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MINING LAW INSTITUTE

UNIVERSITY OF SASKATCHEWAN

MINING PROPERTY ACQUISITION AND EXPLORATION AGREEMENTS

A Paper

by Karl J.e. Harries, Q.C.

(Partner of Fasken & Calvin, Toron'to, Ontario)

MINING PROPERTY ACQUISITION AND EXPLORATION AGREEMENTS

by Karl J.e. Harries, Q.C. (partner of Fasken & Calvin, Toronto, Ontario)

Agreements relating to the acquisition of mining properties are no more than ordinary commercial documents which happen to deal with that strange and mysterious asset, a mining

property. The agreements are negotiated between two or more parties in the usual way, the only "problem" being that over the

years many ac,cepted concepts or customs of the trade have

developed and have been refined. They are fluid in the sense that a custom is not a hard and fast rule but rather a method of procedure that must be adapted to the circumstances and the subject matter of the transactionso With the involvement of the oil companies in mineral exploration, some hydrocarb.on concepts and terminology have become relatively common in the mining industry although, again, the concepts have been modified. The mining "joint venture agreement", "farm.,..!n" or "operating agreement" may be quite different from its oil and gas relative of the same name. In the mining field, a discovery hole does not indicate a potential "field" but rather the mere indication that there may be "something". The "something" may be nothing, a potentially large base metal mine or a small precious metal mine. In any event, there will probably be a lot more work and expense required before an orebody can be established, let alone any return therefrom.

SCOPE OF PAPER The scope of this paper will ~e limited to certain

types of those agreements whereby a party may acquire from another party a mining property, either in whole or in part, for the purpose of exploring that property and, if successful, proceeding to development of a mine. This paper is not intended )

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to be a IIpaint by numbers" guide to the drafting of a mininy

agreement but rather an attempt to identify certain concepts,

which, from experience, have proven to be either misunderstood or

to create problems. The two sample agreements attached are

negotiated documents which are not intended to be form

agreements. They illustrate both the good and the bad points

raised hereafter.

For convenience or reference, the term tlacquiror"

refers to a party which is acquiring an interest in a property

and the term "disposing party" refers to the party which owns the

interest and is disposing of it under the agreement.

GENERAL

The oil and gas industry has a distinct advantage over

the mining industry in that, through its associations, there have

been developed accepted or standard form agreements which are

known within the industry and, if referred to by name, are a

known quantity. This is not true in the mining industry where,

even with the growth in the use of joint ventures over the past

years, no standard provisions have been developed or adopted in

Canada. Accordingly, if ,a "farm-in agreement" or "working option

agreement ll or IIjoint venture agreement" is referred to in

conn'ection with Canadian mining, the description means very

little and will mean different things to different people. This

is not as true in the United States where some associations, such

as The Rocky Mountain Mineral Law Foundation, have established

some forms of agreement which have been adopted by some companies

in certain ge'ographical areas. The adoption is by no means

universal and often, the so-called adopted agreements are changed

qUi 1:.e substantially'. In this connection, The Rocky Mountain

Mineral Law FOUndation has sponsored two seminars on mining

agreements, the papers from which are available from that

Foundation. l The papers have been well done and are worth

reading but they should be read with care as they are based upon

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us legal concepts which, in many instances, are vastly different

from Canadian ones.

For the most part, it would appear that the us mininy

agreements tend to be much more complicated than do the Canadian

ones. This could well be due to the fact that in many states the

mining laws are archaic as are the real property laws. In some

instances, properties have been dealt with many times often with

some interest, usually of a royalty type, being retained by the

disposing party in each instance. To a,dd to the problems, each

disposing party has probably had his own ideas as to what would

be an appropriate interest to retain, so that there may be little

similarity between the various overriding interests or

royalties.

PRELIMINARY CONSIDERATIONS Before proceeding to consider matters relating to the

agreements themselves, some preliminary matters should be

considered, as they will have to be considered before an ayree­

ment can be entered into. Some of these are obvious but others

may trap the unwary~ It is not intended to discuss these matters

but merely to mention them.

Some matters which should be considered are:

(a) What is the nature of the mining property? In most

Canadian jurisdictions, an unpatented mining claim is

no more than a licence granted by the Crown to enter

upon the described lands for t~e purpose of exploriny

the same o The licence is granted on a year-by-year

basis and certain requirements must be met for the

licence to be renewed. In addition, in some jurisdic­

tions, a mining claim can oe renewed for only a maximum

number of years and upon that maximum being reached,

the claim must be discarded or taken to the nex,t higher

form, of title (usually a mining lease). freehold

property or leases will probably be subject to normal

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real estate considerations, as, in many jurisdictions

after issue of a mining lease or patent, title

questions relating thereto are resolved not under the

mining laws but rather under the real property laws.

(b) Does the disposing party own the property? IrHth mining

claims, usually the Mining Recorder's record is

definitive and cannot be questioned. In most juriSdic­

tions, the Mining Recorder will supply tor a nominal

charge a certified copy of the record relating to the

claim. In some jurisdictions,2 the yoverning

legislation has gone so far as to provide specifically

that the acquiror may deal with the recorded owner and

the recorded owner is deemed to be the actual

owner.2 Prudence would, however, re~uire that

every known interest holder or alleged interest holder

be included as a party to an acquisition agreement.

With other forms of property, it is prudent, althouyh

not often done, to carry out a full title search so

that the acquiror knows what he is acquiring and if

there are ~ny "clouds" on the title.

(c) Is the disposing party to have an interest only in his

property or is his interest to extend to any other

property interests acquired by the acquiror within a

defined area? If an area of influence is to be used,

it must be clearly and precisely defined. The use of a

dull pencil on a small scale map can and has lead to

lawsuits. A map may be convenient to include for reference purposes (only), but a latitude and longitude

or distance from clearly defined points of reference is

best. If the usual procedure of defining the area in

terms of a distance from the boundary lines of the

acquired property is used, care should be taken to

avoid an expanding area of influence as "tie on"

properties are staked or acquired. The distance must

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( d)

be clearly indicated to relate to the boundaries ot

lithe property" as constituted at the date ot the

agreement. It may also be advisable to have the provision terminate at some defined time, such as the

making of a production decision.

Are there any special requirements that the aC<Juiror

must meet or be aware of? In most instances, it is

prudent for the acquiror to obtain a prospector's or

miner's licence if unpatented mining claims are to be

acquired. In some jurisdictions, this is

ma~datory.3 In addition, although there may be no

restriction upon a foreign acquiror acquiring ,

unpatented mining claims, it may be that there will be

some limitation upon the right of a foreign acquiror to

obtain a mining lease 4 • In this connection, in

virtually all jurisdictions, an unpatented mining claim

cannot be mined and a mining lease or patent must be

obtained before mining operations commence. Finally,

if the acquiror is primarily interested in obtaining

feed for a plant situated outside of Canada, it would

obviously be interested in any restrictions Which miyht

bear on this. 5

(e) Is the acquiror looking for a mineral which is subject

to special legislation, requirements, policies, or

considera-tions, such as radioactive minerals or coal?

(f) Has the acquiror complied with applicable laws of

general application? These would include such things

as approval under the Foreign Investment Review

Act 6 (remember that even if the acquiror is already

involved in the mining industry, it may still require

approval if a different classification of minerals is

involved or if an acquisition of control is involved)

and qualification under applicable extra-provincial or

extra-territorial qualification requirements.

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The above items are things that corne to mind imme­

diately and depending upon the circumstances, there will be

numerous others. It will often be found in discussing these

types of matters and mining agreements generally that the mining

company is very much aware of the chances of success (probably

less than 1%) and would far rather see its moneys being invested

in doing work in the ground rather than ~aying fees to its

professional advisers to carry out a lot of Illegal nonsense" or

to draft a definitive agreement which anticipates success (and

is, therefore, especially in the joint venture situation, a

fairly sizable document). These matters are, obviously, decided

for the advisers by their client, but it is essential that they

at least be discussed with the client, no matter how brietly. It

is a very expensive and time-consuming, ahd possibly impossible,

task to ufix up" a title problem or a bad agreement after an

orebody has been discovered. Recent history indicates that the

glitter of a mining success is often tarnished by litigation.

) Turning now to some considerations upon some of the

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common ~ypes of agreements or provisions relating to the acqui­

sition of mining properties."

PURCHASE OPTION

As the name indicates, the purpose of this type of

agreement is to create an arrangement whereby the acquiror

obtains from the disposing party an option to purchase or to

acquire the disposing party's mining property or an interest

therein. The simplest form that this agreement can take is an

arrangement whereby the acquiror for a period of time may enter

upon the disposing party's property to examine it and, if satis­

fied, may within the time specified purchase the property tor a

cash purchase price. This type of agreement is not common as

disposing parties are becoming more sophisticated and want to

share in the benefits of the orebody which is tlobviously" on

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their property. The result has been that the purchase option

consideration may contain little or no cash but rather leave the

,disposing party with a royalty interest or other partici~ation in

the property. Some "comments relating to royalties are dealt with

below.

In considering the purchase option, the form of qonsid­

eration for the granting of the option and for the granting ot

extensions to the term will have to be settled. Usually, mining

corporations are reluctant to pay cash and would far rather have

consideration based upon a required expenditure in doing work

rela,ted to the property (with the disposing party retainino;; an

interest). On t~e other hand, the disposing party will want to

see some cash for his efforts if only to reimburse him for his

expenses .. - after all, the disposing party is as aware of the

chances of success as the acquiror. The, usual compromise that is

reached is that t~e consideration for the granting of the option

will be at least in part in cash, usually SS,OOO or less, to

reimburse the disposing party for his efforts. This mayor may

not be coupled with an obligation to make a specified amount of

expenditure in doing work related to the property. This initial

consideration will maintain the option in force for between

twelve and eighteen months, whereupon it may be renewed for a

further period or periods of specified lengths of time (usually

twelve months),. It is unusual for the aggreg_ate possible term at

an option to exc~ed five years •. ~ome cash consideration may be

required for each extension and, in most instances, the extension

may not be had unless some specified minimum level of expenditure

has been made, or is committed to be made, in doing work on the ,

property. The cash and/or minimum levels are rarely equal but

rather are s~epped upwards as the extensions proceed so that the

acquiror is "encouraged" to carry out his evaluation of the

property a_s quickly as possible. If minimum levels of exVen­

diture a~e contemplated, care should be taken to provide that any

averages will be applicable to meet subsequent levels. Finally,

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with regard to consideration, if the expenditure of money in

doing work on a property is involved, the option agreement must

clearly indicate whether or not the expenditure is obliyatory or

optional on the part of the acquiror. The mining corporation

would, obviously, prefer to have the performance of work o~tional

on its part and this can quite often be accomplished. As failure

to make a minimum level of e~penditure will result in the

termination of the a9reement, it is prudent to provide that if

for some reason the minimum level is not reached, the acquiror

has a right to pay to the disposing party the deficiency in lieu

of making the expenditure. vJhen an option agreement is negotiated, the parties

rarely discuss other than the "bare bones!! of the deal.

Accordingly, when drafting the purchase option agreement, many

'ancillary matters must be considered, so that the agreement will

work. These. include:

(a) a clear right to enter upon the property and use the

surface for the purpose of carrying on exploration work

and evaluation of the property and to take reasonable , quantities of samples for the purposes of assaying and

testing. If a royalty is involved, it should be made

clear as to whether or not the royalty affixes to these

samples -- it is suggested that it should not. If the

surface rights are owned by a third party, a further

agreement permitting entry may be required.

(b) the right of the acquiror to remove its assets from the

property for a reasonable period of time following termination of the option agreement. It is commonly

provided that if equipment is not removed within the

period, then it becomes the property of the disposing

party. It may well be that the disposing party will

wish to obligate the acquiror to remove all of its

equipment if the option agreement is terminated.

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(c) the manner in which the acquiror is to protect its

interests during the option period. With unpatented

mining claims, the usual practice is that the claims be

trans'f,erred to the acquiror to hold in trust duriny the

:<;,ption period with an accompanying obligation to

retransfer the claims if the option is terminated. In

the case of real property, there is often reluctance on

the part of the disposing party to transfer his

property in th is manner, 'so some al ternat i ve, such as

filing notices against title, must be used. The

escrowing of transfer documents must be used with great

caution unless the escrow holder becomes the registered

owner of the property,.

(d) ,if farming or recreational properties are being

optioned; special covenants may be required by the

disposing party. These could include such things as

closing fence gates, paying stumpage, not cutting lines

in certain areas, not interfering with livestock,

refilling trenches and/or plugging drill holes,

removing all waste and returning drill sites to

original conditi~n (loose wording can make this an

exceptionally onerous requirement), not doing any work

within a specified distance from buildings, and so on.

This list is limited only by the imagination and, in

some instances, to comply with the requirements of the

disposing party may involve considerable expense to the

acquiror.

(e). the state in which the property is to be left upon

termination of the option. In most instances, the

disposing party is satisfied with a covenant to leave

the propetty in a safe state in compliance with the

relevant legislation, but the disposing party may have

some special requirements that must be met.

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(f) a clear statement as to the nature of the rights at the

acquiror insofar as the expenditure of moneys is

concerned. Is the acquiror obligated to make certain

expenditures or are all expenditures and/or payments

under the option agreement in the sale discretion of

the acquiror? In most instances, the acquiror will

assume the obligation of maintaining the property in

good standing during the, term of the option but care

should be taken in drafting this obligation if the

acquiror is not to become the registered owner of the

property as in these circumstances the acquiror will

not receive notices and other documents relating to the

good standing of the property. If the acquiror does

not become the registered owner, the covenant should be

set forth in terms that require the acquiror to

reimburse the disposing party for any costs related to

maintaining the property in good standing, but with the

primary obligation of doing so resting with the dis­

posing party. The disposing party should be required

to provide proof of compliance with tnis obliyation

prior to e. specified number of days before any taxes

become due or other requirements are required to be

met, SO that the acquiror can protect his interests by

mak ing payments, 'if necessary (the a,gree~ent should

contemplate this possible occurrence).

(g) a clear method of delivering notices and deeming their

receipt. This should be realistic and care should be

taken that street addresses and suite numbers are used,

rather than merely post office box numbers. If

personal delivery or oourier delivery is to be used, a post office box number is not of much help. There has

been a growing tendency to omit deemed receipt it

notice or deliveries are made by way of the mails.

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(h) a clear. method as to who is to receive payment and how

it may be made. If there is more than one disposing

party, is the payment to be spILt amongst them and, if

it is, in what percentages? A convenient method for

deeming payment for the purposes of the agreement is to

permit the delivery of a cheque in accordance with the

notice clause, although in these circumstances, fo~ the

peace of mind of the disposing party, there should be a

provision inserted whereby if, in fact, the cheque is

not received or is destroyed or mutilated even thouyh

payment will be deemed to have been made for the

purposes of maintaining the agreement in good standin~,

the acquiror has a clear obligation to replace the

cheque. (i) some "pet ll clauses which the acquiror wishes to insert.

These should not be inserted merely to satisfy the

acquiror unless the qraftsman is satisfied that they

are applicable and enforceable o

The purchase option need not be for the acquisition of

a 100% interest in a mining propertyo It may well be that the

acquiror will only be permitted to acquire up to a specified

interest. This circumstance creates the added complication that

if the acquiror acqui-res its interest in the property, the

property will be owned by two or more parties. The governing

agreement should deal with the precise nature of the respective

interests of the owners, their respective rights to deal with

them and the manner in which the property may be explored,

developed and operated following the acqu.lsition. These addi­

tional factors are usually met by combining the option ayreement

with an appropriate form of jOint venture agreement or requiring

that 'the property be transferred to a newly incorporated

company.

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JOINT VENTURES

The joint venture is the creation of our tax laws. At

common law a joint venture is a partnership but through custom of the trade in the mining and certain other industries it has taken

on special characteristics. In essence, a joint venture is the

joint development and exploitation of individually owned

properties. Within t~e mining industry, suppliers should be

aware that if they are dealing with the operator of a joint

venture, it will have restraints upon its powers to contract and, accordingly, if sizable contracts are to be entered into by the operator, the prudent supplier will ask for some confirmation of

the authority of the operator from the joint venturers. In addi­

tion, although it may not have been tested before the courts, it

is clearly understood within the mining industry that, unlike the

true partnership, the liability of the' venturers is several and

not joint and several. If this understanding is to be relied

upon at law, obvi9usly, appropriate evidence would have to be led

as to the custom in the trade and the involvement of the litigant

in the trade and its knowledge of this custom -- the leading of

evidence could be a problem. The main reason for the increase in the use of joint ventures over the past few years is the per­

ceiv_ed income tax advantages and the large amounts of money

required in order to bring a large project into commercial

production (usually much more than one company, no matter how

large, is prepared to commit to one project). Joint ventures are

also stylish I

For federal tax purposes, the primary tax advantages to

joint venturers lie in the fact that the participation of each

venturer is looked upon as a separate business operation of that venturer as opposed to the partnership Which, for tax purposes,

is considered to be a Single business operation. Each venturer

can take its pro rata- share of avai lable tax deductions for

capital cost allowance, exploration and development expenditures, earned depletion and so on and apply these against its general

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income as opposed to income from the jo'int venture only. With the very low success rate in exploration ventures, this may be an

important consideration to an income-producing mining corpora­tion. The appropriate provincial taxing statutes must also be

considered, as must the individual tax position of each venturer. It is not within the scope of this paper to consider taxation

questions. For many years it was felt that in order to qualify,

for tax purposes, as a joint venturer, each venture'r had to agree to pay its' pro rata portion of operating costs and to take its

pro rata portion of product produced from the joint venture operations in kind. The venturer would then. be left to dispose

of the product 6n fts own and for its own benef it. This concept

was inherited from the United States taxation laws and may not be an absolute necessity in order for an arrangement to qualify as a

joint venture in 'Canada. Taking product in kind is certainly a

strong indicia of joint venture as opposed to partnership but

during recent discussions had with Revenue Canada, Revenue Canada

has indicated that even if the joint venture arrangements call

for the sale of all product and the dividing up of resulting

IIprofi ts ll, this alone may not destroy the joint venture and cause

it to be a partnership for tax purposes. Notwithstanding, it is

still preferable for the joint venturers to agree to take their

product in kind rather than have the operator sell it as part of

the jOint venture operations. The operations of a joint venture need not, however, stop at the ore stage and can include further

processing, even on a custom basis, so that the product is a

concentrate or refined material. f'rom a practical lJoint of view,

any problem created by a venturer being obligated to take its product in kind can be overcome by venturers pooling their

product and entering into a separate agreement for the joint sale

of their product by a single selling agento ~uch an arrangement

mayor may not call for the selling agent to be paid a commission for his efforts. The selling agency agreement should not torm

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part of the joint venture agreement. In such a selling agree­ment, it is important to set forth clearly how revenues and costs

will be shared if all of the product available is not sold or

different prices are obtained.

In essence, the joint venture agreement should be

capable of taking a project from its earliest stages of

exploration to commercial production and subsequent operations.

This is not to say that it must attempt to anticipate every

possible eventuality. This would be impossible. In fact, in all

likelihood, the venturers will not even be able to tell the

draftsman what type of mining or milling methods they expect will

be appropriate -- they probably do not even know if they have a

potential orebody. The venturers must have some procedure set

forth in the agreement that they may follow in order to reach a

decision if there are differences of opinion. As is discussed

below, in a two-party joint venture this is a problem but in a

multiple-party joint venture, the problem is less acute.

For convenience of discussion, the remaining comments

upon joint ventures are set forth below in several separate

sections. The individual section should not be considered to be

exhaustive or self-contained as many parts raised in one section

will have application in one or more of the other sections.

A - General A joint venture may be established:

(a) ~o carry out "grass rootsl! exploration projects in which event none of the parties have any properties at

the time the joint venture arrangements are entered into and properties acquired under the arrangements

will be owned proportionately by· the venturers as their

respective interests appear under the joint venture

agreement (usually based upon their respective contributions), or

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(b) where several parties each own properties and it is to their advantage to "lump them together II so that they

may be jointly explored and developed and, hopefully, brought to production and operated as a single "joint

venture operation. In these circumstances, the respec­

tive initial interests of the joint venturers will be a highly negotiated matter and depend upon the relative "values" of the properties to be brought into the joint

venture, or (c) where one party has some property in which some other

party or 'parties wish to acquire an interest and there­

after develop and operate the property by way of joint venture; or

(d) where one party, usually a geologist, has developed a

theory which is interesting to several other parties

who will finance the implementation (and hopefully proving) of the theory and do this by forming a joint venture for the purpose. Usually the geologist does not contribute money and is ~he party that carries out the work, thereby benefiting by having an interest if the project succeeds and by creating a job for himself and his staff. This type of project is becoming more common, or

(e) a combination of one or more of the foregoingo

A joint venture of the type referred to in subparagraph (c) above has a couple of special considerations. It is a combi­nation of an option to acquire an interest followed by a joint venture if the option is exercised. The oil terminology of "farm-in u is becoming quite common to this type of arrangement, which usually contemplates the acquiror acquiring its interest by doing a specified dollar value of work. This work will often be done by the disposing party using the acquiror's money. Obviously, the acquiror will have its own ideas as to how its money should be spent and, accordingly, will want to have

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provision~ in the agreement whereby it has, at least, a veto

right with respect to work proposed to be carried out by the

disposing party. The acquiror wishes to obtain as. much infor­

mation about the whole pro!;)erty as it can for the smallest amount

of expenditure, whereas the disposi,ng party wants to enhance the

value of its property and may ~ell want to concentrate expen­

ditures to work in a small part of its property. Some

interesting negotiations can result. Usually the ac~uiror will

have the right, as it would under the option arrangement, to

abandon the proj,ect at any time but without any right to be

refunded for any moneys th.at it has paid and this may end up to

be its only protection, again$t what it considers to be wasteful

expend.itures. In 'addition, it must be remembered that although

in theory a precise ,dollar expenditure will occur at a precise

moment in time, in practice, this will not happen. Accordingly,

some care ,should be take!) so that work does not have to stop

completely and new programmes be prepared at the moment the

acquiror earns its i~terest. Most companies are prepared to

accept the concept that the programme current when a required

expenditure is reached. may be completed, usually with the party

that is doing the work paying for excess costs (those over and

above the amount r~quired for the acquiror to earn its interest)

which are then incl~ded automatically as part of the first

programme to be carried out under the joint venture.

Some matters which should be considered when preparing

(and negotiating) a joint venture arrangemen,t include:

(a) the preparation, proposal and approval of work

programmes

- must they he annual programmes or may they cover an

arbitrary period of time?

- is there any maximum dollar value which may not be

exceeded without consent? If there is such a maxi­

mum, it is suggested that there be some provision

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whereby it will "fa11 away" during advanced explora­

tion and development stages of work.

- is there any minimum dollar level required?

(b)' procedures relating to the election by the particiI->ants

as to whether or not they will contribute to an

approved prog'ra!YlIite

- during e'arly stages usually thirty days I considera­

tion to make the election is considered to be suffi­

cient but in later 'development stages where major

expenditures may be called for, it is more common to

have a longer period of time. In the case of junior

public 'companies especially, the time limits will be

of great concern as the junior company may have to 'arrange to finance its participation (otten by w,ay at

a public issue of securities);

- if a party fails to elect to participate within the

specified time limit, should it be deemed to have

elected to participate or to' have elected not to

'participate?

(c) effect of election to participate

- if a venturer elects to participate in a ~rogramme,

it should be o-bllgated to cO'ntribute to that

programme an amoun't equal to its interest under the

joint venture arr~ngements, plus a contingency amount

(usually 10% to 15%),

(d) effect of election not to participate

- in most instances the non-participant's interest will

be diluted in favour of the participating venturers

as the participating venturers contribute further

moneys.

- in lieu of dilution, an interest can immediately

drop to a "carried ll level.

- if one or more venturers elects not to participate,

are the other venturers entitled to reduce the

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expenditures under the programme (pro rata or to a

specified, minimum level) without a new programme

being ,thereby created or must the participating

venturers carry out the entire programme as

approved?

- if a venturer elects not to participate in one pro­

gramme, may it participate at its reduced interest in

future programmes?) This is usually a highly negoti­

ated matter. Usually a major corporation does not

wish to accept the re-entry .concept on the basis that

t,he early work is of, a highly speculative nature and

a party that is not prepared to take the risks should

not later be entitled to maintain an interest when

such work proves to be successful.

- if the participating venturers do not complete the

approved programme or complete the approved programme

to the specified level (usually between 70% and 85%

.of estimated expenditures), what rights do the non­

participants have? It is becoming common to permit

the non-p~rticipant to pay its pro rata portion of

the actual costs incurred and thereby revert to the

participating, status and interest that it had

immediately pefore the approved programme was undertaken.

(e) if large geographical areas, are subject to the joint

venture, the possibility of more than one orebody or

area of interest. This may sound overly optimistic

but it should be anti~ipated, particularly in situa­

tions where IIgrass roots ll exploration is to be carried

ou·t over an area of, say, several hundred square miles.

This can be accommodated by inserting provisions for

the designation of areas within the joint venture area

which ~ill be considered as separate and distinct lI mini-joint ventures," within the framework of and

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subject' to the same terms as the main joint venture.

Following designation, all programmes, books, records

and so on will be segregated and kept separate~

'p8'rticipations may vary from those in the joint venture

area not designated or from other designated areas; a different operator may be -appointed~ and other varia­

tions can be -accommodated. The object is to provide the prarties with' the mechanics' to permit flexibility

without renegotiation of the arrangements. (f) provisions providing for a met-hod to commission a

feasibility study, to consider the completed feasibil­ity study and amend it if necessary, and to approve the

feasibility study - although a feasibility study may be produced

II in-house II by a major company, the venturers should

have the right to reqire an opinion from an accept­

able 'consultant to the effect that he has reviewed the fe'asihility study, agrees with it and is of the

'opinion that its ~ecommendations are in keeping with

good mining practice and reasonable and that the

suggested project is commercially viable. The . consultant should not be asked to do a further

feasibility study' but merely to confirm the "in-­house ll study. The cost of the 'consultant should be a

'joint venture expense as an independent opinion will no doubt be required if' a patty has to raise finan­

cing for further participation. the agreement should contain a definition, in general

terms, as to what is expected to be included in a feasibility study. Problems arise if this is not

done as the views of the respective venturers may well vary widely, e.g. in the circumstances of the

agreement, would a preliminary feasibility study constitute a "feasibility study"? If the ayreement

- 19 -

)

) provides that the preparation of the "feasibility

study" is a condition precedent to the obtaining of a

substantial interest in the property by one ot the

parties, the answer to such a question will certainly

be of interesL

(g) procedures for the implementation, approval and

participation in a development programme

- usually the development programme will be based upon

the recommendations of a positive approved feasibil­

ity study, will be carried out over a period lonyer

than one year and will require the contribution at

s_ubstantial amounts of money by participants. It is

this programme which will contemplate the project

being taken from the feasibility study stage to

commercial production.

- if there have been any dollar or time constraints

upon prior programmes, they should not be ap~licable

) to a development programme.

)

(h) procedures to be followed if a venturer, having agreed

to participate, defaults in its obligations

- usually default is divided into two categories, one, the more serious, relating to default with respect to

a development programme and the other, ot lesser

significance, with respect to any other programme.

- if default occurs in other than a development programme, it is commonly provided that the party

will suffer dilution and be considered to be a

non-participant as at the commencement ot the

programme. The defaulting party may be forgiven its

obligation to pay its proportionate part ot the

programme.

- default with regard to a development programme can

have very serious consequences due to the mega

dollars which may be involved in the project.

- 20 -

Accordingly, the consequences of default should be

appropriately'dire as well. The attached form of

joint venture agreement contains a very extensive and

complex provision relating to default under a

development programme which has been accepted in a

number of joint venture agreements by both major and

junior corporations. It is only one ot many

possibilities. In considering this matter, it should

be kept in mind that if the terms are too strict, the

courts may attempt to construe them as a penalty.

(i) providing in s'pecific terms for the powers, duties and

obligations of the operator, including its right to

invoice participants for contributions and their

respective obligations' to pay the invoices within a

specified period of time

- conceptually the operator should be in charge of

day-to-day operations of the joint venture but should

not have the power to make basic substantive or

policy decisions which one would expect to be made by

the property owners.

if a development programme is commenced, is the

operator entitled to receive, in addition to reason­

able administrative and overhead expenses (usually

limited to or specified as a percentage of costs of

the programme), a management fee for acting as

operator? If the operator is to be entitled to

receive a management fee, Some procedure to settle

this must be provided for. In addition, provisions

should be made for changing the quantum of the fee

once the project has been brought into commercial

production. Hopefully, the parties will be able to

give some guidance as to the range of fees but a tee

will not be able to be specified in the agreement.

One method that has been accepted is to set forth a

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maximum level and then provide that if a fee cannot

mutually be agreed upon within thirty days after

being requested by the operator, then it will be

fixed at not more than the specified level by

arbitration.

<i) providing for the disposition of product <as mentioned

above, jOint venturers will, in all likelihood, agree

to take product in kind)

- provisions must be inserted to protect the operator

so that it is not placed in ~he position of haviny

paid operating costs and not having the riyht to

retain a venturer's product and sell it if the

.venturer does not pay its accounts. Remember also

th_at operating costs can exceed revenues from the

sale of product.

- in drafting provisions relating to the takiny of

product in kind, it must be remembered that, in fact,

these prov,isions may become operative (i.e. there may

be no selling agency agreement) and, accordingly,

they must be practical. If the product of the joint

venture is ore, it may be difficult to divide such

pr-oduct eqiJi tably amongst the joint venturers.

Unfortunately, ores do not have a consistent grade or

consistency. It may be advisable to provide

specifically that the joint venture op~rations will not produce ,ore as a product but rather will produce

a product which has been concentrated or otherwise

beneficiated (either by the joint venture or on a

custom basis) so that it may be divided equitably

amongst the venturers.

(k) provisions relating to disposition of interests

- it is usual to provide for a right of first refusal.

Some care should be taken in drafting this type at

provision in order that it is practical. It is

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suggested that a right which requir~s the offering

party to have in hand a bona fide offer is not worth

the paper it is printed on and may, in essence, be a

prohibition against transfer.

- numerous other areas relating to this subject should

also be considered, such as: right to ass'ign to

associated or affiliated companies; right to charge

the property interest to raise participation moneys;

requirement of any assignee or mortgagee to ayree to

be bound by the joint venture agreement 1 and so on.

In addition to the foregoing list, there are, obvi­

ously, required numerous of the more normal contractual ty~e

provisions, such as representations and' warranties; force

majeure: notice clauses; termination clauses; etc. The form of

agreement accompanying this pa~Yer to a large extent deals with many of the above enumerated subjects and the general provisions.

It does not represent a specially drafted or ~ideal" joint

venture agreement but is merely an agreement from which parties'

riames have been deleted and which resulted from negotiations.

Accordingly, it has its own problems and in some areas shows the

tlwrongll rather than the "rightll approach.

One final word with regard to general provisions has to

do with termination. Care should be taken if it is intended to

permit a party to terminate its participation under the joint

ventur'e agreement by transferring its interests to the other

venlurers. This is quite a cOrnman provision but consideration

should be given to providing that this cannot be done once a

property has been brought into commercial production. The reason

why this limitation is suggested is in order to avoid a "race" to

terminate the agreement as the life of the mine approaches its

end. The venturers that have reaped 'the profits from the mining

operations should equally continue to be liable to participate in

the liabilities 'relating to reclamation and environmental requir'ements once the operations have been completed -- unlike a

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partnership, the joint venture structure does not accommodate the

establishment of reserves for contingencies.

B - Multiple-Party Joint Venture

In using the term multiple_party joint venture,

reference is being made to a joint venture which has more than

two participants, all of which have an interest in the property

and are participating. In these types of joint ventures, the

concept of a management committee is usually used to make decisions and, hopefully, settle disputes. The management

committee may be composed of named representatives ot the

venturers who are specifically given the power to bind the

venturer whom they represent. It is prudent to provide in the

agreement for alternate representatives who may act in the

absence of the primary representative. The agreement may

identify alternates by name- or may permit a representative to

name an alternate by notice to the other venturers. It is

strongly recommended that the situation be avoided whereby a

representative'does not have full power to bind his venturer as

this can make management committee decisions meaningless in that

they are still subject to "executive approval" with the result

that decisions (and therefore the project) are delayed and

confusion may well result.

Some consideration should be given to the provisions

relating to the calling and holding of meetings and the general

procedural aspects relating to the management committee. In

many ways, these provisions will be similar to the general

by-laws of a corporation. Attention must be given to notice,

quorum and the percentage of votes required to carry a resolution

of the committee. The quorum should be sufficiently high to

ensure that one party does not dominate unless it has a very

substantial interest. The same considerations must be addressea

when the required percentage majority to carry a resolution is

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fixed. Often in a joint venture having multiple parties, there

is one party which has a substantially smaller interest than the

others. Especially in a three~party situation, this small

minority party could hold the deciding vote and, in essence, make

all the decisions for the venture. In addition, it must be

remembered that in all likelihood the joint venture arrangements

will include dilution provisions so that in" the future voting

percentages will change. This is certainly fair but sooner or

later it may well result in one party clearly controlling the

joint venture. With.in the mining industry, conceptually, control

by a majority interest holder is an accepted feature but there

have to be some restraints on the majority holder so that it does

not "go off on a frolic of its own".

It should be specifically provided in the agreement

that a decision of the management committee reached in accordance

with the requirements of the agreement is binding upon all ven­

turers whethe'r or not they are participating and whether or not

their representative' was present at the meeting. This is an

essential ingredient and, hopefully, will "solve" potential dis­

putes before they arise. The agreement should contemplate that

resolutions may be passed at a meeting or by written resolution

and, in addition, it is well to provide that representatives may

attend the meeting by conference telephone. These prOVisions

will no doubt seem elementary to you but it is surprisiny how

often they are left out of joint venture agreements by a

solicitor who is meticulous as to what must be included in the

general by-laws of a corporation. It must always be borne in

mind that a joint venture must stand alone and there is not a

body 'of underlying legislation which may be looked to to hell,)

cure defects.

With the administrative and procedural matters of the

management committee looked to, the next matter that must be

addressed is the scope of the powers that the management

- 25 - )

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committee will have. Some of these will be negotiated and some

of them will be Ustandard". Depending upon the circumstances of

the transaction, it may be that the venturers require that

certain decisions of major import, such as a material expansion

of facilities or the acceptance of a feasibility study, be by a

large percentage of the interest holders or even by unanimous

agreement. The latter is, obviously, dangerous and it is

suggested that it be avoided. It must be remembered that if

unanimous agreement is specified, it means just that and would include any party that had an interest in the property even

though it may be a diluting and non-participating interest which

is on the verge of being forfeit.

It waS mentioned above that in a multiple-party joint

venture agreement, the management committee may serve the VurVose

of settling disputes on the basis that by- following specified

procedures decisions can be made which bind all of the parties,

even a dissident party. This presumes that the venturers are not

acting'arbitrarily or trying to improperly tlsqueeze out tl another

venturer. If this type of situation arises, there are serious

problems' which are probably best referred to the courts for

decision. Arbitration may be used for this purpose, but it has

been found that in seve~al jurisdictions the laws relating to

arbitration are best avoided, although, if the venturers are

European they may prefer to have disputes settled by means ot

arbitration rather than by the courts. If arbitration is to be

used, the- draftsman of the' agreement should not merely put in the

two line provision that arbitration will be h-eld in accordance

with the relevant statute but rather should carefully consider

the best procedures which should be followed and in some circumstances it may be better to provide that special

arbitration rules, such as those of the International Chamber ot

Commerce, will be applicable. This matter should be discussed

with the client.

•

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In essence, as with any agreement, a joint venture

agreement will run smoothlY only sq long as the parties are

co.-operating and happy.

c - Two-party Joint Venture

For many years, the mining industry has avoided the

two-party jo.int venture and ,especially a 50/50 Joint venture ..

The small percentage which gave one party a de facto majority

interest wa,S sacrosanct. The reas~>n for this attitude was quite

simply that in the IIgood old days" everycne accepted the concept

that the majority interest hclder would govern and, "af ccurse",

it wculd act reasanably, especially i~ the majority interest

holder was one af the majcr campanies. Unfartunately, the "yco.d

old days" have passed and we seem to. be inheriting a litigious

attitude to. matters. In addition in Scme areas, it wauld also.

appear that co.rporate ethics are being sacrificed ,to. the

ccrporate pro.fi,t and lcss statement. It would be interesting to. carry cut a survey cf the litigicus histo.ries af o.rebodies which

have been braught. into praducticn in, say, the last fifteen years

as apposed to. those braught into. pro.duction earlier. We have

certainly seen fram arebadies such as the Kidd Creek depo.sit in

Ontario. a,nd the Afto.n mine in British Cclumbia that the disccvery

of a majo.r orebady may benefit not only the mining and minerals

industry but also that portion cf the legal profess ian which

practises in the litigation field. In considering a two-party jcint venture, it must be

accepted that in any twa-party situation d,ecisians are made in

o.nly cne cf two ,waYs -- they are either unanimous or unilateral.

Frem a practical point of view, it wauld be impassible to. carry

on an exploratien and development jaint venture if every decision

had to. be unanimeus. Geolagists and mining engineers being

professionals are just as bad as their legal brethren -- it you

put the same problem to. six of them, you will be lucky if yeu

only get five different answers. AQcardingly, in the two-party

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joint venture, it is necessary to decide what, if any, decisions

are ,so basic that they must have unanimous approval and failing

unanimous approval, the project will be suspended or broken up.

It is interesting to note in passing that often when there are

two major companies involved in joint venture arrangements,

usually the acquiror that is entering the project, is prepared to

let the disposing party act as operator with wide discretion so

long as Some safeguards are built into the agreement to avoid

arbitrary or unreasonable actions. This is not overly surprising

as the disposing party very likely has a "track record lt and the

acquiror will have reviewed the records of the disposing party

relating to the project and discussed the project with the

geologists and executives involved in order to determine how they

intend to proceed. If the acquiror enters into the agreement,

its investigations have, obviously, disclosed an .,acceptable

method of proceeding in which the acqutror is prepared to

participate. This is a commendable attit~de but it m~st be

remembered that even though corporations may never die, their

executives and executive policies certainly change, sometimes on

a daily basis.

The mining industry seems to have a "fixation" with

that marvellous decision-making body the management committee.

As is indicated under the preceding section, the committee

certainly. has its uses but not in a two-party agreement. It the

traditional management committee concepts are used in a 50/~O

venture, all decisions are automatically unanimous, or, in a

majority/minority venture, it will likely be that all (or at

least most) of the decisions will be the decisions of the

majority party. It is interesting to speculate as to what legal rights a minority interest holder may have inadvertently waived

if it has agreed to a situation where management committee

decisions are binding on all participants and the management

committee is controlled by the majority party who is also the operator. \'Jhat would be the effect and what rights would the

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minority interest holder, who has agreed that management

committee decision are binding, have if the management committee

decided on a method of proceeding which was not in accordance

with good mining practice and lIinstructed ll the operator to act

accordingly?

It is suggested that in a two-party jOint venture there

be no management committee, however, there should still be a

committee. This committee would be only a "forum for discussion ll

and would not be a decision-making body. At first glance, this

would appear to be a rather needless IIlawyer's provision". This

is not so. lt will provide the right to a minority interest

holder, or the non-operator, to require the operator to sit down

across the table and discuss the project both generally and

specifically, the operator's reports (or lack thereof), work

carried out, results and costs·of such work and plans for the

future. Hopefully, it would not be necessary to force the

operator to do these things but it might be. This type of

meeting can be informal and does not require the extensive

provisions contemplated in the preceding section. Even though

the concept of a decision-making management committee may not be

present, it is suggested that it is still desirable to have named

representatives for each venturer who have the power to bind the

venturer whom they represent. The venturer will probably want to

provide that the representative does not have the power to amend

the agreement but at least there are named persons upon whom the

other venturer can rely with regard to the matters relating to

the project.

If it is decided to "trust ll one of the ~oint venturers

and permit it to act as operator and to have wide discretion,

then the other party is going to want to be safeguarded to some

extent from arbitrary or unbusinesslike decisions. There are

numerous things that can be done to accomplish this, some of

which are:

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(a) a limitation be put upon the maximum expenditures under

any programme of work proposed by the operator. This

is not practical during development stage but does work

at exploration stage. It must be remembered that

unless the agreement permits only annual programmes,

the limitation may not be effective.

(b) as indicated above, provide that certain decisions

require unanimous agreement. This may not be practical

and could result in a gOOd orebody not being brought

into commercial production or being brought into

commercial production much later than would otherwise

happen.

(0) provide a procedure whereby the operator may propose

programmes of work in consultation with the other

venturer and attempt to reach consensus on an accept­

able programme. This is a "pious hope" concept but

quite often discourse between the parties does disclose

common grounds and thereby avoids potential disputes.

In extreme cases, the use of a consultant, as discussed

in the next subparagraph, may be incorporated with

respect to all programmes, but if this is done consid­

erable delays, and possibly expense, in settling

programmes can be expected.

(d) permit either venturer to require a feasibility study

to be prepared but with regard to the approval ot the

feasibility study, require confirmation of the reason­

ableness of its proposals by an independent consultant.

Even with such a confirmation, if there is a dispute

relating to ·a development programme as contemplated in a feasibility study, then major corporations are

usually prepared to accept a procedure whereby the dispute is referred to a mutually acceptable indepen­

dent consultant who answers only the question whether

or not the proposed procedure is reasonable and in

- 30 -

kee~ing with good mining practice. If his answer is

affirmative, then the questioned procedure is settled

and may be proceeded with. If his answer is negative,

then the operator may not proceed with the questioned

procedure and the consultant may then address the same

question with res~ect to any alternative ~rocedure

suggested by the other venturer. If the alternative

procedure is found to be in keeping with good mining

practice, then that procedure will prevail and the

operator will be obligated to follow it. If not, then

the parties will have to start afresh. It is important

that the consultant not be asked. to propose his own

~rocedures as this could be time consuming and

expensive and could well result. in something that is

not acceptable to either of the venturers. The

procedure suggested is really not put forward as a

"cure-ali ll but is a method whereby the operator can be

"kept honest". It also has the advantage that no major

corporation would want to have it known within the

mineral industry that its jOint venturer was so

concerned with its proposed procedures that it required

them to be referred to an outside consultant. The

threat of this can be expected to lIencourage" the

operator to sit down at the table and attempt to reach

an' amicable solutiori to the problem. The sugges-ted

procedure will not provide an answer, for the varying

corporate philosophies, such as the rate at which an

orebody should be mined, and the non-operator will

certainly be to some extent at the mercy of the

operator's internal' corporate philosophy upon matters

such as rated capacity.

(d) provide that disputes be settled by arbitration. It is

suggested that this is unacceptable and would result in

numerous expensive and time consuming delays. In

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addition, the resulting decision of the arbitrators

would, very possibly if not probably, not satisfac­

torily decide the dispute or offer acceptable alter­

natives.

It should be remembered that in a two-party joint

venture agreement, there is a reasonably good chance that in the

future there will only be one participant with the other venturer

being non-participating and suffering dilution to some specified

end point (see next section). In these circumstances, the

operator should be left to proceed with the project in its discretion but should still covenant to act in accordance with

good mining practice. In addition, so long as the non­

participant has an interest in the property, it probably should

receive some form of annual report with particular emphasis upon

its rate of dilution, but other rights which it enjoyed as a full

participating venturer should fall away.

Finally, there is always concern in the mining inaustry

that an operator may decide to "shelve ll a project. It is a

mistake to put in any agreement a firm obligation to briny a

property into commercial production -- this could be an expensive

and frustrating "covenant. It is, however, suggested that some

comfort to the minority party may be provided by the inclusion of

a provision whereby if an operator does not carry out work or

propose a programme over a specified period of time (often one

year), then the other venturer (if participating) may propose a

programme which the operator may adopt as its own (and thereby be obligated to participate and carry out the programme), or, permit

the other venturer to carry it out as operator but par-ticipate therein and thereby retain its interest, or, do neither of the

above, in which case it would become a non-participant. If the

proposing venturer becomes the operator, it would continue as

operator under the agreement thereafter, subject to the same

reciprocal rights.

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o - Non-particieation

Although the subject of non-participation was referred

to earlier in this paper, it is of sufficient importance to be

dealt with separately. A joint venture agreement will have to

provide a procedure to give effect to the venturers' wishes with

respect· to the effect of a party deciding not to participate in

a programme. It is a matter of negotiation as to whether the

non-participation in one programme bars the non-participant from

any further participation for the life of the venture or whether

the non-participant may re-enter at its lower interest rate for

subsequent programmes. It is accepted practice to provide that a

voluntary non-participation (as opposed to default in payment)

results in the non-participant's interests in the project beiny

diluted in favour of the participating venturers as they continue

to fund programmes of work. This is usually accomplished by

proportionate dilution as further contributions are wade, such

that each party's interest under the agreement is equal to that

percentage of the aggregate contributions of all parties that

were made by such participant~ Lf the arrangements are of the

farm-in type where there has been a period of disproportionate

contributions, then this will have to be provided for in the

formula. This can be done by: (i) ignoring them and disre­

garding any cont,ributions made during the farm-in periodl or (ii)

taking the aggregate of the contributions made during the farm-in

period and pro rating them on a "deemed basis" amongst all

participants pro rata to th~ir respective interests in the joint

venture: or (iii) allocating to each party a deemed expendi,ture

based upon the actual contribution made by the party or parties

that contributed during the farm-in period, such that the

aggregate of the deemed and actual contributions during the

farm-in period is allocated amongst all of the venturers pro rata

to their respective ·int.erests. It is surprising how slowly a

party's interest will be diluted under this type of formula and,

accordingly, it should be noted that the first method referred to

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above will result in a more rapid diminution of interest than

will the other two. This difference will not be particularly

significant after substantial moneys have been expended but can

be very significant in the early stages.

Although the proportional diminution is the most common

method, virtually any method acceptable to the parties may be

provided for. The main concern is to have the method clearly set

forth so that it can be clearly understood by the parties that

will have to implement it. The draftsman should not be concerned

about setting forth a formula in lieu of trying to express a

complicated procedure in sentence form - remember technically

oriented people will be trying to implement the agreement.

It is advisable to provide in any dilution provisions a

provision that if a party is reduced to a certain specified level

of interest, it ceases to have an interest in the property or in

the joint venture. Usually this interest lies between one and

ten percent. The reason for this type of provision is obvious;

the participating venturers do not want to be bothered with low

percentage holders who will be -really nothing more than nui­

sances. It is a matter of negotiation as to whether at the

specified level the interest of the non-participant is forfeited

to the other participants and the non-participant "disappears",

or if the interest is forfeit but in return the non-participant

receives a royalty interest. If a royalty is to be received, it

should be made quite clear that it is merely a contractual right

to be paid moneys and does not entitle the recipient to any

rights. under the agreement which it formally had as a partici­

pant. More is said about royalties later in this paper.

In drafting dilution provisions, care should be taken

to ensure that -only active participants share in the diluted

interests. Situations have arisen where even though a party is

non-participating, it is receiving the benefit of another party's

non-participation. This is, obviously, an undesirable and

ludicrous situation.

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E - Conclusion

A jOint venture agreement is a bulky and formidable

document. There are no shortcuts available. Some corporations

like to enter into what they term exploration joint venture

agreements, i.e. they only cOQtemplate exploration work. This is

_presumably done on the basis that the chances of a mine being

found are remote, therefore a short agreement relating to

exploration is appropriate. These agreements usually contemvlate

that a joint venture agreement or operating agreement will be

entered into at some later stage. If it is ever intended to

follow this route, it must be remembered that at law an agreement

to agree is not binding and if a mine is found, the smallest

interest holder has just as strong a negotiating position as does

the largest interest holder if their relationship is not clearly

spelled out in a binding document, such as a definitive joint

v,enture agreement.

Due to its formidable size, it is often difficult to

have a client read the entire agreement. It is intimidated by it

and, therefore, reluctant to "tackle the projectile This places

its advisers in a particularly difficult situation. Sometimes

the physical layout of the agreement may help. If the sequence

of topics are in a logical order to the reader 'with a minimum

number of cross--references, it will be easier for the technical

person to undertake the chore of reading ~he agreement. The

draftsman should not be dogmatic in how the agreement. is to be

structured or laid out. In addition, the supplying ot a com~re­

hensive index will often ease the burden of the cliente As

lawyers, we often sacrifice readability for what we perceive to

be clarityo Unfortunately in our passion to cover every possible

contingency, we accomplish a frightening jumble of words for the

layman to try to read and understand. If our agreements are not

understandable to the people that have to use them, they are very

close to useless.

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Finally, no agreement can substitute for trust, good

faith and good relationships. The ideal joint venture is one

where a clear definitive agreement has been entered into and then

that agreement is deposited in a drawer to be used only in a

situation where a dispute or disagreement arises.

ROYALTIES

Royalties come in numerous sizes and packages. All of

them are based in one way or another upon the operations

resulting from a successful venture. Although it is advisable to attempt to make the royalty a contractual obligation, there is

usually a very, strong argument that the royalty, in tact, "runs

with the land". Accordingly, care should be taken to make

certain that a royalty hoider does not have to give its consent to dealing with the lands and does not have any right to question

or veto proposed operations. Ideally, the land owners should be

able to deal with their lands as they wish with the only obliga­

tion to the royalty holder being that they will extract from any

assignee or mortgagee a covenant to honour the royalty. In

drafting royaity provisions, it is strongly suggested that unless

the draftsman is quite familiar with accounting and accounting

terms, he have an accountant

workable and reasonable from

confirm that his provisions are

an accountant's

Royalties may take many forms, the

point of view.

limitation being

only the imagination of the parties involved. Some of the

more common forms are:

(a) Net smelter return: This is a royalty based upon the

amount received by the producer from the sale of its

product less a very limited number of deductions, such

as transportation expenses to purchaser's site,

sampling and assaying charges, and penalties charged by

the processor. Operating costs and/or capital costs

are not taken into account as deductions and, accord­

ingly, this royalty should be considered as a gross

- 36 -

royalty. Its quantum is usually quite small but the

royalty would be payable upon the first product

produced, even if the operations were not profitable.

(b) Net profit: This is usually considered to be a royalty

paid upon a percentage of the gross revenues from oper­

ations after deducting all moneys contributed with

respect to the project (including capital costs) ~ cost

of moneys: operating costs: working capital and other

reasonable reserves: and generally any ancillary costs

related to the project as a whole. It is a truly net

amount and is quite often a relatively high percentage,

possibly as high as twenty-five percen~, although the

range of seven to fifteen percent is more common. It

the net profit royalty is ever paid, then the partici­

pants have realized the return of their investment.

The sophisticated potential royalty holder will want to

rec,eive a specified advance royalty which is usually

deductible in determining net profits, but from the

operator's pOint of view brings the net profit'royalty

uncomfortably closer to a gross type of royalty.

(cl Production: This usually takes the form of a specified

dollar value per tonne of ore mined and milled. It is

a gross type. royalty and its quantum depends upon the

type of mineral involved. The draftsman should be

careful with respect to this type of royalty, so that

the operator will not find itself obligated to pay the

royalty should it want to crush and use some waste rock

(rather than ore) for its own purposes. This type of

royalty has the advantage that it is easy to calculate

and does not give the holder access to a lot of

records. , If a joint venture is involved, it is very difficult to

provide for a net profit type of royalty because, as we have seen

- 37 -

\

\ )

)

above, usually the joint venture will not itself produce a

profit. Some type of compromise arrangement must be reached. In

addition, another problem can arise if common mining facilities

are to be used for various proJects and ores are blended. If

some of the ores are subject to a royalty, then some method will

have to be anticipated in the agreement to permit the blending

and appropriate allocation' of deductible costs. There is no

completely satisfactory way to accomplish this and much of it

must be done on an lIequitable basis1l. It is probably one of the

few areas where disputes might reasonably be handled by

arbitration.

Many other matters can be covered in provisions

relating to the payment of royalties, such as:

(a) if the royalty holder assigns the right to receive the

royalty to a number of other parties, does the payor

wish to have to settle the royalty with each of the

assignees or will it require them to nominate one or

two parties with whom he may deal and to whom it may

pay the royalty for appropriate distribution?

(b) if the royalty is based upon revenu~s, some provision

should be made for non-armIs length dealings.

(c) if the tax structure should change, should there be a

change in the royalty rate?

(d) is the royalty holder to be entitled to receive an

auditor's certificate or merely have the right to

inspect or audit books?

THE CARRIED INTEREST

In many agreements, .particularly those with l,'lrospectors

or junior corporations, the disposing party retains what is

called a "carried interest" or Ita non-assessable carried

interest" or some other such interest. A logical question would be: "What type of interest is this?" The answer will vary with

- 38 -

the number of people asked and range from an undivided interest

in the property concerned to a net profit type of interest. This

widely used phrase should be avoided in mining agreements unless

the agreement clearly defines what it means. Although in the oil

and gas business the II ca r r ied interest" may have some meaning

which is widely understood, it does not in the mining industry.

There is a strong argument that a "carried interest II is

a direct interest in the property and ores contained therein. It

may be arguable that the holder of the "carried interest ll has to

participate in the "costll of extracting the ores. Does such

"cost" include capital and operating costs or just direct

operating costs? If the holder has SOme interest in the

property, what rights does the holder have with respect to

product derived from such ores, or, for that matter, what rights

'~does the operator have to treat such ores? If the interest is a

"non-assessable £arried interest " , the argument against the

holder being required ·to share costs is obviously stronger but

the question of the respective rights of the parties to take or

treat oreS after extract.ion is still present.

If it is intended to leave a party with a residual

interest, then the governing agreement should clearly set forth

the exact nature of ·that interest and the respective rights of

the parties with regard to dealing with or disposing of the

property or an interest therein, extracting ores, treating ores

and selling product.

It is suggested that if at all possible, the granting

of a small residual interest directly in the property be avo idea

even with a clear definition of the interest and the respective

rights of the parties. Regardless of its size, an interest in a

property, whether registered or unregistered, is still a direct

ownership interest. In the future, when the other owners wish to

deal with "their mine ll or to finance its development, in all

likelihood, the residual interest holder's signature will have to

be obtained. He will be at the least a nuisance and at the worst

- 39 -

)

)

)

)

)

a major (and possibly expensive) stumbling block to the develop­

ment of "their mine u• Also, if the residual interest holder is

an individua_l, he may have been inconsiderate enough to die

leaving numerous heirs, all of whom will. have to be involved, if

they can be found.

It may be far better to purChase a residual interest

for a sizable royalty rather than to try to "live with itn but,

remember, the more advanced the property is the harder it will be

to reach a reasonable value for the residual interest. In some

instances, it is possible to set out an option to purchase a

residual interest in the agreement.

PARTNERSHIP

As indicated above, the use of partnerships for mining

property acquisition is rare. Its use should not, however, be

dismissed without consideration.. In some instances, either a general or limited partnership may be the answer to a particular

set of· circumstances or give some tax or other advantage to one party without detriment to the other. In these circumstances, a

partnership may ba appropriate.

The mining partnership agreement is substantially

similar to any other partnership agreement, other than tor the

inclusion of joint venture type language to deal with work

programmes, dilution of interests, and so on. Accordingly, it

will not be discussed here.

A couple of words of caution concerning .partnershil,.>s.

If it is decided to use a general partnership, it must J;>e remem­

bered that the custom of the trade protections available with

respect to a joint venture, as mentioned above, may well be lost

although with care and planning the public may be lead to believe

that the partnership is a joint venture. If a limited partner­

ship is used, all the parties must take great care not to contra~

vene the applicable legislation (especially concerning the

- 40 -

involvement of limited partners in operations) or they may tinct

themselves in a general partne'rship with the former limited

partners having full joint and several liability.

'From an income tax point of view, it must be remembered

that certain tax deductions, such as capital cost allowance, are

taken at the partnership level. Accordingly, they are not avail­able to partners to use against their general taxable income.

USE Of' A COMPANY

In the 1960's, a common method of acquiring a property was for the acquiror to acquire a maj'ority interest in the

property and be obligated to transfer this interest together with

the disposing party's interest to a new company 1'n consideration

of a specified number of shares. It used to be felt that the

shares were attractive to the disposing party because he,

obviously, could sell them for a profit if a mine was found. Unfortunately, in those somewhat unsophisttcated days, the

disposing party forgot to take into account the fact that, if he was dealing with a major corporation, the new company would

probably remain a tightly controlled subsidiary and there would

be little or no market for his shares. In addition, the changing

tax laws made the use' of a new company less attractive. In the present day, the use of a new company should not

be discounted~ There are means of "rolling" properties into new

companies which result in no adverse tax consequences to the

owners. In addition, it is possible for the shareholders of the company to retain the benefit of the deductions for tax purposes

relating to exploration and development moneys invested in the

company.

is usable

Depreciation

only if that

is, however, IIlocked ll into -the company and

company has income. ThiS mayor may not .represent a problem as if property owners have a IIhot ll prospect

the danger of losing the depreciation may be minimal.

From a practical point of view, the use of a new com­

pany offers a very familiar structure through which an orebody

- 41 -

)

)

)

may be developed, financed and operated. Special circumstances

can be covered by means of a shareholder agreement. Probably one

of the most significant advantages over a jOint venture falls to

the minority interest holder who as a minority shareholder

acquires some statutory protection, especially when it is remem­

bered that, at law, all directors must act in the best interests

of the company (and not the shareholder that nominated them).

Any detailed discussion or consideration of the use of

a new company is beyond the scope of this paper but it is some­

thing that would well be worth considering with respect to the

acquisition of a mining property.

GRUBSTAKE

The grubstake was an arrangement where a party or

parties paid a prospector to carry out prospecting and staking

claims on behalf of the grubstaker. The prospector usually 'had a

relatively free hand in his prospecting endeavours and might or

might not receive an interest in the claims he staked. The grubstake rarely lasted for more than one season at a time and

the prospector would reali:z;e a small "profit" (i.e. usually he

spent less than he received). The 'grubstake'arrangement was

often a highly personal one, and, as it extended only to "grass

roots" prospecting and the staking of claims, it has virtually

disappeared. In its place has arisen the type of joint venture

referred to in subparagraph (d) of section A - General of the

comments upon Joint Ventures above.

POST-ACQUISITION AGREEMENTS After a mining property has been acquired, if the

acquiring parties are fortunate enough to find an orebody, there

will be numerous types of "mining agreements" to be considered.

Some of these, such as drilling or geophysical contracts or an

agreement to prepare a feasibility study are highly specialized

- 42 -

matters peculiar to the mining industry. others are of a more

general type, such as construction agreements and· financing

agreements. If there is 'a joint venture involved, there may be

an operating agreement and accounting procedures to be settled, although often these may be settled quite informally and without

the execution of definitive agreements. This paper would be multiplied many times over if an attempt was made to consider

these various types of agreements.

CONCLUSION

Unfortunately, it is possible in a paper such as this

merely to touch upon the subject of mining acquisition and re­lated agreements with a very "broad brush II • There are many

matters which have not been mentioned and which may, in

particular circumstances, be highly important to consider. The

purpose has been merely to attempt to sti,mulate the readerl s

imagination and to offer some broad lines of approach to several

specific types of agreements. The field of mining acquisition agreements is far from stagnant and stereotyped, particularly

where joint ventures If you ar:9

are concerned. fortunate enough to have an imaginative ,

client who is active in the mineral explor:ation field, then you

will not lack interesting arrangements to be committed to pa~er

in clear, concise language.

- 43 -

)

)

1

2

3

4

)

5

6

I, )

FOOTNOTES

Mining Agreements Institute (1979) Mining Agreements II Institute (19Bl) The Rocky Mountain Mineral Law Foundation Fleming Law Building University of Colorado Boulder, Colorado 80309 U.S.A.

see Mining Act, R.S.D. 1980, 0.268, 5.77, which, in essence, prohibits the Mining Recorder from entering a notice of trust on the record and removes any duty of inquiry even if the recorded owner is described as holding the mining clai~ as trustee.

see Mining Act, R.S.O. 1980, 0.268, 5.24, which pro­vides that a party may not acquire any right or inter­est in a mining claim unless it is the holder or a prospector's licence.

Canada Mining Regulations, C.R.C. 0.1516, 5.58(10), wherein it is specified that a lease will not be granted to a a corporation incorporated outside of Canada or to any corporation unless lithe Minister is satisfied" that the specified requirements relating to Canadian ownership or the opportunity for Canadian participation have been satisfied. Also, See s.64, which prohibits transfer of a lease to a person who does not meet the requirements of 5.68(10).

Mining Act, R.S.O. 1980, c.268, s.113, which provides that in the absence of an exemption granted by the Lieutenant Governor in Council, all ores or minerals removed "shall be treated and refined in Canada so as to yield refined metal or other product suitable for direct uSe in the arts without further- treatment". If a party is in default under this section, the Lieutenant Governor in Council may declare the title to the affected property void.

1973 R.S.C., 0.46

Dated ~s of the 1st day of April, 1983

x

- ~nd -

y

PURCHASE Ol"l'IO' ... AGREEMENT

FASKEN " CALVIN Suite 3000 Box 30 TOronto-Dominion Centre Toronto, Canada M5K lC1

THIS AGREEMENT made ~s of the 1st d~y of April, 1983.

BET WEE N:

x ~ ~omp~ny in~orpQrated of the Province of

(hereinafter ~alled -

- and

y Muni~i1>ality of Province of A •

• under the l~ws

x . ) OF THE FIRST PART

of the , in the

(hereinafter called the -Optionor-)

OF THE SECOND PMl.T

WHEREAS the Optionor represents to X that he is the owner of ~nd has the exclusive right to deal with and dispose of, free of any and all agreements and en~umbran~es. a one hundred percent (lOOt) interest in twenty-two (22) ~ining clai~s (the -Mining Properties-,) situate in Z Township in the Provin~e of A and being more particularly described in Schedule -A- annexed hereto;

AND WHEREAS the Optionor wishes to grant to X an option to purchase a one hUndred percent (100\) interest in, and certain rights to prospe~t and examine, the Mining Properties, subject to the terms and conditions hereinafter provided;

NOW THEREPORE THIS AGREEKENT WITNESSETH that, in eon­side~ation -of the premiSes ~nd the sum of $5,000 of lawful money of Canada now paid to the Optionor by X (the receipt of whie~ is hereby a~knowledged) and the mutual ooven~nts ~nd agreements bereinafter contained, the parties hereto agree as follows:

Article 1: Representations ~nd Schedules part of AgreelllCnt

1.01 The representations of the Optionor hereinbefore and hereinafter set out shall form part of this agreement and are conditions upon whi~h X haS relied in entering into the agreement ~nd are to be COnstru~ lIS both conditions and warranties. The pro~isions annexed hereto as SChedules -A- ~nd

-B- shall ~ ~pplicable to ~nd form part of this agreement.

A~ticle 2, Pu~ch~se Option ~nd Term

2.01 The Optionol" hereby gives and g~ants to X the sole and exclusive right and option ihereinaftel" called the ·Pul"ch4se Option·) to purch~se fro. the Optionor ~ll of his right. title and interest in ~nd to the Mining PToperties free and clear of ~ll encumb~ances, for ~n aggreg~te consider~tion equal to $100,000.

2.02 Subject to prior tel"mination_pul"su~nt to the pl"ovisions of this ~greement, the Purchase OptiOn sball continue in full fo~ce ~nd effect up to ~nd including M~y 1, 1984, p~ovided, howeve~. th~t if on or before,

(0'

(b,

May 1. 198., sum of $$,000, full force ~nd

Hay 1, 1985, sum of $5,000. full force and

X pays to the Optiono~ the furthel" the purchase OptiOn sh~ll continue in effect up to ~nd including May 1, 1985,

X p~yS to the Optionor the further the Purchase Option shall' continue in effect up to and including Hay 1, 1986;

(c) May 1, 1986. X pays to tbe Optionor the further sum of $10,000, the Purchase Option shall continue in full force and effect up to and including May 1, 1987; on'

(d) Hay 1, 1987, X payS to the Optionor the furtbel" sum of $25,000, the Purchase Option shall continue in full force and effect up to and including May 1, 1988.

Article 3, Exercise of Purchase Option

3.01 x may ~t any time while the Purchase Option is in full force and effect exercise the Purch~se Option by delivel"ing to the Optionor'notice accordingly together with payment of an amount equal to the difference between $100,000 and the ~ggregate of ~ll moneys paid hereunder (including, witbout limitation, the $5,000 paid to the Optionor upon exeCution he~eof). Upon deliv­el"y of said notice, the Purchase OptiOn shall be deemed to have been fully exer~ised as at the date of the giving of said notice and X shall thereafter bold a one hund~ed percent (lOOt) legal and beneficial ownership in' and to the Mining properties free of ~ny lien or encumbrance of the Optiono~ o~ of anyone clai~ing through the Optionor.

Article 4: Roy~lty

4.01 If X oblig~ted to pay the

exercises the Purchase option, it sh~ll be Optionor a royalty (the -Roya1ty~) in an

- , -

a.ount equal to sixty-five cents ($0.65) per tonne of ore mined from the Mining properties end p~ocessed as ore through a mill (whether or not such mill is owned by X ) after the Mining Properties bave been brought into CQlIIIR&rcial ~oduetion. The Royalty shall be determined and payable in ~ccordance vith the p~ovisions of Scbedule -B- annexed hereto, whicb provisions Shall be applicable for so long as the Royalty is payable.

4.02 X shall have the right (the -Royalty Option-) at any time up to and including December 31. 2008, to purchase from the Optionor a portion of the Royalty equal to thirty-two cents ($0.32) pe~ tonne of ore mined from the Mining Properties and proceSSed through ~ mill as ore for an aggregate consideration equal to $75,000. X aay exercise the Royalty Option by delivering to tbe Optionor notice indicating such exercise and accompanied by payment of soid $75,000. Immediately upon delivery of sa'id notice and payment:

(0' the amount of the !'loyalty s~ll reduce, from the sixty-five cents ($0.65) referred to in paragraph hereof to tbirty-three cents ($0.33);

(b) the optionor shall have no obligation to repay to

4.01

X any Royalty paid to the Optionor prior to such delivery and payment at the above refe~red to sixty­five cent ($0.65) rate.

(e) the portion of the ROy~lty to which the Royalty Option relates shall immediately terminate;

(d) the provisions of this agreement shall be deemed to be immediately amended to give effect to the reduction in the amount of the Roy~lty.

In the event that ~ll or part of the right to receive the Royalty has been previously assigned by the Optionor here­under, X shall have no obligation to see to the distribU­tion of or otherwise account for said payment of $i5,OOO to any party other th~n the Optionor or the Nominee (under paragraph B.08 of Schedule -B" ~nnexed hereto), and, for all purposes of this ~greement, said payment shall be considered to be a pa~nt of an amount of the Royalty and shall be made accordingly.

4.03 The Optionor hereby covenants and agreeS that he vill not do any act or thing that would or might interfere with, prevent or obstruct in any way the right of X to exercise to the fullest extent its rights undel" the Royalty Option.

4.04 If the Optionor assigns the right to receive the Royalty, in ~hole or in part. in addition to any requirements

- , -

provided for in Schedule ~B· annexed hereto, the Optionor Shall not complete any such assignment unless and until the assignee has ackno",leOged' in ",riting that such assignee is fully aware of the Royalty Option, if then extant, and agrees with the Optionor and X to be bOund by the prOvisions hereof and of said Schedule ~B· as fully as if such assignee was a signatory hereto. The form ano substance of such agreement shall be as X may reasonably require.

Article So Right to Enter and [k> Work

5.01 The Optionor hereby gives and servants and agents during the currency the sole and exclusive right,

grants to X of the Purchase

, its Option

ta'

'b' '0' (0)

,.,

Article 6;

6.01 that:

ta'

'b'

to enter in, under or upon the Mining Properties~

to have exclusive and quiet possession of the Hining Properties~

to do such prospecting. exploration, development and/or other mining work thereon and thereunder as X in its sole discretion may consider advisable;

to enter upon and erect upon the Mining Properties such mining plant, buildings, machinery, tools, appliances and/or equi~ent as X in its sole discretion may consider advisable; and

to re~ove from the Mining Properties and sell or dis­pose of ores. minerals lind Jlletals,' but only for the purpose of making a~says and tests.

Representations. Warranties and Covenants

The Optionor hereby represents and warrants to X

the lawS of the Province of A or any other appli-cable laws with respect to the Mining Properties have been complied with and, without limiting the generality of the foregoing, the Hining Properties- Ilave each been properly and duly staked and recorded, in accordance with the laws of the said Province;

the Mining Properties are in good standing up to and including at least the respective expiry d~tes set forth in Schedule "A" attached hereto;

- . -

(c) X may enter in. under or upon the Mining P~operties for the purposes of this agreement and extract and dispose of ore, subject to the provisions of Article 4 hereof and as provided in paragraph 5.01 hereof, without making any p~yment to, and without accounting to or obtaining the permission of, any person, fir~ or corporation.

6.02 The Optionor hereby covenants that,

(~) he wi 11 not use the name of X or ~ny company

'b,

'0'

6.03 Purchase

'a'

associated with x in any document or release ~de to or available to the public without the prior 'written approval of X

any info~tion acquired by h~ hereunder relating to the Mining Properties Shall be confidential and shall not be released or co=municated to any person, firm o~ corporation without the prior written approval of

X ; and

for so long as the Purch~se Option is in full force and effect. he will not deal, or attempt to deal with his right, title .and interest in and t,o the Mining Properties in any way that would or might affect the right of X he~eunder to purchase a one hundred percent (100\) interest in the Mining Properties, free and clea~ of any encumbrance.

X hereby covenants and agrees for so long as the Option continues in full force and effect:

to permit the Optionor or his duly authorized' agents, upon reasonable prior notice to x ,to have access to the Mining Properties in order to examine any work carried out by or on behalf of x provided, howeve~, that neither the Optionor nor his agents shall interfere with or obstruct the operations of X • its servants and agents on the Mining Properties, and further provided that the Optionor or bis agents sh~ll enter upOn the Mining Properties at tbeir own risk; and the Optionor agrees to indemnify and save x harmless from all loss or damage of any nature or kind whatsoever in any way referable to the entry of. presence on, or activities of either of the Optionor or his agents while on the Mining Properties and including. without limiting the generality of the foregoing. bodily injuries or death at ~ny time resulting therefrom lind damage to property sustained by any person or persons; and

- s -

tb) to paintain the Mining Properties in good standing.

Article 7; protection of X

7.01 ·Forthwith upon the exeeution of this agreement, the Optionor shall deliver to x a ~uly executed transfer to

X of lobe Mining Properties, in form satisf./!,ctory to X The Optionor will. from time to time, .!IS and wen requested by

x • execute or cause ~o be executed all further dQeuments and instruments which are in the opinion of X reasonably necessa~ to enable X to take advantage of the rights given to it in tillS Article 7.

7.D2 The Optionor agrees that X may protect its interest in the Mlning Properties, AS the saGe aay be f~m time to time constituted. by doing either ~ both of the following:

Ii I

(ii )

it may register this agreeMent I'll' a .emorandum of this agre~ent cr any other document I'll' documents which

X may consider advisable in order tc prote~t its rights and interests hereunder against the title of the Mining Properties~ or

it may' transfer the Mining Properties into its name or into the name of its nominee or nominees, to be held in trust and to be dealt with only in aeeordance with the provisions of this agreement.

Artiele 8: Right to ~move Assets

8.01 At any time and from time to time during the ~urrency of the Purehase Option and for a period of one hundred and eighty (180) days after the termination of this agreement. X may enter upon and remove from the Mining Properties any and all buildings, plant. machinery. tools. appliances and/or equipment brought or erected upon the Hining PrOperties by X Any sueh buildings. plant. ma~hinery. tools. appliances and/or equipment not so removed within the said period of one 'hundred and eighty (180) days shall be~~ the property of the Optionor.

Arti~le 9. Termination

9.01 Subject to the proviSions of paragraphs B.Ol and 9.03 hereof. this agreement shall terminate:

t.) if X fails to par any SWQ as set forth in paragraph 2.02 hereof on or before the relevant date therein set forth. then upon the day following su~h relevant date~ or

- . -

tb)

to)

prior to the exercise of the Pur~hase Option, upon re~eipt ~ the Optionor of notice fr~ X that

X is terminating the Purchase Option; or

if X does not exercise the Pur~ha$e Option during the eurrency thereof, then at the expiry of _the Purehase Option; or

(d) after exercise of- the Purchase Option, upon the latest of receipt by the Optionor. his heirs. executors, su~~essors or ass-igns, of notice fr~ X thf-t

X is terminating this agreement, tbe payment by X of any Royf-lties then a~crued but unpaid and

the retrllnsfer' by X of title ;as eontemplated by the provisions of paragraph 9.03 hereof.

9.02 Notwithstanding ;anything to the ~ntrary eontf-ined in this f-greement. X ~y ;a~ any time or from ti~ to time! deher before or lifter exer~ise of the Pur~hase Opt)'on,: tenlllnate this ;agreement with respeet to any _ining clf-im comprising part of the Mining Properties, subject to par;agraphs 8.01 and 9.03 hereof. upon giving notice ac~ordingly to the-Optionor. Forthwith after any such termination. sueh part of the Mining Properties with respe~t to whieh this agreement has been terminated shall cease to he part of the Mining Pr~perties for the purposes of this_ agreement. all obligations o_f X hereunder with respect thereto shall, subje~t to paragraph 9.03 hereof, thereupon be ;at an end, and the term -Mining Properties· shall meaD only those parts thereof whi~h a.e still subje~t to the provisions of this agreement.

9.03 paragraph

t.)

tb)

Upon termination hereof, pursuant to the 9.01 or 9.02 hereof.

provisions of

if X has registered any agreement, memorandum, document or do~Ulllents against the title of the Mining Properties as contemplated in paragraph 7.02 hereof, ehen X Shall forthwith for an aggregate consid­eration of $1 diseharge or release such agreement. memorandum, 40cument or documents with respect to the Mining Properties or su~h of them that are no longer subject to the provisions of this agreement, as the ~ase ~y be; or

if X has transferred the Mining Properties into its name or into the name of its nominee or nominees as contemplated in parf-graph 7.02 hereof, then X shall forthwith deliver to the Optionor a duly executed transfer of the Mining Properties or su~h of them f-S

- 1 -

•

are no longer subject to the provisiOns of this agree­~ent, as the case ~y be, transferring for an aggregate consideration of $1 ~itle ~hereto to the Optionor or as the Optionor may otherwise in wri~ing instruct.

~ticle 10: Notice and Payment

10.01 Any notice to be given or any delivery to be ~de here­under shall be in writing and be dee.ed to be well, sufficiently and duly given or made if:

if to

(a) delivered in person and left, in the case of the Optionor, with any person at the address set forth below and, in the case of .x. • with a responsible employee of .x. at the relevant address set forth below;

(b) sent in a prepaid registered letter deposited in a post office; or

(0) telegraphed or telexed and registered letter;

x ,addressed to it at:

confirmed by prepaid

and if to the Optionor, addressed to the Optionor at:

Any notice or delivery so given or made s~ll be deemed to have been given or made and received on the fourth business day following tbe day of .ailing of the Same ~ on the day of delivery in person or telegraphing or telexing of the same, as the case may be.

10.02 Either party may from time to time by notice in writing change its address for the purposes of this Article 10.

10.03 Any payment that .x. ~ay decide to make or cause to be made to the Optionor hereunder (including, without limitation.

- , -

payment of the Royalty) Shall be deemed to have been well and truly made if a cheque payable to the Optionor in the appropriate a=ount has been delivered to the Optionor in accordance with the provisions of paragraph 10.01 hereof, the provisions of which shal~ apply, mutatis mutandis, as if sueh c~eQue was a notice given hereunder.

Article 11: Option Only

11.01 SUbject to the provisions hereof specifically to the contrary. this is an option agreement only and nothing herein contained and no act done nor payment made hereunder Shall obli-gate .x. to do any further or other aet or acts or to ...ake any further payment or pa~ents (other than the Royalty properly payable pursuant to the provisions of paragraph 4.01 hereof), and in no event shall this agreement or any aet done or any payment lIlade be construed as an obligation of X to do or perfor", any work or make any payments on or with respect to the Mining Properties.

Artic:le 12: General

12.01 The Optionor agrees that either before or after termin­ation of this agreement, he will e~eeute all doculIlents and do all acts and things as .x. lD.lIy reasonably request and as =1' be lawfully withil\ his power to 00 (other than the payment of money) to carry out the provisions. and/or the i!'tent of this agreement.

12.02 This agreement supersedes all prior negOtiations and contains the entire understanding between the parties hereto and lIlay be modified only by instrument in writing signed by the party or parties against whieh the modification is asserted.

12.03 This agreement Shall enure to the benefit of and be binding upon the Optionor, his heirs, executors, administrators and assigns and X • its successors and assigns.

IN WITNESS WHEREOF the parties hereto have executed these presents.

x

Per:

Per:

Wltness

- , -

to the April. ".d

SCHEDULE ~A-

.. greeJllent JIIo!I.cle 1983 between ,

.. s of the 1st clay of X

The following JIIining clai~ are .. 11 situate in Z ~wnship in ~he Province of A • are owned by the Optionor, and are the -Mining Properties- as define~ in the annexed agreement.

Claim NO. Concession Expiry Date

SCHEDULE -S-

relating to the cletermin .. tion .. nd payment of a royalty {the -Royalty-' .. s set forth in paragraph 4.01 of the annexed agreement

B.Ol For the purposes of this Schedule -S- 4nd of calculat­ing the 4JIIount of Royalty payable hereun4er; the term -oper .. tor­shall mean the party responsible for the carrying on of opera­tions relating to the Mining Properties; -Recipient- shall mean the party or parties that are from time to tiJlle entitled to be p .. id the Royalty hereunder; -Mining properties- means the Mining Properties as defined in the annexed agreement; ·work- means prospecting. exploration, development and/or other mining work in, on, under or relating to the Mining Properties; ·year- means caleadar year and a reference to a subdivision of a year $hall mean a reference to the relevant subdivision of a calendar ye .. r; -tonne- me .. ns .. II'>etric ton or 1,000 kilograms; .. nd those terms defined in the agreement of which this Schedule -S- is part shall have the S4me meaning .. s so defined (save as otherwise provided in this Schedule MS-);

B.02 Subject to the provisions hereof, the amount of Royalty payable to the Recipient hereunder shall be calculated by Opera­tor as at the end of each year, shall be payable to the Recipient on or before the last day of the first quarter of the next following year and shall be payable with respect to ore which, having been mined from the Miping Properties, is processed as ore througb a ~ill (whether or not such mill is owned by X ) a·fter the Mining Properties have been brought into eommerei.!ll produ.ction.

B.03 On or before the last day of the first quarter of each year after the Mining Properties have been brought into commer­cial production, Operator Shall deliver to the Recipient a statement indicating.

(a) that there has been no ore which. having been ~ined from the Mining Properties, w .. s processed through a ~ill (whether or not such mill was owned by X I during the prior ye.!lri or

(b) in re .. son.!lble detail, ehe calculation of the amount of the aggregate Royalty payable re~.!Iting to the imme­diately preceding ye.!lr, and setting forth the n~r of tonnes of ores processed with respect to which the Royalty is being calculated.

B.04 Any payment of Roy .. lty shall be considered fin.!ll .. nd in full satisfaction of .. 11 obligations of Operator hereunder if

•

su~h p~yment or the ~alculation thereof is not disputed by the Recipient within 45 days ~fter receipt of the relevant statement referred to in paragraph 8.03 hereof.

B.OS Operator shall keep separ~te re~ords consistent with accepted mining pr~ctice ~nd relating to its operations of the mining of ores from the Mining Properties and, to the extent possible, tne pro~essing of such ores through a mill (whether Or not such roill is owned by- X ). open the prior written request of the Re~ipient, duly authoriZed representatives of the Re~ipient may h~ve ~c~ess to su~h records for the purpose of confirming any information contained in a statement delivered to the Re~i.pient _pursuant to the. provisions of paragraph B.03 hereof, provided alw~ys that su~h It.C~ess shall not interfere with the affairs or oper~tions of Operator. The Recipient shall have the right to make ~opies of or take extracts from such records (but only for its own use). The figures ~ont~ined in such re~ords shall, in the ~bsence of bad f~ith on the part of the Oper~tor, be ~onclusive evidence of the number of tonnes of ore mined from the Mining Properties ~nd pro~essed as aforesaid.

8.06 For the purposes of this ~greement, the Mining Proper­ties shall come into commercial production on the date upon which ores mined from the Mining Properties or concentrates or other products derived therefrom are first delivered to a pur~haser on a ~ommercial basiS, it being agreed that deliveries of su~h ores, concentrates Or other products resulting from pilot or test ope­rations sh~ll not be considered as deliveries on a oommercial basiS for the purposes of this para9r~ph. Operator shall deliver to the Re~ipient notice indie~ting said date ~s soon as pra~ti­cable ~fter the occurren~e thereof.

8.07 In the event th~t the Mining 'Properties are brought into commerCial production, they m~y be oper~ted as ~ single operation witb other ~ining properties owned by X ,or in ~hich x h~S some interest, in whi~h event the Re~ipient ~grees that (notwithstanding sep~rate ownership thereof) ores ~ined therefrom ~ay be blended ~t the time of mining or at ~n~ time thereafter. provided only that the Operator sh~ll maint~in records relating to the Mining Properties ~s required under p~r~gr~ph B.OS hereof.

B.08 Notwithstanding ~nything to the contr~ry berein eon-t~ined, if ~ny part of the right to receive the ROyalty is ~ssigned it shall be a oondition of SUCh aSsignment that the assignee agree with Operator and ~ll other parties entit,led to re~eive ~ny p~rt of the Roy~lty as follows:

(a) the lOJI\Ount of IIny ROy~lty pay~ble hereunder sh~ll be settled only with the Optionor or ~ duly lIuthori~ed

• - 2

nominee (hereinafter colle~tively referred to as the -Nominee-) as set forth by notice to Operator (such notice to be executed by all parties entitled to re­~eive any part of the ROy~lty), and such settle~ent sb~ll be final ~nd binding upon all interested parties and Operator sh~ll not be required to ~ke any account_ ing to ~ny person save SUCh Nominee:

(b) pa~ent of ROyalty sh~ll be made only to or to the benefit of the No~inee ~nd such payment by ~heque p~yable to the Nominee -In trust- lind ~de in accor­dance with the provisions of this ~greement sh~ll con_ stitute full and complete dis~h~rge by Operator of its Oblig~tions to ~e su~h p~yment hereunder ~nd there sh~ll be no oblig~tion to see to the distribution of ~ny such payment)

(e) Operator may settle disputes arising hereunder with the Nominee ~nd such settlement shall be fir.~l and binding upon all interested parties;

(d) Operator may rely upon any dire~tion, ~dvice or autho_ rization signed by the Nominee and may act thereon as if the Same w~s signed by all interested parties:

(e) operator shall not be required to de~l with ~ny person except the Nominee and eaCh of the said interested p~rties sh~ll exe~~ise any of their respe~tive rights only through the Nominee and shall require any of their respe~tive ~ssi9nees to ~gree in writing to be bound by the proviSions hereof:

it bein~ agreed that the death of the Opt'ionor sh~ll be deemed to be an ~ssignment of the right to re~eive the Royalty for the pur­poses of this paragraph.

B.09 Payment of the Royalty may be made by cheque payable to the Recipient, or if there is more than one Re~ipient to the Nominee, and delivered ~s set forth in Article 10 of the annexed ~greement. Under no cir~umst~n~es will the Operator be required to see to, Or be responsible for, the distribution of any p~yment.

. - ,

TWO PART" FARK-IN/~OINT VENTURE

DATED as of the day of

x

- and -

,

JOINT VENTURE AGREEMENT

Fasken " calvin flox 30 Toronto-Dominion Centre Toronto, Ontario MSK ICI

.l9

Article 1.

1.01 }.02 1.03 1.04 1.05 1.06 1.07

Article 2.

2.01

2.02 2.03

Article 3.

3.01

3.02 3.03

3.04

x

y

JOINT VENTURE AGREEMENT .19

I N 0 E X

Interpretation:

Definitions (in alphabetical order) ••••• Moneys expended in doing work ••••••••••• Sehedules part of agreement ••••••••••••• Canadian fundS •••••••••••••••••••••••• _ •• Singular i~ludes plural, etc ••••••••••• Headings, ete. for reference only ••••••• Governing law •••••••••••••••••••••••••••

X Obligations eonditional upon agreement fron> Surf"ce Rights owners •••• Qecurrence of Effeetive Date ••••••••••••

X may attempt to option Surfaee Rights .................................. .

Acguisition of ownership lnterest by x

X to pay $25,,000, do $75,000 wor); in first Option 'tear and do 3000 feet of drilling ............................... . Term continues if do specified work ••••• Fifty percent interest acquired if do $500,000 in work; transfer of title toX •••••••••••••••••• ~ •••••••••••

X may acquire further interest ••••••

( i)

page NO.

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3 3

3 3

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• • • • •

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3.05

3.06 3.07 3.08

3.09

Article 4.

4.01 4.02 4.03

Article S.

5.01

5.02

5.03 5.04 5.05

6.01

6.02 6.03

6.04 6.05

6.06

x contributes 100~ until para. 3.0~ tetminates; thereafter costs automati=l1y incl,uded in fiest programrae............. ••••••• ••••••••••• 3

X right to pay in lieu of worx...... 3 If termination no refund to X 3 Work under Article 3 in x discretion but =reied out by X as Manager; para. 10.04 applicable to l~ited extentl

y to pay t .. xes, etc................. 3 Right to register against title......... 3

Purpose of Joint Venture................ 4 NO interest-to X until e .. rned....... 4 Oo-nen;hip Interests, Costs shared pro r .. ta to Ownership Interests......... 4

Progra.wnes:

X right to deliYer first Programme and failing Y Day deliver ••••••••••• Programme .ay relate only to part of Mining Properties and to have maximUIII term of one year •••••••••••••••••••••••• Manager to propose Programmes ••••••••••• Aeceptance of Programme ••••••••••••••••• ~on completion. Manager to subnlit report •••••••••••••••••••••••••••

Participation and Effect upon Ownership Interests:

5

5 5 5

5

, , , , ,

, , ,

, , , , ,

~ indicate intention to participate within set time, failure dee~ eleetion not to-participate ••••••••••••• Effect of indication to participate ••••• Non-particip .. tion, circumstances .. nd effect upon non-participant's rights

, , , , and obligations ••••••••••••••••••••••••• Effect of non-payment of .. ccount •••••••• P .. rticip .. nt not Man .. ger if non-p .. rticipating ••••••••••••••••••••••••••• Additional proyisions re participation in Development progr .. mme and effects of def .. ult ••••••••••••••••••••••••••••••

( il)

, , , , , . , - .

Article 7.

;.01

7.03

7.05 7.06

7.07

7.08

Article 8 •.

8.01

Article 9.

9.01

Article 10.

feasibility Study:

Procedure to decide to proceed to prepare Feasibility Study ••••••••••••••• Copy to be delivered: to .. 11 parties; if Man .. ger prepares Consultant's report ."Y be requireCS •••••••••••••••• ',' Rights of Participaft~ to Obiect to COllteftt.s; proced-ure if objections Dad-e .................................. .. If Orebody indicated. work in Feasibility 5~udy constitutes a Development Programme; effect ••••••••••• Results if no Orebody ••••••••••••••••••• No obligation to being Orebody into c~erci#l production ••••••••••••••••••• Rig~t of P#rticipant to proceed: alone; right to re-enter if elected not to participate and,work not imple~nted •••• Rigbt of Manager to receive management fee ................................... ..

Control by Sin91e Party:

Control where only one participant ••••••

Represent .. tiyes and Committee,

Represent .. tiyes appOinted; can be relied upon ••••••••••••••••••••••• , •• Committee established; purposes ••••••••• ~eetings of Committee ••••••••••••••••••• Committee may establish own procedures ••••••••••••••••••••••••••••••

Manager:

X appointed Moanager ••••••••••••••••• Majority interest hold. right to be Manager, resignation. and.- replacelQent of M .. nager •••••••••••••••••••••••••••••• Third Party Manager eontelQplated •••••••• Powers, d-uties and obligations of Manager ••••••••••••••••••••••••••••••••• (a) carry out and. supervise work ••••••• (b) prepare proposed PrograJIUD.es

(right to subcontract) •••••••••••••

(iii)

, , 7 ,

, - 2

, 2 , , , , , , 7 ,

. - ,

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" " " " "

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'10.05

10.06

10.07

10.08

10.09 10.10

Artic:le 11.

11.01 11.02

11.03

11.04

ll.05

(el aet in workmanlike manner and in ac:c:ordanc:e with laws ••••••••

(d) hold title to Mining Properties •••• (e) keep reeords; available to

parties for inspeetion; segregate rec:ords ••••••••••••••••••

If) maintain proper ac:c:ounts ••••••••••• (g) keep parties with intel'e,.t

info=ed ••••••••••••••••••••••••••• (h) retul'n moneys not used ••••••••••••• (i) earry insuranc:e •••••••••••••••••••• (j) inform of material ehange in

progriUlUlle •••••••••••••••••••••••••• (k) permit aec:ess •••••••••••••••••••••• (1)" maintain Mining Properties

in good standing ••••••••••••••••••• (m) hire e.ployees ••••••••••••••••••••• en) will not pledge c:redit or

hold self out as agent ••••••••••••• Manager may deliver account re either moneys previously expended or to be expended; payment of acc:ount) right to dispute, right to audit) disputes settled by arbitration ••••••••••• '" ••••••••••••••• Additional powers, etc. of Manager I:e Developlllent PI:"Ogl:"amme ••••••••••••••• _. Right of Participant to become Manager if Manager inactive ••••••••••••• Emel:"genc:y powers to Manager and I:"ight to expend moneys •••••••••••••••••• Liability of Managel:" •••••••••••••••••••• Effect if Managel:" deals at non-armslength ••••••••••••••••••••••••••

Consultant:

Kay be appointed •••••••••••••••••••••••• To be independent; methOd of appointment •••••••••• '" •••••••••••••••• Duties I:estricted to matter I:eferl:"ed; payment of fees ••••••••••••••• Proceedings and I:eport by Consultant; effect of reports on Subsequent actions of Manager •••••••••••••••••••••• Expressions of intentiOns re use of Consultant; parties to co-operate •••••••

( iv)

10 10

10 10

10 10 10

10 10

10 10

10

10

10

10

10 10

10

11

11

11

11

11

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3 3

•

• , , • • ,

1

1

1

1

,

Article 12.

12.01 12.02 12.03 12.04 12.05

Al:"tiele 13.

13.02 13.03 13.04

13.05

Article 14.

14.01

Arti.;:le 1$.

15.01

Article 16.

Hi.Ol

Hi.02

Arti.;:1e 11.

17.01

17.02

Article 18.

1.8.01

Disposition of Product:

Obligation to take in kind •••••••••••••• ~nager Shall stockpile if requested •••• Product to be divided equitably ••••••••• Manager may withhold •••••••••••••••••••• Fair market value determination procedure •••••••••••••••••••••••••••••••

DispoSition of Interest:

NO assignment except as pe~itted: assignee to agree to be bound ••••••••••• Fil:"st refusal to othel: pal:"ty •••••••••••• Right to ac:quil:"e if bantl:"uptcy. etc ••••• Right to assign to parent to sub­sidiary or to new company ••••••••••••••• Right to ~rtgage to secul:"e financing for participation •••••••••••••••••••••••

Abandonment of Mining PrOperties:

Procedure re abandonment ••••••••••••••••

Disposal of ASsets;

Right of Managel:" to dispose; proceeds for joint account ••••••••••••••

Arbitration:

Arbitration applicable only where specifically pl:"ovided ••••••••••••••••••• procedure •••••••••••••••••••••••••••••••

Force Ma jeure:

Time of eSSenee subject to fOl:"ce majeure ••••••••••••••••••••••••••• To notify re fOI:"c:e majeul:e ••••••••••••••

Representations and Covenants:

Y I:"epl:"e"entations re Mining Properties ••••••••••••••••••••••••••••••

(0)

" 1 " , " 1 " , " 2

13 1 13 1 13 1

13 ,

13 ,

14 - I

15 - 1

1 1

1 1

18 - 1

18.02

18.03 18.0.

18.05

18.06

Article 19.

19.,01 19.02

19.03

AlC'ticle 20.

20.01 20.02 20.03

AlC'ticle 21.

21.01 21.02 21.,03 21.04

21.05

21.06

x and Y qualifie4 in Ontario •••••••••••••••••••••••••••••• InfolC'mation confidential •••••••••••••••• Ho right to use other palC'ty's name without priolC' consent •••••••••••••• Either party may require Consultant or advisor to deliver non-disclosure agreement ••••••••••••••••••••••••••••••• Covenant not to sever title •••••••••••••

TerlDination:

On mutual agreement.-•••••••••••••••••••• If no Mining Properties subject to agreement or, in whiCh both parties have an interest •••••••••••••••• By notice with forfeiture of interest except after cOlDmercial production •••••••••••••••••••

NOtice and Payment:

Procedure re giving notice, etc ••••••••• Change of address ••••••••••••••••••••••• Procedure re lDaking payment •••••••••••••

General:

Entire agreelQent' •••••••••••••••••••••••• Further assurances •••••••••••••••••••••• Tax benefits pro rata to interest ••••••• NO partnership. interest as tenants in cODllDOn; no partitiOn or severance •••• Liability limited to participation; no IIIOrtgage except to fin<>nce. participation and lender bound •••••••••• EnurelDent •••••••••••••••••••••••••••••••

(vi)

18 18

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19

19

1 1

1

, ,

1

1

19 - 1

" " "

" " "

" "

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1 1 1

1

1 ,

I I , I

This Agreement .ade as of the day of 19

BET WEE N:

x • a corporation incorporated under the laws of Canada

(hereinafter called· x M)

OP THE FIRST PART

and -

• a corporation incorporated the laws of canada

(hereinafter called M y -)

under

OP THE S£COND PART

WITNESSETH that in consideration of the premises and of the mutual covenants and agr&ements hereinafter contained, tbe parties hereto agree ~s follows;

Artiele 1. Interpretation,

1.01 subjeet

In this agree~ent, unless tbere is something in matter or context inconsistent therevitb:

,.)

(b)

, 0)

'" ,e)

'f)

'"

-this agreement-, -herein-, -hereby-, -hereof-, -hereunder- and similar expressions mean Gr refer to this agreement and any agreement or instruments sup­plemental or ancillary hereto;, and the expl'essions ·Article- and ·pal'agl'aph- followed by a numbel' mean and I'efer to the specified Article 01' pal'agl'aph of this agl'8ement:

-Co~ittee- means the committee established undel' Al'ticle 9 hel'eof.

·Consultant- means an independent consulting geolO9ist or mining engineel' or fi~ of consulting geolO9ists 01' mining engineers appointed from time to time to act as Consultant hereunder as set forth in Article 11 bereof:

-Oevelopaent Programme- means a Programme constituted by a feasibility Study as contemplated in Article 7 hereof:

-Effective Date- means the date upon which X enters into an agree~ent with the owners of the Surface Rights as contemplated in paragraphs 2.01 and 2.02 hereof;

-Feasibility Study- means a comprehensive study and report (as agreed to in accordance with the provi­sions hereof) as to the existence or otherwise of an orebody or suspected ore body in on or under the Mining Propel'ties and upon the advisability and possibility of bringing the same into c~ercial production and thereafter operating the same on a commercial basis, such study and report to include, if an orebody is considered to exist, recommendations as to nature, extent and timing of the development of the Same with a view to bringing the same into com­mercial production: mining and/or ~illing methods; design, nature and capacity of the mine, mill or ancillary facilities relating thereto: and cost and cash flow estimates and analyses relating thereto~

-Manager- means x corporations acting accordance with the

or such other persons, firms or as s ... ~h and ap:pointed a.s such in proYisions hereof:

1 - 1

'"

(i)

( jJ

'"

-~ining Properties~ mea.ns collectively those ten (l~) parcels of lands eonsisting of mining or mineral rights only situate in the Township of A in the Province of B and being registered (insert appropriate description). together wi~h.any ott:'er right, title or interest ~n and to any mlnlng clal~ or other property (whether mining or surface rights) that may become subject to the provisions ,hereof; and any mining or other property I'ight that may subse-. Quently be acquired pursuant to the laws of the sald Proyince in conjunction with the development of all or pal't of the same;

·Option Year- meanS the twelve (12) months commencing with the first day of the month in which the Effective Date (or an anniversary thereof) occurs, and when preceeded by a number means that twelve (12) ~onth periOd that commenced upon such first day of the preceeding year, such that the first Option Year is the twelve (12) month period commencing upon the first day of the month in which the Effective Date occurs, the second Option year is the next following twelve (12) month period, and so on;

·Ownership Interest· means the undivided interest hereunder of the relevant party concerned expressed as a percentage and determined as at the time in Question in accordance with the provisions bereof, such interest representing the right, title and in­terest in and to the Mining Properties and including ail rights, privileges, benefits and property rights (whether real, personal, tangible or intangible) arising hereunder and/or by reason of any work car­ried out hereunder;

-Participant- meanS a party bereto that has an ()wner­ship Interest in excess of five percent (5') hereunder:

-Product- meanS ores mined from the Mining properties and any concentrates or other ~aterlals or products derived therefrom, provided, however, that if any such ores, concentrates or other materlals or prod­ucts are subject to further treatment as part of the operations carried out hereunder, sueh ores, concen­trates or other materialS or products Shall not be considered to be -Product- until after they nave been so treated;

) - ,

,.)

,.)

'0)

'pI

·Programme~ means a programme of work. to be eal"ried out on or relating to all or any indicated part of the Kining Properties by tbe Manager during the period of ti~ and at an estimate4 cost (which may include a reasonable allowanee for contingencies) therein set forth as accepted pursuant to tbe provi­sions hereof as tbe saae may from time to time be amended as herein permitted, it being agreed that the word ·Programme- may refer to either the actual work. performed or to documentation relating thereto, as the context bereof lIIay, require l

·Surface Rights· are the surface rights overlaying the Mining Properties (as specifically set forth in subparagraph (h) of this paragraph) being .!insert particulars)

·work- means prospecting. exploration, development and/or other mining work in, on, un~e~ o~ ~elatiny to the Mining P~ope~ties.

·yea~· o~ any other ~eference to a year o~ subdivi­sion thereof means o~ refers to a calenda~ yea~.

1.02. For the purposes of this agreement, moneys expended in doing work hereunder and/or the costs of any ~ogramme ~~e­under shall include. without limitation, all amounts expended: in staking or otherwise acquiring any right, title or interest in and to any mining Claim or other mining property or property right that becomes a Rining Property hereunde~; in making any payments to, or in respect of acquiring any agreement or con­fi~tion from, any of the owners of the Surface Rights; in doing geophysical, geochemical, land and/or geological examinatiOns and su~veys; in searching fo~, digging, trucking. sampling. working, developing. mining and/or ext~acting ores, mine~als an4 metals; in doing diamond and other drilling; in acquiring or providing, erecting and installing mining plant, milling plant. ancillary facilities, buildings. maChinery, tools, appliances and/or equip­ment; in constructiOn of access roads an~or facilities on or off the Mining Properties; in transporting personnel, supplies, min­ing or milling plant. 'buildings, machinery. tools, appliances or equipment in, to or from the Mining p~operties or any part there­of; in paying wages and salaries (including ~fringe benefits·) of personnel engaged in p~rforming such work; in 'payment of assess­ments or contributions under the Workmen's CQmpensation, the Unemployment Insurance or othe~ applicable legislation or ordi­nances ~elating to such personnel; in supplying food. lOdging and other reasonable needs for SUCh personnel. in management of and account~ng for such work; in providing supervisory, accounting.

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legal or other services or facilities relating to work to be per­formed hereunder, in paying any taxeS. fees, charges, paymentS or rentalS (including payments made in lieu o~ assessmen~ work) or otherwise paid or expended to keep the Minlng PropertIes or a~y of them in good standing~ in improving. protect~ng or pe:fectlng title in any of the Kining Prope~ties; in car~yln~ out mlne~al, soil or other testing; in preparing engineering. geological, financial and/or marketing studies and/or reports and test work related t~retoi in prepa~ing a Feasibility Study and/or any reports suppl~ntary thereto; pluS a reasonable ~unt ~t to exceed five percent (5t) of those of t~ agg:egate ~Oregolng expended or paid pursuant to any agreement WIth an lndependen~ third party to supply services at an aggregate cost or value 1n excess of $250,000 and ten percent (lOt~ of the reDainOer of the foregoing for general over~ad and administrative costs. The certificate of a senior officer of the Manager as.to the amountS expended in performing work hereunder shall be pnma facie evidence of the amounts so expended.

1.03. agreelllent.

Any schedule annexed hereto shall form part of thiS

1.04. Any statement of o~ reference to dollar amounts here-in shall mean lawful DOney of canada.

1.05. Unless the context otherwise requir~s, words import­ing the singular shall inclUde the pl~~al and VI~e.Versa; words ilDporting gender shlill include maSCuhn-: and femln1ne ge,:,ders and words importing pe~sons shall include f1rms and corporatIons and vice ve~sa.

1.06. The division of this agreement into Articles and paragraphs and the insertion 0; headings and the p~ovision of en index (if any) are for convenience of reference only and shall not affect the construction or' interpretation he~eof.

1.07. This agreement shall be ~strued and governed by the laws of the provInce of

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in accordance with

•

Article 2. Su~face Rights; Effective Date, obliga;ion of Y

2.01 The obligations of x hereunde~ shall be condi­tional upon the ~eoeipt by x from Such of the owners of the Surface Rights as X considers advisable of an agreement, in such form and substance as x considers advisable, pe~~itting

X to enter upon and use the Surface Rights and setting forth e~ther a ~utually acceptable a~ount to be paid by X with respect to injury or damage -that may be caused to the Surface Rights with respect to the carrying out of work hereunder or a mutually acceptable ~ethod of determining such amount.

2.02 The Effective Date will OCCur upon the date that x receives the agreelllent referred to in paragraph 2.01 hereof

or waives the provisions thereof, whichever first occurs, provided that if the Effective Date does not occur on or before

,19 this agreement shall terillinate as at

2.03 It is acknowledged that X lIIay atte~pt to obtain an option to purchase all or part of the Surface Ri~hts frolll the owners thereof and if so obtained, such option will become part of the Mining Properties and any amounts paid with respect thereto will be considered to be 4IIIounts expen4e(\ in doing work hereunder.

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Article 3. Acguisition of Ownership Interest by x

3.01 UpQn the occurrence of the Effeetive Date, X shall imMediately pay to Y $25,000 whereupon Y shall deliver to X copies of all maps, technical data, reports and other-Daterials in its possession, or over which it has control, relating to work carried out in the Mining Properties and/or in the vicinity of the Mining Properties (and in particular to the south thereof). In addition, _X shall during the firSt option Year=

(a) expenD at least $75,000 in doing work hereunder; and

(0) eause to be carried out at least 3,000 diamond drilling in such part or parts Properties as _y be indica_ted to x provided, however that,

feet of of the Mining by y

(i) the location, angle, core size and depth of any hole shall be in the sole discretion of X

(ii) lIIoneys expended with respect to such diamond drilling shall be considered to be alllOunts ex­pe~ded in doing work hereunder and lIIay be in­clUded in whole or in part to satisfy the obli­gations of X under subparagraph la) of this paragraph; and

(iii) if within ten (10) days after being requested so to do Y does not so indicate to x such part or parts of the Mining Properties the obligations of X under this subparagraph (b) shall immediately terminat ... and be null and void,

If X fails to fulfill its obligations under this paragraph 3.01 this agreement. Shall terminate, provi(\ed, however, that

X Shall pay to Y the difference between the aggregate cost of fulfilling such obligations anD the aetual costs incurred by X in partial fulfilment thereof as at the date of such termination, and the obligation so to pay shall survive such termination.

3.02 Upon fulfilment of the obligations of X under paragraph 3.01 bereof this agreement shall continue in full force and effeet provided that prior to the end of the second Option rear and the third Option Year X has expended in doing work hereunder an ag~regate of $175,000 and $275,000, respectively, and if as at the end of either of such Option rears the said

3 - 1

respective ... ggreg ... te "'lIIOunt haos not been so expended this ... greement sh ... ll immediately termin ... te.

3.03 Subiect only to the provisions of par ... gr ... pbs 3.01 ... nd 3.02 hereof, if, prior to the end of the fourth option year X expends in doipg work hereunder an aggreg ... te ~unt of ~500,OOO

X shall i~iately aCQtlire a$ ... n Ownership Interest ... fifty percent (SOt) ~ndiyided interest in and to the Kini~ Property, which interest sh ... ll be free and cle ... r of any enCumbrance ... nd shall vest ... utomatically in X without any further act on the part of X or Y ,~d. if the Mining Properties are not then already registere4 in the n ... ~ of X ,the Mining Properties shall be so registered and shall be held by X subject to the provisions hereof.

3.04 Having ... cquired its fifty percent (SOt) ownership . Interest hereunder this agreement shall eontinue in full force

and effect ... nd X may acquire up to a further ten percent (lOt) Ownership Interest by expending further moneys in doing work hereUnder, stich that for each ~20,OOO in excess of the $500,000 set forth in par ... graph 3.03 hereof $0 expended by X prior to the end of the sixth Option Year X shall i~ediately aequire a one percent (ltl Ownership Interest whieh shall vest automatically in X without any further act on the part of

X or Y ,provided that.

( ... ) X .ay not acquire more than a further ten percent (lOtl Ownership Interest under the provisions of this p ... ragraph, such that at stich time as X has ex­pended ~n aggregate amC>URt of $700,000 in doing work hereunder it will have ~ sixty percent (OO~) Qwner­ship Interest;

(b) the provisiOns of this paragraph sh ... ll te~inate immediately ,upon the a~QUisition by X of a sixty percent foOt,) Ownership Interest, or, upon delivery to Y of a notice frca X indicating th ... t the provisions of this paragraph are terminated. or, upon the last 4ay of the sixth Option Year, whichever first occ~rs: and

(c) upon the termination of the proviSions of this para-9rapb~ the provisions of this agreement shail other­wise continue in full force and effect.

3.05 Until such time as the- prOvisions of paragr ... ph 3.04 hereof are terminated as therein set fortn, Y shall not be obligated in any way to c.ontri'btite to amounts expended in doing work hereunder. provided, however, that if at the 4ate of such te~ination X is doing work hereunder it may continue to do

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such work such that it is carried out in ... n orderly .anner and amounts expended subsequent to such date shall aut~atica11y and without reference thereto form part of the first progra=me sub=itted hereunder as contempl ... ted in paragraph 5.01 hereof.

3.06 Notwithstanding anything to the contrary berein contained, X may at any ti.e and frQG time to time pay to

Y .oneys in lieu of expending .cneys in doing work hereunder as contemplated in this Artic:le 3, in which event X shall 'be dee.ed to have expended the amount of any such payment in doing work hereunder and in satisfaction of such of the provisions of this paragraph ... s indieated by X at the time of the making of such payment, provided, however, that the provisions of this paragraph shall not be applic:able to any of the obligations of

X set forth in paragraph 3.01 hereof.

3.07 If the ... greelDent is terminated pursuant to the provi-sions of paragraph 3.01 or 3.02 hereof, X shall not be en­titled to any rebate or refund of ... ny ~neys expenaed by X in doing work hereunder, ... ny benefits arising by re ... son of such ex­penditure accruing t:o the sole benefit of Y

3.08 Any and all work carried out by X under the pro-visions of this Article 3 shall be under the sole ... nd absolute control of X and, subject only to the provisions of subpara_ graph Cb) of paragraph 3.01 hereof, shall be of such a nature, extent and scope as X in its sole discretion considers advis­able, provided, however, that such work Shall be considered to be carried out by X • as Manager nereunder, and insof ... r as they do not conflict with the provisions of this Article 3, the pro­visions of paragraph 10.04 hereof shall be applicable, provided, however, that for so long as the Minin9 Properties are not registered in the name of X , Y shall pay any taxes, levies, assessments or other payments required to be paid in order to maint ... in the Mining Properties in good standing, such payments to be made at least ten (10) business days prior to their due date, and if so paid X will upon reeeipt of proof of such payment reimburse (as. an aJIIOunt expended in doing work hereunder) Y theJ:efor. X sh ... ll have no liability or responsibility witb respect to any such payments re~uired ~o.~ made by Y as ... fores ... id the full obligation and responslbll1ty for making the sa~e being that of Y

3.09 For so long as the Mining Properues are not registered in the name of X • X shall have the right to registeJ;", and. to maintain the registratiOn of, such caution, notice or other document against the title to the Hining Properties as X considers advis ... ble in order to protect its rights ... nd interests hereunder. If X does not acquire an Ownership Interest hereunder x shall i~Giately upon the termination hereof discharge any Such registration.

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Article 4. Joint venture and Interests;

4.01. After the date of the te~nation of the provlslons of paragraph 3.04 hereof, the partles hereto agree to participate jointly in the carrying out of work for the purpose of searcning for mineral anomalies or occurrences within the Mining Properties and in carrying out work to evaluate the Same in order to deter­=.ine whethel' a Feasibility Study should be prepared with respect thel'eto and as herein contemplated. and. if a Feasibility ~tudy is prepared and if it is considered advisable, to carry out a Development programme and other operations related to the Mining Properties. '

4.02. Until such time as X acquires an Ownership Interest hereunder. it shall bave no right. title or interest in and to the Mining properties.

4.03. Subject to the proviSions hereof, after the termination of the provisions of paragraph 3.04 hereof the respective Ownership Interests of X «ftd Y shall be as determi.ned under the provisions of Article 3 hereof, and, X and Y shall share in all costs incurred hereunder and in all moneys expended in doing work hereunder pro rata to their respective Ownel'ship Interests as at the time in question.

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Article 5. Programmes:

5.01. After the termination of the provisions of paragraph 3.04 hereof, X ,as Manager. shall have the exclusive right to submit the first progr~ hereunder, provided, however, that if

X fails within six (6) full calendar .onths of such termina­tion so to submit such first Progr~e the provisions of para­graphs 10.07 hereof shall be ap~licable. mutatis mutandis.

5.02. A Programme may relbte to work to be performed in one or more parts of the Hining Properties but, subject to the provi­sions of Article 7 hereof, shall not provide for work to be per­formed over a period in excess of one year.

5.03. The Manager may at any time and from time to time and whether or not the then current Progra~e has been completed prepare a proposed Programme for the consideration of each Par­ticipant, provided, however, that the Manager shall consult with the Participants with respect to the general nature of worK to be proposed in a proposed Progr~. The Manager shall deliver a copy of the same to each of the Participants in a timely manner and such that work in the relevant parts of the Mining Properties may be carried out in a proper and workmanlike manner, it being agreed that a programme Shall not be proposed unless at the time of such proposal the Partieipants are in pOssession of informa­tion then in the possession of the Manager with respect to work cbrried out since the last report delivered by the Manager here­under and the results thereof. SUch infol'mation shall be con­tbined in a report or may be discussed with the participants during the consultation referred to above in this paragraph.

5.04. A Programme shall comprise work considered advisable by the Manager and shall be eons ide red to have been accepted as at the date that it is delivered. to the Participants. p!;ovided only that in preparing such Programme the Manager has consulted and/o!; during reasonable bUSiness hours made its representatives available to consult with the participants.

5.05. After completion of a Programme the Manager shall submit to each of the Participants a report containing a summary of the work perforDed under such programme and the results and costs thereof together with any recommendations that the Manager may conSider relevant, all set forth in reasonable detail •

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Article 6. p~rticip~tion ~nd Effect Upon Ownership Interests:

6.01. SUbject to the provisions of ~r.graph 7.04 hereof, e~eh Participant shall, by notice to the kanager and to ~he other Participant, indicate within thirty (30) da~s.after.recelPt of a Programme whether Or not it intends to partlclpate ~ such Programme, it being agreed that failure to give such.notice within such period of time sh~ll be deeme4 to be dellVery of a notice under this paragr~ph as at the end of such period indicating an intention not to particip~te in such Progr~e.

6.02. If ~ Participant indicates pursuant to this Article th~t it intends to participate in a Progr~e. then Such Participant shall be firmly obligated and hereb~ agrees to contribute to such Pr09r~~ that portion of the aggreg~te estimated cost thereof which equals its then Ownership Interest plus in either case. a further ~unt of not more than fifteen perc~nt (15\) of s~id portion Which .ay be use~ to ~tiSfy or provide for such participant's por~ion ~f contl~encl~s that aay arise relating to such progr~ (It belng the lntentlon th~t each Programme shall be c~pleted as nearly as possible within the estimated cost thereof as set forth in the relevant proposed Programme) •

6.03. If, with respect to any Progra=ae (including, without li~itation, a Development Programme), ~ny p.rticipa~.indicates. Or is deemed to have indic~ted pursuant to the provls1ons of thlS Article that it does not wish to p~rticipate in such Programme then such Particip~nt shall ~s of the later of the date of com­pletion of the then current Progr~e lif any) or the date of the delivery of the notice under paragrap.h 6.0,1 hereof so indicating. be deemed to be non-participating hereunder during the currency of such Programme, shall cease to be ~ Participant with respect thereto a~d shall lose and forfeit all its rights to participate in such Programme. For clarification purpos~s, each of.the p~rties hereto ack.nowledges and agrees that l,f a party 1S deemed to be non-participating hereunder:

(i)

(ii)

such party shall no~ be relieved of but shall contin­ue to be liable for its sh~re of the amounts e~pended in doing vcrk. under ~ny Programme with respect to which it elected to participate hereunder;

such party shall not (e~cept as set forth in clause (i) of this paragraph) be liable for any moneys e~pended in doing work hereunder after the date upon which such party was d~ to be non-participating with respect thereto and during the curreoc~ of such Progra_ with respect to which it was so deell\ed,~

""" , - .

(iii) such party may partic~pate io SUbsequent ~rogrammes but, subject to the provisions of this paragraph 6.03 to the contrary, only to the e~tent of such p~rty's Ownership Interest as determined hereunder after completion of such progra=me with respect to which it was so deemed.

If a Particip~nt is deemed to be non_participating hereunder. its Ownership Interest shall decrease as the other Participant continues to expend ~oneys in doing work hereunder and the respective Ownership Interests of the parties hereto shall be ca1.culat.'ed frOID. time to time in accordance with the following provisions:

(1) for the purposes of such calculation only. the amounts ex~nded in doing york hereunder by X under Article 3 hereof sh~ll not be included and shall not be considered to have been contributed or expended in doing work hereunder, but. each of x and ~ shall be deemed to have contributed, in addition to all !ImOunts e~pended in do,ing work hereunder after the term.inat.ion of the provisiOns of paragraph 3.04 hereof, that portion of $1.170,000 that is proport.ional to its Ownership Interest .s at the date that such party w~s so deemed to be non-participating hereunder.

(2) the calculatiOn of the respective Ownership Interests at any time Shall be made ~s follows:

'"

COntributions made or deemed to be III.lIde or moneys expended in doing work hereunder by the relevant party ~ 100\ Aggregate contr1but.l0nS made or deemed to be made or moneys expended in doing work hereunder

if the Ownership Interest of a party is so decreased to five percent (5\1. such Ownership Interest shall be automatically and immediately forfeited to the other party hereto and thereafter such forfeiting party shall have no right, title or interest in ~nd to the Mining Properties or otherwise hereunder.

Notwithst~nding ~nything to the contrary contained in this p~ragraph, upon completion of a progra~ with respect to whi~h a party hereto has been deemed to be non-participating hereunder the Manager shall deliver to such party a notice indi­cating: th~t the Programme has been coapleted insofar as the Kanager -intends to complete the s~me: that the basic objective of

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the work actually carried cut did not differ substantially fr~ that proposed tc be carried out under such Programme; the aggre­gate amount of ~oneys expended in doing work under such Pro­grammel and the percentage .of the aggregate estimated costs .of such progra~ that such aggregate a=ount represents. Such nctice ~ay be included as part .of a report delivered pursuant tc the prcvisions .of paragraph 5.05 herecf, and, in any event shall be delivered befcre any £urther Progra~e is prcposed hereunder, X£ said percentage is less than eighty percent' (60t), or if said nctice indicates that said basic .objective did so substantially differ, such party May by notice delivered to the Manager within thirty (30) days after receipt of said nctice from the Manager elect tc contribute to the amounts expended in dCing work under such programme. Provided that such electicn is accompanied by payment in an aggregate ~Cunt equal tc the percentage .of said ameunts that equals the OWnership Interest .of such party as at the commencement .of such programme, then, any decrease in the Ownership Interest .of such party that would otherwise have .occurred with respect tc such PrograMme pursuant to the previ­sicns .of this paragraph 6.03 shall nct occur, the Ownership Interest of such party Shall be its Ownership Interest as at the commencement of such programme, and it shall be as if such party had never been sc deeMed tc be ncn-participating with respect te such Programme.

6.04. If at any time a Participant fails tc pay moneys as part .of its contributicn tc any Programme with respect tc which it is a participant in acccrdance with tbe requirements .of this paragraph and .of paragraph 10.05 herecf then:

(a) in the case of any Progra~e. other than a Develop­ment Programme, such Participant shall, as ~t tbe date of the performance of the last werk carried out hereunder to which such Participant contributed (regardless of the da'te .of the 'l'endering of the in­veice fer such moneys), be deemed to be non-partiCi­pating hereunder and the provisions of paragraph 6.03 hereof shall apply, mutatis Mutandis, save only that such participant Shall not have any right to partici­pate in any subsequent Programme, shall, thereafter, be deemed ~o be non-participating hereunder with respect to all subsequent Programmes and shall cease tc be a Participant hereunder; .or

(b) in the ease of a Develcpment Programme, sucb Participant shall be in default hereunder and the ~revisions of paragraph 6.06 hereof Shall prevail;

unless in either such event such Participant corrects such fail­ure within thirty (30) days after receipt by it of notice of such

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failure. In addition te any other rights or remedies at law or in equity with respect to any such deeming or default, the Manager may set off against any unpaid sums due or accruing due te such Participant hereunder any ~unts owing to Manager or to the other Participant.

6.0S If a Participant that is the Manager is deemed to be nen-participating hereunder it shall i~ediately cease to be Manager and shall be replaced as Manager by the other Partici­pant.

6.06. Netwithstanding anything to the contrary herein con­tained, if both .of the parties heretc have agreed to participate in the Development Programme, then: ,.)

(b)

(0)

the Manager therecf sball, fer so long as it contin­ues as Manager and in the absence of agreement be­tween the Participants to the centrary, proceed te implement such Develcpment Programme with a view to bringing the Mining Properties into commercial pro­duction and thereafter tc .operating the same, pro­vided always that such obligation together with all other duties and obligations of such Manager shall cease i~ediately if either of the participants is in default hereunder,

a Participant in default hereunder (the -Defaulting Party·) shall, subject .only tc the previsions .of this paragraph 6.06, be firmly committed to centribute ltS portion of all mcneys tc be expended in doing work under such PrQ9ra/lWle;

if .one of the Participants is a Defaulting Party, then:

(i) the Defaulting Party shall not be relieved .of but shall continue to be liable fcr liabilities which arose .or were incurred pricr to the date upon which the Defaulting Party became in de­fault hereunder and fcr liabilities which arise or are incurred thereafter and until the De­faulting Party either disposes .of or ferfeits its Ownel'ship Interest as provided in this paragraph.

(ii) the Defaulting party shall during the two hun­dred and seventy (270) days next following the date upon which it became in default hereunder dispose .of all .of its 'Ownership Interest in accordance with the provisions .of Article 13

. -.

hereof and failing s~h disposition, all of the Same shall automatically forfeit to and vest in the other Participant and the Defaulting Party shall tbereafter have no right, title or inter­est therein or theretO and no further rights or interests hereunder relating thereto and the Default.ing Party shaH be relieved of its lia­bilities hereunder save for t.hose (including, without li.itation~ which resulted in default hereunder) which arose befor~ t.he Defaulting Party was in default hereunder; it being agreed that if the Defaulting Party so disposes of ' said right., title or interest., then, provided that. the assignee agrees, in SUCh form and subst.ance as the other Part.icipant. .ay reason­ably require, to part.icipace in such Developm.ent Programme and to be bound by the provisions of this agreement and if such other Participaot and the Manager have been paid in full, on or before sueh disposition, for all liabilities of the Defaulting Part.y exist.ing hereunder as at t.he date of such disposition, such assignee shall be considered to be a Part.icipant and shall acquire the right to participate in such Progra~ to the s~ extent as the Default.ing Party had the right so to part.icipate prior t.o the date upon which it was in default hereunder;

(iii) the other Participant may. in its sole discre­tion, contribute moneys in satisfaction of the liabilities referred_ to in clause (i) of this subparagraph (c) for and on hebalf of the De­faulting Party, in which event the other Part.i­eipoont shall be entit.led to be reiillbursed for such moneys together with interest thereon at the pri~ rate of interest as Quoted from t.ime to time by the Canadian Imperi .. l Bank of Commerce (CO~rce court Sranch, 1oronto) plus two percent (2\);

(iv) subject. to the provisions of elause (ii) of _this subparagraph (c) the disposition or for­feit.ure by the Defaulting ,party pursuant to the provisions of said clause (ii) Shall not re­lieve the Defaulting Part.y of its liabilities under clauses (i) or (iii) of this subpara­graph;

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(v, subject to the pro~isions hereof to t~e.con­trary and. in partIcular, to the prOVISIons of clause (ii) of this subparagraph (c), the Defaulting Party shall be also consi<1ered to have been deemed to be non_participating hereunder as at the date upon which it is in default hereunder_

6 _ 6

Article 7. Feasibility Study:

7.01. If at any time the Manager or a Participant is of the view that there is sufficient evidence that a potential orebOdy exists upon the Mining Properties and that a Feasibility Study should be prepared. it shall by notice so info~ the other Parti­cipant or Participants, as the case may be. and:

(a) the then current Programme shall continue;

(b) the Manager shall forthwith prepare and submit to the Participants a proposed Programme providing for the preparation of the Feasibility Study and such work as is considered appropriate to provide any additional data required for such preparation. it being agreed that such proposed Programme may anticipate work being done over a period in excess of the one (1) year set forth in par~graph 5.02 hereof:

provided. however. that if ,either Participant disagrees with the said view. as set forth in said notice, it may by noti~e deliv­ered within the thirty (30) days following re~eipt of said noti~e so indi~ate and. in such event:

(i J the Manager shall s,uspend preparation of the proposed ProgramAe referred to in Subparagraph (b) of this paragraph until resolution of sueb disagreement. and

(ii) if within the next following thirty (30) days the Participants cannot resolve such disagreement the matter shall be su~itted to-a Consultant pursuant to the provisions of Article 11 hereof. and the Manager shall proceed accordingly.

7.02. If the Feasibility Study is prepared by the Manayer or a Participant, a copy thereof snall be delivered to each of the parties hel:eto then having an Ownership Interest, and. l'f a Participant so requests. the party that prepared the Feasibility Study shall obt~in and deliver to each such party hereto a report of a Consultant to the effect that SUCh Consultant has reviewed the same and finds its contents and recommendations to be reason­able and in accordance with gooc:l mining practice. U' sueb Feasi­bility Study re~ommends that the Mining Properties be brought into ~ommercial produ~tion. the COnsultant shall in addition inc:licate whether or not he is of the opinion that 'the proposed project is practically and econ~ically viable. If the Feasibil­ity Stuc:ly is ,prepared by a COnsultant., a copy t.hereof shall be c:lelivered to each of the partie$ hereto then having an ownership Intel:est immec:liately upon completion thereof ~nd a P~rticipant shall not have the right to request a report ~s aforesaio.

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7.03. If having received a Feasibility Study. a participant does not agree with all or part of the COntents thereof. then su~h participant may by notice so advise the Manager (and if appropriate the other Participant) and the Pal:ticipants and the Manage~ (if not a Participant) shall .eet tOgether with a view to resolvIng the matters of difference with respect to the Feasibil­ity ~t~d~. If within ninety (90) days after c:lelivery of the FeaSIbIlIty Stuc:ly. such matters of c:lisagreement have not been re­solved between the Participants such matters may be submitted by either of the Parti~ipants to a COnsultant (who shall not be the Consultant who preparec:l the Feasibility Stuc:ly or report thereon. as the case may be) pursuant to the provisions of Article 11 hereof. in which event the one hundred anc:l twenty (120) days re­ferred to in paragraph 7.04 hereof Shall, if necessary. be ex­tended for a period of time enc:ling twenty (20) days after the date upon which the Consultant delivers his report unc:lel: said A~t!cle 11. If within said ninety (90) c:lays. such a notice ac:l­vIsIng of matters of disagreement is not delivered as aforesaic:l, the Participants shall be c:leemed to be in agreement with such Feasibility Stuc:ly.

7.~4. If the Feasibility Study inc:licates that an orebody eXIsts anc:l rec~ends that work be commencec:l with a view to bringing the same into commerCial produ~tion. the work proposed in the Feasibility Study. as the s~e may be amenc:led in accor­dance with the prOVisions hereof. may be submitted as a proposed Development prOgramme hereunder. provided. however. that the time within whiCh an indication of intention to participate must be given Shall be one hunc:lrec:l anc:l twenty (120) days from the date upon whi~h the same was delivered or suCh longer period as may be determinec:l pursuant to the provisions of paragraph 7.03 hereof insteac:l of the thirty (30) c:lays referred to in paragraph 6.01 hereof.

7.0S. If a Feasibility Stuc:ly indicates that the Mining Pro-perties do not contaIn an orebody. such FeaSIbIlIty Stuc:ly may contain a re~o~endation as to what dispOSItIon shoulc:l be made of the Mining Properties but the Mining properties shall be c:lisposed of or.c:lealt with only as the parties having an OWnership Interest thereIn may mutually agree, provided. however. that. in the a~s~nce of agr!ement between su~h parties to the contrary, the MInIng PropertIes Shall continue to be subject to the provisions her.:.of. '

7.06. If a FeaSIbIlity Study IndIcates that the MInIng pro­perties contain an oreboc:ly anc:l recommends that work be commencec:l with a view to bringing them into COllllllerCial production. !'>either of the parties hereto Shall be obligated to bring the same into commercial proc:luction.

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7.07. It is ~cknowleOged by the parties hereto tb~t if at· the date of delivery of the Feasibility Study they are both Participants and sUbsequently one of them is deeilled to be non­participating hereunder or is in default hereunder. the other of them may. in its sole discretion, continue as a Participant and Continue to imple.ent the Development Programme giving effect to the provisions of the Feasibility Study. provided. however. that. notwithstanding anything to the contrary herein contained, if one such party elects or is deemed to elect not to participate in the DevelOpllent programme an.d is accordingly thereby deemed to be non-participating hereunder and if. subject to the provisions of Article 17 bereof, the Development Programme is not implemented within a period of one hundred-eighty (ISO) days after the date of such election or deemed election, then sucb party may at any time after such One hundred and eighty (lSO) days and until such implementation has been so commenced c~nge its election, or deemed elect~on. bY.DOti?e accordingly to the Manager and to the other Partic~pant. 1n wb1Ch event such party shall immeoiately reimburse the Manager and/or the other participant for its pro rata portion of all moneys eXpended in doi~ work· under the DevelopPlent Programme during the period that it was so deemed­whereupon it sh~11 be as if sucb party bad never been deemed to be non-participating hereunder. save that sucb party sb~ll have no right to object to. or to enforce any of the provisions bereof which it might otherwise have been entitled to enforce save for SuCh deeminq, witb respect to any actions, decisions or.work carried out hereun(ler dur"ing the time that such party was so deemed to be non-participating.

7.08. If the Development Programme is proceeded with. then the Manager of such Development Progra~e, if a P~rticip~nt. Shall be entitled to charge as a cost of the Development Programme and to receive a management fee in a reasonable amount, decided by the parties hereto then baving an Ownersbip Interest, not to exceed five percent (5,) of COSts or expenses incurred with respect to such Oeve~opment Programme until the Mining Properties have been brought into commercial production. and thereafter in a reaSonable amount decided by such parties hereto which is consistent with and ~parable with those fees which might reasonably be cbarged by an independent third party wbo is of high reputation and is knowledgeable and experienced in the management of such work providing similar services in similar Circumstances. If the parties having an OwnerShip lnterest are unable to decide upon the amount of management fee to be charged. as aforesaid. within thirty (3D) days after being reQuested so to do by the Manager. the Manager lIIay s~it the matter for decision by arbitration under Article 16 hereof and such decision shall be final and binding upon the parties hereto with effect as at the ~ate of sai~ reQues.t by the Manager.

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Article B. Control by Single Party:

S.Ol. If a party hereto is deeIIIed to be non-participating hereunder the other party. being a Participant. shall. notwith­standing anything to the contrary herein COntained, have the sole and absolute right to act as or to appoint tbe Manager. to make all deCisions ,ami to exercise all rights indicated herein to re­Quire ·mutual agreement of the Participants and, in particular, but without limi\:;ing the generality of the fo·regoing. such party that has been so de_ed sball not have the right to receive or exercise any rights of a Participant hereunder with respect to any proposed Programme hereunder and the remaining Participant shall not be required to carry work out hereunder under progra~s. as such.

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Arti~le 9. Rep~esentatives and Committee,

9.01. X ;!Ind r ~espe~tively hereby de.\>ignate tho.\>e pe~son.\> indi~ated in this paragraph 9.01 as thei~ respe~tive representatives fol' the purpose,s of this ag~eement. Eithe~ pilll'ty hereto may rely upon any ~ni~ation or advice from any such representative of the othel' pal'ty without making ;!Iny enquiry relating to his authority to give the communicatioa or advice and such I'epl'esentatives sball have the power to I'epl'esent and bind the relev;!lnt pa~ty with re.\>pect to matters to be decided by a pa~ty hel'eunder, _provide", however, that a rep~esent;!ltive shall not have the powe~ or authority un"er this pa~ilI9rillph 9.01 to ilImend the provisions hereof.

The respective representatives are designated as follows,

, ,

Either party hereto may by notice to the other change any designation made by it hereunder.

9.02. The parties hereto agree that, as at the terminilltion of the provisions of parillgraph 3.04 hereof, there Shall be and there is hereby established ill Committee for the pI.II'pose of pro­viding ill forum for "iscl,lssion between the parties with I'espe~t to wor~ wbich is proposed to be carried out an"/or work whiCh is then in progress or which has been completed hereunder since the Qate of the last meeting of the COMmittee and for the pu~pQSe of discussing any matters of mutual interest to the parties hereto. ~ach party having an Ownership Interest shall be entitled to be represented at a Co~ittee meeting by such persons in addition to its rep~esentatives indicated above (including. without limita­tion, its professional adviso~s) as such party conSiders advis­ilIble. Tbe Manager shall be represented at each meeting by a pe~son who is fillmiliar with such work. A person representing the Millnager (if a Participant, and if not the party having the lal'ger Ownership Interest) shall be Chai~an of such meeting.

9.03. Meetings ~f the Committee shall, subject to the pro­visions of this paragraph, be held at such time and place a.\> is mutually acceptable to the parties, provided that the Manager or a party having ilIn Owne~ship Interest may not more than twi~e each year and upon not less than five (5) business da'ys' notice call a meeting of the Committee to be held on Such date and at such time and place in Toronto, Ontal'io as may be mutually acceptable or, failing agreement, as may be indicated in such notice, provided,

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that if ea~h pa~ty having an Owne~ship Interest is ~epresented at ill ~eeting no su~h noti~e shall be ~equired.

9.04. It is inten"ed thillt ~etings of the Committee will be infonllal and, -insof;!lr as i-s ;!Ipp~opri;!lte, the Committee may estab­lish its own organization and procedures, provide" that the same do not conflict with the provisions hereof. The pa~ties hereto will ~o-operillte with each other ~n establishing mutually conveni­ent times and places for meetings.

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Article 10. Manager:

10.01 hereby ","y be

The P .. rticip"nts hereby appoint X and X .. grees to act as Manager hereunder until sucb ti.e as it replace~ in accordance with the provisions hereof.

10.02. The Manager .ay resign upon si~ty (60) days' prior notice bO the participants. If the Manager resigns or ceases to be Manager hereunder, the other Participant shall immediately bec~ Kanager hereunder. and the resigning Manager sball co-operate witb the Participants to effect the change in Manager with as little disruption to work being carrie~ out hereunder as possible and will deliver to the new Manager all accounts, rec~ds, files, title documents, agreements or other documents ~ .aterials relating to work performed by it as Manager. It is expressly'understood and agreed that if a Partici~t resigns as Manager but has not been deemed to be non-participating here­under, such resignation shall in no way affect its Ownership Interest or its rights as a Participant hereunder.

10.03. The participant 'haYing the larger OwnerShip Interest shall have the right to be or to appOint the Manager. If a third party that is not a ~rty hereto is a~inted the Kanager, such third party shall be so appointed in writing pursuant to. proYi­sions Which are not in any way in conflict with the provisions hereof and the Participant so appointing such Manager shall supervise the perforaance of such third party as Manager and shall be and remain as fully liable and responsible to tbe other parties hereto as if such Participant were itself the Manager hereunder. A copy of such appoin~ent shall be delivered to the other party hereto. 1\ Participant that has appoint-ed a third party as Manager ~y in its discretion ter.in .. te SUCh appointment but any liability, costs or damages relating to sUCh te~ination shall accrue only to such participant and such Participant shall indeanify and save h~rmless the other party hereto with respect thereto.

10.04. 1"I'Ie Manager shall have the following powers, duties and obligations:

(a) it shall carry out and superYi..e all work to be perfo~ed under each Programme;

(bl it shall prepare proposed Programmes as herein con­templated and shall carry out or cause to be carried out work proYided for in Pr09r~s. it being agreed that the Manager .ay use COntractors or others with respect to the perfor=ance of its duties hereunder as the Manager (or the Participant appointing the Manager) conSiders adyisable:

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(0'

(0)

(0'

(f,

(9'

to,

it shall conduct or cause to be conducted all work performed under any Progra.me in a good and workluan­like manner in accordance with good engineering and mining practices and will comply or cause to be ~­plied with any relevant laws or regulations relating thereto;

if ~ participant, it shall maintain registered in its name, or such other n~e ~s the Participa~ts roay decide, title in and to all of the Mining Properties ~nd shall hold such title documents Or transfers relating thereto for and on behalf of the parties hereto as their respective Ownership Interests may from time to ti~e appear,

it sI"Izlll keep good and COfIIplete records concerning work performed hereunder and accounts relating to each programme in a centr~l location and will make the same available for the inspection of any party h~ving ~n OWnership Interest or representatives of such party ~t all reasonable times during business hours;

it shall ~intain ~ccounts relating to moneys expended in doing work hereunder in a .anner that is in accordance with accepted accounting practice and as may be acceptable to the Participants (and in the event of f~ilure to reaCh .utual agreement as to what may be so acceptable, Such matter shall be submitted to the Consultant pursuant to the prOvisions of Article 11 hereof);

it shall keep the parties having an Ownership Inter­est reasonably informed of work performed hereunder and the cost and results thereof and Shall deliver to each such party periodic written reports relating thereto;

if after completion of each Progr3lllme. it is in pos_ session of any ",oneys whiCh are not required for the discharge of obligations relating to such Programme, it shall, in the absence of instructions to the con­trary, forthwith repay to each of the parties hereto such moneys in proportion to their respectiye con­tributions thereto;

it shall obtain and maintain such insurance coverage relating to its duties hereunder and/or any work performed hereunder as it considers advisable or the Participant .. ppointing the Managqr may approye if

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(j)

")

(1)

'm)

such Manage~ is not a party he~eto (p~ovided, how­ever, that the cost of such insurance Shall be a cost of t.he ·t·nen c,,~rent Progr_el and shall upon request keep t.he parties having an Ownersnip Int.erest advised of the e~tent and nat~ of su~ insuraQce;

it shall promptly inform each Participant of any change of a material nat~e ~oe to a p~ogramme and the Manager shall not ~lement any change which in­creases the estimated cost of a PrOgremme without the consent of the Participants or as a new proposed Programme hereun4er, as the Manager may decide, it being agreed that the Manager (or, if ~pointed, the Manager with the consent of the Participant that ap­pointed it) shall have the power to amend a Programme in such reasonahle manner as does not contravene the provisions hereof;

it shall per""it each P,arty hereto having an OWnership Interest or its authorized agents to have access to the Miniog properties in order to examine any WOrk carried out by or on bebalf of the Manager, provided that such party or its respective agents shall enter upon the Mining Properties at their Own risk and sucb party hereby agrees to indemnify and to save harmless the Manager froro. all loss or d~e of any nature or kind wha~ver in any way refer~ble to the negli­gence or de·fault of such party or its agents while on or in the Mining Properties and including, without limiting the generality of the foregoing, bodily injuries at any time or death resulting tnerefrom and damage to property sustained hy any person ~ pe~sons;

SubJect to the ~ovlsions of paragraph 3.0S hereof, it shall maIntaIn the ~lnln9 Properties in good standing and accordingly shall payor cause to be paid all rentals4 royalties, taxes, assessments or payments in lieu of work required to be paid for sucb purpose, provided always that the Manager bas on hand sufficient moneys to pay the same, or, alternatively, has reached mutually acceptable arrangements with tbe relevant Participants relating to the making of sucb payments;

it shall hire as its employees all personnel reaSOn­ably required to perfor"" its duties hereunder, shall provide f~ and pay promptly such employees all wages, salaries and/or emPloyee benefits to whicb they may be entitled and shall keep all employees

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covered pursua~t to the relevant ~orkrnen's compe[l$a­tion and other employee oriented legislation: and

(nl it shall not in any way pled.ge the credit of any of the parties hereto or, e~cept as Manager hereunder, hold itself out to represent any of the parties hereto.

10.05. The Manager shall have the right, £rQl[l time to time, to deliver an ac~t to each of the participants and to bill each of the Participants for its proportionate share of all moneys e~pended under Programmes or altern~tively to bill each of them in respeet of suen moneys to be e~pended or costs to be in­cu~~ed under sueh Programmes, ~ich account shall include a Sum­ma~y in reasonable detail of the nature and amount of such costS or moneys. Such accounts shall be rendered on a regular basis and if accounts are rendered in respect of moneys to be expended Or costS to be iDCurred~ such accounts shall not relate to moneys to be expended ~ costs to be incurred more than ninety (90) days from the date such account is rendered. Accounts shall, subject only to the provisiOns of this paragraph, be paid within thirty (-30) days after receipt thereof, it being agreed that:

(a) payment of any account Shall not pre~udice the right of the party paying the same to protest or to ques­tion the accuracy or correctness thereof, each account being conclusively deemed to be true and correct upon the e~piry of four (4) months following the eDd of the year iD which the Same was rendered unless within said four (4) months the party paying the same n&s questioned in writing the accuracy or correctness thereof, in ~ich event sucb aceount shall not be so dee.ed until the later of the e~piry of said four (4) months or the settling of such questioning;

,b) any party paying an account may by notice accordingly to the Manager have the rigbt to audit or to have audited the accounts and records of the Manager re­latiog to the year in which such aCCOunt was so paid, provided that:

til such notice WaS delivered within t.o (21 months after the end of the year in which such account was so paid;

(iii any such audit shall be carried out ~t the sole e~pense of such party, during reasonable business hours and in a manner tbat will not

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~

Co)

Cd)

unreasonably interfere with the business ano operations of the Manager; and

(iii) said right Day not be exercised more than once with res~t tQ any year;

if a party questions ~ protests any account as con­templated in subp~lI:a9raph (a) of this paragraph, the same shall be done by notice to the ~nager accord­ingly and if the same is not resolved within thirty (30) days of the giving of such notice. either party may submit t~ same for final and binding settlement by arbitration pursuant to the provisions of Article 16 hereof; <!Ind

the Manager shall not be required to k~p its records after the expiry of thirty-six (36) ~nths after the date of delivery of the invoice to which such records relate.

10.06. If the Mltnage1" is the Kanager of a Development Pro-gramme with respect to which both of the parties hereto are Participants, in addition to any other rights, duties, obliga­tions and powers that the Manager may have with respect thereto, it shall also have the following rights, duties, obl.iqations and powers:

C.)

C.)

to give to each of the parties hereto having an OWnership Interest reasonable advance notice of the quantities of PToduct available or anticipated to beco=e available for delivery to it and to furnish such parties with regular statements of Product produced and delivered f~ the Mining properties and such other information in respect of prOduction therefrom as may be reasonably required by such parties and which is common in the industry: and

to make all necessary reports relating to operations to the appropriate governmental agencies.

10.07. If within one hundred and eighty (lBO) days after completion of a l>rogra_. tbere is no work being carried on hereunder and the Manager has not delivered a further proposed PTogramme. the party hereto Which is not, or did not appoint. the Manager. if a participant. may at any time thereafter prior to the delivery of a propo$ed Programme by the Manager by notice so inform the Manager and, if withi~ thirty (3~) days after delivery of such notice. the Manager has not delivered a further proposed Programme. such participant may by further notice to the Manager deliver a proposed Programme which shall provide for an aggregate

10 - 5

-

estimated amou~t of not less than SSO,OOO. Within the fifteen (IS) days next follo~ing delivery of such propos~d Programme. the Manager (or the Participant ~pointing the Manager as the case may be) ~ay. by notice to such Participant:

C.)

Cb)

Co)

adopt the Programme therein set forth, in which event it shall be as if the -Manager delivered the same in accordance with the provisions of Article S hereof as at the date of so adopting such Programme; or

indicate that it intends to participate in such Progr~e as a Participant but not to continue as Manager thereof. in which event the provisions of paragraph 10.02 and of Article 6 hereof shall apply. ~utatls mutandis: or

indicate that i,t intends not to participate in such Programme, in which event it shall be deemed to be non-participating hereunder and the provisions of paragraph 6.03 hereof shall be applicable as at the date of the delivery of said summary.

If the Manager (or the participant appointing the Manager, as the case may bel fails to deliver such notice within said fifteen (15) days, it shall be deemed to have delivered a notice pursuant to subparagraph (b) above.

10.08. Regardless of whether or not a Programme is then being carried out. the Manager shall have the duty to preserve the Mining ~roperties and shall have the, power and authority to e~pend moneys in ~ing work hereunder for the purpOSe of protect­ing any Mining Property and/or assets acquired hereunder or for the (l'lrpose of Jnee,ting some erooergency or for the purpose Of com­plying with any applicable law or govern .. entd order or require­ment. in eaCh whieh event, provided only that the Manager has acted in good faith. the amount of such moneys so expended shall. notwithstanding the limitation upon contributions set forth in paragraph 6.02 hereof. be added to and form part of the estimated cost of any then current Progr~e or, if ~here is nO such Pro­gramme. shall be reimbursed to the Manager by the participants that participated in the JItOSt recently- completed Programme in the s~e proportions as they so participated. particul~rs of any actual or estilllated expendi.tures and the re-asons therefor sh!lll be communicated to the Participants with reasonable dispatch.

10.09. Provided that the Manager !lCtS in good faith in the performance of its duties hereunder and in fulfilment of its obligations and responsibilities hereunder and in the absence of gross negligence on the pa~t of the Hanage~. the Kanager shall

10 - 6

not be li~ble to ~ny of the ~rties nereto for any costs, ex­penses, clai~s or liabilities incurred by reason of such perfor­JUl.nce O'r fulfilment and eillch of the parties hereto, to the extent of its respective Ownership' Interest at the time in question, hereby indemnifies and saves harmless tbe Manager from any costs, expenses, claims or liabilities incurre" by it wit'h respec't thereto, it being agree4 that under no circumstances will the Manager be liable for consequential "~ges.

10.10. If the Manager, being a Participant, "eals with a third party on ill non-arm's-length basis in a "'ilInner wh'ich, 1n the view of the other Participant, results in ilIn excessive charge Or cost to the Manager, such other Participant ~y by notice delivere" to the Manager within thirty (30) dillYs after such other patticipant learned of such dealings Objeet thereto and if s~h obj.ection cannot be settled wit'hi'n too ne",t. follOwing thirty (3<1) days it shall be submitted 'for final anG binding settiement by arbitration pursuant to the provisions of Article 16 hereof, provide", however, that the ex;ense of ~ch ilIrbitration shall be pai" by such other participant if the deciSion reached by such arbit~ation does not decrease t.he quantum objected to by more than five percent (St) and. othervise .. s may be speciified in such decision. If such quantum is decreased -by such decision the amount of such ~ecrease shall be paid by the Manager for its sole account and shall not be considered to be an amount expende" in doing work hereunder 4nd the accounts of the Manager maintained hereunder shall be adjusted according~y.

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Article 11. Consultant:

11.01. The Pa~ticipants may from time to time appoint a Con­sultant to consider matters submitted to him as permitted in this ag.::ee"'Gnt with respect to met'hods or procedures or work prQPosed to be followed by the Manager and ~ith whiCh the other party hereto' (being a Participant) does not agree. it being agreed that the Consultant shall act as an expert and not as an ilIrbitrilitor.

11.02. The Consult.ant shall be independent and if the Parti­cipants cannot agree upon a Consultant for any purpose hereunder within ten (10) "ays ilIfter one or other of the Participants has notified the other by notice of its wish to submit the matter set forth in sillid notice to a Consultant as contemplillted in the para­graph of this agreement therein identified,. such Participant may witbout further notice request the then President or a vioe­President of the canadian Institute of Mining & Metallurgy not associated with either of the parties hereto to nominate a Consultant and upon such nomination, such nominee shall be the Consultant with respect to the matter set forth in said notice.

11.03. A Consultillnt shall be a Consultant only with respect to the matter for which he is appointed and shall be paid his usual consulting fees and expenses, such fees being payable by the Participant requesting his appoin&rnent unless the Consultant sball express his opinion in favour of such participQnt, in which event the other Participant shall pay such fees ilInd expenses.

11.04. The Consultant shall consider the matter submitted to him, Shall have access to relevant reports, data, maps and records, shall ",eet with each Participant (unless a Participant declines to meet with him) to hear such Participant's views and thereafter shall. in accordance with tbe terms of his appointlllent (which Shall not conflict with the provisions of this Article 11), express bis opinion as to whether or not in his opinion the method or procedure or work proposed to be followed by the Manager and submitted to the Consultant is reasonable ilInd in keeping with good mining p~actice. Such opinion, and where practicable the reasons therefor, shall be expressed in writing and delivered to each of the Participants.

If the opinion of the Consultant is to tbe effect that such method or procedure Or work proposed to be followed by the Manager is reasonable, then the method or procedure or work may be continued or procee~ed with. If said opinion is to -the effect that such method or procedure or work is not reillsonable or in keeping with good mining practice, then such method or procedure or work shall not be continued or proceeded with and the Consultant shall, i~ the Participant whiCh requested his appointment has suggested -an alternative method or proced"re or

11 - 1

~

work. express his opInIon as to whether or not such alternative is reasonable and in keeping with good mining practice and if his opinion is to the effect thet such alternative is reasonable and in keeping wi~ good mining practice, then such alternative shall replace the method ~ procedure or work proposed by the H~ager and shall be pr~eeded with or continued.

11. OS. The parties hereto acknowledge that it is- their mutual intention that the use of a Consultant is for the purpose of expediting the resolution of dis~te$ between them with respect to matters referred to the Consultant hereunder and accordingly each party-agrees to eo-operate vith the Consultant and to make appropriate personnel available to the Consultant so that he may reach his opinion as quickly as possible.

II - 2

~

Article 12. DispoSition of Product

12.01. Each party hereto having 8n Ownership Interest shall tak~ and the Manager Shall ~ke available to such party aRY Pro­duct produced hereunder in kind and proportionately to its then ownership IntereSt and shall dispose Of or use the saMe as its sole property and for its sole benefit., provided aJ"'ays that any party ta1<.'in'1 sU'Ch I'rodU'Ct shall payor have paid to the l1ana~r that part of all reasonable operating costs relating to t~ pro­duction thereof (dete~ined in acc~danee with accepted account­ing -practices) whic~ is equal to its then Ownership Interest -and further provided that if a party hereto does not so tl>ke or COn­firm that it will SO ta1<.e any such Product within thirty (30) days after receipt of notice from the Manager setting forth the quantity of Product so available, then the Manager may, but shall not be obligat~ to, sell all or part of the same to any third person (upon such terms includinq. without 'li1l1itation, terms contel!lplating. delivery of Pr<X1uc:t over a period of time up to one year. and at such price as the Manager ~ay _consider reasonable) or to itself (at a fair ma~et value determined in accordance With the ,provisxons of pa-u9raph 12.05 hereof), for and on beha.lf of such party. and the Ma.nager s~ll account to such party with respect to any such sale and shall pay to such party the balance of the sale price received by it after deducting therefrom all costs or expenses of the Manager relating to such sale and any operating costs owing by such party to the Manager hereunder with respect to such Product so sold or otherwise.

12.02. If so requested by a party hereto. the Manager shall cause any Product. to which such party is entitled pursuant to the provisions of paragraph 12.01 hereof to be stored or stoc~piled in such a location as ~ay be acceptable to the Manager. all at the sole cost and expense of such party. The Manager shall have no responsibility or liability with respect to any Product so stored or stockpiled, title to the same being in sueh party and the same being at the sole risk of .such party.

12.0), The Manager shall make Product produced hereunder available to the respective parties entItled thereto hereunder in such manner and quantity as is equitable. havino regard to the enti,tleraent of each such party and to the quantity. quality and characteristics thereof. The Manager shall advise each of the parties hereto obligated to take product hereunder of the pro­cedures that th~ Manager intends to follow with respect to the division and packing (if any) and delivery thereof. If any such party objects to all or part of sucb procedures it may by notice so advise the Manager and all sach other parties and if such ob­jection is not settled within the next following thirty <)0) days it shall be submitted to the Consultant hereunder.

12 - I

12.04.' Notwithstanding ~nything to the contrary herein cOn-tained, the Manager mat refuse to deliver any Product to or to the order of any party hereto and hold such Product as security unless and until the Manager has been paid or has received secur­ity satisfactory to it for the payment of that part of operating costs relating to such Product that are payable by such party, and if the Manager is DOt so paid in full or does not receive Such security within thirty (30) days after demandi~ the sa~e, the Manager may sell all or part of Such Product at such price as the Manager considers reasonable aDd, after payi,ng all costs of such sale and .oneys payable to it, Sha~l have only the obliga­tion to pay to such party the balance, if any, in its possession. If the "anager sells Product as contemplated in this paragraph it Shall have no liability whatsoever to the party that owns the same, save only for the obligation to account to such party as aforesaid.

12.05. For the purposes of this agreement where it is neces­Sary to dete~ine the fair market value of Product such fair mar­ket value shall be determined in accordance with the prOVisions of this paragraph.

The party hereto (the ~valuer") wishing to establish Such fair ~arket value shall inform the other party or parties hereto to which SUCh determination relates (the "Affected Party·) by notice of the quant~ of the fair market value which the Valuer wishes to use. If the Affected Party does not by notice delivered to the V~lue~ witbin ten (10) business days after being so info~d by the valuer object to such quantum, sucb quantum Shall be final and binding as between the parties hereto for the purpose or purposes set forth in the said notice of the valuer.

If the Affected Party delive~s s~id notice to the Valuer within said ten (10) days, then the quantum of Such fair market value snaIl be decided by arbitration purs~nt to the pro­Visions of Article IG hereof. save only that the expense of such arbit~~tion shall be paid by the Affected Party if the decision reached by such arbitration does not increase the quantum of such fair mar~et value by more than two percent (2%) frem the quantum set forth in the notice delivered by the Valuer and otherwise as may be specified in such deciSion.

Article 13. Disposition of Interest:

13.01_ No right, priVilege or interest of either of the parties hereto shall be assigned except in acco~dance with the relevant provisions of this ag~ement Or unless the other party hereto has consented to Such assignment in writing prior to the making thereof, it being agreed that no assignment shall be made unl~ss the assignee has agreed in writing and in form and sub­sta~e satisfactory to the other " party hereto to be bound by the provisions hereof.

13.~2. Subject to the provisions of this Article to the con­t~ary, each of the parties hereto agrees that it will not sell or otherwise dispose of any interests that it may have or acquire hereunder (including, without limitation, the Royalty) and/or any right, title or interest in and to any of the Rining Properties (said interests and said right,"title and interest being, for cOAvenience, hereinafter referred to as the "Rights~) without first offering the same for sale to the other party he~eto in accordance with the provisions of this paragraph.

If either party hereto (the "Selling Party-) wishes to sell all or any part of its ~ghts. it Shall give written notice (the -Sale Notice") accordingly to the other pa~ty hereto stating the nature of the Rights offered for sale, the price thereof (which shall be" expressed in dollars) and the terms of sale, if any. The other-party shall have the ri9ht within sixty (GO) days after the Sale Notice is given to purchase or to deSig_ nate .II purchaser for all (but not- le~ t~n all) of the Rights so offered at the price and upon the terms so specified in the sale Notice. If within the said sixty (GO) days, the other party hereto or such designated purchaser does not purchase the Rights offered for s~le hereunder, then the Selling Party Shall be en­tit,led, witbin the next one hundred and twenty (120) days after the expi~ation of the ~aid sixty (60) days to sell all tbut not less than all) of the Rights so offered and not purchased to any person at a price or prices and upon te~s not more favo~rable to the buyer than the terms Specified in the Sale Notice. If within the said period of one hundred and twenty (120) days, the Rights so offered are not sold in accordance with the provisions of this par~graph, then such Rigbts shall again be subject to the condi_ tions of this parll9rapb and so on from time to time.

13.D). Subject to any applicable laws affecting creditors' rights, if:

(a) a decree Or order shall have been entered by a court of competent j~risdiction adjudging a party hereto a bankrupt Or insolvent or approving as properly filed

12 - 2 13 - 1

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Article IS. Disposal of Assets:

IS.Ol. If at any time any assets ~Quired for the purposes of carry~'n~ out a programme and paid for by moneys contributed by the Partlclpants hereunder are disposed of. such assets shall be disposed of in such manner as the Manager may consider reasonable and the proceeds of such disposal shall be distributed amongst those parties that have an Ownership Interest at the time of Such disposition in proportion to their respective Ownership Interests hereunder as at the time of such disposition.

15 - 1

Arti~le 16. Arbitration,

16.01. NO matter or dispute hereunder shall be settled by arbitration unless the provisions hereof specifically so pr09ide or unless the parties hereto mutually agree.

16.02. Any arbitration to be carried out hereunder shall be subject to the following provisions. namely:

The party desiring arbitration shall nominate one (1) arbitrator and shall notify the other party hereto of such no.in­ation. SUch notice shall set forth a brief description of the matter submitted for arbitration and the paragraph hereof pursu­ant to which such matter is so submitted. Such other party shall within thirty (30) days after receiving such notice nominate an arbitrator and the two (2) arbitrators shall select an umpire to act jointly with th~. If said arbitrators shall be unable to agree in the selection of such umpire, the u=pire, who shall not be associated with either of the parties hereto. shall be desig­nated by the President ~r a Vice-President of the Canadian Institute of Mining i Metallurgy not associated with either of the parties hereto. The umpire shall fix the time and place for the purpose of hearing Such evidence and representations as either of the parties may present and. subject to the proviSions hereof, the decision of the arbitrators and umpire or any two (2) of them in writing shall be binding upon the parties. Said arbi­trators and umpi~ shall, after bearing any evidence and repre­sentations that the parties may submit, make their decision and reduce the same to writing and deliver one (1) copy thereof to each of the parties hereto. The majority of the umpire and arbitrators may determine any matters of procedure for the arbitratiOn not specified herein. If the party hereto receiving the notice of the nomination of an arbitrator by the party desiring arbitration fails yitbin the said thirty (30) days to nominate an arbitrator, then the arbitrator nominated by the party desiring arbitration may proceed alone to de~rmine the dispute in such manner and at such time as he shall tbink fit and his decision shall. subject to the provisions hereof. be binding upon the parties.

NOtwithstanding the foregoing. any arbitration may be carried out by a single arbitrator if the parties hereto so agree. in which event the foregoing provisions of this paragraph shall apply. mutatis mutandis.

The determination which shall be made by the said arbitratOrs and umpire, or a majority of them. or by the single arbitrator, as the case may be, shall be final and binding on the

16 - 1

~

parties hereto and the eost of the arbitration and the remunera­tion of the arbitrators and the umpire shall, be borne by the parties hereto as may be specified in such determination.

The provisions of this-paragraph 16.02 shall be deemed to be a su~ission to arbitration within the meaning of the Arbitration ACt ( B J or any amendment or sueeess~ thereto.

16 - 2

Article 17. Foree Majeure:

17.01. Time shall be of the essence of this agreeMent. pro­vided. hoWever, that the time or times within which ~neys mayor shall be expended in doing work- hereunder or ~k mayor shall be done hereunder or rights may be exercised hereunder or obliga­ti9ns Shall be perfo~ed hereunder (save only for the obligation to pay moneys to a third party whether or not such third party is a party hereto) shall be extended by a period of time ~al to the total of all periods of time during whieh any ~1;"ty hereto or ib: -representatives. ;,gents. t:Ontraet<>rs or e!IIployees are pre­vent.ed £rOll! or se1;"10\1s1;( impede" in doing work hereunder by n'8son <>f 'fire: pOW<'!1;" shortag:e: strike. 10ck<X!t or other labour dispute; flooding.: explosion: cave-in; land slide; inability to obtain adequate 01;" suitable .aehinet"y. equipment or labour; war; acts of God 01;" enemies of the state; governmental regulation. requirement or policy; inability to obtain or the non-issuance of any governmental approval, licence. permit, undertaking or con­sentI 01;" any other eause (whether or not sl.11ar to any of the f01;""'901nq) beyon" the control of such party or its said represen­tatives. agents. contractors or employees. it being agreed that the settling of any labour dispute is beyond the control of a party hereto and nothing herein contained shall obligate any party hereto, its representatives. agents. contractors or employ­ees to settle any such dispute.

17.n2. The party hereto claiming the occurrence and duration of any event contemplated under the provisions of paragraph 17.01 hereof shall notify the other party hereto accordingly. such notice to be prima facie evidence of the existence of such event and of the duration thereof. Upon the termination of such occur­rence such party shall notify the other party hereto accordingly.

17 - 1

Article 18. Representations aDd Covenants:

18.(1l. Y bereby repl'esents and warranu to X (on a continuing basis) tbat; Y owns all legal and ~eficial rigbt, title and interest io and to those parcels of lands referred to in subparagrapb (n. of paragraph 1.01 bereof free and clear of any lien, mortgage, agreement or encumbrance {including, without limitatio~, any order or jUQgment relating to the Mining Properties 01' any legal proceedings wbich may result in any such judgment or order); Y has the exclusive right to deal with the Mining Propel'ti~s as herein ~ntemplated; all taxes, assessments, rentals, levies or other payments relating to the Mining Properties and required to be made to any federal, provincial or municipal governme,ntal instrwoentality have been made and the Mining Properties are each in good standing until at least December 11, 19 ; and Y does not own or have any interest in any land adjoining the Mining Properties.

18.02. Each of x and Y represents to the other that it is duly Qualified to carryon business and to hold mining properties, or an interest therein, in the PrOvince of B and to prospect and explore for minerals therein and agrees that it Shall maintain such qualification for so long as this agreement continues in full force and effect.

18.03. Each of the parties hel'eto agrees that &ny informa-tion aoquired ,by it bereun<;ler shall be confidential and shall not be released or communicated to any person, firm or corporation without the prior written approval of the otber party, prOvided that a party shall be entitled to ~ake such disclosures as are I'equired by applicable laws or regulations of governmental de­part~ents or agencies or any stock or sec~rities exchange upon whiCh securities of the relevant party are listed (where practi­cable the part.y making such disclosure Shall fir.st inform the other pal'ty), and further provided tbat such information may be released to a third party lender~ Or potential lender, in con­nection with negotiating Or arranging for fi~cing or to a par­ent corporation of a party hereto or to a company associated with such parent cOl'pol'ation Or such party prOvided that the recipient of such info~tion bas agreed to keep the same confidential.

18.04. Each of the pal'ties hereto agrees that it will not use the name of any other party hereto or any company associated with any other party bereto in' any GoCWlleot or release in connec­tion with operatiOnS or contemplated operations hereunder and made to or available to the public witho~t the prior approval of such party, save only in connection with disclosures pe~itted to be made under paragraph 18.03 hereof.

18 - 1

18.05. Before any infor.ation is disclosed to a Consultant or profess~onal advisor of a party hereto any party hereto having an Ownership Interest may in its discretion require &uch consult­ant Or professional advisor to wbofII infonnation is to be ~ade available to execute and deliver an agreement to tbe effect that info~tion disclosed to such COns~ltant or professional advisor will remain confidential, such agreement to be in such form and substance as such party may reasonably require.

18.06. Each of the parties bereto agrees that t will not take or suffer to be taken any proceeding, whether udicial or otherwise, t'hat would or might re'sult in the partit on or sever­ance of title to the Mining Properties.

18 - 2

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Article 19. Termination:

19.01. This agreement ...... y be te=inllted upon t~ IIIutulll 8greement of the parties having lIny in,te1"est hereun<\<er lit the time 9£ such termination and upon such terms and conditions as such parties may "'~tually agree.

19.02.

Co,

C.,

This agreement shall terminate ill\lllooi-ately:

if "I:. any time _there .!Ire no Minin9 Properties which are subject to the provisions hereof:

if one of the parties hereto forfeits its Ownership Interest pursuant to the provisions of paragraph 6.06 hereof: or

(e) pursuant to the provisions of paragraph 2.02 hereof or of Art~cle 3 hereof.

19.03. Until eommeneement of work under II Development Pro-gramme. this agreement shall terminate thirty (30) days after either of the parties hereto gives notice accordingly to the other. provided. however. th~t within said thirty (3Q) days there h~s been delivered to such other party a transfer and quit claim to such other party of all right, title and interest of the p~rty giving such notice in and to this agreement and the Mining Properties, together with the undertaking of SUCh party to exe­cute and to deliver to such ~ther party all such documents ~s such other party may consider ne~ssary or advisable in order to give effect to the foregoing and to divest such party of all such right, title and interest. Such notice may not be given, and if given, shall not be valid, after ~encement of a Programme constituted by a Feasibility Study.

19 - 1

-, ~.

Article 20. NOtice and Payment.

20.01. hereunder be deemed

Co,

Any notice to be given or any delivery to be made shall insofar as is practicable be in writing and shall to be well, sufficiently and duly given or made if:

delivered in person and left with a secretary or other reponsible employee at the relevant address set forth below-;, or

(b) sent in a registered letterl QC

(c) telegraphed, telexed or sent by otber wire COMmunica­tion and confirmed by registered letter;

if to X ,addressed to it at:

and if to Y ,addressed to it at.

and if to a Manager (if not a party hereto) addressed to it at the address 9iven by sueh Manager, provided, however, that in the cas:e, of a Hana<}(!r who 1's not a Participant. a copy of such notice or delivery shall be given or made contemporaneously to the other Participant and if such copy is not so given 'or made, $ueh notice or delivery sh~ll not be,considered to have been given or made in accordance with tlle provisions of this p.ara9r~ph.

Any noti~ or delivery $0 given or made Shall be deemed to ha~e been given or mOOe and received on the fifth busi­ness d~y_after the ~iling thereof if sent by ~gistered letter or on the day of delivery in persoo or on the day of telegr~ph­ing~ telexing or cQmlllunication by other wire service of the same (provided that -tbe ~ is a business day_and if not, on the next business day), as the case may be.

20.02. notice in Article.

either of the parties hereto =ay writino change its address for the

20 - 1

from time to time by purposes of this

-

20.03. Any pAy>IIent to' be made by either of the parties here­to to the oUler or to tbe ManOllge!; ""y be lIlade by cheque made pay •• able to such other party or the Manager, as the ease may be, and delivered in accordance with the provisions of this Article 20. in which event. the prOVisions of paragraph 20.01 shall be appli­cable to such payment as if said cheque was a notice. provided, however, tbat the provisions of thiS paragraph s~ll not relieve such party fro= replacing such cheque (subject to receipt by such party of reasonable security therefor) in the event ~t the Same is oot in fact received by the payee the~of or if the s4me is lost, destroyed or =utilated &0 that such payee is unable to cash the Same or if such cheque is not honoured upon presentation for payment by or for such payee.

20 - 2

Article 21. Gener<!ll.

21.01. This <!Igreement supersedes all prior negoti<!ltions <!Ind agreements (including. without limitation. previous correspond­ence between the p<!lrties hereto), cont<!lins the entire agreement between the p<!lrties hereto and m<!ly be modified only by instrument ift writing signed by the party against which the modification is asserted.

21.02. The parties hereto agree that they and each of them will execute all documents and do all acts and things within their respective powers to carry out and/or implement the provi­sions or intent of this agreement.

21.03. It is the intention of the parties hereto and they hereby agree that inSOfar as permitted by law and subject to mutual agreement to the contrary. the benefit of any income or other tax deductions, credits, exemptions or other benefits shall accrue to each of them in proportion to their respective Owner­-ship Interests.

21.04. Nothing herein contained shall be construed as creating a partnership or similar association between the partieS hereto or as imposing upon either of the parties bereto any partnership duty, obligation or liability, the rights, privi­leges, duties, obligations and liabilities of the parties hereto being several and not joint or COllective and their respective interests hereunder are as tenants in common {the parties hereto hereby each agreeing not to make or attempt to make any applica­tion for partition of any of the Mining Properties or severance of their respective interests therein}.

21.05. The liabilities of the respective parties hereto shall be separate and not joint or collective and each of the parties hereto shall be liable only for its propoxtionate share of costs. expenses and liabilities incurred hereunder.

21 - 1

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