Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
As
a Smaller Reporting Company, this item is not required under SEC rules. However, the Company believes that it is important to have an
understanding of the risks associated with an investment in the Company. In addition, these risk factors are incorporated by reference
in press releases and other Company publications for purposes of the Private Securities Reform Act of 1995.
9
General
Risk Factors
The
Company’s ability to operate as a going concern is in doubt.
The
audit opinion and notes that accompany the Company’s Financial Statements disclose a going concern qualification to its ability
to continue in business. The accompanying Financial Statements have been prepared under the assumption that the Company will continue
as a going concern. The Company is an exploration and development stage company and has incurred losses since its inception. The
Company has incurred losses resulting in an accumulated deficit of $72,491,150 as of December 31, 2021 and further losses
are anticipated in the development of its business.
The
Company currently has no historical recurring source of revenue and its ability to continue as a going concern is dependent on its ability
to raise capital to fund its future exploration and working capital requirements or its ability to profitably execute its business plan.
The Company’s plans for the long-term return to and continuation as a going concern include financing its future operations through
sales of its Common Shares and/or debt and the eventual profitable exploitation of the Mine. Additionally, the volatility in capital
markets and general economic conditions in the U.S. and elsewhere can pose significant challenges to raising the required funds. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company’s consolidated financial statements do not give effect to any adjustments required to realize its assets and discharge
its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying Financial
Statements.
The
Company will require significant additional capital to fund its business plan.
The
Company will be required to expend significant funds to determine whether proven and probable mineral reserves exist at its properties,
to continue exploration and, if warranted, to develop its existing properties, and to identify and acquire additional properties to diversify
its property portfolio. The Company anticipates that it will be required to make substantial capital expenditures for the continued exploration
and, if warranted, development of the Mine. The Company has spent and will be required to continue to expend significant amounts of capital
for drilling, geological, and geochemical analysis, assaying, and feasibility studies with regard to the results of its exploration at
the Mine. The Company may not benefit from some of these investments if it is unable to identify commercially exploitable mineral reserves.
Neither
the Company nor any of the directors of the Company nor any other party can provide any guarantee or assurance, that the Company will
be able to raise sufficient capital to satisfy the Company’s short-term obligations. The Company does not have sufficient funds
to satisfy its short-term financial obligations, as at December 31, 2021, the Company has $486,063 in cash and total current liabilities
of $22,795,277 and total liabilities of $38,314,164.
If
the Company cannot raise additional capital, the Company will be in breach of its debt obligations, including under the Royalty Convertible
Debenture and the Convertible Debenture. Further, pursuant to the terms of the Company’s agreement with the EPA, the Company is
required to make certain payments to the EPA on behalf of Placer Mining in the amount of $20,000,000 for cost recovery. If the Company
is unable to raise sufficient capital, the Company may be unable to pay the cost of recovery resulting in a breach of its obligations
and the failure to pay may be considered a default under the terms of the Amended Settlement with the EPA and the Amended Agreement with
Placer Mining.
Neither
the Company nor any of the directors of the Company nor any other party can provide any guarantee or assurance that the full $50,000,000
project financing package will be finalized or close, as the Project Financing Package remains subject to SRSR internal approvals, further
technical and other due diligence and satisfactory documentation. Approximately $14,000,000 of the project financing closed in January
2022, subsequent to the close of the year. If the full Project Financing Package does not close there is no guarantee that capital can
be raised on terms favorable to the Company, or at all. Any additional equity funding will dilute existing shareholders.
In support of plans to rapidly restart the Mine,
the Company worked systematically through 2020 and 2021 to delineate mineral resources and conduct various technical studies. Executing
this strategy may require securing additional financing, which may include additional indebtedness of $15,000,000 and a cost over-run
facility of $13,000,000.
The
Company’s ability to obtain necessary funding for these purposes, in turn, depends upon a number of factors, including the status
of the national and worldwide economy and the price of metals. Capital markets worldwide were adversely affected by substantial losses
by financial institutions, caused by investments in asset-backed securities and remnants from those losses continue to impact the ability
for the Company to raise capital. The Company may not be successful in obtaining the required financing or, if it can obtain such financing,
such financing may not be on terms that are favorable to us.
The
Company’s inability to access sufficient capital for its operations could have a material adverse effect on its financial condition,
results of operations, or prospects. Sales of substantial amounts of securities may have a highly dilutive effect on the Company’s
ownership or share structure. Sales of a large number of shares of the Company’s Common Shares in the public markets, or the potential
for such sales, could decrease the trading price of the Common Shares and could impair the Company’s ability to raise capital through
future sales of Common Shares. The Company has not yet commenced commercial production at any of its properties and, therefore, has not
generated positive cash flows to date and has no reasonable prospects of doing so unless successful commercial production can be achieved
at the Mine. The Company expects to continue to incur negative investing and operating cash flows until such time as it enters into successful
commercial production. This will require the Company to deploy its working capital to fund such negative cash flow and to seek additional
sources of financing. There is no assurance that any such financing sources will be available or sufficient to meet the Company’s
requirements, or if available, available upon terms acceptable to the Company. There is no assurance that the Company will be
able to continue to raise equity capital or to secure additional debt financing, or that the Company will not continue to incur losses.
10
The
Company has a limited operating history on which to base an evaluation of its business and prospects.
Since
its inception, the Company has had no revenue from operations. The Company has no history of producing products from the Bunker Hill
property. The Mine is a historic, past producing mine with very little recent exploration work. Advancing the Mine into the development
stage will require significant capital and time, and successful commercial production from the Mine will be subject to completing feasibility
studies, permitting and re-commissioning of the Mine, constructing processing plants, and other related works and infrastructure. As
a result, the Company is subject to all of the risks associated with developing and establishing new mining operations and business enterprises,
including:
●
completion
of feasibility studies to verify reserves and commercial viability, including the ability to find sufficient ore reserves to support
a commercial mining operation;
●
the
timing and cost, which can be considerable, of further exploration, preparing feasibility studies, permitting and construction of
infrastructure, mining and processing facilities;
●
the
availability and costs of drill equipment, exploration personnel, skilled labor, and mining and processing equipment, if required;
●
the
availability and cost of appropriate smelting and/or refining arrangements, if required;
●
compliance
with stringent environmental and other governmental approval and permit requirements;
●
the
availability of funds to finance exploration, development, and construction activities, as warranted;
●
potential
opposition from non-governmental organizations, local groups or local inhabitants that may delay or prevent development activities;
●
potential
increases in exploration, construction, and operating costs due to changes in the cost of fuel, power, materials, and supplies; and
●
potential
shortages of mineral processing, construction, and other facilities related supplies.
The
costs, timing, and complexities of exploration, development, and construction activities may be increased by the location of its properties
and demand by other mineral exploration and mining companies. It is common in exploration programs to experience unexpected problems
and delays during drill programs and, if commenced, development, construction, and mine start-up. In addition, the Company’s management
and workforce will need to be expanded, and sufficient housing and other support systems for its workforce will have to be established.
This could result in delays in the commencement of mineral production and increased costs of production. Accordingly, the Company’s
activities may not result in profitable mining operations and it may not succeed in establishing mining operations or profitably producing
metals at any of its current or future properties, including the Mine.
The
Company has a history of losses and expects to continue to incur losses in the future.
The Company has incurred losses since inception,
has had negative cash flow from operating activities, and expects to continue to incur losses in the future. The Company has incurred
the following losses from operations during each of the following periods:
●
$18,752,504 for the year ended December 31, 2021; and
●
$9,454,396 for the transition period ended December 31, 2020
●
$10,793,823 for the year ended June 30, 2020
The
Company expects to continue to incur losses unless and until such time as the Mine enters into commercial production and generates sufficient
revenues to fund continuing operations. The Company recognizes that if it is unable to generate significant revenues from mining operations
and dispositions of its properties, the Company will not be able to earn profits or continue operations. At this early stage of its operation,
the Company also expects to face the risks, uncertainties, expenses, and difficulties frequently encountered by smaller reporting companies.
The Company cannot be sure that it will be successful in addressing these risks and uncertainties and its failure to do so could have
a materially adverse effect on its financial condition.
Epidemics,
pandemics or other public health crises, including COVID-19, could adversely affect the Company’s business.
The
Company’s operations could be significantly adversely affected by the effects of a widespread outbreak of epidemics, pandemics
or other health crises, including the recent outbreak of respiratory illness caused by the novel coronavirus (“COVID-19”),
which was declared a pandemic by the World Health Organization on March 12, 2020. The Company cannot accurately predict the impact COVID-19
will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to
the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and
quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the
human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries,
resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations.
11
The Russia/Ukraine crisis, including the
impact of sanctions or retributions thereto, could adversely affect the Company’s business.
The Company’s operations could be adversely
affected by the effects of the escalating Russia/Ukraine crisis and the effects of sanctions imposed against Russia or that country’s
retributions against those sanctions, embargos or further-reaching impacts upon energy prices, food prices and market disruptions. The
Company cannot accurately predict the impact the crisis will have on its operations and the ability of contractors to meet their obligations
with the Company, including uncertainties relating the severity of its effects, the duration of the conflict, and the length and magnitude
of energy bans, embargos and restrictions imposed by governments. In addition, the crisis could adversely affect the economies and financial
markets of the United States in general, resulting in an economic downturn that could further affect the Company’s operations and
ability to finance its operations. Additionally, the Company cannot predict changes in precious metals pricing or changes in commodities
pricing which may alternately affect the Company either positively or negatively.
Risks
Related to Mining and Exploration
The
Mine is in the exploration stage. There is no assurance that the Company can establish the existence of any mineral reserve on the Mine
or any other properties the Company may acquire in commercially exploitable quantities. Unless and until the Company does so, the Company
cannot earn any revenues from these properties and if the Company does not do so, the Company will lose all of the funds that it expends
on exploration. If the Company does not discover any mineral reserve in a commercially exploitable quantity, the exploration component
of its business could fail.
The
Company has not established that any of its mineral properties contain any mineral reserve according to recognized reserve guidelines,
nor can there be any assurance that the Company will be able to do so.
The
Company has not established that any of its mineral properties contain any mineral reserve according to recognized reserve guidelines,
nor can there be any assurance that the Company will be able to do so.
In general, the probability of any individual prospect having a “reserve” that meets the requirements of the SEC is
small, and the Mine may not contain any “reserves” and any funds that the Company spends on exploration could be lost. Even
if the Company does eventually discover a mineral reserve on the Mine, there can be no assurance that it can be developed into a producing
mine and that the Company can extract those minerals. Both mineral exploration and development involve a high degree of risk, and few
mineral properties that are explored are ultimately developed into producing mines.
The
commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade,
and other attributes of the mineral deposit, the proximity of the mineral deposit to infrastructure such as processing facilities, roads,
rail, power, and a point for shipping, government regulation, and market prices. Most of these factors will be beyond its control, and
any of them could increase costs and make extraction of any identified mineral deposit unprofitable.
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses.
Exploration
for and the production of minerals is highly speculative and involves much greater risk than many other businesses. Most exploration
programs do not result in the discovery of mineralization, and any mineralization discovered may not be of sufficient quantity or quality
to be profitably mined. The Company’s operations are, and any future development or mining operations the Company may conduct will
be, subject to all of the operating hazards and risks normally incidental to exploring for and development of mineral properties, including,
but not limited to:
●
economically
insufficient mineralized material;
●
fluctuation
in production costs that make mining uneconomical;
●
labor
disputes;
●
unanticipated
variations in grade and other geologic problems;
●
environmental
hazards;
●
water
conditions;
●
difficult
surface or underground conditions;
●
industrial
accidents;
●
metallurgic
and other processing problems;
●
mechanical
and equipment performance problems;
●
failure
of dams, stockpiles, wastewater transportation systems, or impoundments;
●
unusual
or unexpected rock formations; and
●
personal
injury, fire, flooding, cave-ins and landslides.
Any
of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates,
costs and expenditures, potential revenues, and production dates. If the Company determines that capitalized costs associated with any
of its mineral interests are not likely to be recovered, the Company would incur a write-down of its investment in these interests. All
of these factors may result in losses in relation to amounts spent that are not recoverable, or that result in additional expenses.
Commodity
price volatility could have dramatic effects on the results of operations and the Company’s ability to execute its business plan.
The
price of commodities varies on a daily basis. The Company’s future revenues, if any, will likely be derived from the extraction
and sale of base and precious metals. The price of those commodities has fluctuated widely, particularly in recent years, and is affected
by numerous factors beyond its control including economic and political trends, expectations of inflation, currency exchange fluctuations,
interest rates, global and regional consumptive patterns, speculative activities and increased production due to new extraction developments
and improved extraction and production methods. The effect of these factors on the price of base and precious metals, and therefore the
economic viability of the Company’s business, could negatively affect its ability to secure financing or its results of operations.
12
The
Company’s production, development plans and cost estimates in the PEA may vary and/or
not be achieved.
The
PEA is preliminary in nature and will include Inferred mineral resources that are considered too speculative geologically to have
the economic considerations applied to them that would enable them to be categorized as mineral reserves. Consequently, there is no certainty
that the PEA will be realized. The decision to implement the Mine restart scenario to be included in the PEA will not be based
on a feasibility study of mineral reserves demonstrating economic and technical viability, and therefore there is increased risk that
the PEA results will not be realized. If the Company is unable to achieve the results in the PEA, it may have a material negative impact
on the Company and its capital investment to implement the restart scenario may be lost.
Costs charged to the Company by the Idaho
Department of Environmental Quality (“IDEQ”) for treatment of waste water fluctuate a great deal and are not within the Company’s
control.
The Company is billed annually for water treatment
activities performed by the IDEQ for the EPA. The water treatment costs that Bunker Hill is billed for are partially related to the EPA’s
direct cost of treating the water emanating from the Bunker Hill Mine, which are comprised of lime and flocculant usage, electricity
consumption, maintenance and repair, labor and some overhead. Rate of discharge of effluent from the Bunker Hill Mine is largely dependent
on the level of precipitation within a given year and how close in the calendar year the Company is to the spring run-off. Increases
in water infiltrations and gravity flows within the mine generally increase after winter and result in a peak discharge rate in May.
Increases in gravity flow and consequently the rate of water discharged by the mine have a highly robust correlation with metal concentrations
and consequently metals loads of effluent.
Hydraulic loads (quantities of water per unit
of time) and metal loads (quantities of metals per unit of volume of effluent per unit of time) are the two main determinants of cost
of water treatment by the EPA in the relationship with the Bunker Hill Mine because greater metal loads consume more lime and more flocculent
and more electricity to remove the increased levels of metals and make the water clean. The scale of the treatment plant is determined
by how much total water can be processed (hydraulic load) at any one point in time. This determines how much labor is required to operate
the plant and generally determine the amount of overhead required to run the EPA business.
The EPA has completed significant upgrades to
the water treatment capabilities of the CTP and is now capable of producing treated water than can meet a much higher discharge standard
(which Bunker Hill will be forced to meet beyond May 2023). While it was understood that improved performance capability would increase
the cost of operating the plant, it was unclear to EPA, and consequently to Bunker Hill, how much the costs would increase by.
These elements described above, and others,
impact the direct costs of water treatment. A significant portion of the total amount invoiced by EPA each year is indirect cost that
is determined as a percentage of the direct cost. Each year the indirect costs percentage changes within each region of the EPA. Bunker
Hill has no ability to impact the percentage of indirect cost that is set by the EPA regional office. Bunker Hill also has no advanced
notice of what the percentage of indirect cost will be until it receives its invoice in June of the year following the billing period.
The Company remains unable to estimate EPA billings to a high degree of accuracy.
Estimates
of mineralized material and resources are subject to evaluation uncertainties that could result in project failure.
Its
exploration and future mining operations, if any, are and would be faced with risks associated with being able to accurately predict
the quantity and quality of mineralized material and resources/reserves within the earth using statistical sampling techniques. Estimates
of any mineralized material or resource/reserve on the Mine would be made using samples obtained from appropriately placed trenches,
test pits, underground workings, and intelligently designed drilling. There is an inherent variability of assays between check and duplicate
samples taken adjacent to each other and between sampling points that cannot be reasonably eliminated. Additionally, there also may be
unknown geologic details that have not been identified or correctly appreciated at the current level of accumulated knowledge about the
Mine. This could result in uncertainties that cannot be reasonably eliminated from the process of estimating mineralized material and
resources/reserves. If these estimates were to prove to be unreliable, the Company could implement an exploitation plan that may not
lead to commercially viable operations in the future.
Any
material changes in mineral resource/reserve estimates and grades of mineralization will affect the economic viability of placing a property
into production and a property’s return on capital.
As
the Company has not commenced actual production, mineralization resource estimates
may require adjustments or downward revisions. In addition, the grade of ore ultimately mined, if any, may differ from that indicated
by future feasibility studies and drill results. Minerals recovered in small scale tests may not be duplicated in large scale tests under
on-site conditions or in production scale.
The
Company’s exploration activities may not be commercially successful, which could lead the Company to abandon its plans to develop
the Mine and its investments in exploration.
The
Company’s long-term success depends on its ability to identify mineral deposits on the Mine and other properties the Company may
acquire, if any, that the Company can then develop into commercially viable mining operations. Mineral exploration is highly speculative
in nature, involves many risks, and is frequently non-productive. These risks include unusual or unexpected geologic formations, and
the inability to obtain suitable or adequate machinery, equipment, or labor. The success of commodity exploration is determined in part
by the following factors:
●
the
identification of potential mineralization based on surficial analysis;
●
availability
of government-granted exploration permits;
●
the
quality of its management and its geological and technical expertise; and
●
the
capital available for exploration and development work.
Substantial
expenditures are required to establish proven and probable reserves through drilling and analysis, to develop metallurgical processes
to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Whether a mineral
deposit will be commercially viable depends on a number of factors that include, without limitation, the particular attributes of the
deposit, such as size, grade, and proximity to infrastructure; commodity prices, which can fluctuate widely; and government regulations,
including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals,
and environmental protection. The Company may invest significant capital and resources in exploration activities and may abandon such
investments if the Company is unable to identify commercially exploitable mineral reserves. The decision to abandon a project may have
an adverse effect on the market value of the Company’s securities and the ability to raise future financing.
13
The
Company is subject to significant governmental regulations that affect its operations and costs of conducting its business and may not
be able to obtain all required permits and licenses to place its properties into production.
The
Company’s current and future operations, including exploration and, if warranted, development of the Mine, do and will require
permits from governmental authorities and will be governed by laws and regulations, including:
●
laws
and regulations governing mineral concession acquisition, prospecting, development, mining, and production;
●
laws
and regulations related to exports, taxes, and fees;
●
labor
standards and regulations related to occupational health and mine safety; and
●
environmental
standards and regulations related to waste disposal, toxic substances, land use reclamation, and environmental protection.
Companies
engaged in exploration activities often experience increased costs and delays in production and other schedules as a result of the need
to comply with applicable laws, regulations, and permits. Failure to comply with applicable laws, regulations, and permits may result
in enforcement actions, including the forfeiture of mineral claims or other mineral tenures, orders issued by regulatory or judicial
authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation
of additional equipment, or costly remedial actions. The Company cannot predict if all permits that it may require for continued exploration,
development, or construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms, if at all.
Costs related to applying for and obtaining permits and licenses may be prohibitive and could delay its planned exploration and development
activities. The Company may be required to compensate those suffering loss or damage by reason of the mineral exploration or its mining
activities, if any, and may have civil or criminal fines or penalties imposed for violations of, or its failure to comply with, such
laws, regulations, and permits.
Existing
and possible future laws, regulations, and permits governing operations and activities of exploration companies, or more stringent implementation
of such laws, regulations and permits, could have a material adverse impact on the Company’s business and cause increases in capital
expenditures or require abandonment or delays in exploration. The Mine is located in Northern Idaho and has numerous clearly defined
regulations with respect to permitting mines, which could potentially impact the total time to market for the project.
The
Company’s activities are subject to environmental laws and regulations that may increase its costs of doing business and restrict
its operations.
Both
mineral exploration and extraction require permits from various federal, state, and local governmental authorities and are governed by
laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation,
labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.
There can be no assurance that the Company will be able to obtain or maintain any of the permits required for the exploration of the
mineral properties or for the construction and operation of the Mine at economically viable costs. If the Company cannot accomplish these
objectives, its business could fail. The Company believes that it is in compliance with all material laws and regulations that currently
apply to its activities but there can be no assurance that the Company can continue to remain in compliance. Current laws and regulations
could be amended, and the Company might not be able to comply with them, as amended. Further, there can be no assurance that the Company
will be able to obtain or maintain all permits necessary for its future operations, or that it will be able to obtain them on reasonable
terms. To the extent such approvals are required and are not obtained, the Company may be delayed or prohibited from proceeding with
planned exploration or development of the mineral properties.
The
Company’s activities are subject to extensive laws and regulations governing environment protection. The Company is also subject
to various reclamation related conditions. Although the Company closely follows and believes it is operating in compliance with all applicable
environmental regulations, there can be no assurance that all future requirements will be obtainable on reasonable terms. Failure to
comply may result in enforcement actions causing operations to cease or be curtailed and may include corrective measures requiring capital
expenditures. Intense lobbying over environmental concerns by non-governmental organizations has caused some governments to cancel or
restrict development of mining projects. Current publicized concern over climate change may lead to carbon taxes, requirements for carbon
offset purchases or new regulation. The costs or likelihood of such potential issues to the Company cannot be estimated at this time.
The
legal framework governing this area is constantly developing, therefore the Company is unable to fully ascertain any future liability
that may arise from the implementation of any new laws or regulations, although such laws and regulations are typically strict and may
impose severe penalties (financial or otherwise). The proposed activities of the Company, as with any exploration company, may have an
environmental impact which may result in unbudgeted delays, damage, loss and other costs and obligations including, without limitation,
rehabilitation and/or compensation. There is also a risk that the Company’s operations and financial position may be adversely
affected by the actions of environmental groups or any other group or person opposed in general to the Company’s activities and,
in particular, the proposed exploration and mining by the Company within the state of Idaho and the United States.
Environmental
hazards unknown to the Company, which have been caused by previous or existing owners or operators of the Mine, may exist on the properties
in which the Company holds an interest. Many of its properties in which the Company has ownership rights are located within the Coeur
d’Alene Mining District, which is currently the site of a Federal Superfund cleanup project. It is possible that environmental
cleanup or other environmental restoration procedures could remain to be completed or mandated by law, causing unpredictable and unexpected
liabilities to arise.
Regulations
and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material
adverse effect on the Company’s business.
A
number of governments or governmental bodies have introduced or are contemplating legislative and/or regulatory changes in response to
concerns about the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant
costs on the Company, on its future venture partners, if any, and on its suppliers, including costs related to increased energy requirements,
capital equipment, environmental monitoring and reporting, and other costs necessary to comply with such regulations. Any adopted future
climate change regulations could also negatively impact the Company’s ability to compete with companies situated in areas not subject
to such limitations. Given the emotional and political significance and uncertainty surrounding the impact of climate change and how
it should be dealt with, the Company cannot predict how legislation and regulation will ultimately affect its financial condition, operating
performance, and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the
global marketplace about potential impacts on climate change by the Company or other companies in its industry could harm the Company’s
reputation. The potential physical impacts of climate change on its operations are highly uncertain, could be particular to the geographic
circumstances in areas in which the Company operates and may include changes in rainfall and storm patterns and intensities, water shortages,
changing sea levels, and changing temperatures. These impacts may adversely impact the cost, production, and financial performance of
the Company’s operations.
14
There
are several governmental regulations that materially restrict mineral exploration. The Company will be subject to the federal regulations
(environmental) and the laws of the State of Idaho as the Company carries out its exploration program. The Company may be required to
obtain additional work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with
these laws. While the Company’s planned exploration program budgets for regulatory compliance, there is a risk that new regulations
could increase its costs of doing business and prevent it from carrying out its exploration program.
Land
reclamation requirements for the Company’s properties may be burdensome and expensive.
Although
variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration
companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance.
Reclamation
may include requirements to:
●
control
dispersion of potentially deleterious effluents;
●
treat
ground and surface water to drinking water standards; and
●
reasonably
re-establish pre-disturbance landforms and vegetation.
In
order to carry out reclamation obligations imposed on the Company in connection with its potential development activities, the Company
must allocate financial resources that might otherwise be spent on further exploration and development programs. The Company plans to
set up a provision for its reclamation obligations on its properties, as appropriate, but this provision may not be adequate. If the
Company is required to carry out unanticipated reclamation work, its financial position could be adversely affected.
Social
and environmental activism may have an adverse effect on the reputation and financial condition of the Company or its relationship with
the communities in which it operates.
There
is an increasing level of public concern relating to the effects of mining on the nature landscape, in communities and on the environment.
Certain non-governmental organizations, public interest groups and reporting organizations (“NGOs”) who oppose resource development
can be vocal critics of the mining industry. In addition, there have been many instances in which local community groups have opposed
resource extraction activities, which have resulted in disruption and delays to the relevant operation. While the Company seeks to operate
in a socially responsible manner and believes it has good relationships with local communities in the regions in which it operates, NGOs
or local community organizations could direct adverse publicity against and/or disrupt the operations of the Company in respect to one
or more of its properties, regardless of its successful compliance with social and environmental best practices, due to political factors,
activities of unrelated third parties on lands in which the Company has an interest or the Company’s operations specifically. Any
such actions and the resulting media coverage could have an adverse effect on the reputation and financial condition of the Company or
its relationships with the communities in which it operates, which could have a material adverse effect on the Company’s business,
financial condition, results of operations, cash flows or prospects.
The
mineral exploration and mining industry is highly competitive.
The
mining industry is intensely competitive in all of its phases. As a result of this competition, some of which is with large established
mining companies with substantial capabilities and with greater financial and technical resources than the Company’s, the Company
may be unable to acquire additional properties, if any, or financing on terms it considers acceptable. The Company also competes with
other mining companies in the recruitment and retention of qualified managerial and technical employees. If the Company is unable to
successfully compete for qualified employees, its exploration and development programs may be slowed down or suspended. The Company competes
with other companies that produce its planned commercial products for capital. If the Company is unable to raise sufficient capital,
its exploration and development programs may be jeopardized or it may not be able to acquire, develop, or operate additional mining projects.
The
silver industry is highly competitive, and the Company is required to compete with other corporations and business entities, many of
which have greater resources than it does. Such corporations and other business entities could outbid the Company for potential projects
or produce minerals at lower costs, which would have a negative effect on the Company’s operations.
Metal
prices are highly volatile. If a profitable market for its metals does not exist, the Company may have to cease operations.
Mineral
prices have been highly volatile and are affected by numerous international economic and political factors over which the Company has
no control. The Company’s long-term success is highly dependent upon the price of silver, as the economic feasibility of any ore
body discovered on its current property, or on other properties the Company may acquire in the future, would, in large part, be determined
by the prevailing market price of the minerals. If a profitable market does not exist, the Company may have to cease operations.
A
shortage of equipment and supplies could adversely affect the Company’s ability to operate its business.
The
Company is dependent on various supplies and equipment to carry out its mining exploration and, if warranted, development operations.
Any shortage of such supplies, equipment, and parts could have a material adverse effect on the Company’s ability to carry out
its operations and could therefore limit, or increase the cost of, production.
15
Joint
ventures and other partnerships, including offtake arrangements, may expose the Company to risks.
The
Company may enter into joint ventures, partnership arrangements, or offtake agreements, with other parties in relation to the exploration,
development, and production of the properties in which the Company has an interest. Any failure of such other companies to meet their
obligations to the Company or to third parties, or any disputes with respect to the parties’ respective rights and obligations,
could have a material adverse effect on the Company, the development and production at its properties, including the Mine, and on future
joint ventures, if any, or their properties, and therefore could have a material adverse effect on its results of operations, financial
performance, cash flows and the price of its Common Shares.
The
Company may experience difficulty attracting and retaining qualified management to meet the needs of its anticipated growth, and the
failure to manage its growth effectively could have a material adverse effect on its business and financial condition.
The
success of the Company is currently largely dependent on the performance of its directors and officers. The loss of the services of any
of these persons could have a materially adverse effect on the Company’s business and prospects. There is no assurance the Company
can maintain the services of its directors, officers or other qualified personnel required to operate its business. As the Company’s
business activity grows, the Company will require additional key financial, administrative and mining personnel as well as additional
operations staff. There can be no assurance that these efforts will be successful in attracting, training and retaining qualified personnel
as competition for persons with these skill sets increase. If the Company is not successful in attracting, training and retaining qualified
personnel, the efficiency of its operations could be impaired, which could have an adverse impact on the Company’s operations and
financial condition. In addition, the COVID-19 pandemic may cause the Company to have inadequate access to an available skilled workforce
and qualified personnel, which could have an adverse impact on the Company’s financial performance and financial condition.
The
Company is dependent on a relatively small number of key employees, including its Chief Executive Officer (the “CEO”) and
Chief Financial Officer (the “CFO”). The loss of any officer could have an adverse effect on the Company. The Company has
no life insurance on any individual, and the Company may be unable to hire a suitable replacement for them on favorable terms, should
that become necessary.
The
Company may be subject to potential conflicts of interest with its directors and/or officers.
Certain
directors and officers of the Company are or may become associated with other mining and/or mineral exploration and development companies
which may give rise to conflicts of interest. Directors who have a material interest in any person who is a party to a material contract
or a proposed material contract with the Company are required, subject to certain exceptions, to disclose that interest and generally
abstain from voting on any resolution to approve such a contract. In addition, directors and officers are required to act honestly and
in good faith with a view to the best interests of the Company. Some of the directors and officers of the Company have either other full-time
employment or other business or time restrictions placed on them and accordingly, the Company will not be the only business enterprise
of these directors and officers. Further, any failure of the directors or officers of the Company to address these conflicts in an appropriate
manner or to allocate opportunities that they become aware of to the Company could have a material adverse effect on the Company’s
business, financial condition, results of operations, cash flows or prospects.
The
Company’s results of operations could be affected by currency fluctuations.
The
Company’s properties are currently all located in the U.S. and while most costs associated with these properties are paid in U.S.
dollars, a significant amount of its administrative expenses are payable in Canadian dollars. There can be significant swings in the
exchange rate between the U.S. dollar and the Canadian dollar. There are no plans at this time to hedge against any exchange rate fluctuations
in currencies.
Title
to the Company’s properties may be subject to other claims that could affect its property rights and claims.
There
are risks that title to the Company’s properties may be challenged or impugned. The Mine is located in Northern Idaho and may be
subject to prior unrecorded agreements or transfers and title may be affected by undetected defects.
The
Company may be unable to secure surface access or purchase required surface rights.
Although
the Company obtains the rights to some or all of the minerals in the ground subject to the mineral tenures that the Company acquires,
or has the right to acquire, in some cases the Company may not acquire any rights to, or ownership of, the surface to the areas covered
by such mineral tenures. In such cases, applicable mining laws usually provide for rights of access to the surface for the purpose of
carrying on mining activities; however, the enforcement of such rights through the courts can be costly and time consuming. It is necessary
to negotiate surface access or to purchase the surface rights if long-term access is required. There can be no guarantee that, despite
having the right at law to access the surface and carry on mining activities, the Company will be able to negotiate satisfactory agreements
with any such existing landowners/occupiers for such access or purchase of such surface rights, and therefore the Company may be unable
to carry out planned mining activities. In addition, in circumstances where such access is denied, or no agreement can be reached, the
Company may need to rely on the assistance of local officials or the courts in such jurisdiction, the outcomes of which cannot be predicted
with any certainty. The Company’s inability to secure surface access or purchase required surface rights could materially and adversely
affect its timing, cost, or overall ability to develop any mineral deposits the Company may locate.
The
Company’s properties and operations may be subject to litigation or other claims.
From
time to time the Company’s properties or operations may be subject to disputes that may result in litigation or other legal claims.
The Company may be required to take countermeasures or defend against these claims, which will divert resources and management time from
operations. The costs of these claims or adverse filings may have a material effect on its business and results of operations.
There
are amounts due and owing under the Company’s agreement with the EPA that have not been paid in accordance with the agreed upon
payment schedule. In the event that the EPA or Placer Mining assert default under the terms of the agreement or the Amended Agreement,
respectively, the Company may lose its ability to exercise its right to purchase the Mine, which would have a material adverse impact
on the Company.
Pursuant
to the terms of the Company’s agreement with the EPA, the Company is required to make certain payments to the EPA on behalf of
Placer Mining in the amount of $20,000,000 for cost recovery. The Company has made one payment of $1,000,000 but has not paid the other
payments as they have become due.
The Company entered into an amended Settlement
Agreement between the Company, Idaho Department of Environmental Quality, US Department of Justice and the EPA. Upon entering the Amended
Settlement, the Company is now fully compliant with its payment obligations to these parties. The Amended Settlement modifies the payment
schedule and payment terms for recovery of historical environmental response costs at Bunker Hill Mine by the EPA. A total of $19,000,000
remains to be paid by the Company. The new payment schedule includes at $2,000,000 payment to the EPA within 30 days of the execution
of this Amended Settlement, which was paid subsequent to December 31, 2021. The remaining $17,000,000 should be paid in annual instalments until November 1, 2029.
16
Failure to pay could be considered a default under
the terms of the Amended Settlement with the EPA and the Amended Agreement with Placer Mining.
Mineral
exploration and development is subject to extraordinary operating risks. The Company currently insures against these risks on a limited
basis. In the event of a cave-in or similar occurrence, the Company’s liability may exceed its resources and insurance coverage,
which would have an adverse impact on the Company.
Mineral
exploration, development and production involve many risks. The Company’s operations will be subject to all the hazards and risks
inherent in the exploration for mineral resources and, if the Company discovers a mineral resource in commercially exploitable quantity,
its operations could be subject to all of the hazards and risks inherent in the development and production of resources, including liability
for pollution, cave-ins or similar hazards against which the Company cannot insure or against which the Company may elect not to insure.
Any such event could result in work stoppages and damage to property, including damage to the environment. As of the date hereof, the
Company currently maintains commercial general liability insurance and umbrella liability insurance against these operating hazards,
in connection with its exploration program. The payment of any liabilities that arise from any such occurrence that would not otherwise
be covered under the current insurance policies would have a material adverse impact on the Company.
Mineral
exploration and development are depended on adequate infrastructure.
Exploration,
development and processing activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources
and water supply are important elements of infrastructure, which affect access, capital and operating costs. The lack of availability
on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay exploration or development
of the Company’s mineral properties. If adequate infrastructure is not available in a timely manner, there can be no assurance
that the exploration or development of the Company’s mineral properties will be commenced or completed on a timely basis, if at
all. Furthermore, unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision
of necessary infrastructure could adversely affect its operations.
Exploration
operations depend on adequate infrastructure. In particular, reliable power sources, water supply, transportation and surface facilities
are necessary to explore and develop mineral projects. Failure to adequately meet these infrastructure requirements or changes in the
cost of such requirements could affect the Company’s ability to carry out exploration and future development operations and could
have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows or prospects
The
Company may purchase additional mining properties.
If
the Company loses or abandons its interests in its mineral properties, there is no assurance that it will be able to acquire another
mineral property of merit or that such an acquisition would be approved by the CSE, OTCQB or any other applicable security exchanges.
There is also no guarantee that the CSE, OTCQB or any other applicable security exchanges, will approve the acquisition of any additional
properties by the Company, whether by way of an option or otherwise, should the Company wish to acquire any additional properties.
The
Company’s operations are dependent on information technology systems that may be subject to network disruptions
The
Company’s operations depend on information technology (“IT”) systems. These IT systems could be subject to network
disruptions caused by a variety of sources, including computer viruses, security breaches and cyber-attacks, as well as disruptions resulting
from incidents such as cable cuts, damage to physical plants, natural disasters, terrorism, fire, power loss, vandalism and theft. The
Company’s operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software,
as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures,
delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending
on the nature of any such failure, adversely impact the Company’s reputation and results of operations.
Although
to date the Company has not experienced any material losses relating to cyber-attacks or other information security breaches, there can
be no assurance that the Company will not incur such losses in the future. The Company’s risk and exposure to these matters cannot
be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued
development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks
from attack, damage or unauthorized access remain a priority. As cyber threats continue to evolve, the Company may be required to expend
additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
The
Company is a reporting issuer and reporting requirements under applicable securities laws may increase legal and financial compliance
costs
The
Company is subject to reporting requirements under applicable securities law, the listing requirements of the CSE, the OTCQB, the SEC
and other applicable securities rules and regulations. Compliance with these requirements can increase legal and financial compliance
costs, make some activities more difficult, time consuming or costly, and increase demand on existing systems and resources. Among other
things, the Company is required to file annual, quarterly and current reports with respect to its business and results of operations
and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if
required, improve disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant
resources and management oversight is required. As a result, management’s attention may be diverted from other business concerns,
which could harm the Company’s business and results of operations. The Company may need to hire additional employees to comply
with these requirements in the future, which would increase its costs and expenses.
Risks
Related to the Common Shares
The
Company’s Common Share price may be volatile and as a result, investors could lose all or part of their investment.
In
addition to volatility associated with equity securities in general, the value of an investor’s investment could decline due to
the impact of any of the following factors upon the market price of the Common Shares:
●
disappointing
results from the Company’s exploration efforts;
●
decline
in demand for its Common Shares;
●
downward
revisions in securities analysts’ estimates or changes in general market conditions;
●
technological
innovations by competitors or in competing technologies;
●
investor
perception of the Company’s industry or its prospects; and
●
general
economic trends.
The
Company’s Common Share price on the CSE has experienced significant price and volume fluctuations. Stock markets in general have
experienced extreme price and volume fluctuations, and the market prices of securities have been highly volatile. These fluctuations
are often unrelated to operating performance and may adversely affect the market price of the Common Shares. As a result, an investor
may be unable to sell any Common Shares such investor acquires at a desired price.
17
Potential
future sales under Rule 144 may depress the market price for the Company’s Common Shares.
In
general, under Rule 144, a person who has satisfied a minimum holding period of between 6 months and one-year and any other applicable
requirements of Rule 144, may thereafter sell such shares publicly. A significant number of the Company’s currently issued and
outstanding Common Shares held by existing shareholders, including officers and directors and other principal shareholders, are currently
eligible for resale pursuant to and in accordance with the provisions of Rule 144. The possible future sale of the Company’s Common
Shares by its existing shareholders, pursuant to and in accordance with the provisions of Rule 144, may have a depressive effect on the
price of its Common Shares in the over-the-counter market.
The
Company’s Common Shares currently deemed a “penny stock”, which may make it more difficult for investors to sell their
Common Shares.
The
SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price less than
$5.00 per Common Share or an exercise price of less than $5.00 per Common Share, subject to certain exceptions. The Company’s s
securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons
other than established customers and “accredited investors”. The term “accredited investor” refers generally
to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000, exclusive of their principal
residence, or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a
form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer
orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny
stock rules may affect the ability of broker-dealers to trade its securities. The Company believes that the penny stock rules may discourage
investor interest in and limit the marketability of its Common Shares.
The
Company has never paid dividends on its Common Shares.
The
Company has not paid dividends on its Common Shares to date, and it does not expect to pay dividends for the foreseeable future. The
Company intends to retain its initial earnings, if any, to finance its operations. Any future dividends on Common Shares will depend
upon the Company’s earnings, its then-existing financial requirements, and other factors, and will be at the discretion of the
Board.
FINRA
has adopted sales practice requirements, which may also limit an investor’s ability to buy and sell the Company’s Common
Shares.
In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment
to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to
recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain
information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least
some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy the Company’s
Common Shares, which may limit an investor’s ability to buy and sell its stock and have an adverse effect on the market for the
Common Shares.
Investors’
interests in the Company will be diluted and investors may suffer dilution in their net book value per share of Common Shares if the
Company issues additional employee/director/consultant options or if the Company sells additional Common Shares and/or warrants to finance
its operations.
In
order to further expand the Company’s operations and meet its objectives, any additional growth and/or expanded exploration activity
will likely need to be financed through sale of and issuance of additional Common Shares, including, but not limited to, raising funds
to explore the Mine. Furthermore, to finance any acquisition activity, should that activity be properly approved, and depending on the
outcome of its exploration programs, the Company likely will also need to issue additional Common Shares to finance future acquisitions,
growth, and/or additional exploration programs of any or all of its projects or to acquire additional properties. The Company will also
in the future grant to some or all of its directors, officers, and key employees and/or consultants options to purchase Common Shares
as non-cash incentives. The issuance of any equity securities could, and the issuance of any additional Common Shares will, cause the
Company’s existing shareholders to experience dilution of their ownership interests.
If
the Company issues additional Common Shares or decides to enter into joint ventures with other parties in order to raise financing through
the sale of equity securities, investors’ interests in the Company will be diluted and investors may suffer dilution in their net
book value per share of Common Shares depending on the price at which such securities are sold.
The
issuance of additional shares of Common Shares may negatively impact the trading price of the Company’s securities.
The
Company has issued Common Shares in the past and will continue to issue Common Shares to finance its activities in the future. In addition,
newly issued or outstanding options, warrants, and broker warrants to purchase Common Shares may be exercised, resulting in the issuance
of additional Common Shares. Any such issuance of additional Common Shares would result in dilution to the Company’s shareholders,
and even the perception that such an issuance may occur could have a negative impact on the trading price of the Common Shares.
The
Common Shares could be influenced by research and reports that industry or securities analyst may be published.
The
trading market for the Common Shares could be influenced by research and reports that industry and/or securities analysts may publish
about the Company, its business, the market or its competitors. The Company does not have any control over these analysts and cannot
assure that such analysts will cover the Company or provide favorable coverage. If any of the analysts who may cover the Company’s
business change their recommendation regarding the Company’s stock adversely, or provide more favorable relative recommendations
about its competitors, the stock price would likely decline. If any analysts who may cover the Company’s business were to cease
coverage or fail to regularly publish reports on the Company, it could lose visibility in the financial markets, which in turn could
cause the stock price or trading volume to decline.
The
Company is subject to the continued listing criteria of the CSE and the OTCQB, and its failure to satisfy these criteria may
result in delisting of its Common Shares from the CSE and the OTCQB.
The
Company’s Common Shares are currently listed for trading on the CSE and quoted on the OTCQB. In order to maintain the listing
on the CSE and the quotation on the OTCQB or any other securities exchange the Company may trade on, the Company must maintain
certain financial and share distribution targets, including maintaining a minimum number of public shareholders. In addition to objective
standards, these exchanges may delist the securities of any issuer if, in the exchange’s opinion: its financial condition and/or
operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security
has become so reduced as to make continued listing inadvisable; if the Company sells or disposes of its principal operating assets or
ceases to be an operating company; if the Company fails to comply with the listing requirements; or if any other event occurs or any
condition exists which, in their opinion, makes continued listing on the exchange inadvisable.
18
If
the CSE, the OTCQB or any other exchange or quotation service were to delist the Common Shares, investors may face material
adverse consequences, including, but not limited to, a lack of trading market for the Common Shares, reduced liquidity, decreased analyst
coverage, and/or an inability for the Company to obtain additional financing to fund its operations.
The
Company faces risks related to compliance with corporate governance laws and financial reporting standards.
The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the SEC and the Public Company Accounting Oversight
Board, require changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules
and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial
reporting, referred to as Section 404, materially increase the Company’s legal and financial compliance costs and make certain
activities more time-consuming and burdensome.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
Applicable.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.