Item 1. Business
ITEM
1. BUSINESS
Our
Business
Overview
The
Company’s sole focus is the development and restart of its 100% owned flagship asset, the Bunker Hill mine (the “Bunker Hill
Mine” or the “Mine”) in Idaho, USA. The Mine remains the largest single producing mine by tonnage in the Silver Valley
region of northwest Idaho, producing over 165 million ounces of silver and 5 million tons of base metals between 1885 and 1981. The Bunker
Hill Mine is located within Operable Unit 2 of the Bunker Hill Superfund site (EPA National Priorities Listing IDD048340921), where cleanup
activities have been completed.
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.
Recent
Developments
In
March 2023, the Company amended the exercise price and expiry date of 10,416,667 warrants previously issued in a private placement to
Teck Resources (“Teck”) on May 13, 2022 in consideration for the Company’s acquisition of the Pend Oreille processing
plant. The warrant entitled the holder to purchase one share of common stock of the Company at an exercise price of C$0.37 per Warrant
at any time on or prior to May 12, 2025. The Company amended the exercise price from C$0.37 to C$0.11 per Warrant and the expiry date
from May 12, 2025, to March 31, 2023. In March 2023, Teck exercised all 10,416,667 warrants at an exercise price of C$0.11, for aggregate
gross proceeds of 837,460 (C$1,145,834) to the Company.
In
March 2023, the Company closed a brokered private placement of special warrants (the “March 2023 Offering”), issuing 51,633,727
special warrants of the Company (“March 2023 Special Warrants”) at C$0.12 per March 2023 Special Warrant for $4,536,020 (C$6,196,047),
of which $3,661,822 was received in cash and $874,198 was applied towards settlement of accounts payable, accrued liabilities and promissory
notes. Each March 2023 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, subject to adjustment in certain events. The Special Warrants
issued on March 27, 2023 were converted to 51,633,727 shares of common stock and common stock purchase warrants on July 24, 2023.
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In
June 2023, the Company closed the upsized and improved $67,000,000 project finance package with Sprott, consisting of a $46,000,000
stream and a $21,000,000 new debt facility. The newly proposed $46,000,000 stream (the “Stream”) was envisaged to have
the same economic terms as the previously proposed $37,000,000 stream, with a $9,000,000 increase in gross proceeds received by the
Company, resulting in a lower cost of capital for the Company. The Company also announced a new $21,000,000 new debt facility (the
“Debt Facility”), available for draw at the Company’s election for two years. As a result, total funding
commitments from Sprott was envisaged to increase to $96,000,000 including the RCD royalty convertible debenture (the
“RCD”), the $6,000,000 convertible debenture (the “CD1”), the $15,000,000 convertible debenture (the “CD2”), Stream and debt facility (together, the
“Project Financing Package”). A $5,000,000 loan facility with Sprott that closed in December 2022 (the
“Bridge Loan”) was repaid from the proceeds of the Stream. The parties also agreed to extend the maturities of the CD1 and CD2 to March 31, 2026, when the full $6 million and $15
million, respectively, will become due.
In
July, the Company appointed Paul Smith to its Board of Directors.
Building
on the successful refinancing efforts, Bunker Hill announced the receipt of final listing approval from the TSX Venture Exchange (the “TSX-V”). The common stock of the Company (the “Common Shares”) began trading on the
TSX-V on September 8, 2023, under the symbol “BNKR”. The Company’s Common Shares were delisted from the Canadian Stock
Exchange (the “CSE Delisting”) at the close of business on September 7, 2023.
In
November, the company appointed Gerbrand van Heerden as its new CFO, replacing David Wiens who resigned to pursue another opportunity.
In November, the Company won the ESG Developer / Explorer
of the year award at the ‘Resourcing Tomorrow investment conference’ recognizing the importance of the Company’s ESG
strategy which is critical to enabling the restart of sustainable, profitable, and long-term mining operations within the Bunker Hill
Superfund Site.
During the course of 2023, the Wardner Operating
Yard, the base for Bunker Hill’s future mining operations, underwent a significant transformation. This included the removal
of the old, prefabricated portal and its replacement with upsized steel arch sets. This enlarged Russell Portal supports the planned
1800tpd operation with additional upside capacity of 2500tpd. Whilst this work was underway, procurement of a of the ventilation and air
system was completed, which will be installed before the end of 2024.
Engineering of the main Process Plant is
advancing on track including deep pier ground support to commence as part of site preparation for the construction of the Process Plant. All main civil, structural and mechanical outputs are on track. Long-lead
procurement orders have already been issued for the pre-engineered metal building, ore silo, conveyors,
ball mill starter motor, thickeners tanks and inching drive. Refurbishment of the Pend Oreille mill equipment, the source of the
majority of mill components, was well underway at year end.
During the 2023 a
Subsidiary of Teck Resources Limited (“Teck”) exercised its option for a minimum 5-year, 100% offtake of Bunker
Hill’s zinc and lead concentrates at its smelter in Trail, BC, ensuring a long-term, sustainable revenue source.
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Company
History
In
early 2020, a new management team comprised of former executives from Barrick Gold Corp. assumed leadership of the Company. Since that
time, the Company conducted multiple exploration campaigns, economic studies and mineral resource estimates, and advanced
the rehabilitation and development of the Mine. In December 2021, it announced a project finance package with Sprott Private Resource
Streaming & Royalty Corp. (“Sprott”), an amended Settlement Agreement with the U.S. Environmental Protection Agency (the
“EPA”), and the purchase of the Bunker Hill Mine, setting the stage for a restart of the Mine.
Lease
and Purchase of the Bunker Hill Mine
The
Company purchased the Bunker Hill Mine in January 2022, as described below.
Prior
to purchasing the Mine, the Company had entered into a series of agreements with Placer Mining Corporation (“Placer Mining”),
the prior owner, for the lease and option to purchase the Mine. The first of these agreements was dated August 28, 2017, with
subsequent amendments and/or extensions announced on November 1, 2019, July 7, 2020, and November 20, 2020.
Under
the terms of the November 20, 2020 amended agreement (the “Amended Agreement”), a purchase price of $7,700,000 was agreed,
with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the purchase price of the Mine as having been previously
paid by the Company) and $2,000,000 in shares of common stock of the Company. The Company agreed to make an advance payment of $2,000,000,
credited toward the purchase price of the Mine, which had the effect of decreasing the remaining amount to an aggregate of $3,400,000 payable in cash and $2,000,000 in common stock of the Company.
The
Amended Agreement also required payments pursuant to an agreement with the EPA whereby for so long as the Company leases, owns and/or
occupies the Mine, the Company would make payments to the EPA on behalf of Placer Mining in satisfaction of the EPA’s claim for
historical water treatment cost recovery in accordance with the Settlement Agreement reached with the EPA in 2018. Immediately prior
to the purchase of the Mine, the Company’s liability to the EPA totaled $11,000,000.
The
Company completed the purchase of the Bunker Hill Mine on January 7, 2022. The terms of the purchase price were modified to $5,400,000
in cash, from $3,400,000 of cash and $2,000,000 of common stock of the Company. Concurrent with the purchase of the Mine, the Company
assumed incremental liabilities of $8,000,000 to the EPA, consistent with the terms of the amended Settlement Agreement with the EPA
that was executed in December 2021 (see “EPA 2018 Settlement Agreement & 2021 Amended Settlement Agreement” section below).
EPA
2018 Settlement Agreement & 2021 Amended Settlement Agreement
Bunker
Hill entered into a Settlement Agreement and Order of Consent with the EPA on May 15, 2018. This agreement limits the Company’s
exposure to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) liability for past environmental
damage to the mine site and surrounding area to obligations that include:
●
Payment
of $20,000,000 for historical water treatment cost recovery for amounts paid by the EPA from 1995 to 2017
●
Payment
for water treatment services provided by the EPA at the Central Treatment Plant (“CTP”) in Kellogg, Idaho until such
time that Bunker Hill either purchases or leases the CTP or builds a separate EPA-approved water treatment facility
●
Conducting
a work program as described in the Ongoing Environmental Activities section of this study
In
December 2021, the Company entered into an amended Settlement Agreement
(the “Amendment”) between the Company, Idaho Department of Environmental Quality, U.S. Department of Justice (the “DOJ”)
and the EPA modifying the payment schedule and terms for recovery of historical environmental response costs at Bunker Hill Mine
incurred by the EPA. With the purchase of the mine, the remaining payments of the EPA cost recovery liability were assumed
by the Company, resulting in a total of $19,000,000 liability to the Company, an increase of $8,000,000. The new payment schedule included
a $2,000,000 payment to the EPA within 30 days of execution of this amendment, which was made.
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The
remaining $17,000,000 will be paid on the following dates:
Date
Amount
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
The
changes in payment terms and schedule were contingent upon the Company securing financial assurance in the form of performance bonds
or letters of credit deemed acceptable to the EPA totaling $17,000,000, corresponding to the Company’s cost recovery obligations
to be paid in 2024 through 2029 as outlined above. The amount of the bonds or letters of credit will decrease over time as individual payments are made.
In June 2022, the Company was successful in obtaining financial assurance. Specifically, a $9,999,000 payment bond
and a $7,001,000 letter of credit were secured by $2,475,000 and $7,001,000 of cash deposits as of September 30, 2022 and provided to
the EPA. Once the financial assurance was in place, the restructuring of the payment stream under the Amendment occurred with the entire
$17,000,000 liability being recognized as long-term in nature.
In
October 2022, the Company reported that it had secured a new payment bond to replace the $7,001,000
letter of credit, in two stages. Initially, the letter of credit was reduced to $2,000,001 as a result of a new $5,000,000 payment bond
obtained through an insurance company. The collateral for the new payment bond is comprised of a $2,000,000 letter of credit and land
pledged by third parties, with whom the Company has entered into a financing cooperation agreement that contemplates a monthly fee of
$20,000 (payable in cash or common stock of the Company, at the Company’s election). The new payment bond increased to $7,001,000 (from $5,000,000) on June 2023 due to the advancement of the multi-metals stream from Sprott
Private Resource Streaming & Royalty Corp.
Project
Finance Package with Sprott Private Resource Streaming & Royalty Corp.
On
December 20, 2021, the Company executed a non-binding term sheet outlining a $50,000,000 project finance package with Sprott Private
Resource Streaming and Royalty Corp. (“Royalty”). The 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 the $15,000,000 convertible debenture (the “CD2”). As a result, total potential
funding from Sprott was increased to $66,000,000 including the RCD, CD1, CD2 and the Stream (together, the “Project
Financing Package”).
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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 stock
at the Company’s option, until such time that Sprott 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 geophysical survey (the
“Sprott 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.
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 common stock 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 shares of Company common stock at a price of C$0.30 per share, subject to stock exchange approval (subsequently
amended, as described below). Alternatively, Sprott may elect to retire the CD1 with the cash proceeds from the Stream. The Company may
elect to repay the CD1 early; if Sprott 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, the Company and Sprott
agreed to a number of amendments to the terms of the RCD, including an amendment of the maturity date from July 7, 2023, to March 31,
2025. The parties also agreed to a Royalty Put Option such that in the event the RCD is converted into a royalty as described above, the
holder of the royalty will be entitled to resell the royalty to the Company for $8,000,000 upon default under the CD1 or CD2 until such
time that the CD1 and CD2 are paid in full.
Furthermore,
concurrent with the funding of the CD2 in June 2022, the Company and Sprott agreed to a number of amendments to the terms of the CD1,
including that the maturity date would be amended from July 7, 2023, to March 31, 2025, and that the CD1 would remain outstanding
until the new maturity date regardless of whether the Stream is advanced, unless the Company elects to exercise its option of early
repayment. The Company determined that amendments to the terms should not be treated as an extinguishment of CD1, but as a debt
modification.
The
Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest at an annual rate of 10.5%, payable in cash or common stock
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. Concurrent
with the funding of the CD2 in June 2022, the Company and Sprott agreed that the minimum quantity of metal delivered under the Stream,
if advanced, will increase by 10% relative to the amounts noted above.
On
December 6, 2022, the Company closed a new $5,000,000 loan facility with Sprott (the “Bridge Loan”). The Bridge Loan, which
was primarily utilized to pay outstanding water treatment payables to the EPA, is secured by the same security package 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.
On June 23, 2023, the Company
closed the upsized and improved $67,000,000 project finance package with Sprott, consisting of a $46,000,000 stream and a $21,000,000
new debt facility, as outlined above. The Bridge Loan was repaid from the proceeds of the Stream. The parties also agreed to extend the
maturities of the CD1 and CD2 to March 31, 2026, when the full $6 million and $15 million, respectively, will become due.
Process
Plant
On
January 25, 2022, the Company announced that it had entered into a non-binding Memorandum of Understanding (“MOU”) with Teck
Resources Limited (“Teck”) for the purchase of a comprehensive package of equipment and parts inventory from its Pend Oreille
site (the “Process Plant”) in eastern Washington State. The package
comprises substantially all processing equipment including complete crushing, grinding and flotation circuits
suitable for a planned ~1,500 ton-per-day operation at Bunker Hill, and nearly 10,000 components and parts for mill,
assay lab, conveyer, field instruments, and electrical spares. The Company paid a $500,000 non-refundable deposit in January 2022.
On
March 31, 2022, the Company announced that it had reached an agreement to satisfy the remaining purchase price
for the Process Plant by way of an equity issuance of the Company. Teck will receive 10,416,667 units of the Company (the “Teck
Units”) at a deemed issue price of C$0.30 per unit. Each Teck Unit consists of one share of Company common stock and one common
stock purchase warrant (the “Teck Warrants”). Each whole Teck Warrant entitles the holder to acquire one share of Company
common stock at a price of C$0.37 per share for a period of three years. The equity issuance and purchase of the Process Plant occurred
on May 13, 2022.
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Business
Operations
The
Mine is a zinc-lead-silver mine. When in production, the Company intends to mill mineral resources on-site to produce both zinc and
lead-silver concentrates which will then be shipped to a Teck’s Trail smelter for processing as per the underlying off-take
agreement.
Infrastructure
The
Mine includes all mining rights and claims, surface rights, fee parcels, mineral interests, easements, existing infrastructure at Milo
Gulch, and the majority of machinery and buildings at the Kellogg Tunnel portal level, as well as all equipment and infrastructure anywhere
underground at the Bunker Hill Mine Complex. It also includes all current and historic data relating to the Bunker Hill Mine Complex,
such as drill logs, reports, maps, and similar information located at the Mine site or any other location. For further detail, please
refer to the “Project Infrastructure” section in Item 2 below.
Government
Regulation and Approval
Exploration
and development activities, and any future mining operations, are subject to extensive laws and regulations governing the protection
of the environment, waste disposal, worker safety, mine construction, and protection of endangered and protected species. The Company
has made, and expects to make in the future, significant expenditures to comply with such laws and regulations. Future changes in applicable
laws, regulations and permits or changes in their enforcement or regulatory interpretation could have an adverse impact on the Company’s
financial condition or results of operations.
It
may be necessary to obtain the following environmental permits or approved plans prior to commencement of mine operations:
●
Air
quality operating permit
If
this permit is required, there can be no assurance that the Company will be able to obtain it in a timely manner or at all. For
further detail, please refer to the “Environmental Studies and Permitting” section of the “Technical Report Summary”
in Item 2 below.
Property
Description
The
Company has mineral rights to approximately 440 patented mining claims covering over 5700 acres. Of these claims, 35 include surface
ownership of approximately 259 acres. It also has certain parcels of fee property which include mineral and surface rights but not patented
mining claims. Mining claims and fee properties are located in Townships 47, 48 North, Range 2 East, Townships 47, 48 North, Range 3
East, Boise Meridian, Shoshone County, Idaho.
Patented
mining claims in the State of Idaho do not require permits for underground mining activities to commence on private lands. Other permits
associated with underground mining may be required, such as water discharge and site disturbance permits. The water discharge is being
handled by the EPA at the existing CTP. The Company expects to be responsible for water treatment in the future and obtain an
appropriate discharge permit.
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For
further detail, please refer to the “Property Description and Ownership” section of the “Technical Report Summary”
in Item 2 below.
Competition
The
Company competes with other mining and exploration companies in connection with the acquisition of mining claims and leases on zinc and
other base and precious metals prospects as well as in connection with the recruitment and retention of qualified employees. Many of
these companies are much larger than the Company, have greater financial resources and have been in the mining business for much longer
than it has. As such, these competitors may be in a better position through size, finances and experience to acquire suitable exploration
and development properties. The Company may not be able to compete against these companies in acquiring new properties and/or qualified
people to work on its current project, or any other properties that may be acquired in the future.
Given
the size of the world market for base precious metals such as silver, lead and zinc, relative to the number of individual producers and
consumers, it is believed that no single company has sufficient market influence to significantly affect the price or supply of these
metals in the world market.
Employees
The
Company has twenty employees as of December 31, 2023. The balance of the Company’s operations is contracted for as consultants.
Reports
to Security Holders
The
Company files reports with the SEC under section 15d of the Securities Exchange Act of 1934 (the “Exchange Act”). The reports
will be filed electronically. All copies of any materials filed with the SEC may be read at the SEC’s Public Reference Room at
100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that will contain copies of the reports that are filed electronically.
The address for the SEC Internet site is http://www.sec.gov .