Exhibit 10.13
FROM: EARTH SCIENCES, INC., Xxxx X. XxXxxxxxx
TO: CODSA 14 S.A., ENG. XXXXX XXXXX
DATE: JANUARY 9, 1998
RE: LETTER AGREEMENT Between CODSA 14 S.A. ("CODSA 14")
and EARTH SCIENCES, INC. ("ESI") AND RECURSOS
MINERALES VENESI C.A. ("VENESI"), ESI and VENESI
collectively as "ESI/VENESI"
OBJECTIVE - SYSTEMATIC EXPLORATION AND EVALUATION OF THE CODSA 14 CONCESSION TO
DETERMINE THE VIABILITY OF MECHANIZED MINING OPERATIONS.
1. VENESI, wholly-owned subsidiary of ESI, will conduct a systematic exploration
program on the CODSA 14 Concession (the "Concession") over a 6-8 month period
and make its report and results available to CODSA 14. Such program will include
the preparation of a geologic map, evaluation of ongoing manual exploration
mining production, pitting, sampling, analysis and perhaps exploratory mining.
ESI stands behind the performance of VENESI.
2. In exchange for the program to be conducted by VENESI, and payments of stock
in ESI and cash to CODSA 14, CODSA 14 agrees to negotiate exclusively with
ESI/VENESI on the further development of the Concession including CODSA 14's
preferential rights for the veins that may underlay the Concession.
3. ESI/VENESI will make advance royalty payments (an upfront payment of ESI
stock and monthly payments of ESI stock and cash) to CODSA 14 during the term of
the agreement. However, ESI or VENESI may, at their sole discretion and upon 30
days written notice to CODSA 14, terminate the agreement at any time.
ESI/VENESI's only obligation upon such termination would be to provide CODSA 14
the results of any work performed as of the date of termination. The upfront
payment would consist of ESI stock of $8,000 valued at $1.50 per share plus cash
of $10,000. Monthly payments would consist of $1,867 in ESI stock valued at
$1.50 per share plus $133 cash. See point 9 below for buyback of stock.
4. ESI/VENESI shall only be responsible for the reclamation and proper
environmental handling of the environmental disturbances created as a result of
its exploration program. ESI/VENESI assumes no responsibility for any prior or
ongoing environmental disturbances created on the Concession or adjacent areas.
5. CODSA 14 will provide all reasonable assistance to ESI/VENESI during the term
of the agreement including but not limited to:
A. authorization to obtain information on file concerning the
corresponding MEM's lapsed concessions,
B. logistical assistance during exploration program and formulation of
any mining plan,
C. detailed production information for ongoing exploratory mining, and
D. upon joint agreement of CODSA 14 and ESI/VENESI, employment of the
Caicarenos or another group to perform exploratory mining in areas as
directed by ESI/VENESI (in this case CODSA 14 would continue to
receive its 20% of production as now is the case with the ongoing
exploratory mining).
6. The assistance noted in point 5. above will be supplemented with a
professional services agreement with Eng. Xxxxx Xxxxx, the term of which will
run concurrent with the CODSA 14 agreement. Payments to Xx. Xxxxx will consist
of monthly amounts of cash ($1,500 per month) and stock ($1,500 per month at
$1.50 per share). The cash amount for February 1998 being paid now.
7. Upon successful completion of the evaluation process, CODSA 14 will negotiate
exclusively with ESI/VENESI for the further development of the Concession. In
such case, ESI/VENESI will negotiate a lease of the Concession, as per the terms
set forth in Exhibit A attached hereto, under which CODSA 14 will receive either
a minimum monthly advance royalty of $2,000 per month or a production royalty
which will range from 5-20%. The details of the royalty calculation are set
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forth in Exhibit B attached hereto. The production royalty will range on a
sliding scale based on the grade of the pay zone mined, so that CODSA 14 will
receive a proportionately greater amount if the property shows outstanding
values. The royalty paid to CODSA 14 will remain at the minimum level until
ESI/VENESI has recovered its investment in the Concession's development.
ESI/VENESI will have a buyout amount for the CODSA 14 royalty.
8. If ESI/VENESI chooses to place the property into production, an agreeable
plan for required reclamation of past disturbances, if any, will be put forth.
The cost of implementing that plan will be deducted from the royalty payments
made to CODSA 14 over a one year or longer period but not reducing such payments
below the minimum level.
9. ESI/VENESI agree to buy back the ESI stock issued to CODSA 14 and Xx. Xxxxx,
at their option, at the end of six months from the date of the agreement for
$1.50 per share.
10. During the term of the agreement ESI/VENESI will (a) have the right to
examine and evaluate the production from any ongoing exploratory mining, and (b)
have a 'right of first refusal' to purchase such production at the routine
price.
Agreed to as of the 1st day of February, 1998
/s/ Xxxxx X. Xxxxx /s/ Xxxx X. XxXxxxxxx
------------------------------- ---------------------------------
Xxxxx X. Xxxxx Xxxx X. XxXxxxxxx
President, CODSA 14 S.A. President, Earth Sciences, Inc.
/s/ Xxxx Xxxxxxxx Z.
-------------------------------
Xxxx Xxxxxxxx Z.
President, Recursos Minerales VENESI C.A.
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EXHIBIT A
to
LETTER AGREEMENT Between CODSA 14 S.A. ("CODSA 14") and EARTH SCIENCES, INC.
("ESI") AND RECURSOS MINERALES VENESI C.A. ("VENESI")
Dated as of February 1, 1998
LEASE TERMS
The Lease that may be negotiated among CODSA 14, ESI and VENESI at the end of
the exploration program will include the following terms and conditions:
1. Grant of Rights The Lease shall grant ESI/VENESI the exclusive right for
exploitation of gold and diamonds on the CODSA 14 Concession during the term of
the Lease. All of the rights, privileges and responsibilities granted CODSA 14
under the Concession shall apply fully to ESI/VENESI, which shall have the duty
to defend the Concession during the term of the Lease.
2. Term The term of the Lease shall continue so long as commercial production is
continued from the Concession or the Minimum Royalty is paid, unless sooner
terminated.
3. Minimum and Production Royalty During the term of the Lease, ESI/VENESI shall
make either monthly minimum advance royalty payments of $2,000 or monthly
production royalty payments based on the schedule as set forth in Exhibit B of
the Letter Agreement. The production royalty may be reduced, but not below the
minimum level, to provide for recovery of ESI/VENESI's investment in the
development of the Concession and the costs for required reclamation of past
environmental disturbances, if any.
4. Possession and Control of Concession During the term of the Lease, ESI/VENESI
shall be granted the exclusive possession and control of the Concession and the
right to carry on all lawful activities necessary to exploit the minerals
thereon.
5. CODSA 14's Lien CODSA 14 shall at all times hold a lien against all material
mined from the Concession but not yet sold, as security for any unpaid balance
of money due under the Lease.
6. Taxes During the term of the Lease, ESI/VENESI shall be responsible for all
taxes related to the Concession and production therefrom, excepting those taxes
which are due as a result of CODSA 14's receipt of its minimum or production
royalty.
7. Reports and Inspections ESI/VENESI shall maintain appropriate records and
make monthly reports to CODSA 14 of its activities which will include quantities
of materials mined and grade in sufficient detail to calculate the production
royalty, if any. CODSA 14 shall have the right, at its risk and expense, to
enter the Concession at any reasonable time. Within 90 days of termination,
ESI/VENESI will deliver CODSA 14 information and material developed or obtained
during the term of the Lease that relates to the Concession.
8. Right to Purchase During the term of the Lease, ESI/VENESI shall have a right
of first refusal for any bona fide offer made to purchase CODSA 14's interest in
the Concession. ESI/VENESI shall have the right at any time to purchase CODSA
14's interest in the Concession for a payment of cash to be determined at the
end of the 6-8 month exploration period based on an estimate of the mineable
reserves on the Concession, a mine life of 5 years and a net percent value
calculation of the royalty that would be due CODSA 14 using a 15% discount rate.
9. Other Terms Other standard terms shall be placed in the Lease which will
include:
a. Notices,
b. Handling controversies among the parties through arbitration,
c. Removal of property on termination, and
d. cooperation among the parties in obtaining further permits, etc.
42
EXHIBIT B
to
LETTER AGREEMENT Between CODSA 14 S.A. ("CODSA 14") and EARTH SCIENCES, INC.
("ESI") AND RECURSOS MINERALES VENESI C.A. ("VENESI")
Dated as of February 1, 1998
PRODUCTION ROYALTY SCHEDULE
A production royalty shall be due to CODSA 14 for material mined and sold from
the Concession. Nothing in this schedule shall cause the minimum royalty paid to
CODSA 14 to be less than the amount set forth in the Lease. The determination of
the Production Royalty, before any deduction for recovery of ESI/VENESI's
development costs or costs for reclamation of past environmental disturbances,
if any, shall be based on the following schedule with the meaning of the terms
used as set forth below.
================================================================================
Grade of Ore Material - Prodfuction Royalty Rate -
Equivalent Grade in Carats per % of Gross
cubic meter of Ore Material Revenues
0.375 or less 5%
0.0376 to 0.4375 6%
0.4376 to 0.5000 7%
0.5001 to 0.5625 8%
0.5626 to 0.6250 9%
0.6251 to 0.6875 10%
0.6876 to 0.7500 11%
0.7501 to 0.8125 12%
0.8126 to 0.8750 13%
0.8751 to 0.9375 14%
0.9376 to 1.0000 15%
1.0001 to 1.0625 16%
1.0626 to 1.1250 17%
1.1251 to 1.1875 18%
1.1876 to 1.2500 19%
greater than 1.2500 20%
================================================================================
Definitions -
1. Equivalent Grade in Carats shall be a monthly average determined from the
mining activities carried on for the month, and shall be calculated by dividing
the monthly quantity of gold, measured in grams converted to carats at the rate
of 1 gram = 0.11275 carats, plus diamonds, measured in carat weight, recovered
by the total cubic meters of Ore Material processed during the calendar month.
2. Ore Material shall be the in-place, measured quantity of all material
processed for recovery of gold and/or diamonds during the calendar month.
3. Production Royalty Rate is the rate the Gross Revenues actually received from
sale of the gold and diamond production that occurred during the month is
multiplied to determine the royalty for a month. CODSA 14 may choose to receive
their royalty in kind which shall be accomplished in a mutually agreeable manner
to both parties.
4. Gross Revenue shall be the amount actually received from sale of a calendar
month's production less any production taxes that may be assessed at the time of
production. To the fullest extent possible ESI/VENESI and CODSA 14 will
cooperate so that each party is responsible for and pays its own taxes and
assessments related to production and revenues from the Concession.
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