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 the company's 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 and in the
company's other filings with the sec. No statements contained in the following
discussion should be construed as a guarantee or assurance of future performance
or future results.
COVID-19 Coronavirus Pandemic Response and Impact
Following the outbreak of the COVID-19 coronavirus global pandemic ("COVID-19")
in early 2020, in March 2020 the U.S. Centers for Disease Control issued
guidelines to mitigate the spread and health consequences of COVID-19. The
Company implemented changes to its operations and business practices to follow
the guidelines and minimize physical interaction, including using technology to
allow employees to work from home when possible. As long as they are required,
the operational practices implemented could have an adverse impact on our
results. The negative impact of COVID-19 remains uncertain, including on overall
business and market conditions. There is uncertainty related to the potential
additional impacts COVID-19 could have on our operations and financial results
for the year.
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.
Description of Business
Corporate Information
The Company was incorporated under the laws of the State of Nevada, U.S.A on
February 20, 2007 under the name Lincoln Mining Corp. On February 11, 2010, the
Company changed its name to Liberty Silver Corp and subsequently, on September
29, 2017, the Company changed its name to Bunker Hill Mining Corp. The Company's
registered office is located at 1802 N. Carson Street, Suite 212, Carson City
Nevada 89701, and its head office is located at 82 Richmond Street East,
Toronto, Ontario, Canada, M5C 1P1, and its telephone number is 416-477-7771. The
Company's website is www.bunkerhillmining.com. Information appearing on the
website is not incorporated by reference into this report.
Current Operations
Overview
The Company's sole focus is the development and restart of its 100% owned
flagship asset, the Bunker Hill mine (the "Mine"). The Mine remains the largest
single producing mine by tonnage in the Silver Valley region of northwest Idaho,
producing over 165 million ounces of silver and 5 million tons of base metals
between 1885 and 1981. The Bunker Hill Mine is located within Operable Unit 2 of
the Bunker Hill Superfund site (EPA National Priorities Listing IDD048340921),
where cleanup activities have been completed.
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In early 2020, a new management team comprised of former executives from Barrick
Gold Corp. assumed leadership of the Company. Since that time, the Company has
conducted multiple exploration campaigns, published multiple economic studies,
purchased the Bunker Hill Mine, purchased a process plant, and advanced the
rehabilitation and development of the Mine. The Company is focused on completing
the financing for, and execution of, a potential restart of operations at the
Mine.
Lease and Purchase of the Bunker Hill Mine
The Company purchased the Bunker Hill Mine in January 2022, as described below.
Prior to purchasing the Mine, the Company had entered into a series of
agreements with Placer Mining Corporation ("Placer Mining"), the prior owner,
for the lease and option to purchase the Mine. The first of these agreements was
announced on August 28, 2017, with subsequent amendments and/or extensions
announced on November 1, 2019, July 7, 2020, and November 20, 2020.
Under the terms of the November 20, 2020 amended agreement (the "Amended
Agreement"), a purchase price of $7,700,000 was agreed, with $5,700,000 payable
in cash (with an aggregate of $300,000 to be credited toward the purchase price
of the Mine as having been previously paid by the Company) and $2,000,000 in
Common Shares of the Company. The Company agreed to make an advance payment of
$2,000,000, credited toward the purchase price of the Mine, which had the effect
of decreasing the remaining amount payable to purchase the Mine to an aggregate
of $3,400,000 payable in cash and $2,000,000 in Common Shares of the Company.
The Amended Agreement also required payments pursuant to an agreement with the
U.S. Environmental Protection Agency ("EPA") whereby for so long as the Company
leases, owns and/or occupies the Mine, the Company would make payments to the
EPA on behalf of Placer Mining in satisfaction of the EPA's claim for historical
water treatment cost recovery in accordance with the Settlement Agreement
reached with the EPA in 2018. Immediately prior to the purchase of the Mine, the
Company's liability to EPA in this regard totaled $11,000,000.
The Company completed the purchase of the Bunker Hill Mine on January 7, 2022.
The terms of the purchase price were modified to $5,400,000 in cash, from
$3,400,000 of cash and $2,000,000 of Common Shares. Concurrent with the purchase
of the Mine, the Company assumed incremental liabilities of $8,000,000 to the
EPA, consistent with the terms of the amended Settlement Agreement with the EPA
that was executed in December 2021 (see "EPA 2018 Settlement Agreement & 2021
Amended Settlement Agreement" section below).
EPA 2018 Settlement Agreement & 2021 Amended Settlement Agreement
Bunker Hill entered into a Settlement Agreement and Order on Consent with the
EPA on May 15, 2018. This agreement limits the Company's exposure to the
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")
liability for past environmental damage to the mine site and surrounding area to
obligations that include:
? Payment of $20,000,000 for historical water treatment cost recovery for
amounts paid by the EPA from 1995 to 2017
? Payment of for water treatment services provided by the EPA at the Central
Treatment Plant ("CTP") in Kellogg, Idaho until such time that Bunker Hill
either purchases or leases the CTP or builds a separate EPA-approved water
treatment facility
? Conducting a work program as described in the Ongoing Environmental Activities
section of this study
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 included a
$2,000,000 payment to the EPA within 30 days of execution of this amendment,
which was made. The remaining $17,000,000 will be paid on the following dates:
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
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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.
The changes in payment terms and schedule were 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, corresponding 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 failed
to post the final financial assurance within 180 days of the execution of the
Amendment, the terms of the original agreement would be reinstated.
During the quarter ended June 30, 2022, the Company was successful in obtaining
the financial assurance. Specifically, a $9,999,000 payment bond and a
$7,001,000 letter of credit were secured and provided to the EPA. This milestone
provides for the Company to recognize the effects of the change in terms of the
EPA liability as outlined in the December 19, 2021, agreement. Once the
financial assurance was put into place, the restructuring of the payment stream
under the Amendment occurred with the entire $17,000,000 liability being
recognized as long-term in nature. The aforementioned payment bond and letter of
credit are secured by $2,475,000 and $7,001,000 of cash deposits, respectively.
Project Finance Package with Sprott Private Resource Streaming & Royalty Corp.
On December 20, 2021, the Company executed a non-binding term sheet outlining a
$50,000,000 project finance package with Sprott Private Resource Streaming and
Royalty Corp. ("SRSR"). The non-binding term sheet with SRSR outlined a
$50,000,000 project financing package that the Company expects to fulfill the
majority of its funding requirements to restart the Mine. The term sheet
consisted of an $8,000,000 royalty convertible debenture (the "RCD"), a
$5,000,000 convertible debenture (the "CD1"), and a multi-metals stream of up to
$37,000,000 (the "Stream"). The CD1 was subsequently increased to $6,000,000,
increasing the project financing package to $51,000,000.
On June 17, 2022, the Company consummated a new $15,000,000 convertible
debenture (the "CD2"). As a result, total potential funding from SRSR was
further increased to $66,000,000 including the RCD, CD1, CD2 and the Stream
(together, the "Project Financing Package").
The Company closed the $8,000,000 RCD on January 7, 2022. The RCD bears interest
at an annual rate of 9.0%, payable in cash or Common Shares at the Company's
option, until such time that SRSR elects to convert a royalty, with such
conversion option expiring at the earlier of advancement of the Stream or July
7, 2023 (subsequently amended as described below). In the event of conversion,
the RCD will cease to exist and the Company will grant a royalty for 1.85% of
life-of-mine gross revenue from mining claims considered to be historically
worked, contiguous to current accessible underground development, and covered by
the Company's 2021 ground geophysical survey (the "SRSR Royalty"). A 1.35% rate
will apply to claims outside of these areas. The RCD was initially secured by a
share pledge of the Company's operating subsidiary, Silver Valley, until a full
security package was put in place concurrent with the consummation of the CD1.
In the event of non-conversion, the principal of the RCD will be repayable in
cash.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed
to a number of amendments to the terms of the RCD, including an amendment of the
maturity date from July 7, 2023, to March 31, 2025. The parties also agreed to
enter into a Royalty Put Option such that in the event the RCD is converted into
a royalty as described above, the holder of the royalty will be entitled to
resell the royalty to the Company for $8,000,000 upon default under the CD1 or
CD2 until such time that the CD1 and CD2 are paid in full.
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The Company closed the $6,000,000 CD1 on January 28, 2022, which was increased
from the previously announced $5,000,000. The CD1 bears interest at an annual
rate of 7.5%, payable in cash or shares at the Company's option, and matures on
July 7, 2023 (subsequently amended, as described below). The CD1 is secured by a
pledge of the Company's properties and assets. Until the closing of the Stream,
the CD1 was to be convertible into Common Shares at a price of C$0.30 per Common
Share, subject to stock exchange approval (subsequently amended, as described
below). Alternatively, SRSR may elect to retire the CD1 with the cash proceeds
from the Stream. The Company may elect to repay the CD1 early; if SRSR elects
not to exercise its conversion option at such time, a minimum of 12 months of
interest would apply.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed
to a number of amendments to the terms of the CD1, including that the maturity
date would be amended from July 7, 2023, to March 31, 2025, and that the CD1
would remain outstanding until the new maturity date regardless of whether the
Stream is advanced, unless the Company elects to exercise its option of early
repayment.
The Company closed the $15,000,000 CD2 on June 17, 2022. The CD2 bears interest
at an annual rate of 10.5%, payable in cash or shares at the Company's option,
and matures on March 31, 2025. The CD2 is secured by a pledge of the Company's
properties and assets. The repayment terms include 3 quarterly payments of
$2,000,000 each beginning June 30, 2024, and $9,000,000 on the maturity date.
In light of the Series 2 Convertible Debenture financing, the previously
permitted additional senior secured indebtedness of up to $15 million for
project finance has been removed.
A minimum of $27,000,000 and a maximum of $37,000,000 (the "Stream Amount") will
be made available under the Stream, at the Company's option, once the conditions
of availability of the Stream have been satisfied including confirmation of full
project funding by an independent engineer appointed by SRSR. If the Company
draws the maximum funding of $37,000,000, the Stream would apply to 10% of
payable metals sold until a minimum quantity of metal is delivered consisting
of, individually, 55 million pounds of zinc, 35 million pounds of lead, and 1
million ounces of silver (subsequently amended, as described below). Thereafter,
the Stream would apply to 2% of payable metals sold. If the Company elects to
draw less than $37,000,000 under the Stream, the percentage and quantities of
payable metals streamed will adjust pro-rata. The delivery price of streamed
metals will be 20% of the applicable spot price. The Company may buy back 50% of
the Stream Amount at a 1.40x multiple of the Stream Amount between the second
and third anniversary of the date of funding, and at a 1.65x multiple of the
Stream Amount between the third and fourth anniversary of the date of funding.
As of June 30, 2022, the Stream had not been advanced.
Concurrent with the funding of the CD2 in June 2022, the Company and SRSR agreed
that the minimum quantity of metal delivered under the Stream, if advanced, will
increase by 10% relative to the amounts noted above.
Process Plant
On January 25, 2022, the Company announced that it had 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 "Process Plant") in eastern Washington
State, approximately 145 miles from the Bunker Hill Mine by road. The package
comprises substantially all processing equipment of value located at the site,
including complete crushing, grinding and flotation circuits suitable for a
planned ~1,500 ton-per-day operation at Bunker Hill, and total inventory of
nearly 10,000 components and parts for mill, assay lab, conveyer, field
instruments, and electrical spares. The Company paid a $500,000 non-refundable
deposit in January 2022.
On March 31, 2022, the Company announced that it had reached an agreement with a
subsidiary of Teck to satisfy the remaining purchase price for the Process Plant
by way of an equity issuance of the Company. Teck will receive 10,416,667 units
of the Company (the "Teck Units") at a deemed issue price of C$0.30 per unit.
Each Teck Unit consists of one Common Share and one Common Share purchase
warrant (the "Teck Warrants"). Each whole Teck Warrant entitles the holder to
acquire one Common Share at a price of C$0.37 per Common Share for a period of
three years. The equity issuance and purchase of the Process Plant occurred on
May 13, 2022.
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 three and six months ended June 30,
2022 and June 30, 2021. Unless otherwise stated, all figures herein are
expressed in U.S. dollars, which is the Company's functional currency.
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Comparison of the three and six months ended June 30, 2022 and 2021
Revenue
During the six months ended June 30, 2022 and 2021, respectively, the Company
generated no revenue.
Expenses
During the three and six months ended June 30, 2022, the Company reported total
operating expenses of $3,979,862 and $9,466,536, respectively. Compared to the
three and six months ended June 30, 2021, the Company reported total operating
expenses of $5,295,557 and $9,919,531, respectively.
The decrease in total operating expenses is primarily due to a decrease in
exploration costs and operation and administration costs when compared to the
three and six-month periods ended June 30, 2021. The Company was engaged in an
active exploration campaign during the three and six-month periods ended June
30, 2021, whereas the Company's primary focus during the three and six-month
periods ended June 30, 2022 was on advancing mine restart efforts, which was
accomplished with a lower level of expenditure.
The significant increase in consulting fees reflects the engagement of numerous
legal, accounting, engineering and other professional firms to assist the
Company in consummating several complex debt and equity financings, the
purchases of the Mine, the EPA financial assurance requirements, fair value
measurements of complex instruments, and advancement of project activities.
These fees were somewhat offset by a decrease in operational and administration
expenses.
For financial accounting purposes, the Company reports all direct exploration
expenses under the exploration expense line item of the condensed interim
consolidated statements of income (loss) and comprehensive income (loss).
Management determined that costs of the mine in the most recent quarter
constituted mine preparation costs rather than exploration costs, since it was
not focused on expanding the mineral resources, but was invested to execute on
the tasks and projects required to get the mine into shape for production
activities. Certain indirect expenses may be reported as operation and
administration expense or consulting expense on the unaudited condensed interim
consolidated statements of income and comprehensive income.
Liquidity and Capital Resources
Going Concern
These unaudited condensed interim consolidated financial statements have been
prepared on a going concern basis. The Company has incurred losses since
inception resulting in an accumulated deficit of $63,317,255 and further losses
are anticipated in the development of its business. Additionally, the Company
owes a total of $7,072,410 net of discount to the EPA (see Note 6) that is
classified as 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 condensed
interim 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, debt and multi-metals
stream financings. These unaudited condensed interim consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
The ability of the Company to emerge from the exploration stage is dependent
upon, among other things, closing on the multi-metals stram transaction (see
note 7), obtaining additional financing to continue operations, explore and
developing the mineral properties and the discovery, development, and sale of
reserves.
Debt and Equity Financings, EPA obligations, and Mine Purchase
As described above, during the six months ended June 30, 2022, the Company
closed on three convertible debentures totaling $29,000,000 and equity
financings (net of issuance costs) totaling $7,769,745 and used the proceeds to
purchase the Bunker Hill Mine, as well as satisfy short-term obligations to the
EPA including satisfaction of its financial assurance commitments, cost recovery
and water treatment payments, advancement of mine restart activities and the
funding of working capital requirements.
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Current Assets and Total Assets
As of June 30, 2022, the Company's balance sheet reflects that the Company had:
i) total current assets of $16,858,234, compared to total current assets of
$3,622,548 at December 31, 2021 - an increase of $13,235,686; and ii) total
assets of assets of $36,662,582, compared to total current assets of $4,071,796
at December 31, 2021 - an increase of $32,590,786. The increase in current
assets was primarily due to an increase in available cash as a result of the
proceeds from the convertible debentures and equity financings. Total assets
increased principally due to the increase in cash from financings and the
purchase of the Bunker Hill Mine.
Current Liabilities and Total Liabilities
As of June 30, 2022, the Company's balance sheet reflects that the Company had
total current liabilities of $10,333,772 and total liabilities of $56,110,157,
compared to total current liabilities of $22,795,277 and total liabilities of
$38,314,164 at December 31, 2021. The decrease in the current liabilities is
primarily reflective of the EPA cost recovery liability being moved from current
to long term liabilities. Total liabilities increased as a result of the closing
of the three convertible debentures, offset by the decrease in the long-term
derivative warrant liability, promissory note.
Working Capital and Shareholders' Deficit
On June 30, 2022, the Company had working capital of $6,524,462 and a
shareholders' deficit of $19,447,575 compared to negative working capital of
$19,172,729 and a shareholders' deficit of $34,242,368 for the year ended
December 31, 2021. Working capital increased during the six months ended June
30, 2022 primarily due to funding from debt and equity financings, and the
reclassification of cost recovery liabilities from current to long-term.
Shareholders' equity increased due to net income of $12,054,781 and $9,173,895
for the three and six month periods ended June 30, 2022, driven by decreases in
the fair value of the derivative warrant liability.
Cash Flow
During the six months ended June 30, 2022, the Company had a net cash increase
of $5,115,610, which represents cash provided from convertible debentures and
equity financings, with proceeds used to satisfy short-term obligations with the
EPA, purchase of the Bunker Hill Mine and a processing plant, partial repayment
of the outstanding promissory note, advancement of mine restart activities, and
funding of working capital requirements.
During the six months ended June 30, 2022, cash of $23,070,946 was used in
operating activities, primarily due to the usage of $9,476,000 to secure the
Company's financial assurance obligations with the EPA, $3,000,000 of payments
against EPA cost recovery and water treatment payables, funding of mine restart
activities, and other working capital requirements. This compares with cash used
in operating activities of $7,040,266 for the six months ended June 30, 2021.
During the quarter ended June 30, 2022, cash of $7,518,361 was used in investing
activities for the purchase of the Bunker Hill Mine, a process plant, equipment,
and real estate, compared with $94,693 used for investing activities in the six
months ended June 30, 2021
During the six months ended June 30, 2022, cash of $35,704,917 was provided by
financing activities by the three convertible debentures and the equity
financings, offset by cash used for lease payments, compared with cash of
$5,943,687 provided by financing activities in the six months ended June 30,
2021
Subsequent Events
In July 2022, the Company issued 1,975,482 common shares in connection with its
election to satisfy interest payments under the outstanding convertible
debentures for the three months ending June 30, 2022.
On July 29, 2022, the Company held its Annual General Meeting during which all
director nominations and other proposals were approved. This included the
re-appointment of Dr. Mark Cruise, whose initial appointment was announced on
June 30, 2022, replacing Mr. Wayne Parsons. The following notable proposals were
approved: (i) an increase in the authorized common share capital of the Company
to 1,500,000,000 common shares, (ii) authorization for a share consolidation of
up to 50:1 if enacted within the following two years, and (iii) an increase in
the maximum RSUs issuable under the Company's Restricted Share Unit plan.
Critical accounting estimates
The preparation of the interim condensed consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities and contingent
liabilities at the date of the financial statements and reported amounts of
expenses during the reporting period. Estimates and judgments are continuously
evaluated and are based on management's experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. Actual outcomes can differ from these estimates. The key sources
of estimation uncertainty that have a significant risk of causing material
adjustment to the amounts recognized in the financial statements are:
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Share-based payments
Management determines costs for share-based payments using market-based
valuation techniques. The fair value of the share awards and warrant liabilities
are determined at the date of grant using generally accepted valuation
techniques and for warrant liabilities at each balance sheet date thereafter.
Assumptions are made and judgment used in applying valuation techniques. These
assumptions and judgments include estimating the future volatility of the stock
price and expected dividend yield. Such judgments and assumptions are inherently
uncertain. Changes in these assumptions affect the fair value estimates.
Warrants and accrued liabilities
Estimating the fair value of derivative warrant liability requires determining
the most appropriate valuation model, which is dependent on the terms and
conditions of the issuance. This estimate also requires determining the most
appropriate inputs to the valuation model including the expected life of the
warrants and conversion feature derivative liability, volatility and dividend
yield and making assumptions about them.
The Company has to make estimates to accrue for certain expenditures due to
delay in receipt of third-party vendor invoices. These accruals are made based
on trends, history and knowledge of activities. Actual results may be different.
The Company makes monthly estimates of its water treatment costs, with a true-up
to the annual invoice received from the IDEQ. Using the actual costs in the
annual invoice, the Company will then reassess its estimate for future periods.
Complex Financing Transactions
The Company has engaged in a series of complex financing transactions, which
involve the issuance of certain conversion features embedded in the debt,
including options to receive interest payments in the form of the Company's
shares and to purchase a gross revenue royalty in the Bunker Hill Mine. These
instruments require evaluation to determine fair values of the debt and the
embedded conversion features, which require complex calculations of many
appropriate inputs to the valuation model variables, including but not limited
to the expected life of the debt instrument and conversion feature derivative
liability, volatility of the Company's shares, effective discount rates,
probabilities of operational assumptions as related to an anticipated royalty
revenue stream, the Company's own credit risk and other inputs. The Company has
to make estimates of each of these inputs in applying a valuation model to
account for the derivative values, the presentation of these values, the
periodic changes to the fair values and the recognition of these changes.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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