Contract analysis

I. Executive Summary This memorandum is prepared for the purpose of updating and superseding the Litigation Reserve Analysis Memorandum dated October 15, 2022 (the "Prior Memorandum"), which Calderwood & Harkness LLP ("C&H" or the "Firm") previously provided to the Audit Committee of the Board of Directors of Torchlight Mining Corp. ("TMC" or the "Company") in connection with the ongoing grand jury investigation by t

II. Background and Procedural History A. The Investigation The DOJ Antitrust Division formally opened a grand jury investigation on or about February 10, 2022, convening Grand Jury No. GJ-22-0194 in the United States District Court for the Northern District of California, San Francisco Division. The investigation concerns suspected violations of Section 1 of the Sherman Antitrust Act (15 U.S.C. § 1) in the North Amer

III. Applicable Accounting Standards The determination of the appropriate litigation reserve for this matter requires analysis under two accounting frameworks: ASC 450 (Contingencies) under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), which applies to TMC's SEC filings, and IAS 37 (Provisions, Contingent Liabilities, and Contingent Assets) under International Financial Reporting Standards ("IFRS"), wh

IV. Assessment of Liability Probability A. Target Letter Significance As noted above, TMC received a formal target letter from the DOJ Antitrust Division on May 20, 2022. The target letter, signed by Senior Trial Attorney Marcus Reeves, advised TMC that the Company is a "target" of the grand jury investigation — meaning that, in the DOJ's assessment, there is substantial evidence linking TMC to the commission of a fe

V. Estimated Loss Range and Recommended Reserve A. Penalty Calculation Framework The DOJ Antitrust Division employs a well-established methodology for calculating corporate penalties in antitrust cases resolved through plea agreements, NPAs, and DPAs. The starting point for the penalty calculation is the determination of the "base fine," which is calculated as 20% of the volume of affected commerce attributable to th

VI. D&O Insurance Considerations TMC tendered notice of the DOJ investigation to its directors and officers ("D&O") insurance carrier, Northland Mutual Insurance Co. ("Northland"), on March 4, 2022, under D&O Policy No. NMI-DO-2021-5547. The policy was in effect for the period July 1, 2021, through July 1, 2022, and has been renewed annually since that date. The policy provides an aggregate limit of USD 50 million, w

VII. Disclosure Considerations A. Current Disclosure TMC first disclosed the existence of the DOJ investigation in its FY 2021 annual report, filed simultaneously on SEDAR+ (for Canadian regulatory purposes) and with the SEC on Form 40-F, on March 28, 2022. The initial disclosure included the following key elements: • A description of the investigation as a DOJ Antitrust Division grand jury investigation into pricing

VIII. Coordination with Auditor Coordination with TMC's independent auditor, Calvert & Associates LLP, is an important element of the reserve-adjustment process. C&H recommends that Priya Anand (General Counsel) and Richard Fong (CFO) schedule a call with Daniel Moreau, the Calvert engagement partner, at the earliest practicable date to discuss the following: (1) The basis for the recommended increase in the litigati

IX. Summary of Recommendations Based upon the foregoing analysis, Calderwood & Harkness respectfully recommends that the Audit Committee take the following actions:

1. Increase Litigation Reserve from USD 30 Million to USD 50 Million. The Audit Committee should approve an increase in TMC's litigation reserve for the DOJ Antitrust Division grand jury investigation from USD 30 million to USD 50 million. The revised reserve should be reflected in TMC's Q3 2023 interim financial statements filed with the SEC (Form 40-F / Form 6-K) and on SEDAR+. The USD 50 million reserve reflects a

2. Update Public Disclosure. TMC should revise its loss contingency footnote in the Q3 2023 interim financial statements to reflect the increased reserve, the receipt of the target letter, and the evolving posture of the investigation, using carefully drafted disclosure language that avoids any statement that could be construed as an admission of wrongdoing or that could compromise TMC's negotiating position.

3. Coordinate with Calvert & Associates LLP. TMC management, through the General Counsel and CFO, should schedule a call with Daniel Moreau at Calvert & Associates LLP to discuss the revised reserve, the basis for the increase, and the adequacy of the reserve and disclosure language under both IFRS and U.S. GAAP. C&H will provide an audit response letter as requested.

4. Continue Monitoring. C&H will continue to monitor all developments in the DOJ investigation, including the progress of NPA negotiations, the completion of Hargrove Forensic Advisory's final report, and any additional DOJ requests or actions. C&H will advise the Audit Committee promptly if further adjustments to the litigation reserve are warranted in light of new developments.

5. Board Authorization. The Audit Committee should formally authorize the reserve increase and direct TMC management to implement the revised disclosure in the Q3 2023 interim financial statements, in coordination with C&H, Calvert & Associates, and Ironbridge Capital Markets.

X. Reservation and Disclaimer This memorandum and the analysis contained herein are based upon information available to Calderwood & Harkness LLP as of August 20, 2023. The analysis reflects C&H's professional judgment regarding the probable outcomes of the DOJ Antitrust Division grand jury investigation and the appropriate litigation reserve for TMC's financial statements. Actual outcomes may differ materially from