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

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CONFIDENTIAL — SETTLEMENT COMMUNICATION PURSUANT TO FEDERAL RULE OF EVIDENCE 408

CALDERWOOD & HARKNESS LLP Counsellors at Law

One Liberty Plaza, 44th Floor 165 Broadway New York, New York 10006-1404

December 16, 2024

Harrison Wexford Partner Direct Dial: (212) 558-7234

Email: hwexford@calderwoodharkness.com

Facsimile: (212) 558-7001 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, Esq. Senior Attorney, Office of Enforcement and Compliance Assurance U.S. Environmental Protection Agency William Jefferson Clinton Federal Building 1200 Pennsylvania Avenue NW, MC 2248A Washington, D.C. 20460

Re: *United States of America and State of Montana v. Torchlight Mining Corp., et al.*, Civil Action No. 9:24-cv-00087-DWM (D. Mont.) — Transmittal of Torchlight Mining Corp. Revised Draft Consent Decree (Redline to DOJ First Draft of November 8, 2024)

Dear Mr. Orenstein and Ms. Coulson:

This firm represents Torchlight Mining Corp. ("TMC"), a corporation organized under the laws of British Columbia, Canada, and its U.S. subsidiaries — Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC (collectively with TMC, the "Settling Defendants") — in connection with the above-captioned enforcement action. We write to transmit, under separate cover, TMC's revised draft Consent Decree in redline/tracked-changes format, marked against the First Draft Consent Decree circulated by the Department of Justice on November 8, 2024 (the "DOJ First Draft").

The revisions set forth in the enclosed redline reflect the collaborative input of TMC's management, including Chief Executive Officer Douglas K. Prennell, General Counsel Miriam Soo-Hwan Park, Vice President of Environmental Health & Safety Gareth Linford, and Chief Financial Officer Carolyn Bracebridge. In addition, the revisions incorporate the technical analysis and recommendations of TMC's environmental remediation consultant, Pinnacle Creek Environmental, LLC (Dr. Astrid Bergmann, P.E., Principal), and the financial analysis prepared by TMC's financial advisor, Northspire Capital Markets, Inc. TMC's local counsel in the three affected states — Holcroft, Dane & Weiss LLP (Montana), sagebrush Law Group, PLLC (Nevada), and Baxter, Tully & Crane PLLC (West Virginia) — have also reviewed and contributed to the state-specific provisions of the redline.

This letter summarizes the principal areas of proposed changes for ease of reference and to facilitate productive discussion among the parties. The summary that follows is organized by subject matter and is intended to complement — not substitute for — a careful review of the enclosed redline itself. All capitalized terms not otherwise defined in this letter shall have the meanings ascribed to them in the DOJ First Draft.

I. BACKGROUND AND PROCEDURAL CONTEXT

As the parties are well aware, this action was commenced on January 18, 2024, when the United States, acting through the Department of Justice at the request of the U.S. Environmental Protection Agency, filed its Complaint for Injunctive Relief and Civil Penalties pursuant to Sections 104, 106, and 107 of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9604, 9606, 9607; Sections 3004, 3008, and 3013 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6924, 6928, 6934; and Sections 301, 309, and 402 of the Clean Water Act ("CWA"), 33 U.S.C. §§ 1311, 1319, 1342, together with the State of Montana, in the United States District Court for the District of Montana, Missoula Division. The Complaint asserts claims arising from conditions at four sites across three states: the Ridgecrest Copper-Molybdenum Mine (Anaconda-Deer Lodge County, Montana), the Gallatin Chemical Works (Belgrade, Gallatin County, Montana), the Bonanza Creek Mine (Lander County, Nevada), and the Kanawha Bend Chemical Plant (Institute, Kanawha County, West Virginia).

TMC filed its Answer on March 5, 2024, generally denying the material allegations of the Complaint while acknowledging certain jurisdictional facts and the existence of historical operations at each of the four sites. On April 22, 2024, the parties executed a Tolling Agreement, which was approved by the Court, tolling the applicable statutes of limitations through December 31, 2025, to permit settlement negotiations. On May 15, 2024, the Court entered an Order referring the matter to Magistrate Judge Clara Finnegan for mediation. Following a series of mediation sessions conducted by Magistrate Judge Finnegan between May and July 2024, the parties reached an agreement in principle on a consent-decree framework on July 30, 2024, which was memorialized in a term sheet initialed by all parties and filed under seal with the Court.

Calderwood & Harkness LLP's engagement in this matter commenced on October 21, 2024, when TMC retained this firm to serve as lead outside counsel for the consent-decree negotiation and finalization process, replacing TMC's prior environmental counsel, Whitfield, Palmer & Goss LLP. We received and commenced internal review of the DOJ First Draft promptly upon its circulation on November 8, 2024. Over the subsequent five weeks, our team — including the undersigned, my colleague Beatrice Holloway (Partner), and Associates Elliot Nguyen and Grace Nakamura — undertook a comprehensive review of the DOJ First Draft in close consultation with TMC's management, Pinnacle Creek Environmental, Northspire Capital Markets, and each of the three local counsel firms. That process included the preparation of detailed annotated comments, the compilation of a consolidated internal redline, technical consultations regarding remediation cost estimates and remedy design, and financial modeling of the aggregate obligations and payment schedules set forth in the DOJ First Draft.

The enclosed redline and the summary that follows represent the product of that review process. TMC has approached this exercise in good faith and with the objective of reaching a final, agreed text that is both protective of human health and the environment and fair and workable from the perspective of the Settling Defendants.

II. SUMMARY OF PRINCIPAL PROPOSED REVISIONS

The following subsections identify and briefly describe the principal categories of proposed revisions reflected in the enclosed redline. For the convenience of the reviewing parties, Enclosure 2 provides a detailed Table of Proposed Revisions with cross-references to the specific sections of the Consent Decree affected by each proposed change, together with a brief rationale for each revision.

A. Remediation Cost and Scope — Ridgecrest Copper-Molybdenum Mine

The Ridgecrest site represents the largest single remediation obligation addressed in the Consent Decree. The DOJ First Draft incorporates EPA's estimated remediation cost for the Ridgecrest site of $224.0 million in nominal dollars over a projected 30-year remediation timeline. TMC's environmental remediation consultant, Pinnacle Creek Environmental, LLC, has independently estimated the cost of the Ridgecrest remediation at approximately $187.5 million in nominal dollars over the same 30-year period, which translates to a net present value of approximately $127.4 million at a 3% discount rate.

TMC recognizes that a gap exists between the government's cost estimate and TMC's estimate, and TMC is prepared to engage in substantive discussions regarding a negotiated remediation cost figure. However, TMC believes that the EPA estimate, as reflected in the DOJ First Draft, does not adequately account for several significant factors. First, TMC has conducted substantial closure and reclamation work at the Ridgecrest site since active mining operations ceased in December 2019, including the dewatering and stabilization of the West Tailings Impoundment, the installation of a geosynthetic liner on the East Tailings Impoundment, and the construction of approximately 3.2 miles of diversion channels to redirect clean stormwater around disturbed areas. Second, the EPA estimate does not appear to provide appropriate credit for the $14.3 million in EPA removal actions already completed at the Ridgecrest site between January 2021 and May 2023, which addressed the most acute risks associated with acid mine drainage discharge to Flint Creek.

The specific contaminants of concern at the Ridgecrest site are well documented and include acid mine drainage with dissolved copper concentrations averaging 47 mg/L (compared to the Montana ambient water quality standard of 0.0087 mg/L for aquatic life), as well as elevated concentrations of molybdenum, selenium, and sulfate in surface water and groundwater, and ongoing tailings impoundment seepage to Flint Creek. TMC's redline proposes revised remedy components and cost allocation language — particularly with respect to Operable Unit 1 (the tailings impoundments and associated groundwater plume) — that would bring the Ridgecrest remediation obligation closer to TMC's estimate while remaining fully protective of human health and the environment, consistent with the National Contingency Plan.

TMC is aware that the government's technical expert, Cascade Geosciences, Inc. (Dr. Patricia Voss, Principal Geochemist), and TMC's consultant, Pinnacle Creek Environmental (Dr. Astrid Bergmann), hold differing views regarding the appropriate scope of the remedy for OU-1, particularly with respect to the necessity and extent of groundwater extraction and treatment, the design of the reactive barrier wall along the southern boundary of the tailings complex, and the duration and intensity of post-closure water quality monitoring. TMC believes that these technical differences can be narrowed through direct engagement between the respective technical teams and proposes that such engagement occur in advance of or concurrent with the broader legal negotiations.

B. Remediation Schedules — Gallatin Chemical Works, Bonanza Creek Mine, and Kanawha Bend Chemical Plant

TMC's redline proposes revisions to the remediation schedules for the remaining three sites addressed in the Consent Decree, as follows:

Gallatin Chemical Works (Belgrade, Gallatin County, Montana). The DOJ First Draft establishes a deadline for submission of the Corrective Measures Study ("CMS") that TMC believes is not achievable given the complexity of the site. The Gallatin Chemical Works facility encompasses three Solid Waste Management Units ("SWMUs"), each with distinct contaminant profiles and remediation challenges. The primary contaminant of concern is carbon disulfide ("CS₂") in groundwater, which has been detected at concentrations as high as 890 µg/L — nearly ninety times the applicable Maximum Contaminant Level of 10 µg/L. In addition, volatile organic compound ("VOC") contamination has been identified in subsurface soils across approximately 22 acres of the facility. TMC's estimated remediation cost for the Gallatin Chemical Works is approximately $42.8 million in nominal dollars over a 15-year period, corresponding to a net present value of approximately $34.1 million at a 3% discount rate. TMC's redline proposes a CMS submission deadline that provides an additional 180 days beyond the DOJ First Draft timeline, with corresponding adjustments to subsequent milestones, to allow for the completion of additional characterization work that TMC believes is necessary to support a sound CMS.

Bonanza Creek Mine (Lander County, Nevada). TMC acknowledges the three documented heap-leach pad releases at the Bonanza Creek Mine that occurred on March 17, 2022, August 9, 2022, and January 22, 2023, and the associated cyanide and mercury contamination that resulted from those releases. TMC's redline proposes revisions to the liner repair and containment timeline for the heap-leach facilities to reflect realistic phasing of the remedial work given that active mining operations continue at the Bonanza Creek site. TMC's estimated remediation cost for the Bonanza Creek Mine is approximately $63.2 million in nominal dollars over a 20-year period, corresponding to a net present value of approximately $47.1 million at a 3% discount rate. The proposed revisions seek to integrate remediation milestones with operational schedules in a manner that minimizes disruption to ongoing operations while ensuring that remediation proceeds on a timely and protective basis.

Kanawha Bend Chemical Plant (Institute, Kanawha County, West Virginia). TMC's redline proposes adjustments to the interim stabilization deadline for the Kanawha Bend site. The site presents significant technical challenges, including the presence of dense non-aqueous phase liquid ("DNAPL") in a fractured bedrock aquifer, residual sulfuric acid contamination with pH values measured as low as 1.8 in certain monitoring wells, and heavy metal contamination in soils with lead concentrations measured as high as 4,200 mg/kg and arsenic concentrations as high as 890 mg/kg. TMC's estimated remediation cost for the Kanawha Bend site is approximately $38.9 million in nominal dollars over a 20-year period, corresponding to a net present value of approximately $29.0 million at a 3% discount rate. The proposed revisions to the interim stabilization deadline reflect the inherent complexity of characterizing and stabilizing DNAPL in fractured rock and the need for additional pilot testing of in-situ treatment technologies before final remedy design can be completed.

C. Civil Penalty Amount and Payment Schedule

The DOJ First Draft proposes a total civil penalty that exceeds the amount discussed by the parties during the mediation process and reflected in the July 30, 2024 framework agreement. TMC's redline proposes a total civil penalty of $31.5 million, allocated among the four sites as follows:

TMC proposes that the civil penalty be paid in quarterly installments over a 36-month period following entry of the Consent Decree, structured as follows: (i) twenty-five percent ($7,875,000) payable within 30 calendar days of the date of entry of the Consent Decree; (ii) twenty-five percent ($7,875,000) payable on the first anniversary of the date of entry; (iii) twenty-five percent ($7,875,000) payable on the second anniversary of the date of entry; and (iv) twenty-five percent ($7,875,000) payable on the third anniversary of the date of entry. TMC's redline incorporates appropriate interest accrual provisions for unpaid installments.

TMC's proposed penalty calculations are consistent with EPA's Clean Water Act Section 309(g) Civil Penalty Policy and EPA's RCRA Civil Penalty Policy, as applicable to the respective statutory violations alleged at each site. The proposed penalty amount takes into account TMC's demonstrated cooperative posture throughout the investigative and enforcement process, including TMC's voluntary disclosure of the Bonanza Creek heap-leach releases, TMC's immediate implementation of interim containment measures at each site, and TMC's ability to pay in the context of the aggregate remediation obligations that will be imposed under the Consent Decree.

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

TMC does not dispute its obligation to reimburse the Environmental Protection Agency for past response costs incurred in connection with the Ridgecrest and Kanawha Bend sites. TMC acknowledges that EPA's documented past costs total approximately $18.1 million, consisting of $14.3 million for removal actions at the Ridgecrest site conducted between January 2021 and May 2023, and $3.8 million for emergency response actions at the Kanawha Bend site following the June 14, 2020 sulfuric acid release incident.

TMC's proposed revisions to the past-costs reimbursement provisions are limited in scope and address two matters: first, the payment timeline, which TMC proposes should be aligned with the civil penalty installment schedule to manage the aggregate cash flow impact on the Settling Defendants during the initial years of decree implementation; and second, provisions for the verification of cost documentation, including TMC's right to review and audit EPA's supporting cost records to confirm the accuracy and allocability of the claimed amounts prior to payment. TMC emphasizes that these proposed revisions do not reflect any dispute regarding the validity or reasonableness of EPA's past costs, but rather are intended to ensure transparency and orderly administration.

E. Supplemental Environmental Projects (SEPs)

TMC generally accepts the concept and aggregate value of the three Supplemental Environmental Projects set forth in the DOJ First Draft, totaling $12.0 million. TMC views these projects as meaningful contributions to the affected communities and ecosystems and is committed to their successful implementation. TMC's redline proposes certain targeted revisions to the SEP provisions, as described below:

Flint Creek Watershed Restoration Project (Montana) — $5,500,000. This SEP, which involves stream-bank stabilization, riparian replanting, and fish-passage improvements along approximately 12 miles of Flint Creek downstream of the Ridgecrest site, is the largest of the three projects. TMC supports the project as described in the DOJ First Draft and proposes only minor adjustments to the milestone definitions and reporting requirements. Specifically, TMC's redline proposes that the interim milestones be stated in terms of measurable outcomes (e.g., linear feet of stream-bank stabilized, acres of riparian vegetation replanted, number of fish-passage structures installed) rather than the date-based milestones set forth in the DOJ First Draft, in order to provide clearer metrics for measuring project progress and to allow flexibility in sequencing the work.

Battle Mountain Community Drinking Water Improvement Project (Nevada) — $3,500,000. This SEP involves an upgrade to the municipal water treatment facility serving the community of Battle Mountain, Lander County, Nevada, which is located approximately 14 miles from the Bonanza Creek Mine. TMC supports this project and requests only limited flexibility in the project design specifications, to allow TMC and its contractors to optimize the treatment technology selection based on updated source-water characterization data that TMC expects to receive in the first quarter of 2025.

Institute Community Air Quality Monitoring Network (West Virginia) — $3,000,000. This SEP involves the installation and operation of six ambient air quality monitoring stations in the community of Institute, West Virginia, adjacent to the Kanawha Bend Chemical Plant, for a period of ten years. TMC supports this project and proposes clarifications regarding the allocation of ongoing operational and maintenance costs after the initial 10-year term. Specifically, TMC requests that the Consent Decree make clear that TMC's financial obligation with respect to this SEP terminates at the conclusion of the 10-year operational period and that any continuation of the monitoring network beyond that period will be the responsibility of the applicable state or local government entity.

TMC's redline also includes proposed revisions to the general SEP completion criteria and reporting requirements set forth in the DOJ First Draft, to ensure consistency with the project-specific terms described above.

F. Stipulated Penalty Provisions

The DOJ First Draft establishes a tiered stipulated penalty structure for violations of the Consent Decree, consisting of $1,500 per day per violation for the first 30 days of noncompliance, $3,000 per day per violation for days 31 through 60, and $5,500 per day per violation for each day of noncompliance thereafter. TMC's redline proposes several modifications to the stipulated penalty provisions, which TMC believes are necessary to ensure that the penalty structure is fair, reasonable, and consistent with the remedial objectives of the Consent Decree.

TMC's principal proposed revisions to the stipulated penalty provisions include: (i) the incorporation of reasonable cure periods (ranging from 10 to 30 days, depending on the nature of the obligation) before stipulated penalties begin to accrue, to allow the Settling Defendants an opportunity to correct inadvertent or minor noncompliance without incurring disproportionate penalties; (ii) the inclusion of safe-harbor provisions for good-faith compliance efforts, such that stipulated penalties do not accrue where the Settling Defendants have made demonstrable, timely, and diligent efforts to comply with the relevant obligation; (iii) the imposition of an aggregate cap on stipulated penalties in any 12-month period, to prevent the accumulation of penalties that could impair the Settling Defendants' ability to fund ongoing remediation; and (iv) clarification that stipulated penalties do not accrue during periods of force majeure (as defined in the Consent Decree) or while a matter is pending under the dispute resolution provisions.

A detailed memorandum setting forth TMC's positions on the stipulated penalty provisions, including the legal and policy bases for the proposed revisions, is forthcoming and will be transmitted under separate cover in advance of any meeting between the parties.

G. Force Majeure and Excusable Delay

TMC proposes expansions to the definition of qualifying force majeure events set forth in Section XVIII of the DOJ First Draft. While TMC does not object to the standard EPA force majeure provision as a baseline, TMC believes that the DOJ First Draft's definition does not adequately address certain categories of events that are beyond the reasonable control of the Settling Defendants and that could materially impair the Settling Defendants' ability to comply with the Consent Decree. TMC's proposed additions to the definition of force majeure include, among others: labor disputes or work stoppages not caused by the Settling Defendants; supply-chain disruptions affecting the availability of critical remediation materials or equipment; permitting delays caused by federal, state, or local regulatory agencies beyond the Settling Defendants' control; and unusually severe weather conditions or natural disasters.

In addition, TMC proposes that the DOJ First Draft's requirement for written notice of a force majeure event within 15 calendar days of the Settling Defendants' knowledge of the event be modified to account for situations where the occurrence or scope of a force majeure event is not immediately apparent. TMC's redline proposes that written notice be provided within 15 calendar days of the date on which the Settling Defendants first knew, or reasonably should have known, of the force majeure event and its impact on compliance, with a provision for supplemental notice as additional information becomes available.

Finally, TMC proposes that the burden-of-proof provisions applicable to force majeure claims be clarified to provide that the Settling Defendants bear the burden of demonstrating the occurrence of the qualifying event and the causal connection between the event and the claimed delay, but that once such a showing is made, the burden shifts to the United States to demonstrate that the delay was not excusable.

H. Dispute Resolution Mechanism

The DOJ First Draft provides for a three-tier dispute resolution mechanism consisting of: (i) informal negotiation between the parties for a period of 30 calendar days; (ii) a formal written decision by EPA, to be issued within 30 calendar days after the conclusion of informal negotiation; and (iii) judicial review of the EPA decision by petition to the Court within 30 calendar days of the EPA decision. TMC accepts the general three-tier structure but proposes several modifications to ensure that the dispute resolution mechanism provides a fair and efficient forum for the resolution of disputes arising under the Consent Decree.

First, TMC proposes that the standard of judicial review applicable to EPA decisions under the dispute resolution mechanism be de novo, rather than the arbitrary-and-capricious standard set forth in the DOJ First Draft. TMC recognizes that EPA's consent-decree model language provides for an arbitrary-and-capricious standard for certain categories of disputes, but TMC believes that de novo review is appropriate in this case, particularly for disputes involving substantial financial obligations or disputes that could materially affect the scope or duration of the remediation.

Second, TMC proposes that the burden of proof in judicial proceedings under the dispute resolution mechanism be allocated in a manner consistent with ordinary civil litigation practice, rather than the allocation set forth in the DOJ First Draft, which places the burden on the Settling Defendants for all categories of disputes.

Third, TMC proposes that the timelines for each tier of the dispute resolution process be extended for disputes involving complex technical issues — specifically, that the informal negotiation period be extended from 30 to 60 days and the EPA decision period from 30 to 60 days for disputes that the parties agree involve significant technical complexity.

Fourth, TMC requests the addition of a technical-expert panel option for disputes involving remedy performance standards, completion criteria, or other matters requiring specialized scientific or engineering expertise. TMC proposes that such a panel consist of three qualified experts — one selected by each party and one selected by agreement of the party-appointed experts — and that the panel's determination be binding on the parties, subject to judicial review on limited grounds.

I. Financial Assurance

TMC accepts the DOJ First Draft's requirement that the Settling Defendants provide financial assurance in the total amount of $245.0 million to guarantee the performance of the remediation obligations under the Consent Decree. TMC proposes that the financial assurance be structured as follows:

(i) A surety bond in the amount of $165,000,000 issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934), an admitted surety in all applicable jurisdictions with an A.M. Best rating of A+ (Superior), XV; and

(ii) A remediation trust fund in the amount of $80,000,000, to be established and maintained with Larchfield Trust Company, N.A., a nationally chartered trust company, pursuant to a trust agreement to be negotiated among the parties and approved by the Court.

TMC's redline proposes revisions to several aspects of the financial assurance provisions, including: (a) the annual adjustment mechanism, which TMC proposes should be tied to the Consumer Price Index for All Urban Consumers (CPI-U) rather than an arbitrary percentage escalator; (b) the categories of acceptable financial assurance instruments, to allow TMC flexibility to substitute instruments (e.g., letters of credit, corporate guarantees meeting specified financial tests) upon prior notice to and approval by EPA; and (c) the conditions for reduction or release of financial assurance as remediation milestones are achieved at individual sites, to ensure that TMC is not required to maintain the full $245.0 million in financial assurance after substantial remediation obligations have been satisfied.

TMC notes that the annual premium for the surety bond at the currently quoted rate of 1.85% of face value amounts to approximately $3,052,500 per year, which represents a significant ongoing cost over the life of the Consent Decree. TMC requests that the financial assurance provisions be structured to allow for timely reductions as work progresses, so that this cost does not remain at its initial level for the full duration of the decree.

J. Independent Monitor Provisions

TMC accepts the DOJ First Draft's requirement for the appointment of an independent environmental monitor to conduct quarterly compliance audits and prepare annual public reports on the status of the remediation and the Settling Defendants' compliance with the Consent Decree. TMC proposes Verdant Analytics, Inc. (Dr. Kamal Osei, Senior Managing Director) as the independent monitor, subject to the approval of the Court and the United States. Dr. Osei has more than 25 years of experience in environmental compliance monitoring and has served as an independent monitor or consent-decree consultant in connection with several major federal and state enforcement actions, including three prior CERCLA/RCRA consent decrees.

The estimated cost of the independent monitor over a five-year initial term is approximately $4.8 million (approximately $960,000 per year), which TMC proposes to bear in accordance with the cost allocation provisions of the Consent Decree. TMC's redline proposes revisions to the monitor provisions in several respects:

(a) Scope. TMC proposes that the monitor's scope be limited to compliance monitoring and public reporting and that the monitor not be authorized to direct or supervise the Settling Defendants' remediation activities, which should remain the responsibility of the Settling Defendants and their contractors, subject to EPA oversight.

(b) Access Limitations. TMC proposes that the monitor's access to the Settling Defendants' facilities and records be subject to reasonable limitations to protect confidential business information ("CBI"), trade secrets, and attorney-client privileged communications. Specifically, TMC proposes that the Consent Decree include a CBI protocol governing the monitor's handling of sensitive business and financial information.

(c) Cost Allocation. TMC proposes that the Settling Defendants' obligation to bear the costs of the monitor be subject to a reasonable annual cap, with any costs in excess of the cap to be borne by the United States.

(d) Term Limitations. TMC proposes that the initial term of the monitor be five years, with renewal for additional terms only upon a showing by the United States that continued monitoring is necessary, subject to Court approval.

K. Termination Provisions

TMC proposes that the termination provisions of the Consent Decree be revised to allow for site-by-site termination of the decree's requirements upon certification of completion by EPA and the independent monitor. As currently drafted, the DOJ First Draft contemplates that the Consent Decree will remain in effect until all remediation obligations at all four sites have been completed, with a single five-year post-construction monitoring period commencing upon completion of remedial construction at the last site. TMC believes that this approach is inequitable and potentially results in the indefinite prolongation of the decree's requirements with respect to sites where remediation has been completed years in advance of the last site.

TMC's redline proposes that the five-year post-construction monitoring period run from the date of completion of remedial construction at each individual site, rather than from the date of completion at the last site. Under this approach, the Consent Decree would terminate with respect to a given site once EPA and the independent monitor have certified that: (i) all remedial construction at the site has been completed in accordance with the approved remedy; (ii) the five-year post-construction monitoring period has elapsed without a material exceedance of applicable performance standards; and (iii) any applicable SEP associated with the site has been completed.

TMC further proposes that the Consent Decree include objective, quantitative criteria for certification of completion — including specific water quality benchmarks, soil cleanup levels, and institutional control requirements — to provide certainty to the Settling Defendants and to avoid disputes regarding the meaning of "completion" at each site.

L. Migratory Bird Treaty Act (Bonanza Creek)

TMC's redline addresses the Migratory Bird Treaty Act ("MBTA") provisions set forth in the DOJ First Draft with respect to the Bonanza Creek Mine. TMC acknowledges that 17 documented avian mortalities occurred at the Bonanza Creek solution ponds during the period from 2021 through 2023, as documented by the U.S. Fish and Wildlife Service. TMC takes these incidents seriously and has already implemented several measures to reduce avian exposure to the solution ponds, including the installation of wildlife-exclusion netting over two of the three solution ponds and the deployment of avian deterrent systems (including visual and auditory deterrents) at the remaining pond.

TMC proposes that the MBTA-related obligations under the Consent Decree be addressed through the specification of operational changes and best management practices — including the completion of wildlife-exclusion netting on all solution ponds, the maintenance and periodic upgrade of avian deterrent systems, and a program of avian monitoring and reporting — rather than through the imposition of additional penalty provisions in the Consent Decree. TMC further requests that the Consent Decree include a provision acknowledging that the Settling Defendants' compliance with the MBTA-related requirements of the Consent Decree satisfies the Settling Defendants' obligations under the MBTA with respect to the Bonanza Creek solution ponds for the duration of the decree.

III. AGGREGATE FINANCIAL SUMMARY

For the convenience of the reviewing parties, the following table summarizes the aggregate financial profile of the Consent Decree as reflected in TMC's proposed revisions:

\ TMC's proposed Ridgecrest remediation cost reflects Pinnacle Creek Environmental's estimate of $187.5 million (NPV $127.4 million). The DOJ First Draft reflects EPA's estimate of $224.0 million. The $198.6 million figure shown represents a blended estimate for illustrative purposes; the final figure is subject to negotiation. Total remediation NPV includes Ridgecrest at TMC's estimate. \\ Reflects Ridgecrest at TMC's NPV estimate of $127.4 million. \\\ Grand total NPV/cash equivalent is approximately $311.5 million when including the penalty, past costs, SEPs, and monitor on a non-discounted basis.

TMC notes for context that as of the third quarter of fiscal year 2024, TMC maintained an environmental remediation reserve of C$340.0 million (approximately US$251.4 million at the prevailing exchange rate of C$1.00 = US$0.7394). TMC is committed to revising its reserves as appropriate upon finalization of the Consent Decree, in consultation with its auditors and in accordance with applicable accounting standards (IFRS).

With respect to TMC's financial capacity to perform the obligations contemplated by the Consent Decree, TMC respectfully notes the following: for fiscal year 2023, TMC reported consolidated revenue of C$4.82 billion (approximately US$3.56 billion), EBITDA of C$1.14 billion (approximately US$843 million), and as of the date of this letter, TMC's market capitalization is approximately C$7.6 billion. While the aggregate obligations under the Consent Decree are substantial, TMC has the financial capacity and the corporate commitment to fund the remediation and other obligations set forth in the decree.

TMC further notes that the financial assurance package described in Section II.I above — consisting of a $165.0 million surety bond and an $80.0 million remediation trust fund, totaling $245.0 million — provides substantial additional assurance to the United States and the State co-plaintiffs that the remediation will be completed even in the event of unforeseen financial difficulties.

IV. STATE CO-PLAINTIFF COORDINATION

TMC's redline includes provisions addressing the respective roles and interests of the three state co-plaintiffs and/or intervenors in this action: the Montana Department of Environmental Quality ("Montana DEQ"), which has regulatory jurisdiction over the Ridgecrest and Gallatin Chemical Works sites; the Nevada Division of Environmental Protection ("Nevada DEP"), which has regulatory jurisdiction over the Bonanza Creek Mine; and the West Virginia Department of Environmental Protection ("West Virginia DEP"), which has regulatory jurisdiction over the Kanawha Bend Chemical Plant.

TMC's local counsel have reviewed the state-specific provisions of the DOJ First Draft and contributed to the proposed revisions reflected in the enclosed redline. Russell Dane of Holcroft, Dane & Weiss LLP (Montana) reviewed and commented on the provisions relating to the Ridgecrest and Gallatin sites. Denise Quartaro of sagebrush Law Group, PLLC (Nevada) reviewed and commented on the provisions relating to the Bonanza Creek site. Nathan Tully of Baxter, Tully & Crane PLLC (West Virginia) reviewed and commented on the provisions relating to the Kanawha Bend site.

TMC respectfully requests that the Consent Decree address the relationship between federal consent-decree obligations and state regulatory obligations — including state-issued permits, Montana Pollutant Discharge Elimination System ("MPDES") and National Pollutant Discharge Elimination System ("NPDES") compliance requirements, state corrective-action orders, and state financial-assurance requirements — in a manner that avoids duplicative or conflicting requirements. TMC's redline includes proposed language intended to ensure coordination between the federal and state programs and to provide that compliance with the Consent Decree constitutes compliance with corresponding state requirements to the greatest extent permissible under applicable law. TMC recognizes that this coordination will require the agreement of the state co-plaintiffs and welcomes discussion on this topic.

V. ENCLOSURES

Enclosed with this letter, please find the following:

Enclosure 1: TMC Revised Draft Consent Decree (Redline to DOJ First Draft of November 8, 2024) — full text in tracked-changes (redline) format, reflecting all proposed revisions by the Settling Defendants.

Enclosure 2: Table of Proposed Revisions with Cross-References to Consent Decree Sections — a summary chart identifying each proposed change, the relevant section(s) of the Consent Decree, and a brief rationale for the proposed revision.

VI. REQUEST FOR MEETING

TMC respectfully requests an in-person or video conference meeting with counsel for the Department of Justice and the Environmental Protection Agency at the earliest mutually convenient date to discuss the proposed revisions set forth in the enclosed redline and to work toward a substantially agreed text. TMC proposes that the meeting be scheduled during the period from January 6 through January 17, 2025, and that it be held either at the offices of the Department of Justice in Washington, D.C., or by secure video conference, at the preference of the government.

TMC suggests that it may be productive to include the following individuals in the meeting, in addition to the undersigned and TMC's core legal team: EPA Regional coordinators Dr. Samuel Tesfaye (Region 8, Denver) and Jennifer Whitfield (Region 9, San Francisco), and counsel for the state co-plaintiffs — 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. TMC is prepared to accommodate whatever format and attendance the government believes will be most productive.

TMC reaffirms its commitment to good-faith negotiations and its desire to reach a final, agreed text of the Consent Decree as expeditiously as practicable, consistent with the Tolling Agreement that remains in effect through December 31, 2025. TMC believes that substantial progress can be made in the near term and stands ready to devote the resources necessary to achieve that objective.

VII. RESERVATION OF RIGHTS

TMC expressly reserves all rights, claims, defenses, and privileges available to it under applicable law, including without limitation the attorney-client privilege and the work-product doctrine. Nothing in this letter or in the enclosed revised draft Consent Decree shall be construed as an admission of liability, causation, or the existence or extent of any violation of any federal or state environmental statute, regulation, or permit condition. The submission of the enclosed redline is made solely for purposes of facilitating settlement discussions and is without prejudice to TMC's right to assert any defense or position in the event that this matter proceeds to litigation.

The parties acknowledge that all settlement discussions and communications, including this letter and its enclosures, are subject to Federal Rule of Evidence 408, and that neither this letter nor the enclosed redline may be offered or received in evidence in any proceeding for the purpose of proving or disproving liability or the amount of any claim.

\ \ \*

We appreciate the government's continued engagement in these discussions and look forward to your response. Should you have any questions regarding the enclosed redline or the summary set forth in this letter, please do not hesitate to contact me directly at (212) 558-7234 or at hwexford@calderwoodharkness.com, or my colleague Beatrice Holloway at (212) 558-7291.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Harrison Wexford Partner

cc (via electronic mail):

Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Douglas K. Prennell, Chief Executive Officer, Torchlight Mining Corp. Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp. Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp. Katherine Rowe-Halpern, Senior Counsel, DOJ Environment and Natural Resources Division 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 Beatrice Holloway, Partner, Calderwood & Harkness LLP Elliot Nguyen, Associate, Calderwood & Harkness LLP Grace Nakamura, Associate, Calderwood & Harkness LLP Russell Dane, Holcroft, Dane & Weiss LLP Denise Quartaro, sagebrush Law Group, PLLC Nathan Tully, Baxter, Tully & Crane PLLC Dr. Astrid Bergmann, P.E., Pinnacle Creek Environmental, LLC

Encl. (2)

Site	TMC Proposed Penalty
Ridgecrest Copper-Molybdenum 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
Category	Nominal Dollars	NPV at 3%
Remediation — Ridgecrest (subject to negotiation)	$198,600,000 *	$127,400,000 *
Remediation — Gallatin Chemical Works	$42,800,000	$34,100,000
Remediation — Bonanza Creek Mine	$63,200,000	$47,100,000
Remediation — Kanawha Bend Chemical Plant	$38,900,000	$29,000,000
Total Remediation	$343,500,000	$237,600,000
Civil Penalty	$31,500,000	$31,500,000
EPA Past-Costs Reimbursement	$18,100,000	$18,100,000
Supplemental Environmental Projects	$12,000,000	$12,000,000
Independent Monitor (5-Year Estimate)	$4,800,000	$4,800,000
Grand Total	~$409,900,000	~$304,000,000 *

CONFIDENTIAL — SETTLEMENT COMMUNICATION PURSUANT TO FEDERAL RULE OF EVIDENCE 408
CALDERWOOD & HARKNESS LLP Counsellors at Law
One Liberty Plaza, 44th Floor 165 Broadway New York, New York 10006-1404
December 16, 2024
Harrison Wexford Partner Direct Dial: (212) 558-7234
Email: hwexford@calderwoodharkness.com
Facsimile: (212) 558-7001 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, Esq. Senior Attorney, Office of Enforcement and Compliance Assurance U.S. Environmental Protection Agency William Jefferson Clinton Federal Building 1200 Pennsylvania Avenue NW, MC 2248A Washington, D.C. 20460
Re: *United States of America and State of Montana v. Torchlight Mining Corp., et al.*, Civil Action No. 9:24-cv-00087-DWM (D. Mont.) — Transmittal of Torchlight Mining Corp. Revised Draft Consent Decree (Redline to DOJ First Draft of November 8, 2024)
Dear Mr. Orenstein and Ms. Coulson:
This firm represents Torchlight Mining Corp. ("TMC"), a corporation organized under the laws of British Columbia, Canada, and its U.S. subsidiaries — Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC (collectively with TMC, the "Settling Defendants") — in connection with the above-captioned enforcement action. We write to transmit, under separate cover, TMC's revised draft Consent Decree in redline/tracked-changes format, marked against the First Draft Consent Decree circulated by the Department of Justice on November 8, 2024 (the "DOJ First Draft").
The revisions set forth in the enclosed redline reflect the collaborative input of TMC's management, including Chief Executive Officer Douglas K. Prennell, General Counsel Miriam Soo-Hwan Park, Vice President of Environmental Health & Safety Gareth Linford, and Chief Financial Officer Carolyn Bracebridge. In addition, the revisions incorporate the technical analysis and recommendations of TMC's environmental remediation consultant, Pinnacle Creek Environmental, LLC (Dr. Astrid Bergmann, P.E., Principal), and the financial analysis prepared by TMC's financial advisor, Northspire Capital Markets, Inc. TMC's local counsel in the three affected states — Holcroft, Dane & Weiss LLP (Montana), sagebrush Law Group, PLLC (Nevada), and Baxter, Tully & Crane PLLC (West Virginia) — have also reviewed and contributed to the state-specific provisions of the redline.
This letter summarizes the principal areas of proposed changes for ease of reference and to facilitate productive discussion among the parties. The summary that follows is organized by subject matter and is intended to complement — not substitute for — a careful review of the enclosed redline itself. All capitalized terms not otherwise defined in this letter shall have the meanings ascribed to them in the DOJ First Draft.
I. BACKGROUND AND PROCEDURAL CONTEXT
As the parties are well aware, this action was commenced on January 18, 2024, when the United States, acting through the Department of Justice at the request of the U.S. Environmental Protection Agency, filed its Complaint for Injunctive Relief and Civil Penalties pursuant to Sections 104, 106, and 107 of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9604, 9606, 9607; Sections 3004, 3008, and 3013 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6924, 6928, 6934; and Sections 301, 309, and 402 of the Clean Water Act ("CWA"), 33 U.S.C. §§ 1311, 1319, 1342, together with the State of Montana, in the United States District Court for the District of Montana, Missoula Division. The Complaint asserts claims arising from conditions at four sites across three states: the Ridgecrest Copper-Molybdenum Mine (Anaconda-Deer Lodge County, Montana), the Gallatin Chemical Works (Belgrade, Gallatin County, Montana), the Bonanza Creek Mine (Lander County, Nevada), and the Kanawha Bend Chemical Plant (Institute, Kanawha County, West Virginia).
TMC filed its Answer on March 5, 2024, generally denying the material allegations of the Complaint while acknowledging certain jurisdictional facts and the existence of historical operations at each of the four sites. On April 22, 2024, the parties executed a Tolling Agreement, which was approved by the Court, tolling the applicable statutes of limitations through December 31, 2025, to permit settlement negotiations. On May 15, 2024, the Court entered an Order referring the matter to Magistrate Judge Clara Finnegan for mediation. Following a series of mediation sessions conducted by Magistrate Judge Finnegan between May and July 2024, the parties reached an agreement in principle on a consent-decree framework on July 30, 2024, which was memorialized in a term sheet initialed by all parties and filed under seal with the Court.
Calderwood & Harkness LLP's engagement in this matter commenced on October 21, 2024, when TMC retained this firm to serve as lead outside counsel for the consent-decree negotiation and finalization process, replacing TMC's prior environmental counsel, Whitfield, Palmer & Goss LLP. We received and commenced internal review of the DOJ First Draft promptly upon its circulation on November 8, 2024. Over the subsequent five weeks, our team — including the undersigned, my colleague Beatrice Holloway (Partner), and Associates Elliot Nguyen and Grace Nakamura — undertook a comprehensive review of the DOJ First Draft in close consultation with TMC's management, Pinnacle Creek Environmental, Northspire Capital Markets, and each of the three local counsel firms. That process included the preparation of detailed annotated comments, the compilation of a consolidated internal redline, technical consultations regarding remediation cost estimates and remedy design, and financial modeling of the aggregate obligations and payment schedules set forth in the DOJ First Draft.
The enclosed redline and the summary that follows represent the product of that review process. TMC has approached this exercise in good faith and with the objective of reaching a final, agreed text that is both protective of human health and the environment and fair and workable from the perspective of the Settling Defendants.
II. SUMMARY OF PRINCIPAL PROPOSED REVISIONS
The following subsections identify and briefly describe the principal categories of proposed revisions reflected in the enclosed redline. For the convenience of the reviewing parties, Enclosure 2 provides a detailed Table of Proposed Revisions with cross-references to the specific sections of the Consent Decree affected by each proposed change, together with a brief rationale for each revision.
A. Remediation Cost and Scope — Ridgecrest Copper-Molybdenum Mine
The Ridgecrest site represents the largest single remediation obligation addressed in the Consent Decree. The DOJ First Draft incorporates EPA's estimated remediation cost for the Ridgecrest site of $224.0 million in nominal dollars over a projected 30-year remediation timeline. TMC's environmental remediation consultant, Pinnacle Creek Environmental, LLC, has independently estimated the cost of the Ridgecrest remediation at approximately $187.5 million in nominal dollars over the same 30-year period, which translates to a net present value of approximately $127.4 million at a 3% discount rate.
TMC recognizes that a gap exists between the government's cost estimate and TMC's estimate, and TMC is prepared to engage in substantive discussions regarding a negotiated remediation cost figure. However, TMC believes that the EPA estimate, as reflected in the DOJ First Draft, does not adequately account for several significant factors. First, TMC has conducted substantial closure and reclamation work at the Ridgecrest site since active mining operations ceased in December 2019, including the dewatering and stabilization of the West Tailings Impoundment, the installation of a geosynthetic liner on the East Tailings Impoundment, and the construction of approximately 3.2 miles of diversion channels to redirect clean stormwater around disturbed areas. Second, the EPA estimate does not appear to provide appropriate credit for the $14.3 million in EPA removal actions already completed at the Ridgecrest site between January 2021 and May 2023, which addressed the most acute risks associated with acid mine drainage discharge to Flint Creek.
The specific contaminants of concern at the Ridgecrest site are well documented and include acid mine drainage with dissolved copper concentrations averaging 47 mg/L (compared to the Montana ambient water quality standard of 0.0087 mg/L for aquatic life), as well as elevated concentrations of molybdenum, selenium, and sulfate in surface water and groundwater, and ongoing tailings impoundment seepage to Flint Creek. TMC's redline proposes revised remedy components and cost allocation language — particularly with respect to Operable Unit 1 (the tailings impoundments and associated groundwater plume) — that would bring the Ridgecrest remediation obligation closer to TMC's estimate while remaining fully protective of human health and the environment, consistent with the National Contingency Plan.
TMC is aware that the government's technical expert, Cascade Geosciences, Inc. (Dr. Patricia Voss, Principal Geochemist), and TMC's consultant, Pinnacle Creek Environmental (Dr. Astrid Bergmann), hold differing views regarding the appropriate scope of the remedy for OU-1, particularly with respect to the necessity and extent of groundwater extraction and treatment, the design of the reactive barrier wall along the southern boundary of the tailings complex, and the duration and intensity of post-closure water quality monitoring. TMC believes that these technical differences can be narrowed through direct engagement between the respective technical teams and proposes that such engagement occur in advance of or concurrent with the broader legal negotiations.
B. Remediation Schedules — Gallatin Chemical Works, Bonanza Creek Mine, and Kanawha Bend Chemical Plant
TMC's redline proposes revisions to the remediation schedules for the remaining three sites addressed in the Consent Decree, as follows:
Gallatin Chemical Works (Belgrade, Gallatin County, Montana). The DOJ First Draft establishes a deadline for submission of the Corrective Measures Study ("CMS") that TMC believes is not achievable given the complexity of the site. The Gallatin Chemical Works facility encompasses three Solid Waste Management Units ("SWMUs"), each with distinct contaminant profiles and remediation challenges. The primary contaminant of concern is carbon disulfide ("CS₂") in groundwater, which has been detected at concentrations as high as 890 µg/L — nearly ninety times the applicable Maximum Contaminant Level of 10 µg/L. In addition, volatile organic compound ("VOC") contamination has been identified in subsurface soils across approximately 22 acres of the facility. TMC's estimated remediation cost for the Gallatin Chemical Works is approximately $42.8 million in nominal dollars over a 15-year period, corresponding to a net present value of approximately $34.1 million at a 3% discount rate. TMC's redline proposes a CMS submission deadline that provides an additional 180 days beyond the DOJ First Draft timeline, with corresponding adjustments to subsequent milestones, to allow for the completion of additional characterization work that TMC believes is necessary to support a sound CMS.
Bonanza Creek Mine (Lander County, Nevada). TMC acknowledges the three documented heap-leach pad releases at the Bonanza Creek Mine that occurred on March 17, 2022, August 9, 2022, and January 22, 2023, and the associated cyanide and mercury contamination that resulted from those releases. TMC's redline proposes revisions to the liner repair and containment timeline for the heap-leach facilities to reflect realistic phasing of the remedial work given that active mining operations continue at the Bonanza Creek site. TMC's estimated remediation cost for the Bonanza Creek Mine is approximately $63.2 million in nominal dollars over a 20-year period, corresponding to a net present value of approximately $47.1 million at a 3% discount rate. The proposed revisions seek to integrate remediation milestones with operational schedules in a manner that minimizes disruption to ongoing operations while ensuring that remediation proceeds on a timely and protective basis.
Kanawha Bend Chemical Plant (Institute, Kanawha County, West Virginia). TMC's redline proposes adjustments to the interim stabilization deadline for the Kanawha Bend site. The site presents significant technical challenges, including the presence of dense non-aqueous phase liquid ("DNAPL") in a fractured bedrock aquifer, residual sulfuric acid contamination with pH values measured as low as 1.8 in certain monitoring wells, and heavy metal contamination in soils with lead concentrations measured as high as 4,200 mg/kg and arsenic concentrations as high as 890 mg/kg. TMC's estimated remediation cost for the Kanawha Bend site is approximately $38.9 million in nominal dollars over a 20-year period, corresponding to a net present value of approximately $29.0 million at a 3% discount rate. The proposed revisions to the interim stabilization deadline reflect the inherent complexity of characterizing and stabilizing DNAPL in fractured rock and the need for additional pilot testing of in-situ treatment technologies before final remedy design can be completed.
C. Civil Penalty Amount and Payment Schedule
The DOJ First Draft proposes a total civil penalty that exceeds the amount discussed by the parties during the mediation process and reflected in the July 30, 2024 framework agreement. TMC's redline proposes a total civil penalty of $31.5 million, allocated among the four sites as follows:
TMC proposes that the civil penalty be paid in quarterly installments over a 36-month period following entry of the Consent Decree, structured as follows: (i) twenty-five percent ($7,875,000) payable within 30 calendar days of the date of entry of the Consent Decree; (ii) twenty-five percent ($7,875,000) payable on the first anniversary of the date of entry; (iii) twenty-five percent ($7,875,000) payable on the second anniversary of the date of entry; and (iv) twenty-five percent ($7,875,000) payable on the third anniversary of the date of entry. TMC's redline incorporates appropriate interest accrual provisions for unpaid installments.
TMC's proposed penalty calculations are consistent with EPA's Clean Water Act Section 309(g) Civil Penalty Policy and EPA's RCRA Civil Penalty Policy, as applicable to the respective statutory violations alleged at each site. The proposed penalty amount takes into account TMC's demonstrated cooperative posture throughout the investigative and enforcement process, including TMC's voluntary disclosure of the Bonanza Creek heap-leach releases, TMC's immediate implementation of interim containment measures at each site, and TMC's ability to pay in the context of the aggregate remediation obligations that will be imposed under the Consent Decree.
D. EPA Past-Costs Reimbursement (CERCLA § 107)
TMC does not dispute its obligation to reimburse the Environmental Protection Agency for past response costs incurred in connection with the Ridgecrest and Kanawha Bend sites. TMC acknowledges that EPA's documented past costs total approximately $18.1 million, consisting of $14.3 million for removal actions at the Ridgecrest site conducted between January 2021 and May 2023, and $3.8 million for emergency response actions at the Kanawha Bend site following the June 14, 2020 sulfuric acid release incident.
TMC's proposed revisions to the past-costs reimbursement provisions are limited in scope and address two matters: first, the payment timeline, which TMC proposes should be aligned with the civil penalty installment schedule to manage the aggregate cash flow impact on the Settling Defendants during the initial years of decree implementation; and second, provisions for the verification of cost documentation, including TMC's right to review and audit EPA's supporting cost records to confirm the accuracy and allocability of the claimed amounts prior to payment. TMC emphasizes that these proposed revisions do not reflect any dispute regarding the validity or reasonableness of EPA's past costs, but rather are intended to ensure transparency and orderly administration.
E. Supplemental Environmental Projects (SEPs)
TMC generally accepts the concept and aggregate value of the three Supplemental Environmental Projects set forth in the DOJ First Draft, totaling $12.0 million. TMC views these projects as meaningful contributions to the affected communities and ecosystems and is committed to their successful implementation. TMC's redline proposes certain targeted revisions to the SEP provisions, as described below:
Flint Creek Watershed Restoration Project (Montana) — $5,500,000. This SEP, which involves stream-bank stabilization, riparian replanting, and fish-passage improvements along approximately 12 miles of Flint Creek downstream of the Ridgecrest site, is the largest of the three projects. TMC supports the project as described in the DOJ First Draft and proposes only minor adjustments to the milestone definitions and reporting requirements. Specifically, TMC's redline proposes that the interim milestones be stated in terms of measurable outcomes (e.g., linear feet of stream-bank stabilized, acres of riparian vegetation replanted, number of fish-passage structures installed) rather than the date-based milestones set forth in the DOJ First Draft, in order to provide clearer metrics for measuring project progress and to allow flexibility in sequencing the work.
Battle Mountain Community Drinking Water Improvement Project (Nevada) — $3,500,000. This SEP involves an upgrade to the municipal water treatment facility serving the community of Battle Mountain, Lander County, Nevada, which is located approximately 14 miles from the Bonanza Creek Mine. TMC supports this project and requests only limited flexibility in the project design specifications, to allow TMC and its contractors to optimize the treatment technology selection based on updated source-water characterization data that TMC expects to receive in the first quarter of 2025.
Institute Community Air Quality Monitoring Network (West Virginia) — $3,000,000. This SEP involves the installation and operation of six ambient air quality monitoring stations in the community of Institute, West Virginia, adjacent to the Kanawha Bend Chemical Plant, for a period of ten years. TMC supports this project and proposes clarifications regarding the allocation of ongoing operational and maintenance costs after the initial 10-year term. Specifically, TMC requests that the Consent Decree make clear that TMC's financial obligation with respect to this SEP terminates at the conclusion of the 10-year operational period and that any continuation of the monitoring network beyond that period will be the responsibility of the applicable state or local government entity.
TMC's redline also includes proposed revisions to the general SEP completion criteria and reporting requirements set forth in the DOJ First Draft, to ensure consistency with the project-specific terms described above.
F. Stipulated Penalty Provisions
The DOJ First Draft establishes a tiered stipulated penalty structure for violations of the Consent Decree, consisting of $1,500 per day per violation for the first 30 days of noncompliance, $3,000 per day per violation for days 31 through 60, and $5,500 per day per violation for each day of noncompliance thereafter. TMC's redline proposes several modifications to the stipulated penalty provisions, which TMC believes are necessary to ensure that the penalty structure is fair, reasonable, and consistent with the remedial objectives of the Consent Decree.
TMC's principal proposed revisions to the stipulated penalty provisions include: (i) the incorporation of reasonable cure periods (ranging from 10 to 30 days, depending on the nature of the obligation) before stipulated penalties begin to accrue, to allow the Settling Defendants an opportunity to correct inadvertent or minor noncompliance without incurring disproportionate penalties; (ii) the inclusion of safe-harbor provisions for good-faith compliance efforts, such that stipulated penalties do not accrue where the Settling Defendants have made demonstrable, timely, and diligent efforts to comply with the relevant obligation; (iii) the imposition of an aggregate cap on stipulated penalties in any 12-month period, to prevent the accumulation of penalties that could impair the Settling Defendants' ability to fund ongoing remediation; and (iv) clarification that stipulated penalties do not accrue during periods of force majeure (as defined in the Consent Decree) or while a matter is pending under the dispute resolution provisions.
A detailed memorandum setting forth TMC's positions on the stipulated penalty provisions, including the legal and policy bases for the proposed revisions, is forthcoming and will be transmitted under separate cover in advance of any meeting between the parties.
G. Force Majeure and Excusable Delay
TMC proposes expansions to the definition of qualifying force majeure events set forth in Section XVIII of the DOJ First Draft. While TMC does not object to the standard EPA force majeure provision as a baseline, TMC believes that the DOJ First Draft's definition does not adequately address certain categories of events that are beyond the reasonable control of the Settling Defendants and that could materially impair the Settling Defendants' ability to comply with the Consent Decree. TMC's proposed additions to the definition of force majeure include, among others: labor disputes or work stoppages not caused by the Settling Defendants; supply-chain disruptions affecting the availability of critical remediation materials or equipment; permitting delays caused by federal, state, or local regulatory agencies beyond the Settling Defendants' control; and unusually severe weather conditions or natural disasters.
In addition, TMC proposes that the DOJ First Draft's requirement for written notice of a force majeure event within 15 calendar days of the Settling Defendants' knowledge of the event be modified to account for situations where the occurrence or scope of a force majeure event is not immediately apparent. TMC's redline proposes that written notice be provided within 15 calendar days of the date on which the Settling Defendants first knew, or reasonably should have known, of the force majeure event and its impact on compliance, with a provision for supplemental notice as additional information becomes available.
Finally, TMC proposes that the burden-of-proof provisions applicable to force majeure claims be clarified to provide that the Settling Defendants bear the burden of demonstrating the occurrence of the qualifying event and the causal connection between the event and the claimed delay, but that once such a showing is made, the burden shifts to the United States to demonstrate that the delay was not excusable.
H. Dispute Resolution Mechanism
The DOJ First Draft provides for a three-tier dispute resolution mechanism consisting of: (i) informal negotiation between the parties for a period of 30 calendar days; (ii) a formal written decision by EPA, to be issued within 30 calendar days after the conclusion of informal negotiation; and (iii) judicial review of the EPA decision by petition to the Court within 30 calendar days of the EPA decision. TMC accepts the general three-tier structure but proposes several modifications to ensure that the dispute resolution mechanism provides a fair and efficient forum for the resolution of disputes arising under the Consent Decree.
First, TMC proposes that the standard of judicial review applicable to EPA decisions under the dispute resolution mechanism be de novo, rather than the arbitrary-and-capricious standard set forth in the DOJ First Draft. TMC recognizes that EPA's consent-decree model language provides for an arbitrary-and-capricious standard for certain categories of disputes, but TMC believes that de novo review is appropriate in this case, particularly for disputes involving substantial financial obligations or disputes that could materially affect the scope or duration of the remediation.
Second, TMC proposes that the burden of proof in judicial proceedings under the dispute resolution mechanism be allocated in a manner consistent with ordinary civil litigation practice, rather than the allocation set forth in the DOJ First Draft, which places the burden on the Settling Defendants for all categories of disputes.
Third, TMC proposes that the timelines for each tier of the dispute resolution process be extended for disputes involving complex technical issues — specifically, that the informal negotiation period be extended from 30 to 60 days and the EPA decision period from 30 to 60 days for disputes that the parties agree involve significant technical complexity.
Fourth, TMC requests the addition of a technical-expert panel option for disputes involving remedy performance standards, completion criteria, or other matters requiring specialized scientific or engineering expertise. TMC proposes that such a panel consist of three qualified experts — one selected by each party and one selected by agreement of the party-appointed experts — and that the panel's determination be binding on the parties, subject to judicial review on limited grounds.
I. Financial Assurance
TMC accepts the DOJ First Draft's requirement that the Settling Defendants provide financial assurance in the total amount of $245.0 million to guarantee the performance of the remediation obligations under the Consent Decree. TMC proposes that the financial assurance be structured as follows:
(i) A surety bond in the amount of $165,000,000 issued by Ironbark Surety of America, Inc. (Bond No. ISA-ENV-2025-08934), an admitted surety in all applicable jurisdictions with an A.M. Best rating of A+ (Superior), XV; and
(ii) A remediation trust fund in the amount of $80,000,000, to be established and maintained with Larchfield Trust Company, N.A., a nationally chartered trust company, pursuant to a trust agreement to be negotiated among the parties and approved by the Court.
TMC's redline proposes revisions to several aspects of the financial assurance provisions, including: (a) the annual adjustment mechanism, which TMC proposes should be tied to the Consumer Price Index for All Urban Consumers (CPI-U) rather than an arbitrary percentage escalator; (b) the categories of acceptable financial assurance instruments, to allow TMC flexibility to substitute instruments (e.g., letters of credit, corporate guarantees meeting specified financial tests) upon prior notice to and approval by EPA; and (c) the conditions for reduction or release of financial assurance as remediation milestones are achieved at individual sites, to ensure that TMC is not required to maintain the full $245.0 million in financial assurance after substantial remediation obligations have been satisfied.
TMC notes that the annual premium for the surety bond at the currently quoted rate of 1.85% of face value amounts to approximately $3,052,500 per year, which represents a significant ongoing cost over the life of the Consent Decree. TMC requests that the financial assurance provisions be structured to allow for timely reductions as work progresses, so that this cost does not remain at its initial level for the full duration of the decree.
J. Independent Monitor Provisions
TMC accepts the DOJ First Draft's requirement for the appointment of an independent environmental monitor to conduct quarterly compliance audits and prepare annual public reports on the status of the remediation and the Settling Defendants' compliance with the Consent Decree. TMC proposes Verdant Analytics, Inc. (Dr. Kamal Osei, Senior Managing Director) as the independent monitor, subject to the approval of the Court and the United States. Dr. Osei has more than 25 years of experience in environmental compliance monitoring and has served as an independent monitor or consent-decree consultant in connection with several major federal and state enforcement actions, including three prior CERCLA/RCRA consent decrees.
The estimated cost of the independent monitor over a five-year initial term is approximately $4.8 million (approximately $960,000 per year), which TMC proposes to bear in accordance with the cost allocation provisions of the Consent Decree. TMC's redline proposes revisions to the monitor provisions in several respects:
(a) Scope. TMC proposes that the monitor's scope be limited to compliance monitoring and public reporting and that the monitor not be authorized to direct or supervise the Settling Defendants' remediation activities, which should remain the responsibility of the Settling Defendants and their contractors, subject to EPA oversight.
(b) Access Limitations. TMC proposes that the monitor's access to the Settling Defendants' facilities and records be subject to reasonable limitations to protect confidential business information ("CBI"), trade secrets, and attorney-client privileged communications. Specifically, TMC proposes that the Consent Decree include a CBI protocol governing the monitor's handling of sensitive business and financial information.
(c) Cost Allocation. TMC proposes that the Settling Defendants' obligation to bear the costs of the monitor be subject to a reasonable annual cap, with any costs in excess of the cap to be borne by the United States.
(d) Term Limitations. TMC proposes that the initial term of the monitor be five years, with renewal for additional terms only upon a showing by the United States that continued monitoring is necessary, subject to Court approval.
K. Termination Provisions
TMC proposes that the termination provisions of the Consent Decree be revised to allow for site-by-site termination of the decree's requirements upon certification of completion by EPA and the independent monitor. As currently drafted, the DOJ First Draft contemplates that the Consent Decree will remain in effect until all remediation obligations at all four sites have been completed, with a single five-year post-construction monitoring period commencing upon completion of remedial construction at the last site. TMC believes that this approach is inequitable and potentially results in the indefinite prolongation of the decree's requirements with respect to sites where remediation has been completed years in advance of the last site.
TMC's redline proposes that the five-year post-construction monitoring period run from the date of completion of remedial construction at each individual site, rather than from the date of completion at the last site. Under this approach, the Consent Decree would terminate with respect to a given site once EPA and the independent monitor have certified that: (i) all remedial construction at the site has been completed in accordance with the approved remedy; (ii) the five-year post-construction monitoring period has elapsed without a material exceedance of applicable performance standards; and (iii) any applicable SEP associated with the site has been completed.
TMC further proposes that the Consent Decree include objective, quantitative criteria for certification of completion — including specific water quality benchmarks, soil cleanup levels, and institutional control requirements — to provide certainty to the Settling Defendants and to avoid disputes regarding the meaning of "completion" at each site.
L. Migratory Bird Treaty Act (Bonanza Creek)
TMC's redline addresses the Migratory Bird Treaty Act ("MBTA") provisions set forth in the DOJ First Draft with respect to the Bonanza Creek Mine. TMC acknowledges that 17 documented avian mortalities occurred at the Bonanza Creek solution ponds during the period from 2021 through 2023, as documented by the U.S. Fish and Wildlife Service. TMC takes these incidents seriously and has already implemented several measures to reduce avian exposure to the solution ponds, including the installation of wildlife-exclusion netting over two of the three solution ponds and the deployment of avian deterrent systems (including visual and auditory deterrents) at the remaining pond.
TMC proposes that the MBTA-related obligations under the Consent Decree be addressed through the specification of operational changes and best management practices — including the completion of wildlife-exclusion netting on all solution ponds, the maintenance and periodic upgrade of avian deterrent systems, and a program of avian monitoring and reporting — rather than through the imposition of additional penalty provisions in the Consent Decree. TMC further requests that the Consent Decree include a provision acknowledging that the Settling Defendants' compliance with the MBTA-related requirements of the Consent Decree satisfies the Settling Defendants' obligations under the MBTA with respect to the Bonanza Creek solution ponds for the duration of the decree.
III. AGGREGATE FINANCIAL SUMMARY
For the convenience of the reviewing parties, the following table summarizes the aggregate financial profile of the Consent Decree as reflected in TMC's proposed revisions:
\ TMC's proposed Ridgecrest remediation cost reflects Pinnacle Creek Environmental's estimate of $187.5 million (NPV $127.4 million). The DOJ First Draft reflects EPA's estimate of $224.0 million. The $198.6 million figure shown represents a blended estimate for illustrative purposes; the final figure is subject to negotiation. Total remediation NPV includes Ridgecrest at TMC's estimate. \\ Reflects Ridgecrest at TMC's NPV estimate of $127.4 million. \\\ Grand total NPV/cash equivalent is approximately $311.5 million when including the penalty, past costs, SEPs, and monitor on a non-discounted basis.
TMC notes for context that as of the third quarter of fiscal year 2024, TMC maintained an environmental remediation reserve of C$340.0 million (approximately US$251.4 million at the prevailing exchange rate of C$1.00 = US$0.7394). TMC is committed to revising its reserves as appropriate upon finalization of the Consent Decree, in consultation with its auditors and in accordance with applicable accounting standards (IFRS).
With respect to TMC's financial capacity to perform the obligations contemplated by the Consent Decree, TMC respectfully notes the following: for fiscal year 2023, TMC reported consolidated revenue of C$4.82 billion (approximately US$3.56 billion), EBITDA of C$1.14 billion (approximately US$843 million), and as of the date of this letter, TMC's market capitalization is approximately C$7.6 billion. While the aggregate obligations under the Consent Decree are substantial, TMC has the financial capacity and the corporate commitment to fund the remediation and other obligations set forth in the decree.
TMC further notes that the financial assurance package described in Section II.I above — consisting of a $165.0 million surety bond and an $80.0 million remediation trust fund, totaling $245.0 million — provides substantial additional assurance to the United States and the State co-plaintiffs that the remediation will be completed even in the event of unforeseen financial difficulties.
IV. STATE CO-PLAINTIFF COORDINATION
TMC's redline includes provisions addressing the respective roles and interests of the three state co-plaintiffs and/or intervenors in this action: the Montana Department of Environmental Quality ("Montana DEQ"), which has regulatory jurisdiction over the Ridgecrest and Gallatin Chemical Works sites; the Nevada Division of Environmental Protection ("Nevada DEP"), which has regulatory jurisdiction over the Bonanza Creek Mine; and the West Virginia Department of Environmental Protection ("West Virginia DEP"), which has regulatory jurisdiction over the Kanawha Bend Chemical Plant.
TMC's local counsel have reviewed the state-specific provisions of the DOJ First Draft and contributed to the proposed revisions reflected in the enclosed redline. Russell Dane of Holcroft, Dane & Weiss LLP (Montana) reviewed and commented on the provisions relating to the Ridgecrest and Gallatin sites. Denise Quartaro of sagebrush Law Group, PLLC (Nevada) reviewed and commented on the provisions relating to the Bonanza Creek site. Nathan Tully of Baxter, Tully & Crane PLLC (West Virginia) reviewed and commented on the provisions relating to the Kanawha Bend site.
TMC respectfully requests that the Consent Decree address the relationship between federal consent-decree obligations and state regulatory obligations — including state-issued permits, Montana Pollutant Discharge Elimination System ("MPDES") and National Pollutant Discharge Elimination System ("NPDES") compliance requirements, state corrective-action orders, and state financial-assurance requirements — in a manner that avoids duplicative or conflicting requirements. TMC's redline includes proposed language intended to ensure coordination between the federal and state programs and to provide that compliance with the Consent Decree constitutes compliance with corresponding state requirements to the greatest extent permissible under applicable law. TMC recognizes that this coordination will require the agreement of the state co-plaintiffs and welcomes discussion on this topic.
V. ENCLOSURES
Enclosed with this letter, please find the following:
Enclosure 1: TMC Revised Draft Consent Decree (Redline to DOJ First Draft of November 8, 2024) — full text in tracked-changes (redline) format, reflecting all proposed revisions by the Settling Defendants.
Enclosure 2: Table of Proposed Revisions with Cross-References to Consent Decree Sections — a summary chart identifying each proposed change, the relevant section(s) of the Consent Decree, and a brief rationale for the proposed revision.
VI. REQUEST FOR MEETING
TMC respectfully requests an in-person or video conference meeting with counsel for the Department of Justice and the Environmental Protection Agency at the earliest mutually convenient date to discuss the proposed revisions set forth in the enclosed redline and to work toward a substantially agreed text. TMC proposes that the meeting be scheduled during the period from January 6 through January 17, 2025, and that it be held either at the offices of the Department of Justice in Washington, D.C., or by secure video conference, at the preference of the government.
TMC suggests that it may be productive to include the following individuals in the meeting, in addition to the undersigned and TMC's core legal team: EPA Regional coordinators Dr. Samuel Tesfaye (Region 8, Denver) and Jennifer Whitfield (Region 9, San Francisco), and counsel for the state co-plaintiffs — 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. TMC is prepared to accommodate whatever format and attendance the government believes will be most productive.
TMC reaffirms its commitment to good-faith negotiations and its desire to reach a final, agreed text of the Consent Decree as expeditiously as practicable, consistent with the Tolling Agreement that remains in effect through December 31, 2025. TMC believes that substantial progress can be made in the near term and stands ready to devote the resources necessary to achieve that objective.
VII. RESERVATION OF RIGHTS
TMC expressly reserves all rights, claims, defenses, and privileges available to it under applicable law, including without limitation the attorney-client privilege and the work-product doctrine. Nothing in this letter or in the enclosed revised draft Consent Decree shall be construed as an admission of liability, causation, or the existence or extent of any violation of any federal or state environmental statute, regulation, or permit condition. The submission of the enclosed redline is made solely for purposes of facilitating settlement discussions and is without prejudice to TMC's right to assert any defense or position in the event that this matter proceeds to litigation.
The parties acknowledge that all settlement discussions and communications, including this letter and its enclosures, are subject to Federal Rule of Evidence 408, and that neither this letter nor the enclosed redline may be offered or received in evidence in any proceeding for the purpose of proving or disproving liability or the amount of any claim.
\     \     \*
We appreciate the government's continued engagement in these discussions and look forward to your response. Should you have any questions regarding the enclosed redline or the summary set forth in this letter, please do not hesitate to contact me directly at (212) 558-7234 or at hwexford@calderwoodharkness.com, or my colleague Beatrice Holloway at (212) 558-7291.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Harrison Wexford Partner
cc (via electronic mail):
Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Douglas K. Prennell, Chief Executive Officer, Torchlight Mining Corp. Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp. Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp. Katherine Rowe-Halpern, Senior Counsel, DOJ Environment and Natural Resources Division 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 Beatrice Holloway, Partner, Calderwood & Harkness LLP Elliot Nguyen, Associate, Calderwood & Harkness LLP Grace Nakamura, Associate, Calderwood & Harkness LLP Russell Dane, Holcroft, Dane & Weiss LLP Denise Quartaro, sagebrush Law Group, PLLC Nathan Tully, Baxter, Tully & Crane PLLC Dr. Astrid Bergmann, P.E., Pinnacle Creek Environmental, LLC
Encl. (2)
Site | TMC Proposed Penalty
Ridgecrest Copper-Molybdenum 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
Category | Nominal Dollars | NPV at 3%
Remediation — Ridgecrest (subject to negotiation) | $198,600,000 * | $127,400,000 *
Remediation — Gallatin Chemical Works | $42,800,000 | $34,100,000
Remediation — Bonanza Creek Mine | $63,200,000 | $47,100,000
Remediation — Kanawha Bend Chemical Plant | $38,900,000 | $29,000,000
Total Remediation | $343,500,000 | $237,600,000
Civil Penalty | $31,500,000 | $31,500,000
EPA Past-Costs Reimbursement | $18,100,000 | $18,100,000
Supplemental Environmental Projects | $12,000,000 | $12,000,000
Independent Monitor (5-Year Estimate) | $4,800,000 | $4,800,000
Grand Total | ~$409,900,000 | ~$304,000,000 *

CONFIDENTIAL — SETTLEMENT COMMUNICATION PURSUANT TO FEDERAL RULE OF EVIDENCE 408

I. BACKGROUND AND PROCEDURAL CONTEXT

II. SUMMARY OF PRINCIPAL PROPOSED REVISIONS

III. AGGREGATE FINANCIAL SUMMARY

IV. STATE CO-PLAINTIFF COORDINATION

V. ENCLOSURES

VI. REQUEST FOR MEETING

VII. RESERVATION OF RIGHTS

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts