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OPTION AGREEMENTSA JUNIOR EXPLORATION COMPANY PERSPECTIVE
Peter Dimmell, P.Geo.President / CEO – Silver Spruce Resources Inc.
St. John’s, NL. – June 19, 2013
RamblerMing WestTom Joe Brook - AK
Mick / Steve Stares
Keats-Stares Families - PDAC Prospectors of the Year - 2005
Linear (Dome) Al Keats
Objective of an Option Agreement
Company acquires the rights to the property
time to explore the property with cash / share outlays which increase as results warrantUltimate aim – find a minable depositcan terminate at any time (subject to
conditions) Vendor
shares in exploration success through– continued option payments– NSR if a mine is found – the “pot of gold”– work if he/she wants it
Should be fair to both parties
Rambler Mines - 1995
Brady
Aldina, ON.Mick/Steve
Stares
Burnt Hill Mine, NB - 1967
WHY DO COMPANIES OPTIONnew showingnew results from a known mineralized areahot area play w/ good geology– tie on claimscommodity price increase– value of property increases as
price increases
20th BrookCalvin’s Landing
CASH / SHARES OVER TIMEincrease each year company earns 100 % interest
WORK COMMITMENTSincrease over time / staged / additive
AREA OF INFLUENCE (AOI)- protects both parties re “tie on” claims
RETAINED INTEREST – ie NSRbuyback of part - usualAdvance Royalty – against NSR
WORK ON PROJECT FOR VENDORgives the vendor work if he/she wants it
GENERAL FORM
BuchansLundberg Zone
Pastureland Road
NormPeters
Shamrock ZoneLong Island
OPTION AGREEMENT - Exampleto earn a 100 % interest subject to a 2 % NSR with a 1 % buyback for $1 M. Advance Royalties of $10,000 per year payable from 5th anniversary on for 10 years (or open).
Cash Shares Work 1st Yr - On signing: $ 5,000 50,000 $50,0002nd Yr $10,000 100,000 $100,0003rd Yr $15,000 150,000 $150,000
Totals $30,000 300,000 $300,000
Golden Promise
Wayne Carroll - NB
LePouviour – AT campLewis Hills – AT camp
DUE DILIGENCEcompanies need to see / evaluate the property and
existing data to “sell” property to their managementallowable activities during DD– surface samples – rocks / soils (limited)– chip/channel samples w/ approval of vendor onlynot allowable– trenching, diamond drilling, geophysics, geochemistry
surveysidea is to allow the company to see the property but not to “explore” it until after an option dealall data acquired has to be provided to the vendor prior to any agreement (fiduciary duty)
California Lk, NB.
JulietB. Verte
AREA OF INTEREST (AOI)
Lazyman PropertyS. Coast NL
649 U showingLabrador
Viking Au – Sops Arm
FIDUCIARY DUTYobligation of company to give all info gathered to the vendorobligation of vendor to give all info available on the property to the interested companyCA helps define FD but FD exists without a CAexample of why it is important - Lac Minerals and the Hemlo discoveryexamples from NL– Twilight Zone – central NL– Lodestar – Goobies (2)
Rambler S
CONFIDENTIALITY AGREEMENTSprotects both company and vendoroutlines responsibilities of each partydoes not remove FD responsibility
term – usually 1-2 yrs
Alex Turpin – Little R.
Innu Prospecting VentureLabrador
Gander BayLinear (Dome)
VG in Qtz
NET SMELTER RETURN (NSR)
Based on value of production with deductions for transportation / assayingvariable - dependent upon commodity
typically 1-4 % can be related to price of commodity
– 2% up to $1500 / oz then 3% over $1500 / oz
buy backs common – percentage for a fixed sumusually 1-2 % for $1 – 2 Mif exercised then remaining interest has significant
valueadvance royalties common
makes the company look at the property each yearhas to be a reasonable sum - $5-15 K / yrstart - a couple of years after option is exercised
usually doesn’t apply to bulk samplesit costs money for the bulk sample ?
GoldenPromise
Voisey’s Bay
DEDUCTIONS FROM NSRstandard deductions– transportation of finished product (concentrate, gold bars etc.)
– assay costs, smelting / refining chargesProduct only (not ore)
– insurance for transportation watch out for– extra costs being added – environmental, extra
transportation (mine to mill), taxes, operating costsALWAYS ATTACH A COPY OF THE NSR AGREEMENT TO THE OPTION AGREEMENT
Rambler S – Krissy BoulderRS – Krissy Zone
RS – SB zone
Recent Additions to Agreementsuse of advance royalties in option payments– payments are deducted from future NSR payments
(if project gets to production)– means less money overall– more advantageous for companies– may be the only way to get the deal done
Golden PromiseBig Easy - Sinter
RS - Brass Buckle
VALUE OF PROPERTIESDepends on
timescommodity pricesother properties availablelocation – ie is there an area play ?quality of propertyexploration stage of property
don’t fall in love with your property
Falls BkNB
Goldenstar
Clarence StrmNB
Brady
Other ThingsLegal agreement– agreement will be a legal agreement– do you need a lawyer ?Registration / deregistration– agreement has to be registered with DNR– should be deregistered when terminated
Amanda – BV Peninsula
Emerald CrystalUrals, Russia
St. Petersberg GI
Virgin Arm - ASK
Pt. Leamington(Al Keats)
Gold - Rambler
REMEMBER
Always try to increase the value of your property by further explorationwork with the company to increase the property valuebe adaptable
- renegotiate terms if circumstances require (ie poor markets)
if exploration isn’t being done then nothing is being found and the value of the property is not increasingVENDOR CAN’T RENEGOTIATE TERMS UPWARD ONCE THE DEAL IS DONE
Linear Powderhorn(Lodestar)
MARKETINGattend trade shows– CIM NL – Nov, Cord Rdup – Jan, PDAC – Mar.compare your property to othersget on email lists to see what deals are being
donework with the Matty Mitchell Room – Pat O’Neill– Get presentation maps done; get on mailing list
Get to know people in the industry and get their advice be flexible
Prospectors can do almost anything(even walk on water???)
Companies should take advantage of the opportunitiesthey provide and negotiate win-win agreements
Contact Info – Tel: (709) 739-5608email: [email protected]