SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING
DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE
BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE
RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH
AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND
THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY
INDICATION THAT A STATEMENT IS A FORWARD-LOOKING STATEMENT. SUCH FORWARD LOOKING
STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT
TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH
EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE
REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE
COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT
SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE
OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER
IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE
DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-K AND
IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO
STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A
GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.
Background and Overview
On August 28, 2017, the Company announced that it signed a definitive agreement
(the "Agreement") for the lease and option to purchase of the Bunker Hill Mine
in Idaho. The "Bunker Hill Lease with Option to Purchase" is between the Company
and Placer Mining Corporation Placer Mining, the current owner of the Mine.
Highlights of the Agreement are as follows:
·Effective date: November 1, 2017;
·Initial lease term: 24 months;
·The Company shall pay Placer Mining US$100,000 monthly mining lease payments,
which shall be paid quarterly;
·The lease can be extended for another 12 months at any time by the Company by
paying Placer Mining a US$600,000 bonus payment and by continuing to pay the
monthly US$100,000 lease payments;
·The option to purchase is exercisable at the Company's discretion; and
·Purchase by the Company can be made at any time during lease period and any
extension thereto.
On October 2, 2018, the Company announced that it was in default of its Lease
with Option to Purchase Agreement with Placer Mining. 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 lease being terminated.
On November 13, 2018, the Company announced that it was successful in renewing
the lease, effectively with the original Agreement intact, except that monthly
payments are reduced to $60,000 per month for 12 months, with the accumulated
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reduction in payments of $140,000 per month ("deferred payments") added to the
purchase price of the mine should the Company choose to exercise its option.
On October 22, 2019, the Company signed a further amendment to the Agreement.
The key terms of this amended agreement are as follows:
·The lease period has been extended for an additional period of nine months to
August 1, 2020, with the option to extend for a further 6 months based upon
payment of a 1 time $60,000 extension fee.
·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 is set at $11 million for 100% of the marketable assets of
Bunker Assets to be paid with $6,200,000 in cash, and $4,800,000 in shares. The
purchase price also includes the negotiable EPA costs of $20 million. The
amended lease 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.
Results of Operations
The following discussion and analysis provide information that is believed to be
relevant to an assessment and understanding of the results of operation and
financial condition of the Company for the fiscal year ended June 30, 2020, as
compared to the fiscal year ended June 30, 2019. Unless otherwise stated, all
figures herein are expressed in U.S. dollars, which is the Company's functional
currency.
Comparison of the fiscal years ended June 30, 2020 and June 30, 2019
Revenue
During the fiscal years ended June 30, 2020 and June 30, 2019, the Company
generated no revenue.
Expenses
During the fiscal year ended June 30, 2020, the Company reported total operating
expenses of $10,099,815 as compared to $7,409,431 during the fiscal year ended
June 30, 2019; an increase of $2,690,384 or approximately 36%.
The increase in total operating expenses is primarily due to an increase in
exploration expense by $2,239,185 ($7,951,423 in 2020 compared to $5,712,238 in
2019) due to increased exploration activities this year compared to last year.
The same is true for increases operating and administration (increased by
$137,833, $1,327,059 in 2020 compared to $1,189,226 in 2019), legal and
accounting (increased by $27,212, $268,181 in 2020 compared to $240,969 in
2019), and consulting (increased by $286,154, $553,152 in 2020 compared to
$266,998 in 2019) due to increase corporate activities this year compared to
last year.
For financial accounting purposes, the Company reports all direct exploration
expenses under the exploration expense line item of the statement of operations.
Certain indirect expenses, which are related to the exploration activities, may
be reported as operation and administration expense or consulting expense on the
statement of operations, or in certain cases, these expenses may also be
capitalized to the balance sheet if they relate to costs incurred to acquire
mineral properties.
Net Loss and Comprehensive Loss
The Company had a net loss and comprehensive loss of $30,627,783 for the fiscal
year ended June 30, 2020, as compared to a net loss and comprehensive loss of
$7,737,825 for the fiscal year ended June 30, 2019; an increase of $22,889,958
or approximately 296%. The increase in net loss and comprehensive loss was due
to an increase in operating expenses as outlined above, change in derivative
liabilities, and loss on debt settlement. It was partially offset by a decrease
in accretion expense, interest expense, and loss on loan extinguishment.
Loss related to change in derivative liability increased by $20,736,435 (loss of
$18,843,947 in 2020 compared to gain of $1,892,488 in 2019) as the fair values
of the Company's outstanding warrants increased mainly due to an increase in the
Company's share price (C$1.00 per share as at June 30, 2020 compared to C$0.06
as at June 30, 2019).
Liquidity and Capital Resources
The Company does not have sufficient working capital needed to meet its current
fiscal obligations when including commitments associated with the acquisition on
the Bunker Hill Mine. In order to continue to meet its fiscal obligations in the
current fiscal year and beyond the next twelve months, the Company must seek
additional financing. Management is considering various financing alternatives,
specifically raising capital through the equity markets and debt financing.
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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 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 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 million from its original $1.5 million loan, net of $45,824 of
debt issue costs. 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
("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
("Additional 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
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.
In August 2018, the Company closed a private placement, issuing 160,408 Units to
Gemstone 102 Ltd. ("Gemstone") at a price of C$4.50 per Unit, for gross proceeds
of C$721,834 ($549,333) and incurring financing costs of $25,750. Each Unit
entitles Gemstone to acquire one common share ("Unit Share") and one common
share purchase warrant ("Unit Warrant"), with each Unit Warrant entitling
Gemstone to acquire one common share of the Company at a price of C$4.50 for a
period of three years. Prior to the issuance of the Units, Gemstone held 400,000
common shares of the Company and 200,000 warrants ("Prior Warrants") exercisable
at a price of C$20.00 per share. Immediately prior to closing, the Prior
Warrants were early terminated by mutual agreement of the Company and Gemstone.
Upon issuance of the 160,408 Units to Gemstone, Gemstone beneficially owns or
exercises control or direction over 560,408 common shares of the Company.
Assuming exercise of the Unit Warrants, Gemstone would hold 720,816 of the
outstanding common shares of the Company. Gemstone's participation in the
Offering constitutes a "related party transaction" under Multilateral Instrument
61-101 - Protection of Minority Security Holders in Special Transactions ("MI
61-101").
Given the urgent need to secure financing to meet the new lease obligations, the
Company's Board approved an equity private placement of Units to be sold at
C$0.75 per Unit with each Unit consisting of one common share and one common
share purchase warrant. On November 28, 2018, the Company closed on a total of
645,866 Units for gross proceeds of C$484,400 ($365,341) and incurring financing
costs of $10,062, with each purchase warrant exercisable into a Common Share at
C$1.00 per Common Share for a period of thirty-six months.
In March 2019, Hummingbird agreed to extend the scheduled maturity date of the
loan to June 30, 2020.
On June 27, 2019, the Company closed the first tranche ("First Tranche") of a
non-brokered private placement, issuing 11,660,000 units ("June 2019 Unit") at a
price of C$0.05 per June 2019 Unit for gross proceeds of C$583,000 ($436,608)
and incurring financing costs of $19,640. Each June 2019 Unit consists of one
common share of the Company and one common share purchase warrant ("June 2019
Warrant"). Each whole June 2019 Warrant entitles the holder to acquire one
common share at a price of C$0.25 per common share for a period of two years. As
a part of the First Tranche, Hummingbird Resources PLC ("Hummingbird") has
acquired 2,660,000 June 2019 Units for C$133,000 ($100,000) which was applied to
reduction of the principal amount owing under the convertible loan facility.
On August 1, 2019, the Company closed the second and final tranche ("Tranche
Two") of the non-brokered private placement, issuing 6,042,954 units ("August
2019 Units") at C$0.05 per August 2019 Unit for gross proceeds of C$302,148
($228,202) and incurring financing costs of $36,468. Each August 2019 Unit
consists of one common share of the Company and one common share purchase
warrant, which entitles the holder to acquire one common share at a price of
C$0.25 per common share for a period of two years. The Company also issued
16,962,846 August 2019 Units to settle $640,556 of debt at a deemed price of
C$0.09 based on the fair value of the shares issued.
On August 23, 2019, the Company closed the first tranche (the "First Tranche")
of the non-brokered private placement, issuing 27,966,002 common shares of the
Company at C$0.05 per share for gross proceeds of C$1,398,300 ($1,049,974) and
incurring
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financing costs of $28,847. The Company also issued 2,033,998 common shares to
settle $77,117 of debt at a deemed price of C$0.18 based on the fair value of
the shares issued.
On August 30, 2019, the Company closed the second and final tranche (the "Second
Tranche") of the non-brokered private placement, issuing 1,000,000 common shares
at C$0.05 per share for gross proceeds of C$50,000 ($37,550).
On November 13, 2019, the Company issued a promissory note ("Samper Note") in
the amount of $300,000. The note is unsecured, bears 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 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 share for gross
proceeds of C$1,675,000 ($1,256,854) and incurring financing costs of $16,067
and 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.
On April 24, 2020, the Company extended the maturity date of the Samper Note 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.
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 share for gross proceeds of
C$60,000 ($44,671).
On May 12, 2020, the Company issued a promissory note in the amount of $362,650
(C$500,000). The note bears no interest is due on demand after 90 days after the
issue date. Subsequent to June 30, 2020, C$288,000 was settled by shares and the
remaining balance was repaid in full.
On May 12, 2020, the Company issued a promissory note in the amount of $141,704
(C$200,000). The note bears no interest is due on demand after 90 days after the
issue date. The promissory note was settled in full subsequent to June 30, 2020.
In June 2020, Hummingbird agreed to extend the scheduled maturity date of the
loan to July 31, 2020. An extension of the loan is being negotiated and the loan
has not been repaid.
On June 30, 2020, the Company issued a promissory note in the amount of $75,000
($103,988). The note bears no interest and is due on demand. The promissory note
was repaid in full subsequent to June 30, 2020.
On June 30, 2020, the Company issued a promissory note in the amount of $75,000
($103,988) to a director of the Company. The note bears no interest and is due
on demand. The promissory note was repaid in full subsequent to June 30, 2020.
During the year ended June 30, 2020, the Company issued 1,403,200 June 2019
Units and 1,912,000 August 2019 Units at a deemed price of C$0.05 as a
compensation to a finder valued at C$165,760 ($125,180).
The Company has accounted for the warrant liability in accordance with ASC Topic
815. These warrants are considered derivative instruments as they were issued in
a currency other than the Company's functional currency of the US 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 liability is recorded in the interim
condensed consolidated statement of operations and comprehensive loss as a gain
or loss and is estimated using the Binomial model.
Current Assets and Total Assets
As of June 30, 2020, the Company's balance sheet reflects that the Company had:
i) total current assets of $243,379, compared to total current assets of
$106,100 at June 30, 2019 - an increase of $137,279 or approximately 129%; and
ii) total assets of $732,884, compared to total assets of $227,090 at June 30,
2019 - an increase of $505,794 or approximately 223%. The increase in current
assets was due to the increase in accounts receivable and prepaid expenses.
Total Current Liabilities and Liabilities
As of June 30, 2020, the Company's balance sheet reflects that the Company had
total current liabilities of $13,073,363 and total liabilities of $31,949,872,
compared to total current liabilities of $7,069,564 and total liabilities of
$7,186,373 at June 30, 2019. These increases are reflective of increased Placer
Mining and EPA accruals, promissory notes payable in the company, and changes in
derivative warrant liability year-over-year.
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Cash Flow
During the fiscal year ended June 30, 2020 cash was primarily used to fund
activities at the Bunker Hill Mine operations. The Company reported a net
increase in cash during the fiscal years ended June 30, 2020 as a result of
operating activities and investing activities, offset by cash provided by
financing activities.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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BUNKER HILL MINING CORP. 
