CONFIDENTIAL — ATTORNEY WORK PRODUCT / PRIVILEGED THIS MEMORANDUM IS PROTECTED BY THE ATTORNEY-CLIENT PRIVILEGE AND THE WORK PRODUCT DOCTRINE. IT IS INTENDED SOLELY FOR THE USE OF THE ADDRESSEE AND SHOULD NOT BE DISCLOSED TO ANY THIRD PARTY WITHOUT THE PRIOR WRITTEN CONSENT OF CALDERWOOD & HARKNESS LLP AND TORCHLIGHT MINING CORP.
MEMORANDUM
TO: Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp.
FROM: Harrison Wexford, Responsible Partner, and Beatrice Holloway, Billing Partner, Calderwood & Harkness LLP
DATE: October 25, 2024
RE: Staffing Plan and Budget Estimate — Multi-Site EPA Compliance & Consent Decree Negotiation (Matter No. 1039-00003)
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I. Introduction and Purpose
The purpose of this memorandum is to set forth the proposed staffing plan, projected hours by engagement phase, and estimated professional fees and expenses for the representation of Torchlight Mining Corp. ("TMC") in connection with the multi-site environmental enforcement action and consent-decree negotiation described herein. This memorandum is intended to provide TMC's legal department and executive leadership with a comprehensive understanding of the scope of work, the composition of the engagement team, the phased approach to the representation, and the projected costs associated with Calderwood & Harkness LLP's ("C&H") services throughout this engagement.
This memorandum is prepared in connection with and subject to the terms of the Engagement Letter dated October 21, 2024, executed by the undersigned on behalf of C&H and acknowledged by Ms. Park on behalf of TMC. As set forth in the Engagement Letter, the parties have established a fee cap of $4,500,000 (Four Million Five Hundred Thousand Dollars) covering the full scope of the consent-decree negotiation, remediation-schedule drafting, Supplemental Environmental Project ("SEP") agreement negotiation and documentation, financial-assurance structuring and instrument execution, and decree entry proceedings in the United States District Court for the District of Montana, Missoula Division.
It is expressly noted that the $4.5 million fee cap excludes any subsequent litigation, including but not limited to insurance-recovery litigation, appellate proceedings, post-decree enforcement or contempt proceedings, and any coverage disputes that may be separately pursued. Any such work falling outside the defined scope of the engagement would be separately scoped, budgeted, and approved by TMC before commencement.
Billing terms for this engagement are as follows: C&H will issue monthly invoices to TMC, itemized by timekeeper and phase, with narrative descriptions of the services performed. All invoices are payable net-30 days from the date of invoice. Disbursements and out-of-pocket expenses incurred in connection with the engagement will be invoiced monthly and count against the $4.5 million fee cap, as provided in the Engagement Letter.
This engagement relates to the civil enforcement action styled United States of America, et al. v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM, currently pending in the United States District Court for the District of Montana, Missoula Division, before the Honorable Donald W. Molloy, United States District Judge. The action was filed on September 16, 2024, and TMC was served on September 23, 2024. The Government has indicated its willingness to engage in consent-decree negotiations in lieu of contested proceedings, and all parties have agreed to a briefing schedule that accommodates the negotiation timeline set forth in this memorandum.
II. Matter Overview and Scope
A. Description of the Engagement
C&H has been retained to represent TMC and its four U.S. subsidiaries in a multi-site environmental enforcement action brought by the United States of America, acting through the United States Environmental Protection Agency ("EPA") and the United States Department of Justice, Environment and Natural Resources Division ("DOJ ENRD"), with the States of Montana, Nevada, and West Virginia as co-plaintiffs. The named defendants in the action are:
1. Torchlight Mining Corp. (parent; TSX-listed, headquartered in Vancouver, British Columbia);
2. Torchlight Mining (U.S.) Inc. (U.S. holding subsidiary; incorporated in Delaware);
3. Torchlight Specialty Chemicals, Inc. (chemical manufacturing subsidiary; incorporated in Delaware);
4. Ridgecrest Mine Holdings, LLC (mine holding subsidiary; organized in Montana); and
5. Bonanza Creek Mining, LLC (mine operating subsidiary; organized in Nevada).
B. Sites Covered
The enforcement action encompasses operations, releases, and alleged violations at four sites across three states:
1. Ridgecrest Copper-Molybdenum Mine — Drummond, Granite County, Montana. An active open-pit and underground copper-molybdenum mining operation with associated tailings storage facilities. Allegations center on acid mine drainage to Flint Creek and inadequate RCRA corrective action at on-site waste management units.
2. Gallatin Chemical Works — Belgrade, Gallatin County, Montana. A specialty chemical manufacturing facility producing mining reagents and industrial solvents. Allegations relate to RCRA corrective action obligations for historical solvent contamination in groundwater and Clean Water Act violations arising from unpermitted stormwater discharges.
3. Bonanza Creek Gold Mine — Lander County, Nevada. A heap-leach gold mining operation in central Nevada. Allegations include cyanide-bearing solution releases to ephemeral surface waters in violation of the Clean Water Act, inadequate liner systems under RCRA, and migratory bird mortality in process solution ponds in violation of the Migratory Bird Treaty Act ("MBTA").
4. Kanawha Bend Chemical Plant — Institute, Kanawha County, West Virginia. A chemical blending and distribution facility adjacent to the Kanawha River. Allegations involve historical CERCLA contamination requiring remediation, RCRA corrective action for on-site waste management areas, and Clean Water Act permit exceedances at the facility's outfall.
C. Statutes at Issue
The Government's complaint and the anticipated consent decree implicate the following federal environmental statutes:
• The Clean Water Act, 33 U.S.C. §§ 1251 et seq. (CWA);
• The Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq. (RCRA);
• The Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq. (CERCLA); and
• The Migratory Bird Treaty Act, 16 U.S.C. §§ 703 et seq. (MBTA) (applicable solely to the Bonanza Creek Gold Mine).
In addition, the consent decree is expected to address state-law counterpart obligations under Montana, Nevada, and West Virginia environmental statutes, as incorporated through the state co-plaintiffs' joinder in the decree.
D. Estimated Financial Exposure
Based on our preliminary assessment and discussions with the Government, TMC's aggregate estimated financial exposure in this matter is approximately $409.9 million, broken down as follows:
These figures represent the Government's opening negotiation position and are subject to refinement through the consent-decree negotiation process. It is anticipated that meaningful reductions may be achievable, particularly with respect to penalty amounts and certain remediation-scope elements, though the magnitude of such reductions cannot be reliably estimated at this stage.
E. Engagement History and Prior Counsel
C&H's engagement was opened on October 21, 2024. C&H replaces TMC's prior environmental counsel, Whitfield, Palmer & Goss LLP ("WPG"), which represented TMC in connection with the underlying regulatory proceedings at the Ridgecrest and Gallatin sites from 2019 through September 2024. WPG's representation terminated by mutual agreement on October 14, 2024. C&H has arranged for the orderly transfer of all case files, correspondence, and work product from WPG and has substantially completed the intake and indexing of those materials.
F. Coordination with External Parties
C&H will coordinate closely with three local counsel firms (described in Section IV below) retained by TMC for state-specific matters in Montana, Nevada, and West Virginia. Additionally, C&H will work in close collaboration with TMC's environmental remediation consultant, Pinnacle Creek Environmental, LLC, which provides technical expertise on remedial investigation/feasibility study ("RI/FS") matters, remediation design, and monitoring plan development across all four sites. The respective roles and coordination protocols for these external parties are further detailed in Section IV of this memorandum.
III. Engagement Team — Core C&H Personnel
The following C&H attorneys and support staff have been assigned to this engagement. The team has been structured to provide senior strategic leadership at the partner level, robust day-to-day legal analysis and drafting capacity at the associate level, and comprehensive document management and administrative support through paralegal resources.
A. Partners
Harrison Wexford — Responsible Partner
Mr. Wexford will serve as the Responsible Partner for this engagement and will have overall oversight of all aspects of the matter. His responsibilities will include client relationship management, lead strategy development, and direct participation in government negotiations with DOJ ENRD and EPA. Mr. Wexford has over twenty-seven years of experience in complex environmental enforcement defense, including the negotiation of more than forty EPA consent decrees involving mining, chemical manufacturing, and petroleum refining operations. He is admitted to practice in the District of Montana, the District of Columbia, and the State of New York. Mr. Wexford will serve as C&H's primary point of contact with Ms. Park and with the Government's lead counsel.
Hourly Rate: $1,350/hr
Beatrice Holloway — Billing Partner
Ms. Holloway will serve as the Billing Partner for this engagement. Her responsibilities will include billing administration, budget tracking, fee cap compliance monitoring, and staffing allocation review. Ms. Holloway will ensure that all invoicing complies with TMC's outside counsel billing guidelines and the terms of the Engagement Letter. She will prepare monthly budget-to-actual analyses and quarterly status reports on the engagement's financial performance. Ms. Holloway has extensive experience managing large-scale environmental litigation budgets and has served as billing partner on several matters with negotiated fee caps or alternative fee arrangements.
Hourly Rate: $1,350/hr
B. Associates
Elliot Nguyen — Lead Associate
Mr. Nguyen will serve as the Lead Associate on this matter and will be responsible for day-to-day matter management, consent-decree drafting and redlining, negotiation support, penalty analysis, SEP structuring, remediation schedule drafting, and court filings. Mr. Nguyen is a seventh-year associate in C&H's Environmental Litigation and Compliance practice group. He has significant experience in EPA enforcement matters, having worked on consent-decree negotiations in the mining and manufacturing sectors, and is well-versed in the regulatory frameworks under the CWA, RCRA, and CERCLA. Mr. Nguyen will coordinate directly with local counsel and with TMC's environmental remediation consultant on technical matters. He will report to Mr. Wexford on all substantive and strategic issues.
Hourly Rate: $950/hr
Grace Nakamura — Working Associate
Ms. Nakamura will serve as a Working Associate on this matter, with primary responsibility for financial assurance instruments, including trust agreement drafting, surety bond documentation, escrow agreements, and corporate authorization documents. Ms. Nakamura will also support the insurance coverage analysis, including the initial assessment of TMC's Pollution Legal Liability ("PLL") coverage with Meridian Environmental Insurance Company and Directors & Officers ("D&O") coverage with Clearwater Mutual Insurance, Ltd. Ms. Nakamura is a fourth-year associate in C&H's Environmental and Transactional practice groups. She has experience drafting remediation trust agreements, surety bonds, and financial assurance instruments in connection with RCRA and CERCLA matters.
Hourly Rate: $725/hr
C. Paralegal / Support Staff
C&H will assign one or two experienced paralegals from its Environmental Litigation support team to this engagement. Paralegal responsibilities will include document management and organization, cite-checking of memoranda and court filings, filing coordination with the Clerk of the District Court for the District of Montana, closing checklist maintenance, correspondence tracking, and general administrative support. The paralegal team will be supervised by Mr. Nguyen and will coordinate with local counsel paralegals as needed for state-court filings and regulatory submissions.
Hourly Rate: $425/hr
In addition to the core team described above, C&H has substantial depth in its Environmental Practice Group, including partners and associates with specialized expertise in RCRA corrective action, CERCLA cost recovery, Clean Water Act enforcement, and Migratory Bird Treaty Act compliance. These additional resources are available on an as-needed basis and may be utilized within the $4.5 million fee cap without prior authorization, provided that their involvement does not materially alter the budget trajectory. Any such utilization will be disclosed to TMC in the monthly invoice narratives and quarterly budget status reports.
IV. Co-Counsel and External Advisors
A. Local Counsel
TMC has retained, or will retain, the following local counsel firms to provide state-specific legal services in the three jurisdictions implicated by the enforcement action. Each firm's engagement is separate from C&H's engagement and is governed by its own engagement letter and fee arrangements with TMC. Local counsel fees are not counted against the C&H $4.5 million fee cap.
1. Holcroft, Dane & Weiss LLP (Helena, Montana)
Lead Partner: Russell Dane
Scope: Montana-licensed local counsel for the Ridgecrest Copper-Molybdenum Mine (Drummond, MT) and the Gallatin Chemical Works (Belgrade, MT). Holcroft, Dane & Weiss ("HDW") will be responsible for coordination with the Montana Department of Environmental Quality ("MT DEQ"), state-court filings as needed, and state environmental permit matters arising in connection with the consent decree's remediation obligations in Montana. HDW will also advise on Montana state law issues relevant to the consent decree, including state environmental liability statutes and state-law contribution claims.
2. Sagebrush Law Group, PLLC (Las Vegas, Nevada)
Lead Partner: Denise Quartaro
Scope: Nevada-licensed local counsel for the Bonanza Creek Gold Mine (Lander County, NV). Sagebrush will be responsible for coordination with the Nevada Division of Environmental Protection ("NV DEP"), state environmental permits related to heap-leach operations and process water management, and Nevada state law issues relevant to the consent decree. Given the MBTA component of the Bonanza Creek allegations, sagebrush will also assist with coordination between the U.S. Fish and Wildlife Service and NV DEP on migratory bird mortality mitigation measures.
3. Baxter, Tully & Crane PLLC (Charleston, West Virginia)
Lead Partner: Nathan Tully
Scope: West Virginia-licensed local counsel for the Kanawha Bend Chemical Plant (Institute, WV). Baxter, Tully & Crane ("BTC") will be responsible for coordination with the West Virginia Department of Environmental Protection ("WV DEP"), state environmental permits for the Kanawha Bend facility, and West Virginia state law issues relevant to the consent decree, including CERCLA-equivalent state remediation obligations and coordination with the WV DEP on interim stabilization measures.
C&H will coordinate with all three local counsel firms pursuant to the Co-Counsel Coordination Agreement dated November 1, 2024, which establishes protocols for information sharing, document review workflows, unified messaging to the Government, and billing coordination. Mr. Nguyen will serve as the primary C&H contact for day-to-day coordination with local counsel. Mr. Wexford will participate in periodic joint strategy calls with all three local counsel lead partners and will maintain direct communication with each as circumstances warrant.
B. TMC's Environmental Remediation Consultant
Pinnacle Creek Environmental, LLC (Bozeman, Montana)
Lead Principal: Dr. Astrid Bergmann, P.E., Senior Principal
Scope: Pinnacle Creek Environmental ("Pinnacle Creek") serves as TMC's environmental remediation consultant and will provide RI/FS support, remediation design services, monitoring plan design, and technical input into the consent-decree terms and remediation schedules for all four sites. Dr. Bergmann and her team will be integral to the development of remediation milestones, performance standards, completion criteria, and the sampling and monitoring plan. Pinnacle Creek will also support the preparation of work plans for each site and will coordinate with C&H on technical provisions of the consent decree, including cleanup standards, institutional controls, and long-term monitoring requirements.
Billing: Pinnacle Creek's fees are billed separately to TMC under Pinnacle Creek's existing consulting agreement and are not included in the C&H $4.5 million fee cap.
C. Financial Advisor
Northspire Capital Markets, Inc.
Lead Contact: Vivian Okafor, Managing Director
Scope: Northspire Capital Markets ("Northspire") has been retained by TMC to advise on the financial structuring of the remediation reserve, consent-decree cost modeling, credit facility covenant impact analysis, and related financial advisory matters. Northspire will work with C&H and TMC's finance team to model the financial impact of the consent decree on TMC's balance sheet, assess the adequacy of TMC's environmental reserves, and evaluate the impact of the consent-decree obligations on TMC's compliance with its existing Harborstone revolving credit facility covenants. Northspire's estimated insurance recovery range of $45.0–$55.0 million from the Meridian PLL policy will also inform the overall financial structuring analysis.
Billing: Northspire's fees are billed separately to TMC and are not included in the C&H $4.5 million fee cap.
D. Independent Monitor (Anticipated)
Verdant Analytics, Inc.
Lead Contact: Dr. Kamal Osei, Senior Managing Director
Scope: Verdant Analytics is the anticipated court-appointed independent environmental auditor for the consent decree. Subject to court approval and the agreement of all parties, Dr. Osei will serve as the independent monitor responsible for overseeing TMC's compliance with the remediation schedules, performance standards, and other requirements of the consent decree. The monitor's role is expected to span a five-year term beginning upon entry of the consent decree. Estimated costs for the independent monitor are approximately $960,000 per year over five years, for a total estimated cost of $4,800,000. These costs will be borne by TMC as operational costs required by the consent decree.
C&H's Role: The drafting and negotiation of the independent monitor agreement, including the scope of the monitor's authority, reporting requirements, confidentiality provisions, and dispute resolution mechanisms, falls within C&H's engagement scope and is included in the $4.5 million fee cap.
E. Other Third Parties (Coordination Only)
C&H will coordinate with the following additional third parties in connection with various aspects of the engagement. These parties are not counsel to TMC and their fees and costs are not included in the C&H fee cap:
• Ironbark Surety of America, Inc. — Thomas Rennick, Vice President, Environmental Surety Division. Ironbark is the proposed issuer of a $165.0 million surety bond securing TMC's remediation obligations under the consent decree. C&H (principally Ms. Nakamura) will coordinate with Mr. Rennick on the surety bond application, indemnity agreement terms, and execution logistics.
• Larchfield Trust Company, N.A. — David Henshaw, Senior Vice President, Environmental Trust Services. Larchfield is the proposed trustee and escrow agent for the $80.0 million remediation trust to be established under the consent decree. C&H will coordinate with Mr. Henshaw on trust agreement terms, escrow agreement provisions, funding mechanics, and trustee reporting requirements.
• Ridgeline Accounting Partners LLP — Frances Whitmore, Engagement Partner. Ridgeline serves as TMC's external auditor. C&H will coordinate with Ms. Whitmore on contingency response matters arising from the consent decree, including the environmental liability accrual under ASC 450 / IAS 37 and financial statement footnote disclosures related to environmental contingencies.
• Meridian Environmental Insurance Company — Sheila Grantham, Vice President, Claims. Meridian is the issuer of TMC's Pollution Legal Liability insurance policy (Policy No. MEI-ENV-2021-04738). Meridian has issued coverage denials at Ridgecrest (known-conditions exclusion) and Kanawha Bend (late notice) and has acknowledged coverage at Gallatin and Bonanza Creek. C&H will prepare initial coverage analysis and demand correspondence within this engagement; however, any insurance-recovery litigation against Meridian is expressly excluded from the $4.5 million fee cap and would be separately scoped and budgeted.
• Clearwater Mutual Insurance, Ltd. / Clearwater Mutual Services, Inc. — Brendan Forsythe, Head of Claims. Clearwater Mutual is the issuer of TMC's Directors & Officers liability insurance policy (Policy No. CMI-DO-2023-10221). C&H will prepare notice-of-circumstances correspondence to Clearwater Mutual; any subsequent D&O coverage litigation is excluded from the fee cap.
V. Phased Work Plan and Projected Hours
Overview
The engagement has been organized into eight discrete phases, each with defined deliverables, responsible team members, and projected hours. This phased structure is designed to align the work plan with the anticipated negotiation timeline, provide clear milestones for progress assessment, and facilitate budget monitoring against the $4.5 million fee cap.
The total projected hours across all eight phases are structured to remain well within the fee cap, with a meaningful contingency buffer reserved for unanticipated complications. The hours set forth below are estimates based on our current understanding of the matter's scope and the anticipated pace of negotiations. Actual hours may vary based on the dynamics of the negotiation process, the Government's responsiveness, the complexity of public comments received during the comment period, and other factors that may require reallocation of effort among team members and phases. C&H will monitor actual hours against projections on an ongoing basis and will promptly advise TMC of any material deviations from the estimates set forth herein.
Phase 1: Case Assessment and Transition
Period: October 21 – November 15, 2024
Objective: Complete the onboarding and transition from prior counsel, conduct a thorough factual and legal assessment of TMC's exposure across all four sites, and develop the initial settlement strategy framework.
Deliverables.
1. Conflict check memorandum — Completed October 18, 2024. C&H's conflicts committee has confirmed that no disqualifying conflicts of interest exist with respect to this engagement.
2. Litigation hold / preservation memorandum — October 23, 2024. Memorandum to TMC identifying custodians, data sources, and categories of documents and electronically stored information subject to preservation obligations in connection with Civil Action No. 9:24-cv-00087-DWM.
3. Staffing memorandum and budget estimate — October 25, 2024. This memorandum.
4. Co-counsel coordination agreement — Target: November 1, 2024. Agreement among C&H, HDW, sagebrush, and BTC establishing protocols for information sharing, document review, work allocation, privilege maintenance, and coordinated communication with the Government.
5. Preliminary case assessment memorandum — all four sites — Target: November 4, 2024. Comprehensive memorandum assessing the factual record, regulatory history, and legal exposure at each of the four sites, drawing on files transferred from Whitfield, Palmer & Goss LLP and TMC's internal records.
6. Regulatory exposure analysis — CWA, RCRA, CERCLA liability summary — Target: November 8, 2024. Detailed legal memorandum analyzing TMC's potential liability under each applicable federal statute at each site, including an assessment of available defenses and mitigation arguments.
7. Penalty calculation analysis — Target: November 12, 2024. Memorandum applying the EPA penalty policy and federal penalty guidelines to the alleged violations at each site, including an analysis of the statutory maximum penalties, the economic benefit component, the gravity component, and available mitigating factors.
8. Settlement strategy memorandum — Target: November 15, 2024. Memorandum setting forth C&H's recommended negotiation strategy, including target ranges for penalties, remediation scope, SEP commitments, and financial assurance levels, with a recommended approach to the Government's opening positions on each issue.
Staffing and Projected Hours
Phase 2: Consent Decree Negotiation — First Round
Period: November 8 – December 31, 2024
Objective: Receive, analyze, and respond to the DOJ first draft consent decree; prepare TMC's initial redline and negotiate first-round revisions; develop key substantive positions on penalty provisions, remediation obligations, and financial assurance requirements.
Deliverables.
1. Annotated review of DOJ first draft consent decree — November 12, 2024. Section-by-section analysis of the Government's first draft, identifying problematic provisions, areas requiring negotiation, and provisions acceptable as drafted.
2. Comparative consent decree analysis — precedent EPA mining decrees — November 20, 2024. Research memorandum surveying recent EPA consent decrees in the mining sector, including penalty levels, remediation timeframes, financial assurance structures, and stipulated penalty schedules, to benchmark the Government's positions against comparable settlements.
3. Memorandum on MBTA exposure at Bonanza Creek — November 22, 2024. Dedicated legal memorandum analyzing TMC's exposure under the Migratory Bird Treaty Act at the Bonanza Creek Gold Mine, including the applicability of the incidental-take doctrine, available mitigation measures, and precedent enforcement actions involving process solution ponds.
4. Internal redline and comment compilation — November 25, 2024. Consolidated compilation of comments and redline suggestions from C&H, local counsel, Pinnacle Creek, and TMC's internal environmental team, organized by consent-decree section.
5. TMC revised draft consent decree — redline to DOJ first draft — December 16, 2024. TMC's proposed revisions to the Government's first draft consent decree, in full redline format with accompanying explanatory annotations.
6. Transmittal letter — C&H to DOJ/EPA with TMC redline — December 16, 2024. Cover letter transmitting TMC's redline to the Government, summarizing the principal areas of revision and the rationale for TMC's proposed changes.
7. Memorandum on stipulated penalty provisions — December 20, 2024. Analysis of the Government's proposed stipulated penalty schedule, comparison with precedent decrees, and recommendation for TMC's counter-proposals on penalty amounts, grace periods, and force majeure exceptions.
Staffing and Projected Hours
Phase 3: Consent Decree Negotiation — Second Round and Finalization
Period: January 1 – February 3, 2025
Objective: Analyze the Government's counter-redline, prepare TMC's second redline, and negotiate the substantially final agreed text of the consent decree, culminating in an in-person negotiation session targeted for February 3, 2025.
Deliverables.
1. Memorandum on force majeure and excusable delay provisions — January 3, 2025. Memorandum analyzing the Government's proposed force majeure and excusable delay provisions, identifying gaps in protection for TMC (e.g., supply chain disruptions, permitting delays, severe weather events), and recommending negotiation positions.
2. Memorandum on dispute resolution mechanism — January 6, 2025. Analysis of the proposed informal dispute resolution, formal dispute resolution, and judicial review procedures in the consent decree, with recommendations for modifications to protect TMC's interests, including burden-of-proof allocations and escalation timelines.
3. Analysis of government counter-redline — January 17, 2025. Comprehensive section-by-section review of the Government's counter-redline (anticipated receipt on or about January 14, 2025), identifying areas of agreement, remaining areas of disagreement, and recommended strategies for resolving open issues.
4. TMC second redline and transmittal letter — January 24, 2025. TMC's second set of proposed revisions and accompanying cover letter, incorporating responses to the Government's counter-redline and TMC's final negotiating positions on remaining open issues.
5. Consent decree — substantially final agreed text — February 3, 2025. Following the in-person negotiation session, a clean version of the consent decree reflecting all agreed-upon terms, subject only to final technical review and formatting.
6. Side letter — open issues resolved at February 3 in-person session — February 3, 2025. Memorialization of any issues resolved through oral agreement at the in-person session, to be incorporated into the final consent decree text.
Staffing and Projected Hours
Phase 4: Remediation Schedules, Work Plans, and SEPs
Period: January 28 – February 24, 2025
Objective: Develop the detailed remediation schedules, site-specific work plans, SEP descriptions and budgets, and performance standards that will be incorporated into the consent decree as appendices or ancillary agreements.
Deliverables.
1. SEP descriptions and budgets — January 28, 2025. Detailed descriptions, budgets, and implementation schedules for three Supplemental Environmental Projects:
(a) Flint Creek Watershed Restoration Project — $5,500,000. Riparian habitat restoration and water quality monitoring in the Flint Creek watershed downstream of the Ridgecrest Mine, in partnership with the Montana Department of Fish, Wildlife & Parks.
(b) Battle Mountain Community Water Supply Improvement — $3,500,000. Upgrade of the municipal water supply infrastructure in Battle Mountain, Nevada, the nearest community to the Bonanza Creek Gold Mine, to address legacy arsenic contamination in public water wells.
(c) Institute Air Quality Monitoring Network — $3,000,000. Installation and five-year operation of a community-based air quality monitoring network in Institute, West Virginia, adjacent to the Kanawha Bend Chemical Plant, to track ambient air concentrations of volatile organic compounds and particulate matter.
2. SEP compliance and reporting schedule — February 1, 2025. Detailed schedule of SEP implementation milestones, reporting obligations, and compliance verification procedures.
3. Ridgecrest remedial action work plan — framework and outline — February 10, 2025. Framework for the comprehensive remedial action at the Ridgecrest Mine, including acid mine drainage treatment, tailings facility closure, and long-term water management, developed in collaboration with Pinnacle Creek.
4. Ridgecrest 30-year milestone table — February 10, 2025. Detailed milestone table for the Ridgecrest Mine remediation, spanning the full anticipated 30-year remediation timeline, with annual and semi-annual milestones for each major remediation component.
5. Gallatin corrective measures study — scope of work — February 14, 2025. Scope of work for the corrective measures study at the Gallatin Chemical Works, addressing groundwater solvent contamination and stormwater management improvements.
6. Bonanza Creek liner repair and containment plan — scope of work — February 14, 2025. Scope of work for the heap-leach pad liner repair and process solution containment improvements at the Bonanza Creek Gold Mine, including cyanide-bearing solution management and migratory bird deterrent systems.
7. Kanawha Bend interim stabilization measures — scope of work — February 18, 2025. Scope of work for interim stabilization measures at the Kanawha Bend Chemical Plant, addressing immediate contamination migration risks while the full CERCLA remediation is designed and implemented.
8. Consolidated remediation milestone matrix — all four sites — February 20, 2025. Master matrix consolidating all remediation milestones across the four sites into a single tracking document, cross-referenced to consent decree sections and appendices.
9. Performance standards and completion criteria memo — February 22, 2025. Memorandum defining the performance standards and completion criteria for each site's remediation, including cleanup levels, monitoring endpoints, and institutional control requirements that must be met to achieve consent-decree compliance at each phase of remediation.
10. Draft sampling and monitoring plan — February 24, 2025. Comprehensive sampling and monitoring plan for all four sites, developed in collaboration with Pinnacle Creek, specifying sampling locations, frequencies, analytical methods, quality assurance/quality control procedures, and data reporting formats.
Staffing and Projected Hours
Phase 5: Financial Assurance and Trust Instruments
Period: November 28, 2024 – February 20, 2025
Objective: Draft, negotiate, and finalize all financial assurance instruments required by the consent decree, including the surety bond, remediation trust agreement, escrow agreement, and independent monitor agreement.
Deliverables.
1. Financial assurance requirements memorandum — RCRA/CERCLA — November 28, 2024. Comprehensive memorandum analyzing the financial assurance requirements under RCRA and CERCLA applicable to the four sites, including a comparison of available financial assurance mechanisms (surety bonds, trust funds, letters of credit, insurance, corporate guarantees, and financial tests) and a recommendation for the optimal structure.
2. Surety bond application draft — Ironbark — December 10, 2024. Draft application to Ironbark Surety of America, Inc. for issuance of a $165.0 million environmental remediation surety bond, including supporting documentation, indemnity agreement terms, and collateral requirements.
3. Remediation trust agreement draft — Larchfield — January 10, 2025. Draft remediation trust agreement with Larchfield Trust Company, N.A. as trustee, establishing an $80.0 million trust for the funding of remediation activities at the four sites, with provisions for disbursement procedures, investment of trust assets, trustee reporting, and trust termination upon completion of remediation obligations.
4. Independent monitor selection memo — January 15, 2025. Memorandum analyzing the qualifications and proposed terms for the independent environmental monitor, recommending Verdant Analytics, Inc. and Dr. Kamal Osei, and identifying issues for negotiation with the Government regarding the monitor's scope of authority and independence.
5. Draft independent monitor agreement — Verdant Analytics — January 30, 2025. Comprehensive agreement defining the independent monitor's scope of work, reporting obligations, access rights, confidentiality protections, dispute resolution procedures, and compensation terms.
6. Surety bond execution version — February 15, 2025. Final execution version of the surety bond (Bond No. ISA-ENV-2025-08934; face amount $165,000,000), ready for execution by Ironbark Surety of America, Inc., TMC, and the applicable obligees.
7. Independent monitor agreement execution version — February 15, 2025. Final execution version of the independent monitor agreement, incorporating all negotiated terms and approved by all parties.
8. Remediation trust agreement execution version — February 17, 2025. Final execution version of the remediation trust agreement (Trust No. LTC-REM-2025-1177; initial funding $80,000,000), ready for execution by Larchfield Trust Company, N.A. and TMC.
9. Escrow agreement for stipulated penalty deposits — February 17, 2025. Agreement establishing an escrow account for the deposit of stipulated penalty amounts, with provisions for release conditions, interest accrual, and return of unused funds.
10. Financial assurance adequacy and annual adjustment memo — February 20, 2025. Memorandum addressing the annual review and adjustment mechanism for the financial assurance instruments, including the methodology for adjusting the surety bond face amount and trust funding levels based on changes in estimated remediation costs, completed work, and inflation adjustments.
Staffing and Projected Hours
Phase 6: Insurance, Credit Facility, and Financial Reporting
Period: November 14, 2024 – March 10, 2025
Objective: Analyze TMC's insurance coverage for the environmental liabilities, manage insurance carrier communications, assess the impact of the consent decree on TMC's credit facility covenants, and prepare financial reporting and disclosure materials.
Deliverables.
1. Insurance coverage analysis — Meridian PLL Policy — November 14, 2024. Comprehensive analysis of TMC's Pollution Legal Liability policy (Policy No. MEI-ENV-2021-04738) with Meridian Environmental Insurance Company, including coverage terms, exclusions, conditions, and an assessment of Meridian's coverage positions at each site.
2. Letter to Meridian — reservation of rights response and coverage demand — November 30, 2024. Formal response to Meridian's reservation of rights letters, disputing the coverage denials at Ridgecrest (known-conditions exclusion) and Kanawha Bend (late notice), and demanding coverage under the policy for all four sites.
3. Coverage dispute strategy memo — Ridgecrest and Kanawha Bend denials — December 5, 2024. Memorandum to TMC analyzing the strengths and weaknesses of Meridian's coverage denial positions, evaluating litigation options, and recommending a strategy for resolving the coverage disputes.
4. D&O coverage assessment — Clearwater Mutual — December 12, 2024. Analysis of TMC's Directors & Officers liability policy (Policy No. CMI-DO-2023-10221) with Clearwater Mutual Insurance, Ltd., including an assessment of potential D&O exposure arising from the environmental enforcement action and the availability of coverage.
5. Letter to Clearwater — notice of circumstances — December 15, 2024. Formal notice to Clearwater Mutual of circumstances that may give rise to a claim under the D&O policy, preserving TMC's rights under the policy.
6. Environmental covenant compliance memo — Harborstone RCF — November 18, 2024. Memorandum analyzing TMC's compliance with the environmental covenants in its C$750.0 million revolving credit facility with Harborstone Financial Corporation (maturing March 15, 2027), including the 25% of Consolidated Net Tangible Assets ("CNTA") threshold (C$980.0 million based on Q3 2024 CNTA of C$3.92 billion) and current environmental liabilities of approximately C$554.4 million, yielding headroom of approximately C$425.6 million.
7. Environmental liability accounting memo — ASC 450 / IAS 37 — December 18, 2024. Memorandum analyzing the accounting treatment of TMC's environmental liabilities under ASC 450 (U.S. GAAP) and IAS 37 (IFRS), including the adequacy of TMC's current environmental reserve of C$340.0 million (approximately US$251.4 million at the October 2024 exchange rate of 0.7394), in light of the estimated nominal obligation of approximately US$409.9 million, resulting in an estimated shortfall of approximately US$158.5 million.
8. Draft covenant compliance certificate — February 25, 2025. Draft certificate for execution by TMC's authorized officers certifying compliance with the Harborstone RCF environmental covenants, reflecting the consent decree obligations.
9. Draft financial statement footnote — environmental contingencies — February 28, 2025. Draft footnote disclosure for inclusion in TMC's financial statements, describing the environmental enforcement action, the consent decree, the estimated remediation costs, the financial assurance instruments, and the related contingent liabilities.
10. Letter to Harborstone — disclosure of consent decree — March 1, 2025. Formal notification to Harborstone Financial Corporation of the consent decree, as required by the RCF notification covenants.
11. Letter to Ridgeline Accounting — contingency response — March 3, 2025. Response to Ridgeline Accounting Partners LLP's anticipated inquiry regarding the environmental contingency, providing information necessary for the external audit of TMC's financial statements.
12. Credit facility amendment / waiver needs memo — March 5, 2025. Memorandum assessing whether the consent decree obligations may trigger a need for an amendment or waiver under the Harborstone RCF, and recommending a course of action.
13. SEC disclosure analysis — Form 20-F updates — March 10, 2025. Analysis of disclosure requirements applicable to TMC's annual report on Form 20-F (as a foreign private issuer listed on the TSX), including environmental liability disclosures, risk factor updates, and legal proceedings disclosures.
Key Substantive Considerations
The following financial parameters will inform the hours allocation and work product in this phase:
• Meridian PLL Policy (MEI-ENV-2021-04738): Per-occurrence limit of $50.0 million; aggregate limit of $75.0 million; self-insured retention ("SIR") of $5.0 million per occurrence. Meridian has denied coverage at the Ridgecrest Mine (asserting the known-conditions exclusion) and the Kanawha Bend Chemical Plant (asserting late notice). Meridian has acknowledged coverage at the Gallatin Chemical Works and Bonanza Creek Gold Mine, subject to the SIR and policy limits. Northspire estimates potential insurance recovery in the range of $45.0–$55.0 million. Resolution of the coverage disputes at Ridgecrest and Kanawha Bend will materially affect TMC's net financial exposure.
• Clearwater D&O Policy (CMI-DO-2023-10221): Notice of circumstances will be filed to preserve coverage for potential D&O exposure arising from the enforcement action. No claim is presently asserted.
• Harborstone RCF (C$750.0M, maturing March 15, 2027): The environmental covenant requires that TMC's aggregate environmental liabilities not exceed 25% of Consolidated Net Tangible Assets. Based on Q3 2024 financial data, CNTA is C$3.92 billion, yielding a threshold of C$980.0 million. Current environmental liabilities are approximately C$554.4 million, providing headroom of approximately C$425.6 million. The consent decree obligations, once booked, may reduce this headroom materially, and an amendment or waiver may become necessary depending on the final accounting treatment.
• TMC Environmental Reserve (Q3 2024): TMC's current environmental reserve is C$340.0 million (approximately US$251.4 million at the prevailing USD/CAD exchange rate of 0.7394). The estimated nominal obligation under the consent decree is approximately US$409.9 million, resulting in an estimated shortfall of approximately US$158.5 million that will need to be addressed through reserve adjustments, insurance recoveries, or a combination thereof.
Note: Insurance-recovery litigation against Meridian Environmental Insurance Company is expressly excluded from the $4.5 million fee cap. The hours allocated to Phase 6 are limited to initial coverage analysis, coverage demand correspondence, D&O notice, coverage dispute strategy framing, and financial reporting analysis. Any decision to pursue formal insurance-recovery litigation would require a separate engagement scope and budget.
Staffing and Projected Hours
Phase 7: Court Filings, Lodging, and Public Comment
Period: February 5 – April 7, 2025
Objective: Prepare and file all court documents necessary to lodge the consent decree, manage the Federal Register public comment process, prepare the response to public comments, and file the motion for entry of the consent decree.
Deliverables.
1. Letters to Montana DEQ, Nevada DEP, and West Virginia DEP — February 5, 2025. Letters notifying each state environmental agency of the proposed consent decree and inviting coordination on state-specific permit modifications and remediation requirements.
2. State permit coordination memo — February 8, 2025. Internal memorandum identifying all state permits that may require modification or issuance in connection with the consent decree, with a timeline for coordination with local counsel at HDW, sagebrush, and BTC.