Contract analysis

I. Executive Summary The purpose of this memorandum is to provide Torchlight Mining Corp. ("TMC" or the "Company") leadership with a comprehensive assessment of the Company's legal and financial exposure arising from the pending multi-site environmental enforcement action brought by the United States of America (acting through the United States Environmental Protection Agency ("EPA") and the United States Department

II. Background A. Torchlight Mining Corp. — Corporate Overview Torchlight Mining Corp. is a corporation organized under the Canada Business Corporations Act ("CBCA") and is dual-listed on the Toronto Stock Exchange (TSX: TRC) and the New York Stock Exchange (NYSE: TRC). The Company's principal corporate offices are located at 1800 Bayfield Tower, 401 Bay Street, Toronto, Ontario M5H 2Y4, Canada. TMC maintains a U.S.

III. Site-by-Site Factual Summary and Regulatory History This section sets forth the factual background for each of the four sites at issue, including site descriptions, environmental conditions, regulatory history, the specific violations alleged by the government, and our preliminary assessment of remediation costs. Site location maps and detailed contaminant data are included in Appendices C and D, respectively. A

1. Site Description and Operations The Ridgecrest Copper-Molybdenum Mine is located at 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832. The mine footprint encompasses approximately 3,200 acres, with the total controlled property — including buffer lands, access corridors, and ancillary infrastructure — extending to approximately 8,700 acres. The site is situated in a mountainous area at an elevati

2. Environmental Conditions The principal environmental concern at the Ridgecrest Site is acid mine drainage ("AMD"), which is generated by the oxidation of sulfide minerals — primarily pyrite and chalcopyrite — in exposed waste rock, pit walls, and the tailings impoundment. AMD from the site is characterized by extremely low pH (as low as 2.3 in certain seeps) and elevated concentrations of dissolved metals. The fol

3. Regulatory History The Ridgecrest Site has a significant regulatory history. The site was proposed for listing on the National Priorities List ("NPL") under CERCLA, though formal listing has not been finalized. In lieu of NPL listing, the site is currently addressed under an Administrative Order on Consent ("AOC"), Docket No. CERCLA-08-2022-0039, executed on September 15, 2022, between EPA Region 8 and TMC's U.S.

4. Alleged Violations The government alleges the following violations at the Ridgecrest Site: • CWA § 301, 33 U.S.C. § 1311: Unpermitted discharges of AMD — containing dissolved copper, molybdenum, selenium, and other pollutants — from point sources at the mine site (including tailings impoundment seepage collection points and waste rock drainage channels) to Flint Creek, a navigable water of the United States. The d

5. Remediation Cost Estimates The Ridgecrest Site represents by far the largest single-site exposure in this enforcement action and drives the overall economics of the settlement. Remediation will be required over a period of approximately 30 years and will encompass construction of a permanent Bramwell Group and treatment system, stabilization and capping of the tailings impoundment, Flint Creek water quality restor

1. Site Description and Operations The Gallatin Chemical Works is located at 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714. The facility occupies approximately 145 acres within the Belgrade industrial park area, situated in the Gallatin Valley at an elevation of approximately 4,460 feet. The facility is bounded to the north by agricultural land, to the east by other industrial operations, to the

2. Environmental Conditions The principal environmental contaminant of concern at the Gallatin Site is carbon disulfide ("CS₂"), a volatile organic compound used as a feedstock in the manufacture of xanthate reagents. Groundwater monitoring data from the site's network of monitoring wells has revealed CS₂ concentrations as high as 890 µg/L, which exceeds the EPA Maximum Contaminant Level ("MCL") of 10 µg/L by a facto

3. Regulatory History The Gallatin Site is a RCRA-permitted facility operating under RCRA Permit No. MTD098712456, issued by EPA Region 8 with MT DEQ concurrence. The permit includes corrective action requirements for the three identified SWMUs. TMC has been found to be in non-compliance with certain corrective action milestones specified in the permit, contributing to the enforcement action. The Montana Department o

4. Alleged Violations The government alleges the following violations at the Gallatin Site: • RCRA §§ 3004 and 3005, 42 U.S.C. §§ 6924, 6925: The complaint alleges that TMC (through TSC) has operated an unpermitted hazardous-waste storage unit at the facility — specifically, the former chemical waste storage area adjacent to the main production building, which the government contends has been used for storage of reac

5. Remediation Cost Estimate Pinnacle Creek Environmental has prepared a remediation cost estimate for the Gallatin Site of $42.8 million over a 15-year period. On an NPV basis at a 3% discount rate, this equates to approximately $34.1 million. The remediation program will encompass a corrective measures study for the three SWMUs, implementation of corrective measures, CS₂ groundwater remediation (likely including a

1. Site Description and Operations The Bonanza Creek Gold Mine is located on County Road 447 at Mile Marker 12, Lander County, Nevada 89820, approximately 28 miles south of the town of Battle Mountain. The mine footprint encompasses approximately 5,600 acres, with the total controlled property — including buffer lands, water rights areas, and ancillary infrastructure — extending to approximately 12,400 acres. The sit

2. Environmental Conditions The principal environmental concerns at the Bonanza Creek Site relate to process-solution releases from the heap-leach pad and contamination of solution ponds. Cyanide contamination: Weak acid dissociable ("WAD") cyanide concentrations in the heap-leach pad underdrain have been measured at 0.62 mg/L, compared to the applicable discharge limit of 0.022 mg/L — an exceedance factor of approxi

3. Regulatory History The Bonanza Creek Site is subject to RCRA corrective action requirements and CWA enforcement. The site holds a Nevada Water Pollution Control Permit governing process-solution management, and the three documented releases have been identified as violations of that permit as well as unpermitted discharges under the CWA. The Nevada Division of Environmental Protection has been actively involved in

4. Alleged Violations The government alleges the following violations at the Bonanza Creek Site: • CWA § 301, 33 U.S.C. § 1311: Unpermitted discharge of process solution — containing WAD cyanide, mercury, and other pollutants — from the heap-leach pad (a point source) to an ephemeral tributary of the Reese River (a water of the United States) on three documented occasions. The government contends that the ephemeral t

5. Remediation Cost Estimate Pinnacle Creek Environmental has prepared a remediation cost estimate for the Bonanza Creek Site of $63.2 million over a 20-year period. On an NPV basis at a 3% discount rate, this equates to approximately $47.1 million. The remediation program will encompass heap-leach pad liner repair and enhanced containment (including installation of a secondary containment system), cyanide and mercur

1. Site Description and Operations The Kanawha Bend Chemical Plant is located at 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112. The facility occupies approximately 78 acres within the Kanawha Valley industrial corridor, commonly known as "Chemical Valley," an area with a long history of chemical manufacturing. The facility is situated approximately one mile from the Kanawha River and is bo

2. Environmental Conditions The Kanawha Bend Site presents a complex suite of environmental contamination issues reflecting its nearly four decades of chemical manufacturing activity. Soil contamination: Sulfuric acid residuals have been identified in soils surrounding the sulfuric acid regeneration unit, with pH values as low as 1.8 — representing extremely acidic conditions that have rendered the affected soils ess

3. Regulatory History The Kanawha Bend Site is a RCRA-permitted facility operating under RCRA Permit No. WVD048823915, issued by EPA Region 3 with WV DEP concurrence. The permit includes corrective action requirements for identified SWMUs and areas of concern. The West Virginia Department of Environmental Protection has been actively involved in regulatory oversight of the site and has joined the federal enforcement

4. Alleged Violations The government alleges the following violations at the Kanawha Bend Site: • RCRA §§ 3004 and 3005, 42 U.S.C. §§ 6924, 6925: The complaint alleges that TMC (through TSC) has failed to properly close the former surface impoundment in accordance with RCRA closure requirements, including the requirements for removal or decontamination of waste residues, installation of a final cover system, and post

5. Remediation Cost Estimate Pinnacle Creek Environmental has prepared a remediation cost estimate for the Kanawha Bend Site of $38.9 million over a 20-year period. On an NPV basis at a 3% discount rate, this equates to approximately $29.0 million. The remediation program will encompass interim stabilization of sulfuric acid-contaminated soils and heavy metal-contaminated soils, DNAPL investigation and remediation in

IV. Statutory Liability Analysis This section presents our assessment of TMC's liability under each of the statutes at issue, applied to the specific facts of each site. Our overall conclusion is that the government has a strong case on the merits across all sites and all applicable statutes, and that TMC's available defenses are limited and unlikely to prevail at trial. A. Clean Water Act (CWA) — Section 301

Section 301(a) of the CWA, 33 U.S.C. § 1311(a), broadly prohibits "the discharge of any pollutant by any person" except in compliance with enumerated provisions of the Act, including the NPDES permit program under § 402. The term "discharge of a pollutant" is defined as "any addition of any pollutant to navigable waters from any point source." 33 U.S.C. § 1362(12). The CWA imposes strict liability — that is, there is

2. Site-Specific Application Ridgecrest: The CWA liability at the Ridgecrest Site is among the strongest claims in the government's complaint. The discharge of AMD — containing dissolved copper at concentrations approximately 5,400 times the Montana chronic aquatic-life standard — from the tailings impoundment and waste rock drainage channels to Flint Creek constitutes a textbook violation of CWA § 301. Flint Creek i

3. Assessment of Defenses Permit shield defense: This defense, which protects a permittee from enforcement for discharges of pollutants that are disclosed in the permit application and not specifically limited in the permit, is inapplicable to the Ridgecrest and Bonanza Creek violations. At Ridgecrest, the AMD discharges are unpermitted — there is no NPDES/MPDES permit in place, so there is no "shield" to invoke. At

1. Applicable Legal Standards RCRA § 3004, 42 U.S.C. § 6924, establishes standards applicable to generators and owners/operators of treatment, storage, and disposal facilities ("TSDFs") for hazardous waste. These standards encompass requirements for waste characterization, labeling, manifesting, storage, treatment, disposal, and recordkeeping. RCRA § 3005, 42 U.S.C. § 6925, requires a permit for the treatment, storag

2. Site-Specific Application Ridgecrest: The government alleges mismanagement of hazardous waste from the SX/EW circuit. The central issue is whether the waste streams from the circuit — principally spent electrolyte solutions, raffinate, and associated sludges — exhibit the toxicity characteristic for copper (D007, TCLP threshold 25 mg/L) and/or selenium (D010, TCLP threshold 1.0 mg/L). Based on available analytical

3. Assessment of Defenses Mining waste exclusion (Bevill Amendment): RCRA § 3001(b)(3)(A), 42 U.S.C. § 6921(b)(3)(A), commonly known as the Bevill Amendment, temporarily exempts certain mining wastes from regulation as hazardous waste under RCRA Subtitle C, pending completion of an EPA study and rulemaking. The Bevill exclusion applies to "solid waste from the extraction, beneficiation, and processing of ores and min