EXHIBIT 4.11
HEAD OF AGREEMENT BY AND AMONG
HILTON PETROLEUM LTD. AND
MINERA SAN JORGE S.A. DE C.V.
DATED
OCTOBER 1, 2003
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HILTON PETROLEUM LTD.
0000 - 0000 XXXXXXX XX X
XXXXXXXXX XX X0X 0X0
HEADS OF AGREEMENT ("HOA")
Minera San Jorge S.A. de C.V. October 1, 2003
Aguamarina 2457, Bosques de la Victoria,
Xxxxxxxxxxx, Xxxxxxx,
Xxxxxx 00000
Att: Mr. Xxxxxx Xxxxxxx:
Dear Sirs:
Re: OPTION TO EARN A 60% INTEREST OF THE SAN XXXXX XX (EL XXXXX PROJECT AREA)
SAN XXXXX VII (GUANAJUATILLO MINE) AND LA CASTELLANA, AND LOS XXXXXXX
XXXXXXXX METAL PROPERTIES IN THE COUNTIES OF HOSTOTIPAQUILO, JALISCO,
MEXICO AND ADJACENT AREAS OF THE STATE OF NAYARIT, AS WELL AS THE RIGHT TO
ACQUIRE THE REMAINING 40% INTEREST.
This HOA sets out the terms and conditions of our agreement whereby Hilton
Petroleum Ltd. ("Hilton") will have the option to acquire up to a 100% interest
from Minera San Jorge S.A. de C.V, ("MSJ") in MSJ's right, title and interest in
certain exploration arid mining concessions in Mexico known as the San Xxxxx XX,
San Xxxxx VII, La Castellana Mine Concessions and an agreement for production
from the El Xxxxx Mine concessions (hereinafter the "Concessions.") The
Concessions are listed in the attached Schedule A and shown on the attached map.
The general terms and conditions of this HOA are as follows:
1. MSJ will represent and warrant that it is the legal and beneficial owner or
has the right to acquire 100% of the titles to the claims listed in the
attached table and that all are in good standing with respect to Mexican
law. As well, MSJ represents and warrants that any underlying option
agreements with concession owners are in good standing and registered
correctly under Mexican law and MSJ can freely grant the option to Hilton
as contemplated by this HOA. MSJ represents that there are no financial
obligations attached to the concessions other than mining taxes outstanding
in the amount of approximately US $53,395 and an initial option payment of
US $15,000 due and payable to the title holders of the La Castellana Mine.
2. On signing of this HOA, MSJ will transfer the claims to a joint venture
company (new Mexican mining exploration company "NewCo") owned 60% by
Hilton and 40% by MSJ. Should Hilton withdraw from this option agreement
the San Xxxxx XX, San Xxxxx VII concessions will be transferred 100% back
to MSJ and a complete return of all optioned rights for the La Castellana
Mine and the El Xxxxx Mine and the La Pupa Mill as well as any other mines
contracted for on Hilton's behalf in the area of influence of 1 kilometre
around these concessions or other contracted areas in the Xxxxx Project
Area to Minera San Xxxxx ("MSJ.") with a first right of refusal on any new
submittals in the state of Nayarit.
3. Within 20 days of signing of this HOA, Hilton will pay to MSJ the sum of US
$25,000 and the sum of US $25,000 on TSX Venture Exchange (the "TSX")
approval (the "Approval Date") or upon making the decision to proceed with
this transaction (the "Production Decision Date") which ever shall come
first, for a total of US $50,000 paid. This total amount will be fully
refundable to Hilton if, for any reason, the representations and warranties
set out in point 1 are shown to be incorrect during the period of technical
and legal due diligence.
4. Hilton and MSJ have agreed to co-operate to the fullest extent possible to
come to a mutually satisfactory joint venture agreement acceptable to the
TSX as soon as possible.
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Minera San Jorge S.A. de C.V.
October 1, 2003
Page 2
5. In order to maintain the option agreement to earn a 60% interest in the San
Xxxxx XX concessions, Hilton must fund a total of US $1,000,000 in
exploration and development expenditures, including underlying option
payments to concession holders and government concession taxes, over a
three year (3 year) period. The work will be performed within the
exploration company formed for exploring the San Xxxxx XX and San Xxxxx VII
and La Castellana concessions. Hilton undertakes to spend an initial US
$40,000 in expenditures within 4 months from the Approval Date, and
additional US $250,000 in expenditures within 12 months of the Approval
Date. In order to vest it's interest, Hilton must spend a further US
$710,000 on exploration and mine development and production expenditures
within 18 months of the execution of this LOI. These expenditures may
include all exploration costs, the initiation of mining gold and silver
ores and processing ores in a cost efficient manner, making option payments
and the payment of outstanding mining taxes.
6. After the production decision is made, and having provided a total of US $1
million, including all option payments made, all mining taxes and related
exploration and development expenditures within one year and six months (18
months) after initiating production then Hilton's interest will have
vested.
7. As further consideration for this option agreement, Hilton will issue, on
the Approval Date or upon making the Production Decision, 100,000 fully
paid shares in Hilton, and then 200,000, 300,000 and 500,000 fully paid
shares in Hilton on each anniversary date thereafter provided that Hilton
has not withdrawn from this JV option agreement. Should Hilton enter into
production any time within the three year period then the unissued common
shares mentioned in this clause will be issued, MSJ acknowledges that the
shares will be subject to restrictions on resale if issued under Canadian
securities laws and that issuance of each tranche of shares is dependent on
TSX acceptance or acceptance by Securities officials in the USA.
8. Hilton shall be the operator of the joint venture programs and shall submit
all programs and budgets to MSJ for approval, if MSJ does not approve, then
MSJ will submit its concerns in writing and Hilton will attempt to resolve
the concerns. If it is unable to do so, Hilton will submit the program and
budget and MSJ's concerns to a reputable independent consultant acceptable
to both parties for determination of such concerns. As the operator of the
program, the final decision for implementation of each program and budget
lies with Hilton. An initial program and budget of US $200,000 will be
implemented immediately. The payments called for under clause 3 of this
agreement will form part of this initial work program and budget.
9. Hilton recognizes the value of the operating experience of MSJ's personnel
and independent consultants in Mexico and will use MSJ's personnel wherever
possible including consultancy work for Xx Xxxxxx Xxxxxxx Xxxxxxx. MSJ
acknowledges that Hilton has limited financial resources in the initial
stages of this program and that as a vendor, MSJ's personnel will be unable
to perform certain tasks attached to the initial technical and legal due
diligence program. An essential part of this agreement is that Minera San
Xxxxx including Mr. Geo. Xxxxxxx Xxxxxxx (collectively "MSJ") is committed
to managing the program for the new company formed to mine La
Castellana/Guanajuatillo, El Xxxxx and all other mines feeding into the La
Pupa Mill. In the event that MSJ or affiliated operating company or
companies is not the operator then the interest will go to 70:30 with no
further consideration.
10. Should the property justify production and MSJ cannot fund its share of
development costs then Hilton will be entitled to recover all funds
advanced or financing provided to or for MSJ on a preferential payback
basis of 75% of the cash flow being paid to Hilton and 25% being paid to
MSJ with each party responsible for its taxes. Should MSJ not be able to
fund further expenditures in the exploration and development of the El
Xxxxx Project area then Hilton will use its best endeavors to fund or deal
with such share according to generally accepted resource property
development agreements.
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Minera San Jorge S.A. de C.V.
October 1, 2003
Page 3
11. Hilton has the option at any time to purchase for money or the equivalent
amount in shares the remaining 40% interest that MSJ has in the San Xxxxx
XX concession areas, provided that the value of this interest is determined
by a discounted NPV at the time the acquisition is made and that Hilton has
initiated production and produces a full bankable feasibility study
regarding the El Xxxxx Project. Hilton shall have the right of first
refusal should an outside party bid for MSJ's 40% interest.
12. Hilton has the right to withdraw from this option agreement at any time
after the initial legal and technical due diligence or exploration program
with no further obligation or commitment to MSJ with 30 days advance
notice.
13. Both parties agree that this agreement is subject to the approval of the
TSX or appropriate securities officials in the USA, and both parties agree
to provide their best efforts in obtaining TSX or USA Securities
approval(s).
On behalf of HILTON PETROLEUM LTD. On behalf of MINERA SAN JORGE S.A. de C.V.
Per: Per:
/s/ Xxxx XxXxxx /s/ Xxxxxx X. Xxxxxxx
------------------------------ --------------------------------------
Xxxx XxXxxx Xxxxxx Xxxxxxx Xxxxxxx
President Legal Representative
Minera San Jorge S.A. de C.V.
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SCHEDULE A
SAN XXXXX XX, VII, LA CASTELLANA AND EL XXXXX MINING CONCESSIONS
CONCESSION NAME CONCESSION TYPE LICENSE NO. AREA (HECTARES)
--------------- --------------- ----------- ---------------
Xxx Xxxxx XX Xxxxxxxxxxxx 000000 6,575.0676
Xxxxxxx Exploitation 179359 21.0000
La Castellana Exploration 161793 32.0000
Xxx Xxxxx XXX Xxxxxxxxxxxx 000000 93.9581
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TOTAL 6,722.0300
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