Bunker Hill Mining Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this report, including statements in the following discussion, are what are known as “forward looking statements”, which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as “plans,” “intends,” “will,” “hopes,” “seeks,” “anticipates,” “expects “and the like often identify such forward looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward looking statements include statements concerning the Company’s plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report and in the Company’s other filings with the SEC. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results. Description of Business Corporate Information The Company was incorporated under the laws of the State of Nevada, U.S.A on February 20, 2007 under the name Lincoln Mining Corp. On February 11, 2010, the Company changed its name to Liberty Silver Corp and subsequently, on September 29, 2017, the Company changed its name to Bunker Hill Mining Corp. The Company’s registered office is located at 1802 N. Carson Street, Suite 212, Carson City Nevada 89701, and its head office is located at 82 Richmond Street East, Toronto, Ontario, Canada, M5C 1P1, and its telephone number is 416-477-7771. The Company’s website is www.bunkerhillmining.com. Information appearing on the website is not incorporated by reference into this report. 20 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. Results of Operations The following discussion and analysis provide information that is believed to be relevant to an assessment and understanding of the results of operation and financial condition of the Company for the three months ended March 31, 2024 and March 31, 2023. Unless otherwise stated, all figures herein are expressed in U.S. dollars, which is the Company’s functional currency. Comparison of the three months ended March 31, 2024 and 2023 Revenue During the three months ended March 31, 2024, and 2023, respectively, the Company generated no revenue. Expenses During the three months ended March 31, 2023, and 2022, the Company reported total operating expenses of $3,787,631 and $2,185,488, respectively. The increase in total operating expenses was primarily due to increase in the volume of transactions as the mine continues to develop. Operation and administration expenses increased by $1,018,781 ($1,898,773 for the three months ended March 31, 2024, compared to $879,992 for the three months ended March 31, 2023). Legal and accounting fees increased by $411,55 3 ($946,464 for the three months ended March 31, 2024, compared to $534,911 for the three months ended March 31, 2023) primarily because of the Company’s uplisting from the Canadian Stock Exchange to the Toronto Stock Exchange Venture which occurred in September of 2023. Consulting and wages increased by $171,809 ($942,394 for the three months ended March 31, 2024, compared to $770,585 for the three months ended March 31, 2023) also increased to increased head count as the Bunker Hill Mine moves towards production. Net Income and Comprehensive Income The Company had net loss of $5,582,036 for the year three months ended March 31, 2024 (compared to net income of $1,791,147 for the three months ended March 31, 2023). In addition to the increase in operating expenses (as described above), net loss for the three months ended March 31, 2024 was impacted by increase in interest expense of $759,106 ($2,083,735 and $1,324,629 for the three months ended March 2024 and 2023 respectively), a decrease in change in derivative liability of $4,490,517 (loss of $263,943 for the three months ended March 31, 2024 compared to a gain of $4,226,574 for the three months ended March 31, 2023), driven by a proportionally greater decline in the Company’s share price in Q1 2023 relative to Q1 2024. Additionally, a loss on fair value of the convertible debenture of $263,943 was recognized for the three months ended March 31, 2024, compared to a gain of $4,226,574 for the three months ended March 31, 2024. The three months ended March 31, 2024, also includes $217,000 ($nil for the three months ended March 31, 2023) loss on revaluation of the stream debenture due to updated key assumptions such as commodity prices. Net loss for the three months ending March 31, 2024, includes a deferred tax recovery of $699,920 and interest income of $291,330 compared to $nil and $nil respectively for three months ended March 31, 2023. Additionally, net loss for the three months ended March 31, 2024, includes $nil of financing costs compared to $576,751 for the three months ended March 31, 2023. 21 The Company had comprehensive loss of $5,293,664 for the three months ended March 31, 2024 (comprehensive income of $2,598,159 for the month three ended March 31, 2023). Comprehensive income for the three months ended March 31, 2024, is inclusive of a $288,372 gain on change in fair value on own credit risk ($807,012 for the three months ended March 31, 2023). Liquidity and Capital Resources Current Assets and Total Assets As of March 31, 2024, the Company had total current assets of $20,863,546, compared to total current assets of $27,176,997 at December 31, 2023 – a decrease of $6,313,451; and total assets of $61,649,028, compared to total assets of $61,989,678 at December 31, 2023 – an decrease of $340,650. During the three months ended March 31, 2024, the Company’s current assets decreased due to cash expenditures on the process plant, purchasing of equipment and additions to the Bunker Hill Mine. Total assets remained constant as the increase in property plant and equipment was offset by the decrease in cash. Current Liabilities and Total Liabilities As of March 31, 2024, the Company had total current liabilities of $12,201,846 and total liabilities of $92,467,400, compared to total current liabilities of $7,472,326 and total liabilities of $88,356,840 at December 31, 2023. Total liabilities increased because of accretion on the stream debenture and environmental protection agency payable as well as an increase in accounts payable and accruals due to timing of invoices and payments. Working Capital and Shareholders’ Deficit As of March 31, 2024, the Company had working capital of $8,661,700 and a shareholders’ deficiency of $30,818,372 compared to a working capital of $19,704,671 and a shareholders’ deficiency of $26,367,162 as of December 31, 2023. The working capital balance decreased during the three months ended March 31, 2024, primarily due to cash expenditures on the process plant, purchasing of equipment, and additions to the Bunker Hill Mine. The shareholders’ deficiency increased primarily due to the net loss in the 2024 quarter. Cash Flow During the three months ended March 31, 2024, the Company had a net cash decrease of $6,418,054, primarily due to cash expenditures on the process plant, purchasing of equipment, and additions to the Bunker Hill Mine. Subsequent Events On April 1, 2024, the Company granted 2,527,888 DSUs to certain members of the board of directors of the Company. The DSUs vested immediately. On April 1, 2024, the Company appointed Brenda Dayton as its Vice President Investor Relations. On April 4, 2024, the Company issued 6,398,439 shares of common stock in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ending March 31, 2024. On April 5, 2024, the $2,001,000 letter of credit, in place to secure the environment protection agency cost recovery payable was returned to the Company and cancelled. As a result of this transaction the restricted cash balance was decreased by $2,001,000 (from $6,476,000 to $4,475,000) and the cash and cash equivalents was increased by the corresponding amount. On April 16, 2024, the Company issued 100,000 shares to a member of the executive team for the vesting of RSUs. On April 30, 2024, the Company received approval to commence construction from the Idaho Department of Environmental Quality (IDEQ, Air Quality Division) in accordance with IDAPA 58.01.01.213, Rules for the Control of Air Pollution in Idaho. The Company will continue to work with IDEQ regarding issuance of the full Air Permit. 22 Critical accounting estimates The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the financial statements are: Share-based payments Management determines costs for share-based payments using market-based valuation techniques. The fair value of the share awards and warrant liabilities are determined at the date of grant using generally accepted valuation techniques and for warrant liabilities at each balance sheets date thereafter. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock price and expected dividend yield. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates. Convertible Loans, Promissory Notes, Stream Obligation and Warrants Estimating the fair value of derivative warrant liability requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the issuance. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the warrants derivative liability, volatility and dividend yield and making assumptions about them. The fair value estimates of the convertible loans use inputs to the valuation model that include risk-free rates, equity value per share of common stock, USD-CAD exchange rates, spot and futures prices of minerals, expected equity volatility, expected volatility in minerals prices, discount for lack of marketability, credit spread, expected mineral production over the life of the mine, and project risk/estimation risk factors. The stream obligation inputs used to determine the future cash flows and effective interest for the amortized cost calculation include futures prices of minerals and expected mineral production over the life of the mine. The fair value estimates may differ from actual fair values and these differences may be significant and could have a material impact on the Company’s balance sheets and the consolidated statements of operations. Assets are reviewed for an indication of impairment at each reporting date. This determination requires significant judgment. Factors that could trigger an impairment review include, but are not limited to, significant negative industry or economic trends, interruptions in exploration activities or a significant drop in precious metal prices. Accrued liabilities The Company has to make estimates to accrue for certain expenditures due to delay in receipt of third-party vendor invoices. These accruals are made based on trends, history and knowledge of activities. Actual results may be different. The Company makes monthly estimates of its water treatment costs, with a true-up to the annual invoice received from the IDEQ. Using the actual costs in the annual invoice, the Company will then reassess its estimate for future periods. Given the nature, complexity and variability of the various actual cost items included in the invoice, the Company has used the most recent invoice as its estimate of the water treatment costs for future periods. Incremental Borrowing rate The Company estimates the incremental borrowing rate to determine the present value of future lease payments. Actual results may be different from estimates. Borrowing Cost Capitalization rate The Company makes estimates to determine the percentage of borrowing costs that are capitalized into property plant and equipment. Actual results may be different. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable. 23