Contract analysis

I. Executive Summary This memorandum analyzes whether the environmental liabilities arising from the pending EPA/DOJ enforcement action, United States et al. v. Torchlight Mining Corp. et al., Civil Action No. 9:24-cv-00087-DWM (D. Mont.), and the anticipated obligations under the consent decree currently being negotiated, will cause Torchlight Mining Corp. ("TMC" or the "Company") to breach the environmental liabili

II. Background A. The Revolving Credit Facility On March 15, 2022, TMC, as borrower, entered into a C$750.0 million Senior Secured Syndicated Revolving Credit Facility Agreement (the "Credit Agreement") with Harborstone National Bank, N.A., as administrative agent, and a syndicate of lenders comprising seven financial institutions (the "Lenders"). The Credit Agreement provides TMC with a revolving line of credit that

1. Ridgecrest Copper-Molybdenum Mine. The Ridgecrest mine is located at 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832. The mine encompasses approximately 3,200 acres and operated as a large-scale open-pit copper and molybdenum mining operation from 1978 through December 2019, when TMC initiated closure and reclamation activities. The Ridgecrest site has been proposed for listing on the National

2. Gallatin Chemical Works. The Gallatin facility is located at 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714, and occupies approximately 145 acres. Unlike the Ridgecrest mine, the Gallatin facility remains an active specialty chemical manufacturing operation, producing flotation reagents, solvent extraction chemicals, and other process chemicals used in the mining industry. The facility operate

3. Bonanza Creek Gold Mine. The Bonanza Creek mine is located at County Road 447, Mile Marker 12, in Lander County, Nevada 89820, and encompasses approximately 5,600 acres. The Bonanza Creek site is an active heap-leach gold mining operation that has been in production since 2005 and is expected to continue operations for approximately twelve additional years based on current reserve estimates. The enforcement action

4. Kanawha Bend Chemical Plant. The Kanawha Bend facility is located at 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112, and occupies approximately 78 acres within the heavily industrialized Kanawha Valley corridor. The facility is an active chemical manufacturing plant producing sulfuric acid, phosphoric acid, and other industrial chemicals, and operates under a RCRA Corrective Action permi

III. Environmental Liability Covenant — Detailed Analysis A. Covenant Language and Interpretation The Environmental Liability Covenant is set forth in Section 7.12 of the Credit Agreement, within Article VII (Negative Covenants). In substance, the covenant provides that the Borrower shall not permit the aggregate amount of all disclosed and undisclosed Environmental Liabilities to exceed twenty-five percent (25%) of

1. Remediation Obligations The remediation obligations represent the single largest component of TMC's aggregate Environmental Liabilities, totaling $343.5 million in nominal terms and approximately $245.1 million on an NPV basis (Discounted at 3.0%). Ridgecrest Copper-Molybdenum Mine — $198.6 Million Nominal; $134.9 Million NPV. The Ridgecrest remediation obligation represents the outcome of extensive negotiations b

2. Civil Penalties The consent decree provides for aggregate civil penalties of $31.5 million, allocated among the four sites as follows: The civil penalties are to be paid on a structured schedule as follows: twenty-five percent ($7,875,000) due within thirty (30) days of consent decree entry; a second installment of twenty-five percent ($7,875,000) due twelve (12) months after entry; a third installment of twenty-f

3. EPA Past-Costs Reimbursement The consent decree requires TMC to reimburse the EPA for past response costs totaling $18.1 million, allocated as follows: These obligations arise under CERCLA Section 107 as cost recovery claims and are treated as lump-sum liabilities payable within ninety (90) days of consent decree entry. No NPV discounting has been applied.

4. Supplemental Environmental Projects The consent decree requires TMC to fund three supplemental environmental projects totaling $12.0 million: The SEP commitments are binding obligations under the consent decree and will be implemented over a three- to five-year period following decree entry. For covenant compliance purposes, the full $12.0 million is treated as a current obligation.

5. Independent Monitor Costs The consent decree provides for the appointment of an independent environmental monitor to oversee TMC's compliance with the consent decree's remediation milestones and reporting requirements. The court has identified Verdant Analytics, Inc. (Dr. Kamal Osei, Senior Managing Director) as the proposed independent monitor. Based on the scope of the monitoring engagement and prevailing profes

6. Total Aggregate Environmental Liabilities The following table summarizes TMC's aggregate Environmental Liabilities under the anticipated consent decree: A critical interpretive question for covenant compliance purposes is whether the "Environmental Liabilities" tested under the covenant should be measured by reference to (a) the amounts booked as accrued reserves on TMC's balance sheet in accordance with applicabl

IV. Financial Assurance Instruments and Covenant Implications A. Description of Financial Assurance Package The anticipated consent decree will require TMC to establish financial assurance demonstrating its ability to fund the remediation obligations at the four sites. The total financial assurance requirement is $245.0 million, to be satisfied through a combination of two instruments: Surety Bond. TMC will be requir

V. Potential Insurance Recoveries and Their Effect on Covenant Compliance A. Meridian Environmental Insurance Company — Pollution Legal Liability Coverage TMC maintains a pollution legal liability ("PLL") insurance policy with Meridian Environmental Insurance Company (Policy No. MEI-ENV-2021-04738) for the policy period of July 1, 2021 through July 1, 2024. The policy provides per-occurrence coverage of $50.0 million

VI. Sensitivity Analysis and Risk Factors While TMC is currently in compliance with the Environmental Liability Covenant and maintains significant headroom, several risk factors could erode this headroom over the remaining term of the RCF. We analyze the most material risks below. A. CNTA Erosion Risk The covenant threshold of C$980.0 million is derived from CNTA, which is itself a dynamic figure that fluctuates with

VII. Comparison with TMC's Environmental Remediation Reserve TMC's environmental remediation reserve, as reported in the Q3 2024 10-Q, stands at C$340.0 million (approximately US$251.4 million at the current exchange rate). This reserve reflects management's best estimate, prepared in consultation with TMC's environmental engineers and independent accountants, of the probable and reasonably estimable costs of environ

VIII. Disclosure and Notification Obligations Under the RCF A. Mandatory Disclosure Requirements The Credit Agreement imposes several affirmative disclosure obligations on TMC with respect to environmental matters and material litigation events. These obligations are found primarily in Article VI (Affirmative Covenants), Sections 6.02 (Financial Statements and Other Information), 6.05 (Litigation and Environmental No

IX. Recommendations Based on the foregoing analysis, we offer the following recommendations:

1. Immediate: No Covenant Breach Exists or Is Anticipated. No covenant breach exists or is anticipated under current projections. TMC maintains approximately C$425.6 million of headroom under the Environmental Liability Covenant, representing utilization of only 56.6% of the available covenant capacity, even under the most conservative calculation methodology. No immediate corrective action is required.

2. Proactive Disclosure to Harborstone. Prepare a comprehensive disclosure letter to Harborstone National Bank, N.A. summarizing the consent decree terms, the Company's financial obligations thereunder, and confirming continued covenant compliance. The disclosure letter should be delivered in early March 2025, prior to the lodging of the consent decree with the court. C&H will prepare the initial draft in coordinatio

3. Compliance Certificate Preparation. Prepare an updated covenant compliance certificate for delivery to Harborstone upon or shortly after entry of the consent decree (target: May/June 2025). The compliance certificate should include a detailed covenant compliance calculation demonstrating continued satisfaction of the Environmental Liability Covenant and all other financial covenants under the Credit Agreement. C&H

4. Financial Assurance Review. Conduct a detailed review of the Credit Agreement's definitions of "Permitted Liens," "Permitted Indebtedness," "Contingent Obligations," and "Restricted Payments" to confirm that the surety bond indemnity agreement and the remediation trust fund do not trigger separate covenant issues under the negative covenant provisions. If any of the financial assurance instruments fall outside the

5. Ongoing Monitoring. Implement a quarterly monitoring protocol to track CNTA levels, exchange rate fluctuations, and environmental liability estimates, and to ensure continued compliance with the Environmental Liability Covenant through the RCF's March 15, 2027 maturity. This monitoring should be coordinated with Carolyn Bracebridge (CFO) for financial data inputs and Gareth Linford (VP, Environmental Health & Safe