Contract analysis

I. EXECUTIVE SUMMARY This memorandum sets forth Calderwood & Harkness LLP's recommended negotiation strategy for resolving the multi-site EPA/DOJ enforcement action against Torchlight Mining Corp. and its U.S. subsidiaries through a comprehensive consent decree. The enforcement action encompasses four facilities operated by TMC and its subsidiaries: (1) the Ridgecrest Mine, Granite County, Montana; (2) the Gallatin C

II. BACKGROUND AND PROCEDURAL POSTURE A. The Parties Plaintiff and Regulatory Agencies. The United States of America is the named plaintiff, acting through the Environmental Protection Agency ("EPA") and the Department of Justice ("DOJ"). The EPA's lead role is held by the Office of Enforcement and Compliance Assurance ("OECA"), with Margaret Coulson serving as the lead case attorney. The DOJ's Environment and Natura

1. Torchlight Mining Corp. ("TMC"), a corporation organized under the Canada Business Corporations Act ("CBCA"), dual-listed on the Toronto Stock Exchange (TSX: TRC) and the New York Stock Exchange (NYSE: TRC). TMC's headquarters are located at 1800 Bayfield Tower, 401 Bay Street, Toronto, Ontario, Canada. TMC serves as the ultimate parent entity of all named defendant subsidiaries.

2. Torchlight Mining (U.S.) Inc., a Delaware corporation (EIN 83-2047156), which serves as TMC's primary U.S. holding company and the direct or indirect parent of the operating subsidiaries. U.S. headquarters are located at 750 Copper Ridge Blvd., Suite 200, Helena, Montana.

3. Torchlight Specialty Chemicals, Inc., a Delaware corporation (EIN 47-3819204), which operates the Gallatin Chemical Works and the Kanawha Bend Chemical Plant.

4. Ridgecrest Mine Holdings, LLC, a Montana limited liability company (Secretary of State ID E1042738), which holds the mining claims and surface rights for the Ridgecrest Mine and is the RCRA/CERCLA responsible party for that site.

5. Bonanza Creek Mining, LLC, a Nevada limited liability company (Entity No. E0518294731), which operates the Bonanza Creek Mine under applicable federal and state mining and environmental permits. TMC Corporate Profile. TMC is a significant mid-cap mining and specialty chemicals company. For fiscal year 2023, TMC reported revenue of C$4.82 billion (approximately US$3.56 billion at prevailing exchange rates), EBITDA

1. Ridgecrest Mine (Granite County, Montana) The Ridgecrest Mine is a former open-pit copper and molybdenum mine located approximately 14 miles southwest of Drummond, Montana. The mine operated from 1978 through December 2019, when TMC voluntarily ceased mining operations. The site includes a 425-acre tailings storage facility ("TSF"), a solvent extraction/electrowinning ("SX/EW") circuit, waste rock dumps, haul road

2. Gallatin Chemical Works (Gallatin County, Montana) The Gallatin Chemical Works is an active specialty chemical manufacturing facility located in Belgrade, Montana. The facility produces carbon disulfide (CS₂), sulfur compounds, and related chemical intermediates. The facility operates under RCRA Permit No. MTD098712456, which was issued in 2003 and last renewed in 2018. The government alleges the following violati

3. Bonanza Creek Mine (Lander County, Nevada) The Bonanza Creek Mine is an active open-pit gold mine located approximately 22 miles southwest of Battle Mountain, Nevada. The mine utilizes heap-leach extraction with cyanide solution. The facility is operated by Bonanza Creek Mining, LLC. The government alleges the following violations: • CWA § 301 — Unpermitted Releases from Heap-Leach Pad. The government alleges thre

4. Kanawha Bend Chemical Plant (Kanawha County, West Virginia) The Kanawha Bend Chemical Plant is a former specialty chemical production facility located along the Kanawha River in Institute, West Virginia. The facility ceased primary production operations in 2018 but has not been formally closed. It is operated by Torchlight Specialty Chemicals, Inc. under RCRA Permit No. WVD048823915. The government alleges the fol

III. STRATEGIC OBJECTIVES The following strategic objectives should guide TMC's approach throughout the consent decree negotiation. These objectives reflect both the immediate priorities of resolving the enforcement action and the broader corporate interests of TMC and its stakeholders.

1. Minimize Aggregate Financial Exposure While Demonstrating Good Faith and Cooperative Environmental Stewardship. TMC should seek to reduce the nominal financial exposure from the government's $409.9 million demand to the lowest achievable figure through principled negotiation on each component—penalties, remediation costs, past-costs reimbursement, SEPs, and monitor costs. At the same time, TMC must avoid a posture

2. Secure Extended and Realistic Remediation Schedules That Account for Technical Complexity. Several of the remediation obligations implicated by the consent decree involve technically complex, multi-decade cleanups. The Ridgecrest AMD treatment system, the DNAPL remediation at Kanawha Bend, and the heap-leach liner repair at Bonanza Creek each present significant engineering challenges. TMC should insist on remedia

3. Obtain Maximum Flexibility in Financial Assurance Structuring to Minimize Liquidity Impact. The financial assurance requirement will be among the most consequential provisions of the consent decree from a corporate finance perspective. TMC should negotiate for a structure that minimizes the amount of cash that must be set aside in trust, maximizes the use of surety bonding, and provides for declining-balance adjus

4. Achieve Robust Dispute-Resolution and Force-Majeure Protections. The consent decree will govern TMC's remediation obligations for up to 30 years. Over such a long horizon, disputes will inevitably arise regarding the interpretation of performance standards, the adequacy of remedial actions, and the occurrence of events beyond TMC's control. TMC must secure dispute-resolution mechanisms that provide meaningful acce

5. Preserve Insurance Recovery Rights Under Meridian PLL Policy and Clearwater D&O Policy. The consent decree language must be carefully crafted to avoid admissions, characterizations, or waiver provisions that would prejudice TMC's rights under its pollution legal liability ("PLL") and directors & officers ("D&O") insurance policies. Coverage under these policies could offset a significant portion of TMC's remediati

6. Maintain Compliance with Harborstone RCF Environmental Covenant. TMC's C$750.0 million revolving credit facility with Harborstone National Bank, N.A. contains an environmental liability covenant that limits aggregate environmental liabilities to 25% of consolidated net tangible assets ("CNTA"). The consent decree must be structured to preserve adequate headroom under this covenant, and disclosures to Harborstone m

7. Control Public-Disclosure Narrative for Securities-Reporting Obligations. As a dual-listed company on the TSX and NYSE, TMC is subject to continuous disclosure obligations under both Canadian and U.S. securities regulations. The consent decree, once lodged and entered, will become a matter of public record and will require material updates to TMC's risk factor disclosures and legal proceedings reporting. TMC shoul

8. Avoid Criminal Referral Risk, Particularly Regarding MBTA Exposure at Bonanza Creek. The MBTA violations at Bonanza Creek present a risk of separate criminal prosecution, which would carry severe reputational and legal consequences beyond the penalties available in the civil action. TMC should prioritize the resolution of MBTA exposure within the consent decree framework, through inclusion of avian deterrent measu

IV. NEGOTIATION STRATEGY — CIVIL PENALTIES A. Government's Position The government's total civil penalty demand across all four sites is $31.5 million. The site-by-site breakdown is as follows: The government has indicated that these amounts were calculated in accordance with EPA's CWA Civil Penalty Policy (1994, as updated 2023) and the RCRA Civil Penalty Policy (2003, as updated 2023), which consider both the gravi

V. NEGOTIATION STRATEGY — REMEDIATION COSTS Remediation costs represent the largest component of TMC's financial exposure and the most significant area of potential negotiation. We address each site separately below, followed by an aggregate cost summary. A. Ridgecrest Mine The Ridgecrest Mine presents the most complex and costly remediation challenge among the four sites. The primary remediation objectives include t

VI. NEGOTIATION STRATEGY — EPA PAST-COSTS REIMBURSEMENT (CERCLA § 107) The government seeks reimbursement of $18.1 million in EPA past costs incurred at two sites: TMC's Position. We recommend challenging the documentation and cost allocation for the $14.3 million Ridgecrest removal action costs. Our preliminary review of the government's cost documentation (which was provided in summary form during the mediation and

VII. NEGOTIATION STRATEGY — SUPPLEMENTAL ENVIRONMENTAL PROJECTS (SEPs) A. Government's SEP Proposal The government has proposed three Supplemental Environmental Projects ("SEPs") with a combined budget of $12.0 million:

1. Flint Creek Watershed Restoration Project (Montana) — $5.5 Million. This SEP would fund stream-bank stabilization, riparian zone replanting, and fish-passage improvements along approximately 12 miles of Flint Creek downstream of the Ridgecrest Mine. The project would benefit native westslope cutthroat trout populations that have been impacted by AMD-related water quality degradation and would include construction

2. Battle Mountain Community Drinking Water Improvement Project (Nevada) — $3.5 Million. This SEP would fund the upgrade and expansion of the municipal water treatment facility in Battle Mountain, Lander County, Nevada, which serves the community nearest to the Bonanza Creek Mine. The upgrade would include the installation of an advanced treatment system for the removal of arsenic and other metals from source water,

3. Institute Community Air Quality Monitoring Network (West Virginia) — $3.0 Million. This SEP would fund the installation and 10-year operation of six ambient air quality monitoring stations in the Institute and South Charleston communities adjacent to the Kanawha Bend Chemical Plant. The monitoring network would track concentrations of particulate matter (PM₂.₅), volatile organic compounds, and hazardous air pollut

VIII. NEGOTIATION STRATEGY — FINANCIAL ASSURANCE A. Required Amount The government will require TMC to post financial assurance to guarantee the performance of its remediation obligations under the consent decree. Based on the NPV of total remediation obligations, we anticipate that the government will demand financial assurance in the amount of approximately $245.0 million, which corresponds to the NPV of the aggreg