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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended June 30, 2022
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to         

 

 

Commission file number: 333-150028

 

BUNKER HILL MINING CORP.

(Exact Name of Registrant as Specified in its Charter)

 

nevada   32-0196442
(State of other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

82 Richmond Street East    
Toronto, Ontario, Canada   M5C 1P1
(Address of Principal Executive Offices)   (Zip Code)

 

(416) 477-7771

(Registrant’s Telephone Number, including Area Code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒

 

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No

to this Form 10-Q. ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer

Smaller reporting company

Emerging Growth Company

 
 

Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No

 

Number of shares of Common Stock outstanding as of August 12, 2022: 219,616,571

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION 3
   
Item 1. Financial Statements 3
   
Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation 25
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
   
Item 4. Controls and Procedures 31
   
PART II – OTHER INFORMATION 32
   
Item 1. Legal Proceedings 32
   
Item 1A. Risk Factors 32
   
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds 32
   
Item 3. Defaults upon Senior Securities 32
   
Item 4. Mine Safety Disclosure 32
   
Item 5. Other Information 33
   
Item 6. Exhibits 33

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The condensed interim consolidated financial statements of Bunker Hill Mining Corp., (“Bunker Hill”, the “Company”, or the “Registrant”) a Nevada corporation, included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission. Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2021, and all amendments thereto.

 

3

 

 

Bunker Hill Mining Corp.

Condensed Interim Consolidated Balance Sheets

(Expressed in United States Dollars)

Unaudited

 

           
   June 30,   December 31, 
   2022   2021 
ASSETS          
Current assets          
Cash  $5,601,673   $486,063 
Restricted Cash (note 6)   9,476,000    - 
Accounts receivable   213,477    112,630 
Prepaid expenses (note 6)   567,084    300,813 
Short-term deposit (note 3)   1,000,000    68,939 
Prepaid mine deposit and acquisition costs (note 5)   -    2,260,463 
Prepaid finance costs   -    393,640 
Total current assets   16,858,234    3,622,548 
           
Non-current assets          
Spare parts inventory   

341,004

    - 
Equipment (note 3)   481,360    396,894 
Right-of-use assets (note 4)   -    52,353 
Bunker Hill Mine and mining interests (note 5)   14,449,211    1 
Process plant (note 3)   4,532,773    - 
Total assets  $36,662,582   $4,071,796 
           
EQUITY AND LIABILITIES          
Current liabilities          
Accounts payable  $2,193,493   $1,312,062 
Accrued liabilities   1,334,849    869,581 
EPA water treatment payable (note 6)   3,847,141    5,110,706 
Interest payable (notes 6 and 7)   906,447    409,242 
DSU liability (note 12)   551,842    1,531,409 
Promissory notes payable (note 7)   1,500,000    2,500,000 
EPA cost recovery payable - short-term (note 6)   -    11,000,000 
Current portion of lease liability (note 8)   -    62,277 
Total current liabilities   10,333,772    22,795,277 
           
Non-current liabilities          
Series 1 convertible debenture (note 7)   5,633,253    - 
Series 2 convertible debenture (note 7)   14,176,578    - 
Royalty convertible debenture (note 7)   7,078,596    - 
EPA cost recovery liability - long-term, net of discount (note 6)   7,072,410    - 
Derivative warrant liability (note 9)   11,815,548    15,518,887 
Total liabilities   56,110,157    38,314,164 
           
Shareholders’ Deficiency          
Preferred shares, $0.000001 par value, 10,000,000 preferred shares authorized; Nil preferred shares issued and outstanding (note 9)   -    - 
Common shares, $0.000001 par value, 1,500,000,000 common shares authorized; 217,640,683 and 164,435,442 common shares issued and outstanding, respectively (note 9)   216    164 
Additional paid-in-capital (note 9)   43,497,878    38,248,618 
Accumulated other comprehensive income (note 7)   371,586    - 
Deficit accumulated during the exploration stage   (63,317,255)   (72,491,150)
Total shareholders’ deficiency   (19,447,575)   (34,242,368)
Total shareholders’ deficiency and liabilities  $36,662,582   $4,071,796 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

4

 

 


Bunker Hill Mining Corp.  

Condensed Interim Consolidated Statements of Income and Comprehensive Income

(Expressed in United States Dollars)

Unaudited

 

                     
   Three Months Ended   Six Months Ended 
   June 30,   June 30 
   2022   2021   2022   2021 
Operating expenses                    
Operation and administration  $176,892   $447,463   $436,604   $1,285,408 
Exploration   -    4,123,735    -    7,212,037 
Mine preparation   1,821,223    -    4,328,302    - 
Legal and accounting   401,318    318,110    764,054    537,218 
Consulting   1,580,429    406,249    3,937,576    884,868 
Loss from operations   (3,979,862)   (5,295,557)   (9,466,536)   (9,919,531)
                     
Other income or gain (expense or loss)                    
Change in derivative liability   7,769,211    5,236,792    11,223,219    15,712,168 
Gain (loss) on foreign exchange   (249,244)   103,821    (221,324)   146,374 
Gain on FV of debentures   1,813,456    -    1,739,987    - 
Gain on EPA settlement   8,614,103    -    8,614,103    - 
Interest expense   (382,370)   -    (1,117,607)   - 
Debenture finance costs   (1,099,051)   -    (1,166,485)   - 
Finance costs   (455,653)   -    (455,653)   - 
Other income   24,191    -    24,191    - 
Loss on debt settlement   -    -    -    (56,146)
Net income for the period  $12,054,781   $45,056   $9,173,895   $5,882,865 
                     
Other comprehensive income, net of tax:                    
Gain on change in FV on own credit risk   371,586    -    371,586    - 
Other comprehensive income   371,586    -    371,586    - 
Comprehensive income  $12,426,367   $45,056   $9,545,481   $5,882,865 
                     
Dilutive effect of convertible debentures   

(836,204

)   

-

    

(865,015

)   

-

 
Dilutive effect of warrant  $-   $(175,816)  $-   $(520,066)
Diluted net income (loss) and comprehensive income (loss) for the period  $11,590,163   $(130,760)  $8,680,466   $5,362,799 
                     
Net income per common share – basic  $0.06   $0.00   $0.05   $0.04 
Net income per common share – fully diluted  $0.05   $0.00   $0.04   $0.03 
                     
Weighted average common shares – basic   210,586,156    163,677,564    187,638,287    158,916,637 
Weighted average common shares – fully diluted   245,879,831    164,381,133    214,210,598    159,944,037 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

5

 

 

Bunker Hill Mining Corp.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in United States Dollars) 

Unaudited

 

           
   Six Months   Six Months 
   Ended   Ended 
   June 30,   June 30, 
   2022   2021 
Operating activities          
Net income (loss) for the period  $9,173,895   $5,882,865 
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation   (135,128)   761,062 
Depreciation expense   129,445    117,585 
Change in fair value of warrant liability   (11,223,219)   (15,712,168)

Units issued for services

   

1,060,858

    - 
Imputed interest expense on lease liability   1,834    7,827 
Finance costs   264,435    - 
Foreign exchange loss (gain)   221,324   - 
Foreign exchange loss (gain) on re-translation of lease (Note 8)   718   4,485 
Loss on debt settlement   -    56,146 
Amortization of EPA discount   284,087    - 
Gain on fair value of convertible debt derivatives   (1,739,987)   - 
Gain on EPA debt extinguishment   (8,614,103)   - 
Changes in operating assets and liabilities:          
Restricted cash   (9,476,000)   - 
Accounts receivable   (100,847)   - 
Deposit on plant demobilization   (1,000,000)   - 
Prepaid finance costs   393,640   - 
Prepaid expenses   (617,332)   79,203 
Accounts payable   (23,224)   565,340 
Accrued liabilities   465,268    1,210,754 
Accrued EPA water treatment   (903,565)   - 
EPA cost recovery payable   (2,000,000)   - 
Interest payable – EPA   10,341    - 
Interest payable   756,614    - 
Net cash used in operating activities   (23,070,946)   (7,040,266)
           
Investing activities          
Purchase of spare inventory   

(341,004

)   - 
Land purchase   (202,000)   - 
Bunker Hill mine purchase   (5,524,322)   - 
Purchase of Process plant   (1,289,477)   - 
Purchase of machinery and equipment   (161,558)   (94,693)
Net cash used in investing activities   (7,518,361)   (94,693)
           
Financing activities          
Proceeds from convertible debentures   29,000,000    - 
Proceeds from issuance of shares, net of issue costs   7,769,745    6,008,672 
Repayment of promissory note   (1,000,000)   - 
Lease payments   (64,828)   (64,985)
Net cash provided by financing activities   35,704,917    5,943,687 
Net change in cash   5,115,610    (1,191,272)
Cash, beginning of period   486,063    3,568,661 
Cash, end of period  $5,601,673   $2,377,389 
           
Supplemental disclosures          
Non-cash activities          
Units issued to settle accounts payable and accrued liabilities  $228,421   $188,607 
Shares issued to settle interest payable   269,750    - 
Mill purchase for shares and warrants   3,243,296    - 
Units issued to settle DSU/RSU/Bonuses   872,399    - 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

6

 

 

Bunker Hill Mining Corp.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Deficiency

(Expressed in United States Dollars)

Unaudited

 

                                    
           Additional   Stock subscriptions
received for
   Accumulated other         
   Common stock   paid-in-   units to be   comprehensive   Retained     
   Shares   Amount   capital  

issued

   income  

earnings

   Total 
                             
Balance, December 31, 2021   164,435,442   $164   $38,248,618   $-   $-   $(72,491,150)  $(34,242,368)
Stock-based compensation   -    -    145,186    -    -    -    145,186 
Stock subscription received for units   -    -    -    1,775,790    -    -    1,775,790 
Net loss for the period   -    -    -    -    -    (2,880,886)   (2,880,886)
Balance, March 31, 2022   164,435,442   $164   $38,393,804   $1,775,790   $-   $(75,372,036)  $(35,202,278)
Stock-based compensation   -    -    15,922    -    -    -    15,922 
Compensation options   -    -    264,435    -    -    -    264,435 
Shares issued for interest payable   1,315,857    1    269,749    -    -    -    269,750 
Shares issued for RSUs vested   933,750    1    

(1

)   -    -    -    - 
Non brokered shares issued for $0.30 CAD   

1,471,664

    1    352,854    -    -    -    

352,855

 
Special warrant shares issued for $0.30 CAD   37,849,325    38    9,083,719    (1,775,790)   -    -    7,307,967 
Contractor shares issued for $0.30 CAD   

1,218,000

    1    

289,999

    -    -    -    

290,000

 
Shares issued for Mill purchase   10,416,667    10    1,970,254    -    -    -    1,970,264 
Issue costs   -    -    (896,009)   -    -    -    (896,009)
Warrant valuation   -    -    (6,246,848)   -    -    -    (6,246,848)

Gain on fair value from change in credit risk

   -    -    -    -    371,586    -    371,586 
Net income for the period   -    -    -    -    -    12,054,781    12,054,781 
Balance, June 30, 2022   217,640,704   $216   $43,497,878   $-   $371,586   $(63,317,255)  $(19,447,575)
                                    
Balance, December 31, 2020   143,117,068   $143   $34,551,133   $-   $-   $(66,088,873)  $(31,537,597)
Stock-based compensation   -    -    620,063    -    -    -    620,063 
Shares issued at $0.32 per share   19,576,360    20    6,168,049    -    -    -    6,168,069 
Shares issued for debt settlement at $0.45 per share   417,720    -    188,145    -    -    -    188,145 
Shares issued for RSUs vested   437,332    -    -    -    -    -    - 
Issue costs   -    -    (159,397)   -    -    -    (159,397)
Warrant valuation   -    -    (3,813,103)   -    -    -    (3,813,103)
Net income for the period   -    -    -    -    -    5,837,809    5,837,809 
Balance, March 31, 2021   163,548,480   $163   $37,554,890   $34,551,133   $-   $(60,251,064)  $(22,696,011)
Stock-based compensation   -    -    280,720    -    -    -    280,720 
Shares issued for RSUs vested   233,057    -    -    -    -    -    - 
Net income for the period   -    -    -    -    -    45,056    45,056 
Balance, June 30, 2021   163,781,537   $163   $37,835,610   $34,551,133   $-   $(60,206,008)  $(22,370,235)

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

7

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

1. Nature and Continuance of Operations and Going Concern

 

Bunker Hill Mining Corp. (the “Company”) was incorporated under the laws of the state of Nevada, U.S.A. on February 20, 2007, under the name Lincoln Mining Corp. Pursuant to a Certificate of Amendment dated February 11, 2010, the Company changed its name to Liberty Silver Corp., and on September 29, 2017, the Company changed its name to Bunker Hill Mining Corp. The Company’s registered office is located at 1802 N. Carson Street, Suite 212, Carson City, Nevada 89701, and its head office is located at 82 Richmond Street East, Toronto, Ontario, Canada, M5C 1P1. As of the date of this Form 10-Q, the Company had one subsidiary, Silver Valley Metals Corp. (formerly American Zinc Corp.), an Idaho corporation created to facilitate the work being conducted at the Bunker Hill Mine in Kellogg, Idaho.

 

The Company was incorporated for the purpose of engaging in mineral exploration activities. It continues to work at developing its project with a view towards putting it into production.

 

Going Concern:

 

These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $63,317,255 and further losses are anticipated in the development of its business. Additionally, the Company owes a total of $3,847,141 to the Environmental Protection Agency (“EPA”) (see Note 6) for water treatment that is classified as current. The Company also owes a total of $7,072,410, net of discount, to the EPA that is classified as long-term debt. The Company does not have sufficient cash to fund normal operations and meet debt obligations for the next 12 months without deferring payment on certain current liabilities and/or raising additional funds. In order to continue to meet its fiscal obligations in the current fiscal year and beyond, the Company must seek additional financing. This raises substantial doubt about the Company’s ability to continue as a going concern. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The accompanying condensed interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management is considering various financing alternatives including, but not limited to, raising capital through the capital markets, debt, and multi-metals stream financings. These unaudited condensed interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

The ability of the Company to emerge from the exploration stage is dependent upon, among other things, closing on the multi-metals stream transaction (see note 7), obtaining additional financing to continue operations, exploring and developing the mineral properties and the discovery, development, and sale of reserves.

 

COVID-19:

 

The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of epidemics, pandemics, or other health crises, including the recent outbreak of respiratory illness caused by the novel coronavirus (“COVID-19”). 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:

 

The Company’s operations could be adversely affected by the effects of the 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.

 

8

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

2. Basis of Presentation

 

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, shareholders’ deficiency, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the annual audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the year ended December 31, 2021. The financial results for the three and six months ended June 30, 2022 are not necessarily indicative of the results for the full fiscal year. The unaudited interim condensed consolidated financial statements are presented in United States dollars, which is the Company’s functional currency.

 

3. Plant & Equipment

 

Equipment consists of the following:

           
   June 30,   December 31, 
   2022   2021 
         
Equipment  $765,529   $603,972 
Equipment, gross   765,529    603,972 
Less accumulated depreciation   (284,169)   (207,078)
Equipment, net  $481,360   $396,894 

 

The total depreciation expense during the three and six months ended June 30, 2022 was $38,692 and $77,091, respectively. Compared to the three and six months ended June 30, 2021 was $34,566 and $64,396, respectively.

 

Process Plant Purchase from Teck Resources Limited

 

On January 25, 2022, the Company entered into a non-binding Memorandum of Understanding (“MOU”) with a subsidiary of Teck Resources Limited (“Teck”) for the purchase of a comprehensive package of equipment and parts inventory from its Pend Oreille site (the “Pend Oreille Mill”). 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 the Bunker Hill site, and total inventory of nearly 10,000 components and parts for mill, assay lab, conveyer, field instruments, and electrical spares. The Company paid a $500,000 non-refundable deposit in January 2022.

 

On March 31, 2022, the Company reached an agreement to satisfy the remaining purchase price by way of an equity issuance of the Company. Teck received 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 of the Company 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 mill occurred on May 13, 2022.

 

The purchase of the mill has been valued at:

 

-Cash consideration given, comprised of $500,000 nonrefundable deposit remitted on January 7, 2022 and $231,000 sales tax remitted on May 13, 2022, a total of $731,000 cash remitted.

 

9

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

-Value of common shares issued on May 13, 2022 at the market price of that day, a value of $1,970,264.
-Fair value of the warrants issued together with the inputs, as determined by a binomial model, resulted in a fair value of $1,273,032. See note 9.
-As a result, the total value of the mill purchase was determined to be $3,974,296.

 

The process plant was purchased in an assembled state in its current location, including major processing systems, significant components, and a large inventory of spare parts. The Company intends to disassemble and transport it to the Bunker Hill site, reassembling it as an integral part of the Company’s future operations. The Company determined that the transaction should be accounted for as an asset acquisition, with the process plant representing a single asset with the exception of the inventory of spare parts, which has been separated out and appears on the balance sheet as a current asset in accordance with a preliminary purchase price allocation. As the plant is demobilized, transported and reassembled, installation and other costs associated with these activities will be captured and capitalized as components of the asset.

 

At June 30, 2022, the asset consists of the following:

      
   June 30, 2022 
Deposit paid  $500,000 
Sales tax paid   231,000 
Value of shares issued   1,970,264 
Value of warrants issued   1,273,032 
Total plant & inventory purchased   3,974,296 
Site preparation costs   471,724 
Demobilization   427,756 
Less spare parts inventory   (341,004)
Pend Oreille plant asset, net  $4,532,773 

 

Additionally, at June 30, 2022, the Company has paid a refundable deposit of $1,000,000 to Teck as security while demobilization activities are ongoing. This is classified as a short-term deposit on the balance sheet.

 

4. Right-of-Use Asset

 

Right-of-use asset consists of the following:

           
  

June 30,

   December 31, 
   2022   2021 
         
Office lease  $319,133    319,133 
Less accumulated depreciation   (319,133)   (266,780)
Right-of-use asset, net  $-   $52,353 

 

The total depreciation expense during the three and six months ended June 30, 2022 was $24,442 and $52,353, respectively. Compared to the three and six months ended June 30, 2021 was $26,594 and $53,189, respectively.

 

5. Mining Interests

 

Bunker Hill Mine Complex

 

The Company purchased the Bunker Hill Mine (the “Mine”) in January 2022, as described below.

 

Prior to purchasing the Mine, the Company had entered into a series of agreements with Placer Mining Corporation (“Placer Mining”), the prior owner, for the lease and option to purchase the Mine. The first of these agreements was announced on August 28, 2017, with subsequent amendments and/or extensions announced on November 1, 2019, July 7, 2020, and November 20, 2020.

 

10

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

Under the terms of the November 20, 2020 amended agreement (the “Amended Agreement”), a purchase price of $7,700,000 was agreed, with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price of the Mine as having been previously paid by the Company) and $2,000,000 in Common Shares of the Company. The Company agreed to make an advance payment of $2,000,000, credited towards the purchase price of the Mine, which had the effect of decreasing the remaining amount payable to purchase the Mine to an aggregate of $3,400,000 payable in cash and $2,000,000 in Common Shares of the Company.

 

The amended Agreement also required payments pursuant to an agreement with the 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 Mine on January 7, 2022. The terms of the purchase price were modified to $5,400,000 in cash (previously $3,400,000 of cash and $2,000,000 of Common Shares). Concurrent with the purchase of the Mine, the Company assumed incremental liabilities of $8,000,000 to the EPA, consistent with the terms of the amended Settlement Agreement with the EPA that was executed in December 2021 (see “EPA Settlement Agreement” section below).

 

The $5,400,000 contract cash paid at purchase was the $7,700,000 less the $2,000,000 deposit and $300,000 credit given by the seller for prior years’ maintenance payments. The carrying cost of the Mine is comprised of the following:

      
   January 7, 
   2022 
     
Contract purchase price  $7,700,000 
Less: Credit by seller for prior maintenance payments   (300,000)
Net present value of water treatment cost recovery liability assumed   6,402,425 
Closing costs capitalized   2,638 
Mine acquisition costs – legal   442,147 
Total carrying cost of mine  $14,247,210 

 

Management has determined the purchase to be an acquisition of a single asset as guided by ASU 805-10.

 

Land Purchase

 

On March 3, 2022, the Company purchased a 225-acre surface land parcel for $202,000 which includes the surface rights to portions of 24 patented mining claims, for which the Company already owns the mineral rights.

 

6. Environmental Protection Agency Agreement and Water Treatment Liabilities

 

Historical Cost Recovery Payables

 

As a part of the lease of the Mine, the Company was required to make payments pursuant to an agreement with the Environmental Protection Agency (the “EPA”) whereby for so long as the Company leases, owns and/or occupies the Mine, the Company was required to make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for cost recovery related to historical treatment costs paid by the EPA from 1995 to 2017. These payments, if all are made, will total $20,000,000. The agreement called for payments starting with $1,000,000 30 days after 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 five anniversaries with a final $2,000,000 payment on November 1, 2024. The November 1, 2018, November 1, 2019, November 1, 2020, and November 1, 2021, payments were not made. As a result, a total of $11,000,000 was outstanding as of December 31, 2021, accounted for within current liabilities. As the purchase of the Bunker Hill Mine (which would trigger the immediate recognition of the remaining liabilities due through November 1, 2024) had not yet taken place, the remaining $8,000,000 cost recovery liabilities were not recognized on the Company’s balance sheet as of December 31, 2021.

 

11

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

Through 2021, 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.

 

Effective December 19, 2021, the Company entered into an amended Settlement Agreement between the Company, Idaho Department of Environmental Quality, US Department of Justice, and the EPA (the “Amended Settlement”). Upon the effectivity of the Amended Settlement, the Company would become fully compliant with its payment obligations to these parties. The Amended Settlement modified the payment schedule and payment terms for recovery of the aforementioned historical environmental response costs. Pursuant to the terms of the Amended Settlement, upon purchase of the Bunker Hill Mine and the satisfaction of financial assurance commitments (as described below), the $19,000,000 of cost recovery liabilities will be paid by the Company to the EPA on the following dates:

 

      
Date  Amount 
Within 30 days of Settlement Agreement  $2,000,000 
November 1, 2024  $3,000,000 
November 1, 2025  $3,000,000 
November 1, 2026  $3,000,000 
November 1, 2027  $3,000,000 
November 1, 2028  $3,000,000 
November 1, 2029  $2,000,000 plus accrued interest 

 

In addition to the changes in payment terms and schedule, the Amended Settlement included a commitment by the Company to secure $17,000,000 of financial assurance in the form of performance bonds or letters of credit deemed acceptable to the EPA within 180 days from the effective date of the Amended Settlement Agreement. Once put in place, the financial assurance can be drawn on by the EPA in the event of non-performance by the Company of its payment obligations under the Amended Settlement (the “Financial Assurance”). The amount of the bonds will decrease over time as individual payments are made.

 

The Company completed the purchase of the Mine (see note 5) and made the initial $2,000,000 cost recovery payment on January 7, 2022. Concurrent with the purchase of the Mine, the Company assumed the balance of the EPA liability totaling $17,000,000, an increase of $8,000,000.

 

As of March 31, 2022, the financial assurance had not yet been secured, and as such the Company accounted for the $17,000,000 liabilities according to the previous payment schedule, resulting in $12,000,000 classified as a current liability and $5,000,000 as a long-term liability. The long-term portion was discounted at an interest rate of 16.5% to arrive at a net present value of $3,402,425 after discount.

 

During the quarter ended June 30, 2022, the Company was successful in obtaining the final 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 19, 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 is secured by a $2,475,000 letter of credit. The $2,475,000 and $7,001,000 letters of credit are secured by $9,476,000 of cash deposits under an agreement with a commercial bank. These cash deposits comprise the $9,476,000 of restricted cash shown within current assets as of June 30, 2022.

 

Under ASC 470-50, Debt Modifications and Extinguishments, the Company performed a comparison of NPV’s of the pre-settlement Cost Recovery obligation to the post-settlement schedule of Cost Recovery obligation to determine this was an extinguishment of debt. The Company recorded a gain on extinguishment of debt totaling $8,614,103. The old debt, including any discount, was written off and the new payment stream of the amended $17,000,000 table, including the new discount of $9,927,590 using the effective interest rate of 19.95% was recorded to result in a net liability of $7,072,410, which is due long-term.

 

12

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

Water Treatment Charges – EPA

 

Separate to the cost recovery liabilities outlined above, the Company is responsible for the payment of ongoing water treatment charges. Water treatment charges incurred through December 31, 2021 are payable to the EPA, and charges thereafter are payable to the Idaho Department of Environmental Quality (“IDEQ”) given a handover of responsibilities for the Central Treatment Plant from the EPA to the IDEQ as of that date. The Company previously estimated a balance due to the EPA of $5,110,706 for ongoing water treatment through December 31, 2021. During the six months ended June 30, 2022, the Company received an invoice from the EPA for water treatment through October 2021. As a result, the Company reversed its previous accruals for this period and adjusted its estimated charges for November and December 2021. Through recent discussions with the EPA, the Company has confirmed that payments to the IDEQ for water treatment charges cannot be netted against invoices payable to the EPA. After taking this into account, the additional invoice received from the EPA, and a $1,000,000 payment made in April 2022, the Company has estimated water treatment payables to the EPA of $3,847,141 as of June 30, 2022 which is reflected in current liabilities.

 

Water Treatment Charges – IDEQ

 

For water treatment charges beginning January 2022, the Company makes a monthly accrual of $80,000 to cover the IDEQ’s estimated costs of treating water at the water treatment facility. The Company also pays an agreed-upon monthly amount of $140,000, with a true-up to be recorded and paid by the Company once the actual annual costs are determined each year. At June 30, 2022, the Company has accrued $480,000 for water treatment costs to IDEQ and has prepaid $840,000 leaving a net prepaid of $360,000 which is included in prepaids on the unaudited condensed interim consolidated balance sheet.

 

7. Promissory Note Payable and Convertible Debentures

 

On September 22, 2021, the Company issued a non-convertible promissory note in the amount of $2,500,000 bearing interest of 15% per annum and payable at maturity. The promissory note was scheduled to mature on March 15, 2022; however, the note holder agreed to accept $500,000 payment, which the Company paid, by April 15, 2022, and the remaining principal and interest was deferred to June 20, 2022. Prior to the revised maturity of June 20, 2022, the note holder agreed to accept a further $500,000 payment by June 30, 2022, which the Company paid, and the remaining principal and interest was deferred to November 30, 2022. The Company purchased a land parcel for approximately $202,000 on March 3, 2022, which may be used as security for the promissory note. At June 30, 2022, the Company owes $1,500,000 in promissory notes payable and is included in current liabilities on the condensed consolidated balance sheet. Interest expense for the six months ended June 30, 2022 and 2021 was $167,877 and $nil, respectively. At June 30, 2022 interest of $270,616 is included in interest payable on the condensed consolidated balance sheet.

 

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. (“SRSR”).

 

The non-binding term sheet with SRSR outlined a $50,000,000 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”).

 

$8,000,000 Royalty Convertible Debenture (RCD)

 

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.

 

13

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the RCD, including an amendment of the maturity date from July 7, 2023 to March 31, 2025. The parties also agreed to enter into a Royalty Put Option such that in the event the RCD is converted into a royalty as described above, the holder of the royalty will be entitled to resell the royalty to the Company for $8,000,000 upon default under the CD1 or CD2 until such time that the CD1 and CD2 are paid in full. The Company determined that the amendments in the terms of the RCD should not be treated as an extinguishment of the RCD, and have therefore been accounted for as modifications.

 

$6,000,000 Series 1 Convertible Debenture (CD1))

 

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 the amendments in the terms of the RCD should not be treated as an extinguishment of the CD1, and have therefore been accounted for as modifications.

 

$15,000,000 Series 2 Convertible Debenture (CD2)

 

The Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest at an annual rate of 10.5%, payable in cash or shares at the Company’s option, and 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.

 

In light of the Series 2 Convertible Debenture financing, the previously permitted additional senior secured indebtedness of up to $15 million for project finance has been removed.

 

The Company determined that in accordance with ASC 815, each debenture will be valued and carried as a single instrument, with the periodic changes to fair value accounted through earnings, profit and loss.

 

Consistent with the approach above, the following table summarizes the key valuation inputs:

                                     
Reference (2)(4) (5) 

Valuation

date

 

Maturity

date

 

Contractual

Interest

rate

  

Stock

price

(US$)

  

Expected

equity

volatility

  

Credit

spread

  

Risk-

free

rate

  

Risk-

adjusted

rate

 
CD1 note (1)(3)  01-28-22  07-07-23   7.50%   0.230    120%   8.70%   0.92%   16.18%
RCD note (stream not advanced scenario)  01-07-22  07-07-23   9.00%   0.242    130%   9.21%   0.65%   16.39%
RCD note (stream advanced) scenario  01-07-22  06-30-22   9.00%   0.242    130%   9.16%   0.23%   15.96%
CD1 note (1)(3)  03-31-22  07-07-23   7.50%   0.235    120%   8.85%   1.80%   17.12%
RCD note (stream not advanced scenario)  03-31-22  07-07-23   9.00%   0.235    120%   8.85%   1.80%   17.12%
RCD note (stream advanced) scenario  03-31-22  06-30-22   9.00%   0.235    120%   8.78%   0.52%   15.88%
CD2 note  06-17-22  03-31-25   10.50%   0.222    120%   9.45%   3.28%   20.95%
CD2 note  06-30-22  03-31-25   10.50%   0.225    120%   10.71%   2.95%   21.78%
CD1 note  06-30-22  03-31-25   7.50%   0.233    120%   10.71%   2.95%   19.89%
RCD note (stream not advanced scenario)  06-30-22  03-31-25   9.00%        120%   10.71%   2.95%   19.89%
RCD note (stream advanced) scenario  06-30-22  09-30-22   9.00%        120%   10.85%   1.72%   18.89%

 

  (1) The CD carries a Discount for Lack of Marketability (“DLOM”) of 5.0%.
  (2) All instruments carry an instrument-specific spread of 7.23%
  (3) The conversion price of the CD is $0.235
  (4) A project risk rate of 13.0% was used for all scenarios of the RCD fair value computations
  (5) The probabilities for the stream being advanced and the stream not being advanced is 55% and 45%, respectively.

 

14

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

The resulting fair values of the CD1, RCD, and CD2 at the issuance dates, March 31, 2022, and as of June 30, 2022 were as follows:

Instrument Description 

Issuance date

CD1 and RCD

  

Issuance date

CD2

   March 31, 2022   June 30, 2022 
CD1  $6,320,807   $-   $6,303,567   $5,633,253 
RCD   7,679,193    -    7,886,473    7,078,596 
CD2   -    15,000,000    -    14,176,578 
Total  $14,000,000   $15,000,000   $14,190,040   $26,888,427 

 

The total gain on fair value of debentures recognized during the three and six months ended June 30, 2022 was $1,813,456 and $1,739,987, respectively. The portion of changes in fair value that is attributable to changes in the Company’s credit risk is accounted for within other comprehensive income. During the three and six months ended June 30, 2022, the Company recognized $371,255 within other comprehensive income.

 

The Company performs quarterly testing of the covenants in the RCD, CD1 and CD2, and was in compliance with all such covenants as of June 30, 2022.

 

The Stream

 

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 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 (subsequently amended, as described below). 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 June 30, 2022, the Stream had not been advanced.

 

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.

 

8. Lease Liability

 

The Company had an operating lease for office space that expired in May 2022. Below is a summary of the Company’s lease liability as of June 30, 2022:

 

   Office lease 
     
Balance, December 31, 2020  $176,607 
Addition   - 
Interest expense   12,696 
Lease payments   (129,191)
Foreign exchange loss   2,165 
Balance, December 31, 2021   62,277 
Addition   - 
Interest expense   1,834 
Lease payments   (64,828)
Foreign exchange loss   717 
Balance, June 30, 2022  $- 

 

15

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

9. Capital Stock, Warrants and Stock Options

 

Authorized

 

The total authorized capital is as follows:

 

  An increase to 1,500,000,000 common shares, as approved in the July 29, 2002 annual meeting of shareholders, with a par value of $0.000001 per common share; and
  10,000,000 preferred shares with a par value of $0.000001 per preferred share

 

Issued and outstanding

 

In February 2021, the Company closed a non-brokered private placement of units of the Company (the “February 2021 Offering”), issuing 19,576,360 units of the Company (“February 2021 Units”) at C$0.40 per February 2021 Unit for gross proceeds of $6,168,069 (C$7,830,544). Each February 2021 Unit consisted of one common share of the Company and one common share purchase warrant of the Company (each, “February 2021 Warrant”), which entitles the holder to acquire a common share of the Company at C$0.60 per common share for a period of five years. In connection with the February 2021 Offering, the Company incurred share issuance costs of $154,630 and issued 351,000 compensation options (the “February 2021 Compensation Options”). Each February 2021 Compensation Option is exercisable into one February 2021 Unit at an exercise price of C$0.40 for a period of three years.

 

The Company also issued 417,720 February 2021 Units to settle $132,000 of accrued liabilities at a deemed price of $0.45 based on the fair value of the units issued. As a result, the Company recorded a loss on debt settlement of $56,146.

 

In April 2022, the Company closed a private placement of 37,849,325 Special Warrants and a non-brokered private placement of 1,471,664 units of the Company for aggregate gross proceeds of approximately C$11,796,297. Related parties, including management, directors, and consultants, participated in the Special Warrant private placement for a total of 4,809,160 shares (included in the total above).

 

The Special Warrants were issued at a price of C$0.30 per special warrant. Each Special Warrant shall be automatically exercisable (without payment of any further consideration and subject to customary anti-dilution adjustments) into one unit of the Company (a “Brokered Unit”) on the date that is the earlier of: (i) the date that is three (3) business days following the date on which the Company has obtained both (A) a receipt from the Canadian security commission in each of the each of the provinces of Canada which the purchasers and Agents (as defined herein) are residents where the Special Warrants are sold (the “Qualifying Jurisdictions”) for a (final) short-form prospectus qualifying the distribution of the common stock of the Company (“Common Shares”) and common stock purchase warrants of the Company (the “Warrants”) issuable upon exercise of the Special Warrants (the “Qualification Prospectus”); and (B) notification that the registration statement, under U.S. securities laws, of the Company filed with the United States Securities and Exchange Commission (the “SEC”) has been declared effective by the SEC (the “Registration Statement”); and (ii) the date that is six months following April 1, 2022 (the “Closing ‎Date”). Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one common share for C$0.37 until April 1, 2025. The warrants shall also be exercisable on a cashless basis in the event the Registration Statement has not been made effective by the SEC prior to the date of exercise.

 

16

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

On May 31, 2022 the Company announced that it had received a receipt from the Ontario Securities Commission for its final short-form Canadian prospectus qualifying the distribution of the common stock of the Company and common stock purchase warrants of the Company issuable upon exercise of the special warrants of the Company that were issued on April 1, 2022. The Company also announced that it received notice from the United States Securities and Exchange Commission that its Form S-1 has been declared effective as of May 27, 2022. As a result of obtaining the receipt for the Canadian prospectus and the declaration of effectiveness for the Form S-1, each unexercised Special Warrant was automatically exercised into one Common Share and one Warrant without further action on the part of the holders.

 

The non-brokered 1,471,664 units were issued at a price of C$0.30 per unit. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$0.37 until April 1, 2025.

 

In connection with the special warrants offering, the agents earned a cash commission in the amount of C$563,968 and compensation options exercisable to acquire an aggregate of 1,879,892 units of the Company at C$0.30 a unit until April 1, 2024. Each compensation unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$0.37 until April 1, 2024.

 

In April 2022, the Company issued 1,315,856 common shares in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ended March 31, 2022.

 

In May 2022, the Company issued 10,416,667 units to Teck Resources Limited in consideration towards the purchase of the Pend Oreille Processing Plant at C$0.245 per unit. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for $0.37 until May 13, 2025.

 

In June 2022, the Company issued 1,218,000 units to contractors for bonuses accrued during the three months ended March 31, 2022. Each unit consists of one common share and one warrant. Each warrant entitles the holder to acquire one warrant share for C$0.37 until April 1, 2025.

 

For each financing, the Company has accounted for the warrants in accordance with ASC Topic 815. The warrants are considered derivative instruments as they were issued in a currency other than the Company’s functional currency of the U.S. dollar. The estimated fair value of warrants accounted for as liabilities was determined on the date of issue and marks to market at each financial reporting period. The change in fair value of the warrant is recorded in the unaudited condensed interim consolidated statements of income and comprehensive income as a gain or loss and is estimated using the Binomial model.

 

The warrant liabilities as a result of the June 2019, August 2019, August 2020, February 2021, April 2022 special warrants, April 2022 non-brokered, May 2022 Teck purchase, and June 2022 contractor private placements were revalued as at June 30, 2022 and December 31, 2021 using the Binomial model and the following assumptions:

 

April 2022 special warrants issuance  June 30, 2022   December 31, 2021 
Expected life   1,006 days    - 
Volatility   120%   -%
Risk free interest rate   3.14%   -%
Dividend yield   0%   -%
Share price  $0.20   $- 
Fair value  $3,524,693   $- 
Change in derivative liability  $-   $- 

 

April 2022 non-brokered issuance  June 30, 2022   December 31, 2021 
Expected life   1,006 days    - 
Volatility   120%   -%
Risk free interest rate   3.14%   -%
Dividend yield   0%   -%
Share price  $0.20   $- 
Fair value  $137,046   $- 
Change in derivative liability  $-   $- 

 

17

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

May 2022 Teck issuance  June 30, 2022   December 31, 2021 
Expected life   1,048 days              - 
Volatility   120%   -%
Risk free interest rate   3.14%   -%
Dividend yield   0%   -%
Share price  $0.20   $- 
Fair value  $991,063   $- 
Change in derivative liability  $-   $- 

 

June 2022 issuance  June 30, 2022   December 31, 2021 
Expected life   1,006 days               - 
Volatility   120%   -%
Risk free interest rate   3.14%   -%
Dividend yield   0%   -%
Share price  $0.20   $- 
Fair value  $113,425   $- 
Change in derivative liability  $-   $- 

 

February 2021 issuance  June 30, 2022   December 31, 2021 
Expected life   1,320 days    1,501 days 
Volatility   120%   100%
Risk free interest rate   3.14%   1.25%
Dividend yield   0%   0%
Share price  $0.20   $0.37 
Fair value  $1,896,071   $3,483,745 
Change in derivative liability  $(1,587,675)  $(329,358)

 

August 2020 issuance  June 30, 2022   December 31, 2021 
Expected life   427 days    608 days 
Volatility   120%   100%
Risk free interest rate   3.10%   0.95%
Dividend yield   0%   0%
Share price  $0.20   $0.37 
Fair value  $2,456,021   $6,790,163 
Change in derivative liability  $(4,334,142)  $(7,703,052)

 

June 2019 issuance (i)  June 30, 2022   December 31, 2021 
Expected life   1,280 days    1,461 days 
Volatility   120%   100%
Risk free interest rate   3.14%   1.02%
Dividend yield   0%   0%
Share price  $0.20   $0.37 
Fair value  $1,063,208   $2,067,493 
Change in derivative liability  $(1,004,285)  $(1,371,346)

 

(i) During the six months ended December 31, 2020, the Company amended the exercise price to C$0.59 per common share and extended the expiry date to December 31, 2025 for 11,660,000 warrants.

 

August 2019 issuance (ii)  June 30, 2022   December 31, 2021 
Expected life   1,280 days    1,461 days 
Volatility   120%   100%
Risk free interest rate   3.14%   1.02%
Dividend yield   0%   0%
Share price  $0.20   $0.37 
Fair value  $1,634,021   $3,177,485 
Change in derivative liability  $(1,543,464)  $(2,744,785)

 

(ii) During the six months ended December 31, 2020, the Company amended the exercise price to C$0.59 per common share and extended the expiry date to December 31, 2025 for 17,920,000 warrants. The terms of the remaining 2,752,900 warrants remain unchanged.

 

18

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

Warrants

 

       Weighted   Weighted 
       average   average 
   Number of   exercise price   grant date 
   warrants   (C$)   value ($) 
             
Balance, December 31, 2020   95,777,806   $0.54   $0.08 
Issued   19,994,080    0.60    0.19 
Balance, June 30, 2021   115,771,886   $0.55   $0.10 
                
Balance, December 31, 2021   111,412,712   $0.54   $0.18 
Issued   50,955,636    0.37    0.15 
Expired   (239,284)   0.70    0.21 
Balance, June 30, 2022   162,129,064   $0.49   $0.17 

 

During the six months ended June 30, 2022, 239,284 February 2020 broker warrants expired.

 

At June 30, 2022, the following warrants were outstanding:

 

           Number of 
   Exercise   Number of   warrants 
Expiry date  price (C$)   warrants   exercisable 
             
August 31, 2023   0.50    58,284,148    58,284,148 
December 31, 2025   0.59    32,895,200    32,895,200 
February 9, 2026   0.60    17,112,500    117,112,500 
February 16, 2026   0.60    2,881,580    2,881,580 
April 1, 2025   0.37    40,358,969    40,358,969 
May 13, 2025   0.37    10,416,667    10,416,667 
         162,129,064    162,129,064 

 

Broker options

 

At June 30, 2022, the following broker options were outstanding:

 

       Weighted 
   Number of   average 
   broker   exercise price 
   options   (C$) 
         
Issued - August 2020 Compensation Options   3,239,907   $0.35 
Balance, December 31, 2020   3,239,907    0.35 
Issued – February 2021 Compensation Options   351,000    0.35 
Balance, December 31, 2021   3,590,907    0.35 
Issued – April 2022 Compensation Options   1,879,892    0.30 
Balance, June 30, 2022   5,470,799   $0.34 

 

19

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

The grant date fair value of the August 2020 and February 2021, and April 2022 Compensation Options were estimated at $521,993, $68,078 and $264,435 respectively, using the Black-Scholes valuation model with the following underlying assumptions:

 

Grant Date  Risk free interest rate   Dividend yield   Volatility   Stock price   Weighted average life 
August 2020   0.31%   0%   100%   C$0.35    3 years 
February 2021   0.26%   0%   100%   C$0.40    3 years 
April 2022   2.34%   0%   120%   C$0.30    2 years 

 

   Exercise   Number of   Fair value 
Expiry date  price (C$)   broker options   ($) 
             
August 31, 2023 (i)  $0.35    3,239,907   $521,993 
February 16, 2024 (ii)  $0.40    351,000   $68,078 
April 1, 2024 (iii)  $0.30    1,879,892   $264,435 
         5,470,799   $854,506 

 

(i) Exercisable into one August 2020 Unit
(ii) Exercisable into one February 2021 Unit
(iii) Exercisable into one April 2022 Unit

 

Stock options

 

The following table summarizes the stock option activity during the six months ended June 30, 2022:

 

       Weighted 
       average 
   Number of   exercise price 
   stock options   (C$) 
         
Balance, December 31, 2020   8,015,159   $0.62 
Granted (i)   1,037,977    0.34 
Balance, December 31, 2021   9,053,136   $0.58 
Expired May 01, 2022   

47,500

      
Balance, June 30, 2022   9,005,636   $0.58 

 

(i)On February 19, 2021, 1,037,977 stock options were issued to an officer of the Company, of which 273,271 stock options vested immediately and the balance of 764,706 stock options vested on December 31, 2021. These options have a 5-year life and are exercisable at C$0.335 per common share. The grant date fair value of the options was estimated at $204,213. The vesting of these options resulted in stock-based compensation of $204,213 for the year ended December 31, 2021, which is included in operation and administration expenses on the consolidated statements of income (loss) and comprehensive income (loss).

 

The fair value of these stock options was determined on the date of grant using the Black-Scholes valuation model, and using the following underlying assumptions:

 

   

Risk free

interest rate

   Dividend yield   Volatility   Stock price  

Weighted

average life

 
 (i)    0.64%   0%   100%   C$0.34    5 years 

 

20

 

 

Bunker Hill Mining Corp.

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2022

(Expressed in United States Dollars)

 

The following table reflects the actual stock options issued and outstanding as of June 30, 2022:

  

    Weighted average       Number of     
    remaining   Number of   options     
Exercise   contractual   options   vested   Grant date 
price (C$)   life (years)   outstanding   (exercisable)   fair value ($) 
0.50