Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
1.
Nature and continuance of operations and going concern
Bunker
Hill Mining Corp. (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. Pursuant to a Certificate of Amendment dated February 11, 2010, the Company changed its name to Liberty
Silver Corp., and 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 head office is located at 82 Richmond Street East,
Toronto, Ontario, Canada, M5C 1P1. As of the date of this Form 10-K, the Company had one subsidiary, Silver Valley Metals Corp. (formerly
American Zinc Corp.), an Idaho corporation created to facilitate the work being conducted at the Bunker Hill Mine in Idaho.
The
Company was incorporated for the purpose of engaging in mineral exploration activities. It continues to work at developing its project
with a view towards putting it into production.
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 $72,491,150
and further losses are anticipated in the
development of its business. Additionally, the Company owes a total of $16,417,208
to the EPA (see Note 6) that is classified
as current liability unless the Company can consummate financial assurances that would reclassify $11,000,000
of this liability to long-term debt. 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.
Management
is considering various financing alternatives including, but not limited to, raising capital through the capital markets and debt financing.
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.
The
ability of the Company to emerge from the exploration stage is dependent upon, among other things, obtaining additional financing to
continue operations, explore and develop the mineral properties and the discovery, development, and sale of reserves.
COVID-19:
The
Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of epidemics, pandemics,
or other health crises, including the recent outbreak of respiratory illness caused by the novel coronavirus (“COVID-19”).
The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations
with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration
of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant
outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies
and financial markets of many countries, resulting in an economic downturn that could further affect the Company’s operations and
ability to finance its operations.
The Russia/Ukraine Crisis:
The Company’s operations could be adversely
affected by the effects of the escalating Russia/Ukraine crisis and the effects of sanctions imposed against Russia or that country’s
retributions against those sanctions, embargos or further-reaching impacts upon energy prices, food prices and market disruptions. The
Company cannot accurately predict the impact the crisis will have on its operations and the ability of contractors to meet their obligations
with the Company, including uncertainties relating the severity of its effects, the duration of the conflict, and the length and magnitude
of energy bans, embargos and restrictions imposed by governments. In addition, the crisis could adversely affect the economies and financial
markets of the United States in general, resulting in an economic downturn that could further affect the Company’s operations and
ability to finance its operations. Additionally, the Company cannot predict changes in precious metals pricing or changes in commodities
pricing which may alternately affect the Company either positively or negatively.
2.
Basis of presentation
The
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America applicable to exploration stage enterprises. The consolidated financial statements are expressed in U.S. dollars,
the Company’s functional currency.
In
February 2021, the Company changed its fiscal year from June 30 to December 31. As a result, in addition to the full calendar year ended
December 31, 2021, the Company is reporting financial information for the transition period from July 1, 2020 to December 31, 2020, and
the preceding full fiscal year of July 1, 2019 to June 30, 2020.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
3.
Significant accounting policies
The
following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.
Basis
of consolidation
These
consolidated financial statements include the assets, liabilities and expenses of the Company and its wholly owned subsidiary, Silver
Valley Metals Corp. (formerly American Zinc Corp.). All intercompany transactions and balances have been eliminated on consolidation.
Cash
and cash equivalents
Cash
and cash equivalents may include highly liquid investments with original maturities of three months or less.
Mineral
rights, property and acquisition costs
The
Company has been in the exploration stage since its formation on February 20, 2007 and has not yet realized any revenues from its planned
operations. It is primarily engaged in the acquisition and exploration of mining properties.
The
Company capitalizes acquisition and option costs of mineral rights as intangible assets when there is sufficient evidence to support
probability of generating positive economic returns in the future. Upon commencement of commercial production, the mineral rights will
be amortized using the unit-of-production method over the life of the mineral rights. If the Company does not continue with exploration
after the completion of the feasibility study, the mineral rights will be expensed at that time.
The
costs of acquiring mining properties are capitalized upon acquisition. Mine development costs incurred to develop and expand the capacity
of mines, or to develop mine areas in advance of production, are also capitalized once proven and probable reserves exist and the property
is a commercially mineable property. Costs incurred to maintain current exploration or to maintain assets on a standby basis are charged
to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates the carrying value of capitalized
mining costs and related property and equipment costs, to determine if these costs are in excess of their recoverable amount whenever
events or changes in circumstances indicate that their carrying amounts may not be recoverable. Evaluation of the carrying value of capitalized
costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance
with Accounting Standards Codification (FASB ASC) 360-10-35, Impairment or Disposal of Long-Lived Assets.
Equipment
Equipment
is stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated
useful lives of the assets, which range from 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Upon
sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss
is reflected in other income or gain (expense or loss).
The
Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives
of equipment or whether the remaining balance of the equipment should be evaluated for possible impairment. If events and circumstances
warrant evaluation, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the equipment in measuring
their recoverability.
Leases
Operating
lease right of use (“ROU”) assets represent the right to use the leased asset for the lease term and operating lease liabilities
are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases
do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date
in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over
the lease term and is included in operation and administration expenses in the consolidated statements of loss and comprehensive loss.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
The
Company is required to make additional payments for certain variable costs. These costs are expensed and included in operation and administration
expenses in the consolidated statements of loss and comprehensive loss. Rental income obtained through subleases is recorded as income
over the lease term and is offset against operation and administration expenses.
Impairment
of long-lived assets
The
Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying
amounts may not be recoverable. The assets are subject to impairment consideration under FASB ASC 360, Property, Plant and Equipment,
if events or circumstances indicate that their carrying amount might not be recoverable. When the Company determines that an impairment
analysis should be done, the analysis is performed using the rules of FASB ASC 930-360-35, Extractive Activities – Mining,
and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets.
Various
factors could impact the Company’s ability to achieve forecasted production schedules. Additionally, commodity prices, capital
expenditure requirements and reclamation costs could differ from the assumptions the Company may use in cash flow models used to assess
impairment. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves
further risks in addition to those factors applicable to mineral interests where proven and probable reserves have been identified, due
to the lower level of confidence that the identified mineralized material can ultimately be mined economically.
Fair
value of financial instruments
The
Company adopted FASB ASC 820-10, Fair Value Measurement. This guidance defines fair value, establishes a three-level valuation hierarchy
for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined
as follows:
| ● |
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● |
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● |
Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The
carrying amounts reported in the consolidated balance sheets for cash, accounts receivable excluding HST, accounts payable, accrued liabilities,
interest payable, convertible loan payable, promissory notes payable, lease liability, and other liabilities, all of which qualify as
financial instruments, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments
and their expected realization and current market rate of interest. The Company measured its DSU liability at fair value on recurring
basis using level 1 inputs and derivative warrant liabilities at fair value on recurring basis using level 3 inputs.
Environmental
expenditures
The
operations of the Company have been, and may in the future be, affected from time to time, in varying degrees, by changes in environmental
regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall
effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet, or if possible, surpass standards
set by relevant legislation, by application of technically proven and economically feasible measures.
Environmental
expenditures that relate to ongoing environmental and reclamation programs are expensed as incurred or capitalized and amortized depending
on their future economic benefits. Estimated future reclamation and site restoration costs, when the ultimate liability is reasonably
determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.
Income
taxes
The
Company accounts for income taxes in accordance with Accounting Standard Codification 740, Income Taxes (“FASB ASC 740”),
on a tax jurisdictional basis. The Company files income tax returns in the United States.
Deferred
tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of
assets and liabilities and the consolidated financial statements reported amounts using enacted tax rates and laws in effect in the year
in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined
to be more likely than not that the deferred tax asset will not be realized.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
The
Company assesses the likelihood of the consolidated financial statements effect of a tax position that should be recognized when it is
more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the
tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities
in jurisdictions such as the United States. Management does not believe that there are any uncertain tax positions that would result
in an asset or liability for taxes being recognized in the accompanying consolidated financial statements. The Company recognizes tax-related
interest and penalties, if any, as a component of income tax expense.
FSAB
ASC 740 prescribes recognition threshold and measurement attributes for the consolidated financial statements recognition and measurement
of a tax position taken, or expected to be taken, in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification,
interest and penalties, accounting in periods, disclosure and transition. At December 31, 2021, December 31, 2020, and June 30, 2020,
the Company has not taken any tax positions that would require disclosure under FASB ASC 740.
Basic
and diluted net loss per share
The
Company computes net loss per share in accordance with FASB ASC 260, Earnings per Share (“FASB ASC 260”). Under the provisions
of FASB ASC 260, basic net loss per share is computed using the weighted average number of common shares outstanding during the period.
Diluted net loss per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding
during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants
and the conversion of convertible loan payable. As of December 31, 2021, 9,053,136 stock options, 111,412,712 warrants, and 3,590,907
broker options were considered in the calculation but not included, as they were anti-dilutive (December 31, 2020 – 8,015,159 stock
options, 95,777,806 warrants, and 3,239,907 broker options).
Stock-based
compensation
In
December 2004, FASB issued FASB ASC 718, Compensation – Stock Compensation (“FASB ASC 718”), which establishes standards
for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions
in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity
instruments or that may be settled by the issuance of those equity instruments. FASB ASC 718 focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based payment transactions. FASB ASC 718 requires that the compensation cost relating
to share-based payment transactions be recognized in the consolidated financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued.
The
Company accounts for stock-based compensation arrangements with non-employees in accordance with ASU 505-50, Equity-Based Payments to
Non-Employees, which requires that such equity instruments are recorded at the value on the grant date based on fair value of the equity
or goods and services whichever is more reliable.
Restricted
share units (“RSUs”)
The
Company estimates the grant date fair value of RSUs using the Company’s common shares at the grant date. The Company records the
value of the RSUs in paid-in capital.
Deferred
share units (“DSUs”)
The
Company estimates the grant date fair value of the DSUs using the trading price of the Company’s common shares on the day of grant.
The Company records the value of the DSUs owing to its directors as DSU liability and measures the DSU liability at fair value at each
reporting date, with changes in fair value recognized as stock-based compensation in profit (loss).
Use
of estimates and assumptions
Many
of the amounts included in the consolidated financial statements require management to make judgments and/or estimates. These judgments
and estimates are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances.
Actual results may differ from the amounts included in the consolidated financial statements.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
Areas
of significant judgment and estimates affecting the amounts recognized in the consolidated financial statements include:
Going
concern
The
assessment of the Company’s ability to continue as a going concern involves judgment regarding future funding available for its
operations and working capital requirements as discussed in note 1.
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 Idaho Department of Environmental Quality (“IDEQ”). Using
the actual costs in the annual invoice, the Company then reassesses 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.
Convertible
loans, promissory notes and warrants
Estimating
the fair value of derivative warrant liability and conversion feature derivative 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 and conversion feature derivative liability, volatility and
dividend yield and making assumptions about them. The assumptions and models used for estimating fair value of warrants and conversion
feature derivative liability are disclosed in notes 8 and 10.
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.
Reclassifications
Certain reclassifications have been made to conform
prior year’s data to the current presentation. The reclassifications have no effect on the results of reported operations or stockholders’
deficit or cash flows.
Concentrations
of credit risk
The
Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash. The Company places
its cash with financial institutions of high credit worthiness. At times, its cash equivalents with a particular financial institution
may exceed any applicable government insurance limits. The Company’s management also routinely assesses the financial strength
and credit worthiness of any parties to which it extends funds and as such, it believes that any associated credit risk exposures are
limited.
Risks
and uncertainties
The
Company operates in the mineralized material exploration industry that is subject to significant risks and uncertainties, including financial,
operational, and other risks associated with operating a mineralized material exploration business, including the potential risk of business
failure.
Foreign
currency transactions
The
Company from time to time will receive invoices from service providers that are presenting their invoices using the Canadian dollar.
The Company will use its U.S. dollars to settle the Canadian dollar liabilities and any differences resulting from the exchange transaction
are reported as gain or loss on foreign exchange.
Convertible
loans and promissory notes payable
The
Company reviews the terms of its convertible loans and promissory notes payable to determine whether there are embedded derivatives,
including the embedded conversion option, that are required to be bifurcated and accounted for as individual derivative financial instruments.
In circumstances where the convertible debt or the promissory note contains embedded derivatives that are to be separated from the host
contracts, the total proceeds received are first allocated to the fair value of the derivative financial instruments determined using
the binomial model. The remaining proceeds, if any, are then allocated to the debenture cost contracts, usually resulting in those instruments
being recorded at a discount from their principal amount. This discount is accreted over the expected life of the instruments to profit
(loss) using the effective interest method.
The
debenture host contracts are subsequently recorded at amortized cost at each reporting date, using the effective interest method. The
embedded derivatives are subsequently recorded at fair value at each reporting date, with changes in fair value recognized in profit
(loss).
The
Company presents its embedded derivatives and related debenture host contracts as separate instruments on the consolidated balance sheets.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
4.
Equipment
Equipment
consists of the following:
Schedule of Equipment
| | |
December 31,
2021 | | |
December 31,
2020 | |
| | |
| | |
| |
| Equipment | |
$ | 603,972 | | |
$ | 509,279 | |
| Equipment, gross | |
| 603,972 | | |
| 509,279 | |
| Less accumulated depreciation | |
| (207,078 | ) | |
| (73,552 | ) |
| Equipment, net | |
$ | 396,894 | | |
$ | 435,727 | |
The
total depreciation expense during the year ended December 31, 2021 was $133,526
(six months ended December 31, 2020 - $52,784
and the year ended June 30, 2020 - $17,577).
5.
Right-of-use asset
Right-of-use
asset consists of the following:
Schedule of Right-of-use Asset
| | |
December 31,
2021 | | |
December 31,
2020 | |
| | |
| | |
| |
| Office lease | |
$ | 319,133 | | |
| 319,133 | |
| Less accumulated depreciation | |
| (266,780 | ) | |
| (160,402 | ) |
| Right-of-use asset, net | |
$ | 52,353 | | |
$ | 158,731 | |
The
total depreciation expense during the year ended December 31, 2021 was $106,378 (six months ended December 31, 2020 - $54,024 and the
year ended June 30, 2020 - $106,378).
6.
Mining Interests
Bunker
Hill Mine Complex
On
November 27, 2016, the Company entered into a non-binding letter of intent with Placer Mining Corp. (“Placer Mining”), which
letter of intent was further amended on March 29, 2017, to acquire the Bunker Hill Mine in Idaho and its associated milling facility
located in Kellogg, Idaho, in the Coeur d’Alene Basin (as amended, the “Letter of Intent”). Pursuant to the terms and
conditions of the Letter of Intent, the acquisition, which was subject to due diligence, would include all mining claims, surface rights,
fee parcels, mineral interests, existing infrastructure, machinery and buildings at the Kellogg Tunnel portal in Milo Gulch, or anywhere
underground at the Bunker Hill Mine Complex. The acquisition would also include all current and historic data relating to the Bunker
Hill Mine Complex, such as drill logs, reports, maps, and similar information located at the mine site or any other location.
During
the year ended June 30, 2017, the Company made payments totaling $300,000 as part of this Letter of Intent. These amounts were initially
capitalized and subsequently written off during fiscal 2018 and were included in exploration expenses.
On
August 28, 2017, the Company announced that it signed a definitive agreement (the “Agreement”) for the lease and option to
purchase the Bunker Hill Mine assets (the “Bunker Assets”). Under the terms of the Agreement, the Company was required to
make a $1,000,000 bonus payment to Placer Mining no later than October 31, 2017, which payment was made, along with two additional $500,000
bonus payments in December 2017. The 24-month lease commenced November 1, 2017. During the term of the lease, the Company was to make
$100,000 monthly mining lease payments, paid quarterly.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
The
Company had an option to purchase the Bunker Assets at any time before the end of the lease and any extension for a purchase price of
$45,000,000 with purchase price payments to be made over a ten-year period to Placer Mining. Under the terms of the agreement, there
is a 3% net smelter return royalty (“NSR”) on sales during the lease and a 1.5% NSR on the sales after the purchase option
is exercised, which post-acquisition NSR is capped at $60,000,000.
On
October 2, 2018, the Company announced that it was in default of the Agreement. The default arose as a result of missed lease and operating
cost payments, totaling $400,000, which were due at the end of September and on October 1, 2018. As per the Agreement, the Company had
15 days, from the date notice of default was provided (September 28, 2018), to remediate the default by making the outstanding payment.
While management worked with urgency to resolve this matter, management was ultimately unsuccessful in remedying the default, resulting
in the Agreement being terminated.
On
November 13, 2018, the Company announced that it was successful in renewing the Agreement, effectively with the original Agreement intact,
except monthly payments were reduced to $60,000
per month for 12 months, with the accumulated
reduction in payments of $140,000
per month (“deferred payments”) being
accrued.
On
November 1, 2019, the Agreement was amended (the “Amended Agreement”). The key terms of the Amended Agreement are as follows:
| ● |
The
lease period was extended for an additional period of nine months to August 1, 2020, with the option to extend for a further six
months based upon payment of a one-time $60,000 extension fee (extended); |
| |
|
| ● |
The
Company will make monthly care and maintenance payments to Placer Mining of $60,000 until exercising the option to purchase; and |
| |
|
| ● |
The
purchase price is set at $11,000,000 for 100% of the Bunker Assets to be paid with $6,200,000 in cash, and $4,800,000 in common shares.
The purchase price also includes the negotiable United States Environmental Protection Agency (“EPA”) costs of $20,000,000.
The Amended Agreement provides for the elimination of all royalty payments that were to be paid to the mine owner. Upon signing the
Amended Agreement, the Company paid a one-time, non-refundable cash payment of $300,000 to the mine owner. This payment will be applied
to the purchase price upon execution of the purchase option. In the event the Company elects not to exercise the purchase option,
the payment shall be treated as an additional care and maintenance payment. |
On
July 27, 2020, the Company extended the lease with Placer Mining for a further 18 months for a $150,000 extension fee. This extension
expires on August 1, 2022.
On
November 20, 2020, the Company signed a further amendment to the Amended Agreement. Under the terms of this amendment:
| ● |
The
Company will continue to make monthly care and maintenance payments to Placer Mining of $60,000 until exercising the option to purchase; |
| |
|
| ● |
The
purchase price was reduced to $7,700,000, with $5,700,000 payable in cash (with an aggregate of $300,000 to be credited toward the
purchase price of the Bunker Assets as having been previously paid by the Company and an aggregate of $5,400,000 payable in cash
outstanding) and $2,000,000 in common shares. The reference price for the payment in common shares will be based on the common share
price of the last equity raise before the option is exercised; |
| |
|
| ● |
The
Company’s contingent obligation to settle $1,787,300 of accrued payments due to Placer Mining has been waived. As a result,
the Company recorded a gain on settlement of accounts payable of $1,787,300; and |
| |
|
| ● |
The
Company is to make an advance payment of $2,000,000 (paid) to Placer Mining which shall be credited toward the purchase price if
and when the Company elects to exercise its purchase right. In the event that the Company irrevocably elects not to exercise its
purchase right, the advance payment of $2,000,000 will be repaid to the Company within twelve months from the date of such election.
This payment had the effect of decreasing the remaining amount payable to purchase the Bunker Assets to an aggregate of $3,400,000
payable in cash and $2,000,000 in common shares of the Company. |
As at December 31, 2021 and 2020, the Company
accrued for a total of $nil for each year (June 30, 2020 - $1,847,300), which was included in accounts payable. These monthly payments
will be waived should the Company choose to exercise its option.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
Purchase
of the Bunker Hill Mine:
In
December 2021, the Company announced its intention to purchase the mine complex, which was consummated subsequent to the close
of the period. With the execution of the EPA settlement agreement amendment described below and the expected receipt of $8,000,000
proceeds from the Royalty Convertible Debenture,
the Company has contracted to purchase the Bunker Hill Mine from Placer Mining Corp. and a definitive agreement has been signed by both
parties. The terms of the purchase were modified to a purchase price of $7,700,000, with $300,000 of previous lease payments and a
deposit of $2,000,000 applied to the purchase, resulting in cash paid at closing of approximately $5,400,000
in cash, from $3,400,000
of cash and $2,000,000
of common shares in the Company. Purchase
of the mine consists of over 400 patented mining claims and 5,800
acres of private land.
Closing
of the transaction occurred in January 2022, concurrent with funding of the Royalty Convertible Debenture, approval of the transaction
by Placer Mining Corp. shareholders, and satisfaction of other closing conditions. See Note 16, Subsequent Events.
Environmental
Protection Agency Agreement:
In
addition to the payments to Placer Mining described above, and pursuant to an agreement with the EPA whereby for so long as Bunker leases,
owns and/or occupies the Bunker Hill Mine, the Company will make payments to the EPA on behalf of the current owner in satisfaction of
the EPA’s claim for cost recovery. These payments, if all are made, will total $20,000,000. The agreement calls for payments starting
with $1,000,000 30 days after a fully ratified agreement was signed followed by a payment schedule detailed below:
Schedule of Payments for Mining
| Date | |
Amount | | |
Action |
| Within 30 days of the effective date | |
$ | 1,000,000 | | |
Paid |
| November 1, 2018 | |
$ | 2,000,000 | | |
Not paid |
| November 1, 2019 | |
$ | 3,000,000 | | |
Not paid |
| November 1, 2020 | |
$ | 3,000,000 | | |
Not paid |
| November 1, 2021 | |
$ | 3,000,000 | | |
Not paid |
| November 1, 2022 | |
$ | 3,000,000 | | |
|
| November 1, 2023 | |
$ | 3,000,000 | | |
|
| November 1, 2024 | |
$ | 2,000,000 | | |
|
The
total unpaid EPA cost recovery payments under the agreement was $11,000,000 at December 31, 2021 (December 31, 2020 - $8,000,000 and
June 30, 2020 - $5,000,000, respectively).
In
addition to these cost recovery payments, the Company is to make semi-annual payments of $480,000
on June 1 and December 1 of each year, to cover
the EPA’s costs of operating and maintaining the water treatment facility that treats the water being discharged from the Bunker
Hill Mine. The Company also has received invoices from the EPA for additional water treatment charges for the periods from December 2017
to May 2021, and has accrued costs for estimated water treatment costs through December 31, 2021. A total of $5,110,706
was outstanding as at December 31, 2021 (December
31, 2020 - $3,136,050
and June 30, 2020 - $2,309,388,
respectively). In December 2021, the Company entered into a Settlement Amendment, described below, under which a payment of $2,963,111
would be made toward
water treatment liabilities, representing the balance of liabilities owed for the 2020 and earlier invoices, net of payments made
through the end of September 2021. In consultation with the EPA, the Company has committed to meet this obligation by 180 days from the
effective date of the Amended Settlement Agreement. The unpaid EPA balance is subject to interest at the rate specified for interest
on investments of the EPA Hazardous Substance Superfund, which was 0.10%
at December 31, 2021. As at December 31, 2021, the interest accrued on the unpaid EPA balance was $306,502
(December 31, 2020 - $162,540
and June 30, 2020 - $89,180,
respectively).
During
the year ended December 31, 2021, the Company has accrued an estimate for additional water treatment charges based on an invoice received
covering the period of November 2019 to October 2020 and a further invoice covering the period of November 2020 to May 2021. The Company
believes that the charges in this latter invoice, of approximately $165,000
per month, represent the best estimate of unbilled
charges for the period of June 2021 to December 2021, and has accrued for these charges accordingly. Net of a total of $880,000
cash payments made to the EPA during the year,
the total accrual for EPA water treatment charges is $5,110,706
as of December 31, 2021, before consideration
of unpaid cost recovery payments. The Company has included all unpaid and accrued EPA payments and accrued interest in accounts payable
and accrued liabilities, totaling $16,417,208
due to the EPA at December 31, 2021 (December
31, 2020 - $11,298,594
and June 30, 2020 - $7,915,235,
respectively). For the year ended December 31, 2021, water treatment costs of $5,998,615 were recognized as part of exploration expense
(six months ended December 31, 2020 – $3,873,359, year ended June 30, 2020 – $5,905,235).
EPA
Settlement Agreement Amendment:
In
December 2021, in conjunction with its intention to purchase the mine complex, the Company entered into an amended Settlement Agreement
(the “Amendment”) between the Company, Idaho Department of Environmental Quality, US Department of Justice and the EPA,
modifying the payment schedule and payment terms for recovery of historical environmental response costs at Bunker Hill Mine incurred
by the EPA. With the purchase of the mine subsequent to the end of the period, the remaining payments of the EPA cost recovery liability
would be assumed by the Company, resulting in a total of $19,000,000
liability to the Company, an increase of
$8,000,000.
The new payment schedule includes a $2,000,000
payment to the EPA within 30 days of execution
of this amendment, which was paid subsequent to December 31, 2021. The remaining $17,000,000
will be paid on the following dates:
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
Schedule of Payments for Mining
| Date | |
Amount | |
| 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 | |
The
resumption of payments in 2024 were agreed in order to allow the Company to generate sufficient revenue from mining activities at the
Bunker Hill Mine to address remaining payment obligations from free cash flow.
In
addition to the cost recovery payments outlined above, the Amendment includes payment for outstanding water treatment costs that have
been incurred over the period from 2018 through October 2020. This approximately $2,900,000
payment would be made within 90 days
of the execution of the Amendment. On March 22, 2022, the Company reported that in consultation with the EPA, it has committed to
meet the approximately $2,900,000 and Financial Assurance obligations by 180 days from the effective date of the Amended Settlement Agreement.
The changes in payment
terms and schedule, are contingent upon the Company securing Financial Assurance in the form of performance bonds or letters of credit
deemed acceptable to the EPA totaling $17,000,000. These assurances correspond to the Company’s cost recovery obligations to be paid in 2024 through 2029 as outlined above.
Should the Company fail to make its scheduled payment, the EPA can draw against this financial assurance. The amount of the bonds or
letters of credit will decrease over time as individual payments are made. If the Company fails to post the Final Financial Assurance
within 180 days of the execution of the Amendment, the terms of the original agreement as described above will be reinstated.
As
at December 31, 2021, the Company had not secured the interim financial assurance, and therefore the contingency had not been removed
or satisfied. Further, as of the date of this filing, the financial assurance has not been secured, and as a result, the liability to
the EPA is accounted for with no effectivity of the Amendment, with the liabilities each reflected as current liabilities. See Note 16,
Subsequent Events.
7.
Convertible loan payable
On
June 13, 2018, the Company entered into a loan and warrant agreement with Hummingbird Resources PLC (“Hummingbird”), an arm’s
length investor, for an unsecured convertible loan in the aggregate sum of $1,500,000, bearing interest at 10% per annum, maturing in
one year. Contemporaneously, the Company agreed to issue 229,464 share purchase warrants, entitling the lender to acquire 229,464 common
shares of the Company, at a price of C$8.50 per common share, for two years. Under the terms of the loan agreement, the lender may, at
any time prior to maturity, convert any or all of the principal amount of the loan and accrued interest thereon, into common shares of
the Company at a price per share equal to C$8.50. In the event that a notice of conversion would result in the lender holding 10% or
more of the Company’s issued and outstanding shares, then, in the alternative, and under certain circumstances, the Company would
be required to pay cash to the lender in an amount equal to C$8.50 multiplied by the number of shares intended to be issued upon conversion.
Further, in the event that the lender holds more than 5% of the issued and outstanding shares of the Company subsequent to the exercise
of any of its convertible securities held under this placement, it shall have the right to appoint one director to the board of the Company.
Lastly, among other things, the loan agreement further provides that for as long as any amount is outstanding under the convertible loan,
the investor retains a right of first refusal on any Company financing or joint venture/strategic partnership/disposal of assets.
In
August 2018, the amount of the Hummingbird convertible loan payable was increased to $2,000,000 from its original $1,500,000 loan, net
of $45,824 of debt issue costs. An additional 116,714 warrants with each warrant exercisable at C$4.50 were issued. Under the terms of
the amended and restated loan agreement, Hummingbird may, at any time prior to maturity, convert any or all of the principal amount of
the loan and accrued interest thereon, into common shares of Bunker as follows: (i) $1,500,000, being the original principal amount (the
“Principal Amount”), may be converted at a price per share equal to C$8.50; (ii) 229,464 common shares may be acquired upon
exercise of warrants at a price of C$8.50 per warrant for a period of two years from the date of issuance; (iii) $500,000, being the
additional principal amount (the “Additional Amount”), may be converted at a price per share equal to C$4.50; and (iv) 116,714
common shares may be acquired upon exercise of warrants at a price of C$4.50 per warrant for a period of two years from the date issuance.
In the event that Hummingbird would acquire common shares in excess of 9.999% through the conversion of the Principal Amount or the Additional
Amount, including interest accruing thereon, or on exercise of the warrants as disclosed herein, the Company shall pay to Hummingbird
a cash amount equal to the common shares exercised in excess of 9.999%, multiplied by the conversion price.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
During
the year ended June 30, 2019, Hummingbird agreed to extend the scheduled maturity date of the loan to June 30, 2020. This was accounted
for as a loan extinguishment which resulted in the recording of a net loss on loan extinguishment of $1,195,880.
In
June 2019, the Company settled $100,000 of the Additional Amount by issuing 2,660,000 common shares, which resulted in the recording
of a net loss on loan extinguishment of $8,193.
In
February 2020, the Company settled $300,000 of the Additional Amount by issuing 696,428 common shares, which resulted in the recording
of a net loss on loan extinguishment of $9,407.
In
June 2020, Hummingbird agreed to extend the scheduled maturity date of the loan to July 31, 2020.
In
October 2020, the Company settled the full amount of the outstanding loan by issuing 5,572,980 common shares at a deemed price of C$0.49
based on the fair value of the shares issued. As a result, the Company recorded a gain on debt settlement of $23,376 on the consolidated
statements of loss and comprehensive loss.
The
Company has accounted for the conversion features and warrants in accordance with ASC Topic 815. The conversion features and warrants
are considered derivative financial liabilities as they are convertible into common shares at a conversion price denominated in a currency
other than the Company’s functional currency of the U.S. dollar. The estimated fair value of the conversion features and warrants
was determined on the date of issuance and marks to market at each financial reporting period. As at December 31, 2020, the fair values
of the conversion feature and warrants were $nil (June 30, 2020 - $nil).
Accretion
expense for the six months ended December 31, 2020 was $nil (year ended June 30, 2020 - $146,266) based on an effective interest rate
of 16% after the loan extension.
Interest
expense for the six months ended December 31, 2020 was $118,767 (year ended June 30, 2020 - $179,726). As at December 31, 2020, the Company
has an outstanding interest payable of $nil (June 30, 2020 - $381,233).
Schedule of Convertible Loan Outstanding Interest Payable
| | |
Amount | |
| | |
| |
| Balance, June 30, 2019 | |
$ | 1,744,327 | |
| Accretion expense | |
| 146,266 | |
| Loss on loan extinguishment | |
| 9,407 | |
| Partial extinguishment | |
| (300,000 | ) |
| Balance, June 30, 2020 | |
$ | 1,600,000 | |
| Loan extinguishment | |
| (1,600,000 | ) |
| Balance, December 31, 2020 | |
$ | - | |
8.
Promissory notes payable
(i)
On November 13, 2019, the Company issued a promissory note in the amount of $300,000. The note was unsecured, bore interest of 1% monthly,
and is due on demand after 90 days from issuance. In consideration for the loan, the Company issued 400,000 common share purchase warrants
to the lender. Each whole warrant entitles the lender to acquire one common share of the Company at a price of C$0.80 per share for a
period of two years.
On
April 24, 2020, the Company extended the maturity date of the promissory note payable to August 1, 2020. In consideration, the Company
issued 400,000 common share purchase warrants to the lender at an exercise price of C$0.50. The warrants expire on November 13, 2021.
This was accounted for as a loan modification.
During
the six months ended December 31, 2020, the Company repaid $110,658 of the promissory note and settled the remaining balance of $218,281
(C$288,000), which included interest payable of $28,939, in full by issuing 822,857 August 2020 Units (as defined in note 10), recognizing
a loss on debt settlement of $335,467.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
The
Company has accounted for the warrants in accordance with ASC Topic 815. The warrants are considered derivative financial liabilities
as they are convertible into common shares at a conversion price denominated in a currency other than the Company’s functional
currency of the US dollar. The estimated fair value of the warrants was determined on the date of issuance and marks to market at each
financial reporting period.
Schedule of Fair Value of Derivative Warrant Liability Assumptions
| November 2019 issuance | |
December 31, 2020 | | |
Maturity at November 13, 2021 | |
| Expected life | |
| 317 days | | |
| 0 days | |
| Volatility | |
| 100 | % | |
| 100 | % |
| Risk free interest rate | |
| 0.64 | % | |
| 0.30 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price | |
$ | 0.41 | | |
$ | 0.18 | |
| Fair value | |
$ | 40,999 | | |
| Nil | |
| Change in derivative liability | |
| | | |
$ | (40,999 | ) |
| April 2020 issuance | |
December 31, 2020 | | |
Maturity at November 13, 2021 | |
| Expected life | |
| 317 days | | |
| 0 days | |
| Volatility | |
| 100 | % | |
| 100 | % |
| Risk free interest rate | |
| 0.27 | % | |
| 0.30 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price | |
$ | 0.41 | | |
$ | 0.18 | |
| Fair value | |
$ | 58,373 | | |
| Nil | |
| Change in derivative liability | |
| | | |
$ | (58,373 | ) |
Accretion
expense for the year ended December 31, 2021 was $nil compared to $51,522 for the six months ended December 31, 2020 and $155,001 for
the year ended June 30, 2020 based on an effective interest rate of 16% after the loan extension.
Interest
expense for the year ended December 31, 2021 was $nil compared to $5,600 for the six months ended December 31, 2020 and $22,700 for the
year ended June 30, 2020.
Schedule of Promissory Notes Outstanding Interest Payable
| | |
Amount | |
| | |
| |
| Balance, June 30, 2019 | |
$ | - | |
| Proceeds on issuance | |
| 300,000 | |
| Warrant valuation | |
| (206,523 | ) |
| Accretion expense | |
| 155,001 | |
| Balance, June 30, 2020 | |
$ | 248,478 | |
| Accretion expense | |
| 51,522 | |
| Debt settlement | |
| (189,342 | ) |
| Repayment | |
| (110,658 | ) |
| Balance, December 31, 2020 | |
$ | - | |
(ii)
On December 31, 2019, the Company issued a promissory note in the amount of $82,367 (C$107,000). The note bore no interest and was due
on demand. This promissory note was repaid during the year ended June 30, 2020.
(iii)
On January 29, 2020, the Company issued a promissory note in the amount of $75,727 (C$100,000). The note bore no interest and was due
on demand. This promissory note was repaid during the year ended June 30, 2020.
(iv)
On May 12, 2020, the Company issued a promissory note in the amount of $362,650 (C$500,000), net of $89,190 of debt issue costs. The
note bore no interest and was due on demand after 90 days after the issue date. This promissory note was repaid during the six months
ended December 31, 2020. Accretion expense for the six months ended December 31, 2020 was $47,737 (year ended June 30, 2020 - $41,453)
based on effective interest rate of 7%.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
(v)
On May 12, 2020, the Company issued a promissory note in the amount of $141,704 (C$200,000), net of $35,676 of debt issue costs. The
note bore no interest and was due on demand after 90 days after the issue date. During the six months ended December 31, 2020, the Company
settled the promissory note in full by issuing 714,285 common shares (see note 10). As a result, the Company recorded a loss on debt
settlement of $291,203 on the consolidated statements of loss and comprehensive loss. Accretion expense for the six months ended December
31, 2020 was $19,129 (year ended June 30, 2020 - $16,547) based on an effective interest rate of 8%.
(vi)
On June 30, 2020, the Company issued a promissory note in the amount of $75,000, net of $15,000 of debt issue costs. The note bore no
interest and was due on demand. This promissory note was repaid in full during the six months ended December 31, 2020. Financing cost
for the six months ended December 31, 2020 was $nil (year ended June 30, 2020 - $15,000).
(vii)
On June 30, 2020, the Company issued a promissory note in the amount of $75,000 to a director of the Company. The note bore no interest
and was due on demand. This promissory note was repaid in full during the six months ended December 31, 2020. Financing cost for the
six months ended December 31, 2020 was $nil (year ended June 30, 2020 - $15,000).
(viii)
On July 13, 2020, the Company issued a promissory note in the amount of $1,200,000, net of $360,000 debt issue costs. The note bore no
interest and was due on August 31, 2020. This promissory note was repaid in full during the six months ended December 31, 2020. Financing
cost for the six months ended December 31, 2020 was $360,000 (year ended June 30, 2020 - $nil).
(viii)
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 promissory note was scheduled to mature on the earlier of March
15, 2022; however, the note holder agreed
to accept $500,000
payment by April 15, 2022, and the remaining
principal and interest was deferred to June 20, 2022. See Note 16 Subsequent Events concerning a financing anticipated to close on March
31, 2022. The Company purchased a land parcel
for approximately $200,000
subsequent to December 31, 2021,
which may be used as security for the promissory note. Interest expense for the year ended December 31, 2021 was $102,740,
which is reflected in Interest payable on the Company’s balance sheet at December 31, 2021.
$50,000,000
Project Finance Package
On
December 20, 2021, the Company executed a non-binding term sheet with Sprott Resource Streaming and Royalty (“SRSR”) and
other investors outlining a $50,000,000
project finance package that the Company expects
to fulfill the majority of its funding requirements to restart the mine and reach commercial production in mid-2023. The package consists
of an $8,000,000
Royalty Convertible Debenture, a $5,000,000
Convertible Debenture, and a multi-metals stream of up to $37,000,000
(collectively, the “Stream”).
Subject
to settlement of definitive documentation with SRSR, the $8,000,000
was advanced under the Royalty Convertible Debenture
in January 2022. These proceeds funded the purchase of the Bunker Hill Mine and near-term working capital requirements, including a $2,000,000
payment to the EPA in January 2022. The Royalty
Convertible Debenture will initially bear interest at an annual rate of 9.0%,
payable in cash or shares at the Company’s option, until such time that SRSR elects to convert it into a Royalty, with such conversion
option expiring at the earlier of advancement of the Stream or 18 months. In the event of conversion, the Royalty Convertible Debenture
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. A 1.35% rate will apply to claims outside of these areas. The Royalty
Convertible Debenture will initially be secured by a share pledge of the Company’s operating subsidiary, until such time that a
full security package is put in place. In the event of non-conversion, the principal of the Royalty Convertible Debenture will be repayable
in cash.
Subject
to settlement of definitive documentation with SRSR and other investors, the $5,000,000
was increased to $6,000,000,
and was advanced under the Convertible Debenture, also in January 2022. These proceeds will fund capital expenditures and working capital
requirements in Q1 2022. The Convertible Debenture will bear interest at an annual rate of 7.5%,
payable in cash or shares at the Company’s option, and a maturity of 18 months from the closing of the Royalty Convertible Debenture.
Until the closing of the Stream, the Convertible Debenture is convertible into shares of the Company at a share price of CAD 0.30
per share. Alternatively, SRSR may elect to retire
the Convertible Debenture with the cash proceeds of the Stream. The Company may elect to re-pay the Convertible Debenture early; if SRSR
elects not to exercise its conversion option at such time, a minimum of 12 months of interest would apply.
Subject
to SRSR internal approvals, further technical and other diligence (including confirmation of full project funding by an independent engineer
appointed by SRSR), and satisfactory definitive documentation, the Company expects to close the Stream concurrent with a formal construction
decision being made by Q2 2022. 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 for availability of the Stream have been satisfied.
Assuming the maximum funding of $37,000,000
is drawn, 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. 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.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
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.
The Company will be permitted to incur additional indebtedness of $15,000,000 and
a cost over-run facility of $13,000,000 from
other financing counterparties.
The
Royalty Convertible Debenture and Convertible Debenture closed subsequent to the end of the year. See Note 16 Subsequent
Events.
In support of plans to rapidly restart the Mine,
the Company worked systematically through 2020 and 2021 to delineate mineral resources and conduct various technical studies. Executing
this strategy may require securing additional financing, which may include additional indebtedness of $15,000,000 and a cost over-run
facility of $13,000,000.
9.
Lease liability
The
Company has an operating lease for office space that expires in 2022. Below is a summary of the Company’s lease liability as of
December 31, 2021:
Schedule of Operating Lease Liability
| | |
Office lease | |
| | |
| |
| Balance, December 31, 2019 | |
$ | 274,981 | |
| Addition | |
| - | |
| Interest expense | |
| 22,156 | |
| Lease payments | |
| (123,098 | ) |
| Foreign exchange gain | |
| 2,568 | |
| Balance, December 31, 2020 | |
| 176,607 | |
| Addition | |
| - | |
| Interest expense | |
| 12,696 | |
| Lease payments | |
| (129,191 | ) |
| Foreign exchange loss | |
| 2,165 | |
| Balance, December 31, 2021 | |
| 62,277 | |
In
addition to the minimum monthly lease payments of C$13,504, the Company is required to make additional monthly payments amounting to
C$12,505 for certain variable costs. The schedule below represents the Company’s obligations under the lease agreement in Canadian
dollars.
Schedule of Lease Obligations
| | |
Less than 1 year | | |
1-2 years | | |
2-3 years | | |
Total | |
| | |
| | |
| | |
| | |
| |
| Base rent | |
$ | 81,025 | | |
$ | - | | |
$ | - | | |
$ | 81,025 | |
| Additional rent | |
| 75,030 | | |
| - | | |
| - | | |
| 75,030 | |
| | |
$ | 156,055 | | |
$ | - | | |
$ | - | | |
$ | 156,055 | |
The
monthly rental expenses are offset by rental income obtained through a series of short-term subleases held by the Company.
10.
Capital stock, warrants and stock options
Authorized
The
total authorized capital is as follows:
| ● |
750,000,000
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 |
On
July 19, 2019, the Company amended its articles of incorporation to change the total authorized capital and the par values, which have
been retrospectively applied in these consolidated financial statements.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
Issued
and outstanding
On
February 26, 2020, the Company closed a non-brokered private placement, issuing 2,991,073 common shares of the Company at C$0.56 per
common share for gross proceeds of C$1,675,000 ($1,256,854) and incurring financing costs of $95,763, and issuing 239,284 broker warrants.
Each broker warrant entitles the holder to acquire one common share at a price of C$0.70 per common share for a period of two years.
The Company also issued 696,428 common shares for $300,000 which was applied to reduce the principal amount owing under the convertible
loan facility (see note 7).
On
May 12, 2020, the Company closed a non-brokered private placement, issuing 107,143 common shares of the Company at C$0.56 per common
share for gross proceeds of C$60,000 ($44,671).
On
August 14, 2020, the Company closed the first tranche of a brokered private placement of units of the Company (the “August 2020
Offering”), issuing 35,212,142 units of the Company (“August 2020 Units”) at C$0.35 per August 2020 Unit for gross
proceeds of $9,301,321 (C$12,324,250). Each August 2020 Unit consisted of one common share of the Company and one common share purchase
warrant of the Company (each, an “August 2020 Warrant”), which entitles the holder to acquire a common share of the Company
at C$0.50 per common share until August 31, 2023. In connection with the first tranche of the August 2020 Offering, the Company incurred
share issuance costs of $709,488 (C$849,978) and issued 2,112,729 compensation options (the “August 2020 Compensation Options”).
Each August 2020 Compensation Option is exercisable into one August 2020 Unit at an exercise price of C$0.35 until August 31, 2023.
On
August 25, 2020, the Company closed the second tranche of the August 2020 Offering, issuing 20,866,292 August 2020 Units at C$0.35 per
August 2020 Unit for gross proceeds of $5,510,736 (C$7,303,202). In connection with the second tranche of the August 2020 Offering, the
Company incurred share issuance costs of $237,668 (C$314,512) and issued 1,127,178 August 2020 Compensation Options.
In
the August 2020 Offering, the fair value of warrants, which are treated as a liability and fair value accounted for, were greater than
gross proceeds. As a result, a loss of $940,290 has been recognized in the consolidated statements of loss and $947,156 of total share
issue costs were also expensed.
The
Company also issued 2,205,714 August 2020 Units to settle $177,353 of accounts payable, $55,676 of accrued liabilities, $28,300 of interest
payable, and $344,185 of promissory notes payable at a deemed price of $0.67 based on the fair value of the units issued. As a result,
the Company recorded a loss on debt settlement of $899,237.
On
October 9, 2020, the Company issued 5,572,980 common shares at a deemed price of C$0.49 based on the fair value of the common shares
issued to settle $1,600,000 of convertible loan payable and $500,000 of interest payable. As a result, the Company recorded a gain on
debt settlement of $23,376.
In
February 2021, the Company closed a non-brokered private placement of units of the Company (the “February 2021 Offering”),
issuing 19,576,360 units of the Company (“February 2021 Units”) at C$0.40 per February 2021 Unit for gross proceeds of $6,168,069
(C$7,830,544. Each February 2021 Unit consisted of one common share of the Company and one common share purchase warrant of the Company
(each, “February 2021 Warrant”), which entitles the holder to acquire a common share of the Company at C$0.60 per common
share for a period of five years. In connection with the February 2021 Offering, the Company incurred share issuance costs of $154,630
and issued 351,000 compensation options (the “February 2021 Compensation Options”). Each February 2021 Compensation Option
is exercisable into one February 2021 Unit at an exercise price of C$0.40 for a period of three years.
The
Company also issued 417,720 February 2021 Units to settle $132,000 of accrued liabilities at a deemed price of $0.45 based on the fair
value of the units issued. As a result, the Company recorded a loss on debt settlement of $56,146.
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 consolidated statement of operations and comprehensive 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 on the day of issuance and as at December 31, 2021:
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
Schedule of Estimated Using the Binomial Model to Determine the Fair Value of Warrant Liabilities
| February 2021 issuance | |
February 9 and 16
2021 | | |
December 31, 2021 | |
| Expected life | |
| 1,826 days | | |
| 1,501
days | |
| Volatility | |
| 100 | % | |
| 100 | % |
| Risk free interest rate | |
| 0.49 | % | |
| 1.25 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price | |
$ | 0.27 and $0.29 | | |
$ | 0.37 | |
| Fair value | |
$ | 3,813,103 | | |
$ | 3,483,745 | |
| Change in derivative liability | |
| | | |
$ | (329,358 | ) |
The
warrant liabilities as a result of the August 2018, November 2018, June 2019, August 2019, and August 2020 private placements were revalued
as at December 31, 2021 and December 31, 2020 using the Binomial model and the following assumptions:
| August 2020 issuance | |
December 31, 2020 | | |
December 31, 2021 | |
| Expected life | |
| 973 days | | |
| 608 days | |
| Volatility | |
| 100 | % | |
| 100 | % |
| Risk free interest rate | |
| 1.31 | % | |
| 0.95 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price | |
$ | 0.41 | | |
$ | 0.37 | |
| Fair value | |
$ | 14,493,215 | | |
$ | 6,790,163 | |
| Change in derivative liability | |
| | | |
$ | (7,703,052 | ) |
| August 2018 issuance | |
December 31, 2020 | | |
December 31, 2021 | |
| Expected life | |
| 221 days | | |
| expired | |
| Volatility | |
| 100 | % | |
| Nil | % |
| Risk free interest rate | |
| 1.23 | % | |
| Nil | % |
| Dividend yield | |
| 0 | % | |
| Nil | % |
| Share price | |
$ | 0.41 | | |
$ | Nil | |
| Fair value | |
$ | 0 | | |
$ | Nil
| |
| Change in derivative liability | |
| | | |
$ | Nil | |
| November 2018 issuance | |
December 31, 2020 | | |
December 31, 2021 | |
| Expected life | |
| 332 days | | |
| expired | |
| Volatility | |
| 100 | % | |
| Nil | % |
| Risk free interest rate | |
| 1.09 | % | |
| Nil | % |
| Dividend yield | |
| 0 | % | |
| Nil | % |
| Share price | |
$ | 0.41 | | |
$ | Nil | |
| Fair value | |
$ | 52,540 | | |
$ | Nil
| |
| Change in derivative liability | |
| | | |
$ | (52,540 | ) |
| June 2019 issuance (i) | |
December 31, 2020 | | |
December 31, 2021 | |
| Expected life | |
| 1,826 days | | |
| 1,461 days | |
| Volatility | |
| 100 | % | |
| 100 | % |
| Risk free interest rate | |
| 0.85 | % | |
| 1.02 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price | |
$ | 0.41 | | |
$ | 0.37 | |
| Fair value | |
$ | 3,438,839 | | |
$ | 2,067,493 | |
| Change in derivative liability | |
| | | |
$ | (1,371,346 | ) |
| (i) | | During the six
months ended December 31, 2020, the Company amended the exercise price to C$0.59 per common share and extended the expiry date to December
31, 2025 for 11,660,000 warrants. |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
| August 2019 issuance (ii) | |
December 31, 2020 | | |
December 31, 2021 | |
| Expected life | |
| 213-1,826 days | | |
| 1,461 days | |
| Volatility | |
| 100 | % | |
| 100 | % |
| Risk free interest rate | |
| 0.81 | % | |
| 1.02 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % |
| Share price | |
$ | 0.41 | | |
$ | 0.37 | |
| Fair value | |
$ | 5,922,270 | | |
$ | 3,177,485 | |
| Change in derivative liability | |
| | | |
$ | (2,744,785 | ) |
| (ii) | | During the six
months ended December 31, 2020, the Company amended the exercise price to C$0.59 per common share and extended the expiry date to December
31, 2025 for 17,920,000 warrants. The terms of the remaining 2,752,900 warrants remain unchanged. |
Warrants
Schedule of Warrant Activity
| | |
| | |
Weighted | | |
Weighted | |
| | |
| | |
average | | |
average | |
| | |
Number of | | |
exercise price | | |
grant date | |
| | |
warrants | | |
(C$) | | |
value ($) | |
| | |
| | |
| | |
| |
| Balance, June 30, 2019 | |
| 13,046,484 | | |
$ | 0.88 | | |
$ | 0.28 | |
| Issued | |
| 27,360,284 | | |
| 0.27 | | |
| 0.03 | |
| Expired | |
| (229,464 | ) | |
| 8.50 | | |
| 3.54 | |
| Exercised (i) | |
| (2,332,900 | ) | |
| 0.25 | | |
| 0.02 | |
| Balance, June 30, 2020 | |
| 37,844,404 | | |
$ | 0.43 | | |
$ | 0.10 | |
| Issued | |
| 58,284,148 | | |
| 0.50 | | |
| 0.27 | |
| Expired | |
| (350,746 | ) | |
| 14.84 | | |
| 5.97 | |
| Balance, December 31, 2020 | |
| 95,777,806 | | |
$ | 0.54 | | |
$ | 0.18 | |
| Issued | |
| 19,994,080 | | |
| 0.60 | | |
| 0.19 | |
| Expired | |
| (4,359,174 | ) | |
| 0.59 | | |
| 0.19 | |
| Balance, December 31, 2021 | |
| 111,412,712 | | |
$ | 0.54 | | |
$ | 0.18 | |
| (i) | | During the year
ended June 30, 2020, 2,332,900 warrants were exercised at C$0.25 per warrant for gross proceeds of C$583,225 ($417,006). In conjunction
with the exercise of warrants, the Company recognized a change in derivative liability of $871,710. |
| (ii) | | During the six
months ended December 31, 2020, the Company amended the exercise price to C$0.59 per share and extended the expiry date to December 31,
2025 for 3,315,200 finder’s warrants. As a result, the Company recognized stock-based compensation of $210,839, which is included
in operation and administration expenses on the consolidated statements of loss and comprehensive loss. |
At
December 31, 2021, the following warrants were outstanding:
Schedule of Warrants Outstanding Exercise Price
| | |
| | |
| | |
Number of | |
| | |
Exercise | | |
Number of | | |
warrants | |
| Expiry date | |
price (C$) | | |
warrants | | |
exercisable | |
| | |
| | |
| | |
| |
| February 26, 2022 | |
| 0.70 | | |
| 239,284 | | |
| 239,284 | |
| 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 | |
| | |
| | | |
| 111,412,712 | | |
| 111,412,712 | |
During
the year ended December 31, 2021, 160,408 August 2018 warrants expired, 2,752,900 August 2019 warrants expired, 645,866 November 2018
warrants expired, 400,000 November 2019 warrants expired, and 400,000 April 2020 loan extension warrants expired.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
Broker
options
At
December 31, 2021, the following broker options were outstanding:
Schedule of Broker Options
| | |
| | |
Weighted | |
| | |
Number of | | |
average | |
| | |
broker | | |
exercise price | |
| | |
options | | |
(C$) | |
| | |
| | |
| |
| Balance, June 30, 2020 | |
| - | | |
$ | - | |
| Issued - August 2020 Compensation Options | |
| 3,239,907 | | |
| 0.35 | |
| Balance, December 31, 2020 | |
| 3,239,907 | | |
$ | 0.35 | |
| Issued – February 2021 Compensation Options | |
| 351,000 | | |
| 0.40 | |
| Balance, December 31, 2021 | |
| 3,590,907 | | |
| 0.35 | |
| (i) | | The grant date
fair value of the August 2020 and February 2021 Compensation Options were estimated at $521,993 and $68,078, respectively, 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 | |
| August 2020 | |
| 0.31 | % | |
| 0 | % | |
| 100 | % | |
| C$0.35 | | |
| 3 years | |
| February 2021 | |
| 0.26 | % | |
| 0 | % | |
| 100 | % | |
| C$0.40 | | |
| 3 years | |
Schedule of Warrants Outstanding Broker Option Exercise Prices
| | |
Exercise | | |
Number of | | |
| |
| Expiry date | |
price (C$) | | |
broker options | | |
Fair value ($) | |
| | |
| | |
| | |
| |
| August 31, 2023 (i) | |
$ | 0.35 | | |
| 3,239,907 | | |
$ | 521,993 | |
| February 16, 2024 (ii) | |
$ | 0.40 | | |
| 351,000 | | |
$ | 68,078 | |
| | |
| | | |
| 3,590,907 | | |
$ | 590,071 | |
| (i) | | Exercisable into
one August 2020 Unit |
| (ii) | | Exercisable into
one February 2021 Unit |
Stock
options
The
following table summarizes the stock option activity during the year ended December 31, 2021, the six months ended December 31, 2020
and the year ended June 30, 2020:
Schedule of Stock Options
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
Number of | | |
exercise price | |
| | |
stock options | | |
(C$) | |
| | |
| | |
| |
| Balance, June 30, 2019 | |
| 287,100 | | |
$ | 7.50 | |
| Granted (i)(ii) | |
| 7,532,659 | | |
| 0.56 | |
| Forfeited | |
| (239,600 | ) | |
| 9.78 | |
| Balance, June 30, 2020 | |
| 7,580,159 | | |
$ | 0.62 | |
| Granted (iii)(iv) | |
| 435,000 | | |
| 0.55 | |
| Balance, December 31, 2020 | |
| 8,015,159 | | |
$ | 0.62 | |
| Granted (v) | |
| 1,037,977 | | |
| 0.34 | |
| Balance, December 31, 2021 | |
| 9,053,136 | | |
$ | 0.58 | |
| (i) | | On October 24,
2019, 1,575,000 stock options were issued to directors and officers of the Company. These options have a 5-year life and are exercisable
at C$0.60 per share. The grant date fair value of the stock options was estimated at $435,069. The vesting of these options resulted
in stock-based compensation of $50,909 for the year ended December 31, 2021, $74,949 for the six months ended December 31, 2020 and $309,211
for the year ended June 30, 2020, which is included in operation and administration expenses on the consolidated statements of loss and
comprehensive loss. |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
| (ii) | | On April 20, 2020,
5,957,659 stock options were issued to certain directors of the Company. Each stock option entitles the holder to acquire one common
share of the Company at an exercise price of C$0.55. The stock options vest in one fourth increments upon each anniversary of the grant
date and expire in 5 years. The grant date fair value of the stock options was estimated at $1,536,764. The vesting of these options
results in stock-based compensation of $531,925 for the year ended December 31, 2021, $403,456 for the six months ended December 31,
2020 and $162,855 for the year ended June 30, 2020, which is included in operation and administration expenses on the consolidated statements
of loss and comprehensive loss. |
| (iii) | | On September 30,
2020, 200,000 stock options were issued to a consultant. Each stock option entitles the holder to acquire one common share of the Company
at an exercise price of C$0.60. The stock options vest 50% at 6 months and 50% at 12 months from the grant date and expire in 3 years.
The grant date fair value of the options was estimated at $52,909. The vesting of these options resulted in stock-based compensation
of $32,651 for the year ended December 31, 2021, $20,259 for the six months ended December 31, 2020, and $nil for the year ended June
30, 2020, which is included in operation and administration expenses on the consolidated statements of loss and comprehensive loss. |
| (iv) | | On October 30,
2020, 235,000 stock options were issued to a former director. Each stock option entitles the holder to acquire one common share of the
Company at an exercise price of C$0.50. The stock options vested immediately and expire on December 31, 2022. The grant date fair value
of the options was estimated at $46,277. The vesting of these options resulted in stock-based compensation of $46,277 for the six months
ended December 31, 2020, which is included in operation and administration expenses on the consolidated statements of loss and comprehensive
loss. |
| (v) | | On
February 19, 2021, 1,037,977
stock
options were issued to an officer of the Company, of which 273,271
stock
options vested immediately and the balance of 764,706
stock
options vested on December 31, 2021. These options have a 5-year
life and are exercisable at C$0.335
per
common share. The grant date fair value of the options was estimated at $204,213.
The vesting of these options resulted in stock-based compensation of $204,213
for
the year ended December 31, 2021, which is included in operation and administration expenses
on the consolidated statements of income (loss) and comprehensive income (loss). |
The
fair value of these stock options was determined on the date of grant using the Black-Scholes valuation model, and using the following
underlying assumptions:
Schedule of Estimated Using Black-Scholes Valuation Model for Fair value of Stock Options
| | |
Risk free interest rate | | |
Dividend yield | | |
Volatility | | |
Stock price | | |
Weighted
average life |
| (i) | |
| 1.54 | % | |
| 0 | % | |
| 100 | % | |
| C$0.50 | | |
5 years |
| (ii) | |
| 0.44 | % | |
| 0 | % | |
| 100 | % | |
| C$0.50 | | |
5 years |
| (iii) | |
| 0.25 | % | |
| 0 | % | |
| 100 | % | |
| C$0.58 | | |
3 years |
| (iv) | |
| 0.26 | % | |
| 0 | % | |
| 100 | % | |
| C$0.49 | | |
2.2 years |
| (v) | |
| 0.64 | % | |
| 0 | % | |
| 100 | % | |
| C$0.34 | | |
5 years |
The
following table reflects the actual stock options issued and outstanding as of December 31, 2021:
Schedule of Stock Option Issued and Outstanding
| | | |
Weighted average | | |
| | |
Number of | | |
| |
| | | |
remaining | | |
Number of | | |
options | | |
| |
| Exercise | | |
contractual | | |
options | | |
vested | | |
Grant date | |
| price (C$) | | |
life (years) | | |
outstanding | | |
(exercisable) | | |
fair value ($) | |
| $ | 10.00 | | |
| 0.00 | | |
| 47,500 | | |
| 47,500 | | |
$ | 258,013 | |
| | 0.50 | | |
| 0.03 | | |
| 235,000 | | |
| 235,000 | | |
| 46,277 | |
| | 0.60 | | |
| 0.04 | | |
| 200,000 | | |
| 200,000 | | |
| 52,909 | |
| | 0.60 | | |
| 0.49 | | |
| 1,575,000 | | |
| 1,575,000 | | |
| 435,069 | |
| | 0.55 | | |
| 2.17 | | |
| 5,957,659 | | |
| 1,489,415 | | |
| 1,536,764 | |
| | 0.335 | | |
| 0.47 | | |
| 1,037,977 | | |
| 1,037,977 | | |
| 204,213 | |
| | | | |
| | | |
| 9,053,136 | | |
| 4,584,892 | | |
$ | 2,533,245 | |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
11.
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 year ended December 31, 2021, the six months ended December 31, 2020, and the
year ended June 30, 2020:
Schedule of Restricted Share Units
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
| | |
grant date | |
| | |
| | |
fair value | |
| | |
Number of | | |
per share | |
| | |
shares | | |
(C$) | |
| | |
| | |
| |
| Unvested as at June 30, 2019 | |
| - | | |
$ | - | |
| Granted (i)(ii) | |
| 600,000 | | |
| 0.40 | |
| Vested | |
| - | | |
| - | |
| Forfeited | |
| - | | |
| - | |
| Unvested as at June 30, 2020 | |
| 600,000 | | |
$ | 0.40 | |
| Granted (iii)(iv) | |
| 388,990 | | |
| 0.39 | |
| Unvested as at December 31, 2020 | |
| 988,990 | | |
$ | 0.39 | |
| Granted | |
| 1,348,434 | | |
| 0.38 | |
| Vested | |
| (1,516,299 | ) | |
| 0.41 | |
| Forfeited | |
| (245,125 | ) | |
| 0.52 | |
| Unvested as at December 31, 2021 | |
| 576,000 | | |
$ | 0.62 | |
| (i) | | On April 14, 2020,
the Company granted 400,000 RSUs to a certain officer of the Company. The RSUs vest in one fourth increments upon each anniversary of
the grant date. The vesting of these RSUs resulted in stock-based compensation of $71,829 for the year ended December 31, 2021, $55,135
for the six months ended December 31, 2020, and $23,073 for the year ended June 30, which is included in operation and administration
expenses on the consolidated statements of loss and comprehensive loss. |
| (ii) | | On April 20, 2020,
the Company granted 200,000 RSUs to a certain director of the Company. The RSUs vest in one fourth increments upon each anniversary of
the grant date. The vesting of these RSUs resulted in stock-based compensation of $24,659 for the year ended December 31, 2021, $18,703
for the six months ended December 31, 2020, and $7,217 for the year ended June 30, 2020, which is included in operation and administration
expenses on the consolidated statements of loss and comprehensive loss. |
| (iii) | | On November 16,
2020, the Company granted 168,000 RSUs to certain directors of the Company. The RSUs vest in one fourth increments upon each anniversary
of the grant date. The vesting of these RSUs resulted in stock-based compensation of $30,510 for the year ended December 31, 2021, and
$3,998 for the six months ended December 31, 2020, which is included in operation and administration expenses on the consolidated statements
of loss and comprehensive loss. |
| (iv) | | On December 6,
2020, the Company granted 220,990 RSUs to a consultant of the Company. The RSUs vest in one sixth increments per month. The vesting of
these RSUs resulted in stock-based compensation of $58,740 for the year ended December 31, 2021, and $29,304 for the six months ended
December 31, 2020, which is included in operation and administration expenses on the consolidated statements of loss and comprehensive
loss. |
| (v) | | On
January 1, 2021, the Company granted 735,383
RSUs to a consultant of the Company. 245,128
RSUs vested immediately with the remaining RSUs vesting in one twelfth increments per month. During the year ended 2021, a total of 490,258
RSUs vested, and in July 2021, the consultant forfeited the remaining 245,125
unvested RSUs, resulting in a reversal of share-based compensation of $64,870. The vesting of these RSUs resulted in stock-based
compensation of $199,542
for the year ended December 31, 2021, which is included in operation and administration expenses on the consolidated statements of
loss and comprehensive loss. |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
| (vi) | | On July 1, 2021,
the Company granted 17,823 RSUs to a consultant of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based
compensation of $4,026 for the year ended December 31, 2021, which is included in operation and administration expenses on the consolidated
statements of loss and comprehensive loss. |
| (vii) | | On August 5, 2021,
the Company granted 595,228 RSUs to consultants of the Company, vesting immediately. The vesting of these RSUs resulted in stock-based
compensation of $100,022 for the year ended December 31, 2021, which is included in operation and administration expenses on the consolidated
statements of loss and comprehensive loss. |
12.
Deferred share units
Effective
April 21, 2020, the Board of Directors approved a Deferred Share Unit (“DSU”) Plan to grant DSUs to its directors. The DSU
Plan permits the eligible directors to defer receipt of all or a portion of their retainer or compensation until termination of their
services and to receive such fees in the form of cash at that time.
Upon
vesting of the DSUs or termination of service as a director, the director will be able to redeem DSUs based upon the then market price
of the Company’s common share on the date of redemption in exchange for cash.
The
following table summarizes the DSU activity during the years ended December 31, 2021 and 2020:
Schedule of Deferred Share Units
| | |
| | |
Weighted | |
| | |
| | |
average | |
| | |
| | |
grant date | |
| | |
| | |
fair value | |
| | |
Number of | | |
per share | |
| | |
shares | | |
(C$) | |
| | |
| | |
| |
| Unvested as at June 30, 2019 | |
| - | | |
$ | - | |
| Granted (i) | |
| 7,500,000 | | |
| 1.03 | |
| Vested | |
| (1,875,000 | ) | |
| 0.65 | |
| Unvested as at June 30, 2020 and December 31, 2020 | |
| 7,500,000 | | |
$ | 1.03 | |
| Vested | |
| (1,875,000 | ) | |
| 1.03 | |
| Unvested as at December 31, 2021 | |
| 5,625,000 | | |
$ | 1.03 | |
| (i) | | On April 21, 2020, the Company granted 7,500,000 DSUs. The DSUs vest in one fourth increments
upon each anniversary of the grant date and expire in 5 years. During the year ended December
31, 2021, the Company recognized $421,284 stock-based compensation related to the DSUs (six
months ended December 31, 2020 - $560,461 and the year ended June 30, 2020 - $549,664), which
is included in operation and administration expenses on the consolidated statements of loss
and comprehensive loss. The fair value at December 31, 2021 was $1,531,409 |
13.
Commitments and contingencies
As
stipulated by the agreements with Placer Mining as described in note 6, the Company is required to make a monthly payment of $60,000
for care and maintenance for the mine, up
to the date of acquisition.
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, one for cost-recovery, and the other for water treatment. 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. As at December 31, 2021, $16,417,208
payable to the EPA has been included in accounts
payable and accrued liabilities (December 31, 2020 - $11,298,594
and June 30, 2021 – $7,915,235,
respectively). An amended agreement has been signed
to modify the payment amounts and terms to settle amounts outstanding under the original agreement.
The
Company has entered into a lease agreement which expires in May 2022. Monthly rental expenses are approximately C$26,000 and are offset
by rental income obtained through a series of short-term subleases held by the Company. See note 9.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
On
or about June 14, 2021, a lawsuit was filed in the US District Court for the District of Idaho brought by a purported personal representative
of the estate of a minority shareholder of Placer Mining. The named defendants include Placer Mining, certain of Placer Mining’s
shareholders, the Company, and certain of the Company’s shareholders. The lawsuit alleges that Placer Mining entered into a series
of transactions, including amendments to the Company’s lease with Placer Mining, in breach of an agreement dated August 31, 2018,
which allegedly restricted the sale of shares in Placer Mining by certain shareholders. On August 13, 2021, the Company filed a motion
to dismiss the claim for lack of jurisdiction and standing. On September 3, 2021, the plaintiff responded to the motion to dismiss and
agreed that Placer Mining should be dismissed for lack of jurisdiction. The Company, as well as other named defendants, filed replies
in support of the motions to dismiss and argued that Placer Mining is an indispensable party and with dismissal of Placer Mining the
lawsuit should be dismissed. The US District Court has not ruled on the motions to dismiss but the Company believes the motion to dismiss
will be granted and the lawsuit dismissed.
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 acid mine drainage (“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 demined the motion to dismiss filed by Placer Mining Corp. for Crescent’s trespass,
nuisance and negligence claims. If Crescent seeks to amend its complaint, it must do so within 30 days of the court’s judgement
on March 2, 2022. The Company believes Crescent Mining LLC’s lawsuit against Placer Mining Corp. is without merit and intends to
defend Placer Mining Corp. vigorously pursuant to the Company’s indemnification of Placer Mining Corp in the Sale and Purchase
agreement executed between the companies for Bunker Hill Mine on December 15, 2021.
The
Company believes the claims in both lawsuits, as they relate to Bunker Hill, are without merit and intends to defend them vigorously.
14.
Income taxes
As
at December 31, 2021, December 31, 2020, and June 30, 2020, the Company had no accrued interest and penalties related to uncertain tax
positions. The income tax provision differs from the amount of income tax determined by applying the U.S. federal tax rate of 21.0%
(December 31, 2020 – 21.0%)
to
pretax loss from operations for the periods ended December 31, 2021 and December 31, 2020 and year ended June 30, 2020 due to the following:
Schedule of Income Tax Provision
| | |
Year | | |
Six Months | | |
Year | |
| | |
Ended | | |
Ended | | |
Ended | |
| | |
December 31, | | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2020 | | |
2020 | |
| | |
| | |
| | |
| |
| Expected income tax recovery | |
| (1,344,478 | ) | |
| (454,535 | ) | |
| (6,577,576 | ) |
| Change in estimates in respect of prior periods | |
| 837,195 | | |
| - | | |
| - | |
| Change in tax rate | |
| 274,477 | | |
| 181,332 | | |
| - | |
| Change in fair value of derivative liability | |
| (2,583,095 | ) | |
| - | | |
| - | |
| State and local taxes, net of federal benefit | |
| (960,296 | ) | |
| 17,632 | | |
| (1,576,384 | ) |
| Share issuance costs | |
| - | | |
| 198,903 | | |
| - | |
| Accretion | |
| - | | |
| 24,862 | | |
| 81,746 | |
| Stock based compensation | |
| - | | |
| 296,448 | | |
| 219,952 | |
| Loss on loan extinguishment | |
| - | | |
| - | | |
| 223,798 | |
| Other | |
| 5,033 | | |
| 2,006 | | |
| 980 | |
| Change in valuation allowance | |
| 3,771,164 | | |
| (266,647 | ) | |
| 7,627,485 | |
| Total | |
$ | - | | |
$ | - | | |
$ | - | |
Deferred
tax assets and the valuation account are as follows:
Schedule of Deferred Tax Assets
| | |
December 31, | | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2020 | | |
2020 | |
| | |
| | |
| | |
| |
| Deferred tax asset: | |
| | | |
| | | |
| | |
| Net operating loss carry forwards | |
$ | 6,724,313 | | |
$ | 5,547,502 | | |
$ | 6,148,029 | |
| Mineral interest purchase option | |
| 10,707,362 | | |
| 7,101,619 | | |
| 5,068,605 | |
| Other deferred tax assets | |
| 454,499 | | |
| 1,453,133 | | |
| 3,600,101 | |
| Valuation allowance | |
| (17,886,174 | ) | |
| (14,115,010 | ) | |
| (14,832,531 | ) |
| Unrealized foreign exchange loss | |
| - | | |
| 12,756 | | |
| 15,796 | |
| Total | |
$ | - | | |
$ | - | | |
$ | - | |
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
Schedule of Components of Deferred Tax Assets and Liabilities
| | |
December 31, | | |
December 31, | | |
June 30, | |
| | |
2021 | | |
2020 | | |
2020 | |
| | |
| | |
| | |
| |
| Deferred tax asset: | |
| | | |
| | | |
| | |
| Net operating loss carryforwards | |
$ | 59,955 | | |
$ | 16,241 | | |
$ | 9,910 | |
| Lease liabilities | |
| - | | |
| - | | |
| 56,322 | |
| Deferred tax liabilities: | |
| | | |
| | | |
| | |
| Equipment | |
| (18,809 | ) | |
| (16,241 | ) | |
| (9,910 | ) |
| Unrealized foreign exchange gain | |
| (41,146 | ) | |
| - | | |
| - | |
| Right of use assets and lease obligations | |
| - | | |
| - | | |
| (56,322 | ) |
| Net deferred tax asset | |
$ | - | | |
$ | - | | |
$ | - | |
The
potential income tax benefit of these losses has been offset by a full valuation allowance.
As
of December 31, 2021, December 31, 2020 and June 30, 2020, the Company has an unused net operating loss carryforward balance of $26,356,908,
$21,310,259
and $19,775,710,
respectively, that is available to offset future taxable income. The
net operating loss carryforwards generated before 2018 expire between 2031 and 2037. The losses generated in 2018 and later tax years
do not expire.
The
Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly
increase or decrease within the next 12 months.
The
tax years that remain subject to examination by major taxing jurisdictions are those for the year ended December 31, 2021, period
ended December 31, 2020 and years ended June 30, 2020, 2019, 2018, 2017, 2016, 2015, and 2014.
15.
Related party transactions
(i)
During the year ended December 31, 2021, John Ryan (Director and former CEO) billed $nil (six months ended December 31, 2020 - $13,500,
year ended June 30, 2020 - $51,500, respectively) for consulting services to the Company.
(ii)
During the year ended December 31, 2021, Wayne Parsons (Director and former CFO) billed $120,127
(six months ended December 31, 2020 - $71,390,
year ended June 30, 2020 - $136,045,
respectively) for consulting services to the Company.
(iii)
During the year ended December 31, 2021, Hugh Aird (former Director) billed $nil (six months ended December 31, 2020 - $18,223, year
ended June 30, 2020 - $9,774, respectively) for consulting services to the Company.
(iv)
During the year ended December 31, 2021, Richard Williams (Director and Executive Chairman) billed $179,605 (six
months ended December 31, 2020 - $78,201,
year ended June 30, 2020 - $134,927,
respectively) for consulting services to the Company. At December 31, 2021, $108,719
is
owed to Mr. Williams (December 31, 2020 - $45,000
and
June 30, 2020 - $121,161,
respectively) with all amounts included in accounts payable and accrued liabilities.
During
the six months ended December 31, 2020, the Company issued 214,286 August 2020 Units at $0.67 to settle $56,925 of debt owed to Mr. Williams.
On
June 30, 2020, the Company issued a promissory note in the amount of $75,000, net of $15,000 debt issue costs, to Mr. Williams. The promissory
note has been repaid in full. See Note 8(vii).
(v)
During the year ended December 31, 2021, the Company incurred $250,000 in payroll expense for Sam Ash (President and CEO) (six
months ended December 31, 2020 - $125,000,
year ended June 30, 2020 - $60,000,
respectively) for services to the Company. At December 31, 2021, $62,500 is payable and included in accrued liabilities.
Bunker
Hill Mining Corp.
Notes
to Consolidated Financial Statements
Year
Ended December 31, 2021, Six Months Ended December 31, 2020 and Year Ended June 30, 2020
(Expressed
in United States Dollars)
During
the six months ended December 31, 2020, the Company issued 77,143 August 2020 Units at a deemed price of $0.67 to settle $20,000 of debt
owed to Mr. Ash.
(vi)
During the year ended December 31, 2021, Pam Saxton (Director) billed $37,669
(six months ended December 31, 2020 - $7,000,
year ended June 30, 2020 - $nil) for consulting services to the Company.
(vii)
During the year ended December 31, 2021, Cassandra Joseph (Director) billed $37,494 (six months ended December 31, 2020 - $11,290, year
ended June 30, 2020 - $nil) for consulting services to the Company.
(viii)
During the six months ended December 31, 2020, the Company issued 300,000 August 2020 Units at a deemed price of $0.67 to settle $77,696
(C$105,000) of debt owed to a shareholder of the Company.
(ix) During the year ended December 31, 2021,
the Company incurred $276,315 in payroll expense for David Wiens (CFO) (six months ended December 31, 2021, $nil, year ended June 30,
2020 - $nil) for services to the Company. At December 31, 2021, $108,335 is payable, including reimbursable expenses, and included in accrued liabilities.
During the year ended December 31, 2021, 1,037,977
stock options were issued to Mr. Wiens, of which 273,271 stock options vested immediately and the balance of 764,706 stock options vested
on December 31, 2021. These options have a 5-year life and are exercisable at C$0.335 per common share. The grant date fair value of
the options was estimated at $204,213. The vesting of these options resulted in stock-based compensation of $204,213 for the year ended
December 31, 2021.
16.
Subsequent events
Following
the approval of the transaction by Placer Mining Corp. shareholders and satisfaction of other closing conditions, the purchase of the
Bunker Hill Mine closed on January 7, 2022. Concurrently, definitive documentation and all closing conditions were met for the $8,000,000
Royalty Convertible Debenture. The Royalty Convertible Debenture funds the purchase of the Bunker Hill Mine, a $2,000,000
payment to the EPA, and near-term
working capital requirements.
The
$8,000,000 Royalty Convertible Debenture will initially bear 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 to a royalty, with such conversion option expiring at the
earlier of advancement of the Stream or 18 months. In the event of conversion, the Royalty Convertible Debenture 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. A 1.35%
rate will apply to claims outside of these areas. The Royalty Convertible Debenture will initially be secured by a share pledge of
the Company’s operating subsidiary, Silver Valley, until such time that a full security package is put in place. In
the event of non-conversion, the principal of the Royalty Convertible Debenture will be repayable in cash.
In
January 2022, the Company also closed the
$6,000,000 Convertible Debenture, which was increased from a previously-announced
$5,000,000.The Convertible Debenture funds near-term working capital requirements, mine
development, and the advancement of its Prefeasibility Study, including engineering studies for the demobilization and construction of
the Pend Oreille Process Plant at Bunker Hill. The $6,000,000
Convertible Debenture will initially bear interest at an annual rate of 7.5%,
payable in cash or shares at the Company’s option, and a maturity of 18 months from the closing of the Royalty Convertible Debenture.
Until the closing of the Stream, the Convertible Debenture is convertible into Common Shares at a price of C$0.30
per Common Share, subject to stock exchange approval. Alternatively, SRSR
may elect to retire the Convertible Debenture with the cash proceeds from the Stream. The Company may elect to repay the Convertible
Debenture early; if SRSR elects not to exercise its conversion option at such time, a minimum of 12 months of interest would apply.
On January 7, 2022, the
Company closed the purchase of the Bunker Hill Mine. See Note 6 Mining Interests. Mine assets were purchased for $7,700,000,
with $300,000
of previous lease payments and a deposit of $2,000,000
applied to the purchase, resulting in cash paid at closing of approximately $5,400,000.
The EPA obligation of $19,000,000
was assumed by Bunker Hill as part of the acquisition. The restructuring of the EPA Settlement payment stream under the
Amendment does not occur unless and until the Company puts the financial assurances in place. On March 22, 2022, the Company reported
that in consultation with the EPA, it has committed to meet the approximately $2,900,000
and Financial Assurance obligations by 180 days from the effective date of the Amended Settlement Agreement.
On January 31, 2022, the Company entered into
a non-binding Memorandum of Understanding (“MOU”) with Teck Resources Limited (“Teck”) for the purchase of
a comprehensive package of equipment and parts inventory from its Pend Oreille site (the “Pend Oreille Process Plant”) in
eastern Washington State. The
package comprises substantially all processing equipment of value located at the site, including complete crushing, grinding and flotation
circuits The MOU outlines a purchase price under two scenarios,
at Teck’s option: an all-cash $2,750,000
purchase price, or a $3,000,000
purchase price comprised of cash and Bunker Hill shares. Each option includes a $500,000
non-refundable deposit, which has been paid by the Company subsequent to the end of the year. On March 7, 2022, the Company announced
the signing of an Asset Purchase agreement for the purchase of the Pend Oreille Process Plant. Closing of the transaction remains subject
to certain conditions, including payment of the remaining purchase price by May 15, 2022.
On March 3, 2022, the Company closed the purchase
of a 225-acre surface land parcel for a cash payment of approximately $200,000.
On
March 9, 2022, the Company entered into an agreement with a syndicate of agents led by Echelon Wealth Partners Inc. (collectively, the
“Agents”), which have agreed to act as agents for and on behalf of the Company, on a commercially reasonable “best
efforts” agency basis, without underwriter liability, in connection with a proposed private placement (the “Offering”)
of up to C$15,000,000
of special warrants of the Company (the “Special Warrants”) which
will entitle the holders to receive up to 50,000,000
units of the Company at a price of C$0.30
(the “Issue Price”) per Special Warrant, subject to adjustment
in certain events.
Each
Special Warrant shall be exercisable, for no additional consideration and with no further action on the part of the holder thereof, into
one unit (each, a “Unit”) of the Company, subject to adjustment described below, on the earlier of: (i) the third business
day after the date upon which both (A) a receipt for a (final) prospectus (the “Qualification Prospectus”) qualifying the
distribution of the Units issuable upon exercise of the Special Warrants has been issued by the applicable securities regulatory authorities
in the Canadian jurisdictions in which purchasers of the Special Warrants are resident (the “Canadian Jurisdictions”), and
(B) the registration statement (the “Registration Statement”) of the Company filed with the Securities and Exchange Commission
(the “SEC”) registering the Units issuable upon exercise of the Special Warrants has been declared effective by the SEC;
and (ii) the date that is six months following the Closing Date , which is expected to close on March 31, 2022.
Each
Unit will consist of one common share of the Company (a “Common Share”) and one common share purchase warrant (each whole
common share purchase warrant, a “Warrant”). Each Warrant will entitle the holder to acquire one Common Share for C$0.37
for a period of 36 months following the Closing Date. The Warrants shall also be exercisable on a cashless basis in the event the Registration
Statement has not been made effective by the SEC prior to the date of exercise. In the event that a receipt for the Qualification Prospectus
has not been obtained and the Registration Statement has not been deemed effective on or before 5:00 p.m. (EST) on the date that is 60
days following the Closing Date, each unexercised Special Warrant will thereafter entitle the holder thereof to receive, upon the exercise
thereof, at no additional cost, 1.1 Units (instead of one Unit).
The
Company has also granted to the Agents an option (the “Agents’ Option”) which shall allow the Agents to sell up to
an additional 15.0% of the Special Warrants sold pursuant to the Offering at the Issue Price. The Agent’s Option may be exercised
in whole or in part as determined by the Agents upon written notice to the Company at any time up to 48 hours prior to the Closing Date.
In consideration for their services, subject to the terms of the agreement with the Agents and adjustments in certain circumstances,
the Agents will receive a cash commission equal to 6.0% of the gross proceeds of the Offering (including the Agents’ Option), and
shall be issued that number of compensation options (the “Compensation Options”) as is equal to 6.0% of the number of Special
Warrants sold pursuant to the Offering (including the Agents’ Option). Each Compensation Option shall be exercisable to acquire
one Unit at the Issue Price for a period of 24 months from the closing date of the Offering, subject to adjustment in certain events.
