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 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. Production is
expected to commence in 2024.
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 site, and total inventory of components
and parts for the mill, assay lab, conveyer, field instruments, and electrical spares.
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.
In June 2023, we closed an upsized and improved $67,000,000
project finance package with Sprott, consisting of a $46,000,000 stream and a $21,000,000 new debt facility. In August 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”). Throughout 2024 we closed several tranches of the Silver
Loan for an aggregate principle of 1,098,400 ounces of Silver. In December 2024 we borrowed $10,000,000 on the new debt facility, leaving
the undrawn portion at $11,000,000 as of December 31, 2024.
The
Bunker Hill Mine restart is expected to take place in 2026. However, the estimated timing of Bunker Hill Mine restart is subject to change
based on factors beyond the Company’s control, including but not limited to supply chain dynamics.
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, 2024 and 2023. Unless otherwise stated, all figures
herein are expressed in U.S. dollars, which is the Company’s functional currency.
Comparison
of the year ended December 31, 2024, and the year ended December 31, 2023
Revenue
During the years ended December 31, 2024, and December 31, 2023, we generated no revenue.
Expenses
During
the years ended December 31, 2024 and December 31, 2023, we reported total
operating expenses of $15,649,142 and $11,600,574, respectively. The increase in total operating expenses was primarily due to an increase
in the volume of transactions and employee head count associated with construction of the process plant commencing in the year ended December
31, 2024.
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Net
Income and Comprehensive Income
We
experienced a net loss of $25,341,623 for the year ended December 31, 2024
(compared to a net loss of $13,432,539 for the year ended December 31, 2023). In addition to the increase in operating expenses (as described
above), net loss for the year ended December 31, 2024 was impacted by an increase in interest expense of $966,885 ($8,091,412 for the
year ended December 31, 2024 compared to $7,124,527 for the year ended December 31, 2023), and $nil of gain on debt settlement for the
year ended December 31, 2024 compared to $7,151,873 of gain on debt settlement relating to the conversion of the royalty convertible debentures
into a royalty during the year ended December 31, 2023. A loss on fair value of the convertible debentures of $890,258 was recognized
for the year ended December 31, 2024, compared to a gain on fair value of the convertible debentures of $1,673,776 for the year ended
December 31, 2023. Additionally, the year ended December 31, 2024 included $2,820,533 loss on revaluation of the Silver Loan due to updated
key assumptions such as commodity prices (compared to $nil for the year ended December 31, 2023). During the year ended December 31, 2024,
the Company incurred a loss of $924,820 from the sale of equipment (compared to $nil for the year ended December 31, 2023) and a gain
on in derivative liabilities of $838,378 in the year ended December 31, 2024 compared to a gain of $2,360,025 in the year ended December
31, 2023 (driven by the decrease in remaining contractual life of the warrants issued and outstanding). Net loss for the year ended December
31, 2024, included a current tax expense of $1,050,000 compared to $nil for the year ended December 31, 2023.
Our
net loss for the year ended December 31, 2024 was partially offset by (i) a gain on debt modification of $1,308,062 for the year
ended December 31, 2024 compared to a loss on debt modification of $99,569 for the year ended December 2023 and (ii) a decrease in
the loss on modification of debt of $2,898,956 relating to the revaluation of the stream ($230,000 for the year ended December 31,
2024 compared to $3,128,956 for the year ended December 31, 2023). Net loss for the year ended December 31, 2024 included a deferred
tax recovery of $2,588,590 compared to deferred tax expense of $2,588,590 for the year ended December 31, 2023. Current income tax expense for the year ended December 31, 2024, $1,050,000 ($nil for the year ended December 31,
203) relates to the proceeds of the stream debenture which are classified as income under the internal revenue code. We elected to defer
the income, one year, to 2024 in which most of the income was offset by losses incurred in the current year and previous years.
We
had a comprehensive loss of $29,152,646 and $12,877,752 for the year ended December 31, 2024, and December 31, 2023, respectively. Comprehensive
(loss) income for the year ended December 31, 2024 and December 31, 2023 is inclusive of a ($3,811,023) and $554,787 change in fair
value on own credit risk, respectively.
Liquidity
and Capital Resources
Going
Concern
These
consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting
in an accumulated deficit of $110,366,721 and further losses are anticipated in the development of its business. The Company does not
have sufficient cash to fund normal operations and meet debt obligations for the next 12 months without deferring payment on certain
current liabilities and/or raising additional funds. In order to continue to meet its fiscal obligations in the current fiscal year and
beyond, the Company must seek additional financing. This raises substantial doubt about the Company’s ability to continue as a
going concern. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations
in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business
operations when they come due. The accompanying consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
These
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets,
or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Current
Assets and Total Assets
As
of December 31, 2024, the Company had (i) total current assets of $9,332,639,
compared to total current assets of $27,176,997 at December 31, 2023, a decrease of $17,844,358; and (ii) total assets of $97,601,550,
compared to total assets of $61,989,678 at December 31, 2023, an increase of $35,611,872. During the year ended December 31, 2024, our
current assets decreased due to cash expenditures on the process plant, purchasing of equipment and additions to the Bunker Hill Mine.
Total assets increased as the increase in property plant and equipment was offset largely by the decrease in cash.
Current
Liabilities and Total Liabilities
As
of December 31, 2024, our total current liabilities were $29,644,412 and total
liabilities were $149,736,915, compared to total current liabilities of $7,472,326 and total liabilities of $88,356,840 as of December
31, 2023. Total liabilities increased because of the issuance of the Silver Loan, drawings on our debt facility, accretion on the stream
debenture and the EPA payable, as well as an increase in accounts payable and accruals due to timing of invoices and payments.
Working
Capital and Shareholders’ Deficit
As of December 31, 2024, we had a working capital deficit of $20,311,773 and a shareholders’ deficiency of
$52,135,365, compared to positive working capital of $19,704,671 and a shareholders’ deficiency of $26,367,162 as of December 31,
2023. The working capital deficit as of December 31, 2024, was primarily due to cash expenditures on the process plant, purchasing of
equipment, and additions to the Bunker Hill Mine. The shareholders’ deficiency increased primarily due to the net loss in the year
ended December 31, 2024.
We
have a $21,000,000 debt facility with Sprott which is available at our election for a period of 2 years, ending on June 30, 2030. As
of December 31, 2024, we have drawn $10,000,000 on this facility.
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Notwithstanding the debt facility with Sprott, based on our limited cash
resources and history of losses, there is substantial doubt as to whether our existing cash resources are sufficient to enable us to continue
operations for the next 12 months as a going concern. We plan to pursue possible financing and strategic options, including, but not limited
to, obtaining additional equity financing. We
also plan to secure additional financial resources through potential equity financings and other strategic initiatives, including but not limited to a possible debt funding package from
EXIM. 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 or other initiatives.
Cash
Flow
During
the year ended December 31, 2024, we had a net cash decrease of $18,317,319, primarily due to cash expenditures on the process plant,
purchasing of equipment, and additions to the Bunker Hill Mine, offset by $32,740,264 of cash provided by financing activities relating
to the issuance of the Silver Loan.
Subsequent
Events
Share
Issuance
On
January 8, 2025, the Company issued 1,053,335 shares of common stock to satisfy $120,000 owed to a certain service provider of the Company
as of December 31, 2024.
On
January 14, 2025, the Company issued 7,392,859 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, 2024.
On January 27, 2025, the Company issued 672,450 shares
of common stock in connection with settlement of RSUs.
On January 29, 2025, the Company issued 621,500 shares
of common stock to satisfy $60,000 owed to a certain service provider of the Company as of December 31, 2024.
On
March 13, 2025, the Company’s board of directors approved an amendment to the vesting schedule of certain RSUs previously granted
to certain directors and officers of the Company under the Company’s amended and restated restricted stock unit incentive plan
(the “RSU Plan”) on November 2, 2022, July 4, 2023 and March 13, 2024, such that an aggregate of 5,562,419 RSUs granted to
such directors, officers and employees will now vest on May 1, 2025 rather than on March 13, 2025 or March 31, 2025, as applicable. All
other terms of such RSUs remain the same.
Warrant
Issuance
On
January 7, 2025, in connection with the Silver Loan, the Company issued 100,397 Bonus Warrants to Monetary Metals. Each such warrant
will entitle the holder to acquire one share of common stock of the Company at an exercise price of C$0.15. Each such warrant is exercisable
until August 8, 2027.
Debt
Facility
On
January 17, 2025, the Company drew $5,000,000 on the debt facility.
On
January 31, 2025, the Company drew the final $6,000,000 on the debt facility.
As
consideration for Sprott advancing $11,000,000 of the debt facility, the Company granted a royalty for 1.0% of life-of-mine gross revenue
from mining claims considered to be historically worked, contiguous to current accessible underground development, and covered by the
Company’s 2021 ground geophysical survey. A 0.70% rate will apply to claims outside of these areas.
Unsecured Promissory Note
On March 21, 2025, the company closed a unsecured
promissory note for an aggregate principal amount of up to $3,400,000 (the “ Note ”) to ensure sufficient short-term
funding to keep the Project on track while the Private Placements close. The Note will bear interest at 12% per annum, with such interest
being capitalized and added to the principal amount outstanding under the Note monthly. The Note will be available in multiple advances,
at the discretion of Teck, and is payable on demand from Teck. On March 21, 2025, the Company received $763,000 advance from Teck. On
March 25, 2025, the Company received $2,325,000 advance from Teck. As of March 28, 2025 the principal outstanding on the unsecured promissory
note is $3,088,000.
Restricted
Cash
During the year end December 31, 2024, the Company made a $3,000,000 payment to the EPA bringing the principal of the cost recovery liability
to $14,000,000. As a result of this payment the Company’s letter of credit requirement decreased by $1,500,000 and the restricted
cash balance (utilized as collateral for letters of credit) decreased by the same amount from $4,475,000 as of December 31, 2024, to $2,975,000
on January 20, 2025.
Restructuring of Outstanding Debt alongside up
to $45,000,000 Equity Financing and Provision of New Standby Facility
In March 2025, the Company announced a
restructuring of outstanding debt alongside an equity financing of up to $45,000,000 and a new standby facility agreement for
$10,000,000. The planned brokered private placement equity offering for minimum aggregate gross
proceeds of $10,000,000 (C$14,370,000), and up to maximum aggregate gross proceeds of $15,000,000 (C$21,555,000) (the
“Brokered Offering”). Teck has agreed to contribute, through a non-brokered private placement, $2 for every $1 raised
through the Brokered Offering in aggregate, with a minimum lead order of $6,600,000 and total gross proceeds of up to $30,000,000
(C$43,110,000)1 (collectively, the “Non-Brokered Offering” and together with the Brokered Offering, the “Private
Placements”), subject to shareholder approval, closing of the debt restructuring transactions and other customary closing
conditions. Proceeds will be used to support the construction, start-up, and ramp-up of the Project. In connection with the
Non-Brokered Offering, the Company and Teck have amended the subscription agreement dated March 5, 2025, to, among other things,
amend the closing condition thereunder requiring the Company to raise aggregate gross proceeds of at least $20,000,000 under the
Brokered Offering to a minimum of at least $10,000,000.
In accordance with the TSX-V policies, the
approval of the Company’s stockholders will be required with respect to Teck becoming a Control Person (over 20% ownership in the Company). 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 (the “Stockholder Consent”), which Stockholder Consent will exclude
any votes held by Teck and its Affiliates or Associates (each as defined in the TSX-V policies).
Also in connection with the Non-Brokered Offering,
the Company and its wholly-owned subsidiary Silver Valley Metals Corp. (“Silver Valley”) announced its intention to enter
into a standby facility agreement with Teck (or an affiliate thereof) pursuant to which, among other things, Teck will provide an uncommitted
revolving standby prepayment facility of up to $10,000,000 to the Company (the “SP Facility”), which will be available to
the Company until the earlier of (i) June 30, 2028, and (ii) the date on which the Project hits 90% of name plate capacity or the date
on which the Company is cash positive for a quarter, unless terminated earlier by Teck. The SP Facility will bear interest at a to-be-agreed-basis
per annum, calculated and capitalized quarterly.
1 Based on a USD/CAD exchange rate
of 1.4370 as published by the Bank of Canada on March 5, 2025.
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The Company announced its intention to restructure, either directly
or indirectly, its existing debt financing package with Sprott Streaming and certain other creditors on the following principal terms:
a. the
amendment and restatement of the Series 1 secured convertible debentures in the aggregate
principal amount of $6,000,000 (collectively, the “Series 1 CDs”) previously
issued to Sprott Streaming and certain other creditors, maturing on March 31, 2028, pursuant
to which, among other things, (i) the rate of interest of the Series 1 CDs will be reduced
from 7.5% to 5.0% per annum, (ii) the current conversion price, being the U.S. dollar equivalent
of C$0.30 per Common Share, will be reduced to equal the Offering Price, and (iii) certain
prepayment and conversion terms will be amended;
b. the
amendment and restatement of the Series 2 secured convertible debentures in the aggregate
principal amount of $15,000,000 (collectively, the “Series 2 CDs”) previously
issued to Sprott Streaming, maturing on March 31, 2029, pursuant to which, among other things,
(i) the rate of interest of the Series 2 CDs will be reduced from 10.5% to 5.0% per annum,
(ii) the current conversion price, being the U.S. dollar equivalent of C$0.29 per Common
Share, will be reduced to equal the Offering Price, and (iii) certain prepayment and conversion
terms will be amended;
c. the
exchange of a $46,000,000 multi-metals stream previously entered into with Sprott Streaming,
which currently applies to up to 10% of payable metals sold from the Project and expires
on June 23, 2063 (the “Stream”), for the Series 3 CDs, the Sprott Tranche II
Shares and the Third Royalty referred to and defined below under paragraph (A) below;
d. the
cancellation of the royalty put option previously granted to Sprott Streaming, pursuant to
which, among other things, upon the occurrence of an event of default under any of the Series
1 CDs and the Series 2 CDs, Sprott Streaming may require the Company to purchase the First
Royalty (as defined below);
e. the
amendments of certain royalty interests granted to Sprott Streaming (collectively, the “First
Royalty”), currently applying to certain primary, residual and other claims comprising
the Project (with the royalty percentage being between 1.35% to 1.85% based on the type of
claim), pursuant to which, among other things, the First Royalty will be consolidated into
one 1.85% life-of-mine gross revenue royalty applying to both primary and secondary claims
comprising the Project, which will also include additional surface and mineral rights recently
acquired by the Company or Silver Valley, as applicable; and
f. the
amendment and restatement of the loan agreement with respect to the existing senior secured
credit facility in the aggregate principal amount of $21,000,000 advanced by Sprott Streaming
(the “Debt Facility”), maturing on June 30, 2030 and secured by first-ranking
interests and charges on all of the property and assets of the Company and its wholly-owned
subsidiary Silver Valley Metals Corp., pursuant to which (i) the sliding scale royalty payable
in connection with advances thereunder (the “Second Royalty Amendments”) will
be fixed at 1.5% for both the primary and secondary claims comprising the Project and (ii)
the Company’s royalty buyback option thereunder will be cancelled; the foregoing amendments
will also be reflected in an amendment to the additional royalty granted to Sprott in connection
with the Debt Facility,
g. the
Company and Monetary Metals Bond III LLC (together with its affiliates, “ Monetary
Metals”) enter into an amending agreement to the note purchase agreement dated August
8, 2024, as previously by amended by a first amending agreement dated November 11, 2024 (the
“MM NPA”), the parties intend to, among other things, (i) reduce the interest
rate payable on advances under the existing loan by Monetary Metals to Silver Valley Metals
Corp., a wholly-owned subsidiary of the Company, in the aggregate principal amount equal
to the U.S. dollar equivalent of up to 1,200,000 troy ounces of silver (the “Silver
Loan”) from 15% to 13.5%; (ii) clarify the calculation of the cash flow sweep; (iii)
extend the availability date for advances of the Silver Loan from January 31, 2025 to June
30, 2025; and (v) in connection with any advances of the Silver Loan, to provide for the
issuance of bonus warrants (“Bonus Warrants”) in such number and on such terms
as to be agreed upon between the parties before issuance and subject to prior approval from
the TSX-V (however, in any event, the aggregate number of Bonus Warrants issued to Monetary
Metals under the Silver Loan will not exceed the maximum amount of 3,000,000 allowable under
the MM NPA).
In consideration for, and in connection with, the Debt Amendments, the
Company intends to, either directly or indirectly:
a. in
consideration for the exchange of the Stream pursuant to the terms of a recapitalization
agreement to be entered into among the Company, Teck, and Sprott Streaming, (i) issue to
Sprott Streaming, on a private placement basis, two senior secured Series 3 convertible debentures
in the aggregate principal amount of $4,000,000 (the “Series 3 CDs”) which, once
issued, will (a) mature on June 30, 2030, (b) bear interest at an accrued rate of 5.0%, which
interest shall be capitalized until the beginning of 2028 or an event of default, and (c)
otherwise have terms substantially similar to the terms of the Series 1 CDs, (ii) issue up
to 200,000,000 Common Shares at the Offering Price (“Sprott Tranche II Shares”)
and (iii) grant Sprott Streaming an additional 1.65% life-of-mine gross revenue royalty on
both the primary and secondary claims comprising the Project (the “Third Royalty”);
b. enter
into a debt settlement agreement with Sprott Streaming, pursuant to which, among other things,
Sprott Streaming will convert $6,000,000 outstanding under the Debt Facility, together
with all accrued and unpaid interest thereon, in consideration of up to 58,142,857 Common
Shares at the Offering Price (“Sprott Tranche I Shares”) and the Second Royalty
Amendments (the “Sprott Loan Conversion”);
c. enter
into an amended and restated intercreditor agreement with, among others, the Company, Teck,
Monetary Metals and Sprott Streaming pursuant to which certain payment terms under the First
Royalty, the Second Royalty Amendment, Third Royalty, the Series 1CDs, the Series 2 CDs,
the Series 3 CDs and the Debt Facility will be waived, restricted or otherwise revised during
the term in which the Company has any outstanding obligations owing under the SP Facility;
There can be no assurance that the debt restructure and financing plan will be timely finalized, or on what specific
final terms, or if at all.
Critical
accounting estimates
The
preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements
and reported amounts of expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual
outcomes can differ from these estimates. The key sources of estimation uncertainty that have a significant risk of causing material
adjustment to the amounts recognized in the financial statements are:
Share-based
payments
Management
determines costs for share-based payments using market-based valuation techniques. The fair value of the share awards and warrant liabilities
are determined at the date of grant using generally accepted valuation techniques and for warrant liabilities at each balance sheets
date thereafter. Assumptions are made and judgment used in applying valuation techniques. These assumptions and judgments include estimating
the future volatility of the stock price and expected dividend yield. Such judgments and assumptions are inherently uncertain. Changes
in these assumptions affect the fair value estimates.
Convertible
Loans, Promissory Notes, Stream Obligation and Warrants
Estimating
the fair value of derivative warrant liability requires determining the most appropriate valuation model, which is dependent on the terms
and conditions of the issuance. This estimate also requires determining the most appropriate inputs to the valuation model including
the expected life of the warrants derivative liability, volatility and dividend yield and making assumptions about them.
The
fair value estimates of the convertible loans use inputs to the valuation model that include risk-free rates, equity value per share
of common stock, USD-CAD exchange rates, expected equity volatility, discount for lack of marketability, credit spread.
41
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.
The
fair value estimates may differ from actual fair values and these differences may be significant and could have a material impact on
the Company’s balance sheets and the consolidated statements of operations. Assets are reviewed for an indication of impairment
at each reporting date. This determination requires significant judgment. Factors that could trigger an impairment review include, but
are not limited to, significant negative industry or economic trends, interruptions in exploration activities or a significant drop in
precious metal prices.
Accrued
liabilities
The
Company has to make estimates to accrue for certain expenditures due to delay in receipt of third-party vendor invoices. These accruals
are made based on trends, history and knowledge of activities. Actual results may be different.
The
Company makes monthly estimates of its water treatment costs, with a true-up to the annual invoice received from the IDEQ. Using the
actual costs in the annual invoice, the Company will then reassess its estimate for future periods. Given the nature, complexity and
variability of the various actual cost items included in the invoice, the Company has used the most recent invoice as its estimate of
the water treatment costs for future periods.
Incremental
Borrowing rate
The
Company estimates the incremental borrowing rate to determine the present value of future lease payments. Actual results may be different
from estimates.
Borrowing
Cost Capitalization rate
The
Company makes estimates to determine the percentage of borrowing costs that are capitalized into property plant and equipment. Actual
results may be different.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
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