1039-00001 · Torchlight Mining Corp · documents

affected-commerce-analysis-hargrove-draft.docx DOCUMENT Litigation

1 / 88 → ✕

DRAFT — CONFIDENTIAL — PREPARED AT THE DIRECTION OF COUNSEL

Analysis of Affected Commerce in the North American Specialty Minerals Sector: High-Purity Feldspar, Industrial Talc, and Rare-Earth Concentrates (January 2017 – August 2021)

Prepared by:

Dr. Vanessa Tremblay Engagement Partner Hargrove Forensic Advisory LLC 233 South Wacker Drive, Suite 4800 Chicago, IL 60606

Prepared at the Direction of:

Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, CA 94104 Counsel for Torchlight Mining Corp.

August 15, 2023

DRAFT — For Discussion with DOJ Antitrust Division

Calderwood & Harkness Matter No. 1039-00001

Grand Jury No. GJ-22-0194 U.S. District Court, Northern District of California San Francisco Division

CONFIDENTIALITY NOTICE: This report was prepared at the direction of counsel and is protected by the attorney-client privilege and work-product doctrine. It is being provided to the U.S. Department of Justice Antitrust Division in connection with Torchlight Mining Corp.'s cooperation obligations and is not intended as a waiver of privilege as to any third party. Any unauthorized review, use, disclosure, or distribution of this report is strictly prohibited. If you have received this report in error, please notify Calderwood & Harkness LLP immediately at (415) 555-8200 and destroy all copies.

I. Executive Summary

Hargrove Forensic Advisory LLC ("Hargrove") was retained by Calderwood & Harkness LLP ("Calderwood & Harkness") on July 1, 2022, on behalf of Torchlight Mining Corp. ("TMC"), to conduct an independent economic analysis of the volume of commerce affected by the conduct under investigation by the Antitrust Division of the U.S. Department of Justice (the "DOJ"). This engagement was undertaken in the context of TMC's ongoing cooperation with the DOJ and in anticipation of resolution discussions that may include the negotiation of a non-prosecution agreement or plea agreement. The opinions expressed herein are the independent professional opinions of Dr. Vanessa Tremblay, Engagement Partner at Hargrove, and are based solely on the data, materials, and information described in this report.

The DOJ investigation, proceeding under Grand Jury No. GJ-22-0194 in the U.S. District Court for the Northern District of California, San Francisco Division, concerns suspected price-fixing, customer allocation, and bid-rigging in the North American specialty-minerals sector. The alleged anticompetitive conduct specifically involves three product categories: high-purity feldspar, industrial talc, and rare-earth concentrates. These three product categories represent a substantial subset of the broader North American specialty-minerals market and are widely used in manufacturing, construction, ceramics, electronics, chemical processing, and defense applications.

The alleged conspiracy period spans approximately January 2017 through August 2021, a duration of approximately four years and eight months. Based on the DOJ's allegations and information obtained through Calderwood & Harkness's internal investigation, the three companies identified as participants in the alleged conduct are:

1. Torchlight Mining Corp. ("TMC") — a Canadian-domiciled mining and specialty-minerals company with its U.S. Specialty Minerals Division based in Reno, Nevada;

2. Ridgecrest Minerals Inc. ("Ridgecrest") — a Delaware corporation headquartered in Denver, Colorado, and a portfolio company of Marlowe Asset Management Peak Capital Partners LP; and

3. Pinnacle Earth Resources Ltd. ("Pinnacle") — an Ontario corporation headquartered in Sudbury, Ontario, with U.S. operations based in Salt Lake City, Utah.

Based on the analysis described in detail in this report, the principal findings are as follows:

• Total affected commerce across all three identified participants during the conspiracy period (January 2017 – August 2021): approximately USD 1.34 billion.

• TMC's share of total affected commerce: approximately USD 478 million, representing approximately 35.7% of total affected commerce.

• Ridgecrest's estimated share of total affected commerce: approximately USD 514 million, representing approximately 38.4% of total affected commerce.

• Pinnacle's estimated share of total affected commerce: approximately USD 348 million, representing approximately 25.9% of total affected commerce.

• Combined Ridgecrest and Pinnacle estimated affected commerce: approximately USD 862 million, representing the remaining approximately 64.3% of total affected commerce.

For purposes of the DOJ's standard penalty calculation approach — in which the base fine for a corporate defendant in a price-fixing case is typically computed as 20% of the defendant's affected commerce — the starting-point calculation for TMC yields a base fine of approximately USD 95.6 million (i.e., USD 478 million × 20%). This starting-point figure is subject to adjustment based on a range of culpability factors, cooperation credits, remediation efforts, and other mitigating or aggravating circumstances, as discussed in Section VII of this report. Based on precedent in comparable DOJ antitrust cases and the scope of TMC's cooperation to date, this report presents penalty scenarios reflecting cooperation credits ranging from 25% to 50% of the base fine, which would produce an estimated penalty range of approximately USD 47.8 million to USD 71.7 million.

The analysis presented in this report is based on the following principal data sources: (i) TMC's internal sales data, extracted from TMC's enterprise resource planning ("ERP") systems, covering fiscal years 2015 through 2022; (ii) publicly available financial disclosures of Ridgecrest and Pinnacle; (iii) industry data from the North American Specialty Minerals Council ("NASMC"), including quarterly pricing benchmark reports and annual market surveys; (iv) data from the U.S. Geological Survey ("USGS") Mineral Commodity Summaries and U.S. Census Bureau import/export statistics; and (v) forensic review of TMC pricing records for the period 2015–2022, produced pursuant to Grand Jury Subpoena Nos. GJ-22-0194-SD-003 and GJ-22-0194-SD-007.

It should be noted that this report is a draft, prepared for purposes of discussion with the DOJ Antitrust Division. Final figures may be subject to refinement pending further data production, including the potential availability of Ridgecrest's and Pinnacle's internal transactional data, as well as feedback from the DOJ. Hargrove reserves the right to supplement or amend the findings presented herein as additional information becomes available.

II. Qualifications of Dr. Vanessa Tremblay

A. Professional Background

Dr. Vanessa Tremblay is the Engagement Partner at Hargrove Forensic Advisory LLC, a boutique consulting firm headquartered in Chicago, Illinois, that specializes in forensic economic analysis, antitrust litigation support, and regulatory investigation consulting. Hargrove was founded in 2008 and currently employs 42 professionals, including 11 Ph.D. economists and 8 Certified Public Accountants.

Dr. Tremblay holds a Ph.D. in Economics from the University of Chicago, with a specialization in industrial organization, conferred in 2001. Her doctoral dissertation, entitled "Collusive Equilibria and Detection Mechanisms in Oligopolistic Markets: Evidence from the U.S. Chemical Industry," was supervised by Professor James R. Whitfield and was awarded the university's Dempster Prize for outstanding doctoral research in applied economics. She also holds an M.A. in Economics from the University of Toronto (1997) and a B.A. in Economics and Mathematics, summa cum laude, from McGill University (1995).

Dr. Tremblay has over 20 years of experience in forensic economic analysis, antitrust litigation support, and regulatory investigation consulting. Before founding and joining Hargrove, she served as a Vice President at Meridian Management Consulting in Washington, D.C., from 2003 to 2008, where she led economic analysis teams in major antitrust matters. From 2001 to 2003, she was a post-doctoral research fellow at the National Bureau of Economic Research (NBER), where she conducted empirical research on cartel behavior and pricing dynamics in concentrated industries.

Dr. Tremblay is a member of the American Economic Association, the Industrial Organization Society, the American Bar Association (Affiliate Member, Section of Antitrust Law), and the International Competition Network's Economics Working Group. She has served as an adjunct professor at the Northwestern University Pritzker School of Law, where she has taught a seminar on "Economics of Antitrust Enforcement" since 2015.

A complete curriculum vitae of Dr. Tremblay is attached as Appendix D.

B. Relevant Experience

Dr. Tremblay has extensive experience in antitrust matters involving affected-commerce analysis for both DOJ and Federal Trade Commission ("FTC") investigations. Over the course of her career, she has been retained as an economic expert or consulting economist in more than 45 antitrust matters, including both criminal and civil proceedings. The following representative engagements are particularly relevant to the analysis presented in this report:

• U.S. v. Continental Chemicals Corp. (D. Conn. 2019): Retained by defense counsel to analyze affected commerce in a DOJ price-fixing investigation involving specialty chemical products. Prepared a comprehensive affected-commerce report that was submitted to the DOJ in connection with plea negotiations. The final plea agreement reflected a cooperation credit of approximately 40%.

• In re North American Gypsum Antitrust Litigation (N.D. Ill. 2016): Retained by plaintiff class counsel to estimate overcharges and affected commerce in a price-fixing case involving gypsum wallboard manufacturers. Provided expert testimony at trial; the jury returned a verdict for plaintiffs.

• U.S. v. Pacific Aggregate Holdings Inc. (W.D. Wash. 2020): Retained by the DOJ Antitrust Division to prepare an affected-commerce analysis for sentencing purposes in a bid-rigging case involving aggregate and industrial-mineral suppliers. Report accepted by the court without challenge.

• FTC v. Consolidated Mining Group PLC (FTC Docket No. 9412, 2017): Retained as a consulting economist by the FTC's Bureau of Competition to analyze competitive effects of a proposed merger among industrial-minerals producers. Developed market-definition and competitive-effects analyses for the FTC's administrative proceeding.

In addition to her antitrust expertise, Dr. Tremblay has significant experience in the mining, chemicals, and industrial-materials sectors. She has been retained as an economic expert in matters involving copper, zinc, rare-earth minerals, specialty chemicals, industrial aggregates, and various mineral commodities. This sector-specific experience provides a foundation for the market analysis and commercial-data interpretation presented in this report.

Dr. Tremblay's publications include articles in peer-reviewed economics journals on topics related to cartel economics and price-fixing detection. Representative publications include:

• Tremblay, V. & Chen, H. (2018). "Structural Indicators of Collusion in Concentrated Mineral Markets," Journal of Industrial Economics, 66(3), 521–558.

• Tremblay, V. (2014). "Bid-Rigging Detection in Public Procurement: A Machine-Learning Approach," Review of Industrial Organization, 45(2), 189–215.

• Tremblay, V. & Park, S. (2011). "Measuring Overcharges in Horizontal Price-Fixing Cases: Methodological Considerations," Antitrust Law Journal, 77(3), 701–742.

• Tremblay, V. (2009). "The Economics of Leniency Programs in Antitrust Enforcement," International Journal of Industrial Organization, 27(4), 412–430.

A complete list of publications and prior expert engagements is set forth in Dr. Tremblay's curriculum vitae at Appendix D.

C. Engagement Terms

Dr. Tremblay was retained by Calderwood & Harkness LLP on behalf of Torchlight Mining Corp. pursuant to an engagement letter dated July 1, 2022. The engagement was conducted under Kovel-letter protections, consistent with the framework established in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), to preserve attorney-client privilege over communications and work product generated in the course of the engagement. The Kovel letter, executed on July 1, 2022, provides that Dr. Tremblay and Hargrove personnel act as agents of Calderwood & Harkness for purposes of this engagement and that all communications, analyses, drafts, and work product generated in connection with this engagement are privileged and confidential.

The opinions expressed in this report are Dr. Tremblay's independent professional opinions, based on the data reviewed and the analytical methodology described herein. Dr. Tremblay's compensation is based on Hargrove's standard hourly rates and is not contingent on the outcome of the DOJ investigation, any resolution negotiations, or the conclusions reached in this report. Hargrove's current standard hourly rate for engagement-partner time is $850 per hour; associate-economist rates range from $350 to $625 per hour; and analyst rates range from $225 to $350 per hour. As of the date of this report, total fees billed by Hargrove in connection with this engagement are approximately $1.87 million.

III. Scope and Methodology

A. Scope of Engagement

The scope of Hargrove's engagement encompasses the following analytical objectives:

1. Quantification of TMC's Affected Commerce. Analyze the volume of U.S. commerce affected by the alleged conspiracy by quantifying TMC's U.S. sales of the three product categories at issue — high-purity feldspar, industrial talc, and rare-earth concentrates — during the alleged conspiracy period of approximately January 2017 through August 2021.

2. Determination of TMC's Share. Determine TMC's share of total affected commerce during the conspiracy period, expressed both as an absolute dollar figure and as a percentage of total affected commerce across all identified participants.

3. Estimation of Total Affected Commerce. Estimate total affected commerce across all three identified participants — TMC, Ridgecrest Minerals Inc., and Pinnacle Earth Resources Ltd. — during the conspiracy period. Because Hargrove did not have access to Ridgecrest's or Pinnacle's confidential internal transactional data, the estimates for those entities are derived from publicly available financial disclosures, industry data, and market-share analysis.

4. Penalty Calculation Support. Provide analysis to support penalty calculation discussions under the DOJ Antitrust Division's sentencing guidelines and enforcement policies, including presentation of base fine calculations and cooperation-credit scenarios.

The scope of this engagement does not include an assessment of whether a violation of the Sherman Act or other antitrust laws occurred, a determination of the start or end date of the alleged conspiracy, an analysis of causation or damages for purposes of civil litigation, or an evaluation of the appropriate level of cooperation credit to be awarded to TMC. Those matters are outside the scope of Hargrove's economic expertise and are properly reserved for legal determination.

B. Data Sources

Hargrove's analysis relies on the following categories of data and information:

1. TMC Internal Data

The primary foundation of this analysis is detailed transactional sales data from TMC's U.S. Specialty Minerals Division for fiscal years 2015 through 2022. This data was extracted from TMC's enterprise resource planning ("ERP") systems — specifically, the Harborline Software platform used by TMC's U.S. subsidiary, Torchlight Mining (U.S.) Inc. The ERP data extraction was performed by TMC's information technology department under the supervision of Calderwood & Harkness and was provided to Hargrove in structured electronic format (CSV and Excel files) accompanied by a data dictionary and field-level documentation.

The transactional data set encompasses the following fields, among others: transaction identification number, invoice date, product code, product description, product category, customer identification number, customer name, customer location (state and zip code), unit volume, unit price, total invoice amount, payment terms, contract reference number, and sales representative identification. For the period January 2017 through August 2021, the data set includes approximately 287,000 individual sales transactions across the three product categories at issue.

In addition to the ERP transactional data, Hargrove reviewed pricing records, customer contract files, and invoicing data produced by TMC in connection with Grand Jury Subpoena Nos. GJ-22-0194-SD-003 (issued approximately April 2022) and GJ-22-0194-SD-007 (issued approximately October 2022). The first subpoena response comprised approximately 487,000 documents, and the second subpoena response comprised approximately 68,000 documents, for a combined total of approximately 555,000 documents (approximately 3.2 million pages). Hargrove's team reviewed a substantial subset of these documents — approximately 42,000 documents identified through targeted search terms and custodian filters — for relevant commercial data, pricing information, and customer-allocation evidence.

TMC's annual reports and SEC filings (Form 40-F, filed with the U.S. Securities and Exchange Commission as a foreign private issuer) were also reviewed for purposes of reconciling the transactional data to TMC's audited financial statements and verifying the U.S. Specialty Minerals Division's reported revenue. For fiscal year 2021, TMC's consolidated revenue was approximately CAD 4.27 billion (approximately USD 3.38 billion at the prevailing average annual exchange rate). The U.S. Specialty Minerals Division generated approximately USD 687 million in FY 2021 revenue, representing approximately 20.3% of TMC's consolidated revenue.

2. Ridgecrest Minerals Inc. Data

Ridgecrest Minerals Inc. is a privately held company organized as a Delaware corporation and headquartered in Denver, Colorado. Ridgecrest is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a private equity fund. Because Ridgecrest is not publicly traded and is not a reporting issuer under the Securities Exchange Act of 1934, its financial disclosures are limited. Hargrove's analysis of Ridgecrest's affected commerce is therefore based on a combination of the following sources:

• Publicly available financial disclosures, including (i) financial information contained in Marlowe Asset Management Peak Capital Partners' annual investor letters and fund reports (which include limited financial data for portfolio companies), and (ii) a credit-facility offering circular published in connection with Ridgecrest's 2019 senior secured term loan refinancing, which disclosed Ridgecrest's fiscal year 2018 revenue and EBITDA figures.

• Ridgecrest's estimated fiscal year 2021 revenue of approximately USD 1.92 billion, derived from the foregoing sources and corroborated by industry data.

• NASMC publications, including annual market surveys and quarterly reports that provide aggregate industry data and, in some editions, named-company market-share estimates for major producers.

• Third-party market research reports, including reports published by Ashbury Solutions and Harborline Health IT, which provide market intelligence on the specialty-minerals sector and include estimates of company-level market shares.

• U.S. Geological Survey Mineral Commodity Summaries, which provide data on domestic production, imports, exports, and apparent consumption for various mineral commodities.

3. Pinnacle Earth Resources Ltd. Data

Pinnacle Earth Resources Ltd. is a publicly traded company organized under the laws of Ontario, Canada, with shares listed on the Toronto Stock Exchange (TSX: PER). Pinnacle files periodic and continuous disclosure documents with Canadian securities regulators through SEDAR+. Hargrove's analysis of Pinnacle's affected commerce is based on the following sources:

• Pinnacle's publicly filed financial statements, management's discussion and analysis ("MD&A"), annual information forms ("AIFs"), and other disclosure documents available through SEDAR+ and Pinnacle's investor-relations website.

• Pinnacle's FY 2021 revenue of approximately CAD 1.45 billion (approximately USD 1.15 billion at the prevailing average annual exchange rate).

• NASMC publications and third-party market research reports, as described above.

• USGS data on domestic production and consumption of relevant mineral commodities.

Pinnacle's public disclosures provide greater transparency than Ridgecrest's, as Pinnacle reports segment-level revenue for its "Specialty Industrial Minerals" division (which includes rare-earth concentrates, industrial talc, and certain feldspar products) and its "Bulk Commodities" division. This segmental disclosure facilitates a more precise estimation of Pinnacle's U.S. sales in the three product categories at issue.

4. Industry Data

Hargrove relied on the following industry-level data sources to validate and supplement the company-specific data described above:

• NASMC Quarterly Pricing Benchmark Reports (2015–2022): These reports, published by the North American Specialty Minerals Council, provide quarterly pricing data for major specialty-mineral product categories, including high-purity feldspar, industrial talc, and rare-earth concentrates. The benchmark prices reflect weighted-average transaction prices reported by NASMC member companies and are widely used in the industry as reference points for pricing and contract negotiations.

• NASMC Annual Market Surveys (2015–2022): These surveys provide aggregate data on North American production volumes, apparent consumption, import/export flows, and market-share estimates for major producers of specialty minerals. The surveys are based on voluntary self-reporting by NASMC member companies and are considered the most comprehensive industry-level data source available.

• U.S. Geological Survey Mineral Commodity Summaries (2016–2022): The USGS publishes annual summaries for individual mineral commodities that include data on domestic production, imports, exports, consumption, and pricing. Hargrove reviewed the USGS summaries for feldspar, talc, and rare-earth elements.

• U.S. Census Bureau Import/Export Statistics: Hargrove reviewed U.S. Census Bureau data on imports and exports of feldspar, talc, and rare-earth products for the period 2015–2022, accessed through the International Trade Commission's DataWeb portal.

5. Cascade Chemical Supply Co. Data

Cascade Chemical Supply Co. ("Cascade") is a downstream distributor and processor of specialty minerals headquartered in Spokane, Washington. Cascade's president is Leonard Massey. Based on information provided by Calderwood & Harkness, Cascade entered into a cooperation agreement with the DOJ on approximately September 15, 2021. Cascade is not alleged to have participated in the price-fixing, customer allocation, or bid-rigging conspiracy at issue; rather, Cascade is understood to be a downstream customer and distributor that has provided cooperation to the DOJ investigation.

Hargrove did not directly review Cascade's cooperation materials. However, certain findings from Calderwood & Harkness's internal investigation — including references to Cascade's purchasing patterns and pricing data — were made available to Hargrove and were considered in the development of this report. Cascade's downstream sales and revenues are not included in the affected-commerce calculations presented herein, consistent with the standard methodology of measuring affected commerce at the first point of sale by the alleged co-conspirators.

C. Analytical Methodology

The affected-commerce analysis presented in this report was conducted using the following six-step methodology:

Step 1: Identification and Classification of U.S. Sales. The first step involved identifying and classifying all U.S. sales by each participant in the three product categories during the conspiracy period. For TMC, this was accomplished through direct analysis of TMC's ERP transactional data. Each transaction was mapped to one of the three product categories at issue (high-purity feldspar, industrial talc, or rare-earth concentrates) based on TMC's internal product codes and product descriptions. Transactions involving other specialty-mineral products not within the scope of this analysis were excluded. For Ridgecrest and Pinnacle, the identification and classification of U.S. sales was estimated using the publicly available data and industry sources described above, as Hargrove did not have access to those companies' internal transactional records.

Step 2: Segregation by Product Category and Customer Type. The second step involved segregating the identified U.S. sales by product category (feldspar, talc, rare-earth concentrates) and by customer type. For purposes of this analysis, customer types are classified as (i) industrial customers (i.e., end-use manufacturers and processors that purchase specialty minerals as inputs for their own production) and (ii) chemical-manufacturing customers (i.e., companies engaged in chemical processing that use specialty minerals as feedstocks or intermediates). Both categories of customers are included in the affected-commerce calculation, as the alleged conspiracy is understood to have encompassed sales to both industrial and chemical-manufacturing customers. Sales to other producers or co-conspirators, if any, were excluded.

Step 3: Annualization and Aggregation. The third step involved annualizing and aggregating the sales volumes identified in Steps 1 and 2 for the conspiracy period. For TMC, this involved summing transactional revenues for each calendar year (or partial year) within the conspiracy period. The conspiracy period is treated as commencing on approximately January 1, 2017, and ending on approximately August 31, 2021, consistent with the DOJ's allegations. The full calendar year 2017 is used because the alleged conspiracy is understood to have commenced at or near the beginning of January 2017. For calendar year 2021, the analysis includes only revenue for the eight-month period January through August 2021. For Ridgecrest and Pinnacle, annual estimates were derived from the methodology described in Step 5 below and prorated on the same basis.

Step 4: Cross-Referencing and Validation. The fourth step involved cross-referencing TMC's transactional data with industry-level data to validate market-share estimates and identify any inconsistencies. Specifically, TMC's reported U.S. sales of feldspar, talc, and rare-earth concentrates for each year were compared to the total North American market size for those products as reported by NASMC and the USGS. TMC's implied market share was then compared to market-share estimates published by NASMC and third-party research firms. This cross-referencing step confirmed that TMC's transactional data is consistent with the company's known market position and that the aggregate industry data provides a reasonable basis for estimating the co-conspirators' affected commerce.

Step 5: Estimation of Ridgecrest and Pinnacle Affected Commerce. The fifth step involved estimating Ridgecrest's and Pinnacle's affected commerce using a combination of public disclosures, industry data, and market-share analysis. The methodology for this estimation is described in detail in Section VI.A of this report. In summary, Hargrove estimated each company's U.S. sales of feldspar, talc, and rare-earth concentrates as a percentage of total revenue, based on publicly available product-mix information and industry data, and then aggregated those estimates over the conspiracy period using year-over-year growth rates derived from NASMC annual market survey data.

Step 6: Sensitivity Analysis. The sixth step involved conducting sensitivity analyses to evaluate the robustness of the affected-commerce estimates under alternative assumptions. The sensitivity analyses address (i) changes to the conspiracy period start and end dates, (ii) changes to the product-category scope, and (iii) changes to the market-share estimates used for Ridgecrest and Pinnacle. The results of these sensitivity analyses are presented in Section VIII.

All dollar figures in this report are expressed in U.S. dollars unless otherwise stated. Where Canadian-dollar figures are converted to U.S. dollars, the conversion is performed using the prevailing average annual exchange rate for the relevant fiscal year, as published by the Bank of Canada. For fiscal year 2021, the average annual exchange rate used is approximately 0.792 USD per CAD (i.e., CAD 1.00 = USD 0.792). Exchange rates for other years are set forth in the detailed tables in Appendix B.

D. Limitations

This analysis is subject to the following limitations, which should be considered in evaluating the findings presented herein:

1. Lack of Access to Co-Conspirator Data. Hargrove did not have access to Ridgecrest's or Pinnacle's internal transactional data. The affected-commerce estimates for those entities are based on publicly available financial disclosures, industry data, and market-share analysis. These estimates are inherently less precise than the TMC affected-commerce figure, which is based on direct analysis of TMC's internal records. If Ridgecrest's and Pinnacle's internal data were to become available — for example, through the DOJ's investigation or through cooperation by those entities — the estimates presented herein could be refined.

2. Conspiracy Period Boundaries. The conspiracy period boundaries used in this analysis — approximately January 2017 through August 2021 — are based on the DOJ's allegations as communicated to Calderwood & Harkness. Hargrove did not independently determine the start date or end date of the alleged conspiracy. If the DOJ's determination of the conspiracy period is subsequently modified, the affected-commerce figures would need to be recalculated accordingly.

3. Draft Status. This is a draft report prepared for purposes of discussion with the DOJ Antitrust Division. Certain figures and estimates may be refined upon receipt of additional data, documents, or information, or in response to DOJ feedback. Hargrove reserves the right to supplement or amend this report.

4. Scope of Products. The analysis is limited to U.S. sales of high-purity feldspar, industrial talc, and rare-earth concentrates, consistent with the product scope of the DOJ's investigation as understood by Calderwood & Harkness. If the product scope were to be expanded or narrowed, the affected-commerce figures would change.

5. Exchange Rate Sensitivity. To the extent that Pinnacle's revenues are denominated in Canadian dollars, the U.S. dollar equivalent is sensitive to the exchange rate used. The use of average annual exchange rates is a standard approach, but alternative exchange rate methodologies (e.g., transaction-date rates) could yield modestly different results.

IV. Market Overview: North American Specialty Minerals

A. Industry Structure

The North American specialty-minerals market encompasses a broad range of industrial minerals that are extracted, processed, and sold for use in manufacturing, construction, ceramics, glass production, electronics, chemical processing, and various other applications. Specialty minerals are distinguished from bulk commodity minerals (such as coal, iron ore, and common aggregates) by their higher degree of processing, more stringent quality specifications, and more concentrated customer bases. The specialty-minerals sector is characterized by relatively high barriers to entry — including the need for specialized extraction and processing capabilities, long-term mining permits, and established customer relationships — and is served by a relatively small number of major producers.

The three product categories at issue in this investigation — high-purity feldspar, industrial talc, and rare-earth concentrates — represent distinct but overlapping segments of the North American specialty-minerals market. While each product category has its own supply-demand dynamics, end-use applications, and pricing characteristics, the major producers in the sector typically operate across multiple product categories and serve many of the same industrial and chemical-manufacturing customers. This overlap creates opportunities for cross-product coordination and customer allocation, which the DOJ alleges occurred in this case.

The market structure is moderately concentrated, with the top five producers accounting for approximately 65–75% of North American production of high-purity feldspar, approximately 55–65% of industrial talc, and approximately 70–80% of rare-earth concentrates, based on NASMC annual market surveys for the relevant period. TMC, Ridgecrest, and Pinnacle are among the largest producers in the sector and, collectively, account for a substantial share of North American supply in each of the three product categories.

The North American Specialty Minerals Council ("NASMC"), headquartered in Arlington, Virginia, serves as the principal industry trade association for the specialty-minerals sector. NASMC's membership includes most major and mid-sized producers of specialty minerals operating in North America. NASMC organizes quarterly industry conferences, publishes pricing benchmarks and market surveys, and provides a forum for commercial and technical exchange among industry participants. As discussed below in Section IV.D, the DOJ alleges that NASMC quarterly conferences served as a venue for the exchange of competitively sensitive pricing information among the alleged co-conspirators.

B. Product Descriptions

The following descriptions provide background on each of the three product categories at issue:

High-Purity Feldspar. Feldspar is a group of rock-forming tectosilicate minerals that constitute approximately 60% of the Earth's crust. High-purity feldspar — refined to achieve low iron content and consistent chemical composition — is used primarily in glass manufacturing, where it serves as a flux to lower the melting temperature of quartz; in ceramics, where it provides a glassy phase to the fired product; and as a filler and extender in paints, plastics, and rubber. The designation "high-purity" generally refers to feldspar with an Fe₂O₃ content below 0.10%, which is essential for applications requiring optical clarity or color consistency (such as container glass and whiteware ceramics).

North American production of high-purity feldspar is concentrated in deposits in the southeastern United States (particularly Virginia, North Carolina, and Georgia), the Canadian Shield region of Ontario and Quebec, and certain deposits in the western United States. The primary end-use customer segments for high-purity feldspar include glass manufacturers (approximately 50–55% of U.S. consumption), ceramics manufacturers (approximately 25–30%), and filler/extender applications (approximately 15–20%). During the conspiracy period, the average annual market size for high-purity feldspar in North America was approximately USD 850 million to USD 1.0 billion, according to NASMC estimates.

Industrial Talc. Talc is a hydrous magnesium sheet silicate mineral that is prized for its softness, lubricity, and chemical inertness. Industrial talc — as distinguished from pharmaceutical-grade and cosmetic-grade talc — is sold in bulk to industrial customers for use in paper manufacturing (as a coating pigment and pitch-control agent), plastics (as a reinforcing filler and nucleating agent in polypropylene and other polymers), ceramics (as a body component and flux), and various other industrial applications. Industrial talc is typically sold in powder or micronized form, with particle-size distribution and mineral purity being key quality specifications.

North American industrial talc production is concentrated in Montana, Vermont, New York, Texas, and Ontario. The primary end-use customer segments include paper manufacturers (approximately 30–35% of U.S. consumption), plastics compounders and resin producers (approximately 25–30%), ceramics manufacturers (approximately 15–20%), and other industrial users (approximately 15–20%). During the conspiracy period, the average annual market size for industrial talc in North America was approximately USD 650 million to USD 750 million, according to NASMC estimates.

Rare-Earth Concentrates. Rare-earth elements (REEs) are a group of 17 metallic elements (the 15 lanthanides plus scandium and yttrium) that possess unique magnetic, luminescent, and electrochemical properties. Rare-earth concentrates — the intermediate product obtained from mining and initial beneficiation, prior to separation and refining into individual rare-earth oxides — are sold to downstream processors and end-use manufacturers for applications including permanent magnets (used in electric motors, wind turbines, and hard disk drives), catalysts (used in petroleum refining and automotive catalytic converters), polishing compounds, phosphors, and various defense applications. Rare-earth concentrates are a strategically important commodity with concentrated global supply chains; as of 2021, China accounted for approximately 60% of global rare-earth mine production, with the remainder produced principally in the United States, Australia, Myanmar, and Canada.

North American production of rare-earth concentrates is centered at a limited number of active and developing mine sites, including the Mountain Pass mine in California (operated by Tidewater Group), certain deposits in Quebec and Labrador (operated by range junior and mid-tier producers), and mine sites in Saskatchewan and the Northwest Territories. TMC, Ridgecrest, and Pinnacle are among the significant North American producers of rare-earth concentrates, though their market shares in this product category vary considerably. During the conspiracy period, the average annual market size for rare-earth concentrates in North America was approximately USD 500 million to USD 650 million, according to NASMC and USGS estimates.

C. Key Market Participants

The following descriptions provide background on each of the three companies identified as participants in the alleged conspiracy:

Torchlight Mining Corp. ("TMC"). TMC is a Canadian-domiciled mining and specialty-minerals company. TMC operates 14 mines across Canada, the United States, Brazil, and Australia, as well as six downstream chemical-processing facilities. TMC's U.S. operations are conducted through its wholly owned subsidiary, Torchlight Mining (U.S.) Inc., which is incorporated in Nevada and headquartered at 8750 West Sahara Avenue, Suite 210, Reno, NV 89117. TMC's U.S. Specialty Minerals Division — which encompasses all U.S. sales of high-purity feldspar, industrial talc, rare-earth concentrates, and other specialty-mineral products — generated approximately USD 687 million in revenue in fiscal year 2021. TMC's consolidated fiscal year 2021 revenue was approximately CAD 4.27 billion (approximately USD 3.38 billion). TMC shares are listed on the Toronto Stock Exchange (TSX: TRC) and TMC files periodic reports with the SEC on Form 40-F as a foreign private issuer.

TMC's Senior Vice President of U.S. Commercial Operations during the conspiracy period was Gavin Holt, who reported to TMC's Chief Operating Officer. Mr. Holt held primary responsibility for pricing, customer management, and commercial strategy for the U.S. Specialty Minerals Division. According to the DOJ's allegations, Mr. Holt was a key participant in the alleged conspiracy.

Ridgecrest Minerals Inc. ("Ridgecrest"). Ridgecrest is a Delaware corporation headquartered at 1700 Lincoln Street, Suite 4200, Denver, CO 80203. Ridgecrest is the second-largest North American producer of high-purity feldspar and industrial talc, with operations spanning multiple mine sites and processing facilities in the western and southeastern United States. Ridgecrest's fiscal year 2021 revenue was approximately USD 1.92 billion. Ridgecrest is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a private equity fund based in New York, and is not publicly traded. As a result, Ridgecrest's financial disclosures are limited, and Hargrove was unable to obtain detailed product-category or segment-level revenue data for Ridgecrest.

Ridgecrest's Chief Executive Officer during the conspiracy period was Brian Novotny. The Vice President of Sales, Carl Edgerton, held primary responsibility for pricing and commercial operations. According to the DOJ's allegations, Mr. Edgerton was a key participant in the alleged conspiracy.

Pinnacle Earth Resources Ltd. ("Pinnacle"). Pinnacle is an Ontario corporation headquartered at 85 Elm Street West, Suite 600, Sudbury, ON P3C 1T3. Pinnacle's U.S. operations are based at 222 South Main Street, Suite 1500, Salt Lake City, UT 84101. Pinnacle is a top-five North American producer of rare-earth concentrates and specialty industrial minerals, with mining operations in Ontario, Quebec, and Utah, and processing facilities in Ontario and Utah. Pinnacle's fiscal year 2021 revenue was approximately CAD 1.45 billion (approximately USD 1.15 billion). Pinnacle shares are listed on the Toronto Stock Exchange (TSX: PER), and the company files disclosure documents with Canadian securities regulators through SEDAR+.

Pinnacle's Chief Executive Officer during the conspiracy period was Douglas Harlowe. The former Senior Vice President of Commercial Operations, Kevin Tsang, held primary responsibility for pricing, customer management, and business development for Pinnacle's specialty-minerals products. According to the DOJ's allegations, Mr. Tsang was a key participant in the alleged conspiracy. Mr. Tsang departed Pinnacle in October 2021.

D. Pricing Dynamics

Specialty-minerals pricing in North America is influenced by a range of factors, including supply-demand fundamentals, production costs, transportation costs (which are significant given the bulk and weight of many mineral products), quality specifications, contract terms, and broader macroeconomic conditions. Many sales in the sector are conducted under annual or multi-year supply agreements that establish pricing formulas linked to benchmark indices, volume commitments, and quality specifications. Spot sales, which account for a smaller but significant share of total volume, are priced based on prevailing market conditions.

The NASMC publishes quarterly pricing benchmarks for major specialty-mineral product categories, including high-purity feldspar, industrial talc, and rare-earth concentrates. These benchmarks reflect weighted-average transaction prices reported confidentially by NASMC member companies and are widely used in the industry as reference points for pricing and contract negotiations. While the NASMC benchmarks themselves are published in aggregate form and are not inherently anticompetitive, the DOJ has alleged that the benchmarking process and the quarterly conferences at which pricing data was discussed provided a framework within which the alleged co-conspirators coordinated their pricing behavior.

NASMC quarterly conferences — held at rotating locations including Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida — provide opportunities for commercial interactions among competitors. These conferences typically include formal programming (presentations, panel discussions, and workshops on industry trends and regulatory developments) as well as informal networking events. According to the DOJ's allegations, the quarterly NASMC conferences served as a primary venue for in-person meetings among the senior commercial personnel of TMC (Gavin Holt), Ridgecrest (Carl Edgerton), and Pinnacle (Kevin Tsang), at which pricing strategies, customer-allocation agreements, and bid-rigging arrangements were discussed and coordinated.

In addition to the in-person meetings at NASMC conferences, the DOJ alleges that the conspirators communicated through encrypted messaging via the VaultChat application — an end-to-end encrypted messaging platform — and through occasional telephone calls. The use of an encrypted messaging application, rather than standard corporate email, is consistent with efforts to conceal the communications from potential detection.

The alleged anticompetitive conduct encompassed three related categories: (i) price-fixing (coordinating prices for high-purity feldspar, industrial talc, and rare-earth concentrates to maintain artificially elevated price levels); (ii) customer allocation (agreeing to allocate specific customers or customer accounts among the conspirators to reduce competition for those customers); and (iii) bid-rigging (coordinating bid submissions in response to customer requests for proposals or competitive solicitations to ensure a predetermined outcome). These forms of horizontal collusion are per se violations of Section 1 of the Sherman Act, 15 U.S.C. § 1.

V. TMC's Affected Commerce: Detailed Analysis

A. Overview of TMC U.S. Specialty Minerals Division Sales

TMC's U.S. Specialty Minerals Division is the relevant business unit for purposes of this affected-commerce analysis. The Division, operated through Torchlight Mining (U.S.) Inc. and headquartered in Reno, Nevada, is responsible for all U.S. sales of TMC's specialty-mineral products, including high-purity feldspar, industrial talc, rare-earth concentrates, and a range of other specialty minerals (such as wollastonite, mica, and specialty silica products) that are not at issue in this investigation.

For fiscal year 2021, the U.S. Specialty Minerals Division generated total revenue of approximately USD 687 million. This figure represents approximately 20.3% of TMC's consolidated fiscal year 2021 revenue of approximately CAD 4.27 billion (approximately USD 3.38 billion). Over the period 2017 to 2021, the Division's revenue grew at a compound annual growth rate ("CAGR") of approximately 5.2%, driven by volume growth, price increases, and the ramp-up of a new rare-earth processing facility in Nevada that commenced commercial production in 2018.

For purposes of this affected-commerce analysis, only U.S. sales of the three product categories at issue — high-purity feldspar, industrial talc, and rare-earth concentrates — are included. Sales of other specialty-mineral products, which collectively represented approximately 28% of the Division's FY 2021 revenue, are excluded. Additionally, export sales to non-U.S. customers, which represented approximately 8% of the Division's FY 2021 revenue, are excluded. The affected-commerce figure therefore reflects only domestic U.S. sales of the three identified product categories during the conspiracy period.

B. Year-by-Year TMC Affected Commerce (January 2017 – August 2021)

The following table presents TMC's year-by-year U.S. sales of high-purity feldspar, industrial talc, and rare-earth concentrates during the conspiracy period. All figures are in millions of U.S. dollars.

Table 1: TMC Year-by-Year Affected Commerce (January 2017 – August 2021)

The year-by-year progression of TMC's affected commerce reflects several underlying trends:

• 2017: The first full year of the alleged conspiracy. TMC's U.S. sales of the three product categories totaled approximately USD 85.3 million. This figure is consistent with TMC's historical sales levels for these products and reflects the company's established market position as of early 2017.

• 2018: Affected commerce increased to approximately USD 98.5 million, reflecting both volume growth and price increases. The increase in rare-earth concentrate sales was particularly notable, driven in part by the commencement of commercial production at TMC's new Nevada processing facility and by rising demand for rare-earth products in electronics and clean-energy applications.

• 2019: Affected commerce reached its peak annual level during the conspiracy period at approximately USD 107.3 million, reflecting continued growth across all three product categories. NASMC benchmark prices for feldspar and rare-earth concentrates reached multi-year highs during 2019.

• 2020: Affected commerce declined to approximately USD 97.4 million, reflecting the impact of the COVID-19 pandemic on industrial demand. The pandemic-related economic disruption, which was most acute in the second quarter of 2020, resulted in temporary production curtailments and order deferrals by TMC's customers. Feldspar and talc sales were more significantly affected than rare-earth concentrate sales, which benefited from sustained demand in the electronics sector.

• 2021 (January–August): Affected commerce for the partial year through August 2021 totaled approximately USD 89.5 million. This eight-month figure reflects a strong recovery in demand during the first half of 2021 as industrial activity rebounded from the pandemic. Rare-earth concentrate sales were particularly strong in this period, driven by surging demand in the electric-vehicle and clean-energy sectors. The conspiracy period is treated as ending at approximately August 31, 2021, consistent with the DOJ's allegations.

Methodology Note: The conspiracy period commences on approximately January 1, 2017. Because the alleged conspiracy is understood to have begun at or near the start of January 2017, the full calendar year 2017 is included in the affected-commerce calculation without proration. For calendar year 2021, the analysis includes only revenue for the eight-month period January through August 2021. The partial-year 2021 figure was derived directly from TMC's monthly ERP sales data, which permits precise identification of revenue through August 31, 2021. No annualization or extrapolation was applied to the 2021 figure.

C. Breakdown by Product Category

The following table summarizes TMC's total affected commerce by product category over the entire conspiracy period (January 2017 – August 2021):

Table 2: TMC Affected Commerce by Product Category (Conspiracy Period)

Rare-earth concentrates represent the largest single component of TMC's affected commerce, accounting for approximately 41.4% of the total. This reflects TMC's strategic focus on the rare-earth segment, including the investment in the Nevada processing facility that expanded TMC's rare-earth production capacity beginning in 2018. The rare-earth segment also exhibited the strongest growth trajectory over the conspiracy period, with sales increasing from USD 31.4 million in 2017 to an annualized pace of approximately USD 68.7 million in 2021 (based on the January–August 2021 figure of USD 45.8 million).

High-purity feldspar is the second-largest component at approximately 32.6% of total affected commerce. TMC's feldspar sales were relatively stable over the conspiracy period, with modest growth from 2017 through 2019 followed by a pandemic-related decline in 2020 and a recovery in 2021.

Industrial talc is the smallest component at approximately 26.0% of total affected commerce. TMC's talc sales followed a similar trajectory to feldspar, with steady growth in 2017–2019, a pandemic-related decline in 2020, and a partial recovery in 2021.

The relative concentration of TMC's affected commerce in rare-earth concentrates is a notable feature of the analysis, as it distinguishes TMC's product mix from that of Ridgecrest (which is understood to have a relatively higher concentration in feldspar and talc) and aligns TMC's product mix more closely with that of Pinnacle (which is also a significant rare-earth producer). This product-mix variation is relevant to the estimation of each participant's share of total affected commerce, as discussed in Section VI.

D. Data Verification

The TMC affected-commerce figures presented above are based on direct analysis of TMC's ERP transactional data and have been subjected to the following verification procedures:

Financial Statement Reconciliation. TMC's ERP-derived revenue figures for the U.S. Specialty Minerals Division were reconciled to the Division's revenue as reported in TMC's audited consolidated financial statements for fiscal years 2017 through 2021. TMC's financial statements are audited by Calvert & Associates LLP, a registered public accounting firm, under the engagement partnership of Daniel Moreau. Hargrove confirmed that the ERP-derived revenue figures for each fiscal year agree, within rounding, to the revenue figures reported in TMC's audited financial statements and in TMC's SEC Form 40-F annual filings.

SEC and SEDAR+ Filing Reconciliation. TMC's reported U.S. Specialty Minerals Division revenue was cross-referenced to TMC's Form 40-F filings with the SEC and TMC's annual information forms and MD&A disclosures filed through SEDAR+. These filings provide segment-level revenue disclosures that are consistent with the revenue figures used in this analysis.

Product-Category Classification Verification. TMC's internal product codes and product descriptions were reviewed to verify the classification of sales transactions into the three product categories at issue. TMC uses a hierarchical product-code system (a five-level alphanumeric code) that permits granular identification of product type, grade, and specification. Hargrove's team reviewed the product-code master file and confirmed that the product-code filters used to identify feldspar, talc, and rare-earth concentrate transactions are accurate and complete. A sample of 5,000 transactions (approximately 1.7% of the total population) was reviewed at the invoice level to verify product-category classifications, and no material misclassifications were identified.

Pricing Data Analysis. TMC's pricing data for the period 2015–2022 was analyzed to verify consistency and identify any anomalies that could affect the affected-commerce calculation. This analysis included comparison of TMC's transaction prices to NASMC benchmark prices for each product category, identification of any transactions with unusually high or low prices relative to the benchmark, and trending of TMC's average realized prices over time. While the pricing analysis revealed patterns consistent with the DOJ's price-fixing allegations — including instances of price increases that tracked closely to competitor price increases, as documented in Calderwood & Harkness's internal investigation — the purpose of the pricing analysis in this context was limited to verifying the accuracy and completeness of the revenue data used in the affected-commerce calculation.

VI. Total Affected Commerce: All Participants

A. Methodology for Estimating Ridgecrest and Pinnacle Affected Commerce

As noted above, Hargrove did not have access to the internal transactional data of Ridgecrest Minerals Inc. or Pinnacle Earth Resources Ltd. The affected-commerce estimates for those entities are therefore derived from publicly available financial disclosures, industry data, and market-share analysis. The methodology employed by Hargrove to develop these estimates is described below.

The estimation approach proceeds in three stages. First, Hargrove estimated each company's total U.S. revenue from the three product categories at issue (feldspar, talc, and rare-earth concentrates) for each year of the conspiracy period. Second, these annual revenue estimates were aggregated over the conspiracy period. Third, the estimates were subjected to sensitivity analysis using alternative assumptions for market shares and product-category breakdowns.

For each company, the estimation involved the following analytical steps:

(i) Total Revenue Identification. Hargrove identified each company's total annual revenue from public disclosures. For Ridgecrest, this was derived from the limited financial data available through Marlowe Asset Management Peak Capital Partners' investor communications and Ridgecrest's 2019 credit-facility offering circular. For Pinnacle, this was derived directly from Pinnacle's audited financial statements filed through SEDAR+.

(ii) U.S. Revenue Estimation. Hargrove estimated the share of each company's total revenue derived from U.S. operations, based on geographic-segment disclosures (available for Pinnacle) and industry-level data on the share of North American versus international revenue for major specialty-minerals producers (used for Ridgecrest, which does not provide geographic-segment breakdowns in its limited public disclosures).

(iii) Product-Category Revenue Estimation. Hargrove estimated the share of each company's U.S. revenue derived from the three product categories at issue, based on product-segment disclosures (available for Pinnacle's Specialty Industrial Minerals division) and industry-level data on product-mix composition for major producers (used for Ridgecrest).

(iv) Year-Over-Year Growth Rates. Annual estimates for each year of the conspiracy period were developed by applying year-over-year growth rates derived from NASMC annual market surveys and USGS data, anchored to the base-year estimates described above. This approach accounts for the fact that the publicly available revenue data for Ridgecrest and Pinnacle may reflect a single fiscal year and must be extrapolated across the full conspiracy period.

(v) Proration for Partial Years. For calendar year 2021, the estimates are prorated to reflect the eight-month conspiracy period ending in August 2021, consistent with the treatment of TMC's data.

Hargrove acknowledges that this estimation methodology introduces inherent uncertainty relative to an analysis based on internal transactional data. The sensitivity analysis presented in Section VIII is designed to bound this uncertainty and demonstrate the robustness of the central estimates.

B. Ridgecrest Minerals Inc. — Estimated Affected Commerce

Ridgecrest Minerals Inc. is the second-largest North American producer of high-purity feldspar and industrial talc. Based on publicly available information, Ridgecrest's fiscal year 2021 revenue was approximately USD 1.92 billion. Ridgecrest's operations are predominantly U.S.-focused; based on industry data and the limited disclosures available, Hargrove estimates that approximately 72–78% of Ridgecrest's revenue is derived from U.S. operations (with the remainder derived from Canadian and international operations).

Ridgecrest's product mix is understood to be weighted toward high-purity feldspar and industrial talc, which together account for the majority of Ridgecrest's specialty-minerals revenue. Ridgecrest also produces rare-earth concentrates, but its market position in rare earths is smaller than those of TMC and Pinnacle. Based on NASMC market-share data and third-party research reports, Hargrove estimates that the three product categories at issue (feldspar, talc, and rare-earth concentrates) account for approximately 7.5–9.5% of Ridgecrest's U.S. revenue. Applying the midpoint estimate of approximately 8.5% to Ridgecrest's estimated U.S. revenue of approximately USD 1.44 billion (75% of USD 1.92 billion) yields an estimated annual U.S. revenue from the three product categories of approximately USD 122 million for fiscal year 2021.

The following table presents Hargrove's year-by-year estimates of Ridgecrest's affected commerce during the conspiracy period, derived using the methodology described above. Year-over-year growth rates are based on NASMC data for the relevant product categories.

Table 3: Ridgecrest Estimated Year-by-Year Affected Commerce (January 2017 – August 2021)

The estimated total Ridgecrest affected commerce over the conspiracy period is approximately USD 514 million. This estimate is subject to the uncertainties and limitations discussed in Sections III.D and VI.A. The detailed supporting calculations,

DRAFT — CONFIDENTIAL — PREPARED AT THE DIRECTION OF COUNSEL
Analysis of Affected Commerce in the North American Specialty Minerals Sector: High-Purity Feldspar, Industrial Talc, and Rare-Earth Concentrates (January 2017 – August 2021)
Prepared by:
Dr. Vanessa Tremblay Engagement Partner Hargrove Forensic Advisory LLC 233 South Wacker Drive, Suite 4800 Chicago, IL 60606
Prepared at the Direction of:
Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, CA 94104 Counsel for Torchlight Mining Corp.
August 15, 2023
DRAFT — For Discussion with DOJ Antitrust Division
Calderwood & Harkness Matter No. 1039-00001
Grand Jury No. GJ-22-0194 U.S. District Court, Northern District of California San Francisco Division
CONFIDENTIALITY NOTICE: This report was prepared at the direction of counsel and is protected by the attorney-client privilege and work-product doctrine. It is being provided to the U.S. Department of Justice Antitrust Division in connection with Torchlight Mining Corp.'s cooperation obligations and is not intended as a waiver of privilege as to any third party. Any unauthorized review, use, disclosure, or distribution of this report is strictly prohibited. If you have received this report in error, please notify Calderwood & Harkness LLP immediately at (415) 555-8200 and destroy all copies.
I. Executive Summary
Hargrove Forensic Advisory LLC ("Hargrove") was retained by Calderwood & Harkness LLP ("Calderwood & Harkness") on July 1, 2022, on behalf of Torchlight Mining Corp. ("TMC"), to conduct an independent economic analysis of the volume of commerce affected by the conduct under investigation by the Antitrust Division of the U.S. Department of Justice (the "DOJ"). This engagement was undertaken in the context of TMC's ongoing cooperation with the DOJ and in anticipation of resolution discussions that may include the negotiation of a non-prosecution agreement or plea agreement. The opinions expressed herein are the independent professional opinions of Dr. Vanessa Tremblay, Engagement Partner at Hargrove, and are based solely on the data, materials, and information described in this report.
The DOJ investigation, proceeding under Grand Jury No. GJ-22-0194 in the U.S. District Court for the Northern District of California, San Francisco Division, concerns suspected price-fixing, customer allocation, and bid-rigging in the North American specialty-minerals sector. The alleged anticompetitive conduct specifically involves three product categories: high-purity feldspar, industrial talc, and rare-earth concentrates. These three product categories represent a substantial subset of the broader North American specialty-minerals market and are widely used in manufacturing, construction, ceramics, electronics, chemical processing, and defense applications.
The alleged conspiracy period spans approximately January 2017 through August 2021, a duration of approximately four years and eight months. Based on the DOJ's allegations and information obtained through Calderwood & Harkness's internal investigation, the three companies identified as participants in the alleged conduct are:
1. Torchlight Mining Corp. ("TMC") — a Canadian-domiciled mining and specialty-minerals company with its U.S. Specialty Minerals Division based in Reno, Nevada;
2. Ridgecrest Minerals Inc. ("Ridgecrest") — a Delaware corporation headquartered in Denver, Colorado, and a portfolio company of Marlowe Asset Management Peak Capital Partners LP; and
3. Pinnacle Earth Resources Ltd. ("Pinnacle") — an Ontario corporation headquartered in Sudbury, Ontario, with U.S. operations based in Salt Lake City, Utah.
Based on the analysis described in detail in this report, the principal findings are as follows:
• Total affected commerce across all three identified participants during the conspiracy period (January 2017 – August 2021): approximately USD 1.34 billion.
• TMC's share of total affected commerce: approximately USD 478 million, representing approximately 35.7% of total affected commerce.
• Ridgecrest's estimated share of total affected commerce: approximately USD 514 million, representing approximately 38.4% of total affected commerce.
• Pinnacle's estimated share of total affected commerce: approximately USD 348 million, representing approximately 25.9% of total affected commerce.
• Combined Ridgecrest and Pinnacle estimated affected commerce: approximately USD 862 million, representing the remaining approximately 64.3% of total affected commerce.
For purposes of the DOJ's standard penalty calculation approach — in which the base fine for a corporate defendant in a price-fixing case is typically computed as 20% of the defendant's affected commerce — the starting-point calculation for TMC yields a base fine of approximately USD 95.6 million (i.e., USD 478 million × 20%). This starting-point figure is subject to adjustment based on a range of culpability factors, cooperation credits, remediation efforts, and other mitigating or aggravating circumstances, as discussed in Section VII of this report. Based on precedent in comparable DOJ antitrust cases and the scope of TMC's cooperation to date, this report presents penalty scenarios reflecting cooperation credits ranging from 25% to 50% of the base fine, which would produce an estimated penalty range of approximately USD 47.8 million to USD 71.7 million.
The analysis presented in this report is based on the following principal data sources: (i) TMC's internal sales data, extracted from TMC's enterprise resource planning ("ERP") systems, covering fiscal years 2015 through 2022; (ii) publicly available financial disclosures of Ridgecrest and Pinnacle; (iii) industry data from the North American Specialty Minerals Council ("NASMC"), including quarterly pricing benchmark reports and annual market surveys; (iv) data from the U.S. Geological Survey ("USGS") Mineral Commodity Summaries and U.S. Census Bureau import/export statistics; and (v) forensic review of TMC pricing records for the period 2015–2022, produced pursuant to Grand Jury Subpoena Nos. GJ-22-0194-SD-003 and GJ-22-0194-SD-007.
It should be noted that this report is a draft, prepared for purposes of discussion with the DOJ Antitrust Division. Final figures may be subject to refinement pending further data production, including the potential availability of Ridgecrest's and Pinnacle's internal transactional data, as well as feedback from the DOJ. Hargrove reserves the right to supplement or amend the findings presented herein as additional information becomes available.
II. Qualifications of Dr. Vanessa Tremblay
A. Professional Background
Dr. Vanessa Tremblay is the Engagement Partner at Hargrove Forensic Advisory LLC, a boutique consulting firm headquartered in Chicago, Illinois, that specializes in forensic economic analysis, antitrust litigation support, and regulatory investigation consulting. Hargrove was founded in 2008 and currently employs 42 professionals, including 11 Ph.D. economists and 8 Certified Public Accountants.
Dr. Tremblay holds a Ph.D. in Economics from the University of Chicago, with a specialization in industrial organization, conferred in 2001. Her doctoral dissertation, entitled "Collusive Equilibria and Detection Mechanisms in Oligopolistic Markets: Evidence from the U.S. Chemical Industry," was supervised by Professor James R. Whitfield and was awarded the university's Dempster Prize for outstanding doctoral research in applied economics. She also holds an M.A. in Economics from the University of Toronto (1997) and a B.A. in Economics and Mathematics, summa cum laude, from McGill University (1995).
Dr. Tremblay has over 20 years of experience in forensic economic analysis, antitrust litigation support, and regulatory investigation consulting. Before founding and joining Hargrove, she served as a Vice President at Meridian Management Consulting in Washington, D.C., from 2003 to 2008, where she led economic analysis teams in major antitrust matters. From 2001 to 2003, she was a post-doctoral research fellow at the National Bureau of Economic Research (NBER), where she conducted empirical research on cartel behavior and pricing dynamics in concentrated industries.
Dr. Tremblay is a member of the American Economic Association, the Industrial Organization Society, the American Bar Association (Affiliate Member, Section of Antitrust Law), and the International Competition Network's Economics Working Group. She has served as an adjunct professor at the Northwestern University Pritzker School of Law, where she has taught a seminar on "Economics of Antitrust Enforcement" since 2015.
A complete curriculum vitae of Dr. Tremblay is attached as Appendix D.
B. Relevant Experience
Dr. Tremblay has extensive experience in antitrust matters involving affected-commerce analysis for both DOJ and Federal Trade Commission ("FTC") investigations. Over the course of her career, she has been retained as an economic expert or consulting economist in more than 45 antitrust matters, including both criminal and civil proceedings. The following representative engagements are particularly relevant to the analysis presented in this report:
• U.S. v. Continental Chemicals Corp. (D. Conn. 2019): Retained by defense counsel to analyze affected commerce in a DOJ price-fixing investigation involving specialty chemical products. Prepared a comprehensive affected-commerce report that was submitted to the DOJ in connection with plea negotiations. The final plea agreement reflected a cooperation credit of approximately 40%.
• In re North American Gypsum Antitrust Litigation (N.D. Ill. 2016): Retained by plaintiff class counsel to estimate overcharges and affected commerce in a price-fixing case involving gypsum wallboard manufacturers. Provided expert testimony at trial; the jury returned a verdict for plaintiffs.
• U.S. v. Pacific Aggregate Holdings Inc. (W.D. Wash. 2020): Retained by the DOJ Antitrust Division to prepare an affected-commerce analysis for sentencing purposes in a bid-rigging case involving aggregate and industrial-mineral suppliers. Report accepted by the court without challenge.
• FTC v. Consolidated Mining Group PLC (FTC Docket No. 9412, 2017): Retained as a consulting economist by the FTC's Bureau of Competition to analyze competitive effects of a proposed merger among industrial-minerals producers. Developed market-definition and competitive-effects analyses for the FTC's administrative proceeding.
In addition to her antitrust expertise, Dr. Tremblay has significant experience in the mining, chemicals, and industrial-materials sectors. She has been retained as an economic expert in matters involving copper, zinc, rare-earth minerals, specialty chemicals, industrial aggregates, and various mineral commodities. This sector-specific experience provides a foundation for the market analysis and commercial-data interpretation presented in this report.
Dr. Tremblay's publications include articles in peer-reviewed economics journals on topics related to cartel economics and price-fixing detection. Representative publications include:
• Tremblay, V. & Chen, H. (2018). "Structural Indicators of Collusion in Concentrated Mineral Markets," Journal of Industrial Economics, 66(3), 521–558.
• Tremblay, V. (2014). "Bid-Rigging Detection in Public Procurement: A Machine-Learning Approach," Review of Industrial Organization, 45(2), 189–215.
• Tremblay, V. & Park, S. (2011). "Measuring Overcharges in Horizontal Price-Fixing Cases: Methodological Considerations," Antitrust Law Journal, 77(3), 701–742.
• Tremblay, V. (2009). "The Economics of Leniency Programs in Antitrust Enforcement," International Journal of Industrial Organization, 27(4), 412–430.
A complete list of publications and prior expert engagements is set forth in Dr. Tremblay's curriculum vitae at Appendix D.
C. Engagement Terms
Dr. Tremblay was retained by Calderwood & Harkness LLP on behalf of Torchlight Mining Corp. pursuant to an engagement letter dated July 1, 2022. The engagement was conducted under Kovel-letter protections, consistent with the framework established in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), to preserve attorney-client privilege over communications and work product generated in the course of the engagement. The Kovel letter, executed on July 1, 2022, provides that Dr. Tremblay and Hargrove personnel act as agents of Calderwood & Harkness for purposes of this engagement and that all communications, analyses, drafts, and work product generated in connection with this engagement are privileged and confidential.
The opinions expressed in this report are Dr. Tremblay's independent professional opinions, based on the data reviewed and the analytical methodology described herein. Dr. Tremblay's compensation is based on Hargrove's standard hourly rates and is not contingent on the outcome of the DOJ investigation, any resolution negotiations, or the conclusions reached in this report. Hargrove's current standard hourly rate for engagement-partner time is $850 per hour; associate-economist rates range from $350 to $625 per hour; and analyst rates range from $225 to $350 per hour. As of the date of this report, total fees billed by Hargrove in connection with this engagement are approximately $1.87 million.
III. Scope and Methodology
A. Scope of Engagement
The scope of Hargrove's engagement encompasses the following analytical objectives:
1. Quantification of TMC's Affected Commerce. Analyze the volume of U.S. commerce affected by the alleged conspiracy by quantifying TMC's U.S. sales of the three product categories at issue — high-purity feldspar, industrial talc, and rare-earth concentrates — during the alleged conspiracy period of approximately January 2017 through August 2021.
2. Determination of TMC's Share. Determine TMC's share of total affected commerce during the conspiracy period, expressed both as an absolute dollar figure and as a percentage of total affected commerce across all identified participants.
3. Estimation of Total Affected Commerce. Estimate total affected commerce across all three identified participants — TMC, Ridgecrest Minerals Inc., and Pinnacle Earth Resources Ltd. — during the conspiracy period. Because Hargrove did not have access to Ridgecrest's or Pinnacle's confidential internal transactional data, the estimates for those entities are derived from publicly available financial disclosures, industry data, and market-share analysis.
4. Penalty Calculation Support. Provide analysis to support penalty calculation discussions under the DOJ Antitrust Division's sentencing guidelines and enforcement policies, including presentation of base fine calculations and cooperation-credit scenarios.
The scope of this engagement does not include an assessment of whether a violation of the Sherman Act or other antitrust laws occurred, a determination of the start or end date of the alleged conspiracy, an analysis of causation or damages for purposes of civil litigation, or an evaluation of the appropriate level of cooperation credit to be awarded to TMC. Those matters are outside the scope of Hargrove's economic expertise and are properly reserved for legal determination.
B. Data Sources
Hargrove's analysis relies on the following categories of data and information:
1. TMC Internal Data
The primary foundation of this analysis is detailed transactional sales data from TMC's U.S. Specialty Minerals Division for fiscal years 2015 through 2022. This data was extracted from TMC's enterprise resource planning ("ERP") systems — specifically, the Harborline Software platform used by TMC's U.S. subsidiary, Torchlight Mining (U.S.) Inc. The ERP data extraction was performed by TMC's information technology department under the supervision of Calderwood & Harkness and was provided to Hargrove in structured electronic format (CSV and Excel files) accompanied by a data dictionary and field-level documentation.
The transactional data set encompasses the following fields, among others: transaction identification number, invoice date, product code, product description, product category, customer identification number, customer name, customer location (state and zip code), unit volume, unit price, total invoice amount, payment terms, contract reference number, and sales representative identification. For the period January 2017 through August 2021, the data set includes approximately 287,000 individual sales transactions across the three product categories at issue.
In addition to the ERP transactional data, Hargrove reviewed pricing records, customer contract files, and invoicing data produced by TMC in connection with Grand Jury Subpoena Nos. GJ-22-0194-SD-003 (issued approximately April 2022) and GJ-22-0194-SD-007 (issued approximately October 2022). The first subpoena response comprised approximately 487,000 documents, and the second subpoena response comprised approximately 68,000 documents, for a combined total of approximately 555,000 documents (approximately 3.2 million pages). Hargrove's team reviewed a substantial subset of these documents — approximately 42,000 documents identified through targeted search terms and custodian filters — for relevant commercial data, pricing information, and customer-allocation evidence.
TMC's annual reports and SEC filings (Form 40-F, filed with the U.S. Securities and Exchange Commission as a foreign private issuer) were also reviewed for purposes of reconciling the transactional data to TMC's audited financial statements and verifying the U.S. Specialty Minerals Division's reported revenue. For fiscal year 2021, TMC's consolidated revenue was approximately CAD 4.27 billion (approximately USD 3.38 billion at the prevailing average annual exchange rate). The U.S. Specialty Minerals Division generated approximately USD 687 million in FY 2021 revenue, representing approximately 20.3% of TMC's consolidated revenue.
2. Ridgecrest Minerals Inc. Data
Ridgecrest Minerals Inc. is a privately held company organized as a Delaware corporation and headquartered in Denver, Colorado. Ridgecrest is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a private equity fund. Because Ridgecrest is not publicly traded and is not a reporting issuer under the Securities Exchange Act of 1934, its financial disclosures are limited. Hargrove's analysis of Ridgecrest's affected commerce is therefore based on a combination of the following sources:
• Publicly available financial disclosures, including (i) financial information contained in Marlowe Asset Management Peak Capital Partners' annual investor letters and fund reports (which include limited financial data for portfolio companies), and (ii) a credit-facility offering circular published in connection with Ridgecrest's 2019 senior secured term loan refinancing, which disclosed Ridgecrest's fiscal year 2018 revenue and EBITDA figures.
• Ridgecrest's estimated fiscal year 2021 revenue of approximately USD 1.92 billion, derived from the foregoing sources and corroborated by industry data.
• NASMC publications, including annual market surveys and quarterly reports that provide aggregate industry data and, in some editions, named-company market-share estimates for major producers.
• Third-party market research reports, including reports published by Ashbury Solutions and Harborline Health IT, which provide market intelligence on the specialty-minerals sector and include estimates of company-level market shares.
• U.S. Geological Survey Mineral Commodity Summaries, which provide data on domestic production, imports, exports, and apparent consumption for various mineral commodities.
3. Pinnacle Earth Resources Ltd. Data
Pinnacle Earth Resources Ltd. is a publicly traded company organized under the laws of Ontario, Canada, with shares listed on the Toronto Stock Exchange (TSX: PER). Pinnacle files periodic and continuous disclosure documents with Canadian securities regulators through SEDAR+. Hargrove's analysis of Pinnacle's affected commerce is based on the following sources:
• Pinnacle's publicly filed financial statements, management's discussion and analysis ("MD&A"), annual information forms ("AIFs"), and other disclosure documents available through SEDAR+ and Pinnacle's investor-relations website.
• Pinnacle's FY 2021 revenue of approximately CAD 1.45 billion (approximately USD 1.15 billion at the prevailing average annual exchange rate).
• NASMC publications and third-party market research reports, as described above.
• USGS data on domestic production and consumption of relevant mineral commodities.
Pinnacle's public disclosures provide greater transparency than Ridgecrest's, as Pinnacle reports segment-level revenue for its "Specialty Industrial Minerals" division (which includes rare-earth concentrates, industrial talc, and certain feldspar products) and its "Bulk Commodities" division. This segmental disclosure facilitates a more precise estimation of Pinnacle's U.S. sales in the three product categories at issue.
4. Industry Data
Hargrove relied on the following industry-level data sources to validate and supplement the company-specific data described above:
• NASMC Quarterly Pricing Benchmark Reports (2015–2022): These reports, published by the North American Specialty Minerals Council, provide quarterly pricing data for major specialty-mineral product categories, including high-purity feldspar, industrial talc, and rare-earth concentrates. The benchmark prices reflect weighted-average transaction prices reported by NASMC member companies and are widely used in the industry as reference points for pricing and contract negotiations.
• NASMC Annual Market Surveys (2015–2022): These surveys provide aggregate data on North American production volumes, apparent consumption, import/export flows, and market-share estimates for major producers of specialty minerals. The surveys are based on voluntary self-reporting by NASMC member companies and are considered the most comprehensive industry-level data source available.
• U.S. Geological Survey Mineral Commodity Summaries (2016–2022): The USGS publishes annual summaries for individual mineral commodities that include data on domestic production, imports, exports, consumption, and pricing. Hargrove reviewed the USGS summaries for feldspar, talc, and rare-earth elements.
• U.S. Census Bureau Import/Export Statistics: Hargrove reviewed U.S. Census Bureau data on imports and exports of feldspar, talc, and rare-earth products for the period 2015–2022, accessed through the International Trade Commission's DataWeb portal.
5. Cascade Chemical Supply Co. Data
Cascade Chemical Supply Co. ("Cascade") is a downstream distributor and processor of specialty minerals headquartered in Spokane, Washington. Cascade's president is Leonard Massey. Based on information provided by Calderwood & Harkness, Cascade entered into a cooperation agreement with the DOJ on approximately September 15, 2021. Cascade is not alleged to have participated in the price-fixing, customer allocation, or bid-rigging conspiracy at issue; rather, Cascade is understood to be a downstream customer and distributor that has provided cooperation to the DOJ investigation.
Hargrove did not directly review Cascade's cooperation materials. However, certain findings from Calderwood & Harkness's internal investigation — including references to Cascade's purchasing patterns and pricing data — were made available to Hargrove and were considered in the development of this report. Cascade's downstream sales and revenues are not included in the affected-commerce calculations presented herein, consistent with the standard methodology of measuring affected commerce at the first point of sale by the alleged co-conspirators.
C. Analytical Methodology
The affected-commerce analysis presented in this report was conducted using the following six-step methodology:
Step 1: Identification and Classification of U.S. Sales. The first step involved identifying and classifying all U.S. sales by each participant in the three product categories during the conspiracy period. For TMC, this was accomplished through direct analysis of TMC's ERP transactional data. Each transaction was mapped to one of the three product categories at issue (high-purity feldspar, industrial talc, or rare-earth concentrates) based on TMC's internal product codes and product descriptions. Transactions involving other specialty-mineral products not within the scope of this analysis were excluded. For Ridgecrest and Pinnacle, the identification and classification of U.S. sales was estimated using the publicly available data and industry sources described above, as Hargrove did not have access to those companies' internal transactional records.
Step 2: Segregation by Product Category and Customer Type. The second step involved segregating the identified U.S. sales by product category (feldspar, talc, rare-earth concentrates) and by customer type. For purposes of this analysis, customer types are classified as (i) industrial customers (i.e., end-use manufacturers and processors that purchase specialty minerals as inputs for their own production) and (ii) chemical-manufacturing customers (i.e., companies engaged in chemical processing that use specialty minerals as feedstocks or intermediates). Both categories of customers are included in the affected-commerce calculation, as the alleged conspiracy is understood to have encompassed sales to both industrial and chemical-manufacturing customers. Sales to other producers or co-conspirators, if any, were excluded.
Step 3: Annualization and Aggregation. The third step involved annualizing and aggregating the sales volumes identified in Steps 1 and 2 for the conspiracy period. For TMC, this involved summing transactional revenues for each calendar year (or partial year) within the conspiracy period. The conspiracy period is treated as commencing on approximately January 1, 2017, and ending on approximately August 31, 2021, consistent with the DOJ's allegations. The full calendar year 2017 is used because the alleged conspiracy is understood to have commenced at or near the beginning of January 2017. For calendar year 2021, the analysis includes only revenue for the eight-month period January through August 2021. For Ridgecrest and Pinnacle, annual estimates were derived from the methodology described in Step 5 below and prorated on the same basis.
Step 4: Cross-Referencing and Validation. The fourth step involved cross-referencing TMC's transactional data with industry-level data to validate market-share estimates and identify any inconsistencies. Specifically, TMC's reported U.S. sales of feldspar, talc, and rare-earth concentrates for each year were compared to the total North American market size for those products as reported by NASMC and the USGS. TMC's implied market share was then compared to market-share estimates published by NASMC and third-party research firms. This cross-referencing step confirmed that TMC's transactional data is consistent with the company's known market position and that the aggregate industry data provides a reasonable basis for estimating the co-conspirators' affected commerce.
Step 5: Estimation of Ridgecrest and Pinnacle Affected Commerce. The fifth step involved estimating Ridgecrest's and Pinnacle's affected commerce using a combination of public disclosures, industry data, and market-share analysis. The methodology for this estimation is described in detail in Section VI.A of this report. In summary, Hargrove estimated each company's U.S. sales of feldspar, talc, and rare-earth concentrates as a percentage of total revenue, based on publicly available product-mix information and industry data, and then aggregated those estimates over the conspiracy period using year-over-year growth rates derived from NASMC annual market survey data.
Step 6: Sensitivity Analysis. The sixth step involved conducting sensitivity analyses to evaluate the robustness of the affected-commerce estimates under alternative assumptions. The sensitivity analyses address (i) changes to the conspiracy period start and end dates, (ii) changes to the product-category scope, and (iii) changes to the market-share estimates used for Ridgecrest and Pinnacle. The results of these sensitivity analyses are presented in Section VIII.
All dollar figures in this report are expressed in U.S. dollars unless otherwise stated. Where Canadian-dollar figures are converted to U.S. dollars, the conversion is performed using the prevailing average annual exchange rate for the relevant fiscal year, as published by the Bank of Canada. For fiscal year 2021, the average annual exchange rate used is approximately 0.792 USD per CAD (i.e., CAD 1.00 = USD 0.792). Exchange rates for other years are set forth in the detailed tables in Appendix B.
D. Limitations
This analysis is subject to the following limitations, which should be considered in evaluating the findings presented herein:
1. Lack of Access to Co-Conspirator Data. Hargrove did not have access to Ridgecrest's or Pinnacle's internal transactional data. The affected-commerce estimates for those entities are based on publicly available financial disclosures, industry data, and market-share analysis. These estimates are inherently less precise than the TMC affected-commerce figure, which is based on direct analysis of TMC's internal records. If Ridgecrest's and Pinnacle's internal data were to become available — for example, through the DOJ's investigation or through cooperation by those entities — the estimates presented herein could be refined.
2. Conspiracy Period Boundaries. The conspiracy period boundaries used in this analysis — approximately January 2017 through August 2021 — are based on the DOJ's allegations as communicated to Calderwood & Harkness. Hargrove did not independently determine the start date or end date of the alleged conspiracy. If the DOJ's determination of the conspiracy period is subsequently modified, the affected-commerce figures would need to be recalculated accordingly.
3. Draft Status. This is a draft report prepared for purposes of discussion with the DOJ Antitrust Division. Certain figures and estimates may be refined upon receipt of additional data, documents, or information, or in response to DOJ feedback. Hargrove reserves the right to supplement or amend this report.
4. Scope of Products. The analysis is limited to U.S. sales of high-purity feldspar, industrial talc, and rare-earth concentrates, consistent with the product scope of the DOJ's investigation as understood by Calderwood & Harkness. If the product scope were to be expanded or narrowed, the affected-commerce figures would change.
5. Exchange Rate Sensitivity. To the extent that Pinnacle's revenues are denominated in Canadian dollars, the U.S. dollar equivalent is sensitive to the exchange rate used. The use of average annual exchange rates is a standard approach, but alternative exchange rate methodologies (e.g., transaction-date rates) could yield modestly different results.
IV. Market Overview: North American Specialty Minerals
A. Industry Structure
The North American specialty-minerals market encompasses a broad range of industrial minerals that are extracted, processed, and sold for use in manufacturing, construction, ceramics, glass production, electronics, chemical processing, and various other applications. Specialty minerals are distinguished from bulk commodity minerals (such as coal, iron ore, and common aggregates) by their higher degree of processing, more stringent quality specifications, and more concentrated customer bases. The specialty-minerals sector is characterized by relatively high barriers to entry — including the need for specialized extraction and processing capabilities, long-term mining permits, and established customer relationships — and is served by a relatively small number of major producers.
The three product categories at issue in this investigation — high-purity feldspar, industrial talc, and rare-earth concentrates — represent distinct but overlapping segments of the North American specialty-minerals market. While each product category has its own supply-demand dynamics, end-use applications, and pricing characteristics, the major producers in the sector typically operate across multiple product categories and serve many of the same industrial and chemical-manufacturing customers. This overlap creates opportunities for cross-product coordination and customer allocation, which the DOJ alleges occurred in this case.
The market structure is moderately concentrated, with the top five producers accounting for approximately 65–75% of North American production of high-purity feldspar, approximately 55–65% of industrial talc, and approximately 70–80% of rare-earth concentrates, based on NASMC annual market surveys for the relevant period. TMC, Ridgecrest, and Pinnacle are among the largest producers in the sector and, collectively, account for a substantial share of North American supply in each of the three product categories.
The North American Specialty Minerals Council ("NASMC"), headquartered in Arlington, Virginia, serves as the principal industry trade association for the specialty-minerals sector. NASMC's membership includes most major and mid-sized producers of specialty minerals operating in North America. NASMC organizes quarterly industry conferences, publishes pricing benchmarks and market surveys, and provides a forum for commercial and technical exchange among industry participants. As discussed below in Section IV.D, the DOJ alleges that NASMC quarterly conferences served as a venue for the exchange of competitively sensitive pricing information among the alleged co-conspirators.
B. Product Descriptions
The following descriptions provide background on each of the three product categories at issue:
High-Purity Feldspar. Feldspar is a group of rock-forming tectosilicate minerals that constitute approximately 60% of the Earth's crust. High-purity feldspar — refined to achieve low iron content and consistent chemical composition — is used primarily in glass manufacturing, where it serves as a flux to lower the melting temperature of quartz; in ceramics, where it provides a glassy phase to the fired product; and as a filler and extender in paints, plastics, and rubber. The designation "high-purity" generally refers to feldspar with an Fe₂O₃ content below 0.10%, which is essential for applications requiring optical clarity or color consistency (such as container glass and whiteware ceramics).
North American production of high-purity feldspar is concentrated in deposits in the southeastern United States (particularly Virginia, North Carolina, and Georgia), the Canadian Shield region of Ontario and Quebec, and certain deposits in the western United States. The primary end-use customer segments for high-purity feldspar include glass manufacturers (approximately 50–55% of U.S. consumption), ceramics manufacturers (approximately 25–30%), and filler/extender applications (approximately 15–20%). During the conspiracy period, the average annual market size for high-purity feldspar in North America was approximately USD 850 million to USD 1.0 billion, according to NASMC estimates.
Industrial Talc. Talc is a hydrous magnesium sheet silicate mineral that is prized for its softness, lubricity, and chemical inertness. Industrial talc — as distinguished from pharmaceutical-grade and cosmetic-grade talc — is sold in bulk to industrial customers for use in paper manufacturing (as a coating pigment and pitch-control agent), plastics (as a reinforcing filler and nucleating agent in polypropylene and other polymers), ceramics (as a body component and flux), and various other industrial applications. Industrial talc is typically sold in powder or micronized form, with particle-size distribution and mineral purity being key quality specifications.
North American industrial talc production is concentrated in Montana, Vermont, New York, Texas, and Ontario. The primary end-use customer segments include paper manufacturers (approximately 30–35% of U.S. consumption), plastics compounders and resin producers (approximately 25–30%), ceramics manufacturers (approximately 15–20%), and other industrial users (approximately 15–20%). During the conspiracy period, the average annual market size for industrial talc in North America was approximately USD 650 million to USD 750 million, according to NASMC estimates.
Rare-Earth Concentrates. Rare-earth elements (REEs) are a group of 17 metallic elements (the 15 lanthanides plus scandium and yttrium) that possess unique magnetic, luminescent, and electrochemical properties. Rare-earth concentrates — the intermediate product obtained from mining and initial beneficiation, prior to separation and refining into individual rare-earth oxides — are sold to downstream processors and end-use manufacturers for applications including permanent magnets (used in electric motors, wind turbines, and hard disk drives), catalysts (used in petroleum refining and automotive catalytic converters), polishing compounds, phosphors, and various defense applications. Rare-earth concentrates are a strategically important commodity with concentrated global supply chains; as of 2021, China accounted for approximately 60% of global rare-earth mine production, with the remainder produced principally in the United States, Australia, Myanmar, and Canada.
North American production of rare-earth concentrates is centered at a limited number of active and developing mine sites, including the Mountain Pass mine in California (operated by Tidewater Group), certain deposits in Quebec and Labrador (operated by range junior and mid-tier producers), and mine sites in Saskatchewan and the Northwest Territories. TMC, Ridgecrest, and Pinnacle are among the significant North American producers of rare-earth concentrates, though their market shares in this product category vary considerably. During the conspiracy period, the average annual market size for rare-earth concentrates in North America was approximately USD 500 million to USD 650 million, according to NASMC and USGS estimates.
C. Key Market Participants
The following descriptions provide background on each of the three companies identified as participants in the alleged conspiracy:
Torchlight Mining Corp. ("TMC"). TMC is a Canadian-domiciled mining and specialty-minerals company. TMC operates 14 mines across Canada, the United States, Brazil, and Australia, as well as six downstream chemical-processing facilities. TMC's U.S. operations are conducted through its wholly owned subsidiary, Torchlight Mining (U.S.) Inc., which is incorporated in Nevada and headquartered at 8750 West Sahara Avenue, Suite 210, Reno, NV 89117. TMC's U.S. Specialty Minerals Division — which encompasses all U.S. sales of high-purity feldspar, industrial talc, rare-earth concentrates, and other specialty-mineral products — generated approximately USD 687 million in revenue in fiscal year 2021. TMC's consolidated fiscal year 2021 revenue was approximately CAD 4.27 billion (approximately USD 3.38 billion). TMC shares are listed on the Toronto Stock Exchange (TSX: TRC) and TMC files periodic reports with the SEC on Form 40-F as a foreign private issuer.
TMC's Senior Vice President of U.S. Commercial Operations during the conspiracy period was Gavin Holt, who reported to TMC's Chief Operating Officer. Mr. Holt held primary responsibility for pricing, customer management, and commercial strategy for the U.S. Specialty Minerals Division. According to the DOJ's allegations, Mr. Holt was a key participant in the alleged conspiracy.
Ridgecrest Minerals Inc. ("Ridgecrest"). Ridgecrest is a Delaware corporation headquartered at 1700 Lincoln Street, Suite 4200, Denver, CO 80203. Ridgecrest is the second-largest North American producer of high-purity feldspar and industrial talc, with operations spanning multiple mine sites and processing facilities in the western and southeastern United States. Ridgecrest's fiscal year 2021 revenue was approximately USD 1.92 billion. Ridgecrest is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a private equity fund based in New York, and is not publicly traded. As a result, Ridgecrest's financial disclosures are limited, and Hargrove was unable to obtain detailed product-category or segment-level revenue data for Ridgecrest.
Ridgecrest's Chief Executive Officer during the conspiracy period was Brian Novotny. The Vice President of Sales, Carl Edgerton, held primary responsibility for pricing and commercial operations. According to the DOJ's allegations, Mr. Edgerton was a key participant in the alleged conspiracy.
Pinnacle Earth Resources Ltd. ("Pinnacle"). Pinnacle is an Ontario corporation headquartered at 85 Elm Street West, Suite 600, Sudbury, ON P3C 1T3. Pinnacle's U.S. operations are based at 222 South Main Street, Suite 1500, Salt Lake City, UT 84101. Pinnacle is a top-five North American producer of rare-earth concentrates and specialty industrial minerals, with mining operations in Ontario, Quebec, and Utah, and processing facilities in Ontario and Utah. Pinnacle's fiscal year 2021 revenue was approximately CAD 1.45 billion (approximately USD 1.15 billion). Pinnacle shares are listed on the Toronto Stock Exchange (TSX: PER), and the company files disclosure documents with Canadian securities regulators through SEDAR+.
Pinnacle's Chief Executive Officer during the conspiracy period was Douglas Harlowe. The former Senior Vice President of Commercial Operations, Kevin Tsang, held primary responsibility for pricing, customer management, and business development for Pinnacle's specialty-minerals products. According to the DOJ's allegations, Mr. Tsang was a key participant in the alleged conspiracy. Mr. Tsang departed Pinnacle in October 2021.
D. Pricing Dynamics
Specialty-minerals pricing in North America is influenced by a range of factors, including supply-demand fundamentals, production costs, transportation costs (which are significant given the bulk and weight of many mineral products), quality specifications, contract terms, and broader macroeconomic conditions. Many sales in the sector are conducted under annual or multi-year supply agreements that establish pricing formulas linked to benchmark indices, volume commitments, and quality specifications. Spot sales, which account for a smaller but significant share of total volume, are priced based on prevailing market conditions.
The NASMC publishes quarterly pricing benchmarks for major specialty-mineral product categories, including high-purity feldspar, industrial talc, and rare-earth concentrates. These benchmarks reflect weighted-average transaction prices reported confidentially by NASMC member companies and are widely used in the industry as reference points for pricing and contract negotiations. While the NASMC benchmarks themselves are published in aggregate form and are not inherently anticompetitive, the DOJ has alleged that the benchmarking process and the quarterly conferences at which pricing data was discussed provided a framework within which the alleged co-conspirators coordinated their pricing behavior.
NASMC quarterly conferences — held at rotating locations including Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida — provide opportunities for commercial interactions among competitors. These conferences typically include formal programming (presentations, panel discussions, and workshops on industry trends and regulatory developments) as well as informal networking events. According to the DOJ's allegations, the quarterly NASMC conferences served as a primary venue for in-person meetings among the senior commercial personnel of TMC (Gavin Holt), Ridgecrest (Carl Edgerton), and Pinnacle (Kevin Tsang), at which pricing strategies, customer-allocation agreements, and bid-rigging arrangements were discussed and coordinated.
In addition to the in-person meetings at NASMC conferences, the DOJ alleges that the conspirators communicated through encrypted messaging via the VaultChat application — an end-to-end encrypted messaging platform — and through occasional telephone calls. The use of an encrypted messaging application, rather than standard corporate email, is consistent with efforts to conceal the communications from potential detection.
The alleged anticompetitive conduct encompassed three related categories: (i) price-fixing (coordinating prices for high-purity feldspar, industrial talc, and rare-earth concentrates to maintain artificially elevated price levels); (ii) customer allocation (agreeing to allocate specific customers or customer accounts among the conspirators to reduce competition for those customers); and (iii) bid-rigging (coordinating bid submissions in response to customer requests for proposals or competitive solicitations to ensure a predetermined outcome). These forms of horizontal collusion are per se violations of Section 1 of the Sherman Act, 15 U.S.C. § 1.
V. TMC's Affected Commerce: Detailed Analysis
A. Overview of TMC U.S. Specialty Minerals Division Sales
TMC's U.S. Specialty Minerals Division is the relevant business unit for purposes of this affected-commerce analysis. The Division, operated through Torchlight Mining (U.S.) Inc. and headquartered in Reno, Nevada, is responsible for all U.S. sales of TMC's specialty-mineral products, including high-purity feldspar, industrial talc, rare-earth concentrates, and a range of other specialty minerals (such as wollastonite, mica, and specialty silica products) that are not at issue in this investigation.
For fiscal year 2021, the U.S. Specialty Minerals Division generated total revenue of approximately USD 687 million. This figure represents approximately 20.3% of TMC's consolidated fiscal year 2021 revenue of approximately CAD 4.27 billion (approximately USD 3.38 billion). Over the period 2017 to 2021, the Division's revenue grew at a compound annual growth rate ("CAGR") of approximately 5.2%, driven by volume growth, price increases, and the ramp-up of a new rare-earth processing facility in Nevada that commenced commercial production in 2018.
For purposes of this affected-commerce analysis, only U.S. sales of the three product categories at issue — high-purity feldspar, industrial talc, and rare-earth concentrates — are included. Sales of other specialty-mineral products, which collectively represented approximately 28% of the Division's FY 2021 revenue, are excluded. Additionally, export sales to non-U.S. customers, which represented approximately 8% of the Division's FY 2021 revenue, are excluded. The affected-commerce figure therefore reflects only domestic U.S. sales of the three identified product categories during the conspiracy period.
B. Year-by-Year TMC Affected Commerce (January 2017 – August 2021)
The following table presents TMC's year-by-year U.S. sales of high-purity feldspar, industrial talc, and rare-earth concentrates during the conspiracy period. All figures are in millions of U.S. dollars.
Table 1: TMC Year-by-Year Affected Commerce (January 2017 – August 2021)
The year-by-year progression of TMC's affected commerce reflects several underlying trends:
• 2017: The first full year of the alleged conspiracy. TMC's U.S. sales of the three product categories totaled approximately USD 85.3 million. This figure is consistent with TMC's historical sales levels for these products and reflects the company's established market position as of early 2017.
• 2018: Affected commerce increased to approximately USD 98.5 million, reflecting both volume growth and price increases. The increase in rare-earth concentrate sales was particularly notable, driven in part by the commencement of commercial production at TMC's new Nevada processing facility and by rising demand for rare-earth products in electronics and clean-energy applications.
• 2019: Affected commerce reached its peak annual level during the conspiracy period at approximately USD 107.3 million, reflecting continued growth across all three product categories. NASMC benchmark prices for feldspar and rare-earth concentrates reached multi-year highs during 2019.
• 2020: Affected commerce declined to approximately USD 97.4 million, reflecting the impact of the COVID-19 pandemic on industrial demand. The pandemic-related economic disruption, which was most acute in the second quarter of 2020, resulted in temporary production curtailments and order deferrals by TMC's customers. Feldspar and talc sales were more significantly affected than rare-earth concentrate sales, which benefited from sustained demand in the electronics sector.
• 2021 (January–August): Affected commerce for the partial year through August 2021 totaled approximately USD 89.5 million. This eight-month figure reflects a strong recovery in demand during the first half of 2021 as industrial activity rebounded from the pandemic. Rare-earth concentrate sales were particularly strong in this period, driven by surging demand in the electric-vehicle and clean-energy sectors. The conspiracy period is treated as ending at approximately August 31, 2021, consistent with the DOJ's allegations.
Methodology Note: The conspiracy period commences on approximately January 1, 2017. Because the alleged conspiracy is understood to have begun at or near the start of January 2017, the full calendar year 2017 is included in the affected-commerce calculation without proration. For calendar year 2021, the analysis includes only revenue for the eight-month period January through August 2021. The partial-year 2021 figure was derived directly from TMC's monthly ERP sales data, which permits precise identification of revenue through August 31, 2021. No annualization or extrapolation was applied to the 2021 figure.
C. Breakdown by Product Category
The following table summarizes TMC's total affected commerce by product category over the entire conspiracy period (January 2017 – August 2021):
Table 2: TMC Affected Commerce by Product Category (Conspiracy Period)
Rare-earth concentrates represent the largest single component of TMC's affected commerce, accounting for approximately 41.4% of the total. This reflects TMC's strategic focus on the rare-earth segment, including the investment in the Nevada processing facility that expanded TMC's rare-earth production capacity beginning in 2018. The rare-earth segment also exhibited the strongest growth trajectory over the conspiracy period, with sales increasing from USD 31.4 million in 2017 to an annualized pace of approximately USD 68.7 million in 2021 (based on the January–August 2021 figure of USD 45.8 million).
High-purity feldspar is the second-largest component at approximately 32.6% of total affected commerce. TMC's feldspar sales were relatively stable over the conspiracy period, with modest growth from 2017 through 2019 followed by a pandemic-related decline in 2020 and a recovery in 2021.
Industrial talc is the smallest component at approximately 26.0% of total affected commerce. TMC's talc sales followed a similar trajectory to feldspar, with steady growth in 2017–2019, a pandemic-related decline in 2020, and a partial recovery in 2021.
The relative concentration of TMC's affected commerce in rare-earth concentrates is a notable feature of the analysis, as it distinguishes TMC's product mix from that of Ridgecrest (which is understood to have a relatively higher concentration in feldspar and talc) and aligns TMC's product mix more closely with that of Pinnacle (which is also a significant rare-earth producer). This product-mix variation is relevant to the estimation of each participant's share of total affected commerce, as discussed in Section VI.
D. Data Verification
The TMC affected-commerce figures presented above are based on direct analysis of TMC's ERP transactional data and have been subjected to the following verification procedures:
Financial Statement Reconciliation. TMC's ERP-derived revenue figures for the U.S. Specialty Minerals Division were reconciled to the Division's revenue as reported in TMC's audited consolidated financial statements for fiscal years 2017 through 2021. TMC's financial statements are audited by Calvert & Associates LLP, a registered public accounting firm, under the engagement partnership of Daniel Moreau. Hargrove confirmed that the ERP-derived revenue figures for each fiscal year agree, within rounding, to the revenue figures reported in TMC's audited financial statements and in TMC's SEC Form 40-F annual filings.
SEC and SEDAR+ Filing Reconciliation. TMC's reported U.S. Specialty Minerals Division revenue was cross-referenced to TMC's Form 40-F filings with the SEC and TMC's annual information forms and MD&A disclosures filed through SEDAR+. These filings provide segment-level revenue disclosures that are consistent with the revenue figures used in this analysis.
Product-Category Classification Verification. TMC's internal product codes and product descriptions were reviewed to verify the classification of sales transactions into the three product categories at issue. TMC uses a hierarchical product-code system (a five-level alphanumeric code) that permits granular identification of product type, grade, and specification. Hargrove's team reviewed the product-code master file and confirmed that the product-code filters used to identify feldspar, talc, and rare-earth concentrate transactions are accurate and complete. A sample of 5,000 transactions (approximately 1.7% of the total population) was reviewed at the invoice level to verify product-category classifications, and no material misclassifications were identified.
Pricing Data Analysis. TMC's pricing data for the period 2015–2022 was analyzed to verify consistency and identify any anomalies that could affect the affected-commerce calculation. This analysis included comparison of TMC's transaction prices to NASMC benchmark prices for each product category, identification of any transactions with unusually high or low prices relative to the benchmark, and trending of TMC's average realized prices over time. While the pricing analysis revealed patterns consistent with the DOJ's price-fixing allegations — including instances of price increases that tracked closely to competitor price increases, as documented in Calderwood & Harkness's internal investigation — the purpose of the pricing analysis in this context was limited to verifying the accuracy and completeness of the revenue data used in the affected-commerce calculation.
VI. Total Affected Commerce: All Participants
A. Methodology for Estimating Ridgecrest and Pinnacle Affected Commerce
As noted above, Hargrove did not have access to the internal transactional data of Ridgecrest Minerals Inc. or Pinnacle Earth Resources Ltd. The affected-commerce estimates for those entities are therefore derived from publicly available financial disclosures, industry data, and market-share analysis. The methodology employed by Hargrove to develop these estimates is described below.
The estimation approach proceeds in three stages. First, Hargrove estimated each company's total U.S. revenue from the three product categories at issue (feldspar, talc, and rare-earth concentrates) for each year of the conspiracy period. Second, these annual revenue estimates were aggregated over the conspiracy period. Third, the estimates were subjected to sensitivity analysis using alternative assumptions for market shares and product-category breakdowns.
For each company, the estimation involved the following analytical steps:
(i) Total Revenue Identification. Hargrove identified each company's total annual revenue from public disclosures. For Ridgecrest, this was derived from the limited financial data available through Marlowe Asset Management Peak Capital Partners' investor communications and Ridgecrest's 2019 credit-facility offering circular. For Pinnacle, this was derived directly from Pinnacle's audited financial statements filed through SEDAR+.
(ii) U.S. Revenue Estimation. Hargrove estimated the share of each company's total revenue derived from U.S. operations, based on geographic-segment disclosures (available for Pinnacle) and industry-level data on the share of North American versus international revenue for major specialty-minerals producers (used for Ridgecrest, which does not provide geographic-segment breakdowns in its limited public disclosures).
(iii) Product-Category Revenue Estimation. Hargrove estimated the share of each company's U.S. revenue derived from the three product categories at issue, based on product-segment disclosures (available for Pinnacle's Specialty Industrial Minerals division) and industry-level data on product-mix composition for major producers (used for Ridgecrest).
(iv) Year-Over-Year Growth Rates. Annual estimates for each year of the conspiracy period were developed by applying year-over-year growth rates derived from NASMC annual market surveys and USGS data, anchored to the base-year estimates described above. This approach accounts for the fact that the publicly available revenue data for Ridgecrest and Pinnacle may reflect a single fiscal year and must be extrapolated across the full conspiracy period.
(v) Proration for Partial Years. For calendar year 2021, the estimates are prorated to reflect the eight-month conspiracy period ending in August 2021, consistent with the treatment of TMC's data.
Hargrove acknowledges that this estimation methodology introduces inherent uncertainty relative to an analysis based on internal transactional data. The sensitivity analysis presented in Section VIII is designed to bound this uncertainty and demonstrate the robustness of the central estimates.
B. Ridgecrest Minerals Inc. — Estimated Affected Commerce
Ridgecrest Minerals Inc. is the second-largest North American producer of high-purity feldspar and industrial talc. Based on publicly available information, Ridgecrest's fiscal year 2021 revenue was approximately USD 1.92 billion. Ridgecrest's operations are predominantly U.S.-focused; based on industry data and the limited disclosures available, Hargrove estimates that approximately 72–78% of Ridgecrest's revenue is derived from U.S. operations (with the remainder derived from Canadian and international operations).
Ridgecrest's product mix is understood to be weighted toward high-purity feldspar and industrial talc, which together account for the majority of Ridgecrest's specialty-minerals revenue. Ridgecrest also produces rare-earth concentrates, but its market position in rare earths is smaller than those of TMC and Pinnacle. Based on NASMC market-share data and third-party research reports, Hargrove estimates that the three product categories at issue (feldspar, talc, and rare-earth concentrates) account for approximately 7.5–9.5% of Ridgecrest's U.S. revenue. Applying the midpoint estimate of approximately 8.5% to Ridgecrest's estimated U.S. revenue of approximately USD 1.44 billion (75% of USD 1.92 billion) yields an estimated annual U.S. revenue from the three product categories of approximately USD 122 million for fiscal year 2021.
The following table presents Hargrove's year-by-year estimates of Ridgecrest's affected commerce during the conspiracy period, derived using the methodology described above. Year-over-year growth rates are based on NASMC data for the relevant product categories.
Table 3: Ridgecrest Estimated Year-by-Year Affected Commerce (January 2017 – August 2021)
The estimated total Ridgecrest affected commerce over the conspiracy period is approximately USD 514 million. This estimate is subject to the uncertainties and limitations discussed in Sections III.D and VI.A. The detailed supporting calculations,

DRAFT — CONFIDENTIAL — PREPARED AT THE DIRECTION OF COUNSEL

Record

Parties

Dates

Amounts