CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
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I. EXECUTIVE SUMMARY
This memorandum sets forth Calderwood & Harkness LLP's recommended negotiation strategy for resolving the multi-site EPA/DOJ enforcement action against Torchlight Mining Corp. and its U.S. subsidiaries through a comprehensive consent decree. The enforcement action encompasses four facilities operated by TMC and its subsidiaries: (1) the Ridgecrest Mine, Granite County, Montana; (2) the Gallatin Chemical Works, Gallatin County, Montana; (3) the Bonanza Creek Mine, Lander County, Nevada; and (4) the Kanawha Bend Chemical Plant, Kanawha County, West Virginia. The action involves alleged violations of the Clean Water Act ("CWA"), the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), and the Migratory Bird Treaty Act ("MBTA"), spanning a period from approximately 2020 through the present.
Litigation Posture. The Department of Justice, on behalf of the U.S. Environmental Protection Agency, filed its complaint on January 18, 2024, initiating Civil Action No. 9:24-cv-00087-DWM in the United States District Court for the District of Montana, Missoula Division, before the Honorable Donald W. Molloy. TMC filed its answer on March 5, 2024. The parties executed a tolling agreement on April 22, 2024, staying the statute of limitations through December 31, 2025. Court-ordered mediation before Magistrate Judge Clara Finnegan was held on May 15, 2024, which, while not resulting in a full resolution, established the framework for subsequent settlement negotiations. An agreement in principle on the basic consent-decree framework was reached on July 30, 2024, outlining the general structure of remedial obligations, penalty components, and supplemental environmental projects.
Engagement of Calderwood & Harkness. Calderwood & Harkness LLP was engaged on October 21, 2024, replacing TMC's prior environmental counsel, Whitfield, Palmer & Goss LLP. Since our engagement, we have conducted an intensive review of the case record, the existing administrative instruments, the technical reports prepared by Pinnacle Creek Environmental, LLC, and the government's correspondence and technical submissions. The first DOJ draft consent decree was anticipated imminently at the time of our engagement and was received on November 8, 2024. Our annotated review of that draft is currently in progress and will be circulated separately.
Financial Exposure Overview. Based on the government's stated positions and our independent analysis, we estimate the grand total government demand at approximately $409.9 million nominal, broken down as follows:
The net present value / cash-equivalent of these obligations, discounted at a 3% rate over the applicable remediation timelines, is approximately $311.5 million.
Reserve Shortfall. TMC's current environmental reserve stands at C$340.0 million, which at the prevailing exchange rate of 0.7394 translates to approximately US$251.4 million. This yields an estimated shortfall against the nominal obligation of approximately US$158.5 million, and a shortfall against the NPV/cash-equivalent obligation of approximately US$60.1 million. The reserve adequacy analysis and recommended reserve adjustments are discussed further in Sections VIII and XV of this memorandum.
Overall Strategic Recommendation. We recommend that TMC negotiate aggressively on five principal fronts: (1) penalty quantum, targeting a reduction from $31.5 million to the $22–$28 million range; (2) remediation cost allocation, challenging the government's cost estimates where supportable while accepting realistic remediation scope; (3) extended remediation schedules that account for the genuine technical complexity of multi-media contamination at these sites; (4) financial assurance structure, utilizing a surety bond/remediation trust fund combination to minimize liquidity impact; and (5) dispute-resolution mechanisms, force-majeure provisions, and stipulated penalty structures that provide TMC with meaningful procedural protections. Throughout, TMC should demonstrate a cooperative compliance posture that underscores the company's commitment to environmental stewardship while firmly advocating for commercially reasonable terms.
We strongly advise against proceeding to trial. Litigation would expose TMC to potentially higher civil penalties, broader injunctive relief crafted without TMC's input, and the risk of adverse precedent on issues of liability that could affect the company's other operations. A negotiated consent decree, while imposing substantial obligations, provides TMC with agreed-upon guardrails, predictable timelines, and dispute-resolution protections that are unavailable in an adversarial judgment. Moreover, protracted litigation would impose significant reputational costs, strain TMC's relationships with federal and state regulators at its other facilities, and create ongoing uncertainty for investors, lenders, and counterparties.
II. BACKGROUND AND PROCEDURAL POSTURE
A. The Parties
Plaintiff and Regulatory Agencies. The United States of America is the named plaintiff, acting through the Environmental Protection Agency ("EPA") and the Department of Justice ("DOJ"). The EPA's lead role is held by the Office of Enforcement and Compliance Assurance ("OECA"), with Margaret Coulson serving as the lead case attorney. The DOJ's Environment and Natural Resources Division ("ENRD") is represented by Philip Orenstein as lead trial attorney, under the supervision of Katherine Rowe-Halpern, a senior supervisory attorney within the Environmental Enforcement Section. We have found both Orenstein and Coulson to be experienced and professional, though notably aggressive in their positions on penalty quantum and financial assurance. Rowe-Halpern has been involved primarily at key decision points and is expected to play a larger role during the final stages of negotiation.
State Co-Plaintiffs and Intervenors. Three state environmental agencies have either joined as co-plaintiffs or intervened in the action:
• Montana Department of Environmental Quality ("MT DEQ"), represented by Annika Hedstrom, Assistant Attorney General. MT DEQ is a co-plaintiff with respect to the Ridgecrest Mine and Gallatin Chemical Works claims and has an independent interest in coordinating the consent decree's remediation requirements with state permitting obligations, including the Montana Pollutant Discharge Elimination System ("MPDES") permit for Gallatin.
• Nevada Division of Environmental Protection ("NV DEP"), represented by Ricardo Fuentes, Deputy Attorney General. NV DEP has intervened with respect to the Bonanza Creek Mine claims and has expressed particular concern regarding cyanide and mercury contamination in the Reese River watershed and compliance with Nevada's water pollution control and mining reclamation permit requirements.
• West Virginia Department of Environmental Protection ("WV DEP"), represented by Loretta May Hatcher, Assistant Attorney General. WV DEP is a co-plaintiff with respect to the Kanawha Bend Chemical Plant claims and has an interest in ensuring that the consent decree's remediation provisions are consistent with the state-authorized RCRA permit for the facility (Permit No. WVD048823915) and applicable NPDES requirements.
The participation of three state co-plaintiffs adds complexity to the negotiation, as each state has independent interests and approval authority over provisions affecting their respective jurisdictions. Coordination with local counsel in each state (discussed in Section XVIII) will be critical to managing this multi-jurisdictional dimension.
Defendants. The complaint names five defendant entities:
1. Torchlight Mining Corp. ("TMC"), a corporation organized under the Canada Business Corporations Act ("CBCA"), dual-listed on the Toronto Stock Exchange (TSX: TRC) and the New York Stock Exchange (NYSE: TRC). TMC's headquarters are located at 1800 Bayfield Tower, 401 Bay Street, Toronto, Ontario, Canada. TMC serves as the ultimate parent entity of all named defendant subsidiaries.
2. Torchlight Mining (U.S.) Inc., a Delaware corporation (EIN 83-2047156), which serves as TMC's primary U.S. holding company and the direct or indirect parent of the operating subsidiaries. U.S. headquarters are located at 750 Copper Ridge Blvd., Suite 200, Helena, Montana.
3. Torchlight Specialty Chemicals, Inc., a Delaware corporation (EIN 47-3819204), which operates the Gallatin Chemical Works and the Kanawha Bend Chemical Plant.
4. Ridgecrest Mine Holdings, LLC, a Montana limited liability company (Secretary of State ID E1042738), which holds the mining claims and surface rights for the Ridgecrest Mine and is the RCRA/CERCLA responsible party for that site.
5. Bonanza Creek Mining, LLC, a Nevada limited liability company (Entity No. E0518294731), which operates the Bonanza Creek Mine under applicable federal and state mining and environmental permits.
TMC Corporate Profile. TMC is a significant mid-cap mining and specialty chemicals company. For fiscal year 2023, TMC reported revenue of C$4.82 billion (approximately US$3.56 billion at prevailing exchange rates), EBITDA of C$1.14 billion (approximately US$843 million), and maintained a market capitalization of approximately C$7.6 billion. The company employs approximately 11,400 persons worldwide, of whom approximately 4,200 are based in the United States. TMC's financial profile is relevant to multiple aspects of the settlement negotiation, including the government's ability-to-pay analysis for penalty purposes, the structuring of financial assurance mechanisms, and the company's capacity to fund long-term remediation obligations while maintaining the financial covenants under its existing credit facilities.
Government Technical Expert. The EPA has retained Cascade Geosciences, Inc. of Seattle, Washington, as its principal technical consultant. Dr. Patricia Voss, a licensed hydrogeologist and senior principal at Cascade, has served as the government's lead technical expert, particularly with respect to groundwater modeling, acid mine drainage characterization, and remediation cost estimation at the Ridgecrest Mine. Dr. Voss has extensive experience in EPA enforcement matters and has testified as an expert witness in several prior consent decree proceedings. Her cost estimates, while thorough, reflect certain conservative assumptions regarding remedy design and long-term operations and maintenance that we believe are subject to legitimate challenge, as discussed in Section V below.
TMC's Environmental Consultant. TMC has engaged Pinnacle Creek Environmental, LLC, of Bozeman, Montana, as its primary environmental consultant. Dr. Astrid Bergmann, P.E., a licensed professional engineer and principal of Pinnacle Creek, has led TMC's independent technical analysis, including site characterization, remedy feasibility assessment, and remediation cost estimation for all four facilities. Dr. Bergmann's team has developed detailed cost estimates that diverge from the government's estimates on several material points, providing the technical foundation for TMC's negotiating positions on remediation scope and cost.
Financial Advisor. Northspire Capital Markets, Inc. has been engaged as TMC's financial advisor for purposes of the settlement. Vivian Okafor, Managing Director in Northspire's Environmental & Restructuring Advisory group, is leading the advisory engagement. Northspire is advising on the financial structuring of settlement obligations, financial assurance mechanisms, reserve adequacy, credit facility covenant compliance, and investor-relations strategy. Northspire's analysis has been instrumental in shaping the financial assurance recommendations set forth in Section VIII of this memorandum.
B. Alleged Violations — Summary by Site
The government's complaint alleges numerous violations of federal environmental statutes across the four subject facilities. We summarize the key allegations below, organized by site. This summary is based on our review of the complaint, the administrative record, and the supporting technical documentation. We note that TMC's answer generally denied the material allegations while admitting certain jurisdictional and factual matters. The consent decree negotiation proceeds on the basis that these disputes will be resolved through settlement rather than adjudication.
1. Ridgecrest Mine (Granite County, Montana)
The Ridgecrest Mine is a former open-pit copper and molybdenum mine located approximately 14 miles southwest of Drummond, Montana. The mine operated from 1978 through December 2019, when TMC voluntarily ceased mining operations. The site includes a 425-acre tailings storage facility ("TSF"), a solvent extraction/electrowinning ("SX/EW") circuit, waste rock dumps, haul roads, and associated infrastructure. The primary environmental concern at the site is the generation of acid mine drainage ("AMD") from exposed sulfide-bearing rock and tailings, which has impacted Flint Creek and its tributaries.
The government alleges the following violations:
• CWA § 301 — Unpermitted Discharges. The government alleges that AMD originating from the TSF, waste rock dumps, and mine pit has been discharged to Flint Creek and its tributaries without authorization under a National Pollutant Discharge Elimination System ("NPDES") permit, in violation of Section 301(a) of the Clean Water Act, 33 U.S.C. § 1311(a). Documented contaminant concentrations in site-related discharges include dissolved copper at 47 mg/L (compared to the applicable aquatic life criterion of 0.0087 mg/L), molybdenum at 1.2 mg/L, selenium at 0.082 mg/L, and sulfate at 3,400 mg/L. The TSF has documented seepage through the embankment foundation, which the government contends constitutes a continuing point-source discharge.
• RCRA § 3004 — Hazardous Waste Mismanagement. The government alleges that process residuals from the SX/EW circuit, including spent organic solvents and electrowinning cell sludge, were managed as solid waste rather than hazardous waste, in violation of the treatment, storage, and disposal standards of RCRA Section 3004, 42 U.S.C. § 6924. The government contends that these residuals exhibit the hazardous waste characteristics of toxicity (D007 — chromium) and corrosivity (D002), and that their disposal in unlined waste management areas has contributed to soil and groundwater contamination.
• CERCLA § 107 — Cost Recovery. The government seeks reimbursement of $14.3 million in EPA removal action costs incurred between 2021 and 2023 pursuant to CERCLA Section 107(a), 42 U.S.C. § 9607(a). These costs relate to emergency and time-critical removal actions undertaken by EPA to address AMD releases from the TSF that threatened downstream drinking water intakes and aquatic habitat. The removal actions included construction of temporary AMD interception and treatment systems, placement of emergency embankment stabilization measures, and water quality monitoring.
2. Gallatin Chemical Works (Gallatin County, Montana)
The Gallatin Chemical Works is an active specialty chemical manufacturing facility located in Belgrade, Montana. The facility produces carbon disulfide (CS₂), sulfur compounds, and related chemical intermediates. The facility operates under RCRA Permit No. MTD098712456, which was issued in 2003 and last renewed in 2018.
The government alleges the following violations:
• RCRA §§ 3004/3005 — Unpermitted Hazardous Waste Storage and Corrective Action Failures. The government alleges that Torchlight Specialty Chemicals, Inc. stored hazardous waste in tank systems and container storage areas that were not authorized under the facility's RCRA permit, and that the facility failed to perform required corrective action at three identified Solid Waste Management Units ("SWMUs"): SWMU-3 (former CS₂ tank farm), SWMU-7 (surface impoundment closure unit), and SWMU-12 (former drum storage area). CS₂ has been detected in groundwater at concentrations up to 890 µg/L, compared to the applicable Maximum Contaminant Level ("MCL") of 10 µg/L. Volatile organic compounds ("VOCs"), including toluene and xylene, have been detected in subsurface soils in the vicinity of SWMU-12.
• CWA § 301 — MPDES Permit Exceedances. The government alleges 14 separate exceedances of the facility's Montana Pollutant Discharge Elimination System ("MPDES") permit between January 2021 and June 2024, involving discharges of CS₂ and total suspended solids ("TSS") to receiving waters in excess of the permit's effluent limitations. These exceedances were documented in the facility's Discharge Monitoring Reports ("DMRs") and were the subject of compliance correspondence from MT DEQ.
3. Bonanza Creek Mine (Lander County, Nevada)
The Bonanza Creek Mine is an active open-pit gold mine located approximately 22 miles southwest of Battle Mountain, Nevada. The mine utilizes heap-leach extraction with cyanide solution. The facility is operated by Bonanza Creek Mining, LLC.
The government alleges the following violations:
• CWA § 301 — Unpermitted Releases from Heap-Leach Pad. The government alleges three separate unpermitted releases of cyanide-bearing pregnant solution from the heap-leach pad to an ephemeral tributary of the Reese River on March 17, 2022; August 9, 2022; and January 22, 2023. The releases were caused by tears in the synthetic liner underlying the heap-leach pad, which allowed process solution to migrate through the pad foundation and into surface waters. Weak acid dissociable ("WAD") cyanide concentrations in the released solution were measured at 0.62 mg/L, compared to the applicable water quality criterion of 0.022 mg/L. Mercury was detected at 12.4 µg/L, compared to the applicable criterion of 0.77 µg/L.
• RCRA § 3004 — Spent Heap-Leach Ore Management. The government contends that spent heap-leach ore, after rinsing, was managed in a manner that did not comply with applicable RCRA Subtitle C requirements, based on the government's position that the spent ore retains the hazardous waste characteristic of toxicity for cyanide and mercury.
• MBTA — Avian Mortalities. The government alleges that 17 migratory birds, including waterfowl and raptors, were killed in the mine's process solution ponds between 2021 and 2023, in violation of the Migratory Bird Treaty Act, 16 U.S.C. §§ 703–712. The documented mortalities included Canada geese, mallard ducks, American avocets, and a single golden eagle. The ponds at issue contained WAD cyanide concentrations lethal to avian species, and the facility lacked adequate bird deterrent systems during the relevant period.
4. Kanawha Bend Chemical Plant (Kanawha County, West Virginia)
The Kanawha Bend Chemical Plant is a former specialty chemical production facility located along the Kanawha River in Institute, West Virginia. The facility ceased primary production operations in 2018 but has not been formally closed. It is operated by Torchlight Specialty Chemicals, Inc. under RCRA Permit No. WVD048823915.
The government alleges the following violations:
• RCRA §§ 3004/3005 — Failure to Close Surface Impoundment; Unpermitted Treatment. The government alleges that Torchlight Specialty Chemicals failed to close a former surface impoundment at the facility in accordance with applicable RCRA closure requirements, and that the facility engaged in unpermitted treatment of listed hazardous wastes, specifically K062 (spent pickle liquor) and D002 (corrosivity characteristic waste). The surface impoundment contains sulfuric acid residuals with soil pH measured as low as 1.8. Lead has been detected in soils at concentrations up to 4,200 mg/kg, and arsenic at concentrations up to 890 mg/kg. Dense non-aqueous phase liquid ("DNAPL") has been identified in the fractured bedrock aquifer underlying the facility, presenting a technically challenging remediation scenario.
• CERCLA § 107 — Cost Recovery. The government seeks reimbursement of $3.8 million in EPA emergency response costs incurred in connection with a sulfuric acid release that occurred on June 14, 2020. The release involved the failure of a containment system associated with the former surface impoundment, resulting in the discharge of acidic solution to the Kanawha River. EPA conducted an emergency response under CERCLA Section 104, 42 U.S.C. § 9604, including deployment of neutralization agents, installation of temporary containment barriers, and water quality monitoring.
C. Procedural History
The following is a chronological summary of key procedural events in this matter:
• June 14, 2020: Sulfuric acid release at Kanawha Bend; EPA emergency response initiated.
• September 15, 2022: TMC and EPA execute Administrative Order on Consent ("AOC") for the Ridgecrest Mine (Docket No. CERCLA-08-2022-0039), governing ongoing removal action activities.
• September 12, 2023: EPA issues comprehensive Notice of Violation ("NOV") to TMC and its U.S. subsidiaries, covering all four facilities. The NOV identifies the full range of CWA, RCRA, CERCLA, and MBTA violations subsequently included in the DOJ complaint.
• January 18, 2024: DOJ files complaint in the U.S. District Court for the District of Montana, Missoula Division, initiating Civil Action No. 9:24-cv-00087-DWM. The complaint is assigned to the Honorable Donald W. Molloy, Senior U.S. District Judge.
• March 5, 2024: TMC files its answer to the complaint, generally denying the material allegations while admitting certain jurisdictional facts and the existence of the four facilities. No counterclaims are asserted.
• April 22, 2024: The parties execute a tolling agreement, staying the applicable statutes of limitations through December 31, 2025, to facilitate settlement negotiations.
• May 15, 2024: Court-ordered mediation is conducted before U.S. Magistrate Judge Clara Finnegan. While the mediation does not produce a binding settlement, it facilitates meaningful dialogue between the parties and establishes the general parameters for continued negotiations.
• July 30, 2024: The parties reach an agreement in principle on the basic framework for a consent decree, including the general scope of remedial obligations, the categories of financial obligations (penalties, past costs, SEPs), and the anticipated inclusion of financial assurance and independent monitoring provisions. The agreement in principle is memorialized in a letter of intent signed by Coulson, Orenstein, and TMC's then-counsel at Whitfield, Palmer & Goss.
• October 21, 2024: TMC engages Calderwood & Harkness LLP as lead counsel, replacing Whitfield, Palmer & Goss LLP. C&H promptly undertakes a comprehensive review of the case file, technical reports, and correspondence.
• November 1, 2024: Co-Counsel Coordination Agreement executed among Calderwood & Harkness LLP, Holcroft, Dane & Weiss LLP (Montana), sagebrush Law Group, PLLC (Nevada), and Baxter, Tully & Crane PLLC (West Virginia).
• November 8, 2024: DOJ transmits first draft consent decree to C&H and TMC for review. The draft is approximately 187 pages and includes detailed remediation requirements, penalty provisions, SEP descriptions, financial assurance requirements, and standard EPA consent decree terms.
The existing Ridgecrest AOC (Docket No. CERCLA-08-2022-0039) will need to be addressed in the consent decree, either by superseding it or incorporating its terms by reference. We recommend supersession, as a clean consent decree covering all Ridgecrest obligations will provide greater clarity and avoid potential conflicts between overlapping instruments.
III. STRATEGIC OBJECTIVES
The following strategic objectives should guide TMC's approach throughout the consent decree negotiation. These objectives reflect both the immediate priorities of resolving the enforcement action and the broader corporate interests of TMC and its stakeholders.
1. Minimize Aggregate Financial Exposure While Demonstrating Good Faith and Cooperative Environmental Stewardship. TMC should seek to reduce the nominal financial exposure from the government's $409.9 million demand to the lowest achievable figure through principled negotiation on each component—penalties, remediation costs, past-costs reimbursement, SEPs, and monitor costs. At the same time, TMC must avoid a posture that appears obstructionist or that undermines the cooperative tone established during the mediation and framework agreement negotiations. The government has substantial leverage in this matter, and a combative approach on issues where the government's position is well-supported would be counterproductive.
2. Secure Extended and Realistic Remediation Schedules That Account for Technical Complexity. Several of the remediation obligations implicated by the consent decree involve technically complex, multi-decade cleanups. The Ridgecrest AMD treatment system, the DNAPL remediation at Kanawha Bend, and the heap-leach liner repair at Bonanza Creek each present significant engineering challenges. TMC should insist on remediation schedules that reflect the realistic pace of remedy design, permitting, construction, and operation, including the time necessary for adaptive management and remedy optimization. Unrealistically compressed schedules would expose TMC to stipulated penalties and undermine the quality of remediation outcomes.
3. Obtain Maximum Flexibility in Financial Assurance Structuring to Minimize Liquidity Impact. The financial assurance requirement will be among the most consequential provisions of the consent decree from a corporate finance perspective. TMC should negotiate for a structure that minimizes the amount of cash that must be set aside in trust, maximizes the use of surety bonding, and provides for declining-balance adjustments as remediation milestones are achieved. The goal is to preserve TMC's liquidity and borrowing capacity for ongoing business operations and capital investment.
4. Achieve Robust Dispute-Resolution and Force-Majeure Protections. The consent decree will govern TMC's remediation obligations for up to 30 years. Over such a long horizon, disputes will inevitably arise regarding the interpretation of performance standards, the adequacy of remedial actions, and the occurrence of events beyond TMC's control. TMC must secure dispute-resolution mechanisms that provide meaningful access to judicial review and force-majeure provisions that account for the full range of events that could delay compliance.
5. Preserve Insurance Recovery Rights Under Meridian PLL Policy and Clearwater D&O Policy. The consent decree language must be carefully crafted to avoid admissions, characterizations, or waiver provisions that would prejudice TMC's rights under its pollution legal liability ("PLL") and directors & officers ("D&O") insurance policies. Coverage under these policies could offset a significant portion of TMC's remediation and defense costs, and the preservation of coverage rights is a critical financial consideration.
6. Maintain Compliance with Harborstone RCF Environmental Covenant. TMC's C$750.0 million revolving credit facility with Harborstone National Bank, N.A. contains an environmental liability covenant that limits aggregate environmental liabilities to 25% of consolidated net tangible assets ("CNTA"). The consent decree must be structured to preserve adequate headroom under this covenant, and disclosures to Harborstone must be coordinated to avoid triggering covenant violations or default provisions.
7. Control Public-Disclosure Narrative for Securities-Reporting Obligations. As a dual-listed company on the TSX and NYSE, TMC is subject to continuous disclosure obligations under both Canadian and U.S. securities regulations. The consent decree, once lodged and entered, will become a matter of public record and will require material updates to TMC's risk factor disclosures and legal proceedings reporting. TMC should seek to time disclosures to align with the annual filing cycle where possible and should coordinate investor-relations messaging to present the settlement as a constructive resolution of legacy environmental matters.
8. Avoid Criminal Referral Risk, Particularly Regarding MBTA Exposure at Bonanza Creek. The MBTA violations at Bonanza Creek present a risk of separate criminal prosecution, which would carry severe reputational and legal consequences beyond the penalties available in the civil action. TMC should prioritize the resolution of MBTA exposure within the consent decree framework, through inclusion of avian deterrent measures in the Bonanza Creek remediation scope and a negotiated release from MBTA claims, to preempt any criminal referral.
IV. NEGOTIATION STRATEGY — CIVIL PENALTIES
A. Government's Position
The government's total civil penalty demand across all four sites is $31.5 million. The site-by-site breakdown is as follows:
The government has indicated that these amounts were calculated in accordance with EPA's CWA Civil Penalty Policy (1994, as updated 2023) and the RCRA Civil Penalty Policy (2003, as updated 2023), which consider both the gravity of the violation (based on factors such as the volume and toxicity of pollutants, the sensitivity of the receiving environment, and the duration of the violations) and the economic benefit that the violator derived from noncompliance. The Ridgecrest penalty, which constitutes the largest single component, reflects the severity and duration of the AMD discharges and the government's assertion that TMC delayed necessary water treatment investments for several years. The Bonanza Creek penalty reflects the MBTA violations in addition to the CWA and RCRA counts.
B. TMC's Negotiating Position
Target Range: $22–$26 Million Total. We recommend that TMC seek a total penalty reduction of approximately 17% to 30% from the government's demand, targeting a range of $22 million to $26 million. A target of approximately $24 million at the midpoint of this range would represent a meaningful reduction that is nonetheless defensible based on the applicable penalty policies and comparable enforcement outcomes.
The principal arguments in support of penalty reduction are as follows:
(1) TMC's Cooperative Posture Since the July 2024 Agreement in Principle. Since reaching the framework agreement, TMC has engaged constructively with the government, provided requested information in a timely manner, and demonstrated its commitment to resolving this matter through settlement. This cooperative posture is a recognized mitigating factor under EPA penalty policies and should be reflected in a meaningful penalty reduction.
(2) Voluntary Corrective Actions Already Undertaken. TMC has taken significant voluntary corrective actions, including the cessation of mining operations at Ridgecrest in December 2019, the implementation of voluntary water quality monitoring programs at multiple sites, the installation of interim AMD interception measures at Ridgecrest, and the initiation of corrective measures at the Gallatin SWMUs. These actions demonstrate environmental responsibility and have reduced the ongoing harm from the alleged violations.
(3) Penalty Should Reflect Deterrent Purpose Without Being Punitive. TMC's ability to pay is not in question; this is a financially capable company that will fund comprehensive, long-term remediation. The deterrent purpose of the penalty is fully served at a lower figure given the substantial concurrent remediation obligations that TMC will assume under the consent decree. The remediation costs alone—approximately $343.5 million in nominal terms—far exceed the penalty amount and provide ample deterrence against future violations.
(4) Economic-Benefit Calculations Overstate TMC's Gain from Noncompliance. The government's economic-benefit calculations assume that TMC avoided certain compliance costs during the violation periods. However, TMC in fact incurred substantial costs during those periods, including expenditures on interim environmental controls, environmental monitoring, consultant fees, and corrective maintenance. A proper economic-benefit analysis that accounts for these actual expenditures would yield a significantly lower figure.
(5) Mitigating Factors Under EPA Penalty Policies. EPA penalty policies recognize several mitigating factors that are present here: (a) TMC's good faith in engaging with the enforcement process; (b) cooperation with the investigation, including voluntary production of documents and data; (c) prompt reporting of the three Bonanza Creek heap-leach pad releases to the appropriate federal and state agencies; and (d) TMC's status as a first-time violator of these statutes at these facilities, with no prior enforcement history.
Fallback Position. If the government resists penalty reduction below $28 million, TMC should be prepared to accept up to $28 million in total penalties, provided that meaningful government concessions are obtained in other areas of the consent decree—specifically, on remediation schedule extensions, financial assurance flexibility, and stipulated penalty structure. The negotiation should be approached holistically, with penalty quantum as one of several interdependent variables.
Penalty Payment Schedule. The government's first draft consent decree proposes a three-year penalty payment schedule with four equal annual installments (25% each). We recommend that TMC advocate for a four-year quarterly installment schedule, with the first payment due no earlier than 60 days after the Effective Date of the consent decree. This extended schedule serves two purposes: (1) it reduces the near-term cash impact of the penalty payments, and (2) it provides adequate time for TMC to establish the remediation trust fund, post financial assurance, and execute the necessary treasury transactions. Quarterly installments also better align with TMC's internal budgeting and cash management processes.
C. Analysis of Penalty Precedents
We have conducted a comparative analysis of civil penalties assessed in recent consent decrees involving mining and chemical facility enforcement actions, which will be presented in a separate Comparative Consent Decree Analysis memorandum dated November 20, 2024. The preliminary findings of that analysis indicate that the government's $31.5 million demand is within the high-but-defensible range for a company of TMC's size and revenue profile. However, the penalty-to-revenue ratios in comparable enforcement actions—including United States v. Freeport Minerals Corp., No. 4:21-cv-01134 (D. Ariz. 2022); United States v. Summit Gold, Inc., No. 3:20-cv-00488 (D. Nev. 2021); and United States v. Allegheny Chemical Holdings, LLC, No. 2:19-cv-01432 (S.D. W. Va. 2020)—suggest that a reduction to the $24–$28 million range would align with median outcomes in comparable cases. We will provide the detailed comparative analysis under separate cover.
V. NEGOTIATION STRATEGY — REMEDIATION COSTS
Remediation costs represent the largest component of TMC's financial exposure and the most significant area of potential negotiation. We address each site separately below, followed by an aggregate cost summary.
A. Ridgecrest Mine
The Ridgecrest Mine presents the most complex and costly remediation challenge among the four sites. The primary remediation objectives include the design and construction of a permanent AMD treatment system, the closure and long-term management of the 425-acre tailings storage facility, the remediation of contaminated groundwater, and the restoration of impacted reaches of Flint Creek.
EPA Estimate vs. TMC/Pinnacle Creek Estimate. The government's technical consultant, Cascade Geosciences (Dr. Patricia Voss), has estimated the total remediation cost for Ridgecrest at $224.0 million over a 30-year remediation horizon. TMC's consultant, Pinnacle Creek Environmental (Dr. Astrid Bergmann), has estimated the total cost at $187.5 million over the same period. The difference of $36.5 million is attributable primarily to three areas of disagreement:
(a) Tailings Impoundment Cover System Design ($18M Variance). Cascade Geosciences has specified a multi-layer engineered cover system for the TSF that includes a geomembrane liner, a drainage layer, a compacted clay barrier layer, a growth medium layer, and a revegetation layer. Pinnacle Creek's design utilizes an evapotranspiration ("ET") cover system that relies on a thick soil layer with native vegetation to limit infiltration. The ET cover approach is supported by site-specific climate data (low annual precipitation of approximately 12 inches at the Ridgecrest elevation) and has been approved at comparable sites in the northern Rocky Mountain region. The ET cover approach reduces both construction costs and long-term maintenance requirements.
(b) Perpetual Water Treatment O&M Assumptions ($12M Variance). Cascade Geosciences has assumed higher long-term operations and maintenance costs for the AMD treatment system, based on a conventional high-density sludge ("HDS") treatment plant with a design capacity of 1,500 gallons per minute. Pinnacle Creek has proposed a semi-passive treatment system utilizing successive alkalinity-producing ("SAPS") cells and constructed wetlands for polishing, which would reduce chemical reagent costs, energy consumption, and operator labor requirements over the 30-year O&M period. The semi-passive approach is appropriate for the anticipated AMD flow rates and contaminant concentrations at the site and has been demonstrated at analogous sites.
(c) Contingency Percentage ($6.5M Variance). Cascade Geosciences has applied a 25% contingency factor to its base cost estimate, while Pinnacle Creek has applied a 15% contingency. We believe that the 15% contingency is appropriate for a cost estimate developed at the current level of design detail (approximately 30% design), and that the 25% figure is overly conservative. As the remedy design progresses and cost certainty increases, the contingency percentage should decrease further.
Net Present Value. At a 3% discount rate over the 30-year remediation horizon, the NPV of Pinnacle Creek's $187.5 million estimate is approximately $127.4 million (Discount factor: 0.6795), and the NPV of the EPA's $224.0 million estimate is approximately $152.2 million.
Midpoint and Negotiation Target. The arithmetic midpoint of the two estimates is $205.75 million. We recommend that TMC target a negotiated remediation cost of $195–$200 million, which is below the midpoint but reflects meaningful concessions from TMC's initial position. We note that the negotiated outcome ultimately reached in the July 2024 framework discussion was $198.6 million (NPV at 3%: $134.9 million), which falls within our recommended target range and represents a reasonable resolution of the cost estimate disagreements.
Key Negotiation Levers. TMC should advance the following arguments in support of its remediation cost position:
• Challenge Dr. Voss's cost estimates for AMD treatment system sizing and long-term O&M by presenting Pinnacle Creek's technical analysis and site-specific performance data.
• Propose a phased remedy construction approach, with the first phase commencing no earlier than June 2027 and the full remediation horizon extending through June 2055 (30 years from the anticipated Effective Date). Phased construction reduces front-loaded capital costs and allows for adaptive management.
• Advocate for an adaptive management framework within the consent decree that allows TMC to optimize the remedy over time, potentially reducing costs if monitoring data demonstrate that the selected remedy is performing better than anticipated or if technological advances offer more cost-effective alternatives.
B. Gallatin Chemical Works
The Gallatin site remediation is focused on corrective action at the three identified SWMUs, groundwater remediation for CS₂ and VOC contamination, and compliance with MPDES permit requirements.
Cost Estimate. Pinnacle Creek has estimated the total remediation cost for Gallatin at $42.8 million over a 15-year period (NPV at 3%: approximately $34.1 million, using a discount factor of 0.7969). The government has not yet presented a formal competing estimate for Gallatin, and the initial draft consent decree references the scope of corrective measures rather than a specific cost figure. We anticipate that the government may accept Pinnacle Creek's estimate as a reasonable baseline, subject to the outcome of the Corrective Measures Study ("CMS").
Strategy. TMC should accept the Pinnacle Creek estimate as the baseline for negotiation and focus on securing flexibility in the CMS scope and schedule. The key issue at Gallatin is the deadline for CMS submission. The government's draft proposes a 12-month deadline from the Effective Date. We recommend that TMC negotiate for a CMS submission deadline no earlier than 18 months after the Effective Date (target date: June 14, 2026), to allow adequate time for supplemental site characterization, pilot testing of remediation technologies, and development of a comprehensive CMS report.
It is critical to emphasize that Gallatin is an active, operating facility that generates significant revenue and employment. The remediation program must be designed and implemented in a manner that is compatible with ongoing operations. Any consent decree provisions that would require facility shutdown, operational curtailment, or access restrictions that interfere with production should be resisted. This point has strong support in EPA guidance on corrective action at operating facilities and should resonate with the government, which has an interest in TMC's continued financial viability as the entity responsible for funding remediation.
C. Bonanza Creek Mine
The Bonanza Creek site remediation is focused on the repair of the heap-leach pad liner system, the management of process solution ponds, groundwater monitoring and remediation, and the implementation of avian deterrent systems to address the MBTA exposure.
Cost Estimate. Pinnacle Creek has estimated the total remediation cost for Bonanza Creek at $63.2 million over a 20-year period (NPV at 3%: approximately $47.1 million, using a discount factor of 0.7454).
Strategy. The central technical dispute at Bonanza Creek concerns the remedy for the damaged heap-leach pad liner. The government's position, as reflected in the draft consent decree, calls for the full removal and replacement of the synthetic liner system underlying the entire heap-leach pad. Pinnacle Creek has assessed this approach and determined that it is technically impractical, enormously expensive, and unnecessary. The liner tears that caused the three documented releases were localized in discrete sections of the pad, and a targeted liner-repair-and-containment approach — involving excavation and repair of the damaged liner sections, installation of supplemental containment and leak-detection systems, and enhanced process-solution management — would achieve equivalent environmental protection at a cost savings of approximately $15–$20 million.
TMC should negotiate vigorously for the repair-and-containment approach. Dr. Bergmann's team has prepared detailed technical supporting materials, including as-built drawings, leak-detection data, and a geosynthetic engineering assessment, that demonstrate the feasibility and effectiveness of the targeted repair approach. These materials should be submitted to the government with TMC's redline of the draft consent decree.
The commencement deadline for liner repair should be no earlier than June 14, 2026, to allow time for engineering design, contractor procurement, and permitting. TMC should also seek to integrate the MBTA mitigation measures — specifically, the installation of avian deterrent systems (including bird-ball covers, netting, auditory hazing devices, and flagging) over all process solution ponds — into the Bonanza Creek remediation scope. Resolving the MBTA exposure within the civil consent decree framework, rather than through a separate criminal stipulation, is a critical strategic priority addressed further in Section XVI below.
As with Gallatin, it must be emphasized that Bonanza Creek is an active mine with ongoing production. The remediation program must accommodate continued mining operations, and the consent decree should include provisions preserving TMC's operational flexibility during remediation.
D. Kanawha Bend Chemical Plant
The Kanawha Bend remediation addresses the closure of the former surface impoundment, the remediation of soil contamination (sulfuric acid residuals, lead, arsenic), and the characterization and remediation of DNAPL in the fractured bedrock aquifer.
Cost Estimate. Pinnacle Creek has estimated the total remediation cost for Kanawha Bend at $38.9 million over a 20-year period (NPV at 3%: approximately $29.0 million, using a discount factor of 0.7454).
Strategy. The DNAPL contamination in fractured bedrock at Kanawha Bend presents one of the most technically challenging remediation problems in the environmental industry. Complete removal of DNAPL from a fractured bedrock aquifer is widely acknowledged to be infeasible with current technology. The most appropriate approach is a combination of source control (to prevent continued DNAPL migration), containment (to prevent offsite exposure), and monitored natural attenuation ("MNA") where conditions are favorable.
TMC should negotiate for a phased remediation approach at Kanawha Bend:
• Phase 1: Interim Stabilization Measures ("ISM"). TMC should propose completing interim stabilization measures — including surface impoundment closure, soil excavation/stabilization for the most contaminated areas, and installation of a groundwater monitoring network — with a completion deadline of December 14, 2026.
• Phase 2: Comprehensive Remedy Design. Following ISM completion, TMC would prepare a Comprehensive Remedial Design/Remedial Action Work Plan incorporating the results of additional site characterization (including detailed DNAPL delineation through rock-core sampling and geophysical surveys) and pilot testing of in-situ treatment technologies (e.g., thermal treatment, chemical oxidation, enhanced bioremediation). The adaptive management approach is warranted here given the inherent uncertainty in DNAPL remediation in fractured rock.
TMC should argue that DNAPL remediation in fractured bedrock warrants an extended timeline and adaptive management provisions, consistent with the National Research Council's findings on technical impracticability of complete DNAPL removal and EPA's own guidance on remedy selection for DNAPL sites. The consent decree should include provisions allowing TMC to propose remedy modifications based on pilot test results and ongoing monitoring data.
E. Aggregate Remediation Cost Summary
The following table summarizes the remediation cost estimates across all four sites:
The key message that TMC should convey to the government throughout the remediation cost negotiation is that TMC is prepared to fund comprehensive, long-term remediation at all four sites, but requires realistic remediation schedules and performance standards that are achievable with existing technology. TMC's commitment to environmental cleanup is genuine, and the consent decree should reflect that commitment by establishing a framework that incentivizes effective remediation rather than penalizing unavoidable delays caused by technical complexity.
VI. NEGOTIATION STRATEGY — EPA PAST-COSTS REIMBURSEMENT (CERCLA § 107)
The government seeks reimbursement of $18.1 million in EPA past costs incurred at two sites:
TMC's Position. We recommend challenging the documentation and cost allocation for the $14.3 million Ridgecrest removal action costs. Our preliminary review of the government's cost documentation (which was provided in summary form during the mediation and is referenced in the draft consent decree) suggests that certain costs may be attributable to activities that benefited the broader Flint Creek watershed rather than addressing contamination specifically attributable to the Ridgecrest Mine. We should request detailed cost accounting from the government, including contractor invoices, task orders, travel and per diem records, and time-and-materials breakdowns, and subject these to a thorough audit.
With respect to the $3.8 million Kanawha Bend emergency response costs, the documentation is more straightforward, as the emergency response was triggered by a discrete event (the June 14, 2020, sulfuric acid release) directly attributable to the facility.
Our target is to negotiate a reduction in the combined past-costs reimbursement to $12–$15 million total, primarily by challenging the Ridgecrest cost allocation.
Fallback Position. If the government resists reduction of past-costs reimbursement, TMC should be prepared to accept the full $18.1 million as non-negotiable in exchange for concessions in other areas of the decree, particularly penalty quantum or remediation scope. As a practical matter, past-costs reimbursement under CERCLA § 107(a) is typically less negotiable than prospective remediation obligations, because the government's costs have already been incurred and are supported by a well-documented administrative record. The government's burden of proof on cost recovery is relatively low (it must show that costs were "not inconsistent with the national contingency plan"), and challenging past costs at trial would be an uphill battle. Accordingly, this is a logical area to concede if doing so produces favorable trade-offs elsewhere.
VII. NEGOTIATION STRATEGY — SUPPLEMENTAL ENVIRONMENTAL PROJECTS (SEPs)
A. Government's SEP Proposal
The government has proposed three Supplemental Environmental Projects ("SEPs") with a combined budget of $12.0 million:
1. Flint Creek Watershed Restoration Project (Montana) — $5.5 Million. This SEP would fund stream-bank stabilization, riparian zone replanting, and fish-passage improvements along approximately 12 miles of Flint Creek downstream of the Ridgecrest Mine. The project would benefit native westslope cutthroat trout populations that have been impacted by AMD-related water quality degradation and would include construction of two fish-passage structures at existing road crossings. The project would be conducted in coordination with MT DEQ and the Montana Department of Fish, Wildlife and Parks.
2. Battle Mountain Community Drinking Water Improvement Project (Nevada) — $3.5 Million. This SEP would fund the upgrade and expansion of the municipal water treatment facility in Battle Mountain, Lander County, Nevada, which serves the community nearest to the Bonanza Creek Mine. The upgrade would include the installation of an advanced treatment system for the removal of arsenic and other metals from source water, benefiting approximately 3,500 residents who rely on the municipal water supply. The project was proposed by the Town of Battle Mountain in consultation with NV DEP.
3. Institute Community Air Quality Monitoring Network (West Virginia) — $3.0 Million. This SEP would fund the installation and 10-year operation of six ambient air quality monitoring stations in the Institute and South Charleston communities adjacent to the Kanawha Bend Chemical Plant. The monitoring network would track concentrations of particulate matter (PM₂.₅), volatile organic compounds, and hazardous air pollutants, providing continuous air quality data to a community that has historically lacked localized monitoring. The project was proposed by the Institute Community Health Alliance, a local environmental justice organization, in coordination with WV DEP.
B. TMC's Strategy
SEPs serve a dual purpose in the consent decree context: they provide dollar-for-dollar mitigation of civil penalties (to the extent they qualify for penalty-offset credit under EPA's SEP Policy) and they generate substantial community goodwill and support TMC's environmental, social, and governance ("ESG") narrative. For these reasons, we recommend that TMC accept the general framework of the three proposed SEPs and not seek significant reductions in the total SEP budget. From TMC's perspective, $12.0 million invested in well-designed SEPs is preferable to $12.0 million in additional civil penalties, both because SEPs produce tangible environmental and community benefits that support TMC's public reputation and because SEP expenditures may be treated differently from penalties for tax and accounting purposes.
Our specific recommendations for SEP negotiation are as follows:
(a) Penalty-Offset Credit. TMC should negotiate for SEP expenditures to receive 80% penalty-offset credit under EPA's SEP Policy (January 2015, as updated April 2022). Under the SEP Policy, the government may reduce the penalty amount by a percentage of the SEP's value, typically ranging from 50% to 100% depending on the nexus between the SEP and the underlying violations. Given the strong geographic and environmental nexus between each proposed SEP and its associated site, TMC has a strong basis for seeking credit at or near the top of the range. An 80% credit rate on $12.0 million in SEPs would yield $9.6 million in penalty-offset credits, effectively reducing the net penalty by that amount.
(b) Flexible Implementation Timelines. TMC should negotiate for reasonable implementation timelines for each SEP, including time for contractor selection, permitting, and construction. We recommend proposing a 24-month implementation period for each SEP, measured from the Effective Date, with the option to request extensions for cause.
(c) Contractor Selection. TMC should retain the right to select contractors for SEP implementation, subject to reasonable government approval. This will allow TMC to control costs, ensure quality, and leverage existing relationships with qualified environmental contractors.
(d) Administrative and Reporting Burden. The draft consent decree may include burdensome quarterly reporting requirements for each SEP. TMC should negotiate to cap the administrative and reporting burden at semi-annual progress reports with a final completion report, consistent with EPA's standard SEP reporting framework.
(e) Tax Treatment. TMC should confirm with Ridgeline Accounting Partners LLP (Frances Whitmore, engagement partner) that SEP expenditures qualify as deductible environmental remediation expenses under applicable provisions of the Internal Revenue Code. It is critical to distinguish SEP expenditures from civil penalties, which are non-deductible under IRC § 162(f) as amended by the Tax Cuts and Jobs Act of 2017. If the SEPs are properly structured as remediation and restoration expenditures, they should be fully deductible, providing a significant after-tax cost advantage compared to equivalent penalty dollars.
We emphasize that the total SEP budget of $12.0 million is reasonable relative to the overall penalty amount and the scale of the enforcement action. TMC should not expend significant negotiation capital on reducing the SEP figure; instead, the focus should be on maximizing the penalty-offset credit and securing favorable implementation terms.
VIII. NEGOTIATION STRATEGY — FINANCIAL ASSURANCE
A. Required Amount
The government will require TMC to post financial assurance to guarantee the performance of its remediation obligations under the consent decree. Based on the NPV of total remediation obligations, we anticipate that the government will demand financial assurance in the amount of approximately $245.0 million, which corresponds to the NPV of the aggregate remediation cost at a 3% discount rate. This figure may be subject to negotiation, but the government is unlikely to accept a financial assurance amount that is materially below the NPV of the remediation obligations, as the financial assurance is intended to protect the public fisc against the risk that TMC fails to perform.
B. Recommended Structure
We recommend a combination structure utilizing a surety bond and a remediation trust fund to satisfy the financial assurance requirement while minimizing the impact on TMC's liquidity. The recommended structure is as follows:
Surety Bond — Ironbark Surety of America, Inc.
• Face amount: $165.0 million
• Issuer: Ironbark Surety of America, Inc., a Treasury-listed surety company (Treasury Circular 570 listed; A.M. Best rating A (Excellent), Financial Size Category XV)
• Estimated annual premium: 1.85% of face value = $3,052,500 per year
• Bond number to be assigned upon execution (ultimately assigned as ISA-ENV-2025-08934)
• Account executive: Thomas Rennick, Senior Vice President, Ironbark Surety
• Status: Mr. Rennick has indicated preliminary underwriting approval, subject to review of the final consent decree terms, TMC's current financial statements, and the execution of an indemnity agreement. Formal underwriting is expected to be completed within 45 days of the final consent decree text.
Remediation Trust Fund — Larchfield Trust Company, N.A.
• Initial deposit: $80.0 million
• Trustee: Larchfield Trust Company, N.A., a national trust company with experience administering environmental remediation trusts under EPA consent decrees
• Trust officer: David Henshaw, Senior Vice President, Environmental Trust Services
• Trust Agreement number to be assigned upon execution (ultimately assigned as LTC-REM-2025-1177)
• Trust funds to be invested in permissible instruments per EPA financial assurance regulations (40 C.F.R. Part 264, Subpart H), including U.S. Treasury securities, agency obligations, money market funds, and investment-grade fixed-income securities
• Investment income to accrue to the trust and be available for remediation expenditures
Combined Financial Assurance: $165.0M (surety bond) + $80.0M (trust fund) = $245.0 million.
This structure maximizes the surety bond component — which requires no cash outlay beyond the annual premium — and minimizes the trust fund deposit, which requires an actual cash commitment. The annual surety premium of approximately $3.05 million is a manageable operating expense, while the $80.0 million trust fund deposit, though substantial, is significantly less than the full $245.0 million that would be required if the entire financial assurance obligation were satisfied through a trust fund alone.
Key Negotiation Points. TMC should negotiate the following provisions in the financial assurance section of the consent decree:
(a) Annual Adjustment Mechanism. The financial assurance amount should be subject to annual adjustment tied to actual remediation expenditures and remaining obligations, rather than automatic inflation escalation alone. As TMC completes remediation milestones and incurs costs, the remaining obligation decreases, and the financial assurance should decline correspondingly. We recommend a declining-balance approach under which the financial assurance amount is recalculated annually based on the remaining estimated cost to complete the remediation, as certified by TMC's environmental consultant and subject to EPA review.
(b) Release of Trust Funds Upon Milestone Achievement. The remediation trust fund should include provisions for the release of trust funds as specific remediation milestones are achieved, subject to EPA and monitor certification. This ensures that trust funds are available for remediation expenditures and are not held in perpetuity beyond the period of actual need.
(c) Right to Substitute Instruments. TMC should retain the right to substitute alternative financial assurance instruments — such as an irrevocable letter of credit, a corporate guarantee, or a self-insurance mechanism — upon EPA approval, provided that the substitute instrument provides equivalent financial