Contract analysis

From: Brendan Walsh <bwalsh@calderwoodharkness.com> To: Deepak Rathore <drathore@torchlightmining.com> Cc: "Vivienne St. Claire" <vstclaire@calderwoodharkness.com> Date: Fri, 04 Feb 2022 06:47:00 -0000 Subject: Torchlight Mining Corp. — $300,000,000 8.750% Senior Secured Notes due 2029 — Draft Preliminary Offering Memorandum [C&H Matter No. 1039-00002]

Please find attached the first draft of the Preliminary Offering Memorandum (the "OM") for the Rule 144A / Regulation S offering by Torchlight Mining Corp. (the "Issuer" or the "Company") of $300,000,000 aggregate principal amount of 8.750% Senior Secured Notes due 2029 (the "Notes"). The draft is marked "DRAFT — Subject to Revision" throughout.

For the group's reference, I have summarized below the principal sections covered in the draft and flagged a number of open items that will require input from the working group.

**Summary of Key Terms Reflected in the Draft**

The OM addresses the following terms and sections, among others:

- **Summary of the Offering:** $300,000,000 aggregate principal amount of 8.750% Senior Secured Notes due 2029; maturity date April 15, 2029; issue price 98.50% of par.

- **Use of Proceeds:** (i) Phase II Wolverine Lake mine expansion capital expenditure (~$167,000,000); (ii) repayment of the Ridgeline Bank of Canada CAD $225,000,000 revolving credit facility (CAD $140,000,000 currently drawn, approximately $110,250,000 at USD/CAD 0.7875); (iii) transaction fees and expenses (~$14,250,000); and (iv) general corporate purposes and working capital (~$8,500,000).

- **Description of the Notes and Indenture:** Key covenants include an incurrence-based leverage ratio of 3.75:1.00; a restricted payments basket starting at $25,000,000 with an RP leverage test of 3.00:1.00; limitation on asset sales with a 365-day reinvestment period; a change of control put at 101%; limitation on liens; and reporting obligations (annual reports within 90 days of fiscal year-end, quarterly reports

- **Optional Redemption:** Make-whole at Treasury + 50 bps prior to April 15, 2025; equity clawback at 108.750% (up to 40% of the original aggregate principal amount); 104.375% on or after April 15, 2025; 102.188% on or after April 15, 2026; and par on or after April 15, 2027.

- **Guarantees:** Joint and several senior secured guarantees from Wolverine Lake Mining Ltd., Torchlight Milling & Processing Inc., and Torchlight U.S. Holdings, Inc.

- **Collateral:** First-priority lien on substantially all tangible and intangible assets of the Issuer and Guarantors, including mining rights and mineral claims (Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47), surface rights, equipment, inventory, accounts receivable, intellectual property, intercompany notes, and equity interests in Guarantor subsidiaries.

- **Business and Property Description:** The Wolverine Lake nickel-copper mine is located approximately 85 km northeast of Thunder Bay, Ontario, on a 12,400-hectare property. Current Measured & Indicated resources total 48.2 Mt at 1.12% Ni / 0.38% Cu, with an additional Inferred resource of 11.7 Mt at 0.94% Ni / 0.31% Cu. Phase I production is approximately 18,000 tonnes Ni-in-concentrate and approximately 6,100 tonn

- **Financial Data:** FY 2021 revenue of CAD $612.4 million; Adjusted EBITDA of CAD $189.7 million; market capitalization of approximately CAD $1.87 billion as of January 14, 2022.

- **Initial Purchaser Information:** Kelvantis Capital Markets LLC (lead book-runner, 60%); Prestige Barrington & Co., Inc. (co-manager, 25%); Halcyon Securities Inc. (co-manager, 15%). The initial purchaser discount is 2.25% ($6,750,000).

- **CUSIP / ISIN:** 144A CUSIP 891207 AA 3 / ISIN US891207AA38; Reg S CUSIP C89120 AA 5 / ISIN USC89120AA58 (placeholders — to be confirmed).

- **Trustee / Collateral Agent:** Northern Dominion Trust Company.

- **Denominations:** Minimum denomination of $2,000 and integral multiples of $1,000 in excess thereof; book-entry form through DTC (144A) and Thackeray Partners LLC/Ashgrove Enterprises (Reg S).

- **Interest Payment Dates:** Semi-annually on April 15 and October 15, commencing October 15, 2022.

A number of sections in the draft require further input from the working group, and I have flagged these with brackets or placeholders in the text:

1. **Business Description and Operational Data.** Certain details in the business and property description sections will need to be confirmed by Stavros Katsaros and the mine operations team at Torchlight. We have inserted bracketed language where we are working from publicly available disclosure and need management verification.

2. **Financial Statements and Data.** All financial figures in the OM will need to be confirmed against the audited financial statements prepared by Aldgate Thornton LLP (Francesca Hui, engagement partner). We have used the figures provided to date but would appreciate a formal sign-off from the finance team.

3. **Independent Engineer's Report.** The independent engineer's report from Cascade Technical Advisors Inc. (Dr. Elaine Whitaker, P.Eng.) is expected on February 28, 2022. Technical disclosure drawn from that report will be incorporated once it is received and reviewed.

4. **Ratings.** The rating agency sections are currently in placeholder form pending the expected ratings from Northmark Ratings Group and Creston Analytics, which we understand are targeted for March 7, 2022.

5. **Phase II Expansion and Environmental / Regulatory Matters.** Certain risk factors and disclosure items relating to the Phase II expansion timeline, permitting status, and environmental and regulatory matters remain in bracket or placeholder form and will require management input to finalize.

6. **Ridgeline Bank of Canada Revolving Facility.** The draft describes the existing CAD $225,000,000 committed revolving credit facility with CAD $140,000,000 drawn, to be repaid and terminated at closing. Deepak and Lianne — could you please confirm the current drawn amount and let us know if there are any updates from Gavin Forde at Ridgeline that we should reflect?

- **Harrison and Nadia (Clairmont & Voss):** The draft Purchase Agreement will follow separately. We will circulate that in a subsequent email once initial OM comments are consolidated and we have had a chance to align the Purchase Agreement representations and conditions with the final OM disclosure.

- **Marie-Claire (Pendleton Ross):** The Canadian securities law disclosure sections and TSX notification language are flagged for your review. Those sections are marked with "[PR Review]" in the margin for ease of reference.

- **Management Presentations / Due Diligence Sessions:** As a reminder, the management presentations and due diligence sessions are currently scheduled for February 14–16, 2022. It would be very helpful to have initial OM comments in hand in advance of those sessions so that we can address open disclosure points during the diligence calls.

We would appreciate receiving all comments and mark-ups by **close of business on Friday, February 11, 2022**. To the extent practicable, we would ask that comments be consolidated within each organization — i.e., one combined set from the Torchlight team and one combined set from Clairmont & Voss — so that we can work through them efficiently.

**Attachment:** Torchlight Mining Corp. — Preliminary Offering Memorandum — DRAFT (February 4, 2022).docx

Please do not hesitate to reach out to me, Audrey, or Vivienne with any questions.

Brendan Walsh Calderwood & Harkness LLP 450 Park Avenue New York, NY 10022 T: +1 (212) 554-2837 E: bwalsh@calderwoodharkness.com

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