as Optionor and CONSTITUTION MINING CORP. as Optionee MINERAL RIGHT OPTION AGREEMENT
Effective
as from January 25, 2010
by
and
between
TEMASEK
INVESTMENTS INC.
as
Optionor
and
as
Optionee
_________________________________
__________________________________
THIS
MINERAL RIGHT OPTION AGREEMENT (hereinafter the “Agreement”) made effective as
of the 25th day of January, 2010 (hereinafter the “Effective Date”) is executed
by and between:
TEMASEK INVESTMENTS INC., a company duly incorporated
and organized under the laws of Panama with address for delivery and notice
located at 16th
Floor, MMG Tower, Ubanzacion Marbella, 53rd E
Street, Panama City, Panama (hereinafter the "Optionor" or “TEMASEK”) of the
first part; and
CONSTITUTION MINING CORP., a
company organized under the laws of Delaware, United States of America, with
address for delivery and notice located at Xxxxxx Xxxxxx Xxxxx 000, Xxxxxxx
1203, Centro Empresarial Xxxx Xxxxx Torre A, Miraflores, Lima, Perú,
(hereinafter the “Optionee” or “CONSTITUTION”), of the second part.
Optionor
and Optionee collectively referred to as the Parties, and individually and
indistinctively referred to as the Party.
WHEREAS
(i) Both
Parties are mining exploration and development companies with experience in the
identification and development of mining projects, particularly in the region of
South America.
(ii) CONSTITUTION
is interested in acquiring the ownership and title of certain claim
applications, claims, and assorted mining rights, including all obligations
arisen therefrom, with respect to certain areas located in Peru as detailed in
Annex I hereto
(hereinafter the “Mineral Rights”) that are of the property and title of Minera
Saramiriza S.A.C.., a company duly incorporated and organized under the laws of
Peru (hereinafter “MINERA SARAMIRIZA”).
(iii) TEMASEK
is the indirect beneficial owner of 100% interest in the Mineral Rights through
the direct and indirect control of different wholly owned subsidiaries, as
detailed below.
(iii) The
ownership of TEMASEK in the Mineral Rights is evidenced through (a) the direct
ownership of 1 share of the shareholding of MINERA SARAMIRIZA, and (b) the
direct ownership of 100% of the outstanding shareholding in XXXXXXXX
INVESTMENTS, INC., a company duly incorporated and organized under the laws of
Panama, with address for delivery and notice at 16th
Floor, MMG Tower, Ubanzacion Marbella, 53rd E
Street, Panama City, Panama (hereinafter “XXXXXXXX”), being XXXXXXXX the
registered owner of 999 shares in MINERA SARAMIRIZA. XXXXXXXX and TEMASEK are
the registered owners of 100% of the outstanding shareholding in MINERA
SARAMIRIZA represented in 1,000 shares.
Page 1 of
13
(iv) The
Optionor has agreed to grant three exclusive options (hereinafter, collectively
referred to as the “Options”, and each individually and indistinctively referred
to as the “Option”) to the Optionee, and the Optionee has agreed to receive the
Options, each such Options entitling the Optionor to acquire a one third (1/3)
undivided interest in and to the Mineral Rights in the manner hereto below
described, for an aggregate interest of a one hundred percent (100%) undivided
interest if all three Options are exercised, as detailed herein.
NOW THEREFORE THIS AGREEMENT
WITNESSES that in consideration of the covenants and agreements
hereinafter set forth the parties agree that:
REPRESENTATIONS,
WARRANTIES AND COVENANTS
1.1 The
Optionor represents, warrants and covenants (representation, warrants and
covenants that are extensive, when applicable, to the situation of its
subsidiaries XXXXXXXX and MINERA SARAMIRIZA) to and with the Optionee
that:
a) it has been duly incorporated and
validly exists as a corporation in good standing under its laws of
origin;
b) it is qualified to do business in
those jurisdictions where it is necessary to fulfil its obligations under this
Agreement, and it has the full power and authority to enter into this Agreement
and any agreement or instrument referred to or contemplated by this
Agreement;
c) it has the requisite power,
authority and capacity to fulfil its obligations under this
Agreement;
d) the execution and delivery of this
Agreement and the agreements contemplated hereby have been duly authorized by
all necessary action on its part;
e) prior to the Effective Date, it has
obtained all authorizations, approvals, including regulatory approval, or
waivers that may be necessary or desirable in connection with the transactions
contemplated in this Agreement;
f) there are no other consents,
approvals or conditions precedent to the performance of this Agreement which
have not been obtained;
g) it is not in breach of any laws,
ordinances, statutes, regulations, by-laws, orders or decrees to which is
subject or which apply to it;
h) the making of this Agreement and the
completion of the transactions contemplated hereby and the performance of and
compliance with the terms hereof does not and will not conflict with or result
in a breach of or violate any of the terms, conditions or provisions of any law,
judgment, order, injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which the Optionor is
subject;
i) it is now, and will also be
thereafter at the time of legal transfer of interests in the Mineral Rights when
any of the Options are exercised, the registered and beneficial owner of the
Mineral Rights free and clear of all liens, charges and claims of others and no
taxes, royalties or lease payments or like amounts are due in respect of any of
the mineral claims that comprised the Mineral Rights;
Page 2 of
13
j) there is no adverse claim or
challenge against or to the ownership of or title to the interest it has on
XXXXXXXX and MINERA SARAMIRIZA and on the Mineral Rights, nor to its knowledge
is there any basis therefore, and there are no outstanding agreements or options
to acquire or purchase any shares in XXXXXXXX and MINERA SARAMIRIZA and on the
Mineral Rights or any portion thereof, and no person other than the Optionor
pursuant to the provisions hereof, has any interest whatsoever in XXXXXXXX and
MINERA SARAMIRIZA and in the production from any of the mineral claims
comprising the Mineral Rights;
k) the Mineral Rights have been duly
and validly located and recorded in a good and miner-like manner pursuant to
applicable mining laws in Peru;
l) all permits and licenses covering
the Mineral Rights as they currently stand have been duly and validly issued
pursuant to applicable mining laws in Peru and are in good standing by the
proper doing and filing of assessment work and the payment of all fees, taxes
and rentals in accordance with the requirements of applicable mining laws in
Peru and the performance of all other actions necessary in that regard;
and
m) it requires no third party consent
of any kind to enter into this Agreement and grant the Options contemplated
hereby.
1.2 The
Optionee represents, warrants and covenants to and with the Optionor
that:
a) it has
been duly incorporated and validly exists as a corporation in good standing
under its laws of origin;
b)
neither the execution and delivery of this Agreement by the Optionee nor the
performance by the Optionee of its obligations hereunder conflicts with the
Optionee’s constating documents or any agreement to which it is
bound;
c) the
execution, delivery and performance by the Optionee of this Agreement and any
other agreement or instrument to be executed and delivered by it hereunder and
the consummation by it of all the transactions contemplated hereby and thereby
have been duly authorised by all necessary corporate action on the part of the
Optionee; and
d)
excepting only as otherwise disclosed herein, the Optionee is not subject to, or
a party to, any charter or by-law restriction, any law, any claim, any
encumbrance or any other restriction of any kind or character which would
prevent the execution of its obligations as hereof or the consummation of the
transaction contemplated by this Agreement or any other agreement or instrument
to be executed and delivered by the Optionee hereunder.
The
representations and warranties contained hereof are provided for the exclusive
benefit of the other Party and a breach of any one or more thereof may be waived
by the non-breaching Party in whole or in part at any time without prejudice to
its rights in respect of any other breach of the same or any other
representation or warranty.
GRANT
AND EXERCISE OF OPTIONS
2.1 The
Optionor hereby grants to the Optionee the sole and exclusive right and option
to acquire a one hundred percent (100%) undivided interest in the Mineral
Rights, such 100% interest to be free and clear of all liens, charges,
encumbrances, security interests and adverse claims.
Page 3 of
13
2.2 The
Parties agreed that the Optionee may exercise the Options in three
separate increments, as described below, each such increment being
its own Option.
2.3 The
Optionee agrees to issue, within 30 business days as from the Effective Date,
500,000 Optionee Shares to the order and the direction of the Optionor, or
whoever persons the Optionor indicates.
(a) 33%
Option
The
Optionee may exercise the initial thirty-three percent (33%) option to acquire a
33% interest in the Mineral Rights in accordance with the terms set out below
(hereinafter, the “33% Option”).
In order
to exercise the 33% Option the Optionee, within 12 months as from the Effective
Date, shall:
(i) have
issued the 500,000 Optionee Shares within 30 days of the Effective
Date;
(ii) pay
$ 250,000 (United States Dollars Two Hundred Fifty) to the order and the
direction of the Optionor; and
(ii)
issue 1,000,000 Optionee Shares to the order and the direction of the Optionor,
or whoever persons the Optionor indicates.
For the
purposes of this Agreement the Optionee is deemed to have fully exercised the
33% Option only once all three obligations described above in points (i), (ii)
and (iii) have been completed.
Upon
exercise of the 33% Option by the Optionee, the Optionor will immediately
proceed to transfer to Optionee, or to the person the Optionee indicates, 33% of
all of the outstanding shareholding in XXXXXXXX.
(c) 66%
Option
Subject
to the prior and due and complete exercise by the Optionee of the 33% Option in
accordance with the paragraph before, the Optionee may exercise the option to
acquire an additional thirty-three percent (33%) interest in the Mineral Rights,
in accordance with the terms set out below (hereinafter, the “66%
Option”).
In order
to exercise the 66% Option the Optionee, within 24 months as from the Effective
Date, shall:
(i) have
exercised and completed the 33% Option; and
(ii) pay
$ 1,000,000 (United States Dollars One Million) to the order and the direction
of the Optionor; and
(iii)
issue 1,000,000 Optionee Shares to the order and the direction of the Optionor,
or whoever persons the Optionor indicates.
Page 4 of
13
For the
purposes of this Agreement the Optionee is deemed to have fully exercised the
66% Option only once all three obligations described above in points (i), (ii)
and (iii) have been completed.
Upon
exercise of the 66% Option by the Optionee, the Optionor will immediately
proceed to transfer to Optionee, or to the person the Optionee indicates, an
additional thirty-three percent (33%) of all the outstanding shareholding in
XXXXXXXX.
(d) 100%
Option
Subject
to the prior and due and complete exercise by the Optionee of the 66% Option in
accordance with the paragraph before, the Optionee may exercise the third and
final option to acquire an additional 34% interest in the Mineral Rights, in
accordance with the terms set out below (hereinafter, the “100%
Option”).
In order
to exercise the 100% Option the Optionee, within 36 months as from the Effective
Date, shall:
(i) have
exercised and completed the 66% Option; and
(ii) pay
$ 2,000,000 (United States Dollars Two Million) to the order and the direction
of the Optionor; and
(iii)
issue 2,000,000 Optionee Shares to the order and the direction of the Optionor,
or whoever persons the Optionor indicates.
For the
purposes of this Agreement the Optionee is deemed to have fully exercised the
100% Option only once all three obligations described above in points (i), (ii)
and (iii) have been completed.
Upon
exercise of the 100% Option by the Optionee, the Optionor will immediately
proceed to transfer to Optionee, or to the person the Optionee indicates, the
final and remaining 34% of all the outstanding shareholding in XXXXXXXX.
Additionally, upon exercise of the 100% Option, the Optionor shall become holder
of the one (1) share that currently holds in MINERA SARAMIRIZA as nominee and on
trust for the exclusive and sole benefit and interest of the Optionee. The
Optionor hereby undertakes to the Optionee at all times to exercise all rights
in respect of the share that holds in MINERA SARAMIRIZA strictly in accordance
with the Optionee instructions.
On
completion of the 100% Option the Optionee shall be the owner of one hundred
percent (100%) undivided interest in the Mineral Rights through the direct
ownership of 100% of the outstanding shareholding of XXXXXXXX and indirect
ownership of 100% of the outstanding shareholding of MINERA
SARAMIRIZA.
NET
RETURNS ROYALTY
3.1 Upon
completion by Optionee of the 100% Option, the Optionee shall recognize to the
Optionor a 2.5% Net Returns Royalty, where Net Returns Royalty has the meaning
set out in Annex
II (hereinafter the “NET RETURN ROYALTY”). The NET RETURN ROYALTY will be
calculated and paid to the Optionor or to its appointed nominees in accordance
with the Annex
II.
3.2 As
from 90 days from the exercise and completion of the 100% Option, the Optionee
shall have the right to acquire 1% of NET RETURN ROYALTY from the Optionor for
the total amount of $ 2,000,000 (United States Dollars Two
Million).
Page 5 of
13
JOINT
VENTURE DEVELOPMENT
4.1 Following
the due and complete acquisition by the Optionee of 66% interest in the Mineral
Rights under this Agreement and with the Optionee failing to acquire the 100%
interest in the Mineral Rights, for any reason whatsoever, the Optionor and the
Optionee will thereby be deemed to form a Joint Venture for the purpose of
carrying out further development work and production on the Mineral Rights and
will, in good faith, negotiate and execute a Joint Venture Agreement, under
which the Optionee will be the operator of the mining project to develop. The
interest of the Parties in the Mineral Rights shall be the interest of the
Parties under the Joint Venture Agreement (hereinafter the “Joint Venture
Development”).
4.2 Under
the Joint Venture Development, the Optionee shall have the whole responsibility
for developing a feasible mining project and all necessary facilities for the
extraction, crushing, processing and beneficiation of commercially valuable
minerals, including all necessary facilities for compliance with the applicable
laws, including environmental laws governing mining activity in Peru
(hereinafter the “Feasible Project”). All necessary costs and investment
required for the developing of a Feasible Project shall be supported exclusively
by the Optionee. Optionor shall have a carried free interest in the Mineral
Rights.
4.3 If
under the Joint Venture Development, a Feasible Project is not developed within
3 years as from the Effective Date, the Optionee shall pay to the Optionor and
advance minimum mining royalty per year of $ 500,000 (United States Dollars Five
Hundred Thousand), that will be deducted from the NET RETURN ROYALTY
(hereinafter the “Advance Minimum Royalty”).
OBLIGATIONS
OF OPTIONOR DURING OPTION PERIOD
5.1 During
the 36 months as from the Effective Date, the Optionor will:
a)
maintain in good standing the Mineral Rights that are in good standing on the
date hereof by the performance of all actions (except for those economic
obligations arisen as from the Effective Date of this Agreement, which shall be
of the responsibility of the Optionee) which may be necessary under Peruvian law
in that regard and in order to keep such Mineral Rights free and clear of all
liens and other charges arising from the Optionee’s activities thereon except
those at the time contested in good faith by the Optionee;
b) maintain in good standing both
XXXXXXXX and MINERA SARAMIRIZA, and the shareholding of both companies free and
clear of all liens;
c) restrain from issuing any additional
shares or cause to issue any additional shares either in XXXXXXXX and/or MINERA
SARAMIRIZA;
Page 6 of
13
d) restrain from transferring any of
its shares in XXXXXXXX and/or in MINERA SARAMIRIZA to any other third party
and/or cause to transfer any shares in MINERA SARAMIRIZA to any other third
party;
e) permit
the directors, officers, employees and designated consultants of the Optionee,
at their own risk, access to the Mineral Rights at all reasonable times, and
providing the Optionee agrees to indemnify the Optionor against and to save the
Optionor harmless from all costs, claims, liabilities and expenses that the
Optionor may incur or suffer as a result of any injury (including injury causing
death) to any director, officer, employee or designated consultant of the
Optionee while on the Mineral Rights;
OBLIGATIONS
OF OPTIONEE DURING OPTION PERIOD
6.1 During
the 36 months as from the Effective Date, the Optionee will:
a) do all
work on the Mineral Rights in a good and workmanlike fashion and in accordance
with all applicable laws, regulations, orders and ordinances of any governmental
authority; and
b)
indemnify and save the Optionor harmless in respect of any and all costs,
claims, liabilities and expenses arising out of the Optionee’s activities
through XXXXXXXX and MINERA SARAMIRIZA and/or on the Mineral
Rights.
ARBITRATION
7.1 All
questions or matters in dispute with respect to the interpretation of this
Agreement will, insofar as lawfully possible, be submitted to arbitration
pursuant to the terms hereof using “final offer” arbitration
procedures.
7.2 It
will be a condition precedent to the right of any party to submit any matter to
arbitration pursuant to the provisions hereof, that any party intending to refer
any matter to arbitration will have given not less than 10 days’ prior written
notice of its intention so to do to the other party together with particulars of
the matter in dispute.
7.3 On
the expiration of such 10 days, the party who gave such notice may proceed to
commence procedure in furtherance of arbitration as provided in this
Section.
7.4 The
party desiring arbitration (the “First Party”) will nominate in writing three
proposed arbitrators, and will notify the other party (the “Second Party”) of
such nominees, and the other party will, within 10 calendar days after receiving
such notice, either choose one of the three or recommend three nominees of its
own. All nominees of either party must hold accreditation as either a lawyer,
accountant or mining engineer. If the First Party fails to choose one of the
Second Party’s nominees then all six names shall be placed into a hat and one
name shall be randomly chosen by the president of the First Party and that
person if he/she is prepared to act shall be the nominee. Except as specifically
otherwise provided in this Section the arbitration herein provided for will be
conducted in accordance with the UNCITRAL Arbitration Rules and the place of
arbitration shall be Reno, Nevada, United States of America. The parties shall
thereupon each be obligated to proffer to the Arbitrator within 21 calendar days
of his/her appointment a proposed written solution to the dispute and the
arbitrator shall within 10 calendar days of receiving such proposals choose one
of them without altering it except with the consent of both
parties.
Page 7 of
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7.5 The
expense of the arbitration will be paid as specified in the award.
7.6 The
parties agree that the award of the arbitrator will be final and binding upon
each of them.
DEFAULT
AND TERMINATION
8.1 If
at any time during the term of this Agreement either party fails to perform any
obligation hereunder or any representation or warranty given by it proves to be
untrue, then the other party may terminate this Agreement (without prejudice to
any other rights it may have) providing:
|
|
(i)
|
it
first gives to the party allegedly in default a notice of default
containing particulars of the obligation which such has not performed, or
the warranty breached;
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(ii)
|
the
other party does not dispute the default, then if it is reasonably
possible to cure the default without irreparable harm to the
non-defaulting party, the defaulting party does not, within 30 calendar
days after delivery of such notice of default, cure such default by
appropriate payment or commence to correct such default and diligently
prosecute the matter until it is
corrected.
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NOTICES
9.1 All
notices and other communications in connection with this Agreement must be in
writing and given by (i) hand delivery (ii) through a major international
courier service, or (iii) facsimile transmissions, in each case addressed as
specified below or in any subsequent notice from the intended recipient to the
party sending the notice. Such notices and communications will be effective upon
delivery if delivered by hand, upon receipt if sent by international courier
service, or upon receipt if sent by facsimile transmission. Notices shall be
addressed as follows:
CONSTITUTION
Xxxxxx
Xxxxxx Xxxxx 000, Xxxxxxx 1203
Centro
Empresarial Xxxx Xxxxx Torre A
Miraflores,
Lima, Perú
TEMASEK
16th
Floor, MMG Tower
Ubanzacion
Marbella
53rd E
Street, Panama
GOVERNING
LAW
10.1 This
assignment agreement and any dispute arising hereunder will be governed by the
laws of the state of Delaware, United States of America, without giving effect
to the conflict of laws provisions thereof.
10.2 Each
of the Optionor and the Optionee hereby irrevocable submits to the exclusive
jurisdiction of the courts of the state of Delware, United States of America, in
respect of any action or proceeding brought against it by the Optionor or the
Optionee, respectively, arising under this Agreement.
ENTIRE
AGREEMENT
11.1 This
Agreement represents the final agreement between the Parties with respect to the
subject matter hereof and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the Parties.
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13
EXECUTION
IN COUNTERPARTS
11.2 This
Agreement is executed in two (2) counterparts and by the Parties hereto in
separate counterparts, each of which when so executed will be deemed to be an
original and both of which when taken together will constitute one and the same
agreement.
IN
WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as
of the date first above written.
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TEMASEK INVESTMENTS
INC.
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By: /s/ Xxxx
Xxxxx
Xxxx
Xxxxx
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By: /s/ Xxxxxxx
Xxxxxxx
Xxxxxxx Xxxxxxx
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Page 9 of
13
ANNEX I
|
Name
|
Area
(ha)
|
Department
|
Province
|
District
|
Observation
|
|
Xxxx
1
|
1000
|
Loreto
|
Datem
del Marañon
|
Manseriche
|
|
|
Alana
1
|
600
|
Loreto
|
Datem
del Marañon
|
Manseriche-Morona
|
Overlaps
010188704,
010188604, 010188504
|
|
Alana
2
|
600
|
Loreto
|
Datem
del Marañon
|
Manseriche-
Xxxxxx
|
|
|
Xxxxx
3
|
800
|
Loreto
|
Datem
del Marañon
|
Manseriche
|
Overlaps
010045107
|
|
Xxxxxxxx
0
|
0000
|
Xxxxxx
|
Datem
del Marañon
|
Xxxxxxxx-Xxxxxxxxxx
|
|
|
Xxxxxxxx
0
|
0000
|
Xxxxxx
|
Datem
del Marañon
|
Barranca-
Xxxxxx
|
|
|
Xxxxxxxx
3
|
900
|
Loreto
|
Datem
del Marañon
|
Barranca-
Xxxxxx
|
|
|
Xxxxxxxx
0
|
0000
|
Xxxxxx
|
Datem
del Marañon
|
Xxxxxxxx
|
|
|
Xxxxxxxx
5
|
1000
|
Loreto
|
Datem
del Marañon
|
Barranca
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Page 10
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Page 11
of 13
ANNEX II
NET
RETURNS ROYALTY
Pursuant
to the Agreement to which this Exhibit is attached, Optionee (for the purposes
herein the “Payee”) will be entitled to a royalty equal to 2.5% of net returns
(the “Net Returns Royalty”) payable by Optionor (“Payor”) as set forth
below.
Net
Returns Royalty
A.
“Net Returns Royalty”
means the aggregate of:
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|
1.
|
all
revenues from the sale or other disposition of ores, concentrates or
minerals produced from the mineral properties arisen as from the Mineral
Rights (the “Properties”); and
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|
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2.
|
all
revenues from the operation, sale or other disposition of any facilities
the cost of which is included in the definition of “Operating Expenses”,
“Capital Expenses” or “Exploration Expenses”; less (without duplication)
Working Capital, Operating Expenses, Capital Expenses and Exploration
Expenses.
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B.
“Working Capital” means
the amount reasonably necessary to provide for the operation of the mining
operation on the Properties and for the operation and maintenance of the
Facilities for a period of six months.
C.
“Operating Expenses”
means all costs, expenses, obligations, liabilities and charges of whatsoever
nature or kind incurred or chargeable directly or indirectly in connection with
Commercial Production from the Properties and in connection with the maintenance
and operation of the Facilities, all in accordance with generally accepted
accounting principles, consistently applied, including, without limiting the
generality of the foregoing, all amounts payable in connection with mining,
handling, processing, refining, transporting and marketing of ore, concentrates,
metals, minerals and other products produced from the Property, all amounts
payable for the operation and maintenance of the Facilities including the
replacement of items which by their nature require periodic replacement, all
taxes (other than income taxes), royalties and other imposts and all amounts
payable or chargeable in respect of reasonable overhead and administrative
services.
D.
“Capital Expenses” means
all expenses, obligations and liabilities of whatsoever kind (being of a capital
nature in accordance with generally accepted accounting principles) incurred or
chargeable, directly or indirectly, with respect to the development,
acquisition, redevelopment, modernization and expansion of the Properties and
the Facilities, including, without limiting the generality of the foregoing,
interest thereon from the time so incurred or chargeable at a rate per annum
from time to time equal to prime rate established by the Bank of America, New
York Branch, New York, plus 2 percent per annum, but does not include Operating
Expenses nor Exploration Expenses.
E.
“Exploration Expenses”
means all costs, expenses, obligations, liabilities and charges of whatsoever
nature or kind incurred or chargeable, directly or indirectly, in connection
with the exploration and development of the Properties including, without
limiting the generality of the foregoing, all costs reasonably attributable, in
accordance with generally accepted accounting principles, to the design,
planning, testing, financing, administration, marketing, engineering, legal,
accounting, transportation and other incidental functions associated with the
exploration and mining operation contemplated by this agreement and with the
Facilities, but does not include Operating Expenses nor Capital
Expenses.
Page 12
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F.
“Facilities” means all
plant, equipment, structures, roads, rail lines, storage and transport
facilities, housing and service structures, real property or interest therein,
whether on the Properties or not, acquired or constructed exclusively for the
mining operation on the Properties contemplated by this Agreement (all commonly
referred to as “infrastructure”).
G. “Commercial Production” means
the operation of the Properties or any portion thereof as a producing mine and
the production of mineral products therefrom (but does not include bulk
sampling, pilot plant or test operations).
Payment
Net Returns shall be calculated for each calendar quarter in which Net Returns
are realized, and payment as due hereunder shall be made within 30 days
following the end of each such calendar quarter. Such payments shall be
accompanied by a statement summarizing the computation of Net Returns and copies
of all relevant settlement sheets. Such quarterly payments are provisional and
subject to adjustment within 90 days following the end of each calendar
year. Within ninety days after the end of each calendar year, Payor
shall deliver to Payee an unaudited statement of royalties paid to Payee during
the year and the calculation thereof. All year end statements shall be deemed
true and correct six months after presentation, unless within that period Payee
delivers notice to Payor specifying with particularity the grounds for each
exception. Payee shall be entitled, at Payees’s expense, to an annual
independent audit of the statement by a national firm of chartered accountants,
only if Payee delivers a demand for an audit to Payor within four months after
presentation of the related year-end statement.
Page 13
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