During the three months ended March 31, 2023, the Company entered into
a lease agreement with C & E Tree Farm LLC for the lease of a land parcel overlaying a portion of the Company’s existing mineral
claims package. The Company is committed to making monthly payments of $10,000 through February 2026. The Company has the option to purchase
the land parcel through March 1, 2026, for $3,129,500 less 50% of the payments made through the date of purchase.
Schedule
of Amended Settlement Environmental Protection Agency Agreement
| Date | |
Amount |
| Within 30 days of Settlement Agreement | |
$ | 2,000,000 | |
| November 1, 2024 | |
$ | 3,000,000 | |
| November 1, 2025 | |
$ | 3,000,000 | |
| November 1, 2026 | |
$ | 3,000,000 | |
| November 1, 2027 | |
$ | 3,000,000 | |
| November 1, 2028 | |
$ | 3,000,000 | |
| November 1, 2029 | |
$ | 2,000,000 plus accrued interest | |
In
addition to the changes in payment terms and schedule, the Amended Settlement included a commitment by the Company to secure $17,000,000
of financial assurance in the form of performance
bonds or letters of credit deemed acceptable to the EPA within 180 days from the effective date of the Amended Settlement. Once put in
place, the financial assurance can be drawn on by the EPA in the event of non-performance by the Company of its payment obligations under
the Amended Settlement (the “Financial Assurance”). The amount of the bonds will decrease over time as individual payments
are made.
The
Company completed the purchase of the Mine (see note 5) and made the initial $2,000,000
cost recovery payment on January 7, 2022. Concurrent
with the purchase of the Mine, the
Company assumed the balance of the EPA liability totaling $17,000,000, an increase of $8,000,000. This was capitalized as $6,402,425
to the carrying value of the Bunker Hill Mine at time of purchase, comprised of $3,000,000 of incremental current liabilities and $5,000,000
of non-current liabilities (discounted to $3,402,425). See note 5.
During the year ended 2022, the financial assurance was put into place, enabling the restructuring
of the payment stream under the Amendment Settlement with the entire $17,000,000 liability being recognized as long-term in nature. As
of March 31, 2023 (unchanged from December 31, 2022), the Company had two payment bonds of $9,999,000 and $5,000,000, and
a $2,001,000 letter of credit, in place to secure this liability. The collateral for the payment bonds is comprised of two letters of credit of $4,475,000 in aggregate, as well as land pledged by third parties with whom the company has entered into a financing cooperation
agreement that contemplates a monthly fee of $20,000 (payable in cash or common shares of the Company, at the Company’s election).
The letters of credit of $6,476,000 in aggregate are secured by cash deposits under an agreement with a commercial bank, which comprise
the $6,476,000 of restricted cash shown within current assets as of March 31, 2023.
The
Company recorded discount amortization expense of $374,306 on the discounted liability, bringing the net liability to
$8,315,772 (inclusive of interest payable of $156,343).
Water Treatment Charges – IDEQ
Separate
to the cost recovery liabilities outlined above, the
Company is responsible for the payment of ongoing water treatment charges. Water treatment charges incurred through December 31,
2021 were payable to the EPA, and charges thereafter are payable to the Idaho Department of Environmental Quality (“IDEQ”) given a handover
of responsibilities for the Central Treatment Plant from the EPA to the IDEQ as of that date.
The
Company currently makes monthly payments of $100,000 to the IDEQ as instalments toward the cost of treating water at the Central Treatment
Plant. Upon receipt of an invoice from the IDEQ for actual costs incurred, a reconciliation is performed relative to payments made, with
an additional payment made or refund received as applicable. The Company accrues $100,000 per month based on its estimate of the monthly
cost of water treatment. As of March 31, 2023 a prepaid expense of $30,000 (December 31, 2022: $170,729) represents the difference between the estimated cost of water
treatment and net payments made by the Company to the IDEQ to date. This balance has been recognized on the consolidated balance sheets
as accounts receivable and prepaid expenses.
7.
Promissory Notes Payable and Convertible Debentures
Promissory Notes
On
September 22, 2021, the Company issued a non-convertible promissory note in the amount of $2,500,000
bearing interest of 15%
per annum and payable at maturity. The Company purchased a land parcel for approximately $202,000
on March 3, 2022, which may be used as security
for the promissory note. The promissory note was originally scheduled to mature on March 15, 2022, however was extended multiple times and is currently due on
June 15, 2023. Principal payments of $1,000,000 in aggregate were made in the year ended December 31, 2022.
At
March 31, 2023, the Company owes $1,500,000 in
promissory notes payable, which is included in current liabilities on the condensed interim consolidated balance sheets. Interest
expense for the three months ended March 31, 2023 and 2022 was $55,479 and
$92,466,
respectively. At March 31, 2023 financing costs of $439,521 ($384,041
at December 31, 2022) is included in interest payable on the condensed consolidated balance sheet. The effective interest rate of the promissory note is 15%.
On February 21, 2023, the Company issued a non-convertible
promissory note to a related party in the amount of $120,000, and a separate non-convertible promissory note in the amount of $120,000
to another party. Each promissory note bore fixed interest of $18,000 per annum, payable at maturity, which was the earlier of one year
or the receipt of an equity or debt financing. Both promissory notes, including interest, were settled on March 27, 2023.
Project
Finance Package with Sprott Private Resource Streaming & Royalty Corp.
On
December 20, 2021, the Company executed a non-binding term sheet outlining a $50,000,000 project finance package with Sprott Private
Resource Streaming and Royalty Corp. (“SRSR”).
The
non-binding term sheet with SRSR outlined a $50,000,000 project financing package that the Company expected to fulfill the majority of
its funding requirements to restart the Mine. The term sheet consisted of an $8,000,000 royalty convertible debenture (the “RCD”),
a $5,000,000 convertible debenture (the “CD1”), and a multi-metals stream of up to $37,000,000 (the “Stream”).
The CD1 was subsequently increased to $6,000,000, increasing the project financing package to $51,000,000.
On
June 17, 2022, the Company consummated a new $15,000,000 convertible debenture (the “CD2”). As a result, total potential
funding from SRSR was further increased to $66,000,000 including the RCD, CD1, CD2 and the Stream (together, the “Project Financing
Package”).
$8,000,000
Royalty Convertible Debenture
The
Company closed the $8,000,000 RCD on January 7, 2022. The RCD bears interest at an annual rate of 9.0%, payable in cash or Common Shares
at the Company’s option, until such time that SRSR elects to convert a royalty, with such conversion option expiring at the earlier
of advancement of the Stream or July 7, 2023 (subsequently amended as described below). In the event of conversion, the RCD will cease
to exist and the Company will grant a royalty for 1.85% 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 (the
“SRSR Royalty”). A 1.35% rate will apply to claims outside of these areas. The RCD was initially secured by a share pledge
of the Company’s operating subsidiary, Silver Valley, until a full security package was put in place concurrent with the consummation
of the CD1. In the event of non-conversion, the principal of the RCD will be repayable in cash.
Concurrent
with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the RCD, including an
amendment of the maturity date from July 7, 2023 to March 31, 2025. The parties also agreed to enter into a Royalty Put Option such that
in the event the RCD is converted into a royalty as described above, the holder of the royalty will be entitled to resell the royalty
to the Company for $8,000,000 upon default under the CD1 or CD2 until such time that the CD1 and CD2 are paid in full. The Company determined
that the amendments in the terms of the RCD should not be treated as an extinguishment of the RCD, and have therefore been accounted
for as a modification.
$6,000,000
Convertible Debenture (CD1)
The
Company closed the $6,000,000 CD1 on January 28, 2022, which was increased from the previously-announced $5,000,000. The CD1 bears interest
at an annual rate of 7.5%, payable in cash or shares at the Company’s option, and matures on July 7, 2023 (subsequently amended,
as described below). The CD1 is secured by a pledge of the Company’s properties and assets. Until the closing of the Stream, the
CD1 was to be convertible into Common Shares at a price of C$0.30 per Common Share, subject to stock exchange approval (subsequently
amended, as described below). Alternatively, SRSR may elect to retire the CD1 with the cash proceeds from the Stream. The Company may
elect to repay the CD1 early; if SRSR elects not to exercise its conversion option at such time, a minimum of 12 months of interest would
apply.
Concurrent
with the funding of the CD2 in June 2022, the Company and SRSR agreed to a number of amendments to the terms of the CD1, including that
the maturity date would be amended from July 7, 2023 to March 31, 2025, and that the CD1 would remain outstanding until the new maturity
date regardless of whether the Stream is advanced, unless the Company elects to exercise its option of early repayment. The Company determined
that the amendments in the terms of the CD1 should not be treated as an extinguishment of the CD1, and have therefore been accounted
for as a modification.
$15,000,000
Series 2 Convertible Debenture (CD2)
The
Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest at an annual rate of 10.5%, payable in cash or shares at
the Company’s option, and matures on March 31, 2025. The CD2 is secured by a pledge of the Company’s properties and assets.
The repayment terms include 3 quarterly payments of $2,000,000 each beginning June 30, 2024 and $9,000,000 on the maturity date.
In
light of the Series 2 Convertible Debenture financing, the previously permitted additional senior secured indebtedness of up to $15 million
for project finance has been removed.
The
Company determined that in accordance with ASC 815 Derivatives and Hedging, each debenture will be valued and carried as a single instrument,
with the periodic changes to fair value accounted through earnings, profit and loss.
Consistent
with the approach above, the following table summarizes the key valuation inputs as at applicable valuation dates:
Schedule of Key Valuation Inputs
| | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| |
| Reference (2)(4) (5) | |
Valuation
date | |
Maturity
date | |
Contractual
Interest rate | | |
Stock price (US$) | | |
Expected equity volatility | | |
Credit spread | | |
Risk-free rate | | |
Risk-
adjusted rate | |
| CD1 note(3) | (2)(4)(5)(3) |
12-31-22 | |
03-31-25 | |
| 7.50 | % | |
| 0.125 | | |
| 120 | % | |
| 7.08 | % | |
| 4.32 | % | |
| 17.85 | % |
| RCD note | (2)(4)(5) |
12-31-22 | |
03-31-25 | |
| 9.00 | % | |
| 0.125 | | |
| 120 | % | |
| 7.08 | % | |
| 4.32 | % | |
| 17.85 | % |
| CD2 note(3) | (2)(4)(5)(3) |
12-31-22 | |
03-31-25 | |
| 10.50 | % | |
| 0.125 | | |
| 120 | % | |
| 7.08 | % | |
| 4.32 | % | |
| 19.76 | % |
| CD1 note(3) | (2)(4)(5)(3) |
03-31-23 | |
03-31-25 | |
| 7.50 | % | |
| 0.082 | | |
| 115 | % | |
| 11.22 | % | |
| 4.06 | % | |
| 21.33 | % |
| RCD note | (2)(4)(5) |
03-31-23 | |
03-31-25 | |
| 9.00 | % | |
| 0.082 | | |
| 115 | % | |
| 11.22 | % | |
| 4.06 | % | |
| 21.33 | % |
| CD2 note(3) | (2)(4)(5)(3) |
03-31-23 | |
03-31-25 | |
| 10.50 | % | |
| 0.082 | | |
| 115 | % | |
| 11.22 | % | |
| 4.06 | % | |
| 23.20 | % |
| |
(1) |
The
CD1 carried a Discount for Lack of Marketability (“DLOM”) of 5.0% as of the issuance date and as of March 31, 2022. The
CD2 carried a DLOM of 10.0% as of the issuance date and June 30, 2022 |
| |
(2) |
CD1
and RCD carry an instrument-specific spread of 7.23%, CD2 carries an instrument-specific spread of 9.32% |
| |
(3) |
The
conversion price of the CD1 is $0.219 and CD2 is $0.212 as of December 31, 2022 |
| |
(4) |
A
project risk rate of 13.0% was used for all scenarios of the RCD fair value computations |
| |
(5) |
The
valuation of the RCD is driven by the aggregation of (i) the present value of future potential cash flow to the royalty holder, in
the event that the RCD is converted to a royalty, utilizing an estimate of future metal sales and Monte Carlo simulations of future
metal prices, and (ii) the computation of the present value assuming no conversion to the 1.85% gross revenue royalty. The valuation
of (i) is compared to the valuation of (ii) for each simulation, with the higher value used in the aggregation to arrive at the fair
value of the RCD. This results in an implied probability of the RCD being converted to the royalty, in the event that the Stream
is advanced. Based on this methodology, as of December 31, 2022, the implied probability of the RCD being converted to a 1.85% royalty,
in the event that the Stream is advanced, was 89%. Credit spread, Risk-free rate, and Risk-adjusted rate shown for the RCD are applicable
to the scenario where the Stream is not advanced. There are immaterial differences in these inputs for the scenario where the Stream
is advanced. As of March 31, 2023, these were 11.38%, 4.85%, and 22.18% respectively for the Scenario where the Stream is advanced |
The
resulting fair values of the CD1, RCD, and CD2 at March 31, 2023, and as of December 31, 2022, were as follows:
Schedule
of Fair Value Derivative Liability
| Instrument Description | |
March 31, 2023 | | |
December 31, 2022 | |
| CD1 | |
$ | 5,093,130 | | |
$ | 5,537,360 | |
| RCD | |
| 9,119,412 | | |
| 10,285,777 | |
| CD2 | |
| 13,117,407 | | |
| 14,063,525 | |
| Total | |
$ | 27,389,949 | | |
$ | 29,886,662 | |
The
total gain on fair value of debentures recognized during the three months ended March 31, 2023 and March 31, 2022, was $1,689,701
and $nil,
respectively. The portion of changes in fair value that is attributable to changes in the Company’s credit risk is accounted
for within other comprehensive income. During the three months ended March 31, 2023 and March 31, 2022, the Company recognized
$807,012
and $nil
respectively, within other comprehensive income. Interest expense for the three months ended March 31, 2023 and 2022 was $676,849
and $240,164
respectively. At March 31, 2023 interest of $nil
($691,890
at December 31, 2022) is included in interest payable on the consolidated balance sheets. For the three months ended March 31, 2023,
and March 31, 2022, the Company recognized $250,086
and $nil,
respectively, loss on debt settlement in the condensed interim consolidated statements of income (loss) and comprehensive
income (loss) as a result of settling interest by issuance of shares.
The
Company performs quarterly testing of the covenants in the RCD, CD1 and CD2, and was in compliance with all such covenants as of March
31, 2023.
$5,000,000 Bridge
Loan
On
December 6, 2022, the Company closed a new $5,000,000 loan facility with Sprott (the “Bridge Loan”). The Bridge Loan is secured
by the same security package that is in place with respect to the RCD, CD1, and CD2. The Bridge Loan bears interest at a rate of 10.5%
per annum and matures at the earlier of (i) the advance of the Stream, or (ii) June 30, 2024. In addition, the minimum quantity of metal
delivered under the Stream, if advanced, would increase by 5% relative to amounts previously announced. Interest expense for three months
ended March 31, 2023 and 2022 was $178,383 and $nil respectively. At March 31, 2023 interest of $131,250 ($53,985 at December 31, 2022)
is included in interest payable on the consolidated balance sheets.
$37,000,000
Stream
A
minimum of $27,000,000 and a maximum of $37,000,000 (the “Stream Amount”) will be made available under the Stream, at the
Company’s option, once the conditions of availability of the Stream have been satisfied, including confirmation of full project
funding by an independent engineer appointed by SRSR. If the Company draws the maximum funding of $37,000,000, the Stream would apply
to 10% of payable metals sold until a minimum quantity of metal is delivered consisting of, individually, 55 million pounds of zinc,
35 million pounds of lead, and 1 million ounces of silver (subsequently amended, as described below). Thereafter, the Stream would apply
to 2% of payable metals sold. If the Company elects to draw less than $37,000,000 under the Stream, the percentage and quantities of
payable metals streamed will adjust pro-rata. The delivery price of streamed metals will be 20% of the applicable spot price. The Company
may buy back 50% of the Stream Amount at a 1.40x multiple of the Stream Amount between the second and third anniversary of the date of
funding, and at a 1.65x multiple of the Stream Amount between the third and fourth anniversary of the date of funding. As of March 31,
2023, the Stream had not been advanced.
8.
Lease liability
The
Company has operating leases for a loader. Below is a summary of the Company’s lease liability as of March 31, 2023:
Schedule of Operating Lease Liability
| | |
Leases | |
| | |
| |
| Balance, December 31, 2022 | |
$ | - | |
| Addition | |
| 114,920 | |
| Interest expense | |
| 3,611 | |
| Lease payments | |
| (60,000 | ) |
| Balance, March 31, 2023 | |
| 58,531 | |
9.
Capital Stock, Warrants and Stock Options
Authorized
The
total authorized capital is as follows:
| ● |
1,500,000,000
Common Shares with a par value of $0.000001 per Common Share; and |
| ● |
10,000,000
preferred shares with a par value of $0.000001 per preferred share |
Issued
and outstanding
In
March 2023, the Company amended the exercise price and expiry date of 10,416,667
warrants which were previously issued in a private placement to Teck Resources (“Teck”) on May 13, 2022 in consideration
for the Company’s acquisition of the Pend Oreille process plant. The warrant entitled the holder thereof to purchase one share
of Common Share of the Company at an exercise price of C$0.37
per Warrant at any time on or prior to May 12, 2025. The Company amended the exercise price of the warrants from C$0.37
to C$0.11
per Warrant and the expiry date from May 12, 2025, to March
31, 2023, resulting in a gain on modification of warrants of $214,714.
In March 2023, Teck exercised all 10,416,667
warrants at an exercise price of C$0.11,
for aggregate gross proceeds of C$1,145,834
to the Company. During the quarter the Company recognized a change in derivative liability of $400,152 relating to the Teck warrants
using the following assumptions: volatility of 120%, stock price of C$0.11, interest rate of 3.42% to 4.06%, and dividend yield of 0%.
In March 2023, the Company closed a brokered
private placement of special warrants of the Company (the “March 2023 Offering”), issuing 51,633,727
special warrants of the Company (“March 2023 Special Warrants”) at C$0.12
per March 2023 Special Warrant for $4,536,020
(C$6,196,047),
of which $3,661,822 was received in cash and $874,198 was applied towards settlement of accounts payable, accrued liabilities and promissory notes.
In
connection with the Offering, each March 2023 Special Warrant is automatically exercisable (without payment of any further consideration
and subject to customary anti-dilution adjustments) into one unit (“March 2023 Unit”) of the Company on the earlier date
of: (i) the third business day following the date upon which the Company has obtained notification that a resale registration statement
of the Company to be filed with the U.S. SEC (the “SEC”) registering the resale of the Underlying Shares (as defined below)
issuable upon exercise of the March 2023 Special Warrants and the securities issuable thereunder, has been declared effective by the
SEC; and (ii) September 27, 2023 (collectively, the “Automatic Exercise Date”), subject to compliance with U.S. securities
laws.
Each
March 2023 Unit consists of one share of Common Share of the Company (each, a “Unit Share”) and one common stock purchase
warrant of the Company (each, a “Warrant”). Each whole Warrant entitles the holder thereof to acquire one Common Share of
the Company (a “Warrant Share”, and together with the Unit Shares, the “Underlying Shares”) at an exercise price
of C$0.15 per Warrant Share until March 27, 2026, subject to adjustment in certain events. In the event that the Registration Statement
has not been declared effective by the SEC on or before 5:00 p.m. (EST) on July 27, 2023, each unexercised Special Warrant will be deemed
to be exercised on the Automatic Exercise Date into one penalty unit of the Company (each, a “Penalty Unit”), with each Penalty
Unit being comprised of 1.2 Unit Shares and 1.2 Warrants.
In
connection with the March 2023 Offering, the Company incurred share issuance costs of $585,765 and issued 2,070,258 compensation options
(the “March 2023 Compensation Options”). Each March 2023 Compensation Option is exercisable at an exercise price of C$0.12
into one Unit Share and one Warrant Share.
For
each financing, the Company has accounted for the warrants in accordance with ASC Topic 815. The warrants are considered derivative instruments
as they were issued in a currency other than the Company’s functional currency of the U.S. dollar. The estimated fair value of
warrants accounted for as liabilities was determined on the date of issue and marks to market at each financial reporting period. The
change in fair value of the warrant is recorded in the condensed interim consolidated statements of income (loss) and comprehensive income
(loss) as a gain or loss and is estimated using the Binomial model.
The
fair value of the warrant liabilities related to the various tranches of warrants issued during the period were estimated using the Binomial
model to determine the fair value using the following assumptions as at March 31, 2023 and December 31, 2022:
Schedule of Estimated Using the Binomial Model to Determine the Fair Value of Warrant Liabilities
| April 2022 special warrants issuance | |
March 31, 2023 | | |
December 31, 2022 | |
| Expected life | |
| 732 days | | |
| 822 days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.74 | % | |
| 4.06 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.17 | |
| Fair value | |
$ | 1,174,663 | | |
$ | 2,406,104 | |
| Change in derivative liability | |
$ | (1,231,441 | ) | |
| | |
| April 2022 non-brokered issuance | |
March 31, 2023 | | |
December 31, 2022 | |
| Expected life | |
| 732 days | | |
| 822 days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.74 | % | |
| 4.06 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.17 | |
| Fair value | |
$ | 45,673 | | |
$ | 93,553 | |
| Change in derivative liability | |
$ | (47,880 | ) | |
| | |
| June 2022 issuance | |
March 31, 2023 | | |
December 31, 2022 | |
| Expected life | |
| 732 days | | |
| 822 days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.74 | % | |
| 3.72 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.17 | |
| Fair value | |
$ | 35,101 | | |
$ | 77,429 | |
| Change in derivative liability | |
$ | (42,328 | ) | |
| | |
| February 2021 issuance | |
March 31, 2023 | | |
December 31, 2022 | |
| Expected life | |
| 1,046 days | | |
| 1,136 days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.51 | % | |
| 3.72 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.17 | |
| Fair value | |
$ | 682,573 | | |
$ | 1,335,990 | |
| Change in derivative liability | |
$ | (653,416 | ) | |
| | |
| August 2020 issuance | |
March 31, 2023 | | |
December 31, 2022 | |
| Expected life | |
| 153 days | | |
| 243 days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.74 | % | |
| 4.06 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.17 | |
| Fair value | |
$ | 1 | | |
$ | 903,697 | |
| Change in derivative liability | |
$ | (903,696 | ) | |
| | |
| June 2019 issuance | |
March 31, 2023 | | |
December 31, 2022 | |
| Expected life | |
| 1,006 days | | |
| 1,096 days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.51 | % | |
| 3.82 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.17 | |
| Fair value | |
$ | 338,608 | | |
$ | 725,737 | |
| Change in derivative liability | |
$ | (387,129 | ) | |
| | |
| August 2019 issuance | |
March 31, 2023 | | |
December 31, 2022 | |
| Expected life | |
| 1,006 days | | |
| 1,096 days | |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.51 | % | |
| 3.82 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.17 | |
| Fair value | |
$ | 520,399 | | |
$ | 1,115,369 | |
| Change in derivative liability | |
$ | (594,970 | ) | |
| | |
Outstanding
warrants at March 31, 2023 and March 31, 2022 were as follows:
Schedule of Warrant Activity
| | |
| | |
Weighted | | |
Weighted | |
| | |
| | |
average | | |
average | |
| | |
Number of | | |
exercise price | | |
grant date | |
| | |
warrants | | |
(C$) | | |
value ($) | |
| | |
| | |
| | |
| |
| Balance, December 31, 2021 | |
| 111,412,712 | | |
$ | 0.54 | | |
$ | 0.18 | |
| Expired | |
| (239,284 | ) | |
| 0.70 | | |
| 0.21 | |
| Balance, March 31, 2022 | |
| 111,173,428 | | |
| 0.52 | | |
| 0.18 | |
| | |
| | | |
| | | |
| | |
| Balance, December 31, 2022 | |
| 162,129,064 | | |
$ | 0.49 | | |
$ | 0.17 | |
| Exercised | |
| (10,416,667 | ) | |
| 0.11 | | |
| 0.12 | |
| Balance, March 31, 2023 | |
| 151,712,397 | | |
$ | 0.50 | | |
$ | 0.17 | |
During the three months ended March 31, 2023, 10,416,667 May 2022 Teck
warrants were exercised. During
the three months ended March 31, 2022, 239,284 February 2020 broker warrants expired.
At
March 31, 2023, the following warrants were outstanding:
Schedule of Warrants Outstanding Exercise Price
| | |
Exercise | | |
Number of | | |
Number of warrants | |
| Expiry date | |
price (C$) | | |
warrants | | |
exercisable | |
| | |
| | |
| | |
| |
| August 31, 2023 | |
| 0.50 | | |
| 58,284,148 | | |
| 58,284,148 | |
| December 31, 2025 | |
| 0.59 | | |
| 32,895,200 | | |
| 32,895,200 | |
| February 9, 2026 | |
| 0.60 | | |
| 17,112,500 | | |
| 17,112,500 | |
| February 16, 2026 | |
| 0.60 | | |
| 2,881,580 | | |
| 2,881,580 | |
| April 1, 2025 | |
| 0.37 | | |
| 40,538,969 | | |
| 40,538,969 | |
| | |
| | | |
| 151,712,397 | | |
| 151,712,379 | |
March
2023 Special Warrants
The
Company closed a private placement of the March 2023 Special Warrants on March 27, 2023, which will convert to Common Shares and common
stock purchase warrants in the third quarter of 2023 as described above. As a result, as of March 31, 2023, the Common Shares and common
stock purchase warrants had not been issued. In accordance with its accounting policies, the Company has determined the fair value of
the March 2023 Special Warrants as of March 31, 2023, through the valuation of the underlying Common Shares and common stock purchase
warrants.
As
of March 31, 2023, there were 51,633,727 March 2023 Special Warrants outstanding ($nil as of December 31, 2022). The fair value of the
underlying warrant liability related to the March 2023 Special Warrants was estimated using the Binomial model to determine the fair
value using the following assumptions as at March 31, 2023 and December 31, 2022:
Schedule
of Estimated Fair Value of Special Warrant Liabilities
| March 2023 special warrants issuance | |
March 31, 2023 | | |
Grant
Date | |
| Expected life | |
| 1,092 days | | |
| 1096 days |
| Volatility | |
| 120 | % | |
| 120 | % |
| Risk free interest rate | |
| 3.51 | % | |
| 3.40 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price (C$) | |
$ | 0.105 | | |
$ | 0.11 | |
| Fair value | |
$ | 2,815,761 | | |
$ | 2,781,323 | |
| Change in derivative liability | |
$ | 34,438 | | |
$ | - | |
Compensation
options
At
March 31, 2023, the following broker options were outstanding:
Schedule
of Compensation Options
| | |
| | |
Weighted | |
| | |
Number of | | |
average | |
| | |
broker | | |
exercise price | |
| | |
options | | |
(C$) | |
| | |
| | |
| |
| Balance, December 31, 2021 | |
| 3,590,907 | | |
| 0.35 | |
| Issued – April 2022 Compensation Options | |
| 1,879,892 | | |
| 0.30 | |
| Balance, December 31, 2022 | |
| 5,470,799 | | |
$ | 0.34 | |
| Issued – March 2023 Compensation Options | |
| 2,070,258 | | |
| 0.12 | |
| Balance, March 31, 2023 | |
| 7,541,057 | | |
| 0.28 | |
| (i) |
The
grant date fair value of the March 2023 Compensation Options were estimated at $111,971 using the Black-Scholes valuation model with
the following underlying assumptions: |
Schedule of Estimated Using Black-Scholes Valuation Model for Fair Value of Broker Options
| Grant Date | |
Risk free interest rate | | |
Dividend yield | | |
Volatility | | |
Stock price | | |
Weighted average life | |
| March 2023 | |
| 3.4 | % | |
| 0 | % | |
| 120 | % | |
| C$0.11 | | |
| 3 years | |
Schedule of Broker Exercise Prices
| | |
Exercise | | |
Number of | | |
Grant date Fair value | |
| Expiry date | |
price (C$) | | |
broker options | | |
($) | |
| | |
| | |
| | |
| |
| August 31, 2023 (i) | |
$ | 0.35 | | |
| 3,239,907 | | |
$ | 521,993 | |
| February 16, 2024 (ii) | |
$ | 0.40 | | |
| 351,000 | | |
$ | 68,078 | |
| April 1, 2024 (iii) | |
$ | 0.30 | | |
| 1,879,892 | | |
$ | 264,435 | |
| March 27, 2026(v) | |
$ | 0.12 | | |
| 2,070,057 | | |
$ | 111,971 | |
| | |
| | | |
| 7,541,057 | | |
$ | 966,477 | |
| i) |
Exercisable into one August 2020 Unit |
| ii) |
Exercisable into one February 2021 Unit |
| iii) |
Exercisable into one April 2022 Unit |
| iv) |
Exercisable into one March 2023 Unit |
Stock
options
The
following table summarizes the stock option activity during the three months ended March 31, 2023:
Schedule of Stock Options
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
Number of | | |
exercise price | |
| | |
stock options | | |
(C$) | |
| | |
| | |
| |
| Balance, December 31, 2022 | |
| 9,053,136 | | |
$ | 0.58 | |
| Granted | |
| 700,000 | | |
$ | 0.15 | |
| Expired, May 1, 2022 | |
| (47,000 | ) | |
$ | 10.00 | |
| Forfeited | |
| (150,000 | ) | |
$ | 0.15 | |
| Expired, December 31, 2022 | |
| (235,500 | ) | |
$ | 0.50 | |
| Balance, December 31, 2022 | |
| 9,320,636 | | |
$ | 0.51 | |
| Balance, March 31, 2023 | |
| 9,320,636 | | |
$ | 0.51 | |
The
following table reflects the actual stock options issued and outstanding as of March 31, 2023:
Schedule
of Actual Stock Options Issued and Outstanding
| | |
| | |
| | |
Number of | | |
| |
| | |
remaining | | |
Number of | | |
options | | |
| |
| Exercise | |
contractual | | |
options | | |
vested | | |
Grant date | |
| price (C$) | |
life (years) | | |
outstanding | | |
(exercisable) | | |
fair value ($) | |
| 0.60 | |
| 0.50 | | |
| 200,000 | | |
| 200,000 | | |
| 52,909 | |
| 0.60 | |
| 1.57 | | |
| 1,575,000 | | |
| 1,575,000 | | |
| 435,069 | |
| 0.55 | |
| 2.06 | | |
| 5,957,659 | | |
| 2,978,830 | | |
| 1,536,764 | |
| 0.335 | |
| 2.89 | | |
| 1,037,977 | | |
| 1,037,977 | | |
| 204,213 | |
| 0.15 | |
| 0.65 | | |
| 150,000 | | |
| 150,000 | | |
| 14,465 | |
| 0.15 | |
| 4.65 | | |
| 400,000 | | |
| 200,000 | | |
| 37,387 | |
| | |
| | | |
| 9,320,636 | | |
| 6,141,807 | | |
$ | 2,280,807 | |
10.
Restricted Share Units
Effective
March 25, 2020, the Board of Directors approved a Restricted Share Unit (“RSU”) Plan to grant RSUs to its officers, directors,
key employees and consultants.
The
following table summarizes the RSU activity during the three months ended March 31, 2023:
Schedule of Restricted Share Units
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
| | |
grant date | |
| | |
| | |
fair value | |
| | |
Number of | | |
per share | |
| | |
shares | | |
(C$) | |
| | |
| | |
| |
| Unvested as at December 31, 2021 | |
| 576,000 | | |
$ | 0.62 | |
| Granted | |
| 6,620,641 | | |
| 0.17 | |
| Vested | |
| (2,373,900 | ) | |
| 0.18 | |
| Unvested as at December 31, 2022 | |
| 4,822,741 | | |
$ | 0.22 | |
| | |
| - | | |
| - | |
| Unvested as at March 31, 2023 (ii) | |
| 4,822,741 | | |
$ | 0.22 | |
| (i) | On
January 10, 2022, the Company granted 500,000 RSUs to a consultant of the Company, vested
immediately. The vesting of these RSUs resulted in stock-based compensation of $122,249 for
the year ended December 31, 2022, which is included in operation and administration expenses
on the consolidated statements of income (loss) and comprehensive income (loss). |
| (ii) | Includes
1,507,580 RSU’s which had vested as of March 31, 2023 but had not been converted to
Common Shares. |
11.
Deferred Share Units
Effective
April 21, 2020, the Board of Directors approved a Deferred Share Unit (“DSU”) Plan to grant DSUs to its directors. The DSU
Plan permits the eligible directors to defer receipt of all or a portion of their retainer or compensation until termination of their
services and to receive such fees in the form of cash at that time.
Upon
vesting of the DSUs or termination of service as a director, the director will be able to redeem DSUs based upon the then market price
of the Company’s Common Share on the date of redemption in exchange for cash.
The
following table summarizes the DSU activity during the three months ended March 31, 2023 and 2022:
Schedule of Deferred Share Units
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
| | |
grant date | |
| | |
| | |
fair value | |
| | |
Number of | | |
per share | |
| | |
shares | | |
(C$) | |
| | |
| | |
| |
| Unvested as at December 31, 2021 | |
| 5,625,000 | | |
$ | 1.03 | |
| Vested (ii) | |
| (625,000 | ) | |
| 1.03 | |
| Unvested as at March 31, 2022 | |
| 5,000,000 | | |
$ | 1.03 | |
| | |
| | | |
| | |
| Unvested as at December 31 2022 and March 31, 2023 | |
| 2,710,000 | | |
$ | 1.00 | |
| (i) |
On
March 31, 2022, the Board approved the early vesting of 625,000 DSUs for one of the Company’s Directors. |
12.
Commitments and Contingencies
As
stipulated in the agreement with the EPA and as described in Note 6, the Company is required to make two types of payments to the EPA
and IDEQ, one for historical water treatment cost-recovery to the EPA, and the other for ongoing water treatment. Water treatment costs
incurred through December 2021 are payable to the EPA, and water treatment costs incurred thereafter are payable to the IDEQ. The IDEQ
(as done formerly by the EPA) invoices the Company on an annual basis for the actual water treatment costs, which may exceed the recognized
estimated costs significantly. When the Company receives the water treatment invoices, it records any liability for actual costs over
and above any estimates made and adjusts future estimates as required based on these actual invoices received. The Company is required
to pay for the actual costs regardless of the periodic required estimated accruals and payments made each year.
On
July 28, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by Crescent Mining, LLC (“Crescent”).
The named defendants include Placer Mining, Robert Hopper Jr., and the Company. The lawsuit alleges that Placer Mining and Robert Hopper
Jr. intentionally flooded the Crescent Mine during the period from 1991 and 1994, and that the Company is jointly and severally liable
with the other defendants for unspecified past and future costs associated with the presence of AMD in the Crescent Mine. The plaintiff
has requested unspecified damages. On September 20, 2021, the Company filed a motion to dismiss Crescent’s claims against it, contending
that such claims are facially deficient. On March 2, 2022, Chief US District Court Judge, David C. Nye granted in part and denied
in part the Company’s motion to dismiss. The court granted the Company’s motion to dismiss Crescent’s Cost Recovery
claim under CERCLA Section 107(a), Declaratory Judgment, Tortious Interference, Trespass, Nuisance and Negligence claims. These claims
were dismissed without prejudice. The court denied the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass,
nuisance and negligence claims. Crescent later filed an amended complaint on April 1, 2022. Placer Mining Corp. and Bunker Hill Mining
Corp are named as co-defendants. Bunker Hill responded to the amended filing, refuting and denying all allegations made in the complaint
except those that are assertions of fact as a matter of public record. The Company believes Crescent’s lawsuit is without merit
and intends to vigorously defend itself, as well as Placer Mining Corp. pursuant to the Company’s indemnification of Placer Mining
Corp in the Sale and Purchase agreement executed between the companies for the Mine on December 15, 2021.
During the three months ended March 31, 2023, the Company entered into
a lease agreement with C & E Tree Farm LLC for the lease of a land parcel overlaying a portion of the Company’s existing mineral
claims package. The Company is committed to making monthly payments of $10,000 through February 2026.
13.
Related party transactions
The
Company’s key management personnel have the authority and responsibility for planning, directing and controlling the activities
of the Company and consists of the Company’s executive management team and management directors.
Schedule of Related Party Transactions
| | |
Three Months
Ended
March 31, 2023 | | |
Three Months
Ended
March 31, 2022 | |
| Consulting Fees and Salaries | |
$ | 215,448 | | |
$ | 1,097,610 | |
At
March 31, 2023 and March 31, 2022, $248,533 and $825,776 respectively is owed to key management personnel with all amounts included in
accounts payable and accrued liabilities.
14.
Subsequent Events
None.