1039-00002 · Torchlight Mining Corp · Offering Documents

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CONFIDENTIAL OFFERING MEMORANDUM

March 14, 2022

$300,000,000

TORCHLIGHT MINING CORP.

(a corporation incorporated under the Canada Business Corporations Act)

8.750% Senior Secured Notes due 2029

Jointly and severally guaranteed on a senior secured basis by Wolverine Lake Mining Ltd. Torchlight Milling & Processing Inc. Torchlight U.S. Holdings, Inc.

Torchlight Mining Corp. (the "Issuer" or the "Company") is offering $300,000,000 aggregate principal amount of its 8.750% Senior Secured Notes due 2029 (the "Notes"). The Notes will bear interest at a rate of 8.750% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2022. The Notes will mature on April 15, 2029.

Issue Price: 98.50% of par, plus accrued interest, if any, from April 19, 2022.

The Notes will be the senior secured obligations of the Issuer and will be guaranteed on a joint and several, senior secured basis by Wolverine Lake Mining Ltd. ("WLML"), Torchlight Milling & Processing Inc. ("TMPI"), and Torchlight U.S. Holdings, Inc. ("TUSHI" and, together with WLML and TMPI, the "Guarantors"). The Notes and the Guarantees will be secured by a first-priority lien on substantially all tangible and intangible assets of the Issuer and the Guarantors.

The Notes are being offered only to (i) qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. The Notes have not been and will not be registered under the Securities Act or under any state or provincial securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

The Notes will not be listed on any securities exchange. The Issuer's common shares are listed on the Toronto Stock Exchange (the "TSX") under the ticker symbol "TMC."

See "Risk Factors" beginning on page 41 for a discussion of certain risks that you should consider before investing in the Notes.

A rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time.

Trustee and Collateral Agent: Northern Dominion Trust Company

Lead Initial Purchaser and Book-Running Manager

Kelvantis Capital Markets LLC

Co-Managers

Prestige Barrington & Co., Inc. Halcyon Securities Inc.

The date of this Offering Memorandum is March 14, 2022.

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NOTICE TO INVESTORS

This Offering Memorandum is being furnished by the Issuer on a confidential basis solely for the purpose of enabling a prospective investor to consider the purchase of the Notes described herein. The information contained in this Offering Memorandum has been furnished by the Issuer and other sources identified herein. Neither Kelvantis Capital Markets LLC ("Kelvantis" or the "Lead Initial Purchaser"), Prestige Barrington & Co., Inc. ("Prestige Barrington"), nor Halcyon Securities Inc. ("Halcyon" and, together with Kelvantis and Prestige Barrington, the "Initial Purchasers") makes any representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this Offering Memorandum is, or shall be relied upon as, a promise or representation by the Initial Purchasers as to the past or the future. The Initial Purchasers have not independently verified any of the information contained herein.

Offering Restrictions. The Notes are being offered only to (i) qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) non-U.S. persons (as defined in Regulation S under the Securities Act) in offshore transactions in reliance on Regulation S under the Securities Act. The Notes have not been and will not be registered under the Securities Act or under any state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold only (a) in the United States to persons reasonably believed to be QIBs in reliance on Rule 144A, and (b) outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S.

No Public Offering. No action has been or will be taken to permit a public offering of the Notes in the United States, Canada, or any other jurisdiction. This Offering Memorandum does not constitute an offer to sell or a solicitation of an offer to buy any Notes in any jurisdiction in which such offer or solicitation is unlawful. Recipients of this Offering Memorandum who intend to subscribe for or purchase the Notes are reminded that any subscription or purchase may only be made on the basis of the information contained in this Offering Memorandum.

Transfer Restrictions. The Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act and are subject to significant restrictions on transfer as described under "Transfer Restrictions" in this Offering Memorandum. By purchasing the Notes, each purchaser will be deemed to have made certain acknowledgments, representations, and agreements as described in this Offering Memorandum. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Confidentiality. This Offering Memorandum is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes. Distribution of this Offering Memorandum to any person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized. Each prospective investor, by accepting delivery of this Offering Memorandum, agrees to the foregoing and to make no copies of this Offering Memorandum or any documents referred to in this Offering Memorandum, in whole or in part, other than for the purpose of evaluating a potential investment in the Notes.

Canadian Securities Law Notice. The Notes are being offered in Canada on a private placement basis and are exempt from the prospectus requirements under applicable Canadian securities legislation. No securities commission or similar authority in Canada has reviewed or in any way passed upon this Offering Memorandum or the merits of the Notes described herein, and any representation to the contrary is an offense.

Regulatory Approvals. None of the United States Securities and Exchange Commission (the "SEC"), any state securities commission, the Ontario Securities Commission, any other Canadian securities regulatory authority, or any other regulatory body has approved or disapproved of the Notes or passed upon the accuracy or adequacy of this Offering Memorandum. Any representation to the contrary is a criminal offense.

Investment Decision. Each prospective purchaser must comply with all applicable laws and regulations in force in each jurisdiction in which it purchases, offers, or sells the Notes and must obtain any consent, approval, or permission required for the purchase, offer, or sale by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, or sales, and neither the Issuer nor the Initial Purchasers shall have any responsibility therefor.

No Reliance. In making an investment decision regarding the Notes, prospective investors must rely on their own examination of the Issuer, the Guarantors, the terms of the offering, and the merits and risks involved. Prospective investors should not construe anything in this Offering Memorandum as legal, business, or tax advice. Each prospective investor should consult its own advisors as needed in making its investment decision and to determine whether it is legally permitted to purchase the Notes under applicable legal investment or similar laws or regulations.

ENFORCEABILITY OF CIVIL LIABILITIES

Torchlight Mining Corp. is incorporated under the Canada Business Corporations Act (the "CBCA") and has its headquarters at 2200 – 400 Burrard Street, Vancouver, British Columbia V6C 3A6, Canada. Wolverine Lake Mining Ltd. and Torchlight Milling & Processing Inc. are incorporated under the Business Corporations Act (Ontario) with their registered offices at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada. Certain of the directors and officers of the Issuer and the Canadian Guarantors, including Magnus Thornberg, Chief Executive Officer, Lianne Prokopchuk, Chief Financial Officer, Deepak Rathore, General Counsel and Corporate Secretary, Colleen Hébert, Treasurer, and Ingrid Solheim, Chair of the Board of Directors, are residents of Canada, and a substantial portion of the assets of such persons and a substantial portion of the assets of the Issuer and the Canadian Guarantors are located in Canada.

As a result, it may be difficult for investors in the United States to effect service of process within the United States upon the Issuer, the Canadian Guarantors, or their respective directors and officers who are not residents of the United States, or to enforce against them judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or the securities laws of any state of the United States.

The Indenture governing the Notes, the Notes, and the Guarantees are governed by the laws of the State of New York. However, enforcement of a U.S. court judgment in Canadian courts is subject to certain conditions under Canadian law, including, without limitation, that the U.S. court had jurisdiction over the subject matter of the action, that the judgment was not obtained by fraud, that the judgment is not contrary to the public policy of the Canadian jurisdiction in which enforcement is sought, and that the proceedings in which the judgment was obtained were in accordance with principles of natural justice. There can be no assurance that a Canadian court would enforce a judgment obtained in a U.S. court against the Issuer, the Canadian Guarantors, or their respective directors and officers based on the civil liability provisions of the U.S. federal securities laws or the securities laws of any state of the United States. In addition, there is doubt as to whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon the U.S. federal securities laws.

The Issuer has appointed an agent for service of process in the State of New York in connection with any action arising out of, or relating to, the Notes, the Indenture, or the Guarantees, and each of the Canadian Guarantors has similarly submitted to the jurisdiction of the courts of the State of New York. Torchlight U.S. Holdings, Inc. is incorporated under the laws of the State of Delaware and is subject to service of process in the United States.

INDUSTRY AND MARKET DATA

Market and industry data used throughout this Offering Memorandum have been obtained from independent industry publications, government publications, reports by market research firms, and publicly available information. In addition, certain market and industry data have been obtained from reports prepared by Cascade Technical Advisors Inc. (the "Independent Engineer"), an independent engineering firm based in Calgary, Alberta, Canada. The Independent Engineer's report was prepared in accordance with the standards and requirements of National Instrument 43-101 — Standards of Disclosure for Mineral Projects ("NI 43-101") of the Canadian Securities Administrators.

The Issuer believes that the industry and market data and statistical information presented in this Offering Memorandum are accurate and that the estimates and assumptions made on the basis thereof are reasonable and appropriate. However, there can be no assurance as to the accuracy or completeness of any such information. None of the Issuer, the Guarantors, or the Initial Purchasers has independently verified such data from independent sources, and none of them makes any representation as to the accuracy of such information. Industry publications, surveys, and forecasts generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed.

All mineral resource estimates referenced in this Offering Memorandum have been prepared in accordance with NI 43-101 standards by qualified persons (as defined therein) and are reported using the classification system established by the Canadian Institute of Mining, Metallurgy and Petroleum. Mineral resource estimates are not precise calculations, and the reported quantities and grades are based on interpretations of limited geological data on the size, shape, and depth of the ore bodies. Actual quantities recovered and grades achieved may differ materially from these estimates. Inferred mineral resources have a lower level of confidence than measured and indicated mineral resources and should not be considered as being economically extractable. It cannot be assumed that all or any part of inferred mineral resources will ever be upgraded to a higher category.

FORWARD-LOOKING STATEMENTS

This Offering Memorandum contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, and "forward-looking information" within the meaning of applicable Canadian securities legislation (collectively, "forward-looking statements"). Forward-looking statements can be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "targets," "may," "will," "would," "could," "should," and similar expressions or their negative forms. All statements other than statements of historical fact included in this Offering Memorandum are forward-looking statements.

Without limiting the generality of the foregoing, forward-looking statements contained in this Offering Memorandum include, but are not limited to, statements regarding:

• the Phase II expansion of the Wolverine Lake mine, including the planned construction of the new decline ramp and ventilation raise to access the Wolverine Deep zone, the anticipated construction timeline of Q2 2022 through Q4 2024, and the estimated capital expenditure of CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875);

• targeted production levels of approximately 28,500 tonnes of nickel-in-concentrate and approximately 9,600 tonnes of copper-in-concentrate annually following completion of the Phase II expansion;

• mineral resource estimates, including measured and indicated resources of 48.2 million tonnes at 1.12% Ni and 0.38% Cu and inferred resources of 11.7 million tonnes at 0.94% Ni and 0.31% Cu;

• anticipated revenue growth, operating costs, and margins;

• the remaining mine life of the Wolverine Lake mine, estimated at 14 years for Phase I operations;

• the expected use of proceeds from this offering, including the allocation of approximately $167,000,000 to Phase II expansion capital expenditure and the repayment and termination of the Ridgeline Bank of Canada revolving credit facility;

• the anticipated exchange offer or shelf registration in connection with the registration rights agreement;

• expected nickel and copper prices and their effect on the Issuer's financial results; and

• general market conditions, exchange rate assumptions, and competitive positioning.

These forward-looking statements are based on certain key assumptions made by the Issuer, including assumptions regarding nickel and copper commodity prices, a reference USD/CAD exchange rate of 0.7875, the construction timeline for the Phase II expansion, the availability of necessary permits and regulatory approvals, the accuracy of mineral resource estimates, the availability and cost of labor, equipment, and materials, and the absence of material adverse changes in general economic conditions or in the markets for base metals.

Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results, level of activity, performance, or achievements of the Issuer to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to:

• commodity price volatility, particularly for nickel and copper;

• construction risk associated with the Phase II expansion, including potential cost overruns, delays, and failure to achieve targeted production levels;

• regulatory and permitting risk, including the potential for delays in obtaining necessary environmental and mining permits;

• the inherent uncertainty of mineral resource estimates;

• environmental risk and potential liability;

• currency fluctuations, including changes in the USD/CAD exchange rate;

• changes in applicable laws, regulations, and governmental policies;

• the other risk factors described under "Risk Factors" in this Offering Memorandum; and

• other factors beyond the control of the Issuer.

Although the Issuer has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements contained in this Offering Memorandum are made as of the date of this Offering Memorandum and the Issuer does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable securities laws. All subsequent written and oral forward-looking statements attributable to the Issuer or persons acting on its behalf are expressly qualified in their entirety by this cautionary statement.

SUMMARY

The following summary highlights selected information contained elsewhere in this Offering Memorandum and does not contain all of the information that you should consider before investing in the Notes. You should carefully read this entire Offering Memorandum, including the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum, before making an investment decision. Unless the context otherwise requires or as otherwise indicated, references to the "Company," "Torchlight," the "Issuer," "we," "us," and "our" refer to Torchlight Mining Corp. and its consolidated subsidiaries. All dollar amounts are in United States dollars unless otherwise indicated. All amounts expressed in Canadian dollars are indicated by "CAD."

The Issuer

Torchlight Mining Corp. is a corporation incorporated under the Canada Business Corporations Act (the "CBCA") with its headquarters located at 2200 – 400 Burrard Street, Vancouver, British Columbia V6C 3A6, Canada. The Company's registered office is located at 1600 – 925 West Georgia Street, Vancouver, British Columbia V6C 3L2, Canada. The Company's common shares are listed on the Toronto Stock Exchange (the "TSX") under the ticker symbol "TMC." As of January 14, 2022, the Company's market capitalization was approximately CAD $1.87 billion.

Torchlight is a leading Canadian mid-tier nickel-copper producer. The Company's principal asset is the 100%-owned Wolverine Lake nickel-copper mine located in Northern Ontario, Canada (the "Wolverine Lake Mine" or the "Mine"), which is held through its wholly owned subsidiary, Wolverine Lake Mining Ltd. The Wolverine Lake Mine is the Company's sole material producing asset.

For the fiscal year ended December 31, 2021 ("FY 2021"), the Company generated revenue of CAD $612.4 million and Adjusted EBITDA of CAD $189.7 million. The Company's strong financial performance was driven by robust nickel and copper prices and consistent production from the Wolverine Lake Mine.

Phase I Operations. The Wolverine Lake Mine currently operates as an underground mine, producing approximately 18,000 tonnes of nickel-in-concentrate and approximately 6,100 tonnes of copper-in-concentrate annually. Phase I operations have a remaining mine life of approximately 14 years based on current resource estimates and mine planning assumptions. On-site concentrator and processing facilities are operated by Torchlight Milling & Processing Inc., a wholly owned subsidiary of the Company.

Phase II Expansion. The Company is planning a significant expansion of the Wolverine Lake Mine through the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone (the "Phase II Expansion"). The Phase II Expansion is expected to increase annual production to approximately 28,500 tonnes of nickel-in-concentrate and approximately 9,600 tonnes of copper-in-concentrate, representing an increase of approximately 58% and 57%, respectively, over current Phase I production levels. The total estimated capital cost of the Phase II Expansion is CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875). Construction is planned to commence in Q2 2022 and is expected to be completed by Q4 2024. The Phase II Expansion will be funded primarily from the net proceeds of this offering.

The Guarantors

The Notes will be guaranteed on a joint and several, senior secured basis by the following entities:

Wolverine Lake Mining Ltd. ("WLML") is a wholly owned subsidiary of the Company incorporated under the Business Corporations Act (Ontario). WLML is the operating entity for the Wolverine Lake Mine and holds all mining rights, mineral claims, and surface rights associated with the Wolverine Lake property. WLML's registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada.

Torchlight Milling & Processing Inc. ("TMPI") is a wholly owned subsidiary of the Company incorporated under the Business Corporations Act (Ontario). TMPI operates the on-site concentrator and processing facilities at the Wolverine Lake Mine. TMPI's registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada.

Torchlight U.S. Holdings, Inc. ("TUSHI") is a wholly owned subsidiary of the Company incorporated under the laws of the State of Delaware. TUSHI holds and manages the Company's U.S. offtake and marketing contracts. TUSHI's registered office is located at 1209 Orange Street, Wilmington, Delaware 19801. TUSHI's employer identification number (EIN) is 84-3921057.

Future subsidiaries of the Company that meet a total asset threshold of $5,000,000 will be required to guarantee the Notes by executing a joinder to the Indenture.

The Offering

The following is a brief summary of certain terms of the offering. For a more complete description of the terms of the Notes, see "Description of the Notes."

Use of Proceeds

The following table summarizes the intended application of the gross proceeds of this offering:

For a more detailed discussion of the use of proceeds, see "Use of Proceeds."

Ratings

The Notes have been assigned a rating of B1 with a stable outlook by Northmark Ratings Group, Inc. and a rating of B+ with a stable outlook by Creston Analytics, Inc. A rating reflects only the view of the rating agency issuing the rating and is not a recommendation to purchase, sell, or hold the Notes. A rating may be revised or withdrawn at any time. Each rating should be evaluated independently of any other rating.

RISK FACTORS

An investment in the Notes involves significant risks. Before making an investment decision, you should carefully consider the following risk factors, together with the other information contained in this Offering Memorandum, including the financial statements and the notes thereto. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also materially and adversely affect our business, financial condition, results of operations, and ability to service the Notes. If any of the following risks actually occurs, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, we may be unable to pay interest or principal on the Notes, and you could lose all or part of your investment.

Risks Relating to the Business and Industry

Commodity Price Volatility

The financial performance and operating results of the Company are highly sensitive to the market prices of nickel and copper, which are the Company's principal products. Nickel and copper prices are volatile and are influenced by numerous factors beyond the Company's control, including global supply and demand dynamics, speculative activity, economic growth rates in major consuming countries (particularly China), substitution, recycling, currency exchange rate fluctuations, and geopolitical events. A sustained decline in nickel or copper prices could materially and adversely affect the Company's revenue, Adjusted EBITDA, cash flow from operations, and ability to service the Notes. In periods of depressed commodity prices, the Company may also be required to recognize impairment charges on its mineral properties and related assets. The Company does not currently engage in a comprehensive commodity price hedging program, and there can be no assurance that any hedging activities the Company may undertake in the future will be effective in mitigating the impact of price declines.

Phase II Expansion Risk

The Phase II Expansion of the Wolverine Lake Mine involves the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone, with an estimated total capital cost of CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875) and a planned construction timeline extending from Q2 2022 through Q4 2024. Approximately $167,000,000 of the net proceeds from this offering will be allocated to the Phase II Expansion. The Phase II Expansion is subject to a number of significant risks, including:

• the risk that actual construction costs may exceed the estimated budget due to increases in the prices of raw materials, labor, equipment, and services, supply chain disruptions, or unforeseen geological conditions;

• the risk that construction may not be completed on the anticipated timeline, which could delay the commencement of production from the Wolverine Deep zone and the realization of anticipated revenue;

• the risk that targeted production levels of approximately 28,500 tonnes of nickel-in-concentrate and approximately 9,600 tonnes of copper-in-concentrate annually may not be achieved due to geological, metallurgical, or operational factors;

• the risk that additional permits, approvals, or environmental assessments may be required, resulting in delays or additional costs; and

• the risk that the Wolverine Deep zone may not contain mineral resources of the quantity or grade currently estimated.

Failure to complete the Phase II Expansion on time, on budget, or at all, or failure to achieve the targeted production levels, could have a material adverse effect on the Company's business, financial condition, results of operations, and ability to service the Notes.

Single Asset Concentration

The Wolverine Lake Mine is the Company's sole material producing asset. As a result, the Company is highly dependent on the continued operation and performance of the Wolverine Lake Mine for substantially all of its revenue and cash flow. Any adverse event affecting the Wolverine Lake Mine, including but not limited to mine accidents, equipment failures, labor disruptions, regulatory actions, environmental incidents, or natural disasters, could have a disproportionately severe impact on the Company's business, financial condition, results of operations, and ability to service the Notes. This concentration of risk is not mitigated by diversification across multiple mines or geographies.

Mineral Resource and Reserve Estimates

The mineral resource estimates for the Wolverine Lake Mine, as prepared in accordance with NI 43-101, indicate measured and indicated resources of 48.2 million tonnes at 1.12% Ni and 0.38% Cu, and inferred resources of 11.7 million tonnes at 0.94% Ni and 0.31% Cu. These estimates are based on limited geological information gathered through drilling and other sampling techniques and involve a significant degree of uncertainty. The actual quantities of nickel and copper recovered from the mine may differ materially from these estimates. Mineral resource estimates are not precise calculations, being dependent in part on statistical inferences and geological interpretations that may prove to be incorrect. In particular, inferred mineral resources are estimates that involve a lower degree of geological certainty and are subject to further exploration and evaluation. It cannot be assumed that all or any part of inferred mineral resources will be upgraded to measured and indicated resources or that any mineral resource estimate will prove to be economically recoverable.

Mining Operational Risks

Underground mining operations are subject to numerous hazards and risks, many of which are beyond the Company's control. These include, without limitation, ground falls and instability, water inflow and flooding, fires and explosions, equipment failure and breakdown, exposure to harmful substances, seismic events, and other conditions that may result in injury or death of personnel, environmental damage, or disruption or cessation of mining operations. The Company's operations at the Wolverine Lake Mine are conducted underground, which presents particular risks related to ground conditions, ventilation, and access. Any significant interruption to operations could have a material adverse effect on the Company's business, financial condition, results of operations, and ability to service the Notes.

Environmental and Regulatory Risks

The Company's operations are subject to extensive federal and provincial environmental laws and regulations, including the Canadian Environmental Protection Act, 1999, the Impact Assessment Act (Canada), the Ontario Environmental Protection Act, the Ontario Water Resources Act, the Endangered Species Act, 2007 (Ontario), and the Mining Act (Ontario), among others. Compliance with environmental laws and regulations requires significant expenditures and may impose operational constraints. Changes in environmental laws or regulations, or more stringent interpretation or enforcement of existing laws and regulations, could result in increased compliance costs, require modification or cessation of certain operations, or give rise to material liabilities.

The Phase II Expansion is subject to environmental assessment requirements and permitting processes under applicable federal and Ontario legislation. The closing date for this offering was extended from April 5, 2022 to April 19, 2022 in part due to timing considerations associated with Canadian regulatory clearance processes. There can be no assurance that all necessary permits and approvals for the Phase II Expansion will be obtained in a timely manner, or at all, or that conditions imposed on such permits and approvals will not materially increase the cost of the expansion or impose operational restrictions.

The Company is required to maintain mine closure and restoration provisions with respect to the Wolverine Lake Mine. The estimated costs of mine closure and site remediation are subject to revision based on changes in regulations, standards, and actual site conditions, and the actual costs incurred may exceed current provisions.

First Nations and Indigenous Rights

The Wolverine Lake property is located in Northern Ontario in an area that may be subject to claims, assertions of rights, or interests by First Nations and other Indigenous peoples. The constitutional rights of Indigenous peoples in Canada, including rights to land, title, and self-governance, have been the subject of evolving jurisprudence and government policy. The Crown has a duty to consult with, and in appropriate circumstances accommodate, Indigenous peoples whose established or asserted rights may be affected by government decisions, including the issuance of mining permits and approvals. Claims or assertions by Indigenous peoples with respect to the Wolverine Lake property, or changes in government policy regarding consultation and accommodation, could result in delays to the Phase II Expansion, additional costs, restrictions on operations, or legal proceedings, any of which could have a material adverse effect on the Company's business, financial condition, and results of operations.

Key Personnel Dependence

The Company's success is substantially dependent upon the continued service and performance of certain key executive officers and personnel, including Magnus Thornberg, Chief Executive Officer, Lianne Prokopchuk, Chief Financial Officer, and Stavros Katsaros, General Manager, Mine Operations. The loss of the services of any of these individuals, or the inability to attract and retain qualified replacements, could adversely affect the Company's operations and its ability to execute its strategic plans, including the Phase II Expansion. The Company does not maintain key person insurance with respect to any of its officers or employees.

Foreign Exchange Risk

The Company reports its financial results in Canadian dollars. The Notes are denominated in U.S. dollars, and the proceeds from this offering will be received in U.S. dollars. The Company will be required to make semi-annual interest payments and ultimately repay the principal amount of the Notes in U.S. dollars. This offering was structured using a reference USD/CAD exchange rate of 0.7875. The Company generates substantially all of its revenue in Canadian dollars (although nickel and copper commodity prices are generally benchmarked in U.S. dollars). Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could have a material impact on the Company's ability to service its U.S. dollar-denominated obligations under the Notes and could adversely affect the Company's financial condition and results of operations.

Competition. The Company competes with other base metals mining companies for capital, labor, equipment, and market share. Many of the Company's competitors are larger and have greater financial resources, more diversified operations, and greater access to capital markets. Increased competition for skilled labor in the mining industry in Northern Ontario and in Canada generally could result in increased labor costs or difficulty in attracting and retaining qualified personnel. Competition from other nickel and copper producers could also adversely affect the Company's ability to negotiate favorable offtake and supply agreements with customers.

Climate and Weather

The Wolverine Lake Mine is located in Northern Ontario, approximately 85 kilometers northeast of Thunder Bay, and is subject to extreme weather conditions, including severe cold, heavy snowfall, and spring flooding. Extreme weather events could disrupt mining operations, delay construction activities associated with the Phase II Expansion, damage infrastructure and equipment, and restrict access to the mine site. The effects of climate change, including the increased frequency or severity of extreme weather events, could further exacerbate these risks.

Risks Relating to the Notes

Leverage. Pro forma for this offering and the application of net proceeds as described herein, the Company will have $300,000,000 in aggregate principal amount of indebtedness outstanding under the Notes (after giving effect to the repayment and termination of the Ridgeline Bank of Canada revolving credit facility). The Company's level of indebtedness could, among other things, make it more difficult for the Company to satisfy its obligations under the Notes, limit the Company's ability to borrow additional funds or refinance existing indebtedness, limit the Company's ability to fund capital expenditures and working capital requirements, and increase the Company's vulnerability to general adverse economic and industry conditions.

The Company's ability to meet its debt service obligations under the Notes, including the payment of $26,250,000 in annual interest ($13,125,000 per semi-annual period), depends on its future financial performance, which is subject to prevailing economic conditions, commodity prices, currency exchange rates, and other factors, many of which are beyond its control. There can be no assurance that the Company will generate sufficient cash flow from operations to pay the principal of, and interest on, the Notes.

Secured Nature of the Notes and Collateral Value

The Notes and the Guarantees are secured by a first-priority lien on substantially all assets of the Issuer and the Guarantors. However, the value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers. The value of the collateral could be impaired in the future as a result of changing economic conditions, competition, regulatory changes, or the depletion of mineral resources. The mining assets constituting a significant portion of the collateral are specialized in nature and may be difficult to appraise, and their liquidation value in a foreclosure or distressed sale scenario may be substantially less than their going-concern value or the outstanding amount of the Notes. There can be no assurance that the proceeds from the sale of the collateral would be sufficient to satisfy the obligations under the Notes in full.

Incurrence-Based Covenants. The covenants contained in the Indenture governing the Notes are incurrence-based rather than maintenance-based. This means that the Issuer is required to comply with the financial covenants (including the Consolidated Leverage Ratio cap of 3.75:1.00) only at the time it takes certain specified actions, such as incurring additional indebtedness or making restricted payments, rather than on an ongoing basis. As a result, even if the Company's financial condition were to deteriorate significantly, the Issuer would not be in default under the financial covenants so long as it does not take any restricted action that would trigger the covenant test. This structure provides the Issuer with greater operational flexibility but offers less ongoing protection to holders of the Notes than a maintenance-based covenant structure.

Structural Subordination. The Notes are structurally subordinated to all existing and future obligations of any subsidiaries of the Issuer that do not guarantee the Notes. While all of the Issuer's current material subsidiaries will guarantee the Notes, the Indenture requires only future subsidiaries meeting a total asset threshold of $5,000,000 to provide a guarantee. In the event that the Issuer forms or acquires additional subsidiaries in the future that do not meet this threshold or that are otherwise not required to guarantee the Notes, the Notes would be structurally subordinated to the obligations of such non-guarantor subsidiaries. In a bankruptcy, liquidation, or reorganization of any non-guarantor subsidiary, creditors of such subsidiary would generally be entitled to payment in full from the assets of that subsidiary before any assets would be available for distribution to the Issuer.

Change of Control

The Indenture governing the Notes requires the Issuer to offer to repurchase the Notes at 101% of their principal amount plus accrued and unpaid interest upon the occurrence of a Change of Control. However, the Issuer may not have sufficient financial resources at the time of such a Change of Control to fund the repurchase of all outstanding Notes, particularly if the Change of Control event triggers other obligations of the Issuer or its subsidiaries. In addition, a Change of Control could constitute a default under other agreements or instruments to which the Issuer is a party.

No Public Market

The Notes are not listed on any securities exchange and there is no established public trading market for the Notes. The Initial Purchasers have informed the Issuer that they intend to make a market in the Notes. However, the Initial Purchasers are not obligated to do so and may discontinue market-making activities at any time without notice. The liquidity of any market for the Notes will depend on a number of factors, including the number of holders of the Notes, prevailing interest rates, the market for similar securities, and general economic conditions. There can be no assurance that an active trading market for the Notes will develop or, if one develops, that it will be maintained. If an active market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected.

Transfer Restrictions. The Notes have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and, unless so registered, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Similarly, the Notes are subject to restrictions on resale under Canadian securities legislation. These transfer restrictions could further limit the liquidity of the Notes and the ability of holders to transfer the Notes.

Credit Ratings. The Notes have been assigned a rating of B1 with a stable outlook by Northmark Ratings Group, Inc. and a rating of B+ with a stable outlook by Creston Analytics, Inc. These ratings reflect the assessment of each rating agency of the Company's ability to meet its financial obligations and indicate significant credit risk. A downgrade in the credit ratings assigned to the Notes could adversely affect the trading price and liquidity of the Notes and could increase the Company's cost of borrowing in any future financing. Ratings may be revised or withdrawn at any time by the rating agencies.

Registration Rights. The Issuer and the Guarantors have agreed, pursuant to the Registration Rights Agreement, to file a registration statement with the SEC with respect to an offer to exchange the Notes for publicly registered notes with substantially identical terms, or alternatively to file a shelf registration statement covering resales of the Notes, within 365 days of the closing date of this offering (i.e., by April 19, 2023). If the Issuer fails to satisfy these registration obligations, additional interest will accrue on the Notes at the rate of 0.25% per annum, increasing by an additional 0.25% per annum every 90 days thereafter, up to a maximum additional rate of 1.00% per annum. There can be no assurance that the exchange offer will be completed or that the shelf registration statement will be declared effective within the required timeframe or at all. The accrual of additional interest would increase the Company's debt service costs.

Cross-Border Enforcement. The Issuer and certain of the Guarantors are incorporated in Canada, and certain of the Issuer's directors and officers are residents of Canada. As discussed under "Enforceability of Civil Liabilities," it may be difficult for holders of the Notes to enforce judgments obtained in U.S. courts against the Issuer, the Canadian Guarantors, or their respective directors and officers. The enforceability of New York law-governed obligations of the Issuer and the Canadian Guarantors in Canadian courts is subject to certain conditions and limitations under Canadian law. See "Enforceability of Civil Liabilities."

Risks Relating to Canada and the Canadian Mining Regulatory Environment

Mining Legislation, Royalties, and Taxation

The Company's mining operations are subject to regulation under federal and Ontario mining legislation, including the Mining Act (Ontario), which governs the acquisition, maintenance, and disposition of mining claims, mine development, closure planning, and the payment of mining royalties and taxes. Ontario imposes a mining tax on the profits derived from mining operations conducted in the province. Changes in mining legislation, royalty rates, or taxation could increase the Company's operating costs and reduce its profitability.

Potential Changes to Mining Tax Regimes

There can be no assurance that the current mining tax regime in Ontario will remain unchanged. The Ontario and federal governments may enact amendments to existing tax laws or introduce new taxes that could increase the Company's effective tax rate. Any such changes could have a material adverse effect on the Company's financial condition and results of operations.

Environmental Assessment Requirements for Phase II Expansion

The Phase II Expansion is subject to environmental assessment requirements under the Impact Assessment Act (Canada) and the Environmental Assessment Act (Ontario). The environmental assessment process can be lengthy and may result in conditions or requirements that could increase the cost of the Phase II Expansion or impose operational constraints. There can be no assurance that the environmental assessment for the Phase II Expansion will result in a favorable decision.

USE OF PROCEEDS

The aggregate gross proceeds from this offering will be $300,000,000, calculated as $300,000,000 aggregate principal amount multiplied by the issue price of 98.50% of par, plus the original issue discount. The following table sets forth the estimated sources and uses of funds in connection with this offering:

Sources of Funds

Transaction Fees and Expenses

Net proceeds to Issuer: $300,000,000 – $14,250,000 = $285,750,000

Application of Net Proceeds

The Company intends to use the net proceeds from this offering as follows:

Ridgeline Bank of Canada Revolving Credit Facility. The Company currently maintains a revolving credit facility (the "Ridgeline Facility") with Ridgeline Bank of Canada acting as administrative agent (relationship manager: Gavin Forde). The Ridgeline Facility has a total commitment of CAD $225,000,000, of which CAD $140,000,000 was drawn as of January 2022. The Ridgeline Facility bears interest at variable rates based on the Canadian prime rate or bankers' acceptance rate, plus applicable margins, and is secured by a first-priority lien on substantially all assets of the Company and its Canadian subsidiaries. In connection with this offering, the Company intends to repay all amounts outstanding under the Ridgeline Facility in full and terminate the facility. At closing, the administrative agent will release all liens held on behalf of the lenders under the Ridgeline Facility. The USD equivalent of the drawn amount of CAD $140,000,000, calculated at a USD/CAD exchange rate of 0.7875, is approximately $110,250,000.

Phase II Expansion. The Company intends to allocate $167,000,000 of the net proceeds from this offering to fund the Phase II Expansion of the Wolverine Lake Mine, which consists of the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone. The total estimated capital cost of the Phase II Expansion is CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875). The balance of the Phase II Expansion capital cost, to the extent not funded from the proceeds of this offering, is expected to be funded from operating cash flow. Construction is planned to commence in Q2 2022 and is expected to be completed by Q4 2024. Upon completion, the Phase II Expansion is expected to increase annual production from approximately 18,000 tonnes to approximately 28,500 tonnes of nickel-in-concentrate and from approximately 6,100 tonnes to approximately 9,600 tonnes of copper-in-concentrate. For further information regarding the Phase II Expansion, see "Business — Phase II Expansion."

General Corporate Purposes and Working Capital. The remaining net proceeds of approximately $8,500,000 will be used for general corporate purposes and working capital requirements.

Pending the application of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, interest-bearing, investment-grade instruments or hold them as cash and cash equivalents.

CAPITALIZATION

The following table sets forth the consolidated capitalization of the Company as of December 31, 2021, on an actual basis and as adjusted to give effect to this offering and the application of net proceeds therefrom as described under "Use of Proceeds." This table should be read in conjunction with "Use of Proceeds," "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum.

(1) Reflects cash and cash equivalents adjusted for receipt of net proceeds, repayment of Ridgeline Bank of Canada revolving credit facility, payment of transaction fees and expenses, and allocation of proceeds to Phase II Expansion and general corporate purposes. Actual amounts deployed will depend on timing of capital expenditures and other uses.

(2) Converted from CAD $140,000,000 at a USD/CAD exchange rate of 0.7875.

(3) Includes initial purchaser discount and other estimated transaction costs capitalized as deferred financing costs and amortized over the term of the Notes.

The pro forma adjustments reflected in the "As Adjusted" column give effect to the issuance of the Notes, the application of net proceeds therefrom to repay and terminate the Ridgeline Bank of Canada revolving credit facility, the allocation of proceeds to Phase II Expansion capital expenditures, and the payment of transaction fees and expenses, all as described under "Use of Proceeds." The pro forma adjustments do not give effect to any changes in the Company's financial position subsequent to December 31, 2021.

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum. The selected financial data presented below for each of the fiscal years ended December 31, 2021, 2020, and 2019, and as of December 31, 2021 and 2020, have been derived from the audited consolidated financial statements of the Company, which were audited by Aldgate Thornton LLP, a registered public accounting firm based in Vancouver, British Columbia, Canada (engagement partner: Francesca Hui, CPA, CA).

The Company's common shares are listed on the Toronto Stock Exchange under the ticker symbol "TMC." As of January 14, 2022, the Company's market capitalization was approximately CAD $1.87 billion.

Selected Consolidated Income Statement Data

(1) Adjusted EBITDA is a non-IFRS financial measure and represents net income before interest expense, income tax expense, depreciation, amortization, and depletion, as adjusted for non-recurring items. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a reconciliation of Adjusted EBITDA to net income.

Selected Consolidated Balance Sheet Data

Selected Consolidated Cash Flow Data

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with "Selected Financial Data" and the audited consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed under "Risk Factors" and "Forward-Looking Statements."

Overview

Torchlight Mining Corp. is a leading Canadian mid-tier nickel-copper producer. The Company's sole material producing asset is the Wolverine Lake nickel-copper mine, an underground mine located approximately 85 kilometers northeast of Thunder Bay in Northern Ontario, Canada. The Wolverine Lake Mine is held through the Company's wholly owned subsidiary, Wolverine Lake Mining Ltd. On-site concentrator and processing facilities are operated by another wholly owned subsidiary, Torchlight Milling & Processing Inc. The Company's U.S. offtake and marketing activities are managed through Torchlight U.S. Holdings, Inc., a Delaware subsidiary.

For the fiscal year ended December 31, 2021, the Company generated revenue of CAD $612.4 million, representing a 25.7% increase over FY 2020 revenue of CAD $487.3 million. The increase in revenue was primarily attributable to higher realized prices for nickel and copper, as well as stable production volumes. Adjusted EBITDA for FY 2021 was CAD $189.7 million, a 42.7% increase compared to CAD $132.9 million for FY 2020, reflecting the higher revenue base and the Company's effective cost management.

During FY 2021, nickel and copper market conditions were generally favorable, supported by increased demand from the electric vehicle battery sector and infrastructure spending, as well as supply constraints in certain producing regions. The Company's realized nickel price averaged approximately USD $8.85 per pound for FY 2021, compared to approximately USD $6.90 per pound for FY 2020. Realized copper prices averaged approximately USD $4.25 per pound for FY 2021, compared to approximately USD $2.80 per pound for FY 2020.

Results of Operations

Revenue. For FY 2021, the Company reported total revenue of CAD $612.4 million, compared to CAD $487.3 million for FY 2020 and CAD $412.9 million for FY 2019. The increase in revenue from FY 2020 to FY 2021 was primarily driven by a significant increase in realized prices for both nickel and copper. Production volumes remained relatively stable during the period, with the Wolverine Lake Mine producing approximately 18,000 tonnes of nickel-in-concentrate and approximately 6,100 tonnes of copper-in-concentrate in FY 2021, consistent with prior year levels. Revenue recognition is based on the terms of the Company's concentrate sales agreements, which are generally priced based on quoted market prices, adjusted for treatment and refining charges, at the time of provisional payment with final settlement based on average prices over a specified quotational period.

The increase in revenue from FY 2019 to FY 2020 was driven by a combination of modestly higher commodity prices and improved throughput at the concentrator following a planned maintenance shutdown in late 2019.

The impact of foreign exchange movements on revenue was mixed during the period. The USD/CAD exchange rate averaged approximately 0.7875 during FY 2021, and fluctuations in this rate affected the Canadian dollar equivalent of revenues denominated or indexed to U.S. dollar commodity benchmarks.

Operating Costs. Total cost of sales for FY 2021 was CAD $367.2 million, compared to CAD $312.8 million for FY 2020 and CAD $278.1 million for FY 2019. The increase in cost of sales was primarily attributable to higher mine-site operating costs, including labor, energy, and consumables costs, as well as the effects of general inflationary pressures. Torchlight Milling & Processing Inc. incurred processing costs related to the operation of the on-site concentrator, which are included in cost of sales.

Cash operating costs (mine-site costs per tonne of ore processed) increased moderately in FY 2021 due to increased labor costs and higher costs for consumables such as explosives, grinding media, and diesel fuel. The Company implemented several cost optimization initiatives during the year, including improved scheduling and maintenance practices, which partially offset the increases in input costs.

Depreciation, Amortization, and Depletion

Depreciation, amortization, and depletion ("DA&D") for FY 2021 totaled CAD $62.4 million, compared to CAD $58.1 million for FY 2020 and CAD $54.3 million for FY 2019. DA&D charges are calculated primarily on a units-of-production basis with respect to mineral properties and on a straight-line basis for equipment and other assets. The increase in DA&D in FY 2021 was principally due to additions to mineral property, plant, and equipment associated with ongoing Phase I development activities and the acquisition of additional mining equipment.

General and Administrative Expenses

General and administrative expenses for FY 2021 were CAD $38.7 million, compared to CAD $33.2 million for FY 2020 and CAD $30.6 million for FY 2019. The increase reflects higher compensation costs related to the expansion of the Company's corporate team in anticipation of the Phase II Expansion, as well as increased professional fees, including legal, engineering, and consulting costs associated with the planning and permitting of the expansion project and the preparation for this offering.

Interest Expense. Interest expense for FY 2021 was CAD $7.8 million, compared to CAD $8.4 million for FY 2020 and CAD $9.1 million for FY 2019. Interest expense primarily consists of interest accrued on amounts drawn under the Ridgeline Bank of Canada revolving credit facility. The decrease in interest expense reflects the reduction in the average outstanding balance under the facility during the period. Following the completion of this offering and the repayment and termination of the Ridgeline Facility, the Company's interest expense will consist of interest on the Notes, which will amount to $26,250,000 per annum ($13,125,000 per semi-annual period) based on the stated coupon of 8.750% on the aggregate principal amount of $300,000,000.

Net Income. Net income for FY 2021 was CAD $99.8 million, compared to CAD $53.3 million for FY 2020 and CAD $30.4 million for FY 2019. The significant increase in net income was driven by the increase in revenue attributable to higher commodity prices, partially offset by higher operating costs, DA&D charges, and general and administrative expenses. The Company's effective income tax rate for FY 2021 was approximately 28.0%.

Liquidity and Capital Resources

Historical Liquidity Sources

Historically, the Company's primary sources of liquidity have been cash generated from operating activities and borrowings under the Ridgeline Bank of Canada revolving credit facility. Operating cash flows for FY 2021 totaled CAD $171.3 million, compared to CAD $118.4 million for FY 2020 and CAD $82.6 million for FY 2019. The improvement in operating cash flows was driven principally by higher revenues resulting from increased commodity prices.

The Ridgeline Facility has a total committed amount of CAD $225,000,000, of which CAD $1

CONFIDENTIAL OFFERING MEMORANDUM
March 14, 2022
$300,000,000
TORCHLIGHT MINING CORP.
(a corporation incorporated under the Canada Business Corporations Act)
8.750% Senior Secured Notes due 2029
Jointly and severally guaranteed on a senior secured basis by Wolverine Lake Mining Ltd. Torchlight Milling & Processing Inc. Torchlight U.S. Holdings, Inc.
Torchlight Mining Corp. (the "Issuer" or the "Company") is offering $300,000,000 aggregate principal amount of its 8.750% Senior Secured Notes due 2029 (the "Notes"). The Notes will bear interest at a rate of 8.750% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2022. The Notes will mature on April 15, 2029.
Issue Price: 98.50% of par, plus accrued interest, if any, from April 19, 2022.
The Notes will be the senior secured obligations of the Issuer and will be guaranteed on a joint and several, senior secured basis by Wolverine Lake Mining Ltd. ("WLML"), Torchlight Milling & Processing Inc. ("TMPI"), and Torchlight U.S. Holdings, Inc. ("TUSHI" and, together with WLML and TMPI, the "Guarantors"). The Notes and the Guarantees will be secured by a first-priority lien on substantially all tangible and intangible assets of the Issuer and the Guarantors.
The Notes are being offered only to (i) qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. The Notes have not been and will not be registered under the Securities Act or under any state or provincial securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
The Notes will not be listed on any securities exchange. The Issuer's common shares are listed on the Toronto Stock Exchange (the "TSX") under the ticker symbol "TMC."
See "Risk Factors" beginning on page 41 for a discussion of certain risks that you should consider before investing in the Notes.
A rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time.
Trustee and Collateral Agent: Northern Dominion Trust Company
Lead Initial Purchaser and Book-Running Manager
Kelvantis Capital Markets LLC
Co-Managers
Prestige Barrington & Co., Inc. Halcyon Securities Inc.
The date of this Offering Memorandum is March 14, 2022.
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NOTICE TO INVESTORS
This Offering Memorandum is being furnished by the Issuer on a confidential basis solely for the purpose of enabling a prospective investor to consider the purchase of the Notes described herein. The information contained in this Offering Memorandum has been furnished by the Issuer and other sources identified herein. Neither Kelvantis Capital Markets LLC ("Kelvantis" or the "Lead Initial Purchaser"), Prestige Barrington & Co., Inc. ("Prestige Barrington"), nor Halcyon Securities Inc. ("Halcyon" and, together with Kelvantis and Prestige Barrington, the "Initial Purchasers") makes any representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this Offering Memorandum is, or shall be relied upon as, a promise or representation by the Initial Purchasers as to the past or the future. The Initial Purchasers have not independently verified any of the information contained herein.
Offering Restrictions. The Notes are being offered only to (i) qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) non-U.S. persons (as defined in Regulation S under the Securities Act) in offshore transactions in reliance on Regulation S under the Securities Act. The Notes have not been and will not be registered under the Securities Act or under any state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold only (a) in the United States to persons reasonably believed to be QIBs in reliance on Rule 144A, and (b) outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S.
No Public Offering. No action has been or will be taken to permit a public offering of the Notes in the United States, Canada, or any other jurisdiction. This Offering Memorandum does not constitute an offer to sell or a solicitation of an offer to buy any Notes in any jurisdiction in which such offer or solicitation is unlawful. Recipients of this Offering Memorandum who intend to subscribe for or purchase the Notes are reminded that any subscription or purchase may only be made on the basis of the information contained in this Offering Memorandum.
Transfer Restrictions. The Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act and are subject to significant restrictions on transfer as described under "Transfer Restrictions" in this Offering Memorandum. By purchasing the Notes, each purchaser will be deemed to have made certain acknowledgments, representations, and agreements as described in this Offering Memorandum. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.
Confidentiality. This Offering Memorandum is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes. Distribution of this Offering Memorandum to any person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized. Each prospective investor, by accepting delivery of this Offering Memorandum, agrees to the foregoing and to make no copies of this Offering Memorandum or any documents referred to in this Offering Memorandum, in whole or in part, other than for the purpose of evaluating a potential investment in the Notes.
Canadian Securities Law Notice. The Notes are being offered in Canada on a private placement basis and are exempt from the prospectus requirements under applicable Canadian securities legislation. No securities commission or similar authority in Canada has reviewed or in any way passed upon this Offering Memorandum or the merits of the Notes described herein, and any representation to the contrary is an offense.
Regulatory Approvals. None of the United States Securities and Exchange Commission (the "SEC"), any state securities commission, the Ontario Securities Commission, any other Canadian securities regulatory authority, or any other regulatory body has approved or disapproved of the Notes or passed upon the accuracy or adequacy of this Offering Memorandum. Any representation to the contrary is a criminal offense.
Investment Decision. Each prospective purchaser must comply with all applicable laws and regulations in force in each jurisdiction in which it purchases, offers, or sells the Notes and must obtain any consent, approval, or permission required for the purchase, offer, or sale by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, or sales, and neither the Issuer nor the Initial Purchasers shall have any responsibility therefor.
No Reliance. In making an investment decision regarding the Notes, prospective investors must rely on their own examination of the Issuer, the Guarantors, the terms of the offering, and the merits and risks involved. Prospective investors should not construe anything in this Offering Memorandum as legal, business, or tax advice. Each prospective investor should consult its own advisors as needed in making its investment decision and to determine whether it is legally permitted to purchase the Notes under applicable legal investment or similar laws or regulations.
ENFORCEABILITY OF CIVIL LIABILITIES
Torchlight Mining Corp. is incorporated under the Canada Business Corporations Act (the "CBCA") and has its headquarters at 2200 – 400 Burrard Street, Vancouver, British Columbia V6C 3A6, Canada. Wolverine Lake Mining Ltd. and Torchlight Milling & Processing Inc. are incorporated under the Business Corporations Act (Ontario) with their registered offices at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada. Certain of the directors and officers of the Issuer and the Canadian Guarantors, including Magnus Thornberg, Chief Executive Officer, Lianne Prokopchuk, Chief Financial Officer, Deepak Rathore, General Counsel and Corporate Secretary, Colleen Hébert, Treasurer, and Ingrid Solheim, Chair of the Board of Directors, are residents of Canada, and a substantial portion of the assets of such persons and a substantial portion of the assets of the Issuer and the Canadian Guarantors are located in Canada.
As a result, it may be difficult for investors in the United States to effect service of process within the United States upon the Issuer, the Canadian Guarantors, or their respective directors and officers who are not residents of the United States, or to enforce against them judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or the securities laws of any state of the United States.
The Indenture governing the Notes, the Notes, and the Guarantees are governed by the laws of the State of New York. However, enforcement of a U.S. court judgment in Canadian courts is subject to certain conditions under Canadian law, including, without limitation, that the U.S. court had jurisdiction over the subject matter of the action, that the judgment was not obtained by fraud, that the judgment is not contrary to the public policy of the Canadian jurisdiction in which enforcement is sought, and that the proceedings in which the judgment was obtained were in accordance with principles of natural justice. There can be no assurance that a Canadian court would enforce a judgment obtained in a U.S. court against the Issuer, the Canadian Guarantors, or their respective directors and officers based on the civil liability provisions of the U.S. federal securities laws or the securities laws of any state of the United States. In addition, there is doubt as to whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon the U.S. federal securities laws.
The Issuer has appointed an agent for service of process in the State of New York in connection with any action arising out of, or relating to, the Notes, the Indenture, or the Guarantees, and each of the Canadian Guarantors has similarly submitted to the jurisdiction of the courts of the State of New York. Torchlight U.S. Holdings, Inc. is incorporated under the laws of the State of Delaware and is subject to service of process in the United States.
INDUSTRY AND MARKET DATA
Market and industry data used throughout this Offering Memorandum have been obtained from independent industry publications, government publications, reports by market research firms, and publicly available information. In addition, certain market and industry data have been obtained from reports prepared by Cascade Technical Advisors Inc. (the "Independent Engineer"), an independent engineering firm based in Calgary, Alberta, Canada. The Independent Engineer's report was prepared in accordance with the standards and requirements of National Instrument 43-101 — Standards of Disclosure for Mineral Projects ("NI 43-101") of the Canadian Securities Administrators.
The Issuer believes that the industry and market data and statistical information presented in this Offering Memorandum are accurate and that the estimates and assumptions made on the basis thereof are reasonable and appropriate. However, there can be no assurance as to the accuracy or completeness of any such information. None of the Issuer, the Guarantors, or the Initial Purchasers has independently verified such data from independent sources, and none of them makes any representation as to the accuracy of such information. Industry publications, surveys, and forecasts generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed.
All mineral resource estimates referenced in this Offering Memorandum have been prepared in accordance with NI 43-101 standards by qualified persons (as defined therein) and are reported using the classification system established by the Canadian Institute of Mining, Metallurgy and Petroleum. Mineral resource estimates are not precise calculations, and the reported quantities and grades are based on interpretations of limited geological data on the size, shape, and depth of the ore bodies. Actual quantities recovered and grades achieved may differ materially from these estimates. Inferred mineral resources have a lower level of confidence than measured and indicated mineral resources and should not be considered as being economically extractable. It cannot be assumed that all or any part of inferred mineral resources will ever be upgraded to a higher category.
FORWARD-LOOKING STATEMENTS
This Offering Memorandum contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, and "forward-looking information" within the meaning of applicable Canadian securities legislation (collectively, "forward-looking statements"). Forward-looking statements can be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "targets," "may," "will," "would," "could," "should," and similar expressions or their negative forms. All statements other than statements of historical fact included in this Offering Memorandum are forward-looking statements.
Without limiting the generality of the foregoing, forward-looking statements contained in this Offering Memorandum include, but are not limited to, statements regarding:
• the Phase II expansion of the Wolverine Lake mine, including the planned construction of the new decline ramp and ventilation raise to access the Wolverine Deep zone, the anticipated construction timeline of Q2 2022 through Q4 2024, and the estimated capital expenditure of CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875);
• targeted production levels of approximately 28,500 tonnes of nickel-in-concentrate and approximately 9,600 tonnes of copper-in-concentrate annually following completion of the Phase II expansion;
• mineral resource estimates, including measured and indicated resources of 48.2 million tonnes at 1.12% Ni and 0.38% Cu and inferred resources of 11.7 million tonnes at 0.94% Ni and 0.31% Cu;
• anticipated revenue growth, operating costs, and margins;
• the remaining mine life of the Wolverine Lake mine, estimated at 14 years for Phase I operations;
• the expected use of proceeds from this offering, including the allocation of approximately $167,000,000 to Phase II expansion capital expenditure and the repayment and termination of the Ridgeline Bank of Canada revolving credit facility;
• the anticipated exchange offer or shelf registration in connection with the registration rights agreement;
• expected nickel and copper prices and their effect on the Issuer's financial results; and
• general market conditions, exchange rate assumptions, and competitive positioning.
These forward-looking statements are based on certain key assumptions made by the Issuer, including assumptions regarding nickel and copper commodity prices, a reference USD/CAD exchange rate of 0.7875, the construction timeline for the Phase II expansion, the availability of necessary permits and regulatory approvals, the accuracy of mineral resource estimates, the availability and cost of labor, equipment, and materials, and the absence of material adverse changes in general economic conditions or in the markets for base metals.
Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results, level of activity, performance, or achievements of the Issuer to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to:
• commodity price volatility, particularly for nickel and copper;
• construction risk associated with the Phase II expansion, including potential cost overruns, delays, and failure to achieve targeted production levels;
• regulatory and permitting risk, including the potential for delays in obtaining necessary environmental and mining permits;
• the inherent uncertainty of mineral resource estimates;
• environmental risk and potential liability;
• currency fluctuations, including changes in the USD/CAD exchange rate;
• changes in applicable laws, regulations, and governmental policies;
• the other risk factors described under "Risk Factors" in this Offering Memorandum; and
• other factors beyond the control of the Issuer.
Although the Issuer has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The forward-looking statements contained in this Offering Memorandum are made as of the date of this Offering Memorandum and the Issuer does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable securities laws. All subsequent written and oral forward-looking statements attributable to the Issuer or persons acting on its behalf are expressly qualified in their entirety by this cautionary statement.
SUMMARY
The following summary highlights selected information contained elsewhere in this Offering Memorandum and does not contain all of the information that you should consider before investing in the Notes. You should carefully read this entire Offering Memorandum, including the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum, before making an investment decision. Unless the context otherwise requires or as otherwise indicated, references to the "Company," "Torchlight," the "Issuer," "we," "us," and "our" refer to Torchlight Mining Corp. and its consolidated subsidiaries. All dollar amounts are in United States dollars unless otherwise indicated. All amounts expressed in Canadian dollars are indicated by "CAD."
The Issuer
Torchlight Mining Corp. is a corporation incorporated under the Canada Business Corporations Act (the "CBCA") with its headquarters located at 2200 – 400 Burrard Street, Vancouver, British Columbia V6C 3A6, Canada. The Company's registered office is located at 1600 – 925 West Georgia Street, Vancouver, British Columbia V6C 3L2, Canada. The Company's common shares are listed on the Toronto Stock Exchange (the "TSX") under the ticker symbol "TMC." As of January 14, 2022, the Company's market capitalization was approximately CAD $1.87 billion.
Torchlight is a leading Canadian mid-tier nickel-copper producer. The Company's principal asset is the 100%-owned Wolverine Lake nickel-copper mine located in Northern Ontario, Canada (the "Wolverine Lake Mine" or the "Mine"), which is held through its wholly owned subsidiary, Wolverine Lake Mining Ltd. The Wolverine Lake Mine is the Company's sole material producing asset.
For the fiscal year ended December 31, 2021 ("FY 2021"), the Company generated revenue of CAD $612.4 million and Adjusted EBITDA of CAD $189.7 million. The Company's strong financial performance was driven by robust nickel and copper prices and consistent production from the Wolverine Lake Mine.
Phase I Operations. The Wolverine Lake Mine currently operates as an underground mine, producing approximately 18,000 tonnes of nickel-in-concentrate and approximately 6,100 tonnes of copper-in-concentrate annually. Phase I operations have a remaining mine life of approximately 14 years based on current resource estimates and mine planning assumptions. On-site concentrator and processing facilities are operated by Torchlight Milling & Processing Inc., a wholly owned subsidiary of the Company.
Phase II Expansion. The Company is planning a significant expansion of the Wolverine Lake Mine through the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone (the "Phase II Expansion"). The Phase II Expansion is expected to increase annual production to approximately 28,500 tonnes of nickel-in-concentrate and approximately 9,600 tonnes of copper-in-concentrate, representing an increase of approximately 58% and 57%, respectively, over current Phase I production levels. The total estimated capital cost of the Phase II Expansion is CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875). Construction is planned to commence in Q2 2022 and is expected to be completed by Q4 2024. The Phase II Expansion will be funded primarily from the net proceeds of this offering.
The Guarantors
The Notes will be guaranteed on a joint and several, senior secured basis by the following entities:
Wolverine Lake Mining Ltd. ("WLML") is a wholly owned subsidiary of the Company incorporated under the Business Corporations Act (Ontario). WLML is the operating entity for the Wolverine Lake Mine and holds all mining rights, mineral claims, and surface rights associated with the Wolverine Lake property. WLML's registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada.
Torchlight Milling & Processing Inc. ("TMPI") is a wholly owned subsidiary of the Company incorporated under the Business Corporations Act (Ontario). TMPI operates the on-site concentrator and processing facilities at the Wolverine Lake Mine. TMPI's registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada.
Torchlight U.S. Holdings, Inc. ("TUSHI") is a wholly owned subsidiary of the Company incorporated under the laws of the State of Delaware. TUSHI holds and manages the Company's U.S. offtake and marketing contracts. TUSHI's registered office is located at 1209 Orange Street, Wilmington, Delaware 19801. TUSHI's employer identification number (EIN) is 84-3921057.
Future subsidiaries of the Company that meet a total asset threshold of $5,000,000 will be required to guarantee the Notes by executing a joinder to the Indenture.
The Offering
The following is a brief summary of certain terms of the offering. For a more complete description of the terms of the Notes, see "Description of the Notes."
Use of Proceeds
The following table summarizes the intended application of the gross proceeds of this offering:
For a more detailed discussion of the use of proceeds, see "Use of Proceeds."
Ratings
The Notes have been assigned a rating of B1 with a stable outlook by Northmark Ratings Group, Inc. and a rating of B+ with a stable outlook by Creston Analytics, Inc. A rating reflects only the view of the rating agency issuing the rating and is not a recommendation to purchase, sell, or hold the Notes. A rating may be revised or withdrawn at any time. Each rating should be evaluated independently of any other rating.
RISK FACTORS
An investment in the Notes involves significant risks. Before making an investment decision, you should carefully consider the following risk factors, together with the other information contained in this Offering Memorandum, including the financial statements and the notes thereto. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also materially and adversely affect our business, financial condition, results of operations, and ability to service the Notes. If any of the following risks actually occurs, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, we may be unable to pay interest or principal on the Notes, and you could lose all or part of your investment.
Risks Relating to the Business and Industry
Commodity Price Volatility
The financial performance and operating results of the Company are highly sensitive to the market prices of nickel and copper, which are the Company's principal products. Nickel and copper prices are volatile and are influenced by numerous factors beyond the Company's control, including global supply and demand dynamics, speculative activity, economic growth rates in major consuming countries (particularly China), substitution, recycling, currency exchange rate fluctuations, and geopolitical events. A sustained decline in nickel or copper prices could materially and adversely affect the Company's revenue, Adjusted EBITDA, cash flow from operations, and ability to service the Notes. In periods of depressed commodity prices, the Company may also be required to recognize impairment charges on its mineral properties and related assets. The Company does not currently engage in a comprehensive commodity price hedging program, and there can be no assurance that any hedging activities the Company may undertake in the future will be effective in mitigating the impact of price declines.
Phase II Expansion Risk
The Phase II Expansion of the Wolverine Lake Mine involves the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone, with an estimated total capital cost of CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875) and a planned construction timeline extending from Q2 2022 through Q4 2024. Approximately $167,000,000 of the net proceeds from this offering will be allocated to the Phase II Expansion. The Phase II Expansion is subject to a number of significant risks, including:
• the risk that actual construction costs may exceed the estimated budget due to increases in the prices of raw materials, labor, equipment, and services, supply chain disruptions, or unforeseen geological conditions;
• the risk that construction may not be completed on the anticipated timeline, which could delay the commencement of production from the Wolverine Deep zone and the realization of anticipated revenue;
• the risk that targeted production levels of approximately 28,500 tonnes of nickel-in-concentrate and approximately 9,600 tonnes of copper-in-concentrate annually may not be achieved due to geological, metallurgical, or operational factors;
• the risk that additional permits, approvals, or environmental assessments may be required, resulting in delays or additional costs; and
• the risk that the Wolverine Deep zone may not contain mineral resources of the quantity or grade currently estimated.
Failure to complete the Phase II Expansion on time, on budget, or at all, or failure to achieve the targeted production levels, could have a material adverse effect on the Company's business, financial condition, results of operations, and ability to service the Notes.
Single Asset Concentration
The Wolverine Lake Mine is the Company's sole material producing asset. As a result, the Company is highly dependent on the continued operation and performance of the Wolverine Lake Mine for substantially all of its revenue and cash flow. Any adverse event affecting the Wolverine Lake Mine, including but not limited to mine accidents, equipment failures, labor disruptions, regulatory actions, environmental incidents, or natural disasters, could have a disproportionately severe impact on the Company's business, financial condition, results of operations, and ability to service the Notes. This concentration of risk is not mitigated by diversification across multiple mines or geographies.
Mineral Resource and Reserve Estimates
The mineral resource estimates for the Wolverine Lake Mine, as prepared in accordance with NI 43-101, indicate measured and indicated resources of 48.2 million tonnes at 1.12% Ni and 0.38% Cu, and inferred resources of 11.7 million tonnes at 0.94% Ni and 0.31% Cu. These estimates are based on limited geological information gathered through drilling and other sampling techniques and involve a significant degree of uncertainty. The actual quantities of nickel and copper recovered from the mine may differ materially from these estimates. Mineral resource estimates are not precise calculations, being dependent in part on statistical inferences and geological interpretations that may prove to be incorrect. In particular, inferred mineral resources are estimates that involve a lower degree of geological certainty and are subject to further exploration and evaluation. It cannot be assumed that all or any part of inferred mineral resources will be upgraded to measured and indicated resources or that any mineral resource estimate will prove to be economically recoverable.
Mining Operational Risks
Underground mining operations are subject to numerous hazards and risks, many of which are beyond the Company's control. These include, without limitation, ground falls and instability, water inflow and flooding, fires and explosions, equipment failure and breakdown, exposure to harmful substances, seismic events, and other conditions that may result in injury or death of personnel, environmental damage, or disruption or cessation of mining operations. The Company's operations at the Wolverine Lake Mine are conducted underground, which presents particular risks related to ground conditions, ventilation, and access. Any significant interruption to operations could have a material adverse effect on the Company's business, financial condition, results of operations, and ability to service the Notes.
Environmental and Regulatory Risks
The Company's operations are subject to extensive federal and provincial environmental laws and regulations, including the Canadian Environmental Protection Act, 1999, the Impact Assessment Act (Canada), the Ontario Environmental Protection Act, the Ontario Water Resources Act, the Endangered Species Act, 2007 (Ontario), and the Mining Act (Ontario), among others. Compliance with environmental laws and regulations requires significant expenditures and may impose operational constraints. Changes in environmental laws or regulations, or more stringent interpretation or enforcement of existing laws and regulations, could result in increased compliance costs, require modification or cessation of certain operations, or give rise to material liabilities.
The Phase II Expansion is subject to environmental assessment requirements and permitting processes under applicable federal and Ontario legislation. The closing date for this offering was extended from April 5, 2022 to April 19, 2022 in part due to timing considerations associated with Canadian regulatory clearance processes. There can be no assurance that all necessary permits and approvals for the Phase II Expansion will be obtained in a timely manner, or at all, or that conditions imposed on such permits and approvals will not materially increase the cost of the expansion or impose operational restrictions.
The Company is required to maintain mine closure and restoration provisions with respect to the Wolverine Lake Mine. The estimated costs of mine closure and site remediation are subject to revision based on changes in regulations, standards, and actual site conditions, and the actual costs incurred may exceed current provisions.
First Nations and Indigenous Rights
The Wolverine Lake property is located in Northern Ontario in an area that may be subject to claims, assertions of rights, or interests by First Nations and other Indigenous peoples. The constitutional rights of Indigenous peoples in Canada, including rights to land, title, and self-governance, have been the subject of evolving jurisprudence and government policy. The Crown has a duty to consult with, and in appropriate circumstances accommodate, Indigenous peoples whose established or asserted rights may be affected by government decisions, including the issuance of mining permits and approvals. Claims or assertions by Indigenous peoples with respect to the Wolverine Lake property, or changes in government policy regarding consultation and accommodation, could result in delays to the Phase II Expansion, additional costs, restrictions on operations, or legal proceedings, any of which could have a material adverse effect on the Company's business, financial condition, and results of operations.
Key Personnel Dependence
The Company's success is substantially dependent upon the continued service and performance of certain key executive officers and personnel, including Magnus Thornberg, Chief Executive Officer, Lianne Prokopchuk, Chief Financial Officer, and Stavros Katsaros, General Manager, Mine Operations. The loss of the services of any of these individuals, or the inability to attract and retain qualified replacements, could adversely affect the Company's operations and its ability to execute its strategic plans, including the Phase II Expansion. The Company does not maintain key person insurance with respect to any of its officers or employees.
Foreign Exchange Risk
The Company reports its financial results in Canadian dollars. The Notes are denominated in U.S. dollars, and the proceeds from this offering will be received in U.S. dollars. The Company will be required to make semi-annual interest payments and ultimately repay the principal amount of the Notes in U.S. dollars. This offering was structured using a reference USD/CAD exchange rate of 0.7875. The Company generates substantially all of its revenue in Canadian dollars (although nickel and copper commodity prices are generally benchmarked in U.S. dollars). Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could have a material impact on the Company's ability to service its U.S. dollar-denominated obligations under the Notes and could adversely affect the Company's financial condition and results of operations.
Competition. The Company competes with other base metals mining companies for capital, labor, equipment, and market share. Many of the Company's competitors are larger and have greater financial resources, more diversified operations, and greater access to capital markets. Increased competition for skilled labor in the mining industry in Northern Ontario and in Canada generally could result in increased labor costs or difficulty in attracting and retaining qualified personnel. Competition from other nickel and copper producers could also adversely affect the Company's ability to negotiate favorable offtake and supply agreements with customers.
Climate and Weather
The Wolverine Lake Mine is located in Northern Ontario, approximately 85 kilometers northeast of Thunder Bay, and is subject to extreme weather conditions, including severe cold, heavy snowfall, and spring flooding. Extreme weather events could disrupt mining operations, delay construction activities associated with the Phase II Expansion, damage infrastructure and equipment, and restrict access to the mine site. The effects of climate change, including the increased frequency or severity of extreme weather events, could further exacerbate these risks.
Risks Relating to the Notes
Leverage. Pro forma for this offering and the application of net proceeds as described herein, the Company will have $300,000,000 in aggregate principal amount of indebtedness outstanding under the Notes (after giving effect to the repayment and termination of the Ridgeline Bank of Canada revolving credit facility). The Company's level of indebtedness could, among other things, make it more difficult for the Company to satisfy its obligations under the Notes, limit the Company's ability to borrow additional funds or refinance existing indebtedness, limit the Company's ability to fund capital expenditures and working capital requirements, and increase the Company's vulnerability to general adverse economic and industry conditions.
The Company's ability to meet its debt service obligations under the Notes, including the payment of $26,250,000 in annual interest ($13,125,000 per semi-annual period), depends on its future financial performance, which is subject to prevailing economic conditions, commodity prices, currency exchange rates, and other factors, many of which are beyond its control. There can be no assurance that the Company will generate sufficient cash flow from operations to pay the principal of, and interest on, the Notes.
Secured Nature of the Notes and Collateral Value
The Notes and the Guarantees are secured by a first-priority lien on substantially all assets of the Issuer and the Guarantors. However, the value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers. The value of the collateral could be impaired in the future as a result of changing economic conditions, competition, regulatory changes, or the depletion of mineral resources. The mining assets constituting a significant portion of the collateral are specialized in nature and may be difficult to appraise, and their liquidation value in a foreclosure or distressed sale scenario may be substantially less than their going-concern value or the outstanding amount of the Notes. There can be no assurance that the proceeds from the sale of the collateral would be sufficient to satisfy the obligations under the Notes in full.
Incurrence-Based Covenants. The covenants contained in the Indenture governing the Notes are incurrence-based rather than maintenance-based. This means that the Issuer is required to comply with the financial covenants (including the Consolidated Leverage Ratio cap of 3.75:1.00) only at the time it takes certain specified actions, such as incurring additional indebtedness or making restricted payments, rather than on an ongoing basis. As a result, even if the Company's financial condition were to deteriorate significantly, the Issuer would not be in default under the financial covenants so long as it does not take any restricted action that would trigger the covenant test. This structure provides the Issuer with greater operational flexibility but offers less ongoing protection to holders of the Notes than a maintenance-based covenant structure.
Structural Subordination. The Notes are structurally subordinated to all existing and future obligations of any subsidiaries of the Issuer that do not guarantee the Notes. While all of the Issuer's current material subsidiaries will guarantee the Notes, the Indenture requires only future subsidiaries meeting a total asset threshold of $5,000,000 to provide a guarantee. In the event that the Issuer forms or acquires additional subsidiaries in the future that do not meet this threshold or that are otherwise not required to guarantee the Notes, the Notes would be structurally subordinated to the obligations of such non-guarantor subsidiaries. In a bankruptcy, liquidation, or reorganization of any non-guarantor subsidiary, creditors of such subsidiary would generally be entitled to payment in full from the assets of that subsidiary before any assets would be available for distribution to the Issuer.
Change of Control
The Indenture governing the Notes requires the Issuer to offer to repurchase the Notes at 101% of their principal amount plus accrued and unpaid interest upon the occurrence of a Change of Control. However, the Issuer may not have sufficient financial resources at the time of such a Change of Control to fund the repurchase of all outstanding Notes, particularly if the Change of Control event triggers other obligations of the Issuer or its subsidiaries. In addition, a Change of Control could constitute a default under other agreements or instruments to which the Issuer is a party.
No Public Market
The Notes are not listed on any securities exchange and there is no established public trading market for the Notes. The Initial Purchasers have informed the Issuer that they intend to make a market in the Notes. However, the Initial Purchasers are not obligated to do so and may discontinue market-making activities at any time without notice. The liquidity of any market for the Notes will depend on a number of factors, including the number of holders of the Notes, prevailing interest rates, the market for similar securities, and general economic conditions. There can be no assurance that an active trading market for the Notes will develop or, if one develops, that it will be maintained. If an active market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected.
Transfer Restrictions. The Notes have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and, unless so registered, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Similarly, the Notes are subject to restrictions on resale under Canadian securities legislation. These transfer restrictions could further limit the liquidity of the Notes and the ability of holders to transfer the Notes.
Credit Ratings. The Notes have been assigned a rating of B1 with a stable outlook by Northmark Ratings Group, Inc. and a rating of B+ with a stable outlook by Creston Analytics, Inc. These ratings reflect the assessment of each rating agency of the Company's ability to meet its financial obligations and indicate significant credit risk. A downgrade in the credit ratings assigned to the Notes could adversely affect the trading price and liquidity of the Notes and could increase the Company's cost of borrowing in any future financing. Ratings may be revised or withdrawn at any time by the rating agencies.
Registration Rights. The Issuer and the Guarantors have agreed, pursuant to the Registration Rights Agreement, to file a registration statement with the SEC with respect to an offer to exchange the Notes for publicly registered notes with substantially identical terms, or alternatively to file a shelf registration statement covering resales of the Notes, within 365 days of the closing date of this offering (i.e., by April 19, 2023). If the Issuer fails to satisfy these registration obligations, additional interest will accrue on the Notes at the rate of 0.25% per annum, increasing by an additional 0.25% per annum every 90 days thereafter, up to a maximum additional rate of 1.00% per annum. There can be no assurance that the exchange offer will be completed or that the shelf registration statement will be declared effective within the required timeframe or at all. The accrual of additional interest would increase the Company's debt service costs.
Cross-Border Enforcement. The Issuer and certain of the Guarantors are incorporated in Canada, and certain of the Issuer's directors and officers are residents of Canada. As discussed under "Enforceability of Civil Liabilities," it may be difficult for holders of the Notes to enforce judgments obtained in U.S. courts against the Issuer, the Canadian Guarantors, or their respective directors and officers. The enforceability of New York law-governed obligations of the Issuer and the Canadian Guarantors in Canadian courts is subject to certain conditions and limitations under Canadian law. See "Enforceability of Civil Liabilities."
Risks Relating to Canada and the Canadian Mining Regulatory Environment
Mining Legislation, Royalties, and Taxation
The Company's mining operations are subject to regulation under federal and Ontario mining legislation, including the Mining Act (Ontario), which governs the acquisition, maintenance, and disposition of mining claims, mine development, closure planning, and the payment of mining royalties and taxes. Ontario imposes a mining tax on the profits derived from mining operations conducted in the province. Changes in mining legislation, royalty rates, or taxation could increase the Company's operating costs and reduce its profitability.
Potential Changes to Mining Tax Regimes
There can be no assurance that the current mining tax regime in Ontario will remain unchanged. The Ontario and federal governments may enact amendments to existing tax laws or introduce new taxes that could increase the Company's effective tax rate. Any such changes could have a material adverse effect on the Company's financial condition and results of operations.
Environmental Assessment Requirements for Phase II Expansion
The Phase II Expansion is subject to environmental assessment requirements under the Impact Assessment Act (Canada) and the Environmental Assessment Act (Ontario). The environmental assessment process can be lengthy and may result in conditions or requirements that could increase the cost of the Phase II Expansion or impose operational constraints. There can be no assurance that the environmental assessment for the Phase II Expansion will result in a favorable decision.
USE OF PROCEEDS
The aggregate gross proceeds from this offering will be $300,000,000, calculated as $300,000,000 aggregate principal amount multiplied by the issue price of 98.50% of par, plus the original issue discount. The following table sets forth the estimated sources and uses of funds in connection with this offering:
Sources of Funds
Transaction Fees and Expenses
Net proceeds to Issuer: $300,000,000 – $14,250,000 = $285,750,000
Application of Net Proceeds
The Company intends to use the net proceeds from this offering as follows:
Ridgeline Bank of Canada Revolving Credit Facility. The Company currently maintains a revolving credit facility (the "Ridgeline Facility") with Ridgeline Bank of Canada acting as administrative agent (relationship manager: Gavin Forde). The Ridgeline Facility has a total commitment of CAD $225,000,000, of which CAD $140,000,000 was drawn as of January 2022. The Ridgeline Facility bears interest at variable rates based on the Canadian prime rate or bankers' acceptance rate, plus applicable margins, and is secured by a first-priority lien on substantially all assets of the Company and its Canadian subsidiaries. In connection with this offering, the Company intends to repay all amounts outstanding under the Ridgeline Facility in full and terminate the facility. At closing, the administrative agent will release all liens held on behalf of the lenders under the Ridgeline Facility. The USD equivalent of the drawn amount of CAD $140,000,000, calculated at a USD/CAD exchange rate of 0.7875, is approximately $110,250,000.
Phase II Expansion. The Company intends to allocate $167,000,000 of the net proceeds from this offering to fund the Phase II Expansion of the Wolverine Lake Mine, which consists of the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone. The total estimated capital cost of the Phase II Expansion is CAD $215 million (approximately USD $169 million at a USD/CAD exchange rate of 0.7875). The balance of the Phase II Expansion capital cost, to the extent not funded from the proceeds of this offering, is expected to be funded from operating cash flow. Construction is planned to commence in Q2 2022 and is expected to be completed by Q4 2024. Upon completion, the Phase II Expansion is expected to increase annual production from approximately 18,000 tonnes to approximately 28,500 tonnes of nickel-in-concentrate and from approximately 6,100 tonnes to approximately 9,600 tonnes of copper-in-concentrate. For further information regarding the Phase II Expansion, see "Business — Phase II Expansion."
General Corporate Purposes and Working Capital. The remaining net proceeds of approximately $8,500,000 will be used for general corporate purposes and working capital requirements.
Pending the application of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, interest-bearing, investment-grade instruments or hold them as cash and cash equivalents.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company as of December 31, 2021, on an actual basis and as adjusted to give effect to this offering and the application of net proceeds therefrom as described under "Use of Proceeds." This table should be read in conjunction with "Use of Proceeds," "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum.
(1) Reflects cash and cash equivalents adjusted for receipt of net proceeds, repayment of Ridgeline Bank of Canada revolving credit facility, payment of transaction fees and expenses, and allocation of proceeds to Phase II Expansion and general corporate purposes. Actual amounts deployed will depend on timing of capital expenditures and other uses.
(2) Converted from CAD $140,000,000 at a USD/CAD exchange rate of 0.7875.
(3) Includes initial purchaser discount and other estimated transaction costs capitalized as deferred financing costs and amortized over the term of the Notes.
The pro forma adjustments reflected in the "As Adjusted" column give effect to the issuance of the Notes, the application of net proceeds therefrom to repay and terminate the Ridgeline Bank of Canada revolving credit facility, the allocation of proceeds to Phase II Expansion capital expenditures, and the payment of transaction fees and expenses, all as described under "Use of Proceeds." The pro forma adjustments do not give effect to any changes in the Company's financial position subsequent to December 31, 2021.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum. The selected financial data presented below for each of the fiscal years ended December 31, 2021, 2020, and 2019, and as of December 31, 2021 and 2020, have been derived from the audited consolidated financial statements of the Company, which were audited by Aldgate Thornton LLP, a registered public accounting firm based in Vancouver, British Columbia, Canada (engagement partner: Francesca Hui, CPA, CA).
The Company's common shares are listed on the Toronto Stock Exchange under the ticker symbol "TMC." As of January 14, 2022, the Company's market capitalization was approximately CAD $1.87 billion.
Selected Consolidated Income Statement Data
(1) Adjusted EBITDA is a non-IFRS financial measure and represents net income before interest expense, income tax expense, depreciation, amortization, and depletion, as adjusted for non-recurring items. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a reconciliation of Adjusted EBITDA to net income.
Selected Consolidated Balance Sheet Data
Selected Consolidated Cash Flow Data
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with "Selected Financial Data" and the audited consolidated financial statements and the notes thereto included elsewhere in this Offering Memorandum. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed under "Risk Factors" and "Forward-Looking Statements."
Overview
Torchlight Mining Corp. is a leading Canadian mid-tier nickel-copper producer. The Company's sole material producing asset is the Wolverine Lake nickel-copper mine, an underground mine located approximately 85 kilometers northeast of Thunder Bay in Northern Ontario, Canada. The Wolverine Lake Mine is held through the Company's wholly owned subsidiary, Wolverine Lake Mining Ltd. On-site concentrator and processing facilities are operated by another wholly owned subsidiary, Torchlight Milling & Processing Inc. The Company's U.S. offtake and marketing activities are managed through Torchlight U.S. Holdings, Inc., a Delaware subsidiary.
For the fiscal year ended December 31, 2021, the Company generated revenue of CAD $612.4 million, representing a 25.7% increase over FY 2020 revenue of CAD $487.3 million. The increase in revenue was primarily attributable to higher realized prices for nickel and copper, as well as stable production volumes. Adjusted EBITDA for FY 2021 was CAD $189.7 million, a 42.7% increase compared to CAD $132.9 million for FY 2020, reflecting the higher revenue base and the Company's effective cost management.
During FY 2021, nickel and copper market conditions were generally favorable, supported by increased demand from the electric vehicle battery sector and infrastructure spending, as well as supply constraints in certain producing regions. The Company's realized nickel price averaged approximately USD $8.85 per pound for FY 2021, compared to approximately USD $6.90 per pound for FY 2020. Realized copper prices averaged approximately USD $4.25 per pound for FY 2021, compared to approximately USD $2.80 per pound for FY 2020.
Results of Operations
Revenue. For FY 2021, the Company reported total revenue of CAD $612.4 million, compared to CAD $487.3 million for FY 2020 and CAD $412.9 million for FY 2019. The increase in revenue from FY 2020 to FY 2021 was primarily driven by a significant increase in realized prices for both nickel and copper. Production volumes remained relatively stable during the period, with the Wolverine Lake Mine producing approximately 18,000 tonnes of nickel-in-concentrate and approximately 6,100 tonnes of copper-in-concentrate in FY 2021, consistent with prior year levels. Revenue recognition is based on the terms of the Company's concentrate sales agreements, which are generally priced based on quoted market prices, adjusted for treatment and refining charges, at the time of provisional payment with final settlement based on average prices over a specified quotational period.
The increase in revenue from FY 2019 to FY 2020 was driven by a combination of modestly higher commodity prices and improved throughput at the concentrator following a planned maintenance shutdown in late 2019.
The impact of foreign exchange movements on revenue was mixed during the period. The USD/CAD exchange rate averaged approximately 0.7875 during FY 2021, and fluctuations in this rate affected the Canadian dollar equivalent of revenues denominated or indexed to U.S. dollar commodity benchmarks.
Operating Costs. Total cost of sales for FY 2021 was CAD $367.2 million, compared to CAD $312.8 million for FY 2020 and CAD $278.1 million for FY 2019. The increase in cost of sales was primarily attributable to higher mine-site operating costs, including labor, energy, and consumables costs, as well as the effects of general inflationary pressures. Torchlight Milling & Processing Inc. incurred processing costs related to the operation of the on-site concentrator, which are included in cost of sales.
Cash operating costs (mine-site costs per tonne of ore processed) increased moderately in FY 2021 due to increased labor costs and higher costs for consumables such as explosives, grinding media, and diesel fuel. The Company implemented several cost optimization initiatives during the year, including improved scheduling and maintenance practices, which partially offset the increases in input costs.
Depreciation, Amortization, and Depletion
Depreciation, amortization, and depletion ("DA&D") for FY 2021 totaled CAD $62.4 million, compared to CAD $58.1 million for FY 2020 and CAD $54.3 million for FY 2019. DA&D charges are calculated primarily on a units-of-production basis with respect to mineral properties and on a straight-line basis for equipment and other assets. The increase in DA&D in FY 2021 was principally due to additions to mineral property, plant, and equipment associated with ongoing Phase I development activities and the acquisition of additional mining equipment.
General and Administrative Expenses
General and administrative expenses for FY 2021 were CAD $38.7 million, compared to CAD $33.2 million for FY 2020 and CAD $30.6 million for FY 2019. The increase reflects higher compensation costs related to the expansion of the Company's corporate team in anticipation of the Phase II Expansion, as well as increased professional fees, including legal, engineering, and consulting costs associated with the planning and permitting of the expansion project and the preparation for this offering.
Interest Expense. Interest expense for FY 2021 was CAD $7.8 million, compared to CAD $8.4 million for FY 2020 and CAD $9.1 million for FY 2019. Interest expense primarily consists of interest accrued on amounts drawn under the Ridgeline Bank of Canada revolving credit facility. The decrease in interest expense reflects the reduction in the average outstanding balance under the facility during the period. Following the completion of this offering and the repayment and termination of the Ridgeline Facility, the Company's interest expense will consist of interest on the Notes, which will amount to $26,250,000 per annum ($13,125,000 per semi-annual period) based on the stated coupon of 8.750% on the aggregate principal amount of $300,000,000.
Net Income. Net income for FY 2021 was CAD $99.8 million, compared to CAD $53.3 million for FY 2020 and CAD $30.4 million for FY 2019. The significant increase in net income was driven by the increase in revenue attributable to higher commodity prices, partially offset by higher operating costs, DA&D charges, and general and administrative expenses. The Company's effective income tax rate for FY 2021 was approximately 28.0%.
Liquidity and Capital Resources
Historical Liquidity Sources
Historically, the Company's primary sources of liquidity have been cash generated from operating activities and borrowings under the Ridgeline Bank of Canada revolving credit facility. Operating cash flows for FY 2021 totaled CAD $171.3 million, compared to CAD $118.4 million for FY 2020 and CAD $82.6 million for FY 2019. The improvement in operating cash flows was driven principally by higher revenues resulting from increased commodity prices.
The Ridgeline Facility has a total committed amount of CAD $225,000,000, of which CAD $1