Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
Our
business activities and the value of our securities are subject to significant hazards and risks, including those described below. If
any of such events should occur, our business, financial condition, liquidity, and/or results of operations could be materially harmed,
and holders and purchasers of our securities could lose part or all of their investments. Our risk factors are grouped into the following
categories:
●
General
Risk Factors;
●
Risks
Related to Mining and Exploration; and
●
Risks
Related to the Company’s Common Stock.
General
Risk Factors
The Bunker Hill Mine restart is targeted for
HY1 2026. Further changes to this timeline, or other factors impacting the restart, including project budget increases or delays in equipment
or construction activities, would impact the Company’s ability to restart timely or require additional capital , which would adversely
affect the Company’s ability to successfully restart the Mine and ultimately impact the Company’s ability to secure additional
funding after restart, thereby adversely affecting our financial condition.
The
estimated timing and budget estimates of the Bunker Hill Mine restart is subject to change further based on factors beyond the
Company’s control. Any further increase in the Company’s pre-production budget estimates could have a materially adverse impact
on the Company’s ability to secure additional financing. This could have a material adverse effect on the Company’s
financial condition, results of operations, or prospects. Sales of substantial amounts of securities will have a highly dilutive
effect on the Company’s ownership or share structure. Sales of a large number of shares of Company common stock in the public
markets, or the potential for such sales, could decrease the trading price of the common stock and could impair the Company’s
ability to raise capital through future sales of common stock. The Company is a pre-production development company, and has not yet
commenced commercial production and, therefore, has not generated positive cash flows 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 possibly seek additional sources of capital. There is no assurance that
additional capital will be available or sufficient to meet the Company’s requirements, or if available, upon terms acceptable
to the Company. There is no assurance that the Company will be able to continue to raise equity capital, secure additional debt
financing, or secure other financing. As a result, the Company may not be able to timely continue its development plans or continue
as a going concern.
Payment
bonds securing $14,000,000 due by the Company to the EPA for cost recovery may not be renewable or may only be renewable on terms that
are unfavorable to the Company, which would adversely affect its financial condition or cause a default under the revised settlement
agreement with the EPA and Sprott.
In 2022, the Company secured financial assurance in the form of payment
bonds in accordance with the revised settlement agreement with the EPA, in relation to $14,000,000 of payments due to the EPA for cost
recovery between 2025 and 2029. These bonds are renewed annually, and as of December 31, 2025, require $2,975,000 of collateral in the
form of restricted cash. To the extent that the parties providing the payment bonds demand additional collateral beyond the current requirements,
or other unfavorable terms or conditions, the Company may not be able to renew the payment bonds on favorable conditions, or at all. This
could have a materially adverse impact on the Company, including a potential default under the revised settlement agreement with the EPA.
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The
Company has no recent 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 concentrates from the Bunker
Hill Mine. The Mine is a historic, past producing mine with limited exploration work since its closure in 1981. Advancing the Mine
through the development stage requires significant capital and time, and successful commercial production from the Mine will be
subject to completing the requisite studies, permitting and re-commissioning, constructing and completing a processing plant, and
completing 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 studies to upgrade resources to reserves and to identify new resources and to verify commercial viability;
●
the
timing and cost, which can be considerable, of further exploration and, preparing feasibility studies, and permitting;
●
the
availability and costs of drill equipment, exploration personnel, skilled labor, and mining and processing equipment, 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 operating
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 the Company’s
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 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 base metal
concentrates at any of its current or future properties, including the Mine.
The
Company has a history of losses and may to continue to incur losses in the future.
The
Company has incurred losses since inception, has had negative cash flow from operating activities, and may to continue to incur
losses in the future. The Company has incurred the following losses from operations during each of the following periods:
●
$13,595,412
for the year ended December 31, 2025;
●
$15,649,142
for the year ended December 31, 2024; and
●
$11,600,574
for the year ended December 31, 2023.
The
Company expects to continue to incur losses 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.
Government
actions, such as tariffs, duties and/or foreign policy actions could adversely and unexpectedly impact the Company’s business.
The U.S. federal government has imposed new and/or
increased tariffs, duties and other trade restrictions on certain exports and/or imports to the U.S.. These tariffs have and are likely
to continue to impact imports and exports to and from the United States. The extent of such measures and their impacts continue, there
is a risk that they could have a significant effect on the Company’s financial performance and/or business outlook.
Risks
Related to Mining and Exploration
The
Company is in the development stage.
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;
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●
unanticipated
variations in grade and other geologic uncertainties;
●
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
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 be derived from the extraction and
sale of base and precious metals. The Company’s principal and interest payments on the Silver Loan with Monetary Metals are
denominated in silver ounces. The price of those commodities has fluctuated widely, particularly in recent years, and is affected by
numerous factors beyond the Company’s 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, repay the contractual obligations under the Silver Loan, or the results of its operations.
The
Company’s development and production plans, and cost estimates, in the Technical Report Summary may vary and/or not be achieved.
There
is no certainty that the results in the Technical Report Summary (as defined below) will be realized. The decision to implement the Mine
restart scenario to be included in the Technical Report Summary was not based on a feasibility study of mineral reserves demonstrating
economic and technical viability, and therefore there is increased risk that the Technical Report Summary results will not be realized.
If the Company is unable to achieve the results in the Technical Report Summary, 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 wastewater fluctuate and are not within the Company’s control.
The
Company is responsible for the cost of water treatment activities performed by the IDEQ on behalf of the EPA who is the owner of the
water treatment plant. The water treatment costs that the Company pays 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 robust correlation with
metals concentrations and consequently metal 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, 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 point in time. This determines
how much labor is required to operate the plant and generally determines the amount of overhead required to run the IDEQ business.
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The
EPA has completed significant upgrades to the water treatment capabilities of the CTP and the plant is now capable of producing treated
water that can meet a much higher discharge standard (which Bunker Hill has been satisfying since May 2023). While it was understood
that improved performance capability would increase the cost of operating the plant, it was unclear to the 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 the 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 and has no advance notice of what the percentage of indirect cost will be until it receives an 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 mineral reserves and resources are subject to evaluation uncertainties that could result in project failure.
The
Company’s 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 mineral resources/reserves within the earth using statistical sampling techniques. Estimates of any
mineral resource/reserve on the Mine would be made using samples obtained from appropriately placed trenches, test pits, underground
workings, and 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 mineral 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, mineral 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 on a 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 expand the known mineralization and/or identify new mineral zones or 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 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.
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The
Company is subject to significant governmental regulations that affect its operations and costs of conducting its business and may not
be able to maintain all required permits and licenses to place its properties into production.
The
Company’s current and future operations, including exploration and development of the Mine, requires permits and licenses from
certain governmental authorities and activities are 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.
It
may be necessary to obtain the following environmental permit or approved plan prior to commencement of mine operations:
●
Reclamation
and closure plan
If
a reclamation and closure plan is required, there can be no assurance that the Company will be able to obtain it in a timely manner or
at all.
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 change and 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.
20
The
Company’s activities are subject to extensive laws and regulations governing environmental 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 regulations. 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 that 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 owners or operators of the Mine, may exist on the properties in which
the Company holds an interest. Many of the 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.
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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”) that 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 of one or more of its properties, regardless of its successful compliance with social and environmental best practices, due
to political factors or 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 those of the Company, the Company
may be unable to acquire additional properties or obtain 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 for capital
with other companies that produce its planned commercial products. 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.
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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.
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. Specifically the Company has offtake and strategic
relationships with Sprott, Teck, and Monetary Metals. Any failures of these or future 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 stock.
The
Company may experience difficulty attracting and retaining qualified management to meet the needs of its anticipated growth.
The
success of the Company is currently largely dependent on the performance of its officers and directors. The loss of the services of any
of these people 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 officers, directors, 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. The Mine is located in an area active in mining activities, and we compete with other companies for personnel and talent.
There can be no assurance that these efforts will be successful in attracting, training and retaining qualified personnel as competition
for people 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.
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.
23
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. Recent developments in U.S. and Canadian trade and tariff discussions
have created an environment that can and has affected the currency exchange. 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 a historic
mining district 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 or purchase additional 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 the Company’s business and results of operations.
The
Company is currently engaged in a legal dispute with Crescent Mining. See Item 3: Legal Proceedings for further information. It is uncertain
the outcome or impact of the litigation on the Company’s financial condition or ability to operate in the area of dispute.
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.
24
Mineral
exploration and development are dependent 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
of 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 the Company’s 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 be unable to purchase additional mining properties.
If
the Company loses or abandons its interests in its mineral properties, or plans further property acquisition as part of its business
plan, there is no assurance that it will be able to acquire another mineral property of merit. There is also no guarantee that the Company
will be able to obtain necessary capital to acquire any additional properties, 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.
In late 2024, the Company retained a third party cyber assessment firm to complete an audit and make recommendations for updates to the
Company’s IT system and related policies and procedures.
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 and other requirements of the TSXV, 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.
25
R isks
Related to the Company’s Common Stock
The
Company’s common stock price is historically volatile and trading volume changes rapidly, 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 Company’s common stock:
●
disappointing
results from the Company’s exploration efforts;
●
decline
in demand for its common stock;
●
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 stock price on the TSXV 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 stock. As a result, an investor
may be unable to sell any common stock such investor acquires at a desired price.
Potential
future sales under Rule 144 may depress the market price for the Company’s common stock.
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
shares of common stock 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
stock 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 stock in the over-the-counter market.
The
Company has never paid dividends on its common stock.
The Company has not paid dividends on its common stock to date and 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 stock will depend upon the Company’s earnings, its then-existing financial requirements, and other
factors, and will be at the discretion of the Company’s Board of Directors.
FINRA
has adopted sales practice requirements, which may also limit an investor’s ability to buy and sell the Company’s common
stock.
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 stock, which may limit an investor’s ability to buy and sell its stock and have an adverse effect on the market for the
common stock.
Investors’
interests in the Company will be diluted and investors may suffer dilution in their net book value per share of common stock if the Company
issues additional employee/director/consultant options or if the Company sells additional shares of common stock 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 and issuance of additional common stock, 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 stock 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 some or all of its directors, officers, and key employees and/or consultants options to purchase common stock as non-cash
incentives. The issuance of any equity securities could, and the issuance of any additional shares of common stock will, cause the Company’s
existing shareholders to experience dilution of their ownership interests.
If
the Company issues additional shares of common stock 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, depending on the price at which such securities are sold.
The
issuance of additional shares of common stock may negatively impact the trading price of the Company’s securities.
The
Company has issued common stock in the past and will continue to issue common stock to finance its activities in the future. In addition,
newly issued or outstanding options, warrants, and broker warrants to purchase shares of common stock may be exercised, resulting in
the issuance of additional common stock. Any such issuance of additional common stock 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
stock.
The
Company’s common stock could be influenced by research and reports that industry or securities analysts may publish.
The
trading market for the Company’s common stock 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 adversely change their recommendation regarding the Company’s stock, 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.
26
The
Company is subject to the continued listing or trading criteria of the TSXV and the OTCQB, and its failure to satisfy these criteria
may result in delisting or removal of trading of its common stock from the TSXV and the OTCQB.
The
Company’s common stock is currently listed for trading on the TSXV and quoted on the OTCQB. In order to maintain the listing on
the TSXV and the quotation on the OTCQB or any other securities exchange or marketplace, 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 or marketplaces may delist or cease to quote the securities of any issuer if, in the exchange’s opinion, the Company’s
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.
If
the TSXV, the OTCQB or any other exchange or quotation service were to delist or cease to quote the Company’s common stock, investors
may face material adverse consequences, including, but not limited to, a lack of trading market for the common stock, 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.