1039-00003 · Torchlight Mining Corp · Accounting & Disclosure

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PRIVILEGED & CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Counsellors at Law

One World Financial Center 200 Liberty Street, 48th Floor New York, New York 10281-1003

Telephone: (212) 455-8200 Facsimile: (212) 455-8201 www.calderwoodharkness.com

March 3, 2025

Matter No.: 1039-00003

Frances Whitmore, CPA, CA Engagement Partner Ridgeline Accounting Partners LLP 225 6th Avenue SW, Suite 3300 Calgary, Alberta T2P 1N2 Canada

Re: Torchlight Mining Corp. (TSX: TRC; NYSE: TRC) — Response to Auditor Inquiry Regarding Environmental Litigation and Contingencies

Dear Ms. Whitmore:

We write in response to your inquiry letter dated February 14, 2025 (the "Inquiry Letter"), in which you requested information regarding pending or threatened litigation, claims, and assessments related to environmental matters for purposes of Ridgeline Accounting Partners LLP's ("Ridgeline") audit of the consolidated financial statements of Torchlight Mining Corp. ("TMC" or the "Company") for the fiscal year ended December 31, 2024. We appreciate your patience in allowing us sufficient time to compile a thorough response to the matters encompassed by your request.

Calderwood & Harkness LLP ("Calderwood & Harkness" or "this firm") serves as lead outside counsel to TMC in connection with a multi-site environmental compliance matter and consent-decree negotiation with the United States Environmental Protection Agency ("EPA") and the United States Department of Justice ("DOJ"), Environment and Natural Resources Division ("ENRD"). Our engagement in this matter was opened on October 21, 2024, at which time we replaced TMC's prior environmental counsel, Whitfield, Palmer & Goss LLP, which had represented the Company in these proceedings from the inception of the governmental enforcement action through September 2024.

This letter is provided in response to Ridgeline's Inquiry Letter pursuant to the applicable auditing standards, including AU-C Section 501 (Audit Evidence — Specific Considerations for Selected Items) and CAS 501 (Audit Evidence — Specific Considerations for Selected Items), as well as the American Bar Association Statement of Policy Regarding Lawyers' Responses to Auditors' Requests for Information, originally adopted in December 1975, as amended (the "ABA Statement of Policy"). This response is furnished in accordance with and subject to the limitations set forth in the ABA Statement of Policy, and is limited to matters on which Calderwood & Harkness has been engaged and has given substantive attention in the form of legal representation. We note that the scope of our engagement is confined to the multi-site EPA/DOJ enforcement action and consent decree negotiation described herein, and accordingly this letter does not purport to address all legal matters affecting the Company or its subsidiaries.

The information set forth below is organized for your convenience into five sections, addressing: (1) a description of the litigation and regulatory proceedings; (2) the terms of the consent decree and settlement amounts; (3) an assessment of liability; (4) additional matters for the auditor's consideration; and (5) limitations and qualifications applicable to this response.

Section 1: Description of the Litigation and Regulatory Proceedings

1.1 Case Caption and Court

The principal litigation matter within the scope of our engagement is captioned as follows:

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 State of Nevada and the State of West Virginia as co-plaintiffs.

The matter is pending as Civil Action No. 9:24-cv-00087-DWM in the United States District Court for the District of Montana, Missoula Division, before the Honorable Donald W. Molloy, Senior United States District Judge.

1.2 Parties

Plaintiffs. The plaintiffs in this action are as follows:

(a) The United States of America, acting through the United States Environmental Protection Agency and the United States Department of Justice, Environment and Natural Resources Division;

(b) The State of Montana, acting through the Montana Department of Environmental Quality and the Office of the Montana Attorney General;

(c) The State of Nevada, acting through the Nevada Division of Environmental Protection and the Office of the Nevada Attorney General; and

(d) The State of West Virginia, acting through the West Virginia Department of Environmental Protection and the Office of the West Virginia Attorney General.

Defendants. The defendants in this action are as follows:

(a) Torchlight Mining Corp., a corporation organized under the Canada Business Corporations Act ("CBCA"), the publicly traded parent company of the corporate group (TSX: TRC; NYSE: TRC);

(b) Torchlight Mining (U.S.) Inc., a Delaware corporation and wholly owned U.S. subsidiary of Torchlight Mining Corp. (Employer Identification Number: 83-2047156);

(c) Torchlight Specialty Chemicals, Inc., a Delaware corporation and indirect subsidiary of Torchlight Mining Corp. (Employer Identification Number: 47-3819204);

(d) Ridgecrest Mine Holdings, LLC, a Montana limited liability company (Montana Secretary of State ID: E1042738); and

(e) Bonanza Creek Mining, LLC, a Nevada limited liability company (Nevada Secretary of State Entity No.: E0518294731).

Each of the named defendants is either a direct or indirect subsidiary of Torchlight Mining Corp. The consent decree that is the subject of this letter provides for joint and several liability among all named defendants, subject to certain allocation provisions described in Section 2 below.

1.3 Nature of the Claims

The complaint asserts claims arising under several federal environmental statutes, as well as related state law provisions. Specifically, the claims include the following:

(a) Alleged violations of Section 301 of the Clean Water Act ("CWA"), 33 U.S.C. § 1311, including the discharge of pollutants into navigable waters of the United States without a permit or in excess of applicable permit limits;

(b) Alleged violations of Sections 3004 and 3005 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6924 and 6925, including the treatment, storage, and disposal of hazardous waste without a permit or in violation of applicable permit conditions, and failure to comply with corrective action requirements;

(c) Alleged liability under Section 107 of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607, for the recovery of past response costs incurred by the United States in connection with removal and emergency response actions at certain of the facilities described below; and

(d) Alleged violations of the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712, in connection with documented avian mortalities at the Bonanza Creek Gold Mine.

The claims arise from operations or former operations at four facilities located across three states — Montana, Nevada, and West Virginia. A summary description of each facility and the associated claims follows:

Ridgecrest Copper-Molybdenum Mine. The Ridgecrest Copper-Molybdenum Mine is located at 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832, and encompasses a mine footprint of approximately 3,200 acres. The facility is an open-pit copper-molybdenum mine that was operational from 1978 through 2019 and is currently in a state of closure and reclamation. The claims at this site relate to acid mine drainage, tailings seepage, unpermitted discharges in violation of the CWA, mismanagement of hazardous waste in violation of RCRA, and CERCLA cost recovery for EPA removal actions conducted at the site between 2021 and 2023. The Ridgecrest site is the largest and most costly of the four sites encompassed by the consent decree and represents the most significant share of the total remediation obligations.

Gallatin Chemical Works. The Gallatin Chemical Works facility is located at 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714, and occupies approximately 145 acres. This is an active specialty chemical manufacturing facility operated by Torchlight Specialty Chemicals, Inc. The facility is a RCRA corrective action facility operating under Permit No. MTD098712456. The claims at this site relate to carbon disulfide (CS₂) contamination in groundwater, volatile organic compounds ("VOCs") in soils, and exceedances of the Montana Pollutant Discharge Elimination System ("MPDES") permit on fourteen documented occasions between January 2021 and June 2024. The Gallatin facility is subject to ongoing RCRA corrective action obligations under the consent decree.

Bonanza Creek Gold Mine. The Bonanza Creek Gold Mine is located on County Road 447, Mile Marker 12, Lander County, Nevada 89820, and encompasses a mine footprint of approximately 5,600 acres. This is an active open-pit heap-leach gold mine operated by Bonanza Creek Mining, LLC. The claims at this site arise from three documented releases of cyanide and mercury from torn heap-leach liner systems occurring in March 2022, August 2022, and January 2023. The releases resulted in contamination of surface and subsurface soils and groundwater, and are alleged to have caused seventeen documented avian mortalities in violation of the MBTA. The Bonanza Creek claims encompass CWA, RCRA, MBTA, and related state law violations. We note that the MBTA exposure at the Bonanza Creek site has been resolved as part of the global consent decree settlement described in Section 2 below.

Kanawha Bend Chemical Plant. The Kanawha Bend Chemical Plant is located at 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112, and occupies approximately 78 acres. This is an active chemical manufacturing facility operated by Torchlight Specialty Chemicals, Inc. The facility is a RCRA corrective action facility operating under Permit No. WVD048823915. The claims at this site relate to sulfuric acid residuals and heavy metals in soils, as well as a dense non-aqueous phase liquid ("DNAPL") plume in the underlying fractured bedrock aquifer. The CERCLA cost recovery component at this site relates to an EPA emergency response action conducted in June 2020 following an acute sulfuric acid release event. The Kanawha Bend facility is subject to ongoing RCRA corrective action obligations under the consent decree.

1.4 Procedural History

The following is a summary of the key procedural events in this matter:

• September 12, 2023: The EPA issued a comprehensive Notice of Violation ("NOV") covering all four facilities described above, identifying multiple statutory and regulatory violations and demanding corrective action and compliance.

• January 18, 2024: The DOJ, acting on behalf of the EPA and in coordination with the States of Montana, Nevada, and West Virginia, filed the initial complaint commencing this action as Civil Action No. 9:24-cv-00087-DWM in the United States District Court for the District of Montana, Missoula Division.

• March 5, 2024: TMC and its co-defendant subsidiaries filed their answer to the complaint, denying certain allegations and asserting various affirmative defenses, including, among others, compliance with applicable permits, the availability of divisible harm defenses under CERCLA, and statute of limitations defenses as to certain of the claims.

• April 22, 2024: The parties entered into a Tolling Agreement, pursuant to which the applicable statutes of limitations were tolled through December 31, 2025, in order to facilitate settlement discussions without prejudice to any party's rights.

• May 15, 2024: The Court entered an order referring the matter to court-ordered mediation before Magistrate Judge Clara Finnegan for purposes of exploring a global resolution of all claims.

• July 30, 2024: Following two in-person mediation sessions and numerous telephone conferences facilitated by Magistrate Judge Finnegan, the parties reached an agreement in principle on the framework for a comprehensive consent decree resolving all claims asserted in the complaint.

• October 21, 2024: Calderwood & Harkness LLP was engaged as lead outside counsel to TMC in this matter, replacing Whitfield, Palmer & Goss LLP.

• November 8, 2024 through February 3, 2025: The parties engaged in iterative consent decree drafting and negotiation over a period of approximately three months. The DOJ circulated its initial draft consent decree on November 8, 2024. TMC submitted its redline of the consent decree on December 16, 2024. The government circulated a counter-redline on January 14, 2025. Final agreement on the terms of the consent decree was reached on February 3, 2025.

• February 19, 2025: The consent decree was lodged with the United States District Court for the District of Montana, Missoula Division, initiating the 30-day public comment period required under 28 U.S.C. § 7003(d). The public comment period is scheduled to close on March 21, 2025.

We note that, prior to Calderwood & Harkness's engagement in this matter, the Company was represented by Whitfield, Palmer & Goss LLP, under whose representation a pre-existing Administrative Order on Consent ("AOC") was executed on September 15, 2022 (Docket No. CERCLA-08-2022-0039), governing certain interim remedial measures at the Ridgecrest site. The obligations under the AOC have been subsumed into and superseded by the consent decree, and this firm reviewed the AOC in the course of its due diligence upon assuming representation.

1.5 Current Status

As of the date of this letter, the consent decree has been lodged with the Court, and the 30-day public comment period is scheduled to close on March 21, 2025. Based on discussions with counsel for the United States and counsel for the co-plaintiff States, we anticipate the following timeline for the remaining procedural steps:

• The United States is expected to file a motion for entry of the consent decree on or about April 7, 2025, following review and consideration of any public comments received during the comment period.

• A hearing on the motion for entry is expected to be scheduled for approximately April 28, 2025.

• Based on the foregoing, we anticipate that the consent decree will be entered by the Court on or about May 15, 2025.

• The Effective Date under the consent decree, as defined in Section IV of the decree, is thirty (30) days after the date of entry — which, based on anticipated entry on May 15, 2025, would be approximately June 14, 2025.

We are not aware of any opposition to entry of the consent decree by any party, and no contested proceedings or trial are anticipated. The matter is expected to be fully resolved through entry of the consent decree. While there is always the possibility that public comments could raise issues requiring modification of the consent decree prior to entry, based on our experience and our communications with counsel for the government, we do not anticipate any material changes to the agreed terms. Accordingly, the settlement reflected in the consent decree is, in our judgment, the most likely outcome of this proceeding.

Section 2: Terms of the Consent Decree — Settlement Amounts

The consent decree, as lodged with the Court on February 19, 2025, imposes the following financial and remedial obligations on the Company and its subsidiaries. We summarize these obligations below for the convenience of the auditor. Please note that the following descriptions are intended as summaries of key terms and do not purport to be comprehensive restatements of the consent decree; in the event of any inconsistency between this summary and the consent decree itself, the terms of the consent decree control.

2.1 Remediation Obligations

The consent decree obligates TMC and its U.S. subsidiaries (Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC) to perform remediation at all four sites described in Section 1.3 above. The remediation obligations are set forth in Sections VII through X of the consent decree and the associated Appendices (Statements of Work and Remedial Action Work Plans).

The total nominal remediation costs, as agreed and estimated under the consent decree, are as follows:

We note that the Ridgecrest remediation cost figure of $198.6 million represents a negotiated amount falling between TMC's internal estimate of $187.5 million and the EPA's estimate of $224.0 million. The consent decree provides that the stated remediation costs are estimates, and the actual remediation costs may be higher or lower depending on range factors, including site conditions, regulatory requirements, and the results of ongoing monitoring. The consent decree does not cap the defendants' remediation obligations at the estimated amounts; rather, the defendants are obligated to achieve specified performance standards and cleanup objectives, and must continue remediation until those standards and objectives are met, irrespective of cost.

For informational purposes, the net present value of the total remediation obligations, calculated using a 3% discount rate, is estimated as follows:

The NPV calculations above were performed by the Company's environmental consultants, Apex Environmental Engineering, Inc., and reviewed by this firm for consistency with the consent decree terms. We express no opinion on the appropriateness of the discount rate or the methodology employed.

2.2 Civil Penalties

The consent decree provides for a combined civil penalty of $31.5 million, allocated among the four sites as follows:

The civil penalties are payable in four equal quarterly installments of $7.875 million each. The payment schedule, as set forth in Section VI of the consent decree, is as follows:

(a) First installment (25%): due within thirty (30) days of the Effective Date of the consent decree;

(b) Second installment (25%): due twelve (12) months after entry of the consent decree;

(d) Fourth installment (25%): due thirty-six (36) months after entry of the consent decree.

Based on the anticipated Effective Date of approximately June 14, 2025, the first installment of approximately $7.875 million would be due on or about July 14, 2025. Interest on any late payments accrues at the rate specified in 28 U.S.C. § 1961.

2.3 EPA Past-Costs Reimbursement (CERCLA § 107)

The consent decree obligates TMC and its subsidiaries to reimburse the EPA for past response costs incurred by the United States in connection with removal and emergency response actions at two of the four sites. The total past-costs reimbursement obligation is $18.1 million, allocated as follows:

(a) Ridgecrest Copper-Molybdenum Mine: $14.3 million, representing reimbursement for EPA removal actions conducted at the Ridgecrest site between 2021 and 2023, including the construction of emergency water treatment facilities, installation of temporary groundwater extraction wells, and stabilization of certain tailings impoundment structures; and

(b) Kanawha Bend Chemical Plant: $3.8 million, representing reimbursement for an EPA emergency response action conducted in June 2020 following an acute sulfuric acid release event at the facility, which required evacuation of portions of the surrounding community and deployment of EPA's Emergency Response Team.

The past-costs reimbursement is payable in a single lump-sum payment within sixty (60) days of the Effective Date of the consent decree.

2.4 Supplemental Environmental Projects (SEPs)

The consent decree requires TMC to fund and perform three Supplemental Environmental Projects ("SEPs") totaling $12.0 million. The SEPs are described in Appendix G to the consent decree and are summarized as follows:

(a) Flint Creek Watershed Restoration Project (Montana): $5.5 million. This project involves the restoration and enhancement of riparian habitat, water quality improvements, and fish passage restoration along a 22-mile segment of Flint Creek in Granite County, Montana, in the vicinity of the Ridgecrest mine site.

(b) Battle Mountain Community Drinking Water Improvement Project (Nevada): $3.5 million. This project involves the design, construction, and commissioning of new community drinking water infrastructure for the town of Battle Mountain, Lander County, Nevada, including replacement of aging distribution lines, installation of advanced filtration systems, and connection of previously unserved residences to the municipal water system.

(c) Institute Community Air Quality Monitoring Network (West Virginia): $3.0 million. This project involves the design, installation, and five-year operation of a network of ambient air quality monitoring stations in the Institute community of Kanawha County, West Virginia, to provide real-time monitoring data for VOCs, particulate matter, and sulfur compounds.

TMC is required to complete the design phase for each SEP within twelve (12) months of the Effective Date and to complete all construction and implementation activities within thirty-six (36) months of the Effective Date. Annual progress reports on the SEPs are to be submitted to the EPA and the relevant state agencies.

2.5 Independent Monitor Costs

The consent decree provides for the appointment of a court-appointed independent environmental monitor to oversee compliance with the terms of the decree. Pursuant to Section XIV of the consent decree, the Court has designated Verdant Analytics, Inc. as the independent monitor. The monitor will perform quarterly compliance audits at each of the four sites and will issue annual public reports on the status of the defendants' compliance with the consent decree.

The estimated cost of the independent monitor over the initial five-year monitoring period is $4.8 million, or approximately $960,000 per year. The monitor's costs are to be borne by the defendants and are payable quarterly upon receipt of itemized invoices from the monitor. The consent decree provides that the monitoring period may be extended beyond five years if the Court determines, upon application by any party or by the monitor, that continued monitoring is warranted.

2.6 Grand Total — Estimated Financial Obligations

The following table summarizes the total estimated financial obligations imposed by the consent decree, presented on both a nominal basis and a net present value / cash-equivalent basis:

The NPV / cash-equivalent figures treat the civil penalties, EPA past-costs reimbursement, SEPs, and monitor costs at face value (i.e., without discounting), as these obligations are payable over relatively shorter time horizons. Only the remediation obligations, which extend over periods of 15 to 30 years, have been discounted to present value using a 3% discount rate.

2.7 Financial Assurance Instruments

The consent decree requires TMC to post financial assurance in an aggregate amount of $245.0 million no later than September 12, 2025. The financial assurance is structured as follows:

(a) Surety Bond: A surety bond in the face amount of $165.0 million, to be issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934). The annual premium on the bond is 1.85% of the face value, or approximately $3.0525 million per year. The bond is subject to annual renewal and may be drawn upon by the EPA in the event of the defendants' failure to perform the remediation obligations specified in the consent decree.

(b) Remediation Trust Fund: An initial deposit of $80.0 million into a remediation trust fund held by Larchfield Trust Company, N.A. (Trust Agreement No. LTC-REM-2025-1177). The trust fund is to be used exclusively for the payment of remediation costs at the four sites, and disbursements from the trust fund require the prior approval of the EPA or the independent monitor, as applicable.

The total financial assurance requirement of $245.0 million ($165.0 million surety bond + $80.0 million trust fund) is designed to provide security for the estimated NPV of the remediation obligations ($245.1 million). We note that the annual premium on the surety bond ($3.0525 million per year) represents a recurring cost that is not separately identified in the consent decree's financial obligations but should be considered by management and the auditor in evaluating the Company's ongoing cost exposure.

2.8 Stipulated Penalties

The consent decree includes stipulated penalty provisions for failure to comply with the requirements of the decree, as set forth in Section XV. The stipulated penalties are structured on a tiered basis, as follows:

(a) $1,500 per day per violation for the first thirty (30) days of non-compliance;

(b) $3,000 per day per violation for days thirty-one (31) through sixty (60) of non-compliance; and

The stipulated penalties represent contingent obligations that would arise only in the event of non-compliance with the consent decree's requirements. Based on our discussions with management and the Company's environmental consultants, management does not anticipate triggering any stipulated penalties and intends to comply fully with the terms of the consent decree. Accordingly, while we bring the stipulated penalty provisions to your attention for completeness, we note that these provisions do not, in our view, give rise to a present obligation requiring recognition or accrual at this time.

Section 3: Assessment of Liability — Probable and Estimable

3.1 Standard Applied

Consistent with applicable accounting guidance under ASC 450 (Contingencies) (formerly SFAS No. 5) and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets), the Company has evaluated the likelihood and estimability of the environmental obligations described in this letter. We understand that, under both ASC 450 and IAS 37, a loss contingency should be recognized (i.e., accrued) when (a) it is probable (or, under IAS 37, "more likely than not") that a liability has been incurred as of the balance sheet date, and (b) the amount of the loss can be reasonably estimated.

Based on our assessment of the current posture of this matter, we advise as follows: The consent decree obligations described in Section 2 above are assessed by management, with the concurrence of this firm, as both probable and reasonably estimable. This assessment is grounded in the following considerations:

(a) The parties have reached final agreement on all material terms of the consent decree;

(b) The consent decree has been lodged with the Court, and the 30-day public comment period has been completed;

(c) Entry of the consent decree by the Court is anticipated on or about May 15, 2025, and no opposition to entry is expected;

(d) The financial obligations under the consent decree are set forth in specific dollar amounts (as described in Section 2), with the exception of the remediation costs, which are based on detailed engineering estimates and are subject to the performance-based obligations described in Section 2.1; and

(e) No party has indicated any intent to withdraw from or contest the consent decree.

Accordingly, we believe that the consent decree obligations meet the criteria for recognition as a loss contingency under both ASC 450 and IAS 37. We note, however, that the characterization of a particular contingency as "probable" and "reasonably estimable" for purposes of this letter reflects our assessment of the legal and factual posture of the matter and does not constitute an accounting opinion; the ultimate determination of the appropriate accounting treatment is within the province of management and the Company's auditors.

3.2 Company's Environmental Remediation Reserve

We have been advised by management that, as of the third quarter of 2024 (as reported in TMC's Form 10-Q / interim financial statements for the period ended September 30, 2024), the Company has recorded an environmental remediation reserve of C$340.0 million (approximately US$251.4 million at the exchange rate of C$1.00 = US$0.7394 as of September 30, 2024). The reserve is intended to cover the net present value / cash-equivalent of the remediation, penalty, and related obligations arising from the environmental matters described in this letter.

We bring to your attention the following observations regarding the relationship between the Company's recorded reserve and the financial obligations under the consent decree:

(a) The current environmental remediation reserve of US$251.4 million is approximately US$158.5 million less than the nominal grand total obligation of US$409.9 million ($409.9M – $251.4M = $158.5M).

(b) However, the appropriate comparison for purposes of evaluating reserve adequacy may be between the current reserve and the NPV / cash-equivalent grand total of US$311.5 million, which yields a shortfall of approximately US$60.1 million ($311.5M – $251.4M = $60.1M).

(c) Management is currently in the process of evaluating whether an increase in the environmental remediation reserve is required to fully reflect the Company's obligations under the consent decree. We understand that this evaluation is ongoing and that management expects to make a determination in connection with the preparation of the Company's annual financial statements for the fiscal year ended December 31, 2024.

We wish to emphasize that Calderwood & Harkness expresses no opinion on the adequacy of the Company's environmental remediation reserve, the appropriate discount rate to be applied to the remediation obligations, or the appropriate accounting treatment for any component of the consent decree obligations. These determinations are within the province of management and the Company's auditors, and we defer entirely to their judgment on these matters.

3.3 Insurance Recoveries

The Company maintains a Pollution Legal Liability ("PLL") insurance policy with Meridian Environmental Insurance Company (Policy No. MEI-ENV-2021-04738). The key terms of the policy, as we understand them, are as follows:

• Per-occurrence limit: $50.0 million

• Aggregate limit: $75.0 million

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

• Policy period: June 1, 2021 through June 1, 2026 (five-year term)

A coverage dispute currently exists between the Company and Meridian Environmental Insurance Company. Specifically:

(a) Meridian has denied coverage for losses arising from the Ridgecrest Copper-Molybdenum Mine, citing the pollution / known-conditions exclusion in the policy on the basis that the environmental conditions at the Ridgecrest site were known to the insured prior to the inception of the policy;

(b) Meridian has denied coverage for losses arising from the Kanawha Bend Chemical Plant, citing late notice of claim, asserting that the Company failed to provide timely notice of the June 2020 sulfuric acid release event and the subsequent EPA emergency response action; and

(c) Meridian has acknowledged coverage, subject to the applicable SIR and policy limits, for losses arising from the Gallatin Chemical Works and Bonanza Creek Gold Mine sites.

The Company's financial advisor, Northspire Capital Markets, Inc., has estimated potential insurance recoveries in the range of $45.0 million to $55.0 million, with a maximum theoretical recovery of $75.0 million (the policy aggregate limit), depending on the resolution of the coverage disputes described above. We note, however, that these estimates are subject to considerable uncertainty, and the actual recoveries may be materially higher or lower than the estimated range.

We wish to make clear that this firm is not engaged to handle the insurance coverage litigation with Meridian Environmental Insurance Company. Accordingly, any detailed assessment of insurance recoverability, including the probability of prevailing on the disputed coverage issues, should be directed to the counsel retained by the Company for that purpose. Calderwood & Harkness does not express an opinion on the probability or amount of insurance recoveries.

3.4 Matters Beyond Scope

This letter addresses only matters within the scope of Calderwood & Harkness's engagement (Matter No. 1039-00003) — namely, the multi-site EPA/DOJ enforcement action and consent decree negotiation described herein. We have not been engaged to advise on, and this letter does not address, the following categories of matters:

(a) The insurance coverage dispute with Meridian Environmental Insurance Company, beyond the factual description set forth in Section 3.3 above;

(b) Any potential shareholder, securities, or derivative litigation that may arise from or in connection with the environmental matters described in this letter, including any proceedings before the United States Securities and Exchange Commission, the Ontario Securities Commission, the Alberta Securities Commission, or any other securities regulatory authority;

(c) Any other pending or threatened claims, proceedings, or investigations against TMC or any of its subsidiaries beyond those specifically described in this letter; and

(d) Any tax consequences, whether domestic or foreign, arising from the payment of the civil penalties, remediation costs, or other obligations under the consent decree.

We express no opinion with respect to any of the foregoing matters, and we recommend that Ridgeline direct any inquiries regarding such matters to the Company's management or to the counsel retained to handle such matters.

Section 4: Additional Matters for Auditor's Consideration

In addition to the litigation and consent decree matters described above, we bring the following matters to Ridgeline's attention for purposes of its audit. While these matters are ancillary to the principal subject of our engagement, they intersect with the environmental litigation in ways that may be relevant to the auditor's evaluation of the Company's financial statements.

4.1 Credit Facility Covenants

TMC maintains a C$750.0 million syndicated revolving credit facility (the "RCF") with Harborstone National Bank, N.A. as administrative agent (the "Credit Agreement"). The RCF has a maturity date of March 15, 2027. Among the various affirmative and negative covenants contained in the Credit Agreement, the RCF includes an environmental liability covenant (Section 7.14 of the Credit Agreement) requiring that aggregate disclosed and undisclosed environmental liabilities not exceed 25% of the Company's consolidated net tangible assets ("CNTA") at any time during the term of the facility.

Based on information provided to us by management:

(a) The Company's CNTA as of the third quarter of 2024 was C$3.92 billion;

(b) The 25% environmental liability threshold under the covenant is therefore C$980.0 million;

(c) The Company's current total environmental liabilities, including the consent decree obligations, are approximately C$554.4 million; and

(d) The resulting covenant headroom is approximately C$425.6 million (C$980.0M – C$554.4M = C$425.6M).

Management has assessed the Company as being in compliance with the environmental liability covenant under the Credit Agreement, and Calderwood & Harkness has advised on the Company's disclosure obligations to the lending syndicate in connection with the consent decree. A disclosure letter was sent to Harborstone National Bank, N.A. on March 1, 2025, notifying the lending syndicate of the lodging of the consent decree and the anticipated financial obligations thereunder. We have not been asked to opine on, and do not express any opinion regarding, the Company's compliance with any other covenants or provisions of the Credit Agreement.

4.2 D&O Insurance

The Company maintains a directors' and officers' ("D&O") liability insurance policy with Clearwater Mutual Insurance, Ltd. (Policy No. CMI-DO-2023-10221). We have been informed by management that a notice of circumstances was provided to the D&O carrier on December 15, 2024, in connection with the EPA enforcement action and the related consent decree negotiation, to preserve the Company's rights under the policy in the event that any claims are subsequently asserted against the Company's directors or officers arising from these matters.

As of the date of this letter, no D&O claim has been asserted against any director or officer of TMC or any of its subsidiaries in connection with the environmental matters described herein. We note this matter for completeness and to ensure that the auditor is aware of the circumstances notice that has been filed.

4.3 Key Upcoming Milestones / Post-Balance-Sheet Events

The following upcoming milestones and events, which will occur after the Company's balance sheet date of December 31, 2024, may require disclosure in the Company's annual financial statements for the fiscal year ended December 31, 2024, as subsequent events under ASC 855 (Subsequent Events) or IAS 10 (Events After the Reporting Period):

(a) Target entry of consent decree: on or about May 15, 2025;

(b) Effective Date of consent decree: on or about June 14, 2025 (thirty (30) days after entry);

(c) First civil penalty installment: $7.875 million, due on or about July 14, 2025 (thirty (30) days after the Effective Date);

(d) Financial assurance deadline: $245.0 million in financial assurance instruments (surety bond and remediation trust fund) must be posted no later than September 12, 2025;

(e) EPA past-costs reimbursement: $18.1 million, due on or about August 13, 2025 (sixty (60) days after the Effective Date); and

(f) Ridgecrest Remedial Action Work Plan submission deadline: December 14, 2025 (six (6) months after the Effective Date).

We note that the determination of whether and how these post-balance-sheet events should be disclosed or reflected in the Company's financial statements is a matter of accounting judgment within the province of management and the Company's auditors. We do not express any opinion on the appropriate accounting treatment of these events.

Section 5: Limitations and Qualifications

This letter is furnished in accordance with and subject to the limitations of the ABA Statement of Policy Regarding Lawyers' Responses to Auditors' Requests for Information, originally adopted in December 1975 and as subsequently amended. We call your attention to the following specific limitations and qualifications:

1. The information set forth herein is as of the date of this letter, March 3, 2025, and is limited to matters to which Calderwood & Harkness has given substantive attention in the form of legal representation. We have not undertaken any independent investigation of matters beyond the scope of our engagement, and we have relied on information provided to us by the Company's management, its other advisors, and the governmental parties in the ordinary course of the litigation and consent decree negotiation.

2. There may exist unasserted possible claims or assessments that are not described in this letter because they do not meet the criteria for inclusion under the ABA Statement of Policy. Specifically, the ABA Statement of Policy provides that a lawyer should not disclose to the auditor information concerning an unasserted possible claim or assessment unless the client has specifically requested or authorized such disclosure. We have consulted with the Company's management regarding unasserted possible claims and assessments, and to the extent that any such matters exist, they have been addressed in accordance with the procedures set forth in the ABA Statement of Policy.

3. This letter is solely for the use of Ridgeline Accounting Partners LLP in connection with its audit of TMC's consolidated financial statements for the fiscal year ended December 31, 2024, and should not be used, quoted, cited, or relied upon by any other party for any other purpose without the prior written consent of Calderwood & Harkness LLP. This letter does not create any attorney-client relationship between Calderwood & Harkness and Ridgeline, and Ridgeline may not rely on this letter as legal advice.

4. Calderwood & Harkness does not express any opinion on questions of fact, the probability of an unfavorable outcome (except to the extent expressly stated herein with respect to the assessment of the consent decree obligations as probable and reasonably estimable), or the adequacy of the Company's financial reserves for environmental liabilities. Such determinations are within the province of management and the Company's auditors.

5. This letter does not address any matters arising under Canadian federal or provincial environmental law, including the Canadian Environmental Protection Act, 1999 (S.C. 1999, c. 33), the Fisheries Act (R.S.C. 1985, c. F-14), or any provincial environmental legislation. Our engagement is limited to the U.S. federal and state environmental enforcement action described herein.

6. The limitations of this letter are consistent with and integral to our professional responsibilities, and are not intended to suggest any limitation on the auditor's responsibilities in conducting its audit.

We reserve the right to supplement or amend this letter in the event of material developments in the matters described herein occurring prior to the issuance of the Company's audited financial statements for the fiscal year ended December 31, 2024.

We trust that the foregoing is responsive to the matters raised in your Inquiry Letter of February 14, 2025. Should you have any questions regarding this letter or require any additional information, please do not hesitate to contact the undersigned, Harrison Wexford, directly at (212) 455-8247 or by email at hwexford@calderwoodharkness.com. We are prepared to discuss these matters with you and your engagement team at your convenience, including by telephone or video conference, and to provide any additional documentation that may be necessary to support your audit procedures.

We appreciate Ridgeline's professionalism and cooperation in this process, and we look forward to assisting in any further way that may be required.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Harrison Wexford Partner Environmental Litigation & Regulatory Enforcement Practice

Calderwood & Harkness LLP One World Financial Center 200 Liberty Street, 48th Floor New York, New York 10281-1003 Telephone: (212) 455-8247 Facsimile: (212) 455-8201

Email: hwexford@calderwoodharkness.com

cc: Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp.

Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp.

Beatrice Holloway, Partner, Calderwood & Harkness LLP (billing partner)

Site	Nominal Remediation Cost	Remediation Period
Ridgecrest Copper-Molybdenum Mine	$198.6 million	30 years
Gallatin Chemical Works	$42.8 million	15 years
Bonanza Creek Gold Mine	$63.2 million	20 years
Kanawha Bend Chemical Plant	$38.9 million	20 years
Total	$343.5 million	—
Site	Net Present Value (3% discount Rate)
Ridgecrest Copper-Molybdenum Mine	$134.9 million
Gallatin Chemical Works	$34.1 million
Bonanza Creek Gold Mine	$47.1 million
Kanawha Bend Chemical Plant	$29.0 million
Total	$245.1 million
Site	Civil Penalty
Ridgecrest Copper-Molybdenum Mine	$14.2 million
Gallatin Chemical Works	$5.8 million
Bonanza Creek Gold Mine	$7.9 million
Kanawha Bend Chemical Plant	$3.6 million
Total	$31.5 million
Obligation Category	Nominal Amount	NPV / Cash Equivalent
Total Remediation	$343.5 million	$245.1 million
Civil Penalties	$31.5 million	$31.5 million
EPA Past-Costs Reimbursement	$18.1 million	$18.1 million
Supplemental Environmental Projects	$12.0 million	$12.0 million
Independent Monitor (5-year estimate)	$4.8 million	$4.8 million
Grand Total	$409.9 million	$311.5 million

PRIVILEGED & CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Counsellors at Law
One World Financial Center 200 Liberty Street, 48th Floor New York, New York 10281-1003
Telephone: (212) 455-8200 Facsimile: (212) 455-8201 www.calderwoodharkness.com
March 3, 2025
Matter No.: 1039-00003
Frances Whitmore, CPA, CA Engagement Partner Ridgeline Accounting Partners LLP 225 6th Avenue SW, Suite 3300 Calgary, Alberta T2P 1N2 Canada
Re: Torchlight Mining Corp. (TSX: TRC; NYSE: TRC) — Response to Auditor Inquiry Regarding Environmental Litigation and Contingencies
Dear Ms. Whitmore:
We write in response to your inquiry letter dated February 14, 2025 (the "Inquiry Letter"), in which you requested information regarding pending or threatened litigation, claims, and assessments related to environmental matters for purposes of Ridgeline Accounting Partners LLP's ("Ridgeline") audit of the consolidated financial statements of Torchlight Mining Corp. ("TMC" or the "Company") for the fiscal year ended December 31, 2024. We appreciate your patience in allowing us sufficient time to compile a thorough response to the matters encompassed by your request.
Calderwood & Harkness LLP ("Calderwood & Harkness" or "this firm") serves as lead outside counsel to TMC in connection with a multi-site environmental compliance matter and consent-decree negotiation with the United States Environmental Protection Agency ("EPA") and the United States Department of Justice ("DOJ"), Environment and Natural Resources Division ("ENRD"). Our engagement in this matter was opened on October 21, 2024, at which time we replaced TMC's prior environmental counsel, Whitfield, Palmer & Goss LLP, which had represented the Company in these proceedings from the inception of the governmental enforcement action through September 2024.
This letter is provided in response to Ridgeline's Inquiry Letter pursuant to the applicable auditing standards, including AU-C Section 501 (Audit Evidence — Specific Considerations for Selected Items) and CAS 501 (Audit Evidence — Specific Considerations for Selected Items), as well as the American Bar Association Statement of Policy Regarding Lawyers' Responses to Auditors' Requests for Information, originally adopted in December 1975, as amended (the "ABA Statement of Policy"). This response is furnished in accordance with and subject to the limitations set forth in the ABA Statement of Policy, and is limited to matters on which Calderwood & Harkness has been engaged and has given substantive attention in the form of legal representation. We note that the scope of our engagement is confined to the multi-site EPA/DOJ enforcement action and consent decree negotiation described herein, and accordingly this letter does not purport to address all legal matters affecting the Company or its subsidiaries.
The information set forth below is organized for your convenience into five sections, addressing: (1) a description of the litigation and regulatory proceedings; (2) the terms of the consent decree and settlement amounts; (3) an assessment of liability; (4) additional matters for the auditor's consideration; and (5) limitations and qualifications applicable to this response.
Section 1: Description of the Litigation and Regulatory Proceedings
1.1 Case Caption and Court
The principal litigation matter within the scope of our engagement is captioned as follows:
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 State of Nevada and the State of West Virginia as co-plaintiffs.
The matter is pending as Civil Action No. 9:24-cv-00087-DWM in the United States District Court for the District of Montana, Missoula Division, before the Honorable Donald W. Molloy, Senior United States District Judge.
1.2 Parties
Plaintiffs. The plaintiffs in this action are as follows:
(a) The United States of America, acting through the United States Environmental Protection Agency and the United States Department of Justice, Environment and Natural Resources Division;
(b) The State of Montana, acting through the Montana Department of Environmental Quality and the Office of the Montana Attorney General;
(c) The State of Nevada, acting through the Nevada Division of Environmental Protection and the Office of the Nevada Attorney General; and
(d) The State of West Virginia, acting through the West Virginia Department of Environmental Protection and the Office of the West Virginia Attorney General.
Defendants. The defendants in this action are as follows:
(a) Torchlight Mining Corp., a corporation organized under the Canada Business Corporations Act ("CBCA"), the publicly traded parent company of the corporate group (TSX: TRC; NYSE: TRC);
(b) Torchlight Mining (U.S.) Inc., a Delaware corporation and wholly owned U.S. subsidiary of Torchlight Mining Corp. (Employer Identification Number: 83-2047156);
(c) Torchlight Specialty Chemicals, Inc., a Delaware corporation and indirect subsidiary of Torchlight Mining Corp. (Employer Identification Number: 47-3819204);
(d) Ridgecrest Mine Holdings, LLC, a Montana limited liability company (Montana Secretary of State ID: E1042738); and
(e) Bonanza Creek Mining, LLC, a Nevada limited liability company (Nevada Secretary of State Entity No.: E0518294731).
Each of the named defendants is either a direct or indirect subsidiary of Torchlight Mining Corp. The consent decree that is the subject of this letter provides for joint and several liability among all named defendants, subject to certain allocation provisions described in Section 2 below.
1.3 Nature of the Claims
The complaint asserts claims arising under several federal environmental statutes, as well as related state law provisions. Specifically, the claims include the following:
(a) Alleged violations of Section 301 of the Clean Water Act ("CWA"), 33 U.S.C. § 1311, including the discharge of pollutants into navigable waters of the United States without a permit or in excess of applicable permit limits;
(b) Alleged violations of Sections 3004 and 3005 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6924 and 6925, including the treatment, storage, and disposal of hazardous waste without a permit or in violation of applicable permit conditions, and failure to comply with corrective action requirements;
(c) Alleged liability under Section 107 of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607, for the recovery of past response costs incurred by the United States in connection with removal and emergency response actions at certain of the facilities described below; and
(d) Alleged violations of the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712, in connection with documented avian mortalities at the Bonanza Creek Gold Mine.
The claims arise from operations or former operations at four facilities located across three states — Montana, Nevada, and West Virginia. A summary description of each facility and the associated claims follows:
Ridgecrest Copper-Molybdenum Mine. The Ridgecrest Copper-Molybdenum Mine is located at 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832, and encompasses a mine footprint of approximately 3,200 acres. The facility is an open-pit copper-molybdenum mine that was operational from 1978 through 2019 and is currently in a state of closure and reclamation. The claims at this site relate to acid mine drainage, tailings seepage, unpermitted discharges in violation of the CWA, mismanagement of hazardous waste in violation of RCRA, and CERCLA cost recovery for EPA removal actions conducted at the site between 2021 and 2023. The Ridgecrest site is the largest and most costly of the four sites encompassed by the consent decree and represents the most significant share of the total remediation obligations.
Gallatin Chemical Works. The Gallatin Chemical Works facility is located at 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714, and occupies approximately 145 acres. This is an active specialty chemical manufacturing facility operated by Torchlight Specialty Chemicals, Inc. The facility is a RCRA corrective action facility operating under Permit No. MTD098712456. The claims at this site relate to carbon disulfide (CS₂) contamination in groundwater, volatile organic compounds ("VOCs") in soils, and exceedances of the Montana Pollutant Discharge Elimination System ("MPDES") permit on fourteen documented occasions between January 2021 and June 2024. The Gallatin facility is subject to ongoing RCRA corrective action obligations under the consent decree.
Bonanza Creek Gold Mine. The Bonanza Creek Gold Mine is located on County Road 447, Mile Marker 12, Lander County, Nevada 89820, and encompasses a mine footprint of approximately 5,600 acres. This is an active open-pit heap-leach gold mine operated by Bonanza Creek Mining, LLC. The claims at this site arise from three documented releases of cyanide and mercury from torn heap-leach liner systems occurring in March 2022, August 2022, and January 2023. The releases resulted in contamination of surface and subsurface soils and groundwater, and are alleged to have caused seventeen documented avian mortalities in violation of the MBTA. The Bonanza Creek claims encompass CWA, RCRA, MBTA, and related state law violations. We note that the MBTA exposure at the Bonanza Creek site has been resolved as part of the global consent decree settlement described in Section 2 below.
Kanawha Bend Chemical Plant. The Kanawha Bend Chemical Plant is located at 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112, and occupies approximately 78 acres. This is an active chemical manufacturing facility operated by Torchlight Specialty Chemicals, Inc. The facility is a RCRA corrective action facility operating under Permit No. WVD048823915. The claims at this site relate to sulfuric acid residuals and heavy metals in soils, as well as a dense non-aqueous phase liquid ("DNAPL") plume in the underlying fractured bedrock aquifer. The CERCLA cost recovery component at this site relates to an EPA emergency response action conducted in June 2020 following an acute sulfuric acid release event. The Kanawha Bend facility is subject to ongoing RCRA corrective action obligations under the consent decree.
1.4 Procedural History
The following is a summary of the key procedural events in this matter:
• September 12, 2023: The EPA issued a comprehensive Notice of Violation ("NOV") covering all four facilities described above, identifying multiple statutory and regulatory violations and demanding corrective action and compliance.
• January 18, 2024: The DOJ, acting on behalf of the EPA and in coordination with the States of Montana, Nevada, and West Virginia, filed the initial complaint commencing this action as Civil Action No. 9:24-cv-00087-DWM in the United States District Court for the District of Montana, Missoula Division.
• March 5, 2024: TMC and its co-defendant subsidiaries filed their answer to the complaint, denying certain allegations and asserting various affirmative defenses, including, among others, compliance with applicable permits, the availability of divisible harm defenses under CERCLA, and statute of limitations defenses as to certain of the claims.
• April 22, 2024: The parties entered into a Tolling Agreement, pursuant to which the applicable statutes of limitations were tolled through December 31, 2025, in order to facilitate settlement discussions without prejudice to any party's rights.
• May 15, 2024: The Court entered an order referring the matter to court-ordered mediation before Magistrate Judge Clara Finnegan for purposes of exploring a global resolution of all claims.
• July 30, 2024: Following two in-person mediation sessions and numerous telephone conferences facilitated by Magistrate Judge Finnegan, the parties reached an agreement in principle on the framework for a comprehensive consent decree resolving all claims asserted in the complaint.
• October 21, 2024: Calderwood & Harkness LLP was engaged as lead outside counsel to TMC in this matter, replacing Whitfield, Palmer & Goss LLP.
• November 8, 2024 through February 3, 2025: The parties engaged in iterative consent decree drafting and negotiation over a period of approximately three months. The DOJ circulated its initial draft consent decree on November 8, 2024. TMC submitted its redline of the consent decree on December 16, 2024. The government circulated a counter-redline on January 14, 2025. Final agreement on the terms of the consent decree was reached on February 3, 2025.
• February 19, 2025: The consent decree was lodged with the United States District Court for the District of Montana, Missoula Division, initiating the 30-day public comment period required under 28 U.S.C. § 7003(d). The public comment period is scheduled to close on March 21, 2025.
We note that, prior to Calderwood & Harkness's engagement in this matter, the Company was represented by Whitfield, Palmer & Goss LLP, under whose representation a pre-existing Administrative Order on Consent ("AOC") was executed on September 15, 2022 (Docket No. CERCLA-08-2022-0039), governing certain interim remedial measures at the Ridgecrest site. The obligations under the AOC have been subsumed into and superseded by the consent decree, and this firm reviewed the AOC in the course of its due diligence upon assuming representation.
1.5 Current Status
As of the date of this letter, the consent decree has been lodged with the Court, and the 30-day public comment period is scheduled to close on March 21, 2025. Based on discussions with counsel for the United States and counsel for the co-plaintiff States, we anticipate the following timeline for the remaining procedural steps:
• The United States is expected to file a motion for entry of the consent decree on or about April 7, 2025, following review and consideration of any public comments received during the comment period.
• A hearing on the motion for entry is expected to be scheduled for approximately April 28, 2025.
• Based on the foregoing, we anticipate that the consent decree will be entered by the Court on or about May 15, 2025.
• The Effective Date under the consent decree, as defined in Section IV of the decree, is thirty (30) days after the date of entry — which, based on anticipated entry on May 15, 2025, would be approximately June 14, 2025.
We are not aware of any opposition to entry of the consent decree by any party, and no contested proceedings or trial are anticipated. The matter is expected to be fully resolved through entry of the consent decree. While there is always the possibility that public comments could raise issues requiring modification of the consent decree prior to entry, based on our experience and our communications with counsel for the government, we do not anticipate any material changes to the agreed terms. Accordingly, the settlement reflected in the consent decree is, in our judgment, the most likely outcome of this proceeding.
Section 2: Terms of the Consent Decree — Settlement Amounts
The consent decree, as lodged with the Court on February 19, 2025, imposes the following financial and remedial obligations on the Company and its subsidiaries. We summarize these obligations below for the convenience of the auditor. Please note that the following descriptions are intended as summaries of key terms and do not purport to be comprehensive restatements of the consent decree; in the event of any inconsistency between this summary and the consent decree itself, the terms of the consent decree control.
2.1 Remediation Obligations
The consent decree obligates TMC and its U.S. subsidiaries (Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC) to perform remediation at all four sites described in Section 1.3 above. The remediation obligations are set forth in Sections VII through X of the consent decree and the associated Appendices (Statements of Work and Remedial Action Work Plans).
The total nominal remediation costs, as agreed and estimated under the consent decree, are as follows:
We note that the Ridgecrest remediation cost figure of $198.6 million represents a negotiated amount falling between TMC's internal estimate of $187.5 million and the EPA's estimate of $224.0 million. The consent decree provides that the stated remediation costs are estimates, and the actual remediation costs may be higher or lower depending on range factors, including site conditions, regulatory requirements, and the results of ongoing monitoring. The consent decree does not cap the defendants' remediation obligations at the estimated amounts; rather, the defendants are obligated to achieve specified performance standards and cleanup objectives, and must continue remediation until those standards and objectives are met, irrespective of cost.
For informational purposes, the net present value of the total remediation obligations, calculated using a 3% discount rate, is estimated as follows:
The NPV calculations above were performed by the Company's environmental consultants, Apex Environmental Engineering, Inc., and reviewed by this firm for consistency with the consent decree terms. We express no opinion on the appropriateness of the discount rate or the methodology employed.
2.2 Civil Penalties
The consent decree provides for a combined civil penalty of $31.5 million, allocated among the four sites as follows:
The civil penalties are payable in four equal quarterly installments of $7.875 million each. The payment schedule, as set forth in Section VI of the consent decree, is as follows:
(a) First installment (25%): due within thirty (30) days of the Effective Date of the consent decree;
(b) Second installment (25%): due twelve (12) months after entry of the consent decree;
(c) Third installment (25%): due twenty-four (24) months after entry of the consent decree; and
(d) Fourth installment (25%): due thirty-six (36) months after entry of the consent decree.
Based on the anticipated Effective Date of approximately June 14, 2025, the first installment of approximately $7.875 million would be due on or about July 14, 2025. Interest on any late payments accrues at the rate specified in 28 U.S.C. § 1961.
2.3 EPA Past-Costs Reimbursement (CERCLA § 107)
The consent decree obligates TMC and its subsidiaries to reimburse the EPA for past response costs incurred by the United States in connection with removal and emergency response actions at two of the four sites. The total past-costs reimbursement obligation is $18.1 million, allocated as follows:
(a) Ridgecrest Copper-Molybdenum Mine: $14.3 million, representing reimbursement for EPA removal actions conducted at the Ridgecrest site between 2021 and 2023, including the construction of emergency water treatment facilities, installation of temporary groundwater extraction wells, and stabilization of certain tailings impoundment structures; and
(b) Kanawha Bend Chemical Plant: $3.8 million, representing reimbursement for an EPA emergency response action conducted in June 2020 following an acute sulfuric acid release event at the facility, which required evacuation of portions of the surrounding community and deployment of EPA's Emergency Response Team.
The past-costs reimbursement is payable in a single lump-sum payment within sixty (60) days of the Effective Date of the consent decree.
2.4 Supplemental Environmental Projects (SEPs)
The consent decree requires TMC to fund and perform three Supplemental Environmental Projects ("SEPs") totaling $12.0 million. The SEPs are described in Appendix G to the consent decree and are summarized as follows:
(a) Flint Creek Watershed Restoration Project (Montana): $5.5 million. This project involves the restoration and enhancement of riparian habitat, water quality improvements, and fish passage restoration along a 22-mile segment of Flint Creek in Granite County, Montana, in the vicinity of the Ridgecrest mine site.
(b) Battle Mountain Community Drinking Water Improvement Project (Nevada): $3.5 million. This project involves the design, construction, and commissioning of new community drinking water infrastructure for the town of Battle Mountain, Lander County, Nevada, including replacement of aging distribution lines, installation of advanced filtration systems, and connection of previously unserved residences to the municipal water system.
(c) Institute Community Air Quality Monitoring Network (West Virginia): $3.0 million. This project involves the design, installation, and five-year operation of a network of ambient air quality monitoring stations in the Institute community of Kanawha County, West Virginia, to provide real-time monitoring data for VOCs, particulate matter, and sulfur compounds.
TMC is required to complete the design phase for each SEP within twelve (12) months of the Effective Date and to complete all construction and implementation activities within thirty-six (36) months of the Effective Date. Annual progress reports on the SEPs are to be submitted to the EPA and the relevant state agencies.
2.5 Independent Monitor Costs
The consent decree provides for the appointment of a court-appointed independent environmental monitor to oversee compliance with the terms of the decree. Pursuant to Section XIV of the consent decree, the Court has designated Verdant Analytics, Inc. as the independent monitor. The monitor will perform quarterly compliance audits at each of the four sites and will issue annual public reports on the status of the defendants' compliance with the consent decree.
The estimated cost of the independent monitor over the initial five-year monitoring period is $4.8 million, or approximately $960,000 per year. The monitor's costs are to be borne by the defendants and are payable quarterly upon receipt of itemized invoices from the monitor. The consent decree provides that the monitoring period may be extended beyond five years if the Court determines, upon application by any party or by the monitor, that continued monitoring is warranted.
2.6 Grand Total — Estimated Financial Obligations
The following table summarizes the total estimated financial obligations imposed by the consent decree, presented on both a nominal basis and a net present value / cash-equivalent basis:
The NPV / cash-equivalent figures treat the civil penalties, EPA past-costs reimbursement, SEPs, and monitor costs at face value (i.e., without discounting), as these obligations are payable over relatively shorter time horizons. Only the remediation obligations, which extend over periods of 15 to 30 years, have been discounted to present value using a 3% discount rate.
2.7 Financial Assurance Instruments
The consent decree requires TMC to post financial assurance in an aggregate amount of $245.0 million no later than September 12, 2025. The financial assurance is structured as follows:
(a) Surety Bond: A surety bond in the face amount of $165.0 million, to be issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934). The annual premium on the bond is 1.85% of the face value, or approximately $3.0525 million per year. The bond is subject to annual renewal and may be drawn upon by the EPA in the event of the defendants' failure to perform the remediation obligations specified in the consent decree.
(b) Remediation Trust Fund: An initial deposit of $80.0 million into a remediation trust fund held by Larchfield Trust Company, N.A. (Trust Agreement No. LTC-REM-2025-1177). The trust fund is to be used exclusively for the payment of remediation costs at the four sites, and disbursements from the trust fund require the prior approval of the EPA or the independent monitor, as applicable.
The total financial assurance requirement of $245.0 million ($165.0 million surety bond + $80.0 million trust fund) is designed to provide security for the estimated NPV of the remediation obligations ($245.1 million). We note that the annual premium on the surety bond ($3.0525 million per year) represents a recurring cost that is not separately identified in the consent decree's financial obligations but should be considered by management and the auditor in evaluating the Company's ongoing cost exposure.
2.8 Stipulated Penalties
The consent decree includes stipulated penalty provisions for failure to comply with the requirements of the decree, as set forth in Section XV. The stipulated penalties are structured on a tiered basis, as follows:
(a) $1,500 per day per violation for the first thirty (30) days of non-compliance;
(b) $3,000 per day per violation for days thirty-one (31) through sixty (60) of non-compliance; and
(c) $5,500 per day per violation for each day of non-compliance thereafter.
The stipulated penalties represent contingent obligations that would arise only in the event of non-compliance with the consent decree's requirements. Based on our discussions with management and the Company's environmental consultants, management does not anticipate triggering any stipulated penalties and intends to comply fully with the terms of the consent decree. Accordingly, while we bring the stipulated penalty provisions to your attention for completeness, we note that these provisions do not, in our view, give rise to a present obligation requiring recognition or accrual at this time.
Section 3: Assessment of Liability — Probable and Estimable
3.1 Standard Applied
Consistent with applicable accounting guidance under ASC 450 (Contingencies) (formerly SFAS No. 5) and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets), the Company has evaluated the likelihood and estimability of the environmental obligations described in this letter. We understand that, under both ASC 450 and IAS 37, a loss contingency should be recognized (i.e., accrued) when (a) it is probable (or, under IAS 37, "more likely than not") that a liability has been incurred as of the balance sheet date, and (b) the amount of the loss can be reasonably estimated.
Based on our assessment of the current posture of this matter, we advise as follows: The consent decree obligations described in Section 2 above are assessed by management, with the concurrence of this firm, as both probable and reasonably estimable. This assessment is grounded in the following considerations:
(a) The parties have reached final agreement on all material terms of the consent decree;
(b) The consent decree has been lodged with the Court, and the 30-day public comment period has been completed;
(c) Entry of the consent decree by the Court is anticipated on or about May 15, 2025, and no opposition to entry is expected;
(d) The financial obligations under the consent decree are set forth in specific dollar amounts (as described in Section 2), with the exception of the remediation costs, which are based on detailed engineering estimates and are subject to the performance-based obligations described in Section 2.1; and
(e) No party has indicated any intent to withdraw from or contest the consent decree.
Accordingly, we believe that the consent decree obligations meet the criteria for recognition as a loss contingency under both ASC 450 and IAS 37. We note, however, that the characterization of a particular contingency as "probable" and "reasonably estimable" for purposes of this letter reflects our assessment of the legal and factual posture of the matter and does not constitute an accounting opinion; the ultimate determination of the appropriate accounting treatment is within the province of management and the Company's auditors.
3.2 Company's Environmental Remediation Reserve
We have been advised by management that, as of the third quarter of 2024 (as reported in TMC's Form 10-Q / interim financial statements for the period ended September 30, 2024), the Company has recorded an environmental remediation reserve of C$340.0 million (approximately US$251.4 million at the exchange rate of C$1.00 = US$0.7394 as of September 30, 2024). The reserve is intended to cover the net present value / cash-equivalent of the remediation, penalty, and related obligations arising from the environmental matters described in this letter.
We bring to your attention the following observations regarding the relationship between the Company's recorded reserve and the financial obligations under the consent decree:
(a) The current environmental remediation reserve of US$251.4 million is approximately US$158.5 million less than the nominal grand total obligation of US$409.9 million ($409.9M – $251.4M = $158.5M).
(b) However, the appropriate comparison for purposes of evaluating reserve adequacy may be between the current reserve and the NPV / cash-equivalent grand total of US$311.5 million, which yields a shortfall of approximately US$60.1 million ($311.5M – $251.4M = $60.1M).
(c) Management is currently in the process of evaluating whether an increase in the environmental remediation reserve is required to fully reflect the Company's obligations under the consent decree. We understand that this evaluation is ongoing and that management expects to make a determination in connection with the preparation of the Company's annual financial statements for the fiscal year ended December 31, 2024.
We wish to emphasize that Calderwood & Harkness expresses no opinion on the adequacy of the Company's environmental remediation reserve, the appropriate discount rate to be applied to the remediation obligations, or the appropriate accounting treatment for any component of the consent decree obligations. These determinations are within the province of management and the Company's auditors, and we defer entirely to their judgment on these matters.
3.3 Insurance Recoveries
The Company maintains a Pollution Legal Liability ("PLL") insurance policy with Meridian Environmental Insurance Company (Policy No. MEI-ENV-2021-04738). The key terms of the policy, as we understand them, are as follows:
• Per-occurrence limit: $50.0 million
• Aggregate limit: $75.0 million
• Self-insured retention ("SIR"): $5.0 million per occurrence
• Policy period: June 1, 2021 through June 1, 2026 (five-year term)
A coverage dispute currently exists between the Company and Meridian Environmental Insurance Company. Specifically:
(a) Meridian has denied coverage for losses arising from the Ridgecrest Copper-Molybdenum Mine, citing the pollution / known-conditions exclusion in the policy on the basis that the environmental conditions at the Ridgecrest site were known to the insured prior to the inception of the policy;
(b) Meridian has denied coverage for losses arising from the Kanawha Bend Chemical Plant, citing late notice of claim, asserting that the Company failed to provide timely notice of the June 2020 sulfuric acid release event and the subsequent EPA emergency response action; and
(c) Meridian has acknowledged coverage, subject to the applicable SIR and policy limits, for losses arising from the Gallatin Chemical Works and Bonanza Creek Gold Mine sites.
The Company's financial advisor, Northspire Capital Markets, Inc., has estimated potential insurance recoveries in the range of $45.0 million to $55.0 million, with a maximum theoretical recovery of $75.0 million (the policy aggregate limit), depending on the resolution of the coverage disputes described above. We note, however, that these estimates are subject to considerable uncertainty, and the actual recoveries may be materially higher or lower than the estimated range.
We wish to make clear that this firm is not engaged to handle the insurance coverage litigation with Meridian Environmental Insurance Company. Accordingly, any detailed assessment of insurance recoverability, including the probability of prevailing on the disputed coverage issues, should be directed to the counsel retained by the Company for that purpose. Calderwood & Harkness does not express an opinion on the probability or amount of insurance recoveries.
3.4 Matters Beyond Scope
This letter addresses only matters within the scope of Calderwood & Harkness's engagement (Matter No. 1039-00003) — namely, the multi-site EPA/DOJ enforcement action and consent decree negotiation described herein. We have not been engaged to advise on, and this letter does not address, the following categories of matters:
(a) The insurance coverage dispute with Meridian Environmental Insurance Company, beyond the factual description set forth in Section 3.3 above;
(b) Any potential shareholder, securities, or derivative litigation that may arise from or in connection with the environmental matters described in this letter, including any proceedings before the United States Securities and Exchange Commission, the Ontario Securities Commission, the Alberta Securities Commission, or any other securities regulatory authority;
(c) Any other pending or threatened claims, proceedings, or investigations against TMC or any of its subsidiaries beyond those specifically described in this letter; and
(d) Any tax consequences, whether domestic or foreign, arising from the payment of the civil penalties, remediation costs, or other obligations under the consent decree.
We express no opinion with respect to any of the foregoing matters, and we recommend that Ridgeline direct any inquiries regarding such matters to the Company's management or to the counsel retained to handle such matters.
Section 4: Additional Matters for Auditor's Consideration
In addition to the litigation and consent decree matters described above, we bring the following matters to Ridgeline's attention for purposes of its audit. While these matters are ancillary to the principal subject of our engagement, they intersect with the environmental litigation in ways that may be relevant to the auditor's evaluation of the Company's financial statements.
4.1 Credit Facility Covenants
TMC maintains a C$750.0 million syndicated revolving credit facility (the "RCF") with Harborstone National Bank, N.A. as administrative agent (the "Credit Agreement"). The RCF has a maturity date of March 15, 2027. Among the various affirmative and negative covenants contained in the Credit Agreement, the RCF includes an environmental liability covenant (Section 7.14 of the Credit Agreement) requiring that aggregate disclosed and undisclosed environmental liabilities not exceed 25% of the Company's consolidated net tangible assets ("CNTA") at any time during the term of the facility.
Based on information provided to us by management:
(a) The Company's CNTA as of the third quarter of 2024 was C$3.92 billion;
(b) The 25% environmental liability threshold under the covenant is therefore C$980.0 million;
(c) The Company's current total environmental liabilities, including the consent decree obligations, are approximately C$554.4 million; and
(d) The resulting covenant headroom is approximately C$425.6 million (C$980.0M – C$554.4M = C$425.6M).
Management has assessed the Company as being in compliance with the environmental liability covenant under the Credit Agreement, and Calderwood & Harkness has advised on the Company's disclosure obligations to the lending syndicate in connection with the consent decree. A disclosure letter was sent to Harborstone National Bank, N.A. on March 1, 2025, notifying the lending syndicate of the lodging of the consent decree and the anticipated financial obligations thereunder. We have not been asked to opine on, and do not express any opinion regarding, the Company's compliance with any other covenants or provisions of the Credit Agreement.
4.2 D&O Insurance
The Company maintains a directors' and officers' ("D&O") liability insurance policy with Clearwater Mutual Insurance, Ltd. (Policy No. CMI-DO-2023-10221). We have been informed by management that a notice of circumstances was provided to the D&O carrier on December 15, 2024, in connection with the EPA enforcement action and the related consent decree negotiation, to preserve the Company's rights under the policy in the event that any claims are subsequently asserted against the Company's directors or officers arising from these matters.
As of the date of this letter, no D&O claim has been asserted against any director or officer of TMC or any of its subsidiaries in connection with the environmental matters described herein. We note this matter for completeness and to ensure that the auditor is aware of the circumstances notice that has been filed.
4.3 Key Upcoming Milestones / Post-Balance-Sheet Events
The following upcoming milestones and events, which will occur after the Company's balance sheet date of December 31, 2024, may require disclosure in the Company's annual financial statements for the fiscal year ended December 31, 2024, as subsequent events under ASC 855 (Subsequent Events) or IAS 10 (Events After the Reporting Period):
(a) Target entry of consent decree: on or about May 15, 2025;
(b) Effective Date of consent decree: on or about June 14, 2025 (thirty (30) days after entry);
(c) First civil penalty installment: $7.875 million, due on or about July 14, 2025 (thirty (30) days after the Effective Date);
(d) Financial assurance deadline: $245.0 million in financial assurance instruments (surety bond and remediation trust fund) must be posted no later than September 12, 2025;
(e) EPA past-costs reimbursement: $18.1 million, due on or about August 13, 2025 (sixty (60) days after the Effective Date); and
(f) Ridgecrest Remedial Action Work Plan submission deadline: December 14, 2025 (six (6) months after the Effective Date).
We note that the determination of whether and how these post-balance-sheet events should be disclosed or reflected in the Company's financial statements is a matter of accounting judgment within the province of management and the Company's auditors. We do not express any opinion on the appropriate accounting treatment of these events.
Section 5: Limitations and Qualifications
This letter is furnished in accordance with and subject to the limitations of the ABA Statement of Policy Regarding Lawyers' Responses to Auditors' Requests for Information, originally adopted in December 1975 and as subsequently amended. We call your attention to the following specific limitations and qualifications:
1. The information set forth herein is as of the date of this letter, March 3, 2025, and is limited to matters to which Calderwood & Harkness has given substantive attention in the form of legal representation. We have not undertaken any independent investigation of matters beyond the scope of our engagement, and we have relied on information provided to us by the Company's management, its other advisors, and the governmental parties in the ordinary course of the litigation and consent decree negotiation.
2. There may exist unasserted possible claims or assessments that are not described in this letter because they do not meet the criteria for inclusion under the ABA Statement of Policy. Specifically, the ABA Statement of Policy provides that a lawyer should not disclose to the auditor information concerning an unasserted possible claim or assessment unless the client has specifically requested or authorized such disclosure. We have consulted with the Company's management regarding unasserted possible claims and assessments, and to the extent that any such matters exist, they have been addressed in accordance with the procedures set forth in the ABA Statement of Policy.
3. This letter is solely for the use of Ridgeline Accounting Partners LLP in connection with its audit of TMC's consolidated financial statements for the fiscal year ended December 31, 2024, and should not be used, quoted, cited, or relied upon by any other party for any other purpose without the prior written consent of Calderwood & Harkness LLP. This letter does not create any attorney-client relationship between Calderwood & Harkness and Ridgeline, and Ridgeline may not rely on this letter as legal advice.
4. Calderwood & Harkness does not express any opinion on questions of fact, the probability of an unfavorable outcome (except to the extent expressly stated herein with respect to the assessment of the consent decree obligations as probable and reasonably estimable), or the adequacy of the Company's financial reserves for environmental liabilities. Such determinations are within the province of management and the Company's auditors.
5. This letter does not address any matters arising under Canadian federal or provincial environmental law, including the Canadian Environmental Protection Act, 1999 (S.C. 1999, c. 33), the Fisheries Act (R.S.C. 1985, c. F-14), or any provincial environmental legislation. Our engagement is limited to the U.S. federal and state environmental enforcement action described herein.
6. The limitations of this letter are consistent with and integral to our professional responsibilities, and are not intended to suggest any limitation on the auditor's responsibilities in conducting its audit.
We reserve the right to supplement or amend this letter in the event of material developments in the matters described herein occurring prior to the issuance of the Company's audited financial statements for the fiscal year ended December 31, 2024.
We trust that the foregoing is responsive to the matters raised in your Inquiry Letter of February 14, 2025. Should you have any questions regarding this letter or require any additional information, please do not hesitate to contact the undersigned, Harrison Wexford, directly at (212) 455-8247 or by email at hwexford@calderwoodharkness.com. We are prepared to discuss these matters with you and your engagement team at your convenience, including by telephone or video conference, and to provide any additional documentation that may be necessary to support your audit procedures.
We appreciate Ridgeline's professionalism and cooperation in this process, and we look forward to assisting in any further way that may be required.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Harrison Wexford Partner Environmental Litigation & Regulatory Enforcement Practice
Calderwood & Harkness LLP One World Financial Center 200 Liberty Street, 48th Floor New York, New York 10281-1003 Telephone: (212) 455-8247 Facsimile: (212) 455-8201
Email: hwexford@calderwoodharkness.com
cc: Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp.
Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp.
Beatrice Holloway, Partner, Calderwood & Harkness LLP (billing partner)
Site | Nominal Remediation Cost | Remediation Period
Ridgecrest Copper-Molybdenum Mine | $198.6 million | 30 years
Gallatin Chemical Works | $42.8 million | 15 years
Bonanza Creek Gold Mine | $63.2 million | 20 years
Kanawha Bend Chemical Plant | $38.9 million | 20 years
Total | $343.5 million | —
Site | Net Present Value (3% discount Rate)
Ridgecrest Copper-Molybdenum Mine | $134.9 million
Gallatin Chemical Works | $34.1 million
Bonanza Creek Gold Mine | $47.1 million
Kanawha Bend Chemical Plant | $29.0 million
Total | $245.1 million
Site | Civil Penalty
Ridgecrest Copper-Molybdenum Mine | $14.2 million
Gallatin Chemical Works | $5.8 million
Bonanza Creek Gold Mine | $7.9 million
Kanawha Bend Chemical Plant | $3.6 million
Total | $31.5 million
Obligation Category | Nominal Amount | NPV / Cash Equivalent
Total Remediation | $343.5 million | $245.1 million
Civil Penalties | $31.5 million | $31.5 million
EPA Past-Costs Reimbursement | $18.1 million | $18.1 million
Supplemental Environmental Projects | $12.0 million | $12.0 million
Independent Monitor (5-year estimate) | $4.8 million | $4.8 million
Grand Total | $409.9 million | $311.5 million

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