1039-00003 · Torchlight Mining Corp · Accounting & Disclosure

draft-financial-statement-footnote.docx DOCUMENT Antitrust

1 / 75 → ✕

DRAFT — For Discussion Purposes Only

February 28, 2025

PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION AND FOR THE PURPOSE OF RENDERING LEGAL ADVICE

Prepared by: Calderwood & Harkness LLP

Matter No. 1039-00003

In coordination with:

Northspire Capital Markets, Inc. (Financial Advisor) Ridgeline Accounting Partners LLP (External Auditor)

Prepared for: Torchlight Mining Corp. ("TMC")

For inclusion in the Annual Report on Form 20-F for the fiscal year ending December 31, 2024

Addressees:

Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp. Frances Whitmore, Engagement Partner, Ridgeline Accounting Partners LLP

NOTICE: This document constitutes a draft footnote prepared for discussion purposes only. It is subject to review, revision, and finalization by management, external auditors, and legal counsel prior to inclusion in the notes to the consolidated financial statements of Torchlight Mining Corp. for the fiscal year ended December 31, 2024. This draft has been prepared by Calderwood & Harkness LLP and does not represent the final views of management or the external auditors. The contents of this document are confidential and should not be distributed, filed, or otherwise disseminated without the prior written consent of Calderwood & Harkness LLP and Torchlight Mining Corp. The footnote numbering herein is provisional and will be determined in the context of the complete financial statements upon finalization.

NOTE [X] — ENVIRONMENTAL CONTINGENCIES AND REMEDIATION OBLIGATIONS

(a) Overview and Background

Torchlight Mining Corp. (the "Company" or "TMC"), through its wholly owned U.S. subsidiaries — Torchlight Mining (U.S.) Inc. (a Delaware corporation, EIN 83-2047156), Torchlight Specialty Chemicals, Inc. (a Delaware corporation, EIN 47-3819204), Ridgecrest Mine Holdings, LLC (a Montana limited liability company, MT SOS ID E1042738), and Bonanza Creek Mining, LLC (a Nevada limited liability company, NV SOS Entity No. E0518294731) — is subject to significant environmental obligations at four current or former operating facilities located in the States of Montana, Nevada, and West Virginia in the United States.

The Company is a Canadian corporation organized under the Canada Business Corporations Act and is dual-listed on the Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE") under the ticker symbol "TRC." The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and files its annual report with the U.S. Securities and Exchange Commission ("SEC") on Form 20-F, with reconciliation to U.S. generally accepted accounting principles ("U.S. GAAP") where required.

On January 18, 2024, the U.S. Department of Justice ("DOJ"), Environment and Natural Resources Division, filed a civil complaint (Civil Action No. 9:24-cv-00087-DWM) in the U.S. District Court for the District of Montana, Missoula Division, on behalf of the U.S. Environmental Protection Agency ("EPA"), alleging violations of the Clean Water Act ("CWA"), 33 U.S.C. §§ 1251 et seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901 et seq.; and the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601 et seq., at four facilities operated or formerly operated by the Company's U.S. subsidiaries. The complaint named the Company and each of its four U.S. subsidiaries as defendants.

The States of Montana, Nevada, and West Virginia each joined the action as co-plaintiffs, asserting parallel state-law claims and seeking injunctive relief, civil penalties, and natural resource damages. The consolidated action encompasses claims at all four facilities described in subsection (b) below.

Following extensive negotiations among the parties over the course of 2024 and early 2025, a proposed consent decree was lodged with the Court on February 19, 2025, for a 30-day public comment period pursuant to 28 C.F.R. § 50.7 and CERCLA § 122(d)(2), 42 U.S.C. § 9622(d)(2). The public comment period closed on March 21, 2025. Entry of the consent decree by the Court is anticipated on or about May 15, 2025.

The Company has evaluated the environmental obligations arising from the consent decree and related enforcement proceedings in accordance with ASC 450, Contingencies (codification of SFAS No. 5 and related guidance under U.S. GAAP) and IAS 37, Provisions, Contingent Liabilities and Contingent Assets (under IFRS). The Company has concluded that the obligations described in this Note are both probable and reasonably estimable, and accordingly has recorded provisions as described in subsection (i) below.

(b) Description of the Four Sites

The environmental obligations of the Company and its U.S. subsidiaries arise in connection with the following four facilities:

(i) Ridgecrest Copper-Molybdenum Mine — Drummond, Granite County, Montana. The Ridgecrest Copper-Molybdenum Mine (the "Ridgecrest Mine" or the "Ridgecrest Site") is located at 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832. The mine footprint encompasses approximately 3,200 acres, with total controlled property holdings of approximately 8,700 acres, including buffer lands and associated rights-of-way.

The Ridgecrest Mine is an open-pit copper-molybdenum mine that has been operational since 1978. Active mining operations ceased in December 2019, and the site is currently in a closure and reclamation phase. The facility is owned and operated by Ridgecrest Mine Holdings, LLC, a Montana limited liability company that is wholly owned by Torchlight Mining (U.S.) Inc. The mine historically produced copper and molybdenum concentrates from a porphyry copper deposit, and its operations included conventional open-pit mining, crushing, grinding, flotation concentration, and tailings disposal.

The Ridgecrest Site has been proposed for listing on the National Priorities List ("NPL") under CERCLA, although formal listing has not yet occurred. The Site is currently being addressed under an Administrative Order on Consent ("AOC"), Docket No. CERCLA-08-2022-0039, executed on September 15, 2022, between the EPA (Region 8) and Ridgecrest Mine Holdings, LLC. The AOC requires the performance of a Remedial Investigation and Feasibility Study ("RI/FS") and the implementation of interim response actions.

The principal environmental contaminants at the Ridgecrest Site include acid mine drainage ("AMD") with elevated concentrations of dissolved copper, molybdenum, selenium, and sulfate emanating from exposed pit walls, waste rock dumps, and the tailings storage facility. The facility includes a 425-acre tailings impoundment that has been documented to be the source of seepage discharging to Flint Creek, a tributary of the Clark Fork River. Sampling data collected by both the Company's environmental consultants and EPA contractors have confirmed that tailings seepage has adversely affected water quality in Flint Creek downstream of the facility.

The civil complaint alleges violations at the Ridgecrest Site, including but not limited to: (a) unpermitted discharges of pollutants to waters of the United States in violation of Section 301 of the CWA, 33 U.S.C. § 1311; (b) mismanagement of hazardous waste, including the improper disposal and storage of mine waste containing characteristic hazardous waste, in violation of Section 3004 of RCRA, 42 U.S.C. § 6924; and (c) liability for reimbursement of EPA removal action costs totaling $14.3 million incurred during the period from January 2021 through May 2023, pursuant to Section 107 of CERCLA, 42 U.S.C. § 9607.

The Ridgecrest Site represents the Company's largest environmental liability and is expected to require remediation activities over a period of approximately 30 years.

(ii) Gallatin Chemical Works — Belgrade, Gallatin County, Montana. The Gallatin Chemical Works (the "Gallatin Site") is located at 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714. The facility occupies approximately 145 acres and operates as a specialty chemical manufacturing plant producing flotation reagents, including sodium xanthate and dithiophosphate collectors, which are used in mineral processing operations at the Company's mining facilities and are also sold to third-party customers.

The Gallatin Site has been in continuous operation since 1993 and is currently active. The facility is owned and operated by Torchlight Specialty Chemicals, Inc., a Delaware corporation and wholly owned subsidiary of the Company.

The Gallatin Site is designated as a RCRA Corrective Action facility under Permit No. MTD098712456, issued by the Montana Department of Environmental Quality ("MDEQ"). The facility contains three Solid Waste Management Units ("SWMUs") that have been identified as sources of contamination requiring corrective action.

The principal environmental contaminants at the Gallatin Site include carbon disulfide ("CS₂") in groundwater, which has been detected at concentrations as high as 890 micrograms per liter ("µg/L") — significantly exceeding the federal Maximum Contaminant Level ("MCL") of 10 µg/L. Additional contaminants include xanthate decomposition products and volatile organic compounds ("VOCs"), including toluene and xylene, that have been detected in subsurface soils beneath and adjacent to the SWMUs. Groundwater contamination has been delineated in a plume extending approximately 1,200 feet downgradient from the facility toward residential areas.

The civil complaint alleges violations at the Gallatin Site, including: (a) unpermitted storage of hazardous waste and failure to perform corrective action in violation of Sections 3004 and 3005 of RCRA, 42 U.S.C. §§ 6924, 6925; and (b) 14 documented effluent limit exceedances at the facility's wastewater discharge point between January 2021 and June 2024, in violation of Section 301 of the CWA, 33 U.S.C. § 1311.

(iii) Bonanza Creek Gold Mine — Lander County, Nevada. The Bonanza Creek Gold Mine (the "Bonanza Creek Site" or the "Bonanza Creek Mine") is located at County Road 447, Mile Marker 12, Lander County, Nevada 89820. The mine footprint encompasses approximately 5,600 acres, with total controlled property holdings of approximately 12,400 acres, including exploration claims, buffer lands, and associated infrastructure.

The Bonanza Creek Mine is an open-pit heap-leach gold mine that has been in operation since 2001. Active mining operations are ongoing, and the facility currently produces gold doré through a conventional heap-leach process using dilute cyanide solution. The facility is owned and operated by Bonanza Creek Mining, LLC, a Nevada limited liability company that is wholly owned by Torchlight Mining (U.S.) Inc.

The principal environmental contaminants at the Bonanza Creek Site include cyanide (measured as weak acid dissociable, or "WAD," cyanide) detected in surface water at concentrations of 0.62 milligrams per liter ("mg/L"), significantly exceeding the applicable discharge limit of 0.022 mg/L. Mercury has also been detected in pit-lake water at average concentrations of 12.4 µg/L, compared with the applicable water quality criterion of 0.77 µg/L. Selenium has also been detected at elevated concentrations in pit-lake water.

The civil complaint alleges violations at the Bonanza Creek Site, including: (a) three documented unpermitted discharges of process solution from the heap-leach pad, caused by a torn geomembrane liner, occurring in March 2022, August 2022, and January 2023, in violation of Section 301 of the CWA, 33 U.S.C. § 1311; (b) violations of Section 3004 of RCRA, 42 U.S.C. § 6924; and (c) violations of the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712, arising from 17 documented avian mortalities at the facility's solution ponds during the period from 2021 through 2023. The avian mortalities included migratory waterfowl and shorebirds that came into contact with cyanide-bearing process solution in the solution ponds.

(iv) Kanawha Bend Chemical Plant — Institute, Kanawha County, West Virginia. The Kanawha Bend Chemical Plant (the "Kanawha Bend Site") is located at 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112. The facility occupies approximately 78 acres and operates as a chemical manufacturing plant producing leaching agents and performing sulfuric acid regeneration for use in the Company's hydrometallurgical operations.

The Kanawha Bend Site has been in continuous operation since 1985 and is currently active. The facility is owned and operated by Torchlight Specialty Chemicals, Inc., a Delaware corporation and wholly owned subsidiary of the Company.

The Kanawha Bend Site is designated as a RCRA Corrective Action facility under Permit No. WVD048823915, issued by the West Virginia Department of Environmental Protection ("WVDEP"). The facility has a history of releases of hazardous substances and hazardous waste that have resulted in contamination of soils, groundwater, and surface water.

The principal environmental contaminants at the Kanawha Bend Site include sulfuric acid residuals that have depressed soil pH to levels as low as 1.8, rendering large areas of the facility severely acidified. Heavy metals contamination is present in site soils, including lead at concentrations as high as 4,200 milligrams per kilogram ("mg/kg") and arsenic at concentrations as high as 890 mg/kg. In addition, dense non-aqueous phase liquid ("DNAPL") consisting of chlorinated solvents has been detected in the fractured bedrock aquifer beneath the facility, presenting complex remediation challenges due to the hydrogeologic conditions.

The civil complaint alleges violations at the Kanawha Bend Site, including: (a) failure to properly close a former surface impoundment and unpermitted treatment of listed hazardous wastes K062 (spent pickle liquor) and D002 (corrosivity characteristic waste), in violation of Sections 3004 and 3005 of RCRA, 42 U.S.C. §§ 6924, 6925; and (b) liability for reimbursement of $3.8 million in EPA emergency response costs incurred in connection with the EPA's response to a sulfuric acid release to a tributary of the Kanawha River on June 14, 2020, pursuant to Section 107 of CERCLA, 42 U.S.C. § 9607.

On February 19, 2025, a proposed consent decree (the "Consent Decree") was lodged with the U.S. District Court for the District of Montana, Missoula Division, in the matter captioned United States of America and State of Montana v. Torchlight Mining Corp., Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC (consolidated with the States of Nevada and West Virginia as co-plaintiffs), Civil Action No. 9:24-cv-00087-DWM (the Honorable Donald W. Molloy, Senior U.S. District Judge, presiding).

The Consent Decree was lodged for a 30-day public comment period, which closed on March 21, 2025. A motion for entry of the Consent Decree was filed on April 7, 2025, and a hearing before the Court is scheduled for April 28, 2025. Based on discussions with government counsel and the Court's scheduling order, the Company anticipates that the Consent Decree will be entered by the Court on or about May 15, 2025. The Effective Date of the Consent Decree is defined as 30 days following the date of entry by the Court, and is accordingly anticipated to be on or about June 14, 2025.

The Consent Decree, upon entry, resolves all civil claims asserted by the United States of America (on behalf of the EPA), the State of Montana, the State of Nevada, and the State of West Virginia against the Company and its U.S. subsidiaries in connection with the four sites described in subsection (b) above. The material terms of the Consent Decree include remediation obligations, civil penalties, EPA past-costs reimbursement, supplemental environmental projects, the appointment of an independent environmental monitor, and financial assurance requirements, each of which is described in further detail in subsections (d) through (j) below.

The Company acknowledges that the Consent Decree does not constitute an admission of liability and that the Company has entered into the Consent Decree solely for the purpose of resolving the disputed claims. However, the Consent Decree imposes legally binding obligations upon entry, and the Company has evaluated the likelihood of entry and concluded that entry is probable for purposes of financial reporting.

(d) Remediation Obligations

Aggregate Remediation Cost Estimates. The Consent Decree requires the Company and its U.S. subsidiaries to perform remediation activities at each of the four sites described in subsection (b) above. The scope, nature, and estimated cost of remediation at each site have been evaluated by the Company's environmental remediation consultant, Pinnacle Creek Environmental, LLC ("Pinnacle Creek"), and, in the case of the Ridgecrest Site, were also evaluated by the government's technical expert, Cascade Geosciences, Inc. ("Cascade Geosciences").

The remediation obligations under the Consent Decree are estimated as follows:

With respect to the Ridgecrest Site, the negotiated remediation cost of $198.6 million represents a consensus figure derived from a range of estimates. The Company's environmental remediation consultant, Pinnacle Creek Environmental, LLC, estimated the total cost of remediation at $187.5 million, while the government's technical expert, Cascade Geosciences, Inc., estimated the total cost at $224.0 million. The negotiated figure of $198.6 million reflects the agreement of the parties and takes into account the scope of remedial action work described in the Consent Decree.

The net present value ("NPV") calculations presented in the table above use a discount rate of 3.0%, which the Company has determined to be an appropriate risk-free rate reflecting the estimated timing of future cash flows. The NPV calculations for each site are derived as follows: Ridgecrest: $198.6 million × 0.6795 = $134.9 million; Gallatin: $42.8 million × 0.7969 ≈ $34.1 million; Bonanza Creek: $63.2 million × 0.7454 ≈ $47.1 million; Kanawha Bend: $38.9 million × 0.7454 ≈ $29.0 million. The discount factors reflect the estimated timing and distribution of cash flows over the applicable remediation periods.

Key Remediation Milestones. The Consent Decree establishes the following key remediation milestones, among others:

• Ridgecrest Copper-Molybdenum Mine: The Remedial Action Work Plan is required to be submitted to EPA and the State of Montana for review and approval no later than December 14, 2025 (180 days after the Effective Date). Remedy construction is required to commence no later than June 14, 2027 (two years after the Effective Date). The total remediation obligation at the Ridgecrest Site extends over a period of approximately 30 years, through June 14, 2055, and includes water treatment, tailings impoundment closure, waste rock consolidation and capping, and long-term monitoring and maintenance.

• Gallatin Chemical Works: A Corrective Measures Study ("CMS") is required to be submitted to EPA and MDEQ for review and approval no later than June 14, 2026 (one year after the Effective Date). The CMS will evaluate remedial alternatives for addressing groundwater contamination and the three SWMUs identified at the facility.

• Bonanza Creek Gold Mine: Liner repair and containment measures at the heap-leach pad are required to commence no later than June 14, 2026 (one year after the Effective Date). These measures are intended to prevent further unpermitted discharges of process solution through the damaged geomembrane liner.

• Kanawha Bend Chemical Plant: Interim stabilization measures, including soil pH neutralization, surface water controls, and interim containment of the DNAPL plume, are required to be completed no later than December 14, 2026 (18 months after the Effective Date).

Independent Environmental Monitor. Under the Consent Decree, Verdant Analytics, Inc. ("Verdant Analytics"), an environmental consulting firm headquartered in Portland, Oregon, has been appointed as the Court-approved independent environmental monitor. Verdant Analytics is responsible for conducting quarterly compliance audits at each of the four sites and preparing annual public reports summarizing compliance status, remediation progress, and environmental monitoring results.

The estimated cost of the independent environmental monitor over the initial five-year period is approximately $4.8 million, or approximately $960,000 per year. These costs are to be borne by the Company and are incremental to the remediation cost estimates described above.

(e) Civil Penalties

Under the Consent Decree, the Company and its U.S. subsidiaries are required to pay aggregate civil penalties totaling $31.5 million for the violations described in the civil complaint. The civil penalties are allocated among the four sites as follows:

The civil penalties are payable in four equal quarterly installments of $7.875 million each. The first installment is due within 30 days of the Effective Date of the Consent Decree (anticipated to be on or about July 14, 2025). Subsequent installments are due at 12, 24, and 36 months following entry of the Consent Decree by the Court.

In addition, the Consent Decree provides for stipulated penalties in the event of noncompliance with the terms and conditions of the Consent Decree. Stipulated penalties are assessed at the following rates: $1,500 per day per violation for the first 30 days of noncompliance; $3,000 per day per violation for days 31 through 60 of noncompliance; and $5,500 per day per violation for each day of noncompliance beyond 60 days. Stipulated penalties accrue independently for each violation and are in addition to any other remedies available to the plaintiffs.

(f) EPA Past-Costs Reimbursement

Under Section 107 of CERCLA, 42 U.S.C. § 9607, the Consent Decree requires the Company and its U.S. subsidiaries to reimburse the EPA for past costs incurred in connection with response actions at two of the four sites. The EPA past-costs reimbursement obligations are as follows:

The EPA past-costs reimbursement obligations are payable in full within 60 days of the Effective Date of the Consent Decree. These amounts represent documented costs that have been incurred by the EPA and are not subject to adjustment or dispute under the terms of the Consent Decree. Accordingly, the full nominal amounts have been included in the Company's provision without present-value adjustment.

(g) Supplemental Environmental Projects (SEPs)

In addition to the remediation obligations, civil penalties, and EPA past-costs reimbursement described above, the Consent Decree requires the Company to fund and implement three supplemental environmental projects ("SEPs") with a combined budget of $12.0 million. The SEPs are intended to provide environmental and public health benefits to communities affected by the Company's operations. The three SEPs are described below:

The SEP expenditures are required to be committed within specific timeframes set forth in the Consent Decree and are subject to oversight by the relevant federal and state agencies and the independent environmental monitor.

(h) Aggregate Financial Obligation Summary

The following table summarizes the aggregate financial obligations of the Company and its U.S. subsidiaries under the Consent Decree and the related enforcement proceedings:

The nominal grand total of the Company's obligations under the Consent Decree is approximately $409.9 million. The NPV/cash equivalent grand total, reflecting the present value of remediation costs discounted at a 3.0% rate, is approximately $311.5 million. Civil penalties, EPA past-costs reimbursement, supplemental environmental project costs, and independent monitor costs are presented at nominal value, as these obligations are either payable in the near term or not subject to present-value discounting.

(i) Environmental Remediation Reserve — Accrual and Shortfall Analysis

In accordance with ASC 450, Contingencies, and IAS 37, Provisions, Contingent Liabilities and Contingent Assets, the Company has recorded an environmental remediation provision on its consolidated balance sheet. The Company has concluded that the obligations described in this Note satisfy the criteria for recognition as a provision, in that: (a) there is a present obligation arising from the enforcement action and the Consent Decree; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation.

As of September 30, 2024 (the date of the Company's most recent quarterly report on Form 6-K, incorporating interim financial statements equivalent to a Form 10-Q), the environmental remediation reserve on the Company's consolidated balance sheet was C$340.0 million, which is approximately equivalent to US$251.4 million at the exchange rate of C$1.00 = US$0.7394.

The estimated shortfall between the Company's existing environmental remediation reserve and the nominal grand total obligation under the Consent Decree is calculated as follows:

Nominal grand total obligation under Consent Decree: US$409.9 million Less: Existing environmental remediation reserve (as of Q3 2024): US$251.4 million Estimated shortfall: US$158.5 million

The Company expects to adjust its environmental remediation reserve in connection with the preparation of its consolidated financial statements for the fiscal year ended December 31, 2024, to reflect the obligations arising under the Consent Decree. The adjustment will be reflected in the fiscal year 2024 financial statements, as the Company considers the Consent Decree to have become probable of entry during fiscal year 2024, based on the substantial agreement on material terms reached between the parties on approximately February 3, 2025, which constitutes a subsequent event requiring adjustment of the December 31, 2024 financial statements under IAS 10, Events after the Reporting Period, and ASC 855, Subsequent Events.

The NPV-based obligation of $311.5 million is presented for informational context. Management will determine the appropriate measurement basis for the provision — whether discounted (at the NPV amount) or undiscounted (at the nominal amount) — in consultation with Ridgeline Accounting Partners LLP, the Company's external auditor. Under IAS 37, provisions are measured at the present value of the expenditures expected to be required to settle the obligation when the effect of the time value of money is material. Under ASC 450, environmental remediation liabilities are generally recognized on an undiscounted basis unless discounting is permitted under ASC 410-30, Environmental Obligations. The determination of the appropriate measurement basis may result in a provision amount that differs from both the nominal and NPV figures presented herein.

(j) Financial Assurance Arrangements

Under the Consent Decree, the Company is required to establish and maintain financial assurance in the aggregate amount of $245.0 million to guarantee the performance of the remediation obligations described in subsection (d) above. The required financial assurance consists of the following instruments:

The surety bond, issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934), has a face value of $165.0 million. The annual premium for the surety bond is 1.85% of the face value, which equals approximately $3.0525 million per year. The surety bond was executed on February 15, 2025, and the premium is payable annually for the duration of the bond.

The remediation trust fund is established under a trust agreement (Trust Agreement No. LTC-REM-2025-1177) with Larchfield Trust Company, N.A., a national trust company headquartered in Charlotte, North Carolina. The trust agreement was executed on February 17, 2025. David Henshaw of Larchfield Trust Company, N.A. serves as the trust officer. The trust requires an initial deposit of $80.0 million, which must be made no later than September 12, 2025. The funds held in the remediation trust fund are restricted for the purpose of funding environmental remediation activities at the four sites and may be disbursed only in accordance with the terms of the Consent Decree and the trust agreement.

The Consent Decree requires the Company to establish the remediation trust fund and post all required financial assurance no later than September 12, 2025 (90 days after the anticipated Effective Date). The financial assurance instruments are subject to annual adjustment for inflation, using the U.S. Bureau of Labor Statistics Consumer Price Index for All Urban Consumers ("CPI-U"), and for updates to remedy cost estimates as remedial designs and corrective measures studies are completed.

The surety bond premium and the funding of the remediation trust fund represent significant near-term cash requirements for the Company, and management is evaluating the sources of funding for these obligations, including available cash, borrowings under the Company's revolving credit facility, and potential asset dispositions.

(k) Insurance Coverage

Pollution Legal Liability (PLL) Policy. The Company maintains a Pollution Legal Liability ("PLL") insurance policy with Meridian Environmental Insurance Company (Policy No. MEI-ENV-2021-04738). The policy was written for a three-year term covering the period from July 1, 2021 through July 1, 2024. The key policy terms are as follows:

• Per-occurrence limit: $50.0 million

• Aggregate limit: $75.0 million

• Self-insured retention ("SIR"): $5.0 million per occurrence

The Company has submitted claims under the PLL policy in connection with the environmental liabilities at each of the four sites. The coverage status of each site is as follows:

• Ridgecrest Copper-Molybdenum Mine: Coverage has been denied by Meridian Environmental Insurance Company. Meridian has invoked the pollution exclusion and known-conditions exclusion in the policy, asserting that the contamination at the Ridgecrest Site constitutes pre-existing known pollution conditions that were known to the insured at or prior to policy inception and are therefore excluded from coverage.

• Kanawha Bend Chemical Plant: Coverage has been denied by Meridian Environmental Insurance Company. Meridian has asserted that the Company failed to provide timely notice of the claim, as required by the policy, and that the Company's notice was not provided within the policy's notice period.

• Gallatin Chemical Works: Coverage has been acknowledged by Meridian Environmental Insurance Company, subject to the application of the per-occurrence SIR of $5.0 million. Meridian has agreed to indemnify the Company for covered environmental remediation costs at the Gallatin Site in excess of the SIR, up to the per-occurrence and aggregate policy limits.

• Bonanza Creek Gold Mine: Coverage has been acknowledged by Meridian Environmental Insurance Company, subject to the application of the per-occurrence SIR of $5.0 million. Meridian has agreed to indemnify the Company for covered environmental remediation costs at the Bonanza Creek Site in excess of the SIR, up to the per-occurrence and aggregate policy limits.

The Company disputes Meridian's denial of coverage for the Ridgecrest and Kanawha Bend sites and has reserved all rights with respect to those coverage determinations. The Company intends to pursue all available legal remedies to obtain coverage for these sites, including, if necessary, commencing coverage litigation against Meridian.

The maximum theoretical recovery under the PLL policy is $75.0 million (the aggregate policy limit). For the two sites where coverage has been acknowledged (Gallatin and Bonanza Creek), the combined nominal remediation costs total $106.0 million ($42.8 million for Gallatin and $63.2 million for Bonanza Creek). After application of two separate SIRs of $5.0 million each (one per occurrence), the net amount subject to coverage is approximately $96.0 million. However, recovery is capped at the $75.0 million aggregate limit.

Northspire Capital Markets, Inc. (the Company's financial advisor) has estimated that realistic insurance recovery across all four sites, taking into account the coverage disputes and allocation methodologies, is in the range of $45.0 million to $55.0 million. This estimate reflects the financial advisor's assessment of the probability of prevailing on the coverage disputes for the Ridgecrest and Kanawha Bend sites and the application of policy terms and conditions to the acknowledged claims for the Gallatin and Bonanza Creek sites.

Given the inherent uncertainty associated with the outcome of the coverage dispute for the Ridgecrest and Kanawha Bend sites, and in accordance with the guidance in ASC 450 and IAS 37 regarding the recognition of assets arising from contingent recoveries, the Company has not recognized any insurance receivable in the current environmental remediation provision. Potential insurance recoveries, if any, will be recognized as an asset when realization is considered virtually certain (under IAS 37) or when recovery is deemed probable (under ASC 450-20-25), which may occur upon settlement of the coverage dispute or upon receipt of insurance proceeds.

Directors' and Officers' Liability Insurance. The Company maintains a Directors' and Officers' ("D&O") liability insurance policy with Clearwater Mutual Insurance, Ltd., a Bermuda-domiciled insurer, managed in the United States through Clearwater Mutual Services, Inc. (Policy No. CMI-DO-2023-10221). The Company has provided notice of circumstances to the D&O carrier in connection with the EPA enforcement action and the filing of the civil complaint, in order to preserve the Company's rights under the policy with respect to any potential claims against the Company's directors and officers arising from the environmental liabilities and related matters.

(l) Impact on Credit Facility

The Company maintains a C$750.0 million syndicated revolving credit facility (the "Credit Facility") with Harborstone National Bank, N.A., as administrative agent, and a syndicate of lenders. The Credit Facility matures on March 15, 2027.

The credit agreement governing the Credit Facility contains customary affirmative and negative covenants, including an environmental liability covenant. The environmental liability covenant provides that the Company's aggregate disclosed and undisclosed environmental liabilities shall not exceed 25% of the Company's consolidated net tangible assets ("CNTA") at any time.

As of September 30, 2024, the Company's CNTA was C$3.92 billion. The 25% covenant threshold is therefore C$980.0 million, which is approximately equivalent to US$724.4 million at the exchange rate of C$1.00 = US$0.7394.

The Company's current total environmental liabilities, including all obligations under the Consent Decree as described in this Note, are approximately US$409.9 million, which is approximately equivalent to C$554.4 million at the exchange rate of C$1.00 = US$0.7394. Accordingly, the Company's covenant headroom under the environmental liability covenant is:

25% CNTA covenant threshold: C$980.0 million Less: Current total environmental liabilities: C$554.4 million Covenant headroom: C$425.6 million

Based on the foregoing analysis, the Company believes that it is in compliance with all covenants under the Credit Facility as of the date of these financial statements and expects to remain in compliance following the entry of the Consent Decree and the adjustment of the environmental remediation reserve. However, the Company notes that substantial increases in estimated remediation costs, adverse developments in the insurance coverage disputes, or other contingencies could reduce the available covenant headroom in future periods.

(m) Uncertainties and Contingencies

The estimates and provisions described in this Note are based on the Company's best estimates as of the date of these financial statements and are subject to significant uncertainties. Actual remediation costs may vary materially from current estimates due to a number of factors, including, but not limited to:

• Changes in applicable regulatory requirements, including changes in cleanup standards, water quality criteria, or hazardous waste management regulations;

• Changes in site conditions, including the discovery of previously unknown contamination, changes in contaminant migration patterns, or changes in hydrogeologic conditions;

• Changes in the cost of remediation technologies, construction labor, equipment, and materials;

• Changes in the scope of remediation required, as determined through the preparation of remedial action work plans, corrective measures studies, and remedial designs;

• Changes in the discount rate or inflation assumptions used in the NPV calculations; and

• Other factors beyond the Company's control.

The remediation obligation at the Ridgecrest Copper-Molybdenum Mine extends over a 30-year period through June 14, 2055. Estimates of remediation costs over such extended durations are inherently uncertain, and actual costs may differ significantly from current projections.

The outcome of the insurance coverage dispute with Meridian Environmental Insurance Company with respect to the Ridgecrest and Kanawha Bend sites remains uncertain. No assurance can be given that the Company will prevail in its dispute with Meridian or that insurance coverage will ultimately be obtained for remediation costs at these two sites. Even with respect to the Gallatin and Bonanza Creek sites, where coverage has been acknowledged by Meridian, the actual amount of insurance recovery may be less than currently estimated due to policy terms, conditions, exclusions, and allocation methodologies.

The Consent Decree contains stipulated penalty provisions that could result in additional costs to the Company if compliance milestones are not met on a timely basis. The Company has included estimated stipulated penalty exposure in its risk assessment but has not included stipulated penalties in the recorded provision, as the Company intends to comply with all milestones and does not consider the incurrence of stipulated penalties to be probable as of the date of these financial statements.

While the Company believes that entry of the Consent Decree by the Court is probable based on the agreement of all parties and the filing of a motion for entry, the Court retains discretion to modify the terms of the Consent Decree or to decline entry altogether. In the event the Court declines to enter the Consent Decree, the Company would be required to negotiate revised terms or proceed to trial, either of which could result in a materially different outcome.

The potential Migratory Bird Treaty Act ("MBTA") liability arising from 17 documented avian mortalities at the Bonanza Creek Site during the period from 2021 through 2023 has not been separately quantified in the environmental remediation reserve. The Consent Decree is expected to resolve all federal claims asserted against the Company and its U.S. subsidiaries, including any claims arising under the MBTA. In the event the Consent Decree does not resolve MBTA claims, or if additional MBTA violations are identified, the Company could face additional penalties or remediation obligations.

The Company may also be subject to additional state regulatory requirements beyond those addressed in the Consent Decree. State environmental agencies in Montana, Nevada, and West Virginia retain authority to impose additional remedial requirements, issue administrative orders, or assess penalties under state law, to the extent such requirements are not preempted by or addressed in the Consent Decree.

(n) Subsequent Events

The following events occurred subsequent to December 31, 2024, and are relevant to the environmental contingencies and remediation obligations described in this Note:

• On February 15, 2025, the surety bond (Bond No. ISA-ENV-2025-08934) in the amount of $165.0 million was executed by Ironbark Surety of America, Inc. on behalf of the Company.

• On February 17, 2025, the remediation trust agreement (Trust Agreement No. LTC-REM-2025-1177) was executed between the Company and Larchfield Trust Company, N.A. The initial deposit of $80.0 million into the remediation trust fund is required to be made no later than September 12, 2025.

• On February 19, 2025, the proposed Consent Decree was lodged with the U.S. District Court for the District of Montana, Missoula Division (Civil Action No. 9:24-cv-00087-DWM), for a 30-day public comment period.

• The 30-day public comment period for the proposed Consent Decree closed on March 21, 2025. The Company is not aware of any public comments that would be expected to materially affect the terms of the Consent Decree or the likelihood of entry by the Court.

• On April 7, 2025, the United States filed a motion for entry of the Consent Decree with the Court. A hearing on the motion is scheduled for April 28, 2025. The Company anticipates that the Court will enter the Consent Decree on or about May 15, 2025.

The Company has evaluated subsequent events through the date of issuance of these financial statements and has concluded that the events described above are adjusting subsequent events that should be reflected in the December 31, 2024 financial statements, to the extent that they provide additional evidence of conditions that existed at the balance sheet date. In particular, the lodging of the Consent Decree and the execution of the financial assurance instruments confirm the probable nature and estimated amount of the environmental remediation obligations that existed as of December 31, 2024.

REVIEWER NOTES / INSTRUCTIONS Internal — Not for Publication or Filing

The following notes are provided for the internal use of the review team and are not intended for inclusion in the final footnote to the consolidated financial statements:

1. External Auditor Review. This draft should be reviewed by Frances Whitmore, Engagement Partner, Ridgeline Accounting Partners LLP, for compliance with Public Company Accounting Oversight Board ("PCAOB") auditing standards and for consistency with IFRS and U.S. GAAP presentation and disclosure requirements. Ms. Whitmore should specifically confirm that the disclosures satisfy the requirements of IAS 37, paragraphs 84–92 (disclosure of provisions, contingent liabilities, and contingent assets), and ASC 450-20-50 (loss contingencies — disclosures).

2. Measurement Basis (Discounted vs. Undiscounted). The appropriate measurement basis for the environmental remediation provision — whether discounted (at the NPV amount of $311.5 million) or undiscounted (at the nominal amount of $409.9 million) — should be finalized in consultation with Ridgeline Accounting Partners LLP. The current draft footnote presents both figures and defers to management's determination in consultation with the external auditor. Under IAS 37.45, discounting is required when the effect of the time value of money is material. Under U.S. GAAP, ASC 410-30-35-12 permits but does not require discounting of environmental remediation liabilities. The choice of measurement basis will affect both the amount of the provision and the magnitude of the reserve shortfall.

3. Reserve Shortfall and Insurance Recovery Estimates. The reserve shortfall analysis and the insurance recovery estimates should be confirmed with Carolyn Bracebridge (CFO, TMC) and Vivian Okafor (Northspire Capital Markets, Inc.) to ensure they are consistent with management's current expectations as of the date of issuance of the financial statements.

4. Footnote Numbering. The footnote number designation "[X]" is provisional and should be replaced with the final footnote number in the context of the complete set of notes to the consolidated financial statements.

5. Exchange Rate. The exchange rate used throughout this draft (C$1.00 = US$0.7394) is the rate as of September 30, 2024 (the date of the most recent interim financial statements). This rate should be updated to the exchange rate applicable as of December 31, 2024 (the fiscal year-end reporting date) for purposes of the final footnote. All Canadian-dollar equivalents should be recalculated accordingly.

6. SEC Disclosure Coordination. The disclosures in this footnote should be coordinated with the SEC disclosure analysis (Form 20-F risk factor and legal proceedings updates) being prepared separately under Calderwood & Harkness LLP Matter No. 1039-00003. In particular, the "Legal Proceedings" disclosure under Item 8.A.7 of Form 20-F and the "Risk Factors" disclosure under Item 3.D should be consistent with the information presented in this footnote.

7. Privileged Status. This draft memorandum and footnote are protected by the attorney-client privilege and the work-product doctrine. Distribution should be limited to addressees and authorized members of the review team.

— End of Draft Footnote —

Site	Nominal Cost (US$ millions)	Estimated Duration (years)	Net Present Value at 3% discount Rate (US$ millions)
Ridgecrest Copper-Molybdenum Mine	198.6	30	134.9
Gallatin Chemical Works	42.8	15	34.1
Bonanza Creek Gold Mine	63.2	20	47.1
Kanawha Bend Chemical Plant	38.9	20	29.0
Total	343.5	—	245.1
Site	Penalty (US$ millions)
Ridgecrest Copper-Molybdenum Mine	14.2
Gallatin Chemical Works	5.8
Bonanza Creek Gold Mine	7.9
Kanawha Bend Chemical Plant	3.6
Total	31.5
Site	Amount (US$ millions)	Description
Ridgecrest Copper-Molybdenum Mine	14.3	Reimbursement for EPA removal actions conducted from January 2021 through May 2023, including emergency water treatment, waste rock stabilization, and surface water diversion
Kanawha Bend Chemical Plant	3.8	Reimbursement for EPA emergency response conducted following the June 14, 2020 sulfuric acid release to a tributary of the Kanawha River, including containment, neutralization, and waste disposal
Total	18.1
SEP	Location	Budget (US$ millions)	Description
Flint Creek Watershed Restoration Project	Granite County, Montana (12 miles of Flint Creek downstream of the Ridgecrest Mine)	5.5	Stream-bank stabilization, riparian buffer zone replanting, removal of fish-passage barriers, and installation of fish-passage improvements along approximately 12 miles of Flint Creek downstream of the Ridgecrest Mine
Battle Mountain Community Drinking Water Improvement Project	Lander County, Nevada	3.5	Upgrade and modernization of the municipal water treatment facility serving the community of Battle Mountain, Lander County, Nevada, including installation of advanced treatment systems for the removal of arsenic, mercury, and other contaminants
Institute Community Air Quality Monitoring Network	Institute and South Charleston, Kanawha County, West Virginia	3.0	Installation and 10-year operation and maintenance of six ambient air quality monitoring stations in the communities of Institute and South Charleston, West Virginia, including monitoring for sulfur dioxide, particulate matter, and volatile organic compounds
Category	Nominal Amount (US$ millions)	NPV / Cash Equivalent (US$ millions)
Total remediation (all four sites)	343.5	245.1
Civil penalties	31.5	31.5
EPA past-costs reimbursement	18.1	18.1
Supplemental Environmental Projects	12.0	12.0

Independent environmental monitor costs (5-year estimate)	4.8	4.8
Grand Total	409.9	311.5
Instrument	Provider	Amount (US$ millions)	Reference
Surety Bond	Ironbark Surety of America, Inc. (New York, New York)	165.0	Bond No. ISA-ENV-2025-08934
Remediation Trust Fund	Larchfield Trust Company, N.A. (Charlotte, North Carolina)	80.0	Trust Agreement No. LTC-REM-2025-1177
Total Financial Assurance	245.0

DRAFT — For Discussion Purposes Only
February 28, 2025
PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION AND FOR THE PURPOSE OF RENDERING LEGAL ADVICE
Prepared by: Calderwood & Harkness LLP
Matter No. 1039-00003
In coordination with:
Northspire Capital Markets, Inc. (Financial Advisor) Ridgeline Accounting Partners LLP (External Auditor)
Prepared for: Torchlight Mining Corp. ("TMC")
For inclusion in the Annual Report on Form 20-F for the fiscal year ending December 31, 2024
Addressees:
Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp. Frances Whitmore, Engagement Partner, Ridgeline Accounting Partners LLP
NOTICE: This document constitutes a draft footnote prepared for discussion purposes only. It is subject to review, revision, and finalization by management, external auditors, and legal counsel prior to inclusion in the notes to the consolidated financial statements of Torchlight Mining Corp. for the fiscal year ended December 31, 2024. This draft has been prepared by Calderwood & Harkness LLP and does not represent the final views of management or the external auditors. The contents of this document are confidential and should not be distributed, filed, or otherwise disseminated without the prior written consent of Calderwood & Harkness LLP and Torchlight Mining Corp. The footnote numbering herein is provisional and will be determined in the context of the complete financial statements upon finalization.
NOTE [X] — ENVIRONMENTAL CONTINGENCIES AND REMEDIATION OBLIGATIONS
(a) Overview and Background
Torchlight Mining Corp. (the "Company" or "TMC"), through its wholly owned U.S. subsidiaries — Torchlight Mining (U.S.) Inc. (a Delaware corporation, EIN 83-2047156), Torchlight Specialty Chemicals, Inc. (a Delaware corporation, EIN 47-3819204), Ridgecrest Mine Holdings, LLC (a Montana limited liability company, MT SOS ID E1042738), and Bonanza Creek Mining, LLC (a Nevada limited liability company, NV SOS Entity No. E0518294731) — is subject to significant environmental obligations at four current or former operating facilities located in the States of Montana, Nevada, and West Virginia in the United States.
The Company is a Canadian corporation organized under the Canada Business Corporations Act and is dual-listed on the Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE") under the ticker symbol "TRC." The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and files its annual report with the U.S. Securities and Exchange Commission ("SEC") on Form 20-F, with reconciliation to U.S. generally accepted accounting principles ("U.S. GAAP") where required.
On January 18, 2024, the U.S. Department of Justice ("DOJ"), Environment and Natural Resources Division, filed a civil complaint (Civil Action No. 9:24-cv-00087-DWM) in the U.S. District Court for the District of Montana, Missoula Division, on behalf of the U.S. Environmental Protection Agency ("EPA"), alleging violations of the Clean Water Act ("CWA"), 33 U.S.C. §§ 1251 et seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901 et seq.; and the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601 et seq., at four facilities operated or formerly operated by the Company's U.S. subsidiaries. The complaint named the Company and each of its four U.S. subsidiaries as defendants.
The States of Montana, Nevada, and West Virginia each joined the action as co-plaintiffs, asserting parallel state-law claims and seeking injunctive relief, civil penalties, and natural resource damages. The consolidated action encompasses claims at all four facilities described in subsection (b) below.
Following extensive negotiations among the parties over the course of 2024 and early 2025, a proposed consent decree was lodged with the Court on February 19, 2025, for a 30-day public comment period pursuant to 28 C.F.R. § 50.7 and CERCLA § 122(d)(2), 42 U.S.C. § 9622(d)(2). The public comment period closed on March 21, 2025. Entry of the consent decree by the Court is anticipated on or about May 15, 2025.
The Company has evaluated the environmental obligations arising from the consent decree and related enforcement proceedings in accordance with ASC 450, Contingencies (codification of SFAS No. 5 and related guidance under U.S. GAAP) and IAS 37, Provisions, Contingent Liabilities and Contingent Assets (under IFRS). The Company has concluded that the obligations described in this Note are both probable and reasonably estimable, and accordingly has recorded provisions as described in subsection (i) below.
(b) Description of the Four Sites
The environmental obligations of the Company and its U.S. subsidiaries arise in connection with the following four facilities:
(i) Ridgecrest Copper-Molybdenum Mine — Drummond, Granite County, Montana. The Ridgecrest Copper-Molybdenum Mine (the "Ridgecrest Mine" or the "Ridgecrest Site") is located at 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832. The mine footprint encompasses approximately 3,200 acres, with total controlled property holdings of approximately 8,700 acres, including buffer lands and associated rights-of-way.
The Ridgecrest Mine is an open-pit copper-molybdenum mine that has been operational since 1978. Active mining operations ceased in December 2019, and the site is currently in a closure and reclamation phase. The facility is owned and operated by Ridgecrest Mine Holdings, LLC, a Montana limited liability company that is wholly owned by Torchlight Mining (U.S.) Inc. The mine historically produced copper and molybdenum concentrates from a porphyry copper deposit, and its operations included conventional open-pit mining, crushing, grinding, flotation concentration, and tailings disposal.
The Ridgecrest Site has been proposed for listing on the National Priorities List ("NPL") under CERCLA, although formal listing has not yet occurred. The Site is currently being addressed under an Administrative Order on Consent ("AOC"), Docket No. CERCLA-08-2022-0039, executed on September 15, 2022, between the EPA (Region 8) and Ridgecrest Mine Holdings, LLC. The AOC requires the performance of a Remedial Investigation and Feasibility Study ("RI/FS") and the implementation of interim response actions.
The principal environmental contaminants at the Ridgecrest Site include acid mine drainage ("AMD") with elevated concentrations of dissolved copper, molybdenum, selenium, and sulfate emanating from exposed pit walls, waste rock dumps, and the tailings storage facility. The facility includes a 425-acre tailings impoundment that has been documented to be the source of seepage discharging to Flint Creek, a tributary of the Clark Fork River. Sampling data collected by both the Company's environmental consultants and EPA contractors have confirmed that tailings seepage has adversely affected water quality in Flint Creek downstream of the facility.
The civil complaint alleges violations at the Ridgecrest Site, including but not limited to: (a) unpermitted discharges of pollutants to waters of the United States in violation of Section 301 of the CWA, 33 U.S.C. § 1311; (b) mismanagement of hazardous waste, including the improper disposal and storage of mine waste containing characteristic hazardous waste, in violation of Section 3004 of RCRA, 42 U.S.C. § 6924; and (c) liability for reimbursement of EPA removal action costs totaling $14.3 million incurred during the period from January 2021 through May 2023, pursuant to Section 107 of CERCLA, 42 U.S.C. § 9607.
The Ridgecrest Site represents the Company's largest environmental liability and is expected to require remediation activities over a period of approximately 30 years.
(ii) Gallatin Chemical Works — Belgrade, Gallatin County, Montana. The Gallatin Chemical Works (the "Gallatin Site") is located at 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714. The facility occupies approximately 145 acres and operates as a specialty chemical manufacturing plant producing flotation reagents, including sodium xanthate and dithiophosphate collectors, which are used in mineral processing operations at the Company's mining facilities and are also sold to third-party customers.
The Gallatin Site has been in continuous operation since 1993 and is currently active. The facility is owned and operated by Torchlight Specialty Chemicals, Inc., a Delaware corporation and wholly owned subsidiary of the Company.
The Gallatin Site is designated as a RCRA Corrective Action facility under Permit No. MTD098712456, issued by the Montana Department of Environmental Quality ("MDEQ"). The facility contains three Solid Waste Management Units ("SWMUs") that have been identified as sources of contamination requiring corrective action.
The principal environmental contaminants at the Gallatin Site include carbon disulfide ("CS₂") in groundwater, which has been detected at concentrations as high as 890 micrograms per liter ("µg/L") — significantly exceeding the federal Maximum Contaminant Level ("MCL") of 10 µg/L. Additional contaminants include xanthate decomposition products and volatile organic compounds ("VOCs"), including toluene and xylene, that have been detected in subsurface soils beneath and adjacent to the SWMUs. Groundwater contamination has been delineated in a plume extending approximately 1,200 feet downgradient from the facility toward residential areas.
The civil complaint alleges violations at the Gallatin Site, including: (a) unpermitted storage of hazardous waste and failure to perform corrective action in violation of Sections 3004 and 3005 of RCRA, 42 U.S.C. §§ 6924, 6925; and (b) 14 documented effluent limit exceedances at the facility's wastewater discharge point between January 2021 and June 2024, in violation of Section 301 of the CWA, 33 U.S.C. § 1311.
(iii) Bonanza Creek Gold Mine — Lander County, Nevada. The Bonanza Creek Gold Mine (the "Bonanza Creek Site" or the "Bonanza Creek Mine") is located at County Road 447, Mile Marker 12, Lander County, Nevada 89820. The mine footprint encompasses approximately 5,600 acres, with total controlled property holdings of approximately 12,400 acres, including exploration claims, buffer lands, and associated infrastructure.
The Bonanza Creek Mine is an open-pit heap-leach gold mine that has been in operation since 2001. Active mining operations are ongoing, and the facility currently produces gold doré through a conventional heap-leach process using dilute cyanide solution. The facility is owned and operated by Bonanza Creek Mining, LLC, a Nevada limited liability company that is wholly owned by Torchlight Mining (U.S.) Inc.
The principal environmental contaminants at the Bonanza Creek Site include cyanide (measured as weak acid dissociable, or "WAD," cyanide) detected in surface water at concentrations of 0.62 milligrams per liter ("mg/L"), significantly exceeding the applicable discharge limit of 0.022 mg/L. Mercury has also been detected in pit-lake water at average concentrations of 12.4 µg/L, compared with the applicable water quality criterion of 0.77 µg/L. Selenium has also been detected at elevated concentrations in pit-lake water.
The civil complaint alleges violations at the Bonanza Creek Site, including: (a) three documented unpermitted discharges of process solution from the heap-leach pad, caused by a torn geomembrane liner, occurring in March 2022, August 2022, and January 2023, in violation of Section 301 of the CWA, 33 U.S.C. § 1311; (b) violations of Section 3004 of RCRA, 42 U.S.C. § 6924; and (c) violations of the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712, arising from 17 documented avian mortalities at the facility's solution ponds during the period from 2021 through 2023. The avian mortalities included migratory waterfowl and shorebirds that came into contact with cyanide-bearing process solution in the solution ponds.
(iv) Kanawha Bend Chemical Plant — Institute, Kanawha County, West Virginia. The Kanawha Bend Chemical Plant (the "Kanawha Bend Site") is located at 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112. The facility occupies approximately 78 acres and operates as a chemical manufacturing plant producing leaching agents and performing sulfuric acid regeneration for use in the Company's hydrometallurgical operations.
The Kanawha Bend Site has been in continuous operation since 1985 and is currently active. The facility is owned and operated by Torchlight Specialty Chemicals, Inc., a Delaware corporation and wholly owned subsidiary of the Company.
The Kanawha Bend Site is designated as a RCRA Corrective Action facility under Permit No. WVD048823915, issued by the West Virginia Department of Environmental Protection ("WVDEP"). The facility has a history of releases of hazardous substances and hazardous waste that have resulted in contamination of soils, groundwater, and surface water.
The principal environmental contaminants at the Kanawha Bend Site include sulfuric acid residuals that have depressed soil pH to levels as low as 1.8, rendering large areas of the facility severely acidified. Heavy metals contamination is present in site soils, including lead at concentrations as high as 4,200 milligrams per kilogram ("mg/kg") and arsenic at concentrations as high as 890 mg/kg. In addition, dense non-aqueous phase liquid ("DNAPL") consisting of chlorinated solvents has been detected in the fractured bedrock aquifer beneath the facility, presenting complex remediation challenges due to the hydrogeologic conditions.
The civil complaint alleges violations at the Kanawha Bend Site, including: (a) failure to properly close a former surface impoundment and unpermitted treatment of listed hazardous wastes K062 (spent pickle liquor) and D002 (corrosivity characteristic waste), in violation of Sections 3004 and 3005 of RCRA, 42 U.S.C. §§ 6924, 6925; and (b) liability for reimbursement of $3.8 million in EPA emergency response costs incurred in connection with the EPA's response to a sulfuric acid release to a tributary of the Kanawha River on June 14, 2020, pursuant to Section 107 of CERCLA, 42 U.S.C. § 9607.
(c) Consent Decree — Summary of Material Terms
On February 19, 2025, a proposed consent decree (the "Consent Decree") was lodged with the U.S. District Court for the District of Montana, Missoula Division, in the matter captioned United States of America and State of Montana v. Torchlight Mining Corp., Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC (consolidated with the States of Nevada and West Virginia as co-plaintiffs), Civil Action No. 9:24-cv-00087-DWM (the Honorable Donald W. Molloy, Senior U.S. District Judge, presiding).
The Consent Decree was lodged for a 30-day public comment period, which closed on March 21, 2025. A motion for entry of the Consent Decree was filed on April 7, 2025, and a hearing before the Court is scheduled for April 28, 2025. Based on discussions with government counsel and the Court's scheduling order, the Company anticipates that the Consent Decree will be entered by the Court on or about May 15, 2025. The Effective Date of the Consent Decree is defined as 30 days following the date of entry by the Court, and is accordingly anticipated to be on or about June 14, 2025.
The Consent Decree, upon entry, resolves all civil claims asserted by the United States of America (on behalf of the EPA), the State of Montana, the State of Nevada, and the State of West Virginia against the Company and its U.S. subsidiaries in connection with the four sites described in subsection (b) above. The material terms of the Consent Decree include remediation obligations, civil penalties, EPA past-costs reimbursement, supplemental environmental projects, the appointment of an independent environmental monitor, and financial assurance requirements, each of which is described in further detail in subsections (d) through (j) below.
The Company acknowledges that the Consent Decree does not constitute an admission of liability and that the Company has entered into the Consent Decree solely for the purpose of resolving the disputed claims. However, the Consent Decree imposes legally binding obligations upon entry, and the Company has evaluated the likelihood of entry and concluded that entry is probable for purposes of financial reporting.
(d) Remediation Obligations
Aggregate Remediation Cost Estimates. The Consent Decree requires the Company and its U.S. subsidiaries to perform remediation activities at each of the four sites described in subsection (b) above. The scope, nature, and estimated cost of remediation at each site have been evaluated by the Company's environmental remediation consultant, Pinnacle Creek Environmental, LLC ("Pinnacle Creek"), and, in the case of the Ridgecrest Site, were also evaluated by the government's technical expert, Cascade Geosciences, Inc. ("Cascade Geosciences").
The remediation obligations under the Consent Decree are estimated as follows:
With respect to the Ridgecrest Site, the negotiated remediation cost of $198.6 million represents a consensus figure derived from a range of estimates. The Company's environmental remediation consultant, Pinnacle Creek Environmental, LLC, estimated the total cost of remediation at $187.5 million, while the government's technical expert, Cascade Geosciences, Inc., estimated the total cost at $224.0 million. The negotiated figure of $198.6 million reflects the agreement of the parties and takes into account the scope of remedial action work described in the Consent Decree.
The net present value ("NPV") calculations presented in the table above use a discount rate of 3.0%, which the Company has determined to be an appropriate risk-free rate reflecting the estimated timing of future cash flows. The NPV calculations for each site are derived as follows: Ridgecrest: $198.6 million × 0.6795 = $134.9 million; Gallatin: $42.8 million × 0.7969 ≈ $34.1 million; Bonanza Creek: $63.2 million × 0.7454 ≈ $47.1 million; Kanawha Bend: $38.9 million × 0.7454 ≈ $29.0 million. The discount factors reflect the estimated timing and distribution of cash flows over the applicable remediation periods.
Key Remediation Milestones. The Consent Decree establishes the following key remediation milestones, among others:
• Ridgecrest Copper-Molybdenum Mine: The Remedial Action Work Plan is required to be submitted to EPA and the State of Montana for review and approval no later than December 14, 2025 (180 days after the Effective Date). Remedy construction is required to commence no later than June 14, 2027 (two years after the Effective Date). The total remediation obligation at the Ridgecrest Site extends over a period of approximately 30 years, through June 14, 2055, and includes water treatment, tailings impoundment closure, waste rock consolidation and capping, and long-term monitoring and maintenance.
• Gallatin Chemical Works: A Corrective Measures Study ("CMS") is required to be submitted to EPA and MDEQ for review and approval no later than June 14, 2026 (one year after the Effective Date). The CMS will evaluate remedial alternatives for addressing groundwater contamination and the three SWMUs identified at the facility.
• Bonanza Creek Gold Mine: Liner repair and containment measures at the heap-leach pad are required to commence no later than June 14, 2026 (one year after the Effective Date). These measures are intended to prevent further unpermitted discharges of process solution through the damaged geomembrane liner.
• Kanawha Bend Chemical Plant: Interim stabilization measures, including soil pH neutralization, surface water controls, and interim containment of the DNAPL plume, are required to be completed no later than December 14, 2026 (18 months after the Effective Date).
Independent Environmental Monitor. Under the Consent Decree, Verdant Analytics, Inc. ("Verdant Analytics"), an environmental consulting firm headquartered in Portland, Oregon, has been appointed as the Court-approved independent environmental monitor. Verdant Analytics is responsible for conducting quarterly compliance audits at each of the four sites and preparing annual public reports summarizing compliance status, remediation progress, and environmental monitoring results.
The estimated cost of the independent environmental monitor over the initial five-year period is approximately $4.8 million, or approximately $960,000 per year. These costs are to be borne by the Company and are incremental to the remediation cost estimates described above.
(e) Civil Penalties
Under the Consent Decree, the Company and its U.S. subsidiaries are required to pay aggregate civil penalties totaling $31.5 million for the violations described in the civil complaint. The civil penalties are allocated among the four sites as follows:
The civil penalties are payable in four equal quarterly installments of $7.875 million each. The first installment is due within 30 days of the Effective Date of the Consent Decree (anticipated to be on or about July 14, 2025). Subsequent installments are due at 12, 24, and 36 months following entry of the Consent Decree by the Court.
In addition, the Consent Decree provides for stipulated penalties in the event of noncompliance with the terms and conditions of the Consent Decree. Stipulated penalties are assessed at the following rates: $1,500 per day per violation for the first 30 days of noncompliance; $3,000 per day per violation for days 31 through 60 of noncompliance; and $5,500 per day per violation for each day of noncompliance beyond 60 days. Stipulated penalties accrue independently for each violation and are in addition to any other remedies available to the plaintiffs.
(f) EPA Past-Costs Reimbursement
Under Section 107 of CERCLA, 42 U.S.C. § 9607, the Consent Decree requires the Company and its U.S. subsidiaries to reimburse the EPA for past costs incurred in connection with response actions at two of the four sites. The EPA past-costs reimbursement obligations are as follows:
The EPA past-costs reimbursement obligations are payable in full within 60 days of the Effective Date of the Consent Decree. These amounts represent documented costs that have been incurred by the EPA and are not subject to adjustment or dispute under the terms of the Consent Decree. Accordingly, the full nominal amounts have been included in the Company's provision without present-value adjustment.
(g) Supplemental Environmental Projects (SEPs)
In addition to the remediation obligations, civil penalties, and EPA past-costs reimbursement described above, the Consent Decree requires the Company to fund and implement three supplemental environmental projects ("SEPs") with a combined budget of $12.0 million. The SEPs are intended to provide environmental and public health benefits to communities affected by the Company's operations. The three SEPs are described below:
The SEP expenditures are required to be committed within specific timeframes set forth in the Consent Decree and are subject to oversight by the relevant federal and state agencies and the independent environmental monitor.
(h) Aggregate Financial Obligation Summary
The following table summarizes the aggregate financial obligations of the Company and its U.S. subsidiaries under the Consent Decree and the related enforcement proceedings:
The nominal grand total of the Company's obligations under the Consent Decree is approximately $409.9 million. The NPV/cash equivalent grand total, reflecting the present value of remediation costs discounted at a 3.0% rate, is approximately $311.5 million. Civil penalties, EPA past-costs reimbursement, supplemental environmental project costs, and independent monitor costs are presented at nominal value, as these obligations are either payable in the near term or not subject to present-value discounting.
(i) Environmental Remediation Reserve — Accrual and Shortfall Analysis
In accordance with ASC 450, Contingencies, and IAS 37, Provisions, Contingent Liabilities and Contingent Assets, the Company has recorded an environmental remediation provision on its consolidated balance sheet. The Company has concluded that the obligations described in this Note satisfy the criteria for recognition as a provision, in that: (a) there is a present obligation arising from the enforcement action and the Consent Decree; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation.
As of September 30, 2024 (the date of the Company's most recent quarterly report on Form 6-K, incorporating interim financial statements equivalent to a Form 10-Q), the environmental remediation reserve on the Company's consolidated balance sheet was C$340.0 million, which is approximately equivalent to US$251.4 million at the exchange rate of C$1.00 = US$0.7394.
The estimated shortfall between the Company's existing environmental remediation reserve and the nominal grand total obligation under the Consent Decree is calculated as follows:
Nominal grand total obligation under Consent Decree: US$409.9 million Less: Existing environmental remediation reserve (as of Q3 2024): US$251.4 million Estimated shortfall: US$158.5 million
The Company expects to adjust its environmental remediation reserve in connection with the preparation of its consolidated financial statements for the fiscal year ended December 31, 2024, to reflect the obligations arising under the Consent Decree. The adjustment will be reflected in the fiscal year 2024 financial statements, as the Company considers the Consent Decree to have become probable of entry during fiscal year 2024, based on the substantial agreement on material terms reached between the parties on approximately February 3, 2025, which constitutes a subsequent event requiring adjustment of the December 31, 2024 financial statements under IAS 10, Events after the Reporting Period, and ASC 855, Subsequent Events.
The NPV-based obligation of $311.5 million is presented for informational context. Management will determine the appropriate measurement basis for the provision — whether discounted (at the NPV amount) or undiscounted (at the nominal amount) — in consultation with Ridgeline Accounting Partners LLP, the Company's external auditor. Under IAS 37, provisions are measured at the present value of the expenditures expected to be required to settle the obligation when the effect of the time value of money is material. Under ASC 450, environmental remediation liabilities are generally recognized on an undiscounted basis unless discounting is permitted under ASC 410-30, Environmental Obligations. The determination of the appropriate measurement basis may result in a provision amount that differs from both the nominal and NPV figures presented herein.
(j) Financial Assurance Arrangements
Under the Consent Decree, the Company is required to establish and maintain financial assurance in the aggregate amount of $245.0 million to guarantee the performance of the remediation obligations described in subsection (d) above. The required financial assurance consists of the following instruments:
The surety bond, issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934), has a face value of $165.0 million. The annual premium for the surety bond is 1.85% of the face value, which equals approximately $3.0525 million per year. The surety bond was executed on February 15, 2025, and the premium is payable annually for the duration of the bond.
The remediation trust fund is established under a trust agreement (Trust Agreement No. LTC-REM-2025-1177) with Larchfield Trust Company, N.A., a national trust company headquartered in Charlotte, North Carolina. The trust agreement was executed on February 17, 2025. David Henshaw of Larchfield Trust Company, N.A. serves as the trust officer. The trust requires an initial deposit of $80.0 million, which must be made no later than September 12, 2025. The funds held in the remediation trust fund are restricted for the purpose of funding environmental remediation activities at the four sites and may be disbursed only in accordance with the terms of the Consent Decree and the trust agreement.
The Consent Decree requires the Company to establish the remediation trust fund and post all required financial assurance no later than September 12, 2025 (90 days after the anticipated Effective Date). The financial assurance instruments are subject to annual adjustment for inflation, using the U.S. Bureau of Labor Statistics Consumer Price Index for All Urban Consumers ("CPI-U"), and for updates to remedy cost estimates as remedial designs and corrective measures studies are completed.
The surety bond premium and the funding of the remediation trust fund represent significant near-term cash requirements for the Company, and management is evaluating the sources of funding for these obligations, including available cash, borrowings under the Company's revolving credit facility, and potential asset dispositions.
(k) Insurance Coverage
Pollution Legal Liability (PLL) Policy. The Company maintains a Pollution Legal Liability ("PLL") insurance policy with Meridian Environmental Insurance Company (Policy No. MEI-ENV-2021-04738). The policy was written for a three-year term covering the period from July 1, 2021 through July 1, 2024. The key policy terms are as follows:
• Per-occurrence limit: $50.0 million
• Aggregate limit: $75.0 million
• Self-insured retention ("SIR"): $5.0 million per occurrence
The Company has submitted claims under the PLL policy in connection with the environmental liabilities at each of the four sites. The coverage status of each site is as follows:
• Ridgecrest Copper-Molybdenum Mine: Coverage has been denied by Meridian Environmental Insurance Company. Meridian has invoked the pollution exclusion and known-conditions exclusion in the policy, asserting that the contamination at the Ridgecrest Site constitutes pre-existing known pollution conditions that were known to the insured at or prior to policy inception and are therefore excluded from coverage.
• Kanawha Bend Chemical Plant: Coverage has been denied by Meridian Environmental Insurance Company. Meridian has asserted that the Company failed to provide timely notice of the claim, as required by the policy, and that the Company's notice was not provided within the policy's notice period.
• Gallatin Chemical Works: Coverage has been acknowledged by Meridian Environmental Insurance Company, subject to the application of the per-occurrence SIR of $5.0 million. Meridian has agreed to indemnify the Company for covered environmental remediation costs at the Gallatin Site in excess of the SIR, up to the per-occurrence and aggregate policy limits.
• Bonanza Creek Gold Mine: Coverage has been acknowledged by Meridian Environmental Insurance Company, subject to the application of the per-occurrence SIR of $5.0 million. Meridian has agreed to indemnify the Company for covered environmental remediation costs at the Bonanza Creek Site in excess of the SIR, up to the per-occurrence and aggregate policy limits.
The Company disputes Meridian's denial of coverage for the Ridgecrest and Kanawha Bend sites and has reserved all rights with respect to those coverage determinations. The Company intends to pursue all available legal remedies to obtain coverage for these sites, including, if necessary, commencing coverage litigation against Meridian.
The maximum theoretical recovery under the PLL policy is $75.0 million (the aggregate policy limit). For the two sites where coverage has been acknowledged (Gallatin and Bonanza Creek), the combined nominal remediation costs total $106.0 million ($42.8 million for Gallatin and $63.2 million for Bonanza Creek). After application of two separate SIRs of $5.0 million each (one per occurrence), the net amount subject to coverage is approximately $96.0 million. However, recovery is capped at the $75.0 million aggregate limit.
Northspire Capital Markets, Inc. (the Company's financial advisor) has estimated that realistic insurance recovery across all four sites, taking into account the coverage disputes and allocation methodologies, is in the range of $45.0 million to $55.0 million. This estimate reflects the financial advisor's assessment of the probability of prevailing on the coverage disputes for the Ridgecrest and Kanawha Bend sites and the application of policy terms and conditions to the acknowledged claims for the Gallatin and Bonanza Creek sites.
Given the inherent uncertainty associated with the outcome of the coverage dispute for the Ridgecrest and Kanawha Bend sites, and in accordance with the guidance in ASC 450 and IAS 37 regarding the recognition of assets arising from contingent recoveries, the Company has not recognized any insurance receivable in the current environmental remediation provision. Potential insurance recoveries, if any, will be recognized as an asset when realization is considered virtually certain (under IAS 37) or when recovery is deemed probable (under ASC 450-20-25), which may occur upon settlement of the coverage dispute or upon receipt of insurance proceeds.
Directors' and Officers' Liability Insurance. The Company maintains a Directors' and Officers' ("D&O") liability insurance policy with Clearwater Mutual Insurance, Ltd., a Bermuda-domiciled insurer, managed in the United States through Clearwater Mutual Services, Inc. (Policy No. CMI-DO-2023-10221). The Company has provided notice of circumstances to the D&O carrier in connection with the EPA enforcement action and the filing of the civil complaint, in order to preserve the Company's rights under the policy with respect to any potential claims against the Company's directors and officers arising from the environmental liabilities and related matters.
(l) Impact on Credit Facility
The Company maintains a C$750.0 million syndicated revolving credit facility (the "Credit Facility") with Harborstone National Bank, N.A., as administrative agent, and a syndicate of lenders. The Credit Facility matures on March 15, 2027.
The credit agreement governing the Credit Facility contains customary affirmative and negative covenants, including an environmental liability covenant. The environmental liability covenant provides that the Company's aggregate disclosed and undisclosed environmental liabilities shall not exceed 25% of the Company's consolidated net tangible assets ("CNTA") at any time.
As of September 30, 2024, the Company's CNTA was C$3.92 billion. The 25% covenant threshold is therefore C$980.0 million, which is approximately equivalent to US$724.4 million at the exchange rate of C$1.00 = US$0.7394.
The Company's current total environmental liabilities, including all obligations under the Consent Decree as described in this Note, are approximately US$409.9 million, which is approximately equivalent to C$554.4 million at the exchange rate of C$1.00 = US$0.7394. Accordingly, the Company's covenant headroom under the environmental liability covenant is:
25% CNTA covenant threshold: C$980.0 million Less: Current total environmental liabilities: C$554.4 million Covenant headroom: C$425.6 million
Based on the foregoing analysis, the Company believes that it is in compliance with all covenants under the Credit Facility as of the date of these financial statements and expects to remain in compliance following the entry of the Consent Decree and the adjustment of the environmental remediation reserve. However, the Company notes that substantial increases in estimated remediation costs, adverse developments in the insurance coverage disputes, or other contingencies could reduce the available covenant headroom in future periods.
(m) Uncertainties and Contingencies
The estimates and provisions described in this Note are based on the Company's best estimates as of the date of these financial statements and are subject to significant uncertainties. Actual remediation costs may vary materially from current estimates due to a number of factors, including, but not limited to:
• Changes in applicable regulatory requirements, including changes in cleanup standards, water quality criteria, or hazardous waste management regulations;
• Changes in site conditions, including the discovery of previously unknown contamination, changes in contaminant migration patterns, or changes in hydrogeologic conditions;
• Changes in the cost of remediation technologies, construction labor, equipment, and materials;
• Changes in the scope of remediation required, as determined through the preparation of remedial action work plans, corrective measures studies, and remedial designs;
• Changes in the discount rate or inflation assumptions used in the NPV calculations; and
• Other factors beyond the Company's control.
The remediation obligation at the Ridgecrest Copper-Molybdenum Mine extends over a 30-year period through June 14, 2055. Estimates of remediation costs over such extended durations are inherently uncertain, and actual costs may differ significantly from current projections.
The outcome of the insurance coverage dispute with Meridian Environmental Insurance Company with respect to the Ridgecrest and Kanawha Bend sites remains uncertain. No assurance can be given that the Company will prevail in its dispute with Meridian or that insurance coverage will ultimately be obtained for remediation costs at these two sites. Even with respect to the Gallatin and Bonanza Creek sites, where coverage has been acknowledged by Meridian, the actual amount of insurance recovery may be less than currently estimated due to policy terms, conditions, exclusions, and allocation methodologies.
The Consent Decree contains stipulated penalty provisions that could result in additional costs to the Company if compliance milestones are not met on a timely basis. The Company has included estimated stipulated penalty exposure in its risk assessment but has not included stipulated penalties in the recorded provision, as the Company intends to comply with all milestones and does not consider the incurrence of stipulated penalties to be probable as of the date of these financial statements.
While the Company believes that entry of the Consent Decree by the Court is probable based on the agreement of all parties and the filing of a motion for entry, the Court retains discretion to modify the terms of the Consent Decree or to decline entry altogether. In the event the Court declines to enter the Consent Decree, the Company would be required to negotiate revised terms or proceed to trial, either of which could result in a materially different outcome.
The potential Migratory Bird Treaty Act ("MBTA") liability arising from 17 documented avian mortalities at the Bonanza Creek Site during the period from 2021 through 2023 has not been separately quantified in the environmental remediation reserve. The Consent Decree is expected to resolve all federal claims asserted against the Company and its U.S. subsidiaries, including any claims arising under the MBTA. In the event the Consent Decree does not resolve MBTA claims, or if additional MBTA violations are identified, the Company could face additional penalties or remediation obligations.
The Company may also be subject to additional state regulatory requirements beyond those addressed in the Consent Decree. State environmental agencies in Montana, Nevada, and West Virginia retain authority to impose additional remedial requirements, issue administrative orders, or assess penalties under state law, to the extent such requirements are not preempted by or addressed in the Consent Decree.
(n) Subsequent Events
The following events occurred subsequent to December 31, 2024, and are relevant to the environmental contingencies and remediation obligations described in this Note:
• On February 15, 2025, the surety bond (Bond No. ISA-ENV-2025-08934) in the amount of $165.0 million was executed by Ironbark Surety of America, Inc. on behalf of the Company.
• On February 17, 2025, the remediation trust agreement (Trust Agreement No. LTC-REM-2025-1177) was executed between the Company and Larchfield Trust Company, N.A. The initial deposit of $80.0 million into the remediation trust fund is required to be made no later than September 12, 2025.
• On February 19, 2025, the proposed Consent Decree was lodged with the U.S. District Court for the District of Montana, Missoula Division (Civil Action No. 9:24-cv-00087-DWM), for a 30-day public comment period.
• The 30-day public comment period for the proposed Consent Decree closed on March 21, 2025. The Company is not aware of any public comments that would be expected to materially affect the terms of the Consent Decree or the likelihood of entry by the Court.
• On April 7, 2025, the United States filed a motion for entry of the Consent Decree with the Court. A hearing on the motion is scheduled for April 28, 2025. The Company anticipates that the Court will enter the Consent Decree on or about May 15, 2025.
The Company has evaluated subsequent events through the date of issuance of these financial statements and has concluded that the events described above are adjusting subsequent events that should be reflected in the December 31, 2024 financial statements, to the extent that they provide additional evidence of conditions that existed at the balance sheet date. In particular, the lodging of the Consent Decree and the execution of the financial assurance instruments confirm the probable nature and estimated amount of the environmental remediation obligations that existed as of December 31, 2024.
REVIEWER NOTES / INSTRUCTIONS Internal — Not for Publication or Filing
The following notes are provided for the internal use of the review team and are not intended for inclusion in the final footnote to the consolidated financial statements:
1. External Auditor Review. This draft should be reviewed by Frances Whitmore, Engagement Partner, Ridgeline Accounting Partners LLP, for compliance with Public Company Accounting Oversight Board ("PCAOB") auditing standards and for consistency with IFRS and U.S. GAAP presentation and disclosure requirements. Ms. Whitmore should specifically confirm that the disclosures satisfy the requirements of IAS 37, paragraphs 84–92 (disclosure of provisions, contingent liabilities, and contingent assets), and ASC 450-20-50 (loss contingencies — disclosures).
2. Measurement Basis (Discounted vs. Undiscounted). The appropriate measurement basis for the environmental remediation provision — whether discounted (at the NPV amount of $311.5 million) or undiscounted (at the nominal amount of $409.9 million) — should be finalized in consultation with Ridgeline Accounting Partners LLP. The current draft footnote presents both figures and defers to management's determination in consultation with the external auditor. Under IAS 37.45, discounting is required when the effect of the time value of money is material. Under U.S. GAAP, ASC 410-30-35-12 permits but does not require discounting of environmental remediation liabilities. The choice of measurement basis will affect both the amount of the provision and the magnitude of the reserve shortfall.
3. Reserve Shortfall and Insurance Recovery Estimates. The reserve shortfall analysis and the insurance recovery estimates should be confirmed with Carolyn Bracebridge (CFO, TMC) and Vivian Okafor (Northspire Capital Markets, Inc.) to ensure they are consistent with management's current expectations as of the date of issuance of the financial statements.
4. Footnote Numbering. The footnote number designation "[X]" is provisional and should be replaced with the final footnote number in the context of the complete set of notes to the consolidated financial statements.
5. Exchange Rate. The exchange rate used throughout this draft (C$1.00 = US$0.7394) is the rate as of September 30, 2024 (the date of the most recent interim financial statements). This rate should be updated to the exchange rate applicable as of December 31, 2024 (the fiscal year-end reporting date) for purposes of the final footnote. All Canadian-dollar equivalents should be recalculated accordingly.
6. SEC Disclosure Coordination. The disclosures in this footnote should be coordinated with the SEC disclosure analysis (Form 20-F risk factor and legal proceedings updates) being prepared separately under Calderwood & Harkness LLP Matter No. 1039-00003. In particular, the "Legal Proceedings" disclosure under Item 8.A.7 of Form 20-F and the "Risk Factors" disclosure under Item 3.D should be consistent with the information presented in this footnote.
7. Privileged Status. This draft memorandum and footnote are protected by the attorney-client privilege and the work-product doctrine. Distribution should be limited to addressees and authorized members of the review team.
— End of Draft Footnote —
Site | Nominal Cost (US$ millions) | Estimated Duration (years) | Net Present Value at 3% discount Rate (US$ millions)
Ridgecrest Copper-Molybdenum Mine | 198.6 | 30 | 134.9
Gallatin Chemical Works | 42.8 | 15 | 34.1
Bonanza Creek Gold Mine | 63.2 | 20 | 47.1
Kanawha Bend Chemical Plant | 38.9 | 20 | 29.0
Total | 343.5 | — | 245.1
Site | Penalty (US$ millions)
Ridgecrest Copper-Molybdenum Mine | 14.2
Gallatin Chemical Works | 5.8
Bonanza Creek Gold Mine | 7.9
Kanawha Bend Chemical Plant | 3.6
Total | 31.5
Site | Amount (US$ millions) | Description
Ridgecrest Copper-Molybdenum Mine | 14.3 | Reimbursement for EPA removal actions conducted from January 2021 through May 2023, including emergency water treatment, waste rock stabilization, and surface water diversion
Kanawha Bend Chemical Plant | 3.8 | Reimbursement for EPA emergency response conducted following the June 14, 2020 sulfuric acid release to a tributary of the Kanawha River, including containment, neutralization, and waste disposal
Total | 18.1
SEP | Location | Budget (US$ millions) | Description
Flint Creek Watershed Restoration Project | Granite County, Montana (12 miles of Flint Creek downstream of the Ridgecrest Mine) | 5.5 | Stream-bank stabilization, riparian buffer zone replanting, removal of fish-passage barriers, and installation of fish-passage improvements along approximately 12 miles of Flint Creek downstream of the Ridgecrest Mine
Battle Mountain Community Drinking Water Improvement Project | Lander County, Nevada | 3.5 | Upgrade and modernization of the municipal water treatment facility serving the community of Battle Mountain, Lander County, Nevada, including installation of advanced treatment systems for the removal of arsenic, mercury, and other contaminants
Institute Community Air Quality Monitoring Network | Institute and South Charleston, Kanawha County, West Virginia | 3.0 | Installation and 10-year operation and maintenance of six ambient air quality monitoring stations in the communities of Institute and South Charleston, West Virginia, including monitoring for sulfur dioxide, particulate matter, and volatile organic compounds
Category | Nominal Amount (US$ millions) | NPV / Cash Equivalent (US$ millions)
Total remediation (all four sites) | 343.5 | 245.1
Civil penalties | 31.5 | 31.5
EPA past-costs reimbursement | 18.1 | 18.1
Supplemental Environmental Projects | 12.0 | 12.0
Independent environmental monitor costs (5-year estimate) | 4.8 | 4.8
Grand Total | 409.9 | 311.5
Instrument | Provider | Amount (US$ millions) | Reference
Surety Bond | Ironbark Surety of America, Inc. (New York, New York) | 165.0 | Bond No. ISA-ENV-2025-08934
Remediation Trust Fund | Larchfield Trust Company, N.A. (Charlotte, North Carolina) | 80.0 | Trust Agreement No. LTC-REM-2025-1177
Total Financial Assurance | 245.0

DRAFT — For Discussion Purposes Only

Record

Parties

Dates

Amounts