2015-01-14_PERMIT FILE - M1977342

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Mr. Peter Hays, DRMS January 14, 2015 (c) The contact person for this event is: Tim Haynes 19302 County Road 3, Parshall, CO 80468 Phone: 720- 942 -3518 timothy haynes(a)fmi.com (d) No monitoring or analyses were performed for this situation since process water and /or material was not released off -site and did not impact waters of the United States. (e) Following an in -depth investigation conducted by tailing engineering, operations, management and the environmental department, Henderson has concluded that operational factors and flows were the primary contributor to this incident. Henderson Operations is currently realizing an overall decrease in the ore concentration of molybdenum disulfide feed from the mine. To counteract this decrease, increased throughput has become a necessity to meet operational targets. With regard to the actual cause of this issue, Henderson staff believes that varied cyclone operation, supplemental water and designed concentrate thickener overflows are collective factors contributing to this event. Prior to increased throughput efforts, it was typical to run four primary mills with three cyclones operating on each mill's cyclone bank. Three cyclone operation provides a finer grind, but slows throughput due to increased circulation of material through the primary mill circuits prior to the milled slurry continuing on to rougher flotation, the next step in the process. To increase throughput, a two - cyclone configuration is used, which will move ore through the primary milling circuit more quickly, but the coarser grind, when introduced to the rougher flotation circuit can create "sanding" issues (sanding - milled material settling out of slurry solution quickly and effectively stopping the flotation process. In extreme cases, it completely overpowers a rougher cell, which then must be manually excavated). To combat sanding issues in the rougher circuit, supplemental water must be added to ensure that the overall percent of solids in the slurry solution stays sufficiently low. This is where we believe excess flow volumes is coming from. When a rougher cell is in jeopardy of sanding, supplemental water is added to the rougher cell (either from recycled thickener overflow when available, or from incoming mill water), which in turn increases the overall flow volume out of the tailing line. To manage this issue, Henderson went through a step test with our mills, which involved starting with all of the primary mills running with three cyclones per mill in operation. Over the course of a run weekend (Friday Jan g1h — Monday Jan 12th), operations brought one mill down to two cyclones, watched the flow and pressure curves, then brought a second mill down to two cyclones. This was done while closely monitoring the TDL flow and pressures. At present, we have been able to meet production demands, while running two mills with three cyclones and two mills with two cyclones. Henderson's operations and tailing engineering group will continue to monitor these trends, while minimizing excess water input to the circuit, where possible. Additional engineering controls being contemplated at this point include surge protection measures, which at present may include a surge overflow conduit from the thickener overflow tank inside of the mill, or a high -level surge spillway which automatically diverts surge flow from the mill into the Emergency Cut Out line at the tailing distribution box (diversionary structure where mill tailing flow is either diverted to the TDL or the Emergency Cut Out line). If necessity dictates that an engineering control be put in Page 2