regulatory-exposure-analysis.docx

1039-00003 · Torchlight Mining Corp · Case Assessment & Strategy

regulatory-exposure-analysis.docx DOCUMENT Antitrust

9 / 75 ← → ✕

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT NOT FOR DISCLOSURE WITHOUT PRIOR AUTHORIZATION OF COUNSEL

CALDERWOOD & HARKNESS LLP 1250 Connecticut Avenue, N.W., Suite 800 Washington, D.C. 20036

Telephone: (202) 555-7400 Facsimile: (202) 555-7401

November 8, 2024

MEMORANDUM

TO: Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.

FROM: Harrison Wexford, Responsible Partner Elliot Nguyen, Lead Associate Grace Nakamura, Working Associate Calderwood & Harkness LLP

RE: Regulatory Exposure Analysis — Clean Water Act, Resource Conservation and Recovery Act, and Comprehensive Environmental Response, Compensation, and Liability Act Liability Summary — All Four Sites

MATTER NO.: 1039-00003

This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation. This memorandum is intended solely for the use of the addressees and authorized personnel of Torchlight Mining Corp. and its subsidiaries. Any dissemination, distribution, copying, or other use of this memorandum by any person or entity other than the intended recipients is strictly prohibited. Disclosure to any third party may result in waiver of applicable privileges.

Right-click to update Table of Contents

I. EXECUTIVE SUMMARY

This memorandum sets forth the results of our comprehensive analysis of Torchlight Mining Corp.'s ("TMC" or the "Company") statutory liability exposure under three principal federal environmental statutes: the Clean Water Act ("CWA") Section 301, 33 U.S.C. § 1311; the Resource Conservation and Recovery Act ("RCRA") Sections 3004 and 3005, 42 U.S.C. §§ 6924–6925; and the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") Section 107, 42 U.S.C. § 9607. This analysis is prepared in connection with the pending multi-site federal enforcement action styled United States of America and State of Montana v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM, currently pending before the Honorable Donald W. Molloy, Senior United States District Judge (by designation), in the United States District Court for the District of Montana, Missoula Division.

The enforcement action encompasses four discrete facilities owned and operated by TMC and its wholly owned domestic subsidiaries:

1. Ridgecrest Copper-Molybdenum Mine, located near Drummond, Granite County, Montana;

2. Gallatin Chemical Works, located in Belgrade, Gallatin County, Montana;

3. Bonanza Creek Gold Mine, located in Lander County, Nevada; and

4. Kanawha Bend Chemical Plant, located in Institute, Kanawha County, West Virginia.

The named defendants in the enforcement action include the following entities within the TMC corporate family:

• Torchlight Mining Corp. (CBCA corporation, dual-listed TSX/NYSE, ticker: TRC);

• Torchlight Mining (U.S.) Inc. (Delaware corporation, EIN 83-2047156);

• Torchlight Specialty Chemicals, Inc. (Delaware corporation, EIN 47-3819204);

• Ridgecrest Mine Holdings, LLC (Montana LLC, MT Secretary of State ID E1042738); and

• Bonanza Creek Mining, LLC (Nevada LLC, NV Secretary of State Entity No. E0518294731).

The regulatory counterparties and co-plaintiffs in this enforcement action include the United States Environmental Protection Agency ("EPA"), acting through Regions 8, 9, and 3; the United States Department of Justice ("DOJ"), Environment and Natural Resources Division ("ENRD"); and three state co-plaintiffs: the Montana Department of Environmental Quality ("Montana DEQ"), the Nevada Department of Environmental Protection ("Nevada DEP"), and the West Virginia Department of Environmental Protection ("West Virginia DEP").

Overall Assessment. Based on our review of the complaint, the administrative record, TMC's internal operational records and correspondence produced to date, EPA inspection reports, sampling data, and the applicable statutory and regulatory frameworks, it is our conclusion that TMC faces substantial and largely indefensible liability under all three statutes across all four sites. Available defenses are limited in scope, fact-dependent in nature, and unlikely to eliminate liability at any site. The liability exposure is most acute at the Ridgecrest Copper-Molybdenum Mine, which accounts for approximately 48.5% of total estimated remediation costs, and at the Bonanza Creek Gold Mine, which presents the most complex regulatory and factual profile. Mitigating factors do exist — principally TMC's cooperative engagement with EPA under the Administrative Order on Consent at Ridgecrest and its participation in the consent-decree framework negotiation — but these factors are best deployed as settlement negotiation tools rather than litigation defenses.

Aggregate Estimated Financial Exposure. Our analysis yields the following aggregate estimated exposure:

As of the third quarter of 2024, TMC's environmental remediation reserve stands at C$340.0 million, which translates to approximately US$251.4 million at the prevailing exchange rate of C$1.00 = US$0.7394. Against the estimated nominal obligations of US$409.9 million, this results in a shortfall of approximately US$158.5 million. Even measured against the NPV/cash-equivalent exposure of US$311.5 million, the shortfall is approximately US$60.1 million. We address the implications of this reserve deficiency, including the potential need for reserve augmentation and its impact on TMC's credit facility covenants, in Section VIII below and in a forthcoming separate memorandum on financial assurance requirements.

The balance of this memorandum is organized as follows: Section II sets forth the procedural background of the enforcement action and related regulatory history; Sections III through V analyze TMC's liability under the CWA, RCRA, and CERCLA, respectively, on a site-by-site basis; Section VI addresses joint and several liability among the named defendants and the absence of third-party contribution claims; Section VII presents a consolidated site-by-site exposure summary; Section VIII consolidates the aggregate financial exposure; Section IX provides a comprehensive assessment of available defenses; Section X cross-references the Migratory Bird Treaty Act exposure at Bonanza Creek; Section XI discusses the implications for settlement strategy; and Section XII sets forth our recommendations and next steps.

II. PROCEDURAL BACKGROUND

A. Pre-Litigation Regulatory History

The four sites at issue have extensive regulatory histories, the relevant portions of which are summarized below.

Ridgecrest Copper-Molybdenum Mine. Mining operations at the Ridgecrest site commenced in 1978 under the predecessor ownership of Ridgecrest Minerals, Inc., which was acquired by TMC in 1996. Active copper and molybdenum extraction and processing continued until December 31, 2019, when TMC announced the cessation of mining operations. The site is currently in the closure and reclamation phase under a Mine Closure Plan approved by Montana DEQ. The site encompasses approximately 3,200 acres of mine footprint within a total controlled property area of approximately 8,700 acres. The primary environmental concern at the site is a 425-acre tailings impoundment from which acid mine drainage ("AMD") has been documented to seep into Flint Creek, a tributary of the Clark Fork River.

In 2021, EPA Region 8 commenced a removal action at the Ridgecrest site pursuant to CERCLA § 104, 42 U.S.C. § 9604. The removal action was initiated on January 15, 2021, and completed on May 30, 2023. Total removal costs incurred by EPA were $14.3 million. On September 15, 2022, during the pendency of the removal action, EPA Region 8 and TMC executed an Administrative Order on Consent ("AOC"), Docket No. CERCLA-08-2022-0039, pursuant to which TMC agreed to certain interim measures and monitoring obligations. The Ridgecrest site has been proposed for listing on the National Priorities List ("NPL") under CERCLA, which significantly enhances the government's remedial authority and negotiating leverage.

Gallatin Chemical Works. The Gallatin Chemical Works facility has been operational since 1993 and remains an active specialty chemical manufacturing facility. The facility is operated by Torchlight Specialty Chemicals, Inc. ("TSC"), a wholly owned subsidiary of Torchlight Mining (U.S.) Inc. ("TM(US)"). The facility holds a RCRA Corrective Action permit, Permit No. MTD098712456, which authorizes certain hazardous waste treatment, storage, and disposal activities and requires corrective action at identified solid waste management units ("SWMUs"). The facility also holds a Montana Pollutant Discharge Elimination System ("MPDES") permit governing wastewater discharges, which is the state-administered equivalent of a National Pollutant Discharge Elimination System ("NPDES") permit under the CWA.

Bonanza Creek Gold Mine. The Bonanza Creek Gold Mine has been operational since 2001 and is currently engaged in active gold extraction using heap-leach cyanidation methods. The mine is operated by Bonanza Creek Mining, LLC ("BCM"), a wholly owned subsidiary of TM(US). The site encompasses approximately 5,600 acres of active mine footprint within a total controlled property area of approximately 12,400 acres. Between March 2022 and January 2023, three documented releases of heap-leach process solution occurred from the heap-leach pad to an ephemeral tributary of the Reese River, each attributable to liner failures. The releases involved process solution containing weak-acid-dissociable ("WAD") cyanide and mercury at concentrations substantially exceeding applicable discharge limits and water quality criteria.

Kanawha Bend Chemical Plant. The Kanawha Bend Chemical Plant has been operational since 1985 and remains an active chemical manufacturing facility specializing in sulfuric acid regeneration and related processes. The facility is operated by TSC through its West Virginia operations division. The facility holds a RCRA Corrective Action permit, Permit No. WVD048823915. On June 14, 2020, a sulfuric acid release from the facility reached a tributary of the Kanawha River, prompting an EPA emergency response action. EPA's emergency response costs totaled $3.8 million. Subsequent investigation revealed extensive soil and groundwater contamination, including dense non-aqueous phase liquid ("DNAPL") consisting of chlorinated solvents in the fractured bedrock aquifer beneath the facility.

B. EPA Notice of Violation

On September 12, 2023, EPA issued a comprehensive Notice of Violation ("NOV") to TMC covering all four sites. The NOV identified violations of the CWA, RCRA, and CERCLA at the sites as described in detail below and demanded corrective measures, compliance schedules, and payment of civil penalties. The NOV was issued jointly by EPA Regions 8, 9, and 3, reflecting the geographic distribution of the four facilities across Montana, Nevada, and West Virginia, respectively. TMC, through its prior environmental counsel (Whitfield, Palmer & Goss LLP), responded to the NOV on November 15, 2023, acknowledging certain factual allegations while reserving all legal defenses.

C. Litigation

On January 18, 2024, the DOJ, acting on behalf of EPA and in conjunction with the State of Montana (as co-plaintiff), filed a complaint in the United States District Court for the District of Montana, Missoula Division, initiating Civil Action No. 9:24-cv-00087-DWM. The case was assigned to the Honorable Donald W. Molloy, Senior United States District Judge, sitting by designation. The complaint alleges violations of the CWA, RCRA, and CERCLA at all four sites and names all five TMC-affiliated entities as co-defendants. The complaint seeks injunctive relief requiring remediation and corrective action, civil penalties under the CWA and RCRA, and cost recovery under CERCLA § 107 for EPA's past response costs.

TMC filed its answer on March 5, 2024, through prior counsel, admitting certain factual allegations, denying others, and asserting affirmative defenses including statute of limitations, regulatory compliance, and reservation of all other defenses.

On April 22, 2024, the parties executed a Tolling Agreement pursuant to which the applicable statutes of limitations for all claims and counterclaims were tolled through December 31, 2025, in order to facilitate settlement negotiations without the pressure of impending limitations periods.

On May 15, 2024, the Court ordered mediation, referring the matter to Magistrate Judge Clara Finnegan for settlement conference purposes. The parties participated in an initial mediation session on May 15, 2024, followed by subsequent sessions on June 12, 2024, and July 18, 2024. On July 30, 2024, the parties reached an agreement in principle on the framework for a consent decree, subject to the negotiation and execution of definitive documentation.

Calderwood & Harkness LLP was engaged by TMC on October 21, 2024, replacing Whitfield, Palmer & Goss LLP as TMC's lead environmental litigation counsel. The transition of counsel was prompted by TMC's desire for additional expertise in the negotiation of complex multi-site consent decrees and the structuring of associated financial assurance mechanisms. On November 8, 2024 — the date of this memorandum — the DOJ circulated its first draft consent decree to TMC.

The principal government personnel involved in the enforcement action are as follows:

• Lead DOJ Trial Attorney: Philip Orenstein, Environmental Enforcement Section, ENRD

• Supervising DOJ Attorney: Katherine Rowe-Halpern, Senior Counsel, Environmental Enforcement Section, ENRD

• Lead EPA Case Attorney: Margaret Coulson, Office of Enforcement and Compliance Assurance ("OECA")

• EPA Project Coordinator (Ridgecrest): Dr. Samuel Tesfaye, EPA Region 8

• EPA Project Coordinator (Bonanza Creek): Jennifer Whitfield, EPA Region 9

• Montana AG Counsel: Annika Hedstrom, Environmental Protection Bureau, Montana Attorney General's Office

• Nevada AG Counsel: Ricardo Fuentes, Bureau of Consumer Protection, Nevada Attorney General's Office

• West Virginia AG Counsel: Loretta May Hatcher, Environmental Resources Section, West Virginia Attorney General's Office

D. Corporate Structure and Named Defendants

Torchlight Mining Corp. is a corporation organized under the Canada Business Corporations Act ("CBCA"), dual-listed on the Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE") under the ticker symbol TRC. TMC's corporate headquarters are located at 1800 Bayfield Tower, 401 Bay Street, Toronto, Ontario M5H 2Y4, Canada. TMC's U.S. headquarters are located at 750 Copper Ridge Boulevard, Suite 200, Helena, Montana 59601.

TMC conducts its U.S. operations through a wholly owned domestic subsidiary, Torchlight Mining (U.S.) Inc. ("TM(US)"), a Delaware corporation (EIN 83-2047156). TM(US) in turn wholly owns the following operating entities:

• Torchlight Specialty Chemicals, Inc. ("TSC"), a Delaware corporation (EIN 47-3819204), which operates the Gallatin Chemical Works facility in Belgrade, Montana, and the Kanawha Bend Chemical Plant in Institute, West Virginia;

• Ridgecrest Mine Holdings, LLC ("RMH"), a Montana limited liability company (MT Secretary of State ID E1042738), which owns and operates the Ridgecrest Copper-Molybdenum Mine in Drummond, Montana; and

• Bonanza Creek Mining, LLC ("BCM"), a Nevada limited liability company (NV Secretary of State Entity No. E0518294731), which owns and operates the Bonanza Creek Gold Mine in Lander County, Nevada.

All five entities — TMC, TM(US), TSC, RMH, and BCM — are named as co-defendants in the enforcement action. The implications of this corporate structure for purposes of joint and several liability, operator liability of the parent corporation, and the availability of third-party contribution claims are analyzed in detail in Section VI below.

III. CLEAN WATER ACT § 301 ANALYSIS

A. Statutory Framework

The CWA establishes a comprehensive regulatory framework for the control of pollutant discharges to the waters of the United States. Section 301(a) of the CWA, 33 U.S.C. § 1311(a), provides the foundational prohibition: "Except as in compliance with this section and sections 1312, 1316, 1317, 1328, 1342, and 1344 of this title, the discharge of any pollutant by any person shall be unlawful." This prohibition operates as a strict liability standard — the government need not demonstrate scienter, negligence, or intent; it must show only that a discharge of a pollutant from a point source to navigable waters occurred without authorization under an NPDES permit (or state-administered equivalent) or in excess of the terms and conditions of such a permit.

The key statutory definitions relevant to this analysis are as follows:

• "Discharge of a pollutant" is defined under CWA § 502(12), 33 U.S.C. § 1362(12), as "any addition of any pollutant to navigable waters from any point source."

• "Point source" is defined under CWA § 502(14), 33 U.S.C. § 1362(14), as "any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged."

• "Navigable waters" is defined under CWA § 502(7), 33 U.S.C. § 1362(7), as "the waters of the United States, including the territorial seas." The scope of this term has been the subject of extensive litigation, most recently in Sackett v. EPA, 598 U.S. 651 (2023).

• "Pollutant" is defined under CWA § 502(6), 33 U.S.C. § 1362(6), to include, inter alia, "dredged spoil, solid waste, incinerator residue, sewage, garbage, sewage sludge, munitions, chemical wastes, biological materials, radioactive materials, heat, wrecked or discarded equipment, rock, sand, cellar dirt and industrial, municipal, and agricultural waste discharged into water."

Civil penalty authority for CWA violations is established under Section 309(d) of the CWA, 33 U.S.C. § 1319(d), which authorizes civil penalties of up to the statutory maximum per violation per day (as adjusted for inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended). Under the most recent inflation adjustment, the maximum civil penalty is $64,618 per violation per day. Additionally, Section 309(b) authorizes compliance orders, and Section 309(d) authorizes injunctive relief to require abatement of ongoing violations.

B. Ridgecrest Mine — CWA Violations

The government alleges that TMC, through its subsidiaries RMH and TM(US), has discharged pollutants from the Ridgecrest Copper-Molybdenum Mine tailings impoundment to Flint Creek without authorization under an NPDES or MPDES permit, in violation of CWA § 301(a). The factual basis for this allegation is well-documented and, in our assessment, essentially undeniable.

Nature of the Discharge. The Ridgecrest site includes a 425-acre tailings impoundment that received mine tailings from copper-molybdenum extraction operations from 1978 through 2019. Geotechnical and hydrogeological investigations conducted by both EPA's contractor (Cascade Geosciences, Inc., led by Dr. Patricia Voss, Ph.D.) and TMC's consultant (Pinnacle Creek Environmental, LLC, led by Dr. Astrid Bergmann, P.E.) have documented multiple seepage pathways through which acid mine drainage from the tailings impoundment reaches Flint Creek, a tributary of the Clark Fork River. The seepage is continuous and has been documented by monitoring data spanning multiple years.

Contaminant Profile. The acid mine drainage discharged from the tailings impoundment contains the following contaminants at the indicated concentrations (based on the most recent monitoring data from the 2022–2024 sampling period):

The dissolved copper concentration is particularly significant: at 47 mg/L, it exceeds Montana's chronic aquatic life standard of 0.0087 mg/L by a factor of approximately 5,400. This level of exceedance is among the most extreme we have encountered in mining-related enforcement actions and eliminates any de minimis defense.

Permit Status. No NPDES or MPDES permit has been issued authorizing the discharge of pollutants from the tailings impoundment seepage pathways. TMC holds an MPDES permit for certain authorized discharge points at the Ridgecrest site, but this permit does not encompass the tailings impoundment seepage, which is an unauthorized discharge pathway. The absence of permit coverage is dispositive under the CWA's strict liability framework: any discharge of a pollutant from a point source to navigable waters without a permit constitutes a violation regardless of the circumstances.

Point Source Analysis. The government's position is that the tailings impoundment and its associated conveyance channels — including identifiable seepage pathways, collection ditches, and engineered drainage features — constitute "point sources" within the meaning of CWA § 502(14). This position is well-supported by the applicable case law. Courts have consistently held that mining-related structures, including tailings impoundments, drainage ditches, and conveyance channels, qualify as point sources. See, e.g., Sierra Club v. Abston Constr. Co., 620 F.2d 41 (5th Cir. 1980); Trustees for Alaska v. EPA, 749 F.2d 549 (9th Cir. 1984). The Ninth Circuit's approach, which would govern any appeal from the District of Montana, is particularly broad in its construction of "point source" in the mining context. TMC does not have a meritorious basis to challenge the characterization of the tailings impoundment seepage as a point-source discharge.

Assessment. The government's CWA case at Ridgecrest is very strong. The discharges are documented, measurable, ongoing, and involve contaminant concentrations thousands of times above applicable water quality standards. TMC has no permit defense. The strict liability standard eliminates the need for the government to prove negligence or intent. We do not believe that TMC can prevail on any CWA defense at Ridgecrest; the only question is the scope of injunctive relief and the amount of civil penalties.

Estimated Civil Penalty Exposure. The civil penalty exposure attributable to the CWA component of the Ridgecrest violations is factored into the aggregate penalty estimate of $14.2 million for the site. The penalty calculation reflects the duration of the violations (multiple years of continuous discharge), the severity of the exceedances, the economic benefit to TMC of noncompliance, and the absence of mitigating factors other than cooperative engagement. A detailed penalty computation is set forth in the Penalty Calculation Analysis dated November 12, 2024.

C. Gallatin Chemical Works — CWA Violations

The government alleges that TMC, through TSC and TM(US), violated the terms of the facility's MPDES permit by exceeding effluent limits for carbon disulfide ("CS₂") and total suspended solids ("TSS") on 14 documented occasions between January 2021 and June 2024.

Nature of the Violations. The Gallatin Chemical Works facility holds an MPDES permit governing the discharge of treated wastewater from the specialty chemical manufacturing process to an authorized discharge point. The permit establishes numeric effluent limitations for various parameters, including CS₂ and TSS. EPA and Montana DEQ inspections, supplemented by TMC's own Discharge Monitoring Reports ("DMRs"), have identified 14 separate instances in which the facility's discharges exceeded the permitted effluent limits for one or both of these parameters. Each exceedance constitutes a separate violation of CWA § 301(a), and each day of continued exceedance constitutes an additional violation carrying per-day penalties.

Permit Exceedance Data. TMC's own DMR data, which is submitted to Montana DEQ on a monthly basis and constitutes a public record, confirms the 14 exceedances. The DMRs are signed by the facility's responsible corporate officer and carry the penalty of perjury for false statements under CWA § 309(c)(4). TMC cannot credibly dispute the accuracy of its own DMR submissions.

Assessment. The government's CWA case at Gallatin is essentially airtight. Permit exceedances are strict-liability violations; the fact of the exceedance, as documented in TMC's own DMRs, establishes the violation. TMC's defense options are extremely limited. We have considered potential arguments regarding measurement methodology (e.g., disputes over sampling protocols, analytical methods, or QA/QC procedures) and de minimis exceedances. However, the evidence of 14 separate exceedance occasions over a period of approximately three and one-half years undermines any de minimis claim and suggests a pattern of noncompliance rather than isolated incidents.

Estimated Civil Penalty Exposure. The civil penalty exposure attributable to the CWA component of the Gallatin violations is factored into the aggregate penalty estimate of $5.8 million for the site.

D. Bonanza Creek Mine — CWA Violations

The government alleges that TMC, through BCM and TM(US), discharged pollutants from the Bonanza Creek Gold Mine heap-leach pad to an ephemeral tributary of the Reese River without authorization under an NPDES permit, in violation of CWA § 301(a). The allegations center on three documented release events.

Release Events. Three documented releases of heap-leach process solution occurred from the Bonanza Creek heap-leach pad due to failures in the liner system:

1. March 17, 2022: First release discovered during routine inspection; estimated volume of 48,000 gallons of process solution released through a tear in the secondary liner.

2. August 9, 2022: Second release discovered following a precipitation event; estimated volume of 72,000 gallons released through a separate liner failure in the eastern cell.

3. January 22, 2023: Third release discovered during quarterly monitoring; estimated volume of 35,000 gallons released through degraded liner material in the southwestern cell.

In each instance, the released process solution traveled via surface flow and shallow subsurface pathways to an ephemeral tributary of the Reese River.

Contaminant Profile. The released process solution contained the following contaminants at the indicated concentrations:

The WAD cyanide concentration of 0.62 mg/L is approximately 28 times the applicable discharge limit, and the mercury concentration of 12.4 µg/L is approximately 16 times the applicable water quality criterion. Both parameters are acutely toxic to aquatic life and pose risks to downstream water users.

Point Source Analysis. The heap-leach pad and its associated underdrain system constitute "point sources" within the meaning of CWA § 502(14). A heap-leach pad is an engineered structure — a lined containment facility with process-solution collection and conveyance systems — that falls squarely within the statutory definition of a "discernible, confined and discrete conveyance." Courts have consistently treated such facilities as point sources. TMC does not have a meritorious basis to challenge this characterization.

Navigable Waters Analysis. The government's CWA jurisdiction depends on the classification of the ephemeral tributary of the Reese River as "navigable waters" (i.e., "waters of the United States") within the meaning of CWA § 502(7). This issue requires careful analysis in light of the Supreme Court's recent decision in Sackett v. EPA, 598 U.S. 651 (2023), which narrowed the scope of federal CWA jurisdiction over wetlands and adopted a "continuous surface connection" test.

The Reese River is a traditional navigable water, and the government will argue that the ephemeral tributary at issue has a continuous surface connection to the Reese River during periods of seasonal flow. The available hydrological data indicates that the tributary carries surface water during the spring snowmelt period (typically March through June) and during significant precipitation events throughout the year. During the summer and fall months, surface flow in the tributary is intermittent to absent, although subsurface flow appears continuous.

Under Sackett, the critical question is whether the tributary maintains a "continuous surface connection" to the Reese River such that it is indistinguishable from the river itself. The government's position is that the seasonal surface connection, combined with the documented flow of pollutants from the heap-leach pad to the tributary and thence to the Reese River, establishes jurisdiction. TMC may raise a jurisdictional challenge arguing that the ephemeral nature of the tributary — with periods of no surface flow — precludes a finding of "continuous surface connection" under Sackett. However, we assess the likelihood of success of such a challenge as low for the following reasons: (i) the tributary has a documented physical connection to the Reese River during seasonal flow periods; (ii) pollutant transport from the release site to the Reese River has been confirmed by downstream sampling data; and (iii) lower courts applying Sackett have generally continued to find jurisdiction over tributaries with seasonal flow connections to traditional navigable waters, particularly where pollutant migration has been documented.

Assessment. The government's CWA case at Bonanza Creek is strong. Three separate unpermitted discharge events are documented with sampling data showing contaminant concentrations substantially exceeding applicable standards. The navigable waters issue presents a theoretical defense, but the likelihood of success is low, and mounting the defense would require extensive expert hydrogeological testimony with uncertain results.

Estimated Civil Penalty Exposure. The civil penalty exposure attributable to the CWA component of the Bonanza Creek violations is factored into the aggregate penalty estimate of $7.9 million for the site.

E. CWA Defenses and Mitigating Factors (All Sites)

We have evaluated the following potential defenses and mitigating factors applicable to the CWA allegations across all four sites:

upset/Bypass Defense (40 C.F.R. §§ 122.41(n), (m)). The NPDES regulations provide two related defenses. The "Upset" provision, 40 C.F.R. § 122.41(n), provides an affirmative defense to permit exceedances where the permittee demonstrates that: (1) an upset occurred and the permittee can identify the specific cause; (2) the facility was being properly operated at the time; (3) the permittee submitted proper notice of the upset; and (4) the permittee complied with any remedial measures required under the permit. The "bypass" provision, 40 C.F.R. § 122.41(m), addresses the intentional diversion of waste streams from any portion of a treatment facility.

These defenses are potentially available at the Gallatin Chemical Works for some of the 14 documented permit exceedances, if TMC can demonstrate that the conditions leading to the exceedances were beyond reasonable control and that TMC provided proper notice to Montana DEQ. However, the viability of this defense depends on a fact-specific inquiry into each exceedance event, and the burden of proof rests with TMC. Preliminary review of TMC's operational records suggests that notice requirements were not consistently met, which would preclude the defense for those events.

The upset/bypass defense is unlikely to apply at Ridgecrest or Bonanza Creek, where the discharges are structural in nature (tailings impoundment seepage and liner failures) rather than temporary operational upsets. The ongoing, persistent nature of the Ridgecrest seepage is fundamentally incompatible with the "Upset" concept, which contemplates an unanticipated, temporary deviation from normal operations.

Good Faith Compliance Efforts. TMC can point to its participation in the Ridgecrest closure and reclamation process and its execution of the AOC (Docket No. CERCLA-08-2022-0039) as evidence of cooperative engagement and good faith compliance efforts. Under EPA's Civil Penalty Policy and the CWA civil penalty factors set forth in Section 309(d), good faith efforts to comply are a recognized mitigating factor in penalty calculation. However, good faith compliance is not a defense to liability — it may reduce the penalty amount but does not eliminate the underlying violation. We recommend emphasizing this factor prominently in settlement negotiations.

Statute of Limitations (28 U.S.C. § 2462). The general federal statute of limitations for actions to recover civil penalties, 28 U.S.C. § 2462, imposes a five-year limitations period. The complaint was filed on January 18, 2024. All alleged CWA violations fall within the five-year look-back period commencing January 18, 2019. The Tolling Agreement executed on April 22, 2024, extends the tolling of all limitations periods through December 31, 2025. Accordingly, the statute of limitations does not provide a viable defense to any of the alleged CWA violations.

Navigable Waters Challenge (Bonanza Creek). As discussed in Section III.D above, TMC may raise a post-Sackett jurisdictional challenge regarding the ephemeral tributary at Bonanza Creek. We assess this defense as having a low probability of success but note that it may serve a limited function as a negotiating point in settlement discussions regarding the Bonanza Creek site.

IV. RCRA §§ 3004 AND 3005 ANALYSIS

A. Statutory Framework

The Resource Conservation and Recovery Act establishes a "cradle-to-grave" regulatory framework for the management of hazardous waste. The statutory provisions most relevant to this analysis are:

RCRA § 3004, 42 U.S.C. § 6924, establishes standards applicable to owners and operators of hazardous waste treatment, storage, and disposal ("TSD") facilities. These standards address, inter alia, facility design and construction, groundwater monitoring, financial assurance, closure and post-closure care, and corrective action for releases. Section 3004(u) specifically requires corrective action for releases of hazardous waste or hazardous constituents from any solid waste management unit ("SWMU") at a facility seeking or holding a RCRA permit, regardless of when the waste was placed in the unit. Section 3004(v) extends corrective action requirements beyond the facility boundary where necessary.

RCRA § 3005, 42 U.S.C. § 6925, requires that any person owning or operating a facility for the treatment, storage, or disposal of hazardous waste obtain a permit from EPA or an authorized state program. Operation of a TSD facility without a permit (or interim status authorization) constitutes a violation of RCRA § 3005.

Like the CWA, RCRA imposes a strict liability standard on owners and operators of TSD facilities. The "owner or operator" definition under RCRA is broad and encompasses any person who owns or operates a facility, including corporate parents that exercise control over hazardous waste operations.

Civil penalty authority is provided under RCRA § 3008(a) and (g), 42 U.S.C. § 6928(a) and (g), which authorize penalties of up to the inflation-adjusted statutory maximum per day of violation. Additionally, RCRA § 7003, 42 U.S.C. § 6973, authorizes injunctive relief where the handling, storage, treatment, transportation, or disposal of solid or hazardous waste "may present an imminent and substantial endangerment to health or the environment."

B. Ridgecrest Mine — RCRA Violations

The government alleges that TMC, through RMH and TM(US), mismanaged hazardous waste generated by the solvent-extraction/electrowinning ("SX/EW") circuit at the Ridgecrest Mine, in violation of RCRA § 3004 standards applicable to hazardous waste generators and TSD facilities.

Waste Characterization. The SX/EW circuit was used in the copper extraction process at Ridgecrest from approximately 1985 through the cessation of operations in 2019. The circuit generated spent organic solvents and process residues, which the government argues constitute listed hazardous wastes under the F001 through F005 spent solvent listings (40 C.F.R. § 261.31) or, alternatively, characteristic hazardous wastes exhibiting the toxicity characteristic (D-codes) under 40 C.F.R. § 261.24. The government's waste characterization is supported by analytical data showing that spent SX/EW solvents contain listed chemicals (including diluents and extractants) at concentrations exceeding the toxicity characteristic thresholds.

Nature of the Violations. The government alleges that TMC failed to properly manage, store, and dispose of the hazardous wastes generated by the SX/EW circuit, including failures to: (i) properly characterize the waste as hazardous; (ii) manage the waste in compliance with the applicable generator standards (40 C.F.R. Part 262); (iii) store the waste in properly permitted or interim-status units; and (iv) dispose of the waste at authorized TSD facilities. These failures allegedly resulted in the release of hazardous constituents to soils and groundwater in the vicinity of the SX/EW circuit area.

Bevill Amendment Analysis. TMC's principal RCRA defense at Ridgecrest rests on the Bevill Amendment, RCRA § 3001(b)(3)(A), 42 U.S.C. § 6921(b)(3)(A), which temporarily excludes certain mining wastes from regulation as hazardous waste under Subtitle C of RCRA. The Bevill exclusion applies to "solid waste from the extraction, beneficiation, and processing of ores and minerals" pending completion of EPA's study and rulemaking on mining wastes. EPA has promulgated regulations at 40 C.F.R. § 261.4(b)(7) implementing the Bevill exclusion for mining wastes generated from extraction and beneficiation operations.

The critical question is whether SX/EW wastes are properly classified as "extraction" or "beneficiation" wastes (which would be Bevill-exempt) or as "mineral processing" wastes (which would not be Bevill-exempt). The government's position is that solvent extraction and electrowinning are mineral processing activities, not extraction or beneficiation activities, and that wastes from the SX/EW circuit therefore fall outside the Bevill exclusion. TMC could argue that the SX/EW process is an integral part of the beneficiation process for copper ores and that the resulting wastes should be treated as beneficiation wastes eligible for the Bevill exclusion.

Our analysis indicates that this defense is weak for the following reasons: (i) EPA has historically treated SX/EW wastes as mineral processing wastes outside the scope of the Bevill exclusion, as reflected in EPA guidance documents and Federal Register preambles; (ii) courts that have considered the issue have generally upheld EPA's classification, distinguishing between physical separation processes (beneficiation) and chemical transformation processes (mineral processing); and (iii) the analytical data showing listed solvent constituents in the SX/EW waste stream further undermines the beneficiation characterization. We do not recommend relying on the Bevill Amendment as a primary defense at Ridgecrest, although it may have limited utility as a negotiating point to moderate the scope of the RCRA remedial obligations at the SX/EW area.

C. Gallatin Chemical Works — RCRA Violations

The government asserts two categories of RCRA violations at the Gallatin Chemical Works facility.

Allegation 1: Unpermitted Hazardous Waste Storage Unit. The government alleges that TMC, through TSC, operated a hazardous waste storage unit at the Gallatin facility that was not included in the facility's RCRA permit (Permit No. MTD098712456), in violation of RCRA § 3005. The facility's RCRA permit authorizes specific TSD units, and the unpermitted unit — reportedly a tank system and associated containment area used for temporary storage of process intermediates — was constructed and placed into service without prior permit modification or approval. EPA inspectors documented the unpermitted unit during a Compliance Evaluation Inspection ("CEI") conducted in March 2023.

This violation is clear-cut. Operation of a hazardous waste TSD unit without a permit is a per se violation of RCRA § 3005. TMC does not have a meritorious defense to this allegation. The only potentially relevant argument — that the stored materials do not constitute hazardous waste — is undermined by the waste characterization data, which shows that the process intermediates exhibit the toxicity characteristic.

Allegation 2: Corrective Action Failures. The government alleges that TMC, through TSC, failed to perform corrective action at three identified SWMUs at the Gallatin facility, in violation of RCRA § 3004(u). The facility's RCRA permit requires investigation and corrective action at SWMUs identified during the permitting process. EPA inspections and the facility's own monitoring data have documented releases of hazardous constituents from these SWMUs, including:

• Carbon disulfide (CS₂) in groundwater at a maximum detected concentration of 890 µg/L, compared to the Maximum Contaminant Level ("MCL") of 10 µg/L — an exceedance factor of approximately 89×;

• Xanthate decomposition products in shallow groundwater monitoring wells downgradient of the identified SWMUs; and

• Toluene and xylene in subsurface soils at concentrations exceeding EPA Region 8 Preliminary Remediation Goals for residential and industrial exposure pathways.

Assessment. The government's RCRA case at Gallatin is strong. The unpermitted storage unit is a straightforward regulatory violation with no viable defense. The corrective action failures are documented through EPA inspection records, TMC's own monitoring data, and the express requirements of the existing RCRA permit. TMC's exposure at Gallatin is somewhat reduced by the fact that the corrective action obligations will be addressed through the consent decree and may be structured to allow phased implementation, but the underlying liability is not in dispute.

D. Bonanza Creek Mine — RCRA Violations

The government alleges that TMC, through BCM, failed to properly manage spent heap-leach ore as hazardous waste under RCRA § 3004.

Waste Characterization. The government's position is that spent heap-leach ore from the Bonanza Creek gold extraction process — after cyanide leaching has been completed — contains residual cyanide and heavy metals (including mercury, arsenic, and selenium) at concentrations that cause the waste to exhibit the toxicity characteristic (D-codes) under 40 C.F.R. § 261.24. The government argues that spent heap-leach ore meeting the toxicity characteristic must be managed under Subtitle C of RCRA as a characteristic hazardous waste, including compliance with land disposal restrictions and other applicable standards.

Bevill Amendment Defense. TMC's strongest RCRA defense at Bonanza Creek rests on the Bevill Amendment. Heap-leach gold mining wastes — specifically, mining overburden and extraction/beneficiation wastes from the primary extraction of gold from ore — are potentially Bevill-exempt under RCRA § 3001(b)(3)(A) and 40 C.F.R. § 261.4(b)(7). The question is whether "spent" heap-leach ore — ore that has been subjected to cyanide leaching and from which gold has been extracted — continues to qualify as an "extraction" or "beneficiation" waste eligible for the Bevill exclusion, or whether the leaching process transforms the ore into a "processed" waste that falls outside the exclusion.

The argument that spent heap-leach ore remains a beneficiation waste has some support. Heap leaching is fundamentally an ore-processing technique used to extract metals from run-of-mine ore, and the spent ore is a residue of that extraction process. The waste was generated at the mine site as part of the primary metal recovery operation, which is the type of activity the Bevill exclusion was designed to address. Moreover, the spent ore remains at the mine site on the heap-leach pad; it is not transported to a separate processing facility.

However, the opposing argument also has force. The government contends that the chemical transformation of the ore through cyanide leaching — and the resulting presence of added chemicals (cyanide compounds) and concentrated heavy metals — distinguishes spent heap-leach ore from the "extraction and beneficiation" wastes contemplated by the Bevill Amendment. EPA's position, as reflected in various guidance documents, has been that certain mineral processing wastes are excluded from the Bevill exemption, and the agency has not definitively confirmed that all heap-leach mining wastes fall within the exemption.

The courts are split on this issue. The Ninth Circuit, which would govern any appeal from a Nevada federal district court, has not definitively resolved the question for heap-leach ores. This uncertainty is TMC's advantage, as it creates genuine litigation risk for the government that can be leveraged in settlement negotiations.

Assessment. The government has a reasonable case on the RCRA violations at Bonanza Creek, but this is TMC's strongest RCRA defense among all four sites. We recommend preserving the Bevill Amendment argument for use in settlement negotiations to moderate the scope of RCRA corrective action obligations at Bonanza Creek, while acknowledging that the defense's outcome in litigation would be uncertain.

E. Kanawha Bend Chemical Plant — RCRA Violations

The government asserts two categories of RCRA violations at the Kanawha Bend Chemical Plant.

Allegation 1: Surface Impoundment Closure Failure. The government alleges that TMC, through TSC, failed to properly close a former surface impoundment at the Kanawha Bend facility in accordance with the closure requirements of RCRA § 3004 and the applicable regulations at 40 C.F.R. Part 265, Subpart G. The former surface impoundment received sulfuric acid process residuals and other liquid wastes from the facility's operations. EPA inspection records document that the impoundment was taken out of service but was not closed in compliance with the approved closure plan, resulting in ongoing releases of hazardous constituents to soils and groundwater.

Allegation 2: Unpermitted Treatment of Listed Hazardous Wastes. The government alleges that TMC, through TSC, engaged in the unpermitted treatment of listed hazardous wastes at the Kanawha Bend facility, in violation of RCRA § 3005. Specifically, the government alleges that the facility treated:

• K062 (spent pickle liquor from steel finishing operations used in the facility's sulfuric acid regeneration process), a listed hazardous waste under 40 C.F.R. § 261.32; and

• D002 (corrosive hazardous waste — sulfuric acid), a characteristic hazardous waste under 40 C.F.R. § 261.22.

The treatment activities in question — specifically, the blending and thermal processing of spent pickle liquor as part of the sulfuric acid regeneration process — were not authorized under the facility's existing RCRA permit (Permit No. WVD048823915). The permit authorizes certain TSD activities but does not encompass the treatment processes identified by the government.

Contaminant Profile. Investigation of the Kanawha Bend site has revealed extensive contamination:

• Sulfuric acid residuals in soils with pH values as low as 1.8;

• Lead in subsurface soils at concentrations up to 4,200 mg/kg (compared to EPA's Regional Screening Level of 800 mg/kg for industrial soils);

• Arsenic in subsurface soils near the former waste lagoon at concentrations up to 890 mg/kg (compared to EPA's Regional Screening Level of 3.0 mg/kg for industrial soils); and

• Dense non-aqueous phase liquid ("DNAPL") consisting of chlorinated solvents detected in the fractured bedrock aquifer beneath the facility, posing significant technical challenges for remediation.

Assessment. The government's RCRA case at Kanawha Bend is very strong. The listed waste codes (K062 and D002) are well-established and unambiguous in their application to the materials at issue. TMC's treatment of these listed hazardous wastes was clearly conducted outside the scope of the existing RCRA permit, constituting a straightforward violation of RCRA § 3005. The surface impoundment closure failure is thoroughly documented by EPA inspection records and TMC's own post-closure monitoring data. We do not identify any viable defense to the RCRA allegations at Kanawha Bend.

F. RCRA Defenses and Mitigating Factors (All Sites)

Bevill Amendment (Ridgecrest and Bonanza Creek). As analyzed in Sections IV.B and IV.D above, the Bevill Amendment defense is weak at Ridgecrest (where SX/EW wastes are likely classified as mineral processing wastes outside the Bevill exclusion) but potentially stronger at Bonanza Creek (where spent heap-leach ore may qualify as an extraction/beneficiation waste eligible for the exclusion). Even at Bonanza Creek, the defense's outcome is uncertain and fact-dependent. We recommend preserving the Bevill Amendment argument as a settlement negotiation tool at Bonanza Creek while not relying on it as a primary litigation defense at any site.

Interim Status Defense. The interim status provisions of RCRA, which allow facilities that were in existence on November 19, 1980 (the effective date of the RCRA Subtitle C regulations) to continue operating under interim status until a final permit is issued, are not applicable to any of the cited violations. The violations at Gallatin and Kanawha Bend involve operations that were either not included in the facility's RCRA permit application or were conducted outside the scope of the existing permit. The interim status defense is therefore irrelevant to this analysis.

Good Faith Compliance / Cooperative Engagement. TMC's cooperation with EPA under the Ridgecrest AOC and its participation in the consent-decree framework negotiation is a mitigating factor that should be emphasized in penalty assessment negotiations. Under EPA's RCRA Civil Penalty Policy, good faith efforts to comply and willingness to cooperate are recognized factors that may warrant downward adjustment of the penalty amount. However, as with the CWA, good faith compliance is a mitigating factor in penalty calculation and not a defense to the underlying liability.

Ability to Pay. Under EPA penalty policies, a respondent's inability to pay the proposed penalty may warrant adjustment. However, given TMC's financial profile — FY2023 revenue of C$4.82 billion, EBITDA of C$1.14 billion, and market capitalization of approximately C$7.6 billion — an inability-to-pay defense is not viable. TMC's financial capacity is more than sufficient to absorb the proposed penalties. The ability-to-pay factor may, however, be relevant to structuring payment schedules for remediation costs under the consent decree, and we recommend exploring phased payment structures as part of the settlement negotiation.

V. CERCLA § 107 ANALYSIS

A. Statutory Framework

Section 107(a) of CERCLA, 42 U.S.C. § 9607(a), establishes liability for response costs incurred by the government in cleaning up releases or threatened releases of hazardous substances at facilities. CERCLA liability is notable for its breadth: it is strict (no fault or negligence required), joint and several (each liable party may be held responsible for the entire cost of response), and retroactive (liability attaches to activities that occurred before CERCLA's enactment in 1980).

The categories of potentially responsible parties ("PRPs") under Section 107(a) are:

1. Current owners and operators of the facility;

2. Owners and operators at the time of disposal of hazardous substances;

3. Generators who arranged for disposal or treatment of hazardous substances at the facility; and

4. Transporters who selected the facility for disposal or treatment of hazardous substances.

Liable parties must reimburse EPA for "all costs of removal or remedial action" that are "not inconsistent with the national contingency plan" ("NCP"), 40 C.F.R. Part 300. The statutory defenses under Section 107(b) are narrow: (1) act of God; (2) act of war; and (3) an act or omission of a third party who is not in a contractual relationship with the defendant (the "third-party defense"), provided the defendant exercised due care and took precautions against foreseeable acts or omissions of the third party.

B. Ridgecrest Mine — CERCLA Liability

TMC's CERCLA liability at the Ridgecrest Copper-Molybdenum Mine is, for practical purposes, absolute. TMC and its subsidiaries (RMH and TM(US)) are current owners and operators of the Ridgecrest site, satisfying the first category of PRP liability under Section 107(a)(1). Additionally, TMC (through its predecessor in interest and its subsidiaries) was the owner and operator of the site during the entire period of active mining (1978–2019), during which hazardous substances were "disposed of" within the meaning of CERCLA. This satisfies the second category of PRP liability under Section 107(a)(2). There is no dispute as to TMC's status as an owner and operator, and TMC has not contested this characterization.

Release of Hazardous Substances. The acid mine drainage seeping from the tailings impoundment contains copper, molybdenum, and selenium, all of which are designated "hazardous substances" under CERCLA § 101(14), 42 U.S.C. § 9601(14), and are listed on the CERCLA Hazardous Substance List at 40 C.F.R. § 302.4. The documented seepage constitutes a "release" of hazardous substances into the "environment" within the meaning of CERCLA § 101(22), 42 U.S.C. § 9601(22).

EPA Past Removal Costs. EPA conducted a removal action at the Ridgecrest site from January 15, 2021, through May 30, 2023, incurring total removal costs of $14.3 million. EPA will seek full reimbursement of these costs as part of the consent decree, with prejudgment interest accruing under CERCLA § 107(a) at the rate specified in 26 U.S.C. § 6621 (currently approximately 8% per annum). The prompt payment of past costs is advisable to minimize interest accrual.

Estimated Remediation Costs. The estimated total remediation cost for the Ridgecrest site varies depending on the source:

The government's independent technical reviewer is Cascade Geosciences, Inc., led by Dr. Patricia Voss, Ph.D. (Hydrogeology). The negotiated remediation cost of $198.6 million represents a compromise between the government's estimate and TMC's estimate and reflects the anticipated scope of the remedy as discussed in the July 30, 2024 agreement-in-principle framework. The Ridgecrest site has been proposed for NPL listing, which enhances the government's leverage because NPL listing triggers the availability of Superfund financing and remedial authority under CERCLA § 104 and § 106, and increases public and political pressure on TMC to reach a settlement.

Assessment. CERCLA liability at Ridgecrest is essentially absolute. TMC is the sole PRP at the site; no contribution claims against third parties are apparent, as TMC and its predecessors have been the exclusive owners and operators of the mine since 1978. The only negotiable elements are the scope of the remedy (which directly affects the cost) and the payment structure. We recommend focusing negotiation efforts on remedy scope, particularly with respect to long-term water treatment obligations, which represent a significant component of the 30-year remediation cost estimate.

C. Kanawha Bend Chemical Plant — CERCLA Liability

TMC's CERCLA liability at the Kanawha Bend Chemical Plant is similarly clear. TMC and its subsidiaries (TSC and TM(US)) are current owners and operators of the facility, satisfying Section 107(a)(1) PRP liability. TMC has owned and operated the facility since 1985, encompassing the entire period during which hazardous substances were disposed of at the site.

Release of Hazardous Substances. The June 14, 2020 sulfuric acid release to a tributary of the Kanawha River constitutes a "release" of hazardous substances under CERCLA. Sulfuric acid is a listed hazardous substance (D002 — corrosive). Additionally, the documented presence of lead, arsenic, and chlorinated solvents (DNAPL) in soils and groundwater at the site constitutes ongoing releases of hazardous substances into the environment.

EPA Past Response Costs. EPA incurred $3.8 million in emergency response costs in connection with the June 14, 2020 sulfuric acid release. These costs will be sought as part of the CERCLA § 107 cost recovery component of the consent decree.

Estimated Remediation Cost. The estimated remediation cost for Kanawha Bend is $38.9 million over 20 years (NPV at 3%: $29.0 million). The DNAPL contamination in the fractured bedrock aquifer presents significant technical challenges that may affect both the cost and duration of remediation. Remediation of DNAPL in fractured bedrock is notoriously difficult and uncertain, and the actual costs may exceed current estimates depending on the effectiveness of the selected remedy.

Assessment. CERCLA liability at Kanawha Bend is clear and without viable defense. TMC is the sole PRP. No contribution claims against third parties are apparent.

D. CERCLA § 107 Cost Recovery — Combined Exposure

The total EPA past-costs reimbursement exposure under CERCLA § 107 across both CERCLA-implicated sites is $18.1 million, composed of:

• Ridgecrest Mine removal costs: $14,300,000

• Kanawha Bend Chemical Plant emergency response costs: $3,800,000

The government will seek full reimbursement of these costs as part of the consent decree, together with prejudgment interest. Under CERCLA § 107(a), the government is entitled to recover interest on unreimbursed response costs at the rate established under 26 U.S.C. § 6621, which is currently approximately 8% per annum. Given the magnitude of the past costs and the ongoing accrual of interest, we recommend prompt payment of the past-cost reimbursement as early in the consent-decree process as practicable to minimize interest exposure. Assuming the consent decree is finalized by mid-2025, interest accrual from the date of expenditure through payment could add several million dollars to the total obligation.

E. CERCLA Defenses and Mitigating Factors

Third-Party Defense (§ 107(b)(3)). The third-party defense requires TMC to demonstrate that the release or threatened release of hazardous substances was caused solely by an act or omission of a third party who is not in a "contractual relationship" with TMC, and that TMC exercised due care and took precautions against foreseeable acts or omissions of such third party. This defense is inapplicable here. TMC and its subsidiaries operated all four sites directly; there is no third party whose sole act or omission caused the releases. The contractual relationship limitation would independently preclude the defense in any event, as TMC's relationships with its subsidiaries, contractors, and customers all constitute contractual relationships within the meaning of the statute.

Innocent Landowner / Bona Fide Prospective Purchaser Defenses. These defenses, codified at CERCLA §§ 101(35) and 107(r), are available to subsequent purchasers of contaminated property who acquired the property without knowledge of the contamination and after all disposal had ceased. These defenses are not applicable to TMC, which is the operator — not a subsequent purchaser — of the facilities at issue.

NCP Consistency Challenge. Under CERCLA § 107(a)(4)(A), the government may recover only those costs that are "not inconsistent with the national contingency plan." TMC could, in theory, challenge the consistency of EPA's past response actions or proposed remedial actions with the NCP. Such a challenge would require extensive factual development and expert testimony regarding the appropriateness of the selected response actions, the adequacy of the remedy selection process, and compliance with the procedural requirements of 40 C.F.R. Part 300. We note that NCP consistenc

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT NOT FOR DISCLOSURE WITHOUT PRIOR AUTHORIZATION OF COUNSEL
CALDERWOOD & HARKNESS LLP 1250 Connecticut Avenue, N.W., Suite 800 Washington, D.C. 20036
Telephone: (202) 555-7400 Facsimile: (202) 555-7401
November 8, 2024
MEMORANDUM
TO: Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.
FROM: Harrison Wexford, Responsible Partner Elliot Nguyen, Lead Associate Grace Nakamura, Working Associate Calderwood & Harkness LLP
RE: Regulatory Exposure Analysis — Clean Water Act, Resource Conservation and Recovery Act, and Comprehensive Environmental Response, Compensation, and Liability Act Liability Summary — All Four Sites
MATTER NO.: 1039-00003
This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation. This memorandum is intended solely for the use of the addressees and authorized personnel of Torchlight Mining Corp. and its subsidiaries. Any dissemination, distribution, copying, or other use of this memorandum by any person or entity other than the intended recipients is strictly prohibited. Disclosure to any third party may result in waiver of applicable privileges.
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
This memorandum sets forth the results of our comprehensive analysis of Torchlight Mining Corp.'s ("TMC" or the "Company") statutory liability exposure under three principal federal environmental statutes: the Clean Water Act ("CWA") Section 301, 33 U.S.C. § 1311; the Resource Conservation and Recovery Act ("RCRA") Sections 3004 and 3005, 42 U.S.C. §§ 6924–6925; and the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") Section 107, 42 U.S.C. § 9607. This analysis is prepared in connection with the pending multi-site federal enforcement action styled United States of America and State of Montana v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM, currently pending before the Honorable Donald W. Molloy, Senior United States District Judge (by designation), in the United States District Court for the District of Montana, Missoula Division.
The enforcement action encompasses four discrete facilities owned and operated by TMC and its wholly owned domestic subsidiaries:
1. Ridgecrest Copper-Molybdenum Mine, located near Drummond, Granite County, Montana;
2. Gallatin Chemical Works, located in Belgrade, Gallatin County, Montana;
3. Bonanza Creek Gold Mine, located in Lander County, Nevada; and
4. Kanawha Bend Chemical Plant, located in Institute, Kanawha County, West Virginia.
The named defendants in the enforcement action include the following entities within the TMC corporate family:
• Torchlight Mining Corp. (CBCA corporation, dual-listed TSX/NYSE, ticker: TRC);
• Torchlight Mining (U.S.) Inc. (Delaware corporation, EIN 83-2047156);
• Torchlight Specialty Chemicals, Inc. (Delaware corporation, EIN 47-3819204);
• Ridgecrest Mine Holdings, LLC (Montana LLC, MT Secretary of State ID E1042738); and
• Bonanza Creek Mining, LLC (Nevada LLC, NV Secretary of State Entity No. E0518294731).
The regulatory counterparties and co-plaintiffs in this enforcement action include the United States Environmental Protection Agency ("EPA"), acting through Regions 8, 9, and 3; the United States Department of Justice ("DOJ"), Environment and Natural Resources Division ("ENRD"); and three state co-plaintiffs: the Montana Department of Environmental Quality ("Montana DEQ"), the Nevada Department of Environmental Protection ("Nevada DEP"), and the West Virginia Department of Environmental Protection ("West Virginia DEP").
Overall Assessment. Based on our review of the complaint, the administrative record, TMC's internal operational records and correspondence produced to date, EPA inspection reports, sampling data, and the applicable statutory and regulatory frameworks, it is our conclusion that TMC faces substantial and largely indefensible liability under all three statutes across all four sites. Available defenses are limited in scope, fact-dependent in nature, and unlikely to eliminate liability at any site. The liability exposure is most acute at the Ridgecrest Copper-Molybdenum Mine, which accounts for approximately 48.5% of total estimated remediation costs, and at the Bonanza Creek Gold Mine, which presents the most complex regulatory and factual profile. Mitigating factors do exist — principally TMC's cooperative engagement with EPA under the Administrative Order on Consent at Ridgecrest and its participation in the consent-decree framework negotiation — but these factors are best deployed as settlement negotiation tools rather than litigation defenses.
Aggregate Estimated Financial Exposure. Our analysis yields the following aggregate estimated exposure:
As of the third quarter of 2024, TMC's environmental remediation reserve stands at C$340.0 million, which translates to approximately US$251.4 million at the prevailing exchange rate of C$1.00 = US$0.7394. Against the estimated nominal obligations of US$409.9 million, this results in a shortfall of approximately US$158.5 million. Even measured against the NPV/cash-equivalent exposure of US$311.5 million, the shortfall is approximately US$60.1 million. We address the implications of this reserve deficiency, including the potential need for reserve augmentation and its impact on TMC's credit facility covenants, in Section VIII below and in a forthcoming separate memorandum on financial assurance requirements.
The balance of this memorandum is organized as follows: Section II sets forth the procedural background of the enforcement action and related regulatory history; Sections III through V analyze TMC's liability under the CWA, RCRA, and CERCLA, respectively, on a site-by-site basis; Section VI addresses joint and several liability among the named defendants and the absence of third-party contribution claims; Section VII presents a consolidated site-by-site exposure summary; Section VIII consolidates the aggregate financial exposure; Section IX provides a comprehensive assessment of available defenses; Section X cross-references the Migratory Bird Treaty Act exposure at Bonanza Creek; Section XI discusses the implications for settlement strategy; and Section XII sets forth our recommendations and next steps.
II. PROCEDURAL BACKGROUND
A. Pre-Litigation Regulatory History
The four sites at issue have extensive regulatory histories, the relevant portions of which are summarized below.
Ridgecrest Copper-Molybdenum Mine. Mining operations at the Ridgecrest site commenced in 1978 under the predecessor ownership of Ridgecrest Minerals, Inc., which was acquired by TMC in 1996. Active copper and molybdenum extraction and processing continued until December 31, 2019, when TMC announced the cessation of mining operations. The site is currently in the closure and reclamation phase under a Mine Closure Plan approved by Montana DEQ. The site encompasses approximately 3,200 acres of mine footprint within a total controlled property area of approximately 8,700 acres. The primary environmental concern at the site is a 425-acre tailings impoundment from which acid mine drainage ("AMD") has been documented to seep into Flint Creek, a tributary of the Clark Fork River.
In 2021, EPA Region 8 commenced a removal action at the Ridgecrest site pursuant to CERCLA § 104, 42 U.S.C. § 9604. The removal action was initiated on January 15, 2021, and completed on May 30, 2023. Total removal costs incurred by EPA were $14.3 million. On September 15, 2022, during the pendency of the removal action, EPA Region 8 and TMC executed an Administrative Order on Consent ("AOC"), Docket No. CERCLA-08-2022-0039, pursuant to which TMC agreed to certain interim measures and monitoring obligations. The Ridgecrest site has been proposed for listing on the National Priorities List ("NPL") under CERCLA, which significantly enhances the government's remedial authority and negotiating leverage.
Gallatin Chemical Works. The Gallatin Chemical Works facility has been operational since 1993 and remains an active specialty chemical manufacturing facility. The facility is operated by Torchlight Specialty Chemicals, Inc. ("TSC"), a wholly owned subsidiary of Torchlight Mining (U.S.) Inc. ("TM(US)"). The facility holds a RCRA Corrective Action permit, Permit No. MTD098712456, which authorizes certain hazardous waste treatment, storage, and disposal activities and requires corrective action at identified solid waste management units ("SWMUs"). The facility also holds a Montana Pollutant Discharge Elimination System ("MPDES") permit governing wastewater discharges, which is the state-administered equivalent of a National Pollutant Discharge Elimination System ("NPDES") permit under the CWA.
Bonanza Creek Gold Mine. The Bonanza Creek Gold Mine has been operational since 2001 and is currently engaged in active gold extraction using heap-leach cyanidation methods. The mine is operated by Bonanza Creek Mining, LLC ("BCM"), a wholly owned subsidiary of TM(US). The site encompasses approximately 5,600 acres of active mine footprint within a total controlled property area of approximately 12,400 acres. Between March 2022 and January 2023, three documented releases of heap-leach process solution occurred from the heap-leach pad to an ephemeral tributary of the Reese River, each attributable to liner failures. The releases involved process solution containing weak-acid-dissociable ("WAD") cyanide and mercury at concentrations substantially exceeding applicable discharge limits and water quality criteria.
Kanawha Bend Chemical Plant. The Kanawha Bend Chemical Plant has been operational since 1985 and remains an active chemical manufacturing facility specializing in sulfuric acid regeneration and related processes. The facility is operated by TSC through its West Virginia operations division. The facility holds a RCRA Corrective Action permit, Permit No. WVD048823915. On June 14, 2020, a sulfuric acid release from the facility reached a tributary of the Kanawha River, prompting an EPA emergency response action. EPA's emergency response costs totaled $3.8 million. Subsequent investigation revealed extensive soil and groundwater contamination, including dense non-aqueous phase liquid ("DNAPL") consisting of chlorinated solvents in the fractured bedrock aquifer beneath the facility.
B. EPA Notice of Violation
On September 12, 2023, EPA issued a comprehensive Notice of Violation ("NOV") to TMC covering all four sites. The NOV identified violations of the CWA, RCRA, and CERCLA at the sites as described in detail below and demanded corrective measures, compliance schedules, and payment of civil penalties. The NOV was issued jointly by EPA Regions 8, 9, and 3, reflecting the geographic distribution of the four facilities across Montana, Nevada, and West Virginia, respectively. TMC, through its prior environmental counsel (Whitfield, Palmer & Goss LLP), responded to the NOV on November 15, 2023, acknowledging certain factual allegations while reserving all legal defenses.
C. Litigation
On January 18, 2024, the DOJ, acting on behalf of EPA and in conjunction with the State of Montana (as co-plaintiff), filed a complaint in the United States District Court for the District of Montana, Missoula Division, initiating Civil Action No. 9:24-cv-00087-DWM. The case was assigned to the Honorable Donald W. Molloy, Senior United States District Judge, sitting by designation. The complaint alleges violations of the CWA, RCRA, and CERCLA at all four sites and names all five TMC-affiliated entities as co-defendants. The complaint seeks injunctive relief requiring remediation and corrective action, civil penalties under the CWA and RCRA, and cost recovery under CERCLA § 107 for EPA's past response costs.
TMC filed its answer on March 5, 2024, through prior counsel, admitting certain factual allegations, denying others, and asserting affirmative defenses including statute of limitations, regulatory compliance, and reservation of all other defenses.
On April 22, 2024, the parties executed a Tolling Agreement pursuant to which the applicable statutes of limitations for all claims and counterclaims were tolled through December 31, 2025, in order to facilitate settlement negotiations without the pressure of impending limitations periods.
On May 15, 2024, the Court ordered mediation, referring the matter to Magistrate Judge Clara Finnegan for settlement conference purposes. The parties participated in an initial mediation session on May 15, 2024, followed by subsequent sessions on June 12, 2024, and July 18, 2024. On July 30, 2024, the parties reached an agreement in principle on the framework for a consent decree, subject to the negotiation and execution of definitive documentation.
Calderwood & Harkness LLP was engaged by TMC on October 21, 2024, replacing Whitfield, Palmer & Goss LLP as TMC's lead environmental litigation counsel. The transition of counsel was prompted by TMC's desire for additional expertise in the negotiation of complex multi-site consent decrees and the structuring of associated financial assurance mechanisms. On November 8, 2024 — the date of this memorandum — the DOJ circulated its first draft consent decree to TMC.
The principal government personnel involved in the enforcement action are as follows:
• Lead DOJ Trial Attorney: Philip Orenstein, Environmental Enforcement Section, ENRD
• Supervising DOJ Attorney: Katherine Rowe-Halpern, Senior Counsel, Environmental Enforcement Section, ENRD
• Lead EPA Case Attorney: Margaret Coulson, Office of Enforcement and Compliance Assurance ("OECA")
• EPA Project Coordinator (Ridgecrest): Dr. Samuel Tesfaye, EPA Region 8
• EPA Project Coordinator (Bonanza Creek): Jennifer Whitfield, EPA Region 9
• Montana AG Counsel: Annika Hedstrom, Environmental Protection Bureau, Montana Attorney General's Office
• Nevada AG Counsel: Ricardo Fuentes, Bureau of Consumer Protection, Nevada Attorney General's Office
• West Virginia AG Counsel: Loretta May Hatcher, Environmental Resources Section, West Virginia Attorney General's Office
D. Corporate Structure and Named Defendants
Torchlight Mining Corp. is a corporation organized under the Canada Business Corporations Act ("CBCA"), dual-listed on the Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE") under the ticker symbol TRC. TMC's corporate headquarters are located at 1800 Bayfield Tower, 401 Bay Street, Toronto, Ontario M5H 2Y4, Canada. TMC's U.S. headquarters are located at 750 Copper Ridge Boulevard, Suite 200, Helena, Montana 59601.
TMC conducts its U.S. operations through a wholly owned domestic subsidiary, Torchlight Mining (U.S.) Inc. ("TM(US)"), a Delaware corporation (EIN 83-2047156). TM(US) in turn wholly owns the following operating entities:
• Torchlight Specialty Chemicals, Inc. ("TSC"), a Delaware corporation (EIN 47-3819204), which operates the Gallatin Chemical Works facility in Belgrade, Montana, and the Kanawha Bend Chemical Plant in Institute, West Virginia;
• Ridgecrest Mine Holdings, LLC ("RMH"), a Montana limited liability company (MT Secretary of State ID E1042738), which owns and operates the Ridgecrest Copper-Molybdenum Mine in Drummond, Montana; and
• Bonanza Creek Mining, LLC ("BCM"), a Nevada limited liability company (NV Secretary of State Entity No. E0518294731), which owns and operates the Bonanza Creek Gold Mine in Lander County, Nevada.
All five entities — TMC, TM(US), TSC, RMH, and BCM — are named as co-defendants in the enforcement action. The implications of this corporate structure for purposes of joint and several liability, operator liability of the parent corporation, and the availability of third-party contribution claims are analyzed in detail in Section VI below.
III. CLEAN WATER ACT § 301 ANALYSIS
A. Statutory Framework
The CWA establishes a comprehensive regulatory framework for the control of pollutant discharges to the waters of the United States. Section 301(a) of the CWA, 33 U.S.C. § 1311(a), provides the foundational prohibition: "Except as in compliance with this section and sections 1312, 1316, 1317, 1328, 1342, and 1344 of this title, the discharge of any pollutant by any person shall be unlawful." This prohibition operates as a strict liability standard — the government need not demonstrate scienter, negligence, or intent; it must show only that a discharge of a pollutant from a point source to navigable waters occurred without authorization under an NPDES permit (or state-administered equivalent) or in excess of the terms and conditions of such a permit.
The key statutory definitions relevant to this analysis are as follows:
• "Discharge of a pollutant" is defined under CWA § 502(12), 33 U.S.C. § 1362(12), as "any addition of any pollutant to navigable waters from any point source."
• "Point source" is defined under CWA § 502(14), 33 U.S.C. § 1362(14), as "any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged."
• "Navigable waters" is defined under CWA § 502(7), 33 U.S.C. § 1362(7), as "the waters of the United States, including the territorial seas." The scope of this term has been the subject of extensive litigation, most recently in Sackett v. EPA, 598 U.S. 651 (2023).
• "Pollutant" is defined under CWA § 502(6), 33 U.S.C. § 1362(6), to include, inter alia, "dredged spoil, solid waste, incinerator residue, sewage, garbage, sewage sludge, munitions, chemical wastes, biological materials, radioactive materials, heat, wrecked or discarded equipment, rock, sand, cellar dirt and industrial, municipal, and agricultural waste discharged into water."
Civil penalty authority for CWA violations is established under Section 309(d) of the CWA, 33 U.S.C. § 1319(d), which authorizes civil penalties of up to the statutory maximum per violation per day (as adjusted for inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended). Under the most recent inflation adjustment, the maximum civil penalty is $64,618 per violation per day. Additionally, Section 309(b) authorizes compliance orders, and Section 309(d) authorizes injunctive relief to require abatement of ongoing violations.
B. Ridgecrest Mine — CWA Violations
The government alleges that TMC, through its subsidiaries RMH and TM(US), has discharged pollutants from the Ridgecrest Copper-Molybdenum Mine tailings impoundment to Flint Creek without authorization under an NPDES or MPDES permit, in violation of CWA § 301(a). The factual basis for this allegation is well-documented and, in our assessment, essentially undeniable.
Nature of the Discharge. The Ridgecrest site includes a 425-acre tailings impoundment that received mine tailings from copper-molybdenum extraction operations from 1978 through 2019. Geotechnical and hydrogeological investigations conducted by both EPA's contractor (Cascade Geosciences, Inc., led by Dr. Patricia Voss, Ph.D.) and TMC's consultant (Pinnacle Creek Environmental, LLC, led by Dr. Astrid Bergmann, P.E.) have documented multiple seepage pathways through which acid mine drainage from the tailings impoundment reaches Flint Creek, a tributary of the Clark Fork River. The seepage is continuous and has been documented by monitoring data spanning multiple years.
Contaminant Profile. The acid mine drainage discharged from the tailings impoundment contains the following contaminants at the indicated concentrations (based on the most recent monitoring data from the 2022–2024 sampling period):
The dissolved copper concentration is particularly significant: at 47 mg/L, it exceeds Montana's chronic aquatic life standard of 0.0087 mg/L by a factor of approximately 5,400. This level of exceedance is among the most extreme we have encountered in mining-related enforcement actions and eliminates any de minimis defense.
Permit Status. No NPDES or MPDES permit has been issued authorizing the discharge of pollutants from the tailings impoundment seepage pathways. TMC holds an MPDES permit for certain authorized discharge points at the Ridgecrest site, but this permit does not encompass the tailings impoundment seepage, which is an unauthorized discharge pathway. The absence of permit coverage is dispositive under the CWA's strict liability framework: any discharge of a pollutant from a point source to navigable waters without a permit constitutes a violation regardless of the circumstances.
Point Source Analysis. The government's position is that the tailings impoundment and its associated conveyance channels — including identifiable seepage pathways, collection ditches, and engineered drainage features — constitute "point sources" within the meaning of CWA § 502(14). This position is well-supported by the applicable case law. Courts have consistently held that mining-related structures, including tailings impoundments, drainage ditches, and conveyance channels, qualify as point sources. See, e.g., Sierra Club v. Abston Constr. Co., 620 F.2d 41 (5th Cir. 1980); Trustees for Alaska v. EPA, 749 F.2d 549 (9th Cir. 1984). The Ninth Circuit's approach, which would govern any appeal from the District of Montana, is particularly broad in its construction of "point source" in the mining context. TMC does not have a meritorious basis to challenge the characterization of the tailings impoundment seepage as a point-source discharge.
Assessment. The government's CWA case at Ridgecrest is very strong. The discharges are documented, measurable, ongoing, and involve contaminant concentrations thousands of times above applicable water quality standards. TMC has no permit defense. The strict liability standard eliminates the need for the government to prove negligence or intent. We do not believe that TMC can prevail on any CWA defense at Ridgecrest; the only question is the scope of injunctive relief and the amount of civil penalties.
Estimated Civil Penalty Exposure. The civil penalty exposure attributable to the CWA component of the Ridgecrest violations is factored into the aggregate penalty estimate of $14.2 million for the site. The penalty calculation reflects the duration of the violations (multiple years of continuous discharge), the severity of the exceedances, the economic benefit to TMC of noncompliance, and the absence of mitigating factors other than cooperative engagement. A detailed penalty computation is set forth in the Penalty Calculation Analysis dated November 12, 2024.
C. Gallatin Chemical Works — CWA Violations
The government alleges that TMC, through TSC and TM(US), violated the terms of the facility's MPDES permit by exceeding effluent limits for carbon disulfide ("CS₂") and total suspended solids ("TSS") on 14 documented occasions between January 2021 and June 2024.
Nature of the Violations. The Gallatin Chemical Works facility holds an MPDES permit governing the discharge of treated wastewater from the specialty chemical manufacturing process to an authorized discharge point. The permit establishes numeric effluent limitations for various parameters, including CS₂ and TSS. EPA and Montana DEQ inspections, supplemented by TMC's own Discharge Monitoring Reports ("DMRs"), have identified 14 separate instances in which the facility's discharges exceeded the permitted effluent limits for one or both of these parameters. Each exceedance constitutes a separate violation of CWA § 301(a), and each day of continued exceedance constitutes an additional violation carrying per-day penalties.
Permit Exceedance Data. TMC's own DMR data, which is submitted to Montana DEQ on a monthly basis and constitutes a public record, confirms the 14 exceedances. The DMRs are signed by the facility's responsible corporate officer and carry the penalty of perjury for false statements under CWA § 309(c)(4). TMC cannot credibly dispute the accuracy of its own DMR submissions.
Assessment. The government's CWA case at Gallatin is essentially airtight. Permit exceedances are strict-liability violations; the fact of the exceedance, as documented in TMC's own DMRs, establishes the violation. TMC's defense options are extremely limited. We have considered potential arguments regarding measurement methodology (e.g., disputes over sampling protocols, analytical methods, or QA/QC procedures) and de minimis exceedances. However, the evidence of 14 separate exceedance occasions over a period of approximately three and one-half years undermines any de minimis claim and suggests a pattern of noncompliance rather than isolated incidents.
Estimated Civil Penalty Exposure. The civil penalty exposure attributable to the CWA component of the Gallatin violations is factored into the aggregate penalty estimate of $5.8 million for the site.
D. Bonanza Creek Mine — CWA Violations
The government alleges that TMC, through BCM and TM(US), discharged pollutants from the Bonanza Creek Gold Mine heap-leach pad to an ephemeral tributary of the Reese River without authorization under an NPDES permit, in violation of CWA § 301(a). The allegations center on three documented release events.
Release Events. Three documented releases of heap-leach process solution occurred from the Bonanza Creek heap-leach pad due to failures in the liner system:
1. March 17, 2022: First release discovered during routine inspection; estimated volume of 48,000 gallons of process solution released through a tear in the secondary liner.
2. August 9, 2022: Second release discovered following a precipitation event; estimated volume of 72,000 gallons released through a separate liner failure in the eastern cell.
3. January 22, 2023: Third release discovered during quarterly monitoring; estimated volume of 35,000 gallons released through degraded liner material in the southwestern cell.
In each instance, the released process solution traveled via surface flow and shallow subsurface pathways to an ephemeral tributary of the Reese River.
Contaminant Profile. The released process solution contained the following contaminants at the indicated concentrations:
The WAD cyanide concentration of 0.62 mg/L is approximately 28 times the applicable discharge limit, and the mercury concentration of 12.4 µg/L is approximately 16 times the applicable water quality criterion. Both parameters are acutely toxic to aquatic life and pose risks to downstream water users.
Point Source Analysis. The heap-leach pad and its associated underdrain system constitute "point sources" within the meaning of CWA § 502(14). A heap-leach pad is an engineered structure — a lined containment facility with process-solution collection and conveyance systems — that falls squarely within the statutory definition of a "discernible, confined and discrete conveyance." Courts have consistently treated such facilities as point sources. TMC does not have a meritorious basis to challenge this characterization.
Navigable Waters Analysis. The government's CWA jurisdiction depends on the classification of the ephemeral tributary of the Reese River as "navigable waters" (i.e., "waters of the United States") within the meaning of CWA § 502(7). This issue requires careful analysis in light of the Supreme Court's recent decision in Sackett v. EPA, 598 U.S. 651 (2023), which narrowed the scope of federal CWA jurisdiction over wetlands and adopted a "continuous surface connection" test.
The Reese River is a traditional navigable water, and the government will argue that the ephemeral tributary at issue has a continuous surface connection to the Reese River during periods of seasonal flow. The available hydrological data indicates that the tributary carries surface water during the spring snowmelt period (typically March through June) and during significant precipitation events throughout the year. During the summer and fall months, surface flow in the tributary is intermittent to absent, although subsurface flow appears continuous.
Under Sackett, the critical question is whether the tributary maintains a "continuous surface connection" to the Reese River such that it is indistinguishable from the river itself. The government's position is that the seasonal surface connection, combined with the documented flow of pollutants from the heap-leach pad to the tributary and thence to the Reese River, establishes jurisdiction. TMC may raise a jurisdictional challenge arguing that the ephemeral nature of the tributary — with periods of no surface flow — precludes a finding of "continuous surface connection" under Sackett. However, we assess the likelihood of success of such a challenge as low for the following reasons: (i) the tributary has a documented physical connection to the Reese River during seasonal flow periods; (ii) pollutant transport from the release site to the Reese River has been confirmed by downstream sampling data; and (iii) lower courts applying Sackett have generally continued to find jurisdiction over tributaries with seasonal flow connections to traditional navigable waters, particularly where pollutant migration has been documented.
Assessment. The government's CWA case at Bonanza Creek is strong. Three separate unpermitted discharge events are documented with sampling data showing contaminant concentrations substantially exceeding applicable standards. The navigable waters issue presents a theoretical defense, but the likelihood of success is low, and mounting the defense would require extensive expert hydrogeological testimony with uncertain results.
Estimated Civil Penalty Exposure. The civil penalty exposure attributable to the CWA component of the Bonanza Creek violations is factored into the aggregate penalty estimate of $7.9 million for the site.
E. CWA Defenses and Mitigating Factors (All Sites)
We have evaluated the following potential defenses and mitigating factors applicable to the CWA allegations across all four sites:
upset/Bypass Defense (40 C.F.R. §§ 122.41(n), (m)). The NPDES regulations provide two related defenses. The "Upset" provision, 40 C.F.R. § 122.41(n), provides an affirmative defense to permit exceedances where the permittee demonstrates that: (1) an upset occurred and the permittee can identify the specific cause; (2) the facility was being properly operated at the time; (3) the permittee submitted proper notice of the upset; and (4) the permittee complied with any remedial measures required under the permit. The "bypass" provision, 40 C.F.R. § 122.41(m), addresses the intentional diversion of waste streams from any portion of a treatment facility.
These defenses are potentially available at the Gallatin Chemical Works for some of the 14 documented permit exceedances, if TMC can demonstrate that the conditions leading to the exceedances were beyond reasonable control and that TMC provided proper notice to Montana DEQ. However, the viability of this defense depends on a fact-specific inquiry into each exceedance event, and the burden of proof rests with TMC. Preliminary review of TMC's operational records suggests that notice requirements were not consistently met, which would preclude the defense for those events.
The upset/bypass defense is unlikely to apply at Ridgecrest or Bonanza Creek, where the discharges are structural in nature (tailings impoundment seepage and liner failures) rather than temporary operational upsets. The ongoing, persistent nature of the Ridgecrest seepage is fundamentally incompatible with the "Upset" concept, which contemplates an unanticipated, temporary deviation from normal operations.
Good Faith Compliance Efforts. TMC can point to its participation in the Ridgecrest closure and reclamation process and its execution of the AOC (Docket No. CERCLA-08-2022-0039) as evidence of cooperative engagement and good faith compliance efforts. Under EPA's Civil Penalty Policy and the CWA civil penalty factors set forth in Section 309(d), good faith efforts to comply are a recognized mitigating factor in penalty calculation. However, good faith compliance is not a defense to liability — it may reduce the penalty amount but does not eliminate the underlying violation. We recommend emphasizing this factor prominently in settlement negotiations.
Statute of Limitations (28 U.S.C. § 2462). The general federal statute of limitations for actions to recover civil penalties, 28 U.S.C. § 2462, imposes a five-year limitations period. The complaint was filed on January 18, 2024. All alleged CWA violations fall within the five-year look-back period commencing January 18, 2019. The Tolling Agreement executed on April 22, 2024, extends the tolling of all limitations periods through December 31, 2025. Accordingly, the statute of limitations does not provide a viable defense to any of the alleged CWA violations.
Navigable Waters Challenge (Bonanza Creek). As discussed in Section III.D above, TMC may raise a post-Sackett jurisdictional challenge regarding the ephemeral tributary at Bonanza Creek. We assess this defense as having a low probability of success but note that it may serve a limited function as a negotiating point in settlement discussions regarding the Bonanza Creek site.
IV. RCRA §§ 3004 AND 3005 ANALYSIS
A. Statutory Framework
The Resource Conservation and Recovery Act establishes a "cradle-to-grave" regulatory framework for the management of hazardous waste. The statutory provisions most relevant to this analysis are:
RCRA § 3004, 42 U.S.C. § 6924, establishes standards applicable to owners and operators of hazardous waste treatment, storage, and disposal ("TSD") facilities. These standards address, inter alia, facility design and construction, groundwater monitoring, financial assurance, closure and post-closure care, and corrective action for releases. Section 3004(u) specifically requires corrective action for releases of hazardous waste or hazardous constituents from any solid waste management unit ("SWMU") at a facility seeking or holding a RCRA permit, regardless of when the waste was placed in the unit. Section 3004(v) extends corrective action requirements beyond the facility boundary where necessary.
RCRA § 3005, 42 U.S.C. § 6925, requires that any person owning or operating a facility for the treatment, storage, or disposal of hazardous waste obtain a permit from EPA or an authorized state program. Operation of a TSD facility without a permit (or interim status authorization) constitutes a violation of RCRA § 3005.
Like the CWA, RCRA imposes a strict liability standard on owners and operators of TSD facilities. The "owner or operator" definition under RCRA is broad and encompasses any person who owns or operates a facility, including corporate parents that exercise control over hazardous waste operations.
Civil penalty authority is provided under RCRA § 3008(a) and (g), 42 U.S.C. § 6928(a) and (g), which authorize penalties of up to the inflation-adjusted statutory maximum per day of violation. Additionally, RCRA § 7003, 42 U.S.C. § 6973, authorizes injunctive relief where the handling, storage, treatment, transportation, or disposal of solid or hazardous waste "may present an imminent and substantial endangerment to health or the environment."
B. Ridgecrest Mine — RCRA Violations
The government alleges that TMC, through RMH and TM(US), mismanaged hazardous waste generated by the solvent-extraction/electrowinning ("SX/EW") circuit at the Ridgecrest Mine, in violation of RCRA § 3004 standards applicable to hazardous waste generators and TSD facilities.
Waste Characterization. The SX/EW circuit was used in the copper extraction process at Ridgecrest from approximately 1985 through the cessation of operations in 2019. The circuit generated spent organic solvents and process residues, which the government argues constitute listed hazardous wastes under the F001 through F005 spent solvent listings (40 C.F.R. § 261.31) or, alternatively, characteristic hazardous wastes exhibiting the toxicity characteristic (D-codes) under 40 C.F.R. § 261.24. The government's waste characterization is supported by analytical data showing that spent SX/EW solvents contain listed chemicals (including diluents and extractants) at concentrations exceeding the toxicity characteristic thresholds.
Nature of the Violations. The government alleges that TMC failed to properly manage, store, and dispose of the hazardous wastes generated by the SX/EW circuit, including failures to: (i) properly characterize the waste as hazardous; (ii) manage the waste in compliance with the applicable generator standards (40 C.F.R. Part 262); (iii) store the waste in properly permitted or interim-status units; and (iv) dispose of the waste at authorized TSD facilities. These failures allegedly resulted in the release of hazardous constituents to soils and groundwater in the vicinity of the SX/EW circuit area.
Bevill Amendment Analysis. TMC's principal RCRA defense at Ridgecrest rests on the Bevill Amendment, RCRA § 3001(b)(3)(A), 42 U.S.C. § 6921(b)(3)(A), which temporarily excludes certain mining wastes from regulation as hazardous waste under Subtitle C of RCRA. The Bevill exclusion applies to "solid waste from the extraction, beneficiation, and processing of ores and minerals" pending completion of EPA's study and rulemaking on mining wastes. EPA has promulgated regulations at 40 C.F.R. § 261.4(b)(7) implementing the Bevill exclusion for mining wastes generated from extraction and beneficiation operations.
The critical question is whether SX/EW wastes are properly classified as "extraction" or "beneficiation" wastes (which would be Bevill-exempt) or as "mineral processing" wastes (which would not be Bevill-exempt). The government's position is that solvent extraction and electrowinning are mineral processing activities, not extraction or beneficiation activities, and that wastes from the SX/EW circuit therefore fall outside the Bevill exclusion. TMC could argue that the SX/EW process is an integral part of the beneficiation process for copper ores and that the resulting wastes should be treated as beneficiation wastes eligible for the Bevill exclusion.
Our analysis indicates that this defense is weak for the following reasons: (i) EPA has historically treated SX/EW wastes as mineral processing wastes outside the scope of the Bevill exclusion, as reflected in EPA guidance documents and Federal Register preambles; (ii) courts that have considered the issue have generally upheld EPA's classification, distinguishing between physical separation processes (beneficiation) and chemical transformation processes (mineral processing); and (iii) the analytical data showing listed solvent constituents in the SX/EW waste stream further undermines the beneficiation characterization. We do not recommend relying on the Bevill Amendment as a primary defense at Ridgecrest, although it may have limited utility as a negotiating point to moderate the scope of the RCRA remedial obligations at the SX/EW area.
C. Gallatin Chemical Works — RCRA Violations
The government asserts two categories of RCRA violations at the Gallatin Chemical Works facility.
Allegation 1: Unpermitted Hazardous Waste Storage Unit. The government alleges that TMC, through TSC, operated a hazardous waste storage unit at the Gallatin facility that was not included in the facility's RCRA permit (Permit No. MTD098712456), in violation of RCRA § 3005. The facility's RCRA permit authorizes specific TSD units, and the unpermitted unit — reportedly a tank system and associated containment area used for temporary storage of process intermediates — was constructed and placed into service without prior permit modification or approval. EPA inspectors documented the unpermitted unit during a Compliance Evaluation Inspection ("CEI") conducted in March 2023.
This violation is clear-cut. Operation of a hazardous waste TSD unit without a permit is a per se violation of RCRA § 3005. TMC does not have a meritorious defense to this allegation. The only potentially relevant argument — that the stored materials do not constitute hazardous waste — is undermined by the waste characterization data, which shows that the process intermediates exhibit the toxicity characteristic.
Allegation 2: Corrective Action Failures. The government alleges that TMC, through TSC, failed to perform corrective action at three identified SWMUs at the Gallatin facility, in violation of RCRA § 3004(u). The facility's RCRA permit requires investigation and corrective action at SWMUs identified during the permitting process. EPA inspections and the facility's own monitoring data have documented releases of hazardous constituents from these SWMUs, including:
• Carbon disulfide (CS₂) in groundwater at a maximum detected concentration of 890 µg/L, compared to the Maximum Contaminant Level ("MCL") of 10 µg/L — an exceedance factor of approximately 89×;
• Xanthate decomposition products in shallow groundwater monitoring wells downgradient of the identified SWMUs; and
• Toluene and xylene in subsurface soils at concentrations exceeding EPA Region 8 Preliminary Remediation Goals for residential and industrial exposure pathways.
Assessment. The government's RCRA case at Gallatin is strong. The unpermitted storage unit is a straightforward regulatory violation with no viable defense. The corrective action failures are documented through EPA inspection records, TMC's own monitoring data, and the express requirements of the existing RCRA permit. TMC's exposure at Gallatin is somewhat reduced by the fact that the corrective action obligations will be addressed through the consent decree and may be structured to allow phased implementation, but the underlying liability is not in dispute.
D. Bonanza Creek Mine — RCRA Violations
The government alleges that TMC, through BCM, failed to properly manage spent heap-leach ore as hazardous waste under RCRA § 3004.
Waste Characterization. The government's position is that spent heap-leach ore from the Bonanza Creek gold extraction process — after cyanide leaching has been completed — contains residual cyanide and heavy metals (including mercury, arsenic, and selenium) at concentrations that cause the waste to exhibit the toxicity characteristic (D-codes) under 40 C.F.R. § 261.24. The government argues that spent heap-leach ore meeting the toxicity characteristic must be managed under Subtitle C of RCRA as a characteristic hazardous waste, including compliance with land disposal restrictions and other applicable standards.
Bevill Amendment Defense. TMC's strongest RCRA defense at Bonanza Creek rests on the Bevill Amendment. Heap-leach gold mining wastes — specifically, mining overburden and extraction/beneficiation wastes from the primary extraction of gold from ore — are potentially Bevill-exempt under RCRA § 3001(b)(3)(A) and 40 C.F.R. § 261.4(b)(7). The question is whether "spent" heap-leach ore — ore that has been subjected to cyanide leaching and from which gold has been extracted — continues to qualify as an "extraction" or "beneficiation" waste eligible for the Bevill exclusion, or whether the leaching process transforms the ore into a "processed" waste that falls outside the exclusion.
The argument that spent heap-leach ore remains a beneficiation waste has some support. Heap leaching is fundamentally an ore-processing technique used to extract metals from run-of-mine ore, and the spent ore is a residue of that extraction process. The waste was generated at the mine site as part of the primary metal recovery operation, which is the type of activity the Bevill exclusion was designed to address. Moreover, the spent ore remains at the mine site on the heap-leach pad; it is not transported to a separate processing facility.
However, the opposing argument also has force. The government contends that the chemical transformation of the ore through cyanide leaching — and the resulting presence of added chemicals (cyanide compounds) and concentrated heavy metals — distinguishes spent heap-leach ore from the "extraction and beneficiation" wastes contemplated by the Bevill Amendment. EPA's position, as reflected in various guidance documents, has been that certain mineral processing wastes are excluded from the Bevill exemption, and the agency has not definitively confirmed that all heap-leach mining wastes fall within the exemption.
The courts are split on this issue. The Ninth Circuit, which would govern any appeal from a Nevada federal district court, has not definitively resolved the question for heap-leach ores. This uncertainty is TMC's advantage, as it creates genuine litigation risk for the government that can be leveraged in settlement negotiations.
Assessment. The government has a reasonable case on the RCRA violations at Bonanza Creek, but this is TMC's strongest RCRA defense among all four sites. We recommend preserving the Bevill Amendment argument for use in settlement negotiations to moderate the scope of RCRA corrective action obligations at Bonanza Creek, while acknowledging that the defense's outcome in litigation would be uncertain.
E. Kanawha Bend Chemical Plant — RCRA Violations
The government asserts two categories of RCRA violations at the Kanawha Bend Chemical Plant.
Allegation 1: Surface Impoundment Closure Failure. The government alleges that TMC, through TSC, failed to properly close a former surface impoundment at the Kanawha Bend facility in accordance with the closure requirements of RCRA § 3004 and the applicable regulations at 40 C.F.R. Part 265, Subpart G. The former surface impoundment received sulfuric acid process residuals and other liquid wastes from the facility's operations. EPA inspection records document that the impoundment was taken out of service but was not closed in compliance with the approved closure plan, resulting in ongoing releases of hazardous constituents to soils and groundwater.
Allegation 2: Unpermitted Treatment of Listed Hazardous Wastes. The government alleges that TMC, through TSC, engaged in the unpermitted treatment of listed hazardous wastes at the Kanawha Bend facility, in violation of RCRA § 3005. Specifically, the government alleges that the facility treated:
• K062 (spent pickle liquor from steel finishing operations used in the facility's sulfuric acid regeneration process), a listed hazardous waste under 40 C.F.R. § 261.32; and
• D002 (corrosive hazardous waste — sulfuric acid), a characteristic hazardous waste under 40 C.F.R. § 261.22.
The treatment activities in question — specifically, the blending and thermal processing of spent pickle liquor as part of the sulfuric acid regeneration process — were not authorized under the facility's existing RCRA permit (Permit No. WVD048823915). The permit authorizes certain TSD activities but does not encompass the treatment processes identified by the government.
Contaminant Profile. Investigation of the Kanawha Bend site has revealed extensive contamination:
• Sulfuric acid residuals in soils with pH values as low as 1.8;
• Lead in subsurface soils at concentrations up to 4,200 mg/kg (compared to EPA's Regional Screening Level of 800 mg/kg for industrial soils);
• Arsenic in subsurface soils near the former waste lagoon at concentrations up to 890 mg/kg (compared to EPA's Regional Screening Level of 3.0 mg/kg for industrial soils); and
• Dense non-aqueous phase liquid ("DNAPL") consisting of chlorinated solvents detected in the fractured bedrock aquifer beneath the facility, posing significant technical challenges for remediation.
Assessment. The government's RCRA case at Kanawha Bend is very strong. The listed waste codes (K062 and D002) are well-established and unambiguous in their application to the materials at issue. TMC's treatment of these listed hazardous wastes was clearly conducted outside the scope of the existing RCRA permit, constituting a straightforward violation of RCRA § 3005. The surface impoundment closure failure is thoroughly documented by EPA inspection records and TMC's own post-closure monitoring data. We do not identify any viable defense to the RCRA allegations at Kanawha Bend.
F. RCRA Defenses and Mitigating Factors (All Sites)
Bevill Amendment (Ridgecrest and Bonanza Creek). As analyzed in Sections IV.B and IV.D above, the Bevill Amendment defense is weak at Ridgecrest (where SX/EW wastes are likely classified as mineral processing wastes outside the Bevill exclusion) but potentially stronger at Bonanza Creek (where spent heap-leach ore may qualify as an extraction/beneficiation waste eligible for the exclusion). Even at Bonanza Creek, the defense's outcome is uncertain and fact-dependent. We recommend preserving the Bevill Amendment argument as a settlement negotiation tool at Bonanza Creek while not relying on it as a primary litigation defense at any site.
Interim Status Defense. The interim status provisions of RCRA, which allow facilities that were in existence on November 19, 1980 (the effective date of the RCRA Subtitle C regulations) to continue operating under interim status until a final permit is issued, are not applicable to any of the cited violations. The violations at Gallatin and Kanawha Bend involve operations that were either not included in the facility's RCRA permit application or were conducted outside the scope of the existing permit. The interim status defense is therefore irrelevant to this analysis.
Good Faith Compliance / Cooperative Engagement. TMC's cooperation with EPA under the Ridgecrest AOC and its participation in the consent-decree framework negotiation is a mitigating factor that should be emphasized in penalty assessment negotiations. Under EPA's RCRA Civil Penalty Policy, good faith efforts to comply and willingness to cooperate are recognized factors that may warrant downward adjustment of the penalty amount. However, as with the CWA, good faith compliance is a mitigating factor in penalty calculation and not a defense to the underlying liability.
Ability to Pay. Under EPA penalty policies, a respondent's inability to pay the proposed penalty may warrant adjustment. However, given TMC's financial profile — FY2023 revenue of C$4.82 billion, EBITDA of C$1.14 billion, and market capitalization of approximately C$7.6 billion — an inability-to-pay defense is not viable. TMC's financial capacity is more than sufficient to absorb the proposed penalties. The ability-to-pay factor may, however, be relevant to structuring payment schedules for remediation costs under the consent decree, and we recommend exploring phased payment structures as part of the settlement negotiation.
V. CERCLA § 107 ANALYSIS
A. Statutory Framework
Section 107(a) of CERCLA, 42 U.S.C. § 9607(a), establishes liability for response costs incurred by the government in cleaning up releases or threatened releases of hazardous substances at facilities. CERCLA liability is notable for its breadth: it is strict (no fault or negligence required), joint and several (each liable party may be held responsible for the entire cost of response), and retroactive (liability attaches to activities that occurred before CERCLA's enactment in 1980).
The categories of potentially responsible parties ("PRPs") under Section 107(a) are:
1. Current owners and operators of the facility;
2. Owners and operators at the time of disposal of hazardous substances;
3. Generators who arranged for disposal or treatment of hazardous substances at the facility; and
4. Transporters who selected the facility for disposal or treatment of hazardous substances.
Liable parties must reimburse EPA for "all costs of removal or remedial action" that are "not inconsistent with the national contingency plan" ("NCP"), 40 C.F.R. Part 300. The statutory defenses under Section 107(b) are narrow: (1) act of God; (2) act of war; and (3) an act or omission of a third party who is not in a contractual relationship with the defendant (the "third-party defense"), provided the defendant exercised due care and took precautions against foreseeable acts or omissions of the third party.
B. Ridgecrest Mine — CERCLA Liability
TMC's CERCLA liability at the Ridgecrest Copper-Molybdenum Mine is, for practical purposes, absolute. TMC and its subsidiaries (RMH and TM(US)) are current owners and operators of the Ridgecrest site, satisfying the first category of PRP liability under Section 107(a)(1). Additionally, TMC (through its predecessor in interest and its subsidiaries) was the owner and operator of the site during the entire period of active mining (1978–2019), during which hazardous substances were "disposed of" within the meaning of CERCLA. This satisfies the second category of PRP liability under Section 107(a)(2). There is no dispute as to TMC's status as an owner and operator, and TMC has not contested this characterization.
Release of Hazardous Substances. The acid mine drainage seeping from the tailings impoundment contains copper, molybdenum, and selenium, all of which are designated "hazardous substances" under CERCLA § 101(14), 42 U.S.C. § 9601(14), and are listed on the CERCLA Hazardous Substance List at 40 C.F.R. § 302.4. The documented seepage constitutes a "release" of hazardous substances into the "environment" within the meaning of CERCLA § 101(22), 42 U.S.C. § 9601(22).
EPA Past Removal Costs. EPA conducted a removal action at the Ridgecrest site from January 15, 2021, through May 30, 2023, incurring total removal costs of $14.3 million. EPA will seek full reimbursement of these costs as part of the consent decree, with prejudgment interest accruing under CERCLA § 107(a) at the rate specified in 26 U.S.C. § 6621 (currently approximately 8% per annum). The prompt payment of past costs is advisable to minimize interest accrual.
Estimated Remediation Costs. The estimated total remediation cost for the Ridgecrest site varies depending on the source:
The government's independent technical reviewer is Cascade Geosciences, Inc., led by Dr. Patricia Voss, Ph.D. (Hydrogeology). The negotiated remediation cost of $198.6 million represents a compromise between the government's estimate and TMC's estimate and reflects the anticipated scope of the remedy as discussed in the July 30, 2024 agreement-in-principle framework. The Ridgecrest site has been proposed for NPL listing, which enhances the government's leverage because NPL listing triggers the availability of Superfund financing and remedial authority under CERCLA § 104 and § 106, and increases public and political pressure on TMC to reach a settlement.
Assessment. CERCLA liability at Ridgecrest is essentially absolute. TMC is the sole PRP at the site; no contribution claims against third parties are apparent, as TMC and its predecessors have been the exclusive owners and operators of the mine since 1978. The only negotiable elements are the scope of the remedy (which directly affects the cost) and the payment structure. We recommend focusing negotiation efforts on remedy scope, particularly with respect to long-term water treatment obligations, which represent a significant component of the 30-year remediation cost estimate.
C. Kanawha Bend Chemical Plant — CERCLA Liability
TMC's CERCLA liability at the Kanawha Bend Chemical Plant is similarly clear. TMC and its subsidiaries (TSC and TM(US)) are current owners and operators of the facility, satisfying Section 107(a)(1) PRP liability. TMC has owned and operated the facility since 1985, encompassing the entire period during which hazardous substances were disposed of at the site.
Release of Hazardous Substances. The June 14, 2020 sulfuric acid release to a tributary of the Kanawha River constitutes a "release" of hazardous substances under CERCLA. Sulfuric acid is a listed hazardous substance (D002 — corrosive). Additionally, the documented presence of lead, arsenic, and chlorinated solvents (DNAPL) in soils and groundwater at the site constitutes ongoing releases of hazardous substances into the environment.
EPA Past Response Costs. EPA incurred $3.8 million in emergency response costs in connection with the June 14, 2020 sulfuric acid release. These costs will be sought as part of the CERCLA § 107 cost recovery component of the consent decree.
Estimated Remediation Cost. The estimated remediation cost for Kanawha Bend is $38.9 million over 20 years (NPV at 3%: $29.0 million). The DNAPL contamination in the fractured bedrock aquifer presents significant technical challenges that may affect both the cost and duration of remediation. Remediation of DNAPL in fractured bedrock is notoriously difficult and uncertain, and the actual costs may exceed current estimates depending on the effectiveness of the selected remedy.
Assessment. CERCLA liability at Kanawha Bend is clear and without viable defense. TMC is the sole PRP. No contribution claims against third parties are apparent.
D. CERCLA § 107 Cost Recovery — Combined Exposure
The total EPA past-costs reimbursement exposure under CERCLA § 107 across both CERCLA-implicated sites is $18.1 million, composed of:
• Ridgecrest Mine removal costs: $14,300,000
• Kanawha Bend Chemical Plant emergency response costs: $3,800,000
The government will seek full reimbursement of these costs as part of the consent decree, together with prejudgment interest. Under CERCLA § 107(a), the government is entitled to recover interest on unreimbursed response costs at the rate established under 26 U.S.C. § 6621, which is currently approximately 8% per annum. Given the magnitude of the past costs and the ongoing accrual of interest, we recommend prompt payment of the past-cost reimbursement as early in the consent-decree process as practicable to minimize interest exposure. Assuming the consent decree is finalized by mid-2025, interest accrual from the date of expenditure through payment could add several million dollars to the total obligation.
E. CERCLA Defenses and Mitigating Factors
Third-Party Defense (§ 107(b)(3)). The third-party defense requires TMC to demonstrate that the release or threatened release of hazardous substances was caused solely by an act or omission of a third party who is not in a "contractual relationship" with TMC, and that TMC exercised due care and took precautions against foreseeable acts or omissions of such third party. This defense is inapplicable here. TMC and its subsidiaries operated all four sites directly; there is no third party whose sole act or omission caused the releases. The contractual relationship limitation would independently preclude the defense in any event, as TMC's relationships with its subsidiaries, contractors, and customers all constitute contractual relationships within the meaning of the statute.
Innocent Landowner / Bona Fide Prospective Purchaser Defenses. These defenses, codified at CERCLA §§ 101(35) and 107(r), are available to subsequent purchasers of contaminated property who acquired the property without knowledge of the contamination and after all disposal had ceased. These defenses are not applicable to TMC, which is the operator — not a subsequent purchaser — of the facilities at issue.
NCP Consistency Challenge. Under CERCLA § 107(a)(4)(A), the government may recover only those costs that are "not inconsistent with the national contingency plan." TMC could, in theory, challenge the consistency of EPA's past response actions or proposed remedial actions with the NCP. Such a challenge would require extensive factual development and expert testimony regarding the appropriateness of the selected response actions, the adequacy of the remedy selection process, and compliance with the procedural requirements of 40 C.F.R. Part 300. We note that NCP consistenc

MEMORANDUM

MATTER NO.: 1039-00003

I. EXECUTIVE SUMMARY

II. PROCEDURAL BACKGROUND

Record

Parties

Dates

Amounts