2022. The RCD bears interest at an annual rate of 9.0%, payable in cash or Common Shares
at the Company’s option, until such time that SRSR elects to convert a royalty, with such conversion option expiring at the earlier
of advancement of the Stream or July 7, 2023 (subsequently amended as described below). In the event of conversion, the RCD will cease
to exist and the Company will grant a royalty for 1.85% of life-of-mine gross revenue from mining claims considered to be historically
worked, contiguous to current accessible underground development, and covered by the Company’s 2021 ground geophysical survey (the
“SRSR Royalty”). A 1.35% rate will apply to claims outside of these areas. The RCD was initially secured by a share pledge
of the Company’s operating subsidiary, Silver Valley, until a full security package was put in place concurrent with the consummation
of the CD1. In the event of non-conversion, the principal of the RCD will be repayable in cash.
Concurrent
with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the RCD, including an
amendment of the maturity date from July 7, 2023, to March 31, 2025. The parties also agreed to a Royalty Put Option such that in the
event the RCD is converted into a royalty as described above, the holder of the royalty will be entitled to resell the royalty to the
Company for $8,000,000 upon default under the CD1 or CD2 until such time that the CD1 and CD2 are paid in full.
The
Company closed the $6,000,000 CD1 on January 28, 2022, which was increased from the previously announced $5,000,000. The CD1 bears interest
at an annual rate of 7.5%, payable in cash or shares at the Company’s option, and matures on July 7, 2023 (subsequently amended,
as described below). The CD1 is secured by a pledge of the Company’s properties and assets. Until the closing of the Stream, the
CD1 was to be convertible into Common Shares at a price of C$0.30 per Common Share, subject to stock exchange approval (subsequently
amended, as described below). Alternatively, SRSR may elect to retire the CD1 with the cash proceeds from the Stream. The Company may
elect to repay the CD1 early; if SRSR elects not to exercise its conversion option at such time, a minimum of 12 months of interest would
apply.
Concurrent
with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the CD1, including that
the maturity date would be amended from July 7, 2023, to March 31, 2025, and that the CD1 would remain outstanding until the new maturity
date regardless of whether the Stream is advanced, unless the Company elects to exercise its option of early repayment. The Company determined
that amendments to the terms should not be treated as an extinguishment of CD1, but as a debt modification.
The
Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest at an annual rate of 10.5%, payable in cash or shares at
the Company’s option, and matures on March 31, 2025. The CD2 is secured by a pledge of the Company’s properties and assets.
The repayment terms include 3 quarterly payments of $2,000,000 each beginning June 30, 2024, and $9,000,000 on the maturity date. Concurrent
with the funding of the CD2 in June 2022, the Company and SRSR agreed that the minimum quantity of metal delivered under the Stream,
if advanced, will increase by 10% relative to the amounts noted above.
On
December 6, 2022, the Company closed a new $5,000,000 loan facility with Sprott (the “Bridge Loan”). The Bridge Loan, which
was primarily utilized to pay outstanding water treatment payables to the EPA, is secured by the same security package that is in place
with respect to the RCD, CD1, and CD2. The Bridge Loan bears interest at a rate of 10.5% per annum and matures at the earlier of (i)
the advance of the Stream, or (ii) June 30, 2024. In addition, the minimum quantity of metal delivered under the Stream, if advanced,
would increase by 5% relative to amounts previously announced.
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 including confirmation of full project
funding by an independent engineer appointed by SRSR. If the Company draws the maximum funding of $37,000,000, the Stream will apply
to 10% of payable metals sold until a minimum quantity of metal is delivered consisting of, individually, 63.5 million pounds of zinc,
40.4 million pounds of lead, and 1.2 million ounces of silver (including amendments agreed concurrent with closing of the CD2 and Bridge
Loan, as described above). 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.
As
of December 31, 2022, the Stream had not been advanced. The Company is finalizing discussions with Sprott regarding the advance of the
Stream, which is conditional on satisfactory conclusion of the definitive documentation relating to the Stream, full project funding
for the Bunker Hill Mine and certain other conditions precedent.
Concurrent
with discussions with Sprott regarding the advance of the Stream, the Company is advancing efforts to secure offtake financing of up
$20 million from third parties to complement the Stream in financing the restart of the Bunker Hill Mine.
Process
Plant
On
January 25, 2022, the Company announced that it had entered into a non-binding Memorandum of Understanding (“MOU”) with Teck
Resources Limited (“Teck”) for the purchase of a comprehensive package of equipment and parts inventory from its Pend Oreille
site (the “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 Company paid a $500,000 non-refundable deposit in January 2022.
On
March 31, 2022, the Company announced that it had reached an agreement with a subsidiary of Teck to satisfy the remaining purchase price
for the Process Plant by way of an equity issuance of the Company. Teck will receive 10,416,667 units of the Company (the “Teck
Units”) at a deemed issue price of C$0.30 per unit. Each Teck Unit consists of one Common Share and one Common Share purchase warrant
(the “Teck Warrants”). Each whole Teck Warrant entitles the holder to acquire one Common Share at a price of C$0.37 per Common
Share for a period of three years. The equity issuance and purchase of the Process Plant occurred on May 13, 2022.
On
August 30, 2022, the Company entered into an agreement to purchase a ball mill from D’Angelo International LLC for $675,000. The
purchase of the mill is to be made in three cash payments. The first two payments were made as follows:
● $100,000 on September 15, 2022, as a non-refundable deposit
The
Company has not made the final payment of $475,000 as of the issuance of this report.
Business
Operations
The
Mine is a zinc-lead-silver Mine. When back in production, the Company intends to mill mineral resources on-site to produce both zinc
and lead-silver concentrates which will then be shipped to a third-party smelter 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.
For
further detail, please refer to the “Project Infrastructure” section in Item 2 below.
Government
Regulation and Approval
Exploration
and development 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 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
If these permits are required, there can be no assurance that the Company will be able to obtain them in a timely
manner or at all. For
further detail, please refer to the “Environmental Studies and Permitting” section of the “Technical Report Summary”
in Item 2 below.
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 include 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.
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.
For
further detail, please refer to the “Property Description and Ownership” section of the “Technical Report Summary”
in Item 2 below.
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 ten 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 $71,592,559 as of December 31, 2022 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 short-term obligations, continue its operations and remain in compliance
with its debt agreements.
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, even after consideration of its recently completed equity financing. As at December
31, 2022, the Company had $708,105 in cash and total current liabilities of $10,155,582 and total liabilities of $59,106,835. The Company
will likely require additional capital by the end of the second quarter of 2023 in order to continue its operations. Further, if the
Company does not raise sufficient additional capital, the Company will be in breach of its debt agreements, including under the RCD,
CD1, CD2 and Bridge Loan.
The
Company may not be able to secure the Stream or alternative funding from Sprott or another capital provider.
Neither
the Company nor any of the directors of the Company nor any other party can provide any guarantee or assurance that the Stream, the final
contemplated tranche of the full $66,000,000 project financing package, will be finalized or close, or any other funding from Sprott.
The Stream remains subject to Sprott internal approvals, full project funding, further technical and other due diligence and satisfactory
documentation. If the Stream, or a portion thereof, does not close there is no guarantee that alternative capital can be raised on terms
favorable to the Company, or at all.
Any
additional equity funding, for which there can be no guarantee or assurance with regard to any amount or terms thereof, will dilute existing
shareholders.
A
concentrate offtake agreement with Teck Resources may not be reached, which could result in less favorable commercial terms for the
sale of concentrates envisaged to be produced by the Bunker Hill Mine and could also impact the Company’s ability to secure offtake
financing. Regardless of actions taken by Teck, there can be no assurance that the Company will be able to secure or close offtake financing,
which could have an adverse effect on the Company’s financial position and negative impact the Company’s ability to secure
additional funding from Sprott or an alternative capital provider.
The
Company may not be able to execute a concentrate offtake agreement for the sale of concentrates to Teck Resources at its Trail smelter,
as contemplated with Teck’s option to acquire 100% of zinc and lead concentrate produced in the first five years at the Bunker
Hill Mine. If such an agreement cannot be reached, the Company may not be able to sell its zinc and lead concentrate to Teck, which could
result in difficulties securing alternative commercial arrangements for the sale of concentrate, less favorable commercial terms in
the event that alternative commercial arrangements can be secured, and/or higher transportation and other costs. In addition, the Company
may not be able to secure or close offtake financing, regardless of whether an agreement is reached with Teck; the terms of any offtake
financing might not be favorable to the Company; and/or the Company may incur substantial fees and costs related to such financing.
The Company’s inability to secure or close offtake financing, or arrange a suitable alternative, may have an adverse effect on
the Company’s operations and financial position, including its ability to secure the Stream from Sprott.
The
Bunker Hill Mine restart is now expected to take place in 2024, with first concentrate production targeted for mid-2024. Changes to this
timeline, or other factors impacting the restart project budget, could increase the Company’s required capital needs through the
completion of the project, which would adversely affect the Company’s ability to secure additional funding, thereby adversely affecting
its financial condition.
On
February 28, 2023, the Company announced that primarily due to the inability to procure certain long-lead items that were planned to be
ordered by February 2023, and longer estimated delivery times thereof, the Company now expects the Bunker Hill Mine restart to be achieved
in 2024. On March 10, 2023, the Company announced that it has maintained the integrity of its total pre-production budget, under the
assumption of first concentrate production in the second quarter of 2024.
In
the event that the Company is unable to secure sufficient funding to materially advance the restart of the Mine in the second quarter
of 2023, from Sprott or an alternative capital provider, it is likely that the restart timeline will be further delayed with a potentially
materially adverse effect on the pre-production budget.
Notwithstanding
financing-related risks, the Company’s pre-production budget estimates are subject to change based on factors beyond its control,
including but not limited to cost inflation and supply chain dynamics. An increase in the Company’s pre-production budget estimates
could have a materially adverse impact on its ability to secure project financing. This 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.
Payment
bonds securing $17,000,000 due by the Company to the EPA for cost recovery may not be renewable or may only be renewable on terms that
are unfavorable to the Company, which would adversely affect its financial condition or cause a default under the revised settlement
agreement with the EPA and Sprott.
In
2022, the Company secured financial assurance in the form of payment bonds in accordance with the revised settlement agreement with the
EPA, in relation to $17,000,000 of payments due to the EPA for cost recovery between 2024-2029. These bonds are renewed annually, and
currently require $6,476,000 of collateral in the form of letters of credit. To the extent that the parties providing the payment bonds
demand additional collateral beyond the current requirements, or other unfavorable terms or conditions, the Company may not be able to
renew the payment bonds on favorable conditions, or at all. This could have a materially adverse impact on the Company, including a potential
default under the revised settlement agreement with the EPA.
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 through the development
stage will require significant capital and time, and successful commercial production from the Mine will be subject to completing the
requisite studies, permitting and re-commissioning of the Mine, constructing a processing plant, 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
or some future variant would 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
Company is in the development stage.
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 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 development and production plans, and cost estimates, in the Technical Report Summary may vary and/or not be achieved.
There
is no certainty that the Technical Report Summary will be realized. The decision to implement the Mine restart scenario to be included
in the Technical Report Summary will not be based on a feasibility study of mineral reserves demonstrating economic and technical viability,
and therefore there is increased risk that the Technical Report Summary results will not be realized. If the Company is unable to achieve
the results in the Technical Report Summary, 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 wastewater 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 determines 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