1039-00003 · Torchlight Mining Corp · Consent Decree/Drafting & Negotiation

transmittal-letter-second-tmc-redline.docx DOCUMENT Antitrust

23 / 75 ← → ✕

Contract analysis Extract to table

CONFIDENTIAL — SETTLEMENT COMMUNICATION PURSUANT TO FRE 408

CALDERWOOD & HARKNESS LLP Attorneys at Law

One Liberty Plaza, 42nd Floor New York, New York 10006-1404

Telephone: (212) 558-4000 Facsimile: (212) 558-3588

www.calderwoodharkness.com

January 24, 2025

Harrison Wexford Partner Direct Dial: (212) 558-4217

Email: hwexford@calderwoodharkness.com

Matter No.: 1039-00003

Philip Orenstein, Esq. Trial Attorney Environmental Enforcement Section Environment and Natural Resources Division U.S. Department of Justice 150 M Street NE Washington, D.C. 20002

Margaret Coulson Office of Enforcement and Compliance Assurance U.S. Environmental Protection Agency William Jefferson Clinton Federal Building 1200 Pennsylvania Avenue NW Washington, D.C. 20460

Re: United States of America and State of Montana v. Torchlight Mining Corp., Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC, Civil Action No. 9:24-cv-00087-DWM (U.S. District Court for the District of Montana, Missoula Division) — Torchlight Second Revised Draft Consent Decree

Dear Mr. Orenstein and Ms. Coulson:

On behalf of our clients, Torchlight Mining Corp. ("TMC") and its U.S. subsidiaries — Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC (collectively, the "Torchlight Parties") — Calderwood & Harkness LLP is pleased to transmit the enclosed second redline of the proposed consent decree in the above-referenced matter (the "Second TMC Redline"). The Second TMC Redline has been prepared as a marked version against the government's counter-redline that was received by our office on January 14, 2025. As set forth in greater detail below, the Second TMC Redline reflects TMC's careful and thorough consideration of each of the government's counter-proposals and represents significant areas of further compromise by the Torchlight Parties, designed to narrow the remaining open issues between the parties so that they may be resolved as efficiently as practicable.

I. Procedural History and Negotiation Timeline

The parties have been engaged in active and constructive settlement negotiations since the agreement in principle was reached on July 30, 2024, following the mediation session before the Honorable Jerold Solberg (Ret.). Since that time, the negotiation of the formal consent decree text has proceeded in the following sequence:

• November 8, 2024: The Department of Justice, on behalf of the United States and in coordination with the U.S. Environmental Protection Agency, circulated the first draft consent decree to the Torchlight Parties.

• December 16, 2024: TMC submitted its first redline of the proposed consent decree (the "First TMC Redline"), accompanied by a detailed transmittal letter of the same date setting forth TMC's positions on each substantive provision.

• January 14, 2025: The government transmitted its counter-redline (the "Government Counter-Redline"), responding to the First TMC Redline and setting forth the government's revised positions on contested provisions.

• January 24, 2025: The present Second TMC Redline, which responds to and marks against the Government Counter-Redline.

We note for the record that Calderwood & Harkness LLP was engaged as lead outside counsel for the Torchlight Parties on October 21, 2024, replacing prior counsel, and has been responsible for the preparation and submission of all Torchlight redlines since that date. Since our engagement, we have endeavored to bring a fresh perspective to the negotiations and to identify creative solutions to the issues that have separated the parties.

II. Overview of Government Counter-Redline Positions Addressed

TMC has reviewed the Government Counter-Redline in detail, including through an internal legal and technical analysis prepared by our team and dated January 17, 2025. We wish to acknowledge at the outset that the government accepted a meaningful number of TMC's first-redline proposals, and TMC appreciates the government's willingness to engage constructively with those proposals. That collaborative spirit has substantially advanced the negotiations.

In this Second TMC Redline, TMC has reciprocated by accepting several of the government's counter-proposals, as described in the section-by-section summary set forth below. The result, we believe, is that only a limited number of issues remain open for further discussion. TMC is confident that these remaining issues can be resolved promptly and in good faith, and we set forth below a proposal for an in-person negotiation session to accomplish that objective.

III. Section-by-Section Summary of TMC's Positions in the Second TMC Redline

A. Remediation Cost and Schedule — Ridgecrest Site

TMC accepts the government's proposed negotiated remediation cost framework for the Ridgecrest Mine Site at an aggregate estimated cost of $198.6 million over a thirty-year remediation period (net present value at a 3% discount rate: $134.9 million). This figure represents a fair and reasonable compromise between TMC's initial remediation cost estimate of $187.5 million and EPA's estimate of $224.0 million, and TMC is prepared to proceed on this basis.

With respect to remediation schedule milestones, the Second TMC Redline maintains the following key deadlines as proposed in the Government Counter-Redline:

• December 14, 2025: Submission of the Ridgecrest Remedial Action Work Plan to EPA Region 8 for review and approval.

• June 14, 2027: Commencement of remedy construction at the Ridgecrest Mine Site.

• June 14, 2055: Conclusion of the thirty-year remediation obligation period.

TMC has, however, proposed minor modifications to certain interim milestone benchmarks within the broader remediation schedule. These proposed modifications are designed to align the interim milestones with the engineering feasibility assessments prepared by TMC's remediation consultant, Pinnacle Creek Environmental, LLC ("Pinnacle Creek"), under the direction of Dr. Astrid Bergmann, P.E., who serves as the engagement lead for remediation design and implementation. The modifications are technical in nature and do not affect the overall project timeline or the key deadlines identified above.

We further note that the government's technical expert, Cascade Geosciences, Inc. (Dr. Patricia Voss, principal hydrogeologist), and the EPA Region 8 Project Coordinator, Dr. Samuel Tesfaye, have been consulted on the technical remedy elements for the Ridgecrest Site throughout this process. TMC values that collaboration and seeks its continuation as the parties move into the remedy design phase. We are confident that any remaining questions regarding the interim milestones can be addressed through the ongoing technical dialogue between Pinnacle Creek and Cascade Geosciences.

B. Remediation Requirements — Gallatin, Bonanza Creek, and Kanawha Bend Sites

Gallatin Chemical Works (Montana). TMC accepts the government's proposed timeline for submission of the Corrective Measures Study ("CMS") for the Gallatin Chemical Works facility by June 14, 2026. The estimated remediation cost for this site is $42.8 million over a fifteen-year period (net present value at a 3% discount rate: $34.1 million). In the Second TMC Redline, TMC proposes clarifying language regarding the scope of the three Solid Waste Management Units ("SWMUs") to be addressed under the consent decree and, in particular, the interaction between the consent decree obligations and the facility's existing Resource Conservation and Recovery Act ("RCRA") Permit No. MTD098712456. TMC believes it is important for the consent decree to clearly delineate the respective obligations arising under the decree and those governed by the existing RCRA permit, so as to avoid duplicative or potentially conflicting regulatory requirements.

Bonanza Creek Mine (Nevada). TMC accepts the government's proposed deadline of June 14, 2026 for commencement of liner repair and containment work at the Bonanza Creek Mine. The estimated remediation cost for this site is $63.2 million over a twenty-year period (net present value at a 3% discount rate: $47.1 million). In the Second TMC Redline, TMC proposes revisions to the cyanide and mercury monitoring performance standards to reflect site-specific hydrogeological conditions at the Bonanza Creek facility. These proposed revisions are based on the most recent groundwater characterization data collected by Pinnacle Creek in November 2024 and are intended to ensure that the performance standards are technically achievable and scientifically sound. We note that TMC has been coordinating with EPA Region 9 Project Coordinator Jennifer Whitfield and with the Nevada Division of Environmental Protection, through Deputy Attorney General Ricardo Fuentes, on these technical matters, and TMC anticipates that the proposed revisions will be consistent with the technical consensus that has been developing among the parties' respective experts.

Kanawha Bend Chemical Plant (West Virginia). TMC accepts the government's proposed deadline of December 14, 2026 for completion of interim stabilization measures at the Kanawha Bend Chemical Plant. The estimated remediation cost for this site is $38.9 million over a twenty-year period (net present value at a 3% discount rate: $29.0 million). The Second TMC Redline proposes revised language addressing the Dense Non-Aqueous Phase Liquid ("DNAPL") treatment approach in the fractured bedrock aquifer underlying the Kanawha Bend facility. Given the well-documented complexity of DNAPL remediation in fractured rock environments, TMC's proposed language provides for an adaptive management approach that allows for adjustment of treatment methodologies as additional characterization data become available during the early phases of implementation. TMC also proposes language addressing the integration of the consent decree obligations with the facility's existing RCRA Permit No. WVD048823915, similar in approach to the Gallatin clarifications described above.

C. Civil Penalties

TMC accepts the aggregate civil penalty of $31.5 million as previously agreed between the parties, allocated among the four sites as follows:

TMC further accepts the quarterly installment payment schedule as set forth in the Government Counter-Redline:

• First installment (25%): $7,875,000, due within thirty (30) days of entry of the Consent Decree.

• Second installment (25%): $7,875,000, due twelve (12) months after entry of the Consent Decree.

• Third installment (25%): $7,875,000, due twenty-four (24) months after entry of the Consent Decree.

• Fourth installment (25%): $7,875,000, due thirty-six (36) months after entry of the Consent Decree.

There are no open issues on this topic, and the civil penalty provisions in the Second TMC Redline are clean.

D. EPA Past-Costs Reimbursement (CERCLA § 107)

TMC accepts the aggregate past-costs reimbursement amount of $18.1 million, which represents reimbursement to EPA of the following documented past response costs incurred under CERCLA Section 107:

• $14,300,000 for removal actions conducted by EPA at the Ridgecrest Mine Site during the period 2021–2023.

• $3,800,000 for EPA's emergency response action at the Kanawha Bend Chemical Plant in June 2020.

TMC does, however, propose that the $18.1 million past-costs reimbursement be paid on an installment schedule aligned with the civil penalty installment dates described in Section III.C above, rather than as a lump sum payment within thirty days of decree entry, as the Government Counter-Redline proposed. TMC believes that an installment approach is reasonable in light of the substantial financial commitments that TMC will be undertaking simultaneously upon entry of the decree — including commencement of remediation activities, posting of financial assurance, and payment of the first civil penalty installment — and that spreading the past-costs reimbursement over the same installment schedule will promote TMC's ability to meet all of its decree obligations in a timely and sustainable manner. This remains an open issue between the parties.

E. Supplemental Environmental Projects (SEPs)

TMC accepts the three Supplemental Environmental Projects as set forth in the Government Counter-Redline, totaling $12.0 million in value:

1. Flint Creek Watershed Restoration Project (Montana) — $5,500,000. This project encompasses approximately twelve (12) miles of stream-bank stabilization and fish-passage improvements in the Flint Creek watershed in western Montana. The project will be implemented in coordination with the Montana Department of Environmental Quality and the U.S. Fish and Wildlife Service.

2. Battle Mountain Community Drinking Water Improvement Project (Nevada) — $3,500,000. This project involves the design and construction of upgrades to the municipal water treatment facility serving the community of Battle Mountain in Lander County, Nevada, including installation of advanced filtration and treatment systems to address arsenic and other metals of concern in the local drinking water supply.

3. Institute Community Air Quality Monitoring Network (West Virginia) — $3,000,000. This project involves the installation and operation of six (6) ambient air quality monitoring stations in the Institute and South Charleston communities of the Kanawha Valley, West Virginia, with a ten-year operational commitment by TMC to fund monitoring activities, data reporting, and community engagement.

The substantive scope and funding levels of all three SEPs are agreed. TMC has proposed minor modifications to certain reporting milestones and certification-of-completion criteria in the Second TMC Redline. These modifications are intended to provide reasonable flexibility in the timing of interim progress reports and to clarify the specific criteria that must be satisfied before the independent monitor and EPA may certify completion of each SEP. These are limited open drafting points that TMC anticipates can be resolved readily.

F. Stipulated Penalty Provisions

The stipulated penalty provisions remain an area of meaningful disagreement between the parties. The Government Counter-Redline maintained the tiered stipulated penalty rates proposed in the government's original draft:

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

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

• $5,500 per day per violation for each day of non-compliance thereafter.

While TMC does not contest the per-day rates themselves in this Second TMC Redline, TMC proposes three important modifications to the stipulated penalty framework:

(i) Cure Period. TMC proposes a fifteen (15)-day cure period following written notice of a violation, during which TMC may undertake corrective action before stipulated penalties begin to accrue. This cure-period provision is consistent with the stipulated penalty frameworks in numerous consent decrees entered in comparable CERCLA and RCRA enforcement actions, and it reflects the practical reality that certain technical or administrative deficiencies may be promptly correctable without the imposition of penalties.

(ii) Annual Aggregate Cap. TMC proposes an annual aggregate cap on stipulated penalties of $2.0 million per site. This cap is designed to provide a reasonable ceiling on TMC's stipulated penalty exposure while preserving the government's enforcement leverage. In the absence of such a cap, cumulative stipulated penalties could, in theory, reach levels that would impair TMC's ability to fund ongoing remediation — a result that would be contrary to the fundamental objectives of the consent decree.

(iii) Tolling During Force Majeure and Dispute Resolution. TMC proposes clarifying language providing that stipulated penalties do not accrue during periods in which a force majeure event has been asserted and is pending resolution, or during the pendency of a dispute resolution proceeding relating to the alleged violation. This modification is intended to ensure that TMC is not subjected to penalties for non-compliance that is attributable to circumstances beyond its control or that is the subject of a bona fide dispute.

All three of these proposed modifications remain open issues for negotiation.

G. Force Majeure

TMC has accepted the government's standard EPA force-majeure provision, including the requirement that TMC provide written notice to EPA and DOJ within fifteen (15) days of the date on which TMC first becomes aware of or should have become aware of a force majeure event. TMC's Second Redline does, however, propose expanding the definition of qualifying force majeure events to include the following categories:

• Supply-chain disruptions affecting the availability of critical materials or equipment necessary for remedy implementation, where such disruptions are beyond TMC's reasonable control and could not have been anticipated or avoided through the exercise of due diligence.

• Permitting delays attributable to third-party governmental authorities, including state and local permitting agencies, where TMC has submitted complete and timely permit applications and the delay is not attributable to any deficiency in TMC's submission.

• Extreme weather events, including but not limited to flooding, wildfire, severe winter storms, and drought conditions, that materially impair TMC's ability to perform remediation work at the affected site.

TMC believes that these expanded categories are consistent with evolving EPA practice in recent consent decrees and reflect the practical realities of implementing large-scale, multi-site remediation programs over decades-long timeframes. Minor open drafting points remain with respect to the precise formulation of these expanded categories.

H. Dispute Resolution Mechanism

The Government Counter-Redline maintained the three-tier dispute resolution structure that has been under discussion:

• Tier 1 — Informal Negotiation: Thirty (30) days of informal negotiation between the parties following written notice of a dispute.

• Tier 2 — Formal EPA Decision: If informal negotiation does not resolve the dispute, EPA issues a formal written decision within thirty (30) days.

• Tier 3 — Judicial Review: The disputing party may petition the Court for judicial review within thirty (30) days of the date of EPA's formal decision.

TMC accepts this three-tier structure. However, TMC's Second Redline proposes two clarifications that TMC considers important to the fairness and integrity of the dispute resolution process:

(i) Standard of Judicial Review. TMC proposes that the consent decree specify that the Court's review of EPA's formal decision under Tier 3 shall be de novo, rather than deferential to EPA's determination, particularly with respect to technical and scientific matters. Where EPA is both the regulator and the enforcing party, deference to EPA's own formal decision would, in TMC's view, undermine the independence and utility of the judicial review mechanism. A de novo standard ensures that the Court exercises its independent judgment on the merits of the dispute.

(ii) Burden of Proof. TMC proposes that the consent decree specify that the burden of proof in any dispute resolution proceeding rests with the party asserting non-compliance. This is consistent with general principles of civil litigation and with the structure of consent decree enforcement proceedings, in which the government bears the burden of establishing a violation before penalties or other remedies may be imposed.

Both of these proposed clarifications remain open issues.

I. Financial Assurance

The parties have substantially agreed on a financial assurance package totaling $245.0 million, structured as follows:

• Surety Bond: $165,000,000, to be issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934). TMC has been in discussions with Ironbark Surety regarding the terms and conditions of the bond, and Ironbark has confirmed its preliminary commitment, subject to final documentation.

• Remediation Trust Fund: $80,000,000, to be established with Larchfield Trust Company, N.A. (Trust Agreement No. LTC-REM-2025-1177). The trust fund will be held and administered by Larchfield Trust in accordance with a trust agreement to be appended to the consent decree.

TMC's Second Redline proposes refinements to the annual adjustment mechanism for the financial assurance amount, which currently provides for annual adjustments based on the Consumer Price Index but does not specify the methodology for adjusting the allocation between the surety bond and the trust fund as remediation costs are incurred. TMC also proposes minor refinements to the trust investment guidelines to ensure that the trust fund is invested in a manner consistent with the fiduciary obligations of the trustee while preserving adequate liquidity for ongoing remediation expenditures. These are minor open drafting points that TMC anticipates can be resolved through focused discussion.

The deadline to establish the remediation trust fund and post the surety bond is September 12, 2025, which is ninety (90) days after the target Effective Date of June 14, 2025.

J. Independent Monitor

The parties are in agreement on the appointment of Verdant Analytics, Inc. (Dr. Kamal Osei, Senior Managing Director) as the court-appointed independent environmental monitor for the duration of the consent decree. Verdant Analytics was selected through the joint screening process agreed upon by the parties, and both TMC and the government are satisfied with Dr. Osei's qualifications and independence.

TMC proposes minor adjustments in the Second TMC Redline to the scope of Verdant Analytics' quarterly compliance audits and the format of the annual public reports to be prepared by the monitor. Specifically, TMC proposes that the quarterly audit protocol focus on objective, measurable compliance indicators rather than subjective assessments of the adequacy of TMC's remediation efforts, and that the annual public reports be structured in a standardized format to promote transparency and comparability across reporting periods.

The estimated cost of the independent monitor engagement is approximately $4.8 million over a five-year term, or approximately $960,000 per year, to be borne by TMC. This is substantially agreed between the parties, with only limited open drafting points remaining.

K. Termination Provisions

The Government Counter-Redline maintained the provision that termination of the consent decree may occur on a site-by-site basis upon certification by both EPA and the independent monitor that all remedial construction and long-term monitoring obligations have been completed and all performance standards have been achieved at the relevant site. The Government Counter-Redline further provides that termination may not occur sooner than five (5) years after completion of all remedial construction at the relevant site, to ensure an adequate period for confirmation of remedy effectiveness.

TMC has accepted this termination framework in the Second TMC Redline. There are no remaining open issues with respect to the termination provisions.

IV. Summary of Remaining Open Issues

For the convenience of the parties, the following table summarizes the remaining open issues between the parties as reflected in the Second TMC Redline:

V. Proposal for In-Person Negotiation Session

TMC respectfully proposes that the parties convene an in-person negotiation session during the week of February 3, 2025, in Washington, D.C. or at another mutually convenient location, for the purpose of resolving all remaining open issues identified above. TMC believes that the limited number and technical nature of the remaining open issues are well-suited to resolution in a single focused working session, and that an in-person meeting will be the most efficient and productive format for achieving consensus on the outstanding provisions.

TMC's negotiating team for the proposed session will include the following individuals:

• Harrison Wexford, Partner, Calderwood & Harkness LLP

• Elliot Nguyen, Counsel, Calderwood & Harkness LLP

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

• Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.

• Dr. Astrid Bergmann, P.E., Pinnacle Creek Environmental, LLC (remediation consultant)

We respectfully request that the government confirm its availability for the proposed session and identify the government's attendees, including whether representatives from the state co-plaintiffs — specifically, Annika Hedstrom (Assistant Attorney General, Montana Attorney General's Office), Ricardo Fuentes (Deputy Attorney General, Nevada Attorney General's Office), and Loretta May Hatcher (Assistant Attorney General, West Virginia Attorney General's Office) — will be participating. TMC believes it would be beneficial to have the state co-plaintiffs' representatives present, given the multi-state scope of the remediation obligations and the states' interests in the decree provisions.

TMC's overarching goal remains to finalize the consent decree text as expeditiously as possible, with a view toward lodging the fully executed consent decree with the Court at the earliest practicable date. The parties share a common interest in commencing remediation and achieving meaningful environmental restoration at all four sites, and TMC is committed to working cooperatively with the government and the state co-plaintiffs to bring this matter to a successful conclusion.

VI. Confidentiality and Privilege

This letter and the enclosed Second TMC Redline are transmitted solely for purposes of settlement negotiations and are protected by Federal Rule of Evidence 408 and all other applicable settlement communication privileges. The contents of this letter and the enclosures should not be deemed an admission of liability or a waiver of any legal position by the Torchlight Parties. We respectfully request that the government and all recipients treat the enclosures in accordance with these protections and refrain from disclosing or referencing the contents of this letter or the Second TMC Redline in any filing with the Court or in any other public forum.

We look forward to your prompt response and to a productive in-person session to bring this matter to resolution. Please do not hesitate to contact me directly at (212) 558-4217 or by email at hwexford@calderwoodharkness.com should you have any questions or wish to discuss any aspect of this submission.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Harrison Wexford Partner

On behalf of Torchlight Mining Corp., Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC

Enclosure:

Second TMC Redline of Proposed Consent Decree (January 24, 2025), marked against Government Counter-Redline of January 14, 2025, with Table of Contents and Appendices

cc (via email):

Katherine Rowe-Halpern, Senior Counsel, Environmental Enforcement Section, ENRD, U.S. Department of Justice

Dr. Samuel Tesfaye, EPA Region 8, Ridgecrest Project Coordinator

Jennifer Whitfield, EPA Region 9, Bonanza Creek Project Coordinator

Annika Hedstrom, Assistant Attorney General, Montana Attorney General's Office

Ricardo Fuentes, Deputy Attorney General, Nevada Attorney General's Office

Loretta May Hatcher, Assistant Attorney General, West Virginia Attorney General's Office

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

Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.

Russell Dane, Holcroft, Dane & Weiss LLP (Montana local counsel)

Denise Quartaro, sagebrush Law Group, PLLC (Nevada local counsel)

Nathan Tully, Baxter, Tully & Crane PLLC (West Virginia local counsel)

Site	Civil Penalty
Ridgecrest Mine	$14,200,000
Gallatin Chemical Works	$5,800,000
Bonanza Creek Mine	$7,900,000
Kanawha Bend Chemical Plant	$3,600,000
Total	$31,500,000
No.	Issue	TMC Position	Government Position
1	EPA past-costs reimbursement payment schedule	Installment payments aligned with civil penalty schedule	Lump sum within 30 days of decree entry
2	Stipulated penalty cure period	15-day cure period before penalties accrue	No cure period
3	Stipulated penalty annual aggregate cap	$2.0 million per site per year	No aggregate cap
4	Stipulated penalty accrual during force majeure / dispute resolution	Penalties tolled during pendency	Penalties continue to accrue
5	Expanded force-majeure qualifying events	Include supply-chain disruptions, permitting delays, extreme weather	Standard EPA force-majeure definition
6	Standard of judicial review (dispute resolution)	De novo review	Deferential to EPA formal decision
7	Burden of proof (dispute resolution)	Party asserting non-compliance	Not specified
8	Financial assurance adjustment mechanism and trust investment guidelines	Minor drafting refinements proposed	Under review
9	SEP reporting milestones and certification criteria	Minor drafting refinements proposed	Under review
10	Independent monitor audit scope and report format	Minor drafting refinements proposed	Under review

CONFIDENTIAL — SETTLEMENT COMMUNICATION PURSUANT TO FRE 408
CALDERWOOD & HARKNESS LLP Attorneys at Law
One Liberty Plaza, 42nd Floor New York, New York 10006-1404
Telephone: (212) 558-4000 Facsimile: (212) 558-3588
www.calderwoodharkness.com
January 24, 2025
Harrison Wexford Partner Direct Dial: (212) 558-4217
Email: hwexford@calderwoodharkness.com
Matter No.: 1039-00003
Philip Orenstein, Esq. Trial Attorney Environmental Enforcement Section Environment and Natural Resources Division U.S. Department of Justice 150 M Street NE Washington, D.C. 20002
Margaret Coulson Office of Enforcement and Compliance Assurance U.S. Environmental Protection Agency William Jefferson Clinton Federal Building 1200 Pennsylvania Avenue NW Washington, D.C. 20460
Re: United States of America and State of Montana v. Torchlight Mining Corp., Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC, Civil Action No. 9:24-cv-00087-DWM (U.S. District Court for the District of Montana, Missoula Division) — Torchlight Second Revised Draft Consent Decree
Dear Mr. Orenstein and Ms. Coulson:
On behalf of our clients, Torchlight Mining Corp. ("TMC") and its U.S. subsidiaries — Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC (collectively, the "Torchlight Parties") — Calderwood & Harkness LLP is pleased to transmit the enclosed second redline of the proposed consent decree in the above-referenced matter (the "Second TMC Redline"). The Second TMC Redline has been prepared as a marked version against the government's counter-redline that was received by our office on January 14, 2025. As set forth in greater detail below, the Second TMC Redline reflects TMC's careful and thorough consideration of each of the government's counter-proposals and represents significant areas of further compromise by the Torchlight Parties, designed to narrow the remaining open issues between the parties so that they may be resolved as efficiently as practicable.
I. Procedural History and Negotiation Timeline
The parties have been engaged in active and constructive settlement negotiations since the agreement in principle was reached on July 30, 2024, following the mediation session before the Honorable Jerold Solberg (Ret.). Since that time, the negotiation of the formal consent decree text has proceeded in the following sequence:
• November 8, 2024: The Department of Justice, on behalf of the United States and in coordination with the U.S. Environmental Protection Agency, circulated the first draft consent decree to the Torchlight Parties.
• December 16, 2024: TMC submitted its first redline of the proposed consent decree (the "First TMC Redline"), accompanied by a detailed transmittal letter of the same date setting forth TMC's positions on each substantive provision.
• January 14, 2025: The government transmitted its counter-redline (the "Government Counter-Redline"), responding to the First TMC Redline and setting forth the government's revised positions on contested provisions.
• January 24, 2025: The present Second TMC Redline, which responds to and marks against the Government Counter-Redline.
We note for the record that Calderwood & Harkness LLP was engaged as lead outside counsel for the Torchlight Parties on October 21, 2024, replacing prior counsel, and has been responsible for the preparation and submission of all Torchlight redlines since that date. Since our engagement, we have endeavored to bring a fresh perspective to the negotiations and to identify creative solutions to the issues that have separated the parties.
II. Overview of Government Counter-Redline Positions Addressed
TMC has reviewed the Government Counter-Redline in detail, including through an internal legal and technical analysis prepared by our team and dated January 17, 2025. We wish to acknowledge at the outset that the government accepted a meaningful number of TMC's first-redline proposals, and TMC appreciates the government's willingness to engage constructively with those proposals. That collaborative spirit has substantially advanced the negotiations.
In this Second TMC Redline, TMC has reciprocated by accepting several of the government's counter-proposals, as described in the section-by-section summary set forth below. The result, we believe, is that only a limited number of issues remain open for further discussion. TMC is confident that these remaining issues can be resolved promptly and in good faith, and we set forth below a proposal for an in-person negotiation session to accomplish that objective.
III. Section-by-Section Summary of TMC's Positions in the Second TMC Redline
A. Remediation Cost and Schedule — Ridgecrest Site
TMC accepts the government's proposed negotiated remediation cost framework for the Ridgecrest Mine Site at an aggregate estimated cost of $198.6 million over a thirty-year remediation period (net present value at a 3% discount rate: $134.9 million). This figure represents a fair and reasonable compromise between TMC's initial remediation cost estimate of $187.5 million and EPA's estimate of $224.0 million, and TMC is prepared to proceed on this basis.
With respect to remediation schedule milestones, the Second TMC Redline maintains the following key deadlines as proposed in the Government Counter-Redline:
• December 14, 2025: Submission of the Ridgecrest Remedial Action Work Plan to EPA Region 8 for review and approval.
• June 14, 2027: Commencement of remedy construction at the Ridgecrest Mine Site.
• June 14, 2055: Conclusion of the thirty-year remediation obligation period.
TMC has, however, proposed minor modifications to certain interim milestone benchmarks within the broader remediation schedule. These proposed modifications are designed to align the interim milestones with the engineering feasibility assessments prepared by TMC's remediation consultant, Pinnacle Creek Environmental, LLC ("Pinnacle Creek"), under the direction of Dr. Astrid Bergmann, P.E., who serves as the engagement lead for remediation design and implementation. The modifications are technical in nature and do not affect the overall project timeline or the key deadlines identified above.
We further note that the government's technical expert, Cascade Geosciences, Inc. (Dr. Patricia Voss, principal hydrogeologist), and the EPA Region 8 Project Coordinator, Dr. Samuel Tesfaye, have been consulted on the technical remedy elements for the Ridgecrest Site throughout this process. TMC values that collaboration and seeks its continuation as the parties move into the remedy design phase. We are confident that any remaining questions regarding the interim milestones can be addressed through the ongoing technical dialogue between Pinnacle Creek and Cascade Geosciences.
B. Remediation Requirements — Gallatin, Bonanza Creek, and Kanawha Bend Sites
Gallatin Chemical Works (Montana). TMC accepts the government's proposed timeline for submission of the Corrective Measures Study ("CMS") for the Gallatin Chemical Works facility by June 14, 2026. The estimated remediation cost for this site is $42.8 million over a fifteen-year period (net present value at a 3% discount rate: $34.1 million). In the Second TMC Redline, TMC proposes clarifying language regarding the scope of the three Solid Waste Management Units ("SWMUs") to be addressed under the consent decree and, in particular, the interaction between the consent decree obligations and the facility's existing Resource Conservation and Recovery Act ("RCRA") Permit No. MTD098712456. TMC believes it is important for the consent decree to clearly delineate the respective obligations arising under the decree and those governed by the existing RCRA permit, so as to avoid duplicative or potentially conflicting regulatory requirements.
Bonanza Creek Mine (Nevada). TMC accepts the government's proposed deadline of June 14, 2026 for commencement of liner repair and containment work at the Bonanza Creek Mine. The estimated remediation cost for this site is $63.2 million over a twenty-year period (net present value at a 3% discount rate: $47.1 million). In the Second TMC Redline, TMC proposes revisions to the cyanide and mercury monitoring performance standards to reflect site-specific hydrogeological conditions at the Bonanza Creek facility. These proposed revisions are based on the most recent groundwater characterization data collected by Pinnacle Creek in November 2024 and are intended to ensure that the performance standards are technically achievable and scientifically sound. We note that TMC has been coordinating with EPA Region 9 Project Coordinator Jennifer Whitfield and with the Nevada Division of Environmental Protection, through Deputy Attorney General Ricardo Fuentes, on these technical matters, and TMC anticipates that the proposed revisions will be consistent with the technical consensus that has been developing among the parties' respective experts.
Kanawha Bend Chemical Plant (West Virginia). TMC accepts the government's proposed deadline of December 14, 2026 for completion of interim stabilization measures at the Kanawha Bend Chemical Plant. The estimated remediation cost for this site is $38.9 million over a twenty-year period (net present value at a 3% discount rate: $29.0 million). The Second TMC Redline proposes revised language addressing the Dense Non-Aqueous Phase Liquid ("DNAPL") treatment approach in the fractured bedrock aquifer underlying the Kanawha Bend facility. Given the well-documented complexity of DNAPL remediation in fractured rock environments, TMC's proposed language provides for an adaptive management approach that allows for adjustment of treatment methodologies as additional characterization data become available during the early phases of implementation. TMC also proposes language addressing the integration of the consent decree obligations with the facility's existing RCRA Permit No. WVD048823915, similar in approach to the Gallatin clarifications described above.
C. Civil Penalties
TMC accepts the aggregate civil penalty of $31.5 million as previously agreed between the parties, allocated among the four sites as follows:
TMC further accepts the quarterly installment payment schedule as set forth in the Government Counter-Redline:
• First installment (25%): $7,875,000, due within thirty (30) days of entry of the Consent Decree.
• Second installment (25%): $7,875,000, due twelve (12) months after entry of the Consent Decree.
• Third installment (25%): $7,875,000, due twenty-four (24) months after entry of the Consent Decree.
• Fourth installment (25%): $7,875,000, due thirty-six (36) months after entry of the Consent Decree.
There are no open issues on this topic, and the civil penalty provisions in the Second TMC Redline are clean.
D. EPA Past-Costs Reimbursement (CERCLA § 107)
TMC accepts the aggregate past-costs reimbursement amount of $18.1 million, which represents reimbursement to EPA of the following documented past response costs incurred under CERCLA Section 107:
• $14,300,000 for removal actions conducted by EPA at the Ridgecrest Mine Site during the period 2021–2023.
• $3,800,000 for EPA's emergency response action at the Kanawha Bend Chemical Plant in June 2020.
TMC does, however, propose that the $18.1 million past-costs reimbursement be paid on an installment schedule aligned with the civil penalty installment dates described in Section III.C above, rather than as a lump sum payment within thirty days of decree entry, as the Government Counter-Redline proposed. TMC believes that an installment approach is reasonable in light of the substantial financial commitments that TMC will be undertaking simultaneously upon entry of the decree — including commencement of remediation activities, posting of financial assurance, and payment of the first civil penalty installment — and that spreading the past-costs reimbursement over the same installment schedule will promote TMC's ability to meet all of its decree obligations in a timely and sustainable manner. This remains an open issue between the parties.
E. Supplemental Environmental Projects (SEPs)
TMC accepts the three Supplemental Environmental Projects as set forth in the Government Counter-Redline, totaling $12.0 million in value:
1. Flint Creek Watershed Restoration Project (Montana) — $5,500,000. This project encompasses approximately twelve (12) miles of stream-bank stabilization and fish-passage improvements in the Flint Creek watershed in western Montana. The project will be implemented in coordination with the Montana Department of Environmental Quality and the U.S. Fish and Wildlife Service.
2. Battle Mountain Community Drinking Water Improvement Project (Nevada) — $3,500,000. This project involves the design and construction of upgrades to the municipal water treatment facility serving the community of Battle Mountain in Lander County, Nevada, including installation of advanced filtration and treatment systems to address arsenic and other metals of concern in the local drinking water supply.
3. Institute Community Air Quality Monitoring Network (West Virginia) — $3,000,000. This project involves the installation and operation of six (6) ambient air quality monitoring stations in the Institute and South Charleston communities of the Kanawha Valley, West Virginia, with a ten-year operational commitment by TMC to fund monitoring activities, data reporting, and community engagement.
The substantive scope and funding levels of all three SEPs are agreed. TMC has proposed minor modifications to certain reporting milestones and certification-of-completion criteria in the Second TMC Redline. These modifications are intended to provide reasonable flexibility in the timing of interim progress reports and to clarify the specific criteria that must be satisfied before the independent monitor and EPA may certify completion of each SEP. These are limited open drafting points that TMC anticipates can be resolved readily.
F. Stipulated Penalty Provisions
The stipulated penalty provisions remain an area of meaningful disagreement between the parties. The Government Counter-Redline maintained the tiered stipulated penalty rates proposed in the government's original draft:
• $1,500 per day per violation for the first thirty (30) days of non-compliance.
• $3,000 per day per violation for days thirty-one (31) through sixty (60) of non-compliance.
• $5,500 per day per violation for each day of non-compliance thereafter.
While TMC does not contest the per-day rates themselves in this Second TMC Redline, TMC proposes three important modifications to the stipulated penalty framework:
(i) Cure Period. TMC proposes a fifteen (15)-day cure period following written notice of a violation, during which TMC may undertake corrective action before stipulated penalties begin to accrue. This cure-period provision is consistent with the stipulated penalty frameworks in numerous consent decrees entered in comparable CERCLA and RCRA enforcement actions, and it reflects the practical reality that certain technical or administrative deficiencies may be promptly correctable without the imposition of penalties.
(ii) Annual Aggregate Cap. TMC proposes an annual aggregate cap on stipulated penalties of $2.0 million per site. This cap is designed to provide a reasonable ceiling on TMC's stipulated penalty exposure while preserving the government's enforcement leverage. In the absence of such a cap, cumulative stipulated penalties could, in theory, reach levels that would impair TMC's ability to fund ongoing remediation — a result that would be contrary to the fundamental objectives of the consent decree.
(iii) Tolling During Force Majeure and Dispute Resolution. TMC proposes clarifying language providing that stipulated penalties do not accrue during periods in which a force majeure event has been asserted and is pending resolution, or during the pendency of a dispute resolution proceeding relating to the alleged violation. This modification is intended to ensure that TMC is not subjected to penalties for non-compliance that is attributable to circumstances beyond its control or that is the subject of a bona fide dispute.
All three of these proposed modifications remain open issues for negotiation.
G. Force Majeure
TMC has accepted the government's standard EPA force-majeure provision, including the requirement that TMC provide written notice to EPA and DOJ within fifteen (15) days of the date on which TMC first becomes aware of or should have become aware of a force majeure event. TMC's Second Redline does, however, propose expanding the definition of qualifying force majeure events to include the following categories:
• Supply-chain disruptions affecting the availability of critical materials or equipment necessary for remedy implementation, where such disruptions are beyond TMC's reasonable control and could not have been anticipated or avoided through the exercise of due diligence.
• Permitting delays attributable to third-party governmental authorities, including state and local permitting agencies, where TMC has submitted complete and timely permit applications and the delay is not attributable to any deficiency in TMC's submission.
• Extreme weather events, including but not limited to flooding, wildfire, severe winter storms, and drought conditions, that materially impair TMC's ability to perform remediation work at the affected site.
TMC believes that these expanded categories are consistent with evolving EPA practice in recent consent decrees and reflect the practical realities of implementing large-scale, multi-site remediation programs over decades-long timeframes. Minor open drafting points remain with respect to the precise formulation of these expanded categories.
H. Dispute Resolution Mechanism
The Government Counter-Redline maintained the three-tier dispute resolution structure that has been under discussion:
• Tier 1 — Informal Negotiation: Thirty (30) days of informal negotiation between the parties following written notice of a dispute.
• Tier 2 — Formal EPA Decision: If informal negotiation does not resolve the dispute, EPA issues a formal written decision within thirty (30) days.
• Tier 3 — Judicial Review: The disputing party may petition the Court for judicial review within thirty (30) days of the date of EPA's formal decision.
TMC accepts this three-tier structure. However, TMC's Second Redline proposes two clarifications that TMC considers important to the fairness and integrity of the dispute resolution process:
(i) Standard of Judicial Review. TMC proposes that the consent decree specify that the Court's review of EPA's formal decision under Tier 3 shall be de novo, rather than deferential to EPA's determination, particularly with respect to technical and scientific matters. Where EPA is both the regulator and the enforcing party, deference to EPA's own formal decision would, in TMC's view, undermine the independence and utility of the judicial review mechanism. A de novo standard ensures that the Court exercises its independent judgment on the merits of the dispute.
(ii) Burden of Proof. TMC proposes that the consent decree specify that the burden of proof in any dispute resolution proceeding rests with the party asserting non-compliance. This is consistent with general principles of civil litigation and with the structure of consent decree enforcement proceedings, in which the government bears the burden of establishing a violation before penalties or other remedies may be imposed.
Both of these proposed clarifications remain open issues.
I. Financial Assurance
The parties have substantially agreed on a financial assurance package totaling $245.0 million, structured as follows:
• Surety Bond: $165,000,000, to be issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934). TMC has been in discussions with Ironbark Surety regarding the terms and conditions of the bond, and Ironbark has confirmed its preliminary commitment, subject to final documentation.
• Remediation Trust Fund: $80,000,000, to be established with Larchfield Trust Company, N.A. (Trust Agreement No. LTC-REM-2025-1177). The trust fund will be held and administered by Larchfield Trust in accordance with a trust agreement to be appended to the consent decree.
TMC's Second Redline proposes refinements to the annual adjustment mechanism for the financial assurance amount, which currently provides for annual adjustments based on the Consumer Price Index but does not specify the methodology for adjusting the allocation between the surety bond and the trust fund as remediation costs are incurred. TMC also proposes minor refinements to the trust investment guidelines to ensure that the trust fund is invested in a manner consistent with the fiduciary obligations of the trustee while preserving adequate liquidity for ongoing remediation expenditures. These are minor open drafting points that TMC anticipates can be resolved through focused discussion.
The deadline to establish the remediation trust fund and post the surety bond is September 12, 2025, which is ninety (90) days after the target Effective Date of June 14, 2025.
J. Independent Monitor
The parties are in agreement on the appointment of Verdant Analytics, Inc. (Dr. Kamal Osei, Senior Managing Director) as the court-appointed independent environmental monitor for the duration of the consent decree. Verdant Analytics was selected through the joint screening process agreed upon by the parties, and both TMC and the government are satisfied with Dr. Osei's qualifications and independence.
TMC proposes minor adjustments in the Second TMC Redline to the scope of Verdant Analytics' quarterly compliance audits and the format of the annual public reports to be prepared by the monitor. Specifically, TMC proposes that the quarterly audit protocol focus on objective, measurable compliance indicators rather than subjective assessments of the adequacy of TMC's remediation efforts, and that the annual public reports be structured in a standardized format to promote transparency and comparability across reporting periods.
The estimated cost of the independent monitor engagement is approximately $4.8 million over a five-year term, or approximately $960,000 per year, to be borne by TMC. This is substantially agreed between the parties, with only limited open drafting points remaining.
K. Termination Provisions
The Government Counter-Redline maintained the provision that termination of the consent decree may occur on a site-by-site basis upon certification by both EPA and the independent monitor that all remedial construction and long-term monitoring obligations have been completed and all performance standards have been achieved at the relevant site. The Government Counter-Redline further provides that termination may not occur sooner than five (5) years after completion of all remedial construction at the relevant site, to ensure an adequate period for confirmation of remedy effectiveness.
TMC has accepted this termination framework in the Second TMC Redline. There are no remaining open issues with respect to the termination provisions.
IV. Summary of Remaining Open Issues
For the convenience of the parties, the following table summarizes the remaining open issues between the parties as reflected in the Second TMC Redline:
V. Proposal for In-Person Negotiation Session
TMC respectfully proposes that the parties convene an in-person negotiation session during the week of February 3, 2025, in Washington, D.C. or at another mutually convenient location, for the purpose of resolving all remaining open issues identified above. TMC believes that the limited number and technical nature of the remaining open issues are well-suited to resolution in a single focused working session, and that an in-person meeting will be the most efficient and productive format for achieving consensus on the outstanding provisions.
TMC's negotiating team for the proposed session will include the following individuals:
• Harrison Wexford, Partner, Calderwood & Harkness LLP
• Elliot Nguyen, Counsel, Calderwood & Harkness LLP
• Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp.
• Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.
• Dr. Astrid Bergmann, P.E., Pinnacle Creek Environmental, LLC (remediation consultant)
We respectfully request that the government confirm its availability for the proposed session and identify the government's attendees, including whether representatives from the state co-plaintiffs — specifically, Annika Hedstrom (Assistant Attorney General, Montana Attorney General's Office), Ricardo Fuentes (Deputy Attorney General, Nevada Attorney General's Office), and Loretta May Hatcher (Assistant Attorney General, West Virginia Attorney General's Office) — will be participating. TMC believes it would be beneficial to have the state co-plaintiffs' representatives present, given the multi-state scope of the remediation obligations and the states' interests in the decree provisions.
TMC's overarching goal remains to finalize the consent decree text as expeditiously as possible, with a view toward lodging the fully executed consent decree with the Court at the earliest practicable date. The parties share a common interest in commencing remediation and achieving meaningful environmental restoration at all four sites, and TMC is committed to working cooperatively with the government and the state co-plaintiffs to bring this matter to a successful conclusion.
VI. Confidentiality and Privilege
This letter and the enclosed Second TMC Redline are transmitted solely for purposes of settlement negotiations and are protected by Federal Rule of Evidence 408 and all other applicable settlement communication privileges. The contents of this letter and the enclosures should not be deemed an admission of liability or a waiver of any legal position by the Torchlight Parties. We respectfully request that the government and all recipients treat the enclosures in accordance with these protections and refrain from disclosing or referencing the contents of this letter or the Second TMC Redline in any filing with the Court or in any other public forum.
We look forward to your prompt response and to a productive in-person session to bring this matter to resolution. Please do not hesitate to contact me directly at (212) 558-4217 or by email at hwexford@calderwoodharkness.com should you have any questions or wish to discuss any aspect of this submission.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Harrison Wexford Partner
On behalf of Torchlight Mining Corp., Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC
Enclosure:
Second TMC Redline of Proposed Consent Decree (January 24, 2025), marked against Government Counter-Redline of January 14, 2025, with Table of Contents and Appendices
cc (via email):
Katherine Rowe-Halpern, Senior Counsel, Environmental Enforcement Section, ENRD, U.S. Department of Justice
Dr. Samuel Tesfaye, EPA Region 8, Ridgecrest Project Coordinator
Jennifer Whitfield, EPA Region 9, Bonanza Creek Project Coordinator
Annika Hedstrom, Assistant Attorney General, Montana Attorney General's Office
Ricardo Fuentes, Deputy Attorney General, Nevada Attorney General's Office
Loretta May Hatcher, Assistant Attorney General, West Virginia Attorney General's Office
Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp.
Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.
Russell Dane, Holcroft, Dane & Weiss LLP (Montana local counsel)
Denise Quartaro, sagebrush Law Group, PLLC (Nevada local counsel)
Nathan Tully, Baxter, Tully & Crane PLLC (West Virginia local counsel)
Site | Civil Penalty
Ridgecrest Mine | $14,200,000
Gallatin Chemical Works | $5,800,000
Bonanza Creek Mine | $7,900,000
Kanawha Bend Chemical Plant | $3,600,000
Total | $31,500,000
No. | Issue | TMC Position | Government Position
1 | EPA past-costs reimbursement payment schedule | Installment payments aligned with civil penalty schedule | Lump sum within 30 days of decree entry
2 | Stipulated penalty cure period | 15-day cure period before penalties accrue | No cure period
3 | Stipulated penalty annual aggregate cap | $2.0 million per site per year | No aggregate cap
4 | Stipulated penalty accrual during force majeure / dispute resolution | Penalties tolled during pendency | Penalties continue to accrue
5 | Expanded force-majeure qualifying events | Include supply-chain disruptions, permitting delays, extreme weather | Standard EPA force-majeure definition
6 | Standard of judicial review (dispute resolution) | De novo review | Deferential to EPA formal decision
7 | Burden of proof (dispute resolution) | Party asserting non-compliance | Not specified
8 | Financial assurance adjustment mechanism and trust investment guidelines | Minor drafting refinements proposed | Under review
9 | SEP reporting milestones and certification criteria | Minor drafting refinements proposed | Under review
10 | Independent monitor audit scope and report format | Minor drafting refinements proposed | Under review

CONFIDENTIAL — SETTLEMENT COMMUNICATION PURSUANT TO FRE 408

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts