[slide 1]
Torchlight Mining Corp. — Internal Investigation: Findings and Recommendations
Presented to the Board of Directors of Torchlight Mining Corp.
January 20, 2023
PRIVILEGED AND CONFIDENTIAL — Protected by Attorney-Client Privilege and Work Product Doctrine
Prepared by Calderwood & Harkness LLP — Elaine Forsythe, Responsible Partner; Aaron Liu, Lead Associate
Calderwood & Harkness Matter No. 1039-00001
[slide 2]
Agenda
1. Background and Investigation Overview
2. Scope and Methodology of the Internal Investigation
3. Key Findings — Gavin Holt's Conduct
4. Key Findings — Other Individuals (Sandra Chu, Thomas Eriksen)
5. Key Findings — C-Suite and Board Knowledge
6. Assessment of TMC's Compliance Program Gaps
7. Exposure Analysis and Financial Implications
8. Recommended Cooperation Strategy and NPA Path
9. Proposed Compliance Remediation
10. Next Steps and Timeline
[slide 3]
Background: The DOJ Investigation
DOJ Antitrust Division opened grand jury investigation on February 10, 2022 (GJ-22-0194, N.D. Cal., San Francisco Division)
Allegation: price-fixing, market allocation, and bid-rigging in North American specialty minerals — high-purity feldspar, industrial talc, and rare-earth concentrates
Alleged conspiracy period: approximately January 2017 through August 2021 (~4 years, 8 months)
Subjects/Targets: Torchlight Mining Corp., Ridgecrest Minerals Inc. (Denver), and Pinnacle Earth Resources Ltd. (Sudbury, ON)
Investigation triggered by cooperation agreement between Cascade Chemical Supply Co. (Spokane, WA) and DOJ (entered approximately September 15, 2021)
TMC received grand jury subpoena duces tecum (GJ-22-0194-SD-003) on February 14, 2022
TMC received DOJ target letter on May 20, 2022 — elevating risk assessment
DOJ lead prosecutors: Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves; supervising DAAG Julia Stafford-Hayes
[slide 4]
TMC at a Glance — Relevance of the U.S. Specialty Minerals Division
TMC: CBCA corporation, TSX: TRCL / NYSE: TMC; registered office at 200 Bay Street, Suite 3400, Toronto
FY 2021 consolidated revenue: CAD 4.27 billion (~USD 3.38 billion); EBITDA: CAD 812 million
14 mines (Canada, U.S., Brazil, Australia); 6 downstream chemical-processing facilities
U.S. Specialty Minerals Division (operated through Torchlight Mining (U.S.) Inc., Reno, NV): FY 2021 revenue of USD 687 million (~20% of consolidated revenue)
The U.S. Specialty Minerals Division is the sole division implicated in the DOJ investigation
Products at issue: high-purity feldspar, industrial talc, rare-earth concentrates sold to U.S. industrial and chemical-manufacturing customers
[slide 5]
Scope and Methodology of the Internal Investigation
Investigation commenced March 2022; findings finalized January 2023
Document review: ~555,000 documents (~3.2 million pages) — 487,000 from first subpoena response; 68,000 from second subpoena
Forensic data collection and e-discovery managed by Redstone Digital Forensics Inc. (Neil Ashworth, Project Director)
34 custodians identified; data sources included email, shared drives, VaultChat archives, personal devices, cloud storage
23 current and former TMC employees interviewed by Calderwood & Harkness
Economic and pricing analysis conducted by Hargrove Forensic Advisory LLC (Dr. Vanessa Tremblay, Engagement Partner)
Pricing data analyzed for TMC and competitor price movements from 2015 through 2022
Trade-association (NASMC) attendance records correlated with alleged coordination events
[slide 6]
Key Finding #1: Gavin Holt's Conduct
Gavin Holt served as VP, U.S. Specialty Minerals Sales from 2016 to September 30, 2021 (resignation)
Exchanged pricing information with Carl Edgerton (Ridgecrest) and Kevin Tsang (Pinnacle) on at least 37 documented occasions (March 2017 – July 2021)
Channels: VaultChat encrypted messaging, in-person meetings at NASMC conferences (Arlington, Scottsdale, Orlando), phone calls
Subject matter: pricing levels for feldspar, talc, and rare-earth concentrates; customer allocation; bid coordination on specific RFPs
Instructed Sandra Chu (Director, Pricing Analytics) to adjust published price lists on at least 12 occasions — timing correlated with competitor price movements
Resigned September 30, 2021, approximately four months before grand jury investigation commenced
Retained personal counsel (Briarcliff Law Group PLLC / Patrick Dunleavy) on June 10, 2022; asserted Fifth Amendment before the grand jury on June 14, 2022
Declined TMC's request for internal investigation interview on advice of counsel (August 2, 2022)
[slide 7]
Key Finding #2: Sandra Chu's Role
Sandra Chu, Director of Pricing Analytics, U.S. Specialty Minerals Division — reported directly to Gavin Holt
Received instructions from Holt to adjust published price lists on at least 12 occasions correlated with competitor price movements
No direct evidence that Chu was aware of the inter-competitor communications underlying Holt's instructions
Chu's interview (July 18, 2022): confirmed she followed Holt's pricing directives as part of her normal reporting relationship
Chu characterized Holt's instructions as consistent with his authority as VP of Sales; she did not question the basis
Assessment: Chu is a fact witness, not a participant in the alleged conspiracy; her testimony supports the cooperation narrative
[slide 8]
Key Finding #3: Thomas Eriksen's Role
Thomas Eriksen, Regional Sales Manager (Western Region), U.S. Specialty Minerals Division
Attended four NASMC quarterly conferences during the conspiracy period where side meetings allegedly occurred
Evidence of Eriksen's direct participation in any pricing agreement is ambiguous
Eriksen denied knowledge of any agreements with competitors in his internal investigation interview (July 22, 2022)
No VaultChat communications or other direct documentary evidence links Eriksen to the alleged coordination
Assessment: Conference attendance alone is insufficient evidence of participation; however, his proximity requires careful witness preparation
[slide 9]
Key Finding #4: No Evidence of C-Suite or Board Knowledge
No evidence that CEO Søren Dalmqvist had knowledge of or authorized the alleged conduct
No evidence that General Counsel Priya Anand had knowledge of the alleged conduct prior to the investigation
No evidence that CFO Richard Fong was aware of any pricing coordination
No evidence that Board Chair Margaret Caldwell or any Board member, including Audit Committee Chair Janet Moreau-Shaw, had any knowledge
Holt operated autonomously within his pricing authority; the U.S. Specialty Minerals Division had significant delegated commercial discretion
Conclusion: The alleged conduct was confined to Gavin Holt at the senior level, with no upward reporting of the competitor contacts
[slide 10]
Key Finding #5: Compliance Program Deficiencies
TMC adopted its initial antitrust compliance policy in approximately 2014
No annual antitrust training conducted since 2018 — a four-year gap preceding the investigation
No monitoring mechanism for trade-association interactions (e.g., NASMC conferences)
No systematic audit of competitor contacts by commercial personnel
No controls over use of encrypted messaging applications (VaultChat) for business communications
Pricing authority was delegated to the VP of Sales with insufficient oversight or approval requirements
The compliance program was a 'paper program' — adopted but not actively maintained or enforced
[slide 11]
Exposure Analysis: Affected Commerce and Potential Penalties
DOJ estimates total affected commerce (all participants) at approximately USD 1.34 billion (Jan. 2017 – Aug. 2021)
TMC's share of affected commerce: approximately USD 478 million (35.7% of total)
DOJ standard starting point for fine: 20% of affected commerce = USD 95.6 million
Potential range with cooperation/remediation credits: USD 30 million to USD 60 million (estimated midpoint: ~USD 45 million)
Criminal indictment scenario (worst case): fines up to USD 100 million under Sherman Act, plus potential debarment and collateral consequences
Individual exposure: Gavin Holt faces potential criminal charges (up to 10 years imprisonment); NPA will carve out Holt
Current litigation reserve: USD 30 million (established March 2022) — may need upward revision
[slide 12]
Financial Impact: Professional Fees and Insurance
Calderwood & Harkness fees and disbursements through Q4 2022: tracking toward initial budget of USD 12 million (scope expansion anticipated)
Hargrove Forensic Advisory fees to date: approximately USD 1.2 million (engagement ongoing)
Redstone Digital Forensics fees to date: approximately USD 1.8 million (engagement ongoing)
D&O insurance notice tendered to Northland Mutual Insurance Co. on March 4, 2022 (Policy No. NMI-DO-2021-5547; USD 50M aggregate limit; USD 2.5M retention)
Northland acknowledged coverage for individual D&O defense costs but reserved rights on entity coverage and criminal exclusion
Excess layers notified: Greystone Specialty Insurance Ltd. (Layer 2, $25M xs $50M) and Sentinel Re Ltd. (Layer 3, $25M xs $75M)
Calderwood & Harkness contested Northland's reservation of rights regarding criminal-act exclusion at pre-adjudication stage (letter dated April 28, 2022)
[slide 13]
Public Disclosure Considerations
TMC disclosed the existence of the DOJ investigation in its FY 2021 annual report (filed March 28, 2022 on SEDAR+ and SEC Form 40-F)
Initial litigation reserve of USD 30 million established concurrently
Ongoing disclosure obligations: material developments must be reported in quarterly and annual filings
Coordination with Calvert & Associates LLP (Daniel Moreau) on reserve adequacy and disclosure language
Ironbridge Capital Markets Inc. (Alan Kirkwood) advising on market-disclosure strategy and investor relations implications
Any NPA or resolution will require prompt public disclosure
[slide 14]
Recommended Strategy: Cooperation and NPA
Recommend full cooperation with DOJ Antitrust Division to seek a Non-Prosecution Agreement (NPA)
Cooperation elements: (a) continued and expanded document production, (b) making fact witnesses available for voluntary proffer sessions, (c) written cooperation proffer detailing remediation efforts
NPA advantages: avoids criminal charges against TMC and current employees; avoids trial risk; limits collateral consequences (debarment, civil litigation exposure)
NPA likely terms: monetary payment (est. USD 30–60M), multi-year cooperation obligations, compliance enhancements, independent compliance monitor, carve-out for Gavin Holt
Recommend against joint defense agreements with Ridgecrest or Pinnacle due to divergent interests
Recommend proactive compliance remediation begin immediately, ahead of any NPA requirement, to maximize cooperation credit
[slide 15]
Proposed Compliance Remediation
Engage specialized compliance consultant: recommend Meridian Compliance Partners LLC (Washington, D.C., led by Claudia Ferraro)
Key program elements: mandatory annual antitrust training for all commercial personnel; independent Chief Compliance Officer; annual compliance certifications by CEO and General Counsel
Competitor-contact protocols: mandatory pre-approval and post-event reporting for all trade-association interactions (including NASMC events)
Prohibition on use of unapproved encrypted messaging platforms (including VaultChat) for business communications
Periodic auditing of pricing decisions and competitor contacts; anonymous compliance hotline for reporting concerns
Goal: submit enhanced compliance program proposal to DOJ by Q3 2023 as part of cooperation narrative
[slide 16]
Next Steps and Timeline
February 2023: Submit written cooperation proffer to DOJ (Kowalski / Reeves)
Q1 2023: Coordinate proffer session for Sandra Chu with DOJ (with queen-for-a-day protections)
Q2 2023: Coordinate proffer session for Thomas Eriksen with DOJ
Q2–Q3 2023: Respond to anticipated additional DOJ requests for pricing data and documents
Mid-2023: Engage Meridian Compliance Partners to design enhanced compliance program
Q3 2023: Submit enhanced compliance program proposal to DOJ; Audit Committee to review and consider increasing litigation reserve from USD 30M to USD 50M
H2 2023 – H1 2024: Negotiate NPA terms with DOJ
Board authorization for NPA execution will be sought when terms are agreed in principle
[slide 17]
Requested Board Actions
1. Acknowledge and accept the findings of the internal investigation as presented
2. Authorize Calderwood & Harkness to pursue a cooperation strategy with DOJ aimed at securing a Non-Prosecution Agreement
3. Authorize making TMC employees (including Chu and Eriksen) available for voluntary proffer sessions with DOJ, subject to negotiated protections
4. Authorize engagement of Meridian Compliance Partners LLC for compliance-program design (timing to be determined by counsel)
5. Direct the Audit Committee (Chair: Janet Moreau-Shaw) to review adequacy of the current USD 30M litigation reserve in coordination with Calderwood & Harkness, Calvert & Associates, and Ironbridge Capital Markets
6. Authorize Calderwood & Harkness to negotiate NPA terms, with final execution subject to separate Board approval
[slide 18]
Questions and Discussion
Discussion is privileged — please direct any follow-up questions through General Counsel Priya Anand or directly to Calderwood & Harkness
Contact: Elaine Forsythe, Calderwood & Harkness LLP, 555 California Street, 40th Floor, San Francisco, CA 94104
Contact: Howard Bellamy, Calderwood & Harkness LLP, One Liberty Plaza, 50th Floor, New York, NY 10006