Contract analysis

I. Executive Summary Calderwood & Harkness LLP has been engaged by Torchlight Mining Corp. ("TMC") to analyze the coverage available under the Pollution Legal Liability ("PLL") policy issued by Meridian Environmental Insurance Company ("Meridian") — Policy No. MEI-ENV-2021-04738 — for the remediation obligations, defense costs, and related expenditures arising from the multi-site enforcement action brought by the Uni

1. Ridgecrest Copper-Molybdenum Mine (Drummond, Granite County, Montana) — estimated remediation cost of $198.6 million over 30 years;

2. Gallatin Chemical Works (Belgrade, Gallatin County, Montana) — estimated remediation cost of $42.8 million over 15 years;

3. Bonanza Creek Gold Mine (Lander County, Nevada) — estimated remediation cost of $63.2 million over 20 years; and

4. Kanawha Bend Chemical Plant (Institute, Kanawha County, West Virginia) — estimated remediation cost of $38.9 million over 20 years. Meridian has taken the following coverage positions: • Ridgecrest: Coverage denied on the basis of the pollution/known-conditions exclusion set forth in Policy Section V(B), asserting that the acid mine drainage and tailings seepage contamination was known to TMC prior to the policy r

II. Policy Overview A. Named Insured and Additional Insureds The Meridian PLL Policy (Policy No. MEI-ENV-2021-04738) names Torchlight Mining Corp. as the Named Insured. The policy declarations page further identifies the following entities as Additional Insureds: • Torchlight Mining (U.S.) Inc. (EIN: 83-2047156) — the principal U.S. operating subsidiary of TMC responsible for domestic mining operations and regulatory

1. Ridgecrest Copper-Molybdenum Mine — 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832. This facility encompasses the open-pit mine, tailings impoundment, waste rock dumps, SX/EW processing facilities, and associated infrastructure on approximately 3,200 acres of mine footprint within a total controlled property of approximately 8,700 acres.

2. Gallatin Chemical Works — 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714. This facility encompasses the specialty chemical manufacturing plant, hazardous-waste storage areas, solid-waste management units ("SWMUs"), and associated infrastructure on approximately 145 acres.

3. Bonanza Creek Gold Mine — County Road 447, Mile Marker 12, Lander County, Nevada 89820. This facility encompasses the open-pit heap-leach gold mine, heap-leach pads, process solution ponds, pit lake, and associated infrastructure on approximately 5,600 acres of mine footprint within a total controlled property of approximately 12,400 acres.

4. Kanawha Bend Chemical Plant — 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112. This facility encompasses the chemical manufacturing plant, sulfuric acid regeneration units, former surface impoundment, and associated infrastructure on approximately 78 acres. All four facilities are the subject of claims in the EPA/DOJ enforcement action and are included within the scope of the consent decr

III. Claim-by-Claim Coverage Analysis A. Ridgecrest Copper-Molybdenum Mine

1. Factual Background The Ridgecrest Copper-Molybdenum Mine is an open-pit copper and molybdenum mining operation located at 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832. The mine has been operational since 1978, with active mining operations conducted by TMC and its predecessors over a period of more than four decades. Active mining at the Ridgecrest site ceased on December 31, 2019, and the f

2. Meridian's Denial — Pollution/Known-Conditions Exclusion Meridian has denied coverage for the Ridgecrest site on the basis of the pollution/known-conditions exclusion set forth in Policy Section V(B). Meridian's denial letter, attached hereto as Appendix B, sets forth the following position: Meridian contends that the contamination at the Ridgecrest site — specifically, the acid mine drainage and tailings impoundm

3. Analysis and Counterarguments We believe that Meridian's denial of coverage for the Ridgecrest site, while presenting the strongest of the insurer's positions across the four claims, is nonetheless contestable and subject to several meritorious counterarguments. We assess the probability of prevailing on the Ridgecrest coverage issue in coverage litigation at approximately 40–55%, depending on the jurisdiction and

1. Factual Background The Gallatin Chemical Works is a specialty chemical manufacturing facility located at 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714. The facility has been operational since 1993 and is currently active, producing flotation reagents, sodium xanthate, dithiophosphate collectors, and other specialty chemicals used in mining and mineral processing operations. The facility is ow

2. Meridian's Acknowledgment of Coverage Meridian has acknowledged coverage for the Gallatin Chemical Works claim, subject to the $5.0 million per-occurrence SIR and applicable policy exclusions. Meridian's acknowledgment letter is attached hereto as Appendix D. Coverage for the Gallatin site is relatively straightforward. The CS₂ groundwater contamination was discovered during the policy period; the groundwater inve

3. Coverage Calculation — Gallatin The coverage calculation for the Gallatin Chemical Works claim is as follows: • Total Estimated Remediation Cost: $42,800,000 • Less Self-Insured Retention (single occurrence): ($5,000,000) • Net Covered Amount: $37,800,000 The net covered amount of $37.8 million falls comfortably within the per-occurrence limit of $50.0 million. Assuming that the Gallatin contamination is treated a

1. Factual Background The Bonanza Creek Gold Mine is an open-pit heap-leach gold mining operation located at County Road 447, Mile Marker 12, Lander County, Nevada 89820. The mine has been operational since 2001 and is currently in active mining production. The facility is owned and operated by Bonanza Creek Mining, LLC, a wholly owned subsidiary of TMC and an Additional Insured under the Meridian PLL policy. The min

2. Meridian's Acknowledgment of Coverage Meridian has acknowledged coverage for the Bonanza Creek Gold Mine claim, subject to the $5.0 million per-occurrence SIR and applicable policy exclusions. Meridian's acknowledgment letter is attached hereto as Appendix D. The coverage acknowledgment for Bonanza Creek is appropriate because the three heap-leach pad releases all occurred during the policy period (2022–2023), wer

3. Coverage Calculation — Bonanza Creek The coverage calculation for the Bonanza Creek Gold Mine is more complex than for the Gallatin site because it depends on the number-of-occurrences analysis: If Treated as a Single Occurrence (All Three Releases): • Total Estimated Remediation Cost: $63,200,000 • Less Self-Insured Retention (single occurrence): ($5,000,000) • Net Claim Amount: $58,200,000 • Per-Occurrence Limit

1. Factual Background The Kanawha Bend Chemical Plant is a chemical manufacturing facility located at 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112. The facility has been operational since 1985 and is currently active, producing leaching agents, sulfuric acid regeneration products, and other specialty chemicals for the mining industry. The facility is owned and operated by Torchlight Speci

2. Meridian's Denial — Late Notice Meridian has denied coverage for the Kanawha Bend Chemical Plant claim on the basis of late notice. Meridian's denial letter is attached hereto as Appendix C. Meridian's position is as follows: TMC failed to provide timely notice of the Kanawha Bend pollution condition as required by the policy. The Meridian PLL policy requires the insured to provide notice to Meridian "as soon as p

3. Analysis and Counterarguments We believe that TMC has moderate-to-strong arguments for defeating Meridian's late-notice defense. We assess the probability of prevailing on this issue at approximately 50–65%, depending on the applicable law and the factual record regarding the circumstances of TMC's delayed notice. Notice-Prejudice Rule. In many jurisdictions, including Illinois — where Meridian is domiciled — the

IV. Aggregate Coverage and Allocation Analysis A. Combined Coverage Calculation — Acknowledged Claims (Gallatin and Bonanza Creek) Setting aside the disputed Ridgecrest and Kanawha Bend claims, the combined coverage calculation for the two acknowledged claims is as follows: Gallatin Chemical Works: • Remediation cost: $42,800,000 • Less SIR: ($5,000,000) • Net covered amount: $37,800,000 Bonanza Creek Gold Mine (assu