Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(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. (“Silver
Valley”, 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 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.
Going
Concern:
These
consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting
in an accumulated deficit of $71,592,559 and further losses are anticipated in the development of its business. 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 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 closing
on the multi-metals stream transaction (see note 8). These 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.
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”).
Although the pandemic has subsided significantly, the Company cannot accurately predict the impact a COVID-19 resurgence 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:
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.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
2.
Basis of presentation
The
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America applicable to exploration stage enterprises. The consolidated financial statements are expressed in U.S. dollars,
the Company’s functional currency.
3.
Significant accounting policies
The
following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.
Basis
of consolidation
These
consolidated financial statements include the assets, liabilities and expenses of the Company and its wholly owned subsidiary, Silver
Valley Metals Corp. (formerly American Zinc Corp.). All intercompany transactions and balances have been eliminated on consolidation.
Cash
and cash equivalents
Cash
and cash equivalents may include highly liquid investments with original maturities of three months or less.
Mineral
rights, property and acquisition costs
The
Company transitioned from the exploration stage to the development stage at the beginning of the fourth quarter of 2022. The Company
has not yet realized any revenues from its planned operations.
The
Company capitalizes acquisition and option costs of mineral rights as intangible assets when there is sufficient evidence to support
probability of generating positive economic returns in the future. Upon commencement of commercial production, the mineral rights will
be amortized using the unit-of-production method over the life of the mineral rights. If the Company does not continue with exploration
after the completion of the feasibility study, the mineral rights will be expensed at that time.
The
costs of acquiring mining properties are capitalized upon acquisition. Mine development costs incurred to develop and expand the capacity
of mines, or to develop mine areas in advance of production, are also capitalized once proven and probable reserves exist and the property
is a commercially mineable property. Costs incurred to maintain current exploration or to maintain assets on a standby basis are charged
to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates the carrying value of capitalized
mining costs and related property and equipment costs, to determine if these costs are in excess of their recoverable amount whenever
events or changes in circumstances indicate that their carrying amounts may not be recoverable. Evaluation of the carrying value of capitalized
costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance
with Accounting Standards Codification (FASB ASC) 360-10-35, Impairment or Disposal of Long-Lived Assets.
Equipment
Equipment
is stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated
useful lives of the assets, which range from 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Upon
sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss
is reflected in other income or gain (expense or loss).
The
Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives
of equipment or whether the remaining balance of the equipment should be evaluated for possible impairment. If events and circumstances
warrant evaluation, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the equipment in measuring
their recoverability.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
Leases
Operating
lease right of use (“ROU”) assets represent the right to use the leased asset for the lease term and operating lease liabilities
are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases
do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date
in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over
the lease term and is included in operation and administration expenses in the consolidated statements of Income (loss) and comprehensive Income (loss).
The
Company is required to make additional payments for certain variable costs. These costs are expensed and included in operation and administration
expenses in the consolidated statements of loss and comprehensive loss. Rental income obtained through subleases is recorded as income
over the lease term and is offset against operation and administration expenses.
Impairment
of long-lived assets
The
Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying
amounts may not be recoverable. The assets are subject to impairment consideration under FASB ASC 360, Property, Plant and Equipment,
if events or circumstances indicate that their carrying amount might not be recoverable. When the Company determines that an impairment
analysis should be done, the analysis is performed using the rules of FASB ASC 930-360-35, Extractive Activities – Mining, and
360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets.
Various
factors could impact the Company’s ability to achieve forecasted production schedules. Additionally, commodity prices, capital
expenditure requirements and reclamation costs could differ from the assumptions the Company may use in future production cash flow
models when compared to factors used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals
from development stage mineral interests involves further risks in addition to those factors applicable to mineral interests where
proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material can
ultimately be mined economically.
Fair
value of financial instruments
The
Company adopted FASB ASC 820-10, Fair Value Measurement. This guidance defines fair value, establishes a three-level valuation hierarchy
for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined
as follows:
| ● |
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● |
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● |
Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The carrying amounts reported in the consolidated balance sheets for cash,
restricted cash, accounts receivable excluding HST, accounts payable, accrued liabilities, interest payable, promissory notes payable,
environmental protection agency water treatment payable, environmental protection agency cost recovery payable, and lease liability, all
of which qualify as financial instruments, are a reasonable estimate of fair value because of the short period of time between the origination
of such instruments and their expected realization and current market rate of interest. The carrying amounts of convertible loans are
reported at estimated fair values as a result of the application of fair value models at each quarter end. The Company measured its DSU
liability at fair value on recurring basis using level 1 inputs. Derivative warrant liabilities and convertible debentures are measured
at fair value on recurring basis using level 3 inputs.
Environmental
expenditures
The
operations of the Company have been, and may in the future be, affected from time to time, in varying degrees, by changes in environmental
regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall
effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet, or if possible, surpass standards
set by relevant legislation, by application of technically proven and economically feasible measures.
Environmental
expenditures that relate to ongoing environmental and reclamation programs are expensed as incurred or capitalized and amortized depending
on their future economic benefits. Estimated future reclamation and site restoration costs, when the ultimate liability is reasonably
determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
Income
taxes
The
Company accounts for income taxes in accordance with Accounting Standard Codification 740, Income Taxes (“FASB ASC 740”),
on a tax jurisdictional basis. The Company files income tax returns in the United States.
Deferred
tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of
assets and liabilities and the consolidated financial statements reported amounts using enacted tax rates and laws in effect in the year
in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined
to be more likely than not that the deferred tax asset will not be realized.
The
Company assesses the likelihood of the consolidated financial statements effect of a tax position that should be recognized when it is
more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the
tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities
in jurisdictions such as the United States. Management does not believe that there are any uncertain tax positions that would result
in an asset or liability for taxes being recognized in the accompanying consolidated financial statements. The Company recognizes tax-related
interest and penalties, if any, as a component of income tax expense.
FSAB
ASC 740 prescribes recognition threshold and measurement attributes for the consolidated financial statements recognition and measurement
of a tax position taken, or expected to be taken, in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification,
interest and penalties, accounting in periods, disclosure and transition. At December 31, 2022, December 31, 2021, the Company has not
taken any tax positions that would require disclosure under FASB ASC 740.
Basic
and diluted net income (loss) per share
The
Company computes net income (loss) per share in accordance with FASB ASC 260, Earnings per Share (“FASB ASC 260”). Under the provisions
of FASB ASC 260, basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding
during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options, RSU’s, warrants
and the conversion of convertible loan payable. As of December 31, 2022, 9,005,636 stock options, 162,129,064 warrants, and 5,470,799
broker options were considered in the calculation but not included, as they were anti-dilutive (December 31, 2021 – 9,053,136 stock
options, 111,412,712 warrants, and 3,590,907 broker options).
Stock-based
compensation
In
December 2004, FASB issued FASB ASC 718, Compensation – Stock Compensation (“FASB ASC 718”), which establishes standards
for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions
in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity
instruments or that may be settled by the issuance of those equity instruments. FASB ASC 718 focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based payment transactions. FASB ASC 718 requires that the compensation cost relating
to share-based payment transactions be recognized in the consolidated financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued.
The
Company accounts for stock-based compensation arrangements with non-employees in accordance with ASU 505-50, Equity-Based Payments to
Non-Employees, which requires that such equity instruments are recorded at the value on the grant date based on fair value of the equity
or goods and services whichever is more reliable.
Restricted
share units (“RSUs”)
The
Company estimates the grant date fair value of RSUs using the Company’s common shares at the grant date. The Company records the
value of the RSUs in paid-in capital.
Deferred
share units (“DSUs”)
The
Company estimates the grant date fair value of the DSUs using the trading price of the Company’s common shares on the day of grant.
The Company records the value of the DSUs owing to its directors as DSU liability and measures the DSU liability at fair value at each
reporting date, with changes in fair value recognized as stock-based compensation in profit (loss).
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
Use
of estimates and assumptions
Many
of the amounts included in the consolidated financial statements require management to make judgments and/or estimates. These judgments
and estimates are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances.
Actual results may differ from the amounts included in the consolidated financial statements.
Areas
of significant judgment and estimates affecting the amounts recognized in the consolidated financial statements include:
Going
concern
The
assessment of the Company’s ability to continue as a going concern involves judgment regarding future funding available for its
operations and working capital requirements as discussed in note 1.
Accrued
liabilities
The
Company has to make estimates to accrue for certain expenditures due to delay in receipt of third-party vendor invoices. These accruals
are made based on trends, history and knowledge of activities. Actual results may be different. The Company makes monthly estimates of
its water treatment costs, with a true-up to the annual invoice received from the Idaho Department of Environmental Quality (“IDEQ”).
Using the actual costs in the annual invoice, the Company then reassesses its estimate for future periods. Given the nature, complexity
and variability of the various actual cost items included in the invoice, the Company has used the most recent invoice as its estimate
of the water treatment costs for future periods.
Convertible
loans, promissory notes and warrants
Estimating
the fair value of derivative warrant liability requires determining the most appropriate
valuation model, which is dependent on the terms and conditions of the issuance. This estimate also requires determining the most appropriate
inputs to the valuation model including the expected life of the warrants derivative liability, volatility and
dividend yield and making assumptions about them. The assumptions and models used for estimating fair value of warrants derivative liability are disclosed in Notes 9 and 11.
The fair value estimates of the convertible loans
use inputs to the valuation model that include risk-free rates, equity value per common share, USD-CAD exchange rates, spot and futures
prices of minerals, expected equity volatility, expected volatility in minerals prices, discount for lack of marketability, credit spread,
expected mineral production over the life of the mine, and project risk/estimation risk factors. See Note 11 for full disclosures related
to the convertible loans and promissory notes.
The
fair value estimates may differ from actual fair values and these differences may be significant and could have a material impact on
the Company’s balance sheets and the consolidated statements of operations. Assets are reviewed for an indication of impairment
at each reporting date. This determination requires significant judgment. Factors that could trigger an impairment review include, but
are not limited to, significant negative industry or economic trends, interruptions in exploration activities or a significant drop in
precious metal prices.
Reclassifications
Certain
reclassifications have been made to conform prior year’s data to the current presentation. The reclassifications have no effect
on the results of reported operations or stockholders’ deficit or cash flows.
Concentrations
of credit risk
The
Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and restricted cash. The Company
places its cash with financial institutions of high credit worthiness. At times, its cash equivalents with a particular financial
institution may exceed any applicable government insurance limits. The Company’s management also routinely assesses the
financial strength and credit worthiness of any parties to which it extends funds and as such, it believes that any associated
credit risk exposures are limited.
Risks
and uncertainties
The
Company operates in the mineral resource exploration and mine development industry that is subject to significant risks and uncertainties,
including financial, operational, and other risks associated with operating a mineral resource exploration business, including the potential
risk of business failure.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
Foreign
currency transactions
The
Company from time to time will receive invoices from service providers that are presenting their invoices using the Canadian dollar.
The Company will use its U.S. dollars to settle the Canadian dollar liabilities and any differences resulting from the exchange transaction
are reported as gain or loss on foreign exchange.
Convertible
loans and promissory notes payable
The
Company reviews the terms of its convertible loans and promissory notes payable to determine whether there are embedded derivatives,
including the embedded options, that are required to be bifurcated and accounted for as individual derivative financial instruments.
In circumstances where the convertible loans or the promissory note contains embedded derivatives that are to be separated from the host
contracts, the total proceeds received are first allocated to the fair value of the derivative financial instruments determined using
the binomial model. The remaining proceeds, if any, are then allocated to the debenture cost contracts, usually resulting in those instruments
being recorded at a discount from their principal amount. This discount is accreted over the expected life of the instruments to profit
(loss) using the effective interest method. In circumstances where the convertible loans or the promissory note contains embedded derivatives that are not separated
from the host contracts, the fair values of the host contract and the derivative are valued together, with the change in fair value accounted
through earnings, profit and loss for each period reported.
The
debenture host contracts are subsequently recorded at amortized cost at each reporting date, using the effective interest method. The
embedded derivatives are subsequently recorded at fair value at each reporting date, with changes in fair value recognized in profit
(loss).
The Company applies ASC 480 distinguishing liabilities
from equity and ASC 815 derivatives and hedging in determining the appropriate accounting treatment for hybrid instruments. The embedded
options within the convertible loans are not bifurcated and measured at fair value at each period end.
Recent Accounting Pronouncements
Accounting
Standards Updates Adopted
In August
2020, the FASB issued ASU No. 2020-06 Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated
with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity.
The update is effective for fiscal years beginning after December 15, 2023 for smaller reporting companies, including interim
periods within those fiscal years and with early adoption permitted. The Company is assessing the impact from the adoption of this amendment.
Management does
not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect
on the accompanying financial statements.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
4. Accounts receivable and prepaid expenses
Accounts receivable and prepaid expenses consists
of the following:
Schedule of Accounts receivable and prepaid expenses
| | |
December 31, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Prepaid expenses | |
$ | 386,218 | | |
$ | 413,443 | |
| Environment protection agency overpayment (note 8) | |
| 170,729 | | |
| - | |
| Total | |
$ | 556,947 | | |
$ | 413,443 | |
5.
Equipment
Equipment
consists of the following:
Schedule of Equipment
| | |
December
31, | | |
December
31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Equipment | |
$ | 920,571 | | |
$ | 603,972 | |
| Equipment, gross | |
| 920,571 | | |
| 603,972 | |
| Less
accumulated depreciation | |
| (369,367 | ) | |
| (207,078 | ) |
| Equipment,
net | |
$ | 551,204 | | |
$ | 396,894 | |
The
total depreciation expense during the year ended December 31, 2022, was $162,290 (year ended December 31, 2021 - $133,526).
Process
Plant Purchase from Teck Resources Limited
On
May 13, 2022, the Company completed purchase of a comprehensive package of equipment and parts inventory from Teck Resources Limited
(“Teck”). The package comprises substantially all processing equipment of value located at the Pend Oreille mine site, including
complete crushing, grinding and flotation circuits suitable for a planned ~1,500 ton-per-day operation at the Bunker Hill site, and total
inventory of nearly 10,000 components and parts for mill, assay lab, conveyer, field instruments, and electrical spares.
The
purchase of the mill has been valued at:
| |
- |
Cash
consideration given, comprised of $500,000 non-refundable deposit remitted on January 7, 2022 and $231,000 sales tax remitted on May
13, 2022, a total of $731,000 cash remitted. |
| |
- |
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 10. |
| |
- |
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 the seller’s location, and included major processing systems, significant
components, and a large inventory of spare parts. The Company has disassembled and transported it to the Bunker Hill site, and will be
reassembling it as an integral part of the Company’s future operations. The Company determined that the transaction should be accounted
for as an asset acquisition, with the process plant representing a single asset, with the exception of the inventory of spare parts,
which has been separated out and appears on the balance sheets 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.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
At
December 31, 2022, the asset consists of the following:
Schedule
of Plant Asset Consists
| | |
December
31, 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 | |
| 2,296,266 | |
| Demobilization | |
| 2,201,414 | |
| Less
spare parts inventory | |
| (341,004 | ) |
| Pend
Oreille plant asset, net | |
$ | 8,130,972 | |
Ball
Mill upgrade
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 long-term deposit
$100,000
on October 13, 2022, as a refundable long-term deposit
As
of December 31, 2022, the Company had not made the final payment of $475,000.
6.
Right-of-use asset
Right-of-use
asset consists of the following:
Schedule
of Right-of-use Asset
| | |
December
31, | | |
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 year ended December 31, 2022 was $52,353 (year ended December 31, 2021 - $106,378).
7.
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.
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. On November 20, 2020 the Company made 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.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
The
Amended Agreement also required 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 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. (See also Note 8 Environmental
Protection Agency Agreement).
Prior to the completion of the sale, the Company accrued
$260,463 in acquisition costs during the year ended December 31, 2021. Together with the $2,000,000 advance payment made in November 2020,
this comprises the balance of $2,260,463 for prepaid mine deposit and acquisition costs on the balance sheet as of December 31, 2021.
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, 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 also Note 8 Environmental protection Agency Agreement).
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. Management has determined the purchase to be an acquisition of a single asset as guided by ASU
805-10 Business Combinations.
The
carrying cost of the Mine is comprised of the following:
Schedule
of Mining Interests
| | |
December
31, | |
| | |
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 (note 8) | |
| 6,402,425 | |
| Closing
costs capitalized | |
| 2,638 | |
| Mine
acquisition costs - legal | |
| 442,147 | |
| Carrying
cost of mine – January 7, 2022 | |
$ | 14,247,210 | |
| Capitalized
mining costs – 2022 | |
| 1,447,435 | |
| Carrying
cost of mine - total | |
$ | 15,694,645 | |
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.
8.
Environmental Protection Agency
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 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 consolidated balance sheets as of December 31, 2021.
Through
2021, the Company engaged in discussions with the EPA to reschedule these payments in ways that enable the sustainable operation of the
Mine as a viable long-term business.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
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:
Schedule
of Amended Settlement Environmental Protection Agency Agreement
| 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. 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 7) 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. This was capitalized as $6,402,425 to the carrying value of the Bunker Hill Mine at time of purchase, comprised of
$3,000,000 of incremental current liabilities and $5,000,000 of non-current liabilities (discounted to $3,402,425). See note 7.
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 $3,540,851 after discount ($3,402,425 as of the purchase of the mine plus $138,427 of accretion expense during the quarter
ended March 31, 2022.
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 Amendment Settlement. Once the financial assurance was put into place, the
restructuring of the payment stream under the Amendment Settlement 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 September 30, 2022.
During
the quarter ended December 31, 2022 the $7,001,000 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). As a result of the $3,000,000 net decrease
in the Company’s letter of credit requirements, the Company’s restricted cash balance (utilized as collateral for letters
of credit) decreased by $3,000,000 from $9,476,000 as of September 30, 2022 to $6,476,000 as of December 31, 2022.
Under
ASC 470-50, Debt Modifications and Extinguishments, the Company performed a comparison of net present value 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. During the year ended December 31, 2022, the Company recorded combined discount amortization expense of $712,713
on the discounted pre- and post-extinguishment
liability, and interest expense of $156,343 respectively, bringing the net liability to $7,941,466. As at December 31, 2022 interest of $24,587 ($306,501
at December 31, 2021) is included in interest payable
on the consolidated balance sheets.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(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 were 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 had estimated water treatment payables to the EPA of $nil as of December 31, 2022 and $5,110,706 at
December 31, 2021, which is reflected in current liabilities.
Water
Treatment Charges – IDEQ
For
the year ended December 31, 2022, the Company made net payments of $1,400,000
(12 monthly payments of $140,000
less $280,000
refund received in December 2022) to the IDEQ to estimate the cost of treating water at the Central Treatment Plant. As of December
31, 2022, a prepaid expense of $170,729
represents the difference between the actual cost of water treatment through December 31, 2022 and net payments made by the Company
to the IDEQ. This balance has been recognized on the consolidated balance sheets as accounts receivable and prepaid
expenses.
9.
Promissory notes 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. The remaining principal and interest has been deferred to June 15, 2023. 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 December 31, 2022, the Company owes $1,500,000 in
promissory notes payable, which is included in current liabilities on the consolidated balance sheets. Interest expense for the years
ended December 31, 2022 and 2021 was $281,301 and $102,740 respectively. At December 31, 2022 interest of $384,041 ($102,740 at December
31, 2021) is included in interest payable on the consolidated balance sheets.
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.
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 a modification as a result of the treatment the Company reported a gain of $607,261 in the loss on fair value of convertible debentures line
of the consolidated statements of income (loss) and comprehensive income (loss) for the year
ended December 31, 2022.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
$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 CD1 should not be treated as an extinguishment of the CD1, and have therefore been accounted
for as a modification as a result of the treatment the Company reported a gain of $179,046 in the loss on fair value of convertible debentures line
of the statement of operations for the year
ended December 31, 2022.
$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 $15 million
for project finance has been removed.
The
Company determined that in accordance with ASC 815 Derivatives and Hedging, each debenture will be valued and carried as a single instrument, with the
periodic changes to fair value accounted through earnings, profit and loss.
Consistent
with the approach above, the following table summarizes the key valuation inputs as at applicable valuation dates:
Schedule of Key Valuation Inputs
| | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| |
| Reference
(2)(4) (5) | |
Valuation
date | |
Maturity
date | |
Contractual
Interest rate | | |
Stock
price (US$) | | |
Expected
equity volatility | | |
Credit
spread | | |
Risk-free
rate | | |
Risk-
adjusted rate | |
| CD1
note (1) | |
01-28-22 | |
07-07-23 | |
| 7.50 | % | |
| 0.230 | | |
| 120 | % | |
| 8.70 | % | |
| 0.92 | % | |
| 16.18 | % |
| RCD
note | |
01-07-22 | |
07-07-23 | |
| 9.00 | % | |
| 0.242 | | |
| 130 | % | |
| 9.21 | % | |
| 0.65 | % | |
| 16.39 | % |
| CD1 note (1) | |
03-31-22 | |
07-07-23 | |
| 7.50 | % | |
| 0.235 | | |
| 120 | % | |
| 8.85 | % | |
| 1.80 | % | |
| 17.12 | % |
| RCD
note | |
03-31-22 | |
07-07-23 | |
| 9.00 | % | |
| 0.235 | | |
| 120 | % | |
| 8.85 | % | |
| 1.80 | % | |
| 17.12 | % |
| CD2 note(1) | |
06-17-22 | |
03-31-25 | |
| 10.50 | % | |
| 0.185 | | |
| 120 | % | |
| 9.45 | % | |
| 3.28 | % | |
| 20.95 | % |
| CD2 note(1) | |
06-30-22 | |
03-31-25 | |
| 10.50 | % | |
| 0.150 | | |
| 120 | % | |
| 10.71 | % | |
| 2.95 | % | |
| 21.78 | % |
| CD1 note | |
06-30-22 | |
03-31-25 | |
| 7.50 | % | |
| 0.150 | | |
| 120 | % | |
| 10.71 | % | |
| 2.95 | % | |
| 19.89 | % |
| RCD
note | |
06-30-22 | |
03-31-25 | |
| 9.00 | % | |
| 0.150 | | |
| 120 | % | |
| 10.71 | % | |
| 2.95 | % | |
| 19.89 | % |
| CD1 note | |
09-30-22 | |
03-31-25 | |
| 7.50 | % | |
| 0.085 | | |
| 120 | % | |
| 13.31 | % | |
| 4.19 | % | |
| 23.35 | % |
| RCD
note | |
09-30-22 | |
03-31-25 | |
| 9.00 | % | |
| 0.085 | | |
| 120 | % | |
| 13.31 | % | |
| 4.19 | % | |
| 23.35 | % |
| CD2 note | |
09-30-22 | |
03-31-25 | |
| 10.50 | % | |
| 0.085 | | |
| 120 | % | |
| 13.31 | % | |
| 4.19 | % | |
| 25.21 | % |
| CD1 note(3) | |
12-31-22 | |
03-31-25 | |
| 7.50 | % | |
| 0.125 | | |
| 120 | % | |
| 7.08 | % | |
| 4.32 | % | |
| 17.85 | % |
| RCD
note | |
12-31-22 | |
03-31-25 | |
| 9.00 | % | |
| 0.125 | | |
| 120 | % | |
| 7.08 | % | |
| 4.32 | % | |
| 17.85 | % |
| CD2 note(3) | |
12-31-22 | |
03-31-25 | |
| 10.50 | % | |
| 0.125 | | |
| 120 | % | |
| 7.08 | % | |
| 4.32 | % | |
| 19.76 | % |
| |
(1) |
The
CD1 carried a Discount for Lack of Marketability (“DLOM”) of 5.0%
as of the issuance date and as of March 31, 2022. The CD2 carried a DLOM of 10.0% as of the issuance date and June
30, 2022 |
| |
(2) |
CD1
and RCD carry an instrument-specific spread of 7.23%, CD2 carries an instrument-specific spread of 9.32% |
| |
(3) |
The
conversion price of the CD1 is $0.219
and CD2 is $0.212 as of December 31, 2022 |
| |
(4) |
A
project risk rate of 13.0% was used for all scenarios of the RCD fair value computations |
| |
(5) |
The valuation of the RCD is driven by the aggregation of (i) the present
value of future potential cash flow to the royalty holder, in the event that the RCD is converted to a royalty, utilizing an estimate
of future metal sales and Monte Carlo simulations of future metal prices, and (ii) the computation of the present value assuming no conversion
to the 1.85% gross revenue royalty. The valuation of (i) is compared to the valuation of (ii) for each simulation, with the higher value
used in the aggregation to arrive at the fair value of the RCD. This results in an implied probability of the RCD being converted to the
royalty, in the event that the Stream is advanced. Based on this methodology, as of December 31. 2022, the implied probability of the
RCD being converted to a 1.85% royalty, in the event that the Stream is advanced, was 98%. Credit spread, Risk-free rate, and Risk-adjusted
rate shown for the RCD are applicable to the scenario where the Stream is not advanced. There are immaterial differences in these inputs
for the scenario where the Stream is advanced. As of December 31, 2022 these were 6.71%, 4.36%, and 17.55% respectively for the Scenario
where the Stream is advanced |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
The
resulting fair values of the CD1, RCD, and CD2 at the issuance dates, and as of December 31, 2022, were
as follows:
Schedule
of Fair Value Derivative Liability
| Instrument
Description |
|
Issuance date CD1 RCD, CD2 | | |
December
31, 2022 | |
| CD1 |
|
$ | 6,320,807 | | |
$ | 5,537,360 | |
| RCD |
|
| 7,679,193 | | |
| 10,285,777 | |
| CD2 |
|
| 15,000,000 | | |
| 14,063,525 | |
| Total |
|
$ | 29,000,000 | | |
$ | 29,886,662 | |
The
total loss on fair value of debentures recognized during the year ended December 31, 2022 and December 31, 2021, was $1,140,537
and $nil,
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 year ended December 31, 2022 and December 31, 2021, the Company recognized $253,875
and $nil
respectively, within other comprehensive income. Interest expense for the years ended December 31, 2022 and 2021 was $2,092,065 and $nil respectively. At December
31, 2022 interest of $691,890 ($nil at December 31, 2021) is included in interest payable on the consolidated balance sheets.
The
Company performs quarterly testing of the covenants in the RCD, CD1 and CD2, and was in compliance with all such covenants as of December
31, 2022.
The
Loan Facility
On
December 6, 2022, the Company closed a new $5,000,000
loan facility with Sprott (the “Bridge Loan”). The Bridge Loan 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. Interest expense for the years ended December 31, 2022 and 2021 was $70,404 and $nil respectively. At December 31,
2022 interest of $53,985 ($nil at December 31, 2021) is included in interest payable on the consolidated balance sheets.
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 December 31, 2022, the Stream had not been advanced.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
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.
Other Interest
During the year ended December 31, 2022 and December
the Company recognized $72,304 and $nil respectively of other interest expense.
10.
Lease liability
The
Company had an operating lease for office space that expired in 2022. Below is a summary of the Company’s lease liability as of
December 31, 2022:
Schedule of Operating Lease Liability
| | |
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,
December 31, 2022 | |
| - | |
11.
Capital stock, warrants and stock options
Authorized
The
total authorized capital is as follows:
| ● |
1,500,000,000
common shares, 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 $9,384,622 (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).
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
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.
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 April 2022, the Company issued 768,750 shares in
connection with the settlement of RSU’s.
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 C$0.37 until May 13, 2025.
In
June 2022, the Company issued 1,218,000 units to contractors for bonuses 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.
In June 2022, the Company issued 165,000 shares in
connection with the settlement of RSU’s.
In
July 2022, the Company issued 1,975,482 common shares in connection with its election to satisfy interest payments under the outstanding
convertible debentures for the three months ended June 30, 2022.
In September 2022, the Company issued 33,000 common
shares in connection with the settlement of RSU’s.
In
October 2022, the Company issued 8,252,940 common shares in connection with its election to satisfy interest payments under the outstanding
convertible debentures for the three months ended September 30, 2022.
In
November 2022, the Company issued 1,599,150 common shares in connection with settlement of RSU’s.
For
each financing, the Company has accounted for the warrants in accordance with ASC Topic 815 Derivatives and Hedging. The warrants are considered derivative
instruments as they were issued in a currency other than the Company’s functional currency of the 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 consolidated statement of operations and comprehensive
loss as a gain or loss in the change in derivative liability line
item and is estimated using the Binomial model.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
The
fair value of the warrant liabilities related to the various tranches of warrants issued during the period were estimated using the Binomial
model to determine the fair value using the following assumptions on the day of issuance and as at December 31, 2022 and December 31, 2021:
Schedule of Estimated Using the Binomial Model to Determine the Fair Value of Warrant Liabilities
| April
2022 special warrants issuance | |
December
31,
2022 | | |
April
1,
2022 | |
| Expected
life | |
| 822
days | | |
| 1,096
days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk
free interest rate | |
| 4.06 | % | |
| 2.35 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price (C$) | |
$ | 0.17 | | |
$ | 0.29 | |
| Fair
value | |
$ | 2,406,104 | | |
$ | 5,947,232 | |
| Change
in derivative liability | |
$ | (3,541,128 | ) | |
$ | - | |
| April
2022 non-brokered issuance | |
December
31,
2022 | | |
April
1,
2022 | |
| Expected
life | |
| 822
days | | |
| 1,096
days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk
free interest rate | |
| 4.06 | % | |
| 2.35 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price (C$) | |
$ | 0.17 | | |
$ | 0.29 | |
| Fair
value | |
$ | 93,553 | | |
$ | 186,190 | |
| Change
in derivative liability | |
$ | (92,637 | ) | |
$ | - | |
| May
2022 Teck issuance | |
December
31,
2022 | | |
May
13,
2022 | |
| Expected
life | |
| 864
days | | |
| 1,096
days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk
free interest rate | |
| 4.06 | % | |
| 2.68 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price (C$) | |
$ | 0.17 | | |
$ | 0.25 | |
| Fair
value | |
$ | 684,497 | | |
$ | 1,273,032 | |
| Change
in derivative liability | |
$ | (588,535 | ) | |
$ | - | |
| June
2022 issuance | |
December
31,
2022 | | |
June
30,
2022 | |
| Expected
life | |
| 822
days | | |
| 1,006
days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk
free interest rate | |
| 3.72 | % | |
| 3.14 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price (C$) | |
$ | 0.17 | | |
$ | 0.20 | |
| Fair
value | |
$ | 77,429 | | |
$ | 113,425 | |
| Change
in derivative liability | |
$ | (35,996 | ) | |
$ | - | |
| February
2021 issuance | |
December
31,
2022 | | |
December
31,
2021 | |
| Expected
life | |
| 1,136
days | | |
| 1,501
days | |
| Volatility | |
| 120 | % | |
| 100 | % |
| Risk
free interest rate | |
| 3.72 | % | |
| 1.25 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price | |
$ | 0.17 | | |
$ | 0.37 | |
| Fair
value | |
$ | 1,335,990 | | |
$ | 3,483,745 | |
| Change
in derivative liability | |
$ | (2,147,756 | ) | |
$ | - | |
The
warrant liabilities as a result of the August 2018, November 2018, June 2019, August 2019, and August 2020 private placements were revalued
as at December 31, 2022 and December 31, 2021 using the Binomial model and the following assumptions:
| August
2020 issuance | |
December
31,
2022 | | |
December
31,
2021 | |
| Expected
life | |
| 243
days | | |
| 608
days | |
| Volatility | |
| 120 | % | |
| 100 | % |
| Risk
free interest rate | |
| 4.06 | % | |
| 0.95 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price | |
$ | 0.17 | | |
$ | 0.37 | |
| Fair
value | |
$ | 903,697 | | |
$ | 6,790,163 | |
| Change
in derivative liability | |
$ | (5,886,466 | ) | |
$ | - | |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
| June
2019 issuance (i) | |
December
31,
2022 | | |
December
31,
2021 | |
| Expected
life | |
| 1,096
days | | |
| 1,461
days | |
| Volatility | |
| 120 | % | |
| 100 | % |
| Risk
free interest rate | |
| 3.82 | % | |
| 1.02 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price | |
$ | 0.17 | | |
$ | 0.37 | |
| Fair
value | |
$ | 725,737 | | |
$ | 2,067,493 | |
| Change
in derivative liability | |
$ | (1,341,756 | ) | |
$ | - | |
| (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) | |
December
31,
2022 | | |
December
31,
2021 | |
| Expected
life | |
| 1,096
days | | |
| 1,461
days | |
| Volatility | |
| 120 | % | |
| 100 | % |
| Risk
free interest rate | |
| 3.82 | % | |
| 1.02 | % |
| Dividend
yield | |
| 0 | % | |
| 0 | % |
| Share
price | |
$ | 0.17 | | |
$ | 0.37 | |
| Fair
value | |
$ | 1,115,369 | | |
$ | 3,177,485 | |
| Change
in derivative liability | |
$ | (2,062,116 | ) | |
$ | - | |
| (ii) | During the six
months ended December 31, 2020, the Company amended the exercise price to C$0.59 per common share and extended the expiry date to December
31, 2025, for 17,920,000 warrants. The terms of the remaining 2,752,900 warrants remain unchanged. |
Warrants
Schedule of Warrant Activity
| | |
| | |
Weighted | | |
Weighted | |
| | |
| | |
average | | |
average | |
| | |
Number
of | | |
exercise
price | | |
grant
date | |
| | |
warrants | | |
(C$) | | |
value
($) | |
| | |
| | |
| | |
| |
| Balance,
December 31, 2020 | |
| 95,777,806 | | |
$ | 0.54 | | |
$ | 0.18 | |
| Issued | |
| 19,994,080 | | |
| 0.60 | | |
| 0.19 | |
| Expired | |
| (4,359,174 | ) | |
| 0.59 | | |
| 0.19 | |
| 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,
December 31, 2022 | |
| 162,129,064 | | |
$ | 0.49 | | |
$ | 0.17 | |
During
the year ended December 31, 2022, 239,284 February 2020 broker warrants expired.
At
December 31, 2022, the following warrants were outstanding:
Schedule of Warrants Outstanding Exercise Price
| | |
Exercise | | |
Number
of | | |
Number
of
warrants | |
| Expiry
date | |
price
(C$) | | |
warrants | | |
exercisable | |
| | |
| | |
| | |
| |
| August
31, 2023 | |
| 0.50 | | |
| 58,284,148 | | |
| 58,284,148 | |
| December
31, 2025 | |
| 0.59 | | |
| 32,895,200 | | |
| 32,895,200 | |
| February
9, 2026 | |
| 0.60 | | |
| 17,112,500 | | |
| 17,112,500 | |
| February
16, 2026 | |
| 0.60 | | |
| 2,881,580 | | |
| 2,881,580 | |
| April
1, 2025 | |
| 0.37 | | |
| 40,538,969 | | |
| 40,538,969 | |
| May
13, 2025 | |
| 0.37 | | |
| 10,416,667 | | |
| 10,416,667 | |
| | |
| | | |
| 162,129,064 | | |
| 162,129,064 | |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
Compensation
options
At
December 31, 2022, the following compensation options were outstanding:
Schedule
of Compensation Options
| | |
| | |
Weighted | |
| | |
Number
of | | |
average | |
| | |
broker | | |
exercise
price | |
| | |
options | | |
(C$) | |
| | |
| | |
| |
| 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 | | |
| 0.40 | |
| Balance,
December 31, 2021 | |
| 3,590,907 | | |
| 0.35 | |
| Issued
– April 2022 Compensation Options | |
| 1,879,892 | | |
| 0.30 | |
| Balance,
December 31, 2022 | |
| 5,470,799 | | |
$ | 0.34 | |
Schedule of Estimated Using Black-Scholes Valuation Model for Fair Value of Broker Options
| 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 1, 2022 | |
| 2.34 | % | |
| 0 | % | |
| 120 | % | |
| C$0.30 | | |
| 2
years | |
Schedule of Broker Exercise Prices
| | |
Exercise | | |
Number
of | | |
Fair
value | |
| Expiry
date | |
price
(C$) | | |
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 |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
Stock
options
The
following table summarizes the stock option activity during the years ended December 31, 2022 and 2021:
Schedule of Stock Options
| | |
| | |
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 | |
| Granted
(ii) | |
| 700,000 | | |
| 0.15 | |
| Expired
May 1, 2022 | |
| (47,500 | ) | |
| 10.00 | |
| Forfeited
November 25, 2022 | |
| (150,000 | ) | |
| 0.15 | |
| Expired
December 31, 2022 | |
| (235,500 | ) | |
| 0.50 | |
| Balance,
December 31, 2022 | |
| 9,320,636 | | |
$ | 0.51 | |
| |
(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 $nil for the year ended December 31, 2022 ($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). |
| |
|
|
| |
(ii) |
On
August 24, 2022, 300,000 stock options were issued to an employee of the Company, of which
150,000 vested immediately and the remaining balance of outstanding options to vest equally
over the next two anniversaries of the grant date. These options have a 5-year life and are
exercisable at C$0.15 per common share. The grant fair value of the options was estimated
at $28,930. The vesting of these options resulted in stock-based compensation of $15,594
for the year ended December 31, 2022, which is included in the operation and administration
expense of the consolidated statements of income (loss) and comprehensive income (loss).
|
| |
|
|
| |
(iii) |
On
November 23, 2022, 400,000 stock options were issued to an employee of the Company, of which 200,000 vested immediately and the remaining
balance of outstanding options to vest equally over the next two anniversaries of the grant date. These options have a 5-year life
and are exercisable at C$0.15 per common share. The grant fair value of the options was estimated at $37,387. The vesting of these
options resulted in stock-based compensation of $20,191 for the year ended December 31, 2022, which is included in the operation
and administration expense of 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:
Schedule of Estimated Using Black-Scholes Valuation Model for Fair value of Stock Options
| | | |
Risk
free
interest
rate | | |
Dividend
yield | | |
Volatility | | |
Stock
price | | |
Weighted
average life | |
| | (i) | | |
| 0.64 | % | |
| 0 | % | |
| 100 | % | |
| C$0.34 | | |
| 5
years | |
| | (ii) | | |
| 3.27 | % | |
| 0 | % | |
| 120 | % | |
| C$0.15 | | |
| 5
years | |
| | (iii) | | |
| 3.22 | % | |
| 0 | % | |
| 120 | % | |
| C$0.15 | | |
| 5
years | |
The
following table reflects the actual stock options issued and outstanding as of December 31, 2022:
Schedule
of Actual Stock Options Issued and Outstanding
| | | |
| | |
| | |
Number
of | | |
| |
| | | |
remaining | | |
Number
of | | |
options | | |
| |
| Exercise | | |
contractual | | |
options | | |
vested | | |
Grant
date | |
| price
(C$) | | |
life
(years) | | |
outstanding | | |
(exercisable) | | |
fair
value ($) | |
| | 0.60 | | |
| 0.75 | | |
| 200,000 | | |
| 200,000 | | |
| 52,909 | |
| | 0.60 | | |
| 1.82 | | |
| 1,575,000 | | |
| 1,575,000 | | |
| 435,069 | |
| | 0.55 | | |
| 2.30 | | |
| 5,957,659 | | |
| 2,978,830 | | |
| 1,536,764 | |
| | 0.335 | | |
| 3.14 | | |
| 1,037,977 | | |
| 1,037,977 | | |
| 204,213 | |
| | 0.15 | | |
| 0.90 | | |
| 150,000 | | |
| 150,000 | | |
| 14,465 | |
| | 0.15 | | |
| 4.90 | | |
| 400,000 | | |
| 200,000 | | |
| 37,387 | |
| | | | |
| | | |
| 9,320,636 | | |
| 6,141,807 | | |
$ | 2,280,807 | |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
12.
Income per Share
Potentially
dilutive securities include convertible loan payable, warrants, broker options, stock options, and unvested restricted share units (“RSU”).
Diluted income per share reflects the assumed exercise or conversion of all dilutive securities using the treasury stock method.
Schedule
of Income Per Share
| | |
Year ended December 31,
2022 | | |
Year ended December 31,
2021 | |
| Net
income (loss) for the period | |
| 898,591 | | |
| (6,402,277 | ) |
| | |
| | | |
| | |
| Basic
income (loss) per share Weighted average number of common shares - basic | |
| 205,950,811 | | |
| 161,868,334 | |
| Net
income (loss) per share – basic | |
| 0.00 | | |
| (0.04 | ) |
| Net
income (loss) for the period | |
| 898,591 | | |
| (6,402,277 | ) |
| Dilutive
effect of convertible debentures | |
| (370,121 | ) | |
| - | |
| Dilutive
effect of warrants on net income | |
| - | | |
| - | |
| Diluted
net income (loss) for the period | |
| 528,470 | | |
| (6,402,277 | ) |
| Diluted income (loss)
per share | |
| 205,950,811 | | |
| 161,868,334 | |
| Weighted average
number of common shares - basic | |
| | | |
| | |
| Diluted
effect: | |
| | | |
| | |
| Stock options and RSUs | |
| 63,850,470 | | |
| - | |
| Weighted
average number of common shares - fully diluted | |
| 269,801,281 | | |
| 161,868,334 | |
| Net
income (loss) per share - fully diluted | |
| 0.00 | | |
| (0.04 | ) |
13.
Restricted share units
Effective
March 25, 2020, the Board of Directors approved a Restricted Share Unit (“RSU”) Plan to grant RSUs to its officers, directors,
key employees and consultants.
The
following table summarizes the RSU activity during the year ended December 31, 2022:
Schedule of Restricted Share Units
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
| | |
grant
date | |
| | |
| | |
fair
value | |
| | |
Number
of | | |
per
share | |
| | |
shares | | |
(C$) | |
| | |
| | |
| |
| Unvested
as at December 31, 2020 | |
| 988,990 | | |
$ | 0.39 | |
| Granted | |
| 1,348,434 | | |
| 0.38 | |
| Vested | |
| (1,516,299 | ) | |
| 0.41 | |
| Forfeited | |
| (245,125 | ) | |
| 0.52 | |
| Unvested
as at December 31, 2021 | |
| 576,000 | | |
$ | 0.62 | |
| Granted | |
| 6,620,641 | | |
| 0.17 | |
| Vested | |
| (2,373,900 | ) | |
| 0.18 | |
| Unvested
as at December 31, 2022 | |
| 4,822,741 | | |
$ | 0.22 | |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
(i)
On January 1, 2021, the Company granted 735,383 RSUs to a consultant of the Company. 245,128 RSUs vested immediately with the remaining
RSUs vesting in one twelfth increments per month. During the year ended 2021, a total of 490,258 RSUs vested, and in July 2021, the consultant
forfeited the remaining 245,125 unvested RSUs, resulting in a reversal of share-based compensation of $64,870. The vesting of these RSUs
resulted in stock-based compensation of $nil for the year ended December 31, 2022 and $199,542 for the year ended December 31, 2021,
which is included in operation and administration expenses on the consolidated statements of loss and comprehensive loss.
(ii)
On July 1, 2021, the Company granted 17,823 RSUs to a consultant of the Company, vested immediately. The vesting of these RSUs resulted
in stock-based compensation of $nil for the year ended December 31, 2022 and $4,026 for the year ended December 31, 2021, which is included
in operation and administration expenses on the consolidated statements of loss and comprehensive loss.
(iii)
On August 5, 2021, the Company granted 595,228 RSUs to consultants of the Company, vested immediately. The vesting of these RSUs resulted
in stock-based compensation of $nil for the year ended December 31, 2022 and $100,022 for the year ended December 31, 2021, which is
included in operation and administration expenses on the consolidated statements of loss and comprehensive loss.
(iv)
On January 10, 2022, the Company granted 500,000 RSUs to a consultant of the Company, vested immediately. The vesting of these RSUs
resulted in stock-based compensation of $122,249 for the year ended December 31, 2022, which is included in operation and administration
expenses on the consolidated statements of income (loss) and comprehensive income (loss).
(v)
On April 29, 2022, the Company granted 76,750 RSUs to certain consultants of the Company, vested immediately. The vesting of these RSUs
resulted in stock-based compensation of $16,800 for the year ended December, 2022, which is included in operation and administration
expenses on the consolidated statements of income (loss) and comprehensive income (loss).
(vi)
On June 30, 2022, the Company granted 15,000 RSUs to a consultant of the Company, vested immediately. The vesting of these RSUs resulted
in stock-based compensation of $2,328 for the year ended December 31, 2022, which is included in operation and administration expenses
on the consolidated statements of income (loss) and comprehensive income (loss).
(vii)
On September 29, 2022 the Company granted 33,000 RSUs to two consultants of the Company, vested immediately. The vesting of these RSUs
resulted in stock-based compensation of $2,889 for the year ended December 31, 2022, which is included in operation and administration
expenses on the consolidated statements of income (loss) and comprehensive income (loss).
(viii)
On October 31, 2022 the Company granted 1,599,150 RSUs to two consultants of the Company, vested immediately. The vesting of these RSUs
resulted in stock-based compensation of $111,304 for the year ended December 31, 2022, which is included in operation and administration
expenses on the consolidated statements of income (loss) and comprehensive income (loss).
(ix)
On November 17, 2022 the Company granted 4,396,741 RSUs to certain key management of the Company. The RSUs vest in one third increments
upon each anniversary of the grant date. The vesting of these RSUs resulted in stock-based compensation of $79,504 for the year ended
December 31, 2022, which is included in operation and administration expenses on the consolidated statements of loss and comprehensive
loss.
14.
Deferred share units
Effective
April 21, 2020, the Board of Directors approved a Deferred Share Unit (“DSU”) Plan to grant DSUs to its directors. The DSU
Plan permits the eligible directors to defer receipt of all or a portion of their retainer or compensation until termination of their
services and to receive such fees in the form of cash at that time.
Upon
vesting of the DSUs or termination of service as a director, the director will be able to redeem DSUs based upon the then market price
of the Company’s common share on the date of redemption in exchange for cash.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
The
following table summarizes the DSU activity during the years ended December 31, 2022 and 2021:
Schedule of Deferred Share Units
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
| | |
grant
date | |
| | |
| | |
fair
value | |
| | |
Number
of | | |
per
share | |
| | |
shares | | |
(C$) | |
| | |
| | |
| |
| Unvested
as at December 31, 2020 | |
| 7,500,000 | | |
$ | 1.03 | |
| Vested | |
| (1,875,000 | ) | |
| 1.03 | |
| Unvested
as at December 31, 2021 | |
| 5,625,000 | | |
$ | 1.03 | |
| Granted
(i) | |
| 210,000 | | |
| 0.20 | |
| Vested
(ii)(iii) | |
| (3,125,000 | ) | |
| 1.03 | |
| Unvested
as at December 31, 2022 | |
| 2,710,000 | | |
$ | 1.00 | |
| |
(i) |
On
April 21, 2020, the Company granted 7,500,000 DSUs. The DSUs vest in one fourth increments upon each anniversary of the grant date
and expire in 5 years. On July 1, 2022 the Company granted 210,000 DSU’s, these DSU’s vest after 12 months of the issuance
date. During the year ended December 31, 2022, and 2021 the Company recognized recovery of $282,967 and expense of $421,284, respectively,
in stock-based compensation related to the DSUs, which is included in operation and administration expenses on the consolidated statements
of income (loss) and comprehensive income (loss), as DSU’s were settled in cash during the year ended December 31, 2022. Upon
redemption of the 2,500,000 DSUs (see (iii)) the fair value of the remaining DSU liability at December, 2022 was $573,742. |
| |
|
|
| |
(ii) |
On
March 31, 2022, the Board approved the early vesting of 625,000 DSUs for one of the Company’s Directors. |
| |
|
|
| |
(iii) |
During
the year ended December 31, 2022, the director redeemed 2,500,000 DSUs for C$750,000, and elected to use net proceeds to subscribe
for 375,000 units in the Company’s April 2022 special warrant issuance at C$0.30 per unit, with the balance of the redeemed
amount payable in cash after applicable withholding tax deductions. The DSU’s were therefore all accelerated to vest. |
15.
Commitments and contingencies
As
stipulated in the agreement with the EPA and as described in Note 7, the Company is required to make two types of payments to the EPA
and IDEQ, one for historical water treatment cost-recovery to the EPA, and the other for ongoing water treatment. Water treatment costs
incurred through December 2021 are payable to the EPA, and water treatment costs incurred thereafter are payable to the IDEQ. The IDEQ
(as done formerly by the EPA) invoices the Company on an annual basis for the actual water treatment costs, which may exceed the recognized
estimated costs significantly. When the Company receives the water treatment invoices, it records any liability for actual costs over
and above any estimates made and adjusts future estimates as required based on these actual invoices received. The Company is required
to pay for the actual costs regardless of the periodic required estimated accruals and payments made each year.
On
July 28, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by Crescent Mining, LLC (“Crescent”).
The named defendants include Placer Mining, Robert Hopper Jr., and the Company. The lawsuit alleges that Placer Mining and Robert Hopper
Jr. intentionally flooded the Crescent Mine during the period from 1991 and 1994, and that the Company is jointly and severally liable
with the other defendants for unspecified past and future costs associated with the presence of AMD in the Crescent Mine. The plaintiff
has requested unspecified damages. On September 20, 2021, the Company filed a motion to dismiss Crescent’s claims against it, contending
that such claims are facially deficient. On March 2, 2022, Chief US District Court Judge, David C. Nye granted in part and denied
in part the Company’s motion to dismiss. The court granted the Company’s motion to dismiss Crescent’s Cost Recovery
claim under CERCLA Section 107(a), Declaratory Judgment, Tortious Interference, Trespass, Nuisance and Negligence claims. These claims
were dismissed without prejudice. The court denied the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass,
nuisance and negligence claims. Crescent later filed an amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining
Corp are named as co-defendants. Bunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint
except those that are assertions of fact as a matter of public record. The Company believes Crescent’s lawsuit is without merit
and intends to vigorously defend itself, as well as Placer Mining Corp. pursuant to the Company’s indemnification of Placer Mining
Corp in the Sale and Purchase agreement executed between the companies for the Mine on December 15, 2021.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
16.
Income taxes
As
at December 31, 2022, and December 31, 2021, the Company had no accrued interest and penalties related to uncertain tax positions. The
income tax provision differs from the amount of income tax determined by applying the U.S. federal tax rate of 21.0% (December 31, 2021
– 21.0%) to pretax loss from operations for the periods ended December 31, 2022 and December 31, 2021:
Schedule of Income Tax Provision
| | |
Year | | |
Year | |
| | |
Ended | | |
Ended | |
| | |
December
31, | | |
December
31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Expected
income tax recovery | |
| 188,704 | | |
| (1,344,478 | ) |
| Change
in estimates in respect of prior periods | |
| (41,351 | ) | |
| 837,195 | |
| Change
in tax rate | |
| 133,687 | | |
| 274,477 | |
| Change
in fair value of derivative liability | |
| (3,296,242 | ) | |
| (2,583,095 | ) |
| State
and local taxes, net of federal benefit | |
| (709,272 | ) | |
| (960,296 | ) |
| Other | |
| 308 | | |
| 5,033 | |
| Change
in valuation allowance | |
| 3,724,166 | | |
| 3,771,164 | |
| Total | |
$ | - | | |
$ | - | |
Deferred
tax assets and the valuation account are as follows:
Schedule of Deferred Tax Assets
| | |
December
31, | | |
December
31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Deferred
tax asset: | |
| | | |
| | |
| Net
operating loss carryforwards | |
$ | 10,291,114 | | |
$ | 6,724,313 | |
| Mineral
interest purchase option | |
| - | | |
| 10,707,362 | |
| Mining
interests | |
| 8,391,938 | | |
| - | |
| EPA
liabilities | |
| 2,068,062 | | |
| - | |
| Other
deferred tax assets | |
| 851,563 | | |
| 454,499 | |
| Valuation
allowance | |
| (21,602,677 | ) | |
| (17,886,174 | ) |
| Total | |
$ | - | | |
$ | - | |
Schedule of Components of Deferred Tax Assets and Liabilities
| | |
December
31, | | |
December
31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Deferred
tax asset: | |
| | | |
| | |
| Net
operating loss carryforwards | |
$ | 101,662 | | |
$ | 59,955 | |
| Deferred
tax liabilities: | |
| | | |
| | |
| Equipment | |
| - | | |
| (18,809 | ) |
| Unrealized
foreign exchange gain | |
| (101,662 | ) | |
| (41,146 | ) |
| Net
deferred tax asset | |
$ | - | | |
$ | - | |
The
potential income tax benefit of these losses has been offset by a full valuation allowance.
As
of December 31, 2022 and December 31, 2021, the Company has an unused net operating loss carryforward balance of $40,227,950, and $26,356,908,
respectively, that is available to offset future taxable income. The net operating loss carryforwards generated before 2018 expire between
2031 and 2037. The losses generated in 2018 and later tax years do not expire.
The
Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly
increase or decrease within the next 12 months.
The
tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2022 and December
31, 2021 and years 2020, 2019, 2018, 2017, 2016, and 2015.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
17.
Related party transactions
The
Company’s key management personnel have the authority and responsibility for planning, directing and controlling the activities
of the Company and consists of the Company’s executive management team and management directors.
Schedule of Related Party Transactions
| | |
Year
Ended | | |
Year
Ended | |
| | |
December
31, | | |
December
31, | |
| | |
2022 | | |
2021 | |
| Consulting
fees, wages and bonus | |
$ | 1,429,326 | | |
$ | 901,210 | |
At
December 31, 2022 and December 31, 2021, $154,797 and $279,554, respectively is owed to key management personnel with all amounts included
in accounts payable and accrued liabilities.
(i)
During the year ended December 31, 2022, Wayne Parsons (Director and former CFO) billed $147,287 (year ended December 31, 2021 - $120,127)
for consulting services to the Company, in addition to 2,500,000 DSU’s which settled on June 30, 2022, at a value of $582,027 concurrent with his
departure from the Board of Directors.
(ii)
During the year ended December 31, 2022, Richard Williams (Director and Executive Chairman) billed $372,084
(year ended December 31, 2021 - $179,605)
for consulting services and bonus payment to the Company. At December 31, 2022, $135,600
is owed to Richard Williams (December 31, 2021 - $108,719)
for consulting services, with all amounts included in accounts payable and accrued liabilities.
During
the year ended December 31, 2022, 1,110,756 restricted share units (RSU’s) were issued to Richard Williams which will vest in one third
increments on March 31, 2023, March 31, 2024, and March 31, 2025. The vesting of these RSU’s resulted in stock-based compensation
of $20,085 for the year ended December 31, 2022.
(iii)
During the year ended December 31, 2022, the Company incurred $438,600
in payroll expense and bonus payment for Sam Ash (year ended December 31, 2021 - $250,000)
for services to the Company. At December 31, 2022, $nil
(December 31, 2021 - $62,500)
is payable and included in accrued liabilities.
During
the year ended December 31, 2022, 1,249,600 restricted share units (RSU’s) were issued to Sam Ash which will vest in one third
increments on March 31, 2023, March 31, 2024, and March 31, 2025. The vesting of these RSU’s resulted in stock-based compensation
of $22,596 for the year ended December 31, 2022.
(iv)
During the year ended December 31, 2022, Pam Saxton (Director) billed $36,133 (year ended December 31, 2021 - $37,669) for consulting
services to the Company.
(v)
During the year ended December 31, 2022, Cassandra Joseph (Director) billed $36,133 (year ended December 31, 2021 - $37,494) for consulting
services to the Company.
(vi)
During the year ended December 31, 2022, Mark Cruise (Director) billed $15,774 (year ended December 31, 2021 - $0) for consulting services
to the Company. On July 1, 2022, the Company issued 210,000 DSU’s to a Mark Cruise.
(vii)
During the year ended December 31, 2022, the Company incurred $383,315
in payroll expense and bonus payment for David Wiens (CFO) (year ended December 31, 2021, $276,315)
for services to the Company. At December 31, 2022, $19,197
(year ended December 31, 2021 - $108,335)
is payable, including reimbursable expenses, and included in accrued liabilities.
During
the year ended December 31, 2022, 1,018,193 restricted share units (RSU’s) were issued to David Wiens which will vest in one third
increments on March 31, 2023, March 31, 2024, and March 31, 2025. The vesting of these RSU’s resulted in stock-based compensation
of $18,411 for the year ended December 31, 2022.
During
the year ended December 31, 2021, 1,037,977 stock options were issued to David Wiens, 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.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2022 and December 31, 2021
(Expressed
in United States Dollars)
18.
Subsequent events
Share
Issuance
On
January 10, 2023, the Company issued 6,377,272 common shares in connection with its election to satisfy interest payments under the outstanding
convertible debentures for the three months ending December 31, 2022.
On
March 31, 2023, the Company issued 8,464,288 common shares in connection with its election to satisfy interest payments under the outstanding
convertible debentures for the three months ending March 31, 2023.
Corporate
Update
On
February 28, 2023, the Company reported that it had temporarily paused discretionary projects and procurement activities until the completion
of its financing initiatives. 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.
Teck
Warrant Amendment
On
March 15, 2023, the Company amended the exercise price of 10,416,667 common stock purchase warrants of the Company (the “Warrants”)
and the expiry date of the warrants to March 31, 2023. The Warrants comprise units of the Company issued to Teck Resources Limited (“Teck”)
on a private placement basis on May 13, 2022, in consideration for the Company’s acquisition of the Pend Oreille process plant.
Each Warrant entitles the holder thereof to purchase one share of common stock of the Company (each, a “Warrant Share”) at
an exercise price of C$0.37 per Warrant Share at any time on or prior to May 12, 2025. The Company amended the exercise price of the
Warrants from C$0.37 to C$0.11 per Warrant Share (the “Amended Exercise Price”) and amend the expiry date from May 12, 2025,
to March 31, 2023. Following the amendment of the terms of the warrants, Teck exercised all 10,416,667 warrants at an exercise price
of C$0.11, for aggregate gross proceeds of approximately C$1,145,834 to the Company.
Termination
of Prospectus Offering and Private Placement
On
February 15, 2023, the Company reported that it intended to terminate its previously announced prospectus offering of Common Shares following
its determination that effectiveness of a registration statement on Form S-1 would not be achievable in a time frame consistent with
its capital requirements. Concurrently, the Company announced that it had entered into an agreement with a syndicate of agents in connection
with a proposed private placement of up to C$9 million of special warrants of the Company (the “Special Warrants”).
On
March 28, 2023, the Company announced the closing of its private placement of the Special Warrants by issuing 51,633,727 Special Warrants
at a price of C$0.12 per Special Warrant, for aggregate gross proceeds of C$6,196,047.26. Each Unit consists of one share of common stock
of the Company (each, a “Unit Share”) and one common stock purchase warrant of the Company (each, a “Warrant”).
Each whole Warrant entitles the holder thereof to acquire one share of common stock of the Company (a “Warrant Share”, and
together with the Unit Shares, the “Underlying Shares”) at an exercise price of C$0.15 per Warrant Share until March 27, 2026.
In consideration for their services in connection with the Offering, a cash commission in the amount of C$211,461.38 is payable to the
Agents. The Agents were also issued 2,070,258 compensation options (the “Compensation Options”). Each Compensation Option
is exercisable to acquire one unit of the Company (a “Compensation Unit”) at the Issue Price for a period of 36 months from
March 27, 2023, subject to adjustment in certain events. Each Compensation Unit consists of one share of common stock of the Company
and one common stock purchase warrant of the Company (an “Agents’ Compensation Warrant”). Each Agents’ Compensation
Warrant entitles the holder thereof to acquire one share of common stock of the Company (an “Agents’ Compensation Warrant
Share”) at a price of C$0.15 per Agents’ Compensation Warrant Share until March 27, 2026.