Bunker Hill Builds ‘Made in America’ Silver Platform | Richard Williams

Speaker 1 Hello and welcome to Kitco Mining with me, Paul Harris. Today is Thursday, the 26th of August and we're talking about M&A in the silver space. Joining me is Richard Williams, Executive Chair of Bunker Hill Mining, which has just announced the takeover of Silver 47. Richard, welcome to Kitco. Speaker 2 Thank you very much. Great to have you. Great to be on your show. And I'm I'm calling you from the Bunker Hill mine site right now. So hence the high vis vet and everything else that's going on down here. So if there's noise in the background, it's an active mine. Speaker 1 Excellent. It's always good to see executive chairs getting their hands dirty, metaphorically, so to speak, actually at the mine site. So hopefully we'll be able to get some good insights from you about what's going on there. As mentioned, Bunker Hill is buying Silver 47 at a 38% premium to create AUS Silver Player. He's paying $0.67 per share in a 163,000,000 U.S. dollar all share deal to obtain about 247,000,000 ounces of silver equivalent. The combined company will be renamed Bunker Hill Silver and it will hold four US silver projects with about 390,000,000 ounces of silver in all resource categories including the Bunker Hill mine, the ramping up mine in Idaho where Richard is presently one of the biggest silver developer inventories in the silver space. Richard, first question obviously, why now, what is the opportunity that you see and over what time frame do you anticipate being able to realise that opportunity? Speaker 2 Well, you know, opportunity doesn't wait for anybody, does it really? We've been talking to Galen and his team from Silver 47 and prior to that at Summa Silva for a few years now. And in our view combining the cash engine of the Bunker Hill will be with their US based resource expiration profile 3 assets along with an interesting opportunity for tailings retreatment in Nevada. We'll create a new American, as we call it made in America silver focused company with a really great pipeline of opportunities in Alaska, New Mexico, Idaho and and as I said Nevada. So we've got this remarkable opportunity to get on with things now as we ramp up the mine, combine the teams and then give to all of our shareholders both on the Silver 47 side and on the Bunker Hillside exposure to really Great American silver and and critical metals opportunities. Speaker 1 Richard, I want to ask you get an update about the Bunker Hill mine in just a moment. But before then, let's talk a bit more about the pipeline. You outlined some of the projects in the US that you'll be getting through the Silver 47 acquisition. The main one of those I believe is Red Mountain, and that's potentially got a production start date of sort of 2031. How do you see the sort of pipeline fitting into what you've already got? What will the combined exploration approach be? Speaker 2 Yeah. OK. Well, I'll start with Bunker Hill and give you a bit of an update on on where we are now. Because putting a series of expiration assets and soon to be properly producing asset together means that you've got a cash engine which will allow all of our shareholders to have exposure to increasing amounts of expiration results, but not as a result of more and more equity or other cash being injected. Effectively, we'll be funding our expiration from cash flow. And so at the moment at Bunker Hill, we're ramping up and on track to be at commercial production by the end of this year. And then we'll be re issuing guidance for 2027, which is going to be materially different in an upside sort of way for that which we've put into our PFS, which we built this mine on of of a few years ago. And the reason it's going to be materially better is because of a recent discovery in the upper parts of the mine called the K8 vein system. We've already got development drifts into the K8 vein system and not only are we bringing in exploration results, but we're bringing in sampling from that development and we believe we can start mining that in a small way from this year and trending into next. And what's really significant about that for us, it's a Galena system and comes with silver and lead grades that are significantly higher than our reserve grade. And so we'll be seeing that come into resource and then come into reserves by the end of this year. And that's to give Bunker Hill quite a lot more cash going through 2027 than we originally envisaged. The second thing we're working on at Bunker Hill is the plan to deal with what is our only bottleneck on the mine site or our primary bottleneck on the mine site, which is the single portal through which all the ore must come out and into which all the paste and miners and equipment must go. And that constrains us to an 1800 tonne a day operation. We're working at the moment on putting a second portal in closer to where our our processing facility is. And we call that the Deadwood project, named after the Gulch where the where the portal will enter the mountain. That should pending further studies and obviously engineering work and investment gets to 2500 tonnes a day through the end of 2027. And the combination of increasing grade and increasing tonnage into a processing plant that can deal with both that grade and those tons, which is what we have here ramping up at the moment, will deliver significantly more cash than we expected even a year ago. Now where are we going to allocate that cash bearing in mind we've now got this wonderful exploration opportunities coming together? Well, Red Mountain is very compelling with 168,000,000 ounces of silver equivalent. It's AVMS belt and think of Flin, Flon and so on equivalent in Alaska in an area that is judged by all of us to be very friendly or positive for mining. It's beyond, you know, that it needs infrastructure to turn it into a mine and specifically it needs roads and so on over 30 kilometres to do that. So it's quite a serious project. But at the moment, we're seeing from our Silver 47 colleagues and future partners some really exciting results there. And I think it's most likely that what we'll be doing with that is exploring it as a district play and then being in the business of potentially issuing Peas with respect to develop development through 2027. And so from there, you'll see us developing quite a lot of value and optionality in Red Mountain over the next year or so. Now, Mogolan or Mogolan down in New Mexico, I'm never very good at saying it, 32,000,000 oz. This epithermal opportunity where the mineral resource only covers 2 1/2 of the 77 kilometres that we've got there is giving us some really excellent metallurgical recoveries as was reported. And we've seen in the data room 97% silver and 98% gold. And what's interesting there to really take this further, it's engagement with the Bureau of Land Management, which we have very close connections with at a federal level, the Department of Interior. And courtesy of the fact that at Bunker Hill, we are the first mind to come into production in an environmental clean up site known as a Superfund site here in the United States. And as a result we've built very deep relationship with the Environmental Protection Agency, the Department of Interior and other departments that we would have to engage with to ensure permitting and projects advance at the right timetable. And so those are two areas. Now when it comes to Nevada, which is the Tonopah project, which again everybody knows a lot about historically, the bit which we're very interested in, I mean, I'm talking Bunker Hill, in addition to just expanding the resource in an area that is rather like Bunker Hill, famous in the history of American mining is looking at a tailings project that Silver 47 has evolved and has been working with the US Diploma of Energy to fund that We could bring into production potentially as early as late 2027 or early 2028. And So what you'll see us doing with the cash that we're generating net of all expenses is prioritising investments to give us the highest bang for our buck across all three of those at non Bunker Hill projects, while at the same time enhancing the opportunity here at Bunker to generate significant cash. And that's really why the combination is making a lot of sense. What would we be doing with our cash to generate really good value if we're on a stand alone basis? In our view, it's worth something quite clearly. But putting it together with these remarkable American exploration opportunities in Alaska, Nevada and New Mexico, combined with Idaho gives us, I think, a pretty unique and and compelling set of opportunities. Speaker 1 It is a very powerful recipe, as you say, Richard, I want to bring in some other aspects there. You mentioned the the expansion at the Bunker Hill mine up to a potentially 2500 tonnes a day. By putting in that second portal, you've got support from the US government. US Exim Bank has provided what up to $150 million in support there. I want to use that as A to ask you a question about sort of critical minerals. You mentioned the, the, you've got some lead potential there. You're in Idaho Silver Valley, other mines in the region. The Idaho Silver Valley has been a big producer of antimony over the years. Some of the other companies in the the Silver Valley are looking at producing or are actively producing antimony as well. There's copper there. So what other sort of critical minerals potential do you see there for Bunker Hill? Speaker 2 Well, again the the US definition of critical minerals or critical metals include silver and that came in, in the last 12 months. But at Bunker Hill like many silver mines, we are polymetallic. We produce a lot of zinc, which is, you know, priced at $1.80 right now, which is a nice high, and lead and silver. Our mineralisation is primarily zinc sulfide, sparilite and Galena. We have a very small amount of tetrahedronite which characterises the other. Tetrahedronite primarily characterises the high grade portions of the other mines in the Silver Valley. Galena owned by Americans Gold and Silver, Sunshine by Tom Kaplan and Electrum and Heckler by my friends company that's Rob Krishnaroff. We used to work together at Barrack at Hector at the far end of what is a 20 mile long valley that produced 1.2 billion ounces of silver. A really remarkable place to be operating. But from there you mentioned antimony. Antimony is really a by product of of if we simplify the language of mining tetrahedrite and and so you see America's gold and silver in discussions to build an antimony plant, you also get sunshine interested in doing the same. And so the Silver Valley will be producing critical metals, primary critical metals, silver, lead, zinc, copper, but will also produce some of these specialist critical metals like Anthony. Now with respect to Bunker Hill, what makes us interesting to the US government from a critical metal supply chain perspective is, is the three principal metals that we produce anyway, which is zinc, lead and silver, which produced in concentrate will be refined at Tex, our largest shareholders trail smelter in British Columbia with a considerable portion of it and by products such as germanium coming back in to the US supply chain. Now Red Mountain is also polymetallic, a lot of zinc and it like all VMS deposits are. And we would look at Alaska, which is a strategic state for the US in terms of metals and in terms of global positioning being something that really does attract quite a lot of U.S. government attention. And to bring you into the EXIM point, but we have a letter of intent. Many people have letters of intent from US Export Import Bank to expand our production using $150 million of their debt, but also to use a portion of that $150 million, approximately half of it to retire expensive debt that we've built up on our balance sheet to fund our construction. Now we're not going to be in the business of taking that from LOI through to executed cash until the start of next year when we're in commercial production. The underwriting process to release that money is a lot easier when we're a producer with a record of production and a go forward plan in the ways that I've just outlined that shows increasing amounts of cash flow. So we see the US government as a partner to us, but we haven't had to at this stage rely on a single dollar of U.S. government money to get us to where we've got to. We've just simply wanted to be prioritized when it comes to engagement with the EPA and other. So we say permitting or above ground activities. And the US government, along with anybody involved in mining in the US right now is very, there's a, there's a great interest in what we're all doing to help them restructure their supply chains. So we see us, we see ourselves playing a part in that and, and and the US market being a market for our metals that is going to be increasing in significance over time, not decreasing. Speaker 1 Thank you, Richard. Now being in Idaho's Silver Valley, you're certainly in the right place at the right time. You mentioned some of the other companies there, such as Doctor Thomas Kaplan, Sunshine Silver. My colleague Jeremy Safran recently did an interview with him, which you can see on the Kitco YouTube channel. And of course America's Gold and Silver at Galena, both of those also contemplate having smelting and refining capacity. So Richard, I want to ask you more a little bit about the agreement you have with with tech. You truck your silver, lead and zinc concentrates or you will truck them to and Tex Trail smelter in British Columbia. Given that there will be refining, smelting, refining capacity in the valley and within the overall context of the growing trade war between Canada and the US, are you perhaps looking at some point in the future sending those concentrates locally rather than sending them into Canada? Well. Speaker 2 We've got an agreement with tech they, I mean our relationship with tech I should talk about started some time ago when I think I lose track of time. We've been doing this for six years now, which is quite fast by the way, bring a dead mine into production in six years, particularly one that had to deal with the pressures of COVID and all that that did to the market as well as one that has been seen to be an environmental challenge. And so anyway, that's, that's off for the team for doing that. But, but if you just go back to the COVID period where money was incredibly tight for development projects and we were seen to be more base metals than silver back then because we hadn't discovered K8 and we hadn't done this Silver 47 deal, we had to be looking on the lookout for opportunities to build the mine in ways that would be as economical as possible. And one of the opportunities as we found in in with with Tech's closed mine site in Ponderay in Washington, 120 kilometres or so away from where I'm sitting at the moment, is they had a processing facility that they were about to dismantle as part of their closure obligations that we could make use of. So we bought it from them, paid them equity and a little bit of cash and that got them to around about a 10% holding in Bunker Hill. And when we did that, we also said, look, when we're up and running, we'll be sending our concentrates to you at Trail. And we did a deal with them on that basis. Now we moved that processing facility to site and we refurbished those elements of it which would be useful and where we needed to buy new, we bought new. And we now have this integrated processing solution and at the back end tailings filter press that deals with the tailing solution in a closed circuit, very modern, very large, largest by long way by the way, 1800 to 2500 tonnes a day processing facility here in the Silver Valley. Lots of synergies to be unlocked there, but I get distracted on that for now. Your questions about smelting. So we had a long term relationship with tech and a commitment to send them our zinc concentrate and our lead concentrate along the way. Now at no time has the various discussions, politically motivated discussions between the US and Canada, so-called trade war impacted us at all. And I think not that I have any deep insight into this. I think for both the US and the Canadian governments, the integrated nature, nature of the metal supply chain within the North American continent continent means that actually when the people are starting to throw stones at each other, that integrated metal supply chain will for a period of time not be effective and are affected and in our view not be affected at all. But I can't guarantee that now here in America there is a lot of investment going in to build refineries and smelting and downstream capabilities for rare earths as well as every other metals. And that's thoroughly sensible because the history of Bunker Hill and the history of American mining and history of American refining are intertwined. Bunker Hill used to be a vertically integrated operation with it's own lead smelter and zinc plant and it produced all the products, refined products that that everybody would need today and more actually. And to me being but one part of it, because it was a sufficiently large operation that it took, it took feed from multiple other mines within Idaho and across the US. But the problem was it is that. Along with a lot of US mining and a lot of US industrial activity, they couldn't keep up with the very, very good environmental laws passed in the 1970s under the President Richard Nixon Environmental Protection Act, Clean Air Act, Clean Water Act and so on. And that shut down all of the smelting operations in in the US and shut down Bunker Hill's smelting operation there by Bunker Hill. The company and these areas were tidied up. And it's only been 40 plus years later that people like us are jumping back in again and restoring mining. But the refining hasn't been built. The refining all went offshore, not exclusively, but a lot to China and to take advantage of their demands. And America from the 1980s till very recently benefited from the economies of scale of buying their metal on the global market, much of which had been refined in China at the lowest price. And that was fine until very recently when it wasn't. And so America is having to reset that by investing in refining and smelting and processing technology here in the continental US or within allied, so-called allied or or friendly states as they define them globally and Canada will be one of those. So in answer to your question, do we as we look out over a time period, say 10 years, think that we could be sending our concentrate to somewhere else driven by national security or trade war concerns? It's possible, but I think everybody would lose out. Both tech would lose out. They'd get our nice clean concentrate locally, replacing what Ponderay had. the US would lose out because Text Trail Smelter is the primary supplier of germanium and gallium to the US Department of War today. So they probably wouldn't want to put that at risk. But actually if suddenly there was a lower cost solution that we could get into with the agreement of tech, of course we would use it. So it's a very dynamic changing situation, but it won't really affect us, I believe, unless there are this trade, so-called trade war. I think it's exaggerated definition of these things gets worse and worse to the point at which I don't know the, the, the you have to pay some kind of tariff for transporting your concentrate across the trail. And then the US government has to pay some kind of tariff tariff to get the critical metals it needs for its Department of War. We'll see how it goes. But at the moment my eyes and ears are open. But we're getting on with producing the concentrate and think that over the long term this will all settle down. Speaker 1 Thank you, Richard. I imagine that if there are alternative processing routes available that could potentially help you get better terms from or more competitive terms from tech. While we're on the subject of money, let's let's talk finances. I was looking at your second quarter financial results this morning. You had $6.6 million in cash, a $12 million U.S. dollar working capital deficit and about $100 million in in long term debt. You mentioned that that potential $150 million EXIM finance half that you would probably use to pay down some of that debt. Silver 42nd 47 has about $40 million Canadian in in working capital and as part of the deal announcement it mentioned that Silver 77 will be will try and get a $5,000,000 unsecured debt facility as well. Talk me through all that, unpick all that. What was the financial situation of Bunker Hill like? You know, that debts obviously concern you're looking at a route to pay down some of that or, or the most onerous part of that at least. So within that scheme of things, why is Silver 47 looking to raise $5,000,000 in debt? Speaker 2 Yeah, no. Well, let's you know we're in a very for anyone that's been bringing a, a mine into production where you finance it and the combination of equity, debt and other instruments in our case royalties and previously streamed finance. You go into production in cumbered unfortunately and the the sooner you can get to commercial production, which in our case it is cash flow positive, the better for obvious reasons and we anticipate being in that position by the end of this year. Now as you know and watchers of this show will know all ramp UPS from start, you know, the commissioning process extends through this from start to commercial production is not linear. You're bringing people into an operation that need to be trained and you're bringing a system into play that needs to be tested and adjusted under real loads and real conditions. Theory is meeting reality and you have to keep on adjusting things. Actually, we're doing pretty well. We're we're selling concentrate, which is getting of a better quality over time and we're ahead of where I want to be. So I'm very confident that we're going to get to our commercial production target by the end of this year. But money as you quite clearly point out from Q2 is very, very tight. And the sooner we can be making as much revenue as possible, the easier it is down here from a stress and reality and business reality perspective. But we always had in place a $10 million standby facility from tech that we're drawing down on. And we put in place in addition, an additional $10 million facility from Ocean Partners, who is one of the groups that trading groups that we will push. Well is the trading group that we'll push our LED concentrate to. And in addition to that, Silver 47 when they're looking at and we're discussing with them, they said, well, look, if you need to, we could make some of our balance sheet available between now and the time the deal closes. Because what you don't want to be doing is announcing a deal when you're going into production and then suddenly saying, wow, I need to raise some equity, which we don't think we need to do. But things could go wrong if you like or, or twist and turn on the path to commercial production and you're suddenly short of, of, of, of the money you need. So it's in the spirit of partnership with Silver 47 that they are making $5 million of of their balance sheet available to us should we need it. Frankly, using if the the tech facility and potentially some of the ocean partners facility will mean it's highly, highly unlikely given the trajectory I see in front of me that we're going to need any of Silver 47's money. But when we come together in God willing, November, I mean, because there's the process you've got to go through to get there. It's always takes a little bit longer than than than I'd like, but it's say November time. Bunker Hill will also and the combined company Bunker Hill Silver will have the cash that is on Silver 47's balance sheet. And by then the cash that we have generated from operations as our as our starting position. Now what we want to do is working together is to restructure or replace the existing debt that's on the balance sheet that we that's priced according to the market to take account of the fact that we're bringing your mine in production with the PFS and so on and so forth different price. So as we go into 2027 US using US Exim or other sources, our real focus from a balance sheet perspective looking on the negative side, looking on the on the debt side is to restructure and replace some of that debt. So it's lower cost to allow the mine to not just generate maximise the cash it general free cash it generates before it reallocates that to expiration, but also just to strengthen the balance sheet along the way. So we're in a pretty standard position for a mine going into production, which is typically not done in a single asset basis from pure equity, but it's done from a combination of equity stream royalty and debt. And we do have some debt that's more expensive than we'd like, and we'd like to replace it. Speaker 1 Thank you, Richard. Now looking at your debt, you've got convertible notes, you've got a Sprott debt facility, but the big item seems to be the silver loan and that's pretty much for the same value as you're mentioning that 75,000,000 potentially from the US Exim Bank, Is that the bit that you'd look to pay off? Is that the most expensive bit? Speaker 2 That's the most expensive and the piece that we would want to remove as a as a private priority. The other two are are relatively speaking easily manageable and we feel actually and and our stakeholders and shareholders feel which is why as you'll note when we announced the deal, the support was given by Tech, was given by Ocean Partners, who's a shareholder at large, shareholder of ours and is given by spot streaming resources for the deal. Because they actually see the combination of these two companies are going to be of a scale and a size and a market profile to have better access to both the debt and the equity market credit and the equity markets such that we can and deal with that Silver Valley Silver loan, forgive me, Silver Valley loan, Silver loan as as soon as possible and at the right price in the early part of 2027. And that, frankly, once the deal is closed, is the catalyst of all catalysts. And we will be doing an awful lot in terms of showing to the market and showing to investors the resource that we have bought those 3 assets and the potential within Bunker Hill. But it's actually getting that silver loan into a point or replaced, repaid or into a place that is more sustainable. It is going to give all of our equity holders access to much more cash on a per share basis than they would be getting with its existence. Speaker 1 Thank you, Richard. And that gives me a nice segue into sort of my next question. What do you anticipate the key catalyst being that our viewers should watch out for in the 12 months following the closure of the transaction in November? Speaker 2 Yeah, thanks from. So we take it from November. So we've closed it in November and we're going forward. Well, the guidance we're going to issue for 2027, I would say is the first one incorporating. Well, we've done a resource and reserve statement probably would be the first one incorporating those resources and thereby reserves into our 2027 mine plan and issuing guidance on silver, zinc and lead for Bunker Hill. That's going to be materially above what we planned on in the PFS. We think that's going to be a very compelling catalyst. Then in addition from that you're going to see and again our business planning for 2027 combined with Silver 47 is yet to be concluded. You're then going to see a series of expiration results from the high pay off zones in Alaska, New Mexico and Nevada. But the big catalyst through the first half of next year that you're going to see is dealing with wrestling that silver loan into a place whereby it's we're now getting more cash for shareholders. Now I can list multiple others, but we're into the operation space there. So we should be the moment the market believes in all of this. And we all know there's a lag in that. We should be moving from where we've previously been valued as a single asset base metal developer into being a silver producer at some point next year. The market typically takes 6 to 12 months from commercial production to start valuing you properly as a producer. And again the market is being fair in that. So we will be putting out quarterly results as producers and everyone's familiar with how that works and have been being a former Chief Operating Officer, Barrick Gold. I know we all lived and died by hitting, which we always did when I was there, by the way, hitting those quarterly results. And we want our new team down here to be hitting the Q1Q23Q4 results in ways that gives the market true belief in the ability of the Bunker Hill mine to operate as a reliable producer of silver, lead and zinc. So you've got this great balance. We're moving from being judged on exploration and development results to being judged on operating results and exploration results. And at a corporate level, our ability to strengthen the balance sheet over that period of time to give our shareholders greater access to both the resource and then the amount of cash that we're producing. So I actually think the next 12 months, 2027 is going to be a very, very exciting year for us. And we've got a lot to do and I've got a very small team and we need to expand that a bit to make sure that we can cover all of those requirements and the associated risks as well as anybody. Speaker 1 Excellent. Well, congratulations once again on the transaction, Richard. We'll follow up with you at some point next year to get an update. Unfortunately, that's all we have time for today. So, Richard, thank you very much for joining me today. Speaker 2 Wonderful. Thanks very much again for having me. Speaker 1 And of course, if you like what you see, don't forget to hit that subscribe button. I'm Paul Harris for Kitco Mining.