Item 7. Management’s Discussion and Analysis
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
and Overview
Our
focus is the development and restart of our 100% owned flagship asset, the Bunker Hill Mine, in Idaho, USA. The Bunker Hill 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.
Since
early 2020, we have conducted multiple exploration campaigns, published multiple economic studies and mineral resource estimates, and
advanced the rehabilitation and development of the Mine. In December 2021, we announced a project finance package with Sprott, an Amended
Settlement Agreement with the EPA, and the purchase of the Bunker Hill Mine. In 2022, we completed the purchase of a package of equipment
and parts inventory from Teck Resources Limited’s (“Teck”) Pend Oreille operation. The package comprises substantially
all the mineral processing equipment including complete crushing, grinding and flotation circuits suitable for a planned ~1,500 ton-per-day
operation at the Bunker Hill Mine, and total inventory of components and parts for the mill, assay lab, conveyer, field instruments,
and electrical spares.
Durning
the fourth quarter of 2022, we 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 to restart the mine.
During
2024, we entered into definitive agreements with Monetary Metals Bond III LLC, an entity established by Monetary Metals & Co., for
a silver loan in an amount of U.S. dollars equal to up to 1.2 million ounces of silver, to be advanced in one or more tranches, in support
of the re-start and ongoing development of the Bunker Hill Mine (the “Silver Loan”). During 2024, we borrowed 1,148,784 ounces
of silver under this Silver Loan in six separate tranches for net proceeds of $26,278,261. In conjunction with the borrowings under this
Silver Loan, we issued 85,714 warrants , with exercise prices ranging from C$4.20 to C$6.65.
During
2025, we completed a major restructuring of our balance sheet, including the conversion of certain outstanding debt into equity, and
the modification of certain existing royalty and stream financing arrangements with Sprott, and also issued 19,527,594 common shares
in two private placements for net proceeds of $61,803,983, [including net proceeds from the settlement of certain amounts owing to creditors,
insiders and contractors through the issuance of common shares]. Teck participated in the private placements and, as a result, became
a related party alongside Sprott, holding more than 10% of our equity. See notes 10, 11 and 18 in Item 8, Financial Statements and Supplementary
Data, for more detailed information. Concurrent with its balance sheet restructuring, we focused on the disciplined execution of the
Bunker Hill Mine restart plan, prioritizing safety, environmental stewardship, infrastructure readiness, technical de-risking, and organizational
development. The mine restart is expected to take place in 2026. However, the estimated timing of the mine restart is subject to change
based on factors beyond our control.
During
2025, we also commenced discussions with the EPA and the IDEQ to advance a second amendment to the Amended Settlement Agreement. Specifically,
we are seeking to restructure the ongoing obligations to the EPA and IDEQ. The EPA agreed to forebear enforcement of any late payments
pursuant to the Amended Settlement Agreement to facilitate ongoing discussion of a second amendment of the Amended Settlement Agreement,
including the payment due in November of 2025. The EPA reserves all rights to resume collection of late payments in the event discussion
of a second amendment of the Amended Settlement Agreement fails.
During
2025, we also entered into an asset purchase agreement with Silver Dollar Resources (Idaho) Inc., a subsidiary of Silver Dollar Resources
Inc. (“Silver Dollar”), to acquire the Ranger Page property which includes, six past-producing underground high-grade silver-lead-zinc
mines located immediately adjacent to and to the west of the Bunker Hill Mine in the prolific Silver Valley mining district of Idaho,
USA. We acquired the properties for total consideration of approximately $4,200,000 comprised of 666,667 shares of Bunker Hill’s
common stock, subject to the below contractual escrow.
Release
Date
Payment
Shares Release to Vendor Parent from Contractual Escrow
6–month
anniversary from December 11, 2025
66,667
Payment Shares
9–month
anniversary December 11, 2025
66,667
Payment Shares
12–month
anniversary of December 11, 2025
Balance
of the Payment Shares (533,334 Payment Shares)
Additionally,
during 2025, we received the approval of the majority of its stockholders, by way of the Stockholder Consent, to proceed with authority
to implement a reverse stock split based on a one-for-thirty five (1-for-35) consolidation. On March 5, 2026, we filed an amendment
to our Certificate of Incorporation to implement the reverse stock split based on a one-for-thirty five (1-for-35) consolidation ratio
on March 6, 2026. Our common shares began trading on the TSXV and OTC on a reverse split-adjusted basis under our existing trade symbol
“BNKR” and “BHLL” respectively at the opening of the market on March 6, 2026. All shares and per share amounts
have been presented in our financial statements on a post consolidation basis.
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 years ended December 31, 2025 and 2024. Unless otherwise stated, all figures
herein are expressed in U.S. dollars, which is our functional currency.
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Comparison
of the year ended December 31, 2025, and the year ended December 31, 2024
Revenue
During
the years ended December 31, 2025, and December 31, 2024, we generated no revenue.
Expenses
During
the years ended December 31, 2025 and December 31, 2024, we reported total operating expenses of $13,595,412 and $15,649,142, respectively.
The operating expenses were lower year over year as activities in the current year focused on capital projects and therefore were capitalized into property plant
and equipment.
Net
Income and Comprehensive Income
We
experienced a net loss of $93,132,015 for the year ended December 31, 2025 (compared to a net loss of $25,341,623 for the year
ended December 31, 2024). In addition to the decrease in operating expenses (as described above), net loss for the year ended
December 31, 2025 was primarily impacted by $49,386,219 loss on the fair value of the silver loan compared to a loss of $2,820,533
for the year ended December 31, 2024, due to the increase in spot and future estimated silver prices. Additionally, we
recognized $6,469,025 loss on issuance of warrants relating to the bought deal equity raise compared to $nil for the year ended
December 31, 2024. Financing costs increased $2,737,639 relating to the debt and equity transactions we closed during the year ended
December 31, 2025. The change in derivative liabilities increased the loss in 2025 by $42,593,254 due to the increased number of
warrants outstanding and the updates to key assumptions including the price of one common share of our
stock (compared to a gain of $838,378 for the year ended December 31, 2024). The net loss for the year ended December 31, 2025, was
offset by a gain on debt settlement of the stream debenture of $29,580,954, compared to $nil in the 2024 period due to the
restructuring and a gain on revaluation of stream debenture of $4,149,606 compared to loss of $230,000 for the year ended December
31, 2024, due to updated key assumptions including commodity prices and timing of production.
We
had a comprehensive loss of $90,410,580 and $29,152,646 for the year ended December 31, 2025, and December 31, 2024, respectively. Comprehensive
(loss) income for the year ended December 31, 2025 and December 31, 2024, is inclusive of a $2,721,435 and ($3,811,023) change in fair
value on own credit risk, respectively.
Liquidity
and Capital Resources
Current
Assets and Total Assets
As
of December 31, 2025, the we had (i) total current assets of $23,296,106, compared to total current assets of $9,332,639 at December
31, 2024, an increase of $13,963,467; and (ii) total assets of $150,958,994, compared to total assets of $97,601,550 at December 31,
2024, an increase of $53,357,444. During the year ended December 31, 2025, our current assets increased due to cash proceeds from
debt and equity offerings partially offset by cash expenditures on the process plant, purchasing of equipment and additions to the
Bunker Hill Mine. Total assets increased as we completed some key infrastructure projects at Bunker Hill Mine in preparation of
production commencing in 2026.
Current
Liabilities and Total Liabilities
As
of December 31, 2025, our total current liabilities were $16,838,089 and total liabilities were $207,030,036, compared to total
current liabilities of $29,644,412 and total liabilities of $149,736,915 as of December 31, 2024. Total liabilities increased due to
change in valuation inputs in the Silver Loan, the valuation of the loan was heavily correlated to the increase in the spot price of
silver that occurred throughout the year ending December 31, 2025 and the issuance of warrants classified as a liability. This was partially offset by the repayment of the stream
debenture, as well as a decrease in accounts payable and accruals due to timing of invoices and payments.
As of December 31, 2025, our total liabilities include
$75,156,975 of warrants that are classified as a liability under US GAAP, as the instrument is exposed to foreign currency risks other
than the changes in the value of the entity’s equity because the strike price of the warrants is denominated in C$ versus US$.
Although classified as a liability, it does not represent a future cash outflow to the Company. We will settle any warrant exercises
received with the issuance of our own shares together with the receipt of cash for those warrants exercised.
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Working
Capital and Shareholders’ Deficit
As
of December 31, 2025, we had a working capital of $6,458,017 and a shareholders’ deficiency of $56,071,042, compared to working
capital deficit of $20,311,773 and a shareholders’ deficiency of $52,135,365 as of December 31, 2024. The shareholders’ deficiency
decreased due to equity raises we closed during the year ended December 31, 2025, partially offset by the net loss incurred in the same
period.
Cash
Flow
During
the year ended December 31, 2025, we had a net cash increase of $14,155,628, primarily due to cash provided by financing activities relating
to drawings on the loan facility and equity raises, partially offset by cash expenditures on the process plant, purchasing of equipment,
and additions to the Bunker Hill Mine.
Subsequent
Events
On
January 5, 2026, the Company issued 45,098 shares of common stock in connection with its election to satisfy interest payments under
the outstanding convertible debentures for the three months ended December 31, 2025.
During
the month of January 2026, the Company issued 122,858 shares of common stock in connection with a stockholder’s warrant exercises.
On
January 30, 2026, the Company closed the final tranche of the Silver Loan in the principal amount of $4,763,110, being the number of
U.S. dollars equal to 50,958 ounces of silver. After deduction of financing costs and the three months ending February 8, 2026 interest
payment on the principle amount of ounces outstanding and prepaying some of the May 8, 2026 interest payment we received $nil.
In
February 2026 571,259 warrants expired unexercised.
During
the month of February 2026, the Company issued 187,345 and 1,956 shares of common stock in connection with a stockholder’s warrant
and compensation option exercises, respectively.
On February 26, the
Company exercised its option by paying C & E $1,939,627 to purchase the leased land parcel from C & E overlaying a portion of
the Company’s existing mineral claims package.
On
March 5, 2026, the Company closed private placement offering of units (the “LIFE Units”) of the Company. The Company issued
4,308,809 LIFE Units at a price of C$6.30 for gross proceeds of C$27,145,500 (the “Brokered Offering”), which included the
full exercise of the agents’ overallotment option. Each LIFE Unit consists of one share of common stock of the Company (a “Common
Share”) and one-half common share purchase warrant of the Company (a “Warrant”). Each Warrant entitles the holder thereof
to purchase one additional Common Share at an exercise price of C$10.50 for a period of 36 months from issuance.
The
Company also issued 255,048 LIFE Units at a price of C$6.30 for gross proceeds of C$1,606,800 under a concurrent private placement, on
a non-brokered basis (the “Non-Brokered Offering”, and together with the Brokered Offering, the “Offering”).
Each LIFE Unit consists of one share of common stock of the Company (a “Common Share”) and one-half common share purchase
warrant of the Company (a “Warrant”). Each Warrant entitles the holder thereof to purchase one additional Common Share at
an exercise price of C$10.50 for a period of 36 months from issuance.
In
connection with the closing of the Brokered Offering, the Company paid to the Agents aggregate cash fees in the amount of C$1,786,390
and issued to the Agents an aggregate of 258,271 non-transferrable compensation options (“Compensation Options”), representing:
(i) 6.0% of the gross proceeds of the Brokered Offering, other than the gross proceeds raised from certain sales pursuant to a president’s
list (the “President’s List Sales”); and (ii) 3.0% of the gross proceeds raised from President’s List Sales.
Each Compensation Option is exercisable to acquire one Common Share at a price of C$6.30 per share for a period of 24 months from issuance.
Concurrently
with the Offering, The Company issued 840,336 shares to a cornerstone investor who exercised existing common share purchase warrants
at C$5.95 for proceeds to the Company of C$5,000,000.
The
effective date of the Company’s Reverse Stock Split based on a one-for-thirty five (1-for-35) consolidation ratio is March 6, 2026.
The Company’s common shares began trading on the TSXV and OTC on a reverse split-adjusted basis under the Company’s existing
trade symbol “BNKR” and “BHLL” respectively at the opening of the market on March 6, 2026. All shares and per
share amounts have been presented in these financial statements on a post consolidation basis.
Critical
accounting estimates
The
preparation of the 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, expected equity volatility, discount for lack of marketability, credit spread.
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 of the silver loan use inputs to the valuation model that include risk-free rates, spot and futures prices of minerals,
and expected volatility in minerals prices.
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The
fair value estimates may differ from actual fair values and these differences may be significant and could have a material impact on
our 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
We 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.
We make 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, we will then reassess its estimate for future periods. Given the nature, complexity and
variability of the various actual cost items included in the invoice, we used the most recent invoice as its estimate of
the water treatment costs for future periods.
Incremental
Borrowing rate
We estimate the incremental borrowing rate to determine the present value of future lease payments. Actual results may be different
from estimates.
Borrowing
Cost Capitalization rate
We make 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
We have no off-balance sheet arrangements.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
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