OPTION AGREEMENTS A JUNIOR EXPLORATION COMPANY … · Objective of an Option Agreement Company...

OPTION AGREEMENTSA JUNIOR EXPLORATION COMPANY PERSPECTIVE

Peter Dimmell, P.Geo.President / CEO – Silver Spruce Resources Inc.

St. John’s, NL. – June 19, 2013

RamblerMing WestTom Joe Brook - AK

Mick / Steve Stares

Keats-Stares Families - PDAC Prospectors of the Year - 2005

Linear (Dome) Al Keats

Objective of an Option Agreement

Company acquires the rights to the property

time to explore the property with cash / share outlays which increase as results warrantUltimate aim – find a minable depositcan terminate at any time (subject to

conditions) Vendor

shares in exploration success through– continued option payments– NSR if a mine is found – the “pot of gold”– work if he/she wants it

Should be fair to both parties

Rambler Mines - 1995

Brady

Aldina, ON.Mick/Steve

Stares

Burnt Hill Mine, NB - 1967

WHY DO COMPANIES OPTIONnew showingnew results from a known mineralized areahot area play w/ good geology– tie on claimscommodity price increase– value of property increases as

price increases

20th BrookCalvin’s Landing

CASH / SHARES OVER TIMEincrease each year company earns 100 % interest

WORK COMMITMENTSincrease over time / staged / additive

AREA OF INFLUENCE (AOI)- protects both parties re “tie on” claims

RETAINED INTEREST – ie NSRbuyback of part - usualAdvance Royalty – against NSR

WORK ON PROJECT FOR VENDORgives the vendor work if he/she wants it

GENERAL FORM

BuchansLundberg Zone

Pastureland Road

NormPeters

Shamrock ZoneLong Island

OPTION AGREEMENT - Exampleto earn a 100 % interest subject to a 2 % NSR with a 1 % buyback for $1 M. Advance Royalties of $10,000 per year payable from 5th anniversary on for 10 years (or open).

Cash Shares Work 1st Yr - On signing: $ 5,000 50,000 $50,0002nd Yr $10,000 100,000 $100,0003rd Yr $15,000 150,000 $150,000

Totals $30,000 300,000 $300,000

Golden Promise

Wayne Carroll - NB

LePouviour – AT campLewis Hills – AT camp

DUE DILIGENCEcompanies need to see / evaluate the property and

existing data to “sell” property to their managementallowable activities during DD– surface samples – rocks / soils (limited)– chip/channel samples w/ approval of vendor onlynot allowable– trenching, diamond drilling, geophysics, geochemistry

surveysidea is to allow the company to see the property but not to “explore” it until after an option dealall data acquired has to be provided to the vendor prior to any agreement (fiduciary duty)

California Lk, NB.

JulietB. Verte

AREA OF INTEREST (AOI)

Lazyman PropertyS. Coast NL

649 U showingLabrador

Viking Au – Sops Arm

FIDUCIARY DUTYobligation of company to give all info gathered to the vendorobligation of vendor to give all info available on the property to the interested companyCA helps define FD but FD exists without a CAexample of why it is important - Lac Minerals and the Hemlo discoveryexamples from NL– Twilight Zone – central NL– Lodestar – Goobies (2)

Rambler S

CONFIDENTIALITY AGREEMENTSprotects both company and vendoroutlines responsibilities of each partydoes not remove FD responsibility

term – usually 1-2 yrs

Alex Turpin – Little R.

Innu Prospecting VentureLabrador

Gander BayLinear (Dome)

VG in Qtz

NET SMELTER RETURN (NSR)

Based on value of production with deductions for transportation / assayingvariable - dependent upon commodity

typically 1-4 % can be related to price of commodity

– 2% up to $1500 / oz then 3% over $1500 / oz

buy backs common – percentage for a fixed sumusually 1-2 % for $1 – 2 Mif exercised then remaining interest has significant

valueadvance royalties common

makes the company look at the property each yearhas to be a reasonable sum - $5-15 K / yrstart - a couple of years after option is exercised

usually doesn’t apply to bulk samplesit costs money for the bulk sample ?

GoldenPromise

Voisey’s Bay

DEDUCTIONS FROM NSRstandard deductions– transportation of finished product (concentrate, gold bars etc.)

– assay costs, smelting / refining chargesProduct only (not ore)

– insurance for transportation watch out for– extra costs being added – environmental, extra

transportation (mine to mill), taxes, operating costsALWAYS ATTACH A COPY OF THE NSR AGREEMENT TO THE OPTION AGREEMENT

Rambler S – Krissy BoulderRS – Krissy Zone

RS – SB zone

Recent Additions to Agreementsuse of advance royalties in option payments– payments are deducted from future NSR payments

(if project gets to production)– means less money overall– more advantageous for companies– may be the only way to get the deal done

Golden PromiseBig Easy - Sinter

RS - Brass Buckle

VALUE OF PROPERTIESDepends on

timescommodity pricesother properties availablelocation – ie is there an area play ?quality of propertyexploration stage of property

don’t fall in love with your property

Falls BkNB

Goldenstar

Clarence StrmNB

Brady

Other ThingsLegal agreement– agreement will be a legal agreement– do you need a lawyer ?Registration / deregistration– agreement has to be registered with DNR– should be deregistered when terminated

Amanda – BV Peninsula

Emerald CrystalUrals, Russia

St. Petersberg GI

Virgin Arm - ASK

Pt. Leamington(Al Keats)

Gold - Rambler

REMEMBER

Always try to increase the value of your property by further explorationwork with the company to increase the property valuebe adaptable

- renegotiate terms if circumstances require (ie poor markets)

if exploration isn’t being done then nothing is being found and the value of the property is not increasingVENDOR CAN’T RENEGOTIATE TERMS UPWARD ONCE THE DEAL IS DONE

Linear Powderhorn(Lodestar)

MARKETINGattend trade shows– CIM NL – Nov, Cord Rdup – Jan, PDAC – Mar.compare your property to othersget on email lists to see what deals are being

donework with the Matty Mitchell Room – Pat O’Neill– Get presentation maps done; get on mailing list

Get to know people in the industry and get their advice be flexible

Prospectors can do almost anything(even walk on water???)

Companies should take advantage of the opportunitiesthey provide and negotiate win-win agreements

Contact Info – Tel: (709) 739-5608email: pmd.krinor@nf.sympatico.ca