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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934 for the fiscal year ended
December 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934 for the transition period from
to
Commission file number 0-17480
CROWN RESOURCES CORPORATION
(Exact name of registrant as specified in charter)
Washington 84-1097086
(State or other jurisdiction of (IRS Employer Identification
No.)
incorporation or organization)
1675 Broadway, Suite 2400, Denver, Colorado 80202
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code:
(303)534-1030
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the
registrant was required to file such reports), and (2) has been
subject to
such filing requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained to
the best of registrant's knowledge in definitive proxy or
information
statements incorporated by reference in Part III of this Form
10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates
of the
registrant was approximately $36,301,825 based upon the closing
price on
March 1, 1999.
There were 14,520,725 shares of common stock, $0.01 par value,
outstanding on
March 1, 1999.
This Form 10-K consists of 44 pages
Exhibit Index Begins on Page 41
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . .
. . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . .
. . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . .
. . . 24
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . .
. . . 25
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . .
. . . 27
Item 6. Selected Financial Data . . . . . . . . . . . . . .
. . . 27
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . .
28
Item 8. Financial Statements and Supplementary Data . . . .
. . . 34
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . .
35
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . .
. . . 35
Item 11. Executive Compensation . . . . . . . . . . . . . . .
. . . 35
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . .
. . . 35
Item 13. Certain Relationships and Related. . . . . . . . . .
. . . 35
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . .
. . . 35
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 40
PART I
The information set forth in Business, Properties and
Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources includes
"forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and is subject to the safe harbor created
by
those sections. Factors that realistically could cause results
to
differ materially from those projected in the forward looking
statements are set forth in Business, Management's Discussion and
Analysis of Financial Condition and Results of
Operations-Liquidity
and Capital Resources and Considerations Related to Crown's
Business below.
Item 1. Business
(a) Overview
Crown Resources Corporation ("Crown" or the "Company") is a
precious metals exploration company operating in the western
United
States, Peru, and Mexico. Its properties and investments in
Peru
are held through Solitario Resources Corporation ("Solitario"), a
57.2%-owned subsidiary as of December 31, 1998. The Company's
principal expertise is in identifying properties with promising
mineral potential, acquiring these properties and exploring them
to
an advanced stage. Crown's goal is to advance its properties,
either on its own or through joint venture, to the feasibility
study stage. Furthermore, Crown intends to pursue development of
the properties, typically through a joint venture with a partner
that has expertise in mining operations. The Company has in the
past recognized, and expects in the future to recognize, revenues
from the option and sale of property interests to joint venture
partners and from the sale of its share of gold produced on its
properties.
Crown was incorporated under the laws of the State of
Washington in August 1988. Unless otherwise indicated by the
context, all references to Crown or the Company in this report
shall be read to refer to Crown Resources Corporation and its
subsidiaries taken together.
(b) Recent Developments
On December 31, 1998, the United States District Court of
Oregon upheld the Record of Decision ("ROD") and Final
Environmental Impact Statement ("FEIS") for the Crown Jewel mine.
The FEIS, filed in February 1997, describes the environmental
effects of the plan to construct and operate the Crown Jewel
mine,
and alternatives to that plan. The ROD, filed in February 1997,
documents the decision by the United States Forest Service
("USFS")
and the Bureau of Land Management ("BLM") to select Battle
Mountain
Gold Company's ("Battle Mountain" or "BMG") mining alternative as
presented in the FEIS. The court granted motions for summary
judgement in favor of BMG and denied all motions brought by
opponents of the mine which had challenged the decisions of the
USFS and the BLM.
In January 1999 the Washington state Department of Ecology
("WDOE") issued the 401-Water Quality Permit for the Crown Jewel
mine. Also in January 1999, the Okanagan County Court dismissed
a
case calling for the requirement of a solid waste permit for the
Crown Jewel mine. See Properties - Crown Jewel project and Legal
Proceedings.
In January 1999, the Company renegotiated its contract with a
subsidiary of Cominco, Ltd. of Vancouver, Canada ("Cominco") on
its
Bongara zinc project in northern Peru. The new agreement gives
Cominco the right to earn a 65% interest in the project by
spending
a minimum of $27.5 million as well as funding all expenditures
through the completion of a positive feasibility study. The
agreement increased the joint venture's concession holdings to
600,000 acres and modified the cash payment terms to allow for
annual payments to Solitario based upon the price of zinc. See
Properties - Bongara Zinc Project.
In July 1998, Solitario completed the sale of its Argentina
subsidiary to TNR Resources, Ltd. of Vancouver, B.C. Canada
("TNR"). The purchase price of $350,000 was received in the form
of 1,250,000 common shares of TNR and two-year warrants to
purchase
an additional 625,000 shares of TNR at Cdn$0.40 for the first
year
and Cdn$0.46 for the second year. As part of the transaction,
Solitario also received $45,000 in cash as a non-refundable
binder
payment. TNR reimbursed Solitario $29,000 for costs incurred
through a cash payment of $8,000 and delivery of an additional
184,709 common shares of TNR.
In February 1998, the Company received $4.6 million, after
commissions and offering expenses, from a European equity
financing
through the private placement of 1.04 million shares of the
Company's common stock. Included in the placement was an agency
fee of 40,000 shares paid to David Williamson Associates, Ltd.,
of
which David R. Williamson, a director of the Company, is a
principal. See Item 13. Certain Relationships and Related
Transactions.
(c) Considerations Related to Crown's Business
Exploration and Development.
Crown's domestic mineral properties, which consist of a
variety of interests including unpatented and patented claims
held
under lease or in fee, consist of exploration concessions or
mining
claims held under application or option or purchase agreements.
The properties are located in Nevada, Washington, Montana, and
Utah. Crown's Latin American properties are located in Peru,
Mexico, and, until July of 1998, Argentina. Crown acts as
operator
on all of its properties that are not held in joint ventures.
The
success of projects held under joint ventures that are not
operated
by Crown is substantially dependent on the joint venture partner.
In particular, the operating success of the Crown Jewel project
and the Bongara zinc project are largely dependent on BMG and
Cominco, respectively, its joint venture partners. See
Properties
- - Crown Jewel Project, Bongara Zinc Project.
After selecting a possible exploration area through its own
efforts or with others, the Company compiles reports, reviews
past
production records, and geologic surveys concerning the area.
The
Company then undertakes a field exploration program to determine
whether the area merits work. Initial field exploration on a
property normally consists of geologic mapping and geochemical
and/or geophysical surveys, together with selected sampling to
identify host environments that may contain specific mineral
occurrences. If an area shows promise, the Company will
generally
either conduct geologic drilling programs in an effort to locate
the existence of economic mineralization or seek a joint venture
partner to undertake such work. If mineralization is delineated,
further work will be undertaken to estimate ore reserves;
evaluate
the feasibility for the development of a mining project, obtain
permits for commercial development and, if the project appears to
be economically viable, proceed to place the ore deposit into
commercial production.
Foreign Operations.
The Company, through Solitario, presently has interests in
properties located in Peru. The Company signed leases with
options
to acquire properties in Mexico in early 1999. In July 1998, the
Company sold its interests in Argentina. These countries have
from
time to time experienced periods of political and economic
instability. Foreign properties, operations and investments may
be
adversely affected by local political and economic developments,
including nationalization, exchange controls, currency
fluctuations, taxation and laws or policies as well as, bylaws
and
policies of the United States affecting foreign trade, investment
and taxation. Furthermore, it is particularly important that the
Company maintain good relationships with the governments in the
countries in which it operates. The Company may not be able to
maintain such relationships if the governments or policies
related
to mining in these countries change. Certain other regions in
which the Company may conduct operations have also been subject
to
political and economic instability, creating uncertainty and the
potential for a loss of resources dedicated to these regions.
The Company's property interests in Peru are held through
Solitario. Management and technical services are provided to
Solitario by Crown pursuant to a management agreement for which
Crown receives management fees. Certain directors and officers
of
Crown are also directors and officers of Solitario. As such,
certain of these officers devote a portion of their time to
Solitario matters from which Crown, as a majority shareholder,
may
not receive the full benefit. Additionally, the fact that these
officers receive cash compensation from Crown and not from
Solitario may give rise to certain conflicts of interest between
these officers' duties to Crown and to Solitario.
Sources of Financing.
The capital required for exploration and development of
properties is substantial. The Company has financed operations
through the issuance of convertible debentures, utilization of
joint venture arrangements with third parties (generally
providing
that the third party will obtain a specified percentage of the
Company's interest in a certain property in exchange for the
expenditure of a specified amount), the sale by the Company of
interests in properties or other assets, and by the issuance of
common stock. See Properties - Crown Jewel Project-Financing,
Properties - Bongara Zinc Project and Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
Competition and Markets.
A large number of companies are engaged in the exploration
and
development of mineral properties, many of which have
substantially
greater technical and financial resources than the Company.
Therefore, the Company may be at a disadvantage with respect to
many of its competitors in the acquisition, exploration and
development of mining properties.
The marketing of minerals is affected by numerous factors,
many of which are beyond the control of the Company. Among
factors
beyond the control of the Company are the price of the raw or
refined minerals in the marketplace, imports of minerals from
other
countries, the availability of adequate milling and smelting
facilities, the price of fuel, the availability and the cost of
labor, and the market price of competitive minerals.
Title. U.S. Properties.
The Company's domestic properties consist, to a large extent,
of unpatented mining claims on unappropriated federal land
pursuant
to procedures established by the Mining Law of 1872 and other
federal and state laws. These acts generally provide that a
citizen
of the United States (including corporations) may acquire a
possessory right to develop and mine valuable mineral deposits
discovered upon unappropriated federal lands, provided that such
lands have not been withdrawn from mineral location, e.g.,
national
parks, military reservations and lands designated as part of the
National Wilderness Preservation System. These laws also provide
for the location of unpatented millsite claims for the purpose of
mining and milling minerals from valid mining claims. The
validity
of all unpatented mining claims is dependent upon inherent
uncertainties and conditions. These uncertainties relate to such
non-record facts as the sufficiency of the discovery of minerals,
proper posting and marking of boundaries, and possible conflicts
with other claims not determinable from descriptions of record.
Furthermore, the acquisition of unpatented millsite claims may be
limited by several factors which include the number of valid
unpatented mining claims. The Company's Crown Jewel project has
located necessary millsite claims, in accordance with
long-standing
mining practices, in excess of the number of valid unpatented
mining claims. Prior to discovery of a locatable mineral
thereon,
a mining claim may be open to location by others unless the owner
is in possession of the claim. In the event that the discovery
of
a valuable mineral deposit is made on unpatented mining claims in
the exploratory stage, the Company may not be able to assure
clear
title.
The Budget Reconciliation Act of 1993 (the "1993 Act"),
requires the holder of each unpatented mining claim to pay a
"claim
maintenance fee" of $100 per claim on or before August 31 of each
year. To locate new unpatented claims, the Company must pay the
$100 per claim maintenance fee for the initial assessment year
and
a $25 per claim location fee. If the Company fails to pay a
claim
maintenance fee or a location fee as required by the 1993 Act, it
conclusively forfeits the related unpatented claim.
In connection with the acquisition of the Company's
properties, the Company conducts limited reviews of title and
related matters, and obtains certain representations regarding
ownership. Although the Company believes it has conducted
reasonable investigations (in accordance with standard mining
practice) of the validity of ownership, there can be no assurance
that it holds good and marketable title to all of its properties.
Title. Latin American Properties.
Peru
Under Peruvian law, private parties may obtain authorization
to exploit precious and base metals and certain other minerals by
applying for concessions granted by the Peru Public Mining
Registry.
Applications for concessions may cover a variety of
activities
including the exploration and exploitation of metallic or non-
metallic minerals, concentration or refining of minerals,
transportation through non-conventional methods and auxiliary
services to be provided to two or more mineral concessions.
The filing of an application for concession grants the holder
the exclusive right to obtain the concession conditioned on the
outcome of the approval process. The approval process is an
administrative procedure under the authority of the Peru Public
Mining Registry. The process includes a public notice procedure
allowing third parties to give notice of opposition or prior
claim,
if any, before the title to the concession is granted. The
approval process may take six months to several years, depending
upon the volume of applications being filed and whether
conflicting
claims or objections are noted. Although the Company believes
that
it has taken all necessary steps with respect to the application
and approval process for its Peru property concessions, there is
no
assurance that all applications will result in issued
concessions.
As of February 15, 1999, the Company has obtained titles or
leased
mining concessions covering approximately 326,000 acres
(approximately 2.47 acres per hectare).
To apply for a concession, an applicant must register with
and
pay to the Peru Public Mining Registry, a fee equivalent to $2
per
hectare ($0.80 per acre) for a metallic mineral concession at the
time of application. The applicant must also pay a one-time fee
of
approximately $80 for each application. Concession holders must
conduct their exploration efforts in compliance with all
applicable
mining laws and regulations. The concession holder must file
annual reports with the Ministry of Energy and Mines and pay a
fee
(the "Peruvian Annual Rental Fee") of $2 per year per hectare
until
the property is in production.
Mining concessions in Peru are granted for an indefinite
period and require only that the holder pay the applicable
Peruvian
Annual Rental Fee and operate and manage the properties as
described in order to keep the concessions in good standing. If
after eight years the concession holder has not produced minerals
from the property having a value of at least $100 per year per
hectare, the applicable Peruvian Annual Rental Fee is increased
by
$2 per year per hectare. No royalty payments to the Peruvian
government are due from the sale of minerals produced.
Concessions and applications for concessions are
transferrable. A governmental consent is required for a transfer
only if the concession covers properties located within 50
kilometers of the border. A transfer is effective from the date
of
the contract of transfer, although to be enforceable against the
government and third parties, the contract of transfer must be
registered in the Peru Public Mining Registry.
Mexico
During 1997, the Company, through contractors and its own
employees, began exploration efforts in Mexico focusing in the
state of Durango. The Company acquired concessions covering
14,000
acres in 1998, which were subsequently abandoned resulting in a
$34,000 write down in 1998. During the first quarter of 1999,
the
Company leased concessions on two projects, each with an option
to
purchase, covering approximately 13,700 acres. Under Mexican law
enacted in 1993, the exploration and exploitation of minerals
require the granting of separate assignations made by the
government of Mexico of lands available for exploration or
exploitation. Authorities in the Secretariat of Commerce grant
exploration concessions with a fixed life of six years which must
then be changed to an exploitation concession or lost.
Exploitation concessions have a term of 50 years which may be
extended for up to an additional 50 years.
The concessions are granted to Mexican individuals or Mexican
companies domiciled in Mexico. The Company formed a wholly-owned
Mexican subsidiary, Group Crown Exploration S.A. de C.V., ("GCE")
during 1997 to hold its Mexican concessions.
To maintain exploration concessions in good standing, a
holder
is required to pay fees in New Pesos ("NP$") of NP$1.19 per
hectare(or approximately $0.29 per acre at the current exchange
rate) during the first year after the concession is granted,
NP$3.54 per hectare ($0.86 per acre) in the second to fourth
years
and NP$7.33 per hectare ($1.78 per acre) in the fifth and sixth
years. This increases to NP$14.74 per hectare ($3.57 per acre)
in
the first year after an exploitation concession is granted,
rising
to NP$29.54 per hectare ($7.15 per acre) in the second to fourth
years and settling at NP$51.80 per hectare ($12.54 per acre)
thereafter.
In addition to the above fees, the holder must also make an
investment in works and tasks on the exploration concessions
consisting of a flat fee and a per hectare amount, both of which
vary with the age and size of the concession based upon a
sliding-
scale from 100 hectare concessions to 50,000 hectare concessions.
The Company expects to meet or exceed the required investments
over
the terms of its lease option agreements.
Mexican law provides for escalation of fees and investment in
accordance with the change in the Mexican price index
(inflation).
There are no designated royalties to be paid on concessions.
Regulation.
The development, production and sale of minerals is subject
to
federal, state, provincial and local regulation in a variety of
ways, including environmental regulation and taxation. Federal,
state, and local environmental regulations generally have a
significant effect on all companies, including the Company,
engaged
in mining or other extractive activities, particularly with
respect
to the permitting requirements imposed on such companies, the
possibilities of project delays, and the increased expense
required
to comply with such regulations. The Company believes it is in
substantial compliance with all such regulations in all the
jurisdictions in which it operates. The Company's management
does
not believe the Company's ability to proceed with its plans in a
timely and commercially reasonable manner has been affected in a
materially adverse way or in a significantly different manner
from
other such companies in the industry.
The Company is subject to income taxes, state and local
franchise taxes, personal property taxes, and state severance
taxes
levied by various governmental units in the countries in which
the
Company operates. State severance taxes vary between the states
and, within a single state, the amount of tax, based on a
percentage of the value of the mineral being extracted, varies
from
mineral to mineral. The Company's operations are also subject to
taxation by each locality in which it owns mineral properties or
does business.
The domestic exploration programs conducted by the Company
are
subject to federal, state and local environmental regulations. A
substantial portion of the Company's mining claims are on U.S.
public lands. The USFS and BLM extensively regulate mining
operations conducted on public lands. Most operations involving
the exploration for minerals are subject to existing laws and
regulations relating to exploration procedures, safety
precautions,
employee health and safety, air quality standards, pollution of
stream and fresh water sources, odor, noise, dust, and other
environmental protection controls adopted by federal, state, and
local governmental authorities as well as the rights of adjoining
property owners. The Company may be required to prepare and
present to federal, state, or local authorities data pertaining
to
the effect or impact that any proposed exploration or production
of
minerals may have upon the environment. All requirements imposed
by any such authorities may be costly and time-consuming and may
delay commencement or continuation of exploration or production
operations.
Future legislation and regulations are expected to continue
to
emphasize the protection of the environment and, as a
consequence,
the activities of the Company may be more closely regulated to
further the cause of environmental protection. Such legislation
and regulations, as well as future interpretation of existing
laws,
may require substantial increases in capital and operating costs
to
the Company and delays, interruptions, or a termination of
operations, the extent of which cannot be predicted.
Bills proposing major changes to the mining laws of the
United
States have been considered by Congress. If these bills, which
include royalty fees, were enacted in their proposed form, they
could have a significant effect on the ownership and operation of
patented and unpatented mining claims in the United States
including claims owned or held by the Company. Although it is
not
possible to predict whether or in what form Congress might enact
changes to the mining laws, amendments to current laws and
regulations governing operations and activities of mining
companies
or more stringent implementation thereof could have a material
adverse impact on the Company.
Applicable laws and regulations require the Company to make
certain capital and operating expenditures to maintain current
operations and initiate new operations. The Company's estimate
of
expenditures required to comply with applicable regulations are
included in all of its budgets for its projects. Although these
costs are difficult to determine, the Company is not currently
aware of any expenditures that are required in excess of budgeted
amounts. The Company incurs expenditures for land reclamation
undertaken in the normal course of operations in compliance with
federal and state land restoration laws and regulations. Under
certain circumstances, it may be required to close an operation
until a particular problem is remedied or to undertake other
remedial actions. However, the Company is not aware of the
existence of any such circumstances at this time.
Gold Price.
The future profitability of the Company's operations is
significantly dependent on the price of gold. The gold price has
fluctuated widely over time due to factors beyond the Company's
control and in the first quarter of 1998 reached an eighteen-year
low. The factors influencing the price of gold include interest
rates, rate of inflation, the strength of the U.S. dollar in
relation to other currencies, supply and demand, economic
conditions, and political turmoil. The Company cannot predict
whether gold prices will reach or remain at a level at which its
reserves can be mined profitably.
Insurance.
The gold mining industry is subject to risks of human injury,
environmental liability and loss of assets. The Company
maintains
insurance coverage consistent with industry practice, but can
give
no assurance that this level of insurance can cover all risks of
harm to the Company associated with being involved in the mining
business.
Employees.
As of March 1, 1999, the Company employed 22 persons on a
full-time basis, including 10 U.S.-based employees and 12
employees
in Peru. The Company considers its relations with employees to
be
excellent. All employees are eligible to participate in the
Company's stock option plans. None of the Company's employees
are
covered by a collective bargaining agreement.
Item 2. Properties
Reserves and Mineral Deposits
The following table shows gold reserves net to the Company at
December 31, 1998:
Mineable Proven and Probable Reserves (1)
Ore Gold Grade Contained
Gold
(Millions of tons) (oz/ton) (000 ozs)
Crown Jewel Project (2)(3) 3.748 0.188 705
(1) The information was provided by Battle Mountain, the
Company's
joint venture partner. The Company's proven and probable
reserves are reported as mineable (extractable) ore reserves.
Reserves do not reflect recovery losses in the milling
process, but do include allowance for dilution of ore in the
mining process. Reserves have been calculated based on a
gold
price of $325 per ounce. Metallurgical recovery of 88% was
estimated.
(2) While Crown has 100% ownership of the Crown Jewel
project, 54%
is subject to Battle Mountain's right to acquire an
interest
in the property under the terms of the Crown Jewel
Venture
Agreement ("Venture Agreement") and, therefore, these
ounces
have not been included above.
(3) In addition to the Company's 46% interest in the Crown Jewel
Proven and Probable Reserves shown above are mineral resource
deposits of 257,000 tons at a grade of 0.191 ounces of gold
per ton. These tons are included to be mined and processed
in
the current mine plan developed by BMG.
In addition to the above, Crown has identified mineral
deposits on the Cord Ranch, Kings Canyon, Manhattan and Bongara
properties.
The following discussion summarizes the primary mining
properties in which the Company has interests. Company
management
believes the properties described below are favorable for mineral
development, although there is no assurance that any of the
properties in which the Company has or may acquire an interest
will
be economically viable.
North America
The following map shows the location of the primary
properties
in which Crown has interests in the western United States and
northern Mexico.
Crown Jewel Project
General. The Crown Jewel project is a joint venture between
the Company and Battle Mountain, located on an approximate 8,000-
acre property 24 miles east of Oroville, Washington. The joint
venture agreement provides for Battle Mountain to fully fund
exploration and development costs through the commencement of
commercial production to acquire its interest. No monies are
repayable by Crown to Battle Mountain for the costs Battle
Mountain
incurs prior to commercial production. Battle Mountain is
required
to construct a facility to treat a minimum of 3,000 tons of ore
per
day.
The Company discovered the Crown Jewel gold deposit in 1988,
and has expended approximately $3.5 million in land, acquisition
and exploration costs through December 31, 1998. In March 1990,
the Company signed an option letter agreement with Battle
Mountain
to form a joint venture. Upon grant of the option the Company
received $5.0 million from Battle Mountain and an additional $5.0
million in January 1991 when the option was exercised. Shortly
thereafter, the Company and Battle Mountain entered into a
definitive joint venture agreement, which replaced the option
letter agreement, giving Battle Mountain the right to earn 51% in
the Crown Jewel deposit.
In May 1994, Crown and Battle Mountain reached an agreement
resolving certain contractual issues related to the Crown Jewel
Venture Agreement. Under the terms of the agreement, Battle
Mountain paid to Crown $4,250,000 in cash plus 435,897 shares of
Battle Mountain common stock (valued at $4,250,000) in exchange
for
(1) the right to earn an additional 3% (to 54%) in the first 1.6
million ounces of gold recovered from the Crown Jewel property
and
(2) release of Battle Mountain from its obligation to make any of
the quarterly $1.0 million payments to Crown which might
otherwise
have become due because of startup delays on the project.
Production after 1.6 million ounces of gold are recovered will be
shared 51% by Battle Mountain and 49% by Crown. The Company does
not anticipate receiving additional mineral property proceeds
from
Battle Mountain under the joint venture agreement.
Geology and Land. The Crown Jewel deposit occurs within a
large skarn system formed at the southern contact of the Buckhorn
Mountain Cretaceous-aged diorite-granodiorite pluton with
Triassic-
aged limestones and andesites. Both the skarn system and ore
body
are relatively tabular and flat-lying in geometry. The skarn
system is compositionally zoned in relation to the intrusive
pluton
with gold mineralization both concordant and crosscutting to the
various skarn assemblages.
The property is held by a combination of fee ownership,
private mining leases with options to purchase, state mining
leases, with the balance being unpatented mining claims.
Royalties
vary from 4%-5% net smelter return ("NSR") royalties on certain
private parcels, however, the ore body as currently defined is
not
subject to royalties payable to any third party.
Reserves. The following table summarizes the Crown Jewel
reserves as of December 31, 1998, as provided by Battle Mountain:
Proven and Probable Reserves (100% basis) Contained
Ounces,
Grade Contained Crown's
Tons (oz/ton) Ounces 46% Share
Crown Jewel 8,147,000 0.188 1,532,000 705,000
All reserves are considered to be open-pit mineable. The
proven/probable reserve was based on results from 765 drill holes
totaling 307,038 feet. The trial pit design utilized a 0.046
ounce
per ton ("opt") gold cutoff grade, a waste to ore ratio of 11:1
and
a metallurgical recovery factor of 88% for gold. The assumed
economic parameters applied to the design included mining costs
of
$0.86 per ton of waste and ore. Processing costs were estimated
at
$10.28 per ton based on a 3,000 ton per day facility. A $325
gold
price was used.
Based on the same cutoff grade and gold price, Battle
Mountain
has estimated that other mineral deposits of 558,000 tons at
0.191
opt gold (100% basis) also occur within the currently designed
pit
limits at Crown Jewel.
Exploration. The Company began an exploration program at
Crown Jewel in mid-1988 and by the end of 1989 had drilled
approximately 200 holes on the property. Between March 1990 and
December 1992, Battle Mountain drilled over 550 holes designed to
both confirm and expand the known reserve. To date, only 500
acres
of the approximate 2,000 acres of prospective skarn geology have
been drill-tested.
Feasibility Study. In March 1992, the results of an
independent feasibility study commissioned by Battle Mountain
were
received by the Company. Based on these results, Battle Mountain
announced its decision to proceed with development of the Crown
Jewel gold deposit. The feasibility study confirmed Battle
Mountain's previous reserve estimate.
Further engineering and reserve studies by Battle Mountain
since the feasibility study was completed have generally
confirmed
the overall operating cost estimates and mineable reserves of the
original 1992 feasibility study. The estimated direct cash
production costs are approximately $165 per ounce of gold
produced.
Capital costs are now estimated at approximately $80 million to
achieve commercial production. Battle Mountain will be
responsible
for funding capital costs. The current studies indicate an
approximate eight-year mine life with production averaging
175,000
ounces (100% basis) of gold per year.
Permitting and Development. Battle Mountain submitted its
original Plan of Operations to the WDOE and the USFS in January
1992. Several supplemental plans that further clarified or
refined
the proposed operational plans have been subsequently filed. The
Draft Environmental Impact Statement was released in June 1995.
In February 1997, the FEIS was filed by the USFS and the
WDOE.
The FEIS describes the environmental effects of the plan to
construct and operate the Crown Jewel mine, and alternatives to
that plan. Also, in February 1997, a favorable ROD for the FEIS
was filed by the USFS and the BLM. The ROD documents the
decision
by the USFS and BLM to select the mining alternative as presented
in the FEIS. The alternative chosen by the USFS and the BLM was
the
Proponent's (Battle Mountain) alternative as described in the
FEIS
and as modified by the ROD.
Several appeals by certain persons and special interest
groups
contesting the FEIS were filed with the USFS in 1997. In May of
1997, the USFS Deputy Regional Forester upheld the ROD to approve
the Crown Jewel mine project, denying four appeals which had been
filed in March 1997. In May 1997, an action was filed in U.S.
District Court against the USFS appealing certain issues. In
January 1999, the Court ruled in favor of the USFS and denied all
claims of the plaintiffs.
Most substantive permit applications necessary to begin
construction have been filed with the various local, state and
federal agencies and are undergoing review. As of February
1999,
the Crown Jewel project has received positive permit decisions on
51 of 70, or 73%, of all the permits necessary for the project.
In
September 1997, an action was filed before the State of
Washington
Pollution Control Hearings Board ("PCHB"), a state administrative
tribunal, challenging the FEIS and certain permit decisions. In
March 1998, the PCHB excluded potential appeals on certain
permits
regarding water quality and wetlands permit applications.
In November of 1997, the Solicitor of the Department of the
Interior issued an opinion, which stated among other things, that
the BLM should not approve plans of operations which rely on a
greater number of mill site claims than the number of mining
claims. In connection with the review of the Company's plan of
operations for the Crown Jewel project, the BLM provided BMG with
a procedure to be followed to allow for the use of a greater
number
of millsite claims than the number of mining claims. The BLM has
advised BMG that it plans to obtain an opinion from legal counsel
regarding the validity of the Crown Jewel millsite claims before
making a decision on the plan of operations.
Construction of the Crown Jewel project is anticipated to
begin upon successful completion of the remaining permit
applications and resolution of the legal and administrative
challenges. Construction of the Crown Jewel project could begin
in
the spring of 2000 and is forecast to take approximately 15
months.
Potential delays due to the appeals process, permit process or
litigation are difficult to quantify. See Legal Proceedings.
Financing. In order to acquire its 54% interest in the
project, Battle Mountain is currently funding all general
property,
exploration and development costs through the start of commercial
production, including the construction of a mill facility capable
of processing a minimum of 3,000 tons of ore per day. No monies
are repayable by Crown to Battle Mountain for the costs incurred
through the pre-commercial production stage. Crown will be
required to fund its 46% share of production costs upon the start
of commercial production. In the event that Battle Mountain is
unable to proceed with the project and must relinquish its right
to
acquire a 54% interest, the Company would then make a decision to
either proceed with the project alone or seek a similar joint
venture situation with another major mining company. There is no
assurance that the Company could successfully pursue either
strategy.
Cord Ranch Project
General. In 1989, the Company entered into an exploration
and
mining agreement with the surface and mineral rights owners of
the
34,000-acre Cord Ranch located in Elko County, Nevada. The lease
agreement was originally for a term of five years from August 31,
1989 and renewable thereafter.
Following several amendments, the lease no longer requires a
work commitment beyond 1997. However, the agreement calls for
non-
recoupable minimum annual payments of $150,000 in each of 1998
and
1999 and recoupable annual advance royalty payments of $200,000
in
2000 and thereafter. Pursuant to the amended agreement, the
Company may terminate the lease agreement at any time and avoid
any
future obligation or commitment, except reclamation.
Two property acquisitions immediately adjacent to the Cord
Ranch were made in 1990. The Dixie Creek project, consisting of
1,240 acres, was acquired under agreements entered into in
October
1990. At approximately the same time, the Pinon Range property,
consisting of 640 acres of unpatented claims, was acquired.
In September 1994, Crown signed an agreement which has been
assigned to a subsidiary of Royal Standard Minerals Inc. ("Royal
Standard"). As of December 31, 1998, Royal Standard has earned a
70% interest in Crown's Cord Ranch and adjacent gold properties.
In addition, Royal Standard must provide Crown's share of
expenditures through the completion of a favorable feasibility
study, with such expenditures to be repaid from Crown's share of
production from the properties.
In April 1997, Royal Standard assigned Cameco (U.S.)Inc.
("Cameco") the right to earn a 51% interest in the Cord Ranch
lease
and claims reducing Royal Standard's interest to 19% upon
earn-in.
Cameco subsequently acquired two additional leases on adjacent
properties, parts of which became subject to the September 1994
agreement providing Crown a 30% interest in these additional
properties. Cameco is currently conducting exploration at the
Cord
Ranch project as part of its earn-in agreement with Royal
Standard.
Geology. The Cord Ranch properties lie on the east side of
the Pinon Range and are situated on the Carlin gold trend, where
nearly four million ounces of gold are produced annually.
Paleozoic strata underlying the western parts of the property are
the same formations hosting major deposits in the southern
section
of the trend. The area has sustained multiple periods of
deformation and structural preparation of the rocks is very good.
Gold mineralization is generally associated with jasperoid rocks.
Mineral Deposits. To date, 418 drill holes have been
completed on the Cord Ranch project. In early 1994, the Company
estimated the size of two gold deposits, the Pinon Range and Dark
Star deposits. Based on the results of 150 drill holes, the
Pinon
Range mineral deposit is estimated at 7.2 million tons containing
0.025 opt of gold at a cutoff grade of 0.013 opt of gold. At
Dark
Star, 61 drill holes completed by the Company during 1991-92
define
a mineral deposit totaling 7.5 million tons grading 0.020 opt of
gold at a cutoff grade of 0.013 opt of gold. Combined, the
Company
and Royal Standard hold 50% of the mineral rights and 100% of the
surface rights at Dark Star.
Other Property Interests
Lamefoot Mine Royalty. In 1992, Crown acquired from various
underlying lease holders a 0.75% NSR royalty interest in the
Lamefoot deposit for an aggregate total of $306,000. This
property
lies approximately three miles from the Kettle River Project
("KRP") mill, operated by Echo Bay Mines Ltd. ("Echo Bay") in
northeastern Washington state. According to Echo Bay, Lamefoot
ores represent the primary ore feed source to the KRP mill
through
the next two years. Crown received approximately $139,000 in
royalties from Lamefoot during 1998. Crown expects to receive
approximately $100,000 in royalties from Lamefoot during 1999.
Kings Canyon. The Kings Canyon property in Utah consists of
3,391 acres of state leases and unpatented claims. Crown holds a
100% interest in the property, subject to a 1-4% NSR royalty to
third parties.
The Company estimates the Kings Canyon property hosts a
mineral deposit that contains 6.8 million tons of material
grading
0.030 opt of gold at a cutoff grade of 0.013 opt gold. The gold
occurs as sediment-hosted disseminated mineralization in
Paleozoic
carbonate rocks.
Manhattan. A 100% interest in the 540-acre Manhattan
property
in central Nevada was acquired in 1989. In November 1994, the
Company signed a purchase option agreement with New Concept
Mining,
Inc. ("New Concept"), that allows New Concept to purchase 100% of
the property by making a series of payments over a four and one-
half year period totaling $500,000. As of December 31 1998,
$340,000 remains to be paid.
Kendall Mine Royalty. In September 1991, Crown acquired
Judith Gold Corporation, whose primary asset is the Kendall
property located near Lewiston, Montana. Canyon Resources
Corporation leases the Kendall property which entitles the
Company
to receive a 5% NSR royalty on production at the Kendall gold
mine.
Mining of ore at the Kendall mine has ceased and the mine site is
presently in reclamation.
Snowstorm. The 5,400-acre Snowstorm property, located in
northern Nevada, had been subject to a joint venture between the
Company and Romarco Minerals, Inc. During 1998, Romarco
Minerals,
Inc. relinquished its interest in the joint venture. Crown
terminated its leases on the mining claims and no longer
maintains
an interest in the property.
MEXICO
Since 1997, the Company has conducted exploration and
reconnaissance activities in Mexico, focusing its efforts in the
state of Durango. In early 1999, the Company acquired the
Magistral del Oro ("Magistral") and San Juan de Minas ("San
Juan")
properties covering approximately 13,000 acres and 700 acres
respectively. During 1998 the Company dropped the La Pitarrilla
concession. The Company is planning additional exploration and
reconnaissance work in Mexico during 1999.
Magistral
The Magistral property covers most of a historic gold
district
which produced in excess of 600,000 ounces of gold through the
1960's. The primary target at Magistral is a series of gold
bearing sub-horizontal veins that is over 3,000 feet long and up
to
300 feet wide. Surface rock samples containing 0.01 to 0.20
ounces
of gold per ton are common within this zone. Drilling is planned
on the project in 1999.
Crown is earning a 100% interest in the project by spending
$2,500,000 on the property over a three-year period, with a first
year work commitment of $200,000. In addition to the work
commitment, Crown will make initial cash payments totaling
$50,000
during 1999 and will be required to make advance royalty payments
of $250,000 after earn-in as well as $500,000 per year on
subsequent anniversary dates. The property is subject to a
sliding-scale royalty ranging from 3% when gold prices average
less
than $325 per ounce of gold to 5% when gold prices are greater
than
$375 per ounce of gold.
San Juan
The 700-acre San Juan property holds identified targets with
potential to host high-grade silver, lead, zinc and gold vein
mineralization as well as disseminated gold-silver mineralization
in footwall and hanging wall zones of main fissure veins.
Mineralization in veins and alteration are predominantly hosted
in
diorite and granite intrusions. Minor historic production, to
depths of 130 feet, took place along the 6,500 foot long west-
northwest trending vein zone. Individual veins range up to 15
feet
thick with adjacent disseminated mineralization ranging up to 300
feet in width.
Crown will earn a 100% interest in the San Juan property by
making cash payments to concession holders totaling $204,000 over
four years, and an additional balloon payment of $700,000 at the
end of four years. The Company is also required to pay all taxes
and meet required work commitments as prescribed by Mexican law.
The San Juan property was located by a third party consultant who
will earn a commission totaling $50,000 during the first three
years and subsequently will retain a NSR of 2%, subject to
minimum
annual payments of $40,000.
Peru
The following map shows the location of the primary
properties
in which the Company has interests in South America.
PERU
Bongara Zinc Project, Amazonas Department, Peru
General. Since 1993, the Company has leased exploration
concessions or has filed claims for concessions currently
covering
approximately 102,000 acres in the Bongara area of northern Peru
(the "Bongara project).
In December 1996, Solitario signed an agreement regarding the
Bongara project with a subsidiary of Cominco. The agreement was
modified in January 1999, increasing the joint venture's acreage
to
approximately 600,000 acres. Cominco has the right to earn a 65%
interest in the Bongara project by spending a minimum of
$27,500,000 on exploration and development and by making cash
payments of between $100,000 and $500,000 per year (depending on
the price of zinc) to Solitario over a seven-year period
beginning
in January 1997, as well as, fully funding the project through a
positive feasibility study. Cash payments of $118,000, $354,000
and $250,000 have been paid by Cominco in January 1999, 1998, and
1997, respectively. In addition to the cash payments and work
commitments, Cominco has agreed to finance Solitario's share of
project development costs, subject to repayment, after a
production
decision is made, should Solitario not secure third-party
financing. Through December 31, 1998, Cominco has spent
approximately $10 million on exploration at the Bongara project.
Location. The Bongara project is situated approximately 225
miles by paved and gravel roads from the port city of Chiclayo to
the southwest, in northern Peru. Most of the property lies
within
ten miles of a paved road with access to the coast. Travel
within
he project area is accomplished by foot or horseback or
helicopter.
The property falls on the east slope of the Andes at an average
elevation of 5,000 feet.
Geology and Exploration. The property is underlain by
northwest-trending Jurassic-Cretaceous-age carbonates, fine to
coarse clastic sediments, and shales. Mapping conducted by
Cominco
indicates that zinc mineralization occurs within carbonate rock
units in which limestone has been substantially altered to
dolomite.
Mineralization at Florida Canyon occurs primarily in the
middle member of the Chambara Formation of the Pucara Group of
Jurassic geologic age. The middle member of the Chambara is
approximately 700 feet thick and contains several very favorable
rock horizons that are preferentially mineralized. Vertical
structures, which host zinc mineralization have acted as feeder
structures to the stacked stratigraphic mineralized horizons.
During 1998 and 1997, 52 core holes were drilled by Cominco
at
the Bongara project totaling 40,700 feet. Significant zinc
mineralization was intersected in 27 of the 40 holes completed at
the Florida Canyon prospect. At Florida Canyon, the widest
intersection of mineralization encountered to date averaged 12%
zinc over 193 feet and the highest grade intersection averaged
27%
zinc over 17 feet. Twelve other drill holes were located in
other
areas of the project.
Regional exploration has consisted of satellite imagery
interpretation, stream sediment geochemistry, geologic mapping
and
stratigraphic analysis, detailed rock and soil geochemistry, and
hand digging shallow prospect pits. Eighteen surface anomalies
were evaluated in detail during 1998. Surface rock alteration
and
geochemistry of the Florida Canyon and nearby Tesoro Canyon
prospect areas are very similar. These two prospects may merge
into a larger mineralized system measuring approximately three
miles long and two miles wide.
Yanacocha Gold Property, Cajamarca Department, Peru
General. The Yanacocha property, located in northern Peru,
is
comprised of one contiguous block of approximately 155,000 acres
located in the center of the Yanacocha district.
In October 1998, the Company signed an agreement with Placer
Dome, Ltd. ("Placer") giving Placer the right to earn a 60%
interest in the property by spending $4.05 million on exploration
and making $200,000 in property payments to the Company over four
years. The property had been explored previously under joint
venture with Rio Tinto, Ltd. and Barrick Gold Corporation.
Location. The Yanacocha gold district lies in northern
Peru's
Cajamarca Department, 15 miles north of the historic provincial
capital city of Cajamarca (population: 100,000). The Yanacocha
district is a one hour drive north of Cajamarca on paved and
improved gravel roads. Elevations range from 9,000 feet at
Cajamarca to 13,800 feet at the highest points in and around
Yanacocha.
Geology and Exploration. The property is located contiguous
to the north and west of South America's largest gold mine,
Newmont
Mining Company's ("Newmont") 51%-owned and operated Minera
Yanacocha heap leach gold mine (1998 production of 1.5 million
ounces of gold). Total proven and probable reserves at the
Yanacocha mine have been reported by Newmont to be more than 20
million ounces of gold at the end of 1998. The Corona
gold-copper
porphyry deposit (four million ounces of gold and one billion
pounds of copper) lies one mile north of the Company's property
position.
Geologically, the Yanacocha district is situated in Tertiary-
age volcanic terrain which extends from Cajamarca to the
Ecuadorian
border, 225 miles to the north-northwest. The volcanic rocks are
underlain by Cretaceous basement consisting of carbonate and
quartzite sedimentary rocks intruded by Cretaceous or
Tertiary-age
porphyritic intrusives. The gold mineralization present at
Newmont's Minera Yanacocha mine occurs within zones of silicified
volcanic rocks and porphyritic intrusions. The gold and copper
mineralization at the Corona deposit occurs in a typical Andean-
style gold-copper porphyry setting within an altered intrusive
body.
Work conducted by Solitario and its partners has consisted of
geological mapping, rock and stream sediment geochemical
sampling,
helicopter-borne geophysical surveying, ground
induced-polarization
surveying and core drilling.
Sixteen drill holes totaling approximately 7,000 feet have
been completed by Solitario through its joint venture partners
during the past three years. Three areas have been drill tested
thus far. These are the Los Negritos, Shuito and Chalhuaquero
gold
prospects, all situated in the southeastern portion of the claim
block. Drilling has thus far intersected anomalous gold values
and
strong alteration but with sub-economic grades.
Soloco Zinc Property, Amazonas Region, Peru
General. In September 1997, the Company entered into a lease
and option to purchase agreement on the Soloco Property covering
approximately 9,700 acres. The Soloco Property is located in the
department of Amazonas. In October of 1998, the Company signed a
joint venture with Billiton Exploration and Mining Peru B.V.
("Billiton"). The agreement calls for Billiton to spend $3.0
million on exploration over a four-year period to earn a 60%
interest in the property. As part of the earn-in, Billiton is
also
required to complete a minimum of 3,280 feet of drilling.
Billiton
can earn an additional 10% of the project by completing a
bankable
feasibility study within two years after completion of its work
commitment.
Geology and Exploration. During 1998, Solitario conducted
surface exploration on the property and defined two prospects
displaying zinc values in excess of 20%. The geology consists of
zinc mineralization hosted in favorable carbonate rock horizons
in
a Mississippi Valley-type geologic environment.
Shimbe Gold Property, Piura region, Peru
General. The 44,000 acre Shimbe gold property is located in
the department of Piura in northern Peru ten miles from the
Equadorian border. The property was staked in 1993 and 1997 by a
third party on behalf of Solitario. The claims are currently
being
transferred to Solitario under the terms of a contract which
requires no payments to the title holder. Under Peruvian law
only
citizens of Peru can stake claims within 30 miles of the border
with neighboring countries. Transfer of title to Solitario is
subject to approval by Presidential decree. This process is
anticipated to take approximately one year. Solitario has the
right to explore and exploit the minerals in any case through
contract with the title holder.
Geology and Exploration. The Shimbe property consists of
tertiary volcanic rocks with locally have irregular bodies and
veins of quartz. Work to date has included stream sediment, soil
and rock sampling and geochemistry. Rock samples have returned
assays of up to 0.3 ounces per ton of gold.
Santa Barbara Gold Property, Cerro de Pasco Region, Peru
General. In April 1997, the Company entered into an
agreement
with RTZ Mining and Exploration ("RTZ") granting Solitario the
right to earn a 60% interest in the Santa Barbara project. The
property contains approximately 12,300 acres located 120 miles
northeast of Lima, Peru in the Cerro de Pasco Region. Solitario
can earn its interest in the property by spending $1.5 million
over
a three-year period. No cash payments are required to be made to
RTZ. During 1998, Solitario and RTZ agreed to suspend annual
work
requirements due to low metal prices.
Geology and Exploration. Solitario completed 16 drill holes
during 1997 totaling 9,200 feet. The two best holes intersected
512 feet grading 0.29% copper and 0.01 opt gold and 659 feet
grading 0.38% copper and 0.01 opt gold.
ARGENTINA
In December 1997, Solitario made the decision to withdraw
from
exploration in Argentina to concentrate its attention and
financial
resources in Peru. In July 1998, Solitario completed the sale of
its Argentinian subsidiary to TNR Resources, Ltd. ("TNR") of
Vancouver, B.C. The purchase price of Cdn$500,000 was paid in
1,250,000 common shares of TNR and two-year warrants to purchase
an
additional 650,000 shares of TNR at Cdn$0.40 for the first year
and
Cdn$0.46 for the second year. Solitario also received a non-
refundable binder payment of Cdn$65,000 upon signing a letter of
intent in March of 1998. TNR reimbursed Solitario $29,000 for
costs incurred through a cash payment of $8,000 and delivery of
an
additional 184,709 common shares of TNR. As a result of the
transaction, Solitario owns approximately 15% of the outstanding
shares of TNR.
Exploration Expenditure Overview
During 1998, the Company conducted exploration activities on
several of its properties incurring approximately $1.5 million in
expenditures, including $1.0 million in South America. Several
of
the Company's properties are subject to leases and/or options to
purchase. The Company's share of 1999 annual lease and rental
obligations and option payments totals $132,000 for properties it
currently holds. Certain other mining claims and properties not
subject to leases were acquired by the Company either by deed or
were located by the Company. With respect to the claims and
other
properties acquired by deed or located by the Company, the
obligation required to hold the claims is to pay ad valorem
property taxes in the case of the patented mining claims and fee
land, and annual rental fees in the case of the unpatented mining
claims and concessions. See Considerations Related to Crown's
Business.
1999 WORK COMMITMENTS
The Company's work commitments remaining to be fulfilled in
1999 are $200,000, pertaining to its Mexican properties.
ANNUAL RENTALS
Annual Rentals
Rental on and Option Payments
Unpatented for Property Crown's
Share
Claims and Subject to of Costs
Property Concessions Lease in 1999 in
1999(1)
U.S.
Crown Jewel $ 56,000 $ 92,000 $ -
Cord Ranch 12,000 154,000 -
Other - 23,000 3,000
PERU
Yanacocha 136,000 - -
Bongara 103,000 - -
Other 51,000 - 44,000
MEXICO 9,000 85,000 85,000
TOTAL: $367,000 $354,000 $132,000
(1) Represents the Company's estimated share of rentals and
option
payments in 1999 based upon existing joint venture or leasing
arrangements. (This estimate does not include costs to be borne
by
other joint venturers.)
Item 3. Legal Proceedings
In March 1997, appeals of the ROD and the FEIS for the Crown
Jewel Mine were filed against the USFS by the following parties:
(I) a joint appeal by the Okanogan Highlands Alliance, Washington
Environmental Council, Colville Indian Environmental Protection
Alliance, Washington Wilderness Coalition, Rivers Council of
Washington, and Sierra Club, Cascade Chapter; (ii) Confederated
Tribes of the Colville Reservation; (iii) Columbia River
Bioregional Education Project; and (iv) Kettle Range Conservation
Group; (all groups collectively the "Plaintiffs").
In May 1997, the U.S. Forest Service Deputy Regional Forester
upheld the ROD to approve the Crown Jewel mine project, and
denied
all of the above appeals. The decision constitutes the final
administrative determination of the U.S. Department of
Agriculture
on the ROD and FEIS.
In late May 1997, members of the Plaintiffs filed an action
against the USFS appealing the FEIS, its decision to uphold the
ROD, and the denial of administrative appeals. The action was
filed in United States District Court for the District of Oregon.
On December 31, 1998 the Court affirmed the decisions of the USFS
on the adequacy of the FEIS by granting all motions for summary
judgement on behalf of the USFS and BMG, while denying all
motions
of the Plaintiffs.
During the fourth quarter of 1997, members of the Plaintiffs
filed five actions (PCHB Nos. 97-146, 97-182, 97-183, 97-185, 97-
186) against the WDOE before the PCHB, a state administrative
tribunal, challenging the FEIS and certain permit decisions. In
January 1998, members of the Plaintiffs instituted a sixth action
(PCHB 98-019) before the PCHB, challenging the air quality
permit,
which was subsequently dismissed in April 1998. In February
1998,
the PCHB granted Battle Mountain's ("BMG") motion for summary
judgment and dismissed one of the actions (PCHB 97-146) related
to
storm water and dam safety claims. BMG obtained a consolidated
hearing schedule for the appeals before the PCHB. The
consolidated
hearing concluded on May 20, 1998. On May 29, 1998 the PCHB
dismissed one of the actions (PCHB 97-185) related to approval of
two water rights applications. In October 1998, the PCHB entered
an order dismissing certain of the Plaintiffs claims and ruled in
favor of BMG and the Company on eight additional claims with
regard
to the above remaining consolidated actions in February 1998.
The
PCHB excluded from the consolidated hearing schedule certain
water
quality issues related to water rights permits.
In January 1999, the WDOE granted the 401 Water Quality
Certification for the Crown Jewel project. In February members
of
the Plaintiffs instituted an action against the WDOE and BMG
appealing the grant of the 401 certification.
In February 1999, the PCHB consolidated the appeal of the 401
certification and the remaining water quality issues pertaining
to
the water permits. A hearing on the merits has been scheduled
for
September 1999.
In December of 1997, the members of the Plaintiffs filed
three
separate actions against WDOE in Thurston County Superior Court,
State of Washington. The actions challenge WDOE's approval
permits
issued to BMG for water resource mitigation and solid waste
permit
rulings. In April 1998, the Plaintiffs dismissed one of the
three
actions related to tailings and solid waste permits without
prejudice. The remaining two actions were consolidated in
November
1998. A motion to dismiss the remaining case was denied in
January
and the case is currently pending and no trial date has been set.
In May 1998, members of the Plaintiffs filed an action
against
the Okanogan County Health District (OCHD), the Company and BMG
in
Okanogan County Superior Court, State of Washington. The action
challenged the decision of the OCHD to not require a Solid Waste
Permit for the Crown Jewel mine tailings and waste rock piles.
In
January 1999, the Court dismissed the Plaintiff's action and
determined the OCHD acted properly in not requiring the permit.
The impact and timing of resolutions of these and any other
appeals related to the permitting process cannot be determined
with
any accuracy at this time. See Properties - Crown Jewel Project -
Permitting and Development.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security
holders
during the fourth quarter of 1998.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name and municipality Position with the Company
and business
of residence Age experience within the last
five years
MARK E. JONES, III 59 Chairman of the Company
since 1987,
Houston, Texas Chief Executive Officer from
1987 to
1993 and President from
September 1989
to November 1990; Chairman
and Chief
Executive Officer of
Solitario since
August 1993.
CHRISTOPHER E. HERALD 45 President of the Company
since November
Golden, Colorado 1990; Executive Vice
President from
January 1990 to November
1990; Presi-
dent of Solitario since
August 1993.
JAMES R. MARONICK 43 Vice President - Finance and
Secretary/
Lakewood, Colorado Treasurer of the Company and
Solitario
since September 1997; Vice
President -
Finance and
Secretary/Treasurer of
Consolidated Nevada
Goldfields Corpora-
tion from November 1994 to
September
1997; Vice President and CFO
of
Analytica, Inc. from 1989 to 1994.
DEBBIE W. MINO 46 Vice President - Investor
Relations
Sugar Land, Texas of the Company since 1989.
WALTER H. HUNT 47 Vice President - Peru
Operations of the
Lima, Peru Company and Solitario since
July 1994;
Superintendent, Technical
Services,
from 1990 through July 1994,
Echo
Bay Minerals, Kettle River
Operations.
Officers of the Company are appointed by the Board of
Directors.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The common stock of the Company was approved for quotation on
the NASDAQ system and trading commenced on February 17, 1989
under
the symbol CRRS. Since August 1, 1989 the Company's common stock
has been traded on the NASDAQ National Market System. The
Company's stock has been listed and traded in Canada on The
Toronto
Stock Exchange since December 10, 1991, under the symbol CRO.
The following table sets forth the high and low sales prices
on the NASDAQ National Market System for the Company's common
stock
for the quarterly periods from January 1, 1997 to December 31,
1998.
Prices (US$)
High Low
1997:
First Quarter $7.25 $5.63
Second Quarter 7.38 5.88
Third Quarter 7.25 5.38
Fourth Quarter 6.50 3.44
1998:
First Quarter 4.75 3.50
Second Quarter 4.88 3.69
Third Quarter 4.50 2.50
Fourth Quarter 3.88 1.63
Holders of common stock are entitled to receive such
dividends
as may be declared by the Board of Directors. The Company has
not
paid any dividends on its common stock and does not anticipate
paying any dividends in the foreseeable future.
At March 1, 1999, there were 1,208 record holders of the
Company's common stock.
Item 6. Selected Financial Data
The selected consolidated financial data set forth below for
each of the five years in the period ended December 31, 1998 and
as
of the years then ended has been derived from the audited
consolidated financial statements of the Company (not all of
which
financial statements are presented herein). The selected
consolidated financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the audited consolidated financial
statements and related notes thereto included elsewhere in this
report.
Balance sheet data: As of December 31,
(in thousands) 1998 1997 1996 1995
1994
Total Assets $36,500 $34,338 $37,113 $36,664
$39,441
Long Term Debt 15,000 15,000 15,000 15,000
15,000
Working Capital 7,839 5,521 5,384 7,632
11,981
Stockholders' Equity 17,182 13,979 17,197 18,430
20,077
Income statement Years ended December 31,
data: (in thousands, 1998 1997 1996 1995
1994
except per share
amounts)
Revenues $ 610 $ 685 $ 803 $ 1,030
$10,603(2)
Net Income (Loss) (1,928) (4,979)(1) (1,571) (1,717)
3,505
Basic Income (Loss)
per Share (0.13) (0.38) (0.12) (0.13)
.27
(1) The Company recorded a $3.8 million charge related to its
decision to withdraw from exploration in Argentina. The
minority interest related to this charge was approximately
$1.6 million.
(2) Crown earned $8.5 million of mineral option proceeds in 1994
from Battle Mountain.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
the Company's consolidated financial statements for the years
ended
December 31, 1998, 1997 and 1996, included elsewhere in this
report. The Company's financial condition and results of
operations are not necessarily indicative of what may be expected
in future years. The Company's assets in Peru are held through
Solitario Resources Corporation ("Solitario"), a 57.2%-owned
subsidiary as of December 31, 1998.
Results of Operations
The Company has historically derived its revenues from the
option and sale of property interests, from royalty interests,
interest income and from the sale of its share of gold produced
on
its properties. Revenues from the option and sale of property
interests have consisted of a small number of relatively large
transactions. Such transactions have occurred, and in the future
are likely to occur, if at all, at irregular intervals and have a
significant impact on operating results in the periods in which
they occur. The Company had no such transactions in 1998.
The Company had a net loss of $1.9 million ($0.13 per share)
in 1998 compared with a net loss of $5.0 million ($0.38 per
share)
in 1997 and a net loss of $1.6 million ($0.12 per share) in 1996.
Included in the 1997 results were non-cash property abandonments
of
$5.7 million during 1997, which included $3.8 million related to
the Company's decision to sell its operations in Argentina.
Total revenues were $0.6 million in 1998 compared with $0.7
million in 1997 and $0.8 million in 1996. The Company's
recurring
revenues have been primarily derived from its royalty interests
and
from interest income.
Royalty income was $0.1 million in 1998, $0.3 million in
1997
and $0.2 million in 1996. Royalty income has decreased due to
the
completion of mining at the Kendall mine in Montana, in which the
Company has a 5% royalty interest. The mine is now in
reclamation.
The Company's remaining royalty interest relates to the Lamefoot
deposit at the Kettle River mine in Washington. The Lamefoot
deposit represents the primary ore source at Kettle River for the
next two years. Approximately $0.1 million is expected to be
received from this royalty interest in 1999.
Interest income was $0.5 million in 1998 compared with $0.4
million in 1997 and $0.4 million in 1996. Fluctuations are due
to
changes in average interest rates and the Company's average
invested cash balances, which have been impacted primarily by
proceeds received from the sales of the Company's stock in 1998
and
sales of stock of the Company's subsidiary, Solitario in 1997 and
1996, as well as the level of exploration activity carried on by
the Company. See Liquidity and Capital Resources.
General and administrative expenses in 1998 were $1.5
million
compared with $2.0 million in 1997 and $1.7 million in 1996. The
lower costs in 1998 are the result of decreased exploration
activity, the decision to eliminate active exploration in
Argentina, as well as reduced travel and investor relations
expenses. The higher expenses in 1997 compared to 1996 were the
result of increased legal, shareholder relations and finance
activities.
Interest expense was $1.0 million in each of 1998, 1997 and
1996 and related primarily to the Company's convertible
debentures.
Included in interest expense is amortization of deferred offering
costs of $0.1 million in each of 1998, 1997 and 1996.
The Company regularly performs evaluations of its assets to
assess the recoverability of its investments in these assets.
All
long-lived assets are reviewed for impairment whenever events or
circumstances change which indicate the carrying amount of an
asset
may not be recoverable utilizing established guidelines based
upon
future net cash flows from the asset. Write-downs relating to
exploration properties amounted to $0.9 million in 1998, $5.7
million in 1997 and $0.5 million in 1996. Included in the write-
down for 1997 was the Company's decision to sell its operations
in
Argentina resulting in a $3.8 million charge to operations.
Minority interest in loss of subsidiary decreased to $0.2
million in 1998 from $2.2 million in 1997 and $0.4 million in
1996.
The variance in 1997 occurred as the result of higher losses in
Solitario due primarily to the Argentina asset write-down.
Liquidity and Capital Resources
Due to the nature of the mining business, the acquisition,
exploration and development of mineral properties requires
significant expenditures prior to the commencement of production.
The Company has in the past financed its activities through the
sale of gold, the sale of securities, joint venture arrangements
(including project financing) and the sale of interests in its
properties. To the extent necessary, the Company expects to
continue to use similar financing techniques.
The Company's exploration and development activities and
funding opportunities, as well as those of its joint venture
partners, may be materially affected by gold price levels and
changes in those levels. The market price of gold is determined
in
world markets and is affected by numerous factors which are
beyond
the Company's control.
Net cash used in operating activities was $1.7 million in
1998
compared with uses of $2.1 million in 1997 and $1.6 million in
1996.
Net cash used in financing activities in 1998 was $1.1
million, compared with $2.6 million in 1997 and $3.3 million in
1996. Cash uses included mineral property additions of $1.5
million in 1998, $3.3 million in 1997 and $3.5 million in 1996.
These amounts included South American expenditures of $1.0
million
in 1998, $2.4 million in 1997 and $2.7 million in 1996 through
Solitario. These uses were partially offset by receipts from
joint
venture partners of $0.5 million in 1998, $0.7 million in 1997
and
$0.1 million in 1996. Net cash provided by financing activities
was $5.1 million during 1998 primarily from the sale of the
Company's common stock. Net cash provided by financing
activities
during 1997 and 1996, primarily from the sale of common stock of
Solitario, was $5.1 million and $2.7 million, respectively.
The Company has budgeted $1.6 million for exploration in
1999,
$0.9 million of which is planned for Peru. The Company's
acquisition and exploration programs in 1998, 1997 and 1996 have
primarily been devoted to properties in South America. As such,
total foreign assets, as reported in the consolidated balance
sheet
as of December 31, 1998, amounted to $5.8 million. The Company
is
exposed to risks normally associated with foreign investments,
including political, economic and social instabilities, as well
as
foreign exchange controls and currency fluctuations. Foreign
investments may also be subject to laws and policies of the
United
States affecting foreign trade, investment and taxation which
could
affect the conduct or profitability of future operations.
In February 1998, the Company received $4.6 million, after
commissions and offering expenses, from a European equity
financing
through the private placement of 1.04 million shares of the
Company's common stock. Included in the placement was an agency
fee of 40,000 shares paid to David Williamson Associates, Ltd.,
of
which David R. Williamson, a director of the Company, is a
principal. See Item 13. Certain Relationships and Related
Transactions.
In July 1998, Solitario completed the sale of its Argentina
subsidiary to TNR Resources, Ltd. of Vancouver, B.C. Canada
("TNR"). The purchase price of $350,000 was received in the form
of 1,250,000 common shares of TNR and two-year warrants to
purchase
an additional 625,000 common shares for Cdn$0.40 during the first
year and Cdn$0.46 during the second year. As part of the
transaction, Solitario also received $45,000 in cash as a non-
refundable binder payment. TNR reimbursed Solitario $29,000 for
costs incurred through a cash payment of $8,000 and delivery of
184,709 additional common shares of TNR.
During 1998, $0.5 million was received from the exercise of
stock options. However, the Company does not anticipate
significant exercises of stock options in the foreseeable future.
Crown sold 1,500,000 and 1,570,000 of its shares of
Solitario
during 1997 and 1996, respectively, in separate market
transactions. The net proceeds of $4.4 million and $2.6 million
respectively, were reinvested into new shares of Solitario by
acquiring 1,500,000 and 1,570,000 shares of Solitario. Crown
also
received warrants exercisable into an equivalent number of shares
of Solitario. The warrants, priced at Cdn$4.83 and Cdn$2.66
expired unexercised in 1999 and 1998, respectively.
In August 1997, the Company elected to convert its
$1,500,000
7.5% convertible note into 1,254,180 shares of Solitario common
stock. The conversion was in accordance with the terms of the
note
dated August 25, 1995. Upon completion of the conversion and,
after giving effect to option exercises during 1997, the Company
held 9,633,585 shares of Solitario or 57.2% as of December 31,
1997.
Cash and cash equivalents amounted to $8.1 million at
December
31, 1998. These funds are generally invested in short-term
interest-bearing deposits and securities, pending investment in
current and future projects. Included in cash and cash
equivalents at December 31, 1998 was $3.2 million which was held
in
Solitario. Working capital at December 31, 1998 was $7.8
million.
The Company believes that its existing funds and projected
sources of funds will be sufficient to finance its currently-
planned exploration and other operating activities, and mandatory
debt repayments for the foreseeable future. The Company's long-
term funding opportunities and operating results are highly
dependent on the gold price as well as successful commencement of
commercial production at the Crown Jewel Project. Moreover, the
Company believes that its ability to raise capital in the future
will be tied largely to successful permitting and development of
the Crown Jewel deposit. See Properties - Crown Jewel Project -
Permitting and Development.
The Year 2000
The year 2000 potentially poses unique challenges for many
businesses insofar as their computer systems and those of third
parties attempt to properly recognize the date change. The
Company
has made and will make certain investments in its software
systems
and applications to help the Company make the year 2000
transition.
The Company has implemented new systems, analyzed internal
and
external activities, including the Company's joint venture
partners, and has conducted vendor inquiries. The Company
estimates its plans will make all of its internal systems year
2000
compliant prior to the fourth quarter of 1999. Contingency plans
include some or all of the following: the delay of operational
activities, use of backup stand-alone systems, and manual
transaction processing. The Company believes its contingency
plans
are adequate for reasonably foreseeable problems.
Total expenditures to address the year 2000 transition have
been less than $25,000 to date and the Company estimates the
total
costs to implement all of the Company's plans to successfully
make
the year 2000 transition will be less than $50,000. All charges
have been included in normal and recurring activities. The
Company has recorded additions to fixed assets for replacement
and
upgrading of equipment and software and charged general and
administrative costs for existing personnel time related to the
year 2000 transition. Accordingly, the operational and financial
impact to the Company has not been and is not anticipated to be
material to its financial position or results of operations.
Exploration Activities
A significant part of Crown's business involves the review
of
potential property acquisitions and continuing review and
analysis
of properties in which it has an interest, to determine the
exploration and development potential of the properties. In
analyzing expected levels of expenditures for work commitments
and
lease obligations, Crown considers the fact that its obligations
to
make such payments fluctuate greatly depending on whether, among
other things, Crown makes a decision to sell a property interest,
convey a property interest to a joint venture, or allow its
interest in a property to lapse by not making the work commitment
or payment required.
The Company estimates its 1999 work commitments remaining to
be fulfilled on its existing properties will be approximately
$0.2
million which are to be fulfilled by the Company. The Company's
share of rental obligations and other property payments for 1999
is
estimated to be $0.1 million.
In January 1999, the Company renegotiated its contract with
a
subsidiary of Cominco, Ltd. ("Cominco") on its Bongara zinc
project
in northern Peru. The new agreement gives Cominco the right to
earn a 65% interest in the project by spending a minimum of $27.5
million as well as funding all expenditures through the
completion
of a positive feasibility study. The agreement will increase
the
area of the project to 600,000 acres and modify the cash payment
terms, to allow for annual payments to Solitario based upon the
price of zinc.
New Accounting Pronouncements
In June of 1998, the FASB issued SFAS No. 133, "Accounting
for
Derivative Instruments and Hedging Activities". The standard, is
effective for fiscal years beginning after June 15, 1999 and sets
forth guidelines for recording derivative instruments as assets
and liabilities to be reported in the financial statements at
fair
value and that changes in the fair value of the instruments shall
be recognized in the results of operations. The effect of this
standard, when adopted, on the Company's reported financial
position, results of operations and cash flows, has not been
determined.
Environmental and Permitting and Legal
The Final Environmental Impact Statement ("FEIS") on the
Crown
Jewel project was issued to the public in February 1997. In May
of
1997, the United States Forest Service ("USFS") upheld the Record
of Decision ("ROD") to approve the Crown Jewel project. In May
1997, an action was filed in U.S. District Court against the USFS
appealing its decision to uphold the ROD. This action was
dismissed on December 31, 1998. Most substantive permit
applications necessary to begin construction have been filed with
the various local, state and federal agencies and are undergoing
review. As of February 1999, the Crown Jewel project has
received
favorable decisions on 51 of 70, or 73%, of the total permits
necessary on the project. In May 1998 hearings were held before
the Pollution Control Hearings Board ("PCHB"), a state
administrative tribunal regarding challenges to certain permits.
In February, May and October of 1998 and in February of 1999, the
PCHB issued rulings in favor of the project by dismissing several
actions and portions of other actions brought before the PCHB.
Remaining issues are set to be heard before the PCHB in September
1999. In January 1999, the BLM notified BMG that it intends to
obtain an opinion from legal counsel regarding millsite claims
before making a decision on the Crown Jewel plan of operations.
Pending successful completion of the permit applications and the
absence of a prolonged injunction, construction could begin in
the
spring of 2000 and is forecast to take approximately 15 months to
complete. There are no assurances, however, that permits will be
issued in a timely fashion or that conditions contained in
permits
issued by the agencies will not be so onerous as to preclude
construction or operation of the project. See Properties - Crown
Jewel and Legal Proceedings.
Uncertainties which exist with respect to timing of
commercial
production at Crown Jewel, and the potential fluctuation in gold
prices, could have a material effect upon the Company's ability
to
fund its operating activities in the long term. There is no
assurance that such funding will or can be secured on terms
favorable to the Company.
Item 7a. Quantitative and Qualitative Disclosure About Market
Risk
The Company is exposed to market risks associated with changes in
interest rates as it relates to its cash and short term
investments, and commodity price risks for changes in the price
of
precious and base metals insofar as such changes may affect the
economic viability of its exploration and development projects.
The $15,000,000, 5.75% convertible debentures due in 2001 are not
subject to market risk because they have a fixed interest rate
and
repayment amount payable either in cash or common stock of the
Company. The Company does not use financial or other derivative
instruments to manage market risk.
A hypothetical change of one percent in the interest rate earned
on
short term investments during 1998 would have resulted in an
increase or decrease of approximately $0.1 million in net income.
A change of 10% in the price of gold, silver or zinc would not
have
had a material change in the assets, liabilities or net income.
Item 8. Financial Statements and Supplementary Data
CROWN RESOURCES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31,
1998 and 1997 . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997 and 1996 . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1998, 1997 and 1996 . . . . F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . F-6
All schedules are omitted as the required information is
included in the financial statements or notes thereto or is not
applicable. Financial information on 50% or less owned entities
is
omitted, as the entities do not meet the tests for inclusion.
The Company is not required to provide the selected
quarterly
financial data specified in Item 302 of Regulation S-K because it
does not meet the tests outlined in Item 302(a)(5).
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Crown Resources Corporation
Denver, Colorado
We have audited the consolidated balance sheets of Crown
Resources
Corporation and subsidiaries as of December 31, 1998 and 1997,
and
the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility
is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Crown
Resources Corporation and subsidiaries as of December 31, 1998
and
1997, and the results of their operations and their cash flows
for
each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 3, 1999
F-1
CROWN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 8,136 $ 5,857
Short-term investments 87 86
Bullion inventories - 96
Prepaid expenses and other 128 130
Total current assets 8,351 6,169
Mineral properties, net 27,532 27,590
Other assets:
Debt issuance costs, net 272 375
Marketable equity securities 233 17
Other 112 187
617 579
$36,500 $34,338
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 222 $ 359
Other 290 289
Total current liabilities 512 648
Long term liabilities:
Convertible debentures 15,000 15,000
Deferred income taxes - 731
15,000 15,731
Minority interest in consolidated
subsidiary 3,806 3,980
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized 20,000,000 shares;
none outstanding - -
Common stock, $0.01 par value;
authorized 50,000,000 shares;
issued and outstanding 14,520,725
and 13,312,829 shares 145 133
Additional paid-in capital 34,768 29,653
Accumulated deficit (17,720) (15,792)
Accumulated other comprehensive loss (11) (15)
17,182 13,979
$36,500 $34,338
See notes to consolidated financial statements.
F-2
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per Years Ended
per share amounts) December 31,
1998 1997 1996
Revenues:
Royalty income $ 139 $ 300 $ 245
Interest income 471 385 407
Mineral property option proceeds - - 151
610 685 803
Costs and expenses:
Depreciation, depletion and
amortization 101 180 174
General and administrative 1,526 1,985 1,676
Interest expense 971 1,020 971
Asset write-downs 867 5,743 476
Other, net (22) 12 33
3,443 8,940 3,330
Loss before income
taxes and minority interest (2,833) (8,255) (2,527)
Income tax benefit (731) (1,055) (580)
Loss before minority interest (2,102) (7,200) (1,947)
Minority interest in loss of subsidiary (174) (2,221) (376)
Net loss $ (1,928) $ (4,979) $ (1,571)
Basic and diluted loss
per common share $ (0.13) $ (0.38) $ (0.12)
Weighted average number of
common and common equivalent
shares outstanding 14,345 13,268 13,193
See notes to consolidated financial statements.
F-3
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except
per share amounts)
Additional Other Common Stock
Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
Balance, January 1, 1996 13,171,659 132 27,549 (9,242) (9) 18,430
Issuance of shares:
Exercise of stock options 39,825 - 190 - - 190
sale of shares of subsidiary,
net of tax of $924 - - 147 147
Comprehensive income (loss):
Net loss - - - (1,571) - (1,571)
Net unrealized gain on
marketable equity securities - - - - 1 1
Comprehensive loss - - - - - (1,570)
Balance, December 31, 1996 13,211,484 132 27,886 (10,813) (8) 17,197
Issuance of shares:
Exercise of stock options 76,950 1 342 - - 343
For services 24,395 - 140 - - 140
Sale of shares of subsidiary,
net of tax of $724 - - 1,285 - - 1,285
Comprehensive income (loss):
Net loss - - - (4,979) - (4,979)
Net unrealized loss on
marketable equity securities - - - (7) (7)
Comprehensive loss - - - - (4,986)
Balance, December 31, 1997 13,312,829 133 29,653 (15,792) (15) 13,979
Issuance of shares:
Exercise of stock options 159,166 2 493 - - 495
For services 8,730 - 32 - - 32
In private placement 1,040,000 10 4,590 - - 4,600
Comprehensive income (loss):
Net loss - - - (1,928) - (1,928)
Net unrealized gain on
marketable equity securities - - - - 4 4
Comprehensive loss - - - - - (1,924)
Balance, December 31, 1998 14,520,725 $ 145 $34,768 $(17,720) $(11) $ 17,182
See notes to consolidated financial statements.
F-4
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years
Ended December 31,
(in thousands) 1998 1997 1996
Operating Activities:
Net loss $(1,928) $(4,979) $(1,571)
Adjustments:
Depreciation, depletion
and amortization 204 282 276
Deferred income taxes (731) (1,055) (580)
Asset write-downs 867 5,743 476
Common stock issued for services 32 140 -
Minority interest (174) (2,221) (376)
Changes in operating assets and liabilities:
Bullion inventories 96 10 (63)
Prepaid expenses and other 32 (3) 209
Accounts payable and
other current liabilities (136) 13 42
Net cash used in operating
activities (1,738) (2,070) (1,587)
Investing Activities:
Additions to mineral properties (1,511) (3,313) (3,467)
Receipts on mineral property
Transactions 464 655 101
Sale of short-term investments (1) 3 46
Decrease (increase) in other assets (30) 5 (8)
Net cash used in investing
activities (1,078) (2,650) (3,328)
Financing Activities:
Sale of common stock 4,600 - -
Sale of common stock of subsidiary, net - 4,862 2,610
Common stock issued under options
and warrants 495 268 129
Net cash provided by financing
activities 5,095 5,130 2,739
Net increase (decrease) in cash and
cash equivalents 2,279 410 (2,176)
Cash and cash equivalents, beginning
of year 5,857 5,447 7,623
Cash and cash equivalents,
end of year $ 8,136 $5,857 $ 5,447
Supplemental disclosure of cash flow
information:
Non-cash transactions:
Securities received for mineral
property transactions $ 212 $ 9 $ -
Deferred tax benefit of non-qualified
stock option exercises - 75 61
Acquisition of additional
interest in subsidiary - 205 240
Cash paid for interest 868 868 868
Increase in accounts receivable from sale of
subsidiary 29 - -
See notes to consolidated financial statements.
F-5
1. Business and Summary of Significant Accounting Policies:
Business
Crown Resources Corporation (the "Company" or "Crown")
engages
principally in the acquisition, exploration and development
of
mineral properties, which presently exist in the western
United States, Mexico and Peru. Its properties in Peru are
held through Solitario Resources Corporation ("Solitario"), a
57.2%-owned subsidiary as of December 31, 1998.
Crown has historically derived its revenues principally from
the option and sale of property interests, and, to a lesser
extent, from royalty interests, interest income and from the
sale of its share of gold produced from its properties.
Financial reporting
The consolidated financial statements include the accounts of
Crown and its wholly- and majority-owned subsidiaries. All
material intercompany accounts and transactions have been
eliminated in consolidation. Undivided interests in mineral
properties are accounted for by the proportionate
consolidation method in accordance with standard practice in
the mining industry.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent
assets and liabilities at the date of the financial
statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash equivalents
Cash equivalents include investments in highly-liquid debt
securities with maturities of three months or less when
purchased. Investments with longer maturities at the date of
purchase are classified as short-term investments.
Inventories
Gold bullion received as in-kind royalties is recorded at
market. Inventories of $96,000 at December 31, 1997 consisted
entirely of gold bullion. In 1998, the Company sold all of
its remaining inventory.
F-6
1. Business and Summary of Significant Accounting Policies
(Continued):
Mineral properties
Leasehold costs are capitalized in cost centers and are
depleted on the basis of the cost centers' economic reserves
(estimated recoverable, proven and probable reserves) using
the units-of-production method. If there are insufficient
economic reserves to use as a basis for depleting such costs,
they are expensed as a mineral property write-off in the
period in which the determination is made. Economic reserves
and related leasehold costs attributable to properties under
option to be acquired by third parties are not included in the
depletion calculation.
Exploration costs are capitalized initially and are charged
to
operations if an area is abandoned or deemed impaired.
Exploration costs on successful projects will be amortized by
the units-of-production method based on estimated economic
reserves.
The Company records the proceeds from the sale of property
interests to joint ventures as a reduction of the related
property's capitalized cost. Proceeds which exceed the
capital cost of the property are recorded as revenue.
Marketable equity securities
The Company's equity securities are classified as available-
for-sale and are carried at fair value. The cost of
marketable
equity securities sold is determined by the specific
identification method.
Foreign exchange
The United States dollar is the functional currency for all
the Company's foreign subsidiaries. Foreign currency gains
and losses are included in the results of operations in the
periods in which they occur.
Revenue recognition
Royalty revenue is recognized when product is delivered in-
kind or cash payments are received.
F-7
1. Business and Summary of Significant Accounting Policies
(Continued):
Income taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related to certain income
and expenses recognized in different periods for financial
and
income tax reporting purposes. Deferred tax assets and
liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses and
tax credits that are available to offset future taxable
income
and income taxes, respectively. A valuation allowance is
provided if it is more likely than not that some or all of
the
deferred tax assets will not be realized.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its
components in the financial statements. The Company adopted
the standard in 1998 and has restated prior periods for
comparative purposes. The components of comprehensive income
include unrealized gains and losses on marketable equity
securities and are included in the statement of stockholders'
equity and comprehensive income.
Loss per share
The calculation of basic and diluted loss per share is based
on the weighted average number of common shares outstanding
during the years ended December 31, 1998, 1997 and 1996. The
effect of common stock equivalents which include stock
options, warrants and convertible debt securities is not
included in the computation of diluted per share amounts in
1998, 1997 and 1996 because its inclusion would be anti-
dilutive.
Employee stock compensation plans
The Company follows Accounting Principles Board Opinion
("APBO") No. 25, "Accounting for Stock Issued to Employees."
Under the terms of the Company's stock option plans, the
exercise price of stock options issued to employees equals
the
market price of the stock on the measurement date and,
therefore, the Company does not record compensation expense
on
stock options granted to employees.
F-8
1. Business and Summary of Significant Accounting Policies
(Continued):
Minority interest
Minority interest represents the minority stockholders'
proportionate interest in Solitario. The Company owned 57.2%
of Solitario at December 31, 1998 and 1997.
Segment Reporting
The Company operates in one segment, minerals exploration,
and
accordingly, disclosures required by SFAS No. 131 are not
applicable. The Company's operations are located in North
and
South America as further described in note 2.
New accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The
standard,
effective for fiscal years beginning after June 15, 1999,
sets forth guidelines and requirements for reporting
derivative instruments at fair value as assets and
liabilities in the financial statements and requires that
changes in the fair value of the instruments shall be
recognized in the results of operations. The effect of this
standard, when adopted, on the Company's reported financial
position, results of operations and cash flows, has not been
determined.
2. Mineral Properties:
United States
Crown Jewel Project
In March 1990, the Company entered into an agreement with
Battle Mountain Gold Company ("Battle Mountain") providing
Battle Mountain an option to enter into a joint venture to
develop the Company's Crown Jewel gold deposit in
northeastern
Washington. Battle Mountain paid $5,000,000 on the grant of
the option and since March 14, 1990 has funded all
exploration
on Crown Jewel. On January 4, 1991, Battle Mountain
exercised
its option by payment of an additional $5,000,000. In order
to
acquire a 51% interest in the project, Battle Mountain is
required to fund all development and capital costs to
commencement of commercial production. Crown is not required
to fund or repay any costs related to the development and
capital costs of the project incurred prior to commercial
production.
F-9
2. Mineral Properties (Continued):
In May 1994, Crown and Battle Mountain reached an agreement
resolving certain contractual issues related to the Crown
Jewel Venture Agreement, which had been the subject of
arbitration proceedings. Under the terms of the agreement,
Battle Mountain paid to Crown $4,250,000 in cash plus 435,897
shares of Battle Mountain common stock (market value
$4,250,000) in exchange for (1) the right to earn an
additional 3% (to 54%) in the first 1,600,000 ounces of
gold
recovered from the Crown Jewel property and (2) release of
Battle Mountain from its obligation to make any of the
quarterly $1,000,000 payments to Crown which might otherwise
have become due because of startup delays on the project.
Cord Ranch
The Company holds a lease for the right to explore and
develop
the Cord Ranch prospect, a 34,000 acre ranch in the southern
portion of the Carlin Gold Trend of Nevada. By amendment,
the
lease required a work commitment of $900,000 which had been
fulfilled as of December 31, 1997. Additionally, the
agreement calls for a non-recoupable minimum payment of
$150,000 in 1999 and recoupable annual advance royalty
payments of $200,000 in 2000 and thereafter.
In September 1994, Crown signed an agreement which has been
assigned to a subsidiary of Royal Standard Minerals Inc.
("Royal Standard"). As of December 31, 1998, Royal Standard
had earned a 70% interest in Crown's Cord Ranch and adjacent
gold properties. Under the terms of the agreement, Royal
Standard must provide Crown's share of expenditures through
the completion of a favorable feasibility study, with such
expenditures to be repaid from Crown's share of production
from the properties. In April 1997, Royal Standard assigned
Cameco (U.S.) Inc. the right to earn a 51% interest in
certain
parts of the Cord Ranch properties.
Peru
The Company, through Solitario, holds exploration concessions
or has filed applications for concessions covering
approximately 326,000 acres in Peru. These applications are
subject to normal administrative approvals and the properties
are subject to an annual rental of $2.00 per hectare
(approximately 2.47 acres per hectare) in June of each year.
Bongara
Since 1993, the Company acquired exploration concessions or
has filed claims for concessions currently covering
approximately 102,000 acres in the Bongara area of northern
Peru (the "Bongara project).
F-10
2. Mineral Properties (Continued):
In December 1996, Solitario signed an agreement regarding the
Bongara project with a subsidiary of Cominco. The agreement
was modified in January 1999, increasing the acreage to
approximately 600,000 acres. Cominco has the right to earn a
65% interest in the Bongara project by spending a minimum of
$27,500,000 on exploration and development over a seven-year
period beginning January 1997 and by making annual cash
payments of between $100,000 and $500,000 (depending on the
price of zinc). Cominco is also required to fully fund the
project through a bankable feasibility study. Cash payments
of $118,000, $354,000 and $250,000 have been paid by Cominco
in January 1999, 1998, and 1997, respectively. In addition
to
the cash payments and work commitments, Cominco has agreed to
finance Solitario's share of project development costs,
subject to repayment, after a production decision is made,
should Solitario not secure third-party financing. Through
December 31, 1998, Cominco has spent approximately $10
million
on exploration of the Bongara project.
Argentina
In December 1997, Solitario made the decision to sell
its
operations in Argentina to concentrate its attention and
financial resources in Peru. In July 1998, Solitario
completed the sale of its Argentinian subsidiary to, Ltd.
("TNR") of Vancouver, B.C. The purchase price of $350,000
was paid in 1,250,000 shares of TNR and two-year warrants to
purchase an additional 625,000 shares of TNR at Cdn$0.40
during the first year and Cdn$0.46 during the second year.
Solitario also received a non-refundable binder payment of
$45,000 upon signing a letter of intent in March of 1998.
TNR
reimbursed Solitario $29,000 for costs incurred through a
cash
payment of $8,000 and delivery of 184,709 additional shares
of
TNR. As a result of the transactions, Solitario owns
approximately 15% of the outstanding shares of TNR. The
Company accounts for this investment using the cost method.
Mexico
Since 1997 the Company has conducted exploration and
reconnaissance activities in Mexico, focusing its efforts in
the state of Durango. In early 1999, the Company acquired
the
Magistral del Oro and San Juan de Minas properties covering
approximately 13,000 acres and 700 acres, respectively.
During 1998 the Company dropped the La Pitarrilla concession
resulting in a $34,000 write down. The Company is planning
additional exploration and reconnaissance work in Mexico
during 1999.
F-11
2. Mineral Properties (Continued):
Mineral property costs for all the Company's properties are
comprised of the following:
December 31,
1998 1997
(in thousands)
Land and leasehold costs $14,466 $14,761
Exploration costs 13,890 13,653
28,356 28,414
Less accumulated depreciation,
depletion and amortization 824 824
$27,532 $27,590
Land, leasehold and exploration costs related to mineral
properties for which exploration activities had not yet
identified the presence of economic reserves totaled
$13,900,000 and $14,133,000 at December 31, 1998 and 1997,
respectively.
At December 31, 1998 and 1997, the carrying value of the
Crown
Jewel project amounted to $13,632,000 and $13,457,000
respectively. The Crown Jewel project represents the
Company's total proven and probable gold reserves and its
only
property in development.
The net assets of the Company's foreign operations located in
Peru and Mexico and included in the consolidated balance
sheet
are $5,802,000 at December 31, 1998 and $5,603,000 at
December
31, 1997. The Company is exposed to risks normally
associated
with foreign investments, including political, economic and
social instabilities, as well as foreign exchange controls
and
currency fluctuations. Foreign investments may also be
subject to laws and policies of the United States affecting
foreign trade, investment and taxation which could affect the
conduct or profitability of future operations.
Asset write-downs
The Company regularly performs evaluations of its assets to
assess the recoverability of its investments in these assets.
All long-lived assets are reviewed for impairment whenever
events or circumstances change which indicate the carrying
amount of an asset may not be recoverable utilizing
established guidelines based upon future net cash flows from
the asset. Write-downs relating to exploration properties
amounted to $867,000 in 1998, $5,743,000 in 1997 and $476,000
in 1996. Included in the write-down for 1997 was the
Company's decision to sell its operations in Argentina
resulting in a $3,822,000 charge to operations.
F-12
3. Convertible Debentures:
On August 27, 1991 the Company completed a European offering
for $15 million of 5 % Convertible Subordinated Debentures
due
2001 ("Debentures"). The Debentures are convertible into
approximately 1,523,000 shares of Crown common stock at $9.85
per share, and are redeemable at the option of the Company on
certain terms and conditions. Interest on the Debentures is
payable semiannually in arrears, each February and August.
Neither the Debentures nor the common stock issuable upon
conversion of the Debentures is registered under the
Securities Act of 1933. Debt offering costs are being
amortized over the life of the Debentures.
4. Income Taxes:
The Company's income tax expense (benefit) from continuing
operations consists of the following:
(in thousands) 1998 1997 1996
Deferred:
U.S. $ 59 $ 84 $ 336
Foreign 85 32 46
Operating loss and credit
carryovers:
U.S. (790) (997) (900)
Foreign (85) (174) (62)
Income tax benefit $ (731) $(1,055) $ (580)
Consolidated loss before income taxes includes losses from
foreign operations of $542,000, $5,232,000, and $618,000 in
1998, 1997 and 1996, respectively.
Deferred income taxes result from temporary differences in
the
timing of income and expenses for financial and income tax
reporting purposes. The primary components of deferred
income
taxes result from exploration and development costs,
depreciation, depletion and amortization expenses, and
property abandonments.
During 1998, 1997 and 1996 the Company recognized income tax
deductions of $200,000, $643,000, and $180,000, respectively,
from the exercise of non-qualified stock options.
Stockholders' equity has been credited in the amounts of
$75,000, in 1997 and $61,000 in 1996, for the income tax
benefits of these income tax deductions net of valuation
allowances. There were no such amounts credited to
stockholders' equity in 1998 as a valuation allowance has
been
provided. Also during 1997 and 1996, the Company purchased
and
sold shares of Solitario. Stockholders' equity has been
charged in the amounts of $724,000 and $924,000 respectively,
F-13
4. Income Taxes (Continued):
for the income tax expense associated with the purchase and
sale transactions including $14,000 and $560,000,
respectively, relating to previously unrecognized temporary
differences associated with the Company's investment in
Solitario.
The net deferred tax (assets)/liabilities in the accompanying
December 31, 1998 and 1997 balance sheets include the
following components:
(in thousands) 1998 1997
Deferred tax assets:
Net operating loss (NOL)
carryovers $8,713 $8,797
Capital loss carryovers 1,857 -
Alternative minimum tax (AMT)
credit carryovers 325 325
Investment in Argentina
subsidiary - 1,930
Other 111 125
Valuation allowance (2,953) (4,938)
Deferred tax assets 8,053 6,239
Deferred tax liabilities:
Exploration and development
costs 7,533 6,435
Depreciation, depletion and
amortization 494 497
Other 26 38
Deferred tax liabilities 8,053 6,970
Net deferred tax (assets)
liabilities $ - $ 731
The reduction in the valuation allowance from 1997 to 1998
consists of the elimination, for tax purposes, of the
Company's investment in Argentina of $2,480,000 offset by
additional valuation allowance established related to
deferred
taxes generated in 1998.
F-14
4. Income Taxes (Continued):
A reconciliation of expected federal income tax benefit from
continuing operations at the U.S. Federal tax rate of 34%
with
the expense (benefit) for income taxes is as follows:
(in thousands) 1998 1997 1996
Expected income tax benefit $ (963) $(2,807) $ (859)
Nondeductible foreign
expenditures 26 85 67
Disposition and deconsolidation
of investment in Argentina 2,480 (1,683) -
Excess percentage depletion (5) - -
Foreign mining incentives - (201) (202)
State income tax benefit (4) (267) (18)
Change in valuation allowance (2,057) 3,747 443
Other (208) 71 (11)
Income tax (benefit) $ (731) $(1,055) $ (580)
At December 31, 1998, the Company has unused U.S. NOL and
capital loss carryovers of approximately $20,703,000 and
$4,761,000, respectively, which begin to expire in 2004. In
addition, the Company has approximately $325,000 of U.S. AMT
credit carryovers which can be carried forward indefinitely.
The Company also has Peru NOL carryovers at December 31, 1998
of approximately $5,251,000 which begin to expire four years
after the first year in which Peruvian taxable income arises.
5. Fair Value of Financial Instruments:
For certain of the Company's financial instruments, including
cash and cash equivalents, short-term investments, accounts
payable and other accrued liabilities, the carrying amounts
approximate fair value due to their short maturities. The
Company's marketable equity securities are carried at their
estimated fair value, based on quoted market prices. The
estimated fair value of the Company's Debentures was
$10,500,000 and $12,750,000 at December 31 1998 and 1997,
respectively, based on quoted market prices.
6. Commitments and Contingencies:
In acquiring its interests in minerals claims and leases, the
Company has entered into lease agreements which generally may
be canceled at its option. The Company is required to make
work commitments and minimum rental payments in order to
maintain its interests in certain claims and leases. The
Company estimates its 1999 mineral property rentals and
option
payments to be approximately $721,000. Based upon existing
joint venture or leasing arrangements, the Company's share of
these costs is approximately $132,000. Additionally, the
Company has work commitments of approximately $203,000 for
1999.
F-15
6. Commitments and Contingencies (continued):
The Company has a defined-contribution retirement plan
covering all full-time U.S. employees. The plan provides for
Company matching, at the rate of 75%, of employee savings
contributions of up to 9% of compensation, subject to ERISA
limitations. The cost of Company contributions in 1998, 1997
and 1996 was $53,000, $52,000 and $48,000, respectively.
The Company leases office space under non-cancelable
operating
leases providing for minimum annual rent payments as follows:
$79,000 in 1999, $80,000 in 2000, and $40,000 in 2001. Rent
expense for all leases was $82,000, $66,000 and $60,000 for
the years ended December 31, 1998, 1997 and 1996,
respectively.
7. Stock Option Plans
Under the Company's 1988 Stock Benefit Plan ("1988 Plan"),
the
Board of Directors may (a) grant incentive stock options, as
defined in Section 422A of the Internal Revenue Code of 1986,
as amended, to any employee of the Company or to any employee
of any parent or subsidiary of the Company; (b) grant options
other than incentive stock options (non-qualified stock
options); (c) grant stock appreciation rights or cash bonus
rights; (d) award stock bonuses; and (e) grant stock purchase
rights and sell stock subject to certain restrictions.
Up to 1,500,000 shares of the Company's common stock may be
issued under the 1988 Plan. As of December 31, 1998, 576,476
shares remained available for future issuance under the 1988
Plan including those already granted. All stock options that
have been granted under the 1988 Plan have been issued at the
market price of the common stock at the date of the grant.
On June 27, 1991, the Company's shareholders approved the
Crown Resources Corporation 1991 Stock Incentive Plan ("1991
Plan"). The Board of Directors has reserved 1,500,000 shares
of Crown common stock for grants under the 1991 Plan.
Options
granted under both plans generally expire five years from the
date of grant.
F-16
7. Stock Option Plans (Continued):
Generally, the terms and conditions of the 1991 Plan are
similar to those of the 1988 Plan described above, except
that
members of the Board of Directors are eligible only to
receive
formula grants of non-qualified stock options. Each member
of
the Board of Directors who is also an employee of Crown or
any
parent or subsidiary of Crown will be entitled to receive,
automatically, an award of non-qualified stock options on
grant dates defined in the 1991 Plan. Each option will cover
a number of shares determined by dividing the employee-
director's annual base compensation rate on the grant date by
three. Each director who is not an employee will receive an
award of non-qualified stock options covering 10,000 shares
of
Crown common stock.
Options granted under the 1991 Plan are granted at the market
price of the common stock at the date of grant, except for
non-qualified options granted to non-directors, which price
cannot be less than the average price for the five business
days immediately preceding the date of grant. As of December
31, 1998, shares available for issue, including those already
granted, totaled 1,145,828 shares.
The activity in the 1988 Plan for the three years ended
December 31, 1998 is as follows:
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Amount Price(1) Amount Price Amount Price
Outstanding,
beginning
of year 576,250 5.74 60,000 5.63 280,600
9.25
Granted - 546,395 5.75 60,000
5.63
Exercised - (30,145) 5.74 -
Expired - - (280,600)
9.25
Outstanding,
end of year 576,250 4.22 576,250 5.74 60,000
5.63
Exercisable,
end of year 425,250 4.17 342,250 5.74 15,000
5.63
(1) On June 18, 1998, the board of directors voted to
reprice
existing options for current employees, officers and
directors to $4.06 per share which was the market price
of the Company's stock.
The options outstanding under the 1988 Plan have a weighted
average remaining contractual life of 2.9 years.
F-17
7. Stock Option Plans (Continued):
The activity in the 1991 Plan for the three years ended
December 31, 1998 is as follows:
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Amount Price(1) Amount Price Amount Price
Outstanding,
beginning
of year 1,026,432 4.97 1,347,298 5.32 1,145,548
5.17
Granted 257,080 4.05 50,000 5.73 241,575
5.70
Exercised (167,896) 3.14 (71,200) 3.29 (39,825)
3.24
Forfeited - -
Expired - (299,666) 7.06 -
Outstanding,
end of year 1,115,616 4.16 1,026,432 4.97 1,347,298
5.32
Exercisable,
end of year 982,991 4.16 935,432 6.46 1,202,048
5.36
The options outstanding under the 1991 Plan have a weighted
average
remaining contractual life of 1.8 years.
(1) On June 18, 1998, the board of directors voted to
reprice
all existing options with an exercise price in excess of
$4.19 for current employees, officers and directors to
$4.06 per share, which was the market price of the
Company's stock.
Pro forma information has been computed as if the Company had
accounted for its stock options under the fair value method
of
SFAS No. 123. The fair values of these options were
estimated
at the date of grant using a Black-Scholes option pricing
model with the following assumptions for 1998, 1997 and 1996
grants, respectively: risk-free interest rates of 5.52%,
6.37%
and 5.69%; dividend yields of 0%; volatility factors of the
expected market price of the Company's common stock of 43%,
52% and 53%; and a weighted average expected life of the
options of 2.8 years in 1998 and 4 years in 1997 and 1996.
The weighted average fair values of the options granted are
estimated at $1.35, $2.49 and $2.71 per share in 1998, 1997
and 1996, respectively.
Had the Company accounted for its stock options under the
fair
value method of SFAS No. 123, the following results would
have
been reported:
F-18
7. Stock Option Plans (Continued):
(In thousands, except
per share amounts) 1998 1997 1996
Net loss
As reported $(1,928) $(4,979) $(1,571)
Pro forma (3,179) (6,136) (2,161)
Basic and diluted
loss per share
As reported $ (0.13) $ (0.38) (0.12)
Pro forma (0.22) (0.46) (0.16)
8. Stockholders' Equity:
Crown is authorized to issue 20,000,000 shares of $0.01 par
value preferred stock and has issued, to a subsidiary,
1,000,000 shares of nonconvertible preferred stock which is
eliminated in consolidation.
On July 25, 1995, the Company adopted a shareholder rights
plan pursuant to which rights ("Rights") to acquire shares of
Series B Preferred Stock were distributed to shareholders of
the Company, with the right to buy 1/100 share of Series B
Preferred Stock for each common share held, at an initial
exercise price of $25.00. The Company also designated
500,000
shares of preferred stock as Series B Preferred Stock with
each 1/100 share having economic terms substantially
equivalent to one common share.
Generally, the Rights will become exercisable if a
shareholder
or group of shareholders becomes the beneficial owner of or
announces the intention to acquire common shares of 15
percent
or more of the outstanding common shares of the Company. If
the Rights become exercisable, each Right (other than Rights
held by the acquiring person or group) will entitle the
holder
to purchase, at the exercise price, common stock having a
market value equal to twice the exercise price.
In February 1998, the Company received $4.6 million, after
commissions and offering expenses, from a European equity
financing through the private placement of 1.04 million
shares
of the Company's common stock. Included in the placement was
an agency fee of 40,000 shares paid to David Williamson
Associates, Ltd., of which David R. Williamson, a director of
the Company, is a principal.
F-19
8. Stockholders' Equity (continued):
In August 1997, the Company elected to convert its $1.5
million, 7.5% convertible note into 1,254,180 shares of
Solitario common stock. The conversion was in accordance
with
the terms of the note dated August 25, 1995. Upon completion
of the conversion and, along with options exercises during
1997, the Company held 9,633,585 shares of Solitario stock or
57.2% as of December 31, 1998 and 1997.
In February 1997, the Company sold 1,500,000 of its shares in
Solitario, receiving net proceeds of $4,448,000 from the
market transaction. The Company reinvested the proceeds by
acquiring, through a private placement into Solitario,
1,500,000 new shares of Solitario plus 1,500,000 warrants,
exercisable into shares of Solitario at Cdn$4.83 per share
which expired unexercised in February 1999.
In January 1996, the Company sold 1,570,000 of its shares in
Solitario, receiving net proceeds of $2,566,000 from the
market transaction. The Company reinvested the proceeds by
acquiring, through a private placement into Solitario,
1,570,000 new shares of Solitario plus 1,570,000 warrants,
exercisable into shares of Solitario at Cdn$2.66 per share
which expired unexercised in February 1998.
During 1996, previously issued warrants to purchase 553,686
Solitario shares at Cdn$2.50 (approximately $1.82) per share
were exercised, including 529,000 warrants exercised by the
Company. Net proceeds to Solitario from third party
exercises
were approximately $44,000.
F-20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors.
The information with respect to directors required under
this
item is incorporated herein by reference to the table set forth
under the section captioned Election of Directors in the
Company's
Proxy Statement in connection with the annual meeting of
shareholders to be held on June 4, 1999 filed with the Securities
and Exchange Commission pursuant to Section 14(a) of the
Securities
Exchange Act of 1934.
(b) Executive Officers.
The information with respect to executive officers required
under this item is incorporated herein by reference to Part I of
this Report.
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
The information required under Item 11, Item 12 and Item 13
is
incorporated herein by reference to the sections entitled
Executive
Compensation, Security Ownership of Certain Beneficial Owners and
Management and Executive Compensation, respectively, in the
Company's Proxy Statement in connection with the annual meeting
of
shareholders to be held June 4, 1999, filed with the Securities
and
Exchange Commission pursuant to Section 14(a) of the Securities
Exchange Act of 1934.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) 1. Consolidated Financial Statements: Index on page 37 of
this Report.
2. Exhibits. The exhibits as indexed on pages 44 through 47
of this Report are included as a part of this Form 10-K.
(b) Reports on Form 8-K: None
Exhibit
Number Description
3.1 The Company's Articles of Incorporation
(incorporated by reference to Exhibit 3.1
to
Registration Statement on Form S-4,
Commission
File No. 33-25033 (the "1989 S-4
Registration
Statement")).
3.2 The Company's Bylaws (incorporated by
reference to
Exhibit 3.2 to the 1989 S-4 Registration
Statement).
3.3 Statement of Rights and Preferences of
Series A
Nonconvertible Preferred Stock (issued to
a
subsidiary) as filed with the Secretary of
State,
State of Washington, which forms part of
the
Company's Articles of Incorporation
(incorporated
by reference to Exhibit 3.3 to the
Company's Form
10-K for the year ended December 31,
1989).
4.1 Form of Rights Agreement, dated as of July 25,
1995, between the Company and American Stock
Transfer & Trust Company (incorporated by
reference to Exhibit 4.1 to the Company's Form 8-K
dated July 25, 1995).
10.1 1988 Stock Benefit Plan of the Company
(incorporated by reference to Exhibit
10.11 to
Amendment No. 2 to the Registration
Statement).
10.2 1991 Stock Incentive Plan of the Company
(incorporated by reference to Exhibit
10.13 to
Crown Resources Corporation's Registration
Statement on Form S-4 dated May 17, 1991,
Commission file no. 33-40642 (the "1991
S-4
Registration Statement")).
10.3 Crown Jewel Venture Agreement, dated effective
January 4, 1991, between Crown Resources
Corporation, Crown Resource Corp. of Colorado,
Gold Texas Resources U.S., Inc., and Battle
Mountain Gold Company (incorporated by reference
to Exhibit 10.10 to the 1991 S-4 Registration
Statement).
10.4 Agreement and Plan of Merger, dated April
16,
1991, between Crown Resources
Corporation, Crown
Resources Property Corporation and Judith
Gold
Corporation (incorporated by reference to
Exhibit
2.1 to Crown Resources Corporation's Form
8-K
dated April 16, 1991).
10.5 Mining Lease, dated September 1, 1987, between
Judith Gold Corporation and Canyon Resources
Corporation (incorporated by reference to Exhibit
10.14 to the 1991 S-4 Registration Statement).
10.6 Settlement Agreement, dated September 29, 1992,
between Battle Mountain Gold Company, Crown
Resource Corp. of Colorado, Keystone Surveys,
Inc., and Spenst M. Hansen (incorporated by
reference to Exhibit 10.18 to Crown Resources
Corporation's Form 10-K for the year ended
December 31, 1992).
10.7 First Amendment to Mining Agreement, dated October
25, 1993, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.20 to Crown Resources
Corporation's Form 10-K for the year ended
December 31, 1993).
10.8 Second Amendment to Mining Agreement, dated April
28, 1994, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 10-Q for the quarter ended
March 31, 1994).
10.9 Settlement Agreement, dated May 6, 1994, between
Crown Resources Corporation, Crown Resource Corp.
of Colorado, Gold Texas Resources U.S., Inc. and
Battle Mountain Gold Company (incorporated by
reference to Exhibit 10.2 to Crown Resources
Corporation's Form 10-Q for the quarter ended
March 31, 1994).
10.10 Second Amendment to Crown Jewel Venture Agreement,
dated April 27, 1994, between Crown Resources
Corporation, Crown Resource Corp. of Colorado,
Gold Texas Resources U.S., Inc. and Battle
Mountain Gold Company (incorporated by reference
to Exhibit 10.1 to Crown Resources Corporation's
Form 10-Q for the quarter ended June 30, 1994).
10.11 Agreement, dated September 8, 1994, between Crown
Resource Corp. of Colorado and Pinon Exploration
Corporation (incorporated by reference to Exhibit
10.1 to Crown Resources Corporation's Form 10-Q
for the quarter ended September 30, 1994).
10.12 Stock Purchase Agreement, dated September 9, 1994,
between Cyprus Gold Exploration Corporation and
Crown Resource Corp. of Colorado, relating to the
Shares of Capital Stock of Pinon Exploration
Corporation (incorporated by reference to Exhibit
10.2 to Crown Resources Corporation's Form 10-Q
for the quarter ended September 30, 1994).
10.13 First Amendment to Agreement between Crown
Resource Corp. of Colorado and Pinon Exploration
Corporation (incorporated by reference to Exhibit
10.18 to Crown Resources Corporation's Form 10-K
for the year ended December 31, 1995).
10.14 Third Amendment to Mining Agreement between United
States National Bank of Oregon, as Trustee for
William Cord Pereira, Virginia Lee Pereira, Philip
Kirk Pereira, Patrick Clay Pereira and Susan
Michael Pereira, as Beneficiaries of the Pereira
Children's Trust and Crown Resource Corp. of
Colorado (incorporated by reference to Exhibit
10.19 to Crown Resources Corporation's Form 10-K
for the year ended December 31, 1995).
10.15 Letter Agreement, dated December 24, 1996, between
Cominco Peru s.r.l. and Mineral Los Tapados S.A.
(incorporated by reference to Exhibit 10.18 to
Crown Resources Corporation's Form 10K for the
year ended December 31, 1996).
10.16 Subscription Agreement and Warrant, dated February
27, 1997, between Crown Resource Corp. of
Colorado and Solitario Resources Corporation
subscribing for 1,500,000 units (a unit consisting
of one share of common stock and one share
purchase warrant) of Solitario Resources
Corporation common stock.
10.17 Stock Purchase Agreement, dated February 23, 1998,
between Crown Resources Corporation and The
Equitable Life Assurance Society (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 8-K, dated February 27, 1998).
10.18 Restated Agreement, dated December 15, 1998
between Minera Los Tapados and Cominco, to amend
the agreement dated December 24, 1996.
10.19 Letter Agreement, dated October 7, 1998 between
Minera Los Tapados and Billiton Exploration and
Mining Peru, B.V. regarding the exploration and
development of the Company's Soloco property in
Peru.
10.20 Letter Agreement, dated January 22, 1999 between
Minera Los Tapados and Placer Dome del Peru,
S.A.C. regarding exploration and development of
the Company's Yanacocha property in Peru.
11 Statement regarding computation of per share
earnings.
22 Subsidiaries of the registrant.
24.1 Consent of Deloitte & Touche LLP.
25 Powers of attorney.
27 Financial data schedule.
For the purpose of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, as amended ("Act"), the registrant hereby undertakes
as follows, which undertaking shall be incorporated by reference
into the registrant's Registration Statement on Form S-8, Nos.
33-
31754 (filed October 24, 1989) and 33-57306 (filed January 22,
1993).
Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling
persons
of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant
of expenses incurred or paid by a director, officer or
controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether
such indemnification by it is against public policy as expressed
in
the Act and will be governed by the final adjudication of such
issue.
INDEX TO EXHIBITS
Exhibit
Number Description
Page
3.1 The Company's Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-4, Commission
File No. 33-25033 (the "1989 S-4 Registration
Statement")).
3.2 The Company's Bylaws (incorporated by reference to
Exhibit 3.2 to the 1989 S-4 Registration
Statement).
3.3 Statement of Rights and Preferences of Series A
Nonconvertible Preferred Stock (issued to a
subsidiary) as filed with the Secretary of State,
State of Washington, which forms part of the
Company's Articles of Incorporation (incorporated
by reference to Exhibit 3.3 to the Company's Form
10-K for the year ended December 31, 1989).
4.1 Form of Rights Agreement, dated as of July 25,
1995, between the Company and American Stock
Transfer & Trust Company (incorporated by
reference to Exhibit 4.1 to the Company's Form 8-K
dated July 25, 1995).
10.1 1988 Stock Benefit Plan of the Company
(incorporated by reference to Exhibit 10.11 to
Amendment No. 2 to the Registration Statement).
10.2 1991 Stock Incentive Plan of the Company
(incorporated by reference to Exhibit 10.13 to
Crown Resources Corporation's Registration
Statement on Form S-4 dated May 17, 1991,
Commission file no. 33-40642 (the "1991 S-4
Registration Statement")).
10.3 Crown Jewel Venture Agreement, dated effective
January 4, 1991, between Crown Resources
Corporation, Crown Resource Corp. of Colorado,
Gold Texas Resources U.S., Inc., and Battle
Mountain Gold Company (incorporated by reference
to Exhibit 10.10 to the 1991 S-4 Registration
Statement).
10.4 Agreement and Plan of Merger, dated April 16,
1991, between Crown Resources Corporation, Crown
Resources Property Corporation and Judith Gold
Corporation (incorporated by reference to Exhibit
2.1 to Crown Resources Corporation's Form 8-K
dated April 16, 1991).
10.5 Mining Lease, dated September 1, 1987, between
Judith Gold Corporation and Canyon Resources
Corporation (incorporated by reference to Exhibit
10.14 to the 1991 S-4 Registration Statement).
10.6 Settlement Agreement, dated September 29, 1992,
between Battle Mountain Gold Company, Crown
Resource Corp. of Colorado, Keystone Surveys,
Inc., and Spenst M. Hansen (incorporated by
reference to Exhibit 10.18 to Crown Resources
Corporation's Form 10-K for the year ended
December 31, 1992).
10.7 First Amendment to Mining Agreement, dated October
25, 1993, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.20 to Crown Resources
Corporation's Form 10-K for the year ended
December 31, 1993).
10.8 Second Amendment to Mining Agreement, dated April
28, 1994, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 10-Q for the quarter ended
March 31, 1994).
10.9 Settlement Agreement, dated May 6, 1994, between
Crown Resources Corporation, Crown Resource Corp.
of Colorado, Gold Texas Resources U.S., Inc. and
Battle Mountain Gold Company (incorporated by
reference to Exhibit 10.2 to Crown Resources
Corporation's Form 10-Q for the quarter ended
March 31, 1994).
10.10 Second Amendment to Crown Jewel Venture Agreement,
dated April 27, 1994, between Crown Resources
Corporation, Crown Resource Corp. of Colorado,
Gold Texas Resources U.S., Inc. and Battle
Mountain Gold Company (incorporated by reference
to Exhibit 10.1 to Crown Resources Corporation's
Form 10-Q for the quarter ended June 30, 1994).
10.11 Agreement, dated September 8, 1994, between Crown
Resource Corp. of Colorado and Pinon Exploration
Corporation (incorporated by reference to Exhibit
10.1 to Crown Resources Corporation's Form 10-Q
for the quarter ended September 30, 1994).
10.12 Stock Purchase Agreement, dated September 9, 1994,
between Cyprus Gold Exploration Corporation and
Crown Resource Corp. of Colorado, relating to the
Shares of Capital Stock of Pinon Exploration
Corporation (incorporated by reference to Exhibit
10.18 to Crown Resources Corporation's Form 10-K
for the year ended December 31, 1995).
10.13 First Amendment to Agreement between Crown
Resource Corp. Of Colorado and Pinon Exploration
Corporation (incorporated by reference to Exhibit
10.18 to Crown Resources Corporation's Form 10-K
for the year ended December 13, 1995).
10.14 Third Amendment to Mining Agreement between United
States National Bank of Oregon, as Trustee for
William Cord Pereira, Virginia Lee Pereira, Philip
Kirk Pereira, Patrick Clay Pereira and Susan
Michael Pereira, as Beneficiaries of the Pereira
Children's Trust and Crown Resource Corp. of
Colorado (incorporated by reference to Exhibit
10.19 to Crown Resources Corporation's Form 10-K
for the year ended December 31, 1995).
10.15 Letter Agreement, dated December 24, 1996, between
Cominco Peru s.r.l. and Minera Los Tapados S.A.
(incorporated by reference to Exhibit 10.18 to
Crown Resources Corporation's Form 10K for the
year ended December 31, 1996).
10.16 Subscription Agreement and Warrant, dated February
27, 1997, between Crown Resource Corp. of
Colorado and Solitario Resources Corporation
subscribing for 1,500,000 units (a unit consisting
of one share of common stock and one share
purchase warrant) of Solitario Resources
Corporation common stock.
10.17 Stock Purchase Agreement, dated February 23, 1998,
between Crown Resources Corporation and The
Equitable Life Assurance Society (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 8-K, dated February 27, 1998).
10.18 Restated Agreement, dated December 15, 1998
between Minera Los Tapados and Cominco, to amend
the agreement dated December 24, 1996.
10.19 Letter Agreement, dated October 7, 1998 between
Minera Los Tapados and Billiton Exploration and
Mining Peru, B.V. regarding the exploration and
development of the Company's Soloco property in
Peru.
10.20 Letter Agreement, dated January 22, 1999 between
Minera Los Tapados and Placer Dome del Peru,
S.A.C. regarding exploration and development of
the Company's Yanacocha property in Peru.
11 Statement regarding computation of per share
earnings.
22 Subsidiaries of the registrant.
24.1 Consent of Deloitte & Touche LLP.
25 Powers of attorney.
27 Financial data schedule.
Exhibit 10.18
December 15, 1998
Minera Los Tapados S.A.
c/o Solitario Resources Corporation
World Trade Center
1675 Broadway, Ste. 2400
Denver, Colorado
80202
Attention: Mr. C. E. Herald
President
Dear Sirs:
Re: Bongara Property, Northern Peru -
Restated Agreement
The two of us signed a letter agreement dated December 23, 1996
(the "1996 Agreement") under which Cominco Peru s.r.l. ("Cominco
Peru") was granted an option to acquire an interest in those
mineral properties held by Minera Los Tapados S. A. ("Los
Tapados") designated as the Bongara Property which is located in
Bongara Province, Amazonas Department, northern Peru. The two of
us have agreed to amend the 1996 Agreement and this agreement has
been prepared as a restatement of the 1996 Agreement to
incorporate the amendments which have been agreed. Upon the
signing of this Restated Agreement, the 1996 Agreement will have
no further force or effect, except for the representations and
warranties, and indemnities in connection therewith, which shall
survive. Reference in this document to this "Agreement", without
more, shall mean this Restated Agreement and not the 1996
Agreement.
This Restated Agreement will govern the rights which Cominco Peru
s.r.l. ("Cominco Peru") and Minera Los Tapados S. A. ("Los
Tapados") have to the mineral properties held by them and
designated as the Bongara Property and a surrounding area of
interest, all of which is located in Bongara Province, Amazonas
Department, northern Peru and is more particularly described in
Exhibit A (the "Property").
The parties have agreed as follows:
Option Terms
1. Los Tapados Warranties, Representations and Covenants. Los
Tapados warrants, represents and covenants that, as at the date
hereof:
(a) it owns the claims described in Part I of Exhibit A
(the "Los Tapados Claims") within the Area of Interest which had
been granted to it by the government of Peru or the application
for title to which claims was pending with the government of
Peru, and there were no underlying leases to such claims;
(b) Not used.
(c) Not used.
(d) Not used.
(e) Not used.
(f) the mineral estate underlying the Los Tapados Claims
was in good standing subsequent to the time it acquired them;
(g) its interests in the Los Tapados Claims were free and
clear of all liens, encumbrances, and other third party rights
arising by, through, or under it, and to the best of its
knowledge and belief were free of all other third party rights or
defects, except those described in Part I of Exhibit A;
(h) it was and as at the date hereof it is a corporation
duly incorporated and in good standing in Peru, and is qualified
to do business and is in good standing in any jurisdiction where
necessary in order to carry out the purposes of the 1996
Agreement and this Restated Agreement, as the case may be;
(i) it was and as at the date hereof it is a wholly-owned
subsidiary of Solitario Resources Corporation;
(j) it has the capacity to enter into and perform this
Restated Agreement and all transactions contemplated herein, and
that all corporate and other actions required to authorize it to
enter into and perform this Restated Agreement have been properly
taken;
(k) it will not breach any other agreement or arrangement
to which it is a party or by which it is bound by entering into
or performing this Restated Agreement;
(l) this Restated Agreement has been duly executed and
delivered by it and is valid and binding upon it in accordance
with its terms;
(m) to the best of its knowledge and belief, it has done
nothing that could give rise to a reasonable cause of action that
materially affects its right, title and interest in the
Properties;
(n) except as permitted by this Restated Agreement, it will
not encumber its interests in the Properties;
(o) it will protect, indemnify and hold Cominco Peru and
its affiliates harmless from and against any and all Claims and
Damages (hereinafter defined) arising out of or in connection
with any breach of the representations or warranties made under
this Restated Agreement; provided further, that Los Tapados shall
also pay reasonable attorneys fees and court costs incurred by
Cominco Peru with respect to such Claims and Damages unless Los
Tapados agrees to and diligently defends, using counsel agreed to
in advance by Cominco Peru, against any such Claims or Damages
asserted against or imposed on Cominco Peru;
(p) for purposes hereof, "Claims" means: (A) claims,
demands and legal, administrative, or arbitration proceedings of
any nature, that are threatened, asserted or instituted against a
party, regardless of whether arising from injury, death, tort,
breach of contract, violations of laws, or otherwise, and
regardless of whether a party believes such claim, demand, or
proceeding is justified, and (B) the incident or event that
resulted, or that a party should reasonably believe could result,
in such claim, demand, or proceeding; and
(q) for purposes hereof, "Damages" means damages or other
obligations of any nature, except loss of profits or
consequential or special damages, resulting from any Claim,
including, without limitation liabilities, losses, costs,
penalties (civil or criminal), expenses, judgments, fines,
settlements, reasonable attorneys' fees, and other related
expenses of any nature.
2. Representations by Cominco Peru. Cominco Peru warrants,
represents and covenants that as at the date hereof:
(a) it owns the claims described in Part II of Exhibit A
(the "Cominco Peru Claims") within the Area of Interest which had
been granted to it by the government of Peru or the application
for title to which claims was pending with the government of
Peru, and there were no underlying leases to such claims;
(b) the mineral estate underlying the Cominco Peru Claims
was in good standing subsequent to the time it acquired them;
(c) its interests in the Cominco Peru Claims were free and
clear of all liens, encumbrances, and other third party rights
arising by, through, or under it, and to the best of its
knowledge and belief were free of all other third party rights or
defects, except those described in Part II of Exhibit A;
(d) it was and as at the date hereof it is a limited
liability partnership duly incorporated and in good standing in
Peru, and is qualified to do business and is in good standing (or
promptly after execution of this Restated Agreement will become
qualified and in good standing) in any jurisdiction where
necessary in order to carry out the purposes of this Restated
Agreement;
(e) it has the capacity to enter into and perform this
Restated Agreement and all transactions contemplated herein, and
that all corporate and other actions required to authorize it to
enter into and perform this Restated Agreement have been properly
taken;
(f) it will not breach any other agreement or arrangement
to which it is a party or by which it is bound by entering into
or performing this Restated Agreement;
(g) this Restated Agreement has been duly executed and
delivered by it and is valid and binding upon it in accordance
with its terms;
(h) except as permitted by this Restated Agreement, it will
not encumber its contingent interests in the Properties; and
(i) it will protect, indemnify and hold Los Tapados and its
affiliates harmless from and against any and all Claims and
Damages arising out of or in connection with any breach of the
representations or warranties made under this Restated Agreement;
provided further, that Cominco Peru shall also pay attorneys fees
and court costs incurred by Los Tapados with respect to such
Claims and Damages, as defined in paragraphs 1(p) and (q), unless
Cominco Peru agrees to and diligently defends against any such
Claims or Damages asserted against or imposed on Los Tapados.
3. Area of Interest/Vesting. From the date of this
Restated Agreement, the Area of Interest shall be as described in
Exhibit A attached to this Restated Agreement. Within that Area
of Interest, Cominco Peru and Los Tapados hold those mineral
properties or interests in mineral properties set opposite their
names in Exhibit A to this Restated Agreement. Following signing
of this Restated Agreement:
(a) Cominco Peru, on behalf of itself and Los Tapados,
shall cause a new company to be incorporated forthwith under the
laws of Peru with bylaws of Newco which are consistent with the
terms and intent of this Restated Agreement and agreed between
the parties, acting reasonably; and failing agreement by final
and binding arbitration, commenced by either party, in accordance
with the rules of arbitration of the Reglamento del Centro de
Conciliacion y Arbitraje Nacional e Internacional of the Camara
de Comercio de Lima (Lima's Chamber of Commerce). Newco will be
incorporated for the purpose of holding title to the Property
which it will hold in trust for Cominco Peru and Los Tapados as
their interests may be under this Restated Agreement and, upon
its incorporation, will sign and become a party to this Restated
Agreement. From the outset, and continuing for as long as the
Assignment Agreement further described in 3(c) below remains in
effect, Cominco Peru shall own a 65% interest both in any
production from the Property and in the shares of Newco, and Los
Tapados shall own a 35% interest both in any production from the
Property and in the shares of Newco;
(b) Los Tapados and Cominco Peru will transfer any mineral
titles which are currently in their name as set out in Exhibit A,
to Newco, except those claims of Los Tapados labelled the Soloco
claims in Exhibit A. Any new titles acquired within the Area of
Interest by either Los Tapados or Cominco Peru would be
transferred to Newco;
(c) the parties agree that after its incorporation, Newco
shall enter into an Assignment Agreement which assigns exclusive
exploration, development and mining rights and obligations with
respect to the Property to Cominco Peru for a term lasting until
the parties agree, as contemplated in paragraph 3(e) that the
unincorporated joint venture be terminated and that the Property
be operated through Newco. As consideration of Newco's
assignment of its rights to Cominco Peru, Cominco shall covenant
to do such work and pay such taxes and rentals as may be
necessary to keep the Property in good standing and provide such
funds to Newco as may be necessary for it to maintain its
corporate existence;
(d) if Cominco Peru does not make the payments or complete
the expenditures and commitments contemplated in paragraph 4 of
this Restated Agreement, or cause Newco to take such actions, it
will promptly transfer the shares it holds in Newco to Los
Tapados or its nominee;
(e) it is anticipated that, prior to a production decision,
Newco will not carry on any operations itself. However, at the
time a feasibility study is being undertaken on the Property, the
parties will consult and negotiate in good faith to determine the
most appropriate legal structure under which to continue
operations and development of the Property. The parties may
consider whether from a taxation, investment and logistics
standpoint it would be most appropriate to operate the Property
through Newco or to continue the unincorporated joint venture.
If the parties are unable to agree on a change in the structure
within 60 days of approval of the feasibility study program, the
Property will continue to be developed within the unincorporated
joint venture as contemplated in paragraphs 15 to 35. If the
parties agree to operate the Property through Newco, Newco will
assume the exclusive exploration, development and mining rights
and obligations with respect to the Properties. In any case,
both parties agree to cooperate in good faith to negotiate and
sign a detailed operating agreement that reflects the terms and
intent of this Restated Agreement;
(f) it is further agreed if either party stakes or acquires
any surface, mineral or water rights partially or entirely within
the Area of Interest during the term of this Restated Agreement,
it shall notify the other party, which shall have 30 days
following its receipt of such notice within which to elect
whether to have all such rights (i.e., those within and those
outside of the Area of Interest) transferred to Newco and made
subject to this Restated Agreement. If the other party declines
to have such rights made subject to this Restated Agreement, the
acquiring party shall own such interests free and clear of this
Restated Agreement. If the other party elects to have such
rights made subject to this Restated Agreement, then Newco shall
promptly reimburse the acquiring party for all reasonable
acquisition costs, which costs will be credited against the
Expenditures under this Restated Agreement. This Restated
Agreement shall not restrict the rights of either party to
acquire for its own account, free and clear of this Restated
Agreement, property or water rights outside the Area of Interest;
and
(g) if Cominco Peru for any reason fails to make the cash
payments to Los Tapados or to incur the expenditures contemplated
in paragraph 4, then it will forfeit to Newco all its property
interests in the Area of Interest theretofore acquired, which
interests shall belong solely to Newco; Cominco Peru shall
transfer all the shares it holds in Newco to Los Tapados or its
nominee and paragraph 3(f) shall remain binding on Comincu Peru
for 18 months after this Restated Agreement terminates. During
said 18 months, Cominco Peru shall promptly notify Los Tapados of
any acquisitions it makes in the Area of Interest; and if within
30 days following such notice Los Tapados elects to acquire such
interest, then Cominco Peru shall assign all of its right, title
and interest in such acquisition to Newco in consideration for
Newco reimbursing Cominco Peru its actual out-of-pocket
acquisition costs.
4. Carried Costs. In order to maintain its interest under this
Restated Agreement in good standing, Cominco Peru will make
payments to Los Tapados and will incur expenditures on the
Property as follows:
(a) as consideration for Los Tapados amending the 1996
Agreement, Cominco Peru shall make the payments to Los Tapados on
or before January 31 in each year from and including 1999 to and
including the date Cominco Peru makes a decision to place the
Property into commercial production by building a mine in
accordance with the feasibility study referred to in paragraph 8,
which payments shall be calculated according to the Zinc Price in
the preceding year on the basis of the following schedule:
Zinc Price Payment
<510 US$ 100,000
510-550 US$ 200,000
550-600 US$ 300,000
600-higher US$ 500,000
"Zinc Price" means the average of the Official Monthly
Average Settlement Price per pound for zinc quoted on the London
Metals Exchange for each month in the year in question;
(b) Cominco Peru shall incur the following cumulative
expenditures, as defined in paragraph 12, on or before the
following dates, excluding all expenditures made prior to January
1, 1999:
On or Before Cumulative Expenditures (US$)
January 31, 1999 $ 100,000 (firm)
January 31, 2000 $ 2,500,000 (optional)
January 31, 2001 $ 5,000,000 (optional)
January 31, 2002 $ 7,500,000 (optional)
January 31, 2003 $ 12,000,000 (optional)
January 31, 2004 $ 17,000,000 (optional)
which expenditures are inclusive of the payment made to Los
Tapados under paragraph 4(a) in that year. The expenditures or
work done on the Property in each calendar year of 1999 to 2003
inclusive must include a minimum of 3,000 metres of drilling
and/or underground development where one metre of underground
development equals or is equivalent to 3 metres of drilling; and
(c) after January 31, 2004 and prior to making a production
decision, Cominco Peru shall incur in each calendar year minimum
expenditures in an amount equivalent to US $1 million less the
annual payment calculated according to paragraph 4(a) and fund a
feasibility study as described in paragraph 8.
By December 31 in each year from 1999 to such time as a
production decision is made, Cominco Peru will deliver notice to
Los Tapados committing to incur the expenditures set out to be
incurred for the next year. If Cominco Peru fails to deliver
that commitment notice, then this Restated Agreement will
terminate as of January 31 in that next year.
5. Cash in Lieu of Expenditure Shortfall. If Cominco Peru
fails to incur the expenditures contemplated in paragraph 4(b) or
4(c) by the due dates listed it may pay an amount equal to the
shortfall in expenditures to Los Tapados within 30 days of the
listed due date. Any payment so made shall be deemed to be
Expenditures duly and properly incurred and the option shall
remain in good standing.
6. Carry Forward of Vesting Expenditures. If Cominco Peru has
completed a feasibility study as contemplated in paragraph 8
prior to having incurred the expenditures contemplated in
paragraph 4(b), it will fund the balance of those expenditures as
the first mine construction costs (which balance shall not be
subject to recovery by Cominco Peru under paragraph 23). If,
prior to completing the expenditures contemplated in paragraph
4(b) Cominco Peru notifies Los Tapados that it proposes promptly
to commence carrying out a feasibility study, the time limit
established above for Cominco Peru to complete those expenditures
shall be extended to permit Cominco Peru to complete the study
and consider a production decision.
7. Place of Payment to Los Tapados. All payments payable
hereunder to Los Tapados shall be paid by Cominco Peru to Los
Tapados for credit to Los Tapados' account as follows:
Norwest Bank Denver
1740 Broadway
Denver, CO 80274
ABA #102000076
Solitario Resources Corporation
Account 1018025012 for benefit of Los Tapados
or such other bank, branch and account number as Los Tapados
may give notice to Cominco Peru.
8. Feasibility Study. Cominco Peru may carry out such
exploration programs and fund 100% of the costs of these programs
so as to complete a feasibility study and make a production
decision. Upon completion of the feasibility study Cominco Peru
shall deliver a copy to Los Tapados.
For purposes of this Restated Agreement, "feasibility study"
means a written report on work performed on the Property, which
report shall include but is not necessarily limited to an
analysis of the economic and commercial viability of removing
mineral products from the Property, transforming such products
into marketable products and marketing such products. The report
shall examine the following matters in such form and to such
detail as Cominco Peru, acting reasonably, considers suitable to
present to third party lending institutions if it decided to seek
debt financing for a mine:
(a) the estimated indicated and inferred mineral reserves
contained within a mineral deposit on the Property, including the
tonnage, quality and description of the manner in which such
reserves were calculated and estimated;
(b) a description of the procedures to be followed for
developing and mining the deposit and a detailed timetable for
the construction, start-up and production on a commercial basis
of the project;
(c) a metallurgical report based upon, at a minimum,
laboratory tests of ore samples which report sets forth and
demonstrates the metallurgical feasibility of producing a salable
product;
(d) detailed estimates of the costs of pre-production
development and construction of production facilities;
(e) the estimated annual capital and operating budgets (in
constant currency amounts) covering the anticipated expenditures
to perform the construction, start-up and production on a
commercial basis of the project;
(f) projected discounted cash flow based rates of return on
the investment for the entire project estimated to be earned from
the commercial production contemplated by the report; and
(g) the estimated total investment which, in addition to
the costs described in d) above, shall also include the funds
required for start-up costs and working capital, and the return
shall be based on the receipt of operating cash flow before the
payment of taxes on income or any allowances for such taxes.
Cominco Peru shall be released from making further payments
or incurring further expenditures under paragraph 4 by delivering
a notice to Los Tapados that Cominco Peru has decided to place
the Property into commercial production in a timely manner by
constructing a mine in accordance with a feasibility study
delivered by Cominco Peru. If Cominco Peru has not completed
funding all expenditures under paragraph 4 prior to a production
decision, it shall incur the balance as first mine construction
costs.
9. Technical Committee. Prior to Cominco Peru making a
production decision as contemplated in paragraph 8, there shall
be a Technical Committee established, comprised of two nominees
from each of Cominco Peru and Los Tapados, for the purpose of
reviewing programs proposed by Cominco Peru and receiving the
results of completed programs. It is intended that the
management committee shall consult frequently and meet in formal
session at least once in each year on call by the operator.
However, either party shall have the right to call a meeting on
at least 10 days notice; provided however, that meetings to
discuss matters of an emergency nature may be called on 24 hours
notice, but the parties shall use their best efforts to meet,
either in person or by phone, as promptly as possible regarding
emergency matters.
10. Exploration Programs During Option Term. Prior to Cominco
Peru making a production decision as contemplated in paragraph 8,
Cominco Peru will design and fund work programs to be carried out
on the Property. Prior to commencing a program, Cominco Peru
shall present the program's work plan and budget to the technical
committee. Cominco Peru shall have the sole right to approve
programs during the option term but it shall give due
consideration to comments made by Los Tapados.
11. Possession, Reporting and Access. During the term of this
Restated Agreement, Cominco Peru will:
(a) have the sole and exclusive possession of the Property
and right to do work and explore the Property and to fund
Expenditures;
(b) perform its obligations and conduct all operations in a
workmanlike and commercially reasonable manner, in accordance
with sound mining, engineering and processing methods and
practices;
(c) keep the Property free and clear from any liens or
encumbrances relating to its work on the Property and keep the
title to the Property in good standing;
(d) provide Los Tapados with regular progress reports
during periods of active exploration and with an annual summary
of the work performed and the results obtained. Cominco Peru
shall make available to Los Tapados, upon request, all available
back-up data including any drill records, assays, maps, plans and
all other relevant factual information and materials not
previously delivered;
(e) maintain accounts of its Expenditures in accordance
with accounting principles generally accepted in the mining
industry and in a manner consistent with the accounts it
maintains for its other joint venture projects; and
(f) for purposes of calculating expenditures, convert to US
dollars any amounts incurred in non-US dollar currency on a basis
consistent with the basis it uses for its other projects, using
officially recognized exchange rates.
Los Tapados will have access to the Property, at its sole
cost and risk, at all reasonable times.
12. Expenditures Defined. For purposes of this Restated
Agreement, "expenditures" incurred prior to Cominco Peru making a
production decision as contemplated in paragraph 8 shall mean:
(a) all costs, expenses, charges and outlays, direct and
indirect, made or incurred by Cominco Peru on or in respect of
the Property from the date of this Restated Agreement, including,
without limiting generality, the costs of exploring a Property;
metallurgical testing; metallurgical and economic studies;
feasibility studies; engineering; permitting, mine development
costs and reclamation;
(b) an operator's fee for administrative services, head
office overhead, use of the corporate infrastructure, and other
general services provided by Cominco Peru and its affiliated
corporations including but not limited to costs for officers and
their expenses, secretarial work, legal, accounting, human
resources, insurance, taxes, payroll, data processing, employee
benefit administration, office rents, office supplies, and other
expenditures made for the benefit of the exploration work, and
not recovered directly in (a) above, which charge shall be that
percentage of the costs set out in (a) above as follows:
(i) 10% of costs incurred between the date of this
Restated Agreement and the date a production decision is made,
except
(ii) where there is a third party contract having a
contract price in excess of $100,000, the operator's fee shall be
reduced to 5% on that portion of the contract price in excess of
$100,000.
13. Termination of Option. If Cominco Peru transfers all of the
shares it holds in Newco to Solitario as a result of paragraph
3(c), Cominco Peru shall have no further obligations, financial
or otherwise except that it shall:
(a) leave the Property in the same general condition as at
the commencement of this Restated Agreement;
(b) deliver to Los Tapados, all information and data
obtained from the Property, including information files, maps,
drawings and analytical reports;
(c) have paid all its contractors and suppliers so that no
liens attach to the Property; and
(d) pay Los Tapados any and all amounts that became due and
payable to Los Tapados, or otherwise accrued in favour of Los
Tapados, prior to the effective date of the termination.
14. Not used.
Joint Venture Terms
15. Formation of JV. Upon Cominco Peru making a production
decision as contemplated in paragraph 8, a joint venture will be
formed. The joint venture shall be governed by the following
terms.
16. Management Committee. Upon the joint venture formation, a
management committee will be formed to take the place of the
technical committee. The management committee will be comprised
of three representatives of the party with or earning majority
interest and two representatives of the other party. Each
representative shall have an alternate who can act in the absence
of the appointed representative. From the formation of the joint
venture the management committee shall have full power and
authority to make all decisions respecting the development and
exploitation of the Property. It is intended that the management
committee shall meet in formal session at least once in each year
on call by the operator, though the non-operator shall be
entitled to request a meeting, in which case the operator shall
call one promptly. Management committee decisions will be made by
simple majority.
17. Initial JV Operator. Cominco Peru will be the operator of
the joint venture.
18. Election to Contribute to Production Decision. The
management committee shall meet promptly upon formation of the
joint venture to review Cominco Peru's production decision
contemplated in paragraph 8. Each party is entitled to elect,
upon notice to the operator within 60 days after the date of that
management committee meeting, to participate at its then
percentage interest in the construction and operating costs
required to construct and operate the mine. If Los Tapados elects
to participate and contribute its proportionate share of mine
construction costs and wishes to have Cominco Peru market Los
Tapados' share of minerals to be produced from the mine, it may
request, and the parties shall thereupon negotiate in good faith,
a sales agency agreement. A party electing not to participate
will receive a 10% net profits interest.
19. Funding of Mine Construction Costs. Each party shall
separately fund its share of the mine construction cost which it
has elected to contribute. Except as for mine financing or with
the consent of all parties, no party shall pledge, charge or
otherwise encumber its interest in the Property. If Cominco Peru
arranges Los Tapados' share of debt financing as contemplated in
paragraph 20, Los Tapados shall pledge its interest in the
Property to secure that debt. Unless otherwise agreed by the
parties, all mine construction costs will be financed through as
high a proportion of third party debt as may be obtained on
reasonable commercial terms and the balance by way of equity. The
parties acknowledge that in order to secure debt financing the
lender may require a guaranty of mechanical completion of the
mine and processing facilities ("Technical Guaranty") and a
political risk insurance or sponsor guaranty ("Political Risk
Insurance").
20. Financing Los Tapados' Interest. If within the 60-day
period following that initial 60-day period contemplated in
paragraph 18, Los Tapados is unable to obtain third party
financing for its entire share of costs on terms that it
considers commercially reasonable, then at Los Tapados' request
made within that 60-day period, Cominco Peru shall provide
funding for Los Tapados' entire share of the program and budget.
Said funding must be provided either by Cominco Peru or an
affiliate, or by third party financing arranged by Cominco Peru
in the same proportions as between equity and debt as Cominco
Peru is financing its own share of mine construction costs and,
as to the debt portion, on the same terms as Cominco Peru obtains
for its debt portion. If required by the lenders of the debt
portion, any Technical Guaranty and Political Risk Guaranty will
be provided by Cominco Peru or an affiliate (as required by the
lender).
If Cominco Peru provides Los Tapados' share of equity
financing it shall be entitled to recover, under paragraph 23,
the amount advanced plus interest at an annual rate of LIBOR plus
four percent, compounded monthly.
If Cominco Peru arranges a Technical Guaranty, then Los
Tapados shall pay Cominco Peru (or the affiliate) a fee of one
percent per annum calculated on a monthly basis for the past year
on the average debt outstanding during the month and accumulated
for the year.
If Cominco Peru arranges or provides Political Risk
Insurance, then Los Tapados shall pay as follows:
(a) if Cominco Peru arranges political risk insurance
through a third party insurer and is permitted to capitalize the
premiums under the loan facility for the debt portion of the
project, the premiums will be recovered under paragraph 23 as if
they were debt financing;
(b) if Cominco Peru either arranges political risk
insurance through a third party insurer but is not able to
capitalize the premiums as contemplated in paragraph 20(a), Los
Tapados shall pay to Cominco Peru Los Tapados' prorata share of
the third party insurance premiums paid by Cominco Peru; and
(c) if Cominco Peru determines, in its sole discretion, to
provide a sponsor guaranty in lieu of third party political risk
insurance, Cominco Peru shall be entitled to establish a
reasonable fee, based upon a representative survey to be
conducted on behalf of Cominco Peru by Marsh and McLennan of fees
charged to comparable projects by third party insurers, to be
calculated on the same basis as the fee for the Technical
Guaranty.
Fees payable to Cominco Peru under this paragraph shall be
paid within 30 days after Cominco Peru's invoice therefor.
21. Mine Plans. A mine shall be operated on the basis of a long
term mining plan, to be reviewed annually, and annual operating
budgets approved by the management committee.
22. Marketing of Production. Each party which is contributing
to mine construction costs shall be entitled to take in kind and
market a share of the minerals produced from the mine which is
proportionate to its contribution level. If Cominco Peru has
arranged financing for Los Tapados as contemplated in paragraph
16, Cominco Peru shall be entitled to take and market all of the
minerals produced from the mine and to pay the costs and
distribute the net proceeds all as contemplated in paragraph 23
below, and following the Recovery Date, Los Tapados would then be
entitled to take in kind and market its proportionate share of
production. Any non-arms length transaction may be consummated
only if it is at a price and on terms, including payment terms,
substantially equivalent to those which would apply to an arm's
length transaction involving comparable quantity, quality and
terms of sale. Cominco Peru and Los Tapados agree to consider, in
good faith, arrangements whereby Cominco Peru may become the
sales agent for Los Tapados.
23. Recovery of Cominco Peru Costs - Recovery Date Defined. If
Cominco Peru arranges any portion of Los Tapados' share of
financing as contemplated in paragraph 20, the cash flows from
the sale of minerals produced from the Property will generally be
used to pay the costs of operating the mine, marketing production
and services, the project debt and any balance remaining will be
divided as follows to permit Cominco Peru to recover the equity
financing provided on behalf of Los Tapados while providing some
early returns to Los Tapados. Initial cash flows from sales of
product from the mine will be used to pay operating, marketing
and distribution costs; taxes (other than income taxes) and
royalties; any debt financing which has been arranged for mine
construction; any advances Cominco Peru has made to cover
sustaining capital requirements or operating losses during the
"cost recovery" period; and the administrative charge
contemplated on costs incurred. Until the date (called the
"Recovery Date") by which Cominco Peru has recovered the costs
set out in paragraph (a) below, any net proceeds which remain
after paying the costs referred to in the preceding sentence
shall be divided as follows:
(a) 80 % of net proceeds otherwise payable to Los Tapados
(80% of 35% of total net proceeds) shall be paid to Cominco Peru
so that it may recover those expenditures (excluding the cash
payments to Los Tapados or its designee) which are in excess of
the expenditures incurred by Cominco Peru under paragraph 4(b);
the administrative charges contemplated and any equity financing
of mine construction costs which Cominco Peru has provided for
Los Tapados' account as contemplated in paragraph 20, together
with the interest contemplated in paragraph 20. Cominco Peru
shall provide an accounting, no less than quarterly, of amounts
financed for Los Tapados;
(b) 20% of net proceeds otherwise payable to Los Tapados
(20% of 35% of total net proceeds) shall be paid to Los Tapados.
24. Costs Defined. For purposes of this Restated Agreement,
"costs" incurred from joint venture formation include:
(a) all costs, expenses, charges and outlays, direct and
indirect, made or incurred by the operator on or in respect of
the Property from the date the joint venture is formed,
including, without limiting generality, the costs of engineering;
permitting; construction and purchase of plant and
infrastructure; operating the mine, mining; milling;
transportation; and reclamation; and
(b) an operator's fee of 3% of costs incurred after the
production decision date for administrative services, head office
overhead, use of the corporate infrastructure, and other general
services provided by the operator and its affiliated corporations
including but not limited to costs for officers and their
expenses, secretarial work, legal, accounting, human resources,
insurance, taxes, payroll, data processing, employee benefit
administration, office rents, office supplies, and other
expenditures made for the benefit of mine construction and
operation, and not recovered directly in (a) above. The
operator's fee is intended to allow the operator to recover its
costs, not to permit the operator to make a profit.
25. Payment of Operating Costs. If following the Recovery Date
the operator anticipates that operating losses will occur or
sustaining capital contributions will be necessary, it will
advise the parties. Following the Recovery Date, the operator
shall be entitled to invoice each party for its share of any
operating losses or sustaining capital requirements. If a party
does not pay the amount invoiced within 30 days, the amount will
then commence to accrue interest at prime plus two percent.
26. Indemnification of Operator. Each party, in proportion to
its interest at the date the indemnification occurred, shall
indemnify and save the operator harmless from and against any
loss, liability, claim, demand, damage, expense, injury and death
(including, without limiting the generality of the foregoing,
legal fees) (collectively the "Claims") resulting from any acts
or omissions of the operator or its officers, employees or
agents. However, the operator shall not be indemnified for Claims
resulting from the negligence or wilful misconduct of the
operator or its officers, employees or agents. An act or omission
of the operator or its officers, employees or agents done or
omitted to be done:
(a) at the direction, or within the scope of the direction,
or with the concurrence of the Management Committee; or
(b) unilaterally and in good faith by the operator to
protect life or Property;
shall be deemed not to be negligence or wilful misconduct
provided that the operator has otherwise performed its duties and
obligations as contemplated in paragraph 11(b). The operator
shall not be liable to any other party nor shall any party be
liable to the operator in contract, tort or otherwise for special
or consequential damages, including, without limiting the
generality of the foregoing, loss of profits or revenues.
Terms Applicable to Both the Option and Joint Venture
The following terms apply to both the option and joint venture
phases:
27. Right of First Offer. Prior to Cominco Peru making a
production decision as contemplated in paragraph 8, neither party
shall encumber its interest in the Property. A party may sell or
dispose of its interest in the Property or this Agreement but
subject to a right of first offer in favour of the other party.
That is: a party wishing to dispose of its interest will offer to
sell it to the other party for a price and on terms which the
disposing party establishes. If the other party does not accept
within 30 days the disposing party shall thereafter have 180 days
to dispose of those interest for the same or greater price and on
the same terms or terms no more favourable to the third party.
The right of first offer shall not apply to transfers to
affiliated corporations.
28. No Partnership. The rights and obligations of the parties
shall be several and the parties shall hold their interest in the
Property as tenants in common. No party shall institute any
proceedings to partition the Property. Nothing contained in this
Agreement shall be construed as creating a legal partnership or
in imposing any fiduciary duty on any party.
29. Tax Benefits. Costs incurred under the joint venture shall
be for the account of the party incurring the same and it shall
be entitled to all tax benefits with respect thereto.
30. Force Majeure. A party shall be entitled to claim force
majeure if it is delayed or prevented from performing any
obligation by reason of any cause, excluding lack of finances,
beyond its reasonable control. A cause beyond a party's
reasonable control includes but is not limited to acts of god,
insurrection and terrorism. Cominco Peru may not assert force
majeure as a means of avoiding its payment obligations to Los
Tapados.
31. Press Releases. A party proposing a press release relating
to the Property shall provide a copy to the other party for its
information prior to release.
32. Further Assurances. Each of the parties shall do all such
further acts and execute and deliver such further deeds and
documents as shall be reasonably required in order fully to
perform the terms of this Agreement.
33. Entire Agreement. This is the entire agreement between the
parties relating to the Property and supersedes all previous
negotiations and communications. Without limiting generality,
this Agreement supersedes the confidentiality agreements between
the parties or their affiliates dated November 8, 1996 and
September 9, 1998, provided that if this Agreement terminates the
confidentiality agreements shall continue to apply with respect
to any unexpired terms.
34. Captions. The captions in this Agreement have been provided
for ease of reference and shall be disregarded in interpreting
this Agreement.
35. Governing Law. This Agreement shall be interpreted in
accordance with and governed by the laws of British Columbia,
provided that all procedural matters regarding the Property and
carrying out of work programs will be governed by the laws of
Peru.
If the terms set out above are satisfactory please sign both
copies of this Agreement and return one copy to me. Upon receipt
of the signed copy this Agreement shall become binding and
enforceable as aforesaid and will continue in effect until such
time as it is replaced by a more formal and comprehensive
agreement to be prepared by Cominco.
Yours truly,
By:
Jon A. Collins
Vice-President, Exploration,
Cominco Ltd.
on behalf of Cominco Peru s.r.l.
AGREED:
By:
Christopher E. Herald
President, Solitario Resources Corporation,
on behalf of
Minera Los Tapados S.A.
Exhibit 10.19
SOLOCO
EARN-IN, EXPLORATION AND EXPLOITATION AGREEMENT
Billiton Exploration and Mining Peru B.V. sucursal Peruana
Compania Minera Los Tapados S.A.
1
Soloco Joint Venture
CONTENTS
SECTION
DEFINITIONS AND INTERPRETATIONS
JOINT VENTURE; PURPOSES
TERM
INITIAL CONTRIBUTIONS AND INTERESTS; COVENANTS AND
CONDITIONS
STAGE TWO; EARNING OF PARTICIPATING INTEREST
RELATIONSHIP OF PARTIES; EXPENSES; OWNERSHIP
JOINT VENTURE COMPANY
OPERATOR
TECHNICAL COMMITTEE
PROGRAMS AND BUDGETS; FEASIBILITY STUDY; ELECTIONS
CHANGES IN PARTICIPATING INTERESTS
PROPERTY PROVISIONS
REPRESENTATIONS AND WARRANTIES; LIABILITY
PROVISIONS
ASSIGNMENT AND RIGHT OF FIRST REFUSAL
ACCESS; CONFIDENTIALITY
TERMINATION
NOTICES
GOVERNING LAW; ARBITRATION
CONSTRUCTION
ATTACHMENTS
Attachment I The Letter of intent
Attachment II (1) Opcion de Transferencia
(2) Servidumbre
Attachment (1) Location Map of the Soloco Property
(2) Details of the concessions forming the Soloco Property
Attachment IV Articles of incorporation of Minera Soloco S.A.
Attachment V Form of Deed of Pledge
Attachment Vl Health, Safety and Environmental (HSE) Policy
Attachment Vll Powers of Attorney
Attachment VIII Net Profits interest
2
Soloco Joint Venture
THIS AGREEMENT is made and entered into on October 7th 1998,
between:
Compania Minera Los Tapados S.A., a subsidiary of Solitario
Resources Corporation,
incorporated according to the laws of Peru and having its
registered of fice at Los Tucanes No. 234,
San Isidro, Lima (hereinafter referred to as 'Los Tapados'), duly
represented by Mr. Walter H. Hunt
pursuant to a Board Resolution, by virtue of a Power of Attorney
attached hereto as Attachment Vll,
and
Billiton Exploration and Mining Peru B.V., a Billiton Group
company, incorporated according to the laws of the
Netherlands, acting through its Peruvian branch, Billiton
Exploration and Mining Peru B.V. Sucursal Peruana
(hereinafter referred to as Billiton=), with registered office at
Los Naranjos 351, San Isidro, Lima duly represented
by Mr. Alan Carter and Mr. Jonathan Hany Coates by virtue of the
Power of Attorney attached hereto as Attachment
Vll.
WHEREAS:
a. Los Tapados has entered into a certain lease and option to
purchase agreement, a Contrato
de Opcion de Tranferencia, dated September 11, 1997, hereinafter
referred to as the
Opcion de Transferencia' attached hereto as Attachment 11(1),
with Sr. Manuel Andres
Quiroz Diaz, hereinafter refenred to as "the Owner';
b. In terms of the Opcion de Transferencia, the Owner has
granted Los Tapados the right to
purchase the concessions spanning approximately 37 square
kilometres in the Amazonas
region of Peni, hereinafler referred to as the Soloco Property,
as shown in Attachment lil,
as well as extended a lease of the Soloco Property to Los Tapados
enabling Los Tapados to
explore the Soloco Properly;
c. Los Tapados has entered into a certain Constitucion de
Servidumbre dated December 13,
1997, hereinafler referred to as the Servidumbre', with the
community of San Miguel de
Soloco, attached hereto as Attachment II (2), in terms of which
Los Tapados has secured
access to the Soloco Property in accordance with the Peruvian
Civil Code and Mining Code
with respect to activities including but not limited to
prospecting, exploring and exploiting of
minerals;
d. Los Tapados transferred and assigned all of its rights and
obligations under the Opcion de
Transferencia to Compaf ia Minera Soloco S.A., a company
incorporated by Los Tapados
under the laws of Peru, currently with registered of fice at Los
Tucanes No. 234, San Isidro,
Lima, hereinafler referred to as'the Company~, and
e. Pursuant to a Letter of intent dated August 31, 1998,
attached hereto as Attachment I, Los
Tapados is willing to grant and Billiton wishes to acquire the
right to eam an interest in the
Soloco Properly and parties wish to enter into this Agreement for
the purpose of conducting
mineral exploration and, if feasible, mining mineral deposits in
the Soloco Properly on temms
and for considerations as further set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, the Parties agree as
follows:
3
Sdoco J~nt V0ntons
1. DEFINITIONS AND INTERPRETATIONS
1.1 Whenever used in this Agreement, the terms set forth below
shall have the meanings
assigned to them in this Section 1.1. Such meanings shall apply
equally to the singular and
plural forms of these terms. Unless otherwise expressly specified
therein, the terms defined
in this Section 1.1 shall have the same meanings when used in any
attachments to this
Agreement.
"Affiliate" shall mean, in relation to Los Tapados, any persons
or companies other than Los Tapados,
directly or indirectly controlled by Solitario Resources Corp.,
and when used in relation to Billiton, any
company other than Billiton Exploration and Mining Peru B.V.,
directly or indirectly controlled by Billiton
Plc. For the purpose of this deEnition:
(i) a particular company shall be directly controlled by another
company or companies
that either, beneficially own(s) shares carrying in the aggregate
the majority of votes
exercisable at general meetings of the particular company, or
possess(es), directly
or indirectly, and can and do(es) exercise the power to direct or
cause direction of
management and policies through ownership of voting securities,
contract, voting
trust or otherwise; and
(ii) a particular company shall be indirectly controlled by a
company or companies
(hereinafler in this definition called the parent company or
companies'), if a series
of companies can be specified beginning with the parent company
or companies,
and ending with such particular company which shall be so related
that each
company of the series, except the parent company or companies
shall be directly
controlled by one or more of the companies earlier in the series.
"Agreement" shall mean this agreement and all attachments to it,
which Attachments are incorporated
into this Agreement by this reference. To the extent that the
terms and provisions of this Agreement are
in conflict with the terms and provisions of any such Attachment,
this Agreement shall prevail.
"Assets" shall mean and include the Soloco Property and all
tangible and intangible assets (including but
not limited to personal property) obtained by acquisition, lease,
license or any other manner, in
connection with and in furtherance of Operations, including the
proceeds, profits, benefits and
increments and all Data, reports and other data or information
that result from Operations, provided that
all analysis and related methodologies performed, undertaken,
developed or used by Billiton, Billiton Plc,
or any Afffiliates of Billiton in respect of the Data and any and
all know-how or other intellectual property
of any nature whatsoever owned or used by the Billiton Group
("the Billiton Proprietary information') shall
under no circumstances constitute or form part of the Assets.
"Board" shall mean the Board of Directors of the Company;
"Budget" shall mean a detailed projection of estimated costs and
expenses required for any Operations
during a Budget Period.
"Budget Period" shall mean a period of one year commencing on 1st
January and ending on 31S'
December of the following year. The first Budget Period shall be
the initial period from the Effective Date
until 31S' December 1999.
"Cash Calls" shall have the meaning as set forth in Section 10.2.
"Company" shall mean Compafiia Minera Soloco S.A. or such company
to be established by Los
Tapados that will be exclusively dedicated to holding the rights
and obligations of the Opcion de
Transferencia and, subject and subsequent to Billiton's decision
to exercise the option to purchase
contained in the Opcion de Transferencia, the Soloco Property.
4
Soloco J~nt V0ntons
"Data" shall mean data and information conceming exploration
within the Soloco Property, including but not limited
to the following: all logs and drill hole records; maps showing
the location of all holes drilled; all land surveys
(including both maps and a listing of coordinates); all
analytical and interpretative data and information (including
without limitation all chemical or other assays); all geophysical
records; all ore reserve and Feasibility Studies; and
all other similar records whatever their fomm and nature.
"Development" shall mean all activib or work to be conducted
following approval of the Feasibility Study and
continuing until the Mine described by the Feasibility Study
achieves commercial production and shall include but
not be limited to all preparations for the removal and recovery
of Minerals, the construction, erection, installation and
equipping of a Mine and associated facilities, and any major Mine
Development for a substantial expansion of an
existing Mine.
"Eaming Period" shall mean the period starting on the Effective
Date comprising of Stage One and Stage Two and
ending upon Billiton earning a 60% (sixty percent) Participating
Interest or alternatively, after having eamed a 700/O
(seventy percent) Participating interest pursuant to Section 5.
"Effective Date" shall mean, notwithstanding the date hereof,
August 31, 1998.
"Expenses" shall mean all costs, expenses and liabilities
accnuing or resulting from Operations, including but not
limited to administrative, auditing and/or legal costs, claim
fees (hereinafler referred to as ~derechos de vigencia')
with respect to the Soloco Property as well as tax burdens and
other governmental levies related to or derived from
Operations. For the avoidance of doubt, Expenses shall inciude
payments to the Owner under the Opcion de
Transferencia and payments to the community of San Miguel de
Soloco under the Servidumbre. During the Eaming
Period, all Expenses expended by Billiton qualify towards
Billiton's right to earn Participating interest hereunder.
Head offce, overhead and other indirect costs incurred by
Billiton during the Earning Period or the Operator
thereafter in connection with Operations shall constitute
Expenses, provided such costs are not in excess of 10%
(ten) percent of the total Expenses of the Budget Period to which
such costs relate. Contributions by Parties to the
Company towards Expenses, included but not limited to payments of
Cash Calls, shall, unless Parties expressly
agree otherwise, be initially recorded in the accounts of the
Company as debts owing to the relevant Party and on
June 30 of every year be capitalised. On January 20 following the
end of each year during the Earning Period, both
Parties shall jointly contribute a sum of S/.1,000 (Nuevo Soles)
as an increase of capital in the Company. Each Party
shall contribute in proportion to their Participating Interests.
At the same time, the previous year's expenditures by
Billiton pursuant to Section 5.1 and recorded as a debt to
Billiton shall be recorded in the accounts of the Company
as a premium of capital and shall be capitalized. The newly
calculated capital of the Company shall be
reapportioned in the accounts of the Company in accordance with
the Participating Interests of the Parties prior to
capitalization. The debts which have not been capitalised prior
to written notice of termination will be capitalised as
a premium of capital within 30 days of the temmination date of
this agreement.
"Exploration" shall mean the prospecting, exploring and all other
activities and operations which have for their
purpose the discovery and delineation of deposits of Minerals
within the Soloco Property by ground and/or aerial
methods, and, after the discovery and location of a deposit of
Minerals, the investigation and evaluation of such
deposit of Minerals by drilling, surface and/or underground
workings, sampling and testing to determine the size and
quality of the discovered deposit of Minerals.
"Feasibility Phase" shall mean the phase within the Eaming Period
that commences after Billiton determines in its
absolute sole discretion from Data obtained during Exploration
that
5
Solooo Jolnt V0nton0
Minerals exist in sufficient quantity and are of suffficient
quality to justify the preparation of a Feasibility Study, which
phase ends on delivery of such Feasibility Study.
"Feasibility Study" shall mean a report showing the technical and
economic viability of starting a Mining Operation
with respect to a prospective ore body or deposit of Minerals
within the Soloco Property and shall, on the basis of
available Data, include without limiting the generality of the
foregoing:
(iv)
(v)
(vi)
(ix)
assessments of the size and quality of the prospective ore
body or deposit of
Minerals;
assessments of the amenability of the Minerals to
metallurgical treatment;
identify Development options and select an optimum method
for the exploitation
of the reserves of Minerals;
descriptions of the work, equipment and supplies required
for Mine Development to
bring the prospective ore body or deposit of Minerals into
commercial production;
assessment of all permits, consents and approvals, including
but not limited to
environmental matters, required from local, departmental and
other governmental
bodies which are necessary to proceed to Mining Operations;
assessment of the economic viability of Mining Operations
and capital and operating
cost estimates;
(vii) assessment of the principal parameters and timeframe
for the Mine Development
including design throughput capacities of the Mine,
management, financing,
marketing and related activities such as but not limited to
transportation of products,
and
(viii) recommendations regarding the timing for bringing the
prospective ore body or
deposit of Minerals into commercial production, taking into
account items (i) through
(vii) above;
such other information as Billiton may deem appropriate, or
the Parties may agree
from time to time.
Such Feasibility Study shall be in accordance with generally
accepted standards for bankable feasibility studies in
the intemational mining industry.
"Heatth, Safety and Environmental Policy" or "HSE-Policy" shall
mean the health, safety and environmental policy
contained in Attachment Vl to this Agreement.
"Mine" shall mean:
(i)
(iii)
any shafl, pit, tunnel or opening, underground or otherwise, made
or constructed afler preparation of a Feasibility
Study, and from which Minerals have been or may be removed or
extracted by any method whatsoever, whether
now known or hereafter developed, in quantities larger than those
required for purposes of sampling, analysis or
evaluation;
(ii) mills and other facilities for the treatment, processing and
storage, and disposal of
Minerals and waste, including tailings;
fixtures, buildings, facilities and improvements for mining,
processing, handling and
transporting Minerals, waste and materials; and
(iv) housing, offfices, roads, airstrips, power lines, power
generation facilities,
evaporation and drying facilities, pipelines, railroads,
infrastructure, and other
facilities for any of the foregoing purposes.
"Minerals" shall mean all ores, minerals and mineral substances.
"Mining Operation" shall mean the work or activity of mining,
removing, extracting,
treating, processing, milling, drying, and packaging Minerals and
associated by-products (in
quantities larger than those required for purposes of sampling,
assaying, testing, analysis or
evaluation) by open pit, underground, in situ methods, heap
leaching, solution mining or any
other methods now known or hereafter developed; all operations
necessary to operate and
6
Soloco J~nt V0ntuns
maintain a Mine, including the further construction, development,
maintenance and operation of
buildings, plant, machinery and facilities required for the
purpose thereof; and all reclamation and
restoration performed upon or for the benefit of the Soloco
Property as a result of Operations conducted
pursuant to this Agreement.
"Net Profits interest" shall have the meaning as set forth in
Attachment Vlil.
"Non-Participating Party" shall mean any Party that has eleded
not to participate in the costs of a
Program and Budget for Operations afler the Eaming Period
pursuant to Section 10.4 of this Agreement.
"Notice" shall mean any notice as required under Section 17 of
this Agreement.
"Operations" shall mean Exploration, (Pre-)Development, Mine
Development and Mining Operations
undertaken and conducted pursuant to (approved) Programs and
Budgets; preparation of Feasibility
Study; and also include the acquisition of Property within the
Soloco Property by the Company or the
Parties, as tenants in common, as the case may be; and/or all
other activities of similar import in the
performance and furtherance of this Agreement.
"Operator" shall mean any person or entity designated as, and
serving in the capacity of, Operator
pursuant to Section 8 of this Agreement.
"Owner" means, so long as the Opcion de Transferencia is in force
and the option contained therein is
not exercised, Mr. Manuel Andres Quiroz Diaz or his permitted
assigns and heir(s).
"Participating interest" shall mean a Party's undivided interest
in the Soloco Property and Assets as the
same may appear from time to time, it further being understood
that a Party, during the Earning Period,
shall not have or own a Participating interest of less than 10%
(ten percent) as further detailed in Section
11.3 of this Agreement.
"Party" or "Parties" shall mean Billiton and/or Los Tapados
and/or any successors or pemmitted
assignees in accordance with Sedion 14 of this Agreement.
"Pre-Development" shall mean all activity or work involved in
Exploration and Feasibility Phase.
Pre-Development also includes, but is not limited to,
non-exploration related infrastructure activities such
as acquisition, maintenance and administration of the Soloco
Property in accordance with the temms of
this Agreement, surveying, mapping, drilling, road construction,
soil testing, engineering design, cost
analysis, preparation of environmental impact statements or
studies, overburden stripping, and pilot
testing programs.
"Program" shall mean a detailed statement of Operations to be
conducted during a Budget Period,
adopted and, as appropriate, approved pursuant to Section 10.2 of
this Agreement.
"Soloco Property" shall refer to all the concessions, pediments,
claims and, in general, mining rights, or
any interest herein, now owned or hereafter acquired by the
Company and located in the Department of
Amazonas, Peru as issued by the Ministerio de Energia y Minas and
as described in Attachment IllThis
definition of Soloco Property includes all Minerais in the Soloco
Property and all surface rights, all
easements, water and water rights associated with or attributable
thereto. All references herein to
concessions shall mean and include any successor or substitute
title instrument issued under the laws of
Peru.
"Stage One" shall have the meaning set forth in Section 4.2.
"Stage Two" shall have the meaning set forth in Section 5.1.
7
Sohoo Joint V0ntons
"Technical Committee" shall mean the Technical Committee which
Parties may separately and mutually agree to
establish as further detailed in Section 9 of this Agreement.
1.2 Except and to the extent that such interpretation shall be
excluded by or be repugnant to the
context:
(iv)
(v)
references to any Party shall mean and include a reference to
that Party, its
successors and permitted assignees;
references to pages, Sections and Attachments shall be references
to pages,
Sedions and Attachments of this Agreement;
any reference to any code, law or regulation or sections thereof
shall be read, unless
otherwise provided in this Agreement, as though the words 'or any
amendment or
modification thereof or any provision substituted thereof or any
rules or regulations
made pursuant thereto' were added to such reference;
headings are for reference only and shall not affed the
interpretation of this
Agreement, and
a reference to currency or dollars is a reference to United
States dollars.
2. JOINT VENTURE; PURPOSES
The Parties hereby enter into an earn-in, exploration and
exploitation agreement for the purposes of exploring for,
and if feasible, developing and producing Minerals and deposits
thereof within the Soloco Property and for
acquiring, improving, developing and operating the properties
within the Soloco Property in all respects in
accordance with the provisions of this Agreement and its
attachments. This Agreement will be the exclusive means
by which the Parties and any person or persons not dealing with a
Party at arms' length will conduct Operations on
the Soloco Property.
3. TERM
This Agreement commences on the date hereof, subject to the
conditions of Sedion 4.4, and will continue in fu0
force and effect for so long as the Parties jointly own or have
the right to eam any interest in the Soloco Property,
unless sooner terminated in accordance with the provisions of
this Agreement.
4. INITIAL CONTRIBUTIONS AND INTERESTS; COVENANTS AND
CONDtTIONS
4.1 initial Contribution Los Tapados
Los Tapados, as its initial contribution, contributes all of its
rights under the Opcir
Transferencia with the Owner and Data gathered to date on the
Soloco Property t
purposes of this Agreement. To that end, Los Tapados has, and to
the extent this ha
been completed at the date hereof, shall no later than 30
(thirty) days afler the date her.
(i) complete and perfect the incorporation of the Company and
transfer to the Con
all of Los Tapados' right and title to the Opcion de
Transferencia and Data
respect to the Soloco Property and provide Billiton conclusive
evidence thereof;
(ii) transfer, free of any liens, encumbrances and charges 60 0/O
(sixty percent) c
outstanding share capital of the Company to Billiton or an
Affiliate of Billiton
consideration of S/. 1,000 (one thousand Peruvian Soles), receipt
of whict
Tapados acknowledges at signing hereof,
(iii) take all necessary corporate adions to change the
composition of the Boa
Directors of the Company to be constituted as follows:
Jonathan Harry Coates
Alan Carter
8
Solooo Joint V0ntun0
Walter H. Hunt
(iv) take all necessary corporate actions to change the
registered offfice of the Company
to Los Naranjos 351, San Isidro, Lima and deliver all corporate
ledgers, corporate
records and the like to Rodrigo Elias y Medranos to the attention
of Mr. Luis Carlos
Rodrigo who will ad as non-voting Secretary to the Board of
Directors of the
Company, and
(v) provide conclusive evidence that the Company and Billiton
have the benefit of the
Servidumbre as if the Company and/or Billiton were a party
thereto.
(vi) For greater certainty, Parties record that for the purpose
of calculating Los Tapados'
Participating interest at any time during the Eaming Period in
accordance with
Sedion 11.1, Los Tapados' contribution in U$ dollar terms shall
be based on
Billiton's Expenses to eam a 60% (sixty percent) or 700/0
(seventy percent)
Participating interest, as the case may be in accordance with
Section 5, however
proportionally adjusted to correspond to 400/O (forty percent) or
300/O (thirty percent)
respectively.
4.2 initial Contribution Billiton
In consideration for the rights granted by Los Tapados to
Billiton hereunder, Billiton pa
30,000 to the Owner in accordance with the temms of the
Opcion de Transferenc
September 11, 1998 on behalf of the Company, which payment
is deemed to t
Expense. As further contributions to the purpose of this
Agreement, Billiton undertakes
firm commitment to:
(i) conduct Exploration from the date hereof until the end of
the first Budget F
incurring additional Expenses in the amount of not less than U$
170,000, it
understood that Expenses incurred by Billiton during Stage One in
resped ~
Soloco Property in excess of U$ 200,000 shall qualify as Expenses
in the folk
stages;
(ii) complete drilling of no less than 1,000 metres within 18
(eighteen) months
Effective Date; the consent of Los Tapados not to be unreasonably
withheld
reasonable extension of time to complete such drilling without
prejudice to Bill
rights in the event Billiton is prevented from completing the
required drilling b.
its reasonable control. Drill sites shall be selected by Billiton
in its sole and ab'
discretion.
Los Tapados acknowledges that Billiton will be conducting
Exploration in respect of the Soloco Property and also
exploration in respect of other properties in the same region
that are not included in the Agreement, and that Billiton
will be entitled to apportion the total costs of such survey to
the Soloco Property as Expenses in fulfilment of its
obligations on such basis as Billiton deems appropriate acting
reasonably provided that such Expenses are
approved or accepted by Los Tapados as bona fJe Expenses incunred
in connection with the Soloco Property.
Covenants
Billiton agrees that it shall:
(iii) on the date Los Tapados transfers 60 % of the shares in
the Company to Billiton as
set forth in Section 4.1 above, grant Los Tapados a first and
preferential pledge on
such shares by executing a Deed of Pledge substantially in the
form contained in
Attachment V. Parties agree that the pledge will be
terminated/cancelled at such time
as Billiton completes the earning of a 60% (sixty percent)
Participating interest as set
forth in Section 5.
(iv) not later than 30 days afler the end of each Budget Period,
provide a report to Los
Tapados of all Expenses incurred by Billiton during the period,
the form of which shall
be determined by Billiton acting reasonably
(v) ensure that all Exploration Operations carried on by
Billiton or on its behalf during
Stage One and Stage Two shall be carried out in accordance with
pnudent
9_
Soloco Joint Vsstun0
intemational mineral exploration standards and practices, and
that all applicable laws, regulations, permits and
approvals are performed and complied with in connection with such
activities.
(vi) During Stage One and, as long as Billiton has not
unilaterally terminated this
Agreement as set forth in Section 5.4, thereafler, Billiton shall
honour the provisions
and fulfill the obligations of Los Tapados under the Opcion de
Transferencia as if
Billiton were a party thereto. Billiton shall make all payments
to the Owner for the
upkeep of the option contained in the Opcion de Transferencia, it
being understood
that as long as Billiton has not unilaterally temminated this
Agreement as set forth in
Section 5.4, it may in its sole and absolute discretion decide to
exercise the option
and make the payment of U$ 600,000 (six hundred thousand dollars)
to the Owner
which payment shall qualify as Expenses towards earning a
Participating interest in
accordance with Section 5.
4.3 Parties' covenants
During the life of this Agreement, Parties shall use their
best efforts to maintai~
concessions forming part of the Soloco Property in good
standing, including ensuring ti
fibngs and applications required under applicable laws or
the terms of such concessior
made, provided that Los Tapados shall not be responsible for
any default in such oblis
aHributable to Billiton's failure to make payment of the
applicable derechos de viS1enci.
that Billiton shall not be responsible for any default in
such obligation aHributable t'
Tapados' failure to fulfil its obligations with respect to
the concessions.
Following the exercising of the option under the Opcion de
Transferencia, the Parties will
take all steps necessary to transfer all legal and beneficial
ownership of the Soloco Property
to the Company.
The Parties and the Company agree that they shall procure that
the Owner does not sell,
transfer, assignment, pledge, charge, encumbrance or does not
otherwise alienate any legal
or beneficial interest in the Soloco Property other than to the
Company in accordance with
the provisions of this Agreement and the Opcion de Transferencia
without the written
consent of the other Parties.
4.4 Conditions
This Agreement is conditional on
Los Tapados having performed, procured and evidenced to the
satisfaction of Billitor
and all actions in relation to Los Tapados' initial
contributions as detailed in Section 4.1.
Los Tapados undertakes to complete the implementation of the
aforementioned condition as
soon as practicable, but no later than 30 (thirty) days after the
date hereof.
4.5 initial Participating interests of the Parties
Subject to earn-in, dilution and relinquishment pursuant to
Sections 5 and 11, the P.
Participating interests on the Effedive Date shall be:
Los Tapados:
Billiton:
100% (one hundred percent)
00/c (nil percent)
5. STAGE TWO; EARNtNG OF PARTICIPATING INTEREST
5.1 Stage Two Exploration
During the period from the end of the first Budget Period to and
including the earli
(i) the fifth anniversary of the Effective Date, and
10
Sohco Joint Vsntor0
(ii) the date on which Billiton acquires a Participating interest
in accordance with
Section 5.2 ("Stage Two"),
Billiton may in addition to Stage One Expenses at its option,
but not obligation, spend up to
U$ 2,800,000 on such Exploration Operations relating to the
Soloco Property as Billiton
determines in its sole and absolute discretion to be appropriate.
Such expenditures in order
to qualify for earning of Participating interest shall confomm to
the following schedule :
Stage One Budget PeriodExpenses:
Stage Two Expenses:
Budget Period 2
Budget Period 3
Budget Period 4
Subject to Billiton's right to extend
Stage Two by a year
Billiton's qualifying Expenses
U$ 500,000
U$ 800,000
U$1 ,500,000
U5 200,000
U$ 2,800,000
U$ 3,000,000
Nothing in this Sedion 5 shall be construed as obligating
Billiton to incur additional Expenses.
Notwithstanding the above, Billiton may eled, after the end of
the second Budget Period to reduce the Expenses
indicated in the work commitment schedule above to a lesser
amount than indicated and concurrently extend the
Stage Two by an additional period of 12 (twelve) months, it being
understood that Second Stage shall not exceed a
period of four years afler the end of the First Budget Period.
For greater certainty, during such period of reduced
Expenses and subjed to Section 5.4, Billiton shall make the
required payments under the Opcion de Transferencia,
Servidumbre as well derechos de vigencia payable on the Soloco
Property.
Billiton shall, afler the end of each Budget Period, provide to
Los Tapados a report detailing the results of its
Exploration Operations in respect of the Soloco Property,
including copies of related data (including the geophysical
data in hard copy and digital format).
5.2 Earning
On such date as Billiton has fulfilled its obligations as
set forth in Sections 4.2 and 5.1
has incurred aggregate Expenses equal to or greater than U$
3,000,000 and has
Notice thereof to Los Tapados, Billiton shall be deemed to
have eamed a 60% Partici'
Interest. Parties'respective Participating interests shall
then be:
Los Tapados: 400/O (forty percent)
Billiton: 60% (sixty percent).
11
Soloco Joint Vsnton0
Additionally and subject to Billiton earning a 60 0/O (sixty
percent) Participating interest, Billiton shall have the right
but not the obligation to elect within 90 (ninety) days of eaming
a 60% Participating interest to earn an additional
Panticipating interest of 10% (ten percent), totalling 700/O
(seventy percent) by:
(i) funding 100% (one hundred percent) of all Expenses in
relation to a
Feasibllity Study on the Soloco Property, and
(ii) completing such Feasibility Study within two years of making
the election,
whereafler the Parties' respective Participating interests shall
be:
Los Tapados: 30/O (thinty percent)
Billiton: 70/O (seventy percent)
During the period between the date of eaming its 60%
Participating interest and its decision to pursue a Feasibility
Study, Billiton will be reimbursed for ail expenses relating to
Los Tapados' interests should it elect not to complete a
Feasibility Study. Los Tapados shall not unreasonably withhold
its consent to a reasonable extension of time to
complete the Feasibility Study without prejudice to Billiton's
rights to eam up to 70/O (sevenb) percent Participating
interest.
5-3 Vesting
Upon request by Billiton, Los Tapados shall execute and
deliver to Billiton appro
conveyances to evidence the vesting of Billiton's
Participating interest in accordanc~
Section 5.2 which shall take the form of the
termination/cancellation of the Deed of P
on Billiton's shares in the Company and, as the case may be,
transfer of 10% (ten pe
additional shares in the Company or, as parties may
separately agree, issuance of sha
Billiton. Los Tapados shall immediately execute all such
instruments and do all such t
as may be required to effed a transfer to Billiton of the
required share of the stock cap
the Company in proportion to Billiton's Panticipating
interest.
5.4 Unilateral termination; disposal during Earning Period
At any time during Stage Two, Billiton shall have the
unilateral right to Notify Los T
that it wishes to terminate this Agreement. Termination
shall be effective on the 30t
following Billiton's Notice, it being understood however
that any Notice given betwee.
11,1999 and August 11 1999 or between July 11, 2000 and
August 11, 2000 shall n
effedive until September 12 of 1999 and 2000 respectively.
Notice of termination by Billiton shall be accompanied by a
relinquishment to Los Tapados of
all of Billiton's rights, title and interest in this Agreement
and Billiton shall have no further
obligations with respect to Exploration operations, other than to
make available to Los
Tapados all Data in respect of the Soloco Property at no charge.
However, Billiton does not
and will not represent, warrant or guarantee the completeness,
accuracy or validity of the
Data surrendered to Los Tapados. Billiton shall execute and
deliver to Los Tapados
appropriate conveyances to evidence the relinquishment of all of
Billiton's rights, title and
interest in the Soloco Property as well as retransfer shares in
the Company for
compensation of 10 (ten) dollars. Following such termination,
Billiton shall have no further
obligations vis-a-vis Los Tapados pursuant to this Agreement,
except as set forth in Section
16.3. Billiton shall be responsible for all contractural payments
and payments of the
Derechos de Vigencia during the period between the notice of
termination and the effective
date of termination.
6. RELATIONSHIP OF THE PARTIES; EXPENSES; OWNERSHIP
~-l 1 Retationship of the Parties
The relationship between the Parties shall be limited to the
performance of the purpos.
out in this Agreement. It is not the intention of the Parties to
this Agreement to creat~
Soloco Joint V0ntuns
this Agreement will not be construed as creating, a mining
partnership, a commercial partnership or other
partnership between the Parties.
Each Party shall be responsible only for its obligations and
liabilities as set forth in this Agreement. Nothing
contained in this Agreement shall be deemed to constitute any
Party the agent or legal representative of the others,
or to create any hduciary relationship between them, unless
otherwise expressly established. As against third
parties, any Party hereto that incurs any obligation or liability
in connection with this Agreement shall be solely
responsible for the discharge thereof, but as between the parties
shall be entitled to recover the same from the other
Parties hereto in proportion to their respective Participating
interests if and to the extent that such obligations or
liabilities were approved by such other parties or their
respective nominees on the Board of the Company.
No Party shall have any authority to act for or to assume any
obligation or responsibility on behalf of the other
Parties, except ag expressly provided in this Agreement. Each of
the Parties agrees to indemnify and hold harmless
the other Parties, its directors, officers, and employees from
and against any and all iosses, claims, damages, and
liabilities arising out of any act or any assumption of any
obligation or liability by the first-mentioned Party, or any of
its diredors, offficers, agents, or employees, done or
undertaken, or apparently done or undertaken, on behalf of the
other Party, except pursuant to the authority expressly granted
herein or otherwise agreed to by the Parties.
With respect to any property rights outside of the Soloco
Property, each Party shall have the free and unrestricted
right, independently or in combination with others, to engage in
and receive the full benefits of any and all business
endeavours of any sort whatsoever, whether or not competitive
with the endeavours contemplated herein.
Except as provided in this Section 6.1 or in Section 12.1, it is
expressly agreed that a Panty shall not have any
fiduciary obligation or other duty of whatsoever character to the
other Parties that would prevent it from engaging in
or enjoying the benefit of such competing endeavours or would
require it to consult with or ailow such other Parties
to panticipate therein.
6 2 Distribution of Costs and Revenues
All Expenses shall, except during the Earning Period as
provided in Section 5, be sl
and borne by the Parties in proportion to their
Participating interests, subjed to dilutio
relinquishment pursuant to Sedion 11. Likewise, all
dispositions arising out of Oper'
or this Agreement shall also be made to the Parties in
proportion to their ParticiF
Interests, subject to dilution and relinquishment pursuant
to Section 11 below.
6.3 Ownership
Except as otherwise provided in this Agreement and
notwithstanding that legal title t'
Soloco Property and Assets in general may be held by or
stand in the name of some o
one of the Parties or in the name of the Company, as the
case may be, the Party(ies)
own the Soloco Property and Assets and any and all produdion
of Minerals produced
the Soloco Propenty in proportion to their respective
Panticipating interests, subject t
payment of royalties payable to the grantors or lessors of
any mining rights now own
hereafter acquired within the Soloco Property pursuant to
Sedion 12 of this Agreement.
Should any Party, subsequent to the date of this Agreement,
burden any of its interest in the
Soloco Property with any royalties or other payments out of
production, the same shall be
borne and paid entirely by the Party creating such burden out of
that Party's proportionate
part of produdion from the Soloco Property.
7. JOINT VENTURE COMPANY
13
Soloco Joint V0nb~n,
7.1 Minera Soloco S.A.; purpose
The Company shall initially be used for the exclusive
purpose of holding the interest in the
Opcion de Transferencia and, upon Billiton's decision to
exercise the option in accordance
with the Opcion de Transferencia, the Soloco Property in
furtherance and accordance with
the provisions and intent of this Agreement.
7.2 Board
Billiton shall be initially entitled to nominate two members
and Los Tapados shall be er
to nominate one member to the Board of Diredors of the
Company. The persons nann
Sedion 4.1 (iii) shal. be the initial members of the Board
of Directors of the Compan,
both Billiton and Los Tapados undertake not to remove or
replace members of the ..
without prior consent of the other party, which consent
shall not be unreasonably withh.
delayed. Likewise, Parties undertake the obligation to have
the appointed members ~
Board of Directors of the Company execute a deed of
adherence obliging themselves I
as members of the Board, at al' times, in complete
accordance with the stipulation.
intent of this Agreement.
Afler conclusion of the Earning Period, the Board of Directors of
the Company shall be
appointed by their respective Shareholders Meetings, refleding
the percentage of
Participating interest each Party has, as may correspond in each
case. The Board of
Directors of the Company shall make all policy decisions relating
to the condud of
Operations within the Soloco Property and shall in particular:
(i) approve or disapprove Operator's proposed selection of
consultants and contractors
to be employed in the furtherance of major Operations, including
but not limited to,
the conduct of Feasibility Studies, Mine Development Programs and
Production
Programs;
consult with and provide advice to Operator and the General
Manager;
appoint, change or replace Operator and the General Manager
pursuant to the terms
of this Agreement;
approve, rejed, or approve with modifications all proposed
Programs and Budgets;
review the progress of Operations and costs incurred thereunder;
approve, modify, or reject all proposals to acquire additional
lands or interests or to
surrender or abandon all or part of the Soloco Property, except
as otherwise
provided in this Agreement;
determine from Data obtained during Exploration that Minerals
exist in sufficient
quantib and are of sufficient quality to justify the preparation
of additional Feasibility
Studies; and
(viii) perform such other tasks as may be necessary or
convenient for the condud of
Operations, including but not limited to the establishment
of such controls and
procedures for Operations during Feasibility Study
preparation, Mine Construction
Operations and Mining Operations as it deems necessary or
desirable, and as
provided in the bylaws of the Company.
(iv)
(v)
(vi)
(vii)
In general, both before and after the Earning Period finalises,
regular meetings of the Board of Directors shall be
called by the President of the Board or upon request of the
General Manager or the Operator, as the case may be,
and shall be held at least annually. Following the end of the
Eaming Period, meetings shall be held at least
quarteny. Special meetings may be requested by any Party or by
the Operator to the President of the Board, who
shall call for such meeting within reasonable time.
All meetings shall be held in Lima, unless otherwise agreed by
the Parties. Written Notice of the time and place of
each regular meeting, accompanied by a proposed agenda and copies
of documents to be considered by the Board,
shall be submitted by the General Manager (if necessary provided
by the Operator) to the members of the Board (or,
if a special meeting, by the Panty or the Operator requesting the
meeting) not less than 15 (fifleen) days before
14
Soloco Joint Ventun.
any such meeting, unless such requirements are waived in writing
by all members of the Board. If the General
Manager deems it necessary for any personnel who are assigned
duties in connection with the condud of
Operations to attend any meeting, the cost incurred therefore
shall be charged to the Company.
The General Manager shall prepare and promptly submit to the
members of the Board appropriate minutes of each
meeting. The members shall approve or suggest corrections to the
minutes within 15 (fifleen) days of receipt. If no
suggested corrections are received by the General Manager within
the 15 (fifleen) days period, the minutes shall be
deemed to have been approved by the Board as drafted. In the
event that suggested corredions to the minutes are
submiHed by a Party within the time provided, the approval of the
minutes shall be the first order of business by the
Board at its next meeting.
7.3 Shareholders
As joint shareholders of the Company, Parties shall not vote
or omit to vote, decide o
to decide, nor undertake or omit to undertake, any action
which is in contravention
provisions and intent of this Agreement.
Moreover, neither Los Tapados nor Billiton as initial
shareholders of the Company, shall
create or cause the creation of a mortgage or any lien or
encumbrance over the shares in
the Company or the Soloco Property, without the other
Party's(ies') prior wriHen consent.
7.4 General Manager
During the Eaming Period and as long as Billiton has a
Participating interest of at least
the General Manager of the Company will be nominated by
Billiton. The General Ma~
will be responsible for all technical, corporate and
administrative maHers of the Compa~
Afler completion of the Earning Period, the General Manager of
the Company shall be
appointed by the Board of Directors and will have all technical
and administrative powers,
duties and faculties as the Board or the Shareholders Meeting may
deem convenient or
necessary.
8. OPERATOR
8.1 Eaming Period
During the Earning Period and any time thereafler, when its
Participating interest is g
than 50/O, Billiton shall have the right, but not the
obligation, to be the Operator. If Bil
Participating interest falls below 50/0 at any time when it
is the Operatof the Board
Company shall have the power and authority to replace
Billiton as the Operator with
entity or person (including Los Tapados) as the Board of the
Company wishes to appoir
8.2 Authority; duties
Following the Eaming Period the Operator will have full
right, power and autho.
manage Operations including to requisitioning one or more
feasibility studies (incluc
bankable feasibility study), to propose and implement a Mine
Development, to operat
Mine.
Following the Eaming Period the Operator will keep adequate
records of its activities and
will report in writing within 60 days of the end of each calendar
quarter on its activities during
such quarter. The Operator will be responsible for preparing the
quarteny accounts for the
Company. The Operator shall conduct Operations in accordance with
prudent intemational
mineral exploration standards and practices, and that all
applicable laws, regulations,
permits and approvals are performed and complied with in
connedion with such activities,
but shall not be liable to any Party hereto for any direct or
consequential loss occasioned by
its activities, except where resulting from its wilful misconduct
or negligence.
15
Solcco Jdut Ventune
All Programmes and Budgets proposed by the Operator will be
subject to approval by the Board of the Company as
set forth in Section 10. The Operator shall conduct its
activities in a good and workmanlike manner in accordance
with accepted exploration and mining practices as well the HSE
Policy.
Following the Earning Period the Operator shall prepare and
submit to the Board with a copy to the Technical
Committee, as applicable, a monthly progress report which shall
include a summary of work undertaken and results
thereof. In addition, the Operator shall prepare and submit a
quarteny technical progress report which shall also
include an estimate of Expenses against Budget.
8.3 Marketing of production
The Operator will have full right, power and authority to
market and sell any and all prc
produced by any Mine on the Soloco Property in accordance
with marketing I
(~Marketing Plans') unanimously approved by the Board on
such terms and for such
periods as the Board may deem appropriate. For greater
certainty, Parties record
priority will be given to Marketing Plans that include,
without limitation, entering into an .
Iength arrangement(s) on a competitive basis with an
Affiliate of Billiton.
Parties agree to procure that approval to Marketing Plans
shall not be unreasonably witt
or delayed.
8.4 insurance
The Operator shall carry and maintain, or cause to be canied
and maintained adet
insurance in all respects. The Parties, at their individual
options and expense, may o
insurance coverage in addition to the insurance obtained by
the Operator for Operation
they may in their own discretion deem appropriate.
8.5 indemnification
Each of the Parties hereto shall severally indemnify and
hold harmiess the Operator, b
extent of such Party's Participating interest, against any
and all costs, expenses, liabiliti
damages (including legal fees and expenses) incurred by it
in connection with
penformance of its obligations herein, provided, however,
that such indemnity shal
extend to any costs, expenses, liabilities or damages
arising solely from the Operator's
miscondud or negligence.
9. TECHNICAL COMMITTEE
9.1 Constitution; composition
After the Eaming Period, Parties may separately and mutually
agree to constih
Technical Committee composed of Parties' representatives
under such terms of refer
as Parties may jointly define. Unless otherwise agreed, a
Party may nominate a memb'
each full 20% Participating interest it owns.
9.2 Technical Committee powers and actions
If constituted, the Technical CommiHee will advise the
Operator and review and di~
Programs and Budgets. The Operator will provide the proposed
Programs and Budgel
information and consideration by the Technical CommiHee, but
the Board of the Com
will at all times have the right to take the final decision
as to the scope and content c
final Programs and Budgets afler the Eaming Period.
The Technical CommiHee will review and discuss technical and
financial aspects of
Programs and Budgets, and will submit its recommendations to the
Board of the Company.
10. PROGRAMS AND BUDGETS; FEASIBILITY STUDY; ELECTIONS
16
Soloco Jdnt Ventune
10.1 Programs and Budgets
The Program and Budget for the period commencing afler
completion of the Eaming P
and extending to December 3f' of the year in progress, shall
be adopted by the Boa
Directors of the Company as soon as reasonably practicable
after completion of the Ea
Period.
By November 15lh of each year after the Eaming Period, the
Operator shall prepare and submit to the Board of
Directors of the Company a Program and Budget for the following
Budget Period. The Board shall consider all
Programs and Budgets submiHed by Operator or submiHed by one or
more Directors (or if it is the case, by any
Party) and shall take action in accordance with Section 10.2
below.
10.2 Review and Approval of Proposed Programs and Budgets
Subject to Sedion 10.1, the Board of the Company shall deal with
Programs and Budgets as follows:
(i)
(ii)
not less than 15 (fifteen) days and not more than 30 (thirty)
days following the submission of any proposed
annual Program and Budget the Board of Directors shall meet to
review the submitted proposal;
the Board shall consult in a good faith effort either to approve
or adopt the proposed Program and Budget
as submitted, or a revision thereof, or to formulate an
altemative Program and Budget acceptable to the Parties, and
(iii) if a Party anticipates, for any reason whatsoever, not
being able to contribute
to a proposed Program and Budget it shall not unreasonably impede
or withhold
approval or adoption of such Programs and Budgets in an aHempt to
prevent dilution
as set forth in Section 11.
If the Board is unable to agree upon a Program and Budget, any of
its members may submit an alternative Program
and Budget within 15 (fifteen) days afler that meeting. The Board
shall meet again within 15 (fifleen) days following
the conclusion of said period and shall take action on the
submitted Programs and Budgets. Once approved, and
subject to the rights of the Parties to elect not to participate,
the annual Program and Budget, any approved
supplement thereto or any approved revision thereof, shall be
binding on the Parties and shall be carried out by the
Operator.
If less than 70/O of the expenditures of an approved Program and
Budget are actually spent, a diluting partner shall
have the election to reimburse its pre-dilution share of
respective costs to the non-diluting Party(ies) within 30
(thirty) days of the conclusion of the Program and not realise
any dilution.
10.3 Cash Calls
Unless expressly detailed otherwise in an approved Program and
Budget and pursua Cash Calls issued by the
Operator from time to time, Parties shall pay the Cash ~ required
by an approved Program and Budget in 4 (four)
quarterly payments on or b, the 15th (fifteenth) Day of July,
October, January and April, respectively to fund
respedive Participating interest share of such approved Program
and Budget. If withi (sixty) days of a Cash Call
being delivered to a Party, the Party fails to fund any Expe then
the other Parties will have the right to fund the
amount of the deficiency in proporti' their Participating
interests, and the Participating interest of the delinquent Party
wi diluted accordingly in accordance with the provisions of
Section 11.
1 0.4 Elections
The Party(ies) shall elect, within 15 (fifteen) days from the
date a Program and Budge been approved, either:
17
Soloco Jclot Ventune
(i) to participate in an approved Program and Budget at their
then Participating interest,
or,
(ii) not to participate in an approved Program and Budget.
Failure to eled (i) in a timely manner, shall be deemed to be an
eledion not to panticipate. The consequences of
eleding or being deemed to have elected (ii) of this Section 10.3
shall be govemed by Section 11.3 below.
11. CHANGES IN PARTICIPATING INTERESTS
11.1 Participating interest calculation
Afler completion of the Earning Period and taking into
account Parties' Panticipating Inte
as detemmined by operation of Sedion 4.1 (vi) and Sedion 5,
the Participating interest c
Parties hereto shall be determined from time to time in
accordance with the follo
formula:
Pl = [Al(A+B)] x 100
where Pl is the Participating interest of such Party, A is the
aggregate deemed and adual Expenses funded or
incurred by such Party, and B is the aggregate deemed and adual
Expenses funded or incurred by the other Panty.
Each Party's Participating interest shall be shown in the books
of the Operator. Upon dilution, reduction or
relinquishment of a Party's Panticipating interest as provided in
this Section 11, the diluting Party shall, at any time
upon the request of the other Party(ies), surrender or transfer
its shares in the capital stock of the Company to the
other Parties (pro rata to their Participating interests) and
execute all such assignments and transfers of its
Participating interest to the other Party(ies) that the other
Party(ies) reasonably may deem necessary or desirable.
1 1.2 Dilution
Subjed to Section 11.3, if a Panty elects or is deemed to elect,
pursuant to Section 10.: to participate in an approved
Program and Budget, or otherwise fails to fund any Expe pursuant
to a cash caii issued by the Operator in
accordance with an approved Progran Budget, the Participating
interest of such Party shall be diluted in accordance
wib formula set forth in Sedion 11.1 at the times specified in
Section 11.4.
The Non-Participating Party may recommence participation in the
next Budget Period's Program and Budgets at its
diluted Participating interest.
11.3 Floor on Dilution
Subject to the operation of Section 11.5 below, if as a result of
an election not to pantic in an approved Program a
Party's Participating interest will be diluted below 10%
percent), that Party shall be deemed to have relinquished to
the Participating Party(ies) rata to their Participating
interests), and the Panticipating Party(ies) shall own and be en
to receive, all of the Non-Participating Party's Participating
interest. The Non-Particip Party shall be entitled,
however, to recover 2.5% (two and a half percent) of the Net P of
the Company, until all sums actually contributed or
deemed to have been contributed to the Soloco Property pursuant
to this Agreement, together with interest on such
sums
annual rate of 2 percentage points over the 12-month LIBOR as
published on the relt Telerate page, but not in
excess of the rate allowed by Peruvian Laws and to the extent
sums plus interest have not been recovered
previously by the Non-Participating Party repayment of debts
and/or dividends by the Company prior to the date of
relinquishr The relinquishment of the Non-Participating Party's
Participating interest pursuant tc Section 11.3 is the
exclusive means by which a Party may avoid ongoing Pro'
18
Soloco Joint Ventune
Expenses; there is no election to limit panticipation in an
approved Program and Budget or to have the Party's
Participating interest diluted to below a 10% (ten percent)
Participating Interest as a result of a decision not to
participate in an approved Program.
11.4 Timing of Adjustments
The adjustments specified above shall be made at the
commencement of a Program
Budget based upon the amount of the Budget and the
proportions in which the Parties
elected to participate (if at all) in that Budget. The
Participating interests of the Particip
Parties shall be recalculated at the conclusion of a Program
and Budget to refiect the a
Expenses made.
11.5 Continuing Liabilities upon Adjustments of Participating
interests
Any reduction, dilution or relinquishment of a Party's
Participating interest shall not re
such Party of its share of any liability arising out- of
Operations conducted prior to
reduction. For purposes of this Sedion 11.5, such Party's
share of such liability sha
equal to its Participating interest at the time such
liability was incunred. The incre
Panticipating interest accnuing to a Party as a result of
the dilution, reductior
relinquishment of the other Party's Participating interest
shall be free of royalties, lie'
other encumbrances arising by, through or under such other
Participating Panty, other
those existing at the time the Properties were acquired or
those to which all Parties
given their written consent.
12. PROPERTY PROVISIONS
12.1 Extension of the Soloco Property
If, during the term of this Agreement, a zone of potentially
economic mineralisation is loc
within the Soloco Property which extends beyond the Soloco
Property, then the Partie.
use their best efforts to agree in a way to jointly acquire
the additiona. area of intere
proportion to their Participating interests. If one Party
elects not to contribute withi
(thirty) days of notification by the other Parties, the
Party(ies) that eied to continue w
free to acquire said area and such property will not be
subject to the terms of
Agreement.
12.2 Liens and Encumbrances
No Party shall encumber or cause or permit any lien or
encumbrance of whatever natu
be placed upon any of the Assets without the prior wriHen
consent of the other Party.
the Earning Period, consent shall not be unreasonably
withheld or delayed if the purpo
the Party Proposing the encumbrance is to obtain funds to
carry out or maintain its po.
under this Agreement and the encumbrance is limited to the
encumbering Pi
Participating interest in the Assets to be encumbered.
If the other Party(ies) do(es) not give the Party proposing the
encumbrance Notice of its objections to the proposed
encumbrance within 15 (fifteen) days after receipt of Notice of
proposed encumbrance and request for consent, the
other Party(ies) shall be deemed to have consented to it. No
encumbrance made pursuant to this Sedion 12.2 shall
impair or reduce the rights of any other Party in any way and all
security interests created by such encumbrance
shall be subordinate to all rights of the other Party(ies) under
this Agreement, including but not limited to its rights to
acquire some or all of the encumbering Party's Participating
interest by operation of Section 11. For these purposes,
the lender shall undertake in writing and prior to any
encumbrance, the acceptance of the other Party(ies) priority
rights and to be bound by this Agreement in the event of the
lender realising its security.
12.3 No Partition or Other Uses
Prior to the termination of this Agreement, a Party, or its
successors or assigns, shal
19
Soloco Jdnt Ventune
(i) resort to any action to partition the Soloco Property, and
to such extent, each Panty
waives the benefits of all laws authorising such action, or
(ii) utilise or attempt to utilise all or any portion of the
Soloco Property for uses or
purposes other than those contemplated and agreed in this
Agreement without the
prior wriHen consent of the other Party(ies).
1 2.4 Sunrender or Abandonment
The Parties shall not directly or indirectly cause the sunrender
or abandon any of the S~ Property to the
Govemment, nor shail the Board of Directors of the Company
authorise such surrender or abandonment, unless all
Parties consent to the same in writing.
12.5 Joint Loss of Title
Afler the Effective Date and during the Eaming Period, any
failure or loss of title H Assets due to Billiton's actions or
omissions, shall be exclusively assumed by Bil Likewise, any
failure or loss of title to the Assets due to Los Tapados'
adions or omiss shall be exclusively assumed by Los Tapados.
Any faiiure or loss of title to the Assets, due to facts, acts or
reasons originated after the
Effective Date which are not due to adions or omissions of one or
more of the Parties, shall
be charged to the Participating Panty(ies) in proportion to their
Participating interests, in
which event any and all costs of defending title shall be deemed
Expenses.
13. REPRESENTATIONS AND WARRANTIES; LIABILITY PROVISIONS
1 3.1 Representations and warranties; Los Tapados
On the date hereof and during the life of this Agreement Los
Tapados hereby represent~ warrants to Billiton, that:
(i) Los Tapados is duly incorporated and validly subsisting with
full corporate power
authorib to enter into this Agreement;
(ii) that the execution and delivery of this Agreement and the
performance c
obligations hereunder will not constitute a breach of any
agreement or
obligation to which it is a party or require the consent of any
third panty except
as has been obtained prior to the date hereof;
to the best of Los Tapados' knowledge none of the concessions
comprisin,c
Soloco Property are subject to any litigation, arbitration,
prosecution or other ju~
or administrative proceedings, nor has any such action been
threatened, and I
are no disputes outstanding with any government, local or
regional authority rel
to the Soloco Property which may adversely affect title to or
validity of the S~
Property. Los Tapados is not aware of any breach of law which
would adve
affect the Soloco Property;
(iv) to the best of Los Tapados' knowledge the Owner owns all
legal and beneficial ti
each concessions comprising the Soloco Property, for which it is
shown a~
registered holder in AHachment lil (2), free and clear of all
royalties, liens, cha~
encumbrances and any other rights of others, save for the Opcion
de Transfere
and each such Concessions is valid and in good standing and not
liable to forfe
or cancellation for any reason, all payments, including the
corresponding ar
derechos de vigencia and works required in connection with the
Soloco Pro
have been made and done and all retums and statements lodged;
(v) the Opcion de Transferencia and Servidumbre are valid, and
validly entered into;
(vi) all rights under the Opcion de Transferencia are validly
transferred to the OomF
or are in the process of being transferred to the Company;
(vii) the Company and Billiton have the full benefit of the
Servidumbre as if they party thereto;
(viii) to the best of Los Tapados' knowledge, all material
information relating to the Sr Property and the Company
which is known to Los Tapados (or with reasor
(iii)
20
Soloco Jolut Ventun'
inquiry would be known to it) and which is not on public record
has been or wil' be disclosed to Billiton, is true and
accurate in all material respects and that there is no impediment
for Los Tapados to provide such information;
(ix) to the best of Los Tapados' knowledge, all adivities carried
out on the Soloco
Property before Effective Date have been perfommed in total
compliance with the
corresponding Peruvian environmental laws and regulations,
applicable and
enforceable at any time said activities took place;
Any damages or liabilities arising or resulting from breaches of
one or more of the above
representations and warranties, wil' be exclusively borne by Los
Tapados and Los Tapados
shall hold Billiton (and its directors, shareholders, of ficers,
executives, employees and/or any
related persons) and the Company harmless from any such damage or
liability.
13.2 Representations and warranties; Bitliton
On the date hereof and during the life of this Agreement,
hereby represents and warrar
Los Tapados, that:
(i)
(ii)
(iii)
(v)
Billiton is duly incorporated and validly subsisting with full
corporate power and authorib to enter into this
Agreement;
that the execution and delivery of this Agreement and the
performance of its obligations hereunder will not constitute
a breach of any agreement or other obligation to which it is a
party or require the consent of any third party except
such as has been obtained prior to the date hereof;
Billiton will not encumber, mortgage, sel' or dispose of, in any
way, manner or form, acting separately or jointly with
the Company, the Soloco Property without written consent of Los
Tapados
(iv) Will carry out Operations in accordance with prudent
international mineral
exploration standards and practices as well as the HSE policy
contained in
AHachment Vl, and that ali applicable laws, regulations, pemmits
and approvals are
performed and complied with in connection with such adivities.
During Stage One and, as long as Billiton has not unilaterally
temminated this
Agreement as set forth in Section 5.4, thereafler, Billiton shal'
honour the provisions
and fulfil the obligations of Los Tapados under the Opcion de
Transferencia and
Servidumbre as if Billiton were a party thereto in accordance
with the provisions of
Section 4.2.
Any damages or liabilities arising or resulting from breaches of
one or more of the above representations and
wanranties, will be borne by Billiton and Billiton shall hold Los
Tapados (and its diredors, shareholders, offficers,
executives, employees and/or any related persons) and the
Company, as applicable, harmless from any such
damage or liability.
13.3 in the event a Party is liable to one or more of the other
Parties (~the affected Party~) under representations
and warranties of such breaching Party made in Sections 13.1, or
13.2 and the breaching Party does not
indemnify or hold harmless the affected Party and the affected
Party does not seek termination of this
Agreement pursuant to Sections 18 and 16, the affeded Party may
at its discretion, and without limitation as
to other remedies available, recover from the breaching Party the
amounts actually paid by or recovered
from the affected Party in the following manner:
(i) during the Eaming Period: apply such amounts as Expenses and
thus vest interest in
accordance with the formulae provided in Section 5, and/or
(ii) after completion of the Eaming Period: apply such amounts as
contributions to
approved Programs and Budgets in which case, the breaching
Party's Par~ticipating
Interest will be subject to dilution as set forth in Sedion 11.
1 3.4 indemnity
Each Party, when acting in its individual capacity and not in the
capacity of Operator, agrees to hold harmless and
indemnify the other Party(ies) from any and all ciaims for
personal
21
Soloco Joint Vsotuns
injury to or the death of any person and for damage to the Soloco
Property of any third party, that is caused by its
wilful intent or gross negligence and that of its agents or
representatives.
14. ASStGNMENT; RIGHT OF FIRST REFUSAL
1 4.1 Assignment
No Party shall assign, transfer, convey or otherwise dispose
of (hereinafter: 'Ass
Participating interest or any interest in and right under
this Agreement, including bu
limited to rights in the Soloco Property, Assets, shares in
the Company's capital anc
Profits royalty except in accordance with this Section 14.
A Party hereto may assign all of its rights (subject to all of
its obligations) under this
Agreement (including any Participating interest) to a third party
provided that:
(i) it has first offered in writing to sell such rights and any
such Participating interest for
cash to the other Party(ies) hereto (,oro rata based on their
Participating interests) on
terms no less favourable than those available to such third party
and such other
Party hereto has not accepted such offer within 90 days;
(ii) the transferee acquires such rights and any such
Participating interest for cash on
the same terms and conditions as those offered to the Party
hereto and agrees in
writing to be bound by the terms of this Agreement;
(iii) the Party hereto has fully satisfied and discharged (or
made satisfadory
arrangements to satisfy and discharge) all funding obligations
undertaken by it under
this Agreement or otherwise in connection with the Joint Venture;
and
(iv) the transferee is acceptable to the other Party hereto ading
reasonably.
In the event a Party hereto is contemplating to assign in any
way, diredly or indiredly, all or part of its right, title and
Participating Interest or interest in this Agreement and the
Soloco Property as part of a sale of other interests or
assets, interests which are not subjed to this Agreement, other
than to Afffiliates in accordance with Section 14.2,
the provisions detailed shall apply accordingly. In the Notice of
offer to the other Party(ies), the Party contemplating
such sale or disposition, shall state the offered price for the
right, title and Participating Interest Participating Interest
separately from the price offered for the other interests or
assets of such Party that is part of the Assignment.
Notwithstanding the above, the merger or amalgamation of all of a
Party's business shall not constitute an
assignment subject to the right of first refusal.
14.2 Affiliates
Notwithstanding Section 14.1, Parties may also Assign such
rights (subjed to
obligations) to Afffiliates, provided that the transferor
transfers to the Aff liate all right, titl.
Participating Interest of the Transferor in the Soloco
Property to the relevant Afffiliate, in
case without complying with this Section 14 or otherwise
obtaining the consent of any
Party hereto and provided that the relevant transferee
agrees in writing to be bound b
terms and conditions of this Agreement.
14.3 Evidence of Change of Ownership
No change in ownership of any Participating Interest in this
Agreement or any right, tii
interest in this Agreement shall be binding upon the other
Parties unless in compliance
Sections 14.1 and 14.2 above and until a certified copy of
all instnuments executed
delivered in connedion with the transfer or assignment shall
have been delivered t'
other Party(ies), including the deed of adherence executed
by the acquiring third par
which it accepts to be bound and fully comply with this
Agreement.
15. ACCESS; CONFIDENTIALITY
22
Sdooo Jdnt Vsntuns
15.1 Each of the Parties hereto and its agents, employees and
authorised representatives
(ii)
shall, at its sole risk, have access to the Soloco Property for
the purpose of examination and inspection,
provided that the activities of such party shall not unreasonably
interfere with or delay Operations and shall have
access to all Data fadual and interpretive, provided that under
no circumstances shall Billiton be required to disclose
to any Party hereto any of the Billiton Proprietary information.
No Party hereto shall disclose any Confidential information to
any person who is not a Party hereto other than any
person from whom such party is seeking funds in resped of that
Party's share of Expenses or any of its Affliates or
its or their advisors and consultants, provided in such case that
such information is disclosed in confidence and that
the recipient agrees to be bound by the provisions hereof.
Notwithstanding the foregoing, a party may disclose Confidential
information where such disclosure
(i)
(ii)
is required by law or by a govemment authority or is required
under the nules of any stock exchange or securities
regulatory authority to which such party is subjed (including in
any material change report or prospectus or other
offering document required in connection with any public or
private securities offering); provided that reasonable
advance Notice shall be given to the other Parties hereto seHing
out the proposed text of any such disclosure, that
the disclosing party shall use reasonable endeavours to
accommodate any comments received from any Party
hereto, and that such disclosure shall be stridly limited to that
which is required to comply with such laws or rules.
Subject to the foregoing, no party shall publish any announcement
of this Agreement or any transaction or maHer
contemplated hereby unless the text of such announcement has been
approved by each of the other Parties hereto,
which approval will not be unreasonably withheld or delayed.
15.2 Each Party shall be bound by the confidentiality provisions
of this Sedion 15 until the Soloco Property is
surrendered pursuant to Section 12.4 above or until 3 (three)
years after termination of this Agreement,
whichever occurs first.
16. TERMINATION
16.1 Events of Termination
This Agreement shall terminate upon the earlier to occur of the
following:
(ii)
(iii)
(iv)
(v)
(vi)
1fi ~ Procedure
The termination of this Agreement pursuant to paragraphs (i)
and (ii) of Section 16.1 shi
governed by Section 5. Additionally, it is understood that
any cash balance in the Com
shall be forthwith returned to Billiton net of expenses
incurred by the Company pri
temmination and any amounts recorded as debts in the
accounts of the Company owi~
after wriHen Notice from BiBiton to Los Tapados pursuant to
Section 5.4
effective on the date determined in accordance with Sedion 5.4;
Billiton fails to acquire a Participating interest in
accordance with Section 5;
the mutual agreement of the Parties;
all the concessions forming part of the Soloco Property have
fully expired by
mutual consent of the Parties; or
the Parties cease to own jointly any interest in the Soloco
Property, or
this Agreement is declared terminated following arbitration
pursuant to
Section 18.2.
23
Soloco Jdnt Vsntuns
Billiton in respect of Expenses shall be forthwith capitalised in
accordance with the definition of Expenses.
Upon termination of this Agreement pursuant to paragraph (iii),
(iv) and (v) of Sedion 16.1, the Parties shall satisfy
all liabilities resulting from Operations, including but in no
way limited to expenditures that Operator has fimmly
committed to make pursuant to an approved Program and Budget, and
shall sell or otherwise agree on the
disposition of the shares in the Company's or altematively all
Assets, and if the laHer is the case, liquidate the
Company's capital stock. All liabilities and expenses shall be
several and not joint and shall be bome and paid by
the Parties in proportion to their respective Participating
interests. The proceeds from a sale and/or liquidation, if
any, shall be distributed to the Parties in proportion to their
Participating interests.
In the event of liquidation of the Company the Parties shall
agree on the appointment of liquidators' who shall have
the right and authority to take al action necessary to wind up
the activities being terminated and all costs and
expenses so incurred, shall be deemed Expenses.
In the event of temmination of this Agreement pursuant to
paragraph (vi) of Section 16.1, the arbitrators shall
determine the mode and procedure for temmination.
16.3 Continuing Liability; survival
Termination of this Agreement shall not relieve any Party
from any liability that has acc
prior to the effedive date of such temmination. Sedions
11.5, 15.2 and 16.3 shall surviv
termination of this Agreement.
17. NOTICES
Any Notice, election, payment or other conrespondence required or
pemmiHed under this Agreement shall be made
in writing and shall be suffciently delivered if adually
delivered in hands of the Party to whom direded, or by courier,
or by registered mail or by facsimile to the following address or
facsimile number (as the case may be).
Nevertheless, no Notice sent by facsimile shall be deemed to have
been validly given unless such facsimile is
confirmed by delivery by hand, courier o.r registered mail
containing the exad contents of such facsimile addressed
to the Party to whom direded at its below specified address:
Billiton Exploration and Mining Peru B.V. with a copy to:
(Sucursal Peruana)
Attention: Country Manager
Los Naranjos No. 351
San Isidro - Lima
Peru
Telephone: 51 1 441 3607/51 1421 1556
Facsimile :51 1 4219103
Compahia Minera Los Tapados S.A.
Attention: Walter H. Hunt
Los Tucanes No. 234
San Isidro, Lima
Peru
Telephone: 51-1-222 5007
Facsimile: 51-1-441 9785
24
Billiton International Metals B.V.
Attention: Legal Counsel
P.O. Box 93009
2509 M The Hague
The Netherlands
31 70 315 6637
31 70 315 6723
with a copy to:
Solitario Resources I
AHention: Christopher
1675 Broadway, Suite
Denver, CO 80202, U'
Telephone: 1 303 534
Facsimile: 1 303 534 1
Soloco Joint Vontun.
Any Notice required or permiHed hereunder deemed to be duly
authorised if given by the persons designated
above, or others appointed in conformity with this Section 18.
Therefore, no recipient shall be required to inquire as
to the authority of the person so signing.
A Party may change its address for the purpose of Notices or
communications under this Agreement by fumishing
Notice of the change to the other Parties in compliance with this
Section.
18. GOVERNING LAW; DISPUTES
18.1 Governing law
This Agreement is govemed by and shall be interpreted in
accordance with the Lav Peni.
1 8.2 Disputes
All controversies, disputes or claims between the Parties and
arising from or relating to this Agreement or the
application, performance, implementation, validity, breach or
temmination of this Agreement or any agreement or
document concluded pursuant to this Agreement, except those which
are subject to the jurisdiction of judicial courts
by operation of mandatory Peruvian laws, shall be resolved by
arbitration in law as set forth in Sedion 18.3 and shall
not be subject to judicial litigation in any way. Any judicial
court that has proper jurisdiction to resolve a dispute by
operation of mandatory Peruvian laws shall award reasonable
attomeys fees and costs to the successful Party, or in
the manner as the court sees fit.
18.3 Arbitration
Any disputes subjed to arbitration according to Sedion 18.2,
concerning the subjed nr of this Agreement shall be
referred to and finally and exclusively seHled by arbitration ca
out by 3 (three) de jure arbitrators in Lima, Peru,
under the administration of ar accordance with the rules (the
'Rules') of the Instituto del Derecho de Mineria y
Petrole in force on the date hereof. In event of conflict between
the provisions of this Section and the Rules, this
Sedion 18.3 prevails. The arbitration award shall be final,
binding enforceable by any court having jurisdidion for that
purpose, without any judicial re other than strictly necessary
for the enforcement of the award pursuant to any appli~
international conventions or Peruvian Law. Each Party to the
dispute shall nominate disinterested arbitrator, who will
be considered appointed if there is no opposition b~ other Party
within 3 (three) days after receiving Notice of the
nomination. If an even nu~ of arbitrators is selected, the
arbitrators so seleded shall seled an additional arbitrator,
shall act as president of the Arbitration Tribunal. If within a
period of 30 (thirty) days the Notice of arbitration any
Party fails to appoint its arbitrator, or in case the two in
appointed arbitrators have failed to select the third arbitrator
within 30 (thirty) days arbitrator or arbitrators not appointed
shall be selected by the President of the Intemat
Chamber of Commerce in Paris, France.
Within 30 (thirty) days afler all arbitrators have been seleded,
each Party to the dispute shall submit to the
arbitrators a wriHen statement of its position as to the matter
being arbitrated. The arbitrators shall resolve the
dispute by choosing, between or among the statements of position
submiHed by the Parties to the dispute, that
position which the majority of the arbitrators deem to be
correct. All arbitrators selected shall be knowledgeable in
the mining and accounting fields and shall have knowledge
concerning general mining, operating and accounting
pradices in the international mining industry. All costs,
expenses and fees for arbitration shall be borne by the
Parties to the dispute as may be ordered by the arbitrators.
Arbitration proceedings shall be held in Lima, Peru, in the
English language unless otherwise agreed by the Parties
to the dispute.
25
Soloco Jolnt V.ntun'
1 9.CONSTRUCTION
19.1 Enurement; Entire Agreement
This Agreement shall enure to the benefit of and shall be binding
upon the Parties h and their successors and
pemmitted assigns.
This Agreement takes precedence over all correspondence and
written or oral agreements between the Parties prior
to the date hereof covering the subject maHer of this Agreement
and not specifically identified and incorporated in
this Agreement, including the LeHer of Intent executed on August
31, 1998. No agent or representative of any Party
has authority to make, and the Parties shall not be bound by, or
be liable for, any statement, representation,
promises or agreement not specifically set forth in this
Agreement. No changes, amendments or modifications of the
terms of this Agreement shall be valid unless reduced to writing
and signed by the Parties. The terms and provisions
of this Agreement shall survive the execution and delivery of any
and all instruments of assignment provided for in
this Agreement.
19.2 Approvals and costs
Unless agreed otherwise, the Parties shall bear their own legal
expenses of and inciden the preparation of this
Agreement. Stamp duty and other govemment fees or charges, it
which are payable in respect of this Agreement
shall be borne by the Parties in proporti their respective
Participating interests.
19.3 Severability
It is understood and agreed by the Parties that if any part, term
or provision d Agreement is held by a court of
competent jurisdiction to be illegal or unenforceable or the
Parties desire that the court of competent jurisdidion
reform that part, term or prov in such a manner as to approximate
the intent of the Parties as expressed in
Agreement, and the validity of the remaining portions or
provisions shall not be affected
1 9.4 Waiver
The failure or omission by either Party to enforce any provision
of this Agreement, no nr how long continued, shall
not be considered to be a waiver of that provision or of the d~
of another Party of its obligations under that provision
or under any other provision o Agreement.
19.5 Language
This Agreement is concluded in the English language, with the
exception of Attachments I, II, 111(2), IV, and Vll,
which are (partly) in the Spanish language, and Parties may at
their own discretion and costs prepare translations.
Any and all disputes arising from this Agreement will be resolved
on the basis of the original version of this
Agreement and Attachments.
19.6 Further Assurances
The Parties shall execute such further agreements, conveyances
and other documents as may be reasonably
requested by any of the Parties to effeduate the intent and any
provisions of this Agreement, including but in no way
limited to changes in the Articles of Association of the Company
as may be required from time to time.
1 9.7 Registration
Billiton may, at its discretion, register a summary of this
Agreement in the Spanish lang in content reasonably
acceptable to Los Tapados at the mining public registry at
Ministerio de Energia y Minas.
26
Sohco Joint Vontun'
IN WITNESS WHEREOF the Parties hereto have executed this
Agreement on the date first written above.
Compania Minera Los Tapados S.A.
By: Mr. Walter Hunt
Billiton Exploration and Mining Peru B.V.
(Sucursal Penuana)
By: Mr. Jonathan Harry Coates
Mr. Alan Carter
27
Soloco Joint V0ntun'
Undersigned by Minera Sotoco S.A.
(i) in acknowledgement of its full awareness of the existence
and contents of the Agreement;
(ii) in order to record its express undertaking not to take or
omit to take, any action which is in
contravention of the provisions and intent of this Agreement, and
(iii) in order to record its express undertaking to honour
the provisions of this Agreement as if it
were a Party hereto.
Minera Soloco S.A.
By: Mr. Walter Hunt
Date: September,7'h October 1998
28
Sohco Joint V0ntun0
SOLOCO JOINT VENTURE
ATTACHMENT I
The Letter of intent
29
Scloco Joint V0ntun0
SOLOCO JOINT VENTURE
ATTACHMENT II (1)
Opcion de Transfer en cia
2~9e`2 r~' hr disa~ssion pu~po~s
Sdoco Jdut Vsntun0
SOLOCO JOINT VENTURE
ATTACHMENT 11 (2)
Servidumbre
29/W8v2 r~t for d~scussion ',urpcses
Sdoco Joint Vsntuns
SOLOCO JOtNT VENTURE
ATTACHMENT lil (1)
Location Map of the Soloco Property
2519198v2 C - (t ibr discussion purpcses
Soloco Jdnt Vsnture
SOLOCO JOINT VENTURE
ATTACHMENT ttl (2)
Details of the concessions forming the Soloco Property
Derecho Codigo As. Ficha Ha
El Coral 1 01-07146-95 02 12224 1,000
El Coral 11 01-07147-95 02 12225 1,000
El Coral 111 01-07148-95 02 12226 1,000
El Coral IV 01-07149-95 02 12227 700
2~98v2 r~t rOr discuss~on purpcsss
Soloco Jdnt Vsniuns
SOLOCO JOINT VENTURE
ATTACHMENT IV
Articles of incorporation of Minera Soloco S.A.
2~98v2 r~t fOr discussion purpcsss
Sdoco Jdut Vsntuns
SOLOCO JOINT VENTURE
ATTACHMENT V
Form of Deed of Pledge
iTo be drafled by Rodrigo Elias y Medranol
2BV!~91h2 Orelt Ibr discussion '~vposss
Sdoco Jdnt Vsntun
SOLOCO JOINT VENTURE
2~98v2 C - (t br discussion pu`Posss
ATTACHMENT Vl
Health, Safety and Environmental (HSE) Policy
Soleco Jdnt Vontun,
SOLOCO JOINT VENTURE
ATTACHMENT V111
NET PROFITS INTEREST
Definitions
Capitalised terms shall have the same meaning as set forth in the
Agreement. Additionally, the following terms shall
mean:
"Net Profits interest": a percentage of the Net Profits derived
from a Mining Operation.
"Net Profits": the excess of gross income from the sale of
Minerals derived from a Mine and any other related
proceeds (excluding the proceeds of sales, if any, of capital
equipment, but including proceeds of insurance, if any,
other than for the replacement of the capital equipmenO derived
from the Mining Operation over all Expenses
properly incurred, determined for each accounting period in
accordance with generally acceptable accounting
principles applied consistently; such Expenses shall, however,
not include income taxes imposed upon profits, paid
or payable, but shall without limitation, include:
(i) all Expenses required to produce and market produdion derived
from the Mining Operation (including mining,
milling, concentrating, smeLting, refir!ing, labour,
transportation, marketing, maintenance, repair, equipment and all
other costs) and such administrative overhead and general
Expenses as required to produce the said gross income;
(ii) all taxes (other than income taxes refenred to above),
levies and royalties imposed, charged or levied upon the
Mine on the Soloco Property and the Minerals mined therefrom,
whether national, departmental, municipal or
otherwise;
(iii) interest in respect of money borrowed or provided by
the Participating Party(ies), for the
purpose of Development and bringing the Mining Operation into
production, and
an allowance for amortisation of the Exploration and Mine
Development Expenses to bring the Mining Operation into
production and depreciation of the cost of equipment and
facilities (including their replacement, improvement or any
addition) required to mine and process the Minerals at such rates
as will write off such Expenses pro-rated over the
estimated life of the Mine. Notwithstanding the foregoing, if the
Participating Party, its permiHed assigns, or an
Affliate, uses any of its facilities erected upon a property
other than the one contemplated herein, to process the
Minerals derived from the Mining Operation, in addition to the
cost of processing, a reasonable "usage fee" shall be
allowed, in lieu of an allowance for depreciation of the
facilities and shall be deducted from the gross income
referred to in this AHachment. If, from time to time, additional
Expenses of a capital nature are required to maintain,
up-date or expand the facilities, the aforesaid usage fee shall
be adjusted to take into account the amount of such
additional Expenses.
If, in any Budget Period, the Expenses referred to in this
Attachment, exceed the income for any such year, the
excess shall be carried forward and be deducted as an Expense
from the income of the subsequent year or years,
as the case may be.
Within 90 days following the end of each Budget Period,
commencing at the end of the Budget Period in which the
Mining Operation is brought into production, the Participating
Party shall deliver to the non-Participating Party a
statement of the Net Profits for the relevant period, duly
audited by an independent Chartered Accountant appointed
by the Participating ParLy for such purpose, together with
payment, if any, of the non-Participating Party's Net Profit
royalty, detemmined in accordance with this Attachment.
2~919~2 r~ for discussion pu~poses
Sdoco Jdnt Vsotuns
SOLOCO JOINT VENTURE
ATTACHMENT V11
Powers of Attorney
2tW98v2 r~ for d~scussion purpcsss
.
Soloco Jdnt Vsetun
Exhibit 10.20
EARN-IN, EXPLORATION AND EXPLOITATION
AGREEMENT
between:
Placer Dome del Peru S.A.C.
and:
Minera Los Tapados S.A.
Re.: Anna Gabrielle Property
CONTENTS
1. DEFINITIONS AND INTERPRETATIONS .................
2. AGREEMENT; PURPOSES
...............................................................
3. TERM
4. STAGE ONE: INITIAL CONTRIBUTIONS AND INTERESTS;
COVENANTS AND CONDITIONS
.....................................................
4.1 Initial Contribution and Covenants of Los
Tapados.....................................
4.2 Initial Contribution and Covenants of Placer Peru
.....................................
4.3 Parties' Covenants
.................................................................
...
4.4 Conditions.............
4.5 Stage One Participating~g Interests of the Parties ..
5. STAGE TWO: EARNING OF PARTICIPATING INTEREST ...............
5. I Exploration Expenses
.................................................................
.......
5.2 Compensation to be Paid by Placer
Peru...........................................................
a) For the shares of the
Company..........................................................
.
b) For the Assignment
.................................................................
.......
5.3
Earning..........................................................
................................
5.4 Vesting
.................................................................
.......................
5.5 Unilateral termination, Disposal during~g Earn-in Period
..........................
6. RELATIONSHIP OF PARTIES; EXPENSES; OWNERSHIP ...............
Page
2
7
7
8
8
9
10
10
11
11
1 1 12 12 13 14 14 14
15
6.] RelationshipoftheParties 15
6.2 Distribution of Costs and Revenues ..... 16
6.3 Ownership 16
7. STAGE THREE: DEVELOPMENT OF THE PROPERTY BY
THE COMPANY.....
7.1 Mhiera Alborada S.A.C.; Purpose
.....................................................
7:2
Board............................................................
..........................
7.3
Shareholders.....................................................
.........................
7.4 General Manager
.........................................................
16
17 17 19 19
8. OPERATOlt
8.1 Earn-ill Period...........................................
8.2 Authority; duties .......................................
8.3 Marketing of production ................................
8.4 Insurance..................................................
8.5
Indemnification..................................................
...........................
9. AUDITS.........
...................... ........................................
9A. NET SMELTER RETURN PRODUCTION ROYALTY
........................
10. PROGRAMS AND BUDGETS; ELECTIONS .
10.1 Prograllls and
Budgets..........................................................
...........
10.2 Review and Approval of Proposed Programs and Budgets
...........................
10.3 Developmellt Programs and Budgets; Project Financing
.............................
10.4 Cash Cal Is ......
I 0.5 Elections .......
11. CHANGES IN PARTICIPATING INTERESTS
....................................
11. I Participath~g Interest calculation..................
11.2
Dihition.........................................................
.............................
11.3 Floor on Dilution
.................................................................
........
11.4 Timing of
Adjustments......................................................
..............
11.5 Continuing Liabilities upon Adjustments of Participating
hlterests ................
12. PROPERTY
PROVISIONS.......................................................
........
12.1 Extension of the Anna Gabrielle
Property..............................................
12.2 Liens and Encumbrances
.................................................................
.
12.3 No Partition or Other Uses
.............................................................
12.4 hldividual and Joint Loss of Title
.............................
13. RF.PRESF.NTATIONS AND WARRANTIF.S;
LIABILI'I Y l'ROVISIONS ...............................
13.1 Representations and warranties; Los Tapados .............
13.2 Representation and warranties; Placer Peru .............
13.3 Indemnity ..
13.4 Othel s
...........................................................
19
19 19 20 20 20
21
22
22
22 22 23 24 24
25
25 25 25 26 26
27
27 27 28 28
28
28 31 32 33
14. ASSIGNMEN I'; RlGHi'r OF FIRST REFUSAL .................
14.1 Assignmelit....................................
14 2 Right of First Refusal :
14.3 Affiliates.........................................
14.4 Evidence of Chalige of Ownership ..........
I5. ACCESS;CONFIDENTIALITY
16. TERMINATION....
16.1 Events of femiinatioli ..................
16.2 Procedure
.................................................................
..................
16.3 ContiEitling Liability; suivival
............................................................
''i'''''''''
17. NOTICES..
18. GOVERNING l.AW; DISPUTES; ARBITRATION
..........................
18.1 Govemilig law .......... 18.2 Disputes .................. i
8.3 Arbitration ..............
it9, CONSTRUCTION........
19.1 Enuremelit; Entire
Agreement........................................................
....
19.2 Approvals and costs
.................................................................
.......
19.3 Severability.........................................
19.4 Waivel-...............................................
19.5 Langtlage...........................................
19.6 Eurthel Assurances..........................
000000
35
36
38
39
40
Executed, Jan. 22, 1999
THIS AGREEMENT is made and entered into on January 22, 1999,
between:
t
Compania Minera Los Tapados S.A., a subsidiary of Solitario
Resources Corporation,
incorporated according to the laws of Peru and having its
registered office at Los Tucanes No.
234, San Isidro, Lima (hereinafer referred to as "Los Tapados"),
duly represented by Mr.
Walter H. Hunt, by virtue of a board resolution attached hereto
as Attachment V,
Placer Dome del Peru S.A.C., incorporated according to the laws
of Peru (hereinaf er referred
to as "Placer Peru"), with registered offue at Ave. Central 643,
Piso 3, Lima, Peru, duly
represented by Marcial Vergara Montero and Alffedo E. Vidal
Henderson by virtue of its
bylaws attached hereto as Attachment V, and
Compahia Minera Alborada S.A.C., a company to be incorporated
under the laws of Peru
(hereinafter "the Company"), duly represented by its founders
Minera Los Tapados S. A. and
Walter Henry Hunt.
WHEREAS:
A. Los Tapados is the sole and exclusive registered title holder
of 69 mining concessions known
collectively as the Anna Gabrielle property, listed and shown in
the maps (Figure I and Figure
2) which are included herein as Attachment 1, located in the
Department of Cajamarca, Peru
(the "Property" or "Anna Gabrielle Property").
B. Los Tapados undertakes to transfer and assign all of its
rights in the Property to
the Company.
Pursuant to a Letter Agreement dated October 5, 1998 attached
hereto as Attachment III
the parties agree as follows: (i) Los Tapados grants and Placer
Peru hereby acquires the right to
earn a sixty percent (60%) interest in the Company for the
consideration and under terms
specifted herein; (ii) Los Tapados, Placer Peru and the Company
agree to assign all mining
rights and obligations over the Properties to Placer Peru or an
Affliate of Placer Peru for an
initial term of at least one (I)~year (subject to termination)
ffom the Effective Date under terrns
and for the consideration specified herein, and (iii) the parties
enter into this Agreement for the
purpose of conducting
Execuled, Jan. 22, t999
miheral exploration and, if feasible, mining mineral deposits in
the Property on terms and for
the consideration as further set forth in this Agreement.
NOW, TEI:EREFORE, in consideration of the mutual covenants and
agreements set forth
below, the Parties agree as follows:
1. DEFINITIONS AND INTERPRETATIONS
Whenever used in this Agreement, the terms set forth below shall
have the meanings assigned
to them in this Section 1.1. Such meamings shall apply equally to
the singular and plural forms
of these terms. Unless otherwise expressly specified therein, the
terms defined in this Section
1.1 shall have the same meanings when used in any attachments to
this Agreement.
"Affiliate" shall mean, in relation to Los Tapados, any persons
or companies other than
Los Tapados, directly or indirectly controlled by Crown Resources
Corp. and Solitario
Resources Corp., Colorado, U.S.A. corporations, and when used in
relation to Placer Peru, any
company other than Placer Peru directly or indirectly controlled
by Placer Dome Inc, a
Canadian corporation. For the purpose of this definition:
(i) a particular company shall be directly controlled by another
company or
companies that either, benef~cially own(s) shares carrying in the
aggregate the majority of votes exercisable at general meetings
of the
particular company, or possess(es), directly or indirectly, and
can and
do(es) exercise the power to direct or cause direction of
management and
policies through ownership of voting securities, contract, voting
trust or
otherwise; and
(ii) a particular company shall be indirectly controlled by a
company or
companies (hereinafter in this definition called "the parent
company or
companies"), if a series of companies can be specified beginning
with the
parent company or companies, and ending with such particular
company
which shall be so related that each company of the series, except
the
parent company or companies shall be directly controlled by one
or more
of the companies earlier in the series.
"Agreement" shall mean this agreement and all attachments to it,
which attachments
include the assignment agreement, the pledge agreement,, the
production royalty agreement,
the bylaws of the Company, and other attachments which are
incorporated into this Agreement
by reference. The assiglunent agreement and the
2
Executed, Jan 22, 1999
bylaws shatl be executed and entered hTto in the form of separate
public deeds upon the
execution of the main text of this agreement, and shall be filed
and registered with the
appropriate govemmental authorities in Peru. To the extent that
the terms and provisions of this
Agreement are in conflict with the terms and provisions of any
such attachment, this
Agreement shall prevail.
"Anna Gabrielle Property" (the "Property" or the "Anna Gabrielle
Property")
shall refer to all the concessions, pediments, claims and, in
general, mining rights, or any
interest herein, now owned by Los Tapados and hereafter
transferred to the Company and
located in the Department of Cajamarca, Peru as issued by the
Registro Publico de Mineria del
Ministerio de Energia y Minas as of the date of this Agreement
and listed in Attachment 1.
This definition of Anna Gabrielle Property includes the
concessions listed hT Attachment 1, as
well as all Minerals in the AmTa Gabrielle Property and all
surface rights, including real and
personal property, all easements, water and water rights
associated with or attributablc (hereto.
All references hereilT to concessions shall mean and hTclude any
successor or substitutc title
instrument issued under the laws of Peru.
';Assets" shall mean and include the Anna Gabrielle Property and
all tangible and
intalTgible assets (including but not limited to personal and
real property) obtained by
acquisition, lease, license or any other manner, in connection
with and in furtherance of
Operations, including the proceeds, profits, benefits and
increments and all Data, reports and
other data or information that result from Operations.
"Assignment" shall mean the assignment of the mining rights and
obligations with
regard to the Property to Placer Peru during the Earn-in Period
as defined in Section 5.2(b) and
as provided in the Assignment Agreement to be entered into by the
parties substalTtially hT the form
of Attachment Vlll hereto.
"Assignment Agreement" shall mean the Assignment Agreement to be
entered
hTto by the parties UpOIT execution of this AgreenTent
substalTtially In the fonn of AttachlTTelTt Vlll
hereto.
Bo;.I-d slTall ITTealT the Board of Directors of tiTe ColTTpalTy;
"Budget" shall mean a detailed projection of estinTated costs and
expenses required
fomuTy Operations durhTg a Budgct Period.
"Budget Period" during the Earn-hT Period shall mean a perigd of
one year
COmnTOlTCilTg OIT Ist March and ending on the last day of
February of the following year, except
that the first Budget Period shall be the initial period from the
Effective Date
3
Executed, Jan. 22, 1999
until the last day of February of 2000. There should be a total
of four budget periods during the
Earn-ln Period. Subsequent to the Eam-in Period, Budget Period
shall mean a period of one
year cormnencing on January Ist and ending on December 31. The
first Budget Period
subsequent to Eam-in shall mean that period between the effective
date of the Eam-hT ulTtil
December 31 of the same year.
"Casb Calls" shall have tthe meanhTg as set fortlT itT Section
10.2.
"Company" shall mean Compania Minera Alborada S.A.C. or such
company to be
established by Los Tapados that will be exclusively dedicated to
holding the Arma Gabrielle
Property. A model form of the bylaws of the Company are shown in
Attachment Vll.
"Data" shall mean data and information conceming exploration
within the Anna
Gabrielle Property, hTcltiding but not limited to the following:
all logs and drill hole records;
maps showing the location of all holes drilled; all land surveys
(including both maps and a
listing of co-ordinates); all geochemical sample locations, all
amalytical and interpretative
data and information (including without limitation all chemical
or other assays); all
geophysical records; all ore reselve, production and feasibility
studies; and all other similar
records whatever their fomm and nature with respect to the
Operations conducted OIT the
Property in accordance with the purpose and terms of this
Agreement.
"Development" shall mealT all activity or work to be conducted
following approval of
a feasibility study and continuing until the Mine described by a
feasibility study achieves
commercial production and shall include but not be limited to all
preparations for the removal
and recovery of Minerals, the construction, erection,
installation and equipping of a Mine and
associated facilities.
"Earn-in Period" shall mean the period starting on the Effective
Date comprising
Stage One and Stage Two and ending upon Placer Peru ea~ning a 60%
(sixty percent)
Participating interest in accordance with the conditions of
Section 5, or altematively, after
having terminated this Agreement.
"Effective Date" shall mean, notwithstauTding the date hereof,
October 5, 1998.
"Expenses" shall mean all costs, expenses and liabilities
accruing or resulting GOITT
0peratiolTs, ilTcluding but not liiTTited to adlTTilTistrative,
auditilTg a~Td/or legal costs witlT
respect to the Anna Gabrielle Property as well as tax burdens and
other govermmental levies
related to or derived from Operations. DurhTg the,Eam-in Period,
E5xpenses pursualTt to
Section 5 1 expended by Placer Peru qualify towards Placer Peru's
right to eam a ParticipatuTg
interest hereunder. Head oftice, overhead and other indirect
4
Executed, Jan. 22, 1999
costs hTctll-red by Placer Peru during the Eam-in Period or the
Operator thereafter in
connection with Operations shall ColTStitute Expenses, provided
such costs are not in excess
of 5/0 (five percent) of the total Expenses of the Budget Period
to which such costs reLTte.
Los Tapados acknowledges that Placer Peru will be conducting
Exploration in respect of the
Anna Gabrielle Property and also exploration in respect of other
properties in the sanTe region
that are not included in the Agreement, and that Placer Peru will
be entitled to apportion
Expenses in fulfillment of its obligations on such basis as
Placer Peru deems appropriate acting
reasonably provided that such Expenses are approved or accepted
by Los Tapados as bona fide
Expenses incurred in direct connection with the Anna Gabrielle
Property.
A strict definition of what shall be considered an allowable
Expense during the Eam-in Period
is included in Attachment II as "Work Costs".
"Exploration" shall mean the prospecting, explorilTg and all
other activities and
operations which have for their purpose the discovery and
delineation of deposits of MhTerals
witlTilT the Anna Gabrielle Property by ground and/or aerial
methods, and, after the discovery
and location of a deposit of Minerals, the hTvestigation and
evaluation of such deposit of
Minerals by drilling, surface and/or underground workings,
sampling and testing to determine
the size and quality of the discovered deposit of Minerals.
"Letter Agreement" shall mean the agreemelTt dated October 5,
1998 betwec Placer
Peru and Los Tapados relating to the Property and appended in
Attachment III
"Los Tapados" for purposes of this Agreement shall mean Minera
Los Tapados S.A. or
one of its Aff liates.
':Mine" shall mean:
(i) any shaft, pit, tunnel or opening, underground or otherwise,
made or
constructed after preparation of a Feasibility Study, and from
which
Minerals have been or may be removed or extracted by any method
wlTatsoever, whetlTer ITOW known or hereafter developed, in
quantities
larger than those required for purposes of sampling, analysis or
evaluation;
(ii) nTills and other facilities for the treatment, processing
and storage, and
disposal of Minerals and waste, including tailings;
s
Executed, Jan. 22, 1999
(iii) fixtures, buildings, facilities and improvements for
mining, processing, handling and
transporting Minerals, waste and materials; and
(iv) housing, off~ces, roads, airstrips, power lines, power
generation facilities, evaporation
and drying facilities, pipelines, railroads, infrastructure, and
other facilities for any of
the foregoing purposes.
"Minerals" shall mean all ores, minerals and mineral substances.
"Mining Operation" shall mean the work or activity of mining,
removing, extracting,
treating, processing, milling, drying, and packaging Minerals and
associated by-products (in
quantities larger than those required for purposes of sampling,
assaying, testing, analysis or
evaluation) by open pit, underground, in situ methods, heap
leaching, solution mining or any
other methods now known or hereafter developed; all operations
necessa~y to operate and
maintain a Mine, including the further construction, development,
maintenance and operation
of buildings, plant, machinery and facilities required for the
purpose thereof; and all
reclamation and restoration performed upon or for the benefit of
the A~ma Gabrielle Property
as a result of Operations conducted pursuant to this Agreement.
"Net Profts Interest" shall have the meaning as set forth in
Attachment IV.
"Non-Participating Party" shall mean any Party that has elected
not to participate in
the costs of a Program and Budget for Operations after the
Earn-in Period pursuant to Section
10.4 of this Agreement.
"Notice" shall mean any notice as required under Section 17 of
this Agreement.
"Operations" shall mean Exploration, (Pre-)Development, Mine
Development and
Mining Operations undertaken and conducted pursuant to (approved)
Programs and Budgets.
"Operator" shall mean any person or entity designated as, and
serving i capacity of,
Operator pursuant to Section 8 of this Agreement.
"Option" shall mean the option by Placer Peru to acquire an
interest i Company in
accordance with the provisions of Section 5.
"Participating interest" shall mean a Party's undivided interest
in the Company as the
same may appear from time to time, it further being understood
that a Party,
6
Execute4, Jan. 22, 1999
durittg the Earn-in Period, shall not have or own a Participating
Interest of less than 10% (ten
percent) as further detailed in Section 11.3 of this Agreement.
"Placer Peru" for purposes of this Agreement shall mean Placer
Dome del S.A.C. or
one of its Affdiates.
"Party" or "Parties" shall mean Placer Peru and or Los Tapados
and or successors or
permitted assignees in accordance with Section 14 of this
Agreement.
"Pre-Development" shall mean all activity or work involved in
Exploration and
feasibility studies. Pre-Development also includes, but is not
limited to, nonexploration related
infrastructure activities such as administration of the Anna
Gabrielle Property itt accordance
with the terms of this Agreement, surveying, mapping, drilling,
road construction, soil testing,
engineering design, cost analysis, preparation of environmental
impact statements or studies,
overburden stripping, and pilot testing programs.
"Program" shall mean a detailed statement of Operations to be
conducted during a
Budget Period, adopted and, as appropriate, approved pursuant to
Section 10.2 of this
Agreement.
"Stage One" shall have the meaning set forth in Section 4.2.
"Stage Two" shall have the meaning set forth in Section 5. 1.
"Stage Three" shall have the meaning set forth itt Section 7.
2. AGREEMENT; PURPOSES
The Parties hereby enter into this earn-in, exploration and
exploitation agreement for the
purposes of exploring for, and if feasible, developing and
producing Minerals and deposits
thereof within the Anna Gabrielle Propetty and for acquiring,
improving, developing and
operating the properties and or concessions within the Property
in all respects in accordance
with the provisions of this Agreement. This Agreement and its
attachments will be the
exclusive means by which the Parties and any person or persons
not dealing with a Party at
arms' length will conduct Operations on the Anna Gabrielle
Property.
3. TERM
7
Executed, Jan. 22, 1999
This Agreentettt comutences on the date hereof subject to the
conditions of Section 4.4, and
will continue in full force and effect for so long as the Parties
jointly own or have the right to
earn any interest in the Company, unless sooner terminated in
accordance with the provisions
of this Agreement.
For clarificatiou purposes, the temm of this Agreement has been
further organized according to
three different stages and four budget periods, each of which are
set forth in detail uttder
Sections 4 through 8 below.
4. STAGE ONE: INITIAL CONTR7BUTIONS AND INTERESTS; COVENANTS
AND CONDITIONS
For purposes of this Agreement, Stage One shall begin on the
Effective Date and couclttde at
the end of the first Budget Period, that is, on the last day of
February of 2000. During Stage
One, the parties agree as set forth in this Section 4.
4.1 initial Contribution and Covenants of Los Tapados.
Los Tapados, as its Stage One contribution and for consideration
to be paid by Placer Peru,
contributes to the Conipany all of its rights and Data gathered
to date with respect to the Anna
Gabrielle Property. To that end, Los Tapados has, attc7 to thc
cxtcut this has not been
completcd at the date hereof, shall:
(a) no later thau January 31, 1999, complete and file with a
Notary Public the
ntittute of htcorporation of the Contpany, contributing to the
Company
all of Los Tapados' right and title to the Anna Gabrielle
Property and
Data with respect to the Anna Gabrielle Property listed under
Attachment
I. Los Tapados shall provide Placer Peru conclusive evidence
thereof
htcluding but not limited to, a complete and perfected public
deed
evidencing the incorporation of the Company and the transfer of
the Anna
Gabrielle Property to the Company duly filed with the Mining
Register;
(b)
immediately upon incorporation of the Cotnpany but in ttO event
later than ninety (90)
days from the date of execution hereof, cause the Company to
issue, free of any liens,
encumbrances and charges, sixty percent (60 /0) of the
outstanding share capital of the
Company to Placer Peru or an Affiliate of Placer Peru for
consideration equal to the face value
of the shares of the Compatty, wlticit shall be ,valued at sixty
percettt (60%) of the Contpatty's nct
egttity. The transfer of the Property and the Data to the
Compatty should be vaTued at its tax
cost, and both
8
Executed, Jan. 22, 1999
Placer Peru and Los Tapados shall jointly assume any income tax
liability arising from such
transfer, if any, according to each Party's Participating
Interest at the time of the transfer to the
Compau~y. Moreover, Placer Peru will assume 60% of the income tax
liability, if any, arising
from the transfer of the shares as provided hereunder;
(c) upon execution of this Agreement, the bylaws of the Company
will be
Attachment VII hereto and including the following composition of
the
Board of Directors of the Company:
William M. Hayes, (alternate Jose Luis Cea)
Gregory Cox (alternate Arturo Galleguillos), and
Walter H. Hunt (alternate Christopher E. Herald)
(d)
(e)
immediately upon incorporation of the Company but in no
event
later than ninety (90) days from the date of execution hereof,
register the
office of the Company at Av. Central 643, Piso 3, San Isidro,
Lima and
deliver all corporate ledgers, corporate records and the like to
the
of fices of Rodrigo, Elias & Medrano, local counsel to Placer
Peru, to the
attention of Luis Carlos Rodrigo Prado, who will act as
non-voting
Secretary to the Board of Directors of the Company.
btttnediately upon executiott of this Agreement but in no event
later than forty-five (45)
days from the date hereof, enter and perfect the Assignment
Agreement as provided for in
Section 5.2(b) below.
(f) for purposes of applying the formula provided in Section 11.
I, by
exception, at the end of the Earn-in Period Los Tapados' deemed
initial
Participating Interest will be 40/O of Placer Peru initial
contribution at the
end of the Earn-in Period,
Los Tapados shall have the right to notify Placer Peru and
request an extension for a reasonable
period of time, in the event it is not able to complete its
obligations under this Section 4.1
within the periods specified herein, and approval of such
extension should uot be unreasonably
withheld by Placer Peru.
4.2 Initial Contribution and Covenants of Placer Peru.
PLtcer Peru, as Stage One contributions and in consideration for
the rights granted by Los
Tapados hereunder, agrees as follows:
9
Bxecuted, Jan. 22, 1999
(a) conduct Exploration from the Effective Date until the end of
the first
Budget Period incurring Expenses relating to Operations in the
amount of
not less than US$300,000, it being understood that Expenses
incurred by
Placer Peru during Stage One in respect of the Anna Gabrielle
Property in
excess of US$300,000 shall qualify and be carried forward as
Expenses
corresponding to the following Budget Periods;
(b) pay the derechos de vigencia for the Property during the
first Budget
Period in accordance with Section 5.2(b).
(b)
(c)
(d)
(e)
pay the consideration for the right to earn a Participating
Interest itt the Company during Stage
One as set forth under Section 5.2(a) below;
pay the consideration for an assignment of all mining rights and
obligations with respect to the
Property during Stage One as set forth under Section 5.2(b)
below;
within 30 (thirty) days of the date in which Los Tapados
transfers 60 % of the shares in the
Company to Placer Peru as set forth in Section 4.1 above, Placer
Peru shall grant Los Tapados a first and
preferential pledge on such shares by executing a Deed of Pledge
substantially in the form contained in
Attachment VI. The Parties agree that the pledge will be
terminated canceled at such time as Placer Peru
completes the earning of a 60% (sixty percent) Participating
interest as set forth in Section 5, aud
ensure that all Exploration Operations carried ott by Placer Peru
or on its behalf during Stage One
and Stage Two shall be carried out in accordance with prudent
bttentatiotnal mitteral exploration
standards and practices, and that all applicable laws,
regulations, perntits and approvals are performed
and complied with in connection with such activities.
In compliance with its obligations under this Section 4.2 Placer
Peru has made as of the date of this
Agreement, the payments required under 4.2(c) and (d) above for
the first Budget Period, and Los
Tapados acknowledges receipt thereof by execution of this
Agreement.
10
Executed, Jao. 22, 1999
4.3 Parties' Covenants
During the life of this Agreement, Parties shall use their best
efforts to maintain the concessions forming
the Anna Gabrielle Property in good standing, including ensuring
that all filings and applications
required under applicable laws or the tenms of such concessionst
are made.
4.4 Conditions
This Agreement is conditional on:
Los Tapados having perfonmed, procured and evidenced to the
satisfaction of Placer Per6, any and all
actions in relation to Los Tapadost initial contributions as
detailed in Section 4.1, and
Los Tapados undertakes to complete to the extent possible the
itnplementation of the aforententioned
condition as soon as practicable before January 31, 1999, but tto
later than 90 (ninety) days after the date
of execution of this Agreement. Should Los Tapados not be able to
complete all actions in relation to its
obligations as detailed in Section 4.1, Los Tapados shall notify
Placer Per6 and shall request an extension
of a reasonable period of time, approval of such extension not to
be unreasonably withheld.
4.5 Stage One Participating Interests of the Parties
Subject to eanT-in, dilution and relinquishment pursuant to
Sections 5 and 11, the Parties' Participating
interests in the Company as of the Effective Date shall be:
Los Tapados: Placer Per6:
100% (one hundred percent)
0/O (nil percent)
s STAGE TWO: EARNING OF PARTICIPATING INTEREST
For purposes of this Agreement, Stage Two shall begin at the end
of the first Budget Period, and
conclude at the earlier of (i) the end of the fourth Budget
Period, or (ii) the date Ott which Placer Peru
eanns a Participating Interest in accordance with this Section 5.
During Stage Two, the parties agree as
set forth itt this Section 5.
Exploration Expenses
11
Executed, Jan. 22, 1999
Placer Per6 may, in addition to Stage One Expenses, at its option
but not obligation, spend up
to US Dollars 3,750,000 (three million seven hundred fifty
thousand U.S.Dollars) on
Exploration relating to the Anna Gabrielle Property as Placer
Per6 detemmines in its sole and
absolute discretion to be appropriate. Expenses incunred during
any of the Budget Perio~ds in
excess of the amounts provided hereunder shall qualify as
Expenses conresponding to the
following Budget Periods. Such expenditures iti order to qualify
for eaming of a Participating
interest shall confomm to the following Budget Periods and
Stages:
ONE
, .......... .
TWO
THREE
t.............................................
FOUR
TOTAL
BUDGET PERIOD
STAGE
ONE
AMOUNT
$300,000
TWO . $450,000
............................ j
TWO . $950,000
t
................. _ ..............................................
$4,050,000
Nothing in this Section 5 shal1 be construed as obligating Placer
Per6 to incur additional
Expenses beyond those specified in Stage One except as provided
for in Sections 5.5 and 16.3.
Placer Per6 shal1, after the end of each Budget Period during the
Eam-in Period, provide to Los
Tapados a report detailing the results of its Exploration
Operations and of I XpetTSeS itt respect of
the Anna Gabrielle Property, including copies of related data
(inclttdittg the geophysical data in
hard copy and digital fonnat).
5.2 Compensation to be Paid by Placer Peru
Duriltg the EartT-itt Period Placer Peru shall pay to Los Tapados
as follows:
(a) For the shares of the Company
As consideration for an exclusive right to be fully vested with
60% of the shares of the
Contpatty, Placer Per6 shall compensate Los Tapados as set forth
below. Placer Peru shall have
the right to exercise or termittate the vesting of its
12
Executed, Jan. 22, 1999
Participating Interest at any thtte durittg the Earn-in Period
pursualtt to the requirements of
Sections 4.2 and 5.1. However, all payments for the
Participatiltg interest not incunred as of the
date of temminating such right shall cease and shall not
constitute an obligation of Placer Peru
upon temmination of such right. The Participating Interest
payments are inclusive of all taxes,
if any, and shall be due and paytable on the first day of the
Budget Period corresponding to the
payment. The payment for the right to a Participating Interest
during the first Budget Period has
been made by Placer Peru as of the date of execution hereof and
Los Tapados acknowledges
receipt and confommance with such Payment by execution of this
Agreement.
ISt Budget Period $40,000
2nd Budget Period $50,000
3rd Budget Period $50,000
4tl. Budget Period $50,000
(b) For the Assignment
In exchange for an exclusive assigmnent of all mining rights and
obligations with respect to the
Property during the Eam-in Period in accordance with this
Agreement, the parties shall execute
an Assignment Agreement substantially in the fonm contained in
Attachment VIII and Placer
Peru shall compensate Los Tapados as set forth below. As part of
the Assignment Placer Peru
agrees to pay the yearly tnining property fees (or "derechos cle
vigencia") applicable to each of
the claims pursuant to article 39 of the Peruvian Mining Code,
during the tenm of this
Agreement and payable during the first semester of each calendar
year.
In respect thereof, Los Tapados acknowledges that payment for the
derechos cle vigencia on
the Property are currently paid up to the calettdar year 1997,
aud thereby the first payment to
be made by Placer Peru in June, 1999 would be applied to 1998.
Los Tapados and Placer Pertt
hereby agree that in the event the preselTt mining Laws and
regulations itT Peru are modifted to
require that payment for the derechos cde vigencia be made for
the year in course and or in
advance; that Los Tapados shall bear the entire cost and expense
of bringing such payments up
to date (including any possible fines or penalties). That is, Los
Tapados shall bear the costs of
the derechos de vigencia for the y~ear in arrears.
13
Executed, Jan. 22, 1999
DuritTg the first Budget Period the payment of the clerechos cle
vigencia is a finn
comtTTitttTcnt. The Assignment Agreement shall automatically
tenminate upon
teuTTitTatiotT of this Agreement or as provided thereunder, which
includes, but is not
iitTTited to the CompalTy's grant of a net smelter retunT
production royalty to Placer Penu
after the EartT-In Period as provided under Section 9A.
The payment for the Assignment for the first Budget Period
inclusive of all taxes, whether sales
(IGV) or otherwise, has been made by Placer Peru as of the date
of execution hereof and Los
Tapados acknowledges receipt and confommance with such payment by
execution of this
Agreement.
Budget Period $10,000
2"''Budget Period
3t'i Budget Period
4ti~ Budget Period Yearly mitTing property fees
5.3 Earning
Yearly mitTitTg property fees
Yearly mhTitTg property fees
OIT such date as Placer Peru has (i)fulfilled its obligations as
set forth hT Sections 4.2, 5.1 and
5.2, (ii) has incurred aggregate Expenses equal to or greater
than U$ 4,050,000 and (iii) has
given Notice thereof to Los Tapados, Placer Peru shall be deemed
to have fully eamed a 60%
Participating Interest in the Company. The Partiest respective
Participating Interests shall then
be:
Los Tapados (or an Affiliate): Placer Peru (or an Affiliate):
5.4 Vesting
40/0 (forty percent) 60% (sixty percent).
UPOIT request by Placer Peru after havhTg completed the eamhTg-in
of its Participating
interest, Los Tapados shall execute and deliver to Placer Peru
appropriate conveyances to
evidence the vestilTg of Placer Peru's Participating hTterest in
accordance with Section 5.3
which shall include the temTinatiotT cancellatiolT of the Deed of
Pledge on Placer Peru's
shares in the Co'TTpatTy ancl all legal formalities associatecl
thcrcwitlT.
5.5 Unilateral termination; Disposal during Earn-in Period
14
Executed, Jan. 22, 1999
At any time after completion of the work commitments and payments
specified during Stage
One, Placer Peru shall have the unilateral right to Notify Los
Tapados that it wishes to
tenninate this Agreement. Notwithstanding the above, should
Placer Peru temminate this
Agreement, Placer Peru shall be obligated to complete such work
con\mitments and paymetTts
of the derechos de vigencia for the Budget Period already ilT
course at the time of temmination
but shall have no obligations to incur additional ExploratiolT
Expenses or make payments to
Los Tapados for subsequent Budget Periods as provided for in
Sections 5.1, 5.2(a) alTd 5.2(b).
Notice of tenmination during Stage One or Stage Two by Placer
Peru shall be accompanied by
a relinquishment to Los Tapados of all of Placer Peru's rights,
title, interest and royalties in this
Agreement and the Company, and Placer Peru shall have no furflTer
obligations with respect to
Exploration Expenses and/or Operations, other than to make
available to Los Tapados all Data
in respect of the AnTa Gabrielle Property at no charge and as
provided for in Section 16.3.
However, Placer Peru does not and will not represent, wanrant or
guarantee the completeness,
accuracy or validity of the Data surrendered to Los Tapados.
Placer Peru shall execute and deliver to Los Tapados appropriate
conveyances to evidence the
relinquishment of all of Placer Peru's rights, title, interest
and royalties in the Anna Gabrielle
Property as well as transfer the shares in the Company to Los
Tapados or an Affiliate for
nominal consideration.
6. RcELATIONSHIP OF THE PARTIES; EXPF.NSES; OWNERSHIP
6.1 Relationship of the Parties
The rclationship between the Parties shall be linTited to the
perfomTance of the purposes set
out in this Agreement. It is not the intention of the Parties to
this Agreement to create, and this
Agreement will not be construed as creating, a minitTg
partnership, a commercial partnership
or other partnership between the Parties.
Each Party shall be responsible only for its obligations and
liabilities as set forth in this
Agreement. Nothing contained in this Agreement shall be deemed to
constitttte any Party the
agent or legal representative of the others, or to create any
fiduciary relationship between them,
unless otherwise expressly established. As against third palties,
any Party hereto that incurs any
obligation or liability in comTection with this Agreement shall
be solely responsible for the
discharge thereof, but as between the parties shall be entitled
to recover the same from the
15
Executed, Itut. 22, 1999
other Parties hereto in proportion to their respective
Participating interests if and to the extent
that such obligations or liabilities were approved by such other
parties or their respective
nominees on the Board of the Company.
No Party shall have any authority to act for or to assume any
obligation or responsibility on
behalf cttf the other Parties, except as expressly provided in
this Agreement. Each of the Parties
agrees to indemnify and hold hammless the other Parties, its
directors, officers, and employees
from and against any and all losses, clahns, damages, and
liabilities arising out of any act or
any assumption of any obligatiotT or liability by the
first-mentioned Party, or any of its
directors, officers, agents, or employees, done or undertaken, or
apparently done or utTdertaken' on
behalf of the other Party, except pursuant to the authority
expressly granted herein or otherwise
agreed to by the Parties.
Except as provided in section 12.1, each Party shall have the
free and utTtesttictcd riglTt,
itTdepetidelTtly or ilT CotTTbitT~ttiotT WitiT otlTCrs, to
etTgage in alTd receive the full benefits of any and all
business endeavors of any sort whatsoever, wlTetlTer or not
competitive witlT the endeavors
contemplated hereitT with respect to any property rights outside
of the Anna Gabrielle
Property.
Except as provided in this Section 6.1 or in Section 12.1, it is
expressly agreed that a Party
shall not have any fiduciary obligation or other duty of
whatsoever character to the other
Patties that would prevent it from engaging in or enjoying the
benefit of such competing
endeavors or would require it to consult with or allow such other
Parties to participate therehT.
6.2 Distrihution of Costs and Revenues
All Expenses shall, except during the Earn-in Period as provided
in Sections 4 and 5, be shared
and bome by the Parties in proportion to their Patticipating
Interests, subject to dilution and
relinquishment pursuant to Section 11.
Likewise, all dispositions arising out of Operations shall also
be made to the Parties hT
proportion to their Participating interests, subject to dilution
and IclitTqttislTtTTetTt pttrsttatTt
to SectiotT 11 below.
6.3 OsvnerslTip
The Company shall hold exclusive legal title to the AmTa
Gabrielle Property, the Assets and
any and all production of Minerals produced from the Anna
Gabrielle Property, subject to the
payment of royalties to the parties pursuant to Section 9A, or to
the grantors or lessors of any
mining rights now owned or hereafter
16
Executed, Jat~. 22, t999
acquired withhT the Anna Gabrielle Property pursuant to Section
12 of this AgreemetTt.
Should any Party, subsequent to the date of this Agreement,
burden any of its hTterest in the
Anna Gabrielle Property with any additional royalties or other
payments out of production, the
same shall be bome and paid entirely by the Party creating such
burden out of that Party's
proportionate part of production from the AmTa Gabrielle
Property.
7. STAGE THREE: DEVELOPMENT OF THE PROPERTY BY THE
COMPANY
i or purposes of this Agreement, Stage Three shall begin at such
time as Placer
Peru has been deemed to have eamed a 60% Participating interest
pursuant to
Sections 4 and 5 of this Agreement. The parties shall then be in
a positiotT to
jointly pursue further development of the Property as
shareholders of the
Company and as specified in this Section 7.
7.1 Minera Alborada S.A.C.; Purpose
The Company shall be used for the exclusive purpose of holding
the interest in flTe Anna
Gabrielle Property hT furtherance and accordance with the
provisions and intent of this
Agreement. The bylaws of the Company, which incorporate the
provisions of this section 7 are
approved by the parties In the form of AttachunelTt VII herein.
7.2 Board
Placer Peru shall be initially entitled to nominate two members
and Los Tapados shall be
entitled to nominate one member to the Board of Directors of the
CompatTy. The persons
named in Section 4.1 (c) shall be the initial members of the
Board of Directors of the Company
and their altemates.
After conclusion of the Eam-in Period, the Board of Directors of
the Company shall be
appointed by their respective Shareholders Meetings, reflecting
the percentage of Participating
interest each Party has, as may correspolTd in each case. The
Board of Directors of the
Company shall make all policy decisions relating to the conduct
of Operations within the Anna
Gabrielle :Property by shttple majority VotitTg except as
otherwise provided for hT this
Agreement, and shall itT particular:
17
Executed, Jan. 22, 1999
(i) approve or disapprove the Operatods proposed selection of
consultants
and contractors to be employed in the furtherance of major
Operations,
including but not limited to, the conduct of feasibility studies,
Mine
Development Programs and Production Programs;
(ii) consult with and provide advice to Operator and the General
Manager;
(iii) appoint, change or replace the Operator and the General
Manager pursuant to the temms
of this Agreement;
(iv)
(v)
(vi)
approve, reject, or approve with modifications all proposed
Programs and Budgets;
review the progress of Operations and costs incurred thereunder;
approve, modify, or reject all proposals to acquire additional
lands or interests or to
surrender or abandon all or part of the AruTa Gabrielle Property,
except as otherwise provided
in this Agreement;
(vii) determine from Data obtained during Exploration that
Minerals exist in suffTcient
quantity and are of sufficient quality to justify the preparation
of feasibility studies;
(viii) perfomm such duties as required by the Company's
bylaws, the laws of Peru and the
requirements of regulatory bodies of Peru, and
(ix) perfomm such other tasks as may be necessary or convenient
for the conduct of
Operations, including but not limited to the establishment of
such controls and
procedures for Operations during feasibility study preparation,
Mine Development and
Mining Operations as it deems necessary or desirable, and as
provided in the bylaws of
the Company.
In general, both before and after the Earn-in Period finalizes,
regular meetings of the Board of
Directors shall be called by the President of the Board or upon
request of the General Manager
or the Operator, as the case may be, and shall be held at least
annually. Following the end of
the Eam-in Period, meetings shall be held at least quarterly.
Special meetings may be requested
by any Party or by the Operator to the President of the Board,
who shall call for such meetin~
within reasonable time.
18
Executed, Jan. 22, 1999
All meetings shall be held in Lima, unless otherwise agreed by
the Parties.
Written Noticc of the time and place of each regular meeting,
accompanied by a proposed
agenda and copies of documents to bc considered by the Board,
shall be submitted by the
President of the Board (if necessary provided by the Operator) to
the members of the Board (or,
if a special meeting, by the Party or the Operator requesting
tthe meeting) not less than 15
(fifteen) days before any such meethTg, unless such requirements
are waived in writing by all
members of the Board. If the General Manager deems it necessary
for any persomnel who are
assigned duties in connection with the conduct of Operations to
attend any meeting, the cost
incurred therefore shall be charged to the account of the
Company.
The Secretary of the Board shall prepare and promptly submit to
the members of the Board
appropriate minutes of each meeting. The members shall approve or
suggest corrections to the
minutes within 15 (fifteen) days of receipt. If no suggested
corrections are received by the
Geueral Manager within the 15 (fifteetT) days period, the minutes
shall be deemed to have
been approved by the Board as drafted. In the event that
suggested correctiOtTS to the minutes
are submitted by a Party within the time provided, the approval
of the minutes shall be the ftrst
order of business by the Board at its next meeting.
7.3 Shareholders
As joint shareholders of the Company, the Parties shall not vote
or omit to vote, decide or omit
to decide, nor undertake or omit to undertake, any action which
is in contravention of the
provisions and intent of this Agreement.
Moreover, neither Los Tapados nor Placer Peru as initial
shareholders of the Company, shall
create or cause the creation of a mortgage or any lien or
encumbrance over the shares in the
Company or the Anna Gabrielle Property, without the other Patty's
prior written consent.
7.4 General Manager
During the Earn-in Period and as long as Placer Peru is the
Operator, the General Manager of
the Company will be nominated by Placer Peru. The General Manager
will be responsible for
all technical, corporate and administrative matters of the
Company.
After completion of the Earn-in Period, the General Manager of
the Company shall be
appohTted by the Board of Directors and will have all technical
and
19
Executed, Jan. 22, 1999
administrative powers, duties and faculties as the Board or the
Shareholders Meeting may deem
convenient or necessary.
OPERATOR
8.1 Earn-in Period
t
DurhTg the Earn-in Period and any time thereafter, when its
Participating interest
is greater than 50/0, Placer Peru shall have the right, but not
the obligation, to be
the Operator. If Placer Peru's Participating interest falls below
50/O at any time
when it is the Operator, the Board of the Company shall have the
power and
authority to replace Placer Peru as the Operator with such entity
or person
(including Los Tapados) as the Board of the Company agrees to
appoint by
majority voting.
8.2 Authority; duties
Following the Eam-in Period the Operator will have full right,
power and authority to manage
Operations including requisitioning one or more feasibility
studies (including a bankable
feasibility study), to propose and implement a Mine Development,
or to operate any Mine.
Following the Eam-in Period the Operator will keep adequate
records of its activities and will
report in writing within 30 days of the end of each calendar
quarter on its activities during such
quarter which shall include but not be limited to a review of
technical results, Expenses
compared against Budgets and a forecast of tcchnical undertakings
and results and future
Expenses against Budget. The Operator will be responsible for
preparing the quarterly accounts
for the Company. The Operator shall conduct Operations in
accordance with prudent
intemationai mineral exploration standards and practices, and
that all applicable laws,
regulations, pemmits and approvals are perfommed and complied
with in connection with such
activities, but shall not be liable to any Party hereto for any
direct or consequential loss
occasioned by its activities, except where resulting from its
wilful misconduct or negligence.
All Programs and Budgets proposed by the Operator will be subject
to approval by the Board
of the Company as set forth in Section 10.
8.3 Marketing of production
20
Executed, Jan 22, 1999
The Operator will have full right, power and authority to market
and sell any and all product
produced by any Mine on the Anna Gabrielle Property in accordance
with marketing plans
("Marketing Plans") unanimously approved by the Board OIT such
temTs and for such time
periods as the Board may deem appropriate.
8.4 Insurance
t
The Operator shall cany and maintain, or cause to be carried and
maintained
adequate insurance in all respects naming the parties to this
Agreement.
Insurance as provided hereunder shall be an allowable Expense of
the Company.
The Parties, at their individual options and expense, may obtain
insurance
coverage in addition to the insurance obtained by the Operator
for Operations, as
they may ilT their own discretion deem appropriate.
8.5 lndemnificatiott
Each of the Parties hereto shall severally indemnify and hold
hammless the Operator, to the
extent of such Party's Participating interest, against any and
all costs, expenses, liabilities or
damages (including legal fees and expenses) hTcttrred by it in
connection with the
perfommance of its obligations herein, provided, however, that
such indemnity shall not extend
to any costs, expenses, liabilities or damages arising solely
from the Operator's wilful
misconduct or negligence.
9. AUDITS
Notwithstanding the annual audit conducted by certified public
accountants required by
Peruvian corporate law, each Party shall have the right to have
an independent audit of all
books, records and accounts of the Company. This audit may review
issues raised by the
requesting Party, with all costs bome by the requestilTg Party.
AnY audit conducted on behalf
of any Party shall be made duritTg the Manager's nonnal business
hours and shall not interfere
with Operations. No Party shall have the right to audit records
and accounts of the Company
relating to transactions or Operations more than twenty-four (24)
molTtlTs after the end of the
calelTdar year during which such transactions, or transactions
related to such Operations, were
recorded in the accounts of the CompatTy. All written exceptions
to and claims upon the
Operator for discrepancies disclosed by such audit shall be made
not more than three (3)
months after completion and delivery of such audit, or they shall
be deemed waived.
21
Executed, Jan. 22, t999
The Operator shall Notify the auditing Party of such explanations
and remedies with regard to
the discrepancies within one month of receipt of
writtenNotification. Should discrepancies
remain unresolved between the Parties, the sole means of
resolution of such disputes shall be
through the process of Arbitration in accordancetwith Section 18.
9A. NET SMELTER RETURN PRODUCTION ROYALTY
Following the Eam-ln-Period, the Parties agree to cause the
Company to grant a thl-ee percent
(3/0) net smelter retum production royalty ("NSR") to Placer
Peru or one of its AfEtliates as
consideration for the funding of Exploration Expenses on the
Property and, as consideration for
the assignment payments as provided in Section 5.2(b). Upon the
incorporation of the
Company, the Parties also agree to cause the Company to grant a
two percent (2%) NSR to Los
Tapados in consideration for the exploration expenses and yearly
mining fees paid by Los
Tapados on the Property since 1993. These agreements shall be
entered into by the Parties in
the fomm of Attachment IX included hereto.
10. PROGRAMS AND BUDGETS; ELECTIONS
]0.] Programs and Budgets
The Program and Budget for the period comtnencing after
completion of the Eam-in Period and
extending to December 3 ]th of the year in progress, shall be
adopted by the Board of Directors
of the Company as soon as reasonably practicable after
completiorT of the Eam-in Period.
By November Ist of each year after the Eam-in Period, the
Operator shall prepare and submit to
the Board of Directors of the Company a Program and Budget for
the following Budget Period.
The Board shall consider all Programs and Budgets submitted by
the Operator or submitted by
one or more Directors (or if it is the case, by any Party) and
shall take action in accordance
with Section 10.2 below.
10.2 Review and Approval of Proposed Programs and Budgets
22
Executed, Jan. 22, 1999
Subject to Section 10.1, the Board of the Company shall deal with
Programs and Budgets as
follows:
Not less than 7 (seven) days and not more than 20 (twenty) days
following the submission of
any proposed annual Program and Budget the Board of Directors
shall meet to review the
,submitted proposal;
the Board shall consult in a good faith effort either to approve
or adopt the proposed Program
and Budget as submitted, or a revision thereof, or to fommulate
an altemative Program and
Budget acceptable to the Parties, and
if a Party anticipates, for any reason whatsoever, not being able
to contribute to a proposed
Program and Budget it shall not unreasonably impede or withhold
approval or adoption of such
Programs and Budgets itT an attempt to prevent dilution as set
forth in Section 11.
If the Board is unable to agree upon a Program and Budget, any of
its members may subnTit an
altennative Program and Budget within 15 (fifteen) days after
that meeting. The Board shall
meet again within 15 (fifteen) days following receipt of the
altemative proposal and shall take
action on the submitted Programs and Budgets. Once approved, and
subject to the rights of the
Parties to elect not to participate, the annual Program and
Budget, any approved supplement
thereto or any approved revision thereof, shall be binding on the
Parties and shall be carried out
by the Operator.
If during any Budget Period less than 80% of the expenditures of
an approved Program and
Budget are actually spent, a Non-Participating Party shall have
the electiolT to reimburse its
pre-dilution share of respective costs to the non-diluting
Palty(ies) within 30 (thirty) days of the
conclusion of the Program and not realize any dilution.
The Operator shall immediately notify the Parties of any actual
or anticipated material
departure from an adopted Program and Budget in course and shall
seek approval of all of the
Parties for the departure. In the case that unanimous approval of
the Parties is not obtained then
expenditures which exceed those in an approved or adopted Program
and Budget by more than
10% in the aggregate then the excess over 10%, unless directly
caused by an Emergency or
Unforeseeable Expenditure, shall be for the sole account of the
Operator and shall not be
included in the calculations of the Participating Intetests nor
deemed an Expense or
contribution under this Agreement. Budget ovenuns of less than
23
Executed, Jan. 22, 1999
10% in the aggregate shall be bome by the Parties in proportion
to their respective Participating
Interests.
For the purposes of this Section, Emergency or Unforeseeable
Expenditures are those which
require that the Operator take any reasonable action it deems
necessary to protect life ~tor
property, to protect the Assets of the Company or to comply with
Laws. The Manager may
make reasonable expenditures on behalf of the Participants for
unexpected events that are
beyond its reasonable control and that do not result from a
breach by it of its standard of care.
The Manager shall promptly notify the Participants of the
emergency or unexpected
expenditure, and the Manager shall be reimbursed for all
resulting costs by the Participants in
proportion to their respective Participating Interests.
10.3 Development Programs and Budgets; Project Financing.
(a)
(b)
Unless otherwise detemTined by the Board, the Operator shall not
submit to the Board a
Program and Budget including DevelopnTent of a Mine described in
a completed feasibility
study until thirty (30) days following the receipt by Los Tapados
or its affliate of the feasibility
study. The Program and Budget, which includes Development of the
Mine described in the
completed feasibility study, shall be based on the estimated cost
of Development described in
the feasibility study, unless otherwise directed by the Board.
If the Board approves Development of the Mine described in a
feasibility study and also
decides to seek Project Financing for such Mine, each Party
shall, at its own cost, cooperate in
seeking to obtain Project Financing for such Mine; provided,
however, that all fees, charges
and costs (including attorneys and technical consultants fees)
paid to the Project Financing
lenders shall be bome by the Parties in proportion to their
Participating Interests, unless such
fees are capitalized as a part of the Project Financing.
Notwithstanding Section 10.2 and 10.4, Board approval of a
Program and Budget that includes
the Development of a Mine and seeks Project Financing for such
Mine, should also provide for
a period of at least ninety (90) days for funding by Los Tapados
from the date such Program
and Budget has been approved by the Board.
10.4 Cash Calls
24
Executed, Jan. 22, 1999
tJnless expressly detailed otherwise in an approved Program and
Budget and pursttatTt to Cash
Calls issued by the Operator from time to time, Parties shall pay
the Cash Calls required by an
approved Prograun and Budget in 4 (four)` quarterly payments on
or before the I 5th (f iteenth)
Day of January, April, July and October respectively to fund
their respective Participating
Interest share of such approved Program tand Budget. If within 30
(thirty) days of a Cash Call
behTg delivered to a Party, the Party fails to fund any Expenses
then such party will be deemed
to be in default of a Cash Call and shall be notified of sucb
default by the notT-defaulting party
(the "Notice of Default"). If within fifteen ( I S) clays of a
Notice of Default being delivered to
a Party, the Party fails to fund any Expenses, then the other
Party will have the right but not the
obligation to futTd the amoutTt of the defcietTcy bT proportion
to its Participating interest,
and the ParticipatitTg interest of the deiitTqttelTt Party will
be diluted accordhTgly in
accordance with the provisions of Section 11.
10.5 Elections
The Party(ies) shall elect, within IS (fifteen) days from the
date a Program and Budget has been
approved, either:
(i) to participate in an approved Program and Budget at their
then
Participating Interest, or,
(ii) not to participate in an approved Program and Budget.
Failure to elect (i) or (ii) in a timely manner, shall be deemed
to be an election not to
participate. The consequences of electhTg or being deemed to have
elected (ii) of this Section
10.4 shall be govenTed by Section 11.3 below.
11. CltANGES IN PARTICIPATING INTERESTS
11.1 Participating interest calculation
After completion of the Eam-in Period and taking into account the
Parties' Participating
Interests as detemmined by operation of Section 4, Section S and
the definitiotT of Expenses,
the Participating interest of the Parties hereto shall be
detemTined from thTTe to time in
accordance with the following formula:
Pl= [A/(A+B)] x 100
25
Executed, Jan. 22, 1999
where PI is the Participating interest of such Party, A is the
aggregate deemed and achtal
Expenses funded or hTcunred by such Party, and B is the aggregate
deemed and actual
Expenses funded or incunred by the other Party.
Each Party's Participating Interest shall be shown in the books
of the Company. Upon dilution,
reduction~or relinquishment of a Party's Participating Interest
as provided in this Section 11,
the diluting Party shall, at any time upon the request of the
other Party, sunrender or transfer its
shares in the capital stock of the Company to the other Party and
execute all such assignments
and transfers of its Participating Interest to the other Party
that the other Party reasonably may
deem necessary or desirable.
1 1.2 Dilution
Subject to Section 11.3, if a Party elects or is deemed to elect,
pursuant to Section 10.5, not to
participate in an approved Program and Budget, or otherwise fails
to timd any Expenses
pursuant to a cash call issued by the Operator in accordance with
an approved Program and
Budget, the Participating Interest of such Party shall be diluted
in accordance with the fommula
set forth in Section 11. I at the times specified in Section
11.4.
The Non-Participating Party may recommence participation in the
next Budget Period's
Program and Budgets at its diluted Participating Interest.
11.3 FIOOT on Dilution
Subject to the operation of Section 11.5 below, if as a result of
an election not to participate in
an approved Program and Budget a Party's Participating Interest
will be diluted below 10% (ten
percent), that Party shall be deemed to have relinquished to the
Participating Party, and the
Participating Party shall own and be entitled to receive, all of
the Non-Participating Party's
Participating Interest.
The Non-Participating Party shall be entitled, however, to
recover 5/O (five percent) of the Net
Profits (as defined itT Attachment IV) of the Company, until all
sums actually contributed or
deemed to have been contributed by it to the CompatTy pursuant to
this Agreement, together
with interest on such sums at an anuttal rate of 2 percentage
points over the 1 2-month LIBOR
as published on the relevalTt Telerate page, but not in excess of
the rate allowed by Peruvian
Laws, and to the extent such sums plus hTterest have not been
recovered previously by the
Non-Participating Party from repayment of debts and/or dividends
by the Company prior to the
date of relinquishment. The relinquishment of the
NonParticipating Party's Participating
interest pursualTt to this Section 11.3 is the
26
Executed, Jan 22, 1999
exclusive means by which a Party may avoid ongoing Program
Expenses; there is no election
to limit participation in an approved Program and Budget or to
have the Party's Participating
Interest diluted to below a 10% (ten percent) PalticipathTg
interest as a result of a decision not
to participate in an approved Program. In the event that the
Participating interest of either party
to this AgreemetTt shall revert to a Net Profit Interest, then
the diluted party shall relinquish its
rights to its Net Smelter Retum Royalty provided in Section 9A.
Timing of Adjustments
The adjustments specified above shall be made at the commencement
of a Program and Budget
based upon the amount of the Budget and the proportions ilT which
the Parties have elected to
participate (if at all) in that Budget. The ParticipatilTg
Interests of the Participating Parties
shall be recalculated at the conclusion of a Program and Budget,
to reflect the actual Expenses
made.
Continuing Liabilities upon Adjustments of Participating
interests
Any reduction, dilution or relinquishment of a Party's
Participating Interest shall not relieve
such Party of its share of any liability arising out of
Operations conducted prior to such
reduction. For purposes of this Section ] 1.5, such Party's share
of such liability shall be equal
to its Participating interest at the thTTe suclT liability was
incurred. The increased
ParticipathTg interest accruing to a Party as a result of the
dilution, reduction, or
relinquishmetTt of the other Party's ParticipathTg Interest shall
be free of royalties, liens or
other encutTTbrances arising by, through or under such other
ParticipathTg Party, other than
those existing at the time the Properties were acquired or those
to which all Palties have given
their written consent.
12. PROPERTY PROVISIONS
12.1 Extension of the Anna Gabrielle Property
If, during the tenm of this Agreement, a zone of potentially
economic minet-alisatiolT is
located within the Anna Gabrielle Property which extends beyond
the AmTa Gabrielle
Property, then the Parties will use their best efforts to agree
iTT a way to jointly acquire the
additional area of interest~in proportion to their Participating
interests. If one Party elects not
to contribute within 30 (thirty) days of notification by the
oflTer Patty, the Party that elects to
continue will be
27
Executed, Jan. 22, 1999
free to acquire said area and such property will not be subject
to the tenms of this Agreement.
12.2 Liens and Encumbrances
No Party shall encumber or cause or permit any lien or
encumbrance of whatever nature to be
placed upon any of the shares without the prior written consent
of the other Party. After the
Eann-in Period, consent shall not be unreasonably withheld or
delayed if the purpose of the
Party proposing the encumbrance is to obtain funds to cany out or
maintain its position under
this Agreement and the encttmbrance is limited to the
encumberilTg Party's Participating
interest in its shares of the Company to be encumbered.
If the other Party does not give the Party proposing the
encumbrance Notice of its objections to
the proposed encumbrance within 15 (fifteen) days after receipt
of
Notice of proposed encumbrance auTd request for consent, the
other Party shall be deemed to
have consented to it. No encumbrance made pursuant to this
Section 12.2 shall impair or
reduce the rights of the Party not proposing the encumbrance ilT
any way and all security
interests created by such encumbrance shall be subordinate to all
rights of the other Party under
this Agreement, including but not limited to its rights to
acquire some or all of the encumbering
Party's Participating Interest by operation of Section 11. For
these purposes, any lender shall be
given notice by the Party proposing the encumbrance that it must
undertake in writing prior to
any such encumbrance, the acceptance of the other Party priority
rights and that it will be
bound by this Agreement in the event the lender shall attempt to
collect on its security.
12.3 No Partition or Other Uses
Prior to the tennination of this Agreement, a Party, or its
successors or assigns, shall not:
(i) resort to auTy action to partition the Anna Gabrielle
Property, and to such extent, each
Party waives the benefits of all laws authorizing such action, or
28
Executed, Jan. 22, 1999
(ii)
utilise or attempt to utilise all or any portion of the Anna
Gabrielle Property for uses or
purposes other than those contemplated and agreed itT this
Agreement without the prior written
consent of the other Partyexcept as provided for in Section 14.
12.4 individual and Joint Loss of Title
After the Effective Date and during the Earn-in Period, any
failure or loss of title to the Assets
due to Placer Peru's actions or omissions, shall be exclusively
assumed by Placer Peru.
Likewise, any failure or loss of title to the Assets due to Los
Tapados' actions or omissions,
shall be exclusively assumed by Los Tapados.
Any failure or loss of title to the Assets, due to facts, acts or
reasons originated after the
Effective Date which are not due to actions or omissions of one
or more of the Parties, shall be
charged to the Participating Party(ies) in proportion to their
Participating Interests, in which
event any and all costs of defending title shall be deemed
Expenses.
REPRESENTATIONS AND WARRANTIES; LIABILITY PROVISIONS
13.1 Representations and warranties; Los Tapados
On the date hereof and during the life of this Agreement Los
Tapados hereby represents and
waurants to Placer Peru, that:
(i)
Los Tapados is duly incorporated and validly subsisting under the
Laws (hereinafter
defined) of Peru with full corporate power and authority to enter
into and carry out all the terms
of this Agreement.
(ii) the execution and delivery of this Agreement and the
performance of its obligations
hereunder will not constitute a breach of any agreement or other
obligation to which it is
a party or require the consent of any third party except such as
has been obtained prior
to the date hereof;
(iii)
the Anna Gabrielle Property is validly located, in good standing
with respect to the
perfonmance of all obligations (including without limitation the
payment of any fees)
applicable under Peruvian mining law except as noted in
Attachment I hereto, and is duly
recorded in the name of Los Tapados;
Executed, Jan 22, 1999
(iv) to the best of Los Tapados' knowledge none of the
concessions comprisilTg the Anna
Gabrielle Property are subject to any litigation, actions,
investigations, arbitration,
prosecution, adverse claims or challenges against or other
judicial or administrative
proceedings, nor has any such action been threatened, and there
are no disputes
outstanding with any government, local or regional authority
arbitrator, administrative
agency or other tribunal or govennmental authority, whether
cunrent, pending or
threatened which directly or indirectly relate to or affect the
Anna Gabrielle Property or
which may adversely affect title to or validity of the Anna
Gabrielle Property except as
indicated in Attachment I. Los Tapados is not aware of any breach
of Law which would
adversely affect the Anna Gabrielle Property;
(v)
(vii)
Los Tapados is the legal and beneficial owner (subject to this
Agreement) of a one
hundred percent (100%) interest in the Property, including 100%
legal and beneficial title to the
concessions listed in Attachment I. As of the date hereof, the
Property is free and clear of all
liens, charges, encumbrances, royalties (except those provided in
this Agreement under Section
9A) or underlying interests whatsoever other than those indicated
in this paragraph 13.1 (v) and
Attachment I hereto, and Los Tapados has the full power and
capacity to hold its interest in the
Property, the Data and to acquire and hold recorded title to the
Property;
Los Tapados covenants and agrees with Placer Peru to use its
reasonable best efforts to
assist Placer Peru to obtain all surface and access rights to the
sunrounding area necessary to
penmit exploration and development of the Property;
to the best of Los Tapados' knowledge, all material infonmation,
agreemetTts and Data
relatitTg to the Anna Gabrielle Property and the Company which is
known to Los Tapados (or
with reasonable inquiry would be known to it) and which is not on
public record has been or
will be disclosed to Placer Peru, and that there is no impediment
for Los Tapados to provide
such infommation. Nothwistanding the above, Los 'fapados does not
and will not represent,
warrant or guarantee the completeness, accuracy or validity of
the Data sunrendered to Placer
Peru;
(viii) to the best of the knowledge, information and belief of
Los
Tapados, neither Los Tapados or any other person, have directly
or
hTdirectly caused, pennitted or allowed any contaminants,
pollutants,
30
Executed, Jan. 22, 1999
wastes Ot toxic substatTces (collectively "Hazardous Substances")
to be releaseci, ciischarged,
phtced, escaped, leached or disposed of on, into, utTder or
through the lands (including
watercourses, improvements thereon and contents thereof)
comprising the Property or nearby
areas and, so far as any of them are aware after reasonable
inquiry, no Hazardous Substances or
underground storage tanks are contained, harbottred or otherwise
present itT or upon such lands
(including watercourses, improvements thereon and contents
thereof) or nearby areas;
to the best of the knowledge, information auTd belief of Los
Tapados, there are no
obligations or commitments for reclamation, closure or other
environmental corrective,
clean-up or remediation action directly or hTdirectly relatitTg
to the Property;
(x)
(xi)
the activities directly or hTdirectly in relation to the Los
Tapados Property and use of
the lands comprising the Property by Los Tapados and, to the best
of the knowledge of Los
Tapados, by any other person have bcct] itT complialTce with all
Laws and Los Tapados has not
received any notice nor is Los Tapados aware after reasonable
ingttiry of any such breach or
violation having been alleged;
no environmental audit, assessment, study or test has been
conducted ilT relation to the
lands comprisitTg the Property by or on behalf of Los Tapados nor
is Los Tapados aware of
any of the same having been condttcted by or on behalf of any
other person (including any
govemmelTtal authority);
(xli) Los Tapados have assigned or encutubered or promised to
assign
or encumber the rights which derive fi-om the Property or any
other
interest therein; and
(xiii) the concessions comprising the Anna Gabrielle Property
pennit
Los Tapados, if necessary, to grant to Placer Peru the exclusive
right to
prospect and explore the Property as to gold and precious metals
and base
tTTitTer.tls duritTg tlTe EartT-ltT Periocl.
TlTjS ~\greetTTetTt and its attachnTelTts (itTcluditTg tiTe
j~ublic deeds of two of tlTose
attachtTTetTts) constitttte the entire agreemetTt betwcetT the
parties theret~o with respect to
the Property.
3
Executed, Jan. 22, 1999
The representations and warranties contained in this section 13.1
are provided for the exclusive
benefit of Placer Peru and shall survive the execution of this
Agreement and its attachments,
the consummation of the transactions contemplated in such
Agreements and any termination of
either such Agreement, and Placer Peru shall be entitled to rely
UpOIT the salTTe
notwithstanding any independent investigations Placer Peru may
make or could have made at
any time, u~nless specifically waived by Placer Peru. The breach
of atTy representatiotT,
warranty or covenant contaitTed hT this Agreement may be waived
by Placer Peru, either in
whole or in part, at any time without prejudice to Placer Peru's
rights in respect of any other or
continuing breach of the same or any other representation,
warranty or covenant. No waiver by
Placer Peru of any breach of any representation, wauranty or
covenant shall be binding unless
in writing. Any waiver shall be linTited to the specifTc purpose
for which it is given.
For the purposes of this Agreement, "Laws" means all federal,
state, tenitorial, municipal or
local statutes, regulations and by-laws applicable to the parties
hereto or to the Property or to
any activities thereon, hTcluding all orders, notices, rules,
decisions, codes, guidelines,
policies, directions, penTTits, approvals, licences and similar
authorizations issued, rendered or
imposed by any level of govennment including any ministl-y,
department or administrative or
regulatory agency or authority.
13.2 Representations and warranties; Placer Peru
On the date hereof and during the life of this AgreemelTt, Placer
Peru hereby represents and
warrants to Los Tapados, that:
(i) Placer Peru is duly hTcorporated and validly subsistilTg
under the laws of
Peru with full corporate power and authority to enter into and
cany out
this Agreement;
(ii) the execution and delivery of this Agreement and the
perfonmance of its
obligations hereunder will not constitute a breach of any
agreement or
other obligation to which it is a party or require the consent of
any third
party except such as has been obtained prior to the date hereof;
,,~, (iii) Placer Peru will not encumber, mortgage, sell or
dispose of, in any way,
manner or fonn, acting separately or jointly with the Company,
the Anna
Gabrielle Property without written consent of Los Tapados; and
(iv) will carry out Operations in accordance with prud~ent
intennational
mitTeral exploration standards and practices as well as all
applicable laws,
32
Executed, Jan. 22, 1999
regulations, permits and approvals are perfonmed and complied
with in connection with such
activities.
The representations and warranties contained in this section 13.2
are provided for the exclusive
benefit of Los Tapados and shall survive the execution of this
Agreement and its attachments,
the consummati~n of the transactions contemplated in such
Agreements and any tenmination of
either such Agreement, and Los Tapados shall be entitled to rely
upon the same
notwithstanding amy independent investigations may make or could
have made at any time,
unless specifically waived by Los Tapados. The breach of any
representation, warranty or
covenant contained in this Agreement may be waived by Los
Tapados, either in whole or in
part, at any time without prejudice to Los Tapados' rights in
respect of any other or continuing
breach of any representation, warranty or covenamt. No waiver by
Los Tapados of any breach
of any representation, warranty or covenant shall be binding
unless in writing. Any waiver shall
be limited to the specific purpose for which it is given.
13.3 Indemnity
Los Tapados shall indemnify and save harmless Placer Peru and its
directors, officers,
employees, agents, representatives and subcontractors
(collectively the "Placer Peru
Indemnifted Parties") from and against any claims, losses,
demands, judgements, liabilities,
expenses, damages, fines, charges, costs (including legal costs
incunred on a solicitor and own
client basis) and losses (collectively "Losses") of every kind
whatsoever, whether direct or
indirect, which at any time or from time to time are directly or
indirectly incurred or suffered
by any of the Placer Peru Indemnified Parties in commection with,
as a result of or arising out
of
(a)
any misrepresentation or untrue warranty of, or breach of any
provision of this
Agreement by Los Tapados.
(b) the perfonmance of any obligations imposed by any Laws
directly
or indirectly relating to the environment (including reclamation,
remediation or closure), the taking of steps by or on behalf of
any of the
Placer Peru Indemnified Parties to protect against or in
connection with
the remediation (including reclamation or closure) of any harm,
damage,
degradation or adverse effect on the environment (collectively
"Environmental Harm"), or any liability of any of the Placer Peru
Indemnified Parties for any Environmental Harm, insofar as such
perfonmance, taking of steps or liability may directly or
indirectly relate
to conditions existing on all or part of the Property prior to
the date of
this Agreement or arise from Los Tapados' interest in or
activities
33
Execoted, Jan. 22, 1999
pursuant to this Agreement; provided that the indemnity contained
in this section 13.3(b) shall
not apply to the extent, if any, that such Losses are the direct
consequence of the activities, acts
or omissions aRer the date ofthis Agreement of Placer Peru or any
of its offtcers, directors,
employees, agents, representatives, or subcontractors:
(c) with the exception of amy Losses caused by the gross
negligence
or wilful misconduct of Placer Peru, any injury (including injury
causing
death) of any director, officer, employee, agent, representative
or
subcontractor of Los Tapados while on the Property; or
13.4
(a)
(d) the perfonmance by Placer Peru of any obligations
required to be
performed by Los Tapados under this Agreement.
For greater certainty, no termination of this Agreement shall
disentitle any of the Placer Peru
Indemnified Parties from obtaining indemnification from Los
Tapados pursuant to this section.
Placer Peru shall indemnify and save hanmless Los Tapados and
their respective directors,
officers, employees, agents, representatives, subcontractors and
affiliates (collectively the "Los
Tapados Indemnified Parties") from and against any Losses of
every kind whatsoever, whether
direct or indirect, which at any time or from time to time are
directly or indirectly incurred or
suffered by any of the Los Tapados Indemnified Parties in
connection with, as a result of or
arising out of:
any misrepresentation or untrue warranty of, or breach of
provision of this Agreement by,
Placer Peru; or
(b) the perfonmance of any obligations imposed by any Laws
directly
or indirectly relating to the environment (including reclamation
or
closure), the taking of steps by or on behalf of any of the Los
Tapados
Indemnified Parties to protect against or in connection with the
remediation (including reclamation or closure) of any harm,
damage,
degradation or adverse effect on the environment (collectively
"Environmental Harm"), or any liability of any of the Los Tapados
IndetmTifted Parties for any Environmental Harm which arises as a
direct
consequence of the activities, acts or omissions during the tenm
of this
Agreement of Placer Peru or any of its officers, directors,
employees,
agents, representatives, or subcontractors auTd which are in
breach of this
Agreement.
34
Executed, Jan. 22, 1999
14 ASSIGNMENT; RIGHT OF FIRST REFUSAL
14.1 Assignment
Except for the Assignment Agreement to be executed by the parties
substantially in the form of
Attachtnent VIII, no Party shall assign, transfer, convey or
otherwise dispose of (hereinafter "Assign") its
Participating Interest or amy interest in and right under this
Agreement, including but not limited to rights
in the Anna Gabrielle Property, Assets, shares in the Company's
capital and Net Profits royalty except in
accordance with this Section 14.
14.2 Right of First Refusal
A Party hereto may assign all of its rights (subject to all of
its obligations) under this Agreement
(including any Participating Interest and NSR rights) to a third
party provided that:
it has first offered in writing to sell such rights and any such
Participating Interest or NSR for cash or
cash equivalent to the other Party hereto (pro rata based on
their Participating Interests) on ternTs no less
favourable than those available to such third party and such
other Party hereto has not accepted such
offer within 60 days;
the transferee acquires such rights and any such Participating
Interest or NSR on the same tenms and
conditions as those offered to the Party hereto and agrees in
writing to be bound by the tenms of this
Agreement;
the Party hereto has fully satisfied and discharged (or made
satisfactory arrangements to satisfy and
discharge) all funding obligations undertaken by it under this
Agreement, and
the transferee is acceptable to the other Party hereto acting
reasonably.
In the event a Party hereto is contemplating to assign in any
way, directly OT indirectly, all or part of its
right, title and Participating Interest, NSR or interes~ in this
Agreement and its shares in the Company as
part of a sale of othe interests or assets, interests which are
not subject to this Agreement, other than tc
Affiliates in accordance with Section 14.3, the provisions
detailed shall app
accordingly. In the Notice of offer to the other Party, the Party
contemplatin~ such sale or disposition,
shall state the offered price for the right, title, NSR anc
Participating interest separately from the price
offered for the other interests o
3'
Executed, Jan. 22, 1999
assets of such Party that is part of the Assignment.
NotwithstandilTg the above, the sale, merger or
amalgamation of all or part of a Party's business shall not
constitute an assignment subject to the right of
first refusal.
14.3 Affiliates
Notwithstanding Sections 14.1 and 14.2, Parties may also Assign
such rights (subject to such obligations)
to Affiliates, provided that the transferor transfers to the
Afftliate all right, title, NSR and Participating
Interest of the trauTsferor in the Anna Gabrielle Property to the
relevant Affiliate, in each case without
complying with this Section 14 or otherwise obtaining the consent
of any other Party hereto and provided
that the relevant transferee agrees in writing to be bound by the
terms and conditions of this Agreement.
14.4 Evidence of Change of Ownership
No change in ownership of any Participating Interest in this
Agreement or any right, title, NSR or interest
in this Agreement shall be binding upon the other Parties unless
in compliance with Sections 14.1,14.2
and 14.3 above and until a certified copy of all instruments
executed and delivered in connection with the
transfer or assignment shall have been delivered to the other
Party(ies), including the deed of adheretTce
executed by the acquirirTg third party by which it accepts to be
bound and fully comply with this
Agreement, and compliance with all other formalities under
Peruvian Law.
15. ACCESS; CONFIDENTIALITY
15.1 Each of the Parties hereto and its agents, employees and
authorised representatives shall, at its
sole risk, have access to the Anna Gabrielle Property for the
purpose of examination and
inspection, provided that the activities of such party shall not
unreasonably interfere with or delay
Operations, and
shall have access to all Data factual and interpretative,
provided that under no circumstances shall Placer
Peru be required to disclose to any Party hereto any of the
Placer Peru Proprietary Infonmation.
No Party hereto shall disclose any Confidential Infonmation to
any person who is not a Party hereto other
than any person from whom such part,y is seeking funds in respect
of that Party's share of Expenses or
any of its Affiliates or its or their
Executed, Jan. 22, 1999
advisors and consultants, provided in such case that such
infonmation is disclosed in
confidence and that the recipient agrees to be bound by the
provisions hereof
Notwithstanding the foregoing, a party may disclose Confidential
Information where such
disclosure
is required by law or by a govenTment authority, or
is required under the rules of any stock exchange or securities
regulatory authority to which
such party is subject (including in any material change report or
prospectus or other offering
document required in connection with any public or private
securities offering); provided that
reasonable advance Notice shall be given to the other Parties
hereto setting out the proposed
text of any suclT disclosure, that the disclosing party shall use
reasonable endeavors to
accommodate any comments received from any Party hereto, and that
such disclosure shall be
strictly limited to that which is required to comply with such
laws or rules. Subject to the
foregoing, no party shall publish any announcement of this
Agreement or any transaction or
matter contemplated hereby unless the text of such announcement
has been approved by each
of the other Parties hereto, which approval will not be
unreasonably withheld or delayed.
Should such approval of a public announcement not be forthcoming
within three working days
after the request for review, the absence of approval shall be
deemed to have been granted.
15.2 Each Party shall be bound by the confidentiality provisions
of this Section 15 until the
Anna Gabrielle Property is sunendered pursuant to Section 12.4
above.
Subsequent to termination, the tenminating Party shall be bound
by the DroviSions of this
Section 15.
1 6.TF.RMINATION
16.1 Events of Termination
~v
This Agreement shall temminate upon the earlier to occur of the
following:
(i)
after written Notice from Placer Peru to Los Tapados purs Section
5.5.
37
Executed, Jan. 22, 1999
(ii)
(iii)
(iv)
(V)
at the option of Placer Peru, if any of the representations and
wauranties of Los Tapados
refened to in section 13.1 were materially untrue when made and
the same materially
prejudices Placer Peru, in which event the payments and Expenses
or Budget payments made
by Placer Peru as defined in and pursuant to this Agreement
shall, and notwithstanding the
temTination of this Agreement, be refunded to Placer Peru in
whole or in part forthwith upon
Los Tapados receiving written notice ffom Placer Peru tenminating
this Agreement;
Placer Peru fails to acquire a Participating Interest in accorc
with Section 5:
the mutual agreement of the Parties;
all the concessions forming part of the Anna Gabrielle Prc have
fully expired by mutual
consent of the Parties; or
(vi) the Company ceases to own any interest in the AmTa Gabrielle
Property, or
(vii) this Agreement is declared tenminated following
arbitration pursuaTt to Section 18.2.
Tenmination shall be without prejudice to any other rights or
remedies at law or in equity,
includitTg the right to claim any damages, which a party may
otherwise have in respect
thereof, except as provided under Section 18.3
Notwithstanding the above, the Parties agree that the event of
tenmination provided under
16.1(ii) above shall survive only until Los Tapados has fully
complied, to Placer Peru's
satisfaction, with its obligations under Section 4.1 of this
Agreement.
16.2 Procedure
The tenmination of this Agreement pursuant to paragraphs (i) and
(iii) of Section 16.1 shall be
govenned by Section 5. Additionally, it is understood that any
cash balance in the Company
shall be forthwith retunned to Operator net of Expenses incurred
by the Company prior to
temmination. Any amounts recorded as debts in the accounts of the
Company owing to Placer
Peru in respect of Expenses shall be forthwith capitalized in
accordance with the definition of
Expenses.
38
Executed, Jan. 22, 1999
Upon termilTation of this Agreement pursuant to paragraph (iv),
(v) and (vi) of Section 16.1,
the Parties shall satisfy all liabilities resulting from
Operations, including but in no way limited
to expenditures that Operator has f~rmly. committed to make
pursuant to an approved Program
and Budget, and shall sell or otherwise agree on the disposition
of the shares in the Company's
or alternatively all Assets, ~and if the latter is the case,
liquidate the Company's capital stock.
All liabilitTes and expenses shall be several and not joint and
shall be bome and paid by the
Parties bT proportion to their respective Participating
Interests. The proceeds from a sale and/or
liquidation, if any, shall be distributed to the Parties in
proportion to their Participating
interests.
In the event of liquidation of the Company the Parties shall
agree on the appointment of
"liquidators" who shall have the right and authority to take all
action necessary to wind up the
activities being tenminated and all costs and expenses so
incurTed, shall be deemed Expenses.
In the event of termination of this Agreement pursuant to
paragraph (vii) of Section 16.1, the
arbitrators shall detennine the mode and procedure for
termination.
3 Cmttinuing Liability; survival
Termination of this Agreement shall not relieve any Party from
any liability that has accrued
prior to the effective date of such tenmination. Sections 11.5,
13.1, 15.2 and 16.3 shall survive
the temmination of this Agreement. If Placer Peru temTinates its
participation in this
Agreement during the eanT-in Period, accrued liabilities by
Placer Peru shall be to the accoutTt
of Placer Peru.
17. NOTICES
Any Notice, election, payment or other colTespondence required or
penmitted under this
Agreement shall be made in writing and shall be sufficiently
delivered if actually delivered in
hands of the Party to whom directed, or by courier, or by
registered mail or by facsimile to the
following address or facsimile number (as the case may be).
Placer Dome del Peru S.A.
Attention: Marcial Vergara M.
Av. Central # 643, Of 301
San Isidro, Lima 27
with a copy to:
Placer Dome Exploration inc.
Attention: Ralph Godell
20S5 Hamilton Avenue
39
Executed, Jan. 22, 1999
PERU
Telephone: (51-1) 221-3169 facsimile:
Compaiiia Minera Los Tapados S.A. Attention: Walter H. Hunt Los
Tucanes No. 234 San Isidro, Lima
pert~t Telephone: 51-1-222 5007 Facsimile: 51-1-441 9785
San Jose, Califonnia 95125 U.S.A.
Telephone: (1-408) 377-3538 facsimile: (1 -408) 377-3539
with a copy to:
Solitario Resources Corp.
Attention: Christopher Herald
1675 Broadway, Suite 2400,
Denver, CO 80202, USA
Telephone: 1 303 534 1030
Facsimile: 1 303 534 1809
Any Notice required or penmitted hereunder deemed to be duly
authorized if given by the persons
designated above, or others appointed in conformity with this
Section 18, Therefore, no recipient shall be
required to inquire as to the authority of the person so signing.
A Party may change its address for the purpose of Notices or
communications under this Agreement by
fumishing Notice of the change to the other Parties in compliance
with this Section.
18. GOVERNING LAW; DISPUTES; ARE'ITRATION
18.1 Governing law
This Agreement is govenned by and shall be interpreted in
accordance wi
Laws of Peru.
18.2 Disputes
All controversies, disputes or claims between the Parties and
arising fTom or relating to this Agreement
or the application, performance, implementation, validity, breach
or tenmination of this Agreement or any
agreement or document concluded pursuant to this Agreement,
except those which are subject to the
jurisdictiolT of judicial courts by operation of malTdatory
Peruvian laws, shall be resolved by arbitration
in law as set forth in Section 18.3 and shall not be subject to
judicial litigation in any way. Any judicial
court that has proper jurisdiction to resolve a dispute by
operation of mandatory Peruvian laws shall
award
Executed, Jan. 22, 1999
reasonable attorneys fees and costs to the successful Party, or
in the manner as the court sees
fit.
18.3 Arbitration
e
Any disputes subject to arbitration according to Section 18.2,
concerning the subject matter of
this AgTeement shall be referTed to and finally and exclusively
settled by arbitTation canied
out by 3 (three) de jure arbitTators in Lima, Peru, in accordance
with the rules (the "Rules") of
the /HstitUto Nacional de Derecho de Mineria y Petroleo as in
force on the date hereof In event of
conflict between the provisions of this Section 18.3 and the
Rules, this Section 18.3 prevails.
The arbitration award shall be final, binding and enforceable by
any court having jurisdiction
for that purpose, without any judicial review other than strictly
necessary for the enforcement
of the award pursuant to any applicable international conventions
or Peravian Law.
All arbitrators selected shall be knowledgeable in the mining and
accounting fields and shall
have knowledge concerning general mining, operating and
accounting practices in the
international mining industry. All costs, expenses and fees for
arbitration shall be borne by the
Parties to the dispute as may be ordered by the arbitrators.
Arbitration proceedings shall be held in Lima, Per(t, in the
English language unless otherwise
agreed by the Parties to the dispute.
19. CONSTRUCTION
19.1 Enurement; Entire Agreement
This Agreement shall enure to the benefit of and shall be binding
upon the Parties hereto and
their successors and pemmitted assigns.
This Agreement takes precedence over all corTespondence and
written or oral agreements
between the Parties prior to the date hereof covering the subject
matter of this Agreement and
not specifically identified and incorporated in this Agreement,
including the Letter Agreement
executed on October 5th, 1998. No agent or representative of any
Party has authority to make,
and the Parties shall not be bound by, or be liable for, any
statement, representation, promises
or
41
Executed, Jan. 22, 1999
agreement not specifically set forth in this Agreement. No
changes, amendments or
modifications of the terms of this Agreement shall be valid
unless reduced to writing and
signed by the Parties. The terms and provisions of this Agreement
shall survive the execution
and delivery of any and all instruments of assignment provided
for in this Agreement.
19.2 Approvals and costs
t
Unless agreed otherwise, the Parties shall bear their own legal
expenses of amd incidental to
the preparation of this Agreement and compliance with their
obligations hereunder. The parties
shall share in equal parts, the cost and expense of complying
with all formalities to perfect this
Agreement and its attachments under Peravian law, including but
not limited to the costs of
public deeds, Notary Public and filhTgs at corresponcling Public
Registries. The same shall
apply for termination of this Agreement under Sections 16.1,
(iv), (v), and (vi). Los Tapados
shall bear the entire cost of termination if such is made
pursuant to section 16.1(ii). Placer Peru
shall bear the entire cost of termination if such is made
pursuant to section 16.1 (i) and (iii).
19.3 Severability
It is understood and agreed by the Parties that if any part, term
or provision of this Agreement
is held by a court of competent jurisdiction to be illegal or
unenforceable or both, the Parties
desire that the court of competent jurisdiction reform that part,
temm or provision in such a
malTner as to approximate the intent of the Parties as expressed
in this Agreement, and the
validity of the remaining portions or provisions shall not be
affected.
1 9.4 Waiver
The faiNtre or omission by either Party to enforce any provision
of this Agreement, no matter
how long continued, shall not be considered to be a waiver of
that provision or of the defat~lt
of another Party of its obligations under that provisiotT or
under any other provision of this
Agreement.
19.5 Language
This Agreement is concluded in the English language, with the
exception of Attachments VI,
VII, VIII and IX, which are in the Span,ish language, and Parties
may at their own discretion
and costs prepare translations. Any and all
42
Executed, Jan. 22, 1999
disputes arising ffom this Agreement will be resolved on the
basis of the original version of this
Agreement and Attachments.
19.6 Further Assurances
The Parties shall exec,ute such further agreements, conveyances
and other documents as may
be reasonably requested by any of the Parties to effectuate the
intent and any provisions of this
Agreement, including but in no way limited to changes in the
Articles of Association of the
Company as may be required from time to time.
IN WITNESS WHEREOF the Parties hereto have executed this
Agreement on the date first
written above.
Compania Minera Los Tapados S.A.
By: Mr. Walter Hlmt
Placer Dome del Peru S.A.C.
By: Mr. Marcial Vergara M.
Placer Dome del:S.A.C.
QUE LAS FIRMAS QUE APARECEN EN tl OClJMENTO SON LAS ,M]SMAS OQE~N
~CTOS LOS S-.W.l7-S: ~ ~ ~
[w ~ O~ ~ W~ ~e
_~_~ ~ -
~ ~ ~ t --~-~3,Lt u~.t d~_~ ~ _~d~ 199Ol
RlCARKi,kRT Z//Z~~ Vl~
~ ~ ~ `~
Compania Minera Iborada S.A.C.
Founder
Compania Minera Alborada S.A.C.
43
ATTACHMENTS
Attachment I
Attachment 11
Attachment III
Attachment IV
AttaChnTelTt V
Attachment Vl
Attachment V11
AttaclTment V111
Attachment IX
The Property
Work Expenses
Letter Agreement
Net Profits interest
Powers of Attorney
Eorm of Deed of Pledge
Bylaws, Minera Alborada
Assigmnent Agreement
Production Royalty Agreement
Attachment I
The Property
A TTA CHMENT I
The A~2na Gabrielle ProPertv
DeparJment of Cajamarca, Peru
N NAMIS CODB No. t r r
1 Anna Gabrielle 1 01-01484-93 ASTO 1-TOMO 14-FOLIO 140 1.00C
2 knna Gabrielle 2 01 -01485-93 Y~ 1.00
3 ~nna Gabrielie 3 01-01486-93 ASTO 1-TOMO12-FOLIO 126 1.00C
4 Anna Gabriaile 4 01-01487-33 ASTO 1-TOMO12-FOLIO 127 1 00
s Anna Gabrisiie 5 01-01488-93 ASIO 3 -~/MO12-FOL:D 315 1 00C
6 ~nna Gabrioile 6 01-01489-93_ ASTO 1-TOMO10-FOLIO 182 1.00C
7 Anna Gabrielie 7 01-01490-93 ASTO 1-TOMO09-FOLIO 482 1 00
8 ~nna Gabrioile 8 01-01491-93 ASTO 1-TOMO10-FOLiO 181 1.00C
9 Anna Gabrielle 9 01-01492-93 ASTO 1-TOMO09-FOLiO 483 1.00C
10 knna Gabrielle 10 01-01493-93 ASTO 1-TOMO13-FOLIO 280
1.00C
11 Anna Gabrielle 11 (9 01-01494-g3 ASTO 1-TOMO14-FOLIO 291
1.000
12 knna Gabrielle 12 01-01495-93 ASTO l-TOMO14-FOLIO 293
1.00C
13 Anna Gabriaile 13 01-01496-93 ~OMC~FOUO 249 1.000
14 knna Gabrieiie 14 01-014g7-g3 ASTO i-TOMO13-FOLiO 466
1.00C
15 Anna Gabrielie 15 01-01498-93 ASTO 1-TOMO13-FOLIO 467
1.00C
16 Anna Gabriaile 16 01-01499-93 ASTO 1-TOMO09-FOLIO 471
900
17 ~nna Gabrielie 21 C) 01-01509-93 ASTO 1-TOMO11-FOLIO 354
90C
18 Anna Gabneile 22 01-01510-93 ASTO 1-TOMO13-FOLIO 250 700
19 Anna Gabrieiie 24 01-01512-93 ASTO 1-TOMO13-FOLIO 403
90C
20 ~nna Gabriaile 25 01-01513-93 ASTO i-TOMO14-FOLiO 294
60C
21 Anna GabrieNe 26 01-01514-93 ASTO 1-TOMO15-FOLIO 228 1 000
22 Anna Gabrieile 27 01-01515-93 ASTO 1-TOMO11-FOLIO 321
1.00C
23 Anna Gabrieiie 28 01-01516-93 ASTO 1-TOMO15-FOLIO 002
1.000
24 knna Gabriaiie 36 01-01664-93 ASTO 1-TOMO13-FOLIO 404
1 00C
26 Anna Gabriolie 37 01-01665-93 ASTO 1-TOMO09-FOLIO 485
1 000
26 d~nna Gabrielle 38 01-01666-93 ASTO 1-TOMO13-FOLIO 278
1 00C
27 Anna Gabrielle 39 01-01667-93 ASTO 1-TOMO09-FOLIO 486
1 00C
28 Anna Gabrieile 40 01-01668-93 ASTO 1-TOMO10-FOLiO 437
1 000
29 Anna GabrieNe 41 01-01669-g3 AS ~ D T.:OMO 0-FOLG 1 00C
30 Anna Gabrielle 42 01-01670-93 ASTO 1-TOMO10-FOLIO 358 ' 1
00C
_
31 Anna Gabrieiie 43 01-01671-93 ASTO 1-TOMO14-FOLIO 295
300
32 Anna Gabrioila 44 01-01672-93 ASTO 1-TOMO15-FOLIO 022
1 00C
33 Anna Gabrioiie 45 01 -01673-93 AST01-TOMO10-FOLIO 179
1 00C
34 Anna Gaboelie 46 01-01674-93 ASTO 1-TOMO11-FOLIO 283 1 000
35 Anna Gabrielle 47 01-01675-93 ASTO 1-TOMO10-FOLIO 185
1.00C
_
36 Anna Gabrielle 48 (D 01-01676-93_ ASTO 1-TOMO09-FOLIO
474
1.00C
Anna Gabrielle 49 () 01-01677-93 ASTO 1-TOMO09-FOLIO 475
20
Anna Gabrielle 50
Anna Gabrielle 51
Anna Gabrielle 52
Anna Gabrielle 53
Anna Gabrielle 54
Anna Gabrielle 55
Anna Gabrielle 56
Anna Gabrielle 57
Anna Gabrielle 58
_
_ Anna Gabrielle 59 Anna Gabrielle 60
_ Anna Gabrielle 61
Anna Gabrielle 62
Anna Gabrielle 63 Anna Gabrielle 64
Anna Gabrielle 65 Anna Gabrielle 66
Anna Gabrielle 67
Anna Gabrielle 68 Anna Gabrielle 69
Anna Gabrielle 70
Anna Gabrielle 78 Anna Gabrielle 84
Anna Gabrielle 85
Anna Gabrielle 86
Anna Gabrielle 87
Anna Gabrielle 88 Anna Gabnelle 89
Anna Gabrielle 90
Anna Gabrielle 91 Anna Gabrielle 97
Anna Gabrielle 98
_
ASTO 1-TOMO13-FOLIO 068
ASTO 1-TOMO10-FOLIO 226
ASTO 1-TOMO13-FOLIO 405
ASTO 1-TOMO13-FOLIO 406
ASTO 1-TOMO13-FOLIO 407
ASTO 1-TOMO09-FOLIO 487
ASTO 1-TOMO09-FOLIO 448
ASTO 1-TOMO13-FOLIO 408
ASTO 1-TOMO15-FOLIO 102
ASTO 1-TOMO13-FOLIO 277
ASTO 1-TOMO13-FOLIO 281
ASTO 1-TOMO10-FOLIO 184
AST01-TOMO10-FOLIO 186
ASTO 1-TOMO11-FOLIO 030
ASTO 1-TOMO09-FOLIO 478
ASTO 1-TOMO11-FOLIO 424
ASTO 1-TOMO15-FOLIO 420
ASTO 1-TOMO 09-FOLIO 477
ASTO 1-TOMO 14-FOLIO 347
ASTO 1-TOMO09-FOLIO 476
ASTO 1-TOMO09-FOLIO 450
ASTO 1-TOMO12-FOLIO 128
ASTO 1-TOMO15-FOLIO 173
ASTO 1-TOMO13-FOLIO 409
ASTO 1-TOMO13-FOLIO 253
ASTO 1-TOMO13-FOLIO 251
ASTO 1-TOMO10-FOLIO 020
ASTO 1-TOMO13-FOLIO 252
ASTO 1-TOMO12-FOLIO 316
ASTO 1-TOMO09-FOLIO 488
STO 1 -TOMO 13-FOLIO 283 , .
ASTO 1 TOMO13-FOLIO 282 1 00C
TOTAL HECTAREAS 64.100
_ _ .
01 -01678-93
01 -01679-93
01 -01680-93
01 -01681 -9~
01 -01682-93
01 -01683-93
01 -01684-93
01 -01685-98
01 -01686-93
01 -01687-93
01 -01688-93
01 -01689-93
01 -01690-93
01 -01691 -93
01 -01692-93
01 -01693-93
01 -01694-93
.
01 -01783-93
01 -01784-93
01 -01785-93
01 -01786-93
01 -02641 -93
01 -00829-94
01 -00830-94
.
. 01 -00831 -94
01 -00832-94
01 -00833-94
. 01 -00834-94
_ 01 -00835-94
01 -00836-94
.
_ 01 -03065-95
01 -03064-95
1 OOC 1 .00(
1 . OOC
1 00C
1 . OOC
1 .00C
1 .00
1 .00C
1.00f
1. OOC
1 .00
00
1 . OOC
1 OOC
1, OOC
1 . OOC
1. OOC
1 OOC
1 .00
1 .00C
1 . OOC
50C
1 .00C
50
1. OOC
1 .00C
1 . OOC
10C
1 OOC
50
1 .OOC
:) Indicated claims subject to Infonne No 781-s8-EM-DaM-DFMlDv
by the Ministerio de cnergia |
yM'naswh~ch states that payment for the1ss8 DerechosdeVigencia
was received late | M~nera Los
Tapados assumes responsibility, to the best of its ability, to
defend title to these cla~ms by appealing
sUch declaration. As of Jan 19, 1999 none of these claims ha,ve
been declared invalid.
| Q~ Anna Gabrielle 21 subject to reduchon as shown on attached
exhibit.
.q DG~,IE ,~. F-j1'J; :~. 1 99 19:29; 51 1 2213170 :'
\.rl.F.\ i-XCLUDED f P.()\f,XN!i,\ CjABR.It:LLI 2t
44 1 9785;
.~.n area constituting approxin,ately twenty hectares bounded by
the U f~l cti`,rdin;ttes 772
9r)D
East 923u Of i:J Ncnh ar d the limits of cor.cessions Chaupiloma
Uno to the ea.st and
Chau?'lc,n,J
E)rce :o the Sou:h ai ,~o~n on the nr.ap ~elow
t
C . . ~ O O ~ ~
:, ,:~
,1
,1
~i
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~e
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. i .
Attachment II
Work Expenses
Attachment 11
"Work Expenses"
Work Expenses are costs incurred for exploration and / or
development work, including any reclamation
or remediation, on or for the benefit of the Properties.
For the purpose of this "Letter Agreement", Work Expenses shall
include, without limitation, all amounts
incurred: in doing geophysical, geochemical, land, airborne,
environmental and/or geological
examintations, studies, assessments, assays, audits and/or
surveys; in line-cutting, mapping, trenching
and staking; in searching for, digging, trucking, sampling,
working, developing, mining and/or extracting
ores, minerals and metals; in doing diamond and other drilling;
in obtaining, providing erecting, installing
and operating mining plant, milling or other treatment plant,
ancillary facilities, buildings, machinery,
tools, appliances and/or equipment in construction of access
roads and other facilities on or for the
benefit of the Propenies, in transporting personnel, supplies,
mining, milling or other treatment plant,
buiiding, machinery, tools, appliances or equipment in, to or
from the Propenies or any pan thereof; in
wages and salaries (including "fringe benefits") of personnel
directly engaged in performing work on or
with respect to the Properties; in assessments or contributions
under the Workers' Compensation Act,
the Unemployment Insurance Act and other applicable legislation
or ordinances relating to such
personnel; in supplying food, lodging and other reasonable needs
for such personnel; in obtaining and
maintaining any insurance, in the management of and accounting
for such work and providing
supervisory, legal, accounting, consulting and other contract or
professional services or facilities relating
to work performed or to be performed hereunder; in taxes, fees,
charges, payments or rentals (including
payments made in lieu of assessment or representation work) or
othenwise incurred to transfer the
Properties pursuant to this letter agreement and to keep the
Properties or any pan thereof in good
standing; in acquiring access and surface rights to the
Properties; in carrying out any negotiations and
preparing, settling and executing any agreements or other
documents relating to environmental or
indigenous peoples' claims, requirements or matters; in carrying
out any requirements or prerequisites in
order to obtain and obtaining all necessary or appropriate
approvals, permits, consents or permissions
relating to the carrying out of work, including, without
limitation, environmental permits, approvals or
consents; in carrying out reclamation or remediation; in
improving, protecting or perfecting title in the
Properties or any part thereof; in carrying out mineral, soil,
water, air or other testing; in preparing
engineering, geological, financing, marketing or environmental
studies and/or repons and test work
related thereto; in preparing a feasibility study and/or any work
or reports preliminary or supplementary
thereto.
Where Work Expenses are charged to Placer Peru by affiliates of
Placer Peru, for services rendered by
such affiliates, such Work Expenses shall not exceed the fair
market value of the services rendered.
The certificate of an officer of Placer Peru setting forth the
Work Expenses inCurred by Placer Peru in
reasonable detail shall be prima facie evidence of the same.
Exhibit 11
CROWN RESOURCES CORPORATION
Statement Re: Computation of Per Share Earnings
(in thousands, except per share amounts)
December 31, December 31, December
31,
1998 1997 1996
Outstanding at
beginning of year 13,313 13,211 13,172
Issued during the year 1,208 102 39
Outstanding at end of year 14,521 13,313 13,211
Weighted average number
of shares outstanding
during the year 14,345 13,268 13,193
Net loss for year $(1,928) $(4,979)
$(1,571)
Basic and diluted loss
per common share $ (0.13) $ (0.38) $
(0.12)
Exhibit 22
CROWN RESOURCES CORPORATION
Schedule of Subsidiaries
December 31, 1998
Crown Resource Corp. of Colorado (100%, incorporated in
Colorado)
Solitario Resources Corporation (formerly Crown
Minerals
Corp.) (57.2%-owned subsidiary of Crown Resource Corp.
of
Colorado, incorporated in Colorado)
Compania Minera Solitario Argentina S.A. (100%-
owned subsidiary of Solitario Resources
Corporation, incorporated in Argentina)
Minera Los Tapados S.A. (100%-owned subsidiary of
Solitario Resources Corporation, incorporated in
Peru)
Crown Minerals Corporation (100%-owned subsidiary of
Crown Resource Corp. of Colorado, incorporated in
Colorado)
Gold Texas Resources U.S., Inc. (100%, incorporated in
Texas)
Crownex Resources (Canada) Ltd. (100%, incorporated in
British
Columbia, Canada)
Gold Capital Corporation (100%, incorporated in the state of
Washington)
Gold Texas Resources Ltd. (100%-owned subsidiary of
Gold
Capital Corporation, incorporated in British Columbia,
Canada)
Judith Gold Corporation (100%, incorporated in Montana)
Group Crown Exploration (100%, incorporated in Mexico City,
Mexico)
Exhibit 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 33-31754 and 33-57306 of Crown Resources
Corporation
on Form S-8 of our report dated March 3, 1999, appearing in this
Annual Report on Form 10-K of Crown Resources Corporation for the
year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 10, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CROWN RESOURCES CORPORATION
By: /s/ James R. Maronick
James R. Maronick
Vice President - Finance
Date: March 11, 1999
Pursuant to the requirements of the Securities Exchange Act
of
1934, this report has been signed below by the following persons
on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Mark E. Jones, III * Principal Executive March 11,
1999
Mark E. Jones, III Officer and Director
Chairman
/s/ James R. Maronick Principal Financial March 11,
1999
James R. Maronick and Accounting Officer
Vice President - Finance
/s/ Christopher E. Herald
Christopher E. Herald
President
/s/ J. Michael Kenyon *
J. Michael Kenyon
A majority of
/s/ Rodney D. Knutson * the Board of March 11,
1999
Rodney D. Knutson Directors
/s/ Linder G. Mundy *
Linder G. Mundy
/s/ Steven A. Webster *
Steven A. Webster
/s/ David R. Williamson *
David R. Williamson
* By:/s/ James R. Maronick
James R. Maronick, Attorney-in-fact
Exhibit 25
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature
appears below constitutes and appoints James R. Maronick, his
true and
lawful attorney-in-fact and agent, with full power of
substitution and
resubstitution, for him and in his name, place and stead, in any
and all
capacities, to sign the Annual Report on Form 10-K for the fiscal
year
ended December 31, 1998, of Crown Resources Corporation and any
and all
amendments thereto, and to file the same, with all exhibits
thereto, and
other documents in connection therewith, with the Securities and
Exchange
Commission, granting unto said attorney-in-fact and agent, and
every act
and thing requisite and necessary to be done in and about the
premises,
as fully to all intents and purposes as he might or could do in
person,
hereby ratifying and confirming all that said attorney-in-fact
and agent,
or his substitute or substitutes, may lawfully do or cause to be
done by
virtue hereof.
NAME DATE
Mark E. Jones, III
Christopher E. Herald
J. Michael Kenyon
Rodney D. Knutson
Linder G. Mundy
Steven A. Webster
David R. Williamson