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.
10
General
Risk Factors
There
is substantial doubt about our ability to continue as a going concern.
To
date, the Company has earned no revenue from operations and has an accumulated deficit of $110,366,721 as of December 31, 2024. In addition,
the Company has limited financial resources. As of December 31, 2024, the Company had cash and equivalents of $3,786,277 (excluding $4,474,000
of restricted cash) and a working capital deficit of $20,311,773. Continuation as a going concern is dependent upon achieving future
financing or strategic transactions, including but not limited to a possible debt funding package from the Export-Import Bank of the
United States (“EXIM”), a restructuring of the Company’s outstanding debt alongside
an equity financing and new standby facility . However, there is no assurance that the Company will be able to successfully complete these financing and/or strategic transactions. Accordingly, there is substantial doubt as to whether existing cash resources and working
capital are sufficient to enable the Company to continue its operations for the next 12 months as a going concern. Ultimately, if the
Company is unable to secure sufficient additional financial resources, the Company may need to curtail or suspend its development or
operations plans regarding the Bunker Hill Mine. The accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The consolidated financial statements do not include any adjustments that may result from
the outcome of this uncertainty. Such adjustments could be material.
The Company’s
consolidated financial statements do not give effect to any adjustments required to realize its assets and discharge its liabilities
in other than the normal course of business and at amounts different from those reflected in the accompanying Financial Statements.
The Company’s planned debt restructure
and equity financing may not be finalized, or timely finalized, which could lead to the Company being required to cease development activities
and place the Mine on care and maintenance or require the Company to enter reorganization and/or liquidation proceedings.
The Company plans to restructure its debt, raise equity
and/or engage in other restructuring/financing activities. If these financing efforts are delayed or are not successful, there is risk
that, among other things:
●
third
parties lose confidence in our ability to execute on the Company’s business strategy;
●
it
may become more difficult to attract, retain or replace key employees, and the Company’s employees could be distracted from
performance of their duties or more easily attracted to other career opportunities;
●
the
Company could lose some or a significant portion of its liquidity, as a result of, among other things, stricter credit terms from
suppliers, the commencement of reorganization, bankruptcy or insolvency proceedings or the inability to provide adequate protection
to our secured lenders to permit us to access some or all of our cash; and
●
the
Company’s suppliers, vendors and service providers and applicable regulatory authorities could seek to renegotiate the terms
of the Company’s arrangements, terminate their relationship with the Company or require financial assurances from the Company.
Additionally, in accordance with the TSX-V policies,
the approval of the Company’s stockholders will be required with respect to any Control Person (as defined in the TSX-V policies)
with over 20% ownership in the Company as a result of these equity/debt financing transactions. In lieu of a special meeting of its stockholders,
the Company intends to obtain the written consent of disinterested stockholders holding more than 50% of the current issued and outstanding
Common Shares, which stockholder consent will exclude any votes held by a Control Person (each as defined in the TSX-V policies). There
can be no assurance that this stockholder consent will be successfully obtained upon the completion of these equity/debt financing transactions.
The
Bunker Hill Mine restart has been delayed to 2026. Further changes to this timeline, or other factors impacting the
restart project budget, will increase the Company’s required capital needs through the completion of the project, which would
adversely affect the Company’s ability to secure additional funding, thereby adversely affecting its financial
condition.
On December 13, 2024 the Company announced that the Bunker Hill Mine restart
project underwent a strategic review resulting in an updated timeline and capital requirements. Pursuant to this review, the Company now
forecasts a total restart expenditure (excluding working capital) of $103,000,000, up from the previously forecasted $67,000,000 and $56,000,000
in the PFS, with the restart project anticipated to be delayed by up to four months. To provide sufficient project financing for the ongoing
development of the Bunker Hill Mine, the Company has been drawing down in tranches on the Standby Facility provided by Sprott and seeking
to finalize the ongoing discussions with its strategic partners for potential offtake or similar financing for up to an additional $40,000,000.
However,
the estimated timing of the Bunker Hill Mine restart is subject to change further based on factors beyond the Company’s
control, including but not limited to supply chain dynamics. In addition, the Company’s pre-production budget estimates are
subject to change further based on factors beyond its control, including but not limited to cost inflation and supply chain
dynamics. 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, 2024, require $4,475,000 of collateral in the form of letters of credit. 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 will require significant capital and time, and successful commercial production from the Mine will be subject to completing the
requisite studies, permitting and re-commissioning, constructing 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 verify reserves and commercial viability, including the ability to find sufficient ore reserves to support a commercial
mining operation;
●
the
timing and cost, which can be considerable, of further exploration, preparing feasibility studies, and permitting and construction
of infrastructure, mining and processing facilities;
●
the
availability and costs of drill equipment, exploration personnel, skilled labor, and mining and processing equipment, if required;
●
the
availability and cost of appropriate smelting and/or refining arrangements,
●
compliance
with stringent environmental and other governmental approval and permit requirements;
●
the
availability of funds to finance exploration, development, and construction activities, as warranted;
●
potential
opposition from non-governmental organizations, local groups or local inhabitants that may delay or prevent development activities;
●
potential
increases in exploration, construction, and operating costs due to changes in the cost of fuel, power, materials, and supplies; and
●
potential
shortages of mineral processing, construction, and other facilities related supplies.
The
costs, timing, and complexities of exploration, development, and construction activities may be increased by the location of 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 expects to continue to incur losses in the future.
The
Company has incurred losses since inception, has had negative cash flow from operating activities, and expects to continue to incur losses
in the future. The Company has incurred the following losses from operations during each of the following periods:
●
$15,649,142
for the year ended December 31, 2024;
●
$11,600,574
for the year ended December 31, 2023; and
●
$16,487,161
for the year ended December 31, 2022.
The
Company expects to continue to incur losses unless and until such time as the Mine enters into commercial production and generates sufficient
revenues to fund continuing operations. The Company recognizes that if it is unable to generate significant revenues from mining operations
and dispositions of its properties, the Company will not be able to earn profits or continue operations. At this early stage of its operation,
the Company also expects to face the risks, uncertainties, expenses, and difficulties frequently encountered by smaller reporting companies.
The Company cannot be sure that it will be successful in addressing these risks and uncertainties and its failure to do so could have
a materially adverse effect on its financial condition.
Government actions, such as tariffs and/or foreign
policy actions could adversely and unexpectedly impact the Company’s business.
As a result of the 2024 United States federal election,
there is an increased risk that the United States could implement new and/or increased tariffs and other trade restrictions on all exports
to the United States or that other counties could implement reciprocal measures on imports from the United States. The extent of such
measures and their impact is unknown, and 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.
12
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses.
Exploration
for and the production of minerals is highly speculative and involves much greater risk than many other businesses. Most exploration
programs do not result in the discovery of mineralization, and any mineralization discovered may not be of sufficient quantity or quality
to be profitably mined. The Company’s operations are, and any future development or mining operations the Company may conduct will
be, subject to all of the operating hazards and risks normally incidental to exploring for and development of mineral properties, including,
but not limited to:
●
economically
insufficient mineralized material;
●
fluctuation
in production costs that make mining uneconomical;
●
labor
disputes;
●
unanticipated
variations in grade and other geologic 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 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
or its results of 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 a
great deal and are not within the Company’s control.
The
Company is billed annually for 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 is billed for are partially related to the EPA’s direct cost of treating the water emanating from the Bunker
Hill Mine, which are comprised of lime and flocculant usage, electricity consumption, maintenance and repair, labor and some
overhead. Rate of discharge of effluent from the Bunker Hill Mine is largely dependent on the level of precipitation within a given
year and how close in the calendar year the Company is to the spring run-off. Increases in water infiltrations and gravity flows
within the mine generally increase after winter and result in a peak discharge rate in May. Increases in gravity flow and
consequently the rate of water discharged by the mine have a robust correlation with metals concentrations and consequently metal
loads of effluent.
13
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.
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.
14
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.
The
Company is subject to significant governmental regulations that affect its operations and costs of conducting its business and may not
be able to obtain all required permits and licenses to place its properties into production.
The
Company’s current and future operations, including exploration and development of the Mine, do and will require permits from governmental
authorities and will be governed by laws and regulations, including:
●
laws
and regulations governing mineral concession acquisition, prospecting, development, mining, and production;
●
laws
and regulations related to exports, taxes, and fees;
●
labor
standards and regulations related to occupational health and mine safety; and
●
environmental
standards and regulations related to waste disposal, toxic substances, land use reclamation, and environmental protection.
Specifically, it will be necessary to obtain the following environmental permit or approved plan prior to commencement
of mine operations:
●
Air
quality operating permit
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.
15
The
Company’s activities are subject to environmental laws and regulations that may increase its costs of doing business and restrict
its operations.
Both
mineral exploration and extraction require permits from various federal, state, and local governmental authorities and are governed by
laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation,
labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.
There can be no assurance that the Company will be able to obtain or maintain any of the permits required for the exploration of the
mineral properties or for the construction and operation of the Mine at economically viable costs. If the Company cannot accomplish these
objectives, its business could fail. The Company believes that it is in compliance with all material laws and regulations that currently
apply to its activities but there can be no assurance that the Company can continue to remain in compliance. Current laws and regulations
could be amended, and the Company might not be able to comply with them, as amended. Further, there can be no assurance that the Company
will be able to obtain or maintain all permits necessary for its future operations, or that it will be able to obtain them on reasonable
terms. To the extent such approvals are required and are not obtained, the Company may be delayed or prohibited from proceeding with
planned exploration or development of the mineral properties.
The
Company’s activities are subject to extensive laws and regulations governing 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 regulation. The costs or likelihood of such potential issues to the Company cannot be estimated at this time.
The
legal framework governing this area is constantly developing; therefore, the Company is unable to fully ascertain any future liability
that may arise from the implementation of any new laws or regulations, although such laws and regulations are typically strict and may
impose severe penalties (financial or otherwise). The proposed activities of the Company, as with any exploration company, may have an
environmental impact 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.
Regulations
and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material
adverse effect on the Company’s business.
A
number of governments or governmental bodies have introduced or are contemplating legislative and/or regulatory changes in response to
concerns about the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant
costs on the Company, on its future joint venture partners, if any, and on its suppliers, including costs related to increased energy
requirements, capital equipment, environmental monitoring and reporting, and other costs necessary to comply with such regulations. Any
adopted future climate change regulations could also negatively impact the Company’s ability to compete with companies situated
in areas not subject to such limitations. Given the emotional and political significance and uncertainty surrounding the impact of climate
change and how it should be dealt with, the Company cannot predict how legislation and regulation will ultimately affect its financial
condition, operating performance, and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse
publicity in the global marketplace about potential impacts on climate change by the Company or other companies in its industry could
harm the Company’s reputation. The potential physical impacts of climate change on its operations are highly uncertain, could be
particular to the geographic circumstances in areas in which the Company operates and may include changes in rainfall and storm patterns
and intensities, water shortages, changing sea levels, and changing temperatures. These impacts may adversely impact the cost, production,
and financial performance of the Company’s operations.
16
There
are several governmental regulations that materially restrict mineral exploration. The Company will be subject to the federal regulations
(environmental) and the laws of the State of Idaho as the Company carries out its exploration program. The Company may be required to
obtain additional work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with
these laws. While the Company’s planned exploration program budgets for regulatory compliance, there is a risk that new regulations
could increase its costs of doing business and prevent it from carrying out its exploration program.
Land
reclamation requirements for the Company’s properties may be burdensome and expensive.
Although
variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration
companies (as well as companies with mining operations) in order to minimize long-term effects of land disturbance.
Reclamation
may include requirements to:
●
control
dispersion of potentially deleterious effluents;
●
treat
ground and surface water to drinking water standards; and
●
reasonably
re-establish pre-disturbance landforms and vegetation.
To
date, the Company has not been subject to reclamation or bonding obligations in connection with its past or potential future development
activities. If these obligations were to occur in the future, or if the Company is required to carry out reclamation work, the Company
must allocate financial resources that might otherwise be spent on further exploration and development programs.
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.
17
Metal
prices are highly volatile. If a profitable market for its metals does not exist, the Company may have to cease operations.
Mineral
prices are highly volatile and are affected by numerous international economic and political factors over which the Company has
no control. The Company’s long-term success is highly dependent upon the price of silver, lead and zinc, as the economic feasibility of any ore
body discovered on its current property, or on other properties the Company may acquire in the future, would, in large part, be determined
by the prevailing market price of the minerals. If a profitable market does not exist, the Company may have to cease operations.
A
shortage of equipment and supplies could adversely affect the Company’s ability to operate its business.
The
Company is dependent on various supplies and equipment to carry out its mining exploration and, if warranted, development operations.
Any shortage of such supplies, equipment, and parts could have a material adverse effect on the Company’s ability to carry out
its operations and could therefore limit, or increase the cost of, production.
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, and the
failure to manage its growth effectively could have a material adverse effect on its business and financial condition.
The
success of the Company is currently largely dependent on the performance of its 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.
18
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 surface access or purchase required surface rights.
Although
the Company obtains the rights to some or all of the minerals in the ground subject to the mineral tenures that the Company acquires,
or has the right to acquire, in some cases the Company may not acquire any rights to, or ownership of, the surface to the areas covered
by such mineral tenures. In such cases, applicable mining laws usually provide for rights of access to the surface for the purpose of
carrying on mining activities; however, the enforcement of such rights through the courts can be costly and time consuming. It is necessary
to negotiate surface access or to purchase the surface rights if long-term access is required. There can be no guarantee that, despite
having the right at law to access the surface and carry on mining activities, the Company will be able to negotiate satisfactory agreements
with any such existing landowners/occupiers for such access or purchase of such surface rights, and therefore the Company may be unable
to carry out planned mining activities. In addition, in circumstances where such access is denied, or no agreement can be reached, the
Company may need to rely on the assistance of local officials or the courts in such jurisdiction, the outcomes of which cannot be predicted
with any certainty. The Company’s inability to secure surface access or purchase required surface rights could materially and adversely
affect its timing, cost, or overall ability to develop any mineral deposits the Company may locate.
The
Company’s properties and operations may be subject to litigation or other claims.
From
time to time the Company’s properties or operations may be subject to disputes that may result in litigation or other legal claims.
The Company may be required to take countermeasures or defend against these claims, which will divert resources and management time from
operations. The costs of these claims or adverse filings may have a material effect on 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.
19
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.
20
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’s common stock is currently deemed a “penny stock”, which may make it more difficult for investors to sell
their shares of Company common stock.
The
SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The Company’s securities are
covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than
established customers and “accredited investors.” The term “accredited investor” refers generally to institutions
with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000, exclusive of their principal residence,
or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer
orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny
stock rules may affect the ability of broker-dealers to trade its securities. The Company believes that the penny stock rules may discourage
investor interest in and limit the marketability of its common stock.
21
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.
22
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.