Exhibit 10.18
December 23, 1996
[LOGO OF COMINCO APPEARS HERE]
Minera Los Tapados S.A.
c/o Solitario Resources Corporation
World Trade Center
0000 Xxxxxxxx, Xxx. 0000
Xxxxxx, Xxxxxxxx
00000
Attention: Mr. C.E. Herald
President
---------------
Dear Sirs:
Bongara Property, Northern Peru
Letter Agreement
This letter ("Letter Agreement") will follow up our recent discussions regarding
the desire of Cominco Peru s.r.l. ("Cominco Peru") to secure 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 Xxxxxxx
Xxxxxxxx, Xxxxxxxx Xxxxxxxxxx, xxxxxxxx Xxxx and is more particularly descibed
in Exhibit A (the "Property"). A portion of the Property is held subject to two
option agreements, (collectively the "Underlying Option") with Compania Minera
Del Amazonas S.A. and Compania Xxxxxx Xxxxx Del Amazonas S.A..
Our proposal calls for Cominco Peru to have the option to acquire an interest in
the Property. Following the option, Cominco Peru and Los Tapados would
participate as joint venture partners, with their respective rights and
obligations governed by the terms set out below. This assumes that Peru's new
joint venture law is in effect at the date the option is exercised. If it is
not we have an additional structure which we can propose which is very similar
to the following terms.
Our proposal is as follows:
Option Terms
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1. Los Tapados Warranties, Representations and Covenants. Los Tapados
warrants, represents and covenants that:
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(a) it owns the claims descibed in Part I of Exhibit A (the "Titled
Properties"), the government of Peru has granted it title to such
claims, and there are no underlying leases relating to such claims;
(b) it owns the claims descirbed in Part II of Exhibit A (the "Title
Pending Properties"), and application for title to such claims is
pending with the government of Peru, and there are no underlying
leases to such claims;
(c) it has leasehold interests covering the mineral rights to the
Properties descibed in Part III of Exhibit A (the "Leased
Properties"); provided however, that said leasehold interests are
subject to:
(i) the terms of the leases (the "Leases") descibed in Part III of
Exhibit A, and
(ii) the exceptions described in Part III of Exhibit A;
(d) except as required by agreements with landowners or by the government
of Peru, it has not conveyed, assigned, or otherwise transferred any
of its interests in the Leased Properties;
(e) it has received no notices of defaults under the Leases and to the
best of its knowledge and belief it has complied in all material
respects with all obligations imposed by the Leases and the same are
in good standing;
(f) it has maintained the mineral estate underlying the Properties in
good standing subsequent to the time it acquired them; and to the
best of its knowledge and belief the mineral estate underlying the
Leased Properties were maintained in good standing prior to the time
it entered into the Leases;
(g) its interests in the Properties are 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 are free of all
other third party rights or defects, except those created by the
Leases or descibed in Exhibit A;
(h) 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
this Letter Agreement;
(i) it is a wholly-owned subsidiary of Solitario Resources Corporation;
(j) it has the capacity to enter into and perform this Letter Agreement
and all transactions contemplated herein, and that all corporate and
other actions required to authorize it to enter into and perform this
Letter 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
Letter Agreement;
(l) this Letter Agreement has been duly executed and delivered by it and
is valid and binding upon it in accordance with its terms;
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(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) it will not encumber its interests in the Properties during the
Option Term;
(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 otherwise related to operations conducted
prior to the date of this Letter Agreement; provided further, that
Los Tapados shall also pay reasonable attorneys fees and court costs
incurred by Cominco Peru with respect to such Claims or 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:
(a) 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 Agreement will become
qualified and in good standing) in any jurisdiction where necessary
in order to carry out the purposes of this Letter Agreement;
(b) it has the capacity to enter into and perform this Letter Agreement
and all transactions contemplated herein, and that all corporate and
other actions required to authorize it to enter into and perform this
Letter Agreement have been properly taken;
(c) 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
Letter Agreement;
(d) this Letter Agreement has been duly executed and delivered by it and
is valid and binding upon it in accordance with its terms;
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(e) it will not encumber its contingent interests in the Properties
during the Option Term; and
(f) 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 otherwise related to operations conducted by Cominco Peru under
this Letter 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 unless Cominco Peru agrees to and
diligently defends against any such Claims or Damages asserted
against or imposed on Los Tapados.
3. Option. Los Tapados grants Cominco Peru the option to earn up to a 60%
interest in the Property by:
(a) making a cash payment to Los Tapados of US$250,000 forthwith upon
receipt of notice from Los Tapados under paragraph 36 that
Solitario's Board of Directors has approved this Agreement; but
immediately refundable if TSE approval is not obtained and
communicated to Cominco Peru by January 31, 1997;
(b) incurring the following non-cumulative cash payments and cumulative
expenditures, as defined in paragraph 12, expressed in U.S. dollars
on or before the following dates:
NON-CUMULATIVE CUMULATIVE
ON OR BEFORE PAYMENTS EXPENDITURES
January 31, 1998 $ 300,000 (optional); $ 2.5 million (firm)
January 31, 1999 $ 350,000 (optional); $ 7.5 million (optional)
January 31, 2000 $ 400,000 (optional);and $ 17.5 million (optional)
January 31, 2001 $ 500,000 (optional) $ 27.5 million (optional)
provided that, of the expenditures to be incurred on or before
January 31, 1998, Cominco Peru will complete at least 4,000 meters of
drilling;
(c) making an optional cash payment to Los Tapados of US$500,000 on or
before January 31, every year after 2001 until a production decision.
If Cominco Peru fails to pay this amount prior to having earned a 49%
interest, this Letter Agreement will terminate. If Cominco Peru fails
to pay this amount following its having earned a 49% interest but
before making a production decision, the balance of the option shall
terminate and the joint venture will be formed with Los Tapados
having a 51% interest and Cominco Peru a 49% interest; and
(d) making a decision to place the Property into commercial production by
building a mine in accordance with the feasibility study referred to
in paragraph 8.
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Cominco Peru will have earned a 49% interest in the Property upon incurring
expenditures of $20 million plus any Reduction Expenditures referred to
below and making the cash payments due to the date it has incurred those
expenditures. Cominco Peru will have earned an additional 11% interest in
the Property by incurring the Final Vesting Amount or such lesser amount as
contemplated in paragraph 6, completing a feasibility study and making the
production decision, thereby acquiring a total 60% interest.
4. Expenditures Commitments. Cominco Peru will be committed to incur the
expenditures set out above to be completed on or before January 31, 1998.
The balance of the expenditures are optional, except that, by January 31 in
each year Cominco Peru will deliver notice to Los Tapados committing to
incur the expenditures set out to be incurred for that year. Subject as
follows, if Cominco Peru fails to deliver that commitment notice the option
shall terminate. Notwithstanding the foregoing, after the first year of the
option Cominco Peru may, three times during the option term, upon notice to
Los Tapados, reduce its expenditure commitment for any year to a lesser
amount, but no less than $US2.5 million (the "Reduction Expenditures"). For
any year for which Cominco Peru has reduced its commitment below $5 million
it will also be committed to incur 3,000 meters of drilling within its
expenditure commitment. Reduction Expenditures incurred in any year shall
be added to the $27.5 million total to vest a 60% interest. The $27.5
million or increased amount is hereinafter called the "Final Vesting
Amount".
5. Cash in Lieu of Expenditure Shortfall. If Cominco Peru fails to incur the
expenditures contemplated in the table in paragraph 3 or in its commitment
notice in paragraph 4 (and has not reduced its commitment as contemplated
in paragraph 4) or Reduction Expenditures to which it is committed by the
due dates listed it shall 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 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 Final Vesting Amount, 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). If, prior to completing the Final Vesting
Amount, 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.
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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
0000 Xxxxxxxx
Xxxxxx, XX 00000
ABA #000000000
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. In order to fully exercise the option at 60%, Cominco
Peru will 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 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;
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(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 may exercise the option by delivering a notice to Los Tapados
that Cominco Peru has decided to place the Property into commercial
production by constructing a mine in accordance with a feasibility study
delivered by Cominco Peru.
9. Technical Committee. During the option term, 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. During the option term, 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 option term, 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
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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 the Agreement, "expenditures"
incurred during the option 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 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 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. Cominco Peru may, on notice to Los Tapados, at any
time after incurring the $2.5 million on or before January 31, 1998
contemplated in paragraph 2, terminate this Agreement. Thereupon, 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 Agreement;
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(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. Area of Interest. The area of interest shall be described in Part VI of
Exhibit A and shall remain in effect during the option term.
(a) If Cominco Peru for any reason fails to exercise the option, then:
(i) all property interests theretofore acquired under this
paragraph shall belong solely to Los Tapados; and
(ii) the area of interest shall remain binding on Cominco Peru for
12 months after the option terminates. During said 12 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 Los Tapados
in consideration for Los Tapados reimbursing Cominco Peru its
actual out-of-pocket acquisition costs. If Cominco Peru
exercises the option and the parties enter into a joint
venture, then the area of interest shall be governed by the
terms of the hereinafter described Venture Agreement;
(b) (i) either party stakes or acquires any surface, mineral or water
rights partially or entirely within the area of interest
during the option term, 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) made subject
to this Letter Agreement. If the other party declines to have
such rights made subject to this Letter Agreement, the
acquiring party shall own such interests free and clear of
this Agreement. If the other party elects to have such rights
made subject to this Letter Agreement, then: (A) if Los
Tapados is the acquiring party, Cominco Peru shall promptly
reimburse Los Tapados for all reasonable acquisition costs,
and may credit such costs against the Costs, and (B) if
Cominco Peru is this acquiring party, its reasonable
acquisition costs may be credited against the Costs;
(ii) properties acquired by Los Tapados prior to the Effective Date
but after the date the map of the Properties was heretofore
provided to Cominco Peru shall be deemed to have been acquired
by Los Tapados on the Effective Date;
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(c) except as provided in subsection (b), this Letter Agreement shall
not restrict the rights of either party to acquire for its own
account, free and clear of this Letter Agreement, property or water
rights outside the area of interest. Area of interest acquisitions
that are made subject to this Letter Agreement shall not expand the
area of interest.
Joint Venture Terms
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15. Formation of JV. Upon Cominco Peru exercising the option 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 earnings 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. If Cominco Peru stops increasing its interest at 49%, Los Tapados
shall have the right to become operator. The operator will be responsible
for the daily direction of exploration, development and mining activities
which it carries out on behalf of the joint venture.
The operator will draft exploration programs for management committee
approval and carry out any programs which have been approved. Each of the
parties shall elect within 30 days of receipt of the approved program
whether it will contribute its proportionate share of the costs of carrying
out that exploration program. If a party does not elect to contribute its
share of costs, its interest will be diluted, with that party being
entitled to elect to contribute to subsequent programs at its diluted
interest level. A diluting party's interest will be calculated by dividing
its contribution to costs by the total costs incurred by the parties. Los
Tapados will be deemed to have contributed to costs prorata, its interest,
to Cominco Peru's expenditures at the time that Cominco Peru exercises the
option either at 49% or 60%. If a party's interest is diluted to 10%, it
will be converted to a 10% net profits interest.
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
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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. 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
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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 Xxxxx and XxXxxxxx 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 a 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
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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 40% 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 Final Vesting
Amount; 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 40% of
total net proceeds) shall be paid to Los Tapados.
24. Costs Defined. For purposes of this 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
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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. During the option term, 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 the agreement shall be construed as creating a legal
partnership or in imposing any fiduciary duty on any party.
-15-
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 form 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 agreement between the parties or their affiliates dated
November 8, 1996 provided that if this Agreement terminates the
confidentiality agreement 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. The 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.
36. Condition Precedent. Upon this Letter Agreement being signed by both
parties this Letter Agreement shall become a binding and enforceable
agreement, subject only to Solitario obtaining approval of its Board of
Directors to this agreement which it will obtain and communicate to Cominco
Peru by the close of business on December 27, 1996.
37. Subject to Regulatory approval. This Letter Agreement is subject to the
approval of the Toronto Stock Exchange to be obtained and communicated to
Cominco Peru by the close of business on January 31, 1997.
If the terms set out above are satisfactory please sign both copies of this
Letter Agreement and return one copy to me. Upon receipt of the signed copy
this Letter Agreement shall become binding and
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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.
We anticipate having a first draft of that agreement available to you in late
January, 1997.
Yours truly,
/s/ Xxx X. Xxxxxxx
------------------------------------------
Xxx X. Xxxxxxx
General Manager, International Exploration
Cominco Ltd. on behalf of
Cominco Peru s.r.l.
Agreed this 24 day of December, 1996
By: /s/ Xxxxxxxxxxx X. Herald
---------------------------------------
Xxxxxxxxxxx X. Herald
President, Solitario Resources Corporation
on behalf of
Minera Los Tapados S.A.
EXHIBIT A
---------
Part I - Titled Properties
Claims 100% owned by Los Tapados, no underlying leases, title granted by
government of Peru.
Bongara 14 01-03060-95
Bongara 15 01-03059-95
Bongara 16 01-07520-95
Bongara 18 01-07522-95
Bongara 19 01-07523-95
Bongara 20 01-07524-95
Bongara 21 01-07829-95
Bongara 22 01-07830-95
Bongara 24 01-07832-95
Bongara 25 01-07833-95
Bongara 26 01-07834-95
Bongara 27 01-07835-95
Bongara 28 01-07828-95
Bongara 31 01-07816-95
Bongara 32 01-07817-95
Bongara 33 01-07818-95
Bongara 34 01-07819-95
Bongara 35 01-07820-95
Bongara 36 01-07821-95
Bongara 37 01-07822-95
Bongara 38 01-07823-95
Bongara 39 01-07824-95
Bongara 40 01-07825-95
Bongara 54 01-02332-96
Bongara 55 01-02333-96
Bongara 57 01-02490-96
Bongara 62 01-02581-96
Part II - Title Pending Properties
Claims 100% owned by Los Tapados, no underlying lease, title approval pending.
Bongara 17 01-07521-95
Bongara 23 01-07831-95
Bongara 29 01-07827-95
Bongara 30 01-07826-95
X-0
Xxxxxxx 00 00-00000-00
Xxxxxxx 42-A 00-00000-00
Bongara 50 01-00643-96
Bongara 52 01-01024-96
Bongara 53 01-01048-96
Bongara 56 01-02489-96
Bongara 60 01-02579-96
Bongara 61 01-02580-96
Bongara 63 01-03264-96
Bongara 64 01-03265-96
Bongara 65 01-03266-96
Bongara 66 01-03267-96
Bongara 67 01-03268-96
Bongara 68 01-03269-96
Xxxxxxx 00
Xxxxxxx 00
Xxxxxxx 00
Xxxxxxx 00
Bongara 73
Bongara 74
Part III - Leased Properties
Claims leased by Los Tapados from Compania Xxxxxx Xxxxx del Amazonas, S.A.
Xxxxxxx 0 00
Xxxxxxx 0 00
Xxxxxxx 5 30
Bongara 7 32
Bongara 9 34
Claims leased by Los Tapados from Compania Minera Del Amazonas, S.A.
Xxxxxxx 0 00
Xxxxxxx 0 00
Xxxxxxx 6 31
Bongara 8 33
Xxxxxxx 00 00
Xxx Xxxxxxx has done everything in order to exercise the option but for
formalizing the conveyance contract called for in the Leases. The Leases
indicate that during the period of the option Los Tapados may not sell, transfer
or extend option rights to third parties without the written consent of the
Lessor, said consent not to be unreasonably withheld. Los Tapados shall proceed
in an expeditious manner to obtain executed conveyance contract in accordance
with the
A-2
terms stipulated in the Leases. At that time, Los Tapados shall notify Cominco
Peru and Cominco Peru shall be entitled to have the Leased Properties added to
the Agreement without any further consideration being payable to Cominco Peru.
Until such time as a conveyance contract is executed, Los Tapados shall maintain
the Leased Properties and the Leases in good standing according to the terms of
the Leases and Peruvian law and shall not sell, transfer, assign, mortgage
pledge, encumber or otherwise dispose of or encumber its interest under the
Leases or the Leased Properties.
Claims acquired by Los Tapapdos within a five kilometer radius of the Leased
Properties are subject to clause 3.9 of the Leases.
Part IV -- Applications Submitted and Rejected
Claims 100% owned by Los Tapados, no underlying lease, application rejected for
technical filing reasons, Los Tapados is appealing.
Bongara 11-A 00-00000-00
Bongara 43 01-08266-95
Bongara 44 01-09259-95
Bongara 45 01-00491-96
Bongara 47 01-00493-96
Bongara 48 01-00492-96
Bongara 49 01-00642-96
Bongara 46 01-00494-96
Part V -- Other Minor Holdings
Claims 100% owned by Los Tapados, no underlying lease, two claims cover same
land area due to two different government map datums, government will select
which claim is valid.
Bongara 58 01-02550-96
Bongara 59 01-02551-96
Part VI -- Area of Interest
See map on page X-0
X-0
[MAP APPEARS HERE]
