Bunker Hill Mining Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation The following management’s discussion and analysis of the consolidated financial results and condition of Bunker Hill Mining Corp. (collectively, “we,” “us,” “our,” “Bunker Hill” or the “Company”) for the three and six months ended June 30, 2025, has been prepared based on information available to us as of July 30, 2025. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herewith and the audited Consolidated Financial Statements of Bunker Hill for the year ended December 31, 2024, and the related notes thereto filed with our Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results, performance, or achievements may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth elsewhere in this report. See “Cautionary Note Regarding Forward-Looking Statements.” All currency amounts are expressed in U.S. dollars. Description of Business Corporate Information The Company was incorporated under the laws of the State of Nevada, U.S.A on February 20, 2007, under the name Lincoln Mining Corp. On February 11, 2010, the Company changed its name to Liberty Silver Corp and subsequently, on September 29, 2017, the Company changed its name to Bunker Hill Mining Corp. The Company’s registered office is located at 1802 N. Carson Street, Suite 212, Carson City Nevada 89701, and its Canadian office is located at 300-1055 West Hastings Street Vancouver, British Columbia, V6E 2E9, and its telephone number is 604.417.7952. The Company’s website is www.bunkerhillmining.com. Information appearing on the website is not incorporated by reference into this report. Overview and Outlook Our primary focus is the development and restart of our 100% owned Bunker Hill Mine (the “Bunker Hill Mine”) in Kellogg, Idaho, USA. The Bunker Hill Mine was the largest single producing mine by tonnage in the Silver Valley region of northwest Idaho, producing over 165 million ounces of silver and 5 million tons of base metals between 1885 and 1981. The Bunker Hill Mine is located within Operable Unit 2 of the Bunker Hill Superfund site (EPA National Priorities Listing IDD048340921), where cleanup activities have been completed. The Company was incorporated for the initial purpose of mineral exploration at the Bunker Hill Mine. The Company has moved into the development stage concurrent with (i) purchasing the mine and a process plant, (ii) completing successive technical and economic studies, including an early-stage analysis that assesses the viability of a potential mining project, providing a preliminary assessment of its economic and technical feasibility (“Prefeasibility Study”), (iii) delineating mineral reserves, and (iv) advancing the construction of the facilities for commissioning and operations in the first half of 2026, with nameplate 1,800 tons per day production expected in 2026. In May 2025, we initiated a mineral resource expansion and exploration drilling program in support of the staged restart plan. The program included 8,975 feet of core to be drilled from underground to further define and expand a portion of the existing resource that is in close proximity to where initial mining will occur. Current External Factors Impacting our Business In 2022, the United States Geological Survey included zinc as one of the primary metals at Bunker Hill along with lead and silver as a critical material that is essential to the U.S. economy and national security, because the domestic supply chain is vulnerable to disruption due to China’s supply dominance. Zinc uses include incorporation in metal products, rubber and medicines. About three-fourths of zinc used is consumed as metal, mainly as a coating to protect iron and steel from corrosion (galvanized metal), as alloying metal to make bronze and brass, as zinc-based die casting alloy, and as rolled zinc. 30 Due to the dominance of China over certain critical materials production, including zinc, the U.S. federal government is taking certain actions to support the domestic critical materials supply chain, including tax incentives and federal loan programs specifically designed to support critical materials producers, and to strengthen the defense industrial base with respect to critical minerals including zinc. During the first six months of 2025, we have monitored the many Trump Administration actions, including executive orders covering critical minerals and materials, including zinc. On January 20, 2025, President Trump issued the “Unleashing American Energy” Executive Order, which included (1) several urgent critical mineral directives, including the immediate review of all agency actions that potentially burden the development of domestic energy resources with particular attention to critical minerals; (2) directing the Secretary of Energy to ensure that critical mineral projects, including the processing of critical minerals, receive consideration for federal support; and (3) directing the Secretary of Defense to consider the needs of the U.S. in supplying and maintaining the national defense stockpile to provide a robust supply of critical minerals, which will create jobs and prosperity at home, strengthen supply chains for the U.S. and its allies, and reduce the global influence of malign and adversarial states. In March 2025, President Trump issued the “Immediate Measures to Increase American Mineral Production” Executive Order. In this Executive Order, President Trump directed the federal agencies, including the EXIM Bank, to unlock the permitting, funding and issuance of off-take agreements for critical minerals. The Executive Order includes near-term actions to be determined and implemented by the federal agencies to mobilize capital for mineral producers and create off-take agreements for the strategic stockpiling of minerals critical to the United States’ defense, technology and energy. In addition, the impacts of other external influences (such as the Russia/Ukraine war and conflicts in the Middle East, including the Israel war) have further focused the U.S. government on the importance of implementing secure domestic supply chains, including for critical and base metal materials. The Company monitors and intends to participate in these initiatives as they are critical to the production of domestic defense and other technologies. Results of Operations The following discussion and analysis provides information that is believed to be relevant to an assessment and understanding of the results of operation and financial condition of the Company for the three and six months ended June 30, 2025, and June 30, 2024. Comparison of the three six months ended June 30, 2025 and 2024 Revenue During the three and six months ended June 30, 2025, and 2024, respectively, we generated no revenue. Expenses During the three months ended June 30, 2025, and 2024, we reported total operating expenses of $3,110,392 and $4,150,114, respectively. The decrease in total operating expenses was primarily due to a decrease in the volume of transactions associated with construction of the process plant during the quarter ended June 30, 2025. During the six months ended June 30, 2025, and 2024, we reported total operating expenses of $6,019,766 and $7,937,745, respectively. The decrease in total operating expenses was primarily due to a decrease in the volume of transactions associated with construction of the process plant during the six months ended June 30, 2025. Net Income and Comprehensive Income We had net income of $20,459,888 for the three months ending June 30, 2025 (compared to a loss of $3,902,404 for the three months ended June 30, 2024). The net income the three months ended June 30, 2025 was primarily due to a gain on a debt settlement related to the stream debenture of $29,580,954 compared to $nil in the 2024 period, together with a change in derivative liabilities $1,832,864 in the 2025 period compared to ($351,402) in the 2024 period which was driven by warrants with an exercise price less than the market price of Bunker Hill Mining Corp’s closing price on June 30, 2025. These second quarter gains were partially offset by a loss on the fair value of silver loan of $2,961,015 for the three months ended June 30, 2025, compared to $nil for the three months ended June 30, 2024 and a loss on revaluation of stream debenture of $549,854 for the three months ended June 30, 2025 (compared to a gain of $2,748,000 for the three months ended June 30, 2024), due to updated key assumptions including commodity prices and timing of production. Additionally, financing costs of $1,007,750 ($nil for the three months ended June 30, 2024) relating to debt restructuring that occurred during the three months ended June 30, 2025. 31 We had net income of $14,113,675 for the six months ending June 30, 2025 (compared to a loss of $9,484,440 for the three months ended June 30, 2024). The net income the three months ended June 30, 2025, was primarily due to a gain on debt settlement of the stream debenture of $29,580,954 compared to $nil in the 2024 period, together with a change in derivative liabilities of $2,295,627 in the 2025 period compared to a loss of ($615,345) in the 2024 period which was driven by warrants with an exercise price less than the market price of Bunker Hill Mining Corp’s closing price on June 30, 2025. These gains in the during the first six months of 2025 were partially offset by a loss on fair value of silver loan of $9,029,947 for the six months ended June 30, 2025, compared to $nil for the six months ended June 30, 2024 and a gain on revaluation of stream debenture of $4,149,606 compared to gain of $2,531,000 for the six months ended June 30, 2024), due to updated key assumptions including commodity prices and timing of production. Financing costs of $1,014,866 ($nil for the six months ended June 30, 2024) relating to debt restructuring that occurred in the three months ended June 30, 2025. We had a comprehensive income of $23,811,117 and $19,497,446 for the three and six months ended June 30, 2025 (comprehensive loss of $3,426,642 and $8,720,306 for the three and six months ended June 30, 2024), respectively. Comprehensive income for the three and six months ending June 30, 2025, is inclusive of a $3,351,229 and $5,383,771 gain on change in fair value on own credit risk ($475,762 and $764,134 for the three and six months ended June 30, 2024). Liquidity and Capital Resources Going Concern These condensed interim consolidated financial statements have been prepared on a going concern basis. The Company has incurred losses since inception resulting in an accumulated deficit of $96,253,046 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 condensed interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These condensed interim 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 June 30, 2025, the Company had total current assets were $11,829,696, compared to total current assets of $9,332,639 at December 31, 2024 – an increase of $2,497,057; and total assets of $116,563,473, compared to total assets of $97,601,550 at December 31, 2024 – an increase of $18,961,923. During the six months ended June 30, 2025, our current and non-current assets increased due to debt and equity financings that occurred partially offset by cash expenditures on the process plant and additions to the Bunker Hill Mine. Current Liabilities and Total Liabilities As of June 30, 2025, our total current liabilities of $12,215,705 and total liabilities of $87,781,551, compared to total current liabilities of $29,644,412 and total liabilities of $149,736,915 at December 31, 2024. Total liabilities decreased due to the termination and exchange of the stream obligation under the Exchange Agreement (discussed in Note 9 to the financial statements), the repayment of $6,000,000 of principal on the Sprott debt facility through the issuance of Common Stock, the repayment of the Teck promissory note in full all of which occurred in the 6 months ending June 30, 2025 and a decrease in accounts payable and accrued liabilities as the Company utilized the equity raise to decrease its current obligations to its vendors, all of which occurred in June 2025. This was offset by an $11,000,000 drawdown on the Sprott debt facility in January 2025 and the $3,973,205 increase in the fair value of the silver loan due to the change in inputs, including an increase in the silver price during the six months ended June 30, 2025. 32 Working Capital and Shareholders’ Deficit As of June 30, 2025, we had working capital deficit of $386,009 and a shareholders’ equity of $28,781,922, compared to working capital deficit of $20,311,773 and shareholders deficiency of $52,135,365, respectively, as of December 31, 2024. The significant improvement in working capital and shareholders equity from December 31, 2025 to June 30, 2025 is primarily the result of a major capital restructuring along with combined equity financings from a brokered and non-brokered private placement and debt settlements during the first six months of 2025. Cash Flow During the six months ended June 30, 2025, we had a net cash increase of $2,327,904, primarily due to cash provided by financing activities, specifically proceeds from the issuance of shares of common stock and proceeds from Sprott debt facility, offset by cash used in operating and investing activities primarily related to expenditures on the Bunker Hill Mine process plant. Subsequent Events Share Issuance On July 9, 2025, the Company issued 15,378,473 shares of common stock in connection with its election to satisfy interest payments under the outstanding convertible debentures for the three months ended June 30, 2025 and the debt facility for the six months ended June 30, 2025. 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. 33 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 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable.